To most Wired watchers, Wednesday’s announcement of mass layoffs at Wired Digital was business as usual. Ever since the summer of 1996, when the company abandoned its attempt to go public, the economic news about the high-profile cyberspace player has plummeted from bad to worse.
But Wednesday’s layoffs of 33 people, one fifth of Wired Digital’s staff, mark a key juncture. One year ago, a consortium of private investors bailed out Wired’s various enterprises with a desperately needed $20 million. This week, the bill for the rescue came due.
“The investors specified that certain milestones had to be met in a year’s time,” said one layoff victim. “And they weren’t met.”
The punishment was also a little harsher this time. Past layoffs at Wired Digital never reached above the producer level. This time, top management felt the hit, with David Weir, HotWired’s vice president for content, being the first to go. And in addition to the layoffs, the HotWired Web site is to be dramatically cut back. Gone is Synapse (“where technology and culture meet”), though one of its star writers, media critic Jon Katz, will continue to contribute to HotWired. LiveWired, a sophisticated screen saver, will no longer carry original content, and a college-oriented project with Pointcast, the Push Software Company, has been ended. Wired News, the company’s ambitious online venture with the Reuters news agency, will lose at least one manager and two reporters.
For the time being, Wired, the highly profitable print magazine and forerunner of the various online spinoffs, is safe, as is HotBot, the company’s Internet search engine. But while simple economics is the chief reason for the latest purge, internal power struggles played a part, especially in the dismissal of Weir.
“The necessity put down by the board,” said the ex-staffer, whose view of events is supported by other sources inside Wired, “gave cover for the handling of political moves that had been playing out for some time.”
To be specific, say these sources, Weir, one of the few Wired Digital employees who reported directly to Wired Ventures chief Louis Rossetto, lost a power struggle with Wired Digital President Beth Vanderslice.
“Basically, what’s happened is that Beth has managed to placate the investors with these layoffs, and she’s done it by getting rid of any people who had more ties to Louis than herself,” said the source. “Anybody who had the power to go over her head, or otherwise represented a threat to her, is gone.”
Neither Vanderslice nor Weir could be reached for comment Wednesday evening. Andrew DeVries, a spokesperson for Wired Digital, denied that the layoffs were in response to investor demands.
“The investors are very happy with our progress, and the trajectory we’re on,” said DeVries. “These cuts are solely based on our realistic goal of making a profit by the second half of 1998, probably the fourth quarter.”
DeVries also denied that there was any specific reason why Weir was let go. “There was no performance reason or philosophical reason. He was our vice president of content management. Basically, as we have streamlined our content processes, the position itself became a little less needed than in the past.”
But the consolidation of power at the expense of Wired Digital employees has already spawned a new piece of jargon at the Wired Digital offices — the “Bethmarch” — used to describe the spectacle of employees trekking to Vanderslice’s office, only to learn that they’ve been fired.
For the rank and file, the political infighting is just one more example of how HotWired and Wired Digital has consistently failed to focus on the underlying financial problems that have plagued the online venture from the get-go.
“If the company exercised more fiscal smarts year-round, we wouldn’t have to have the annual Thanksgiving layoffs,” said one staffer. “This is the second time in two years — you’d think the suits would learn.”
Could there be a bigger public relations debacle for an aspiring technology colossus than the Facebook IPO? It’s bad enough when the stock price doesn’t “pop” at all on the first day of trading, but it gets a lot worse when the financial press spends the following week debating whether the machinations behind the scenes leading up to the botched public offering constitute outright evidence of securities fraud or merely a toxic mixture of greed and incompetence.
Here’s what we know: Sometime in the run-up to the IPO, Facebook realized that it needed to downgrade its revenue projections for the second quarter because of difficulties selling ads on mobile phones — which are increasingly the access point of choice for Facebook browsing. This news was buried deep in an SEC regulatory filing, but it also may have been communicated directly to Facebook’s underwriters who, in turn, may have told their big clients — the institutional investors who usually make out like bandits on IPO day by buying stock at the offering price and then selling on the pop. The big investors accordingly decided that the price was a little too high and dumped their stock as quickly as they could. Thus: no pop. The closing price was essentially the same as the opening price, and that wasn’t supposed to happen.
There’s a lot that’s hazy here. But it smells to high heaven, and lawsuits have already been filed. As Heidi Moore writes in The Guardian:
U.S. securities laws are very strict about what a company can say while it prepares to go public – which is to say, almost nothing. Executives maintain a “quiet period” for months. If the company has to disclose anything, it has to do so to all investors, at once. The fact that sophisticated investors knew the company was warning them about its prospects could have been enough to account for the determined selling of the stock from almost its first minute. Wall Street investors are far less patient with changing the goalposts than are the 900 million users of Facebook who accede to every whim of the company’s changing user agreements.
Whatever happened, one thing is indisputable. The little guy (by which I mean the retail investor, who probably isn’t really a “little guy” as compared to someone who’s on unemployment or facing foreclosure) got screwed. And along with Facebook, the key parties involved in the screwing included Facebook’s three biggest underwriting banks, Morgan Stanley, Goldman Sachs and JP Morgan.
Why do those names sound familiar? Oh that’s right — they were key players in wrecking the economy of the United States by screwing around with mortgage-backed securities. And if you want to go even further back, they were all hip-deep in the IPO scandals that made the dot-com boom such a minefield of fraud and get-rich-quick scams. (Indeed, one of the weirder ironic twists to the Facebook story is the sight of Business Insider founder Henry Blodget, who was himself banned for life from the securities industry for fraudulently hyping dot-com stocks, waxing aggrieved at the improprieties involved in the IPO.)
Never mind the stock price. Never mind the fact that Facebook itself made out like a bandit. The real scandal here is that Wall Street investment banks never change their stripes. Their insatiable greed inflated both the dot-com bubble and the housing bubble, and the closer you look at either episode, the more evidence you find, not just of reckless irresponsibility, but of clear criminal misbehavior. And yet their punishments — if they even get punished, which is rarer and rarer — never fit the crime and never dissuade further misbehavior. The Facebook IPO might seem like a weird flashback to the days of dot-com excess, but what it really demonstrates is business-as-usual in the financial sector.
Jamie Dimon’s Wall Street peers have good reason to be annoyed with him. Over the past several years, the financial sector spent hundreds of millions of dollars lobbying to weaken bank reform. Then came JPMorgan’s multiple-billion-dollar-losing credit default swap blunder. And suddenly, Washington hit the pause button on regulatory rollback. All it took was one reminder of how stupid even the best-run banks can be for everyone to recall that trusting these jokers to act responsibly is a losing game, and, wham, bank regulation was back in the news. Efforts to repeal various parts of the Dodd-Frank bank reform act halted, but more important, pundits and politicians are focusing a brand-new round of attention on the ongoing process of writing the “Volcker rule” into law.
The Volcker rule is supposed to prohibit banks from making speculative bets with their own money on such a scale that they can endanger both the financial viability of the financial institution and the larger economy. The basic principle is simple: Government can’t allow banks of the size of JPMorgan to fail because the consequences for the general economy would be too disastrous — and that gives government the right to shackle the irresponsible tendencies of those banks. Unfortunately, the above-mentioned lobbying campaign had weakened the rule-writing process to the point where JPMorgan’s bet would probably have been permissible even after the Volcker rule came into effect.
As of last week, there’s suddenly a pretty widespread consensus among people not employed on or bankrolled by Wall Street that we need to tighten up the Volcker rule. But according to a report by Talking Points Memo’s Brian Beutler, this has put the Obama administration in a sticky situation:
The administration hasn’t specified any particular steps it would like regulators to take to shore up the so-called Volcker Rule — a bid perhaps to avoid an ugly public fight with powerful interests in an election year. But inaction — or a too-tepid response to JP Morgan’s losses — will hurt President Obama with key allies, who want to use the debacle to further rein in Wall Street.
Say what? Why on earth would the Obama administration want to “avoid an ugly public fight with powerful interests in an election year”? Shouldn’t the opposite be true? Shouldn’t the Obama administration be going out of its way to pick a fight with Wall Street? Could there be any better opportunity to tap enduring popular anger at the financial sector and draw a clear line demarcating Obama from his challenger, Mitt Romney?
On Saturday, in Obama’s weekly radio address, the president delivered a restrained call to action:
That’s why it’s so important that Members of Congress stand on the side of reform, not against it; because we can’t afford to go back to an era of weak regulation and little oversight; where excessive risk-taking on Wall Street and a lack of basic oversight in Washington nearly destroyed our economy … We’ve got to finish the job of implementing this reform and putting these rules in place.
But that’s nowhere near enough. President Obama needs to go back and remind himself how a previous crusader for financial sector regulation made his case when running for his second term as president. Just a few days before Election Day in 1936, Franklin Roosevelt appeared at a rally in Madison Square Garden and delivered a passionate tirade that still jumps right off the page (and YouTube).
We had to struggle with the old enemies of peace — business and financial monopoly, speculation, reckless banking, class antagonism, sectionalism, war profiteering. They had begun to consider the Government of the United States as a mere appendage to their own affairs. We know now that Government by organized money is just as dangerous as Government by organized mob.
Never before in all our history have these forces been so united against one candidate as they stand today. They are unanimous in their hate for me — and I welcome their hatred.
I should like to have it said of my first Administration that in it the forces of selfishness and of lust for power met their match. I should like to have it said of my second Administration that in it these forces met their master.
That’s how you run for reelection, Mr. President, when the “moneyed interests” are backing your opponent. You don’t shy away from an “ugly” fight. You embrace it.
Watching the antics of the House GOP, you get the very strong sense that if the class of Republicans elected in 2010 were offered a chance to repeal the Enlightenment, they would leap at the opportunity. The great flowering of science and philosophy that reached critical mass in the 17th century employed human reason to batter away at the dogmas of blind faith. But as far as the Tea Party seems to be concerned, that was just one big wrong turn.
The most recent evidence that the current incarnation of the Republican Party just can’t handle the truth arrived this month when House Republicans voted to get rid of the American Community Survey. The ACS is an annual information-gathering effort that’s part of the U.S. Census. Every year, a randomized sample of 3 million Americans is surveyed for data on “demographic, housing, social and economic characteristics.” In one form or another, the U.S. government has been carrying out similar surveys since 1850 — the current version is the fourth major iteration.
Most sensible people consider the ACS to be extremely useful, the kind of thing that government is really well equipped to carry out. That is not, or at least did not used to be, a partisan statement. Both private and public sector policymakers use ACS data to make important decisions. The federal government allocates $450 billion annually according, in part, to information derived from the ACS. Businesses also consider the ACS vital, which explains why the U.S. Chamber of Commerce, rarely a fan of government spending, is opposed to the House action.
Even conservative economists are leery: The clearest evidence that the House GOP has gone completely beyond the pale can be seen in a Businessweek article reporting that representatives of the American Enterprise Institute, Heritage Foundation and Cato Institute all declared their support for government data gathering. If you don’t understand what’s going on in the U.S. economy on a granular level, you’re flying blind. This should not be a controversial statement.
Even the Wall Street Journal is appalled — although the lead sentence of its editorial criticizing the funding cuts required some remarkable calisthenics before reaching the point of disapproval.
With the contempt of the Washington establishment raining down on House Republicans for voting on principle, every now and then the GOP does something that feeds the otherwise false narrative of political extremism.
Marvelous! In one sentence, the Journal’s editorial writer manages to deny, not once, but twice, the self-evident fact that the current crop of House Republicans occupies the nethermost regions of right-wing extremism, while at the same time admitting that, yeah, well, in this one case they are indeed bonkers.
There’s been no end of media chatter focusing on the importance of the data gathered by the ACS. We’ve also heard how the Constitution specifically enjoins Congress to gather demographic information “in such a manner as they shall by law direct.” And, in fact, the current form of the ACS follows the mandate set forth by a Republican Congress in 2005.
The sponsor of the House measure, the freshman Florida Republican Daniel Webster, claims that ACS questions are too “intrusive” and “the very picture of what’s wrong in D.C.” He seems to be projecting. The very picture of what’s wrong with D.C. is exquisitely captured by daily demonstration that one of our leading political parties is dedicated to the proposition that the less we know about what is going on in our economy or on our planet, the better. If science tells us that one of the consequences of human activity is an overheated planet, then the answer is to defund climate research. If data gathered by the ACS gives us a better understanding of where poverty may be growing as a result of economic policies put into place over the past few decades, best to just to close our eyes and ignore it.
Which brings us back to the 17th century. It’s no stretch to argue that both representative democracy and the Industrial Revolution flourished in large part through the application of Enlightenment principles. The founders of the United States were very much a product of Enlightenment ideals. Looking for an Enlightenment avatar? Think Ben Franklin. Progress is built on the accumulation of knowledge, and ideological rigidity shouldn’t be able to compete against the truth that derives from a better understanding of our universe. And yet that’s where we are today — watching as one of the two major political parties in our country becomes not just more and more distrustful of science, but also opposed to the very notion of information-gathering — and governs accordingly.
Jeffrey Toobin’s New Yorker masterpiece “Money Unlimited: How Chief Justice John Roberts Orchestrated the Citizens United Decision” is required reading for anyone concerned with one of the central problems plaguing the functioning of American democracy: the influence of corporate spending on the political process.
If you’re impatient, you can skip ahead to the last, chilling line: “The Roberts Court, it appears, will guarantee moneyed interests the freedom to raise and spend any amount, from any source, at any time, in order to win elections.” And from there, you can make your own decision about whom to vote for this November, based on the direction that the Supreme Court is currently headed.
But a full reading of Toobin’s article is essential for understanding the larger context. The fight over whether and how to limit corporate spending on elections in the United States goes back more than a century. The battle lines are well-drawn, the sides well-established: “progressives (or liberals) vs. conservatives, Democrats vs. Republicans, regulators vs. libertarians.” The libertarian/Republican/moneyed interest side is currently in ascendence, but this is a long, long struggle, and the pendulum must one day swing back.
What’s so amazing, however, coming at this particular point in American history, right after Wall Street blew up the global economy, is the justification given by Justice Anthony Kennedy in his opinion announcing the decision.
“The censorship we now confront is vast in its reach,” Kennedy wrote. “The Government has muffled the voices that best represent the most significant segments of the economy. And the electorate has been deprived of information, knowledge and opinion vital to its function. By suppressing the speech of manifold corporations, both for-profit and nonprofit, the Government prevents their voices and viewpoints from reaching the public and advising voters on which persons or entities are hostile to their interests.
The implications of this passage are breathtaking. In his rush to protect free speech, on the grounds that there is a public benefit in protecting the right of corporations to spend freely to advise voters “on which persons or entities are hostile to their interests,” Kennedy and four other justices ensured that “moneyed interests” would essentially be able to buy government support for an agenda defined by corporate priorities. How any intelligent person could believe that skewing political messaging toward the sector of American society with the most cash to spend could be in line what the founders of the United States would have believed prudent is simply mind-boggling. We’ll end up paying the price for this sellout for generations to come, but unlike Wall Street, we can’t afford it.
When Meg Whitman ran for governor of California in 2010, the former eBay CEO told voters that her business background made her the right choice to boost job creation in a state troubled by high unemployment. Sound familiar? It’s the same spiel we hear from Mitt Romney every single day.
As a consolation prize for getting clobbered by Jerry Brown in the gubernatorial election, Whitman landed a plum job of her own — CEO of Hewlett-Packard, a company that, like California, has been going through some tough times. But this week Whitman made clear that as a business leader, her approach to job creation doesn’t quite mesh with her political promises. Multiple media outlets are reporting that HP is planning to cut its workforce by around 30,000 jobs — a number that accounts for 7-8 percent of HP’s total workforce.
Whitman’s decision will probably result in some layoffs in California, but it wouldn’t be fair to label her an outright hypocrite on the basis of this strategy alone. Downsizing may well be the right course for Hewlett-Packard, which is having a hard time adjusting to an era where computing is moving to the smartphone and leaving the PC far behind. But there’s a data point in the New York Times’ report on the layoffs that deserves close attention: “China, which is one of H.P.’s highest growth areas, will probably be spared.”
Again, this makes strict bottom-line sense. Hewlett Packard, by its own admission, now derives around 60 percent of its revenues from overseas. China is the world’s fastest-growing market for computer gizmos. Cutting staff in China would be suicidal. And HP’s behavior is in no way extraordinary. In April, the Wall Street Journal reported that between 2009 and 2011, fully three-quarters of the new jobs created at the 35 largest U.S. multinationals were overseas. And this isn’t just about offshoring to cheaper labor. Overseas is where the demand is.
The job creation plan outlined by Whitman when she ran for governor included cutting red tape, lowering various government fees, and tax breaks. Again, it’s an agenda that maps quite closely to Romney’s — and that’s no accident: Whitman was Romney’s finance chair during his 2008 campaign, and hosted a California fundraiser for him in March. But while cutting regulations may boost corporate profits, it doesn’t do a darn thing for boosting demand. HP is probably more likely to take the money saved via a tax break and spend it on a new R&D center in Shanghai than it is to staff up in Silicon Valley.
All of this explains why having an illustrious business resume doesn’t mean that one is automatically qualified to occupy the White House in a time of economic stress. Business executives have a mandate to act in their own self-interest — to seek profit by any means, including downsizing in the U.S. and pouring resources into China. That’s why HP’s “Government Affairs” page stresses its support for ” free trade and the reduction of barriers across borders,” even in the face of growing evidence that outsourcing to China has a negative impact on U.S. job creation.
A political leader is supposed to think in terms of the larger public interest — which means things like figuring out how to fund education or pay for the social welfare net that protects the unemployed and feeds the hungry. California’s voters figured that out when they rejected Whitman. Once again, it will be interesting to see where the general public at large comes down in the case of Romney.
Mark Zuckerberg (Credit: Reuters/Brian Snyder) 
Paul Volcker and President Obama (Credit: Reuters/Kevin Lamarque) 
House of Representatives Republican leadership (Credit: AP) 
(Credit: Reuters/Larry Downing) 
Mitt Romney and Meg Whitman (Credit: AP/Chris Carlson) 