Regulating the card lenders

Received this letter dated May 2, 2009:

Dear Fred Phillips:

As your credit card company, we value your business and appreciate the opportunity to service your financial needs.

In a recent review of your account, we noticed that you have only used a limited amount of your credit line with us. We believe this may indicate that the line may be higher than required to meet your monthly spending needs and, as a result, your credit line has been changed to $**,***.00.

Chase is committed to maintaining the highest levels of customer satisfaction and we are always looking for ways to improve our products and services. If this change does not meet your current needs or you have questions about this change, please call us at 1-800-346-5538 and one of our advisors can assist you further.

Sincerely, 

Cardmember Services

...to which I reply via this blog:

Dear Chase,

Due to your unexplained and seemingly random - but ever increasing - fees, and your abrupt reductions in service, I do not consider you a trusted lender. That is why I do not borrow money from you. And won't, if I can avoid it.

Incidentally, I opened this account with a bank that you later acquired. I never asked to borrow money from you, so don't you dare condescend to me.

Best wishes,

Fred Phillips

Crossing Over

In 2007, for the first time, the majority of human beings lived in cities.

In 2008, the U.S. overtook France as the world's leading wine-drinking nation.  

In 2009, for the first time, more people worldwide used the Internet for social networking than for email. 

I’ve amassed a big collection of such “crossovers” here, with the sources for each. Why? Well, it has always been thought that these points are rather uninteresting; Modis and others showed that chaos can manifest at the beginning and end of an s-shaped growth curve, but that the middle – where these crossovers occur – are as steady and predictable as the day is long.

Hwang, Limprayoon and I will soon submit a paper showing that in many cases, these bland crossover points mask a true tipping point. It is the point where resistance to change – and the people who are influenced by the resistance – become a minority phenomenon. Innovation diffusion really is “touch and go” all the way to the midpoint.

Don’t care about that? Visit the collection anyway. The crossovers are fun to read, and the sheer number of them says volumes about our changing society.

Use the blog’s Comment area to let me know of other interesting crossovers you might be aware of.

A billion out of poverty

Not to beat the dead horse of unfettered free markets (wow, did I mangle a metaphor, or what), but Joe Rightwing is still looking on Constitution Avenue, not on Wall Street, for the crooks who caused the global financial crisis. In the years since Reagan and Thatcher, Joe brays, a billion people have been lifted from poverty. A triumph of free-market capitalism! Let’s overlook the little matter of a worldwide banking crisis!

The purpose of today’s blog is just to point to one fact: Most of the billion who recently waved bye-bye to poverty are Chinese.

That’s right. Not citizens of a market democracy, not denizens of the sub-Saharan developing world, not even Russians enduring the Al Capone style pre-capitalism we Americans got through eighty years ago. Chinese. Chinese who live in the most regulated, government-owns-everything nation on Earth.

Not that I’d want to live there. And I don't begrudge. Just making a point. What do you say to that, Joe?

And oh, by the way, the number of U.S. residents living in poverty rose from about 23 million in 1973 to 36.5 million in 2006. The percent of Americans in poverty has remained constant at 12.3 percent over the same interval. Write to me if you’re curious about source for these data.

Stimulus package and the “American” automobile industry

Will the stimulus package save the “American” automobile industry? Professors Jay Heizer and Barry Render write that the cost of a Pontiac LeMans breaks down this way:

“About $6,000 heads to South Korea for the auto’s assembly; $3,500 goes to Japan for engines, axles, and electronics; $1,500 goes to Germany for design; $800 goes to Taiwan, Singapore, and Japan for smaller parts; $500 heads to England for marketing; $100 goes to Ireland for information technology; and the rest, about $7,600, goes to GM and its US bankers, insurance agents, and attorneys.”

In other words, the LeMans is barely American at all.

So why are GM and Chysler coming to our US government with hat in hand? Why don’t they demand handouts from the governments of Korea or Ireland? For that matter, why aren’t Ireland and Taiwan stepping up to hand billions to GM?

Actually, the German government is opening talks with GM’s local subsidiary, Opel, and the talks might lead to a bailout. So I can’t in fairness go all righteously indignant about that.

But I can reasonably be snarky about this: GM wanted all this globalization that led to the bleeding away of American jobs. If they’re in trouble now, why don’t they whine gimme-gimme to their precious World Trade Organization? A fine thing, to use WTO to marginalize the Congress and sovereignty of the United States - and then tell Congress they might or might not pay on Tuesday for a hamburger today.

In 1971, I worked for General Motors as a Junior Mathematician. (Yes, you read that right.) Never have I met people so out of touch with ordinary Americans. They had plans to build a car with windows that couldn’t be opened – only a slot to pay tolls through. They put our orientation group on buses to move us to another building 40 yards away; we trainees looked at each other in disbelief. It astonishes me that it took them another thirty years to go bankrupt.

When Toyota and Nissan became the quality leaders, GM said what me worry, Americans will buy American cars just because they’re American cars, doesn’t matter if they’re not very good cars. And GM was right – for a while. You can draw many messages from this story, but one of them is: Americans have already given GM their bailout, and GM blew it. Time to pack it in, General Motors.

Alan Watts was a hard act to follow, but I did alright.

Each year I’m invited to lecture to our Organizational Psychology students on material from The Conscious Manager: Zen for Decision Makers. The lectures are well-received and I have fun with them.

Psychology has always big at our university; Carl Rogers, Victor Frankl, and Abraham Maslow have been faculty members here.

After my last lecture, a faculty old-timer remarked to me, “You know, long ago Alan Watts argued pretty much the same point you just did, and in this very room.”

Wow. What a rush to be a part of that tradition.

Just wanted to share the feeling with you.

Infrastructure 2.0: What will it look like?

“Web 2.0” means more interactivity, user-generated content, optimized search and cross-connections, free software, and fees for service. The term emphasizes the contrast with the first wave of web activity, called “content-push” or Web 1.0, really just an electronic form of old-style publishing, with some hyperlinks thrown in.

Tom Friedman uses “Car 2.0” to describe Better Place’s electric car cum business model in which consumers buy miles on swappable batteries recharged using clean energy.

Sustainability 1.0 was "It costs money to be green." Sustainability 2.0 is "We can make money being green."

President Obama is about to launch massive infrastructure projects for economic recovery. Governors of every state have lists of “shovel-ready” projects that will absorb billions of federal money, no problem.  But you can bet these projects are “Infrastructure 1.0.”

What will “Infrastructure 2.0” look like?

Like Car 2.0, Infra 2.0 will blend high technology with innovative business models, some involving public-private cooperation. Smart technology will be central to transforming the delivery of water, sewage, energy, telecomm, transportation, garbage disposal…

Look sharp, now, because if Obama doesn't spend the money in 2009, it won’t kick-start the economy.  If we spend it on more Infra 1.0, the economy will end up even farther behind the 8-ball, in the long run. We don’t yet know what Infra 2.0 is, but we’d better figure it out quick.

Hit the ‘comment’ button and tell me your vision of Infrastructure 2.0.

The meltdown is my fault

Joe Rightwing is still writing to newspapers, trying to blame the financial meltdown on the government.  Like many of his fellow letter writers, Joe condemns the 1977 Community Reinvestment Act, which pressured lenders to help low-income people buy houses, as a market distortion.  Without the CRA, Joe claims, the free market would have kept the economy as level as the Bonneville salt flats. 

This is the height of silliness, for many reasons.  First, the CRA did not force banks to give $300,000 mortgages to people who could only repay $100,000 loans.  What’s that you say, Joe? There are no more $100,000 houses? Tell ya what: The government never prevented builders from erecting cheap houses.  Builders don’t like to build them because they’re less profitable.  That’s the free market at work.

I mean, really, Joe, this is the kind of “devil made me do it” excuse we wouldn’t accept from a six-year-old.

Second, the economy is cyclical whether it’s regulated or not.

Third, the Enron scandal was a wake-up call, and Joe, you didn’t wake up, didn’t even stir an eyelash.  Six years later, Lehmann Brothers is gone too.  Joe, now that you’ve been smacked on both sides of your head, smell the coffee: The free market is good, but people abuse the free market.

Mortgage brokers knowingly sold loans to unqualified buyers. (Economists call this “adverse selection.”) Middlemen securitized bundles of loans, could not even begin to measure the risk of a bundle (nor, therefore, its value), pulled a value out of where the sun don’t shine, and sold it to Lehmann Bros., who, forgetting the business cycle, bought the whole mess, lock, stock and barrel.  If this ain’t abuse, beat me with a stick.

You don’t think regulation is needed, Joe? I quote Joel Bakan: "No one would seriously suggest that individuals should regulate themselves, that laws against murder, assault, and theft are unnecessary because people are socially responsible. Yet oddly, we are asked to believe that corporate persons… should be left free to govern themselves."

Joe, I’m sorry if I implied it’s only you whose been hit on the head.  We’ve both been smacked.  In fact, it was only a matter of time before somebody blamed business educators for this mess.  And now, Joe, some of your fellow letter-to-the-editor writers have snarkily noted that most of the free market abusers have… MBAs.

And they’re right.  Mea culpa, Joe.  I’m a professor, and my ex-students did this.

At the 2002 meeting of the AACSB, the agency that accredits business schools, I waited anxiously for its officials, or any faculty speakers, to mention the word “ethics.”  None did.  The only speaker at the three-day conference to bring up ethics was a luncheon presenter, the CEO of Tupperware.  (There you go, Joe, I’m not anti-business. I make a point to note that in the close wake of Enron, it was a businessman, not an academic, who first said something was amiss ethics-wise.)

AACSB’s 2008 meeting was similarly light on angst about the mortgage crisis.  But it was in Honolulu, where it’s difficult to get too worked up over anything.  A few months later, the INFORMS conference – the gathering of operations researchers – focused on technical reasons why the financial engineering models didn’t work.  Not on the ethics of using them when doing so was clearly inappropriate.

At least at the University of Chicago there’s some disagreement about whether to name the new economics research institute after Milton Friedman.  At least there’s that.

The upshot is that business faculty are not exactly hammering away at this in MBA classes. How can we prepare the next generation of business leaders if we do not make it clear in every accounting, finance, O.R., marketing, and strategy class that responsible users of the free market cannot tolerate certain behaviors?

University faculty cannot make students or graduates act ethically.  But if pressure to act ethically does not begin in b-school, it’s a lot less likely that it will begin later.  MBA graduates were the ultimate cause of this crisis, but business professors were the proximate cause.

Fellow faculty members, repeat after me, and make sure Joe hears you: “The meltdown is my fault.”