A little comment(ary)...

Our view on consumer protection: Unsafe products overwhelm emaciated safety agency
USA Today

In the spring of 2005, a baby was strangled by a defective crib inCalifornia, and a Texas woman collapsed after she used a can of spraysealant to treat kitchen and bathroom tile.

What links the cases is not just dangerous products and companiesthat did not move to quickly recall them, but the tragicallyineffective response of the government agency responsible for actingwhen companies do not: the Consumer Product Safety Commission (CPSC).

Begun in 1973 in a wave of consumer protectionism, the commission is overwhelmed and understaffed. It investigates barely 10%-15% of the reports it gets of product-related deaths and injuries. Its staff has shrunk to about 400, from a peak of 978 in 1980. The huge recalls of lead-tainted toys from China this year revealed that the agency's primary full-time, small-parts toy tester is a guy named Bob.

http://news.yahoo.com/s/usatoday/20071023/cm_usatoday/ourviewonconsumerprotectionunsafeproductsoverwhelmemaciatedsafetyagency;_ylt=AmYaluoRdUqUa4ikyspLfCCs0NUE

Preventing the Death of Customer Care
By Bruce Weinstein, PhD
Business Week

In a recent column I argued that outsourcing customer service (BusinessWeek.com, 9/27/07) is unethical and bad for business because of the poor experience many customers end up having. But there is another problem in business today that is not only much more pervasive than the outsourcing of customer service -- it is also more insidious.

The problem is the increasing reliance on the Internet to meet the needs of customers.

I'll explain the various facets of this problem through the story of how I've tried, over the past several weeks, to buy a new office desk.

The Big-Box Blues

I've needed more spacious office furniture for a while, so I visited the local big-box office supply store, which I will call Grommets. After entering the cavernous building, the first challenge was finding a "customer care" associate. Even though there were few other customers in the store and it was the busiest shopping day of the week, it was hard to find anyone who actually worked there. When someone finally showed up, I told him that I'd like to buy a desk.

http://news.yahoo.com/s/bw/20071030/bs_bw/oct2007ca20071025571040;_ylt=AjsqL.UC2npIyoVAO.evvois0NUE

Let Us Now Praise Power Brokers
By Steven Pearlstein
The Washington Post

It was a quintessentially Washington moment:

There, in the Ritz-Carlton ballroom Monday, stood Vernon Jordan -- the political insider, corporate networker and financial rainmaker, tall and impeccably turned out -- presiding over his last meeting as head of the Economic Club of Washington.

During his four-year tenure, Jordan had used his incomparable connections to bring the heads of J.P. Morgan Chase, Kohlberg Kravis Roberts, American Express, Pfizer and General Electric, along with the secretary of the Treasury, the chairman of the Federal Reserve and the president of the United States, to speak to 400 of the city's top business executives.

Now, for his final act, Jordan had reached beyond the Old Economy establishment and snared the chief executive of Google, the hottest company on the planet. Jordan had met Eric Schmidt the year before at Bilderberg, the super-secret gathering that falls between Davos and Bohemian Grove on the calendars of the global elite. By the end of that three-day meeting in Istanbul, Jordan had snared his final speaker.

Depending on your point of view, Jordan represents everything that is right or wrong with Washington.

To the cynical and conspiratorial, Jordan epitomizes the clubby and back-scratching Washington power broker, an amoral fixer who uses his web of connections to enrich himself and his clients while corrupting the political process.

But to those who know him, Jordan is a good friend and generous colleague who does well only by doing good. He follows in a long line of super-lawyers -- Harry McPherson, Clark Clifford, Bob Strauss and Lloyd Cutler -- who moved as gracefully in the government as they did in the corporate boardroom, serving as counselors valued for their wisdom and discretion.

So, which is it: Are Washington power brokers good or bad for the system? Apparently, we can't decide.

We never could in the case of Jordan, whose friendship with Bill Clinton was the source of never-ending controversy, starting with his chairmanship of the Clinton transition effort in 1992 and ending with a special prosecutor's investigation into his job-placement activities on behalf of White House intern Monica Lewinsky. Nothing unethical was ever uncovered.

http://www.washingtonpost.com/wp-dyn/content/article/2008/06/12/AR2008061204008.html?wpisrc=newsletter

A Baffling Global Economy
By Robert J. Samuelson
The Washington Post

We've been having the wrong discussion about globalization. For years, we've argued over whether this or that industry and its workers might suffer from imports and whether the social costs were worth the economic gains from foreign products, technologies and investments. By and large, the answer has been yes. But the harder questions, I think, lie elsewhere. Is an increasingly interconnected world economy basically stable? Or does it generate periodic crises that harm everyone and spawn international conflict?

These questions go to the core of a great puzzle: the yawning gap between the U.S. economy's actual performance (poor, but not horrific) and mass psychology (almost horrific). June's unemployment rate of 5.5 percent, though up from 4.4 percent in early 2007, barely exceeds the average of 5.4 percent since 1990. Contrast that with consumer confidence, as measured by the Reuters-University of Michigan survey. It's at the lowest point since 1952 with two exceptions (April and May 1980).

Granted, the present U.S. economic slowdown -- maybe already a recession -- stems mostly from familiar domestic causes, dominated by the burst housing "bubble." The Bush administration's rescue of Fannie Mae and Freddie Mac, the struggling government-sponsored housing enterprises, is the latest reminder. Still, global factors, notably high oil and food prices, have aggravated the slump. The line between what's local and what's global seems increasingly blurred, and there is a general anxiety that we are in the grip of mysterious worldwide forces.

The good that globalization has done is hard to dispute. Trade-driven economic growth and technology transfer have alleviated much human misery. If present economic trends continue (a big "if"), the worldwide middle class will expand by 2 billion by 2030, estimates a Goldman Sachs study. (Goldman's definition of middle class: people with incomes from $6,000 to $30,000.) In the United States, imports and foreign competition have raised incomes by 10 percent since World War II, some studies suggest. Job losses, though real, are often exaggerated.

But a disorderly global economy could reverse these advances. By disorderly I mean an economy plagued by financial crises, interruptions of crucial supplies (oil, obviously), trade wars or violent business cycles. This is globalization's Achilles' heel. Connections among countries have deepened and become more contradictory. Take oil producers. On one hand, high oil prices hurt advanced countries. But on the other, oil countries have an interest in keeping advanced countries prosperous, because that's where much surplus oil wealth is invested.

http://www.washingtonpost.com/wp-dyn/content/article/2008/07/15/AR2008071502428.html?wpisrc=newsletter

Throwing Honesty Out the Window
By Sebastian Mallaby
The Washington Post

Until just recently, policymakers were doing well in the financial crisis. Congress passed a timely and well-crafted stimulus. Bear Stearns was rescued, averting market chaos. The Fed cut interest rates aggressively, reasonably fearing a collapse of the economy more than a collapse of the dollar.

But now Washington is losing it. The most vivid illustration comes from the Securities and Exchange Commission, which first failed to oversee the financial institutions under its purview -- and now wants to stop the markets from doing their part.

Starting today, the SEC is clamping down on short selling, which is a way for market watchdogs to telegraph trouble. Short sellers dig around in company balance sheets. When they come across a problem, they borrow shares in the offending company and sell them. This pushes down the share price, alerting others to trouble.

Short sellers have always been unpopular. Everyone likes optimists; pessimists tend to be despised. People who think companies are undervalued, buy their stock and then make speeches on their terrific prospects may be inflating a dangerous bubble -- but they are just being red-blooded Americans. On the other hand, people who think a company is overvalued, short its stock and publicly explain their reasons may be preventing a bubble from inflating -- but they are rumor-mongers and conspirators.

Needless to say, this double standard is dumb. Despite popular myth, the strength of the American economy does not lie in boundless optimism. It lies in optimism spiked with honesty. Optimism drives entrepreneurs to start new companies. Honesty allows venture capitalists to filter out crackpots. Economies need a balance of boosters and skeptics to be healthy. When the boosters take over, you get frauds like Enron, farces like the dot-com bubble and tragedies like families who can't afford their home payments.

When the mortgage bubble burst last summer, there was much earnest speechifying on how not to be Japan. The Japanese, you will remember, reacted to their property bust by throwing honesty out the window. Banks didn't own up to the full extent of their losses, and the government propped up stock prices. The result was that Japan's recovery was a decade in coming. The United States, it was argued, would be altogether more forthright. Banks would acknowledge problems, fix them and move on.

One year later, the Japanese urge is growing strong. For perfectly sound reasons, the economy is not yet out of the woods: Real estate prices are still falling, and years of reckless borrowing by finance companies and households still have to be worked off. But rather than be honest about these problems, people are pointing fingers at imagined villains.

http://www.washingtonpost.com/wp-dyn/content/article/2008/07/20/AR2008072001665.html?wpisrc=newsletter&wpisrc=newsletter

Run for Cover
A new form of mortgage finance could help restore financial responsibility.
The Washington Post

THERE WAS a time when securitized subprime mortgages seemed like an elegant solution to the stubborn lack of liquidity in the housing market for people with less-than-perfect credit. If adjustable-rate or "no-doc" loans didn't meet traditional underwriting criteria, no problem. They could be packaged and sold as bonds to investors all over the world, with the blessing of supposedly knowledgeable financial ratings agencies. For a while, this even struck some people as a smart way to "spread the risk" of defaults.

We know better now, of course. A key flaw was that companies that unloaded loans on the secondary market no longer had "skin in the game." Since their own money was no longer at risk, they had less incentive to ensure that the loans were properly underwritten in the first place. Today, a year into the international credit crunch, financial institutions the world over remain slightly terrified about the as-yet-undiscovered risks that may have been foisted on them in this way. The restoration of safe and sustainable financial activity depends in large part on reestablishing the link between risk and responsibility. A prominent example is the need to reform the government-

sponsored enterprises Fannie Mae and Freddie Mac, whose privileged access to capital has enabled them to take on massive risks that may yet trigger a massive taxpayer bailout.

Over the longer term, mortgage markets need alternatives to the Fannie-Freddie model, which is why a new Bush administration effort to promote "covered bonds" for mortgage finance is welcome news. We would say necessity is the mother of invention -- but covered bonds have been in use for many years in

Europe, where the market for them is worth almost $3 trillion. Issued by banks, covered bonds are backed by interest-payment streams from mortgages. Unlike securities backed by subprime mortgages, however, covered bonds remain on the balance sheet of the issuing institution, giving it a strong incentive not to issue unduly risky mortgages.

http://www.washingtonpost.com/wp-dyn/content/article/2008/08/01/AR2008080103183.html?wpisrc=newsletter

Shifting to a Greener Attitude on Tire Ratings
By Cindy Skrzycki
The Washington Post

As Americans try to squeeze every last mile out of a gallon of gasoline, one regulatory option hasn't been given much of a road test: telling consumers the fuel efficiency of their tires.

Now, as gas prices have hit $4 a gallon and more, the idea of reducing tire "rolling resistance" to improve vehicle gas mileage is gaining traction. After 12 years of blocking any such standard, Congress has ordered a consumer information program by next year to inform buyers on what to expect from tires on fuel economy.

The $34 billion tire industry was long divided on the issue. Michelin North America has favored a standard and has started running ads extolling the gas-saving virtues of its tires. Other manufacturers lobbied Congress to block any rule requiring that tires be labeled to indicate their fuel efficiency.

"We were very vocal and pushed for it," said Michael Wischhusen, director of industry standards and government regulations for Greenville, S.C.-based Michelin, a subsidiary of French tiremaker Michelin & Cie. The annual ban was other manufacturers' "defense against progressive thinking," he said.

Daniel Zielinksi, spokesman for the Rubber Manufacturers Association, a Washington trade group, said the industry now agrees on the new requirement to inform buyers about the fuel efficiency of tires. For years, most companies opposed the idea of displaying such information on the tires.

"We advocated that rather than more information on the sidewall, better the information be required at the point of sale," Zielinski said.

Michelin supported a new tire efficiency grading standard proposed by the National Highway Traffic Safety Administration in 1995. A year later, the agency said it dropped its proposal because of opposition, which included a funding cutoff.

Michelin had been working on "green" tires since 1992, saying its tires could save fuel without "compromising durability and traction."

"Right now, that [tire efficiency] data is not widely available," said Luke Tonachel, vehicles analyst with the Natural Resources Defense Council in New York. He said that information would be "cost-effective for consumers and the nation to reduce oil use."

Some 200 million replacement tires are purchased annually in the United States. Few consumers take into account how much energy, and thus gas mileage, is lost through their tires.

The savings could be considerable.

http://www.washingtonpost.com/wp-dyn/content/article/2008/08/18/AR2008081802277.html?wpisrc=newsletter

The Crisis's Silver Lining
Fareed Zakaria
Editor of Newsweek International

Amid the financial chaos and economic uncertainty that has rocked world
markets, I can see one silver lining. This crisis has forced the United
States to confront the bad habits it developed over the past few decades.
If we can kick those habits, today's pain will translate into gains in the
long run.

Since the 1980s, Americans have consumed more than they produced and have
made up the difference by borrowing. Two decades of easy money and
innovative financial products meant that virtually anyone could borrow any
amount for any purpose. Household debt ballooned from $680 billion in 1974
to $14 trillion today. The average household has 13 credit cards, and 40
percent of these carry a balance, up from 6 percent in 1970.

But the average American's behavior was virtuous compared with government
behavior. Every city, county and state has wanted to preserve its
proliferating operations yet not raise taxes. How to square this circle? By
borrowing, using ever more elaborate financial instruments.

Local pols weren't the only problem. Under Alan Greenspan, the Federal
Reserve refused to inflict pain. Russian default? Cut interest rates. The
economic slowdown after Sept. 11? Cut rates. Whatever the problem, the
solution was to keep money flowing and goose the economy.

In 1990, the national debt was $3 trillion. It is now $10.2 trillion.

If there is a lesson to be taken from this crisis, it's an old rule:
There is no free lunch. Now, debt is not a bad thing. Used responsibly, it
is at the heart of modern capitalism. But hiding mountains of debt in
complex instruments is an invitation to irresponsible behavior.

In the short term, governments must take on more debts and obligations to
resolve the crisis. But that doesn't mean we should stimulate the economy
with more tax cuts, as some economists advocate. That would only keep the
party going artificially. A far better stimulus would be to expedite major
infrastructure and energy projects, which are investments, not consumption,
and have a different effect on fiscal fortunes.

In the longer term, we have to get back to basics. Government should put
incentives in place that make saving more likely. The U.S. government
offers enormous incentives to consume (the mortgage interest tax deduction
being the best example), and it works. We have the world's biggest houses
and the most cars. If we were to tax consumption and encourage savings,
that would also work. Regulations on credit card debt should be revised to
ensure that people understand their risks.

Paul Volcker has long argued that the recent financial innovation simply
shuffled around existing resources while contributing few real benefits to
the economy. Such activity will now be reduced significantly. Boykin Curry,
a New York fund manager, points out that "30 percent of S&P 500 profits
last year were earned by financial firms, and U.S. consumers were spending
$800 billion more than they earned every year. As a result, most of our top
math PhDs were being pulled into nonproductive financial engineering
instead of biotech research and fuel technology. Capital expenditures went
into retail construction instead of critical infrastructure." The crisis
will stop the misallocation of human and financial resources and redirect
them in more productive ways. If some of the smart people on Wall Street
end up building better models of energy usage and efficiency, that would be
a net gain for the economy.

http://newsweek.washingtonpost.com/postglobal/fareed_zakaria/2008/10/the_crisiss_silver_lining.html

A Bailout Beijing Would Cheer
By David Ignatius
The Washington Post

We are all Chinese now. That is, we have a nominally capitalist economy, but we don't trust the freewheeling private market when it comes to the crunch. So we turn to the government for protection and stability.

The new interventionism isn't so much socialist as it is Confucian -- a belief that a public-private partnership of the wise ones will get us out of the mess. And if it's any consolation, the Chinese are becoming more like us, even as we are becoming more like them.

A Chinese preview of this week's government-funded recapitalization of the banks came in the Hong Kong stock market crash of August 1998. To counter a typhoon of speculation that had battered the local market, Chinese authorities intervened to buy up sagging stocks with public money. The government spent $15.1 billion to acquire about 7.3 percent of the companies in the blue-chip Hang Seng Index.

Free-market partisans in the West were shocked by the Chinese intervention and decried it as a dangerous precedent. But it helped stabilize the Hong Kong market. Now, that earlier bailout seems modest indeed -- compared with the quasi-nationalization of the world's leading banks we're seeing this week.

The Chinese have stayed edgy about markets, even as their version of capitalism has created unprecedented growth and prosperity. They preferred to run very large trade surpluses, a kind of forced public saving, rather than spend their new wealth. And they resisted pressure to revalue their currency upward, as market forces would have dictated, because they feared the consequences.

A Chinese central banker explained to me in Beijing a few years ago that he believed Japan's "lost decade" of economic stagnation was a result of letting the Japanese yen appreciate too rapidly during the boom years, and that the Chinese wouldn't make the same mistake. The Chinese were also squeamish as they watched the Russians during their wild "oligarch capitalism" phase in the 1990s. The Russian model was too raucous, too rapacious.

It will take many months for the dust of this crisis to settle and to make judgments about the shape of the new order. But already, my favorite futurist, Peter Schwartz of the Monitor Group, predicts that we are entering a new political and economic paradigm. "Clearly, we have just moved a big step away from democratic capitalism," he says.

http://www.washingtonpost.com/wp-dyn/content/article/2008/10/15/AR2008101503163.html?wpisrc=newsletter

Hank Paulson's $125 Billion Mistake
By Steven Pearlstein
The Washington Post

It was only a few weeks ago that most right-thinking economists and left-leaning bloggers were jumping on Treasury Secretary Hank Paulson for his plan to jump-start the markets in asset-backed securities by having the government buy them up at auction. Much better, they argued, to use the $700 billion to "recapitalize" the banking system, just as Gordon Brown was doing in Britain. Even the Federal Reserve thought that a better idea.

So Paulson changed course, called in the nine biggest banks and "forced" them as a group to accept $125 billon in new capital. The critics patted themselves on the back for having been right all along.

Now, many of the same people are shocked -- shocked! -- to discover that the banks aren't using the money to make new loans to households and businesses, as they had assumed, but are using it to maintain dividend payments to shareholders, pay this year's bonuses to executives and traders, or squirrel it away for future acquisitions.

I hate to say it, but I told you so. Sprinkling money around a highly fragmented banking system when markets were panicked and everyone was scrambling to reduce leverage was always akin to shoveling sand against the tide.

Certainly there are situations in which capital injections are necessary. In Britain, for example, there are only a handful of banks that matter, and those had their capital so depleted that there was no choice but to pour money into them, on onerous terms and with lots of strings attached. And certainly, as with PNC's purchase of National City, a dose of government capital can grease the takeover of a weak bank that might have otherwise failed and required government intervention.

But making modest investments in dozens of banks, whether they needed it or not, produces little for the public beyond the small profit for the Treasury. What it does do, however, is open the door for every politician and populist to second-guess every decision and expenditure the banks make, based on the false assumption that everything they do is with "our money."

Paulson's first mistake was in allowing himself to be diverted from his original strategy, which stood a good chance of establishing reasonable and credible market prices for asset-backed securities -- a necessary first step in attracting other buyers back into those frozen markets. That would take tremendous pressure off all banks, insurance companies, hedge funds and bond insurers, most of which now can't raise capital because nobody can even guess what the assets on their books are worth, forcing accountants and auditors to assume the worst. It also would get liquidity to those institutions that most need it.

Paulson's second mistake was buying into the silly idea that it was crucial to attract all the big banks into the program so that any bank that might really need the money could avoid the stigma of having to ask for it. That's a surprising stance from a Treasury that claims to trust markets and encourage transparency. Nor does it square with recent evidence that investors are quite capable of sniffing out weak financial institutions long before managements come clean.

http://www.washingtonpost.com/wp-dyn/content/article/2008/10/30/AR2008103004380.html?wpisrc=newsletter