Why I oppose the AIG bonus tax bill

We are all aware of the tremendous amount of tax payer dollars being used to prop up AIG. Its in the news everyday. Everyone I know, me included is outraged at the bonuses being paid to some of the executives. Having been in many positions before where my total compensation has been a mix of base salary and a target bonus, I know that every bonus dollar I ever earned was tied to achieving some performance metric or sale of products. So in that sense I do not understand these bonuses that are going to pad the wallets of the executives in the particular division that caused this financial collapse of AIG.

Having cleared that up, I want to now bring your attention to the issue of Congress trying to pass an AIG bonus tax bill with the expressed intent to reclaim those tax-payer dollars. I am against this hasty tax bill because it draws parallels for me on another hasty tax bill that was passed many years ago and now haunts more people than it was ever intended to target.

The Alternative Minimum Tax (AMT) was introduced by the Tax Reform Act of 1969. It was intended to target just 155 high-income U.S. households that used the many existing tax loopholes to literally avoid paying income tax. President Lyndon Johnson's Treasury secretary Joseph Barr and the Asst Sec of the Treasury, Stanley S. Surrey created the initial proposals to tighten the tax loopholes that eventually led to the creation of the AMT. In April 1969 President Nixon's Administration presented its proposal for tax reform to Congress and It eventually became law. The bill, I believe was created in such haste that the AMT proposal did not include the language to adjust for inflation. Congress for years has just sat on this and done nothing about it. 40 years later, it affects more Americans than it ever was intended to apply to. There are even horror stories of this tax affecting people who bought stocks which later dropped in value during the dot-com boom, but they still owed tremendous amounts of AMT dollars to the IRS.

It is thought that by 2010, over 30 million taxpayers will be affected by AMT. Over 94 percent of married filers who have children and make $75,000 to $100,000 will pay higher taxes due to the AMT. This tax that was designed as a parallel tax system in 1969 to ensure that that a few people in higher tax bracket didn't evade paying any taxes through loopholes has now become a comman man's tax burden. Even with all this staggering data, Congress does not do anything about the AMT year after year, because its now become a significant source of tax revenues.

This is single reason why I oppose the AIG-bonus tax bill. I am of the opinion that unless the AIG-Bonus tax bill is very narrowly defined and very very temporary, it will eventually affect a much larger set of people who were never the original target of such hastily passed tax laws. I don't want my government to be reactionary and put in laws that will hurt more people in the future. I want my government to be smart about this and find other ways to recover this outrageous bonus money, not through a hastily drafted document. Let us not repeat the mistake that was AMT (IRS 6251) with another called AIG-tax.

The friction against alternative energy and grid infrastructure

An estimated 50 million people across the US and Canada were affected by the great big blackout of 2003. I remember this because I was scheduled to travel to Canada that day and the blackout caused so many disruptions that eventually I just canceled the trip. I am reminded of this as I read about two events this past week.

The first one I read about was the strong opposition to the planned new high-voltage power line by PSE&G. Eight towns in Morris and Sussex counties of NJ, have formed a coalition to fight this proposal by PSE&G to build the 45-mile, $750 million power line project that cuts through North Jersey.

Construction of this has not even begun and it is estimated to take about 2-1/2 years. PSE&G estimates that the new line needs to be in service by the summer of 2012 to avoid overloaded lines and possible blackouts and brownouts in New Jersey. The power-line project would include installation of towers with heights ranging from 180 to 190 feet, almost twice the height of what exists along the route now. PSE&G says that the new line is imperative and would provide a better and more reliable power system. However the towns are opposing it because of an array of issues regarding health, safety and economic concerns. It seems to me most home owners near the property view the towers as an ugly eyesore.

The second article I read with great interest was that NJ Gov. Jon Corzine's policy push to use alternative, clean energy sources has run into headwinds. Critics of the offshore wind generation project say that it will harm the ocean ecology. Gov. Corzine wants wind farms to supply 1,000 megawatts of electricity. This energy would be enough to power about 375,000 homes. There is a proposal to increase the capacity over time to supply over a million homes with clean wind energy.

The cost barriers for implementing alternative energy sources are already so high. Alternative energy needs extremely high investment infrastructure. Reliable power is paramount as we cannot have blackouts like 2003, which could lead to national security issues. The public who are quick to complain when grid failures occur are however quicker to stall projects that solve the problems. As we modernize our grid, some people will have to live with taller towers in their backyards or unsightly wind-towers. In some cases these offshore wind towers may harm the ocean ecology temporarily. We as a nation are facing challenging times. Opposition to alternative energy sources like off shore wind farms and grid upgrade and reconstruction will only increase the overall cost of these projects.

Local townships and municipalities should understand the immense importance of educating their citizens to support such projects. Instead we see local governments opposing them in fear that some of these projects will lead to destruction of property values and hence tax revenues. To counter this, public utilities should offer greater incentives to the people or townships who are in the path of the power lines. Maybe a 50% reduction on electricity bills for the next 20 years based on current usage would get the public and the townships to reconsider the opposition to the development of a super grid. This incentive limited to those homes within 150 feet of the towers themselves. Also make these incentives transferable to enable an easy sale of the home. I believe that the utilities could easily absorb this cost over 20 years as opposed to years of legal costs of fighting local governments and public.

In the same way, we cannot be delay the installation of offshore wind turbines. In the long run the ecological cost of building these alternative power sources will be far lesser than the threat of global warming that we face.

Competition of the future & the American education system

A few months ago, I sat down with friends over dinner and engaged in a passionate argument about the education system in America. I argued on the side that the times were changing and what had worked in America until now was not going to work in the future. I said that America is woefully behind on education in math and science and that the future belonged to kids who excel in math and science. The next generation of world leaders in both private and public sectors would come from countries that pushed math and science vigorously.

My friends argued that America has a more holistic education system and that it prepares kids to be more creative and artistic. They argued that they would want their kids to pursue their dreams and also consider becoming artists or go into other fields that don't necessarily need math and science. These career paths as opposed to scientists and doctors, the fields which require intense math and science reading.

I argued that it does not matter what fields people go to, but quickness of math and a higher than general knowledge of science are essential components of the next generation of workers. My argument was that it has become imperative that knowledge in these fields is now essential as the global workforce is a lot smarter and individuals have to deal with a more business savvy approach to everyday life. The discussion continued into the wee hours of the dawn, but many did not make an effort to view the scene from my point.

I talked about the documentary "2 Million Minutes", which hopefully will give them some more food for thought about the discussions we had.

I just found this other data point today and it was quite revealing in terms of some of the metrics. I hope you view this as well.

In ending, I just want to say that public school systems in America in general are doing what they can to prepare the next generation of kids, given the fiscal constraints that they work with. However, it is upto the parents to guide their children and help them succeed given the new reality.

What is Social Communications and how to leverage it?

Have you wondered what is Social Media and what it offers? Who should use it and whether this new medium can be leveraged by companies, entrepreneurs and others alike? If you did, you should plan on attending the one day "Social Communications Summit" being held in New York City, on Feb 10th. Jeff Pulver, producer of this summit, wrote "We are living in a time where our phones have become Social Communication devices and that presence is quickly becoming a trigger point for communication".

As a society, we are becoming more and more connected and mobile, able to do things while being mobile. Personal Presence is still evolving as we speak. This evolution of presence, Pulver states "has huge implications for advertising, media and telecom". For me personally, as a Co-Founder of MOBOW, a startup developing products in the mobile presence arena , this aspect of presence made this summit a must attend.

The summit is interesting because it offers a preliminary glimpse as to how the various aspects of social media will play out. Pulver has invited members from the Media, Internet, Communications and Entertainment industries as speakers. I am personally interested in understanding the Investment appetite in this area, Effect of social communication on media and enterprise adoption as well.

Investment: Fred Wilson of Union Square Ventures and an early investor in Twitter is one of the speakers. I am interested in his outlook on investment in mobile in general , and also in this area of social communications. I hope to be able to understand the implications of micro-social expression as he sees it in the enterprise arena. Twitter has been a great consumer application with lots of users and large scale adoption. I myself am a ardent fan of twitter. However , enterprise adoption of twitter-like applications are facing an uphill battle. I believe that's due to the fact that many users in large companies already work in small teams and creation/maintenance of a shared micro expression feed to expressly state what they are working on is seen as a waste of time. I believe that applications that address "goal/task oriented micro expression" with ties into existing content creation mechanisms, along with an identity/contact/group management component to identify relevant participants and smooth mobile content delivery are the keys to success in this emerging nexus between adoption of social media and the reluctant enterprise arena.

Effect on Media: David Kirkpatrick (Senior Editor - Fortune Magazine) recently interviewed Mark Zuckerberg (CEO of Facebook) on stage at DLD09. David is currently writing a book about "The Facebook Effect" . It would be interesting to hear what David has to share from DLD09 regarding Facebook. Apparently Facebook's Connect will be a big focus for FB in 2009. This ties in well with Jeff Pulver's talk at the #soc09, the theme of which is "Connected Culture".

Some of the other interesting speakers are Jeff Jarvis who wrote "What would Google do". He recently spoke about the "Life is a beta" culture about how Google produces products. I have heard him speak at the NY tech meetup and he was also on the Brian Lehrer show today (Feb 6th 2009). While his fascination for Google and the way they do business or product development will be interesting to hear, I would also like to see him address how Social Communications in the realm of "Let your customers decide features", will be adopted by Enterprise Companies, particularly those apprehensive about IP protection.

Engaging Social Media for marketing: Marketing campaigns have to be carefully plotted out. Clueless campaings can face backlash especially by the watchful eyes and ears of the powerful group of Mommy-Bloggers. As many of us know, a small but vociferous self-professed "Motrin Moms", derailed an entire Johnson & Johnson Motrin television and print campaign. The campaign was met with such resistance by the likes of Katja Presnal that eventually executives apologized publicly for allegedly being insensitive and pulled the entire campaign. This incident was a little unsettling for marketers, because it proved that in this day and age of Facebook, twitter and other means of expression (where people have a huge following), news, especially one that angers a subset of the population travels fast. Has this caused companies like J&J to be reluctant to leverage Social Media or should they actually work with focus groups, before releasing campaigns publicly?

There are other tracks which discuss music, and entertainment especially as it applies to social gaming. Overall, I think that the Social Communication conference is a great opportunity for evaluating new means of communication, leveraging presence in a relevant way, advertising, investment and other opportunities in this area. Come, mingle and be a part of the new Social media revolution.

“The tree of liberty must be refreshed from time to time with the blood of patriots and tyrants.”

- Thomas Jefferson

The past year has been monumentally destructive for the equity markets. Financial companies and credit worldwide have nearly been crippled. Fear has invaded the markets and there is no sense in some of the characteristics exhibited by individual investors. I sometimes sit back and wonder in awe the global effect that this economic slowdown has had. Millions of people worldwide are facing unemployment and here in the US, President Obama faces a monstrous task of injecting confidence and rebuilding the US economy.

As I sit back and think about the events of the past year, I am seeing a silver lining in all the doom and gloom of the market and the economy. The very fact that the plug was pulled from those irrelevant lofty valuations caused the excesses of the market eco-system to come out of the woodwork. What this has done is to out the nefarious schemes of people like Bernie Madoff (U.S) and Ramalinga Raju (Indian software giant Satyam Computer Services). The markets had started to flatten and slide by late 2007 and it took almost a year of falling values to trickle down to the point where the schemes laid out by these men unraveled. A lot of people have lost their entire life savings due to these alleged ponzi schemes. It is a sad thing, but in a way this downturn caused more schemes and crimes from being perpetrated. I sincerely hope that all of the illegal schemes will be revealed before the next uptick in the markets and the economy. I say this because when the markets are good and generally rising, dirt can get swept up under the rug, excesses get ignored and thievery can be hidden.

The incoming president’s cabinet members had some issues as well. Timothy geithner and Tom Daschle had unpaid taxes. Would they have paid it if it were not for the promising roles that they were about to undertake? Why did the IRS not catch them or audit them. Tom Daschle had not paid taxes to the tune of over a 100,000 dollars (Late Breaking news as I am writing this, Daschle has withdrawn). These people only chose to pay after the vetting process for the cabinet posts.

In the same way, why did the SEC choose to go after Martha Stewart and prosecute her for a pity-some gain on insider trading charges, when many others got off easy? The question here is, "Was the SEC asleep at the wheel when Madoff was concocting income statements?". Doesn’t the SEC actually do a random check of claim of trades executed as a means to verify the authenticity of income via equity trading?

Thomas Jefferson said that the tree of liberty must be refreshed from time to time with the blood of patriots and tyrants. In much the same way, the needs, greed and excesses of society must be shed from time to time. Unfortunately the patriots pay (lose money), but the tyrants are revealed. Hopefully justice will prevail.

* Note: As the American way goes, at the time of this writing those parties that stand accused of crimes. are all innocent until proven guilty (with exceptions).

A Role Model of a CEO

Everyday, we face more and more news of failed US institutions that are being bailed out at tax payer expense. Ironically many of the CEO's of these mega block buster failures get to keep their excessive compensation or bonuses in spite of having railroaded their companies into the ground.

We learnt recently that even as AIG officials pleaded with government officials to save the company, they also approved a second expensive company junket where top executives went to a secret gathering at a luxury resort in Phoenix. Just in the last day we have seen another failed institution (from succumbing to its excesses of bad toxic debt) being rescued. The Citi rescue package does not do anything to change the failing management.

As I was pondering all this, I came upon this video of the CEO of Japan Air Lines (JAL) and his reactions to the US excesses. I understand that the Japanese economy has its own share of issues, however what I wanted to point out was the humility with which the JAL CEO presents himself. There is no arrogance as displayed by many US CEO's.

All I have to say is that US executives need to take a page from the JAL CEO. In striking contrast to all the excesses of the American CEOs like those at the failed financial institutions, and the recent congressional jet trip for the Big-3 auto manufacturers, the CEO of JAL rides a bus to work, sits with the rest of the employees both at his desk and in the company cafeteria and has slashed his salary to below that of his own pilots (his 07 annual pay was about US$90,000).

Note to World: Don't Write America off

The past few days we have witnessed carnage in the financial markets. The US government has had to step in and stop the bloodshed in this crisis. We can debate endlessly about the origins of this financial mess and the onset of a credit freeze and how it will affect us all. Every pundit on wall street from A to Z has some dire prediction or the other. Excuse me Ladies and Gentlemen, I just want to remind you that it took over two years for this sub-prime slime to unravel and reveal itself as this market-wrecking Godzilla. In the same note, any bailout will take time to trickle down to get us back on track. Yes things will take time, but they will surely settle down. Right now irrational fear is a big driver and we as Americans need to calm down and make up our own minds instead of being swayed by irrational 'doom and gloom' pundits.

This is America, not some god-forsaken banana republic run by some two faced dictator. We have a stable government, composed of an executive, a legislative and a judiciary branch that have come forward to take on a leadership role at times of crisis. You as an individual may not agree personally with the system or the outcomes of these decisions. However, that very same system and all the other elements in place prevent this country from going into chaos time and time again.

A number of people in America and from other parts of the world state that America's reign as a super-power is over. We have people predicting that we are not the financial capital of the world anymore. What does it mean to be a financial capital of the world? We have some in the media predicting dire consequences as a result of this crisis. In fact what this crisis proves is the opposite. We as a nation are working through this crisis and will emerge from it. Not without cost, but definitely without this country falling into chaos. I don't see gun battles and riots and looting on the streets. I don't see people hoarding food and amassing guns and ammunition. Folks, get a grip. It's not over yet. Calling a game in the first of a nine inning game is well, Stupid.

We as a nation will emerge from this crisis stronger. That is not to say that we won't face other kinds of crisis' in the future. We will weather all storms. We will hit road-blocks and face other major catastrophes', but we will prevail. We will emerge stronger, not Weaker. We will be smarter, but surely make new mistakes. We will learn and we will move on.

If you are not sure about the country, it's policies, where it's generally headed, you have a choice. People who just assume that they are the new Nostradamus of predicting doom and gloom of the United States should pack up and head over to wherever they feel is a stable country. This country is about choices and freedom. You have a choice and the freedom to leave. If not you can put your thinking cap on and help build a stronger America.