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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
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 the prices just went higher and higher. tulips were brought from the Ottoman Empire (Turkey today) to Holland. Then a “tulip breaking virus” invaded the flowers and the result was “flame” colors on the tips of the petals. PhD . As the popularity of the flowers continued to grow. It is a story about a tulip bulb. It was reported that one single bulb of a rare form of tulip was paid for with this list of merchandise. the number of professional growers increased and the bulbs commanded higher and higher prices. Two lasts of wheat Two lasts of rye ©2009 James W Taylor. The Tulip Mania: Here is the first story. One story is very old and the other is very modern. and sell.Page |5 SECTION ONE UNDERSTANDING BUSINESS CYCLES Edmund Burke noted that.” If you are going to really understand how Business Cycles work. “Those who don’t know history are destined to repeat it. “Past is prologue.” William Shakespeare was even more succinct when he said. Tulips became even more valuable. it will be useful to examine two examples of the Business Cycle at work. and how they will affect your life. tulip bulbs. As much as 12 acres of land were traded for one specific bulb. DBA & David Zetland. In the middle of the 16th Century. The brilliant colors of the flowers soon made them a prized luxury item among wealthy residents of the Low Lands. As the flowers gained in popularity. As this trade continued to grow. more and more Dutch citizens began to buy. it even attracted investors from France.
At this point. tulip traders suddenly could no longer find buyers for their incredibly expensive flowers.000 lbs. Seeing the complete loss of such a valuable property. 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. PhD . feel free to make up one of your own. If you don’t like this story. the demand for bulbs collapsed abruptly and everyone tried to sell the bulbs they owned. by February. And the price of tulips did not continue to increase. He dropped one onion and it rolled down the deck and fell into the harbor and was lost. a sailor was unloading a cargo of onions from a ship anchored in Amsterdam. There are a lot of stories about exactly what caused the collapse in prices. but no one knows for sure. but there were no buyers and prices fell even lower. A tulip trader on the dock witnessed this little scene and mistook the onion for a tulip bulb. 1637. but thousands went bankrupt when the prices collapsed. that kind of endlessly increasing prices could not go on forever. Read that list again. he rushed to sell his tulips before the news of the loss could upset the market. very rich in the run up of prices.Page |6 Four fat oxen Eight fat swine Twelve fat sheep Two hogsheads of wine Two tons of butter 1. Our favorite story about the collapse goes like this. In fact. A few people got very. The price of a single tulip bulb! Well. 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. DBA & David Zetland.
P. the Chairman of LVMH-MoetHennessy Louis Vuitton. Inc. cause of this phenomenon and what to do about it is the rationale for this book. Chairman of Benetton.Page |7 always sell the tulip bulbs they bought to some one else at an ever higher price. which by 1997 was the world’s third largest after Amazon and Barnes & Noble. there will always be a greater fool who will pay me even more than I paid for it. but the person who ©2009 James W Taylor. a former model with the Elite Agency. The model could be viewed from 360 degrees and in three dimensions. followed by a complete collapse in prices. Inc. they sold their online book store and became millionaires. Tommy Hilfiger.com was the name they chose for their company. They decided to sell sports wear to wealthy. This was the beginning of the “greater fool” theory. and a couple of smaller banks. responded and they offered Ernst and Kajsa a large line of credit. Based on this. Nike. High Fashion on the Internet: Now fast forward to 1998 and meet Ernst Malmsten. There was also to be an “avatar” sales person to comment on choices and to make suggestions. Fila. Based on those five pages. Luciano Benetton. DBA & David Zetland. trendy 18 to 24 year olds. has been repeated over and over again during the last five hundred years or so. They would sell name brands like Polo. the duo faxed a five page version to the leading banks in New York seeking funding for their new vision. et al. they raised $125 million immediately. The understanding of this phenomenon. Only J. This phenomenon of escalating prices. PhD . they raised additional funds from Bernard Arnault. With a “business plan” not much more detailed than the description above. They wanted to call it “bo” after Bo Derek. as in no matter what I pay for something. There is even a cute story here. 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. Morgan. They decided they could capitalize on their successful experience with an internet business to create a brand new kind of online retailer. Boo. In 1998. a six foot five handsome Swede. and Kajsa Leander. Ernst and Kajsa had started an online bookstore.
A diagram of the business cycle is shown next. The economy is either expanding or it is contracting. Danish. Hill & Knowlton. PhD .000 for apartment rental and $100.000 more to decorate the apartments. Four hundred employees were hired to staff all the new offices. etc. Regular mail was sent FedEx. US English. ©2009 James W Taylor.000 a year in cash and received $100. First class air travel and five star hotels were standard fare for all employees. They spent $42 million on an introductory advertising campaign without having a functioning online store or a product to sell. was paid $600. German. Spain and Italy. Swedish. and what can be done to live with them.com wanted a huge amount of money for the address so they simply added an “o” and the name became Boo. Amsterdam and Munich. The common theme between both stories is that they illustrate a phenomenon variously called a Business Cycle. is called the Business Cycle. Each of the founders paid themselves $150. DBA & David Zetland.com was available in UK English. Paris. Instability is built into the business cycle. While the tulip story was based on thousands of unsophisticated investors.com went through $185 million in 18 months. By December 2000 all of the money was gone and so was Boo. What is a Business Cycle? The economy of every developed country is always in one condition or the other. This expansion is followed by contraction followed by expansion. For our purposes here. They quickly opened offices on Carnaby Street in London.com. The public relations firm. in New York. and Finnish with local versions for France.Page |8 owned bo. Boo. Instability is simply inherent in the business cycle. Nevertheless. we will simply call it a Business Cycle. the outcome was exactly the same.com story was based on just a couple of very sophisticated investors. an economic cycle or a bubble. There is no equilibrium point no matter how much governments may try to create one.000 to arrange luncheons with fashion editors. Boo. All in all. We want to examine what happens during the Business Cycle. the Boo. Stockholm. why Business Cycles occur. Inc.com.
fear and pessimism Trough: At some point. Contractions. it is called an Expansion. The two words associated with. Two words are associated with.Page |9 There are only four terms you need to understand. the Contraction stops and the economy again starts to grow. ©2009 James W Taylor. DBA & David Zetland. which is the total amount of goods and services produced by the economy for all of us to share. greed and optimism Peak: At some point. the Gross National Product. Expansions. and drive. PhD . and drive. Contraction: That is when the economy is shrinking and that is exactly what is happening in the United States right now. and that particular point is called the Trough. the Expansion stops and the economy begins to shrink. Expansion: When the economy is growing. The Business Cycle is usually measured as the GNP.
For periods of time. people begin to think things are going to get worse. while they are unable to agree upon or identify the causes. it is driven by psychology. for some reason. most everyone thinks things are going to get better.com). ©2009 James W Taylor. and they do get better for a period of time.P a g e | 10 Don’t worry about “recession” or “depression”. DBA & David Zetland. Not much changes in the Business Cycle over the years. Business Cycles have been studied by economists for two hundred years and. Figure 2 shows this reality in the Consumer Confidence Index poll conducted by the Conference Board. they all agree on these facts.com. maybe obvious (the lost “bulb”) or not so obvious (the loss of confidence by investors in Boo. What you need to care about is whether the GNP (the Pie) is getting bigger or smaller. The general characteristics remain the same. The Business Cycle is NOT driven by finance. Those are technical terms that only economists care about. Think about the growth of the bulb business in Holland or the brief growth euphoria that surrounded Boo. Business Cycles have been appearing since capitalist economies emerged. is it expanding or shrinking. Then. What Drives Business Cycles? Here is the absolutely essential thing to understand about the Business Cycle. PhD .
but from the view point of the entire economy. From an individual’s point of view.S. lots of projects can get funded (see Boo. Here is an example of the Savings Paradox at work.S. This problem is called the Savings Paradox by economists. As a result. but from the larger point of view of the entire U. Expansion Phase: The Expansion phase of the Business Cycle is driven by people’s desire to improve their lot in life. The Role of Credit: And this leads us to the next point. On the other hand. The problem is that while many of the projects are solid and will earn profits so the loans can be repaid. We will re-visit this paradox shortly. The Business Cycle is facilitated by Credit. during Contraction it is very difficult to obtain funding so many worthy projects do not get started and new jobs are not created. for the last few years. too many unsound home loans have been made. some of the projects that get financing are truly unsound and will never earn enough to pay back the loan. PhD . The actions that are rational from an individual’s point of view are harmful to the whole economy.com). economy. DBA & David Zetland. 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. What happens is that credit expands rapidly during Expansion phases and contracts during Contraction phases. During Expansions. Adam Smith said in the ©2009 James W Taylor. The last point is of huge importance. economy. There is an example now in the U. it has been the best possible course of action for individual home loan brokers to fund as many loans as possible. This fundamental contradiction is of utmost importance and we will deal with it in more detail later.P a g e | 11 Business Cycles occur in all developed economies. people can easily obtain credit which they use to finance their current get rich quick scheme. everybody should be spending all the money they can get to move the economy from contraction to expansion.
amount of available resources. “The desire of bettering our condition comes from us in the womb and never leaves us till we go to the grave. of individuals finding a new way to do something better. Joseph Schumpeter called this process. Britannica turned them down flat. Britannica had a sales force numbering 2. It is not a stretch to understand the Expansion phase as driven by greed and optimism. the positive results. Encyclopaedia Britannica was a staple in American homes for 231 years.” And we do that by taking chances and trying new things. he called it “Irrational exuberance”. (When Alan Greenspan was President of the Federal Reserve Bank. So perhaps a better description might be “Creative Relocation”. New Industries: If the members of an economy are going to get richer (improve their lot) over time. replacing an older method. and in the process. Microsoft approached Britannica about including the Encyclopedia in Microsoft’s Windows software. Airplane travel did not destroy travel by train. In 1993. so Microsoft went to encyclopedia publisher Funk & Wagnalls and produced ©2009 James W Taylor. The economist. PhD . The Internet has not destroyed newspapers. and that is a pretty good description. Each successful new project means that it must dislodge an older way of doing things.P a g e | 12 1700’s. That means there is a continuing need to experiment with finding new ways to do things. but it has certainly have disrupted their business model.300 and revenues of about $650 million. DBA & David Zetland.250 a set. That occurs in two basic ways. or a lesser. and 2) by investing your savings in projects that promise to bring a larger reward. one small and two large. then they must create more goods and services (GNP) with the same. You can describe this activity as greed built on optimism. In 1989.) There are some real positive results of this focus on greed and some really negative results. but it certainly disrupted it. First. 1) by improving your skills through education and experience. but a more accurate description might be “Creative Disruption”. The bound volumes were sold to families by door-to-door salespeople and the books cost about $1. “Creative Destruction”. Creative Innovation: Here are three examples.
Swiss companies made about 80% of all the watches made in the world. but accurate timing devices to use in aerial bombs.756. But during World War II. A greatly improved. Jerry Wales and Larry Sanger had the idea for a FREE online encyclopedia. And. all of which have been written by volunteers. 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. Today. better method of doing the job. The Swiss Watch Industry: Now let’s try a bigger example. At the end of World War II.P a g e | 13 Encarta 99 Encyclopedia. Wikipedia articles are continually update. less costly method of delivering information came into being and replaced an old. Encarta was given away free with every copy of Windows. DBA & David Zetland.) Creative relocation usually replaces an old way of doing things with a newer. In 2000. creative relocation at its best. ©2009 James W Taylor. PhD .219 distinct articles. something you can’t do with paper or plastic disk encyclopedias. It was a very profitable and complacent business. the pin lever mechanism was developed.) It currently contains 2. They called it Wikipedia and it has been a rousing success. the British government needed inexpensive. Wikipedia is now available in nineteen different languages besides English. It was inexpensive and accurate. But there is more to the encyclopedia story. 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. less efficient method.toeing around bankruptcy. To do that job. (Wiki for a collaborative effort and pedia as the obvious part. Indeed. Today. You can understand the requirements. it is an unending process. Just how successful has Wikipedia been? In 2008. Wikipedia had 684 million visitors! (And no trees were harmed in creating Wikipedia. Britannica has less than 400 employees and seems to be tip. as the encyclopedia story makes clear.
©2009 James W Taylor. except one. went out of business. The new management re-defined what a watch is and decided that it was more of a fashion accessory than a time piece.S.P a g e | 14 By 1950. there is more to the watch story. Thus. So we have one more example of Creative Relocation at work and individuals inventing new processes to do a familiar job. and the Swatch was born.S. As you know. U. But there is even more to the world watch story. Their work led directly to Light Emitting Diodes (LED) technology and the age of digital watches began. and the Swiss watch industry began a decline that lasted for decades. Every watch manufacturer in the U. Another example of Creative Relocation at work. the Swiss share of the world watch market was less than 30%. some Japanese engineers were assigned the task of making the readout mechanisms in medical measuring instruments more legible in normal room lighting conditions. But wait. 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.S. By 1983. Timex had to find other outlets for its products. traditional jewelry stores refused to handle Timex watches because they were seen as “cheap”. PhD . one out of every three watches sold in the U. By the mid 1970’s Timex watches were being sold in over a quarter million different outlets. Digital watches decimated the world watch industry. and they did in a very big way.. The Swiss share of the world wide watch business is now around 60%. Timex turned to mass merchandisers and other non-traditional outlets for watches. Time Company was selling a watch with a pin lever mechanism. This is a clear example of a new technology replacing an old technology and Creative Relocation at its best. In the 1970s’. By the 1960’s. In a move born of desperation. was a Timex. a whole new line of “fashion accessories” were designed. DBA & David Zetland. However. the Swatch has been a huge success.
000 in sales annually. had about 40. In any event. no gain”. Barnes & Noble is the top selling book seller through 799 traditional book stores in fifty states. B & N had total sales of $5.com has been huge. But always remember that Creative Relocation has a down side.411 Billion. a thirty-one year old man named Jeff Bezos incorporated a new company he called Amazon. you have now seen how the Expansion Phase of the Business Cycle creates new industries.000 annually. If B & N goes bankrupt. To better understand the positive effects of Creative Relocation. People lost their jobs. There are real costs to Creative Relocation. consider this. but the idea is “No pain. it has been doing that rather well. he has brought unprecedented convenience to all of his customers. Investors lost their investments. In 2008. Governments lost tax revenues. improves productivity and creates new jobs. Yes.000 employees. PhD . DBA & David Zetland. progress has a price. The Expansion Phase also drives the GNP (the pie that we all have to share).000 people will have to find new jobs.P a g e | 15 Be certain that there is pain and discomfort in this process of Creative Relocation just described. It now serves 88 million customers.com. Joseph Schumpeter would surely be proud of Jeff Bezos.700 employees (all new jobs) and has averaged about 30% annual growth in the past three years alone. seven days a week. and for most of this century. Jeff Bezos has brought incredible efficiency to the book selling business and since his book “store” is open 24 hours a day. An employee at B & N produces about $130. Amazon. ©2009 James W Taylor. In 1995. had 20. His purpose was to vastly improve in the business of selling books and do it online. Improved Productivity: And one more story about Creative Relocation.com produces $912. there will be 799 stores standing empty and 40. By way of contrast. For hundreds of years. people bought books at book stores. Companies went bankrupt or simply closed down.166 Billion. In 2007. an average employee at Amazon. The success of Amazon.com had total sales of $19. and is currently teetering on the edge of bankruptcy.
Growing slower than that won’t create enough new jobs for a growing population. DBA & David Zetland.8% 2. inventories build up and prices are usually reduced to generate cash.4% and in the fourth quarter it shrank 5. the turning point in each Phase of the Business Cycle is some event that raises questions about the continuation of the Expansion Cycle.0% 1.8%. At a growth rate faster than 3% and the risk of serious inflation (more about that in Section Four). economy’s ideal growth rate is between 2% and 3%.S. What Ends An Expansion? The fascinating question is what ends an Expansion Phase and starts a Contraction.P a g e | 16 Recent Growth in the Gross National Product: Most economists agree that the U. GNP shrank 3. The Contraction Phase: The first sign of a beginning Contraction Phase is usually the loss of jobs as sales growth slows and then declines.2% 2. Credit becomes increasingly difficult to obtain so few new projects are begun and few new jobs are created. The reduced revenues lead to further job losses as companies attempt to minimize their losses and maintain profitability. 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. Since this contraction began in 2008 about five million jobs have disappeared in the United States.S. Here are the GNP’s recent growth rates for the U.1% But in the third quarter of 2008.: 2003 2004 2005 2006 2007 2008 2. Since the entire Business Cycle is driven by consumer psychology. As sales slow down. PhD . ©2009 James W Taylor.5% 3.9% 3.
Thus began a full scale Contraction. in 2006. In Section Two. DBA & David Zetland. What causes the Contraction to reach a trough? Here the answer is even more difficult. people begin to rethink much about their lives. The problem is that nobody much paid any attention to them. To say that nobody saw this implosion coming is inaccurate. ©2009 James W Taylor.S. Contractions grow out of wide spread fear.com phenomena. it was the potential investor who decided that Ernst and Kajsa did not understand enough about the underlying business model to possibly succeed. it was negative (-0. From Wall Street. While Contractions can begin with a single event.P a g e | 17 For the tulip phenomena.com and the dot. “Things are going to get better”. households has been very low. but the real answer to the question is that nobody knows. and sure enough they do begin to get better.S. For Boo. PhD . it was the loss of a single tulip (onion?) bulb.5%) meaning we were spending more than our income and making up the difference by drawing down our savings. the idea spread quickly that something bad is going on and everyone should be afraid and get very cautious. What Ends A Contraction? The equally fascinating question is what causes a Contraction to end and an Expansion begin. the U. Increased Savings: For over a decade. Some people begin to say. we will introduce you to some of the people who warned about the coming danger. In fact. But since the Contraction began. Bankers stopped lending to each other because they were afraid. But human psychology makes it difficult to accept warnings when you seem to be getting richer and richer every day. 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. Some Good Things That Come Out Of Contractions: When the always upbeat mind set of the Expansion Phase ends. Rapidly growing new technologies are one way that confidence in the economy begins to return. Expansions seem to require a more broadly based change in attitude. the savings rate of U.
P a g e | 18 household savings rate has increased to somewhere above 4%. For the moment. the current savings rate in Belgium is 14%. restaurants and other retail stores that opened during the last Expansion phase. PhD . in France 11% and in the U. New Businesses: Many people who lose their jobs decide it is time to be their own bosses and start new businesses. As a result. DBA & David Zetland. Paying Down Debt: In addition to increased saving. For example. Better Service: We will treat how companies produce better services for their customers in detail in Section Three. but no longer. the facts are summed up nicely in the AP headline from January 21. or the threat of reduced income. the whole banking system gets stronger. the highest rate in 14 years To put that in perspective. it reached 5. the FDIC has taken over a total of 42 banks out of over 9.000 member banks.K. consumers to review their household budgets carefully to identify which expenditures they can do without.”. 6%. Since the beginning of 2008. Weak Retailers Go Under: We have far too many auto dealerships. While this change is not yet as dramatic as the increase in savings. retailers could afford to be sloppy about running their businesses because customers kept buying. Many families have found they can cut back 10% without much change in their lives.000 people attended the Southwest by Southwest Interactive Festival in search of ideas for new businesses. in Canada 6%. 2009. have prompted U. consumers are beginning to pay down their debts. Reduced Prices: As many companies have reduced their prices to clear out inventories. Smarter Spending: Reduced incomes. “For years.S. it is in the right direction. In March. the number of ©2009 James W Taylor. In May. 2009. shopping malls.7%. Weak Banks Close: When the Federal Deposit Insurance Corporation takes over a failed bank it gives someone else the chance to start over. over 10. between 1990 and 2009. 2009. real bargains are now available for many things some people really have to buy.
And there are more. In any case. Consider yourself warned. a Ponzi scheme relies on new investor money to pay early investors a return on their investments. A Pennsylvania investment manager is charged with running a $50 million Ponzi scheme. run by Maximum Return Investors. Ponzi schemes rely on an unending supply of new money to keep the scheme going. While everyone has now heard of Bernard Madoff and his $50 Billion scam that ran for decades. of Hauppauge. diverted $3. WG Trading Company. Agape World.000 Ponzi schemes online. and more are appearing every day. This was a 49% increase in the number of outlets while the population to eat in them only grew 23%. based in Antigua. In this way.P a g e | 19 restaurants grew from 361. but were just as destructive to their investors. just focused on Latino investors.000. They especially seem to flourish on YouTube. is charged with running a $25 Million Ponzi scheme. and an Atlanta company. Inc. The SEC says money manager Bruce Friedman simply spent $17 Million of his investor’s money for his own personal accord. paid out $13 Million to investors and simply lost the rest on bad investments. those are just the headline grabbers.000 to 537. there is no money left. One Ponzi scheme. But there were lots and lots of “little” Ponzi schemes that may not have made headlines. The woman who ran this scheme collected $23 Million from investors. PhD .5 Million for her personal use. and many have heard of Robert Allen Stanford who is charged with running an $8 Billion Ponzi scheme for almost as long. Inc. Ponzi Schemes Get Blown Out Of The Water: As you know. New York is accused of running a $370 Million Ponzi scheme. The Better Business Bureau claims that today there are over 23. headquartered in Greenwich. California man is accused of running an $800 Million Ponzi scheme. but you get the idea. CRE Capital Corp. An Orange County. ©2009 James W Taylor. DBA & David Zetland. Connecticut is accused of running a $550 Million swindle.
Vandalism and Petty Theft: National crime statistics support the idea that property crimes increase with increases in unemployment. Now it is 2009.617 bank robberies in the 4th quarter of 2008 compared with 1. Here is just one. it is better to have Ponzi schemes exposed than it is to have them continue to bilk people. credit card debt reduction.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. In 2006. and 80% of the units. And here is a really good one. auto thefts. Stimulus Scams: There seem to be an unending number of people running scams concerning getting stimulus funds. indeed. a new kind of property crime has developed in response to increased joblessness. PhD . the location is beautiful. priced at $275. Houses up for sale are ransacked and anything of value from appliances to copper piping is stolen. Ranchers are reporting that rustlers are stealing cows at an alarming rate.358 in the 3rd quarter. ©2009 James W Taylor. the only thing on the site is a tattered flag. etc. and 1. Irongate demanded a 30% down payment immediately. 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. shoplifting. In addition to break-ins. Some Bad Things That Come Out Of Contractions: The bad outcomes during Contractions range from horrific to tragic. And the stories behind some of these robberies are just heart wrenching. Bank Robberies: The FBI reports that there were 1. except that they are not laughing matters to the investors. and nobody wants to ask why or how. and the investors are suing Donald Trump and he is suing the Irongate partners. were sold out immediately.) The first sales was held in a hotel in San Diego in 2006. Some Others: And then there are the scams that want to make you laugh.000 to $3 Million. mortgage relief.561 in the 4th quarter of 2007. DBA & David Zetland. As acutely painful as it can be. (And. the money is all gone.
The May 30. Marshalls. Its broader economy remains an astonishing Petri dish of creative destruction. DBA & David Zetland. the economy is Expanding. Florida’s Secretary of Department of Children and Families reports a 40% increase in domestic violence cases related to the state of the economy. and then committed suicide. “America has experienced a failure of finance. So Here Is the Take Away on Business Cycles: Business Cycles have been observed in capitalist economies for hundreds of years. and then examine what the U. Their places are taken by new ones created by startups and ©2009 James W Taylor. And there are more stories pretty much like that one occurring with increasing frequency. The differences are quite striking. Even in boon times (read Expansion Phase). The Department of Health and Human Services has a website at http://wwwsamhsa. In one phase. in the other it is Contracting. PhD . sleeplessness. They consist of two phases. in spite of repeated government attempts to create equilibrium stages. 2009 issue of the Economist magazine offered this summary. 15% of American jobs disappear each year. the bad things that happen. a man with serious financial problems killed his wife and son. In Section Two. There are no known equilibrium points between Expansion and Contraction or between Contraction and Expansion.S. sensible government actions should emphasize the good things that happen in each phase and offset. Since there are definitely known characteristics of each phase of the Business Cycle. or minimize. anxiety. Judges and prosecutors across the nation are receiving so many threats that hundreds are receiving 24 hour protection from armed U. excessive irritability. and loss of investments can result in a whole host of negative health problems.S. In Ohio.P a g e | 21 Violent Crimes: Repo (repossession) men are facing increased physical danger as they got about their jobs. not of capitalism. foreclosures. we will outline what a sensible government policy would look like in response to a Contracting Phase of the Business Cycle. anger or substance abuse. There is no question that the economic turmoil of unemployment.gov/economy/warningsigns that raises warning signs for people suffering from persistent depression. Treasury Department has actually done.
Guaranteed to make friends wherever they go. currently the largest U..S.” But before we go on. DBA & David Zetland.. “To put the issues here into perspective. A billion dollars... Jim Sinclair. Most everyone has seen them. Americans are adept at finding opportunity in adversity. A hundred billion dollars. All this talk about "stimulus packages" and "bailouts". This dynamism remains evident today. What does that much money look like. and a Trillion dollars actually look like.com. One TRILLION dollars. it will be useful for you to have some idea of what a Million dollars.P a g e | 22 expansions. Eight hundred billion dollars. a Billion dollars.. slightly fewer have owned them. asked himself the same question and produced a good visualization to answer that question. PhD ... denomination in general circulation..jsmindset.. As icons of consumer excess like Starbucks and Neiman Marcus stumble. purveyors of frugality like Burger King and Wal-Mart prosper... ©2009 James W Taylor..? Let’s start with a $100 dollar bill... amid the most crushing economic conditions most businesses have encountered... who runs a blog at www..
Fits in your pocket easily and is more than enough for week or two of shamefully decadent fun. It fits neatly on a standard pallet. You could stuff that into a grocery bag and walk around with it.000. Believe it or not.000). DBA & David Zetland. ©2009 James W Taylor. While a measly $1 million looked a little unimpressive.. PhD ..P a g e | 23 A packet of one hundred $100 bills is less than 1/2" thick and contains $10. $100 million is a little more respectable. this next little pile is $1 million dollars (100 packets of $10.
Go ahead... PhD . Next we'll look at ONE TRILLION dollars. it's a million million. that's what they're talking about. It's a thousand billion.. (And notice those pallets are double stacked....” ©2009 James W Taylor. Ladies and gentlemen. DBA & David Zetland. now we're really getting somewhere... This is that number we've been hearing about so much. It's a one followed by 12 zeros.) So the next time you hear someone toss around the phrase "trillion dollars"..P a g e | 24 And $1 BILLION dollars. You ready for this? It's pretty surprising. I give you $1 trillion dollars... What is a trillion dollars? Well..
uncompetitive uses. and some painful. S. The current administration and the administration before do not seem able to understand what is happening to our economy.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. it won’t”. and ending “the boom and bust cycle”. unproductive. and there has never been an equilibrium point. Economy: For over five hundred years. and ©2009 James W Taylor. some good. DBA & David Zetland. The Business Cycle is driven by psychology. or what should be done. economies are either Expanding or Contracting. developed economies have experienced business cycles. The talk among the economic advisors in Washington today is finding an “equilibrium point”. Our economy is currently in the Contraction phase. Finding an equilibrium point seems to assume that the business cycle is driven by finance and that is completely wrong. and understanding that simple fact is the major reason that the administration’s financial actions so far appear to be failures. PhD . Seven Steps to a Sane Policy for Dealing with the Current Contraction in the U. But the fundamental thing a Contraction does is to re-allocate the economy’s resources from outdated. The first thing to understand is that the Contraction phase of the Business Cycle does a number of things to the economy. 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. not finance.” Old saying among economists. This kind of thinking defies history and is the worst sort of wishful thinking. “If it can’t go on forever. In the simplest terms.
5 million Americans are currently unemployed. PhD . In addition. In 1960. S. auto market.S. Therefore. the Interstate Highway System is in desperate need of repair. innovative and more productive and competitive uses. canals and water distribution systems. as are bridges. GM has barely 20% of the U.000 dealers. As just one example we have too many automobile dealers.000 dealers. The jewel of American transportation. Fortunately. The American Association of State Highway and Transportation Officials point out the 47. Repairing this infrastructure can begin immediately and will provide relatively unskilled jobs all across the country at once. has been allowed to deteriorate severely.S. The current Contraction is winnowing out the weak ones which will mean more sales for the survivors. ©2009 James W Taylor. 1) The first job is to mitigate the individual pain: Re-allocating resources from old. or unfortunately – depending upon how you want to look at it – the infrastructure of the U. General Motors commanded 50% of the U. health insurance coverage and food stamp programs should be at the top of this list of activities. In this way. DBA & David Zetland. badly deteriorated. unproductive uses inevitably means jobs will be lost in those outdated and uncompetitive industries.P a g e | 26 to re-direct them to new. and for the people who are unemployed.000 bridges classified as structurally deficient or obsolete. the first requirement is to minimize the suffering that individuals and families experience during this re-alignment. auto market. they point out that there are 150.000 miles of Interstate Highways are now over fifty years old and are. economic resources are being re-allocated for more efficient uses. and they had 6. in many places. 2) Create new jobs fast: 14. but they still have 6. Here are the seven steps that the government should be taking to create a coherent policy to deal with the Contraction. In 2009. and that means real hardship for the economy. Extending unemployment insurance.
number of students enrolled. And the mayors are perfectly willing to submit regular progress reports so we know how the money is being spent.5 million people unemployed today. i. i. that need to be filled. In addition.. There should be one caveat however. DBA & David Zetland. The BLS says the average wage in 2008 was $18. nursing. health care. Cerro Coso Community College is already way ahead of the curve here. this prohibition will stop Mafia Museums and Bridges to Nowhere. and needs to be ended as soon as possible. But it is outrageous to try and control all of these projects from Washington. There is plenty of repair and retro-fitting to provide lots of new jobs. number employed.g. and include a budget plus a system for reporting on progress. be in new industries and will require new skills. They are offering a Wind Technology Boot Camp where eight weeks of ©2009 James W Taylor. Here is how to do that job. PhD . While there is no way to know what all of the new industries will be.. Indiana. He said mayors know intimately what is needed in their own cities. that means over $1 Trillion dollars are lost to the economy every week! That is a tragic waste that can never be recovered. there are enough of them known now to make a beginning re-training program work.e. which seems to be the current plan. auto repair. e. Classes would be funded on a first come basis.e. that means 580 million man/woman hours are lost forever every week. there are shortages in existing occupations. etc. 3) Re-training and re-location: New jobs will.P a g e | 27 With 14. of course. etc. and they know how to get it done fast. In addition. and citizens can see for themselves what is being accomplished in their own communities. made that point at the Mayor’s Conference in Washington recently. There are thousands of community colleges spread across the entire U. Much better to ask mayors across the country to submit requests for dollar amounts attached to specific jobs.75 an hour. and fund the requests in relation to population for as much funding as is available. Mayor James Brainard. of Carmel. Ask each college to submit a list of “vocational” job oriented classes they would like to offer. no new projects would be allowed. And useful jobs and work will be generated all across the nation. In turn.S.
small businesses have produced 60% to 80% of all new jobs. Really good technicians can earn six figure incomes. people will need assistance with re-location because the new jobs are not likely to be where their old jobs were. They are out there somewhere and all they need is a little encouragement and access to some capital. is very clear on one point and that is small businesses account for the overwhelming number of new jobs each year. say. ©2009 James W Taylor. The economic history of the U.000 in tuition can lead to a job installing and repairing wind turbines. $100. The second class is already sold out. Over the past decade. the next Jeff Bezos. and the other bright minds that will create the new industries of the 21st Century.to re-deploy the resources of the U. S. the next Jerry Wang. 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 new Larry Pages and Sergey Prins. DBA & David Zetland.S. Low cost loans are perfectly appropriate here as well. But to get started. but others will succeed and whole new industries will be created. PhD .000. Almost all of these new businesses will start out as small businesses and that is a very good thing. with modest loans. Student loans are perfectly appropriate for approved classes. and they may also need help with tuition and living expenses. How could you find a better way to invest the resources of the country? We need to find the new Steve Jobs. The government should fund every proposal from venture capitalists anywhere in the U.P a g e | 28 intensive study and $1. Mesalands Community College started a wind program in the fall of 2008 with thirty-two students.S. a maximum of. and the new jobs that go along with the new businesses. 4) Encourage new businesses and new innovators -the best and brightest minds . no question. Some will fail. Assisting this re-deployment should have the highest priority. There are thousands of venture capitalists working on Sand Hill Road who have extensive experience doing exactly that job. General Electric has promised to hire every single graduate for the next three years.
The Treasury Department says its goal is to force a few banks to lend money. But they won’t. It was lending by a relatively few greedy bankers to unqualified borrowers that got the banks into this mess in the first place. Only four hundred banks have taken any of the bailout money. There are several reasons.P a g e | 29 5) Stop wasting money bailing out big New York banks and insurance companies. The sooner we close down these jobs and transfer the employees to growth industries. The money that we have dumped into Chrysler and General Motors so far is a total waste.500 federally chartered banks in the U. Encouraging (forcing?) them to increase lending is absolutely nonsensical. has a very healthy automobile industry that makes cars people want to buy.S. PhD . are the old economy jobs. banking system is actually quite healthy! There are over 9. We need to erase “too big to fail” from our vocabulary. and the economy can start an expansion phase. The U. the better off we will all be. and nothing in the ten year pattern shows any change. Everything they do is based in the past. and less than 100 of them are on the Federal Reserve’s watch list. We will live without them. And incidentally. Let AIG and Citibank fail. Out the forty-six listed. too. and most of those who did say Hank Paulson shoved it down their throats. the U. Consumer Reports just listed the worst cars in the last ten years. 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. pays decent wages and its employees have health ©2009 James W Taylor. but that is an absurd idea.S. DBA & David Zetland. and others like them. thirty-six were GM or Chrysler cars. These companies. because they can’t. 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.S. Those “zombie companies” will say just give us some time and lots of money and we will change. Let them fail so our resources can be re-deployed. 6) Stop spending money to save jobs. We need to erase “too big to fail” from our vocabulary here.
provide health benefits and are not likely to be out-sourced any time soon. And to put that number in perspective. 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. DBA & David Zetland. in Michigan.P a g e | 30 benefits. And the jobs are not going anywhere else.000 jobs are with General Motors. there are a total of 205. 7) We need to clean up the mortgage mess that is still creating uncertainty and pain among millions of U.962 auto jobs. home owners. ©2009 James W Taylor. It just is not in Detroit anymore. PhD .989 jobs in auto plants and they pay good wages. and only 9.S.
S. So be it. They are permitted to re-write every contract in the U. e. Both groups are fighting furiously to keep Congress from removing this single exception because they are frightened that they will lose money. e. However. and forever ruin the credit ratings of the homeowners. If they had not written the “liar loans” in the first place. They are based on the understanding that the Business Cycle is driven by psychology. These seven steps are based on an understanding of the Business Cycle and its characteristics. It is a consistent plan that will move the economy closer to the Expansion Phase while making the most out of the current Contraction.. All Congress has to do is give the Bankruptcy Judges the authority to re-write mortgages..S. ©2009 James W Taylor. owner occupied homes. The U. no matter what you call it. PhD . there wouldn’t be a problem. And there won’t be any liar loans because everyone will be under oath. If every questionable loan is forced before a bankruptcy judge. We have to stop protecting and rewarding incompetence. even though it was approved in the House by a large margin. This is a coherent plan of action that uses the seven steps to reinforce each other. recently the American Banking Association prevented the passage of such a bill in the Senate. a Cram Down. without requiring the home owners to declare bankruptcy first. and was supported by Citibank. not finance. there would be an enormous logistical problem. the solution is simple. it is the right thing to do. Then. the mere threat of a bankruptcy judge should be enough to make the process work without actually having to involve a bankruptcy court judge. has just about three hundred sitting Bankruptcy Judges. except one kind. single family. However.g. both sides submit the appropriate documents and the judge works out an equitable solution. This exclusion is the work of the American Bankers Association and the Mortgage Bankers Association. The bankers hate this idea so much that they have given it a very unflattering name. However. This remedy would only be available to home owners who had attempted a previous loan modification program. They can even re-write mortgages on second and vacation homes. DBA & David Zetland.g.P a g e | 31 Here too.
to cover the bank’s operating costs and to provide the stockholders in the bank with a profit. The government is now encouraging banks to once again lend beyond their own standards for prudent lending. This is the completely wrong action. All of those projects have to succeed if the loans are going to be paid back. Treasury Department’s programs in a moment. This is the completely wrong action. PhD . bankers hold back some of the funds they receive as “reserves”. All of that changed in 1999. Then they lend our money to finance projects proposed by other people. consider these two facts. new ideas. new factories. The government is now encouraging consumers to resume spending and stop saving. 1) We are in the Contraction phase of the business cycle now partly because consumers failed to save and spent beyond their means. Simple enough. meaning bankers borrowed money at 3%. Now here is the business problem. But experience tells the bankers very clearly that some of the projects will fail and the loans will not be paid back. 2) We are in this Contraction because banks lent money beyond reasonable lending standards. Banks take in deposits from people like us. and got to the golf course by 3 PM.. In fact. We will return to an examination of each of the U. Things like new houses. S. right? In fact. but we’ll get back to that story in a minute. Banks make a profit by charging the borrowers an interest rate that is high enough to pay you for lending them the money. lent that money at 6%. To guard against this almost certain fact. And this is exactly where the problem starts. DBA & David Zetland. how can bankers minimize the “risk” in the lending part of their ©2009 James W Taylor. banking was called a 3/6/3 business. e. it is really simple. 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. but to make all of that clearer.g. etc. THE REALLY SIMPLE EXPLANATION OF HOW WE GOT INTO THIS MESS: The first thing we have to understand is what banks do as businesses.P a g e | 32 If you really want to understand the inappropriateness of the current administration’s economic policy.
a collateralized debt obligation. that is not the way it worked out. California. The list of despicable lending practices that were unleashed by CDOs is to take a walk on the dark side of human nature. Since the lenders no longer had to worry about getting paid back the money they lent out. In this way. 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 loans that are now called “toxic” are of two basic types. but instead they concentrated it because CDOs contained corrupt loans so that. The bank’s (and other lending organizations) major profits now came from the fees that were generated by making new loans. sub-prime and Alt-A. It is now necessary to understand how so many loans in CDOs got to be toxic. So far. 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. ©2009 James W Taylor. The original idea was that CDOs would spread risk. and still put more money to work. This new “innovation” in lending opened the way for an incredible number of crooked. a CDO. to get a series of loans on houses that sold for $700. misguided. PhD . dumb (take your choice of adjectives) people who bent and corrupted every imaginable rule of lending. DBA & David Zetland. The family company received a large fee for every loan they made.000 a year. They then sold the loans to banks which. This band of thieves qualified their gardener. and hold back a smaller “reserve”. in fact. in turn. sold them into CDOs. So now we have all of these CDOs floating around the financial community and what happens next is almost beyond imagination.P a g e | 33 business. Unfortunately. and reduce the amount of money they have to hold in reserve. the theory said.000 and up. the focus of the business shifted to how many loans they could make regardless of whether they would get paid back. 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. they increased risk. so good. who earned roughly $14.
They were made with no income and no job. The borrower is described by the U. or other criteria that may encompass borrowers with incomplete credit histories. ”Pick a Pay” loans where the borrower chose their monthly payment at any level they wanted. debt-toincome ratios.” Here are some examples of past behavior that would qualify a borrower for a subprime loan. Alt-A mortgages occupy a place between sub-prime and prime loans. Option ARMs (adjustable rate mortgages) which are loans with “teaser rates” that are very low initially. Judgment. DBA & David Zetland. They may also display reduced repayment capacity as measured by credit scores. “Subprime borrowers typically have weakened credit histories that include payment delinquencies. or one or more loan payments paid past 90 days due in the last 36 months. Two or more loan payments paid past 30 days due. in the last 12 months. foreclosure. repossession. These extraordinarily high risk borrowers were offered loans like these. and bankruptcies. but later converted to adjustable rates. Treasury as. but adjusted to a much higher rate after a year or two. with a reasonable credit standing. Bankruptcy in the last five years.S. ©2009 James W Taylor. Loans with a fixed rate initially. and possibly more severe problems such as charge-offs. but no reliable source of steady income. Relatively high default probability as evidenced by a low credit score. 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. They are targeted at the self employed. Ninja loans are best of all. or non-payment of a loan in the past. judgments. but they usually have these characteristics.P a g e | 34 There is no widely accepted definition of exactly what a sub-prime loan is. PhD .
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. But hang on. on some you win a little and on a few. But. overall. and nobody wants to lend to anybody. Here is how bad it got. you are producing a lot of cash. government won’t lend you any money to cover your losses. and it gets worse. By the way. DBA & David Zetland. you have to pay back your loans every night and borrow new funds every morning. so they decided to sell “insurance” that the CDOs would not get paid. you win big. A full 70% of these loans were created by loan origination companies who had no interest whatsoever in whether the loans got paid back. Then you take your $3800 to Las Vegas and play a bunch of different games.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. Goldman Sachs. crooked (you chose the adjective) guys realized that CDOs weren’t as bullet proof as everybody thought. But the same game was being played by CitiBank. and others. ©2009 James W Taylor. All at once. the whole idea of CDOs as a reliable form of security evaporates. and you can’t cover all your loans. Here is where the story gets bizarre. Assume you had $100 and could borrow $3700 more from 37 other lenders at $100 a pop. Wachovia.S. Bear Stearns. The single difference between our story here and the Wall Street Banks is that the U. and now represent the overwhelming majority of foreclosures. They created a completely fictional financial product called “credit default swaps”. there is more. PhD . On some. Golden West S&L. Whoops!! Call that Lehman Brothers. Maybe your losses one night prevents you from completely paying back all the lenders one day. corrupt. using your CDOs as collateral. something different happens. Then one day. you lose a little. only in the fees they could collect immediately. the much despised Countrywide Financial. Some really smart. and the word gets around so all of your lenders demand to get paid back. This completely phony “product” was sold to CDO holders by a variety of non-banks (read AIG for an example).
he leaves a 100Euro note on the counter. but it is raining so there is not too much business going on. The farmer is delighted and takes the banknote to a hooker who had provided services on credit. please be sitting down when you read this. Just as she arrives. It is August in a small town on the South Coast of France. The butcher takes the note to his wholesaler to pay his own debt. the Russian comes down to the reception desk and informs the hotel manager that the room is not satisfactory. this little story by Elizabeth Coleman may help. you will have no trouble understanding credit default swaps. but if you can figure it out. PhD . ©2009 James W Taylor. some really smart guys understood that the whole credit default swap notion was a phony so they bought them and sold them “short”. The wholesaler quickly takes the 100Euro to the pig farmer he got his pork products from earlier. AIG goes down the toilet (along with other greedy idiots). The hooker rushes to the hotel to pay for the room rent where she conducts her trade. economy. Now. If you are still unclear on what a credit default sway is. which basically means they bet their own money that credit default swaps would fail. But the short sellers got enormously rich. There was no sale. but everyone’s debt was fully paid. The hotel owner took the banknote and ran to pay his butcher because he owes him 100Euros. everyone is heavily in debt. Luckily. no income. a rich Russian tourist arrived in the foyer of a small hotel there. or villains for bringing down the U. Guess what? The short sellers were right. You can decide whether those short sellers were heroes for exposing the corruption on Wall Street. This is not exactly how credit default swaps work. DBA & David Zetland. As security. As a result. no profit. Holiday is in full swing.S. collects his 100Euro note and leaves.P a g e | 36 The innovative minds of Wall Street invented a new way to make money without working for it. He asks to examine a room before he rents it. takes the key and goes to inspect the room.
and others. trading securities. This act created the “financial services” industry. 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. JP Morgan. offering management advice in mergers and acquisitions. Maurice Greenburg added investment banking to his American Insurance Group to create AIG. Bear Stearns. the former senator from Texas. His name is on the bill that ©2009 James W Taylor. If it would help to find a single person to blame for the financial mess. Commercial banking. 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. investment banking all got rolled up in one big bundle Almost immediately. it would have to be Phil Gramm.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. known as the Glass-Steagall Act for its primary sponsors. PhD . This list goes on. Goldman Sachs. Until 1933. banks could invest in just about anything they wanted to invest in. Citigroup. AIG. insurance. Merrill Lynch. 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. And this is the absolute source of the financial mess we are in today. The other kind of banks was called “investment” banks*. 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. and managed finances for very wealthy individuals. Lehman Brothers. stock broking. Sandy Weil merged his Travelers Group insurance company with Citibank and Smith-Barney stock brokers to create the Citigroup. Congress responded by passing the Banking Act of 1933. DBA & David Zetland. Investment banks raised money by selling stocks. One kind of bank was called a commercial bank which is pretty much like the 3/6/3 bank described earlier. and the answer is quite specific. were all creatures of the Gramm-Leach-Bliley Act. Investment banks operated basically without close regulation. This act created TWO kinds of banks. but we need a little bit of history first.
$121. here are some other players and the amount of money they took away when they left their failed or troubled companies. Countrywide Financial. $68 million Angelo Mozilo. IndyMac. The banks paid millions of dollars of fines and promised to behave better in the future. which begets outrageous levels of risk taking. Stan O’Neal. Washington Mutual.5 million There is more. 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. $161. Washington Mutual (for three weeks). Bear Stearns. Phil Gramm begets the Financial Services industry by tearing down the wall between investment banks and commercial banks.5 million Richard Fuld. Merrill Lynch. even though the Research Department privately said were lousy buys. $13 million James Cayne. If you want to remember more about this despicable affair. Citigroup. $22 million Allan Fishmen. If Phil Gramm is not enough for you.3 million Michael Perry.5 million Charles Prince. PhD . So much for investment banker’s promises. $61. $22 million Kerry Killinger.P a g e | 38 ended the Glass-Steagal wall between commercial banks and investment banks. *Remember that just a few years ago. DBA & David Zetland. which begets fortunes for individual ©2009 James W Taylor. $37. He also made sure that those innovative financial products like credit default swaps were beyond government oversight or regulation. Investment Bank’s Research Departments were touting stocks for the Sales Department to sell to the bank’s clients. which begat CDOs and credit default swaps. Lehman Brothers. but you get the idea. So the short strokes go like this. just use Google to search for Jack Grubman or Henry Blodgett.
These bonds were traded in markets around the world and grew to be a huge business for the bank. Since he seldom visited bars. which begets a huge financial mess for all of the rest of us. Hank was recording record profits. With all his new customers and his higher prices. senior bankers were greatly impressed with the innovative approach the young banker had developed. But the drinkers at Hank’s bar had no money to pay their debts. word spread fast and business at Hank’s bar grew very quickly. Here is the story. What we should be doing about it is what we will turn to in Section Four. 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. He kept track of the drinks in a huge ledger which he kept on the bar. but their value was continually bid up. Since this looked like a really good deal. the young banker had no reason to be concerned about the debts he was using as collateral. Admittedly. Nobody really understood DRINKBONDS. 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. and that qualified him for an increased line of credit. this brief description leaves out a lot of subtlety and detail. he was making loans to his customers. 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. At the local bank. This is a story about a guy named Hank who owned a bar. 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. In this way. PhD . To make the most of his new found business tactic and to raise his profits. DBA & David Zetland.P a g e | 39 Wall Street bankers. These senior bankers then used those customer debts to create even more innovative financial products which they called DRINKBONDS. Hank raised his prices sharply. At the bank’s headquarters.
2008. Hank Paulson. WHAT THE U. 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. Unfortunately. they ended up paying for all the “free” drinks at Hank’s bar. DBA & David Zetland. Congress. Since the great majority of tax payers do not drink alcohol in bars. it was over 1. However. so the government economists devised a way to use the tax payer’s dollars to fund a bail out package for the bank. The price of DRINKBONDS plunged immediately and finally settled down around five cents. the then Secretary of the Treasury. Many of them also ended up filing for bankruptcy. 1) Troubled Asset Relief Program: In October. Government has rolled out (approximately) three major financial programs designed to deal with the present Contraction. but without any accountability. 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. couldn’t live that kind of an ultimatum so they went to work on their own version of the TARP. Hank had no money to pay his suppliers either. those little and not so little deals where Congress men and women transfer your tax dollars to their favorite pet projects. it is accurate. ©2009 James W Taylor. the U. he has no choice except to file for bankruptcy. When they returned the bill. of course. Think “Bridge to Nowhere”.P a g e | 40 his customers had incurred.S. Therefore. PhD . some of the following discussion is somewhat arbitrary. Hank’s suppliers had granted him very generous payment terms since Hank had such a great credit rating. the bank had been an extremely generous contributor to the ruling political parties. but mostly. GOVERNMENT IS ACTUALLY DOING ABOUT THE CONTRACTION IN THE BUSINESS CYCLE: As of this writing in June of 2009.S.000 pages long and contained hundreds of “earmarks”.
In any terms. about 400 of the 9. lending by the largest five banks fell ©2009 James W Taylor. this would be called a “blank check” at your expense. Now that is a good thing since the Business Cycle is driven by psychology. All the banks in attendance took the money. Eventually. it is said Paulson pounded on the table and threatened retaliation against any bank that refused. minimum wage law. It seems there is only one packing plant in American Samoa and it belongs to Starkist. In fact.S. Division A raised the amount of individual deposits insured by the Federal Deposit Insurance Corporation from $100. Most of the money went to the twenty-five largest banks. this action tends to reduce anxiety about bank failure. The story is that the CEO of Wells Fargo absolutely refused to accept money. At that point. Paulson called the chief executive officers of the nine largest banks to a meeting in Washington and demanded that they take the money. Oh well. DBA & David Zetland. It also seems that Nancy Pelosi’s husband is a major stockholder in Starkist. Paulson decided that buying the “toxic” assets was too complicated and he abandoned his original idea. it does nothing whatsoever. But the important question is what does this do to mitigate the effects of the Contraction? As nearly as we can tell. 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.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. Then he tried a new tack.000+ federally chartered banks accepted some money. The final bill had three sections. and it really doesn’t cost anything.000. 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.000 to $250. But it gets worse. but they did not increase lending. PhD . 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.
and cancels the policy. Your neighbor buys a new car and he insures it with AIG for the full amount he paid for the car. 696 Lehman Brothers employees were paid year end bonuses of $1 Million. and other Wall Street Banks $24. follow this story. No matter how you look at it. Nevertheless. As far as we can tell. 2) Term Asset-Backed Securities Loan Facility: The TALF came next as the new Secretary of the U. AIG sends him a check for the full amount of the face value of the policy. for 2008. involved the Alternative Minimum Tax and some other minor tax changes. There was also a Division B to the TARP and that included some vague tax incentives related to energy and fuel production. The final. $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. here is where the TARP money has gone. And that was also your money..8 Billion to GM and Chrysler $50 Billion for Home Owner Support To understand the TARP fiasco. Division C. PhD . And as a footnote to all of this waste. 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.S. And they take the money to cover the check out of your bank account. ©2009 James W Taylor. after a couple of months. or more. moved up from his job as President of the New York Federal Bank where he had helped craft the dismal TARP plan. the money is gone. Goldman Sachs. Timothy Geithner. Treasury. 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. They also tell him to keep the car. DBA & David Zetland. Then.
1 Trillion were issued. lending continues to dry up. 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. That seems not too far off. The details of the Stimulus Plan will be worked out and changed as it moves into the future. and some downright awful wastes of your money. Treasury Department does not understand how markets work. So we have another failure by the Treasury to craft a policy that reflects the reality of the Business Cycle. DBA & David Zetland. This is to extend unemployment benefits. Here are some of the highlights as of June 2009. This is one more piece of evidence that the U. PhD . ©2009 James W Taylor. said that it seems to him that the Treasury makes up a new theory every day. And here is the best part. CDOs valued at $3. Ed Rollins. In the meantime. It is quite clear that the Treasury Department does not understand that the Business Cycle is driven by psychology.S. So instead of developing policies that would hasten the end of the Contraction. Between 2004 and 2007. 3) The American Recovery and Reinvestment Act (casually called the Stimulus Plan) is a $789 Billion package jumbling together all sorts of ideas. Aid to the poor and unemployed. or that it is driven by psychology. Because people see the confusion and impotence of the Federal Government. some good for the future and but inappropriate for the task at hand. some good for right now. and they continue to propose financial solutions (and ones that don’t work) instead (but they do invariably make certain people rich). fear grows just when the government should be offering re-assurance. the Treasury is developing policies that make everything worse. or how the Business Cycle performs its vital functions. The long time Republican strategist. increase food stamp payments and job training. As of this writing (June 2009). $67 Billion. and sold entirely by the private market. To put that amount in perspective. it is more than the total amount of money spent on the Iraq and Afghanistan wars combined.P a g e | 43 This scheme is meeting even stiffer resistance than the TARP plan did. or any other model of the economy.7 Trillion of those CDOs had been priced. all but $1.
PhD . but that doesn’t belong in this bill. families. Assisting states with Medicaid is probably a good thing. Encouraging low income families to take out big loans to weatherize their houses could hardly be less appropriate. However. The devil is in the details. Energy. $141. However. DBA & David Zetland. Healthcare. not one to create immediate jobs. but they don’t belong in a policy to deal with the Contraction. Housing. There is no particular objection to these programs themselves. depending upon the details. $9. We will explore some of the reasons for that in a minute.000 a month.7 Billion. All of these projects are appropriate for a stimulus bill. because they should be held to different criteria.5 Billion is set aside to repair public housing. and very few families who are now with out a bread winner can afford that price. $41. $5 Billion is marked for weatherizing modest income houses.2 Billion will be spent on energy related projects. We have no quarrel with spending money to protect existing teacher’s jobs. it also includes high speed rail and mass transit projects. ©2009 James W Taylor. It seems that the people in the Treasury have no conception of how most Americans live. spending $24. $87. but none of it creates new jobs. The problem is that continuing that health insurance costs upwards of $1.P a g e | 44 All of this is perfectly in sync with the requirements of good Business Cycle policy. They belong in a separate program.7 Billion to subsidize the COBRA program is completely inappropriate. but they will only create jobs sometime in the future. $85. you cannot earn more than the median income of U. Highway and bridge repair are covered here and that is good because it will create immediate jobs.3 Billion is scheduled to be spent on various education projects.3 Billion is directed to a variety of medical problems. redevelop abandoned houses and create shelters for the homeless. COBRA allows you to pay directly for your health insurance when you lose your job. Almost all of them sound good. See COBRA above. To qualify. S. Education. Infrastructure.
was 80% of its value. The steel industry seems responsible for inserting a provision that gives preference to domestic steel producers in building contracts. In 1930.S. One more time. DBA & David Zetland. this expenditure makes perfect sense. made in the U. This is a really good idea to help reduce the large inventory of empty houses. Renewable Energy Incentives.P a g e | 45 New tax credits. but it doesn’t create new jobs now. When the Bush administration did exactly the same thing last year. Alternative Minimum Tax. Every other country responded by raising their tariffs. $20 Billion are slated to be spent as tax incentives for 10 years tied to just about any renewable energy project. By the time World War II started. the average tariff on anything imported into the U. ©2009 James W Taylor. The goal is admirable. $70 Billion dollars are included to protect about 24 million taxpayers from higher taxes. $14 Billion increases income tax credits for college tuition and expenses. and buy them in 2009. PhD . Congress passed the Smoot-Hawley Tariff Bill that raised tariffs on a wide assortment of products.6 Billion involves the $8. Home Buyer Credit. $6. World trade literally came to a halt and the effects of the depression were lengthened and deepened. The Senate will undoubtedly add more products for the “Buy American” project.000 credit that first time home buyers can qualify for if they hold their homes for three years. Expanded College Credits. the government seems to have learned nothing from history. This has exactly the same problem as the New Tax Credits discussed above. It is deeply troubling when the government refuses to learn from its own mistakes. And then there is one HUGE mistake included in the “Stimulus” bill. The House version of the bill requires the Transportation Security Administration to buy uniforms. $116 Billion is scheduled for income tax credits for individuals or families. etc. Given the huge number of people who will require retraining. no more than 15% of the tax rebates went to additional spending. 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. et al.
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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.
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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
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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
he barred any bank in Lebanon from investing in mortgage backed securities. it is worth noting that there were people shouting out warnings well in advance of the crash. “six years ago. the FBI agent in charge of criminal investigations. the Brookesnews Economics Editor. DBA & David Zetland. 2008 was the best year ever for Lebanon’s Bankers. “financial hydrogen bombs . Bill Gross. said Alan Greenspan was “…once again laying the foundation for another recession. Now we will turn our attention to how you can respond the recession personally and in managing your company. “Time bombs. both for the parties dealing in them and economic system. Felix Rohatyn. among others. PhD . ©2009 James W Taylor. Chris Swecker. Incidentally. nobody much paid any attention. a huge investment management service. is famous for calling Credit Swaps.” And “Financial weapons of mass destruction”.P a g e | 50 Before we leave the discussion of how we got into this recession. Larry Summers. built on personal computers by 26 year old M. She understood the danger of unregulated credit derivative swaps and lobbying widely for regulation. Her attempts of achieve that regulation were thwarted repeatedly by Robert Rubin. issued warnings on the company website and in its regular client letter for more than two full years before the implosion began. called the “innovations” that caused this recession. Riad Toufic Salame is the governor of the Lebanon’s central bank. the Sage of Omaha. In spite of extreme pressure from Lebanon’s business community and the government. Chairman of Pimco. Unfortunately.B.s”. Warren Buffett. Brooksley Born was Chairman of the Commodity Futures Trading Commission from 1996 to 1999. and Alan Greenspan. Private citizens like Gerard Jackson. As early as 2004. the equivalent of our Federal Reserve Bank. It wasn’t just Americans who foresaw the upcoming problems.A. the financier who saved New York City from bankruptcy in the 1970’s. warned repeatedly of fraud running rampant in the home mortgage business.
YOU DON’T NEED IT TODAY. one of the characteristics of a contraction is the ©2009 James W Taylor. Three. And let’s begin with what to do when the economy is contracting since that is where we are just now.. and individuals and families can best survive and prosper in each phase of the Business Cycle. Let’s begin with Small and Medium Businesses since.P a g e | 51 SECTION THREE SURVIVING AND PROSPERING DURING BUSINESS CYCLES There is an old Chinese saying. There are some very good reasons for these two rules. you need to minimize your debts to gain maximum control of your outgoing cash. DBA & David Zetland. We have looked at the good things and the bad things that happen as economies expand and contract. “May you live in interesting times”. Second. First of all. you have no way of anticipating events outside of your control that will require cash. 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. ONE: CASH IS KING!! TWO: IF YOU DIDN’T NEED IT YESTERDAY. SMEs are the primary source of new jobs. we have now examined the concept and actuality of Business Cycles.K. PhD . it is a curse. and we have looked closely at how current government policy is mostly inappropriate. Unfortunately. as you learned earlier. O. Now we need to examine how Small and Medium Sized Businesses (Big Business can take care of its self).
PhD . With those two rules firmly in mind. “in the sporting goods business”. which means you may find you need cash but can’t find anyone to lend it to you. 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. proposal. Then he takes off with a new idea. You will use that concept as a benchmark for every decision you are going to make. Instead. You need sharply focused answers to three questions. Define Your Business: The first thing to do is get a very clear. ©2009 James W Taylor. The results of these studies are so clear. For years and years. The phone rings and the boss answers it. 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. As a result. “We want to make products that hand ball players need in their sport”. notion. Not. let’s look at some specific actions you can take to put your business into a condition to survive and prosper during the contraction. etc. he is off in a new direction. And the next time he answers the phone. So it is much better not to need to borrow during a contraction. DBA & David Zetland. Here is what you do to define your business.P a g e | 52 reduction of available credit. nothing significant gets done and bankruptcy finally arrives. they wasted time and resources until there was nothing more to waste. You are familiar with the problem. nobody does them anymore. as a result. studies were done on the reasons why small businesses fail. sharply focused definition of the business you are engaged in. Every study produced the same result.
Call this written document. When you are finished with this assignment.) 4) What would happen if we eliminated this particular expense? The one thing you must NEVER do is to reduce expenses across the board. put the results in writing as company policy and distribute it freely throughout the company. DBA & David Zetland. Both are really bad messages to send. etc. and to consult with their reports if they desire. To get the answers to those questions. Give them the assignment in writing at least a week in advance so they have time to think about the answers. There is no better way to keep the entire organization focused on making the best decisions. and 2) that you really don’t know what is going on in the business. 1) that everything in the business is equally valuable (and equally not valuable). ©2009 James W Taylor. Explain that you expect every employee to reference these three answers every time they have a decision to make. what would that be? (An example.P a g e | 53 Not. replacing desk telephones with cell phones connected to your company’s main number. customers. “in women’s clothing”. as in. Instead. Control Your Expenses: The next thing involves your profit and loss statement. You might save as much as half your telephone bill. Examine every single expense and ask these questions. That kind of order would send two messages to employees. 1) Is this expense absolutely essential to accomplishing our Mission? 2) If yes. PhD . suppliers. your Mission Statement and mention it frequently when you talk to employees. is there anyway we can do the same job for less money? 3) If yes. “Every department must reduce expenses by (?) 10% by such and such time”. “We want to make and sell porte-aprêt dresses for women”. you should take some of your key players to an off-site location to work out answers that everyone can understand and agree on.
PhD . Blogging.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. we could get along without him/her. 3) This employee is doing a good job. etc. Besides. You Tube. In March. 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. 2009. if necessary. it is foolish to create enemies who will spend time bad mouthing your company in this day and age of the Internet. 1) This employee is absolutely vital to accomplishing the mission of the organization. the more cash you have on hand. DBA & David Zetland. 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. and how incredibly fast they can be spread. Another place that you can search for cash inside your existing business is inventory turnover. The faster you can turn your inventory. Use the #3 list if. 2) This employee is very valuable and we would like to retain his/her services over the long term. but. Plan in advance to make such terminations as decent and humane as possible. it becomes necessary to reduce your payroll. They then posted the bogus video on line at YouTube. Within a couple of days. and when. Make one of three judgments. Now about employees: Meet with each department manager and review every full time employee in that department. Inventories are all about cash. These are good people who have served you well and you should show that appreciation. ©2009 James W Taylor.
John holds a weekly video training session with all employees that shares sales numbers. is a small logistic company with offices in Chicago. ©2009 James W Taylor. Normally.P a g e | 55 Explore methods you might use to retain the #2 employees at a reduced expense. This year. Steel maker Nucor. but it allows him to keep his 10 full time employees fully employed. discusses benefits. Inc. taking a leave of absence to go to school to learn new skills valuable to your company. Rhino paid the employees and billed Autumn Harp for the hours worked. and the hotel managers can move employees into jobs where there is current demand. Falling revenues required that employees reduce their hours to a four day work week and take a 20% pay cut. You might even offer to pay tuition and books. Primary Freight Services. In Vermont. a manufacturer of lip balm. For example. DBA & David Zetland. John Brown has stopped taking a pay check to demonstrate that everyone was in the situation together. to help with the seasonal increase in shipments. Since then. The program is designed to preserve employee morale and productivity. Rhino Foods makes the cookie dough for Ben & Jerry’s ice cream. In addition. employees are cross trained to do many of the jobs at Starwood’s upscale hotels. he would hire temporary workers and complete the annual pruning in three weeks. proposing a temporary pay cut by taking every Friday off. taking a sabbatical with some modest stipend. PhD . you will find a whole host of possible actions. answers questions submitted by employees. John Brown. and generally aims to reduce stress and anger. New Jersey and Southern California. At Starwood Enterprises. they sent fifteen factory workers to Autumn Harp. Here are some examples of innovative approaches to avoid lay-offs. Barat Bisabri is the managing partner of Shiraz Ranch where they grow almonds and citrus in Stanislaus County in California. the owner. he taking three months to do the job. When you start seriously thinking about this goal and the individual people involved. Last summer. wanted to keep all sixty-six employees because their skills are essential to the business. pays its employees base rates to perform maintenance work when steel demand is slow.
and your sales will decline as much next year as they have this year. Don’t ever do that! If you decide to reduce the hours some of your employees work. these programs allow you to have unemployment benefits replace part of the employees lost pay. there is a program called “short time compensation” or “work sharing” that roughly one-third of all the states offer. but be sure to check with your states Department of Labor to see if such a program exists in your state. 2009. DBA & David Zetland. 20% of your customers account for 80% of your business. and can last from 26 to 52 week. January 30. Basically. and to confirm the details. your costs will continue rising or falling. The payouts usually make up about half of the lost wages. This observation has found to be true in business in an extraordinarily wide variety of instances. 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. etc. Typically. End of story. 20% of your customers account for 80% of complaints. The details differ from state to state. The second scenario is based on the assumption that the contraction will end and the expansion will start. and told them they were fired. and that you have to do something to get ahead of the trend. 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. and prices will continue on their current trajectory. The first scenario assumes that the contraction continues for the next full year. and the GNP will grow 3% that year. They let 170 employees come to work on Friday. ©2009 James W Taylor.P a g e | 56 Under no circumstances should you emulate Kendall-Jackson Wines. you will have to maintain health and retirement benefits. 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. PhD . They will also provide you with early warning signals that something you assumed is not coming true.
Note: It is not necessary to use 20% as an absolute criteria in your own analysis.g.50 $2.00 Cost to Sell $0. it costs $0.50) You can now construct both of these tables from data from your own business. 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. That will produce this table. 25%. 10%.25 $0. account for the majority of your business.. Sales Heavy Users Light Users New Users $40.00 $10.50 to sell a new user.00 $1. Then we can construct a simple table to demonstrate the importance of Heavy Users. $0.50 Profit before Selling Costs $4.25 to sell a Heavy User. 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. PhD . It is not necessary to be exactly perfect with the numbers.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. etc. DBA & David Zetland. The point is to demonstrate clearly ©2009 James W Taylor. Call this 20% your Heavy Users and the other 80% your Light Users.50 ($1.00 $1.00 $10. Informed estimates will work just fine.50 to sell a Light User. e. Take the assumptions above and add these assumptions.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. The idea is that a small percentage. and $2.00 Net Profit $3.
“How good is your customer service?’ The answer to this question can only come from your Heavy Users. DBA & David Zetland. Last year. the length of time a customer waits is a good metric. Sometimes.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. How fast orders are shipped is another. draw a random sample of your Heavy Users to ©2009 James W Taylor. Zappo.. That puts your customer service employees in the front line of surviving the contraction. An important question becomes this.” How do your customers rate your customer service?” Remember the focus here is only on your Heavy Users. special sales and members receive overnight shipping for free. Here are a couple of suggestions for low cost ways to measure your customer satisfaction. First. Zappos management has analyzed their sales records exactly as discussed above and they are focusing their best efforts on their best customer. Zappos offers free shipping on both orders and returns. If you run a call center. Not only did this new service increase customer satisfaction. it significantly reduced the cost of providing loaner cars. Zappos has created a new VIP service for repeat customers that includes an invitation only website that features new merchandise. e. But both of these are surrogates for the real question. Starting in 2009. but this simple addition allowed BMW customers waiting for service on their cars to use the time productively.) Here are a couple of widely different businesses that have used focusing on heavy users to improve customer service and to reduce costs. And the key to keeping customers satisfied is outstanding customer service. the measurements are fairly easy. PhD . BMW introduced Wifi service at all of its dealerships. The cost was minimal since the dealers were already using Wifi to run their businesses.com is an online shoe retailer that has a customer base of raving fans. (You may want to re-visit your assessments of individual employees discussed above.g.
A second alternative is to hire a professional firm to do the job. There are some advantages and some disadvantages to this tactic. You would also like to have their assistance in mailing. The role of Quality in Profitability: The Strategic Planning Institute. but it is hard to beat the cost. costs. The costs still do not need to be large. Explain that you would like help in designing a mail questionnaire to measure customer satisfaction. One of their most important findings is the dramatic effect that product or service quality has on profits. in Boston. PhD . On the other hand. That roughly means that the questions will be generally more sharply defined and will produce more useful information. If you are going to use a commercial firm. and a small stipend to cover other expenses. the college identification on the questionnaire will improve the rate of participation and returns. Finally. make sure that there is a way for the customers to suggest how you could improve your customer service. While this will surely cost more than the college project. the project will be “less refined” than if you used commercial marketing research firm. Go to your local college with a business school and ask to talk to the instructor who teaches market research. Massachusetts. For instance. tabulating and analyzing the results. You will be expected to cover printing. no matter how you go about measuring your customer service. One analysis compares the profitability of the companies in the data base in terms of product/service quality. mailing. DBA & David Zetland. 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 can expect a more professional job. Be sure you have the final say on the contents of the questionnaire. 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. etc. has been studying the factors that drive profitability in businesses.P a g e | 59 come up with a list of no more than 100 customers to be surveyed. The SPI data base includes thousands of businesses. The ©2009 James W Taylor.
1) Customers will simply pay more for high quality products and services because they make their own business more profitable. In the table below. Your choices about ©2009 James W Taylor. and 2) High quality products and services can cost less to produce. PhD . Therefore. how your customers rate the quality of your products and services is the next place to focus on improving your business. 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. 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. The table below presents the results.P a g e | 60 businesses in the data base have been divided into roughly equal thirds. 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. DBA & David Zetland.
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. Here are some ideas about new opportunities that come from Contractions. PhD . Somewhat Satisfied. Some succeed because of the contraction. 2) The focus here is on your quality relative to your major competitors. layoffs produce a much larger potential sales force with higher skill levels during a Contraction so the quality of the sales force increases. New Opportunities: Contractions are real source of joy for Avon Products. But quality is only relevant in relation to your standing among your competitors. A method to identify your most important customers and suggestions for how to treat them to increase profits. ©2009 James W Taylor. Now you have a series of simple. Satisfaction with service is an absolute dimension as in Very Satisfied. A procedure for measuring your relative product/service quality. DBA & David Zetland. but extremely effective tools for strengthening your existing business and giving you the best chance for successfully coping with the contraction.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. 1) You need to develop a list of the attributes that your customers use to evaluate quality. A procedure for evaluating your customer service performance. Now it is time to look at new opportunities to grow your business. You can develop this list by having your sales representatives ask the question of the purchasing agents they call on. First. Contractions do not effect all businesses in the same way. or Not Satisfied.
What works for the lipstick business also works for the 18 wheeler business. headquartered in North Liberty. which are all valuable during tough times for raises. Contractions may be a very good time to “untether” your employees from the office by encouraging and enabling them to work from home. lunches. In addition. All of Jet Blue’s agents work from home and they provide customers with excellent service. DBA & David Zetland. You can encourage this change by supplying high speed Internet connections. Have a plan to go after the best of any competitor’s customers. Heartland becomes more involved with its customers businesses and it less likely to lose business in a Contraction. Heartland Express. You only want to add to your heavy users. They save money on gas. they make the point clearly. Heartland is using the current recession to upgrade its fleet of drivers as other. It is a win-win situation. Your employees have more time available with the end of commuting.P a g e | 62 Second. PhD . And everybody can feel good about reducing the carbon footprint of your company. You can cut back on office space rent. the market for less expensive cosmetics to replace department store products grows sharply in Contractions. not all of them. Be alert for competitors going out of business. less well run companies. dry cleaning. homeoffice furniture and tech support. When Circuit City closed its doors. Heartland defines its business as “logistics”. 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. Best Buy estimated that somewhere between $6 Billion and $8 Billion worth of new business was suddenly made available to competitors. As a result. You might want to talk to your trucking company about their ideas for increasing your inventory turnover. While Circuit City and Best Buy are clearly not SMEs. Iowa has a fleet of trucks operating across the nation. 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. lay off experienced drivers. not just running trucks. etc.
The problem is that you still have to apply for a loan from your regular bank. One is an idea. A study of 4. See www..com.g.grameenamerica. rules and regulations seem to change by the hour. the entrepreneur’s savings. see www.163 companies started in 2004 concluded that 80% to 90% of the start up capital came from one of two sources. Businesses with fewer than 10 employees can apply for small loans.accionusa.000 through community based not-for-profit organizations funded by the SBA. The study referred to above found the average loan needed by the 4. each one of the five listed below were startups in a Contraction. the government will guarantee as much as 90% of loans under $150. there are still a few in operation. Here are four.P a g e | 63 business. e. or a bank loan or a credit card. 2) The SBA’s MicroLoan Program. Under a new SBA program. Although they are not small businesses now. ©2009 James W Taylor. The second is money. 1) The 7(a) Loan Program. PhD .gov for current information. 3) Private Micro Loan Ventures.000 and 75% of larger loans.gov. While the sources of a lot of small business loans have dried up in the last year. For the most up to date information.sba. See www.org or www. DBA & David Zetland.sba.000.000+ startups was $78.. It doesn’t even have to be a big idea. we can suggest some places where you may be able to get money. While we can’t help you with the idea. Again the situation is fluid. up to $35. A small improvement in the way things are done now will serve. However.g. e. 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.
e. If you should lose your job and have to find a new one. take a look at www. and you have a bare bones budget and an estimate of how much you can save each month. go to www. food. your credit history is becoming more and more important. betterbudgeting.com/budgetformsfree. If you have cash. keep a careful record of ALL of the ways you spend money for a month. clothing. Also consider Credit Unions. and there is a second reason for managing your credit. A growing number of companies are using credit histories as one of the criteria for employment screening.Prosper. To find a credit union you may join. ©2009 James W Taylor.. now is the time to start.e. “How can you pay your bills if you are unemployed?” So the best advice is not to get behind in paying your bills. The need for individuals to build cash reserves is also founded on the fact that Contractions include a great deal of uncertainty.com or Lendingclub.com.bankrate. ONE: CASH IS KING!! TWO: IF YOU DIDN’T NEED IT YESTERDAY. PhD .g.org.htm. YOU DON’T NEED IT TODAY. you can manage your credit more successfully.com to look for money from angel investors. You can find free forms to help you with this task at www. utilities. and click on Consumer Information. you may be able to arrange a loan from them. As a first step. Surviving and Prospering for Individuals: The two absolute rules for individuals in a Contraction are exactly the same as for SMEs.P a g e | 64 4) Peer-to-Peer Borrowing. Then organize the individual items into categories. This creates a nasty trap for the unwary. In each category.cuna. DBA & David Zetland. i. Then do it for a second month. transportation. If you belong to a credit union.. Total the minimum amounts in all the categories and subtract it from your total cash income. calculate the absolute minimum amount you can spend. Budgeting: If you don’t already manage your money with a tightly structured budget. etc.
P a g e | 65 and www. Here are some ideas: 1) You need to make sure people. understand how much of a contribution your work is making. 3) Arrive early and leave late. there is additional work for someone to do. You will be sure to make someone very happy to have you around. Listening: Let’s start with listening. One is to improve your listening skills and the other is to improve your time management. or on thoughts of what they are going to say next. something we all do mostly poorly. Employment. People who are continually demanding. While all of these ideas are good by themselves. PhD . the really best way to protect your job is simply to become better at it. 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. 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. there are some relatively simple things that you can do to protect your job. especially your boss.asp.com/budgeting. As a result. You will also find lots of tips for saving money. ©2009 James W Taylor. And periodically. Read them carefully and use as many as you can. 2) Ask for additional work. summarize your work and progress in writing for your boss. It is like listening to two voices at once. but can listen at 400 to 500 words a minute. Make sure that it is clear that you are happy to do it. whiny. or lack of it. The average person speaks at roughly 135 to 175 words a minute. that can work. etc. or in mentally arguing with the speaker. on day dreams. poor listeners spend the time between the speed at which they can listen and the speed with which they talk. Don’t let that be you. If you have a job now. There are two things that you can actively work on to make you a better employee. This just makes good sense. The first thing to understand is that there is a huge difference between speech speed and thought speed. DBA & David Zetland. Since almost every company is laying off employees.moneyinstructor. difficult to work with.
To vent stored-up emotion. Reason #3. you move on to the third phase. PhD . Reason #1. the “blowing off steam” kind of communication. the best release is talking them out. but you most likely have had several courses in writing. engage in all the time. it is highly unlikely you have ever had any formal training in listening. In spite of the order of importance. Once you have interpreted what you think you have heard. for example. To understand the importance of listening let’s look at why people talk at all. hurts.P a g e | 66 The reason most people are poor listeners is quite evident from the table below. To build relationships. Four reasons for talking. You learned writing last simply because it is the least important. Is the information correct? Is it important? Does it require some action on your part? ©2009 James W Taylor. offenses. Usually. “evaluation”. 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. one on top of another. Reason #2. the “getting to know you” kind of communication. and indignities. and we react by “stuffing them down”. Psychologists say we silently suffer all kinds of slights. This is called “cathartic” communication. There are four reasons why people talk to each other. This kind of communication is formally known at “phatic”. and each reason underlies a very specific purpose. It is the kind of communication that sales people. DBA & David Zetland. Stuffing all those things down builds pressures that must be released.
Once you have interpreted what you think you have heard. Not merely an improved employee. it is unlikely you can use the information to your benefit. Phase #1. How To Become a Better Listener: If you improve your listening skills even 10%. Depending on how you interpreted what you think you heard. and how you evaluated it. Depending on how you interpreted what you think you heard. Find a conversation you are not involved in and simply listen to the conversation to see how many of the points listed above occur. causing signals to be sent to your brain. and listening is the most important part of that process. The first payoff for becoming a better listener will be fewer misunderstandings and conflicts because your interpretation skills will be ©2009 James W Taylor.P a g e | 67 Reason #4. you decide how to “react”. Is the information correct? Is it important? Does it require action on your part? Phase #4. Here is an exercise to allow you to prove these points about listening for yourself. setting the stage for everything that follows. and can result in misunderstanding and conflict. Listening occurs in four separate phases and you should understand each of them. Phase #3. PhD . Phase #2. The first part of listening is simply “hearing”. you will become a much better employee. If you do not interpret what you hear. the physical sensation of sound waves pushing against you ear drums. “Interpretation” comes next. “evaluation”. you move to the third phase. Since all four phases combine to create “listening”. it is easy to see how the process can break down at various points. Here are two payoffs that you can see for yourself. This is where you decide what it is that you heard. DBA & David Zetland. Interpretation is crucial. a much improved employee! Studies show that most employees spend 80% of their time communicating. you decide how to “react”. and how you evaluated it.
And finally. e. 6) Don’t do other things when the other person is speaking to you. do not respond by attacking the speaker. 7) Extend the same courtesies to others that you expect them to extend to you. 5) If you don’t understand what is being said. The second payoff is reduced tension within your work group. 8) When you disagree with something that has been said. nod your head. if any of these suggestions make you begin to be frustrated. Avoid questions that move the conversation away from the topic. thumbing through a report while some one is speaking to you is both distracting and rude. You can become the role model for your work group. You can make your disagreement clear without putting the other person down. do not stop listening and start thinking about your point of view. That will relieve the tension and let you return to concentrating on the conversation.g. Give facial clues that indicate that you are listening. This will avoid making the speaker an enemy. Nine Practical Suggestions for Improving Your Listening Skills: 1) Look at the other person while he or she is talking. Most misunderstandings and conflicts result because one person didn’t listen to the other(s). literally stop and take a couple of deep breaths.P a g e | 68 vastly improved. ©2009 James W Taylor.. 3) Ask appropriate questions that focus on what the other person is saying. It also sends a message of its own. 9) When you disagree with something. Your mind cannot race ahead to decide what you are going to say next. DBA & David Zetland. Listening forces you to slow down and think about what is being said. 2) Let the other person finish speaking before you start talking. PhD . ask for clarification before the speaker moves on to another point. For example. 4) Make your responses consistent with the topic being discussed instead of responding in a way that moves the other person off track.
It is unlikely that your list will be much shorter than four or five. because seven major tasks are about all you can handle at one time. Successful time management involves three separate steps. For example. 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. you haven’t thought through your job.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. Start with managing the days. PhD . DBA & David Zetland. Start by thinking about what your particular job means to your company or organization. What functions do you perform? Which of your responsibilities have the potential to affect the profits. Quality Control Cost Reduction Programs Customer Retention Programs New Employee Training Recruiting and Evaluation 30% 25% 20% 10% 5% 90% ©2009 James W Taylor. Only rarely can jobs be so tightly focused that you would have fewer than three responsibilities. Make this allocation based on an “ideal” use of your time. On the other hand. Managing the Days. or the well being of the company or organization? Identify the five to seven most important activities that describe these responsibilities. This allocation should reflect the way you can make a maximum contribution to your company or organization. if your list is much longer than seven. The next thing is to make an allocation of 90% of your time among those activities.
There are no other options! Managing the Hours: Your overall job activity list includes things like “cost reduction”. Just singling out your initiative for your boss. You do that by continually focusing on your goals. is a good thing. You must either delegate that activity to someone else. this might be an excellent time to sit down with your boss and make sure he/she is in agreement with your allocation. but you cannot allow such unplanned events to exceed more than 10% of your time. Then fill out the time log on at least a daily basis when you stop working. that activity is made up of lots of little projects and activities. Virtually every job has a pattern that repeats itself within a month’s time frame. When you have thirty days worth of time logs. summarize how you actually spend your time. DBA & David Zetland. 2) A summary of how you actually spend your time. PhD . 1) An ideal distribution of how you should spend your time (and endorsed by your supervisor). Calculate the percentage of time you actually spent on your “key” job activities. However. Now you have three very important time management tools to work with. If your boss adjusts the distribution. If a complete day is too long. that is a good thing. or you must stop doing it. Make a list of everything else that you spent your time on.P a g e | 70 It is not necessary to allocate 100% of your time because every job has some unplanned. try filling it out at lunch and then finishing it at the end of the day. The ©2009 James W Taylor. Then take the #3 list and make a decision about every item on the list. and uncontrollable aspects. You need a device to maximize the productivity of every hour of your time. Now make a daily time log with fifteen minute intervals. unforeseen. Describe exactly what you were doing in each of those fifteen minute intervals. 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. Incidentally.
Which is most important? Next most important? Third most important. Prove to yourself that memory alone doesn’t work.” When that happens. or do I reschedule it for the future?” These lists must be written! Sooner or later. or you will lose control over them. you have done a good job. if you accomplish these things. you are managing the projects that give content to your job. you will say to yourself. The next step is to tighten the focus even more. it just means that you must work on them. When you manage the minutes. Get it out of your system. When you manage the hours. In real life. Managing the Minutes: In managing the days. and then go back to writing it down. you are turning your attention to those little activities that occur every day and add up to rob you of productive working time. You must develop weekly lists of activities and lists of daily activities. I’ll just keep it in my head. That doesn’t mean that you will necessarily finish all of them in the coming week. etc? This list will keep you focused on spending your time to best effect next week. The purpose of the weekly list is to continually focus on the important projects that must show progress. “Do I put it on the list for tomorrow. you must clearly make a choice. go ahead and try it. Every Sunday. But as each major disruption occurs.P a g e | 71 devise that will help you do that are “lists”. “I don’t have to write this stuff down. it is not always possible to accomplish everything you plan and on the schedule you planned. make a list of things you must do the next day. you focus on the activities that give your job meaning for the company or organization. DBA & David Zetland. draw up a list of the most important projects for the week ahead. PhD . Every night. Then put priorities on them. These items don’t have to have priorities because ALL of them must be done tomorrow. before you go to bed. Those wasted minutes almost always come from ©2009 James W Taylor. Here are two steps you can take to reduce the number of minutes that get wasted every day. No matter what happens tomorrow.
it is like having a hand grenade lobbed at you. “Got a minute?. Can we cover it in that time? If we can’t. It won’t take long to identify those people. 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. 2) Keep a log of the people who drop by to interrupt your work. When someone says.P a g e | 72 interruptions.” If the other person elects a five minute meeting. PhD . 1) Set goals for yourself. Make the best of it. Summary of Good Time Management Practices: The fundamentals of good time management are only three. Not all interruptions are bad. A good answer to this question is. make sure to stick to that time limit. but what you want to do is control the timing and length of those interruptions. get up and go to the restroom. 1) Deal with the length of the interruptions first. You need to find out quickly which one it is. whoever they are. “No. for whatever reason. You will know when you are really good at it because people will come up to you and ask. It may be the opening line in a very important discussion. You can do more work in one interrupted hour and than can do in three hours with constant interruptions. That is guaranteed to end the conversation. If nothing else works. This will give you a real opportunity for personnel development and team building. ©2009 James W Taylor. 2) Assign priorities to specific projects. This is a great time to exercise your new listening skills. DBA & David Zetland. are wasting your time. but I’ve got five minutes. “How to you get so much done?” And we guarantee that outcome. or it may be the opening gambit in a rambling discourse on some personal problem.
000. job fairs. population ages. is already desperately short of nurses and the demand will grow as the U. In addition.S.5 million nurses working today. If you are thinking this might be a good time to consider a career change. You can control much of your situation if you make the effort. you have tools to improve your on the job performance and protect your job to the maxim possible.K. There are about 2. Nursing: The U. and to prepare to prosper when the Expansion begins. You have lost your job and you are learning a whole new set of activities and skills. you know that this is no longer solely a female occupation. an SME. They take temporary assignments at hospitals around the world. and technical changes driving others. If you have been in a hospital lately. There is a subspecialty here that may be of interest. or work for. ©2009 James W Taylor. But the real take away from Section Three is that you are not helpless in this recession. extreme budgeting.000 and $87. In 2007. But maybe this would be a good time to take a step back and consider a couple of ideas about the future. 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. it happened. DBA & David Zetland. These people are called travel nurses. In addition. here are some occupations that will be offering well paying jobs now and in the future. You have learned about unemployment benefits. there are demographic trends in favor of some occupations. You have reworked your resume and polished interviewing skills. and the top 50% earned between $73. you will be in a good position to earn a promotion when the Expansion starts. And that is a good feeling! Now For the (Maybe) Bad News: O. their average income was over $62. networking and the other ways to search for a new job. you now have a complete set of tools to make your business as recession proof as possible.S.P a g e | 73 The Take Away From Surviving and Prospering in a Contraction: If you own. PhD .000. manage. If you are an employee.
000 last year.000 ©2009 James W Taylor. K12 and colleges. computer software engineers averaged $86. You can expect an average pay of $42. combined with ever changing tax and business accounting laws. In 2007. DBA & David Zetland.000. Many work part time and have flexible hours. and Full Professors averaged $99. S. The average dental hygienist earned $65. are requiring more and more accountants. Dental Hygienist: Dentists are relying even more on hygienists for cleaning. Accountants: All of those new startups. Environmental Science and Protection Technician: There is a growing need for people who can monitor pollutants and wastes.000. Last year. Associate Professors. $70. You will need a bachelor’s degree or an associate’s degree from an approved nursing program. and preventive care. Elementary school teachers in the U. PhD . An associate degree may be all you need to qualify. Assistant Professors averaged $58. In 2007.000. A bachelor’s degree is pretty much the entrance requirement.000. An associate degree will qualify you for an average income of $44. You will need a bachelor’s degree and a certification requirement that varies by state. Computer Software Engineers: This one requires a degree in math or computer science. Colleges and universities are facing the same wave of retirements. averaged $50.P a g e | 74 They work on contracts for a specific period of time and usually receive incentive pay. X-rays. Teachers: We are facing a huge wave of retiring teachers at every level. accountants earned an average of $63.000. Physical Therapist Assistant: An aging and aching population make this occupation a growth opportunity.000 with summers off. 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. This occupation is expected to grow by 30% over the next five years. travel and housing allowances.000.
000. You may be able to find a qualifying program in a community college with an extension program in counseling.000 will be typical. Entry level jobs start around $35. Salaries are likely to be in the $45. Almost half of working hydrologists work for the government today. schools. An annual of salary of about $45. You can expect a salary around $73. Auto Mechanic: Increasingly complicated automobiles. This is an emotionally demanding job and the average pay is $38. Installation Installer: The government is also going to spend a lot of money to insulate and weatherize homes.000 range. You will need a bachelor’s degree and strong math skills. PhD . Training programs will available and as short as six months. About $36. 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. DBA & David Zetland. Government Jobs: Somebody is going to have to keep track of the flood of money that the Treasury is unleashing on the economy. A certificate program may be enough to qualify for these jobs.000 while senior scientists earn six figure salaries. Hydrologist: These jobs involve studying the distribution. buildings. alcohol. There will be ©2009 James W Taylor. People will be needed to install all of those solar panels. It is a broad term covering just about any job that involves water. etc.000. gambling or eating disorders get control of their lives. Completing a vocational program or a community college program will be required. circulation and physical properties of water.P a g e | 75 Substance Abuse and Behavioral Disorder Counselor: These people help other people with problems with drugs. A high school degree may get you on-the-job training. Solar Panel Installer: The government has made a major commitment to getting energy from the sun. retiring mechanics and closing dealerships combine to make growth in jobs for mechanics above average.000 is the average wage for auto mechanics today.
DBA & David Zetland.S. Good luck with your new career.gov that updates job openings across the country daily. 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. In 2008. PhD .USAJOBS.000 in college loans. ©2009 James W Taylor. The government maintains a website at www. 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. almost 30% of seniors at for-profit universities owed at least $40.P a g e | 76 600. A word of caution: U.000 new employees needed over the next few years. Check to see if you qualify.
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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?
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P a g e | 82 And the task force that was appointed to help Brian Deese are hardly more qualified. 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. DBA & David Zetland. PhD . Here they are along with their professions and the cars they drive.
Recreational boat manufacturers and time-share organizations also want help in refinancing. and making products that work. There is not one single person involved with the dismemberment of General Motors who is even remotely qualified for the task. dealing with employees. the Chair of the House Banking Committee. Barney Frank. They are chauffeured around town by government drivers in government owned cars. So far. But there is not a single one of the list above. meeting customer needs. 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. Recreational vehicle manufacturers also want to be included in the federal give away. We can predict that event with 100% confidence since it is already happening. Strip mall ©2009 James W Taylor. 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.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. PhD . There are hundreds of experienced and highly qualified managers who understand management. DBA & David Zetland.
Today. PhD .The Aztek was not an isolated incident. more serious problem.S. Ordinary life insurance companies like Hartford Financial Services. but they seem to be an exception. But it doesn’t always work. pays good wages. and provides health care for its employees.S. government keeps GM alive. and others just like them.P a g e | 84 developers also have their hands out. 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. Virtually every GM employee. Washington appears to expect it to happen in a couple of months. every one of those petitioners got what they wanted. Lincoln National and Prudential Financial have all qualified for a piece of TARP. GM’s share of the U. Every experienced manager understands completely that changing the culture of an organization takes years. there is a real question about who comes next? And then there is another. Still. who survived the layoffs. are now being called on to design and manufacture cars people want to buy. In turn. including Ford. But GM went ahead and introduced the Aztek in 2001. market that they might be charged with anti-trust action and broken up. There is no hard and fast rule about who gets bailed out and who doesn’t. market is less than 20%. ©2009 James W Taylor. The auto parts industry asked for inclusion and got turned down. and there is simply no evidence that they can do that. GM was worried that they had such a large share of the U. The point is that those same people. that means extraordinary pressure on Congress members to get them included. and the Aztek was an immediate flop. has a healthy auto industry that makes cars Americans want to buy. When the U.S. Not all that long ago. Take a look at the auto bail out committee again. they are stealing sales from every other healthy auto maker. the U. As we pointed out in Section Two.S. The trade press called the Aztek the ugliest car ever made. DBA & David Zetland. is a long time GM employee. In May. That means everyone who has been left out will be working hard to get included. The Federal Reserve even changed the rules to include motorcycles and snowmobiles! Here is the problem. They just do not understand anything about what they are doing.
under development. Now the question is where to manufacture these new cars.00 a gallon. The basic conflict about auto design is probably only months away. Amtrak and the Post Office are shown below. If you win your bet. any chance that you will ever see your money paid back just disappeared. In case you have any remaining doubts about the ability of the U. GM now has an all electric car. you can also be sure the GM will soon go out of business and the money you lent GM will be gone forever. What if the answer is Canada? Then remember that the Government of Canada is also a part owner of GM.000). Auto Manufacturing: O. comfortable cars? Unless Congress is willing to raise gasoline taxes to increase pump prices somewhere around $5. PhD . If you bet your money on Congress getting its way. consider this one. the market for small. Auto Design: What will happen when Congress decides that GM must make small.S. Does that make any sense? Let’s consider a couple of huge political problems that are just a little way down the road. but market introduction is years away. the Volt (with an estimated market price of around $40. government to successfully manage a business..K. assume that GM has solved all the design problems and has managed to satisfy Congress. just for a moment.P a g e | 85 Bailing out GM (and Chrysler) takes sales away from them. What do you suppose will happen if the answer is China? And when you have solved that one. fuel efficient cars will remain small. If Congress forces GM to select a high cost manufacturing location. DBA & David Zetland. ©2009 James W Taylor. the 2008 profit and loss statements for the two major government run business. but Americans continue to want to buy large. fuel efficient cars. that is probably a safe bet. which would significantly alter demand.
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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
the Business Cycle. and fourth.9% of GDP. say. or a permanent increase in income equal to 28. but that President Obama will extend. About 20% is from extensions of Bush policies such as the Iraq War. And how to we deal with this deficit? We borrow the money and the National Debt increases.8%.2 Trillion since we had a budget surplus of over $800 Billion in 2001. and 3% is due to the new agenda on health care. 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. That represents a swing of about $2 Trillion in just over eight years.6% increase in everyone’s income taxes. It is a serious problem. People frequently take on short term debt based on the expectation of future rising incomes. Those are huge numbers!! And neither of them is remotely likely. About 7% comes from the 2009 Stimulus Bill. Bush such as his tax cut and Medicare prescription drug benefits. up to 2020 will require a permanent reduction in Federal Government spending (not including interest on the National Debt) of 22. (so far). The next 33% come from new legislation signed by George W. Bush policies set to expire. it would require a 51. DBA & David Zetland. The problem here is that there are not any creditable projections of future income or expenditures that brings them into balance. Here are their results in four broad categories.P a g e | 90 Now a deficit by itself doesn’t have to be a bad thing. George Bush’s policies. education. ©2009 James W Taylor. and eliminating nearly all discretionary spending. PhD . energy. The Business Cycle accounts for 37% of the swing since revenues have fallen as business activity slowed down and social payments increased. Auerbach and Gale forecast that closing the gap in the near future. etc. So it appears that we will be going into further debt for the foreseeable future. new policies proposed by President Obama. If we try to close the gap with income taxes.
“Bush behaved incredibly irresponsibly for eight years. cannot since the U.S. the U. inflation inevitably follows.P a g e | 91 Alan Auerbach says. On the other hand. When they do that. The two real keys to reducing the Deficit and the Debt lie in Health Care and Social Security. cannot declare bankruptcy which is called abrogating their debt. the total value of unfunded U. Then the only alternatives are to print money. 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. the U. While Argentina did that not long ago. The thing about debts is that they must be dealt with sooner or later. However. They can print money to use to pay down their debt. DBA & David Zetland. But if you add in the entitlements of Social Security and Medicare. That equals $175. dollar is the currency of world trade.S. and by not fixing it. it might seem unfair for people to blame Obama for not fixing it. and use the savings to pay down the debt. We will consider both of those issues when we take on the National Debt next. The National Debt today is about $10 Trillion (see Section One for a picture of what $1 Trillion looks like).000 for every man. in that order. in 2001.S.S. or increase interest rates high enough to ©2009 James W Taylor.S. When you are personally confronted with this situation. government financial promises approaches $53 Trillion. some Arab countries and everybody else. PhD .S. governments have another resource that you do not have. We owe that money to China. he is making it worse”. So far. Nations can also pay down their debts by reducing their expenditures to less than their income. he is not fixing it. has basically been using borrowing to cover the annual deficit. On the one hand. That was the situation in the U. it reasonable to be extremely worried that inflation may not be far into the future. however. you can reduce your expenditures and use the savings to pay down your debt. Since the Federal Reserve Bank has already started printing money. Japan. Nations. or you can declare bankruptcy. woman and child in the U.
Social Security: As the population of the United States ages. 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. even more money will be required. That kind of borrowing is also investing in the future. ©2009 James W Taylor. As the population of the U. Health Care: Health care in the U.60 on his income of $61. now requires 18% of the entire Gross National Product (GNP). that alone would make all that much of a difference. and it is growing faster than the GNP is growing. If you earned that much money last year. S.P a g e | 92 attract new lenders. Additional savings can also come from better information about the effectiveness of treatments and drugs.621.621. PhD . Before we leave borrowing.S. lives longer and longer. etc. transportation. It is easy to see how removing the cap from everybody ends the Social Security problem. the Wall Street banker who lead Bear Sterns into bankruptcy also paid $6.8 Million. he would have paid $3. there is a simple solution at hand. Right now. more and more people qualify for Social Security payments. are made in the last month of life. But high interest rates reduce economic activity. i.800 of annual income. and that is simply not sustainable and it will crowd other important uses of money. Just as businesses can borrow money to build new plants to meet increasing demand for their products. we should point out that some borrowing can be a very good thing.. Health Care will account for 30% of the GNP by 2029. However. and that is to remove the cap from the earnings subject to the Social Security tax (OASDI). Both are bad choices. if the cap were lifted. for two examples. 80% of the Health Care expenditures in the U. you paid $6. The bad borrowing occurs when the borrowed money is used to pay current expenses. Fortunately. or to buy new machinery to reduce costs. education.e.2% on the first $106.3 Million.S. At the current rate of growth. governments can borrow to fund investment in new technologies. DBA & David Zetland. everyone pays a tax at the rate of 6. or in education. Jimmy Cayne. But the real solution is to be found somewhere in this fact.
this is a truly uncomfortable subject. say. If. They have created a “quality adjusted life year” to use in evaluating the effectiveness of drugs and treatments.000. and they do it without any transparency whatsoever. but it really is unavoidable. but if it is spent at the UCLA Medical Center in Los Angeles. Yes. and present major problems to future generations. Minnesota. The score is then compared with the cost of the treatment and a decision is made. PhD . a treatment might extend a patient’s life for two years. California. The British are already experimenting with this fact. but they require a very large dose of political courage. ©2009 James W Taylor. Whether Congress can find that political courage is probably the most important question for the 21st Century. but the side effects are so onerous that those years are only judged worth living half as much as a healthy person. very large. But then remember that insurance companies do exactly the same thing all the time. this sounds like a very inhuman process. if that month is spent at the Mayo Clinic in Rochester. The Take Away on the Deficit and Debt: Both the national deficit and the national debt are very. and it is.000. it will cost $200. it will cost $100. Agreed.P a g e | 93 Further. the treatment gets a mathematical score. There are some actions that the government can take to deal with these serious problems. DBA & David Zetland.
Unless this cabal can be exposed and removed from their positions of power. is in danger.S. repeatedly. 6) In a very short period of time. 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. budget deficit and the U.S. is in extreme danger Early in the 18th Century. the financial well being of the U. the financial well being of the U. So it is not surprising that the policies have not been successful to date. PhD . Most importantly. It is called the Business Cycle and its characteristics are easy to observe. 3) U. and relatively simple. a French priest came to America to study this new method of governing called “democracy”. 7) The U. Unless. Alexis de Touqueville wrote a book called “Democracy in America” in 1835. 2) There is no clearly understood. no structured ideology.S. government has become an owner (and defacto manager) of a significant portion of the U.S. explanation for what happens.P a g e | 94 What It All Means 1) There is a real. 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. to developed economies. total debt are extremely large and growing rapidly. They have all been completely ad hoc. DBA & David Zetland. the U. 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. His insights into the functioning of democracy were so prescient that his book is still in use in colleges today. beginning or ending to the phases of the Business Cycle. or identifiable. Attempts by governments to reach such an equilibrium point are wasteful and useless. That is exactly what is happening now.S. government actions to deal with the current Contraction (recession) have no theoretical basis. 5) There are a large number of actions that individuals and SMEs can take to make the best of the Business Cycle. One of his insights is particularly relevant here. there is no equilibrium point that suspends the Business Cycle. no consistent rules.S.S. ©2009 James W Taylor.
California. 1960-1965 Managing Director. 1988. France. Sydney.Australia. San Clemente. 1972-1995 Senior Fulbright Scholar Portugal. University of Southern California. Philadelphia. New York University. 1975 Master of Business Administration. Melbourne. 1981 Chile Profesor Visitante. Pennsylvania. 1990 Visiting Professor. 1987 . Sydney. Graduate School of Management. 1990 Education Doctor of Business Administration. California. 2005 to present (www. ESSEC Graduate School of Management. IAE French University. Aix-en-Provence. Research Division. 1999 New Zealand Visiting Professor. Paris. Pontificia Universidad Catolica de Chile. James W. Australia. MBA Progamme. Santiago. Hunt-Wesson Foods. New Zealand. 1983 Visiting Professor. University of Auckland. University of Melbourne. University of Western Sydney. 1987. 1981 Portugal Visitant Profesor. 1989 ©2009 James W Taylor.com/drjwtaylor) Academic Experience Australia Visiting Professor. 2001 Professeur Vistants. 1960 Bachelor of Business Administration. 1995 France Professeur Vistants. University of Minnesota. Escuela de Administracion.zazzle. School of Business. France. 1957 Business Experience Director. Department of Management Studies. DBA & David Zetland. Australia. Auckland. International Photographer LLC. Fullerton. PhD . Inc.P a g e | 95 Resume of Authors Dr. Chile. New Product Development. 1965-1972 Manager. Atlantic Refining Company (ARCO). Portugal. Graduate School of Management. Australia. School of Marketing. University of Technology. Taylor Professor of Marketing California State University. Universidade Nova de Lisboa Lisbon.
2000-2001 Visiting Professor. 1995) Available in English and Greek. 1992. Marketing Planning: A Step by Step Guide. Tennessee. (Ramsey. 1989) How To Write A Successful Advertising Plan. (Lisboa. 1990) Every Manager's Survival Guide. PhD . New York. Facultad de Economia. Birmingham. California. College of Business. Also published by Asher-Gallant Press. 1991.scribd. 1995) Available in English and Greek. 2003) The Marketing Strategy and Planning Workbook. Owen Graduate School of Management. 1986) Available in English and Finnish.. (Laguna Beach. Inc. How To Develop Successful Advertising Plans. George L. New Jersey: Prentice-Hall. School of Social Sciences. DBA & David Zetland. California. (Tokyo: President Sha. Inc. 1996 United States Visiting Professor. New Jersey: Alexander Hamilton Institute. (New York: Alexander Hamilton Institute. 2003) The Marketing Strategy Workbook (2004 Digital Version).. Irvine. New Jersey: Alexander Hamilton Institute. Inc. California. New York: Wellington Press. published online at www. 1987. Inc. Spain. Inc.. Chapman University. What Caused It and What You Can Do About It.. Arygros School of Business. Vanderbilt University.. 1993 United Kingdom Visiting Scholar. 2000 Books The Great Recession Conspiracy.P a g e | 96 Spain Profesor Visitante. 1989) The Complete Manual for Developing Winning Strategic Plans. California: Digital Workbook International LLC. (Irvine. United Kingdom. (South Nyack. University of California Irvine. (Englewood Cliffs. (2009).com The Marketing Strategy & Planning Workbook (2004 Digital Version). 1993) In Japanese only. 2002-2003 Visiting Professor. Student Recommended Faculty Program. (Chicago: Crain NTC Books. Inc. Westbury. Ministerio da Industria e Comercio. Inc. 1997) How To Create A Winning Business Plan [Completely revised and expanded].. California: Digital Workbook International LLC. California Polytechnic State University. (Ramsey.. Developing Winning Strategic Plans. (Chicago: NTC Business Books.. 1993) Developing Winning Strategic Plans with Keisuke Morimoto and Hitoshi Yajima. Aston University. Inc. Valencia.. 2003-2004 The Visiting Professor of Marketing. San Luis Obispo. 1987) How To Create A Winning Business Plan. Developing Winning Strategic Plans [Completely revised]. New Jersey: Alexander Hamilton Institute.. (Chicago: Corporate Research. (Maywood. Nashville. (Mexico City: Prentice-Hall Hispanoamericana. A. Portugal: Gabinete de Estudos e Planeamento. Ltd. S. Orange. ©2009 James W Taylor. 2000) Planeación de Mercadotecnia: Una guía paso a paso . 1997) Available in Spanish only. 1988) Planeamento Strategico Para Empresa Portuguesa. Aston Business School. California: Innovative Management Development Company. Universidad de Valencia. (Laguna Beach.
©2009 James W Taylor. 1975. 1991. Summer. Inc.. March-April." Journal of Marketing. "The Role of Risk in Consumer Behavior. 1977. 1981." Journal of Consumer Marketing. American Marketing Association. (U. "After 20 Years On A Downhill Slide." International Journal of Wine Marketing (U. 8." Journal of Marketing Research. 1. "Competitive Intelligence: A Status Report on U. 1984. 1986." Marketing Intelligence and Planning. No. and Swedish." Strategy Magazine. April. 1986." New Zealand National Business Review. 1985) Available in English. Spanish." Conceptual Developments in Marketing. Inc. and Swedish. 1987. "The Attitude Change-Behavior Change Problem." Distribucion y Consumo. PhD . May-June. Numero 18.). (Madrid)." Business to Business. "The Reality Gap Revisited. 1986. Profitable Marketing Planning. Also in Sound View Executive Book Summaries. "AGROW: The Strategic Plan NZ Needs. "Risk Theory and the Science of Marketing." Northern New Zealand Farming World. 1986. Other Publications "La Crisis de la Industria Vitivincola en Espana: Un estado de la cuestion. 1982) Available in English and Spanish. "The Effects of Social Class and Perceived Risk on Consumer Information Search.. July. The Only Way Is Up. K." Business. January-February. September 7. "The Coming Crisis in the Spanish Wine Industry. Also in Sound View Executive Book Summaries. Inc. Best Paper of the Year Award. 1981. 1994. "Planning Strategy.. 1994.P a g e | 97 The 101 Best Performing Companies In America. 1983) Planning Profitable New Product Strategies. 1989. May-June. 1990. (Chicago: Probus Publishing Company. Exporting To The United States As A Strategy For Growth. (U. 1974. Radnor. Summer." Journal of Marketing. 1978. 1993. 1979) Available in English." Business. DBA & David Zetland. 1987." Harvard Business Review. Pennsylvania.. May-June. April. S. Spanish. 1984. Business Practices. 1986) Competitive Marketing Strategies. Vol. (New York: Alexander Hamilton Institute. 1979. 1982). "Marketing and Non-Marketing Managers. "Cognitive Styles of Marketing and Non-Marketing Managers: A Three Nation Study. (New York: Alexander Hamilton Institute. 1978. Pennsylvania." Business. "The Short-Term Orientation of American Managers: Fact or Fantasy?" Business Horizons. "The Reality Gap in Strategic Planning. 1984. Also published by Chilton Book Company. Vermont. Strategic Planning For The Success Business. Assuming New Zealand Can Raise Its Sights. 1981. Portuguese." Harvard Business Review. Summer. Bristol. (New York: Alexander Hamilton Institute. Norwegian and Finnish. 1. Also.." Journal of Marketing Management. (New York: Alexander Hamilton Institute. 1982. July. K." Journal of the Academy of Marketing Science. K. "A Striking Characteristic of Innovators. Darien." Journal of Marketing. 1992. "The Real Meaning of Excellence.) Vol.). "The State of Strategic Planning. September. Spring. "Add-on Purchasing: Consumer Behavior In The Trial of New Products. Portuguese. Available in English. February. Also in Journal of Services Marketing. Noviembre. Inc. 1980. "The Purchase Intention Question in New Product Development: A Field Test. Connecticut.). "Matching Profiles For Your Industrial Sales Force. Also published by Chilton Book Company. Inc. June-July. K. (U. January." Advances In International Marketing Management. (New York: Alexander Hamilton Institute. "Planning for the 1980's. Japanese. Radnor.
. Weitz and Robin Wensley. Auckland.. Inc. 1965. 1983). Sydney New Zealand: Auckland France: Paris Portugal: Lisbon. Melbourne. 2nd Edition. Sydney.. (Boston: Houghton-Mifflin Company. Seattle. Australia Hagenfeldt-Affärerna AB. Reprints In Books "The Short-term Orientation of American Managers: Fact or Fantasy?" in Management. Washington SmithKline Beecham Consumer Brands. Yokohama City. (New York: John Wiley & Sons. Tokyo. ed. Assocation for Consumer Research.P a g e | 98 "A Reinterpretation of Farley and Ring's Test of the Howard-Sheth Model of Buying Behavior. 1958.. Valencia Consulting Clients Australian Trade Commission. Castelon." in Marketing: Contemporary Dimensions. Connecticut: The Dushkin Publishing Group. 1980) "Matching Profiles For Your Industrial Sales Force. Department of Commerce.. Barcelona. Oporto Singapore Spain: Alicante. Ewing. (Boston: Harvard Business Review. U. April. 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. Malaga. S." in Strategic Marketing. Lisbon. Portugal Moray Industries. 1993) "The Reality Gap In Strategic Planning. PhD . 1973. California Tourism Industry-Trends and Investment Opportunities. New York University and The Toilet Goods Association. eds. Robert Rubicheaux. 1983) "Two Requirements For Measuring The Effectiveness of Promotion. Steuart Henderson Britt. ed. "A Study of Purchases and Attitudes Toward Men's Toiletries. (Boston: Kent Publishing Company.. editor. DBA & David Zetland. Japan Trident Group Japan. Brisbane. Inc." An Industry-College Experiment In Marketing Research Methods. Fred Maidment. Canberra. Stockholm. 1967. Graduate School of Business Administration. Barton A. Government of Portugal. (Guildford." Advances in Consumer Research." Journal of Marketing. David W. 1970) PROFESSIONAL ACTIVITIES Executive Development Seminars on Marketing Strategy and Planning Australia: Adelaide. "Two Requirements for Measuring the Effectiveness of Promotion. New Zealand Sea-Land Services.. ed. Pamplona. Sweden Ministry of Industry. Ltd." in Consumer Behavior in Theory and Action. Perth. November. Also in Corporate Strategy.
K.P a g e | 99 Who's Who in Advertising Men of Achievement (U. PhD . DBA & David Zetland.) ©2009 James W Taylor.
Sexton (chair).com/author=354433 www. Davis. but I am increasingly skeptical as to the impact of these projects on public policy. Fields: Economics of Development. 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.edu dzetland@gmail. Since I finished my PhD. Howitt and Stephan Kroll. Richard E. (Agricultural and Resource Economics).org Blog: http://aguanomics. (Agricultural and Resource Economics).D. I spend some time working on academic papers.S.com/ Professional Philosophy I began my PhD in development and ended in environmental and natural esources. PhD . I have spent most of my time communicating economics to the public via blogging. 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. Environment & Resources. ©2009 James W Taylor. Throughout. 2009 Contact Information Address: Agricultural & Resource Economics University of California 2612 Ellsworth Street Berkeley.P a g e | 100 David Zetland June 12. DBA & David Zetland. and social welfare. public talks and meetings with policymakers. Overall GPA = 3. Davis.com Web: http://ssrn. I studied market and government failure using institutional and experimental methods. CA 94720-3310 USA Berkeley. Stephen R. Educational History April 2008: Ph. general understanding of economics. CA 94704 USA Phone: +1 (510) 499-3262 Email: email@example.com. Boucher.65 December 2003: M. In 2009. and Industrial Organization. University of California. University of California.
PhD . Academic Employment Instructor UC Berkeley. Visiting Fellow Mercatus Center (2 months): Research on regulation and water management with Richard Williams and Karol Boudreaux. Departmental Honors. working with Michael Hanemann.V. University of California. Magna cum Laude. Los Angeles. Teaching Asst. Honors College).Focal Points in Public Goods Games: Explicit Information Increases Reciprocation September** . _**_ = 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* . Germany) Mar 08 _Do Water Managers Cooperate in Public Goods Games?_ [Submitted] Working Papers Click on titles to access papers at SSRN. Research Asst. (Business-Economics.The Effects of Endogenous Exchange Rates on Behavior in Public Goods Experiments (with Stephan Kroll) ©2009 James W Taylor.A. Intermediate Micro (3 qtrs) and Capital Budgeting (1 qtr): Prepared and led weekly discussion sections. Richard Howitt (6 quarters): Performed research on various water issues and assisted in preparation of manuscript on positive mathematical programming. Ciriacy-Wantrup Postdoctoral Fellowships in Natural Resource Economics and Political Economy. DBA & David Zetland.P a g e | 101 March 1991: B. _*_ = submitted. Development (3 qtrs). 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. held office hours and review sessions. and graded exams and homework.Teaching Economic Principles: Algebra. Agricultural & Resource Economics (Fall 2009): Environmental Economics and Policy 100 (90 students) Wantrup Fellow UC Berkeley (2 years): S.The Real Estate Market Index 2007 September . Phi Beta Kappa. Graph or Both? (with Carlo Russo and Navin Yavapolkul) June * .
Don't Shoot the Middleman! Agent Quality and Effective Delivery of International Aid 2003 June . PhD . Popular/Industry Press 2009 May .Guest blogger at Environmental Economics (also May 2008) July .Speaker (_All-in-Auctions_) at EAERE (Amsterdam) 20 June .There Is No Water Shortage on forbes. DBA & David Zetland.P a g e | 102 June .Invited Speaker at Liberty on The Mind Conference: California's Bankruptcy and Its Economic Future (Santa Clara. CA) 21 April .Speaker (_All-in-Auctions_ and _Conservation Pricing_) at ACE09 (San Diego) 4 June .Invited Speaker (_Sector Showcase: Emerging Opportunities in Water_) at the Investors. Berkeley) 27 April . Post-PhD Conferences. WA) 7 May .Free Trade Can Be Fair Trade. _Internationalized_ version: Free Trade Can Be Fair Trade Global View.Market profile: California's Water Crisis_ in Global Water Intelligence May . Circle Conference (San Francisco) 21 April .Can We Rely on Technology to Guarantee Future Water Resources?_ in Canadian Water Treatment January . Heroin.Markets for Afghan Opium and U. 2005/IV: 20-21. Natural Choices: The Davis Co-Op Newsletter.Raise prices_ at KSRO ©2009 James W Taylor.Guest blogger at Freakonomics August .Invited Speaker (_All-in-Auctions_) at Water Rights Sales and Transfers Workshop (Phoenix) 4 May . Seminars and Talks 2009 26 June .Interviewee at Bloomberg on the Economy 2008 September .S.Guest appearance on Fox Business News July .Speaker (_All-in-Auctions_) at ISNIE (UC Berkeley) 18 June .com 2005 October .Killing the Golden Goose? Tourism and Deforestation in Nepal January . Experiments and Reality_) at Economic Games and Mechanisms to Address Climate Change (MSRI.Attendee at _Behavioral Economics: What Can It Contribute to Environmental and Resource Economics_ (Bellingham.Organizer and Speaker (_Discussion: Climate Change Dynamics in Theory.
Panelist. Journal of Law. Building-Integrated Sustainable Agriculture in Berkeley 9 December .Attendee at ASSA (San Francisco) 2008 13 December -Invited speaker.000). National Science Foundation (x2) Grants and Funding Seed funding ($1. Jastro-Shields Graduate Research Scholarship ($1.000) and Jastro-Shields Graduate Research Scholarship ($2. IBM's Global Innovation Outlook Deep Dive (Water) in Atlanta 6 August . FTE GEFL fellow ($1. and Organization. Economics. PPIC report on the Future of the Delta at UC Davis 31 July .Presenter (_All-in Auctions_) to California Coastal Conservancy (also presented to ARE/hydrolunch @ UCB) 13 November .Invited participant. National Association of Water Companies in Santa Fe 23 September . UC Berkeley 4 March -Invited panelist on _California's Water Crisis_ at KALW 2 March . 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.500) 2005 Giannini Foundation Research Minigrant ($10. _Elemental Interactions: WATER!_ at the Black Rock Art Foundation (San Francisco) 3 January . Environmental and Resource Economics.Invited speaker.Interviewed for _There is No Water Shortage_ at KFMB 27 February . PhD .Panelist.000) and Hayek Fund for Scholars ($250) 2004 Jastro-Shields Graduate Research Scholarship ($600) 2002 Graduate Opportunity Fellowship ($25. American Economist.000) ©2009 James W Taylor. Summer Graduate Workshop on Climate Change at MSRI (UC Berkeley) 26 June .P a g e | 103 20 April -Raise prices_ at KCBS 10 March.Presenter (_Water Utilities and Insurance_) at Hydrolunch and ERE Workshop (18 Mar).Attendee at ESA (Pasadena) Reviewer AAEA/ASSA sessions. DBA & David Zetland.000) for All-in-Auctions from UC Berkeley's X-Lab 2006 Giannini Foundation Research Minigrant ($10.Invited Speaker at the Business Council on Climate Change.Presenter (_All-in Auctions_ and _Focal Points and Gender_) at ESA in Tucson 22 October .000).Workshop leader (_All-in-Auctions_) to the Scotts River RCD 19 February .
ucdavis. Fort Collins 80523 USA Richard J. Colorado State University. George Mason University). Department of Agricultural and Resource Economics University of California. 2005: _Institutional Economics in the 21st Century_ (AFEE. University of Virginia). Davis 95616 USA Stephan Kroll (stephan. Germany). _Economics. University of California.P a g e | 104 Graduate School Conference and Seminar Activities ISNIE Attendee. presenter and discussant at _ve conferences of the International Society for New Institutional Economics. 530-752-1521) Professor and Chair. Bozeman.edu.edu. Extra-legal Protection and Organized Crime_ (ESD.kroll@colostate. Claremont University). 970-491-0887) Assistant Professor. Sexton (firstname.lastname@example.org. Department Presenter of about ten papers and leader of about five workshops. University of California. Dissertation Presenter of my dissertation work in various forms at eight extramural seminars and conferences.edu. Davis 95616 USA ©2009 James W Taylor. Steyr. _Economics for Leaders_ (FTE. DBA & David Zetland.ucdavis. Department of Agricultural & Resource Economics and Goldman School of Public Policy. PhD . 2004: _Graduate Student Program in Experimental Economics _ (IFREE. _Social Change Workshop for Graduate Students_ (IHS. California Climate Change Center.ucdavis. Boucher (boucher@primal. Summer Schools 2007: _Economics of Corruption_ (ICCR.berkeley. Colorado State University). Development Attendee and presenter at four Pacific Development conferences. and 2003: _Free-Market Environmentalism_(PERC. Howitt (howitt@primal. Austria). Department of Agricultural and Resource Economics University of California. epartment of Agricultural and Resource Economics.edu. 510-841-6443) Chancellor's Professor. University of Passau. 530-752-4428) Professor. Department of Agricultural and Resource Economics. Berkeley 94720 USA Richard E. Davis 95616 USA Michael Hanemann (hanemann@are. 530-752-1527) Associate Professor. MT) References Stephen R. Director.
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