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CNN Host Talks New Show, GOP Candidates

by Rebecca Shapiro on January 10, 2012

Huffington Post…

Hosting a cable news show could be considered a taxing job in and of itself. For CNN’s Ali Velshi, it only takes up one of the 24 hours available to him in a given day. As CNN’s chief business correspondent, Velshi has been tapped to wear multiple hats for the network. His latest role? Hosting CNN International’s daily one-hour program, “World Business Today.” That’s in addition to his already demanding schedule at CNN’s American branch, where he reports every day and hosts “Your Money” on the weekends. Velshi served as an interim host for CNN’s former morning show, “American Morning,” before the network announced it would be dismantling the show at the end of 2011. CNN’s morning show ratings had been floundering for months, falling behind MSNBC’s “Morning Joe,” and Fox News’ dominent morning program, “Fox and Friends.” While Velshi served as co-host, the network decided to bring back former “American Morning” anchor Soledad O’Brien, and completely overhaul its morning programming. Velshi was given the CNN International show instead. In an interview with The Huffington Post, Velshi said that his new show has awarded him “a lot of real estate” across CNN’s platforms. In addition to the U.S., Velshi will now reach prime time audiences in India, China, and Japan. But while Velshi can boast a broader reach among CNN’s worldwide audiences, there’s still an elephant in the room: CNN International is not as high profile as the network’s American wing, and a morning slot is a coveted one at most networks. So does Velshi’s new role really work better for him? “I’m always game…If they need to fill a spot for a little while, I’m happy to do it,” Velshi said. “I didn’t dislike doing ‘American Morning’. I really enjoyed it, but this is probably more suited to the kind of personality I am.” While acknowledging that the schedule was challenging, he described his new gig as a dream situation for a business journalist. Velshi said he has the opportunity to go from discussing global financial issues in the morning on CNN International, to dealing with economic questions related to the 2012 presidential election during prime time. When asked which of the GOP candidates most effectively communicated international business issues to voters, Velshi had some surprising words about Jon Huntsmen. Velshi called his economic plan “the most solid,” and gave it a fair amount of praise. “Just evaluating [candidates] on their understanding of economics and globalization…Jon Huntsman has the greatest rap,” Velshi said, highlighting the candidate’s connection to China . Huntsman’s plan “has been evaluated…and endorsed by a lot of people.” Unfortunately for Huntsman, Velshi added that the candidate’s plan consists of “fairly sophisticated economic ideas, and that doesn’t make for good campaign signs or television ads.” While he follows the economic proposals set forth by the candidates, Velshi said his job was to point out when those plans contain false promises. Velshi said that both Democrat and Republican candidates are guilty of making claims about economic reform that are not grounded in reality. “I get frustrated by some of the things that candidates say when they’re running, but I think we’re all smart enough to know…that candidates say things while they’re running [for office] that won’t actually come to fruition. I wish they didn’t, but that’s part of my job at CNN – to continually point out, ‘This is not feasible. It’s not partisan, it’s just not feasible.’”

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CNN Host Talks New Show, GOP Candidates

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The Top 10 Franchises Of The Year

by The Huffington Post on December 16, 2011

Huffington Post…

Despite the fact that we’re still riding the economic roller coaster, franchises continue to see impressive growth. Though the mainstays like McDonald’s are still holding strong, young, innovative businesses are posing a challenge to typical operations. Every year, Entrepreneur sets out to rank the top franchises in the U.S. in its Franchise 500. While this year’s top 10 contains many familiar faces, including a repeat winner in the number-one spot, a growing number of new ideas and business models staked their claim on the ranking. With 13,725 new units added and a 16 percent growth over last year, it’s clear that the appeal of franchising still looms large for franchisors and franchisees alike. Here’s a look at this year’s Franchise 500 Top 10 ranking. Check out the complete list here .

Excerpt from:
The Top 10 Franchises Of The Year

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‘Supply Is Down, So Prices Are Up’

December 12, 2011

This article comes to us courtesy of California Watch . By Michael Montgomery A crackdown by federal prosecutors is casting a long shadow over the state’s marijuana industry, but there is one bright spot, at least for some Northern California growers willing to risk prison time: Wholesale prices appear to be on the rise. After slumping precipitously, prices for a pound of high-grade, outdoor-grown marijuana are stabilizing and in some areas are up between 20 and 40 percent, according to interviews with growers, law enforcement agents and analysts. “It’s been a downward thrust since 1996, but this year, prices have been up,” said Kym Kemp, a Humboldt-based blogger who closely follows Northern California’s marijuana scene. “People are saying, ‘Maybe this isn’t our last season,’ ” she said. “I don’t think people are ready to be optimistic, but they’re less depressed.” In recent years, California’s booming medical marijuana industry attracted a rush of new players who harvested increasingly large amounts of pot – for storefront dispensaries and the black market. Some longtime operators responded by also “growing big.” Surging production pushed down prices for some strains to less than $1,000 per pound. This led more growers to illegally ship their marijuana out of state, where they can double or triple their profits. But this year, production levels have dropped, in part because of rainy weather and a “bumper crop of mold,” said medical marijuana grower and activist Charley Custer. “It was a perfect storm,” he said. It wasn’t just the weather. Stepped-up enforcement actions by local and federal law enforcement led some growers to lay low and reduce their plant counts to double digits. “Some growers decided to keep it small this year,” said Dale Gieringer, state director for the National Organization for the Reform of Marijuana Laws. With marijuana supplies under pressure, prices responded as they would with any other commodity. Since the fall harvest, Northern California growers have seen prices jump to between $2,000 and $2,500 per pound for “good-quality” marijuana, according to Kemp. Law enforcement agencies say it’s too early to get a clear read on this year’s harvest. “Marijuana remains readily available in California, and we have not noticed a substantial change in prices,” said Casey McEnry of the Drug Enforcement Administration’s San Francisco office. But data collected by local law enforcement and a federally funded drug task force indicate street prices have nearly doubled in some parts of the state. “Supply is down, so prices are up,” said Tommy LaNier, director of the White House-funded National Marijuana Initiative. LaNier credited the shift in prices to new law enforcement tactics, including the use of more informants, undercover agents and wiretaps and an aggressive effort to intercept marijuana being shipped in vehicles and through commercial carriers like FedEx and UPS. He also said recent actions by the state’s four U.S. attorneys have shaken the marijuana industry. “The market is significantly disrupted,” he said. LaNier said creating market disruptions has been a top priority for law enforcement because it could make marijuana less affordable for minors. But law enforcement agencies are not the only groups welcoming the changes. Black market growers say rising prices mean a return to higher profits. “This is a relief, since my margins were getting very thin,” said one Bay Area grower, who asked that his name be withheld because he is operating outside of state medical marijuana laws. Because of the profit margins, he said he had given up trying to sell his product in California. Instead, he’s been delivering it to the East Coast concealed in private vehicles. The grower said he might return to the California market if prices continue to rise. “I’d rather not take the extra risk of shipping out of state,” he said. But Tim Blake, a Mendocino-based medical marijuana grower, activist and impresario, said it is an outrage that illegal growers stand to benefit from the federal crackdown while medical marijuana operators are the targets of raids and forfeitures. “Prices are going up, but the people who will cash in are the men hiding in the mountains,” he said. “If this continues, the people who are trying to follow medical marijuana laws won’t get anything because they’ll be out of business, thanks to the feds.” Michael Montgomery is an investigative reporter for California Watch, a project of the non-profit Center for Investigative Reporting. Find more California Watch stories here .

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Jared Bernstein: Understanding Where the Occupy Folks Are Coming From

November 30, 2011

I’m compelled to write a bunch about inequality. What are the facts of the case (my CBPP colleagues are doing great stuff on this that I want to promote)? Why has it gone up so much? Why does it matter? Where is it headed? Why so much interest in it right now? Is it a political force? So let’s start with facts of the case. If you want to quickly and efficiently get up to speed on the income inequality story in the US — and who doesn’t? — read this from my CBPP colleagues. It takes you pretty far into the weeds on data sources and the like, but this is one of those economic issues where the sources matter a great deal. Series that fail to include realized capital gains, for example, will miss important dynamics going on in the upper tail of the income scale. Here’s their summary of the broad trends: The years from the end of World War II into the 1970s were ones of substantial economic growth and broadly shared prosperity. Incomes grew rapidly and at roughly the same rate up and down the income ladder, roughly doubling in inflation-adjusted terms between the late 1940s and early 1970s. The income gap between those high up the income ladder and those on the middle and lower rungs — while substantial — did not change much during this period. Beginning in the 1970s, economic growth slowed and the income gap widened. Income growth for households in the middle and lower parts of the distribution slowed sharply, while incomes at the top continued to grow strongly. The concentration of income at the very top of the distribution rose to levels last seen more than 80 years ago (during the “Roaring Twenties”). Wealth (the value of a household’s property and financial assets net of the value of its debts) is much more highly concentrated than income, although the wealth data do not show a dramatic increase in concentration at the very top the way the income data do. This picture from recent CBO data, which are among the best for understanding the trend in income inequality over the past few decades, is quite revealing of where the Occupy folks are coming from with the 99/1 framing. One thing to note here is the large decline in gains to the top 1% after the dot.com bust. That’s a function of the decline in asset values which led to large capital losses for high-end households. The CBO data end in 2007 but you can be sure the top took another hit with the bursting of the housing bubble and the ensuing financial meltdown. In fact, IRS data, which go through 2009, show the share of adjusted gross income going to the top 1% to have fallen sharply in 2008 and 2009, from around 23% in 2007 to 17% in 2009. But that’s expected. The question is whether it’s cyclical or structural and the answer is that it’s almost certainly the former. Note the huge bounce back in the growth of top incomes once the economy recovered. Since the underlying forces generating the increasingly unequal distribution of growth remained in place, there was no reason to expect a structural downshift (more on those forces in later posts, but here’s an earlier post that gets into that material). What does the future hold in this regard? Will inequality, as measured by the share going to the top 1%, start climbing again soon? I’m quite certain it will as the forces stoking its growth remain in place. One way to test this hypothesis is to look at the correlation between the growth at the top of the income scale and corporate profits, for which we have data through 2010, and which have fully regained their stellar pre-recession peak. The figure shows the result of a simple model regressing the CBO top 1% series on corporate profits (as a share of income) and a time trend (other than the time trend, I use the changes in the variables). It’s a simplistic model — nothing you’d want to take home to your parents — just “blogometrics.” But what we’re looking for here is whether the forecasted series (in red) ticks up in 2010… and there it is. The forces driving inequality in America remain, unfortunately, alive and well. This post originally appeared at Jared Bernstein’s On The Economy blog.

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Adam Levin: Zero Sum Game: The Black Box of the Congressional Budget Process

August 19, 2011

So, how do you do your household budgeting? Millions of us use QuickBooks or some variation thereof. For those who are technologically challenged (I was for years), yellow pads, composition books, copy paper, accounting journals, even index cards, are the medium of choice. However different their materials may be, most consumers who keep a household budget without the aid of an accountant or bookkeeper use pretty much the same method. As a rule, even accountants and bookkeepers use the same method as those who scribble on scraps of paper. We call it household budgeting — a simple, straightforward name for a simple, straightforward, sometimes painful process. Number crunchers, however, simply can’t resist giving things like this a much more complicated-sounding name. According to them, your household engages in what is now called “zero-based budgeting.” Simply put, you start at zero and go from there. If cash gets tight, you might reduce your line item for baseball game tickets from $1000 a year to only $500 or from $100 a month to $30. You can also add or eliminate line items with a simple stroke of the pen — maybe you can’t afford baseball tickets at all. Regardless of what you decide to do, one thing is certain — if you spent $1,000 on tickets last year and $1,000 again this year you didn’t cut your spending. You also intuitively recognize that budgeting and spending is only meaningful across certain time periods. If you budget ahead, as you should, you might have budgeted $1,000 for tickets next year. But you wouldn’t have budgeted, under any circumstances, $1000 for baseball tickets in 2016. Why? Because you’re smart enough to recognize that there are too many unknowns. In five years, your 10-year-old might be bored with baseball; maybe there will be a strike in 2016 (it seems like every minute players in some league are walking out and owners are locking them out); maybe — no, certainly — ticket prices will have changed by then. And, of course, it’s in the back of your mind that you might be making less money in 2016, though perhaps you’ll be making a lot more. Heck, maybe you’ll win the lottery . All of this makes sense, doesn’t it? Unfortunately the way you, and most members of the human race think about money — the way that corporations, even very large ones, think about money — is NOT the way the United States government thinks about money (i.e., your money). The federal government uses “baseline budgeting,” as mandated by the Congressional Budget Act of 1974. Here is how baseline budgeting is defined in current law: “For any budget year, the baseline refers to a projection of current-year levels of new budget authority, outlays, revenues, and the surplus or deficit into the budget year and the out-years based on laws enacted through the applicable date.” And you thought credit card and mortgage contracts were indecipherable ? Here’s what that means in plain English. Each year, instead of starting at zero, the government begins budgeting based on what they spend the previous year, with projected increases over time. Therefore, there’s no place to go but up. And here’s the real kicker: originally, the mandate was to use baseline budgeting for a projected period of five years, but soon after the passage of the 1974 Act, that legislatively-mandated period was extended to a 10-year projection. This is voodoo economics at its best: the Congressional Budget Office “CBO” baseline projects a spending increase for the federal government of approximately $9.5 trillion over the next 10 years. Thus, through the magic of baseline budgeting, an increase in federal expenditures of only $7.5 trillion over the same period would be characterized as a budget CUT of $2 trillion! That’s right, in 2021, even if we were spending $7.5 trillion more than we are today, we would all be celebrating the “significant” budget cuts that were made in 2011. A “non-cut” cut! What would happen if you ran your household budget that way? It would mean that if you spent $1,000 on baseball tickets this year, you’d assume that the next year you’d spend maybe $1,100, regardless of your financial situation. And, if you decided to only spend $1,075 the next, you could pat yourself on the back for “cutting” your budget. Except we all know that in reality, you’re actually spending more than the previous year. That’s insane, right? Perhaps worse than the impact of baseline budgeting is the period of 10 years that is the current vernacular of budget-speak. Ask any business person you know how far out he or she projects revenue and expenses. I asked two good friends of mine, one of whom had been the founder and CEO of a New York Stock Exchange listed company and other had been the President of a sizable regional bank (that was gobbled up by a larger institution that was inhaled by yet a larger institution that was swallowed by an even larger institution that bought an equally large institution and changed its name during the heyday of the bank consolidation craze and then collapsed during the great financial ‘Smores melt of 2008). The question was whether or not they found 10-year projections to be at all useful in running their businesses. They both just laughed; so should you — unless it makes you cry. Even Mao didn’t have the cheek to plan his economy more than five years ahead. Here’s something else that you probably don’t know, and neither did I until very recently: according to the Harvard Law School budget policy seminar , ten-year baseline projections are not intended to be precise. In fact, they can’t be … because baseline budgets are projections and actual budgets change every year. As is intuitively obvious, baseline budgeting itself assumes that everything is OK, and thus no major restructuring is required. So what should we assume when we hear politicians from both sides of the aisle bloviating about historic cuts or necessary revenue increases? Everyone who talks about a cut is talking about a cut that might happen over the next 10 years, assuming we have no financially devastating terrorist attacks, mortgage crises or failing governments in Europe. And of course it’s not really a reduction in absolute terms. It’s only less than the growth in expenditures required by the baseline analysis. What I assume is that all of this rigmarole will have the effect — I hope not an intended effect — of making certain that most voters don’t really understand what the hell is going on in Washington when it comes to money. Obviously, the federal budget and the CBO budgeting procedures are complex subjects. No doubt, any brief discussion of them is inherently unfair. Nonetheless, I firmly believe that baseline budgeting and ten-year projections need to go the way of the eight track tape deck before we can understand, much less solve, the really pressing issues created by budget deficits and credit downgrades. It’s a complicated problem. The current federal budget is 2,403 pages long. I understand that we live in a big, complicated country, with lots of obligations, but that’s only slightly shorter than the latest Webster’s Unabridged Dictionary , which is 2,783 pages and contains almost every English word ever spoken.  Thankfully, the budget is quite a bit shorter than the U.S. tax code, which is currently clocking in at about 70,000 pages. Paddy Chayefsky said it best in his brilliant script for the movie Network . Like the ones most of us remember, these words too are spoken by Peter Finch playing Howard Beale , a once-respected network news anchor: “I don’t have to tell you things are bad. Everybody knows things are bad. It’s a Depression. Everybody’s out of work or scared of losing their job. The dollar buys a nickel’s worth, banks are going bust…We know things are bad— worse than bad. They’re crazy. ” That was written in 1974. This article originally appeared on Credit.com .

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Jeanne Kelly: Train to Win

August 15, 2011

Last night I went to the ball game! I happen to love sports and I especially love when I can go to a Yankee game. I’m a big fan… and you know that I am a big fan because it was raining last night. I was completely soaked walking to stadium, but I did not care. I didn’t care because honestly, as soon as I know I am going to a game, I start getting excited. So let’s think about how hard these ball players train all year to be the very best that they can be for each and every game. They have coaches to keep them focused and on top of the plays. Then on the day of the game, they play to win. Well, in my opinion, even the best of the best can lose a game. You do leave feeling kind of disappointed but sometimes it happens, right? Well, I thought about how that relates to your credit. I know most of my followers really do work hard all year on making sure that they keep their credit as healthy as possible. However, sometimes even when we try our best, times are still hard. It could be a loss of income, a divorce, or maybe you moved and forgot a bill. I know that even with all the hard work and effort you put into something, we too can lose at the credit game. If that happens to you, just remember that it does not mean that your credit is ruined forever. Just like the Yankees, you will have another game to win. You will have another month to get back on credit track. As time goes by, that negative information will not damage you as much as in the moment. When you lose at something, it does not feel good immediately, but with time, it starts to get a little better. The same happens with your credit. I want you to always stay on top of the game, do your best and be wise about your credit. Win at the credit game by following me and my tips. If you happen to also be a Yankee fan and see me at a game, give me a high five and maybe I can even give you a credit tip to help you win at your own credit game.

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Dems: Boehner Once Backed A Debt Plan Similar To Reid’s Proposal

July 25, 2011

WASHINGTON — House Speaker John Boehner (R-Ohio) backed a debt limit plan in the spring that sounds very much like a deal Senate Majority Leader Harry Reid will propose Monday, Democrats are pointing out. Reid (D-Nev.) is set to unveil a proposal that would cut $2.7 trillion in spending — without raising taxes — in an afternoon press conference. That sounds very much like the requirements Boehner laid out in a major speech to the Economic Club of New York on May 9. “Let me be as clear as I can,” Boehner said, as he acknowledged that many in the audience of bankers and financiers were uncomfortable with the idea of even flirting with a default on the U.S. debt. “Without significant spending cuts and reforms to reduce our debt, there will be no debt limit increase. And the cuts should be greater than the accompanying increase in debt authority the president is given,” Boehner said. “We should be talking about cuts of trillions, not just billions.” “They should be actual cuts and program reforms, not broad deficit or debt targets that punt the tough questions to the future,” he said. “And with the exception of tax hikes — which will destroy jobs — everything is on the table. That includes honest conversations about how best to preserve Medicare.” Reid’s plan may include cuts to Medicare providers , but it would spare beneficiaries. And with $2.7 in cuts, it exceeds the $2.4 trillion debt ceiling hike President Obama is seeking. But just because Boehner has backed something that sounds similar to the Reid plan before, there’s no guarantee that will back it again. Republicans have repeatedly rejected Democratic proposals over the course of the debt talks, even when they have backed the ideas behind them in the recent past. Indeed, Boehner has already signaled that he will oppose Reid’s plan , and he is slated to put forth a new proposal of his own on Monday afternoon. His plan puts the “Cut, Cap and Balance” proposal, which includes a balanced budget amendment to the U.S. Constitution, back on the table, even though it was rejected by the Senate last week . Watch Boehner’s May 9 speech here:

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Obama Accused Of Using ‘Human Shields’ In Debt ‘Bluff’

July 15, 2011

WASHINGTON — President Obama is “bluffing” about the impacts of a debt default and holding troops and the elderly as “human shields” in the deadlock over raising the nation’s borrowing limit, Republicans charged Friday. The group of conservatives were touting a piece of legislation that would tell the White House how to prioritize spending if credit were to get cut off. The spending recommendation starts with paying interest on the debt, then funds military personnel, national security priorities and finally Social Security and Medicare. According to the lawmakers, after those priorities were funded, about $30 billion per month would be left over for the president to deal with other responsibilities — putting the lie to Obama’s warning that Social Security checks might not go out after Aug. 2 . “As he stated himself, he’s bluffing,” said Rep. Joe Wilson (R-S.C.) “He told Eric Cantor, ‘ Don’t call my bluff .’ The president is admitting he’s bluffing, but it’s not right. His bluffing consists of threatening senior citizens, threatening disabled veterans.” “I truly believe that this president is completely out of touch with reality when it comes to the grave circumstances that we face in our economy,” added Rep. Trent Franks (R-Ariz.). “I am convinced that he is willing to use our senior citizens and our soldiers as human shields, as it were, to continue this spending binge that could ultimately destroy our country.” The bill’s author, Rep. Daniel Webster (R-Fla.), said the measure was not a first choice, but would help ensure the GOP gets the spending cuts it is seeking in debt ceiling negotiations. “This is a backstop,” Webster said. “We’re not saying it’s our favorite piece of legislation as far as the future, but we want spending cuts; we’ve got to have them.” Treasury Secretary Tim Geithner has warned that without a raise to the debt ceiling, the country will no longer be able to borrow beginning on Aug. 2. The GOP legislators’ idea seems simple enough: In the event the debt ceiling is reached, the government should shield its most vital expenditures and let the president figure out how to deal with the rest. But a recent independent analysis shows there is no way for the government to stop borrowing without cutting spending to significant programs. “After Aug. 2, there is a near certainty the federal government will run short of cash and be unable to pay approximately half its bills, other than interest,” said Jay Powell, a scholar at the Bipartisan Policy Center, who analyzed what the government would have to slash if the administration were to continue to pay interest on bonds. The numbers are stark. According to the analysis, which relies on Treasury Department reports, the government would face $307 billion in expenses for the remainder of August, but would only have about $172 billion to spend. That leaves a shortfall of just over $134 billion. If the debt interest were paid, a 50 percent cut to the rest of the budget would result. So what programs would go begging? As the GOP legislation suggests, the Treasury Department has no guidance from Congress on how to prioritize its 80 million-odd payments that are due next month. According to a recent Congressional Research Service report , some experts think the administration has the power to prioritize. But the report also found Treasury officials believe that without legislation from Congress, they must pay the bills in the order they get them, and wait-list what can’t be afforded. That first-come, first-serve scenario is likely what prompted Obama to warn there’s no guarantee Social Security checks will go out on Aug. 3 if the debt ceiling isn’t raised. But even assuming the GOP legislation passes, the math of the budget predicts an extremely ugly bottom line. For instance, about $29 billion will be needed in August to pay interest on bonds and avoid a bond default. After that, Social Security benefits are expected to cost about $49 billion, with Medicare ringing up about $50 billion. If military salaries ($2.9 billion), veteran benefits ($2.9 billion) and contracts for all the vendors that support the military ($32 billion) are also paid, there would be very little money left. “You can’t cut 50 percent without cutting a lot of important and proper programs,” Powell said, pointing to the FBI and Bureau of Prisons as examples of programs that could receive de facto cuts. Despite the GOP representatives’ desire to prioritize, there appear to be few easy cuts. “Even the ones that might appear to be soft targets are really not that soft,” Powell said, pointing to a popular conservative target: the Department of Education. “People think, ‘Oh the Department of Education, let’s shut that down.’ But what’s in that is special ed programs,” Powell said. “That’s several billion dollars that go to states during August. The schools are going to open in September. This is assistance for special ed students. What happens there? Do they not go to school?” The Bipartisan Policy Center also looked at a scenario that preserved not just Social Security, as the GOP has been demanding, but most of the popular safety net and education programs. If those programs were all funded, Powell said, “the problem with that is you haven’t paid one dollar — not a dollar — for defense. You’ve got all these people in uniform you can’t pay any money.” Another problem with trying to pick and choose which programs to fund — something administration officials seem to have considered — is whether the Treasury Department, even with legislation, has the legal authority. Many legal scholars believe such an action would be tantamount to a back-door line-item veto, and therefore be deemed unconstitutional. “The precedent here is the case called Clinton vs. City of New York ,” said UCLA constitutional law professor Jonathan Zasloff, referring to the successful 1997 challenge of a line-item veto law passed by Congress. “Congress passes a piece of legislation and the president knocks certain things out of the budget,” Zasloff said, explaining the case. “The Supreme Court holds 6-3 that that’s a violation of separation of powers, because only Congress can spend money — the president can’t — and so the president cannot pick and choose among expenditures that he’s given by Congress.” Webster denied the Clinton decision related to his proposed legislation. Though he had earlier specified that his proposed legislation would leave the president with $30 billion left over to spend as he saw fit, Webster said the legislation did “not necessarily” give the president the power to make decisions about spending. “This has nothing to do with the line-item veto — that would be a power of the president,” Webster said. “We have the purse strings and we can pass what we will.”

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Recovery Derailed: June Jobs Report Stokes Fears Of Return To Recession

July 8, 2011

This story was reported in collaboration with our partners at Patch.com Two years after the official end of the Great Recession, much of the country has yet to feel a sense of meaningful recovery. Friday’s unexpectedly grim government report on the state of the American job market deepened fears that genuine economic revival could yet be a long way off. Economists had anticipated the report would show about 120,000 private sector jobs added to the economy in June — barely enough to keep pace with population growth. Instead, the gain was a paltry 18,000 net jobs, as the unemployment rate climbed from 9.1 percent to 9.2 percent. The report was so uniformly discouraging that it dislodged optimism that recent expansion in manufacturing and a modest rise in housing prices might presage the return of vigorous economic growth. Instead, negative sentiments that have hovered over the economy for more than three years intensified. “The signs of growth that we did have are deteriorating,” said Heidi Shierholz, an economist at the Economic Policy Institute in Washington. “We are backsliding. The chances are that we go into another recession or we muddle along at technical growth, but actually making no improvements as far as Main Street goes. The chance of one of those things happening is extremely high.” Across much of the United States, ordinary people expressed similarly gloomy thoughts — the Labor Department report merely provided official affirmation to the reality that jobs are scarce. “I’ve had nightmares about my family living on the street,” said Said Nasser , a 40-year-old father of five in Dearborn, Mich., who has been without work since early 2009, when he lost his job as a recruiter for a temporary employment firm that folded. “It feels bad not to be working, because it’s hard on my family, and I feel like it’s been really stressful for them, too. My wife has also looked for work and she hasn’t been able to find anything either. I’m praying every day that something comes up.” In Doswell, Va., about an hour’s drive north of Richmond, N. David Cooper, 56, has been losing hope he will ever regain his former middle class life. He has been out of work for more than a year. He expressed dismay that job creation seems to be a low priority among the political set. “I feel washed out from the statistics, in terms of not being heard,” he said, “in terms of the energy that it has taken for me to keep trying to find work. I don’t feel like I’m even on the radar screen in Washington.” Only two years ago, Cooper spent part of his day helping other people find their way: He served as the executive director of a faith-based non-profit agency that delivered job training and housing programs, a position that paid more than $60,000 a year. Even after he lost his job in late 2009, in the midst of the recession, Cooper felt confident that he would quickly find another. He holds multiple degrees — a Master’s in divinity and social work, and a graduate certificate in non-profit management. He had access to a large network of colleagues. In nearly three decades of working life, he had been laid off only once, in 1997, and had quickly found his way back to the ranks of the employed. But even after submitting 273 job applications, by his count, and despite embracing networking as a full-time vocation, Cooper remains unemployed. He and his wife have cut back on all luxury expenses. They never go out to eat, he says, and he worries that they may soon need to rely on food stamps. He is contemplating swallowing his pride and shelving his dream of doing work he finds meaningful to apply for a position at a nearby restaurant. “We’re at the point now where my unemployment benefits are going to expire,” he said. “I just don’t see any other options.” Friday’s jobs report underscored Cooper’s feeling that few fresh employment options appear on the way. Employers have apparently become so accustomed to running companies with lean payrolls, that the practice has become entrenched in American business — particularly amid data showing that consumers remain saturated with debt and unwilling to spend. “Today, companies are producing more goods and services than ever before,” said Bernard Baumohl, chief global economist at The Economic Outlook Group, a forecasting and research firm. “The economy is able to do that with 7 million fewer workers. If we can do so much with so much less, where is the incentive to hire?” Given that many employers have fresh memories of having to lay people off, some are reluctant to hire anew, for fear they would again have to cut people loose if the economy failed to improve. “They’re being cautious about their hiring,” said Claire Louder, president and chief executive of the West Anne Arundel County Chamber of Commerce in Odenton, Md., a suburb perched between Washington, D.C., and Baltimore. She added that many companies now feel the need to sit on larger amounts of cash because credit lines and loans are hard to secure, sidelining money that might have been used to hire workers. That spells little relief for the 6.3 million Americans who have officially been out of work for six months or longer, and for whom gloomy outlooks are becoming the new normal. The average duration of unemployment reached 39.9 weeks in June, a new record. At the same time, growing numbers of would-be employees have been giving up, joining the ranks of so-called discouraged workers. In Long Branch, N.J., Rob Attanasio has been looking for a job in Web design to replace the job he lost more than a year ago. “I send out 50 to 60 resumes a week,” he said. “Nobody ever gets back to you.” Companies are “putting jobs out there,” he added, “but they are not hiring.” Even those who remain employed have been absorbing the troubling economic realities and wondering how long they can hang on to their paychecks. A new survey from Glassdoor.com — an online career and workplace community — finds that employees are now as pessimistic about their prospects of gaining raises and as worried about losing their jobs as they were during 2008 and 2009, the worst years of the recession. “The American employee has been shaken up pretty badly in the last couple of the years,” said Rusty Rueff, a Glassdoor career and workplace expert. “What we’re seeing here is a sort of settling into the reality of where things are — maybe not holding out as much hope as they once held out that there’s going to be a big recovery, and all of it is going to come back. Instead, people are looking around and saying, ‘Maybe this is going to be what it’s going to be.’” In recent weeks, some economists have expressed tempered hopes that things were getting better. Manufacturing picked up in June for the first time in four months, and fresh data showed a glimmer of hope for the housing market, with home prices in major cities rising for the first time in eight months. New claims for unemployment benefits declined, gas prices fell, and auto makers cranked up production. But other forces have continued to be a drag on the economy. A massive pipeline of foreclosed homes awaits processing, meaning lots of additional distressed inventory eventually landing on the housing market. Fears of a Greek debt default persist, along with concerns that a slowdown in Chinese growth could ripple across the globe. These factors increase economists’ concerns that weak employment could be a trend with staying power. If businesses aren’t hiring and employees are worried, that weighs on the overall economy: Consumer spending makes up some 70 percent of American economic activity, but amid tighter credit conditions, people need wages to spend money. Friday’s jobs report did not to assuage concerns that a long period of stagnation could be at hand. “I have had more emotional and psychological ups and downs than I want to count,” said Fran Hopkins, a resident of Cedar Grove, N.J., who has been out of work for a year and a half (and who writes a blog for the Maplewood Patch ). “Your hope soars when you snag a job interview; then it’s dashed when there’s no job offer. Repeat this over and over again and you start to feel like it’s better not to get your hopes up.” Queens, N.Y., residents Marie Kadin and MaryAnn Minore were both laid off from a DHL distribution center in April, and now struggle to compete against younger workers in the job market. “It’s very hard when you’re over 60,” Kadin said. “Nobody wants us. We’ve just been leaving resumes, that’s it. You get no reply.” “It’s like you’re an outcast,” Minore added. RELATED: Read our full report on Americans who drop out of the labor force.

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Karen Leland: How Vacations Help The Business Brain

July 7, 2011

In exactly 12 days, I will be going away on a 10-day vacation. The thought of this impending time off from the daily in and out of work exhilarates me — and worries me. On the pro side is the anticipation of rest, renewal and relaxation. Weighing in on the negatives are preparing to go in the first place and a heavier workload when I return. “We skip vacations because we worry that the person next to us will get ahead while we’re gone,” says Don Joseph Goewey , author of Mystic Cool: A proven approach to transcend stress, achieve optimal brain function, and maximize your creative intelligence. “Or we’re afraid that the work piling up on our desk will put us so far behind that we’ll never catch up.” As it turns out, however, not going on vacation might be bad for our brains. ” Research shows that constantly being under pressure floods our brain with stress hormones, which then erode the higher brain function we need to sustain peak performance,” says Goewey. “The opposite is also true. Activity in the hippocampus and neocortex centers of the brain (the place where everything we think of as intelligence is generated) increases during periods of wakeful rest, such as breaks during the day, time off during the week or a vacation during the year.” Goewey says that the reward for the time you invest in a vacation is a brain humming with the creative intelligence, common sense and physical energy that will sustain you at the top of your game. David Allen , best-selling author of Making It All Work: Winning at the Game of Work and the Business of Life , is a strong proponent of the power of taking vacations as well. “I think productivity is always enhanced when you have the chance to evaluate your life and work from multiple horizons,” says Allen. “Vacations help you from getting too far down in the weeds and provide an opportunity to refresh and restore.” But despite all expert advice and scientific evidence, a recent survey by the American Express OPEN Small Business Vacation Monitor showed that less than half (46 percent) of small business owners plan to take a vacation this summer — down from a high of 67 percent in 2006 — and 37 percent list a busy work schedule as the culprit. And even for those who do plan on diving in and taking a few days off, 68 percent say they will stay connected to work and check in while on vacation. So this summer, give your brain a break, go forth and vacate. Build up your brain’s higher function, get a perspective on your life, reinvent your career, play some golf, eat an ice cream cone and hike with the kids. It will be good for your well being and, ultimately, your wallet. Be sure to check back next week when I will be doing the second post in this series on taking a vacation with a focus on tips to prepare for, and return from, a vacation with ease. Do you plan on taking a vacation any time soon? I’d would love to hear your comments. This article originally appeared at Xero.com , online accounting software for small business. Karen Leland is a freelance journalist, best-selling author and president of Sterling Marketing Group where she helps businesses negotiate the wired world of today’s media landscape — social and otherwise. For questions or comments, please contact her at kleland@scgtraining.com.

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Michel Kelly-Gagnon: Regulating Advertisement Won’t Make Us Behave

June 25, 2011

Do you trust yourself to make the best decisions in your own interest when it comes to what you eat, what you drink, and all the various products that you buy on the market? If so, you must be deluded. Otherwise, why would the government and various groups of do-gooders want to prevent you from even seeing the name of some products for fear that you may not resist the urge to buy them? That’s the logic supporting the many regulations that exist on products such as cigarettes, alcohol and fast food. True, these products may have some negative side effects, especially when consumed in large quantities. But they are still legal and you can buy them anytime you want. Our nanny state however has decided that it needs to hold our hand and shield our eyes from temptation, because we are too immature to make that decision alone. The zeal of government bureaucrats in imposing these rules sometimes reaches absurd heights. Last year, the Gilles-Villeneuve Museum, located in Berthierville, Quebec, decided to stage a small exhibition of pictures of the late racing champion in Montreal during the Grand Prix. Of course, you could see the name Marlboro on several of those pictures, the cigarette company being one of Villeneuve’s major sponsors in the 1970s. Some inspectors for the provincial department of health and social services visited the exhibition and decided that this was a crime . The museum itself is exempted from article 24.1 of the law on tobacco advertising, but not a private room open to the public in another venue. The government decided a couple of days later not to fine the museum for $2,000 after the news caused uproar in the media. That may be an extreme case, but the trend is clear. In many countries around the world, governments are increasingly likely to regulate the advertising industry. Whether in the name of consumer protection or health concerns, advertising for products that are perfectly legal must conform to ever stricter rules. This worldwide trend was recently highlighted by the head of planning for a well respected ad agency in the British newsweekly the Observer . He predicted that governments, instead of banning the sale of certain products outright, would increasingly turn to prohibiting their advertisement. Along the same lines, a group of American health professionals has just called for the retirement of mascot Ronald McDonald. The same group campaigned against mascot Joe Camel in the 1990s. This insistence on protecting consumers from themselves rests on the belief that advertising actually creates a demand for a product. Regulating or banning advertising is therefore thought of as an effective way to reduce the consumption of those products. People who are committed to “helping” others, with or without their consent, are not inclined to question that belief. For them, it’s simply a moral imperative. But it is still possible to study social behaviour and check if this is scientifically valid. There are certainly good reasons to doubt that advertising is required to create or sustain demand for a product. If this perception were true, the consumption of illegal drugs, for example, would not be so widespread. Similarly, the consumption of alcohol did not decrease substantially during American Prohibition. And how to explain that the legalization of alcohol-related advertising in Saskatchewan in 1983 did not lead to increased consumption ? Or that the banning of beer ads in 1974 in Manitoba did not diminish consumption in that province as compared with Alberta, where advertising remained legal? In a case of a new product such as computer tablets, advertising of course serves to make consumers aware of its existence and to develop a new market. But for the bulk of advertising, which focuses on already established products, it simply does not increase demand. So, you may ask, why do businesses spend so much on advertising? Quite simply to capture the largest possible market share and to steal customers from their competitors. For example, Peter will remain indifferent to a beer ad if he never drinks beer. On the other hand, for a beer drinker like John, it is possible that the ad will lead him to choose one brand over another. There is a large amount of empirical research that shows this to be the case. Advertising informs people about the choices available to them, or about the characteristics of certain products. But when all is said and done, the choice remains the consumer’s. What a company hopes to do when it advertises a product is promote what it can do better than its competitors and establish the best possible brand image. In this game, what one gains, another loses, and total consumption is not affected in the vast majority of cases. There is a lesson here for governments and for those do-gooder lobby groups who want us to behave like proper children. Instead of regulating whole industries, why not give customers the information they need to make what you believe are better choices? If you think advertising is so influential, why not advertise your own theories and values and let free individuals decide for themselves?

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

May 31, 2011

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

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Ian Fletcher: Why Johnny Can’t Innovate: The American Economy’s Most Surprising Deficit

May 28, 2011

I argued in a previous article why, despite America’s current obsession with government budget issues, the real key to bringing back our economy lies in a) fixing our trade deficit and b) restoring our capacity for innovation. Although the former problem has now grabbed significant public attention, most Americans seem to think that our national capacity for innovation is healthy and without problems. After all, we’re the home of Silicon Valley. So things must be going great, right? Unfortunately, no, and for the same reason that, as I explained elsewhere, our manufacturing sector isn’t healthy. While it’s true that there’s an enormous amount of innovation (and manufacturing) going on in this country, “enormous” is not, in and of itself, an adequate quantity. To figure out how much innovation (or manufacturing) is enough for America, the quantity must be measured against how much we need to maintain our living standard . And we are, in reality, falling short in both areas. As long as our manufacturing output is so small that we must run a trade deficit with foreign nations in order to satisfy our consumption desires, we aren’t manufacturing enough . As long as our innovation output is so small that American industry can’t keep pace with its foreign rivals and continues to inexorably surrender market share and technological superiority to them, we aren’t innovating enough. Yes, it’s nice that we have iPhones and other innovative American products. But for our economy to be truly healthy, we would have to be exhibiting that level of innovation in products across the board . Our cars would have to be as innovative as our iPhones. And our consumer electronics. And all the other by-no-means-low-tech products that increasingly aren’t even made in this country. Having a few superstar sectors in our economy simply isn’t enough to deliver the living standard that Americans want. To deliver this, we need an economy in which dozens of major metropolitan areas have the same sheen of prosperity, productivity, innovation and all-round economic sophistication that the San Francisco Bay Area has. That’s the vision to keep in your mind. Detroit as San Francisco. People forget how small Silicon Valley really is. According to the Labor Department, it only employs 225,000 people — in a U.S. economy with a labor force of 238 million . Unfortunately, the media in this country give so much excess attention to it — and the other fancy sectors of our economy, like Hollywood and Wall Street — that people mistakenly think it, and industries like it dominate the U.S. economy. Nice work if you can get it, but they don’t. What would it take to restore innovation to those sectors of the American economy that are deficient in it? The best analysis of this problem I know is by Gregory Tassey, the chief economist of the National Institute of Standards and Technologies, America’s only serious civilian industrial policy agency. In his book The Technology Imperative , and also in his essay , “Rationales and Mechanisms For Revitalizing U.S. Manufacturing R&D Strategies,” he argues that the key problem for U.S. innovation is what he calls the “valley of death” between pure science and commercialization. America remains strong (though in relative decline, compared to other nations) in pure science. We remain good at commercializing discoveries and inventions that can be sold for a profit. But we are weak at the vast area of research that falls between these two extremes. Before a new scientific discovery can reach fruition in actual products sold to customers, it must pass through many stages of research. And, crucially, much of this research cannot itself be turned to profit. But profiting from new discoveries is impossible unless this research is done. Because it is unprofitable, companies won’t, as a rule, engage in enough of this intermediate research. Therefore an economy that relies wholly upon private profit to finance innovation will fall short. This research isn’t academic science either, so don’t expect the professors to fill in. One way to look at this research is to call it useful but unpatentable ideas. Anybody who has ever talked to creative engineers, or patent lawyers, knows that a great many important ideas cannot be patented. Some are more discoveries than inventions. Others are too generic, or too easy to copy. Others consist simply in the painful process of trying and ruling out a hundred ways to implement some new fundamental principle in order to find the one or two ways that have a future. Other ideas are not the sort of things for which patents would be even relevant. In their case, one would ideally capture their value by means of proprietary technologies, first-mover advantage, or other commercial methods. But, for any of a dozen different reasons, one cannot. So if you do this research, somebody else can harvest the profits as easily as you can. The problem is a kind of “tragedy of the commons” applied to ideas. Historically, the only companies that engaged in this sort of research were very large companies with monopoly or quasi-monopoly power over their ultimate product markets: companies like the old AT&T with its Bell Labs, the old IBM with its Watson Laboratory, the old RCA with its Sarnoff Research Center, or the old Xerox with its Palo Alto Research Center. Because of their oligopolistic power, they were assured of a) capturing the value of whatever they discover, rather than having it swiped by a competitor, and b) bringing in enough money, over a long-enough time frame, to pay for expensive laboratories that may take years to produce results. There are still a few companies like this around, but not nearly enough to bridge the valley of death to the extent we need. So government has a legitimate role. This fact, of course, drives laissez-faire ideologues crazy. But it was recognized as far back as founding father Alexander Hamilton, whose Report on Manufactures , submitted to Congress in 1791, was partly about this very topic. (What constitutes high technology changes over time, but technological innovation has been the key to economic growth since the dawn of the industrial revolution.) During the Cold War, hundreds of billions of dollars, from the jet plane to the Internet, went into this sort of research. But because it was justified in terms of national security, not industrial innovation per se , we never really reached a solid understanding of what we was doing. So we never properly institutionalized it as a policy with an economic purpose. As a result, our efforts today in this area are pathetically small. For example, the Federal government’s Manufacturing Extension Partnership maintains a network of centers in every state designed to help American manufacturers adopt innovative technologies. One evaluation found that it generated $1.3 billion a year in cost savings for manufacturers and $6.25 billion in increased or retained sales — all for an annual federal outlay of only $89 million. A single Boeing 747 costs four times that. Another good but underfunded program is the Technology Innovation Program . An audit by the respected National Academy of Sciences vindicated its claim to generate economic benefits far exceeding its cost. One single $5.5 million grant, for example, seeded development of the small disk drive industry, which enabled creation of the iPod, the iPhone, TiVo and the Xbox. TIP’s 2012 projected budget? $75 million. Our rivals are far ahead of us in this game. Germany, where factory wages are now higher, and unemployment lower, than here, spends roughly two billion dollars a year on its Fraunhofer Gesellschaft . They even have a substantial presence in this country, to harvest useful American ideas for commercialization in Germany! To get our economy back on track, we need to stop dreaming that innovation is purely a self-financing private-sector game and start paying for the innovation we need. Either that, or we’re not going to get the economy we want.

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Dove Ad Casts Spotlight On Madison Avenue Racism

May 25, 2011

When people ask Eugene Morris why he left a virtually all-white advertising firm in the early 1970s for an African-American one, he tells them about the time he asked a white higher-up for an overdue raise. “He started telling me about how well-dressed I was,” Morris recalled. “He told me that I had a nice sports car, which I did, and he told me that he knew that I had a very nice apartment. He started naming all these things, these possessions of mine, and he said, ‘Aren’t you making enough money?’ I thought the next thing he was going to say was, ‘Well what more would a ‘mmmm’ want?’” Incidents like these added up, Morris said, and after a while he decided he’d had enough, as did many other young black executives who left the advertising world after an initial surge of racially progressive hiring in the late ’60s and early ’70s. Morris cited this incident recently to illustrate one of the reasons why the racial make-up of the mainstream advertising business still looks much as it did in the early ’70s, which is to say, predominantly white. “When I first came into the business, if I had projected forty years into the future,” said Marshall, “I never would have described the current situation, where African-Americans are still in the single digits in all these agencies.” For all too obvious reasons, the dearth of black executives in advertising doesn’t normally receive much attention from the mainstream media, but a controversial Dove body wash ad cast the issue into the spotlight this week. Supposedly an attempt to present Dove as a company that values cultural diversity, many believe that the ad fell astoundingly short. It shows a black woman, a white woman, and an olive-skinned woman, possibly Latina, standing side by side — a tableau of racial harmony. What’s offensive is what’s behind them: a pair of skin close-ups with “before” and “after” titles positioned so that it looks like they’re referring to the black and white woman, respectively. As Copyranter, the blog that caused an stir on the Internet earlier this week by posting the ad, noted, it’s as though the ad is pitching a product that ” turns Black Women into Latino Women into White Women .” The blog Styleite reached a similar conclusion, writing, “Visually, it communicates that if you have dark skin before you use VisibleCare, you’ll have pale skin afterward .” Noting another salient difference between the black model and white one, Styleite added, “You’ll also be thinner.” In a press statement, Unilever, the company that makes Dove products, said that all three women were “intended to demonstrate the ‘after’ product benefit” and added, “We do not condone any activity or imagery that intentionally insults any audience.” What’s most significant about the ad — and most embarrassing to Unilever — is that no one at the company seems to have anticipated that people would find it offensive. And that speaks to a larger issue, one that the activist and former magazine editor Michaela Angela Davis framed like this: “When it comes to advertising, it’s not enough to just have a black woman in the room. She has to be in the boardroom — she can’t just be in the changing room.” The lack of black women, and men, in Madison Avenue’s boardrooms is a problem that the attorney Cyrus Mehri hopes to publicize. Two years ago, his firm, Mehri and Skalet, partnered with the NAACP to create the Madison Avenue Project , an initiative aimed at increasing the ranks of blacks and Latinos in advertising. A report released by the group in 2009 showed that black college graduates working in the business earn 80 cents for every dollar earned by whites with the same qualifications. Based on a survey of the various pools from which advertising firms traditionally draw talent, the study’s authors also concluded that the industry had under-hired blacks by an order of 7,200 jobs. Responding to the Dove ad, Mehri said, “I don’t see how an African-American woman would not be offended by this ad, and I think it’s indicative of an industry that still resembles the ‘Mad Men’ you see on TV. They have not evolved or progressed from the 1960s.” Last year, the Madison Avenue Project commissioned an analysis of the ads shown during the 2010 Super Bowl. Of the 76 creative directors responsible for selling beer, cars and other products to the game’s 106 million viewers, 70 were white men and five were white women. The only non-white creative director, Joelle De Jesus, whose “House Rules” commercial for Doritos was one of the few ads to show a non-white character, was actually an amateur who’d scored the spot by winning a contest. As it happens, Unilever was one of the advertisers in that line-up; a commercial called ” Manthem ,” which hawked Dove’s product line for men, culminated with a shot of the white male protagonist dancing on the shoulders of a black man. Asked why advertising firms don’t hire more blacks, Mehri said, “They don’t believe that blacks can market to the mainstream.” Morris, who is now the head of E. Morris Communications, an agency that specializes in advertising to black customers and, incidentally, has lost business recently as companies looking to cut corners reassign their black-oriented campaigns to the general-market firms that handle their other accounts, said, “I would say that it would make more sense, when you think about it, that African Americans would be better at creating general assignment advertising for whites than whites would be at creating advertising for blacks. There’s no way I can survive in this world if I don’t understand white people, whereas white people can basically survive without ever having a meaningful interaction with a black person.” Both “Manthem” and the Dove body wash ad that offended so many people this week were produced by the advertising and public relations giant Ogilvy & Mather. When it comes to hiring non-white executives, Ogilvy’s record is “very, very poor,” said Mehri. “They have very few, if any, minority creative directors.” Ogilvy did not respond to a request for comment. WPP, the holding company that owns Ogilvy, referred an additional request back to Ogilvy. One of the ironies of the Dove body wash ad is that Unilever has gone out of its way in recent years to lure in customers with the message that, to quote from its recent press release, “real beauty comes in many shapes, sizes, colors and ages.” In 2004, the company launched what it called the Dove Campaign for Real Beauty, a parade of ads that featured “normal-looking” women of varying shape and size and ethnicity (all of them beautiful). Gwen Sharp, a sociologist who co-writes the blog Sociological Images , said, “It always shocks me when you have companies that I know spend enormous amount of money on their ad or their focus groups, and in the best case don’t catch, and in the worst case don’t care, about the cultural undertones that their ads play into.” She pointed out that Unilever also makes Fair & Lovely, a skin cream marketed to women in India that, if its advertising is to be believed , can actually make you white.

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Ian Fletcher: How China Plans to Leapfrog the American Economy (And it’s Not What You Think)

May 25, 2011

Many Americans are already concerned about China’s growing economic challenge to the United States. Indeed, the challenge itself is hardly news anymore. But a new book, Red Alert by Stephen Leeb, argues that Americans have radically misunderstood just what this challenge consists of. Everyone who has “woken up” to the problem (i.e. not the administration, the U.S. Chamber of Commerce, or the Republican leadership) understands the threat posed by China’s cheap labor and low standards for everything from child labor to environmental protection. Most people who aren’t hopeless laissez-faire ideologues are twigging to the fact that China’s state-directed capitalism is running rings around America’s private-sector capitalism right now. But what few people realize is that China has an even more radical economic strategy up its sleeve, a strategy that aims not just to equal the United States but to surpass it and quite possibly shut America out of the economic future. The basis of China’s strategy is the fact that the world is heading rapidly into the era of fundamental resource constraints. Up until the present time in human history, although various natural resources have been scarce enough to fight over, no important natural resource have ever been scarce enough that humanity simply ran out of it. This, the author argues, is going to change. The interesting thing is that the resource in question isn’t the usual suspect: oil–though oil is certainly going to become prohibitively expensive as we hunt down the last few drops in harder-and-harder-to-reach places that require more-expensive drilling and extraction techniques for less return. It isn’t gas or coal, either, though these have similar futures. (Any reader who believes these resources will last indefinitely can stop reading right here; those who are unsure should consult the persuasive analysis in the book itself.) The resource, paradoxically, is every environmentalist’s dream: green energy. Huh? How can the world run out of green energy? Isn’t that the whole point? Oops. In our rush to green energy, we’ve forgotten something. Those pretty blue photovoltaic cells glinting in the sunlight don’t grow on trees. Neither do those magnificent 300-foot windmills or their smaller cousins. They have to be made , and they are made out of some very scarce materials. Like Indium. And antimony. Beryllium. Gallium. Germanium. Tungsten. Lanthanum. Tantalum. Neodymium. Niobium. Rhenium. Cobalt. Tantalum. Even familiar platinum, silver, and chromium. Even humble graphite. Go look on the periodic table that you vaguely remember from high-school chemistry. These elements are the ones whose names you had to memorize but which nobody had much significant use for until recently. These obscure substances may one day be more strategic than the oil of the Middle East. These are elements , remember. That means–basic chemistry–that you can’t make them out of anything else. You either have them or you don’t. Why are they important? For example, the so-called rare earths among these materials are needed to make the super-strong magnets that are needed whenever you want to mechanically generate (or consume) electricity efficiently. The authors estimate that a three-megawatt wind turbine contains nearly two tons of rare earths of various kinds. Even a humble Toyota Prius contains 22 pounds of lanthanum in its battery. No lanthanum, no electric cars. “Fine,” you say. “Surely clever scientists will find other ways of making all these products if their present ingredients become unavailable?” Not so fast. The problem here is that, unlike inventing a new computer program, what these products do is closely constrained by fundamental laws of physics. There simply aren’t an infinite number of ways to make, say, a small but powerful magnet or a silicon wafer that will generate electricity when exposed to the sun. It’s like trying to find a substitute for water. Innovation and creativity will probably loosen some of these raw-materials constraints a little, as alternative ways of making things are discovered. But only a little. Mother Nature bats last. What about the old American faith that “innovation can solve anything.” Well, be careful with that word “anything.” If you look at the successfully innovative parts of our economy, they are all industries where innovation isn’t blocked by fundamental physical laws. So we simply cannot assume that technology is going to bail us out of this one. It is equally unjustified to retort that all gloom-and-doom analyses are wrong because gloom-and-doom analyses have been wrong in the past. So they have. (Club of Rome, anyone?) This proves, on its own, nothing but the need to examine every analysis on its own factual merits. How about the “magic of the marketplace?” Nope. Having a market economy will (more or less) guarantee that whatever physical resources we have will be used in the way that adds the most economic value. It cannot itself magically bring those resources into being. Here’s where China comes in. China is seeking to establish a strategic lock on these key raw materials. It plans to build itself an economy powered by this energy and then just sit back and watch the United States run out of gas. This strategy doesn’t only consist in establishing a monopoly on key raw materials, though this is its hardest point of ultimate leverage. China also aims to dominate the industries that convert these materials into green energy products. It is using price competition to squeeze out the American solar industry, for example, which it hopes to dominate as Japan now dominates consumer electronics If China’s master plan reaches even partial fruition, it will gain a gigantic economic advantage over the U.S. Americans will be left struggling with $10/gallon gasoline and its likely inflationary and recessionary consequences. Our living standard will be hobbled for decades. And if China’s master plan reaches its full fruition, the game is simply over for us as a superpower. Indeed, under some scenarios, it may well be over for us as a developed nation. This is grand strategy on a civilizational scale. It is possible that economic and military decline will prove mutually reinforcing. If the world decisively moves–as it is already gradually moving–away from market allocation of natural resources to political allocation and so-called resource nationalism, then the inability to project sufficient power to guarantee access to key resources will itself curtail that access, weakening the economy that supports that military strength. There is a huge controversy right now about whether China is sincere about cleaning up its environmental act. The authors argue that in significant part, it is indeed, as evidenced by the fact that China is now the world’s largest producer of green energy technologies. But they’re not doing it because they’ve joined the Sierra Club. They’re doing it for the same reason they do everything: because it is a component of their plan for advancing national power. Beijing makes plans in very long increments. They, unlike our own election-cycle worshiping rulers, think through where they want their country to be 100 years from now. This is why China is busy economically colonizing Africa–now home to an estimated one million Chinese workers–and is making fools of us in Afghanistan, where American military power is currently protecting huge Chinese investments in coal, copper, and other resources. We, on the other hand, sold off most of our own strategic minerals reserve in 1992, confident that the end of history had arrived and the Soviet Union was the last enemy we would ever face. We allowed Molycorp’s Mountain Pass mine in California’s Mohave desert–historically one the entire world’s largest sources of rare earths–to be shut down by cheap Chinese competition. We almost allowed China to buy this mine outright in 2005, when it was owned by a subsidiary of Unocal petroleum. We didn’t. So there may be hope for us yet. Congress passed a strategic minerals bill , the Rare Earths and Critical Materials Revitalization Act ,in 2010, albeit a tiny sop compared to Beijing’s grand strategy on the issue. Australia similarly checked a Chinese buyout in 2009. James Schlesinger, who served under President Carter as our first Secretary of Energy, once noted that the American public has only two attitudes towards energy policy: “complacency and panic.” I suspect, after reading this book, that a little bit of salutary panic might be in order.

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Why Medicare Will Be The Issue Of 2012

May 25, 2011

WASHINGTON — The 2012 election found its defining issue on Tuesday night, with an insurgent Democrat upsetting a well-financed Republican in a deeply red district in New York state. The GOP paved the way for the Democrat’s victory by voting earlier this year to end the current Medicare program that guarantees health coverage to seniors and replace it with a voucher system that provides premium support for the elderly to purchase private health insurance. The Republican in the race, Jane Corwin, fully endorsed the GOP plan to alter Medicare, while the Democrat, Kathy Hochul, defended the social safety net. The race’s polling trends point to Medicare as the defining issue, while the conversation has played out on a national level. Former House Speaker Nancy Pelosi (D-Calif.) summed up the Democratic position: “We have a plan –- it’s called Medicare.” With some exceptions, Democrats have ranged from reluctant defenders of government spending to outright hawkish assailants of social funds. But nothing focuses the mind like political calculation, and the upset in upstate New York has sent a message so clear that not even the highest priced Democratic consultant could miss it. “Kathy Hochul’s victory tonight is a tribute to Democrats’ commitment to preserve and strengthen Medicare, create jobs and grow our economy. And it sends a clear message that will echo nationwide: Republicans will be held accountable for their vote to end Medicare,” Pelosi said in a statement after the election. The race began turning toward the Democrat when Corwin embraced the GOP’s Medicare plan in mid-April. The campaigns had already been communicating with voters, airing television spots for nearly a month. Corwin attacked Hochul on the airwaves in late March for having sought property tax increases and attempted to link Hochul to Pelosi, following the playbook Republicans applied with success during 2010. Hochul responded with a series of ads beginning in early April, but none mentioned Medicare. That changed on April 26 when the Hochul campaign began airing an ad that hit Corwin for saying “she would vote for the 2012 Republican budget that would essentially end Medicare,” that would have seniors “pay $6,400 more for the same coverage” and would “cut taxes for the wealthiest Americans.” WATCH : Just before Hochul’s television campaign shifted to Medicare, a Siena Research survey showed Corwin leading Hochul by a surprisingly narrow margin, 36 percent to 31 percent. But ten days later, an automated survey conducted by Democratic firm Public Policy Polling and sponsored by SEIU showed Hochul leading by four points (35 percent to 31 percent). And in the final week, two more surveys, one from PPP and one from Siena College, both showed Hochul leading by similar margins. Jef Pollock, Hochul’s pollster, told HuffPost that the numbers showed the Democrat winning among seniors and independents, two groups that broke heavily for Republicans in 2010. “This race was won, in a significant way, because of the disastrous decision by the GOP to dismantle Medicare as we know it,” he said. “Kathy Hochul was a great candidate. And credit is due to her for running a great race as well as credit to the campaign for making Medicare a central issue — that’s why Hochul was winning 74 percent of the voters who said that Medicare was the most important issue to them in the most recent Siena poll conducted just a few days ago,” he said. Steve Murphy, Hochul’s media consultant, argued that his candidate persuaded voters she was concerned about the deficit without needing to cut Medicare. “A Democrat in a competitive district can win on the Ryan budget and Medicare issue as long as they first demonstrate to voters that they are tough on spending and serious about the problem of rising deficits,” he suggested. “Five of our seven ads had a strong fiscal component, not just Medicare.” Democrats highlighted the serious money the Republicans put into the election. “Today, the Republican plan to end Medicare cost Republicans $3.4 million and a seat in Congress. And this is only the first seat,” said Rep. Steve Israel (D-N.Y.), head of the Democrats’ House campaign arm. House Republicans pinned blame for Corwin’s loss on a quirky third-party candidate, Jack Davis, who ran under the Tea Party despite an eclectic and sometimes liberal political past. “Republican Jane Corwin ran a hard-fought campaign against two well-funded Democrats, including one masquerading under the Tea Party name,” said Rep. Pete Sessions (R-Texas), head of the House GOP campaign operation. “Obviously, each side would rather win a special election than lose, but to predict the future based on the results of this unusual race is naive and risky.” American Crossroads, a GOP group that spent heavily in the race, said that the race indicates a resurgent Democratic party, whether the third-party candidate tipped it or not. “The debate over whether Medicare mattered more than a third-party candidate who split the Republican vote is mostly a partisan Rorschach Test,” said American Crossroad’s Jonathan Collegio. “What is clear is that this election is a wake-up call for anyone who thinks that 2012 will be just like 2010. It’s going to be a tougher environment, Democrats will be more competitive, and we need to play at the top of our game to win big next year.” The GOP can’t and won’t retreat from the Medicare valley it has occupied. “We know that bell can’t be un-rung, and we wouldn’t want to,” said a well-placed GOP aide. “We’re on the right side of history. If President Obama wants to be ‘the grown-up in the room,’ he’s going to have to grapple with grown-up problems. We have.” Indeed, the GOP has been doing plenty of grappling lately, but it’s been mostly with constituents and members of the party. Presidential candidate Newt Gingrich was browbeaten by his party for calling the Medicare plan “right-wing social engineering” and endorsing Paul Ryan’s budget, which includes Medicare reform as its signature component and has become a litmus test for candidates. At home, Republicans have faced hostile town halls with seniors questioning how they’ll be able to purchase private insurance with a voucher that doesn’t rise at the rate of health care costs. At a recent town hall, a constituent of Rep. Rob Woodall (R-Ga.) raised a practical obstacle to obtaining coverage in the private market within the confines of an employer-based health insurance system: What happens when you retire? “The private corporation that I retired from does not give medical benefits to retirees,” the woman told the congressman in video captured a local Patch reporter in Dacula, Ga. “Hear yourself, ma’am. Hear yourself,” Woodall told the woman. “You want the government to take care of you, because your employer decided not to take care of you. My question is, ‘When do I decide I’m going to take care of me?’” Sen. Chuck Schumer (D-N.Y.) pounced on the remark, telling the Washington Post that it typifies Republican ideology. Tuesday’s special election was held to fill the seat of Chris Lee, who resigned after topless photographs he sent of himself to a woman on Craigslist surfaced.

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The Rules Have Changed

May 23, 2011

On July 17, 2009, Terry Harris of Jonesville, S.C., lost her job as an executive assistant at a promotional products company. The company, she says, went belly up. “My boss actually cried when I was let go,” she says. “I have an excellent letter of recommendation from him.” In other words, Harris says, “It was purely an economic thing.” She lost her job through no fault of her own. What she doesn’t understand is why she’s still unemployed and why her husband’s been bounced from one wretched low-paying job to another. Why, she asks, if they both finished high school, got some secondary education, have solid work histories and held off on having kids, is it such a struggle to pay for things like getting the car fixed and visiting the dentist? “I think the thing that keeps me going is knowing that we are really lucky, even in spite of the challenges that we are facing,” says Harris in an email. “I can’t help but feel badly for those that I know are worse off than we are. And I am truly grateful. And knowing that we are not alone helps a great deal, too. But it seems to be getting harder. Harder not to worry, not to cry, not to give up hope. We did everything right, I thought.” She’s right: It is getting harder. President Obama, in his 2011 State of the Union address, talked about how most people could remember the good old days, when getting a job meant showing up at a factory after finishing high school. “If you worked hard, chances are you’d have a job for life, with a decent paycheck and good benefits and the occasional promotion,” the president said, adding that he understood “the frustrations of Americans who’ve seen their paychecks dwindle or their jobs disappear — proud men and women who feel like the rules have been changed in the middle of the game.” “They’re right,” Obama continued. “The rules have changed.” Indeed they have. And for many who have been out of work for a long time and are willing to share their thoughts with a reporter, the new rules are merciless. “Good, decent people who worked hard, did everything right, believed in the American Dream have been destroyed,” writes a Californian who said her brother killed himself after job loss collapsed his financial situation. “On the eve of my 60th birthday and without marketable skills I have no chance of ever finding a job again in the traditional economy,” writes a North Carolinian who’s been out of work nearly two years. “I am determined to survive this horror show. But my survival will not be determined by our broken economy. It’s ‘think outside the box’ time. Traditional methods obviously won’t work for people like me.” “I did everything right, I played by the rules, I got skills, I excelled in my job, all to no avail,” writes a New Jerseyan who said he lost his job in 2010. “I don’t know what I’m going to do. All the years of both parties talking about free trade agreements and how we will retrain America was just a bunch of BS; it was easy to say all that when times were good.” And so on. By the way: Just what the hell are the new rules? What follows is a brief handbook. Don’t Be Old Harris suspects age discrimination is a big reason why she can’t find work. She’s not even 40, but she’s keenly aware of her years. She says she and her husband didn’t have children because they wanted to wait till they had a more secure financial situation. Under the old rules, after all, age brought economic security for decent people. “We wanted to wait till we could afford it, and now look — I’m 39 last month.” And when she applied online for a job at Bojangles Famous Chicken ‘n Biscuits earlier this year, the application form required her to disclose her date of birth. Several big companies, including Target, Kroger and Home Depot, do the same thing. It’s illegal to discriminate by age and to specify an age preference in a job ad, but it’s not illegal to ask about age, though employment law experts say doing so does bear a whiff of discrimination. Age discrimination is unbearably obvious to anyone over 50 who’s been in the job market for more than a short time, but it’s impossible to prove. You can’t beat it. That’s why it’s a rule. Don’t Be Unemployed Employers openly discriminate against the unemployed in job postings on sites like craigslist and Monster every day. A May 16 craigslist posting for a restaurant manager in Salisbury, Md., for instance, specifies that applicants “must be currently employed or recently unemployed.” Last year, after reporters asked, global phone manufacturer Sony Ericsson claimed its ad that said “NO UNEMPLOYED CANDIDATES WILL BE CONSIDERED AT ALL” was a mistake. It’s not illegal to have such a rule, but in response to stories about the phenomenon on The Huffington Post, state and federal lawmakers in the past year have tried to lawmakers in the past year have tried to ban overt discrimination against the unemployed. Don’t Pin Your Hopes On College The unemployment rate for college grads is 4.5 percent, and it never got much higher than that during the Great Recession. For high school dropouts, it’s 14.6 percent. So finishing college pays. But this old rule’s been bent. New college grads these days face a huge pile of debt and an unemployment rate near 10 percent . And among people who’ve been out of work 99 weeks or longer, a college degree doesn’t mean anything. High school dropouts and grads were equally represented among the 1.4 million people out of work that long as of last October, according to the Congressional Research Service . Don’t Expect To Make More Money At Your Next Job Sure, the private sector’s been adding jobs, but they’re crappy jobs. The National Employment Law Project, a worker advocacy group, reported in February that low-wage industries like retail and administrative support via temp agencies account for 49 percent of job growth in the past year. The same sector only accounts for 23 percent of the jobs lost in the same time period. By contrast, higher-paying industries constituted 40 percent of job losses over the last year, but just 14 percent of growth. Bob Poropatich of Pittsburgh has been working part-time as a barista since he lost his job as a manager for a major clothing retailer in 2008. He says he’d been with the company for six years and had 30 years of experience. He has a master’s degree. He’d been making $65,000 a year; now, he says, he makes about $180 a week. Did he do something wrong in his life, or is he falling backward by chance? “This is random and pointless,” Poropatich says. “I didn’t choose to age. I didn’t choose to be 59. I didn’t choose to be laid off. Every decision was made by a higher power and an HR director.” Poropatich says that in the five job interviews he’s had, he has tried to get around the rule against being old by promising his hiring won’t raise a company’s insurance premiums. It hasn’t worked. “I said, ‘By the way, I won’t be applying for health benefits and things like that since I already have my own coverage.’ They say, ‘Okay, thank you.’ Nobody is impressed by it. I would think that’s the biggest thing.” He says the worst moment was when his former employer came to his coffeeshop. “My ex boss, the one who laid me off, came in and ordered a venti mocha,” Poropatich says. “It didn’t faze him at all. I felt like I was two inches tall. I wanted to say, ‘Excuse me,’ and run into the bathroom.”

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Spain Protests Rock Nation, Tens Of Thousands Fill The Cities Over Joblessness

May 21, 2011

By Tracy Rucinski and Fiona Ortiz MADRID – Tens of thousands of Spaniards angry over joblessness protested for a sixth day on Friday in cities all over the country, and the government looked unlikely to enforce a ban on the demonstrations, fearing clashes. Dubbed “los indignados” (the indignant), tens of thousands of protesters have filled the main squares of Spain’s cities for six days, in a wave of outrage over economic stagnation and government austerity marking a shift after years of patience. The electoral board ruled on Thursday that protests would be illegal on Saturday, the eve of elections when Spaniards will choose 8,116 city councils and 13 out of 17 regional governments. But Prime Minister Jose Luis Rodriguez Zapatero, who has failed to contain the highest unemployment in the European Union, at 21.3 percent, said he may not enforce the ban. “I have a great respect for the people protesting, which they are doing in a peaceful manner, and I understand it is driven by economic crisis and young people’s hopes for employment,” Zapatero said during a radio interview. He said the Justice Ministry was reviewing the electoral board’s ruling to determine whether it should stand. PROTESTERS WILL STAY “We are not going to budge from here,” said a 44-year-old unemployed man who declined to give his name, during an assembly at Puerta del Sol in central Madrid, where protesters reached an informal consensus to stay in the square despite the ban. The man was among hundreds who have camped out all week at Puerta del Sol. His wife and daughter join him every day and the crowd swells to thousands every evening. “Our next move is to spread this to the rest of Europe,” he said. Many protesters told Reuters that they are scared the police will crack down, but analysts said police action against the protesters would be a disaster for the Socialists. The protesters have called on Spaniards not to vote for the two main parties, the Socialists or the center-right opposition Popular Party. Spain has struggled to emerge from a recession, and the collapse of the construction sector and a slump in consumer spending have hit the young particularly hard — 45 percent of 18- to 25-year-olds are unemployed. “They can’t kick us out. The politicians won’t allow it, it’ll make them look bad right before the voting,” said Virginia Braojos, 32, a logistics technician who has come with three friends to the protests every night this week. NOT A GAME CHANGER The protests have drawn huge media attention, but will not change the outcome of Sunday’s elections, when the ruling Socialist party is expected to suffer heavy losses over its handling of the economic crisis, a prominent pollster said. However, the symbolic impact of the protests is huge and will make things even tougher than they already are for the increasingly lame-duck Zapatero, said Jose Juan Toharia, president of Metroscopia pollsters. “There will be an authentic cataclysm for the Socialists, who are going to head into general elections next year without a single stronghold,” Toharia said. The next general election is due in March, though some analysts say a Socialist rout could lead to an early election. The protest movement has captured the mood of many Spaniards who have been out of work for months and face a bleak future as the economy is not yet growing robustly enough to create jobs. While most protesters are young, organizing themselves through Twitter and social media, middle-aged and older people joined the crowds on Friday, frustrated with stagnation. STICKING TO DEFICIT COMMITMENT The risk premium on Spanish debt, as measured by the difference between yields on Spanish and benchmark German bonds, rose on Friday due to concerns that following the elections, new regional leaders will uncover budget shortfalls. Budget trouble in the regions would rekindle concerns about a fiscal crisis in Spain. Spain has been under intense market scrutiny since Greece, Ireland and Portugal were forced to accept EU/IMF bailouts. It is widely accepted that a bailout for Spain, the euro zone’s fourth largest economy, would stretch the European Union’s resources and political will to breaking point. The Spain/Bund spread traded at its widest since mid-January at around 239 basis points. Zapatero, who slashed government spending this year, promised there would not be a new round of spending cutbacks following the elections, but stressed Spain’s obligation to international markets to stick to its plan to cut the deficit. “I can guarantee there will be no more spending cuts after the May 22 elections (but) we are committed to the budget target. I insist we will meet this obligation because, if we don’t, markets and investors won’t finance us, and that would make things worse.” (Additional reporting by Paul Day; editing by Mark Heinrich) Copyright 2010 Thomson Reuters. Click for Restrictions .

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Meredith Bagby: Debt Ceiling: The Sky’s Not Falling — Yet

May 17, 2011

It’s official. As of Monday, May 16, the United States of America has reached its debt limit ( $14.294 trillion ). That means that the Treasury Department can no longer borrow money to pay the debts or meet the expenses of the U.S. government. You may say, wait, the sky didn’t fall. People are not running in the streets in chaos. The stock and bond markets haven’t crashed. I had my latte this morning and it was delicious. So what’s the big deal? The reason those things haven’t happened (yet) is thanks to Treasury Secretary Timothy Geithner. Geithner sent a letter to Congress on Monday explaining how he is able to “move money around” and keep things running until August 2 . He’s “fudging” the debt constraints right now by “suspending investments in federal retirement funds.” Depending on the level of U.S. government expenses, he may also have to pay just interest due to bondholders (rather than principal) — and generally pick and choose which debtors to pay off and which to put off — on a day-to-day basis. This strategy, said Geithner, is akin to a homeowner who pays his mortgage at the expense of his car loan and credit cards. While the sky isn’t falling today, or even this week, Geithner says that he can’t keep this juggling act up forever. In his letter to Congress, he wrote that we must “increase the debt limit in order to protect the full faith and credit of the United States and avoid catastrophic economic consequences for citizens.” Fifty-six percent of Americans agree with this prognosis, according to a POLITICO-George Washington University Battleground Poll. If the debt ceiling is not raised — at a minimum — “our bond market and stock market would crash,” said former Congressional Budget Director Rudolph Penner . It’s hard to imagine what a maximum would be. Despite this looming disaster, it doesn’t seem like Congress is in too big a hurry to do anything about it. Quite the opposite: Tea Partiers and many Republicans are hoping that this coming financial apocalypse will force the Democrats to make big cuts fast to the U.S. budget. Speaker John Boehner said in response to Geithner’s plea: “There will be no debt limit increase without serious budget reforms and significant spending cuts — cuts that are greater than any increase in the debt limit.” And Senate Minority Leader Mitch McConnell threatened that he would not vote for an increase in the debt ceiling without “serious” reforms to entitlements like Medicaid and Medicare. Meanwhile, Democrats argue that any solution must include raising tax revenue — a position that Republicans have said is unacceptable. Democratic House leaders are in New York this week meeting with Wall Street execs, to present their vision of deficit reduction. (Speaker John Boehner met with Wall-Streeters last Monday.) Meanwhile in D.C., Vice President Joe Biden is leading a bipartisan, bicameral panel charged with coming up with long-term deficit solutions — even as House members are on recess. The difference, of course, between Democrat and Republican strategies, is that the Republicans are willing to drive this game of chicken all the way off the cliff if they don’t get what they want. We learned this in the last round of budget negotiations in April — and that’s a difficult position with which to negotiate. Democrats are full of warnings, but they are willing to negotiate. Republican are full of threats and they’re willing to pull the trigger. Will we get a compromise? As of today, the bond markets haven’t collapsed. Neither has the stock market. Most well-respected financial analysts are betting there will be an accord. But — given this year’s tough budget negotiation — maybe the question we should be asking is: at what price?

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Stuart Diamond: Personal Foul for the NFL

May 16, 2011

The owners and the players in the National Football League dispute are just $250 million apart in a $9 billion seasonal purse. But they have already lost more than that in TV revenues, lawyers’ fees and other costs in their 2-1/2 month fight with each other. So why would they cut off their noses to spite their faces? The answer is they are too emotional, too ego-driven, too personal and not focused on their goals. As a result, everyone suffers: the public, the fans, the communities, and the principals themselves. The NFL debacle is another example in a world of failed negotiations: whether it’s health care, Libya or a dispute with the local merchant. Most people have in their minds a conflict model, which gets only 25 percent as much for the parties as collaboration. The parties need to understand that a business negotiation is not like a football game, where you try to break the other party. My book, Getting More , describes how to do it better and differently. The NFL could benefit from this immediately. Here are 10 ideas: 1. Separate Negotiation Track. Even if the parties litigate, they can be negotiating separately. There is no risk: settlement discussions are not admissible in court. This would increase the chance that they might agree on something. 2. Other Negotiators. The existing principals are too emotional to negotiate. How do I know that? Because they are acting against their own interests. That’s what people do when they’re emotional. So other negotiators are needed: either third parties such as mediators, or retired players, hall of famers, commentators or others that each side trusts. This process would likely produce better, and workable, ideas. 3. Keep Season While Negotiating. There is no reason to penalize fans and the public for the NFL owners-players flap. They should agree on the non-disputed portion — more than 95 percent of the revenues — and hold the season while negotiating or even litigating over the rest. Not holding the season shows a cynical, or at least non-caring, attitude toward the sport. Commentators should castigate players and owners for this. 4. Additional Revenue Sources. If the parties collaborated with each other, chances are good they could come up with additional revenue sources to close the financial gap in the negotiation. An additional game, an additional ad per game, a lottery of some sort, better marketing of logo material, a ride at a theme park: there must be thousands of ideas. It just takes a “can-do” attitude. Have a contest among fans to think up new sources of revenue. 5. Lunch! It will be impossible for the two sides to have a good long-term deal unless they trust each other. And they can’t trust each other unless they have a relationship. Owners and players’ reps need to get to know each other better as people. This means lunch, even watching football tapes together. Family outings. Demonizing each other in the heat of battle, or fighting for leverage, will not produce an effective long-term deal. Effective negotiations are mostly about the people, not the facts or the substance. 6. Communities. Local communities around the U.S. have provided $8 billion to the NFL. The communities should say that the tax breaks were in exchange for a season every year. If there is no season, there should be no tax breaks. Also, any future tax breaks should have stiff penalties for disruption of football, and clauses barring lock outs or strikes. It’s time for the public to step up. Also, communities should get involved in resolving the current dispute. Their involvement should be mandatory for future disputes. 7. Incremental. The NFL players’ association has rejected an offer by the NFL owners to provide summary financial information about the league. The players said they wanted to see detailed information on each team. This rejection shows a lack of negotiation skill. Effective negotiators are incremental. The players should have accepted the summaries, examined them and then made further requests if necessary. Now, the players have nothing. 8. Intangibles. The average career for an NFL player is only 3-1/2 years. As such, there are many intangibles that could be put into the mix, including better pensions, advice for long-term careers, financial advice, etc. If the NFL owners thought about the players more — or if the players thought about intangibles more — they could get off a debate just about money and add more value to the mix. 9. Standards. Trying to get leverage or power over the other party, either in court or through other moves, is unstable. Power keeps changing hands and solutions take longer, if they are ever reached. The lock-out was followed by the players dissolving the union. Court battles have seesawed. Better to use criteria developed by experts as fair. There are plenty of accountants and financial experts with experience on what profit splits or revenue sharing is fair in enterprises such as this. Indexing and other criteria can handle changes in expenses or revenues. This is a better system than continual haggling. 10. Alternative Stadiums or Players. If either side is extreme, that is, won’t negotiate, the other side could pursue an alternative season. The players could try to play at college, baseball or other stadiums and strike their own media deals. The owners could use other players. These are extreme measures. However, the parties owe a season to the fans and public. If one side won’t play ball, the other should try to. The underlying need overall is a better attitude. The two sides should stop, take a deep breath, and remind themselves that they love the game of football. This common feeling could be a basis for the players and owners to treat each other better. They could then solve their problems more quickly and easily.

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Jim Cramer: The Old Me Would Have Hit Jon Stewart With A Chair

May 13, 2011

Jim Cramer, the host of CNBC’s Mad Money and a former hedge fund manager, is never one for biting his tongue. But in a profile in New York Times magazine, Cramer says he wished he’d been more outspoken to one particularly famous critic. In the profile, Cramer discusses that now famous exchange with the Daily Show ‘s Jon Stewart: Over two years later, thoughts of the interview continue to get a rise out of Cramer. “The old me would have hit Stewart with a chair. I’m proud I didn’t do that. I controlled myself. But maybe I shouldn’t have. Maybe I should have taken the gloves off,” Cramer says, according to The New York Times . “When Stewart talked about how his 75-year-old mother lost money in the market, I could have said: ‘Hey, your brother Larry Leibowitz is one of the heads of the New York Stock Exchange. Why didn’t he give your mom advice?” Cramer expressed additional frustration about Stewart had pegged him as the representative of financial crisis. From the NYT profile: “‘They wanted to make me the Face of the Era, and they succeeded. Rick Santelli’s a conservative. Ideological. O.K., I get that. But me? I was very anti-Bush. I’m a Democrat, I’ve got the canceled checks to prove it, and suddenly I’m the enemy? Me? Me?’” Early Friday, Cramer came to his own defense again, via Twitter . Check out his tweets below: “[S]o chill and elevate your game. Be a Yankee.” Below are Cramer’s tweets directed at various online critics: Read the entire piece at the NYT .

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Yankee Stadium Tips Taken By Owners, Servers Allege

May 13, 2011

In the more desirable seats at Yankee Stadium, an already pricey $10.50 draft beer will run you an eye-popping $12.60 thanks to an involuntary 20 percent “service fee” tacked on to the original price. If the sticker shock doesn’t make that brew bitter enough, consider this: Despite what you might expect, that extra $2 and change isn’t going to the hustling server who sold it to you, according to a new lawsuit. Legends Hospitality, the concessionaire co-owned by the New York Yankees, the Dallas Cowboys, and Goldman Sachs, allegedly pockets the 20 percent service fee attached to food and drink in violation of New York law, according to a class-action lawsuit filed against the company by three Yankee Stadium servers this week. If certified as class action, the suit could involve more than a hundred servers and hundreds of thousands of dollars in claims. At the center of the dispute is how hot dogs, sodas and other ballpark fare are served in the stadium’s field-level seats, which typically cost between $100 and $350 a game. At field level, fans don’t have to fetch their food and drink; they instead can place orders with servers carrying credit-card machines and get the orders ferried to their seats by food-and-drink runners. Under this arrangement, the servers act a lot like salespeople. “They schmooze the customers, and they’re trained to upsell, just like any other waitress,” says the plaintiffs’ lawyer, Brian Schaffer. “If somebody says, ‘I want a hot dog,’ they say, ‘But wouldn’t you like a cold beer with that?’” According to the suit, the menus field-level spectators find in their cupholders include this disclaimer: “A 20% service charge will be added to the listed prices. Additional gratuity is at your discretion.” That phrase “additional gratuity” would seem to imply that the 20 percent is, in fact, a gratuity, but Schaffer says his clients don’t get that money. Instead, they receive a far more modest commission, between four and six percent, of their total sales for the game. Schaffer believes the system cheats both vendors and fans — the vendors by withholding their tips, the fans by artificially inflating prices. “It’s pretty unbelievable if you think about what’s going on,” Schaffer said. “Honestly, I couldn’t fathom the profits.” What’s worse, Schaffer alleges, is the fact that the servers aren’t allowed to explain to fans how the actual arrangement works. “If my clients are specifically asked, ‘Where does this 20 percent go?’ they can’t tell them the truth. They can only tell the customer, ‘Additional gratuity is at your discretion.’ They can’t say, ‘It’s not going to me.’ They can be fired for saying that.” Calls to the Yankees press office and to the union that represents stadium workers were not returned. Schaffer says his clients are paid a $35 flat fee per shift, plus their commissions, and work every Yankee home game. It adds up to between $14,000 and $20,000 apiece on the year, but the commitment makes it tough to have another job during the baseball season. One of the servers named in the suit, Evelyn Ryan, has been selling food and drink to Yankees fans since 1999, working in both the old Yankee Stadium and the new one. Legends Management has exclusive rights to selling food at both Yankees and Cowboys stadiums. The Yankees are the most valuable team in baseball, with an estimated value of $1.5 billion, and the Cowboys are the most valuable team in football, with an estimated value of $1.65 billion, according to Forbes . Upon the formation of Legends in 2008 , the company’s CEO said their goal was to “create a new paradigm in sports concessions that will deliver unparalleled and affordable stadium experiences for fans.” In their suit, the servers may have labor and case law on their side. A New York law says that no employer can “retain any part of a gratuity or of any charge purported to be a gratuity for an employee,” and a 2008 appeals court ruling involving World Yacht found that the dining cruise company had illegally withheld tips from servers under a similar “service fee” arrangement.

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Boeing Controversy At Center Of Jobs Debate

May 12, 2011

WASHINGTON — A controversial complaint recently filed by the National Labor Relations Board (NLRB) against the Boeing Company became the centerpiece of a passionate debate on Capitol Hill Thursday over the decline of labor unions in the U.S., the erosion of the American middle class, and the best approach to building jobs in a slow economic recovery. The hearing before the Senate Committee on Health, Education, Labor and Pensions sought to examine why the middle class is shrinking, but much of that discussion ended up focused on the complaint against Boeing, whose vice president and general counsel, J. Michael Luttig, appeared before the committee as a guest of Republicans. In his testimony, Luttig wasted little time before blasting the NLRB, calling the complaint “preposterous on its face” and “a breathtaking substitution of the [labor] board for management in the running of an American company.” In the complaint filed last month, the labor board’s acting general counsel said Boeing broke the law when it made plans to create a new production line for its 787 Dreamliner in South Carolina, rather than in Washington state, where it had an existing workforce of unionized employees. The complaint alleged that Boeing’s move was retaliation against its Washington employees affiliated with the International Association of Machinists and Aerospace Workers, who had gone on strike in the past. A wide and growing group of Republicans have used the Boeing issue to paint the NLRB as pro-union and the Obama administration and Democrats as anti-business. Although he accused Republicans of overly politicizing the Boeing complaint, committee chairman Sen. Tom Harkin (D-Iowa) said that dwindling union membership and the decline of collective bargaining had a lot to do with the financial squeeze America’s middle class has felt in recent decades. Harkin even used Boeing as an example of the growing wealth disparity between workers and their management when questioning Luttig. He noted that the average Boeing worker in Washington earned $26 an hour and in South Carolina $18 an hour, while Luttig enjoyed a pay package of $3.7 million in 2009, a 34 percent increase over the previous year’s. “Why shouldn’t employees at Boeing get a 34 percent increase?” Harkin asked Luttig. “What’s going on here? … I’m just asking about fairness for workers.” Addressing the tough inquiry regarding his own salary, Luttig joked, “I have the sense that at this instance it may not be enough,” prompting a mixture of laughter and gasps. He went on, “Jobs and job growth is what we need to come out of this. Of course I share the committee’s concerns about the middle class. If we could pay [our workers] more, we would, and when we can, we will. Rallying to Boeing’s defense, ranking committee member Sen. Michael Enzi (R-Wy.) said, “This company deserves our congratulations and respect, not our demonization.” Sen. Mark Kirk (Ill.) went much further, saying that the NLRB had decided to “torture” Boeing through legal fees related to the complaint. Overall, the hearing seemed to indicate that Democrats are far less eager to make a larger political issue out of the Boeing complaint than Republicans are. Much like the NLRB, which has downplayed the scope and significance of the complaint , Democrats have tried to define it as a procedural matter being blown out of proportion. Republicans, on the other hand, have declared it an attack on corporations and “right-to-work” states like South Carolina, which prohibit agreements between unions and companies that make union membership a condition of employment. While labor groups have hailed the NLRB’s move as a victory for workers, earlier this week a group of Republican lawmakers and business interests assembled at the U.S. Chamber of Commerce to declare it a dangerous precedent that would move jobs overseas. “Employers across the country have been greatly disturbed” by the complaint, Enzi said, adding that it “sounds like China, not the United States … It will create a chilling effect nationwide.” But Sarah Fox, legal counsel at the AFL-CIO and a former member of the NLRB, said before the committee that the Boeing complaint was made on solid legal footing. “There’s really nothing extraordinary about this complaint,” she testified. “What is exceptional about this case is not the novelty of the legal theory, but the size and power of the company that has been charged, and the magnitude of the decision that is at issue.” The NLRB, she added, shouldn’t make its enforcement decisions based on whether they will be “politically unpopular.” Although he wasn’t specifically addressing Boeing’s expansion with a non-union assembly line in South Carolina, former Labor Secretary Robert Reich testified that the shrinking number of union members in the American workforce has coincided with the slowing growth of wages in recent years. “The lines are diverging,” Reich said of worker wages relative to executive pay. “People know this. They feel like the game is stacked against them.”

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Joint Ventures in Commercial Real Estate Developments for the Year …

May 10, 2011

Let’s be realistic: project funding since the collapse of Lehman Brother’s (28 months ago) has been nearly impossible to attain. Developers have come to the.

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What Really Caused Oil’s Record Drop?

May 9, 2011

NEW YORK (Reuters) – When oil prices fell below $120 a barrel in early New York trade last Thursday, a few big companies that are major oil consumers started buying around $117. It looked like a bargain. Brent crude had been trading above $120 for a month. But the buying proved ill-timed. Crude kept on falling. “They were down millions by the end of the day, trying to catch a falling piano,” an executive at a major New York investment bank said. Never before had crude oil plummeted so deeply during the course of a day. At one point, prices were off by nearly $13 a barrel, dipping below $110 a barrel for the first time since March. Oil’s descent followed the biggest one-day price drop in silver since 1980 on Wednesday, after hedge fund titan George Soros was reported to be selling. Exchange operators raised silver’s margin requirements, making it more costly to trade the metal and sending investors out of the market. Silver plunged by 20 percent, more by week’s end. The rout unnerved some commodity investors. Oil just doesn’t fall by 10 percent in the course of a normal day, though. In commodities markets, oil is king, and its daily contract turnover, typically around $200 billion, is usually able to absorb even large inflows or outflows of investment. The rare moves of $10 a barrel usually are set off by dramatic events — the outbreak of the first Gulf War in 1991, or the collapse in 2008 of Lehman Bros bank, which both led to recessions. Of course, there was major news last week. But the daring Pakistan raid that killed Osama Bin Laden had done little to shift the balance of oil markets on Monday. In interviews with more than two dozen fund managers, bankers and traders, no clear cause emerged for the plunge in price. Market players were unable to identify any single bank or fund orchestrating a massive sale to liquidate positions, not even an errant trade that triggered panic selling, as seen in the equities flash crash last May. Rather, the picture pieced together from interviews on Thursday and Friday is one of a richly priced commodities market — raw goods have been on a five-month winning tear over all other major investment classes — hit by a flurry of negative factors that individually could be absorbed but cumulatively triggered a maelstrom. Computerized trading kicked in when key price levels were reached, accelerating the fall. “It was a domino effect,” said Dominic Cagliotti, a New York-based oil options broker. The negative factors — prominent cheerleaders turning bearish, some weak economic data, cheap money from the U.S. Federal Reserve ending by July, a lessening of political risk — merely provide a backdrop for the waves of selling. What stands out is the way computers turned readjustment of positions in a huge and deep market into a rout. THE COMPUTERS Stunningly large jolts from so-called stop-loss trading amazed market traders. The automated sell orders were generated as oil crashed through price points that traders had programed in advance into their supercomputers. In many cases, computer algorithms sold for technical reasons, as oil dropped through levels that, once breached, could trigger ever larger waves of selling yet to come. The machine trading, based on subtly different but fundamentally similar, algorithmic models, eliminates the white-knuckles and potential human error involved in actively trading a volatile market, and increases anonymity. Instead of breeding hesitation, abrupt price drops can quickly prompt these machines to unload a bullish long position in oil, and build up a bearish short one instead. Machine-led trading is one plausible thesis for another apparent market anomaly that occurred on Thursday. Exchange data shows that the total number of open positions in the oil market — a number that would typically fall in a selloff — instead rose. Normally, panicky funds selling oil en masse would cause total “open interest” numbers to shrink, as exiting investors closed out contracts. But some machines, following the market trend, may have gone further, by dumping long positions and quickly amassing sizable short positions instead. “Computers don’t care. Momentum just increases until nobody wants to stand in front of it,” said Peter Donovan, a floor trader for Vantage on the New York Mercantile Exchange. Some big Wall Street traders watched their own systems sell into the down trend but couldn’t know for sure who had initiated the selling spree. They only knew that similar machines at other firms, from New York, to London, Geneva and Sao Paulo, would be automatically selling in much the same manner. During Thursday’s crash, such selling locked in profits that high-flying commodities traders have been accumulating for months. Some of Thursday’s rout appears to have been more a product of the wisdom of crowd computing than of widespread human panic. “We believe the magnitude of the correction appears in large part to have been exacerbated by algorithmic traders unwinding positions,” Credit Suisse analysts wrote in a report. High frequency trading and algorithmic trading accounts for about half of all the volume in oil markets. BIG NAMES TURNED BEARISH Some of the seeds for the rout were sown earlier. In April. Goldman Sachs’ bullish team of commodities analysts, led by Jeff Currie in London, issued two notes to clients in rapid succession recommending they pare back positions. In one, the bank called for a nearly $20 dollar near-term correction in Brent oil, while maintaining a bullish longer-term outlook. The closely watched money king, George Soros, who runs a macroeconomic hedge fund, had said for months that gold was pricey. Even online advisors to mom-and-pop investors such as The ETF Strategist had warned of a bubble in precious metals that could be ready to pop. On Wednesday, the Wall Street Journal had reported the Soros Fund was selling commodities including silver, and four sources from other hedge funds told Reuters they believed Soros was busy selling commodities positions again on Thursday. Silver markets already had suffered four days of carnage and ended the week down nearly 30 percent. But silver is a tiny market, much more susceptible to sharp price moves. Some traders suspect that big holders were cashing out of the least liquid commodity market first, before moving onto the big one – oil. As crude crashed on Thursday, it dragged down every other major commodity. The Reuters Jefferies CRB index, which follows 19 major commodities, was on its way to a 9 percent weekly drop, the biggest since 2008. Oil’s selloff began in London, and accelerated as New York traders piled in. A routine report on U.S. weekly claims for unemployment benefits spooked investors, showing the labor market in worse shape than expected. That fed a growing pessimism about the resilience of the global economy after industrial orders slumped in Germany and the massive U.S. and European service sectors slowed. Then the European Central Bank surprised with a more dovish statement on interest rates than expected, signaling its wariness about the euro zone outlook. The dollar rose sharply. Before noon New York time, Brent crude oil prices were already trading down a jaw-dropping $8 a barrel. Fourteen hundred miles southwest of New York’s trading floors, on Texas refinery row, oil men were stunned by the drop, which played havoc with their pricing models. “It was nuts. Our risk management guys were tearing up their spreadsheets,” said a major U.S. independent refiner, who asked not to be identified. A range of factors, both economic and political, were also at play. The recent rise in raw goods has been fueled in part by the U.S. Fed pumping cash into the markets by purchasing $600 billion in bonds. This program has pushed interest rates extraordinarily low, making borrowing essentially free once adjusted for inflation. Investors have been using the super-cheap money to buy into commodity markets. But the Fed’s program is slated to end on June 30. “Funds were likely to take profits before June when the direct (Fed) bond purchases stop. All were eyeballing each other to see who would take profits first,” said a London-based oil trader. China, the world’s fastest-growing consumer of commodities, also is tightening monetary policy to tamp growth rates and control inflation, raising the prospect of a slowdown in demand for oil. The political risk premium built into oil prices also came under scrutiny last week. The unrest sweeping through the Arab world – home to over half of world oil reserves – has boosted oil this year. The only major supply disruption so far is from Libya, where war has cut off at least 1 million barrels a day. “We’ve been in a world thinking there’s more risk, more risk, more risk,” said Sarah Emerson of Energy Security Analysis Inc. “People took this week, and the news of bin Laden’s death, to simply reflect. They stopped and said, maybe there’s less risk.” GAME OVER Put all these factors together, and they amounted to a reason to sell. Traders and brokers who spoke with Reuters speculated that macro funds like Soros and others, which had been aggressively overweight commodities, were cutting the portion of their portfolio allocated to commodities. Because those positions had grown so large, even a small rebalancing would amount to billions and billions of dollars in contracts sold. After weeks of thin trading in Brent oil futures, Thursday’s trade volume hit a record. Early Thursday, investment advisory firm Roubini Global Economics had also joined the fray, telling clients for the first time in years to cut commodities in their macro portfolios. Many funds were merely taking months of handsome profits off the table. Yet Thursday’s rout certainly produced casualties. By the afternoon New York time, some of the world’s biggest money managers thought they smelled blood. Several banks and funds seemed to be selling oil in an orderly fashion, even if the price drop was extraordinary. But could a hedge fund be struggling for survival? They wondered whether any major commodities funds were on the losing end of bullish oil bets, and were getting forced by margin calls from brokers into dumping massive positions. One trader at a major bank in New York called a colleague at one of the world’s largest hedge funds. During the conversation, they exchanged notes, suspicious that one or more commodities-focused hedge funds might be facing a moment of reckoning, one of the participants said. No fund could be pinpointed. By the end of the day, the person said, they were less suspicious — a view shared by week’s end by many market participants who spoke to Reuters. No one was naming a major hedge fund in dire trouble, or a computer trading algorithm that went haywire. And unlike last May’s flash crash in equities markets — when stocks fell by a similar 9 percent margin in just minutes — Thursday’s decline came in rolling cascades, playing out over at least 12 hours. Even after Brent fell to settle around $110 by the end of the day, crude prices were still up 38 percent from a year ago. “Since prices have been advancing well beyond any reasonable measure of value, Thursday’s declines felt more like orderly corrections than chaotic panics. There was no sense that anyone was ready to jump from the window,” said oil analyst Peter Beutel of Cameron Hanover in Connecticut. CASUALTIES The day left some commodities-heavy funds nursing wounds – weekly losses of 10 to 20 percent, according to several fund managers who invest in other hedge funds. Two of the sources said that London-based BlueGold, a fund known for taking aggressively bullish directional bets on oil in the past, had sizable losses. It was not immediately clear how much the fund dropped, and BlueGold declined comment. One money manager said of BlueGold’s head trader Pierre Andurand: “He’s had tougher weeks so I don’t think it’s game over.” Fund sources also cited losses at $20 billion Winton Capital, of around 2.2 percent, on Thursday. FTC Capital, a $300 million European commodities fund, lost 4 percent in one of its larger funds, the sources said. Neither fund was available for comment. In the space of just hours, the drop in the price of crude oil had shaved nearly $1 billion off the cost of supplying the world’s daily oil needs. That could be good news for gasoline consumers. But Eric Holder, the U.S. Attorney General who has recently formed a government working group to investigate manipulation in oil markets, had a blunt warning for oil traders. He wants proof the savings are being passed on to end users. “This working group was created to identify whether fraud or manipulation played any role in the wholesale and retail markets as prices increased. If wholesale prices continue to decrease, fraud or manipulation must not be allowed to prevent price decreases from being passed on to consumers at the pump,” Holder said on Friday. (Reporting by Matthew Goldstein, Svea Herbst, Jennifer Ablan, Emma Farge, David Sheppard, Claire Milhench, Zaida Espana, Robert Campbell and Josh Schneyer. Writing by Josh Schneyer. Editing by Stella Dawson)

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Roger Martin: Fixing the Game: The Unintended Consequences of an Economic Theory

April 27, 2011

The past 70 years have seen three massive, value-destroying market crashes. After each, regulators have attempted to punish wrongdoers and implement fixes to prevent future meltdowns. It hasn’t helped, because regulators have focused on symptoms instead of root causes. The only way we can avoid increasingly frequent stock market meltdowns — and all the pain, suffering and economic dislocation they cause — is to explore the theories that underpin American capitalism. One theory in particular deserves our close attention, due its pervasiveness and power — shareholder value theory. In 1976, finance professor Michael Jensen and Dean William Meckling of the Simon School of Business at the University of Rochester published a seemingly innocuous paper in the Journal of Financial Economics entitled “Theory of the Firm: Managerial Behavior, Agency Costs and Ownership Structure.” It would go on to be the single most frequently cited article in business academia and forms the prevailing theory of the role of the firm and proper compensation in our society today. The article first defined the principal-agent problem and created agency theory . In the authors’ construct, shareholders are the principals of the firm — i.e., they own it and benefit from its prosperity. Executives are agents who are hired by the principals to work on their behalf. The principal-agent problem occurs because the agents have an inherent incentive to optimize activities and resources for themselves rather than for their principals. For example, an executive might declare her own time to be so valuable that she requires a private jet to ferry her around. While this might be convenient for the executive, and may even increase her productivity level, it may well hurt the owners of the company, reducing earnings by more than the increase in productivity. Such a choice puts an agent’s interests ahead of those of the principals and creates an agency cost. Jensen and Meckling argued that when executives squander firm resources to feather their own nests, the result is both bad for shareholders and wasteful for the economy. Instead, the theory goes, the singular goal of a company should be to maximize the return to shareholders. To achieve that goal, the company must give executives a compelling reason to place shareholder value maximization ahead of their own nest-feathering. While it is not possible to entirely eliminate the self-interest of executives, the authors posited that we could better align that self-interest with the interests of shareholders; we could eliminate agency costs by giving agents meaningful amounts of stock-based compensation, actually making them shareholders as well as executives. Executives would then be very interested in increasing shareholder value, because when it increased, so would their own compensation. Like all good theories, agency theory had limitations and unexpected side effects, a fact its disciples have chosen to ignore (though Jensen himself has acknowledged them). In particular, the theory had the unfortunate effect of tightly tying together two markets: the real market and the expectations market. The real market is the world in which factories are built, products are designed and produced, real products and services are bought and sold, revenues are earned, expenses are paid and real dollars of profit show up on the bottom line. That is the world that executives control — at least to some extent. The expectations market is the world in which shares in companies are traded between investors — in other words, the stock market. In this market, investors assess the real market activities of a company today and, on the basis of that assessment, form expectations as to how the company is likely to perform in the future. The consensus view of all investors and potential investors as to expectations of future performance shapes the stock price of the company. Historically, professional managers played entirely within a single market: they were in charge of performance in the real market and were paid for performance in that real market. That is, they were in charge of earning real profits for their company and they were typically paid a base salary and bonus for meeting real market performance targets. Compensation rooted in the expectations market used to be rare. In 1970, for example, stock-based incentives accounted for less than 1 percent of CEO remuneration. But that all changed after the advent of agency theory. Implicitly, Jensen and Meckling had argued that the way to spur executives to best perform their duties in the real market was to make their pay significantly dependent on the performance of the company in the expectations market. This was a critical shift. After 1976, executive compensation became increasingly stock based, so that when executives produced a stock price increase in the expectations market, their compensation rose dramatically. In 2009, for instance, the highest-paid CEO in American was Larry Ellison of Oracle, and estimates suggest that 97 percent of his paycheck came from realized gains on options. Ray Irani, CEO of Occidental Petroleum, earned $31 million in 2009, including $1.17 million in base salary, a bonus of $1.2 million and restricted stock awards of just under $25 million. It has become an accepted premise of good governance that, in order to properly align their incentives with those of the shareholders, executives and board members must receive a substantial portion of their pay in the form of stock-based compensation. The market crashes of 2000-2002 and 2008-2009 did nothing to diminish this premise; in fact, they strengthened it. Few people conceive of the world of business in terms of real and expectations markets. Yet, there is another world in which the distinction between a real market and an expectations market is much more profoundly understood — the National Football League (NFL). While it isn’t a perfect metaphor for business, it is a highly instructive one. It is one we will pursue tomorrow. This post is excerpted from Fixing the Game: Bubbles, Crashes, and What Capitalism Can Learn from the NFL , to be published May 3 by the Harvard Business Press. Read more from Fixing the Game here .

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Nintendo May Seek Outside Help

April 26, 2011

(TOKYO) – Nintendo said on Tuesday that alliances with other companies may be necessary, a day after the game maker reported its second straight fall in annual profit and said it would launch a successor to its aging Wii console. “I now regret that we didn’t tie up with someone outside the company to market the Wii. If we had done that, the fate of the Wii might have been different,” Chief Executive Satoru Iwata said at a conference for investors and analysts. “Now I am aware that we should not rely too much on ourselves. You will see what I mean by this when we market the 3DS and the Wii in the future.” (Reporting by Junko Fujita; Editing by Michael Watson) Copyright 2011 Thomson Reuters. Click for Restrictions

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Nobel Prize-Winning Economist Paul Krugman: ‘I’m A ‘Loner’

April 25, 2011

Paul Krugman is a Nobel-Prize winning economist and world-famous blogger. According to a new article, you can add self-described loner to that list as well. In a New York magazine profile, “What’s Left of the Left,” Krugman, author of the New York Times ‘ highly-influential blog, “The Conscience of a Liberal”, is described as a “lonely man” that had trouble naming a single friend that could be interviewed to provide the author with a better understanding of one of America’s most famous liberals. Asked to describe himself, Krugman, who allegedly avoids eye contact with colleagues in the elevator, quickly points to his own solitary characteristics: “Loner. Ordinarily shy. Shy with individuals.” The portrayal differs somewhat from the March 2010 profile by the New Yorker in which a relatively-content Krugman allows the public into his life and mariage with fellow economist Robin Wells. “I think he’s happy,” his friend Craig Murphy said at the time. “A much happier person now than when we first met him.” The New York profile’s author, Benjamin Wallace-Wells, instead, contrasts Krugman with his bombastic former classmate at Harvard graduate school: Larry Summers, ex-director of Obama’s National Economic Council. “Let’s put it this way,” Krugman says when describing the difference between the two. “When things go crazy, my instinct is to go radical on policy, and Larry’s is to be a little more cautious.” Summers, in return, took aim at Krugman as “the guy in the bleachers who always demands the fake kick, the triple-reverse, the long bomb, or the big trade,” without ever getting in the game. Krugman has previously said his wife pushed him to remain true to his gut, denouncing filibusters and holding strong to his belief that that Obama’s health-care bill needed a public option. In an interview with New York , Krugman describes his first years blogging for the NYT as “a radicalizing experience,” primarily because of wading through the Bush administration’s economic policy closer than ever before. Krugman says he discovered a world in which the president of the United States could say something “demonstrably false” and no one would say anything. “That was pretty awesome,” he said.

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AP: US Default Could Be Disastrous Choice For Economy

April 24, 2011

WASHINGTON — The United States has never defaulted on its debt and Democrats and Republicans say they don’t want it to happen now. But with partisan acrimony running at fever pitch, and Democrats and Republicans so far apart on how to tame the deficit, the unthinkable is suddenly being pondered. The government now borrows about 42 cents of every dollar it spends. Imagine that one day soon, the borrowing slams up against the current debt limit ceiling of $14.3 trillion and Congress fails to raise it. The damage would ripple across the entire economy, eventually affecting nearly every American, and rocking global markets in the process. A default would come if the government actually failed to fulfill a financial obligation, including repaying a loan or interest on that loan. The government borrows mostly by selling bonds to individuals and governments, with a promise to pay back the amount of the bond in a certain time period and agreeing to pay regular interest on that bond in the meantime. Among the first directly affected would likely be money-market funds holding government securities, banks that buy bonds directly from the Federal Reserve and resell them to consumers, including pension and mutual funds; and the foreign investor community, which holds nearly half of all Treasury securities. If the U.S. starts missing interest or principal payments, borrowers would demand higher and higher rates on new bonds, as they did with Greece, Portugal and other heavily indebted nations. Who wants to keep loaning money to a deadbeat nation that can’t pay its bills? At some point, the government would have to slash spending in other areas to make room for any further sales of Treasury bills and bonds. That could squeeze payments to federal contractors, and eventually even affect Social Security and other government benefit payments, as well as federal workers’ paychecks. A default would likely trigger another financial panic like the one in 2008 and plunge an economy still reeling from high joblessness and a battered housing market back into recession. Federal Reserve Chairman Ben Bernanke calls failure to raise the debt limit “a recovery-ending event.” U.S. stock markets would likely tank – devastating roughly half of U.S. households that own stocks, either individually or through 401(k) type retirement programs. Eventually, the cost of most credit would rise – from business and consumer loans to home mortgages, auto financing and credit cards. Continued stalemate could also further depress the value of the dollar and challenge the greenback’s status as the world’s prime “reserve currency.” China and other countries that now hold about 50 percent of all U.S. Treasury securities could start dumping them, further pushing up interest rates and swelling the national debt. It would be a vicious cycle of higher and higher interest rates and more and more debt. The U.S. has long been the global standard for financial stability and creditworthiness, with Treasury securities seen as a fail-safe investment. But after the near-shutdown of the U.S. government and a new credit-rating report this week questioning the country’s fiscal health, Treasury bills and bonds are losing luster. If there is a debt limit deadlock, the government by this summer could find itself legally unable to borrow more money to pay its bills, beginning with interest on its debt and gradually extending to day-to-day federal operations. At some point, the government would have to decide which bills to pay and which to put aside. The debt ceiling will be hit on or around May 16, the Treasury Department says. Unlike the threatened government shutdown, the impact would start slowly, but then build mightily until the damage would be so dire that few political leaders or economists even want to contemplate it. The day of reckoning could likely be delayed at least until early July with creative bookkeeping. When the House first rejected the Bush administration’s $600-billion bank bailout in September 2008, the Dow Jones industrials went into a dizzying 778-point tailspin. A whiff of a possible similar stock market collapse came on Monday with a sharp selloff on Wall Street when the Standard & Poors lowered its outlook on U.S. debt to “negative” from “stable,” possibly a first step toward a possible downgrade of America’s coveted AAA credit rating. “We haven’t downgraded it. We just said, if nothing happens, we may have to,” said S&P chief economist David Wyss. He said a government default remains uncharted territory, “which is one reason why it’s not a good idea to hit the debt ceiling.” “There’s reason to worry,” said Wyss. “But my best guess is that we sort of muddle through this. Cuts will be made, they’ll be too little too late, but at least they will be enough to maintain a triple-A rating.” “It’s another game of chicken. And this time there are Mack trucks going at each other, not bumper cars. This is a biggie,” said American University political scientist James Thurber. But he predicted that, as in the past, “there will be an accommodation. They will avoid a crash.” Investment bank J.P. Morgan Chase recently concluded that any delay in making an interest or principal payments by the Treasury “even for a very short period of time” would have large “long-term adverse consequences for Treasury finances and the U.S. economy.” The analysis is being circulated on Capitol Hill by supporters of raising the debt limit. “If anyone wants to push that button, which I think would be catastrophic and unpredictable, I think they’re crazy,” JP Morgan CEO Jaime Dimon said recently of those seeking to block raising the debt limit. House Speaker John Boehner and most other GOP leaders agree on the need to raise the debt limit – and don’t want to be held responsible for a new financial meltdown. Still, they want Obama to make more concessions on spending cuts than he has done thus far. That isn’t sitting well with liberal Democrats, who think Obama has already given too much ground. One reason the two parties can’t find common ground: they can’t even agree on what’s causing high deficits. Democrats mostly blame it on policies of George W. Bush: two wars, tax cuts that continue to benefit the wealthy and an expensive prescription drug program. Republicans see government spending as the culprit, particularly on Obama’s watch. In fact, the main reason is the deep recession, which slashed tax revenues and led to hundreds of billions of dollars in recession-fighting spending by both Bush and Obama. The debt was $9 trillion in late 2007 before the start of the Great Recession, and it’s just a sliver under the $14.3 trillion limit today. Even though GOP leaders say they want to avoid more economic chaos, there is a large crop of tea-party aligned Republicans threatening to refuse to raise the cap under almost any circumstance. Polls suggest a large percentage of Americans oppose raising the debt limit. The debt limit has been raised ten times over the past decade. Obama voted against Bush’s debt-limit increase in 2006 as a senator, accusing Bush of “a leadership failure.” Obama recently apologized for “making what is a political vote as opposed to doing what was important for the country.”

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Ted Kaufman: Greenspan Is Back to Lead the Charge Against Responsible Regulation

April 21, 2011

Wall Street bankers, with help from key Republicans in the House and Senate, have begun a major campaign across the country to kill the regulations currently being developed to enforce Dodd-Frank Wall Street Reform. A recent speech by the leader of Wall Street bankers, JP Morgan’s CEO Jamie Dimon, took direct aim at financial regulation and new, more rigorous capital standards. The same week, Alan Greenspan — just a year removed from his mea culpa on “self-regulation” — said the Dodd-Frank legislation would create the “largest regulatory-induced market distortion” in the US since wage and price controls. Very shortly afterwards Senator DeMint introduced a bill to repeal Dodd-Frank. And House Financial Services Committee Chairman Spencer Bachus led 34 of the committee’s Republicans in sening a letter to the six agency heads charged with implementing the Dodd-Frank Act stating that the members are “troubled by the volume and pace of rulemakings.” It is very hard to believe that anyone would propose going back to the policy of “self-regulation” on Wall Street and elsewhere. We tried that during the last 20 years, and it catastrophically resulted in the worst financial meltdown in 80 years, almost destroying the US and world financial systems. It caused more than 3 million homes to be repossessed, drove the unemployment rate over 10 percent, and left millions in economic, and emotional, shock. Where was the regulatory backstop that should have been the last line of defense? Completely dismantled by Washington policymakers who bought the view that self-regulation would work and markets could police themselves — the same ideology that they are boldly pressing now, so soon after its complete failure. The question of whether regulation is necessary has been asked and answered, painfully so for many Americans. We are not living in the abstract, debating hypotheticals about what would happen without regulations. Before the meltdown, market fundamentalists and Wall Street bankers argued that our financial actors could police themselves, that their self-interest in remaining financially viable would create sufficient incentive to avoid failure — far exceeding the ability of regulators to limit excessive risk by rulemaking. Systematically, these fundamentalists worked to dismantle many of the prudential New Deal era banking reforms. Their crowning achievement: the repeal of Glass-Steagall (which, passed in the aftermath of the Great Depression, kept our financial system stable and growing for 60 years) in 1999. Wall Street and Washington were possessed by this laissez faire ethos over the past 20 years. It was this philosophy, and the decisions that sprang from it, that led us blindly down the path to the financial crisis. Before his recent (re-)conversion, Alan Greenspan admitted that this dominant concept of self-regulation was ill-conceived. In a speech on February 17, 2009 before the Economic Club of New York, the former Fed Chairman conceded that the “enlightened self-interest” he had once assumed would ensure that Wall Street firms maintain a “buffer against insolvency” had failed. Mr. Greenspan, perhaps more than anyone else, should have known better. But instead of playing the role of the markets’ fire chief, he played that of head cheerleader. For example, Mr. Greenspan applauded the trend of financial disintermediation, proclaiming that new innovations would allow risks to be dispersed throughout the system. Of course, this was just the tip of the iceberg. Despite having the power to write and enforce consumer protection standards, the Federal Reserve did nothing to combat deteriorating origination standards in mortgage and consumer loans. He could have implemented common-sense rules like minimal capital requirements for systemically important financial institutions. That would have been a critical emergency-brake when the Bear Stearns/AIG tailspin began. Instead, Mr. Greenspan signed off on regulations that gave banks the ability to set their own capital standards. He allowed banking institutions to leverage excessively by gorging on short-term liabilities and, in some cases, creating off-balance-sheet entities to warehouse their risky assets. This makes it hard to believe that Greenspan would return to his old talking points, joining the offensive coordinated by Wall Street banks and others saying that the Wall Street Reform Act will never work, and its implementing regulations should be delayed or watered down. Trust alone will not work in business, just like it does not work in sports. Many of us, as fans, are frustrated at the referees and umpires for constantly interfering with the free flow of the game. But they enforce the rules and regulations developed to keep the game orderly and protect the participants. Perhaps a football game would go smoothly for a bit without referees, but I would not want to be at the bottom of the second or third pileup. Rebuilding effective regulatory policies and agencies will take time, but that work is absolutely essential. Not every business will follow the call to build trustworthy practices. Only the hammer of fair and consistent regulatory penalties and fraud laws will deter wrongdoers.

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The Miami Heat Is The New Corporate Model Of Teamwork, Apparently

April 20, 2011

I don’t even know how to begin with this Fast Company cover story on LeBron James, the Miami Heat and what they teach “us about teamwork.” Basically, the article teaches me that the people at Fast Company are capable of teaming up to shoehorn LeBron James onto the cover under the guise of teaching us something about business practices. And it’s not just that James can teach us all something about teamwork, it’s that the Miami Heat are “the World’s Greatest Chemistry Experiment.” So, snack on that Richard F. Heck, Ei-ichi Negishi and Akira Suzuki — and your Nobel Prize winning work in ” palladium-catalyzed cross couplings in organic synthesis .” Fast Company advises us: Forget for a moment that this has anything to do with basketball. Okay! That’s going to be hard, seeing as you’ve got four NBA-themed pieces for us to work through , but I’ll try. Forget about sports altogether. Almost as if I picked up a magazine that isn’t supposed to cover sports. Right. What LeBron and company are attempting to do applies to any organization that’s serious about winning. Well, who among the Fortune 500 hasn’t beaten the Philadelphia 76ers? A year ago, James, Wade, and Bosh were the top dogs — the leading scorers — on their respective teams. Today, they’re divvying up the sirloin scraps, at far less pay, in search of one prize: a championship. Yes, they’ve been derided for conspiring to give Miami a huge leg up at the expense of small-market teams (namely James’s former employer in Cleveland and Bosh’s in Toronto), but their mutual sacrifice is a resounding vote for teamwork. Teamwork among superstars. It’s a huge bet that, in the end, talent will prevail. If only the San Antonio Spurs had thought about combining superstars — like, say, Tony Parker, Manu Ginobili, and Tim Duncan — in their pursuit of NBA glory. (Instead, they wagered that playing great team defense was something that would “prevail.”) Finally, we start getting around to the “forgetting about sports altogether” part: This is a strategy that’s on the rise these days. Look at Silicon Valley. Which tech company, when given the chance, doesn’t raid the talent pool, stocking up on the world’s best execs and engineers in the hopes of racing past the competition? Late last year, Mark Zuckerberg personally persuaded Lars Rasmussen, the cocreator of Google Maps, to join a host of elite ex-colleagues at Facebook. If ESPN anchor Stuart Scott were to cover the business universe, he would have summed up the acquisition in a word: Boo-yah! Oh, okay, so here’s a new “strategy” that’s “on the rise” — hiring talented people in the hopes that a bunch of talented people will add value to your company. Glad to see people are trying this at last! Of course, this lesson was so well taught to the world by the Miami Heat, that Facebook was employing it just three days after the 2010-2011 NBA season began . In short, it’s a pretty awkward construct, ancient corporate-sounding bromides about “trust” and “teamwork” forced through this “the NBA playoffs are happening” perspective. At times, the piece has to contort in order to keep track of its thesis. “High-priced talent doesn’t ensure success,” says the magazine, you have to be “buddies,” too. And buddies have to leave room for Udonis Haslem and Zydrunas Ilgauskas. Larry Page and Sergey Brin are a formidable pairing — much like Hewlett and Packard, Ben and Jerry, the brothers Coen (Joel and Ethan) — but the truth is none of those guys could have achieved what they did if it weren’t for the help of supremely gifted employees. The Heat is no different. That would have been a really good place to inform readers who the “Zydrunas Ilgauskas of Google” is. (It still would be, if anyone would care to provide that information.) By the way, that marks the last time in the article that an attempt is made to connect this Miami Heat metaphor with an example in the corporate world, save for one stray mention of Carl Icahn. The piece goes on to really gloss over the ugliness that’s gone down between the team and their coach, Eric Spoelstra, who is nominally in charge of the “strategic vision.” I’m not entirely sure what to make of how this season’s brief Spoelstra-drama fits within this idea that stocking up on superstars is a winning strategy. The message seems to be: star talent is important, as long as Zydrunas Ilgauskas is around to do the thankless work, and your CEO is okay accepting abuse from the talent pool while never retaliating by telling the media that your star players cried in the locker room. And, in the end, it really helps to have Pat Riley to talk to about your feelings. It’s kind of a mess. But there’s one success strategy that seemed to work for the Heat: After the game, Wade and his teammates held a players-only meeting. “They kicked the coaches out,” says Windhorst. “It was literally in the shower. Guys were telling each other to stop playing afraid.” Not sure you should try to replicate that in the workplace! At any rate, every tech company should definitely try to hire Mike Miller , the end. [Would you like to follow me on Twitter ? Because why not? Also, please send tips to tv@huffingtonpost.com -- learn more about our media monitoring project here .]

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Raymond J. Learsy: Barry Bonds Should Have Been Playing for Goldman Sachs

April 15, 2011

The Justice Department knows how to get those guys. You know the ones who hit home runs and abuse themselves with steroids in order to hit more. Not the way the game should be played, but the last time I checked Barry Bonds hadn’t foreclosed on anyone’s home, nor had his actions pressured the economy to his own benefit while millions were losing their jobs. Just yesterday a jury found Bonds guilty of obstruction of justice resulting from testimony given to a grand jurythat had been convened to follow up the federal investigation into the use of steroids by athletes. When it rains it pours. Almost simultaneously with the Bonds’ verdict the Senate Permanent Subcommittee on Investigations released a 650 page report “Wall Street and the Financial Crisis: Anatomy of a Collapse”. Its contents were so damning that Senator Levin, co-chair of the committee, commented , “The report pulls back the curtain on shoddy, risky, deceptive practices on the part of a lot of the major financial institutions. The overwhelming evidence is that those institutions deceived their clients and deceived the public…”. The report was produced by the same Senate committee that conducted an eleven hour hearing in April 2010 with Goldman executives and employees. At that hearing lawmakers questioned Goldman’s assertion that it had not bet against the mortgage market as home prices were collapsing throughout the country. As the New York Times reported , Senator Levin pointed our that his committee had found 3,400 references in Goldman documents where its officials used the phrase “net short”, Wall Street jargon in this instance for having bet against the housing/real estate market. Perjury in sworn testimony before a Senate committee? Perhaps, perhaps not. If only Barry Bonds had played for Goldman Sachs we still wouldn’t know.

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Richard (RJ) Eskow: Bachmann/Ryan Overdrive: A High-Speed Escape From Economic Reality

April 14, 2011

Remember all those mini-movies that summarized a broad topic in two minutes? Whether the subject was the Civil War, the magical things that happen when you multiply by ten, or the complete history of Western Civilization, these little films covered it all in one rapid-fire shot after another, giving you a whole lot of information — and a splitting headache — in a very short period of time. The first couple minutes of this Michelle Bachmann Today show interview are like that. She runs through the entire litany of conservatism’s disproven economic cliches in 100 seconds or less. without even getting short of breath. If someone ever wants to make one of those two-minute movies and call it The Ideas That Crushed the American Dream , Rep. Bachmann’s already written the script. Fire it up and watch her go! We’ll sound the bell every time she floats a discredited idea. Ready? Raising taxes for the wealthy shouldn’t be “on the table,” says Bachmann, because “tax rates are high enough (ding!), and history shows (ding!) that when we raise taxes, particularly on job creators (ding!) we actually bring in less revenue (ding! ding! ding!) rather than more.” Forget what I said about two-minute movies. Michelle Bachmann could cover Western Civilization in ten seconds . I was on a talk radio show from St. Louis yesterday with a guy from the Heritage Foundation who used the same “history shows us” line. What history actually shows us is that we lost jobs after the Bush tax cuts, even before deregulation brought down the economy. History also shows us that our periods of greatest economic prosperity occurred when taxes were higher than they are now. The history of the Great Depression shows that it took a lot of government investment to get people working and the economy growing — and that this investment paid off handsomely. FDR listened to the Bachmannites of his time in the late 1930′s, and that’s when everything started falling apart again. So history shows us that we need government investment to reduce persistent unemployment. And “job creators”? Oh, please. Wall Street financiers have regained their pre-crash parasitical economic stranglehold, seizing nearly 40% of corporate profits. They’re getting rich by not creating jobs, and sometimes by destroying them through destructive hedging. Corporate profits are at historic highs and taxes for the wealthy are at historic lows, yet people in the real world are still taking the world’s longest unemployment gut-punch. Which raises the question: If these guys are “job creators,” where are the jobs ? “Do we want more revenue or more taxes?” Bachmann asks rhetorically. Because the two don’t go together.” As the young people say (picture a finger snap here): Oh no she didn’t! Did she cite the Laffer Curve ? Yes, she did. Michelle Bachmann just brought out the most discredited theory in modern economic history: the notion that people will stop making money if taxes are too high, so overall government income will fall and not rise. There’s only one thing that contradicts that theory: The economic history of every single nation on the planet. The Laffer curve argument goes like this: if you taxed everybody 100% of everything they earned, nobody would ever bother to make money. So it must be bad to increase taxes. That sort of reasoning cuts both ways: If you paid everybody zero for their work, nobody would bother working. But they never use that logic to fight for a higher minimum wage. Economists like the name “Laffer curve” because this theory is always good for a laugh. “You could actually confiscate (ding!) all the wealth that people make at $200,000 or more,” says Bachmann, “and that would only yield about six or seven months of revenue to run the government.” Hey, that’s half the whole cost of government! She’s selling the idea pretty well! Conservatives love that word “confiscate.” They’re the same ones who say they’d lay down their lives for their country. But pay four pennies on the dollar on six-figure income? Forget it. That’s dictatorship! Think of it: Our highest tax bracket under Dwight D. Eisenhower was 91% percent. He must be the greatest dictator of all time! This is the type of person who loves to sing along when they play that song about sacrificing everything for this country — you know the one . All the Democrats are proposing is a four-and-a-half percent increase on income over $250,000. “There ain’t no doubt I love this land” — but not enough to chip in for it. Here’s the song they should really be singing. Know what’s funny? Bachmann and her colleagues are the same people people who think we can’t afford to pay thirty million dollars per year to predict coastal storms and floods and plan for disasters. These floods create an average of $11 billion in damage every year , along with loss of life — and they think we can’t spare a few million to lower that cost and save some lives. Yet they’ll give away hundreds of billions in tax expenditures like it was peanut butter in a smoke-filled college dorm. For the Representative from Minnesota it’s “confiscate” this and “take 100 percent” of that… on and on and on… until all of the ridiculous rhetorical tricks that got us into this mess begin to flicker stroboscopically and the rational listener is in danger of having a seizure, like those cartoon-watching kids from a few years back. Bachmann goes on in this vein for what seems like forever, but which in reality is only four minutes or so. This alteration in subjective temporal experience is produced by something physicists call the “Mind Dilation Effect,” in which time appears to be moving more slowly as the flow of bullsh*t approaches the speed of light. We see every single conservative cliche simultaneously, as if … Well, almost all. She left out one of their favorites, the one that says “If you could go back in time one day for every dollar the government spends, you’d be face to face with Jesus.” Just as well. With all their cuts to life-saving health care and law enforcement programs, it looks like a lot of other people are gonna wind up face-to-face with Jesus too. “Already again,” she says later, “the top 1% of income earners pay about 40% of all taxes.” (That’s not the right number, because it leaves out other forms of taxes, but whatever.) Why do the top 1% pay a large share of taxes? Because the top 400 families in America are richer than the bottom fifty percent of the entire country! So of course they pay a big chunk of income tax, even after they’re coddled with tax breaks galore. Rep. Bachmann sure has a lot of talking points, but here’s an odd thing: When Matt Lauer asked about the CBO’s report on, which documents the devastating financial impact their Medicare cuts would have on seniors, suddenly she tells us she “hasn’t had a chance to look at the study.” “But it’s important for us to understand,” Bachmann continues, “that individualism (ding!) and personal responsibility (ding!) have always been a bedrock of this country.” When it comes to the whole “devastating financial impact” question, I’ll take that as a “yes.” There’s more, but you get the gist. Some people think she’s a little nuts, and they’ll even get a little personal by mentioning that Children of the Damned-ish glint in her eyes. Actually she’s very polished and effective here. Somebody’s been coaching her, both on presentation and on talking points. Still, her ideas are as radical and as detached from reality as ever. But as Dave Johnson points out, Rep. Paul Ryan’s proposed budget is too extreme even for her. And that’s how it is on the Right these days. You can always tell that a movement’s degenerating into extremism when the radicals start attacking each other. Think Stalin vs. Trotsky, or that big squabble among birthers a couple of years back. And don’t forget the Judean People’s Front vs. the People’s Front of Judaea. (“Splitters!”) Now we’re in Bachmann/Ryan Overdrive time. These Representatives and other members of the Right are in a high-speed race to see who can outbid the other to win the extreme vote. I’m not against radicalism — it’s can be a laboratory for new ideas — but they’ve seen that responsible members of the far Right like Ron Paul are suddenly at risk of being thrown over by the Tea Party. That means that the Ryans and Bachmanns are going to keep upping the ante as long as they can. It’s like the game of chicken in Rebel Without a Cause where neither driver will take his foot off the accelerator until somebody goes over the cliff. Hope it’s not us. Cross-posted at Crooks and Liars . __________________________________________ Richard (RJ) Eskow, a consultant and writer (and former insurance/finance executive), is a Senior Fellow with the Campaign for America’s Future. This post was produced as part of the Curbing Wall Street project and the Strengthen Social Security campaign. Richard also blogs at A Night Light . He can be reached at “rjeskow@ourfuture.org.” Website: Eskow and Associates

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Peggy McColl: Success or Failure: Which Fear Is Really Holding You Back?

March 29, 2011

You are months, or even weeks away from launching your product or services online and you are ready to abolish the entire idea. Yikes! You might be surprised at how many other internet marketers, authors and solo-preneurs share your same doubts and fears. Many of my clients and I have experienced these negative issues associated with putting ourselves out there in the marketplace and wondering what will happen if…. if we fail, and if we succeed. Do these thoughts sound familiar? It’s not going to work I’ve spent all of this time and money building it and what if no one wants it? Why would anyone want to buy anything from me? My content is on X and I am not a perfect example of X Once I launch and it’s successful, the microscope will be on me to walk the talk and I may not be able to keep up with demand. One of my clients candidly confessed, “I don’t know if I am afraid of failure or afraid of success.” This is natural. There is a fear to fail because you’ve put so much into it, including your name, your brand and your reputation. The other side of the coin is what if it is a big success? Is it going to take her away from her family more than she’d like? If she’s feeling overwhelmed now, even before it launches, what will her life look like if it does take off? This coaching call reminded me of similar experiences I’ve had with feeling overwhelmed. In my earlier days of releasing some of my first books I felt like pulling the plug on the entire concept because I questioned who cares what I have to say. It brought back memories of my own fears. I wasn’t as concerned about failing as I was about succeeding and what that meant because then I’d have to step up, follow through and consistently deliver. That was a lot of pressure and I didn’t know if I wanted to set myself up for it. Is the fear of success better or easier to overcome than the fear of failure? Not really. Fear of any kind can be an immobilizer and you have to be able to stare it in the face and go for it anywhere. Here are the recommendations I made to my client and the strategy that can work for you: Understand your fears are natural so don’t be upset with yourself because these thoughts come up – it’s okay to feel it. Some of the most successful people in the world had that experience. Come from your heart, remember why you are doing it and reconnect to the passion that started the whole process in the first place. Continue to give the best of who you are Don’t worry that you are not perfect at what you are teaching others -you are human and that will resonate with your customers. Think about when a high-profile golfer has a tough match and when he is interviewed, he admits to not playing his best. We don’t fault him for that, we know how difficult it is to be on top of your game at all times. Don’t be afraid of sharing your own challenges – people will connect and respect your vulnerability. Let them see the real you. Make a conscious choice to put the fun back in to the process. There is tremendous value in asking yourself great questions such as: What do I like or enjoy about this? How will I make this more enjoyable? What am I grateful for in this experience? What am I most grateful for in my life right now? (This is a Biggie!) Put a reminder in front of you to stay connected to what you are enjoying most about this experience What am I learning? How am I growing? There will always be the one moment in time when you want to throw up your hands and give up. Remember it is just a moment, a day or a week and it is a temporary feeling. Take a break and do something else for a while until the feeling passes. I remember when I sent my first manuscript to my editor and when she said it was a great book my response was, “Really???” She laughed and said, “Oh you authors are so insecure.” We are all very similar when it comes to taking a risk and putting ourselves out there. Two decades ago Susan Jeffers published her book, Feel the Fear and Do it Anyway . It is still true to this day!

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Millennial Generation Has Its Own AARP To Lobby For Jobs And Deals

March 25, 2011

WASHINGTON — One in six are unemployed, more than any other adult age group. They carry an average of $24,000 in student debt . And one in 10 have been forced to move back in with their parents after school. No doubt about it, these are hard times for young adults. But it takes a leap of faith to start a membership and advocacy group called Our Time as the Millennial generation’s answer to AARP. Launched this week in a Pennsylvania Avenue office down the street from the White House, Our Time seeks to use online organizing to “change corporate practices, create exclusive deals and spark a national conversation.” It wants to “stand up for Americans under 30” while using its bargaining might to get discounts on health insurance and credit card programs. And with a homepage that Friday showed a scruffy dude screaming, “F#%K, I need a job! One in six of us is out of work,” and no annual dues for a generation used to getting everything free online, Our Time is unlikely to be mistaken for the group formerly known as the American Association of Retired Persons. “Our generation has more of an economic reason to engage than anyone,” said il, the group’s 25-year-old president. “We can’t just complain about these things or sit on the sidelines. We need to use our generation’s unique strengths to fix them … This is the civil rights issue for our generation. If you can’t have economic freedom and mobility to become financially independent at an early age, than you are entering society on the wrong foot.” Our Time’s target audience can be summed up by the headline in a recent New York Times op-ed written by a 24-year-old: “Educated, Unemployed and Frustrated.” It is being formed at a time when a growing chorus of commentators — from David Brooks to Fareed Zakaria to Robert Samuelson — are connecting the yawning budget deficit to the nearly 40 percent of the federal budget that goes to Social Security and Medicare. Where, they ask, is the political will to take on those entitlements when, according to a 2009 Brookings Institution report , an elderly person receives $7 in federal aid for every $ 1 that goes to a child. “Everyone’s talking about ‘doing it for the children,’ yet the children are being neglected, or at the very least held hostage for political gain,” Segal said. “We have become cheap talking points for our budget, health care system, tax code and just about every other social quandary.” Segal said his peers worry their generation will be the first economically less well off than their parents’ and doubt the social safety net will be there when it’s their turn to retire. “We want to make sure every generation is willing to put some skin in the game, otherwise we’re just kicking the can down the road,” Segal said. “We’re not here to complain and ask for federal handouts.” Donna Butts of the advocacy group Generations United said Our Time sounds “wonderful,” especially at a time when young people in the Middle East are feeling so empowered. But she worries the group will wind up pitting one generation against another. Millennials aren’t the first to enter the workforce during recessionary times, she notes. “From our perspective,” she said, “it’s not a fight, it’s a family.” Dean Baker, a liberal economist at the Center for Economic and Policy Research, said the group is “founded on a lie” if its creators believe older generations are getting a bigger share of the pie. “It’s obviously wrong-headed,” he said, to blame seniors instead of the rich for taking more than their fair share of the nation’s wealth. Segal said he isn’t interested in sparking a war with his grandparents’ generation or with Baby Boomers. If anything, the early-bird dinner crowd has been an inspiration to a generation that can barely afford anything more elaborate than Chipotle. “Young people don’t have a seat at the table now and that’s because we don’t vote in high enough numbers” like seniors do, Segal said. Indeed, the genesis of Our Time grew out of the 2004 election, when Segal and his friend, Jarrett Moreno, were students at Kenyon College in Gambier, Ohio. They were among hundreds of students who made national headlines when they had to wait 10 hours or more to vote in the presidential election. Segal, who grew up in an affluent suburb on Chicago’s North Shore, went on to found SAVE, the Student Association for Voter Empowerment to help get out the youth vote in the 2008 election. The group eventually grew to more than 10,000 members on 40 college campuses. Young voters turning out in force helped elect Barack Obama president in 2008. Two years later, though, many may have been too busy looking for a job to vote in congressional elections. Segal and D.C. native Jarrett Moreno, a friend from Kenyon, decided there was a need to engage their peers year-round and not just at election time. And that’s where Our Time came in. Neil Howe, a generational expert whose books include “Millennials Rising: The Next Great Generation,” says Our Time has the potential to be “the political and social movement equivalent of Groupon.” He compares today’s 20-somethings to the World War II G.I. generation that made AARP into the powerhouse membership and lobbying group it is today. While today’s seniors lacked Facebook or other social network sites, they were joiners who believed in what Howe calls “collective entitlement.” Just as the generation that came of age in the Great Depression energized the union movement, Howe said Millennials like those who recently marched in Madison, Wis., could lead a revival for organized labor. “They are a strong civic generation with a strong sense of peer cohesion,” Howe said. “They probably will reoccupy the civic void left behind by Generation Xers and Boomers and will create the same sense of solidarity that the G.I. generation, or greatest generation did.” And they will do it in a style very different than the Baby Boomers. Before they began qualifying for Social Security this year, many Boomers didn’t trust anyone over 30 — a credo taken to the extreme in the 1968 cult classic “Wild in the Streets .” The Millennials at Our Time prefer to use humor to dramatize their plight, as in a series of online videos entitled, “Living at Home Sucks.” And Segal said the emphasis is on entrepreneurship: “If you can’t find a job, create your own.” Baker said there is nothing wrong with being entrepreneurial “but they are deluded if think they can all get by running their own businesses,” noting the vast majority of start-ups fail. Whether Our Time will be among the failures remains to be seen. “The economic challenges they face are not overstated,” Howe said. “Their challenge is politically whether they can get other people to see them as having legitimate grievances, that the system owes them something.”

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Ian Fletcher: A Review of Ha-Joon Chang’s 23 Things They Don’t Tell You About Capitalism

March 25, 2011

If you’re not happy with the way the U.S. economy is being run right now, you’ve been pretty much stuck talking to leftists to get any serious in-depth dissidence. With the exception of a few distinguished rightist critics like Paul Craig Roberts, a former Reagan appointee at the Treasury Department, most people who do hard-hitting across-the-board criticism of our present variety of capitalism are liberals and beyond. So if pink isn’t your political color, you’re pretty much stuck with narrow-bore criticism of the recent financial crisis–most of which comes down to “people were stupid and crooked.” Thus it is with great pleasure that I review Ha-Joon Chang’s new book 23 Things They Don’t Tell You About Capitalism . This is one of the toughest assaults on what passes for capitalism in the U.S. these days to come out in decades–but it is not especially a liberal or leftist book, and thus supplies the profound need America has for economic criticism that is both radical and bipartisan. There’s plenty here to offend both Republicans (Americans have no intrinsic right to be rich) and Democrats (immigration makes local workers poorer), but plenty to delight both, insofar as they are looking for real answers. This is a theoretically profound book, but emphatically not a book for theorists. It is thus a book for anyone who has grasped that America is being strangled by a set of myths about what capitalism is and how it works. Debunking these myths is thus job one. Ha-Joon Chang is a South Korean economist currently teaching at Cambridge University in England. His academic specialty up to now has been protectionism and state industrial policy, i.e. two things that conventional economics says can’t work. But his own native land is visible proof that they can. And this is just his starting point for exposing the flaws in conventional economic wisdom. Because Chang is so spot-on with most of what he has to say, I shall keep my commentary to a minimum and just reel off his insights in order. To wit: Thing 1: There is no such thing as a free market . Pace the glorification of the free market in recent years, this is largely a mythical animal. This is not just because of government interference, it is often because the private sector doesn’t want to be free, regardless of what it says. Even when we could hypothetically free up markets, we frequently wouldn’t be better off it we did. Thing 2: Companies should not be run in the interest of their owners . Not entirely, that is. Even the former king of “shareholder value” himself, ex-GE CEO Jack Welch, has recently conceded this. Long-term success requires taking seriously everyone who contributes to a business: not just equity investors but also employees, suppliers, customers, and plant communities. Thing 3: Most people in rich countries are paid more than they should be . Neither you nor I did anything to deserve to be born in this country–or after the invention of antibiotics, for that matter. This doesn’t mean we should feel guilty; it does mean we should remember we succeed in large part because of what society we belong to, not just due to our own efforts. Thing 4: The washing machine has changed the world more than the Internet . The washing machine and other labor-saving devices made feasible the radical change in women’s roles we know as feminism. Similarly, without the humble air conditioner, America would have no Sunbelt. Twitter doesn’t come close. Thing 5: Assume the worst about people and you will get the worst . Yes, people’s behavior is maybe 70 percent self-interested. But the remaining 30 percent is a big chunk, and you can’t make sense of even a capitalist economy without taking it seriously. Companies (and countries!) that understand this do better than those that try to run on selfishness alone. Thing 6: Greater macroeconomic stability has not made the world economy more stable . Brutal anti-inflationary policies can easily do more damage than the inflation they combat. Protecting the value of a nation’s money is less important that protecting its economy as a whole. We’ve had more financial crises the more obsessed with hard money we’ve become. Thing 7: Free-market policies rarely make poor countries rich . As I discussed in Chapter Six of my own book, every developed nation from England down to the present day got that way through protectionism and state industrial policy, not pure free markets. Even the good ol’ USA played this game from Independence until after WWII. Thing 8: Capital has a nationality . Capital mobility causes plenty of mischief in our overly globalized world, but it’s a myth that capital has been denationalized into free-floating ether. Money always belongs to somebody, and those somebodies have passports and home addresses. It matters who’s in charge, and the answer is never “nobody.” Thing 9: We do not live in a post-industrial age . The myth that we do has just led to the neglect of U.S. manufacturing while Japan and Germany remain quite competitive in hard industries despite paying decent wages. You can’t download a ride to work or the supermarket. Thing 10: The U.S. does not have the highest standard of living in the world . Much bad policy, both here and abroad, has been based on the idea that the American version of capitalism is observably superior. But our per-hour average income ranks about 8th in the world on a purchasing-power parity (read the book to find out what that is) basis. Thing 11: Africa is not destined for underdevelopment . Africans aren’t poor because of any mysterious or immutable factors. In the 1960s and 1970s, they were making progress. They’re poor for the same reasons other nations were once poor–which means that their poverty can be fixed if the apply the same solutions other nations have. Thing 12: Governments can pick winners . Not every time, and don’t get careless, but the free market isn’t always right, and the government isn’t always wrong. In the U.S., government was responsible for (in order) the Erie Canal, the Transcontinental Railroad, the Interstate Highway System, and the Internet. Not to mention the aircraft and semiconductor industries. In East Asia, governments did even more. Thing 13: Making rich people richer doesn’t make the rest of us richer . Trickle down economics doesn’t work because wealth doesn’t trickle down. It trickles up , which is why the rich are the rich in the first place. Thing 14: U.S. managers are overpriced . America has the highest-paid corporate managers in the world. We don’t have the best-performing industries. Are we getting our money’s worth? You do the math. Thing 15: People in poor countries are more entrepreneurial than people in rich countries . Yup: they open up fruit stands at the drop of a hat. This doesn’t stop them from being poor, so stop telling them they need to be more “entrepreneurial.” Their problems lie elsewhere. Thing 16: We are not smart enough to leave things to the market. In the real world, markets don’t take care of themselves. They need to be regulated. How much and in what way is legitimate party politics, but an unregulated economy is a dangerous fantasy. Thing 17: More education in itself is not going to make a country richer . You need not just education, but industries for educated people to work in. And paper-pushing education isn’t necessarily the kind of education you need–something America forgets with its neglect of serious vocational training. Again, ask Germany and Japan. Thing 18: What is good for General Motors is not necessarily good for the United States . There was (maybe) once a time when the interests of giant corporations were reasonably closely aligned with the interests of the national economies they reside in. That time is long gone. Multinationals will treat nations as hotels if we let them. Thing 19: Despite the fall of communism, we are still living in planned economies . Capitalist planned economies, that is–only nobody calls it that when we get the results that happy suburban consumers like ourselves want. The very fact that people are whining to Washington to solve our economic problems reveals how important planning is in this country. Thing 20: Equality of opportunity may be not be fair . A “get what you deserve” society sounds good, and in many ways it is, but there need to be some minimums for what even the losers get. Thing 21: Big government makes people more open to change . Because it makes them more able to take risks. Some economies with big welfare states do very well, thank you. It all depends on what kind of big government you have. If big government is always a loser, why is America borrowing money from Sweden ? Thing 22: Financial markets need to become less, not more, efficient . Efficiency in financial markets isn’t the same thing as efficiency in other industries. It can easily just mean “efficiently sinking into debt.” Even we Americans understood this from about 1930 to 1980; time to relearn it. Thing 23: Good economic policy does not require good economists . Most of the really important economic issues, the ones that decide whether nations sink or swim, are within the intellectual reach of intelligent non-economists. Technical Economics with a capital “E” has remarkably little to say about the things that really matter. Concerned citizens need to stop being intimidated by the experts here. On this last score, reading Dr. Chang’s book would be a good place to start.

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Fred Hochberg: American Business Needs to Get in the Game

March 24, 2011

Teamwork. Cooperation. Intense preparation. That’s what is needed to win at the highest levels of athletic competition. It also is what will be needed in Brazil as the country prepares to host two of the world’s largest sporting events: the 2014 World Cup and the 2016 Summer Olympics. As I traveled with President Obama in Brazil, you could see the anticipation and excitement building for these events; you also could see the enormous investment and planning that is required to ensure that they will be successful. Brazil is planning to spend $200 billion in additional infrastructure across the country on everything from roads and public transportation to airports and sports stadiums. World Cup events alone will be played in 12 cities. It is critical, as President Obama told business leaders in Brazil, that America does more than just watch these projects from the stands. It is critical that we get in the game. We may not always win on the soccer field, but when it comes to providing the engineering services, machinery, security systems and IT support required to build and run the stadium, or the buses and transportation systems needed to get fans into their seats, American business is second to none. This is no time for the United States, particularly our business community, to be sitting on the sidelines. These projects play into America’s strength — and require the types of high-quality capital goods and services that U.S. companies lead the world in producing. To ensure that Brazil can obtain more American-made products and services for these important projects, President Obama announced $1 billion in financing through the Export-Import Bank of the United States. Its purpose is to facilitate the purchase of more American goods and services for various infrastructure projects, including those associated with the World Cup, the Olympics and the rebuilding that is needed in the wake of recent flooding in Brazil. One of the key points President Obama emphasized in our meetings was the enormous opportunity for Brazil and the United States to be doing more business together. And to be doing the kind of business that is mutually beneficial for our countries — the type that creates good jobs and boosts local economies. 2010 was a strong year for that type of cooperation and teamwork. And there is reason to be even more bullish on the future. U.S. goods exports to Brazil were up 35 percent in 2010. These sales support about 250,000 U.S. jobs. And over the last five years we have doubled our exports to Brazil. This has allowed our countries to build a strong and mutually beneficial $80 billion trading relationship — and we see enormous opportunity to grow and deepen these economic ties in the coming years. Brazil’s economic trajectory has been remarkable. Today, it is the world’s seventh largest economy –a nd this growth has helped put millions of Brazilians on a path to the middle class. However, meeting the needs of this growing middle class will require significant additional investment in building power capacity and infrastructure. In Rio today, 16 percent of people move around the city using mass transit. The country is making plans to raise that figure to 50 percent by 2016. This will require an incredible investment. The city currently has 25,000 hotel rooms. To meet the demand for upcoming events, they are looking to grow that by 4,000 rooms by 2013, with the goal of further increasing capacity for the Summer Olympics. In addition to these infrastructure projects, Brazil is expecting electricity consumption to grow more than 60 percent between 2009 and 2019, requiring total investment of more than $128 billion. To address this, Brazil is rapidly developing its renewable energy sector, with a particular focus on biofuels, hydropower, wind and solar. The country also recently discovered deepwater oil reserves that are twice the size of our reserves. These are all additional areas of opportunity and for partnership between our countries — and they are sectors where private investment is critical. They also happen to be areas where Ex-Im Bank’s financing is particularly effective at ensuring the success of a project. We have a long history of working with Brazil, beginning back in 1936. Much of our early work involved financing the sale of millions of dollars of American-made electrical, railway, mining, and cargo equipment. As Brazil continues to build and rebuild, there is an enormous opportunity for the U.S. to assist on these critical projects. And we are continuing to look for new and innovative ways to finance these transactions. In the last two years, our nation has made real progress in building the foundation for an export-focused economy. And the results are beginning to show: Exports were up 16.7 percent in 2010, putting us on target to meet President Obama’s goal of doubling exports by 2015. And in January they hit the highest one-month total ever recorded. To continue building on that momentum, we need to focus on strategic partnerships with key markets across Latin America. In today’s global economy, nations that build together — and buy from each other — are invested in ways that go far deeper than just business transactions. They are investing in each other’s prosperity, security and economic vitality. They are investing in the hopes and dreams of each other’s citizens. When we make these investments, regardless of what happens on the playing field, both our countries — and our citizens — come away winners.

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Beth Arnold: Letter From Paris: Designing Women

February 28, 2011

“Style is knowing who you are, what you want to say, and not giving a damn.” — Gore Vidal WORDS TO LIVE by–and even more important when one lives in a foreign land. Think of Sofia Coppola’s Lost in Translation . Sooner or later every expatriate feels lost–and must rediscover who she is and express herself in a meaningful way. The women I’m about to present uncovered their entrepreneurial spirits and became designers. They transformed their self-identities–their individual styles–into products that organically fit them as well as their new lives abroad. I’d like to point out that what these designing women did not do was put products on the market just to make a buck, which seems to be the name of the game throughout what has become our throwaway culture. The high road of honesty, beauty, and principles–on every level–which also transcends into true style has been replaced with a mass superhighway of products that manipulate and push people’s buttons. A cheap thrill. Never forget: There is nothing more attractive–nothing more stylish or deeply, spiritually important–than authenticity. I was knocked out by each one of these women for reasons you’ll soon understand. Meet designers … 1) Kasia Dietz Kasia Dietz designs a line of one-of-a-kind, reversible handbags, totes, and clutches that are “made in Paris with love.” Ms. Dietz first began designing the bags a few years ago while she was still working full-time in an advertising career in New York. Mixing her passion for art, design and fashion, she came upon the idea of taking raw canvas and printing it–creating ‘wearable art’–with an added element of reversibility. “I …designed the ‘minimalism’ and ‘nature’ collections,” said Ms. Dietz, “and set up a website with the help of a friend. From there things took off!” Among others, the Japanese loved them, and she did quite well with sales. “During this process,” says Ms. Dietz, “I uncovered my mom’s prints that were collecting dust since the late 1970′s and incorporated them into my designs.” When her mother, Barbara Dietz (originally from Poland), was expecting her, she began to carve wooden blocks with designs of flowers, animals, zodiac signs, and more–and then print T-shirts with them (as well as bedsheets, flared pants, etc.). With the help of Barbara Dietz’s P.R. and marketing skilled husband (and Kasia’s father), the hand-made prints were a big hit with clients like Bloomingdale’s and Bergdorf Goodman. I love the roundness–and familial comfort–in this story, since Ms. Dietz has brought her mother’s art back to life–and uses her family name in memory of her father who passed away almost 20 years ago. Then, in 2007, the tall and slim creator took a break from normal life and traveled the world, always keeping a mindful eye on design, fabrics, colors, and art. “When I moved to Paris in August, 2009, I had the desire (and finally the time) to continue designing, considering I had collected 13 months of inspiration from my travels and was living in what can certainly be considered a fashion capital. But getting started was very tough, not to mention intimidating with my lack of contacts and poor language skills. I spent many afternoons carousing the garment districts of the Sentier and Montmartre looking for fabrics and a manufacturer.” She relaunched her site on December 1st, and sales are steadily growing. “My plans are to continue designing timeless reversible bags and totes, clutches, purses, etc. in fabrics that inspire me as well as printing my own canvas bags as in the latest ‘Paris’ collection. Perhaps a NYC and London collection and more designs incorporating travel.” Me, I’m a bag lady and could have a different one for every occasion. If I had to choose? I’m eyeing the Right Bank bag, since I’m a Right Bank girl. I could also be tempted with one of the number of my arrondissement. Naturally, Ms. Dietz’s love of travel and design are apparent in her bags, which can take a girl anywhere, whether she’s out on the town or planning a weekend away. For Kasia Dietz’s collection, go to www.kasiadietz.com . Select bags will be sold in NYC at Gramercy Project, 240 3rd Avenue, NY 10013. (Montage via Kasia Dietz. Other photos by Beth Arnold.) 2) Michelle Guiliano Necessity is the mother of invention is a phrase that could have been coined for Michelle Guiliano who designs functional gear and technical clothing for babies, so parents–like herself and her husband–who thrive on outdoor activities will feel confident in taking their little ones on outside adventures with them. In fact, Ms. Guiliano’s designs are so on target that her company BolderKidsTM Ltd. was named a Finalist in the 2011 ISPO (International Sports Business Network) BrandNew Awards that were held in Munich last month. Ms. Guiliano and her Danish husband, Jesper Westfall (pictured below), moved to Zurich 10 years ago, and their two boys were born there before they bought a house across the Swiss-French border in Divonne-les-Bains, France. She is an amateur endurance athlete, triathlete, and former rowing coach for Columbia University who became fed up with the inferior outdoor clothing products available to her kids when they were under the age of four. “It was a bit too reminiscent of being an athlete 20 years ago and having to buy a men’s small for any performance fabrics,” said Ms. Guiliano, “which, then, alas didn’t perform for women because without the right fit all is lost. Here we are again with an underserved niche market segment–babies and their outdoor loving parents. Well, I got motivated to build something great to get everyone outdoors with greater safety, comfort, and style.” She founded BolderKids in March, 2009. Hand-sketching the first designs for the Go Farther Performance Infant Carrier Collection, Ms. Guiliano used paper and plastic bags to make the first prototypes. She united the most practical elements of timeless Scandinavian design with Schoeller bluesign approved ecological performance soft shell fabric (made in Switzerland) to create her mittens, boots, and infant carrier. These handy products may have been too late for her own sons, but families with babies and young children can benefit now. Ms. Guiliano was heartened to see the international community recognize that even the youngest outdoor explorers need clever design and quality innovation. And you’ve got to love her brand’s cool slogan: Play Hard. Go Far.© What a great baby present for lovers of the outdoors! By the way, this is a tri-lingual family. Welcome to the new global world! Check out her video that demonstrates the infant carrier system: ISPO BrandNew Awards . For more on BolderKids, go to www.bolderkids.com . Ms. Guiliano’s mountain climbing sons, Peter and Andrew (BolderKids photos via BolderKids) And last though certainly not least… 3) Kirsten Hovenier and Mikée Westerling Crossing the border into Switzerland, one finds a much different style than exists in France. Kirsten Hovenier and Mikée Westerling can tell you all about the Swiss and their clean and fresh design, their wonderful materials and solid craftsmanship. These designing women are using original, up to almost one hundred-year-old Swiss army blankets to create handmade and cozy pillows in different sizes, sturdy footstools, agenda covers, firewood holders, duffle bags, napkin rings, totes, and more to stunning effect. Ms. Hevenier and Ms. Westerling, both from the Netherlands originally, have lived in several countries but moved to Switzerland with their families in August, 2007. They discovered the handsome army blankets, developed a great love for them, and began using them in their own homes. They turned the blankets into cushion covers for the sofa, took the blankets with them for long Swiss summer evenings, and used them for picnics on the banks of Lake Geneva. Everywhere they went, people loved them. Ms. Westerling and Ms. Hevenier have a great story to tell: “In the late 19th century until the early sixties, the Swiss army produced the covers for a war which, fortunately, never happened. The blankets were stored in caves in the Swiss Alps, which served as military depots. The traditional production ceased in the sixties and blankets remained in stock: brand new and unused, but at the same time, pure vintage, a rare combination! And DEKEN discovered this hidden treasure.” I am thinking what lucky girls they were, but it took more than luck to start their company. Ms. Westerling had worked as an interior designer while Ms. Hevenier had been a management consultant. But once their idea for using the Swiss blankets to create casually chic, handsome products for the home was hatched, the whole plan was laid out within two days. Thus DEKEN–Dutch for blanket–was born. These Swiss army blankets are beautifully distinctive: gray-brown with the typical red and white cross and sometimes even a stainless steel coin or seal. Because of reliable Swiss quality, the blankets are indestructible–and marked with the initials of the maker and the year in which the blanket was made. Each blanket is different. I can tell you I’m lusting for some of that gorgeous Deken myself! To see more of the Deken collection, check out www.deken.ch or www.swissarmyblanket.com . Deken is also sold in Camps and Cottages in California. (Photos via DEKEN) In cooperation with KarlenSwiss, Ms. Hevenier and Ms. Westerling have expanded the DEKEN collection with bags, cushions, and footstools made of the Swiss, Antilles and Dutch mailbag. The KarlenSwiss collection will be in stores in the US. * Where there’s a will, there’s a way. And these designing women have found theirs with their own impeccable style. Beth Arnold lives and writes in Paris. To see more of her work, go to www.betharnold.com. She believes in creativity. Crack your world open with it.

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Ian Fletcher: In Praise of Mercantilism (or Why Economic History Isn’t Boring)

February 26, 2011

Does economic history hold a giant clue for getting America out of its present trade mess? Yes, because it debunks the idea that free trade is how nations become prosperous. Instead, it shows that nations win at international trade by playing a 400-year-old game called mercantilism. Let’s look at England, for example. The great Adam Smith, founder of modern economics, published his epoch-making free-trade tract The Wealth of Nations , the origin of endless subsequent delusions, in 1776. But he was a hypocrite, for Britain in 1776 was not a blank slate upon which free markets and free trade could work their magic. It was instead the beneficiary of several prior centuries of protectionism and industrial policy. In the words of British economist William Cunningham: For a period of two hundred years [c. 1600-1800], the English nation knew very clearly what it wanted. Under all changes of dynasty and circumstances the object of building up national power was kept in view; and economics, though not yet admitted to the circle of the sciences, proved an excellent servant, and gave admirable suggestions as to the manner in which this aim might be accomplished. England in this era was, in fact, a classic authoritarian (this is long before English democracy) developmentalist state: a Renaissance South Korea , with kings rather than the military dictators who ruled South Korea for most of the Cold War period. English industrialization must actually be traced 300 years prior to Adam Smith, to events like Henry VII’s imposition of a tariff on woolen goods in 1489. King Henry’s aim was to wrest the wool weaving trade, then the most technologically advanced major industry in Europe, away from Flanders (the Dutch half of present-day Belgium), where it had been thriving upon exports of English wool. Flemish producers were entrenched behind huge capital investments, which gave them economies of scale sufficient to outcompete fledgling entrants into the industry. So only government action could get England a toehold. Even in the 15th century, there was an awareness that being an exporter of agricultural raw materials was a dead end–a problem impoverished African and Latin American nations wrestle with to this day. And there was an awareness that free trade will not lift a nation out of this predicament: you need some well-chosen protectionism. Henry VII created, in fact, the first national industrial policy of the modern era, long before the Industrial Revolution introduced artificial energy sources like steam power. A whole interlocking series of now-forgotten policy moves underlay the rise of English industry; what all these measures had in common was that protectionism was essential to making them work . In the words of economist John Culbertson of the University of Wisconsin and the Federal Reserve Board of Governors: Step after step in the cumulative economic rise of England was directly caused by government action or depended upon supportive government action: the prohibition of importation of Spanish wool by Henry I, the revision of land-tenure arrangements to permit the development of large-scale sheep raising, Edward III’s attracting of Flemish weavers to England and then prohibiting of the wearing of foreign cloth, the termination of the privileges in London of the Hanseatic League under Edward VI, the near-war between England under Elizabeth I and the Hanseatic League, which supported the rise of English shipping. And then there was the prohibition of export of English wool (which damaged the Flemish textile industry and stimulated that of England), the encouragement of production of dyed and finished cloth in England, the use of England’s dominance in textile manufacture to push the Hanseatic League out of foreign markets for other products… The aim of English policy was what would today be called “climbing the value chain”: deliberately leveraging existing economic activity to break into more-sophisticated related activities. Henry VII’s advisors got their economic ideas ultimately from the city-states of Renaissance Italy, where economics had been born as a component of Civic Humanism, their now-forgotten governing ideology. The name for this forgotten developmentalist wisdom of early modern Europe that has stuck is “mercantilism.” One of the great myths of contemporary economics is that mercantilism was an analytically vacuous bundle of gold-hoarding prejudices. It was, in fact, a remarkably sophisticated attempt, given the limited conceptual apparatus of the time, to advance national economic development by means that would be familiar and congenial to the technocrats of 21st-century Tokyo, Beijing, or Seoul. (And believe me, they’re still using these techniques against us.) For 400 years, this is how former Third-World nations have become former Third World nations. Mercantilists invented many economic concepts still in use today, such as the balance of payments, value added, and the embodied labor content of imports and exports. They championed the economic interests of the nation as a whole at a time when special interests (notably royal monopolies) were an even bigger problem than today. They began with obvious ideas like taxing foreign luxury goods. They progressed to the idea that exporting raw materials for foreigners to process was bad if the nation could process them itself. They understood that nations rose economically by imitating the industries of already rich nations (first the more primitive industries, then the more sophisticated) and that low relative wages were the key advantage of underdeveloped nations in this game. How little has changed! Mercantilists saw free markets as a useful tool in economics, but not the sum total of economic wisdom. Even their much-mocked obsession with the accumulation of bullion was not as irrational as it is usually depicted as being, given that under a monetary system based on gold, accumulating it is the only way to expand the money supply and drive down interest rates, a boon to investment then as now. Mercantilism, in fact, created the modern European economy and thus made possible the colonial power that economically shaped much of the rest of the world. It is thus the foundation of modern capitalism itself. Anyhow: Britain functioned on a mercantilist basis for centuries before its much misunderstood experiment with free trade began. Even as late as the beginning of the 19th century, Britain’s average tariff on manufactured goods was roughly 50 percent–the highest of any major nation in Europe. And even after Britain embraced free trade in most goods, it continued to tightly regulate trade in strategic capital goods, such as the machinery for the mass production of textiles, in order to forestall its rivals. This was rational, as the win-win logic of free trade starts to break down if productive capital is mobile between nations or if free trade induces productivity growth abroad. After Britain embraced free trade in the mid-19th century, its long economic decline , of course, began. Today, the United States is making the same mistake, having mistaken the temporary tactical advantages of free trade for a nation at the peak of its economic power for a fundamental strategic truth. Meanwhile, our rivals, especially but not only in the Far East, hold firm to the mercantilist principles that we ourselves employed for 150 years. Mercantilism has somewhat different application in developed, rather than developing, nations, but its fundamentals still hold good. At the very least, we need to defend ourselves against mercantilist aggression against us, something we are not doing .

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Lynn Parramore: Crank Up the Casino! Hedge Funds to Short American States and Cities

February 9, 2011

Today, Washington’s lawmakers began hearings on the massive fiscal problems the Great Recession dumped on American states and cities. The looming possibility of municipal defaults, which some say could total hundreds of billions of dollars, is causing grave concern. Hedge funds are also deeply concerned about America’s municipal debt crisis. They worry about how to best profit from it. The Wizards of Wall Street have looked over the catastrophe of cash-strapped America and found it good for business. In their corporate laboratories, they are working furiously to whip up wondrous new financial products that will allow them to reap millions from misery. You might think that after plunging the country into said Recession with their fancy financial products, these Wizards might feel a little indelicate about gearing up for a game of shorting a community near you. Clearly you don’t know Wall Street. The Financial Times reports that once-boring muni bonds are suddenly sexy: For decades, this $3,000bn bond market was safe, predictable and dull. The traditional buyers of the bonds issued by states, cities and other local bodies were wealthy local residents lured to them by the tax breaks on offer for individual investors. They bought the bonds, held them until they matured and then bought more. Not now. State deficits have ballooned, local authorities are grappling with huge public sector pension liabilities and triple A bond insurance that used to prop up even the riskier municipal bonds is harder to find. The mounting concern over “munis” has brought with it hedge funds and financial institutions who want to bet on the bonds’ creditworthiness, or make money on the back of volatile “spreads” — the premiums at which munis trade relative to benchmark debt. So much suffering. So many ways to squeeze money from it. The FT quotes the head of municipals at Arbor Research and Trading, who sums up the current hedge fund frenzy building: “There is a lot of blood in the water in the municipal space. Hedge funds smell that blood and are trying to figure out the best way to make money in the marketplace.” What the Wizards have to do is figure out how to take short positions that will soar in value as the creditworthiness of munis fall into the crapper. And it’s to credit default swaps — those “innovative” financial products that helped bring you the financial crisis — that the hedge hogs are turning. Credit default swaps are like insurance. Except that unlike insurance, which you can only buy on assets you really own, you can buy these goodies on your neighbor’s house, too. The moral hazard problems of this sort of nonsense are well known, which is why Wall Street fought so hard to make sure credit default swaps were not regulated like insurance. Once upon a time, as my colleague Tom Ferguson explained to me, English insurers discovered that scoundrels would buy insurance on ships they didn’t own and then leak voyage details to the French navy, so they could collect. Guess who sells most municipal bonds? Many of the same people who’ll be betting on their failure now. See a problem here? If you don’t own the underlying asset, then credit default swaps are simply gambling. So what we are talking about is an extension of casinos to every state and city in America. The European Union is finally moving on these vultures. But not us, it seems. The perversity of gorging on suffering never seems to bother the American financial sector. JPMorgan feeds on our hunger with its lucrative food stamp card business. And AIG gets into the game of letting strangers bet on your life. Why shouldn’t hedge funds make a little extra dough from the collapse of your hometown? Cross-posted from New Deal 2.0 .

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Grant Cardone: Never Be Ripped off by Credit Cards Again

February 2, 2011

Use the credit card companies and don’t let them use you! It is unnecessary for anyone to ever find themselves the victim of their credit cards. Because the current credit card industry is under tremendous attack by things like the CARD Act Implementation, competition, and the threat of a shift from plastic to mobile credit, the smart consumer is in a great position today if they know how to play the game. While credit cards have gotten a bad reputation for victimizing people with late fees, penalties, and high interest rates, the informed customer is in a position to turn the tables. Here are some secrets to help you take advantage of the credit card companies rather than having them take advantage of you. 1) Be in Control: Most people get a credit card as victims and agree to being taking advantage of. Reverse this by making your decision to only use them for their convenience factor without paying to do so. I never pay interest, sign up fees or late fees on a card — I use them. They don’t use me. 2) Pay Off the Balance in Full: I never carry a balance with the credit card company no matter how attractive the rate. If you can’t pay it off at the end of the month, don’t use it. This doesn’t take just commitment, but it takes an agreement from everyone in the family that credit cards are only used as an accounting device, its convenience, and only when you can pay it off. 3) Negotiate your rate: If you are going to have a recurring balance, which I don’t recommend, call and negotiate directly with the company. You have every right, and should, call and ask to have the advertised rate lowered. Also, the better your credit and payment history, the better your chances of selling this to them. 4) Customize Your Due Date: Let’s say your paycheck comes on the 15th and 30th, but your credit card bill is due on the 5th. To improve your cash flow and not put yourself under unnecessary pressure, coordinate the due date that best fits your cash flows. You don’t need stellar credit to make this call and ask for the change. 5) Ask to Have a Late Fee or Interest Fee Removed: If you have a good history of on-time payments and then find a late fee or interest fee on the statement because you didn’t get your payment in by the due date this time, ask that it be removed. I have done this successfully on over a dozen occasions. Ask for mercy that they remove the fee to reward you for your past good behavior. If the person you speak with can’t do it, ask for a supervisor and make it clear that you are willing to close the card out if they don’t remove it. 6) Negotiate the Annual Fee: There is tremendous competition for your business today. There’s no reason for you to pay for the use of a credit card. Even a $35 fee a year over a period of 5 years is $175. I’d personally much rather spend that on my wife. Tell the issuer that you want to use their card but don’t want to pay the fee. Chances are they won’t want to lose your business. While credit cards can be seen to victimize people they can also be an asset when used correctly. They provide convenience, act as the perfect accounting for expenses, accumulate travel points and cost you nothing. As long as you can be aware and responsible of how you make use of your credit cards, you’ll find that they can be great assets to your life. With estimates of over 1 billion Visa, Mastercards and Amex cards in circulation just in the US, it would be important that you make a decision to use your credit cards to benefit your household rather than participating in the credit card company victimizing you. Grant Cardone is a NY Times Best Selling Author and Sales Training Expert.

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Ian Fletcher: Why Free Trade Can’t Abolish International Economic Rivalry

January 25, 2011

A recent article criticizing my work contained this multifaceted gem of fallacies: Even a dumb lawyer like me can see that modern global supply chains have made “a world of ruthless economic rivalry” a thing of the distant past, and that trade (i.e., voluntary, mutually beneficial exchanges) has never, ever been a zero sum game. Let’s take this apart, step-by-step. 1. The idea that modern global supply chains have abolished international economic rivalry is trivially false. Even if aircraft, say, are now made out of components manufactured all over the world and brought together for assembly, this doesn’t change the fact that the steps of the supply chain with high value-added per man-hour will take place in some nations and not others. And high value-added per man-hour is the only possible basis of sustainable high wages. That’s why Alabama paid $153 million in incentives to land a Mercedes-Benz plant, and governments all over the world are in a similar race. 2. The statement that “trade (i.e., voluntary, mutually beneficial exchanges) has never, ever been a zero sum game” is, by virtue of its id est parenthesis, strictly speaking a mere tautology. I assume that what the author meant to say was that “trade consists of voluntary, mutually beneficial exchanges and has therefore never, ever been a zero sum game.” (He is welcome to correct me if I misunderstand him here.) There are three problems with this idea: a) Trade doesn’t have to be a zero-sum game to be a rivalry. Football isn’t a zero-sum game, because even if you lose, you still have the fun of playing the game. But that doesn’t mean there aren’t winners and losers. b) By the “mutually beneficial” standard, it is advantageous for a starving man to sell his shoes! True enough, narrowly speaking, but it avoids the much more important question of how he got to be starving and without any other assets in the first place. Selling his shoes is a response to a particular bargaining position that he finds himself in; it does nothing about how he got into this position or how to avoid ending up thus. Analogously, America borrowing money from abroad to buy flat-screen TVs (as we do) is indeed better for us than going without the TVs. But what would be even better for us is if we had the capacity to produce them for ourselves, as then we would not only enjoy the TVs, but also the high-paying jobs associated with hosting a technologically advanced major industry. c) The calculation of what is “mutually beneficial” depends, in a market economy, on prices being right. And there are any number of reasons why they can be wrong in international trade. Let’s start with the obvious fact of China’s government artificially manipulating its currency to gain competitive advantage. If prices are wrong due to state intervention, then free-market responses to those prices will be wrong, too. As I’ve noted before, libertarianism only works in a perfect world.

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Richard (RJ) Eskow: Which Is More "Gangsta" – 50 Cent’s Twitter Stock Pitch or Goldman’s Facebook Deal?

January 12, 2011

Music was Clarence “50 Cent” Jackson’s second career. News reports say he began dealing crack at the age of twelve, after the murder of his coke-dealer mother. Early tracks like “Ghetto Quran” and “How to Rob” reflect a brutal, street-hustling life, and Jackson has the bullet wounds to match. He’s talented, wildly successful, and I sure wouldn’t mess with him. But when he starts mixing social media with pumped-up investment pitches, 50 Cent is moving into Goldman Sachs territory. “Fitty” reportedly earned millions for touting a stock on Twitter, without disclosing that he owned shares in the company. How does that stack up against Goldman’s own social media deal with Facebook? When you move into the stock market, you’re going where the real gangstas roll. The Message We’re in the middle of a much-needed national dialog about harsh and violent rhetoric, and rappers like 50 Cent have been singled out again for criticism. I’m opposed to music censorship, but I get the concern. Even some of the best rappers glamorize things I despise. Yet even as some politicians wag their fingers at hip-hop criminals, their other hand’s stretched our for campaign cash from corporate lawbreakers. Sometimes the difference between crime on the Mean Streets and crime on Wall Street is just a matter of degree. And don’t think the language and lifestyle can’t get rough on Wall Street. Morgan Stanley’s brokers had a now-famous phrase, used whenever they sold their own clients bad investments: “I ripped his face off.” It was a Goldman Sachs executive who praised another employee for selling Goldman clients on a program he described as a “shitty deal.” (That guy’s now a senior exec at Bank of America.) And the depositions in Goldman’s sex discrimination suit read like the script to a rap video: female employees pressured to join a party in a topless bar, a woman pinned against a wall and forcibly kissed, a Christmas party with female escorts wearing “short black skirts, strapless tops and Santa hats.” Throw in some beats and a few “uh-huh’s” and “yeahs” and you’ve got yourself a video. Fitty Twitters “Ok ok ok my friends just told me stop tweeting about HNHI so that we can get all the money. Hahaha check it out its the real deal.” 50 Cent tweeted about a marginal stock all weekend and into early Monday , calling it “BIG MONEY” and saying “you can double your money right now.” The effect was mindblowing: Jackson’s credited with moving the stock of a company called HNHI by $50 million dollars in one day , even though its own auditor reportedly ” expressed concerns about its financial future .” Fitty didn’t mention that he held 30 million shares of the stock, which he picked up for $750,000 last fall. Yesterday’s surge reportedly netted him somewhere between $8.7 million and $10 million. No wonder so many news accounts repeated the name of his hit album, Get Rich or Die Tryin’. HNHI increased in value by about 200%. Even after it dropped more than 23% today, Jackson was way ahead of the game. Fitty’s attorneys presumably got a little worried, because the disclaimers started appearing late Monday: “HNHI is the right investment for me it might not be for u! Do ur homework,” “I own HNHI stocks thoughts on it are my opinion. Talk to your financial advisor …” Old School How does Fitty’s Twitter run compare with Goldman Sach’s Facebook deal? Goldman consolidated a number of its clients into a single artificial “investor” to get around a legal requirement that any company with more than 500 investors be publicly traded and subject to the regulations that protect investors. Felix Salmon observes that this deal is bigger than many IPOs, but doesn’t have to follow any of the same rules. Goldman sure knows how to create a feeding frenzy. They wouldn’t let anybody into the deal for less than $2 million – a surefire way to make the marks salivate – and touted the deal shamelessly to its clients: “When you have a chance I wanted to find a time to discuss a highly confidential and time sensitive investment opportunity … If you agree not to use information that we reveal to you … I will be able to disclose the name of the company and provide you with more information…” Former Goldmanite Nomi Prins captures the essence of the deal: create an artificial bubble and then “pawn off the overpriced goods on the clients.” As Prins notes, Goldman’s giving itself the option to unload this investment if it goes bad, but is locking its clients in until 2013. Knowing Goldman, they’ll also be shorting Facebook somewhere along the way. The country learned their M.O. afer the last crisis by reviewing their internal emails , and by the cynical and lawless way they played clients in the ABACUS deal. To avoid legal trouble this time around, Goldman’s even disclosed in advance that it may short Facebook. Goldman skims a lot off the top, then lets you buy into a deal so skewed that one of its own funds turned it down. In return, you get to say you own a piece of Facebook. Maybe they’ll even give you a nice certificate you can hang on the wall of your Las Vegas investment property. Blowing Bubbles Is Facebook this year’s version of Vegas real estate? It looks that way. Even the most successful business has a real and an inflated value, after all, and I tend to agree with all the people who say Facebook’s going to fade away like MySpace did. Think about it: Facebook has a badly designed interface, it’s difficult to use, and it continues to irritate and infuriate its customers. Badly-managed companies can thrive for a while, but not forever. And the Goldman deal sidesteps the very public accountability that might encourage Facebook to make the changes it needs. But whatever happens to Facebook, the Goldman deal is a bubble machine designed to inflate its price. And Goldman’s tapped the mother lode: the US government. As Simon Johnson points out, their Facebook investment is backed by the Fed – and therefore by the public’s dollars. 50 Cent may have made a few mil, but the big banks have knocked off Fort Knox. Goldman invested $75 million in Facebook early on through a hedge fund. Now they’re saying they’ve put $450 million of their own money into this deal, but they get that money at the ultra-low Fed rate the government gives them. So they don’t need to earn the same returns their clients do. What’s more, they can unload their investment whenever the bubble deflates and walk away with their “client’s” money one more time. Throw in the $60 million plus they’re charging for the deal, and they’re sitting pretty. Those “lucky” Facebook investors: Goldman will get rich. They’ll die tryin’. Fitty vs. Blankey So how does 50 Cent stack up against Goldman – morally, ethically, and legally? For one thing, Mr. Jackson is not a bank or investment manager and doesn’t claim any special financial expertise. Fitty doesn’t receive low-rate loans through the Fed’s discount window. Neither he nor his company, G-Unit Records, received a Federal bailout. 50 Cent did not receive $13 billion in taxpayer money as a “backdoor bailout” through AIG. (Disclaimer: I used to work at AIG.) And 50 Cent has never paid himself a nickel, much less a huge bonus, after being rescued with Federal funds. Goldman wouldn’t admit that it misled clients about its ABACUS product until it was time to plea bargain its way out of SEC fines and potential criminal charges. Until then Goldman execs congratulated themselves for dumping bad investments on their clients. Now that’s cold . Fitty, on the other hand, copped to his actions right away. On the rhetoric front, 50 Cent’s pretty rough: “I’ll hit your vertebrae, rip through your tissues/your wife on the futon huggin’ the shih tzu.” Goldman’s more genteel – but some of its political allies aren’t. Most of its campaign contributions are placed through intermediaries – in this case, the GOP Senate and Congressional Committees. Some of the candidates funded by these groups have used a lot of violent rhetoric, like threatening “Second Amendment” reactions (i.e., gun violence) to decisions they don’t like,firing guns at targets with their political opponent’s face on it, and suggesting they would issue “hunting permits” for “liberals.” If there’s a difference between this rhetoric and 50 Cent’s, I can’t see it. (And despite all their populist Tea Party rhetoric, these candidates have come through for their Wall Street patrons . ) The chorus to the “shih tzu” song is “I’m laughing all the way to the bank.” But 50 Cent has an actual product – music – so he’s a part of the productive economy, not the financial sector. Curtis Jackson’s a self-made success who came up the hard way, with talent. If Kanye is rap’s F. Scott Fitzgerald, its chronicler of the high life’s pain and pleasure, 50 Cent is its Jim Thompson. He’s the poet of blood and bullets. His raps remind me of what a great jazz bass player once told me about that instrument: that it stands on the bordeline between melody and percussion. 50 Cent raps on the border between prose and percussion. There’s no evidence of criminal behavior in either Curtis Jackson’s Twitter move or Goldman’s Facebook deal. But 50 Cent has proved that the so-called “rational” “free market” is neither. And Goldman has proved that Wall Street is still up to its old tricks, getting rich creating bubbles and then getting even richer as they pop. No, I don’t like the violent language. Or the sexism. Or the glorification of bad behavior. But enough about Wall Street: I don’t like those things in music, either. One of the things worth remembering about language is that it reflects deeper values. If we despise what these words reflect, we shouldn’t tolerate the behavior. Don’t censor music. Regulate banks. _______________________________ (Two videos for your enjoyment: 50 Cent and Lloyd Blankfein. Play them at the same time for the proper effect.)

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Gary Shapiro: CES: Summit for Innovation and Economic Comeback

January 7, 2011

This week, the International CES is underway in Las Vegas, showcasing the newest innovations in consumer electronics. The tradeshow will host more than 125,000 innovators, entrepreneurs, marketers and technology enthusiasts in what has become the largest gathering for consumer technology in the world. The CES also attracts government leaders from around the globe, including two U.S. cabinet secretaries and Federal Communications Commission Chairman Julius Genachowski. For more than three decades, CES has played host to the unveiling of countless game-changing innovations including the VCR, camcorder, CD player, DVD player, HD radio, Internet-enabled television, 3D television, and augmented-reality video games. As we enter this new decade, it is my hope that the excitement of CES, and the celebration of innovation, will serve as a signal that the U.S. economy is turning the corner after a difficult two years. We’re all ready for the great American comeback. It’s time we restore our faith that democracy and technology can bring long-lasting peace and prosperity, if actively nurtured and governed by a public-private partnership committed to change. At a time when politics has divided our nation, here is an area where we can unite: 96 percent of Americans believe innovation is important to the future of the nation, found a recent Zogby poll . In the same poll, 74 percent identified either small businesses or entrepreneurs as “most critical” to the future of the economy. The entrepreneur, wrote the economist Joseph Schumpeter, is “the pivot on which everything turns.” These business revolutionaries, many of whom will be at CES this week, are the agents of change – their ideas bring new jobs and economic prosperity, and they push our society forward. But they cannot singlehandedly lead the comeback. We need lawmakers who will support a pro-innovation, pro-entrepreneur economy by following the policy roadmap I set out in my new book, The Comeback: How Innovation Will Restore the American Dream , which debuted here on the opening day of CES: *Embrace international trade and open markets. As Congress returns to session this month, it should move to pass three long-stalled trade agreements with Colombia, Panama and South Korea that would add billions of dollars to the U.S. GDP. *Modernize visas so that the best and the brightest can not only study in America but can also stay thereafter and work in America. Foreign-born entrepreneurs founded more than half of all Silicon Valley start-ups created in the past decade, and they are crucial to the success of our economy’s next chapter. *Unshackle entrepreneurs and small businesses from costly regulations. Congress should encourage capital formation and investment in young companies – not pass laws that favor lawyers and lobbyists over entrepreneurs and their investors. *Cut the deficit. No more Cash for Clunkers and bank bailouts, and forget about earmarks. The federal deficit eats 11.2 percent of the U.S. GDP. Cutting it involves hard choices, but we have to do it to preserve the hope of the American Dream for our children. If government leaders fail to make clear-cut policy decisions that spur job growth and foster innovation, America’s economic recovery will continue to stagger.With so many policymakers and business leaders from around the world at CES to see the game-changing innovations and meet the entrepreneurs and innovators behind them, this week is our chance to kick-start the conversation. Beginning this week, in partnership with the Las Vegas Convention and Visitors Authority, we added the “World Trade Center Las Vegas” name to the Las Vegas Convention Center. CEA is proud to own the rights to this powerful indicator of the importance of trade, and equally proud to be affixing it to the building that reinforces the message that tradeshows means global business. Let’s make this week the summit for change, the place where entrepreneurs and government work together to write the next chapter in the great American comeback. Gary Shapiro is the president and CEO of the Consumer Electronics Association, which represents more than 2,000 technology companies and hosts the International CES. Shapiro is the author of The Comeback: How Innovation Will Restore the American Dream .

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Steven Bulwa: The Media Has Failed Us

December 31, 2010

Financial media is not helping us become better informed or better investors. These outlets devote too much of their airtime to forwarding partisan propaganda rather than informing or entertaining us. The numbers suggest media is actually misinforming us and turning us into bad investors. The findings of a recent study, Misinformation and the 2010 Election from the University of Maryland’s World Public Opinion, show that 9 in 10 voters in the 2010 election believe they encountered information that was misleading or false, with 56% saying this occurred frequently. The study also concludes that those who watched Fox News almost daily were significantly more likely than those who never watched it to believe misinformation. The bad news for Fox News viewers is that merely watching the channel appears to be toxic. Most voters believed a few whoppers during the 2010 election cycle. But daily watchers of FOX News believed more misinformation than everyone else. Numbers Don’t Lie The majority of retail (casual) investors use mutual funds and ETFs (Exchange Traded Funds) to invest in the markets. Fund flows (deposits vs. withdrawals) are generally regarded as contrary indicators. This is a component of a broader series of indicators classified as investor sentiment that provide some insight into future directions of the market. The basic principle being that when many investors are bullish the market is more likely to go down and conversely a higher level of bearishness or negative sentiment indicates the market is likely to make a move higher. TrimTabs Investment Research reports on these fund flows and in a recent report stated : We observed that equity prices tend to fall after equity exchange-traded funds (ETFs) rake in large sums of money. Conversely, the market tends to rise after equity ETFs post heavy outflows. The report then issues this conclusion : We have two explanations for the strongly negative correlation between equity ETF flows and future market returns. First, ETFs are traded mostly by retail investors and day traders. These are the least informed and most emotional market participants–the ones most likely to lose money over time. Second, we suspect hedge funds use ETFs when liquidity dries up. Hedge funds were forced to close individual stock positions during the credit crisis, so they bought equity ETFs instead. Equity ETFs posted large outflows in 2009, when liquidity improved. These concepts are not really as complicated as they seem. It’s Economics 101. When demand outstrips supply, prices go up and when supply is larger than demand, prices go down. When funds are flowing into stocks, markets rise; but at some point most people are invested and there isn’t enough uninvested capital left to drive prices higher. Whatever the internal dynamics, the retail investors are generally the last to join in a rally and their main vehicle of investment are mutual funds and ETFs so large inflows into those instruments suggests that the market is near the top. That’s how many retail investors get the timing wrong and end up losing money. Nobody likes being wrong or losing money, it makes us feel pretty lousy and reluctant to invest, starting the whole cycle all over again. This is borne out in the current rally where the retail investor is reticent to return to the markets after being burned so badly in the housing/banking crisis of 2008 – maybe one time too many in the last decade. As a result they’ll probably join in just as the rally is about to top out. As Adam Shell recently wrote in USA Today : Yet, increasingly, investors on Main Street are not playing the stock market game with confidence like they used to, mainly because the game of making money has gotten tougher and more volatile since the financial crisis. Retail investors are buying fewer stocks. They are paring back on stocks and stock funds they already own. Instead, they’re moving into safer investments, like cash and bonds. “Investors are on strike,” says Axel Merk, president and chief investment officer at Merk Mutual Funds. Investors Should Turn Off Their TVs, Not Stop Investing With the proliferation of financial media and its informed commentary I would hope investor habits would be improving. But the numbers tell us they aren’t. The media is in fact complicit in perpetuating the retail investor’s position as contrary indicator, often referring to those contrary data points in assessing the market’s direction. In Rick Santelli’s famous rant on CNBC he called overburdened home owners struggling with their mortgages “losers” while using his podium to forward his political agendas. He is now credited with being the “lightening rod” of creation for the Tea Party movement. Perhaps he should have used his obviously influential media position to warn people of the perils of the housing bubble, helping them avoid complicated mortgage products that are hard to manage financially in the downturn that many market observers were predicting. Although I don’t blame investors for turning away from the markets after such treatment, it is the wrong decision. Markets have historically been a better investment than many other asset classes with the S&P 500 returning roughly a 7% annual rate of return . Stocks should, at the very least, be a strong component of a diversified portfolio. Instead of shying away from being burned again, investors should examine unsuccessful behavior, eliminate negative influences and improve decision making. Investment Principles for Profitable Investing Tune out the noise. Lengthen your investment time horizon. Never feel like you are missing out on a rally. Don’t panic in a selloff. History is your friend. Buy low and sell high so you can turn off your TV set to pursue activities you enjoy. I hope technology positively affects your life in 2011 and all your investments are winners. Follow Steven Bulwa on Twitter at @BulwaTech .

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Robert F. Brands: Top Innovations of 2010

December 22, 2010

The end of the year is a great time to reflect on your companies innovation performance. Did you deliver your Innovation Goals, maybe the “One new Product or Service per year”? As a business leader, what are your New Year’s resolutions for your company? As you think about the future of your company and how to make your business grow, implementing sustainable Innovation should be your top priority for 2011. Innovation is the lifeblood of any company and the only way to stay ahead of the competition. Let’s take a look back at the Top Brand Innovations of 2010 : For example, probably the most Innovative company this year: Apple. April 2010 — Apple’s highly anticipated iPad launches in the U.S., selling 300,000 units that day with approximately 8 million units sold to date (CNET). June 2010 — The iPhone 4 is introduced, featuring video calling capabilities and a sleek stainless steel design. June 2010 — Apple updates its latest design of the Mini Mac. September 2010 — Apple refreshes its iPod line of MP3 players to include a multi-touch iPod Nano, an iPod Touch with FaceTime video calling and an iPod Shuffle with buttons. October 2010 — Apple introduces the new MacBook Air laptop with the iLife suite of applications and a Mac OS X Lion operating system. After over 30 years in business, Apple continues to deliver a steady stream of new and refreshed products year after year. It’s easy to see why competitors have to be on top of their game to compete with Apple in the consumer electronics market. It’s Innovate or Perish. Innovation is key in delivering profitable growth. Looking to start consider looking into Robert’s Rules of Innovation, industry veteran Robert Brands gives the imperatives for how to create and sustain Innovation. With over 25 years of experience in creating innovative, breakthrough products at Kohler Company, Sylvania, Philips Lighting and Airspray, Robert Brands shares real life examples of what makes New Product Development teams succeed while others fail. Don’t get left behind in the New Year; make sure your company has the roadmap to successful innovation implementation. Happy New Year and a Prosperous and Innovative 2011!

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eBay User Turns Tables On Scammer With Great Trick, Serves Up Justice

December 16, 2010

Gizmodo flags this excellent and hilarious post on Reddit in which user BadgerMatt tells how he turned the tables on a woman who bought sports tickets from him on eBay for $600 and then refused to pay, claiming that she “overbid and my husband won’t let me buy these.” BadgerMatt was then unable to sell the tickets to people who had made lower bids, so he used a technique called the ” glim-dropper ” to trick the woman into paying what she owed. I created a new eBay account, “Payback” we’ll call it, and sent her a message: “Hi there, I noticed you won an auction for 4 [sporting event] tickets. I meant to bid on these but couldn’t get to a computer. I wanted to take my son and dad and would be willing to give you $1,000 for the tickets. I imagine that you’ve already made plans to attend, but I figured it was worth a shot.” At 11:30pm she responded to Payback: “I’ll do it for $1,100, no less. I can meet you at the game if you agree. I need your phone number.” At 11:35pm, Payback wrote: “Deal. Here is my number…” (Thanks Google Voice for the throwaway number). She called a few minutes later and made Payback “promise” to go through with the deal. She emphasized that she’d be out a lot of money if Payback backed out. Payback swore he would never do such a thing. At 11:45pm, the woman emailed me: “Fine. I’ll buy them. But you have to drop them off at my house tonight. I’ll have the cash ready.” So at fucking midnight I drove to her house across town and met her on the road in front of her apartment building. She was a nasty and rude individual. Things didn’t get any better when I told her I wanted an extra $20 for the trouble of driving there at midnight (yeah, pushing my luck, I know). It became very awkward and she literally threw 31 $20 bills at me. I counted them before handing over the tickets. I said, “thanks for the great transaction” as she flipped me off while walking away. At 10:00am she called Payback to make sure they were still on for the exchange. Payback said that he could no longer go to the game and wouldn’t be able to do the exchange. She blew her fucking top and I swear to god started speaking in tongues. Payback said, “Ma’am, this is eBay, not a car dealership” and hung up. I got a rabid email 10 minutes later telling me that I was going to hell and that she’s reported me to the local police, FBI, and… the fire department. WTF? She knew she’d been had and sent him an unhinged and profanity-laden email threatening him. He reprints the email in his Reddit post. It is well-worth reading. BadgerMatt wonders if he did the right thing. We think justice was served. What do you think?

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David Gorodyansky: Even Savvy Shoppers Can Get Scammed — Tips for the Holiday Shopping Season

December 7, 2010

Last week marked the official beginning to the holiday shopping season. More people will be buying their stocking-stuffers online than ever before this year. comScore predicts online spending this holiday season will grow by at least 9%, two times last year’s pace, and the National Retail Federation (NRF) is expecting 2010 holiday retail sales to rise by 2.3% this year to $447.1 billion, compared with a rise of only 0.4% last year. In fact, the NRF reported that 33.6% of Thanksgiving weekend sales (Thursday-Sunday) were online, the highest percentage ever. Yet as the number of Internet shoppers rises, so do the threats to both personal security and privacy. We are voluntarily putting more of our personal information out there than ever before through social channels like Facebook and Twitter and the associated purchasing mechanisms which have latched on to these communities — but are we being smart about our online activity? Not really. The average consumer remains negligent to the fact that their information is not automatically protected when online. Security breaches come in all shapes and forms, from sidejacking — where someone on your Wi-Fi network literally hijacks into your internet session to steal your info — to lesser known tactics of fake e-coupons that allow hackers to gain access to your credit card information. The recent release of Firesheep shed light on the fact that, despite some protection, we all still need to take measures to protect our personal information online. What many people don’t realize is that while your credit card numbers might be made public when shopping online, so can your behavior — which can be even more frightening. What’s even more alarming is that these privacy violations don’t just come from rogue hackers. Rather, big companies are in the practice of violating individuals’ online privacy everyday by monitoring and storing what you buy. Recently in the news there has been a resurrection of noise around Deep Packet Inspection (DPI), intrusive technologies for profiling and targeting Internet users with ads which goes beyond monitoring just Web browsing and literally tracks an individual’s behavior online. Creepy isn’t it? Even some of our favorite websites are getting into the game, such as Facebook passing your data to third party sites and Google’s Wi-Fi data collection. The point is, the general need to raise awareness around online privacy is all around us. Rest assured that not all hope is lost as there are a number of simple ways that you as a consumer can take your privacy and security into your own hands. Here are some simple tips and tricks that make it possible for anyone — tech savvy or not — to stay safe and private when hunting for the big deals and surfing the Web this holiday season: 1. Antivirus: Invest in antivirus software like McAfee, Symantec or Webroot, which helps to blocks viruses, spyware, spam and lesser known threats to consumers like trojans, worms and rootkits, encrypting critical passwords and making your PC invisible to hackers. 2. Download and be done: While antivirus technology is critical, it remains the case that only 40% of people are actually protected by their antivirus. To help ensure that you are completely secure and protected online, combine this with a tool like as Hotspot Shield, a completely free download (Virtual Private Network — VPN) which keeps you secured and blocked from outside eyes. 3. Stamp of Approval: Look for accredited seals of approval from third party entities. And wherever you enter your credit card or other personal information, make sure that there is an “s” after http in the Web address. This means that it is encrypted. 4. Lock and key: Make sure there is a tiny closed padlock in the address bar, or on the lower right corner of the window. This lets you know that the site is secure. 5. Too Legit? This one can be a bit tougher, but take a minute to look for signs that the business is legitimate. Goes without saying that the Amazons and Targets of the world are legit, but for smaller shops, double check that it’s a credible business by calling the main number or doing a quick online search for other user reviews. Online shopping provides an easy option for savvy shoppers, but make sure you’re smart about how you buy. Follow these tips and protect your identity, information and right to online privacy this holiday season.

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David Callahan: Why the Rich Cheat: A Primer on Upper Class Criminality

December 3, 2010

A persistent puzzle about financial crimes is that they often involve fabulously rich executives or traders who risk everything to do even better. The rest of us can only wonder: Just what, exactly, are these people thinking? That question came up often during the insider trading scandals of the 1980s, which brought down two insanely rich Wall Street superstars, Ivan Boesky and Michael Milken. It arose when billionaire Martha Stewart faced charges — and eventually served prison time — for acting on inside information to avoid losses of a few hundred thousand dollars. And the question is sure to be asked often in the months ahead as federal authorities round up more well-heeled suspects on insider trading charges. This latest government crackdown on insider trading has already ensnared a number of very wealthy individuals. Most notable among them is the billionaire Raj Rajaratnam and the top IBM executive Robert Moffat. Joseph Skowron, the hedge fund manager involved in the FrontPoint case — but not charged with any crime — lived in 10,000-square-foot mansion in Greenwich, Connecticut and, according to news reports, “amassed a collection of luxury cars that has included a blue Ferrari 458 and a black Porsche Cayenne.” And just the other day, authorities arrested wealthy San Francisco tax attorney Arnold McClellan , a partner at Deloitte Tax LLP, on charges of insider trading. His wife Annabel was also arrested. The McClellans lived the good life in San Francisco, with a 6,000-square-foot home in Pacific Heights. What’s up with these people, and so many others like them? Why would they risk so much when they already have everything? Well, as I argued in my book The Cheating Culture , a number of converging factors are usually at work when otherwise law-abiding people with lots of money turn into criminals. One is a persistent focus among those who are wealthy and competitive on their relative, rather than their absolute, well-being. A 6,000-square-foot house may sound pretty big to most of us, but it may not feel that way if those in your peer group own 10,000-square-foot homes and vacation places in Hawaii to boot. Likewise, a hedge fund guy who makes $10 million a year would seem to be doing amazingly well — except when he compares himself to the trader down the street in Greenwich who is making $100 million. Raj Rajaratnam was worth $1.5 billion in 2009 — big money, but not compared to George Soros who was worth $13 billion. As the economist Robert Frank points out in his book, Luxury Fever , the push to improve one’s relative position is actually quite rational and may be hardwired in us. If you’re the person with the smallest house in the neighborhood, even though you live in a big house, you may look less like you’re going places and get fewer opportunities thrown your way. If you’re the person wearing the $500 suit, you may lose out to the guy wearing the $1,000 suit, all other things being equal. Of course, various Wall Steeters have put the point about relative position in simpler terms over the decades: Money is how people keep score on Wall Street. If you want to be a winner, you need to make more than the next person — regardless of how much you make already. That imperative can lead people to do some pretty stupid, and illegal, things. Even small amounts of money, such as in Martha Stewart’s case, can seem significant because highly successful people often believe that they are winners because they fight relentlessly to score each and every point. Second, criminal behavior can be rooted in the ever rising bar of material expectations and the financial pressures that result. If you travel in circles where it is normal to have a spacious apartment on the Upper East Side and a place in the Hamptons, you’re facing a heavy lift to achieve and sustain that standard of living yourself. In this situation, it does make a difference whether you make $5 million a year or $15 million. Throw in a private jet and a place in Aspen as part of the norm, as well as philanthropic commitments, and you’re not going to be in the game without an income that is reliably in the mid-eight figures. It is easy for anyone to get financially over-extended, and this happens to the rich all the time. There is a long history of wealthy people who have crashed and burned in scandal because they turned to criminal actions to sustain an unaffordable lifestyle. For a particularly egregious case, recall the suicide a few years back of Jeffrey Silverman , the Upper East Side financier — with homes in Bridgehampton and Palm Beach — who stole from his own company to make ends meet. He killed himself as the net began to close. New York magazine called him “The Man Who Had Everything.” Unfortunately, he couldn’t afford everything. Finally, there is a more pedestrian reason why the rich cheat and break the law. Because they can — or think they can. When you’re part of a winning class which basically owns our political system, it can be easy to think that you’re above the rules. Or that you can avoid punishment when you break the rules by pushing the right buttons. Of course, this belief in impunity is largely correct. Most financial crimes do not result in punishment. The rich know the odds favor them when they cheat and the rewards can be vast. Until that calculus changes, big financial crimes will keep on coming.

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HuffPost TV: Arianna Discusses ‘Third World America’ On CBS ‘Face The Nation’ (VIDEO)

November 28, 2010

Arianna appeared on CBS’s “Face The Nation” Sunday morning, along with Bob Woodward, Edmund Morris, and Ron Chernow, to discuss her book “Third World America.” “I wanted to sound the alarm,” Arianna told host Bob Schieffer. With two-thirds of Americans expecting their children to be worse-off than they are, and with the U.S. lagging behind European countries in key areas, “We know there is something fundamentally wrong,” Arianna said. “That’s why we have that collective sense of anxiety and fear about the future.” WATCH: Edmund Morris, the author of a new biography of Teddy Roosevelt, said that he feels America has become a very insular society. As someone born outside of the U.S., he said he can view America through foreign eyes, “and not all I see is attractive.” “I see an insular people who are insensitive to foreign sensibilities, who are lazy, obese, complacent, and increasingly perplexed as to why we are losing out place in the world to people who are more dynamic than us and more disciplined,” Morris said. Arianna defended Americans from Morris’s criticism. “There is a lot of legitimate anger out there, the sense that somehow the game is rigged, that if you are powerful enough, that if you are running institutions that are too big to fail, you can get away with anything” she said. WATCH:

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