Talk Back

A reader comments about the ongoing controversy over compensation for corporate executives:

I have always believed that there are two ways of behaving in corporations: legal and moral

There are many things that corporations do that are legal because our bought-and-paid-for representatives let it be that way. However, these very same things are really not moral.

That’s how I feel about the salaries and bonuses being paid to the so-called leadership of the financial corporations both here and apparently in the UK. If these so-called leaders were part of the worker bee force, they would have been out on the street.

By Al Lewis

A DOW JONES NEWSWIRES COLUMN

Gun advocates have just sent a message to Starbucks customers: You can have my iced caramel macchiato when you pry it from my cold, dead fingers.

Starbucks says it is OK to bring a firearm into its stores in the 43 states where it is legal to openly carry weapons. Just don’t get too jittery from the caffeine, and leave the coffee makers out of it.

“We are asking all interested parties to refrain from putting Starbucks or our partners into the middle of this divisive issue,” the company said in a statement released Wednesday.

“They’re ducking the issue,” said Paul Helmke, president of the Brady Campaign To Prevent Gun Violence.

Um, isn’t that what you’re supposed do when someone walks into your store with a gun? Continue reading…

These are the personal views of Peter Morici, a professor at the University of Maryland’s Robert H. Smith School of Business and former chief economist at the U.S. International Trade Commission:

The Labor Department reported the economy shed 36,000 jobs in February and the unemployment rate held at 9.7%. Counting workers compelled to work part-time for lack of full-time opportunities and discouraged workers who have quit looking, the unemployment rate rose to 16.8%.

Continuing job losses indicate President Barack Obama’s stimulus spending and support for the banks have failed to turn the economy around. In an economic recovery, jobs are a lagging indicator, not a “never” indicator.

Eight months into the much-touted recovery, the economy should be adding jobs, not losing jobs at a slower pace. No study of economic history could yield a conclusion other than that the U.S. economy walks along the precipice of a double-dip recession.

To add jobs, businesses need customers and capital. Businesses lack customers because of the yawning trade deficit with China, and capital because the Bush-Obama bank bailout enriched Wall Street financiers without fixing the problems of the 8,000 regional banks that do the tough lending.

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These are the personal views of Peter Morici, a professor at the University of Maryland’s Robert H. Smith School of Business and former chief economist at the U.S. International Trade Commission:

On Friday, the Labor Department will release February employment figures. Since December 2007, the economy has shed 8.4 million jobs. A sharp uptick in employment would indicate the recession is ending, while more job losses would indicate a double-dip recession is more imminent.

In recent weeks, new jobless claims have climbed, fueling pessimism among economists.

The consensus forecast is for a loss of about 50,000 jobs and for unemployment to tick up from 9.7% to 9.8%. Factoring in part-time workers who would prefer full-time work and discouraged workers who have quit looking altogether, the unemployment rate is closer to 16.5%.

The ADP private survey of employers for February, released Wednesday, indicated further job losses for that month, but ADP forecasts have proved only a rough indicator of Labor Department reports two days later.

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By Neal Lipschutz

A DOW JONES NEWSWIRES COLUMN

The debate about shareholder rights and corporate democracy in the U.S. often omits a key fact: individual investors typically don’t get involved.

When that’s taken into account, the dynamics of issues such as whether to grant proxy access for the director nominees of certain large shareholders take on a different hue.

Rather than a scene where all-powerful corporations and their boards are set against powerless individual investors, who desire a bigger voice, you have in reality a variety of powerful players: companies and their executives, boards, big pension funds, mutual funds and activist investors among them.

The lack of retail participation in corporate governance and a proposal to fix it were the subjects of a recent posting on the Harvard Law School Forum on Corporate Governance and Financial Regulation.

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By Ian Salisbury

Dow Jones Newswires

NEW YORK — Last year’s months-long controversy over exchange-traded funds that let investors magnify bets on the stock market may finally have taken a toll on these products’ huge popularity.

So-called leveraged ETFs, securities that promise to double, or sometimes triple, daily returns of the stock market, or alternatively to let investors make double- or triple-sized bets against market moves, were an immediate hit when they appeared in 2006. They garnered headlines during the financial crisis for their high trading volumes and big daily moves at a time when the stock market was gyrating wildly.

But critics, including regulators, began to suspect the funds’ complicated mechanics were tripping up investors who held onto these securities for periods longer than the single day designated in the funds’ prospectuses. Warnings and new restrictions issued by the Financial Industry Regulatory Authority and the Securities and Exchange Commission, as well as moves by several large brokerage firms to curtail use of the funds by small investors, appear to have crimped their appeal.

Assets in leveraged ETFS, which grew steadily through 2007 and 2008, peaked in the middle of last year at about $35 billion and since then have stalled, and even fallen slightly, according to data from fund researcher Morningstar Inc. The funds held about $30.5 billion in January, the latest date for which data are available.

To be sure, leveraged ETFs remain one of the most popular types of exchange-traded funds, with funds like the $740 million ProShares UltraShort Financials ETF (SKF) trading millions of shares a day. Moreover, the market climate may also have had an effect on the funds’ popularity. Declining volatility could mean fewer chances for traders to profit using funds to bet on sharp stock market moves.

Market returns also affect these and other funds’ assets under management by altering the value of funds’ holdings. It’s difficult to quickly gauge the affect of last year’s bull market on the leveraged funds, however, because some are designed to rise and others to fall when stocks appreciate.

Michael Sapir, chief executive of ProFunds Group, the largest leveraged ETF company, says the funds “continue to prove themselves as valuable tools that can help enhance returns or manage risk in sophisticated portfolios.”

He notes investors poured about $700 million into the funds in the fourth quarter of 2009 and says the funds have attracted another $1 billion in 2010. However, those strong figures contrast with outflows of $2.5 billion from the funds in the third quarter of 2009.

Some traders may have been scared off after realizing how complicated the ins and outs of leveraged ETFs can be, says William Ahmuty, head of U.S. ETF sales and trading at Newedge USA LLC in New York, a brokerage specializing in derivatives. Investors that hold the funds for weeks or months, rather than a single day, can post significant losses even if they correctly guess the direction of the market.

“There is an education process that occurs,” he says. “They’re not suitable for investors on a long-term basis.”

In recent months, fewer investors have been trading leveraged ETFs at TD Ameritrade Holding Corp. (AMTD), says Sandra Motusesky, director of mutual funds and ETFs there. The funds accounted for about 5% of overall trading volume at the discount brokerage in January, down from about 14% in March 2009, she says.

Volume began to slip last summer as stories about leveraged ETFs’ tricky mechanics hit the news and Finra and the SEC issued a joint alert warning of “extra risks for buy and hold investors.” Motusesky says a turning point came late last year when Finra changed rules to make it more difficult for investors to trade leveraged ETFs on margin, that is, using borrowed money to add even more oomph to the funds’ magnified returns. The new rules made leveraged ETFs less attractive to many investors who otherwise might continue to use them, she believes.

“It took the wind out of their sails,” she says.

These are the personal views of Peter Morici, a professor at the University of Maryland’s Robert H. Smith School of Business and former chief economist at the U.S. International Trade Commission:

The U.S. government is broken, failing under promises it can’t keep.

From Medicare and Medicaid to fixing the environment and potholes, governments face huge deficits. Taxes must go up and services curtailed dramatically, or massive borrowing will create hyperinflation.

The private economy is growing too slowly for taxes to keep up with spending. Innovations in product design, customer service and problem solving that swept through most private industry in recent decades have largely bypassed private health care and government agencies, much as they did General Motors.

In the trenches of writing budgets, health-care reform, environmental regulations and policies to create jobs, Democrats and Republicans remained hued to ideology. They spend ever more on failed programs and tax breaks, and impose burdensome rules rather than embrace radical renewal in the spirit of Alexander Hamilton, Franklin Roosevelt or Ronald Reagan.

The U.S. can’t turn to prescriptions that worked for another age, but it can adopt the mindset retired British Prime Minster Tony Blair called finding a “Third Way.”

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These are the personal views of Peter Morici, a professor at the University of Maryland’s Robert H. Smith School of Business and former chief economist at the U.S. International Trade Commission:

Government is broken. Nothing demonstrates this better than health care.

Federal, state and local governments are broke because spending on Medicare, Medicaid and other health programs is rising faster than the economy is growing and than politicians can raise taxes.

Health care is too expensive.

In the U.S., health care swallows 18% of the $15 trillion GDP, and the government foots nearly half the bill. In nations with comparable per-capita incomes–France, Germany and Canada–health care eats 12%.

The U.S. system, emphasizing a regulated private market, does some things better–quicker access to specialists, for instance–but other systems, with more state participation, have strengths, including better access to general practitioners and citizens that don’t fear losing their homes to illness.

The even bigger, hidden costs are the high-quality jobs businesses can’t create.

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These are the personal views of Martin Fridson, chief executive of Fridson Investment Advisors.

Are you in favor of forcing companies to pay higher borrowing costs by making it harder for them to dispel unfounded doubts about their debt repayment capability?

No astute politician would support a proposal framed in such terms, yet that is the predictable effect of a provision in the Wall Street Reform and Consumer Protection Act (H.R. 4173), passed by the U.S. House of Representatives in December.

If Section 6007 of the bill is adopted by the Senate and signed by the President, bond-rating agencies will lose their exemption from Securities and Exchange Commission Regulation FD, also known as the fair disclosure rule.

Regulation FD bars public companies from selectively disclosing material nonpublic information to investment professionals such as money managers and securities analysts.

The exception for rating agencies has existed ever since the rule went into effect in 2000. In the interim, there has been no rash of insider trading violations traceable to Standard & Poor’s, Fitch Ratings, or Moody’s Investors Service.

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These are the personal views of Peter Morici, a professor at the University of Maryland’s Robert H. Smith School of Business and former chief economist at the U.S. International Trade Commission:

President Obama’s budget deficit task force is clever politics but poor leadership.

Instead of drafting a responsible budget, he seeks to force Republicans to endorse wasteful spending and higher taxes, or be cast as obstructionists.

President Bush was no model of austerity. He inherited a $263 billion surplus from Bill Clinton. By fiscal 2007, the year before the Great Recession, the deficit was $161 billion.

Bush’s foolishnesses started with unnecessary increases in farm subsidies and ended with a TARP that bailed out the banks without imposing needed reforms.

Bush and a Democratic Congress instigated economic collapse by appeasing China on trade, neglecting the cost of imported oil and permitting Americans to borrow profligately to finance a resulting trade deficit exceeding $700 billion.

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