Archive for the ‘business’ Category
Here is what I would like to see. The universe needs to move along two different timelines after election day 2012. In one universe Romney wins; in another Obama. Those who voted for Romney must live in the timeline in which he won. Likewise for the Obama supporters. Let’s also assume that after four years each universe has a window into the other.
Here is my bet. Those in the Romney universe who are not wealthy, who are middle class, women, minorities, students, working people, etc., will curse the day that they voted for Mitt. They will discover that he deceived them. That his five point plan went nowhere. That it wasn’t really a plan. The government will be locked in battles as Romney tries to placate his extreme right-wing. Insurance companies will not have to cover those with pre-existing conditions. Students will have less options to pay for college. The wealthy will be doing better than ever and middle class folks will be stuck just where they are (or worse). The next generation will not be able to count on Medicare and Medicaid as they do today.
How can this be? Mitt’s a businessman, a financier. He will know how to fix the economy. Get things moving again. But there is no evidence that business skills translate into being a good president, especially in terms of the economy. Knowing how to make money in the private sector is simply not the same thing as governing. For what it’s worth, let’s look at the record here. We have had three presidents who were businessmen in the last 60 years: Jimmy Carter, George Bush I, and George Bush II. Carter was a peanut farmer. Bush I was in oil, and he also served in the government. Bush II was a businessman with the same degree from the same school as Romney. Each of these presidents had significant problems with the economy, and Bush II was a dramatic failure. (As a matter of fact, try to name one truly successful president who was a businessman. Perhaps Truman. But I don’t know if running a haberdashery for a short time counts. And farmers and landowners in the 19th century are just not what we think of today as businessmen.)
And what did Mitt’s business experience do for the people of Massachusetts? Oh, he would have you believe he helped create a marvelous economy in the state. But here is actually what happened.
“Unlike Obama, Romney took office during an economic uptick. Massachusetts had a net job growth of 1.4 percent under Romney. However, that was far slower growth than the national average of 5.3%. As Romney’s opponents have frequently, and correctly, noted, Massachusetts ranked 47th in job growth over the entirety of Romney’s term. The only states that did worse: Louisiana, Michigan and Ohio.” [Fact Check, USA Today, 1/5/12]
And what will the Obama universe look like? In the Obama timeline Medicare, Medicaid, and student loans will all be protected. Insurance companies will cover pre-existing conditions and thirty million more Americans will have coverage. Baring a world financial meltdown, the economy will continue to improve and the wealthy will pay a fairer share of the nation’s taxes. The debt will gradually decrease as a proportion of GNP as the economy turns around and reasonable cost cutting measures are put in place. We have seen this universe. It’s the one we are beginning to live in.
What Mitt is really good at doing is selling himself, and he certainly will change his positions in order to do so. But before you vote for this man for any season, try playing the parallel universe game.
[Thanks to a commentator on a newspaper article who suggested that country should split based on which states went which way in the election, that is, people should be forced to live under the president their state voted for. Not exactly my idea here, but close. Sorry that I don't recall where I saw the comment. I read a lot of them.]
One doesn’t need a Ph.D. in economics to know certain facts about the current state of America’s economy:
1) Unemployment continues to be a serious problem not only for the unemployed but for the economy as a whole.
2) Consumers are skittish about spending money, so they can’t help drive an economic recovery.
3) In response to fears about unemployment and the economy, consumers are paying off debt.
4) Reducing debt may be a a good thing for individuals and for the economy in the long-term, but when too many people do it all at once it leads to less goods and services being bought, which reinforces and helps sustain a recession or a weak recovery.
5) Many of the largest corporations in America are sitting on huge sums of cash. Among the reasons for not investing it and hiring new employees: aversion to risk, preoccupation with the current bottom line, and hefty profits through making current employees more productive, that is, making them work longer and harder.
Enter the Bank of America. You know, the corporation that American taxpayers shelled out 45 billion dollars to rescue. Its past and current behavior exemplifies the failings of many giant corporations to do the right thing in national crises. Make no mistake about it, the way that the Bank of America mistreats its customers is bound to reinforce exactly the types of behavior that will maintain the economy in its present anemic state.
Let’s take the story back a few years. It seems that for several years the Bank of America has been arbitrarily raising interest rates on its credit card customers. Here is an excerpt from an article on MSN from BusinessWeek, February 2008.
Credit card issuers have drawn fire for jacking up interest rates on cardholders who aren’t behind on payments but whose credit scores have fallen for other reasons. Now, some consumers complain, Bank of America is increasing rates based on no apparent deterioration in their credit scores at all. The major credit card lender in mid-January sent letters notifying some responsible cardholders that it would more than double their rates to as high as 28%, without giving explanations for the increases, according to copies of five letters obtained by BusinessWeek. Fine print at the end of the letter — headed “Important Amendment to Your Credit Card Agreement” –- advised calling an 800-number for the reason, but consumers who called say they were unable to get a clear answer. “No one could give me an explanation,” says Eric Fresch, a Huron, Ohio, engineer who is on time with his Bank of America card payments and knows of no decline in the status of his overall credit….But Bank of America appears to be taking an even more aggressive stance because, beyond credit scores, it is using internal criteria that aren’t available to consumers. That makes the reasons for the rate increases even more opaque….Analysts also say they are surprised by the magnitude of the rate increases Bank of America is imposing on affected cardholders.
You can find stories all over the web about Bank of America’s bad behavior regarding its credit card customers. Recently it appears that BofA has accelerated the use of one of its strategies: arbitrarily reducing the credit limit of customers who have very good credit histories, pay on time, and pay more than the minimum. The deal goes like this: You borrow an amount from BofA at a good interest rate. After a few months you get a call. You are told that your credit limit is being reduced to almost exactly what you owe. When you ask for an explanation, you are given transparently bogus reasons. And there is no appealing the reduction. This action is unfair to credit card customers because it can adversely affect credit scores. Consumers now appear to be maxed out on their cards when 24 hours earlier they had a nice cushion. A lawyer in California became so incensed about this practice and arbitrary increases in interest rates that he threatened to sue the BofA. The story can be found in the Huffington Post, January 2010. An excerpt:
“Banks have done really well figuring out ways to screw people without making themselves legally liable,” said Ira Rheingold, director of the National Association of Consumer Advocates. “I think [the limit reduction] is another example of Bank of America’s venality. Whether or not it’s a successful lawsuit, I don’t know. Whether I think it ought to be challenged — absolutely.”
But maybe Bank of America is just trying to do what is best for its shareholders. That’s often what you hear when companies are challenged about their executives’ pay or other practices. Yet BofA doesn’t seem too keen on giving its shareholders a say in the pay of its executives. For example, a Los Angeles Times headline on February 23, 2010 announced:
Bank of America resisting shareholders on executive pay. . . The bank is working to keep investor proposals on executive compensation off the ballot.
The machinations of BofA are sad stuff. The resulting likely behavior from customers with reduced credit lines: pay off debt more quickly and spend less money in the marketplace. Of course this will only help to extend the anemic recovery. The fact is that the actions of leading banks and corporations have often not been good for the economy. They rant and rave about taxes and the federal government, but it’s a shell game. (Banks and their supporters will tell you that the reason they are not loaning is because of federal regulations. BofA is currently sitting on 172 billion in cash.) The intense preoccupation of corporations with the bottom line (and the well-being of their executives) has left millions of Americans un- or underemployed. The way that credit has been handled, for example, has increased the fear that we will never come out of this downturn, which will only help to prolong it.
Socialism is no threat. Corporations only looking to the bottom line, which in times such as these is downright unpatriotic, are a threat. It’s time for companies that have done so well in America to stand up and sacrifice for America. We are not asking you to become charities, although you were willing to take our charity when you needed it. We are asking you to spend some money, damn it, and put people back to work, even if it’s not the absolutely best thing for your corporation’s current bottom line….and stop harassing responsible citizens while you do it.
Oh, and just in case you might be worried about the well-being of the former Chairman of BofAm, Ken Lewis, here is what ABC news reported regarding his retirement pay in 2009.
Outgoing Bank of America CEO Ken Lewis’ nearly $64 million retirement pay puts him ahead of most, though not all, fellow major bank CEOs who have left their institutions during the financial tumult of the last two years.
Nostradamus meets the Grim Reaper
This is an actual headline from an article posted on Bloomberg (News) at 7:21 this evening, September 1st, 2010: Economy Avoids Recession Relapse as Data Can’t Get Much Worse
The first lines of the article explain:
The U.S. economy is so bad that the chance of avoiding a double dip back into recession may actually be pretty good. The sectors of the economy that traditionally drive it into recession are already so depressed it’s difficult to see them getting a lot worse, said Ethan Harris, head of developed markets economics research at BofA Merrill Lynch Global Research in New York. Inventories are near record lows in proportion to sales, residential construction is less than half the level of the housing boom and vehicle sales are more than 40 percent below five years ago.
This is not from a skit on Stewart of Colbert. This is from a leading publication on business on a day that the Stock Market rallied. (I wonder what they will be writing when it retreats, again.) So, let’s get this straight. We are not going to have another recession, the dreaded double-dip, because things are already too bad to have one. How then do we characterize our current economy? Oh, I could think of a few words, but so can you, dear reader.
Things can get worse. Here’s the ticket: The Republicans win the House this fall and things completely stall out as the GOP offers (once again) the panacea of tax breaks for the wealthy as the cure for our economic ills.
(Btw, the name of the person featured on this $10,000 bill is Salmon P. Chase. If you don’t believe me, click here. He was a Secretary of the Treasury and a Chief Justice of the Supreme Court. Coincidence. I think not.)
So, you think of yourself as an honest soul. You understand that stealing property or money is wrong. You wouldn’t do it. You wouldn’t want your kids or friends to do it. It’s unthinkable. But I have a proposition for you.
Here is a button. All you have to do is press it and $100,000 will be transferred from Goldman Sachs, BP–or any other giant corporation whose resources are larger than most countries–into your bank account. Nobody will ever know. It’s a magic button. Well, not really magic. Some geek has wired it in a fashion so that money can be transferred to your account without anyone being able to trace it–in the tradition of how derivatives were traded.
Just think of how much money Goldman Sachs and its executives made in the last few years as the Market tanked, while you probably lost money in your hard-earned retirement account. Not only did you recently lose money, but if you had invested $1,000 dollars eleven years ago in the Dow, that’s just about what it would be worth today, $1,000 (less if inflation is factored in). But you know, and I know, how much money these guys have made trading your money and my money. But that’s capitalism, you say. It’s the way the game is played.
But would you push the button? Would you be tempted to do it? Or perhaps a better question: how many of your fellow Americans do you think would be tempted? A lot, right? (Or an even better question, how many more would push it today than ten or twenty years ago?)
The recent Melt Down on Wall Street, and the ensuing profits made by big trading firms and banks, have been corrosive in ways that we may not fully understand for years. You’ve got Tea Baggers screaming about Washington, but the revelations about how Wall Street operates have buried themselves deep in our collective subconscious. Real damage has been done. Yes, we knew that there was big money out there and that big money corrupts. (Before the present Melt Down, there was Enron and assorted other travesties.) Yet “knowing” is one thing. Seeing it in front of your eyes day after day, year after year, undermines confidence that the system is anything close to fair. Yes, Obama has attempted to tame Wall Street with new regulations. They will do some good. Yet as long as we continue to see different rules of the game for a small strata of society, which is indeed what we have seen, our belief in the benefits of capitalism will be undermined by a gnawing sense that it is corrupting us, our children, our society. From a sanctified economic system, it will become what we have to put up with, sort of like the Roman emperors in Imperial Rome. It won’t go away anytime soon but we aren’t going to feel good about it.
There was a time in American business when many people believed that a handshake was as good as a contract, or so I am told. People kept their word. It now seems that handshakes still function in this manner for a small elite segment of corporate America that makes deals for unimaginable sums. The rest of us can’t depend on them when we deal with companies. (How about a handshake between you and your medical insurance company to guarantee your coverage? Any takers?) The middle class will need more and more contracts and lawyers to protect them in an economy in which money has gone wild. And they will have relatively less money to hire these lawyers.
No doubt there are problems with the way government functions. But anyone who thinks that this is the major source of the declining confidence in how our society works really needs to look at Wall Street with suitable eyewear. The business of America is no longer doing business but being given the business.
In the New York Times on Sunday, January 24, 2010, Thomas Friedman writes in his piece, “More (Steve) Jobs, Jobs, Jobs, Jobs,” about programs that can be helpful in getting the economy moving. For example,
Obama should make the centerpiece of his presidency mobilizing a million new start-up companies that won’t just give us temporary highway jobs, but lasting good jobs that keep America on the cutting edge. The best way to counter the Tea Party movement, which is all about stopping things, is with an Innovation Movement, which is all about starting things.
Fine. Let’s support programs that can provide education and opportunity. But Friedman also gives the president some advice.
Well, here’s my free advice to Obama, post-Massachusetts. If you think that the right response is to unleash a populist backlash against bankers, you’re wrong. Please, please re-regulate the banks in a smart way. But remember: in the long run, Americans don’t rally to angry politicians. They do not bring out the best in us. We rally to inspirational, hopeful ones. They bring out the best in us. And right now we need to be at our best.
This is a bad piece of political advice. It pretends that one can decontextualize a politician’s responses and hides behind the phrase “in the long run” in order to do so. President Franklin Roosevelt sounded pretty angry when he spoke to the nation about the Japanese attack on Pearl Harbor—you remember, “a date which will live in infamy.” And then there was his cousin, Theodore. He got pretty angry at those old monopolies in order to help pass some progressive anti-trust laws. In general, can you imagine how the American people would react if an American president did not get angry at a perceived threat, domestic or foreign, to the well-being of the nation?
To say that Americans don’t rally in the long run to angry politicians is one of those innocuous truisms that mean little in the real political world, for everything depends on what one means by “the long run.” (As Keynes said, “in the long run we’ll all be dead.”) In the short run, and medium runs, the American people surely do rally to an angry president, as long as they can connect with the anger. They also rally to presidents who know when to get angry and when to be inspirational. (Presumably this would mean getting angry on and off, so it would sort of be in the long run.) Oh, yes, and then there are those presidential moments that combine anger and inspiration.
Since the statement about anger is so obviously off the mark and hackneyed, one might be inclined to look for some other motivation for Friedman tossing it out. Here’s my guess. Friedman is scared that if Obama goes too far in attacking the bankers a rift may develop between his administration and the wonderful world of capital. And then America may find itself falling behind foreign nations in the new flat world of economic competition that we face. According to Friedman, entrepreneurs, who at some point will require capital, are the movers and shakers in this world, and it will be a pretty scary place for those places and persons who aren’t on board in terms of the new world order.
But back home, in the meantime, Obama only gets to use the bully pulpit with one hand tied behind his back while he is trying to back Wall Street down. (Note Machiavelli here: it is better that the prince be loved and feared.) Friedman wants Obama to re-regulate the banks. In the real world of American politics just how is he supposed to accomplish this without some heavy duty support in Congress? And given the special interests standing in the way of reforms, you can kiss them good-bye if the American people don’t get sufficiently excited about the issue to get their representatives worried about reelection.
I have a piece of advice for Mr. Friedman and I hope that he won’t mind. It is in the spirit of his advice to the president: Don’t worry! Obama won’t forget about being loved over the long run.
UPDATE, January 27, 2010
For readers who may have felt that I was being a bit unfair to Friedman by claiming that he may have been motivated by fear, I suggest that you check out his column today, “Adult’s Only, Please.” Here is an excerpt. Catch the last line. (He does acknowledge that Obama might be justified in being a bit peeved by the way some on Wall Street have behaved, but hey, just let’s not make them too angry. And if you do, well, you are not being an adult, which of course Friedman is.)
Lately, we’ve seen an explosion of situational thinking. I support the broad proposals President Obama put forth last week to prevent banks from becoming too big to fail and to protect taxpayers from banks that get in trouble by speculating and then expect us to bail them out. But the way the president unveiled his proposals — “if those folks want a fight, it’s a fight I’m ready to have” — left me feeling as though he was looking for a way to bash the banks right after the Democrats’ loss in Massachusetts, in order to score a few cheap political points more than to initiate a serious national discussion about an incredibly complex issue.
President Obama is so much better when he takes a heated, knotty issue, like civil rights or banking reform, and talks to the country like adults. He is so much better at making us smarter than angrier. Going to war with the banks for a quick political sugar high after an electoral loss will just work against him and us. It will spook the banks into lending even less and slow the recovery even more.
I am a professor by trade. I like the idea of making people smarter (or perhaps I should say, better educated), especially over the long run. But I think we all know the danger of coming off like a professor discussing fire codes while the house is burning down.
Here you have Professor Irving Fisher after the 1929 Market Crash explaining that stocks were not actually too high; it was just that people were going into debt in order to invest. Right and wrong. Stocks were too high and there was too much investment that involved debt.
And here we are eighty years later and we all know who took on too much debt in order to make bundles of money. How come you didn’t you listen to Professor Fisher, financial wizards of Wall Street? Perhaps because you were able to take the money and run? (Or not even run. Just wait for another bonus as the smoke cleared.)
We have all wondered how the financial wizards down on Wall Street managed to help tank the economy. No doubt creative accounting played a substantial role. This clip will explain to you, in a straightforward and easily accessible fashion, just how simple creative accounting can be.