Saturday, November 16, 2013

RUNNING THE COUNTRY AS A BUSINESS

By Charles Snow


In his book The (Mis)management of America, Inc., Lawrence G. Hrebiniak uses the metaphor of a large corporation and applies it to the U.S. economy. He examines how top management -- the White House and Congress -- runs the country and artfully describes a "perfect storm" of irresponsible top executives managing a corporation whose customers (U.S. citizens) are  largely disengaged and misinformed. The consequences are potentially catastrophic. Although the book is five years old, its thesis is still valid -- perhaps even more so given the events that have unfolded over the past few years.

From a management perspective, consider how closely the U.S. resembles a large corporation. America, Inc. is a $3.5 trillion business. It is diversified, operating businesses in defense, health care, banking, science, education, and many other industries. It hires people, fires people, has retirement programs, makes money, loses money, and so on. The company called America, Inc. is larger, more diversified, and more powerful than Wal-Mart, IBM, Exxon Mobil or any other company in the world.

Wednesday, November 13, 2013

WILL HEAVY FINES DETER WALL STREET MISDEEDS?

 
By Ronald Fox

A reader, responding to my posting on economic inequality and institutional corruption, sent me a note asking whether I thought expanding civil and criminal probes into the financial dealings of Wall Street firms represents a turning point in holding large corporations accountable for criminal misconduct. These investigations, which have touched on such misdeeds as mortgage and derivative fraud, inner-bank interest rate manipulation, energy trading practices, insider trading, rigging global interest and currency rates, and passing out bribes to secure business, have already resulted in some record fines. The federal government promises there’s more to come. Globally the cost of banks cleaning up misdeeds is expected to soar to over $125 billion. I’m far from an expert on human behavior, business practices, and complex legal maneuverings, so in responding to the reader all I can offer is an educated opinion. I will draw on practical wisdom to argue that I don’t believe fines alone will be enough to deter Wall Street malfeasance.

The current legal troubles of JP Morgan Chase (henceforth, JPM), long considered one of our strongest and best managed financial institutions, is illustrative of recent government efforts to investigate and punish financial institution malfeasance. JPM is currently facing dozens of federal and state legal probes. As reported in the New York Times, a couple of foreign governments have also launched investigations. The company has already paid over $5 billion to resolve Federal claims that it misled Fannie Mae and Freddie Mac about risky home loans and securities they bought before the housing market collapsed, nearly $1 billion for failure to oversee trading that led to a $6 billion loss in its “London Whale” caper, and $410 million in a settlement with the Federal Energy Regulation Commission (FERC) for its alleged manipulation of California’s electricity market from 2010 to 2012. Among other legal probes, Morgan is presently being investigated for its connection to the Barnard Madoff Ponzi scheme and is in the final stages of negotiations with the U.S. Justice Department on a multi-billion dollar settlement for activities related to the financial crisis. Our “best managed financial institution” appears now to be possibly our biggest corporate crook.

Thursday, November 7, 2013

THE CLIMATE CHANGE SAGA: OH MY, WHAT IS WRONG WITH US?

By Charles Snow

When I was a third grader in San Diego in the 1950s, my teacher was Leta Lipp. She was a wonderful teacher who, among other things, taught us how to think about and interact with the natural environment. Ms. Lipp loved the American Indian way of life, and every summer she would spend some of her time visiting the Hopi reservation in Arizona. When she returned to teach in the fall, she would introduce American Indian philosophies and practices to her students in the form of stories and projects (e.g., carving kachina dolls out of balsa wood). Ms. Lipp taught us that the relationship between humans and Mother Nature was sacred. The earth’s God-given resources are precious and should be respected. When someone uses a resource, such as removing a bucket of river water for drinking or killing a buffalo for food, he should not be wasteful. The environment should not be despoiled in any way and should be preserved for future generations. Essentially, Ms. Lipp taught us to be in awe of Mother Nature’s wonders and to do everything we could to preserve them.

If she were alive today, I believe Ms. Lipp would be pleased with the attention the environment has been receiving lately. I’m certain she would be appalled at how we’ve let the environment degrade, and probably she would be angry at the U.S. for being one of the world’s biggest polluters. A few years ago, 65 scientists received a Nobel Prize for summarizing the research done to date and concluding that climate change is real and that it is largely due to the actions of mankind (using fossil fuels for energy, emitting carbon dioxide into the air from automobiles, etc.). A recently released U.N. report, which was held up as scientists agonized over its wording, stated these same conclusions even more forcefully. Just last month, the head of the Organization for Economic Cooperation and Development sought to make climate change a higher priority on the global agenda, urging the world to eliminate all emissions from burning fossil fuels sometime in the second half of this century.