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Manisha Thakor : PSYCH YOURSELF RICH: with Farnoosh Torabi

October 12, 2010

These days it’s the rare American indeed who doesn’t have money on the brain. Whether that is a good thing or a bad thing depends on your mindset. Nationally acclaimed author and frequent Today Show personal finance commentator Farnoosh Torabi has a great new book out on this very subject and was kind enough to share some key take-aways with us. Farnoosh, what is the number one message that you want readers of PSYCH YOURSELF RICH to come away with? Managing our money well and effectively boils down to mindset and behavior. Unless we have a firm sense of direction and can commit to an outlook on our finances that is both empowering and solutions-driven, our money bears no meaning. This book shows you how to make the journey. Which is your favorite chapter of PSYCH YOURSELF RICH and why? My favorite chapter is probably the final one entitled “Embrace the Entrepreneurial Spirit.” Here we take a look at what I believe to be the key to financial freedom – controlling your own revenue streams. So while not everyone desires to be an entrepreneur, we can all learn from the spirit and action of entrepreneurs and apply them to our daily lives. For example, when we choose to take charge of at least some of our income (aside from the salary from a full-time post), whether it’s through a part-time weekend job or a freelance assignment on the side or selling crafts at an art fair every month, it’s no coincidence that we have a more positive and secure grasp on our finances. Beyond taking control of some of your income, embracing the entrepreneurial spirit also means thinking outside the box, willing to take (smart) risks and being a forward-thinker, all habits that can lead to more financial security. What, if any, are the key psychological differences you see between the way men and women approach their finances? Women – particularly moms — invariably put others’ needs before theirs. For example, they’ll spend their disposable income towards the kids’ wants before tucking some of that money away in the rainy day fund. I just worked on a budget for a single mom of three who struggles with that so-called “mommy guilt” and sacrifices her own financial security to ensure her kids get to play the sports that they want ($$) and attend all their friends’ birthday parties ($$). Men aren’t perfect either. They’re overconfident to a fault sometimes, according to a famous study on gender investing by two professors at the University of Berkeley. In it they concluded that women’s portfolios – which by and large maintained a buy-and-hold strategy – gained 1.4 per cent more than men’s portfolios, in which they had made heavy, active trades. What’s the most common question you’ve been getting so far as you’ve talked about PSYCH YOURSELF RICH ? I’ve been getting a few of these: “So I just psych myself rich? I can think about being rich and it’ll happen?” My answer to that is, “If only it were that simple.” You wouldn’t need a 225-page book about it! But, of course, that is the title I have chosen, so people will naturally ask this question and I encourage it because it allows me to explain the message. The title is meant to emphasize that your mind is the thing. Your ability to make the best possible decisions in your financial life begins with a proper mindset that includes an honest and practical understanding of the term rich, an ability to relate to your finances on a more personal and intimate level, being in control and an advocate for your money, embracing risk, clearing the emotional clutter that stands in the way of you and your goals and thinking entrepreneurially. Every chapter in the book is first and foremost a brain exercise, but of course if you just continue to sit on your couch after finishing the book, life doesn’t necessarily get better. Do you think the current economic environment will have a lasting impact on how people relate to their finances? I am deeply hopeful that it will have a long-term impact. I think we’ve seen and lived through enough of this economy to turn what started as our knee-jerk reaction to save and rethink our priorities into a longer-term way of life. Our national personal savings rate is close to 6%, which is really remarkable considering it was at 0% at the start of the decade. I think we all know by now how destructive it can be to depend on plastic, to not have a savings nest egg and no back-up plan when you lose your job. What’s more is that we’ve hopefully opened up as a nation when it comes to discussing money. There’s still a lot more work to be done in this department, but some of us have bonded over our financial problems and perhaps feel more comfortable turning to each other for help. That’s a significant improvement and one that I hope will stick. To keep up with the latest on Farnoosh and her inspiring work, you can follow her on Twitter at @Farnoosh and visit her website at www.Farnoosh.tv . ——— Want more financial love? You can follow Manisha on Twitter at @ManishaThakor and sign up for her email updates here . Starting in late Fall 2010, Manisha will teach an innovative online course on “Financial Literacy 101″ for women through www.Sympoz.com . Manisha Thakor, personal finance expert for women, can be reached via her website, www.ManishaThakor.com .

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Aron Cramer: Sustainable Excellence: The Future of Business in a Fast-Changing World

October 12, 2010

The economy continues to limp along, and from the debate in this U.S. election season, it seems as though the path to restoring economic vitality is terra incognita. Over the past generation, economic advances have been jump started by fundamental changes: first, globalization, and then the rise of the internet economy. Today, the best hopes we have for strengthening our economic prospects lie in sustainability, and that’s why we have written, Sustainable Excellence: The Future of Business in a Fast-Changing World , which is published today. In our book, we argue that sustainable excellence will be the defining feature of successful businesses over the coming quarter-century. The business environment has changed rapidly in the past decade, and these changes have only accelerated since the Great Recession hit two years ago. Businesses today face a world that is more global, resource-constrained, interconnected, and transparent than ever before. This presents unprecedented opportunities for the companies that embrace these changes, and turn them to their — and our — advantage. We see five principles of sustainable excellence, which are crucial ingredients of business strategy to navigate our changing world and deliver prosperity that can, in the literal sense, be sustained. The five principles you’ll read about in our book are: 1. Think big–create business strategies to meet big global challenges: The world is looking for solutions to big questions, like how to shift to low-carbon prosperity, how to keep economic progress going in water-stressed areas, and how to deliver dignified livelihoods for nine billion people by 2050. Sustainability provides an urgent and compelling mission for every company. For creative companies, this presents a wide-open playing field, and it is why companies like GE have made health and the environment core parts of their strategy. IBM is making “smarter cities” a critical foundation of its strategy. And while business cannot–and should not–be the sole answer to our most pressing public needs, we stand a much better chance of tacking them with business as an active and creative partner. 2. Use sustainability to drive innovation: Companies are taking on these challenges is by using sustainability as a “design brief” for its innovation laboratories. Best Buy is experimenting with e-bikes, car charging stations, and home energy management. And new companies like Method are building entire companies around product design principles focused directly on increasing health and decreasing chemical use. These companies, and many others, know that they can grow the top line by thinking about sustainability as a catalyst of growth, not a barrier. 3. Set the right incentives–internally and externally: Companies are economic entities that respond to incentives. Too often, however, these incentives point in the wrong direction. That is starting to change. In the public sphere, business leaders like Jim Rogers of Duke Energy are strongly advocating a price on carbon to speed the transition to a sustainable energy mix. Inside companies, boards are increasingly using sustainability performance as one criterion for executive compensation. 4. Embrace the transparent world, and collaborate: Before the internet era, transparency and collaboration were values: today they are conditions. Companies are surrounded by windows, not walls. Those that have figured this out are poised to zoom ahead. Nike launched the Green Xchange, a web-based platform for open innovation of more sustainable products, where intellectual property is shared widely. Walmart is creating a Sustainability Consortium, a business/civil society/academic collaboration to create models for measuring product sustainability. And thousands of companies now report publicly on their performance on human rights, carbon reduction, and diversity. This will only continue to grow. 5. Make consumers your partners: In the final analysis, much depends on whether we can shift away from a consumption-based economy. Simply put, the planet has insufficient resources to extend US-style consumption across the globe. If we as consumers don’t change our habits, none of this may matter. And for consumers to change habits, companies have to provide alternatives. Companies like Levi Strauss & Co. and Unilever are trying to make this happen, making radical reductions in the resources needed to make their products while guiding consumers with information about how they use products to save money and save energy. We wrote this book because we see a world of possibilities for companies that make the transition to sustainable excellence. Indeed, we believe that in ten years, the principles of sustainable excellence will in fact be, simply, about excellence. And even more, we believe these are principles that have the potential to usher in a period of innovative economic vitality that will raise living standards all across the globe.

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David Isenberg: PMSC and the Quest for Perfect Information

October 9, 2010

People often try to fit private military and security contractors into a binary construct. Either they are thinly veiled corporate mercenaries or they are unsung patriots doing their part for the country, albeit at a pretty good salary. As I have tried to make clear in the past it is not that simple. I personally do not subscribe to either stereotype. The most important quality of PMSC is that they are civilians, often working either directly for, or indirectly supporting the U.S. military and other government departments or agencies. Of course much of the time they are not working for the military at all, or even the U.S. government, but that is another story. To me the most interesting part of the PMSC phenomenon, which in its most recent phase is at least thirty years old, is how they fit into states’ geopolitical and foreign policy ambitions. To borrow from Harry Potter novels, that is the issue that must not be named. It is true that I often mention problems with using PMSC. But that is mostly because some supporters insist on making claims for them that have not been clearly backed up by data. While some of the claims, as in the perennial one that they are more cost-effective than using regular military forces sound reasonable, and might even be true, at least in certain carefully limited circumstances, that is far from the often sweeping claims made for them. Let’s consider that PMSC businesses operate in a market economy. But free market economics only concerns itself with private sector exchanges, which in turn assume perfect information. However, anyone who has ever studied PMSC in detail understands that perfect information is exactly what we do not have in regard to PMSC. They very fact that contracts are frequently, if not usually, classified and that both clients and PMSC themselves are often not revealed are just two examples of the lack of perfect information. As a comical example consider the recently published book Operation Dark Heart: Spycraft and Special Ops on the Frontlines of Afghanistan — and the Path to Victory by Lt. Col Anthony Shaffer, U.S. Army Reserve. As most people are aware the U.S. government purchased the entire print run of the book from St. Martin’s Press for $47,000 a few weeks before its scheduled release last month. But it did not suppress the book entirely: Operation Dark Heart has since been reissued after an estimated 250 sections were blacked out and deleted. Now if the government is going to resort to blatant censorship one would hope it would at least do so to protect truly vital information. Did it? You can guess the answer. Consider that in the unredacted version the index cites Blackwater as an entry on page 242. In the censored version of the book that page reads, “I went through the CIA pipeline to get back to the States, flying on a __________-chartered flight from Kabul to Tashkent.” Now really, is there anyone, anywhere who is unaware that Blackwater operated, through its former subsidiary Presidential Airways, in Afghanistan? Anyone, anyone? Yes, I did not think so. Okay, that was just for comic relief. Now, in the interest of providing “perfect information” let’s take a look at some expert testimony which takes on some of the generalizations made by PMSC supporters. Back on June 22 there was a hearing of the House Oversight and Government Reform Subcommittee on National Security and Foreign Affairs Hearing; ” Investigation of Protection Payments for Safe Passage along the Afghan Supply Chain? ” Let’s look at the written testimony of Colonel Hammes , Senior Research Fellow, Institute for National Strategic Studies, National Defense University. Col Hammes is not an opponent of PMSC. His statement opens by detailing the benefits of their use. But he goes on to detail their costs: The Bad When serving within the combat zone, particularly during a counterinsurgency, contractors create a number of significant problems from the tactical to the strategic level. Three primary characteristics of contractors, particularly armed contractors, create problems for the government. First, the government does not control the quality of the personnel the contractor hires. Second, unless it provides a government officer or NCO for each convoy, personal security detail or facilities protection unit, it does not control their daily interactions with the local population. Finally, the population holds the government responsible for everything the contractors do or fail to do. Since insurgency is essentially a competition for legitimacy between the government and insurgents, this factor elevates the issue of quality and tactical control to the strategic level. Quality control is a well publicized issue. The repeated reports of substandard construction, fraud and theft highlight the problems associated with unarmed contractors. As noted above, these incidents are being investigated. In addition, the USG is working hard to refine contracting and oversight procedures to reduce these types of problems. Unfortunately, the problem is just as prevalent with armed contractors. While high-end personal security details generally are well trained, less visible armed contractors display less quality. When suicide bombers began striking Iraqi Armed Forces recruiting stations, the contractor responsible for recruiting the Iraqi forces subcontracted for a security force. The contractor was promised former Gurkhas. What showed up in Iraq a couple of weeks later were untrained, under-equipped Nepalese villagers. n10 Not only did these contractors provide inadequate security, the U.S. government passed the authority to use deadly force in the name of the United States to these untrained foreign nationals. Since the government neither recruits nor trains individual armed contractors, it essentially has to trust the contractor to provide quality personnel. In this case, the subcontractor took shortcuts despite the obvious risk to the personnel manning the recruiting stations. Even if we hire enough contracting officers to effectively supervise the contracts, how exactly does a contracting officer determine the military qualifications of an individual much less a group such as a Personal or Site Security Detail? The U.S. military dedicates large facilities, major exercises, expensive simulations and combat experienced staffs to determine if U.S. units are properly trained. Contractors don’t. We need to acknowledge that contracting officers have no truly effective control over the quality of the personnel the contractors hire. In fact, we have to accept that we will be unable to determine their actual effectiveness until they begin to operate in theater. And then, only if a member of the U.S. government is in position to observe the contractors as they operate. Compounding the problems created by lack of quality control, the government does not control the contractor’s daily contact with the population. Despite continued efforts to increase government oversight of contractor operations, nothing short of having qualified U.S. government personnel accompanying and in command of the contractors will provide control. With support contractors this means we may get poorly wired buildings or malfunctioning computer systems. However, with armed contractors we have the bullying, intimidation and even killing of local civilians such as the September 2007 Blackwater shootings in Nisour Square. The lack of quality and tactical control greatly increase the impact of the third major problem – the United States is held responsible for everything the contractors do or fail to do. Despite the fact the United States has no effective quality or operational control over the contractors, the local population rightly holds it responsible for all contractor failures. Numerous personal conversations with Iraqis revealed a deep disgust with the actions of armed contractors. They noted we gave them authority to use deadly weapons in our name. While Iraqis were not confident American forces would be punished for killing Iraqis, they believed it was at least a possibility. However, the Iraqis were convinced that contractors were simply above any law. These perceptions serious undercut the legitimacy of the government. A key measure of the legitimacy of a government is a monopoly on the use of force within its boundaries. The very act of hiring armed contractors dilutes that monopoly. Legitimate governments are also responsible for the actions of their agents – particularly those actions taken against their own populations. Yet, despite efforts to increase the accountability of contractors, the widespread perception is that armed contractors who commit crimes against host nation people are outside the law of both the host country and the United States. While we have laws criminalizing certain activities, the cost and difficulty of trying a contractor for crimes that occurred overseas in a conflict zone has so far deterred U.S. prosecutors. In over seven years of activity in Iraq, no contractor has been convicted of a crime against Iraqi citizens. Either contractors are a remarkably law abiding group or the system does not work. The fact that an insurgency is essentially a competition for legitimacy in the eyes of the people elevates the presence of armed contractors to a strategic issue. Exacerbating the legitimacy issue, contractors of all kinds are a serious irritant to the host nation population. Armed contractors irritate because they are an unaccountable group that can and does impose its will upon the population in many daily encounters – driving too fast, forcing locals off the road, using the wrong side of the road. Even unarmed contractors irritate the population when they take relatively well paying jobs that local people desperately need. In addition to undercutting its legitimacy, the use of contractors may actually undercut local government power. In Afghanistan, security and reconstruction contracts have resulted in significant shifts in relative power between competing Afghan qawms as well as allegations of corruption. Dexter Filkins, writing in the NY Times notes the power structure in Orugzan Province, Afghanistan has changed completely due to the U.S. government selecting Mr. Matiullah Khan to provide security for convoys from Kandahar to Tirin Kot. “With his NATO millions, and the American backing, Mr. Matiullah has grown into the strongest political and economic force in the region. He estimates that his salaries support 15,000 people in this impoverished province. … This has irritated some local leaders, who say that the line between Mr. Matiullah’s business interest and the government has disappeared. …. Both General Carter and Hanif Atmar, the Afghan interior minister, said they hoped to disband Mr. Matiullah’s militia soon — or at least to bring it under formal government control. … General Carter said that while he had no direct proof in Mr. Matiullah’s case, he harbored more general worries that the legions of unregulated Afghan security companies had a financial interest in prolonging chaos.” n11 Thus, an unacknowledged but very serious strategic impact of using contractors is to directly undercut both the legitimacy and the authority of the host nation government. Contracting also has a direct and measureable impact on the local economy. When the U.S. government passes its authority to a prime contractor, that contractor then controls a major source of new wealth and power in the community. However, the contractor is motivated by two factors – maximizing profit and making his operation run smoothly. This means that even if he devotes resources to understanding the impact of his operations on society, his decisions on how to allocate those resources will be different than those of someone trying to govern the area. For instance, various contractors’ policies of hiring South Asians rather than Iraqis caused anger among Iraqis during the critical early phases of the insurgency. Desperate for jobs, the Iraqis saw Third Country Nationals getting jobs Iraqis were both qualified for and eager to do. n12 While there were clear business reasons and some security reasons for doing so, the decision was a slap in the face of Iraqis at a time of record unemployment within the country. There is more but rather than post it all here I suggest you read his statement. So just remember that we are far from knowing the whole story when it comes to PMSC. Neither one note critics like Jeremy Scahill of The Nation magazine, the Captain Ahab of the PMSC industry, or trade associations like IPOA give or even know the whole truth. As my friend Bill Kittredge notes, “People simply do not want to construct rational arguments that are internally consistent if that consistency conflicts with their normative or personal preferences.”

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Michael Hudson: Boiler Rooms and Foreclosure Mills: A Brief History of America’s Mortgage Industry

October 7, 2010

The news about the nation’s foreclosure scandal has been coming fast and furious, fueled by tales of backdated documents , false affidavits and “rocket dockets” that push families into the street. A former employee with one of the nation’s largest lenders testifies that he signed off on 400 foreclosure documents a day without reading them or verifying the information in them was correct. Ex-employees of a law firm that serves as a “foreclosure mill” for major lenders describe a workplace where speed — not accuracy or justice — trumps all . “Somebody would get a 76-day foreclosure,” one recalled, “and then someone else would say, ‘Oh, I can beat that!’” Shocking stuff. But surprising? Not for anyone who’s been tracking the recent history of the mortgage machine. Just about every corner of America’s mortgage industry has been blemished by significant levels of fraud over the past decade. Forged Signatures, Fake W-2 Forms On the front end of the process, for example, many mortgage pros used “boiler-room” salesmanship to peddle loans to borrowers who didn’t understand what they were getting and couldn’t afford their loans in the long run. To make these deals go through, some workers forged borrowers’ signatures on key disclosure documents, pressured real estate appraisers to inflate home values , and created fake W-2 tax forms that exaggerated loan applicants’ earnings. At Ameriquest Mortgage, one of the companies I focus on in my new book about the subprime mortgage debacle, The Monster , this sort of cut-and-paste document production was so common employees joked that the work was being done in “The Lab” or the “Art Department.” Here’s a snippet from the book, from a passage about Stephen Kuhn, a young Ameriquest salesman who eventually became distraught about the things he had to do to earn his living: The pressure to produce began to get to Kuhn. After he became a branch manager, he saw a bigger picture of how Ameriquest was treating its customers. Many nights, he had to drink a twelve-pack of beer to get to sleep. He asked for a demotion. He wanted to go back to being a salesman. Even that didn’t work for him. He felt trapped. To hang on to his job, he had to put borrowers in deals that sank them deeper into ruin. One of his customers was a veterinarian who was having tax problems. The IRS was threatening to close down his business. Kuhn arranged a loan for the veterinarian that “had no benefit whatsoever. It was a terrible loan.” Another customer was a small businessman, the owner of a Chinese restaurant. Kuhn put the man into a stated-income loan that raised his payments by $200 a month, even though he was struggling to keep up on his existing mortgage. “He was desperate,” Kuhn said. “So I was told to take advantage of him.” Kuhn said a supervisor ordered him to cut and paste documents to make the loan go through, telling him, “It’s a three-hundred-thousand-dollar loan. Get it done.” The borrower was facing foreclosure on his existing mortgage, so Kuhn forged his mortgage history so it looked like he’d never been late on his mortgage. By the summer of 2003 Kuhn couldn’t take it anymore. He told his manager he was having trouble dealing with things, because he thought Ameriquest’s rates, fees, and business ethics were terrible. Soon after, on a day when Kuhn was out sick, his manager left him a cell phone message telling him it would be in everyone’s best interest if Kuhn and Ameriquest parted ways. Kuhn called back and asked why he was being fired. The only answer the manager would give him, Kuhn said, was, “I think you know.” Kuhn was far from alone, at Ameriquest and other lenders around the country. As the Center for Public Integrity documented in its 2009 investigation, ” Economic Meltdown: The Subprime 25 ,” many of the largest financial institutions in America were key players in the subprime market — and many of them had to make payments to settle claims of widespread lending abuses. Little was done to stop the bad practices when they were happening. Former Federal Reserve Chairman Alan Greenspan would later explain to CBS’ 60 Minutes : “While I was aware a lot of these practices were going on, I had no notion of how significant they had become until very late. I didn’t really get it until very late in 2005 and 2006.” The Fed took no action even when it became aware of the problems, he said, because “it’s very difficult for banking regulators to deal with that.” With federal officials pushing a soft approach to policing the mortgage market, it was left to the states to do what they could to try and rein in the worst practices. A coalition of state authorities dug into Ameriquest’s tactics, eventually forcing the company to agree to a $325 million loan-fraud settlement . States Again Take the Lead Now that a fresh scandal has emerged in the mortgage industry, the states are once again taking the lead in confronting the problem. At least seven states are investigating questionable foreclosures. On Wednesday, Ohio Attorney General Richard Cordray sued Ally Financial Inc. and its GMAC Mortgage division , claiming that workers at the company had signed and filed false court documents in an effort to “increase its profits at the expense Ohio consumers and Ohio’s system of justice.” Cordray called the alleged misconduct the ” tip of an iceberg of industrywide abuse of the foreclosure process. ” Now the question becomes: How forcefully will federal officials intervene? Key members of Congress are pushing U.S. Attorney General Eric Holder and current Fed Chair Ben Bernanke to investigate. Holder said at press conference Wednesday that “we are aware of the charges that have surfaced in the newspapers in the last couple of days, and we are looking at them.” The White House announced Thursday afternoon that President Obama would not sign a bill that some consumer advocates worry would make it harder for homeowners to fight fraudulent foreclosures. The legislation would generally require state and federal courts to recognize notarizations made by a notary public in any state — and require courts to recognize electronic notarizations. Congress and other powers in Washington failed to get the facts and act the first time around — when lenders were engaged in a frenzy of predatory lending. The foreclosure scandal is a second chance for lawmakers and bureaucrats to prove that they can ferret out the truth and take action. Michael Hudson is a staff writer with a nonprofit journalism organization, 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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Beverly Blair Harzog: Top 5 Credit Card Books to Download on Your Kindle

September 29, 2010

The interest in eBooks is on the rise. And why not? If you love to read, reading a book on Kindle is a great way to indulge your passion while spending less money than you would at the bookstore. Reading books on Kindle also fits in with our on-the-go lifestyles. Whether you’re on a business trip or sitting in a carpool lane, you can pick out a book and be reading within minutes. There are some great books about credit cards that you can read on Kindle . Take a look at my top five picks: 1. Reduce Debt, Reduce Stress: Real Life Solutions for Solving Your Credit Crisis by Gerri Detweiler, Nancy Castleman, and Marc Eisenson (Good Advice Press, 2010; Kindle edition, $9.99). Are you stressed about your credit card debt? Unfortunately, many people find themselves in this situation nowadays. The economy may be technically recovering, but many folks are still trying to come back from financial losses suffered during the recession. This book just came out last month and the timing couldn’t be better. In this book, you get solid advice about topics such as how to get out of debt, how to spot debt-reduction scams and how to avoid bankruptcy mistakes. And the authors’ “debt triage” strategy is a must-read for those feeling overwhelmed with debt. 2. Your Credit Score, Your Money & What’s at Stake: How to Improve the 3-Digit Number that Shapes Your Financial Future by Liz Pulliam Weston (FT Press, 2009; Kindle version $9.99) This book was originally written in 2007 and it has now been updated to include advice on how to survive in our “post-economic crisis” world. This book is for anyone who wants to understand what makes up their credit score. In today’s economy, your credit score is more important than ever, so now’s the time to get a handle on it. Credit scores always seem a little mysterious, especially since there’s more than one scoring system out there. But this book is written in a straight-forward style that makes this complex topic easy to understand. Another helpful read by Weston that’s inexpensive ($1.59!), is How to Get the Best of Your Credit Cards (FT Press, 2010). It’s cheap because it’s just an excerpt from Easy Money: How to Simplify Your Finances and Get What You Want Out of Life (also a good read about personal finance, in general). Still, if you want to learn more about credit cards, this is a great way to get a lot of information in a small dose. 3. How You Can Profit from Credit Cards: Using Credit to Improve Your Financial Life and Bottom Line by Curtis E. Arnold (FT Press, 2008; Kindle edition, $9.99) This stellar book, written by CardRatings.com founder and consumer advocate Curtis Arnold, is a useful guide for savvy credit card holders. If you pay off your credit card bills every month, you’re a candidate to profit from your credit cards. This book goes beyond the obvious advice — use rewards cards when possible! — and gives insider details on how to make real money from your cards. You’ll also get tips on how to decipher credit reports, understand your credit score, slash debt, and more. And especially helpful is the chapter about how to capitalize on future credit card trends. 4. Money 911: Your Most Pressing Money Questions by Jean Chatzky (Harper Paperbacks, 2009; Kindle version, $9.99) If you’re feeling pressure from your credit card debt, this is another good book with sound advice. It answers questions such as which credit cards to pay off first, whether you should consolidate your debts and if you need credit counseling. Once you get answers to your urgent questions, the book guides you into a look at money and your life. Here, Chatzky gives insight about overall money management. The goal is to get to a state of financial well-being so that skilled money management becomes a way of life. 5. The Skinny on Credit Cards: How to Master the Credit Card Game by Jim Randel (RAND publishing, 2009, $9.99) If you’re interested in increasing your credit card I.Q., this witty book is a great place to start. There really aren’t enough books out there that give you the no-nonsense facts about credit cards like this book does. Randel gives us a glimpse into the lives of “Billy and Beth,” a typical young couple who have gotten themselves into credit card debt. This book aims to educate you about the “game” of credit cards and it successfully hits the mark.

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Don Tapscott: Macrowikinomics: The Choice Between Atrophy or Renaissance

September 28, 2010

Today an important new book is being released in the United States and Canada. Macrowikinomics: Rebooting Business and the World , written by Don Tapscott and Anthony D. Williams is the sequel to their best selling work Wikinomics . The Economist says Macrowikinomics is “a Schumpeterian story of creative Destruction.” Mark Parker CEO of Nike calls it, “A masterpiece. An iconic and defining book for our time.” Google CEO Eric Schmidt says the book, “inspires, pointing the way forward for all of us.” Tapscott, author of 14 widely read books about technology in business and society teamed up with Williams a few years ago and the result — Wikinomics — was the best selling management book in the United States in 2007. Macrowikinomics offers nothing less than a game plan for all of us to fix a broken world. Drawing on an entirely new set of original research conducted with countless collaborators the authors explain how the world’s most dynamic innovators are using the Internet and new business models to transform industries ranging from manufacturing and transportation to global problem solving. Technology, Health and the Environment are three axes of transformation, each inextricably intertwined. They argue that this is a time of peril as old approaches collapse, but a time of great promise and opportunity as we stand on the threshold of a new age. Now the onus is now on each person to lead the transformation in our workplaces and communities. **** The global economic crisis should be a wakeup call to the world. We need to rethink and rebuild many of the organizations and institutions that have served us well for decades, but now have come to the end of their life cycle. This is more than a recession or the aftermath of a financial crisis. We are at a turning point in history. Let’s face it. The world is broken and the industrial economy and many of its industries and organizations have finally run out of gas, from newspapers and old models of financial services to our energy grid, transportation systems and institutions for global cooperation and problem solving. At the same time the contours of a new kind of civilization are becoming clear as millions of connected citizens begin to forge alternative institutions using the Web as a platform for innovation and value creation. From education and science and to new approaches to citizen engagement and democracy, powerful new initiatives are underway, embracing a new set of principles for the 21st century — collaboration, openness, sharing, interdependence and integrity. Indeed, with the proliferation of social media and social networks, we believe society has at its disposal the most powerful platform ever for bringing together the people, skills and knowledge we need to ensure growth, social development and a just and sustainable world. Of course, the sparkling possibilities described above contrast sharply with the stagnation and inertia that grips so many contemporary institutions. The harsh reality is that it will take years and probably decades to undo some the damage done by misguided policies and approaches. When the economy crashed in 2008, for example, it cost American taxpayers trillions of dollars. Faced with a historic market meltdown, the worst recession in three generations, plus government guarantees that exceed the cost of every war the U.S. has ever fought, American taxpayers are understandably still furious. It is pretty much the same story around the world. Many people are reviving calls for updated regulations, more government intervention and even the breakup or nationalization of the big banks. In the meantime, the lingering effects of the financial meltdown threaten to engulf not just companies but entire countries in a sovereign debt crisis. Greece, Spain, and Portugal may have rocked the financial markets, but the U.S. arguably looms largest, with Congress contemplating a budget that by 2020 would nearly double America’s national debt, to $22 trillion — twice the size of the U.S. economy. Clearly we need to rethink the old approaches to governing the global economy. But rebuilding public finances and restoring long-term confidence in the financial services industry will require more than government intervention and new rules; it’s becoming clearer that what’s needed is a new modus operandi based on new principles like transparency, integrity and collaboration. Clearly the financial system is not the only institution that’s in desperate need of a makeover. A string of recent events suggests that many of the institutions that have served us well for decades — even centuries — are frozen and unable to move forward. The failure to reach a meaningful agreement on climate change in Copenhagen has further undermined confidence in the ability of international institutions to provide effective leadership in dealing with a growing list of global challenges. The disastrous oil spill in the Gulf of Mexico provided yet another reminder that the world is grossly under-investing in green energy alternatives that could at last break our perilous addiction to fossil fuels. And despite Obama’s historic reforms, the government’s own projections suggest that the world’s richest nation will still struggle to rein-in the spiraling health care costs that threaten to cripple government budgets in the years to come. Sure, one could argue that the industrial economy and industrial-age institutions brought us centuries of unprecedented productivity, knowledge accumulation and innovation that resulted in undreamt-of wealth and prosperity. But that prosperity has come at a cost to society and the planet and it is clear that the wealth and security enjoyed in advanced economies may not be sustainable as billions of citizens in emerging markets aspire to join the global middle class. Indeed, as the world’s main economic engines continue to sputter, there is growing consensus that we are finally entering a very different kind of economy. Economist Robert Reich asks, “What will it look like? Nobody knows. All we know is the current economy can’t ‘recover’ because it can’t go back to where it was before the crash.” Is there a way forward? We think so. But don’t look to big government or big corporations to supply the answers. The most promising catalysts for reinvention today can be found in a powerful new form of economic and social innovation that is sweeping across all sectors and turning the old models on their head. After all, political leaders may have failed in Copenhagen, but ordinary people everywhere are connecting to create a mass movement that is bringing greater awareness and sense of community to the process of making household and business decisions that can reduce our carbon footprints. Carbonrally.org is a good example. Some 40,000 environmental enthusiasts propose great ideas for saving energy and reducing emissions and the community chooses the best ideas to pursue as a team. Carbonrally tracks the collective impacts and shows the power of many people getting the job done together. On PatientsLikeMe.com , one of the Web’s most vibrant health care communities, some 60,000 members believe that sharing their health care experiences and outcomes is good, and perhaps even integral, to speeding up the pace of research and fixing a broken health care system. Why? Because when patients share real-world data, collaboration on a global scale becomes possible. The health care system becomes more open and this in turn improves outcomes for patients, doctors and drug makers. New treatments can be evaluated and brought to market more quickly. Patients can learn about what’s working for other patients like them and, in consultation with their doctors, make adjustments to their own treatment plans. All considered, communities such as PatientsLikeMe are leading the way toward a health care system that is cheaper, safer and better than what we have today. Even governments are taking baby steps toward using the Web to generate more productive, transparent and equitable public services. Indeed, where most governments build mainframes and buy expensive software, U.S. federal Chief Information Officer Vivek Kundra is encouraging federal agencies to use free Google services and open-source wikis for everything from word processing to performance measurement, to service improvement. He calls it the government cloud, but think “app store for government” — a place where employees can access a vast ecosystem of secure applications and data sets for doing their jobs. Put it all together and it becomes increasingly clear that we can rethink and rebuild many industries and sectors of society around the principles of wikinomics. Indeed, we’re convinced that the world now has nothing less than an historic choice: reboot the old models, approaches and structures or risk institutional paralysis or even collapse. It’s a question of stagnation versus renewal. Atrophy versus renaissance. Peril versus promise. Fortunately, for the first time in history, people everywhere can participate fully in creating a sustainable future. This is not just a theory — it’s happening. Adapted from MACROWIKINOMICS: REBOOTING BUSINESS AND THE WORLD by Don Tapscott and Anthony D. Williams by arrangement with Portfolio, a member of Penguin Group (USA), Inc., Copyright (c) Don Tapscott and Anthony D. Williams, 2010.

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Ian Fletcher: Is a Flat Tariff the Answer to America’s Trade Mess?

September 25, 2010

The House Ways and Means Committee has finally approved a bill that would attempt to crack down on Chinese currency manipulation, a key cause of America’s trade deficit, by threatening China with retaliatory tariffs. Leaving aside the bogeyman of a trade war–which China is unlikely to start as the nation running the trade surplus and thus the nation having something to lose–this raises the obvious question of whether tariffs are a plausible long-term solution to America’s trade problems. What would happen, that is, if America reverted to its historical norm (from Independence to after WWII) of being a tariff-protected economy? The obvious question here is what kind of tariff are we talking about? As I have documented in other articles and in the book Free Trade Doesn’t Work , there are any number of valid criticisms of the economics of free trade. There is not one thing wrong with it, but at least half a dozen things, and they get complicated very fast. As a result, the nightmare that haunts criticisms of free trade in this country is this: what if these criticisms imply that America needs a complicated technocratic tariff policy? This seems to be suggested by the complexity of the defects in free trade and by the fact that the nations which have most successfully repudiated free trade actually have complicated technocratic tariff policies. That would spell trouble, as the political difficulties of achieving such a solution in America are no secret. The dangers of a special-interest takeover are not imaginary. Even if America has in the past done a lot more successful picking of winners than laissez faire ideologues are prepared to admit, it’s so hard to convince people of this fact that we might as well take the pessimistic assumption that this is not feasible as our baseline, and if it later turns out to be feasible, treat it as gravy. Billionaire investor Warren Buffett says that one of his criteria for investing in a company is that it must have a business that even a fool can run, because sooner or later a fool will. A similar philosophy should guide our construction of a tariff policy. We need a broad-based policy that can survive imperfect implementation and political meddling, a certain amount of which will be inevitable. We do not need an intricate, brittle, difficult policy that will only create work for bureaucrats, lawyers, and lobbyists. Among other things, any policy too complex for the public to understand will be beyond the reach of democratic accountability, the only ultimate guarantee that a tariff policy will remain aimed at the public good. One of the great puzzles of American economic history is how the U.S. once succeeded so well under tariff regimes that were not particularly sophisticated. This is where the idea of a so-called “natural strategic tariff” comes in. This idea says that there may be some simple rule for imposing a tariff which will produce the complex policy we need. The simple rule will produce a complex policy by interacting with the existing complexity of the economy. All the complexity will be on the “economy” side, not the “policy” side, so all specific decisions about which industries get protection, how much, and when will be made by the market. No intricate theory, difficult technocratic expertise, or corruptible political decision-making will be required. There are obviously any number of possible natural strategic tariffs. The one we will look at here (probably the best) is actually the simplest: A flat tax on all imported goods and services. Prima facie , this is strategically meaningless because it protects, and thus promotes, domestic production in all industries equally. And if a tariff is going to win the U.S. better jobs, it will do so by winning us strong positions in the sorts of industries (largely but not exclusively high technology) that have the per-man-hour productivity to pay high wages today and have a future in terms of spawning the industries of tomorrow. While a flat tariff would help reduce the deficit, which is extremely important in its own right, it would provide the same incentive for domestic production of computer and potato chips alike, so it would not push our economy towards any industry in particular. Or would it? The natural strategic tariff is a bet that it would. The key reason is this: Industries differ in their sensitivity and response to import competition. Although this is a complex issue, the fundamental dynamic is clear from the obvious fact that a flat tariff would almost certainly trigger the relocation back to the U.S. of some industries but not others. For example, a flat 30 percent tariff (to pluck a number out of thin air) would not cause the relocation of the apparel industry back to the U.S. from abroad. The difference between domestic and foreign labor costs is simply too large for a 30 percent premium to tip the balance in America’s favor in an industry based on semi-skilled labor. But a 30 percent tariff quite likely would cause the relocation of high-tech manufacturing like semiconductors. This is the key, as these industries are precisely the ones we should want to relocate. Therefore a flat tariff would, in fact, be strategic. The exact level at which to set the tariff remains an open question. Thirty percent is suggested here because it is in the historic range of U.S. tariffs and is close to the net disadvantage America’s trade currently faces due to America’s lack of a VAT. The right level will not be something trivial, like two percent, or prohibitive, like 150 percent. But there is absolutely no reason it shouldn’t be 25 or 35 percent, and this flexibility will provide wiggle room for the compromises needed to get the tariff through Congress. Granted, a natural strategic tariff would be an imperfect policy. But it would be infinitely better than the “free” (on America’s part but not on the part of our trading partners) trade we have now, and relatively politics-proof. Above all, it is a policy people are unlikely to support for the wrong reasons (i.e., producer special interests) because it does not single out any specific industries for protection. It thus maximizes the incentive for voters and Congress to evaluate protectionism in terms of whether it would benefit the country as a whole–which is precisely the question they should be asking. It would also create the right balance of special-interest pressures: some interests would favor a higher tariff, others a lower one. This is a prerequisite for fruitful debate, as it means both views will find institutional homes and political patrons. The tariff’s uniformity across industries would avoid the problems that occur when upstream but not downstream industries get tariff protection. For example, if steel-consuming industries do not get a tariff when steel gets one, they will become disadvantaged relative to their foreign competitors by the higher cost of American-made steel. And why should steelworkers be protected from foreign competition at the price of forcing everyone else to pay more for goods containing steel? The only reasonable solution is that steelworkers should pay a tariff-protected price for the goods they buy, too. This logic ultimately means that all goods should be subject to the same tariff. The natural strategic tariff is more ideologically palatable than most other tariff solutions. Above all, it respects the free market by leaving all specific decisions about which industries a tariff will favor up to the marketplace. It will thus be considerably easier for ideological devotees of free markets to swallow than some scheme in which tariffs are set by a federal agency, leading to that nightmare of free-marketeers: government picking winners. One obvious objection is simply that a tariff is a tax increase. So it is. But it does not have to be a net tax increase if the revenue it generates is used to fund cuts in other taxes. In order to obtain a “clean” policy debate, in which the tariff is debated purely on its merits as a trade policy, unmuddied by differing opinions about the total level of taxation, any tariff proposal should be packaged with compensating cuts in other taxes. Another objection to a tariff is that if American industry is granted tariff protection, it will just slumber behind it. Many industries indeed long to shut out foreign competition, reach a lazy detente with domestic rivals, and coast along with high profitability and low innovation. But a flat tariff resists this danger because it does not hand out a blank check of protection: it gives a certain percentage and no more. Any industry that cannot get its costs within striking distance of its foreign competitors will not be saved by it. This discipline, although unpleasant for the losers, is the price we must pay for having a tariff that actually works, rather than one which eliminates the discipline of foreign competition entirely and protects all industries, whether or not their protection is useful to the economy as a whole. And the logical remedy for competitive sloth is stiffened antitrust enforcement. Another objection to a tariff is that our trading partners would just shrug it off by increasing subsidies to their exporters. This would force us into an endless game of matching these moves on a country-by-country, industry-by-industry, and even product-by-product basis. However, such subsidies by our trading partners would be restrained by the fact that they would be very expensive in the face of an American tariff . Right now, these subsidies are relatively affordable only because they don’t have to climb an American tariff wall. But if they did, their cost would increase dramatically. Currency manipulation is probably the only subsidy that is affordable over prolonged periods of time (and even then problematic in the end), as it involves buying foreign assets and debt, thus accumulating wealth rather than just expenditures. But other subsidies amount to a give-away from the exporting to the importing nation. While this doesn’t prevent them absolutely, it does tend to set a limit. This is all we need, especially as we have no hope of eliminating or countervailing all foreign subsidies no matter what we do, tariff or no tariff. One final point: a natural strategic tariff would need to include a rebate on reexported goods in order to avoid handicapping American exporters. There would, of course, be any number of other administrative complexities, but this is true of any tax proposal in a complex economy. Whether a flat tariff is ultimately the best trade policy for America is an open question, but it is worth considering the possibility simply because it sets a baseline, the “least we can do,” for a solution. And nothing about it precludes adopting a more complicated approach later. Even if we do not adopt such a policy, knowing that we plausibly could will give us crucial leverage in threatening our trading partners. It is thus an idea that even would-be free traders, who merely want to get America’s trading partners to stop interfering with genuinely free trade, should take seriously as a Rooseveltian “big stick” to hold in reserve as our diplomats talk softly to Hu Jintao. Ian Fletcher is the author of Free Trade Doesn’t Work: What Should Replace It and Why (USBIC, 2010, $24.95) An Adjunct Fellow at the San Francisco office of the U.S. Business and Industry Council , a Washington think tank founded in 1933, he was previously an economist in private practice, mostly serving hedge funds and private equity firms. He may be contacted at ian.fletcher@usbic.net .

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Peter H. Gleick: Marketing Bottled Water to Kids Under the Guise of a Health Program

September 20, 2010

A new brand of bottled water, aimed specifically at children, is being aggressively marketed in schools from Alaska to New York, through an advertising campaign masquerading as a “health” program. Health is always a great marketing tool. The brand (“Wat-ahh!”), with colorful bottles, kid-focused advertisements, and a pseudo health message (“Healthy Hydration in the Nation”) is being pushed by a company that, ironically, also markets energy drinks with a sex message (“Playboy Energy” drinks). Sex, of course, is another great marketing tool. The company, Full Motion Beverage, claims that their goal is to get kids off of sugary drinks (though, of course, the company sells plenty of those as well) as part of “the fight against childhood obesity.” That’s a great goal. But of course, drinking far, far cheaper (and equally clean) tap water would serve the same purpose, albeit without generating huge profits for the company. And national statistics show that we’re NOT drinking less soda and sugar — we’re drinking less tap water and MORE bottled water and soda. When you visit the company’s “healthy hydration” website, you get a kid-focused “quiz” about the importance of drinking water, the problems with drinking sugary sodas, and the dangers of dehydration, with a conclusion that schools should start a “healthy hydration program” designed by this bottled water company, with the company’s URL and images of their bottled water. “Getting into schools is a huge achievement for our brand,” says Rose Cameron the company’s founder and CEO. “We are therefore excited to be invited into these schools to conduct our Healthy Hydration education program and look forward to meeting the kids!” No doubt, and selling the company’s products. Moreover, the company makes several “versions” of their bottled water, with additives. One of these in particular, Wat-aah “Energy,” contains “oxygen for increased metabolic function and energy.” As I’ve described in detail in my book ” Bottled and Sold: The Story Behind Our Obsession with Bottled Water ,” water products with added “oxygen” are scams. Scientific studies have shown that extra oxygen added to bottled water doesn’t stay there; it comes out of solution when you open the bottle and it provides no demonstrable benefit. But more importantly, we don’t absorb oxygen through our stomachs. We get it through our lungs. Drinking bottled water with extra oxygen will, at best, produce an expensive burp. This kind of corporate advertising to children and schools under the guise of a health program should not be permitted. If companies want to promote health in schools, they should support education programs that do not include pushing particular products. If schools want to adopt an “Anti-Obesity” campaign, they would do better to look to Michelle Obama’s ” Let’s Move ” effort. If schools want to show advertisements about obesity and how to reduce it, they should look to the Ad Council’s Childhood Obesity Prevention effort sponsored by the US Department of Health and Human Services and other organizations that aren’t trying to sell children commercial products. Peter Gleick Pacific Institute

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Philip N. Cohen: Poverty, Single Mothers, and Race/Ethnicity

September 20, 2010

Confusing the facts with the issues. The other day I picked on the Heritage Foundation’s post , “Poverty Explodes, Root Cause Is the Collapse of Marriage.” In that post, they conclusively demonstrated two things: first, that children of single parents are more likely to be poor; and second, that more children are born to unmarried parents now than in the past. The dots they didn’t connect were between family structure and the child-poverty “explosion.” In the comments on the post, Jay Livingtson reasonably asked, “Why didn’t he add a line showing rates of child poverty to show that it tracks with the Death of Marriage?”, and Wanda pointed out, “I don’t see that you refuted the information in any way.” I didn’t empirically refute the ideological claim of the HF guy because I didn’t show the relationship between child poverty and single-parenthood. Looking at the graph below, which Jay asked for, the intellectual-history reason seems clear — his is an old collapsing-society story, that hasn’t been in the news much because the association broke down in the 1980s, when the news was all about single parents, crack, homicide, and welfare. Ten years ago I used to assign this book by Ruth Sidel, which put it all together very nicely.) She shows how America, in its search for a post-Cold War enemy, has turned inward to target single mothers on welfare, and how politicians have scapegoated and stigmatized female-headed families both as a method of social control and to divert attention from the severe problems that Americans face. She reveals the real victims of poverty–the millions of children who suffer from societal neglect, inferior education, inadequate health care, hunger, and homelessness. Anyway, it was fashionable in the 1990s to line up the trend toward unmarried parenting with any other time series showing things getting worse. You can see why they don’t do that so much any more: Source: My graph from the Census Bureau’s poverty and living arrangements data. These are spreadsheet files — (if you think I’m messing with the data, feel free to show me another interpretation — I’ll post it here.) The rise in child poverty in the1970s and early 1980s did not persist, while the single-parent living situation kept going up (similarly, crack-use and homicide declined, too). It looks like the culprits after the 1980s are recessions, and the improvement is concentrated in the miracle 1990s, driven by some combination of economic growth, the expansion of the Earned Income Tax Credit, and welfare reform forcing single mothers to “work.” Of course, single parents are still more likely to live in poverty. One thing I liked about the old welfare system was that at least it gave some money to poor people. But that was then. For a recent review of the facts and policies around single parents, welfare, and poverty, I recommend an article in the 2010  Annual Review of Sociology by Sandra Danziger. Since it’s behind a pay wall, I’ll fair-use a couple of the figures for you here. This figure shows only single mothers ages 18-54 with only high school diplomas or less education. The economic boom and/or radical reforms are apparent in the late 1990s, as these mothers increased their employment rates while falling drastically off welfare. (The economic boom theory is bolstered by the rise in “no work/no welfare” and the downward slide of employment after 2000. ) The next figure is for those who thought I didn’t do enough with race/ethnicity last time. This figure nicely shows both the trends in child poverty rates and the inequalities by race/ethnicity. In particular, several readers of the  Sociological Images repost of a figure I did on income-to-needs distributions thought it a problem that I had neglected to include Asians. I did that because of my view that they are not well captured in the Current Population Survey (CPS), too small and diverse and geographically concentrated in ways that intersect with national origin and mess up the sampling. (For example, they are very concentrated in places with high incomes and costs of living, like Hawaii and parts of the West.) Anyway, Asian child poverty is on here since the mid-1980s. My skepticism about the data is reinforced by the big blips around the Decennial Census years of 1990 and 2000, when the statistical weights in the CPS are adjusted to reflect the more accurate national count. Cross posted from the Family Inequality blog.

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HuffPost TV: Arianna: There’s No Time To Lose In The Fight To Save The Middle Class

September 16, 2010

Arianna appeared on PBS’ “Newshour” with cohost Gwen Ifill Thursday night to discuss the ongoing “crumbling” of the nation’s middle class and the threat of a slide toward ” Third World America .” “I know it’s a jarring phrase, Gwen, but I chose it deliberately because I felt that we needed a warning,” Arianna said. “We needed to sort of sound the alarm about the trajectory we’re on, about the middle class crumbling. And the middle class is the foundation, not just of our democracy and our prosperity but our political stability.” There is time to restore that stability, Arianna said, but the nation can’t wait much longer. “We really have a certain time, a window during which we can course-correct and turn things around,” she said. “And I end the book on an optimistic note that we can do that, but only if we bring a sense of urgency to the undertaking.” WATCH:

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Ian Fletcher: Economics vs. Fakeonomics

September 16, 2010

We skeptics of free trade are used to being told, “You don’t understand economics.” In fact, one major reason I wrote the book Free Trade Doesn’t Work was simply to expose, once and for all, that there do exist extremely serious and intellectually reputable arguments, within the confines of accepted mainstream economics, which question free trade. And indeed they exist. But I’ve noticed something. We skeptics are often not really struggling against real economics at all. When I pick up a copy of the Wall Street Journal , or Forbes , or the New York Times , or turn on Fox TV or MSNBC, or read papers issued by the libertarian Cato Institute or the Peterson Institute for International Economics, I don’t even find economic arguments. I find a mischievous substitute for economics we can call “fakeonomics.” What is fakeonomics? It sounds like economics to the uninitiated. It uses the same language, addresses the same issues and fills the same logical hole in the national policy discourse. Most people can’t tell the difference. But fakeonomics is not the real thing. How is fakeonomics fake? It tells a story that goes something like this… • Free markets are always right, always and everywhere. • Anyone who doesn’t believe this is stupid. Smart people not only understand that free markets are best, they like free markets, because free markets mean opportunities to get rich. • Or maybe they’re corrupt. The opposite of free markets is government. Government is always incompetent. It never does anything right. Ever. • Or maybe they’re evil. Anyone who doesn’t believe in perfectly free markets is a Marxist wannabe or a loser jealous of more-successful people. • Free trade is just free markets applied internationally. • Therefore all smart, good, successful people must believe in free trade. Unfortunately, fakeonomics is at best a crude parody of economics. It is often larded with a thick layer of moral hectoring, courtesy of a certain variety of the American Right which seems to think that economics is its exclusive property, a stick given it by God to beat liberals with. There is even a whole class of people, known as “libertarians” who elevate fakeonomics to the level of an all-encompassing moral ideology. (Their fundamentalist sect is the old Ayn Rand cult, who call themselves “objectivists.”) So let’s be clear about one thing: real economics does not support the idea that 100 percent pure free markets are best. Not domestically, not internationally. That’s why the U.S. has, like every other developed nation, a mixed economy, with government amounting to about 35 percent (pre-2008; it’s spiked since then) of our GDP and various laws, from child labor laws to environmental laws and the SEC, regulating much of the rest. It’s easy to fulminate against this fact in beautiful after-dinner speeches about economic liberty, but the reality is that when in office, even conservative Republicans grasp the necessity of most of these policies — whatever adjustments on the margin they may make. Surveys indeed show that about 90 percent of economists support free trade. But, and this is crucial, only about 70 percent of them support it without reservation . Economists are, in fact, well aware of a number of problems with free trade, like: • Free trade for America is one-sided, with most major foreign economies practicing managed trade of one kind or another. • When free trade involves trade deficits, it may be optimal in the short run but is unsustainable over longer time horizons. • Even if it increases GDP, it has even stronger effects on income distribution and can thus harm many, or even most, of the people in the economy. • The adjustment costs of declining industries — from unemployment checks to the rubble of Detroit — are huge and ongoing. • It brings us cheap goods today at the price of building up economic rivals who will take markets away from us tomorrow. • It helps dirty industries move from environmentally-strict jurisdictions to environmentally-lax ones. • Even if it is efficient in the short run, efficiency per se has little to do with long-term economic growth. • The theory of comparative advantage — which supposedly proves that free trade guarantees win-win outcomes — doesn’t hold in the presence of capital mobility between nations. None of the above is especially new information, though these points are legitimately controversial like anything else. My point here is simply that economics does not grant free trade the blank check many people seem to think it does. Nonetheless, the juggernaut of fakeonomics, which doesn’t understand this, rolls on. The really scary thing about fakeonomics is that it is not just a vulgar version of economics, served up to amuse the audience of Bill O’Reilly’s TV show. It is also believed in by people who should know better. Like it or not, fakeonomics is mistaken for real thinking by a disturbingly large number of people with top MBAs, graduate degrees in serious fields, congressional staffers, et cetera. (I know; my job obliges me to talk to these people all the time, and they tell me so.) Perhaps it’s just laziness on their part, but people who should be taking their bearings from more serious sources — people whose careers depend upon the idea that they have genuine expertise — are drawing their ideas from fakeonomics. These are people who pride themselves on understanding the most sophisticated ideas when it comes to, say, corporate finance, but here they are, relying upon intellectual constructs of a chat-show level of sophistication. Make no mistake: Fakeonomics matters. For one thing, it is the implied theoretical model of current U.S. trade policy. That is to say, if one looks at American trade policy and asks what picture of the economy one would have to hold in order to believe that these policies make sense, fakeonomics is that picture. So whatever sophisticated version of real economics someone like ex-Harvard professor Larry Summers may have tucked away in his head somewhere, when he acts as economic adviser to President Obama, fakeonomics is what he dishes out. One can, of course, gin up rationalizations bridging the gap between real economics and fakeonomics on any given issue at will. So there’s no point confronting people like Larry Summers with the gap between, say, their own theoretical writings and the policies they support in office. If they weren’t bright enough to pull off a piece of minor casuistry like that, they wouldn’t be where they are in the first place. Why are the nominally sophisticated so misguided? Because fakeonomics tells them what they want to hear. At bottom, fakeonomics is the ultimate free lunch story. Its seductive message is that we can consume all we want, right now , and never worry about the consequences. “Free” trade translates as “don’t worry about” trade. The market forgives all sins. Unfortunately for this happy fantasy, fakeonomics can only maintain this fantasy vision by systematically ignoring half of economic reality. It is, for one thing, almost exclusively focused on consumption, ignoring the production side of the economy. So it has plenty to say about how cheap imports provide consumers lower prices, but blithely airbrushes out of the picture the way imports deplete our industrial base. Of course, in the long run, nobody can afford imports, however cheap, without the ability to produce something to exchange for them. But that, of course, is the long run, and fakeonomics is about instant gratification and letting the chickens come home to roost in the next administration. What does all this mean? It means that there are really two targets, for those of us who would criticize free trade. There is economics per se , which tends to be pro-free trade, but is actually surprisingly well aware of the counterarguments and becoming slowly but inexorably more skeptical. And there is fakeonomics, which is dogmatically pro-free trade, proactively ignorant of the counterarguments, and determined to stick its head in the sand. Shooting at the first target does almost nothing, unfortunately, to hit the latter, which is arguably more important, at least in the short run, for determining real-world policy outcomes. As a result, the first question one must ask when querying some piece of economic reasoning offered as justification for policy is this: is it real? Or is it fakeonomics? Ian Fletcher is the author of the Free Trade Doesn’t Work: What Should Replace It and Why (USBIC, 2010, $24.95) An Adjunct Fellow at the San Francisco office of the U.S. Business and Industry Council , a Washington think tank founded in 1933, he was previously an economist in private practice, mostly serving hedge funds and private equity firms. He may be contacted at ian.fletcher@usbic.net .

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Video: Chapman Discusses New Book on Lehman Brothers: Video

September 15, 2010

Sept. 15 (Bloomberg) — Author Peter Chapman talks with Bloomberg’s Mark Crumpton about his book, “The Last of the Imperious Rich,” which chronicles the history of Lehman Brothers Holdings Inc. (Source: Bloomberg)

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Jane White: Appalled at the High Cost of a Sheepskin? Part of the Blame Falls on John Boehner

September 15, 2010

Appalled at the high cost of a sheepskin? Part of the blame falls on John Boehner. In a recent article in Business Week , Democrats were depicted as vulnerable in Ohio’s November elections as a result of a jobless rate of 10.3%. Over the last decade, the Buckeye State has lost about 400,000 factory jobs — 40% of the state’s manufacturing workforce. You would think that since his state is bleeding factory jobs, House Minority Leader John Boehner would be focusing on helping more young people from blue collar families afford college, especially now, when it’s never been more unaffordable. In 2009 the average cost of sending a kid to a private college topped $35,000 a year — up from $20,000 per year just 14 years ago, according to Financial Planning magazine . However, in his previous job as chairman of the House Education and Labor Committee, Boehner offered assurances that he would prioritize the needs of the private student loan industry — a business that makes pricey colleges even pricier. As I pointed out in my book, America, Welcome to the Poorhouse , loan-industry officials convinced Boehner to draft legislation that would end the ability for borrowers to lock in a low fixed-interest rate for up to 30 years, along with making it more difficult to extend payment terms without refinancing their loans. Unlike most politicians, who at least pretend to put taxpayers’ interests above those of big business, Boehner made no bones about where his priorities lie. In a speech to the Consumer Bankers Association, he reassured them that “I have all of you in my two trusted hands — I’ve got enough rabbits up my sleeve to get where we need to.” Wonder how Boehner manages to maintain his “tan, rested and ready” complexion? On several occasions Boehner was a guest of Albert Lord, Sallie Mae’s former CEO/board vice chairman, on the company’s corporate jet, primarily for golf outings in Florida. What’s most despicable about doing the bidding of an industry that boosts the costs of getting a sheepskin is that, in the same way Americans are the “pension-poorest” of any country in the advanced world, our citizens also foot a larger share of college costs than just about any advanced nation. According to the OECD, we are the third lowest spender when it comes to government subsidies of college costs. As Anya Kamenetz pointed out in her book, Generation Debt , while in 1976 the maximum Pell Grant covered 72% of costs at the average four-year pubic school, in 2004 it was only 36% of a bigger bill. As fans of Reaganomics fail to fathom, if you lower tax rates on the rich, you increase costs for the middle class. Before Ronald Reagan’s election in 1980, the top income tax bracket has been at or above 70% for 44 years. Reagan dropped it to 50% and eventually pushed it down to 28%. If we could reinstate the pre-Reagan tax rates on the rich, we could send more blue collar kids to college. Not only are high rollers taxed too little, but their riches have mushroomed in the past couple of decades; while the typical CEO salary was 40 times the median wage in the mid 1980s, it’s now around 300 times the median wage. A college education is a right, not a privilege. Unfortunately, only the privileged can afford a degree at a point in history when more Americans need one to find a job in an increasingly globalized economy. For those of you with high school kids aiming for a degree, in my next post I’ll offer some tips on how to find bargains until we can make college more affordable.

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John Schneider: Will the Middle Class Have Room for Baby Boomers’ Kids?

September 15, 2010

Watching our kindergartners engaged in a game of musical chairs, we nudge them along mentally, past the gaps, hoping they end up in the right place, at the right time. The music stops. Ten kids scramble for nine chairs. Nine land safely; one panic-stricken kid is left standing, squeezed out of the game. When it’s our kid who has no place to sit, our hearts break just a little. And so we baby boomers watch, with trepidation, as our grown children scramble for their spots in the middle class, with its tricky dance steps, its new rules, its ever-dwindling number of chairs. We observe their progress, nudging them forward, helping where we can, hoping they’re in the right place, at the right time. If they’re lucky, they approach the game with all the basic tools – a solid upbringing, an adequate education, a firm work ethic, a pocketful of emotional intelligence, a head screwed on straight. Getting a toehold Maybe they are fortified with degrees from good schools. Maybe they are ambitious, or charming, or lucky. Maybe they know somebody who knows somebody with an employment opportunity. Maybe they are blessed with perfect timing. Or maybe they are just more resumes in tall stacks on the unoccupied desks of people who were downsized — more college graduates with big student loans and big dreams on hold, struggling to get a toehold in the world. They piece together part-time jobs that may, or may not, turn into something bigger. They work outside their fields. They roll with the punches — downsizing, pay freezes, unpaid furlough days. If they are fortunate, they accept bare-bones health insurance grudgingly bestowed up them by tight-fisted employers; if they are not so fortunate, they pay for their own insurance, or go without it. They scrape. They stay alive. A different script We’ve been inclined, for some time now, to wonder if our children will ever duplicate our standard of living — a standard built on steady, if unspectacular compensation, good health, rising real estate values, and the prudent use of readily available credit. We rose above our parents, economically, following the script of the American Dream. Is that still a viable model? Will the next generation rise above the previous one? Mounting evidence says it won’t. Everywhere you look these days Arianna Huffington is talking about her book, Third World America , in which the Huffington Post creator lays out a convincing case for the disappearance of the middle class in this country. Huffington is hardly the first person to notice the growing gulf between rich and poor, and the erosion of the middle. Consider just one piece of the crumbling puzzle: A record 2.8 million U.S. households got foreclosure notices in 2009, and the wreckage could be even worse this year. Will our children own their own homes? Will they find jobs, and keep them? Will they be able to give their children the advantages they, themselves, enjoyed? Will they figure it out? Will they find a chair when the music stops? Email John Schneider at jschneid@lsj.com. This post originally appeared on September 12, 2010 in the Lansing State Journal .

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John Schneider: Will the Middle Class Have Room for Baby Boomers’ Kids?

September 15, 2010

Watching our kindergartners engaged in a game of musical chairs, we nudge them along mentally, past the gaps, hoping they end up in the right place, at the right time. The music stops. Ten kids scramble for nine chairs. Nine land safely; one panic-stricken kid is left standing, squeezed out of the game. When it’s our kid who has no place to sit, our hearts break just a little. And so we baby boomers watch, with trepidation, as our grown children scramble for their spots in the middle class, with its tricky dance steps, its new rules, its ever-dwindling number of chairs. We observe their progress, nudging them forward, helping where we can, hoping they’re in the right place, at the right time. If they’re lucky, they approach the game with all the basic tools – a solid upbringing, an adequate education, a firm work ethic, a pocketful of emotional intelligence, a head screwed on straight. Getting a toehold Maybe they are fortified with degrees from good schools. Maybe they are ambitious, or charming, or lucky. Maybe they know somebody who knows somebody with an employment opportunity. Maybe they are blessed with perfect timing. Or maybe they are just more resumes in tall stacks on the unoccupied desks of people who were downsized — more college graduates with big student loans and big dreams on hold, struggling to get a toehold in the world. They piece together part-time jobs that may, or may not, turn into something bigger. They work outside their fields. They roll with the punches — downsizing, pay freezes, unpaid furlough days. If they are fortunate, they accept bare-bones health insurance grudgingly bestowed up them by tight-fisted employers; if they are not so fortunate, they pay for their own insurance, or go without it. They scrape. They stay alive. A different script We’ve been inclined, for some time now, to wonder if our children will ever duplicate our standard of living — a standard built on steady, if unspectacular compensation, good health, rising real estate values, and the prudent use of readily available credit. We rose above our parents, economically, following the script of the American Dream. Is that still a viable model? Will the next generation rise above the previous one? Mounting evidence says it won’t. Everywhere you look these days Arianna Huffington is talking about her book, Third World America , in which the Huffington Post creator lays out a convincing case for the disappearance of the middle class in this country. Huffington is hardly the first person to notice the growing gulf between rich and poor, and the erosion of the middle. Consider just one piece of the crumbling puzzle: A record 2.8 million U.S. households got foreclosure notices in 2009, and the wreckage could be even worse this year. Will our children own their own homes? Will they find jobs, and keep them? Will they be able to give their children the advantages they, themselves, enjoyed? Will they figure it out? Will they find a chair when the music stops? Email John Schneider at jschneid@lsj.com. This post originally appeared on September 12, 2010 in the Lansing State Journal .

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Jamie Court: Mad as Hell, But Don’t Want to Join The Tea Party?

September 15, 2010

The Tea Party is on a roll with its upset Senate primary victory in Delaware. If the rest of us don’t start raising hell, the Tea Party will have us living it. Are you mad as hell but don’t want to join the Tea Party? Do you still want to get the change you voted for in 2008? That’s most Americans, but the right wing is the only wing talking about its anger. Public outrage is the most powerful force in the world if you know how to leverage it and turn it into power. That’s why I wrote The Progressive’s Guide To Raising Hell , published today by Chelsea Green, to show average Americans how their common anger can be turned into power using the force of public opinion online and offline. Award-winning filmmaker Robert Greenwald made this short video about Raising Hel l and its battle-proven, step-by-step tactics that artfully sums up the book’s essence. I have spent two decades fighting and winning campaigns against insurance companies, Big Oil, utilities, banks, and corrupt politicians. The tactics of turning anger into change are the same regardless of whether you are trying to win a Senate primary, pass a ballot measure or get an insurer to pay a claim. Change is no simple matter in America politics, as Americans have recently learned so well. Elections rarely produce the change they promise because too often ballot victories leave intact the ways power is exercised, and on whose behalf. The special interests that fund and curry favor with our legislators may rebalance their party allegiances, but not their self-interest. Anger, not hope, is the fuel of political and economic change. As things grow worse and worse, public rage grows more intense–and so does the energy for making things better. And in 2010 in America, anger rules, but it needs to be vectored and focused if it is to succeed in fueling the type of change that the majority of Americans believe in. If progressives walk away, rather than engage, the Tea Party and GOP will capture the popular anger and turn it against government, rather than focus it rightly back on the targets of the 2008 election: Wall Street, health insurers, polluters, the military industrial complex, and the politicians they buy. If we want progress, the kind that polls show 60 percent of Americans believe in, we need to do more than vote every two to four years or wait for Obama to learn the tactics of confrontation. We need to make demands. We need to raise some hell. The alternative is giving up the reins of government to a flash mob that wants to do nothing but destroy it. _______________________ Jamie Court is author of T he Progressive’s Guide To Raising Hell: How To Win Grassroots Campaigns, Pass Ballot Box Laws And Get The Change You Voted For (Chelsea Green) and President of Consumer Watchdog .

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Futurist George Friedman: Robots Can Restore Michigan Economy

September 14, 2010

EAST LANSING, Mich. — Michigan’s economy, battered over the past decade by hundreds of thousands of lost manufacturing jobs, could surge again in coming decades by making robots for use in everyday life, futurist George Friedman said Tuesday. He told about 500 people at the Michigan Chamber’s annual Future Forum at Kellogg Center that the state is uniquely situated to build robots that can help the disabled, tend the elderly and perform many routine tasks. “I don’t know where the U.S. would put the robotics business but here. … It’s yours to lose,” said Friedman, founder of the STRATFOR private security think tank in Austin, Texas, and author of the book, “The Next 100 Years.” He noted that Michigan has the industrial know-how to build robots, as well as the ability to tap talent at its top-notch universities and to benefit from weapons systems research being done at the U.S. Army TACOM Life Cycle Management Command, headquartered in Warren. What it doesn’t have, he said, is an entrepreneurial spirit that could launch a whole new industry the way Henry Ford launched mass-produced motor vehicles early last century. “Michigan is a place that likes big corporations,” Friedman said. “Michigan’s cultural challenge is to embrace small companies.” He expects it to be a tough transition, but said the elements that create the push for change are in place. The loss of good-paying jobs in the auto industry, pharmaceuticals and other areas are forcing people who have lost jobs to start their own businesses to survive. Drug researchers now run their own startup companies in Ann Arbor and Kalamazoo, while engineers and people with experience in manufacturing are learning to start new businesses. To Friedman, it’s the same dynamic that forced Pittsburgh to reinvent itself as a research center after the steel industry collapsed and the Research Triangle in North Carolina to be created when the textile industry moved overseas. Closer to home, Ohio entrepreneurs who lost their jobs in the downsized rubber and tire industry have created new industries involving polymers. Friedman doesn’t see the move toward alternative energy being pushed by Gov. Jennifer Granholm and President Barack Obama’s administration as creating the large number of jobs Michigan still needs to climb out of its economic hole. He said the Great Lakes and Michigan’s other water resources could be an advantage in rebuilding the economy, but are just part of the puzzle. He’s putting his bets on robots. The country and much of the rest of the industrialized world will face a severe labor shortage by 2030, Friedman predicts. Unless it can find a way to fill some of those low-skill jobs with robots, the country’s standard of living will plummet, even if it opens the spigot to more immigration. “This isn’t an option,” he said of the need to create a more entrepreneurial culture that can create products to fill new demands. “This is a process that’s going to take a generation, and it starts now.” ___ Online: STRATFOR: https://www.stratfor.com

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Richard (RJ) Eskow: Blindsight: Economics, Country Music, Tea Parties, and Third World America

September 13, 2010

Last November, when the Tea Party Express was just building up a head of steam, it seemed worthwhile to stop for a minute and listen to a country song . Why? For one thing it’s a really good song, and it had a great hook. “Here in the real world,” it says, away from those powerful guys in Washington and New York, “they’re shuttin’ Detroit down.” That theme was so inclusive and compelling that conservative singer John Rich (John McCain’s campaign troubadour) was able to get noted lefty Kris Kristofferson to act in the video, along with Mickey Rourke. That made the song important and interesting. How was John Rich’s message able to win over those guys? Because it was simple and true: The people who got us into this mess are doing just fine, and the people who worked hard and played by the rules aren’t. What concerned me back then was that this message, while compelling and accurate, could wind up benefiting some of most bank-friendly politicians on Earth. The Republicans who deregulated banking (along with centrist Democrats) could wind up with more power. They’d then be in a better position to carry out their agenda of blocking the modest banking reforms and economic fixes being recommended by the White House and Congress. Isn’t that pretty much what’s happening? Reading Arianna Huffington’s new book Third World America made me think of that song again. There’s a medical phenomenon called “blindsight,” where people who seem to be partially or completely blind are able to respond to visual information under test conditions. The theory is that they’re not blind at all, but are unable to consciously process the information they’re receiving from their eyes. Isn’t that what’s happening in the country right now? Most people aren’t economists or policy wonks, after all, so they probably haven’t “seen” this chart: ( source ) But on some level they know it. And they may not have seen this chart, either (from CBS Moneywatch via Mike Konczal ), but you can bet they “know” it too: People need ways to integrate and process all the information they’re receiving. They’re struggling with the cognitive dissonance they experience when they’re told the economy’s doing better, because they know that in their world it’s not. Human beings have always used stories and songs to integrate the information they receive, and we need better stories and better hooks than we’ve been getting lately. Know what’s a good hook for these troubled times? “Third World America.” Know what’s not ? ” Recovery Summer .” So score one for Arianna before the cover’s even cracked. The “recovery summer” theme was bound to ring false for the millions of Americans who still live in a devastated economy. That was destined to reduce the credibility of the very institutions that prevented even greater damage – institutions that could do more to help them. We’ve seen the Administration move toward a more coherent narrative in the last week, but will it be enough? “I ran because I felt that we had to have a different economic philosophy in order to grow that middle class and grow our economy over the long term,” the President in Friday’s press conference. That sounds like a story worth telling. Third World America is direct and clear in its message: Decades of aggressive corporate lobbying, driven by bankers and other large corporations, have led to a series of policy decisions that are eroding the American standard of living. The details are all there: The financial industry’s gone from 2.5% of our GDP in 1947 to 8.3% right before the meltdown. Financial profits went from a maximum of 16% between 1973 and 1985 to 41% right before the crisis hit. And rather than being chastened by their failure, or disciplined by taxpayers in return for being bailed out, bankers have embraced their old ways with enthusiasm. Meanwhile the American households that rescued them lost $13 trillion in wealth between mid-2007 and March 2009. There has been, in economist Simon Johnson’s words, a ” quiet coup ” led by a classic “oligarchy.” Bankers now exert enormous control over both the economy and the political process. People see that, and they’re angry. Anyone who wants to discuss the current state of affairs better be prepared to speak plainly – “third world America,” “quiet coup,” “oligarchy” – or they’ll be ignored. Some of us are actually old enough to remember when the American dream was at its peak. Even if you were just a kid, you knew certain things: If you worked hard, you could retire in financial security. You lived in a country that led the world in science research, education, and social mobility. We designed things, built things. We were creating the future. Many of us later traveled into Third World countries for work or pleasure. We were saddened by the crumbling roads, unsafe bridges, and unregulated companies poisoning the air and water. The income inequities seemed so unjust, and the people’s inability to heal their country through a free political process was tragic. Little did we suspect we might be looking into our own future. But Arianna’s not just crying in her beer. The final section of the book details a series of fixes, which include: Campaign financing. Citizen activism, with less reliance on politicians as saviors and more on ourselves as the agents of change. Spending on infrastructure and education. Bank reform with teeth. Homeowner relief. Service to others. Moving your money away from predatory financial institutions. I’d add another to that fine list: Stop judging the tea party radicals around you. Sure, some may be extremists and racists, but lots of them are just frightened and angry. They’re trying to reconcile what they “see” with what they’re being told. Right now they believe a false story, but it hangs together and makes them feel sane in a seemingly insane world. Demogogues have always used these kinds of stories to exploit human fear. You can’t blame people for believing a false story if they haven’t heard the real one. So don’t blame the individuals, blame the story. Tell them a better one. The truth is a helluva story. But even the truth works better if it has a good hook. _________________________________________ Richard (RJ) Eskow, a consultant and writer (and former insurance/finance executive), is a Senior Fellow with the Campaign for America’s Future. This post was produced as part of the Curbing Wall Street project. Richard also blogs at A Night Light . He can be reached at “rjeskow@ourfuture.org.”

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Howie Huber, Ex-Trader Who Oversaw A $9 Billion Trading Loss, Returns To The Mortgage Business

September 13, 2010

What do you do after losing $9 billion? After leading a trading unit at Morgan Stanley that lost the bank $9 billion in bets on the subprime mortgage market, Howie Hubler has returned to the mortgage business, this time with a start-up that offers incentives to prevent struggling homeowners from defaulting. In a rare interview with the Wall Street Journal , Hubler said he’s trying to move on from his checkered past. The New York Observer reported in March that Hubler had opened Loan Value Group in his native New Jersey, a business that offers cash incentives to borrowers who would otherwise walk away from a mortgage when the value of the property drops below the value of the loan. Reuters ‘ Felix Salmon called it “one of the best ideas I’ve seen in the housing crisis so far.” But as to whether the start-up is somehow an act of contrition, Hubler would only say, “We have a view that, this time, we can help.” “I’d rather focus on Loan Value Group,” he continued, to the Journal . Frank Pallotta, the executive vice president, said Hubler’s bad bets, which Michael Lewis exposed in his book “The Big Short”, haven’t hurt Loan Value Group’s business. “We’re comfortable with whatever anybody is able to find out,” Mr. Pallotta told the Journal . Hubler, whom Lewis describes in his book as having an “overbearing manner, which was interpreted as both admirably direct and a mask,” and who at Morgan Stanley was given to betting on how many chicken nuggets a colleague could eat in an hour, keeps a Wayne Gretzky quote in his office: “100% of the shots you don’t take don’t go in,” notes the Journal .

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HuffPost TV: Arianna Discusses ‘Third World Ameria’ With Maria Bartiromo On C-Span’s ‘After Words’ (VIDEO)

September 12, 2010

Arianna appeared on C-Span’s “After Words” program this weekend to discuss her latest book “Third World America” with Maria Bartiromo. Arianna spoke about her motivations for writing the book, the current dismal state of America’s political and economic system, and what we can do to turn it around. “Over the last few years, I’ve begun to see something happening,” she said, “which is that the country which was about the American Dream was actually now becoming the country of downward mobility for millions of people in the middle class who felt they could no longer give themselves or their children the better life that was associated with America. So I really wrote it as a warning and also to show all the ways we can turn it around.” WATCH:

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Jane White: Think We Need 401(k) Reform? There’s a Good Chance Your Employer Wants You to Lobby Against It

September 10, 2010

I’m thrilled at the response to my previous blog post on America’s need for 401(k) reform . The bad news is that big business has already developed a strategy to kill reform — by intimidating the rank and file into lobbying against it. And it’s perfectly legal. While President Obama justifiably criticized the Supreme Court’s Citizen United ruling that pretty much removes the limits from campaign spending in advertising, the real scandal on Capitol Hill isn’t bankrolling corrupt candidates but creating a “fake citizens lobby” that convinces elected officials to vote the wrong way. It’s perfectly legal for big business to pressure employees to lobby against reform that would help employees — presumably employing the “spin” that reform is a job killer. The group that’s behind this tactic is one you’ve probably never heard of, BIPAC, a coalition of business owners and associations. When it comes to corporate skulduggery, you can’t get much more lowlife than the National Association of Manufacturers (NAM), one of BIPAC’s leading members. NAM has fought against regulating derivatives because doing so “could hinder job creation for manufacturing” — gee, which factories manufacture derivatives? NAM has also demanded the overhaul of the Family and Medical Leave Act because employees abuse it, and argued that employees who suffer from repetitive stress injuries such as carpal tunnel syndrome aren’t really disabled. There’s a good chance that a “fake grass-roots effort” orchestrated by NAM helped convince members of Congress to drop their support for the Employee Free Choice Act, which lets workers opt for unionization simply by signing cards rather than through secret ballot elections. When I went to the page on a website that BIPAC created displaying sample campaigns, I saw a link where employees of NAM’s member companies are encouraged to “Tell Members of Congress to Oppose the ‘Employee FORCED Choice Act.” Technically speaking, businesses can’t punish employees who refuse to go along with this effort but in these tough economic times, I wouldn’t be surprised if employees are likely to do what they’re told rather than risk their job security. Not surprisingly, NAM is a member of an employer group whose purpose is to fight any reform of 401(k) plans called The Coalition on Employee Retirement Benefits (CERB). Remember Enron? One of its most despicable practices was matching employees 401(k) contributions with company stock, which turns into “play money” if the company goes under. It’s very likely that CERB’s lobbying efforts watered down the Pension Security Act, which merely allows workers to sell company stock within three years of receiving it rather than limiting it in 401(k) accounts or prohibiting it altogether. As I pointed out in my book, “America, Welcome to the Poorhouse,” in a letter to members of the Senate Finance Committee, CERB hints that if Congress is too hard on employers they might stop making 401(k) contributions altogether: “[If] employers are not allowed to meet the legitimate business of encouraging employee ownership…they are likely to reduce or eliminate matching contributions.” How do we get members of Congress to work for the taxpayers who pay their salaries, as opposed to the business lobby? My thinking is that the chance of passing genuine campaign reform legislation is slim — especially since Congress would have to vote for it. Instead we should create a citizens lobby, comprised of blue and white collar Americans who are watching their American dream turn into a nightmare, whether we’re talking about higher medical co-pays, or unaffordable mortgages. Even when it comes to job shortages, most of us are “all in this financial stress together” — whether we’re affected by blue-collar factory jobs that have been outsourced to China or radiology/engineering jobs that have been off-shored to India. As former SEIU President Andy Stern told me, “Team USA is in trouble. We don’t have a plan. Let’s grow up, people. This is a global economic war. We need to shake off complacency and get out of our self-analytical malaise.” Forget about this Tea Party nonsense, we need a genuine new American revolution against the business lobby and those in Washington who do its bidding.

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David Isenberg: Spies and Contractors

September 10, 2010

Generally, when people characterize private security contractors (PSC) as being involved in secretive, covert operations it is a good sign that one is about to hear a rant. True, PSC have been involved in both intelligence and paramilitary work for both the intelligence community and military services. Chapter two of Robert Young Pelton’s book, Licensed To Kill , described just such operators. But generally the people involved in such operations don’t talk about it. And the people who do talk about it publicly generally don’t have a clue. It’s rather like talking about conspiracies. When people talk about them they aren’t true and when one is ongoing people almost never know about them. But, on rare occasions, one does find a genuine exception, which brings us to the forthcoming book, ” Operation Dark Heart: Spycraft and Special Ops on the Frontlines of Afghanistan — and The Path to Victory ” by Lt. Col. Anthony Shaffer (USA-Reserve). Shaffer is a CIA-trained senior intelligence operations officer with more than twenty-five years of experience in the intelligence community. Currently he is a Senior Fellow and Special Lecturer at the Center for Advanced Defense Studies in Washington, DC. In 2003 to 2004 he served in Afghanistan, where as a major he led a black-ops team to block the Taliban’s military resurgence. It not only planned intelligence operations to beat back insurgents, but played a key role in carrying out those operations, outside the wire, striking at Taliban safe havens in Pakistan. Those who see a similarity between Shaffer’s book title and Joseph Conrad’s famous novel, Heart of Darkness, are not mistaken. The latter served as inspiration for the former According to the book’s Amazon page the book was supposed to be published Aug. 31. But it now appears that was premature. It turns out that even though the U.S. Army signed off on the books release over eight months ago others in the Pentagon are unhappy about some of the book’s contents. In the past the Defense Intelligence Agency had some objections. Though it seems those objections actually came from outside the Defense Intelligence Agency. Hmm, outside pressure on an intelligence agency; let’s call it the Dick Cheney syndrome. Now another review is being conducted by the Office of the Secretary of Defense. For a mainstream media take on this see the New York Times article published today. It is not clear what the outcome will be but it is possible that all the copies that have been printed up of the original version of the book might end up being pulped. Let me quote from the dust cover, just to give a sense of the book’s contents. Lieutenant Colonel Anthony Shaffer had run intelligence operations for years before he arrived in Afghanistan. He was part of the “dark side” of the force–the shadowy elements of the U.S. government that function outside the bounds of the normal system. His group called themselves the Jedi Knights ad pledged to use the dark arts of espionage to protect the country from its enemies. … Operation Dark Heart tells the story of what really went on–and what went wrong–in Afghanistan. Shaffer witnessed firsthand the tipping point, when what seemed like certain victory turned into failure.” Let’s acknowledge that the use of PSC to try and track down and capture of kill high value targets is not something new. Last December ABC New reported that the CIA and the military special forces have quietly expanded the role of private contractors, including Blackwater , to include their involvement in raids and secret paramilitary operations in Afghanistan, Pakistan and Iraq. The ABC report actually interviewed Shaffer: A U.S. Army officer who ran human intelligence collections activities in Afghanistan in 2003, Tony Shaffer, says he never worked directly with Blackwater personnel but frequently encountered them in secret operations run by the military and the CIA. “I actually met with the CIA and Blackwater operatives who were working together, totally hand in glove, to conduct operational planning and support of their objectives, which are paramilitary operations along the border,” said Shaffer, then a Major but now a Lieutenant Colonel who teaches at the Center for Advanced Defense Studies. “The idea was to bring to bear additional resources for specific special operations missions,” he said. “The purpose for that, in my judgment, may have been to avoid some level of oversight.” In an August 4 phone conversation with me Shaffer made the following point. “Blackwater guys were killed in combat. Their deaths might be mentioned by Erick Prince should the government seek to bring charges against him in the future.” At my request Shaffer sent me an excerpt from a journal he kept: Evening of 22 October 2003 – After returning to Bagram from an away mission to Asadabad (see dispatches for background), after a two day micro surge looking for Mullah Omar, I was approached by the Bagram post Command Sergeant Major at about 2 AM (0200 hours) local. He was looking for the “CIA rep” since there were two CIA KIAs in the Bagram clinic – and someone had to claim the bodies and process them for their return to the U.S. There was none – and as the Defense Intel rep – that was close enough for the SgtMajor…I became the “action officer” for the rest of the night…dead tired after having been up for the past 36 hours straight. To summarize the actions – I was able to call in a C-17 to pick up the bodies quietly just at dawn (about 0600 hours), meet with the CIA Ground Branch officer who had escorted the bodies from Shkin – I spoke directly to the ground branch officer – and he said they were “Blackwater” operatives – that they were contractors supporting CIA and had been out with their Afghan militia they were training – when they were ambushed. There was no doubt they were NOT CIA employees or US Military attached to the CIA – I have dealt with both categories of individual in the past – these were Blackwater operatives…one was a retired US Army Special Forces NCO and the other a retired enlisted Navy SEAL. Based on this – the fact that they were prior service – I felt that they were due the honors and respect of any fallen warrior – I did not like it one bit. I felt strongly that there was no need for contractors (what I considered mercenaries) operating on the battlefield…this was a perfect example. I had to interview and do the initial report of the incident – and turn that into the watch – I did not keep a copy of the report – but the information was used later in a SECRET level report regarding the Shkin ambush. The two CIA officers were killed – targeted – by the Taliban, who were using, for the first time, armor piercing shells (see pictures and briefing cover). After several hours working this issue full time, the C-17 arrived – and the two Blackwater individuals were evacuated – and as far as I know, they were manifested to Ft. Bragg, NC. It may be that these contractors did not work for Blackwater. Matthew Cole, an investigative reporter with ABC News, looked into it. He says he was never able to confirm that the two worked for Blackwater. But they definitely were civilian contractors. They were Christopher Glenn Mueller and William Carlson . Mueller was a former US Navy SEAL and Carlson, a former Army Ranger, Green Beret and Delta Force soldier. They died while tracking high level terrorists near Shkin, Afghanistan, on October 25, 2003. Both officers saved the lives of others, including Afghan soldiers, during the ambush.The CIA released this statement after they were killed Insofar as the CIA’s use of contactors is concerned Shaffer says, “This was an attempt for CIA to get around oversight and regulation; to get around Congress; for the purpose of running missions without coordination. There was an instance where he got CIA that one warlord was one of their own assets. So when contractors are used it allows them to do things they normally would not get to do. “It is one thing not to have operational oversight. It is another to allow Erik Prince to indulge in graymail. People are aware but haven’t done anything about it.” In regard to David Passaro , who is widely assumed to have been a Blackwater contractor, though it has never been definitively confirmed publicly – “He was going to let Army SF guys taking the rap for it.” And as for the eight CIA officers killed last December when a suicide bomber detonated at a military base guarded by PSC in the province of Khost he says the “Army would never have allowed foreigners to guard a base camp.” Despite his criticism Shaffer is not opposed to using PSC. He says “They are desperately in need of them. [Blackwater].” But, “If the claim is that they are more effective why are we loosing in Afghanistan?” He said, “Clearly there is a role for contractors but we have lost control of the chance to have a core of competent government officials doing the work, from GS-14 for 114K to go to SAIC and doubling that they have lost the chance to have a professional cadres. Continuing use of contractors is a hollowing out of the U.S. government.”

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Video: Hubbard Questions Obama’s Economic-Stimulus Measures: Video

September 10, 2010

Sept. 10 (Bloomberg) — Glenn Hubbard, dean of Columbia University’s Graduate School of Business, talks about the Obama administration’s economic-stimulus measures and legislation overhauling U.S. financial regulation. Hubbard is co-author of the book “Seeds of Destruction: Why the Path to Economic Ruin Runs Through Washington, and How to Reclaim American Prosperity.” He speaks with Tom Keene and Ken Prewitt on Bloomberg Radio’s “Bloomberg Surveillance.” (This is an excerpt of the full interview. Source: Bloomberg)

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Arianna Huffington: Obama Insists He Made "The Right Decisions" on the Economy — The Struggling Middle Class Begs to Differ

September 9, 2010

In his otherwise excellent speech in Cleveland on Wednesday, the president showed that, when it comes to the plight of the middle class, he still doesn’t get it. “Not everything we’ve done over the last two years has worked as quickly as we had hoped,” he said, “and I am keenly aware that not all our policies have been popular.” But the problem isn’t that his economic policies have been slow to succeed or unpopular — it’s that they have been inadequate given the magnitude of the crisis. And, in his sit-down with George Stephanopoulos , he admitted to making unspecified “mistakes,” but insisted, “if you are asking have we made the decisions that are the right decisions to move this country forward after a very devastating recession, then the answer is absolutely.” Can he really believe that, with unemployment at 9.6 percent, underemployment at 16.7 percent, millions of homes foreclosed, millions more heading to foreclosure, and the middle class under assault? In any case, this appears to be the administration’s story, and they are sticking to it — come hell or a double-dip recession. The president’s comments were a continuation of the tack taken by Robert Gibbs who, when asked if the stimulus bill had been too small, offered this jaw-dropper : “I think it makes sense to step back just for a second. … Nobody had, in January of 2009, a sufficient grasp of… what we were facing.” In other words: who could have known? So much for changing the way Washington works. The Who Could Have Known mindset is at the very heart of the failure of our political system to address our mounting problems. I devote a whole section to it in Third World America . It’s been the official response of choice to virtually every fiasco of the last decade: Iraq, Katrina, the housing crash, the foreclosure crisis, the BP spill, etc, etc. As I write in the book: When you look at the elements that were crucial to the creation of each of these debacles of the past decade, it’s amazing how much they all have in common. And not just in how they began but in how they ended: with those responsible being amazed at what happened, because… who could have known? Well, I’m amazed at the amazement, because each of these disasters was entirely predictable. And, indeed, every one of them was predicted. But those who rang the alarm bells were aggressively ignored, and we let those responsible get away with the ‘Who Could Have Known?’ excuse. I list many other examples: Condoleezza Rice’s claim that nobody “could have predicted” that someone “would try to use an airplane as a missile”; Paul Wolfowitz’s claim that he found it “hard to imagine” that the occupation of Iraq would, as General Eric Shinseki predicted, require “several hundred thousand” troops on the ground; Robert Rubin’s claim, when asked if he made mistakes at Citigroup, that “in hindsight, there are a lot of things we’d do differently. But in the context of the facts as I knew them and my role, I’m inclined to think probably not”; or Alan Greenspan’s claim, regarding the financial crisis he helped create, that “if all those extraordinarily capable people were unable to foresee the development of this critical problem… we have to ask ourselves: Why is that? And the answer is that we’re not smart enough as people. We just cannot see events that far in advance.” And now add to this dubious list Robert Gibbs: “Nobody had, in January of 2009, a sufficient grasp of… what we were facing.” This, of course, is utter nonsense. There were plenty of people with a sufficient grasp of what we were facing. Among them: Paul Krugman, who successfully hid his sufficient grasp in the pages of the New York Times (how crafty!). As he wrote on his blog in response to Gibbs, “the truth is that some of us were practically screaming back in January 2009 that the administration was proposing too small a program.” Then there’s Martin Wolf, who hid his sufficient grasp in the pages of the Financial Times . His response to Gibbs : I (among others) then argued that policy needed to be hugely aggressive. Alas, it was not. I noted on February 4, 2009, at the beginning of the new presidency: “Instead of an overwhelming fiscal stimulus, what is emerging is too small, too wasteful and too ill-focused…. Doing too little is now far riskier than doing too much.” As for myself, in February 2009, I wrote a blog entitled ” If You Jump Halfway Across a Chasm You Fall Into the Abyss “. And there were many others. In fact, one of them, Council of Economic Advisers chair Christina Romer, was actually inside the White House. Here’s a snapshot of how her entreaties were received, courtesy of Ryan Lizza in the New Yorker : At the December meeting, it was Romer’s job to explain just how bad the economy was likely to get. “David Axelrod said we have to have a ‘holy-shit moment,’” she began. “Well, Mr. President, this is your ‘holy-shit moment.’ It’s worse than we thought.” The most important question facing Obama that day was how large the stimulus should be…Romer had run simulations of the effects of stimulus packages of varying sizes: six hundred billion dollars, eight hundred billion dollars, and $1.2 trillion….Romer’s analysis, deeply informed by her work on the Depression, suggested that the package should probably be more than $1.2 trillion. The memo to Obama, however, detailed only two packages: a five-hundred-and-fifty-billion-dollar stimulus and an eight-hundred-and-ninety-billion-dollar stimulus. Summers did not include Romer’s $1.2-trillion projection…At the meeting, according to one participant, “there was no serious discussion to going above a trillion dollars.” So plenty of people had a sufficient grasp. We can only conclude, then, that Obama and his economic team chose not to know. It’s not that they couldn’t imagine what would happen if they didn’t do enough, it’s that they simply chose not to imagine. Parents know that if you have a really sick child, you don’t calculate your response based on the best case scenario — you assume the worst could happen and work back from there. Contrast the administration’s response to the middle class crisis with the handling of the banking crisis. In that case, our elected officials — both Republicans and Democrats — had a more than sufficient grasp of the worst that could happen. In the space of one weekend, we were told that if the government didn’t act — using taxpayer money — the worst would happen. Our leaders were somehow able to imagine the doomsday scenario of the collapse of the entire financial system. And so they took action. Not with a series of half-measures, but with a bold and unprecedented rescue plan. They didn’t go around asking for consensus. They demanded it. They demanded lawmakers stop playing partisan politics and do what was needed to save the banks. We were told the world would fall apart if they didn’t. And they got their rescue plan. We won’t ever know if the world would actually have collapsed, but it was a possibility, so we took action. Does anybody recall ever seeing this same kind of urgency directed toward the daily calamities afflicting America’s middle class? It’s not that the middle class might collapse — it is collapsing. And yet, as Harold Pollack puts it in The New Republic : “There is a palpable lack of urgency in the face of this crisis. The problem here is one of priorities — or lack of priorities. The House and Senate act with surprising skill and speed when concentrated and powerful constituencies really need something done.” And so does the administration. Worse, the administration’s half-measures have undermined its chances of making the case for truly bold proposals commensurate with the crisis. As Martin Wolf writes , Obama’s halting response “has allowed opponents to claim that policy has been ineffective when it has merely been inadequate.” As a result “the administration has lost credibility with the public and the chances of a renewed fiscal expansion have disappeared.” And we are left with bromides like : “…to heal our economy we need more than a healthy stock market. We need bustling main streets and a growing, thriving middle class…that means doing everything we can to accelerate job creation.” That was from Obama’s weekly radio address. But, in fact, the administration is nowhere close to doing “everything” it can for struggling Americans. So, enough with the Who Could Have Known excuses. Enough with the half-measures. Enough with the lack of imagination. Enough with the lack of urgency. It’s time to look facts in the face. It’s time for all the known knows to be embraced.

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Richard Herman: Time to Think Like an Immigrant

September 9, 2010

Carmen Castillo once fit the popular image of the daring entrepreneur. She arrived from Spain young, single and ambitious. Knowing nothing about computers, Castillo launched her high-tech consulting agency from a one-bedroom apartment, with little more than a phone book and chutzpah. Her humble start-up, Superior Design International, grew into a global consulting agency with more than $200 million in annual revenues. While young dreamers like Castillo helped to launch the New Economy, a new generation is taking the driver’s seat. Today’s entrepreneurs are more likely to bring maturity and experience to a start-up, twinning hard-earned skills with bravado. Research by Vivek Wadhwa, one of the leading chroniclers of the New Economy, found that the majority of entrepreneurs today are middle-class, middle-aged and married. It’s the mini-van set who are taking career leaps and chasing dreams, especially in high-growth industries. Wadhwa’s research team surveyed 549 company founders in a broad range of industries and found that they launched their companies at an average age of 40. Most came to entrepreneurship from the middle to lower middle class, married (70 percent), and with children (60 percent). Nearly half had worked for a company for at least 10 years, but sometimes more than 20, before striking out on their own. The findings “contradict some prevailing stereotypes,” the researchers concluded. “Entrepreneurs typically are well-educated and experienced…they largely come from the existing workforce and not from college.” This new generation of entrepreneurs listed a keen idea and a desire to get rich among their leading motivations. No doubt the Great Recession will encourage others to follow their path. Of the 8 million-plus jobs lost to the recession — in fields like manufacturing, real estate and financial services — many are not coming back, economists warn. Suddenly, joining the likes of Bill Gates or Sergey Brin takes on a new allure. There may never have been a more tempting time to plunge into America’s start-up culture. All the more important, then, to look before you leap. Entrepreneurship is fraught with anxiety and challenges, many of them unforeseen. Add the extra burden of family responsibilities, and the new entrepreneurs face new pressures. Where can they look for guidance, for an example to follow? How can they succeed at a quest that requires not only the right idea but the right attitude? They can start by studying the New Economy pioneers. They can start by thinking like an immigrant. In researching our book, “Immigrant, Inc.,” we met dozens of people who shaped a dream into a business success, despite having to cross a cultural gulf to do it. They were part of the wave of high skill immigrants who fell into the New Economy like seeds into the good earth. As Wadhawa and others have documented, immigrant founders were behind more than half the high technology companies to rise in Silicon Valley and about a quarter of the high-tech companies nationwide. In learning their stories, we found that the high-achievers typically parlayed immigrant skills into entrepreneurship skills. To succeed in business, they tapped personality traits that propelled them to immigrate, starting with dreaming big. “First of all, you believe in the American dream thing,” said Ric Fulop, one of the founders of Boston battery-maker A123 Systems. “You get here and you say, ‘OK, I have to make some happen.” Immigrant entrepreneurs know well the kinds of pressure that middle-aged entrepreneurs will face. Castillo held an expiring visitor’s visa when she launched her company in the early 1990s. To obtain an immigrant visa, she needed a job. Her start-up had to succeed. She became a highly-motivated, one-woman sales force. “The time was crushing for me,” she explained. “I wanted to stay in America.” She and others say they were often aided by an advantage unique to outsiders. Looking at the landscape with fresh eyes, they could spy opportunity the natives missed. To grow Transtar Industries into the largest transmission parts supplier in the world, Monte Ahuja introduced just-in-time delivery to neighborhood repair shops. Before him, “Everyone just kept doing things the same old way, waiting four days for parts.” Immigrants also benefit from cultural cohesion, what an experienced professional might call a contacts list. They use family to staff the business. Cultural kin become mentors, customers and suppliers. And they reach out to strangers. Time and again, the immigrant entrepreneurs expressed surprise at how often people helped them to keep going with an encouraging word, a key contact–until success became almost inevitable. But beware. Now closer to the age of a typical entrepreneur, Castillo has not escaped the pace she set at 21. “When you run your own business, it’s 24 hours a day, non stop,” she said. “At the top of Mt. Ranier, I’m thinking of my business. Once you start, there’s no way out.” Herman and Smith are co-authors of “Immigrant, Inc.: Why Immigrant Entrepreneurs are Driving the New Economy,” published by John Wiley & Sons, 2009. www.ImmigrantInc.com

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Chris Hoofnagle: The Facebook Enigma

September 3, 2010

Accidental Billionaires: The Founding of Facebook A Tale of Sex, Money, Genius and Betrayal By Ben Mezrich Anchor Books, 272 pp. The Facebook Effect: The Inside Story of the Company That Is Connecting the World By David Kirkpatrick Simon & Schuster, 384 pp. Imagine receiving a visit from Steve Ballmer, where the Microsoft CEO, hulking and as scary as a gorilla, offers you billions of dollars in cash for your “dorm room” project. Imagine saying no, unless Ballmer could meet a condition: you could have both the billions and remain in control of the project. That is one of many anecdotes shared in David Kirkpatrick’s The Facebook Effect that sheds light upon Mark Zuckerberg, the enigmatic and very young founder of Facebook. Zuckerberg is courted by billionaires, fawned over by fans, and worshiped by entrepreneurs, yet he remains a mystery. What animates this man’s character and ambition? What are his goals for Facebook? It’s an important question — a Harvard dropout in his mid-twenties controls the hub of a communications system with the personal information of 500 million users. Different answers are provided in two recent books chronicling Zuckerberg’s founding and nurturing of Facebook. Ben Mezrich’s Accidental Billionaires , published in 2009, is a sensational narrative account of the company’s founding. I read it in a single sitting. It really is that exciting and engaging. Based upon interviews with early competitors (or perhaps co-founders) of the company, Mezrich’s book was written without the cooperation of Facebook, and is being adapted to a motion picture to be released in October. David Kirkpatrick’s The Facebook Effect complements Accidental Billionaires . It covers the beginnings of Facebook as told by Zuckerberg and dozens of others interviewed for the book. But its main contribution is the description of the Facebook “effect”: its potential for changing the internet. This vision makes clear that Facebook is not a toy for college students to “hook up”; it is a platform for sharing data that can erode the power of existing institutions, even the power of Facebook itself. Throughout the book, Kirkpatrick’s skills as a business reporter shine as he takes the reader through incredible stories of the richest and most powerful people in America courting Zuckerberg. Both books are biased in their own ways — Accidental Billionaires employs recreated dialogue to situate the reader in the conflict between Zuckerberg and cohorts at Harvard. It reads like a good novel. The Facebook Effect is exciting too, but too deferential to Facebook’s worldview, and in some parts, it lacks synthesis and critical analysis. Guffaw inspiring statements riddle the text: “It is comforting that Zuckerberg is so personally passionate about the importance of protecting people from information predators.” Who Is Mark Zuckerberg? I picked up these books in hopes that they would animate Zuckerberg’s character. But this key aspect is underdeveloped in both books. Where are the interviews with the parents, high school friends, ex-girlfriends, etc? Where are the anecdotes elucidating formative moments of Zuckerberg’s life? How was he raised? Accidental Billionaires makes hints at autism spectrum disorder, signaled by Zuckerberg’s widely reported awkwardness, and his attachment to cargo shorts and flip flops even in the Boston winters. This is not too strange, certainly not enough to lead to a diagnosis. On the other hand, The Facebook Effect portrays Zuckerberg as a modern Marcus Aurelius. Quotes attributed to him are careful and insightful. He is unaffected by criticism and has an unshakable vision for Facebook. His surroundings are Spartan and he makes use, unpretentiously, of whatever is around him to do his work. Zuckerberg is not the CEO who writes with a gilt pen; he’d be happy with the Bic found in the couch. Facebook’s founding provides insight onto Zuckerberg, but here too, different portraits emerge. A controversy surrounds the company’s founding. Accidental Billionaires proceeds from the perspectives of Eduardo Saverin, a financial supporter and co-founder of Facebook, and the Winklevoss brothers, who allegedly hired Zuckerberg to help create a dating website similar to Facebook. In the last year, after the publication of Accidental Billionaires , a series of salacious allegations have emerged from the Winklevoss litigation. These include allegations of hacking into reporters’ accounts to an instant message conversation where Zuckerberg is alleged to have referred to early Facebook users as ” dumb fucks ” for trusting him. Accidental Billionaires frames Zuckerberg through the use of several themes carried through the book. For instance, Zuckerberg and his cohorts are ambitious outsiders, who got to Harvard on their own intellectual merit. They were more mercenary, because they had to be. The Winklevoss brothers (and almost everyone else) at the college were the cooler in-crowd. The brothers were already rich and were part of an elite social club with different norms. Sex — the lack of it — is also a central framing device in Accidental Billionaires . Mezrich presents a staid culture at Harvard, where Zuckerberg’s crowd was trapped at all-male parties. Women, always viewed from a distance, are portrayed as things to be obtained. Once obtained, perhaps reflecting his subjects, Mezrich describes them as fungible, nameless creatures. Kirkpatrick, on the other hand, begins his book with the opposite picture of Zuckerberg as ladies’ man, and is careful to repeat his longtime girlfriend’s name at least five times. But neither book portrays women, other than Sheryl Sandberg (Facebook’s COO), as ever having a thought. According to Accidental Billionaires , Zuckerberg and his early collaborators were primarily motivated by sex. The idea was to use computers to cut out the inefficient social interaction needed to gain access to sex. It’s Dr. Strangelove for the adolescent male. I dwell on the sex theme to make a larger point: social networking systems can be anti-social. Too often, tech firm leaders see others as objects, to be counted in CPCs or CPMs, or as “targets” and “waste,” as Joseph Turow has observed. Take Zuckerberg’s progenitor to Facebook, Fashmash, as an example. It was modeled on the website, “Am I Hot or Not,” where users could voluntarily post a sexy picture and run a gauntlet of internet critics. Zuckerberg took the voluntarism out of this system for Facemash. He found ways to download all the pictures from the existing electronic facebooks at Harvard and combined them into an attractiveness rating system. We’ve all ranked the attractiveness of our cohorts, but to create a computer system to do so publicly, without their consent, at an elite private school, takes things to a different level. This is a result of more than lack of access to sex; it reflects an estrangement from women altogether. A social network can also be anti-social in mixing the context of relationships. By merging people from different contexts, it circumscribes one’s dynamism and freedom in all contexts. Just consider this passage from The Facebook Effect : “You have one identity,” he [Zuckerberg] says emphatically three times in a single minute during a 2009 interview… “The days of you having a different image for your work friends or co-workers and for the other people you know are probably coming to an end pretty quickly.” “Having two identities for yourself is an example of a lack of integrity.” This passage is one of the many strange contradictions shared about Zuckerberg. How could a young liberal, so interested in changing the world, be so committed to such a rigid and retrograde idea about personality? What Does Zuckerberg Want? The Facebook Effect has more elevated themes that are less cohesive about Zuckerberg. Zuckerberg frames Facebook as a “utility,” he wants to “change the world,” and he has an ambivalence, perhaps even a hostility, towards advertising. There is a great deal of tension in these themes. No entrepreneur wants to give birth to a “utility” because utilities are slow and unresponsive. Their vision is muddied by commissions and bargaining with unions. Utilities give consumers few choices. Perhaps Zuckerberg means something different by “utility.” He might mean that Facebook is something useful that can “change the world,” like email or the postal mail system. The Facebook Effect includes lots of revolutionary rhetoric in this vein, and even a photograph of a Facebook logo above a raised fist. But it is not clear what about the world needs changing, or what end goal Zuckerberg has in mind for Facebook. Zuckerberg clearly does not want to sell the company to a firm that will vulgarize it with ubiquitous ads. But he seems to have done this himself, with a large array of popular advertising gimmicks, such as virtual gifts. In some ways, Facebook has mimicked the advertising world instead of changing it. Facebook’s ad model is based upon driving demand for new products, just like the big media advertising that Zuckerberg is said to despise. Ads are inserted in to the conversation, into relationships, somewhat like product placement. Isn’t that more manipulative than a mass media ad? What Does Zuckerberg Think About Privacy? Kirkpatrick emphasizes that the key to understanding Facebook is the company’s commitment to “radical transparency.” Soon after, we hear that Zuckerberg cares a great deal about privacy. Kirkpatrick continues in this vein, quoting any one-liner he can on privacy without critical engagement. Kirkpatrick’s text lacks synthesis and critical analysis here. For instance, Facebook is seen as creating new breathing room for libertines. But what is a libertine? Is it possible for everyone to be a libertine, or by definition, does it require a particular distance from societal norms and society itself? Jean Des Esseintes, the anti-hero libertine of Huysmans’ Against Nature , found it necessary to leave Paris in order to live a strange, indulgent life. Des Esseintes could not find freedom in Paris; will we in the fishbowl of Facebook? Kirkpatrick’s privacy chapter would suggest not. Much of it is devoted to a series of anecdotes detailing the consequences of fairly conventional transgressions publicized on Facebook. They pale in comparison to Des Esseintes’ hiring of prostitutes to act out scenes from “The Temptation of Saint Anthony”. Yet, employers are not tolerating even boring badness. Employers are operating in a legal landscape that supports liability for negligent hiring and a public relations landscape of instant negative publicity. They have little room to grant individuals private space. Zuckerberg himself should understand this. After all, his first president, Sean Parker, was forced out of leadership because of a minor run in with police. Conclusion Who is Mark Zuckerberg? Accidental Billionaires and The Facebook Effect help answer the question. Zuckerberg is young, and thus we should view some of his ideas and transgressions with tolerance. He’s not just interested in money (although not indifferent either). He wants to maintain control of Facebook, even in the face of flexible, flush offers of cash. He wants Facebook to be a useful tool, but to do so, he thinks that everyone should become more transparent. He’s willing to make you more transparent. He wants to connect the world, but in so doing, he will become the Ma Bell of the internet. Perhaps we’ll call him Pa Poke someday.

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Richard Laermer: Seven Signs The Recession’s Still Ramming Us

September 1, 2010

This is not a rant. It’s a reintroduction to something you knew in 2009 all too well: The Great Recession. People tried to tell us it was over. I, like you, was skeptical. Here is a look at how to recognize that we are back in the throes of a tough time, when we need to rely on our own instincts. What follows is information that might help you get through these difficult months. Deep breath. Most of us are going to make it just fine when this is over — even if it’s years. And incidentally, you should be proud of each of your gray hairs, earned by stress and success. The best indicators of The Recession That Would Not Depart? I see them daily, especially as I lead RLM Public Relations through this, dare I say it, quagmire. 1.) Clients say they need to stop paying for services for budgetary reasons, but they request a pass from the agreement terms. Their idea: “We thought you would want to help us.” We what? 2.) A so-called friend (SCF) says please do a presentation/in-person project/bit of work they don’t want to do — which will take lots of your time — for free because “it’ll be good for you.” Really? Oh, and I doubt the SCF says please either. 3.) When you ask someone how he or she is doing, this person changes the subject, and you both laugh. 4.) You read a post like this and nod like a bobble head doll. When you woke up to this recently, no one around you wanted to admit it! Now you say, “Damn it, I was right.” 5.) Having insufficient funds suddenly is neither painful nor shocking. You can’t complain because everyone has these pains. What can you do? Do you have un-payable bills? Send them back with a let-me-tell-you-why note — respectful but explanatory. (Writing thoughtful notes about your money woes will get a response that will surprise you. Communication is key in recessionary times.) 6.) A regular gig is less accessible and interesting. You start to wonder how you can get paid for your honed skills — whether it be “migrant working” (term for a worker freelancing for a company that once paid you a salary), setting up shop and making it official via incorporation or LLC, or picking up the killer app (or the telephone) and asking everyone you know what they have for you. Keep in mind that…. …Flexibility is key during this period. Don’t be quick to say no to anything And 7.) People are really surprised when you ask for a fee! Someone in Israel actually said that even though Ernst & Young is a huge corporation and was bringing in all their clients to see me speak, well, let’s hear it from the horse’s mouth: “The fact they are giving the stage and the publicity without asking for a sponsorship fee is not uncommon.” Yeah, whatever. I have to say, based on research, doing whatever is necessary is how earlier societies made it through tougher times than this. (And also by ignoring the ignoramuses who feed us the above BS.) In the past, folks didn’t think of themselves as being on the hunt for a job. They just thought it was a break between chapters! So, 2010 and 2011 will be “survival of the fittest “. Man, that Darwin and Spencer knew their stuff Remember that being fit means “being in the know” about topics way outside your field so you can jump in and help where others are clueless. That’s how you earn money where others fail: You are so IN on what’s happening that people who interview you for freelance jobs really want to spend time with you. The following is self-promotional and worthwhile. That’s what my book 2011 is about. If you are broke just write me; I’ll just send you the chapters you need to read! I also highly recommend Sally Hogshead’s Fascinate for more on how to “fascinate” others–now, when they need it most. But this isn’t a book review. You got tough times. I got tough times. But I have one request: I would like it if Americans stopped focusing for a bit on the trivial like the JetBlue guy, Levi Johnston, and the girls who ran from the Playboy Palace. We get through with nonstop focus and non-distracted concentration. A constant discussion of what’s unimportant is problematic in an era of dribbled shit, and it explains why the celebrity magazines are down more than 10 percent. (Good riddance, In Touch Weekly . Enough about Jessica Simpson already.) A recession brings out the best in people. Did you know that Aug. 25 was the National Day of Action to help the folks most hurt by the BP disaster? That day my friend Geoff Livingston (co-host of my weekly podcast “The El Show” ) and I co-hosted a benefit in New York at the Village Pourhouse (they donated the place and 15 percent of the bar total!). This was for families who lost their livelihoods in full part due to British Petroleum… And it was our way of giving back. You can donate too! If you would like to help, here’s a link . I hope you enjoy the rest of your summer. Hey, do you think Justin Timberlake will do a song called RecessionBack ? Just askin’. Comments, questions, or compliments? Tweet @laermer . Let’s get this party stopped!

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Marty Zwilling: Nine Ways to Work Less and Do More in Your Startup

September 1, 2010

The universal challenge of every startup founder is to get everything done that needs to get done, and still have a life. Even outside of business, everyone wants to accomplish more, while working less. I’ve been a student of these techniques for some time, but recently I saw a great summary that seems to pull all the key principles together. Stever Robbins, known on the Internet as the Get-It-Done Guy, just published his book ” 9 Steps to Work Less and Do More ,” which outlines his strategies. These are not aimed specifically at entrepreneurs, but certainly can be applied there as follows: 1. Living on purpose. Figure out what’s really important to you as an entrepreneur. For most, it’s following a passion to show customers your better solution. Live your lifestyle, do what you love, and identify your top priorities. Then you will get things done, and it won’t even seem like work. 2. Stop procrastinating. Procrastination is a killer when it comes to being effective. One of the best ways to stop procrastinating is to break things down into small chunks, using tiny steps to move forward. Break time into pieces. When there’s an end in sight, it’s a lot easier to get down to business. 3. Conquer technology. Cellphones, laptops, and other electronic devices are supposed to give users additional freedom, but far too often, they create time traps. Separate yourself from technology on a regular schedule to not allow a machine’s interruptions to set your day’s agenda. 4. Beat distractions to cultivate focus. You need to set boundaries and say “no”; to stop multitasking; and to find ways to group similar tasks or similar contents. Don’t forget to delegate to other team members, and don’t be tempted by the current “crisis” to postpone the important tasks of strategy decisions and monitoring the progress of the business. 5. Stay organized. Many people confuse ‘organized’ with ‘neat.’ In fact, organized means a place for everything and everything in its place. When you stumble over something that doesn’t have a place, either throw it away or make a place for it. If you don’t have any more room, throw something away – don’t rent a storage unit. 6. Stop wasting time. Work is whatever you need to do that most matches your business goals as they are today. Use the 80/20 Rule to pick and then complete those taks. Stop trying to do things perfectly. “Good enough” is the antidote to perfectionism. Make faster decisions by limiting the options you consider. 7. Optimize . Stop doing what isn’t working so you’ll have the time to optimize the rest of what you do. Some of the best ways to optimize include using team feedback to identify blind spots that could be limiting effectiveness; recognizing when it’s time to call in an expert to get the job done; and listening to your own advice. 8. Build stronger relationships. Build a network of contacts to allow you to harness the power of others’ strengths. Superficial relationships don’t help. Giving is the best and quickest way to strengthen a relationship. Conflict takes energy to sustain, so work to prevent conflicts from arising, and work to end conflicts quickly that do arise. 9. Leverage. Use technology thoughtfully to automate things that take a lot of time, thus gaining leverage. Reuse things rather than re-inventing them. The most valuable computer function in business is “cut and paste.” These days, on the Internet you can find samples of every document and contract you will ever need, so use them. With each of these steps, you will reclaim more control of your business and your life. You will find yourself honing in on the things that actually move the startup forward and make you happy, and learning the skills you need to resist the rest. You too can be a get-it-done guy.

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Marty Zwilling: Startups Need Focus to Cross All the Chasms

August 27, 2010

Everyone in the business world has heard of the book by Geoffrey A. Moore titled ” Crossing the Chasm ” (1991), but most entrepreneurs have no idea how it relates to them. In fact, it’s all about the “focus” required to get early stage technology products across the deadly chasm from early adopters to mainstream customers. Most investors and startup professionals expand this concept of focus to apply to key issues of every aspect of strategic and tactical planning in a startup. Missions and products that are too broad confuse your team, your customers, and potential investors. There are other chasms out there just as deadly as the technology one, such as the ones below: • Market requirements chasm. The first chasm is getting the customer requirements right, product or service, to satisfy a real need that a large number of customers will pay real money to satisfy. It takes focus to resist adding a long list of features that seem to make the opportunity larger, but dilute to focus on both you and potential customers. • Product development chasm. Another common chasm is never-ending product development. Focus is required to resist adding a few more neat features, made possible by the new technology, which in fact make the product more complex to use, impossible to test, and very expensive in time and cost. • Marketing and sales chasm. Lots of people still believe the major cost of a new product is development. These days, with all the clutter in the marketplace, the highest cost is usually marketing. Focus is required here to pick the low-hanging fruit, break through the clutter, and then move on to the next segment. Marketing costs can be a deep hole. • Customer support chasm. Products that have features which are unfocused, or aimed at too broad an audience, can be almost impossible to support. Customers need lots of help with installation, or can’t make the product work the way they expect. The result is that customer satisfaction in unachievable or at least very expensive. In his book, Moore limits his discussion to the transition between customers that are visionaries (early adopters) and customer pragmatists (early majority), in the context of high technology products that appear “disruptive,” meaning they move innovation in that arena to a new level. Here are the five customer segments outlined in his analysis: • Innovators – they love the challenge of a new technology and expect problems • Early adopters – customer visionaries driven by technology who expect it to work • Early majority – pragmatists that buy only with peer review, references and support • Late majority – conservatives who wait until the product is no longer state-of-the-art • Laggards – skeptics who will only adopt when forced or the need is critical The reason that his book was so popular, and is still studied in MBA programs and talked about by investors, is because his analysis has proven to be right so many times. There is a big gap between people who love to try new technologies, and the rest of us, who tend to be much more “technophobic.” Startups need to show real traction before attempting to cross the chasm. I always recommend focus as the key to avoiding Moore’s chasm, as well as the others highlighted here. Start your business with a narrow niche and a focused strategy, but don’t stay there. As the company matures, and you learn more about your customers and your market, then it is time to go broader or deeper. Build an overt strategy with feedback triggers to enhance the product to meet the needs of another segment of customers, and add more features to serve additional needs for the customers you already have. With this approach, you will find it a lot easier to jump all the chasms without crashing or breaking a leg

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Laurence J. Kotlikoff: Proprietary Information Is a Cover for Fraud and Is Dragging Our Economy Down

August 25, 2010

The financial system will continue to be a drag on economic growth because no one trusts it, and, for good reason. Whether or not capital requirements are doubled or tripled, financial firms can, at any time, use the cover of proprietary information to manufacture and sell fraudulent securities. This means that there can be runs on banks, insurance companies, hedge funds, etc. at any time based on rumours, whether true or not, of fraud. This fact that we can’t see in real time and on the web what these companies are doing with our money makes the system incredibly fragile. Dick Fuld, CEO of Lehman before it collapsed, said what happened to Lehman could happen to any bank. He’s right. But his statement also means that Lehman wasn’t to be trusted and that no surviving financial intermediary should be trusted. Unfortunately, regulators, raters, boards of directors, and politicians aren’t going to look carefully at what these companies are buying, holding, and selling, and protect investors. Their incentives are to do the opposite. If we want to get our economies growing, we need to adopt Limited Purpose Banking (see my worst-selling book, Jimmy Stewart Is Dead, which has been endorsed by an absolutely incredible list of people, starting with former Treasury Secretary George Shultz and economist Jeff Sachs, and which I very much hope you will read), which forces all financial corporations to operate as mutual fund holding companies and provides for the full and highly detailed disclosure, in real time, of all the assets and liabilities of the mutual funds. If you like the book, send it to your favorite member of Congress. We need them to start thinking out of the box if we are ever to truly fix our financial system.

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Kelsey Timmerman: 5 Reasons American Apparel Is on the Path to Bankruptcy

August 24, 2010

From the Financial Post ‘s story American Apparel a hipster darling no more as bankruptcy looms : “Dov Charney is at the moment of truth,” said Howard Davidowitz, chairman of Davidowitz & Associates Inc., a national retail consulting and investment banking firm based in New York City. “And all roads for him lead to hell. He’s got to pick the best of the worst choices.” Dov Charney is the controversial CEO of American Apparel , the US’s largest remaining apparel manufacturer. Dov is reportedly very hands on when it comes to clothes and, reportedly his female workers . I wrote about AA in my book Where Am I Wearing? as an option for engaged consumers who are looking to support American-made products. But recently the company’s stock has fallen lower than the necklines of their T-shirts — 66%. It’s doubtful that the brand will go away, but it sounds like they might be in for a restructuring and that likely means Dov will have to go away. This is a shame. Despite his alleged transgressions, I hate seeing someone forced from doing the something that they love. That said, why is American Apparel in this position? Here are five reasons: 1) Sex Sells except when it doesn’t No company has taken the advertising mantra “sex sells” to the level of American Apparel. I mean really, does anything say “come shop here and you’ll get laid” more than this? American Apparel sells T-shirts, socks, and everything in between, but most of their ads feature women barely wearing anything. I’ve never seen a copy of their catalog, likely because they are stuffed beneath the mattresses of every 13 year-old boy from here to Tuscaloosa. If men bought and wore pantyhose, this ad alone would keep them out of bankruptcy. Unfortunately, women buy pantyhose. The fact that their ads are oversexed (and Dov, the face and crotch of American Apparel is too) could have contributed to their decline. 2) Don’t mess with Woody Allen AA ran an ad with Woody Allen in it without his permission. Allen sued and won. Now AA is breathing it’s last breath. Woody Allen is still doing fine. Just saying… 3) A referendum on mustaches Need I say more? 4) Garment workers aren’t supposed to be paid a decent wage Last year AA had to layoff 1,500 workers under threat of a raid by the federal government to investigate claims of illegal immigrants working. Illegal or not, the workers were paid a respectable wage with respectable benefits. American Apparel workers made American Apparel products. This is something unheard of today. There’s no such thing as a GAP garment maker. The folks who make GAP work for some other factory in faraway places. Maybe it’s economically impossible for a brand to actually make something other than a commercial in today’s market. 5) Too cool for school I own two of their collared shirts and a few of their T-shirts. However, much of what they make is too cool, too fushcia, too (dare I say) ball hugging for me. I don’t know a single guy that owns a pair of pink pants, let alone pink briefs. — Which if any of the above factors played a roll in American Apparel’s troubles? I can’t say. Regardless, we live in a world where engaged consumers have limited options already. The loss of American Apparel would limit them even further.

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Kelsey Timmerman: 5 Reasons American Apparel Is on the Path to Bankruptcy

August 24, 2010

From the Financial Post ‘s story American Apparel a hipster darling no more as bankruptcy looms : “Dov Charney is at the moment of truth,” said Howard Davidowitz, chairman of Davidowitz & Associates Inc., a national retail consulting and investment banking firm based in New York City. “And all roads for him lead to hell. He’s got to pick the best of the worst choices.” Dov Charney is the controversial CEO of American Apparel , the US’s largest remaining apparel manufacturer. Dov is reportedly very hands on when it comes to clothes and, reportedly his female workers . I wrote about AA in my book Where Am I Wearing? as an option for engaged consumers who are looking to support American-made products. But recently the company’s stock has fallen lower than the necklines of their T-shirts — 66%. It’s doubtful that the brand will go away, but it sounds like they might be in for a restructuring and that likely means Dov will have to go away. This is a shame. Despite his alleged transgressions, I hate seeing someone forced from doing the something that they love. That said, why is American Apparel in this position? Here are five reasons: 1) Sex Sells except when it doesn’t No company has taken the advertising mantra “sex sells” to the level of American Apparel. I mean really, does anything say “come shop here and you’ll get laid” more than this? American Apparel sells T-shirts, socks, and everything in between, but most of their ads feature women barely wearing anything. I’ve never seen a copy of their catalog, likely because they are stuffed beneath the mattresses of every 13 year-old boy from here to Tuscaloosa. If men bought and wore pantyhose, this ad alone would keep them out of bankruptcy. Unfortunately, women buy pantyhose. The fact that their ads are oversexed (and Dov, the face and crotch of American Apparel is too) could have contributed to their decline. 2) Don’t mess with Woody Allen AA ran an ad with Woody Allen in it without his permission. Allen sued and won. Now AA is breathing it’s last breath. Woody Allen is still doing fine. Just saying… 3) A referendum on mustaches Need I say more? 4) Garment workers aren’t supposed to be paid a decent wage Last year AA had to layoff 1,500 workers under threat of a raid by the federal government to investigate claims of illegal immigrants working. Illegal or not, the workers were paid a respectable wage with respectable benefits. American Apparel workers made American Apparel products. This is something unheard of today. There’s no such thing as a GAP garment maker. The folks who make GAP work for some other factory in faraway places. Maybe it’s economically impossible for a brand to actually make something other than a commercial in today’s market. 5) Too cool for school I own two of their collared shirts and a few of their T-shirts. However, much of what they make is too cool, too fushcia, too (dare I say) ball hugging for me. I don’t know a single guy that owns a pair of pink pants, let alone pink briefs. — Which if any of the above factors played a roll in American Apparel’s troubles? I can’t say. Regardless, we live in a world where engaged consumers have limited options already. The loss of American Apparel would limit them even further.

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Kelsey Timmerman: 5 Reasons American Apparel Is on the Path to Bankruptcy

August 24, 2010

From the Financial Post ‘s story American Apparel a hipster darling no more as bankruptcy looms : “Dov Charney is at the moment of truth,” said Howard Davidowitz, chairman of Davidowitz & Associates Inc., a national retail consulting and investment banking firm based in New York City. “And all roads for him lead to hell. He’s got to pick the best of the worst choices.” Dov Charney is the controversial CEO of American Apparel , the US’s largest remaining apparel manufacturer. Dov is reportedly very hands on when it comes to clothes and, reportedly his female workers . I wrote about AA in my book Where Am I Wearing? as an option for engaged consumers who are looking to support American-made products. But recently the company’s stock has fallen lower than the necklines of their T-shirts — 66%. It’s doubtful that the brand will go away, but it sounds like they might be in for a restructuring and that likely means Dov will have to go away. This is a shame. Despite his alleged transgressions, I hate seeing someone forced from doing the something that they love. That said, why is American Apparel in this position? Here are five reasons: 1) Sex Sells except when it doesn’t No company has taken the advertising mantra “sex sells” to the level of American Apparel. I mean really, does anything say “come shop here and you’ll get laid” more than this? American Apparel sells T-shirts, socks, and everything in between, but most of their ads feature women barely wearing anything. I’ve never seen a copy of their catalog, likely because they are stuffed beneath the mattresses of every 13 year-old boy from here to Tuscaloosa. If men bought and wore pantyhose, this ad alone would keep them out of bankruptcy. Unfortunately, women buy pantyhose. The fact that their ads are oversexed (and Dov, the face and crotch of American Apparel is too) could have contributed to their decline. 2) Don’t mess with Woody Allen AA ran an ad with Woody Allen in it without his permission. Allen sued and won. Now AA is breathing it’s last breath. Woody Allen is still doing fine. Just saying… 3) A referendum on mustaches Need I say more? 4) Garment workers aren’t supposed to be paid a decent wage Last year AA had to layoff 1,500 workers under threat of a raid by the federal government to investigate claims of illegal immigrants working. Illegal or not, the workers were paid a respectable wage with respectable benefits. American Apparel workers made American Apparel products. This is something unheard of today. There’s no such thing as a GAP garment maker. The folks who make GAP work for some other factory in faraway places. Maybe it’s economically impossible for a brand to actually make something other than a commercial in today’s market. 5) Too cool for school I own two of their collared shirts and a few of their T-shirts. However, much of what they make is too cool, too fushcia, too (dare I say) ball hugging for me. I don’t know a single guy that owns a pair of pink pants, let alone pink briefs. — Which if any of the above factors played a roll in American Apparel’s troubles? I can’t say. Regardless, we live in a world where engaged consumers have limited options already. The loss of American Apparel would limit them even further.

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Kelsey Timmerman: 5 Reasons American Apparel Is on the Path to Bankruptcy

August 24, 2010

From the Financial Post ‘s story American Apparel a hipster darling no more as bankruptcy looms : “Dov Charney is at the moment of truth,” said Howard Davidowitz, chairman of Davidowitz & Associates Inc., a national retail consulting and investment banking firm based in New York City. “And all roads for him lead to hell. He’s got to pick the best of the worst choices.” Dov Charney is the controversial CEO of American Apparel , the US’s largest remaining apparel manufacturer. Dov is reportedly very hands on when it comes to clothes and, reportedly his female workers . I wrote about AA in my book Where Am I Wearing? as an option for engaged consumers who are looking to support American-made products. But recently the company’s stock has fallen lower than the necklines of their T-shirts — 66%. It’s doubtful that the brand will go away, but it sounds like they might be in for a restructuring and that likely means Dov will have to go away. This is a shame. Despite his alleged transgressions, I hate seeing someone forced from doing the something that they love. That said, why is American Apparel in this position? Here are five reasons: 1) Sex Sells except when it doesn’t No company has taken the advertising mantra “sex sells” to the level of American Apparel. I mean really, does anything say “come shop here and you’ll get laid” more than this? American Apparel sells T-shirts, socks, and everything in between, but most of their ads feature women barely wearing anything. I’ve never seen a copy of their catalog, likely because they are stuffed beneath the mattresses of every 13 year-old boy from here to Tuscaloosa. If men bought and wore pantyhose, this ad alone would keep them out of bankruptcy. Unfortunately, women buy pantyhose. The fact that their ads are oversexed (and Dov, the face and crotch of American Apparel is too) could have contributed to their decline. 2) Don’t mess with Woody Allen AA ran an ad with Woody Allen in it without his permission. Allen sued and won. Now AA is breathing it’s last breath. Woody Allen is still doing fine. Just saying… 3) A referendum on mustaches Need I say more? 4) Garment workers aren’t supposed to be paid a decent wage Last year AA had to layoff 1,500 workers under threat of a raid by the federal government to investigate claims of illegal immigrants working. Illegal or not, the workers were paid a respectable wage with respectable benefits. American Apparel workers made American Apparel products. This is something unheard of today. There’s no such thing as a GAP garment maker. The folks who make GAP work for some other factory in faraway places. Maybe it’s economically impossible for a brand to actually make something other than a commercial in today’s market. 5) Too cool for school I own two of their collared shirts and a few of their T-shirts. However, much of what they make is too cool, too fushcia, too (dare I say) ball hugging for me. I don’t know a single guy that owns a pair of pink pants, let alone pink briefs. — Which if any of the above factors played a roll in American Apparel’s troubles? I can’t say. Regardless, we live in a world where engaged consumers have limited options already. The loss of American Apparel would limit them even further.

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Mark Miller: Doing the Math on Early Social Security Benefits

August 20, 2010

A recent column on how to maximize your Social Security benefits inspired some readers to fire up their spreadsheet programs. The column was excerpted from my book, The Hard Times Guide to Retirement Security . It delivered this message: most — but not all — Americans will do better over the long haul by waiting until full retirement age to file for Social Security benefits. This message is tough for some to accept. Why wait until age 66 to get something that you can take at age 62? Here’s the core of my argument: For most people, filing early at 62 is a costly mistake that will mean forgoing thousands of dollars in lifetime benefits — in some cases, hundreds of thousands. Although you can file for benefits at 62, most of us will receive larger lifetime payouts by waiting, if at all possible, until we reach age 66, or even 70. However, there are several caveats to this, and it’s a bit of a gamble, because the math all depends on how long you live. Under the Social Security rules, your lifetime benefits will be reduced based on an actuarial projection of your longevity, if you file before the current full retirement age of 66. Starting at 62 means you retired four years early, the net effect: Your annual benefits will be reduced permanently by a total of 25 percent. OK, readers — fire up your spreadsheets! “I don’t believe that your recent advice to delay receiving Social Security payments in order to get a higher monthly amount adds up,” wrote Barry, a reader in the New York area. “The Social Security system is based on actuarial principles, therefore it is designed to pay out the same amount (for persons having the same wage history) no matter when they decide to collect. Thus there is no automatic windfall to be gained by waiting.” Barry goes on to construct a scenario (too lengthy and elaborate to reprint here), in which a 62-year-old person files for Social Security, invests it until full retirement age and comes out ahead at age 66 — assuming a 3 percent annual return, and leaving out income taxes for simplification purposes. “A rough calculation shows that by the time this person has reached the age of 66, he will have $50,600 in the bank as a result of the payments plus interest. The person who is waiting has nothing. This means that the first person has a substantial nest egg which he can use for emergencies or for things like vacations, cars, house improvements, gifts to grandkids, etc.” “My main point is that it is better to start collecting when you are first eligible (assuming you are not still working) because you accumulate a substantial nest egg plus you have money available when you are still young enough to really appreciate it.” Barry assumes that people actually will save this money rather than spend it. I’m not so sure, given human nature and our collective rocky record as savers. I also question the rate-of-return assumption, since we don’t want to invest Social Security money in the stock market or anything else that is risky. We’d need to park the Social Security payments at regular intervals in risk-free certificates of deposit, and current six-month CDs yield less than 1 percent. All that aside, I don’t mean to suggest that waiting to file is right for everyone. It can make sense to file at 62 if you’re in poor health and don’t expect to live long. Likewise, take benefits early if, due to the recession, you’re in desperate financial shape and must have the money now. And Barry is correct to point out that Social Security benefits are designed to be actuarially fair, assuming average life expectancy. But the system is based on averages that many people will beat. Research by the Center for Retirement Research at Boston College (CRR) suggests that the “break-even” age is 81 — if you live past that age, you’ll receive greater lifetime benefits by waiting until your full retirement age. “Many people live longer than average and it is especially likely that one member of a couple will live longer than average,” says CRR’s Andrew Eschtruth. “For example, if the husband is the primary earner, he may die at the average age but his wife may live at least several years longer. If so, she would get her husband’s larger benefit rather than her smaller spousal benefit.” On the other hand, higher survivor benefits can be one reason for a married woman to file early. CRR’s research suggests that if a woman’s own earnings will yield a benefit ranging between 40 percent and 100 percent of the husband’s, she should claim benefits as early as possible. If the husband waits until age 69 to file, the woman will receive the maximum lifetime benefits by filing early and then receiving the higher survivor benefit upon the husband’s death. Further reading For those who would like to dig further into the weeds on this subject — or keep plugging data into their spreadsheets, here are two key studies from the Center for Retirement Research well worth reading. Why Do Women Claim Social Security So Early ? If individuals continue to withdraw completely from the labor force in their early 60s, a large and growing number will be hard pressed to maintain an adequate standard of living throughout retirement. Economic and demographic pressures are gradually eroding key sources of retirement income at the same time that increases in life expectancy mean that people can expect to live for 20 years, on average, after they stop working. And averages do not tell the whole story. When Should Married Men Claim Social Security? Most married men claim Social Security benefits at age 62 or 63, well short of the age that maximizes the expected present value of the average household’s benefits. That many married men “leave money on the table” is surprising. It is also problematic.

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Marty Zwilling: Seven Ways to Make People Feel Important

August 17, 2010

Investors invest in people, not ideas. Customers buy from people, not companies. Employees rally for a great leader. As an entrepreneur, you need relationships to succeed. That means relationships with team members, investors, customers, and vendors. One of the best ways to build a good relationship with anyone is to make them feel important. One of my favorite authors, Brian Tracy, in his book ” No Excuses!: The Power of Self-Discipline ,” outlined seven ways to make other people feel important, which I believe are extremely relevant to entrepreneurs and business: Accept people the way they are. Because most people are judgmental and critical, to be unconditionally accepted by another person raises that person’s self-esteem, reinforces his or her self-image, and makes that person much more likely to accept you and follow your lead. Show your appreciation for others. When you appreciate another person for anything that he or she has done or said, they will like themselves and you more as well. The simplest way to express appreciation is to simply say, “Thank you” for an idea, some good feedback, time spent together, or an order. Be agreeable. The most welcomed people in every situation are those who are generally agreeable and positive with others. Entrepreneurs who like to be argumentative, complaining, or disagreeable, will have a hard time closing a contract, investment, or a customer contract. Show your admiration. People invest a lot of personal emotion in their possessions, traits, and accomplishments. When you admire something belonging to another person, it makes him feel happy about himself. Everyone has positives, and it’s up to you to find them. In turn, these positives will be reflected back on you. Pay attention to others. The most powerful way to pay attention to someone is to listen attentively first, even ask questions, before you launch into a monologue answering every question they might never ask. Believe it or not, before you even say a word, you will become a more interesting and intelligent person in their eyes. Never criticize, condemn, or complain. In business as well as personal relationships, the most harmful force of all is destructive criticism. It lowers a person’s self-esteem, makes him feel angry and defensive, and causes him to dislike you. If your target is someone not present, it still causes a loss of trust in you, since your listener could be the next target. Be courteous, concerned, and considerate of everyone you meet. When you treat a person with courtesy and respect, they will value and respect you more. By being concerned, you connect with their emotions. Consideration is the discipline to do and say things to people that are important to them. Think back on your own recent experiences as a customer or contractor. You don’t always buy the cheapest product or service, if you have a good relationship with the people involved. On the other hand, I almost never buy from someone that treats me like I’m not important. If you want to be a leader, you need to inspire followership. Great leaders develop a good relationship with good people, who are then inspired to follow. A successful leader inspires people to do more than they might have done without the relationship, and more than they may have even dreamed possible. So, if you follow all these seven ways to make other people feel important, you will receive a seven-fold payback on your own objectives of being a leader and building a successful business. That’s a lot cheaper and lot longer lasting than the best advertising and public relations you can buy.

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Jeff Ma: Is Investing in the Market Gambling: Answering the Age Old Question

August 17, 2010

During my recent House Advantage book tour that brought me to places like MSNBC , Google and TechCrunch , one question kept surfacing: Is investing in the market like gambling at blackjack? The broader version of this question is a common one and for the most part has been answered with the explanation that if one invests passively in the market (index funds) or in a company that you are familiar with, it isn’t really gambling. Yet, the question is more complicated than that and I think very relevant in this sideways market. To answer this question, let’s first look at the word gambling. The two most common definitions have to do with “betting on an uncertain outcome” or “playing a game of chance for stakes.” In addition, alternative definitions talk about “taking risks” or “engaging in reckless behavior.” Let’s settle on a definition of “risking something of value on an uncertain outcome for potential gain.” With this definition most types of market investing would be classified as gambling. Certainly, the money you invest would fall under the category of “something of value” and the appreciation of a stock is far from a certain outcome. So investing in the market is gambling. But is that really bad? Let’s take a step back and ask another common question from my book tour: is card counting gambling? Going back to our aforementioned definition of gambling, certainly we risked “something of value” (up to $50,000/hand) and each individual hand of blackjack we played was far from a certain outcome so, yes, what we did could be considered gambling. Yet here in lies the difference. Card counting is a pretty simple concept. You track cards that you have seen so that you can predict cards that you are going to see. By doing such you can actually calculate your odds of winning and can bet more when your odds are better and bet less when your odds are worse. This strategy can be proven sound mathematically and with proper money management and time horizon you can give yourself a fairly high probability (greater than 95% and with more conservative strategies greater than 99%) of winning in the long run (sometimes it took us close to a year in the casinos). So in a nutshell we used money management and time horizon to reduce the uncertainty of our outcome and therefore reduce the gamble of our gamble. This analogy works well in the market where unless you are Jim Simons , the longer your time horizon the more certain your outcome. Of course, if you don’t allocate your resources properly based on your overall amount of cash, you may never be able to see the end of that time horizon. Proper money management helps drive down the uncertainty of your outcome and helps reduce the gamble of your gamble. So what does this mean practically? First of all, investing in the market is gambling and we all need to be comfortable with that. But in order to reduce the gamble we need to reduce the uncertainty of the outcome. There are a few ways to do that: 1) Invest in instruments (index funds) that have predictable movement over time. 2) Have a time horizon (longer than a year) that allows that predictable movement to occur. 3) Utilize a money management (don’t put all your eggs in one basket) strategy that allows you to remain in the game for the duration of your long time horizon. Our success at the tables was not based on one hand of blackjack; rather, it was based on the knowledge that we would play hundreds of thousands of hands of blackjack in order to ensure that we weren’t gambling.

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Don Tapscott: We Need World-Wide Corporate Reporting Standards

August 11, 2010

It was many years ago that I first heard the optimistic adage, “you do well by doing good.” Back then, advocates of so-called Corporate Social Responsibility were trying to make a business case for good corporate behavior. Few were persuaded. The main reason for lack of success in winning support for the “being good,” is that the adage was not true. Many companies did well by being bad. Creative accounting, unfair labor practices, corporate secrecy, monopolistic behaviors, externalizing costs, and shady environmental behaviors could help beef up the bottom line. Not to mention that corporate executives themselves could “do well” by paying astronomical bonuses, even while their companies were struggling. But the collapse of the financial systems and the global economic crisis of 2009 were a wakeup call to the world. It’s become clear that business can’t succeed in a world that is failing. And the world has never faced greater challenges: Over-consumption of limited natural resources, the threat of global warming, and the need to provide clean water, food and a better standard of living for a growing global population. Decisions taken in tackling these issues need to be based on clear and comprehensive information, something which seems self-evident but there was no world-wide agreement on just what that information should look like. A coalition of representatives from around the world from major corporations, the Big Four auditors: PwC, Deloitte, Ernst & Young and KPMG, securities agencies, regulatory bodies, non-governmental organizations and standard-setting sectors have studied the issue. The group’s recommendation is the formulation of the International Integrated Reporting Committee (IIRC). Currently, publicly listed companies must file an annual report. These reports follow either the U.S. Generally Accepted Accounting Principles (U.S. GAAP) or the International Financial Reporting Standards (IFRS). Increasingly companies are also voluntarily producing corporate social responsibility or sustainability reports. But the relevance and quality of the information is all over the map. Some companies issue a two-paragraph statement while others produce weighty tomes. There is no global standard for measuring and reporting on environmental, social and governance performance. “To make our economy sustainable we have to relearn everything we have learnt from the past. That means making more from less and ensuring that governance, strategy and sustainability are inseparable” said Professor Mervyn King, Chairman of the Global Reporting Initiative. “Integrated Reporting builds on the practice of financial reporting, and environmental, social and governance — or ESG — reporting, and equips companies to strategically manage their operations, brand and reputation to stakeholders and be better prepared to manage any risk that may compromise the long-term sustainability of the business.” The IIRC wants a globally accepted framework that brings together financial, environmental, social and governance information in a clear, consistent and comparable format. The objectives for the framework are to: a) support the information needs of long-term investors, by showing the broader and longer-term consequences of decision-making; b) reflect the interconnections between environmental, social, governance and financial factors in decisions that affect long-term performance and condition, making clear the link between sustainability and economic value; c) provide the necessary framework for environmental and social factors to be taken into account systematically in reporting and decision-making; d) rebalance performance metrics away from an undue emphasis on short-term financial performance; and e) bring reporting closer to the information used by management to run the business on a day-to-day basis. In my mind, the creation of the IIRC is another manifestation of an old force with new power that is rising in business, one that has far-reaching implications for most everyone. Nascent for half a century, this force has quietly gained momentum through the last decade and is now triggering profound changes across the corporate world. Evidence suggests firms that embrace this force and harness its power will thrive. Those who ignore or oppose it will suffer. The force is transparency. Globalization, instant communications, organized civil society — and now a crisis in trust, have changed the rules of the game. Firms are being held to complex and changing sets of standards — from unrelenting webs of “stakeholders” who pass judgment on corporate behavior — to regulations, new and old, that govern and often complicate everyday activities. In an ultra-transparent world of instant communications, every step and misstep is subject to scrutiny. And every company with a brand or reputation to protect is vulnerable. Customers can evaluate the worth of products and services at levels not possible before. Employees share formerly secret information about corporate strategy, management and challenges. To collaborate effectively, companies and their business partners have no choice but to share intimate knowledge with one another. Powerful institutional investors today own or manage most wealth, and they are developing x-ray vision. Finally, in a world of instant communications, whistleblowers, inquisitive media, and Googling, citizens and communities routinely put firms under the microscope. I’ve produced a few “studies in bad timing” in my life. One stellar example was a book I co-authored with the brilliant business strategist David Ticoll — The Naked Corporation: How the Age of Transparency Will Revolutionize Business . As people researching how technology changes things, we became interested in how the Internet would change the use and communication of information. We defined transparency as “access to pertinent information by stakeholders.” By “pertinent,” we meant information that can help if you have it and hurt if you don’t. It’s been almost a decade since the book hit the streets. We argued that the corporation is becoming naked, and as a result will have no choice but to rethink values and behaviors — for the better. Our tag line was “you’re going to be naked, so you’d better be buff!” Reviewers either loved the book or hated it. Sales were modest. My deepest regret, in hindsight, was that clearly the book was not read and heeded by the leaders of our financial services industries. Lacking “fitness” they brought down the industry and with it the global economy. To paraphrase Victor Hugo, there is nothing so powerful as an idea whose time has come — again. To build trusting relationships and succeed in a transparent economy, growing numbers of firms in all parts of the globe are being forced to behave more responsibly than ever. Disgraced banks represent the old model — a dying breed. I say good riddance. Business integrity is on the rise, not just for legal or purely ethical reasons but because it makes economic sense. Companies need to do good — act with integrity — not just to secure a healthy business environment, but for their own sustainability and competitive advantage. Firms with ethical values, openness, and candor have discovered that they can be more competitive and profitable. Further, today’s winners increasingly undress for success. Our research suggests that open corporations perform better. Transparency is a new form of power, which pays off when harnessed. Rather than to be feared, transparency is becoming central to business success. Rather than be stripped unwillingly, smart firms are choosing to be open. Over time, what we call open enterprises — firms that operate with candor, integrity, and engagement — are most likely to survive and thrive. And any bank executives who think they can return to the old ways are mistaken. In the new business environment firms will do well by doing good.

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Video: Firestein Says HP Handled Hurd Resignation `Impeccably’: Video

August 9, 2010

Aug. 9 (Bloomberg) — Peter Firestein, a consultant at Global Strategic Inc. and author of the book “Crisis of Character: Building Corporate Reputation in the Age of Skepticism,” talks about the Aug. 6 resignation of Hewlett-Packard Co. Chief Executive Officer Mark Hurd. Firestein speaks with Betty Liu on Bloomberg Television’s “In the Loop.” (Source: Bloomberg)

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Michael Martin: Big Oil Has Replaced Big Tobacco In The Bulls Eye of America’s Vitriol

August 8, 2010

Despite giant pay packages, I wouldn’t want to be a CEO of an oil firm if my life depended on it. Everyone hates you. You have to deal with some of the most unsavory people in the world who steal, bribe, reneg, and lie to you all-the-while demanding signature bonuses , sometimes upward of $70 million. You at times put your own life at risk via your business travels. Back home in America, you have to deal with your own brethren who spit in your face, but at the same time want $2 a gallon gasoline consistently, as if it’s their birthright. You have to have an appeasing and socially acceptable Green ethos. That’s all before you have to deal with a lame President, House, and Senate who collectively could not come up with a National Energy Policy if their offices depended on it. They love the PAC money though. [As of this writing, the Department of Energy has not discovered a single drop of oil for America. Alec Baldwin wants to shut down an oil company . I say let's put the DOE down first Alec - I'll work with you on it.] Tom Bower’s new book Oil: Money, Politics, and Power in the 21st Century is the best book on crude oil that I’ve ever read. It starts with the discovery of oil here and abroad, and how it’s been ingrained in our economy and culture ever since. Bower spoke with more than 250 industry professionals, politicians, and analysts over an 18 month period of time in order to complete this book. It is written as the definitive history of crude oil – and it’s backed up by facts. Not make believe facts or Michael Moore Facts either, but real facts, that in the end provide readers with a well-rounded understanding of America’s addiction to crude oil and how we got here. No one is going to like the conclusion, but “A is A.” You know your history with crude oil. It’s in everything you use every day . Tom Bower is an award-winning, full-time columnist for the Guardian UK . He does not hold back in this book one iota and he doesn’t let anyone off the hook. If you read the book, I think the results will surprise you. “Oil men are intelligent. Most of them are honest and they represent their corporations fairly,” he said. “They are committed to a very complicated business – geographically, geologically, and politically. No one man can do it alone. It requires a culture to make it work.” As recently as 1996, American crude oil production fell to 6.9 million barrels per day and we became a permanent net importer. For every $1 rise in crude oil, Saudi Arabia brings in $2.7 billion in revenues to their country, mostly via Saudi Aramco. Iran, via the National Iranian Oil Company (NIOC), brings in approximately $900 million for every $1 rise. Bower has some criticism for the CEO’s and their response to the green movement (what he calls green). “The environmentalists and green influence the price of oil. Oil companies have had their focus diverted by green . Their prime job is to drill and find oil. The green movement has been unhelpful to the oil industry on a whole.” But what about the giant hole in the ozone and that giant iceberg that’s allegedly four times the size of Manhattan that’s broken off the Petermann Glacier ? “On the other hand, the energy is cleaner. But whether the oil corporation can actually deliver the green movement’s desire’s I think is ridiculous, because in the end, that comes down to government.” It took over 20 years for the Exxon Valdez disaster to be squared away – at least legally. And what they paid in fines was a pittance. “Like Exxon, BP will take decades and generations to reduce and avoid damages from the gulf spill as best they can. In the end, Exxon paid the equivalent of 2 days revenue for the Valdez disaster,” about $500 million. [FYI - the Exxon Valdez is still in service. It's been repaired, sold, and renamed.] But the good news is that according to White House energy adviser Carol Browner, 75% of it is already gone !!! Bower is not so convinced that America will come down too hard on BP. “One-fifth of the all the oil produced today around the globe is consumed by America. America needs BP’s oil. They employ 30,000 people in the US. They are not evil people. They are not malicious people – they have made a terrible mistake. But on the whole, as much as I’m critical of them, I have not met a bad BP-person – except perhaps John Brown. You don’t get to the top by being an angel.” Although, Bower disagrees with me, I suggest that Corporate CEOs get away from the sole focus of trying to meet the quarterly earnings number. Start announcing annually. Wall St. will get used to it. Take risks and be bold. We need energy. I’d like to see the House and Senate give tax credits to investors who can take the risk and who have the ability to jump start investments in bio fuels, electric cars, hydrogen cars, and cheaper oil for the time being, so that we can end our addiction to crude oil or at least cut it down substantially. In order to get off our crude oil addiction of convenience, America is going to have to make a lot of uncomfortable changes in its usage that will require a lot of discipline: car pools, bikes, buses…walking. For those of us who are addicted, those changes are going to be a major inconvenience to our current way of doing things. Anything less of a commitment, is an endorsement of the status quo. As long as we are addicted to crude oil, the derivative products heating oil and gasoline, and the thousands of products that are derived from crude oil , we are partly to blame for the environmental damage and oil spills such as Deepwater Horizon. I interviewed Bower and recorded a 23-minute podcast that’s available at my blog MartinKronicle . Below are some Q & A from the interview: Michael Martin: Who do you think benefits the most from high crude prices? Tom Bower: Oh, certainly the producers for sure. They are the ones who try to manipulate the price higher. The Saudis gauge the demand and cut their production so that they can maximize their revenue. They do this every day. MM: Who benefits from oil embargoes? TB: The traders and speculators. MM: What is the best way we can get off the crude oil addiction? TB: American needs to get on diesel. It will reduce need for oil by 15% per day. They need to get off the SUVs too. But Congress has never passed a substantial energy policy. It’s always voted down by their constituency because they’re afraid to miss out on their votes. America is wasting a great deal of money on their energy.”

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Saul Friedman: Consequences of Unequal Distribution of Wealth: The Rich Get Richer…

August 8, 2010

Shirley Sherrod had it about right when she said, “Y’all, it’s about poor versus those who have. It’s really about those who have versus those who don’t. And they could be black, they could be white, they could be Hispanic…” That wasn’t exactly the whole truth, for she and her husband Charles were ardent, longtime civil rights activists who understood that years of racism played a large role in perpetuating the ignorance and poverty in the South among blacks as well as whites. (Racism is here defined as the belief among many whites, supported by the law, that non-whites were inferior. Only in America did the Supreme Court, in Dred Scott , hold that black slaves were chattel, less than human.) Overcoming that sad heritage, Ms. Sherrod, who has spent a lifetime helping in the struggles of the poor, of all shades, put her finger on a fundamental human problem in much of the world — especially the United States — the unequal distribution of wealth among too many of us. That is the subject of a new book that has become the rage among social scientists and activists in Europe, especially Britain. It’s called The Spirit Level: Why Greater Equality Makes Societies Stronger , written by British public health researchers Richard Wilkinson and Kate Pickett, who have produced an unprecedented rediscovery of the causes of so much of today’s anger towards the institutions of government and finance. The book was called to my attention by a Canadian reader, Dr. Rob Dumont, a PhD, from a prominent and wealthy family. In a reply to one of my pieces on poverty, he quoted from the book to tell me that according to its central thesis, the growing gap in many countries between the haves and the have-nots, is responsible for more than the misery of poverty. According to the book, such health and social problems as “Obesity, Mental illness, drug and alcohol abuse, homicides, imprisonment rates, lowered life expectancy, over consumption of resources, teen pregnancy and the lack of social mobility,” all have in common strong links to inequality of wealth. Interestingly, the authors, who have exhaustively documented their work, do not denounce the wealthy. Rather they point out that the most affluent citizens as well as the most wealthy countries also suffer from these ills. Their analysis mocks the American Declaration of Independence which proclaimed, “all men are created equal.” The original sin of slavery gave lie to that promise and the lack of equality has taken a toll in this nation even today. As one knowledgeable Amazon reviewer, Dr. Nicholas P. G. Davies, a Briton, wrote, “Inequality issues are often presented as being about the poor, but this book shows we are all poorer for living in more unequal societies. Inequality is as bad for the rich as it is for the poor. Society is poorer as inequality becomes greater.” AWilkinson and Pickett make this clear with dozens of graphs, which rate the nations based on the problems that come with inequality. As they say, “The impacts of inequality show up in poorer health, lower educational attainment, higher crime rates, lower spending of social capital, lower cooperation with and trust of government.” One graph, showing that “health and social problems are worse in more unequal countries,” makes these points: “The U.S., Portugal and the United Kingdom rate high in the mount of income inequality. For the U.S., low taxes (by international standards), a weak trade union movement, low minimum wage and a tradition of individualism have resulted in a high level of income inequality.” Indeed, the U.S., with its obsession with the market economy, has modest social programs, Social Security and Medicare, while most of the other 20 nations listed are Social Democracies with a broad array of social insurance benefits, including universal health care. Canada is roughly in the middle of the pack, along with France, Spain and Switzerland. Japan and the Scandinavian nations have the lowest income inequality; offering cradle-to-grave social programs. Some critics suggest that the book cherry picks its statistics and the alleged problems to prove their point. But who could argue with the graph that puts the U.S., the richest country, almost off the charts that show the relationship between a huge income gap — perhaps the highest among civilized countries — and such health and social problems as infant mortality, higher than most European nations, homicide and imprisonment rates, the highest in the world, obesity, child well-being (poverty among children has reached new heights) and drug and alcohol addiction? Any thinking American can verify the sad truth in another graph that shows these health and social problems are worse in more income unequal states. With the rise of unfettered rapacious, anti-labor capitalism, which touted sweatshops and child labor, income inequality rose to criminal leves. And today, as you might expect, the southern states, namely Mississippi, Louisiana, Alabama, Texas, Tennessee, Kentucky, West Virginia and Florida “have high levels of income inequality and much poorer outcomes in the health and social areas.” These states also have the highest levels of poverty, and the lowest levels of education attainment, and in the last couple of years, income inequality has become worse throughout the United States, especially in the industrial north, as a result of the 2008-9 recession, which has increased home foreclosures, personal bankruptcies, and the numbers of Americans — nearly 50 million — struggling against poverty or near poverty. Yet at the same time, the rich are becoming obscenely richer. Michelle Singletary reported in the Washington Post last month that while the average income for the top one percent of earners rose 281 percent, or $973,000 per household, in the last decade, the bottom fifth saw their incomes increase 16 percent, or $2,400 per household. Former Labor Secretary Robert Reich, who wrote the forward for the American edition of the book, noted that today’s CEOs are paid more than 350 times that of the average worker. Surely we’ll see the results of such inequality in health and social problems in the next few years.. In his inaugural speech, President Obama said “The nation cannot prosper long when it favors only the prosperous.” But that’s exactly what has happened, as bankers have made huge profits and gotten scandalous bonuses while real unemployment reached towards 15 percent. Franklin Roosevelt fought the economic royalists of his day to help Shirley Sherrod’s Georgia get electricity and survive the Great Depression with the Tennessee Valley Authority and the Works Progress Administration. What has Obama done? One can blame the Republicans or the U.S. Senate, but where is the leadership of the President? It won’t do to give Ms. Sherrod a job. Platitudes like “I feel your pain” are not true. It might help to use the powers of his federal government to put Americans to work. But as she said, “Folks with money want to stay in power and they’ll do what they need to do to stay in power…It’s always about money, y’all,” You can find out more about “Spirit Level,” at the excellent British web site Equality Trust . Write to saulfriedman@comcast.net Friedman also writes for www.timegoesby.net

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David Isenberg: Washington Rules and PMC

August 3, 2010

Today is the official release date of Washington Rules: America’s Path To Permanent War by Andrew J. Bacevich Bacevich is author of several, meticulously documented books on American geopolitical ambitions and the use of the military to serve those ends. Past works, to name a few, include The Imperial Tense: Prospects and Problems of American Empire ; American Empire: The Realities and Consequences of U.S. Diplomacy ; The New American Militarism: How Americans Are Seduced by War ; The Long War: A New History of U.S. National Security Policy Since World War II ; and The Limits of Power: The End of American Exceptionalism . This book, and some of his past ones are published by the American Empire Project, a book series that deals with the recent imperialist and exceptionalist tendencies in U.S. foreign policy. Bacevich, it is important to note is no garden variety armchair academic. Although he is now a professor of international relations at Boston University he is also a retired career officer in the United States Army. He graduated from West Point in 1969 and served in the United States Army during the Vietnam War. Later he held posts in Germany and the Persian Gulf up to his retirement from the service with the rank of Colonel in the early 1990s. On May 13, 2007, his son, 1LT Andrew J. Bacevich, Jr., was killed in action in Iraq by an improvised explosive device in Iraq. In terms of street credibility he has tons more than the average commentator on the issue. He has doubtlessly experienced far more about the way military affairs actually happen in the real world than the average PMC trade association will ever know. So what he writes on the subject of PMC is worth reading. I disagree that PMC are mercenaries, based on the legal definition of the word as one finds in the Geneva Conventions. But everything else in the below quote I agree with one hundred percent. Since Vietnam, military and civilian authorities presiding over the capital that bears the old general’s name have abandoned his position, radically revising–indeed severing–the relationship between citizenship and soldiering. As with owning a gun or getting an abortion, military service falls within the realm of activities governed by individual choice. To defend the country and its interests, the United States now relies on volunteers who fill the ranks of a professional military establishment only loosely connected to American society. In General Washington’s day this was known as a “standing army.” To the extent that the pool of willing volunteers proves insufficiently deep, the Pentagon makes up the difference by outsourcing many functions that uniformed regulars once performed. In an earlier day, such hired auxiliaries were known as war profiteers or mercenaries, terms freighted with unsavory connotations. Today to conceal such unseemliness, the preference is to use anodyne terms like private security firms and private contractors. The United States does not rely on this mix of military professionals and profit-oriented contractors because doing so delivers policy outcomes at an affordable price. Based on these criteria, the arrangement flunks, as the post-9/11 record amply demonstrates. Only when it comes to satisfying the ambitions of those wielding power and influence in Washington, while giving the American people a pass, can this system be said to work. The Founders, the commander of the Continental Army not least among them, disparaged standing armies as inconsistent with republican virtue while posing a potential threat to republican institutions. Today, Americans evince little interest in cultivating virtue, preferring instead the frantic pursuit of happiness, defined more often that not in terms of wealth, celebrity, and personal license. Washington meanwhile concerns itself less with the well-being of republican institutions that with feathering its own net, relying on adventurism abroad to divert attention from chronic dysfunction at home. pp. 243-244

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Katherine V.W. Stone: Banks, Babies and Biases

July 29, 2010

Twenty years ago, banks had a reputation for being very conservative. Then came the high flying world of casino banking, with its high roller, risk-embracing culture. Beneath it all, though, the core of the banking industry mentality is deeply conservative — not the good kind of conservative that makes sure that loans are collateralized and deposits are protected. Rather, it is a conservative mentality produced by an out-of-date understanding of the world in which the loans — particulary mortgage loans — operate. And that misunderstanding will continue to spell trouble for all of us. Here is one telling case in point. In their new efforts to be cautious, banks and other mortgage-lenders are reportedly refusing to give loans to pregnant women. (Tara Siegal Bernard, Need a Mortgage? Don’t Get Pregnant , New York Times, July 20, 2010) The refusals are based on the lenders’ fear that pregnant women may decide not to return to work, or may not have a job to return to, after childbirth. What this policy reveals is not that the banks are sexist or family-hostile — which they are — but that they are about seriously of touch with the reality of the labor market. When was the last time any applicant for a thirty year mortgage had the same job, and income, for thirty years? Fixed-rate, self-amortizing mortgages were designed for a workplace in which workers stayed with their employers for their entire careers. These types of mortgages arose in the 1930 and 1940s, a time when employers wanted workers to stay with them a long time so they could develop loyalty, learn in-house skills and progress gradually up an orderly job ladder until retirement. Long-term mortgages assume that borrowers have reliable and long-term employment relationships. For much of the 20th century, this was true, much of the time. America’s great post-war middle class was comprised of blue-collar workers who enjoyed long-term, stable jobs and predictable promotion paths that extended from hiring to retiring. Auto companies, insurance companies, the steel industry, and other industries dominated by large firms offered their workers de facto job security, orderly promotion opportunities, a rising wage trajectory, dependable benefits and a reliable pension upon retirement. Such jobs were by no means universal — they eluded most African Americans, women, and rural Americans — but they formed the template upon which 20th-century social policy was built. Over the past two decades, the reality of long-term stable employment has vanished for all but a lucky few. Employers have created new types of employment arrangements that do not rely on a stable and loyal workforce, but which provide them flexibility instead. Sometimes this means using temporary workers or independent contractors to perform tasks previously performed by regular employees. But more frequently it means altering employees expectations and repudiating the culture of permanency that employers used to foster. Employers want to be able to bring in new employees with new skills at any level, eliminate those with obsolete skills, and reassign incumbent employees across departmental and functional lines. These changes are not all nefarious — they have unleashed creativity and enabled many to escape the deadening drone of dull, repetitive work. However, the change in the nature of employment has undermined many crucial elements of our social safety net, including our housing policy. The problem now is that few people have the kind of long-term job security that our housing policies take for granted. According to the Bureau of Labor Statistics, the median length of time a worker spends with a particular employer has decreased in every age group since 1980, except for women ages 35-44, who saw a slight increase. Today, more and more people have an episodic experience in the labor market, moving from employer to employer, with periods of employment often followed by periods of unemployment and transition. When unemployment strikes, mortgage payments that once had been manageable become impossible. So banks that refuse loans to pregnant women for fear that childbirth will disrupt the employment relationship are worrying about the wrong problem. Almost no one has safe, reliable employment these days. All workers are at risk of termination and seeing their jobs outsourced to temporary workers, independent contractors, or simply to new blood. The answer is not to single out one group whose employment relationship is precarious — nearly everyone’s is. Instead, banks and other lending institutions need to rethink their lending practices to meet the new reality of people’s work life cycles. For example, they should redesign mortgages to have flexible resets that permit mortgage holidays or interest rate dips during spells of unemployment. Some commercial loans currently have this feature for businesses that are in temporary difficulties. Because the nature of employment has changed profoundly, it is time to revisit the structure of housing finance. Katherine V.W. Stone is the Arjay and Frances Miller Professor of Law at UCLA School of Law. She specializes in labor and employment law, and her book, From Widgets to Digits: Employment Regulation for the Changing Workplace was awarded the Michael Harrington Award for linking scholarship to current issues of social policy.

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Matt Wilson: Ten Rules Every Entrepreneur Should Live By

July 27, 2010

Entrepreneurs come in all shapes and sizes, from all different backgrounds and are involved in all different business models. There are however many lessons that every entrepreneur needs to know. Characteristics like determination, creativity and poise will outlast flashy get rich quick schemes time and time again. Take a look at these ten rules every entrepreneur should live by, courtesy of Under30CEO the resource for young entrepreneurs … America has always been a beacon of entrepreneurialism because it is so deeply rooted in our history. Our country was founded and then settled by innovators willing to sacrifice old certainties for new opportunities. The people who came to America a few hundred years ago looking for a better life were risk takers in every sense. Do not mistake being a risk taker with being reckless. Risk takers must also become risk analyzers — evaluating the pros and cons, then trusting their instincts and recognizing and seizing an opportunity to create their own businesses. We, as a nation, must regain our appetite for risk in order to embolden the hearts of our entrepreneurs. You may have recognized common traits that bind these entrepreneurs. We don’t believe these shared traits are merely a coincidence; we think they are the keys to their success. We hope you’ll apply these traits to your own strategy for success for your future or existing business. We’ve highlighted them in every chapter throughout the book and now present them together, along with examples of their application by our entrepreneurs. 1. Trust Your Gut Successful, independent-minded entrepreneurs know when to trust their gut. An expanding body of research from a number of fields — including economics, neurology, and cognitive psychology — confirms that intuition is a real form of knowledge. It’s a skill you can develop and strengthen — one that’s particularly valuable in the most chaotic, fluid business environments, when you must make critical, high-pressure decisions at a moment’s notice. At such times, intuition usually beats rational analysis. Trusting your instincts also emboldens you to carry out new, untested ideas and ventures, even when nobody else believes in them. It’s about seeing the need for a product or new service and just knowing you can make it happen. You may not have the cash on hand to commission a market study or conduct a focus group, but you’re still willing to stake your reputation and money on that idea. Why? Because that’s what your gut tells you to do. 2. Buck the Conventional Wisdom Ignore those who say, “It won’t work” or “It’s never been done that way.” Our profiled entrepreneurs succeeded in large part because they veered away from established formulas and ways of thinking. Don’t just blindly accept the so-called best practices of your industry. Look at them with a hypercritical eye. Dissect them, slice and dice them, contemplate different what-if scenarios. Challenging convention can open the door to competitive advantage. 3. Never Let Adversity or Failure Defeat You Don’t accept the limits that others or circumstances place upon you. The ranks of successful entrepreneurs are filled with men and women who refused to stop believing in themselves, despite the derision of others or heartbreaking failures in their past. As an entrepreneur you’ll undoubtedly experience stressful moments that will test your faith, especially in the beginning when you’re still trying to establish your brand and separate from the pack. Just remember, the antidotes are persistence and resiliency. 4. Go on a Treasure Hunt and Find an Undeserved Niche In the business world, there’s nothing more exciting than finding an underserved niche representing a lucrative market that everyone else has failed to spot and target. That’s like finding gold bullion at a crowded beach — it was there for everyone else to see, but you were the one who took notice of the golden glint in the sand. Even a huge multi-billion-dollar company can’t offer something for everyone. Look for ways to fill a niche — a road even small start-ups can take. Many niches are too small for giant corporations to consider. 5. Spot a New Trend and Pounce Often, a shift in cultural or economic trends will create new entrepreneurial opportunities. Sometimes that shift arises from advances in technology. Many of our profiled entrepreneurs recognized emerging consumer needs and desires that signaled new market opportunities. 6. Hit ‘Em Where They Ain’t Casey Stengel, legendary manager of the New York Yankees, loved to tell the story of baseball great “Wee Willie” Keeler, who stood at just 5′ 4”, weighed 140 pounds, and began a streak of eight seasons with two hundred or more hits. The Hall of Famer’s bat was only thirty inches. Once a sports reporter asked him how such a small guy could get so many big hits. Willie replied, “Keep your eye clear, and hit ‘em where they ain’t — that’s all.” The same holds true in the business world. Whenever possible, set your sights on areas that your competitors have neglected or ignored. 7. Just Start If you have an idea for a business, truly believe it will succeed, and are willing to push yourself harder than you ever have before, then take the risk and just get started. If your gut is telling you this business idea is a winner, take action now. The “perfect” time for a business launch will never present itself. More often than not, waiting just gives would-be competitors the opportunity to beat you to the punch. None of the entrepreneurs we interviewed waited for a sign from heaven or until a long-forgotten aunt died and left them $300,000 in seed money. Many faced tremendous financial hurdles. Nonetheless, they saw a market opportunity and grabbed it. 8. Save Your Bucks and Get Noticed Without Expensive Advertising If your start-up business is on a tight budget, there are plenty of ways to get customers’ attention without spending money on advertising. Get your creative juices percolating and try something different. And when an opportunity arises to expose your brand to the masses, don’t think twice — jump right in. Use your own creativity to make your company stand out in a crowd. 9. Exploit Your Competitor’s Weakness and Make It Your Strength The sharpest entrepreneurs have a knack for viewing the world from the perspective of their customers. That quality can help identify your competitors’ vulnerabilities and shortcomings. If your number one competitor has a reputation for slow deliveries, for example, make certain your deliveries arrive in less time. Engage and listen to customers to identify such weaknesses. 10. Never Stop Reinventing Your Company You know the old adage “If it ain’t broke, don’t fix it”? The problem with that piece of advice is that it invites complacency — and complacency in business is like a slow leak in a tire. You may not notice the damage it’s causing until the thing is completely flat and you can’t move forward. Top-performing entrepreneurs aren’t afraid to take chances and keep expanding their product line. They’re not afraid to give their business a major overhaul now and then to keep pace with changes in the marketplace. And sometimes a complete face-lift is in order. Believe that growth and opportunity for this nation’s economy are inevitable. Look at the world through the eyes of an entrepreneur. Use your imagination to identify market opportunities that others have overlooked. Believe in the power of your ideas and just start the pursuit of your own entrepreneurial dream. It’s up to you to reclaim the American Dream. This post originally appeared at Under30CEO.com written by Don Martin and Renee Martin authors of The Risk Takers .

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Video: Firestein Says Replacing Hayward Won’t Change BP Image: Video

July 26, 2010

July 26 (Bloomberg) — Peter Firestein, a consultant at Global Strategic Inc. and author of the book “Crisis of Character: Building Corporate Reputation in the Age of Skepticism,” talks about the potential impact of BP Plc’s possible removal of Chief Executive Officer Tony Hayward on the company’s image and the qualifications of Robert Dudley, the director of BP’s oil spill response unit. He speaks with Margaret Brennan on Bloomberg Television’s “InBusiness.” (Source: Bloomberg)

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Michael Tasner: Conducting a 360 Degree Review of Your Web Platform and Marketing Efforts

July 23, 2010

I’m a huge fan of 360-degree reviews. You may have heard of these. They are typically used in the Human Resource department of a company for employee reviews. The objective of the review is to get a view from all different angles (thus the name 360 degrees) of the particular employee. Here’s how it works: You’re an employee working at one of the large automakers (who will remain nameless). Assuming you still have a job, you work daily with other employees just like you, for a direct supervisor. You have people reporting directly to you. In the process of conducting your review to decide whether you will get a two-cent-per-hour raise (I know, don’t get too excited), your performance will be reviewed by your boss, your peers, and your own direct reports. This ensures that you’re getting the most accurate representation of the quality of your work. It also serves as a great checks-and-balances system. If your boss didn’t like you, that is only one leg of the review. And one of these days you will be part of your boss’s 360-degree review. Let’s take similar methodology and apply it to your current marketing tactics. This will allow us to see your greatest opportunities for expansion. Step 1: Make a list of all the people who have a hand in or are touched by your marketing efforts. For example: The CEO, your marketing director, marketing executives, salespeople, engineers, research and development folks, vendors, partners, and your customers. The key here is to make sure you are not leaving anyone out. If you miss one person, you are not fully getting a 360-degree review. Step 2: Construct two to three surveys for those people to complete. The first survey will go to all internal employees, the second to your vendors/partners, if applicable, and the last to your customers. It’s up to you if you want to send this to all your customers. It depends highly on how many customers you have. If you’re a smaller company, I recommend sending it to all your customers. If you’re a larger company with thousands of customers, send it to enough clients to get a good response back. Typical response rates range from 3% to 10%. I’ve seen lower, but I’ve also seen response rates as high as 90%. But those are just the averages. A few important notes on these surveys: I encourage you to send these 100% electronically. When sending surveys electronically, you have a much higher chance of getting a response. There are various survey tools out there, such as SurveyMonkey.com , Zoomerang.com , and KeySurvey.com . Keep them short to increase your response rate. Give some type of incentive for your outside vendors, partners, or customers to fill these out, and watch your response rates skyrocket. (For example, give them 10% off their next order.) Modify anything to fit your business. I like allowing for comments after each question to solicit additional feedback. The reason I ask and solicit more open-ended feedback is to ensure that we don’t miss any of the trends. Step 3: Compile the data. This is going to take you quite a bit of time. Here are some tips for compiling the data: Many of the survey software tools will do this for you. Develop three different Microsoft Excel files and label them appropriately (internal, vendors/partners, customers). Start with the quantifiable data and get that into Excel. Most likely this will be a simple export. Move on to the open-ended questions. Take all the responses for each question and place them into Excel so you can see all the data in front of you. Scroll down the column of open-ended questions and look for trends. I like to use the find feature in Excel to see whether similar words are being found. For example, you could search for craigslist to see all the places it was mentioned. When you find similar answers in the open-ended questions, group those together. When you have this task done, you should be able to easily see the results for the quantifiable section, and all the answers to the open-ended sections grouped together with similar thoughts. Lastly, do the same thing with the comments as you did with the open-ended questions: Group similar comments together, using the find feature to aid in this task. Step 4: Interpret the data. You now have your data organized in a much more logical format so that you can start figuring out what it all means. Print out all the sheets and spread them out across a long desk so you can see everything. What you’re looking for here are trends across the various groups, as well as weaknesses in your marketing strategy. Keep in mind that in this exercise bad news is actually good — it’s what you’re looking for. It’s great to see the good stuff, but we’re more concerned with the areas in which you need to improve because these are your greatest opportunities for improvement and growth. What you are most likely going to find is two-fold: 20% of your marketing is producing the most results. The other 80% is a waste of time, money, and energy. The above is an adapted excerpt from the book Marketing in the Moment: The Practical Guide to Using Web 3.0 Marketing to Reach Your Customers First by Michael Tasner. The above excerpt is a digitally scanned reproduction of text from print. Although this excerpt has been proofread, occasional errors may appear due to the scanning process. Please refer to the finished book for accuracy. Copyright © 2010 Michael Tasner, author of Marketing in the Moment: The Practical Guide to Using Web 3.0 Marketing to Reach Your Customers First

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David Isenberg: The GAO Transcripts, Part 18: IPOA Defends PSC Against Memo 17

July 22, 2010

This is the eighteenth installment of the Government Accountability Office interview transcripts that were prepared pursuant to the July 2005 GAO report ” Rebuilding Iraq: Actions Needed To Improve Use of Private Security Providers .” Although there is no definitive evidence I assume, given the language about the founders and CEO having Special Forces Military Background and the psychometric tests it gives its employees, that the PSC official being interviewed is from Triple Canopy. In my book Shadow Force I noted that the company conducts a comprehensive battery of psychometric evaluations, including the Profile XT, Wonderlic Personality Test, Short Employment Test Battery, and Inwald Personality Inventory. One interesting bit raised the issue of cost effectiveness. The interviewee says: Similar to many other big companies, they do not offer convoy security. ____________ plains that the DOD is not willing to pay the costs of “doing the job right.” For example, DOD is currently looking for a PSC to lead a 100 vehicle convoy from Amman to Baghdad for around ____________ contends tha____________ ld not cover the type of protection such a convoy would necessitate. One wonders if DoD had paid what the company wanted for doing convoy security would it still be considered more cost effective than having regular military forces do it? Hopefully someday the GAO might do a report just on that question. Command control issues were also a source of confusion as this excerpt illustrates, “____________ also reported that there is some ambiguity within the chain of command following the rollover of contracts to the State Department. While ____________ ts their money from Defense Finance and Accounting Service (DFAS), they do not know who has taken authority of their contract.” Communications issues, as has been noted in previous posts, were also troublesome for PSC. Apparently a PSC almost caused an air strike to be conducted. ____________ ported duplications within the distribution of frequencies in Iraq, which could lead to potentially dangerous situations. In one specific example ____________ ported that had overlapping frequencies with PSC ____________ who required military aid and were requesting an air strike. Had crossed wires not been untangled, ____________ s site might have been bombed at ____________ bidding. According to the interviewee PSC were not happy with the old Coalition Provisional Authority Memorandum 17 which detailed the registration requirements for PSC. The requirement that most irritated PSC was the part that placed them under Iraqi law. PSC unhappiness over this was never a secret but it is interesting that the Iraqi government audited PSC every six months. If the US State or Defense Department had been able to do the same possibly much of the PSC unpleasantness that happened might have been avoided. Even more interesting was this; “They believe that companies will begin to “cook their books” in order to avoid potentially higher taxes or bonds.” According to the interviewee, “In order to address these concerns, ____________ has joined International Peace Operations Association (IPOA), an association of military service operator providers who are lobbying Congress to address their concerns with Memorandum 17…” According to IPOA’s website “IPOA is a trade association whose mission is to promote high operational and ethical standards of firms active in the Peace and Stability Industry; to engage in a constructive dialogue with policy-makers about the growing and positive contribution of these firms to the enhancement of international peace, development, and human security; and to inform the concerned public about the activities and role of the industry.” IPOA is perfectly entitled to lobby. As a 501(c)(6) organization, “it may further its exempt purposes through lobbying as its primary activity without jeopardizing its tax exempt status. However, a 501(c)(6) organization that engages in lobbying may be required to either provide notice to its members regarding the percentage of dues paid that are applicable to lobbying activities, or pay a proxy tax.” Finally, in the irony category, the interviewee gave his top PSC picks. Among them was Custer Battles . This was less than three months before the news started coming out about its false billing claims Standard disclaimer: I have put in ( _____ ) to reflect those words of phrases which have been blacked out in the transcript. I have also put in the underlining as it appeared in the original transcript. As in the transcript, I have left out letters from various words, even when it seems obvious what the word is. Prepared by: Kate Walker Index: Type bundle index here Date Prepared: July 29 2004 DOC Number: Type document number here Reviewed by: Type reviewer name here DOC library name here Job Code: 350544 Record of Interview Title Informational Interview with Private Security Contractor Purpose To gain an inside perspective on the current PSC situation Contact Method Face to Face Contact Place GAO HQ, Washington, DC Contact Date July 27, 2004 Participants ____________ ____________ ____________ ____________ Steve Sternlieb, Assistant Director, DCM Carole Coffey, Analyst in Charge, DCM Glenn Furbish, Senior Analyst, DCM Kate Walker, Analyst, DCM Ryan Ona, Intern, DCM John K. Needham, Assistant Director, ASM Christina Cromley, Senior Analyst, ASM Bill McPhail, Senior Analyst, ASM Gary Delaney, Senior Analyst, ASM William Petrick, Junior Analyst, ASM Lara Laufer, Senior Analyst, ASM Judy McCloskey, Senior Analyst, TAT Comments/Remarks ____________ with us to relate his company’s experiences and perceptions as a. private security contractor in Iraq. ____________ provides personal, site, convoy, and area security as well as thread assessments and red teaming. ____________ less than ____________ Its founders and new CEO ____________ have Special Forces military backgrounds and previous security contracting experience. ____________ recently won ____________ contracts with Coalition Provisional Authority (CPA). The company has 800 employees, composed of roughly one-third U.S. nationals (USN), one-third third country nationals (TCN), and one-third Iraqis or home country nationals (HCN) ________________________ as a “handshake agreement” with the DOD not to recruit active duty personnel. ____________ developed a pay scale according to market pricing. ____________ ____________ ____________ ____________ ____________ ____________ ____________ ____________ ____________ ____________ ____________ ____________ ________________________ ____________ ____________ ____________ ____________ ____________ ____________ has suffered 13 Defense Base Act (DBA) injury claims since entering Iraq. ____________ sets its own training standards. Its employees must complete four weeks on intensive training in the United States, including skill and physical training and psychometric testing ____________ y also has a fixed cost contract. Page 1 Record of Interview ____________ solely provides protective detail. Similar to many other big companies, they do not offer convoy security. ____________ plains that the DOD is not willing to pay the costs of “doing the job right.” For example, DOD is currently looking for a PSC to lead a 100 vehicle convoy from Amman to Baghdad for around ____________ contends tha____________ ld not cover the type of protection such a convoy would necessitate. ____________ has a number of concerns with the current situation in Iraq. Key issues are: the regulations involved in weapons purchasing and transport, (lack of military backup, chain of command, communication with US military and among private security firms, and industry involvement in regulation decision-making. In addition, ____________ y believes that Memorandum 17 needs to be revised. ____________ ____________ ____________ ____________ ____________ ____________ ____________ ____________ ____________ ____________ ____________ ____________ ____________ ____________ ____________ ____________ ____________ ____________ ____________ ____________ ____________ also reported a lack of military backup and support. In several circumstances, ____________ has called for military assistance and has not received any aid. ____________ also reported that there is some ambiguity within the chain of command following the rollover of contracts to the State Department. While ____________ ts their money from Defense Finance and Accounting Service (DFAS), they do not know who has taken authority of their contract. Communication problems are another issue plaguing private security companies (PSCs). ____________ ported duplications within the distribution of frequencies in Iraq, which could lead to potentially dangerous situations. In one specific example ____________ ported that had overlapping frequencies with PSC ____________ who required military aid and were requesting an air strike. Had crossed wires not been untangled, ____________ s site might have been bombed at ____________ bidding. ____________ nd after-action report.) In addition to frequency issues, PSC are not communicating with each other or military. Some PSC have attempted to address this communication gap by gathering and distributing intelligence via email list serves, but eventually this effort has only been half-hearted as PSC are wary of indiscriminate information sharing, ____________ ported that PSCs have little faith in sharing information with USG because they fear that it would not be utilized. ____________ concerned with Memorandum 17. They find it to be unclear and poorly written. In addition, they are wary of the Memorandum because it places PSCs under Iraqi law, which has not been ratified. PSC are already starting to experience repercussions from the Memorandum as insurance companies are increasing their premiums to counter the unknown consequences or Iraqi jurisdiction. ____________ s also irritated that they are audited every six months by the Iraqi government. They believe that companies will begin to “cook their books” in order to avoid potentially higher taxes or bonds. ____________ would like to see diplomatic intervention from the United States addressing Memorandum 17. They believe that the Memorandum was largely Page 2 Record of Interview written without industry insight and that it is not logistically feasible given the short time frame within which the Iraqi government is trying to implement it. The transfer of information relayed to the Iraqi government via weapons cards is another area of interest for ____________ Data from about 3,500 people including names, addresses, security numbers, and date of birth were handed over during the CPA rollover. ____________ concerned that this transfer of knowledge was a breach of the Privacy Act. In order to address these concerns, ____________ has joined International Peace Operations Association (IPOA), an association of military service operator providers who are lobbying Congress to address their concerns with Memorandum 17 and to improve coordination between private security firms and the military. In addition to ____________ nternational Peace Operations’ current members include ArmourGroup, Main Street Supply, PAE, Airscan, ICI of Oregon MPRI, and L-3 Global Services. ____________ is also very concerned about the ____________ They believe that ____________ oes not have enough experience in Iraq and that the contract workload is too heavy for ____________ pabilities. ____________ also offered his opinion of the current top PSC in Iraq: British Firms: • Aegis • Armor Group • Control Risk Group (CRG) • Erynis • Global Risk • Hart • Olive • Pilgrims US Firms: • Blackwater USA • Custer Battles • Diligence • DynCorp • SOC • SMG •Triple Canopy South African Firms: • Meteoric Tactical Solutions Page 3 Record of Interview

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David Isenberg: The GAO Transcripts, Part 18: IPOA Defends PSC Against Memo 17

July 22, 2010

This is the eighteenth installment of the Government Accountability Office interview transcripts that were prepared pursuant to the July 2005 GAO report ” Rebuilding Iraq: Actions Needed To Improve Use of Private Security Providers .” Although there is no definitive evidence I assume, given the language about the founders and CEO having Special Forces Military Background and the psychometric tests it gives its employees, that the PSC official being interviewed is from Triple Canopy. In my book Shadow Force I noted that the company conducts a comprehensive battery of psychometric evaluations, including the Profile XT, Wonderlic Personality Test, Short Employment Test Battery, and Inwald Personality Inventory. One interesting bit raised the issue of cost effectiveness. The interviewee says: Similar to many other big companies, they do not offer convoy security. ____________ plains that the DOD is not willing to pay the costs of “doing the job right.” For example, DOD is currently looking for a PSC to lead a 100 vehicle convoy from Amman to Baghdad for around ____________ contends tha____________ ld not cover the type of protection such a convoy would necessitate. One wonders if DoD had paid what the company wanted for doing convoy security would it still be considered more cost effective than having regular military forces do it? Hopefully someday the GAO might do a report just on that question. Command control issues were also a source of confusion as this excerpt illustrates, “____________ also reported that there is some ambiguity within the chain of command following the rollover of contracts to the State Department. While ____________ ts their money from Defense Finance and Accounting Service (DFAS), they do not know who has taken authority of their contract.” Communications issues, as has been noted in previous posts, were also troublesome for PSC. Apparently a PSC almost caused an air strike to be conducted. ____________ ported duplications within the distribution of frequencies in Iraq, which could lead to potentially dangerous situations. In one specific example ____________ ported that had overlapping frequencies with PSC ____________ who required military aid and were requesting an air strike. Had crossed wires not been untangled, ____________ s site might have been bombed at ____________ bidding. According to the interviewee PSC were not happy with the old Coalition Provisional Authority Memorandum 17 which detailed the registration requirements for PSC. The requirement that most irritated PSC was the part that placed them under Iraqi law. PSC unhappiness over this was never a secret but it is interesting that the Iraqi government audited PSC every six months. If the US State or Defense Department had been able to do the same possibly much of the PSC unpleasantness that happened might have been avoided. Even more interesting was this; “They believe that companies will begin to “cook their books” in order to avoid potentially higher taxes or bonds.” According to the interviewee, “In order to address these concerns, ____________ has joined International Peace Operations Association (IPOA), an association of military service operator providers who are lobbying Congress to address their concerns with Memorandum 17…” According to IPOA’s website “IPOA is a trade association whose mission is to promote high operational and ethical standards of firms active in the Peace and Stability Industry; to engage in a constructive dialogue with policy-makers about the growing and positive contribution of these firms to the enhancement of international peace, development, and human security; and to inform the concerned public about the activities and role of the industry.” IPOA is perfectly entitled to lobby. As a 501(c)(6) organization, “it may further its exempt purposes through lobbying as its primary activity without jeopardizing its tax exempt status. However, a 501(c)(6) organization that engages in lobbying may be required to either provide notice to its members regarding the percentage of dues paid that are applicable to lobbying activities, or pay a proxy tax.” Finally, in the irony category, the interviewee gave his top PSC picks. Among them was Custer Battles . This was less than three months before the news started coming out about its false billing claims Standard disclaimer: I have put in ( _____ ) to reflect those words of phrases which have been blacked out in the transcript. I have also put in the underlining as it appeared in the original transcript. As in the transcript, I have left out letters from various words, even when it seems obvious what the word is. Prepared by: Kate Walker Index: Type bundle index here Date Prepared: July 29 2004 DOC Number: Type document number here Reviewed by: Type reviewer name here DOC library name here Job Code: 350544 Record of Interview Title Informational Interview with Private Security Contractor Purpose To gain an inside perspective on the current PSC situation Contact Method Face to Face Contact Place GAO HQ, Washington, DC Contact Date July 27, 2004 Participants ____________ ____________ ____________ ____________ Steve Sternlieb, Assistant Director, DCM Carole Coffey, Analyst in Charge, DCM Glenn Furbish, Senior Analyst, DCM Kate Walker, Analyst, DCM Ryan Ona, Intern, DCM John K. Needham, Assistant Director, ASM Christina Cromley, Senior Analyst, ASM Bill McPhail, Senior Analyst, ASM Gary Delaney, Senior Analyst, ASM William Petrick, Junior Analyst, ASM Lara Laufer, Senior Analyst, ASM Judy McCloskey, Senior Analyst, TAT Comments/Remarks ____________ with us to relate his company’s experiences and perceptions as a. private security contractor in Iraq. ____________ provides personal, site, convoy, and area security as well as thread assessments and red teaming. ____________ less than ____________ Its founders and new CEO ____________ have Special Forces military backgrounds and previous security contracting experience. ____________ recently won ____________ contracts with Coalition Provisional Authority (CPA). The company has 800 employees, composed of roughly one-third U.S. nationals (USN), one-third third country nationals (TCN), and one-third Iraqis or home country nationals (HCN) ________________________ as a “handshake agreement” with the DOD not to recruit active duty personnel. ____________ developed a pay scale according to market pricing. ____________ ____________ ____________ ____________ ____________ ____________ ____________ ____________ ____________ ____________ ____________ ____________ ________________________ ____________ ____________ ____________ ____________ ____________ ____________ has suffered 13 Defense Base Act (DBA) injury claims since entering Iraq. ____________ sets its own training standards. Its employees must complete four weeks on intensive training in the United States, including skill and physical training and psychometric testing ____________ y also has a fixed cost contract. Page 1 Record of Interview ____________ solely provides protective detail. Similar to many other big companies, they do not offer convoy security. ____________ plains that the DOD is not willing to pay the costs of “doing the job right.” For example, DOD is currently looking for a PSC to lead a 100 vehicle convoy from Amman to Baghdad for around ____________ contends tha____________ ld not cover the type of protection such a convoy would necessitate. ____________ has a number of concerns with the current situation in Iraq. Key issues are: the regulations involved in weapons purchasing and transport, (lack of military backup, chain of command, communication with US military and among private security firms, and industry involvement in regulation decision-making. In addition, ____________ y believes that Memorandum 17 needs to be revised. ____________ ____________ ____________ ____________ ____________ ____________ ____________ ____________ ____________ ____________ ____________ ____________ ____________ ____________ ____________ ____________ ____________ ____________ ____________ ____________ ____________ also reported a lack of military backup and support. In several circumstances, ____________ has called for military assistance and has not received any aid. ____________ also reported that there is some ambiguity within the chain of command following the rollover of contracts to the State Department. While ____________ ts their money from Defense Finance and Accounting Service (DFAS), they do not know who has taken authority of their contract. Communication problems are another issue plaguing private security companies (PSCs). ____________ ported duplications within the distribution of frequencies in Iraq, which could lead to potentially dangerous situations. In one specific example ____________ ported that had overlapping frequencies with PSC ____________ who required military aid and were requesting an air strike. Had crossed wires not been untangled, ____________ s site might have been bombed at ____________ bidding. ____________ nd after-action report.) In addition to frequency issues, PSC are not communicating with each other or military. Some PSC have attempted to address this communication gap by gathering and distributing intelligence via email list serves, but eventually this effort has only been half-hearted as PSC are wary of indiscriminate information sharing, ____________ ported that PSCs have little faith in sharing information with USG because they fear that it would not be utilized. ____________ concerned with Memorandum 17. They find it to be unclear and poorly written. In addition, they are wary of the Memorandum because it places PSCs under Iraqi law, which has not been ratified. PSC are already starting to experience repercussions from the Memorandum as insurance companies are increasing their premiums to counter the unknown consequences or Iraqi jurisdiction. ____________ s also irritated that they are audited every six months by the Iraqi government. They believe that companies will begin to “cook their books” in order to avoid potentially higher taxes or bonds. ____________ would like to see diplomatic intervention from the United States addressing Memorandum 17. They believe that the Memorandum was largely Page 2 Record of Interview written without industry insight and that it is not logistically feasible given the short time frame within which the Iraqi government is trying to implement it. The transfer of information relayed to the Iraqi government via weapons cards is another area of interest for ____________ Data from about 3,500 people including names, addresses, security numbers, and date of birth were handed over during the CPA rollover. ____________ concerned that this transfer of knowledge was a breach of the Privacy Act. In order to address these concerns, ____________ has joined International Peace Operations Association (IPOA), an association of military service operator providers who are lobbying Congress to address their concerns with Memorandum 17 and to improve coordination between private security firms and the military. In addition to ____________ nternational Peace Operations’ current members include ArmourGroup, Main Street Supply, PAE, Airscan, ICI of Oregon MPRI, and L-3 Global Services. ____________ is also very concerned about the ____________ They believe that ____________ oes not have enough experience in Iraq and that the contract workload is too heavy for ____________ pabilities. ____________ also offered his opinion of the current top PSC in Iraq: British Firms: • Aegis • Armor Group • Control Risk Group (CRG) • Erynis • Global Risk • Hart • Olive • Pilgrims US Firms: • Blackwater USA • Custer Battles • Diligence • DynCorp • SOC • SMG •Triple Canopy South African Firms: • Meteoric Tactical Solutions Page 3 Record of Interview

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David Isenberg: The GAO Transcripts, Part 18: IPOA Defends PSC Against Memo 17

July 22, 2010

This is the eighteenth installment of the Government Accountability Office interview transcripts that were prepared pursuant to the July 2005 GAO report ” Rebuilding Iraq: Actions Needed To Improve Use of Private Security Providers .” Although there is no definitive evidence I assume, given the language about the founders and CEO having Special Forces Military Background and the psychometric tests it gives its employees, that the PSC official being interviewed is from Triple Canopy. In my book Shadow Force I noted that the company conducts a comprehensive battery of psychometric evaluations, including the Profile XT, Wonderlic Personality Test, Short Employment Test Battery, and Inwald Personality Inventory. One interesting bit raised the issue of cost effectiveness. The interviewee says: Similar to many other big companies, they do not offer convoy security. ____________ plains that the DOD is not willing to pay the costs of “doing the job right.” For example, DOD is currently looking for a PSC to lead a 100 vehicle convoy from Amman to Baghdad for around ____________ contends tha____________ ld not cover the type of protection such a convoy would necessitate. One wonders if DoD had paid what the company wanted for doing convoy security would it still be considered more cost effective than having regular military forces do it? Hopefully someday the GAO might do a report just on that question. Command control issues were also a source of confusion as this excerpt illustrates, “____________ also reported that there is some ambiguity within the chain of command following the rollover of contracts to the State Department. While ____________ ts their money from Defense Finance and Accounting Service (DFAS), they do not know who has taken authority of their contract.” Communications issues, as has been noted in previous posts, were also troublesome for PSC. Apparently a PSC almost caused an air strike to be conducted. ____________ ported duplications within the distribution of frequencies in Iraq, which could lead to potentially dangerous situations. In one specific example ____________ ported that had overlapping frequencies with PSC ____________ who required military aid and were requesting an air strike. Had crossed wires not been untangled, ____________ s site might have been bombed at ____________ bidding. According to the interviewee PSC were not happy with the old Coalition Provisional Authority Memorandum 17 which detailed the registration requirements for PSC. The requirement that most irritated PSC was the part that placed them under Iraqi law. PSC unhappiness over this was never a secret but it is interesting that the Iraqi government audited PSC every six months. If the US State or Defense Department had been able to do the same possibly much of the PSC unpleasantness that happened might have been avoided. Even more interesting was this; “They believe that companies will begin to “cook their books” in order to avoid potentially higher taxes or bonds.” According to the interviewee, “In order to address these concerns, ____________ has joined International Peace Operations Association (IPOA), an association of military service operator providers who are lobbying Congress to address their concerns with Memorandum 17…” According to IPOA’s website “IPOA is a trade association whose mission is to promote high operational and ethical standards of firms active in the Peace and Stability Industry; to engage in a constructive dialogue with policy-makers about the growing and positive contribution of these firms to the enhancement of international peace, development, and human security; and to inform the concerned public about the activities and role of the industry.” IPOA is perfectly entitled to lobby. As a 501(c)(6) organization, “it may further its exempt purposes through lobbying as its primary activity without jeopardizing its tax exempt status. However, a 501(c)(6) organization that engages in lobbying may be required to either provide notice to its members regarding the percentage of dues paid that are applicable to lobbying activities, or pay a proxy tax.” Finally, in the irony category, the interviewee gave his top PSC picks. Among them was Custer Battles . This was less than three months before the news started coming out about its false billing claims Standard disclaimer: I have put in ( _____ ) to reflect those words of phrases which have been blacked out in the transcript. I have also put in the underlining as it appeared in the original transcript. As in the transcript, I have left out letters from various words, even when it seems obvious what the word is. Prepared by: Kate Walker Index: Type bundle index here Date Prepared: July 29 2004 DOC Number: Type document number here Reviewed by: Type reviewer name here DOC library name here Job Code: 350544 Record of Interview Title Informational Interview with Private Security Contractor Purpose To gain an inside perspective on the current PSC situation Contact Method Face to Face Contact Place GAO HQ, Washington, DC Contact Date July 27, 2004 Participants ____________ ____________ ____________ ____________ Steve Sternlieb, Assistant Director, DCM Carole Coffey, Analyst in Charge, DCM Glenn Furbish, Senior Analyst, DCM Kate Walker, Analyst, DCM Ryan Ona, Intern, DCM John K. Needham, Assistant Director, ASM Christina Cromley, Senior Analyst, ASM Bill McPhail, Senior Analyst, ASM Gary Delaney, Senior Analyst, ASM William Petrick, Junior Analyst, ASM Lara Laufer, Senior Analyst, ASM Judy McCloskey, Senior Analyst, TAT Comments/Remarks ____________ with us to relate his company’s experiences and perceptions as a. private security contractor in Iraq. ____________ provides personal, site, convoy, and area security as well as thread assessments and red teaming. ____________ less than ____________ Its founders and new CEO ____________ have Special Forces military backgrounds and previous security contracting experience. ____________ recently won ____________ contracts with Coalition Provisional Authority (CPA). The company has 800 employees, composed of roughly one-third U.S. nationals (USN), one-third third country nationals (TCN), and one-third Iraqis or home country nationals (HCN) ________________________ as a “handshake agreement” with the DOD not to recruit active duty personnel. ____________ developed a pay scale according to market pricing. ____________ ____________ ____________ ____________ ____________ ____________ ____________ ____________ ____________ ____________ ____________ ____________ ________________________ ____________ ____________ ____________ ____________ ____________ ____________ has suffered 13 Defense Base Act (DBA) injury claims since entering Iraq. ____________ sets its own training standards. Its employees must complete four weeks on intensive training in the United States, including skill and physical training and psychometric testing ____________ y also has a fixed cost contract. Page 1 Record of Interview ____________ solely provides protective detail. Similar to many other big companies, they do not offer convoy security. ____________ plains that the DOD is not willing to pay the costs of “doing the job right.” For example, DOD is currently looking for a PSC to lead a 100 vehicle convoy from Amman to Baghdad for around ____________ contends tha____________ ld not cover the type of protection such a convoy would necessitate. ____________ has a number of concerns with the current situation in Iraq. Key issues are: the regulations involved in weapons purchasing and transport, (lack of military backup, chain of command, communication with US military and among private security firms, and industry involvement in regulation decision-making. In addition, ____________ y believes that Memorandum 17 needs to be revised. ____________ ____________ ____________ ____________ ____________ ____________ ____________ ____________ ____________ ____________ ____________ ____________ ____________ ____________ ____________ ____________ ____________ ____________ ____________ ____________ ____________ also reported a lack of military backup and support. In several circumstances, ____________ has called for military assistance and has not received any aid. ____________ also reported that there is some ambiguity within the chain of command following the rollover of contracts to the State Department. While ____________ ts their money from Defense Finance and Accounting Service (DFAS), they do not know who has taken authority of their contract. Communication problems are another issue plaguing private security companies (PSCs). ____________ ported duplications within the distribution of frequencies in Iraq, which could lead to potentially dangerous situations. In one specific example ____________ ported that had overlapping frequencies with PSC ____________ who required military aid and were requesting an air strike. Had crossed wires not been untangled, ____________ s site might have been bombed at ____________ bidding. ____________ nd after-action report.) In addition to frequency issues, PSC are not communicating with each other or military. Some PSC have attempted to address this communication gap by gathering and distributing intelligence via email list serves, but eventually this effort has only been half-hearted as PSC are wary of indiscriminate information sharing, ____________ ported that PSCs have little faith in sharing information with USG because they fear that it would not be utilized. ____________ concerned with Memorandum 17. They find it to be unclear and poorly written. In addition, they are wary of the Memorandum because it places PSCs under Iraqi law, which has not been ratified. PSC are already starting to experience repercussions from the Memorandum as insurance companies are increasing their premiums to counter the unknown consequences or Iraqi jurisdiction. ____________ s also irritated that they are audited every six months by the Iraqi government. They believe that companies will begin to “cook their books” in order to avoid potentially higher taxes or bonds. ____________ would like to see diplomatic intervention from the United States addressing Memorandum 17. They believe that the Memorandum was largely Page 2 Record of Interview written without industry insight and that it is not logistically feasible given the short time frame within which the Iraqi government is trying to implement it. The transfer of information relayed to the Iraqi government via weapons cards is another area of interest for ____________ Data from about 3,500 people including names, addresses, security numbers, and date of birth were handed over during the CPA rollover. ____________ concerned that this transfer of knowledge was a breach of the Privacy Act. In order to address these concerns, ____________ has joined International Peace Operations Association (IPOA), an association of military service operator providers who are lobbying Congress to address their concerns with Memorandum 17 and to improve coordination between private security firms and the military. In addition to ____________ nternational Peace Operations’ current members include ArmourGroup, Main Street Supply, PAE, Airscan, ICI of Oregon MPRI, and L-3 Global Services. ____________ is also very concerned about the ____________ They believe that ____________ oes not have enough experience in Iraq and that the contract workload is too heavy for ____________ pabilities. ____________ also offered his opinion of the current top PSC in Iraq: British Firms: • Aegis • Armor Group • Control Risk Group (CRG) • Erynis • Global Risk • Hart • Olive • Pilgrims US Firms: • Blackwater USA • Custer Battles • Diligence • DynCorp • SOC • SMG •Triple Canopy South African Firms: • Meteoric Tactical Solutions Page 3 Record of Interview

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Ian Fletcher: The Death of the Postindustrial Dream

July 22, 2010

Remember postindustrialism? Not long ago, this catchphrase was supposed to define America’s future: no more grubby hard industries, just a clean bright world of services and high technology. Its most succinct formulation is as follows: Manufacturing is old hat and America is moving on to better things. This idea played a large role during the 1980s and 1990s in getting Americans to accept deindustrialization. It was promoted by writers as varied as futurist Alvin Toffler, capitalist romantic George Gilder, techno-libertarian Virginia Postrel, futurist John Naisbitt, and globalist Thomas Friedman. Newt Gingrich seized upon it as the supposed economic basis of his Republican Revolution of 1994. Unfortunately, postindustrialism is now a blatantly dead letter, as the U.S. economy has ceased generating any net new jobs in internationally traded sectors of any kind: manufacturing or services, industrial or postindustrial. The comforting myth still lingers that America is shifting from low-tech to high-tech employment, but we are not. We are losing jobs in both and shifting to non-tradable services, which are mostly low value-added, and thus ill-paid, jobs. According to the Commerce Department, all our net new jobs are in categories such as security guards, waitresses, and the like. The vaunted New Economy has not contributed a single net new job to America in this century. Thanks-for-nothing.com. Nevertheless, postindustrialism remains popular in some very important circles. In the 2006 words of the prestigious quasi-official Council on Competitiveness, a group of American business, labor, academic and government leaders: Services are where the high value is today, not in manufacturing. Manufacturing stuff per se is relatively low value. That is why it is being done in China or Thailand. It’s the service functions of manufacturing that are where the high value is today, and that is what America can excel in. But the above paragraph is simply not true: manufacturing, which is vital to America’s recovery, is not an obsolescent sector of the economy. Let’s burrow into the details a bit to understand why. “Screwdriver plant” final-assembly manufacturing can indeed increasingly be done anywhere in the world. This lays it open to labor arbitrage and thus low wages. But this doesn’t mean that this one stage of the long supply chain from raw materials to the consumer has become unimportant. Every link in the chain still matters, albeit in different ways. Manufacturing involves continuous feedback loops where every stage–from the initial idea to the R&D to the prototype to full-scale production to marketing of the final product–is related to every other. Losing control of any one stage can easily lead to the loss of the whole industry, including skill sets needed for moving to the next product or level of industrial sophistication. As Stephen Cohen and John Zysman explain in their book Manufacturing Matters : America must control the production of those high-tech products it invents and designs–and it must do so in a direct and hands-on way…First, production is where the lion’s share of the value added is realized…This is where the returns needed to finance the next round of research and development are generated. Second and most important, unless [research and development] is tightly tied to manufacturing of the product…R&D will fall behind the cutting edge of incremental innovation…High tech gravitates to the state-of-the-art producers. A small American company named Ampex in Redwood City, California, encapsulates everything that is wrong with postindustrialism. This leading audio tape firm invented the video cassette recorder in 1970 but bungled the transition to mass production and ended up licensing the technology to the Japanese. It collected millions in royalties all through the 1980s and 1990s and employed a few hundred people. Its licensee companies collected tens of billions in sales and employed hundreds of thousands of people. Thus an entire vast industry never existed in the U.S. All the jobs–and the industrial base and the profits to finance the next generation of products, like DVDs–ended up in the Far East. That some individual companies like Apple Computer make a success out of keeping design functions at home and offshoring the manufacturing does not make this a viable strategy for the economy as a whole. Apple is a unique company; that is why it succeeds. And even fabled Apple is not quite the success story one might hope for, from a trade point-of-view. Due to its foreign components and assembly, every $300 iPod sold in the U.S. adds another $140 to our deficit with China. If sophisticated American design must be embodied in imported goods in order to be sold, it will not help our trade balance. About the only thing postindustrialism gets right is that selling a product with a high value per embodied man-hour almost always means selling embodied know-how. But know-how must usually be embodied in a physical package before reaching the consumer, and manufactured goods are actually a rather good package for embodying it in. Exporting disembodied know-how like design services is definitely an inferior proposition, as indicated by the fact that since 2004, America’s deficit in high-technology goods has exceeded our surplus in intellectual property, royalties, licenses, and fees. So when someone like self-described “radical free trader” Thomas Friedman writes that, “there may be a limit to the number of good factory jobs in the world, but there is no limit to the number of good idea-generated jobs in the world,” this is simply false. There is nothing about the fact that ideas are abstract and the products of factories concrete that causes there to be an infinite demand for ideas. The limit on the number of idea-generated jobs is set by the amount of money people are willing to pay for ideas (either in their pure form or embodied in goods) because this ultimately pays the salaries of idea-generated jobs. The final killer of the postindustrial dream is, of course, offshoring, as this means that even if capturing primarily service industry jobs were a desirable strategy, America can’t reliably capture and hold these jobs anyway. The complexity of the jobs being offshored, which started with jobs such as call centers, is relentlessly rising. According to a 2007 study by Duke University’s Fuqua School of Business and the consulting firm Booz Allen Hamilton: Relocating core business functions such as product design, engineering and R&D represents a new and growing trend. Although labor arbitrage strategies continue to be key drivers of offshoring, sourcing and accessing talent is the primary driver of next-generation offshoring…Until recently, offshoring was almost entirely associated with locating and setting up IT services, call centers and other business processes in lower-cost countries. But IT outsourcing is reaching maturity and now the growth is centered around product and process innovation. Among complex business functions, product development, including software development, is now the second-largest corporate function being offshored. Offshoring of sophisticated white-collar tasks such as finance, accounting, sales, and personnel management is growing at 35 percent per year. Meanwhile, despite a few individual companies bringing offshored call centers back home, offshoring of call centers and help desks continues to grow at a double-digit pace. Thankfully, some of America’s corporate elite are now starting to question postindustrialism, about which they were utterly gung-ho only a few years ago. In the 2009 words of General Electric’s CEO, Jeffrey Immelt: I believe that a popular, 30-year notion that the U.S. can evolve from being a technology and manufacturing leader to a service leader is just wrong. In the end, this philosophy transformed the financial services industry from one that supported commerce to a complex trading market that operated outside the economy. Real engineering was traded for financial engineering. Immelt has since argued that the U.S. should aim for manufacturing jobs to comprise at least 20 percent of all jobs, roughly double their current percentage. Only a few years ago, this idea would have been dismissed as an ignorant and reactionary piece of central planning, especially if it had not been proposed by a respected Fortune 500 CEO. But despite his welcome public statements, Immelt is still closing US plants and offshoring jobs, a sign that the free market well may not solve this problem on its own. Can deindustrialization be fought? The evidence suggests it can. Some high-wage foreign nations, the best examples being Germany and Japan, are already doing a much better job at defending manufacturing industry than we are. (GM went bankrupt; Toyota and BMW somehow didn’t.) As a result, these nations now have higher factory wages than we do–a stunning reversal of America’s 250-year status as the best country for ordinary workers. They are doing it by hanging tough in manufacturing and by having serious national industrial strategies. They are export powerhouses. They lack our naiveté about free trade and do not really embrace it, preferring various local varieties of mercantilism. Manufacturing is essential to America’s economy recovery. Unfortunately, the longer we dally about getting back to real industries as the basis of real wealth, the more our industries get hollowed out, so the harder it gets. There is probably still enough time to turn things around, but not much. Ian Fletcher is the author of the Free Trade Doesn’t Work: What Should Replace It and Why (USBIC, 2010, $24.95) An Adjunct Fellow at the San Francisco office of the U.S. Business and Industry Council , a Washington think tank founded in 1933, he was previously an economist in private practice, mostly serving hedge funds and private equity firms. He may be contacted at ian.fletcher@usbic.net .

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