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What Caused It and What You Can Do About It
James W. Taylor, DBA David Zetland, PhD © 2009
Table of Contents
Why This Book and Why Now? SECTION ONE UNDERSTANDING BUSINESS CYCLES SECTION TWO USING THE BUSINESS CYCLE TO CREATE SENSIBLE GOVERNMENT POLICIES SECTION THREE SURVIVING AND PROSPERING DURING BUSINESS CYCLES SECTION FOUR LOOKING AHEAD-WHAT COMES NEXT What It All Means Resumes of authors Acknowledgements: We owe a special thanks to Gail Fox, Jim Sinclair, Joanne Taylor, Linda Taylor, Robert Taylor and Geoff Towler for important contributions to this project. Rodrigo de Matos/artizans.com is responsible for the cover art.
©2009 James W Taylor, DBA & David Zetland, PhD
Why This Book and Why Now?
14.5 Million People Unemployed 1 Million Home Foreclosures 13 Million Homeless Children 3 Trillion Dollars Dumped Into a Few Banks 10 Trillion Dollars in the National Debt (and rising) All time record in credit card defaults Countless 401 Savings Plans Devastated There is a full blown recession going on, and indeed, “These are times to try men’s (and women’s) souls” We hear people asking six basic questions. 1) What is really happening? 2) How did this recession come about? 3) Who is responsible for this recession? 4) Is the government following the right policies? 5) What can I do to protect my job and/or my company? 6) What is likely to come next? This book is intended to answer the first five of these questions, and to speculate on the sixth. The book is short so the reader can get a pretty quick and clear description of the economy today, and maybe tomorrow, and take away some concrete, specific plans, not only to survive the recession, but to benefit from it. For example, we do not spend any time exploring the failures of the rating agencies like Moodys, or government regulatory bodies like the Security and
©2009 James W Taylor, DBA & David Zetland, PhD
Exchange Commission. Although those, and others, are important issues, we will leave them for others to explore. We also do not spend much time trying to explain the incredibly arcane mathematical models that were widely used to assess risk in the various financial “innovations” that are the underlying cause of the recession. These models are all based on the silly notion that mathematics can forecast human behavior. The book is fact based. The numbers are real. It is not based on theory or ideology. It is based on facts that you can use to draw your own conclusions. In other words, we are “empiricists”, or “pragmatists”. That is to say that when we see a bird that flies like a duck, quacks like a duck, swims like a duck, and looks like a duck, we generally conclude that it is a duck. Also, when we see someone who looks like a Wall Street banker, talks like a Wall Street banker, and has a hand in your pocket, we generally conclude that he/she is a Wall Street banker. There is, however, a subtext running through much of this book and we invite you to examine it carefully and make up your own mind about just how dangerous it is, and what should be done about it. That is the story of how a few Wall Street banks and a very small number of Wall Street bankers have, for all practical purposes, taken over the U.S. Treasury Department, and are now formulating U.S. economic policy solely for their own benefit. Further, this exploitation has gone under both political parties and is truly non-partisan. Both political parties have allowed it to happen. Is there really a “conspiracy” at work here? Read on and decide for yourself. And finally, we will try to explain why this subversion of the U.S. economy by Wall Street banks is incredibly dangerous for your financial well being, your children and your grandchildren, and for the future of the entire country. If you have questions or comments, please feel free to send them to us at www.drjwtaylor.blogspot.com where you can find “What’s On My Mind Today”.
©2009 James W Taylor, DBA & David Zetland, PhD
more and more Dutch citizens began to buy. And the prices just went higher and higher. One story is very old and the other is very modern. it will be useful to examine two examples of the Business Cycle at work. Tulips became even more valuable. and sell. Then a “tulip breaking virus” invaded the flowers and the result was “flame” colors on the tips of the petals. The Tulip Mania: Here is the first story.” If you are going to really understand how Business Cycles work. It was reported that one single bulb of a rare form of tulip was paid for with this list of merchandise. “Past is prologue. it even attracted investors from France. the number of professional growers increased and the bulbs commanded higher and higher prices. As the flowers gained in popularity. DBA & David Zetland. PhD . “Those who don’t know history are destined to repeat it. It is a story about a tulip bulb. The first person to plant these new flowers in earnest was a botanist named Charles de l’Ecluse and he discovered that tulips could flourish in the harsh climate of Holland. and how they will affect your life.Page |5 SECTION ONE UNDERSTANDING BUSINESS CYCLES Edmund Burke noted that. In the middle of the 16th Century.” William Shakespeare was even more succinct when he said. As this trade continued to grow. tulips were brought from the Ottoman Empire (Turkey today) to Holland. As the popularity of the flowers continued to grow. Two lasts of wheat Two lasts of rye ©2009 James W Taylor. tulip bulbs. The brilliant colors of the flowers soon made them a prized luxury item among wealthy residents of the Low Lands. As much as 12 acres of land were traded for one specific bulb.
tulip traders suddenly could no longer find buyers for their incredibly expensive flowers.000 lbs. he rushed to sell his tulips before the news of the loss could upset the market. DBA & David Zetland. of cheese A complete bed A suit of clothes A silver drinking cup Plus a cart and oxen to haul all of the goods away. feel free to make up one of your own. but there were no buyers and prices fell even lower. 1637. He dropped one onion and it rolled down the deck and fell into the harbor and was lost. The price of a single tulip bulb! Well. And the price of tulips did not continue to increase.Page |6 Four fat oxen Eight fat swine Twelve fat sheep Two hogsheads of wine Two tons of butter 1. but thousands went bankrupt when the prices collapsed. but no one knows for sure. The point of this little flower story is that the price of a commodity was bid up to outrageous levels because so many Dutchmen thought they could ©2009 James W Taylor. A tulip trader on the dock witnessed this little scene and mistook the onion for a tulip bulb. very rich in the run up of prices. A few people got very. that kind of endlessly increasing prices could not go on forever. At this point. If you don’t like this story. Read that list again. the demand for bulbs collapsed abruptly and everyone tried to sell the bulbs they owned. PhD . a sailor was unloading a cargo of onions from a ship anchored in Amsterdam. In fact. Our favorite story about the collapse goes like this. Seeing the complete loss of such a valuable property. There are a lot of stories about exactly what caused the collapse in prices. by February.
Fila. the Chairman of LVMH-MoetHennessy Louis Vuitton. Their online store would have a “model’ which the customer could use to “try on” different items of clothing to see how they would look. which by 1997 was the world’s third largest after Amazon and Barnes & Noble. P. They would sell name brands like Polo. Luciano Benetton. Chairman of Benetton. Tommy Hilfiger. The model could be viewed from 360 degrees and in three dimensions. With a “business plan” not much more detailed than the description above. a six foot five handsome Swede. Inc. PhD . they raised $125 million immediately. High Fashion on the Internet: Now fast forward to 1998 and meet Ernst Malmsten. DBA & David Zetland. There was also to be an “avatar” sales person to comment on choices and to make suggestions. as in no matter what I pay for something. a former model with the Elite Agency. cause of this phenomenon and what to do about it is the rationale for this book. The understanding of this phenomenon. there will always be a greater fool who will pay me even more than I paid for it.Page |7 always sell the tulip bulbs they bought to some one else at an ever higher price. This phenomenon of escalating prices. but the person who ©2009 James W Taylor. et al. Only J. they raised additional funds from Bernard Arnault. followed by a complete collapse in prices. This was the beginning of the “greater fool” theory.com was the name they chose for their company. Morgan. Boo. responded and they offered Ernst and Kajsa a large line of credit. They wanted to call it “bo” after Bo Derek. Based on those five pages. and Kajsa Leander. Based on this. In 1998. the duo faxed a five page version to the leading banks in New York seeking funding for their new vision. They decided to sell sports wear to wealthy. There is even a cute story here. trendy 18 to 24 year olds. they sold their online book store and became millionaires. Nike. has been repeated over and over again during the last five hundred years or so. They decided they could capitalize on their successful experience with an internet business to create a brand new kind of online retailer. Ernst and Kajsa had started an online bookstore. and a couple of smaller banks. Inc.
Swedish. What is a Business Cycle? The economy of every developed country is always in one condition or the other. Each of the founders paid themselves $150. Instability is simply inherent in the business cycle. First class air travel and five star hotels were standard fare for all employees. For our purposes here. There is no equilibrium point no matter how much governments may try to create one. Danish. was paid $600. why Business Cycles occur. PhD .Page |8 owned bo.com wanted a huge amount of money for the address so they simply added an “o” and the name became Boo.com. Amsterdam and Munich. All in all.com story was based on just a couple of very sophisticated investors.000 a year in cash and received $100. Nevertheless. Hill & Knowlton. They quickly opened offices on Carnaby Street in London. ©2009 James W Taylor. we will simply call it a Business Cycle. the Boo. Boo. Boo. A diagram of the business cycle is shown next. While the tulip story was based on thousands of unsophisticated investors. Spain and Italy. Instability is built into the business cycle. Regular mail was sent FedEx.com was available in UK English. and what can be done to live with them. etc. Inc. an economic cycle or a bubble.000 for apartment rental and $100. US English. Four hundred employees were hired to staff all the new offices. in New York. German.000 to arrange luncheons with fashion editors. Stockholm. We want to examine what happens during the Business Cycle. the outcome was exactly the same. is called the Business Cycle. DBA & David Zetland.com went through $185 million in 18 months. Paris. The common theme between both stories is that they illustrate a phenomenon variously called a Business Cycle.000 more to decorate the apartments. The public relations firm. and Finnish with local versions for France. This expansion is followed by contraction followed by expansion.com. By December 2000 all of the money was gone and so was Boo. They spent $42 million on an introductory advertising campaign without having a functioning online store or a product to sell. The economy is either expanding or it is contracting.
which is the total amount of goods and services produced by the economy for all of us to share. Expansion: When the economy is growing.Page |9 There are only four terms you need to understand. greed and optimism Peak: At some point. it is called an Expansion. Contraction: That is when the economy is shrinking and that is exactly what is happening in the United States right now. The two words associated with. PhD . the Contraction stops and the economy again starts to grow. fear and pessimism Trough: At some point. ©2009 James W Taylor. Contractions. and drive. the Expansion stops and the economy begins to shrink. and drive. the Gross National Product. Expansions. The Business Cycle is usually measured as the GNP. and that particular point is called the Trough. Two words are associated with. DBA & David Zetland.
it is driven by psychology. Figure 2 shows this reality in the Consumer Confidence Index poll conducted by the Conference Board. people begin to think things are going to get worse. is it expanding or shrinking. most everyone thinks things are going to get better. PhD . ©2009 James W Taylor. DBA & David Zetland. Business Cycles have been studied by economists for two hundred years and. while they are unable to agree upon or identify the causes. Business Cycles have been appearing since capitalist economies emerged. maybe obvious (the lost “bulb”) or not so obvious (the loss of confidence by investors in Boo. The Business Cycle is NOT driven by finance. For periods of time. What Drives Business Cycles? Here is the absolutely essential thing to understand about the Business Cycle. for some reason. What you need to care about is whether the GNP (the Pie) is getting bigger or smaller. Not much changes in the Business Cycle over the years.com). Then.P a g e | 10 Don’t worry about “recession” or “depression”. they all agree on these facts. Think about the growth of the bulb business in Holland or the brief growth euphoria that surrounded Boo.com. The general characteristics remain the same. Those are technical terms that only economists care about. and they do get better for a period of time.
The Business Cycle is facilitated by Credit. The actions that are rational from an individual’s point of view are harmful to the whole economy. The last point is of huge importance. economy. for the last few years. it has been the best possible course of action for individual home loan brokers to fund as many loans as possible. This problem is called the Savings Paradox by economists.com). Adam Smith said in the ©2009 James W Taylor. economy. What happens is that credit expands rapidly during Expansion phases and contracts during Contraction phases. During Expansions. There is an example now in the U. And that is why it is usually relatively easy to find funding for new projects during Expansion phases so new jobs are created and so is wealth. the best possible course of action right now is to conserve as much cash as possible since nobody knows when they might lose their job. some of the projects that get financing are truly unsound and will never earn enough to pay back the loan. Expansion Phase: The Expansion phase of the Business Cycle is driven by people’s desire to improve their lot in life. As a result. everybody should be spending all the money they can get to move the economy from contraction to expansion. DBA & David Zetland. This fundamental contradiction is of utmost importance and we will deal with it in more detail later. The Role of Credit: And this leads us to the next point. too many unsound home loans have been made.P a g e | 11 Business Cycles occur in all developed economies. The problem is that while many of the projects are solid and will earn profits so the loans can be repaid. people can easily obtain credit which they use to finance their current get rich quick scheme. but from the larger point of view of the entire U.S. during Contraction it is very difficult to obtain funding so many worthy projects do not get started and new jobs are not created. but from the view point of the entire economy. lots of projects can get funded (see Boo. PhD . Here is an example of the Savings Paradox at work. From an individual’s point of view. On the other hand. We will re-visit this paradox shortly.S.
but it certainly disrupted it. The bound volumes were sold to families by door-to-door salespeople and the books cost about $1. So perhaps a better description might be “Creative Relocation”. “The desire of bettering our condition comes from us in the womb and never leaves us till we go to the grave. one small and two large.” And we do that by taking chances and trying new things. Encyclopaedia Britannica was a staple in American homes for 231 years. Creative Innovation: Here are three examples. PhD . DBA & David Zetland. “Creative Destruction”. but it has certainly have disrupted their business model. In 1989. That means there is a continuing need to experiment with finding new ways to do things.) There are some real positive results of this focus on greed and some really negative results. so Microsoft went to encyclopedia publisher Funk & Wagnalls and produced ©2009 James W Taylor. You can describe this activity as greed built on optimism. but a more accurate description might be “Creative Disruption”. It is not a stretch to understand the Expansion phase as driven by greed and optimism.300 and revenues of about $650 million. 1) by improving your skills through education and experience. replacing an older method. amount of available resources. Microsoft approached Britannica about including the Encyclopedia in Microsoft’s Windows software. Joseph Schumpeter called this process. New Industries: If the members of an economy are going to get richer (improve their lot) over time. Britannica turned them down flat. the positive results. The Internet has not destroyed newspapers. he called it “Irrational exuberance”. Britannica had a sales force numbering 2. Each successful new project means that it must dislodge an older way of doing things. That occurs in two basic ways.250 a set. of individuals finding a new way to do something better. (When Alan Greenspan was President of the Federal Reserve Bank. and in the process. or a lesser.P a g e | 12 1700’s. First. and that is a pretty good description. In 1993. Airplane travel did not destroy travel by train. and 2) by investing your savings in projects that promise to bring a larger reward. The economist. then they must create more goods and services (GNP) with the same.
But during World War II. To do that job. better method of doing the job. Britannica has less than 400 employees and seems to be tip. Wikipedia articles are continually update. You can understand the requirements. Encarta was given away free with every copy of Windows. the British government needed inexpensive. ©2009 James W Taylor. In 2000. less costly method of delivering information came into being and replaced an old.P a g e | 13 Encarta 99 Encyclopedia. the timing devices had to be cheap since they would not be making a round trip and they had to be accurate because when the bombs exploded was critical to their successful use. Jerry Wales and Larry Sanger had the idea for a FREE online encyclopedia. The Swiss Watch Industry: Now let’s try a bigger example. Wikipedia is now available in nineteen different languages besides English. it is an unending process. It was inexpensive and accurate. And. But there is more to the encyclopedia story. all of which have been written by volunteers. Today.219 distinct articles. PhD . creative relocation at its best. They called it Wikipedia and it has been a rousing success. but accurate timing devices to use in aerial bombs. millions of families have access to an encyclopedia compared to a few thousand families in the past when Britannica volumes were the only game in town. Wikipedia had 684 million visitors! (And no trees were harmed in creating Wikipedia. DBA & David Zetland.) Creative relocation usually replaces an old way of doing things with a newer.toeing around bankruptcy. A greatly improved. At the end of World War II. Today.) It currently contains 2. the pin lever mechanism was developed.756. as the encyclopedia story makes clear. Swiss companies made about 80% of all the watches made in the world. something you can’t do with paper or plastic disk encyclopedias. Just how successful has Wikipedia been? In 2008. Indeed. (Wiki for a collaborative effort and pedia as the obvious part. less efficient method. It was a very profitable and complacent business.
Every watch manufacturer in the U. and they did in a very big way. there is more to the watch story.S. However. the Swatch has been a huge success. some Japanese engineers were assigned the task of making the readout mechanisms in medical measuring instruments more legible in normal room lighting conditions. Timex turned to mass merchandisers and other non-traditional outlets for watches. But wait. Digital watches decimated the world watch industry.. Another example of Creative Relocation at work. the Swiss share of the world watch market was less than 30%. Thus. the Swiss government forced the remaining two large Swiss watch makers to merge and bring in a new management as a condition for a government backed loan. In the 1970s’. By the mid 1970’s Timex watches were being sold in over a quarter million different outlets. PhD . This is a clear example of a new technology replacing an old technology and Creative Relocation at its best. So we have one more example of Creative Relocation at work and individuals inventing new processes to do a familiar job. DBA & David Zetland. Their work led directly to Light Emitting Diodes (LED) technology and the age of digital watches began. The new management re-defined what a watch is and decided that it was more of a fashion accessory than a time piece. one out of every three watches sold in the U. and the Swiss watch industry began a decline that lasted for decades. a whole new line of “fashion accessories” were designed. As you know. ©2009 James W Taylor. But there is even more to the world watch story.S. The Swiss share of the world wide watch business is now around 60%. U. By the 1960’s. By 1983. Timex had to find other outlets for its products.P a g e | 14 By 1950. and the Swatch was born. except one. went out of business. Time Company was selling a watch with a pin lever mechanism.S. was a Timex. traditional jewelry stores refused to handle Timex watches because they were seen as “cheap”. In a move born of desperation.
he has brought unprecedented convenience to all of his customers. ©2009 James W Taylor. but the idea is “No pain. Improved Productivity: And one more story about Creative Relocation. Barnes & Noble is the top selling book seller through 799 traditional book stores in fifty states.411 Billion.000 annually. DBA & David Zetland.000 people will have to find new jobs. The success of Amazon.P a g e | 15 Be certain that there is pain and discomfort in this process of Creative Relocation just described. it has been doing that rather well.com. improves productivity and creates new jobs. It now serves 88 million customers. and is currently teetering on the edge of bankruptcy. progress has a price.000 employees. But always remember that Creative Relocation has a down side. There are real costs to Creative Relocation.000 in sales annually.166 Billion.com has been huge. had about 40. Joseph Schumpeter would surely be proud of Jeff Bezos. People lost their jobs. Yes. In any event. PhD . there will be 799 stores standing empty and 40. B & N had total sales of $5.com produces $912.com had total sales of $19. seven days a week. If B & N goes bankrupt. people bought books at book stores. In 2007. Companies went bankrupt or simply closed down. consider this. An employee at B & N produces about $130. an average employee at Amazon. you have now seen how the Expansion Phase of the Business Cycle creates new industries. Amazon. Jeff Bezos has brought incredible efficiency to the book selling business and since his book “store” is open 24 hours a day. By way of contrast. The Expansion Phase also drives the GNP (the pie that we all have to share). no gain”. Investors lost their investments. His purpose was to vastly improve in the business of selling books and do it online. had 20. a thirty-one year old man named Jeff Bezos incorporated a new company he called Amazon. For hundreds of years. and for most of this century. Governments lost tax revenues. To better understand the positive effects of Creative Relocation.700 employees (all new jobs) and has averaged about 30% annual growth in the past three years alone. In 2008. In 1995.
What Ends An Expansion? The fascinating question is what ends an Expansion Phase and starts a Contraction.2% 2. The reduced revenues lead to further job losses as companies attempt to minimize their losses and maintain profitability.5% 3. At a growth rate faster than 3% and the risk of serious inflation (more about that in Section Four). The Contraction Phase: The first sign of a beginning Contraction Phase is usually the loss of jobs as sales growth slows and then declines.P a g e | 16 Recent Growth in the Gross National Product: Most economists agree that the U.0% 1.: 2003 2004 2005 2006 2007 2008 2.9% 3. ©2009 James W Taylor. the turning point in each Phase of the Business Cycle is some event that raises questions about the continuation of the Expansion Cycle. As sales slow down. economy’s ideal growth rate is between 2% and 3%.S. GNP shrank 3. inventories build up and prices are usually reduced to generate cash. Since this contraction began in 2008 about five million jobs have disappeared in the United States. Growing slower than that won’t create enough new jobs for a growing population. Since the entire Business Cycle is driven by consumer psychology. That means there was less for all of us to share in the last half of 2008 and you can easily see that a Contraction in the economy started sometime early in 2008.8% 2. Here are the GNP’s recent growth rates for the U.8%.4% and in the fourth quarter it shrank 5.S.1% But in the third quarter of 2008. PhD . Credit becomes increasingly difficult to obtain so few new projects are begun and few new jobs are created. DBA & David Zetland.
In Section Two. it was the loss of a single tulip (onion?) bulb. the savings rate of U. DBA & David Zetland. it was negative (-0. Rapidly growing new technologies are one way that confidence in the economy begins to return.5%) meaning we were spending more than our income and making up the difference by drawing down our savings. While Contractions can begin with a single event.com phenomena. Our current Contraction began when it became obvious that the fanciful financial schemes that Wall Street bankers had concocted to make themselves rich were about to implode. But human psychology makes it difficult to accept warnings when you seem to be getting richer and richer every day. “Things are going to get better”.S. Some Good Things That Come Out Of Contractions: When the always upbeat mind set of the Expansion Phase ends.P a g e | 17 For the tulip phenomena. and sure enough they do begin to get better. But since the Contraction began. the U. we will introduce you to some of the people who warned about the coming danger. From Wall Street. To say that nobody saw this implosion coming is inaccurate. households has been very low. it was the potential investor who decided that Ernst and Kajsa did not understand enough about the underlying business model to possibly succeed. PhD . Bankers stopped lending to each other because they were afraid. in 2006. people begin to rethink much about their lives. Expansions seem to require a more broadly based change in attitude. Thus began a full scale Contraction. What Ends A Contraction? The equally fascinating question is what causes a Contraction to end and an Expansion begin. Some people begin to say. but the real answer to the question is that nobody knows. ©2009 James W Taylor. What causes the Contraction to reach a trough? Here the answer is even more difficult. For Boo. Increased Savings: For over a decade. In fact.com and the dot. the idea spread quickly that something bad is going on and everyone should be afraid and get very cautious. Contractions grow out of wide spread fear. The problem is that nobody much paid any attention to them.S.
it reached 5. Reduced Prices: As many companies have reduced their prices to clear out inventories.000 people attended the Southwest by Southwest Interactive Festival in search of ideas for new businesses. have prompted U.P a g e | 18 household savings rate has increased to somewhere above 4%. or the threat of reduced income. In May. Weak Banks Close: When the Federal Deposit Insurance Corporation takes over a failed bank it gives someone else the chance to start over. the number of ©2009 James W Taylor. DBA & David Zetland.000 member banks. but no longer. retailers could afford to be sloppy about running their businesses because customers kept buying. shopping malls. consumers are beginning to pay down their debts. the highest rate in 14 years To put that in perspective. real bargains are now available for many things some people really have to buy. the current savings rate in Belgium is 14%. 6%. For example. Better Service: We will treat how companies produce better services for their customers in detail in Section Three. Weak Retailers Go Under: We have far too many auto dealerships. In March. it is in the right direction. As a result.K. While this change is not yet as dramatic as the increase in savings. over 10. For the moment. 2009. Paying Down Debt: In addition to increased saving. Since the beginning of 2008. the facts are summed up nicely in the AP headline from January 21. the FDIC has taken over a total of 42 banks out of over 9.”. Smarter Spending: Reduced incomes. PhD .7%. 2009. in Canada 6%. 2009. between 1990 and 2009.S. New Businesses: Many people who lose their jobs decide it is time to be their own bosses and start new businesses. the whole banking system gets stronger. restaurants and other retail stores that opened during the last Expansion phase. consumers to review their household budgets carefully to identify which expenditures they can do without. Many families have found they can cut back 10% without much change in their lives. “For years. in France 11% and in the U.
based in Antigua. but were just as destructive to their investors. One Ponzi scheme. paid out $13 Million to investors and simply lost the rest on bad investments. Ponzi schemes rely on an unending supply of new money to keep the scheme going. Inc.P a g e | 19 restaurants grew from 361. and more are appearing every day.000 Ponzi schemes online. those are just the headline grabbers. Consider yourself warned. While everyone has now heard of Bernard Madoff and his $50 Billion scam that ran for decades. This was a 49% increase in the number of outlets while the population to eat in them only grew 23%.5 Million for her personal use. run by Maximum Return Investors. is charged with running a $25 Million Ponzi scheme. In this way. there is no money left. and an Atlanta company.000. But there were lots and lots of “little” Ponzi schemes that may not have made headlines. but you get the idea. The Better Business Bureau claims that today there are over 23. CRE Capital Corp. headquartered in Greenwich. Inc. Agape World. They especially seem to flourish on YouTube. An Orange County.000 to 537. Connecticut is accused of running a $550 Million swindle. PhD . ©2009 James W Taylor. The SEC says money manager Bruce Friedman simply spent $17 Million of his investor’s money for his own personal accord. California man is accused of running an $800 Million Ponzi scheme. diverted $3. New York is accused of running a $370 Million Ponzi scheme. And there are more. A Pennsylvania investment manager is charged with running a $50 million Ponzi scheme. just focused on Latino investors. of Hauppauge. and many have heard of Robert Allen Stanford who is charged with running an $8 Billion Ponzi scheme for almost as long. Ponzi Schemes Get Blown Out Of The Water: As you know. In any case. DBA & David Zetland. a Ponzi scheme relies on new investor money to pay early investors a return on their investments. The woman who ran this scheme collected $23 Million from investors. WG Trading Company.
Stimulus Scams: There seem to be an unending number of people running scams concerning getting stimulus funds. and 1.561 in the 4th quarter of 2007.358 in the 3rd quarter. and 80% of the units. Donald Trump made some sort arrangement with a company called Irongate Wilshire to use his name on a five star condominium development to be built on the Pacific Ocean coast of Baja California about ten miles south of the border near San Diego. the only thing on the site is a tattered flag. Ranchers are reporting that rustlers are stealing cows at an alarming rate. it is better to have Ponzi schemes exposed than it is to have them continue to bilk people. indeed.) The first sales was held in a hotel in San Diego in 2006. Now it is 2009.000 to $3 Million. mortgage relief. As acutely painful as it can be. Houses up for sale are ransacked and anything of value from appliances to copper piping is stolen. auto thefts. Vandalism and Petty Theft: National crime statistics support the idea that property crimes increase with increases in unemployment. In 2006. except that they are not laughing matters to the investors. And here is a really good one. (And. And the stories behind some of these robberies are just heart wrenching. were sold out immediately. a new kind of property crime has developed in response to increased joblessness. In addition to break-ins. DBA & David Zetland. the location is beautiful. Bank Robberies: The FBI reports that there were 1. Some Others: And then there are the scams that want to make you laugh. Some Bad Things That Come Out Of Contractions: The bad outcomes during Contractions range from horrific to tragic. priced at $275. the money is all gone. PhD . ©2009 James W Taylor. etc. shoplifting. Here is just one. and the investors are suing Donald Trump and he is suing the Irongate partners. and nobody wants to ask why or how.P a g e | 20 Ponzi schemes can only exist in Expansion Phases of the Business Cycle because that is when everyone thinks they are getting rich. credit card debt reduction. Irongate demanded a 30% down payment immediately.617 bank robberies in the 4th quarter of 2008 compared with 1.
anxiety. Its broader economy remains an astonishing Petri dish of creative destruction. PhD . There is no question that the economic turmoil of unemployment. Marshalls. Their places are taken by new ones created by startups and ©2009 James W Taylor. and then committed suicide. sensible government actions should emphasize the good things that happen in each phase and offset.gov/economy/warningsigns that raises warning signs for people suffering from persistent depression. The Department of Health and Human Services has a website at http://wwwsamhsa. in the other it is Contracting. not of capitalism. Judges and prosecutors across the nation are receiving so many threats that hundreds are receiving 24 hour protection from armed U. the economy is Expanding. DBA & David Zetland. a man with serious financial problems killed his wife and son. sleeplessness.P a g e | 21 Violent Crimes: Repo (repossession) men are facing increased physical danger as they got about their jobs. So Here Is the Take Away on Business Cycles: Business Cycles have been observed in capitalist economies for hundreds of years. They consist of two phases. “America has experienced a failure of finance. excessive irritability. There are no known equilibrium points between Expansion and Contraction or between Contraction and Expansion. In one phase. Treasury Department has actually done. Since there are definitely known characteristics of each phase of the Business Cycle. The May 30. and loss of investments can result in a whole host of negative health problems. 2009 issue of the Economist magazine offered this summary.S. foreclosures. or minimize. And there are more stories pretty much like that one occurring with increasing frequency. Florida’s Secretary of Department of Children and Families reports a 40% increase in domestic violence cases related to the state of the economy. The differences are quite striking. we will outline what a sensible government policy would look like in response to a Contracting Phase of the Business Cycle. 15% of American jobs disappear each year. Even in boon times (read Expansion Phase). the bad things that happen. anger or substance abuse. in spite of repeated government attempts to create equilibrium stages. In Section Two.S. and then examine what the U. In Ohio.
©2009 James W Taylor...com. currently the largest U.. slightly fewer have owned them. What does that much money look like. denomination in general circulation.jsmindset.. who runs a blog at www. A billion dollars. As icons of consumer excess like Starbucks and Neiman Marcus stumble... Most everyone has seen them. All this talk about "stimulus packages" and "bailouts"..S.? Let’s start with a $100 dollar bill. asked himself the same question and produced a good visualization to answer that question. Guaranteed to make friends wherever they go.. “To put the issues here into perspective.P a g e | 22 expansions.. and a Trillion dollars actually look like. Americans are adept at finding opportunity in adversity.” But before we go on. it will be useful for you to have some idea of what a Million dollars.. PhD .. a Billion dollars. One TRILLION dollars. A hundred billion dollars.... Eight hundred billion dollars. purveyors of frugality like Burger King and Wal-Mart prosper.. amid the most crushing economic conditions most businesses have encountered... DBA & David Zetland. Jim Sinclair. This dynamism remains evident today.
000). Believe it or not. Fits in your pocket easily and is more than enough for week or two of shamefully decadent fun. this next little pile is $1 million dollars (100 packets of $10. ©2009 James W Taylor. You could stuff that into a grocery bag and walk around with it.P a g e | 23 A packet of one hundred $100 bills is less than 1/2" thick and contains $10. PhD .000. While a measly $1 million looked a little unimpressive.. It fits neatly on a standard pallet. $100 million is a little more respectable.. DBA & David Zetland.
DBA & David Zetland. that's what they're talking about... This is that number we've been hearing about so much. What is a trillion dollars? Well. You ready for this? It's pretty surprising.. (And notice those pallets are double stacked.” ©2009 James W Taylor. It's a one followed by 12 zeros... Next we'll look at ONE TRILLION dollars. Go ahead.. now we're really getting somewhere.P a g e | 24 And $1 BILLION dollars... I give you $1 trillion dollars. It's a thousand billion.. Ladies and gentlemen.) So the next time you hear someone toss around the phrase "trillion dollars"... it's a million million. PhD ..
and understanding that simple fact is the major reason that the administration’s financial actions so far appear to be failures. developed economies have experienced business cycles. Our economy is currently in the Contraction phase. Economy: For over five hundred years. The talk among the economic advisors in Washington today is finding an “equilibrium point”. not finance. The government should be responding to the reality of the business cycle and executing plans and programs that are consistent with the fact that the principles of all business cycles over the years have been remarkably consistent. The first thing to understand is that the Contraction phase of the Business Cycle does a number of things to the economy. The current administration and the administration before do not seem able to understand what is happening to our economy. and there has never been an equilibrium point. and ending “the boom and bust cycle”. some good. This kind of thinking defies history and is the worst sort of wishful thinking. DBA & David Zetland. and ©2009 James W Taylor. economies are either Expanding or Contracting. S. PhD . Finding an equilibrium point seems to assume that the business cycle is driven by finance and that is completely wrong.P a g e | 25 SECTION TWO USING THE BUSINESS CYCLE TO CREATE SENSIBLE GOVERNMENT POLICIES Old Saying among bankers: “The best way to rob a bank is to own one. The Business Cycle is driven by psychology. In the simplest terms. unproductive. it won’t”. But the fundamental thing a Contraction does is to re-allocate the economy’s resources from outdated. or what should be done.” Old saying among economists. Seven Steps to a Sane Policy for Dealing with the Current Contraction in the U. uncompetitive uses. and some painful. “If it can’t go on forever.
In 2009.000 miles of Interstate Highways are now over fifty years old and are. the first requirement is to minimize the suffering that individuals and families experience during this re-alignment.S.P a g e | 26 to re-direct them to new. badly deteriorated. and that means real hardship for the economy. The American Association of State Highway and Transportation Officials point out the 47. DBA & David Zetland. health insurance coverage and food stamp programs should be at the top of this list of activities. Repairing this infrastructure can begin immediately and will provide relatively unskilled jobs all across the country at once. unproductive uses inevitably means jobs will be lost in those outdated and uncompetitive industries. auto market. as are bridges. and for the people who are unemployed. Here are the seven steps that the government should be taking to create a coherent policy to deal with the Contraction. Therefore. and they had 6.000 bridges classified as structurally deficient or obsolete. The jewel of American transportation. As just one example we have too many automobile dealers. innovative and more productive and competitive uses. but they still have 6. The current Contraction is winnowing out the weak ones which will mean more sales for the survivors. canals and water distribution systems.000 dealers.S.5 million Americans are currently unemployed. auto market. In addition.000 dealers. In this way. GM has barely 20% of the U. 2) Create new jobs fast: 14. the Interstate Highway System is in desperate need of repair. Fortunately. In 1960. in many places. or unfortunately – depending upon how you want to look at it – the infrastructure of the U. PhD . S. ©2009 James W Taylor. economic resources are being re-allocated for more efficient uses. they point out that there are 150. 1) The first job is to mitigate the individual pain: Re-allocating resources from old. has been allowed to deteriorate severely. Extending unemployment insurance. General Motors commanded 50% of the U.
Ask each college to submit a list of “vocational” job oriented classes they would like to offer. They are offering a Wind Technology Boot Camp where eight weeks of ©2009 James W Taylor. DBA & David Zetland.. In turn. Cerro Coso Community College is already way ahead of the curve here. In addition. And the mayors are perfectly willing to submit regular progress reports so we know how the money is being spent. health care. Indiana. that need to be filled. In addition.e.P a g e | 27 With 14. and needs to be ended as soon as possible. Mayor James Brainard. And useful jobs and work will be generated all across the nation.5 million people unemployed today.e. i. Much better to ask mayors across the country to submit requests for dollar amounts attached to specific jobs. 3) Re-training and re-location: New jobs will. that means 580 million man/woman hours are lost forever every week.S. there are enough of them known now to make a beginning re-training program work. etc. and citizens can see for themselves what is being accomplished in their own communities.g. of Carmel. There are thousands of community colleges spread across the entire U. which seems to be the current plan. this prohibition will stop Mafia Museums and Bridges to Nowhere.. i. e. number employed. made that point at the Mayor’s Conference in Washington recently. There is plenty of repair and retro-fitting to provide lots of new jobs. Here is how to do that job. Classes would be funded on a first come basis. and include a budget plus a system for reporting on progress.75 an hour. There should be one caveat however. The BLS says the average wage in 2008 was $18. there are shortages in existing occupations. no new projects would be allowed. nursing. and they know how to get it done fast. that means over $1 Trillion dollars are lost to the economy every week! That is a tragic waste that can never be recovered. auto repair. be in new industries and will require new skills. and fund the requests in relation to population for as much funding as is available. PhD . While there is no way to know what all of the new industries will be. etc. He said mayors know intimately what is needed in their own cities. number of students enrolled. of course. But it is outrageous to try and control all of these projects from Washington.
How could you find a better way to invest the resources of the country? We need to find the new Steve Jobs. S. But to get started. no question. There are thousands of venture capitalists working on Sand Hill Road who have extensive experience doing exactly that job. but others will succeed and whole new industries will be created.000 in tuition can lead to a job installing and repairing wind turbines. the new Larry Pages and Sergey Prins.S. the next Jerry Wang. Student loans are perfectly appropriate for approved classes. the next Jeff Bezos. Almost all of these new businesses will start out as small businesses and that is a very good thing. The second class is already sold out.000. Low cost loans are perfectly appropriate here as well. Some will fail. with modest loans. small businesses have produced 60% to 80% of all new jobs. and they may also need help with tuition and living expenses. They are out there somewhere and all they need is a little encouragement and access to some capital. DBA & David Zetland. Mesalands Community College started a wind program in the fall of 2008 with thirty-two students. say. Cerro Coso filled its initial class of fifteen within hours. The Business Cycle is how the resources of the country get re-allocated to higher and more useful purposes. The government should fund every proposal from venture capitalists anywhere in the U. The economic history of the U. Really good technicians can earn six figure incomes. is very clear on one point and that is small businesses account for the overwhelming number of new jobs each year. and the new jobs that go along with the new businesses.to re-deploy the resources of the U.S. 4) Encourage new businesses and new innovators -the best and brightest minds . a maximum of. ©2009 James W Taylor. and the other bright minds that will create the new industries of the 21st Century.P a g e | 28 intensive study and $1. General Electric has promised to hire every single graduate for the next three years. PhD . $100. Over the past decade. people will need assistance with re-location because the new jobs are not likely to be where their old jobs were. Assisting this re-deployment should have the highest priority.
We need to erase “too big to fail” from our vocabulary here. are the old economy jobs. too. There are several reasons. has a very healthy automobile industry that makes cars people want to buy.S. and nothing in the ten year pattern shows any change. The money that we have dumped into Chrysler and General Motors so far is a total waste. Let AIG and Citibank fail. PhD . and others like them.500 federally chartered banks in the U. but that is an absurd idea. The President and Vice President of the Federal Reserve Bank of Minneapolis demonstrated in 2004 that “Too Big to Fail” was a concept that is a serious waste of our economy’s resources. The sooner we close down these jobs and transfer the employees to growth industries. Everything they do is based in the past. The U.S. and the economy can start an expansion phase. and most of those who did say Hank Paulson shoved it down their throats.P a g e | 29 5) Stop wasting money bailing out big New York banks and insurance companies. Those “zombie companies” will say just give us some time and lots of money and we will change. Only four hundred banks have taken any of the bailout money. pays decent wages and its employees have health ©2009 James W Taylor. banking system is actually quite healthy! There are over 9. Consumer Reports just listed the worst cars in the last ten years. the U. because they can’t. Let them fail so our resources can be re-deployed. These companies.S. And incidentally. It was lending by a relatively few greedy bankers to unqualified borrowers that got the banks into this mess in the first place. But they won’t. We need to erase “too big to fail” from our vocabulary. 6) Stop spending money to save jobs. thirty-six were GM or Chrysler cars. DBA & David Zetland. and less than 100 of them are on the Federal Reserve’s watch list. Out the forty-six listed. Encouraging (forcing?) them to increase lending is absolutely nonsensical. We will live without them. The first reason is that we have already invested almost three hundred billion dollars in a few banks and we have exactly nothing to show for it. the better off we will all be. The Treasury Department says its goal is to force a few banks to lend money.
989 jobs in auto plants and they pay good wages. DBA & David Zetland. there are a total of 205. in Michigan.000 jobs are with General Motors. home owners. It just is not in Detroit anymore. PhD . and only 9. Auto Plants Not In Detroit: Alabama Hyundai Mercedes Benz Honda Toyota Kia Honda Toyota Subaru Mazda Toyota Mazda Toyota Nissan Subaru Honda BMW Nissan Toyota Georgia Indiana Kentucky Minnesota Mississippi Missouri Ohio South Carolina Tennessee Texas And those seven states have 441.S. provide health benefits and are not likely to be out-sourced any time soon. ©2009 James W Taylor. 7) We need to clean up the mortgage mess that is still creating uncertainty and pain among millions of U.P a g e | 30 benefits. And to put that number in perspective.962 auto jobs. And the jobs are not going anywhere else.
owner occupied homes. PhD . has just about three hundred sitting Bankruptcy Judges. They are permitted to re-write every contract in the U.g.S. Then. DBA & David Zetland. it is the right thing to do. a Cram Down. the mere threat of a bankruptcy judge should be enough to make the process work without actually having to involve a bankruptcy court judge. the solution is simple. However. And there won’t be any liar loans because everyone will be under oath. both sides submit the appropriate documents and the judge works out an equitable solution. there would be an enormous logistical problem. ©2009 James W Taylor. They can even re-write mortgages on second and vacation homes. This exclusion is the work of the American Bankers Association and the Mortgage Bankers Association. However.g. without requiring the home owners to declare bankruptcy first. However.. e. and was supported by Citibank. It is a consistent plan that will move the economy closer to the Expansion Phase while making the most out of the current Contraction. The bankers hate this idea so much that they have given it a very unflattering name. They are based on the understanding that the Business Cycle is driven by psychology. The U. We have to stop protecting and rewarding incompetence. there wouldn’t be a problem. single family. recently the American Banking Association prevented the passage of such a bill in the Senate. no matter what you call it.P a g e | 31 Here too. not finance.S. Both groups are fighting furiously to keep Congress from removing this single exception because they are frightened that they will lose money. So be it. If every questionable loan is forced before a bankruptcy judge. These seven steps are based on an understanding of the Business Cycle and its characteristics.. This is a coherent plan of action that uses the seven steps to reinforce each other. This remedy would only be available to home owners who had attempted a previous loan modification program. except one kind. All Congress has to do is give the Bankruptcy Judges the authority to re-write mortgages. and forever ruin the credit ratings of the homeowners. e. If they had not written the “liar loans” in the first place. even though it was approved in the House by a large margin.
This is the completely wrong action. DBA & David Zetland.. bankers hold back some of the funds they receive as “reserves”. meaning bankers borrowed money at 3%. we need to look at exactly what led up to the end of the Expansion and the beginning of the current Contraction because there are some important lessons to be learned. new factories.g. e. Treasury Department’s programs in a moment. 1) We are in the Contraction phase of the business cycle now partly because consumers failed to save and spent beyond their means. consider these two facts. PhD . This is the completely wrong action. how can bankers minimize the “risk” in the lending part of their ©2009 James W Taylor. All of that changed in 1999. The government is now encouraging banks to once again lend beyond their own standards for prudent lending. And this is exactly where the problem starts. but to make all of that clearer. We will return to an examination of each of the U. To guard against this almost certain fact. Simple enough. but we’ll get back to that story in a minute. All of those projects have to succeed if the loans are going to be paid back. In fact. But experience tells the bankers very clearly that some of the projects will fail and the loans will not be paid back. and got to the golf course by 3 PM. Now here is the business problem. Banks take in deposits from people like us. THE REALLY SIMPLE EXPLANATION OF HOW WE GOT INTO THIS MESS: The first thing we have to understand is what banks do as businesses. Banks make a profit by charging the borrowers an interest rate that is high enough to pay you for lending them the money. new ideas. it is really simple. banking was called a 3/6/3 business. right? In fact. to cover the bank’s operating costs and to provide the stockholders in the bank with a profit. lent that money at 6%. S. The government is now encouraging consumers to resume spending and stop saving. etc. 2) We are in this Contraction because banks lent money beyond reasonable lending standards.P a g e | 32 If you really want to understand the inappropriateness of the current administration’s economic policy. Things like new houses. Then they lend our money to finance projects proposed by other people.
dumb (take your choice of adjectives) people who bent and corrupted every imaginable rule of lending.000 and up. So far. Unfortunately. sub-prime and Alt-A. and still put more money to work. In this way. the focus of the business shifted to how many loans they could make regardless of whether they would get paid back. The family company received a large fee for every loan they made. misguided. One of our favorite examples is a family owned loan origination company (they sold the loans they originated to other banks and received a fee for their work) headquartered in Newport Beach. The original idea was that CDOs would spread risk. a collateralized debt obligation. The loans that are now called “toxic” are of two basic types. that is not the way it worked out. This band of thieves qualified their gardener. DBA & David Zetland. It is now necessary to understand how so many loans in CDOs got to be toxic.000 a year. This new “innovation” in lending opened the way for an incredible number of crooked. ©2009 James W Taylor. who earned roughly $14. the theory said. in turn. the “risk” would be widely spread around the financial community and any individual bank’s “risk” would be lower so they could lend more money. California. but instead they concentrated it because CDOs contained corrupt loans so that. and reduce the amount of money they have to hold in reserve. they increased risk. Since the lenders no longer had to worry about getting paid back the money they lent out. PhD . The list of despicable lending practices that were unleashed by CDOs is to take a walk on the dark side of human nature. Some Wall Street wizard got the idea that they could buy up a whole bunch of these loans from various banks and package them in a new financial instrument. a CDO.P a g e | 33 business. to get a series of loans on houses that sold for $700. So now we have all of these CDOs floating around the financial community and what happens next is almost beyond imagination. in fact. sold them into CDOs. and hold back a smaller “reserve”. so good. They then sold the loans to banks which. The bank’s (and other lending organizations) major profits now came from the fees that were generated by making new loans.
but later converted to adjustable rates. ”Pick a Pay” loans where the borrower chose their monthly payment at any level they wanted. Interest only payments which allow the borrower to pay only interest for five to ten years so they would build no equity in their homes for that period of time. PhD . Two or more loan payments paid past 30 days due. judgments. ©2009 James W Taylor. repossession. or other criteria that may encompass borrowers with incomplete credit histories. DBA & David Zetland. but adjusted to a much higher rate after a year or two. Option ARMs (adjustable rate mortgages) which are loans with “teaser rates” that are very low initially. or one or more loan payments paid past 90 days due in the last 36 months. but they usually have these characteristics. Bankruptcy in the last five years. Alt-A mortgages occupy a place between sub-prime and prime loans. “Subprime borrowers typically have weakened credit histories that include payment delinquencies.” Here are some examples of past behavior that would qualify a borrower for a subprime loan. foreclosure. or non-payment of a loan in the past. in the last 12 months. Treasury as.S. and bankruptcies. Judgment. but no reliable source of steady income. They are targeted at the self employed. These extraordinarily high risk borrowers were offered loans like these. debt-toincome ratios. Loans with a fixed rate initially. Ninja loans are best of all. with a reasonable credit standing. Relatively high default probability as evidenced by a low credit score. and possibly more severe problems such as charge-offs. They were made with no income and no job. They may also display reduced repayment capacity as measured by credit scores.P a g e | 34 There is no widely accepted definition of exactly what a sub-prime loan is. The borrower is described by the U.
But hang on. Here is where the story gets bizarre. and now represent the overwhelming majority of foreclosures.S. only in the fees they could collect immediately. ©2009 James W Taylor. on some you win a little and on a few. Maybe your losses one night prevents you from completely paying back all the lenders one day. and you can’t cover all your loans. This completely phony “product” was sold to CDO holders by a variety of non-banks (read AIG for an example). Golden West S&L. PhD . corrupt. and it gets worse. and nobody wants to lend to anybody. government won’t lend you any money to cover your losses. Here is how bad it got. They created a completely fictional financial product called “credit default swaps”. you lose a little. Bear Stearns. so they decided to sell “insurance” that the CDOs would not get paid. you win big. Goldman Sachs. But the same game was being played by CitiBank. something different happens. Then you take your $3800 to Las Vegas and play a bunch of different games. By the way. Whoops!! Call that Lehman Brothers. Then one day. DBA & David Zetland. The single difference between our story here and the Wall Street Banks is that the U. and others. you are producing a lot of cash. you have to pay back your loans every night and borrow new funds every morning. Banks used the CDOs they owned as collateral to borrow even more money so they could lend even more money to earn even more fees. the much despised Countrywide Financial. and the word gets around so all of your lenders demand to get paid back. overall. Wachovia. crooked (you chose the adjective) guys realized that CDOs weren’t as bullet proof as everybody thought. On some. Some really smart. using your CDOs as collateral. A full 70% of these loans were created by loan origination companies who had no interest whatsoever in whether the loans got paid back. Assume you had $100 and could borrow $3700 more from 37 other lenders at $100 a pop. But. there is more.P a g e | 35 These are the loans that are described by the government as “toxic” loans and roughly two-thirds of them have been securitized in CDOs. All at once. the whole idea of CDOs as a reliable form of security evaporates.
which basically means they bet their own money that credit default swaps would fail. You can decide whether those short sellers were heroes for exposing the corruption on Wall Street. or villains for bringing down the U. a rich Russian tourist arrived in the foyer of a small hotel there. The wholesaler quickly takes the 100Euro to the pig farmer he got his pork products from earlier. The farmer is delighted and takes the banknote to a hooker who had provided services on credit. It is August in a small town on the South Coast of France. the Russian comes down to the reception desk and informs the hotel manager that the room is not satisfactory. AIG goes down the toilet (along with other greedy idiots). no income. There was no sale. He asks to examine a room before he rents it. Luckily. Just as she arrives. Guess what? The short sellers were right. everyone is heavily in debt.S. The hotel owner took the banknote and ran to pay his butcher because he owes him 100Euros. But the short sellers got enormously rich. As security. collects his 100Euro note and leaves. but if you can figure it out. The butcher takes the note to his wholesaler to pay his own debt. economy. ©2009 James W Taylor. but everyone’s debt was fully paid. some really smart guys understood that the whole credit default swap notion was a phony so they bought them and sold them “short”. Holiday is in full swing. he leaves a 100Euro note on the counter. The hooker rushes to the hotel to pay for the room rent where she conducts her trade. PhD . you will have no trouble understanding credit default swaps. As a result. please be sitting down when you read this. If you are still unclear on what a credit default sway is. no profit. Now. This is not exactly how credit default swaps work.P a g e | 36 The innovative minds of Wall Street invented a new way to make money without working for it. this little story by Elizabeth Coleman may help. but it is raining so there is not too much business going on. takes the key and goes to inspect the room. DBA & David Zetland.
Citigroup. Sandy Weil merged his Travelers Group insurance company with Citibank and Smith-Barney stock brokers to create the Citigroup. If it would help to find a single person to blame for the financial mess. This list goes on. Maurice Greenburg added investment banking to his American Insurance Group to create AIG. and that was a huge problem when the stock market tanked in 1929 because many banks had invested their depositors money in the stock market. Merrill Lynch. and the answer is quite specific. AIG. The other kind of banks was called “investment” banks*. Deposits in these banks were then insured by the newly created Federal Deposit Insurance Corporation and reserve requirements were set and monitored for these banks. banks could invest in just about anything they wanted to invest in. PhD . insurance. Congress responded by passing the Banking Act of 1933. were all creatures of the Gramm-Leach-Bliley Act. DBA & David Zetland. stock broking. offering management advice in mergers and acquisitions. This separation in banking operations was in effect until 1999 when Congress passed the Gramm-Leach-Bliley Act which removed the separation between commercial and investment banks. and others. it would have to be Phil Gramm. His name is on the bill that ©2009 James W Taylor.P a g e | 37 So the remaining question is how did we get from the 3/6/3 banker to the holy mess just described. the former senator from Texas. and managed finances for very wealthy individuals. Commercial banking. One kind of bank was called a commercial bank which is pretty much like the 3/6/3 bank described earlier. known as the Glass-Steagall Act for its primary sponsors. Bear Stearns. And this is the absolute source of the financial mess we are in today. Lehman Brothers. This act created TWO kinds of banks. but we need a little bit of history first. investment banking all got rolled up in one big bundle Almost immediately. Newsweek compiled a list of the twenty-five people most responsible for the financial crisis and Phil’s name was on the top of the list. This act created the “financial services” industry. JP Morgan. Until 1933. Goldman Sachs. Investment banks raised money by selling stocks. Investment banks operated basically without close regulation. trading securities.
One of the things about this financial mess that most people find outrageous is how the Wall Street bankers gorged themselves on money at everyone else’s expense. The banks paid millions of dollars of fines and promised to behave better in the future. If you want to remember more about this despicable affair. Washington Mutual (for three weeks).P a g e | 38 ended the Glass-Steagal wall between commercial banks and investment banks. but you get the idea. $37. Countrywide Financial. Washington Mutual. $61. $22 million Kerry Killinger. Bear Stearns. IndyMac. which begat CDOs and credit default swaps.3 million Michael Perry. here are some other players and the amount of money they took away when they left their failed or troubled companies.5 million There is more.5 million Charles Prince. DBA & David Zetland. *Remember that just a few years ago. If Phil Gramm is not enough for you. $22 million Allan Fishmen. Phil Gramm begets the Financial Services industry by tearing down the wall between investment banks and commercial banks. He also made sure that those innovative financial products like credit default swaps were beyond government oversight or regulation. $161. Merrill Lynch. $13 million James Cayne. even though the Research Department privately said were lousy buys. which begets outrageous levels of risk taking. just use Google to search for Jack Grubman or Henry Blodgett. $121. Stan O’Neal. Lehman Brothers. PhD .5 million Richard Fuld. So much for investment banker’s promises. $68 million Angelo Mozilo. So the short strokes go like this. Investment Bank’s Research Departments were touting stocks for the Sales Department to sell to the bank’s clients. Citigroup. which begets fortunes for individual ©2009 James W Taylor.
and that qualified him for an increased line of credit. senior bankers were greatly impressed with the innovative approach the young banker had developed. DBA & David Zetland. These bonds were traded in markets around the world and grew to be a huge business for the bank. He kept track of the drinks in a huge ledger which he kept on the bar. but their value was continually bid up. this brief description leaves out a lot of subtlety and detail. Hank raised his prices sharply. which begets a huge financial mess for all of the rest of us. until one day a risk manager at the bank (risk managers are usually at the bottom of the totem at banks) decided it was time to demand payment of the debts on the books at Hank’s bar. Since this looked like a really good deal. Since he seldom visited bars. Admittedly. he was making loans to his customers. but first a really simple explanation from Geoff Towler about how this mess happened. a young banker realized that all the customer debts were a valuable asset on Hank’s books. At the bank’s headquarters. At the local bank. This is a story about a guy named Hank who owned a bar. PhD . Nobody really understood DRINKBONDS. With all his new customers and his higher prices. These senior bankers then used those customer debts to create even more innovative financial products which they called DRINKBONDS. Hank wanted to increase his sales so he decided to allow his most loyal customers (most of whom are unemployed alcoholics) to charge their drinks. Since Hank cannot pay back the bank for all the money he borrowed based on the debts ©2009 James W Taylor. but the basic story is correct. the young banker had no reason to be concerned about the debts he was using as collateral. Hank was recording record profits. word spread fast and business at Hank’s bar grew very quickly. To make the most of his new found business tactic and to raise his profits. But the drinkers at Hank’s bar had no money to pay their debts. What we should be doing about it is what we will turn to in Section Four. Here is the story. In this way.P a g e | 39 Wall Street bankers.
it is accurate. sent a three and a half page proposal to Congress that asked for authorization for him to spend $700 Billion dollars to buy “toxic” assets from banks that held them. Therefore. 2008. 1) Troubled Asset Relief Program: In October. couldn’t live that kind of an ultimatum so they went to work on their own version of the TARP.P a g e | 40 his customers had incurred. ©2009 James W Taylor. the U.S. of course. so the government economists devised a way to use the tax payer’s dollars to fund a bail out package for the bank.S.000 pages long and contained hundreds of “earmarks”. it was over 1. DBA & David Zetland. GOVERNMENT IS ACTUALLY DOING ABOUT THE CONTRACTION IN THE BUSINESS CYCLE: As of this writing in June of 2009. However. but mostly. some of the following discussion is somewhat arbitrary. When they returned the bill. he has no choice except to file for bankruptcy. Congress. Hank had no money to pay his suppliers either. the then Secretary of the Treasury. Unfortunately. Since the great majority of tax payers do not drink alcohol in bars. Hank Paulson. We immediately encounter problems with this task since funds get transferred from one project to another and there is very little accountability for where the funds went or how they were used. they ended up paying for all the “free” drinks at Hank’s bar. but without any accountability. Hank’s suppliers had granted him very generous payment terms since Hank had such a great credit rating. Government has rolled out (approximately) three major financial programs designed to deal with the present Contraction. the bank had been an extremely generous contributor to the ruling political parties. PhD . Think “Bridge to Nowhere”. WHAT THE U. those little and not so little deals where Congress men and women transfer your tax dollars to their favorite pet projects. The price of DRINKBONDS plunged immediately and finally settled down around five cents. Many of them also ended up filing for bankruptcy.
Assume the best and decide that what Paulson was trying to do was to force banks to increase their lending since credit is the way in which Business Cycles work. but they did not increase lending. This section of the TARP also authorized the Secretary of the Treasury to purchase any troubled assets from any bank he selected at any price he selected. it is said Paulson pounded on the table and threatened retaliation against any bank that refused.000+ federally chartered banks accepted some money.S. Then he tried a new tack. It also seems that Nancy Pelosi’s husband is a major stockholder in Starkist. Oh well. In any terms.000 to $250. minimum wage law. But it gets worse. DBA & David Zetland. this would be called a “blank check” at your expense. Paulson decided that buying the “toxic” assets was too complicated and he abandoned his original idea. about 400 of the 9. In fact. Eventually. At that point. Almost all banks refused to accept the TARP money since they were concerned about the conditions that Congress might later attached to the funds they received. But the important question is what does this do to mitigate the effects of the Contraction? As nearly as we can tell.P a g e | 41 Our favorite earmark attached to the TARP bill was a provision introduced by Nancy Pelosi to exclude packing plant workers in American Samoa from the U. The final bill had three sections. Most of the money went to the twenty-five largest banks. Paulson called the chief executive officers of the nine largest banks to a meeting in Washington and demanded that they take the money. All the banks in attendance took the money.000. it does nothing whatsoever. and it really doesn’t cost anything. The story is that the CEO of Wells Fargo absolutely refused to accept money. this action tends to reduce anxiety about bank failure. PhD . It seems there is only one packing plant in American Samoa and it belongs to Starkist. lending by the largest five banks fell ©2009 James W Taylor. Now that is a good thing since the Business Cycle is driven by psychology. Division A raised the amount of individual deposits insured by the Federal Deposit Insurance Corporation from $100.
This bill marked $1 Trillion to buy up those “toxic” assets by creating a public/private partnership to bid on the assets in some sort of auctions. No matter how you look at it.. involved the Alternative Minimum Tax and some other minor tax changes. DBA & David Zetland. AIG sends him a check for the full amount of the face value of the policy. $281 Billion to AIG.P a g e | 42 at an annualized rate of 16% in the fourth quarter of 2008 and has not improved in the first quarter of 2009. And they take the money to cover the check out of your bank account. moved up from his job as President of the New York Federal Bank where he had helped craft the dismal TARP plan. 696 Lehman Brothers employees were paid year end bonuses of $1 Million. for 2008. There was also a Division B to the TARP and that included some vague tax incentives related to energy and fuel production. They also tell him to keep the car. As far as we can tell.S. here is where the TARP money has gone. 2) Term Asset-Backed Securities Loan Facility: The TALF came next as the new Secretary of the U. Timothy Geithner. And as a footnote to all of this waste. Goldman Sachs. Nevertheless. or more. The final. And that was also your money. follow this story. and other Wall Street Banks $24.8 Billion to GM and Chrysler $50 Billion for Home Owner Support To understand the TARP fiasco. TARP has been a major failure and it is our view that the problem is that the Treasury simply failed to have any understanding whatsoever of the market dynamics. Treasury. after a couple of months. Your neighbor buys a new car and he insures it with AIG for the full amount he paid for the car. Division C. the money is gone. PhD . Then. ©2009 James W Taylor. and cancels the policy.
Ed Rollins. It is quite clear that the Treasury Department does not understand that the Business Cycle is driven by psychology. and they continue to propose financial solutions (and ones that don’t work) instead (but they do invariably make certain people rich). The long time Republican strategist. 3) The American Recovery and Reinvestment Act (casually called the Stimulus Plan) is a $789 Billion package jumbling together all sorts of ideas. and sold entirely by the private market. Because people see the confusion and impotence of the Federal Government. and some downright awful wastes of your money. To put that amount in perspective.1 Trillion were issued. increase food stamp payments and job training. fear grows just when the government should be offering re-assurance. That seems not too far off. the Treasury is developing policies that make everything worse. The details of the Stimulus Plan will be worked out and changed as it moves into the future. As of this writing (June 2009). DBA & David Zetland. CDOs valued at $3. Between 2004 and 2007. Treasury Department does not understand how markets work. or any other model of the economy. In the meantime. said that it seems to him that the Treasury makes up a new theory every day. Here are some of the highlights as of June 2009.P a g e | 43 This scheme is meeting even stiffer resistance than the TARP plan did. So we have another failure by the Treasury to craft a policy that reflects the reality of the Business Cycle. some good for the future and but inappropriate for the task at hand. or that it is driven by psychology. ©2009 James W Taylor. it is more than the total amount of money spent on the Iraq and Afghanistan wars combined. So instead of developing policies that would hasten the end of the Contraction. This is to extend unemployment benefits. PhD . Banks and other potential bidders say they are afraid that Congress will pass retroactive conditions that will limit their ability to manage their banks the best way they see fit. Aid to the poor and unemployed. all but $1. some good for right now.S. or how the Business Cycle performs its vital functions. $67 Billion. And here is the best part. lending continues to dry up. This is one more piece of evidence that the U.7 Trillion of those CDOs had been priced.
$85. because they should be held to different criteria. They belong in a separate program. However.5 Billion is set aside to repair public housing. spending $24. Infrastructure.3 Billion is scheduled to be spent on various education projects.7 Billion to subsidize the COBRA program is completely inappropriate. DBA & David Zetland. To qualify. ©2009 James W Taylor.3 Billion is directed to a variety of medical problems. We have no quarrel with spending money to protect existing teacher’s jobs. not one to create immediate jobs. Education. The problem is that continuing that health insurance costs upwards of $1. Energy. Almost all of them sound good.P a g e | 44 All of this is perfectly in sync with the requirements of good Business Cycle policy. See COBRA above.2 Billion will be spent on energy related projects. depending upon the details. Housing. Assisting states with Medicaid is probably a good thing. PhD . but that doesn’t belong in this bill. families. $9. but they will only create jobs sometime in the future. $87. We will explore some of the reasons for that in a minute. S. $141. Highway and bridge repair are covered here and that is good because it will create immediate jobs. it also includes high speed rail and mass transit projects. It seems that the people in the Treasury have no conception of how most Americans live. COBRA allows you to pay directly for your health insurance when you lose your job. Encouraging low income families to take out big loans to weatherize their houses could hardly be less appropriate. There is no particular objection to these programs themselves. All of these projects are appropriate for a stimulus bill. $5 Billion is marked for weatherizing modest income houses. you cannot earn more than the median income of U. but none of it creates new jobs. but they don’t belong in a policy to deal with the Contraction.7 Billion. redevelop abandoned houses and create shelters for the homeless. and very few families who are now with out a bread winner can afford that price. Healthcare. The devil is in the details. However. $41.000 a month.
The House version of the bill requires the Transportation Security Administration to buy uniforms. Home Buyer Credit. This is a really good idea to help reduce the large inventory of empty houses. This defies logic completely! The idea behind a “stimulus” bill should be to get money in the hands of people who will spend it.S. Renewable Energy Incentives. The Senate will undoubtedly add more products for the “Buy American” project. $116 Billion is scheduled for income tax credits for individuals or families. was 80% of its value. It is deeply troubling when the government refuses to learn from its own mistakes. no more than 15% of the tax rebates went to additional spending.000 credit that first time home buyers can qualify for if they hold their homes for three years. This has exactly the same problem as the New Tax Credits discussed above. ©2009 James W Taylor. Given the huge number of people who will require retraining. etc. made in the U. the average tariff on anything imported into the U. the government seems to have learned nothing from history. The steel industry seems responsible for inserting a provision that gives preference to domestic steel producers in building contracts. et al. Every other country responded by raising their tariffs. In 1930. $70 Billion dollars are included to protect about 24 million taxpayers from higher taxes. Congress passed the Smoot-Hawley Tariff Bill that raised tariffs on a wide assortment of products. PhD .6 Billion involves the $8. and buy them in 2009. this expenditure makes perfect sense. And then there is one HUGE mistake included in the “Stimulus” bill. but it doesn’t create new jobs now.P a g e | 45 New tax credits. $14 Billion increases income tax credits for college tuition and expenses. By the time World War II started. One more time. $20 Billion are slated to be spent as tax incentives for 10 years tied to just about any renewable energy project. Expanded College Credits. When the Bush administration did exactly the same thing last year.S. The goal is admirable. DBA & David Zetland. $6. Alternative Minimum Tax. World trade literally came to a halt and the effects of the depression were lengthened and deepened.
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Not only did Smoot-Hawley dry up the market for our exports, it meant we had to pay excessively for U.S. made goods. Right now, about 30% of the steel used in the U.S. is imported and 70% is produced domestically. What do you suppose would happen to the price of steel if all domestic producers were protected from foreign competition? And every extra dollar that would have to be spent on steel is a dollar that cannot be spent on new jobs. After World War II, the world’s major countries acknowledged that SmootHawley had been a terrible mistake and created the World Trade Organization (WTO) to bargain down the tariffs. Their efforts have been wonderfully successful and inter-country tariffs are now around 4%. 4) Here is another problem. In the May 3, 2009 issue of the New York Times, David Leonhart reports on a speech that President Obama gave at Georgetown University. Leonhart says, “He argued that the country needed to break its bubble and bust cycle and cited the New Testament in calling for a new economic foundation for the country”. Asking for an equilibrium point in the Business Cycle is so illinformed it defies comprehension. The Business Cycle is inherently unstable because it is based solely on human behavior, and that is always changing. Searching for an equilibrium point is based on the idea that there is some magical financial number that will be not too hot and not too cold. And that is as much a fairy tale as is The Three Bears, but you would not expect the U.S. Treasury Department to base the country’s economic policies on a fairy tale!!! So here is the Take Away on the Government’s Response to the Business Cycle: There is only one possible conclusion based on the evidence above. The U.S. Treasury Department’s response to the current Contraction Phase in the Business Cycle is wasteful at best, and harmful at its worst. In turn, that conclusion raises a hugely important question. “How could experienced, intelligent people make such an outrageous blunder with your money?” A closer look at their backgrounds may provide some clues.
©2009 James W Taylor, DBA & David Zetland, PhD
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Robert Rubin; the “godfather” of the U.S. Treasury Department. Rubin was Secretary of the Treasury during Bill Clinton’s administration and currently is an unofficial adviser to President Obama. Before he came to Washington, he was chairman at Goldman Sachs. During the eight years of the Bush administration, Rubin collected $126 million from Citibank for undisclosed services. Henry Paulson was CEO at Goldman Sachs before becoming George Bush’s Secretary of the Treasury. Goldman Sachs paid him $29.8 million the year before he came to the Treasury. (His current net worth is north of $700 Million.) Neel Kashkari is responsible for managing the TARP. He was a vice president at Goldman Sachs before coming the Treasury. Larry Summers, the chief economic advisor to the White House today was paid $135,000 by Goldman Sachs for a one day visit on April 16, 2008. Gary Gensler, now head of the Commodities Futures Trading Commission, came directly to the job from Goldman Sachs. Edward Liddy, Chairman of AIG, was on the board of Goldman Sachs and remains a stockholder. He was paid $3 Million for his board services. Timothy Geithner, current Secretary of the Treasury was paid $411,200 for his last year as head of the New York Federal Reserve Bank and an additional severance payment of $434,668. Geithner has long been Larry Summer’s protégé. Geithner was very instrumental in devising the first TARP which transferred $10 Billion directly to Goldman Sachs. Not only that, he helped with the AIG bailout which paid Goldman Sachs another $14 Billion directly from the TARP funds. Geithner’s replacement as President of the New York Federal Reserve Bank is William C. Dudley. Before joining the bank, Dudley was a Partner and Managing Director at Goldman Sachs.
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Timothy Geithner appointed Mark Patterson has his Chief of Staff. Patterson was a paid lobbyist for Goldman Sachs before accepting the appointment. Goldman Sachs spent $4.2 Million lobbying the Federal Government in the first nine months of 2008, just before TARP. There is a lot more, but you get the idea. The Financial Times reported that the major executives at the seven largest U. S. banks were paid a total of $95 Billion over the past three years (2008, 2007,2006) while those seven banks recorded $500 Billion in losses. Simon Johnson, former Chief Economist at the World Bank and now a professor at MIT, repeatedly says, “…the finance industry has effectively captured our government”. Dick Durban, the senior Senator from Illinois said in April, 2009, that Wall Street banks are “still the most powerful lobby” in Congress and that “they frankly own the place.” So Here is the Take Away on What Has Happened to Your Money: The economist Ben Stein recently said, “If you want to understand the money, follow the money.” It is clear that the economic policies of the United States are being developed by Wall Street bankers, and it doesn’t matter which political party is in power. And the economic policies developed by the Wall Street bankers have only one purpose, further enrich Wall Street bankers. Now that you understand what is happening to our economy, we can turn to how you can best survive, or even profit, from the Contraction Phase of the Business Cycle and the inept, inappropriate response of our government. And finally, here is the cynic’s version of what will happen to the Stimulus Package. It goes like this… Three contractors are bidding to fix a broken fence at the White House. One is from Chicago, another from Tennessee, and the third is from Minnesota. All three go to the White House official to examine the fence. The Minnesota contractor takes out a tape measure and some does some measuring, and
©2009 James W Taylor, DBA & David Zetland, PhD
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then works some figures with a pencil. He says it will cost about $900 with $400 for materials, $400 for labor, and $100 for profit. The Tennessee contractor also does some measuring and figuring, and then says he can do the job for $700 with $300 for materials, $300 for labor and $100 for profit. The Chicago contractor doesn’t measure or figure anything, but he leans over to the White House official and whispers, “$2,700”. The White House official is incredulous. He says, “You didn’t even measure anything like the other two did. How could you come up with such a high number?” The Chicago contractor whispers back, “$1,000 for me, $1,000 for you, and we hire the guy from Tennessee to fix the fence.” “Done”, said the White House official. And that, my friends, is how the new Stimulus Plan will work! We are not quite that cynical yet, but we are getting there after watching Wall Street Bankers loot the U.S. Treasury. Robert Taylor thinks this is a good representation of the current government policies.
©2009 James W Taylor, DBA & David Zetland, PhD
Larry Summers. “Time bombs. nobody much paid any attention. In spite of extreme pressure from Lebanon’s business community and the government. the Sage of Omaha.” And “Financial weapons of mass destruction”.P a g e | 50 Before we leave the discussion of how we got into this recession. Warren Buffett. Now we will turn our attention to how you can respond the recession personally and in managing your company.B.A. both for the parties dealing in them and economic system. Riad Toufic Salame is the governor of the Lebanon’s central bank. the Brookesnews Economics Editor. issued warnings on the company website and in its regular client letter for more than two full years before the implosion began. Unfortunately. warned repeatedly of fraud running rampant in the home mortgage business. As early as 2004. Incidentally. It wasn’t just Americans who foresaw the upcoming problems.s”. and Alan Greenspan. is famous for calling Credit Swaps. Chairman of Pimco. called the “innovations” that caused this recession. Bill Gross. a huge investment management service. Brooksley Born was Chairman of the Commodity Futures Trading Commission from 1996 to 1999. ©2009 James W Taylor. the financier who saved New York City from bankruptcy in the 1970’s. Felix Rohatyn. among others. 2008 was the best year ever for Lebanon’s Bankers. he barred any bank in Lebanon from investing in mortgage backed securities. She understood the danger of unregulated credit derivative swaps and lobbying widely for regulation. “financial hydrogen bombs . DBA & David Zetland. said Alan Greenspan was “…once again laying the foundation for another recession. built on personal computers by 26 year old M. Chris Swecker. it is worth noting that there were people shouting out warnings well in advance of the crash. “six years ago. the equivalent of our Federal Reserve Bank. Private citizens like Gerard Jackson. PhD . Her attempts of achieve that regulation were thwarted repeatedly by Robert Rubin. the FBI agent in charge of criminal investigations.
YOU DON’T NEED IT TODAY. and individuals and families can best survive and prosper in each phase of the Business Cycle. you have no way of anticipating events outside of your control that will require cash.P a g e | 51 SECTION THREE SURVIVING AND PROSPERING DURING BUSINESS CYCLES There is an old Chinese saying. “May you live in interesting times”. We have suggested how good government policy would reflect the reality of Business Cycles. Small and Medium Size Enterprises: There are two rules for SMEs in contractions that are inviolate. DBA & David Zetland. Unfortunately.. O. Let’s begin with Small and Medium Businesses since. We have looked at the good things and the bad things that happen as economies expand and contract. it is a curse. There are some very good reasons for these two rules. as you learned earlier. you need to minimize your debts to gain maximum control of your outgoing cash. one of the characteristics of a contraction is the ©2009 James W Taylor. Three. ONE: CASH IS KING!! TWO: IF YOU DIDN’T NEED IT YESTERDAY. we have now examined the concept and actuality of Business Cycles. PhD . Now we need to examine how Small and Medium Sized Businesses (Big Business can take care of its self). and we have looked closely at how current government policy is mostly inappropriate. And let’s begin with what to do when the economy is contracting since that is where we are just now.K. SMEs are the primary source of new jobs. Second. First of all.
Every study produced the same result. So it is much better not to need to borrow during a contraction. as a result. The overwhelming reason that small businesses fail is that the owners failed to have a clear focus on what the business was supposed to accomplish and. sharply focused definition of the business you are engaged in. Not. “We want to make products that hand ball players need in their sport”. Here is what you do to define your business. Define Your Business: The first thing to do is get a very clear. nobody does them anymore. PhD . Then he takes off with a new idea. As a result. For years and years. You need sharply focused answers to three questions. You will use that concept as a benchmark for every decision you are going to make. studies were done on the reasons why small businesses fail. notion. etc. which means you may find you need cash but can’t find anyone to lend it to you. You are familiar with the problem. he is off in a new direction. 1) What business are you in now? 2) What business do you want to be in tomorrow? 3) How will you get from today to tomorrow? And there have to be specific answers. With those two rules firmly in mind. proposal. they wasted time and resources until there was nothing more to waste. ©2009 James W Taylor. let’s look at some specific actions you can take to put your business into a condition to survive and prosper during the contraction. And the next time he answers the phone.P a g e | 52 reduction of available credit. nothing significant gets done and bankruptcy finally arrives. DBA & David Zetland. The results of these studies are so clear. “in the sporting goods business”. Instead. The phone rings and the boss answers it.
and 2) that you really don’t know what is going on in the business. That kind of order would send two messages to employees. When you are finished with this assignment. “We want to make and sell porte-aprêt dresses for women”. Examine every single expense and ask these questions. your Mission Statement and mention it frequently when you talk to employees. There is no better way to keep the entire organization focused on making the best decisions. Both are really bad messages to send. put the results in writing as company policy and distribute it freely throughout the company. suppliers. customers. Instead. Control Your Expenses: The next thing involves your profit and loss statement. You might save as much as half your telephone bill. and to consult with their reports if they desire. “Every department must reduce expenses by (?) 10% by such and such time”. as in. Explain that you expect every employee to reference these three answers every time they have a decision to make. replacing desk telephones with cell phones connected to your company’s main number. etc. is there anyway we can do the same job for less money? 3) If yes. 1) that everything in the business is equally valuable (and equally not valuable). Call this written document.) 4) What would happen if we eliminated this particular expense? The one thing you must NEVER do is to reduce expenses across the board.P a g e | 53 Not. what would that be? (An example. ©2009 James W Taylor. To get the answers to those questions. DBA & David Zetland. you should take some of your key players to an off-site location to work out answers that everyone can understand and agree on. Give them the assignment in writing at least a week in advance so they have time to think about the answers. PhD . 1) Is this expense absolutely essential to accomplishing our Mission? 2) If yes. “in women’s clothing”.
P a g e | 54 And remember that the point of this exercise is to free up as much cash as possible and to make your operating expenses as lean as possible so that you are ready as possible for whatever may happen next. Besides. These are good people who have served you well and you should show that appreciation. Make one of three judgments. the video had been viewed more than a million times! It may well be worth your time to research this incident a little more thoroughly than it has been presented here so you have a clear understanding of how damaging such communications can be in this day and age. two disgruntled employees of Domino’s Pizza video-taped a faked scene in a Domino’s kitchen showing take out food being prepared in seriously unsanitary conditions. Blogging. 3) This employee is doing a good job. the more cash you have on hand. 2009. 2) This employee is very valuable and we would like to retain his/her services over the long term. Inventories are all about cash. Plan in advance to make such terminations as decent and humane as possible. Use the #3 list if. if necessary. You Tube. Now about employees: Meet with each department manager and review every full time employee in that department. They then posted the bogus video on line at YouTube. ©2009 James W Taylor. In March. The faster you can turn your inventory. we could get along without him/her. Within a couple of days. PhD . it becomes necessary to reduce your payroll. etc. DBA & David Zetland. Another place that you can search for cash inside your existing business is inventory turnover. and how incredibly fast they can be spread. and when. but. 1) This employee is absolutely vital to accomplishing the mission of the organization. it is foolish to create enemies who will spend time bad mouthing your company in this day and age of the Internet.
employees are cross trained to do many of the jobs at Starwood’s upscale hotels. the owner. Last summer. Falling revenues required that employees reduce their hours to a four day work week and take a 20% pay cut. and the hotel managers can move employees into jobs where there is current demand. wanted to keep all sixty-six employees because their skills are essential to the business. Steel maker Nucor. taking a sabbatical with some modest stipend. Since then. is a small logistic company with offices in Chicago. The program is designed to preserve employee morale and productivity. Inc. they sent fifteen factory workers to Autumn Harp.P a g e | 55 Explore methods you might use to retain the #2 employees at a reduced expense. Normally. but it allows him to keep his 10 full time employees fully employed. discusses benefits. For example. When you start seriously thinking about this goal and the individual people involved. and generally aims to reduce stress and anger. a manufacturer of lip balm. Barat Bisabri is the managing partner of Shiraz Ranch where they grow almonds and citrus in Stanislaus County in California. You might even offer to pay tuition and books. he taking three months to do the job. Rhino paid the employees and billed Autumn Harp for the hours worked. PhD . pays its employees base rates to perform maintenance work when steel demand is slow. New Jersey and Southern California. Rhino Foods makes the cookie dough for Ben & Jerry’s ice cream. John Brown. Here are some examples of innovative approaches to avoid lay-offs. Primary Freight Services. John Brown has stopped taking a pay check to demonstrate that everyone was in the situation together. answers questions submitted by employees. ©2009 James W Taylor. At Starwood Enterprises. In addition. In Vermont. This year. you will find a whole host of possible actions. proposing a temporary pay cut by taking every Friday off. taking a leave of absence to go to school to learn new skills valuable to your company. he would hire temporary workers and complete the annual pruning in three weeks. to help with the seasonal increase in shipments. John holds a weekly video training session with all employees that shares sales numbers. DBA & David Zetland.
Typically. and the GNP will grow 3% that year. The payouts usually make up about half of the lost wages. 2009. These two p &l s will give a set of “brackets” that define the most likely performance of your business over the next twelve months. Pro forma Profit and Loss Statements: When you have accomplished the tasks outlined above you will be able to produce pro forma p & l s based on two different assumptions about the future. January 30. End of story. ©2009 James W Taylor. 20% of your customers account for 80% of your business.P a g e | 56 Under no circumstances should you emulate Kendall-Jackson Wines. but be sure to check with your states Department of Labor to see if such a program exists in your state. your costs will continue rising or falling. 20% of your customers account for 80% of complaints. you will have to maintain health and retirement benefits. there is a program called “short time compensation” or “work sharing” that roughly one-third of all the states offer. and can last from 26 to 52 week. The second scenario is based on the assumption that the contraction will end and the expansion will start. and that you have to do something to get ahead of the trend. The first scenario assumes that the contraction continues for the next full year. DBA & David Zetland. Focusing On The Right Customers: A 19th century economist named Vilfredo Pareto made the inspired observation that 20% of all events usually accounted for 80% of all outcomes. They let 170 employees come to work on Friday. This observation has found to be true in business in an extraordinarily wide variety of instances. PhD . The details differ from state to state. They will also provide you with early warning signals that something you assumed is not coming true. and to confirm the details. and told them they were fired. Basically. and your sales will decline as much next year as they have this year. and prices will continue on their current trajectory. these programs allow you to have unemployment benefits replace part of the employees lost pay. Don’t ever do that! If you decide to reduce the hours some of your employees work. etc.
00 $10.50 ($1.00 Cost to Sell $0.50) You can now construct both of these tables from data from your own business.00 $10. Call this 20% your Heavy Users and the other 80% your Light Users.50 Profit before Selling Costs $4. The point is to demonstrate clearly ©2009 James W Taylor. That will produce this table. Sales Heavy Users Light Users New Users $40. Note: It is not necessary to use 20% as an absolute criteria in your own analysis. e.25 $0. Assume you sell a product for $10 and make a net profit of $1 (not far from the typical American business) and that will produce these results for any given business cycle. It is not necessary to be exactly perfect with the numbers.50 to sell a new user.50 $2.00 $1. and $2. 25%.00 $1. DBA & David Zetland.. Take the assumptions above and add these assumptions.00 Net Profit $3. 10%. Informed estimates will work just fine. it costs $0. The idea is that a small percentage.75 $0. Now let’s take this idea one step further and look at what happens when you attempt to grow your business by gaining new customers. Sales Heavy Users Light Users $40 $10 Profits $4 $1 You can use your own company data to create your own version of this table to demonstrate just how important Heavy Users are to your business. $0.25 to sell a Heavy User.g. account for the majority of your business. etc.P a g e | 57 It is the second example (20% of your customers account for 80% of your sales) that is of interest here.50 to sell a Light User. PhD . Then we can construct a simple table to demonstrate the importance of Heavy Users.
Not only did this new service increase customer satisfaction. BMW introduced Wifi service at all of its dealerships. That puts your customer service employees in the front line of surviving the contraction. Sometimes. the measurements are fairly easy. An important question becomes this. “How good is your customer service?’ The answer to this question can only come from your Heavy Users. e. the length of time a customer waits is a good metric. (You may want to re-visit your assessments of individual employees discussed above. Zappo. First. Zappos offers free shipping on both orders and returns.g. special sales and members receive overnight shipping for free. Here are a couple of suggestions for low cost ways to measure your customer satisfaction.. But both of these are surrogates for the real question. but this simple addition allowed BMW customers waiting for service on their cars to use the time productively. And the key to keeping customers satisfied is outstanding customer service.” How do your customers rate your customer service?” Remember the focus here is only on your Heavy Users. Starting in 2009.P a g e | 58 to yourself that a small number of your customers are vital to the health of your business so that you can focus your efforts on them. draw a random sample of your Heavy Users to ©2009 James W Taylor. The cost was minimal since the dealers were already using Wifi to run their businesses. Last year. If you run a call center. it significantly reduced the cost of providing loaner cars. How fast orders are shipped is another.) Here are a couple of widely different businesses that have used focusing on heavy users to improve customer service and to reduce costs. DBA & David Zetland.com is an online shoe retailer that has a customer base of raving fans. Zappos management has analyzed their sales records exactly as discussed above and they are focusing their best efforts on their best customer. Zappos has created a new VIP service for repeat customers that includes an invitation only website that features new merchandise. PhD .
The costs still do not need to be large. On the other hand. There are some advantages and some disadvantages to this tactic.P a g e | 59 come up with a list of no more than 100 customers to be surveyed. etc. The ©2009 James W Taylor. mailing. tabulating and analyzing the results. the project will be “less refined” than if you used commercial marketing research firm. you can expect a more professional job. That roughly means that the questions will be generally more sharply defined and will produce more useful information. PhD . Explain that you would like help in designing a mail questionnaire to measure customer satisfaction. For instance. Massachusetts. Be sure you have the final say on the contents of the questionnaire. Finally. The SPI data base includes thousands of businesses. A second alternative is to hire a professional firm to do the job. While this will surely cost more than the college project. in Boston. no matter how you go about measuring your customer service. One of their most important findings is the dramatic effect that product or service quality has on profits. has been studying the factors that drive profitability in businesses. the college identification on the questionnaire will improve the rate of participation and returns. The role of Quality in Profitability: The Strategic Planning Institute. and a small stipend to cover other expenses. Go to your local college with a business school and ask to talk to the instructor who teaches market research. Most instructors will be very happy to co-operate and give the students a chance to practice what they have been learning in class. You will be expected to cover printing. One analysis compares the profitability of the companies in the data base in terms of product/service quality. If you are going to use a commercial firm. you will want to use telephone interviews since mail questionnaires will not produce very large returns and you will be left wondering about the nonresponders. costs. but it is hard to beat the cost. make sure that there is a way for the customers to suggest how you could improve your customer service. DBA & David Zetland. You would also like to have their assistance in mailing.
how your customers rate the quality of your products and services is the next place to focus on improving your business. DBA & David Zetland. 1) Customers will simply pay more for high quality products and services because they make their own business more profitable. Average ROI Lowest Quality Consumer Durables Consumer Nondurables Capital Goods Raw Materials Supplies 16% 15% 10% 13% 16% Average ROI Highest Quality 32% 32% 21% 35% 36% It turns out that the reasons for these markedly different levels of profitability are pretty straight forward.P a g e | 60 businesses in the data base have been divided into roughly equal thirds. Product/Service Quality Low Quality Average Quality High Quality Average Profitability 13% 17% 30% Average ROI* 6% 8% 14% *Return on Investment What is really intriguing is that the effect of quality on profitability is true of every industry. Your choices about ©2009 James W Taylor. Therefore. and 2) High quality products and services can cost less to produce. PhD . In the table below. the SPI data base has been divided into the 10% of businesses with the highest product/service quality and the 10% with the lowest quality in six different industries. The table below presents the results.
Now it is time to look at new opportunities to grow your business. A procedure for evaluating your customer service performance. A method to identify your most important customers and suggestions for how to treat them to increase profits. You can develop this list by having your sales representatives ask the question of the purchasing agents they call on. Here are some ideas about new opportunities that come from Contractions. A definition of your business to focus everyone’s efforts A method to control expenses that will not weaken your business A procedure for dealing fairly with your employees Pro forma Profit and Loss Statements that give you some idea of the parameters ahead. Now you have a series of simple. A procedure for measuring your relative product/service quality. Somewhat Satisfied. or Not Satisfied. 2) The focus here is on your quality relative to your major competitors. Contractions do not effect all businesses in the same way. layoffs produce a much larger potential sales force with higher skill levels during a Contraction so the quality of the sales force increases.P a g e | 61 how to do this job are pretty much like the ones discussed for customer service except for two important caveats. but extremely effective tools for strengthening your existing business and giving you the best chance for successfully coping with the contraction. DBA & David Zetland. ©2009 James W Taylor. Satisfaction with service is an absolute dimension as in Very Satisfied. First. New Opportunities: Contractions are real source of joy for Avon Products. Some succeed because of the contraction. But quality is only relevant in relation to your standing among your competitors. PhD . 1) You need to develop a list of the attributes that your customers use to evaluate quality.
You can cut back on office space rent. they make the point clearly. DBA & David Zetland. You might want to talk to your trucking company about their ideas for increasing your inventory turnover. Have a plan to go after the best of any competitor’s customers. Iowa has a fleet of trucks operating across the nation. Be alert for competitors going out of business. When Circuit City closed its doors. homeoffice furniture and tech support.P a g e | 62 Second. What works for the lipstick business also works for the 18 wheeler business. Heartland defines its business as “logistics”. PhD . headquartered in North Liberty. While Circuit City and Best Buy are clearly not SMEs. Remember that one of the good things that Contractions do is drive inefficient companies out of business and when that happens lots of customers can be up for grabs. Personal Plans for Dealing with Contractions: Let’s deal with one idea right up front. Contractions can be very good times to start your own ©2009 James W Taylor. You only want to add to your heavy users. lunches. Your employees have more time available with the end of commuting. lay off experienced drivers. And everybody can feel good about reducing the carbon footprint of your company. All of Jet Blue’s agents work from home and they provide customers with excellent service. etc. dry cleaning. Contractions may be a very good time to “untether” your employees from the office by encouraging and enabling them to work from home. less well run companies. not just running trucks. the market for less expensive cosmetics to replace department store products grows sharply in Contractions. Heartland becomes more involved with its customers businesses and it less likely to lose business in a Contraction. In addition. Heartland is using the current recession to upgrade its fleet of drivers as other. Heartland Express. As a result. It is a win-win situation. Best Buy estimated that somewhere between $6 Billion and $8 Billion worth of new business was suddenly made available to competitors. They save money on gas. You can encourage this change by supplying high speed Internet connections. which are all valuable during tough times for raises. not all of them.
. A small improvement in the way things are done now will serve. However.000 through community based not-for-profit organizations funded by the SBA. DBA & David Zetland.000.000 and 75% of larger loans. there are still a few in operation. ©2009 James W Taylor.sba. see www. Businesses with fewer than 10 employees can apply for small loans. Although they are not small businesses now. the entrepreneur’s savings.P a g e | 63 business.163 companies started in 2004 concluded that 80% to 90% of the start up capital came from one of two sources.gov.g.sba. General Electric – 1876 Revlon – 1932 Hewlett-Packard – 1938 MTV – 1981 Cisco Systems – 1984 There are exactly two things that a startup must have to have a chance at success.grameenamerica.accionusa. 2) The SBA’s MicroLoan Program. See www. See www. One is an idea. Here are four. The study referred to above found the average loan needed by the 4. up to $35. A study of 4. Again the situation is fluid. For the most up to date information. or a bank loan or a credit card.g.gov for current information. The problem is that you still have to apply for a loan from your regular bank. e. we can suggest some places where you may be able to get money.org or www. rules and regulations seem to change by the hour. Under a new SBA program. e.. It doesn’t even have to be a big idea.000+ startups was $78. PhD . 3) Private Micro Loan Ventures. While the sources of a lot of small business loans have dried up in the last year. each one of the five listed below were startups in a Contraction. The second is money.com. While we can’t help you with the idea. the government will guarantee as much as 90% of loans under $150. 1) The 7(a) Loan Program.
food. betterbudgeting. utilities. calculate the absolute minimum amount you can spend. keep a careful record of ALL of the ways you spend money for a month. This creates a nasty trap for the unwary. The need for individuals to build cash reserves is also founded on the fact that Contractions include a great deal of uncertainty. and you have a bare bones budget and an estimate of how much you can save each month. Surviving and Prospering for Individuals: The two absolute rules for individuals in a Contraction are exactly the same as for SMEs. “How can you pay your bills if you are unemployed?” So the best advice is not to get behind in paying your bills. go to www. Then do it for a second month.org. and there is a second reason for managing your credit.com/budgetformsfree. If you have cash.htm.e. YOU DON’T NEED IT TODAY. ©2009 James W Taylor. etc.g. you can manage your credit more successfully. In each category. you may be able to arrange a loan from them. clothing. Total the minimum amounts in all the categories and subtract it from your total cash income.com to look for money from angel investors. DBA & David Zetland. and click on Consumer Information. transportation. your credit history is becoming more and more important. PhD . Also consider Credit Unions. ONE: CASH IS KING!! TWO: IF YOU DIDN’T NEED IT YESTERDAY. e. Then organize the individual items into categories. Budgeting: If you don’t already manage your money with a tightly structured budget. take a look at www.cuna. You can find free forms to help you with this task at www... now is the time to start. To find a credit union you may join.com or Lendingclub.com. A growing number of companies are using credit histories as one of the criteria for employment screening. If you should lose your job and have to find a new one. i. If you belong to a credit union.Prosper. As a first step.P a g e | 64 4) Peer-to-Peer Borrowing.bankrate.
there is additional work for someone to do.com/budgeting. You will be sure to make someone very happy to have you around. The first thing to understand is that there is a huge difference between speech speed and thought speed. or in mentally arguing with the speaker. 2) Ask for additional work. that can work. understand how much of a contribution your work is making. summarize your work and progress in writing for your boss. If you have a job now. Make sure that it is clear that you are happy to do it. One is to improve your listening skills and the other is to improve your time management. This just makes good sense. PhD . Listening: Let’s start with listening. There are two things that you can actively work on to make you a better employee.P a g e | 65 and www. difficult to work with.asp. As a result. something we all do mostly poorly. The average person speaks at roughly 135 to 175 words a minute. the really best way to protect your job is simply to become better at it. or lack of it. Don’t let that be you. 3) Arrive early and leave late. You will also find lots of tips for saving money. etc. DBA & David Zetland. 4) The need to lay off people can also be used as an excuse to get rid of people that don’t fit in the department. whiny. but can listen at 400 to 500 words a minute. And periodically. Since almost every company is laying off employees. Employment. While all of these ideas are good by themselves. People who are continually demanding. Read them carefully and use as many as you can. Here are some ideas: 1) You need to make sure people. on day dreams. poor listeners spend the time between the speed at which they can listen and the speed with which they talk. especially your boss. That doesn’t mean wearing a sign that says Look At Me! But if you selectively cc: your boss on important email you send to colleagues. ©2009 James W Taylor. It is like listening to two voices at once. there are some relatively simple things that you can do to protect your job. or on thoughts of what they are going to say next.moneyinstructor.
the best release is talking them out. it is highly unlikely you have ever had any formal training in listening. Usually. This is called “cathartic” communication. It is the kind of communication that sales people. Once you have interpreted what you think you have heard. There are four reasons why people talk to each other. the “blowing off steam” kind of communication. To vent stored-up emotion. To build relationships. Psychologists say we silently suffer all kinds of slights. engage in all the time. offenses. Is the information correct? Is it important? Does it require some action on your part? ©2009 James W Taylor. To understand the importance of listening let’s look at why people talk at all. Communication Skills Listening Speaking Reading Writing Order Learned First Second Third Fourth Frequency of Use Most (45%) Next Most (30%) Next Most (16%) Least (9%) Formal Training Least Next Least Next Most Most The reason you learned listening first is because it is the most important communication skill. Reason #2. This kind of communication is formally known at “phatic”. Four reasons for talking. Reason #1. In spite of the order of importance.P a g e | 66 The reason most people are poor listeners is quite evident from the table below. the “getting to know you” kind of communication. but you most likely have had several courses in writing. and we react by “stuffing them down”. Reason #3. PhD . and each reason underlies a very specific purpose. “evaluation”. you move on to the third phase. hurts. and indignities. You learned writing last simply because it is the least important. DBA & David Zetland. for example. Stuffing all those things down builds pressures that must be released. one on top of another.
you decide how to “react”. a much improved employee! Studies show that most employees spend 80% of their time communicating. and can result in misunderstanding and conflict.P a g e | 67 Reason #4. and how you evaluated it. the physical sensation of sound waves pushing against you ear drums. “evaluation”. causing signals to be sent to your brain. If you do not interpret what you hear. it is unlikely you can use the information to your benefit. and listening is the most important part of that process. How To Become a Better Listener: If you improve your listening skills even 10%. Listening occurs in four separate phases and you should understand each of them. you will become a much better employee. Here are two payoffs that you can see for yourself. and how you evaluated it. DBA & David Zetland. setting the stage for everything that follows. Phase #1. Here is an exercise to allow you to prove these points about listening for yourself. Interpretation is crucial. The first payoff for becoming a better listener will be fewer misunderstandings and conflicts because your interpretation skills will be ©2009 James W Taylor. Find a conversation you are not involved in and simply listen to the conversation to see how many of the points listed above occur. Depending on how you interpreted what you think you heard. “Interpretation” comes next. Not merely an improved employee. The first part of listening is simply “hearing”. Phase #2. Is the information correct? Is it important? Does it require action on your part? Phase #4. PhD . This is where you decide what it is that you heard. Once you have interpreted what you think you have heard. Depending on how you interpreted what you think you heard. it is easy to see how the process can break down at various points. you move to the third phase. you decide how to “react”. Since all four phases combine to create “listening”. Phase #3.
You can make your disagreement clear without putting the other person down. 9) When you disagree with something. Nine Practical Suggestions for Improving Your Listening Skills: 1) Look at the other person while he or she is talking. 2) Let the other person finish speaking before you start talking. literally stop and take a couple of deep breaths. do not stop listening and start thinking about your point of view. thumbing through a report while some one is speaking to you is both distracting and rude. 3) Ask appropriate questions that focus on what the other person is saying. 8) When you disagree with something that has been said. 5) If you don’t understand what is being said. 7) Extend the same courtesies to others that you expect them to extend to you. The second payoff is reduced tension within your work group. do not respond by attacking the speaker. 4) Make your responses consistent with the topic being discussed instead of responding in a way that moves the other person off track..g. You can become the role model for your work group. And finally. Most misunderstandings and conflicts result because one person didn’t listen to the other(s). e. Avoid questions that move the conversation away from the topic. Listening forces you to slow down and think about what is being said. nod your head. Give facial clues that indicate that you are listening. Your mind cannot race ahead to decide what you are going to say next. It also sends a message of its own. if any of these suggestions make you begin to be frustrated. PhD . For example. DBA & David Zetland. ©2009 James W Taylor. 6) Don’t do other things when the other person is speaking to you. ask for clarification before the speaker moves on to another point. This will avoid making the speaker an enemy.P a g e | 68 vastly improved. That will relieve the tension and let you return to concentrating on the conversation.
Start by thinking about what your particular job means to your company or organization. PhD . For example. DBA & David Zetland. if your list is much longer than seven. It is unlikely that your list will be much shorter than four or five. or the well being of the company or organization? Identify the five to seven most important activities that describe these responsibilities. Successful time management involves three separate steps. Managing the Days. The next thing is to make an allocation of 90% of your time among those activities. 1) Managing the days 2) Managing the hours 3) Managing the minutes And each of these three activities requires different actions to make them effective.P a g e | 69 Time Management: There is one more tool you need to become a valued employee and that is a personal time management system. What functions do you perform? Which of your responsibilities have the potential to affect the profits. On the other hand. Only rarely can jobs be so tightly focused that you would have fewer than three responsibilities. you haven’t thought through your job. Quality Control Cost Reduction Programs Customer Retention Programs New Employee Training Recruiting and Evaluation 30% 25% 20% 10% 5% 90% ©2009 James W Taylor. This allocation should reflect the way you can make a maximum contribution to your company or organization. Start with managing the days. because seven major tasks are about all you can handle at one time. Make this allocation based on an “ideal” use of your time.
You need a device to maximize the productivity of every hour of your time. try filling it out at lunch and then finishing it at the end of the day. that activity is made up of lots of little projects and activities. but you cannot allow such unplanned events to exceed more than 10% of your time. DBA & David Zetland. is a good thing. Then take the #3 list and make a decision about every item on the list. When you have thirty days worth of time logs. You must either delegate that activity to someone else. Now you have three very important time management tools to work with. Virtually every job has a pattern that repeats itself within a month’s time frame. If your boss adjusts the distribution. 1) An ideal distribution of how you should spend your time (and endorsed by your supervisor). this might be an excellent time to sit down with your boss and make sure he/she is in agreement with your allocation. Then fill out the time log on at least a daily basis when you stop working. Now make a daily time log with fifteen minute intervals. Describe exactly what you were doing in each of those fifteen minute intervals. Just singling out your initiative for your boss. Calculate the percentage of time you actually spent on your “key” job activities. However. that is a good thing. Make a list of everything else that you spent your time on. There are no other options! Managing the Hours: Your overall job activity list includes things like “cost reduction”. or you must stop doing it.P a g e | 70 It is not necessary to allocate 100% of your time because every job has some unplanned. PhD . and uncontrollable aspects. Incidentally. 3) A list of all the time-stealing activities that are preventing you from spending your time the way you should be spending it. Make enough copies for a month. 2) A summary of how you actually spend your time. You do that by continually focusing on your goals. If a complete day is too long. unforeseen. The ©2009 James W Taylor. summarize how you actually spend your time.
Then put priorities on them. “I don’t have to write this stuff down. and then go back to writing it down. Those wasted minutes almost always come from ©2009 James W Taylor. No matter what happens tomorrow. I’ll just keep it in my head. But as each major disruption occurs. The next step is to tighten the focus even more. That doesn’t mean that you will necessarily finish all of them in the coming week. Every night. it just means that you must work on them. You must develop weekly lists of activities and lists of daily activities. The purpose of the weekly list is to continually focus on the important projects that must show progress. you must clearly make a choice. In real life. before you go to bed. When you manage the minutes. go ahead and try it. you are turning your attention to those little activities that occur every day and add up to rob you of productive working time. Every Sunday. or do I reschedule it for the future?” These lists must be written! Sooner or later. These items don’t have to have priorities because ALL of them must be done tomorrow. you focus on the activities that give your job meaning for the company or organization. When you manage the hours. Managing the Minutes: In managing the days. etc? This list will keep you focused on spending your time to best effect next week. Which is most important? Next most important? Third most important. Get it out of your system. draw up a list of the most important projects for the week ahead. Prove to yourself that memory alone doesn’t work. Here are two steps you can take to reduce the number of minutes that get wasted every day. DBA & David Zetland. it is not always possible to accomplish everything you plan and on the schedule you planned. if you accomplish these things. “Do I put it on the list for tomorrow.” When that happens.P a g e | 71 devise that will help you do that are “lists”. you have done a good job. make a list of things you must do the next day. you will say to yourself. or you will lose control over them. you are managing the projects that give content to your job. PhD .
A good answer to this question is. DBA & David Zetland. That is guaranteed to end the conversation. make sure to stick to that time limit.P a g e | 72 interruptions. It won’t take long to identify those people. You will know when you are really good at it because people will come up to you and ask. for whatever reason.” If the other person elects a five minute meeting. Can we cover it in that time? If we can’t. 1) Set goals for yourself. get up and go to the restroom. You can do more work in one interrupted hour and than can do in three hours with constant interruptions. 2) Keep a log of the people who drop by to interrupt your work. “No. but I’ve got five minutes. PhD . or it may be the opening gambit in a rambling discourse on some personal problem. it is like having a hand grenade lobbed at you. When someone says. 1) Deal with the length of the interruptions first. are wasting your time. “Got a minute?. It may be the opening line in a very important discussion. This is a great time to exercise your new listening skills. Make the best of it. You need to find out quickly which one it is. whoever they are. Summary of Good Time Management Practices: The fundamentals of good time management are only three. 2) Assign priorities to specific projects. This will give you a real opportunity for personnel development and team building. let’s schedule a meeting when we can give it the time it deserves. 3) Control interruptions Now you have the tools to be really good at time management. “How to you get so much done?” And we guarantee that outcome. ©2009 James W Taylor. but what you want to do is control the timing and length of those interruptions. If nothing else works. Not all interruptions are bad.
population ages. job fairs.000. and to prepare to prosper when the Expansion begins.K. Remember that one of the important functions of a Contraction is to remove resources from inefficient uses and to encourage new and more efficient uses of our resources.S. They take temporary assignments at hospitals around the world. And that is a good feeling! Now For the (Maybe) Bad News: O. You have reworked your resume and polished interviewing skills.S. an SME. These people are called travel nurses. If you are an employee.000 and $87. If you have been in a hospital lately. DBA & David Zetland.000. extreme budgeting. and the top 50% earned between $73.5 million nurses working today. You can control much of your situation if you make the effort. ©2009 James W Taylor. you will be in a good position to earn a promotion when the Expansion starts. But maybe this would be a good time to take a step back and consider a couple of ideas about the future. there are demographic trends in favor of some occupations. You have lost your job and you are learning a whole new set of activities and skills. There are about 2. it happened. and technical changes driving others. is already desperately short of nurses and the demand will grow as the U. PhD . But the real take away from Section Three is that you are not helpless in this recession. here are some occupations that will be offering well paying jobs now and in the future. In addition. you have tools to improve your on the job performance and protect your job to the maxim possible. In 2007. There is a subspecialty here that may be of interest. their average income was over $62. you know that this is no longer solely a female occupation.P a g e | 73 The Take Away From Surviving and Prospering in a Contraction: If you own. Nursing: The U. or work for. In addition. You have learned about unemployment benefits. manage. you now have a complete set of tools to make your business as recession proof as possible. If you are thinking this might be a good time to consider a career change. networking and the other ways to search for a new job.
K12 and colleges. PhD . X-rays. You will need a master’s degree to teach at a community college and a doctorate if you aspire to tenure at a four year college. Many work part time and have flexible hours. travel and housing allowances. Accountants: All of those new startups. Computer Software Engineers: This one requires a degree in math or computer science. averaged $50. In 2007.000. accountants earned an average of $63. $70. Teachers: We are facing a huge wave of retiring teachers at every level. are requiring more and more accountants. DBA & David Zetland.000. In 2007. combined with ever changing tax and business accounting laws. computer software engineers averaged $86. A bachelor’s degree is pretty much the entrance requirement. This occupation is expected to grow by 30% over the next five years.000.000.P a g e | 74 They work on contracts for a specific period of time and usually receive incentive pay. An associate degree will qualify you for an average income of $44. You can expect an average pay of $42. Environmental Science and Protection Technician: There is a growing need for people who can monitor pollutants and wastes. and preventive care.000 with summers off. Colleges and universities are facing the same wave of retirements. S. Associate Professors.000 ©2009 James W Taylor. Physical Therapist Assistant: An aging and aching population make this occupation a growth opportunity. The average dental hygienist earned $65. Last year. and Full Professors averaged $99.000. You will need a bachelor’s degree or an associate’s degree from an approved nursing program.000. Elementary school teachers in the U. Assistant Professors averaged $58.000 last year. An associate degree may be all you need to qualify. You will need a bachelor’s degree and a certification requirement that varies by state. Dental Hygienist: Dentists are relying even more on hygienists for cleaning.
circulation and physical properties of water.000 will be typical. Completing a vocational program or a community college program will be required. etc. You can expect a salary around $73. Salaries are likely to be in the $45.000 is the average wage for auto mechanics today. There will be ©2009 James W Taylor. DBA & David Zetland. Almost half of working hydrologists work for the government today. gambling or eating disorders get control of their lives. buildings. Installation Installer: The government is also going to spend a lot of money to insulate and weatherize homes.000 while senior scientists earn six figure salaries. A high school degree may get you on-the-job training. About $36. A certificate program may be enough to qualify for these jobs.P a g e | 75 Substance Abuse and Behavioral Disorder Counselor: These people help other people with problems with drugs. Auto Mechanic: Increasingly complicated automobiles. Solar Panel Installer: The government has made a major commitment to getting energy from the sun. Entry level jobs start around $35. This is an emotionally demanding job and the average pay is $38. alcohol. PhD . Training programs will available and as short as six months. Government Jobs: Somebody is going to have to keep track of the flood of money that the Treasury is unleashing on the economy. Hydrologist: These jobs involve studying the distribution. It is a broad term covering just about any job that involves water. retiring mechanics and closing dealerships combine to make growth in jobs for mechanics above average. You may be able to find a qualifying program in a community college with an extension program in counseling.000. Computer Security Specialist: The government is going to spend a large amount of money to digitize medical records and computer security specialists will be needed to secure access to those records. You will need a bachelor’s degree and strong math skills. An annual of salary of about $45.000. schools. People will be needed to install all of those solar panels.000 range.
PhD .P a g e | 76 600. A word of caution: U.000 new employees needed over the next few years. The government maintains a website at www. Check to see if you qualify.000 in college loans.USAJOBS.S. In 2008. almost 30% of seniors at for-profit universities owed at least $40. Good luck with your new career. DBA & David Zetland. ©2009 James W Taylor. A part of the “Stimulus” bill is a modest $4 Million for the Workforce Investment Act WIA) which is intended to fund adult employment and training activities. News and World Report says they have found that graduates at for-profit colleges are about five times as likely to have borrowed heavily as new graduates of public universities.gov that updates job openings across the country daily.
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LOOKING AHEAD-WHAT COMES NEXT? The old joke goes like this, “What do you call an economist with a forecast?” Answer, “Wrong!” What do you call an economist without a forecast?” Answer,“Unemployed.” The economist John Kenneth Galbraith once said, “The only function of economic forecasting is to make astrology look good.” And Yogi Berra added this observation, “Forecasting is very difficult, especially when it is about the future”. What we have been doing so far is the easy part. The hard part is what comes next, and there is a good chance that what we will discuss next will turn out to be wrong. Nevertheless, you know what an economist without a forecast is called, so here goes. There are three events that affect our economy that are so significant that how they develop will affect all of our lives, for better or for worse. They are 1) the rapid intrusion of government into private industry, 2) the threat of inflation, and 3) the National Deficit and Debt. We will examine each of these topics in turn. But before we do that, there are three developing trends in the economy that are so widely based that they seem certain to occur. As we explained in Section One, one of the good things that Contractions do is to redirect resources to new uses. Two of the developments that seem certain are being driven by exactly that process of diverting resources to new and more efficient uses. 1) We are moving from a petroleum based economy to an electricity based economy. There are so many political and economic forces driving this change that it seems inevitable.
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2) We are moving from a carbon based economy to a low carbon based economy. Coal will steadily become less important while wind, solar, nuclear and other non-carbon based fuels will grow. The growing ecological forces are combining with political forces to make this change also seem inevitable. The third forecast about the future is historically based. It seems almost certain that Wall Street banks will be successful in avoiding the kinds of regulation that might have prevented the financial disaster described in Section Two. While Congress has the ability to blunt this particular trend, there is scant evidence that it will do so. Consider this; while Bankruptcy judges have the authority to re-write contracts on vacation homes, luxury yachts and farms, they do not have the authority to re-write contracts on primary residences. A bill to close this gap in bankruptcy rules was introduced in the Senate early in 2009. In May, 2009, it was defeated 55 to 45 Or this; In November, 2008, the nine banks that were the biggest participants in the derivatives market (and the largest recipients of bail out funds) that was the basic cause the current recession formed a new lobbying organization, CDS Dealers Consortium. The stated purpose to this organization is to defeat any attempts at government regulation of these disastrous financial “products”. Investment banks made political contributions totaling $152 Million in the 2007-2008 cycle. During that period, Goldman Sachs, Citigroup, JP Morgan Chase, Bank of America and Credit Suisse gave $22.7 Million directly to members of Congress and spent an additional $25 Million on lobbying activities. As of June, 2009, the Government is in the process of creating a bill to “rectify” the laws that allowed this recession to happen, when it happened, and how it happened. It is a monster of details, but it shows a complete lack of understanding of human psychology. It does, however, show all the finger prints of Wall Street bankers. Instead of creating a labyrinth of legal rules and regulations which Wall Street bankers will immediately go to work to subvert, Congress should pass
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a law that includes five simple ideas that can easily be enforced and addresses the causes of this recession directly. 1) All Financial Institutions must keep reserves equal to two-thirds of their total loans. Any Institution that fails to meet this requirement for three months would be taken over by the Federal Deposit Insurance Company. This would put an end to the wildly leveraged growth that brought down Lehman Brothers, Bear Stearns and the others. It also ends the argument about “Too Big To Fail”. Further, it would establish a specific end point for any institution that refused to follow the direction specified here. Also, it is a way to recognize that the old “wall” between commercial and investment banks is gone and won’t be coming back. This ends the difference between the two kinds of bank operations. 2) All Financial Institutions that originate loans, consumer or commercial, will be required to keep 50% of each loan on their books as a specific liability until its maturity. One of the major causes of current recession is that the people who originated loans had no specific interest in the credit worthiness of the borrowers. In fact, the entire reward system focused on creating the loan, collecting the fee, and passing the liability on to someone else. In this way, every lender would be required to “keep some skin in the game”. If you doubt our observation about the influence of Wall Street banks on the Treasury Department and Congress, understand that the bill currently under consideration sets that rate at 5% and the financial industry is gone ballistic that the requirement is that high. Stay tuned. 3) All Financial Institutions must pay any compensation, to any and every employee, beyond their regular annual salary in company common stock that vests at the rate of 20% annually. The individual Wall Street bankers who took the wild risks that led to the financial melt down were focused solely on their year-end bonus checks. The future vesting method of rewarding good performance embodied in this
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rule is in use widely among U. S. companies, and all of the “glitches” have been ironed out long ago. What this rule does is to very quickly create a very substantial amount of cash “out in front” of each employee, and it doing so solves two complaints from Wall Street bankers. It allows management to handsomely reward key employees without interference from the Government, and it ends worries about key employees being pirated by competitors since any employee who leaves, loses his/her unvested compensation. Finally, as you can see, this method of compensation does a wonderful job of focusing the interest of each employee on the long term health of the company. 4) All regulations of Financial Institutions will devolve from the Federal Government to the individual states. There are a whole host of reasons to take away the enforcement of financial regulations from Washington and give it to the state attorney generals. First, it provides fifty “sets of eyes” looking for malfeasance instead of just one. Each AG would have the responsibility for any financial institution with headquarters in that state, or doing business in that state. This would also make it much more difficult for Wall Street banks to alter enforcement of infractions. And it would make it impossible for financial institutions to “shop” for the easiest regulatory agency. In passing, it is worth noting that individual state attorney generals were warning of the financial dangers developing in their individual states since early 2003, and that they repeatedly asked for authority to deal with the state problems. They were turned down by Washington every time they asked. 5) Create a Rainy Day Fund and Put It Out of Reach of Congress: If you followed the discussion of the Business Cycle in Section One, you will understand that every Expansion will be followed, sooner or later, by a Contraction. Every Contraction results in reduced revenues and increased expenses, so we should prepare for that financial fact in the good times that accompany Expansions instead of borrowing when the Contraction arrives.
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The crucial phrase in #5 is Out of Reach of Congress. Given Congress’s record with Ear Marks, this will be a major challenge. But that does not mean it shouldn’t be attempted. There is an important point to make here, and that is that the suggested new rules outlined above are not meant to eliminate risk. Risk is an essential part of innovation. All innovation requires that somebody take some risk. The above rules are intended to control the losses when the risk fails. The Rapid Intrusion of the Federal Government in Managing Large Sections of the U.S. Economy: In the past few months, the U.S. Government has become an owner of General Motors, Chrysler, American International Group, Citibank, Freddie Mac, Fannie Mae, General Motors Acceptance Corporation and clutch of other banks. This is a stunning intrusion of the Government into private industry! Somebody asked the other day, “Are we France yet?” The evidence to date is that the government has absolutely no idea what to do with all this new ownership, except to muddle with management by firing managers, removing board members and replacing them, limiting managers pay, and directing management decisions. We won’t track through every example of government interference with every company, but we will look closely at General Motors since this company has been a hallmark of U.S. industry for more than 100 years. As you know, the president and CEO of GM was forced to resign, and GM was forced into bankruptcy. What is stunning is the person who was appointed to oversee and manage the bankruptcy. He is a 31 year old law school student who has never had a job in his life, except to work in political campaigns. His name is Brian Deese and he is a special assistant to the president for economic policy. He has never managed anything, he has never read or written a business plan, he has never set foot on the floor of a manufacturing plant making anything, and the list goes on. The fact that this totally unqualified individual was given the assignment to dismantle General Motors simply boggles the mind!! The largest industrial bankruptcy in U.S. history is being managed by a law school student. What is next?
©2009 James W Taylor, DBA & David Zetland, PhD
DBA & David Zetland. Here they are along with their professions and the cars they drive. THE AUTO BAIL OUT TASK FORCE Tim Geithner Larry Summers Jared Bernstein Edward Bernstein Austan Goolsbee Peter Orszag Brian Deese Gene Sperling Lisa Heinzerling Carol Browner Steven Rattner Ron Bloom Dan Utech Heather Zichal Joan DeBoer Rick Wade Diana Ferell Political Scientist Economist Economist Economist Economist Economist Law Student Lawyer Lawyer Lawyer Investment Banker Investment Banker Career Government Employee Career Government Employee Career Government Employee Career Government Employee Consultant AND HERE ARE THE CARS THEY DRIVE Mercedes Benz R350 Lexus LS 460 Audi S4 Acura TSX Mazda Protégé ©2009 James W Taylor. PhD .P a g e | 82 And the task force that was appointed to help Brian Deese are hardly more qualified.
Barney Frank. and making products that work. meeting customer needs. There are hundreds of experienced and highly qualified managers who understand management. They are chauffeured around town by government drivers in government owned cars. the Chair of the House Banking Committee. How is this possible? Congress will not resist meddling in the management of the companies that the government now owns. the rental car business has requested money to help refinancing rental fleet cars. Recreational boat manufacturers and time-share organizations also want help in refinancing. Strip mall ©2009 James W Taylor. DBA & David Zetland.P a g e | 83 Honda Odyssey (2) Subaru Legacy Toyota Highlander Mini-Cooper Volvo C30 Lexus 350 Volvo S60 Saab 9-5SE Lincoln Town Car Ford Taurus Lincoln LS Chevrolet Cavalier Harley Davidson And several don’t even own cars. dealing with employees. But there is not a single one of the list above. We can predict that event with 100% confidence since it is already happening. PhD . Recreational vehicle manufacturers also want to be included in the federal give away. So far. There is not one single person involved with the dismemberment of General Motors who is even remotely qualified for the task. intervened to prevent the closing of an auto parts company in his district before the ink on the auto industry bail out bill was even dry.
As we pointed out in Section Two. and the Aztek was an immediate flop. Washington appears to expect it to happen in a couple of months. That means everyone who has been left out will be working hard to get included.The Aztek was not an isolated incident. GM was worried that they had such a large share of the U. But GM went ahead and introduced the Aztek in 2001. and there is simply no evidence that they can do that. are now being called on to design and manufacture cars people want to buy.S. When the U. Still. Today. ©2009 James W Taylor. who survived the layoffs. market is less than 20%. The auto parts industry asked for inclusion and got turned down. In May.S. The trade press called the Aztek the ugliest car ever made. Take a look at the auto bail out committee again.P a g e | 84 developers also have their hands out. they are stealing sales from every other healthy auto maker. more serious problem. but they seem to be an exception. every one of those petitioners got what they wanted. Not all that long ago. there is a real question about who comes next? And then there is another. pays good wages. DBA & David Zetland. Virtually every GM employee. has a healthy auto industry that makes cars Americans want to buy. is a long time GM employee. the U. Lincoln National and Prudential Financial have all qualified for a piece of TARP.S. There is no hard and fast rule about who gets bailed out and who doesn’t. market that they might be charged with anti-trust action and broken up. Every experienced manager understands completely that changing the culture of an organization takes years. that means extraordinary pressure on Congress members to get them included. PhD . government keeps GM alive. In turn. Ordinary life insurance companies like Hartford Financial Services. and provides health care for its employees. Some of these people are the same ones who ignored GM’s consumer research that said prospective customers hated the Pontiac Aztek when it was in development. They just do not understand anything about what they are doing.S. GM’s share of the U. But it doesn’t always work. The Federal Reserve even changed the rules to include motorcycles and snowmobiles! Here is the problem. and others just like them. The point is that those same people. including Ford.
consider this one. but Americans continue to want to buy large.00 a gallon. In case you have any remaining doubts about the ability of the U.000). comfortable cars? Unless Congress is willing to raise gasoline taxes to increase pump prices somewhere around $5. government to successfully manage a business. fuel efficient cars will remain small. you can also be sure the GM will soon go out of business and the money you lent GM will be gone forever. that is probably a safe bet. If you win your bet. ©2009 James W Taylor. GM now has an all electric car. fuel efficient cars. If Congress forces GM to select a high cost manufacturing location. If you bet your money on Congress getting its way. the 2008 profit and loss statements for the two major government run business. DBA & David Zetland.. but market introduction is years away. PhD .S. which would significantly alter demand.P a g e | 85 Bailing out GM (and Chrysler) takes sales away from them. The basic conflict about auto design is probably only months away. What do you suppose will happen if the answer is China? And when you have solved that one. the Volt (with an estimated market price of around $40.K. Auto Design: What will happen when Congress decides that GM must make small. assume that GM has solved all the design problems and has managed to satisfy Congress. Does that make any sense? Let’s consider a couple of huge political problems that are just a little way down the road. What if the answer is Canada? Then remember that the Government of Canada is also a part owner of GM. Amtrak and the Post Office are shown below. just for a moment. Now the question is where to manufacture these new cars. the market for small. Auto Manufacturing: O. any chance that you will ever see your money paid back just disappeared. under development.
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AMTRAK OPERATING RESULTS Year FY02 FY03 FY04 FY05 FY06 FY07 FY08 Revenue (millions) $2,209 $2,055 $1,844 $1,858 $2,010 $2,151 $2,247 Net Loss(millions) $497 $496 $386 $440 $452 $486 $475
USPS OPERATING RESULTS Year FY07 FY08 Revenue (millions) $74,778 $74,932 Net Loss(millions) $5,327 $2,806
Now imagine the same government running GM, Citibank, et al. The Takeaway On The Government’s Industrial Intrusion: We have started down a long and slippery slope. What is to keep it from expanding? Are we France yet? Here Comes Inflation (or Does It?) There are just two simple concepts to understand here, but after that, everything gets complicated. Inflation: This describes the situation when there is fixed (relatively) amount of goods and services, but an ever increasing amount of money in the economy. In this situation, prices go up and up, as more and more dollars chase after a limited amount of goods and services.
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Deflation: This describes the situation when there is fixed amount of money in the economy, but a large surplus of unsold goods and services. In this situation, prices go down as businesses of all kinds try to get cash by selling off inventory. Here is why it gets complicated. In an Expansion, consumers and businesses spend more and more money, but the amount of goods and services increases so competition keeps prices from rising, hence no inflation. Since there is no surplus of goods and services, there is no need for falling prices, hence no deflation. The primary role of government in an Expansion is to raise interest rates to make sure that only the really strong new projects get financing. In a Contraction, consumers reduce their expenditures since job losses are a major characteristic of a Contraction, and that takes money out of the economy and reduces the upward pressure on prices. But governments have taken to inserting large amounts of money directly into the economy when Contractions begin, thus offsetting the reduced spending by consumers. At the same time, businesses have relatively fixed capacity to produce goods and services so they usually cut prices to keep their factories, stores, etc. busy. The problem is that Contractions contain symptoms of both Inflation and Deflation. The problem is further compounded by the fact that the appropriate action for consumers, and for businesses, is exactly the opposite depending upon whether Inflation or Deflation is coming. If Inflation is coming, all the money you were saving will lose much of its value in the future so it is much better to own things and not hold money. But if Deflation is coming, your savings today will buy much more tomorrow. Right now (June, 2009) there are neither signs of rising or falling prices, and economists are wildly divided on which is coming next. Some Things You Should Know: In 1991, Goldman Sachs asked Senator Christopher Dodd to sponsor legislation that, for the first time, allowed the Federal Reserve Bank to lend money to Wall Street banks. Virtually no one noticed this bill being passed.
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In the past year, the Chairman of the Federal Reserve Bank has expanded the bank’s role in two major ways. He has committed over a trillion dollars for buying securities issued by Freddie and Fannie, and another trillion to buy student loans, credit card loans and auto loan. Not only is the Federal Reserve Bank devoting enormous amounts of money to keep financial organizations flush with cash to lend, it is now deciding who is credit worthy and who isn’t. (See who is worthy and who is not, at least to date, in the earlier discussion in this section.) This change in behavior by the Federal Reserve Bank has two major, and very serious, consequences. One is that it has now become a major player in financial markets without any transparency whatsoever. The other is that the Bank has lost much of its independence from political pressures, but is not accountable to any constituency of voters. Anyone who does not think political independence is important should review the 1980’s when Paul Volker was wringing an awful inflation out of the economy. Mr. Volker was under incredible pressure from all sides to lower interest rates and to re-ignite inflation. There is an important reason Federal Reserve Bankers are appointed to fourteen year terms. Whether this sea change in the role of the Federal Reserve Bank can be unwound when this Contraction ends, and a new Expansion begins, is dubious at best. We have just embarked on a huge new experiment in the relationship between the government and the financial industry, and nobody even bothered to ask the citizens of the U.S. whether they thought it was a good idea. Where Did The Federal Reserve Bank Get The Money To Invest In Wall Street, GM, etc.? That is a very good question with a very simple answer. They printed $1.35 Trillion in new currency in 2008. What Now? History doesn’t give us much guidance about what is likely to happen next because we have embarked on a huge experiment, one without real precedent. That means you will have to be extremely vigilant about signals from the economy. The one number you want to monitor regularly is the Consumer Price Index (CPI) discussed in Section One. And one part of
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the CPI is especially important, the “core index” because it excludes prices of food and energy, and oil prices have been particularly erratic in recent months. Get a piece of graph paper and plot the monthly numbers. The Federal Reserve Bank has set a target for inflation at just under 2% annually. Draw that line across your graph. If the core index plots higher than that base line, you have to begin to re-think your financial plans. This especially true if your trend line begins to move up markedly. Remember that during inflations, cash looses it worth, but stocks and real estate generally have increasing values. A mutual fund like Vanguard’s Inflation-Protected Securities Fund is worth a close look. The Take Away on Inflation: Inflation is a highly likely event in the not too distant future. The National Deficit and The National Debt: Now we come to the really hard part of this discussion, the National Deficit and the National Debt. These two topics are hard because the remedies are incredibly difficult to accomplish. The two topics are separate but closely related. First, let’s be clear about what the terms mean. If you have an income of, say, $50,000 a year and you spend $75,000 annually, you would be running a deficit of $25,000 a year. Now if you borrow $250,000 to buy, say, a house, you would be incurring a debt. So these are really simple concepts that you can relate to personally. The economists Alan J. Auerbach and William G. Gale have examined the Congressional Budget Office’s projects for the U.S. economy for 2009. They find that revenues will represent 16.1% of the Gross Domestic Product (GDP), but expenditures will equal 25.7% of the GDP. In other words, this year we will spend much, much more than our national income. In fact, the last time revenues were such a small part of the GDP was 1950, and the last time expenditures had that large a share of the GDP was 1945. The gap between income and expenditures (the deficit) is the largest since the end of WW II.
©2009 James W Taylor, DBA & David Zetland, PhD
PhD . (so far). If we try to close the gap with income taxes. but that President Obama will extend. and eliminating nearly all discretionary spending.8%. The New York Times recently examined a decade of records from the Congressional Budget Office (CBO) to try to find out how we got to this expected deficit of $1.2 Trillion since we had a budget surplus of over $800 Billion in 2001. say. it would require a 51. The Business Cycle accounts for 37% of the swing since revenues have fallen as business activity slowed down and social payments increased. So it appears that we will be going into further debt for the foreseeable future. new policies proposed by President Obama. education. And how to we deal with this deficit? We borrow the money and the National Debt increases. and 3% is due to the new agenda on health care. DBA & David Zetland. or a permanent increase in income equal to 28. Bush such as his tax cut and Medicare prescription drug benefits. Bush policies set to expire. the Business Cycle.P a g e | 90 Now a deficit by itself doesn’t have to be a bad thing. energy. About 20% is from extensions of Bush policies such as the Iraq War. The next 33% come from new legislation signed by George W.6% increase in everyone’s income taxes. About 7% comes from the 2009 Stimulus Bill. It is a serious problem. That represents a swing of about $2 Trillion in just over eight years. ©2009 James W Taylor. Auerbach and Gale forecast that closing the gap in the near future. up to 2020 will require a permanent reduction in Federal Government spending (not including interest on the National Debt) of 22. People frequently take on short term debt based on the expectation of future rising incomes. etc. The problem here is that there are not any creditable projections of future income or expenditures that brings them into balance. and fourth. George Bush’s policies.9% of GDP. Those are huge numbers!! And neither of them is remotely likely. Here are their results in four broad categories.
dollar is the currency of world trade. it might seem unfair for people to blame Obama for not fixing it. he is making it worse”. DBA & David Zetland.S. That was the situation in the U. So far. has basically been using borrowing to cover the annual deficit. government financial promises approaches $53 Trillion. Nations can also pay down their debts by reducing their expenditures to less than their income. But if you add in the entitlements of Social Security and Medicare.S. in 2001. On the other hand. it reasonable to be extremely worried that inflation may not be far into the future. Since the Federal Reserve Bank has already started printing money. When they do that. but the problem is that there can come a day when the Treasury tries to borrow more money and nobody will lend them any money. inflation inevitably follows. Then the only alternatives are to print money. cannot declare bankruptcy which is called abrogating their debt. cannot since the U. or increase interest rates high enough to ©2009 James W Taylor. On the one hand. or you can declare bankruptcy. and by not fixing it. We owe that money to China. however. he is not fixing it. the total value of unfunded U. governments have another resource that you do not have. the U. The thing about debts is that they must be dealt with sooner or later. Nations. However. “Bush behaved incredibly irresponsibly for eight years.P a g e | 91 Alan Auerbach says. in that order. Japan. PhD . The two real keys to reducing the Deficit and the Debt lie in Health Care and Social Security. some Arab countries and everybody else.S. The National Debt today is about $10 Trillion (see Section One for a picture of what $1 Trillion looks like). They can print money to use to pay down their debt.S. the U.000 for every man.S.S. When you are personally confronted with this situation. you can reduce your expenditures and use the savings to pay down your debt. While Argentina did that not long ago. woman and child in the U. That equals $175. and use the savings to pay down the debt. We will consider both of those issues when we take on the National Debt next.
Social Security: As the population of the United States ages. you paid $6. If you earned that much money last year. Jimmy Cayne.e. governments can borrow to fund investment in new technologies. 80% of the Health Care expenditures in the U. for two examples. Health Care will account for 30% of the GNP by 2029. Additional savings can also come from better information about the effectiveness of treatments and drugs.8 Million. if the cap were lifted. and that is simply not sustainable and it will crowd other important uses of money. S. are made in the last month of life. DBA & David Zetland. But the real solution is to be found somewhere in this fact. we should point out that some borrowing can be a very good thing. even more money will be required. As the population of the U. the Wall Street banker who lead Bear Sterns into bankruptcy also paid $6. Right now. Just as businesses can borrow money to build new plants to meet increasing demand for their products. or in education. now requires 18% of the entire Gross National Product (GNP). that alone would make all that much of a difference. i. transportation. he would have paid $3. Before we leave borrowing. everyone pays a tax at the rate of 6.S.S. more and more people qualify for Social Security payments. The bad borrowing occurs when the borrowed money is used to pay current expenses. That kind of borrowing is also investing in the future.3 Million. or to buy new machinery to reduce costs.60. But high interest rates reduce economic activity. While some savings in Health Care can undoubtedly come from improving a health standards such as decreasing the number of overweight Americans from 33%.60 on his income of $61.2% on the first $106. etc. However.800 of annual income.P a g e | 92 attract new lenders. Health Care: Health care in the U.621. PhD . It is easy to see how removing the cap from everybody ends the Social Security problem. ©2009 James W Taylor. and that is to remove the cap from the earnings subject to the Social Security tax (OASDI).621. education.. there is a simple solution at hand. At the current rate of growth. lives longer and longer. Fortunately. and it is growing faster than the GNP is growing. Both are bad choices.
it will cost $200. and present major problems to future generations. it will cost $100.000. this sounds like a very inhuman process. But then remember that insurance companies do exactly the same thing all the time. very large. but if it is spent at the UCLA Medical Center in Los Angeles. this is a truly uncomfortable subject. but they require a very large dose of political courage. a treatment might extend a patient’s life for two years. Minnesota. Agreed. They have created a “quality adjusted life year” to use in evaluating the effectiveness of drugs and treatments. If. PhD . say. and it is. California. Yes. DBA & David Zetland. The Take Away on the Deficit and Debt: Both the national deficit and the national debt are very. The British are already experimenting with this fact. but it really is unavoidable. and they do it without any transparency whatsoever.P a g e | 93 Further. There are some actions that the government can take to deal with these serious problems. ©2009 James W Taylor.000. The score is then compared with the cost of the treatment and a decision is made. the treatment gets a mathematical score. if that month is spent at the Mayo Clinic in Rochester. but the side effects are so onerous that those years are only judged worth living half as much as a healthy person. Whether Congress can find that political courage is probably the most important question for the 21st Century.
S. de Touqueville said that the big problem with democracy is that the people have the power to spend more money on themselves than there is to spend.S. 7) The U. there is no equilibrium point that suspends the Business Cycle. to developed economies.P a g e | 94 What It All Means 1) There is a real. DBA & David Zetland. explanation for what happens.S. Unless this cabal can be exposed and removed from their positions of power. It is called the Business Cycle and its characteristics are easy to observe. His insights into the functioning of democracy were so prescient that his book is still in use in colleges today. Attempts by governments to reach such an equilibrium point are wasteful and useless. Unless. beginning or ending to the phases of the Business Cycle. 3) U. Alexis de Touqueville wrote a book called “Democracy in America” in 1835. the financial well being of the U. the financial well being of the U. no structured ideology. a French priest came to America to study this new method of governing called “democracy”. That is exactly what is happening now. Most importantly. 6) In a very short period of time. government has become an owner (and defacto manager) of a significant portion of the U. One of his insights is particularly relevant here. So it is not surprising that the policies have not been successful to date.S. budget deficit and the U. 5) There are a large number of actions that individuals and SMEs can take to make the best of the Business Cycle.S. or identifiable. government actions to deal with the current Contraction (recession) have no theoretical basis. the U. They have all been completely ad hoc.S.S. 2) There is no clearly understood. is in extreme danger Early in the 18th Century. is in danger. total debt are extremely large and growing rapidly. ©2009 James W Taylor. 4) The primary beneficiaries of most of the government’s actions in response to the current recession have been a small number of Wall Street banks. repeatedly. PhD . economy and so far has shown no competence in managing this new responsibility. some way is found to control the deficit and begin to shrink the debt. no consistent rules. and relatively simple.
1987. 1987 . School of Marketing. 2001 Professeur Vistants. PhD . Sydney. 1990 Education Doctor of Business Administration. Chile. 1960-1965 Managing Director. University of Minnesota. International Photographer LLC. Hunt-Wesson Foods. Australia. Universidade Nova de Lisboa Lisbon. Auckland. University of Western Sydney. France. 1972-1995 Senior Fulbright Scholar Portugal. France. New York University. University of Technology. Department of Management Studies. Fullerton.com/drjwtaylor) Academic Experience Australia Visiting Professor. Inc. 1995 France Professeur Vistants. Atlantic Refining Company (ARCO). MBA Progamme. Philadelphia. Research Division. Aix-en-Provence. San Clemente. 1981 Chile Profesor Visitante. School of Business. Taylor Professor of Marketing California State University.Australia. 1957 Business Experience Director. 1960 Bachelor of Business Administration. 2005 to present (www. California. 1981 Portugal Visitant Profesor. Graduate School of Management. James W.zazzle. Melbourne. 1990 Visiting Professor. 1975 Master of Business Administration. Sydney. California. Australia. New Zealand. Pontificia Universidad Catolica de Chile. Paris. Portugal. Pennsylvania. ESSEC Graduate School of Management. University of Southern California. 1965-1972 Manager. 1989 ©2009 James W Taylor. 1983 Visiting Professor. IAE French University. University of Auckland. DBA & David Zetland. Escuela de Administracion. University of Melbourne. Santiago. Graduate School of Management. 1999 New Zealand Visiting Professor. Australia. New Product Development. 1988.P a g e | 95 Resume of Authors Dr.
. Marketing Planning: A Step by Step Guide.. (Tokyo: President Sha.. 2000 Books The Great Recession Conspiracy. 1986) Available in English and Finnish. (Laguna Beach. S. 1987) How To Create A Winning Business Plan. New York: Wellington Press. (Ramsey.scribd. PhD .P a g e | 96 Spain Profesor Visitante.. 2002-2003 Visiting Professor.. 1989) The Complete Manual for Developing Winning Strategic Plans. 1995) Available in English and Greek. Developing Winning Strategic Plans [Completely revised]. Inc. 1988) Planeamento Strategico Para Empresa Portuguesa. 1993) Developing Winning Strategic Plans with Keisuke Morimoto and Hitoshi Yajima. (South Nyack. New Jersey: Alexander Hamilton Institute. Aston University. Student Recommended Faculty Program. Inc. San Luis Obispo. (Chicago: Corporate Research. (2009). Inc. 1987. Inc. 2003) The Marketing Strategy and Planning Workbook.. DBA & David Zetland. ©2009 James W Taylor. Ltd. Arygros School of Business.. Inc. Universidad de Valencia. New Jersey: Prentice-Hall. California. 1993) In Japanese only. Westbury. 1996 United States Visiting Professor. New Jersey: Alexander Hamilton Institute. California. (Chicago: Crain NTC Books. (Chicago: NTC Business Books. Ministerio da Industria e Comercio. California: Innovative Management Development Company. 1993 United Kingdom Visiting Scholar. Facultad de Economia. (Ramsey. 1992. California: Digital Workbook International LLC.. University of California Irvine. New Jersey: Alexander Hamilton Institute. College of Business. (Mexico City: Prentice-Hall Hispanoamericana. 1989) How To Write A Successful Advertising Plan. Vanderbilt University. (Irvine. 1997) How To Create A Winning Business Plan [Completely revised and expanded]. Inc. How To Develop Successful Advertising Plans. A. 2000) Planeación de Mercadotecnia: Una guía paso a paso . 1995) Available in English and Greek. Valencia. Developing Winning Strategic Plans.. Portugal: Gabinete de Estudos e Planeamento.. Tennessee. 2000-2001 Visiting Professor. George L. Also published by Asher-Gallant Press. School of Social Sciences. United Kingdom. 2003-2004 The Visiting Professor of Marketing. published online at www. (Englewood Cliffs. Spain. 1991. (New York: Alexander Hamilton Institute. 1990) Every Manager's Survival Guide. Orange.com The Marketing Strategy & Planning Workbook (2004 Digital Version). Birmingham. Irvine. New York. California: Digital Workbook International LLC. Inc. Aston Business School. Nashville. What Caused It and What You Can Do About It. California Polytechnic State University. 1997) Available in Spanish only. Inc. 2003) The Marketing Strategy Workbook (2004 Digital Version). California. Owen Graduate School of Management. (Laguna Beach. Chapman University. (Maywood. (Lisboa.
1. Portuguese. "The Short-Term Orientation of American Managers: Fact or Fantasy?" Business Horizons.. "Matching Profiles For Your Industrial Sales Force. Darien. 1980. 1993. Summer." Conceptual Developments in Marketing. Japanese. K." Journal of Marketing." Business." Journal of the Academy of Marketing Science. Vol. 1979) Available in English. 1978. "Planning Strategy. Inc. 1983) Planning Profitable New Product Strategies. 1982)." Advances In International Marketing Management. 1982. Also in Sound View Executive Book Summaries. "Marketing and Non-Marketing Managers.. 1986. "A Striking Characteristic of Innovators. April. Radnor. Also. K. (New York: Alexander Hamilton Institute. Spring. "The Coming Crisis in the Spanish Wine Industry. Summer. Also published by Chilton Book Company. 1991. "The Reality Gap in Strategic Planning." Journal of Marketing Management. July. 1981. 1981." Northern New Zealand Farming World. 1992. Inc. Inc. Bristol. May-June." Journal of Marketing. Other Publications "La Crisis de la Industria Vitivincola en Espana: Un estado de la cuestion." Harvard Business Review. June-July. No. 1986. "The State of Strategic Planning. K. 1986.). "The Role of Risk in Consumer Behavior. (New York: Alexander Hamilton Institute. "Cognitive Styles of Marketing and Non-Marketing Managers: A Three Nation Study. (U. September 7. May-June. Spanish.)." Journal of Marketing. "AGROW: The Strategic Plan NZ Needs." Strategy Magazine. Vermont. Profitable Marketing Planning. "After 20 Years On A Downhill Slide." Journal of Marketing Research. Spanish." Business." Harvard Business Review. 1990. Noviembre. American Marketing Association. DBA & David Zetland. (Chicago: Probus Publishing Company. September. (New York: Alexander Hamilton Institute." New Zealand National Business Review." Journal of Consumer Marketing. 1985) Available in English. Numero 18. Also in Journal of Services Marketing... ©2009 James W Taylor. 1987. S. and Swedish. "The Reality Gap Revisited. Pennsylvania. July.) Vol. Also published by Chilton Book Company. February. April. "The Purchase Intention Question in New Product Development: A Field Test. Business Practices. Exporting To The United States As A Strategy For Growth. "The Attitude Change-Behavior Change Problem. "The Effects of Social Class and Perceived Risk on Consumer Information Search. Pennsylvania. K. 1981. (U. "Competitive Intelligence: A Status Report on U. January-February. 1977. (New York: Alexander Hamilton Institute. May-June. Best Paper of the Year Award. 1986) Competitive Marketing Strategies.). (U.P a g e | 97 The 101 Best Performing Companies In America. 1975. January. Strategic Planning For The Success Business. Summer." Business. 1984. Available in English. "Risk Theory and the Science of Marketing. 1978. 1." Business to Business. March-April. 1979.." Marketing Intelligence and Planning. 1984. Assuming New Zealand Can Raise Its Sights. PhD . The Only Way Is Up. (Madrid). (New York: Alexander Hamilton Institute." Distribucion y Consumo. "Add-on Purchasing: Consumer Behavior In The Trial of New Products. Portuguese." International Journal of Wine Marketing (U. 1986. "The Real Meaning of Excellence. Radnor. Inc. 1982) Available in English and Spanish. Also in Sound View Executive Book Summaries. and Swedish. Norwegian and Finnish. Inc. 1974. 1994. 8. 1984. 1987. 1989. "Planning for the 1980's. Connecticut. 1994.
Sydney. Japan Trident Group Japan. ed.. PhD . 1967.. Ewing. Stockholm. Barcelona. 1958. (Boston: Houghton-Mifflin Company. Reprints In Books "The Short-term Orientation of American Managers: Fact or Fantasy?" in Management." in Consumer Behavior in Theory and Action. Also in Corporate Strategy." in Marketing: Contemporary Dimensions. (New York: John Wiley & Sons. Steuart Henderson Britt. Assocation for Consumer Research. 1993) "The Reality Gap In Strategic Planning. Sydney New Zealand: Auckland France: Paris Portugal: Lisbon.. Tokyo. April. Oporto Singapore Spain: Alicante. 1983). Valencia Consulting Clients Australian Trade Commission. New Zealand Sea-Land Services. Lisbon. U. (Boston: Kent Publishing Company. 1965. Weitz and Robin Wensley. Inc. Department of Commerce. 1980) "Matching Profiles For Your Industrial Sales Force. "A Study of Purchases and Attitudes Toward Men's Toiletries. Pamplona. November. Sweden Ministry of Industry. 1983) "Two Requirements For Measuring The Effectiveness of Promotion. (Boston: Harvard Business Review. (Guildford. California Tourism Industry-Trends and Investment Opportunities. 2nd Edition. Fred Maidment.." in Strategic Marketing. Auckland. Connecticut: The Dushkin Publishing Group. Ltd.. Castelon. Seattle. Portugal Moray Industries. Graduate School of Business Administration.. "Two Requirements for Measuring the Effectiveness of Promotion." Journal of Marketing." Advances in Consumer Research. Melbourne. New York University and The Toilet Goods Association. Robert Rubicheaux. ed.P a g e | 98 "A Reinterpretation of Farley and Ring's Test of the Howard-Sheth Model of Buying Behavior. Government of Portugal. S. eds." An Industry-College Experiment In Marketing Research Methods. ed. editor. Washington SmithKline Beecham Consumer Brands. Australia Hagenfeldt-Affärerna AB.. Yokohama City. DBA & David Zetland. 1973. Brisbane. David W. Canberra. 1970) PROFESSIONAL ACTIVITIES Executive Development Seminars on Marketing Strategy and Planning Australia: Adelaide. Inc. Malaga. Perth. Japan Honors and Awards Who's Who in the World Who's Who in America Who's Who in the West Who's Who in California Who's Who in Finance and Industry Who’s Who in Business Education ©2009 James W Taylor. Barton A.
PhD . DBA & David Zetland.) ©2009 James W Taylor. K.P a g e | 99 Who's Who in Advertising Men of Achievement (U.
com Web: http://ssrn. CA 94720-3310 USA Berkeley. PhD .com/author=354433 www. I have spent most of my time communicating economics to the public via blogging. Educational History April 2008: Ph. Davis.edu dzetland@gmail. CA 94704 USA Phone: +1 (510) 499-3262 Email: dzetland@are. and social welfare. I studied market and government failure using institutional and experimental methods. public talks and meetings with policymakers. In 2009. Stephen R. Overall GPA = 3. University of California.berkeley. and Industrial Organization. ©2009 James W Taylor. (Agricultural and Resource Economics). 2009 Contact Information Address: Agricultural & Resource Economics University of California 2612 Ellsworth Street Berkeley.D.65 December 2003: M. I plan to write a trade book (The End of Abundance: A Primer on Water Economics) and tour California to hold ‘water chats’ with people interested in learning more about the economics of water. University of California. I spend some time working on academic papers.org Blog: http://aguanomics. but I am increasingly skeptical as to the impact of these projects on public policy. Environment & Resources. (Agricultural and Resource Economics).kysq.com/ Professional Philosophy I began my PhD in development and ended in environmental and natural esources. Davis. Sexton (chair). Howitt and Stephan Kroll.P a g e | 100 David Zetland June 12.S. Dissertation: Conflict and Cooperation within an Organization: A Case Study of the Metropolitan Water District of Southern California [LINK] under the guidance of Richard J. DBA & David Zetland. Fields: Economics of Development. Boucher. Throughout. Richard E. general understanding of economics. Since I finished my PhD.
Germany) Mar 08 _Do Water Managers Cooperate in Public Goods Games?_ [Submitted] Working Papers Click on titles to access papers at SSRN. Visiting Fellow Mercatus Center (2 months): Research on regulation and water management with Richard Williams and Karol Boudreaux. Departmental Honors.V. University of California. Ciriacy-Wantrup Postdoctoral Fellowships in Natural Resource Economics and Political Economy.A. Teaching Asst. Richard Howitt (6 quarters): Performed research on various water issues and assisted in preparation of manuscript on positive mathematical programming. Intermediate Micro (3 qtrs) and Capital Budgeting (1 qtr): Prepared and led weekly discussion sections.Focal Points in Public Goods Games: Explicit Information Increases Reciprocation September** . Honors College). _**_ = revise and resubmit 2009 June * Water Reallocation in California: A Broken Hub Will Not Wheel May * An Auction Market for Journal Articles (with Jens Prüfer) 2008 December* . Los Angeles. held office hours and review sessions. Research Asst.Teaching Economic Principles: Algebra. _*_ = submitted.The Real Estate Market Index 2007 September . DBA & David Zetland. Graph or Both? (with Carlo Russo and Navin Yavapolkul) June * . Academic Employment Instructor UC Berkeley. (Business-Economics.The Effects of Endogenous Exchange Rates on Behavior in Public Goods Experiments (with Stephan Kroll) ©2009 James W Taylor. PhD . Development (3 qtrs). and graded exams and homework. Phi Beta Kappa. Agricultural & Resource Economics (Fall 2009): Environmental Economics and Policy 100 (90 students) Wantrup Fellow UC Berkeley (2 years): S. Magna cum Laude. working with Michael Hanemann.P a g e | 101 March 1991: B. Books and Chapters 2010? The End of Abundance: A Primer on Water Economics under contract with the University of California Press (Berkeley) Conflict and Cooperation within an Organization: A Case Study of the Metropolitan Water District of Southern California VDM Verlag (Saarbrücken.
2005/IV: 20-21.Free Trade Can Be Fair Trade.Invited Speaker at Liberty on The Mind Conference: California's Bankruptcy and Its Economic Future (Santa Clara.Don't Shoot the Middleman! Agent Quality and Effective Delivery of International Aid 2003 June .Interviewee at Bloomberg on the Economy 2008 September .Speaker (_All-in-Auctions_) at ISNIE (UC Berkeley) 18 June .Organizer and Speaker (_Discussion: Climate Change Dynamics in Theory.Can We Rely on Technology to Guarantee Future Water Resources?_ in Canadian Water Treatment January .com 2005 October .Invited Speaker (_All-in-Auctions_) at Water Rights Sales and Transfers Workshop (Phoenix) 4 May . Post-PhD Conferences.Attendee at _Behavioral Economics: What Can It Contribute to Environmental and Resource Economics_ (Bellingham. Natural Choices: The Davis Co-Op Newsletter. Circle Conference (San Francisco) 21 April . _Internationalized_ version: Free Trade Can Be Fair Trade Global View.Guest blogger at Freakonomics August .There Is No Water Shortage on forbes. Experiments and Reality_) at Economic Games and Mechanisms to Address Climate Change (MSRI. DBA & David Zetland.Invited Speaker (_Sector Showcase: Emerging Opportunities in Water_) at the Investors.Speaker (_All-in-Auctions_ and _Conservation Pricing_) at ACE09 (San Diego) 4 June .Guest blogger at Environmental Economics (also May 2008) July . Popular/Industry Press 2009 May .Markets for Afghan Opium and U. Berkeley) 27 April . PhD . Seminars and Talks 2009 26 June .Killing the Golden Goose? Tourism and Deforestation in Nepal January .S.Speaker (_All-in-Auctions_) at EAERE (Amsterdam) 20 June .P a g e | 102 June . WA) 7 May . Heroin.Guest appearance on Fox Business News July .Market profile: California's Water Crisis_ in Global Water Intelligence May .Raise prices_ at KSRO ©2009 James W Taylor. CA) 21 April .
Attendee at ESA (Pasadena) Reviewer AAEA/ASSA sessions.Attendee at ASSA (San Francisco) 2008 13 December -Invited speaker.Presenter (_All-in Auctions_ and _Focal Points and Gender_) at ESA in Tucson 22 October . American Economist.000) ©2009 James W Taylor. FTE GEFL fellow ($1.Panelist.000). Building-Integrated Sustainable Agriculture in Berkeley 9 December .Invited participant.Workshop leader (_All-in-Auctions_) to the Scotts River RCD 19 February . Summer Graduate Workshop on Climate Change at MSRI (UC Berkeley) 26 June . and Organization.P a g e | 103 20 April -Raise prices_ at KCBS 10 March. Journal of Law.Invited Speaker at the Business Council on Climate Change.Interviewed for _There is No Water Shortage_ at KFMB 27 February . PPIC report on the Future of the Delta at UC Davis 31 July .Invited speaker.Presenter (_All-in Auctions_) to California Coastal Conservancy (also presented to ARE/hydrolunch @ UCB) 13 November . National Association of Water Companies in Santa Fe 23 September . San Francisco 8 February -Presenter (_An Integrated Solution to Water Mismanagement in the West_) at BIL in Long Beach 6 February -Presenter (_The Decline of Engineers and Rise of Economists_) at Stanford Engineering 5 February -Invited speaker. IBM's Global Innovation Outlook Deep Dive (Water) in Atlanta 6 August .000) for All-in-Auctions from UC Berkeley's X-Lab 2006 Giannini Foundation Research Minigrant ($10.000) and Jastro-Shields Graduate Research Scholarship ($2. National Science Foundation (x2) Grants and Funding Seed funding ($1.Panelist.000) and Hayek Fund for Scholars ($250) 2004 Jastro-Shields Graduate Research Scholarship ($600) 2002 Graduate Opportunity Fellowship ($25. Jastro-Shields Graduate Research Scholarship ($1. DBA & David Zetland.500) 2005 Giannini Foundation Research Minigrant ($10. Environmental and Resource Economics.Presenter (_Water Utilities and Insurance_) at Hydrolunch and ERE Workshop (18 Mar). PhD .000). UC Berkeley 4 March -Invited panelist on _California's Water Crisis_ at KALW 2 March . Economics. _Elemental Interactions: WATER!_ at the Black Rock Art Foundation (San Francisco) 3 January .
kroll@colostate. 510-841-6443) Chancellor's Professor. Davis 95616 USA ©2009 James W Taylor. Colorado State University). 2004: _Graduate Student Program in Experimental Economics _ (IFREE. _Social Change Workshop for Graduate Students_ (IHS. Davis 95616 USA Stephan Kroll (stephan. University of California. Austria). Germany). University of Passau. Davis 95616 USA Michael Hanemann (email@example.com. Boucher (boucher@primal. 530-752-4428) Professor.edu.berkeley.P a g e | 104 Graduate School Conference and Seminar Activities ISNIE Attendee. Colorado State University. George Mason University). 2005: _Institutional Economics in the 21st Century_ (AFEE. Steyr. 530-752-1527) Associate Professor. Department of Agricultural and Resource Economics.ucdavis. University of California.edu. Howitt (firstname.lastname@example.org. Dissertation Presenter of my dissertation work in various forms at eight extramural seminars and conferences. Berkeley 94720 USA Richard E. 970-491-0887) Assistant Professor. MT) References Stephen R. _Economics for Leaders_ (FTE. Extra-legal Protection and Organized Crime_ (ESD. Summer Schools 2007: _Economics of Corruption_ (ICCR. Department of Agricultural and Resource Economics University of California.edu. California Climate Change Center. Department of Agricultural & Resource Economics and Goldman School of Public Policy. Department Presenter of about ten papers and leader of about five workshops. and 2003: _Free-Market Environmentalism_(PERC. DBA & David Zetland. Sexton (sexton@primal. University of Virginia). presenter and discussant at _ve conferences of the International Society for New Institutional Economics. Fort Collins 80523 USA Richard J. Department of Agricultural and Resource Economics University of California. Claremont University). Development Attendee and presenter at four Pacific Development conferences. PhD . Director. epartment of Agricultural and Resource Economics. 530-752-1521) Professor and Chair. _Economics.ucdavis. Bozeman.edu.
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