Global Economic Crisis on The Huffington Post

Alan Miller: The Recession, President Obama and The Future. Do ideas matter?

2009-11-12T12:38:00Z

Recently, the Mayor of London, Boris Johnson, penned an article bemoaning the
greed of bankers and hatred of politicians. Indeed, it has been a widely popular argument that many commentators from around the world have put forward as an explanation for why we currently face such a tough recession -- that "greed" is a major culprit.

However, it is striking that while it is certainly the case that increasingly complex financial instruments were used to make a profit, blaming "greed" does not really clarify what the problem is. What it does do, though, is reinforce an already strong opinion that something about human nature is at root of the where the real problem is.

Once we had competing ideas -- some referred to them as "grand narratives" -- however there were loudly differing views as to how to organise the world, the market, society generally. The end of the Cold War also saw off the end of most left-wing alternatives. The Age of TINA (There Is No Alternative) to the market, so loved by Margaret Thatcher and Ronald Reagan, did not, however, resolve some of the tough questions that inevitably raise their heads. How to solve ongoing poverty, improve housing, prevent infant mortality and avoid the damaging impact of recession on jobs, families and individuals.

The eras of John Maynard Keynes and Milton Friedman were defined by the attempt to battle out the ideas of how best to organise society and its resources. As Bruce Bartlett points out in his latest book, he only realised was a pro-capitalist anti-Socialist when he read The General Theory of Empolyment, Interest and Money. It seems that while there has been so much discussion about the recession, there has been very little theoretical clarity -- and increasingly a tendency not to discuss critical issues such as real investment in infrastructure and how we address the long term trend of decreasing manufacturing in an ageing western world versus increasing manufacturing in Asia, particularly China.

It seemed as though the election of President Obama, with all the enthusiasm that went along with it, may have introduced a new era. "Yes we can!" Although not so long after, it appears that perhaps it was a little more "Yes he can" with the "we" part no longer so necessary. Or as Anna Quindlen put it in Newsweek recently: campaigns are one thing, politics when in power (apparently) quite another. We all projected our hopes on to a new comer who only actually promised "hope" and "change," she reflects.

However, with Ben Bernanke declaring that the recession is likely over and some celebrating the stock market rallies, it begs the question to what extent are we goint to see and experience real change? Sean Collins, a New York writer for Spiked Online suggests that the problem is a lack in productive investment in infrastructure and long term development. So "cash for clunkers" and housing rebates do not an increase in productivity make. Further, he argues the lack of investment will mean fewer jobs in the future and more problems, and that " In the second quarter of 2009, net private investment fell off the cliff to a nearly non-existent 0.1 per cent of the total economy (gross domestic product or GDP), the lowest level since modern records started in 1947." Justin Fox, the "curious capitalist," also asks whether the financial sector can become too big, while Robert Samuelson has writtten regularly in The Washington Post and elsewhere about President Obama's escalating debt problem. Nouriel Roubini, economics professor at NYU, put it more bluntly when he said that the recession will be "long and painful" and could place the US more in a position like Japan.

Paul Krugman has noted several times that he believes it will take a long time to recover and even then that may look very different to what went previously.

As Daniel Gross points out in Slate though, maybe we should not jump to conclusions just yet prior to the entire spending of the Stimulus money, however, it has been noted that the former pariah toxic assets are now making JP Morgan Chase and Citigroup billions on securitisation.

The thing is, of course, President Obama and his team, a long way from being stupid, realise much of this. Therein lies the rub. We have a situation today however where really unpopular measures, such as allowing some things to fail and transforming our relationship to others (whether by investing heavily in infrastructure, rather than simply allowing reflation in private finance or creating a truly free universal health care for all), are seen as "unrealistic" or not viable politically.

Sadly, in spite of all the enthusiasm behind the election of President Obama, particularly from younger people, we live in an age where TINA dominates not only our outlook re the market -- but it seems bold, challenging, controversial ideas that have to be won politically and argued out and possibly lost -- are just off the agenda. While the new health bill passed just passed in the House, it seems certain limitations always need to be assumed, rather than fought out.

On Monday evening, I shall be moderating a panel in New York City with a title similar to the one above where a panel of esteemed thinkers will be putting their views forward and where an audience will be able to thrash out some of these views together. It will probably raise far more questions than it will answer, for surely that is the precursor to real change -- to ask the difficult questions, not to immediately make policy, but perhaps to get a handle on how we can truly understand the current situation. With so many experts and pundits clearly in the dark, having citizens discussing what they think about these political issues would seem to be the first step to any type of real change. Rather than blaming a broad and unspecific notion of human greed or dodgy bankers (which is really an attack on human aspiration), we would be better placed getting to the heart of where the core of the problem lies.

Then, maybe us humans could do something positive about it.

Child Sex Boom Fueled By Global Recession

2009-10-28T10:27:55Z

BANGKOK, Thailand -- Narisaraporn Asipong, a matronly social worker at the "Mercy Center" shelter met 8-year-old Niran (a pseudonym) five years ago in Klong Toey, Bangkok's largest concentration of slum communities.

Bill Supposed To Tighten Rules On Ratings Agencies Has Big Loopholes

2009-10-21T00:07:21Z

A key House of Representatives committee is set to vote soon on legislation that would overhaul financial regulation and produce greater transparency for investors, but as it's now written it fails to address many of the credit-rating agency missteps that helped fuel the global financial crisis.

John Hope Bryant: The Problem With Short-Termism

2009-10-20T15:54:07Z

In my new book, LOVE LEADERSHIP: The New Way to Lead in a Fear Based World (Jossey-Bass), I make the case that there are only two things in the world: Love and fear, and what you don't love, you fear. I go on to say that the reason our world seems all screwed up is that "most of our so-called leaders have led by fear."

Fear may seem to work in the short term, but over the long-term fear flat out fails (The Second of Five Laws of Love Leadership in my book is entitled "Fear Fails"). Worse, I say that "fear is the ultimate prosperity killer." If you want to paralyze an organization, your family, your community, or your own life, insert a culture of fear.

So you say, "If this is the case, and if fear is so corrosive and so bad for us," as I state over and over again in Love Leadership, "then why, John Hope Bryant has fear seemingly done so well in our little world?" The answer is the feel-good, me-based, immediate gratification disease called "short-termism."

Fear Leads to Short-Termism

The problem is that the entire business world seems to have come down with a case of A.D.D. (Attention Deficit Disorder). The disease goes by another name: short-termism. Short-termism is similar to fear and laziness, in that it relies on shortcuts to achieve results.

For most people looking for a short-term fix, fear-based leadership wins out, hands down. If you're satisfied with flash-in-the-pan, short-term thinking, there's no better way than to lead based on fear. With luck, your business will take off like a rocket, for a while. Eventually, however, it will implode.

My friend and mentor Quincy Jones says "it takes 20 years to change a culture." Well, over the past 20 or so years we have made dumb sexy. We have dumbed down and celebrated it. Over the next 20 years, we need to make "smart sexy again" (see www.5MK.org for our initiative to make "smart sexy again" with our youth, helping to break the high-school dropout epidemic and encouraging kids to stay in school).

A Perfect Storm

In Love Leadership, I say that the first cousin of fear is short-termism, and short-term's best friend is laziness, the roommate of laziness is greed, and the most popular word ever uttered by fear, short-termism, laziness or greed, is "me." Translation: What do I get? But in a world seemingly obsessed with only one question, which is "What do I get," in order for us to succeed over the long-term, we must ask ourselves an entirely different question, which is "What do I have to give?"

Fear is a lazy bastard.

It comes from the most primitive part of what evolutionary psychologists call the reptilian brain, the part of the brain that governs instincts, heartbeat and breathing. It takes no work and no intelligence. Even a lizard can be afraid.

Love though, comes from the most advanced part of the mammalian brain -- the forebrain -- the region that thinks, remembers and finds meaning. Fear is a feeling and nothing more. Love, in contrast, is feeling plus thought. It's an emotion that stays in your memory forever. That's why love survives, long after fear dies. Love is so strong that it's the only real reason the human race is still here, after all the opportunities we've had to destroy ourselves.

This crisis is not about some sophisticated or complex failure of free enterprise and capitalism as we know it, but the rather simple-minded failure of greed itself. In other words, this is an example of short-termism taken to its most fundamental and core inner-flaw: An expediency strictly for one's own individual benefit; over any sense of (higher) purpose.

As I have said, and will continue to say, as I tour the nation in my "Conversation on Leadership" series, this crisis is more a crisis of virtues and values, than any sort of classic economic crisis. No doubt you are feeling this crisis economically, but this is no different than when you have a cold, you feel or sense it when you sneeze.

As I state in Love Leadership, "the basic cause of the original mortgage crisis was a fundamental lack of a relationship with customers. The broker and the borrower in the mortgage deal were not really connected or committed in a real way; the broker and the banker were not really connected or committed; and this is key: the banker and the borrower were not connected or committed. Likewise, the banker and Wall Street were not connected or committed, and fatally, Wall Street securitization firms and the investors around the world to whom they sold these complex products were not connected or committed. There was no real relationship between any of these channels (other than the financial transaction itself)." I continued, "Put even more simply, as long as the broker, the banker, the Wall Street player and others in the deal got their fee, they were happy -- or so they thought. This behavior was further supercharged by shareholder pressure for firms to hit aggressive quarterly profit targets, a short-term focus that conveniently translated into huge performance bonuses for executives." Finally, I summarize in this section, "I am all for free enterprise and capitalism. Without a clearly defined profit motivation, a business simply will not be viable for long. My problem is that the relationship between all these various individuals and groups was simply the financial transaction. The concern was for the buck, not for the borrower."

Everyone needs to have an enlightened self-interest in the outcome of a business transaction, and it should start with a genuine understanding of and concern with what's best for the client, the customer, the borrower. That concern -- what I call love -- was fundamentally absent during the events that led up to this economic crisis. There simply was no relationship with the borrower.

An Example And Examination of Doing It Right

Richard C. Hartnack, an Operation HOPE board member, understands well this problem of the transactional approach. He is in charge of consumer banking as vice chairman of US Bancorp, the Minneapolis-based parent company of US Bank, the sixth-largest commercial bank in America. Prior to that he served as vice chairman of Union Bank of California from 1991 to 2005.

US Bank was roundly criticized in 2006 and 2007 for having slower revenue growth than many of its peer banks. A big reason was its decision to largely ignore the mortgage market, except for the prime loans that it had mostly specialized in.

Hartnack recalls that when the financial crisis hit in 2007, US Bank took a hard look at its adjustable rate mortgage (ARM) loans. The bank didn't make these loans with the intention that they were going to be a problem, but it saw in September, 2007, that interest rates at that time were expecting to go up. The bank did the math and knew that the change in the rates would be a big shock to its mortgage holders.

US Bank had a choice: It could try to deal individually with thousands of households and figure out the exact right loan for each one, and while it was doing that, could watch people get into serious trouble paying their loans (and simultaneously watch their reputation take a hit in similar fashion). Or the bank could simply not raise the rates.

Hartnack knew that the bank was either going to have to deal with a lot of bad loans, or it could make this concession, and see a set of problems just go away. The bank opted for love leadership. It held the interest steady, and told customers they had to opt out of their ARM into a fixed rate loan. And as you would expect, a large percentage of the bank's clients accepted the offer.

Hartnack's decision turned out to be prescient, one that did well for the bank and did good for its customers. It helped people stay in affordable mortgages, and it avoided foreclosures, where everyone loses. He says:

This example is proof that a short-term focus has a lot of temptations. It's a rare set of circumstances -- combining the board of directors, CEO, top management, investors, analysts, the culture and everything else -- that creates an environment in which people are willing to look at the long haul and avoid short-term temptations. When you're operating for the short-term, there are a thousand little trade-offs where you find yourself faced with choices that are terribly uncomfortable. And it takes a huge amount of character on the part of a management team to stand up to those.

In the end, all you really have is your reputation, when you're dead and buried, they're not going to bury your money with you. When you're dead and gone, what people are going to look back on is your reputation, and people are going to judge if you're a leader in business with your customers, your community, your employees and your shareholders.

Your reputation depends on something greater than making money. It depends on creating prosperity for all.

Where We Go From Here

My friend Daniel Sachs, CEO of Proventus, a $750 million private investment company in Stockholm, Sweden, said in an interview for my book, "It's up to the people who believe in markets and believe in globalization and believe in free trade, to make the case for an open society as appealing as can to the many. Because if it's not good for the many -- if it's only good for the few -- then it's not going to win. It's up to us who believe in markets and in capitalism to devise a model of capitalism that is more long term."

As Sachs has shown, if you want to still be in charge a year from now -- or five, 10 or 20 years from now -- you've got to build something that lasts. To perpetuate your power into the future, whether you're growing a business, leading a government, nurturing a family, or running a team, you need to earn the love and respect of those around you, and you need to love and respect them back.

If you lead with love for the long term, people will follow you forever, wherever -- for their own good as well as yours -- and you will be remembered as a person of greatness.

John Hope Bryant is the founder, chairman and CEO of Operation HOPE, vice chairman of the U.S. President's Advisory Council on Financial Literacy as well as chairman of the Council Committee on the Under-Served, financial literacy advisor to the World Economic Forum Global Agenda Council, a Young Global Leaders for the World Economic Forum, and author of LOVE LEADERSHIP; A New Way to Lead in a Fear-Based World (Jossey-Bass), which debuted in August, 2009, #8 in the CEO Reads Top 10 Best Seller List.

Sheldon Filger: The Best and Worst Economic Forecasts of All Time

2009-10-16T18:07:57Z

History is littered with flawed forecasts on economic trends. And where some have proven to have been surprisingly accurate in their glimpse into the financial and economic future, these projections have usually been scorned, until too late. Our current global economic crisis is a case in point.

Nouriel Roubini, the famed NYU economics professor, warned about the impending meltdown of the financial system and collapse of several prominent investment banks, all based on the asset bubble in residential housing and the vulnerability of subprime mortgage securitization. In response to his perceptive warning, he was mocked as "Dr. Doom." However, no one mocks Professor Roubini anymore.

In looking at the broad sweep of history, there are many excellent examples of disastrous economic forecasting. On the other side of the ledger, the number of prescient glimpses into the economic future are relatively few. Among this small, select group, however, there is one gem that conspicuously stands out.

In my view, the most accurate long-term economic forecast of all time was provided by the legendary Renaissance French seer, Nostradamus, usually more renowned for his prophecies on the end of the world. In 1548 Nostradamus predicted, "From Albion's shore shall come a marvelous contrivance: a carriage of silence bearing the arms of Rolles de Roi." Apparently, Nostradamus saw the creation of the Rolls Royce motor car in England, and its reputation for silent and prestigious personal transportation, more than three centuries before the invention of the internal combustion engine. Placed in a broader context, this clairvoyant perceived the creation of a massive new industry, automobile manufacturing, and the important future role of brand marketing in economics . Whether this forecast was based on research, intuition, a lucky guess or some inexplicable power of prophecy is unknown to me. Irrespective of his methodology, Nostradamus hit one out of the ballpark with this forecast.

In contrast with Nostradamus, perhaps the most inaccurate and inept economic forecast of all time was delivered relatively recently, by the Chairman of the U.S. Federal Reserve, Ben Bernanke. In October 2005 The Washington Post carried the following headline: "Bernanke: There's No Housing Bubble to Go Bust."

Yes indeed, Ben Bernanke, who had recently been nominated to succeed Alan Greenspan as chairman of the Fed, presented a confident prediction to Congress that the unprecedented rise in U.S. home prices did not constitute an asset bubble, and was based on sound economic fundamentals. The rest is history-and infamy.

One would think that the same Chairman of the Federal Reserve who arguably delivered history's most inept and erroneous economic forecast could never be reappointed as Fed boss by President Barack Obama, not in a million years. Guess again.

Cuba Facing Recession Tries 'Socialism Lite'

2009-10-14T09:32:40Z

Costa Rica Sex Trade Thrives During Global Recession

2009-10-13T08:53:40Z

The Miami Herald reports that the global recession has boosted Costa Rica's sex trade as more women from countries throughout Latin America travel to the country seeking work. Costa Rica, where the sex trade is legal and government-regulated, continues to be an "international hub for prostitution," it reports.

But the increase in supply has also driven prices down.

But not everyone is happy about the increased competition, which, along with a contracting economy, has required some prostitutes to lower their prices by as much as 40 to 50 percent.

"Business is bad. The problem is competition. Sometimes I don't even make enough to take a taxi home after work,'' said Costa Rican prostitute Mayela, as she lingers by the bar at Key Largo in search of a client.

Across the globe in Southeast Asia, the recession has also led to an increase in the exploitation and trafficking of children as sex workers, IRIN reports.

Commercial sexual exploitation of children is booming in Southeast Asia, with governments failing to do enough to protect young people, experts say.

"The recent economic downturn is set to drive more vulnerable children and young people to be exploited by the global sex trade," Carmen Madrinan, executive director of End Child Prostitution, Child Pornography and Trafficking of Children for Sexual purposes (ECPAT), said.

Despite Market Risks, Foreign Buyers Find Bargains In New York City Real Estate

2009-10-12T13:29:07Z

An Israeli firm's deal to buy HSBC Bank USA's headquarters at 452 Fifth Ave. for $330 million signals that foreign investors see Manhattan real estate as a bargain despite the obvious market risks, experts say.

Kyle G. Brown: Beyond the Tobin Tax: End the Free Ride for the Financial Sector and Impose Fees to Revive the Economy

2009-09-28T15:50:38Z

Michael Moore acted out a near-universal fantasy when, in his latest film, Capitalism: A Love Story, he pulled up to a bank in a Brinks truck, stepped out, and announced to security guards: "We're here to get the money back for the American people."

As effective as it must have seemed at the time, there are ways to get our money back that don't require moneybags and get-away cars. Taxing trades in financial markets is one of them. But it's been hastily dismissed thanks to a sketchy exaggeration of the difficulties to ensue, a reluctance to take on Wall Street, and a failure to appreciate just how broke the nation is.

Let's face it, America: the rest of the world is not going to forever finance your mountainous debt, as it reaches into the stratosphere. Your health care costs will continue to soar, whatever plan you decide on. Afghanistan, Iraq and other foreign adventures won't pay for themselves. Private capital flows, though thickening, are still in short supply, and invariably fail to filter to the rest of society.

The answer is to raise capital for the public sector. A lot of it.

Like a Tobin Tax, but Better
Just weeks ago Britain's financial regulator, Adair Turner, the Chairman of the Financial Services Authority, proposed a global tax on financial transactions to curb excessive speculation and executive pay. It would go beyond the Tobin Tax on foreign currency exchanges, which the late Nobel-prize-winning economist James Tobin had recommended in the 1970s to penalize short-term speculation. The resistance that met Lord Turner's -- and indeed every such proposal -- comes predictably from apologists of unfettered finance, for whom the idea of regulation and additional fees, are anathema.

This sector of society, largely untouched by the travails of a still struggling economy, prefers that the excesses of the financial sector go unnoticed, and untaxed. But as the world of finance returns to eye-watering profits, unemployment and poverty levels are on the rise, and the national budget teeters on unsustainably narrow tax revenues.

The most reliable way to expand those revenues would be to impose a modest fee on every stock, every bond -- in short, every financial transaction. According to one study, a fee of just 0.5% would raise more than $100 billion a year, in US markets alone. That would defray health care costs, and help struggling states restore social services that have been axed over the past two years.

Making it Work
Critics opine that such a tax would be unworkable. Not so. A stamp tax of 0.5% is currently imposed on stock trades in the United Kingdom. Far from suffering from subdued trade, it's the home of the London stock exchange, one of the largest in the world.

The claim that taxing finance would drive investment elsewhere is part of Corporate America's all-purpose Anti-Tax mantra. By its logic, we shouldn't really tax anything, should we? Why tax cars or clothes? Buyers will just go elsewhere!

But unlike other taxes, this levy could be periodically altered, in the same way the Federal Reserve adjusts interest rates: according to market activity.

Most individuals or small firms make medium or long term investments -- a pension fund of $10,000 on behalf of a retiree, for example. At a rate of 0.5%, the investor would pay only $50 in fees. The tax would bear more heavily on traders, who make countless infinitesimal trades per day. As their business is based on fine margins, a tax would indeed affect profits. But because of years of falling costs and productivity gains from cutting-edge software, the impact would be minimal.

The tax would discourage excessive speculation and casino-style trades, which do little to contribute to the wider economy, and in fact tend to undermine it. Traders may be unenthusiastic about these kinds of proposals, but they're not likely to pack up and go home. There is simply too much money to be made for a half-percent dent to scare them off.

Swedish Bonds
Critics point to Sweden which, for a short time, imposed taxes on stocks and bonds before abandoning the policy. Some investors avoided fees by trading in alternative financial products. But that is the point: taxes were not applied to all financial products, so investors could trade in some, and avoid others altogether. This is why for maximum effect, all of the major financial markets would have to impose a levy across the board.

Perhaps you're thinking, "We could never tax financial transactions here." You already do. The US government imposes a tax on new equity issues, the proceeds of which finance the operations of the Securities and Exchange Commission. It's a minuscule tax to be sure, but this, and the U.K. stamp tax show a levy is not only feasible, but potentially lucrative; it could help replenish desperately dwindling public coffers.

Tax is Not a Four-Letter Word
The key would be to raise the levy to an international scale. Several countries, including France and Belgium, have already proposed or passed legislation seeking to tax financial transactions worldwide. The German Finance Minister made a similar proposal earlier this month. And at the G20 Summit, a smaller, global tax for development assistance was discussed, but omitted from the final communiqué. Such timidity cannot continue. For any plan to take flight, it would need American support. President Obama must provide it, lest millions more be abandoned by the 'jobless recovery,' and be tempted to take matters into their own hands, with Brinks trucks and moneybags.

Kyle G. Brown is a writer and journalist based in Toronto, Canada.

Diane Francis: Dollar, Inflation, Recession Optimism

2009-09-24T13:44:55Z

A world expert on economics delivered a cogent and optimistic analysis of the meltdown, its causes, its cure and its effect on the future at the recent Global Business Forum in Banff, Alberta.

Dr. Nariman Behravesh, chief economist with IHS Global Insight, blamed twin "addictions" for 2008's financial catastrophe: dependency on easy credit on the part of nations with trade deficits and excessive reliance on exports by those with trade surpluses.

"Germany and Japan have been hit harder than the U.S. because trade surplus countries have been hit harder than trade deficit countries," said Dr. Behravesh.

This vicious circle fueled global growth until the credit markets sank in August 2007. Then the final straw was a year later when Washington let gigantic Lehman Brothers go bust.

"[Lehman's bankruptcy] was the one of the biggest policy blunders since the Great Depression. Credit markets completely froze and a mild recession turned out to be the worst in decades. It was totally avoidable," he said. "Fortunately, government actions after that avoided the Great Depression 2.0."

Questions
His keynote speech addressed a number of key questions: Is the recession over? What will drive the recovery? What will be the shape of the recovery? Will there be inflation problems? And how will U.S. debt affect the value of the US dollar?

"The U.S. third quarter will show a 4% [annualized] growth; Canada 2 to 3% but unemployment will climb and peak six months from now," he said. "Indicators always lag so the recession's over but not all the pain."

The recovery will be aided by bank rescues, monetary policies with low interest rates, central bank involvement and fiscal policies such as stimulus and reduced taxation.

"There is pent-up demand in the U.S. Nine out of ten households are able to afford a new house or car, corporations are cash-rich but people are scared," he said. "Consumer spending should increase in three to six months."

The recovery's shape will be a "mild W" (or up and down and up) not a "V".

"U.S. consumers represented 15 to 20% of the global economy and their spending grew by 3% a year," he said. "Our forecast is that spending growth will increase by 2% going forward."

No inflation worries

Slower growth will help abate inflation and the U.S. deficits and debts will be manageable in the future, he said.

"Wages are two-thirds of costs and with 10% unemployment there won't be wage inflation.

China is adding to excess capacity which will mean lower prices there and in terms of commodities there will be no big price rises in the foreseeable future," he said.

America's indebtedness won't trigger inflation rates any more than did Finland's or Japan's debts, considerably higher than U.S. forecasted debt. Those two countries suffered financial crises in the early 1990s but zero interest rates and no tax hikes helped them keep inflation at bay then and the same policies will do so now, he said.

"Some say U.S, debts are not sustainable but I'm not worried about a collapse of the U.S. dollar," he said. The biggest looming costs are health care because American health care costs are rising too rapidly.

"The other currencies are no alternatives," he said. "The U.S. dollar is the best looking horse in the glue factory."

Diane Francis blogs at the Financial Post

G20: Biggest Challenge Facing Rich Nations In Pittsburgh Will Be World's Poor

2009-09-23T18:43:41Z

BOSTON -- As G20 leaders snake their way to Pittsburgh from all corners, they face very different circumstances from 12 months ago when the possibility of financial and economic catastrophe was all too real.

Marissa Bronfman: One Stop Shopping for Greening Your Home: Green Depot Has It All

2009-09-23T16:07:28Z

Five years ago a pregnant Sarah Beatty was busy feathering her nest when a shocking environmental health scare proved her home to be toxic. Angry but empowered, Beatty began her quest to find healthy, safe home products yet quickly realized that there was limited access to these sorts of things, especially on the east coast. In the face of this green product drought Beatty became what she calls "an accidental entrepreneur" and saw an incredibly fertile opportunity to create a one-stop shop for green building products and services. In 2005, Green Depot was born.

Fast forward four years and you can find a Green Depot in nine different cities, including their flagship store in New York City on Bowery and their e-commerce site, greendepot.com. Media and consumers alike just can't stop praising this eco destination, with The New York Times, The Wall Street Journal, The New York Post and more clamoring to dole out accolades for Green Depot. Perhaps poised to become the Whole Foods of construction and renovation, one thing's for sure, Beatty has expertly provided us with a place for us to feather our nests in all shades of green!

Keep reading to find out how this determined new green business woman has earned Green Depot's moniker as America's leading one-stop shop for building solutions!

Green Depot sounds like a fairytale success! Tell me about some of the challenges you experienced.

Starting a new business was more challenging than I ever imagined. I was naïve about the obstacles I'd face and figured that there were lots of consumers out there just like me who would want these products -- even if they didn't quite realize it yet! I came to the business as a complete novice in construction, sustainability, green practice, materials and supply but ultimately, being "new" to these sectors has helped me in my role as translator and advocate for the customers I serve.

There has been a lot of confusion in the marketplace surrounding what is "green" and "greenwashing." Early on I recognized that a key component to our leadership and success would be establishing an even-handed assessment system for the products Green Depot offers, which we call CLEAR. This easy-to-read icon system awards full- or half-toned icons based on whether products meet or exceed internal standards in: Conservation, Local, Energy, Air quality and Responsibility (CLEAR). Green Depot's proprietary filter is the result of a year's work with our internal team and experts affiliated with the Lowell Center for Sustainable Production.

The economy's reversal last year has also put strain on our business but luckily our customer base is diversified -- it ranges from developers and corporations to affordable housing institutions and homeowners. The downturn forced us to work and think even harder about how to remain sustainable, how to be nimble and quick in responding to new opportunities. Although traditional construction is down, the green building sector is growing faster than ever! Green Depot has been fortunate enough to experience continued growth and we are proud to have become the nation's leading one-stop shop for green building solutions. I often repeat what I heard a colleague of mine say years ago, "In 10 years, there will be no such thing as green building, building will just be green." All indications prove that to be true. I see Green Depot as the portal for the increased product demand and the know-how required.

You have obviously responded to obstacles by turning them into opportunities! What are some other rewarding experiences you've had thus far?

Seeing customers in the store every day that are gratified and empowered by what we have to offer and share is always a huge reward. We've had scores of schools bring students ages 8-18 to the Bowery for learning labs -- seeing those kids engaged is so inspiring, it reminds me why I am doing this. An unexpected reward has been Green Depot's ability to spur local green manufacturing -- Ivy Coatings paints & finishes and GreenMaker Industries commercial cleaning products are just two examples of "locally Made-in-NYC" products we've helped bring to market. I am so proud that Green Depot Chicago has played a leadership role in the weatherization and retrofit programs underway there. I believe we've become a leader in the green marketplace because of our thoughtful approach, our motivated staff, and our willingness to learn and adjust every day. I'm proud that Green Depot can be a change agent for better products and innovation in the marketplace.

With so much talk about going green these days, it can be overwhelming to know where to start -- any advice?

When it comes to any "change" I am a big believer in starting with oneself. Consider your own buying decisions, use your own home and discover the resources that are available in your own backyard and neighborhood. It really is all about small steps. That way you have credible insight and experience to share with friends and family. It will certainly make a difference in how your feel about the way you are living your life within your own community and you'll learn things you never knew before.

(Go here to find out more about Green Depot's larger, more notable projects. Among the cool stories: a renovation of actor Adrien Grenier's Brooklyn townhouse, HGTV's "Fun Shui" Nursery, and Barney's 2007 department store holiday windows.)

As a Green Depot connoisseur, what are some of your favorite products being sold?

The Family Air Care Kit is a breakthrough product -- developed by National Jewish Health, the #1 respiratory hospital in the US -- it tests for the five most common triggers of asthma and allergies in our homes (where we spend most of our time). A fun one that I like is the SodaStream seltzer maker -- you can turn tap into sparkling or use a range of their regular, diet, energy and caffeine-free flavors. Of course, I'm very proud of Green Depot's cleaning products, which are DFE (Design for Environment) approved formulas, and the range of coatings, paints and finishes we carry.

As this greening trend continues to grow, what do you see for the future?

We all need to be more mindful of our choices and the ways we consume -- it's easy to shift simple routines that cut down both our carbon footprint and our "waste print". It's important to invest in quality items that will last and surprisingly easy to make our homes more healthy, comfortable and energy efficient. Practical steps can be found on Green Depot's website.

To ensure our children's children are able to enjoy the same world we do -- if not a better one -- we all must think responsibly about how be build, live and consume. Urban populations like New York City are growing so the infrastructure we build and retrofit needs to anticipate that growth. Protecting the earth's natural resources, reducing carbon emissions and creating healthy, thriving communities are all possible goals to work towards, and opportunities for the reinvention of America. Every person can play a part -- from world leaders to everyday citizens. When we do, we discover the true meaning of the words "community" and "stewardship". My journey with Green Depot has made me even more hopeful about the possibilities for our future.

To get in touch with Sarah or the Green Depot team, email contactus@greendepot.com

Planning to go green or in the process already? Want more interviews with leaders in the green business? Tell me about it in the comments below or email me at marissabronfman@gmail.com

Luiz Inácio Lula da Silva: G-20 Pittsburgh Summit: Reasons to Celebrate?

2009-09-23T10:36:49Z

BRASILIA, Brazil -- Optimism is the leitmotif surrounding the upcoming Pittsburgh Summit. Yet certain concerns remain. A year ago, as the dramatic recession unfolded around the world, many were convinced we were heading for a repeat of the Crash of 1929.

Due to measures adopted at the G-20 Summit in London last April, the worst threat in decades to the global economy was contained.

After a 9 percent reduction, global trade has rebounded, thanks to the injection of U.S.$250 billion in flexible, unconditional credit. Nearly 50 million jobs will be lost in 2009, but there are signs that the worst is past. Another U.S.$750 billion went to stimulate demand and stabilize the current accounts of many -- particularly developing -- countries hit by the drastic cutback in foreign trade and credit.

The scale of resources mobilized has been unprecedented. Yet even more significant was the quick and decisive show of collective will involved.

The degree of trust thereby regained has helped keep the economy afloat during this period of great uncertainty and turbulence.

The international community stared at the abyss below but managed to pull back. Should we celebrate having avoided the worst? Should we sit back and wait for the next crisis? After all, the mirage that markets are self-regulating and that financial profiteering is somehow grounded in economic logic has finally collapsed. Yet even those countries that were not wooed by the promise of easy gains found themselves unshielded from this gale-force crisis.

When G-20 leaders first met in Washington last year, no fully worked out policy proposals were available. Yet they did not let themselves get bogged down in inertia or stalemate. They were aware that the current crisis reflects structural imbalances that reach far beyond financial misdoings. Climate change and growing global competition for energy resources and markets starkly confirm what we already knew: that globalization has made us ever more dependent on each other.

Last year Brazil took the lead in defending the consolidation of the G-20 as a forum of leaders who could bring rationality to bear in managing the crisis. The time had come for a show of political will and for undertaking fundamental structural adjustments.

This explains our dismay at the reluctance of developed countries to embrace proposals for reform of the Bretton Woods institutions. There is fierce resistance to putting teeth into financial markets' oversight mechanisms. Banks are going back to the very practices that precipitated the recent chaos. Bankers continue to be overpaid, while millions of men and women lose their jobs.
Nor do we understand why industrialized countries refuse to shoulder their share of the burden when it comes to fighting global warming. They cannot delegate to developing countries tasks that are theirs alone.

Signs of a return to protectionist instincts are equally worrisome. As is the current paralysis of the Doha Round, since we know full well that its conclusion would greatly speed global economic recovery.

Such attitudes threaten the London Summit's main achievement: the acceptance that the challenges of a globalized planet will not be met without the active involvement of all. Our decisions must be made in a more transparent and representative manner. Developing countries did not cause today's major crises. They are, indeed, their main victims. Yet, more and more, they have also become part of the solution.

The emerging world has gone beyond just denouncing speculative adventurers and the breakdown of obsolete dogmas. It is making an active contribution to finding solutions. We must bring the representation and the voting power of developing countries into line with their relative weight in the world economy.

We will arrive at the U.N.-sponsored climate-change negotiations in Copenhagen this December with our own alternatives to guarantee sustainable development. The Amazon Fund that Brazil launched in 2008 combines the well-being of millions of people with protection of our natural heritage. We have substantially reduced the clearing of our forests. Brazil's experience with biofuels and the widespread use of hydroelectricity point the way to an energy blend in harmony with environmental preservation.

Policies adopted by countries in the Global South have created tens of millions of new consumers, who will drive the recovery of the global economy. In Brazil, income distribution has been shown to be a powerful inducement to healthy growth.

This is no time to suspend anti-cyclical policies that have proven their worth. The poorest countries, hardest hit by the crisis, are in a hurry to see their economies rebound and thus renew their peoples' hopes for prosperity.

For all those reasons, we stand for more democratic and fair global governance. We hope to see results at the Pittsburgh Summit. Of course, the G-20 cannot solve these problems alone. The crisis of international governance will not be overcome by multiplying new ad hoc groupings, ranging from the G-8 and the G-14 to the G-20 or whatever else might arise in the future. They can only be successful if they help us get back to the reform of the multilateral system.

We want the kind of governance that makes our interdependence an inducement for self-interested solidarity, instead of a pretext for the strong to always come out ahead. The G-20 is an extraordinary chance for us to prove that this is no rose-tinted daydream.

We can move forward together because the world has changed. This is the message of hope and commitment that Brazil is carrying to Pittsburgh.

DISTRIBUTED BY GLOBAL VIEWPOINT NETWORK/TRIBUNE MEDIA SERVICES. HOSTED ON LINE BY THE CHRISTIAN SCIENCE MONITOR.

Steven G. Brant: The Brilliance (and Stupidity) of The Age of Stupid

2009-09-22T21:36:10Z

Last night I attended the global premier of The Age of Stupid here in NYC. It was really exciting to be in a movie theater and see not just a film but a live, global premiere event complete with statements addressing the issue as well.

Congratulations to the filmmakers for creating this significant innovation in the art (and science/technology) of movie openings! ... and for getting the actress Gillian Anderson, the musician Moby, and former UN Secretary-General Kofi Annan to speak at the event! Wow!

Regrettably, this brilliantly staged premiere was for a motion picture that was not really all that brilliant itself. In fact, in some ways, the film is rather stupid. Which may ultimately be a good thing - and may turn out to be why, in a sociological sense, the film was made. That's because when such a well-meaning attempt to solve a problem is as incomplete as this film is, it opens a door for those who know what's missing to take responsibility for the situation and fill in the gaps.

So, let me be clear. I think "The Age of Stupid" was made by people with tremendous heart and for whom I have nothing but respect and admiration. It took them years to make this film. And they enlisted the support of hundreds (perhaps thousands) of people, many of whom donated their time to the cause. The filmmakers were very innovative in how they financed their project too, using what they call crowd-funding. It's fantastic that they were able to fiance this film using a "we, the people" model.

However, after all that innovative thinking, the film they made tells the same old people keep doing stupid things - like not building windmills because they spoil the landscape - and we all die story. It's essentially the same rant against stupid behavior we've heard for years, dressed up in an elaborate, well-intended package. "The answers are right in front of us, but the masses - and their leaders - aren't using them yet. Stop being so stupid!" it yells at us.

Well, protest marches - in whatever form they take - have their place. But what these filmmakers don't realize is that global warming isn't going to be prevented by some higher form of protest march. It's not going to be prevented by one side of the issue doing a better job of brow-beating the other side into seeing things their way.

Global warming is going to be ended by something that's never been part of the mainstream stop global warming movement's strategy for change.

It's going to be ended when the focus becomes not What do we want to stop? but What do we want to start? instead.

And what do we want to start?

A Cultural Transformation.

The crisis that awaits us will only be averted when we realize that the Root Cause of the challenge we face is one of human beings relating to human beings, not of human beings relating to mother nature, and that a Transformation in that relationship is what will make solving our global warming crisis possible.

The story The Age of Stupid could have told is how - because the efforts to create a culture of peace between all the peoples on Earth failed - all the energies humanity spends fighting with itself were never applied to the challenge of preventing global warming.

You see, for the cost of one Iraq War (including caring for all the wounded for the rest of their lives), the US could finance the construction of a solar energy installation in the sub-Sahara desert that could provide electricity (with zero-cost fuel from the Sun) to a large portion of the planet. See preliminary reports here and here.

For the cost of one bailout of the global economic system, the world's economies could finance the complete transition to a sustainable developmental model of the kind developed and championed by people like Amory Lovins and William McDonough.

Unfortunately, humanity is currently locked in a many ages-old mindset that says:

The First Law Is Survival. And since there isn't enough for all of us, that law means survival of just me and those people I like to spend time with: family, friends, and neighbors. If the differences between me and 'the others' are too great... too uncomfortable to deal with... then I'll make sure those people don't get what they need. That's because we live in a world of 'winners and losers'.

This us-against-them mindset underpins every social structure on Earth, including our global economic system. The only exceptions are those communities that consciously practice a "we're all in this together" philosophy. (Examples here.)

And the funny/sad thing is that living in an us-against-them world is not even necessary any more. Because - as people like visionary Buckminster Fuller and Scientific American founder Gerard Piel first lectured in the 1960's - we have the capability to feed, clothe, house, and educate every man, woman, and child on Earth. We still do, despite all this "We need more than one Earth" limited capacity talk. Such nonsense - or, more properly, "non-science"!

Because - if you're a scientist who thinks systemically - you know that humanity does not just live on Earth. Humanity lives in the Earth-Sun system, in which the Sun sends more energy here every day than we humans could ever need. All we need to do is capture it, like the plants already know how to do. In fact, there are scientists right now who are developing the technology of artificial photosynthesis.

While watching The Age of Stupid, I hoped that the man from the future would show all the attempts to heal the divide between the peoples of Earth that had failed. I had hoped the videos he watched would have included Eleanor Roosevelt delivering the Declaration of Human Rights to the delegates at the UN... the efforts of Gandhi and Dr. Martin Luther King, Jr. to create social change through non-violent measures... the call for all nations to develop strategies to transform their societies from unsustainable to sustainable ones at the UN's 1992 conference on the environment (which led President Clinton to launch the President's Council on Sustainable Development in 1993)... and the speech by UN Secretary General Kofi Annan at the World Economic Forum in 1999 that led to the launch of The UN Global Compact (the corporate social responsibility initiative that has the power to transform the values underlying the world's business community, including Wall Street).

If the man from the future in The Age of Stupid had talked about all of these global missed opportunities from the past, then this film would have been as innovative in the story it told as it was in how it was financed and how it was premiered.

But I can't blame the filmmakers for not doing this. They made this error because they don't see that world peace and global warming are connected. Like most people, I suspect they see the world as having many, separate problems, each one having its own, separate answer.

They don't think systemically, which would enable them to see how all the world's problems are interrelated... and how humanity's inability to live in peace with itself is the macro problem to end all macro problems... because, if this macro problem were to solved, then the solutions to all our other problems would fall into place.

There are a great many things the man from the future could have said humanity failed at doing. But he never spoke about the failure to heal what prevents the human family from working as one.

He never spoke about all the wasted time, energy, resources, and money spent on pushing us apart... and how much good all of that could do if applied to - not just stopping a catastrophe from happening - but to creating a peaceful world.

He never spoke about the failure of our world's leaders to offer a vision of all cultures being free to develop their diverse and creative talents in the arts and sciences... a vision of humanity being able to exercise its innate desire to explore new worlds.

This demonstrably provable opportunity - to live in a world free of both the fear of the catastrophe that is global warming and the fear of the catastrophe that is war - is the opportunity I wish The Age of Stupid had shown humanity as being too stupid to make happen.

He could have pointed out that this capability - while off the radar screen of the majority of people - did exists in the past... in our time... today!

---------------------------------------
Postscript

If you think my talk of a missed opportunity for peace is naive and ignores the "facts" of human nature, then I request you do two things:

Read the speech Secretary of State Hillary Clinton gave on July 15th in which she laid out the principles for designing an "Architecture of Global Cooperation".

And read Dr. Stephen R. Covey's classic work on human development, The 7 Habits of Highly Effective People, which focused specifically on the "maturity continuum" from dependent to independent to interdependent thinking.

It's possible for humanity to get out of the Global School Yard that is where so much of our political activities exist. We have learned how to get along with our selves and our families, through individual and family counseling. (Not everyone may be using what counseling has to teach, but those principles exist.) And we have learned the principles for cooperation in the workplace, thanks to management gurus such as W. Edwards Deming. (Every workplace may not be using these principles, but they exist as well.)

Some of us know that these same principles and processes can be applied at the community, national, and international level as well. It's just a matter of scaling them up.

We can do this. Especially now that you know the information is out there... and how important it is not just to the cause of preventing a global warming catastrophe... but to the cause of building a world of peaceful cooperation between all the peoples on Earth.

We can do this. We can be wise not stupid, learn what it takes to grow up and work together as one human family, and have the world of our dreams!

Frank Rich: Even Glenn Beck Is Right Twice A Day

2009-09-19T20:44:02Z

Beck frequently strikes the pose of an apocalyptic prophet, even insisting that he predicted 9/11. This summer he also started warning of domestic terrorism in the form of a new Timothy McVeigh. On this, one fears he knows whereof he speaks. For all our nation's unfinished business on race, racism is not Obama's biggest challenge during our unfinished Great Recession. He -- and our political system -- are being seriously tested by a rage that is no less real for being shouted by a demagogue from Fox and a backbencher from South Carolina.

France To Use Happiness As Economic Indicator

2009-09-14T11:05:08Z

PARIS — French President Nicolas Sarkozy asked world leaders to join a "revolution" in the measurement of economic progress by dropping their obsession with gross domestic product to account for factors such as health-care availability and leisure time.

In a speech on the first anniversary of the collapse of Lehman Brothers, Sarkozy said the financial crisis has shown the need for a better way of calculating a country's economic health.

Roberto G. Quercia: Exposing the Myth of Irrational Exuberance

2009-09-08T15:30:35Z

Much has been written about the causes of the foreclosure crisis. Blame has been placed on everyone from irresponsible homeowners to greedy real estate agents, appraisers, and lenders, to sloppy investors, to apathetic government regulators. Others have blamed a "boom psychology", contending that market participants got carried away by a collective and irrational belief in never-ending house price appreciation. This view is the most recent incantation of Alan Greenspan's now famous expression, "irrational exuberance." In his 2008 book The Subprime Solution, Robert J. Shiller sees boom thinking as the main cause of today's mortgage foreclosure crisis, as he writes that: "...the most important single element to be reckoned with in understanding this or any other speculative boom is the social contagion of boom thinking."

We do not accept the premise that the global financial crisis was rooted in some sort of mass delusion. Instead, we contend that the major cause was very real: market participants acting in a rational manner in response to short term economic incentives led to the boom and subsequent bust in housing markets, the credit crisis, and the deep recession. If anything, it was the meteoric growth in risky lending that fueled the run up in prices, affecting the psychology of market participants along the way.

Why is this important? If the key causes of the crisis were "irrational" and "psychological" there is little to be done except hope for more sober behavior next time. In contrast, if the key cause was real economic incentives, as we contend it was, then action to change these incentives is justified. If the market as currently structured is unable to police itself, it is clear that the regulatory structure needs to change. Who will assume this responsibility -- whether a committee of regulators or a single regulator (and which one) -- is currently in debate. More importantly, how and what they regulate should address the concrete causes of the crisis, which we set out to explain below.

Loose Underwriting, Promoted by Excess Capital and Global Demand for High Yielding Investments

As is often the case with inter-related forces, the short-term economic incentives leading to the crisis are not easy to disentangle. As a starting point, we point to the seeming oversupply of capital around the globe starting in the late 1990s . In a Wall Street Journal 2005 article, Greg Ip and Mark Whitehouse reported that there was an unprecedented wave of capital flowing around the world, with all of its owners anxiously searching for a better return. In 2005, world pension funds, insurance and mutual funds had $46 trillion at their disposal, up almost a third from 2000 (June 16, 2005).

In his blog Abnormal Returns, Tadas Viskanta documents that the savings glut led to lower returns on traditional investments. As a result, investors around the world became interested in riskier assets because of their potentially high returns. Capital market firms that issued these assets benefited greatly as more and more money was drawn to more lucrative (at least in the short term) but more risky assets.

With its higher yields, the then emerging subprime market provided an ideal outlet for the excess capital searching for higher returns. Until fairly recently, subprime loans were a relatively small share of the overall lending market. These loans carried higher rates and fees to compensate for the perceived higher risk of lending to borrowers who could not get a standard (prime) loan. The subprime market mushroomed from $35 billion 1994 to $665 billion in 2005, and represented nearly a quarter of all mortgages by 2006.

Over the years, the demand from Wall Street for the higher return (riskier) assets helped fuel a rapid decline in underwriting standards in subprime and related forms of non-traditional mortgages. The high-cost subprime mortgage had its roots in the home equity refinance market. When the growing demand of Wall Street outgrew the supply of such loans, subprime lending expanded in the home purchase market. Adjustable rate mortgages became increasingly popular. The offering further expanded to include short term teaser rates that adjusted to a fully indexed rate within a few years, interest only periods, negatively amortizing mortgages and the now infamous pay-option ARM that combined all these elements. At the same time underwriting standards grew ever more flexible, once the prior standard was seen as an obstacle to continued lending growth. Down payments got smaller while less and less attention was paid to the borrowers' fundamental ability to repay.

Each of these iterations opened new opportunities to produce more loans, via a fee-driven supply chain. Originators of high cost/subprime mortgages made all their money up-front, through fees paid by borrowers (and often financed in the loan amount) and by investors (in the form of yield spread premiums). Brokers originated the loans, passed them to the lender, and were out of picture, profiting even if borrowers later defaulted. Lenders in turn sold the loans to Wall Street. Wall Street packaged these loans into increasingly complex securities and sold them to investors, earning fees for issuing and managing the securities over time. Credit rating agencies rated the investments, and got a fee if the issuance was successful, and then they too were out of the picture. Ultimately, it was the investor who carried the risk but with the promise of higher returns and the presence of credit enhancement mechanisms from reputable companies such as American Insurance Group (AIG) in place, they felt there was little to fear.

Domestic and international investors exhibited a seemingly endless appetite for the higher returns promised by these riskier assets and instruments. Kay Aaron reports that subprime securitization grew exponentially from only $11 billion in 1994 to $814 billion by 2006.

Regulatory Actions and Failures Promoted Risky Behaviors

Concurrently, the actions of regulators provided a strong market signal to other actors. These actions can be grouped into two categories: encouragement of easy credit and nontraditional mortgages that led to over leverage in the market, and a laissez-faire attitude.

Economists believe that the Federal Reserve's reduction in a key interest rate in 2004 was a key factor in the ensuing crisis. The cut in rate was in response to deflation fears, that is, the concern that prices would go down, not up. Sustained low interest rates encouraged borrowing that led to higher prices. Shiller contends that it is possible that the government and its regulators were excessively focused on preventing recession and deflation because they honestly saw the home price increases as continuing -- if at a reduced rate -- indefinitely, even if they were to implement a monetary policy that would feed the bubble (p. 48).

Concurrently, the Federal Reserve was encouraging Americans to borrow more by assuming more risk. In a 2004 speech Greenspan complained that borrowers were wasting money by not choosing adjustable rate mortgages:

"American consumers might benefit if lenders provided greater mortgage-product alternatives to the traditional fixed-rate mortgage...To the degree that households are driven by fears of payment shocks, but are willing to manage their own interest-rate risks, the traditional fixed-rate mortgage may be an expensive method of financing a home."

It is reasonable to assume that statements such as the above sent a strong signal to market participants. Not surprisingly, lenders began to offer ever more "innovative" products regardless of their appropriateness to the circumstances of individual borrowers.

Early signs of problems associated with high cost/subprime lending date back to before 1999, when North Carolina passed the nation's first state anti-predatory lending law. Yet Washington seemed uninterested in enacting new regulation to reign in Wall Street and the rest of the industry. On the contrary, Federal regulators preempted national lenders and their subsidiaries from state laws aimed at curtailing the worst practices.

Why this lack of interest? We suggest two reasons. First, the Bush administration and then Federal Reserve Chairman Greenspan shared a belief that markets police themselves effectively. The second reason for government inaction may have been more pragmatic. Consumer spending accounts for over two thirds of all economic activity in the U.S. Wages remained relatively flat during 2000-2005. Thus consumption during those years was fueled in large part by accessing home equity as prices continued to rise due to the increasing availability of ever more flexible high cost/subprime mortgages. It is unlikely that the administration in power wanted to curtail growth by limiting the availability of toxic loan instruments that made much of the consumption, the economic growth, and the optimism possible.

Irrational? Think Again...

The irrational exuberance of irresponsible homeowners and many of those involved in the home buying process has received much of blame for the crisis. But, were the actions of homeowners and others really irrational (ie: based on boom psychology) or were there basic economic incentives and market forces distorting the homebuying process that provided the motivation?

We rely on an example to identify the dynamic forces at play. Assume two identical borrowers, with the same income, wealth, and other characteristics from an underwriting perspective. The only difference between Jane and Jack is their degree of risk aversion. They are both trying to buy John's house. Being more risk averse, Jane pre-qualifies for a 30 year, 6% fixed rate mortgage and escrow of property taxes and insurance. She should be able to borrow $160,000. In contrast, Jack pre-qualifies for a $250,000 adjustable rate mortgage with a 3% teaser rate and no escrow. For the same monthly payment, even if Jane puts down 20% of her own money, she can only offer $200,000, not even close to what Jack can offer before making any down payment. It is not difficult to guess who is going to make the higher bid for John's house. John ends up selling the house to Jack for $225,000.

Now Maria, John's neighbor, decides to sell her house. At the suggestion of her real estate agent, who checks the recent sales in her neighborhood (including John's), Maria puts her house for sale for 220,000. Jane is still looking for a house. What kind of mortgage does Jane need to make a successful bid for Maria's house? Jane has a choice to make. She can bid for Mary's house relying on a fixed rate mortgage again instead of a riskier product. But will her bid be successful? Not likely. As the market evolved, product "innovations" enabled similar borrowers to borrow even greater amounts, making Jane's offer less and less competitive. Alternatively, it can be argued that she could try to buy a home in another neighborhood where property values are lower. In the short term, such an option may be feasible, but over time, with hundreds or thousands of transactions, the only way to have a successful bid (afford a home) in a given market will be to rely on a risky mortgage.

These Hobson's choices ripple through the home buying process. Jane's real estate agent, who encourages people to buy only as much house as they can well afford, earns lower commissions and ultimately loses business to Jack's agent who promotes higher priced homes; Jane's mortgage broker, who counsels against taking out a risky mortgage that is only temporarily affordable thus scuttling the deal, will never receive another referral from Jack's agent; the appraiser referred by Jane's broker, who carefully calculates a reasonable value regardless of whether it justifies the offer price, will get no further business from Jack's popular mortgage broker.

As the discussion above suggests, the amount that can be borrowed with ever more flexible (and riskier) mortgage instruments is an economic reality. Clearly, market participants did not simply follow a herd mentality in disregard of their own "independent, individually collected information (Shiller, p. 47)." No, the herd was driven by very rational factors.

Irrational exuberance? We think not. Market participants responding rationally to a range of short term economic incentives are the root causes of the crisis. Concerned with deflation, government and regulators reduced the cost of credit and promoted the use of nontraditional mortgage instruments which bid up prices. Investors and lenders demand for high yielding investment options led to the creation and promotion of ever more innovative mortgage products that allowed loan applicants to borrow more and more with less and less. Home purchasers bid the prices of houses up ever higher with each new lending innovation. Initially, the crisis was precipitated by the inability to meet the exorbitant long term cost of these mortgages by an increasing number of borrowers.

There is no need to rely on irrational exuberance/boom psychology to diagnose this crisis or identify solutions. In fact, such reliance is at best a distraction because it hides the needed discussion on the very real short term economic incentives that were in place. Moreover, it also hides the fact that the market was unable to police itself to eliminate these incentives. This inability provides the strongest justification for a more effective government regulation of financial markets.

Swiss Topple US As Most Competitive Economy

2009-09-08T10:23:20Z

GENEVA (Reuters) �" Switzerland knocked the United States off the position as the world's most competitive economy as the crash of the U.S. banking system left it more exposed to some long-standing weaknesses, a report said on Tuesday.

World Job Market Showing Signs Of Recovery

2009-09-08T08:13:56Z

Britain's employers are reporting improved recruitment plans for the first time in three years, offering a "glimmer of hope" to jobseekers in the run-up to Christmas, according to a survey out today.

Diane Francis: China Jitters

2009-09-07T17:26:25Z

Asia suffered jitters last week as the world hurtles toward the traditionally dangerous fall season for stocks.

On September 4, the Financial Times plastered across its front page a photo of riot troops in full gear ready to repel protesters in China's troublesome province of Urumqi. That is a remote northwestern province where China's hugely dominant Han ethnic people do not dominate. Violence there in July cost about 200 lives and this week upset Han groups demanded the resignation of the local Community Party boss.

This was followed by concern in another remote region involving protests by Chinese peasants and the sudden departure of Google's China CEO as the government tightens censorship on the Internet.

Welcome to China Tremors, a growing market and media phenomenon, thanks to the fact that the Middle Kingdom has taken its place among the world's most important economies.

Not just China either

There were also small seismic shocks, such as the overthrow of Japan's ruling elite with a socialistic, untested party that pledges to get out from under America's hegemony. Then there's always the nagging concern about North Korea with its ailing, lunatic leader and his unknown succession plans.

That's the bad news. But that's also the good news because transparency has never been greater in the region. China -- third largest GDP in the world -- is now exceedingly open as reporters, citizen journalists, photographers and bloggers beam its tremors and jitters to the rest of the world.

Put another way, ten years ago it would have been unthinkable that a journalist could have shot a scene in Urumqi, much less that Chinese would demand the head of a Communist big shot.

China 2.0

Welcome to burgeoning democracy and transparency in China, which brings with it more shivers among the world's investors, blips in the price of bullion and angst in policy-making corridors everywhere.

The fact is that China is important, but so are others. And its retreat from a boom and bubble in its markets isn't all that bad for the rest of the world. Europe and the United States are beginning to feel pulses, marking an end to a scary recession, while China's disproportionate stimulus plan kept growth respectable and must now, obviously, be reined in somewhat. Thus the stock market's retreat of 22% in August and more in early September.

China also has overcapacity, collapsed export sales and is more sensitive than any other economy to commodity fluctuations, which have been on the rise due to fundamentals.
So market investors in China responded by selling due to fears that authorities will curb bank lending and impose restrictions on imports to reduce industrial overcapacity.

Analysts also pointed to lingering worries about a flood of new shares in the market.

Gold bugs love China jitters

China worries, as usual, also contributed to increasing gold prices in August, along with America's appetites to overspend and undertax. Gold prices are also helped by aggressive buying which is now official policy in China and Russia as the U.S dollar is debased through frightening deficits and political rigor mortis.

Much depends on China, but it's far from the only game in town. As it manages its expansion and the expectations of its massive population, it's important to remember that it is roughly the same economic size as Germany and Canada, and only one-fifth as big as Japan and the U.S.

We live in interesting times and this fall should be a whopper.

Diane Francis blogs at Financial Post.

Yukio Hatoyama: Japan Must Shake Off U.S.-Style Globalization

2009-08-25T15:46:38Z

In the post-cold war period, Japan has been continually buffeted by the winds of market fundamentalism in a US-led movement that is more usually called globalization. Freedom is supposed to be the highest of all values, but in the fundamentalist pursuit of capitalism people are treated not as an end but as a means. Consequently, human dignity has been lost.

The recent financial crisis and its aftermath have once again forced us to take note of this reality. How can we put an end to unrestrained market fundamentalism and financial capitalism that are void of morals or moderation in order to protect the finances and livelihoods of our citizens? That is the issue we are now facing.

In these times, we must return to the idea of fraternity -- as in the French slogan "liberte, egalite, fraternite" -- as a force for moderating the danger inherent within freedom. It must be the compass that determines our political direction, a yardstick for deciding our policies. The idea of fraternity is also the spirit behind our idea of achieving "an era of independence and coexistence" in today's world.

Fraternity as I mean it can be described as a principle that aims to adjust to the excesses of the current globalized brand of capitalism and accommodate the local economic practices that have been fostered through our traditions.

The recent worldwide economic crisis resulted from a way of thinking based on the principle that American-style free-market economics represents a universal and ideal economic order -- and that all countries should modify the traditions and regulations governing their own economy in order to reform the structure of their economic society in line with global standards (or rather American standards).

In Japan, opinion was divided on how far the trend toward globalization should go. Some people advocated the active embrace of globalism and supported leaving everything up to the dictates of the market. Others favored a more reticent approach, believing that effort should be made instead to expand the social safety net and protect our traditional economic activities. Since the administration of Prime Minister Junichiro Koizumi (2001-2006), the Liberal Democratic Party has stressed the former while we in the Democratic Party of Japan have tended toward the latter position.

(For context on Japan's election August 30, read:Briefing: Why power may shift in Japan)

The economic order or local economic activities in any country are built up over long years and reflect the influence of each country's traditions, habits, and national lifestyles. However, globalism progressed without any regard for various non-economic values, nor for environmental issues or problems of resource restriction. If we look back on the changes in Japanese society that have occurred since the end of the cold war, I believe it is no exaggeration to say that the global economy has damaged traditional economic activities and destroyed local communities.

Capital and means of production can now be transferred easily across international borders. However, people cannot move so easily. In terms of market theory, people are simply personnel expenses, but in the real world people support the fabric of the local community and are the physical embodiment of its lifestyle, traditions, and culture. An individual gains respect as a person by acquiring a job and a role within the local community and being able to maintain his family's livelihood.

Under the principle of fraternity, we would not implement policies that leave economic activities in areas relating to human lives and safety, such as agriculture, the environment and medicine, to the mercy of the tides of globalism.

Our responsibility as politicians is to refocus our attention on those non-economic values that have been thrown aside by the march of globalism. We must work on policies that regenerate the ties that bring people together, that take greater account of nature and the environment, that rebuild welfare and medical systems, that provide better education and child rearing support, and that address wealth disparities. This is required in order to create an environment in which each individual citizen is able to pursue happiness.

Overcoming Nationalism Through an East Asian Community

Another national goal that emerges from the concept of fraternity is the creation of an East Asian community. Off course, the Japan-US security pact will continue to be the cornerstone of Japanese diplomatic policy. Unquestionably, the Japan-US relationship is an important pillar of our diplomacy. However, at the same time, we must not forget our identity as a nation located in Asia. I believe that the East Asian region, which is showing increasing vitality in its economic growth and even closer mutual ties, must be recognized as Japan's basic sphere of being. Therefore, we must continue to make efforts to build frameworks for stable economic cooperation and national security across the region.

The recent financial crisis has suggested to many people that the era of American unilateralism may come to an end. It has also made people harbor doubts about the permanence of the dollar as the key global currency. I also feel that as a result of the failure of the Iraq war and the financial crisis, the era of US-led globalism is coming to an end and that we are moving away from a unipolar world toward an era of multipolarity.

However, at present, there is no one country ready to replace the United States as the world's most dominant country. Neither is there a currency ready to replace the dollar as the world's key currency.

Although the influence of the US is declining, it will remain the world's leading military and economic power for the next two to three decades. Current developments show clearly that China, which has by far the world's largest population, will become one of the world's leading economic nations, while also continuing to expand its military power.

The size of China's economy will surpass that of Japan in the not-too-distant future. How should Japan maintain its political and economic independence and protect its national interest when caught between the United States, which is fighting to retain its position as the world's dominant power, and China, which is seeking ways to become dominant?

To continue reading Yukio Hatoyama's article at Christian Science Monitor Online, please click here.

Yukio Hatoyama heads the Democratic Party of Japan.

This is an abridged version of an article entitled "My Political Philosophy" in the September issue of the monthly Japanese journal Voice. Copyright Voice/Global Viewpoint Network, hosted online by Christian Science Monitor. Distributed by Tribune Media Services.

Sheldon Filger: Latest Consumer Spending Data Much Worse Than Expected

2009-08-17T13:27:00Z

At its peak level of GDP, the U.S. economy depended on the American consumer for more than 70% of its output of goods and services. It has been the deleveraging of the American consumer, and to a growing extent, his/her unemployment, that has been the catalyst of the U.S. recession. And not only America; the centrality of the U.S. consumer to the overall global economy has meant his pulling back on a debt induced shopping spree, which has sparked a worldwide synchronized recession.

The vast amount of money that Uncle Sam has borrowed to fund a nearly $800 billion economic stimulus program is supposed to substitute for the falloff in consumer demand, stop the avalanche of job losses and in the process regenerate consumer spending. The perception that this policy response was beginning to bear fruit has been the foundation of a recent flurry of statements emanating from the Federal Reserve, intimating that the recession was winding down, with recovery just around the corner. Both the Fed, Obama administration and Wall Street fully expected that the July retail sales figures would reflect a return to growth in consumer spending, juiced up by a taxpayer funding "cash for clunkers" gimmick aimed at kick-starting auto sales.

When the official sales figures were released by the Commerce Department, jaws dropped right through the floor. Instead of the .7% rise that was expected, July's retail sales figures revealed a decline of .1%. However, the reality was much worse than even the posted decline, for the July figures were artificially inflated by a large increase in automobile related products due to "cash for clunkers." Without the engineered car driven increase in consumer purchases, the actual retail sales contraction was .6%.

The ugly truth is that no matter how manipulated official economic statistics are, including the U3 unemployment number, the reality is that total consumer purchasing power, reflecting the number of hours worked multiplied by average wage, has declined to a level that makes it virtually impossible to recreate vigorous economic growth. Despite the happy talk from Washington, I think it would be surprising if the Obama administration does not ask Congress for a second massive stimulus package before the end of the year.

Should a second stimulus package be proposed by President Obama, he may encounter stiff resistance from Republicans and fiscally conservative Democrats over concerns about the exploding national debt. However, it is likely that the Obama administration will place a higher priority on going into the 2010 mid-term elections with the ability to claim they have reduced unemployment rather than positioning themselves as fiscally responsible.

Higher deficits, however, create the danger of inflation and much higher interest rates. Escalating interest rates will serve as a brake on economic expansion, defeating the purpose of deficit funded stimulus programs. Now, in that situation, one can always resort to monetary policy, with the Federal Reserve reducing interest rates. However, in this unique economic disaster our planet is currently navigating its way through, the Fed, as with many central banks throughout the world, has already reduced its funds rate to close to zero.

Could the Obama administration be running out of options? If fall retail sales continue to plummet and unemployment rises, things could get even more ugly for the problematic American economy.

France, Germany Exit Recession

2009-08-13T08:25:21Z

LONDON — Government programs to support the auto industry helped Germany and France return to economic growth in the second quarter, rebounds that stoked hopes the recession in the wider 16-country euro area may also end sooner than thought.

Europe's two biggest economies each saw growth of 0.3 percent from the previous three-month period, surprising analysts' expectations for equivalent declines and technically ending their worst recession in decades.

Sheldon Filger: China's Exports Plunge

2009-08-11T22:26:19Z

The world's third largest economy is sending worrying signals to those whose best hopes for an end to the Global Economic Crisis reside with China. Though Chinese growth projections seems spectacular in a recessionary world, with estimates ranging from 8% to above 9%, there is both more and less to these numbers than meets the eye.

The superstructure underlying China's impressive growth rate over the past decade and more has been exports, especially to the American consumer, with facilitation from credit flows emanating from Beijing. In a situation where the central government is priming the stimulus pump, growth is being artificially created to a large extent, since domestic demand cannot compensate for China's ravaged export markets. Factories may still be manufacturing export goods, however, the inventories are surging while shipments abroad are contracting. That appears to be the message revealed in new figures on China's economic performance.

According to China's customs bureau, exports in July declined a staggering 23% from a year ago. This number is apocalyptic, yet on paper China's GDP keeps soaring. How can an export driven mega-economy experience significant growth simultaneously with its core export sector undergoing a free fall contraction? By flooding the economy with liquidity through monetary easing, it would appear. However, this is not a recipe for long-term, sustained growth. This policy will only succeed if there is a rapid turnaround in China's export trade. That is a dim prospect, in light of the continuing decline in employment numbers in most of China's key export markets, especially the United States and the Eurozone.

Another revealing statistic to emerge from Beijing involves lending. The first 6 months of 2009 involved a floodtide of easy credit saturating the Chinese economy. However, in July new loans declined by a massive three quarters from the prior month. It seems policymakers in China are getting more concerned about the prospect that overly-loose credit will fuel an asset bubble in Chinese equities and real estate, while leading to an increase in loan defaults in the future.

Taken together, we see China engaged in a a series of massive interventions and policy actions in response to the Global Economic Crisis that are not dissimilar from other major economies. These steps are predicated on the hope that massive pump priming will keep the economy from imploding until there is a global recovery, enabling China's export trade to resume its upward trajectory.

In my view, despite the rosy growth projections, the underlying fundamentals of China's economy are based on fragile assumptions. If demand for China's export goods from overseas consumers remains far under peak demand levels for a sustained period, Beijing will confront this reality: the nation's massive export manufacturing infrastructure cannot indefinitely employ workers who fabricate products that pile up on the docks of China's major ports. That is the nightmare scenario China's leadership circles pray never unfolds.

Dan Dorfman: Hallelujah, Salvation Is At Hand! Or Is It?

2009-08-11T16:23:12Z

Great news, right! Only 247,000 job losses when it was really supposed to be 325,000 losses. That's all I've been hearing about from Wall Street contacts ever since Friday when the July employment numbers showed the lowest number of job eliminations in 11 months. Convinced that the economy had now turned the corner, investors took off on another one of their emotional tears by chasing after stocks and driving up the Dow Industrials that day nearly 114 points as the unemployment rate unexpectedly dipped to 9.4%, the first such drop in 15 months.

Even President Obama got into the act, telling the nation after the news of the reduced job losses that "we've built a new foundation and that the worst of the recession may be behind us."

He may be right, of course, but everyone seems to be ignoring the accompanying anguish. In brief, the latest layoffs raised the jobless rolls to nearly 15 million, which means more foreclosed and abandoned homes (now in excess of one million), more mortgage delinquencies (currently a whopping 11.3% of the 41 million mortgages outstanding) and a growing number of worriers who will further pinch pennies, putting additional pressure on the economy.

Mark Haber, 56, who e-mails me he has a number of unemployed middle-aged friends who can't get jobs and whose $475,000 upstate New York home is surrounded by 7 others that have been seeking buyers for many months, doesn't share the President's cheery outlook.

"What's going on in the White House is not what's happening in mainstream America," he writes.

About 7 years ago, Haber, a New York men's clothing salesman, was sitting in a Paris café when he struck up a conversation with a friendly stranger who told him the Mona Lisa hanging in the Louvre Museum was really a phony, that he actually owned the real Da Vinci painting which he would sell to him for just $1,200.

"I think Obama is also trying to peddle another phony Mona Lisa," Haber wrote.

Los Angeles money manager Tom Postin of P&W Partners, agrees. "I really can't believe the President is honestly convinced the worst is over," he says. "W.C Fields," he recalls, "once told Mae West there's a sucker born ever minute, and those stock-buying suckers were out in full force last Friday. Practically every day some one says the recession is over and done with, but the facts tell you otherwise," he says.

"Every one I know, and that includes people who own mansions and Rolls-Royces, is trying to save a buck. Talk to companies that have laid off employees, and I talk to them every day, and they'll tell you they ain't ever hiring back all the people they've laid off. What it says is get used to a permanently shrunken work force."

Postin figures of the roughly 15 million unemployed, perhaps as many as 8% of them should forget about ever working again full time.

Still, there's no denying that the economy has been flashing growing signs of improvement, which is even leading some of the more notorious economic bears to ease up temporarily on their dire forecasts. One, surprisingly enough, is Florida investment adviser Martin Weiss, Wall Street's current Prince of Darkness, who views the latest jobs report as positive. In particular, he points to the modest increases in both average hourly earnings and weekly working hours and a drop in the number of industries shedding jobs.

Still, he thinks Obama's "new foundation" is a very shaky. We're in a calm before the storm, which can be prolonged for another few quarters," he says. Why a calm period? Because, he explains, the government temporarily has been successful in tamping down fear; likewise, there has been some stabilization in the housing market due to declining prices.

Accordingly, Weiss, the head of Weiss Research in Jupiter, Fla, sees a feeble recovery for the balance of the year, with GDP growth coming in at a puny 1% to 2% over the next few quarters. "But I wouldn't jump for joy because we're still in a severe economic contraction," he says. Pointing to the severity of the peak to trough declines in recent years of two of the country's major industries -- 78% in housing starts and 45% in auto sales -- Weiss notes that any recovery is highly likely to be much smaller than the declines. He also thinks the unemployment rate will ultimately rise to between 12% and 16% before the current economic downturn runs its course.

Weiss figures the next crisis -- which he notes always comes in waves -- will be higher interest rates across the board. "Were already seeing it in long term notes and bonds and he reckons upward pressure on short-term rates could soon follow.

He also contends our fundamental problems are not being resolved, but rather papered over. In particular, he points to excess debt of low quality, excess speculation in the financial markets and mushrooming debt and deficits. Our deficit is approaching $2 trillion, which Weiss observes, must lead to higher interest rates.

His view of the investment scene: If you're a long-term investor, any rally in the U.S. stock market should be viewed as a selling opportunity and any decline in key overseas markets, notably China and Brazil, should be looked upon as a buying opportunity.

In a highly provocative forecast that most of his peers would certainly view as outlandish, Weiss remains convinced that the Dow, currently trading at around 9,330, will plummet to 5,000 some time in 2,010. At some point, he says, the market will once again trade on reality and not simply at levels based on hope and a prayer.

Speaking of reality, online investment adviser Mark Leibovit of VRTrader.com of Sedona, Ariz., also offers a thought. "It is hard to imagine that all is well with the economy," he says, "when supposedly our entire financial system was on the brink of Armagedden just a few months ago."