Archive for the ‘Economy’ Category

Takin’ Care of Business

Monday, March 30th, 2009

John Murtha (D-Bag, Pennsylvania) made more news this past weekend. The Pittsburgh Post Gazette’s Critics claim John Murtha is capitalizing on a corrupt system, but he’s not apologizing tells

JOHNSTOWN, Pa. — This city once had a steel-based economy and critics now say it has a John Murtha-based economy but, in what used to be the 11-inch rolling mill of Bethlehem Steel, nobody’s apologizing.

And later

Johnstown made Mr. Murtha the king of earmarks. Prone to floods and wracked by unemployment when steel collapsed, the city turned to its congressman to save its economy and Mr. Murtha, for his part, turned to the federal budget.

And

On a suburban hillside, in a development called the John P. Murtha Technology Center, just a stone’s throw from the John P. Murtha Airport, a group of locals set up Concurrent Technologies Corp., a nonprofit research and technology combine that found its footing with Murtha-directed earmarks.

Today CTC employs 1,400 people with 21 offices around the country and has a payroll of $66 million — $40 million of it for the 800 employees stationed in Johnstown. A few miles from CTC’s headquarters sits Kuchera Industries, another garage startup that struggled through the 1980s and then found itself flush with defense contracts under Mr. Murtha’s tutelage.

Multinational firms, from Lockheed Martin and Northrop Grumman to DRS Technologies and the Norwegian firm Kongsberg Gruppen, have set up outposts here, capturing defense contracts and partnering with local companies such as CTC and JWF.

No one has tallied the amount Mr. Murtha has steered into his district, which sprawls well beyond the Conemaugh Valley and reaches the West Virginia border. Conservative estimates are in the billions of dollars, most of it lobbied from federal agencies or won through open bidding or, more controversially, steered home directly during his 35-year career.

And, unbelievably, Murtha had this to say

“If I’m corrupt, it’s because I take care of my district.”

Well there you have it. Murtha has just committed a cardinal sin: blurting out the truth.

In all of the outrage over AIG bonuses and executive pay, we have lost site of the bothersome patronage and ethical scandals that abound in Congress.

Besides Murtha, we have Countrywide Financial and the “friends of Angelo” program that provided sweetheart loans to Senate Budget Committee Chairman Kent Conrad (D., N.D.) and Senate Banking Committee Chairman Christopher Dodd (D., Conn.).

And then there is Barney Frank. This article from the New York Times in September of 2003 tells of the Bush administration’s proposal to establish a new oversight office for Fannie and Freddie.

The Bush administration today recommended the most significant regulatory overhaul in the housing finance industry since the savings and loan crisis a decade ago.

Under the plan, disclosed at a Congressional hearing today, a new agency would be created within the Treasury Department to assume supervision of Fannie Mae and Freddie Mac, the government-sponsored companies that are the two largest players in the mortgage lending industry.

The new agency would have the authority, which now rests with Congress, to set one of the two capital-reserve requirements for the companies. It would exercise authority over any new lines of business. And it would determine whether the two are adequately managing the risks of their ballooning portfolios.

The plan is an acknowledgment by the administration that oversight of Fannie Mae and Freddie Mac — which together have issued more than $1.5 trillion in outstanding debt — is broken.

This is at odds with the conventional assumptions, namely that somehow the Bush administration stripped away all manner of protection. Sorry. Fantasy. But the article does indicate Barney Frank’s feelings about additional oversight

“These two entities — Fannie Mae and Freddie Mac — are not facing any kind of financial crisis,” said Representative Barney Frank of Massachusetts, the ranking Democrat on the Financial Services Committee. ”The more people exaggerate these problems, the more pressure there is on these companies, the less we will see in terms of affordable housing.”

So, you see, it really is about affordable housing.

The likes of Murtha, Frank, and Dodd pose much greater threats to our long-term economic viability than $160 million in bonus payments.

A Lulu from Lula!

Sunday, March 29th, 2009

More socialist claptrap has wafted up from the southern hemisphere like so much effluvium from a sewage treatment plant. This time, the rant is courtesy of Brazil’s President, Luiz Inacio Lula da Silvamade. According to Sky News’ White People Caused The Credit Crunch

Brazil’s President, while meeting [British Prime Minister] Gordon Brown, has said the global financial crisis was caused by “white people with blue eyes”.

Luiz Inacio Lula da Silva made the comments after talks with the Prime Minister to try to forge a global consensus on how to save the worldwide economy.

Sky News’ Joey Jones said it was an “uncomfortable” moment for Mr Brown.

“The President does not mind using fairly flamboyant language. He likes to give extensive answers to journalists.

“But some of it was rather awkward for the Prime Minister, who was standing there listening to the President.

“A few eyebrows will have gone up at what he said.”

Downing Street says the remarks were meant for “domestic consumption”.

Jones said: “People in Brazil are very frustrated and angry at what they feel is the injustice of the situation: a crisis that has essentially come from the banking sectors in places like the United States and the UK, but is affecting their country.”

According to the Financial Times, the Lula da Silva stated

“This crisis was caused by the irrational behaviour of white people with blue eyes, who before the crisis appeared to know everything and now demonstrate that they know nothing.”

There was no need for Brown to feel awkward since Brown’s eyes are, oddly enough, brown. But it might be noted that both George Bush and Dick Cheney have blue eyes. And, according to the Michael Medved Show, and adjusting for the recent election, 38 of our 44 presidents had blue eyes. Hmmm.

But less than a week earlier, Lula was in New York where, at an investor conference sponsored by the Wall Street Journal, he expressed the reasonable concern that the global economic crisis would increase protectionism within the United States and cause a general pullback of spending for imported goods. According to the Wall Street Journal, Lula stated that Brazil and the rest of the world cannot afford for the US to relive the Japan example becuase the US is too important to trade financing. The WSJ opinion writer, Mary Anastasia O’Grady, in referring to Lula da Silva stated that “He has a pretty good level of diplomacy”.

If Lula da Silva has a “pretty good level of diplomacy”, I’d hate to see a leader with a poor level.

Pwnage By USAID

Monday, March 23rd, 2009

In KansasCity.com, U.S. move to cheaper Chinese condoms threatens American jobs tells the story of the decision to stretch our tax dollars when purchasing condoms.

Call it a condom conundrum.

At a time when the federal government is spending billions of stimulus dollars to stem the tide of U.S. layoffs, should that same government put even more Americans out of work by buying cheaper foreign products.

In this case, Chinese condoms.

Ah, excuse me. Correct me if I am wrong, but doesn’t China have a population problem? Do we really want to distribute Chinese-made birth control?

The switch comes despite implied assurances over the years that the agency would continue to buy American whenever possible.

“Of course, we considered how many U.S. jobs would be affected by this move,” said a USAID official who spoke on the condition that he would not be named. But he said the reasons for the change included lower prices (2 cents versus more than 5 cents for U.S.-made condoms) and the fact that Congress dropped “buy American language” in a recent appropriations bill.

For the money savings, we can buy 2 and a half times more love socks. What happened? Did refractory periods magically drop by 60%?

France. Where Else?

France. Where Else?

War in Defense of Virginia

Saturday, December 27th, 2008

About 15 years ago, after purchasing 3,000 acres of land, the Disney company gave up plans to put a history-themed park five miles from the Manassas Battlefield. The battlefield is some 35 miles west of the District of Columbia. According to Making Economic Sense by Murray Rothbard (and as serialized on the Ludwig Von Mises Institute website)

Many conservatives and free-marketeers believe that an inherent conflict exists between profits, free-markets, and “soulless capitalism,” and money- making on the one hand, as against traditional values, devotion to older culture, and historical landmarks on the other. On the one hand, we have bumptious bourgeoisie devoted only to money; on the other, we have people who want to conserve a sense of the past.

The latest ideological and political clash between capitalist growth and development, and old-fogy preservation, is the bitter conflict over the Manassas battlefield, sacred ground to all who hold in memory the terrible War Between the States.

The theme park was opposed by two camps. Those that felt that building the park so close to the hallowed grounds of the battlefield as to desecrate the memory, and those that felt that the Walt Disney Company was trying to extract too many economic concessions from Virginia taxpayers (such as about $160 million in road and infrastructure improvements).

Now, 15 years later, we have a continuation of sorts. Only now it is Wal-Mart instead of Disney. And it is the Battle of the Wilderness instead of the Battle of Bull Run. This article in the Washington Post tells of plans that Wal-Mart has for building a new store in Orange, Virginia, near the battlefield of the Battle of the Wilderness. And it tells of the forces arrayed against this aggression. The foes are quick to point out that “it is not Wal-Mart”. They are only concerned about the growth that would be occasioned by the opening of the Wal-Mart. The article cites the efforts of preservation groups and trusts to purchase properties that are historically significant. This is something that I favor. The parcel contemplated by Wal-Mart is currently zoned for commercial development. It seems that the preservation efforts should have been waged to prevent this zoning in the first place. In the difficult economic times of today, the Orange County Board of Supervisors will find it difficult to dictate terms to Wal-Mart.

I am generally sympathetic to the goals of the preservationists, but I would like to see their tactics focused on the purchase of land. And I would like to see them make the case against commercial zoning to the planning and zoning office prior to the need to chase away successful corporations.

Walmart

Wal-Mart in Orange

The Benefits Backlog Beat Down

Friday, December 26th, 2008

I have never been laid off from work, knock on wood. But I have worked with and known many people that have. In the business of consulting, it is frequently the case that timing is everything. Those that suddenly find themselves “on the bench” during a downturn are susceptible to “productivity plans”. And those unable to achieve goals set for them by others may soon find themselves looking for new work. Those that do find themselves suddenly and unexpectedly unemployed in Virginia may be facing an unwelcome backlog in the processing of their request for unemployment benefits.

A few days ago, the Washington Post had a brief article about a decision by the Virginia Employment Commission to continue offering Saturday hours at the Customer Contact Center. In making this decision, the VEC cited current and expected demand, and reiterated guidance that the preferred method for making unemployment benefit claims is via the web. While the article did not explicitly say so, it appears to me that the Customer Contact Center serves as a call center for those wishing to apply for unemployment benefits. The high volume of calls, coupled with software problems, has led to a backlog. Hence, the decision to continue operating for limited hours on Saturdays, even in the face of tighter state budgets.

According to this article

Daily, calls to the VEC Customer Contact Center are in the tens of thousands.

… the increased workload comes at a time when there are fewer people to handle the claims.

Back in March, the VEC had to reduce its staff by 250 people because of federal funding shortfall. Nine months later, the impact is still evident.

The staff reductions earlier this year at the VEC have lead to a Catch-22 of sorts. If it were not so serious, especially to those genuinely in need of benefits, it would almost be funny. Almost.

Unemployed

Unemployed

The Ghosts of Businesses, Present and Past

Sunday, December 21st, 2008

This afternoon, I purchased a Wii console at Toys R Us as a Christmas present for my 4 year old daughter (and me). On the way home, I decided to stop by a Circuit City and look for a game or two to go with it. My intention was to spend a small amount of money as a token effort to help Circuit City out, as they are currently operating in bankruptcy. I first set foot in this particular Circuit City one week ago. I was interested in two things: Wii gaming consoles and video cameras. They had no Wii consoles (only games and some accessories). One video camera caught my eye, and I wanted to know what type of connecting cables it came with. The young man that helped me out happened to be carrying around a small laptop computer and he began to look for the video camera in the database. But as he searched, the query of the stock number or model number came back as unknown. He tried this several times, and each time, the result was the same. I could tell that the young man was frustrated by this. I thanked him and told him I would do some on-line research on my own. This afternoon, as I walked to the front of the store with two games, I was unsure where the checkout was located. By happenstance, the same young man asked if he could help, and he rang me up on a nearby register. I don’t know what the future holds for Circuity City. I am inclined to think that the future is not bright, given the current economic situation. But I think the young man that helped me out twice in the past week is gaining valuable business experience with customer service, inventory, and supply chain. I wish him well.

Being in this particular Circuit City made me a little bit nostalgic because the store occupies space that became available when Tower Records closed shop. And so this led me to think about some of the stores that have gone out of business here in the Washington DC area, either because of bankruptcy, acquisition, or downsizing.

  • Raleigh’s, which closed in 1992. My father bought all of his Hart Schaffner & Marx suits from Raleigh’s, and I purchased five suits (totaling $1000) during their going-out-of-business sales.
  • Computer Literacy Bookstore. The store I went to was in Tyson’s Corner and was probably the most comprehensive computer and engineering bookstore that I have ever seen. I was crushed when I went there one day, probably in late 2001, to find it vacated.
  • Hecht’s, which was a popular department store. Begun prior to the Civil War, they were re-branded to Macy’s in 2006.
  • Tower Records, which closed retail operations in 2006. Shortly after starting work after college, I remember making trips to the Tower Records store near the campus of George Washington University and the Foggy Bottom Metro Station.
  • CompUSA, which still exists but with a much smaller footprint. I recall purchasing Microsoft’s FORTRAN compiler  – for $300 – sometime around 1990 from the store in Tyson’s Corner (now closed).

Of the businesses on this list, I was a fairly steady customer of Tower Records and Computer Literacy Bookstore right up until their closure. For the other businesses on this list, my purchasing patterns had changed over the years and, at the time of their closing, I was not a consistent customer. But I was saddened by their closing nonetheless. Very recently, we have seen the demise of the local chain Champion Billiards and Barstools, and the national chains Linens ‘n Things and Tweeter. I am sure that there are many others.

Who knows what the future has in store (no pun intended) for Circuit City, the Big 3 car companies, or your and my favorite businesses? I suspect that many more – some expected, some not – will be experiencing an unfortunate fate.

Please feel free to share your personal stories about your experiences with businesses of the past.

Spending a Little Extra Time At the Office

Saturday, December 6th, 2008

In today’s Washington Post, there was an interesting, and brief, article in the business section. The Post put the following question to the Employee Benefit Research Institute (EBRI):

How much longer would typical workers have to work to recoup their losses?

Specifically, how much longer will the average worker need to work until the value of their portfolio is back to where it was one year ago, assuming that the future stock market returns are in line with historical averages?

The EBRI analyzed 20 million people saving at different rates under 53,000 different 401K plans. The analysis factored in both expected employee and employer matching contributions. The ERBI assumed two scenarios:

  1. In the first scenario, called Actual Asset Allocation, employees continue to distribute their contributions among stock, bonds, and money market funds according to the existing averages.
  2. In the second scenario, called Zero Equity, employees up the portion of their contributions in the safest options (e.g., money market funds).

In estimating the number of years required, the ERBI determined that the number of years on the job was a better predictor than employee age. The results are:

Less than five years on the job

  • Actual Asset Allocation: 4 days
  • Zero Equity: 1 week

5-9 years on the job

  • Actual Asset Allocation: 10.2 months
  • Zero Equity: 11.4 months

10-19 years on the job

  • Actual Asset Allocation: 1 year 6 months
  • Zero Equity: 1 year 8.5 months

20-29 years on the job

  • Actual Asset Allocation: 1 year 9 months
  • Zero Equity: 2 years 1 month

I have been working since 1984. I have no current plans to alter my asset allocation. I guess this means that I can resume opening my Schwab and Fidelity statements in, let’s see, September, 2010. I can’t wait.

The Public Works For a Mortgage Bailout

Thursday, November 20th, 2008

In today’s Washington Post, there is this letter to the editor, from a Mr. Denis K. of Fairfax VA.

A Poor Remedy for the Mortgage Crisis

I was appalled by the plan from the Federal Deposit Insurance Corp. to modify mortgages only for borrowers who have not been able to make their payments [“FDIC Details Plan to Alter Mortgages,” front page, Nov. 14].

Under the FDICs proposal, only borrowers with delinquent loans would receive interest reductions, but many of those borrowers took out loans they knew they could not afford. Also, the mortgage industry is rightly concerned that the plan could persuade others to stop making payments in order to receive this assistance. Because of this, the plan could result in higher mortgage interest rates for responsible buyers.

Instead of rewarding irresponsibility, the government should target efforts to responsible homeowners (those with a five-year record of on-time payments) and offer them new, 30-year mortgages at a fixed interest rate of 5 percent.

This would stimulate the economy by either lowering their monthly payments (thus providing additional spending power) or providing larger mortgages at the same payment levels to purchase properties that have been foreclosed on. This, in turn, would stabilize the housing market. The government could fund this effort from long-term bonds that paid interest of 4.5 percent or less, with the difference going toward administrative costs or government profit.

Finally, a plan for the responsible, a plan I can really get behind (on).

As I write this, the stock market has tanked big-time for a second day in a row and is now at around 1997 levels. Ouch. The CEOs of the Big Three were in Washington earlier this week – each arriving on their own private jet – but there does not seem to be consensus for an automotive bailout. There is talk of a second stimulus package. Unemployment seems poised to continue its rise. Profits are down. And so on. All-in-all, not a good situation.

I’m beginning to think that a better use of bailout funds might be the public works option. It would have the effect of stimulating the economy, shoring up unemployment and, oh by the way, helping address the crumbling infrastructure. As this article in the LA Times points out, public works have not been seen as the quickest way to stimulate the economy. Nothing works better than a check in the mail, goes the conventional wisdom. But the conventional wisdom might be challenged today as people seem to be reigning in spending left and right. As the Times points out, in so many words, the state of the economy currently is not amenable to the quick fix; maybe the slow and steady pace of public works is the way to go. I tend to agree.

In the mean time, if anyone wants me to refi at 5%, drop me a line. I’d find such an offer, um, stimulating.