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Lynn Parramore: Conversation with Jeff Madrick, Author of Age of Greed (Part One)

by on May 31, 2011

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Cross-posted from New Deal 2.0 . Roosevelt Institute Senior Fellow Jeff Madrick recently sat down with ND20 Editor Lynn Parramore to discuss his latest book, Age of Greed: The Triumph of Finance and the Decline of America, 1970 to the Present , which hits stands today. If you’re in the New York City area and want to learn more, catch Jeff at Cooper Union on Thursday, June 2nd. Click here for more information on the event. Lynn Parramore : You called your book Age of Greed , tracing the antecedents and activities of a four-decade period starting in the 1970s. Why did you choose greed as the central theme? Why not “Age of Risk” or “Age of Delusion”, for example? Jeff Madrick : I think greed always exists. It rises and falls with the times. But when it’s unchecked by government, which has been happening since the 1970s, it festers on itself. It becomes outsized and it badly distorts the economy. That is to say, self-interest rises to a level of greed that overwhelms the economic invisible hand. When self-interest turns into greed, people start using the power of business to undermine the way markets should work. What happened in this era was that people worked in their self-interest. They didn’t just take more risk. They were not deluded. Many of them took more risks than they should and merely did it because they made a buck. So greed really drove this decade: money and self-interest in the extreme drove very bad decision-making on Wall Street, which in turn, it’s important to emphasize, deeply harmed the American economy. LP : Walter Wriston, a name perhaps unknown to many Americans, gives the title to not one but two chapters of your book? Why is this figure pivotal? JM : My writing career began in the 1970s, so he was a big name to me. I interviewed him several times. Walter Wriston was the pioneer in the effort to deregulate financial markets. He was a talented, very bright man who ran a very powerful bank and had enormous access to the Republicans who took over in 1969 through Richard Nixon’s victory. And he is the one who began unraveling the regulations — the way controlled commercial banks, which took FDIC-insured savings deposits, could invest their money. In fact, as people read the book, they’ll see that he was a free-market ideologue. He really hated the New Deal. His father, a prominent conservative historian who ultimately was president of Brown University, hated the New Deal. Wriston inherited that from him in my view. But he also used it for his company’s own gain. In the 1970s, Wriston really began to whittle down the famous ” Regulation Q “, which controlled the interest rate that could pay savers to attract money. And therefore the banks could get more aggressive about where they lent the money. He also developed an enormous international business. What was remarkable about Wriston — to the detriment of the American economy to a degree but especially to the third world — was that he took the petrodollars of the Arab nations. The Arab nations got a lot of dollars when they tripled, quadrupled and again doubled the price of oil. All of that was paid in dollars to them. They had to do something with those dollars. Wriston leaped in to recycle them by making loans to the third world –especially by developing nations. Especially in South America. Government could just as easily have been handled by the I.M.F., the World Bank, or some ad hoc group of governments to oversee the use of that money, and even to make it equity money, not loan money — investments and productive business. Instead it was lent to countries, and, to some degree, companies that had exported commodities. Wriston heralded how well his loan officers could manage that money and the loans almost all turned bad in the 1980s — so bad that the banks chose to stop lending to countries in trouble, particularly Mexico in 1982. The Fed and the I.M.F. had to rescue, in effect, the American banks. LP : Wriston started his career -and remained for some time — a rather unassuming man who lived in a middle class housing project. But by the end of his career he was living among celebrities and driving fancy sports cars. Does that trajectory reflect a key change in American banking and financial culture? JM : A good friend of mine told me back in the ’70s that financiers never became wildly rich in American history. Take J.P. Morgan, the greatest financier in American history. When he died, Andrew Carnegie said, “I didn’t know he had so little money.” In the 1970s that began to change. Financiers became enormously wealthy. Wriston was the leading edge of that, but he wasn’t the man to make by any means the most money. He wanted to make a bank into a growth company, like Xerox or IBM or Johnson & Johnson, which were the great growth companies. Or later, Microsoft, Apple. But should banks have been growth companies? In the meantime, he began to travel in a very powerful world and he began to live the good life. I think it was the beginning of that kind of thing, but others took it to excesses that made him look like a piker. LP : That brings me to Ivan Boesky. He’s the first character in the book who really seems to capture the very essence of greed. He’s a bandit with no pretense that he’s working on behalf of anyone else. Was he the beginning of this era’s greed in its purest form? JM : Ivan had no illusions about what he was doing. Now, I don’t know if that’s as un-admirable as it sounds. Because many of the other guys created a pretense to allow them to seek their self-interest–and, in my view, become excessive, even corrupt. Ivan knew he was corrupt. He intended to be corrupt. Where he was stupid is that he really didn’t even try to seriously cover his tracks. LP : Was he an outlier? Did this type of behavior become something others wanted to emulate? JM : He was the leading edge of the culture. Few people were quite as crude as Boesky. They disguised it. They didn’t brag about it that much. But they were very aggressive in their own way and Ivan occasionally talked about that famous line from Adam Smith that greed is healthy. He thought he was emulating Smith. By greed he meant self-interest. But he wasn’t really concerned about those bigger things. He had certain psychological issues, some of which I trace in my book. He needed constant social affirmation. He needed it. In my view, he couldn’t walk into a room anonymously. It just was too much for his shallow and very weak ego. He needed that money and would do anything for it. He was a mobster. He was addicted to money and he would commit financial crimes to get it with no qualms. LP : You outline how the hatred of government intrusion drove many of the early proponents of the free market model. This seems a great irony, given that financiers who hate government need its cooperation — its guarantees, its bailouts — in order to get and stay rich. How do you explain this contradiction? JM : Self-interest means that you will do anything, even utilize government, to make your money and to retain your place in society. There are many examples of people who think that the rules apply to others but not themselves. Wriston was a classic example of this. It wasn’t only the bad bank loans. In 1970 when Penn Central went bankrupt, his bank made the most commercial paper loans to Penn Central. He was scared to death everything was going to fall apart. He called the Fed – I don’t know if he spoke to the Chairman, Arthur Burns, but the Fed opened its window like it did in 2007. This happened many times with Wriston. He talked this game of free competition, but when he needed to be bailed out, he got bailed out. So it’s an extreme hypocrisy — not an unusual characteristic of egotistical, ambitious men and women. There are double standards. LP : Many argue today that government has been captured, or even restructured through the influence of the financial and banking industries. Is this true? If so, how can trust in government – trust in its ability to intervene in crises — be restored? JM : There is no explanation for the deregulation and lack of oversight on the part of Washington except that they were snookered, beholden, or saw where their bread was buttered because of the rise of Wall Street and how much money you could make. Something we have to be cautious about: we’re snookered by a simplistic ideology. The people who adopt ideologies and idealism do so often because it favors themselves and their own pocketbooks. The history of this period is a history of the abdication of government authority. Part of it was the result of this rising ideology in the ’70s. Part of it was because Americans became convinced that big government and some kinds of regulations are problems. A lot of it had to do eventually with the sheer power of business to attract and influence these decision makers. LP : Could government have done anything to stop greed? JM : Greed would have remained checked had government been doing what it should be doing. And that’s a tragedy of the age. One point we have to make clear is that the nation did not start wasting its money and losing its precious resources in 2007, 2008 and 2009. The financial community has been ill-serving the nation since the 1970s. I talked about the bad loans Wriston made. There were also all kinds of bad real estate loans made in that period. In the ’80s the banks and other financial institutions financed the corporate takeovers – that was billions and billions of dollars. The S&L’s made all kinds of bad loans because they were deregulated. In the early ’90s banks and securities firms began using derivatives to make tricky loans to companies like Proctor&Gamble and Orange County. In 1994, when the Fed raised interest rates, those financial structures fell apart and Wall Street almost with it. In the late 1990s, Wall Street financed all kinds of high-tech fantasies. There was bad accounting. Outright lies by financial analysts on Wall Street. You could not keep your job and make your fame on Wall Street unless you lied. Accounting fraud and unaccepted accounting practices were rife throughout American in the late 1990s. LP : So greed is the central problem, but deceit is the handmaiden? JM : When you sell a product — Electrolux vacuum cleaners, Avon hand lotions – it would be naïve to think that there isn’t some kind of exaggeration. But Wall Street became imbued with deceit at very high levels of transactions. The cost to the economy – the misallocation of resources – was huge. In the 1970s there were the bad loans in Central America. In the 1980s, the outrageous investments made by S&Ls with federally insured money. In the 1980s again – huge hostile takeovers financed with tax-deductible dollars that were not ameliorated by government. In the 1990s, the high-technology fantasies — Enron and WorldCom, telecom companies rife with accounting frauds. This amounted to hundreds of billions of dollars of bad investment. Even trillions of dollars. And then, of course, the 2000s – there were the subprime mortgages and other bad mortgages. Trillions, literally. LP : What have these losses meant to America’s economy? JM : This is all a misallocation of resources in America. When Alan Greenspan said his great mea culpa –”I have this model of the economy and it worked for forty years and then it didn’t work” – that is nonsense. It did not work. There was constant misallocation of losses. He would argue, well, we need those losses in order to have the good. But look what happened to the economy during this period. We had twenty-two or twenty-three years of low-productivity growth. When productivity did start to rise, typical workers benefited from it only for a few short years in the late 1990s. Wages over this period of the Age of Greed have stagnated. They’re actually down for men. They’re up for women but only moderately over time, and women still make significantly less than men do with the same qualifications on average. What kind of economy is that? We haven’t invested in transportation, education, health care advances, energy. The list goes on and on. And who knows how much manufacturing innovation we failed to invest in because of what happened on Wall Street. **Stay tuned tomorrow for Part Two of this interview and find out what we need to do to change course.

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Lynn Parramore: Conversation with Jeff Madrick, Author of Age of Greed (Part One)

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Robert Scheer: Access Journalism: The Movie

by on May 25, 2011

Huffington Post…

It is not true, as a Wall Street Journal reviewer claimed, that the HBO movie version of Andrew Sorkin’s book Too Big to Fail was “Too Boring to Watch.” On the contrary, the problem with the film, featuring excellent acting and taut direction, as with the richly anecdotal book, is that it is all too effectively misleading. Fortunately, if viewers have already watched Inside Job , the spot-on Academy Award winner, they will not be led too far astray by this film’s adulation of the likes of Henry Paulson and Timothy Geithner. Paulson is portrayed as an eminently decent man, troubled by the imperfections of the TARP bailout, and when he throws up off camera in one scene it is not at all suggested that perhaps he could be disgusted that the misery he brought to the world had left him a billionaire. When he resigned his position as head of Goldman Sachs to become treasury secretary, he cashed in $485 million in Goldman stock and was saved from a $100 million tax liability because he was entering government “service.” The film barely mentioned that Paulson was the head of Goldman Sachs when his company deceptively packaged and sold the collateralized debt obligations (CDOs) based on the subprime and Alt A mortgages that proved so toxic. As Paulson concedes in his memoir, after George W. Bush appointed him treasury secretary, the president asked plaintively as the economy was crumbling: “How did this happen?” In Sorkin’s book, it is stated that the treasurer “disregarded the question, knowing that the answer would be way too long.” But in his memoir, Paulson provides a clearer insight: “It was a humbling question for someone from the financial sector to be asked — after all, we were the ones responsible.” No such honesty has yet emerged from Geithner, who was an undersecretary of the treasury during the Clinton years, when he worked closely with his bosses, first Robert Rubin and then Lawrence Summers, to pass the radical deregulation hinted at but never fully explained in either the Sorkin book or the film. There is scant reference to the obliteration of the Glass-Steagall Act, a repeal that permitted the too-big-to-fail merger of companies such as Travelers and Citicorp, which became Citigroup — a company that had to be bailed out with $50 billion in taxpayer money. Nor is there any reference in the film to the fact that Rubin, mentor to both Summers and Geithner, went on to help run that new megabank at a salary of $15 million a year. Geithner, who later became head of the New York Fed, a job obtained with the effusive recommendations of both Rubin and Summers, worked to salvage Citigroup from the mess its packaging of toxic mortgages had created. Geithner is lionized in both Sorkin’s book and the film version. As Nancy deWolf Smith put it in the Wall Street Journal : “Some viewers who remember the book may be galled again by the portrayal of certain characters. For instance, Timothy Geithner (Billy Crudup), then president of the Federal Reserve Bank of New York, still comes across as a blameless saint and Wunderkind with a compassionate finger on the pulse of the victimized ordinary man.” The fawning in the book is embarrassing, as in the description of Summers and his treasury assistant in the Clinton years going off to tennis camp, with Sorkin noting, “Geithner, with his six-pack abs, had a game that matched his policy-making prowess.” Not to be overlooked is “his usual firm, athletic handshake.” That policy prowess must extend to the destructive CDO deregulation that Geithner and Summers pushed through Congress and that, in an image in the movie, we see Bill Clinton signing into law. That legislation, not specifically referenced in Sorkin’s book, was called the Commodity Futures Modernization Act (CFMA). It banned the application of any existing regulation or regulatory agency authority to the emerging market in CDOs that turned out to be disastrous. These were the same CDOs that AIG backed with phony insurance “swaps,” resulting in the Geithner-led $170 billion bailout of the company with the money passed through to Goldman and the other banks covered by AIG. Neither the CFMA nor the heroic and incredibly prescient Brooksley Born, then chief of the Commodity Futures Trading Commission, whose dire warnings about the new financial gimmicks were effectively silenced by the CFMA, are mentioned in the index of Sorkin’s book. At the end of HBO’s film about how skillfully Henry Paulson, Ben Bernanke and Timothy Geithner managed to force the top banks to accept $700 billion in bailout money, the question is posed as to whether the banks so saved would turn around and lend money to save the homes of ordinary folks. The outcome was quite the opposite. The economy remains in deep trouble thanks in considerable measure to the “bankers-first” priorities that Geithner and Summers brought with them to the Barack Obama presidency. The housing industry is deeply depressed, new home construction starts this year are expected to match the lowest point since records first were kept in 1963, housing values are predicted to decline at least 5 percent more this year, and without an improvement in housing there will be no significant increase in consumption or jobs. Further, on the day HBO premiered the film, the New York Times reported that the top banks now have an inventory of foreclosed homes that is twice as high as when the crisis began four years ago, and, “In addition, they are in the process of foreclosing on an additional one million homes and are poised to take possession of several million more in the years ahead.” The film and the book, by centering on TARP, make that bailout the big deal, and when the bailout money was paid back to free the bankers’ bonuses from regulation, it was celebrated by Geithner as “the most effective government program in recent memory.” Rubbish! As Paul Atkins and two other members of the Congressional Oversight Panel on TARP wrote in a blistering WSJ column exposing the TARP settlement: “It hides the full story of the government’s financial crisis effort, of which TARP is but a minor part”; the major part being the $1.1 trillion in toxic mortgages that the Fed purchased from the banks, the $380 billion bailout of Fannie Mae and Freddy Mac, and the loan guarantees of “other Fed and FDIC programs [that] added another $2 trillion of taxpayer money at risk to the 19 stress tested banks alone.” And then there is the 50 percent run-up in the national debt, thanks to the banks’ savaging of the economy that will haunt us for decades to come. Perhaps the main value of the book and film is the instruction they provide on the limits of mainstream journalism in the decade that led up to the meltdown. Sorkin, who rose to be a business editor at the Times , covered Wall Street deal-making in exquisite detail, relying on an access journalism that has often proved deeply flawed in traditional business news coverage. What was largely ignored as it was unfolding was the story of the unbridled power of Wall Street financiers over the political process that caused this tragedy for so many tens of millions who have lost jobs and homes.

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Robert Scheer: Access Journalism: The Movie

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Video: Roger Martin Says Stock-Based Compensation Doesn’t Work: Video

May 20, 2011

May 20 (Bloomberg) — Roger Martin, dean of the University Toronto’s Rotman School of Management, discusses his book “Fixing The Game: Bubbles, Crashes, and What Capitalism Can Learn From the NFL.” Martin talks with Erik Schatzer on Bloomberg Television’s “InsideTrack.” (Source: Bloomberg)

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Leonardo DiCaprio Takes On Wall Street Criminal

May 11, 2011

The moneymen have been found to help tell the story of a high flying money man gone bad. “The Wolf of Wall Street,” a big screen adaptation of boiler room convict Jordan Belfort’s 2007 memoir, was announced earlier this year , with DiCaprio attached to star. On Tuesday, Red Granite Pictures agreed to purchase the rights to the book and finance the film , setting production in motion. Belfort spent years in the 80′s and early 90′s as a Wall Street trader, racking up both millions of dollars and a serious drug addiction, before a 1994 conviction for shady trading practices that lost clients hundreds of millions. When the film was announced in February, Martin Scorcese, DiCaprio’s longtime collaborator, was attached to direct — he originally optioned the book in 2007 — but as of now, no filmmaker has committed to getting behind the camera. DiCaprio will also soon star as another millionaire: the much more enigmatic Jay Gatsby a grand, potentially 3D, adaptation of “The Great Gatsby.” He’ll be joined by Carey Mulligan, Tobey Maguire and Isla Fisher, among others. For more, click over to The Hollywood Reporter .

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Adelaide Lancaster: The Secret Weapon of Successful Entrepreneurs

May 3, 2011

I give the same answer to at least half of the business advice questions that I am asked. “How should I get the word out about my new service?” “What’s the best way to reach my target market?” “What conferences are worth attending?” “How much should I pay my staff?” “How do I find a good manufacturer … sales rep … or cost-effective printer?” “Ask your network,” I reply again and again and again. In my opinion it’s the easiest and fastest way to get the best answers to almost any question. Veteran entrepreneurs usually nod in agreement, mentally scan their network, ask my help in filling any gaps, and then go along their way. Newer entrepreneurs often give me an uneasy look. Maybe their network isn’t that big yet. Or maybe they aren’t yet comfortable asking for help. Or maybe they’re still hesitant to share behind-the-scenes details on their business. But more often than not, it’s the word ‘network’ that turns them off. Believe me, I get it. I too was jaded by “traditional” networking, that is before I was an entrepreneur. The conventional career wisdom when I was growing up was “It’s not what you know but who you know that matters.” It seemed that no one missed an opportunity to remind youngsters that the most important ingredient for success was a thick Rolodex. While some people were probably relieved to hear this, I was a bit resentful. After all I had spent years working hard to cram my brain full of useful information and my resume full of worthwhile experiences. Instead of being able to freely focus on opportunity, promise and ability, success seemed to hinge on a few arbitrary acquaintances. To me, networking was a necessary and unrewarding evil at best. Needless to say when I became my own boss, networking wasn’t at the top of my to-do list. I warmed to the idea when I recognized that word-of-mouth referrals were the best way to get clients. But, since I was still a newbie, I only saw my network as a sales tool. I quickly learned however that, as an entrepreneur, my network was much more than that. Instead of collecting ‘in case I need to know you’ connections, my network became my lifeblood, a never-ending source of experience, knowledge, resources, introductions, ideas, advice, feedback and support. Aside from connecting me to the right clients and opportunities, it is my strong peer relationships that have: prevented me from learning lessons the hard way; shortened my learning curve; given me honest and hard to come by feedback; enabled me to benefit from the first hand experience of others; and provided inspiration and rich ideas. I can’t think of many of my accomplishments where the contributions of my network haven’t been significant. For example, my peers were completely instrumental in the book that my partner and I just finished. Here’s a short list of things that my network provided us with for this gargantuan task: an agent who quickly sold our book, critical advice from recent authors on important contract points with the publisher, feedback on our approach and framework, a rich pool of interviewees, suggestions on equipment and transcription services, an inside look at various publicity proposals, ideas and inspiration about viral campaigns and generation promotional ideas, introductions to other writers and journalists, as well as support and encouragement. I was talking recently to a new entrepreneur who was, unsurprisingly, reluctant to ramp up her networking efforts. Fresh from the corporate world, she was tired of the schmoozing and the ‘what can you do for me’ routine. As I excitedly extolled the importance of peers and colleagues in the journey of entrepreneurship, I caught myself telling her that it’s who you know that really matters. The familiar tone of this phrase almost stopped me short. I was quick to explain the difference between the old quid pro quo style of networking and the kind of support that entrepreneurs engage in, but nonetheless I was firm in my message and underlying meaning: Invest the time and energy in building a strong network of peers. They will improve your business, save you effort and expense, and enrich the journey. A strong network really is the secret weapon of successful entrepreneurs.

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Karen Dionne: Why 99-Cent e-Books Are a Bad Deal — For Authors

April 18, 2011
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Video: Eichengreen Says Americans `Posture’ on Fiscal Solvency

April 8, 2011

April 8 (Bloomberg) — Barry Eichengreen, professor of economics and politics at the University of California at Berkeley, talks about currencies, Federal Reserve and European Central Bank policy, and the political battle over the U.S. budget. Eichengreen, speaking with Tom Keene on Bloomberg Television’s “Surveillance Midday,” also discusses his book “Exorbitant Privilege: The Rise and Fall of the Dollar and the Future of the International Monetary System.” (Source: Bloomberg)

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Gaddafi Son’s Book Plans Dropped Amid Plagiarism Charges

March 2, 2011

NEW YORK — In addition to the decadent New Year’s Eve parties , confabs with neoconservative pundits and dinner parties with Wall Street kingpins , the Gaddafi family had aspirations to succeed in the book world. Oxford University Press made a deal with Saif Gaddafi, the second son of Libyan strongman Muammar Gaddafi, to publish as a book his doctoral thesis on “soft power” and democracy, “The Role of Civil Society in the Democratization of Global Governance Institutions.” As one of the most respected publishing houses in academia, the contract was an honor for the young Gaddafi, who was being groomed as his father’s likely successor. In order to boost sales and push it on the bestseller lists, Saif Gaddafi offered to purchase 20,000 copies of the book, reports the London Evening Standard . The publisher says that it has dropped plans to publish the book. A spokesman emailed the following statement to The Huffington Post: In May 2010 Oxford University Press received a book manuscript from Saif al-Islam Alqadhafi elaborating a model of democracy and democratic reform with particular reference to Libya and the Arab world. The manuscript was sent for review by scholars of the highest international standing. They supported the book’s publication on the basis of the evidence then available of its scholarly quality and of the author’s credibility. They also noted its possible contribution to political reform. The Delegates of OUP provisionally approved publication of the work subject to review of the final manuscript, which has not yet been received. Recent events in Libya have completely changed the circumstances surrounding the work and the author, and therefore OUP will not now proceed with publication of the book. Not that you’d have to shell out for the thesis in any case — there are plenty of copies online . And to add to the embarrassment for the venerable publishing house, the London School of Economics, where Saif wrote his thesis, is investigating claims that the work was plagiarized. ( Click here for an extensive list of apparently plagiarized passages in the book.) Experts have found 16 instances where Saif appears to plagiarize academic texts, International Monetary Fund research and a 2005 publication, “Denying Democracy: How the IMF and World Bank Take Power from People,” by Tim Jones and Peter Hardstaff. “LSE is aware that there are allegations of plagiarism concerning the PhD thesis of Saif Gaddafi. The school takes all allegations of plagiarism very seriously and is looking into the matter in accordance with standard LSE procedures,” said a spokesperson for the school. The thesis has been used to mock Saif , whose comments on Libyan TV condemning protesters seem at odds with his own words. Among the passages in the thesis: I adopt the definition of liberal individualism as a political ideal within which liberty is an inalienable right of individuals and a just government must protect individual liberties in its constitution and laws. It is based on the philosophical doctrine that individuals are prior to the collectives they constitute and are entitled to live and act by their own judgment, and so their equal liberty should be restricted only when necessary to secure the equal liberty of all.

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Tony Hsieh: Zappos CEO: In Your Next Speech, Just Wing It

February 18, 2011

Excerpted from #1 NY Times Bestseller Delivering Happiness by Zappos CEO Tony Hsieh In the two years leading up to the announcement of the Amazon acquisition, Zappos started getting more and more media coverage. A lot of people assumed that we must have stepped up our PR efforts, but that wasn’t the case at all. We simply continued doing what we had always done: constantly improving the customer experience while simultaneously strengthening our culture. The funny thing is that a lot of the press we got was for things we had first done several years earlier, such as paying employees to quit during their new hire training or occasionally sending flowers to customers. We didn’t intend for any of the things we were doing to end up in the news or on blogs. But every once in a while, a reporter or popular blogger would pick up on something that we were doing, and the story would spread like wildfire. We were as surprised as anyone else by the publicity because it was never planned for on our end. We learned a great lesson: If you just focus on making sure that your product or service continually wows people, eventually the press will find out about it. You don’t need to put a lot of effort into reaching out to the press if your company naturally creates interesting stories as a by-product of delivering a great product or experience. As our media coverage increased, I started receiving more and more speaking requests for different conferences and industry events. One of my first speeches was at the Footwear News CEO Summit in 2005. I remember I was a nervous wreck, because I hadn’t really done much public speaking before. At the time, I agreed to do it because it would be a good opportunity to tell the Zappos story to a lot of footwear vendors we were still trying to establish relationships with. I wrote out my entire speech beforehand, and then spent a month memorizing it and rehearsing it. I couldn’t sleep the night before my speech. It ended up going okay, and I was relieved when it was finally over so I could catch up on my sleep. Even though I didn’t really enjoy the whole experience, it had a very positive impact on our business, so I was glad I had done it. Over the next year, a few more speaking requests started trickling in. I agreed to all of the with a feeling of dread, but I knew they would help build our business and our brand. I also thought that, as uncomfortable as I was with doing them, they were opportunities for me to grow both personally and professionally. Like anything else in life, I figured that public speaking was just a skill that required practice on a regular basis. Each speech I gave was just another practice session. During my first year of public speaking, I was diligent about writing out my speeches beforehand and memorizing them. It took a lot of time to do, and I would never sleep well the night before my talks. Sometimes, while giving the speech, I would accidentally skip over or forget a sentence or an entire paragraph, which would leave me temporarily flustered on stage as I racked my brain trying to remember the lines I had practiced the night before. With each speech, I found myself slowly improving. But I still didn’t enjoy the actual speaking itself. Even though my speaking was helping build the Zappos brand, I thought that maybe I just wasn’t meant to be a public speaker because I was so uncomfortable with the process, even after having done it for a year. And then one day, I had an epiphany. I realized that nobody knew what I had written down beforehand. Nobody would ever know if I skipped a sentence, a paragraph, or even an entire section. I had also noticed that while people appreciated the content of my speeches, they generally commented about two things afterward. They told me they really enjoyed the personal stories, and they said that, even though many of them had already read about Zappos in the press, it made a huge difference to actually hear it come from me. They told me they could really feel my passion for company culture, customer service, and Zappos in general. So, for my next speech, I tried a completely different approach. I decided not to memorize or rehearse anything. I would just wing it and see what happened. I knew I had a lot of stories I could choose from on the fly to tell, and I knew that as long as I stuck to topics I was passionate and knowledgeable about — customer service and company culture — that I would have plenty of material to draw from to fill the time. When I finally got on stage, I still had some jitters for the first minute or two as I adjusted to the audience and the room. After that, the time just flew by. The audience was more engaged than they had been in my previous talks. I even managed to get some unexpected laughs from moments in my stories when I was just trying to tell a story instead of trying to recite lines from a script I’d written. I would later learn that I had achieved the state of flow . In his book by the same name, researcher Mihaly Csikszentmihalyi describes flow as a type of happiness, in which someone loses sense of time, self-consciousness, and even self. That’s exactly what happened to me. From that point forward, I used the same formula for all of my speeches and found that most of the rest of the stuff that I used to worry about usually just fell into place. I just went by three basic rules for my talks: 1. Be passionate. 2. Tell personal stories. 3. Be real. I made the mistake once of agreeing to speak at a conference about a topic that I wasn’t actually passionate about. Even though I knew all the content inside and out, I wasn’t able to speak passionately, so my performance turned out to be only okay. But it was a good learning experience. Today, whenever I’m invited to speak somewhere, I let them know that I will only speak about certain subjects, which may or may not match the overall theme of the conference. I then leave it up to the conference organizers to decide whether they are okay with that or not. Usually they are fine with it, but occasionally not. In those instances, no matter how much money the conference is offering to pay Zappos and no matter how good an opportunity it would be for Zappos to be exposed to that audience, I always do the same thing. I politely decline.

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Robert Creamer: No Mr. Boehner, America is Not "Broke"

February 15, 2011

Once again on the Sunday news shows, Republican Leader John Boehner declared that “America is broke” — his premise for why we “can’t afford” important investments that are critical to America’s future. In fact, of course, America is far from “broke”. It is the largest economy in the world. After collapsing as a result of the recklessness of the big Wall Street banks — and Republican economic policies in late 2008 — the economy has, in fact, grown for six consecutive quarters. The stock market has almost doubled since the crash — regaining most of its value. Corporate profits are soaring. And American corporations are now sitting on close to two trillion dollars in cash. What’s more, we still have the same highly-skilled, productive labor force and the same stock of plants and equipment that we did before the financial meltdown — the same ability to create the goods and services that are the real measures of economic wealth. The problem isn’t that America is “broke.” The problem is that economic growth is not being shared with most Americans. The problem is that the very rich are wealthier than ever and everyone else is falling behind. Not only does that mean that the massive store of wealth that we create today is not widely shared. It also means that — taken together — we have less wealth as a nation because so many Americans who could be creating goods and services are unemployed, creating nothing. Of course the implication of the “America is broke” mantra is that we have to make massive cuts in programs and services that benefit the middle class and poor because we “can’t afford them” — us being broke and all. Frankly, you have a hard time taking that kind of talk seriously from a guy who just recently demanded that America continue to give massive tax breaks for the wealthy for the next two years — and who wants to flat out abolish the estate tax that, by definition, benefits only the sons and daughters of multimillionaires and billionaires. Is America broke? Have a look at John Paulson. In 2007, as the financial crisis descended, he made $4 billion in personal income betting against subprime mortgages that helped sink the rest of the economy. Last year he made a record $5 billion in personal income as the manager of a hedge fund. By the way, had he somehow managed to make that astronomical sum of money laying bricks or sweeping floors, he would have paid taxes at a rate of 35% on the bulk of that income. Instead, he paid at a rate of only 15%, since he earned his money by speculating as a hedge fund manager instead of making a useful good or service. Makes sense, right? Last year Mr. Paulson made as much as 100,000 of his fellow citizens who earned $50,000 per year. Paulson’s haul may have been a record, but Appaloosa Management’s founder David Tepper and Bridgewater Associates chief Ray Dalio each did pretty well too — between $2 and $3 billion each. And the rest of Wall Street was back in the money as well. Boehner’s attempt to justify massive cuts in investments that will grow the economy in the future — like education and infrastructure; or his insistence on cutting money that is used by the states to pay firefighters and police; or cuts in programs that take food out of the mouths of poor children — are outrageous so long as most of our economic growth goes into the hands of the wealthy few. Let’s remember a few key facts about our current federal deficit: The last time the federal budget was actually in balance was not under the Republicans — but rather under Bill Clinton. The current deficit was caused exclusively by the Bush tax cuts, two unpaid-for wars that cost trillions, and the largest recession in eighty years — caused by the same Republican economic policies Boehner is trying to sell today. Between 2001 and 2008, the Bush Administration and the Republican Congress rolled up more federal debt than all other Administrations in the history of the United States combined. It is entirely possible to deal with the federal deficit without making the middle class and poor pay the bill. My wife, Congresswoman Jan Schakowsky, who was on the President’s Fiscal Commission, outlined precisely such a proposal last fall. It makes many cuts to spending that go for unnecessary tax expenditures like subsidies to Big Oil and it relies on making the wealthiest among us pay their fair share. It makes the people who had the economic party over the last two decades pay the bill — not middle class and low income Americans who didn’t even get an invitation. The deficit is not some inevitable consequence of our being “broke” — or some law of nature. It was caused by human decisions to allow wealthy people to reduce their contribution to our common activities and to use them, instead for themselves. For example, it is entirely possible to raise the same amount that Boehner has proposed cutting in the 2011 (this year’s) federal budget simply by adding a few new tax brackets to the tax code for those who make more than a million dollars. You bump the tax rate up at a million dollars, at ten million, at fifty million — and a billion. You don’t even have to raise them that much. Right now people who make5 billion per year — America’s economic royalty — pay taxes at the same rate as upper middle class professionals who make360,000 — where the current highest tax rate of 35% kicks in. Often, because of tax loopholes — or because they’re hedge fund managers — they actually pay less. The reason why this approach works so well is that all the new income is going to that tiny percentage of the population. To fix the deficit, you have to go where the money is. Yesterday the President proposed his fiscal 2012 budget. It makes major investments in precisely the areas that will help us out-build, out-educate and out-compete the rest of the world in the 21st Century. His budget includes new investments in education, clean energy and infrastructure. Many of these initiatives have already been attacked by Republicans because “we can’t afford them — after all, American is broke.” We may not be broke now, but we really will be broke if we don’t invest in the future. The President also proposed cuts in a number of areas that we truly can’t afford (and really never should have done in the first place) — like subsidies to the oil and gas companies that are making record profits. He also proposes $78 billion cuts in military spending over the next five years. But the President was also forced to propose cuts in important programs that benefit average Americans. He proposed cutting the home-heating program, community block grants that are critical to low-income communities, and even the fund to clean up the Great Lakes. These are important programs that are critical to real people and to our future. The President himself supports these programs. He was not forced to propose the cuts in programs like these because America is broke — he made these proposals because the Republicans insisted on continuing the Bush tax cuts for the wealthy for the next two years and that limits investment in important priorities. Think of it. It is outrageous that we should cut money that assures that people don’t freeze in the winter so that the likes of John Paulson — the $5,000,000,000,000 dollar man — will not have to pay a couple of percentage points more on his income taxes. But that is exactly the consequence of Republican insistence that the Bush tax cuts for the rich continue. And it is just the beginning of the menu of Republican “priorities” that we will see laid out over the next several weeks. All of this “America is broke” — “just stop the spending” — rhetoric sounds very appealing until you start looking at who is hurt by the cuts, and who benefits by not paying their fair share to finance government — the things we do together. Over the next few weeks, the budget debate will shift from the rhetorical and abstract to the personal and concrete. If progressives can make that happen, the Republicans will be forced into a full retreat when it comes to the budget debate. It’s about time. Robert Creamer is a long-time political organizer and strategist, and author of the book: Stand Up Straight: How Progressives Can Win, available on Amazon.com .

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David Isenberg: The Known and Unknown Contractor

February 10, 2011

It is not a secret that as Secretary of Defense during the presidency of George W. Bush Donald Rumsfeld was sympathetic to using private military contractors. In 2003, he said that as many as 320,000 jobs filled by military personnel could be turned over to civilians. Ironically, long before Abu Ghraib, Defense Secretary Rumsfeld was preaching the virtues of using contractors in prisons. The secretary said at a town hall meeting in August 2003 that the Army pays $20,000 to $40,000 to hold a prisoner each year, whereas it costs Kansas only $14,000 per year. “I don’t think of running a prison as a core competency of the United States military,” he said In September 2004 he told the Senate Armed Services Committee that he had identified more than 50,000 positions now filled by uniformed personnel “doing what are essentially nonmilitary jobs.” At the same time, he said, the Army was so short-handed it had to call up tens of thousands of reservists to fight in Iraq. Rumsfeld said he intended to assign the troops to military jobs and hire civilian workers or contractors to take the non-military jobs. “We plan to carry this conversion out at a rate of about 10,000 positions per year,” Rumsfeld told the committee Now, thanks to his just published memoir, ” Known and Unknown ” we have a few more examples of his view on contractors. As part of the book’s promotional effort for the book Rumsfled created a website , where he has posted hundreds of documents from his files. If you search them using the “contractor” keyword you get things like the following 25. 2004-03-30 to (no recipient) re (no subject) Category: George W Bush Secretary of Defense (21) – 2004 – Snowflakes New pay schedules, so that US SOF don’t get enticed out to the CIA or to private contractors at much higher salaries than we are currently able to pay them. One might recall that PMC advocates have claimed that this was an overblown concern but evidently it was serious enough to get Rumsfeld’s attention Then, there was this, which is actually pretty sensible and uncontroversial. TO: Honorable Andrew Card FROM: Donald Rumsfeld SUBJECT: Military Detailees March 28, 200l lo:28 Andy, are you going to take a look sometime at the way the demand for members of the armed services in the total White House complex has ballooned’? 1 am told it has gone from 1,400 to 2,100. 1 don’t know from when, or whether that figure is accurate, but it is worth checking. We might want to think about ways that that number can be cut down and possibly ways more could be reimbursable, rather than non-reimbursable. Also, it may make sense to replace some functions now performed by uniformed military personnel with contract employees, as WC are doing at the Pentagon. For example, mess attendants for U.S. forces in Bosnia are provided by an outside contractor, not by soldiers. Let me know what you think. Thanks. I WlR:dh 03270 l-24 And, proving that Eisenhower’s famed military-industrial complex is now more properly accurately described as a military-industrial-congressional complex, is this: 2001-02-22 Re Ethics Laws Category: George W Bush Secretary of Defense (21) – 2001 – Snowflakes … of the new Congressional ethics laws that apply to the Executive Branch is that the contractor community has to be very careful about dealing with the Executive Branch, but they … February 22, 2001 9:08 PM SUBJECT: Ethics Laws One of the side effects of the new Congressional ethics laws that apply to the Executive Branch is that the contractor community has to be very careful about dealing with the Executive Branch, but they don’t have to be careful about dealing with the Congress. As a result, since I was last here, there has been a process taking place that has knitted the defense contractor community to the Congress with an unfortunate effect on the defense establishment. Finally, there was this. If Rumsfeld has bothered to look at how this training has actually turned out he is probably feeling embarrassed. Contractors such as DynCorp and others have been heavily involved in this and have received loads of criticism for their efforts. 2. 2002-04-23 to Gen Franks re Contractors Category: George W Bush Secretary of Defense (21) – 2002 – Snowflakes … 2002-04-23 to Gen Franks re Contractors … April 23, 2002 6:30 PM TO: Gen. Franks CC: Gen. Myers FROM: Donald Rumsfeld SUBJECT: Contractors Have you thought of using contractors to train the Afghan army? Thanks. DHR:dh 042302-24

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David Isenberg: The Known and Unknown Contractor

February 10, 2011

It is not a secret that as Secretary of Defense during the presidency of George W. Bush Donald Rumsfeld was sympathetic to using private military contractors. In 2003, he said that as many as 320,000 jobs filled by military personnel could be turned over to civilians. Ironically, long before Abu Ghraib, Defense Secretary Rumsfeld was preaching the virtues of using contractors in prisons. The secretary said at a town hall meeting in August 2003 that the Army pays $20,000 to $40,000 to hold a prisoner each year, whereas it costs Kansas only $14,000 per year. “I don’t think of running a prison as a core competency of the United States military,” he said In September 2004 he told the Senate Armed Services Committee that he had identified more than 50,000 positions now filled by uniformed personnel “doing what are essentially nonmilitary jobs.” At the same time, he said, the Army was so short-handed it had to call up tens of thousands of reservists to fight in Iraq. Rumsfeld said he intended to assign the troops to military jobs and hire civilian workers or contractors to take the non-military jobs. “We plan to carry this conversion out at a rate of about 10,000 positions per year,” Rumsfeld told the committee Now, thanks to his just published memoir, ” Known and Unknown ” we have a few more examples of his view on contractors. As part of the book’s promotional effort for the book Rumsfled created a website , where he has posted hundreds of documents from his files. If you search them using the “contractor” keyword you get things like the following 25. 2004-03-30 to (no recipient) re (no subject) Category: George W Bush Secretary of Defense (21) – 2004 – Snowflakes New pay schedules, so that US SOF don’t get enticed out to the CIA or to private contractors at much higher salaries than we are currently able to pay them. One might recall that PMC advocates have claimed that this was an overblown concern but evidently it was serious enough to get Rumsfeld’s attention Then, there was this, which is actually pretty sensible and uncontroversial. TO: Honorable Andrew Card FROM: Donald Rumsfeld SUBJECT: Military Detailees March 28, 200l lo:28 Andy, are you going to take a look sometime at the way the demand for members of the armed services in the total White House complex has ballooned’? 1 am told it has gone from 1,400 to 2,100. 1 don’t know from when, or whether that figure is accurate, but it is worth checking. We might want to think about ways that that number can be cut down and possibly ways more could be reimbursable, rather than non-reimbursable. Also, it may make sense to replace some functions now performed by uniformed military personnel with contract employees, as WC are doing at the Pentagon. For example, mess attendants for U.S. forces in Bosnia are provided by an outside contractor, not by soldiers. Let me know what you think. Thanks. I WlR:dh 03270 l-24 And, proving that Eisenhower’s famed military-industrial complex is now more properly accurately described as a military-industrial-congressional complex, is this: 2001-02-22 Re Ethics Laws Category: George W Bush Secretary of Defense (21) – 2001 – Snowflakes … of the new Congressional ethics laws that apply to the Executive Branch is that the contractor community has to be very careful about dealing with the Executive Branch, but they … February 22, 2001 9:08 PM SUBJECT: Ethics Laws One of the side effects of the new Congressional ethics laws that apply to the Executive Branch is that the contractor community has to be very careful about dealing with the Executive Branch, but they don’t have to be careful about dealing with the Congress. As a result, since I was last here, there has been a process taking place that has knitted the defense contractor community to the Congress with an unfortunate effect on the defense establishment. Finally, there was this. If Rumsfeld has bothered to look at how this training has actually turned out he is probably feeling embarrassed. Contractors such as DynCorp and others have been heavily involved in this and have received loads of criticism for their efforts. 2. 2002-04-23 to Gen Franks re Contractors Category: George W Bush Secretary of Defense (21) – 2002 – Snowflakes … 2002-04-23 to Gen Franks re Contractors … April 23, 2002 6:30 PM TO: Gen. Franks CC: Gen. Myers FROM: Donald Rumsfeld SUBJECT: Contractors Have you thought of using contractors to train the Afghan army? Thanks. DHR:dh 042302-24

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Caroline Dowd-Higgins: Knowing When It’s Time To Fire Your Boss

February 6, 2011

If I had a dollar for every person who told me they were frustrated with their boss, I would be a very rich woman. In a decade of career coaching, I have learned that people don’t leave jobs, they leave bad bosses. Good Managers Don’t Always Make Good Leaders In many organizations, managers who are given the responsibility to complete predetermined goals or projects are rewarded for their success with an upgraded role in a leadership position. Many managers fail as leaders because they lack the skills and competencies to develop relationships with their employees and build loyalty with their team. They cannot evoke a compelling image of success by empowering and cultivating the talent of their subordinates because they are classic micro-managers and fail to instill buy-in and accountability. These folks are not bad people but they are not gifted leaders, which often translates to being a bad boss. If your boss fits this description then you should consider firing your boss and hooking your star to a talented and dynamic leader. In reality we know this does not mean to literally fire your boss — although that would be gratifying for some during the most frustrating of bad boss moments. But I do encourage you to begin seriously looking for a new work environment that will empower you with a strong leader who in turn will help you grow your career if your boss is zapping your potential at work. Find a Great Boss A really good boss and a great leader can take you upward with them inside or outside of your current organization, if you prove your worth. If you have the trust of the rising star in the company — keep it and maintain it, for this is your insurance policy. If your current boss is not star material, it’s time to look for one that is. If your boss just doesn’t get it and there is no hope of a change in mindset, you need to stealthily devise your exit strategy. Don’t ever leave a job unless you have another to go to, especially in this economy. But if your boss is not a good leader and there is no system in your organization that will help change that, then you deserve to be in an environment where you can grow and develop your career. Even in the most blissful job environment, you should be thinking about your five-year plan and where you see your career going in the future. A great boss will help you on your way but alas, not all of them are so enlightened. Interview Your Future Boss The next time you are interviewing for a position make sure you interview your prospective boss thoughtfully. By asking compelling questions about their leadership style you will be able to ascertain if they are going to grow or diminish your talent on the team. I suggest you read a great book by Liz Wiseman before your next interview. Liz Wiseman, worked at Oracle for 17-plus years and considers herself a genius watcher. She was the VP responsible for the company’s global talent development strategy and ran the Oracle Corporate University. Her book: “Multipliers: How the Best Leaders Make Everyone Smarter” teaches valuable lessons for current and aspiring leaders. During Wiseman’s leadership watching and developing experience at Oracle, she discovered that some leaders drain intelligence and the capabilities of the people around them. Their focus on their own intelligence and their narcissistic need to be the smartest person in the room had a diminishing effect on everyone else around them. For them to look smart other people had to look dumb or incompetent and in turn, the Diminishers created a vacuum suck of all the creative energy in a room. Meeting times were doubled and other people’s ideas suffocated and died in their presence. Coping with a Bad Boss If your boss is not helpful in assessing your strengths, seek outside assistance from a personal Board of Directors that you assemble beyond the walls of your workplace. In reality, we don’t always have the support system in-house that we need but this should not stop you from reaching out to others for mentorship and advice. And, it just might help you get to the next mile marker on your personal career journey that includes a position with a great leader as your boss. While I believe that some leaders are born, most are developed and our current professional marketplace does not place enough emphasis on training effective leaders. This leads to discontent amongst the troops and ultimately low morale and low productivity. Recognizing the Multipliers In an ideal world where you land a dream job with a fabulous boss, you would want a Multiplier at the helm. The Multipliers use their intelligence to amplify the capabilities of others on their team. People get smarter and better in their presence and ideas flow freely and challenges are overcome. When these leaders walk into a room the energy level goes up on the team and difficult problems are solved because every team member has a say and is involved. The Multipliers bring out the intelligence in others by building collective and viral genius in an organization. By extracting people’s full capability, Multipliers get twice the resources from people than do the Diminishers. Wiseman identified five disciplines of Multipliers: The Talent Magnet: Attract and optimize talent The Liberator: Require people’s best thinking The Challenger: Extend challenges The Debate Maker: Debate decisions The Investor: Instill accountability You Deserve a Great Leader This is a difficult lesson for many of today’s unsuccessful leaders who don’t have the professional development resources to learn to become Multipliers. Others don’t have courageous team members to call them out on being ineffective leaders so they continue to diminish and dysfunctional teams plod along. If confronting your diminishing leader is not within your comfort zone, or you fear job security, perhaps a mysterious copy of Liz Wiseman’s great book in an office mailbox will plant the seed anonymously. As you plan your next career move be sure to consider your future boss’s role in your success and happiness in the organization. You deserve a Multiplier! *** Caroline Dowd-Higgins authored the book “This Is Not the Career I Ordered” and maintains the career reinvention blog of the same name ( www.carolinedowdhiggins.com ) She is also the Director of Career & Professional Development at Indiana University Maurer School of Law.

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BAD NEWS: What Role Did Reporters Play In The Financial Crisis?

February 5, 2011

Given that some economists still debate the root causes of the Great Depression, little wonder that a multitude of competing stories still vies for affirmation as explanation for the financial crisis of 2008. Recrimination sometimes seems like the real American pastime, and the near-slide into the financial abyss presents a teeming buffet of potential culprits. Depending upon your ideological predisposition, the crisis owes to the greedy bankers who turned home loans into casino chips, or to the federal regulators who abdicated authority, allowing Wall Street to turn itself into a gambling parlor. It was homeowners who treated their mortgages like winning lottery tickets, cashing in through repeated rounds of refinancing. It was politicians who championed expanded home ownership with reckless tax incentives and mandates forcing banks to lend even to borrowers with sketchy credit. It was the Federal Reserve which kept interest rates too low for too long. But one segment of American society has largely evaded scrutiny in the search for the source of the disaster: the financial press. This is a dangerous oversight, argues journalist Anya Schiffrin in an intriguing and thoughtful new book, “Bad News: How America’s Business Press Missed the Story of the Century.” As the crisis begins to fade from memory, and as acute fear is predictably replaced by complacency, a rigorous accounting of what actually transpired is imperative. Schiffrin aims to impose that accounting on those of us who make our living writing about finance. Her findings are not comforting, suggesting that coziness with sources and a lack of financial acumen made many reporters vulnerable to bogus assurances that nothing was wrong. Schiffrin is herself a member of the tribe, having worked as a correspondent for Dow Jones news service in Vietnam during the Asian financial crisis (an experience that gave her an taste of the risks inherent in an economy shy of reliable information). She brings her experience and contacts to bear on this project, probing how shrinking budgets in a time of traditional media decline deprived many newsrooms of the resources needed to unravel a complex story, just as financial journalism confronted its ultimate test: a historic real estate bubble enhanced by the steroids known as derivatives. A necessary disclosure: I wrote a chapter of this book, examining my experience covering the crisis as the national economic correspondent for the New York Times . And I don’t fully buy into its overarching thesis that the reporting in the run-up to the crisis amounts to a systemic failure. As several chapters in Bad News make clear, a good deal of excellent work in the years before the crisis could have limited the pain had warnings been heeded–not least, work by my former Times colleagues Gretchen Morgenson and David Leonhardt, who sounded the alarm early on that home prices were getting well of whack with American incomes, setting up a fall. The trouble was that a louder chorus repeatedly drowned out this probing reporting about the magnitude of the real estate bubble–a steady celebration of permanently rising home price, the fantasy that propelled a construction binge, a mortgage bonanza and no end of wealth that got created along the way. That chorus abetted and enabled the capture of the regulators who are supposed to be able to tune out such noise while dispassionately scrutinizing the numbers. This is not to exonerate the press or chastise the lazy reader, the reflexive posture for many a scribe whose words have failed to produce happy results. Though the press rarely has the power to dominate events and does not make policy, we are collectively responsible for the understanding that our audience takes away from our words. And it is a fair hit to assert that we are prone to being manipulated and getting swept up in the excitement of the times, rather then stopping to ask the critical, typically difficult-to-answer questions that public service journalism demands. This is not so much because we consciously decide to become cheerleaders, urging on bubbles that take shape on our watch, but rather because cheerleading is the product of the easiest options that present themselves on any given day. Rising prices, soaring stock markets and the wealth accruing to executives overseeing the festivities are verifiable facts, whereas warnings and worrying entail the indulgence of conjecture and speculation, and they might turn out to be wrong. It takes a special breed of reporter to do the digging and put faith in their convictions as they take on the dominant narrative of the moment–particularly when that narrative is championed by prize-winning economists celebrated as wise men, such as the former Federal Reserve Chairman Alan Greenspan and his successor, Ben Bernanke, who played leading roles in convincing the public that everything was fine. I first saw this dynamic up close during the technology bubble of the late-1990s. I never heard one of my colleagues profess a desire to help the Nasdaq continue to multiply. I never was privy to a directive to tout the impregnability of every new dot-com that came along. But many writers effectively opted to play these roles by default in selecting the stories that were most readily available–profiles of start-ups arranged by ubiquitous public relations consultants; astounding tales of technological discovery; stories of the wealth being harvested from the market like the proverbial gold at the end of the rainbow. You could sit at your desk in any newsroom in America in 1999 and simply wait for a press release to arrive in your inbox or a wire story to be flagged by your assignment editor and soon find yourself writing about something that no one had ever written before–the largest merger in history! The fastest this! The slickest that! The path of least resistance turned journalists into boosters, while critical stories entailed a path into the wilderness, with no eager sources and only piles of inscrutable documents. Fundamentally, there is much to Schiffrin’s point that most reporters took the easy route in the years leading up to the financial crisis, which meant buying into the fantasy that justified ridiculously inflated housing prices. The real estate bubble so dominated the era that it caused even serious reporters to miss the underlying story: Tens of millions of Americans needed to use their houses as ATMs because their pay checks no longer delivered enough money to finance even middle class aspirations–health care when someone got sick, college for children, a functioning car to get to work. That is the broadest context in which to critique the financial press. We mostly missed the breakdown in the American middle class bargain, and so we did not appreciate how predatory lending effectively went mainstream. The more immediate coverage of the crisis and its aftermath has occasioned conspiratorial talk that the press oversold the fears of a systemic meltdown to help enable the Bush and Obama administrations to deliver the taxpayer-financed bailouts for Wall Street. Some have suggested that the financial press played a role much like the Washington press corps in the lead-up to the Iraq War, frightening the public with apocalyptic visions that required intervention. (Schiffrin cites the pre-Iraq War coverage as a potent example of coziness with sources yielding tainted journalism, though her critique is more systemic than conspiratorial.) As someone who sat inside one of the biggest newsrooms during the crisis, however, I reject the notion that has taken root in some quarters that we were essentially active participant in a government-directed con. Yes, there were good reasons to doubt the veracity of Bush’s Treasury Secretary, Hank Paulson, who had previously headed Goldman, as he warned in the fall of 2008 that the public either had to hand over $700 billion to Wall Street or invite a meltdown. Those doubts (which were duly reported at the time) have only intensified as the terms of the bailout have emerged, with Goldman managing to secure a ” backdoor bailout ,” through funds dispensed to the insurance firm American International Group. Continued investigation into the terms of the bailouts and how they came about is required. But the idea that the press was effectively complicit in an Iraq-style ruse, trumping up the mushroom clouds to justify the intervention, is misleading and unfair. The Bush administration doctored the intelligence to create a false perception of threat in Iraq. But economists and business people were genuinely and legitimately terrified of a potential repeat of the 1930s banking runs as major financial institutions teetered toward collapse in the fall of 2008. Money was freezing up, laying waste to companies, sending the unemployment rate soaring. There turned out to be no weapons of mass destruction in Iraq, despite the bad journalism that insisted otherwise–journalism that contributed to the stampede into the war. But you simply cannot say the same about the financial consequences at risk as the Bush administration crafted the bailouts. Did the trillions of dollars of interrelated and suddenly un-payable credit obligations constitute weapons of mass destruction pointed at the global economy? Maybe, maybe not. There was simply no way to be sure, and whatever the government did–wade in with a rescue, or stand back and watch–was bound to affect the outcome. Once the markets became ruled by fear, an expensive bailout was the price of preventing the worst. That bad news simply had to be reported, whatever the consequences, even as we knew that the stories themselves were adding to the fear. Bad News provides little reason to imagine that the press will heroically prevent the next crisis, figuring out where danger lies before everyone else does. Financial crises build over many years through the fabric of the culture itself, warping expectations, altering the risks people and institutions are willing to bear in pursuit of return on their money, while tilting the balance away from the intrusions of government regulation. Journalists operate within our culture, and we absorb collective understandings. Still, the basic critique of the book is instructive and worth contemplating. It boils down to most of us not cultivating a wide enough circle of sources. For anyone who writes about finance, it is worth pausing to consider where we regularly draw our information and then actively expanding that zone. It is worth looking at how many of our sources are people whose job descriptions include having to talk to reporters for a living. Because in this crisis, as in all such events, the warnings were never going to be obtained from people paid to talk to the press, a group dominated by the special interests that benefit from the status quo. The real insights were waiting in harder to reach places, among people who typically have good reason to avoid journalists–the ranks of mid-level managers inside predatory lending operations; those doing due diligence inside banks that were buying a selling radioactive securities; the growing ranks of regular families that could no longer pay the bills. In my own view, and from my own experience, blaming the press for the financial crisis is like blaming January for giving you a cold: You may have a point, but you better be prepared to dress warm again next winter. In both the technology bubble and the run-up to the Iraq War, a much stronger case can be made that shoddy reporting helped nurture disaster. Even by the everyday standards of journalism, bad information was presented as fact. But in the case of the financial crisis, the system did not fail so much as function according to the ordinary rules of engagement. This is Schiffrin’s fundamental point, and it amounts to bad news indeed. It would be so much more convenient if we could blame it on a Judy Miller, pin it on one guy who got it wrong, then lance that boil and feel better. But the problem goes right to heart of a press that simply reflects too few voices, often missing out on the ones that have something important to tell us.

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BP Resuming Pay Of Dividends Seen As ‘A Slap In The Face’ To Oil Spill Victims

February 2, 2011

NEW ORLEANS — BP’s decision to resume paying dividends rankled Gulf Coast residents Tuesday who saw it as another sign the company wants to move on even though many are still suffering from last year’s massive oil spill. Oil stains linger in marshes along Louisiana’s fragile coast and tens of thousands of victims are waiting for final payments from a $20 billion compensation fund, while a large number of people haven’t received any money at all. The 7 cents per ordinary share payable to BP shareholders March 28, or about $1.25 billion overall, isn’t a lot by BP’s standards – it’s half what the company paid investors for the final quarter of 2009 – but Gulf residents frowned on the idea of going back to business as usual. “BP has so much money that we can’t really fathom it, but BP has to take care of its obligations to us,” said Pass Christian, Miss., shrimper Bobby Barnett. Barnett said London-based BP still owes him compensation, which he has filed for, for damages from a shortened season after the spill halted shrimping in some areas for much of the summer. He’s also worried about the long-term effect on Gulf seafood from the dispersants BP used to break up the oil. “This is a slap in the face to the thousands of victims forced to watch BP line its shareholders’ pockets while they struggle to pay their mortgage and put food on the table,” said James P. Roy, a lead attorney for plaintiffs suing BP and other companies over the disaster. U.S. Sen. Mary Landrieu acknowledges that it’s up to BP to decide when and how much it pays in dividends to its shareholders. But, the Louisiana Democrat said, “I intend to hold them accountable for paying every penny they owe to make businesses and families in Louisiana whole again and to repair the damage the spill did to the state’s coast and our seafood industry.” She is pushing for at least 80 percent of the penalties ultimately charged to BP under the Clean Water Act to be returned to the Gulf Coast for long-term economic and environmental recovery. BP announced in June that it would not pay dividends to shareholders for the rest of 2010 as it sought to get a grip on its huge liabilities from the April 20 rig explosion and oil spill that followed. At the same time, BP agreed to commit $20 billion to a fund to compensate victims of the spill. A schedule of payments to the fund called for BP to make an initial contribution of $3 billion last summer and $2 billion in the fall, followed by $1.25 billion per quarter until the full figure is reached. But as of last week – some seven months after the fund was announced – only $3.54 billion of the fund had been spent, according to BP. The administrator of the fund, Washington lawyer Kenneth Feinberg, is preparing to make final payments to individuals and businesses. Any money left over is expected to be returned to BP. The Associated Press reported Monday that the fund has paid a final settlement to just one of the thousands of people and businesses waiting for checks, and that $10 million payout went to a company after the oil giant intervened on its behalf. As of last weekend, roughly 91,000 people and businesses had filed for final settlements. Thousands have received some money to tide them over until a final settlement amount is offered, but only one business listed as paid on the facility’s website has so far received a check. Billy Nungesser, president of oil-soaked Plaquemines Parish, said he’s not opposed to BP giving a return to its shareholders, but he has a problem with the timing considering the company’s unfinished business to restore the Gulf. Such payments only benefit investors – Roy, Landrieu, Barnett and Nungesser said they don’t own any BP stock. “I feel like they think this is something in the past and they want to close the book on it,” Nungesser said.

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Mark Goulston, M.D.: The 5-Step System That Can Help Obama — And You! — Overcome Any Setback

January 16, 2011

When we hit obstacles in life, too often we are tempted to get angry or give up. The best and usually least used alternative is to “workaround” that obstacle. I was fortunate to receive an advance galley of Russell Bishop’s breakthrough book, “Workarounds That Work: How to Conquer Anything that Stands in Your Way at Work” (McGraw-Hill, 2011). Here are Bishop’s steps: The steps as I understand them are simple and easy to follow: Step 1: Own It

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Arthur Rosenfeld: Working Around Life’s Obstacles

January 16, 2011

Walks like a duck and talks like a duck, it has to be a duck, right? In a word, no. At least not in the case of Russell Bishop’s new offering Workarounds That Work — How to Conquer Anything that Stands in Your Way at Work . The title, subtitle and cover art all suggest yet one more addition to the huge library of business success books, yet there is a wonderful surprise lurking beneath the surface here. Bishop has a long and impressive track record solving problems and bringing people together as a corporate consultant for major corporations. In that role he has developed something of the voice of the elder statesman, not necessarily a member of the wink-and-nod crowd, but certainly a certain savvy and perhaps even gravitas. He’s a straight shooter and his chapter heads, ( It All Starts With You, Getting the Right Things Done, Misaligned Leadership and Unclear Direction, Death by Decision: Stop Deciding and Start Choosing, When the Best and Brightest Are Wrong , just to name a few) ring simple and true. Indeed, every one of the book’s 238 pages delivers something that smells like nuts and works like bolts — useful observations, information and techniques that help the reader look at the same old thing in a fresh and different way. Most of it isn’t startlingly new, but all of it is couched in a fashion that makes it feel like it is, and stimulates a different approach. That’s something, because unless we’re Einstein or Homer, it has all been said before. How many times, for example, have we read ways to stop procrastinating and just get down to work? How many times have we heard not to blame others for our own laziness and shortcomings? Plenty, and Bishop doesn’t go there. Instead, for example, he likens work to exercise. It’s there and you can duck and dance all you want, but it still has to get done. In the chapter titled The Email Avalanche he adds to the run of solid advice by giving the desk jockey’s nemesis a clever once-over. “Always change the ‘subject’ line to reflect what you’re doing,” he writes. “Use the Cc line for people who need to know about the action but do not have to take action themselves.” Ever thought of it quite that way? Hmm. In addition to tried-and-true recommendations for handling clutter, Bishop actually discusses screen dimensions in this chapter, reminding you that there may be important messages waiting below the line of your browser window. Nuts-and-bolts indeed. Admittedly, some of Bishop’s observations are standard corporate fare, as in the obvious concept (in the chapter Are You a Corporate Firefighter? ) that while it’s wonderful to be the hero, the need for repeated dramatic rescues reveals some fundamental mismanagement. On the other hand, there are some real gems. The chapter on making decisions, for instance, advances the innovative notion that we should substitute choosing for deciding. The word “decide”, Bishop says, suffers from the suffix “ide”, which is often associated with killing, as in fratricide, homicide, etc. Deciding, he writes, is a process of limitation, while choosing can be a creative, a positive and proactive process. In another particularly memorable passage, the author reminisces about the way spelling tests were graded when he was a child. -7, for example, or -4. Instead, he suggests, why not focus on how many answers we get right? This deceptively simple idea echoes one of the books recurring themes, which has to do with choosing positive options over negative ones. Many books in this category work their magic from the outside in. That is to say they examine the circumstances, obstacles and issues and propose external solutions. Other books in the genre turn this around and go from the inside out, looking at the prejudices, presuppositions, habits and addictions we harbor on the inside, and how they manifest in our external life. Workarounds That Work is a rare find in that it examines its topic from both directions. Thus, in addition to advice on how to organize your in boxes, we see lines like “What could you do that would make a difference in your job that requires no one’s approval, cooperation, support, or agreement other than your own?”, concepts like “time management problems are really self management problems”, and chapter heads like Multitasking Our Way to Oblivion , wherein Bishop cleverly proposes substituting the setting of multiple goals to the juggling of multiple tasks. The more you read, the more you realize that Workarounds That Work is a personal development guide hidden as a business handbook. Spirituality circulates through the book’s business meat and management gristle like blood through bone. It’s a treat of a read for a much wider swath of readers than its category feel would suggest. Here’s hoping that in his next book, this practical sage will be brave enough to cross the line he only touches with his toe in this one and give us his thoughts on the repurposing of business so that profits are not the Holy Grail, but rather merely a tool for the development of employees and community.

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Alison Rose Levy: How To Create A Successful Work Process

January 15, 2011

Many of us have contemplated everything from our inner selves to universal consciousness. We’ve worked on our health, our relationships, and our intentions for ourselves and the benefit of all beings. Meanwhile, though our daily lives are filled with work and work-related activities, we rarely contemplate our work process. In his new book just out this week, “Workarounds that Work: How to Conquer Anything That Stands in Your Way at Work,” executive coach, consultant and Huffington Post editor-at-large Russell Bishop gives new perspective and tools that anyone can use to better their work through enhancing their work process. Many of the book’s stories reflect Bishop’s savvy as a long time consultant to companies and organizations. But as a small business entrepreneur myself, I found it applicable to my work, and anyone who serves clients and/or works for groups. In the current economy, the good news for busy people is that they most likely are employed (although job seeking is a job too). Yet the pile-up of tasks can sometimes seem overwhelming. When a new assignment, client, or project emerges, it can lead us to wonder how to get it all done. Bishop points out that every new endeavor necessitates a re-evaluation. He recommends that we consider these three questions: What do we need to start doing? What do we need to stop doing? What do we need to continue doing? While that seems fairly self-evident, how many of us actually do that re-calibration? I know I often forget to identify tasks that are no longer as critical. But through these questions, Bishop helped me to recognize that adjusting the pace or frequency of certain tasks was essential in a successful work process, rather than an occasion for guilt. For example, this past fall, I was actively blogging and reporting on certain key health and environmentally related legislation before Congress, which also entailed extensive social media activity on Facebook and Twitter. But once the lame duck Congress ended, so did the need for frequent blogs and constant Facebook exchanges. Bishop’s insights helped me see that now that I am in the final stages of writing a book, adjusting my blog frequency just makes good sense. And I can check in with my FB friends a few times a day, rather than many times per hour. But consciously making these shifts in work flow freed me from the nagging sense that I should be doing more. Minus the guilt factor, having an abundance of work tasks can be energizing, as Bishop points out. Drawing an analogy between work and exercise, Bishop writes, “Humans are programmed to produce energy by burning energy… Even when you stop exercising, the body keeps on producing energy for some time.” However, Bishop counsels, On the work front, many of us have tasks to perform that lack the kind of clarity found in exercising, especially in terms of a defined purpose, outcome, and deliverable. If you can assign yourself these attributes for your work, you may notice that you actually start to feel the same kind of response as when you exercise. Completing a task takes some effort, but it also produces its own reward. If others notice, comment, or acknowledge your contribution, so much the better. Either way, simply getting things done that you set out to accomplish will begin to produce something akin to the exercise phenomenon–the more you get done, the more inclination you will have to get even more done. Many of us experience the energizing feedback loop that work triggers, without understanding that it’s a real phenomenon. Instead, we tend to think of the downsides, like burnout or work-a-holism. Committing to relaxation and downtime are obviously crucial, too. But Bishop’s insight really nails the “worker’s high” as a benefit we can build on. The book is filled with gems like these. What have you discovered about creating a successful work process? To download a free chapter of the book go to www.russellbishop.com and click “Download a free chapter.” For proactive health insight and action, sign up for my alerts at: www.healthjournalistblog.com And you’ll also receive announcements of my new radio show featuring conversations with health leaders.

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Jeffrey Inaba: How Smart Are Public-Private Partnerships?

January 12, 2011

A while back Jennifer Crozier of IBM’s Corporate Citizenship and Corporate Affairs blogged about the company’s Smarter Cities Challenge, a new public-private partnership aimed at assisting cities. As municipalities search for ways to reduce costs in the face of budget shortfalls, such offerings of “corporate citizenship” can help to support public services. But they also call attention to the need to examine the decision-making process for improving cities. Public-private partnerships draw skepticism because some believe they don’t adequately address the public’s interest. Rather than presume public-private partnerships are either necessary or necessarily evil, we ought to encourage local leaders to establish a set of urban goals and describe the means they will use to achieve them, including the criteria for partnerships with businesses. Public-private partnerships operate in various ways. Knowing about two types will shed light on important choices cities make. One concerns the arrangement between a local government and corporation to deliver a municipal service(s), which Crozier writes about. The other is the de facto relationship where a company offers without obligation a civic amenity. The latter type can be a good indicator of a provision that the public sector once administered but it has since curtailed or whose quality has declined. The arrangement is not a partnership in the traditional sense but rather an adaptive, informal action by a business to offer a public service that has become scarce in the city. These provisions contribute to the quality of urban life, and in turn, to the company’s reputation with customers. One area in which this has thrived is access to information. By having spaces for customers to read, Barnes & Noble and other book retailers make available a public resource. Patrons can sit, browse, and research a wide range of topics, receive assistance in finding material — and because of its longer hours, larger breadth of titles, and better reference staff, it’s an environment many prefer to frequent instead of their local library. These accommodations are happening amid misgivings about the bookstore’s public counterpart — the library. As a recent New York Times article explains, even municipalities in fairly good financial standing have opted to engage for-profit companies to manage their library systems. In defense, some profiled cities say such a partnership ensures the library’s survival in trying economic times by trimming operational costs. But it doesn’t explain what larger purpose these cities have in mind for their collective services. If a city is vague about its overall plan then community concern can arise about the city’s priorities and budget management. Even under extremely unpredictable economic circumstances having a provisional strategic plan will lessen the public’s uncertainty as it will help to explain the process for determining which services will be reduced, outsourced, or eliminated. More importantly, it minimizes the risk that city services will be governed in an ad hoc manner. Because the private sector has become an active partner, a plan is also necessary in order to state where government responsibility ends and for-profit business begins. As the NYT piece points out, when this isn’t clear an intense debate can occur over whether a public service should be entrusted to a for-profit entity. Citizens worry that elected officials are not sufficiently considering civic ideals when confronted with the immediate demand to lessen expenditures, and doubt that a company contracted to lower operating costs and which seeks to optimize its profits will act on their behalf. One kind of public-private partnership that assists cities to establish a development plan is corporate philanthropy. As Crozier describes, numerous major companies have philanthropic foundations that give grants to cities to enhance municipal operations. For these endeavors to work it is critical that if and when these companies do business with cities they go out of their way to differentiate between their socially-minded and business activities. Unlike the philanthropies Crozier applauds such as Living Cities and Cities of Service which give money to a local council to in turn fund an initiative the city has defined, IBM Foundation’s Smarter Cities Challenge bestows grants in the form of the company’s own consulting services and technology. The grants are intended to assist governments in creating an overarching “city-wide strategy” where all operations are integrated into an “interdependent system of systems.” Since it entails the private sector’s participation in shaping the public services framework at the highest level, it would be useful to city administrations, the public, and IBM alike if Big Blue clarifies the program’s philanthropic intent. Critical to the successful marketing and implementation of this extremely generous (50 Million USD) program is to delineate between the social mission of the non-profit Smarter Cities Challenge and the business goals of its for-profit unit, Integrated Service Management for Smarter Cities. Not doing so places the program at peril of appearing to benefit the company indirectly by introducing its services and products to the administrators who are prospective future paying clients of those wares. In cases of such grants to cities, companies need to communicate the procedures that ensure their foundation’s giving policies put the public’s interest first. In the coming year as cities search for ways to offset essential services, pay down debt, fulfill pension obligations, and in some cases stave off bankruptcy, public-private partnerships will increase in popularity as an effective cost saving option. Crozier’s piece reveals the invaluable role of corporate philanthropy as one type of partnership to fund projects that intelligently aid cities. These important efforts will serve localities best if there is strong leadership by government, including the drafting of a strategic plan that outlines a criteria for making decisions that specify a system of accountability for acting in the community’s interest. In fact, many of the leading philanthropies, such as the ones Crozier cites, involve non-profit public advocacy groups as core partners to make certain that what matters to communities are incorporated into programs they fund. We believe this needs to be an integral component of urban partnerships since their input helps to create plans that can garner public support, philanthropic momentum, and capital investment to improve city services, and by extension, the quality of urban experience.

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Eric Schoenberg: Zombie Economics and Just Deserts: Why the Right Is Winning the Economic Debate

January 7, 2011

Economist Paul Krugman recently decried “zombie economics,” policies advocated by “free-market fundamentalists [who] have been wrong about everything yet now dominate the political scene more thoroughly than ever.” I share his chagrin, but suggest that the problem is that Krugman was wrong to also assert that “economics is not a morality play.” In fact, I believe that defeating the zombie-like resilience of laissez faire capitalism will require directly refuting the moral belief in the inherent fairness of free market outcomes. Consider a recent suggestion by Harvard economist Greg Mankiw, former Chairman of George W. Bush’s Council of Economic Advisors, that tax policy should be based on a ” Just Deserts Theory ” under which “people should get what they deserve.” This principle, a restatement of Equity Theory, proposed by psychologist John Adams in 1963 to explain how people evaluated distributional fairness, has long played a central role in tax debates , and is one that I, like many liberals, heartily endorse. Indeed, I think that widespread support for free markets is based more on belief in their inherent morality than on belief that they promote economic growth, potentially explaining the religious fervor of free-market fundamentalists defending their faith despite the considerable counter-evidence provided by recent events. Mankiw concisely summarizes the theory underlying the ethical argument for market capitalism: “under a standard set of assumptions… the factors of production [i.e., workers] are paid the value of their marginal product… One might easily conclude that, under these idealized conditions, each person receives his just deserts.” Mankiw’s long-standing opposition to higher taxes on the wealthy suggests that he thinks these conditions usually pertain in the real world, too. Consider me skeptical. The list of “standard assumptions” open to question is long, but two are particularly problematic (Northwestern economist Jonathan Weinstein has critiqued several others). First, how can we be sure that marginal productivity is the same as social contribution? A safe cracker in a criminal gang may indeed receive loot equal to his marginal productivity, but this doesn’t mean that he is creating social wealth. Thus, financial industry profits accounted for over 40 percent of all corporate profits in 2004-5 , but does anyone seriously contend that Wall Street created (rather than redistributed) 40 percent of wealth during that period? The second problem is one that Mankiw himself acknowledges when he comments that the dramatic growth in income at the very top of the economic pyramid might be thought of as a lottery, with a few lucky winners reaping the lion’s share of rewards. As economists Robert Frank and Philip Cook point out in their book The Winner Take All Society , technological change and ever-larger markets have caused small differences in ability, effort or luck to translate into large differences in income. Economic theory says that such “tournament rewards” create an incentive for individuals to exert maximal effort, consistent with just deserts as long as you don’t mind that “losers” get much less despite trying nearly (or just) as hard. But theory also says that tournament rewards create an incentive for people to sabotage the efforts of others and to take on as much risk as possible. Given the role that excess risk played in Wall Street’s meltdown, this is hardly a ringing endorsement for the fairness (or efficiency) of free market outcomes. So Mankiw’s “easy” conclusion that markets deliver just deserts depends critically on his own moral intuition about what is just. Given humanity’s well-known ability to convince ourselves that what is in our own self-interest is fair, it is hardly surprising that wealthy conservatives like Mankiw would believe that free market capitalism delivers fair outcomes. But it is noteworthy that in one real-world situation with tournament rewards — lotteries — society typically imposes taxes in excess of 50 percent, since winners pay regular income taxes on earnings already halved by the governmental sponsor’s share of the pot. Moreover, a large body of laboratory research investigating moral intuitions regarding the division of a pool of money has demonstrated the powerful appeal of an equal split , a preference consistent with anthropological evidence that hunter-gatherer groups are remarkably and consistently egalitarian. While a handful of studies have demonstrated that preferences for equality in the laboratory are (slightly) reduced when subjects have to earn the money at stake, this involves experimenters (who provide the money in the first place) making it clear that they consider the earner to have made a commensurate contribution in the laboratory setting. So, sure, people like just deserts when there is compelling evidence that they are indeed just. But the egalitarianism of hunter-gatherers, whose groups undoubtedly included considerable and obvious variation in individual abilities, suggests that the standard of proof for justifying inequality can be quite high. I therefore think it likely that conservative icon Joe the Plumber favors lower taxes not simply because his own personal experience suggests that smarter and harder-working plumbers (granted, he isn’t actually a plumber ) tend to provide better services and to have proportionately higher incomes as a result, but also because authorities like Mankiw assert that a complicated mathematical theory says that this intuition is true throughout the economic system. To be sure, populist Joe might claim to disdain elite theory, but as Keynes once observed, “practical men, who believe themselves to be quite exempt from any intellectual influence, are usually the slaves of some defunct economist.” Thus, Tea Party advocates sustain their belief in the market’s fairness by blaming the government for bailing out Wall Street and interfering with the market’s ethical magic , explaining why their initial targets were Republicans who supported the bailout ( like Mankiw ). Meanwhile, Democrats have completely failed to link higher taxes on the wealthy to populist anger at those who prospered while driving the economy into a ditch. To regain the initiative, I believe, progressives must directly challenge the claim that unfettered markets create just deserts. This won’t be easy. Free market fundamentalists have the advantage of a simple message — ending bailouts will deliver just deserts — and of nearly limitless funds from rich folks who benefited from the bailout but are happy to claim that it should never happen again. Let me therefore suggest one way to start: replace the estate tax with an inheritance tax. Republicans use the term “death” tax to imply that society is confiscating a lifetime of just deserts wealth. But if taxes are to be based on Mankiw’s proposal that those “who contribute more to society deserve a higher income that reflects those greater contributions,” then inheritors who have contributed nothing themselves should pay substantially higher rates (full disclosure: I am myself an inheritor). I believe a debate about inheritance taxes will allow us to distinguish two arguments that appear similar but are critically different. The claim that people should get their just deserts is tricky to implement, but offers a valid moral principle to guide public debate. But the closely related argument that government should “keep its hands off my money” represents pure selfishness by people who refuse to acknowledge that public goods like education and defense are essential for the creation and protection of private wealth. Progressives have to make clear that the attempt to eliminate taxes on inheritors suggests that conservatives believe that all-you-can-eat socialism is fine for the rich as long as there is just-deserts capitalism for everyone else.

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How Rich Children Can Deal With ‘Affluenza’

December 29, 2010

From his research he developed a list of traits to avert what he calls the devastating infection of “affluenza.” He explains these traits in his self-published book, The Affluenza Antidote: How Wealthy Families Can Raise Grounded Children in an Age of Apathy and Entitlement. D’Amico, who says he wrote the book as an ode to his nine grandchildren, said it was frightening how many wealthy families were dysfunctional and the knock-on effect this had on the economy when family businesses failed.

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Robbin Phillips: Five Things Start-Ups Can Learn From Not-for-Profits

December 23, 2010

There is huge value shift in America. With tons of layoffs in the last two years, there really is no such thing as a secure job. I wrote about this on the Brains on Fire blog after hearing Arianna Huffington speak in New York in October — and I speak about it all the time. This whole notion of a value shift in America really made an impression on me because I believe it’s true with all my heart and soul. I also believe it’s one of the gifts of the Great Recession of 2009. Everyone is re-evaluating what they are doing. And whom they’re doing it for. We want to work with our values front and center. This is huge opportunity for everyone; companies, start ups and individuals. So what can start ups learn from the not-for-profit world? 1. Wear your passion on your sleeve . Why did you start a company? Who are you trying to help? Why does it matter? As we talk about in our book, Brains on Fire ; Igniting Powerful Sustainable Word of Mouth Movements, it’s about the passion conversation, not the product conversation. Figure out what your customers are passion about and how your product or service fits into their lives. Who are you and what do you stand for? Think like a not for profit and tell the world. 2. Find the injustice in your industry. Everyone wants to be a part of something bigger than themselves. Don’t see yourself as company or a business. See yourself as a cause. A movement. Are you making the world a better place by giving your customers a break from their day-to-day ruts and routines? Are you bringing fun into the work place? Or better yet, love ? 3. Empower your customers and advocates with shared knowledge. Create shared ownership. Not for profits let their advocates know what they are considering long before they take action. They ask for help. Let your customers in on your secrets. Open the kimono. Go ahead and reveal what’s under the makeup, done up hair and fancy, shiny clothing. Scared they will find out you’re not perfect? Well, guess what we already know that. It makes you human. And that is a really good thing. We like to see the humanness of the companies we support. Not for profits don’t try and be perfect. They are usually grounded in reality. Realities like smaller budgets and staff. Also, when you mess up, consider an apology. Apologies are a powerful chance to really connect with your advocates. 4. Treat your customers like rock stars . Not-for-profits understand that their biggest supporters are the ones most likely to introduce their cause to other kindred spirits. They treat every relationship like spun gold. I contribute to a local not for profit and I sent them a small check at the end of the year. They took the time to thank me with a personal and heartfelt, hand written note. Even your smallest customers (supporters) have the ability to recommend you and tell your story. Cherish that. 5. Inspire your customers. As Scott Monty , Head of Ford’s social media says, “People want to be a part of a success story.” Give customers reasons to talk about you and take shared ownership in your success. How can you lift them up? Don’t ask them to be your fan, be their biggest fan. Celebrate with them. Give them hope. Let your values and mission get stuck in their hearts. Make deep, emotional connections to support their lives and dreams. The most important thing we can all learn from not-for-profits? Let your customers tell your stories. And you’ll start drawing kindred spirits toward you. Go ahead. Think and act like a not for profit. And most of all have fun. The road to success should be a fun and exciting one. Celebrate often and enjoy.

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Financial Crisis Panel In Turmoil As Republicans Defect; Plan To Blame Government For Crisis

December 15, 2010

The four Republicans appointed to the commission investigating the root causes of the financial crisis plan to bypass the bipartisan panel and release their own report Wednesday, according to people familiar with the commission’s work. The Republicans, led by the commission’s vice chairman, former congressman and chair of the House Ways and Means Committee Bill Thomas, will likely focus their report on the explosive growth of subprime mortgages and the heavy role played by the federal government in pushing mortgage giants Fannie Mae and Freddie Mac to purchase and insure them. They’ll also likely focus on the Community Reinvestment Act, a 1977 law that encourages banks to lend to underserved communities, these people said. The Republicans’ report is expected to conclude that government policy helped inflate the housing bubble and that prices weren’t expected to crash because the government pushed homeownership so aggressively. They say that the report will note that once the bubble burst, a financial panic followed because firms weren’t adequately prepared. Frustrated in part by the Financial Crisis Inquiry Commission’s chairman, Phil Angelides, and the tenor of the panel’s preliminary findings, the Republicans are choosing to ignore the five Democrats and lone independent and issue their document ahead of the commission’s Jan. 15 release. Angelides is described as a demanding boss who’s said to be difficult to work for. Both Thomas and Angelides pledged in January that they’d strive to reach bipartisan consensus. The Republicans’ move indicates that the highly-partisan nature of Washington has infiltrated the commission’s work and threatens to derail it. With four commissioners now essentially going around the panel to describe their thoughts on the roots of the financial crisis, the public may not get the full picture when it comes to understanding how the actions of a few led to the worst economic downturn since the Great Depression. Instead, the public will receive a report that could be discredited as being partisan, and another that is expected to largely conform with a Wall Street-friendly view that blames government for the crisis. During a private commission meeting last week, all four Republicans voted in favor of banning the phrases “Wall Street” and “shadow banking” and the words “interconnection” and “deregulation” from the panel’s final report, according to a person familiar with the matter and confirmed by Brooksley E. Born, one of the six commissioners who voted against the proposal. “I think a number of us had really pulled for” bipartisan consensus, said Born, a Democratic commissioner who famously tried to regulate certain derivatives as head of the Commodity Futures Trading Commission. “But this action by the Republicans indicates they have decided to go their own way.” Born said the Republicans had not informed the commission of their plans, nor had they shared their report. She said she was “disappointed” because the views of her Republican colleagues would have been “useful.” The other Republicans on the panel are Peter Wallison, a fellow at the American Enterprise Institute, a conservative Washington research organization, who once served as general counsel at the Treasury Department; Keith Hennessey, who formerly served as George W. Bush’s senior economic adviser while heading the National Economic Council and now works as a fellow at the Hoover Institution, another conservative research organization; and Douglas Holtz-Eakin, who formerly led the Congressional Budget Office and now heads the American Action Forum, a policy institute in Washington. The shadow banking system refers to the part of the financial system in which investors and other nonbanks like hedge funds and investment firms provide credit to borrowers, as opposed to more traditional banks. Interconnection refers to the links that bind financial institutions to one another, like derivatives, borrowings, and investments. “I certainly felt, and I think the majority of the commission felt, that deleting those phrases would impair the commissioners’ ability to give a full and fair and understandable report to the American people about the causes of the financial crisis,” Born said. “Certainly, it’s hard to imagine Wall Street wasn’t involved,” she added. Born said that the Republicans wanted to ban two other phrases “of the same ilk,” but she said she couldn’t remember what they were. Thomas and Wallison didn’t immediately respond to e-mails sent after regular business hours. Hennessey and Holtz-Eakin declined to comment. The Republicans’ move puzzled some observers. Thomas displayed populist outrage during public forums at the excessive compensation paid to top bankers. Holtz-Eakin is a respected economist who asked probing questions during the commission’s hearings. Born said that the commission only recently experienced such partisanship. “There was a lot of consensus on the nature of the investigation,” Born said. “All 10 [commissioners] participated in discussions about subjects we should investigate, what our hearings should be about. They all were involved in planning the hearings.” Wallison, though, was expected to dissent. He exhibited sympathy for Wall Street during the panel’s public hearings, declining to grill some executives, an activity some commissioners appeared to relish, and focused instead on the role played by Fannie Mae and Freddie Mac. According to Wallison, as many as half of all home mortgages were given to borrowers with poor credit or who didn’t provide proper documentation, like tax forms and income statements, he said during an April 7 hearing. He attributes this to Fannie and Freddie’s insatiable demand for subprime mortgages, something he blames on the federal government and its desire to stimulate lending to the poor. Experts agree that while Fannie and Freddie and the federal government’s push to encourage homeownership played a significant role in causing the crisis, actions by Wall Street magnified the fallout and caused a crisis that led to the Great Recession. Economists from the Federal Reserve, as well as bank regulators first appointed by Republicans, agree that the Community Reinvestment Act played virtually no role in causing the financial crisis. But the Republicans’ report will largely focus on the role played by the federal government. It will note that a crisis was averted after the government bailed out Bear Stearns and facilitated its absorption by JPMorgan Chase, according to people familiar with the matter. The crisis roared back after the government allowed Lehman Brothers to fail, scaring nervous investors. A bigger and more protracted downturn was avoided when policy makers essentially bailed out the entire financial system. Yet while the commissioners knew of Wallison’s views, the final report would have benefitted from input by the Republicans, Born said. Other than Thomas, the Republicans slowly began limiting their participation in the panel’s activities starting in early August. Hennessey and Holtz-Eakin, for example, have missed about half of the commission’s meetings since then, according to a person familiar with the panel’s activities. And other than Thomas, the Republicans have provided only limited feedback on drafts of the final report’s sections that have been circulated by the panel’s staff, this person said. “All of the commissioners have had the opportunity to review and provide feedback,” said Tucker Warren, the crisis panel’s spokesman. He said he wasn’t aware of any commissioners complaining about a lack of opportunity to address draft findings. The Republicans are expected to complain that the Democrats on the panel are not giving them sufficient options to air their views. Each commissioner is allotted nine pages in the book version to express alternative or dissenting views, should there be any, Warren said. That’s part of the reason why the Republicans are angry, according to people familiar with the matter. However, commissioners will have unlimited space on the panel’s Web site and in the government-printed version of the report that will be delivered to Congress and President Barack Obama, said Warren. Thomas is expected to hold a news conference tomorrow. ************************* Shahien Nasiripour is a business reporter for The Huffington Post. You can send him an e-mail ; bookmark his page ; subscribe to his RSS feed ; follow him on Twitter ; friend him on Facebook ; become a fan ; and/or get e-mail alerts when he reports the latest news. He can be reached at 646-274-2455.

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Marian Salzman: Tapping Consumer Minitrends: Predictions for 2011

December 14, 2010

This is the 11th in a series of 12 posts expounding on the 2011 forecasts in the annual trends report from Salzman, president of Euro RSCG Worldwide PR and an internationally respected trendspotter. How does a trend get legs? Some trends start small and grow elephantine as if by force of nature, like the rise of women in power and the strength of Asia, both unstoppable trends here for the long term. Others, especially the ones that really spell opportunity for innovators, can need nudges — as well as that special brand of foresight that always looks prescient in retrospect. The people who succeed in today’s fast-paced world are those who have their eyes on the future and on such opportunities. Microtrends: The Small Forces Behind Tomorrow’s Big Changes , the book by Mark Penn, worldwide CEO of Burson-Marsteller, who writes a weekly “Microtrends” column in The Wall Street Journal and was the pollster who identified soccer moms in 1996, is perhaps the definitive source on minitrends, but he didn’t see that the U.S. election was one big trend: Change. That said, minitrends are exactly what communications people can tap to generate news, to be in and of newsmaking. A trend’s growth factor depends, like all things do, on timing: Is the right technology in place in the right hands for a tech trend to take off? Or, if it’s a new product or service, has it hit the price-point sweet spot in such a way as to get a handle with the right number of the right people? Here are some minitrends I’m calling out for 2011: The rise of African consumers. The continent of Africa has more than 1 billion people, with 35 democracies (compared with nine a decade ago). And as an “emerging market,” investment bankers are bullish on it , citing the IMF’s forecast for a growing GDP in sub-Saharan Africa–home to 84 percent of the continent’s population–at 5 percent this year, accelerating to 5.5 percent in 2011. Havas Worldwide, Euro RSCG Worldwide PR’s parent, has invested in South Africa, such as with a sports and entertainment marketing arm , and, indeed, South Africa is increasingly seen as an entry point for doing business on the continent in various industries, but the trend will be pan-African . MIT’s Technology Review reported that cell phones are one technology that have migrated well to Africa despite the poor infrastructure and political instability that have been barriers in the past. The report described customers using them for applications including digital banking and payments. Leading to another minitrend… Money-transfer services. This is mobile banking, aka mBanking or SMS banking. A BusinessWeek report (in 2007) quoting forecasts from Nokia Corp. estimated worldwide mobile subscriptions to grow to 5 billion by 2015, when two-thirds of the people on earth will have phones. Clearly, while mobile banking spells convenience in the developed world, in the developing world it can mean the difference between banking and not banking . TMCnet has cited reports that emerging markets will collectively compose about 60 percent of the mobile banking market share in 2013. Gavin Krugel, director of mobile banking strategy at the GSMA , “goes a step further,” says Mint.com, claiming that ‘…one billion consumers in the world have a mobile phone but no access to a bank account.’” The GSMA Development Fund has started Mobile Money for the Unbanked , and its intention is to deliver banking services to those who live under U.S.$2 per day. Mobile health care. Our colleagues at Havas Health, Larry Mickelberg in particular, tipped us off to this trend. Vodafone, which Technology Review cited as having big expansion plans for Africa, estimated in 2009 at the Mobile World Congress that there are 2.2 billion mobile phones in the developing world but only 11 million hospital beds. The U.N. Foundation reports on its initiatives at the intersection of mobile tech and health care. In South Africa, for example, Project Masiluleke’s AIDS hotline through SMS showed a 350 percent call volume increase (click on the report’s Current Impact & Future Needs link). This all demonstrates — as I said in a previous trend — the strong benefits for traditional businesses that adopt social-good profits into their mission. For health nuts in the developed world, medical apps for smart phones — did you know you could track your blood pressure with your iPhone or Android ? — are the latest craze. A smarter way to read. Mobile readers are, of course, here to stay, with reports that the iPad tore out of Apple stores at a rate of 8.8 per hour on the recent Black Friday. Estimates are calling for about 7.1 million iPads to be sold this year, doubling in 2011 and nearly tripling in 2012. E-readers are already great ways to read magazines and newspapers, but new free apps such as Flipboard , which put people’s SoMe shares into magazine format (flipping pages) for easy readability, make these devices smarter and more ergonomic all the time. Jeff Bezos told TechCrunch that dropping the price of the Kindle — whose sales beat hardcover book sales at Amazon by a rate of 143 to 100 — to $189 saw sales triple. So even though conversations might continue about people “preferring” real books and magazines to e-readers, great interfaces such as The New York Times app — and one the Times touted, Reuters News Pro — make reading even complex articles onscreen perfectly comfortable. There’s every gain in portability, too; they don’t even have to be removed from carry-on luggage in the airport security line. Small-scale solar. Even though the recession has hit big solar projects in the developed world, in emerging markets I forecast small-scale solar energy growing in leaps. Renewable Energy World magazine is strong on technologies such as micro-inverters, which eliminate the need for a central inverter in a solar installation. Given that in 2009, it was reported that nearly 44 percent of the population in the developing world lacks electricity, it is also estimated that by 2020 developing countries–especially in Asia, Africa and Latin America — will represent huge markets for solar. The challenge of making such installations cost-effective, experts argue, lies also in getting these countries to adapt (and funding widespread initiatives to this end) to energy-efficient lightbulbs and other efficient appliances so that outdated household gear doesn’t put undue power demands on a system that indeed promises to change the face of the developed world’s energy-use patterns. As ever, technology is a key driver in minitrends; the developing world and mobile tech will prove to be a new direction for opportunities in the near future. Previously: “Mad as Hell–and Only Getting Madder” “Talk to the Hands” “Net Gain” “Public Mycasting System” “Booting Up” “Yes, We Can…Reinvent Ourselves” “Reinvention, Part II” “Separated at Worth” “Gender Bender” “Who’s in Control?” Tomorrow: Wrapping Up

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Peggy McColl: How to Chart Your Course for Finding Affiliate Partners

December 10, 2010

In my previous blog post, I introduced you to the basics and now I want to show you how to plan and execute your efforts to find affiliate partners. Create a chart to track your efforts . This can be done in either a Word program or Excel, whichever you are most comfortable using. Here are the columns I use: Website address Keyword search used to find website Contact name, address, e-mail address Do they have a newsletter? Subscribe? Do they accept articles? Do they do giveaways? Comments and observations about site? Date contacted Date to follow up (2 repeat columns as you may need to do it twice) Response from site owner? Commitment? When and how? Send personalized thank you Set up individual affiliate link Create a second chart once affiliates are on board: Date sent email copy for their subscribers with affiliate link Received confirmation that they will send email on launch day Agreed upon percentage of sale (this may vary) Date commission was paid (keep your own records in addition to what your shopping cart software provides for you) For those of you who resist the structure of charting your actions, I highly recommend you move outside your comfort zone. You will be amazed at how easy it is to quickly scan your next move as well as reduce the time you spend retracing your steps. You don’t want to make the mistake of sending duplicate email requests or the wrong content to potential partners. Being organized and professional in your approach will help you land the big affiliates who screen out amateur requests. If you need help drafting your email to potential affiliate partners, you can find samples in my book, Viral Explosions . What strategies have YOU used to approach affiliates? What approach has proven to bring in the best results? Please share them in the comments below. Peggy McColl is a New York Times best-selling author and an internationally recognized expert in the field of personal and professional development and Internet marketing. As an entrepreneur, business owner, mentor and professional speaker Peggy has been inspiring individuals to pursue their personal and business objectives and achieve ultimate success. She provides effective Internet marketing solutions for entrepreneurs, authors, publishers, professionals, and business owners, who want to establish an online presence, achieve bestseller status, build their brand, grow and/or expand their business online. You can find out more about Peggy at her website, Destinies.com.

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Jeffrey Shaffer: Lost Your Job? Get Lost!

November 18, 2010

Here’s a blunt message for millions of Americans who have lost their jobs and had no success finding a new one: You don’t have a problem; you are the problem. This lie has been promoted for years by far-right pundits and you can be sure it will get a huge popularity boost from the wave of Republican victories in the midterm elections. There is ample evidence of the uber-conservative propaganda blitz in print, broadcasting and on-line media. Certain catch phrases and code words pop up over and over. One of the most insidious examples I’ve noticed recently is the assertion that Franklin Roosevelt’s administration actually prolonged the Great Depression. This notion can be breezily inserted into a conversation by referring to “the failed New Deal policies.” Implicit in this line of attack is the notion that any government effort to help unemployed workers will only encourage laziness and create a cycle of dependency, a cycle which is not only un-productive for the economy but thoroughly un-American. When you read first-person accounts of the Depression, many of the recollections emphasize the embarrassment and shame workers felt after being pushed into the unemployment ranks with no job prospects anywhere in sight. To critics of the New Deal, these feelings were justified, and that attitude is now re-emerging with new enthusiasm on the far right. According to the “government is the problem” bloviators, anyone who loses their job is just that — a loser. We know that because bosses don’t fire good people, right? And if it turns out your job disappeared because the factory closed or the company shut down, well, that just proves your firm was a loser and you were a dummy to keep working there. In any case, all blame goes to the victim. People who hate the New Deal don’t like the idea of social safety nets. They see unemployment as an attitude problem with a simple solution. All it takes to succeed is to pull yourself up by the bootstraps and make it happen. Anyone who can’t do that is a disgrace to the American tradition of rugged individualism and self-reliance. Using this argument, it follows that being unemployed for a prolonged period of time can only mean you are not a real American. You’re just a dolt who wants a government bailout for your bad career choices. The best thing you can do is shut up and go off into the hills and find a cave to squat in so responsible, hardworking citizens don’t have to listen to your childish whining. The anti-New Deal crowd is all about “me first.” You can identify them instantly on radio call-in shows because they describe government aid programs as “giving my hard earned money to deadbeats” and they have no sense of being part of a community. To them, the word “community” is basically the same as “communism.” As the recession grinds on, I’m going to be on the alert for politicians or media commentators who suggest it might be time to re-evaluate the benefits of “government regulations” on things like minimum wages, overtime pay, collective bargaining rights, and other legacies of the New Deal that free-enterprise fanatics have always hated. Their logic will be the same as it’s been since the industrial revolution. If you can find a guy who’s willing to work 12 hours a day for $100 a week including Saturdays, what right does the government have to interfere with a private business arrangement? In his book The Coldest Winter author David Halberstam described the 1930s this way: “The Great Depression had revealed the deepest chasms in American society, and a profound political, economic, and social alienation had taken place.” Those chasms haven’t gone away. What troubles me even more is the number of people in this country who are relentlessly trying to make them deeper.

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Eric Alterman: Think Again: When Money Talks, Who Listens (Besides Politicians)?

November 18, 2010

Everybody knows money talks in politics, but people–and particularly the press–rarely pay attention to exactly how. It can define potential alternatives, invent arguments, inundate with propaganda, and threaten with merely hypothetical opposition. Politicians do not need to “switch” their votes to meet its demands. They can bury bills, rewrite the language of bills that are presented, convince certain congressmen to schedule a golf tournament back home on a day of a key committee vote, confuse debate, and bankroll primary opposition. The manner and means through which money can operate is almost as infinite as its uses in any bordello, casino, or Wall Street brokerage. Just about the only thing money can’t buy in politics is love. But that’s OK because, as Sen. David Vitter (R-LA) or ex-Gov. Eliot Spitzer can tell you, politics provides plenty of substitutes. Frank Baumgartner, a political science professor at the University of North Carolina at Chapel Hill and co-author of the book, Lobbying and Policy Change: Who Wins, Who Loses, and Why , explains that the real outcome of most lobbying–in fact, its greatest success–is the achievement of nothing, the maintenance of the status quo: “Sixty percent of the time, nothing happens… What we see is gridlock and successful stalemating of proposals, with occasional breakthroughs.” And that’s just the way the corporate lobbies want it. Health insurers, including United Health Group Inc. and Cigna, last year gave the U.S. Chamber of Commerce $86.2 million that was used to oppose the health care overhaul law, according to a November 17, 2010 report by Bloomberg News. The report notes that this amount “exceeded the insurer group’s entire budget from a year earlier and accounted for 40 percent of the Chamber’s $214.6 million in 2009 spending.” It might have been nice to know this during the fight over the bill–when so many members of the mainstream media were pretending that all the opposition to it was based on genuine voter outrage, but it only became public when annual tax records required under U.S. law were finally made public. The insurers’ funneling of money through the chamber is an example of some of the new business opportunities that recent Supreme Court rulings have opened up for all wealthy and corporate funders who wish to remain anonymous. To keep reading, please go here

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The 14th Banker: Unsafe at Any Speed

November 17, 2010

When I first became aware of Ralph Nader , he was already considered a flake by the New Economic consensus that would shortly sweep Ronald Reagan into office. I would have laughed out loud if you had told me that 30 years later I would quote him. In the preface to his book, Unsafe At Any Speed , he says the following: This country has not been entirely laggard in defining values relevant to new contexts of a technology laden with risks. The post-war years have witnessed a historic broadening, at least in the courts, of the procedural and substantive rights of the injured and the duties of manufacturers to produce a safe product. Judicial decisions throughout the fifty states have given living meaning to Walt Whitman’s dictum, “If anything is sacred, the human body is sacred.” Mr. Justice Jackson in 1953 defined the duty of the manufacturers by saying, “Where experiment or research is necessary to determine the presence or the degree of danger, the product must not be tried out on the public, nor must the public be expected to possess the facilities or the technical knowledge to learn for itself of inherent but latent dangers. The claim that a hazard was not foreseen is not available to one who did not use foresight appropriate to his enterprise.” These words speak of legal and social developments in materials manufacturing going on 50 years ago. Yet it is striking that we have not achieved these most foundational values when it comes to another kind of manufacturing, the manufacture of financial products. The clock has completed its cycle on the day in which the Congressional Oversight Panel released its report on Mortgage Irregularities and the consequences for financial stability. In addition to documentation concerns, another problem has arisen with securitized mortgage loans that could also threaten financial stability. Investors in mortgage-backed securities typically demanded certain assurances about the quality of the loans they purchased: for instance, that the borrowers had certain minimum credit ratings and income, or that their homes had appraised for at least a minimum value. Allegations have surfaced that banks may have misrepresented the quality of many loans sold for securitization. Banks found to have provided misrepresentations could be required to repurchase any affected mortgages. Because millions of these mortgages are in default or foreclosure, the result could be extensive capital losses if such repurchase risk is not adequately reserved. The dawn will soon break in Europe, where volcanoes erupt with regularity. Today’s volcano is the Irish Debt Crisis and an apparent impending bailout or series of bailouts, this time more painful. I give you this link , not to endorse it’s assessment because frankly I don’t know. But the very fact that such extremity can be considered plausible and be posted to a highly reputable blog (not mine, Calculated Risk’s) paints the picture rather well does it not? So back to the quote from Ralph Nader’s preface. ”Where experiment or research is necessary to determine the presence or the degree of danger, the product must not be tried out on the public, nor must the public be expected to possess the facilities or the technical knowledge to learn for itself of inherent but latent dangers. The claim that a hazard was not foreseen is not available to one who did not use foresight appropriate to his enterprise.” I heard a commenter recently say that in financial services, “complexity is fraud”.  I am becoming inclined to believe him. Products have been introduced into the system which simply cannot be modeled by experiment or research. Yet they continue to be introduced, promoted, and defended by their issuers as well as those in government who have sold out to the industry. It is time for that to end.

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Stacie Nevadomski Berdan: Living Abroad Has Its Challenges

November 16, 2010

Living in a foreign country excites the imagination, ignites the adventurous spirit, and inspires you to explore. It can also scare the pants off you. Learning to live in another country is more than simply learning to get to the office, making yourself understood in a local language, and eating different food. You have to learn how to do many new things while unlearning old that have become second nature. You must accept your new home on its terms — not yours. Living abroad successfully also involves a subtle but important change in your expectations of yourself and others. More importantly, you have to cope with the loss of identity and familiarity and get along without some of the personal perks in your life that provide encouragement, meaning and fun ! And so every now and then when I read a piece about an expat sent abroad who discovers that “it’s not what I expected” or the spouse gives an ultimatum “me or the job” as noted in this article on ” What To Do When Relocating Abroad ” in Forbes , I’m baffled. Was it the allure of Paris? Didn’t anyone tell the spouse that although there may be opportunities to ride in Paris — similar to those in New York City — but that it’s not the wide open grasslands of Texas? With the sheer cost involved, both financial and human capital, why are companies still making mistakes in choosing employees and not working with both the employee and spouse/partner to make sure it’s not a career buster? Most of the large corporations I consult with on global relocation and cross-cultural management issues have wised up to the importance of preparing professionals. So, too, are employees. Although a stint abroad can do wonders for fast-tracking your career as I wrote in my book Get Ahead By Going Abroad , it can also be a career buster if you turn down an assignment, leave early, or don’t adapt or adjust to deliver for the company. According to HR professionals I’ve worked with, a spouse’s reaction to the relocation is the number one reason such international transfers are successful or not; a spouse’s happiness is critical to your ability to do your job. I know. My husband was a “trailing spouse” — a terrible term — when we moved to Hong Kong years ago. He left a job as a researcher/writer at Washington, D.C.-based environmental think tank to follow me and my career. He had rough ride at first, trying to find a job working on environmental issues (no green movement in sight at the time) and so he reinvented himself as a travel writer. It was a great gig that took him all over Asia spending time in the Kingdom of Brunei, watching the orangutans in the forests of Borneo, and biking through most major cities in China. But he had to make it work. He did it for me and, when my three years was up, he asked that I not extend or move on to Tokyo or Kuala Lumpur. I agreed despite my desire to continue globetrotting. I grew to appreciate that because we had left our network of family and friends behind, the two of us became everything to each other, which was a bit overwhelming. Moreover, it’s usually even harder on the spouse because the employee has work, colleagues, activities — an instant culture into which to assimilate. A partner has to begin everything from scratch — that’s tough enough with an in-country relocation and even harder in another culture, possibly even a second language. But we can learn from others. In Get Ahead By Going Abroad , I interviewed more than 200 professionals who moved abroad, soliciting common advice on issues critical to a successful stint working abroad. One of these is to make sure that you and your spouse take a look-see trip if at all possible. Imagine yourself living there, how would your life fit into your new home city. What would be different, perhaps the same. And then, once you move, another critical piece of advice involves how to handle your first week on the ground because many times this first week sets the tone for the overall experience, kind of like first impressions; they’re hard to get over. To enhance a great first impression, make sure you do the following six important things the first week on the ground without going into the office, if at all possible: Nail down your personal must haves , be it a gym, a massage therapist or a particular brand of coffee, appreciate the importance of those “little things.” Make contact with at least one other international contact , who can be an on-the-ground source of information and assistance. Make sure you have at least one local contact because sometimes only local help will do. Familiarize yourself with the transportation system be it your own car, the subway or a system of commuter trains. Set up house with the clothes you have, photos and stock the fridge to begin to make it like home. Explore your new home , get a feel for the place, stroll the streets, be a tourist. But it doesn’t stop here. There’s practical advice on the first month, the first year and so on — even practical and tried-and-true tips on ensuring a successful return. Others have done it and successfully. Why not profit from their experiences to ensure the best outcome for your international assignment. It could be the difference between fast-tracking your career and fast-talking to save it.

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Jane White: Why Are Academics Among the Few Americans Who Can Afford to Retire?

November 16, 2010

As an advocate for 401(k) participants, I’ve found that the only thing more frustrating that the media’s cluelessness about America’s retirement crisis are the academics who not only don’t understand we have one, but who happen to be among the few Americans who can afford to retire. For example, University of Texas economist James Galbraith recently told The Huffington Post’s Dan Froomkin that we should boost employment by lowering Social Security’s normal retirement age so that Boomers can retire and younger people will be able to fill their jobs. But if most Americans only need Social Security payments for their retirement, why the heck would we need pensions? The purpose of Social Security is to replace the wages of the poorest 40% of us who don’t have pensions. Unfortunately for the middle class and upper-middle class, only 10% of the private sector can count on a pension and the 401(k) plan’s measly employer contribution rate of 3% of pay makes it a “pretend pension.” What’s even worse, 50% of the private sector population isn’t covered by a pension or a 401(k) plan. Whether it’s a private sector plan or Social Security or a combination of both, the goal for most of us is to have at least 70% of our paychecks replaced at retirement. So if you’re making $20,000 at age 65 and retire at 66, Social Security will do just fine, coughing up about 67% of your paycheck, or about $14,000 a year. However, if you’re earning $102,000 you would only receive around $28,000, or about 27% of it. As I pointed out in an earlier post, if the median amount that American workers near retirement have saved in their 401(k) accounts is a mere $77,000 and their median salary is $61,000 their savings won’t last them more than a few years. Galbraith isn’t the only academic weighing in on retirement issues who doesn’t seem to know the rules for adequacy. As I pointed out in my book America, Welcome to the Poorhouse , Theresa Ghilarducci of the New School of Research has proposed replacing the 3% 401(k) employer matching contributions with an annual measly government deposit of $600 even though this would shrink the nest eggs of anybody earning $20,000 or more. Another academic, Alicia Munnell of the Center for Retirement Research at Boston College, says that “in theory workers could accumulate substantial wealth” by contributing 6% of pay and ending up with $380,000, which only works if you’re making $38,000 at age 65, since the formula for adequacy is accumulating 10 times your salary. Ironically, these three academics can retire because their employers contribute at least twice as much to their version of a 401(k) account. For example, Munnell’s employer contributes 8% of pay for those with fewer than 9 years of service and 10% for those with more, Ghilarducci’s contributes 7% for those with fewer than six years and 10% for those with more and Galbraith’s contributes 6% and certain staff can get an additional 7.5% contribution. In fact, most universities have offered generous plans since the 1940s when the increase in college enrollments thanks to the GI bill increased the demand for professors, who in turn demanded better compensation. Do you think that you may be one of the few people who have saved enough to support yourself in retirement? The only website I know that helps you figure this out is run by a retired pension actuary, Ken Steiner. Here’s a link to his website where you can find out whether you’re on track. Go to the “spending calculator” link below the headline “Self-insuring your retirement.” Unfortunately, most employers outside of academia not only don’t contribute enough so that we can retire — not to mention “suspending” contributions to our accounts when times are tough — but aren’t required to tell us that our nest eggs aren’t adequate. With the first wave of Boomers turning 65 next year, we are looking at a retirement nightmare. If you agree and think we need reform, please go to my website and click the link on the upper right hand side of the page: Stop the 401(k) Nightmare. I thank you and our kids thank you.

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Bush: No Regrets About Wall Street Bailout

November 15, 2010

George W. Bush has no regrets about his decision to initiate the $700-billion bailout of Wall Streett. In a special hour-long interview Sunday evening with Candy Crowley on “State of the Union,” the former president defended his reaction to the financial crisis in 2008: GEORGE W. BUSH: I wasn’t a very good economic prognosticator. I did know we were in deep trouble. And that’s why I made the decision I made. And in my book, I chronicle the history of the meltdown and then the decisions I took to prevent the economy from cratering. There is a lot of people who said, well, the economy, we wouldn’t have seen a depression. The problem is, when you’re the president, you don’t have the luxury of being — talking about the theoretical. I was advised by people who I trust. I trusted Hank Paulson and Ben Bernanke that we had better do something. And so I did set aside my free market principles and made a very difficult decision. CROWLEY: But never regretted it. GEORGE W. BUSH: No, I don’t. I really don’t. Bush told Crowley that regulation and oversight could not have prevented the great recession without also hindering economic growth: GEORGE W. BUSH: Yes. No, I think there’s a lot of people watching. And I remember Bear Stearns fails in the spring of 2008, and we acted. But the interconnectedness of the situation and the money flowing into the country as a result of trade deficits, and foreign investors looking for greater returns, and the housing — the assumption that the housing prices were going to go up, all led to this, you know, house of cards. And when it started to collapse, it really started to collapse. And obviously if there was some way to have stopped it, I would have liked to have done so. But it was — I hope it’s a once-in-a-lifetime situation, but they said the Great Depression was a once-in-a-lifetime situation as well. The problem is, you’ve got to be very careful, Candy, not to over-regulate, because if you try to over-regulate, then investment’s not going to flow. And if investment doesn’t flow, then people aren’t going to be able to find work. CROWLEY: Except I would think, wow, if somebody had set some standards for loans, these banks would not have been stuck with so much bad paper. And — GEORGE W. BUSH: Well, yes, that’s right. There were sloppy lending practices, no question about it. And I wish they would have paid a price. CROWLEY: But isn’t that regulation? GEORGE W. BUSH: Well, the regulations are on the books about sloppy lending prices. And, yes — the danger is, is that — I mean, the logic of your questioning is, OK, now in order to prevent a future collapse from happening, we must over-regulate, or regulate a lot. And the danger — CROWLEY: Or regulate more. GEORGE W. BUSH: Well, I mean, it depends on what you’re talking about. The problem is regulation tends to stifle capital investment. And capital investment is what’s necessary to grow the economy. So you’ve got to find the right balance. President Bush’s continued support for TARP is at odds with most newly-elected members of Congress who campaigned against the bailout and succeeded in reclaiming the House majority. A recent poll found that most Americans blame Wall Steet and former President Bush for the economic crisis–not President Obama. However, those same voters who blame Wall Street, were more likely to vote for Republicans than Democrats–a surprise, considering the Republican parties efforts to neuter legislation that would regulate Wall Street. WATCH: A clip of Crowley’s interview with Bush

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Brad Feld: Selecting Co-Founders

November 12, 2010

Having been involved directly or indirectly in hundreds of early stage software and Internet companies, I believe the optimal number of founders for a software / Internet startup is between two and four. Starting a company by yourself is incredibly difficult. It can be done, but it’s the exception not the rule. It’s rare that a startup follows a clean and predictable trajectory – if you are alone as a founder, you’ll need to navigate this yourself. That’s a lonely and thankless task. At the minimum, having other co-founders along for the journey will give you peers to talk to when you want to beat your head against the wall with frustration. Observing over 70 companies that have gone through the various TechStars programs in Boulder, Boston, and Seattle has resulted in another insight for me – the best founding teams are “product leaning” with at least 50% of the founders focused on the product This doesn’t necessarily mean that they are software developers, but it does mean that they spend all of their time thinking about, working on, and obsessing about the product. So – if you have two founders, at least one should be product obsessed. If three founders, then at least two should be product obsessed. For four co-founders, you can split it two and two but I always encourage three product obsessed founders in this case (two devs and one product person.) Being “obsessed with the product” doesn’t mean doing this in a vacuum. The best software / Internet companies follow a customer facing and rapid iteration model such as the Lean Startup Methodology popularized by Eric Ries and Steve Blank. In this context, being product obsessed means “in the context of the customer”, which requires the product leaning people to interact frequently with prospective customers and users early and continually in the product development process. In our book, Do More Faster (http://www.domorefasterbook.com), TechStars CEO David Cohen and I have an entire theme on “People”. One of our favorite chapters is by Dharmesh Shah, the co-founder and CTO of Hubspot, titled ” Avoid Co-founder Conflict.” In this chapter, Dhramesh describes a series of conflicts that often arise between co-founders and gives suggestions for resolving them One of the most common questions I hear is “how do I find a co-founder?” Ironically, you probably all ready know your co-founder – it’s either a friend, someone you work with, or a colleague of a friend. Aggressively use your network as a starting point as the chance of finding a fit through someone you are already connected with is much greater than trying to recruit, learn, and team up with someone you don’t yet know. Selecting co-founders and building a lasting and effective professional relationship is challenging. If you recognize this going in and invest real time up front in the partnership it will pay off many times over.

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The 14th Banker: Creating an American Latvia

November 8, 2010

The United States faces profound risks in the way its financial markets continue to operate. As I wrote last week, Ben Bernanke’s latest stimulus effort smacks of desperation. If we are to find real solutions to our domestic problems, we need to open our minds to rethink what the core problems might be. The videos below are of a speech Michael Hudson made several weeks ago to the American Monetary Institute. I hope you find time to watch it. Some of his examples are simplified to serve an explanatory purpose. So let’s not quibble about every detail. Let’s see where these explanations correspond with our reality and use that as a starting point to understand our reality. In the first segment he correctly points out at about the 3:30 mark that banks do not lend for productive purposes (in general). They lend on existing assets and cash flow streams. This is particularly the case with large banks that have much standardization and centralization of functions. As Amar Bhidé states in his book: The financial system has been giving up, albeit unwittingly, on the decentralization of judgment and responsibility. Case-by-case judgments by many, widely dispersed financiers with the necessary ‘local knowledge’ have been banished to the edges, to activities such as venture capital, which accounts for a useful, but tiny proportion of financing activity. Without this decentralized judgement and responsibility, banks are simply incapable of providing productive risk capital as Hudson describes. Instead, capital is consistently deployed to increase the values of existing assets, much like Bernanke proposes to do today. All Tea Party supporters should watch this speech because it explains how America is becoming the new Latvia and how labor (90% of us) is and will continue to pay the freight. The greater public has been co-opted by a blind faith in the Neo-Classical economic paradigm. They believe that their angst, created by flat to decreasing real incomes for those still employed, high unemployment, and extreme volatility in perceived wealth, has been caused essentially by too much regulation and too much government. While I agree that inefficient or ineffective government is a problem, it pales relative to the effects of the power structures dividing up the wealth in a way the average citizen cannot grasp. Further in the speech, Hudson refers to this increasingly debt based system and how all cash flow streams and assets are ultimately “capitalized”. In other words, debt is issued against them and profits are extracted by those able to do so. Perhaps you have seen this as we have more and more toll roads, red light cameras, and prisons run by private companies for profit. Those who outsource these things see one part of the picture, the part where government outlays are supposedly reduced. They do not see the part of the picture where those assets and cash flow streams are used to move wealth to the top of the social structure. Tea Party favorite Rand Paul unwittingly plays into this with his ideas on privatization. From an interview this weekend comes this quote: When pressed on This Week about which programs the he would cut, Paul declined to identify individual programs. “All across the board,” the senator-elect said. Amanpour challenged Paul, saying, “But you can’t just keep saying all across the board.” Still, the newly elected senator refused to budge. “No, I can. I’m going to look at every program, every program.” He later continued on the theme: “You need to ask of every program — and we take no program off the table. Can it be downsized? Can it be privatized? Can it be made smaller?” This things that are privatized will then be leveraged and the profits will be extracted up front. Any change in the cash flow stream will then create future losses on that leverage and those losses will be allocated to taxpayers or the most unwary investors who bought the residuals after all the fees and equity dilutions for management have been stripped. While John Hussman is writing on a different topic, the Bubble Crash cycle, his points tie in as well. After acknowledging that the markets already rose on the Fed action, Hussman effectively makes it clear that this has little to do with real wealth. As a result of Bernanke’s actions, investors now own higher priced securities that can be expected to deliver commensurately lower long-term returns, leaving their

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Video: Zappos’s Hsieh Focuses on Happiness as Business Model

November 5, 2010

Nov. 5 (Bloomberg) — Tony Hsieh, chief executive officer of Zappos.com Inc., talks with Bloomberg Television special correspondent Willow Bay about his book “Delivering Happiness: A Path to Profits, Passion, and Purpose.” (This is an excerpt. Source: Bloomberg)

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Video: Zappos’s Hsieh Focuses on Happiness as Business Model

November 5, 2010

Nov. 5 (Bloomberg) — Tony Hsieh, chief executive officer of Zappos.com Inc., talks with Bloomberg Television special correspondent Willow Bay about his book “Delivering Happiness: A Path to Profits, Passion, and Purpose.” (This is an excerpt. Source: Bloomberg)

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Fred Whelan and Gladys Stone: Condoleezza Rice – What a Procrastinator!

November 5, 2010

Former Secretary of State Condoleezza Rice reveals in her new book, “A Memoir of My Extraordinary, Ordinary Family and Me” that she has battled with procrastination for most of her life. She says in her book, “Procrastination remains a problem for me to this day.” The obvious question is: How can someone so successful be a procrastinator? Successful people aren’t perfect; they almost always have some part of their makeup that needs work. Some people are charismatic in front of a live audience, yet struggle with speech writing. Others are amazingly productive despite their lack of organization. What many of these people do is find ways to compensate for the areas where they are weakest. For example, CEO’s who are habitually late and who counteract this by setting their watches ahead. Procrastination is another area that plagues a lot of accomplished people, yet they are able to pull the proverbial rabbit out of a hat and complete the project every time. They do this by building in an adequate buffer to meet the deadline. Similar to “cramming” the night before a big exam, except they don’t cut it that close. There’s the “should due-date” and the “gotta due-date” and they don’t go beyond the latter. Their crunch time doesn’t ever put them in jeopardy of missing the deadline. Charles Schwab , John Chambers and Richard Branson all have dyslexia. None of them have let this hold them back evidenced by the fact that each has been a CEO of a Fortune 500 Company. Prominent attorney, David Boies , known for being a star litigator (represented the Government in Microsoft anti-trust case) also has dyslexia. Because of this, he has to commit more to memory than most lawyers because his dyslexia hinders him for glancing at note cards in the courtroom. The comedian and star of “Deal or No Deal,” Howie Mandel , has obsessive compulsive disorder and avoids at all costs shaking hands for fear of picking up germs. On his TV show he compensates for this by doing a fist bump with the contestants. David Neeleman , founder of JetBlue Airways, has Attention Deficit Hyperactivity Disorder (ADHD). Unfortunately, ADHD prevents him from being detail-oriented and completing daily tasks, “I have an easier time planning a 20-aircraft fleet than I do paying the light bill.” Neeleman looks at the glass as “half-full”, saying that with his disorder comes greater creativity and he credits the success of his airline with his ability to think outside the box. Whatever you are personally struggling with in your life and career, there are ways to overcome it by working around it. Some people make the mistake of using these issues as a crutch, “I’ve never been a good writer” or “My organizational skills are bad,” or “I have don’t have the ability to focus,” and give themselves permission to be held back. Successful people have a mindset geared towards getting the results they want despite the obstacles. We look up to them and appreciate what they have achieved without realizing what they have to overcome on a daily basis. These people can give us the motivation to deal with whatever is currently holding us back and unleash our full potential. Fred & Gladys Whelan Stone Executive Search and Coaching Authors of GOAL! Your 30 Day Career Plan for Business & Career Success

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Don Hutson: The Massive Price of ‘Negotiaphobia’

November 1, 2010

Our research and experience have convinced us that “negotiaphobes” in America have left enough money on the table to pay off our National Debt! Why is it that today so many people are reluctant to engage in negotiations? Working with business professionals on six continents has shown that this reluctance to engage in negotiations in both our professional and personal lives is due to a desire to avoid confrontation, a lack of skill in the negotiation process, and a willingness to be a victim and simply live with an (often dysfunctional) status quo. Negotiaphobia is a disease that can be treated. This treatment is simple and it involves learning the various negotiation strategies and the skills to deploy them. Our book, ” The One Minute Negotiator ,” shares an E-A-S-Y three-step process which will get you on the road to fighting back your fears as you become mentally ready to engage and succeed in negotiating for your desired outcomes. We examine this simple yet innovative process below. The E in E-A-S-Y stands for engage … asking yourself “Is this an encounter where a negotiation is possible?” Many people miss these opportunities, as the people they deal with mask them by saying things like, “Of course there is a $20 dollar set up fee.” We all see the big negotiations like tax and health care reform, but we miss the ones such as a drop fee on a rental car. These “small” ones are the exchanges we can do something about and they do impact our discretionary income, and thus our quality of life. Once there appears to be the opportunity to negotiate, the second aspect of this initial step is to quickly review the four viable negotiation strategies presented in a clear 2X2 matrix form in the book. These strategies are avoidance (reactive and low cooperation), accommodation (reactive and high cooperation), competition (proactive and low cooperation) and collaboration – sometimes called win-win (proactive and high cooperation). Each of these four strategies has its place in the various negotiations we face on a daily basis. The “A” in E-A-S-Y prompts negotiators to assess their natural tendencies to use each of the four strategies, as well as the probable tendencies of the party they are negotiating with to follow one of the paths. To assist readers in assessing their own tendencies, The One Minute Negotiator includes a 20-Question self-assessment scale in its fifth chapter. This easy and fun tool can also be downloaded for no charge at www.theoneminutenegotiator.com. We propose that the best read on what strategy someone will use in negotiating with you is how they have negotiated with you in the past. This is the other dimension of negotiaphobia; lack of adaptability. Most people are one-trick ponies as they use the same approach every time. For people we have not negotiated with in the past one of the best reads on behavior is their interaction style. Drivers tend to come out in a very competitive stance, but do not overlook the possibility of winning them over to a collaborative approach. Expressives embrace the idea of win-win collaboration, but they rarely have the attention span to do so. “Strategize” is the third-step in the E-A-S-Y treatment process. Based on the significance of the situation, one’s own tendencies, and the expected strategy to be deployed by the other side or sides, a person now carefully selects their opening and fall-back strategies. The fall-back strategy is a lot like having an umbrella with you. If you have an umbrella in your brief case or your golf bag it rarely ever rains, but leave it in the trunk of your car and prepare to get drenched. On the issue of significance, you should not just look at this one encounter, but look for long-term potential. Some deals, like buying a car, are usually one-offs that push you toward competition. There are other instances where a small opportunity today, if handled collaboratively, could lead to a much larger and recurring deal into the future. Engage, Assess, and Strategize combine to form the “Y” in our acronym… “Your one minute drill.” This is where on a regular basis you automatically cycle through the first three steps as you face any negotiation. This one-minute reflection should become an automatic and very powerful tool to make you a more effective negotiator. We recognize that many negotiations take longer than a minute; some hours, months and even decades. The EASY process, however, will be your guide to get your head in the game for each negotiation encounter. Our personal and coaching experiences clearly show that most negotiations are won or lost before the first words of communication between parties even take place. We know that if you follow the E-A-S-Y process you will have more success and less stress in all areas of your life!

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Yvette Kantrow: Making it

October 29, 2010

A commentator looking to take down a Wall Street macher could do worse than setting his sights on Steven Rattner. The former New York Times reporter, investment banker, private equity investor, Obama car czar and general big-man-around-town has reportedly been in settlement talks with the Securities and Exchange Commission over his role in a pay-to-play scandal involving New York state’s pension fund. Rattner’s buyout firm, Quadrangle Group LLC, not only allegedly paid kickbacks to secure investments from the fund, but Rattner himself allegedly helped distribute a movie named “Chooch” produced by the brother of a pension fund official. That’s right, “Chooch.” As in blockhead. All of that should be fodder enough to nail Rattner, who was busy promoting “Overhaul,” his book on the auto bailout, when news of the settlement talks broke. But while stones were certainly thrown, they were provoked less by Rattner’s entanglement in a very real pay-for-pay scandal than by the amorphous fact that he lives in what big-cheese Time magazine columnist Joe Klein dubbed “Private Equity World.” That world, in case you’re wondering, is “a particularly shady and opaque precinct of Wall Street where gazillions have been made through leveraged buyouts that have caused nothing but pain in the middle-class neighborhoods of America.” Klein provides no examples, of course. That private equity is a near-criminal enterprise is an idea much of the media accepts on faith. Indeed, Klein rolls out Rattner and “Private Equity World” as one of the reasons voters are “rebelling against expertise this year.” (Don’t ask.) He explains that too many recent presidents have populated Treasury with people like Rattner — “financiers who gained fame by making deals rather than by making products” — and “disastrous chicanery” has ensued. Hank Paulson and Bob Rubin are his two big examples, but he throws in Tim Geithner too, noting, that “he never was a Wall Street dealmaker, but he comes from that world.” How so, Klein never explains. But he praises George W. Bush’s hiring of Paul O’Neill as his Treasury secretary because O’Neill “came from the world of manufacturing.” (He was Alcoa’s CEO.) Geithner’s sin is that he never made anything or worked for a company that has. The message: Making is good; dealmaking, bad. It’s not surprising that during a recession the media would romanticize manufacturing, with its imagery of ordinary people earning a livable wage as they produce something useful at the local plant. But the notion that Wall Street somehow has a monopoly on “disastrous chicanery” is laughable, as big corporate scandals from a few years ago — Tyco, Adelphia, Enron, WorldCom — make clear. The media’s memory, however, is short. Indeed, the same sort of reverence for manufacturing CEOs in which Klein indulges runs through a takedown of Rattner by yet another big-cheese columnist, The New Yorker’s Malcolm Gladwell. In his review of “Overhaul,” Gladwell is incensed that Rattner had the temerity to fire Rick Wagoner, CEO of General Motors. From where Gladwell sees it, Wagoner saved GM, not Rattner and his paper-pushing cohorts. While Wagoner reached a historic agreement with the United Auto Workers and improved GM’s cars, Rattner’s Team Auto “engaged in an act of financial engineering: It used the power of the bankruptcy process to rid GM of some of the liabilities that had been holding it back.” How hard is that? “At the end of the day, cleaning up a balance sheet is cleaning up a balance sheet.” Gladwell insists Rattner offed Wagoner because private equity types “see themselves as smarter than the managers of the companies they are buying.” To that end, Rattner wanted to think of himself as more than just “a mere financial engineer.” He wanted GM to be seen as “his” (emphasis Gladwell’s). But Gladwell ignores two salient facts: Despite Wagoner’s accomplishments, there was a political imperative to oust the private plane-flying CEO of a company seeking a giant government bailout. And Wagoner, who was ultimately fired by the White House as much as by Rattner, was on record as fiercely opposing a bankruptcy filing. In the end, bankruptcy saved GM. Maybe it was just financial engineering, but it worked. So why skewer Rattner for that? Getting involved in “Chooch” was a far dumber idea. Yvette Kantrow is executive editor of The Deal magazine.

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Mike Stark: Confidence Game Kills a Zombie Lie (Well, Sorta…)

October 28, 2010

Wall Street’s last decade is full of assorted criminals and villains that will never be held to account. It’s simply not plausible that so many well-meaning, law-abiding people made so many innocent mistakes that, purely by coincidence, just happened to fatten their bonus pools. Of course, apologists remain. Over and over again, the propagandists responsible for propping up the hollow façade that remains of Wall Street tell us that “nobody saw this coming.” It doesn’t matter that that lie has been deconstructed and exposed over and over and over again. The zombie lie lives on, because Wall Street needs it to. Which is why I’m not the least bit confident that Christine Richard’s Confidence Game (Wiley, 2008) will change things very much, notwithstanding its compelling narrative, meticulous reporting and unassailable documentation. Did I mention its compelling narrative? Because this book hooks you right from the start. Confidence Game tells the story of a bright hedge fund manager that saw his spot, went all in, faced down the best sharks on Wall Street and emerged with a billion-dollar payout. Typically, this would be the story of a villain, right? Not in this case. Bill Ackman looked at the emperor and saw that he was naked back in 2002. He loudly proclaimed as much. And all the emperor’s horses, and all the emperor’s men on Wall Street ran interference. For the next six years. Before all was said and done, Ackman was investigated by Eliot Spitzer, the New York State Insurance Commissioner’s Office and the SEC. Ackman stood firm in the face of the onslaught, and for his travails, walked away with $1.1 billion dollars. How did it happen? Well, a whole book was written on the subject, but in a nutshell, Ackman realized that a pillar of the bond-insurance racket (it was a racket), MBIA, had shuffled some paperwork to conceal their potential liability. They had severely underpriced their insurance contracts and could only sustain themselves so long as the economy continued to grow. Ackman’s evidence was ironclad, and he was generous in terms of sharing his information. After all, he had a reason to be — he had bet against MBIA and fully expected their share price to fall when the information he uncovered penetrated the market. That’s where things began to go wrong. The market didn’t want to accept the information Ackman was providing. Instead, they were downright hostile to it. Market participants (investment banks that built the bond deals MBIA insured) knew that if MBIA suffered, they’d suffer as well. That’s the abstract argument. In the real world, these bankers saw that if Ackman got any traction, their bonus pools would dry up overnight as their industry crashed. So they ignored Ackmen. For six years. For six years the deals continued, getting bigger and bigger. Ackman looked on with unruffled confidence. He kept whaling away at the borg, until one day, the system fell apart. And Ackman was left standing on a pile of money. If Wall Street or its regulators had listened to Ackman when he first chirped, the canary in the coal mine may have prevented what may go down in history as the world’s most devastating financial crisis. Ackman would have earned less than 1% of what he ultimately gained, but mainstreet would almost definitely be better off today. Of course, the shame of all of this is that none of it has changed Wall Street. The bankers got their bonuses, even after being bailed out. They learned that trickery, lies, deceit, intentionally feigned ignorance and any other unethical behavior required to protect their bonus pools is what pays in the end. Bill Ackmans and Bethany McLeans will come and go, but the titans of finance will always be with us. (disclaimer: I sometimes get free books. If I read them and like them, I sometimes review them. Because I like getting free books. Confidence Game was one of the books that I got for free, enjoyed reading and decided was worth reviewing, because I think you should read it, too.)

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Wall Street’s Latest Gold Rush? The Booming China Market

October 27, 2010

BEIJING/HONG KONG (Reuters, By Steve Eder and Denny Thomas ) – Morgan Stanley (MS.N) chief executive James Gorman wasn’t going to miss his chance. It didn’t matter that he was on holiday. Gorman dropped everything and flew to Beijing last April. He wanted to show up in person to make sure his firm got a piece of what was shaping up to be the biggest initial public offering in history. In Beijing, Gorman spent hours rehearsing with his team for a half-hour pitch to executives of Agricultural Bank of China (601288.SS)(1288.HK), whose IPO would eventually raise $22 billion. “For a half-hour bake-off, he came all that way,” Wei Christianson, Morgan Stanley’s China CEO, said in an interview last month from her office near Financial Street in Beijing. As he practiced, the Australian-born CEO debated with colleagues about whether the Chinese bankers would want to hear his stories about farming in the outback. Gorman was not the only top Wall Street executive looking to get in on the AgBank deal. JPMorgan (JPM.N) CEO Jamie Dimon and Deutsche Bank CEO (DBKGn.DE) Josef Ackermann also went to China to make their pitch, and in the end all three banks secured an underwriting assignment for the bank’s Hong Kong offering. For a while at least, with their eyes dead set on the AgBank pot of gold, global bankers could set aside concerns about the challenges they face in China, a market they are desperately trying to crack but where they are finding more setbacks than successes. Why they want in is no mystery. Economists at Goldman Sachs believe that mainland China’s market capitalization will rise to $41 trillion by 2030 from $5 trillion now. That would make China’s stock market the biggest in the world. U.S. market cap is expected to grow to $34 trillion from $14 trillion over that time. But with China, American financial powerhouses may have met their match. Here, government connections and family ties can trump decades of banking experience and western swagger. So for all their efforts — and kowtowing — this is likely to remain one tough market Wall Street firms. GOLD RUSH In Beijing, where the towering gray headquarters of the world’s largest banks — Industrial and Commercial Bank of China (601398.SS)(1398.HK), China Construction Bank (601939.SS) (0939.HK) and Bank of China (601988.SS) (3988.HK) — cast a long shadow, Wall Street banks are still on the outside looking in. The towers in and around Financial Street wouldn’t look out of place on Wall Street. But looks can be deceiving. “You can’t just come in here and act like this is New York and try to operate the same way you would in New York,” said Philip Partnow, who heads China M&A for UBS (UBS.N) (UBSN.VX). Global banks trying to jumpstart their China operations are tangled in a web of strict regulation, culture clashes and politics. They worry too that even the sweat equity they are putting into training their partners in the ways of western banking will be lost. Some wonder whether China’s long-term plan includes their foreign guests from Wall Street. “At some point, the Chinese want to get to the point where they don’t need the foreign investment banks,” said Michael Werner, a Hong Kong-based China banking analyst with Sanford C. Bernstein. China’s domestic “A Share” IPO market is especially tightly controlled. Even though global banks are actively underwriting listings for Chinese firms on the Hong Kong exchange, they are being shut out of the mainland IPO market. The China IPO market has reached $56 billion so far in 2010, more than five times what it was a decade ago. Despite such torrid growth, major U.S. banks have moved down the underwriting rankings, while domestic banks have solidified their spots at the top. Global banking powers like Goldman Sachs (GS.N), Morgan Stanley and JPMorgan have an investment banking presence in China, which connect Chinese companies, often state-owned entities, with foreign capital. The Chinese banks have not built up their international distribution networks yet, leaving the door open foreign banks to get a piece of the market. But what happens when China’s banks and its growing ranks of regional securities firms are able to shoulder the load? Some foreign bankers fear they will be sidelined, with years of investment lost, and invaluable know-how left in the hands of their Chinese partners. “Basically, it is a big technology transfer that is going on here — and then the Chinese shut the door,” said Gordon Chang, author of the book ‘The Coming Collapse of China’. “They’ve done this so many times.” CULTURE CLASH One day a decade ago, during China’s mid-autumn festival, CICC CEO Levin Zhu was the last one to leave the office. He was working late into the night in a smoke-filled room on the China Petroleum & Chemical Corp (Sinopec) (0386.HK) (600028.SS) IPO. By that time, Morgan Stanley’s influence on CICC had shrunk in part because Zhu had wrested control of the bank from the Wall Street firm, reducing it to a passive investor. It was a far cry from the more engaged role that Morgan Stanley had envisioned when helped to launch the joint venture. When Morgan Stanley began the JV, its majority partner, China Construction Bank, was purely a commercial bank and had virtually no investment banking experience. That’s what Morgan Stanley brought to the table. Morgan Stanley brought seasoned bankers, its brand, and an invaluable amount of know-how to the joint venture. The information would be critical to CICC getting off the ground. With CICC, Morgan Stanley found itself on the inside of a successful investment bank, but one that was fraught with culture clashes and internal warring between western bankers and their Chinese counterparts, according to people who worked in the joint venture. THE RIDDLE Levin Zhu, who was a riddle to some of his Morgan Stanley counterparts, personified the cultural differences that make or break joint ventures. Zhu is what is known in China as a “princeling,” the offspring of a powerful politician. The son of former Chinese premier Zhu Rongji, he studied meteorology before going into finance and eventually landing atop CICC. Some former Morgan Stanley executives remain perplexed by Zhu, who they say understood finance and investment banking, but worked odd late hours and appeared to rely too much on his father’s political ties. Zhu, with his political clout, succeeded in reducing Morgan Stanley to a passive investor for much of the past decade, removing the Wall Street bank from management decisions and giving complete control of the operation to the Chinese. Morgan Stanley’s interest in exiting CICC came to light as early as 2007, but the bank is still waiting for approval from regulators to sell its stake. Media reports have indicated that approval could come soon. The slow-moving process has delayed Morgan Stanley’s plans to apply for a license with a new partner because rules forbid the banks from having two joint ventures simultaneously. And China does not seem to be in a hurry to create another competitor. Despite the history, Morgan Stanley refuses to speak ill of its CICC endeavor. MANY RISKS In September, Reuters met with a number of executives and investment bankers from global banks, all of which are jockeying for position in the Chinese market. The executives offered a positive outlook for China and spoke with hope and ambition about building operations there. With China expected to emerge as the largest market in the world — it’s economy is growing more than 10 percent annually — bankers are careful not to say anything that could catch the attention of regulators and potentially hurt their access. “A lot of what these people say publicly, that China is going to be great, just cannot be true; there are too many risks,” said Victor Shih, who teaches political science at Northwestern University. Foreign banks are under pressure to appear bullish China because they are trying to sell Chinese investments to clients, he adds. But if China’s growth goes as expected, there is no doubt it will be a boon to financial intermediaries who stand to see billions of dollars in yearly revenues over the next two decades — making it all the more critical for Wall Street banks to become true players in the market. LONG-TERM PROSPECTS Executives from Goldman and UBS, two banks that are among the best-positioned in China, were upbeat about the long-term prospects. “I think people thoroughly understand that long-term is long-term,” said Mark Machin, co-head of Asia investment banking for Goldman Sachs, who has been in Asia for 16 years. “These businesses and relationships don’t come in a month or week, they take years. We are building for a very long time. Everybody understands that,” he said. UBS talks about how it has found success “swimming with the current” in China. “What are the government’s priorities in China and how can I align my activities with their goals?” UBS’s Partnow said, explaining how his firm has found success in moving with regulators. Even though some bankers privately share frustrations about the strict hand of Chinese regulators and the pace at which they move, publicly the executives measure their words when talking about the government. Robert Morrice, Barclays’ Asia-Pacific CEO, says he understands where the Chinese regulators are coming from. “I try to put myself in their position,” he said. “If I were them I would want to control international entrance to my marketplace because you have to have the right participants.” THE DANCE As banks salivate over the possibilities, there are some doubters, however. One of them is James Chanos, the hedge fund manager known for correctly predicting the demise of Enron. Since the start of 2010 he has been making the case that China is built on a real estate bubble that is likely to burst. “I don’t see this ending well,” Chanos said from his New York office. “The bulls think the Chinese authorities will slowly let air out of the bubble. History is not on their side.” The slowdown might be starting already. Property investment is set to grow 26.8 percent for all of 2010, slowing from a rise of 37.2 percent in the first seven months of the year, according to a report from a top China economic planner. Chanos does not speak Mandarin and he has never been to Beijing. But he knows numbers, and his predictions do not look good for Wall Street banks hoping to find gold in China over the long term. “China is not going to be a driver of their profitability,” he said. When Gordon Chang, the author, considers how banks are tripping over one another to get an edge in China, it conjures up memories of former Citigroup CEO Charles Prince’s infamous comment before the U.S. housing crisis: “As long as the music is playing, you’ve got to get up and dance.” “When your competitors do something, you’ve got to do it as well,” said Chang. “But I think they’re all missing something.” Chang, a lawyer who worked in China and Hong Kong for two decades, also points to the overheated real estate market. He said he believes that foreign banks are already getting hints that China could be on a course for trouble. Goldman recently pared its stake in the Industrial and Commercial Bank of China by $2.3 billion. Earlier, Bank of America pared down its interest in the China Construction Bank to raise $7.3 billion. “That’s not what you would do if you were truly bullish about it,” Chang said. (Writing by Steve Eder; Additional reporting by Michael Flaherty in Hong Kong and Kang Xize in Beijing; Editing by Jim Impoco and Ted Kerr) Copyright 2010 Thomson Reuters. Click for Restrictions .

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Michael Hudson: How Sex, Drugs, and Fraud Drove the Financial Crisis

October 27, 2010

So my new book, The Monster: How a Gang of Predatory Lenders and Wall Street Bankers Fleeced America–and Spawned a Global Crisis , is now out and about. (Sorry for the long subtitle. Needed to be said.) I wanted share some quotes from the book. They give the flavor, I think, of the corruption that fueled America’s mortgage frenzy and helped produced the greatest financial disaster since the Great Depression. Given the current robosigning, document-backdating foreclosure crisis , it’s worth thinking about what happens when fraud and recklessness go unchecked. Here goes: “I became a thief. And unfortunately, I found I was a very good thief.” “We are all here to make as much fucking money as possible. Bottom line. Nothing else matters.” “Anything that benefited production — that benefited me and benefited my wallet– I’d do it.” “It’s hard to have a guilty conscience if you don’t have a conscience.” “Roland could be the biggest bastard in the world and the most charming guy in the world. And it could be minutes apart.” “He fucked me. But within reason.” “Deep down inside he was a good man. But he had an evil side. When he pulled that out, it was bad. He could be extremely cruel.” “People don’t need access to predatory lenders. That’s like saying people need access to poison, or children need access to mumps.” “If you don’t find the true pain, you won’t write the loan.” “Imagine what happens if the housing bubble bursts.” “These people, you had all the confidence in the world in them.” “Tell him to do what ever it takes to close that loan or it’s his ass.” “Let’s compare W-2s. I made over two million dollars. What did you do?” “There’s nothing in the world more dangerous than a sales presentation in the hands of a salesman.” “Your people find too much fraud!” And, finally, subprime billionaire, mega-political donor and one-time U.S. ambassador Roland Arnall, explaining, in testimony before Congress, why his company, Ameriquest, engaged in widespread predatory lending: “Stuff happens.” Michael Hudson is a staff writer with the Center for Public Integrity and author of The Monster: How a Gang of Predatory Lenders and Wall Street Bankers Fleeced America–and Spawned a Global Crisis . An excerpt from The Monster can be found here .

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Video: Barnes & Noble’s Lynch Doubts Nook Will Curb Book Sales

October 27, 2010

Oct. 27 (Bloomberg) — William Lynch, chief executive officer for Barnes & Noble Inc., talks with Bloomberg’s Lisa Murphy about the company’s new Nook electronic reader with a color touchscreen. Lynch also discusses Barnes & Noble’s stock and the book store industry. (Source: Bloomberg)

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Video: Schussler Says Failure Is a `Huge Part’ of Success: Video

October 27, 2010

Oct. 26 (Bloomberg) — Steven Schussler, chief executive officer of Schussler Creative Inc. and founder of the Rainforest Cafe, talks about his book “It’s a Jungle in There: Inspiring Lessons, Hard-Won Insights, and Other Acts of Entrepreneurial Daring.” Schussler speaks with Pimm Fox on Bloomberg Television’s “Taking Stock.” (Source: Bloomberg)

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James M. Russell: Chris Rabb Talks Invisible Capital

October 26, 2010

When asked about the overriding concept of his new book, Invisible Capital: How Unseen Forces Shapes Entrepreneurial Opportunity , Chris Rabb put it in five simple words: “why Donald Trump is evil.” Though he says this with a laugh, Trump nonetheless represents to Rabb “how we view entrepreneurship, transcendent of political ideology” and why “a lot of people still believe there’s a meritocracy within [entrepreneurship].” This well-researched and argued book digs deep into the unseen privileges evident in even the most equitable business models. Rabb and I met recently to discuss this and other concepts in his new book. James M. Russell: So what is invisible capital? Chris Rabb: Essentially, invisible capital is human, social and cultural capital and the ways in which they manifest: human capital being your skills, credentials and experiences; social capital being your network and what they think of you; and cultural capital being how you operate in different environments and your ability to communicate in ways that inspire confidence and create opportunity. Though the top predictors for success in business are not race, class or gender that doesn’t mean that the most successful elements of an entrepreneur aren’t related to one’s race, class, or gender. If we talk about invisible capital and how it is manifested, we will be directly dealing with race, class and gender in a meaningful way. JMR: Why did you choose entrepreneurship as the topic? CR: A lot of people simply don’t have the literacy about American entrepreneurship that can actually help them start and run a business or even be an advocate for people who start enterprises, whether for profit or non-profit. But because we do not have that literacy, we do not have the structure nor the capacity to help people in meaningful ways. Right now, it is about rugged individualism. The people we could help, as well as the entrepreneurs, believe this notion that, regardless of background, they’ll just work harder. Because you know, if you watch Oprah and you have that positive attitude, you can do anything. There’s no evidence that proves this myth – because that is what it is: a myth. So the book tries to have us understand that there are different ways of defining entrepreneurship. JMR: Is there a correlation between your solution and social entrepreneurship? CR: Yeah, this overlaps the social entrepreneurship but a lot of advocates of social entrepreneurship do not talk about invisible capital.. Social entrepreneur’s projects require massive resources and a select group of consumers to buy the stuff they sell and often times, leverage pre-existing privileges that by definition excludes others. So if you don’t come to talk about the structural issues that create this invisible capital, then you’re doing a good thing, but you’re not really changing anything structurally. While my solution, commonwealth enterprises, create community assets for shared prosperity, that’s not necessarily the case with social entrepreneurship. Ben and Jerry’s is a good example of a social enterprise. They make great ice cream in a country that is obese. They gave more money to good causes than most corporations of the same size – before they sold out to multinational that is. But at the end of the day, they had a conventional product that was not particularly healthy. Ultimately if you talk about entrepreneurship as a vital part of the economy, you talk about creating businesses that will be self-sustaining and sustain communities and local economies JMR: What kind of existing enterprises are considered “commonwealth”? CR: We need to innovate entrepreneurship. The co-op model is one way which commonwealth enterprises can be facilitated but there are also other forms like low profit limited liability companies, l3cs or certified B corps Benefit corporations, as they’re called. These are just a few of the structural ways to look at building shared prosperity and community assets. JMR: You mention in the book that entrepreneurship transcends political ideology. Explain. CR: Politically, those of us who care about these issues in the terms of how progressive it is, are not invested. Mostly because many people who self identify as progressive or left feel that you have to French kiss capitalism to talk about entrepreneurship. You don’t. Entrepreneurship predates capitalism and there’s nothing inherent in entrepreneurship that is about profit maximization. JMR: Any final thoughts about your book? CR: It’s like the two fish: two fish were swimming along in the ocean and one fish looks at the other and says, “I love the water.” And the other fish looks at him and says, “What’s water?” At some point, somebody is going to have to acknowledge the obvious thing, that we’re surrounded by water and air. But if you don’t ever think about breathing nor the composition of air nor how the lungs work, you can make a lot of bad decisions. And the same thing is true with regard to entrepreneurship. Thank you to Natalie Trujillo for her help with this interview.

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Dal LaMagna: Responsible Capitalists at Bishop Loughlin High School

October 22, 2010

Recently I was asked to teach an hour-long class to seniors at my Brooklyn-based high school alma mater, Bishop Loughlin, for career day. I agreed to do it, thinking I might inspire some young people to start and operate their own small business, as I myself had done at their age, and to do it responsibly. I hadn’t been back to Bishop Loughlin in 46 years, and it was eerie to walk through those hallways. Actually, it was comforting to know that a part of my past still exists. Loughlin used to be a tuition-free school for boys who competed to attend from all over the Roman Catholic Diocese of New York. Back then it was a college preparatory high school that drew its Christian perspective from the Lasallian tradition. One hundred percent of us students passed our Regents exams and got into a college. Many of us received Regents scholarships as well. Today the school is no longer the New York Diocese-wide magnet school. Loughlin serves low-income black and Latino students who might be considered “at risk” — 85 percent of the students are African American and 12 percent are Latino. Statistically, half of these kinds of students fail to earn a high school diploma in four years, according to a 2006 study by the Manhattan Institute. Proving the point that it is not the students who are fault for failing in America’s schools, it is their teachers, 100 percent of Loughlin’s students still graduate with a Regent’s diploma and get into college. Despite the dramatically different demographic for the student body, the mission of the school has not changed one bit since the day I attended. The students filed in, sat down, and looked attentive. They were ready to be inspired. I didn’t have a lesson plan, notes, or a power point. I thought I would tell a couple of funny stories, or maybe read from my new book. Instead, I surprised myself and launched into a topic Ben Cohen of Ben and Jerry’s had discussed with students at Gifford Pinchot’s Bainbridge Graduate Institute last week. In the early days, I told them, religion had all the power. Then as time progressed government had the power. Now business has all the power. The point? The institution that has all the power today does not exist to serve the people. Religion and government serve the people. Too often, business exists to exploit the people. As young people considering their careers, I pointed out that there is an option to taking jobs in such companies. Start your own business. I asked the students if any of them were already running a business. At first they looked at me quizzically, probably imagining that a business is a big complicated enterprise. How could high school seniors already be running a business? Then Shane raised his hand and told me he bought sneakers from kids and then sold them for a profit. He’d pay $150 for a pair of sneakers and get $300 for them on eBay! Jessica told us she was charging people to get their hair braided. Another student, Christopher, was tutoring other kids. We came up with a trademark for Shane’s business: Shane’s Sneaks. And I showed them how simple it was to establish the trademark — just stick a small TM at the end: Shane’s Sneaks™. This delighted them. We brainstormed about what skills someone who wants to start a small business should have. One student, Eddy, said, “Be good at manipulation.” It reminded me of the days when I was learning about business, when manipulating and exploiting people were considered part of what you have to do to be successful. This was before those of us practicing responsible capitalism proved otherwise. “Manipulation and exploitation might work in the short run,” I told Eddy, “but it doesn’t create as much success as doing the opposite — empowering people.” I told him how the latter strategy had produced dramatic results in my own business. In fact, I was able to sell Tweezerman for much more money because I had empowered employees, loyal customers and vendors, and Tweezerman had a reputation for giving back to the community. Later while we brainstormed about how you might act toward your customers, employees, vendors, and community if your intention were to be a responsible capitalist, I told the students that I had set things up so my employees owned 20 percent of Tweezerman. Eddy again raised his hand and asked: “Why would you want to give your employees ownership?” I told Eddy I was so grateful my employees showed up for work every day and did things I couldn’t possible do or want to do myself that I felt they deserved to share in the profits and eventually the capital gains made when the company was sold. This wasn’t charity, but rather a strategy to involve every employee in the business the way that I was — as an owner. They became more productive, inventive, and protective of the company. It was usually employees who reported instances of other employees stealing. The hour crept by. I was developing incredible respect for teachers everywhere who do this day in and day out. Fortunately, the students weren’t falling asleep. They seemed to take to the idea of starting their own business and operating it responsibly. At the end, I told them how much money I had made from selling Tweezerman, and someone asked me if I donated to Bishop Loughlin. I laughed to myself, thinking “Wow, these kids are on the ball.” And they loved their school. I told them I had donated to the school but planned to give Loughlin another $1,000. When I heard from Brother Dennis, Loughlin’s president, that the students pay $8,000 per year for the education that costs the school $9,600 per student, and that the Diocese of Brooklyn had just eliminated their funding, I made a $5,000 donation to the school. Obviously, I’m not going to sell $5,000 worth of books to the Loughlin alumni, which got me to career day in the first place — but who cares? The point of my book is to inspire people to start a business and do it responsibly, and to help Americans take back our economy from the greedy minority that are using the large corporations as their personal oil wells. My guess is more than one of those kids I spoke with will start a business. And I got the sense from Eddy that even he will do it responsibly.

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Robert Teitelman: Felix Rohatyn’s ‘Dealings’

October 21, 2010

Felix Rohatyn has led one incredible life. Born in Vienna, he fled Nazi-occupied France to the U.S. in 1940 at the age of 12. After graduating from Middlebury College (he was hardly a destitute refugee), he went to work for the legendary Andre Meyer at Lazard Freres in New York. He developed clients in the ’50s and ’60s like Harold Geneen at ITT and Steve Ross at what became Time Warner. He helped rescue Wall Street in the back-office crisis of the late ’60s, then played an instrumental role in saving New York City from bankruptcy in the ’70s. He was a key banker in the RJR Nabisco leveraged buyout. He served as ambassador to France during the Clinton administration. He was friends with, well, nearly everyone. In his spare time, he regularly opined on economic and fiscal matters for The New York Times and New York Review of Books. And all the while he maintained one of the great rainmaking practices on Wall Street. Now Rohatyn has written his memoirs, “Dealings: A Political and Financial Life.” It’s a fairly thin book, particularly considering the density and length of his career, and it has real charm. If his acknowledgments are any clue, he actually wrote it himself, a rare achievement these days. He opens with a bang, offering an anecdote of meeting, then getting a job with, French torch singer Edith Piaf on a ship sailing to New York from France in 1947. Piaf needed help with her English; Rohatyn, still in college (he was apparently a mediocre physics major), spoke fluent French and English. And off he goes. Rohatyn’s New York life has a charmed quality. His father, a brewer in France, knows Meyer and gets him a job in foreign exchange at Lazard. He happens to be having breakfast at the Bronfman’s one weekend (he’s friends with a Bronfman daughter) when the patriarch of the clan and founder of Seagrams, Sam Bronfman, suddenly rounds on him and tells him he should be an investment banker. Meyer grudgingly agrees, then cuts his salary. Many of these anecdotes have the sheen of tales told many times; but they foreshadow what’s both good and bad about this book. This is a life by anecdote, linked, sometimes sparingly, sometimes preachily, with commentary. Indeed, as charming and readable as it is, this is less a retelling of the past than an active shaping of it. Not that Rohatyn is twisting the truth, at least in any obvious way. Rather, it’s what he tells you and what he leaves out. Throughout, he describes himself as trying to live up to an image of an investment banker passed on by Meyer, the brilliant and autocratic Frenchman who dominated Lazard after the war. Such a banker was distinguished by clear thinking, fair-mindedness and a willingness to submerge self-interest in the client’s interests. (This was an ideal Meyer himself occasionally failed to always live up to, see Cary Reich’s “Financier: The Biography of Andre Meyer.”) Such a banker was, above all else, discrete; reputation was everything. And discretion defines this book. Large chunks of Rohatyn’s life go missing. He mentions one wife, then some children, then another wife, but leaves out the connecting tissue. He describes the death of Meyer, and its effect on him, and the maneuvering around the ascension of Michel David-Weill at Lazard. But then David-Weill disappears. Rohatyn never mentions his struggles with Steven Rattner in the late ’90s, though he offhandedly passes on that the firm was getting too big and too complicated for his taste. Instead, he simply says he was losing interest in banking after half a century. Perhaps the largest omission occurs even before meeting Piaf. While he mentions Nazi-occupied France, Rohatyn says almost nothing about his own experience. We’re left to wonder. He was a child; the family was breaking up; their lives were threatened. He flees to New York, a city he comes to love above all others. Tell us more, Felix. Throughout, he is reflective but hardly introspective. He is always moving on. That self-image, that ideal, of the investment banker as the soul of discretion and as a figure of unimpeachable reputation and moral discipline, shapes this book, as it undoubtedly shaped him. There are many things to be said about the way Wall Street has evolved over the past, say, 50 years, but discretion and a sense of limits isn’t one of them. And Rohatyn himself, for all his soul searching and remarkable public service, found himself involved with any number of transactions and situations that, in retrospect, helped shape the “new” ethos of Wall Street. He learned the business in the ’50s from Meyer. But he established his reputation as a rainmaker by advising clients that shattered the old restraints on M&A, most controversially, the mastermind of the conglomerate, Harold Geneen at ITT. Geneen was not alone, but he was arguably the greatest of the conglomerate builders; and Rohatyn not only executed many of his deals, but also sat on ITT’s board. Rohatyn has great respect for Geneen’s business genius and rejects some of the wilder charges about him (some of which, like ITT’s involvement in Chile and the death of Salvador Allende, scorched Rohatyn). But even if that’s the case, did the conglomerate make real business sense beyond a kind of pyramiding of deals in a favorable climate? If Geneen was a genius, how many geniuses were available to succeed him? And didn’t Geneen’s construction of a dealmaking machine at ITT help shatter an earlier regime in which mergers were difficult, personal, friendly and relatively rare? Despite his defense of Geneen and ITT, Rohatyn does admit that in those days he was young and fascinated by the people and the deals. He didn’t recognize, he admits, how things were changing in the ’60s. This is fair. Who sees the future? But Rohatyn tells several stories that suggest, but only explores superficially, the historical complexities and his own role in them. In the ’60s, he’s invited to join the board of the New York Stock Exchange. This is a great honor; he’s still relatively young, and Lazard is not a big trading or brokerage house. Rohatyn says he was surprised, but he never discusses how that occurred (at that period his youth may have helped, plus he was obviously very smart and had big clients; he did have to seek Meyer’s permission, which he does whenever he makes big move). He recounts the day Donaldson, Lufkin & Jenrette announced that it was going public, which was against the rules of the NYSE. In hindsight, he recognizes what a seminal moment it was; it’s the first real change that will sweep away “the antediluvian” Wall Street and sweep in the new, competitive, technologically sophisticated Street. A vitriolic debate broke out on the NYSE board of governors: “It was not too difficult to pick the objectively correct side of the showdown, or so it would seem nearly forty years later. Nevertheless, at the time I opposed DLJ’s petition. … How can I justify this narrow position? I can’t. All I can offer up in the way of logic is that I exhibited a prideful conservatism of someone who had just been granted membership in an exclusive club. With my appointment, I became another of the insiders eager to preserve our historic and fraternal practices, regardless of how outdated — wrongheaded, really — these rules and traditions were.” Rohatyn is being honest. He admits he later changed his mind and supported reforms — and of course he was a key figure in saving Wall Street from its own debilities a few years later — but that phrase, “prideful conservatism,” rings out. Prideful conservatism was in many ways the self-image of the Meyer investment banker. Prideful conservatism was a perspective on the world Rohatyn would take with him as the changes he first opposed, then supported, created a powerful new finance he would soon have qualms about. He recognizes the failures of the past but fears the future. He is shocked when Morgan Stanley rips up “the unwritten ‘social contract’ ” by making a hostile bid for International Nickel in 1975. He does not like hostile deals, but he recognizes how “a new breed of combative, successful, high-profile investment bankers” and lawyers had arrived that “would make celebrated, hard-driving deals, and fortunes for themselves and their firms.” He does not see how Geneen and the conglomerateurs paved the way for this new kind of dealmaking; nor does he acknowledge how changes that had to be made at the NYSE ushered in an ambiguous new era of greater conflict, competition and compensation. The deluge crashed upon him with the RJR Nabisco leveraged buyout. After a lengthy recounting of his own involvement in the RJR Nabisco LBO, Rohatyn argues that within the excesses of that deal was “a defining moment in my own evolving thoughts on American business … the raging avarice of the 1980s was a pernicious force that would undermine the marketplace. I am a capitalist and I believe in making a profit. … The bottom line was no longer simply the bottom line — the ultimate cost of the profit had to be considered.” This is not to suggest that Rohatyn, whose activities on behalf of Wall Street in the late ’60s and New York in the mid-’70s were heroic, is wrong about these practices or unjust in his characterizations. It is to suggest how complex the undercurrents are. By the time RJR occurred, Rohatyn occupied a unique place in investment banking. He had his choice of clients; and his experience meant that he could practice banking with a sense of prideful conservatism, though he remained politically a liberal Democrat. But he was that rarest of cases; and for all the excesses of the moment, his nostalgia for the past is palpable. He could argue against hostile deals, LBOs, transactional banking, speculation. He could argue for stakeholder, as opposed to shareholder, governance. He could argue against greed. But in some quarters, these sermons elicited mutters about hypocrisy and self-righteousness; and in a dichotomy that still persists, he stood increasingly on the side of “entrenched” managers, his clients, over shareholders. He was a special case. Even at Lazard, he never took a real management position — he wanted to deal with clients and engage in public policy and service — but, as the anecdote about the change in regime from Meyer to David-Weill suggests, he had a huge say in what took place there: He had power without responsibility, a sweet deal made possible by his immense ability and client list. Rohatyn concludes the book with an epilogue written after the fall of Lehman Brothers. His ambassadorship over, he had moved his small office into Lehman after being offered space by Dick Fuld. He seemed to have been as shocked as the rest of us by Lehman’s sudden demise. He uses the episode for more soul searching, reminding us again that he had warned about excesses and offering up one more coda for investment-banking-as-it-should-be: “The financial services industry is at a turning point. If it is going to help companies and investors during a decade when doubts continue to undermine the marketplace, if it is going to help businesses to provide jobs and services — then I believe, it needs to return to the values and practices that were first instilled in me by Andre Meyer. Investment banking is not a business; it is a personal service where bankers work hand in hand with their clients. And it is a service that must not simply be about making bigger and bigger deals that reap rewards for only a small group of executives. It should aim to create new partnerships that result in strong, more innovative companies able to provide new jobs and better services. These are the fundamental beliefs that guided me in the past. And they will once again guide me in the future.” Worthy sentiments. But how? The real question that hangs over investment banking — all of Wall Street really — is how can you turn back the clock? Is there a prideful conservatism of a past that is worth recreating? How do you take great size, great compensation, great risk and stuff them back into their box? There are, as always, signs that some of what Rohatyn seeks exists in the marketplace, notably in the rise of boutiques that, like Lazard, are not driven by trading, aren’t massively capitalized and that still can offer unconflicted, sensible, even wise advice (and there are lawyers who approach that ideal as well). But for all their dynamism, Wall Street remains dominated by the big banks, with their massive financing capabilities and enormous trading desks — and that’s not including private equity and hedge funds. The world, whether we like it or not, is driven by performance, which operates globally; and for all the greed and excess, lots of wealth has been spread around. True, at the top of the profession, ultra-senior advisers like Rohatyn and Meyer — true consiglieres to CEOs — will continue to exist and to thrive. But the rest of the world will sadly stagger on in its messy, greedy way down in the valley. The trouble is, while every day is a turning point of some sort, you can rarely go back, even in a memoir. – Robert Teitelman Robert Teitelman is editor in chief of The Deal.

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Michael Hudson: 16 Cents on the Dollar: Doing the Math on Angelo Mozilo’s Big Settlement

October 19, 2010

In the end, Angelo Mozilo settled for pennies on the dollar. The former Countrywide Financial Corp. chief agreed Friday to a settlement that requires him to pay 16 cents out of his own pocket for every dollar federal authorities claimed he had taken out of the company in ill-gotten personal gains. Let’s do the math: ■ The government alleged that he added $141.7 million (before taxes) to his personal fortune through corporate misconduct. ■ Mozillo agreed to personally pay a $22.5 million fine — 16 percent of the alleged ill-gotten gains. ■ In addition, Mozillo agreed to turn over another $45 million to former Countrywide shareholders, who lost billions when the company’s stock price plummeted as loan defaults soared. But the $45 million won’t come out of Mozilo’s pocket. Under the terms of his employment contract, it will be paid instead by Countrywide’s insurers and by Bank of America, which bought Countrywide in 2008. The government settled the civil fraud and insider trading allegations against Mozilo for less than it wanted because, one legal analyst said, it would have been a challenge to prove its case. “This is not a slam dunk,” Duke University law professor James D. Cox told The New York Times . “It’s a risky case and it’s got a lot of complexities to it.” Mozilo admitted no wrongdoing, and his lawyers were sure to have mounted a ferocious defense. The Securities and Exchange Commission said the $22.5 million fine will be the largest penalty ever paid by a senior executive of a public company in an SEC settlement. Too Easy? But some observers wonder whether Mozilo got off easy. David Callahan, author of the book, The Cheating Culture: Why More Americans Are Doing Wrong to Get Ahead , writes : It is hard to see how the Mozilo settlement — coming on the heels of another weak SEC settlement with financier Steve Rattner — will deter future wrongdoing. . . . Indeed, it could have the contrary effect. If you can make a great fortune behaving badly, get busted, and still end up with most of that [fortune], then you’ve come out way ahead. At least in financial terms. Countywide reaped huge profits — and, eventually, produced huge losses for its shareholders — through a high-wire strategy that focused on selling huge volumes of subprime loans and other risky products. One of the ironies of Countrywide’s fall was that Mozilo had been hesitant, at first, to jump into the subprime market. As I write in my new book about the subprime debacle, The Monster , Mozilo and Countrywide eventually succumbed to the temptation to follow the example of Ameriquest Mortgage Co. and its billionaire owner, Roland Arnall, an entrepreneur who was in many ways the founding father of subprime. The inventive mortgage products emerging in the home-loan market were watched closely by the heaviest of the industry’s heavyweights: Countrywide Financial’s Angelo R. Mozilo. Mozilo’s company had established itself as the largest mortgage lender in America by providing loans to home owners with good credit. Mozilo called his company “my baby.” For much of his career, he had been cautious about the kinds of loans his company made. Countrywide had mostly steered clear of subprime as other lenders dived into the market throughout the 1990s. Mozilo worried that subprime loans were too risky, in some cases even “toxic.” … While Ameriquest’s methods may have made Mozilo uneasy, he wasn’t so troubled that he kept Countrywide from joining the subprime gold rush. His company had survived decades of real-estate booms and busts, and he thought it had the brains and brawn to handle the risks of subprime better than the upstarts. Mozilo’s competitive instincts beat out his caution. He couldn’t accept being second or third. “It’s a question of dominance,” he told investors. He didn’t like that Countrywide trailed Ameriquest in the subprime lending rankings. By 2003 Arnall’s companies had captured nearly 12 percent of the subprime market; Countrywide did barely half as much subprime volume, with a market share of just 6 percent. Besides, the real money in the mortgage business was now in subprime, not in prime loans. When Countrywide sold prime loans to investors, its average profit margin was 0.93 percent; when it sold subprime loans to investors, the company’s profit margin nearly quadrupled, to 3.64 percent. The fees, interest rates, and prepayment penalties embedded in subprime loans made them much more seductive to investors. Countrywide’s Size, Clout Though Mozilo’s company came late to the party, once it was there, its size and clout deepened the pain that subprime visited upon home owners and the financial system. Countrywide did little to pull back on its subprime push, even in 2006, when there were signs of an impending crash. “You have to make a choice: to get out or not. And they stayed,” a longtime mortgage industry watcher told the Los Angeles Times . “It’s hard when you’re following someone off a cliff to know when to stop.” In early 2008, Bank of America purchased Countrywide, once worth as much as $26 billion, for a fire-sale price of $4 billion. Countrywide might have survived if its founder hadn’t become fixated on competing with Ameriquest, Muolo, the National Mortgage News editor, said. “If he hadn’t followed Roland Arnall down the subprime path this would never have happened,” Muolo said. “It’s ego and ambition that sunk him.” Michael Hudson is a staff writer with the Center for Public Integrity and author of The Monster: How a Gang of Predatory Lenders and Wall Street Bankers Fleeced America — and Spawned a Global Crisis (Times Books, October 2010).

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Video: Whalen Calls U.S. Foreclosure Crisis a `Cancer’: Video

October 18, 2010

Oct. 18 (Bloomberg) — Christopher Whalen, managing director of Institutional Risk Analytics, talks with Bloomberg’s Mark Crumpton about the impact of U.S. mortgage foreclosures on banks and the housing market and the outlook for the economy. Whalen is author of the book “Inflated: How Money and Debt Built the American Dream.” (Source: Bloomberg)

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Video: Whalen Calls U.S. Foreclosure Crisis a `Cancer’: Video

October 18, 2010

Oct. 18 (Bloomberg) — Christopher Whalen, managing director of Institutional Risk Analytics, talks with Bloomberg’s Mark Crumpton about the impact of U.S. mortgage foreclosures on banks and the housing market and the outlook for the economy. Whalen is author of the book “Inflated: How Money and Debt Built the American Dream.” (Source: Bloomberg)

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Video: Whalen Calls U.S. Foreclosure Crisis a `Cancer’: Video

October 18, 2010

Oct. 18 (Bloomberg) — Christopher Whalen, managing director of Institutional Risk Analytics, talks with Bloomberg’s Mark Crumpton about the impact of U.S. mortgage foreclosures on banks and the housing market and the outlook for the economy. Whalen is author of the book “Inflated: How Money and Debt Built the American Dream.” (Source: Bloomberg)

Read the full article →

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