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Bill Cheney: Sony Data Breach: Another Case for Interchange Delay

by on May 3, 2011

Huffington Post…

When I was the CEO of a large credit union in California, I saw firsthand how consumers could panic — and rightly so — when their credit or debit cards were lost or stolen. We obviously couldn’t always prevent the initial panic, but we knew what to do to fix the problem: Reassure the member/customer, make sure the old card was canceled, wipe out any fraudulent charges, and issue a new card at no cost. It was the simple, right way to do business, and thankfully our way of doing business is the norm throughout the country at credit unions and banks to this day. I thought about all this last week as Sony announced that the personal information of its roughly 77 million consumers had been compromised in a data breach (and a second major breach was reported this week). Those consumers were correctly advised by the media to contact their bank or credit union and ask that their debit and credit cards be reissued. As I write, I know firsthand that credit unions are working with their members affected by this breach, and reissuing cards to them at no cost. Again, that’s the right way to do business, and we have a legal and ethical responsibility to absorb the cost. But, contrary to what some might think, the expense for taking this action is not and will not be reimbursed by Sony. Rather, credit unions and banks rely on interchange revenue to cover the cost of debit program administration, including in these circumstances, reacting to a merchant data breach. When all is said and done, credit unions and banks will have spent millions on what appears to be a major security failure caused by Sony’s inability to protect its consumer data. This is another reason why members of Congress should support senators Jon Tester (D-MT) and Bob Corker’s (R-TN) legislation (S. 575) to delay new interchange rules proposed by the Federal Reserve Board that are slated to go into effect July 21 of this year. Today, the debit interchange rate is a percentage of the total value of a transaction; under the board’s proposed rule, the rate could not exceed $0.12 per transaction. This capped rate would be significantly below the operational cost of providing debit program services, including fraud protection. An exemption to the cap is provided for smaller institutions, but it won’t work; there’s no way to actually enforce the exemption. The board’s proposed rule will affect all debit-card-issuing credit unions and other financial institutions. Data breaches such as the one we learned about last week will only exacerbate the problem for credit unions because the proposal and the underlying legislation would not allow these costs to be taken into consideration in terms of our ability to collect interchange revenue. And sadly, while the size of Sony’s data breach is significant, this is not the first merchant data breach and it certainly will not be the last. Yes, credit unions will continue to protect their members when merchants lose consumer data. But if the senators’ legislation is not enacted, merchants will receive a windfall while credit unions will cover even more of the costs of merchant data breaches — costs they will have no other way to make up but to raise fees on consumers when they would prefer not to do so. That’s why we continue to encourage all senators to support the legislation to delay and study the impact of debit interchange fee regulation. Whether one is a credit union CEO or a consumer, it’s clear that data theft is a major and growing problem, and unfortunately, there will be many instances in which cards will need to be canceled and reissued. We standby as always, ready to help, but we need to be able to afford the cost of helping the consumer.

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Simon Johnson: Why The FDIC Couldn’t Have Saved Lehman

by on April 28, 2011

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Under the Dodd-Frank financial regulation legislation (in Title II of that act), the Federal Deposit Insurance Corporation is granted expanded powers to intervene and manage the closure of any failing bank or other financial institution. There are two strongly held views of this legal authority: that it substantially solves the problem of how to handle failing megabanks and therefore serves as an effective constraint on their future behavior, and that it is largely irrelevant.

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Simon Johnson: Why The FDIC Couldn’t Have Saved Lehman

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GOP Rep’s Controversial Medicare Plan Worries Local Voters

April 9, 2011

JANESVILLE, Wis. — Most voters in Rep. Paul Ryan’s district in Wisconsin are familiar with his plan to scale back Medicare coverage for senior citizens. He has been talking about it for years as a way to keep the Medicare program solvent. But the possible impact became more real to his friends and neighbors this week when House Republicans declared that they will make the Ryan plan an issue in the 2012 elections. Some voters say they give Ryan credit for tackling the problem. But many also worry senior citizens might not be able to get needed medical treatment without full Medicare coverage. The issue has been the talk of the town, and opinion is divided. The debate helps explain why most politicians, including presidential hopefuls, won’t talk specifically about the plan.

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Daniel Wagner: Japan’s Government Needs to Move Quickly

April 3, 2011

Minimal Impact to the Global Supply Chain? In the absence of evidence to the contrary, it has become fashionable for some in the global business community to believe that the economic impact of Japan’s earthquake will be minimal. No one can truly know the ultimate impact because the world has never experienced such a severe natural disaster in an economy so critical to the global supply chain: This is not Indonesia, New Zealand, Chile or Pakistan — which have also experienced recent severe earthquakes — this is Japan. For the past three weeks, the world’s third largest economy has been plagued by chronic power shortages and supply chain disruptions — the ‘new normal,’ which is likely to continue for years. Although much of Japan’s heaviest manufacturing occurs in its south, which was largely undamaged as a result of the quake and tsunami, the ability to ship components to these facilities has in some cases been severely impacted, and ongoing power supply disruptions threaten to introduce long-term interruption into the production process. Japan produces approximately 60% of the world’s silicon, used to produce semiconductor chips. Shortages in these chips are only now being felt, as manufacturers had a 2-to-3 week surplus of chips prior to the quake. Japanese manufacturers are expected to lose up to $60 billion as a result of interruption in production capability this year due to power disruptions. For manufacturing organizations outside Japan, the long-term impact is more difficult to assess, but businesses as diverse as auto manufacturers, and video game, LCD, and laptop producers, have already been affected. Businesses throughout Japan have reported difficulty obtaining raw materials and transporting workers. Given that the timing of rolling brownouts is unpredictable, the ‘new normal’ for businesses involves flexible office hour scheduling and inconsistent transportation links, which are subject to change on short notice. All indications are that this is likely to continue for the foreseeable future, and will become acute during peak usage seasons during the winter and summer. If so, expect a more significant impact on the global supply chain in due course. The Importance of Chernobyl’s Radiation Legacy Chernobyl resulted in 400 times more radiation being released than was released in the atomic bombing of Hiroshima, but compared with the amount of radiation released during the atomic testing of the 1950s and 1960s, Chernobyl was a small fraction of that amount. Current estimates of the nature of radioactive contamination in the area surrounding the Fukushima plant downplay the significance of a problem. According to an April 2nd New York Times article , and based on a variety of sources of information it gathered, air and food was only considered to be harmful at the plant “after a short period of time”, while air, soil, water and food was considered to be “possibly harmful after a longer period” near the plant. Only food was considered to be “possibly harmful” elsewhere in Japan, though most of the prefectures in northeast Honshu had detected radiation in food above the legal limit in Japan. According to the report, there is no current cause for concern elsewhere in the world. If Chernobyl is any guide for Japan with respect to radiation contamination, this information is in stark contrast with the facts 10 years after Chernobyl. Vast areas of Belarus and the Ukraine remained contaminated . According to a study released in 2006 by the IAEA, a combination of human activity and precipitation reduced the negative impact of radioactivity on populated areas near Chernobyl, but resulted in the contamination of sewage systems. The main pathways for radiation to impact people was from radionuclides deposited on the ground and the ingestion of contaminated terrestrial food products. The ingestion of drinking water, fish, and products contaminated with irrigation water were considered to be minor pathways toward contamination. Due to the short half-life of radioactive iodine (just 8 days), the contamination of milk, which was the most immediate concern in the food chain, only remained a real concern for about two months following the period when radiation from Chernobyl was stopped. Contamination of various crops, including green leafy vegetables, was also a concern for about two months, though the longer-term impacts have been difficult to quantify. Longer-term concern with respect to human ingestion of foods were most notable in milk, meat, and vegetables. Japan should expect to need to monitor its food supply, and possibly rely on external sources of these foods, for a long time to come. Why the Japanese Government Needs to Move Quickly The focus of much of the press since the quake and tsunami has been on levels of radioactive iodine that has been released into the environment, but cesium-137 is a much greater health concern and has been linked to cancer deaths nine times greater than radioactive iodine, with a half life of 30 years . Last week, for the first time, the Japanese science ministry began to release measurements of cesium-137 in soil around the plant. The levels were highest from two points northeast of the plant, ranging from 8,690 becquerels/kilogram to a high of 163,000 Bq/kg measured on 20 March from a point about 40 kilometers northwest of the Fukushima plant. The hottest spot is similar to levels found in some areas affected by Chernobyl. Assuming the measurement is no more than 2 centimeters deep, nuclear engineer Shih-Yew Chen of the Argonne National Laboratory calculates that 163,000 Bq/kg is roughly equivalent to 8 million Bq/m2. The highest cesium-137 levels in some villages near Chernobyl were 5 million Bq/m2. If true, Fukushima has already released higher levels of Cesium 137 than Chernobyl, making it the worst source of nuclear radiation release in history. Given this, the Japanese government must now move quickly to stop the release of radiation from the Fukushima plants. If preliminary information is correct, Fukushima already is the worst nuclear disaster in history. It could become much worse by degrees if the Japanese government hesitates to use every resource at its disposal — including that of the IAEA and foreign governments — to solve the problem. In the absence of admitting the severity of the problem and acting with haste, Japan’s economy and its people face potentially grave consequences, and the northeast Asia region faces unknown consequences from the release of high levels of cesium-137. Daniel Wagner is managing director of Country Risk Solutions, a political risk consulting firm based in Connecticut, and senior advisor to the PRS Group.

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Michael Pento: Interest Rates Are On The Launching Pad

March 16, 2011

When the chorus of recovery cheerleaders reached their peak voice not too long ago, they used statistics like expanding consumer credit and surging U.S. trade deficits as their evidence for an economic rebound. In doing so, they denied the very nucleus of this past crisis; namely one engendered by onerous debt levels and inflation induced asset bubbles. Once one recognizes the problem, the only viable long-term solution seems obvious. Put simply, we must deleverage as a nation while boosting the value of our currency. However, instead of allowing markets to function freely the Federal Reserve, in full cooperation with the government, has now fully succeeded in putting us back on a path of destruction. Last week’s release of the Flow of Funds report issued from the Federal Reserve clearly underlines the fact that as a country, not only haven’t we deleveraged, but to the contrary, debt accumulation is still increasing. As of the end of Q4, total non-financial debt (household, business, state, local and federal debt) reached an all time record high $36.2 trillion. More importantly, not only is the nominal level of debt at a record but also if stated as a percentage of GDP. In Q4 2007 total non-financial debt registered 222% of GDP. In 2007, 2008 and 2009 it was 222%, 238% and 243% respectively. As of Q4 2010 that figure was 244% of GDP. To put those numbers into perspective, back in the year 2000 the level of total debt to GDP was 182%. That’s still bad but far below where it is today. The above numbers clearly illustrate that the over-leveraged condition that brought the economy down in 2008 still exists today; but only worse. All that we have accomplished is to transfer private debt onto the Treasury’s balance sheet. Now that the Fed is (hopefully) just months away from ending their manipulation of interest rates, the paramount question is how interest rates will climb. The Fed has been able to temporarily send yields lower. The ironic part here is that they accomplish this by creating inflation. However, the process of creating inflation to keep interest rates lower cannot last very long. This can only be achieved by convincing the majority of investors that deflation is a very credible threat. But the Fed and Administration’s epoch for pulling off that ruse has come to an end. The unrelenting growth of the Fed’s balance sheet, increasing monetary aggregates, surging gold and commodity prices, $100 barrel oil, soaring food prices and the projected trillions of dollars of new debt that must be printed in the future have served to vanquish the deflationists. Any vestiges of those once prominent voices can barely be heard today. In fact, those who still dare to mention deflation today are quickly and quite appropriately derided. So therein lies the problem for the Fed. Any further debt monetization by the central bank now becomes counterproductive. That’s because as inflation rates climb bond investors demand higher interest rates. The lower real interest rates become the less participation there will be in the bond market from private sources. If you don’t believe me ask Bill Gross. The Fed is now in the position of damned if you do and damned if you don’t. Interest rates have been artificially suppressed for such a long time that no matter what Bernanke does come June, interest rates will rise. If they extend QE2 into continued iterations of Treasury monetization, the Fed may find themselves the only players in the bond market at that price. Of course, the Fed could potentially buy all of the auctioned Treasury debt if it wanted to in order to keep rates low–as uncomfortable a position as that may be–but all other interest rates from bank loans to municipal debt would skyrocket. Unless…, the Fed decided to buy all that debt too;–hello Zimbabwe! But as unlikely as that scenario may be, the truth is that only a central banker could afford to own bonds that are yielding rates well below inflation, and growing even more so. Then again, if Bernanke stops buying at the appointed termination of QE2, yields will rise to at least the level in which they provide a real return after inflation. How much higher will rates go you ask? Well Mr. Gross has some thoughts on that: “What I would point out is that Treasury yields are perhaps 150 basis points or 1½% too low when viewed on a historical context and when compared with expected nominal GDP growth of 5%. This conclusion can be validated with numerous examples: (1) 10-year Treasury yields, while volatile, typically mimic nominal GDP growth and by that standard are 150 basis points too low, (2) real 5-year Treasury interest rates over a century’s time have averaged 1½% and now rest at a negative 0.15%! (3) Fed funds policy rates for the past 40 years have averaged 75 basis points less than nominal GDP and now rest at 475 basis points under that historical waterline.” To the above I say; not bad for a start Mr. Gross. But these aren’t exactly average times. We have never had a Fed balance sheet anywhere near the $2.6 trillion that it is today. In addition, the nation has never faced the prospect of $1 trillion deficits as far as the eye can see. Nor have we ever had our total debt as a percentage of GDP reach 244%. Now, Japan has not only been taken offline from buying our Treasuries, they may even be forced to sell a significant portion of their $882 billion dollars worth of U.S. debt. The bottom line is that a massive increase in the supply of debt coupled with rising rates of inflation will always place upward pressure on interest rates. Once the Fed steps aside from buying 70% of the Treasury’s current auctioned output they will leave a gaping hole. And for those Pollyannas who claim we are in an economic recovery, I would ask them the following questions. Who will supplant the Fed’s purchases of Treasuries at current yields? Since the level of debt in the economy has grown since the recession began, why will rising rates not place us back into an economic funk? Can the Fed unwind its balance sheet before inflation further ravages the country? And if the Fed isn’t able to raise rates significantly, what will stop the dollar from falling apart. Then again, I guess it all comes down to one simple question; do you believe the laws of supply and demand apply to U.S. Treasuries. If you do, then watch out for soaring yields. Michael Pento is the Senior Economist for Euro Pacific Capital

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Michael Pento: Geithner’s Failed Makeover

February 18, 2011

To counter the increasing demands that government reduce its micromanagement of the economy, last week the Obama Administration offered a fig leaf in the form of a white paper entitled “Reforming America’s Housing Finance Market.” In addition to marking the official end of the Bush era “ownership society,” where increasing the level of home ownership was a national priority, the document contains a recommended regulatory overhaul of the Federal Housing Authority (FHA) as well as Fannie Mae and Freddie Mac (together known as Government Sponsored Enterprises “GSE’s”), that intends to bring the share of government owned home loans from the current 95% to 40% over the next 5-7 years. In the report, the Obama Administration makes the important admission that government interference in housing had dangerously distorted the market. And, while the goal of reducing the government’s footprint in the housing market is certainly laudable, the reform plan is not only too little too late, but fails miserably to address the nucleus of the problem. Even if all the recommendations are adopted, the government would actually extend its explicit guarantees to bail out failing lenders. Most importantly, the proposal completely overlooks the most significant government distortion of the housing market: the Federal Reserve’s manipulation of interest rates. Thus, this plan will insure that government’s role in the mortgage market will likely expand in the years ahead. Banks are in the business of borrowing on the short end of the yield curve and lending on the long end. Since interest rates are generally lower for shorter time durations, banks make profits by capturing the spread. But if the gap between long term and short term rates narrow, or sometimes vanish completely, banks have a much harder time operating. Rapid and dramatic changes in interest rates also expose banks to money losing risks. In a free market, whenever the supply of savings contracts the cost of money tends to increase. Those rising interest rates curb the demand for borrowing and increase the propensity to save. Conversely, increased savings rates lower the price of money, thereby encouraging more borrowing. Consequently, in a free economy market forces tend to stabilize interest rate volatility. However in the United States interest rates are anything but free. When interest rates are set by a few people behind closed doors, as they are by the Federal Reserve, massive distortions can occur in the supply demand metric. For example, the S&L crisis of the late 80′s and early 90′s was brought about by the loose monetary policy of the 70′s. Rising interest rates, which were a direct response to rising inflation, soon found S&L’s paying out more on their short-term borrowed funds than they were collecting on their long term assets. The consequences for those imbalances caused by our central bank rendered nearly one thousand banks insolvent. To mitigate this problem, early in the last decade banks began turning more and more to securitization as a way to unload the mortgages on their books by packaging and selling loans to outside investors. Not only does securitization bring in fees and reduce banks’ risk exposure but it also sucks in more capital to the real estate market, while increasing financial sector profits. It’s no wonder that the securitization market grew to over $10 trillion in the U.S. before the credit crisis of 2008. On paper this was a good solution to the problem, but additional government involvement in the securitization market threw in a monkey wrench. Given the size and diversity of the investment market in the U.S. and around the world, there was adequate private demand for securitized mortgages. With relatively low risk and more generous yields than government debt, pension funds and other institutional investors bought heavily. However, as the Federal Reserve continued to lower rates and as the government engineered housing boom finally went bust, this private label demand dried up almost completely. The GSEs now provide financing for 9 out of 10 mortgages. Therefore, the real estate market today is virtually 100% distorted and manipulated by government forces. Treasury Secretary Geithner–the President’s main pitch man for the program–touted the proposed solution of a hybrid federal reinsurance plan that would include a standing federal catastrophic reinsurer for private guarantors of mortgage-backed securities. The government has already clearly shown that its erstwhile implicit guarantee is now in fact explicit for GSE debt. That condition would remain intact. However, now government involvement would also morph into an explicit guarantee to reinsure private label mortgages. Therefore, in typical government fashion, the proposed reforms are merely a repackaging of the previous sham. Even if the plan were to be successfully carried out, the GSEs would still account for nearly half of all mortgage financing. Only now the government would also back private insurance for private label MBS with yet another explicit guarantee in case of emergency. Who can doubt that such conditions will inevitably arise? As to how this can ever satisfy the need to remove moral hazard or getting the government out of the housing market is beyond me. In other words, there is no meaningful governmental withdrawal from the market. Most importantly, the plan does nothing to address the Fed’s role in making interest rates much lower and more volatile than they would otherwise be. Unfortunately the housing market will remain in government control for years to come and another real estate crisis will inevitably occur. Michael Pento is the Senior Economist for Euro Pacific Capital

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Ian Fletcher: Yes, American Manufacturing Really Is in Trouble

February 12, 2011

I’d like to respond to those commentators (Ron Boudreaux, Dan Griswold, and others) who deny that American manufacturing is in decline. These critics ask how American manufacturing can possibly be in decline when US manufacturing output is at an all-time high. This sounds like a reasonable objection to the claims of decline made by myself and others. But it’s not. Here’s the problem: decline is always a relative term, so the question, if one asserts that American manufacturing is in decline, is what is the appropriate level of American manufacturing output? Critics of the decline thesis tacitly assert that the appropriate level is “more than yesterday,” so if our manufacturing output is going up, all seems to be well. Nothing simpler! Unfortunately, the only rational standard for how much America should produce is how much Americans wish to consume . Because the only way to consume is either to produce what you wish to consume, or produce something else you can exchange for it. And this is where American manufacturing is clearly falling short, because America is running a huge trade deficit in manufactured goods, and we don’t produce enough of anything else (raw materials, services) to cover the gap. So instead we borrow and sell off existing assets. If Americans were willing to consume less, our manufacturing output would be just fine. But I don’t know a lot of people eagerly volunteering to accept a lower living standard. At some point, it all comes out in the wash. Either America must start producing more, or consuming less. And the longer we remain in denial about the fact that manufacturing is a sick sector in this country, the more likely it will be the latter. Another way to look at this problem is to observe that Don Boudreaux’s impressive figures about how “measured in inflation-adjusted dollars, U.S. manufacturing output in 2009 was about ten percent higher than it was in 2000″ come into proper focus when you remember that our overall economy was 32% bigger in 2009 than in 2000. So in fact, manufacturing isn’t booming, it’s standing pat. And while there’s no intrinsic reason manufacturing has to hold steady as a percentage of the economy, it sure as heck does have to stay big enough to match our consumption levels, which it isn’t doing.

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Fed Official: U.S. Can’t Grow Out Of Debt Problems

February 10, 2011

(Reuters) The Federal Reserve’s monetary stimulus plan can play a role in bringing down unemployment, even if the country’s jobless rate is unlikely to fall below pre-crisis levels, a top Fed official said. The Fed in November announced a controversial plan to purchase an additional $600 billion in bonds to keep down long-term borrowing costs and stimulate the recovery. Critics of the program have argued much U.S. unemployment may be due to “structural” factors such as skill mismatches, so monetary policy might be powerless to address the problem. However, Atlanta Federal Reserve Bank President Lockhart pushed back against that notion. “There is scope for reducing the unemployment through sensible monetary policy but that will leave probably a higher level of ‘natural’ unemployment … than maybe we enjoyed before the recession,” he said during a panel hosted by the Consulate General of Switzerland in Atlanta. The U.S. jobless rate fell to 9 percent in January from 9.8 percent in November, the biggest two-month decline in more than 50 years. However, hiring remains anemic, Labor Department data show, with only 36,000 jobs added last month. Asked about the problem of debt, the focus of the meeting, Lockhart said the United States needs a credible long-term plan to address bloated budget deficits expected to reach a record $1.48 trillion this year. He said the country cannot expect to simply grow its way out of the problem, arguing the current rate of economic expansion of around 2.5 percent to 3 percent is not nearly fast enough to catch up with the debt. “Although we are in recovery at the moment and we are seeing growth, the economy is expanding, until we have dealt with the underlying fiscal issues we are not growing on absolutely sound foundations,” Lockhart said. Lockhart did cite some encouraging signs for small businesses, saying he was seeing fresh evidence that banks’ reluctance to lend was abating. “What we get in our surveys of lending officers in recent months is some indication of the relaxation of lending terms,” Lockhart said. Copyright 2010 Thomson Reuters. Click for Restrictions .

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Richard Gaudreau: Foreclosure Sale — Buyer Beware!

February 8, 2011

Buyers of property at foreclosure are looking for a bargain, but that risk now must include the possibility that the title will be defective. One unsuspecting family purchased a home at foreclosure, intending to sell it to their daughter, only to have a title company question whether they acquired good title after they’d already invested $100,000 in renovations. ( Nightmare in Land Court, Mass. L.J. ) In the wacky world of securitized mortgages, who owns the mortgage is a ‘shell game’ worthy of the most accomplished back-street hustler. How securitized mortgages caused the collapse of the American economy is an oft-told tale that needn’t be repeated here. Suffice it to say that during the housing bubble lenders packaged thousands of mortgages together into each securitized trust, selling shares off to Wall Street investors much like selling shares of stock. Since banks no longer intended to hold their own mortgages, the incentive to avoid ‘bad mortgages’ gave way to greed because these now would be someone else’s problem. The days when your local bank owned your mortgage and had an incentive to work with you to save you both from a foreclosure are, by and large, over. Given the preference of lenders for foreclosures instead of loan modifications, one can only assume that lenders view a foreclosure as a cleansing process that purges a bad mortgage from the books and provides some sort of closure. The recent case of US Bank National Association v. Ibanez demonstrates that foreclosures aren’t the end of a bad loan, and that securitized mortgages can be as hard to kill as cockroaches in a rundown apartment. In Ibanez , Massachusetts’ highest court voided a foreclosure sale, finding that US Bank never owned the note and mortgage at the time it conducted the foreclosure sale, and, therefore, never acquired good title. The mortgage industry was so concerned about this type of problem that in the Fall of 2010 it took the extraordinary step of trying to ram through Congress a bill that would have validated foreclosures by ‘ rubber stamping ‘ the shoddy documentation behind securitized mortgages. President Obama vetoed that legislation. US Bank was supposed to have been assigned the Ibanez mortgage years earlier as trustee of a securitized trust, but amidst the thousands of mortgages changing hands every day, that little detail was overlooked. Realizing its chain of title was flawed, US Bank attempted to ‘paper over’ the problem by executing an assignment of the mortgage 14 months after the foreclosure sale. The Massachusetts Real Estate bar association filed an amicus brief, declaring the corrective assignment met local title standards, admitting this problem was in fact very common. While obviously intended to be helpful, one can only wonder at the arrogance of a position that attempts to justify an error by pointing out how often it occurs. The court remained unpersuaded, and the rejection of this title standard calls into question the legitimacy of innumerable other foreclosure sales. The Ibanez holding has left banks wondering whether it’s even possible to correct this type of problem, particularly if one of the assignors has filed bankruptcy. In my bankruptcy practice, it is not at all unusual to see lenders file a corrective assignment prior to commencing a foreclosure action trying to ‘paper over’ the problem. Indeed, the New Hampshire Bankruptcy Court now requires mortgage holders to include written proof of assignment as part of a lender’s request to foreclose. A big culprit in this convoluted mess is MERS, an organization created by various lenders, and one of the foundational blocks of the securitized mortgage market. MERS operates a private recording system where lenders can assign a mortgage outside of the chain of title in county land records, thus, avoiding recording fees. By avoiding the transparency of the public recording system, MERS makes it difficult to follow the chain of title of who has acquired your note or mortgage. Since the typical securitized transaction involves the transfer of a mortgage several times to insulate the trust from liability, MERS lawsuits nationwide have challenged its legitimacy, particularly the intentional avoidance of local recording fees. MERS claims to register more than 60 percent of the mortgages in the United States within its system. The Ibanez problem may be just the tip of the iceberg. The FDIC Chairman recently warned mortgage servicers not to let MERS conduct foreclosures, a common practice in years past. He also advised mortgage servicers to disclose the full chain of mortgage assignments in any Notice of Default sent to a homeowner prior to a foreclosure. If you have a MERS mortgage and are looking for information, you can find it at the MERS Servicer Identification website . If you no longer know who owns your mortgage because your mortgage has been transferred several times, your servicer is required to provide you that information upon written request under the Truth in Lending Act. Send a request for this information to your mortgage servicer pursuant to Section 131(f) of the Truth in Lending Act, 15 USC 1641(f), requesting the name, address and telephone number of the owner of the promissory note signed by you and secured by your mortgage loan. Finally, for the overly ambitious who have a securitized mortgage and want to view the legal requirements for transfer of the note and mortgage to the trust, you can generally find that information in Section 2.01 of the Pooling and Servicing Agreement (“PSA”) at the SEC’s Edgar database . Be forewarned that the length of the typical PSA caused one judge to jokingly warn me that if I made him wade through the hundreds of pages of fine-printed legalese, I might regret it someday. The above is not intended as legal advice for your particular situation. Questions should be addressed to attorneys admitted to practice within your state. Richard Gaudreau is a consumer bankruptcy lawyer admitted to practice in New Hampshire (NH) and Massachusetts (Ma) and may be reached through his website at attorneygaudreau.com, by email at Richard@attorneygaudreau.com, or by calling 603-893-4300.

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Dave Johnson: Jobs Crisis in Real World… Just Not in D.C.

February 3, 2011

Who is our economy for? Who is our government for? undergoing a transition from “We, the People” democratic government to a plutocracy run by and for the wealthy. One indicator of this transition is the way the D.C. Elite respond to unemployment. 9-10% unemployment used to be a national emergency. Now it’s a yawn. What The Washington Paper Says The Washington Post has a front-page story, ” Why does Fresno have thousands of job openings — and high unemployment? ” that says the problem is really “structural,” a skills gap, and there is little we can do. This is significant because so many people who make policy read the Washington Post while sitting in their nice, expensive restaurants. Stories like this risk that they will think that there really are plenty of jobs out there, but the serfs just aren’t up to taking them, or are too spoiled, but in any event there is no problem that needs solving, and call the lobbyist because this month’s check is late. Meanwhile, anyone in the real world outside of Washington or Wall Street reading about “thousands” of job openings going unfilled immediately knows something is fishy. In fact, if this story ran on the front page outside of DC or Wall Street we might even need to worry about Egypt-style riots. Anyone on the same side of the continent as Fresno knows that there are not “thousands’ of unfilled job openings. There might be thousands of foreclosures, or thousands of people in food lines, or thousands of people whose unemployment has run out but there are not thousands of unfilled job openings. What The Local Paper Says The Fresno Bee has a different story to tell, ” EDITORIAL: President should come see impact of joblessness in Valley “: The economy may be improving, but it would be difficult to persuade the thousands of out-of-work Valley residents that things are looking up. The six Valley communities cited in a U.S. Labor Department report have unemployment rates that run from 16.4% in Hanford-Corcoran to 18.6% in Merced. The other Valley cities on the list are Fresno (16.9%), Visalia-Porterville (16.8%), Modesto (17.2%) and Stockton (17.5%). . . . The nation’s economic recovery will not be complete until Americans go back to work. At every level of government, the goal should be to implement policies that improve consumer confidence and encourage businesses to hire workers. The Fresno Want Ads The Fresno Bee help-wanted ads tell the story. There are 963 “Sales” jobs listed, but the first 519 of those are at the same “company,” called “Work At Home Jobs, Inc.” and are mostly the same “job,” if you can call it that. The next 136 are a different “company” and the “jobs” are calling people from home to sell them wireless cell service — on commission. The next 52 are the same deal but a different “company,” selling internet from home, on commission. The next 46, same story. Etc. The next category after Sales is “Business development”, with 691 jobs, 466 are “work at home” and many of the rest are the same jobs at the same companies as the “sales” jobs. The next two categories are “General Business” and “Other” and, again, list the same “jobs” at the same “companies.” The next category is “Business Opportunity.” I challenge you to guess what “companies” and “jobs” are listed. (Hint: it’s the same ones again.) Supply And Demand Among the few specifics in the story is the example of “Jain Irrigation, which cannot find all the workers it wants for $15-an-hour jobs running expensive machinery that spins out precision irrigation tubing at 600 feet a minute, 24 hours a day, seven days a week.” $15-an-hour is just above the poverty level for a family of four, at about 130%. Dean Baker, writing in ” The Problem of Structrual Unemployment: Really Incompetent Managers ,” makes the point that a company complaining they can’t find skilled workers at $15 an hour needs to think about raising their offer. Baker writes, It presents comments from one employer who complains that he can’t find workers for jobs that pay $15 an hour. This is not a very good wage. It would be difficult for someone to support themselves and their children on a job paying $15 an hour ($30,000 a year). If the company president understand economics, then he would raise wages enough so that the jobs were attractive to workers who have the necessary skills. If they can’t get workers, they should know that they need to bump up the wage offered until they can. That is about as basic as it gets in the supply/demand equation. Can’t Sell The House And Move Part of this problem is the housing market. If Fresno really doesn’t have the skilled workers businesses need, Silicon Valley and Las Vegas certainly do, and have very high unemployment rates, but the people there can’t sell their houses and move! And even if they could sell they are “underwater,” will come out of the sale owing a ton of money that they can’t make up by taking a $15-per-hour job! Externalizing Training Costs Companies expect workers to already be trained, “externalizing” one more cost onto local communities, while shopping for the lowest tax areas to locate. California has a budget crisis and is cutting back on funding for the community colleges and other programs where people are trained for jobs. One reason for the budget crisis is businesses demanding ever-lower taxes, or playing communities and states against each other for tax incentives to relocate, using property tax avoidance schemes and so many other ways to get out of paying something back to the public for the public investment that enabled them to prosper . The Real Problem Out here in the real world the real problem is not “structural,” it is that there just are not enough jobs , they don’t pay enough, “free trade” deals have lowered wages and undermined our manufacturing base, there is not enough demand in the economy and the government is not doing its job of picking up the slack and after 30 years of tax-cutting the infrastructure is crumbling and not supporting competitiveness for our businesses. There are millions of unemployed and millions of infrastructure jobs that need doing. There is a new green energy and manufacturing revolution going on in the world and we do not have an economic/industrial policy to capture our share. There is problem after problem that is not being addressed by a government captured by interests. DC Avoids Dealing With The Problem It seems that the DC Elite will do anything to avoid just seeing what is in front of their faces. Clearly we have lost jobs from trade deals, Wall Street financialization and domination, lack of investment in infrastructure and education, etc. But the DC Elite come up with a thousand reasons not to fix these because the interests that benefit from those deals have influence over them. Our budget deficit is obviously from tax cuts and military spending — but you will never, ever, ever, ever hear that. Instead we hear job-killing “austerity” solutions that avoid asking the wealthy few to pitch in. On one issue after another, the DC Elite provide cover for the wealthy elite interests who now control DC. The transition from We, the People democracy to a plutocracy of, by and for the wealthy few is nearly complete. The real problem is not a breakdown of the structure of the job market and is not a mismatch between the jobs and the skills, it is a lack of jobs because of lack of demand, and a mismatch between who our government and economy are supposed to work for, and the interests that have brought this about. March 10 Summit on Jobs and America’s Future On March 10, 2011, the Summit on Jobs and America’s Future will bring together leaders and activists who understand that America faces a jobs crisis — and who are committed to building a political movement for sustainable economic growth, dynamic job creation, and a revival of the American economy. It’s free, $15 if you want lunch . Beat that. This post originally appeared at Campaign for America’s Future (CAF) at their Blog for OurFuture . I am a Fellow with CAF. Sign up here for the CAF daily summary .

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Thanos Dimadis: Will Americans Pay for the Euro Zone’s Debt Crisis?

January 24, 2011

Most of us may have been informed of many aspects regarding the Euro zone’s debt crisis and particularly of the risk that the EU members run of getting caught in a vicious cycle of instability, which would definitely cause disastrous effects on the financial system, not only in Europe but also in the rest of the world. But not many of us are aware of the reasons for which the European debt crisis should end with less possible negative effects. There is no other choice ahead for European leaders except that of supporting the euro’s currency survival by making radical decisions in terms of proving that at any given moment they respect the Europe’s cornerstone: the prosperity and the solidarity among all European countries. After a long time of European political confusion, indecision and the inability of dealing with the problem of guarantees expected by the international markets, right now it has become common sense that the debt crisis does not concern only the European countries, but also the whole of Euro zone’s members. What’s occurring in the European continent, should not be — and is not — isolated by what Americans set as their priority, namely, good prospects for their economy, creation of more job opportunities, increased exportation and greater competitiveness for the American products. The truth is that none of these economic targets can be met while the Euro zone’s countries are struggling against the financial markets’ intimidation, the even higher interest rates and the constant danger of an extending and persistent degradation for their high indebted economies. While the European economy continues to remain under the cloud of uncertainty and insecurity for its future, the global economy, the major player of which is still the United States, is under the threat of being affected by the colossal spillovers reflected in terms of the micro and macro-economic level. Of course, American President Barack Obama is fully aware of the interconnectedness between the Euro zone’s debt market and his presidency’s goal of recovering American economy. At this point it needs to be highlighted that thanks to his intensive pressure towards the German Chancellor Angela Merkel in order that she soften her rigorous stance during the inner-European negotiations, the Euro zone’s political leaders agreed on a temporary support mechanism for Greece and, lately, for Ireland. The exceptional role of International Monetary Fund (IMF), lending billions of dollars through that mechanism, is not disengaged from the European political reactions. There is no doubt that the US economy would only lose by just standing as a passive spectator of the Euro zone’s economic collapse, while it would only gain a lot by supporting the debt-ridden European countries. Given that context, the intervention of IMF into the current rescue mechanism — developed and put into practice for the first time in case of Greece — strengthens the conviction according to which the overcome of Euro zone’s crisis will be a victory for the US as well. By being the largest funder among many other countries in the IMF’s executive office, the US is becoming a kind of guarantor for the Euro zone stability. Money given through the IMF’ bailout to Greece, Ireland and probably to Portugal sooner or later is a lifeguard for those economies and, extensively, for the overall global system’s balances. However, through the IMF bailout, the US is extending its financial alongside with its political influence on the Euro zone. With China having demonstrated its intention to buy European bonds, it is clear the Euro zone is being transformed into an area, where each one of these two world’s economic leaders are trying to obtain much more financial, but mainly political impact. While China’s Euro zone bond holdings are limited, the US through the IMF is enhancing its role as the principal financial partner to the Euro zone. The IMF has not apparently the authorization to participate into the oncoming new context of financial governance in the Euro zone, but certainly it has already established its distinctive role of participating in the European crisis resolution management for now and the near future. European leaders constructed more than ten years ago the vision of a common currency among its members, but they didn’t develop the appropriate mechanism for a solid not only monetary but also fiscal environment. Reacting to some Republicans statements, like those of House Republican Caucus vice Chairwoman Cathy McMorris Rodgers and House GOP Caucus Chairman Mike Pence, I need to express my surprise of how easily politics create false impressions. Of course, the case of debt-ridden Greece is not an example of a reliable economic management. But in that case, the problem was not only Greek. The crisis — as we see today — is concerning the total of the Euro zone and so the overall financial system. Some American politicians by supporting the argument that US citizens cannot pay through the IMF’s bailout for the Greek debt or the Euro zone’s crisis, tend to oversimplify the reality. American citizens are not responsible for saving neither Greece nor Ireland or any other state of the Euro zone. But, it is in the American interest that the European countries overcome their economic difficulties, before the spread of economic contagion across the Atlantic Ocean. Hopefully, American President Obama confirms what Henry Kissinger had said that during a crisis making a bold choice and decision is often the safest way. No doubt that the current crisis requires such strong choices and decisions.

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GM Recalling 100,000 Crossover Vehicles Over Seat Belt Issue

December 17, 2010

WASHINGTON — General Motors Co. is recalling about 100,000 crossover vehicles to fix seat belts that could fail in a crash. GM said Friday in a posting with the National Highway Traffic Safety Administration that the recall involves 2011 model year versions of the Cadillac SRX, Chevrolet Equinox and GMC Terrain. The automaker said the seat belt buckle anchor for the driver and front passenger seats could break apart in a crash. GM spokesman Alan Adler said there have been no crashes or injuries reported. GM said it discovered the problem during testing in September. Dealers will modify the seat belt buckles free of charge. The recall is expected to begin in mid-January. Owners can contact Cadillac at (866) 982-2339, Chevrolet at (800) 630-2438 and GMC at (866) 996-9463. They can also consult the GM owner center website at . http://www.gmownercenter.com

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Dylan Ratigan: Get America Working: We Need a Movement to Solve a Crisis

December 15, 2010

It’s time, America. Americans need work. Americans need jobs. And right now, our government’s main job must be to help create these jobs. The unemployment rate has lingered 9 percent for 19 straight months ; the longest postwar stretch on record. And with our list of challenges ranging from overpriced health care to evaporating manufacturing, where can we start? Here are four steps our country must take now to get Americans back to work. Each tackles a bottleneck to jobs that must be fixed now: Fair Trade, Not “Free” Trade First, we must balance our trade deficit by making trade fair . Some of our trading partners, China for example, have become our trading enemies by devaluing their currency, basically giving us their unemployment problem in return for buying our debt. Putting pressure on China to end their currency manipulation and illegal trade practices will immediately lead to more U.S.-based manufacturing — jobs we desperately need back. I did an interview with Dr. Peter Morici to discuss how our trade and banking policies are costing us jobs. Make Banking the Practice of Lending to Businesses, Not Gambling or Buying Treasuries Banks no longer make money from lending to American businesses. With massive bank consolidation due to deregulation, as well as massive bailouts, we now have four mega-banks that couldn’t be less interested in lending to businesses. Borrowing has declined 7 straight quarters while bank profits (and bonuses ) are at all time highs. We have to break the bankers to bring back jobs. Listen to my Radio Free Dylan with Barry Ritholz and Josh Rosner for more on this problem. Control Health Care and College Tuition Costs The US spends 16 percent of GDP (twice as much as countries like the UK) but have worse health care . Much of the brunt of paying for this inefficient health care comes from US-based companies that are (unlike their foreign counterparts) mandated to pay employee health care. The price of college tuition and fees are skyrocketing as well, rising over 439 percent (adjusted for inflation) over the past 25 years. Student borrowing has more than doubled in the last decade as prices jumped 8 percent last year alone, meaning college may soon be out of reach for many Americans. Meanwhile, there aren’t enough jobs for these students to pay off the debt, with high unemployment and over 17 million college graduates currently doing menial jobs. Listen to my interview with CEPR Director Dean Baker for more on this problem. Reform the Tax Code Right now, Warren Buffett’s secretary pays a higher percentage of income to taxes than Warren Buffett. That’s a very big problem for anyone who isn’t the child of a billionaire. We need to reorganize the tax code to promote US investment instead of rewarding overseas investment and aristocracy . Listen to my interview with tax expert and bestselling author David Cay Johnston for more on this problem. When you have problems as we do, surely there is opportunity for work solving them. But first we must correctly identify the root causes and activate the necessary debate around the actual problems that are costing America its jobs. For the next three days, I’m going to be traveling the country for the Steel on Wheels tour. We’re having a conversation about how to make things in this country again. Join us. We’ll be holding Town Halls on each leg of the tour, starting tonight at the University of Rochester ( watch the live stream at 7pm EST here ) And let me know what you think we need to do to put America back to work on our new collaborative website at SteelOnWheels.com ! Or, if you’d like to stream our live town hall on your own website, click here to grab the embed code.

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Georges Ugeux: The Euro will Neither Collapse nor Disappear

December 13, 2010

The abyss of knowledge of the European situation is as impressive as the pontification of gurus about the end of the Euro. In two previous blogs I suggested not to shorten the Euro (you would have lost 20%) and that the problem is the one Americans refuse to see: the deplorable state of their currency, further weakened by the recent QE2 initiative of one of the worst President that the Federal Reserve had recently. But let’s look at the arguments. The first is that Germany might “drop” the Euro and go back to the Deutsche Mark. This idea ignores two factors. The first one is that there is no way the members of the Eurozone can “drop” the Euro under the prevailing treaties. There is no exit mechanism and any such mechanism would have to be agreed unanimously by the 16 Members of the Eurozone: that is totally unlikely, if not impossible. But there is a reality that few observers understand: before the Euro, most weak European countries -who, by the way, are the same as today- were resorting to competitive devaluation. In other words the disparities of discipline and performance were resolves by devaluing the currencies of the weak countries, and the Italian Lira, the Spanish Peseta and the French Franc were always part of it. That was making German companies less competitive. Now, there are no more competitive devaluations, and Germany is the best performing European country and the most solid financially. The fact that the Eurozone participants agree in difficulty was totally predictable. So predictable that the Stability Pact attached to the Maastricht Treaty provides for sanctions against those who derail. Instead, Europe derailed and did not impose those sanctions as a result of its weak political governance and the fact that the problem was entirely in the hands of politicians and no institution or mechanism was provided to prepare those decisions. It is that negligence that led to the current crisis. However, it also has a secondary advantage: those economies that diverged economically and socially are forced to act now and correct the mechanism. A common currency means that investors will differentiate the countries through interest rates, and they do so. That forces eventually the countries with high interest rates to take drastic and decisive measure not to go bankrupt. In a sense, the current crisis should strengthen further the Euro, and since the dollar is on a sliding slope, its value should improve seriously in the coming months. The key to that is the ability of the weak countries to take the drastic measures they need. It creates social turmoil. It will be politically difficult. Provided that the financial support of the European Stability Fund is assorted with strict conditions, there is a chance that the Euro comes out reinforced and stronger. It requires political decisiveness: the need for convergence is urgent. Without it, further crisis will continue to make investors doubt. Those doubts, however, should not include any scenario of break up or disappearance of the Eurozone.

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Edward Muzio: Your Reorganization: Better Left Undone?

November 19, 2010

Reorganization is the drug of choice in many workplaces, and it isn’t hard to see why. Take an organization of people, put someone in a leadership position, and introduce a confusing, far-reaching, ill-defined problem. The leader, feeling the need to live up to his or her title, quickly realizes that the problem is bigger than any one person. If the problem arose in the current state of things, a new future state is needed to solve it. After all, it was Albert Einstein who said that “we cannot solve our problems with the same thinking we used when we created them.” How can you argue with Einstein? And so, the pressure to involve the group, to improve the system, and just to do something leader-like combine, naturally drawing the well-meaning leader to take action on the system. Let’s look to the organizational chart! We will see how things look, and where we can make improvements. To make the lure of the drug even stronger, a line of impressively-credentialed internal and external consultants is standing by to help. Any of them is happy to offer expert insight into possible changes. Whether or not their help is used, their existence lends credibility to the strategy. Credible it is! It’s logical, it feels natural, and it’s much more comfortable than sitting around doing nothing. But there is a terrible, fatal flaw with “the reorg” hiding in plain sight: The org chart has nothing to do with reality. Making changes to a human system based upon an org chart is like planning a drive through Los Angeles by consulting a map of Paris, drawn on a cocktail napkin, by a fifth grader. Consider its history. The org chart is a leftover from long before today’s information age. The first one is believed to have been drawn in the mid 1850s by a railroad superintendent named Daniel McCallum to optimize track construction over long distances. Back then, the organization was top-down and hierarchical. Each worker was a point in the process, and higher-level individuals had broader views of the systems than their subordinates within them. Today’s information age workplace is completely different; Therein lies the problem. Consider the following picture: an org chart on the left, today’s reality on the right. Both images display an overall manager with three supervisors, managing three subordinates each. But the “org chart” completely misses all of the other communication links within the organization and outside of it, which together comprise the majority of information movement. There’s a parallel here. Those of sufficient age may recall the popularity of the “telephone tree,” a prior generation’s tool for information transfer to parents of schoolchildren. Each parent was assigned a position in the tree. When a piece of information — such as a snow-day cancellation — needed to be quickly disseminated to everyone, you would receive a call from your “superior” in the tree, and then you would call your “subordinates” with the update. Each person would make only a few calls, and the information would cascade quickly down the hierarchy. If this doesn’t sound familiar to you, it’s because some years ago e-mail killed the telephone tree. With e-mail, any group member can disseminate information instantly, to some or all of the others, with the click of a button. One parent schedules a pizza party for everyone; another asks half the group for help with fundraising; Four individuals living in the same neighborhood collaborate to arrange a carpool. This new method of communication was adopted rapidly, because it was easier. It rendered the phone-tree obsolete. Perhaps a few schools keep the phone-tree around today. But if you were to attempt to understand a group of parents by studying the phone tree, you would be missing most of the story. That is precisely what an org-chart-based reorganization does. Reorganizers study an obsolete, inaccurate, non-representative, infrequently-used map of a system, and then implement a set of changes to that system based upon the conclusions drawn from the faulty map. In other words, they review the left half of the figure above, and use it to make changes to the right half. Then, in what is perhaps the most insidious step of all, they redraw the inaccurate map — the new org chart — based upon the expected results of the changes, rather than upon the reality of the new situation. To really understand this, consider a situation in which two individuals are removed from the organization. As you can see below, the org chart fails completely in its purpose of adequately representing the real impact to the crystalline network of this change. And yet, the “new org chart” in this scenario will be drawn exactly as it is shown on the left, with the removal of two “boxes.” It will be used going forward as the basis for understanding the system, regardless of what happens in real life. What happens in real life is decidedly different! Person two and person four, for example, are both members of Person one’s staff. Previously, they had little direct contact, and no direct link. But somehow, Person 10 had become a de facto interface between the heads of two departments. When Person 10 departs, this link will be one of more than fifteen broken links in the figure. The looming chaos is completely hidden by the false sense of order implied by the org chart. Most of us have who have been a part of an organizational change have experienced this phenomenon. A seemingly insignificant person retires, for example, and the resultant confusion takes months to sort itself out. Conversely, a manager with an important title changes jobs, and nobody seems to notice. The lesson is clear: No matter how long and hard the org chart is studied, changes to it produce shock waves and impacts that differ wildly from predictions. This is not at all surprising when you realize that the predictions were based upon a faulty map. And yet, for some reason, we keep repeating the same behavior. Sure, an org chart may be useful for defining reporting relationships, assigning responsibility for the completion of annual performance reviews, and for articulating the path of flow for top-down informational bulletins that require live delivery from management. But the next time you’re planning on making wholesale, system wide changes based upon your org chart, I strongly suggest that you stop, think again, and find a different solution to your problem. LA is a big city, and that fifth grader’s map of Paris isn’t going to keep you from getting lost.

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Jeffrey Shaffer: Lost Your Job? Get Lost!

November 18, 2010

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

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Shiller: Dodd-Frank Does Not Solve Too Big To Fail

October 26, 2010

The Dodd-Frank financial reform law does not solve the problem of “too big to fail,” the implicit government protection of large financial institutions, prominent Yale economist Robert Shiller said Tuesday. Speaking on a panel at the Buttonwood Gathering in New York City, Shiller said that while Dodd-Frank and the recent Basel III agreement will be helpful, they aren’t enough to solve the problems they address. Systemic risk, which prompted government bailouts in 2008, is inherent in the modern financial machine, Shiller said. He said Dodd-Frank goes in the right direction, but warned that it doesn’t go far enough. “What we’ve seen so far is not going to eliminate the problem of systemic risk, because it’s a very difficult problem. It involves the nature of the banking system, which is inherently vulnerable,” Shiller said. “It’s vulnerable to runs and collapses, just like steam engines are vulnerable.” However, Shiller said, the reform bill was the best Congress could do with the tools they had. “The regulation changes I’ve seen seem to be more enlightened than I would have expected,” he said. “It [Dodd-Frank] is almost a thousand pages long, in the current form. People think that is a problem. I don’t think that is a problem at all. I’m impressed with Dodd-Frank. It’s doing what they could do, to deal with a very complicated problem.” Shiller’s fellow panelist David Rubenstein, chief financial officer of the investment firm BlueMountain Capital Management, expressed similar skepticism. More important than the existence of any specific pieces of legislation, which “maybe don’t get it right 100 percent of the time,” Rubenstein said, is that regulators are thinking in a new way. They’re aware of the risks and, even if they can’t prevent a crisis, they’re at least trying to address the problems. “People who are charged with protecting the system are taking seriously the idea of risk, maybe for the first time in a really long time — for the first time in my lifetime,” he said. Another helpful development, Rubenstein said, has come from the financial sector, as bankers and traders are thinking about the downside of bets as much as the upside. Rubenstein said large financial institutions are taking a lesson from hedge funds, which by definition attempt to be “market neutral” — making a diverse enough set of investments that fluctuations in the market don’t affect them. “What I’m encouraged by is that even those at the largest institutions, whether it’s … JPMorgan or Goldman Sachs, I think, are focusing as much on how you can lose money as how you can make money,” he said. Among other innovations, the Dodd-Frank Act established the Financial Stability Oversight Council , whose function is to identify and respond to threats to the financial system. Both Shiller and Rubenstein said that while FSOC could prove helpful, it won’t solve the system’s problems. “It takes some personal judgment to see that a bubble is getting out of control. It can’t be formulaic, and that means somebody has to be responsible and focused on that, and it’s going to be an act of courage,” Shiller said. “The FSOC is a committee of people who have primarily other responsibilities.” Rubenstein had a similar view. “It’s comforting that they exist,” he said of the FSOC. “But I don’t take a tremendous amount of comfort that they’re going to stop the next bubble. “I think people need to have a healthy skepticism about any one group’s ability to see the next bubble,” he added. “That’s kind of the mystery of the bubble, that when you’re in it, nobody sees it.” Shiller, for the record, predicted the housing market crash back in 2005, when his opinion was dismissed by the larger financial community. Back then, New York Times economics columnist David Leonhardt — himself a Yale alumnus — called Shiller “Mr. Bubble” and said he was enjoying his “15 minutes of gloom.”

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Video: Mason Says Fed Not Helping Quell Foreclosure Maelstrom: Video

October 25, 2010

Oct. 25 (Bloomberg) — Joseph Mason, professor of finance at Louisiana State University, talks about the problem the Federal Reserve is facing in balancing the need to recover taxpayer money used in bailouts, while ensuring the stability of the financial system. Last week a group of investors, including the New York Fed, sent a letter to Bank of America Corp., demanding the bank buy back bad mortgages that were bundled into mortgage securities issued by Countrywide Financial Corp. Mason speaks with Deirdre Bolton on Bloomberg Television’s “InsideTrack.” (Source: Bloomberg)

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MIT Entrepreneurship Review: Pixable: Why We Weren’t Afraid To Have Facebook As A Competitor

October 13, 2010

MIT Entrepreneurship Review : Despite the tawdry tales behind the recently released movie The Social Network , most Americans would still confess to at least a tinge of envy at Facebook founder, Mark Zuckerburg’s meteoric rise in business. Who would not dream of the techno gold struck by formerly geeky students the like of Zuckerburg, Sergei Brin, or Bill Gates? In fact, these titans are only the figureheads of a massive movement across American universities — students taking ideas from the classroom or the lab, and into the market. Student entrepreneurship derives from two powerful streams — education and business creation — meeting to form the most creative new products on the market. Today, the MIT Entrepreneurship Review brings you a story of Inaki Berenguer, whose recent graduation present to himself was a company to run, a company that he conceived and brought to life within the halls of MIT. Inaki Berenguer : My co-founders, Andres Blank and Alberto Sheinfeld, and I started Pixable when we were at MIT between our first and second years in the business school. Pixable is the place to go to browse and manage all your photos online — photos on Facebook, Picasa, Flickr, and even photos on your computer. It’s a way to unify your photos that are based on different websites, group and edit them, and do other cools things like creating video slideshows or photobooks that we would print and send to you. We came up with the idea thanks to the trips that we were taking at MIT, particularly our trip to Japan. We went on the trip and at the end of it we wanted to create a photobook to remember the experience, so we went to all our classmates and asked if they’d give us their photos on a USB drive. And all we heard was, “No, they are on Picasa,” “They are on Facebook,” “They are on Flickr,” and so on. It was frustrating because the photos were already online and we had access to them, but we still couldn’t group them. So we said, “Well, let’s try and solve this problem for ourselves.” When you’re starting to research a market that’s big enough, you’ll find opportunities there. So it’s a matter of being in that market and not just solving a problem, but solving a hard problem that isn’t solved yet. Even if you don’t solve the problem, along the way you’ll solve other adjacent problems and you’ll still be in the same big market. In our case, it also helped that we were solving a problem that we were experiencing ourselves as consumers. In the middle of the second year we decided to put some money down and hire a development team in India. Most people don’t put time or anything out of their own pocket and just want investors’ money. But why would you invest in someone like that if they are not even ready to invest their time in themselves? With the initial money down, we actually went to India to work with the developers, wrote the product specs, and bought the domain. We also wanted to partner with a printing facility, so we flew to different printing facilities in the U.S. All of that happened in 2009 during our second year of the MBA program. In March of that year we incorporated the company and raised half a million dollars from friends and family before finishing business school. We went to our friends for money and they gave us around 30K each here and there. And that’s another thing, you don’t ask your friends for money if you’re still considering taking a job. If you ask your best friend for 25K, that’s because you have skin in the game and you’re going to be with your startup no matter what happens. We started working full-time on the startup in New York City right after graduation. In June, we closed our first round of financing of $2.5M from Highland Capital Partners, which brought to our board James Joaquin, who was the founder of oFoto and CEO of Kodak Gallery, and Bob Davis, the founder and CEO of Lycos and managing partner at Highland. We’re living the dream. Biography of Inaki Berenguer : Inaki is a founder and and CEO of Pixable. Before Pixable, Inaki completed Master’s and PhD degrees in Engineering at Cambridge University, completed an MBA at MIT, and spent two years as a Fulbright scholar at Columbia University. He also worked as a researcher at HP, NEC Labs and Intel. More recently, he spent two years as a management consultant at McKinsey & Company in the high tech, banking and telecom sectors, and as a manager in the Corporate Strategy Group at Microsoft. Inaki is trying to convince the rest of the team to open a Pixable office somewhere warm in Spain.

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David Leonhardt: Health Care Reform Complaints Expose Problems With Status Quo

October 6, 2010

Consider what it would be like to have a health insurance plan that capped annual benefits at $2,000. For any medical care costing more than that, you would have to pay out of pocket. Examples of care that costs more than $2,000 — and often a lot more — include virtually any cancer treatment, any heart surgery, a year’s worth of diabetes treatment and care for many broken bones. Even a single M.R.I. exam can cost more than $2,000. A typical hospital stay runs thousands of dollars more. So does this insurance plan sound like part of the solution for the country’s health care system — or part of the problem?

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Jay-Z & Warren Buffett Talk Shop On Giving Back

September 23, 2010

For the upcoming issue of Forbes magazine , Jay-Z and Warren Buffett sat down to lunch with Steve Forbes to talk money – and philanthropy. The two financial moguls discussed their personal successes over strawberry malts, and cited the obstacles that come with charitable giving. Buffett explained to Forbes , It’s tougher than business, Steve. You’re looking for easy things to do in business. If people have liked drinking Coca-Cola for 100 years, they’ll probably like it for another 100. It doesn’t require great brainpower to figure that out. In philanthropy you’re tackling the tougher problems of society, things where people have applied money and intelligence before and haven’t really solved the problem. The interview, published Thursday on Forbes.com , will hit newsstands on Oct. 11, 2010.

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Jay-Z & Warren Buffett Talk Shop On Giving Back

September 23, 2010

For the upcoming issue of Forbes magazine , Jay-Z and Warren Buffett sat down to lunch with Steve Forbes to talk money – and philanthropy. The two financial moguls discussed their personal successes over strawberry malts, and cited the obstacles that come with charitable giving. Buffett explained to Forbes , It’s tougher than business, Steve. You’re looking for easy things to do in business. If people have liked drinking Coca-Cola for 100 years, they’ll probably like it for another 100. It doesn’t require great brainpower to figure that out. In philanthropy you’re tackling the tougher problems of society, things where people have applied money and intelligence before and haven’t really solved the problem. The interview, published Thursday on Forbes.com , will hit newsstands on Oct. 11, 2010.

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Grant Cardone: The 10 Traits of Failure

September 18, 2010

Lets face it, not everyone is cut out for success, just like not everyone is cut out to be a teacher, policeman, parent or CEO. After 25 years of working with businesses, entrepreneurs, sales people and CEOs, I have discovered that there are traits that make people prone to failure. 1) Hate being told no. I have yet to meet anyone that actually likes being told not, but if you tend to have a highly emotional response to be being told no and it sticks with you for days, success will be out of reach. In fact, planet earth will be unpleasant for you because you will be told ‘no’ by lots of people in many ways and many times. It is the meaning that you place on the ‘no’ that really is effecting you. Your ability to not be negatively impacted and then to turn a ‘no’ into ‘yes’ will be critical to creating success. 2) Unwilling to ask for a decision. Most people believe they can delegate this to others trying to avoid rejection and failure. Then they try to hire others to handle this for them because they haven’t developed the discipline of asking for a decision. If you are unwilling to ask for a decision you will only get the leftovers. 3) Believe everything. If you are one of those people that believe everything someone says to you is true, and that what people say is what they will do, your success is at risk. People will say many things to you that are almost meaningless; we aren’t loaning money, we are on a budget, we aren’t buying, we are going to wait until, I have to talk to my wife, and on and on. If you are not able to selectively listen, sorry, you won’t make it. 4) Easily sold on another’s stories . If you happen to be one of those personality types that is gullible and unable to maintain and communicate your conviction, you will fail. You are stuck in some kind of reverse boomerang universe where you intend to convince another of your ideas and end up buying their story instead. 5) Unable to get personal. If you hate asking questions and feel like asking questions is getting ‘too personal’ or ‘prying’ into someone’s business, you will not make it. “What is your income”, “who is the decision maker”,”why can’t you do this”, are questions you will have to learn to asked. 6) Unwilling to reach out of your comfort zone. If you are unwilling to reach out to people that are better connected than you, success will always be out of reach. While the people you know will be important, it is probably the people you have not yet connected with that can most help you. This will require you to get out of your comfort zone and mix it up with people you don’t yet know. 7) Believe lowest price wins. If you believe the lowest price is the reason people buy things, you will always find yourself suffering with cash flow and should become a clerk at WalMart or a waiter in a restaurant. 99.9% of all products on this planet can be replaced by cheaper alternatives. Most of the things that are purchased are not necessary to have, so if a person wanted the lowest price, the thing to do would be to not buy it at all. Price is actually a myth and not the reason people buy anything. I wrote an entire book on this one concept. 8) Believe persistence and pressure is a bad thing. If you are one of those people that was convinced as a child by your parents, teachers, and environment that getting your way is a bad thing, then you should just throw away the success idea. A diamond is only coal until the right amount of pressure is applied for the right amount of time. People normally do not make decisions without someone insisting on it. If you despise pressure or persistence you will find it taking forever to get your business working. 9) Believe selling is a negative thing . Even one small dose of this type of thinking will kill your chances of making it. Your success depends on this one ability probably more than any other single thing. Nothing happens without selling. If you think selling is wrong, unethical or something that someone else needs to do, you will be crushed, especially in this economy. Great success always has at its core leadership that is passionate and committed to selling. 10) Believe the economy is the problem. The economy is problematic, it is not the problem! Success is created over time so during any run at success you will experience all types of economies. The person that makes the economy the variable will become a victim to economic conditions at some point. Successful people can create success in any economy and know how to use all types of economies to flourish in. Success is not for everyone, just those who are willing to do what it takes to get it. Most people just want it and are not willing to train and prepare for it. If you are one of those people that thinks they are going to create success just because you have a good idea and are unwilling to train, invest and prepare for it, I assure you that you will flounder. Everyone has an idea most people are not willing to develop their skills to the point that they can make that idea a reality! On the way to success you will be plagued with competitive threats, industry changes, challenging economies and will find yourself at risk. The average worker reads less than one book a year and then wonders why they don’t make it! To ensure you are successful avoid the traits of failure and make a dedicated commitment to learning everything you can about selling. Selling isn’t a job, but a requirement for creating the success you want. Sales training , sales motivation , daily sales meeting and the development of new sales skills will assist you in your success more than anything else. Grant Cardone is a NY Times Best Selling Author and Sales Training Expert.

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Kevin O’Connor: Don’t Make the Solution Part of Your Problem

September 15, 2010

The problem I’ve always been intrigued with innovation and how it can be forced. As an entrepreneur, my job is to create new products and companies; I can’t just sit around waiting for the light to go off while playing Halo. As an executive, I have also been part of a lot of painful strategic planning processes. In one instance, we hired a consultant who took us through an eight month ordeal costing more than $1 million. In the end, we agreed on a strategy that we came up with on the first day. I’ve noticed this happen time and time again. From my experiences working with companies to solve various problems, I’ve noticed a few “truths” that almost always occur when groups try to solve problems: The answers are already in the room. If you assemble a group of smart people who know your industry, they have already assimilated the mass of information from customers, employees, market research and elsewhere. The answers are in the room and not on some manufactured spreadsheet. Most of the time spent trying to solve a problem is typically wasted discussing options that don’t really matter. There are 98 things you could , but shouldn’t, be doing, but in reality there are only two things you need to do as a business to be successful. People often waste time talking about all the things that don’t really matter. Personality trumps. Unfortunately, there isn’t much correlation between speaking skills and quality of ideas. Most people are afraid to share their ideas for fear of looking stupid. But then there are the less deserving people who through force of personality get their way. In order to actually implement the solution, you need consensus and these meetings rarely build lasting consensus. The solution As executives, our goal is to generate as many ideas as possible, identify the top ideas and make a decision while building consensus. But how can you most effectively do that? Just follow these steps: State the problem clearly. Write at the top of the white board the problem you are trying to solve. For example: “How can we improve productivity?”, “What are the biggest problems facing our customers?”, “Which Sports & Recreation topics are best for comparison?” Brainstorm. Ask people to state their ideas succinctly — usually two to three words. Do not allow any discussion or comments on the idea. You want people to play off other people’s ideas and to feel free to say crazy ideas without fear of ridicule. Keep the flow going but don’t beat a dead horse — stop when the flow of ideas has ended. Lobby. As you are numbering each proposed idea, allow people to lobby or clarify their ideas. Make sure you combine similar ideas. Vote. Take the total number of ideas and divide by three — this is the number of votes each person gets. For example, if you have 30 ideas, each person gets 10 votes (30 ideas/3 = 10 votes). The next step is to read off each idea, count the number of votes each idea receives and write the total number of votes next to each idea. Select Top Ideas. You should (hopefully) see a coalescing of votes for the top two to five ideas. Focus your attention on these top ideas and forget about the rest. Here’s a recent example of a brainstorm we just had at FindTheBest . We are constantly coming up with dozens of new Comparison App ideas, but having only limited resources, we only focus on the top ideas. We brainstormed new App ideas and came up with the following (partial) list: E-Readers (5 votes) Fast Food Nutrition (6) Colleges (5) Yogurt Nutrition (1) Venture Capital Firms (5) Planets (1) Designers (0) Empires (1) Travel by Country (3) Future Jobs and Careers Forecast (7) Pulitzer Prize Winners (5) Cosmetics Brands (1) War Statistics (4) State Facts (1) US Presidents (2) Energy Drinks (3) Dating Websites (3) Vegas Hotels (3) Golf Courses (4) Pokémon (5) After voting, we narrowed down our 60 App ideas to the seven most popular ones (the ideas that received 5 votes and higher) and focused on developing those Apps. This efficient and collaborative process provides a platform for all ideas to be heard and for the top ideas to be carried out. After trying this process out, you’ll realize that you’ve just condensed a four hour meeting into 30 minutes and actually found the best solution to your problem. But aside from finding the best solution to your problem, you’ve built consensus between everyone within the company because each person was involved in creating the solution. I’ve used this system many times to help create business and product ideas and strategies resulting in tremendous success. So go out and try this method and let me know how it works or if you need help. Please post a comment with your results.

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The Brutal Business Of Battling Bedbugs

September 13, 2010

While New York is officially the most bedbug-ridden city in the country, the nocturnal bloodsuckers have become a problem across the country, as the emergence of pesticide-resistant strains of the bugs have made them harder and harder to fight. In 2002, the U.S. Environmental Protection Agency declared them a public health pest and, in 2009, it held a national summit to work on the problem.

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Dave Johnson: American Jobs Tragedy

September 4, 2010

The stimulus worked but was not enough. Here is the result: This is known as “the scariest jobs chart,” from

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Craig Newmark: Rediscovering the American Dream

August 28, 2010

Throughout the world, people view America as the place to find a better life, still feeling that we are “the shining city on the hill.” People aspire to be part of our vital and large middle class. That was true of my family two generations ago and is still true for much of the world. You work hard, you play by the rules, you move ahead. It works. Sure, in past years politicians and tax policy have been fairly successful transferring wealth from the middle class to a small upper class. That’s the point of tax breaks for the rich. However, I see a lot of vitality in the American middle class. If you want a good look, read the first four parts of Third World America, by Arianna Huffington. It’s not pretty, but we see the results every day in unemployment statistics. A few politicians, over eight years, created an economic Pearl Harbor. After getting your attention, Third World America talks about restoring the American Dream. We have a problem, but we’re not in free-fall. We admit we have a problem, and as Americans, we’re pretty good at getting stuff done. Well, this means that each and every one of us needs to be a kind of new patriot, first facing the problem, then linking up with each other, from the grass roots up. The big danger is that such efforts often get co-opted by the people who created the problem, that’s already happened. America’s response to Pearl Harbor reminds us that Americans can do anything, and we can rise above the current situation and come out ahead. The last part of Third World America talks about that — where when we work together, we really can change things, if we each engage in this new patriotism. The new patriotism means that each of us, if we have the resources, needs to give the other person a break, in a way that connects with others who can help out. Maybe the best example of that are the women and men of the armed forces, which I take personally; if someone’s going overseas to risk a bullet for me, I’ll do what I can to help out. That means supporting the people who support veterans, particularly wounded warriors. It means doing so as part of multiple teams, including Veterans Affairs, the Iraq & Afghanistan Veterans of America, and a bunch of other groups, with more to come. The deal there is traditional American teamwork, where we become part of something bigger than ourselves, where service to others becomes part of our normal expectation of each other. That’s what happened on Pearl Harbor Day. There’re a lot of ways to do this, including the everyday volunteerism of AllForGood.org. Education is a vital part of the American Dream, and I recommend DonorsChoose.org as a small, practical way to help teachers help their kids. Okay, there are lot of such groups, these are just a few of the roughly one hundred I help out. Specifically, I bear witness to the good efforts of others who do the real work. (While I provide other significant assistance, they all tell me what they really need is someone to stand up for them.) Here’s something new: jobs for veterans are desperately needed, and conventional online job boards don’t seem to get it done. Maybe we need a way to mark possible jobs as vet-friendly, and to mark resumes as from recent vets. For sure, we need help from professional recruiters and job placement organizations to translate the way military skills are articulated into private sector terms. Attempts to translate formal job categories, well, I feel that needs a human touch every time. (Yes, that’s a tangent, indulge me.) While I’m at this, here’s the biggest job skill vets have that never gets discussed. Vets, particularly combat vets, are really good at 1) assessing the situation fast, 2) making a decision, and 3) getting stuff done. That’s maybe the most critical skill of all, private or public sector. Hey, maybe that’s what “leadership” is. (Okay, another tangent.) In any case, revitalizing the middle class involves mutual support for each other, we need to stand up for each other. The attitude is that “I got your back” for everyone. I sure don’t know how to do that, but … I feel that social media is key. It’s half baked for now, but I plan to use some social media tool to bear witness for every good effort I work with. The plan is to have those folks do the same, in a spreading grassroots network of networks. You’re going to hear from me. Me, I’ve signed up for twenty years of this, a kind of voyage, to go boldly where no nerd has gone before.

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Real Estate News: Mortgage Fraud Rises Again – Developments – WSJ

August 23, 2010

Troubled Office Building Gets New Owner: A New York real – estate investment firm, has gained control of a financially troubled Manhattan office building at 104 W. 40th St. in a “loan-to-own” deal that values the building at less than half what the previous owners paid. … Apartment Defaults Propel Delinquency: A close look at the numbers shows that the problem with commercial real – estate delinquencies has mostly been with apartment buildings. « Previous …

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Ryan Mack: "Shape-Up" Your Finances

August 10, 2010

On August 7, 2010, the Optimum Institute of Economic Empowerment took to the streets to conduct the most fun program that we have ever done. We conducted the “Shape Up Your Finances” Economic Empowerment tour which consisted of visiting barbershops and beauty salons throughout Brooklyn, NY with the intent of igniting conversations about one of the most infrequently talked about topics that you hear in the barbershop: fiscal responsibility. Sure you might hear about how much money other people are making, such as that famous athlete who signed that multimillion dollar contract. You might hear about how much money that famous celebrity spent on his/her wedding. However, why is there hardly ever a conversation about the importance of building personal wealth and how to go about doing it? This is what this tour addressed but this also leads to a larger issue…why are we so timid to talk about money? The economy crashed in 2007 because of many factors, but one of the largest factors that lead to the demise of U.S. markets and global markets was fiscal irresponsibility on multiple levels. The government was spending money frivolously, corporations were taking excessive uncovered risk (well…not covered by them but certainly covered by the taxpayer), and too many people were spending tomorrow’s money while racking up debt today. Our control over the government and corporations is limited. We can have our voices heard in the voting booth and lobby for change which may or may not work immediately, or ever. However, we certainly have control over our own personal finances and how we manage them. The problem is too few know how, or choose not to listen to conventional wisdom, when it comes to managing money. One of the best ways to fix this problem is to incorporate this into a regular topic of conversation for the sake of providing more exposure to this problem. What would have happened if that person who planned to purchase a home who had a 550 FICO score, no money in the bank, and an income that is inconsistent at best had overheard a conversation about the most responsible way to purchase a home? What would have happened if that 35-year-old man who was living at home with his mother, between jobs, and still wanted to figure out a way to lease a new Range Rover because it was cool, overheard a conversation about the dangers of consumption and how to start a new business? What would have happened if that mother who lived in public housing with a room full of furniture from Rent-A-Center overheard a conversation about financial predators and how much money we waste on interest that we could have saved? What would have happened to these people…better yet, what would have happened to our country? We yell and scream at the television screen for change but turn right around and throw our change in the garbage. More than in the barbershop, we need to talk about our personal finances around the dinner table. We need to talk about our personal finances with our friends and family members. If you are going to a great personal finance workshop, have a financial planner who really takes the time to teach you about money, or finish reading a great book by an author like Suze Orman, tell somebody about it! Blast the information on Facebook, send it to your group on Linkedin, call a friend and let them know what you have learned. It is no longer acceptable for any of us to have this mindset that we are going to grow by ourselves. Sharing information is paramount if we are going to start a movement of social change as it relates to our finances. On the other side, if you hear someone talking about money, pay attention. What are they saying? Are they correct? Take the information and go home and read a few books to see if what they are saying is correct. It is great to take information from people, but your knowledge base should be the best defense against being led astray. You don’t have to be a financial expert, but you should know at least the basics about money before you see a financial advisory, mortgage broker, accountant, or any other advisor who can have an impact on your finances. If I know that by stealing a car I will go to prison if I get caught, that doesn’t make me as smart as an attorney…that only means that I have enough knowledge of law to keep myself out of trouble. The same principle applies to your personal finances. The Optimum Institute of Economic Empowerment is a nonprofit that is trying its best to participate in a grass roots effort to change the way we think, feel, and act with our money! To see a video clip of the “Shape Up Your Finances” Empowerment Tour click here… http://www.youtube.com/watch?v=u7ceJh3fRCI

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Verizon Outage In New York Affects Cell Phones, Landlines

July 26, 2010

NEW YORK — Landline and cell phones are unable to complete calls in part of New York because of a malfunction in Verizon’s network. Equipment that connects calls on the East side of Manhattan between 20th and 40th Streets was at fault. Verizon Communications Inc. spokeswoman Linda Laughlin said Monday that the company hopes to fix the problem during the afternoon. The outage affects cell phones as well, because they connect through the wired network. Verizon has no estimate on the number of customers affected.

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Victoria’s Secret Bedbug Problem: Store Treated For Bedbug Infestation

July 16, 2010

Victoria’s Secret is the latest store to feel the bite of bedbugs. A spokesperson for the store’s parent company said a small area of the store on Lexington Avenue was treated for bedbugs. The clothes infested with the critters were destroyed . The store was closed on Wednesday morning to deal with the problem and reopened later that day. These latest bedbug woes come on the heels of infestations at Abercrombie & Fitch and Hollister earlier this month.

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Fox Business Segment On Runaway Toyotas Teased With An Awkwardly Sad Song (VIDEO)

July 14, 2010

Earlier today, the Fox Business Network decided to tease a segment on unexpected acceleration in Toyotas with an odd musical choice. A Toyota internal investigation and a preliminary government report, Reuters notes today , suggests that driver error may play a bigger role in some of the Toyota throttle problems than previously thought. A full government decision on issue has is not expected for months. Apparently wanting to make light of the situation, which has resulted as many as 89 deaths, Fox Business decided to use a semi-ironic musical accompaniment. As the network headed to commercial, the host said, “Finally some answers in the case of those runaway Toyotas, but we may be very surprised to hear the cause of the problem….” The music accompanying the tease, ” Fast Car ” by Tracy Chapman. If you haven’t heard the song, it’s incredibly depressing. WATCH the Fox Business segment below:

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401K Plans: What Do They REALLY Cost?

July 14, 2010

Boston College’s Center for Retirement Research Center has a study out this month about the cost of 401(k) plans, and they have found another flaw in the nation’s defacto retirement savings system: It is overpriced. So not only do 401(k) plans not meet the needs of the average American, they aren’t cost effective either. I wrote about the problem with 401(k) plans in a cover story for TIME last year.

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Steve Parker: Breaking – Toyota halts sales of 2009, 2010 Lexus LS

May 25, 2010

In another potential PR nightmare for Toyota, the company has announced that a steering problem has halted sales of their 2009 and 2010 luxury flagships, the LS 460 and the gas/electric hybrid LS 600h. On Friday, Toyota recalled 11,500 of the cars, including nearly 4,000 in the US. Today, Lexus stopped selling both models. Toyota, through their Lexus luxury channel, say they have no solution to the problem, an admitted electronics problem that can cause steering wheels to fall out of alignment for a few seconds at a time. Owners of the two models have been told to park their cars until the company develops a fix, which Toyota says should happen sometime in late June. According to the Los Angeles Times, which broke the initial unintended acceleration story, owners of the cars — which have a starting price of about $65,000 for the LS 460 and $108,000 for the hybrid LS 600h — will be receiving official notice of the recall in the mail next month. Lexus’ LS 400h hybrid sedan starts at $108,000. The sales stoppage and recall cover cars equipped with the company’s variable gear ratio steering system that’s an option on the LS 460 and standard on the LS 600h. Sales stoppages over safety concerns are rare in the auto industry, but in January Toyota ordered dealers to stop selling eight of its best-selling models after reports of unintended acceleration. That sales halt, called because the company had no remedy for the problem, lasted about two weeks. The Lexus sales stoppage is expected to last longer. Toyota does not have a solution to the Lexus problem, which can cause the steering wheel to get stuck in a turned orientation even though the car is going straight. The steering wheel, however, can still be used to steer the car. How should Toyota handle this one? They have absolutely blown it so far with their alleged cover-up of the unintended acceleration (UA) problems. The company eventually stopped sales of eight models and recalled some six million cars worldwide for what Toyota said was a sticky throttle cable. Many still insist that the UA trouble stems from an electronics glitch in the company’s “drive by wire” system, and several US government agencies and contracted firms are involved in finding an electronics problem. Now, with an admitted so-far-unfixable steering dilemma which is purely electronic, we say there will, and should, be more pressure on Toyota to stop worrying about their image and focus on finding and fixing these problems. Are we right? Is Toyota spending more time ducking the truth and not working on unintended acceleration and other problems?

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Thom Hartmann: The IMF Knows How to Help America

May 17, 2010

The Financial Times is reporting that leading nations are still piling up debt even though there’s technically been an economic recovery. In particular, the IMF is looking at US debt over the next decade and predicting that it’ll be unsustainable if we don’t do something quick. Of course, what conservatives want to do is slash Social Security and Medicare while letting the government keep all those funds we’ve paid into the system. The IMF, on the other hand, is suggesting that a 10% value added tax (VAT – basically a national sales tax) along with increasing income taxes on rich people and adding a carbon tax like Denmark has done would raise revenues — income to the US treasury — by about 4.5 of GDP, which would largely solve the problem of the deficits Reagan and Bush left us. These are actually very doable solutions, but Republicans — representing the interests of the top 1 percent of big corporations and the top half of one percent of very rich individuals — will fight them tooth and nail. The question now is whether the Obama administration will have the political will to do it, and whether — while Karl Rove is raising hundreds of millions of dollars in private corporate money to destroy Democrats in the 2010 and 2012 elections — there will be any progressive politicians left to help things along.

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Diana Taylor: Why We Need a ’411′ System for Financial Consumers

April 9, 2010

Seven years ago, when I had just begun my stint as the Banking Superintendent of the State of New York, I found myself sitting at a fancy dinner party in Manhattan. I was complaining to the financial mogul on my left that there were too many regulators involved in the financial system in the US, that no one knew what regulator was responsible for what, and that there must be problems at financial institutions which were falling through the cracks. My dinner partner replied that this was a ridiculous notion, the regulatory system was just fine (read: it suited his purposes), and that everybody was very clear as to what regulator was responsible for what. So, I asked him if he knew who the regulator was for the bank where he had most of his accounts — was the bank chartered by the State of New York or by the OCC? He replied that of course it was the State. I asked him which bank — he responded Citibank. I told him he was wrong. Citibank was chartered by the OCC and had been for years. This incident made a huge impression on me. If this man, who had been in the financial sector for decades, and had been extremely successful, did not know who to go to in the event he had a problem at his bank, how was the man on the street to know? I decided a good start would be for the federal government to set up a national “411″ system for consumers when they confront a problem with a financial institution. Anybody could call 411, get a person on the other end of the phone, describe their problem, and the financial institution involved, and get an answer as to which regulator had jurisdiction, and be forwarded to the appropriate person at the appropriate agency, much like the highly successful 311 system in NYC works. Not only does it allow people to quickly get to the agency with the power to do something to fix whatever the problem is, a record of the problem is made, added to the database of other reported problems, and the solution is tracked. This results not only in a solution to the problem but also in data which is used as a tool to better manage the city. Needless to say, the idea went nowhere, and I moved on to the private sector. I thought of this idea again as I was reading the excellent book The Road From Ruin by Matthew Bishop and Michael Green. In the first half of the book, Bishop and Green very clearly outline the history of ruin — of economic collapses through the centuries and their causes. The second half of the book is the roadmap back from the most recent financial crisis — what we need to do to prevent future meltdowns, what we as a society need to change. I thought again about the 411 system. One of the real problems we face has to do with consumer protection. There has been a lot of discussion about consumer protection as people are thinking about how the financial markets should be regulated. No matter what form that agency might take — whether consumer protection is left as is, within each regulatory agency, or as a standalone agency, or housed within another agency — data, information about what is happening to the users of the system, is crucial. A 411 system, properly constructed, could be a very powerful tool to determine what is happening where in the system. Imagine if you, as a consumer, take out a mortgage. You get to the closing, you think something is not right, that the fees are too high, or you are being required to pay for something you do not think is right. You call 411, explain the problem and who the lender is. You are referred to the appropriate agency. A record of the complaint is entered into the system, and how it is resolved is tracked. The regulators get a periodical report of all complaints, their origin, type, financial institution, etc. If there is a spike in a certain area, or of a certain type of problem, or against a particular institution, they can investigate to find out what is going on. As Bishop and Green say in their book, information is a powerful tool. It is hard to solve a problem if you do not know it exists in the first place.

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Toyota Could Be Fined $16 Million For Slow Action On Recall: Transportation Department

April 5, 2010

WASHINGTON — The government accused Toyota of hiding a “dangerous defect” and proposed a record $16.4 million fine on Monday for failing to quickly alert regulators to safety problems in gas pedals on popular models such as the Camry and Corolla. The proposed fine, announced Monday by Transportation Secretary Ray LaHood, is the most the government could levy for the sticking gas pedals that have led Toyota to recall millions of vehicles. There could be further penalties under continuing federal investigations. The Japanese automaker faces private lawsuits seeking many millions more. Toyota Motor Corp. has recalled more than 6 million vehicles in the U.S., and more than 8 million worldwide, because of acceleration problems in multiple models and braking issues in the Prius hybrid. Documents obtained from the automaker show that Toyota knew of the problem with the sticking gas pedals in late September but did not issue a recall until late January, LaHood said. The sticking pedals involved 2.3 million vehicles. “We now have proof that Toyota failed to live up to its legal obligations,” LaHood said in a statement. “Worse yet, they knowingly hid a dangerous defect for months from U.S. officials and did not take action to protect millions of drivers and their families.” For those reasons, LaHood said, the government is seeking a fine of $16.375 million, the maximum penalty possible. That dwarfs the previous record: In 2004, General Motors paid a $1 million fine for responding too slowly on a recall of nearly 600,000 vehicles over windshield wiper failure. How Toyota decides to respond to the fines could pose a dilemma for the automaker. The company faces 138 potential class-action lawsuits over falling vehicle values and nearly 100 personal injury and wrongful death cases in federal courts nationwide. If Toyota pays the fines, the admission could hurt it in courtrooms. But battling the government over the penalties could undermine the automaker’s attempts to move on from the recalls. “It may be easier to pay it than to let this keep dragging on and drawing more attention to themselves,” said Jessica Caldwell, a senior analyst with auto research site Edmunds.com. Toyota did not say whether it would pay the fine. The automaker has two weeks to accept or contest the penalty. “While we have not yet received their letter, we understand that NHTSA has taken a position on this recall,” the company said in a statement, a reference to the National Highway Transportation Safety Administration. “We have already taken a number of important steps to improve our communications with regulators and customers on safety-related matters as part of our strengthened overall commitment to quality assurance.” The company noted that it has appointed a new chief quality officer for North America and has given its North American office a greater role in making safety-related decisions. Under federal law, automakers must notify NHTSA within five days of determining that a safety defect exists and promptly conduct a recall. The Transportation Department said the fine it is seeking is specifically tied to the sticking pedal defect and Toyota could face additional penalties if warranted by investigations. The government has linked 52 deaths to crashes allegedly caused by accelerator problems in Toyotas. The recalls have led to congressional hearings, a criminal investigation by federal prosecutors, dozens of lawsuits and an intense review by the Transportation Department. Toyota has attributed the problem to sticking gas pedals and accelerators that can become jammed in floor mats. Dealers have fixed 1.7 million vehicles under recall so far. The sticky accelerator pedal recall involves the 2007-2010 Camry, 2009-10 Corolla, 2009-10 Matrix, 2005-10 Avalon, the 2010 Highlander and 2007-10 Tundra. Consumer groups have suggested electronics could be the culprit, and dozens of Toyota owners who had their cars fixed in the recall have complained of more problems with their vehicles surging forward unexpectedly. Toyota says it has found no evidence of an electrical problem. Reviews of some recent high-profile crashes in San Diego and suburban New York have failed to find either mechanical or electronic problems. In the New York case, a police investigation found that the driver, not the car, was to blame. Following the recalls, the Transportation Department demanded in February that Toyota turn over documents detailing when and how it learned of the problems with sticking accelerators and with floor mats trapping gas pedals. NHTSA said documents provided by Toyota showed the automaker had known about the sticky pedal defect since at least Sept. 29, 2009, when it issued repair procedures to distributors in 31 European countries and Canada to address complaints of sticking pedals, sudden increases in engine RPM and sudden vehicle acceleration. The government said the documents also show that Toyota knew that owners in the United States had experienced the same problems. Toyota has provided NHTSA with more than 70,000 pages of documents during the investigation.

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Toyota Could Be Fined $16 Million For Slow Action On Recall: Transportation Department

April 5, 2010

WASHINGTON — The government accused Toyota of hiding a “dangerous defect” and proposed a record $16.4 million fine on Monday for failing to quickly alert regulators to safety problems in gas pedals on popular models such as the Camry and Corolla. The proposed fine, announced Monday by Transportation Secretary Ray LaHood, is the most the government could levy for the sticking gas pedals that have led Toyota to recall millions of vehicles. There could be further penalties under continuing federal investigations. The Japanese automaker faces private lawsuits seeking many millions more. Toyota Motor Corp. has recalled more than 6 million vehicles in the U.S., and more than 8 million worldwide, because of acceleration problems in multiple models and braking issues in the Prius hybrid. Documents obtained from the automaker show that Toyota knew of the problem with the sticking gas pedals in late September but did not issue a recall until late January, LaHood said. The sticking pedals involved 2.3 million vehicles. “We now have proof that Toyota failed to live up to its legal obligations,” LaHood said in a statement. “Worse yet, they knowingly hid a dangerous defect for months from U.S. officials and did not take action to protect millions of drivers and their families.” For those reasons, LaHood said, the government is seeking a fine of $16.375 million, the maximum penalty possible. That dwarfs the previous record: In 2004, General Motors paid a $1 million fine for responding too slowly on a recall of nearly 600,000 vehicles over windshield wiper failure. How Toyota decides to respond to the fines could pose a dilemma for the automaker. The company faces 138 potential class-action lawsuits over falling vehicle values and nearly 100 personal injury and wrongful death cases in federal courts nationwide. If Toyota pays the fines, the admission could hurt it in courtrooms. But battling the government over the penalties could undermine the automaker’s attempts to move on from the recalls. “It may be easier to pay it than to let this keep dragging on and drawing more attention to themselves,” said Jessica Caldwell, a senior analyst with auto research site Edmunds.com. Toyota did not say whether it would pay the fine. The automaker has two weeks to accept or contest the penalty. “While we have not yet received their letter, we understand that NHTSA has taken a position on this recall,” the company said in a statement, a reference to the National Highway Transportation Safety Administration. “We have already taken a number of important steps to improve our communications with regulators and customers on safety-related matters as part of our strengthened overall commitment to quality assurance.” The company noted that it has appointed a new chief quality officer for North America and has given its North American office a greater role in making safety-related decisions. Under federal law, automakers must notify NHTSA within five days of determining that a safety defect exists and promptly conduct a recall. The Transportation Department said the fine it is seeking is specifically tied to the sticking pedal defect and Toyota could face additional penalties if warranted by investigations. The government has linked 52 deaths to crashes allegedly caused by accelerator problems in Toyotas. The recalls have led to congressional hearings, a criminal investigation by federal prosecutors, dozens of lawsuits and an intense review by the Transportation Department. Toyota has attributed the problem to sticking gas pedals and accelerators that can become jammed in floor mats. Dealers have fixed 1.7 million vehicles under recall so far. The sticky accelerator pedal recall involves the 2007-2010 Camry, 2009-10 Corolla, 2009-10 Matrix, 2005-10 Avalon, the 2010 Highlander and 2007-10 Tundra. Consumer groups have suggested electronics could be the culprit, and dozens of Toyota owners who had their cars fixed in the recall have complained of more problems with their vehicles surging forward unexpectedly. Toyota says it has found no evidence of an electrical problem. Reviews of some recent high-profile crashes in San Diego and suburban New York have failed to find either mechanical or electronic problems. In the New York case, a police investigation found that the driver, not the car, was to blame. Following the recalls, the Transportation Department demanded in February that Toyota turn over documents detailing when and how it learned of the problems with sticking accelerators and with floor mats trapping gas pedals. NHTSA said documents provided by Toyota showed the automaker had known about the sticky pedal defect since at least Sept. 29, 2009, when it issued repair procedures to distributors in 31 European countries and Canada to address complaints of sticking pedals, sudden increases in engine RPM and sudden vehicle acceleration. The government said the documents also show that Toyota knew that owners in the United States had experienced the same problems. Toyota has provided NHTSA with more than 70,000 pages of documents during the investigation.

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Dave Johnson: Big Weekend News On China Currency Problem

April 5, 2010

This post originally appeared at Campaign for America’s Future (CAF) at their Blog for OurFuture as part of the Making It In America project. I am a Fellow with CAF. While publicly saying that China is manipulating its currency — a very big deal — Treasury Secretary Geithner announced over the weekend the administration is getting around the problem of an April 15 deadline for declaring that China is a currency manipulator by … pushing back the deadline. They are instead taking the issue to the G-20, beginning with meetings later this month in DC. Geithner’s official statement makes it clear, China’s continued maintenance of a currency peg has required increasingly large volumes of currency intervention. Additionally, China’s inflexible exchange rate has made it difficult for other emerging market economies to let their currencies appreciate. A move by China to a more market-oriented exchange rate will make an essential contribution to global rebalancing. So there we have it: China is manipulating its currency and this is harming us and blocking badly-needed global rebalancing. Acknowledging the problem is the first step toward dealing with the problem. Senator Grassley pointed out that history teaches us we just have to face up to it and deal with this. Grassley criticizes delay of Treasury report regarding China , Sen. Chuck Grassley (R-Iowa) criticized Treasury Secretary Timothy Geithner for delaying the release of the Department’s exchange rate report because it might strain relations with China. . . . “If we want the Chinese to take us seriously, we need to be willing to say so in public,” he said in prepared remarks. “The past few years have proven that denying the problem doesn’t solve anything. The Treasury Department should cite China as a currency manipulator.” But this time the problem isn’t denial it is action. Geither did cite China as a currency manipulator in his statement, but is not taking the official action of formally declaring them a currency manipulator. Fox News’ take on it is different: “caving”, White House Denies Charges of Caving to China on Currency . (Note that the story in no way mentions “caving”, only the spin in the headline.) The Way Forward This is success. America’s manufacturers, economists, unions and Main Street applied pressure demanding relief from China’s assault on our economic base, and with this public acknowledgement have had some success. But not enough. The administration could not continue the pattern of years of denial. So the question now is, what are we going to do about it? News reports suggest that China is going to let its currency appreciate just a bit, maybe 5% over a year as a sop to placate the rest of the world. But this is an unacceptably small offering that does not even begin to address the magnitude of the problem and the damage being done. China currently enjoys a trade advantage of up to 40% because of their currency manipulation and continues to drain factories (and the accompanying knowledge and supply chains), jobs, markets, money and hope from the rest of the world. Productivity alone is rising enough to easily offset a 5% move. If this is the extent of China’s response the imbalances and resulting tensions will only continue to worsen. This is exactly the time to expand the challenge to the administration. The Graham-Schumer bill, S. 295, intends to “level the playing field” with China, Specifically , the amendment allows for a 180 day negotiation period between the US and China to revalue its currency, if the negotiations are not successful, a temporary across the board tariff of 27.5% will be applied to all Chinese products entering the United States – a penalty that corresponds to their estimated currency advantage. Beyond this one issue, there is a larger problem. What is America’s strategy going to be, in a world that is half-mercantilist? Almost every other industrialized country is pursuing a national strategy. How are we responding? Until we have a national industrial/economic policy we remain at the mercy of “free markets” that are not free but are actually rigged against the American Main Street’s economic interests. Sign up here for the CAF daily summary .

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General Motors RECALLS Vans, Halts Sales

March 27, 2010

DETROIT — General Motors Co. is recalling about 5,000 heavy-duty Chevrolet Express and GMC Savana vans because of a faulty alternator. The automaker also halted sales of the vans Friday. It has also stopped production of them until it can fix the problem. GM spokesman Alan Adler says there have been no injuries related to the recall. Purchasers of the recalled vans, built in February and March, are urged to stop driving them and park them outside away from buildings and other vehicles. It is rare for an automaker to halt sales because of a safety defect. GM’s decision to stop sales of the vans comes two months after Toyota Motor Corp. halted sales of eight models because of faulty accelerator pedals. ____ On the Net: General Motors: http://www.gm.com

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Robert Reich: Why the President’s Next Big Thing Should Be Jobs

March 26, 2010

Few presidents get a second honeymoon of their own making. (George W. got one when terrorists attacked the United States.) Barack Obama’s victory on health care reform has breathed new life into his administration, recharged the Democratic base, and given the rest of America a sense of someone who fights for average working people. The question now is: What does he do with his second honeymoon? Some say it should be used to enact financial reform. Most Americans despise Wall Street and want to be assured there’s no repeat of the grotesque sequence of river-boat gambling with the economy followed by a taxpayer bailout followed by seven-and eight-figure bonuses. Democratic strategists would love to let Republicans hoist themselves on their own petard by defending Wall Street. Financial reform surely needs bucking up. The bill passed by the House last year was riddled with loopholes, delays, and cop-outs for the Street. The one that’s emerging from the Senate Banking Committee is only slightly better. It still allows a world of unregulated derivative trading and hands the ball over to the same regulators who punted last time. It doesn’t even include Paul Volcker’s watered-down remake of the Glass-Steagall Act. And the Senate bill is likely to get even worse as Harry Reid and Chris Dodd troll for Republican support. In an election year when Wall Street money is flowing freely to both parties, watch your wallets. Notwithstanding all this, the biggest Next Big Thing ought to be jobs. Including all those who have entered the job market since the bottom fell out, the nation is about 11 million jobs short. The President ought to use his second honeymoon to get a jobs bill that will make a difference. Although the official rate of unemployment for the third of Americans with college degrees — the kind of people who inhabit executive suites, the media, and Washington — is now down to 5 percent, most Americas inhabit a different job planet. The unemployment rate is 15.6 percent among Americans with less than a high school diploma and 10.5 percent for those with only a high school degree. Even these rates understate the problem. Add in people working part time who’d rather it be full time, those too discouraged even to look for work, those working in a full-time job at fewer hours, and those who lost their jobs and have settled on new ones paying far less, and more than one in four of those without high school degrees are unemployed or underemployed; 22 percent of people with only high school degrees. Considering that most households now rely on two wage earners (and most people tend to marry or cohabit with people who have roughly the same level of education they do) the situation is dire. A growing number of households have now sold off all their assets and exhausted their capacity to borrow from friends and relatives. That’s why the bad loans are still mounting: Households can’t meet their mortgage payments, can’t pay the rent, can’t meet payments on their credit cards and cars. It doesn’t have to be this way. It’s this way because companies and consumers aren’t able or willing to buy nearly enough to get people back to work, and government hasn’t yet filled the shortfall. The stimulus was too small to begin with and its peak level of spending is now over. In recent weeks, Congress and the Administration have been working on a bunch of proposals called “jobs bills,” but they’re so small relative to the size of the problem they should be called “almost jobs bills.” One, recently passed, lets employers avoid paying payroll taxes for the rest of the year on each unemployed worker they hire (at a salary under $106,800), who has been out of work for at least 60 days. If the new hire remains at the job for at least 52 weeks, the employer can get a $1,000 tax credit on its 2011 tax return. The Congressional Budget Office estimated a similar payroll tax holiday proposal — not limited to workers who had been jobless for 60 days – would generate about 200,000 new jobs. With the 60-day limit, though, the number of hires is likely to be half that. Remember: The nation needs 11 million jobs just to catch up. On Wednesday, House Democrats passed several other morsels they called “jobs bills,” whose likely effect on unemployment is even smaller. One would bestow about $3 billion of tax breaks on small businesses. Another would further expand what are known as “Build America Bonds,” designed to help states and cities with new construction projects. The tab here is about $13 billion. It’s a worthwhile effort but given that the states and cities are running up deficits of some $125 billion this year alone and firing everyone in sight — even teachers — it’s smaller than small potatoes. It’s a lima bean. On Friday, the White House will announce a new program requiring lenders to temporarily slash or eliminate monthly mortgage payments for many borrowers who are unemployed, to no more than 31 percent of a borrower’s income (about what the borrower would be getting in unemployment benefits, if qualified), for up to six months. It’s another worthwhile step. But it deals with the symptom rather than the disease. The reason so many households can’t pay their mortgage is because someone has lost a job. There is no great mystery about what the federal government needs to do. It must mount a frontal attack on unemployment proportional to the problem. At least another $300 billion in stimulus money is necessary. Some should go to the states and cities to restore cuts; some should be applied to the nation’s crumbling infrastructure; a portion should go to direct hiring (a new WPA). This should be the Next Big Thing. It won’t be easy. Most Americans don’t differentiate between temporary federal spending that’s necessary to get jobs back (which enlarges the current deficit) and permanent spending that’s built into federal programs (and creates big debt problems for the future). Many “moderate” Dems won’t even consider a second stimulus. To accomplish it will require the President draw on his new store of political capital, mobilize his newly fired-up base, and capitalize on his renewed stature as a fighter for the people. But what’s a second honeymoon for if not for something the nation desperately needs?

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Senator Shelby: Dodd Bill Doesn’t Fix ‘Too Big To Fail’

March 26, 2010

Alabama Senator Richard Shelby, the ranking Republican on the Senate Banking Committee, has written a letter to Treasury Secretary Tim Geithner voicing his opposition to the Dodd bill’s approach to the problem of too-big-to-fail financial institutions, reports The New York Times . In the letter, Senator Shelby argues that the bill still provides the Federal Reserve with lending powers and gives the FDIC and Treasury Department the authority to guarantee banks’ debt during emergencies. And he took issue with the bill’s proposed $50 billion fund designed to pay for the termination of failing banks: “The mere existence of this fund will make it all too easy to choose a bailout over bankruptcy,” he wrote. Altogether, these provisions amount to a “backdoor way” to bailouts, he said : “[The Dodd bill] does not end the problem of ‘too big to fail’ and will not end the associated moral hazard.”

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Don McNay: ATT: Reaching out and Ripping off Long Distance Customers. Like Me.

March 24, 2010

I’ve had a landline with Bell South for about 30 years. Somewhere along the way, two things happened. One is that they became part of ATT. The second is they offered unlimited long distance service. Both have been bad for me. And many other ATT customers. Each month, I pay for unlimited long distance service. Each month, ATT sends me a bill for all my long distance calls. At 33 cents a minute. This has happened for six consecutive months. I got my bill tonight and they did it once again. They charged me for my unlimited long distance service. Then they threw on another $171.60 on top of it. I suspect if ATT customers look closely at their bills, a lot of them are going to have the same outrageous charges that I have. I ‘ve confirmed in my monthly phone calls to ATT supervisors that my problem is not an isolated one. They also confirmed that they don’t have any plans to correct the matter anytime in the near future. I’d like to complain to someone but not sure who. I tried by starting by calling my friends at Bell South, who are now my friends at ATT. That’s not an easy thing to do. This bill tonight, like every other one I have received, came in after the ATT Customer Service office has closed. They are open from 7 am (not a good time to catch me by the way) and close at 6 p.m. while I am normally still at work. I tried using their “online service” (as the voice on their hold message frequently tells me) but online don’t seem to have a category for my problem. If they charge you 33 cents a minute when they are supposed to be charging you zero, they don’t have a button to fix it. In fact, the only thing online does is prompt you to call their office. Which I do. It normally takes about 30 minutes but then I speak to a live human being. They know they have a problem and usually fix it. Then I ask to make sure it won’t happen again. The first few months, they assured me it was a one time thing but after being lied to a few times, I spent another 30 minutes waiting to speak to a supervisor. At least two supervisors have told me it is a widespread problem. They also told me that the only way to fix it is to keep calling every month. I’m not sure what to do. I actually want a landline. I do a lot of radio interviews and it’s worth the $50 a month (which is the flat amount I supposedly pay for local and long distance) to have a landline in my house. It’s also good in an emergency. Bell South stayed on during an ice storm a couple of years back when my cable and electric were out. I’m not sure the new ATT will do that but I would like to think they would. We have a Public Service Commission in Kentucky and a Federal Communications Commission in Washington. Since this problem is supposedly impacting other consumers, you would think they would do something about it. I don’t think they are really following it. I recognize that landlines are a relic from the horse-and-buggy era, but I was offered a flat rate for mine and that is what I accepted. Since I suspect that most landline users are my age (51) or older, I suspect that this “glitch” is making a bundle for ATT on the backs of senior citizens. It’s an election year. I wonder if any of those who are supposed to be lobbying for seniors rights, like AARP, have the guts to stand up to a powerful corporation like ATT. I’ll be calling my friends at ATT tomorrow. It will an hour of my life wasted but I am determined not to get ripped off. And hoping this column will keep many others from being ripped off as well. Don McNay, CLU, ChFC, MSFS, CSSC is an award winning, syndicated financial columnist and Huffington Post Contributor. You can read more about Don at www.donmcnay.com McNay has Master’s Degrees from Vanderbilt and the American College and is in the Eastern Kentucky University Hall of Distinguished Alumni. McNay has written two books. Most recent is Son of a Son of a Gambler: Winners, Losers and What to Do When You Win The Lottery

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Average Homeowner In Obama Foreclosure Program Underwater, Yet Principal Cuts Rare

March 23, 2010

The average homeowner in the Obama administration’s signature foreclosure-prevention program owes more on their mortgage than their home is worth, yet the program does virtually nothing to address this problem, according to a scathing new report by a government watchdog, casting doubt on the effectiveness of the $50 billion effort The average homeowner may owe their lender as much as two-and-a-half times more than the home is worth, the Office of the Special Inspector General for the Troubled Asset Relief Program states in its report examining the administration’s year-old Home Affordable Modification Program, citing November data from Fannie Mae. The Treasury Department told government investigators that the average homeowner likely owes their lender about $1.14 for every $1 of the home’s current market value, the report notes. Yet the program doesn’t address this problem of negative equity — commonly referred to as being “underwater” — according to the report. The administration’s effort has been touted as a way to stem the rising tide of foreclosures by reducing monthly payments for up to four million troubled borrowers. Mortgage servicers forgave principal on less than two percent of HAMP trial loans, the report notes. But before HAMP, 10 percent of servicer-sponsored mortgage modifications forgave principal, according to the report. Servicers are incentivized to lower monthly payments by getting cash for every sustainable mortgage modification. “HAMP allows principal reduction, but it is not typically implemented in practice,” the report states. This data has never been publicly disclosed. About a quarter of all homeowners with a mortgage are currently underwater, according to real estate research firm First American CoreLogic. The watchdog report notes that underwater homeowners represent about half of all foreclosures. The lack of principal reductions, which the report notes is the “primary method of quickly addressing negative equity,” may lead to homeowners walking away from their mortgages. Strategically defaulting on a mortgage — being able to afford the mortgage, yet voluntarily choosing to default — “usually occurs when the home’s value is substantially lower than the mortgage value,” the report notes. “Although relatively common in commercial real estate, it has been widely reported that homeowners may be increasingly more likely to strategically default on their homes,” according to the report. “Given the amount of negative equity in the mortgages under trial modifications, strategic default may become a factor in HAMP re-defaults, as borrowers decide that it makes more economic sense for them to walk away from their mortgages, and rent at a lower cost, rather than continue to make higher payments that may never result in them obtaining equity in their mortgage.” A recent report by state attorneys general and state bank supervisors noted that more than 70 percent of mortgage modifications result in an increase in the principal amount owed. “The evidence is irrefutable. Negative equity is the most important predictor of default,” said noted mortgage bond analyst Laurie Goodman of Amherst Securities before a Congressional panel in December. According to available data, not only is the average homeowner in the Obama administration’s primary foreclosure-prevention program currently underwater, but is very likely to end up being pushed further underwater by the administration’s efforts. “While the focus of the program remains affordability, Treasury continues to study ideas that will enhance, albeit modestly, program outcomes for…underwater borrowers,” Assistant Secretary for Financial Stability Herbert M. Allison, Jr. wrote in a March 22 letter in response to SIGTARP’s report. Read the report below: SIGTARP on HAMP

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Honda Recalls 410,000 Vehicles Over Faulty Brake System

March 16, 2010

Honda has recalled more than 400,000 vehicles over concerns of brake failure, according to several news reports today. While Honda’s announcement pales in comparison to Toyota’s recall of 8.5 million vehicles , its part of a growing number of automaker concerns about the possibility of faulty brake systems. Here’s the AP: The recall includes 344,000 Odysseys and 68,000 Elements from the 2007 and 2008 model years. Honda said in a statement that over time, brake pedals can feel “soft” and must be pressed closer to the floor to stop the vehicles. Left unrepaired, the problem could cause loss of braking power and possibly a crash, Honda spokesman Chris Martin said. “It’s definitely not operating the way it should, and it’s safety systems, so it brings it to the recall status,” he said. The National Highway Traffic Safety Administration has reported three crashes due to the problem with minor injuries and no deaths, Martin said. Honda notified NHTSA of the recall on Monday, he said. The problems with uncontrolled acceleration acceleration seem to not be limited to Toyota. As Bloomberg noted yesterday , American automakers may also have had brake issues. Here’s Bloomberg: U.S. regulators have tracked more deaths in vehicles made by Ford Motor Co., Chrysler Group LLC and other companies combined than by Toyota Motor Corp. during three decades of unintended acceleration reviews that often blamed human error. The agency received 15,174 complaints involving unintended acceleration in the past decade and has run 141 investigations of the phenomenon since 1980, closing 112 of them without corrective action. NHTSA’s repeated conclusion that crashes occurred because drivers mistakenly stomped the accelerator became a policy position that caused investigators to take complaints of runaway vehicles less seriously than they should have, safety advocates say. Here’s more from the AP: Drivers who fear that they’ve lost braking power should have their dealer check the brakes sooner, Martin said. The dealer can “bleed” air bubbles out of the hydraulic lines, which should fix the problem until the parts arrive for the final repair, he said. Honda technicians will put plastic caps and sealant over two small holes in the device to stop the air from getting in, Martin said. The automaker is still preparing a list of affected vehicles. After April 19, owners can determine if their vehicles are being recalled by going to or by calling (800) 999-1009, and selecting option number four. http://www.recalls.honda.com

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Aaron Greenspan: Customer Disservice Spotlight On: Toyota

March 13, 2010

I own a Toyota Corolla. It’s a car that gets me from point A to point B, where those points usually refer to my house and my office. Occasionally, I drive the car to more exotic places (the grocery store and the gas station), but in all, I don’t drive a whole lot. It took me a year and a half to get to 5,000 miles. It took Toyota nearly that long or longer, depending on when you think Toyota engineers actually knew about the problem, to notify me that my car was being recalled for the infamous sticky accelerator pedal. (The dealership did send me a dubious Russian-spam style e-mail in blue type, full of typographical errors, from a person I’d never heard of, asking me to click on a link to a SurveyMonkey survey where I should type in my VIN to find out if my car was being recalled. “Dear Aaron you must be alarmed by recent news about Toyota recalls,” it began.) What I knew already was that the car was being recalled for another problem, as well, or as Toyota called it, “SSC 90H – CERTAIN 2009-2010 COROLLA AND COROLLA MATRIX BRAKE SYSTEM VACUUM PORT SPECIAL SERVICE CAMPAIGN.” I had apparently purchased a car that featured a broken accelerator and broken brakes. (Recent news reports indicate that the steering wheel may be next.) After finding a day on which missing work to take my car in wouldn’t be a major inconvenience, I scheduled an appointment and drove to Magnussen’s Toyota of Palo Alto, where I purchased the car in September 2009 from a former investment banker. He worked in a trailer outside the main building–the dealership’s “internet department.” I needed the car because the week before, my old one, a 2005 Corolla, had been totaled on highway 85 by a woman in an SUV who had somehow forgotten to use her breaks as she accelerated into bumper-to-bumper traffic. Though I owe Toyota credit for designing the 2005 Corolla well enough to me safe during the accident, I was never pleased about the way in which it was sold to me. The $1,000.00 instant rebate the dealership offered with a financing plan came with a serious string attached–even if you wanted to pay off the balance, you couldn’t. Though interest started to accumulate from day one, paying your bill required an all-important account number, and somehow Toyota Financial Services just couldn’t figure out how to assign one to me week after week. I reported the company to the Texas Attorney General; the company reported my full payment to the credit bureaus as being “late,” which I cleared up years later when it appeared as the only negative activity on my credit report, much to my surprise. Six months after I purchased my new car, I found myself at the dealership because the car’s indecipherable tire pressure icon would sporadically light up and then turn off again. After a while, it stayed on, which didn’t seem like it could mean anything good. The service engineers insisted that I had run over a nail with my six-month-old car, and I insisted that I hadn’t. No one could find a nail in the tire, and it took days of arguing about the cause of the problem before anyone could even find a leak. At that point, the dealership told me that the car’s warranty didn’t cover the tires and that I’d have to buy a new tire outright. This caused a minor firestorm involving calls to my insurance company, various tire dealers, a local Sears (which couldn’t find the problem, either), and the dealership’s service manager. Eventually, the dealership relented and agreed to replace the defective tire. Days later, as I was standing in one of the service manager’s offices fuming and waiting to pick up my car, a brochure about tire protection caught my eye. In writing, the brochure plainly stated that every tire the dealership sold was covered under warranty. Both the assistant manager and the manager had lied to me. Consequently, I wasn’t expecting much when I took in my car to have both recalls addressed. I was told that the repair would take a couple of hours, but I had work to do and so rather than wait, I asked one of my employees to pick me up at the dealership on the way to work. It was a good thing, too. Far from “a couple,” the repairs took nine hours. When I got the car back, it took about a day before I noticed that something was wrong. Every time I pressed the accelerator pedal, the car let out a painfully high-pitched shriek. It wasn’t the pedal making the noise, either–something inside the hood of the car was clearly not working properly. The noise seemed to fade a bit as the engine warmed up, but it was definitely there. I called the dealership to tell them about the problem. They wanted me to bring the car in yet again, but since I had just been there to get to defects fixed that weren’t my fault, I didn’t feel like adjusting my schedule all over again. I told them to pick the car up. “We can’t do that,” I was told. “Don’t you have shuttles?” I asked. “No, we don’t have any shuttles for that kind of thing,” they replied. Of course, they were lying. I drove my car in once more, waited around for twenty minutes before someone appeared to help me, and then asked if they needed anything more from me beyond my description of the problem. Everything seemed to be set. As I was driving the liability-laden rental car I didn’t want back to my office, I saw a clearly-marked Magnussen’s Toyota of Palo Alto shuttle van turn the corner in front of me, heading the opposite way toward the dealership. Adding to my surprise, I noticed that my rental car (also a Corolla) made the same shrieking noise. Around 2:00 P.M. I received a call. The service department wanted me to come back and drive the car with them so that a technician could hear the sound. “I was just there this morning,” I said. “Why couldn’t you have asked then?” The service department didn’t have a good answer. Thinking I could swing by on my way home from work, I offered to come back later in the day to drive the vehicle, but because the technicians stopped work at 4:00 P.M., that also wasn’t going to work, I was told. I finally offered to come by at 3:45 P.M. “We don’t want you to just drop everything,” the service representative said sympathetically. “I don’t want to either,” I replied, and indicated that we would work something out at a more convenient time. At about 5:00 P.M. I received another call. The service representative wanted to know where I was, as he had been waiting for me since 3:45 P.M. Now doubly angry, I rushed to the dealership to drive the car with him before he left for the day. He heard the sound and verified that it matched my description–but stated that because he wasn’t an engineer, it didn’t matter: I would still have to drive the car with an engineer. “It’s clearly not normal,” I told him. “Before you ‘fixed’ the car, it never happened.” “You just have sensitive ears,” was his response. The following week I convinced the Toyota dealership to use one of the hundred cars on its lot to drive a technician to my office. We walked over to the parking lot where he instructed me to step on the accelerator with the car parked. The engine shrieked. I stepped again. The engine shrieked again. “I don’t know if that’s normal or not,” the technician said. Because it was a Friday, I agreed that the dealership should call on Monday to come back and pick up the car. Nothing happened on Monday. On Tuesday, the dealership called and another engineer appeared to drive my car away. I didn’t bother with a rental car this time. On Wednesday, he called once more to indicate that my car was ready. “What was wrong?” I asked him. “I don’t know,” he replied. “They just told me to call you.” “Well did you actually do anything to the car? Is it fixed?” I asked. “I don’t know,” he replied. I called the dealership myself and spoke to the service manager. “Did you do anything to the car?” I asked. “Oh yeah,” he replied. “That break vacuum port repair has a big warning in the instructions saying that if you install the plate a certain way the car will make a whistling noise. So we had the technician re-install the plate for you the right way.” I couldn’t believe my [sensitive] ears. “So you’re saying that you guys just didn’t read the directions, but you should have known about this all along?” His response was clear. “Yeah, there was the warning in the directions, but we had the technician secure the plate right this time.” I had confirmed earlier that the dealership had serviced the rental car, too. It’s likely that every repair they made to a Corolla for the “special service campaign” was made incorrectly. I was told, of course, that I was the first to complain. Suffice it to say that my car drives fine now, but without a doubt, it’s the last Toyota I’ll ever buy. Aaron Greenspan is President & CEO of Think Computer Corporation and the author of Authoritas: One Student’s Harvard Admissions and the Founding of the Facebook Era .

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Obama Announces ‘Modest’ Foreclosure-Prevention Initiative

February 19, 2010

In what senior administration officials repeatedly stressed as a “modest” effort, President Barack Obama announced a $1.5 billion initiative to help five states and their local housing agencies deal with an expected influx of foreclosures. In a pair of Friday speeches in Nevada, Obama laid out his plan to help the five states — Nevada, Michigan, Arizona, California and Florida — arguably hardest hit by the housing meltdown. Each has suffered at least a 20 percent decline in home values since the peak of the housing bubble. “And now that that bubble has burst, it’s left devastation that we’re still grappling with today,” Obama told a crowd in Henderson, Nevada. The state is the only one in the nation where homeowners cumulatively owe more on their mortgages than the underlying homes are worth, according to real estate research firm First American CoreLogic. For every $1 their homes are worth, Nevadans owe lenders $1.14. The entire state is “underwater.” “Now, government has a responsibility to help deal with this problem. Government can’t solve this problem alone. We got to be honest about that. Government alone can’t solve this problem. And it shouldn’t,” Obama said. “It can’t stop every foreclosure, and tax dollars shouldn’t be used to reward the very irresponsible lenders and borrowers who helped bring about the housing crisis. But what we can do is help families who’ve done everything right stay in their homes whenever possible. “So this fund is going to help out-of-work homeowners avoid preventable foreclosures, and it will help homeowners who owe more than their homes are worth find a way to pay their mortgages that works for both the borrowers and the lenders alike, and will help folks who’ve taken out a second mortgage modify their loans.” The money, which will come from the administration’s $50 billion Home Affordable Modification Program, will be used as an “innovation fund” so state and local agencies can experiment with different methods to reduce preventable foreclosures, the administration said in a statement. The Treasury Department has to approve the programs. While the money can be used to target troubled homeowners suffering from unemployment, negative equity (homeowners who are underwater), and even those with multiple mortgages on their homes (like second mortgages or home equity lines), the ultimate amount available for the five states — $1.5 billion — is a pittance compared to the amount of delinquent homeowners. As of Dec. 31, the Mortgage Bankers Association estimates that about 1.5 million homeowners in those five states were delinquent on their mortgages, according to data released Friday. Separately, the administration has set aside about $47 billion to modify the mortgages of distressed homeowners who meet specific Treasury Department guidelines. That program promises to help up to four million homeowners by lowering their monthly payments. Thus far about 950,000 homeowners are getting at least temporary payment relief. Comparing the goals of the national program to the amount of money allocated, Treasury is estimating that it will cost about $12,000 to successfully modify each troubled mortgage. Using that figure, the administration’s latest $1.5 billion effort could end up helping just 125,000 homeowners. About 4.3 million homeowners nationwide are at least 90 days delinquent on their mortgages or in foreclosure proceedings, according to the latest figures from the Mortgage Bankers Association. Most of them will lose their homes. At the very least, though, the administration’s latest effort can be viewed as an acknowledgment that changes are needed. “What we’re trying to do here is foster innovation,” Herbert M. Allison Jr., the Treasury Department’s assistant secretary for financial stability, said in a Friday conference call with reporters. While administration officials wouldn’t say whether specific changes are coming, Diana Farrell, deputy director of the White House National Economic Council, said during the conference call that the money is being targeted to encourage state and local housing agencies to “innovate to address what are these much thornier issues” like homeowners who are underwater, unemployed, or burdened with multiple mortgages. That innovation, if successful, may be applied to the national program, which many analysts and experts perceive to be inadequate and, in its current form, ultimately doomed to fail. Nearly one year after the program was announced, less than 120,000 homeowners have achieved the kind of permanent relief that was promised. But in case homeowners thought the administration was trying to help everyone with mortgage difficulties, Obama made it clear Friday that wasn’t the case: “I’ve got to again repeat — government can’t stop every foreclosure. There’s not enough money in the Treasury to stop every foreclosure. And we shouldn’t be using tax dollars to reward the same irresponsible lenders or borrowers who helped precipitate the crisis.”

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Toyota Recalls Become `Reinforcing Cycle’ as Scrutiny of Automaker Grows

February 10, 2010

By Jeff Plungis and Alan Ohnsman Feb. 10 (Bloomberg) — Toyota Motor Corp. ’s perceived delays in fixing vehicles prone to unintended acceleration are intensifying scrutiny of the company’s products and leading to more reviews and recalls, automotive analysts said. “Some of this is a negatively reinforcing cycle,” said Jeremy Anwyl , chief executive officer of Edmunds.com , a Santa Monica, California-based automotive research Web site. “To the outside world, it appears Toyota is trying to hide something. The more it appears that way, the more people start digging.” The world’s biggest automaker announced yesterday its latest recall, of 437,000 hybrids including the Prius, the top- selling vehicle in Japan. Also yesterday, U.S. safety officials said they were reviewing Toyota’s Corolla, the world’s best- selling car, after complaints about how it steered. “The king isn’t perfect,” said Jim Hossack , an industry analyst at AutoPacific Inc. in Fountain Valley, California. “Toyota had such a strong reputation for quality for so long, that it’s inevitable this would become such a big thing.” Toyota has recalled almost 8 million vehicles on five continents to repair defects linked to unintended acceleration. At least three U.S. congressional committees plan hearings into how Toyota and the U.S. National Highway Traffic Safety Administration handled complaints about the problem. The Toyota City, Japan-based company lost about $31 billion in market value since Jan. 21, when it began calling in autos to fix potentially sticky pedals. Long Time Building “Safety is involved here: this isn’t some spare-tire or a corroding tailgate recall,” Hossack said. The intensity of the backlash against Toyota was greater because the company denied that consumer complaints about sudden acceleration indicated a real engineering problem, said Clarence Ditlow , executive director of the Center for Auto Safety, a Washington-based advocacy group. “This has been building for a long time,” Ditlow said. “In Toyota’s drive to be the No. 1 manufacturer, it lost sight of the engineering that got it there in the first place.” Recalls aren’t a problem for consumers, as long as the problem is clearly identified and fixed, said Mike Quincy, an automotive specialist at Consumer Reports magazine, whose vehicle ratings influence sales. The Yonkers, New York-based magazine removed its recommendation from Toyota models that were suspended from sale in the U.S. The endorsements will probably be restored, Quincy said. Congress Awaits “It seems like the perfect storm right now for Toyota,” he said. “Is this a nationwide, blood-in-the-streets kind of catastrophe? No. It’s been blown out of proportion.” According to Safety Research & Strategies Inc., a Rehoboth, Massachusetts, group that provides data to plaintiffs’ attorneys and consumers, there were 2,262 documented incidents in the U.S. of unintended acceleration involving Toyota vehicles from 1999 through Jan. 29, 2010. NHTSA confirms at least 2,000 such U.S. complaints in that period. Safety Research found at least 19 deaths linked to sudden acceleration of Toyota vehicles. From 1999 through January 2010, Toyota sold 22.03 million Toyota, Lexus and Scion vehicles in the U.S. Using the safety group’s figure, the problem occurred in 0.01 percent of the vehicles Toyota sold in the period. The company got a temporary reprieve when the House Oversight Committee postponed because of snowstorms a hearing that was scheduled for today. The hearing was reset for Feb. 24, the day before another hearing by the House Energy and Commerce Committee. The Senate Commerce Committee announced yesterday a hearing for March 2. Once Congress gets involved, “they add theater,” said Hossack, a former engineer for Ford Motor Co. and Mazda Motor Corp. “It will be all to the aid of senators and congressman running for re-election. Not sure that it will yield anything of significance.” To contact the reporter on this story: Jeff Plungis in Washington at jplungis@bloomberg.net .

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James Meigs: Target Toyota: Why The Recall Backlash Is Overblown

February 9, 2010

To judge by press accounts and statements from government officials, those innocuous looking Toyota sedans and SUVs in millions of American driveways are somehow kin to the homicidal ’58 Plymouth Fury in the Stephen King novel “Christine”–haunted by technological poltergeists and prone to fits of mechanical mayhem. In the midst of three major recalls, Toyota has been hammered by daily newspaper and TV pieces suggesting it has been slow to address safety problems. US transportation secretary Ray LaHood announced that anyone who owns one of the recalled vehicles should “stop driving it.” (He quickly backpedaled on that pronouncement, but warned, “We’re not finished with Toyota.”) Displaying a previously undisclosed concern for the safety of American owners of foreign-badged automobiles, the UAW quickly piled on. And now, Toyota’s North American president Yoshi Inaba must submit to ritual humiliation at the hands of the US Congress in a hearing on Wednesday. Does Toyota–or any car company–deserve this? Well, if they are knowingly selling an unsafe car, yes. But is that what’s going on here? Not so fast. There’s no question that unintended acceleration is a serious problem that needs to be fixed. But a little perspective is in order. As Popular Mechanics automotive editor Larry Webster has pointed out, every major carmaker receives occasional reports of sudden unintended acceleration (SUA). In the last decade, the National Highway Transportation Safety Agency logged some 24,000 SUA complaints. Less than 50 of these red flags were investigated. Why so few? The main reason is the nebulous nature of SUA. Often the problem occurs once, never to happen again. It’s tough to fix a defect that can’t be replicated. And then there’s the driver variable. As awful as this is to think about, it’s been shown that sometimes drivers simply mix up which pedal they’re pushing. In the late 1980s, the Audi 500 was the target of a barrage of SUA allegations, lawsuits and press reports (including a notorious “60 Minutes” episode that was later discredited). Then, as now, there were accusations that mysterious electronic gremlins somehow took over the car. In the end, NHTSA concluded that driver error was the only likely explanation for the incidents. But many safety concerns do have validity, and every carmaker has conducted numerous recalls involving critical safety features of their vehicles–brakes, steering, airbags, seat belts, and more. Still, the fact that some safety problems don’t emerge until cars have been on the road for months or years is not a sign that automakers are criminally cavalier about safety. Quite the opposite. The safety issues that lead to recalls generally occur in very small numbers, often barely rising above statistical noise. Toyota’s unintended acceleration problem, for instance, involved a handful of cases in literally billions of miles of driving. As those cases come to light, it is necessary for carmakers to take action, and it is natural for consumers to be concerned. But the intensity of the backlash against Toyota is almost unprecedented. Here’s what is being missed in most of the coverage of the issue: All cars are inherently dangerous. They propel their fragile human cargo at high speeds over unpredictable terrain. They combine thousands of parts that need to interact flawlessly–in environments ranging from Death Valley heat to Fairbanks cold–in order to maintain safe operation. Their radiators contain scalding fluids; their batteries are full of toxic acid; and their gas tanks hold explosive power equivalent to more than 100 sticks of TNT. And, by all accounts, Americans drive those cars faster than ever, on increasingly congested roadways. Nonetheless, driving gets safer every year. Fatalities per mile driven have fallen more than 25 percent since 1994, in part because cars themselves are safer. Compared to those of 20 years ago, the typical vehicle today has better brakes, better steering and more (not to mention smarter) airbags. Electronic stability-control systems have helped prevent countless accidents. Still, even the best cars are far from perfect. And much of the outrage over Toyota’s troubles seems based on the unrealistic expectation that cars should be infallible. That’s an unattainable goal; even well-designed components can wear out and fail in unexpected ways. Recalls are not a sign that carmakers are indifferent to the safety of their customers. On the contrary, recalls are part of the process by which automakers address safety or reliability issues that are often fairly subtle. So why did Toyota’s safety issues become front-page news when similar recalls by other automakers barely made the business pages? One is the scary nature of unintended acceleration itself, which taps into our almost instinctual fear that our machines will suddenly turn on us (HAL, anyone?). Another was the horrific 911 call from the passenger of a Lexus that crashed in Santee, Calif., in August of last year. And then there was timing. Toyota responded first to the problem of shifting floor mats (the likely culprit in the Santee crash), and only later to the much more subtle issue of accelerator pedals that are slow to return to idle . Those are two unrelated problems that needed to be addressed separately. Perhaps in a different climate, Toyota could have convinced the public that the accelerator pedal recall was an example of extreme diligence in pursuit of safety. Instead, the second recall struck the public as an admission of culpability–just another shoe dropping in a much larger scandal. By the time conversation got around to disconcerting glitches in the antilock brake system on Toyota’s high-tech Prius hybrid, there was no containing the outrage. (The fact is, most hybrids exhibit slightly twitchy braking as they try to manage the switchover from the electrical braking that recharges the batteries to the hydraulic braking needed for more aggressive stops. Conditions that engage the antilock braking system only complicate that challenge.) Without the previous incidents, news that Toyota was making a small change in its Prius braking software would have been a non-story. Instead, it completed the trifecta of bad news that has made this Toyota’s annus horribilis. Crisis managers will no doubt study Toyota’s handling of this issue, looking for lessons in avoiding that company’s predicament. After all, it took years for Audi’s sales to rebound after that company’s trip through the SUA gauntlet. Still, some good did come of Audi’s experience: Today all cars have interlock systems that make it impossible for drivers to move the shift lever out of park unless their foot is on the brake (thus preventing them from shifting into gear while accidentally flooring the accelerator). One likely outcome of the Toyota episode will be a requirement for a similar interlock that automatically disengages the throttle whenever the driver steps on the brake. And that would help make all cars just one, tiny increment safer than before. RELATED STORIES • PLUS: Toyota Halts Production to Tackle Sticky Gas Pedals • DRIVE SAFE: How to Stop Sudden Unintended Acceleration • COMPARISON TEST: 2010 Toyota Prius vs. 2010 Honda Insight • EARLIER: 2010 Toyota Prius Hybrid Electric Tech Exposed • TEST DRIVE: VW Jetta Diesel vs. Prius Fuel-Economy Marathon

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Adam Hanft: HOW TYLENOL IS DRAGGING DOWN TOYOTA- And the five things Jim Lentz needs to do NOW.

February 6, 2010

As his company’s reputation slides out from under him, Toyota CEO Jim Lentz is listening to old-school experts for whom the history of damage control stopped with the Tylenol poisonings in 1982. Sure, there are basic principles of honesty and truth-telling that apply. And stopping production was necessary – although far from sufficient. But Lentz forgets that the poisoning was something done to Tylenol. This recall is something Toyota did to itself – so the public’s tolerance isn’t remotely comparable. What’s more, don’t you think the media world has changed a little bit since the early 80s? This profoundly different landscape – one in which consumers are more in charge than ever, where immediacy and transparency are essential elements of a response strategy – requires a new kind of dramatic action. Yet there hasn’t been anything bold or innovative in Toyota’s response. It’s predictable, shallow, disappointing. There’s nothing that shows the company’s commitment to leaving no stone unturned in understanding what brought them to this precipice. Sure, they’ve done the obligatory things. They ran full-page newspaper ads – a mini-boon to the struggling industry – and cranked up a recall website and a Facebook page. In fact, the website (Toyota.com/recall) is woefully inadequate – it’s frigidly cold and unconvincingly mechanical. It’s also dumb. Check out their messaging, below. How reassuring is it that the recall letters haven’t even gone out yet? And do you really want sleep-deprived mechanics making a repair they’ve done before? 1. We’re starting to send letters this weekend to owners involved in the recall to schedule an appointment at their dealer. 2. Dealerships have extended their hours – some of them working 24/7 – to fix your vehicle as quickly as possible. And just today, Lentz announced a gimmicky Q&A with Digg for Monday. But his problem goes way beyond just making himself available for public questioning – and its just a manipulated event where he answers the questions he has chosen in advance. Here are five bold and stretchy things he can and should do right now to show that he is stripping the company bare, in public. They are a combination of high theater, high transparency, high commitment. 1. Lentz-Cam Yes, you can trot the CEO out on the “Today Show” and he have him spout the spin-controlled talking points he’s been primed on. But cynical consumers wonder what he’s really saying when the camera is off him. That’s what matters. That’s where the real agenda is revealed. Those are the secret sessions where the promise of putting the customer first is really tested. Lentz-cam would solve that directly. Every minute, every second of his working day would be streamed live, on the web. That’s the kind of naked transparency, corporate warts and all, that’s required to – in the word we’ve heard time and time again since the recall – “rebuilt trust.” Lentz cam would be the Tylenol gold standard for the digital media era. 2. Hire Tom Kean Akio Toyoda – who runs the big ship in Japan, announced on Friday that he will “personally will take the lead toward improving quality…by establishing a global quality task force that will conduct quality improvement activities region by region.” Three “qualities” in one sentence makes me more nervous than two of them would. More important than style, though, is substance. This is an epically bad idea. Insiders reviewing insiders – particularly given the Japanese culture’s bias towards insularity – is a conventional corporate smokescreen that’s about as trustworthy as the Chinese looking into the treatment of Tibet. I would advise Toyota to hire Tom Kean – the former New Jersey governor who is generally acknowledged to have done a fine job running the 9/11 Commission – to conduct an outside-in investigation of what happened. Kean would put together a team of experts in manufacturing and process management to conduct a headlight-to-taillight examination. Where did the systemic breakdowns occur? Why weren’t early warnings noted, and why weren’t the familiar dots connected (shades of 9/11) before a massive recall became necessary? The announcement would be positive news for Toyota, a giant media win. Some might argue that the release of the findings – months into the future – would be a negative reminder of the crisis while the company is trying to put it to bed. Not so. It would reinforce Toyota’s openness to self-examination. 3. Full transparency into the replacement bar. Everything is riding on this cheap piece of metal. There’s a video on their recall website which attempts to explain the fix, saying that “Toyota has determined that a precision cut steel reinforcement” bar will solve the problem.” But it’s a far from convincing story. It’s certainly not intuitive that a metal bar can reduce friction. And they try to make their point – and address a billion dollar reputational nightmare – with a crappy animated demo that looks less sophisticated than what a high-school computer graphics class could turn out. It’s laughable. What they need to do – and do immediately – is put their entire research program online. Show us how Toyota engineers developed the bar. That means everything should be posted – lab reports, technical drawings and analysis, and most important – before-and-after videos that show how the previous assembly got stuck under certain conditions. And how the replacement bar solves it 4. Launch a fund for the families of those killed. Toyota has been conspicuously silent about this. They should immediate announce that the company is putting $19 million dollars into the fund for the families of the 19 people killed. And it is simultaneously launching a company-wide payroll contribution plan, so employees can express their grief and support by making a donation through their paychecks. We should be able to check the amounts – and who contributed – in real-time, on the site. Create an internal competition within Toyota to raise money. 5. $1,000 off your next Toyota. Everyone who now owns a Toyota, whether or not it’s involved with the recall, gets a $1,000 gift certificate that’s transferable and never expires. These are big gestures for a big problem. But Toyota needs a monumental effort, and needs it fast. Because what they’re facing is a much tougher pill to swallow than Tylenol ever dealt with. And Dorothy, this isn’t the 1980s anymore.

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