Programmed to receive

June 27, 2011

Felder’s on the right, the golden parachute on his back obscured by a knife

 

Three years after its release, your humble blogger recently read Heaven & Hell, the tell-all book by Don Felder. He’s the guitarist who joined the Eagles in 1974 and left amid a flurry of lawsuits 27 years later. If you’re familiar with the band’s story, you can skip the next paragraph.

After the Eagles had released two albums, Felder joined, making the band a quintet. They weren’t yet the icons they are now, and the original members gladly made Felder a full partner in the corporation they’d created to conduct business under. (After all, he was now going to be on the hook for 20% of the expenses.) Within 3 years two of those original members had quit, each returning his shares and ultimately turning Felder into a 33% partner.

Felder owned one-third of the most lucrative undertaking in the history of popular music. When the Eagles resumed after a 14-year layoff, they packed stadia around the world and charged fans historically high prices for the privilege of seeing their soft-rock favorites performed without any showmanship or pyrotechnics getting in the way. The tour brought in an estimated quarter-billion dollars, with relatively little overhead. There was no stage show to speak of, and expenses beyond the usual (travel, food) largely consisted of paying the side musicians. On top of that, the band members claimed to have sobered up – even Joe Walsh – which can easily turn red into black.

Fans were clamoring for another album. You know, to complement that copy of the Eagles Greatest Hits that every sentient being in the universe owns. (Biggest album in music history. Septenvigenuple platinum.)

The Eagles’ disagreements were already legendary, and had led to their breakup and the hiatus that lasted considerably longer than the band had been together. But decades later, when the money headed for the exosphere, the bickering reached critical mass. The two other partners “dismissed” Felder, because “squeezing him out to split the money fewer ways” sounded even less charitable.

One problem: the corporation. A limited-liability entity that protects its members’ interests, including that of one Donald William Felder. The other principals – Don Henley and Glenn Frey – obviously had the right to decide whom they wanted to play and record with. That’s not the issue. If Felder had been an employee (like longstanding Eagles Walsh and Timothy B. Schmit), he’d have been shown the door like most of us have at some point, asked to return his parking pass and given a 2-week severance check if he was lucky.

But Felder fought back in his capacity as a shareholder. The parties reached an out-of-court settlement, the details of which of course have never been publicly disclosed, but we do know the litigants’ arguments. First, for the defense:

  • Henley and Frey felt they were entitled to larger shares, given their disproportionate contributions. They wrote and sang the vast majority of the songs. Felder wrote only a half-dozen and sang only one (which still made him more prolific than the two remaining members.)
  • Only Henley and Frey were there from the start.
  • Felder’s departure was unanimous. No one who matters wanted him there – neither of the other partners, neither of the non-partner band members, nor their longtime manager.

And from the plaintiff:

  • Felder wrote the band’s biggest hit, “Hotel California”.
  • To any true fan of the band, he was an inextricable part of it. Imagine Mount Rushmore without Jefferson. (Alright, that’s grandiose. Imagine Stone Mountain without Robert E. Lee.)
  • There’s more to a band than singing and writing songs. The contributions of a lead guitarist are not meaningless nor irrelevant.

And the only argument that matters in the eyes of corporate law:

  • If the remaining members wanted to tour and record under their valuable trademarked name, with or without Felder, he was entitled to a cut. Ideally, he should contribute something in order to enjoy a share of the profits, but if the other partners unilaterally refuse his contributions, they can’t subsequently deny him his take.

It didn’t matter whether everyone in the universe wanted Felder out of the band. They had formed a corporation. He was a shareholder, and a significant one. You can’t simply strong-arm shareholders out because of personal or professional differences. (Unless the corporation is General Motors, and the President of the United States is the one doing the strong-arming, but that’s a post for a different time.)

 The parties settled, with Felder selling back his interest. He got his, however much that might be. Whatever the amount, it was clearly large enough to keep him happy while small enough to make it worth the newly truncated Eagles’ while to continue as a band. (Then again, maybe they’re continuing to tour because they need to make enough to pay Felder off.) The Eagles released an album without him, which reached #1 everywhere from India to Russia to Greece and sold the equivalent of 7 million copies. (Which might even be more impressive today than selling 27 million albums was back in the ‘70s.)

Okay, captivating story, but how does rock stars fighting over riches pertain to you?

Felder was smart enough, or fortunate enough, to have become a business owner, rather than a well-compensated employee. (Either that, or he had someone smart enough on his side during initial negotiations.) That means:

  • His financial rewards weren’t tied to his labor.
  • He could enjoy residual profits. The “Hotel California” royalty checks continued long after he recorded the guitar parts for that particular song.
  • He was protected against losses, should there have been any. He was only on the hook for his original contribution to the corporation, which, when he became a shareholder back in 1974, was negligible.
  • He had a say in the workings of the corporation. Future profits (or losses) were linked to his (and the other owners’) decisions.

Contrast that with the fates of Walsh and Schmit, who remain salaried employees, no different than the roadies or the bus drivers. These guys have been famous rock stars for decades, yet they’re still obligated to The Man. They work at their bosses’ whim, and gain no incremental advantage if the corporation succeeds beyond projections.

Sure, their paychecks are somewhat guaranteed, while the owners risk losses. But the chance of business owners losing money on a proven successful venture is minimal. And, should the money suddenly evaporate and a business no longer be feasible, the first things cut from the budget will always be…employees.

If you’re operating a business, you owe it to yourself to incorporate. If you’re an exceedingly valuable employee and you know it, you owe it to yourself to want a piece or threaten to walk to a competitor who’ll give you one. There should be no loyalty in the employee/employer relationship, only honor. Work hard if you’re an employee, make sure the checks clear if you’re an employer. Any perceived obligation beyond that is 21st century slavery.

 **This article is featured in the Independence Day Totally Money Carnival**

Filed Under: Bad Examples, Estate Planning, Finance, Making Smart Choices Tagged With: , , , , , , ,

Your Smart Car isn’t saving the world

June 22, 2011

Gas prices too high? Congress will solve the problem, by forcing those greedy car manufacturers (who are in bed with Big Oil, you know) to increase their average gas mileage.

 

 

 

This model of Hummer actually gets NEGATIVE miles per gallon.

Gas prices low? That means people with low-mileage cars will drive more than they otherwise would, polluting our rivers (I think. Rivers might have something to do with it. Okay, oceans then) and keeping us ever more dependent on foreign oil. Which means it’s time for some intervention. Like legislating higher gas mileage.

Gas prices at their historical average? Well, there’s probably something nefarious about that, too.

Let’s go to the helpful folks at AAA for some numbers. AAA, the organization that will replace your flat tire (something any human should be able to do), bring you gas (if you’re dumb enough to run out, which should be practically impossible), give you maps (obsolete c. 2007) and send that godawful monthly magazine with prissy stories about the charming new vineyard taking root (haw!) in Sonoma County. “They make a Cabernet that is to die for. Best enjoyed with roasted squab. Tastings and tours daily.”

Take most of what AAA says with skepticism – they’d have you believe that checking your email at a stoplight is the equivalent of driving over the double yellow with a Stolichnaya bottle balanced on your knee – but we’ll use their estimates.

They claim the average American drives 13,500 miles a year. Meanwhile, the Corporate Average Fuel Economy standards mandated by federal bureaucrats and legislators require the average passenger car get 30.2 miles per gallon.

(Why they don’t simply legislate that the average car get 10,000 miles per gallon, run on kitchen waste and not be allowed to get into accidents is anyone’s guess.)

Back in the real world, that 30.2 figure is for the current model year. Of course, most of us drive cars from previous years. The mandated average has been constant at 27.5 for the previous two decades, so it’s safe to use that as our bellwether.

That means, grossly simplifying things, that the average driver should use about 447 gallons a year. There are around 250 million cars in the U.S., so that’s 2.7 billion barrels of oil we use every year, you filthy mechanized polluter.

A couple of qualifiers, first being the absurdity of mandating technological “advancement”:

Miles per gallon is easy to measure. Other, more important characteristics of a vehicle – like its ability to withstand fires or protect its occupants in collisions – aren’t so simple to quantify. Nor are they the concern of the particular bureaucrats who implement CAFE standards. Our political betters are collectively self-aware enough to know that they can’t set standards for two disparate variables simultaneously – cars should have at least gas mileage x while having fire retardation y – but that doesn’t stop them from measuring the one variable and enforcing an arbitrary, largely unforceable minimum.

Setting that minimum is a politically palatable way of what can only be described as fixing the market. The result is that auto manufacturers are forbidden from selling as many of their low-mileage vehicles as buyers want. Instead, said manufacturers can only sell a given number relative to the number of high-mileage cars they can sell. Otherwise, the average gas mileage of the cars they sell would decrease. Simply because people, for whatever reason, like to buy cars that burn a lot of gas.

It should be obvious that it’s not the flagrant gas-burning that people like for its own sake.

Honda makes a powerful if unglamorous SUV (the Pilot) that’s strong enough to tow 4500 pounds and roomy enough to carry 87 cubic feet of cargo. Which necessitates it getting 18 miles a gallon. The CAFE standard for “light trucks” is 20.7 mpg, which means Honda has to sell enough 36-mile-a-gallon Civics to raise its corporate mpg average, regardless of what the car-buying public wants (or would want, without government functionaries forcing Honda to meet 3rd-party standards, rather than maximize profit.)

Average fuel economy standards are a joke, created by politicians of both parties to feel good about themselves. If Congress wanted to truly “reduce our dependence on foreign oil*”, they’d order us to drive motorcycles.

The sad part is that more than a few dumb voters nod their heads and reelect these idiots, confident that legislating science is a) possible and b) worthwhile.

When you’re looking at buying a car, obviously you should think about how much you’ll spend on gas. But don’t make it your only criterion. By the way, our book Control Your Cash: Making Money Make Sense devotes an entire chapter to it. Which you can download free.

*Apparently, it’s perfectly fine to depend on foreign food, manufactured goods, software, banking, and cobalt, though. Only oil is sacred.

**This article is featured in the Carnival of Personal Finance #316-Family Edition**

Filed Under: Bad Examples, Economics, Healthy Living, Making Smart Choices Tagged With: , , , ,

Public Enemy #1

June 20, 2011

 

Anthony and Mrs. Weiner during gayer times, apparently at the Mauritius Independence Day parade

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

This is the problem with our economy, right here. Get ready for the one Anthony Weiner piece that has nothing to do with sex. Or sexting. Or sextuplets.

The man pictured above, as you probably know, is America’s newest ex-congressman. Some embarrassing details recently came out about him, each revelation more damning than the previous one, culminating in by far the most shameful one of all. From the London Daily Mail:

Anthony Weiner owes between $10,000 and $15,000 on his American Express card.

This man was entrusted with 1/435 of congressional spending decisions. Considering that the current year’s budget sits at $3.8 trillion, you could argue that Weiner was responsible for spending $8.8 billion of your money.

Read that again: a man with a 5-digit credit card bill was making financial decisions for you and me.

It gets better. Over each of the last three years he averaged more than $700 in parking tickets. Well, that’s how much he averaged in unpaid tickets. We’re not sure how many parking infractions he incurred and actually paid for. Weiner also committed fraud by placing the registration sticker for one of his cheaper cars on his more expensive SUV.

The story implies that Weiner owns at least 3 vehicles. While living in a two-person household. And carrying up to $15,000 in American Express debt. (Not sure if he has other cards.) As to why someone who lives in the most urbanized part of the country and doesn’t have kids is driving a Nissan Pathfinder (current models run about $30,000), you’ll have to ask private citizen Weiner.

Maybe he paid cash for all the cars, and isn’t carrying any monthly payments. And maybe he and his wife have a healthy marriage, too.

And – we’re so not done yet – that part about not having kids? Weiner recently announced that he and his wife of a year are expecting a child. A fortuitous announcement, made a couple of weeks ago, because the pregnancy status of congressmen’s wives is routinely of interest to the nation. Good for the Weiners, though: when you’ve got a large liability on your books, one that’s costing you probably 19% interest, that’s the time you want to create another mouth to feed. (Never mind that Weiner will be in his mid-60s when the kid graduates high school.)

Look at the details of his expenditures. See those monthly processing fees? Weiner was paying for the privilege of spending his own money – money he collected as a servant of the United States taxpayer.

If you’re on the fence about leaving a comment on today’s post, leave one in response to the following question: What would be the harm in requiring candidates for Congress to carry zero credit card debt? Or at least in requiring them not to be paying processing fees, which are among the most idiotic and unnecessary expenditures a person can incur? Such a requirement would never become law, because the mice are in charge of the cheese, but still.

A man in his mid-40s, with zero dependents (his wife has a full-time job), and a (useless, political science) degree from a state college, making a six-digit salary, and this is what his personal finances look like.

That Weiner’s inability – no, refusal – to build wealth and take responsibility for his finances barely warranted a mention during his recent story arc in the news is yet another symptom of a fatal disease. His negative cash flow isn’t even remarkable by congressional standards. And again, every sentence in this post could be followed by the following: he’s partially responsible for authorizing federal expenditures.

If you’re nonchalant about your credit card bills to the point where you’re incurring processing fees every single month, many of them in the high triple-digits, while incurring parking tickets regularly and buying more cars than you can possibly drive, why on earth would you bother being judicious when spending other people’s money?

Weiner represented less than ¼% of the problem, too. His ilk remain and continue to spend taxpayer money at uncontrollable (and uncontrollably accelerating) rates. It bears repeating that every dollar confiscated from taxpayers doesn’t only carry the potential to be wasted, but reduces the taxpayers’ own autonomy proportionally. That’s one fewer dollar that could have been invested back in the economy as its original owner saw fit. Meanwhile, the congressman who carries no credit card debt, earns money by providing a legitimate service in the private sector, doesn’t draw a pension on principle, and refuses to let his kids put taxpayers on the hook by financing their educations via student loans, is beyond rare.

Weiner can find money when there’s a sufficiently important purpose in the balance, however. He had somehow managed to scrounge up $3 million for a run at a forthcoming New York mayoral race. The people get the government they deserve, indeed.

**This article is featured in the Carnival of Personal Finance #315: Bring on the Long Weekends**

 

Filed Under: Bad Examples, Consumer Debt, Credit Cards, Making Smart Choices, Personal Finance Tagged With: , , ,
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