Weekend Update: Commenting, writing, teaching, speaking
The new year is off with a bang and my phone has not stopped ringing. That's great because it gives my life meaning, structure, and intellectual and financial sustenance.
Like all bitter men, Flint knew less than half the story and was more interested in unloading his own peppery feelings than in learning the truth.
“The Trouble of Marcie Flint”, The Stories of John Cheever, John Cheever
I am watching the work of Matt Stoller closely. His newsletter Big is a must read for me and I especially like his Sunday wrap-ups. Stoller has been writing a lot about airlines, first after the most recent Alaska Air Boeing plane had a door blow off mid-flight and then about a judge’s decision to block the acquisition of Spirit Airlines by JetBlue.
First in his monopoly round-up two Sundays ago he asks, “Why can’t we fix Boeing?” When I read this harrowing account of a woman whose son was near the door and who saved him from flying out with the help of an angel nearby I became furious at how public and private enforcement rewards recidivist criminals like the non-stop parade of idiots who’ve run Boeing and sat on its board.
I have written about Boeing many times, not only because the company moved to Chicago from Seattle and threw its weight around when I was living and working there. In addition to the Stonecipher fiasco after the Condit scandal, there’s the case of the internal auditors that tried to call out its faults. They lost their case.
Almost a week later Stoller wrote, “It’s time to nationalize then break-up Boeing,” and I agree. I commented again on Substack’s Notes platform about Boeing’s impunity and my comment was well-received.
Stoller most recently wrote about how a judge blocked the JetBlue acquisition of Spirit Airlines. Coincidentally, or not, this deal is another one of those shared auditor M&A transactions, this time with EY acting as potential matchmaker. FOILED!
Alaska Air is also supposed to be going through M&A transaction. Good luck with that!
Speaking of antitrust, monopoly, and competition, I finally got a question from someone on why the Big 4 wasn’t included in the Biden antitrust target manifesto at the beginning of his administration. We talked for a long time so stay tuned for that story.
I’ve written about it before. Most recently in my take on the accountant “shortage” and the run towards easy answers. I even used the word “monopsony”.
In September, for Labor Day, I wrote about how salaries for accounting graduates had not increased since the last time I looked at the numbers in 2008, despite the increased educational requirements.
Laboring in the Big 4
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SEPTEMBER 5, 2023
This defies economic principles.
Increasing licensing requirements that theoretically raise standards creates new barriers to entry — which everyone agrees happened but many believe is positive — and should reduce supply — which everyone agrees has happened but some are inexplicably shocked by.
Barriers to entry that create a smaller supply for a growing industry should cause salaries to increase. That's basic supply and demand. But it hasn't and still doesn't.
That's because the public accounting industry at the elite level, where the global Big 4 firms — Deloitte, EY, KPMG, and PwC — control the shape of the supply via significant influence over faculty at pipeline academic institutions and control and perhaps collude to limit salaries offered to entry level recruits, is also a monopsony.
I’ve written about the Big 4 and competition or rather the oligopoly and lack of competition in the audit industry here, — summarizing my writing over the years at my legacy blog — at the Stigler Center ProMarket Blog, and for the Chicago Booth Review.
So you can imagine I was incredibly thrilled to hear that Dr. Martin Schmalz, the new Chief Economist and Director of the Office of Economic and Risk Analysis at the PCAOB gave a speech at the recent AAA-Audit Section Conference that was very similar to one he gave in October to a PCAOB-sponsored academic conference — one I requested to attend but was turned down — that used the word “monopsony”. Schmalz, who has an academic research background in competition and antitrust, suggested that maybe the largest global audit firms do not want to hire more accountants when they have to pay more.
It’s a Goldilock’s porridge situation — the firms pay an equilibrium wage that results in only so many accountants.
It is good to see we are now all on the same page.
Finally, I collaborated with my good friend Olga Usvyatsky at her newsletter Deep Quarry on another story about litigation contingencies, this time focused on Wells Fargo and SEC comment letters about theirs. There are few topics I like writing about more than auditors and litigation contingencies.
I will be writing more about the Circle IPO, but suffice to say for now, “I toldja so!”
Coming up:
I am getting ready to teach a custom fraud case class I developed at the request of Prof. Miguel Minutti-Meza for the University of Miami in March and April.
I will be speaking to students at the University of South Carolina at the invitation of Prof. Chad Stefaniak, Univ of S. Carolina, on January 25.
Interviewing my friend Stanford Prof. Anat Admati in Princeton NJ when she participates in a “book talk” on the updated edition of her book, “The Banker’s New Clothes” on February 27.
Listen to Prof. Admati’s interview by Prof. Luigi Zingales and Bethany McClean for Stigler Center’s Capitalisn’t podcast, “The Capitalisn't of Banking, with Anat Admati”.
Many more academic guest lectures coming up this spring. If you want me to talk to your lawyers, directors, students, or faculty, please email me at info@francinemckenna.com.
© Francine McKenna, The Digging Company LLC, 2024