Risk Rap

Rapping About a World at Risk

The Forth Estate Crosses Over

There is this program that runs on the WE Cable Network.  It’s called Crossing Over with Jonathan Edwards.   Jonathan Edwards is a psychic medium.  He stands in front of a live gathering of 75 people and tunes into psychic vibes emanating through the audience.  The vibes are messages from deceased loved ones who have crossed over the Acheron.  The dead are keen to communicate warnings, good wishes and assurances to assist living  loved ones on how to navigate the tricky vicissitudes of life.   During the show, Jonathan walks about the room picking up on celestial chatter and begins to relay and interpret a soliloquy of the dead like a macabre game of supernatural telephone. Jonathan Edwards asks his audience to suspend all disbelief as he bestrides the nexus of the metaphysical spirit world and the pedestrian reality that most earthlings inhabit.

The most common messages the dead channel through Jonathan seek to absolve the anxiety and guilt of the tormented living.  Crossing Over is popular because it offers its audience an  absolution, confirms personal cosmology and rationalizes the pursuit of desires by affirming the consequences of decisions as a self fulfilling prophecy.  It safely places its audience in a self validating cosmic echo chamber.  Its an ongoing morality tale with only happy endings and unfortunately only a tenuous connection to authenticity and objective truth.

The state of the news media industry is very much like Crossing Over.  The Forth Estate once thought of as an objective arbiter, information dispersant and truth seeking medium it is now chosen and consumed as a branded version of reality.

The devastating earthquake that buried Haitians in heaps of rubble unleashed global battalions of news teams to cover the event.  Many of the news crews from large established networks beat first responders to the scene.  In some cases the arrival of news teams actually held up the arrival of rescue teams and supplies because the airfield and crowed airspace could not accommodate all the traffic.  The news teams were forced to hole up at the airport because blocked roads prohibited them from going anywhere.  I recall Robin Roberts and the GMA News team dodging fork lifts and supply trucks left with nothing more to do then to urgently interview themselves.  Correspondents were reduced to ghoulishly opining about the tragedy while eagerly mugging for the cameras with contorted faces to portray the human tragedy unfolding beyond the range of their cameras.

GMA’s presence added nothing and in fact inhibited rescue efforts.  I thought of all the drinkable water these crews consumed could have been used to quench the thirst of Haitians dying from dehydration. Thankfully the GMA News team soon left after spending a self indulgent weekend at the airport. Their moral outrage registered and attempt at ratings grab accomplished.  Their contribution to shedding light on the scope of this tragedy and placing it in a larger context of its meaning to the global community of nations was lost in deference to the tragedy’s emotional impact on GMA reporters.  For GMA the subjective condition of the emotional distress of their media stars had become the story.   Their viewers must have figured that if GMA’s News celebrities were hurting this story must be big.

CNN’s Dr. Sanjay Gupta was an example of how a newsman became part of the story in a positive way.  I recall with great admiration watching a camera crew following Dr. Gupta as he walked amidst the rubble of Port-Au-Prince.  He learned of the location of a hospital and went to investigate how it was delivering services to the injured.  Upon his arrival Dr. Gupta discovered the make shift hospital was little more then injured people being placed in the hallway of a building.  The dead were being stacked outside by a wall surrounding the compound.  The hospital had no doctors, nurses, beds or supplies.  The facility lacked water to clean wounds or salve thirst.  What the hospital did have was a constant stream of wounded arriving in greater numbers desperate for any type of care.  The scale of the quake, the massive amounts of injured victims and the overwhelmed capacity of  the hospitals ability to respond was reported in stark clarity.

Dr. Gupta was overwhelmed by parents cradling their broken children.  Dr. Gupta a licensed medical doctor took off his correspondent hat and put on his stethoscope.  He honored his Hippocratic Oath and started treating babies and the wounded with whatever he could cobble together.  Dr. Gupta was no longer a journalist but was now a doctor.  He asked that the cameras stop rolling so he could perform his duties as a doctor.  I’ll never forget the look on Dr. Gupta’s face.  It spoke volumes about the desperate conditions he was confronting and the firm resolve that he would perform his duties as a trained physician under trying almost impossible circumstances.

We could understand Dr. Gupta’s crossover from journalist to doctor.  It was proper and correct response as a human being but as a journalist all objectivity had been lost and in many respects Dr. Gupta had become the story in a constellation of a million stories emanating from the epicenter of one of the great human tragedies of the past century.  This is a departure from the norm of real time documentary reportage.  I can’t tell you how many documentaries I came away from cursing the producers and cameramen for doing nothing to prevent the baby wildebeest from being  consumed by the lion pack or for failing to offer a family of refugees in Darfur a bottle of water or a ride on their jeep to escape the marauding  Janjaweed.

News Corps, network media division Fox News belies the myth of the monolithic liberal mainstream media and its claim of balance in its marketing handle.   Fox News may offer a fair presentment of the news to its conservative viewership but its claim of balance that suggests the inclusion of a liberal perspective in their news product is specious.

Fox News really came of age following 9/11 and the growing conservative drift of the nation. Its useless to posit weather Fox News created the conservative drift or developed programming to market to this political demographic; but the political inclinations of Roger Ailes and Rupert Murdoch have always been decidedly conservative.  At its founding in 1996, Fox News started differentiating itself from the liberal mainstream media by supporting the Republican impeachment drive of President Clinton, effectively  setting the stage for its partisan approach to reporting the news.  In many respects its unabashed partisanship was a game changer in how news and information was being packaged, positioned and delivered in the emerging narrow casting market paradigm.   Its sentiment not very different from the golden days of yellow journalism practiced by William Randolph Hearst.

Liberals and progressives have criticized News Corp for its lack of objectivity and  balance.  Many believe it to be the official party organ of the Republican Party and its compromised coverage is more akin to propaganda then news.  I believe this to be true as well.  Fox News has countered that it provides both news and opinion.  Fox News employs many of the leading conservative voices.  Karl Rove, Sarah Palin, Mike Huckabee are senior GOP members on the payroll of Fox News.  They regularly appear on shows hosted by Bill O’Reilly, Glenn Beck and Sean Hannity who are conservative celebrities in their own right.  The trick is discerning what is news and what constitutes opinion and editorial content.  The line that demarcates them is increasingly a fine one.  Even the innocuous news blurbs scrolling along the bottom of the TV screen seep in partisanship.  Some may report objective facts like the closing level of the Dow or the latest sports score. These little factoids appear alongside pieces that consistently reinforce the conservative credo of the network.  Its also a practice for commentators like Karl Rove to opine on stories covered on news segments.  The pundits impassioned analysis of the story leaves the listener little room to doubt the interpretation as a validation of the viewers conservative  political sentiments and ideological disposition.  The ability to distinguish fact from opinion becomes increasingly lost in these clouds of obfuscation.

As the model of creating, packaging and marketing partisan news the advent of Glenn Beck as a political entertainer is symptomatic of the maturation of the industry.  Glenn Beck’s show is more of a political reeducation camp that tries to provide low information voters and political neophytes with a more robust framework to understand the history and philosophy of conservatism.  Beck extends the Fox News portfolio of infotainment products.

Beck’s role in encouraging the formation of the Tea Party expands the footprint of News Corp.  Some may consider this crosses the line into political activism but I believe it to be a highly developed form of call and response direct marketing.  Beck’s incessant rants about the imminent collapse of  American democracy, the downfall of free market capitalism and the advocacy of the purchase of gold to hedge against these terrible prospects has attracted  the sponsorship of gold marketers and other fear merchants living large and minting major coin in the time of terror.

Fox is not alone in this sin.  CNBC profited from the pre-crash market run-up and had a vested interest in fueling market speculation and excess.  The business channel owned and operated by NBC  took some heat on this issue in the wake of the market meltdown.  During the market run-ups and the creation of the numerous market bubbles CNBC was taken to task for its roll as a biased shill in creating a risk averse mania that fed into the speculative orgy.  The encouragement of reckless behavior would cost investors and Main Street citizens a good portion of their retirement savings.  Jon Stewart took on CNBC celebrity Jim Cramer for his role in stoking unhealthy speculation. The claim of caveat emptor is not a sufficient disclaimer to absolve CNBC of this perceived wrong doing.  Information and data is the fuel that powers the capital market engine and viewers perceived CNBC to be a critical channel for this type of decision support data and analysis.  As animated red bulls flashed across the TV screen screaming “buy buy buy” the speculative urge feeding the demon greed of Cramer’s viewers jumped at the prospect to secure easy profits and pushed the execute button to route a flood of orders to E-Trade.

Media outlets were not alone in profiting from the conflict of interest in their business model.  The rating agencies Moody’s, Standard and Poors and other issuers of financial health assessments were roundly criticized for a business model that accepted fees from companies  to determine their investment ratings investors use to judge safety and soundness of the companies securities.  Investment banking institutions like Goldman Sachs and Morgan Stanley ran into trouble for trading securities that they advised their clients to hold in investment portfolios.  Large commercial banks have also been called on the carpet for the inherent conflict of interest in their mortgage lending business that integrated mortgage underwriters, originators, servicers, securitizers and investors under a single roof.

Citizens United vs. Federal Election Commission has given corporations a megaphone to direct enormous amounts of capital and influence on Americas political culture.  The exponential growth of the political industrial complex places media companies on the cusp of an emerging market.  News Corp occupies a well defined franchise in the vortex of this growth industry.  News Corp will be the predominant media channel attracting politically sponsored advertising from 527 corporations to advocate issues central to the conservative agenda.  The market for political theater is strong and growing and News Corp has one of the hottest theatrical properties in celebrities like Sarah Palin and Glenn Beck.

If Fox News bends and packages information with selected editing in support of political narrative; Andrew “NAACP” Breitbart and James “ACORN” O’Keefe edits news to create a false narrative to affirm ideology.  The omnipresent  multi-channel digital world and the need for consistent real time affirmation justifies entrapment and libel as fair game in the political narrative. The specious political ethics of radical entitlement, means justify ends, medium is the message and relativistic ethics is the next step of  an ideologically mature ,technologically enabled infotainment industry.  The self affirming echo chamber that verifies fact and swears to any truth is blessed with selective amnesia and a self correcting mechanism of  a highly refined subjective fact checker informed by extreme prejudice.

Jon Stewart  use of satire and exaggeration to make a lager point of clarified and reified truth is old school stuff.  In the Age of the Avatar,  the real, the imagined, the intended and the manifested get confused in the digital clouds of form, delivery and content. The medium is the message, the network is the computer and Jon Stewart’s Rally to Restore Sanity was a marketing event to stake a claim on the market of moderation.  No doubt a highly educated discerning market segment with lots of disposable income.  Its only downside its getting a little long in the tooth.

The Forth Estate is rapidly evolving due the dramatic changes in technology, market structure, business model and consumer consciousness.  The role of the free press and the constitutional protections it enjoys in a democratic society is under siege and on the verge of bankruptcy.  The New York Times, Chicago Tribune and LA Times are old media institutions struggling to stay financially solvent and culturally pertinent.  Time will tell of their ability to evolve and create a sustainable business model  that will be validated by a market economy.  We have learned that truth, disclosure and transparency are not priceless assets but virtues that must support a sufficient  p/e ratio to to survive in a capitalist economy.

The past few weeks we’ve had a few First Amendment martyrs.  Rick Sanchez, Juan Williams and Keith Olbermann learned that the sword was more powerful then the pen.  The more important lesson that managers could remove them on the whim of executive fiat if they failed to demonstrate restraint of pen and tongue.  In actuality the  removal of these gentlemen from the news desk was more of a business decision then a violation of  their right of Free Speech.

As we enter the second decade of our two wars on terrorism even the embedded journalists rolling through the distressed hamlets of Iraq and Afghanistan are getting a bit war weary.  Like a captive hostage the embeds could not help but to identify with their chauffeurs.  The brave soldiers driving the Humvees’ were always in control of what the embeds saw, was responsible for their safety and quickly became the reporters best friend born of dependency, admiration and the comradeship that develops during war.  Objective reportage was the first causality in this  type of arrangement.

We need to take a cue from Jonathan Edwards.  He is the real shaman of our time.  Blessed with unique skills to help his audience to realize that self affirming connection is only possible by crossing over and taking suggestions from the well placed authorities residing in an unseen mysterious supernatural world.

You Tube Music Video: Tom Waits, Lie to Me

Risk: First Amendment, free speech

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November 12, 2010 Posted by | 9/11, banking, branding, business, Clinton, commercial, commodities, culture, democracy, democrats, economics, elections, government, history, investments, marketing, media, news, philosophy, politics, product, regulatory, sustainability, Tea Party, war | , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , | Leave a comment

A Taxing Situation

irs-and-capitol2President Obama announced his intention to curb the use of offshore tax havens for multinational corporations.  The Treasury Department is looking to raise tax revenues and believes that by closing the use of offshore tax shelters it will be able to raise over $200 bn over the next ten years.  According to the New York Times,  firms like Citibank, Morgan Stanley, GE and Proctor and Gamble utilize hundreds of these type structures to shelter revenue from being taxed by the IRS.  It has effectively driven down the tax rates these companies pay and has been a key driver in maintaining corporate profitability.

This move should come as a surprise to no one.  The Treasury Department needs to find sources of tax revenues to cover the massive spending programs necessitated by the credit crisis and the global economic meltdown.  The TARP program designed to revitalize banks has  expenditures that amounted to $700 bn.  Amounts pledged for economic recovery through EESA, PPIP and ARRA will push Treasury Department expenditures targeting economic stimulus projects and programs to approximately $2 tn.  These amounts are over and above routine federal budget expenditures that is running significant deficits as well.

The planned move by the Treasury Department to rewrite the tax code may be an intentional effort to close budget deficits but it also represents a significant rise in tax audit risk.   For the past two years the IRS has been developing a practice strategy and organizational assets to more effectively enforce existing tax laws.  Private sector expertise, practices and resource has significantly out gunned the IRS’s ability to detect and develop a regulatory comprehension of the tax implications of the sophisticated multidomiciled structured transactions flowing through highly stratified and dispersed corporate structures.  The IRS is looking to level the playing field by adding to its arsenal of resources required to engage the high powered legal and accounting expertise that corporate entities employ.

The IRS has hired hundreds of new agents  and has developed risk based audit assessment guidelines for field agents when examining corporations with sophisticated structures and business models.  As such investment partnerships, global multinational corporations and companies utilizing offshore structures can expect to receive more attention from IRS examiners.

The IRS had developed Industry Focus Issues (IFI) to be used as an examination framework to guide audit engagements for sophisticated investment partnerships and  Large and Mid-size Businesses (LSMB).  The IFI for LSMB has developed three tiers of examination risk.  Each tier has comprises about 12 examination issues that will help examiners focus attention of audit resource on areas the agency considers as high probability for non-compliance.  Clearly the audit risk factors risk

To respond to this challenge, Sum2 developed an audit risk assessment program to assist CFO’s, tax managers, accountants and attorneys conduct a through IFI risk assessment.  The IRS Audit Risk Program (IARP) is a mitigation and management tool designed to temper the threat of tax audit risk.   A recent survey commissioned by Sum2 to measure industry awareness of IFI risk awareness indicated extremely low awareness of tax audit risk factors.

Sum2’s IARP helps corporate management and tax planners score exposure to each IFI risk factor.  It allows risk managers to score the severity of each exposure, mitigation capabilities, mitigation initiatives required to address risk factor, responsible parties and mitigation expenses. The IARP allows corporate boards and company management to make informed decisions on tax exposure risk, audit remediation strategies, arbitration preparation and tax controversy defense preparation.

The IARP links to all pertinent IRS documentation and information on each tax statute and IFI audit tier.  The IARP links to pertinent forms and allows for easy information retrieval and search capabilities of the vast IRS document libraries.  The IARP also has links to FASB to have instant access to latest information on accounting and valuation treatments for structured instruments.

The IARP is the newest risk application in the Profit|Optimizer product series.  The Profit|Optimizer is a enterprise risk management tool used by SME’s and industry service providers.

The IARP is available in two versions.

The IRS Audit Risk Program for investment partnerships (IARP)

Buy it on Amazon here: IARP

The Corporate Audit Risk Program (CARP)

Buy it on Amazon here: CARP

Sum2’s Audit Risk Survey results are here: IFI Audit Risk Survey

You Tube Video: Chairman of the Board, Pay to the Piper

May 7, 2009 Posted by | business, commerce, economics, EESA, FASB, government, hedge funds, IRS, off shore, Profit|Optimizer, regulatory, SME, TARP, Tax, taxation, Treasury | , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , | Leave a comment

Pennies from Heaven

Morgan Stanley and Goldman Sachs have changed their charters and are now bank holding companies. I believe this was necessary for Goldman and Morgan Stanley to have access to Federal bailout money in the newly proposed bank workout plan.

Paulson insists that we must move with great dispatch. I get nervous when these types of transactions occur with such velocity that I have a hard time understanding the value proposition. After all, if me and my countrymen are being asked to belly up to the bar and put $1Trillion into the game I want more of an understanding then believing Chris Dodd has seen the horror if we don’t act and it ain’t pretty.

Couple of questions:

Does this allow Goldman Sachs and Morgan Stanley to purchase commercial banks? Will Goldman and Morgan be opening up S&L’s and local community banks? If that is the case should we allow them to take over the management of the banking system considering their poor track records of managing investment banks? A disturbing characteristic of our managed economy is that the more colossal the failure the greater reward is bestowed.

Second question is a small technicality. Paulson’s suggestion to segregate good bank assets and bad bank assets centers around FAS:157 Level Three Assets. If the current holders of these assets cannot value them now, how will the Treasury acquire them from the failed banks and at what value will they carry them on their books? We should also assume that since the US Treasury will want to sell these assets how will it know its getting a good price or “fair value” when it liquidates its position?

Will Level Three assets be used as collateral for the new bank holding companies capitalization requirements? If these assets are not performing now, how can we assume these assets will perform in times of “real economic duress” to meet defaults in the future?

Level Three Assets are principally the CLO, MBS and Credit Default Swaps (CDS) that lie at the root of this crisis. If they functioned as they should, all credit risk should have been hedged out of the system and we should not be experiencing this economic crisis because of insurance CDS provided. Seems to me that the CDS were more snake oil then insurance. If they didn’t work when they were needed (see AIG) why would the US Treasury think there will be a market for them in the future?

Will the investment banks and financial engineers who enriched themselves on the creation and sales of CDS instruments be required to return the money they earned in commissions on the sale of this worthless junk?

Just asking.

Music: Billie Holiday with Lester Young: Pennies from Heaven

Risk: bank, managed economy, bank capitalization,

September 22, 2008 Posted by | banking, credit crisis, FASB, jazz, Paulson, TARP | , , , , , , , , , , | Leave a comment