Now you’re asking for it

Some years ago, when I was a somewhat younger ShortWoman, I worked in the kind of business that required “closing techniques.” That’s a fancy name for getting a sizable check and a signature out of a customer. I personally preferred a very soft close; I showed my product in its best possible light and demonstrated its benefits; either my product was going to work for the customer or it wasn’t, and no amount of badgering the customer was going to change that. As a result, I was one of the few people in my industry who routinely had people come back a day, a week, a month later with checkbook in hand. Furthermore, I had more “renewals” — repeat business — than many colleagues.

But even with the softest of closing techniques, I still had to ask for the money. People might say no, but they can’t say yes if you don’t ask. Churches and charities even know this. Does the local preacher leave a box at the back of the hall for offerings? No! He passes the plate up and down the aisles, putting your donation or lack thereof literally “in front of God and everybody.” And hasn’t every mailing from a charitable organization you have seen included a card preprinted with “Yes! I would like to help! Here is my donation of…” and usually a series of checkboxes with recommended amounts. Some of these are preprinted with your name and address, and come with a handy envelope. “No” is never ever listed as an option.

Strangely enough, there are pockets of corporate America that have not figured out that they must ask for the money. Every “buy now pay later” scheme rests on the sinking sand of not asking for the money. Witness, this item in the current issue of Forbes:

That just happened with Mitsubishi in America, which had great success selling cars to people who couldn’t pay. Possibly you remember the Mitsubishi commercials: loud music, young drivers at the wheels of sporty cars. And what deals: no money down, no payments for a good while. Sales kept rising, but not the payments on the cars. Mitsubishi lost hundreds of millions of dollars, and the bill isn’t final yet. The company stopped the giveaways, replaced management and canceled its U.S. expansion plans. Recovery will take years. But I know that in a few years another company is bound to do the same thing.

Nor is Mitsubishi the only company to have the delusion that moving product is more important than getting paid for it. Google for “no payments for” (be sure to include the quotes) to get an idea of how big this problem is. As of this writing, it would appear that I can get 90 days with no payments and a fair interest rate from WalMart, Dell, and Honda Motorcycles. I can also apparently get no payments for 12 months on Pella windows and doors, and certain Sony Grand Wega televisions from Crutchfield. This is the results of 5 minutes searching, to say nothing of any local vendors which may offer ludicrous deals of their own. Furniture stores seem to be particularly bad about failing to get the money up front. If the “no payments until next year” ads haven’t started in your area, they will soon.

Is it a sale when the customer buys it, or when he pays for it? That is a question to ask yourself when reading up on companies you’d like to invest in.

Between Iraq and a Hot Place

The debate over who will pay to fix all the stuff broken in the war with Iraq is heating up. Europe would like to contribute what amounts to a token sum, Japanese sentiment is not exactly feeling generous on the issue, and the United States Senate would like to shift half the burden to Iraq. This would amount to roughly 17% of Iraq’s 2002 Gross Domestic Product — 17% of every dinar spent in the whole country last year. This does not reflect debts Iraq owed before the war. By way of comparison, the entire national debt of the United States amounts to roughly 66% of the GDP.

However much we believe in self-reliance, telling Iraq to pay for the reconstruction of their country themselves is like telling a child to go earn money for his own dinner. Since we broke it in the first place, it’s like having to pay to repair your car after being hit by an uninsured driver. And some of the things we wanted to implement were esoteric to say the least: Zip codes; state of the art garbage trucks; one month courses in how to be a businessman. And that’s just some of the stuff that was taken out.

Now that we are giving the people of Iraq the dubious gift of an American style national debt, we would also like to give them a Western style central bank. They do have a central bank, of course — where else would the Husseins have kept their money? But as it stands, the Central Bank of Iraq is more like a Treasury Department and Mint. This makes them very different from our Fed, which buys and sells bits of the national debt, controls interest rates, and controls reserve rates — the amount of actual assets your bank or brokerage has to have on hand. You remember, like in George Bailey’s speech about how the cash wasn’t in the bank, but in all the houses they helped people buy.

Islamic banking is hampered by the Qur’an’s prohibition against charging interest. So our theoretical Iraq Fed will not necessarily have interest rates to tamper with. This also means there will be little to regulate in the way of reserve requirements — certainly nothing that requires regular non-legislative meddling. So the theoretical Iraq Fed will have nothing to do but muck about with the national debt, see above. Critics call it “prone to fiscal abuse from a provisional government and future Iraqi governments with more proposals for expenditure than probable sources of revenue.” Iraq needs a Fed like a diabetic needs a donut.

However, it is now clear that we can stop looking for Saddam Hussein. Yes, that’s right, neither he nor Osama are the real enemy. Lt. Gen. William “Jerry” Boykin informs us that the real enemy is none other than Satan himself.

Whatever your views on the General’s theology, applying it to the War on Terror poses a very serious problem. Under his world-view there are only 3 possible ends for the War on Terror: the annihilation of the “Christian” world; troops marching into hell to personally kill Satan; or Armageddon.

Even winning is losing. Maybe we ought to keep looking for the proverbial “devil you know.”

Healthcare Wars: The Grocer Strikes Back

As of this writing, Southern California is in the midst of a Grocery Workers’ Union Strike. Von’s, Ralph’s, and Albertsons are all affected. Managers and scab workers are attempting to keep the doors open. Specialty grocers and other competitors are experiencing a small windfall, as shoppers choose to patronize the fully stocked stores with no picket lines out front. The strike is not isolated to California, but has spread to workers in West Virginia, Ohio, and Kentucky. Votes are being held in other states, such as Indiana and Missouri. Nevada workers are choosing to stay at work. The strike is already having an economic impact on the companies involved.

The biggest single issue in all these strikes is Health Care Insurance, specifically what percentage of the cost should fall to the employee. Some of you probably know my opinion of insurance, and health insurance in particular: it drives up costs. Health insurance is doubly inflationary because it adds at least 2 middlemen. Yet it has become a necessary evil.

The Grocers and their unions are not the only ones struggling with this issue, either. There is also a Transportation Union strike in Southern California. There has been an attempted “sick out” of Los Angeles area law enforcement officers. Clinic workers and steel workers in Duluth are considering a strike over the same issue. Even states are having to address this issue. When people from all over the country from various walks of life agree something is a problem, from California to Minnesota to West Virginia, you may be assured that it is a problem.

Nor is this a problem isolated to large businesses. Small businesses and the self-employed are even harder hit by rising healthcare insurance costs. These people — the true backbone of lasting growth in the American economy — are being forced to consider drastically cutting or even eliminating benefits. Or closing up shop and getting a “real job” that provides benefits.

There have been many proposed solutions to the interrelated problems of rising healthcare costs, rising insurance costs, rising out-of-pocket costs, the 43 million Americans with no health coverage whatsoever. They range from expanding government programs that provide health coverage to children to adopting a single payer system. A few believe healthcare costs can be reigned in by streamlining the system and demanding efficiency. Some believe that simply offering choices — telling employees that if they want the best care money can buy it is as simple as paying for it — market forces will drive down the cost of care. This seems like exactly what companies like Kroger and Safeway are trying to do, without success. Some even believe that capping the amount of money malpractice insurers have to pay will be the magic bullet that sets everything right by stabilizing the doctors’ cost of doing business.

While many consider the lack of insurance to be the biggest problem, I tend to see insurance itself as the biggest problem. I therefore think that one of two extremes is the solution: either provide basic and necessary healthcare services as a single payer system, where consumers are free to purchase additional coverage; or eliminate employer provided health insurance altogether.

That sounds radical, doesn’t it?

It would be accompanied by rules saying that insurance companies had to treat all insureds in a given area as a single group, and maybe replacing the corporate health insurance tax break with an individual tax break — the line already exists on the 1040. Wage scales would also have to be initially adjusted upward substantially to account for the shift in responsibility. Let’s do the thought experiment and think about what might happen.

Unless you have made COBRA payments or purchased an individual policy, you probably have only the haziest idea what health insurance costs. That’s because most people have coverage partially subsidized by their employers, who in turn have it partially subsidized by a tax break. So sure, a lot of people would drop coverage when confronted with what policies actually cost. However, insurance companies would very quickly get wise to the idea that they have to do something to keep policies quickly or watch their revenues be decimated. Low cost major medical policies would be all the rage in short order, covering medical emergencies of all types but not necessarily every runny nose.

The people who work in your doctor’s office would no longer have to deal with insurance companies every minute of the day, and could concentrate on their primary customer: you! The reduced paperwork means your doctor might actually make more money while reducing the cost of an office visit. This benefits even those with no insurance at all. Hospitals would still have to deal with insurance companies, or course.

Corporate America would even benefit, because no money would be sucked off to ever-increasing health insurance premiums. They would still have to raise incomes, but they still stand to profit on this “outsourcing” of responsibility. Wall Street will love the initial profit increases, and the reduction of uncertainty.

It will never happen, but it was an interesting thought experiment.

Babylonian Potpourri

“The person who is in charge is me.” — President George W. Bush

Not since the famous declaration of Alexander Haig that “I am in charge” have such words been so elequently spoken, indeed not since Truman proclaimed that “The buck stops here.”

The President’s remarks were largely in reply to critics who maintain that he needs to assert more control over things in Iraq. Even Republican Senator Bob Lugar stated that “The President has to be President” in an equal show of oratory splendor. Democrat and presidential hopeful John Kerry was less conciliatory, refering to Bush policies as “haphazard, shotgun, shoot-from-the-hip diplomacy.”

And which policies are they upset about? What seems to them to be loss of control?

Is it that we have been averaging about 22 attacks on American soldiers each day for the last week? That 320 American soldiers have died in this conflict, over 90 of them after hostilities were declared over? That suicide bombers, guerilla attacks, and other random acts of violence are now common? Is it that Iraq has become a terrorist Mecca?

Is it the American soldiers who, while not being attacked, are bulldozing farmers’ fields in an attempt to force them to become informants? Or maybe it’s the soldiers’ letters ghost-written by the Administration and sent to hometown newspapers saying how great things are in Iraq, how proud they are to serve there. Wow, that’s the way to bring peace and stability to the region.

Maybe it’s the fact that various American officials can’t make up their minds whether Saddam Hussein is or is not anywhere near his hometown of Tikrit?

Oh, no, it must be that public opinion of the war has soured, particularly in Iraq.

Speaking of which, there are some rather large hurdles to getting Americans out of the country, since almost everyone agrees that now that we’ve gone and removed the government and destroyed the infrastructure we can’t just pack up our tanks, say what a lovely time we had, so sorry about the mess, and go home. There is a lot ofreconstruction to be done. Something like $87 billion dollars worth of reconstruction. That’s a enough money that people are paying attention. Of course, if we just put Iraqis to work and give them paychecks for this, it would probably cost more like $87 million — partly because we would not be lining the pockets of American corporations, partly because wages are lower there, partly because the locals would be building it instead of trying to blow it up.

The UN would like to set a deadline of December 15 for getting started on a Constitution and an interim government. This is unquestionably another prerequisite for American forces leaving Iraq. Unfortunately, the same diversity we claim to cherish here in the States makes it difficult to even decide who should have a voice in writing the Constitution and how much power various ethnic and religious groups should have. They could spend until December 15 just arguing about who should bring coffee and donuts for their first meeting. More than one person has suggested just giving them a finished document — perhaps one from their own past — and letting them improve upon it. Retired Colonel John Warden has written some excellent thoughts on Iraq exit strategy.

Here at home, prepare to have your winter coats scrutinized, and warn the kids that the nice TSA officer might have to inspect their teddy bears more closely than usual. It seems that Homeland Security has decided the Bad Guys can use a nice fluffy explosive called “nitrocellulose.”

The War on Terror has certainly not made me feel more secure.

Corn Fed American Beef

Today’s New York Times has an interesting article on the link between farm subsidies and obesity. The author has more to say in this article and this book. Allow me to summarize and annotate today’s item.

Federal subsidies (the way they are currently distributed) pay farmers to raise as much cheap grain as possible. This has gotten the Americans and Europeans in trouble with the WTO, who a) consider this dumping b) point out that American markets are not open to many agricultural products from foriegn nations, partcularly the poor ones whose largest industry is growing food. Indeed, most nations can’t compete with subsidized farmers who can afford to sell below cost.

Lower prices causes farmers to grow even more food in a perverse attempt to "stay even." So prices are continually driven down. Companies like Cargill make lots of money selling things to farmers to increase the amount of food they can grow, no matter that the land can realistically only support so much agriculture. The other result is that the family farmer has been is being pushed out of business by continually lower commodity prices and a technological arms race.

Food Processing Companies like Cargill are more than happy to take this excess supply at rock bottom prices! After all, the subsidies mean the farmer does not actually have to make a profit on the sale of the grain. They then turn this food we don’t need into tasty highly processed food we don’t need. Had you noticed that over the years plain old fashioned sugar has been mostly replaced by corn syrup and "high fructose" corn syrup? And that it shows up in such weird places as turkey lunchmeat and premade spaghetti sauce?

Marketing wizardry convinces us that we need this processed food, and how fortunate we are that the package is so large. Never mind that the package of snacky cakes, chips, soda, or whathaveyou that will surely be eaten in one sitting is something like 2 or 5 servings. Those rich people that aren’t fat? They aren’t buying Kraft Dinner. They are buying organic this and naturally sweetened that. They aren’t supersizing their fast food meals, they are having a balanced meal on a china plate and eating it with metal flatware. “Fries” are to “vegetables” as “pork rinds” are to “meat.”

Consumers get fat eating their fair share of the food surplus. This provides opportunities for business to make money off obesity. In fact, the article doesn’t take this last step. Maybe it should.

Merry Christmas!

It is mid October. The leaves are changing. The kids are bugging you for that perfect Halloween costume — and God forgive you if you forget the accessories. Your local retailers already have brought out Christmas merchandise. Go ahead, look behind the Halloween costumes and candy bowls that make spooky noises when you stick your hand in them. Christmas trees and lights. Barbie, Hot Wheels, and Hello Kitty stockings. The toy section is already bloated with plastic memories that will be broken in six months.

Halloween is a much bigger deal now than it was when I was a kid. Back in those days, Halloween decorating was a matter of carving a pumpkin and putting up whatever black-and-orange thing you and your siblings brought home from art class. Mom might have worn a witch’s hat when she took you trick-or-treating, but she and Dad certainly did not wear costumes unless they were already, um, unconventional. These days, lots of houses are decked out for Halloween, and a wide variety of adult sized costumes are available practically everywhere. More than Generation X’s embracing of all things kitsch, Halloween is big, big, business.

Nevertheless, Halloween has to compete with what is arguably the biggest holiday in America, Christmas. Thanksgiving almost gets skipped in the retail scheme of things. Now, we aren’t talking about Christmas craft items, which have to be started well ahead of time if they are to be ready in December. We are talking about things that in the old days, we didn’t even start to look at until Black Friday. Some analysts are already predicting a lucrative holiday shopping season.

In fact, some retailers claim they feel pressured to put out the Christmas merchandise ludicrously early. However, some of us traditionalists would rather not think about Christmas until after the Halloween costumes are safely put away. Indeed, that’s still almost 2 months before the big day and 4 weeks before the holiday season even begins.

The funny part is that in the bitter cold of January, when the kids go through their sudden growth spurt or your good jacket meets a horrible accident, a large selection of heavy winter coats will be on clearance. In retail-land, it will already be time to shop for swim suits.

Somehow, they make money doing this.

I read the news today, oh boy.

Yesterday’s Sunday newspaper was interesting. It was not interesting for the headline reading “Roy fights for life,” although I do hope both Roy and the Montecore are alright. Far more interesting was the note next to the masthead: “More than $60 in coupons and 1600 job listings inside!”

Those 1600 job listings sure sound like the sign of a good economy. An optimist would point out that those are only the listed jobs, and doesn’t include the type of job one must see an agency or a recruiter about. However, this is the kind of town where even jobs for Doctors and Lawyers are put in the newspaper, so don’t get to thinking those 1600 jobs are a small fraction of the jobs available. Furthermore, some percentage of the available jobs are part time, reducing the number of actual “career opportunities.”

Another unfortunate fact about those 1600 job listings is the fact that this area is growing wildly. The county adds 5000–7500 new residents each month. Even if half those people are children — and yes, the school system is strained by the ever increasing number of students — suddenly 1600 jobs isn’t that much.

Driving around town, there are other signs that all is not well with the local economy. The overwhelming majority of apartment complexes have large banners proclaiming “$99 Move In Special,” or simply “Free Rent.” And remember, this is in a rapidly growing city with a relatively vibrant local economy.

Those $60 in coupons are looking awfully appealing.

If you do no other reading today, take a look at what the Canadians have to say about our economy, and this summary of American economic prosperity in the real world by Jonathan Tasini. Frankly, I could not have put it better.

How to Make Money Selling Cars

Step one, make a car that people want. Step two, sell it for a price that people will pay, and yet is higher than the cost of designing, making, selling, and delivering the car to the final customer.

Alright, that was oversimplified.

As I write this, the large American auto manufacturers are trying desperately to sell cars. Ford has announced layoffs. Chrysler has announced $4000 incentives on brand new 2004 vehicles and $5000 on 2003s. GM is offering no-cost loans — something they are only able to do because they both build and finance the car. The number one item if you search Amazon.com for “American Cars” is “The End of Detroit: How the Big Three Lost Their Grip on the American Car Market.”

Meanwhile, the Japanese are selling cars almost as fast as they can make them. Honda and Nissan are both doing well, but by far the biggest success story is the redesigned Toyota Prius. You may remember the Prius as a very small, rather pricey hybrid car, distinguishable from the Echo only by the chrome. This year it is a somewhat larger hatchback available for roughly $21,000. It even gets substantially better milage than before. Edmunds describes it as “a legitimate family sedan that offers everything you would expect.” There are no incentives, no rebates.

Toyota is selling almost 6 times as many of them as they expected. It remains to be seen whether this demand will hold up, but this is nevertheless impressive. Although this car may not meet everyone’s needs, people who bought them seem to be happy with them. This isn’t one of those cars that wows the automotive press but falls short in real life, by all accounts. Toyota has step one (above) well under control.

But what about the second step, being able to sell it at a profit? Toyota claims they have that under control too.

Does it seem odd that the Detroit newspapers didn’t have much coverage of this success story? I thought so too. Maybe being someplace where the majority of the people can get family discounts on Big 3 cars gives them myopia regarding foreign cars. Time for Detroit to take a road trip.

Clash of the Regulators

Short quiz: all answers will be either a) Elliot Spitzer, b) William Donaldson, or c) None Of The Above.

1. Who is the current head of the Securities and Exchange Commission?

b) William Donaldson took the position in February of 2003, taking over from embattled Harvey Pitt, who was generally regarded as ineffective.

2. Who is the Attorney General for the State of New York?

a) Elliott Spitzer has had the position since 1999, and in all likelihood has done things that benefit you, even if you don’t live in New York.

3. Who recently reached a settlement with several major brokerages regarding alleged analyst hyping of overpriced stock for the benefit of the company?

a) Elliott Spitzer conducted a damning probe of brokerage research practices, resulting in massive settlements. None of the firms involved wanted to face criminal charges in the matter, as that would have been a corporate death sentence.

4. Who led charges against Dennis Koslowski, whose trial for essentially robbing Tyco Corporation blind while employed as its CEO began today?

c) None of the above. He is being prosecuted by the District Attorney of Manhattan (not this one, the real one).

5. Who is prosecuting all the Enron executives?

c) None of the above. A consortium of State Attorneys General and the Department Of Justice are handling the various criminal cases. The SEC continues to investigate Ken Lay, who has yet to be charged with any crime whatsoever.

6. Who recently brought charges against several mutual funds and hedge funds for illegal trading practices, despite being a hedge fund investor himself?

a) Elliot Spitzer charged that some hedge funds were able to (among other things) buy and sell stocks to mutual funds at the previous day’s prices. That’s like being able to make a bet on yesterday’s sporting events. It is a well known fact that Mr. Spitzer has been an investor in a hedge fund formerly (and legally) run by noted commentator Jim Cramer.

7. Who is prosecuting noted banker Frank Quattrone for obstruction of justice?

b) William Donaldson’s SEC, although a) Eliot Spitzer is trying to determine if there is enough evidence to bring state charges against Quattrone.

8. Who is prosecuting the fraud case against various WorldCom executives, including former CEO Bernie Ebbers?

c) None of the above. It is being prosecuted by the Oklahoma Attorney General. The Feds are not happy about it.

9. Who has recently been in the Congressional hot seat?

b) William Donaldson has been grilled by the Senate several times recently.

Bonus extra credit short answer question
Given the answers to the questions 1-8, are you surprised by the answer to question 9?

Not at all.

The Rich Get Richer, the Poor Get Poorer

It’s not just a proverb, it’s not just a Johnny Rotten lyric, it’s the undeniable truth.

At the beginning of the week, Forbes was proud to announce that the 400 richest Americans got 10% richer over the last year. Indeed, each of the 25 richest Americans saw an increase in net worth. These people are all Billionaires with a B.

Meanwhile on the other end of the economic spectrum, an authority no less credible than the United States Census Bureau reported at the end of the week that not only are there more people living in poverty this year than last year, not only is the median American income declining, but it is the second year in a row that poverty has increased and wages have decreased. The income gap between the highest and lowest paid Americans is also growing. Now, 12.1% of Americans earned less than the poverty level. That’s just short of one in every 8 Americans. About 13 million of them are your neighbors in suburbia — about 8.9%. These aren’t those people living under the bridge downtown; they are regular people like you. The change in suburban poverty is the lion’s share of the national increase. More than 1 in 4 single mothers and 1 in every 20 married couple live in poverty. Over 16% of American children live in poverty. There’s something to think about next time you drive past a public school.

It is oh so easy to blame the President, his tax cuts, and his economic “plan” for this divergence. He is the obvious target, the low hanging fruit. After all, it happened on his watch. There are also sound arguments to support the kneejerk reaction. Jackson Thoreau has written an excellent discussion of the ways Bush Administration policies have contributed to the poor getting poorer. It is worth a read, and although there is an insult to Kelsey Grammer, he does not resort to mindless Bush-bashing. Some members of Congress are not so circumspect, accusing the administration of “burying” the data by quietly releasing it on a Friday morning, a time when few people expect new economic data. The administration blames the increasing poverty on the economic slowdown — you remember, the one that supposedly ended almost 2 years ago.

There are more voices speaking about why the rich are getting richer. Forbes points out that much of the change is due to tech stocks rising. This does not explain Warren Buffett. Buffett, number 2 on Forbes’s list, has been against the repeal of the estate tax despite the fact that his heirs would greatly benefit. Furthermore, he called Bush’s dividend tax break “voodoo.” Although Mr. Buffett has not commented on today’s news, it is a pretty good bet that he would ascribe some blame to the Bush tax agenda. Others have come out and said so.* Another man who stood to gain a lot from Bush tax cuts, a man with more money than I am ever likely to have, Jim Cramer,* suggests that it is not the dividend tax cut that was the problem, but coupling it with a capital gains cut.

When the rich claim they are not paying enough taxes, you know something is wrong.

*Please forgive the links to abstracts. They were the only free way to present you with the relevant information.