• The Koch Brothers, billionaire owners of the privately-held chemical conglomerate Koch Industries: Through their Americans for Prosperity Foundation, they provided at least $45 million to finance the Tea Party, according to The New Yorker, and they must be thrilled with the power of their money to morph Washington into a machine that can't say no to their agenda. However, given the growing unpopularity of the Tea Party, this may be the Kochs' last hurrah. (As former eBay (EBAY) CEO Meg Whitman learned after spending $142 million of her own money to lose the California governor's race, a willingness to spend vast quantities of your own money is not a guarantee of electoral success.)
• People getting audited by the IRS: They will enjoy a delay in that painful scrutiny, because the IRS will suspend auditing people's returns.

• The Post Office
• Social Security and Medicare beneficiaries
• Air traffic controllers
• Lawmakers
• The Federal Reserve (it doesn't get its funding from Congress)

• The Troops: Members of the military will continue to defend our country and fight its battles, and the government will incur an obligation to pay them -- but they won't get their checks until after a budget is signed;
• Civilian federal workers: Between 800,000 and 1.9 million government employees will be furloughed;
• American investors: It will be open season for anyone wanting to defy the Securities and Exchange Commission, because it will be mostly shut down;
• Tourists: If you are on vacation and want to visit a national park or museum, you won't be able to get through the locked gates; and
• Old-fashioned tax filers waiting for refunds: If you file a paper return and are expecting a refund -- sorry, you'll have to wait. For electronic filers; however, payments will still be forthcoming.
• Consumer-oriented businesses: Companies large and small that rely on average consumers to buy their products and services will see sales slow down as millions of government workers stop drawing salaries and start tightening their belts to ride out the shutdown.

Some of the politicians in Washington may not seem to care much about the repercussions of a shutdown. But they do care about themselves -- and more specifically, how all this will affect their chances of being reelected. In that vein, a new Wall Street Journal/NBC News poll has some interesting results. It suggests that Republicans -- particularly those in the so-called Tea Party wing of the party -- are taking a hit in popularity thanks to the budget battles.

• 44% of the 1,000 Americans polled had a negative attitude towards the Tea Party, and since January, the percent with very negative feelings about it had jumped from 24% to 30%;
• The Tea Party has lost ground among its base. The percentage of those saying they support it has fallen from 30% last November to 25% now; and
• A record 67% of those polled said they don't support the Tea Party.

Why do we have government anyway? It does a good job of running the military, and it has managed to keep payment systems going -- although not as smoothly as I would like. It is also a fairly good protector of consumers from the risks of businesses that might otherwise deliver dangerous products in pursuit of profit. Whether government programs are the best way to pay for health care or retirement expenses isn't clear to me.

But one thing isn't unclear at all: If a government shutdown occurs, it will be a political stunt focused on affecting the 2012 election results. The numbers being battled over will have virtually no impact on reducing America's budget deficit. And if a shutdown lasts for any length of time, it could hurt prospects for solving the biggest problem we face -- getting 13.5 million unemployed Americans back to work.

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The U.S. faces a record $1.5 trillion budget deficit for 2011, and this week, there's a chance that House Republicans will shut down the government in an attempt to use the pain that would cause to achieve their political objectives.

On a deeper level, Republicans want to do everything in their power to make sure Barack Obama is a one-term president. In that mission, anything they can do to slow down economic growth will help their cause, because -- according to the uncannily accurate predictions of Yale economics professor Ray Fair -- if U.S. GDP grows at 3.7% in 2012, Obama will win nearly 56% of the popular vote.

But if anyone in Washington was serious about reducing the budget deficit, they'd follow the script laid out by Bill Clinton after he faced down the Republicans in 1995 and early 1996. In that scenario, the federal government would raise taxes to balance the budget. After all, Clinton was the only president in recent memory who really got the economy performing at its peak: He left office after having presided over the creation of 22.2 million jobs and a $211 billion budget surplus.

Clinton was fortunate that the Internet took off while he was in office. But Treasury Secretary Robert Rubin also pushed a policy of balancing the budget as a way to tamp down inflationary expectations so investors would feel confident. That confidence created a climate of low interest rates and a boom in venture capital and initial public offerings that fueled many of the startups that helped create all those jobs.

Do Republicans Want Higher Taxes or a Higher National Debt?

In some ways, we're back where we were in 1995, but the game today is different. Republicans, following the leadership of Rep. Paul Ryan (R-Wisc.), is proposing to privatize Medicare and Medicaid, the government health plans for the elderly and the poor, among other changes. But according to The Wall Street Journal, Budget Committee Chairman Ryan's proposal is vague on paying down the debt, and it can only balance the budget if taxes rise. The Journal cites three reasons:

• It delays balancing the budget, requiring higher debt ceilings. Since Ryan's proposal doesn't balance the budget until about 2030, the only way for the government to keep operating without tax increases would be to raise the debt ceiling every year until 2030.
• It delays Medicare cuts, thus doing nothing to lower deficit for decades. Ryan's "most far-reaching change" cuts government spending for Medicare beneficiaries' health care. But current retirees would remain under the current plan which means that Ryan's proposal won't save the government money for decades.
• Despite a lack of detail in Ryan's plan, the cuts that would make a difference are too severe. To make a serious dent in the deficit would require draconian budget cuts, and the political will for such cuts appears scarce.

The reality is that Congress must choose at least one of two options: raising taxes or lifting the national debt ceiling. From a political standpoint, this choice nicely cleaves the factions of the Republican party. The small-government wing of the GOP supports Ryan's combination of tax cuts and budget cuts, while the anti-national debt, end-the-fed wing passionately opposes raising the national debt.

If sufficient political will existed to make the choices required to balance the budget, there are plenty of ways to increase tax revenues and reduce spending. For example, companies paid far less than the average 35% corporate tax rate on their $1.68 trillion in 2010 profits: Just closing all the loopholes that allowed GE to pay no taxes on its $5.1 billion in U.S. profits would reduce the deficit by as much as $600 billion (based on the reasonable assumption that other U.S. companies are using similar methods to avoid paying taxes). If you then raised taxes on families earning more than $250,000 from 35% up to the 39.6% rate where they were during the booming Clinton years, and got the U.S. out of its wars, you could make a real dent in that deficit.

Clinton Proved That Deficits Matter

There's a long history of division in Washington over the significance of deficits. In 2002, then-Vice President Dick Cheney famously told then-Treasury Secretary Paul O'Neill, "Ronald Reagan proved that deficits don't matter." But Cheney was simply rebutting the George H.W. Bush wing of the Republican party: The senior Bush famously pointed out during his 1980 primary debate with Reagan that cutting taxes while increasing defense spending and expecting to achieve a balanced budget was "voodoo economics."

The first President Bush helped set the U.S. on a path to economic strength by raising taxes. Back in 1990, he wanted to boost the economy but Fed Chair Alan Greenspan said he would only lower interest rates if Bush cut the deficit. So Bush back-tracked on his "read my lips, no new taxes" pledge, and in August 1990 submitted a budget that satisfied Greenspan.

According to the Fiscal Times, Bush's final deal "cut spending by $324 billion over five years and raised revenues by $159 billion." Congressional Republicans were outraged by Bush's decision to raise the top income tax rate from 28% to 31%.
But Bush's sense of fiscal responsibility helped set the stage for Bill Clinton, who exploited the resulting economic strength to preside over the best economy in recent memory.

If the interests of the middle class were being considered in this debate, the focus would be on creating jobs rather than cutting taxes for corporations and the wealthy while asking the middle class to pay more for essential services. And unlike 21 years ago, high interest rates are not impeding economic growth. This time, the budget standoff is a sideshow being trumped up for political purposes.

From the perspective of the average American, what matters is whether the budget impasse can be resolved without interrupting the trajectory of rising economic growth. If that happens, Obama will ride the wave of recovery to reelection.

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• Hedge fund managers: $883 million average annual income. Back in 2007, the top 25 hedge fund managers made a total of $22.29 billion, according to Alpha Magazine, in 2010, the top 25 made $22.07 billion, according to AR Magazine. This is down 1% from 2007, but still enough to get by,
• Corporations: Up 12% to record highs. In 2007, companies made $1.5 trillion in profits, in 2010, they booked a record $1.68 trillion worth, according to the Commerce Department;
• Owners of commodities: Way up. Gold is up 113% from $670 an ounce four years ago to $1,430; corn spiked 87% from $4.00 to $7.48 a bushel, oil is up 63% from $64 to $108 a barrel, and cotton is up 80% from $0.58 to $1.91 per pound. This is great news for those who own commodities and bad news for people who have to pay for them.

• Median family income: Down 8.1% in the last decade. The median family income has been falling steadily since 2000 from $60,746 in 2000 to $55,821 in 2009. More recent data are unavailable, but the latest productivity report suggests that the figure has declined since unit labor costs fell 1.5% in 2010. And with 13.5 million people out of work, the pressure to push wages lower remains strong.
• Stock market investors: Down 8%. Since the first week of April 2007, the S&P 500 is down 8%. But since Obama took office, stocks have skyrocketed an average of 26.5% a year. As I've posted, for families that have suffered a loss of net worth, making up the difference depends on shifting cash from money market funds to stocks,
• Homeowners: Values are down 30%. The S&P/Case Shiller 20 City Home Price index has fallen from 200 in April 2007 to 141 in January 2011. This 30% bath is terrible news -- particularly for families that borrowed too much money to buy those houses.
• Wall Street: Average cash bonus is down 37% to $128,530. It may shock you to learn that Wall Street has lost ground in the last four years. But by one measure, it has. Wall Street's cash bonuses in 2007 were $33.2 billion, according to the New York State controller, while in 2010, they totaled $20.8 billion. But those finance industry players shouldn't feel too bad, since they got a bigger portion of their bonuses in stock in 2010. This should be good for Wall Street's long-term survival, because it links banker pay to shareholder performance.

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If you thought David Sokol, Warren Buffett's former top candidate to succeed him as CEO of Berkshire Hathaway (BRK.A), was wrongly forced out, think again. On Wednesday, Sokol resigned from Berkshire under a cloud of possible insider trading charges. But these recent ethical lapses are hardly the worst of Sokol's business transgressions.

Almost exactly a year ago, an Omaha, Neb., court forced Sokol's MidAmerican Energy to pay $32 million to a group of shareholders for cooking a project's books. The judge ruled that Sokol had "willfully and intentionally" falsified profit calculations to eliminate a group of minority shareholders -- including the San Lorenzo Ruiz Builders & Developers Group -- in a project in the Philippines, according to the Omaha World-Herald.

And back in 2003, Sokol settled a lawsuit alleging he cheated shareholders when he sold his company to Buffett. Sokol joined the Berkshire family in 1999 when Buffett paid $2.1 billion to buy his MidAmerican Holdings.

How to Drive Out a Business Partner

The project in the Philippines was a hydroelectric power and irrigation system on the island of Luzon. In 1993, when it began, Sokol headed CalEnergy, now part of MidAmerican. CalEnergy built the system, and it began operating in 2001, collecting water from two rivers and producing roughly 150 megawatts of electricity.

In 1998, San Lorenzo Ruiz sold its interest in the project to CalEnergy, but with a right to repurchase. Four years later, CalEnergy generated financial statements that on their face wiped out San Lorenzo Ruiz's interests. A year later, San Lorenzo Ruiz told Mid­American it was exercising its option to buy back its shares in the project, but Mid­American went to court to block the move.

On April 2, 2010, the Omaha court concluded that MidAmerican had faked the project's financial statements so it could wipe out the rights of its minority shareholders. Specifically, according to Manila's Standard Today, it found that when it came to calculating San Lorenzo Ruiz's interest, MidAmerican "wrongfully and contrary to the agreement of the parties did not use information that reflected 'actual project economics'"

The Omaha court concluded that MidAmerican was doing this for a nefarious purpose -- to appropriate San Lorenzo Ruiz's rights. Standard Today reported that MidAmerican cooked the project's books "knowingly, deliberately and with the intention, precisely, to reduce San Lorenzo Ruiz's interest to zero and thereby prevent San Lorenzo Ruiz from exercising its rightful option to buy back its shares in the project company."

MidAmerican was ordered to pay $32 million to San Lorenzo Ruiz, and to fork over 15,000 shares in the project that between 2010 and 2021 could pay more than $140 million at a rate of about $12 million a year.

Did Sokol Sell MidAmerican at a $140 Million Discount?

Not surprisingly, the San Lorenzo Ruiz scam was not the first time Sokol had been accused of ripping off those in a weaker position than himself. When Buffett acquired MidAmerican in 1999, Sokol was sued by MidAmerican shareholders because, as the Sioux-City Journal reported, Sokol "tricked company directors into approving the 1999 sale of the company to Berkshire Hathaway."

The lawsuit claimed shareholders were cheated to the tune of $140 million when Sokol "used personal relationships, fraud and deceit to manipulate the board's decision." The plaintiffs claimed that MidAmerican was worth $37.37 a share, but Sokol sold it for a mere $35.05. On August 3, 2003, Sokol agreed to settle the lawsuit for $7.5 million.

As the CEO on the other side of the deal, there's no way Buffett could have failed to know about this. So why is he still Saint Warren? It's not just because he's the world's third richest individual. After all, the world's wealthiest man -- Mexico's Carlos Slim -- does not enjoy Buffett's lustrous reputation. My take is that Buffett has lulled the media by hiring a Fortune columnist to write his annual reports, and by giving captivating background briefings to influential reporters.

Buffett's support of Sokol is at odds with his saintly image. However, since none of these examples of Sokol's chiseling are secret, the only reason I can imagine for the media to ignore them is that they don't fit the Buffett/Berkshire narrative.

Perhaps Buffett's shareholders should consider this bursting of the Saint Warren bubble as a chance to take their profits before more bad news emerges.

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David Sokol, the former head of Berkshire Hathaway (BRK.A) units MidAmerican Energy Holdings and NetJets, abruptly exited Warren Buffett's empire on Wednesday. Although the SEC claims not to be investigating the reasons, Sokol's actions regarding a recent $9.7 billion Berkshire acquisition raise important questions. Sokol's departure was head-spinningly fast, and it highlights how afraid Buffett is of anything that might damage the smooth PR sheen he has spread over himself.

Despite pulling in $59.5 million in the last five years from MidAmerican alone, Sokol might have felt wasn't getting paid enough. So he hatched a little plan: He would recommend to Buffett that Berkshire use its cash hoard to buy lubricant maker Lubrizol, then lubricate his pocket with tens of thousands of its shares. The "good" news for Sokol is that two months later, Berkshire announced it would spend $9.7 billion to acquire Lubrizol, according to Dealbook.

While that deal immediately boosted the value of Sokol's Lubrizol holdings by 27%, Buffett feared that news of Sokol's windfall would become a public embarrassment, and tossed him out of Berkshire.

Sokol as Costanza: "Was That Wrong?"

In this, Sokol reminds me of Seinfeld character, George Costanza, whose boss at Pendant Publishing, Mr. Lippman, learned that Costanza had used his office desk to engage in "relations" with Pendant's cleaning lady. When Lippman confronted him about it, Costanza exclaimed, "Was that wrong? Should I not have done that? I tell you, I gotta plead ignorance on this thing, because if anyone had said anything to me at all when I first started here that that sort of thing is frowned upon... you know, cause I've worked in a lot of offices, and I tell you, people do that all the time."

According to The Wall Street Journal, Sokol's initial interest in Lubrizol was piqued during a Dec. 13 meeting with Citigroup (C) bankers to discuss a list of "possible transactions." According to Dealbook, Sokol bought 2,300 shares of Lubrizol on Dec. 14, which he then sold on Dec. 21.

Then, I imagine, he got his nerve back and bought a fresh batch of 96,060 additional shares on Jan. 5, 6 and 7. The next week, Sokol pitched Buffett on the idea of purchasing Lubrizol. Buffett got Berkshire's board to approve the deal on March 13, and announced it March 14.

Sokol's brazen behavior looks like insider trading, but would it pass the legal test? According to a lawyer Dealbook quoted anonymously, insider trading requires the perpetrator to possess "material nonpublic information at the time he bought or sold the stock and to have breached a duty [of trust] to his employer, Berkshire Hathaway."

This lawyer suggested that Sokol would be off the hook because he didn't know Berkshire was going to buy Lubrizol in January -- when he mentioned his Lubrizol stake to Buffett in January as "a passing remark." This last bit is crucial because it suggests that Buffett knew Sokol owned shares in Lubrizol two months before Berkshire acquired it.

So what key facts spurred this parting of ways? Maybe Buffett knew that it wouldn't look good in the press when the report about Sokol's Lubrizol shares was filed with the SEC. Buffett has long admonished his people not to do anything that would make them uncomfortable with their families and friends were it to appear in the local newspaper, but his failure to realize in January that Sokol's Lubrizol holdings would be a problem suggests a gap between his talk and his walk.

Buffett as Spin Master

Buffett is well known for his investment skills, but as I wrote on DailyFinance in May 2010, his public relations skills are also formidable. Decades ago, he hired a Fortune reporter, Carol Loomis, to write his annual reports, and he is popular with business journalists for giving detailed background briefings to selected reporters. These moves and others seem to have won him the embrace of the media. How else to explain how Buffett always comes out smelling like a rose, despite the many contradictions between his words and and his actions, among them:

• Deriding "casino markets" while buying the ultimate Wall Street casino, Salomon Brothers, in the early 1990s;
• Attacking derivatives as "financial weapons of mass" destruction while losing $1.7 billion on them in 2008;
• Buying a big chunk of Moody's (MCO), whose AAA-ratings on dodgy mortgage-backed securities helped cause the 2008 financial crisis; and
• Investing $5 billion in Goldman Sachs (GS), one of the bigger traders in those mortgage-backed securities, whose former director, Raj Gupta, faces an administrative action from the SEC for tipping off hedge fund owner, Raj Rajaratnam, to Buffett's Goldman deal minutes after the board meeting ended.

Heirs to the Berkshire Throne

But investors likely care more about who will succeed Buffett than about his ability to spin the media. With Sokol out, four possible successors remain for his CEO job (he plans to have a different person take his investment management role). According to Dealbook, they are:

• Ajit Jain, the head of Berkshire's reinsurance operations;
• Tad Montross of General Re,
• Matt Rose of Burlington Northern Santa Fe; and
• Tony Nicely of Geico.

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Last month, IBM's (IBM) Watson supercomputer won $1 million on Jeopardy. But the computer's defeat of Ken Jennings and Brad Rutter was more than just a publicity stunt for International Business Machines. At the core of Watson's success was something called Semantic Analysis Technology (SAT) -- a way for computers to do much smarter searches of large amounts of data.

Companies are using SAT from IBM and its competitors to boost their profitability through a wide range of applications, including better customer service, much more efficient analysis of documents used in lawsuits, and uncovering and shutting down financial fraud before it costs banks money.

Companies are getting big returns on investment in SAT, and so can you -- by investing in those that supply this technology: IBM and two other companies you may not have heard of: BAE Systems (BA) and Autonomy (AU). There are also privately held companies that could go public if they can take advantage of the growing market for SAT: Keep an eye out for Cataphora and Clearwell Systems among those potential IPOs.

How Watson Wins for Businesses

But what exactly is SAT? IBM describes it as a technology that enables clients to search a complex data store on the basis of a cluster of terms sharing a common meaning, rather than a simple key word.

For Jeopardy, Watson downloaded about 200 million pages of material -- including encyclopedias and movie scripts. When Watson got a question, say, in the category "Church and State," about Saturday Night Live's famous "Isn't that special!" comment by Dana Carvey, it searched those pages -- known as its corpus -- and came up with hundreds of possible answers that fit some of the clues.

Then, according to IBM researcher David Gondek, Watson applied an algorithm to assign a confidence number to each answer, based in part on the number of connections to the clue, and weighed those numbers -- picking the best one. In that case, Watson's guess -- "The Church Lady" -- was correct.

While the application of SAT is still emerging in different business arenas, three areas seem to be most promising for the technology:

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• Entrepreneurial Leadership. The ability to attract and motivate people with successful track records of starting new companies. An example I used was Cisco Systems (CSCO), which brought many successful entrepreneurs on board through acquisitions of startups, and created a culture that kept them highly motivated;
• Open Technology. The willingness to build or buy technology that customers want to buy in order to keep those customers in long-term relationships with the company;
• Boundaryless Product Development. Working with teams of so-called early-adopter customers, engineers, marketers, and other key functions to develop prototypes that satisfy unmet customer needs and use the feedback on those prototypes to build products that get to market fast; and
• Disciplined Resource Allocation. Systematically shifting resources from low-potential projects to more promising ones and spreading what has been learned about what works and what needs improvement throughout the organization.

• Entrepreneurial Leadership (15/25). Google is extremely selective about the people it hires -- but then its most talented employees leave for companies like Facebook. Its flat stock price is a big problem: Why would top talent want to work in a bureaucratic organization that slows down their creativity while giving them below-average pay and stock that goes nowhere?
• Open Technology (20/25). Google has been good about acquiring companies, but it has been having trouble turning its acquisitions into big sources of new revenue to makes the deals pay off for shareholders. Moreover, it has had trouble retaining the entrepreneurs it acquires, if the 2010 departure of YouTube's Chad Hurley is any indication (Google paid $1.76 billion to buy YouTube in 2006). Its recent decision to acquire social networking application company Slide for $179 million, and then essentially leave it alone, as The Wall Street Journal reported, suggests that it doesn't have a clear vision for its acquisitions.
• Boundaryless Product Development (20/25). Google has encouraged its engineers to spend 20% of their time working on new products -- seemingly in isolation from everyone else in the world. There may be some gems in there, but Google has been doing a poor job of building teams to commercialize the ideas.
• Disciplined Resource Allocation (15/25). Page's recent efforts to get some discipline into Google's projects is a good first step, but it's hardly enough. Google needs to develop explicit criteria and a formal process for evaluating projects. It also needs to do more to spread its knowledge of what works, such as its project -- reported on in The New York Times to define a good Google manager. Based on that study, Google found that its best managers made time to help solve employees' problems and gave them specific goals and clear feedback.

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• The median family's net worth fell 23.2% from $125,000 to $96,000;
• The S&P 500 fell 57%;
• The S&P/Case-Shiller index of housing prices in 20 cities dropped 32%.

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• Information technology (22.3%)
• Consumer discretionary (15.9%)
• Consumer staples (15.5%)
• Health care (14.4%)

• ExxonMobil bought back $152 billion worth of stock between 2004 and 2010. Its price rose 43% to $73.12 a share during that time. EPS growth is not a CEO bonus driver, and its CEO compensation fell 15.5% in the most recent year available, 2009 to $27.2 million.
• Microsoft bought back $97 billion worth of stock between 2004 and 2010. Its price rose 4.5% to $27.91 a share during that time. EPS growth is a not a CEO bonus driver, and its CEO compensation grew 6% in 2010 to $1.3 million.
• Walmart bought back $35 billion worth of stock between 2004 and 2010. Its price rose 2% to $53.93 a share during that time. EPS growth is not a CEO bonus driver, and in the most recent year available, 2009, its CEO compensation fell 32% to $19.2 million.

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• Bargain CEOs who created shareholder value on the cheap;
• Hogs who added shareholder value but got paid too much to do so; and
• Value Destroyers who were paid big bucks to lose shareholder value.

• Starbucks (SBUX). CEO Howard Schultz got paid $13.75 million and created $7.1 billion in market value increase (up 37.3%), a pay to market value ratio of 0.2% while cutting 5,000 jobs;
• General Electric (GE). CEO Jeffrey Immelt's pay: $21.4 million; value created: $12.4 billion (+6.5%); a pay to market value increase ratio of 0.2% with 17,000 job cuts;
• Johnson Controls (JCI). CEO Stephen Roell's pay: about $17.6 million; value created: $5.1 billion (+23.6%); a pay to market value increase ratio of 0.3% while adding 7,000 jobs; and
• Navistar (NAV). CEO Daniel Ustian's pay: $10.4 million; value created: $1.6 billion (+55.2%); a pay to market value increase ratio of 0.6% while adding 800 jobs.

Hogs

• Jabil Circuit (JBL). CEO Timothy Mann's pay: $9.8 million; value created: $144 million (+5%); a pay to market value increase ratio of 5% as it cut 400 jobs.
• Clorox (CLX). CEO Donald Knauss's pay: $10.1 million; value created: $454 million (+5.1%); a pay to market value ratio of 2.2% as its job count remained unchanged at 8,300.
• Walt Disney (DIS). CEO Bob Iger's pay: $28 million; value created: $1.3 billion (+20.8%); a pay to market value ratio of 2.1% while adding 5,000 jobs; and
• Jacobs Engineering (JEC). CEO Craig Martin's pay: $6.4 million; value created: $455 million (+8.1%); a pay to market value ratio of 1.4% as it cut 400 jobs.

Value Destroyers

• Whirlpool (WHR). CEO Jeff Fettig made $48.6 million while his company lost $687 million in market value, down 10% even as it added 4,000 jobs;
• Monsanto (MON). CEO Hugh Grant made $13.2 million while his company lost $2.7 billion in market value, a 7% drop and cut 300 jobs;
• Oshkosh (OSK). CEO Robert Bohn made $4.1 million while his company lost $600 million in market value, a 16.4% fall while adding 100 jobs; and
• Beazer Homes (BZH). CEO Ian McCarthy made $6.9 million while his company lost $44 million in market value, down 12% while trimming 18 people.

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The FDIC has inked such loss-share deals with 236 financial institutions -- agreeing to cover losses on $160 billion of assets, according to The Wall Street Journal. The FDIC forecasts that it will ultimately pay out more than twice what it has spent so far for these agreements. Specifically, it expects to pay out another $21.5 billion from 2011 through 2014.

When we compare the costs of rescuing the world from the financial crisis to the cost of saving the United States from our S&L debacle, it looks like we've gotten much better at cleaning up the messes bankers leave behind them after they collect their hefty compensation packages. But if you take into account the $12.8 trillion in U.S. government guarantees and cash, the $23 trillion in lost stock market value, the $14.2 trillion national debt, the $1.5 trillion federal budget deficit, and the 14 million unemployed Americans -- all of which can be traced, in part, back to the recent financial crisis, the cleanup costs don't look so small.

The Dodd-Frank Act that was intended to reform Wall Street enshrined the conditions that caused the financial crisis rather than eliminating them: It created a mechanism to rescue banks that are deemed too big to fail; did nothing to change a Wall Street compensation system that rewards closing big deals fast and ignores the cost of their failure; failed to set specific limits on borrowing too much money; and preserved the ability of Wall Street firms and other public companies to write their own report cards.

Wall Street contributed $5 billion to Washington politicians and lobbyists between 1999 and 2008, and as a result, we have the best system money can buy -- a "free market" that gives Wall Street the profits from its short-term bets and shifts the longer term losses onto the taxpayer. Yes, the cost of rescuing the financial system from the financial crisis was lower than was originally expected. But unless we change the conditions that led to the crisis in the first place, we'll pay even more the next time around.

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News that online real estate broker Zillow plans to file for an initial public offering is a reminder of how long it has been since tech IPOs attracted much public attention. Back in 1995, a maker of Web browsers, Netscape Communications, sold shares to the public and kicked off a boom in Internet stocks. That led to a wave of hundreds of IPOs and a NASDAQ that peaked 11 years ago at 5,048 on March 8, 2000.

By that point, of course, the market was at the apex of the tech bubble: Companies like Noosh, an online printing company, were filing for IPOs with no revenues and no legitimate claim on investors' cash. Then the bubble burst, wiping out $4 trillion in market value. (By way of comparison, that was about 17% of the $23 trillion wiped out by 2008's financial crisis.)

Like all market corrections, it was painful. Still, the effect of that bubble bursting has led to a higher quality of technology companies being offered to the public by Wall Street now.

Today, with NASDAQ still trading at just 53% of its peak value, a new and better crop of IPOs is being presented to investors, among them vacation rental website HomeAway, Internet radio site Pandora -- whose founder, Tim Westergren, I interviewed two years ago -- and LinkedIn, the business networking site. Of these, LinkedIn looks like it might be the best investment. Read on for the reasons why, and for a method you can use to evaluate other IPOs so you can decide which to buy and which to shun.

What strikes me about the latest crop of technology IPOs is that none of these companies is creating a vast new ecosystem, as the Web did back in the 1990s. However, a look at their financial statements reveals that they're generating substantial revenues and, in one case, even a little profit. If they are successful, they could help pave the way for blockbuster offerings from Facebook and Groupon.

Four Tests For an Internet IPO

To evaluate IPOs, it helps to have a scorecard: I developed one in my book, e-Stocks. Here are the four questions to ask before plunking down your cash on an IPO:

1. Is there an attractive market for the company's products? It should go without saying, but it helps if there are a large number of potential customers willing to pay a good price for the company's services.
2. Does the company have a significant share of that market? If so, it means that the company has solved an important problem for customers, and that the money raised in the IPO should go toward maintaining its lead.
3. Is the company's management team experienced? As an investor in a public company, you'll be best served by a management team that has experience handling quarterly reporting duties and the challenges of boosting a company's growth.
4. Is the company growing and profitable? This is the test that usually delivers a knock-out punch to most IPOs. Most are growing, which suggests that they may have the potential to be profitable. But few are profitable when they file to go public. Those rare gems that are have a pretty good chance of staying that way as long as the numbers are reported conservatively.

• LinkedIn. The company doesn't clearly define the size of its market for helping professionals network, but it claims 90 million members and generates revenues from three balanced sources. Its management team has good executive experience in public companies. Its revenues doubled to $161 million for the nine months ending September 2010, and it earned a nearly $2 million profit during the period. And its cash balance sits at nearly $90 million.
• HomeAway. It's aiming to be the No. 1 intermediary in an $85 billion market for vacation rentals, and it already leads the online portion of the listing industry with 9.5 million unique visitors and 500,000 listings, according to its prospectus. Its management team has strong executive experience in public companies, and compelling consulting and academic pedigrees. Its revenues grew at nearly 40% to almost $168 million in 2010, but it lost $18 million that year and its cash balance fell 30% to $60 million.
• Pandora. The company is going after markets for online display and rich media ($8.5 billion), mobile ($743 million) and broadcast radio ($15.7 billion). Pandora controls 50% of one segment of one of those markets -- the online radio listening segment for top 20 stations, according to its prospectus. Its management team has good executive experience in public companies and a strong academic pedigree. Its revenues grew by 178% to $50 million in 2010, but it lost almost $18 million last year. Still, its cash balance for the most recent nine months was up 152% to over $40 million.

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This week, President Obama announced that he's nominating Commerce Secretary Gary Locke (pictured) as U.S. Ambassador to China, which will leave an open slot at the Commerce Department.

There are three names being bandied about as short-list contenders for Commerce job: Google (GOOG) Executive Chairman Eric Schmidt is one of them, reports BusinessWeek. But the best candidate would likely be Ron Kirk, because as U.S. trade negotiator, he is most familiar with the state of our national export negotiations. And as Obama seeks help to double U.S. exports to $3.1 trillion in the next five years, Kirk is best positioned to hit the ground running.

Here's my assessment of the candidates:

• Ron Kirk has two big things going for him: he already is very familiar with the U.S. trade agenda and could help achieve our goals in international trade negotiations in Geneva, the Doha rounds and the Trans-Pacific Partnership negotiations. He has already been confirmed as U.S. trade negotiator, so he could get to work quickly.
• Eric Schmidt is respected as a successful executive based on his leadership at Google and Sun Microsystems. However, he would be new to Washington and his confirmation could get held up by those who objected to Google's policies in China.
• Jeffrey Kindler, the former CEO of Pfizer (PFE), is well-regarded, at least by a friend of mine who attended Tufts University with him and now runs a firm that tries to improve corporate governance in Russia. However, Kindler left Pfizer in December without achieving his two main goals: making up for the loss of revenues from the patent expiration of Lipitor and boosting Pfizer stock 50%. Those failures don't rule him out, but they could push him further down the list.

At this point, I should disclose that I have a small personal connection to this story: This year, I have a new book coming out about how small and medium-sized businesses can enter global markets, titled Export Now: Five Keys to Entering New Markets. I co-authored it with former Undersecretary of Commerce for International Trade Frank Lavin, and Secretary Locke wrote the forward.

The administration's goal of doubling U.S. exports in five years is an ambitious goal, no matter who next fills the role of commerce secretary. Based on the latest numbers, U.S. exports rose 16.6% to $1.83 trillion in 2010. At that level we'd need to boost exports another 70% to reach $3.1 trillion by 2014.

Frank Lavin and I analyzed dozens of case studies looking for the key factors that would allow American companies to pull that off. Based on our 30 years of experience advising exporters, we complied 10 lessons to help them boost their chances for export success, lessons I summarized in a January DailyFinance article.

The Commerce Department can work with small and medium-sized businesses to help them achieve these growth objectives and it already does so through its commercial service offices in about 100 U.S. cities and 80 countries. Those trade negotiations with other countries can lead to bigger individual deals. When coupled with export growth by small and medium-sized businesses, Obama's goal of doubling exports is within reach. But much will rely on the leadership from the next commerce secretary -- whomever that may be.

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• Making solicitations at a time when few consumers expect solicitations (during checkout); and
• Automatically transferring customer payment information, such that a consumer can end up a member of a paid membership program, facing monthly credit card charges, without ever providing a card number to the company posting the charges.

• Prohibits "companies from using misleading post-transaction advertisements by requiring them to clearly disclose the terms of their offers, and to obtain billing information, including full credit or debit card numbers, directly from consumers";
• Prohibits "Internet retailers and other commercial websites from transferring a consumer's billing information, including credit and debit card numbers, to post-transaction third party sellers" like AVW; and
• Requires companies that use "negative options" on the Internet -- in which consumers are signed up unless they explicitly decline -- "to meet certain minimum disclosure and enrollment requirements, so consumers will not end up paying recurring fees for goods and services they did not intend to purchase."

• Ads must be "clearly distinguished from the checkout process (through style, format, color, etc. -- not just through easily-overlooked disclosures), "
• Sequencing must be "consistent with customer expectations (no ads appearing when a user is checking out)," and
• "Consumers [must] retype all account details (name, address, email)."

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• $13.3 million profit from earnings tip: Gupta supposedly told Rajaratnam -- more than a week before Goldman posted earnings in June 2008 -- that Goldman would be reporting better-than-expected earnings. Galleon made a $7 million profit selling options it bought before the news came out, and an additional $6.6 million from selling Goldman shares.
• $3 million loss averted: In December 2008, Goldman reported results that were much worse than expected. The SEC claims that Gupta had tipped off Rajaratnam to this in October, giving Rajaratnam time to sell 100,000 Goldman shares and avert the loss he would have incurred when Goldman stock fell $24 from its October price on the news.
• $900,000 on news of Buffett's investment. In September 2008, Gupta allegedly called Rajaratnam seconds after a Goldman board meeting ended to relay the news of Buffett's investment. Galleon made a $900,000 profit from the sale of 295,000 shares before that news became public.

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The business of building aircraft is intensely political -- as it probably should be. After all, what happens if you wind up at odds -- even go to war -- with a country that supplies your military aircraft? And how can you expect to run a modern economy without an airline industry? But not only do aircraft makers get tied up in international political dogfights, such battle lines are drawn between states as well.

This comes to mind in considering the competition for the $35 billion airborne refueling tanker that the Pentagon awarded late Thursday to Boeing (BA) instead of Airbus parent European Aeronautic Defence and Space (EADSY). At stake are 50,000 jobs paid for by American taxpayers in exchange for 179 tankers -- gas cans with wings that the Air Force uses for in-flight refueling of military aircraft (artist's rendering of Boeing's plane pictured).

The battle for those jobs pitted blue state Washington against red state Alabama -- and Washington won.

Political Hot Potato

Looking at the merits of each, as defense policy analyst Loren B. Thompson at the Lexington Institute told the Washington Post, Boeing's bid would cost the Pentagon less money -- both to build the tankers and to operate them over 30 years. Thompson noted that "The Airbus plane is so much bigger and burned over a ton more fuel per flight hour. Multiply that by 179 planes, times 30 years of service life and it becomes very big."

These political battle lines were also drawn in 2008 -- right in the middle of the presidential campaign. Back in February 2008, an EADS/Northrop Grumman (NOC) joint venture was awarded this contract, but Boeing protested that decision on the basis of a flawed process -- and the General Accounting Office agreed.

It also happened that Airbus had chosen sides in the 2008 presidential campaign -- picking John McCain and agreeing to build the tanker in a red state, Alabama. As I posted on BloggingStocks in March 2008, McCain had hired EADS lobbyists to senior posts in his campaign, and EADS employees contributed $40,000 to his presidential run.

It's a Draw

But the airline industry's national competition goes back a lot further. Over the years, the U.S. has accused Europe of subsidizing Airbus with risk-free loans to help it build new aircraft, and Europe has countered by suing the U.S. for subsidizing Boeing through military contracts and tax breaks.

While these battles get hashed out in decades-long legal battles, the results are generally considered a draw. For example, according to Global Economy Journal, the two aerospace combatants signed a subsidy agreement in 1992, but Boeing pulled out of it. In 2004, the companies took their battle to the World Trade Organization. In January 2011, the WTO found that Boeing got $24 billion in illegal subsidies from the U.S. -- after it issued a June 2010 finding that Airbus had gotten $20 billion in such illegal subsidies, according to the Associated Press

Still, Airbus and Boeing end up splitting the global aircraft market just about equally. According to Reuters, in 2010 Airbus sold 644 planes valued at $84 billion, while Boeing sold 625. This gave Airbus 52% of the world market to Boeing's 48%.

Enter, China

One new twist to this aircraft industry/national rivalry between Europe and the U.S. is whether a third player, China, will emerge to upend this cozy structure. And strangely, Boeing and its engine supplier, General Electric (GE), seem to be competing to see who can betray America the fastest.

Back to the tanker competition: Will EADS now protest the way Boeing did when it lost the first round of this battle in 2008? Alabama Senator Richard Shelby argues that his state deserves the 48,000 tanker jobs that EADS would create on the grounds that the Airbus tanker is a more capable aircraft and that the victory for Boeing was a result of "Chicago politics."

However, Lexington Institute analyst Thompson told the Washington Post that EADS is unlikely to protest noting that both aircraft were rated equally on performance and that an EADS effort to claim that the plane price calculations were done incorrectly would not pass muster.

Likewise, Mayor Sam Jones of Mobile, Ala., told the Los Angeles Times: "We are certainly disappointed, but not discouraged. After a debriefing, if we learn that the decision was made on a fair assessment of the merits, we don't have any political rhetoric, we are ready to move on to other opportunities."

It looks like Boeing won this round. But the aircraft industry rivalry between countries -- and U.S. states -- aren't about to end.

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