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Martin Wolff's List: Business
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Aug 28, 08
All 3 parts of the series can be accessed from this Part 1 bookmark.
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Seen in the best possible light, the housing bubble that began inflating in the mid-1990s was "a great national experiment," as one prominent economist put it -- a way to harness the inventiveness of the capitalist system to give low-income families, minorities and immigrants a chance to own their homes. But it also is a classic story of boom, excess and bust, of homeowners, speculators and Wall Street deal-makers happy to ride the wave of easy money even though many knew a crash was inevitable.
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The Arctic's sea covering has shrunk so much that the Northwest Passage, the fabled sea route that connects Europe and Asia, has opened up for the first time since records began.
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Western Union’s dominance of the industry casts it in a host of unlikely new roles: as a force in development economics, a player in American immigration debates and a target of contrasting attacks. Its unparalleled reach gives millions of migrants a safe way to transmit money, and may even increase the amounts sent. But critics have long complained about its fees, which can run from about 4 percent to 20 percent or more. And the company’s lobbying for immigrant-friendly laws has raised the ire of people who say it profits from, or even promotes, illegal immigration.
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For years now, drug-resistant staph infections have been a problem in hospitals, where the heavy use of antibiotics can create resistant strains of bacteria. But a new and even more virulent strain — called “community-acquired MRSA†— is now killing young and otherwise healthy people who have not set foot in a hospital. No one is yet sure how or where this strain evolved, but it is sufficiently different from the hospital-bred strains to have some researchers looking elsewhere for its origin, to another environment where the heavy use of antibiotics is selecting for the evolution of a lethal new microbe -- the concentrated animal feeding operation.
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Some compare Monsanto’s hard-line approach to Microsoft’s zealous efforts to protect its software from pirates. At least with Microsoft the buyer of a program can use it over and over again. But farmers who buy Monsanto’s seeds can’t even do that. For centuries—millennia—farmers have saved seeds from season to season: they planted in the spring, harvested in the fall, then reclaimed and cleaned the seeds over the winter for re-planting the next spring. Monsanto has turned this ancient practice on its head.
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Boeing had never built the kind of spy satellites the government was seeking. Yet when Boeing said it could live within the stringent spending caps imposed by Congress and the satellite agency, the government accepted the company’s optimistic projections, a Panglossian compact that set the stage for many of the travails that followed. Despite its relative inexperience, Boeing was given responsibility for monitoring its own work, under a new government policy of shifting control of big military projects to contractors. At the same time, the satellite agency, hobbled by budget cuts and the loss of seasoned staff members, lacked the expertise to make sound engineering evaluations of its own.
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In 1996, Moody’s was a private company that rated corporate bonds, but it was, already, spreading its wings into the exotic business of rating securities backed by pools of residential mortgages. Obscure and dry-seeming as it was, this business offered a certain magic. The magic consisted of turning risky mortgages into investments that would be suitable for investors who would know nothing about the underlying loans. To get why this is impressive, you have to think about all that determines whether a mortgage is safe. Who owns the property? What is his or her income? Bundle hundreds of mortgages into a single security and the questions multiply; no investor could begin to answer them. But suppose the security had a rating. If it were rated triple-A by a firm like Moody’s, then the investor could forget about the underlying mortgages. He (or she) wouldn’t need to know what properties were in the pool, only that the pool was triple-A — it was just as safe, in theory, as other triple-A securities. Over the last decade, Moody’s and its two principal competitors, Standard & Poor’s and Fitch, played this game to perfection. For the rating agencies, this business was extremely lucrative. The agencies became the de facto watchdog over the mortgage industry. In a practical sense, it was Moody’s and Standard & Poor’s that set the credit standards that determined which loans Wall Street could repackage and, ultimately, which borrowers would qualify. Effectively, they did the job that was expected of banks and government regulators.
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Providing “the best loan possible†to customers wasn’t always the bank’s main goal, say some former employees. Instead, potential borrowers were often led to high-cost and sometimes unfavorable loans that resulted in richer commissions for Countrywide’s smooth-talking sales force, outsize fees to company affiliates providing services on the loans, and a roaring stock price that made Countrywide executives among the highest paid in America.
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While you’ve been tossing and turning, research scientists, pharmaceutical companies and mattress designers have been hard at work on your eternal nocturnal problem. But what exactly is the problem?
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Feb 01, 10
Toyota executives set an ambitious goal in 2002 to own 15 percent of the global auto industry by 2010, meaning it would surpass General Motors as the world's largest carmaker. To get there, it would have to grow by 50 percent. It would have to build new plants in the United States, China, and elsewhere in Asia, and introduce dozens of new models.
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Toyota managed to win bragging rights as the world’s biggest car company. But that focus on rapid growth appears to have come at a cost to its reputation for quality, creating an opportunity for others to potentially take back market share they lost to Toyota.
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“There was always a question about how fast they could go,” James P. Womack, an author and expert on Toyota’s manufacturing methods, said of the automaker’s growth. “I’m sure they regret that they stomped on the gas so hard.”
Mr. Womack said Toyota was also paying for taking its eye off the message that has been central to its marketing. “When your whole deal was quality, every mistake is a big deal,” he said.
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Although America’s housing collapse is often cited as having caused the crisis, the system was vulnerable because of intricate financial contracts known as credit derivatives, which insure debt holders against default. They are fashioned privately and beyond the ken of regulators — sometimes even beyond the understanding of executives peddling them. Originally intended to diminish risk and spread prosperity, these inventions instead magnified the impact of bad mortgages like the ones that felled Bear Stearns and Lehman Brothers and now threaten the entire economy. In the case of A.I.G., the virus exploded from a freewheeling little 377-person unit in London, and flourished in a climate of opulent pay, lax oversight and blind faith in financial risk models. It nearly decimated one of the world’s most admired companies, a seemingly sturdy insurer with a trillion-dollar balance sheet, 116,000 employees and operations in 130 countries. “It is beyond shocking that this small operation could blow up the holding company,†said Robert Arvanitis, chief executive of Risk Finance Advisors in Westport, Conn. “They found a quick way to make a fast buck on derivatives based on A.I.G.’s solid credit rating and strong balance sheet. But it all got out of control.â€
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Richard S. Fuld Jr. blamed the news media. He blamed the short-sellers. He blamed the government, as well as what he characterized as an “extraordinary run on the bank.†But the chief executive of Lehman Brothers Holdings, the bankrupt remnant of a once-great investment house, never really blamed himself. Instead, in his first public appearance since Lehman’s collapse, Mr. Fuld said in sworn testimony before a Congressional panel in October 2008 that while he took full responsibility for the debacle, he believed all his decisions “were both prudent and appropriate†given the information he had at the time. That stance did not sit well with angry members of the House Committee on Oversight and Government Reform, who peppered Mr. Fuld with hostile questions about the hundreds of millions he made over the last eight years.
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Feb 20, 10
In 2001, just after Greece was admitted to Europe's monetary union, Goldman Sachs helped the Greek government quietly borrow billions, people familiar with the transaction said. That deal, hidden from public view because it was treated as a currency trade rather than a loan, helped Athens to meet Europe's deficit rules while continuing to spend beyond its means.
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Wall Street did not create Europe’s debt problem. But bankers enabled Greece and others to borrow beyond their means, in deals that were perfectly legal. Few rules govern how nations can borrow the money they need for expenses like the military and health care. The market for sovereign debt — the Wall Street term for loans to governments — is as unfettered as it is vast.
“If a government wants to cheat, it can cheat,” said Garry Schinasi, a veteran of the International Monetary Fund’s capital markets surveillance unit, which monitors vulnerability in global capital markets.
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Banks eagerly exploited what was, for them, a highly lucrative symbiosis with free-spending governments. While Greece did not take advantage of Goldman’s proposal in November 2009, it had paid the bank about $300 million in fees for arranging the 2001 transaction, according to several bankers familiar with the deal.
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