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What do the BP oil gusher, bad cyber security and bad customer service have in common? May 27, 2010

Posted by Jim Satterfield in bad news, Business & Society, Environment, The Internet, Uncategorized.
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A certain mindset in most of American business, that’s what. Basically what it comes down to is a categorization of people, departments and activities as either contributing directly to the bottom line or not directly contributing. And if you don’t contribute directly then you are second class in the company at best. This leads to a strong drive to cut costs when it comes to second class activities and people. Computer security falls into this class of lesser being, unlike production programmers or the people who keep the network running. People in charge of trying to meet safety regulations are also lesser beings in the socio-economic hierarchy of businesses. Customer service is definitely viewed purely as a cost center that’s pretty worthless when it comes to actually generating income.

Then comes the breach of computer security. Then an oil well or drilling rig blows out, killing people and causing an environmental disaster. Then a well known blogger or someone else in the public eye starts griping about how bad your customer service has become and how angry it makes him. Then his readers chime in and link after link is made to his rant, making it a wide spread PR nightmare that even makes it into the mainstream media.

Let the finger pointing begin and all too rarely does anyone recognize that the core problem is a lack of understanding on the part of many executives that their business, like everything else in our complex world, has an infrastructure that it depends upon and that it isn’t just the stuff on the surface that is meaningful.

Banks, risk and lobbying March 7, 2010

Posted by Jim Satterfield in Business & Society, Economics, Government.
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In a working paper for the IMF, which is prefaced by a bit disclaiming that it actually represents the views of the IMF, we find this gem of a summary.

Using detailed information on lobbying and mortgage lending activities, we find that lenders lobbying
more on issues related to mortgage lending (i) had higher loan-to-income ratios, (ii) securitized more
intensively, and (iii) had faster growing portfolios. Ex-post, delinquency rates are higher in areas
where lobbyist’ lending grew faster and they experienced negative abnormal stock returns during key
crisis events. The findings are robust to (i) falsification tests using lobbying on issues unrelated to
mortgage lending, (ii) a difference-in-difference approach based on state-level laws, and (iii)
instrumental variables strategies. These results show that lobbying lenders engage in riskier lending.

Aren’t we all just absolutely shocked?

Did He Look in Madoff’s Eyes? December 17, 2008

Posted by Jim Satterfield in Business & Society, Corruption, Economics, Government, The Big Crash of 2008, The Bush Administration.
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In an editorial the Kansas City Star’s resident ultra-conservative, E. Thomas McClanahan actually says that an inept SEC led to the Madoff scandal. I’m sorry, Mr. McClanahan, but in fact the SEC was basically doing what your hero Dubya wanted them to do, which is largely nothing. Was there any regulatory agency that wasn’t having their budgets cut under the Bush administration? Any agency that wasn’t full of political appointees whose main goal was to forward a particular political agenda? Look at Cox’s background. What else would anyone expect of an SEC he’s in charge of? Let’s face it, everything went according to plan and if you think Madoff is the only one out there…

If they can do it for carpenters… November 27, 2008

Posted by Jim Satterfield in Business & Society, Employment.
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I was just watching a bit of This Old House on the digital tier of my local public TV station. They did a little featurette about a carpenter’s apprentice that works with the show. Don’t you think that paid apprenticeships would work for lots of fields that don’t have it now like accountants, programmers and network engineers among others?

Wall Street GIGO November 21, 2008

Posted by Jim Satterfield in Business & Society, Economics, Government, Technology, The Big Crash of 2008.
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Scientific American points out a couple of things that helped lead to our current disastrous situation. What, you might ask, would SciAm have to say about something that comes down to economics and politics? Simple. The financial industry pled for a lifting of rules for how much they needed to hold in reserve. Complex modelling was used with a basic set of assumptions in order to forecast what these institutions could do under the new rules. Those assumptions were based on old fashioned basic assumptions from classical economics. They were completely wrong. The models based on them failed miserably. The big question is whether or not the people in charge of these institutions will draw the correct conclusions in the aftermath and with their egos I just don’t know if I’d bet on it.

Related Issues November 13, 2008

Posted by Jim Satterfield in Business & Society, Government, Health Care, Health Insurance.
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I stumbled across this article through Google news. It’s always sad when someone joins in with others who just miss the point completely. If you do something to help take care of the health care situation and do it properly then it will in fact help the economy.

McCain Was Right About Something September 26, 2008

Posted by Jim Satterfield in 2008 Presidential Campaign, Business & Society, Economics, Politics.
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Before the debate ever started McCain looked like he was going to duck out of it, claiming that he had to rush to Washington to help with the negotiations to help solve the financial system meltdown. The Washington Post reports on how much he helped. Well, he managed to help create another meltdown. While complaining about the proposals from Bernanke and Paulson might make sense, backing a plan from the House Republicans that is even worse somehow just doesn’t seem all that helpful. And it is worse, make no mistake. If the problem with a group of companies is lack of cash causing them to not be able to do their part in the economy by providing credit, demanding that they come up with more cash to pay for a whole new insurance system that won’t really help with the basic problem just doesn’t make sense.

What was McCain right about, though? He did make a difference to the negotiations. The House Republicans probably couldn’t have broken them so thoroughly without his help.

The Problem with Economists and Oil September 1, 2008

Posted by Jim Satterfield in Business & Society, Economics.
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Seems to be that they just don’t learn from the past. A few years back we were told over and over again that the market was what was driving the gyrations of the California electricity market. Stuff happened. Plants shut down all the time. It’s just market forces doing what they do, which is always the best thing. We learned that was all BS and that in fact companies like Enron and others in the “energy trading” game had been rigging false shortages and playing other games with the market all along. The economists were wrong. The people who said that the markets were in fact easily manipulated by the big players were right.

Now the economists tell us the same thing about oil. This may not seem like as big a deal with prices currently falling but once you read this from the Washington Post I think you’ll agree that it is very important to keep their indadequacies because of their beliefs in the markets in mind. It tells the story of one company that the regulators thought of as a basic trader that helped companies that needed to acquire oil for their own use. In fact regulators just learned in July that this company, Vitol, in fact was holding huge stakes in oil as a commodity for the sake of investment. In fact at one point they controlled 11% of the oil contracts on NYMEX.

What was discovered when more digging happened because of this discovery?

The CFTC, which learned about the nature of Vitol’s activities only after making an unusual request for data from the firm, now reports that financial firms speculating for their clients or for themselves account for about 81 percent of the oil contracts on NYMEX, a far bigger share than had previously been stated by the agency. That figure may rise in coming weeks as the CFTC checks the status of other big traders.

Will any of the economists who have been pushing the classic economics meme of supply and demand actually read about this? Will they learn anything this time that previous examples of even huge markets being rigged for the traders didn’t teach them? Don’t hold your breath.

Signs August 9, 2008

Posted by Jim Satterfield in Business & Society, Economics.
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A great deal has been made by some people of the fact that according to the classic definition of a recession as two quarters or more of negative GDP growth we just aren’t in one now. But the nature of our economy is in flux and old definitions just might not hold up.

So let me propose the Signs Rules.

If for two consecutive quarters you drive for a few thousand miles on multiple highways and you see more billboards advertising the services of the billboard company than someone else’s product or service you might be in a recession.

If for two consecutive quarters as you travel in the city and suburbs and the number of signs for houses for rent or sale (extra points for the “Price Reduced” addition), SUVs for sale, trucks for sale and boats for sale increase steadily you just might be in a recession.

The Complete Picture is the Only Useful One August 1, 2008

Posted by Jim Satterfield in 2008 Presidential Campaign, Business & Society, Economics, Politics.
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Every time you turn around there is someone using the unemployment rate to make a point, good or bad, about the economy. 5.5% isn’t that bad. 5.7% isn’t good enough. The simple sound bite versions of that message go on and on. But notice that when pgl at Angry Bear is writing about the unemployment rate he includes some very important data that simple numbers almost never includes, the labor force participation rate. No one discussing jobs is doing a decent job of it if they only use the basic unemployment rate. But there are other things to factor in as well.

There is also underemployment, a growing problem as this NY Times article shows. Whenever a politician says that they want to do this or that to help create jobs call them on whether the jobs are any good or not. How much do these jobs they are promising pay? Not in terms of a per hour wage, but how much when you take into account the number of hours. Are there benefits? Vacation? Sick pay? A 401(K) or some other retirement arrangement? How many hours will the employee be able to work? All jobs are not created equal and unless you know the details it’s far too easy to think that things are better (or worse sometimes) than they really are. Keep that in mind through the campaign season.