culture

Joshua Shulman: Rights Have to Be Enforced Somehow

by Joshua Shulman on April 18, 2012

Huffington Post…

There are two ways to enforce rights. A government agency can do it, or it can be outsourced to private contractors, which means plaintiffs’ lawyers. If we’re going to use a government agency, then we have to make sure they do it efficiently, because our tax dollars fund those agencies. If we’re going to use private lawyers, they’ve got to be able to make good money doing it, otherwise they’ll do something else instead. If neither of those systems works for us, then let’s not pretend that we care about the rights that we’re refusing to enforce. The New York Times presented a front-page article on April 17 about lawyers suing New York City businesses that don’t have good wheelchair access. The story is that the plaintiffs’ lawyers are finding violations — easy in New York City, with its many ancient buildings, narrow-aisled, with aging or nonexistent ramps — and then choosing a plaintiff from a cadre of disabled people. Then the lawyers threaten to sue the allegedly violating business, the plaintiff gets a few hundred dollars, the lawyer gets a few thousand, and it all seems like a shakedown to the poor business owner. Of course, this is not how it’s supposed to work. A wronged person is supposed to seek out the lawyer, not the other way around. So this article has provoked anger against the trial lawyers who are supposedly abusing the system for their own enrichment. Having lived in New York, I treasure the funky old out-of-compliance stores, where even a non-handicapped person has difficulty navigating the aisles. I love those places, and my personal belief is that a variance ought to be available to them so they can preserve their funky old character, even if it means that the “temporarily able-bodied” are the only people who can safely get in and out. But of course, that’s not the law. That’s not the choice that we as a country have made about this issue. The choice that we made, and the law that we passed to enforce that choice, is that almost all businesses open to the public have to be able to safely accommodate handicapped people. And then we as a country made another choice: the government would not be given the resources to enforce this law. Instead, we would give an incentive to private contractors (lawyers) to enforce the law, by forcing out-of-compliance businesses to pay the lawyers’ fees when the lawyer could prove that the business was out of compliance. So now we’re angry at lawyers for being too aggressive in their enforcement? Well, here’s a story about what happens when we choose the other path of having a government agency enforce the laws. The Equal Employment Opportunity Commission (EEOC) is supposed to investigate alleged employment discrimination, then if it finds a violation, negotiate with the violating business to fix it, and if that doesn’t work, then the EEOC may file a lawsuit against the business. Note that the EEOC is required to try to negotiate a workable solution before it files a lawsuit. Seems reasonable. But the EEOC is short of resources. They field about 100,000 complaints of discrimination every year. They recovered more than $450 million for employees last year, with a budget of $343 million. So you could say they’re running a profit, sort of. But they are still constantly understaffed, overworked, and simply don’t have anywhere near the resources needed to investigate every one of those 100,000 claims. So, like all government agencies, the EEOC has to decide how to most efficiently allocate their scarce resources. One obvious choice is to focus on companies that are practicing system-wide discrimination, so they can bring class-action suits. For example, CRST Van Expedited Inc. is one of the largest trucking companies in the United States. They have an “internship” program, in which women who want to become truck drivers are paired with male truck drivers, and left together unaccompanied for weeks at a time, with predictable results . By bringing a claim against a company like this, which has allegedly caused sexual discrimination and harassment against hundreds of women, the EEOC should be able to use its resources efficiently, right? Protect hundreds of women with just one big lawsuit, instead of trying to pick them off one at a time, which would take forever, and lots of agency resources. Well, the Eight Circuit Court of Appeals just slapped down the EEOC , saying that their lawsuit against the trucking company fails because the EEOC did not take the required step of trying to negotiate in good faith with the trucking company about each case individually . But doing that would eliminate the efficiency of having one big case instead of many small ones. The EEOC did negotiate with CRST about their (idiotic) program as a whole, but not about each individual case. Sure, in an ideal world, they would talk about each case separately. But in a world where efficiency matters, that’s a crazy requirement. It’s exactly the kind of requirement, in fact, that makes a government agency unable to perform its function of keeping the workplace free of discrimination. Which leaves it to whom, exactly, to to enforce our rights against workplace discrimination? Why, to the private lawyers, of course. In fact, one of the few women who opted out of the EEOC suit against this trucking company sued CRST privately. The jury awarded her $1.5 million . We as a country have to decide what rights we want to enforce, and whether to enforce them with government agencies, or with private contractors. But whipsawing back and forth is unfair. If we choose government agencies, then we’ve got to let them be efficient. Listen up, Eight Circuit. If we choose private contractors, then we’ve got to let the profit motive motivate them. Listen up, lawyer-bashers.

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Joshua Shulman: Rights Have to Be Enforced Somehow

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Liz Ryan: The Worst Way to Pick a Job Candidate

by Liz Ryan on April 17, 2012

Huffington Post…

When anthropologists of the future turn their gaze to the 21st-century workplace, they’re going to be surprised at how many pointless, absurd things 21st-century people (that’s us) used to do at work. The anthropologists are going to say, “The 21st-century workplace is a treasure trove of anthropological riches! There’s the formulaic and stilted decision-making process, the hierarchical overtones in every conversation and glance, and the overpowering pressure to conform with the group — and we’ve only just begun our research!” I’d love to read that study, if scientific advances allow me to live another 90 years or so. One of the phenomena that will come up for review when future researchers dig into 21st-century workplace culture is the job interview process. I can’t imagine how we could employ a worse system for choosing people to work on our teams, but the godawful American corporate job interview process is so firmly entrenched that most corporate people are shocked when I suggest overhauling it. We know it stinks. We sit in an awkward room with a resume and a desk between us and another person and we ask, “So, tell me why you left Acme Explosives?” as though we cared about the answer to that question. We ask idiotic questions because we don’t know a better way to get through an hour’s worth of conversation, and we know we have to do that. I’m not blaming the managers who sit through those painful interviews, or the candidates themselves, of course. The system itself is broken. The interview script is brainless. It’s time for smart people to change the way we conduct interviews, and the good news is that it couldn’t be easier to do. If we needed someone to remodel our bathroom, we wouldn’t call a bunch of contractors and have each of them come over to our house so we could ask them: “So, why did you start your own plumbing business in 1997?” We actually couldn’t care less why they started that business. What we really need to know is: “How would you remodel my bathroom? What sorts of similar projects have you done in the past? How did those work out?” We’d want to get a feel for our contractor’s gravity and professionalism. We’d want to get a taste of his communication style and interpersonal manner. Later, we’d check references on one or two of the folks we were thinking about hiring. We’d negotiate a price for the job. Boom! We’d be done. We wouldn’t ask the contractors what their greatest weaknesses are. We wouldn’t ask them why they want our bathroom remodeling job; we would consider it insulting to ask that question, because each of these contractors had already expressed interest in the project. They’re bathroom remodelers — why shouldn’t they be interested in remodeling a bathroom? We wouldn’t ask them to tell us why, of all the contractors in our city, we should hire them for the job. We wouldn’t ask them to grovel, in other words. Here’s what we might do, instead. YOU: So, George, thanks so much for coming over. GEORGE: No problem. What’s the project, now? YOU: It’s my master bathroom. It’s long and narrow, not the perfect footprint, but I want a new tub so I figure it makes sense to remodel the whole bathroom. GEORGE: That’s usually what I recommend, unless you love the way the bathroom looks now. There are tubs in pretty much any size out there. YOU: I hate the colors, so if I’m painting and picking tile anyway… GEORGE: Definitely. Might as well do the whole thing. YOU: You’ve done a lot of these? GEORGE: I used to do just bathrooms, working with a tile guy named Jesse. Jesse moved to Texas, but I work with his cousin Wally now. We do about half and half kitchens and bathrooms. YOU: I got your name from Sue Barnes… GEORGE: Oh right, I did Sue’s addition last year. That had a bathroom in it. We found a really nice antique tub at a salvage place, and Sue had some Italian tile that she got on vacation. YOU: You found that tub? I love that tub! I covet it! GEORGE: I’m an antiques geek I guess. I picked up that tub even before Sue chose it, because it looked so perfect for her job. If she hadn’t wanted it I could have taken it back, but I was 99 percent sure she would love it. YOU: It’s amazing. I’ve never seen one so ornate. GEORGE: It’s perfect in that space, I think, with the window and the green tile… YOU: Well, I love your design sense. Let’s talk about project management. GEORGE: Sure. YOU: Well, I actually don’t know anything about project management, I confess. I’m a massage therapist. I just know that that’s a big part of doing a job like this. GEORGE: I run anywhere from two to six jobs at once. Right now, I have three I’m juggling, but luckily two of them are wrapping up this month. If we can walk through the bathroom and you can tell me a little more about what you want to do, I can get you an estimate and whatever you need to see insurance-wise. If you decided you want to get started and if we could start next month, we’d do the job in about four weeks. YOU: Four weeks for a bathroom? GEORGE: That’s me walking in to everything finished and I’m out of your hair. The bathroom would be out of commission for about two weeks. If you happened to be planning a vacation, you could miss the worst of it. YOU: We could go out of town. You could make sure the place was locked up at night? GEORGE: Oh sure, we do that all the time. It’s easier for us. If you could board the dogs or take them with you — YOU: They’re wuss dogs, they travel with us. GEORGE: Perfect. Then we could do the worst of it, the dusty stuff, while you’re gone and it would be all done when you got home. YOU: Could you share some references with me, George? GEORGE: For sure. Sue Barnes is one of them, and I’ll send you three more. YOU: I’m so excited! When we zero in on what needs to be done and start getting a feel for how the candidate (or contractor) would approach the job and how he or she has managed past jobs, we learn something relevant. We learn tons, in fact. When we’re talking about our project or role in context — sharing a bit of dirty laundry, if needed, to say something like, “Our sales guys are great, but they’re so focused on new business that our largest accounts are getting overlooked and we need to solve that. What else can I tell you?” then we can get to the heart of the matter at hand, namely, does this candidate sitting with me understand what I’m up against it, and have good ideas for surmounting our obstacle? Of course, we can’t have an in-depth, substantive job interview like the one I’m proposing unless we come down off the perch that many hiring managers and HR folks have installed themselves on top of. We have to be willing to say, “Everybody is making an important decision, here. You are deciding whether or not to come and work for us. We are deciding whether you’re the right guy to work with us on this problem. We’ve all got to get beneath the surface, today.” We shouldn’t be asking job applicants lists of pointless interview questions. We should be talking with them about the work at hand. Who gives a rat’s behind what adjectives the job-seeker thinks other people use when describing him or her? Who cares what sort of animal or canned soup the job-seeker identifies with? This made-up garbage falls into the category of what my old mentor Jon Zakin calls “playing business.” It’s pointless, but we do it over and over and over, anyway. Sitting behind a desk asking lists of pre-written interview questions is not only insulting to the candidate, but it’s bad business too. We could have more substantive conversations with job-seekers if we opened the kimono a little bit to say, “Look, here’s what’s going on in the department. I’d love your take on it.” We’d let the candidate ask as many questions as he or she wanted to. Questions show the applicant’s brain moving, and that’s exactly what we want! I can’t imagine how stupid an interviewer would have to be (or how fearful of stepping outside the lines) for the interviewer to say, “No, I’m sorry, you won’t have a chance to ask us any questions today.” I encourage a job-seeker to get up and leave the room, the building and the opportunity at that very moment. Life is too short to waste time with amoeba companies who don’t understand human beings, only spreadsheets and policies and hoary job-interview scripts. Those guys don’t get you, and they don’t deserve you. If you’re in charge of hiring for your organization, ask yourself: Why are we still interviewing job candidates the way we did eighty years ago? The world has changed. We can loosen the bonds of workplace ritual enough to say, “This isn’t working.” We can change the interview frame, and the sooner we do it, the better off we’ll be.

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Liz Ryan: The Worst Way to Pick a Job Candidate

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David Yarnold: Big Oil’s Arctic Bet: A Fool’s Risk

April 17, 2012

“Fool me once, shame on you; fool me twice, shame on me.” We’ve all heard it — and lived it — as individuals and collectively as Americans. We’ve all had to confront someone who has fooled or even misled us. But when Big Oil repeatedly tells us a monumental lie, we’re struck with collective amnesia. Marking the second anniversary of the BP oil disaster in the Gulf of Mexico, which occurred April 20, 2010, we can’t help but remember the rage and heartbreak we all felt when 11 men died and we saw images of oiled Brown Pelicans flattened to the wet sand. Scientists are just now reporting ominous disruptions in the Gulf’s underwater food chain and we still don’t fully understand the long-term impact on birds and other wildlife. It was a case of “shame on you” in 1989, when the Exxon Valdez ran aground in Alaska, spilling tens of millions of gallons of crude oil into the pristine and achingly beautiful southern Alaska landscape. But there was plenty of shame to go around two years ago as the BP oil disaster unfolded in the Gulf, spewing more than 200 million gallons into what, from a bird and human standpoint, is one of America’s most precious ecosystems. William K. Reilly, a lifelong conservationist and moderate Republican, co-chaired the commission investigating the BP disaster. Reilly was EPA administrator at the time of the Valdez, and he was flabbergasted to find that nothing much had changed since 1989. Reilly concluded that the BP spill “evidenced a failure of management, and good management could have avoided the catastrophe … We are not dealing here with a sick or failing or unsuccessful industry but with a complacent one.” Reilly reminds us that we in fact dodged a bullet two years ago: “…there was a point in the management of this crisis when industry experts feared the entire 120-million-barrel reservoir might seep through the ocean floor and wreak total havoc… What would we be talking about today if the well couldn’t be canned?… We’d be having an existential conversation about whether offshore drilling should ever be permitted in US coastal waters again.” Bill Reilly is no bomb-thrower. At the time he co-chaired the BP spill commission he was serving on the boards of ConocoPhilips and DuPont. As we mark this anniversary, two immediate challenges leap to mind: First, we must restore the Gulf Coast. The BP spill was a major blow to a region already under stress from urban sprawl, wetlands loss and pollution. Congress is now weighing a measure — called the RESTORE Act — that would divert most or all of BP’s penalties to gulf cleanup. Bipartisan versions of this measure have passed both the Senate and the House; it’s time for Congress to finish the job and send a final bill to the president. Second, even as you read this, a drilling fleet under contract to Shell Oil is making its way to a patch of seabed less than 15 miles from Alaska’s Arctic National Wildlife Refuge. Incredibly, Shell has secured nearly all the government permissions it needs to begin drilling operations in a body of water that is ice-covered much of the year, in a place where the sun does not shine for months on end, and where extreme weather is commonplace. The U.S. Government’s own non-partisan watchdog, the Government Accountability Office (GAO) thinks this is a terrible idea . We agree. Cleaning up a major spill in the Arctic would make the BP disaster look like child’s play. Last month the GAO issued a report raising fundamental concerns about whether a major spill could ever be managed in icy conditions. If there is a spot on Earth as sacred or as critical to the future of our wild birds as the Gulf of Mexico, it is probably the unspoiled Arctic. Here, hundreds of bird species arrive every spring from all four North American flyways — the superhighways in the sky that birds use to travel up and down the Americas. Here, they mate, lay eggs and raise their young. Here also, many of America’s remaining polar bears make their winter dens along the coasts. The potential harm from a BP-scale spill is almost beyond comprehension. And, there is growing evidence that we simply do not need to take risks like this to meet our nation’s energy needs. Oil imports are down. Oil production from domestic wells is up thanks to new technology. We’re driving farther on a gallon of gas and using less. Energy independence is becoming a real possibility. Since those who cannot remember history are doomed to repeat it, the price of social amnesia has become unacceptably high. A workable balance between powering the nation and protecting our natural bounty is within reach, but only if we remember, learn, and not be fooled again.

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Janis Bowdler: Homeowners Can’t Afford Another Missed Opportunity

April 17, 2012

When the housing bubble burst more than four years ago, many banks and federal regulators argued that the impact would be limited and the damage contained to the subprime market. Famous last words. Now we know the full story: unregulated finance companies and malfeasant brokers peddled toxic loans designed to earn originators a quick buck at the expense of unsuspecting homeowners, investors, and taxpayers. The damage has spread well beyond the subprime market and helped usher in the worst recession of our generation. The majority of financial trickery was carried out at the hands of lenders that operated outside the scope of federal oversight. The Federal Reserve could have reined them in, but reacted too late. This trend persisted under Bush and Obama when both administrations missed opportunities to get ahead of the market crash and the ensuing tidal wave of foreclosures. Last week, the National Fair Housing Alliance (NFHA) released a report on the treatment of REOs–real estate owned properties, meaning foreclosed properties owned by banks–in nine cities. Their research found that REOs in predominately minority neighborhoods were scarred with the signs of neglect and blight while those in predominately White neighborhoods were well maintained even though they are serviced by the same company. The impact goes beyond the aesthetic. Abandoned properties are estimated to reduce neighboring home values by an average of $7,200 and cost cities millions in maintenance and lost tax revenue. The disparate treatment by servicers comes on the heels of unfair targeting of these same communities by deceptive lenders. Black and Hispanic families were more than twice as likely to be sold subprime loans, even though they had the credit to qualify for regular prime loans. The foreclosures that followed have wiped out 58 percent of Black and 66 percent of Hispanic wealth. Now neglected REOs are threatening to set our neighborhoods and families back even further. The slide show below shows the contrast between in Miami between two REOs in two different communities. See if you can tell which one is in which community. When done right, REOs can be a neighborhood asset. Creative reuse of REO properties can fuel community revival and expand housing opportunities for a broad range of families. Because many bank-owned properties are in neighborhoods close to good schools, jobs, transportation, recreation, healthy foods, and other amenities, they provide a unique avenue for expanding access to opportunity for all families while also breaking down barriers of segregation and isolation. Banks should work with mission-driven local partners like Chicanos Por La Causa in Phoenix, which is acquiring REO properties and converting them into ownership opportunities for families who have completed their housing counseling program. Another NCLR Affiliate in Stockton, Calif., Visionary Homebuilders of California , has established a lease-purchase program for reclaimed REO homes where renters partner with a financial coach to work their way toward an opportunity to buy the home. NCLR is exploring ways to expand these kinds of programs to other cities throughout the country. In a recent speech, Federal Reserve Chairman Ben Bernanke stated that over the next couple of years an additional one million foreclosed properties per year could be added to the REOs held by banks, guarantors, and servicers. Beyond the fact that mortgage servicers are legally required to maintain the properties they own, it would go a long way to healing their relationship with those communities if servicers also participated in and supported those innovative programs to repurpose properties with the community’s social goals in mind. To get there, regulators–starting with the Federal Housing Finance Agency–must set and enforce strong standards to make sure that servicers treat all borrowers and all communities fairly, including standards for maintaining and marketing foreclosed homes. The Department of Housing and Urban Development and the Department of Justice should fully investigate the disparities uncovered in the NFHA report. If no action is taken, abandoned and vacant properties will continue to drag down home prices and infect neighborhoods with crime and blight. But with a little creativity and cooperation, REOs can become a driving force in neighborhood stabilization. Homeowners cannot afford for banks and regulators to miss another opportunity like this.

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Geri Stengel: Closing the Leadership Gap

April 16, 2012

What gives? As the Women Entrepreneurs as Economic Drivers, a report from the Kauffman Foundation shows, getting those women-owned businesses on a high-growth track would energize our sluggish economy. But it’s not happening. Why? I’ve been asking women who haven’t been stopped what they think the barriers are and here’s what they say: Dream bigger. When women start a businesses, they think too far ahead, to the day when they’ll be managing a family as well as a business.They opt for career paths that seem safer and more flexible than running a major corporation. Liz Elting, CEO and founder of global language service provider TransPerfect, advocates another tack: Go for broke when you are young and have nothing to lose. Don’t worry about what your life will be like in 10 years. Dream big and follow your dreams. When your business grows, so do your options for work/life balance. And being a high-powered CEO doesn’t mean you can’t be a good mom. “If you want to have a family and run a business, you can — and a growing number of us do,” says Elting. Be tough. Nice girls please people. CEOs have to make tough decisions, from firing people to cutting services. In a man, that’s being strong; in a woman it is seen as being bitchy. “If you want everyone to like you, you will have a hard time doing what is necessary,” Elting says. Wake up the men. At home, men must share in household responsibilities, recognizing that the woman’s career is as valuable as the man’s. At work, men need to be more inclusive. Networking events shouldn’t just be guy things. Deals are done in informal settings after the conference or out of the office — on golf courses and in the corporate box at the ball game. Yes, some women like sports, but a lot are left out of that schmoozing and dealing. It’s not that men are circling the wagons; they’re just not thinking it through. They’re losing, too, when possibly great deals get left at the clubhouse. Support each other. Whether in peer groups, such as the Women Presidents’ Organization, or through mentoring women starting out, women need to support and mentor each other. As Sheila Lirio Marcel, CEO of Care.com says, “We must lift as we climb, bring others along with us and collect talented people as we rise.” Men know how to network. Women seem to be falling behind . That needs to change. Change the way business is done. Let’s start firms that don’t follow the same old businesses model; let’s build a model that can accommodate the differing needs of GenY, parents, Type A workers and those who want to work reduced hours. You can retain and grow talent by being flexible — flexible about taking a year off for family without losing a rung on the career ladder; flexible in working hours; flexible about telecommuting. If we don’t restructure business culture, we’re going to keep losing the talented people we’ve paid money to train. Rosalie Mandel, principal of the alternative investments accounting firm Rothstein Kass, has changed the culture of her company. “Our firm had the vision to see the benefits of flexible scheduling — and it’s never said no. We’ve had an official flex policy since 1999,” she said in an article for The Glass Hammer . Changes now, in attitudes, awareness and culture could end the stagnation of small women-led businesses and make them into the economic drivers we need. For more articles about high-growth women entrepreneurs, visit Guiding the Way for Women Entrepreneurs , Ventureneer’s curated source for information women entrepreneurs can use to power-up their businesses.

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Jim Kukral: The New Business Model of Book Publishing

April 16, 2012

I’ve written previously about how Amazon’s Kindle and their KDP Select program is bringing new writers to the book publishing world, bypassing traditional publishers. But sometimes, established writers are finding a new voice there too. Randy Cassingham is one of the first online publishers: his This is True column went online in 1994. It’s his full-time gig: over the years, it has brought him several million dollars in income, and he lives on 45 acres in western Colorado, where he looks at gorgeous snow-covered mountains from his home office. “TRUE” (as Cassingham calls it) is biting social commentary, using weird news as its vehicle. It’s funny and has a loyal following: thousands pay $24/year to get the full column by e-mail each week. Tens of thousands get a free sampler. It might be the first example of an online “fremium” business model. In the early years, he turned down two unsolicited syndication deals to bring the column to newspapers — turning them down because he didn’t want to give up control of his work, he says. Good move: now he’s compiling his archives into Kindle books, where he can get a 70% royalty on sales, rather than the 12.5% that Dutton (part of the Penguin Group) pays him when it turned another of his websites into a book. And it’s working: Cassingham told me that in the first two weeks of Kindle book sales, the five volumes he has posted so far earned more than $1,400 in royalties from Amazon. “I’m boggled,” he told me by e-mail. “Imagine if I actually concentrated on this income pillar. Or had more than five books available. Or I sent one or more titles out for review somewhere, or advertised, or did ANY kind of promotion to anyone other than my existing readers!” Imagine indeed! Then he realized that a throw-away human interest feature he includes in This is True, the “Honorary Unsubscribe” of someone who died in the previous week, could also be good book material. “These are the people you wish you had known,” he says. “Take the inventors I’ve featured. Did you know the same guy invented both the computer hard drive and the video cassette? What a fascinating guy!” He has also featured the inventors of the contact lens, the hovercraft, the Hawaiian shirt, even the guy who thought of putting a peanut inside an M&M. Then, he says, getting excited as he looks through his archive, “there are the medical researchers, responsible for saving thousands, even millions of lives, spectacular entertainers that died virtually forgotten, and…” Just as he says: the kind of people you wish you had known. That book just came out on Amazon’s Kindle this week, and it’s the first of several in that series. Cassingham told me that “I’m glad I have a block of 100 ISBNs” — International Standard Book Numbers, which are used to identify books for retailers, including Amazon — “I’m going to need them.” Cassingham used to have the material now coming out in his books available free in various web archives. He counted on Google’s Adsense program to bring in ad money, but it hasn’t worked as well as he had hoped, even though it’s all original work. “TRUE’s archive,” he admitted, “which had more than five volumes of material, only brought in $559 for the entirety of 2011.” Compared to more than $1400 in the first two weeks on Amazon, it’s no wonder Cassingham is starting to take the archives down. If someone follows a link to an archive page that has been removed, they now see information on what book it’s in — with a link to its Amazon sales page. ( Example ) Self-publisher J.A. Konrath laments on his blog that he wishes he had the rights to his first novels, now that he has sold more than 700,000 copies of his later efforts, self-published on Kindle. Cassingham doesn’t have that problem (not counting his one book with Penguin). His only problem now is getting his existing work converted to Kindle as fast as he can. As more established, quality authors who kept the rights to their work figure out that it’s to their advantage to publish themselves on Kindle rather than beg for contracts from “big” publishers, there will be an explosion of great work available in e-book form. It’s truly the start of a new model of mainstream book publishing. Amazon CEO Jeff Bezos said so pretty much himself in a letter to shareholders last week. Speaking about his Kindle Direct Publishing platform, he said, “The most radical and transformative of inventions are often those that empower others to unleash their creativity – to pursue their dreams. These innovative, large-scale platforms are not zero-sum — they create win-win situations and create significant value for developers, entrepreneurs, customers, authors, and readers.” What do you have to say about it? Please leave a comment.

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Alan Jenkins: Racial Discrimination by Banks Only Worsens the Foreclosure Crisis

April 13, 2012

Is there a house in your neighborhood that everybody hates to walk past? You know, the one with broken and boarded up windows, trash left to gather on the lawn, and grass so overgrown it’s becoming a habitat for rodents? If you have a house like that in your community, you know it’s more than just an eyesore. Neglected, vacant houses depress property values throughout the community, and can threaten health and safety. They erode the sense of community and stability that creates vibrant localities, and they hamper economic resiliency. With a national foreclosure crisis still in full swing, such houses are all too common. You might be surprised to learn, though, that if you have problem properties like that in your neighborhood, there’s a good chance your absentee neighbor is a bank. More shocking still, banks are neglecting houses they own in minority communities even more frequently — much more frequently — than those they hold in white communities. A detailed, undercover investigation unveiled last week by the National Fair Housing Alliance and several regional partners shows not only that banks too frequently fail to maintain foreclosed properties that they own, but that they tend to neglect their properties in communities of color at a much higher rate, with devastating consequences. A large number of the neglected, bank-owned properties have broken or missing doors and windows, inviting vandalism and trespassers. And many have safety hazards that endanger the public. Those and other defects are significantly more prevalent in bank-owned properties located in communities of color. Another finding is that, on average, the banks are not marketing houses located in communities of color as aggressively to individual homebuyers as they do properties in white neighborhoods. The properties in white neighborhoods are, for example, more likely to have clear and professional “for sale” signs. When banks both poorly maintain and poorly market foreclosed houses, the properties tend to stay vacant longer and to eventually be sold to speculators, rather than to people who would make the houses their home. The discriminatory differences are stark. In Dayton, Ohio, for example, 60 percent of bank-owned properties in African American neighborhoods had broken or unsecured doors, compared to only 18 percent in white neighborhoods. In Atlanta, properties in African American neighborhoods were almost five times more likely than homes in white neighborhoods to lack a “for sale” sign. And in Dallas, 73 percent of the bank-owned homes in predominantly non-white neighborhoods had trash on their properties, while only 37 percent in white areas did. Neighbors of all races who live near foreclosed, bank-owned properties, the investigation found, are pulling together to keep them presentable — doing maintenance the banks should be doing, like mowing lawns and removing trash. But in communities of color, neighbors reported seeing home improvement contractors working on those properties at only half the rate seen by neighbors in predominantly white areas. The bank behavior identified by this investigation is unethical, unlawful, and harmful to our economy. It breaches our basic national values of equal opportunity and the common good. It violates the Fair Housing Act of 1968, signed 44 years ago this week in the wake of Dr. Martin Luther King Jr.’s assassination. And it is holding back our economic recovery by, among other things, depressing home prices and hampering sales. It’s hard to know all the reasons why banks are discriminating in this way. Bias and unfounded stereotypes about minority communities and homes, however, are a likely root cause. The investigators controlled for 39 race-neutral factors like building structure, water damage, and curb appeal, so the different treatment is indisputably about race, and not class or other home or neighborhood characteristics. This investigation should be a wake up call for banks, regulators, local governments, and the neighbors of these bank-owned properties. Among the solutions identified by the National Fair Housing Alliance are anti-discrimination investigations by the Consumer Financial Protection Bureau and other enforcement agencies, making information about bank-owned properties more publicly accessible, and prioritizing buyers who will occupy these properties over speculators who may warehouse them. As Americans struggle together toward a lasting economic recovery, good neighbors are more important than ever. It’s time to remind America’s banks that this includes them. Cross-posted from Race-Talk .

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Wray Herbert: The Surprising Benefits of Corporate Disunity

April 12, 2012

I love reading accounts of the West Wing’s inner workings, because they are studies in the predictable quirkiness of human psychology. Presidents and their trusted staffs always arrive in the White House with a unified message and team spirit, and they inevitably disintegrate into factions — ideological purists and pragmatists, seasoned vets and young Turks. It’s just as true of Obama’s West Wing today as it was of Nixon’s and FDR’s, and probably every presidency back to the founding. The common wisdom is that such factions are a bad thing, not just for the White House but for any complex organization. Internal bickering takes key leaders off message and saps energy and hurts job performance. But Margaret Ormiston isn’t so sure. Ormiston is a psychological scientist at the London Business School, and together with Elaine Wong of the University of Wisconsin — Milwaukee, she has been studying the consequences of such organizational fragmentation. Her work suggests that disunity may actually have some hidden benefits, including the promotion of more ethical business practices. The scientists’ theory goes like this: As unified leadership teams splinter into factions, the key players become more competitive and more vigilant in monitoring one another. Competition and monitoring have downsides, but they can also influence organizational decision making in positive ways. Specifically, factions foster intense scrutiny and discussion of competing agendas, which in turn lead to more ethical choices and judgments. To test this idea, Ormiston and Wong examined existing data on leadership teams at about 50 Fortune 500 companies. They ranked each leadership team’s degree of fragmentation, based on tenure and education as well as the homogeneity of competing factions. They also measured how centralized, or decentralized, the decision making power was in each company — figuring that disunity would be more beneficial in organizations where decision-making power was dispersed. Finally, they examined each company’s ethical record over a three-year period — measures like charitable giving, for example, or disregard for the local community economics. When they crunched all the data together, the results were unambiguous. As reported on-line in the journal Psychological Science , the more fragmented a company’s upper management was, the more ethical its record — but only in organizations where decision making was decentralized. In companies that consolidated power at the top, fragmentation did not lead to more ethical decision making. It just led to fragmentation. That’s a lesson for any organization, whether its business is business or governing.

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Brian Tolle: Sales or Marketing?

April 12, 2012

The longer I’m in the business world, the more comical the term sales and marketing seems to me. These two disciplines couldn’t be more different. And since I’ve had to wear both hats as a business owner, what each role demands of me is mind-boggling. When I’m the marketer, I’ve got to get and keep the brand right and blast it as far and wide as possible. When I’m the salesperson, I’ve got to get in the trenches and go face-to-face with the real buyer in the flesh. It’s the difference between zone defense and man-to-man. So in the real world, it’s sales or marketing. At any one moment you’re either one or the other, not both. The same goes for when you are leading others; you’re either a marketer or a salesperson. Why is this important? The very nature of marketing requires some sort of medium… television, magazines, Internet, mail. This means the marketer is one (significant) step removed from the end user, the buyer. The two can only connect when the medium is present. If the medium isn’t available, the marketer will check their Blackberries. And the chief weapon they wield is scale. Millions of TV watchers can see one commercial, read one ad in a publication. No surprise, then, that their techniques take on a certain carpet bombing feel with the marketer as the pilot, high above the fray of the buying moment of truth. Regrettably, a leader with this mindset has a hard time connecting with the troops and spends more time in front of groups instead of individuals. Think of those leaders in your experience who epitomize the marketing mindset. How many of them can you imagine gaining commitment from a reluctant front-line employee through a face-to-face discussion? Not many. Without the bullhorn, the marketer has no voice. The very nature of sales requires personal contact… face to face, asking questions, listening for pain, being up front about each step in the process and bold enough to hold a prospect or customer to their mutual agreement, however small in the grand scheme of things. Salespeople hear “no” whereas marketers hear silence. Salespeople come to know the hard truth about the product or service but still work to make it work, it’s the only way they make a buck. Great salespeople have guts; they go back into the line of fire every day. Think of those leaders in your experience who epitomize the sales mindset. They’re never far removed from you in the trenches. They find you to make sure you’re ready to take on the fight. They look you in the eye. It’s sale or marketing. Your choice. Which one will you be? If I had my druthers, I’d take the sales guy.

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Robert Pagliarini: How You Can Better Influence People

April 11, 2012

I’ve always been fascinated by FBI profilers. Those are the folks who get inside the heads of criminals to try to figure out why they do what they do. There is a great deal of power that comes from being able to quickly analyze someone to determine what they are all about — think about how useful this could be for a life coach , therapist, or manager. There are numerous tools and techniques to help you analyze someone. Popular ones include the Myers Briggs Type Indicator and DISC Assessment , where you try to classify someone’s personality. Then there are numerous books on interpreting body language, analyzing eye movement, and even decoding handwriting. The most accurate method I’ve discovered for assessing what drives another person is based on ” human needs psychology ,” a theory of human behavior developed by Tony Robbins . Yes, that Tony Robbins — the one who has directly impacted more than 50 million people through his books, tools, and live events ( watch Oprah Winfrey do a firewalk at a Tony Robbins event ). Human needs psychology provides an answer to the elusive question, “Why do human beings do the things they do?” The theory says that there are six fundamental needs that everyone has in common (every person includes your mother-in-law, President Obama, terrorists, you, and everyone else.) And here’s the best part — because we all share these same needs, once you can decipher which top two needs someone values more than the others, it instantly gives you an edge in knowing what drives them and how to influence them. Here are what Robbins’s theory postulates as the six human needs: 1. Certainty. The need for stability, security, comfort, and to feel confident you can avoid pain and gain pleasure. 2. Uncertainty/variety. The need for change, new stimuli, and for the unknown. 3. Significance. The need to feel important, special, unique, or needed. 4. Love/connection. The need to belong and to feel closeness with someone or something. 5. Growth. The need to expand, learn, and grow. 6. Contribution. The need to give beyond oneself and to support others. Do you think you should communicate differently with someone whose No. 1 need is “certainty” than if his or her top need is “significance?” If your goal is to build rapport, nail that interview, or get funding for your venture, I sure hope so. The question becomes, “How can you discover someone’s top needs?” To answer that, we go to Mark Peysha, CEO of Robbins-Madanes Coach Training , an online company that teaches leaders, therapists, and others how to quickly and efficiently create lasting change with their clients or employees. The training is based on a framework created by Robbins and Cloe Madanes, a renowned teacher, one of the originators, of the strategic approach to family therapy. According to Mark, there are three basic ways to understand another person’s top needs: 1. Ask them. This is obviously the most straightforward approach. People are fascinated by the concept of the six human needs, and they love an opportunity to talk about what matters most to them and how they perceive what’s important. 2. Observe what they focus on. Is the person focused on safety and comfort, or are they more driven by the need to stand out? Do they seem to crave connection, or do they crave variety and entertainment? Listen to what they communicate and watch for what they value. You can learn a lot by the process of elimination. 3. Contextual. It’s best to observe someone in more than one environment. When people go into certain situations, you can learn a great deal from how they respond — their top needs will often rise to the surface. So how can you use human needs psychology? Get practice profiling people you already know. Look at their communication and behavior through the lens of these six needs. Ask yourself which needs are most important to this person. Get practice looking for and identifying needs in others so it becomes a habit and so you can get the edge in knowing what drives them and how to influence them.

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Vitaliy N. Katsenelson: Not Buying Best Buy

April 11, 2012

Best Buy’s CEO Brian Dunn did a courageous and proper thing for shareholders by resigning. He was not the right person to lead Best Buy into battle against online-only competitors that use Best Buy’s spacious and beautiful stores as the showroom for their products. To make things even worse, smartphones make comparison shopping so much easier nowadays, and structurally, Best Buy cannot have lower prices than its online competitors. Its stores also lack the breadth of selection of Amazon and they are at a permanent, competitive cost disadvantage. The new strategy Dunn announced a few weeks ago of closing big stores and opening a lot of smaller stores for mobile sales makes little sense. It is basically morphing Best Buy into a Radio Shack. It would be great if this strategy had worked for Radio Shack, but it didn’t. Radio Shack’s margins are collapsing, and that is why its stock is scratching as-far-as-my-chart-goes-back lows. I don’t know what the solution is for Best Buy. It must involve a much tighter collaboration of physical stores and its Internet presence — the stores need to be turned from a liability into an asset. Or maybe a logistical miracle that would allow Best Buy to deliver a much, much greater range of products (like, hundreds of thousands) to its customers on the day they order them. One thing is for certain: The new strategy will require thinking that cannot be delivered by somebody who spent 28 years in the Best Buy box. It requires a Netflix or Amazon-like strategy, where management was willing to bring forward (and flawlessly execute) a disruptive strategy that undermines its current cash cowing business. Amazon did this by bringing electronic readers to the masses, which undermined its core book business. Netflix did it with streaming. I am sure I’ll get plenty of dissenting emails about Netflix: “We don’t know if its model will be successful down the road,” etc. I’ll admit, I don’t know what Netflix’s streaming business is worth. But one thing is for certain, if it did not bring out streaming, it would have been dead in three to five years. Now it has a fighting chance to survive and maybe even create value for shareholders. I am a value investor, and so when I see a stock dangling at six times earnings I’d be lying if I told you that I did not have an inkling to seriously consider it for our portfolios. But Best Buy is not a retailer that missed a fad (stacked the shelves with wrong-color shirts, etc.) — those sorts of situations often present great buying opportunities, as the problems are easily fixed. Best Buy is a retailer that so far has missed a structural change that may make its business obsolete. It is only cheap if the “E” projected for next year will be there. So far the market is betting that it won’t, and I have no insight that encourages me to disagree with the market. Reminder: The VALUEx Vail conference is June 20-22 in Vail. This is not your typical conference — think of it as the TED of value investing. Though this is a not-for-profit event, I hope what you’ll learn from attending will generate profits for you. You can find out more about VALUEx Vail here . Vitaliy N. Katsenelson, CFA, is Chief Investment Officer at Investment Management Associates in Denver, Colo. He is the author of The Little Book of Sideways Markets (Wiley, December 2010). To receive Vitaliy’s future articles by email, click here or read his articles here . Investment Management Associates Inc. is a value investing firm based in Denver, Colorado. Its main focus is on growing and preserving wealth for private investors and institutions while adhering to a disciplined value investment process, as detailed in Vitaliy Katsenelson’s Active Value Investing (Wiley, 2007) book.

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Richard Komaiko: The Ultimate Irony of Groupon

April 11, 2012

Just yesterday, a Pennsylvania class action lawyer, Howard G. Smith, filed a class action lawsuit against Groupon on behalf of all shareholders who bought in during the infamous IPO. The complaint alleges that Groupon misrepresented or failed to disclose information that they had an obligation, under Securities Laws, to share with prospective investors. According to MarketWatch , “no class has been certified” at this time. Here’s what that means in plain language. When large numbers of people have been harmed in the same way by the same defendant, each of them could file a lawsuit on their own, which is very expensive. Alternatively, they can merge all of their lawsuits into one, which totally changes the economics of litigation. All of a sudden it becomes very cost effective to sue, because the overhead of the legal fees is defrayed over large numbers of plaintiffs. Needless to say, it’s in the interest of the plaintiffs to do this, but courts are cautious about when they should and should not permit it. When the court decides to permit it, that’s called certifying the class. The principal factor that courts look to when deciding whether or not to certify a class is the number of people who come forward to announce that they believe they have been wronged. And often times, these types of law suits can sink or swim depending on whether or not the class gets certified. In other words, the fate of Groupon literally depends on whether this class action lawsuit “tips.” The irony is just too delicious… This post originally appeared on AttorneyFee

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Robert Shiller: 10 Ways Finance Can Be a Force for Good

April 11, 2012

The finance profession gets maligned after every financial crisis. The anger is especially strong now, after the most recent financial crisis, which began in 2007, and the anger that is felt about it goes far beyond the Occupy Wall Street movement. The crisis is often viewed as more than an unfortunate accident, but as a revelation of an underlying moral fault. Of course, some people in finance are evil, but that is true in every walk of life. Maybe the wrongdoings of financiers loom especially large in our imagination, since some in finance make so much money doing it. We naturally want a more equal society where most people feel fulfilled and sense a basic respect from others. But, we have to think about how achieve that kind of equality without disrupting our goals or disturbing our standard of living. Moving forward from here, we need to think about how we can make finance work toward a society that is both comfortable for all of us and stimulating and forward-moving as well. In my view, doing that means tinkering with some of the financial institutional structures so that they work better for everyone, and expanding the scope of finance to cover more of our risks and activities. That means enlisting the help of people with financial expertise. Throwing a lot of financial people in jail or shutting down financial institutions are not on my list. In my new book Finance and the Good Society (Princeton) I advance some ideas how this can be done, in our new information-technology-rich society: 1. Advance the benefit corporation. From the initiative of the nonprofit B Lab, the first law allowing benefit corporations was created in Maryland in 2010, and now eight states have them. A benefit corporation is a for-profit corporation that has some additional social or environmental purpose other than just making profits. Each benefit corporation can define its own purpose and will attract its own kind of idealists as investors. My guess is that this new idea will turn out to be a winner, that will yield some of our most profitable corporations because of the employee and community support they will inspire. The amazing example of Wikipedia, with its unpaid authors, shows how public purpose can motivate people. 2. Create what I am calling, in my new book, participation nonprofits, nonprofits that might run schools or hospitals or the like, but that raise money by selling shares to the public. Such a firm pays dividends from its profits into a special account in the name of the shareholder. The shareholders get a charitable tax deduction for making the investment, but can use the dividends in the account only for further charitable contributions, including purchasing shares in participation nonprofits, or can spend them on themselves in some predefined emergency situations such as a medical crisis. With participation nonprofits, charitable giving will be more fun for the donors, for they could watch their money grow and feel their influence grow with it, if they invest wisely, fulfilling a natural human need for stimulation and appreciation. For example, the Wikipedia Foundation might have been even more successful if it had been set up as a participation nonprofit, and found some revenue opportunity associated with their mission. Instead of operating on a shoestring of the mere 75 employees it has today, I’ll bet it would have received many billions in donations by now, which it probably could use for a much expanded social purpose. 3. Create what I am calling continuous-workout mortgages, mortgages whose contract specifies from the beginning that the loan balance will be reduced in contingencies like a decline in home prices or a severe economic recession. In the current crisis, we are hampered by the fact that few troubled homeowners are getting workouts on their mortgages. This has been a significant factor in the severity of the crisis, since people who are underwater on their mortgages are not likely to spend, or to move to take a new job. Workouts could be not only preplanned but also made continuous, responding day by day to every change in the economic situation of the homeowner. 4. Get risk-management markets for real estate risks going on a high level. In 2006, my colleagues and I worked with the Chicago Mercantile Exchange to launch the world’s first futures exchange for single-family homes. The market is still going, though trade is very weak. But the CME Group has just launched new options on home prices, which may rekindle the market. If this initiative does not work well either, we need to come up with another initiative to make these markets work, which will enable private mortgage issuers to use them as risk management devices so that they can do such things as create continuous workout mortgages without taking on unacceptable risks by doing so. The financial crisis might largely have been prevented if we had such markets. 5. Empower lobbyists on behalf of the 99%, the people who make up all of the population except the very wealthy. There is nothing wrong with lobbyists per se, for they give needed information to lawmakers. Every interest group should have lobbyists, including the working class and the poor. Financial lobbying is especially important since lawmakers cannot be expected to have expertise on difficult financial concepts. The problem has been that the financial lobbyists have grown dramatically in resources in recent decades, while other groups’ lobbyists have not. Supporting a better balance of lobbying efforts needs to be emphasized. 6. Advance the cause of risk management for the very poor. There are billions in the world today whose survival depends on subsistence farming. Farms ought to be able to insure their crops against failure due to bad weather. Traditional crop insurance has not worked because crops are difficult to verify and there is thus a moral hazard problem. Now that weather reporting is more detailed, and now that agronomists better understand the relation between crops and weather, we can base insurance on the weather changes that affect crops. The take-up by farmers of such insurance has been slow, despite demonstration programs sponsored by the World Bank and other donors. We need to experiment more with marketing forms until we get these right. 7. Create more sophisticated forms of public debt. At the present time, national governments tend to rely exclusively on conventional debt to finance their deficits, in contrast to companies who use both debt and equity as well as a plethora of other financial devices. A simple first step would be for governments to sell shares analogous to the shares in corporations that are traded on stock markets. My Canadian colleague Mark Kamstra and I have proposed that governments with deficits, instead of borrowing more now, start selling what we call trills: each trill promises to pay a dividend equal to trillionth of GDP each year to the owner, in perpetuity. Investors who are optimistic about GDP might love these investments, and governments would then find that they are cushioned against financial crises like the present crisis since their required dividend payments decline then. 8. Create tradable social policy bonds. The idea, first articulated by Ronnie Horesh in New Zealand, is for governments to create bonds that pay out if some specified social policy objective, such as an increase in public awareness of some important issue or a decline in some specified crime rate. By creating such bonds, an incentive is created for private sector initiatives to solve them. An entrepreneur can profit by buying the bonds and taking steps to solve the problem. The entrepreneur does not have to wait to profit until the day when the policy objective is finally met, for, if these bonds are traded on public markets, the price of the bonds will tend to increase in anticipation of the fulfillment as soon as the prospect is apparent. 9. Create an inequality indexation scheme in the tax code. We would pass a law now that specifies that taxes will be indexed to inequality: tax rates on higher incomes will be automatically raised at any future date when inequality surpasses a specified threshold level worse than it is today. It should be politically much easier to create such a contingency plan now, to be triggered only at a future date if some specified level of higher inequality is reached, than to raise taxes later after such inequality is a reality and a political constituency for the newly rich is created. Just as, with fire insurance, one must insure a house before it burns down. So to, if we are to view increased inequality as a risk with a financial solution, we should take risk-managing actions while it is still just a risk. 10. Create livelihood insurance, insurance offered to individuals against declines in the average income paid to people in their professional specialty. We already have disability insurance, insurance that protects individuals against loss of income due to illness. In the information age, we ought to be able to expand such insurance, without triggering moral hazard, to protect people against possibly catastrophic drops in lifetime earnings that sometimes occur when people’s occupational income suffers a serious hit because of some technological innovation or change in the economy. If people are able to insure their livelihoods against such events, they will not only rest easier, they will be able to be more adventuresome in their career choices. All of these ideas are expansion of basic financial technology toward the broader social benefits. The first step in making any such things happen is first to appreciate the kinds of financial institutions we already have, as well as their defects. We need then to improve and build up this financial infrastructure so that it works better in our lives. Robert Shiller is professor of economics and finance at Yale University. This month Finance and the Good Society appeared and also a new revised version of his free video online Financial Markets course, part of Open Yale , was launched.

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Preetam Kaushik: Starbucks Finally Coming to India: Will It Knock Out the Indian Coffee Retailers?

April 10, 2012

One of my Indian friends abroad was returning home after a three year stint in Japan and mentioned, “Well, the only thing that I would not find in India and I can’t live without is Starbucks.” “But, there are Café Coffee Day and Barista, the Indian Coffee chains, if all you want is a hang out joint and some good tea or coffee,” I said. “No, they are not the same, they don’t even serve Tazo Chai Tea Latte,” was the curt response. Well, it’s only an individual example, but kind of opens up a window to understand how brands develop and make your life incomplete without them being around. It is also precisely this sentiment that would welcome Starbucks in India. However, Starbucks is looking at a much bigger market than merely those who eagerly await its arrival. Indian coffee consumption has doubled up in the last decade to 100,000 metric tonnes . While the main players in the retail coffee chain in India are Café Coffee Day, Barista and Costa Café, it is really only the Café’ Coffee Day that has the largest market share. With over 1250 cafés across various cities in India, Café Coffee Day is progressing at a growth rate of nearly 30 percent a year. In Contrast, Barista remains slightly an upmarket Café with about 250 cafes across the county and Costa Coffee, still lesser at about 100 Cafes. Who amongst these is really the competitor for Starbucks really depends on how the company positions itself in India. Starbucks is partnering with Tatas with a 50: 50 Joint Venture to launch the first set of the 50 retail coffee chains across India by the end of the year. The first launch is estimated in August. Finally! The question one likes to ask is not what is bringing Starbucks into India, but what has really kept it out for so long. It may be the Foreign Direct Investment Policies for single brand retail companies, where the bar was kept at 51 percent. Apparently, Starbucks has long been interested in coming to India but somehow it didn’t work. However in the last few years, contemplating a Franchisee Model and was in talks with Kishore Biyani of The Future Group, India. It however does not work for many brands who do not want to partner with any Indian brand, such as Apple and IKEA. It is only in January, 2012, that the Indian Government allowed 100 percent FDI for single brand retailer raising from 51 percent. The only condition that comes with 100 percent FDI is that the companies who take the 100 percent route must procure 30 percent from smaller Indian companies . It is interesting that despite the 100 percent FDI allowance now, Starbucks has chosen to go for a joint venture with the leading Indian Conglomerate Tata, that too with a 50:50 partnership stake. The two companies who are signing in MO U’s are working on the finer print for the Indian chains set to launch soon. Starbucks is already in agreement with the company over sourcing its coffee from India. Although the final arrangement between the tie up is still not public, it wouldn’t be a surprise if TATAs, who are also in the hospitality business, run some of the retail stores out of their own properties. Starbucks, which runs over 1900 retail stores in over 58 countries, is planning to launch stores in all leading cities in the first round this year. However, it is estimated that Indian market currently has the capacity to absorb more than double the stores it already has. What brings Starbucks to India, when it is a known fact that Indians are not known for their love for coffee? In a country where the predominant beverage across the country remains ‘tea’ and the coffee drinking South Indians drink milky and sugary filtered coffee, it may not sound like a very naturally inclined market for Starbucks. However it is not the affinity for coffee, but the size of the Indian middle class which is estimated at 300 million that is attractive for brands like Starbucks. It is also true that Starbucks isn’t really all about Coffee, the branding apparently is hooked on to the coffee, but Starbuck offers more than the Coffee anywhere in the World and wouldn’t it be fair to expect that there would be something special for Indian market too. Café Coffee Day is no different, it does sell snacks, tea and so many soda based drinks, not remotely connected with Coffee. That brings the discussion to the buzz that is going around in the internet world. From the Washington post to the Wall Street Journal, blogs are talking about suggestive or anticipated menu for the Indian palate courtesy Starbucks. While the guess is that “Frappuccino” and the “Latte” , should remain there, some suggest Starbucks could benefit from having Alphonso Vivanno Lassi for Indians and may also consider change of name for ‘Tazo Chai Tea Latte’. Some suggestions are around having a ‘real masala tea’ as well as serving ‘coconut water’. One could imagine Indian obsession with mangoes, diary and sweet getting twisted into some interesting new beverages. It’s not a long wait now. Starbucks Corp. is serious on spreading its wings in Asia. One, the middle class in any of the East and South Asian countries is growing and the success in China has been definitely impressive for the company. The China success where cafeterias have become a national pastime of the sorts for the middle class, India must be an inspiration. The China experience shows that it is the young from the middle class that are its typical customers. While all across Asia Pacific the Café market is growing and is estimated at 10 percent to 30 percent, Mr. Wang, head of the Starbucks Asia Pacific finds Korea as one of the most promising market . Mr. Wang believes that their entry into the Indian market will lift up the entire coffee market in the country. Self-assured yet cautious, Mr. Wang seem not too worried about the local or national competition from existing brands. One of the reasons he cites is that theirs is a proven global brand. The other being their attitude that any competition helps you remain focussed, keeps them working hard on standing out. Or as they say, there may be a place for everyone to co exists. Interestingly, Mr. Wang who is a trained lawyer thinks that Starbucks culture is about being either a rule breaker or a rule maker. The company, he insists, relies on innovation and engaging customers and the market. Starbucks, he conveys, stands for its goals on sustainable growth, farmer equity and environmental awareness. The Starbucks would like to work with coffee farmers to better yields without reducing chemical inputs. The joint venture between the Tata and Starbucks will be called Tata Starbucks Ltd. It is Delhi and Mumbai which would host the first of these stores. Well, for those who won’t like to go to a café for their coffee, they can still relish a new product that both groups will together launch ‘Tata Tazo”. For the rest, long chats await in a few months from now at Starbucks.

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Mark Steber: What to Know If You Owe

April 10, 2012

According to the Internal Revenue Service (IRS), approximately three out of four taxpayers who file an annual tax return receive a refund. That’s good news for 75% of consumers, but not ideal for the remaining 25% of taxpayers who find they owe money at tax time. In fact, it’s one reason why some Americans will drag their feet, and wait until the last minute to get their tax return filed. If you are someone who has, or expects that you may have, a tax liability to pay, it’s important to be aware of the rules regarding tax payments and to manage your time wisely in advance of the April 17 tax deadline. Perhaps the most important thing to remember, and something that still surprises people when I remind them, is that while you can request a six month extension for filing a tax return, you still need to pay your taxes by April 17 in order to avoid interest and potential penalties. The additional six months (until October 15, 2012) may help some taxpayers breathe a sigh of relief, but more often than not it’s better to buckle down and file by the deadline, even if it requires paying. There are several ways to make payment on a tax liability. For those who wish to pay what they owe in full, they can send a check made payable to the United States Treasury, being sure to note the taxpayer’s social security number or employer identification number, tax period, and related tax form number. If you want to pay with cash, that’s an option, as well, though you must pay in person at a local IRS Office. Some people prefer to work with the IRS to set up an installment plan and pay down their tax debt each month in a predetermined amount based on the amount owed. However, there is a one-time fee charged by the IRS for this arrangement (at present, $52 for direct debit agreements and $105 for non-direct debit agreements). Similar to most installment payment plans, you will be charged interest on the unpaid amount of the debt, as well as potential penalties. You will also be expected to repay the full debt amount within 72 months. Another option for paying a tax burden is to pay by credit or debit card through an IRS e-pay service provider. This can be done via phone or electronically, though consumers should be aware that there is a fee charged by service providers to facilitate the transaction. Keep in mind that you can file your return at any time and wait until April 17 to pay, if desired. If no effort is made to pay, you could be subject to collection action, such as having your wages, bank accounts or other assets garnished. The bottom line is, plan ahead to find out if you owe, and to determine the best way for you to pay Uncle Sam based on your current financial situation.

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Russell C. Smith: Reinventing Capitalism: Strange Currencies in the Marketplace

April 10, 2012

As a species, human beings have excelled at hedonistic adaptation. It’s one of the main reasons we’ve become the dominant species on the planet, and have survived over the past 12,000 years, when many other animals that roamed the Earth far longer didn’t accomplish anything resembling modern civilization. Dinosaurs had millions of years to evolve, but they never got around to developing a Gap Outlet, much less online shopping. Adaptation, altering behavior on a reward/punishment basis, and always staying ahead of the competition — enabled humanity to create civilization and all the institutions, organizations, and social structures that evolved along with us. When coins and paper currency overtook the barter system, societal structures adapted and those with the gold wanted to hold onto the gold. Modern capitalism and economic theories have only been around for a brief time in the history of humanity. And when it comes to economics, most of what’s been written, argued about, and speculated upon was done so before the Internet Age. As the Internet continues to expand and morph into its next iteration, helping to reinvent and demolish one industry after another, one can easily imagine the Internet soon altering huge segments of how capitalism works in the digital age. It’s safe to say there’s been no other time in the history of the world when so much information on peoples’ purchasing habits has been gathered, stored, catalogued, and most importantly… used. Impulse buying is done quickly, with a swipe of a credit or debit card, without much thought as to how a person’s overall buying timeline connects back to every other purchase ever made. Buying everything on credit or debit is now the norm in our society, and people who still use cash on a daily basis will soon become an anachronism, similar to those odd individuals who don’t always carry a mobile communication device. If the constant tracking of one’s buying habits already has a decades-long history, and everyone in society is now expected to be on-call and constantly tethered to a mobile phone, how does this consumer surveillance and over-connectedness play out in the long run? One of the easiest ways a mega-corporation can change your behavior is to offer reward points to you for every purchase you make. And with smart phone and microchips becoming more prevalent in our daily lives, don’t be surprised if you’ll soon be able to accumulate points automatically, even in your sleep. You already receive points for special deals, so why not for regular daily purchases — having your morning Starbucks Latte, drinking a Coke at lunch, or filling up at the same Shell station every afternoon. You’ll get more and more points for buying, choosing, picking anything, anytime, anywhere. You’ll become a walking preferred card for hundreds of global brand that will embed themselves into your behavior. And eventually, you may receive real rewards for your loyalty, not just rewards the corporation chooses for you. Eventually a person could accumulate far too many points to spend in a lifetime, similar to the way some frequent flyers have racked up so many miles they just don’t have enough time to use them all. Internet sites specializing in point trading could easily become the next big online business. Individuals could sign up and trade reward points with others, which would go toward buying tangible items on eBay or Swap.com. In the near future, it’s easy to imagine companies like Facebook or Google creating their own brand of currency. A far fetched idea? Not really. Just ask anybody who’s spent money on Second Life currency so they could buy virtual products or experiences. In a few years you might be buying Starbucks coffee with Star Bucks. It’s often be said by politicians that small businesses are the driving force of a healthy economy, and right now further growth of small businesses are what will create a more sustainable economy. Small businesses have struggled through these hard times, and adapted to the harsh economic realities. The complete failure of trickle-down economics has been apparent for some time, and new methods of achieving successes are tried daily, in every city in the country, online, and in every possible way. One proven method has been for small communities to invent their own currency exchange. In Traverse City, Michigan, the community developed a local currency known as Bay Bucks in 2006, and it’s billed as a the “homegrown local currency.” And Ithaca, New York has been using Ithaca Hours as a form of local small business currency since 1991. In the pioneering, can-do spirit, their website proclaims Ithaca Hours “promotes local economic strength and community self-reliance.” More than one economic seismic shift could happen over the next several decades. Finding inventive ways to get off shaky ground and move toward a more a sustainable economic climate is certainly on everyone’s mind. If capitalism has proven anything, it’s that it serves our hedonistic sensibilities well — providing citizens with everything they desire, all the time, if only they can pay for it. When a majority of the population agrees it’s finally time to reinvent capitalism so that it works for the majority and not just the ultra-wealthy, the super rich may decide to openly condemn the same system they’ve championed for so long. Witness the voices of mega-rich capitalists who realized it was time to promote a better future and change the world. Bill Gates aimed higher, began a charitable foundation, and decided to use a portion of his sizable wealth to rid the world of Malaria, and Warren Buffett has suggested to other billionaires they should set an example by giving more, or at the very least be taxed appropriately to their wealth, while also using their riches to transform the state of the world. After all, the one formidable task huge amounts of capital can be used for is to improve lives on a global scale.

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Richard Barrington: Retirements Survey Finds Many Tripping Over Financial Hurdles

April 10, 2012

The 2012 EBRI Retirement Confidence Survey is out, and the results reflect the importance of continuing to strive for new goals as you move through life. The EBRI is the Employee Benefit Research Institute, and their long-standing annual survey of the confidence that American workers have in their financial prospects for retirement is a good benchmark for both economic conditions and the state of U.S. retirement savings . As you might imagine, retirement confidence has taken a beating in recent years. One of the root causes suggested by the survey results is that the difficulty of meeting short-term goals might be so great that people never get around to focusing on long-term goals. A look at some of the issues covered by the EBRI survey provides some insight into the sequence of financial hurdles people face. Progressing through financial goals There are many subjects covered by the EBRI survey, but one way to think about the results is to view topics in the order people naturally face them as they move through life: Meeting day-to-day needs. The first order of business is getting a job; this may be fundamental to meeting your financial goals, but it is by no means easy. 42 percent of survey respondents cited job insecurity as the most pressing financial issue facing Americans today. Of course, until you can move beyond worrying about day-to-day needs, you have little hope of preparing for long-term ones. Getting out of debt. People often borrow money to get by, so then the challenge becomes getting out of debt. 62 percent of survey respondents cited debt as being a problem to some extent, with 20 percent calling it a major problem. Debt can be a huge barrier to retirement saving: While 67 percent of workers with no debt problem said they were either very or somewhat confident in their retirement finances, only 22 percent of those with a major debt problem expressed the same levels of confidence. Saving for retirement. With employment and debt being such hurdles, it’s no surprise that many Americans haven’t adequately addressed retirement saving. Only 52 percent of worker respondents were very or somewhat confident in having enough money to last through retirement. In 2007, this figure was 70 percent. Sustaining wealth in retirement. The challenge doesn’t end with retirement. Between stock market setbacks and falling rates on savings accounts , making money last through retirement has become tougher than people expected. The percentage of retirees who are very or somewhat confident in having enough money to live comfortably through retirement is now 63 percent, down from 79 percent in 2007. The difficulty of meeting each of these goals, as reflected by the low level of confidence people currently have in each case, reinforces the importance of working toward these goals throughout your adult life. A sequence of goals will help you keep moving forward, and what the survey suggests is that if you aren’t moving forward, you will quickly find yourself moving backward. The original article can be found at Money-Rates.com : ” Retirements survey finds many tripping over financial hurdles ”

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Christina Gagnier: Facebook’s Instagram Play Could Be Unpopular With Users and Their Privacy

April 10, 2012

It would have been hard to miss the deal read about around the Internet yesterday: Facebook’s buying Instagram for $1 billion dollars. The comments around the deal have largely centered around the valuation amount, arguably inflated, and the pending doom of the often talked about “bubble” in Silicon Valley. Yet, there is another undercurrent that is likely far more important to the two parties in the deal: the prospective recalcitrance of Instagram users to continue their use of the photo social network now that it is linked to Facebook. The user conversation around the deal demonstrated several concerns, some relating to the fact that the platform would now suddenly become less “cool,” and others relating to the simple fact that they liked Instagram because it was just photos, not anything else. Likely the biggest criticism was that many Instagram users signed up for Instagram because they just wanted to use Instagram. While some users like to integrate all of their social tools together, others like to keep their web experience siloed. Many Instagram users loved the application for its simplicity; in the words of one user, “It made everyone feel like a professional photographer.” When talking to people casually about it at a concert I attended last night (certainly not hard research), many people said they were likely going to stop using it. One new user, who had just downloaded the Instagram application, said now he was not going to use it since it was owned by Facebook. Even if people are not ardent privacy advocates or display everyday concerns over such issues, they know Facebook does not play well in the sandbox with its users. Some people don’t want to share everything they do on every single platform. The reason why Instagram was so popular was its simplicity and that it allowed users to make choices where their photos would go. While we have yet to see operationally how this deal with play out, we may see more quickly in the court of public opinion what happens. For now, if users are unhappy with this recent move, maybe it’s time to try Hipstamatic?

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Edward Wytkind: Richard Branson Is Quite Busy Not Owning Virgin America

April 10, 2012

In 2005, British billionaire Richard Branson came to America to launch a new airline for Americans, owned by Americans and controlled by Americans. At least that was the story he was selling. First, you have to understand that under current U.S. law, foreign interests cannot own more than 25 percent of the voting stock or 49 percent of the equity in a U.S. carrier. To further ensure this is crystal clear, the law requires the “actual control” of the airline to be in the hands of U.S. citizens. This is no small matter not only for national security purposes, but also because of its impact on U.S. airlines, safety, jobs and the collective bargaining process. But Sir Richard doesn’t get involved in many things he can’t control, so you can imagine our skepticism at the outset. You think he would have let someone else control the introduction of his self-proclaimed ‘ sexiest spaceship ever ‘–Virgin Galactic? So I have a question: If Virgin America is independent of U.K.-based Virgin Group, why is the group’s founder talking to Virgin America’s flight attendants about the evils of unionizing? Hold that thought, I’ll get back to the video-taped evidence in a moment. Since the end of 2005 when Virgin America first filed an application with the U.S. Department of Transportation to operate as a U.S airline, the Transportation Trades Department, AFL-CIO and others argued that Virgin America is controlled by foreign interests, which is counter to U.S. law. But time and time again founder and Chairman of the Virgin Group Richard Branson, who is no stranger to arguing against U.S. ownership laws and regulations, was able to convince U.S. authorities that he was not controlling the airline and was, therefore, compliant with our laws. Eventually our regulators agreed. Therefore, we find ourselves in a place where — more than four years since it actually began flying in the fall of 2007 — Virgin America is vying for highly sought-after slots at Washington Reagan National Airport. And while it battles it out for these slots with its competitors, its compliance with foreign ownership and control laws must again be scrutinized. This time, it is not about speculation that at some point in the future Mr. Branson might play a role in controlling the operations of the airline. This time, there is a video produced by the Virgin Group and shown to Virgin America employees of the great founder taking the time out of his busy schedule (what, no space launch that day?) to speak to them about what is supposed to be their unfettered right to vote on unionization without employer interference. In the video, he tells flight attendants of the consequences to the company of joining a union after the Transport Workers Union filed to represent these employees. Branson asks the employees of Virgin America, a carrier in which he has sworn no control in, to think about what is at stake for the company if the TWU is elected. He then urges them to protect their “independent spirit” by rejecting the TWU because the union will take their “uniqueness away.” Actually, what is unique about these employees is that they have to sit at the table, on their own, and negotiate with a billionaire over wages and benefits without a union voice. That’s a “uniqueness” I wouldn’t cling to. In telling Virgin America employees to “say no to the old way of flying and say no to the TWU,” Sir Richard couldn’t have been clearer — he is at the helm making sure that his (sorry, I meant Virgin America’s) employees remain non-union. Branson is taking Virgin America down this path, an airline he allegedly doesn’t control. Odd. And now Branson’s airline has applied for two nonstop flights to San Francisco International from Reagan National. These slots are coveted by actual American-owned and controlled airlines because there are a limited number to go around from this popular stop near the nation’s Capital. It would appear that Mr. Branson is fond of making videos these days. In a Kobe Bryant ad for Nike, which features Branson and his business success, the video ends with this message: “Attack Fast. Attack Strong. Learn the System.” It looks as though Mr. Branson and Virgin America, fully in compliance with our foreign control laws I’m sure, have learned our system well, and how to beat it. Regulators take notice: Sir Richard is quite busy not controlling Virgin America.

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Andrea Learned: Sustainability’s Neglected Frontier: The Young and the Entrepreneurial

April 10, 2012

Where should we be looking for sustainable business change today? Perhaps it should not be toward the usual corporate suspects, many of which are slow to decide on even minor operational and product development shifts. The more compelling view may instead come from looking in the entrepreneurial direction. I’ve been covering corporate sustainability for a while now, but, admittedly, my passion for it has waned. What most big companies can achieve in their attempts to change centuries old operational systems struggles to compare with the game-changing energy, ideas and commitment I’ve recently come across in the young entrepreneur community. The potential sustainability impact of what those in Seattle (my own city) and those of similarly innovative minds on many other college and university campuses across the nation/globe is what strikes me to the core of my ever-hopeful, change-through-business soul. A week ago I spent a day with representatives of the Pacific Northwest’s emerging generation of sustainability and socially-minded entrepreneurs, and it blew me away. To fully disclose, and though the thoughts I share here are my own, I participated in this event in my social media role for the University of Washington’s Center for Innovation and Entrepreneurship, covering their Environmental Innovation Challenge (EIC). After being at this gathering, I realized that corporate sustainability likely has nothing better than the potential for paradigm shift that bubbles inside the men and women now attending our colleges and universities. But, back to the actual event. As the 23 student teams made their two-minute pitches early on, it was all my Twitter-happy fingers could do to capture each of their cool ideas and smart thinking. And, I was not the only one impressed. Even the highly experienced Seattle-area entrepreneurs who judged the challenge seemed to have the same feeling as me, which was that our economy will do just fine — as long as we identify, support and encourage this generation of student sustainability innovators. (Many also said something like “Darn, why wasn’t I this smart when I was that age?”) A quick look at three of the winning innovations from this one event demonstrates why there is great sustainability promise in our next generation of entrepreneurial minds: • An alternative to freeway “jersey barriers” made from something so often found lying shredded near them: old tires. • Sustainable shelter-building materials packaged in an easy to transport barrel as an alternative to post-disaster relief transitional housing. • A radical re-design of non-stick cookware surfaces that eliminates the coating altogether. ( More on those innovations , including some video.) Such incredible ideas might never have made it to prototype or professional business plan format were it not for an approach now starting to get more emphasis on campuses: multi-disciplinary collaboration. The various combinations of students developing these particular innovations, in fact, reflected a mix of undergraduate and graduates, and included engineering and science students working right alongside business majors. Creation at this level comes from true teamwork, and sustainability innovation demands collaboration like nothing else. If I seem enthusiastic, it’s because I’ve been so newly reminded of this and want to spread the word: Students are not some separate entity to be forgotten (until they graduate) in our struggling but sustainability-pursuing economy. Instead, these inspiring men and women are the beginning of a talent pipeline that is already changing our world. Before our very eyes, sustainable innovation is turning the young and restless into the young and entrepreneurial. Here’s hoping your company is paying attention.

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Neil McCarthy: Radical

April 9, 2012

Time to go radical. Reasonable is not working. If I hear one more politician or ersatz journalist rail about the need to find bi-partisan common ground in the sweet spot of a centrism where immediate deficit reduction and job growth live in some sort of economic harmony, I am going to get sick. It isn’t going to happen. It can’t. Over the last thirty years, conservative orthodoxy has simply pulled too much demand out the economy. That is what happens when (1) wages stagnate, the result of unions collapsing and globalized wage arbitrage taking over, and (2) bankers get unregulated free rein to peddle “products” that put consumers in long-term hock, which is what they accomplished when everyone was allowed to use their home as a credit card. Once those same bankers turned mortgages into cash for speculators via the now-infamous mortgage-backed securities, the con was complete. The ensuing real estate bubble created the impression that there was a free lunch (in the form of ever rising asset values). And then the bubble burst. Today, consumers are still over-leveraged (thanks to that explosion of private debt over the last decade), but banks can’t lend enough (given the shakiness of their balance sheets — where all those mortgage-backed securities are still being held at par — and the perceived need to adhere to credit standards that were ignored in the run up to 2008). So private spending is still weak. The March jobs report was a big disappointment. The private sector produced a mere 120,000 jobs that month . Wall Street (and just about everyone else) expected the number to be in the 200,000 range and it wasn’t even close. The recovery from 2008 continues unabated. But its pace is anemic and uncertain. In this world, conservatives continue to talk about immediate deficit reduction, business confidence and fears of inflation, certain that dealing with the first and the second is necessary to curb the third and produce jobs. All of this, however, is pure economic bunk. As Paul Krugman has continually pointed out to anyone willing to listen, we have not begun to put a dent in the job losses that came in the wake of 2008. The percentage of “prime age” workers who are actually employed — a real number, unlike the unemployment rate, which is distorted by failing to count those who stop looking — went down by about five points during the collapse and has gone up by less than one in the “recovery.” At the same time, our nominally low inflation rate (about 2% overall, even with the recent gas price hike) shows no sign of precipitously rising any time in the near future. Businesses are not hiring and producing because there is not enough demand (unemployed debtors don’t have a lot of walking-around money), not because they are worried about the tax and regulatory environment. The near term solution to all of this was a sufficient stimulus and some inflation. The conservatives, however, made the former impossible, and the chattering classes (including a lot of professional economists who should know better) have scuttled the latter. What we have, therefore, and have had for some time now, is an economic crisis that our political culture seems powerless to confront and solve. The problem here is not a lack of ideas. We have known how to pull ourselves out of depressions and severe recessions for at least 80 years. You do it by getting the government to increase consumer demand given that the private sector can’t or won’t. This typically involves some form of government spending — either on infrastructure (which creates both an immediate bump up in demand and also helps with long term productivity), welfare spending (food, housing, etc., which just increases demand), or targeted tax cuts (which increase demand so long as they are properly targeted to those who will spend the money rather than bank it). None of this, however, is politically possible now. A deficit which could create problems in the medium and long term is being used to eliminate any rational economic response to demand problems in the short term. It is also being used to eliminate any policies which could devalue private debt, which is what inflation and/or various forms of foreclosure relief would do. And the folks manning the barricades as deficit hawks circa 2012 are the same people who brought you the Bush tax cuts of 2001 and the two unpaid-for wars of the last ten years, which cumulatively turned the Clinton surplus into Bush’s sea of red ink. But hypocrisy has no cost in American politics. So it is practiced with abandon. I am a believer in incremental progress. I understand that American federalism is very slow. It is far easier to stop something than it is to pass anything. And that was the Founders’ collective intent. Over our two hundred plus years of history, therefore, progressives have always had to fight a two-steps-forward-three-steps-back war against reactionaries and the status quo. Their opponents changed — from slaveholders to industrialists to stock speculators to sexists. But the process rarely changed. Except when it did. Because, from time to time, progressives have abandoned the marble temples of incremental American federalism and… Gone radical. They’ve raised hell, hit the streets, jumped to the front of the bus, crossed the bridge, burned the draft cards, or camped out on the Mall. Unable to change the conversation from within, they altered it from without. Unwilling to defer to authority, they defied it. And underestimated by a smug establishment, they created a new one. That is where we are today. The system isn’t working. Twenty years ago, in his presidential campaign, former Massachusetts Senator Paul Tsongas made a point of admonishing unreconstructed New Dealers and trade unionists to stop bashing business. And the Democrats heard him and stopped. But now the other side has turned bashing labor… or women… or gay people… into a cottage industry. And that has to be stopped too. Progressives have to hit the streets. The kids have to vote like they did in 2008. The Wall Street occupiers have to return to Zuccotti Park. The conversation has to change. The people who change it will not be the bankers, hedge funders, or politicians checking out the “internals” on their polls. Because we have to stop talking just about margin… or return on investment… or individual responsibility… or the swing voter. And begin talking about redistribution… and economic fairness… and justice. We need to rediscover what it means to be a citizen in a democratic republic. Rather than just a consumer in a capitalist economy. We need to go radical.

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Jerry Jasinowski: A Mixed Economic Picture

April 9, 2012

I’ve just spent an interesting weekend with a group of CEOs discussing the global economic outlook, and how firms are striving to compete and grow in a challenging economic environment. They described a world of rapid change, financial and stock market volatility, and uncertainty. On balance, they are fairly upbeat about the U.S. economy, but have major concerns about Europe, China, and — of course — what’s going on in Washington. After major restructuring, most companies have dramatically reduced their breakeven points and strengthened their balance sheets so they can generate good earnings even in this slow growth environment. The CEOs believe that the U.S. economy is in better shape than most of the rest of the world, and is today the best place to invest. There was uniform agreement that Europe is in a recession and has done little to reduce its sovereign debt problem. More specifically, Spain’s economy is in deep trouble and will have difficulty financing its debt this spring. There were similar concerns about Italy and France. In general, the CEOS are skeptical that the Euro community has put in place the kinds of reforms necessary to make them more competitive and reduce debt. Few companies see a slowdown in China as a problem. Rather, the majority see China as a big opportunity as the Chinese hike investment in infrastructure and switch to a more consumer driven market. The CEOs were concerned about intellectual property protection and unfair business and trading practices by the Chinese. Many companies believe the Chinese government will always tip the scales in favor of Chinese firms, discriminating against U.S. business. I contended the recent run-up in the stock market was in large measure due to the easy credit environment driven by zero interest rates here, a short-term central bank bailout in Europe, and quantitative easing by most central banks. While it is clear that these actions have helped restore economic growth in some areas, particularly mining, oil, housing, commodities, and finance, there have also been negative impacts on economic fundamentals. More importantly, there is growing concern that more quantitative easing will stoke the fires of inflation either here or abroad. Overall, there was near uniformity of opinion among the CEOs that the U.S. will experience 2% to 2.5% growth in the months ahead. Although not satisfied about that, most of the CEOs felt quite able to operate profitably in that environment. They all stressed that they have in place lean manufacturing, new sourcing practices, and new product development that will allow them to be successful in both this country and abroad. Moreover, virtually everyone in the room was looking at acquisitions as a possible add-on to their organic growth models. They were not so optimistic about employment. All the companies were concerned about the high level of unemployment and inadequate training of the U.S. workforce. Friday’s weak — 120,000 payroll — number reinforces their view that too many workers are being left behind in this weak recovery, either because of weak growth, inadequate skills, or uncertainty emanating from Washington. What we need now is a public-private partnership backing a bi-partisan, pro-manufacturing, pro-growth agenda that creates jobs. Jerry Jasinowski, an economist and author, serve d as President of the National Association of Manufacturers for 14 years and later The Manufacturing Institute. Jerry is available for speaking engagements.

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Andreas Souvaliotis: When Profit and Social Responsibility Collide

April 9, 2012

Albert Einstein once famously said, “We cannot solve our problems with the same thinking we used when we created them.” It may very well have been the great thinker’s most prophetic warning ever. Here we are, faced with some of the gravest existential threats in the history of our species, and all we’ve been doing is throwing conventional thinking at the problems — and then we wonder why things keep getting worse. The most obvious of those problems? Climate change, of course. The conventional thinking? Incremental, uninspiring, regressive “sustainability” strategies. In blatant disregard for the great thinker’s teachings, we are continuing to stick our head deep in the sand and convincing ourselves that if we simply do a little less bad, the whole thing will go away like a bad dream. We have even packaged up our brilliant thinking into neat little sound-bites: recycle a few more paper cups, build a few more green office buildings, drive a few more hybrid cars, buy a few more carbon offsets, and it will all be fixed! Really? Has anyone ever done the real math? A long time ago, as our parents and grandparents began to worry about some of the side effects of uncontrolled capitalism, society’s response was to build up a system of important checks and balances: health and environmental NGOs, government regulations, media watchdogs, etc. The explosion of prosperity in the Western world through the second half of the last century naturally resulted in an equivalent increase in the strength and pervasiveness of the counter-balancing systems. NGOs became huge and global, governments grew massive regulatory teeth and the media became angrier and sharper. And we went on with our happy lives, believing that we live in a beautifully balanced world… Clearly, we had it wrong. We thought the model was balanced, but in reality it was just polarized — and the wealthier we got, the more polarized it became. By birthing “forces for good” and giving them the simplistic mission to mop up the mess that we created with our for-profit businesses, we actually made things worse! We fuelled a very well-entrenched belief among all participants in our capitalist society that you can’t make a profit without harming the world — and that the only people who can do good for our world are the ones who don’t make a profit. In our obese, lazy, polluted, climate-threatened 21st-century society, “giving back” has become one of the most fashionable lines — as if to imply that we really must have stolen something from the world as we were making a profit! It’s time to hit the reset button. Time to heed Einstein’s advice. We’re in trouble. Our “balanced” model isn’t working. Our planet is getting sicker by the day; our children are already assuming they will have a lower standard of living and that their lives will be shorter and less healthy than ours. Could it be that we actually allowed ourselves to become the “peak” generation in the history of our species? We need real solutions, not yesterday’s ineffective incremental stuff. We need to ignite the imagination of our 7 billion fellow passengers if we stand a chance to really turn this thing around. A few recycled cups and carbon offsets, when some estimate we’re making more than a billion new babies a decade, is not the solution — it was just a nice, cute start. It’s time to re-invent our path to profit and wealth, because that’s what it will take to excite and drive our fellow passengers. We are creatures of nature and that makes us greedy by design. Yesterday’s sustainability preachings were all about suppressing our instincts and our nature. Tomorrow’s solutions need to be about prosperity through innovation and about practical ideas about a new kind of capitalism, like Michael Porter’s shared value model . It’s time for new, big thinking. Time to kill our polarized old models. Time to intertwine profit and good in such a way that you can’t generate one without the other. Time to start creating real value and prosperity and time to ban that awful line about “giving back”…

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Amalia Negreponti: When Did They Forbid Love?

April 8, 2012

I loved it when on Thursday night I read the phrase, “We have always wanted Google to be a company that is deserving of great love.” in Larry Page’s dispatch that appeared on the company’s website for investors and Page’s personal profile on Google Plus. Of course the over-use of the word “love” (seven times in his 3,459 word ” 2012 Update from the CEO “) brought a wry smile to my face. The exaggeration seemed to me to take the weight out of that hefty word: love. Yet I was strangely moved. In the way we always are, despite the jaded, skeptic, ironic, maybe more practical and realistic side to ourselves scoffing at us for being so naïve. Indeed, Google’s declarations of “doing no evil” and “trying to make the world a better place” may not inherently differ from the official politically-correct spiel of many other major companies. Page’s fervent wish for Google “to be loved” may also have more to do with increasing revenue and profit (therefore, money), or endeavoring to close some enemy fronts and win users hearts back (leading to unhindered development and profit, thus… money) than with the four letter-word. Yet I can think of nothing for which I would risk being duped or disappointed, other than love. The following day, I was shocked to read some of the negative or ironic feedback the use of this evidently subversive word by a company CEO, generated in some circles. “It’s a megalomaniacal goal when a person says they want the world to love them or their creation”, one critic said speaking to the Financial Times . Since when? And more importantly, why? Especially if that person or company want to be deserving of our love! Why does it have to be all about the money? Isn’t it crazy to forbid love from an aspect of life? This prohibition is also in striking contrast with how intimately people feel about the Internet and the companies that dominate its world. How they trust them and become dependent on them — emotionally and practically. Less than half of the public trust financial services and banks to do what is right, making them the least-trusted industries for the second year in a row, according to an annual survey by public relations firm Edelman. Trust in government officials, regulators and chief executive officers as “credible spokespeople” dropped the most in the 12-year history of Edelman’s Trust Barometer survey. However faith in technology and the Internet has remained steady, despite the sector’s incontrollable growth, with a staggering 79 percent of those who participated in the survey, saying they trusted it. Combined with the intimacy and sharing the Internet commands and provides, love is only a stone’s throw away from this leap of faith. I must confess I do love the Internet. At an impressionable age, I gave my heart — and probably an extensive amount of information about me! — to Google because it was free and because through it I researched my way from adolescence to adulthood and from there to maturity. Nowadays I am a Twitter, Skype, iPad, Kindle, and Blackberry devotee. Quite a few years ago when the Internet was something you did alongside your life, instead of your life being something that happened to you while you were online, the place in our hearts that Internet companies now occupy through their products and creations, was held by beloved friends and family. If this infatuation that grew into a permanent relationship (with its fair share of dependency and addiction!) is not also related to love, I don’t know what is. That said, no person, let alone company, can survive on love alone, no matter how much you may try. Even if, for a short period of time you manage to, you may well find the love another holds for you, evaporating or turning to strife as the money well dries up. Cinderella becomes loved by the man she loves but she also gets a kingdom thrown in as well, for good measure! In Sex and the City , Carrie comes to the Big City to find “love”. She finally, exhaustingly, manages to do so in the arms of an implausibly romantic Mr Big who conveniently also happens to be a multi-millionaire (and hunk). Now that is a happy end! Even in perfect lives and fairy tales, you cannot survive without some combination of love and money. That the corporate world does not accept the bald truth of this fact does not really surprise me. One has only to take a look at the financial mess the money-generating world has landed the U.S. and Europe in, to realize the toll their conviction that business is “really, only about the money” is having on all of us. To realize the toll this stubborn misunderstanding is taking on the companies themselves, one has only to look at how public opinion, even their clients are regarding them: with every negative emotion ranging from suspicion, loss of respect and trepidation, to full-blown rage and hostility. This shows up in financial results too and it is not pretty. Sure, a company always has to be about the money — and how to make more of it in order to make shareholders happy. It also has to be about engaging in lawful and ethical behavior that creates respect and — a reasonable amount of — trust. Why, if it does all that, shouldn’t it aspire to be loved by consumers? To be deserving of love. Who forbade love and said it should all be only about the money? Are they that scared they wouldn’t be loved, or is it just because they know they don’t deserve to be loved? In this Larry Page is right, I think, when he writes, “But we recognize this (deserving to be loved) is an ambitious goal because most large companies are not well-loved, or even seemingly set up with that in mind.” Love is inherently scary, like all “major” stuff. It’s right there, in the big league, together with Life and Death. Nothing scares me as much as the fear that I may love someone but they may not love me. It is a risk you can never eliminate. That is where “deserving” comes into the equation. We may not be able to control who we love yet as adults we can all recognize the concrete steps a person or company takes, to become deserving of our love. Therefore, mixing love with business can become less fraught with risk. Yet, to me, it’s scarier to think that a person or group of people (company) who affect and often define me, are a daily presence in my life, know my most intimate secrets and are privy to even my craziest thoughts and searches, may not care about acting in a manner that deserves my love. So in a way I get Google: Kike a few other major online companies, they have touched and daily affect so many peoples’ lives (almost all of us) that a bond is created. This attachment is, of course, based on mutual self-interest, dependency and on expediency. It is more than that however. Like all things that start off as entirely interest-based (work) or gut-based (sexual attraction), our relationship with Google has also become deeply emotional. We are afraid it might betray us, using everything it knows about us, in some dire or merely lucrative way. Google is afraid we might abandon it and choose someone else over it. As for the need to be loved, it precedes, infinitesimally, even the need to love. It is our greatest strength but also what ultimately makes us most vulnerable. It is what makes the Internet human in peoples’ eyes. It is what makes HuffPost a community, a family. It is what, for today’s teenagers, makes life before the mobile Internet, before Instant Messenger, Google, Facebook, Twitter, Pinterest and so many others, inconceivable. The need Google expressed, to be loved, to be found deserving of love is nothing more than putting to words a reality all we tech-geeks have come to realize: that the Web is alive. So, like with every creation, love inevitably has become one of the defining factors of the Web and the Internet companies that play a major part in our lives. Whether we like it or not, we are all susceptible to love.

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Job Creators Alliance: What the Federal Government Can Learn From Florida

April 8, 2012

The headline numbers of 121,000 in March and 240,000 in February were well below the consensus expectations, which ran about 205,000. Private payrolls increased by 121,000, with the bulk coming from private services at 90,000. Gains were strongest in business services (31,000), education and health (37,000), and leisure and hospitality (39,000), but gains in these sectors were below what had been observed in recent months. On the goods-producing side of the ledger, construction payrolls fell by 7,000. Manufacturing payrolls, however, grew by 31,000 and, along with gains in leisure and hospitality, suggest that some underlying labor market strength in cyclical sectors remains in place. The public sector shed 1,000 jobs, and recent trends there suggest that the persistent declines in public sector payrolls have subsided. The three-month average change in public sector payrolls is now 1,000, versus the -22,000 average monthly change recorded in 2011. Finally, net revisions to previous months added 4,000 jobs, continuing the pattern of upward revisions to the data, but at a slower rate. EARNINGS GROWTH STAGNANT Average hourly earnings rose 0.2 percent, compared with an upwardly revised 0.3 percent in the previous month (initial estimate: 0.1 percent), and the y/y change now stands at 2.1 percent. The average workweek was unchanged at 34.5 hours, in line with expectations, while the February data were revised higher to 34.6 from 34.5. Aggregate hours worked increased at a 3.7 percent 3m/3m (saar) pace in March, compared with 4.1 percent in February and 3.4 percent in January. The payroll proxy for labor income (aggregate hours worked times average hourly earnings) rose at a 5.6 percent 3m/3m (saar) pace after rising 5.8 percent last month and 5.0 percent in January. The household survey also took on a weak tone, with employment falling by 31,000. This is well below the three-month average of 415,000 and breaks eight consecutive months of household employment gains. THE CLAIMS DROP BECAUSE CLAIMANTS DROP OFF The unemployment rate fell to 8.2 percent (8.192 percent unrounded), reflecting a drop in the participation rate of one-tenth, to 63.8 percent. Overall, the report had an undeniably weak tone and will raise doubts about the strength of the labor market. Given that the report reflects only one month of data and some of the underlying cyclical sectors registered payroll gains, I do not view it as conclusively signaling a shift to a lower trend rate of employment growth. THE BOTTOM LINE OF THE BOTTOM LINE Although the unemployment rate went down to 8.2 percent, the number of jobs created was only 121,000. This is basically in line with population growth. The only reason the number of unemployment claims went down is because the overall labor force participation went down — those hundreds of thousands who are no longer eligible for unemployment. This is what happens when you give people less incentive. The president says we have tried ‘on-your-own economics’ but now we can see how ‘government-run, high-tax, heavily-regulated, bureaucrats-pick-the-winners-and-losers economics’ destroys job growth. The 121,000 new jobs are in line with what you would expect with GDP growth and income growth. As I have always said the prior job growth was not in line with the low GDP and income growth we were seeing. Our low GDP and income growth during this period should have given us job growth of 120,000-150,000 a month, rather than the anemic growth we had in February and March. What this says to me is the growth in jobs is a just bounce from too many layoffs during the recession beyond what the GDP at that point was indicating. The effect of the administration’s policies are finally showing. One month is not a trend, but we finally have a correlation between the GDP and Income growth. And on the bright side, we have job growth in the service industry that serves alcohol. THE FLORIDA EXCEPTION One state that stood apart from national trends was Florida. What they saw there was amazing, and it was the result of a government approach to economics that was 180 degrees from what the White House wants. With the release of March’s data, Florida has now had 11 consecutive months of job growth. Their unemployment is at a three-year low . These job growth trends are a result of Florida’s reducing regulation, easing the tax burden on small businesses and delivering two consecutive balanced state budgets without tax increases. This is the example we need in every state, and most especially in Washington, D.C. The parties must come together to create a positive business environment, with established and common sense rules, a reduction in bureaucratic induced burdens, and the removal of uncertainty and ambiguity that comes from arbitrary and radical policies. By David Park, Chairman, Job Creators Alliance David Park is Managing Partner at Austin Capital, LLC, a merchant bank that assists small companies with financial consulting, and is also Chairman of the Job Creators Alliance , a nonprofit comprised of current and former major business leaders who are committed to the defense and preservation of the free enterprise system.

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Mike Lux: B Rapoport: Friend, Mentor, Great Progressive

April 7, 2012

I just learned that one of my dearest friends and mentors died Thursday night. Bernard Rapoport, or B as he loved to be called, was deep into his 90s, but still was handing out money from his foundation (his last board meeting was last weekend) and going into his office to work the phones as late as Tuesday of this week. It is hard to imagine someone so full of life is gone. B gave money to almost every progressive cause and candidate around, and raised money for practically all of them as well. He started organizations, chaired the University of Texas Board of Regents, demanded every politician he knew raise his taxes, told proud stories of his communist parents, introduced everyone he knew to everyone else he knew, and always had a grand time doing all of it. The first time I ever met him was when I had driven to see him in Waco, and he turned me down in about 30 seconds flat for the environmental group I was raising money for, telling me there were lots of rich people giving money to environmental causes, that he had to reserve his for helping labor and poor people organize. He then invited me to stay for a while; we told stories for three hours, and then he invited me to dinner and to stay the night. Didn’t get the check, but got one of my best friends of all time. We have been allies in every cause and on every campaign ever since. B delighted in telling people that his mother, when people asked what he did for a living, would say sheepishly, “Well, he’s a businessman, but he is a very learned man nonetheless.” B made a lot of money in his life, working with unions to provide good insurance policies for their members, but he never forgot his parents’ values or his progressive instincts. He was friends with presidents and senators and speakers of the House (at least the Democratic ones), but his heart and his friendship went out to just about everyone he met — I would often see him trading stories or having a drink with waiters and bellhops he knew, and a couple of them mentioned to me over the years that B had given them money for their kids’ scholarships. B was a voracious reader (I think B quoted Thorstein Veblen more times than all the other folks I ever met combined), and he had an annual tradition of sending out his favorite book of the year to thousands of friends across the country. He also helped countless authors pay for their research and publish their books. But he didn’t know much about pop culture. I had a friend who dated Cybill Shepherd for a while at the height of her “Moonlighting” fame, and he let me stay at her place in LA when I was out there. B called while I was in LA, and when I returned his call, I of course had to tell him where I was. He wasn’t impressed because he had never heard of her. He asked me, “So is this some candidate you are going to want me to give money to?” B Rapoport was one of the greatest men I have ever known, and I will always be in his debt for the friendship he made with me, the things I learned from him, the stories he told me. Our progressive movement, of which he was always such a leader and friend, will miss him dearly as well. He was one of the good ones.

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Mike Lux: Homes, Banks, and Politics: Round 2 of Settlement Talks

April 6, 2012

Now that the big settlement talks with the banks are over, and most of the reporters have gone home, not very many people are paying attention to what is going on in the financial fraud task force, or in the continuing conversations between various players on Wall Street and the government. But not understood by most people is that there may be a Round 2 in the settlement talks, and if there is, it may well be a doozy — a much bigger deal than the first round. If there isn’t a Round 2, that will likely be a different kind of “doozy,” a problem with huge political and economic implications for the president and politicians of all stripes. Let’s start with talking about why so many activists and organizations like the Campaign for a Fair Settlement and the New Bottom Line pushed so hard for a more aggressive investigation in the first place. No matter how those first settlement talks with the banks turned out, it was always clear that whatever the number government negotiators got would be tiny compared to the scope of the $700 billion dollar underwater mortgage problem homeowners and our entire economy is faced with. And we were right: the $25 billion is a drop in the bucket, about 3 percent of the way to a solution. The far bigger question is what would happen next, because our national economy will continue to be weighed down heavily by this deeply damaged housing market unless there are much deeper mortgage write-downs. There are two big ways for more mortgage write-downs to happen, and two big goals progressives should have for the financial fraud task force. The former pair first: most mortgages are owned by either Fannie and Freddie, or by the big bank conglomerates on Wall Street. The first way for massive mortgage write-downs to happen is either for Fannie and Freddie acting administrator Ed DeMarco to change his policies on write-downs, or for him to be replaced by Obama making a recess appointment of someone who would change the policies. That’s why many groups have launched a Fire DeMarco campaign, and many others keep banging on his door to ask him to change direction. There is some dissent on this among people who know the banking issue, because some banks own second liens on these mortgages and could benefit as a result. It’s a fair point, and anything that can be done to structure Fannie and Freddie write-downs in a way to not help the big banks is important to do. But my view is that maximizing the write-downs is critical, that homeowners and the overall economy need these write-downs too badly to spend an inordinate time worrying that some banks may benefit as a result. (Wall Street bankers find many different ways to hedge their bets and diversify their holdings, meaning they sometimes find ways to profit even on things that are actually good for people. Go figure.) The other way for big write-downs to happen is if the financial fraud task force can squeeze the big banks on all the fraud they have committed, and get them to agree to writing down a much bigger pot of money — in the hundreds of billions, not the tens — in exchange for a legal release on some fraud claims (although definitely not all) by the government. Which leads to my next major point: that of goals for this fraud task force. The two goals for the task force as far as the progressives I am talking to are these: write-down money and prosecution for crimes committed. Some people think these are mutually exclusive. I don’t, and neither should task force members. Based on what we already know from news reports and other legal action, it is clear that if the task force is aggressive and tough enough in their negotiations, they can through subpoenas and depositions find thousands of separate violations of punishable financial fraud. Much of that can be used to force the bankers to the table for real negotiations about hundreds of billions of dollars in mortgage write-downs, but investigators will also find plenty of fraud so egregious that the high rollers in these firms ought to be going to jail as well. Indicting, perp walking, and sending some of these top execs to prison is important, because if wealthy and powerful people can continually violate the law with impunity, they will in fact keep doing just that, and our financial system will be permanently at risk. The question now is whether the task force will be effective in bringing bankers to justice, and in forcing bigger write-downs. But this is a real question, and I think it is important for the American people to understand what is going on in there. To all of us on the outside who have been working on these issues, things don’t seem to be moving very fast. We need to know the answers to some very important questions, including: Is there an executive director, coordinator, or clear manager of any kind in place to drive this process forward aggressively? There was discussion for a while of Rep. Brad Miller (D-N.C.), a great consumer advocate, playing such a role, but that talk seems to have died out and I am still not clear how they are managing this in the meantime. Will any more staff resources beyond the very modest numbers announced when the task force was unveiled be appointed? Of the staff resources that were appointed, are all of them actually assigned and working? If not, how many are actually doing any work? If not, why (the hell) not? Are task force leaders keeping a close eye on statute of limitation issues to make sure we can actually prosecute the most important cases of bank fraud that exist out there? After the first flurry of subpoenas, we haven’t to my knowledge seen any more come down. Why not? Seems like there is plenty to investigate, why the hold-up on more subpoenas? At least some of the members of the task force have said they want to be aggressive and fast-moving in this investigation. Are there people putting road blocks up? If so, why aren’t they being cleared away? Who has point responsibility for clearing the road blocks out of the way? Here’s the most important question in my mind: is the White House paying enough attention to this? I know from my experience in the Clinton White House that once a decision is made to move forward on a major new initiative like the settlement and fraud task force, that sometimes the sense of urgency fades and senior staff tend to move on to new issues, problems, and crises — they assume whoever they appointed to do things is taking care of it. That is natural enough given all the demands on the White House, and I sense it may have happened here. But I fear for my friends in the Obama White House that this is going to come back and bite them in the ass in a really serious way if they aren’t paying a lot of attention to it. One of the greatest weaknesses the president has going into election season, both with swing and base voters, is the lingering feeling that he and his team have been too soft on the Wall Street guys that took down this economy. The big banks making record profits and handing out record bonuses the year after taxpayers bailed them out, and while the overall economy has been terrible, has left a lasting impression with voters. The failures of the HAMP program, the flurry of bad press around the Suskind book, the unwillingness to recess appoint Elizabeth Warren as the head of Consumer Financial Protection Bureau (even though the person Obama appointed, Rich Cordray, has been terrific, he has nowhere near the profile or cachet with activists following the issue as Warren), and the lack of any prosecution of Wall Street big shots has steadily added to that image. So if nothing happens with this task force any time soon, it will be a huge disappointment and a very big deal to people and organizations working on the issue, to the reporters who know the financial beat, and to voters in general. In an election season dominated by discussion of Mitt Romney’s Wall Street background, for the president to be vulnerable on this issue would be a terrible mistake, and the way they get strong on it is to have a successful task force. Here’s the electoral component of this that almost no one is thinking about: there are 1 1,000,000 underwater homeowners right now, many of them families with multiple voters living there. There are a ton of them in key swing states like Nevada, Florida, Ohio, Pennsylvania, North Carolina, Wisconsin, and Colorado. In my mind, they are very likely to be swing voters: screwed over by Wall Street, but not feeling like either party is helping them much. They have heard about the settlement, but $25 million doesn’t go very far when there’s $700 million in negative equity, so they aren’t likely to get much help, which will make them even more irritable — it could be HAMP all over again in terms of promises of help made but not delivered. Holding the banks accountable, and delivering a big new round of write-downs, is going to look awfully good to those voters and their neighbors who don’t want more foreclosed homes on the block. My advice to my friends at the White House is to pay a lot of attention to this sooner rather than later, and to light a fire under anyone involved in the task force who may be throwing those road blocks up. The task force needs to show some visible progress, some real movement that is obvious to people, sooner rather than later on this. If they move aggressively forward, I believe based on conversations with legal experts that it is entirely possible the banks can be forced to write down $200-300 billion in mortgages before the end of the year. That would not only help those underwater homeowners but would be a dramatic boost to the entire rest of the economy because of the extra cash it would put in homeowners’ pockets and the major boost it would be to the overall housing market. The big banks can certainly afford it: according to an SEIU report , in 2010 alone just the six biggest banks gave out an estimated $143 billion in bonuses. Given that these write-downs would be cumulative over many years, $200-300 billion might mean smaller bonus checks and profit margins, but it is nothing that would break the bank. And here’s the other thing: if you write down these mortgages and stabilize the housing market, all those toxic assets the big banks hold will start to look healthier soon, so the banks would even get some of that money back. This issue has faded from the headlines, but it is a huge deal — for the homeowners who remain stuck underwater, for the housing market and economy as a whole, and for the president’s re-election chances. Let’s hope these questions get answered soon, and in a good way. And let’s hope the task force can get its act together to force another big settlement, and some perp walks as well, before it is through.

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Jennifer Hamady: Reevaluating Ownership

April 6, 2012

I was on a train this morning, where I saw an advertisement — in Spanish — for attorneys offering to secure compensation for the victims of accidents and malpractice. The number to call was: 1-888-MARGARITA™ Setting aside the word choice someone thought appropriate for promoting legal services to New York’s Spanish-speaking community, I’d like to take up the pervasive use of the trademark in our culture today. My interest in the subject has been growing for a while, given that everywhere I look — on the internet, in magazines, on television, and in newspapers — the ™ and ® symbols (trademark pending and registered, respectively) abound. They’re becoming as common as commas, yet with a far greater impact than often overused punctuation. For those of you unfamiliar with what those little symbols mean, they mean that you can no longer freely use whatever comes before them. Those words, common as they may be, are now effectively the business property of someone who has chosen to link up their professional ambitions, services or products with them. This issue came to a head for me on a recent walk in midtown. I gazed up to see a mural of Sean “Puffy” Combs promoting his new Vodka. Under the name were the words: Perfectly Smooth. With a big fat ® after them. Are you kidding me? If I’m a baker, I can’t write on my website that my cake’s texture is perfectly smooth? I can’t — if I’m an auto-detailer, a plastic surgeon or a floor sander — describe my work this way. Can I? In my own field of voice, the trend to lock in language has also blossomed. There are thousands of trademark applications and successful registrations each year for companies, websites and services that include the words voice, vocal, tone, breath, breathing, body, note, notes, support, sing and singing, to name only a few. Mix them up, throw a ™ after them, and everyone else is left unable to say much of anything. I’m not saying companies shouldn’t be able to protect the unique titles and content that distinguish their brand. Service and trademark laws were created for this reason and thus, why Nike, lululemon, and Wikipedia — deservedly so — have been granted trademarks. These companies have earned the right to utilize the laws created to protect imagination, hard work and commitment to a corporate and cultural identity. Yet this law, appropriate as it is, also serves to protect — and in the process, prevent others from using — monikers and phrases that are in no way original or imaginative. Even those who are neither in, nor yet successfully in, business may — with little more than a simple website and a dated pamphlet — take national and even worldwide professional ownership of words and phrases that have for centuries been used in the common vernacular. It is interesting that the legal lockdown of conversational language is progressing while copyright law and rights are being so thoroughly challenged. While “perfectly smooth” and “margarita” are now effectively off the professional English-speaking market worldwide (as well as, in translation, in many others) entire albums, books and movies are being publicly shared without acknowledgement of or compensation for those who created them. For some — particularly those from younger generations — this doesn’t seem like such a big deal. It’s not only appropriate, but fair, to get songs, movies and books for free. These boys and girls weren’t around when copyright laws were put in place to protect the creations — and livelihoods — of men and women who spent entire lifetimes generating high quality literary, cinematic, theatrical and musical works for the rest of us to enjoy and benefit from. To these kids, while their laptops, iPhones and clothes are decidedly theirs , so too are the blood, sweat and tears of every composer, author, director and screenwriter that has ever lived. Before you argue the theoretical or legal specifics of creative ownership, hear me out. I’m not saying that the rules should never change. Certainly they do and certainly we must embrace them, lest we are to be left in the proverbial and technological dust. But we also have the right to question — beyond our comfort and our convenience — why the rules are changing. Is the expansion of free access to musical, literary and artistic creations in order to inspire and educate people of all ages, nations and means? Or to serve the greed that may be so easily fulfilled by technology that happily, if not legally, makes everything freely accessible? Similarly, is the expanded use of trademark law in order to serve and protect inspired business owners and their unique ideas and brands, or to provide an economic boon for that branch of government, as well as for the lawyers that profitably interface with it in the filing and fighting of claims? Penalties for using trademarked words and phrases — even in personal blogs — are already on the books, including words and phrases you used long before someone chose to submit a check for $375 to the patent and trademark office in Washington, D.C. Some would argue that the path we’re on is inevitable, thanks to our historical and current cultural notions of “ownership.” Land, people, animals and now language… is there nothing — or no one — that we are unable to intellectually convince ourselves that we have a right to own ? Our inability to see ourselves as an interdependent and collective whole leaves us with a view of the world as scarce and therefore, we are determined to grab rabidly — desperately — for what we want. It’s like the sandbox all over again, only now instead of screaming “Mine!” at each object we want, we type up on-line applications, hire lawyers and file and cease-and-desist orders. Certainly there needs to be protections for creators to ensure that their brands — and content — may be fairly delivered to and received by the public. But with respect to common words and phrases, we’ve gone too far. Unless, that is, you don’t mind your local bar advertising that their “popular tequila-based drink” is “flawlessly even.”

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Jenny Kassan: JOBS Act: Crowd Funding Could Give a Boost to Small Business

April 5, 2012

Today the President will sign the Jumpstart Our Business Startups (JOBS) Act in to law, a complex and by no means perfect bill that contains at least one ‘no-brainer’ win for both businesses and investors: crowd funding. This bipartisan legislation fulfills the President’s call to reduce regulatory burdens that prevent many small and young businesses from raising capital — specifically by allowing crowd funding and expanding mini-public offerings. The legislation is remarkable, as it (rightly) reverses more than 90 years of restrictions on raising capital at the grass-roots level. How we got here is historic as well — it illustrates what power lies in everyday individuals. An impact that will now be felt around the country as small businesses and startups look to crowd funding and other non-traditional means of raising capital. The movement began in 2009, when author and economist Michael Shuman wrote an article for Community Development Investment Review , a publication of the San Francisco Federal Reserve Bank. In it, he wrote: “Existing laws place huge restrictions on the investment choices of small, ‘unaccredited’ investors — a category in SEC vernacular that includes all but the richest 2 percent of Americans. The regulations prohibit the average American from investing in any small business, unless the firm is willing to spend $50,000 to $100,000 on lawyers to prepare a private placement memorandum or public offering — thick documents with microscopic, ALL CAPS PRINT that no human being has ever been observed actually reading.” The good news is that local businesses could get a huge investment boost with some modest securities reforms that would cost little or nothing. That simple idea gained momentum in the summer of 2010, when the Sustainable Economies Law Center (SELC), a nonprofit based in Oakland, California, wrote a letter to the Securities and Exchange Commission (SEC) requesting an exemption for crowd funding. The SEC received approximately 150 letters of support for the proposal. SELC volunteers then talked to staff at the President’s Office of Technology about the idea and the President supported the idea of an exemption for small securities offerings, which he announced in his jobs speech in September 2011. Legislation creating an exemption for small “crowd funded” investments passed the U.S. House of Representatives in November by an overwhelming majority — almost a unanimous vote of approval. With the final law being signed today, it reverses laws restricting investments that date back to the 1930s. What impact will this have on Main Street? The opportunity for growth, new startups and entrepreneurs whose ideas never make it past the dinner table due to lack of funding is vast. The impact on local business is undoubtedly also going to produce more resilient communities and cities where investors can now invest their money to build real wealth in the communities they care about. The vast majority of the American public, the 99 percent of us who are “unaccredited” investors, will soon have the opportunity to keep their money local. The half of our economy made up of small, independent businesses will now have access to capital that previously could only go to giant public companies. Americans have $30 trillion dollars invested in securities — imagine if even 10 percent of that went from Wall Street to Main Street. What could $3 trillion dollars do in our communities? Of course there is the potential, and frankly the likelihood, for abuse and failure. Investors who don’t proceed cautiously can (and some will) lose money on failed investments. There will be a rush of companies offering portals that will potentially fleece customers by charging unnecessary fees. But while some will try to make a quick buck, the broader opportunity gives me cautious optimism. There are some mechanisms in place that protect consumers from losing everything (they cannot invest more than 10 percent of their net worth for example) and there will be opportunities for savvy networks of small businesses to connect and create their own portals thereby owning an even bigger piece of the investment market. Next month I’ll be leading a conversation around how to accelerate community capital for small entrepreneurs at the Business Alliance for Local Living Economies (BALLE) Conference in Grand Rapids, Michigan. The topic of crowd funding will no doubt dominate interest and hopes for many. While crowd funding alone isn’t a silver bullet, it does play an important role in revitalizing the entrepreneurial small busines ssector of the economy. Its simplicity and ingenuity is American capitalism in its finest form.

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Paul Boden: I Ain’t No Broken Window

April 5, 2012

James Q. Wilson, the person credited with coining the theory of broken-windows policing , died last month and people are starting to ask what “Broken Windows” is all about. Those of us who have been identified as no more than a broken window are sick of it. The broken-windows theory holds that one poor person in a neighborhood (or, using Wilson’s words, “a single drunk or a single vagrant”) is like a first unrepaired broken window. If the window is not immediately fixed, if the vagrant is not immediately removed, it is a signal that no one cares, disorder will flourish, and the community will go to hell in a handbasket. For this theory to make sense, you first have to step far far away from thinking of people, or at least poor people, as human beings. You need to objectify them. You need to see them as dusty broken windows in a vacant building. Wilson himself admits that his reasoning here seems unjust on the individual level, but goes on to argue that not dealing with a single drunk or vagrant who hasn’t even harmed anybody may lead to “a score of drunks or a hundred vagrants” who could destroy an entire community or downtown business district. That is why we now have Business Improvement Districts (BIDs) with police enforcement to keep that neighborhood flourishing and poor unsightly people out of it. There are now over 1500 BIDs worldwide and their number is growing. And we are right back to Jim Crow Laws, Sundown Laws, Ugly Laws and Anti-Okie Laws, local laws that profess to “uphold the locally accepted obligations of civility.” Such laws have always been used by people in power against those on the outside. In other words, today’s Business Improvement Districts and broken-windows policing are, at their core, a reincarnation of various phases of American history none of us is proud of. Central to the argument is the need to adhere to “locally accepted obligations of civility.” But who is setting these “locally accepted obligations of civility?” Where is our “human civility?” We have gone from the days where people could be told “you can’t sit at this lunch counter” to “you can’t sit on this sidewalk,” from “don’t let the sun set on you here” to “this public park closes at dusk” and from “you’re on the wrong side of the tracks” to “it is illegal to hang out” on this street or corner. Of course a tired shopper can sit on the sidewalk to rest between stores and the people that lined up for two days waiting to get the new iPod can loiter and none of them will ever be ticketed, moved on, or arrested. These are the civilized people; they are consumers. They are us. The people these laws are enforced against are not us. They are them. And their mere presence makes us uncomfortable, so therefore they are not civil and need to be replaced with someone more like those of us who set the locally accepted obligations of civility. Jim Crow Laws, Sundown Laws, Ugly Laws, Anti-Okie Laws, and Broken Windows Laws, its all the same old wine — just in a new bottle. I guess history really does repeat itself and that’s sad.

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Brian Hamilton: It’s a Good Time to Start a Business: Five Things You Need to Know

April 4, 2012

The economy is improving. Private company sales and profit margins are up and steadily increasing, GDP is growing, and there are signs of life in the real estate markets. However, while the unemployment rate is declining, it is still too high. Now is the perfect time to employ yourself by starting a business. Here is advice on the five things you need to know before you get started. 1) Do what you love. Find something that you know and something that interests you. 2) Start a low capital business. You’re not going to get a loan from anyone. Start small and build slowly and steadily. 3) Find something that is really needed in the marketplace. Do something that people don’t want to do or cannot do themselves. 4) Keep your overhead low. Hire slowly and do without. 5) Follow the customer. Value and listen to your customers — your best source of market research and the reason you’re in business.

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William Lazonick: How High CEO Pay Hurts the 99 Percent

April 4, 2012

Corporations are not working for the 99 percent. But this wasn’t always the case. In a special five-part AlterNet series, William Lazonick, professor at UMass, president of the Academic-Industry Research Network, and a leading expert on the business corporation , along with journalist Ken Jacobson and AlterNet’s Lynn Parramore, will examine the foundations, history and purpose of the corporation to answer this vital question: How can the public take control of the business corporation and make it work for the real economy? While most Americans struggle to make ends meet, the CEOs of major U.S. business corporations are pulling eight-figure, and sometimes even nine-figure, compensation packages. When they win, the 99 percent lose. We rely on these executives to allocate corporate resources to investments in new products and processes that, in a world of global competition, can provide us with good jobs. Yet the ways in which we permit top corporate executives to be paid actually gives them a strong disincentive to invest in innovation and training. The proper function of the executive is to figure out how to develop and use the corporation’s productive capabilities (business schools call it “competitive strategy”). But that’s not happening. In effect, U.S. top executives rake in obscene sums by not doing their jobs. The Runaway Compensation Train When all the data from corporate proxy statements are in within the next month or so, they will show that 2011 was another  banner year for top executive pay . Over the previous three years the average annual compensation of the top 500 executives named on corporate proxy statements was “only” $17.8 million , compared with an annual average of $27.3 million for 2005 through 2007. Yet even in these recent “down” years, the compensation of these named top executives was more than double in real terms their counterparts’ pay in the years 1992 through 1994. It might surprise you to learn that in the early 1990s, executive pay was already widely viewed as out of line with what average workers got paid. In 1991 Graef Crystal, a prominent executive pay consultant, published a best-selling book, In Search of Excess: The Overcompensation of American Executives , in which he calculated that over the course of the 1970s and ’80s, the real after-tax earnings of the average manufacturing worker had declined by about 13 percent. During the same period, that of the average CEO of a major US corporation had quadrupled! Bill Clinton took up the issue in his 1992 presidential campaign, and immediately upon taking office had Congress pass a law that forbade companies from recording as tax-deductible expenses executive salaries plus bonuses in excess of $1 million. Unfortunately Clinton chose the  wrong pay target . In 1992 salaries and bonuses represented only 23 percent of the total compensation of the top 500 executives named on proxy statements. The largest single component of executive compensation was gains from exercising stock options, representing 59 percent of the total. The Clinton administration left this so-called “performance pay” unregulated. Perversely, one reaction of corporate boards to the Clinton legislation was to take $1 million in salary plus bonus as the “government-approved minimum wage” for top executives, and therefore to raise these components of executive pay if they fell short of that minimum. The number of named executives with salaries plus bonuses that totaled $1 million or more increased from 529 in 1992 to 703 in 1993 and 922 in 1994. The other reaction of corporate boards was to lavish more stock options on their top executives. When the stock market boomed in the late 1990s, these executives cashed in. The average annual compensation of the top 500 named executives reached $21 million in 1999 with gains from exercising stock options representing 71 percent of the total, and $32 million in 2000 with option gains now 80 percent of the total. From 1982 to 2000 the U.S. experienced the longest stock market boom in its history. Average annual stock-price yields of S&P 500 companies were 13 percent in the 1980s and 16 percent in the 1990s. So it didn’t require any great genius to make money from stock options. In fact, it became a no-brainer. In 1991, the Securities and Exchange Commission  waived the longstanding rule that, as corporate insiders, top executives had to hold stock acquired through exercising their options for six months to prevent “short-swing” profit-taking. As before, executives did not have to put any of their own money at risk in being granted stock options. But now they could also pick the opportune moment to exercise their options without any risk that the value of the company’s stock would subsequently decline before they could sell the stock and lock in the gains. The New Normal of Corporate Greed The speculation-fueled “irrational exuberance” of the late 1990s brought unprecedented pay bonanzas to top executives, thus establishing a “new normal” for corporate greed. When boom turned to bust in the early 2000s, money-hungry executives had to look for another way to get stock prices up and make their millions. Their favorite “weapon of value extraction” over the past decade has been the stock buyback (aka stock repurchase). Top executives allocate massive sums of corporate cash to repurchasing their company’s own stock with the purpose of boosting their company’s stock price. Stock buybacks and stock options have become the yin and yang of executive compensation. Let’s take a look at how it works: The board of directors of Acme Corporation authorizes the CEO to repurchase the company’s own outstanding shares up to a specified value (say $5 billion) over a specified period of time (say three years). On any dates within this three-year period, the CEO then has the authority to instruct the company’s broker to use the company’s cash to buy back shares on the open market up to the $5 billion limit and subject to the SEC rule that the buybacks on any one day can be no more than 25 percent of the company’s average daily trading volume over the previous four weeks. That might permit Acme to do buybacks worth, say, $100 million per day. It may be the end of the quarter, and the CEO and CFO want to meet Wall Street’s expectations for earnings per share. Or they may want to offset a fall in the company’s stock price because of bad news. Or they may want to ensure that the increase in the company’s stock price keeps up with those of competitors, who may also be doing buybacks. Whatever the reason, by the laws of supply and demand, when the corporation spends cash on buybacks, it “manufactures” an increase in its stock price. Then, with the stock price up, the CEO, CFO and other insiders may choose to cash in their stock options. Presto! They make tons of money for themselves. Meanwhile, these executives will tend to ignore investments in innovation and training. Some companies actually fund their buybacks by laying off workers, offshoring jobs to low-wage countries, and taking on debt. The top executives’ weapon of value extraction becomes a weapon of value destruction. They are rewarded handsomely by not doing their jobs. In 1981, 292 major corporations spent less than 3 percent of their combined net income on buybacks. In 1982, however, the SEC passed a rule (10b-18) that gave corporations that did very large-scale stock repurchases a “safe harbor” from charges of stock-price manipulation. Buyback activity then became larger and more widespread, increasing substantially over the course of the 1990s. From 2003 to 2007, buybacks really took off, and by 2007 the very same 292 corporations now spent over 82 percent of their net income repurchasing their own stock . The financial crisis and the Great Recession forced a slowdown in buybacks. S&P 500 companies repurchased a record $609 billion in 2007 but pared it down to $360 billion in 2008 and $146 billion in 2009. They stepped it back up to about $289 billion in 2010 and an estimated $440 billion in 2011. It is quite possible that buybacks in 2012 will be even higher than in the previous record year of 2007. And look for executive pay to increase as well. Concentration of Income at the Top Make no mistake about it. Executive pay is a prime reason why in 2005-2008 the top 0.1 percent captured a record 11.4 percent of all household income  (including capital gains) in the U.S., compared with 2.6 percent three decades earlier. In 2010 (the latest Internal Revenue Service data available), this number was 9.5 percent. The income threshold among taxpayers for being included in the 0.1 percent in 2010 was $1,492,175. Of the executives named in proxy statements in 2010, 4,743 had total compensation greater than this threshold amount, with a mean income of $5,034,000 and gains from exercising stock options representing 26 percent of their combined compensation. Total corporate compensation of the named executives does not include other non-compensation income (from securities, property, fees for sitting on corporate boards, etc.) that would be included in their IRS tax returns. If we assume that named executives whose corporate compensation was below the $1.5 million threshold were able to augment that income by 25 percent from other sources, then the number of named executives in the top 0.1 percent in 2010 would have been 5,555. Included in the top 0.1 percent of the US income distribution were a large, but unknown, number of US corporate executives whose pay was above the $1.5 million threshold but who were not named in proxy statements because they were neither the CEO nor the four other highest paid in their particular companies. To take just one example, of the five named IBM executives in 2010, the lowest paid had total compensation of $6,637,910. There were presumably large numbers of other IBM executives whose total compensation was between this amount and the $1.5 million top 0.1 percent threshold. Let’s Put CEOs to Work for Us Under the Obama administration, virtually nothing has been done to constrain top executive pay. President Obama signaled his unwillingness to take on the issue when, in an interview in February 2010, he was asked about the many millions paid in 2009 to Jamie Dimon, CEO of JPMorgan and Lloyd Blankfein, CEO of Goldman Sachs, in the wake of the financial meltdown and bank bailouts. “I know both those guys; they are very savvy businessmen,” the president said. “I, like most of the American people, don’t begrudge people success or wealth. That is part of the free-market system.” The “ Say-on-Pay ” provision in the 2010 Dodd-Frank Wall Street Reform and Consumer Protection Act sounds good, but it just reinforces a system of incentives the does not work. This provision gives public shareholders the right to express their non-binding opinion to corporate management on issues related to executive compensation. If Congress had understood what drives executive pay in the U.S., however, it would have recognized that the granting of Say-on-Pay rights to public shareholders is part of the problem, not the solution. Through a combination of stock options and stock buybacks, Say-on-Pay provisions reinforce an alignment between the incentives of top executives and the interests of public shareholders that has been undermining investment in America’s future. It is about time that we took control of exploding executive pay. It is not just that the sums involved are unfair, and as history has shown, will only become more obscene. These executives control the allocation of resources that represent the well-being of the 99 percent, and the ways in which they bank their booty is doing severe damage to the U.S. economy. The investment strategies of business corporations are too important to be left under the control of those who gain when the 99 percent lose.  

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Dan Solin: Comparisons to Other Mutual Funds Can Be Misleading

April 3, 2012

The mutual fund industry is highly competitive and very lucrative. Fund managers earn fees through “expense ratios” charged by their funds. These fees add up to big bucks. According to one report , in 2010 there were thirty stock fund classes with assets greater than $10 billion. Collectively, those funds would collect a whopping $3.9 billion in fees for the following year, assuming an average expense ratio of 0.548 percent. With revenues like that, it is not surprising that publicly traded funds have huge pretax margins. The same report noted that T. Rowe Price had a pretax margin of 37.1 percent. Federated Investors was 27.7 percent and Gamco (which offers the well-known Gabelli Funds) reported 35.6 percent. In an effort to capture more assets and keep those profits flowing, fund families engage in extensive advertising, intended to demonstrate how well their funds performed. I was struck by this statement on the web page for T. Rowe Price : “100 percent of our Retirement Funds beat their 5-year Lipper average as of 12/31/11.” That does seem pretty impressive. As regular readers of my blogs are well aware, I advocate purchasing index funds and avoiding actively managed funds (where the fund manager attempts to beat a designated benchmark). My views are based on the overwhelming research indicating that actively managed funds are statistically likely to underperform index funds over the long term. This research is summarized here . All of the retirement funds offered by T. Rowe Price are actively managed funds. Its web page extols the ability of its “global research team” to engage in “bottom-up research” in order to “enhance returns”. Since 100 percent of its retirement funds beat their 5-year Lipper average, investors could believe that T. Rowe Price has found a way to consistently “beat the market”. Is this accurate? Not if you understand how the use of benchmarks can be misleading. Lipper mutual fund averages are benchmarks that measure the performance of funds in a given category against other funds in that category. The fact that all of the retirement funds managed by T. Rowe Price beat their Lipper averages means they were better than the average performance of the other funds measured by Lipper. While interesting, it tells you nothing about how those funds performed against their benchmark indexes. Morningstar assigns a benchmark index to each mutual fund it rates. This is the index against which the performance of a given fund can be measured. These indexes are assigned by the Morningstar fund analyst team, based on its Morningstar category. It is the index the Morningstar analyst team believes is the most appropriate benchmark for the Morningstar category. The performance of a fund against its appropriate index is a more accurate way to evaluate the performance of a mutual fund. Think of it this way. If the average 8th grader can run a 100 yard dash in 20 seconds and your child took 40 seconds, you might be concerned. However, if the only information you had was that your child was better than the average in his class (and the average in his class was 45 seconds), you might believe he was in great shape. Using data from Morningstar (for example see here ), Index Funds Advisors calculated the returns for the five-year period ending December 31, 2011 of the T. Rowe Price Retirement funds against their analyst assigned benchmark. This was the same period used by T. Rowe Price to measure performance against the Lipper average. We measured the performance of all 33 T. Rowe Price Retirement Funds. The results were surprising. None of them equaled (much less beat) their Morningstar analyst assigned benchmark. Underperformance ranged from 0.84 percent to 1.73 percent (annualized). Only twelve of these funds are available for direct purchase by individual investors. Representatives for T. Rowe Price disagree. They believe the Lipper results give investors “… a valid apples-to-apples comparison.” They also note you can’t purchase the Morningstar benchmarks so the use of them doesn’t represent a valid comparison. Finally, they quarrel with the benchmarks assigned to their funds by Morningstar and believe their custom benchmarks are more accurate. Their funds outperform their customized benchmarks. If fund families want to brag about the performance of their funds against their peers, that’s fine. But you should insist on knowing how they did against an appropriate benchmark (whether you believe that benchmark is the one set by a third party like Morningstar, or the fund family itself). Otherwise, your portfolio could be out of breath at the finish line. Dan Solin is a senior vice president of Index Funds Advisors. He is the New York Times bestselling author of “The Smartest Investment Book You’ll Ever Read,” “The Smartest 401(k) Book You’ll Ever Read,” “The Smartest Retirement Book You’ll Ever Read” and “The Smartest Portfolio You’ll Ever Own.” His new book is “The Smartest Money Book You’ll Ever Read.” The views set forth in this blog are the opinions of the author alone and may not represent the views of any firm or entity with whom he is affiliated. The data, information, and content on this blog are for information, education, and non-commercial purposes only. Returns from index funds do not represent the performance of any investment advisory firm. The information on this blog does not involve the rendering of personalized investment advice and is limited to the dissemination of opinions on investing. No reader should construe these opinions as an offer of advisory services. Readers who require investment advice should retain the services of a competent investment professional. The information on this blog is not an offer to buy or sell, or a solicitation of any offer to buy or sell any securities or class of securities mentioned herein. Furthermore, the information on this blog should not be construed as an offer of advisory services. Please note that the author does not recommend specific securities nor is he responsible for comments made by persons posting on this blog.

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Michael Pento: What Causes Interest Rates to Rise

April 3, 2012

The prevailing notion among the mainstream media and economists is that interest rates are rising because of improving economic growth. But like many of the readily accepted tenets of today’s world of popular finance, this too has its basis in fallacy. Interest rates have increased by nearly 40 basis points on the 10-year note since the first week of March and that is being offered as proof that the economy is healing and GDP growth is about to accelerate. But in truth, the recent spike in Treasury bond yields is only the result of a temporary ebbing in the fear trade that brought about panic selling in Euro-denominated debt, which had previously caused U.S. Treasury prices to soar. The head of the European Central Bank, Mario Draghi, just finished printing over a trillion Euros in an effort to calm the bond market. This new liquidity predictably found its way into distressed Eurozone debt and has mollified bond investors — for the moment. Since a Greek exit from the Euro in no longer perceived an imminent threat, investors have sold their recent purchases of U.S. Treasuries and piled back into Eurozone sovereign debt. For example, the yield on the Italian 10-year note took a rollercoaster ride above 7 percent at the start of this year, before plunging south of 5 percent by the beginning of March. However, in contrast to what passes for the economic wisdom of today, an increase in the rate of sovereign bond yields would be a function of deterioration in their credit, currency and inflation risks. But it would never be because of an increase in the prospects for growth. An economy that is experiencing a healthy growth spurt would experience a reduction in all three of those factors that would cause bond yields to rise. Strong GDP growth-which results from increased productivity — serves to improve credit risk, due to a bolstered tax base, while it also lowers the rate of inflation by increasing the amount of goods and services available for purchase. Therefore, it also tends to boost the currency’s exchange rate as well. Economic growth that is also accompanied by a sound monetary policy tends to lower the rate of inflation and thus increases the real rate of interest. But it does this without increasing nominal interest rates. It instead serves to provide a higher real rate of return on sovereign debt ownership. This is precisely what occurred in the U.S. during the early 1980s. After Fed Chairman Paul Volcker fought and won the battle against inflation, economic growth exploded while the stock market soared in value. And nominal bond prices began to fall, not rise. At the start of the 1980s, GDP fell by 0.3 percent, the 10-year note was 12 percent and the rate of inflation was 14 percent. Therefore, real interest rates were a negative 2 percent at the start of that decade. But by 1984 GDP had accelerated to 7.2 percent in that year. However, the nominal 10-year note fell to 11 percent and inflation had plummeted down to 4 percent. In this classic example that illustrates clearly how growth isn’t inflationary, real interest rates soared by 9 percentage points to yield a positive 7 percent return on sovereign debt! In a healthy economy, stocks, bond prices, and the currency, should all rise together as nominal yields fall and real interest rates rise. The simple truth is that the rate of inflation should fall faster than the rate nominal yields decrease. However, what the Fed, ECB and BOJ are doing now provides a prescription for soaring nominal interest rates in the not too distant future. These central banks are violating all three conditions that lead to low and stable interest rates for the long term. By massively increasing the money supply, they have caused inflation to rise and reduced the purchasing power of their currencies. And by creating superfluous money and credit, the central banks have given the cover needed for their respective governments to run up an overwhelming amount of debt. The currency, credit and inflation risk of owning those three sovereign debt markets has soared. Therefore, they have created the perfect conditions for a collapse of their bond markets. Central bankers believe they have more power and influence over the yield curve than what they indeed possess. The fact is they can only control interest rates for a relatively short period of time. By not allowing interest rates to function freely, the Fed, ECB and BOJ are facing the eventuality of a bond market debacle that will also crush their currencies and stock markets. Recent history has proven that these central banks will fight the ensuing run-up in yields with QEs III, IV and V in an effort to postpone the pain. This failure to acknowledge reality will cause the eventual collapse to become significantly more acute. Michael Pento is the President of Pento Portfolio Strategies .

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Russell C. Smith: The Hunger Games and the Death of Winner-Take-All Capitalism

April 3, 2012

Much has been written about the underlying message of The Hunger Games , and how the inspiration for the dystopian Young Adult novel series came from the author Suzanne Collins flipping through TV channels between a reality television show and news footage of the war in Iraq. From this beginning, Ms. Collins delivered a series that has captured the imaginations of readers both young and old with a theme as ancient as war itself: offering up a nation’s young as lambs to slaughter. While the cinematic version of The Hunger Games may be more politically ambiguous than the novels, the time period in which the books were published is anything but ambiguous. America’s rude economic awakening had as much to do with being overextended in ongoing wars paid for on imaginary unlimited capital, as it does with large segments of the population getting by on overextended credit and never suspecting the other shoe was about to drop, and land right on top of their houses. With some economic forecasters predicting that a full recovery may not happen until 2018, America’s younger workers are witnessing their future economic infrastructure collapse around them. One could view the ritualized “killing as entertainment” of the tributes in The Hunger Games as an allegory about cashing in on the next generation’s future hopes and dreams. Add our deteriorating education system to the ongoing financial hard times, and we have a perfect storm of social and economic problems that could easily tip the balance toward social unrest on a scale not seen since the late 1960s. Without a healthy economy where a more all-inclusive segment of the population can depend upon a livable wage, we all lose, since everyone lives in and depends upon the same unstable system. And the powers that be can’t keep expecting people to accept an economically unbalanced system that’s simply no longer sustainable. The Hunger Games is a far more dark and complex vision than other recent popular teen sensations. One can easily find articles asking whether a movie like this could have been given the go ahead by studio executives a decade ago, much less promoted as a suitable teen movie, similar to Twilight or the Harry Potter movies. Critics and parents may already be looking fondly back on the safe reliability of teen girls making moon eyes and breathing heavily toward a vampire in their midst, or boy wizards battling the dark forces with his eager, well-groomed friends by his side. Nope, in The Hunger Games the revolution’s for real kids, and may the most kick-ass warrior win. It’s true, Harry Potter had its somber moments, but even in its most harrowing scenes it was set in a fantasy world full of wizards, witchcraft, and just the right amount of thrills and chills. In The Hunger Games , the stark images of kids dying on the field of televised battle, in a future dystopian United States where a decadent power elite rule the masses, seems a little too close for comfort. Politicians vainly scream out “class warfare” and “socialism” to fuel their followers when people rise up in protest, but a bold vision put up on screen lets our culture know what’s really going on. In the same way Orwell wrote about 1948 and titled his novel 1984 , one can ask whether The Hunger Games is a reflection of our current world or a warning of horrific things to come. Is the tip-off also in the title? Aren’t we all hungry for a world where innocence doesn’t have to be needlessly killed off, much less where blood sport as entertainment sinks down to appeal to younger and younger audiences, becoming more real as it continues in a downward spiral? In the meantime, The Hunger Games poses the question: Is all of this the inevitable result of Winner-Take-All Capitalism?

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Sen. Jeff Merkley: The Wild, Off the Mark Arguments Against the Volcker Rule

April 3, 2012

Big banks are formulating a host of arguments – wild, off the mark arguments – aimed at dismantling the Volcker Rule firewall between loan-making, customer-serving banks and high-risk hedge funds. That firewall is essential for a stable banking system. When hedge funds blow up, and they regularly do, one doesn’t want them taking out our loan-making system that is so vital to our families and businesses. MF Global, for example, blew up just a few months ago due to big bets on currency markets. But those bad bets didn’t damage our banking system, because MF Global wasn’t part of a bank. So why do big banks want to tear down the Volcker firewall ? Quite simply, hedge funds and similar trading buried in legitimate risk hedging and market-making are big business and, often, make big profits. Moreover, hedge funds inside banks have a competitive advantage by benefiting from government subsidies in the form of insured deposits and access to the Federal Reserve discount window. So what are the arguments the banks are making to attack the Volcker firewall? First they argue that the Volcker firewall will hurt retired teachers and cops by decreasing “liquidity” in markets, which is how easy or hard it is to buy or sell securities. They argue that any decrease in bank trading will make it harder for investors to buy or sell stocks and bonds, which they assert will increase the amount that investors will have to pay for transactions, thereby decreasing the profits for pension funds of retired teachers and cops. Wrong . First, the Volcker rule explicitly allows for “market-making” by bank brokers. Banks will continue to be able to serve investors by helping them make trades. Second, if additional trading is truly profitable without the support of the discount window and FDIC-insured deposits, such trading will take place outside of banks as it has for decades. Third, “liquidity” is not a holy grail. Being able to trade ever faster is not always an economic gain, either for investors or for the economy. High speed trading and computerized trading don’t add much to the economy, and they can do massive damage when things go awry. For these and other reasons, pension funds such as CalPERS, the nation’s biggest, support the Volcker Rule because they depend on a stable financial system free from boom and bust cycles. Moreover, they benefit by reducing the conflicts of interest that derives from massive hedge fund trading by multi-trillion dollar banking institutions. A second major line of attack that the banks have opened up on the Volcker firewall is it will raise gas prices even further. They even have a fancy study for their conclusion, financed by Morgan Stanley, where they argue that if a bank cannot make massive bets on the price of oil, then the price of gasoline will go up and 180,000 jobs will be lost. Wrong. The evidence points in the opposite direction. When big banks invest huge sums on the belief that oil markets are going up, it creates an artificial surge in demand that raises the price of oil. A recent Goldman Sachs report estimated that oil speculation increases the price of gasoline by about 56 cents per gallon. Even the chairman of Exxon-Mobil estimated that the true price of a barrel of oil based on supply and demand should be in the $60-70 range at the same time prices were over $100. A strong Volcker firewall, by getting the banks out of the commodities trading market, will reduce excessive speculation, creating a pathway to more stable prices. As Chairman Volcker has emphasized, U.S. markets worked well for sixty years under a much tougher Glass-Steagall separation of commercial banking from investment banking, including strong limits on bank participation in commodities. Similarly, the markets will work very well under the Volcker Rule’s modernized firewall. The big banks aren’t paying for phony studies, and shielding themselves behind teachers, cops, and drivers because they want to actually lower prices for anyone. Rather, they are doing it because the Volcker firewall will force them to give up the hedge fund-like trading that makes them billions of dollars in profits in good times, but billions of dollars in losses when things go south. When the bank’s hedge fund trading blows up the banks, it will deeply damage loan-making for families and business across America causing deep economic destruction. In short, and to paraphrase Warren Buffet’s comments, hedge funds inside banks are instruments of mass financial destruction. The sooner the Volcker firewall is implemented, the better for all of us.

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Annie Duke: Where’s the Free Lunch?

April 3, 2012

A lot of our decision making stems from the need to protect ourselves emotionally. It is really hard to admit when you made a mistake, that you might have done something wrong to lead you to a bad outcome. Accepting the possibility that you might be at least in part responsible for a bad outcome is hard. Just listen to any poker player after they lose a hand. “I got so unlucky.” If luck causes bad outcomes, then it is not our fault. We don’t need to examine our bad choices. And we protect our fragile psyche. Of course, in taking the route of short-run protection, we sacrifice the long-run upside to honest assessment of ourselves. Learning from mistakes is what makes us better decision makers and, ultimately, ensures better outcomes in the future. And nowhere is this more evident than in our assessment of others. Honesty assess your reaction to other people’s successes. We all know the phrase “failing upward.” When someone gets a promotion it seems we never allow that perhaps they earned it. The knee-jerk reaction is that they schmoozed the right people, that you deserved it more. Rarely do we allow that perhaps someone else might have actually done things better than you, deserved the job more. That you didn’t just get unlucky to not have the success of someone else. That they didn’t just get lucky to have succeeded. At the poker tables, this tendency is so clear. One of the most memorable moments in poker television is when Phil Hellmuth lost a hand in the World Series of Poker Main Event and then declared, “If it weren’t for luck I’d win every one.” Hellmuth was just saying out loud what pretty much every poker player thinks. If they lose a hand the other player got lucky. It is rare to see a poker player admit that perhaps they got outplayed, that their opponent is actually better than they are. When others have success, it emotionally protects us to attribute it to luck because then we don’t have to admit that maybe they are doing something better than we are. That would be hard. That might be honest. That might mean that maybe we aren’t as smart as we like to think we are. This dismissal of others’ successes to avoid cognitive dissonance might have short term psychological benefits but in the long run is disastrous because assessing and learning from others is generally free. At the poker table, if I get in a hand and make a mistake, I might lose my whole chip stack. There is a high cost to learning from your own missteps. But if I watch other people play and honestly assess what they do better than I do, I get that information at no cost because I get to watch them play hands that I am not in, where I am risking zero dollars. But I only get this no cost feedback if I am willing to honestly and properly assess my opponents’ actions. Business is no different than the poker table. Watching other people fail and, more important, watching other people succeed and learning from those success and failure is almost always free. But it is on you to not assume that every failure means the person played poorly or that every success means the person got lucky. Sometimes the best learning experiences come from understanding outcomes that have absolutely nothing to do with you because those don’t cost you anything. But if you dismiss a success as just luck then you are rejecting the free gift that comes with purchase. Yes, there is a free lunch. You just have to be willing to pay attention to when it is offered.

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Anne Sinclair: 2012, Bleak Wilderness

April 3, 2012

Just like the child in Hans Christian Andersen’s The Emperor’s New Clothes , who cried out the truth when all the court did not dare, Daniel Cohn-Bendit has summed up the fog enveloping this campaign: “we are bored,” he said. It was a sentence that would be inconceivable in other times, uttered just three weeks before France will decide if it will renew the mandate of a president whose office has been highly contested or elect for the first time in 24 years a socialist president, one who can’t seem to galvanize the electorate. But it was an understandable sentence, as so much of the substance of this campaign has all but disappeared. The two main candidates bear the main responsibility for this happening: Hollande released a 60-point program two months ago at Le Bourget — but who really remembers any of the key measures, apart from his 75 percent tax rate proposal? Meanwhile, Sarkozy has promised to announce and quantify his proposals this week — and it’s about time, just over a fortnight before the first round of the election! — after having imagined a new law almost every day, and already suggested four referendums. So why would the French, who are suffering the worst crisis since World War II, feel involved in a campaign that isn’t even addressing the many choices that we could make to mitigate or even reverse the slump we’re currently in? When we see, that like Greece, Spain is sinking into a serious social crisis that threatens to choke the country into unbearable austerity, the question we need to answer is how to contain the debt that is strangling us while reviving growth and keeping unemployment in check. How do we fight abyssal deficits while maintaining employment opportunities? This is the center of all concerns. But instead of trying to answer this question, the presidential contenders are playing an entirely different game. Sarkozy has his head in the stars. His morale is high, and he’s become intoxicated with good news from the polls. He’s relaxed in his meetings, and playing the role of the comedian who simply mocks his opponent’s lack of depth. Holland, by contrast, has been too quiet where Sarkozy has gone too far, saying that the calmer he his the less he will open himself up to attack. He is playing it safe. But hasn’t he learned the lesson of 2002, that betting on only one second round and the rejection of the outgoing candidate can be a deadly risk? Where voters expect to hear his voice, they feel him holding back, playing a minimalist strategy to coast in on the momentum of the primary. As for Nicolas Sarkozy, to whom the attacks in Toulouse presented an opportunity to regain the position of head of state, he could have seized the opportunity to become a true leader — one to guide the French into the uncertain future they are concerned about. Instead, he has simply inserted one socially liberal sentence into the middle of a markedly right-wing discourse. We hoped to hear his take on the severity of the situation, but were treated instead this week to the consciously and deliberately publicized arrests of Islamic militants. The timing was so perfect that the TV crews were ready for the assault and that the Figaro — or the Pravda, as some overly cheeky journalists like to call it — was able to announce it before anyone else. To make us believe in his sincere desire to protect the nation from an impending attack, Sarkozy should have required that the intervention take place earlier and that the press not be invited. In short, he shouldn’t have taken the French for suckers. In doing so, in between jokes and mocking the “the small club of happy navel-gazing socialists,” he engages in ever more visible foot calls to the far right, which he hopes to woo for the first round before attempting to recenter for the second. Just this last weekend, Nicolas Sarkozy continued to harden his speech on immigration, by questioning not only the issue of integration but also of assimilation. And he was pleased to repeat on Saturday — against the advice of all legal professionals and in defiance of all traditions of the law — that victims should have a say regarding the inmate’s parole. The seduction of the right-wing electorate is becoming an everyday activity. Moreover, in addition to the major issues affecting the lives of everyone, one would have hoped that topics on civil liberties or the rule of law would be addressed. But… no. François Bayrou has tried to cast “suspicion on the very large financing of Nicolas Sarkozy’s 2007 election campaign,” concerning the continued detention of Patrick de Maistre. But there has been no response. Senators, after the controversy over the effectiveness of the DGSE and DCRI, have claimed the ability to hear the police officials of these institutions, but the ministers of Interior and Defense have raised an estoppel. So the electorate will know nothing about everything that is important. As the crisis destabilizes those who are most fragile, as social unrest in Spain begins to indicate other shocks elsewhere in the world, and as, in the words of the cheeky economic journalist at le Huffington Post Alexander Phalippou , who tweeted, “after the fall in rising unemployment, the huge deficit is less massive than expected,” we have been treated to a complacently triumphant right-wing candidate and a half-reaction from the Socialists. The suitor has neglected the fact that we expect him to show us a path, a method, a means. The incumbent is trying to forget that he has been in power for five years and that he is accountable to his citizens and owes them coherent proposals. There remains only a few days to mobilize the French. And as the result of several stupid decisions, there will be no more televised debates in the weeks before the elections — abstention has become more of a threat than ever. I rarely agree with Nicolas Dupont-Aignan, but when he says that television producers should organize debates with all of the candidates, as was done successfully during the Socialist primary, he’s right. I welcome his denunciation of the laziness of both the networks and the candidates. This is the campaign of 2012: how to waste the opportunity of a beautiful and great national debate.

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Aaron Hurst: Working for a Good Company vs. Doing Good Work

April 3, 2012

Introduction: Based in London, Jenny Davis-Peccoud serves as the global leader of Bain & Company’s Social Impact Practice. Having spent most of her career at Bain, Jenny has been able to watch the evolution of the firm’s investment in social impact from the incubation and subsequent launch of Bridgespan in 2000 to the significant expansion of Bain’s own Social Impact practice and corresponding activities over the past 10+ years. Jenny and I spoke recently about Bain’s partnership with Bridgespan and Bain’s social impact investment strategy. With the 2000 spin-off of Bridgespan as an independent social change consultancy, what pro bono work does Bain continue to do? We’ve continued to do a lot of pro bono work and invest in major partnerships at Bain & Company. And we have a strong, collaborative relationship with Bridgespan, including ‘externships’ and shared partners. We believe as a firm in reinventing our industry. Our investment in Bridgespan was one way we did that – and it was created as a separate organization, as a nonprofit that understands what nonprofits need. But we also continue to invest in our own pro-bono work with organizations committed to driving change in their sectors. So, how much pro bono does Bain do each year? Bain does about 80 pro bono projects a year, and 60% of those projects have people 100% allocated for at least several months. We provided over $40 million of pro bono consulting services in 2011 alone. How do you know you’ve been successful in your pro bono engagements? Even for our corporate clients we systematically go back and ask if they were satisfied with Bain’s work. We use the same process with our pro bono clients as well, and see high satisfaction rates. Secondly, Bain tracks its success by results, and so we are driven to try to understand the impact and outcomes of our work. I’ve personally been involved in many homeless projects in the UK and we’ve had 5,000 homeless people return to full time employment over 10 years. If I’m a nonprofit leader interested in engaging Bain, how do I do that? We select our pro bono clients as we select our corporate clients. We look for bold, ambitious leaders who are looking to challenge the status quo, have big aspirations for major changes, and are keen to see results. As a firm, we work with Fortune 1000 companies and mid-market firms that have potential to be those leaders over time. To give you an example, in our education practice we work with TFA (Teach For America) – which is like the Fortune 100 of corporate America. But we also work with Students First, with a bold ambitious leader like Michelle Rhee, and it’s more like a start up. We believe both of them have tremendous capability. Beyond education, we’ve partnered with Endeavor, an innovative organization focused on using entrepreurship to effect change on a global scale. And these are just a few. Do they come in through a partner at the firm? Again like our corporate clients, we’re very intentional about who we want to work with and who has the most potential to make a tremendous impact in this field. While we do have organizations introduced to us through partner relationships, we still put them through the same screen of “will they have an impact?” We are drawn to organizations that are passionate about driving change in innovative, meaningful ways. What are you seeing in terms of the demands of current employees? It is very important for our staff to use their business training to benefit the community. While Bain’s focus is on for-profit clients, we encourage social impact and work to make sure that it can be an integral part of the Bain experience. Something very appealing to our people is that they can, for example, take leadership roles in nonprofit organizations early on in their careers through our pro bono work, or they can do externships to get hands-on experience with non-profits. Our employees are very proactive about their involvement as well. We provide a lot of opportunities to get involved, but it isn’t all top-down: much of what we do is ‘grassroots’ and driven by an individual’s passion. What roles does social impact play in the decisions of recruits? We’ve done some research on importance to employees of CSR and sustainability. About 20% will proactively make a decision on these things and will be involved when they’re here – so they are deciding where they want to get the best opportunity. The rest want to know that the company does these things and is making a difference in the world. Either way, we hope that recruits see that Bain is a place in which they can have impact in the social sector. Speaking of the 20% who want to personally engage, what are they looking for specifically? When we go out to business school campuses, we talk a lot about the various ways that people can get involved at Bain. The majority of people in the room are excited about pro bono and externships, and others want to get involved in our internal “green team” environmental efforts or work directly in the community. At Bain & Company, we provide many opportunities for our people to engage in the social impact work that they are passionate about while continuing to further their professional career in consulting. How do you see pro bono evolving globally? The US is clearly ahead, and that gets back to the historical anchoring of philanthropy in the American cultural mindset. Asia is quickly catching up. Europe is developing more slowly – with the London office as our most developed office in the region. All of our offices believe in the importance of social impact, however, and I’d expect our pro bono efforts to continue growing.

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Rev. Dr. James A. Forbes, Jr.: Resurrecting The Cause For Which King Died

April 2, 2012

44 years after Dr. King’s death, jobs are still the No. 1 issue in America April 4 will be the 44th anniversary of the day Dr. Martin Luther King, Jr. stepped out on the balcony of the Lorraine Motel and was cut down at the age of 39. He had just asked that his favorite hymn, “Precious Lord, Take My Hand,” be sung at the event he was to attend that night; instead it was sung by his friend Mahalia Jackson at his funeral. Most people know the King remembrances. First, the day in January set aside as the Martin Luther King, Jr. Birthday Celebration; and second, the April observance of his death date. King’s name is most frequently associated with civil rights, integration and nonviolent protest. What we should be thinking about, however, is what this preacher also was preaching: economic justice. In other words, jobs . It’s true that Dr. King had a dream about racial integration — hallelujah for that. Today I think he’d say: “Can’t you all get over this color thing?” In King’s speech against the war in Vietnam at the Riverside Church one year before his assassination, he said we cannot fulfill the American dream if we are using up all our resources in war, not just making that a dream deferred, but of the sin-sick soul: “A nation that continues year after year to spend more money on military defense than on programs of social uplift” he said, “is approaching spiritual death.” Integrate? Fine. Stop the war? Fine. But economic redistribution? Economic justice? Spreading the resources so that all God’s children have a place at the table? All good, all important. But neither racial discrimination or segregation nor war in Vietnam got him killed. It was the issue of economic justice. Oh sure, you could talk about economic justice, but King was getting ready to do something about it. The very week he died, he was in the process of planning the Poor People’s Campaign to go to Washington, D.C. to document that poor people in this nation are citizens just like everybody. He was reminding us about the Constitution of the United States that talked about inalienable rights, among which are life, liberty and the pursuit of happiness and all God’s children ought to have food to eat and clothes to wear. They ought to have jobs and opportunity and some place to stay. All God’s children have a right. He was organizing to come to Washington and he said we will tie up the legislative process–we will bring white poor people from Appalachia, Latinos from the border states, bring poor people from the urban centers and say to our nation, “We are Americans too and we have a right to all of the wonderful bounty which God has bestowed on our great nation.” Dr. King was still committed to “I have a dream” when his life was cut short, but it wasn’t a black folk’s dream. It was an American dream — “a dream yet unfulfilled” — that is, the dream of reaching the Promised Land of economic justice as well as equality and peace. I would like to challenge citizens of today with this admonition. Every time you hear, I have a dream , please make sure people understand it’s not just about black folk and white folk getting together. Every time you hear it please make sure that folks know it’s not just about a war in Vietnam, Afghanistan, Iraq or possibly Iran or North Korea. Please make sure that it’s a dream about King that has to do with economic justice. On April 4 this year, a group of us leaders on the Upper West Side of Manhattan are convening a coalition of local and national legislators; interfaith, labor and civil rights activists and leaders; and an esteemed panel of journalists and newsmakers for a symbolic evening of history, re-enactment, riveting discussion and healing songs. Our dedicated interfaith, inter-disciplinary group will pick up the piece of King’s mantle that people have let die — jobs. With more than 12.8 million Americans unemployed, jobs, economic freedom, living wage and worker justice remain the greatest challenges this country faces. The timing is prophetic. Dr. King was slain in Memphis where he had travelled to show his support for striking black sanitation workers. He was about jobs. We will mobilize churches, mosques and synagogues throughout the country, public and private industry, local governments and Congress to create jobs and to lobby for a comprehensive jobs solution by August 28, 2013 — the 50th anniversary of the March on Washington. We will make jobs a priority in the American consciousness. We heard the “I have a dream” speech, but here is a speech not often heard, but deeply reflective of King’s commitment to economic justice: “This will be the day when we shall bring into full realization the American dream — a dream yet unfulfilled. A dream of equality of opportunity, of privilege and property widely distributed; a dream of a land where men will not take necessities from the many to give luxuries to the few, a dream of a land where men will not argue that the color of a man’s skin determined the content of his character; a dream of a nation where all our gifts and resources are held not for ourselves alone but as instruments of service for the rest of humanity; the dream of a country where every man will respect the dignity and worth of human personality — that is the dream. And as we struggle to make racial and economic justice a reality, let us maintain faith in the future. We will confront difficulties and frustrating moments in the struggle to make justice a reality, but we must believe somehow that these problems can be solved.” (December 11, 1961) RESURRECTING THE CAUSE FOR WHICH HE DIED Call-to-Action Wednesday, April 4, 2012 – 5:30 p.m. – 8:00 p.m. (Specific actions at 6:02, when Dr. King was shot, and at 7:04, when he died) Riverside Church, 490 Riverside Drive @ 120th Street, New York, N.Y. 10027

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Daniel Gulati: You, the Technologist

April 2, 2012

As the Internet has grown from 70 million users in 1997 to 2.2 billion , entrepreneurial companies with technology at their core have disrupted entire industries and threatened or eliminated incumbents. For example, Square, the new electronic payment service, has already upended a long-established financial ecosystem, with some arguing that it may even replace cash . In recent years, incumbents have fought back. A 2011 IBM study of over 3,000 CIOs revealed that CIO-CEO alignment is stronger than ever, with traditional companies aggressively investing in technology innovation. Big-box retailers, like Best Buy, now have large, fast growing e-commerce businesses. The New York Times and other traditional publishers are launching digital products tailored to the mobile web . Even the big banks are getting social . Yes, this is creating unprecedented demand for employees with serious technical chops. But as more traditional businesses are being run on software and a larger component of a company’s customer experience is being delivered online, everyone from marketing to general management needs to take notice. Studies confirm that technology skills will be crucial for future employment prospects. Engineer or not, the managers and employees who understand new consumer technologies and can create value by deploying software as a solution will be those most valued by organizations young and old. Firstly, entirely new categories of technology jobs are forming , creating exciting opportunities for today’s job seeker. A few years ago, community managers did not exist. Yet with 67% of surveyed brand managers planning to launch social media campaigns in the next 12 months, community managers are now amongst the most sought after marketing professionals. With the rise in new web-based applications, advertising products, and client-side software, user experience (UX) design is suddenly one of the nation’s fastest growing employment areas . Because these categories are so new, a drastic shortage of formally trained professionals exist to fill the roles available. This creates opportunities for the savvy job seeker in an adjacent field looking to switch into an in-demand technology role. Secondly, traditional roles are likely to have a larger technology component that will only increase over time. Marketers no longer live in an above-the-line world; instead, direct-response and pay-per-click advertising have entered the mix. Similarly, HR professionals who fail to harness the power of LinkedIn, Identified, and BranchOut may miss out on attracting star candidates. Nonmanagerial, nonconsumer-facing employees, such as data entry specialists, need to be well-versed in specific new technologies that relate to them. Even the most traditional of employees, the factory worker, must transform into a technologist or face extinction. As Adam Davidson recently argued , “Today, the computer moves the cutting tool and the operator needs to know how to talk to the computer.” In a world where everyone must become a technologist, how can we land an exciting technology job in an entirely new category — or simply become more technologically sophisticated in the way we approach our current, traditional roles? Here’s a five-step checklist to ensure you stay relevant: 1. Be an end user : The best way to understand new technologies is to use them. It would be difficult to truly grasp the power of Facebook fan page marketing without being both a Facebook user and a fan of brands yourself. Dedicate time on the job to tinkering with platforms that are highly relevant to your role. 2. Know the ROI : As the pace of technology innovation increases, the savvy professional will curate and invest in the platforms that matter. Different consumer technologies, like Twitter and Pinterest, have different use cases and entirely different customer acquisition economics. Therefore, a well-understood financial model is crucial if you’re arguing for a reallocation of company resources to support investments in new consumer technology platforms. Even internal collaboration tools, such as Basecamp, salesforce, and Sharepoint, should be subject to detailed business case and ROI analyses. 3. Demonstrate your knowledge : Do you know your SEO from your SEM ? New technologies are creating new vocabularies. This isn’t irrelevant jargon, but rather essential concepts you’ll need to successfully weave into your verbal and written arguments to land that new role or perform at a higher level in your existing role. 4. Learn technical skills : New companies and older institutions alike have recognized the structural mismatch between available technology jobs and worker skillsets. That’s why you can log onto Codecademy and learn programming for free, instantly. Universities are rapidly growing their engineering courses. Venture capitalists are creating software engineering academies in their own cities. There are now countless opportunities to learn what you don’t currently know and use these skills to your advantage in your new or current role. 5. Anticipate trends : With the age of device fragmentation, increasing smartphone and tablet penetration will usher in a post-PC era. Translating mega-trends like these to potential impacts your current professions, and then to the implications for your skillsets, is a powerful way to get ahead. Trends need not be domestic. As the cost of computing falls, overseas markets and entirely new customer sets are suddenly being propelled into relevancy. Anticipate international trends, too. What else can we do to position ourselves? Is your job or industry becoming more technologically focused? This post was originally published on HBR.org.

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Tom Samph: A 122-Year-Old Start-Up? How Post University Reinvented Itself for the Modern Educational Era

April 2, 2012

Fewer organizations today are able to stay in existence for more than 100 years. Business needs are changing rapidly across myriad industries, and in many cases what was relevant yesterday has been rendered obsolete today by new technologies and new ways of thinking. Colleges and universities have a better track record than most businesses, but even these bastions of longevity sometimes fail to keep pace with market pressures and demands. A number of schools have shuttered their doors in recent years due to increased expenses, declining enrollments, dried-up revenues and dwindling endowments. Post University was about to be one of these schools in 2004. It was 18 months from closing when a new management team took over and started upending everything from basic infrastructure to campus culture. Fast forward to today. Post University is now on firm financial footing, and is becoming known as one the most innovative and vibrant schools in the Connecticut region. If you ask members of the senior management team what they have been doing for the past five to seven years, they will tell you they have been building a “122-year-old start-up.” We have reinvented Post to meet the needs of today’s students, which are increasingly adult learners . That’s why we have a start-up culture and mentality, yet are rooted in 122 years of experience in providing higher education to students around the country. We wanted to share how we’ve made Post University’s offerings relevant to the evolving educational needs of our students, and what we’ve learned along the way to help other educational institutions grow their organizations to better meet their students’ needs, too. First, some background for context. In 1989, Post University was acquired by Teikyo University in Japan. The school became a destination for Japanese students to learn about American culture and language. But as the Japanese economy and demographics changed, fewer students came to Post. Revenues naturally declined. University management in the U.S. did not respond to this issue. As a result, the Japanese decided to sell Post. In 2004, Teikyo Post University became Post University once again, and a new, experienced, metrics-driven group of senior managers took the helm. The team’s primary goals were to 1) create a university that could deliver educational services to students in whatever format was most suitable for them, and 2) make a Post University degree more valuable with each passing year. The team also had a strong interest in restoring the school to its featured role as Waterbury’s hometown university, which it has been since 1890. To achieve these goals, the team realized its initial focus had to be on establishing financial stability. As is true with any business, you can’t do much if you can’t keep the lights on and make payroll. Post’s management team turned to one of the school’s historical strengths: distance learning. Post University has had a distance learning presence since 1976, and several members of the senior management team had experience in this area as well. Post began building up its online education operation by offering the academic programs from its main campus to adult learners in a fully online, asynchronous format. It also started adding graduate programs, including the state’s first fully online MBA degree program . Today, the Online Education Institute of Post University is a leader in providing online accelerated degree programs for working professionals. Looking back on how we got here, there are a couple of takeaways that stand out. We hope you’ll be able to pull out some ideas from this list that you can try in your own educational institution: • Use technologies to meet student needs. Much of our recent growth has come from using technology to expand our academic offerings beyond our campus. For instance, online discussion boards are an integral part of all our online courses. Our students have told us that online discussion forums foster greater interaction with their peers and instructors , and as a result, enrich their learning experience. This technology and others have enabled us to provide flexible online learning opportunities to the growing number of adult learners, which in turn has helped boost enrollment. In 2004, 98 percent of the University’s 150 online students were from Connecticut. Today, about 65 percent of our more than 10,000 online students are from outside our home state. • Be a data-driven organization. We rely on a variety of metrics to assess the effectiveness of our operations, programs and strategies. This gives us greater quality control and fiscal accountability. We continually measure the impact of our academic programs and student support services through methods such as student surveys, responsive data and a host of financial indicators. The insights, challenges and opportunities we glean from our metrics enable us to dynamically make organizational improvements. Our process for collecting and tracking metrics also lets us share a status update with our stakeholders. We are one of the few educational institutions that provide our board of trustees with weekly metrics reports on the progress of the institution. • Operate like a business. Because you are. Without multi-billion-dollar endowments and/or significant state or other outside funding, we’ve found that operating more like a business has enabled us to evaluate our processes and make needed changes, and measure our progress against a well-defined strategic plan. This operational model includes relying on metrics-driven decision-making, having strong financial accountability, continually improving and innovating your product offerings and providing the ultimate in customer service. Through heavy investments in technology, renovations to our Waterbury campus, the addition of new athletic programs and improvements in the quality and breadth of our academic offerings and teaching staff, we believe Post is in a position to thrive throughout the education industry’s evolution. And so can other organizations, by focusing on improving the quality, affordability and flexibility of their educational opportunities for traditional and non-traditional college students. Continuing to do what has been done in the past is rarely a successful formula for sustainable growth or quality improvement. Nurturing a start-up culture is a first step in fostering ongoing innovation to meet the changing needs of our students.

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Jared Bernstein: Gas Notes

April 2, 2012

Been meaning to get back to gas prices a bit, just based on a few recent articles and adventures in cable land. First, there’s this Adam Davidson piece in the NYT magazine this weekend on how high prices at the pump don’t seem to be changing people’s behavior much, because, he suspects, the average household spends only 5% of its income on gas. I’m not so sure. First, that’s an average. Low-income families spend twice that share (see figure here ). Second, while economists have always suspected a pretty inelastic response to gas prices, in this downturn, there’s certainly been a lot less driving going on–see the remarkable break in trend at the end of the series in the last figure here (this started before the recent spike and is thus more a response to the recession and income loss than higher gas prices). There’s also been a shift to higher mileage vehicles. Finally, any article about family budgets and gas prices right now should not omit the ongoing payroll tax holiday. As I’ve written before , that’s really the only thing politicians can do in this case–i.e., they can’t affect the price, but they can give a temporary boost to after-tax income to offset it. There’s only one thing a president and Congress can do to offset this price spike and they’ve already done it: raise people’s after-tax income. The payroll tax holiday that the President pushed for and Congress recently extended should put about $120 billion extra in paychecks this year. Every penny increase at the pump translates into about a $1 billion expense for consumers. Since its most recent low, the national average is up about 55 cents, or about half the aggregate of the payroll cut (annualized) so far. So, if these rules of thumb are about right, the government is actually in the process of doing about the only thing it can to help people cope with the current price spike. Everything else is just noise. Speaking of noise, the blame-the-President-for-high-gas-prices nonsense seems to have died down a bit, except for on cable TV (more on that in a moment). I saw a poll–and I’ve seen this result a number of times–that had a majority of respondents answering “no” to “do you think the president controls the price of gas?” and yet also had a majority answering “yes” to “do you blame him for high gas prices?” So, we suffer some cognitive dissonance of the issue. Re public opinion, I found this interesting: I was driving around with a bunch of kids this weekend and they noticed that gas here in northern VA just broke $4 a gallon. I mentioned that some people blame the President for the price spike. The younger kids–around 10–just couldn’t make any sense out of that. I tried to explain but they just didn’t get it. To them it was like accusing the President of not being able to fly; like good economists they essentially argued that he can no more set the price of gas than the price of the movie we just saw ( Mirror-Mirror with Julia Roberts–she’s great in it, the kids loved the movie–I thought it dragged). The older kids -12-13–agreed with the economics but recognized that, as one precocious kid put it, “that’s just a talking point.” So, somewhere between 10 and 12, kids go from simple economics to political economics. Next, I hear a lot of excitement about drilling and fracking for natural gas. And it’s true–all that extraction has been increasing the supply and lowering the price of this energy source relative to oil. But people forget this important fact: for every $10 of energy we consume, $9 goes to oil-based products (see figure). We just don’t have the infrastructure in place yet to take advantage of this price difference, so you won’t see this show up at the pump much either. Finally, there’s a meme on cable among conservative talking heads that got a test last week. I’ve asked them “exactly what do you think the President could do?” beyond the pretty aggressive extraction he’s already presiding over (described here ). One answer I’ve gotten back: he just needs to talk about his support for building out the logistics infrastructure, i.e., the pipelines that move oil around the country. That, I was told explicitly, would move the price right away. Well, on Thursday (3/22), President Obama visited Cushing, Oklahoma, a bottleneck point in our national pipeline infrastructure between North Dakota and the refineries in the Gulf. He stated that he is “directing my administration to cut through the red tape, break through the bureaucratic hurdles and make this project [building out part of the Keystone pipeline from Cushing to the Gulf] a priority, to go ahead and get it done.” So, what happen at the pump? Nothing. The figure below shows daily average prices with a line on the day of the speech. Bernanke can say stuff that moves interest rates. Prominent market types can move stock prices. World events can move oil prices. But Presidents simply can’t move gas prices. Yes, I know…evidence isn’t relevant here. In fact, any 12-year old knows that. It’s the grownups that get confused. Source: Gasbuddy.com

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Jerry Jasinowski: Manufacturing Is Different

April 2, 2012

” Do Manufacturers Need Special Treatment ,” was the headline of a commentary by Christina D. Romer, who chaired President Obama’s Council of Economic Advisors, in the New York Times earlier this year. An economist, Romer made it clear she regarded manufacturing as just another sector of the economy. “American consumers value health care and haircuts as much as washing machines and hair dryers,” she wrote. “And our earnings from exporting architectural plans for a building in Shanghai are as real as those from exporting cars to Canada.” That myopic view is all too common among economists. I surmise this is what comes from getting lost in data on spreadsheets, and losing contact with the real world. But I too am an economist and I am here to testify that Romer’s interpretation of the data simply does not reflect reality. Manufacturing is different from other sectors in three key ways: First, manufacturing is where real wealth is created. Manufacturers take raw materials from the earth, apply copious amounts of energy, mix in creative human genius, and voila, out comes the myriad of wonderful products and technologies that enhance human life. Second, manufacturing has an extraordinary “spillover effect” supporting more peripheral jobs than any other sector. This is why the states compete so vigorously to attract new manufacturing plants. And third, manufacturing is where technology is put into practice through innovation. A brilliant idea and $5 will get you a cup of coffee at Starbucks. It is the manufacturing shop floor where the potential of creative ideas is proved or disproved. Manufacturing accounts for 70 percent of private sector R&D and 90 percent of patents. For more than a decade we have stood by while foreign competitors employing predatory trade practices have absconded with major portions of our manufacturing base. The persistent weakness in our economy today, and especially the stubbornly high unemployment, is the result. The time has come to recognize this challenge and rise to meet it. There is a reason our competitors are so committed to manufacturing — they recognize that manufacturing is the foundation of a modern nation’s economy. “The world power that loses its manufacturing base,” said Akio Morita, founder of Sony, “will cease to be a world power.” The good news is that Romer has returned to academia. President Obama and his Assistant for Economic Policy Gene Sperling are highlighting the importance of manufacturing to the country, as is the presumptive Republican nominee Mitt Romney. According to political consultant Mark Mellman, there is overwhelming public support for a national manufacturing strategy focused on bringing jobs back from overseas, retraining U.S. workers, and enforcing fair trade rules. The American people fully understand the importance of manufacturing to the country, even if many economists do not. Change is coming. Jerry Jasinowski, an economist and author, serve d as President of the National Association of Manufacturers for 14 years and later The Manufacturing Institute. Jerry is available for speaking engagements.

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Raymond J. Learsy: Shell Supports Iran’s Murderous Mullahs. Should We Be Supporting Shell?

April 2, 2012

The callous greed in the oil patch seems to know no limits. Here we have a company, Royal Dutch Shell, bursting with earnings, at the apogee of its yearly returns, going after the last dollar or Euro to make things fatter still. This to the cold dismissal of the brave Iranians who rose en-masse in 2009 to rally for free elections only to be put down brutally by the Mullah’s goon squads financed in large measure by the plenitude of oil revenues streaming from Iran’s export oil loadings. The world was outraged, but helplessly stood by as the slaughter continued. From far and wide came calls to impose sanctions on Iran and to impose embargoes on Iran’s products. One would have thought any responsible organization would have desisted its activities with what had now evolved into a murderous regime. Clearly conscious of the public outrage that would result from its moral turpitude continuing to enrich the Mullahs, Shell did all it could to hide their transactional baseness with the Iranian dictatorship. As example in March 2010 the Wall Street Journal (“Oil Trade With Iran Thrives Discreetly” 05.20.10) reported that the tanker ‘Front Page’ left the port of Fujairah, U.A.E.to sail on to Saudi Arabia. All well and good. But wait, tracking information revealed a very different course. The ‘Front Page’ made an unreported stop along the coast of Iran to load a cargo of Iranian oil. Who was the charterer of this brazen attempt to hide their continuing ‘business as usual’ with an Iranian government in the midst of imposing draconian oppression on its people. Yes, Shell Oil. Since that time very little has changed, if not in becoming more grotesque. Shell’s gorging on Iranian oil continued ongoing. Just this past week CNBC reported that “Shell Scrambles to Pay Huge Oil Bill for Iran Oil” (03.25.12). We learned that Shell is struggling to pay off $1,000,000,000 that it owes the National Iranian Oil Company, the equivalent of about 8 million barrels of oil. Apparently Shell has become Iran’s second biggest oil buyer, having been outdistanced only by France’s Total, who however has ceased its Iranian oil purchases at the end of last year. But it seems Shell toils on, now having to navigate through the labyrinth of financial sanctions in order to placate their Iranian pushers. And as the CNBC report would have it, “Shell is working hard to figure out a way to pay NIOC.” All of which of course raises the question, given Shell’s willingness to help sustain the murderous Iranian regime, should we as consumers exercise our individual initiative in solidarity with the oppressed people of Iran (one needs remember the deeply poignant death of Nedā Āghā-Soltān[ on the streets of Teheran on June 20, 2009). In our daily lives perhaps it is now necessary to decide where and from whom we buy our gasoline! Oh yes, by the way, another point of focus. Should we be comfortable with the imminent ruling our government agencies, especially the U.S. Department of the Interior, are about to make permitting Royal Dutch Shell to drill off Alaska’s Beaufort and Chuckchi Seas? Vesting that responsibility with a corporation of such vacuous concern?

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Simon Johnson: Volcker Rule Would Cause Irreparable Damage to the Muppets — and Much More Broadly

April 1, 2012

A major new research report — released this weekend by the renowned international consulting firm, IMS — finds conclusively that implementation of the proposed Volcker Rule would damage not just the irreplaceable Muppets but also “all children-oriented television or other media-based educational program content.” The logic in the report is straightforward and, quite frankly, compelling. The Volcker Rule — which aims to limit proprietary trading and excessive risk-taking by the country’s largest banks — would reduce the ability of “too big to fail” institutions to bet heavily on the price of commodities used to produce puppets (mostly cotton, but also apparently wood, aluminum, and some rare earths). “In response to the changing demands of their customers, banks have expanded their role of providing financial resources and services to include risk management and intermediation services to [various kinds of puppets](p. ES2) These services are highly profitable and of great value to the skilled artisans who produce puppets, but if the very biggest banks are not allowed to engage in these activities, then no one else will. This, of course, is elementary economics — dating back as far as Adam Smith. If there is a profit-making opportunity to be had, then everyone will spurn it, unless they work for a massive international bank. The history of the United States is replete with examples of business sectors that would never have come into existence were it not for the proprietary trading of banks that were large enough to damage the economy when they failed. Thomas Edison worked long and hard for J.P. Morgan (the man) before being allowed into the speculative trading side of the business. Henry Ford’s entire model was a spin-off from Bankers’ Trust — with a substantial equity investment from his former employer. And the Wright Brothers’ business concept — as well as their most basic notions of aeronautics — derived from their early work with paper airplanes on the trading floor of what became First National City Bank of New York (i.e., Citigroup today). Put simply, there has never been real entrepreneurship in the U.S. financial markets or economy — other than what these banks have put there, directly or indirectly. The fact these banks were very small relative to the economy until the 1980s is irrelevant. And the fact that these banks now draw on huge government implicit subsidies — while also creating an enormous and dangerous tax payer liability — is neither here nor there. Malfeasance by these banks has brought us to the brink of fiscal disaster. In political terms, we are manipulated by bankers just as if they are pulling our strings. But you have to consider the benefits, as well as the costs. Do you enjoy watching the Muppets or not? If the Volcker Rule is implemented as planned, that would have a major negative effect on the bond yields — the spread over the “risk-free” interest rate — paid by the Muppets and other leading providers of children’s entertainment. No one else will ever trade these bonds to any significant degree — just as no one would have produced cars or planes without the dominance of big banks in those sectors. Even the electricity you are using to read this piece was made possible by the market dominance and overbearing presence of deeply entrepreneurial and ethical entities such as Enron. The Muppets themselves have come out strongly in favor of the financial sector as currently structured. As Lloyd Blankfein, head of Goldman Sachs, reportedly said recently: “It’s not the dealers and it’s not the investment bankers and providers that have to grapple with regulation. It’s users and [puppets of all kinds] in the market that have to deal with different margin requirements…have to deal with unfortunately and inevitably higher cost in managing their portfolios…and have to pay the price for the higher cost of holding inventories.” The IMS report was paid for by Morgan Stanley (see p. 3), further evidence of smart entrepreneurial investments by big banks that support the deeper development of the economy and help create puppets everywhere. Simon Johnson is the co-author of White House Burning: The Founding Fathers, Our National Debt, and Why It Matters To You , available from April 3rd. This post is cross-posted from The Baseline Scenario .

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Pamela Hartigan: Inventing a New Future: Beyond Our Humpty Dumpty World

March 31, 2012

For the last few years since becoming director of the Skoll Centre, I have closed the Skoll World Forum with an Irish prayer. This year, I want to start my reflections with a riddle — its origins of which I am not sure. What is it that you keep forever when you give it away — that changes as it moves from place to place — and without which there is no past or future, no reason or meaning? The answer? A story. We are storytelling animals. Indeed many people believe that storytelling is what makes humans unique. We use stories to share our knowledge and experience, to learn from our past and to imagine our future. We only need to look at Nick Danzinger’s wonderful work to see how true this is. Oxford is a city of stories and those who have woven them — Cornmarket Street in the city centre was the setting for the Crown Tavern where a young actor named Will Shakespeare grew rather too fond of his landlady. Sir Walter Raleigh learned his Latin at Oriel College, and the poet Gerard Manley Hopkins learned about beauty in Oxford’s magnificent Baroque church. Oscar Wilde amused and amazed his examiners at the examinations schools where we will be tomorrow; and it was in Oxford one winter’s night at 2 a.m. where J.R.R. Tolkien converted C.S. Lewis to Christianity. Oxford is the home of A.A. Milne whose characters including Winnie the Pooh, Tigger, Piglet and Eeyore still live with me today, as does Kenneth Graham’s story of Mr. Toad and his wild ride in The Wind in the Willows — and while I haven’t followed Alice down the rabbit hole, I have followed her into Christ Church and to the dining hall which much later became a film set for J.K. Rowling’s Harry Potter . Oxford’s associations spill beyond literature into history and legend. For more than a thousand years the city has played a central role in England’s history, as a home and inspiration to kings and politicians, saints and bishops, artists and academics, inventors and industrialists whose stories have helped to shape our world. Having been part of the Oxford community for three years, I often wonder what story will be told in 2812 about our current time, when the University of Oxford will double its current 800 year-old existence. I wonder what that story will say about this period of unparalleled difficulty for our planet and for the people it hosts. How will it capture our mood of foreboding that deep and complex forces are rapidly reshaping the world as we know it? How will the story describe the new global landscape now surfacing and the national and global institutional arrangements now emerging to replace those that are proving to be inadequate to deal with the deepest problems we confront? Currently, we are living in a Humpty Dumpty world where a good many of the king’s horses and the king’s men are scrambling to put Humpty together again — while a growing movement of men and women with imagination, commitment, persistence and strong ethical fiber — people such as each one of you gathered here for the Skoll World Forum — are working furiously to ensure that the Humpty Dumpty model is transformed and replaced with pathways that achieve economic and social justice and arrest the destruction of our planet. We are in an interesting phase of new thinking and experimentation, and we must seize this hugely important opportunity. Like most of you here, I am an optimist. I cannot imagine that our story will not have a happy ending, even while at times a happy ending seems to be a pipe dream. Let’s just review the stories that grabbed our attention in 2011. The year started with natural disasters including the earthquake off Japan that caused its tsunamis and nuclear disaster. In August, Hurricane Irene ripped through the Caribbean and along the east coast of the U.S., and with this storm system came the floods responsible for the deadliest U.S. tornado season since 1936. Then, in September, another earthquake struck Van in eastern Turkey killing 600 and leaving 60,000 homeless. And no one tuning into CNN or the BBC could escape the scenes of the monsoons that raged across Asia between June and November, killing untold thousands in Pakistan, Burma, Thailand, Laos and Cambodia. Typhoons battered the Philippines and Indonesia and few in Asia, including China, escaped the deluge crisis of this past year. Moving on, the global financial crisis assumed urgent momentum in 2011. The stock market recovery of late 2010 and early 2011 was ephemeral, as many expected. The financial crisis took a definitive step as world markets plunged and as the sovereign debt crisis spread from peripheral states into the heart of Europe. The U.S. lost its AAA rating for the first time in history. In Europe, the tragicomedy of the DSK sex scandal was forgotten as the debt crisis spiraled. As, Greece, Ireland, Italy, Portugal, Spain and others have struggled to implement the austerity measures needed to refinance their debt — the grand European project has teetered. Meanwhile, the enormous levels of additional debt that the U.S. has taken on since the start of the crisis have been sustainable only because so much of China’s foreign reserves are locked in to the dollar. Borrowing your way out of debt, as advocated by Keynesian solutions, works only if the present generation can pass its borrowings onto the next one. But with the aging of the developed world, the next generation will be smaller than the last, while the cost of energy and other commodities all continue to rise as emerging countries industrialize. Add to this Iran’s putative nuclear program, a world population that reached 7 billion, rampant inflation, food riots and a climate catastrophe. This litany of gloomy stories is enough to give any Pollyanna pause for thought. Yet as described in Stumbling on Happiness by Harvard professor Daniel Gilbert, research in cognitive functioning find that human beings reinterpret negative things in a more positive light — the “every cloud has a silver lining” idea. My hope for the future springs from past and current personal experience. I was a university student in the late ’60s, early ’70s when ordinary citizens constituted the core of the anti-war movement and the civil rights movement. Globally, it was ordinary citizens who challenged the Chinese Communist system in Tiananmen Square, the apartheid structure in South Africa, and led the anti-nuclear movement, the environmental movement, the women’s movement, and so on. This past year, citizens’ movements have risen to new heights in shaking the status quo, propelled by the newest technologies that connect them to one another around the world. In 2011, we saw people — primarily young people — take to the streets. The deeply democratic nature of the uprisings caught mainstream media and all of us by surprise as youth in the Middle East and North Africa rose up to demand freedom of expression and opportunities. Starting in Tunisia, the spark spread to Algeria, Egypt, Saudi Arabia, Syria and Libya, toppling long entrenched tyrants. The movement spread to Europe where tens of thousands marched to express their frustration with the lack of employment, of opportunities, and of politicians who didn’t seem to care, from “Los Indignados” or “the Outraged” in Spain, to Greece and then to the USA with the Occupy Wall Street movement and to the UK and the crowds gathered at St. Paul’s in London. More recently, thousands in Moscow have taken on the Putin regime demanding the same things as protesters worldwide — a systemic change that will provide greater dignity, transparency, participation and access to opportunities. This movement of people worldwide is perhaps the most exciting global phenomenon of our time. It is our promise that we will not put Humpty Dumpty together again as before — and for me, this is where entrepreneurial approaches to social change come in. These new approaches are the harbingers of the types of organizational and business models that our compartmentalized world so desperately needs in order to integrate where we make our money and where we do good, tear down the firewalls between our personal and professional lives, and reap the true value we all should be making to the world. In sum, I am optimistic for many reasons, but mainly because for most of my life, I have hung out with creative and positive people who, regardless of their backgrounds and their resources, manage to punch way above their weight. So when one is surrounded by men and women with a “can do” attitude, an infectious energy, and an ability to see opportunities for innovation and transformation at every turn, it is pretty hard to be gloomy about the state of the world. Entrepreneurship of this sort is highly contagious. I now work primarily with university and graduate students — they are full of hope that they will find careers where they can contribute their business savvy and other talents to improve human welfare. They don’t want to wait until they are 50 years old to “give back.” Some are entrepreneurs themselves while others — like young adults everywhere — seek to contribute to endeavors that are fundamentally innovative, philosophically positive and morally compelling. So how do we rewire our systems, our practices and our mindsets so our story reflects greater convergence rather than fragmentation of effort? That, for me is the great challenge before us, no matter where our life journey takes us. In that sense, the global movement of outrage on the part of ordinary citizens against an increasingly unfair and unsustainable society — joined up with practical, creative and committed social entrepreneurs — will ensure that Humpty Dumpty is not recreated — and that when my story, your story, our collective story is told, it will be about depicting the triumph that occurs when human ingenuity, empathy and integrity rise to dominance together to address unprecedented threats. Thank you.

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Dennis Santiago: Bank Closure in Dearborn: A Sad Ending for Fidelity’s Long Struggle

March 31, 2012

Dearborn, Mich. — The FDIC closed Fidelity Bank today following almost two years of being undercapitalized as the result of a collapsing market in mortgages and commercial real estate. It’s parent holding company Dearborn Bancorp, Inc. had been struggling with capital woes since March of 2010. It had failed to satisfy bank regulators with its recapitalization plan and troubles with the Securities and Exchange Commission in the summer of 2011 resulting in the parent company being de-listed from NASDAQ last November. Driven into OTC Pink Sheet dungeon, the company had not been able to attract capital. It is a particularly sad story because operationally Fidelity had done much to improve operations. According to the IRA Bank Monitor, it had returned to modest quarter by quarter profitability by March 2011. The institution’s Bank Stress Index (BSI) rating, a measure of forward looking stresses for operating the business, had recovered from an F back into the A/B range. Fidelity’s Counter Party Quality Score (CQS), a measure of the ability to meet current business obligations had also risen from the 4 range where banks are normally closed by the FDIC back up to a 7, just one notch below the highest rating. Alas, even as management struggled to rebuild the bank, confidence in the bank continue to drain shrinking the bank by over $100 million dollars on both the assets and deposit sides of the books. As the good money abandoned it, the troubled assets that remained began to play a larger and larger role in the ratios that spoke ill of Fidelity’s balance sheet condition. It’s Texas Ratio, a measure of how much strength the bank had to absorb losses, degraded materially even though the size of the troubled book itself was in fact diminishing. The straw that broke the CAMEL’S back — that’s a pun referring to the examination regimen used by regulators — looks to be a new round of upturns in 30-89 day delinquent assets the emerged beginning in the fourth quarter of 2011. The fatal combination of being on the outs with Wall Street and the atrophy of the size of the business proved insurmountable and culminated in today’s failure. The numerical tale of the tape can be seen here: http://us1.irabankratings.com/pub/failedbank.asp?cert=33883 . I’m spending more time on the narrative this week because this is in fact one of the very unusual cases in the history of these bank failures since 2008. The numbers speak of very hard work by this bank to try to survive and I believe that there are times it is important to write an epitaph to honor what was tried and lost. The remains of Fidelity will re-open on Monday as part of The Huntington National Bank. It’s likely one of the better bargains that’s come on the market this year.

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Robert Teitelman: A Sermonette on Prediction and Its Discontents

March 29, 2012

In the Financial Times yesterday, Stein Ringen, a professor of sociology at Oxford, takes a lash to forecasting-happy economists , this time over the eurozone. Ringen believes economists “with remarkable unanimity” got it wrong, while “against the storm stood a remarkable woman, Angela Merkel, insisting no quick fix was available.” (Ringen is a little promiscuous with his “remarkables.”) He then goes on to decry, or perhaps defame, economists as a class, suggesting that some pent-up academic score-settling is going on: “They fell victim to an exaggerated confidence in themselves. Most of us in the social sciences are aware of our limitations. Economists, for their sins, have worked themselves into a frenzy about being ‘scientific.’ Overconfidence leads to hubris.” Now let us confess, this kind of attack does get the schadenfreude agitated. Many economists, perhaps even the mainstream of economists, do have sins to bear, like just about everyone else gathered around the bonfire of the financial crisis. I have complained about them regularly. Their belief in the underlying “science” of economics has led them astray, as a new and so-far provocative book by Harvard’s Jonathan Schlefer, The Assumptions Economists Make , points out (a review will follow once I get the time). They have proved, over many years and many crises, to be lousy (meaning just as fallible as everyone else) forecasting either markets or macroeconomies. When they are right, they are declared to be seers, until they get things wrong. They also demand — and are often enough afforded — a deep expertise into the political economy. Many of them trade off their technical skills and professional résumés to speak broadly about areas well beyond their expertise. Generally, they employ their rudimentary models, driven by their mostly financial — and thus quantitative — incentives to analyze, predict and shape the political economy. They are more like sociologists than physicists. That said, Ringen may significantly overstate their advocacy role in the eurozone crisis (and their unanimity) and may well exaggerate Merkel’s salvational policies as well. I use the chickenhearted “may” because no one really knows; I certainly don’t. Ringen, in fact, is indulging in the same error as economists: To criticize their penchant for certainty and prediction, he indulges in both himself. He assumes that the Merkel-led policies on Greece and the eurozone are both wise and effective. Despite a few caveats tossed in at the end of his column (“Europe is still in deep economic trouble”), he insists that “Europe’s leading politicians have performed admirably. They have done their job by staying levelheaded and trusting themselves. One lesson is clear: beware the experts who come bearing advice… and in particular economic experts.” But is the eurozone crisis really and truly over? Could Greece blow up? Could austerity drive Greek politics to greater extremes? Could Italy or Spain reject the enforced technocratic solutions to their woes? Could the markets, still fragile, drive up the price of sovereign debt again and put serious pressure on the European Central Bank and the various rescue mechanisms? And what about the seriously hobbled banks? How can anyone be confident that they know the European future? Can anyone know any future? Moreover, Ringen’s dichotomy between economists and politicians (he moves from Merkel to “politicians”) is far too simple and sharply drawn. The eurozone technocracy is a mix of both. Mario Monti in Italy is an economist, a technocrat and, now, a politician. Jean-Claude Trichet and Mario Draghi at the ECB and Dominique Strauss-Kahn and Christine Lagarde at the International Monetary Fund are both high-level technocrats and veteran politicians. Merkel herself is surrounded by economists and bankers as advisers; look at the gang from the Bundesbank. To draw conclusions about “economists” by reading the predictions of economists in the media is not to recognize how the demands of punditry tend to be self-selecting, exaggerated and often inflammatory. That said, it’s hardly unanimous. The FT alone, which provides a steady diet of eurozone commentary, has featured a wide array of solutions and schemes and views, including Ringen himself — so much it was often bewildering, particularly from an American perspective. Ringen’s column does provide a lesson in how difficult it is to resist the allure of prediction and the appeal of the simple dichotomy. That makes him just like the economists he decries. Robert Teitelman is editor in chief of The Deal magazine.

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Mark Hillary: Your Life Is Social, Why Isn’t Your Company?

March 29, 2012

Do you remember when social media really arrived about half a decade ago? It was feared by enterprises. Managers banned Facebook access at work to prevent the scourge of employees wasting the day away on Farmville in much the same way we had to promise to not make personal calls from our desk phone back in the eighties. These thoughts returned to me when I read an interesting document titled ” Top 10 Corporate Social Media Predictions for 2012 ,” published by the Useful Social Media group — an advisory firm. They picked ten executives responsible for social media strategy within their company and asked them what would be the most important change in 2012. Take a look at the prediction of Jen McClure , the director of social media at news organization Thomson Reuters: The term “social business” will become more ubiquitous as organizations of all types and sizes start to think of social technologies more strategically as business tools, not just marketing channels. And then it will eventually become a meaningless phrase as we come to realize that all business is, at its core, social. This is a complete about turn. Now executives are telling us that companies need to become more social. Of course there is a precedent for this, like the telephone calls, then email access, then the company mobile phone. New technologies are always seen as damaging to the enterprise, but end up being adopted as essential. McClure is arguing that social media is going to fundamentally change companies and how they operate. Forget about social media being just a tool for PR or marketing or community building — it is changing every part of the enterprise, root and branch. If you don’t believe me, take a look at your personal life. You probably have an online diary, address book and news feed with information on current affairs as well as what your friends are up to. Let’s just call it Facebook. But whether it is Facebook or not, you have tools easily available that let you talk without cost to your family overseas, to find out which friends of your friends went to the same university as you, to find out which of your friends is around in New York when you are visiting. This is taken for granted in your personal life. So your own life really is social and connected, yet most companies still languish with CRM systems that cost millions and have never really worked. Imagine if you had the same level of knowledge about your colleagues at work, and your customers, as you have about your friends online. Companies are just collections of people, with various skills, all attempting to pull in the same direction. Companies are social, yet we often use better tools to organize our social life than to organize how we work. McClure from Thomson Reuters is absolutely correct, business is not “going social” because of social media tools; it already is social, we just need to learn how work more effectively with the tools around us.

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