Thieving

For a good example of how a CEO and board steal from a company, read Chesapeake Energy's proxy statement.

Some choice excerpts:

Executive Officer Compensation :
Messrs. McClendon, Rowland and Dixon are responsible for analyzing, developing and recommending base salary adjustments, cash bonuses and restricted stock awards with respect to the executive officers, including themselves, for review, discussion and approval by the Compensation Committee at its regularly scheduled meetings in June and December of each year.

The CEO McClendon gets to decide how much he pays himself. I am sure he is extremely fair in deciding how deserving he is.

Non-employee director compensation currently consists of (i) an annual retainer of $55,000, payable in quarterly installments of $13,750; (ii) $15,000 and $3,500 payable for each board meeting attended in person and telephonically, respectively, not to exceed $110,000 per year for board meetings attended; and (iii) an annual grant of 12,500 shares of restricted stock, 25% of which vests immediately upon award and the remaining 75% of which vests ratably over the three years following the date of award. The annual grant of restricted stock is made from our Long Term Incentive Plan (see page 7, “Voting Item 3—Proposal to Amend Long Term Incentive Plan”) on the first business day in July of each year. No additional compensation is paid to directors for participating on or chairing a Board committee.

Under the Company’s 2003 Stock Award Plan for Non-Employee Directors, 10,000 shares of our common stock are awarded to each newly appointed non-employee director on his or her first day of service.

Under the Company’s policy regarding the use of fractionally-owned company aircraft, our directors are provided access to fractionally-owned company aircraft for travel to and from Board meetings. For Board meetings and other Company activities at which the attendance of a director’s spouse and immediate family members are also requested by the Company, we make tax gross-up payments to the director associated with the taxable compensation attributable to the spouse/family member travel. In addition, each non-employee director is entitled to personal use of fractionally-owned company aircraft seating eight passengers or fewer for up to 40 hours of flight time per calendar year in North America, the Caribbean and Mexico.

Given the stock price has been between $ 20 and $ 80, each director gets between $ 250,000 to $ 1mm a year, as well as a 'sign on' bonus of $ 200,000 to $ 800,000. As a director, you can pop down to the Caribbean with your family on a fractionally owned NetJet and have Chesapeake Energy foot the bill.

Richard K. Davidson - $ 739,673
V. Burns Hargis - $ 479,557
Frank Keating - $ 762,858
Breene M. Kerr - $ 784,687
Charles T. Maxwell - $ 620,526
Merrill A. Miller, Jr. - $ 542,024
Don Nickles - $ 753,379
Frederick B. Whittemore — $ 673,421

Each of the directors made close to a million dollars a in 2008 year just sitting on the company's board. The share price went from 40$ in the beginning of 2008 to 17 $ in the end of 2008. The average shareholder lost close to 58%. So much for alignment of management and shareholder interests.

Because of Mr. McClendon’s unique role as co-founder of the Company, he is the only executive officer with the opportunity to participate as a working interest owner in the natural gas and oil wells that the Company drills.

Special Incentive Compensation.

On December 31, 2008, the Company entered into a new five-year employment agreement with Mr. McClendon. The agreement recognized his leadership role in completing the four transactions in 2008 (discussed above under “2008 in Review” and detailed below) that were exceptionally advantageous to the Company and its shareholders, further aligned his long-term financial interests with those of the Company and its shareholders and obtained his long-term commitment to remain in his position as CEO. In addition to the cap on cash salary and bonus compensation described above, Mr. McClendon’s employment agreement includes the following provisions:

• A one-time $75 million well cost incentive award that, after reduction by state and federal withholding taxes, was structured as a net credit against future billings from the Company for well costs owed by Mr. McClendon under the FWPP, with a five-year clawback;
• A five-year employment commitment by Mr. McClendon;
• An extension of the non-competition period with respect to certain
  terminations by the Company; and
• A reduced stock holding requirement
  during 2009.

Mr. McClendon has given himself the opportunity to co-invest in company projects, and then have the company buy out his interest for lots of money. In this case $ 75 mm. This is in addition to the $ 1mm base salary and $ 15 mm bonus for non-performance.

In December 2008, the Company purchased an extensive collection of historical maps of the American Southwest from Mr. McClendon for $12.1 million, which represented his cost. A dealer who had assisted Mr. McClendon in acquiring this collection over a period of six years advised the Company that the replacement value of the collection in December 2008 exceeded the purchase price by more than $8 million.

In 2008, the Company became a founding sponsor of the Oklahoma City Thunder, a National Basketball Association franchise owned and operated by The Professional Basketball Club, LLC (“PBC”). Mr. McClendon has a 19.2% equity interest in and is a non-management member of the PBC. The Company paid $3,495,525 in 2008 and $1,165,175 in 2009 pursuant to its sponsorship agreement for the Oklahoma City Thunder’s 2008-2009 season.

Shocking to say the least. A public company being treated like your personal bank account. Didn't Enron, Worldcom and Tyco teach anyone anything? Why do shareholders put up with crap like this. The fruits of what is a nice business are being reaped disproportionately by those running it.

Mama's Boys

NYTimes, April 4th 2009

The veneration of the mother in India has a long history, rooted in part in
Hinduism’s powerful female gods. [Ok] The country is often referred to as Mother
India. [Agree] Nearly every Bollywood movie features a strong mother character in a
leading role. [Not exactly but vaguely plausible] And one of India’s largest suppliers of milk and cheese is Mother Dairy. [What!!]

Helicopter Ben Bernanke

Did you know that his stated intent to drop some money by helicopter is actually a reference to an essay by Milton Friedman, where he explains the relationship between an increase in money supply and inflation? (Chapter 2 : "Mystery of Money", Money Mischief, Pg. 29)

That chapter is the best short description of monetary policy ever. At least, its the only one I have understood. It sheds a lot of light on the recent actions of the Federal Reserve and Treasury.

Recent economic events can be summarized as follows :

- Economic shocks to the system have reduced the supply of credit (bankrupt banks), demand (What if I lose my job tomorrow, I need to save!!) and increased preference to hold cash.

- As demand reduces , producers start losing money and react by cutting prices, reducing production and reducing jobs.

- Since debt is in $ terms, the real cost of debt goes up.

- This sets up a vicious cycle. Job losses reduces demand even more, and that spurs even higher job losses and more bankruptcies.

What can the Federal Reserve do about this ?

- Flood the system with cash.

- In "normal" conditions this cash is more than what typically people like to hold, so they spend it. This increases demand, leads to higher prices which then would reduce demand, and in aggregate you are back to where to you started, except that everything costs more. The real value of a previous debt goes down proportionally.

- In "worst case" conditions this cash is not spent but held in entirety as everyone is shell shocked. Absolutely nothing changes, and we continue to deflate.

- The Fed is hoping for something in between, where some fraction of the additional cash finds its way into the system, leading to demand coming back, prices going up and the real value of debt going down - reflation essentially.

- Once confidence has come back, try to pull out some of that cash so that inflation does not go out of hand. One problem with doing that is the size of US household and government debt, and overall fiscal and trade deficits. Though China and Japan would be very unhappy, inflating away a moderate fraction of it is key. They shouldn't actually be so unhappy, because in the other scenario they wouldn't get a cent, as the US will be bankrupt baby. I am not exactly sure how they can take possession :).

PS: This speech by Ben Bernanke, as a Governor of the Federal Reserve System, almost exactly explains the rationale for many of the current Fed actions.

The Key

The key to humor is uncertainty, surprise and absurdity. Amplify, heighten, exaggerate and lampoon the strange situations that life is filled with. Its all about looking at life from a novel and different viewpoint. The "garden path"- you are led into a situation expecting one reality to unfold but you are hit by another. All the stuff that makes you nervous in real life, makes you laugh if done on the stage.

Idiot!

I am an idiot. I think the biggest contributor to mistakes is not incompetency but hubris. Believing you are right doesn't count anywhere except in religion. What counts is systematic effort and analysis, and infinite scepticism. Assuming you know something is infinitely worse than admitting you know nothing.

Random Culture Vulture (Sepulcher) Observations

My favorite few paragraphs in all of literature must be Tom Sawyer getting Ben Rogers and a bunch of others to whitewash his fence.

I saw this play "Strange Interlude" by Eugene O'Neill. It must be the strangest play I have ever seen. It has 9 acts and goes on for 5 and a half hours. We started at 2pm, had a dinner break at 5pm and the play finally finished at 9pm. The basic premise is that life is lived in the past and the future, and the present is but a strange interlude. Also, what is the "right" thing to do may not be the "moral" thing to do. Very dark with characters that launch into inner monologue soliloquys every once in a while. Leave the play with the feeling of having been privy to a crazy neurotics mind. Its like Freud + Jung with a background of hideous screams.

What did the comic say about his life?

Life is a stage, but mine is a joke.

By the way, if you are ever looking to write good comedy use 30 Rock, Arrested Development and The Office as templates. Its all about developing wacky interesting characters, letting them interact with each other and allowing the magic to be made! The Ha ha one liners are for the escapists who don't want to do the real thing. Its a gourmet meal compared to a McDonalds hamburger.

Art Institute

• Firstly, and most importantly its free for the month of February!
• New and improved impressionist galleries. Fortunately, most of the modern mumbo jumbo paintings have been carted off to the yet unopened Modern Wing. Unfortunately, that includes the Picassos and Dalis.
• One huge gallery of art from the Indian sub-continent.
• The Munch exhibition. Doesn't that make you want to Scream? (Get it? Get it? 'Scream' is Munch's most famous painting. Get it? Get it?)
• Daily museum tours at 2pm on weekends. Did you know that this painting by Toulouse Lautrec (left) and this painting by Renoir (right) are both at the Circus Fernando? Now you do. Use that information wisely next time you want to impress someone at a museum.

Generalissimo

Did anyone see the investment banker dig in the new 30 Rock episode? Ha ha very funny. They have the show nailed. Good comedy is like a great meal, a beautiful painting or an exquisite narrative - entrancing but you just can't figure out how it was done.