US Airlines Play the Slots at NYC Area Airports

Newark Liberty Airport
(Image: panynj.org)

Remember a time when airlines competed against one another? Those days are increasingly becoming a chapter in commercial aviation history. The major US carriers -- United, American, Delta, Southwest -- are apparently pursuing a business strategy predicated on local dominance rather than robust competition. A case in point is Newark Liberty Airport, the closest New York area airport to my residence. United currently commands about seventy percent of the facility's arrivals and departures. That fact gives the airline considerable leverage in its consumer pricing. In contrast, United's LaGuardia-based service is typically cheaper than its Newark-based flights to the same destination. A lot cheaper, as I discovered (and used to my advantage) during my frequent flyer days.

Access and passenger-unfriendly pricing is hardly limited to New York. Hubs such as Atlanta foster de facto monopoly service and high rates. How can this business situation exist? Airport access is entirely controlled by the number of slots an airline can obtain. This tends to be a fixed number. According to a recent Bloomberg article, these slots are the currency between airlines that aim to obtain quasi-exclusive control of lucrative local markets. The recent Newark-JFK slot swap engineered by United and Delta is a case in point. Why the FAA permits these anti-competitive situations to fester is an interesting question.

Image: en.wikipedia.org

One suspects the United States is marching toward acceptance of the notion of controlled aviation markets, high prices, and effectively no competition. These three qualities precisely characterized the friendly skies prior to industry deregulation. One big difference between flight during the Mad Men epoch and today's House of Cards era is service. At least in a deregulated world, you didn't have to pay for a pillow, a blanket, or a meal. Then again, a traveler couldn't gamble on an airplane. Contemporary passengers can simply go online and play the slots.

Good luck beating the house, whether it's Las Vegas action or slot-fixed airline fares.

NSA Provides Heavily Redacted Report on Its "Improper Surveillance" of Americans

The elves at the NSA were certainly busy this holiday season. Besides their usual snooping activities, the agency prepared a report on instances of its "improper surveillance" of American citizens. The NSA did not exactly go into this project willingly; it was compelled via a lawsuit filed by the American Civil Liberties Union.

The agency released its heavily redacted report on who was naughty or nice on the afternoon of Christmas Eve. A story about the information appeared in Bloomberg; the piece was later linked in a Washington Post roundup. The timing virtually guaranteed minimal public attention to an issue on which left-wing occupiers and right-wing liberty lovers should theoretically find common ground.

The NSA would not have even entertained providing these crumbs of knowledge of its business, except that Edward Snowden's revelations forced its hand. Coincidentally (or maybe not), a former naval officer filed suit this week in Kansas against the producers of Citizenfour, the Laura Poitras-directed documentary about Snowden's efforts to make public what the NSA most devoutly wished to reamin concealed. The suit alleges, among other things, the producers' intent to profiteer from the film. The story about the litigation appears in commondreams.org; a link to a PDF of the court papers appears courtesy of the information technology news website theregister.co.uk.

What Do Pay Pal Founder Peter Thiel and Baseball Star A-Rod Have in Common?

Peter Thiel

Peter Thiel is something of a self-made zillionaire, thanks to his early investments in Pay Pal and Facebook. He's outspoken, as only an openly gay, openly Libertarian billionaire can be. Among his concepts is the creation of a republic on a yet-to-be-made man-made island, a sort of Atlantis in the Pacific. More recently, Thiel shared with Bloomberg's Silicon Valley talking head Emily Chang his quest to extend his life expectancy beyond normal actuarial standards. (The interview was presented in a boiled down version by siliconvalley.com's Michelle Quinn.) The magic ingredient is none other than HGH, or human growth hormone. Thiel noted its ability to help one maintain muscle mass.

HGH made its reputation, for better or worse, through its association with Major League Baseball players. They knew or believed the hormome had the potential to enhance their ability to perform and extend their careers. A number of stars took HGH, none brighter than Alex Rodriguez. A-Rod eventually became MLB's sacrificial lamb to demonstrate it didn't want players gaining advantage via the use of biochemical aids. Maybe Alex Rodriguez should have played the markets instead of hardball.

Olympic Committee Recommends Dropping Wrestling from 2020 Summer Games

You don't have to follow legitimate wrestling or the Olympic Games to cry "foul" over the International  Olympic Committee's (IOC) executive committee's recent recommendation to drop the sport from the 2020 Summer Games. That's right: the sport associated with the original, ancient Greek Olympics is going to be dumped. This action, and its indefensible rationale, has generated worldwide condemnation. The IOC managed to pin a truly worldwide sport to the mat of TV popularity and commercial endorsement.

Antique Greek Cup Showing Athletes
(photo: British Museum)

Wrestling's advocates in the United States have quickly published op-ed articles, interviews, and other publicity initiatives protesting the IOC's outrageous decision. A Bloomberg video segment with Fortress Investment Group principal Michael Novogratz articulates the case against the IOC's decision. Among the printed, high-profile opinion pieces was one former Secretary of Defense (and Princeton University wrestler) Donald Rumsfeld published in The Washington Post.

Rumsfeld mentions that his athletic activity helped develop his ways of thinking and his character. He has considerable company in that line of reasoning. When I was a pre-teen, I had what today are called "self-esteem" issues. I had just failed a junior life-saving program that, along with other disastrous life changes, brought my self-confidence down to zero. My father thought one way to reverse that trend was to take boxing lessons at a private, somewhat privileged neighborhood athletic club. However, one look at boxing and I wanted out. I thought my chances of getting slugged in the ring were far greater than any punishment I could deliver. Wrestling seemed a safer play.

The wrestling lessons were taught by the boxing instructor, a short man who could argue with either his wits or his fists. My usual opponent was an age peer who lived in the neighborhood, but didn't fit the prosperous area's demographic profile. He lived in an apartment above some shops. He was raised by a single mother and I believe went to public school. Both circumstances were unusual for a 7th grade Catholic kid in Forest Hills at that time. He was a better wrestler than I was, and he was quicker and stronger than I was.

There was a public competition at the athletic club; my usual nemesis and I were names on the wrestling card. This time, I beat the odds, mostly by using a defensive strategy. My opponent never really displayed what he could do, and I won. Did I feel good about the victory? No. I didn't really win as much as avoided defeat. Much more significantly, I felt badly for my opponent. The result clearly hammered his self-confidence. I felt guilty that happened. How would his life have changed had he performed as he had practiced? As a consequence of his defeat, was he destined to be trapped in a world where he always ended up on the wrong side of the tracks, the losing end of an argument, the runner-up in a two-person race?

Clarissa Mei Ling Chun
US Female Olympic Wrestler
Bronze Medal/London 2012 Olympic Games
(photo: Reuters, and shown in the Christian Science Monitor)

I realize people overcome disappointment, and that is as much character building (maybe even more so) as the cult of winning fosters. Meanwhile, the experiences and lessons from my brief encounter with wrestling have stayed with me for a lifetime. They have done so for others, from august American cabinet ministers to anonymous athletes from obscure nations. They have done so for centuries. Why the International Olympic Committee chose to drop wrestling from its 2020 Games defies common sense and global experience.

S&P Downgrades NY Mets' Bonds

Will the bond degrade
mean curtains for Mr. Met? 

The New York Metropolitan Baseball Club, Inc., popularly known as the New York Mets, hit the dirt after receiving a chin-high fastball from Standard & Poor's. The rating agency knocked the Mets' bond rating down to the second level of "junk" status, Wall Street's equivalent of the Mendoza Line. The Mets' bonds are no longer "investment grade," which automatically prohibits certain pension funds, mutual funds, and other institutional buyers from purchasing these securities.

According to a bloomberg.com report, S&P raised concerns about the Mets' ability to meet certain revenue generation thresholds. It didn't take a wizard in financial modeling to realize empty seats and a lackluster squad equalled the proverbial downward slope for performance expectations. Considering the strength of the American corporate bond market, the downgrade is a disturbing event, one which Standard and Poor's and the Mets tried to bury during a slow, year-end holiday news period.

Overarching the ratings determination is the unspoken, but well known impact the Madoff scandal had on the Mets. The prevailing sentiment is that Madoff "made off" with much of the Mets' money. While the Mets' ownership has skated on this issue, the practical result has been the resemblance of the National League's #1 market to a small time operation. That is an unbecoming outcome, from which little good is likely to emerge.

Nevada Hookers Lean Libertarian in GOP Prez Primary

Sign Outside Moonlite BunnyRanch

The Republican Party's race for Nevada's hooker votes has come to a head in recent days (puns very much intended). The surprise leader, up to this point, is Ron Paul. His libertarian ideology struck a sympathetic note with the state's legal prostitutes (no, we're not talking about its elected officials).

According to a bloomberg.com story, the customers and sex workers at Nevada's Moonlite BunnyRanch are ponying up for Paul's campaign. Intriguingly, they don't care for Mitt Romney, whom they view as "too square." That was not the case with Newton Leroy Gringrich, whose extra-marital affairs and tawdry divorce proceedings have generated more public debate than his policy positions have. Dennis Hof, the owner and self-proclaimed "pimp master" of the Moonlite BunnyRanch and other Nevada brothels, claimed his hooker poll (what a phrase to use in a political discussion!) indicated the women who play for pay liked Gingrich. "They don't have a problem with him being a womanizer," Hof said.

Patent Chase Resembles Napoleonic-Era Alliances and Conflict Scale

The Financial Times posted an interesting overview of big-time tech's current, high-stakes bidding for patents. Major players, such as Google, Apple, and Microsoft, recently concluded an auction for a substantial portion Nortel's intellectual property covered under U.S. patent law. To prevent Google from obtaining this rich vein of tech gold, a commercial alliance that resembled a Napoleonic Era-style alliance was formed to outbid the Mountain View, California search monolith. Among the friends of convenience were presumed adversaries Microsoft, Apple, and Research in Motion. Notably, Google executive chairman Eric Schmidt complained after the fact about the investment in patent acquisition versus ponying up for (shades of Bill Gates) "innovation."

Why would the alliance be so desperate to stop Google? The FT article provides a startlingly simple answer: Google has a thin patent collection compared to its principal competitors. The financial implications of patent control have escalated as mobile computing and smartphone popularity dramatically increase on an annual basis. Microsoft, for example, is now charging a per-unit fee for each Android-capable unit made by selected handset manufacturers. It's a gold mine for Microsoft, which really doesn't have to do much of anything except litigate and collect. Apple, for its part, a story originally reported by Bloomberg News noted a recent FTC ruling in favor of Steve Jobs' firm against an Android handset maker for patent infringement.

As for these extra costs, expect a product price bump, so that these payments are embedded in the overall retail or wholesale rates.

When Yahoo's Jerry Yang stupidly torpedoed Microsoft's bid to acquire his firm, he opened the door to Google's continued drive to effectively become a search monopoly. We are now at the point where "google" is unthinkingly used as a transitive verb to generically identify online search technique. Once Google entered the smartphone business, its affected major competitors realized they were in for a fight. Ironically, the FT piece characterized the latest Nortel patent battle as Google's "Waterloo." What wasn't said was that it took a grand alliance to take on the Napoleon from Mountain View.

The image at the top of the post is from Ocean Tomo. According to its corporate website, Ocean Tomo "provides financial services and products related to intellectual property...." In April, 2011, an Ocean Tomo press release discussed in some detail the issues involving Google's conjectured bidding on Nortel patents.

Skype Execs Axed To Avoid Payout After Microsoft Acquisition

One distinct change in American capitalism over the last half-century has been the buyout. Rather than build firms that would last, and in many cases continue a family legacy, enterprises are created with a notion of selling them to some other entity. The idea, in simplest terms, is to get rich right now.

The gold rush employees after a corporate buyout sounds so easy, so alluring, so deserved. Well, imagine the surprise of a number of Skype executives when they found themselves pink slipped in the wake of Microsoft's acquisition of the Luxembourg-based Internet-calling service. The execs were fired before the Microsoft deal closed. The practical effect of the dismissals was to diminish the value of the execs' payouts. In other words, they're going to get far less money than they had bargained for. It turned out that "getting rich right now" didn't include Skype's executed execs.

The complete story originally appeared in Bloomberg News and was reprinted in the Mercury News.

McDonald's Hires 62K, Turns Away Nearly 1 Million Applicants

You've heard how the American economy is "recovering," and how our economic situation is "improving." Well, a Bloomberg story today puts a sobering shadow on the manufactured good feelings. According to the article, which I first spotted in the financial blog Zero Hedge, 62,000 job applicants will soon be flipping burgers at McDonald's. Unfortunately, over 900,000 got the frosty mitt from the producer of Happy Meals.

Ah, well, there's always the underground economy.

Google To Test Mobile-Payment System in NY and SF

According to a story posted on bloomberg.com, Google is getting ready to test a mobile-payment system.

It's way overdue for any American firm to do this in the Land of the Free and the Home of the Brave. Asians and Europeans I speak with are astonished that the United States lacks even a rudimentary mobile-payment system. Consumers in the rest of the developed world use their cell phones to pay for many things, from soft drinks to mass transportation. The delay in the States has often been blamed on the major telephone companies, which just hadn't quite figured out how to make a zillion dollars on the deal and screw their competitors at the same time.

Whether Google is the most desirable firm to launch this commercial activity is debatable. Its dominance in search is troubling enough for those who do not believe that bigger is necessarily better. The combination of a dominant mobile-payment system and a near-monopoly on online search represents a financial bonanza. Once entrenched, Google would be as formidable as Standard Oil was in the 19th Century.

At least Google is forcing the issue. It's about time someone did.

Thain: Lehman Bailout Would Have Prevented TARP

The Bloomberg media empire, whatever its flaws, has performed some fine work exploring the 2008 bursting of America's financial boil. Its reporters have filed Freedom of Information Acts, the successful pursuit of which have brought to public light unsavory, discomfiting details about the financial markets and their interactions with federal agencies. Bloomberg's reporters have probed material gathered in testimony, gone to court, and basically done the dirty work that is the core of investigative journalism.

A case in point is today's simple story from Bloomberg reporter Hugh Son. In it, Son cites audio files released from the Financial Crisis Inquiry Commission focusing on comments submitted by John Thain.

Thain's thesis is that, had the Feds bailed out Lehman, the self-inflicted torpedoing of the American economy and subsequent (and largely misunderstood) TARP bailout would not have been necessary.

John who? How quickly we forget. Thain, currently CEO of CIT, was el primero at Merrill Lynch during the 2008 disaster. A former NYSE chairman, Thain stage managed the grafting of two wildly opposite enterprises -- Merrill and Bank of America -- into one splendid taxpayer subsidized catastrophe. He also had a hand in Merrill employees getting $4 billion in bonuses while the firm was plunging into the fiscal abyss. It has been strongly suspected, though unproven, that TARP funds paid for Merrill's way of saying goodbye.

For his part, Thain originally demanded a bonus for his role in the Merrill-BOA merger. He asked for $10 million in addition to his lavish compensation package. How lavish? In 1987, Thain earned around $83 million for his labors.

Thain, whose name rhymes with "vain," displayed an amazingly arrogant sense of entitlement throughout his career. The most egregious example of this behavior was his spending on his Merrill corporate suite. In early 2008, Thain had the firm pay over $1 million to redo two conference rooms, a reception area, and Thain's personal office. A $35,000 commode, part of the redecorating, was included in the deal. Only after those details became public information, and a source of outrage, did Thain reach into his pockets and pony up. (That leaves $82 million remaining from the 2007 compensation alone, in case you're keeping score at home.)

The former Merrill CEO still has powerful friends, as the linked relationship map from muckety.com suggests. He is a prominent Republican Party member and was among John McCain's economic advisors during the Arizona senator's unsuccessful run for the presidency. It's unknown whether Thain advocated for a continuation of the Bush tax breaks to the wealthiest 1% of Americans.

Great Recession Scorecard

The New York Times, which had the hubris to declare the Great Recession kaput, does demonstrate occasional spasms of intent to inform. A case in point is via its "Dealbook" section, which created a funny, and informative, diagram of financiers prominent during the "slippage" of 2008-2009. (In case you've forgotten, the cast of corporate characters barely or no longer with us includes Bear Stearns, Lehman Brothers, Citicorp, AIG, WaMu, Wachovia, Fannie Mae, Freddie Mac, Merrill Lynch, Countrywide Financial, etc.)

Use Zero Hedge's link to take you directly to the action.

PS. In case you use your NY Times/3-D recession-proof reading glasses on a regular basis, please consider this story from Bloomberg. It reports Meredith Whitney's latest oracular statement: many states will need a federal bailout within the next 12 months. Warren Buffett expressed a similar sentiment earlier this year. Of course, the Great Recession is over. Isn't it?

Extra credit: Bloomberg also has a video segment with Jim Grant, a man with a very interesting, highly independent mind.

The furtive fellow in the photograph is Joseph Cassano, former capo of AIG Financial Products, who gained considerable experience with Drexel Burnham Lambert during Michael Milken's heyday. The Department of Justice earlier this year decided not to pursue criminal charges against Mr. Cassano. Roughly a month after the DOJ announcement, Cassano testified before a House committee investigating various issues impacting the near-collapse of the American financial marketplace in 2008-2009.