Memo to next president

When the next president takes office in January 2009, there'll be four burning problems that need fixing:

• We'll be trapped in Iraq;
• Osama bin Laden and friends will be living in Pakistan;
• the West will be funding terrorists through its dependence on oil; and
• the Federal budget and balance sheet will be out of alignment.

It's common to read this litany of problems and rare to see proposed solutions. The reason is that most politicians believe that their odds of getting elected are greater if they rail against the problems than if they propose solutions. Nevertheless, the fact remains that the next president will need to take action once in office. So here are my thoughts on what action ought to be taken:

• Iraq. I agree with the three-state solution originally suggested by Leslie Gelb and taken up by Senator Joseph Biden. My observation is that Iraq is an artificial construct that through dictatorship was able to unite three separate groups -- Sunnis, Shiites, and Kurds. The US ought to let go of the Iraq concept and with the help of the world community create a new state for each of these groups. This solution is not without problems -- there needs to be an equitable way to distribute Iraqi oil resources and the city of Baghdad. But once the three states are created, there is some hope for an end to the civil war which today results in scores of people killed every day by endless retaliation between Sunnis and Shiites.
• Osama bin Laden. I agreed with the idea of going into Afghanistan to eliminate this Al Qaeda refuge and punish the authors of 9/11. I disagreed with letting bin Laden go during the battle of Tora Bora in December 2001. We need to devote more resources to capturing these Al Qaeda leaders. From what I've read, there appears to be a lack of political will to carry out the job but the next president could bring that will back and finish the job. More generally, I believe that the next president has an opportunity to restore America's standing by pursuing a more open and integrative role for the US in world affairs which will enable us to battle the threat of terrorism more effectively.
• New sources of energy. I agree with the suggestion of creating a Manhattan Project-like commitment to finding new sources of energy to lessen our dependence on oil. Last month, MIT announced that it was doing something about this. The US has become overly dependent on Saudi Arabia -- the source of 15 of the 19 9/11 hijackers. The reason for our dependence on Saudi Arabia is our consumption of oil through which we finance the teaching of a hateful ideology that wants to destroy us. Through focused presidential leadership, the US can multiply the effectiveness of MIT's initiatives and accelerate their implementation. By freeing the US from oil, we'll be hurting US energy companies that don't adapt. But we'll also be making the US safer and taking action to reduce the threat from global warming.
• US balance sheet. The US is currently borrowing a record $8.5 trillion and the administration projects the Federal Budget deficit to hit $295 billion in the current fiscal year -- $352 billion of the 2005 budget went to interest payments on the debt. While my knowledge of US budgeting is limited, I believe there are opportunities to clean up the US balance sheet by paying back our Federal debt which will cut the crowding out of interest expense, reducing wasteful military spending, roll back part of the $3.3 trillion worth of tax cuts passed during the dacade, and better managing Social Security and Medicare liabilities.

You may not agree with any of these ideas. But I challenge you to move beyond the personal attack and frame your thoughts from the problem/solution perspective outlined here.

Skeletal executive presence cans Freston

This morning’s business blockbuster is the canning of Tom Freston, whose 20 years at MTV helped turn it into a cultural beacon. With its stock (VIA.B) down 18% since the corporate split between CBS and MTV at the beginning of the year, 82-year old Chair Sumner Redstone – who owns 5.7% of VIA.B and 71.2% of CBS -- must be disappointed with a corporate strategy that he thought would boost the value of his holdings.

But Sumner has failed to boost value when he created a one-stop shop for advertisers through his acquisitions of CBS and Paramount. And his idea of splitting up the company between CBS/Paramount and MTV has done little to help the value of his shares either (although CBS.B shares are up 10% since the beginning of the year). This is not to say that his acquisitions and spin-offs have not been beneficial – the investment bankers who did these deals no doubt reaped hundreds of millions in fees.

Meanwhile Freston, who was able to adapt MTV to rapidly changing tastes among viewers, will be replaced by a lawyer Philippe Dauman -- and an accountant -- Tom Dooley. Sumner’s skeletal executive presence is showing its impatience and its loss of skill at creating shareholder value.

With VIA.B down 6% in the wake of this morning's announcement, Sumner's holdings have lost another $106 million in the last couple of hours. Clearly investors see problems with this move that Sumner did not.