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John Lipsky: Macro-Prudential Policies: Putting the ‘Big Picture’ into Financial Sector Regulation

October 22, 2010

The devastating impact of the global financial crisis created a consensus that pre-crisis financial regulation didn’t take the “big picture” of the system as a whole sufficiently into account and, as a result, supervisors in many markets “missed the forest for the trees.” In other words, they did not take into account the macro-prudential aspects of regulation, which has now become the focus of many authorities. Consensus regarding the need for macro-prudential regulation is particularly striking–previously this type of regulation had been used relatively little and, at present, there are no agreed standards that can be applied internationally. Thus, each of the countries that have adopted a new structure for the macro-prudential approach following the global crisis – including the United States, the euro area, and the United Kingdom – have created somewhat different forms of organization. In contrast, traditional micro-prudential regulations – that focus on the status of individual financial institutions and on the conditions prevailing in markets for specific financial instruments – long have been formed through cooperation in international standard-setting bodies. It is not surprising, therefore, that post-crisis reforms in traditional regulation already have made substantial progress, with improved international accords in many sectors being agreed in time for the upcoming summit for the leaders of the Group of Twenty industrialized and emerging market economies (G-20) in Seoul. Macro-prudential conference in Shanghai Recognizing the need to reach greater understanding about the potential roads to internationally-consistent and effective macro-prudential regulation–and in an effort to make sure that an appropriately broad range of views are taken into account–earlier this week, the Peoples’ Bank of China hosted an IMF-sponsored conference in Shanghai. The conference brought together central bankers and senior financial officials from Asia and around the world to examine and discuss key issues regarding macro-prudential policies. The conference, titled Macro-Prudential Policies: Asian Perspectives , allowed international participants as well as Fund staff attendees to benefit from the views of key Asian policymakers. And vice versa. What are the aims? At the conference, there was wide agreement that the first step in designing macro-prudential policies ought to be a convergence of views regarding the objectives of such policies. Of course, the most basic objective is straightforward–to prevent a crisis like the one just experienced. As the recent crisis unfolded, troubles in one institution spread quickly to related institutions as well as across national borders, rapidly and dramatically undermining the complex global web of financial relationships. The crisis thereby demonstrated that examining only the safety and soundness of individual financial institutions was inadequate. Supervisors need to be aware of, and respond to, the build-up in system-wide risks. Thus, a key challenge is to put in place a regulatory framework that ensures the safety and soundness of the entire financial system, and captures how the economic and financial systems affect each other. A basic objective of reform is to design and implement policies that will short-circuit cross-institution or cross-market knock-on effects that magnify problems. A second objective is to reduce the likelihood that the system as a whole will experience such knock-on effects. This means seeking to dampen the swings in credit and financial cycles that can produce financial system volatility that can damage both the stability of financial markets and the broader economy. Means of implementation A basic practical issue is how macro-prudential policies can be incorporated with the traditional set of policy tools. One option would be some type of capital surcharge or levy based on the degree of systemic risk created by any specific financial institution. In addition to classic micro-prudential requirements for minimum capital to back individual institutions, the new approach would add a new capital layer that takes into account the systemic importance of an institution. The idea would be to modulate an institution’s behavior by making it more costly to pursue those activities that contribute to the build-up of systemic risk. Other proposals to control systemic risk focus on quantity rather than price-based restrictions, including constraints on size or legal structure or certain activities by financial institutions. In general, however, price-based instruments tend to be more effective because quantity-based instruments may be more subject to gaming and regulatory arbitrage. Because systemic risks refer not only to institutions but also to markets, new measures should be considered that would make key markets more resilient. Effective Implementation through Cooperation Like so many other policy challenges facing modern, globalized markets, a cooperative solution is required. Policymakers need to ensure that macro-prudential policies in differing countries–when designed and implemented–do not contradict or offset each other. Supervisors also need to focus on cross-border exposures. The effective resolution of large and complex financial institutions that operate in multiple jurisdictions will need to rely on a clearly-designed cross-border framework to reduce moral hazard and support financial stability. On this point, the IMF has proposed a pragmatic approach . We hope a small set of countries that house the most interconnected firms will begin to make progress in this area. For many countries, an open question remains regarding which agency should design and implement macro-prudential policies – a new global body, a central bank, or the existing micro-prudential regulatory body? In general, participants in the Shanghai conference favored this job being awarded to central banks. Whatever path is chosen, however, the regulators must be supported by good information gathering, clear mandates and powers, effective tools, and, perhaps most important, cooperation between authorities nationally, and across borders. From iMFdirect blog

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Mark Pasetsky: Corporate Execs Beware! Social Media Can Destroy Your Executive Brand!

October 19, 2010

With the recent success of the film, The Social Network , it’s more important than ever for executives to understand the potentially negative consequences of social media networks. For many, a random social media comment or photo can destroy your executive brand, which is how how you are perceived by your colleagues and those in your industry. Whether you’re updating your status on Facebook, sharing your latest thoughts on Twitter, or checking in at a location on Foursquare, every action can impact your executive brand. Why Worry? Corporations are becoming savvier everyday at checking their employees actions on these networks, and employees who are not representing their company in a positive manner could face an uncertain future. It’s also extremely important for executives seeking new opportunities to be careful about their social networking activities as recruiters are going beyond a Google search to check their candidates backgrounds. In fact, a thorough review of a potential new employee’s Facebook page is becoming the norm, not the exception. Top Three Things to Remember Before Posting on a Social Network 1) Your Boss is Watching! My advice to clients is to always remember that what you’re posting can and most likely will be reviewed by your superiors. If for any reason you feel like bragging about your late night party or moaning about your volatile break-up, it’s probably best to make that a verbal conversation. 2) Don’t Disparage Your Company If you’re having a tough day at work or just had a disagreement with your boss, don’t post that on Facebook! That not only makes you look bad but your company will certainly not be pleased. In fact, I would suggest checking with your supervisor before posting anything about your company. 3) Pictures Tell a 1000 Words Yes, it’s a cliche. But in the social media world, it’s more true than ever before. Photos of your wild life is fun to share with friends but not with your employer. With all this being said, social networks offer fantastic ways to stay in touch with friends, build your network and grow your executive brand in a positive way, if you think twice before posting. Mark Pasetsky is the founder of Mark Allen & Company , a corporate communications firm in NY, as well as the editorial director for media and entertainment site CoverAwards.

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Nathan Gardels: To Balance Global Economy, Recalibrate Democracy

October 18, 2010

As the G-20 gears up to meet next month in Seoul, it is not surprising that the United States and China are at loggerheads. The “clash of systems” between America, the borrower and consumer, and China, the saver and manufacturing exporter, has generated an imbalance in the global economy that, if not corrected, threatens the peace and prosperity that has so far been achieved through globalization. That correction cannot occur overnight and cannot be economic alone. It depends ultimately on the recalibration of democracy in both the West and East. In China’s case, further democratization would include free labor unions and expanded rights for the rapidly growing urban middle class. Less censorship and more robust forms of political accountability would aid the reorientation of its juggernaut from export-led growth toward domestic consumption. Such changes would inevitably make the well-being of the household competitive, as a political priority, with the factory. China might learn from the policies of Asia’s development pioneers — Japan, South Korea or Taiwan — where income became more evenly spread as wages rose to capture productivity increases, and a credible safety net was put in place with high and broad levels of investment in education to enable the next generation to move up the value-added ladder. All these neighbors of China managed a middle-income transition by establishing the reliable rule of law that made government accountable, through freer expression and some sense of social security. In a developing market, confident expectations about how society will work widely stimulate greater consumption. In the U.S., political reform necessarily involves a shift away form the short-term political horizons and cultural habits of consumer democracy. Unless we can find ways to integrate the long-term perspective in governance and insulate it from immediate political pressures, it will be difficult to adopt policies that lead us back to fiscal prudence, revived productive employment, replenished savings and a middle class built on rising income instead of debt. Absent such a shift, there is certain to be a backlash against globalization — aimed with populist anger at China. Corrective policies, in other words, must seek to undo the way American and Chinese inequalities have played off of each other — a low-wage, export-led economy piling up huge reserves from overconsumption by an American middle class that fills the gap in its falling status through borrowing at rates pushed low by flush liquidity from China and an accommodating U.S. Federal Reserve. Former IMF chief economist Raghuram Rajan has argued that political pressures to compensate for America’s growing inequality gap over the past 30 years through eased credit by the Federal Reserve, abetted by huge Chinese purchases of U.S. Treasury debt, were a driving dynamic behind the housing bubble. Since 1975, Rajan points out, the wages of the 90th percentile of the U.S. population (the top 10 percent) grew 65 percent more than the 10th percentile. In 1975, the top 10 percent earned about three times the bottom 90 percent. By 2005 it had risen to five times. In an economy where consumption accounts for 70 percent of GDP, the gap between the American Dream and the American Reality was bridged by debt. In short, easy credit, not savings, enabled the demoted middle class to “keep up with the Joneses.” By 2007, consumer debt in the U.S. equaled 100 percent of GDP. Rajan sensibly worries that reigniting growth by encouraging renewed purchases of houses and cars through further easy-credit policies, even if it successfully avoids deflation, will only lead us back to an unsustainable bubble. In the U.S., the proper tax and education policies (because, in an era of technological change, education is the key variable of income differentials) as well as policies that foster infrastructure investment and domestic production would diminish the rapidly rising inequality Rajan documents. Fairer wage spreads in a developed consumer economy would enable the middle class to once again thrive on earnings and savings instead of seek to maintain their diminishing status through credit. Change won’t be easy. Vested interests in China favor export production industries and the associated political stability of continued rapid job growth that goes along with a strategy that has worked for decades. Vested interests and cultural inertia in the U.S. favor a return to the high consumption which has driven growth during that same period. China, at least, has the political capacity as an authoritarian mandarinate to change course from the top if the Communist Party is confident enough to heed the feedback signals of a burgeoning middle class that is demanding a more open society. Premier Wen Jiabao has said “the people’s wishes and needs for democracy and freedom are irresistible,” that “freedom of speech is indispensable for any country,” and that “without the safeguard of political reform, the fruits of economic reform would be lost.” It seems an equally daunting challenge to convince an open society used to living off of leverage to mend its ways. But if reality is the mother of fundamental reform in China, it can be no less so in the United States. © GLOBAL VIEWPOINT NETWORK/TRIBUNE MEDIA SERVICES

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Jonathan Lewis: How to Make Everything From Nothing

October 11, 2010

Five years ago, MicroCredit Enterprises was born. Simple in conception, difficult to birth, and now wonderfully successful at reducing poverty for some of the poorest people in the world. Without a dime of donations, lifting a finger or leaving home, high net worth individuals, small family foundations and companies in the United States are at this very minute financing 112,000 small businesses, providing 560,000 people with basic food security. In countries like Indonesia, Peru, Mozambique, Tajikistan, Cambodia, and Ecuador — 15 poor nations in all, located on 4 different continents — local entrepreneurs are bootstrapping themselves to a better life. “Some say nothing can be done about poverty… [MicroCredit Enterprises is] reducing poverty for thousands of the most impoverished women around the globe, ensuring food security for their children and sustainable futures for their families — with a guarantee, not a check.” Here is how it works: A group of Americans voluntarily pool their good financial credit ratings to back small business loans for impoverished people, mostly women, in the developing world who then are able to feed their kids. Since the poor lack good credit and thus can’t get loans to start businesses, these Americans have stepped up. The incredible part, and it is truly amazing, is the poor women have a terrific repayment rate. They pay back 97% of the loans which beats commercial bank loans, housing mortgages, student college loans, just about every loan category that you can think of. As result, the local programs which MicroCredit Enterprises finances are very solid. Indeed, a default to MicroCredit Enterprises almost never happens. When it does, the guarantors cover the loss on an equal “fair share” basis with a tax-deducible contribution. In the words of MicroCredit Enterprises CEO Gary Ford, “Nothing down, no donation, no investment, simply signing a guarantee can make a world of difference.” MicroCredit Enterprises itself operates on a very modest expenditure budget — just 3% of total loan portfolio — and has been financially self-sustaining since its second year of operations. The trick? The organization employs a hybrid staffing model intermixing paid and unpaid professional executives, all of whom work in a virtual enterprise without the cost of rent or other unnecessary overhead. MicroCredit Enterprises borrows the majority of funds which it lends overseas from First Republic Bank which provides financing at commercial rates. Because the entire social finance model is available without copyright protection, any poverty organization can download the legal documents, the structure and all the other supporting materials needed to understand the model and put it to work in the service of a economic opportunity. Thanks to 46 Americans, who have taken “nothing” and made it into something, fewer less children and their moms are looking desperation in the face. As the MicroCredit Enterprises founder and board chair, please excuse my pride.

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Inder Sidhu: Profiles in Doing Both: Clorox Has a New Formula for Cleaning Up in Emerging Markets

October 11, 2010

For nearly 100 years, the name “Clorox” has been synonymous with the words “clean” and “sanitary” in the United Sates. But not in many parts of the emerging world, where its products can help in a myriad of ways. Though the company does business in more than 100 countries, nearly 80 percent of sales come from North America. Company leaders are eager to change this. Brimming with confidence over success achieved recently in Latin America, they believe they can double the amount of business Clorox does outside North America. What makes them so sure? This time, they believe they have the right business formula for growing in established countries and in emerging markets. Here’s some background. Founded in 1913 by a group of California entrepreneurs, Clorox is a Fortune 500 consumer products giant. In addition to its namesake bleach, Clorox makes Hidden Valley Ranch salad dressing, Fresh Step cat litter, Glad trash bags and a host of other products. In fiscal 2010, sales totaled $5.5 billion. Sensing the company was missing some opportunities, company leaders went on a buying spree in the 1990s to jump start international sales. In all, Clorox spent more than $1 billion acquiring overseas companies. They spent the bulk of their money in Latin American. The acquisitions provided Clorox a toehold in key markets, but did not lead to the creation of a true, global strategy. For many years, there was limited coordination between field managers and executives at headquarters, and scant knowledge sharing between different geographies. Then in 2006, incoming CEO Donald Knauss vowed to change the company’s revenue profile. In particular, he wanted to increase the amount of business Clorox did outside the U.S. and Canada. The former president of Coca-Cola North America, he believed Clorox was missing a huge opportunity to sell health and wellness products in geographies where economic growth was creating significant consumer demand. Knauss tasked his lieutenants to create a comprehensive plan for expanding overseas. Unlike previous strategies that relied on acquisitions and partnerships, he wanted Clorox to grow its business in a more holistic manner. That meant judicious acquisitions in specific places, and organic growth in others. In addition, he thought the company could gain from leveraging best practices developed in the U.S. and replicating successes achieved in emerging countries where Clorox had established a leadership position. Doing both would help Clorox reach its full potential, company officials believed. You can see evidence of the strategy at work in many places around the world today. Take the work the company is doing in Peru around disease prevention. Clorox makes a number of surface disinfectants that are ideal for the market. But sales weren’t as high as local companies officials hoped. After some analysis, Clorox managers realized that consumers weren’t fully aware of all the ways germs could spread in a household. So they launched a major consumer education campaign that led to a 60 percent increase in bleach sales between 2007 and 2009. Now the company hopes to replicate this success elsewhere. The same is true of best practices that Clorox first developed in the U.S. that are now being exported to Latin America and Asia. This includes the work done by the company’s Category Advisory Services (CAS) team, which helps retailers leverage consumer data to drive higher-margin sales. CAS has been a big hit with U.S. retailers and is now winning new fans in emerging markets. In one Latin American country where a major retailer teamed with CAS, sales growth significantly outpaced the rest of the market thanks the strategies for shelving and assortment Clorox provided. In a recent interview with McKinsey Quarterly , Clorox Executive Vice President Beth Springer said the company will continue to “apply our functional practices more globally.” This has led to a deeper analysis of local markets and product profitability in individual categories. Armed with this knowledge, Clorox believes it can grow market share, expand into adjacent segments and enter new geographies. To Springer, the company’s game plan is “clearer than it has been in years.” Instead of developing one strategy for domestic markets and another for international ones, Clorox is moving closer to developing a holistic, global strategy that encourages ideas and innovations to flow freely from the established world to the emerging one, and then back again. Each time this occurs, Clorox cross-leverages success achieved in one part of the world with milestones attained in another. Take its three-step Desire, Decide and Delight program. Launched in North America, the initiative aims to increase customer satisfaction during the pre-sales, point-of-sales and post sales experience. After expanding the program to Latin America, the company’s market share grew by 1.8 percent in 2009. That translated into millions of dollars of new business. In another example, Clorox was able to transfer market insights on packaging gleaned in Latin America during the H1N1 flu epidemic back the U.S. where its been put to use to help design more convenient consumables. By increasing its involvement in the emerging world, Clorox is better positioning itself in the established one. Doing both is making the already potent company stronger than before. Inder Sidhu is the Senior Vice President of Strategy & Planning for Worldwide Operations at Cisco , and the author of Doing Both: How Cisco Captures Today’s Profits and Drives Tomorrow’s Growth . Follow Inder on Twitter at @indersidhu .

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Dr. Philip Neches: Suppose the Tax Cuts Expired

October 8, 2010

In ordinary human interaction, when almost everyone agrees on something, except for one part, you implement the parts everyone agrees on and discuss the remaining part until it is resolved. In the tortured, hyperbolic echo chamber we call the nation’s capitol, no such logic prevails. Such is the case with the so-called debate on what to do about the Bush era tax cuts, which expire on December 31, 2010. I say “so-called debate” because a “debate” assumes that both sides listen and respond to each other. Republicans took a stand based on their leaders’ perception of the tactical interests of their party, and now in the election season, Democrats respond in kind. It may be a validly political process, but it insults the integrity of the English language to call it a debate. The tax cut bills passed during the last presidency went through the Senate by “reconciliation” rules of procedure. Under these arcane Senate rules, the normal need to get 60 votes for cloture (the process that brings a bill to the floor for a vote) do not apply: the bill can advance by simple majority vote. However, the bill moved under reconciliation procedures must be only a fiscal (spending and revenue) measure, and must be deficit-neutral over 10 years. Of course, there is no way a permanent tax rate reduction can be deficit-neutral. Therefore, the bill had to be written as a temporary rate change, with an expiration date. The promoters of the bill assumed that their party would still be in power when the expiration date approached, and could extend the cuts using the same procedures that were used to first enact it. If the promoters’ party loses power, then the expiration creates what the British call a “sticky wicket” for the opposition, now the party in power. And so it goes. In a common sense world, the Senate would pass the Obama administration proposal to keep the Bush tax cuts for all but the highest income taxpayers. After all, hardly anyone opposes that step. Then one could have an actual, real debate on the merits of letting the cut for the highest income group expire, or not. According to Senate Majority Leader Harry Reid, common sense is now scheduled to break out in the lame-duck session after the elections and before the new Congress is seated in January, 2011. But suppose it doesn’t. Suppose that the same political calculus that prevailed for the last 18 months continues after the election — unlikely as that may seem. The new tax cut bill would remain stalled, and would procedurally die with the waning session of Congress. The tax cuts would then expire on New Year’s Eve, and we would enter 2011 with Clinton-era tax rates. What would happen? If you listen to the inside-the-Beltway hyperbole, all hell would break loose. But what would happen on planet Earth, in the actual United States of America? To get a handle on this, I start with something my tax accountant told me. His clients are, for the most part, relatively wealthy people. They own their own businesses, are senior corporate executives, or are retired with substantial investments to manage. In other words, top bracket folks. Their dirty secret? Year in, year out, despite the ongoing flood of new tax rules, procedures, forms, and rates, they actually pay about 25% of their gross to Uncle Sam. How does this work? Well, he explains, his job is to advise his clients so that they can utilize the deductions, rules, and programs to their best advantage, while still fully complying with the law. So what would you do in this situation if your nominal tax rate goes up? A lot of things, it turns out. You may put more into tax-deferred vehicles, or arrange your income to come as capital gains (lower rates). If you don’t have time to do the year-plus ahead planning for those strategies, the simplest thing is to spend more on things that generate deductions. Give more to charity. Buy a new computer. Do more business travel: go more often, stay longer, upgrade accommodations. When it comes to spending a bit more, creativity is easy. The result is that even though the rules changed, the check to Uncle will remain about the same. And while I have described the behavior changes of the highest income taxpayers, other taxpayers can employ similar strategies. They do not have as much discretion to implement them, but they also would have a lower tax rate increase to try to offset. In other words, Americans will do what they always have done since the Sixteenth Amendment went into effect in 1913: curse and scream — then quietly adapt. Who knows, they might actually boost the economy by spending more in certain areas (deductible, of course). That may explain, at least in part, the disparity between common political wisdom about tax cuts, particularly for the wealthy, and actual economic performance. A higher marginal tax rate can actually encourage spending, where a lower marginal tax rate can encourage saving. This seems to be the opposite of common sense, but it is the logic for people who are rich. In this context, “rich” simply means having sufficient resources to meet one’s actual, minimal, immediate needs — by this definition, a majority of Americans are at least somewhat rich. Finally, if the Bush era tax cuts expired, the Obama administration would then be free to devise a tax rate policy proposal not constrained by the policy of the prior administration. Political common sense would seem to say that not only would they, but they would be very motivated to pass it early in 2011 and make it retroactive to New Year’s Day. All this will most probably turn out to be idle speculation on a sunny Friday in October. But if Harry Reid is wrong about common sense erupting in the Senate, remember — you read it here first.

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Richard Barrington: Will Money Market Rates Be a Victim of the Fed (Again)?

October 8, 2010

Some very prominent investment experts are forecasting additional moves by the Fed to lower interest rates. If they are right, you would want to close your money market accounts and savings accounts, and put the money into long-term CDs before rates drop further. Before you do that, though, you’ll want to consider the value of those forecasts. Goldman Sachs, PIMCO and Bank of America all expect the Fed to get even more aggressive about buying bonds to drive down market yields. The idea is that driving down yields will lower borrowing costs and provide stimulus to an economy that seems to be teetering on the brink of a relapse into a recession. What to do if you buy the hype The national average rate on savings accounts is 0.18 percent, according to the FDIC. Money market rates average 0.26 percent. At those levels, there isn’t much room to fall, so don’t expect Fed policy to drag savings account and money market rates down too much further. However, the best CD rates in the five-year range are still up around 3 percent. If the analysts are right, 10-year bond yields could be pushed down to around 2 percent, which would probably mean those long-term CD rates would fall as well. This would argue in favor of locking up CD rates at today’s levels. A contrary view On the other hand, there are reasons to take those high profile predictions with a grain of salt: Recently, there have been signs that the economy might be coming around without further intervention. Investment firms sometimes have a way of hyping certain trends. Goldman Sachs, for example, made headlines a couple years ago by predicting that oil would reach $200 a barrel. As a leading bond manager, PIMCO wouldn’t have much incentive to promote a bear market for bonds. When an outcome is widely expected, it is already reflected in market prices. In other words, bond yields have already fallen a long way on the expectation of a weak economy. They may not have much further to fall. In short, you should think about bond market trends when making decisions about your deposit accounts, but don’t necessarily believe everything you hear from Wall Street. This article was originally published at MoneyRates.com .

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Ron Ashkenas: Why We Secretly Love Meetings

October 7, 2010

Cross-posted from Harvard Business Online Is too much of your time spent in unnecessary or ineffective meetings ? If so, you’re not alone. Most managers consider meeting fatigue and meeting failures as two of the most significant drains on their productivity . As a result, an entire industry has sprung up over the past twenty years focusing on “meeting management.” Every company has courses on how to run good meetings , and in case you miss the training there are posters , laminated cards, and checklists for preparation, conduct, and follow-up. As a result of this saturation of meeting education, almost every manager knows the basic rules: Be clear about what you want to accomplish; invite the right people; send out pre-reading in advance; have an agenda and follow it with discipline ; send out notes with key decisions and action steps. You know the drill. Unfortunately these basic and widely understood guidelines for effective meetings are probably the least followed procedures in corporate history. If the government conducted “meeting audits” almost every company would fail. Most managers still complain about ineffective meetings, and then proceed to schedule multiple meetings and run them poorly. It’s an amazing phenomenon. This leads to one of the dirty little secrets of organizational life: Despite their protestations, at an unconscious (or conscious) level most managers actually like meetings, and for several reasons. They encourage social interaction. Most people don’t enjoy working alone; they want contact and relationships with other people. Meetings make them feel part of a community, and give them an outlet for sharing their personal feelings and opinions, not only on work issues but also on personal or political topics. So, some of the seemingly off-target chatter in meetings (even the complaining) is actually the realization of an important social outlet. They keep everyone in the loop. As firms have become more matrixed and interdependent, meetings serve as the informal loom that weaves together the organizational threads. People need to know what’s going on in other parts of the organization. They need informal sources to supplement the formal communication mechanisms — and to guide them through political and personal minefields. These information networks are created, reinforced and expanded through meetings. They often represent status. Membership on multiple committees means that you are important, your opinion is valued, and you have a seat at a decision-making table. Attendance at staff meetings means that you are part of the leadership team. Even being asked to present or answer questions at a meeting on a one-time basis gives you visibility with senior people and is status-enhancing. These psychological drivers of meetings are very powerful — and usually trump all of the logical and rational “meeting management” advice that is doled out in courses and articles. In other words, what seems like wasted or unproductive time for many managers is actually fulfilling important personal and organizational needs. This does not pardon meetings run wild and the time we lose to them. Managers at all levels need to be continuously on guard against unnecessary meeting proliferation and poor meeting disciplines. For example, several years ago in GlaxoSmithKline’s research organization there was a realization that — as a result of multiple project meetings and the inclusion of all functions on drug development teams — many people were spending as much time in meetings as they were on actual drug development work. As a result the company developed a “fit for purpose” meeting process in which only the people directly involved in a particular phase or issue of the project attended the meetings, while others just received information. All organizations should periodically look at their meeting patterns and make adjustments like this in addition to encouraging the use of agendas, virtual meeting approaches, and all the rest. However just complaining about too many meetings or poorly run meetings won’t do much good. Like moths to a flame, we’ll keep coming back, no matter what we say. What are your feelings about meetings?

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Richard (RJ) Eskow: The French Connection: That Jailed Banker Raises US Issues

October 6, 2010

Remember 2003, when so many Americans hated France for refusing to participate in the Iraq invasion? The airwaves were filled with insults about “effete” and “cowardly” Frenchmen, the phrase “cheese eating surrender monkeys” was on many a pair of lips, and rich patriots were boycotting Rhône wine in the spirit of national sacrifice. Well, munch on a Freedom Fry and ponder this: Finally, after one stunning revelation of big bank lawlessness after another, a banker is going to jail… in France. That’s a bit of a national embarrassment, n’est-ce pas? Jerome Kerviel was sentenced today to five years in prison (with two years suspended), and was ordered to pay the equivalent in $6.7 billion US in damages. There are a number of questions about Kerviel’s case, including the fact that he never profited personally from his massive trades. That part of Kerviel’s psychology is incomprehensible to the Wall Street mind: He made his bank billions of dollars, and earned less than $200,000 US per year for his efforts. A true American shark would have nothing but contempt for a sucker like that. Guess who got off pretty much scott free in the whole deal? Société Générale, the bank that employed him. If the name sounds familiar, here’s why: SocGen was one of beneficiaries of the US taxpayers’ largesse when, as a counterparty to AIG, the government directed AIG to pay the French bank $11.9 billion. That’s 100 cents on the dollar for the money AIG owed SocGen for credit default swaps and CDS collateral postings. Newspaper reports about Kerviel say that he generated more than 1.4 billion Euros in profits during a single year. And yet there was so little curiosity about his activities that he was still able to bet more that $50 billion Euros, more than the entire market value of the bank that employed him, without getting caught. As an AP story reported , ” an internal report by the bank found managers failed to follow up on 74 different alarms about Kerviel’s activities.” They were shocked — shocked — to find out that gambling was going on in there. In that sense, the judge’s ruling was odd. While the French are to be applauded for their willingness to indict a banker, the court’s ruling bent over backward to exonerate and placate the bank itself. The court ordered Kerviel to pay back the entire amount the bank allegedly lost. While Kerviel will actually never be able to do that, it was the judge’s was of saying that the bank bore absolutely no responsibility for what occurred on its premises. It was also a repudiation of Kerviel’s assertion that other traders were doing the same things he was. Instead of reprimanding the bank for its horrible risk management practices — controls so sloppy that the entire bank could be put at risk by mid-level employee — presiding judge Dominique Pauthe praised the bank’s response to the crime once it had happened. If the bank had left the vault doors open, presumably the judge would have praised it for promptly sounding the alarm after it had been robbed. But then, Société Générale has a way of getting lucky where the authorities are concerned. The US decision to pay the bank the full value of its AIG obligations demonstrates that. Think about it: In the course of a year, an allegedly “rogue” trader wreaked so much havoc that it cost Société Générale $6.7 billion — and the US government honored an obligation for nearly double that amount. Had the US let AIG go down, or refused to honor this obligation, SocGen’s fate might have been very different. Instead it survived this incident pretty much unscathed. The French bank seems to have done well by its association with Goldman Sachs, which brokered a number of its arrangements with AIG. It’s important to remember the role those two firms played in the months preceding the financial collapse. As Bloomberg News reported : Banks that bought swaps as protection against losses on mortgage-linked assets demanded cash collateral as the market value of the securities plunged last year, overwhelming AIG’s ability to pay. “It was precisely that drain of liquidity to Goldman and SocGen that put AIG in a position of illiquidity and ultimately threw them into the government’s arms,” said Charles Calomiris, a finance professor at Columbia Business School in New York. In other words, they had already bled a lot out of AIG before it collapsed, and yet were still able to receive 100 cents on the dollar where others might have been forced to settle for less. As with the Kerviel affair, SocGen’s oversight appears to have been lax when it came to its AIG agreements. David Fiderer properly notes SocGen’s casual indifference to a major investment, deferring that task to Goldman. Not that Goldman didn’t work for its client (and itself): It’s been accused of engaging in serious gamesmanship over its valuation of some of the securities in question. Many Americans who are already outraged over AIG’s counterparty payouts may know that AIG believed it had overpaid Goldman $1.56 billion, or that Goldman had refused to have its valuations reviewed by a panel of independent firms. One of the open questions about l’affaire Kerviel is whether he acted alone. At the very least, there were enormous gaps in SocGen’s internal controls. At worst, the bank looked the other way while one or more of its traders generated huge profits. But the real question are for our country, not France: Where are the US indictments and convictions? We’ve already discussed the curious decision not to prosecute anyone at AIG. But then, the French don’t have our SEC, which has so often chosen to cut sweetheart deals that leave bank shareholders on the hook for the illegal behavior of bank executives, while letting the bankers themselves walk away with their freedom and their bonuses. Senators aren’t the only ones upset about that. Judges are furious with these slap-on-the-wrist SEC agreements. In fact, “sweetheart deal” was the phrase a judge used to describe the SEC’s agreement with Barclay’s Bank. The Barclay’s case was the fourth in a series of cases where banks violated international law only to be let off easy, prompting the judge’s comments. As the New York Times reports: “Judge Sullivan asked why the government had not indicted and prosecuted the foreign banks, rather than agreeing to the settlements. He also asked whether any individuals from Barclays were being held responsible, though no one else has been charged in the case. “One must wonder what the penalty is, said Judge Sullivan … Judge Sullivan’s comments was part of a litany of judges’ complaints along the same lines. These judges understand that criminal prosecution of banks — and bankers — has precisely the deterrent effect we need to protect society. We’ve seen rampant bank criminal behavior go unpunished, from stock fraud to forged mortgage documents to laundering drug money. The French court’s air kiss to SocGen was unacceptable, given that bank’s negligent or complicit role in Kerviel’s action. That means that, at least in one sense, Kerviel’s the fall guy (even if he’s not the hero some of the French seem to think he is). But at least Kerviel’s conviction and sentence might deter future bad bankers. The US bankers who engaged in criminal behavior are walking around free. They’re writing big checks to political candidates, whining that nobody likes them and, of course, drinking nothing but the best French wines. DISCLAIMERS: Two potential conflicts of interest here — I used to work for AIG, and I’m one-quarter French. When I was about 18 I mentioned that second fact to a very pretty young woman on a train to Paris, in my broken French, to which she responded in true Gallic fashion: “How nice for you.” _________________________ Richard (RJ) Eskow, a consultant and writer (and former insurance/finance executive), is a Senior Fellow with the Campaign for America’s Future. This post was produced as part of the Curbing Wall Street project. Richard also blogs at A Night Light . He can be reached at “rjeskow@ourfuture.org.” Website: Eskow and Associates

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Zach Carter: Robbing The Middle Class: Republican ‘Pledge’ Lets Wall Street Off The Hook

October 5, 2010

I didn’t expect to see serious economic policy discussions in the ” Republican Pledge To America ,” but even by Washington, D.C. standards, this document is staggeringly disingenuous. Not once in the entire 48-page screed do Republicans mention the words “Wall Street,” “subprime,” or “foreclosure.” It’s a deliberate effort to obscure the fact that today’s economic mess is the direct result of financial malpractice on Wall Street–and that Republican economic policies would encourage more of it. As my CAF colleague Richad Eskow has noted, this Pact to Rob The Middle Class has plenty of other problems–but fundamentally, it’s supposed to be a discussion about government spending and the federal budget deficit. For anyone to even pretend to discuss those issues without mentioning the past decade’s Wall Street excess is simply laughable. The increases in government spending under President Barack Obama have been an attempt to counter economic damage wreaked by Wall Street under President George W. Bush. They haven’t been enough, but they’ve helped–just ask economist Mark Zandi, former adviser to Sen. John McCain’s presidential campaign (.pdf file). But after watching a deregulated Wall Street pump out trillions of dollars worth of ridiculous predatory mortgages and then amplify their bets tenfold in the unregulated derivatives market , Republicans now promise to hold up any new government regulation that “costs” the economy more than $100 million. This is pure insanity. Any serious Wall Street regulation will cost every megabank far more than $100 million over the 10-year span devoted to budget projections– that’s the whole point of serious financial regulation . Republicans are defending the basic housing bubble accounting scam: book huge, illusory short-term profits with reckless lending and gambling– when those bets blow up, stick taxpayers with the bill. You can measure the short-term costs to bank profitability, but you can’t measure the costs of future financial collapse. Plenty of free-market activists thought decades of deregulation had worked until markets cratered in 2008. At that point, we lost eight million jobs, and the amount of government debt held by the private sector increased by 40 percent of GDP . Without Obama’s stimulus package, the cost in jobs would have been far higher. This rabid deregulatory agenda applies to every rule yet to be written under the Wall Street reform legislation that Congress approved this summer. Since the basic strategy of that bill was to kick all major decisions to regulatory agencies, the Republicans are sending a clear signal to their Wall Street friends: Republicans will work with bank lobbyists to dismantle the entire Wall Street reform bill. They even pledge to freeze federal hiring to prevent regulators from putting more cops on the beat fighting Wall Street fraud . As for further, stronger reforms? Nothing. A promise to “permanently” end bailouts. These promises are always empty. They mean nothing without serious regulations to rein in financial excess. The United States bailed out banks and their creditors prior to 2008 (under Republican regimes), and will do so again the next time megabanks get into trouble. Without strong regulations, smaller banks, or both, the bailout cycle is inevitable. But Republicans have not only pledged to set Wall Street loose, they’ve vowed not to clean-up the economic mess that megabanks create. That’s what their much-ballyhooed cap on federal spending means. When Wall Street sets the economy on fire, we’ll let it burn–if that means home, your job, or your retirement, then so be it. Both political parties court Wall Street campaign cash, and Republicans have been extremely successful at securing that funding. Take a look at the 90 most flagrant Wall Street Cronies in Congress –everyone who voted for the bank bailout in 2008, but opposed reforming Big Finance in 2010 (full table at the end of the post). The list doesn’t include every Wall Street servant on Capitol Hill, only the most obvious offenders. T his Coalition of Wall Street Cronies includes 81 Republicans, and just about every member of the Republican leadership who showed up to roll out the “Pledge To America.” In the House, it includes Minority Leader John Boehner, R-Ohio, and Minority Whip Eric Cantor, R-Va., while the Senate brings in Minority Leader Mitch McConnell, R-Ky., Minority Whip Jon Kyl, R-Az., Republican Conference Chairman Lamar Alexander, R-Tenn., Republican Policy Committee Chairman John Thune, R-S.D., and National Republican Senatorial Committee Chairman John Cornyn, R-Texas. The full list of Financial Miscreants is at the end of this post. What does “The Pledge” actually say about the financial crisis? Repeatedly disproven drivel : “Fannie Mae and Freddie Mac . . . triggered the financial meltdown by giving too many high risk loans to people who couldn’t afford them.” That’s not what happened . Private-sector banks issued subprime loans. Private-sector investors bought up these garbage mortgages in the form of mortgage-backed securities and collateralized debt obligations (CDOs). They lobbied hard to keep consumer protections at bay and to lift leverage limits that prevented them from betting too much on the housing market. After a few years of crazy, irrational profits in the private sector, Fannie and Freddie caught on to the scam, lobbied the Bush administration to adjust their regulations, and began buying up mortgage-backed securities in order to compete with Wall Street. This behavior was disgusting, but it did not cause the subprime crisis, the housing bubble or the Wall Street crash. All of those were created and catalyzed by Wall Street. Fannie and Freddie’s basic function–buying up mortgages and securities–made them totally divorced from any losses at big banks. They didn’t push the crisis onto the banks, they belatedly chose to take part in the crisis created by banks. Even today, only about 14 percent of seriously delinquent mortgages at Fannie and Freddie are subprime. None of this turns Fannie and Freddie executives into good guys–they were reckless scumbags who cost taxpayers billions. But if you’re going to demand major structural reform of Fannie and Freddie (and you should), then you should demand much further-reaching reform of the Wall Street casino that actually wrecked the economy. Best of all, Republicans pledge to “fight efforts to use a national crisis for political gain.” If the Republican “Pledge” isn’t a cynical exploitation of a national jobs crisis for political gain, I don’t know what could possibly qualify as cynical exploitation. Conservatives created the crisis with deregulatory economic policies, and now want to use the crisis not to fix things, but to deregulate further . I’ve been very critical of both President Obama and Congressional Democrats for being overly timid about financial reform and refusing to take the prospect of another near-term crash seriously. This is not a partisan defense of Democrats– to be sure, some of them are still behaving very badly . This is a defense of financial sanity, something that the Republican Party has just pledged to erase. Wall Street’s Cronies are listed below. Senator 2010 Wall Street Cash Career Wall Street Cash Sen. Lamar Alexander (R-TN) $1,600,000 $4,900,000 Sen. Robert Bennett (R-UT) $1,500,000 $2,600,000 Sen. Kit Bond (R-MO) $333,600 $3,300,000 Sen. Richard Burr (R-NC) $1,500,000 $3,300,000 Sen. Saxby Chambliss (R-GA) $2,500,000 $3,500,000 Sen. Tom Coburn (R-OK) $451,700 $1,200,000 Sen. Bob Corker (R-TN) $3,100,000 $3,300,000 Sen. John Cornyn (R-TX) $3,200,000 $4,700,000 Sen. John Ensign (R-NV) $1,300,000 $2,600,000 Sen. Lindsey Graham (R-SC) $1,100,000 $2,000,000 Sen. Judd Gregg (R-NH) $233,200 $1,100,000 Sen. Orrin Hatch (R-UT) $1,400,000 $2,600,000 Sen. Kay Bailey Hutchison (R-TX) $1,400,000 $4,700,000 Sen. Johnny Isakson (R-GA) $1,500,000 $4,200,000 Sen. John Kyl (R-AZ) $2,800,000 $3,800,000 Sen. Dick Lugar (R-IN) $412,200 $2,500,000 Sen. John McCain (R-AZ) $947,600 $34,000,000 Sen. Mitch McConnell (R-KY) $4,300,000 $5,300,000 Sen. Lisa Murkowski (R-AK) $268,200 $909,700 Sen. John Thune (R-SD) $1,600,000 $3,900,000 Sen. George Voinovich (R-OH) $435,200 $2,800,000 21 Republicans 0 Democrats Senate Total $31,881,700 97,209,700 House Member 2010 Wall Street Cash Career Wall Street Cash Rep. Rodney Alexander, R-La. $106,500 $422,300 Rep. Spencer Bachus, R-Ala. $611,600 $4,400,000 Rep. Gresham Barrett, R-S.C. $20,400 $806,700 Rep. Marion Berry, D-Ark. $24,900 $663,700 Rep. Judy Biggert, R-Ill. $395,000 $1,900,000 Rep. Roy Blunt, R-Mo. $1,200,000 $3,800,000 Rep. John Boehner, R-Ohio $1,300,000 $3,700,000 Rep. Jo Bonner, R-Ala. $90,400 $702,200 Rep. Mary Bono Mack, R-Calif. $190,000 $733,400 Rep. John Boozman, R-Ark. $257,700 $491,000 Rep. Dan Boren, D-Okla. $123,100 $722,200 Rep. Rick Boucher, D-Va. $92,700 $1,400,000 Rep. Charles Boustany Jr, R-La. $226,300 $934,600 Rep. Kevin Brady, R-Texas $157,000 $840,500 Rep. Henry Brown, R-S.C. $35,700 $494,000 Rep. Vernon Buchanan, R-Fla. $336,800 $1,400,000 Rep. Ken Calvert, R-Calif. $180,300 $940,300 Rep. Dave Camp, R-Mich. $588,000 $1,700,000 Rep. John Campbell, R-Calif. $413,400 $1,200,000 Rep. Eric Cantor, R-Va. $2,100,000 $4,400,000 Rep. Mike Castle, R-Del. $749,100 $3,200,000 Rep. Howard Coble, R-N.C. $23,400 $502,500 Rep. Tom Cole, R-Okla. $110,000 $686,000 Rep. Mike Conaway, R-Texas $161,500 $711,800 Rep. Ander Crenshaw, R-Fla. $86,100 $717,000 Rep. Henry Cuellar, D-Texas $90,600 $606,900 Rep. Charlie Dent, R-Pa. $177,900 $881,000 Rep. Chet Edwards, D-Texas $324,200 $1,900,000 Rep.Vernon Ehlers, R-Mich. $8,500 $292,200 Rep. Jo Ann Emerson, R-Mo. $143,900 $904,400 Rep. Mary Fallin, R-Okla ($1,000) $340,700 Rep. Rodney Frelinghuysen, R-N.J. $86,200 $840,300 Rep. Jim Gerlach, R-Pa. $251,600 $1,800,000 Rep. Kay Granger, R-Texas $140,000 $1,100,000 Rep. Wally Herger, R-Calif. $171,500 $1,100,000 Rep. Peter Hoekstra, R-Mich. ($1,000) $300,600 Rep. Bob Inglis, R-S.C. 0 $572,800 Rep. Peter King, R-N.Y. $173,900 $1,600,000 Rep. Mark Kirk, R-Ill. $1,900,000 $4,200,000 Rep. John Kline, R-Minn $170,900 $989,100 Rep. Jerry Lewis, R-Calif. $31,800 $748,000 Rep. Daniel E. Lungren, R-Calif. $147,700 $622,500 Rep. Howard McKeon, R-Calif. $132,100 $1,100,000 Rep. Gary Miller, R-Calif. $144,500 $902,000 Rep. Harry Mitchell, D-Ariz. $130,900 $558,000 Rep. Sue Myrick, R-S.C. $93,600 $1,200,000 Rep. Soloman Ortiz, D-Texas $40,200 $381,700 Rep. George Radanovich, R-Calif. $24,900 $462,000 Rep. Mike Rogers, R-Ala. $128,200 $1,000,000 Rep. Hal Rogers, R-Ky. $50,200 $468,000 Rep. Ileana Ros-Lehtinen, R-Fla. $127,000 $986,000 Rep. Paul Ryan, R-Wis. $531,500 $1,900,000 Rep. Jean Schmidt, R-Ohio $121,900 $519,700 Rep. John Shadegg, R-Ariz. $39,700 $1,200,000 Rep. Bill Shuster, R-Pa. $30,700 $403,600 Rep. Mike Simpson, R-Ind. $20,500 $266,900 Rep. Ike Skelton, D-Mo. $112,500 $524,200 Rep. Lamar Smith, R-Texas $258,900 $1,300,000 Rep. Mark Souder, R-Ind. $40,500 $405,800 Rep. Zack Space, D-Ohio $169,300 $476,300 Rep. John Sullivan, R-Okla. $79,200 $494,800 Rep. Lee Terry, R-Neb. $202,600 $1,400,000 Rep. Mac Thornberry, R-Texas $42,500 $603,400 Rep. Patrick Tiberi, R-Ohio $555,500 $2,800,000 Rep. Fred Upton, R-Mich. $81,700 $929,400 Rep. Greg Walden, R-Ore. $180,700 $732,400 Rep. Zach Wamp, R-Tenn. 0 $715,700 Rep. Joe Wilson, R-S.C. $155,500 $580,200 Rep. Frank Wolf, R-Va. $90,400 $1,100,000 60 Republicans $15,873,400 $72,443,800 9 Democrats $1,108,400 $7,233,000 House Total $16,981,800 $79,676,800

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Ann Pettifor: The Broken Global Banking System

October 4, 2010

Let’s be honest: the banking system is now fully dysfunctional. It has failed in its primary purpose: to act as a machine for lending into the real economy. Instead the banking system has been turned on its head, and become a borrowing machine. HuffPost readers, I know, are smart and on the button when it comes to bankers and their wicked ways. But how many Americans understand how broken and defective the banking system as a whole has become? For the crazy facts are these: bankers now borrow from their customers and from taxpayers. They are effectively draining funds from household bank accounts, small businesses, corporations, government Treasuries and from e.g. the Federal Reserve. They do so by charging high rates of interest and fees; by demanding early repayment of loans; by illegally foreclosing on homeowners, and by appropriating, and then speculating with trillions of dollars of taxpayer-backed resources. A report out today, ” Where did our money go ?” from the London-based new economics foundation ( declaration of interest: I am a Fellow of NEF) — reveals that net lending to households and firms is negative. British banks are currently borrowing £12 billion ($18bn) a month to maintain existing levels of activity. According to the Bank of England, by 2011 they will have to borrow £25 billion ($39bn) a month — and the Bank is sceptical they can continue to raise that level of funding. According to the Bank of England UK banks are not alone in facing a significant refinancing challenge. Global banks are estimated to have around US$5 trillion of medium to long-term funding maturing over the next three years, and ‘the scale of competition for funds in global markets’ is intense. By borrowing from the real economy, and then refusing to lend, except at high rates of interest, bankers are effectively performing a lobotomy on the real economy. They are cutting critical credit connections to and from the vital ‘cortex’ — the region of the economy responsible for investment and the creation of jobs. Without a sound banking system and cheap, carefully regulated credit, the public and private sectors will not invest in e.g. green jobs or infrastructure. Output will continue to plummet, and unemployment and poverty to rise. The banking system was invented in 14th century Florence, 16th Century London, and 17th century Amsterdam — to create and disburse credit. We learned nearly five hundred years ago that a sound banking system could do just that, stimulating trade and other forms of economic activity. The effortless and almost costless creation of credit by both central and commercial banks creates deposits and savings — and not the other way around. This is contrary to the archaic ideas of the ‘classical’ economists (for which read: the Chicago School). Deposits and savings are not the result of economic activity; nor is Quantitative Easing. Instead they are the result of credit creation — which can then be used to finance investment and jobs. Today, as NEF’s report shows, thanks to the persistence of archaic, neo-liberal economic theories of finance, the banking system has frozen lending and been turned on its head. Instead of lending into the economy, bankers are borrowing from the real economy. Lunatic asylums are rightly discredited. Their treatment of patients was often barbaric and ultimately ineffective — so they were consigned to the dustbin of history. Like the asylums of yesteryear, banks are no longer fit for purpose. Their treatment of businesses and households is blunt and brutal. Built on monetary theory as outdated as Victorian lunatic asylums, the banking system is likely to implode again. That is why governments are cutting back on spending, and shoring up funds — fully expecting another banking bailout. The governor of the European Central Bank declared as much in the FT on 5 September, this year. What can Huff Post readers do? Get out of the ‘ veal pen ‘ and refuse to cede the battleground to Tea Parties. In other words, organise, don’t agonise.

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David Isenberg: The Good and the Bad in Using PMC in the Iraq Drawdown

October 4, 2010

Two reports issued this past week by the Defense Department’s Inspector General (IG) offers good and bad news regarding private military contractors (PMC). The first report is Accountability and Disposition of Government Furnished Property in Conjunction with the Iraq Drawdown – Logistics Civil Augmentation Program . LOGCAP is, of course, the mother of all logistics contract. Every base constructed, every meal served, ever piece of laundry cleaned, and every drop of fuel delivered is due to LOGCAP. And most of what the U.S. is withdrawing from Iraq is being done through LOGCAP. That process will continue through December 2011. The IG report addressed the accountability and disposition of Logistics Civil Augmentation Program (LOGCAP) Government furnished property (GFP) in Iraq. The IG determined whether DOD had adequate controls over LOGCAP GFP as it draws down forces from Iraq. As of September 30, 2009, there were 572,928 GFP items in the LOGCAP property book in Iraq, valued at about $2.9 billion. The good news is that, “Generally, DOD had adequate accountability over LOGCAP GFP. We estimated that the LOGCAP contractor could account for 443,918 of the 458,408 GFP items (96.8 percent) in our sample frame.” Of course, that is not to say that the contractor – that would be KBR if you did not know – did everything perfectly. The IG report also noted: We also identified systemic issues concerning the management and disposition of GFP items located at the LOGCAP contractor’s Fair, Wear, and Tear yards. This occurred because the Defense Contract Management Agency did not require the contractor to include Fair, Wear, and Tear yard management processes or care and disposition instructions specific to export-controlled GFP (such as ballistic plates and ballistic blankets) in its property control procedures. Still, they did reasonably well. And considering we’re talking about KBR, that is almost enough for atheists to declare their belief in God. But the other report showed there are still problems with using PMC. In the report DOD Needs to Improve Management and Oversight of Operations at the Theater Retrograde-Camp Arifjan, Kuwait the IG conducted an audit in response to a request to focus oversight on U.S.-funded assets to ensure they are properly accounted for and there is a process for assets’ proper transfer, reset, or disposal. As of May 2009, DOD estimated that the drawdown from Iraq would include the withdrawal of approximately 3.4 million pieces of equipment. The Theater Retrograde at Camp Arifjan, Kuwait, is responsible for receiving and processing containers of equipment and ensuring the equipment’s proper disposition. The IG found that DOD officials did not effectively manage Theater Retrograde operations. Specifically, Army and Defense Contract Management Agency (DCMA) officials did not ensure that contractor personnel complied with contract requirements and applicable regulations when processing materiel at the Theater Retrograde. Army and DCMA officials also did not ensure the contractor had sufficient staffing at the Theater Redistribution Center to meet container processing requirements. Now, that sounds like a problem of the regular military and not the PMC and that is true. The background is that in 1999, the U.S. Army Atlanta Contracting Center awarded Combat Support Associates the Combat Support Services Contract-Kuwait, a $503 million cost-plus-award fee contract that encompasses several operations, one of which is the Theater Retrograde. The contract consists of one base year, nine option years, and two 6-month extensions extending contract performance through September 2010. The total contract value through March 2010 was more than $3 billion. Throughout the life of the contract, multiple organizations were responsible for contract management, administration, and oversight. Currently, contract management is assigned to the U.S. Army Contracting Command, Rock Island Contracting Center; contract administration is delegated to the Defense Contract Management Agency (DCMA); and day-to-day contract oversight I delegated by the 1st Theater Sustainment Command to an Army sustainment brigade. The IG found that DOD officials did not effectively manage Theater Retrograde operations for the reutilization and disposition of equipment at Camp Arifjan. Specifically, Army and DCMA officials did not ensure that contractor personnel complied with contract requirements and applicable Federal, DOD, and Army regulations when processing materiel at the Theater Retrograde. For example, contractor personnel did not: comply with security requirements to prohibit foreign nationals from unauthorized access to classified and potentially controlled materiel, store hazardous materiel properly or have the required equipment to safely respond to a hazardous spill, conduct adequate research to identify serviceable nonstandard equipment for reutilization, and assign correct national stock numbers to serviceable materiel. This occurred because Army officials did not develop and implement effective policies and procedures for processing materiel at the Theater Retrograde. In addition, Army and DCMA officials did not resolve all deficiencies identified during contractor performance reviews and did not perform administrative functions in accordance with their appointment letters and the Federal Acquisition Regulation. As a result, DOD remains at an increased risk that a foreign country or adversary could gain a military or economic advantage over the United States, which could impact national security. In addition, officials will continue to be exposed to increased safety risks and serviceable materiel will not be effectively reutilized, but instead may be potentially destroyed or sold without direct monetary benefit to the Government. The IG report also found that “Audit reports and weekly and monthly performance reviews showed that Army and DCMA officials did not hold the contractor accountable for not complying with the contract staffing level and specific performance requirements.” What this indicates is that a PMC is only as good as the federal acquisition workforce supervising it. If they don’t provide proper guidance and oversight problems are inevitable. In other words a chain is only as strong as its weakest link and according to the IG the some DOD officials are looking fairly underwhelming.

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Vivian Norris de Montaigu: The Future of Banking

September 30, 2010

Based on the adherence to the Chatham House Rules, no individuals nor companies will be identified by name. A remote location near St. Andrews, Scotland, was a somehow ideal place for bankers and their technology bedfellows to discuss their common future, held under gray clouds and bad financial news brewing in nearby Ireland, and austerity protests in much of Europe. Except these bankers were 90% from Africa, Asia and the Middle East. The rare European and even rarer (expat) American, although often dominating the speaking space, added little to the reality of those who attended. Underlining this fact was a Kenyan banker who announced a 36% yearly profit or an Indian CEO expanding internationally taking the stage just after a gloom and doom American analyst or frankly depressing former Central Bank representative from the West. Will the emerging market economies be able to sustain this optimism or will yet another wave of crisis hit those markets as well? Or had they learned from the ’97 crisis (bankers from countries such as Thailand helped to put that crisis in perspective) and were thus in better shape to deal with any new ones to come? And is this crisis in the West not a kind of karmic payback for that ’97 Asian Financial Crisis, without which China and much of Asia would have already been much stronger? Africa, without violence, famine and AIDS too would have risen up as a financial leader much earlier. At last these parts of the world, where the majority of the poor, those Bottom of the Pyramid citizens of the world, were seeing a brighter future. Our crisis in the West should not be hindering their prosperity, nor should globalization force those who have begun pulling themselves out of dire poverty, fall back because of rising food prices or debts to the IMF and World Bank. Ironically those same countries, which were told they could not bail out their own banks when times became rough, have been watching closely as the US bailed out its own banks. This kind of hypocrisy does not go down well. I doubt that kind of advice will be listened to again. Yet one hopes they do not follow in our Western footsteps and that regulations will indeed hinder the kind of hyper-speculation and virtual splicing, bundling and reselling of thin air. Ironically we ran into an old friend who had been an executive at a large bank in the US (which had failed) who happened to be vacationing, golfing in St Andrews. When he found out we were attending a banking conference he asked questions, and the answers we provided demonstrated that not all was gloom and doom. The demographic charts showed the aging US and Europe while most of the developing world has young populations that are energetic and entrepreneurial… and which can trade with one another. In other words, speaking from a US perspective, in some ways, they simply do not need us. The former banker friend went on to work with manual laborers and has been questioning the way things were done in the past. He witnessed firsthand how cheap credit and over-expansion brought down a once strong economy. And though the first evening a former Irish rock star turned philanthropist and humanitarian took the stage to address and scold those he perhaps believed to be a Goldman Sachs and City crowd, the reality was that I spent much of the free time discussing with Indian, African and expat US bankers, about the good being done by banking the unbanked, how technology could help speed up that process, and how the BRIC economies were not looking towards their Western colleagues for how to build their economies, but rather trying out new architectures and customer-focused approaches that we in the West would be wise to learn from and implement. Microcredit, women, microsavings were all discussed with bankers who all focused on the human needs in their countries. I was impressed time and again that they did not ignore these difficult topics but were extremely straightforward. I was also frankly shocked as I spoke to several expat American former bankers and analysts who had seen the crisis coming and has moved to Australia and other parts of the world. All of them stated they had done so to ensure their children a better future. WE in the West are now finding ourselves having to stare poverty in the face as much of our population is suffering and without work. There was talk of the end of banks as we know it, mobile banking and bank branches in a box, but also maintaining a human connection and knowing the customer. But the most exciting ideas came from ex-bankers or those who had been running big banks and who were focusing on funding projects and businesses created by women, or looking at how the poorest of the poor were fulfilling their financial needs via new technologies. African telecoms buying up banks, non-banks doing business that used to be monopolized by banks — local investments in Africa and Asia were paying off. But perhaps the most moving part of the event was the final evening, as we were bussed to a farm for a Scottish dinner and dance, accompanied by traditional music of the bagpipes and a farewell sendoff by the Scottish guards. As we stood there, bankers who came in many cases from former European, especially former British empire colonies, watching the cultural manifestation of a fading glory, I realized that the world has already changed, things will never be as they once were, and that is for the best. It is a new time. We need to learn from those we thought we were helping, as they will save us in the end.

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Daniel Isenberg: The Myth of the Knowledge Economy

September 28, 2010

Cross-posted from The Economist I want to be the first to advocate the ignorance-based economy. Exhortations by public officials everywhere to build knowledge-based economies have skyrocketed in popularity since the OECD first published its manifesto in 1996, accruing a whopping 40,000 articles on Google scholar alone. Unfortunately, like many sound bites, this one has more flavor than nutrition. As I help societies around the world increase their levels of entrepreneurship, I’ve found the “knowledge-based economy” mantra, ubiquitous as it is among public leaders everywhere, has become empty for three reasons. All economic activity is knowledge-based. Today, in 2010, what isn’t? The term’s original intention was to describe an alternative to economic activity based on resource extraction, commodity sales and rent-seeking. However, these activities also require and generate tremendous amounts of knowledge. Today, diamond sales require complex regulations and tracking processes, oil production must rapidly invent unique solutions to unforeseen problems, and cement pricing and distribution must be optimized with complex algorithms. Knowledge infuses all economic activity everywhere, and when something is everything, it is nothing. Internet is a utility; information is a commodity. The phenomenal accessibility to information through the worldwide web and wireless communication was and is one of the implicit underpinnings of the knowledge-based economy concept. A Google of “web” yields 2.5 billion hits in .27 seconds, and when combined with “Internet”, 1.5 billion in .25 seconds. There are about 5 billion mobile phone users engaged in borderless texting and other interactions. Facebook is a large country and Google is a common verb. But the ubiquity of access to information means that if you need to tell someone that they should use the web for their business, one of you is over 60, and the other is Rip Van Winkle. Entrepreneurship is the scarce and valuable resource, not knowledge. Recently I reviewed a list of a university’s patents up for licensing, and saw that such an effort is near-useless. The connection between molecules and money is incredibly loose and divorced from entrepreneurial drive. In other words, advanced knowledge has little economic value. I grew up in Woods Hole Mass., with its 925 residents and 54 affiliated Nobel Laureates. Entrepreneurship? None. Spin-off ventures? None. Most regions would die for a tiny fraction of the IP that gets generated in Woods Hole, but Woods Hole has remained an economic anti-cluster since its founding in 1888. Venture capitalists invest in 1 out of 100 brilliant ideas they review. Technology is not what gets you to the top; business acumen, leadership ability, salesmanship, and the ability to put resources together is what realizes opportunity. Compared to technology, entrepreneurship is the scarce and valuable resource. The Bliss of Ignorance The interesting, value-adding aspects of economic activity are the ones that are based on ignorance, not knowledge. It is the ability and willingness to take action in the face of fundamental ignorance, in which uncertainty, ambiguity, and the unknown play dominant roles that will determine which economies, and ventures, succeed and fail. Good managers, leaders, and policy makers have evolved effective ways of dealing with such ignorance. Successful entrepreneurs have led the way in turning ignorance into opportunity; we can learn much from their behaviors. Entrepreneurs enter into the unknown, sometimes plunging headlong, more often than not creeping into it, toe after toe. Tom Szaky, for example, built an international “green” business, Terracycle, ignorant of the required technology for converting worm excrement into fertilizer. He was completely naïve to the ways to package and sell the product, not to mention finance his early investments. He learned by doing: by jumping in, by making small mistakes and a few big ones, and by using his native intelligence and scrappiness to invent solutions as unexpected opportunities and problems arose. Slowly, the landscape became clear. Szaky not only discovered the nature of this particular economic environment, but he also invented the environment. This is the way that in reality most entrepreneurs, those quintessential economic actors, work. In the past I have called this methodology, of handling ignorance by acting in the face of it, “strategic opportunism.” At Babson College, we term it “entrepreneurial thought and action.” And at the heart of this ignorance-based economy are those economic actors who learn by doing. They embrace the learning embedded in surprise, make mistakes, improve optionality as they go along, and reframe and restructure risky situations to be less risky, in part by partnering with others who will take on some of the risk. The economic well-being of today’s societies rests in encouraging entrepreneurs and fomenting their ability to deal with ignorance. If information is a commodity, is it really necessary to convince people that thinking in novel, innovative ways can lead to economic opportunity and growth? Is it necessary to persuade policy makers that investing in education and thinking is worthwhile? In 1996 a call to build the knowledge-based economy may have made sense. Not in 2010.

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Dan Dorfman: Will the Real Economy Please Stand Up?

September 28, 2010

Unlike some of the people you see in my HuffPost writings, I am not an economic expert. Like you, I read the financial pages, watch the financial shows, scan some internet sites and try to use my noodle to make sense out of the wildly conflicting and, at times, seemingly insane economic opinions. That conjures up a great dilemma, though. With more and more economic experts coming out of the woodwork — both on Wall Street and in Washington — who are we supposed to believe? How about President Obama, who tells us “we are moving in the right direction and the economy is getting stronger by the day?” Or New York Times columnist Paul Krugman who insists “we’re in early stages of a third depression?” Or maybe the National Bureau of Economic Research, which recently told the nation the 18-month recession ended in June? Or should we heed the roar of Wall Street, which is signaling loud and clear that the economy is clearly, but slowly mending by driving up the Dow more than 750 points in the past couple of months? Then again, maybe Standard & Poor’s thoughtful and perceptive senior economist, David Wyss, has the right idea. “We’re having a half-speed recovery, nothing to get excited about, but it’s better than none,” he tells me. Or perhaps, Madeline Schnapp, a forward-thinking economist out of West Coast liquidity tracker TrimTabs Research, who says: “We’re still stuck in first gear and haven’t exited the recession yet.” The answer, judging from these decidedly contrary views, is we seem to be caught in an environment of ‘up in the air economics’. In other words, there’s a thick fog of uncertainty out there, and nobody has the faintest idea when it will evaporate. It all brings me back to a memorable event that took place on October 26, 1881. That was the infamous day of one of the Old West’s most famous gunfights — a shootout between the Earps — aided by “Doc” Holliday — and the Clantons, at a vacant lot behind the OK Corral in the Tombstone Arizona territory. Now, nearly 129 years later, a slew of additional gunfights are taking place between the economic bulls and bears at what might appropriately be called the Economics Corral. One of the more intriguing economic gunmen is a skeptical grizzly of a 34-year-old man named Michael Larson, editor of a monthly newsletter out of Jupiter, Florida, The Safe Money Report Based on a fair number of highly negative and unpopular, but on-the-money forecasts, Larson has demonstrated he’s lightening fast on the economic trigger, not the kind of guy with whom an economic bull would want to tangle. Larson’s ability to repeatedly score both financial and economic bulls-eyes is well documented in past interviews I’ve done with him. For example, he was well ahead of the Wall Street herd in forecasting such dreaded events as the credit and housing crises, a major downturn in commercial real estate and a wicked decline in stock prices. His latest thinking, indicative of much more bloodletting, is spelled out in a brief commentary he just fired off to his newsletter subscribers. His summation: “The economy is on the ropes, a double-dip recession is all but inevitable, and the rally presents a fantastic selling opportunity.” Larson contends the latest batch of economic data couldn’t be more clear, pointing in particular to a deceleration in industrial production growth from 0.6% in July to 0.2% in August; likewise, a slump in the New York Fed’s economic index to a 14-month low in September, while the Philadelphia Fed’s index fell below the zero line for the second consecutive month. Larson also observes that banks repossessed more homes in August than in any month in U.S. history, while companies across the spectrum are either reporting anemic sales and earnings or cutting future targets. To Larson, it means the handwriting is on the wall, namely a hefty drop in stock prices. For starters, he sees the Dow — currently trading at around 10,812 — wrapping up the year at about 10,000 or possibly in the 9/000s. It’s worth recalling that in the gunfight at the OK Corral, several people were killed. Financially speaking, Larson is convinced the dragging economy will produce even more fatalities at a similar hot and heavy gunfight now under way at the Economics Corral. What do you think? E-mail me at Dandordan@aol.com

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Bill Maher: New Rule: Rich People Who Complain About Being Vilified Should Be Vilified

September 24, 2010

New Rule: The next rich person who publicly complains about being vilified by the Obama administration must be publicly vilified by the Obama administration. It’s so hard for one person to tell another person what constitutes being “rich”, or what tax rate is “too much.” But I’ve done some math that indicates that, considering the hole this country is in, if you are earning more than a million dollars a year and are complaining about a 3.6% tax increase, then you are by definition a greedy asshole. And let’s be clear: that’s 3.6% only on income above 250 grand — your first 250, that’s still on the house. Now, this week we got some horrible news: that one in seven Americans are now living below the poverty line. But I want to point you to an American who is truly suffering: Ben Stein. You know Ben Stein, the guy who got rich because when he talks it sounds so boring it’s actually funny. He had a game show on Comedy Central, does eye drop commercials, doesn’t believe in evolution? Yeah, that asshole. I kid Ben — so, the other day Ben wrote an article about his struggle. His struggle as a wealthy person facing the prospect of a slightly higher marginal tax rate. Specifically, Ben said that when he was finished paying taxes and his agents, he was left with only 35 cents for every dollar he earned. Which is shocking, Ben Stein has an agent? I didn’t know Broadway Danny Rose was still working. Ben whines in his article about how he’s worked for every dollar he has — if by work you mean saying the word “Bueller” in a movie 25 years ago. Which doesn’t bother me in the slightest, it’s just that at a time when people in America are desperate and you’re raking in the bucks promoting some sleazy Free Credit Score dot-com… maybe you shouldn’t be asking us for sympathy. Instead, you should be down on your knees thanking God and/or Ronald Reagan that you were lucky enough to be born in a country where a useless schmuck who contributes absolutely nothing to society can somehow manage to find himself in the top marginal tax bracket. And you’re welcome to come on the show anytime. Now I can hear you out there saying, “Come on Bill, don’t be so hard on Ben Stein, he does a lot of voiceover work, and that’s hard work.” Ok, it’s true, Ben is hardly the only rich person these days crying like a baby who’s fallen off his bouncy seat. Last week Mayor Bloomberg of New York complained that all his wealthy friends are very upset with mean ol’ President Poopy-Pants: He said they all say the same thing: “I knew I was going to have to pay more taxes. But I didn’t expect to be vilified.” Poor billionaires — they just can’t catch a break. First off, far from being vilified, we bailed you out — you mean we were supposed to give you all that money and kiss your ass, too? That’s Hollywood you’re thinking of. FDR, he knew how to vilify; this guy, not so much. And second, you should have been vilified — because you’re the vill-ains! I’m sure a lot of you are very nice people. And I’m sure a lot of you are jerks. In other words, you’re people. But you are the villains. Who do you think outsourced all the jobs, destroyed the unions, and replaced workers with desperate immigrants and teenagers in China. Joe the Plumber? And right now, while we run trillion dollar deficits, Republicans are holding America hostage to the cause of preserving the Bush tax cuts that benefit the wealthiest 1% of people, many of them dead. They say that we need to keep taxes on the rich low because they’re the job creators. They’re not. They’re much more likely to save money through mergers and outsourcing and cheap immigrant labor, and pass the unemployment along to you. Americans think rich people must be brilliant; no — just ruthless. Meg Whitman is running for Governor out here, and her claim to fame is, she started e-Bay. Yes, Meg tapped into the Zeitgeist, the zeitgeist being the desperate need of millions of Americans to scrape a few dollars together by selling the useless crap in their garage. What is e-Bay but a big cyber lawn sale that you can visit without putting your clothes on? Another of my favorites, Congresswoman Michele Bachmann said, “I don’t know where they’re going to get all this money, because we’re running out of rich people in this country.” Actually, we have more billionaires here in the U.S. than all the other countries in the top ten combined, and their wealth grew 27% in the last year. Did yours? Truth is, there are only two things that the United States is not running out of: Rich people and bullshit. Here’s the truth: When you raise taxes slightly on the wealthy, it obviously doesn’t destroy the economy — we know this, because we just did it — remember the ’90′s? It wasn’t that long ago. You were probably listening to grunge music, or dabbling in witchcraft. Clinton moved the top marginal rate from 36 to 39% — and far from tanking, the economy did so well he had time to get his dick washed. Even 39% isn’t high by historical standards. Under Eisenhower, the top tax rate was 91%. Under Nixon, it was 70%. Obama just wants to kick it back to 39 — just three more points for the very rich. Not back to 91, or 70. Three points. And they go insane. Steve Forbes said that Obama, quote “believes from his inner core that people… above a certain income have more than they should have and that many probably have gotten it from ill-gotten ways.” Which they have. Steve Forbes, of course, came by his fortune honestly: he inherited it from his gay egg-collecting, Elizabeth Taylor fag-hagging father, who inherited it from his father. Of course then they moan about the inheritance tax, how the government took 55% percent when Daddy died — which means you still got 45% for doing nothing more than starting out life as your father’s pecker-snot. We don’t hate rich people, but have a little humility about how you got it and stop complaining. Maybe the worst whiner of all: Stephen Schwarzman, #69 on Forbes’ list of richest Americans, compared Obama’s tax hike to “when Hitler invaded Poland in 1939.” Wow. If Obama were Hitler, Mr. Schwarzman, I think your tax rate would be the least of your worries. Bill Maher is host of HBO’s “Real Time with Bill Maher”, Friday’s at 10:00PM

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David Isenberg: Translating For Dollars

September 22, 2010

In my Sep. 14 post I wrote about what I considered to be false accusations against Mission Essential Personnel, which provides translators and interpreters to the U.S. military in Iraq and Afghanistan, as well as other government agencies. However, that is not to say that everything in that industry is fine. In fact, one would have to assume simply on the basis of the money that has been shoveled into the language translation and interpretation sector since the 9/11 attacks that there has been some waste and fraud. Like so many other aspects of private military and security contracting when you scale up your operations several fold and do not have proper oversight and accountability procedures problems are inevitable. Now as I am not particularly familiar with this sector I would normally not try to provide further detail. But fortunately for us there is Common Sense Advisory an independent Massachusetts-based market research company. Among its goals it helps innovate industry best practices in translation and interpreting. Last December it produced a report ” Language Services and the U.S. Federal Government: A Detailed Look at Uncle Sam’s Translation Spending Habits .” The report analyzed 20 years of federal government data, from January 1, 1990 through December 11, 2009. One of its very first points makes it easy to understand why doing proper oversight is easier said than done. Many large contracts fall under the “wrong” codes. The embedded linguists contract (W911W4-07-D-0001) to provide interpreting services in military settings, capped at US$4.6 billion for a five-year period to end in 2013, does not appear under typical translation and interpreting codes. The US$703 million contract (W911W4-07-D-0004) and the US$66 million contract (W911W4-07-D-0002) awarded for interpreting services in Afghanistan do not appear either. Instead, these contracts are listed under codes for “program management services” and “other management support services.” Federal government agencies spent a total of US$4.5 billion on translation and interpreting services from 1990 through 2009. However the bulk of that is clearly attributable to what happened after 9/11. The massive amount of spending on language services by the U.S. government is a relatively recent phenomenon – 92 percent of this expenditure (US$4.2 billion) took place in the past decade alone, from 2000 to 2009. In fact, 47 percent of this money (US$2.1 billion) was paid out to language service providers in the past two years. In 2001, the amount spent on language services more than doubled from the previous year, from US$67.6 million to US$160.51 million. Language services contracts continued to grow – in size and number – in the years that followed. Another dramatic increase took place in 2008, when total federal spending on language services doubled yet again, from US$453.69 million in 2007 to US$1.96 billion in 2008. Who were some of the top spenders? The top twenty included: Agency Amount spent on language services Department of the Army 2,587,428,206 Virginia Contracting Agency 385,380,319 * Drug Enforcement Agency 259,079,703 Department of the Air Force 146,783,605 U.S. Special Operations Command 140,192,216 Department of State 108,142,963 Department of the Navy 38,989,968 Agency for International Development 19,381,630 Federal Prison System 17,919,454 Defense Logistics Agency 14,367,629 * The Virginia Contracting Agency buys language services for the Defense Intelligence Agency. On average, these 20 organizations spent a cumulative amount of US$217.71 million per year on outsourced language services. However, if we remove the Department of the Army from the equation, the average amount drops to less than half that amount – US$92.99 million annually. In other words, the Department of the Army accounts for more than half (57%) of the federal government’s translation and interpreting spending. Historically, the Department of the Army has held the number one spot in terms of language services expenditures more years than any other organization – a total of 13 out of the 20 years reviewed. Thirty companies earned US$17 million or more by providing language services to the U.S. federal government over the past two decades. Very few of these companies operate in the commercial market. Some firms, such as Berlitz and Bowne Global, were absorbed into other Language Service Providers (LSP) through mergers and acquisitions. Others had multiple points of participation through other entities such as McNeil’s partner share in Global Linguist Solutions. Companies Contracts Obtained Amount Awarded 1 Global Linguist Solutions, LLC 55 1,051,646,448 2 Aegis Mission Essential Personnel, LLC 167 520,678,259 3 BTG, Inc. 164 303,879,709 4 TRW, Inc. 24 219,839,926 5 SM Consulting, Inc. 78 148,348,254 6 Shee Atika Languages, LLC 90 131,662,819 7 Berlitz International, Inc. 66 125,626,424 8 Allworld Language Consultants, Inc. 1,479 121,676,792 9 Northrop Grumman Corp. 203 114,704,525 10 Chenega Federal Systems, LLC 72 110,093,518 11 Techtrans International, Inc. 95 97,055,726 12 McNeil Technologies, Inc. 1,049 90,949,937 13 Bowne Global Solutions, Inc. 45 89,559,211 14 Metropolitan Interpreters & Translators, Inc. 3,319 82,710,784 15 Calnet, Inc. 177 73,549,486 16 BDM International, Inc. 30 67,181,105 17 Comprehensive Technologies, Inc. 1,793 53,544,848 18 Torres Advanced Enterprise Solutions, LLC 1,435 44,114,173 19 Worldwide Language Resources, Inc. 78 41,162,120 20 SOS International, Ltd. 1,927 38,742,384 21 Schreiber Translations, Inc. 507 27,799,608 22 ZKD, Inc. 23 27,727,100 23 Nangwik Services, LLC 13 26,800,435 24 Miscellaneous Foreign Contractors 2,583 26,013,382 25 Diplomatic Language Services, LLC 1,048 20,854,433 26 Thomas Computer Solutions, LLC 103 19,843,274 27 Stuart B. Consultants, Inc. 512 19,233,858 28 AM General Corp. 59 19,140,476 29 Lionbridge Global Solutions 31 18,096,563 30 MPRI, Inc. 18 17,742,553 Just to pick a few years at random, after a slight dip in 2002 compared to 2001, the government experienced an enormous increase in language services spending in 2003 to US$394.4 million, well more than triple the amount spent in 2002 (US$106.3 million). Nearly US$270 million of the 2003 total was generated by the Department of the Army, and another US$37.4 million came from the Virginia Contracting Agency By 2005, the word was out – more companies than ever were hovering like bees around the hive of federal government language services opportunities. Thirty-three companies earned more than one million dollars in language services. The final year of the two-term Bush administration ended with a bang – the federal government spent more than one billion dollars on language services in 2008. The Department of the Army spent the most (US$833.6 million), followed by U.S. Special Operations Command (US$51.6 million). These two agencies issued 827 contracts – on average, worth more than one million dollars each. The analysis by Common Sense Advisory shows that after the attacks of September 11, 2001, there was a sharp increase in spending on language services, followed by a decrease in 2005, after which the numbers rose again from 2006 through 2008. One of the most dramatic rises in the overall federal budget took place between 2007 and 2008. Interestingly, this was also by far the largest increase in the language services budget. Meanwhile, the defense budget grew at a more predictable and steady pace… Language services expenditures appear to be linked to both overall federal and defense spending. Those who believe in spending U.S. tax dollars in America can take heart that there is a strong tendency to “buy American.” Just over US$17 million in federal contracts were awarded to non-U.S. vendors from 1990 through 2009. Although buying American is a bit geographically restricted. Federal agencies tended to buy from U.S. suppliers, and the majority of these have offices right in the Washington, DC area or in neighboring Maryland and Virginia. In total, 52 percent of all contracts (24,727) over the 20-year period we analyzed went to DC-area providers. How does the future look for the industry? Quite good. The report says, “The lessons of the past 20 years are clear. For the most part, spending goes up every 12 months. Under Republicans, more of that outlay traditionally underwrites defense- and intelligence-related activities, but President Obama’s embrace of the “just war” theory anticipates at least equal spending in these areas for years to come.” There are lots of business opportunities for the canny company. The report concludes, “In summary, the past 20 years of federal government spending have been very kind to the world of language service providers. Globalization guarantees that the next two decades will be equally beneficial.”

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Robert Reich: GM Has No Business Using Our Money on Campaign Contributions

September 22, 2010

General Motors has given $90,500 to candidates in the current election cycle, according to the Federal Election Commission. Hmm? Last time I looked, you and I and every other U.S. taxpayer owned a majority of GM. That means some of the money we’re earning as GM owners is being used to influence how we vote in the upcoming mid-term election. To put it another way, we taxpayers are paying some people (GM executives) to tell us how we should vote for another group of people (House and Senate candidates) who will decide how our taxes will be used in the future. GM spokesman Greg Martin justifies the expenditure as a competitive necessity. “We’re not going to sit on the sidelines as our competitors and other industries who have PACs are participating in the political process,” he told the Wall Street Journal . In other words, now that we taxpayers own GM, it’s in our interest that GM use our money to affect how we vote, lest we mistakenly decide to support candidates who, once in office, enact legislation that helps GM’s competitors and not GM. Wait a moment. I smell hypocrisy. Didn’t we help GM (and Chrysler) with a big bailout, and not help competitors Ford, Nissan, Honda, or Toyota or any other automaker that builds cars in the U.S.? Moreover, the circularity of GM’s logic leads to some strange places. It would presumably allow any big corporation to get tax deductions (in effect, tax subsidies from the rest of us) for outlays for lobbyists, political ads, and political donations to members of congress – so long as these expenditures help the company relative to its competitors. Problem is, the tax laws don’t allow this. Nor does the law allow taxpayer-supported entities to use taxpayer dollars to influence elections. And yet this is exactly what GM is doing. Since TARP, suspicions about big government in cahoots with big business have fueled angry tea partiers on the right and despairing cynics on the left. GM’s crass disregard for the spirit if not the letter of the law continues to fuel them. Robert Reich is the author of Aftershock: The Next Economy and America’s Future , now in bookstores. This post originally appeared at RobertReich.org .

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Richard (RJ) Eskow: After Summers, Which Path Will the President Take?

September 21, 2010

Now that Larry Summers is leaving, the President has a decision to make. His choice of a replacement will send a signal about the next two years of economic policy. That signal can restore consumer confidence and reinvigorate the electorate, or it can lead to even more discouragement and despair. Today unnamed Administration officials floated the idea of naming a corporate executive to the position. That’s a trial balloon that should be punctured immediately. The thirty-year-old law school graduate who asked the President yesterday, ” Is the American dream over for me? ” might interpret a choice like that as a ‘yes’ — unless he also happens to be a Fortune 500 CEO. There’s some confusion around today’s news about Summers’ end-of-year departure. Was it a rushed announcement? Did Summers choose to leave, or did he get the axe? Bloomberg News observed that Summers’ departure leaves Tim Geithner as the sole remaining member of Obama’s original economic team, which adds up to something that looks very much like a shakeup. Or maybe not. The Bloomberg article also quotes Robert Gibbs as saying “it is not a surprise,” and it’s true that it’s common for Administration officials to leave after the midterm elections. For his part, the President lavished Summers with praise : “I will always be grateful that at a time of great peril for our country, a man of Larry’s brilliance, experience and judgment was willing to answer the call and lead our economic team. Over the past two years, he has helped guide us from the depths of the worst recession since the 1930s to renewed growth.” Despite the kind words, the Wall Street Journal reports that “Administration officials say Mr. Summers’ departure could reinvigorate the White House economic team.” And there’s this quote from the President’s town hall meeting yesterday (via David Dayen ): “Well, look, I have not made any determinations about personnel. I think Larry Summers and Tim Geithner have done an outstanding job… This is tough, the work that they do… they’re going to have a whole range of decisions about family… the bottom line is that we’re constantly thinking, is what we’re doing working as well as it could?” But for those who are hoping that this move signals a change in policy, we can zigzag back to the “no policy change” camp if we take this quote seriously (from the WSJ article:) “Those who know Mr. Summers say his departure has more to do with the need to recover from two tough years in which he worked brutal hours and often did not sleep.” In other words, we don’t know nothin’. That means the Administration doesn’t have to pay the political price for looking like it’s in disarray. But it also means the President doesn’t get the benefit of looking as if he’s taking decisive action after seeing unsatisfactory results. Here’s what we do know: For middle-class Americans in search of economic relief, Summers’ departure is hardly what you’d call a setback. According to all reports it was Summers who insisted on introducing a smaller stimulus package, back when Obama had the political clout to get whatever he needed to fix the economy. We’re seeing the results in today’s “jobless recovery.” Ezra Klein quotes Stephanie Taylor of the Progressive Change Campaign Committee, who said his departure is “a big victory for anyone who voted for change in 2008 only to see Summers work from the inside to water down Wall Street reform, block President Obama’s promise to protect Net Neutrality, and urge other pro-corporate positions.” The Bloomberg report tried to pin down the Administration’s thinking about possible replacements. But by citing a variety of unnamed sources (“one person familiar with White House discussion,” two people,” “one person”) we’re left with a cloud of unknowing: Administration officials are weighing whether to put a prominent corporate executive in the NEC director’s job to counter criticism that the administration is anti-business …White House aides are also eager to name a woman to serve in a high-level position … They also are concerned about finding someone with Summers’ experience and stature… That’s enough trial balloons to float an army of economists somewhere high above the clouds. (Whoever said “good idea” — hey, that’s not nice!) The President’s choice will be watched closely by discouraged Americans like those he met yesterday. His appointment of Elizabeth Warren last week sent an encouraging message, not only to progressives but to middle class Americans who seem to have resonated with Warren whenever they’ve seen her. But whatever glow the Warren appointment cast will soon be outshone, for better or for worse, by this appointment. Felix Salmon said that the idea of replacing Summers with a corporate executive is “

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Janet Tavakoli: Warren Buffett and Charlie Munger: Winning the Class War

September 21, 2010

In Third World America: How Our Politicians are Abandoning the Middle Class and Betraying the American Dream , Arianna Huffington describes how Wall Street insiders used the financial crisis to bribe, coerce, and manipulate Washington into bailing them out and handing them unprecedented, unconditional windfalls. Fed Economists Gara Afonso and Anna Kovner with MIT finance professor Antoinette Schoar offer new evidence suggesting that although credit terms were tougher for large underperforming banks in the two days after Lehman’s bankruptcy, the much-hyped market “freeze” was a myth . Thomas Paine, one of the Founding Fathers of the United States, urged Colonists not to trust the words of “interested men” tied by money and status to the British government and British royalty: “It is the good fortune of many to live distant from the scene of sorrow; the evil is not sufficiently brought to THEIR doors to make THEM feel the precariousness with which all American property is possessed.” Warren Buffett Jumped the Squid Today’s interested men defend the bailouts and subsequent absence of felony indictments. They include Warren Buffett, Chairman and CEO of Berkshire Hathaway, and Berkshire’s Vice-Chairman, Charlie Munger . I wrote a book, Dear Mr. Buffett: What an Investor Learns 1,269 Miles from Wall Street , about the financial crisis contrasting their formerly avowed principles of prudent finance with Wall Street’s malfeasance. But they are not regulators, altruists, or elected officials. As officers and major stakeholders of Berkshire Hathaway, their goal is to maximize shareholder value. If the choice is between Berkshire’s gain and public interest, public interest loses. (See: ” Warren Buffett, Stop Using my Credit Card!” TSF , November 23, 2009) Buffett heaped praise on Berkshire’s investments in Goldman Sachs and Wells Fargo (among others), while overlooking problematic activities within these bailed-out financial empires. Warren deserves great credit for donating most of his wealth to charity, but one must deduct serious points because some of “his” wealth was appropriated from unwilling fellow citizens. Charlie Munger’s War Andrew Frye of Bloomberg News reported Charlie Munger’s recent remarks to law students at the University of Michigan. Munger suggests we shouldn’t be “bitching about a little bailout;” we should have wondered why the bailout wasn’t even bigger. ( Click here for video .) Taxpayers have already been saddled with crushing debt that transferred benefits to those most connected with Washington. Bloomberg News estimates the financial rescue already approaches $12.8 trillion in combined lending, spending, guarantees, and commitments. Taxpayer-subsidized banks that played a key role in getting us into this mess continue to pay their officers handsomely for failure. There were alternatives to Washington’s largesse: controlled bankruptcy, conservatorship, and restructuring. (See: ” Alternative to Treasury Bailouts: One that does not Violate the Spirit of Democracy, ” TSF September 25, 2008.) Washington’s overheated money printing to support the bailouts has the nation in the grips of stranguflation . Lost jobs and reduced salaries combined with rising food and energy prices feel like hyperinflation to those most in need. Meanwhile, deflation has hit middle class investments and pension funds, and uncertainty about the future leaves them vulnerable. Third World America reveals that some former middle class Americans are using credit cards charging high interest rates to buy essential items including food. Munger conjured the specter of Germany’s Weimar Republic in an attempt to justify the bailouts: “We ended up with Adolf Hitler.” ZeroHedge , home to finance’s mainly masked throw downs, spoke for many (including me), when it retorted that Germany’s hyperinflation was born from “wanton money printing” and set the stage for Hitler. When it comes to bailouts that will hit middle class taxpayers most, Munger has a double standard: “The 86 year old told the 25 million of Americans who comprise the 16.7% of the underemployed population in the country, to “suck it in and cope.” Not only that, but apparently, all those who have been without a job for 99 weeks and more and no longer have recourse to insurance benefits, should “thank God for bank bailouts.” Why of course he would say that: after all $26 billion worth of direct BRK investments were the recipient of over $95 billion in bailouts.” ZeroHedge , September 20, 2010. We bailed out banks that were the key architects of much of our national misery and currency destruction. Those living in poverty will have a much more difficult time bettering themselves, as much of the middle class sinks: “Stopping our descent into Third World status won’t be easy. It will take daring initiatives from both the private and public sectors–supercharged with an infusion of personal responsibility.” Third World America p. 171. Updated Disclosure: I currently have no position (long or short) in Berkshire Hathaway.

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Robert Reich: The Defining Issue: Who Should Get the Tax Cut — The Rich or Everyone Else?

September 19, 2010

Who deserves a tax cut more: the top 2 percent — whose wages and benefits are higher than ever, and among whose ranks are the CEOs and Wall Street mavens whose antics have sliced jobs and wages and nearly destroyed the American economy — or the rest of us? Not a bad issue for Democrats to run on this fall, or in 2012. Republicans are hell bent on demanding an extension of the Bush tax cut for their patrons at the top, or else they’ll pull the plug on tax cuts for the middle class. This is a gift for the Democrats. But before this can be a defining election issue in the midterms, Democrats have to bring it to a vote. And they’ve got to do it in the next few weeks, not wait until a lame-duck session after Election Day. Plus, they have to stick together (Ben Nelson, are you hearing me? House blue-dogs, do you read me? Peter Orszag, will you get some sense?) Not only is this smart politics. It’s smart economics. The rich spend a far smaller portion of their money than anyone else because, hey, they’re rich. That means continuing the Bush tax cut for them wouldn’t stimulate much demand or create many jobs. But it would blow a giant hole in the budget — $36 billion next year, $700 billion over ten years. Millionaire households would get a windfall of $31 billion next year alone. And the Republican charge that restoring the Clinton tax rates for the rich would hurt the economy — because it would reduce the “incentives” of the rich (including the richest small business owners) to create jobs — is ludicrous. Under Bill Clinton and his tax rates, the economy roared. It created 22 million jobs. By contrast, during George Bush’s 8 years, commencing with his big 2001 tax cut, the economy created only 8 million jobs. And as the new Census data show, nothing trickled down. In fact, the middle class families did far worse after the Bush tax cut. Between 2001 and 2007 — even before we were plunged into the Great Recession — the median wage dropped. It’s an issue that could also be used to expose the giant chasm that’s opened between the rich and everyone else — aided and abetted by Republican policies. As I’ve noted before, in the late 1970s, the top 1 percent got 9 percent of total national income. By 2007, the top 1 percent got almost a quarter of total national income. These figures don’t even count in taxes. The $1.3 trillion Bush tax cut of 2001 was a huge windfall for people earning over $500,000 a year. They got about 40 percent of its benefits. The Bush tax cut of 2003 was even better for high rollers. Those with net incomes of about $1 million got an average tax cut of $90,000 a year. Yet taxes on the typical middle-income family dropped just $217. Many lower-income families, who still paid payroll taxes, got nothing back at all. And, again, nothing trickled down. As I’ve emphasized, the U.S. economy has suffered mightily from the middle class’s lack of purchasing power, while most of the economic gains have gone to the top. (The crisis was masked for years by women moving into paid work, everyone working longer hours, and, more recently, the middle class going into deep debt — but all those coping mechanisms are now exhausted.) The great challenge ahead is to widen the circle of prosperity so the middle class once again has the capacity to keep the economy going. In other words, this is the right issue. It’s the right time. It allows Democrats to explain what the Bush tax cuts really did, why supply-side economics is bogus, and the economic challenge ahead. Even if Democrats feel they have to respond to the Republican charge that taxes shouldn’t be raised on anyone when the employment rate is 9.6 percent, they have a powerful fallback: Extend the Bush tax cuts for everyone through 2011, then end them for the rich while making them permanent for the middle class. Get it, Democrats? Please don’t blow it this time. This post originally appeared at robertreich.org

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Charles Gasparino: Oliver Stone’s Wall Street Sequel Sure to Be a Day Late and a Dollar Short

September 15, 2010

Last week, it was reported that director Oliver Stone dined with a New York Times columnist at the Four Seasons restaurant; a place where the top executives on Wall Street (the same guys who caused the financial crisis exactly two years ago and it’s fair to say the Great Recession that followed) love to hang out and shoot the shit about their unsavory business. Stone, as everyone should know by now, is putting out the long-awaited sequel to his mega hit movie Wall Street . This one is called Wall Street: Money Never Sleeps . It is, of course, a fictionalized account of the financial crisis (if you know anything about Oliver Stone, you know that even his attempts at non-fiction are pretty fictionalized), and based on the various interviews Stone has given (including this one to the Times ) he views the movie has one of those teachable moments. On the two year anniversary of the bankruptcy of Lehman Brothers and the broader collapse of the financial system that followed, it is supposed to help us all understand something about the men who led us into the abyss; namely what drove them in their pursuit of greed at all costs. Don’t bet on it. I haven’t seen the movie yet (I’m supposed to go to the premier next week) but based on some of Stone’s own commentary, I may just wait for the DVD. In his interview with the Times , Stone reminds us that, “Wall Street’s gone crazy. It’s banking on steroids.” (Not exactly news, Oliver.) He fears that many of the Wall Street titans he’s dining with that afternoon think that “Stone must be a communist here, a liberal; a liberal is worse than a communist.” (That’s an interesting conclusion since as I show in my new book, Bought and Paid For , it was the Wall Street brass who helped elect Barack Obama, his Liberal fellow traveler, as president). And just so we all don’t think that the new Oliver Stone is that same guy who came up with the most bizarre conspiracy theory to account for JFK’s assassination (and one of the most bizarre Joe Pesci performances ever), he reminds the Times columnist that, “It’s silly to be simplifying and say Wall Street is evil,” even if “Goldman Sachs is evil, maybe.” (I wonder what he thinks about Al-Queda?) During the interview, Stone comes back to earth a bit with this little gem: “Most of the people I know on Wall Street are good people. Like my father. He really would like to make some money, yeah, but they would also like to do good for society.” The only thing worse than a goofy, washed up director trying to reclaim his greatness with a teachable-moment movie is a columnist like this one, who rather than portraying Stone in his schizophrenic best, just sucked it all in without once questioning Stone’s sanity. The new Wall Street movie might be entertaining, but given its hype and the bizarre mindset of its director, I’m sticking with the old one. The fact of the matter is, we don’t really need another teachable moment about the financial crisis. At least, not one that flows through the brain cells of Oliver Stone or someone from the New York Times who can’t get enough of a washed-up director’s illogical view of the world, and it is my guess that after the initial hype has passed, most movie goers will think the same. Two years after the financial crisis, Americans face nearly 10 percent unemployment, mountains of debt, businesses that make money but won’t hire, and a president who found it part of his job description to opine about a Mosque near Ground Zero while the economy is falling apart. Wall Street greed, which seems to be Stone’s obsession, much like the rest of the media, is, to coin a journalistic cliché, yesterday’s news. Note to Stone: We know these guys are assholes, and we probably don’t need to be reminded of it again during a 133 minute film. What we don’t know is how they became such assholes, and I’m pretty certain Oliver Stone won’t be shedding much light on that either. Jimmy Cayne being “out of touch” with reality (Stone’s description) cannot fully explain why trillions of dollars of stocks, bonds, and financial instruments derived from stocks and bonds were created and held by his bank Bear Stearns with little regard that someday they might be worth nothing. Yes, some people on Wall Street are “good people” (like we really need Stone to point that out); but what is it that allows good, well- educated people to do stupid things? Remember, when Jimmy Cayne was CEO, the guy running Bear’s bond department which was loading up on toxic debt was a man named Warren Spector, one of the most intellectually gifted traders on Wall Street. The guy taking charge at the risk committee meetings was the legendary trader and risk expert Alan “Ace” Greenberg. Cayne may have been a goofy, pot-smoking slouch who would rather play golf than tend to the firm’s needs, but what about Spector and Greenberg? What made them think that buying mortgage debt in the quantity they were buying it at as a massive housing bubble was raging was such a good thing? In other words, it can’t be just greed–why would anyone, even the most greedy Wall Street type, simply bet the ranch if the end result could be the demise of their gravy train? They wouldn’t of course. That’s because it wasn’t just greed that motivated the Wall Street bankers to behave as if they were on “steroids;” no matter how many movies in the next year (I hear there are nonfictional accounts of the financial crisis being shot as I write this) tell you so. In fact, I bet if you can get a straight answer from either Greenberg or Spector, or any other of the fallen Wall Street titans (like Dick Fuld, the former head of Lehman Brothers) they would tell you that the real reason they felt compelled to gamble as they did is because based on past experience, they were all involved in a no lose operation. Wall Street would never implode because the government wouldn’t let it happen. Lehman Brothers failed in 2008, but it was bailed out in 1994 and 1998 by various government policies that inflated the financial system with cheap money and turned losses into gains; same with Merrill Lynch, Citigroup and the rest of the big firms. And that’s what all these movies and many of the books written about the greed merchants Stone was dining with at the Four Seasons leave out: That it was next to impossible for the financial system to accept so much risk as the norm without the government approving of it all along the way. This approval went beyond lax regulation that allowed firms like Lehman and Bear to borrow more than 30 times the amount of capital they had on hand to make market bets. It’s an approval that comes only from a partnership between government and Wall Street that dates back decades. It may surprise Oliver Stone to learn that most of those guys in the Four Seasons aren’t quite as right-wing as he thinks. They most probably share his world view about government and business; namely how bureaucrats like the former Fed President and current Treasury Secretary Tim Geithner and his ilk (think Robert Rubin, Hank Paulson, and Larry Summers to name just three) can make the world a better place by working with Wall Street–protecting the markets when times get rough as they have countless times during the past 30 years by bailing out Wall Street with taxpayer money when it screwed up — including the ultimate screw up in 2008. Those bailouts gave Jimmy Cayne the confidence he could play golf and leave the heavy lifting to Spector and Greenberg. Those bailouts gave Spector and Greenberg the security to know if they bet wrong, the Fed and the Treasury would come to their rescue by handing out cheap money or free money to make things better. Full disclosure: While I was at CNBC I spent a few minutes with one of the stars of the new Wall Street film, Shia Lebeouf, who looked me up through an acquaintance and wanted my take on what makes the typical trader on Wall Street banker or trader tick. Unlike most of the people he spoke with, I actually covered the financial crisis on daily basis since its beginning and I reported on both the implosion and the massive profits that began to be showered on Wall Street following the bailouts as the government flooded Wall Street with guarantees and benefits as it had done in the past. If my memory serves me right, I told him it was the typical Wall Streeters sense of entitlement that stands out the most in my mind. I implored him to go to bars and restaurants around New York City where they all hang out. Not just the places where their bosses dine and are on their best behavior, but the places where the traders and bankers who are not as polished take clients and watch them in action. “Now that the bonuses are flowing they will act as if the whole financial crisis didn’t happen,” I remember saying. My point being: For them, losing money, getting bailed by the government, and making money on the backs of taxpayers is the way the system is supposed to work because it has always worked that way. Why should this time be any different? LeBeouf just listened intently. We spoke for about 15 minutes more and he thanked me for my time. I’m not sure he understood what I meant by all that, and I’m pretty certain his boss wouldn’t either.

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William Astore: Major Sporting Events: Too Corporatized, Too Controlling, Too Much

September 15, 2010

Been to a major American sporting event lately? If not, consider yourself fortunate. The NFL and NASCAR are already over-the-top when it comes to manufactured noise, exaggerated pyrotechnics, and wall-to-wall corporate advertisements. Even my beloved sport of baseball has fallen victim to sensory saturation and techniques of crowd control that would make a dictator proud. The grace and spontaneity of America’s pastime is increasingly lost in Jumbotrons, overly loud and canned music, and choreographed cheering. With all the Jumbotrons and other video screens everywhere, people are no longer focused on the game as it takes place on the field, and perhaps turning to their neighbor for an explanation if they miss a play or nuance. Instead, people look to the screens to follow the game. Indeed, sight lines at some seats at Yankee Stadium are so poor that the only way you can watch the action on the field is on video screens posted at strategic locations. Speaking of Yankee Stadium, last month a friend of mine went to a game there and found the experience “shocking.” In his words: “The new stadium is flooded with noise from constant speakers as well as screens everywhere. It was so loud that there was really not much independent reaction from the crowd. I got a feeling like I was in a scene from Triumph of the Will . The noise would come out of the speakers and people would chant. When it stopped so did the people. The entire experience left me dying to get out of there!” Mediocre seats are $110 each, and an $11 beer only compounds the pain. Attending a Yankees game “used to be something of a social leveler, where people of all classes would come and meet to support the team… Although the place was packed for a Red Sox game, it was a largely white crowd, looking nothing like the mix of people who actually inhabit New York,” my friend concluded. I share my friend’s concerns. I hate being coerced by screens and speakers telling me when to cheer and what to say. Even at my local Single-A baseball games, the post-game fireworks are set to music, usually of a patriotic tenor. I’ve got nothing against music, but why can’t I just enjoy the fireworks? I don’t need “Proud to be an American” blaring to make me proud to be an American. But it seems like many fans are happy being told when to cheer, what to say, even what to feel. Or they’ve simply become accustomed to being controlled, which has the added benefit to owners of suppressing any inconvenient spontaneity. More and more, our senses are saturated so we cannot pause to converse or even to think. If the game grows tiresome, people turn to cell phones, palm pilots, and other personal technologies for stimulation. And the phenomenon is hardly limited to sporting events. Today’s version of “Sesame Street” is an exercise in frenetic action and hyperkinetic stimulation; one wonders whether it’s designed for ADHD kids, or to create ADHD kids. More and more, we’re surrounded by and immersed in near-total sensory saturation; the stifling effect such an environment has on individual spontaneity and thought can’t be disregarded (nor can it be accidental). And it appears in the most unlikely of places. I used to watch air shows at the U.S. Air Force Academy. Few things are more viscerally thrilling (or chilling) than a formation of F-16s screaming overhead. But that effect apparently wasn’t enough. The powers-that-be “augmented” the air show with loud rock music (call it the “Top Gun” effect) along with an especially annoying (and superfluous) narrator. There was even a proposal to add huge video screens and even bigger speakers to the performance until it got shot down due to charges of contractual cronyism. In a way, it’s sad to compare today’s thunderingly loud yet sterile air shows to their Depression-era counterparts. The latter, as another friend reminded me, had in his words: “No concrete runways, no visitor stands, just grass in a field on the edge of town. I loved planes so much that as an eleven year old I would take the two streetcars … then walk a mile to the airport. There was always one or two old biplanes and the small crowd would wait expectantly for the pilots and the daredevils to appear. What excitement just to see those little planes taxing across the grass and getting into position to take off. Gunning their little engines and racing along into the wind. Loops, upside down and then the big thrill, the ‘wing walkers.’ Try that on a jet.” Bigger, faster, louder doesn’t always mean “better.” Whether it’s an air show or ball game today, we seem saturated by noise, video images, and other sensory distractions, often advertised as “necessary” to broaden the appeal to non-fans or casual spectators who simply want to feel that they’ve witnessed a spectacle, whatever its meaning. It’s hard to develop an inner life when you’re constantly plugged-in and distracted. It’s also hard to take independent political stances when you’re constantly bombarded by infotainment, not just in the mainstream media but in the sports world as well. I don’t care about off-field shenanigans or contract disputes or manufactured grudges between teams, nor do I want to watch pre-game and post-game shows that last longer than the games: I just want to watch the game and marvel at the accomplishments of world-class athletes while cheering for my home team. Sports have always been a form of entertainment, of course, but today’s events are being packaged as life-consuming pursuits, e.g. fantasy football leagues. And if we’re spending most of our free time picking and tracking “our” players and teams, it leaves us a lot less time to criticize our leaders and political elites for their exploitation of the public treasury – and betrayal of the public trust. I wonder, at times, if we’re heading in the direction of “Rollerball” (the original movie version with James Caan), in which a few corporations dominate the world and keep the little people (you and me) distracted with ultra-violent sports and hedonistic consumption, so much so that people can’t recognize their own powerlessness and the empty misery of their lives. Until our sporting events and air shows return to a time when players and fans and enthusiasts collectively showed up simply for the love of the game and the purity of it all (and I can hear my brother mischievously singing, “Until the twelfth of never”), count me out. I can be more spontaneous in my living room with friends — and the beer sure is cheaper. Professor Astore currently teaches History at the Pennsylvania College of Technology in Williamsport, PA. He writes regularly for TomDispatch.com and can be reached at wjastore@gmail.com .

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Bank Of America CEO Says Bank’s Growth Will Come From Abroad

September 14, 2010

Speaking at at an industry conference today, Bank of America CEO Brian Moynihan said his bank, the country’s largest by assets, will continue selling unessential assets and will focus on global expansion. At today’s installment of the Barclays Capital 2010 Global Financial Services Conference, Moynihan’s message of, in his words, “hard work and good execution,” was expected in light of the Wall Street Journal’s interview with the CEO this morning. “We’re just hard at work transforming our company from the excess of the economic crisis. There’s no new news here,” Moynihan said in his remarks, which were broadcast on the web. As the WSJ points out, though, Moniyan’s conservative position is itself news: Under the previous CEO, Kenneth Lewis, the bank spent more than $120 billion on acquisitions, including the purchase of the now-infamous mortgage lender Countrywide Financial. Moynihan’s plan, he said, is to hunker down and strengthen the core business. “We reviewed our franchise, selling off parts that didn’t fit with the core customer basis, in order to focus on what we have: the best franchise in financial services,” he said today. And in what was perhaps the greatest understatement of his speech, he continued, “We are a very different company than we were three years ago. Our franchise is complete. We don’t need to acquire anything.” Be that as it may, Moynihan has global ambitions for the company, especially in its investment banking division. Bank of America emerged from the financial crisis with a strengthened investment banking arm, thanks to its hurried purchase of Merrill Lynch in September 2008. The WSJ reported today that the Merrill-BofA combination hasn’t produced stunning results. But Moynihan, who said his investment bank is already second in the world in terms of fees collected, hopes to get even stronger. His bank collects 75 percent of its fees from U.S. customers and 25 percent abroad, he said. The key to growth, he added, is to increase the bank’s global presence. “If we get to 50-50, I’m confident we’ll move to number one investment banking in the world.” The New York Times reported today that Bank of America hired four new bankers in Europe. Indeed, Moynihan said that over the last year and a half, his company has hired about 800 people outside the U.S. “Even as a large company, we have lots of room to grow this company,” he said.

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Cuba To Cut 500,000 Government Workers, Reduce Restrictions On Private Enterprise

September 13, 2010

HAVANA — Cuba announced Monday it will cast off at least half a million state workers by early next year and reduce restrictions on private enterprise to help them find new jobs – the most dramatic step yet in President Raul Castro’s push to radically remake employment on the communist-run island. Castro suggested during a nationally televised address on Easter Sunday that as many as 1 million Cuban workers – about one in five – may be redundant. But the government had not previously laid out specific plans to slash its work force, and the speed and scope of the coming cutbacks were astounding. Cuba’s official work force is 5.1 million – meaning nearly 10 percent of all employees could soon be out of a government job. Workers caught off guard by the announcement said they worried whether the tiny private sector could support so many new jobs, a sentiment echoed by some analysts. “For me the problem is the salaries, that’s the root of it,” said Alberto Fuentes, a 47-year-old government worker. “If they fire all of these people, how can they all become self-employed?” The layoffs will start immediately and continue through April 2011, according to a statement from the nearly 3 million-strong Cuban Workers Confederation, which is affiliated with the Communist Party and the only labor union allowed by the government. Eventually the state will only employ people in “indispensable” areas such as farming, construction, industry, law enforcement and education. To soften the blow, the statement – which appeared in state newspapers and was read on television and radio – said the government would increase private-sector job opportunities, including allowing more Cubans to become self-employed. They also will be able to form cooperatives run by employees rather than government administrators, and increasingly lease state land, businesses and infrastructure. The announcement was short on details of how such a major shift could be achieved, but its intent appeared to deal a body-blow to the decades-old social safety net upon which the island’s egalitarian society is built. Castro has long complained that Cubans expect too much from the government, which pays average monthly salaries of just $20 but also provides free education and health care and heavily subsidizes housing, transportation and basic food. Because unemployment is anathema in a communist society, state businesses have been forced to carry many people who do almost nothing. “Our state cannot and should not continue supporting businesses, production entities and services with inflated payrolls, and losses that hurt our economy are ultimately counterproductive, creating bad habits and distorting worker conduct,” the union said. Even before the announcement, interviews with scores of workers across several government sectors showed that layoffs were already under way – with many complaining the state was not doing enough to find them new jobs. Larry Birns, director of the Washington-based Council on Hemispheric Affairs, said a series of small changes – such as allowing the unrestricted sale of cell phones, privatizing some state-run barbershops, licensing more private taxis and distributing fallow land to private farmers – have moved Cuba toward economic reform since July 2006, when serious intestinal illness nearly killed Fidel Castro and forced him to cede power to Raul. While none of those were blockbusters, Birns said, Monday’s revelation has the potential to be one. “Cuba is rapidly becoming like any other country,” he said. “It is not going back. These are big changes.” Some Cubans also said they supported the changes, hoping that even a small dose of private enterprise would go a long way in a country where state mismanagement has led to frequent shortages of everything from potatoes to toothpaste. “There are many things that are deficient now including services, which, of course, the private sector will improve on,” said Moraima Santos, a 65-year-old employee in the Office of the City of Havana Historian. “I completely support the government giving private employment licenses. That’s going to benefit a lot of people.” Others were skeptical. Arch Ritter, an expert on the Cuban economy at Carleton University in Ottawa, Canada, said the cutbacks rely too heavily on a work force unaccustomed to going into business for itself. “To imagine that the private sector is going to absorb so many people is a bit of a stretch,” he said. “It’s going to be a major problem for the country.” Building on his April remarks, Castro warned in August that layoffs would be coming and said Cuba would expand private enterprise on a small scale, increasing the number of jobs where Cubans could go into business for themselves. Monday’s announcement also said Cuba will overhaul its labor structure and salary systems to emphasize productivity so that workers are “paid according to results.” Castro has said repeatedly he is seeking to reform the pay system to hold workers accountable for production, but change has been slow in coming. Currently the state employs 95 percent of the official work force. Unemployment last year was 1.7 percent and hasn’t risen above 3 percent in eight years – but that ignores thousands of Cubans who aren’t looking for jobs because wages are so low. The labor overhaul comes less than a week after Fidel Castro caused a stir around the globe when he was quoted by visiting American magazine writer Jeffrey Goldberg as saying Cuba’s communist economy no longer works. Castro later said that while he was not misquoted, his words were misinterpreted – and that he meant to say capitalist reforms could never work in Cuba. Goldberg said Monday he was surprised by Fidel Castro’s claim, since he has made similar statements before. He said economic reforms such as the one announced Monday prove the Cuban government realizes the need for change. “Not only has he said things like this before, but the on-the-ground reality is that it is a truism that the Cuban model is not working, and that is why they are starting this large-scale experiment with privatization,” Goldberg told reporters. ___ Associated Press writer Andrea Rodriguez contributed to this report.

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Home Prices Set To Fall Further: Richard Fairbank, Capital One CEO

September 13, 2010

Speaking at the Barclays Capital 2010 Global Financial Services Conference, Capital One CEO Richard Fairbank was pessimistic about the housing market and about consumer demand — but optimistic about his bank’s prospects. Fairbank, in remarks that were broadcast on the web, was asked by an audience member whether there will be a double-dip in the housing market. He chose his words carefully. “I think we feel very cautious about the housing market,” Fairbank said. “I think that even despite some of the recent months where home prices have gone up, I think it’s a very plausible case for home prices to go back down again.” His dim view of the U.S. housing market, he said, is based on the current “logjam” of defaulted mortgages and foreclosures being dealt with at Capital One, which added a retail banking arm to its lending and credit card businesses in 2005. “Unsold inventory is really at just about an all-time high.” Although he claimed not to be predicting a “double-dip recession,” Fairbank was not at all optimistic about the housing market. “We are managing to a view that home prices are more likely to be headed down rather than up,” he said. Nervousness on the part of consumers, he said, isn’t helping. Because more people are saving money rather than spending it, their credit is relatively strong, but the economy is suffering from the lack of demand. “We’ve got to be careful what we wish for here,” he said. “Credit is improving certainly faster than the economy is.” The thrust of the speech and Q&A session was a brief on Capital One’s own position, which Fairbank and head of investor relations Jeff Norris said was largely conservative. The bank, they said, will be resilient “even in the face of a weak economy.”

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Wendy N. Powell: Michigan: Is Job Recovery Headed for a Turn?

September 13, 2010

I left my heart in Michigan when I moved out of state. The issues that have affected every facet of my family leave me “shot through the heart”, but hopeful for a recovery. It’s true, every piece of my extended family from auto workers to financial executives has been hurt by the hard economic conditions of our great state. The outsourcing of American jobs and the dramatic decline of the auto industry has brushed all of us back. In contemporary America, we all identify with Michiganders because we share the economic strife. But in Michigan, we’re all auto workers in one way or another. There is either a direct employment relationship or a dependency upon their purchasing power. The facts and figures don’t lie in this case. The latest unemployment rate in Michigan is 13.2% according to an economic news release issued by the Bureau of Labor Statistics in late August. Another incredible statistic is that in metropolitan Detroit, while there is positive movement in the job market, the non-seasonally adjusted unemployment rate is 15.4% . What is a Michigander to do? Some say, batten down the hatches and weather this economic nightmare. Some say leave their homes or the state. The pendulum will swing in the other direction. How true, but how long can we wait when the economy is not even at a point of stability? There is no surprise that Michiganders are giving up the fight to stay in their home state. According to the 2009 United Van Lines Migration Study , the outbound trend for the Midwest (particularly Michigan), tops the list at 68% of the outbound movement. They are “getting out of Dodge” or for that matter, any of the Big Three. There are jobs in the District of Columbia, the top garden spot for in-bound moves, government jobs, I presume. No one has the magic wand. Michigan needs to reinvent itself and so do we. This didn’t happen overnight so Michigan is not going to rebound overnight. But, there are some things that the unemployed can do to get ready to bounce back. Michigan is re-loading, like the Wolverine football team refers to how they never rebuild, they reload. Workers need to do just that, re-load themselves to get ready for a hopeful, positive job market. First of all, we strong Michiganders ride out the storm. Update your skills. Never, never, get stale on the technology that drives your field. Volunteer your time and apply for temporary or part-time work. You never know when these opportunities will turn into your new career. You may be asked to take a cut in pay or other concessions for your company to remain in business. Your plan may include relocation to another part of the country. We have to survive and we will. Re-invent yourself! Get to know your strengths and build on them. Don’t lose track of your goals but be flexible. Visit them often and ask yourself, “Am I ready to prove myself and get the job or keep the job?” Let’s not forget that companies look at the return on investment of employees. They must evaluate whether new employees will contribute to the bottom line. When you find an opportunity, explain just what you could do and how they could not afford to be without you. Remember, the number one attribute that hiring companies want is creativity . In January 2011, a new hurricane of sorts is coming at employers. Companies of all sizes are expecting an increase of at least 10 % on income taxes and more governmental contributions. Further, insurance costs are continuing to increase in preparation for the coming health care initiative. Companies will not eat those cost increases. They are more likely to batten down the hatches to weather the storm and hopefully stay in business. That’s just simple common sense, not Economics 101. If your family is still in town, wonderful. Go to the kids’ sporting events, get together to blow out the birthday candles. Above all, look at your options, hope for the best but prepare for the worst and create a succession plan for your family. The youngest and creative ones may just have the interesting and right answers. My family did just that. The auto industry is coming back, turned the corner they say. There is noise about how the Michigan job situation is looking better. An August 14, 2010 article in the New York Times titled ” “Detroit Goes From Gloom to Economic Bright Spot” ” espouses the fact that the auto industry has been “reshaped, resized and rethought”. Are we saying that in other words the right-sizing of the industry has been the start of the comeback of our Michigan economy? In a July 30, 2010 Wall Street Journal article , President Barack Obama said, “With all three U.S. automakers operating at a profit for the first time in six years after the government extended a multi-billion dollar lifeline…There’s no doubt the auto industry is growing stronger.” A guarantee of more jobs is just not possible, nor realistic. We will just have to wait and see. A right-sized auto industry would still leave hundreds of thousands of Michigan workers out of viable options for employment. The Michigan Economic Development Corporation sponsors TV commercials with actor Jeff Daniels referring to Michigan as the upper hand. Let’s hope that Michigan’s upper hand will be on a rapid rise soon. Their website highlights companies that are contributing to the growth of the Michigan economy. Check out Michigan Advantage for a list of companies that are creating opportunities for Michigan and how they can benefit you. A sign hangs in many homes in Michigan that reads, “Pray toward Heaven but row toward shore.” My Great Lakes State calls to me. With more than 25 years of human resource and management consulting experience, Wendy N. Powell has spent most of her career advising managers at the University of Michigan as well as many public and private sector organizations. She is currently on the business faculty at both Palm Beach State College and the University of Phoenix. A member of the Society for Human Resource Management, she received a leadership award in 2002 from the Midwest College and University Professional Association for Human Resources. For more information, please visit: http://www.managementexperienceacquired.com .

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

September 12, 2010

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

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Ian Fletcher: America Was Founded as a Protectionist Nation

September 11, 2010

Contemporary American politics is conducted in the shadow of historical myths that inform our present-day choices. Unfortunately, these myths sometimes lead us terribly astray. Case in point is the popular idea that America’s economic tradition has been economic liberty, laissez faire, and wide-open cowboy capitalism. This notion sounds obvious, and it fits the image of this country held by both the Right, which celebrates this tradition, and the Left, which bemoans it. And it seems to imply, among other things, that free trade is the American Way. Don’t Tread On Me or my right to import. It is, in fact, very easy to construct an impressive-sounding defense of free trade as a form of economic liberty on the basis of this myth. Unfortunately, this myth is just that: a myth, not real history. The reality is that all four of the four presidents on Mount Rushmore were protectionists. (Even the pseudo-libertarian Jefferson came around after the War of 1812.) Historically, protectionism has been, in fact, the real American Way. This pattern even predates American independence. During the colonial period, the British government tried to force its American colonies to become suppliers of raw materials to the nascent British industrial machine while denying them any manufacturing industry of their own. The colonies were, in fact, the single biggest victim of British trade policy, being under Britain’s direct political control, unlike its other trading partners. The British knew exactly what they were doing: they were happy to see America thrive, but only as a cog in their own industrial machine. As former Prime Minster William Pitt, otherwise a famous conciliator of American grievances and the namesake of Pittsburgh, once said in Parliament, If the Americans should manufacture a lock of wool or a horse shoe, I would fill their ports with ships and their towns with troops. Thus the American Revolution was to some extent a war over industrial policy , in which the commercial elite of the Colonies revolted against being forced into an inferior role in the emerging Atlantic economy. This is one of the things that gave the American Revolution its exceptionally bourgeois character as revolutions go, with bewigged Founding Fathers rather than the usual unshaven revolutionary mobs. It is no accident that after Independence, a tariff was the very second bill signed by President Washington. It is also no accident that the Constitution — which notoriously does not authorize a great many things our government does today — explicitly does give Congress the authority “to regulate commerce with foreign nations.” (Article I, Section 8.) This fact drives flag-draped libertarians crazy, but there it is. Protectionism’s first American theorist was Alexander Hamilton — the man on the $10 bill, the first Treasury Secretary, and America’s first technocrat . As aide-de-camp to General Washington during the Revolution, he had seen the U.S. nearly lose due to lack of capacity to manufacture weapons. (France rescued us with 80,000 muskets and other war materiel.) He worried that Britain’s lead in manufacturing would remain entrenched, condemning the United States to being a producer of agricultural products and raw materials. In modern terms, a banana republic. As he put it in 1791: The superiority antecedently enjoyed by nations who have preoccupied and perfected a branch of industry, constitutes a more formidable obstacle than either of those which have been mentioned, to the introduction of the same branch into a country in which it did not before exist. To maintain, between the recent establishments of one country, and the long-matured establishments of another country, a competition upon equal terms, both as to quality and price, is, in most cases, impracticable. The disparity, in the one, or in the other, or in both, must necessarily be so considerable, as to forbid a successful rivalship, without the extraordinary aid and protection of government. Hamilton’s policies came down to about a dozen key measures. In his own words: 1. “Protecting duties.” (Tariffs.) 2. “Prohibition of rival articles or duties equivalent to prohibitions.” (Outright import bans.) 3. “Prohibition of the exportation of the materials of manufactures.” (Export bans on raw materials needed for industrialization here at home.) 4. “Pecuniary bounties.” (Export subsidies, like those provided today by the Export-Import Bank and other programs.) 5. “Premiums.” (Subsidies for key innovations. Today, we would call them research and development tax credits.) 6. “The exemption of the materials of manufactures from duty.” (Import liberalization for industrial inputs, so some other country can be the raw materials exporter and we can industrialize.) 7. “Drawbacks of the duties which are imposed on the materials of manufactures.” (Same idea, by means of tax rebates.) 8. “The encouragement of new inventions and discoveries at home, .and of the introduction into the United States of such as may have been made in other countries; particularly those, which relate to machinery.” (Prizes for inventions and, more importantly, patents.) 9. “Judicious regulations for the inspection of manufactured commodities.” (Regulation of product standards, as the USDA and FDA do today.) 10. “The facilitating of pecuniary remittances from place to place.” (A sophisticated financial system.) 11. “The facilitating of the transportation of commodities.” (Good infrastructure.) Hamilton set forth his case in his Report on Manufactures , submitted to Congress in 1791. Perhaps the most startling thing about his suggested policies is how modern they are: few people realize that the R&D tax credit was first proposed in 1791! Due in large part to the domination of Congress by Southern planters, who favored free trade, Hamilton’s policies were not all adopted right away. It took the War of 1812, which created a surge of anti-British feeling, disrupted normal trade, and drastically increased the government’s need for revenue, to push America firmly into the protectionist camp. But when war broke out, Congress immediately doubled the tariff to an average of 25 percent. After the war, British manufacturers undertook one of the world’s first cases of predatory dumping, whose purpose was, in the words of one Member of Parliament, to “stifle in the cradle, those rising manufactures in the United States, which the war had forced into existence.” In reaction, the American industrial interests that had blossomed because of the tariff lobbied to keep it, and had it raised to 35 percent in 1816. The public approved, and by 1820, America’s average tariff was up to 40 percent. Fast-forward a few years. Gloss over a number of important tariff-related political struggles, such as the South Carolina Nullification Crisis of 1832, one of the precursors of the Civil War, in which South Carolina tried to reject a federal tariff. There was a brief free trade episode starting in 1846, coinciding with the aforementioned zenith of classical liberalism in Europe, during which America’s tariffs were lowered. But this was followed by a series of recessions, ending in the Panic of 1857, which brought demands for a higher tariff so intense that President James Buchanan–the last free-trade president for two generations–gave in and signed one two days before Abraham Lincoln took office in 1861. Lincoln, Teddy Roosevelt, and most of the other great names from American history were all protectionists. Protectionism was, in fact, Lincoln’s number two issue after slavery. As he put it in 1847, Give us a protective tariff, and we will have the greatest nation on earth . Revealingly, the only major exception to America’s protectionist consensus was the antebellum South, because free trade is the ideal policy for a nations that actually wants to be an agricultural slave state. An economy founded on slave-based agriculture has no hope of achieving competitive advantage in anything else, as slaves have proven unsuitable for industrialization since the time of Ancient Rome. Because the tariff was the main source of federal revenue in those pre-income tax days, the South also bore a disproportionate share of the nation’s tax burden. No wonder it was in favor of free trade–which the Confederate constitution eventually mandated. Back when protectionism was American policy, it enjoyed a broad popular consensus. Only the left- and right-wing extremists of the day dissented. Extreme right wing Social Darwinists like William Graham Sumner–who published a fuming book in 1885 entitled Protectionism, the Ism That Teaches That Waste Makes Wealth –saw protectionism as a subsidy for the incompetent and an interference with the divine justice of the free market and the survival of the fittest. At the other extreme, Karl Marx, who was alive in those days and keenly watching American capitalism, wanted to see American capitalism break down and therefore favored free trade for its destructive potential. Unfortunately for Marx, this was the golden age of American industry, when America’s economic performance surpassed the rest of the world by the greatest margin. It was the era in which the U.S. transformed itself from a promising mostly agricultural backwater, pupil at the knee of European industry, into the greatest economic power in the history of the world. What happened to America’s long protectionist tradition? In the end, America only seriously turned away from protectionism as a Cold War gambit to prop up capitalist economies abroad and tie them to the U.S. Geopolitics trumped domestic economics. Ironically, our old protectionist playbook for economic development is the same one, in many respects, that China and other nations are using against the United States today. Back when we were the ascending economic power in the late 19th century, it was Britain that complained about “unfair trade!” They were right, of course–but given that nobody forced free trade upon them, it was their own fault. Today, having forgotten our own history, we can’t even recognize the game being played against us, let alone figure out how to counter it. We will continue to pay a high price in lost jobs and declining industries until we wise up. Ian Fletcher is the author of Free Trade Doesn’t Work: What Should Replace It and Why (USBIC, 2010, $24.95) An Adjunct Fellow at the San Francisco office of the U.S. Business and Industry Council , a Washington think tank founded in 1933, he was previously an economist in private practice, mostly serving hedge funds and private equity firms. He may be contacted at ian.fletcher@usbic.net .

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Dave Logan: Why Business Books Suck

September 9, 2010

So just why are business books so bad for you? A short BNET blog post gave the sound bites and generated a lot of buzz. This blog is about the deeper and more troubling problem with business books, which, in a nutshell, is that they’re too much about Star Wars and not enough about Glee . Most business books are based on a storyline that you’ve heard so many times it’s in your bone marrow. It’s satisfying in a way that combines rediscovering a part of you with the joy of doing what seems impossible. It’s the “hero’s journey,” first described by Joseph Campbell in The Hero With a Thousand Faces . Most of us became aware of it in Star Wars , when George Lucas turned Campbell’s work into a template for his original three movies. Popular writers, not being the most creative lot, used the template for movies/remakes/novels like Batman , The Matrix , ET , Avatar , Spiderman , the Karate Kid , and Harry Potter . And in the 90s, business books writers jumped on what seemed to be the best way ever to tell a story, provided your aim is to make a lot of money. Here’s the super short version of the hero’s journey, told from the male perspective: Boy is bored and along comes an adventure. He resists it, but eventually has no choice but to accept. He meets a teacher, usually older and very powerful. There is a setback, and the boy feels all alone. He works hard, guided by his teacher and some new friends. Then comes the final contest, when he must battle a foe that appears invincible. Although he is initially injured, he uses all that he’s learned to overcome it, and becomes the victor. So what’s the problem here? In the form it’s being used, the hero’s journey focuses on personal achievement, not on leading others. The closest the story gets to leadership is being a role model for other heroes. The full problem with the hero’s journey, including a hint of something very important from George Lucas, is explored in a longer piece . What if you get an entire group of people all trying to be Luke Skywalker (or Neo or Spiderman)? You get a mammoth clashing of egos, all struggling for supremacy and destroying everything around them. In two words, Wall Street. Or management of most major companies. Glee is not a different story than Star Wars , it’s what comes next. After the boy becomes a hero, he (Mr. Schuester, the teacher in Glee ) finds people looking for the next step, and the hero assembles a tribe (or club in Glee or a fellowship, for fans of JRR Tolkien). The hero, stumbling at first, finds something within the tribe that will inspire them, and allow them to see their “tribalness.” In Glee , this is the love of music and self-expression. There’s talk of a mission, or a project — “regionals” in Glee . But there’s a growing tension in the hero between his ego and the needs of the group, in a process Warren Bennis calls “the crucible.” This tension leads to a period of isolation and introspection when the hero has to figure out what’s really important: Self or the tribe. In Glee , this period included the collapse of the teacher’s personal life, including the revealed false pregnancy of his wife, the failed start to a new relationship, and career setbacks. Without any evidence of success, the hero returns, commits to the tribe, and becomes a leader. The leader shifts his identity to the point where he is now almost synonymous with the tribe, and leads it to a small victory — sectionals in Glee . Now the villains swarm, including people who failed their own crucible test (Sue Sylvester, the epitome of ego unchecked), betrayal within the tribe, wimps (people who never successfully became heroes, like the spineless school principal). All of these challenges climax in the biggest test with another tribe that uses deception (or “evil arts” for Tolkien fans) to win. The final test isn’t hero to villain. It’s tribe to tribe. The tribe wins only if all of its members have also transitioned from hero to leader. A tribe of leaders is nearly unstoppable. The Glee saga isn’t over, but I will be willing to bet they triumph over evil in the end. Take a current company in the news: Zappos. Many books that have written about the story follow the hero’s journey, making it all about CEO Tony Hsieh. As Tony has said several times, that’s not just simplistic, it’s wrong. Zappos is a story about the culture. In other words, it’s more Glee than Star Wars . Glee-type stories don’t follow steps as carefully as Star Wars -inspired plots. It’s more of a dance, and less of a checklist. The lessons are complex, but far more important for business, especially in this age of interconnection when success is almost, by definition, an ensemble event. Hero’s journey stories are all around us. Is your story more like Glee ? If so, I hope you’ll tell it in brief in the comments below. Follow me on Twitter and Facebook .

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Ed Gurowitz, Ph.D.: Labor Unions, the Economy, and the EFCA

September 8, 2010

In addition to the usual melancholy associated with the “official end of summer,” this year’s Labor Day observance brings with it, for me at least, a particularly poignant reminder of the current state of the economy in the US in general and in Nevada in particular. Labor unions, once a major positive force advocating for the working class, have fallen into disrepute. Some of this is their own fault, with too many instances of corruption and greed on the part of unscrupulous union leaders, and too many instances of “protecting” their members against job insecurity by ignoring intelligent practices of workers’ being accountable for producing an honest day’s work for an honest day’s pay. In too many instances unions have failed to advocate for all workers, regardless of race or gender, and this has contributed to their loss of the standing they had a century or so ago. But it’s not all the unions’ fault. Management and business ownership have, from the beginning, resisted unions’ legitimate efforts on behalf of their members where those efforts might increase their expenses and thus cut into profits. In recent years big companies have been particularly ready to demonize unions when the unions used their voices to object to US jobs going overseas and to the radical disjunction between executive (particularly CEO) pay and what was being paid to labor. During the major economic bubbles of the last 20 years — the dotcom bubble of the ’90s and the housing bubble of the 00s, ordinary Americans, who have traditionally identified themselves with the middle class began to think like the upper classes — the CEOs and financiers. Maybe the euphoria of the bubbles along with the spate of paper millionaires of the dotcom era created the illusion that we could all become part of the wealthy class, but for whatever reason, we seem to have started to think that CEOs and Wall Street types are entitled to amass wealth beyond the dreams of avarice, and if they are entitled, then maybe we are also thinking this way, a great many of the middle class oxymoronically tried to borrow their way into wealth — a way of thinking that built Las Vegas, but not one that will build an economy, as we’ve seen. The unions are attempting a comeback — advocating for health care reform, retention and return of US jobs, and for the Employee Free Choice Act (EFCA) which will afford the opportunity for workers to choose to join unions on their own, while still allowing employers to conduct their own canvasses to determine employee sentiment about joining — in other words the employers lose nothing while the workers gain a bit more freedom to initiate the process on their own, with the results binding on the employers if a majority choose to unionize. Under current law, employers are not required to take as determinative their workers’ signed authorization forms designating a union as their representative and may insist that the workers use a secret-ballot election conducted by the National Labor Relations Board to establish their union “even if 100 percent of the employees provide the NLRB with signed authorizations designating the union as their bargaining agent.” The EFCA would allow workers to have their union certified as their bargaining agent by the NLRB if a majority of them have signed valid authorizations.” Naturally employers, particularly large companies that have made it their business to keep unions out, oppose this. Former Home Depot CEO Bernie Marcus went so far as to predict the “demise of civilization” if this basically democratic process were to be instituted. More likely it would lead to a re-empowerment of labor in the face of corporate greed and the possibility of restoring sanity and balance to a system that stacks the deck in favor of the wealthy and powerful and leaves the majority of us (whatever our champagne wishes and caviar dreams) in the dust. The average American, and there are quite a lot of us, needs to realize that the Carly Fiorinas and Meg Whitmans and Bernie Marcuses of the world really don’t have out best interests in mind, and that maybe “if you can’t beat ‘em join ‘em” isn’t a viable option for 95+ percent of us. The working class and the middle class are the backs on which the plutocrats stand, and maybe it’s time we stood up. Also published in the North Lake Tahoe Bonanza

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Anthony Tjan: Learning to Inspire Yourself

September 8, 2010

This guest post was written by Tsun-yan Hsieh. Early in my consulting career, the late Marvin Bower, one of the early pioneers and legends in management consulting, shared a story that inspired me. He told me he had decided to write a letter to a CEO, challenging him to consider that he might be at the heart of his company’s prolonged performance problems. Marvin’s forthrightness succeeded in inspiring the CEO to change course. Since then I have often reminded myself of Marvin’s frankness. Human nature most often pushes us towards conflict avoidance, but Marvin gave me the courage to speak directly on tough issues, even if it has meant in some cases risking my relationships with my clients and colleagues. Not everyone who knew about Marvin’s actions at the time felt inspired. Some considered his behavior reckless, disruptive, and undiplomatic. For those of us who were inspired by his values, the important question is: What did I do with that inspiration? Inspiration only begins its useful work when our spirits are moved to thought and action. The self is the weak link between all things inspiring and inspired thought and action. Blaming others for not inspiring us when we are not inspired externalizes the problem. And we cannot inspire others if we are not inspired ourselves. To become self-inspired, I have found it useful to build three reinforcing processes within me — evolving self, congruent self and courageous self. Evolving self (a term used by Robert Kegan, an authority on adult development) is the first step in the process of achieving inspiring self. Evolving self occurs when one seeks to push forward to his full potential by willing to shed elements of their old self and induct new (and better) elements into their inner core. Ask people who are in their 50′s or older, and they will tell you how they have changed in some important ways while remaining otherwise the same in the last 30 years. Some people change as a result of their responses to life events; others put in the hard work to evolve to become a better person and/or leader. Yet, many remain stuck well below their potential because the tensions between the comfort of staying with the familiar on the one hand, and the pain of shedding the skin in which we have grown accustomed, are often unbearable. Evolving self is the recognition, desire and action towards continuous learning about yourself. Congruent self begins with the unwavering drive to be true to oneself. It results in a deep self-awareness and an unbroken flow from being and thinking to feeling and expressing. In other words: I say what I think, what I think is how I feel, and how I feel is who I am. Incongruence dampens the full emotional response to an inspiration and blocks the urge to act on it. It takes inner strength and hard work to resolve the tensions among conflicting desires in favor of truth about one’s self. Courageous self is the resolve to act consistently with our congruent self, even in situations that harbor significant risk. Consider whistle-blowers reporting corporate wrongdoing: they know that by speaking up they risk being discredited, oppressed, and made unemployable. But their will to abide by their own values in the face of adversity inspires them to act for the greater good. Inspiring self is integral to the never-ending journey of becoming a better person. Without it, the inspiration we receive from others does us no good. Tsun-yan Hsieh is Director Emeritus at McKinsey & Company where he has been for 30 years. He sits on the Board of Directors of Sony Corporation and is a member of Cue Ball’s Collective brain trust. This article first appeared on Harvard Business Publishing on July 2, 2010.

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Richard (RJ) Eskow: Peter Orszag’s Tax "Compromise": Rubin’s Ghost Haunts the Middle Class Again

September 7, 2010

Peter Orszag’s maiden voyage as a New York Times columnist resonates with twenty years of failed economic policy. It’s a grab bag of Robert Rubin’s Greatest Hits, remixed by a younger DJ for new audiences. It’s all there: The mythologizing of the markets. The ritualized search for “credibility.” The search for a middle ground position, where the “middle” is defined by investors and not by voters. And a continuation of tax policies that favor Wall Street and the wealthy. As a bonus track, we even get the same old Social Security shuffle. Orszag proposes to extend the Bush tax cuts for two years, for the wealthy as well as the middle class, and then end them for everybody. His proposal would continue to transfer wealth upward, then freeze everyone in place. That’s a bad idea in principle, and it’s based on the same sort of blue-sky assumptions about jobs that got us where we are today. Orszag begins by discussing a “nasty dual deficit problem: a painful jobs deficit in the near term and an unsustainable budget deficit over the medium and long term.” The phrase “in the near term” illustrates the flawed assumptions behind this proposal. We’re now facing higher unemployment than was predicted without the stimulus. That miscalculation should have given Orszag pause. With long-term unemployment at 6.2 million and jobs growth lagging behind demographic changes, it’s reckless to assume the jobs “deficit” will be much better in two years. And if you really want to create jobs, there are a lot better ways to spend billions of dollars than by extending tax breaks for the wealthy. Orszag counters that this is the only kind of deal that could pass Congress. But is that true? Remember, all the tax cuts are due to expire. Would Congress really vote down a bill to extend middle class tax cuts? One doubts that the New York Times hired Orszag for his skills as a political prognosticator, so why is he suddenly defining the limits of the politically possible? One good guess is that he has an ulterior motive: This short-term “compromise” is the best way to eliminate all tax cuts in the name of deficit reduction. That would be a Faustian bargain. It would transfer billions to hedge fund managers and other wealthy Americans in the short term, while adding an equal amount to the deficit – all in the hope that in 2013 whoever is President will be able to do what Orszag argues can’t be done now. If you’re confused, don’t worry: The problem isn’t you. Orszag’s trading the continued short-term enrichment of the well-to-do for the opportunity to raise taxes on the middle class. That’s a tough bargain. It’s also a reckless one, based on the dubious assumption that these renewed tax cuts would really be allowed to expire in 2013. And it doesn’t pass the fairness test. Consider the disproportionate benefits these tax cuts give the wealthy (as documented by the Center for Budget and Policy Priorities ): There are a number of reasons for this disparity. One reason is that the cuts limit taxes on capital gains and dividends to 15%, as opposed to the higher taxes paid by cops or teachers. Capital gains will be taxed at 20% if the cuts expire, while dividends would be taxed at each filer’s regular rate (up to 39%). There’s a counter-argument to be made here: If the tax cuts disproportionately benefit the wealthy, why shouldn’t they be allowed to expire the way Orszag proposes? Perhaps they should, at the right time. But Orszag’s solution raises more problems than it solves. It extends the ongoing aggregation of wealth by the country’s highest earners, deprives the government of revenue that’s needed for job creation, and extends the current inequities — all in the belief that the nation’s leaders will honor the bargain by letting the cuts expire in 2013. The President’s solution would offset some of the inequities created by the past years’ cuts while directing future breaks toward those who are most likely to spend the money. Many observers are expressing surprise at Orszag’s position. They shouldn’t. This is a deficit hawk’s tax hike, consistent with a wide array of proposals designed to reduce the deficit at the expense of the middle class. Orszag’s deficit-hawk history goes back to his tenure at Rubin’s “Hamilton Project,” a division of the Brookings Institution named for Alexander Hamilton. Hamilton was the nation’s first advocate for paying down the national debt and using central banks to promote commerce, which should give you an idea where they’re coming from. (Is somebody planning to fund a “Jefferson Project”?) The Hamilton Project’s Advisory Board is heavily weighted with investment bankers and other power players (Goldman Sachs, Carlyle Group, BlackRock, etc.), and the group earned some notoriety for its proposal to privatize unemployment insurance. It became a home for Clinton’s deregulation-prone economic advisors, and Orszag polished his deficit-hawk arguments while he was there. Consider the paper Orszag co-authored with Rubin and Allen Sinai in 2004, entitled ” Sustained Budget Deficits: Longer-Run US Economic Performance and the Risk of Financial and Fiscal Disarray .” (pdf) It argues that deficits must be cut because traders, investors, and creditors will become fearful of high inflation caused by government spending, because credit markets will clamp down on government debt, and because government spending will be a major contributor to loss of business and consumer confidence. Bear in mind that these words were written in 2004. And yet, despite an exploding deficit and the worldwide economic collapse caused by policies that Rubin et al. espoused, none of those things has happened – not for the reasons they gave. How does Orszag address this awkward reality? He doesn’t. Instead Orszag mentions today’s “benign bond market” (make that “ebullient” or ” enthusiastic “), saying it’s “a luxury we won’t enjoy forever.” The Rubinomics view of markets: When they agree with us they must be placated. But when they don’t, ignore them. They’ll see things our way eventually. Orszag, like Rubin and the other DLC types that created this mess, still has his eye on Social Security too. He writes: “Even if we reform Social Security, which we should, any plausible plan would phase in benefit changes to avoid harming current beneficiaries.” Read that sentence carefully: He wants to “reform” Social Security, but his “reform” won’t help the short-term deficit because it will only “harm” (his word) future beneficiaries. That positions still rules Washington … and the Deficit Commission. Orszag’s anti-Social Security stance is the mirror image of his tax position. Both reflect the Rubinite premise that financial security for the middle class is a luxury we can no longer afford. It also reflects the misstatement of Social Security’s finances in the 2004 Orszag/Rubin paper: “… as the baby boomers increasingly reach retirement age and claim Social Security and Medicare benefits, government deficits and debt are likely to grow even more sharply.” (Wrong: Social Security is separately funded.) And it’s consistent with the benefit-slashing policies Orszag proposed in a 2005 Hamilton Project paper he co-authored with Peter Diamond, modestly called ” Saving Social Security: The Diamond-Orszag Plan .” That plan included phased-in cuts that would reach 9% of benefits, along with tax hikes for everybody. In other words, more cost-shifting onto the middle class. There’s a lot of Washington speculation about Orszag’s column. Does it represent a break with the President? One story today emphasized that Orszag was ” odd man out ” during his White House tenure, and Robert Gibbs re-emphasized the President’s commitments to middle class tax cuts in today’s briefing. But Gibbs stopped well short of calling for “drug testing” for Orszag, as he’s done with more progressive critics, and his choice of words was odd when he was asked if the White House knew Orszag was going to call for this extension: “We certainly didn’t see Peter’s column before it appeared today.” When he was asked again if anyone in the White House knew the substance of what Orszag was going to say, he repeated the same formulation: “Nobody that I’m aware of saw the column before.” On the other hand, Gibbs appeared to underscore the President’s strong disagreement with Orszag, which hopefully undercuts the troubling possibility that Orszag’s column is a trial balloon of some kind. But it’s hard not to worry. A number of Senate Democrats are privately pushing for an Orszag-like Faustian bargain, and Orszag has demonstrated an enormous ability to influence the President in the past. Let’s hope there’s no more to Orszag’s column than meets the eye, and that the reports of an Obama/Orszag rift on this issue are right. Otherwise, Orszag may be preparing the country for another disastrous bargain – just when we can afford it least. The President should stick to his guns. _______________________________________________________________ Richard (RJ) Eskow, a consultant and writer (and former insurance/finance executive), is a Senior Fellow with the Campaign for America’s Future. This post was produced as part of the Curbing Wall Street project. Richard also blogs at A Night Light . He can be reached at “rjeskow@ourfuture.org.” Website: Eskow and Associates

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Lindsey Graham Gets It Wrong On The Stimulus: Blames Legislation For U.S. Job Losses

September 5, 2010

A top issue on the Sunday morning talk shows was the Obama administration’s record on jobs, with Republicans hitting the stimulus and calling for an extension of the Bush tax cuts. To make, his case, however, Sen. Lindsey Graham (R-S.C.) completely distorted the effects of the stimulus, calling it a “disaster” and trying to tie it to millions of U.S. jobs lost. On NBC’s “Meet the Press,” Graham called for extending the Bush tax cuts, saying the U.S. taxes and spends too much. To make his claim, he said that the country has lost 2.5 million jobs since the stimulus passed. GREGORY: Republicans are so concerned about the deficit and overall spending picture in Washington, as Republican leaders say they are. When you talk about extending the Bush tax cuts, yes, it’s existing tax policy, but is there a responsibility for Republicans to say if you want to extend all of the cuts that somehow you have to pay for what the impact will be going forward beyond the expiration date on the Treasury? GRAHAM: Only if you believe that America taxes too little; I think America taxes too much, and we certainly spend too much. I would extend the tax cuts to create private sector jobs. If you increase taxes now at any level, it is going to make it harder to create jobs, and we’ve lost 2.5 million jobs since the stimulus package passed. We’re at 9.6 [percent] unemployment. So I don’t think we don’t tax too little; I think we spend too much. WATCH: While it’s true that there have still been jobs lost this past year , it’s not because of the stimulus. Graham’s faulting of the stimulus on America’s job situation goes against an Aug. 24 report by the nonpartisan Congressional Budget Office . From the report: On that basis, CBO estimates that ARRA’s policies had the following effects in the second quarter of calendar year 2010: – They raised real (inflation-adjusted) gross domestic product (GDP) by between 1.7 percent and 4.5 percent, – Lowered the unemployment rate by between 0.7 percentage points and 1.8 percentage points, – Increased the number of people employed by between 1.4 million and 3.3 million, and – Increased the number of full-time-equivalent jobs by 2.0 million to 4.8 million compared with what would have occurred otherwise (see Table 1). In other words, the stimulus put 3.3 million Americans to work. Similarly, on July 27, economists Alan Binder and Mark Zandi released a study showing that without a strong federal response — “Wall Street bailout, the bank stress tests, the emergency lending and asset purchases by the Federal Reserve, and the Obama administration’s fiscal stimulus program ” — the U.S. would probably have lost 16.6 million jobs — about “twice as many as were actually lost.” Additionally, the unemployment rate would have peaked at 16.5 percent. As David Lynch of USA Today recent wrote, “Eighteen months later, the consensus among economists is that the stimulus worked in staving off a rerun of the 1930s .” Obama’s presidential campaign manager, David Plouffe, also sharply defended the stimulus on NBC’s “Meet the Press” today, saying, “By the way, the Recovery Act that Republicans are attacking — if they had their way, we wouldn’t have done anything like that. We probably would have unemployment rate if Republican ideas and policies had been in place that drove us into this economic climate in the first place, we’d be sit here with unemployment almost double what it is with no positive growth, no glimmers that were coming out of this.” Zandi, who served as an economic adviser to McCain’s 2008 presidential campaign, said on CBS’s “Face the Nation” that the effects of Bush’s tax cuts on small businesses was being overblown. “On the margin some small business people won’t hire as aggressively, but that is an overdone argument,” said Zandi, adding that the main reason they’re not hiring is a “lack of confidence.” Economist Laura Tyson, who is a member of the president’s Economic Recovery Advisory Board, agreed, saying the tax cuts are “not the major reason they’re not hiring.” Zandi also advised against raising taxes on high-income households, saying they are ” very, very fragile .” On CNN’s “State of the Union,” National Small Business Association President Todd McCracken argued against letting the Bush tax cuts expire for businesses making more than $250,000, saying that although it’s a “minority of small companies,” they are “the more successful ones who are most likely to be growing jobs and the ones that we want to continue to be successful and we don’t want to put disincentives in place for them to do it.” AFL-CIO President Richard Trumka took issue with McCracken’s characterization, saying, “They’re not created by the 3 percent. They’re created — the vast majority are created by the other 97 percent. So it’s not fair to say most jobs are created by that top 3 percent, because they are not.” UPDATE: Economist Robert Shapiro looked at Bureau of Labor Statistics data and concluded : From December 2007 to July 2009 – the last year of the Bush second term and the first six months of the Obama presidency, before his policies could affect the economy – private sector employment crashed from 115,574,000 jobs to 107,778,000 jobs. Employment continued to fall, however, for the next six months, reaching a low of 107,107,000 jobs in December of 2009. So, out of 8,467,000 private sector jobs lost in this dismal cycle, 7,796,000 of those jobs or 92 percent were lost on the Republicans’ watch or under the sway of their policies. Some 671,000 additional jobs were lost as the stimulus and other moves by the administration kicked in, but 630,000 jobs then came back in the following six months. The tally, to date: Mr. Obama can be held accountable for the net loss of 41,000 jobs (671,000 – 630,000), while the Republicans should be held responsible for the net losses of 7,796,000 jobs. ************************* What’s happening in your district? The Huffington Post wants to know about all the campaign ads, debates, town halls, mailings, shenanigans, and other interesting campaign news happening by you. E-mail us any tips, videos, audio files, and photos to election@huffingtonpost.com .

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Katy Welter: Small Banks May Fail but They’re Still a Better Bet

September 3, 2010

Businesses fail. Or at least, a fair number should fail in a healthy capitalist system. Risk — of failure and reward — is an essential component of the American way of doing business. Americans have always risked personal and financial failure in pursuit of greatness, as when pioneers settled the West, scientists advanced medicine, or inquisitive minds invented personal computers. But large banks pervert this system: they revel in massive risk-taking with your money because they’re confident that the federal government will rescue them from failure. Small banks, on the other hand, have to play the game fair. They do fail, as any business does. But since bank shareholders (not taxpayers) bear the expense, they must manage their risk, and forego profits in doing so. Still, there’s no getting around it: community banks fail at much higher rates than large banks. All 118 failed banks year-to-date have been small or regional institutions. But the causes of these banks’ failures — and the explanation of why big banks don’t fail — are among the many reasons why you should move your money to a smaller institution. One major reason why small banks are failing so rapidly is that they are heavily invested in local residential and commercial real estate. In other words, they’re out of luck because, like us and our neighbors, they underestimated the severity of a real estate market collapse. As small banks fold while holding a local mortgage, big banks are propped up despite still gambling on investments that don’t boost the economy. When small banks fail, they don’t bring America down with them. Unlike notoriously “too big to fail” commercial bank monstrosities , the government sees little reason to assist small banks. If the American economy is a forest, then a small bank’s failure is a lone tree tipping. When a large bank teeters on insolvency, it threatens a ravaging forest fire. Big banks fail less frequently, as Federal Reserve Chairman explained on September 2 , not because they’re better run, but because they aren’t allowed to fail. And they aren’t allowed to fail because their failure threatens to uproot entire economy. Effectively, then, big banks are holding the American economy hostage — pay up, or else. Bernanke may have no choice but to rescue to them, but you do have a choice. You can move your money to a local institution that offers lots of upside when it succeeds (for example, they promote small businesses and make more local loans) and minimal impact when it fails. Typically, a failed small bank is acquired by a larger bank, usually through a deal brokered by the FDIC. Moreover, contrary to popular belief, when a small bank fails, your taxes do not pay for the lost deposits (deposits are lost because that money has been loaned out to borrowers who cannot repay). Banks insure your deposits through regular premium payments to the Federal Deposit Insurance Corporation (FDIC). Yet, when large banks fail — or even threaten to fail, as we’ve seen — the global economy cowers and could collapse. There isn’t enough insurance in the world to guard against that loss. Even if your local bank were to fail, your money will be safe and you won’t be inconvenienced. My bank failed in August. I received an email from the FDIC on a Friday afternoon informing me that my bank had been closed by the agency, and that the acquiring bank would assume my deposits. All the branches have stayed open, my checks remain valid, and online banking access hasn’t changed. Currently, the FDIC, an agency funded by financial institutions, not taxpayers, insures $250,000 per depositor — including corporate accountholders — plus an additional $250,000 for Individual Retirement Accounts. This coverage is more than enough for the vast majority of bank customers. This is America. A place where risk and failure are an inevitable, even essential, part of the economy. These features of our system only become problematic when the someone other than the original risk-taker and reward-maker (ie, shareholders and executive officers) assumes the losses associated with failure. And that’s exactly what has happened with the big six banks. There are two banking systems in this country: one is a dysfunctional mega-banking network where institutions take wild risks with depositors’ money and redefine “success” to mean embarrassing profits followed by hemorrhaging losses requiring taxpayer bailout Band-Aids; the other is a system where moderate risk is the norm and failure is an unfortunate consequence. Which system do you support with your money?

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David Isenberg: Veterans 1, KBR 0

August 31, 2010

It is time once again to tune in to the latest epsiode, oops, I mean development, of the long running farce, oops, I mean legal case, involving KBR and Oregon National Guard soldiers. Yeterday there was significant pro-veteran ruling in the Oregon KBR Qarmat Ali litigation. I have previously written about this and open air burn pits KBR ran on dozens of U.S. bases in Iraq and Afghanistan in February , April and June . In a 29-page ruling the federal district court in Oregon considered the motion by KBR and co-defendants Overseas Administration Services, Ltd. and Service Employees International, Inc. to dismiss the suit for lack of subject-matter jurisdiction and rejected it. U.S. Magistate Judge Paul Papak wrote that on March 3, 2003 – before combat operations began in Iraq – the U.S. Army Corps of Engineers entered into a “Restore Iraqi Oil” (RIO) contract) with KBR. Under it, KBR and its subsidiaries agreed to provide services to the U.S. military in connection with efforts to restore the infrastructure underlying the Iraqi oil industry. Also under the RIO contract, the U.S. Army Corps of Engineers issued various “task orders” for KBR to perform. Combat operations in Iraq began on March 19, 2003. On March 20, 2003, the Corps of Engineers issued “Task Order 3,” which governed the services to be provided by KBR and its subsidiaries at Qarmat Ali and other facilities. Under Task Order 3, the U.S. military would declare a given worksite to be “benign” before KBR would begin operations there. A lot depends on what you mean by “benign.” In a footnote the judge wrote: The parties dispute the meaning of the term “benign” for purposes of Task Order 3. According to the deposition testimony of Robert Crear (retired Brigadier General of the U.S. Army Corps of Engineers) and of Gordon Sumner (retired U.S. Army Corps of Engineers Contracting Officer and regional director of contracting), “benign” referred to freedom from combatant activity and from nuclear or chemical weapons, and did not foreclose the possibility of environmental hazards, including hazardous (but not weaponized) chemicals. Support for this interpretation can be found in the provisions of Task Order 3, which suggest that pronouncement of a site as “benign” did not, for example, foreclose the need for environmental assessment. Nevertheless, defendants take the position that a “benign” designation necessarily meant freedom from known hazards, including environmental hazards, and support for defendants’ position may also be found in the language of Task Order 3, which indicates that a facility must be cleared of environmental and industrial hazards before it may be pronounced “benign.” Because I do not find this issue to be material to the analyses I am called upon to undertake in connection with the political question doctrine, the government contractor defense, or the combatant activities exception, the parties’ dispute over the definition of “benign” need not be resolved at this stage of these proceedings. In the underlying facts portion of his ruling the judge wrote: Task Order 3 provides that KBR was responsible for providing the Corps of Engineers with an environmental assessment of any facility in which it undertook operations. The obligation to provide such assessments included the obligation to report and evaluate any environmental hazards. According to Sumner’s and Gen. Crear’s deposition testimony, KBR was not merely permitted but required under Task Order 3 and the RIO contract to take all necessary precautions to safeguard personnel who might potentially be exposed to environmental hazards at worksites, including the wearing of protective gear and/or the closing down of operations at any unsafe site. In his analysis the judge noted that the defendants argue that this court lacks subject-matter jurisdiction by operation of the political question doctrine, by operation of the so-called “government contractor defense,” and by operation of the combat activities exception to the Federal Tort Claims Act. For background on this see my January post . The judge proceeded to detail other cases where district courts have found the political question doctrine inapplicable to tort actions brought against government contractors in the military context. In regard to KBR’s claims that various legal tests argue in favor of applying the political question doctrine he wrote that he found their arguments unpersuasive. He wrote, “the matter fundamentally at issue here is defendants’ performance of its contractual obligations to the government and to the plaintiffs rather than the advisability of any governmental policy-related decision.” But the guts of the decision, which is undoubtedly giving all PMC legal counsels’ nighmares, is this: Defendants here assert that their “provision of engineering and logistical support services at Qarmat Ali” took place pursuant to the specifications of a contract with the government, and that they did not exceed their authority under those specifications. On this basis, defendants argue that they were merely “executing the will of the United States” and are entitled to the benefits of derivative sovereign immunity. The evidentiary record belies both of defendants’ assertions. The rationale underlying the government contractor defense is easy to understand. Where the government hires a contractor to perform a given task, and specifies the manner in which the task is to be performed, and the contractor is later haled into court to answer for a harm that was caused by the contractor’s compliance with the government’s specifications, the contractor is entitled to the same immunity the government would enjoy, because the contractor is, under those circumstances, effectively acting as an organ of government, without independent discretion. Where, however, the contractor is hired to perform the same task, but is allowed to exercise, discretion in determining how the task should be accomplished, if the manner of performing the task ultimately causes actionable harm to a third party the contractor is not entitled to derivative sovereign immunity, because the harm can be traced, not to the government’s actions or decisions, but to the contractor’s independent decision to perform the task in an unsafe manner. Similarly, where the contractor is hired to perform the task according to precise specifications but fails to comply with those specifications, and the contractor’s deviation from the government specifications actionably harms a third party, the contractor is not entitled to immunity because, again, the harm was not caused by the government’s insistence on a specified manner of performance but rather by the contractor’s failure to act in accordance with the government’s directives. Assuming without deciding that the Ninth Circuit would apply the government contractor defense to the provision of the kinds of services KBR contracted to provide in Iraq under RIO and Task Order 3 – analysis of the RIO contract and of Task Order 3 fails to establish that the defendants’ actions alleged to have caused plaintiffs’ injuries were taken in direct compliance with any “reasonably precise” government directive. Quite to the contrary, defendants were contractually obliged to perform an environmental assessment of Qarmat Ali and to report any environmental hazards to the Army Corps of Engineers. Defendants were under no contractual obligation to put their employees or third parties providing security in connection with defendants’ operations into situations involving the risk of environmental harm, to refrain from requiring employees or third parties to use appropriate protective gear and clothing when placed into such situations, or to withhold material information regarding such risk from persons placed into such situations. Moreover, assuming arguendo that the government’s specifications regarding defendants’ obligations in connection with operations to be performed in an environmentally contaminated worksite were sufficiently precise to trigger the defense, plaintiffs have offered evidence tending to establish that the defendants violated those contractual duties, by failing to report the contamination at Qarmat Ali and by permitting the Oregon National Guard to perform duties at the site without appropriate protective gear. Because defendants did not conduct operations at Qarmat Ali in accordance with precise government specifications and without independent discretion as to the manner in which the operations were to be performed, defendants are not entitled to the government contractor defense. See Hanford Nuclear, 534 F.3d at 1000. Defendants’ motion to dismiss is therefore denied to the extent premised on the government contractor defense. In other words, the “we were just following orders” defense is looking even lamer than ever.

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Jeffrey Rubin: High Energy Prices, Not Wind Turbines, Make Copenhagen Green

August 31, 2010

The first thing you notice as you fly into Copenhagen, where I recently made a speech, is the ring of wind turbines surrounding the city . I guess that’s why it was chosen to be the backdrop for the world environmental summit last December. There is certainly much to be said for Denmark’s leadership in green energy. While North American carbon emissions have risen by around 30 per cent since 1990 (the reference point for the Kyoto Accord), Denmark’s emissions are actually lower than they were two decades ago. That’s generally ascribed to the fact that a world-leading 20 per cent of the power generated in Denmark comes from wind. Less commonly known is the source of the other 80 per cent. I was surprised to discover that it comes from good old King Coal. In fact, coal’s share of power generation in Denmark’s power grid is basically the same as it is in China. Since green energy technology accounts for 12 per cent of the country’s exports, I can understand why Denmark wants to showcase its wind turbines instead of its smokestacks. But it’s power from those smokestacks that turn on the lights in Copenhagen, at least for the most part. How, then, has Denmark been so successful in managing its carbon emissions? The answer lies not with the source of power, but with the price of power. At 30 cents per kilowatt hour, electricity costs anywhere from three to five times what the average North American would pay. And, not surprisingly, Danish households consume a fraction of the power that we do. But I bet if you charged 30 cents per kilowatt hour for power in coal-burning states like Wyoming and West Virginia, they, too, could cap their emissions, and without having to install a single wind turbine. The other reason commonly cited for Denmark’s success at carbon management is cars–or, more precisely, the lack thereof. Nearly everyone in Copenhagen seems to be riding a bicycle . At first I thought this was testament to the environmental consciousness of the populace, or at a minimum, to a commitment to physical fitness. Then I checked out what it costs to buy a car. Depending on how many horses are under the hood, Danish car buyers pay a tax ranging anywhere from 100 to 180 per cent of the sticker price of the vehicle. In other words, when you purchase a car in Copenhagen, you can pay almost as much as if you were buying three cars in North America. At that tax rate, I’d be riding a bike too. What I learned from my trip to Copenhagen is that you don’t have to be a world leader in green energy technology to cap your carbon emissions. Just charge 30 cents per kilowatt hour for power, and slap a 180 per cent surcharge on vehicle prices. Consumers will do all the rest.

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Peter G. Miller: Obama Mortgage Modification Plan — 100 Times Better Than Bush

August 25, 2010

Just about every posting regarding the Obama mortgage modification program says it’s a dud. Those on the left say not enough has been done, those on the right say too many homeowners are washing out of the program. What’s too often left out is any sense of context. The reality is that the Obama loan modification program has saved roughly 100 times as many homes from foreclosure as the programs started under President Bush. That doesn’t mean the Obama plan is perfect or wonderful, but it’s surely better than many commentators suggest. For it’s part the Bush Administration had two important foreclosure programs. Hope For Homeowners First, there was the Hope for Homeowners plan, a program which set aside $300 billion to refinance toxic loans made no later than January 1, 2008. No doubt $300 billion is a lot of money but just how many loans were refinanced under H4H? Let’s see, there were 0 in fiscal 2008 , 23 in fiscal 2009 and 48 so far in fiscal 2010 . That’s a total of 71 loans. Over three years. A little more than one per state. Why did Hope for Homeowners fail? Lender participation was voluntary, new loans were limited to 90 percent of appraised value and appraised values had gone down so lenders were being asked to take a loss for every loan refinanced under the program. FHASecure Second, there was the FHASecure program. “In the coming days,” said President Bush in 2007, “the FHA will launch a new program called FHA-Secure. This program will allow American homeowners who have got good credit history but cannot afford their current payments to refinance into FHA-insured mortgages. This means that many families who are struggling now will be able to refinance their loans, meet their monthly payments and keep their homes. In other words, we’re going to start reaching out and making sure people know that this option is available to them so they can stay in their homes.” Sounds great. So what happened? To follow the program you have to look at the number of delinquent conventional loans refinanced with FHA-insured mortgages. There were no such loans in fiscal 2007 , 3,794 such loans in fiscal 2008 and 316 mortgages in fiscal 2009 . That’s a total of 4,110. But according to then-HUD Secretary Alphonso Jackson the story was different. “FHASecure,” he said, “has helped more than 100,000 families stay in their homes. Homeowners are cutting their monthly mortgage payments by an average of $400 a month compared to their exotic subprime loans. They no longer have anxiety about finding foreclosure notices in their mailboxes, thanks to the safe mortgage alternative that FHASecure offers.” So did the program help 4,100 delinquent conventional borrowers or more than 100,000? The original purpose of the FHASecure program was to help delinquent conventional borrowers get FHA financing. Jackson himself had testified before Congress in 2007 that the FHASecure program was for “borrowers who are otherwise creditworthy, but have recently become delinquent on their mortgages as their teaser rates reset.” But since the program wasn’t working the solution was to redefine the program. HUD did this by simply changing its FHASecure Frequently Asked Questions page to say “these FAQs have been modified to reflect that the term FHASecure applies to all conventional to FHA refinance transactions. The previous edition of FAQs indicated that only those borrowers who were delinquent due to reset of their non-FHA ARMs were eligible for FHASecure, causing confusion.” And just like that the FHASecure program was a “success” — unless you were one of the millions of borrowers with a toxic loan that needed to be refinanced. Making Home Affordable In March 2009 , a few weeks after entering office, the Obama Administration started the Making Home Affordable program. In basic terms, the program today has four elements: The Home Affordable Refinancing is for those making payments who want to refinance but lack equity. The Home Affordable Modification is for borrowers who face foreclosure as a result of higher mortgage payments, reduced income or hardship (think medical bills). The Second Lien Modification Program (2MP) is for borrowers with second liens of more than $5,000. May result in lower interest rate or an extended loan term. The Home Affordable Foreclosure Alternatives Program (HAFA) is for borrowers who have been unable to get help under Making Home Affordable. It provides as much as $3,000 to borrowers who participate in a short sale or deed-in-lieu of foreclosure. So how is the program doing? The July 2010 results look like this: The government has identified 1,623,584 delinquent borrowers who qualify for program help. Some 1,528,563 have been asked to participate in the program. Amazingly, 245,651 refused, meaning that 1,282,912 borrowers started loan modification trials. Of those who started loan modifications, 520,814 could not complete the three-month trial period and will likely lose their homes. In addition, 8,823 who passed the trial modification period and obtained a “permanent” loan modification actually re-defaulted. In total, 529,637 borrowers have washed out of the program to date. Roughly 364,077 borrowers are still in trials. There have been 389,198 permanent modifications to this point. These are people who otherwise would have lost their homes. The bottom line: The Obama program has so far saved 389,000 borrowers from foreclosure, a number which will increase in the coming months and a number which is now nearly 100 times greater than the foreclosure prevention results under the Bush Administration. Is it good that more than nearly 530,000 borrowers have so far dropped out of the program? Of course not, it’s a terrible thing to face foreclosure. But ask yourself: When did the foreclosure mess begin? Why did past bouts of unemployment not produce a flood of foreclosures? Why did regulators let lenders offer toxic loans? Why weren’t distressed borrowers helped before, when the foreclosure crisis first began to unfold? How much help and enthusiasm have lenders given the Administration’s modification efforts? What better alternative has anyone been able to offer the 530,000 borrowers who did not succeed with Making Home Affordable? Blaming the Obama program for failing to save more distressed homeowners is like a guy in a life raft who drills a hole in the bottom and then complains that everyone else isn’t bailing fast enough. It just isn’t right. _____________________ For more by insights and ideas by Peter G. Miller, please visit his consumer real estate information site, OurBroker.com .

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Danny Schechter: Hard Times Are Getting Harder, Left Is Silent

August 25, 2010

Who is Talking About What Matters Aren’t job losses and foreclosures as important as a “Ground Zero Mosque” (that isn’t a mosque, hasn’t been built or isn’t even at ground zero?) We know we live in hard times that are on the verge of getting harder with 500,000 new claims for unemployment last week, a recent record. The stock market may be over for now as fear and panic drives small investors out. Big corporations hoard stashes of cash rather then hire workers. The D-Word (depression) is back in play. Foreclosures are up, and the administration’s programs to stop them are down, well below their stated goals, only helping 1/6th of those promised assistance. And here’s a statistic for you: 300,000. That’s the number of foreclosure filings every month for the past 17 months. This year, 1.9 million homes will be lost, down from 2 million last year. Is that progress? In July alone, 92, 858 homes were repossessed. At the same time, the number of canceled mortgage modifications exceeded the number of successful ones. According to Ml-implode.com, last month, “the number of trial modification cancellations surged to 616,839, greatly outnumbering the 421,804 active permanent modifications.” And don’t think this is only a problem that affects the homeowners about to go homeless. The New York Times quotes Michael Feder, the chief executive of the real estate data firm Radar Logic to the effect that we are all at risk. “My concern is that if we have another protracted housing dip, it’s going to bring the economy down,” Mr. Feder said. “If consumers don’t think their houses are worth what they were six months ago, they’re not going to go out and spend money. I’m concerned this problem isn’t being addressed.” The larger point is that even if you believe the economy is already down, it can go lower. No one knows how to “fix it” either just as BP couldn’t plug the “leak” that, truth be told, is still oozing oil. So what are we doing about it? Are we demanding debt relief or a moratorium on foreclosures? Are we shutting down the foreclosure factories? Nope. Progressives are spending time and wasting passion this August debating on an Islamic Cultural Center near Ground Zero, invariably responding to the provocations and agenda of adversaries. They are always on the defense, never taking the offense. Who is beating the drum for job creation and a new economic policy? Maybe the unions, but their voice is muted and ignored in the electronic noise machine. Marches are planned by the UAW and Rev. Jesse Jackson on August 28th in Detroit and in Washington on 10.02.10. But the expected war of the words between Rev. Al Sharpton and Glenn Beck over the legacy of the March on Washington is expected to generate more heat. Meanwhile, even as the administration seems to be finding signs of a “recovery,” a parade of failures march on from the discovery that there is an oil slick the size of Manhattan in the Gulf to the persistence of frauds in finance from state pension funds in New Jersey to the case against the head of the Bank of America. Even worse, Shorebank, one of the banks that community activists considered a national model of social responsibility has gone down in Chicago, the 104th bank to fail this year with fifteen branches including some in Detroit and Cleveland. It was also active in 40 countries. In June, it reported over $2 billion in deposits. By August, it was gone. In all, 349 US banks have disappeared since 2007. ShoreBank promoted itself as a community development and environmental bank. It was based in Michelle Obama’s old neighborhood with the slogan “Lets Change The World.” Now the world of Wall Street has changed the bank with a partnership of investors including American Express, Bank of America and Goldman Sachs taking over under the name “United Partnership.” Hundreds of other banks are on the FDIC hit parade and may be next. There were many worse casualties in banking in the past according to Barry James Dyke’s informative book, Pirates of Manhattan . He notes that ten thousand banks failed during the depression and 2,900 bit the dust in the S&L crisis. The current number may have been higher had Congress not bailed out the Banksters who used some of our money to play PacMan, gobbling up smaller institutions. AP reported, “ShoreBank lost $39.5 million in the second quarter amid soured real estate loans. The bank had been under a so-called cease and desist order from the FDIC for more than a year, requiring it to boost its capital reserves. ShoreBank was able to raise more than $146 million in capital this spring from several big Wall Street institutions. It was unable, however, to secure federal bailout funds it sought from the Treasury Department’s Troubled Asset Relief Program.” Republicans are “investigating” alleged administration support for the Bank. AP explained, “Rep. Darrell Issa of California, the senior Republican on the House Oversight and Government Reform Committee, sent a letter to a White House legal adviser asking specific questions on possible contacts between administration officials and executives of ShoreBank or potential investors. The White House has said no administration officials met with ShoreBank concerning its rescue or requested help from financial institutions on its behalf.” Questions raised by Republicans, of course, seek to politicize the issue when it is the FDIC ‘s deal with the big banks that needs to be probed, as Zero Hedge explains: “As it stands, Goldman and 11 other banks are receiving a multimillion dollar gift to conduct a portfolio liquidation run-off of ShoreBank’s assets, while merely making sure existing deposits are serviced.” (Note: the FDIC is led by a Republican.) Blogger Mike, “Mish” Shedlock concludes: “The FDIC’s handling of Shore Bank smells as bad as a pile of dead alewives on a Chicago beach in mid-July.” My question is: Why didn’t the administration help shore up ShoreBank (if it could be shored up) as they did so many of the “too big to fail” banks? Their hands-off attitude, perhaps in fear of being criticized, as they were anyway, helped doom the bank and, by extension, the idea that we could have socially responsible lending institutions. So much for the priorities and power of Obama’s “Chicago Mafia.” If they don’t have the guts to save a bank in their own hometown they know has meant so much to so many, is it any wonder they won’t take on the crimes on Wall Street? Last week, Treasury Secretary Tim Geithner was complaining that he is being falsely identified as a “Goldman Guy,” insisting he never worked for the financial institution that was recently branded a “Giant Squid On The Face Of Humanity.” He doesn’t seem to realize that the speculation is not based on the details of his resume but on an assessment of his track record with the pals he worked with when he ran the Federal Reserve Bank in New York. And by the way, Tim, why the hold-up on the appointment of Elizabeth Warren to run the new Consumer Financial Protection Bureau in your old institution? Is she too smart and popular for you? Why the fiddling while our modern Rome burns? News Dissector Danny Schechter directed Plunder The Crime of Our Tim e, a DVD and a companion book, The Crime Of Our Time on the financial crisis as a crime story. Comments to: dissector@mediachannel.org

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Jonathan A. Schein: Why Beat Up a Fish Hatchery’s Solar Panels?

August 24, 2010

Last week, Roger Meiners, a senior fellow a the Property and Environmental Center in Bozeman, MT and a professor of economics at the University of Texas, Arlington wrote an op-ed piece in the Wall Street Journal proclaiming the federal stimulus program directed at creating green jobs to be a “turkey.” Meiners’ reasoning is based on the cost of installing solar panels at the U.S. Fish and Wildlife Service’s Ennis National Fish Hatchery at a cost of $179,000–all paid for by stimulus money. According to Meiners, the solar panels may have a total life of 25 to possibly 40 years with the actual return on the investment taking closer to 70 years. He bases this claim on the fact that the fish hatchery requires 34,000 kilowatt hours per year, priced at $.10 per kilowatt, so the cost of energy needed to run the fish hatchery is $3,400 per year. The solar panels will generate 75% of the energy needed, for a savings of $2,550 annually. Therefore, Meiners reasons, if the panels last 40 years, they will save the hatchery approximately $102,000, leaving the remaining cost of $77,000 unfunded. In other words, this difference will have to be made up by the taxpayer. Let’s look at the actual economics of this. If the hatchery chose to place $2,550 per year in a savings account, accruing an average of 3% per annum for the next 25 years, the shortfall of $77,000 would be made up. That solution may seem simple, perhaps too simple for a professor of economics to understand that any savings will be ultimately be spent somewhere else and create additional stimulus. This may be Keynesian economics in its rawest form, but it’s relevant to this discussion. Meiners is also assuming that everything remains exactly the same for the next 70 years–that development of newer and more efficient solar panels will not happen, and that the replacement costs for those will not decrease over time. But if this were the case, all home computers would still cost thousands of dollars and we’d still be listening to music on $200 Sony Walkmans. So Meiners’ argument leaves absolutely no room for advancement. Perhaps the result of another stimulus package from the past–the building of the Fort Peck Dam project in northeast Montana–makes a good counterpoint to Meiners’ point of view. Built during the Great Depression (1933-1936) as a result of the Public Works Administration, Fort Peck Dam’s creation employed over 10,000 Montanans during the worst economic period in American history and made history–it is the largest hydraulically filled dam in the United States. Today Fort Peck Dam generates 185,000 kilowatts of energy every year. Just as there are today, there were probably many Depression-era naysayers who believed the dam’s building was just another federal government giveaway that would spend us all into oblivion. However, although there were problems with the dam’s construction, it’s still working pretty well after 70 years. And when it comes to the Ennis National Fish Hatchery, we are, once again, looking 70 years into a future that we cannot possibly foresee. If the past is any indication, perhaps we still have a chance to make it through. Meiners complains that “our great grandchildren will pay for it, since this piddly little project is part of the trillion-dollar deficit that we are unloading on future generations.” It’s obvious that, in general, Meiners does not agree with the Obama administration’s stimulus program. Fair enough. Certainly discussing the stimulus program’s potential flaws is worthwhile. However, it’s surprising that such an accomplished professor as Meiners would rely on such reductionist and cynical hyperbole to make his points. Jonathan A. Schein is CEO of ScheinMedia and publisher of MetroGreenBusiness.com

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Ron Ashkenas: Is Your Culture Too Nice?

August 24, 2010

Cross-posted from Harvard Business Online Do you avoid conflict? If you do, you’re not alone. Conflict avoidance is one of the most common characteristics of corporate cultures. At the same time it is one of the most pernicious and dangerous sources of unintentional complexity in organizational life. The tendency to avoid conflict — albeit inconvenient — is very human. Most people want to be liked and unconsciously fear that arguments, disagreements, or negative messages will create tension with people they interact with on a day-to-day basis. Compounded with the environmental pressure to respect authority and the organizational stress on teamwork, this creates a great deal of anxiety around stirring up trouble. Given these psychological and cultural forces, it’s no wonder that so many managers — from CEOs to shift supervisors — avoid conflict. Unfortunately this avoidance creates disconnects between business units, unnecessary revisions in project plans, and lower standards of performance — all of which complicate organizational life. Not long ago I worked with a well-known company that was struggling to grow in a difficult market. In talking with the executive team it was clear that each of the product divisions had put a lot of time into their growth plans — but they had spent little time aligning the plans with each other. As a result, R&D was uncertain about how to prioritize its projects, and centralized marketing dollars were spread around like peanut butter. There also were too many IT projects, most of which were under-resourced, and the sales force lacked focus. When I asked why the plans had not been better integrated, the excuse was that separate functions were expected to work it out amongst themselves. But in these “nice” cultures where people don’t regularly ask the tough questions, “working it out” never happens. This kind of conflict avoidance is not only prevalent in large-scale strategic discussions, but in day-to-day office interactions. We’ve all made decisions in meetings only to be undone later when a silent dissenter is found to disagree. And how many times have we heard about an employee jarred by a poor performance rating, simply because her boss had never given her honest feedback? One such conflict-avoiding company even asks project teams to run stakeholder “acceptance analyses” throughout the course of a project, in the hope that eventually everyone will get on board and the senior manager won’t have to directly tell anyone to cooperate. There is no easy formula for learning how to engage more effectively in constructive conflict. But here are three suggestions that may help you move in that direction: 1. Reflect. Look at yourself in the mirror and give yourself an honest appraisal of your readiness to challenge, give bad news, or otherwise create a degree of conflict. Can you think of situations where you should have spoken up but didn’t, or where you tempered your words too much? Are there any particular types of conflict you avoid more than others, such as pushing back on authority? 2. Get feedback. Talk to friends, family, or colleagues. What is their perception of your willingness to engage in conflict, and your ability to do it constructively? Ask them about specific situations or patterns that they might see but are not obvious to you. 3. Correct the problem — gradually. Do some experimenting, particularly in the areas that are habitually difficult for you. Try pushing back on a request from your boss that doesn’t make sense. Speak up in a project meeting when you don’t agree. Give someone feedback that you’ve been withholding. No matter what you do, start the conversation by saying that you are trying to get better at dealing with conflict situations, and that you hope this comes across constructively. This way, you will position yourself as speaking honestly and trying to learn — and not just picking a fight. Hopefully this will reduce your anxiety (and that of your audience), which will allow both of you to make the conflict more constructive. What’s your experience with avoiding conflict?

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David Isenberg: Thinking Outside the Nationalist Box: PMC and International Humanitarian Law

August 23, 2010

It may be hard to believe, given all the attention paid to the issue of legal accountability of private military contractors in recent years that there is anything left to say on the subject. From a U.S. perspective we have seen modifications of the Military Extraterritorial Jurisdiction Act and the Uniform Code of Military Justice. And since PMC is a global industry we have had the Montreux Document to describe international law as it applies to the activities of private military and security companies (PMSCs) whenever these are present in the context of an armed conflict. But are these sufficient for an ever changing and increasingly technological complex world? It seems unlikely. Adjusting rules and regulations to reality is a never ending arms race, with lawyers and legislators rushing to follow as PMC take on new roles. As a case in point consider the article ” The Status Of Private Military Contractors Under International Humanitarian Law ” published in the summer 2010 issue of the Denver Journal of International Law and Policy by Won Kidane, an Assistant Professor of Law at the Seattle University law school. As we should all hopefully understand by now PMC undertake a variety of functions. While some of these functions would give them clear lawful status under International Humanitarian law (IHL), some functions would put them in questionable status. Still other functions towards the opposite end of the legality spectrum would put them completely at odds with the law. Prof. Kidane offers some not so improbably hypothetical’s to help illustrate the ambiguities present in IHL. If a couple of air force military officers from India come to Bethesda, Maryland and receive training as to how to fly and use Lockheed Martin’s next generation F-35 and purchase a few of these aircraft and take them with them to India, no recognizable issues of IHL would arise. However, consider the following scenario. The training takes place in India close to the Kashmir border. Pakistan shoots down one of the training aircraft and the two states get into a small-scale armed conflict. Assume further that Pakistan captures three occupants of the aircraft that was shot down: two Indian trainees and one Lockheed Martin trainer. Would all of them be considered lawful combatants and as a result entitled to prisoner of war status? This is not as farfetched as it might sound. Consider the following real story. In 1999, when genocide was looming in Kosovo, NATO forces conducted an air attack against the Milosevic government. These attacks produced thousands of refugees and created humanitarian emergencies. Because the involvement of the United States in this conflict was not popular, the administration chose to involve the Texas-based private military contractor Brown & Roots (KBR). The company performed the following activities with efficiency: constructed temporary facilities on the ground that housed thousands of displaced persons from Kosovo; ran the supply system for U.S. forces in the area, including transportation of food and other supplies; constructed bases; and maintained vehicles and weaponry. Given the circumstances described above, there was a real possibility that Milosevic’s forces could have attacked one of the bases and captured some of KBR’s personnel while maintaining some of the military equipment or transporting some of the equipment and weaponry. Had this occurred, what would have been their status under IHL? Would they have been entitled to prisoner of war status? Would they have had combatant status or would they have just been persons accompanying the armed forces? Or would they even be considered mercenaries? Or consider this bit of Lockheed Martin advertising: From the depths of the oceans to the far reaches of space, we serve the Department of Defense and the intelligence community with leading-edge intelligence, surveillance and reconnaissance (ISR) systems for maritime, terrestrial, airborne, and space missions. Lockheed Martin is a leader in satellite imagery and information systems, air surveillance, radar, geospatial imagery, mission management, and ground system operations. Our focus is on providing joint and multi-agency organizations with valuable, effective ISR data for a diverse set of missions ranging from precision targeting to geographic mapping. According to Prof. Kidane: Nothing makes the performance of these activities illegal, even in times of war. However, if the information is gathered under false pretenses, the intelligence gathering would become espionage activity. The personnel engaged in the activity would be considered spies and as such unlawful per se. As a matter of law, not even members of the armed forces or combatants are immune from such designation, as long as they collect the intelligence under false pretense. The traditional way of collecting information under false pretense is usually wearing the enemy’s uniforms and infiltrating into enemy held territories. With the advancement of technology, however, intelligence gathering could be done by civilians sitting in their offices thousands of miles away from the frontlines. For example, a civilian contractor sitting in his office in Alexandria, Virginia could hack into the software of an enemy anywhere and obtain information for the U.S. military. If the hacker obtains the information under a false pretense, he would qualify as a spy. If a “cyber-soldier” does the same, he or she would likewise be considered a spy. Such designation could only have significance if the said individuals, the civilian or the soldier, fall into the hands of the enemy anytime thereafter. If that happens, however, the law does not treat the two individuals the same way. While the civilian may be prosecuted for the crime of espionage he committed in the past, the soldier is immune from such prosecution as long as he remains a member of the armed forces or rejoins the armed forces after engaging in the said activities of espionage. In other words, a soldier can be prosecuted as a spy only if he is caught in the act or before rejoining his unit. To the contrary, once a civilian is a spy, he is always a spy, and may be prosecuted anytime for any acts of espionage committed anytime regardless of his current status. Because of the foregoing, intelligence gathering is also an area of ambiguity that requires further reflection. Although technology based intelligence gathering would not ordinarily expose civilian contractors to danger, situations where such exposure could ensue is foreseeable. One of the KBR employees captured by Milosevic’s army in the example discussed above could easily be an intelligence analyst who had engaged in cyber intelligence gathering. There are several other illustrations but let’s move on to another point. Prof. Kidane notes that civil liability is perhaps more complicated than holding wrongdoers criminally responsible. In the U.S., there are limited avenues that victims may explore. One of the possibilities is a civil suit under the Alien Tort Claims Act (“ATCA”). ATCA grants federal courts jurisdiction over “any civil action by an alien for a tort only, committed in violation of the law of nations or a treaty of the United States.” But there are several seeming obstacles to prevailing in a civil suit against a private military contractor under the ATCA. In detailing just one Prof Kidane writes: The second obstacle is establishing a government connection. International obligations are often defined in terms of government accountability. For example, under the Convention Against Torture, acts of torture may only give rise to liability if they are committed by a public official or at the acquiescence of a public official. Consequently, to prevail under ATCA, the claimant must establish that the law of nations has been violated, and prove that there was a nexus between the injury and government conduct. Wherever private military contractors are involved, establishing a government nexus could be very difficult. For example, would private contractors hired by the Iraqi Coalition Provisional Authority (CPA) be considered to have been hired by the U.S. government or an Iraqi government? Or was the CPA a government at all? If the CPA is not a government, it would mean that there is no civil liability for private military contractors under the circumstances. These arguments are not hypothetical. For example, in a case against private contractor Custer Battles LLC for fraud under the False Claims Act, a U.S. federal judge set aside a jury verdict holding the company responsible for $ 10 million precisely because of the ambiguous nature of the status of the CPA during the initial years of the Iraqi invasion. The only issue in this case was the status of the CPA as a government entity and its relations with the U.S. n301 The government argued that fraudulent bills presented to the CPA could be considered to have been presented to the government of the United States because the CPA was created and financed by the United States to run Iraq and staffed by American personnel. However, despite this, the court held that the CPA was an international entity with an ambiguous status but may not be considered a part of the United States government. As such, the fraudulent documents submitted to the CPA cannot be considered to have been submitted to the United States. That meant that the private contractor was not held responsible for the fraudulent behavior despite a jury verdict determining the existence of fraudulent activities. Because this was the first test case, the ruling obviously rendered the dozens of others that were ready to be filed void ab inito [void from the outset], at least from the point of view of this particular basis of jurisdiction. Another example that demonstrates the obstacles that the private-government distinction might create is the D.C. Circuit’s June 2006 preliminary decision in Saleh v. Titan Corp. n307 In Saleh, several Iraqi nationals brought an action under the ATCA against the Titan Corporation, a private military contractor which provided interrogation and translation services in Iraq. They alleged that Titan’s personnel abused the claimants in violation of the law of nations. The court essentially held that the claimants did not sufficiently demonstrate the required degree of nexus between the private actors and the government. In other words, they did not show that they were operating under official capacity or under the color of law. Ironically, throughout history, it is in these types of ambiguous situations that the services of the private military contractors are needed the most. That is an additional reason why their legal status must be properly defined and their conduct properly regulated. Prof. Kidane concludes that those seeking to regulate PMC must in the end operate under IHL. Private military contractors will continue to complicate the equation relating to international peace and security for the foreseeable future. As their re-emergence is a twenty-first century phenomenon, their status as a unitary entity is not directly defined by international humanitarian law whose marked development preceded the advent of the post-Cold War era proliferation of private military contractors. However, international humanitarian law defines the status of each and every person involved in and affected by warfare. When private military personnel perform war-related activities, whether in the form of the design of precision weaponry from an office in Bethesda, Maryland, or in the form of transporting ammunition in Kosovo, or chasing terrorists in Afghanistan, their status at each given moment and place is well defined under international humanitarian law. Therefore, what could be concluded about the status of private military contractors under international humanitarian law is that it depends on what they do and where, when, and how they do it. That is precisely why attempting to regulate the industry as a whole without seeking guidance from international humanitarian law is often a futile exercise. This article has attempted to demonstrate the status of military contractors in a continuum. It highlighted not only the two extremes, the perfectly legal activities and clearly illegal activities, but also described the challenges involved in classifying certain activities, and attempted to show where the line must be drawn. As such, states that consider themselves bound by international humanitarian law should regulate the provision of military-related services by private parties using the standards set forth under international humanitarian law. The use of these standards would inevitably require a time, place, and manner regulatory regime.

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Katherine Warman Kern: Innovation Is Relative

August 23, 2010

In John Kao’s Book, Innovation Nation , he says: “breakthrough technologies regularly set the stage for staggering waves of innovation.” In other words, he is establishing that new technology isn’t innovation. It simply creates the potential for innovation. This is a critical distinction. What are the factors that make the potential created by new technology realized? Alan Patrick , an author of the Big Potatoes: The London Manifesto for Innovation , provides a summary of the research he did on the pace of innovation : ” . . . I looked at . . . the history of innovation over the last 100 years, from 1909 to 2009. If I had a hypothesis before starting it would be that there was an accelerating pace of innovation. The results — so far — tell me that is not the case, and it is probably cyclical. In fact, one could argue that innovation in 1909, 1949 and 1969 was greater than 2009.” Alan told me that my Grandfather (1989-1990) probably experienced more “Future Shock” than I have. But while discussing this with my Grandfather’s daughter ( my “early-adopter” Mother who rightly says she has been much more likely to try new technology than her father ever did), I understood what John Kao meant when he said that “Probably, the most widely shared misconception about innovation is that it’s all about science and high tech.” My grandfather really didn’t have a reason to be motivated to use many of the new technologies which emerged in his lifetime. As a dentist, neither the telephone nor air flight were critical to expanding his revenue potential. He had plenty of business in his hometown to fill his calendar. No need for conference calls by telephone. All phone appointments were made through his assistant. In fact, he was never comfortable talking to me on the phone even when I was hundreds of miles away. He preferred letters. So he didn’t experience so much “Future Shock.” In fact, when interviewed by the local NBC affiliate on his 100th birthday and asked what the most important advancement in his time was, his answer — “The forward pass.” Why would he think allowing the forward pass in American football was the most important advancement in his time when automobiles, air flight, telephones, radio, television, film, etc. were introduced? Because football was his passion. The memories he cherished the most from his life were when he played football for his college team (picture scenes from the movie, Leatherheads ) and coaching football as a high school teacher before he went on to study to become a dentist. This implies that a factor that transforms a new technology into an innovation is the reason to use it. In other words, innovation is relative to the reason as much as the technology. This makes sense when you consider that people need a reason to be highly motivated to leave behind what is comfortable to discover new possibilities. What are the reasons that disrupt the ambiguity of the pros and cons of risking something new? In a previous post, I gave the example of turning a loss into a positive . In a subsequent post, I discuss the evidence that innovators and creators are playing it safe because the perceived risks are too high to explore possibilities with unknown outcomes. Next I will explore examples of reasons that have motivated people to “disrupt the ambiguity” created by new possibilities.

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Howard Steven Friedman: Is China Poised for Implosion? What Would the Communist Manifesto Predict?

August 23, 2010

Deng Xiaoping probably would never have anticipated how quickly parts of China have fulfilled his words of “To be rich is glorious” yet he would be extremely concerned to see that the Chinese population policies and practices as well as the engine of capitalism appears to be creating a Marxian nightmare of bourgeois and proletariat. How can the incredible economic growth in China also lead to concerns about its political instability? In the last three decades, China has raced to become the world’s second largest economy yet questions about its political stability have arisen due to population trends and the high degree of inequality. The path to stability or instability is heavily paved with questions about China’s ability to maintain economic growth in light of wage pressures, unemployment/ underemployment of its exploding college graduate population, increasing social and health needs of its aging population and China’s projected declining support ratio. An economy that continues to grow at its current pace with minimal inflationary pressure would likely remain stable while slowdowns in economic growth or major increases in inflation would likely add gasoline to a smoldering fire of discontent. Concerning income inequality, Westerners often ask questions like “How is it possible for there to be such a high degree of inequality in China, which, until recently, fully embraced Communism?” and “Why should a country be concerned about having a high degree of inequality if the overall economy is growing?” History has answered the first question for us. Unadulterated communism, which consists of a classless society, has failed to thrive. Countries such as North Korea, which profess to be Communist while actually being authoritarian, create an upper class consisting of party leaders and party-connected individuals while ordinary citizens suffer. Now, for the second question, “Why should China be concerned about having a high degree of income inequality if its overall economy is growing?” When Deng Xiaoping famously said, “Let some people get rich first”, he probably didn’t anticipate that China would soon have the second largest economy in the world as well as the second highest income inequality of the world’s top 15 economies, behind Brazil. In fact, of China’s 10 neighboring countries where the UN estimates income inequality, China has the ninth highest level of inequality. High degrees of inequality are correlated with many issues in society and can ultimately lead to political instability as evidenced countless times in history. As Ole Schell, director of “Win in China” pointed out, “Mao’s revolution was born out of this same inequity and the Chinese government is trying to modernize the countryside in an effort to quell discontent.” While correlation does not mean causation, cross country data analysis such as that in The Spirit Level strongly suggests that unequal societies are more likely to have higher rates of murder and incarceration and lower levels of trust and social mobility. China’s wealth inequality reflects the fact that while a small percent of the population are benefitting greatly from the economic growth, that privileged population is largely confined to the educated and/or politically connected residents of major cities. Much attention has been focused recently at the fortunes made by the “princelings”, well-connected children of senior Communist Party officials who are benefiting financially from their political connections including Wen Yunsong (son of Chinese Premier Wen Jiabao) who co-founded New Horizon Capital and Jeffrey Li, the son of former Politburo standing committee member Li Ruihuan. While the princelings use their “royal” connections, a significant amount of China’s population is trapped in rural poverty or toilsome factory labor with minimal chances of social mobility. As Chinese workers clamor for greater pay and increased rights, factory owners pursue profits by seeking out areas with lower wage pressures (i.e. other parts of China, Vietnam, Bangladesh and other Asian countries). Safe and humane working standards, which laborers fought so hard for in the West, are often absent in developing countries like China, leaving workers susceptible to conditions which Western countries haven’t seen on a large scale in generations. Inequalities also exist within the workplace, where migrants often experience lower status, less job stability and lower wages than locals. This struggle between the working class and management/owners is a classic refrain of capitalist societies documented by Marx and Engels. Rural parents often see their children moving to urban areas to find factory employment where the income and opportunities usually exceed those available in their hometowns, but many question whether the quality of life is superior. Food and housing price inflation are reducing the purchasing power of factory worker’s compensation, making it more difficult to send savings to their families. In other circumstances, parents (and often grandparents) support their child’s college education only to later see that the graduate either can’t find work or the work didn’t require a college degree. From 1982 to 2005, the percent of the population with a higher education rose from 1% to 7% while the percent of white collar jobs rose from about 7% to less than 13%. Evidence of the job squeeze appears not only regularly on Chinese television but in the civil service exams where one million people recently competed for 15,000 openings. China’s income inequality and opportunity inequality will be driven to a sharp focus in the world of marriage and relationships. Due to a combination of sex selection and the natural tendency of more boys being born than girls, there are currently around 25 million more Chinese males less than 20 years old than Chinese women of the same age range. In the next few decades, this lack of female counterparts may result in more men emigrating, more women from neighboring countries immigrating to China and, will likely lead to many frustrated and angry Chinese males (where the unmatched men are more likely to be poor according to Professor Wang Feng, an expert in Chinese population demographics). For China to continue its growth rate, it will need to address inequality systematically and aggressively. The Chinese government is well aware of the upcoming financial pressures of the aging society with a declining support ratio. It is also attuned to the potentially explosive combination of having large number of men with limited social mobility and few job or family prospects. Maintaining the economic growth while addressing the population and inequality issues will be critical to whether China continues to drive a large part of the world’s economy or whether it becomes a textbook example of the destruction caused by class struggles.

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Robert Reich: Corporate Rotten Eggs

August 22, 2010

There are rotten apples in every industry. Or perhaps I should say rotten eggs. One especially rotten egg is Jack DeCoster, whose commercial egg agribusiness, which goes under the homey title “Wright County Egg,” headquartered in Galt, Iowa, sends eggs all over the country under many different brands. Those eggs have now laid low thousands of Americans with salmonella poisoning, and may well infect thousands more. DeCoster is recalling 380 million eggs sold since mid-May. Another commercial egg company, also headquartered in Iowa, and in which DeCoster is a major investor, is recalling hundreds millions more. It’s not clear how recall rotten eggs are recalled. They’re not like Toyotas. They’re already in our food supply. But this is only the beginning of the story. Thirteen years ago when I was Secretary of Labor, DeCoster agreed to pay a $2 million penalty (the most we could throw at him) for some of the most heinous workplace violations I’d seen. His workers had been forced to live in trailers infested with rats and handle manure and dead chickens with their bare hands. It was an agricultural sweatshop. Several people in Maine told me the fine wouldn’t stop DeCoster. He’d just consider it a cost of doing business. Evidently they were right. DeCoster’s commercial egg business has a record that would make a repeat offender blush. In 2003, DeCoster pleaded guilty to knowingly hiring undocumented immigrants (who don’t complain about unsafe working conditions, below-minimum-wage pay, and unsanitary facilities). DeCoster paid a record $2.1 million penalty for that one. In the 1990s he was charged by Iowa authorities for violating state environmental laws governing the runoff of manure into rivers. He continued to violate environmental laws so often that the Iowa Supreme Court approved an order barring him from building more hog structures. In 2002 the U.S. Equal Employment Opportunity Commission fined DeCoster’s operation $1.5 million for mistreating female workers. The charges included rape, sexual harassment, and other abuses. Earlier this year, DeCoster paid another fine to settle state animal cruelty charges against his egg operations in Maine. In other words, the current national salmonella outbreak is just the latest in a long series of DeCoster corporate crimes. He’s fostered a culture that disregards any law standing in the way of profits. Along the way, DeCoster has abused the environment, animals, his employees, and his customers. Corporations that play fast and loose with one set of laws are likely to cut corners on others. Look at Massey Energy Company, which owned the mine where 27 miners were killed several months ago. Massey also had a long record of law breaking, and had racked up an even longer list of alleged violations and settlements. Or consider BP, whose malfeasance even before the Gulf spill, included workplace safety violations, deaths, and other environmental disasters. When I was Secretary of Labor, Bridgestone-Firestone’s refused to install safety equipment resulted in the maiming or deaths of its workers in Oklahoma. A few years later, its faulty tires caused still more deaths. Some CEOs are just bad citizens, and the corporations they head get the message that the public be damned. Too often, though, one level or agency of government doesn’t know about corporate malfeasance turned up by another level or agency of government. This is especially true when violations are settled out of court, as is now common. Government doesn’t have nearly enough inspectors or lawyers to bring every rotten egg to trial. A national database of corporate crimes and settlements would tip off federal, state, and local inspectors to rotten eggs like Jack DeCoster’s agribusiness, Massey Energy, BP, Bridgestone Firestone, and other serial corporate offenders. Scarce inspection resources could be targeted at them rather than at the good eggs. Consumers could benefit as well. And the rot wouldn’t spill over to other companies now under competitive pressure to treat fines and penalties as the costs of doing business. Before we can get rid of corporate rotten eggs we need to know about them. This post originally appeared at RobertReich.org .

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Patricia Handschiegel: The New Power Girls: The Neglected Value Of Being One Thing To Some People vs Being Everything To Everyone

August 21, 2010

We live in a world where everybody wants to be everything to everyone. Mega-stores sell everything, online retailers carry endless merchandise, etc. It’s casting the widest net with the idea that it’s the best bet. In some ways, that may be right. But, there’s still something to the lost art of being one thing some people, or doing one thing well and owning it. That was one of the first things Sprinkles Cupcakes founder Candace Nelson had said when we met and chatted with her last year . Not only did Candace found the first-ever cupcake only bakery but also did it amidst plenty of naysayers who said such a think wouldn’t work. Candace stayed the course. Sprinkles is growing crazy fast – it just opened a new Chicago location. Candace is on the TV show Cupcake Wars. This was something that came to mind as I worked and played in Los Angeles this past week. In a world where everything’s expected to be super sized – ideas, audiences, etc., there’s still plenty of value in doing what you do well and nothing more. It was something that came up as I met and chatted with female founders Dana Foley and Anna Corinna of the favorite fashion company, Foley and Corinna . The duo talked about just that – they focused on what they did best and did it well. Today, they’ve branched into all kinds of new initiatives, including a new retail website that integrates editorial/blog content. But, they’ve stayed to what they do well in creating products their customers love — and its bode well for them as it has for many years now. Throughout the week I found myself thinking about it. It came to conversation while NPG co-creatore Meghan and I stirred Sensa cocktails and talked about life and business during the Breakthrough of the Year awards at the city’s Pacific Design Center. The event was presented by Crest 3D White and sort of played into the same theme I guess – the awards celebrate leading talent in film, TV, and other categories. In other words, doing what you do well and owning it. It’s a good lesson in how all kinds of businesses can and should operate. In today’s age as media companies scramble for the most eyeballs possible, it seems everybody has forgotten the lost value of owning a niche. The top niche magazine in most categories nabbed 50k readers – but it was 50k of the most targeted, engaged audience brands could get their hands on. It’s something that will likely come back in style in the coming years in business. But for many of today’s new modern women entrepreneurs and executives, it’s been the exact secret to their success.

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Janine R. Wedel: Shadow Elite: Selling Out Uncle Sam — Who’s Overseeing the Contractors?

August 19, 2010

Co-authored with Linda Keenan This is the third installment of a Shadow Elite series, investigating the game-changing effects of government contracting on the most vital government functions. How far does the crisis of government contracting oversight go? Apparently, it extends deep into some of America’s most hallowed ground: Arlington National Cemetery. The Army Inspector General and the Senate Subcommittee on Contracting Oversight this summer have issued scathing reports on mismanagement at Arlington which they say has resulted in hundreds, even thousands, of graves mismarked. Salon broke the story last year, and here are some of the findings confirmed by government investigators. The cemetary OK’ed multi-million dollar IT contracts but didn’t have an acquisition strategy. No contracting officer was stationed at the cemetery. A cemetary official served as de facto contracting officer for the technology upgrade, though he was not trained in that role. Contracting officers up the command chain usually just rubber-stamped whichever company cemetery officials recommended. That de facto official was the government’s point man on dozens of contracts that Army investigators say wasted more than $5.5 million and came up with no working database to track grave sites. In the words of subcommittee head Sen. Claire McCaskill (D-Mo.): We know that nearly every possible problem in contracting occurred, and consequences are appalling….I’m looking forward to talking with those responsible. Just who is responsible? Of course cemetary management is taking the heavy knocks but the Arlington case is also a symptom of a far bigger, government-wide crisis in the capacity to adequately oversee contract work. Janine studied this as part of her research for her book Shadow Elite , and in a follow-on study (supported by the Ford Foundation),  Selling Out Uncle Sam: How the Myth of Small Government Undermines National Security , that’s just been released.  In theory, contracts and contractors are overseen by government employees who would guard against abuse, but there are simply not enough of them to keep up with all the outsourcing. In a 2008 survey of federal acquisition professionals, one respondent described the perception that contract officers have gone extinct, that they are “….as rare as white Siberian tigers.” That’s an overstatement of course but the numbers are not encouraging. The number of civil servants who could potentially oversee contractors fell during the Clinton administration and continued to drop during the Bush administration. The contracting business boomed under Bush, while the “acquisition workforce”–government workers charged with the conceptualization, design, awarding, use, or quality control of contracts and contractors–remained virtually constant. In 2002, each federal acquisition official oversaw the disbursement of an average of $3.5 million in service contracts. In 2006 the average workload expanded to $7 million and, in 2008, to $10.6 million, while also demanding of the workforce increasingly complex contracting skills. One big area of concern: the Department of Defense, where the number of procurement professionals has been shrinking since the early 1990s, even as the volume of contracts (both the numbers of contracts awarded and the value of these contracts) has risen rapidly. This disproportion puts the government at risk of losing control over mission-related decisions and the decision-making process, the Government Accountability Office has concluded. Government officials are made responsible for not only properly awarding contracts, but also supervising and evaluating the performance of contractors on the job. There is not enough capacity for them to do all this effectively. As the U.S. Comptroller General expressed: At the same time procurement spending has skyrocketed, fewer acquisition professionals are available to award and–just as importantly–administer contracts. Two important aspects of this issue are the numbers and skills of contracting personnel and DOD’s ability to effectively oversee contractor performance. The Comptroller General concluded that “The acquisition workforce faces serious challenges” in such matters as “size, skills, knowledge, and succession planning.” The issue of oversight is further complicated by the multiple layers of contracting and subcontracting that are endemic to the contracting system. Large contracting projects typically farm out areas of work to multiple subcontractors. While the practice makes sense in terms of assembling a variety of competencies in one project, it further distances government monitoring from the work being done and the ability to assess it. In sum, when the number of civil servants available to supervise government contracts and contractors proportionately falls, thus decreasing the government’s oversight capacity, and when crucial governmental functions are outsourced, government begins to resemble Swiss-cheese–full of holes. The governance landscape becomes vulnerable to personal and corporate agendas and to operations that are less than in the public interest. Certainly the public interest hasn’t been served at Arlington National Cemetary, and in fact a criminal probe has reportedly been launched. But it seems likely that simple, perfectly legal mismanagement and poor oversight was a key culprit here: cemetary officials saw their budget nearly double in less than 10 years, an increasing portion went to contractors, they were not trained to deal with contractors and they did not have a strategy before handing out the deals. This is a disturbingly familiar story in various corners of federal government. The difference here is that faulty oversight has led not just to waste and inefficiency, but real heartbreak for hundreds of families whose loved one or ancestor served their country, and assumed, in the end, that their country would do the same for them. They assumed wrong.

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Brett King: The Shrinking Value of Bank Branches…

August 19, 2010

I don’t know about you, but my time is one of my most valuable assets these days. I work long hours, I travel a lot, when I’m home I am struggling to find quality time (and quantity) with my kids, and I am increasingly trying to eek out a few minutes each day for myself. So anything that adds an additional demand on my time, better be worth it. So when a bank asks me to come down to the branch, or even presumes that I want to visit the branch – the question really is Why would I visit a branch? Read this personal finance ‘forum’ comment from a customer in respect to the branch. This sort of thing is increasingly common these days, and is representative of many customers these days: I’m a full time worker and rarely have the time to get out of the office during the day to eat, let alone do my banking. Last week I finally got my act together and booked an appointment to see my local in branch advisor for an account review – more in their interest than mine I would have thought. Anyway, when I arrived the queues back from the counter seemed endless, not enough staff behind the desk; nothing seemed to be moving AT ALL – and, tear my hair out time – the advisor turned out to be off sick that day!!! Why did no one bother to call me to let me know? No one seemed able to give me an answer. The experience has left me wondering why I bother having a local branch at all. It also made me realise that I’m actually pretty happy doing all my banking online or on the phone. So can someone tell me, WHAT is the need for a ‘local’ bank branch these days exactly? They seem a complete waste of space if you ask me… sezzie33 – MoneySavingExpert.com Forums Deloitte’s Centre for Banking Solutions attempted to answer why customers were less interested in the branch experience in this way… For decades, most people visited the branch for credit approval, to conduct transactions, learn about products and services, and for customer service. However, most credit approval processes moved out of branch networks over a decade ago. Today, many of the core transactions that were once conducted in branches are shifting to electronic forms or are being captured elsewhere. Adapting to a changing environment Evolving Models of Retail Banking Distribution, 2009 So with seemingly a real psychological challenge to why I would invest the time to visit my branch, and with a shift of core transaction types outside of the branch – what is the value of the branch today? The value exchange concept At the heart of marketing and customer theory is a concept of an exchange of value that occurs between two parties, this is compared with the intrinsic value that lies at the heart of a product, service, relationship, etc. In fact, believe it or not Karl Marx was one of the first to recognize this concept in his 1859 Contribution to the critique of Political Economy . It is the exchangeability of ‘value’ that contributes to economic interactions in society. But value has they annoying habit of changing over time. Take two examples of modern businesses whose value exchange has shifted. Pay Phones versus Mobile Phones I was in New York City for the BANK 2.0 launch a couple of weeks ago and I when I was walking the streets I saw something that I can’t recall seeing for, well years actually – a New Yorker using a public phone. Yes…a public phone. They still exist in small numbers in various locations – but the numbers are dwindling. Pay Phones are going the way of the Dodo – are branches next? The reason that Pay Phones are simply not popular anymore is that it is just far too convenient to carry around your mobile phone. Let’s face it. If you meet someone today that doesn’t own a mobile in the western world, it is somewhat anachronistic. So if you are a telephone company, how would you defend the ‘value’ of using a Pay Phone in today’s modern society? It’s tough… there certainly is no value proposition that is unique. In times past you’d say it was about convenience, but with mobile phones you could hardly defend the convenience of Pay Phones. Thus, Pay Phones are already virtually extinct. Blockbuster versus NetFlix If you are a Blockbuster Franchisee right now, you must have a pretty pessimistic view of the world. Blockbuster sprang into existence in the mid-80s to compete with the small mum and pop video stores which were around back then. Today Blockbuster operates about 6,500 video stores, serving more than 87 million customers in the United States, and 25 other countries. The thing is, that today with digital distribution through vehicles like iTunes, Hulu, Amazon, Playstation, Wii, etc and with NetFlix’s approach to both digital distribution and DVD-in-the-post, Blockbuster is in severe trouble. Blockbuster has already closed 1,300 stores last year, and has announced another 545 stores will close this year . However, this is just the start – in the near term physical stores for Blockbuster just don’t make sense. In terms of value – physical brick-and-mortar stores are no longer the mode we’ll get our content. We’re using cable with video-on-demand, and we’re downloading. There is a decreasing legacy business built around physical DVDs and Blue-Ray, but it is just a matter of time before this disappears entirely. In other words, when there is a modality shift like there has been around delivery of movie content – the value of the store in the process evaporates. The value has shifted in respect to branch Metro bank’s recent foray into the UK market has been hailed as the first new High Street bank in 100 years. The bad news is that like Pay Phones and Blockbuster, banks are really struggling to define the ‘value’ in the branch as modality in banking changes. The concept of queuing for even five (5) minutes these days is a negative (David Meister wrote on The Psychology of Waiting Lines also) – the longer the waiting time, the more serious the impact to customer service perceptions. If you don’t believe me – just check out a simple Twitter Search on what people are saying about queuing at banks ( Twitter Search “bank queue” ). In 2006, the European Banking Federation reported that a wait of more than 5 minutes was likely to jeopardize the entire relationship. McKinsey, in a whitepaper of 2007, still believed it was possible to increase value in-branch, by managing the customer experience as a whole. Conclusions… The reality today is that it’s increasingly hard for customers to understand why they should exchange their time for a lengthy, time-costly visit to the branch, when the value returned is poor. Having the ability to cash a cheque, apply for a loan or pay a bill is not a sufficient reason to give up my time at a branch, especially if I have to ‘wait’ in a queue. The reality is, that I can do those same things outside of the branch, which results in a much more efficient value exchange. So if you are in retail distribution for banking today – think about what value you offer. If it is anything I can do from my mobile phone, through the internet, on an ATM or a deposit machine – this has NO value in the branch. What does have value? A human interaction that can’t be replaced through digital channels – a deep advisory, sales engagement, with highly qualified staff (read not tellers ) What are you going to give me for my time? If you think I’m talking trash and the branch has some intrinsic value on its own, you probably are voting for mobile phones to disappear in favor of good old pay phones too…

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