Out-of-reach ATM at the Melli Bank, Iran.
Out-of-reach ATM at the Melli Bank, Iran.
Paul Volcker, arguably the best central banker in U.S. history, was interviewed in April by Karen Christensen of Rotman Magazine, the public-issues and alumni journal of U of T's Rotman School of Management. The interview with the former Federal Reserve Board chairman appears in the current, Fall 2009, edition of the magazine.
Volcker was one of the earliest economic advisers to sign up with the Obama campaign, and remains on the U.S. president's economic team. Volcker's wary regard for bankers and the need for keeping a sharper eye on them stand up well in the current debate in Congress on much-needed regulatory reforms:
"Major banks should be more tightly controlled and less able to make the sort of risky bets that led to the current debacle. There should also be more oversight of some kind for hedge funds, equity funds and the remaining investment banks. People argue that this will stifle innovation. But 'innovations' like asset-backed securities and credit-default swaps have brought few benefits. Most would agree that this 'bright new financial system' has failed the test of the marketplace. Let's face it, the most important innovation in banking for most people in the last 20 years is the automatic teller machine."
Bagehot said it best: "If bankers are busy, there is something wrong."
Rotman Magazine is subscription only.
Addendum (Oct. 21)
* Felix Salmon (Reuters): The importance of Volcker.
Not much to be learned from Fortune's current cover story, "Can GM Survive?", like for instance details on the "New GM's" turnaround strategy. But I enjoyed this GM anecdote from Fortune's veteran auto reporter, Alex Taylor III:
"If you want to understand how the old General Motors stumbled for 30 years until it collapsed into bankruptcy, consider the story of GoFast.
"GoFast was a program started in 2000 by Rick Wagoner, then the company's president (and later CEO), to untangle bureaucracy. The idea was simple: When negotiations over an issue reached an impasse, all the interested parties would be put together in one room until they agreed on a decision. Human resources was assigned to spread GoFast through the company. It trained GoFast coaches, arranged thousands of GoFast workshops, staged GoFast feedback sessions, and distributed GoFast coffee mugs. At one point, GM claimed savings of more than $500 million from GoFast.
"But the program took on a life of its own. GoFast workshops were held to eliminate other meetings; eventually the number of workshops reached more than 7,000. In other words, GM held more than 7,000 meetings to discuss how it could hold fewer meetings. Managers might see their performance evaluations downgraded because they weren't holding enough GoFast meetings. "The whole premise of GoFast became going slow," complained one executive.
"Don't expect to see many more GoFasts under Fritz Henderson, the man who succeeded Wagoner as CEO last March. [Wagoner, of course, was sacked by Barack Obama.] It 'wasn't helpful for decision-making,' he says."
From Fortune's Oct. 12 edition, not yet online.
[ed.- With apologies to the Bard, Henry VI, Part II.]
The CV is that N.A. manufacturing, long ailing, was dealt a death blow by the recession. It ain't coming back, outsourced for good to lower-wage precincts.
Paul Krugman thinks the obits are premature:
"The recovered [U.S.] economy will surely involve more manufacturing - in fact, before the world economy collapsed we were seeing a boom in manufactured exports, with shortages of machinists and other skilled workers. It will probably include a lot of green employment in the broad sense - not just people building and running wind farms, but people busily improving insulation and installing white roofs...
"Actually, there are a lot of advantages to producing in advanced countries, even at much higher wages - that's why they're advanced countries. U.S. manufacturing was having a clear revival in 2007, before the crisis hit. So if we get a recovery going, outsourcing will seem a lot less important as an issue..."
In the U.S., as in Canada, a traditionally strong currency, not outsourcing or tax policy, is the chief culprit in the manufacturing downturn:
"The [U.S.] dollar's role in the world actually looks stronger now than it did before the crisis. Why? Because our only serious rival, the euro, looks weaker. The euro zone has been fragmented in this crisis, especially the bond market, with debt of weaker European countries seriously discounted. This pushes the euro's ability to rival the dollar back, at least for awhile."
As long as Beijing's appetite for greenbacks remains unsated, and the greenback is the reserve currency of emerging economies and the global black market, the U.S. dollar will retain its strength and U.S. manufacturers will be disadvantaged:
"We've got weak manufacturing because we attract so many capital inflows, which keep the dollar at a high level in normal times. And that era may now be over."
That era may near an end, of course, due to staggering U.S. deficits as far as the eye can see. Unless Obama can eventually restore America to fiscal surplus, as Clinton did. At this point, the prospects for that outcome would have to be described as bleak. But I wouldn't rule it out.
The point here is that a sustained weakening of the greenback - if, say, Europe and Asia recovered much faster than the U.S. - would be a boost to U.S. manufacturing.
And to that of Canada. Hence Mark Carney's preoccupation not with jobless claims and anemic GDP growth but with the rise of the loonie. The quandary is that the loonie's strength derives largely from the greenback's current doldrums. America will benefit from a sustained lower-valued currency, but that would likely keep the loonie aloft, a drag on our manufacturing sector.
Maybe we each need to default on an itty bitty series of government bonds, just to knock our currencies down 10% or so for a couple of years. Oops, I see my sponsor for membership in the Canadian Economists Association has just stormed out of the room...
David Crane (Toronto Star): Canada can't thrive without a healthy manufacturing sector.
I've noted before that we came into this recession in far better shape than the last severe downturn, that of 1981-82. Many Western governments, conspicuously Canada, had their fiscal houses in order this time. The corporate sector was carrying far more debt in 1981-82, due to a takeover binge perilously financed with floating-rate (very short term) borrowing, and burdened with unsustainably large payrolls.
So we had arguably the first "white-collar recession" of modern times, with office workers even more likely to get pink slips than factory workers. Both inflation and interest rates were in double digits. The former was due to the oil shocks of 1973 and 1979. The latter was crude instrument used by then-Fed chairman Paul Volcker in his successful quest to finally slay the inflation dragon.
Chart courtesy American Enterprise Institute.
What followed that "cleansing," beginning in August 1982, was the biggest bull market in history, for stocks and the general economy. A comforting bit of history, that. Except this time it's hard to see where the job recovery comes from. The 1980s were the decade of an explosion of growth in Silicon Valley, unlikely to be repeated. Toward the end of that decade, every hospital, museum and auto-body repair shop had installed PCs. Apart from the computer infrastructure now being in place, much of the manufacturing work has long since been outsourced to Asia.
It's tough to see jobs coming back in N.A. manufacturing for the same reason. Only the public sector has an obvious need for jobs, in rebuilding transportation infrastructure and energy retrofitting of buildings, and caring for a Baby Boom generation heading into its high-maintenance healthcare phase. But governments at every level are running huge deficits, a brake on even greater economic "pump priming" than their stimulus spending is already doing.
What all that points to is a prolonged "jobless recovery." Hope I'm wrong.
"I had nothing to do with the CanWest problems, as you know. The acquisition from us was not financed properly." -Conrad Black, e-mail from his U.S. prison, where he is serving a 6 1/2-year sentence for fraud, to Bloomberg News after CanWest Global Communications Inc. filed for bankruptcy protection, no longer able to finance its $4-billion debt load. Nine years ago, CanWest paid $3.2 billion to acquire Black's chain of big-city Canadian newspapers.
"Anyone who buys anything from Conrad Black will be sucking gas." -merchant prince Galen Weston, at a 1980s food industry seminar, on his decision to go ahead anyway and buy a bakery from Black's dismantled Dominion Stores Ltd.
LUXE LIFE | Chinese luxury-goods spending defies global economic malaise. Western luxe peddlers like Gucci flocking to Shanghai, aleady are doing surprisingly well. They will reap even greater returns as China's nascent consumer economy - now a fraction of America's - begins to develop in China's huge interior cities far from coastal Shanghai and Hong Kong.
Opening day at Gucci's flagship Shanghai store in June.
WELL-TIMED FOR 'RUN FOR THE CURE' | Canadian researchers report breast cancer breakthrough. Treatment soon will be more easily be "customized" to patients, improving odds of successful outcomes. "This is a watershed event in our ability to understand the causes of breast cancer and to develop personalized medicines for our patients," Dr. Samuel Aparicio, head of the breast cancer research program at the British Columbia Cancer Agency, who worked on the study, said in a statement. The research was largely funded by the B.C. Cancer Foundation's annual Weekend to End Breast Cancer walk and similar events across the country.
DESERVED GOOD HUMOUR: Researchers Sam Aparicio, right, and Marco Marra yesterday at a Vancouver presentation of their breakthrough breast cancer findings.
KUDOS FOR CANUCK ACADEME | McGill, U of T and University of Alberta gain in world rankings. McGill retains its hold on "top public campus in N.A." in Britain's Times Higher Education-QS World University Rankings. If it's a "knowledge economy" that's to define prosperity in the 21st century, more proof Canada has the right stuff to thrive, with sufficient public- and private-sector support.
NO KINDLE FOR CANADA | Great White North excluded as Kindle rolled out in about 100 nations. Globe can't unravel mystery, but notes irritating phenomenon: "For Canadian consumers, it's yet another in a long line of annoying delays and prohibitions – from smartphones that take years to go on sale to online gift cards that are bound by mysterious legal restrictions to Internet video that won't play once it recognizes the user isn't in a particular country."
YET ANOTHER IGGY FLIP FLOP | Grit leader appoints Marc Garneau as new Quebec lieutenant. Replacement for Coderre is admirably swift, but comes only after Iggy told us there would be no new Quebec chief, ending a Grit tradition that has served the "natural governing party" well since Confederation. Worse, in transparent bid to obscure volte face, Iggy insists Garneau is not "lieutenant" but "Quebec representative." Last we looked, Grits had several Quebec representatives. They're called MPs and riding presidents. Globe's eer fair-minded Lawrence Martin reminds us Chretien and other rookie Opposition Leaders were similarly gaffe-prone yet prevailed. A sound argument, until the words Stephane Dion enter the conversation.
GLOBE-TROTTING HOGTOWNERS | Toronto-based Brookfield invests $1.1 billion in Aussie land deal. Already landlord of Lower Manattan's skyline-defining World Financial Center, Brookfield now major player in commercial property Down Under.
GREEN SHOOTS | Industrial products bellwether Alcoa reports surprising profit upturn. Its tourism and business-travel counterpart, Marriott, beats profit estimates. Alcatel-Lucent, victim of same telco-equipment downturn that killed Nortel, has been profitless since its creation by merger three years ago. But its shares are up 80% this year, on speculation of overdue recovery in global telco spending.
CANWEST PAPERS SPIN-OFF? | Papers might be spun off in IPO as early as next year. Troubled CanWest's market-dominant papers are healthy enough given the worst advertising drought since the Depression. If they can be liberated from insolvent CanWest's corporate debt of $4 billion, they stand a good chance of thriving. My hope remains that eventually the chain will be broken up, with separate ownership for individual papers or regional groups (say, new owners for each of Lower Mainland's Vancouver Sun and Province; Calgary Herald and Edmonton Journal; Regina Leader-Post and Saskatoon StarPhoenix), to expand number of newspaper owners and to return ownership to local or regional roots. More owners means more and differing ideas on confronting Web challenge, and an end to chains' stultifying absentee ownership.
ARTS HONOURS | Herta Mueller, wins 2009 Nobel prize for literature. Romanian-born German author who documented horrors of totalitarianism in Cold War Romania is recogonized for her ability to depict "the landscape of the dispossed." Barbra Streisand, top-selling female vocalist of all time, sees her recent, Diana Krall-produced CD, "Love is the Answer," become her ninth pop-chart-topping album. Gratifying for first-time producer Krall. And for Steisand, in breaking from her heavily orchestrated style, opting instead for spare arrangements that are a return to the Brooklyn native's intimate nightclub years. (So marks Gus's first audio pick.)
IRVING PENN (1917-2009) | Pioneering fashion photographer dies at 92. As longtime cover photographer for Vogue, Penn's elegant portraiture had enormous influence on contemporaries and subsequent generations of high-fashion interpreters.
MEN ARE FROM PLUTO | New book offers guidance to women on talking with men, especially at office. Code Switching: How to Talk So Men Will Listen (Alpha Books) is co-authored by Claire Damken Brown, a veteran of the corporate world (AT&T and Lucent Technologies) and Audrey Nelson, a communications consultant. Gender differences abound, Reuters reports in review of book: "Women apologize more than men, play the role of 'office mom' to whom everyone confides, and offer more subjective opinions. Men tell more jokes, but women laugh at them more. Men want solutions to problems while women look for understanding of problems, and men like to play devil's advocate while women want to help everyone to agree, the authors say. Even in e-mails, men banter and write short to-the-point messages, while women share personal information and express appreciation and support in longer messages, they say." Not too much here to advance Deborah Tannen's work, but updated observations are sound and need repeating .
QUOTE OF THE DAY | "I often think that a slightly exposed shoulder emerging from a long satin nightgown packs more sex than two naked bodies in bed." -Bette Davis (Dark Victory; Now, Voyager; All About Eve.)
Courtesy Tony Auth, Philadelphia Inquirer.
EMPIRE CRUMBLES | Free-for-all soon on CanWest assets. Post-bankruptcy filing yesterday, Ontario dailies in Torstar's sights. Food Network and HGTV sought by Corus, Rogers, CTVglobemedia, Astral. Most logical buyers for Global TV restrained by anti-trust rules. Aspers relegated to observer status as bondholders drive two separate reorgs, of bankrupt Global and National Post, and of newspaper group - set to file for own creditor protection ahead of breakup and sales.
DREAMS DEFERRED | Canadian youth unemployment at 20-year high. Toronto 4% above national average.
WINTER HEATING COST WINDFALL | U.S. says expected mild winter means likely lower heating costs. Not to forget glut of natural gas, heating fuel for half of U.S. homes.
ONTARIO LAUDED FOR GREEN POWER PUSH | Global investors take interest in profit opportunities. Ontario's incentives that guarantee above-market prices to sellers of power produced from sun, wind, water and biomass are most generous in N.A. "Ontario is well ahead of the U.S. and even California that claims to be so green," Mehdi Hosseini, an analyst at FBR Capital Markets in San Francisco, tells Reuters.
WOMEN COOL TO IGGY | Globe says women find Grit leader "stuffy, inauthentic and untrustworthy." Also can't imagine him interrupting an interview taping to kill a housefly, as Obama does.
SPENDTHRIFT CANUCKS | Household credit up 7%, fastest recession rate in postwar era. Low interest rates the driver: interest payments as percentage of disposable income is just 7.7%, lowest level since 2006, lower than 10% rate of 1991 recession. Helps account for the strong Canadian housing market.
GOLDBUGS GO CRAZY | Yellow metal hits record $1,045 (U.S.). Reax to slumping greenback, record U.S. deficit, false news Arab oil producers want switch to euro-pricing.
NEST EGGS NICKED | Average U.S. worker took 26% hit to 401(k) in 2008. And that's pretty much all you need to know about the consumer spending slump of 2008-09.
SO STOP HITTING YOUR HEAD WITH THAT HAMMER | Even corporate directors say CEO pay too high. Then why do these boards keep shelling out? Mostly fear "underpaid" CEOs will ankle to competition. If only.
STIRRINGS IN FAST FOOD NATION | Fast-food bellwether Yum Brands reports higher profits. Good news, finally, for away-from-home dining sector, major employer of suffering lower middle class. Obvious downside to revival at Yum's KFC, Pizza Hut and Taco Bell is dietary health impact and long-term costs thereof.
MED DIET | Study says Mediterranean diet cure for depression and other ailments. plenty of olive oil, fruits, nuts, vegetables, and fish - may guard against depression, a new study suggests. Long lauded for lowering risk of heart and circulation problems, plenty of olive oil, fruits, nuts, vegetables and fish cheer you up, as well.
Not a picture of health, spoilsport dieticians say. Those fries are making me hungry - and I just ate.
TEACH DIET, NOT HISTORY | Dutch author makes case for mandatory classroom food education. "What good does it do to teach children that 1492 was the year Columbus discovered America? Better to teach them that it is the number of calories in two Big Mac's with medium-size fries and extra ketchup."
GILLER FINALISTS ANNOUNCED | And they are...Linden MacIntyre (The Bishop's Man), Anne Michaels (The Winter Vault), Annabel Lyon (The Golden Mean), Colin McAdam (Fall) and Kim Echlin (The Disappeared). You have until Nov. 10 to see if your fave wins.
QUOTE OF THE DAY | "As you know, President Obama flew to Denmark, made his pitch. The international committee voted. Chicago finished last, dead last. Well, I guess the committee thought Chicago already had enough amateur athletes with the White Sox and the Cubs." -Jay Leno.
A DYNASTY CRUMBLES | CanWest says today that major units to file for creditor protection. Nation's biggest newspaper chain and second-largest network TV operator finally succumbs to massive debt taken on in 2000 purchase of big-city newspapers from Conrad Black (Ottawa Citizen, Montreal Gazette, Vancouver Sun, Calgary Herald) - biggest media deal in Canadian history. Founding Asper family's dreams of Winnipeg-based (that is, non-Toronto) media empire are shattered. Newspapers, excluding loss-making National Post, likely to be sold to investor group headed by Post publisher Paul Godfrey or rumoured rival purchasers including Torstar, owner of Toronto Star. Assets of Global TV network and Alliance Atlantis, major film distributor, likely to be picked off, too. Corus and other vultures circling AA's lucrative cable channels (Food Network, HGTV, History Television, Showcase, BBC Canada).
THE DIE IS CAST: Leonard Asper, CanWest CEO, and late father Izzy Asper, CanWest founder, at THE July 2000 announcement of CanWest's fateful bet-the-company purchase of Conrad Black's big-city Canadian dailies. Over nine years, the debt amassed in the purchase would crush the lucrative TV empire Izzy founded in Manitoba in 1974.
DON'T SPEND IT ALL IN ONE PLACE | Rate on new CSBs is 0.4%. Rate on latest series of Canada Savings Bonds is lowest in at least 20 years. This is how you create a nation of savers rather than spendthrifts?
GRIT NOSEDIVE | Grits under Iggy slump to 28% in polls. Harper in near-majority territory at 41%. And note, poll was taken after PM's weekend star turn tinkling the ivories at National Arts Centre. Mystery is why NDP, with issues like near-9% unemployment, getting Harper to upgrade EI when Iggy all summer could not, and having long ago called the Afghan quagmire correctly, is stuck at 14%. I'll say it again: NDP is done. Its future is post-merger left wing of Liberal Party.
WE'RE #4! | Canada trails Norway, Australia and Iceland in quality of life. Last year we were #3 in the U.N. Human Development Index stakes. For several years running in the Chretien years we were #1. What gives? At least our banks are #1. Now there's something to get you feeling warm inside.
WE"RE #7! | Canada slips to 7th from 4th-most admired nation. U.S. soars to 1st from 7th. Official criteria for annual National Brand Index global survey include culture, people, scenery. Unofficially, head of government is deciding factor. "I have never seen any country experience such a dramatic change in its standing as we see for the United States for 2009," Simon Anholt, founder of NBI, tells Reuters. Referring to impact of Obama, Anholt says, "There is no other explanation."
EXCUSE ME, BUT | MSM stories about the new, permanently frugal American are hogwash. So runs convincing argument by New Yorker financial columnist James Surowiecki: "Even after the worst recession of the past 70 years, retail sales this year will be about where they were in 2005. Does anyone really think that four years ago Americans were misers?"
WHINER OF THE DAY | Holy smokes, global leaders' financial-reform ideas must be tough. Otherwise Scotiabank's Rick Waugh wouldn't be whinging about them. If Canada's prudent Big Five, alone in coming out of crisis looking like choir boys, think proposed new safeguards are constraining, they must be strict indeed. But not to worry, Rick. It'll be two years before anything comes of global reforms, which will be diluted in compromises among G20 nations. And by which time, as Geithner rightly warns, those who now zealous about tying bankers in knots will have forgotten what all the fuss was about.
LAST COURSE | Venerable foodie mag Gourmet is closed after 68-year run. Upscale publisher Conde Nast (New Yorker, Vogue) kills four mags in total. Loyalists of Gourmet and CN stablemate Bon Appetit battle it out over whether CN dispatched the right recipe bible. (Check the comments "tail" on any news report of Gourmet's demise.)
IKEA ICON | Billy bookcase turns 30. Everything you wanted to know about the ubiquitous bookcase. Long since outsourced by the Swedes, but if we got precious about it we'd have to go back to brick-and-plank shelving or stackable milk crates, which do not a literary ambience make.
WEB STILL NO PANACEA FOR PAPERS | U.S. online ad revenue actually drops in 2Q. Uh oh. Online spend has to zoom to compensate for accelerating decline in print-ad revenue. Remember those cheapo watches Time gave new subscribers? How about a Billy bookcase?
WHO KNEW DAVE HAD A SECRET LIFE? | Gagster apologizes to wife last night. Thus proving my initial suspicion he cheated on her. A second Letterman employee/bedmate comes forward, a "Late Night" intern (of course) who wanted to marry him. Apart from me and Globe's John Doyle, everyone seems to find humour in this. Dave's big break was the timing of the Polanski arrest.
ECO-FASHION | Stella McCartney says "people in fashion are pretty heartless." Gucci designer, emerging genius of wearable chic, making few converts in campaign to excise fur and leather from our wardrobes. But at least women now asserting themselves, no longer "dictated to by gay male designers."
QUOTE OF THE DAY | "I want to be sitting on the stage with News Corp. and Viacom and those ones." -Leonard Asper, recent successor to his father, company founder Izzy Asper, as CEO of CanWest Global Communications, describing CanWest's ill-fated 2000 purchase of Conrad Black's major Canadian newspapers.
Courtesy: Cheney, The New Yorker, Oct. 5 edition.