Opinion

The Great Debate

Stress and the Citi

Markets are still absorbing the Federal Reserve’s surprising smack-down of Citigroup. Under its chief executive officer, Michael Corbat, Citi had greatly strengthened its capital base — indeed, it had one of the best capital ratios of all the big banks — and had proposed modest dividend increases and stock buybacks.  Instead, City was the only big American bank that failed its review.

The Fed announcement, perhaps harking back to the Alan Greenspan tradition, was gnomic, to say the least. The Citi bombshell was buried in a few lines in both the press release and the much longer official statement.

While acknowledging Citi’s stronger capital position, the Fed stated that the rejection was based on “qualitative” weaknesses, including the bank’s “[in]ability to develop scenarios … that adequately reflect and stress its full range of business activities and exposures.” The bank will eventually be handed a detailed bill of particulars, perhaps in a week or so.

Corbat, a former Harvard football all-American, is a Citi lifer, with hands-on experience at most of the company’s hot spots. He was elevated specifically in 2012 to rebuild its balance sheet and strengthen internal controls.  Both he and his board seem to have been badly wrong-footed by the Fed turndown — Corbat had planned to dial into the Fed phone call from South Korea, but had to rush home to deal with the crisis.

The stress test failure came on top of a cascade of adverse events.

In late February, Citi had announced that its Mexican subsidiary, known as Banamex — the jewel of its international network — was out $400 million because of a garden-variety fraud operation. One Banamex client, a local oil servicing company, had regularly borrowed against its contracts with Pemex, the Mexican state oil company.  Banamex discovered, by accident it appears, that Pemex had previously suspended this client, but the client had continued to borrow against forged contract documents. Investigations are underway, and reports are that at least one Banamex employee was complicit in the fraud, possibly in collusion with some U.S.-based employees.

Afghan elections redefine U.S. role

On Saturday, Afghans will go to the polls to elect a new president, marking a critical turning point in Afghanistan’s history and our role in the country.

This election comes at an important time in U.S.-Afghan relations, which have been hindered by the erratic and often insulting behavior of President Hamid Karzai. The outcome will present an opportunity for the United States to redefine our relationship with Afghanistan in a way that addresses our shared security concerns and the long-term stability and viability of the country.

Make no mistake, the democratic transition to a new president would not be possible without the last 12 years of sacrifices made by the United States. The Afghan people and Americans owe a profound debt of gratitude to our armed forces, diplomats and U.S. Agency for International Development workers who helped transform Afghanistan from a failed state to fledgling democracy.

Roberts Court: Easier to donate, harder to vote

Chief Justice John Roberts’ first sentence of his majority opinion in McCutcheon v. Federal Elections Commission, striking down important limits on campaign contributions, declares “There is no right more basic in our democracy than the right to participate in electing our political leaders.”

A look at the Roberts Court’s record, however, shows that this may not be its guiding principle.

Through a series of rulings, the court’s conservative majority’s rulings have instead made it easier for big-money donors to influence elections — while making it harder for many Americans to use the only political influence they have: their vote.

Afghanistan votes on its future

The coverage on the impending Afghan presidential elections has been filled with death and chaos — the tragic shooting at the Serena hotel where an international election monitor was killed, the shocking attack on the Afghan Election Commission’s headquarters, the killing of a provincial council candidate and the news that several international monitoring groups are pulling out.

These tragedies, however, shift the focus from the major news in Afghanistan this week: Election fever has gripped the nation. I hear from Afghans as well as many foreigners now working in Afghanistan that the excitement about the coming April 5 presidential election is palpable and encouraging.

If this election goes relatively smoothly, it will mark the first democratic handover of power in Afghan history. Potential large-scale fraud and violence will be substantial obstacles to overcome, but there are also some positive signs. Voters, observers and security personnel are gearing up with a mixture of enthusiasm and trepidation.

McCutcheon: Should the rich speak louder?

On Wednesday, the Supreme Court handed down its most important decision on campaign finance reform since Citizens United. The decision, McCutcheon v. Federal Election Commission, seemed to divide along familiar ideological lines, with Chief Justice John Roberts writing the majority opinion for five conservatives and Justice Stephen Breyer, writing the dissent for the four liberals.

What really divided the court, however, wasn’t partisan politics pitting Republicans against Democrats but two conflicting views of the First Amendment. Which view you embrace depends on whether you see the McCutcheon decision as a principled triumph for unpopular speech or a First Amendment disaster that will ensure that a handful of the richest Americans can use their vast resources to drown out the voices of everyone else.

The First Amendment view embraced by Roberts and his conservative colleagues is rooted in individual liberty. There’s no right in our democracy more fundamental, Roberts began, than the First Amendment safeguards for “an individual’s right to participate in the public debate through political expression and political association.”

The college football assembly line

Here’s a tale of two factories and the way the public feels about those who labor there. Nothing could be more iconic than an automobile factory where workers put in eight or more hours a day on the assembly line. The work is boring, the pace unrelenting and injuries are not uncommon, but the pay is better than working in fast food or at Wal-Mart. Volkswagen’s modern, efficient Chattanooga factory is such a place.

Then there are the “football factories.” A good one is at Northwestern University, where players are formally enrolled as students, but they spend the bulk of their time in practice for several months of the year. Their tuition and living expenses are paid through an athletic scholarship, the value of which is often more than an autoworker earns in a year. At Northwestern, 97 percent of these players are said to graduate.

In both these factories the workers are trying to unionize. Northwestern has been in the news because a regional director of the National Labor Relations Board ruled that though football players are labeled as students, they actually spend most of their time as de facto employees under the boss-like supervision of well-compensated sports professionals.

Obama: Ineffectually Challenged

President Barack Obama is in a funk. Americans are coming to see the president as ineffectual. That is a dangerous perception.

Obama’s job approval rating is at risk of dropping below 40 percent. Democrats may lose their majority in the Senate this fall. It may be difficult for the president to accomplish anything during his last two years.

In the March NBC News-Wall Street Journal poll, 42 of registered voters say they would be less likely to vote for a candidate endorsed by Obama. Only 22 percent say they would be more likely to vote for Obama’s candidate.

from Breakingviews:

Rob Cox: GE should put itself up for sale

By Rob Cox
The author is a Reuters Breakingviews columnist. The opinions expressed are his own.

General Electric should sell itself. If that sounds like an April Fools’ Day joke, think again. It’s a real proposal on the ballot at the industrial group’s annual meeting. Setting aside the absence of any obvious buyer for the $260 billion company, the proposition illustrates the kind of shareholder democracy gone wild that many boards, and even some regulators, would like to squelch. They have half a point.

The proposal is one of about six that investors put forward and will be up for a vote at GE’s April 23 annual meeting in Chicago. Not all are quite so extreme. One calls for senior executives to hold options for life. Another would end stock awards and bonuses. Naturally, management is opposed to each of them.

from Nicholas Wapshott:

Crimea: Too small to matter

Crimea is permanently lost to Russia.

That is implicit in President Barack Obama’s remarks about where the Ukraine crisis heads next; the terms of the Paris talks between Secretary of State John Kerry and the Russian Foreign Minister Sergey Lavrov, and the West’s rejection of military action to hurl back the occupying Russian forces.

That Crimea is gone forever is also the view of former Defense Secretary Robert Gates, who declared, “I do not believe that Crimea will slip out of Russia’s hand.”

It is now generally accepted in Washington that short of sparking a shooting war, Crimea is lost and will now always be Russian. President Vladimir Putin, presiding over an economy of $2 trillion, barely equal to California, has roundly defeated the United States and the European Union, with a combined worth of more than $34 trillion.

How GM can recover

General Motors chief executive officer Mary Barra on Tuesday and Wednesday will appear before Congress to explain why GM took more than a decade to issue a recall on a faulty ignition switch, which led to at least 13 deaths. The hearings will be a proving ground for Barra, who became CEO in December 2013, as well as for GM’s new chairman, Theodore “Tim” Solso, and the entire GM board.

Congress will question why Barra’s most recent predecessors didn’t catch the defective switch. A likely explanation is that the board and senior management were so focused on digging GM out of bankruptcy that they weren’t paying attention to what else may have been going amiss.

Of course, that excuse is insufficient, since the company needs to do both things simultaneously: avoid bankruptcy, while building safe cars. Barra, Solso and the board must convince Congress, the markets and consumers that they have identified why the faulty ignition switch went undiscovered for so long, and that they can be trusted to prevent a similar crisis from happening again.

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