Thursday, December 13, 2007

Citi Taps Investment Banking Head As CEO

NEW YORK (AP) — Citigroup Inc. named Vikram Pandit, the head of its investment banking business, as chief executive Tuesday, after searching five weeks for someone to restore the bank's profitability and reputation.

The banking company named Sir Win Bischoff, who has been Citi's acting CEO, as its chairman. He replaces Robert E. Rubin, who had stepped into the role when former CEO and chairman Charles Prince was ousted last month.

Pandit, 50, ran a hedge fund bought by Citi earlier this year, is seen as a careful, decisive investment banker — qualities Citi needs following the revelation that Citi's writedowns of soured mortgages could amount to as much as $17.5 billion by the end of the year.

Bischoff, meanwhile, has led Citi's European businesses, answering many shareholders' complaints that Pandit does not have the overseas experience to guide the sprawling bank's operations in Europe, Asia, Africa and Latin America. Before joining Citi in 2000, Bischoff, 66, was chairman of the British investment bank Schroders PLC.

The appointments came after a two-day meeting of Citi's board.

Pandit is well known on Wall Street. He worked at Morgan Stanley for two decades until 2005, when he and a few other disgruntled colleagues left the brokerage and founded the hedge fund Old Lane Partners.

Earlier this year, Citigroup bought Old Lane for $800 million and put Pandit in charge of Citi's alternative investments. A few months later, Pandit took over the bank's markets and banking unit, too, and then reconfigured the business to mirror the Morgan Stanley structure he was familiar with.

His performance as Citi's leader will undoubtedly be scrutinized by investors until they see positive results — including his willingness to challenge the Citi strategy of the past several years. One question on Wall Street is whether Pandit will be beholden to the Citi board, which has remained steadfastly loyal to the Sanford Weill regime. Weill, a board member, built Citigroup through a series of mergers and acquisitions over the past few decades, and many have attributed the bank's failings this year to the Weill culture: Prince was his hand-picked successor.

During a conference call with analysts, Pandit suggested he was open to selling certain units, as long as the sales were beneficial to the company.

"I will undertake an objective and dispassionate review of all the businesses, individually and in aggregate, to make sure we are properly positioned for the future," Pandit said.

Unlike Merrill Lynch & Co., which took just two weeks to find a replacement for Stan O'Neal, its embattled CEO and another casualty of the mortgage crisis, Citi's search dragged on. Merrill's nab of John Thain, a Goldman Sachs alum who turned around the once-troubled New York Stock Exchange, eliminated him as a possibility for Citi.

Citi, with all its bad debt — not to mention the hemorrhaging funds known as structured investment vehicles that it manages — appeared to be a beast no one wanted to tame.

According to various media reports, Citi's overtures to big names in the banking industry such as Deutsche Bank CEO Josef Ackermann and Royal Bank of Scotland CEO Frederick Goodwin were spurned. And Citi board member Rubin, the former Treasury Secretary who led the CEO search committee, decided he did not want to stay chairman.

Rubin said, however, that he anticipates "a long and active role at Citi."

Pandit faces multiple challenges. He must not only attract more cash to offset Citi's debt and bulk up the bank's risk management, but he also needs to strengthen Citi's lackluster consumer-oriented businesses and clean up its reputation.

Citigroup said in a regulatory filing that it has not yet determined Pandit's compensation. In 2006, then-CEO Charles Prince received nearly $25 million in pay.

Citi's stock has fallen about 40 percent this year, shaving off about $120 billion in market capitalization and putting it below that of Bank of America Corp. Its shares fell $1.54, or 4.4 percent, to $33.23 Tuesday when most shares fell after the Federal Reserve announced — at the same moment that Citigroup unveiled Pandit's promotion — that it was cutting the federal funds rate by one-quarter percentage point to 4.25 percent.

Citi is still the largest U.S. bank by assets, though, so while most major financial companies have seen problems navigating a surge in foreclosures and a freeze-up in credit, Citi's losses have been seen on Wall Street as particularly egregious.

Citi's cash levels will get a boost by the Abu Dhabi Investment Authority, which in late November bought a 4.9 percent stake in Citi for $7.5 billion. But the investment, while helpful in offsetting some of Citi's bad debt, is not a panacea. Many analysts and shareholders believe Pandit needs to sell more assets to bring in cash and make the huge conglomerate leaner. Citigroup has said non-essential assets selloffs are in the works, but many shareholders are hoping for more ruthless surgery.

The board has been adamant about not breaking up the bank.

Rubin, who led the search committee, said after Prince's resignation that they were looking for someone to focus on Citigroup's "multiplicity of businesses" and with "a strong international focus."

Pandit, though he spent his childhood in India, has little experience with banking abroad. His strengths are his decades on Wall Street and his analytical mind.

"Under the circumstances, I can't think of anyone better qualified to untangle Citigroup than Vikram Pandit," said Barton Biggs, who was Morgan Stanley's top strategist and worked with Pandit for two decades. Biggs, now the head of the hedge fund firm Traxis Partners, called Pandit intelligent, and not one to make "lightning-quick decisions."

"That doesn't mean he's not decisive — he's thoughtful and careful," said Biggs, who is also a Citi shareholder. He added that many colleagues have followed him from Morgan Stanley to Old Lane to Citi.

Even in the years that Morgan Stanley struggled, the investment banking unit did well, in large part because of Pandit, said Punk Ziegel & Co. analyst Richard Bove. "He proved at Morgan Stanley he could build a strong capital markets business."

But neither Pandit nor Bischoff have significant experience in consumer banking, which brings in half of the company's profit and which, compared to its peers, has seen lackluster results.

Pandit has also never run a large public company. And some see his lack of flash and pizazz as a drawback — though to others, a cool, quiet demeanor in the top spot could be just what is needed at a company often criticized as arrogant.

The incredible shrinking investment bank

CIBC World Markets is becoming the incredible shrinking investment bank as it moves this week to shut down its European leveraged finance operations.
Fifty staff learned on Monday that they are likely out of work as the division is closed. The logic is that while lending on European buyouts can be lucrative, it was a business that saw the investment bank taking on large credit exposure without much prospect of getting other fee-generating work from the clients.

In simple terms, European leveraged finance was relatively high risk, and risk is a four-letter word at parent CIBC these days.

The pull-back in London - where there are still 320 investment banking, foreign exchange and equity trading employees -comes on the heels of CIBC World Market’s decision last month to sell its 700-employee U.S. investment banking group. That sale, which played out for pocket change, reversed a decade-old U.S. expansion strategy.

CIBC World Markets is also exiting the structured credit business, most of which is U.S.-based, after taking a pounding on these derivatives. The bank said last week that it still faces the potential for “significant losses” on what was supposed to be a $9.9-billion (U.S.) hedged credit portfolio. A number of counterparties on these positions are bond insurers, and they are in deep financial trouble. Analysts expect the bank faces $2-billion in writedowns on these positions.
In addition to the steady downsizing of foreign operations, CIBC World Market is seeing some of its domestic operations moved to new homes in the parent bank. CEO Gerry McCaughey pulled the commercial banking sector out of the investment dealer on Monday, and placed the unit in the retail banking division that’s run by Sonia Baxendale. Like Mr. McCaughey, her roots are in wealth management.

Moving to this structure was billed as being consistent with other banks, and part of a two-year push to bring related client activities under one roof. But it also marks a further loss of horsepower at the dealer, the engine that drove the bank until Mr. McCaughey’s arrival in the corner office.

The sense at CIBC World Markets is that more cuts are coming - a marked contrast to a domestic rival such as RBC Dominion Securities, which is building global capabilities. Mr. McCaughey got the top job on a promise to eliminate the unpleasant surprises in CIBC quarterly reports, and produce a dependable stream of profits. The CEO, who ran CIBC World Markets for 18 months before moving to the parent bank in August, 2005, is still on a search-and-destroy mission for any business that puts that strategy at risk.

Under intensive care

UBS and Citigroup take steps to reassure investors. But big questions remain

SURGERY, as any doctor knows, is just one step on the road to recovery. Two of the biggest banking casualties of the carnage in America's mortgage market are out of the operating theatre—though not by any means in the clear. On December 11th, after five leaderless weeks, America's Citigroup announced that Vikram Pandit, the head of its investment-banking division, would be its new chief executive. The previous day Switzerland's UBS had unveiled write-downs and capital injections designed to reassure investors that the worst of the subprime crisis was over. But the long-term prognosis on these two huge banks remains decidedly uncertain.

UBS looks the healthier. Its announcement of a $10 billion write-down on its exposure to subprime-infected debt, to go with a third-quarter hit of $3.6 billion, hardly sounds like good news. UBS now expects a loss for the fourth quarter, which ends this month. It may end up in the red for the entire year. But in today's topsy-turvy market, the bank's decision to take a much more conservative view of the value of its assets was welcomed as a sign that further big mark-downs are less likely.

What is more, UBS strengthened its tier-one capital, an important measure of bank solidity, by SFr19.4 billion ($17.1 billion). Most of that money will come from sovereign-wealth funds, the white knights of choice for today's bank in distress. Singapore's GIC, which manages the city-state's foreign reserves, has pledged to buy SFr11 billion of bonds convertible into shares in UBS; an unnamed Middle Eastern investor will put in a further SFr2 billion. UBS will also raise money by selling treasury shares, and will save cash by issuing its 2007 dividend in the form of shares. Its capital ratio is expected to exceed 12% in the fourth quarter, a strong position.

Citi is following a similar course to UBS but it has more to do. It too has admitted that it might make huge losses, but further bad news is likely. Its estimate of an $8 billion-11 billion fourth-quarter hit on its collateralised-debt obligations was made in early November, since when the market value of subprime-related debt has declined further. It too has attracted money from a sovereign-wealth fund (last month's $7.5 billion investment by the Abu Dhabi Investment Authority) but its capital ratio remains under scrutiny given its exposure, not just to subprime-related investments but also to off-balance-sheet vehicles and to a wider deterioration in consumer credit.

Citi has mimicked UBS in cleaning out the management suite, but the search to find a successor to Chuck Prince, who was ousted as chairman and chief executive last month, revealed both a dearth of suitable candidates inside the bank and a lack of interested ones outside it. Doubts circulate about Mr Pandit's credentials for the role, despite his distinguished career in investment banking at Morgan Stanley, a spell running his own hedge fund and a reputation for cerebral calm. He joined Citi only in April, snipe the critics; this is his first time in the boss's chair at a listed company; and he has scant experience of consumer banking, which accounts for half of Citi's earnings.

For Mr Pandit and Marcel Rohner, his counterpart at UBS, the priority is to stabilise their banks. But each of them must then answer two, more fundamental questions. The first is what went wrong with their approach to risk management. Both banks wound up with larger exposures to toxic instruments than their rivals did; shareholders want to know why. (The line from UBS's top brass that, like hooliganism, the problems were down to a small number of people in one part of the company, does not wash: according to Simon Adamson of CreditSights, a research firm, the Swiss bank has long had a greater appetite for risk than its peers.)

The second question is whether the banks' business models need to change in light of the credit crunch. Mr Rohner stands by UBS's approach of combining an investment-banking arm with its booming wealth-management franchise, but there are clearly tensions between the needs of risk-averse private-banking clients and the volatile profitability of an investment bank. Mr Rohner promises to shrink the bank's balance sheet and to reduce the amount of proprietary trading it undertakes, as well as to tighten risk controls.

Mr Pandit has even thornier problems to resolve. Doubts about Citi's sprawling business model and disparate internal cultures predated the credit crunch: the bank's shares performed anaemically throughout Mr Prince's tenure. But diversification seems to have multiplied Citi's woes. Given the continuing questions about its capital base, the case for a break-up looks stronger than it did—although size has its own benefits, not least making institutions too big to fail. Mr Pandit, true to his reputation, is not going to rush any decisions. But sooner or later, more surgery looks inevitable.

PERMALANCES UNITE is a gossip blog best known for mocking Lindsay Lohan and generally lowering the level of discourse in the New York media world. But starting on December 4 the website put snark aside and helped instigate one of the most unlikely and successful labor campaigns of recent years. The sight of young, educated workers in the seismically unstable media industry using spontaneous online organizing to cope with innovative forms of corporate exploitation and disrespect throws a challenge to the labor establishment. Some see a new social movement being born.

Viacom, a Fortune 500 media company, had $11.5 billion in revenue last year. It includes the hip, youth-oriented cable networks MTV, VH1, Comedy Central and Nickelodeon. But the cachet of these names on a young college graduate's résumé is not matched by the way the company treats its workers.

Like scores of companies in the media industry and elsewhere, Viacom has increasingly shifted to workers who are not regular, salaried employees--both true freelancers and "permalancers." The term refers to those who may work full-time for several years--with duties, hours, and responsibilities very similar to regular employees--yet who are classified as temporary employees or independent contractors and do not receive the same recognition as regular employees. Someone like Alex Blagg. The 27-year-old comedian was hired two years ago to run VH1's Best Week Ever blog, the online version of the popular show. "I work pretty much forty to fifty hours a week," he says. "Sometimes on weekends. I'm responsible for maintaining and producing the site as well as collaborating with the staff of the BWE show, and I oversee about ten people--the other writers on the website as well as the production and interns."


By some accounts, permalancers and freelancers make up half the creative and production staff at Viacom networks--writers, animators, producers, editors, web designers. And they enjoyed unusually generous benefits for workers in these categories. But on December 4, as first reported in a post categorized "rumors" on Gawker, Viacom handed them some bad news.

Caroline O'Hare, a "freelancer" who has worked full-time in online promotions at MTV for two and a half years, said, "When they first told us about this, they called us in to pick up our holiday-party invites and then told us to pick up the paperwork for Cast & Crew," a company to which Viacom plans to start outsourcing the payroll and benefits administration for its nonregular employees. "I was looking through the packet and I was like, 'I'm sorry, where's my 401(k)?' They said, 'Oh yeah, you don't have that anymore.'"

The reliance on freelancers and independent contractors, in fact or in name only, is a prevalent business strategy to retain flexibility and cut labor costs, especially on expensive healthcare benefits. Another such strategy is the use of payroll companies, also known as "professional employment organizations" like Cast & Crew--a k a internal outsourcing (another oxymoron). In the case of Viacom, both strategies were at work. According to reports on Gawker and elsewhere, the rollback for freelance and contract employees initially included not only 401(k)s but paid vacation, holiday pay, tuition reimbursement, commuter pretax deductions, vision and dental benefits and, most important, a severely scaled-back healthcare plan. A typical story of life in the new economy? Sure. "I'm actually one of those people who fall into the 'go have a beer and bitch about it' camp," says Blagg. "When I took a job with Viacom I knew I was falling into bed with the enemy, and things like this are not out of the realm of what I would expect from them." And yet something was different this time. Maybe it was the Christmas timing. Or perhaps it was all the blogging, YouTube videos, newspaper and TV coverage of the television writers' strike--positive images of a sympathetic, educated, creative, unionized workforce, which aren't exactly common in today's mainstream media. "I think there's a general unrest in the media industry, with the writers' strike and the Broadway stagehand strike," Blagg, who wrote a post in support of the permalancers on his official Viacom-sponsored blog, says. "People are getting sick of feeling irrelevant and undervalued by these giant multinational corporations that are trying to increase their stockholder profits at the expense of the workforce that they rely on."

And new media was helping to keep this story alive, too. In twenty-six posts, photos and videos over the week, Gawker chronicled the company's action and the workers' response in its trademark snarky style, with posts tagged "evil corporations in action" and "permapoors." Maggie Shnayerson, a 26-year-old writer who joined Gawker in September, provided most of the coverage, which was quickly taken over by readers. "We were reporting pieces of information as people sent them to us," Shnayerson says. "Gawker provided a place where Viacom employees could come and find out what was going on with their colleagues." Viacom workers were commenting on each post and getting increasingly pissed off.

What fed the comment threads even more was the tin-eared way that Viacom delivered the news, even initially asking the employees to sign the new paperwork before attending the meeting to explain it--what one protester called an "HR clusterfuck."

But the responses weren't just online. Starting on December 10, about 200 Viacom permalancers walked out at 3 p.m. for an hour a day, picketing in Times Square. Many also showed up at the annual holiday party--an extravaganza at the Hammerstein Ballroom--wearing homemade T-shirts with the slogan "Permalancers Get Cancer Too." The protests seemed to be spontaneously self-organizing, as no one stood up to be identified as a troublemaker.

The combination of online assault by one of the city's most widely read blogs and direct action won concessions amazingly quickly. On December 6 Viacom announced that those whose 401(k)s had been frozen would get the chance to open new ones in 2008, though matching would still end and rollovers would not be allowed. On December 12, just before the daily walkout, management sent out an e-mail outlining further concessions--the reinstatement of the previous healthcare plan (exact requirements and deductibles unknown) and delaying of the switch to the Cast and Crew payroll organization from this month to February. Also on offer: vague promises to "review" the option to change employees' status from freelancer to staff.

Temporary--in both senses of the word--victory was sweet, and the strikers exulted in their power to be heard. "I can't believe they caved so quickly. Good work, rabble-rousers!" wrote a Gawker commenter dubbed PimpMyCouch. Yet the quest for proper treatment by members of the self-dubbed "creative underclass" has only just begun.

After all, companies created these newfangled categories of workers to get around existing labor laws. As first reported by Shnayerson, one factor that may have instigated Viacom's benefit cuts is an attempt by Governor Eliot Spitzer to enforce New York State's existing labor laws. In September he issued Executive Order 17, creating a joint task force on employee misclassification, defined as improperly calling an employee an independent contractor. This practice, Spitzer said, is often "an attempt to avoid the employers' legal obligations under the federal and state labor, employment, and tax laws, including...minimum wage, overtime...unemployment insurance, workers compensation...and income tax."

Calling someone who works full-time, on-site, for several years and who collects benefits a contractor or temp can get a corporation in all kinds of trouble. Just ask Microsoft, which famously paid almost $100 million plus millions in payroll taxes to settle a lawsuit by its own permatemps. Viacom may have rolled back benefits and outsourced the administration of its nonstandard employees in order to create a bright line for the governor's task force. Or it may just have been a move to preserve the company's stock price.

The "MTV strike" has a resonance far beyond one company. The Warhol Economy, a new book by Elizabeth Currid, a professor of urban planning at USC, demonstrates that creative industries like art, fashion, design and media are New York City's true economic engine. Compared with white-collar workers from other industries, these workers are even more likely to cope with unpaid internships in order to break in and nonstandard employee status even as they get more established in their industries. In January New York City's comptroller released a study showing that self-employment has accounted for nearly two-thirds of the increase in the city's job base since 1997. Yet self-employed or misclassified workers by definition still live without access to health insurance or other benefits.

The question is where to take this energy. Exactly which labor organization, if any, is best positioned to take up the cause of permalancers citywide remains to be seen. Striking Writer's Guild members stood in solidarity with the Viacom workers for a joint picket on December 13, but the WGA can't offer them representation. Jesus Sanchez is an organizer for Local 1212, the New York Radio and Television Broadcast Engineers Union, representing technical workers at CBS and Univision. He showed up to support each day of the Viacom walkout. "I've been on the phone all day drumming up more support from the institutions I've worked with over the years," he said on Wednesday. "I spoke to the state AFL-CIO yesterday." He argues that given the right organizing, Local 1212 could potentially get Viacom permalancers a collective bargaining agreement--though they'd first have to establish that they were misclassified. "You can call them what you want--they're employees," he says.

Sara Horowitz of the Freelancers' Union has a different take. "I've never seen people in this part of the workforce walk off their jobs like this," she says. "I think they're ready to start articulating their needs in a real way, and our role is to help provide structure and coherence and infrastructure and ways we can be supportive and go where it goes."

Her organization has more than 50,000 members nationwide, 15,000 of whom are independent workers in New York City who get health insurance at group rates through the union. She first heard of the walkout on Gawker, and then through Viacom workers who began contacting the Freelancers Union about getting health coverage. They started a Meetup group on the Freelancers Union site, which has drawn about thirty members.

Horowitz sees the need for a much broader response than negotiation with one company to fight misclassification while preserving true flexibility by providing all workers with portable benefits. "This is the beginning of a social movement," she says, "and it's not always going to be linear and coherent."

Saturday, December 1, 2007

PETA Takes on Mitsubishi Fried Chicken

Here's a somewhat lighter story for the weekend after yet another week filled with international economic strife and turmoil. It partly concerns the resurgence of the infamous "Curse of the Colonel" in Japan. You might not be aware of the fate of the Japanese baseball team the Hanshin Tigers. In 1985, the perennially underperforming Tigers inexplicably went on to win the Japan Championship Series, the first and only time it has done so. Rabid Hanshin Tigers fan had (have?) a tradition of celebrating their team's success by jumping into the nearby, heavily polluted Dotonbori River. As they sing the team fight song, they call out each player's name, and the fan whose likeness most resembles that of the player called jumps into the river. After winning the championship, fans were celebrating in understandably high spirits until they called out the name of Randy Bass, an American with MLB experience who was the reigning Japanese league MVP. Unsurprisingly, no one in the crowd resembled the bearded, Caucasian player.

The nearest thing Tigers fans could spot that resembled Randy Bass was a nearby plastic replica of one Colonel Sanders at a Kentucky Fried Chicken restaurant. In their excitement, they chucked the good colonel into the Dotonbori. The day after, the polite Japanese fans realized their excesses and apologized to the KFC store owner, vowing to fish the good colonel out of the Dotonbori and return him to his rightful place peddling chicken to Japanese diners. Unfortunately, the colonel was never found. For eighteen straight years afterwards, the Tigers recorded losing seasons. Up to now, the team has yet to return to the Japan Championship Series. And thus a curse was born that's far more hilarious than anything the Chicago Cubs have had to endure.

This brings me to the current manifestation of the curse on KFC. Japanese zaibatsu (conglomerate) Mitsubishi has decided to acquire a larger stake in the Japanese operation of KFC. Before being able to do so, though, Mitsubishi has been cursed by attention from the US-based animal rights group People for the Ethical Treatment of Animals (PETA). The group is famous for making publicity stunts to get its message across, and this current battle for chicken supremacy has made some waves in Japan. While I am, on the balance, sympathetic with some of PETA goals of more humane treatment of animals, its methods are sometimes questionable. In any event, the "Curse of the Colonel" seems to cut both ways at the baseball franchise and the chicken franchise as well. From Singapore's Straits Times:

Japan's largest trading house on Wednesday rebutted a request by animal rights activists to reconsider its plan to take a controlling stake in the Japanese operations of Kentucky Fried Chicken (KFC). The US-based rights group People for the Ethical Treatment of Animals (Peta) wrote a letter to Mitsubishi Corp. urging it to reconsider its plan to spend US$120 million dollars (S$ 173 million) to take control of KFC Japan.

KFC has become one of Japan's most popular fast-food chains since it first established itself here in 1970, marketing itself as a 'traditional' US food for holidays and many Japanese buy fried chicken on Christman Eve. But Peta accuses KFC suppliers of mistreating chickens.

'KFC's suppliers force chickens to live in filthy conditions where many suffer ammonia burns on their skin as well as crippling injuries from being bred to grow so large so fast that their weak legs cannot support their massive upper bodies,' Peta director Jason Baker wrote in the letter, which was given to media. 'They scald millions of birds alive in feather-removal tanks and cut the throats of billions of birds while they are still conscious,' he added.

Mitsubishi said there were no plans to withdraw the tender offer. 'I'm not sure whether (Mitsubishi) and Peta have a common understanding of the issue,' said a company spokesman. Mitsubishi already has a stake of 31.11 per cent in KFC Japan and plans to buy an equal sized stake from US-based KFC, a subsidiary of Yum Brands. Mitsubishi Corp also distributes chickens and other ingredients to the 1,500 restaurants in Japan of KFC and Pizza Hut, which is operated by KFC.

KFC dismisses Peta's claims of chicken cruelty and says it has undertaken studies to ensure that its suppliers use the most humane form of slaughter. The US-based rights group is famous for its publicity stunts in campaigning for animal rights. Last month it launched a successful campaign to persuade Miss Universe - Japan's Riyo Mori - to stop wearing fur.

Tuesday, November 6, 2007


Cornell University law professor Jonathan Macey (now a professor at Yale) called the prosecution of Mike Milken "the vengeful response by America's business and regulatory establishment to Mr. Milken's phenomenal success." Macey wrote:

"As deplorable as Joe McCarthy's attacks on alleged Communists were in the 1950s, the government's attack on Michael Milken during the 1980s was even worse. It was more conspiratorial; it sent more people to jail, and it was, at bottom, an attack on such fundamental American values as entrepreneurship, individual responsibility and, ultimately, capitalism itself." (The Wall Street Journal, July 18, 1995)

Despite many erroneous press reports to the contrary, he was not guilty of insider trading and he didn't contribute to the savings and loan crisis. Upon his release, columnist George Gilder wrote, "The entire case against him has collapsed." Ethicist Norman Barry said the case involved "trivial offenses" and was "an affront to the rule of law." A detailed analysis of the Milken case can be found in the book, Payback, by Professor Daniel Fischel of the University of Chicago Law School. An April 2005 editorial in BusinessWeek concluded, "Milken's legacy is a favorable one in much of the business community."

John Steele Gordon, a prominent business historian and author of a definitive book on Wall Street, suggests that the government charges may have been a result of "ambitious prosecutors" lusting after a high-profile case. In April 1992, the lead prosecutor, assistant U.S. Attorney John Carroll, speaking at Seton Hall Law School, admitted that in the Milken case, "we're guilty of criminalizing technical offenses ... Many of the prosecution theories we used were novel. Many of the statutes that we charged under hadn't been charged as crimes before."

The judge found only one transaction that Milken pleaded to had any economic impact — and that was only $318 thousand. The editor of Forbes said he was "a scapegoat" and the U.K. newspaper, The Guardian, expanded that to "a high-profile scapegoat." However, Milken accepted responsibility for the specific actions to which he pleaded.

Writing in the London Sunday Times, columnist Irwin Stelzer said:
"Michael Milken transformed American industry as Ronald Reagan transformed the American political scene. [Milken] contributed mightily to converting American industry into a lean, mean, internationally competitive machine. Whether or not Milken, in the course of his assault on the status quo, bent or broke some of the rules governing financial transactions is still being debated, with his defenders persuaded that his punishment for violating such rules was more the revenge of the establishment than the just desserts of a willful lawbreaker."

On a web site about business journalism, former Wall Street Journal reporter Dean Rotbart wrote (April 2002) about what he called the "successful prosecution of Milken in 1989 on six obscure securities law violations":

"Most journalists covering Milken were far too shallow to explore the political and business interests that benefited from his prosecution and expulsion from the industry. Rather, the news media embraced the stereotype of 'greedy Mike' and created such a hue and cry for his beheading that the government had little choice to oblige … But as with most media stereotypes, time has demonstrated amply that Mike Milken isn't the man the media portrayed. Mr. Greed, it turns out, had always been a philanthropist and is today one of the nation's leading philanthropists ... Milken not only disproved his media critics long ago, he made them irrelevant."

In August 2002, Stephen Presser, the Raoul Berger Professor of Legal History at the Northwestern University School of Law, commenting on the "prosecutorial zeal" in the Milken case, said:

"[W]hen an administration or a prosecutor wants to make a political point, strict legalities and strict realities are hard to come by."

The late Robert L. Bartley, then editor emeritus of The Wall Street Journal, wrote (May 2002):

"Various politicians caused a savings-and-loan crisis and the 1990 recession by inflating deposit insurance and leaning on regulators not to clean up thrift balance sheets. Their fall guy was Michael Milken and his supposedly malign junk bonds, which in fact had almost nothing to do with the S&L problem and have since been universally recognized as a legitimate financing tool. Mr. Milken was coerced into a plea bargain involving six trading violations elevated into felonies. The 1990 recession did shake out a real insider-trading ring. Its mastermind, Ivan Boesky, got off with a three-year sentence by … fingering Mr. Milken and others; cases based on his information collapsed … Prosecutors and politicians want scapegoats, and often have the collaboration of businessmen. With … Milken, business competitors egged on prosecutors, as is happening today with Bill Gates. And the truly culpable parties can get off lightly by conning prosecutors with the promise of bigger fish."

More recently (May 2006), George Gilder, a contributing editor of Forbes magazine, wrote in the Gilder Technology Report:

"After five years of federal harassment of the high yield security market that he pioneered, Milken went to jail in 1991 on a tidal wave of journalistic and judicial blindness to what he was doing, aggravated by the ulcerating grip of envy at his success in doing it."

Finally, in a September 2006 Financial Times column, Norman Barry, professor of social and political theory at the University of Buckingham, wrote:

“In retrospect, most American economic observers say that Mr Milken was good for the economy; his actions led to the break-up of conglomerates and the necessary reorganisation of American business. His prosecution was more of a persecution.”

American Prosecutors Deserve Count Of Monte Cristo

By Paul Craig Roberts

There’s a great movie playing, a rendition of Alexander Dumas’ The Count of Monte Cristo. Go to see it. It speaks to the injustice of our own time--only our legions of wrongfully convicted lack the power of the Count of Monte Cristo to take revenge on the snitches and corrupt prosecutors who frame them.

Dumas’ novel is a tremendous story brimming with excitement and plot. I don’t know if it is read today. In my youth everyone read it for the spellbinding thrill of the story and simultaneously absorbed the didactic message to hate injustice.

Every prosecutor and policeman should be required to read the book several times and to keep a copy visible on their desks. Indeed, what we need is a real world Count of Monte Cristo to make an example of the corrupt prosecutors who routinely ruin the lives of innocent people.

There are prosecutors who deserve the worst that could possibly befall them, but, alas, no Counts of Monte Cristo. Michael Milken had enough money to be one, but he let Rudy Giuliani get away with framing him.

Giuliani not only got away with it, he parlayed the name recognition that he gained to become New York Mayor. From this perch he parlayed the Muslim terror attack on the World Trade Center into becoming Time Magazine’s “Man of the Year” and recipient of the Ronald Reagan Freedom Award from the Ronald Reagan Presidential Foundation in Beverly Hills on February 8. This was followed with an honorary knighthood from Queen Elizabeth and a fountain of glowing editorials.

In Dumas’ novel, the crooked prosecutor is utterly ruined, but ours just keep on climbing higher in public esteem.

Injustice is rife when people have no conscience. In our time, only politically correct official “victim groups” are deserving of concern, and the compassion they receive is orchestrated for the purpose of advancing political agendas.

The old adage that it is better for 10 guilty men to go free than for one innocent person to be punished has been turned on its head. Today’s rule is: better for 10 innocents to be sent up the river than for one guilty to escape.

Nothing better reveals the state of injustice in America today than Massachusetts Governor Jane Swift’s refusal last week to release an innocent man on the grounds that it might hurt her political future. That tells you all you need to know about her conscience and, if she is right, about the conscience of the people of Massachusetts.

Giuliani took advantage of the liberals’ demonization of the Reagan presidency as the “era of greed” and ordinary people’s envy of Wall Street incomes to make a name for himself on the backs of innocents.

Giuliani went into motion with an assault, staged for media, on the financial firm Princeton/Newport with fifty federal marshals outfitted with automatic weapons and bulletproof vests. His purpose was to create the impression among the public that hardened criminals operated in the financial arena.

Next he staged the handcuffing of two New York investment bankers on their trading floor. Although his victims were later exonerated in federal courts, Giuliani had set the stage for his run at Michael Milken.

To this day no evidence exists that Milken committed any crimes or engaged in any conduct that had ever before been considered criminal. Milken was a victim of Giuliani criminalizing minor regulatory infractions and coercing him into a plea bargain.

Giuliani's assistant U.S. attorney John Carroll admitted as much. At Seton Hall Law School in April 1992, Carroll said that in the Milken case “we’re guilty of criminalizing technical offenses. Many of the prosecution theories we used were novel. Many of the statutes that we charged under hadn’t been charged as crimes before.”

In other words, the prosecutors made up the laws that they accused Milken of breaking and applied them retroactively.

Carroll was very proud of how clever the prosecutors were in orchestrating Milken’s frame-up. He went on to say that they were looking for other areas where they could ensnare people by reinterpreting routine behavior as crimes. Apparently, the law students were impressed, not outraged, with the skill at which prosecutors abuse their power in order to convict a target.

Giuliani himself bragged that by painting his targets black, “the media does the job for me.”

The cases brought by prosecutors are so shoddy that few can stand the light of a trial. Instead, prosecutors pile on the charges until the bewildered defendant accepts his lawyer’s advice and cops a plea. Only one case in twenty ever goes to trial.

Plea bargains keep the conviction mill running and the prosecutors’ budgets growing. Justice plays no role.