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A credit to Carrie Johnson and The Washington Post for their page-one story on Tuesday showing how federal prosecutors are setting up former colleagues in government in highly compensated positions with companies accused of malfeasance.
The Post not only raises good questions about no-bid contracts for former government officials, it also sheds light on this little-known phenomenon of corporate monitoring.
The lucrative arrangements are known as “monitorships,” unusual contracts in which an outsider comes into a troubled company with vast power to expose corruption and change business practices. The deals allow scandal-plagued companies to avoid criminal charges—and they give prosecutors a way to ensure businesses keep their promises and clean up abuses. But legal experts and lawmakers are expressing growing concern about inconsistency and secrecy surrounding the appointments.
As Johnson reports, these arrangements raise questions about favoritism, political interference with the judicial system and “all but give prosecutors a seat in the corporate boardroom.”
The arrangements are spelled out in contracts and vary depending on the company and its problems. Generally, though, monitors enjoy wide latitude to interview employees, sift through business contracts, uncover legal violations and mandate that companies change their ways. In recent years the overseers have made recommendations to hire and fire workers, enlisted high-priced accountants and consultants to review corporate operations, and blown the whistle to prosecutors if the company fails to respond to their concerns.
The poster boy is former U.S. Attorney General John D. Ashcroft, whose consulting firm got a $25 million assignment ensuring that a medical-equipment manufacturer stops paying kickbacks to doctors who use its products.
‘We have a cooperative agreement between prosecutors and a vital industry, and the expense is born by the industry and not the public,’ Ashcroft said. ‘What’s wrong with that picture? There isn’t anything wrong with that picture.’
Yes, Mr. Ashcroft, there is something wrong with fattening up Washington cronies with million-dollar, no-bid contracts that are designed to serve a public purpose. We hope for, and expect, more reporting on this story in the weeks to come. Meanwhile, it’s good to see the Post‘s overstretched business staff muscle into the front ranks.
A credit to The Wall Street Journal for its excellent explanatory article Friday on the unraveling debt-insurance market.
As we’ve said before, the business press has a difficult but critical job explaining to the general readership what is going on with our flailing banking system and economy. It’s hard to do, but the Journal, with an assist from Warren Buffett, makes it look easy here, explaining credit-default swaps.
One big thing the WSJ leaves out: If MBIA Inc. and Ambac Financial Group Inc., the two leading players in the debt-insurance industry, go under—as looks increasingly likely— the public should get ready for hundreds of billions in new losses.
On the other hand, a debit to The Wall Street Journal for telling readers “Banks offer Bonuses to Lure Deposits to Savings Accounts” in its Personal Journal section on Wednesday, but failing to tell them why banks are doing this amid the worst banking crisis in decades.
Banks like Wachovia Corp. and Washington Mutual Inc. are suddenly offering super-high interest rates and in some cases matching bonuses to encourage deposits. Why? The Journal says:
The banks’ programs are intended to make it easier for consumers to save small amounts over time…
Are these banks magnanimously giving customers 6.5 percent interest rates (in WaMu’s case) to boost the nation’s negative savings rate? We’re not told, and we doubt it.
A better article would have included a paragraph or two on how two of the banks mentioned are waist-deep in the mortgage and credit crisis. Washington Mutual has lost more than 70 percent of its value in less than a year, while Wachovia has lost 48 percent.
Both banks’ capital ratios are threatened and both have been cutting costs and either raising capital or putting it aside to prepare for the bad news that’s sure to continue well into this year.
That explains why these banks are paying abnormally high interest rates to attract deposits. A much better WSJ article several days earlier leads us to that conclusion:
…while some banks have followed the Fed’s lead and trimmed rates, others have been offering promotions that are well above the federal-funds target rate of 4.25%.
That is particularly the case for financial institutions that have run into difficulties and need those deposits to fund loans and build up their capital levels.
The WSJ‘s Personal Journal is the news-you-can-use section and is aimed at consumers rather than investors. That, however, doesn’t excuse it from giving readers necessary context.
A debit to the CNBC blog, Tech Check with Jim Goldman. We aren’t in the habit of writing about blogs, but will make an exception for reporters blogging for major publications who traffic in silly hoaxes and unverifiable sources.
On Tuesday morning, during the week of annual Apple Inc. trade show MacWorld, Goldman came across a potential scoop about the event from an, um, non-traditional source: Wikipedia.
The highlight of MacWorld is the keynote speech where Apple CEO Steve Jobs typically announces new products. So when a “leaked” version of the speech appeared on Wikipedia, Goldman highlighted the details in a post entitled “Steve Jobs’ Macworld Speech Leaked Or Big Hoax?”
It’s either an incredibly elaborate hoax or Apple Inc.’s CEO Steve Jobs is one unhappy camper this morning: It appears notes for his highly anticipated Macworld keynote address may have been leaked onto the internet last night, posting on the popular online encyclopedia web site Wikipedia.
No one knows whether the purported “draft notes” of the keynote are legit since Jobs’ keynote is normally one of the best kept secrets in the tech world. But these notes mirror much of the speculation making the rounds about what to expect when Jobs takes the stage Tuesday morning in San Francisco.
Naturally, the “leaked speech” indeed a hoax.
As news organizations belatedly latch onto the blog format, they’re struggling to figure out whether their blogs’ standards should meet those of their newsrooms or anchor desks. We think they should be very high, and we can find little justification for running something like this other than to boost CNBC’s Web traffic on the coattails of a company that already has too much adulatory press coverage.
Posts like this damage Goldman’s—and CNBC’s—credibility.
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