tag:blogger.com,1999:blog-5084781589828644692024-02-19T19:52:21.184-06:00A Management Consultant @ LargeInnovation Throughout the Extended EnterpriseJames P. Farrellhttp://www.blogger.com/profile/04396068595090164836noreply@blogger.comBlogger68125tag:blogger.com,1999:blog-508478158982864469.post-78645333964234540612011-09-26T15:43:00.000-05:002011-09-26T15:43:05.288-05:00A Musical Interlude<span style="font-family: "Trebuchet MS",sans-serif;">Shannon Farrell Williams and Jamie Hofman performed "Lament" by Frank Bridge at a</span><span style="font-family: "Trebuchet MS",sans-serif;"></span><span style="font-family: "Trebuchet MS",sans-serif;"> gala on the occasion of the Twentieth Anniversary of the String Academy of Wisconsin in 2010. </span><br />
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<iframe allowfullscreen="" frameborder="0" height="233" src="http://www.youtube.com/embed/vKvbB50AWX4" width="400"></iframe>
<span style="font-family: "Trebuchet MS",sans-serif;"> </span><br />
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<span style="font-family: "Trebuchet MS",sans-serif;">The String Academy is closely associated with the distinguished <a href="http://music.indiana.edu/">Jacobs School of Music</a> at Indiana University, where both Mr. Hofman and Mrs. Williams continued their studies, working with <a href="http://music.indiana.edu/precollege/year-round/strings/faculty.shtml">Mimi Zweig</a>, <a href="http://www.riax.com/host/atararad/biography.html">Atar Arad</a>, <a href="http://www.bergbows.com/jerryhorner.htm">Jerry Horner</a> and others. Today <a href="http://www.stlsymphony.org/musicians/bios/bio-shannon-farrell-williams.htm">Mrs. Williams</a> plays with the St. Louis Symphony Orchestra and the Colorado Music Festival. <a href="http://www.stringacademyofwisconsin.org/faculty/">Mr. Hofman</a> is on the faculties of The String Academy, Carroll University and the Eastern Music Festival and has been a member of the Louisville Symphony, the Milwaukee Symphony, and the Louisville String Quartet.</span><br />
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<span style="font-family: "Trebuchet MS",sans-serif;">The <a href="http://www.stringacademyofwisconsin.org/">String Academy of Wisconsin</a> at the University of Wisconsin-Milwaukee
offers a unique educational experience for students ages four to
eighteen to study the violin, viola and cello. </span><br />
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<div class="blogger-post-footer">©2009 by JP Farrell & Associates, Inc. All rights reserved.</div>James P. Farrellhttp://www.blogger.com/profile/04396068595090164836noreply@blogger.comtag:blogger.com,1999:blog-508478158982864469.post-33775812943968174602011-02-04T10:48:00.002-06:002011-12-15T13:38:19.135-06:00Work We've Done<a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEhwp6mnudf_zUSDAy1JbjCDM30Fim8eMa0sChNPP0RZaMj-0dQJ1i_zFY7egY3IjO3su-X00hHYBGgwAi0IghikzY3B4kYw-_yF1USmFIpQYKxO1Xtpz-piHGoxQgakMZmXJK3EfcnsV03t/s1600-h/SiteHeader.jpg"><img alt="" border="0" id="BLOGGER_PHOTO_ID_5252279163152504018" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEhwp6mnudf_zUSDAy1JbjCDM30Fim8eMa0sChNPP0RZaMj-0dQJ1i_zFY7egY3IjO3su-X00hHYBGgwAi0IghikzY3B4kYw-_yF1USmFIpQYKxO1Xtpz-piHGoxQgakMZmXJK3EfcnsV03t/s400/SiteHeader.jpg" style="cursor: pointer; display: block; margin: 0px auto 10px; text-align: center;" /></a><br />
<span style="font-family: trebuchet ms;">Click on the links below to see case study summaries of some of our past projects.</span><br />
<ul style="font-family: trebuchet ms;"><li><a href="http://management-consultant-at-large.googlegroups.com/web/Bottler_Distribution_CaseStudy.pdf?hl=en&gda=5mUB91MAAADOTNSERFzjBio06Eip1j-CW1Cf0c1E5THhCOtnKITWJWG1qiJ7UbTIup-M2XPURDTbbeseH-2MULI5Mn3YOsEHxMfBo3UviCEHbEvL2FSi9iuGKAF9xERNAwtVA_jM0jE&gsc=hOTD3hYAAAArq4YVqLo7t-BQr7l5QelSNPZ7RetHcCszCObB1ASf7Q" linkindex="222" set="yes">Draining $70 million in Beer Distribution Costs<br />
</a></li>
<li><a href="http://management-consultant-at-large.googlegroups.com/web/Furniture_Case.pdf?hl=en&gda=K8LgrUMAAACWUxgiW8pYWMaPouC94WelBQaeboN9-8ehX34MLiB1IWG1qiJ7UbTIup-M2XPURDRIAQP_k5XmeJ6RxUfxYzKlK4YoAX3ERE0DC1UD-MzSMQ&gsc=kGFaoiEAAABRxPK5sXIaEbPjzXKPOlbb_RV-3LbXxC0tWVLtr6nkXkzfKN-m9S9niuHrq-IEXAE" linkindex="223" set="yes">Optimizing the Distribution Network<br />
</a></li>
<li><a href="http://management-consultant-at-large.googlegroups.com/web/IBP_Case_Study.pdf?gda=hDtpUkMAAACAsqkeIqLVsohwCVGfzizf2sg_vf1oZh2U4DBtxoPI1GG1qiJ7UbTIup-M2XPURDTYrYen6l3bk6oUwsXPCv0QK4YoAX3ERE0DC1UD-MzSMQ" linkindex="224" set="yes">A Better S&OP Process for a CPG Leader</a></li>
<li><a href="http://management-consultant-at-large.googlegroups.com/web/RetailDistributionCase.pdf?gda=3TnDm0sAAACnKY5rho2G83QMkHYpQqkuWU32owX8OrJfEjQPxv_t72G1qiJ7UbTIup-M2XPURDQS_tbyiugQAG3U2wLOQHe4CJg_w5Mc9muwNH8qrqgP9w" linkindex="225" set="yes">Simplifying Distribution for a Coffee Retailer<br />
</a></li>
<li><a href="http://management-consultant-at-large.googlegroups.com/web/ClaimsAccuracyCase.pdf?hl=en&gda=E0iOBkcAAACWUxgiW8pYWMaPouC94WelBQaeboN9-8ehX34MLiB1IWG1qiJ7UbTIup-M2XPURDQsKS2ozabcBCzaamhFoq3RanBWTbEtQr1GD0ia98w5pA&gsc=kGFaoiEAAABRxPK5sXIaEbPjzXKPOlbb_RV-3LbXxC0tWVLtr6nkXkzfKN-m9S9niuHrq-IEXAE" linkindex="226" set="yes">Achieving Medical Claims Processing Accuracy</a></li>
<li><a href="http://management-consultant-at-large.googlegroups.com/web/BI_Liquor.pdf?hl=en&gda=YMuqQj4AAACWUxgiW8pYWMaPouC94WelBQaeboN9-8ehX34MLiB1IWG1qiJ7UbTIup-M2XPURDStipizHQmc_8sjxXtbjzzf&gsc=kGFaoiEAAABRxPK5sXIaEbPjzXKPOlbb_RV-3LbXxC0tWVLtr6nkXkzfKN-m9S9niuHrq-IEXAE" linkindex="227">Turning Data into Business Intelligence</a></li>
<li><a href="http://management-consultant-at-large.googlegroups.com/web/BotchedSAP_Implementation.pdf?gda=ll5w4U4AAACAsqkeIqLVsohwCVGfzizfyHk-xXJamFWVlmri5DWUsGG1qiJ7UbTIup-M2XPURDQp9FmnMkpc-zsdHRVV8yxredI0SKxQjxPcWhkGilDsrA" linkindex="228" set="yes">Fixing a Botched SAP Implementation</a></li>
<li><a href="http://management-consultant-at-large.googlegroups.com/web/CPGCustomerServiceCase.pdf?gda=gl6JlUsAAACnKY5rho2G83QMkHYpQqkuWU32owX8OrJfEjQPxv_t72G1qiJ7UbTIup-M2XPURDT9ZkKxTSjGzb8JsHC0jv-R6np4lr6C02kvAJfaIqQ8HA" linkindex="229" set="yes">Customer Service Leadership for a Major Brand</a></li>
<li><a href="http://management-consultant-at-large.googlegroups.com/web/PrinterCases.pdf?gda=0LiebkEAAACnKY5rho2G83QMkHYpQqkuWU32owX8OrJfEjQPxv_t72G1qiJ7UbTIup-M2XPURDRSdnpwcEYWSKjou8pzwmST5koy8jtfjFBmuoKXCx0UNA" linkindex="230" set="yes">Strategic Selling for Print and Distribution<br />
</a></li>
<li><a href="http://management-consultant-at-large.googlegroups.com/web/CPG_NetworkCase.pdf?gda=tDw8dEQAAACnKY5rho2G83QMkHYpQqkuWU32owX8OrJfEjQPxv_t72G1qiJ7UbTIup-M2XPURDQAHhbcLaxEFneHX61yUId11bwkoqS54nAZJJjHLLKkeg" linkindex="231" set="yes">Restructuring a CPG Distribution Network<br />
</a></li>
<li><a href="http://management-consultant-at-large.googlegroups.com/web/AirFreightInventory.pdf?hl=en&gda=3k-eTEgAAADOTNSERFzjBio06Eip1j-CW1Cf0c1E5THhCOtnKITWJWG1qiJ7UbTIup-M2XPURDRWnKrNzSUvZdWcHLvv4AMtK_B-F9zIQp0l3d4iYwD6SA&gsc=hOTD3hYAAAArq4YVqLo7t-BQr7l5QelSNPZ7RetHcCszCObB1ASf7Q" linkindex="232" set="yes">Inventory Strategy for a Global Air Freight Carrier</a></li>
</ul><span style="font-family: trebuchet ms;"><span style="font-family: trebuchet ms;"><span style="font-size: 85%;">See our newsletter on Restaurant Lifecycle Management <a href="http://tinyurl.com/r5mkzk">here</a>.<br />
<br />
</span></span></span><span style="font-family: trebuchet ms;"><span style="font-family: trebuchet ms;"><span style="font-family: trebuchet ms;"><span style="font-family: trebuchet ms;"><span style="font-size: 85%;">A collection of posts about the US Economy is maintained <a href="http://jpfarrell.blogspot.com/2008/09/us-economy-and-bailout.html" linkindex="349" target="_blank"><span style="text-decoration: underline;" target="_blank">here</span></a>.</span></span><span style="font-family: trebuchet ms;"><span style="font-size: 85%;"></span></span></span></span></span><span style="font-family: trebuchet ms;"><span style="font-family: trebuchet ms;"><span style="font-family: trebuchet ms;"><span style="font-family: trebuchet ms;"><span style="font-size: 85%;"><br />
</span></span></span></span></span><span style="font-family: trebuchet ms;"><span style="font-size: 85%;"><br />
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</span></span><br />
<div style="line-height: 0pt; margin-bottom: 0pt; margin-top: 10px; padding-bottom: 0pt; text-align: center;"><a href="http://feeds2.feedburner.com/%7Er/AManagementConsultantAtLarge/%7E6/7"><img alt="A Management Consultant @ Large" src="http://feeds2.feedburner.com/AManagementConsultantAtLarge.7.gif" style="border: 0pt none;" /></a></div><div style="font-size: x-small; margin-top: 5px; padding-top: 0pt; text-align: center;"><a href="http://feedburner.google.com/fb/a/headlineanimator/install?id=oskh7cu44hbgg2r0svjj4je5jk&w=7" target="_blank">↑ Grab this Headline Animator</a></div><div class="blogger-post-footer">©2009 by JP Farrell & Associates, Inc. All rights reserved.</div>James P. Farrellhttp://www.blogger.com/profile/04396068595090164836noreply@blogger.comtag:blogger.com,1999:blog-508478158982864469.post-40311744531571153022011-02-04T10:43:00.001-06:002011-11-15T13:11:59.027-06:00Restaurant Lifecycle Management<a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEhsko4i3NeNzVHxaXlWX1M-ONM0aefddd5y99MzjioBAfkP22EDS27SkwWElhxzNgussg3JG02hBdCpq-5uLSrGLJLzmkTJTwdOSJK7L_n_nCtN7ftuS4fIyjGaYy425b3F7K9Y3-TVoVX0/s1600-h/SiteHeader.jpg"><img alt="" border="0" id="BLOGGER_PHOTO_ID_5264037244926163314" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEhsko4i3NeNzVHxaXlWX1M-ONM0aefddd5y99MzjioBAfkP22EDS27SkwWElhxzNgussg3JG02hBdCpq-5uLSrGLJLzmkTJTwdOSJK7L_n_nCtN7ftuS4fIyjGaYy425b3F7K9Y3-TVoVX0/s400/SiteHeader.jpg" style="cursor: pointer; display: block; height: 103px; margin: 0px auto 10px; text-align: center; width: 400px;" /></a><br />
<div style="font-family: trebuchet ms;">See these posts for perspectives on the development of retail and restaurant chains:</div><ul style="font-family: trebuchet ms;"><li><a href="http://jpfarrell.blogspot.com/2007/11/lifecycle-approach-to-retail-store.html" linkindex="53" rel="nofollow" target="_blank">A Lifecycle Approach to Retail Store Development</a> discusses techniques for managing information about a retailer's most important asset<br />
</li>
<li><a href="http://jpfarrell.blogspot.com/2007/11/evolution-of-quick-service-restaurant.html" linkindex="54" rel="nofollow" set="yes" target="_blank">The Evolution of the Quick Service Restaurant</a>, our most popular post with college students, provides a condensed history of take-out food </li>
<li><a href="http://jpfarrell.blogspot.com/2008/02/smart-kitchen.html" linkindex="55" rel="nofollow" set="yes" target="_blank">The Smart Kitchen</a> discusses how enabling network monitoring of kitchen equipment can improve chain restaurant performance</li>
<li><a href="http://jpfarrell.blogspot.com/2008/02/design-is-destiny.html" linkindex="56" rel="nofollow" set="yes">Design is Destiny</a>, about the importance of using a holistic approach to restaurant design </li>
<li><a href="http://jpfarrell.blogspot.com/2009/05/may-i-have-scone-with-my-coffee.html">May I Have a Scone With My Coffee</a> examines the information required to introduce a new capability to a restaurant chain.<br />
</li>
<li><a href="http://jpfarrell.blogspot.com/2007/12/store-is-forum.html" linkindex="57" rel="nofollow" target="_blank">Starbucks: A New Forum</a> reflects on the notion of retail location as meeting place<br />
</li>
<li><a href="http://jpfarrell.blogspot.com/2007/11/economist-on-mcdonalds.html#links" linkindex="58" rel="nofollow" target="_blank">Brand, Menu and Store Design</a>, an excerpt from <a href="http://www.economist.com/business/displaystory.cfm?story_id=E1_PNRVRJR" linkindex="59" rel="nofollow" target="_blank">The Economist</a> with our views on McDonald's branding dilemma</li>
<li><a href="http://jpfarrell.blogspot.com/2007/11/building-scaleable-enterprise.html" linkindex="60" rel="nofollow" set="yes" target="_blank">Building the Scalable Enterprise</a>, about the role of decisions about enterprise architecture in determining the success of McDonald's Corporation</li>
<li><a href="http://jpfarrell.blogspot.com/2008/01/too-many-starbucks.html" linkindex="61" rel="nofollow" set="yes">Too Many Starbucks?</a> looks at the microeconomics behind the Starbucks phenomenon</li>
<li><a href="http://jpfarrell.blogspot.com/2008/09/mcdonalds-strategy-meat-potatoes-and.html" linkindex="62" rel="nofollow" set="yes" target="_blank">McDonald's Strategy: Meat, Potatoes and Coffee</a> considers the direction McDonald's is taking under Jim Skinner </li>
</ul><span style="font-family: trebuchet ms;"><span style="font-family: trebuchet ms;"><span style="font-size: 85%;"><br />
</span></span></span><span style="font-size: 85%;"><span style="font-family: trebuchet ms;"><span style="font-family: trebuchet ms;"><span style="font-family: trebuchet ms;"><span style="font-family: trebuchet ms;">To learn more about our work in consulting, please </span></span></span></span></span><span style="font-family: trebuchet ms;"><span style="font-size: 85%;">see our <a href="http://jpfarrell.blogspot.com/2008/08/profile-of-jp-farrell.html" target="_blank">Profile</a> </span></span><span style="font-family: trebuchet ms;"><span style="font-family: trebuchet ms;"><span style="font-family: trebuchet ms;"><span style="font-family: trebuchet ms;"><span style="font-size: 85%;">or check out our <a href="http://jpfarrell.blogspot.com/2008/08/case-studies.html" linkindex="376" set="yes" target="_blank">Case Studies</a>.<br />
<a href="https://docs.google.com/open?id=0B0cX8Ug8KUneOWFjNzA0NTgtZWYzMi00OTQ2LThhNjktYzYxZDk5MDNmM2Fh">Contact</a> JP Farrell & Associates, Inc.</span></span></span></span></span><div class="blogger-post-footer">©2009 by JP Farrell & Associates, Inc. All rights reserved.</div>James P. Farrellhttp://www.blogger.com/profile/04396068595090164836noreply@blogger.comtag:blogger.com,1999:blog-508478158982864469.post-57006203055730635622009-11-04T09:34:00.029-06:002011-11-15T14:49:45.538-06:00The Spymaster and the Economist<a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEiBF4NhnwcybdTc7DNY4Y6c1rRxEBNHyyvew8YU7iZDd0zCAxbSvVBSlj_MA7zA61txNsMGoZjIX4LN5WURVMq5xJlL1Md9LHdPe9W2JBrZ-7HGeAWHRoKOhx4bZEDmCYCbj20bmErdOysO/s1600-h/kmenta.jpg"><img alt="" border="0" id="BLOGGER_PHOTO_ID_5400426320237993506" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEiBF4NhnwcybdTc7DNY4Y6c1rRxEBNHyyvew8YU7iZDd0zCAxbSvVBSlj_MA7zA61txNsMGoZjIX4LN5WURVMq5xJlL1Md9LHdPe9W2JBrZ-7HGeAWHRoKOhx4bZEDmCYCbj20bmErdOysO/s200/kmenta.jpg" style="cursor: pointer; float: left; height: 130px; margin: 0pt 10px 10px 0pt; width: 110px;" /></a><span style="font-family: trebuchet ms;"><span style="font-size: 85%; font-style: italic;">Jan Kmenta, Professor of Econometrics</span><br />
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The work of the best novelists and scholars burrow into the psyche. Peculiarly in my own mind the British intelligence officer and novelist David Cornwell (aka John </span><span style="font-family: trebuchet ms;">le Carré), and Czech-born </span><span style="font-family: trebuchet ms;"><a href="http://journals.cambridge.org/action/displayAbstract?fromPage=online&aid=297221" target="_blank">Jan Kmenta</a>, the wry professor of econometrics, are inextricably linked. Both exemplify their generation's dedication to finding truth in ambiguous settings through careful application of craft.<br />
</span><br />
<span style="font-family: trebuchet ms;">Kmenta would begin his graduate course in econometrics with a set of definitions: </span><br />
<ul><blockquote>
<li><span style="font-family: trebuchet ms;">An Economic Historian goes into a dark room looking for a black cat.</span></li>
<li><span style="font-family: trebuchet ms;">An Economic Theorist goes into a dark room looking for a black cat that is not there.</span></li>
<li><span style="font-family: trebuchet ms;">An Econometrician goes into a dark room looking for a black cat that is not there and declares: "I found it!"</span></li>
</blockquote></ul><span style="font-family: trebuchet ms;">The rest of the course (and the three that followed) was d</span><span style="font-family: trebuchet ms;">evoted to an arduous study of the theory and practice that would keep us from making any such a mistake. With humor Kmenta could shoulder the futility of his quest, but he could not abide those who mistook shortcuts for progress.<br />
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</span><a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEivCs_B1qqxZ6pjiNZCibeRa2OOj-hIgd-E5jYWxBol7bLtNf1s5fPXnzuA68nGJvitEz8a6PNIE8xTUO1EgmPMGUfCgF3djjwpFCiI2ocVj1jo4rA2uaWwdNhqmaAfgv2XE4lw9RbjrPNL/s1600-h/LeCarre.jpg"><img alt="" border="0" id="BLOGGER_PHOTO_ID_5400428347882814898" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEivCs_B1qqxZ6pjiNZCibeRa2OOj-hIgd-E5jYWxBol7bLtNf1s5fPXnzuA68nGJvitEz8a6PNIE8xTUO1EgmPMGUfCgF3djjwpFCiI2ocVj1jo4rA2uaWwdNhqmaAfgv2XE4lw9RbjrPNL/s200/LeCarre.jpg" style="cursor: pointer; float: left; height: 94px; margin: 0pt 10px 10px 0pt; width: 141px;" /></a><span style="font-family: trebuchet ms; font-size: 85%; font-style: italic;">John le Carré</span><br />
<span style="font-style: italic;"><span style="font-size: 85%;"><span style="font-family: trebuchet ms;"><br />
</span></span></span><span style="font-family: trebuchet ms;">These ruminations began when by some happy accident I picked up my decade-old copy of </span><span style="font-family: trebuchet ms;">John le Carré's <a href="http://www.amazon.com/Tailor-Panama-John-Carre/dp/0345420438" target="_blank">The Tailor of Panama</a>. Writing in the mid-1990's, as the West was celebrating the end of the Cold War, </span><span style="font-family: trebuchet ms;"><br />
le Carré adapted his method to the times. Turning away from the earnest style of his previous spy novels, le </span><span style="font-family: trebuchet ms;">Carré surprised his readers with a comic approach.<br />
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His unlikely protagonist, an expatriate tailor with a good heart and a questionable past, is recruited by a novice spy of uncertain virtue. </span><span style="font-family: trebuchet ms;">Together they set out to prove the existence of conspiracy fabricated from whole cloth. True to his craft but inept in spycraft, the tailor </span><span style="font-family: trebuchet ms;">weaves selective data with imaginative storytelling</span><span style="font-family: trebuchet ms;"> to flatter the careless and comfort the powerful. The institutions charged with analyzing and verifying his reports fail to question false information that suits their narrow interests. </span><span style="font-family: trebuchet ms;">Let loose in a benign environment, the misdirected agents of change wreck havoc.<br />
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In the aftermath of the intelligence failures of this twenty-first century, John </span><span style="font-family: trebuchet ms;">le Carré</span><span style="font-family: trebuchet ms;"> seems eerily prescient. By the same token, clients are advised to select their consultants and govern their projects with unusual diligence. It is all too easy to prove the existence of black cats that were never there.</span><br />
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<span style="font-family: trebuchet ms;"><span style="font-family: trebuchet ms;"><span style="font-family: trebuchet ms;"><span style="font-family: trebuchet ms;"><span style="font-size: 85%;">To learn more about our work in consulting, please </span></span></span></span></span><span style="font-family: trebuchet ms;"><span style="font-size: 85%;">see our <a href="http://jpfarrell.blogspot.com/2008/08/profile-of-jp-farrell.html" target="_blank">Profile</a>, read a few of</span></span><span style="font-family: trebuchet ms;"><span style="font-family: trebuchet ms;"><span style="font-family: trebuchet ms;"><span style="font-family: trebuchet ms;"><span style="font-size: 85%;"> our <a href="http://jpfarrell.blogspot.com/2008/08/case-studies.html" linkindex="376" set="yes" target="_blank">Case Studies</a>, or <a href="https://docs.google.com/open?id=0B0cX8Ug8KUneOWFjNzA0NTgtZWYzMi00OTQ2LThhNjktYzYxZDk5MDNmM2Fh">Contact</a> JP Farrell & Associates, Inc. directly.<br />
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</span></span></span></span></span><br />
<span style="font-family: trebuchet ms;"></span><div class="blogger-post-footer">©2009 by JP Farrell & Associates, Inc. All rights reserved.</div>James P. Farrellhttp://www.blogger.com/profile/04396068595090164836noreply@blogger.comtag:blogger.com,1999:blog-508478158982864469.post-67713437881075846412009-08-10T18:01:00.020-05:002011-11-15T14:26:54.477-06:00Timeline of Financial Bailout of 2008<o:smarttagtype name="country-region" namespaceuri="urn:schemas-microsoft-com:office:smarttags"></o:smarttagtype><o:smarttagtype name="place" namespaceuri="urn:schemas-microsoft-com:office:smarttags"></o:smarttagtype><style>
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<table border="0" cellpadding="0" cellspacing="0" class="MsoNormalTable" style="border-collapse: collapse; margin-left: 3.9pt;"><tbody>
<tr style="height: 16.8pt;"> <td style="-moz-background-clip: border; -moz-background-inline-policy: continuous; -moz-background-origin: padding; background: rgb(204, 255, 255) none repeat scroll 0% 0%; border-style: solid dotted solid solid; color: black; font-family: trebuchet ms; height: 16.8pt; padding: 0in 5.4pt; width: 44.9pt;" valign="top" width="60"><div align="center" class="MsoNormal" style="text-align: center;"><span style="font-size: 85%;"><b><span style="color: black;">Day<o:p></o:p></span></b></span></div></td> <td style="-moz-background-clip: border; -moz-background-inline-policy: continuous; -moz-background-origin: padding; background: rgb(204, 255, 255) none repeat scroll 0% 0%; border-style: solid dotted solid none; font-family: trebuchet ms; height: 16.8pt; padding: 0in 5.4pt; width: 53.5pt;" valign="top" width="71"><div align="center" class="MsoNormal" style="text-align: center;"><span style="font-size: 85%;"><b><span style="color: black;">Date<o:p></o:p></span></b></span></div></td> <td style="-moz-background-clip: border; -moz-background-inline-policy: continuous; -moz-background-origin: padding; background: rgb(204, 255, 255) none repeat scroll 0% 0%; border-style: solid solid solid none; font-family: trebuchet ms; height: 16.8pt; padding: 0in 5.4pt; width: 534.7pt;" valign="top" width="713"><div align="center" class="MsoNormal" style="text-align: center;"><span style="font-size: 85%;"><b><span style="color: black;">Action<o:p></o:p></span></b></span></div></td> </tr>
<tr style="height: 16.8pt;"> <td colspan="2" style="-moz-background-clip: border; -moz-background-inline-policy: continuous; -moz-background-origin: padding; background: white none repeat scroll 0% 0%; border-style: none solid solid; font-family: trebuchet ms; height: 16.8pt; padding: 0in 5.4pt; width: 44.9pt;" valign="top" width="60"><div align="center" class="MsoNormal" style="text-align: center;"><span style="color: black; font-size: 85%;">Q3-Q4: 2007<o:p></o:p></span></div></td> <td style="-moz-background-clip: border; -moz-background-inline-policy: continuous; -moz-background-origin: padding; background: white none repeat scroll 0% 0%; border-style: none solid solid none; font-family: trebuchet ms; height: 16.8pt; padding: 0in 5.4pt; width: 534.7pt;" valign="top" width="713"><div class="MsoNormal"><span style="color: black; font-size: 85%;">Subprime mortgage meltdown begins<o:p></o:p></span></div></td> </tr>
<tr style="height: 16.8pt;"> <td style="-moz-background-clip: border; -moz-background-inline-policy: continuous; -moz-background-origin: padding; background: white none repeat scroll 0% 0%; border-style: none solid solid; font-family: trebuchet ms; height: 16.8pt; padding: 0in 5.4pt; width: 44.9pt;" valign="top" width="60"><div align="center" class="MsoNormal" style="text-align: center;"><span style="color: black; font-size: 85%;">Fri.<o:p></o:p></span></div></td> <td style="-moz-background-clip: border; -moz-background-inline-policy: continuous; -moz-background-origin: padding; background: white none repeat scroll 0% 0%; border-style: none solid solid none; font-family: trebuchet ms; height: 16.8pt; padding: 0in 5.4pt; width: 53.5pt;" valign="top" width="71"><div align="center" class="MsoNormal" style="text-align: center;"><span style="color: black; font-size: 85%;">30-May-08<o:p></o:p></span></div></td> <td style="-moz-background-clip: border; -moz-background-inline-policy: continuous; -moz-background-origin: padding; background: white none repeat scroll 0% 0%; border-style: none solid solid none; font-family: trebuchet ms; height: 16.8pt; padding: 0in 5.4pt; width: 534.7pt;" valign="top" width="713"><div class="MsoNormal"><span style="color: black; font-size: 85%;">JP Morgan completes acquisition of Bear Stearns<o:p></o:p></span></div></td> </tr>
<tr style="height: 16.8pt;"> <td style="-moz-background-clip: border; -moz-background-inline-policy: continuous; -moz-background-origin: padding; background: white none repeat scroll 0% 0%; border-style: none solid solid; font-family: trebuchet ms; height: 16.8pt; padding: 0in 5.4pt; width: 44.9pt;" valign="top" width="60"><div align="center" class="MsoNormal" style="text-align: center;"><span style="color: black; font-size: 85%;">Sun.<o:p></o:p></span></div></td> <td style="-moz-background-clip: border; -moz-background-inline-policy: continuous; -moz-background-origin: padding; background: white none repeat scroll 0% 0%; border-style: none solid solid none; font-family: trebuchet ms; height: 16.8pt; padding: 0in 5.4pt; width: 53.5pt;" valign="top" width="71"><div align="center" class="MsoNormal" style="text-align: center;"><span style="color: black; font-size: 85%;">7-Sep-08<o:p></o:p></span></div></td> <td style="-moz-background-clip: border; -moz-background-inline-policy: continuous; -moz-background-origin: padding; background: white none repeat scroll 0% 0%; border-style: none solid solid none; font-family: trebuchet ms; height: 16.8pt; padding: 0in 5.4pt; width: 534.7pt;" valign="top" width="713"><div class="MsoNormal"><span style="color: black; font-size: 85%;">U.S. Treasury <a href="http://www.nytimes.com/2008/09/08/business/08fannie.html">seizes control of Fannie Mae and Freddie Mac</a>, government-sponsored mortgage guarantors<o:p></o:p></span></div></td> </tr>
<tr style="height: 16.8pt;"> <td style="-moz-background-clip: border; -moz-background-inline-policy: continuous; -moz-background-origin: padding; background: white none repeat scroll 0% 0%; border-style: none solid solid; font-family: trebuchet ms; height: 16.8pt; padding: 0in 5.4pt; width: 44.9pt;" valign="top" width="60"><div align="center" class="MsoNormal" style="text-align: center;"><span style="color: black; font-size: 85%;">Sun.<o:p></o:p></span></div></td> <td style="-moz-background-clip: border; -moz-background-inline-policy: continuous; -moz-background-origin: padding; background: white none repeat scroll 0% 0%; border-style: none solid solid none; font-family: trebuchet ms; height: 16.8pt; padding: 0in 5.4pt; width: 53.5pt;" valign="top" width="71"><div align="center" class="MsoNormal" style="text-align: center;"><span style="color: black; font-size: 85%;">14-Sep-08<o:p></o:p></span></div></td> <td style="-moz-background-clip: border; -moz-background-inline-policy: continuous; -moz-background-origin: padding; background: white none repeat scroll 0% 0%; border-style: none solid solid none; font-family: trebuchet ms; height: 16.8pt; padding: 0in 5.4pt; width: 534.7pt;" valign="top" width="713"><div class="MsoNormal"><span style="color: black; font-size: 85%;">Bank of America agrees to buy Merrill Lynch under terms set by the US Fed<o:p></o:p></span></div></td> </tr>
<tr style="height: 16.8pt;"> <td style="-moz-background-clip: border; -moz-background-inline-policy: continuous; -moz-background-origin: padding; background: white none repeat scroll 0% 0%; border-style: none solid solid; font-family: trebuchet ms; height: 16.8pt; padding: 0in 5.4pt; width: 44.9pt;" valign="top" width="60"><div align="center" class="MsoNormal" style="text-align: center;"><span style="color: black; font-size: 85%;">Mon.<o:p></o:p></span></div></td> <td style="-moz-background-clip: border; -moz-background-inline-policy: continuous; -moz-background-origin: padding; background: white none repeat scroll 0% 0%; border-style: none solid solid none; font-family: trebuchet ms; height: 16.8pt; padding: 0in 5.4pt; width: 53.5pt;" valign="top" width="71"><div align="center" class="MsoNormal" style="text-align: center;"><span style="color: black; font-size: 85%;">15-Sep-08<o:p></o:p></span></div></td> <td style="-moz-background-clip: border; -moz-background-inline-policy: continuous; -moz-background-origin: padding; background: white none repeat scroll 0% 0%; border-style: none solid solid none; font-family: trebuchet ms; height: 16.8pt; padding: 0in 5.4pt; width: 534.7pt;" valign="top" width="713"><div class="MsoNormal"><span style="color: black; font-size: 85%;">Lehman Brothers files for bankruptcy<o:p></o:p></span></div></td> </tr>
<tr style="height: 16.8pt;"> <td style="-moz-background-clip: border; -moz-background-inline-policy: continuous; -moz-background-origin: padding; background: white none repeat scroll 0% 0%; border-style: none solid solid; font-family: trebuchet ms; height: 16.8pt; padding: 0in 5.4pt; width: 44.9pt;" valign="top" width="60"><div align="center" class="MsoNormal" style="text-align: center;"><span style="color: black; font-size: 85%;">Tues.<o:p></o:p></span></div></td> <td style="-moz-background-clip: border; -moz-background-inline-policy: continuous; -moz-background-origin: padding; background: white none repeat scroll 0% 0%; border-style: none solid solid none; font-family: trebuchet ms; height: 16.8pt; padding: 0in 5.4pt; width: 53.5pt;" valign="top" width="71"><div align="center" class="MsoNormal" style="text-align: center;"><span style="color: black; font-size: 85%;">16-Sep-08<o:p></o:p></span></div></td> <td style="-moz-background-clip: border; -moz-background-inline-policy: continuous; -moz-background-origin: padding; background: white none repeat scroll 0% 0%; border-style: none solid solid none; font-family: trebuchet ms; height: 16.8pt; padding: 0in 5.4pt; width: 534.7pt;" valign="top" width="713"><div class="MsoNormal"><span style="color: black; font-size: 85%;">Treasury agrees to loan $85 billion to A.I.G.; takes control<o:p></o:p></span></div></td> </tr>
<tr style="height: 16.8pt;"> <td style="-moz-background-clip: border; -moz-background-inline-policy: continuous; -moz-background-origin: padding; background: white none repeat scroll 0% 0%; border-style: none solid solid; font-family: trebuchet ms; height: 16.8pt; padding: 0in 5.4pt; width: 44.9pt;" valign="top" width="60"><div align="center" class="MsoNormal" style="text-align: center;"><span style="color: black; font-size: 85%;">Wed.<o:p></o:p></span></div></td> <td style="-moz-background-clip: border; -moz-background-inline-policy: continuous; -moz-background-origin: padding; background: white none repeat scroll 0% 0%; border-style: none solid solid none; font-family: trebuchet ms; height: 16.8pt; padding: 0in 5.4pt; width: 53.5pt;" valign="top" width="71"><div align="center" class="MsoNormal" style="text-align: center;"><span style="color: black; font-size: 85%;">17-Sep-08<o:p></o:p></span></div></td> <td style="-moz-background-clip: border; -moz-background-inline-policy: continuous; -moz-background-origin: padding; background: white none repeat scroll 0% 0%; border-style: none solid solid none; font-family: trebuchet ms; height: 16.8pt; padding: 0in 5.4pt; width: 534.7pt;" valign="top" width="713"><div class="MsoNormal"><span style="color: black; font-size: 85%;">Treasury/Fed worry about runs on money markets and investment banks<o:p></o:p></span></div></td> </tr>
<tr style="height: 16.8pt;"> <td style="-moz-background-clip: border; -moz-background-inline-policy: continuous; -moz-background-origin: padding; background: white none repeat scroll 0% 0%; border-style: none solid solid; font-family: trebuchet ms; height: 16.8pt; padding: 0in 5.4pt; width: 44.9pt;" valign="top" width="60"><div align="center" class="MsoNormal" style="text-align: center;"><span style="color: black; font-size: 85%;">Thurs.<o:p></o:p></span></div></td> <td style="-moz-background-clip: border; -moz-background-inline-policy: continuous; -moz-background-origin: padding; background: white none repeat scroll 0% 0%; border-style: none solid solid none; font-family: trebuchet ms; height: 16.8pt; padding: 0in 5.4pt; width: 53.5pt;" valign="top" width="71"><div align="center" class="MsoNormal" style="text-align: center;"><span style="color: black; font-size: 85%;">18-Sep-08<o:p></o:p></span></div></td> <td style="-moz-background-clip: border; -moz-background-inline-policy: continuous; -moz-background-origin: padding; background: white none repeat scroll 0% 0%; border-style: none solid solid none; font-family: trebuchet ms; height: 16.8pt; padding: 0in 5.4pt; width: 534.7pt;" valign="top" width="713"><div class="MsoNormal"><span style="color: black; font-size: 85%;">Paulson and Bernanke <a href="http://www.nytimes.com/2008/10/02/business/02crisis.html">present 3-page plan</a> to Congressional leaders<o:p></o:p></span></div></td> </tr>
<tr style="height: 16.8pt;"> <td style="-moz-background-clip: border; -moz-background-inline-policy: continuous; -moz-background-origin: padding; background: white none repeat scroll 0% 0%; border-style: none solid solid; font-family: trebuchet ms; height: 16.8pt; padding: 0in 5.4pt; width: 44.9pt;" valign="top" width="60"><div align="center" class="MsoNormal" style="text-align: center;"><span style="color: black; font-size: 85%;">Sun.<o:p></o:p></span></div></td> <td style="-moz-background-clip: border; -moz-background-inline-policy: continuous; -moz-background-origin: padding; background: white none repeat scroll 0% 0%; border-style: none solid solid none; font-family: trebuchet ms; height: 16.8pt; padding: 0in 5.4pt; width: 53.5pt;" valign="top" width="71"><div align="center" class="MsoNormal" style="text-align: center;"><span style="color: black; font-size: 85%;">21-Sep-08<o:p></o:p></span></div></td> <td style="-moz-background-clip: border; -moz-background-inline-policy: continuous; -moz-background-origin: padding; background: white none repeat scroll 0% 0%; border-style: none solid solid none; font-family: trebuchet ms; height: 16.8pt; padding: 0in 5.4pt; width: 534.7pt;" valign="top" width="713"><div class="MsoNormal"><span style="color: black; font-size: 85%;">Morgan Stanley and Goldman Sachs become regulated bank holding companies, ending era of Investment Banking<o:p></o:p></span></div></td> </tr>
<tr style="height: 16.8pt;"> <td style="-moz-background-clip: border; -moz-background-inline-policy: continuous; -moz-background-origin: padding; background: white none repeat scroll 0% 0%; border-style: none solid solid; font-family: trebuchet ms; height: 16.8pt; padding: 0in 5.4pt; width: 44.9pt;" valign="top" width="60"><div align="center" class="MsoNormal" style="text-align: center;"><span style="color: black; font-size: 85%;">Wed.<o:p></o:p></span></div></td> <td style="-moz-background-clip: border; -moz-background-inline-policy: continuous; -moz-background-origin: padding; background: white none repeat scroll 0% 0%; border-style: none solid solid none; font-family: trebuchet ms; height: 16.8pt; padding: 0in 5.4pt; width: 53.5pt;" valign="top" width="71"><div align="center" class="MsoNormal" style="text-align: center;"><span style="color: black; font-size: 85%;">24-Sep-08<o:p></o:p></span></div></td> <td style="-moz-background-clip: border; -moz-background-inline-policy: continuous; -moz-background-origin: padding; background: white none repeat scroll 0% 0%; border-style: none solid solid none; font-family: trebuchet ms; height: 16.8pt; padding: 0in 5.4pt; width: 534.7pt;" valign="top" width="713"><div class="MsoNormal"><span style="color: black; font-size: 85%;">Economists submit <a href="http://faculty.chicagobooth.edu/john.cochrane/research/Papers/mortgage_protest.htm">letter in opposition</a> to the original Paulson Plan, claiming it is unfair, ambiguous and short-sighted<o:p></o:p></span></div></td> </tr>
<tr style="height: 16.8pt;"> <td style="-moz-background-clip: border; -moz-background-inline-policy: continuous; -moz-background-origin: padding; background: white none repeat scroll 0% 0%; border-style: none solid solid; font-family: trebuchet ms; height: 16.8pt; padding: 0in 5.4pt; width: 44.9pt;" valign="top" width="60"><div align="center" class="MsoNormal" style="text-align: center;"><span style="color: black; font-size: 85%;">Thurs.<o:p></o:p></span></div></td> <td style="-moz-background-clip: border; -moz-background-inline-policy: continuous; -moz-background-origin: padding; background: white none repeat scroll 0% 0%; border-style: none solid solid none; font-family: trebuchet ms; height: 16.8pt; padding: 0in 5.4pt; width: 53.5pt;" valign="top" width="71"><div align="center" class="MsoNormal" style="text-align: center;"><span style="color: black; font-size: 85%;">25-Sep-08<o:p></o:p></span></div></td> <td style="-moz-background-clip: border; -moz-background-inline-policy: continuous; -moz-background-origin: padding; background: white none repeat scroll 0% 0%; border-style: none solid solid none; font-family: trebuchet ms; height: 16.8pt; padding: 0in 5.4pt; width: 534.7pt;" valign="top" width="713"><div class="MsoNormal"><span style="color: black; font-size: 85%;">Regulators seize Washington Mutual Saving and Loan and arrange sale to JP Morgan Chase<o:p></o:p></span></div></td> </tr>
<tr style="height: 16.8pt;"> <td style="-moz-background-clip: border; -moz-background-inline-policy: continuous; -moz-background-origin: padding; background: white none repeat scroll 0% 0%; border-style: none solid solid; font-family: trebuchet ms; height: 16.8pt; padding: 0in 5.4pt; width: 44.9pt;" valign="top" width="60"><div align="center" class="MsoNormal" style="text-align: center;"><span style="color: black; font-size: 85%;">Sun.<o:p></o:p></span></div></td> <td style="-moz-background-clip: border; -moz-background-inline-policy: continuous; -moz-background-origin: padding; background: white none repeat scroll 0% 0%; border-style: none solid solid none; font-family: trebuchet ms; height: 16.8pt; padding: 0in 5.4pt; width: 53.5pt;" valign="top" width="71"><div align="center" class="MsoNormal" style="text-align: center;"><span style="color: black; font-size: 85%;">28-Sep-08<o:p></o:p></span></div></td> <td style="-moz-background-clip: border; -moz-background-inline-policy: continuous; -moz-background-origin: padding; background: white none repeat scroll 0% 0%; border-style: none solid solid none; font-family: trebuchet ms; height: 16.8pt; padding: 0in 5.4pt; width: 534.7pt;" valign="top" width="713"><div class="MsoNormal"><span style="color: black; font-size: 85%;">First draft of Emergency Economic Stabilization Act of 2008 (HR 3997)<o:p></o:p></span></div></td> </tr>
<tr style="height: 16.8pt;"> <td style="-moz-background-clip: border; -moz-background-inline-policy: continuous; -moz-background-origin: padding; background: white none repeat scroll 0% 0%; border-style: none solid solid; font-family: trebuchet ms; height: 16.8pt; padding: 0in 5.4pt; width: 44.9pt;" valign="top" width="60"><div align="center" class="MsoNormal" style="text-align: center;"><span style="color: black; font-size: 85%;">Mon.<o:p></o:p></span></div></td> <td style="-moz-background-clip: border; -moz-background-inline-policy: continuous; -moz-background-origin: padding; background: white none repeat scroll 0% 0%; border-style: none solid solid none; font-family: trebuchet ms; height: 16.8pt; padding: 0in 5.4pt; width: 53.5pt;" valign="top" width="71"><div align="center" class="MsoNormal" style="text-align: center;"><span style="color: black; font-size: 85%;">29-Sep-08<o:p></o:p></span></div></td> <td style="-moz-background-clip: border; -moz-background-inline-policy: continuous; -moz-background-origin: padding; background: white none repeat scroll 0% 0%; border-style: none solid solid none; font-family: trebuchet ms; height: 16.8pt; padding: 0in 5.4pt; width: 534.7pt;" valign="top" width="713"><div class="MsoNormal"><span style="color: black; font-size: 85%;">HR 3997 fails to pass the U.S. House<o:p></o:p></span></div></td> </tr>
<tr style="height: 16.8pt;"> <td style="-moz-background-clip: border; -moz-background-inline-policy: continuous; -moz-background-origin: padding; background: white none repeat scroll 0% 0%; border-style: none solid solid; font-family: trebuchet ms; height: 16.8pt; padding: 0in 5.4pt; width: 44.9pt;" valign="top" width="60"><div align="center" class="MsoNormal" style="text-align: center;"><span style="color: black; font-size: 85%;">Wed.<o:p></o:p></span></div></td> <td style="-moz-background-clip: border; -moz-background-inline-policy: continuous; -moz-background-origin: padding; background: white none repeat scroll 0% 0%; border-style: none solid solid none; font-family: trebuchet ms; height: 16.8pt; padding: 0in 5.4pt; width: 53.5pt;" valign="top" width="71"><div align="center" class="MsoNormal" style="text-align: center;"><span style="color: black; font-size: 85%;">1-Oct-08<o:p></o:p></span></div></td> <td style="-moz-background-clip: border; -moz-background-inline-policy: continuous; -moz-background-origin: padding; background: white none repeat scroll 0% 0%; border-style: none solid solid none; font-family: trebuchet ms; height: 16.8pt; padding: 0in 5.4pt; width: 534.7pt;" valign="top" width="713"><div class="MsoNormal"><span style="color: black; font-size: 85%;">Senate passes <a href="http://management-consultant-at-large.googlegroups.com/web/hr1424Dodd.pdf?gda=txQKqkAAAAB1iikhPwrMaGtUQl2cT77vvBEO5C86oRZi0o6tmu5J4A7GdXbR4XadjXE3rLkRe5ptxVPdW1gYotyj7-X7wDON">HR 1424</a>, a modified version of the bill<o:p></o:p></span></div></td> </tr>
<tr style="height: 16.8pt;"> <td style="-moz-background-clip: border; -moz-background-inline-policy: continuous; -moz-background-origin: padding; background: white none repeat scroll 0% 0%; border-style: none solid solid; font-family: trebuchet ms; height: 16.8pt; padding: 0in 5.4pt; width: 44.9pt;" valign="top" width="60"><div align="center" class="MsoNormal" style="text-align: center;"><span style="color: black; font-size: 85%;">Fri.<o:p></o:p></span></div></td> <td style="-moz-background-clip: border; -moz-background-inline-policy: continuous; -moz-background-origin: padding; background: white none repeat scroll 0% 0%; border-style: none solid solid none; font-family: trebuchet ms; height: 16.8pt; padding: 0in 5.4pt; width: 53.5pt;" valign="top" width="71"><div align="center" class="MsoNormal" style="text-align: center;"><span style="color: black; font-size: 85%;">3-Oct-08<o:p></o:p></span></div></td> <td style="-moz-background-clip: border; -moz-background-inline-policy: continuous; -moz-background-origin: padding; background: white none repeat scroll 0% 0%; border-style: none solid solid none; font-family: trebuchet ms; height: 16.8pt; padding: 0in 5.4pt; width: 534.7pt;" valign="top" width="713"><div class="MsoNormal"><span style="color: black; font-size: 85%;">Congress passes HR 1424 and President G.W. Bush signs it into law<o:p></o:p></span></div></td> </tr>
<tr style="height: 16.8pt;"> <td colspan="2" style="-moz-background-clip: border; -moz-background-inline-policy: continuous; -moz-background-origin: padding; background: white none repeat scroll 0% 0%; border-style: none solid solid; font-family: trebuchet ms; height: 16.8pt; padding: 0in 5.4pt; width: 44.9pt;" valign="top" width="60"><div align="center" class="MsoNormal" style="text-align: center;"><span style="color: black; font-size: 85%;">Week ending 10/10<o:p></o:p></span></div></td> <td style="-moz-background-clip: border; -moz-background-inline-policy: continuous; -moz-background-origin: padding; background: white none repeat scroll 0% 0%; border-style: none solid solid none; font-family: trebuchet ms; height: 16.8pt; padding: 0in 5.4pt; width: 534.7pt;" valign="top" width="713"><div class="MsoNormal"><span style="color: black; font-size: 85%;">Dow Jones loses 18% of value in one week. <st1:country-region st="on"><st1:place st="on">Iceland</st1:place></st1:country-region> seizes its banks. <st1:country-region st="on"><st1:place st="on">Britain</st1:place></st1:country-region> proposes direct investment in banks<o:p></o:p></span></div></td> </tr>
<tr style="height: 16.8pt;"> <td style="-moz-background-clip: border; -moz-background-inline-policy: continuous; -moz-background-origin: padding; background: white none repeat scroll 0% 0%; border-style: none solid solid; font-family: trebuchet ms; height: 16.8pt; padding: 0in 5.4pt; width: 44.9pt;" valign="top" width="60"><div align="center" class="MsoNormal" style="text-align: center;"><span style="color: black; font-size: 85%;">Sat.<o:p></o:p></span></div></td> <td style="-moz-background-clip: border; -moz-background-inline-policy: continuous; -moz-background-origin: padding; background: white none repeat scroll 0% 0%; border-style: none solid solid none; font-family: trebuchet ms; height: 16.8pt; padding: 0in 5.4pt; width: 53.5pt;" valign="top" width="71"><div align="center" class="MsoNormal" style="text-align: center;"><span style="color: black; font-size: 85%;">11-Oct-08<o:p></o:p></span></div></td> <td style="-moz-background-clip: border; -moz-background-inline-policy: continuous; -moz-background-origin: padding; background: white none repeat scroll 0% 0%; border-style: none solid solid none; font-family: trebuchet ms; height: 16.8pt; padding: 0in 5.4pt; width: 534.7pt;" valign="top" width="713"><div class="MsoNormal"><span style="color: black; font-size: 85%;">G7 finance ministers, then Group of 20 meet at White House to coordinate policy<o:p></o:p></span></div></td> </tr>
<tr style="height: 16.8pt;"> <td style="-moz-background-clip: border; -moz-background-inline-policy: continuous; -moz-background-origin: padding; background: white none repeat scroll 0% 0%; border-style: none solid solid; font-family: trebuchet ms; height: 16.8pt; padding: 0in 5.4pt; width: 44.9pt;" valign="top" width="60"><div align="center" class="MsoNormal" style="text-align: center;"><span style="color: black; font-size: 85%;">Mon.<o:p></o:p></span></div></td> <td style="-moz-background-clip: border; -moz-background-inline-policy: continuous; -moz-background-origin: padding; background: white none repeat scroll 0% 0%; border-style: none solid solid none; font-family: trebuchet ms; height: 16.8pt; padding: 0in 5.4pt; width: 53.5pt;" valign="top" width="71"><div align="center" class="MsoNormal" style="text-align: center;"><span style="color: black; font-size: 85%;">13-Oct-08<o:p></o:p></span></div></td> <td style="-moz-background-clip: border; -moz-background-inline-policy: continuous; -moz-background-origin: padding; background: white none repeat scroll 0% 0%; border-style: none solid solid none; font-family: trebuchet ms; height: 16.8pt; padding: 0in 5.4pt; width: 534.7pt;" valign="top" width="713"><div class="MsoNormal"><span style="color: black; font-size: 85%;">Paulson and Bernanke <a href="http://www.nytimes.com/2008/10/15/business/economy/15bailout.html">meet with leaders</a> of 9 largest banks. Get agreement on direct infusion of cash<o:p></o:p></span></div></td> </tr>
<tr style="height: 44.65pt;"> <td style="-moz-background-clip: border; -moz-background-inline-policy: continuous; -moz-background-origin: padding; background: white none repeat scroll 0% 0%; border-style: none solid solid; font-family: trebuchet ms; height: 44.65pt; padding: 0in 5.4pt; width: 44.9pt;" valign="top" width="60"><div align="center" class="MsoNormal" style="text-align: center;"><span style="color: black; font-size: 85%;">Mon.<o:p></o:p></span></div></td> <td style="-moz-background-clip: border; -moz-background-inline-policy: continuous; -moz-background-origin: padding; background: white none repeat scroll 0% 0%; border-style: none solid solid none; font-family: trebuchet ms; height: 44.65pt; padding: 0in 5.4pt; width: 53.5pt;" valign="top" width="71"><div align="center" class="MsoNormal" style="text-align: center;"><span style="color: black; font-size: 85%;">10-Nov-08<o:p></o:p></span></div></td> <td style="-moz-background-clip: border; -moz-background-inline-policy: continuous; -moz-background-origin: padding; background: white none repeat scroll 0% 0%; border-style: none solid solid none; font-family: trebuchet ms; height: 44.65pt; padding: 0in 5.4pt; width: 534.7pt;" valign="top" width="713"><div class="MsoNormal"><span style="color: black; font-size: 85%;">AIG bailout restructured to include $60 billion loan from US Federal Reserve, $40 billion in securities purchased by US Treasury, and credit lines of up to $30 billion backed by Credit Default Swaps and $22.5 billion against mortgage-backed securities<br />
</span></div><div class="MsoNormal"><br />
</div></td> </tr>
</tbody></table><div class="MsoNormal"><o:p> </o:p></div><br />
<br />
<span style="font-family: trebuchet ms;"><span style="font-family: trebuchet ms;"><span style="font-family: trebuchet ms;"><span style="font-family: trebuchet ms;"><span style="font-size: 85%;">A collection of posts about the US Economy is maintained <a href="http://jpfarrell.blogspot.com/2008/09/us-economy-and-bailout.html" linkindex="349" target="_blank"><span style="text-decoration: underline;" target="_blank">here</span></a>.<br />
<br />
</span></span><span style="font-family: trebuchet ms;"><span style="font-size: 85%;">To learn more about our work in consulting, please </span></span></span></span></span><span style="font-family: trebuchet ms;"><span style="font-size: 85%;">see our <a href="http://jpfarrell.blogspot.com/2008/08/profile-of-jp-farrell.html" target="_blank">Profile</a>, or read some of</span></span><span style="font-family: trebuchet ms;"><span style="font-family: trebuchet ms;"><span style="font-family: trebuchet ms;"><span style="font-family: trebuchet ms;"><span style="font-size: 85%;"> our <a href="http://jpfarrell.blogspot.com/2008/08/case-studies.html" linkindex="376" set="yes" target="_blank">Case Studies</a>.<br />
<br />
<a href="https://docs.google.com/open?id=0B0cX8Ug8KUneOWFjNzA0NTgtZWYzMi00OTQ2LThhNjktYzYxZDk5MDNmM2Fh">Contact</a> JP Farrell & Associates, Inc.<br />
<br />
</span></span></span></span></span><div class="blogger-post-footer">©2009 by JP Farrell & Associates, Inc. All rights reserved.</div>James P. Farrellhttp://www.blogger.com/profile/04396068595090164836noreply@blogger.comtag:blogger.com,1999:blog-508478158982864469.post-25618569442011472962009-08-03T08:14:00.023-05:002009-12-22T09:29:32.340-06:00Health Care Reform Takes Shape<a onblur="try {parent.deselectBloggerImageGracefully();} catch(e) {}" href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEhQIEnCCY9kzM7YJ_HdRBMcb1rBMGOol-bU3Lgl6uAa_QQDsL4mq0V90DoTeOfnLBddpKaqCYuqpzG9_yxvRyQBhakPkpy4Vyqp4pSab_AZv6LMbxbUKLW_F2NFhLII4WsX5jTB0lZHKQgm/s1600-h/piper.jpg"><img style="margin: 0pt 10px 10px 0pt; float: left; cursor: pointer; width: 134px; height: 200px;" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEhQIEnCCY9kzM7YJ_HdRBMcb1rBMGOol-bU3Lgl6uAa_QQDsL4mq0V90DoTeOfnLBddpKaqCYuqpzG9_yxvRyQBhakPkpy4Vyqp4pSab_AZv6LMbxbUKLW_F2NFhLII4WsX5jTB0lZHKQgm/s200/piper.jpg" alt="" id="BLOGGER_PHOTO_ID_5365781241915185362" border="0" /></a><span style="font-style: italic;font-family:trebuchet ms;" ><span style="font-size:78%;">image from http://www.PiperReport.com</span></span><br /><br /><br /><span style="font-family:trebuchet ms;">With the final markups of the Affordable Health Choices Act now clearing committees in the U.S. House of Representatives, the potential scope of the legislation is becoming clear. And, while the <a href="http://www.ama-assn.org/ama/pub/news/news/ama-supports-hr-3200.shtml" target="_blank">American Medical Association is on board</a> with H.R. 3200, the House version of the bill, the insurance industry is coming out swinging.<br /><br />Doctors have to appreciate several aspects of the bill. First, the bill would extend insurance coverage to tens of millions of Americans who currently are denied coverage by insurance companies or who simply can not afford it. (See <a href="http://jpfarrell.blogspot.com/2009/06/explanation-of-health-care-bill.html" target="_blank">An Explanation of the Health Care Bill</a>.) Second, the bill enhances the role of the primary care physician in determining the effective course of treatment and offers economic incentives for doctors and medical students to take on this role. The bill also addresses flaws in the Medicare reimbursement mechanism and includes measures to promote wellness and disease prevention.<br /><br />Insurance companies seem most concerned about the introduction of a government-operated insurance plan, which they view as unfair competition. Health care economists argue that a government plan is required in order to:<br /></span><ul><li><span style="font-family:trebuchet ms;">Ensure access to affordable care</span></li><li><span style="font-family:trebuchet ms;">Provide market leadership in setting standards and negotiating prices for medical services, which currently vary widely by market</span></li><li><span style="font-family:trebuchet ms;">Develop (and share) processes and information systems for accurately assessing and paying claims<br /></span></li></ul><span style="font-family:trebuchet ms;">The legislative history of the bill, a work in process, demonstrates considerable cooperation between and within the Congressional chambers. The Senate had split the bill into two components. Sections of the bill relating to <a href="http://jpfarrell.blogspot.com/2009/06/explanation-of-health-care-bill.html" target="_blank">reform of insurance</a> and other mechanisms for funding health care were drafted by the Senate Committee on Health, Education, Labor and Pensions (H.E.L.P.). That Committee completed its work on the bill on July 15, 2009 and submitted it to the full Senate for consideration after the August recess. The Senate Finance Committee, which took responsibility for drafting legislation governing the cost of health care, has not completed its work.<br /><br />In the meantime, the U.S. House divided its work among three committees, all of which have completed markup of <a href="http://energycommerce.house.gov/index.php?option=com_content&view=article&id=1722:hr-3200-americas-affordable-health-choices-act-of-2009-markup-day-5&catid=141:full-committee&Itemid=85" target="_blank">H.R. 3200</a>. That version of the bill closely mirrors provisions of the bill passed by the Senate H.E.L.P. Committee, but also covers areas still under debate in the Senate Finance Committee. Having effectively taken the lead in the legislation, the House of Representatives is expected to pass H.R. 3200 following the August recess, perhaps with amendments taken from the floor of the House, and submit it to the Senate. At that point the Senate may choose to accept it as it stands (which is unlikely) or continue work on its own version of the legislation. If the Senate passes a bill that differs from H.R. 3200, the House and Senate leadership would then create a Conference Committee made up of representatives from each chamber to negotiate a bill that would be acceptable to both the Senate and the House of Representatives.<br /><br />Important provisions of H.R.3200 that have not been cleared by a Senate Committee would empower the government plan to aggressively negotiate prices, delivery methods and standards of service with providers. The debate about the government's role in determining what kind of care is most efficient and effective is bound to be most contentious.<br /><br />Expecting a fight in the Senate, the Administration has already begun to telegraph its fallback position by referring to the bill as "insurance reform." In other words, having gotten similar insurance reform provisions through committees in both the Senate and the House, the Administration is confident that at least those aspects of the bill will become law. And, while they would like to adopt stronger measures to accelerate cost containment, those more controversial measures could be sacrificed in the interests of getting insurance industry restructuring underway.<br /><br />Businesses large and small should be prepared to reevaluate their health care policies, providers and pension plans in light of this new legislation. Economic effects are likely to be profound.<br /><br /></span><span style="font-family:trebuchet ms;"><span style="font-size:85%;">The American College of Physicians has published three white papers: <a href="http://www.acponline.org/advocacy/where_we_stand/policy/health_reform_public.pdf">A Public Plan Option in a Health Insurance Connector</a>; <a href="http://www.acponline.org/advocacy/where_we_stand/policy/health_reform_tax_ex.pdf">Reforming the Tax Insurance Exclusion</a>; and <a href="http://www.acponline.org/advocacy/where_we_stand/policy/health_reform_individual.pdf">Individual Mandates in Health Insurance Reform</a>.<br /><br /></span></span><span style="font-family:trebuchet ms;"><span style="font-family:trebuchet ms;"><span style="font-family:trebuchet ms;"><span style="font-family:trebuchet ms;"><span style="font-size:85%;">A collection of posts about the US Economy is maintained <a linkindex="349" href="http://jpfarrell.blogspot.com/2008/09/us-economy-and-bailout.html" target="_blank"><span style="text-decoration: underline;" target="_blank">here</span></a>.<br /><br /></span></span></span></span></span><span style="font-family:trebuchet ms;"><span style="font-family:trebuchet ms;"><span style="font-family:trebuchet ms;"><span style="font-family:trebuchet ms;"><span style="font-size:85%;">To learn more about our work in consulting, please </span></span></span></span></span><span style="font-family:trebuchet ms;"><span style="font-size:85%;">see our <a href="http://jpfarrell.blogspot.com/2008/08/profile-of-jp-farrell.html" target="_blank">Profile</a>, </span></span><span style="font-family:trebuchet ms;"><span style="font-family:trebuchet ms;"><span style="font-family:trebuchet ms;"><span style="font-family:trebuchet ms;"><span style="font-size:85%;">download a <a linkindex="350" href="http://tinyurl.com/y92lpqc" target="_blank">brochure</a> about our Practice, or check out our <a set="yes" linkindex="376" href="http://jpfarrell.blogspot.com/2008/08/case-studies.html" target="_blank">Case Studies</a>.<br /><br /><a href="http://tinyurl.com/y9486w4">Contact</a> JP Farrell & Associates, Inc.</span></span></span></span></span><span style="font-family:trebuchet ms;"><span style="font-size:85%;"><br /><br /></span></span><div class="blogger-post-footer">©2009 by JP Farrell & Associates, Inc. All rights reserved.</div>James P. Farrellhttp://www.blogger.com/profile/04396068595090164836noreply@blogger.comtag:blogger.com,1999:blog-508478158982864469.post-74402739182462067022009-07-12T20:15:00.024-05:002011-11-15T14:39:17.316-06:00Architecting the Retail Enterprise<a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEgW5MXklgrfHFxdUWzyl8TE9F0EdZ6OmtmnEP0RLsD6tPWI7i_bG0h9bJaAL5XYJqG7tQziITnWU_bQ7-5gBH_wZkGzS_0VX-wolWzLc5zk8xGkj_dyfdRSEE5vZBLE5HFwhDSxOLxLf-8N/s1600-h/p_kieran.jpg"><img alt="" border="0" id="BLOGGER_PHOTO_ID_5357770211750332066" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEgW5MXklgrfHFxdUWzyl8TE9F0EdZ6OmtmnEP0RLsD6tPWI7i_bG0h9bJaAL5XYJqG7tQziITnWU_bQ7-5gBH_wZkGzS_0VX-wolWzLc5zk8xGkj_dyfdRSEE5vZBLE5HFwhDSxOLxLf-8N/s200/p_kieran.jpg" style="cursor: pointer; float: left; height: 200px; margin: 0pt 10px 10px 0pt; width: 133px;" /></a><br />
<a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEgbrNkTjWIRWdWig9Vg1RkCTrf86ZTFY_EeUhnd6a5yyW_vVxX8qbFeCjX2fkSaVxtPmVuRy80OpruRaJ80Bey_PBJ1G9CaW8eMGo1v1EUYFjmyvJqKb_vSJ548JOGCraQqGo_rhf1FgN_W/s1600-h/p_timberlake.jpg"><img alt="" border="0" id="BLOGGER_PHOTO_ID_5357770344122542562" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEgbrNkTjWIRWdWig9Vg1RkCTrf86ZTFY_EeUhnd6a5yyW_vVxX8qbFeCjX2fkSaVxtPmVuRy80OpruRaJ80Bey_PBJ1G9CaW8eMGo1v1EUYFjmyvJqKb_vSJ548JOGCraQqGo_rhf1FgN_W/s200/p_timberlake.jpg" style="cursor: pointer; float: left; height: 200px; margin: 0pt 10px 10px 0pt; width: 132px;" /></a><span style="font-style: italic;"><span style="font-size: 85%;"><span style="font-family: trebuchet ms;">Architects Stephen Kieran (left) and James Timberlake (right)<br />
<br />
<br />
</span></span></span><span style="font-family: trebuchet ms;">In their </span><span style="font-family: trebuchet ms;">path breaking work, <a href="http://www.amazon.com/Refabricating-Architecture-Manufacturing-Methodologies-Construction/dp/007143321X" target="_blank">Refabricating Architecture:</a> <span style="font-style: italic;">How Manufacturin</span></span><span style="font-family: trebuchet ms;"><span style="font-style: italic;">g Methodologies are Poised to Transform Building Construction</span>, Stephen Kieran a</span><span style="font-family: trebuchet ms;">nd James Timberlake argue that the architect of a complex structure must reassert the role of conceptual leader of designers, builders, product engineers and materials scientists. Too often, they argue, architects are relegated to the role of designer, as commercial builder/contractors have taken the lead in bringing cookie-cutter structures from design to completion. The cost of this abnegation of control to project engineers has been a failure to innovate and acceptance of a false choice between usefulness and artistry.<br />
<br />
Similarly, our <a href="http://jpfarrell.blogspot.com/2008/08/retail-lifecycle-management.html">Retail Lifecycle Management</a> model requires that the developer of the retail enterprise define and guide the physical design of store formats that connect the firm's commercial vision with its marketing message, operations capabilities and target customers. We see Store Development, the management of investment in retail structures across time and geography, as the purview of general management, an integrative function drawing as much on the disciplines of economics, organizational development and information management, supply chain strategy and contract law as on architecture, design and construction.<br />
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Since publishing our newsletter on Restaurant Lifecycle Management, we have tested these concepts with leaders in chain restaurant, architecture, software and design firms. Surprisingly few restaurant chains can answer a simple question: "Who is responsible for managing investments in restaurant design, construction and remodeling." Generally management admits to being frustrated by an inability to influence store design, while architects complain that management is unwilling to fund investment in the innovative technology that would help them become more integral to the business. Having long ago decided to leave design to the experts, management complains that its design process seems mismanaged.<br />
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Bridging this management chasm requires not an architectural solution, but an organizational one. Retailers are advised to establish store development organizations with full responsibility for managing their investments in store design, site development, construction, and equipment. Just as the Operations Group is responsible for managing store profit and loss, so should a Store Development Group control the substantial budgets for design, construction and remodeling. At the same time, retailers should go about reclaiming the intellectual properties tied up in their designs, CAD drawings and layouts that have been scattered among their many contractors, agencies and franchisees.<br />
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There are a couple of hopeful signs. One fast-growing restaurant chain where the store development function is managed by an attorney stipulates in its franchisee agreement that contractors of franchisees work from corporate prototype designs and then submit "as built" designs to corporate upon completion. At another equally fast-growing chain, a staff designer lists <u>Refabricating Architecture</u> on his on-line list of recommended reading.<br />
<br />
</span><span style="font-family: trebuchet ms;"><span style="font-size: 85%;">For related posts see <a href="http://jpfarrell.blogspot.com/2008/08/retail-lifecycle-management.html">Retail Lifecycle Management</a>. </span></span><span style="font-family: trebuchet ms;"><span style="font-size: 85%;"><br />
<br />
</span></span><span style="font-family: trebuchet ms;"><span style="font-family: trebuchet ms;"><span style="font-family: trebuchet ms;"><span style="font-family: trebuchet ms;"><span style="font-size: 85%;">To learn more about our work in consulting, please </span></span></span></span></span><span style="font-family: trebuchet ms;"><span style="font-size: 85%;">see our <a href="http://jpfarrell.blogspot.com/2008/08/profile-of-jp-farrell.html" target="_blank">Profile</a></span></span><span style="font-family: trebuchet ms;"><span style="font-family: trebuchet ms;"><span style="font-family: trebuchet ms;"><span style="font-family: trebuchet ms;"><span style="font-size: 85%;"> or read a few of our <a href="http://jpfarrell.blogspot.com/2008/08/case-studies.html" linkindex="376" set="yes" target="_blank">Case Studies</a>.<br />
<br />
<a href="https://docs.google.com/open?id=0B0cX8Ug8KUneOWFjNzA0NTgtZWYzMi00OTQ2LThhNjktYzYxZDk5MDNmM2Fh">Contact</a> JP Farrell & Associates, Inc.</span></span></span></span></span><span style="font-family: trebuchet ms;"><span style="font-size: 85%;"><br />
</span></span><span style="font-family: trebuchet ms;"><br />
</span><div class="blogger-post-footer">©2009 by JP Farrell & Associates, Inc. All rights reserved.</div>James P. Farrellhttp://www.blogger.com/profile/04396068595090164836noreply@blogger.comtag:blogger.com,1999:blog-508478158982864469.post-9079579145253959342009-07-08T13:00:00.007-05:002009-12-22T08:53:41.937-06:00An Explanation of the Health Care Bill<a onblur="try {parent.deselectBloggerImageGracefully();} catch(e) {}" href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEhLLgjQgdxpvnNErl3hNtbvV5GGDuOzswZiyN8B-mWNhpqjHbkcS-efdU2wJAMPjmqkTZpWT3axzNHRuQv2AFL1jxwNVVTNHnrWSZzHN6ls-9xxXAVvNQwvVng4Lhgc4_kTswYY5J5YF5n4/s1600-h/DoddEnzi.jpg"><img style="margin: 0pt 10px 10px 0pt; float: left; cursor: pointer; width: 200px; height: 133px;" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEhLLgjQgdxpvnNErl3hNtbvV5GGDuOzswZiyN8B-mWNhpqjHbkcS-efdU2wJAMPjmqkTZpWT3axzNHRuQv2AFL1jxwNVVTNHnrWSZzHN6ls-9xxXAVvNQwvVng4Lhgc4_kTswYY5J5YF5n4/s200/DoddEnzi.jpg" alt="" id="BLOGGER_PHOTO_ID_5356150278468441698" border="0" /></a><span style="font-family:trebuchet ms;"><span style="font-size:85%;"><span style="font-style: italic;">Senators Chris Dodd (D-CT, left) and Mike Enzi (R-WY, right)</span><br /></span><br />The system of U.S. Health Care is now so thoroughly inefficient and inadequate that virtually no serious participant in the debate argues that reform is unnecessary. Partisans disagree about the desirable extent of government involvement in the outcome, but all agree (though not always explicitly) that government involvement is necessary. After all, <a href="http://management-consultant-at-large.googlegroups.com/web/CBO+Letter+HealthReformAndFederalBudget_061609.pdf?gda=Zr1tN2gAAABbp6_XleibEBvsOGgrjUF0yG61hoT0g2Vti-4WkvYfawv19cPcyXOATr75Ham3335OkODIDJ7DvjXzr4_ERbqv8NxBkuCvZx4sGQb2PEuBOabDCaaNjyUsSSbkax1xal8aNWB3A2L4HCtTMEZPaE7O" target="_blank">according to the Congressional Budget Office</a>, government currently regulates the medical insurance, health care and pharmaceutical industries and funds some 60% of health care costs through the Medicare and Medicaid programs, other programs that insure veterans, government employees and retirees, tax subsidies for health care insurance, and subsidies for various health care initiatives.</span> <span style="font-family:trebuchet ms;"><br /><br />Many in the U.S. receive exceptional health care and few are denied emergency care, even if they are not able to pay for it. However, with U.S. collective expenditures on health care now amounting to <a href="http://www.medicalnewstoday.com/articles/98711.php" target="_blank">more than 16%</a> of Gross Domestic Product we should expect better performance, including:</span><br /><ul><li><span style="font-family:trebuchet ms;">More universally available access to services that promote health and prevent disease</span></li><li><span style="font-family:trebuchet ms;">More efficient allocation and selection of medical services</span> </li><li><span style="font-family:trebuchet ms;">Greatly reduced cost of administering and financing medical services</span> </li></ul><span style="font-family:trebuchet ms;"><br />Comprehensive health care reform must address three key areas:</span> <ul><li><span style="font-family:trebuchet ms;">How is care allocated and provided?</span></li><li><span style="font-family:trebuchet ms;">How and to what extent is health care subsidized?</span></li><li><span style="font-family:trebuchet ms;">How is insurance provided and regulated?</span></li></ul> <span style="font-family:trebuchet ms;">Title I of the bill now in committee in the U.S. Senate, the <a href="http://help.senate.gov/BAI09A84_xml.pdf" target="_blank">Affordable Health Choices Act</a> (Bill), provides one solution. Its major provisions would:</span> <ul><li><span style="font-family:trebuchet ms;">Forbid private insurers from denying coverage based on a patient’s medical history</span></li><li><span style="font-family:trebuchet ms;">Eliminate annual and lifetime limits on insurance coverage</span></li><li><span style="font-family:trebuchet ms;">Require employers with 25 or more employees to provide subsidized insurance to those employers (or face a tax penalty)<br /></span></li><li><span style="font-family:trebuchet ms;">Subsidize insurance to low-income individuals</span></li><li><span style="font-family:trebuchet ms;">Require individuals to obtain medical insurance (or pay a government penalty)</span></li><li><span style="font-family:trebuchet ms;">Establish state-level "Health Benefit Gateways" to assist individuals and employers in selecting appropriate insurance policies<br /></span></li><li><span style="font-family:trebuchet ms;">Establish a government-run health insurance organization to compete with private insurance companies</span></li><li><span style="font-family:trebuchet ms;">Establish a national voluntary insurance program for purchasing community living assistance services and support (by incorporation of the CLASS Act)<br /></span></li></ul> <span style="font-family:trebuchet ms;">As the Bill moves through the Health, Education, Labor and Pensions (HELP) Committee and onto the floor of the Senate, it is likely to be amended. Some will challenge the limits and taxes it imposes on employers and insurance companies and others will be disappointed by the way in which its various subsidies are distributed and funded. However, in its current form the Bill is estimated to e</span><span style="font-family:trebuchet ms;">xtend coverage to an additional 20 million uninsured Americans without fundamentally restructuring the insurance, pharmaceutical and health care provider industries.<br /><br />Nonetheless, the Bill would alter the functional nature and competitive environment of the medical insurance industry. State-run Gateways would be able to appoint either public or private "navigators" who would essentially act as insurance brokers. Also, by simultaneously eliminating discrimination against individuals with preexisting conditions, eliminating plan limits on annual and lifetime payouts, and limiting the degree to which insurance premiums can be based on age, the Bill is intended to redirect underwriters away from the task of evaluating the risk posed by applicants and toward the task of evaluating the costs and benefits of procedures. In combination these provisions would directly address a major, under-reported, and increasingly troublesome segment of the under-insured, that is middle-aged individuals who are privately employed or out of work and whose previous medical history includes any number of risk factors (however well managed). Among the list of risk factors are treatment for chronic disease, skeletal injury or disease, depression or other mental illness or disorder. Ironically and perversely, the current system penalizes those who have sought medical attention and are taking preventative measures, while favoring those who have avoided medical care. With unemployment growing and hitting middle-aged workers especially hard, the number of people unable to find affordable health insurance of any kind is expected to grow alarmingly unless today's underwriting policies and their underlying causes are corrected.<br /><br />Title I of the Bill is focused on extending access to health care to more Americans. As such it does little to address issues with the dominant fee-for-service nature of the U.S. health care system. The primary charge leveled against the fee-for-service approach is that it rewards providers for gaming the billing system, but not necessarily for getting efficient outcomes or encouraging wellness. By favoring certain treatments, specialties and procedures, this incentive system keeps various forms of government in the position of determining what kinds of care are administered. The incentives baked into the system encourage doctors to specialize and encourage specialists and health care facilities to recommend courses of treatment that play to their strengths, even when more efficient modes of care might be available elsewhere. An excellent treatment of the fee-for-service issue can be found in the <a href="http://management-consultant-at-large.googlegroups.com/web/CBO+Letter+HealthReformAndFederalBudget_061609.pdf?gda=Zr1tN2gAAABbp6_XleibEBvsOGgrjUF0yG61hoT0g2Vti-4WkvYfawv19cPcyXOATr75Ham3335OkODIDJ7DvjXzr4_ERbqv8NxBkuCvZx4sGQb2PEuBOabDCaaNjyUsSSbkax1xal8aNWB3A2L4HCtTMEZPaE7O" target="_blank">CBO's letter</a> to the Senate Budget Committee of 16-Jun-09.<br /><br /></span><span style="font-family:trebuchet ms;"><a href="http://www.nytimes.com/2009/07/06/opinion/06krugman.html" target="_blank">Paul Krugman</a> puts the public cost of Title I in the range of $1.0-$1.3 trillion over a 10-year period, including the cost of subsidizing insurance for the poor (a topic not addressed in the current form of the Bill).</span> <span style="font-family:trebuchet ms;">The President has floated at least two vehicles for funding the bill: (a) eliminating the subsidy paid to private Medicare insurers through the Medicare Advantage program; and (b) eliminating the deductibility of insurance premiums under the corporate income tax. At the same time, the Administration is bargaining with health care providers and pharmaceutical companies to hold down the cost of care.</span> <span style="font-family:trebuchet ms;"><br /><br />Those interested in learning more about this topic can find the Bill and the Congressional testimony that shaped it on the Senate website at <a href="http://help.senate.gov/" target="_blank">http://help.senate.gov/</a>. See especially the testimony before the Senate Committee on Health, Education, Labor and Pensions of Karen Pollitz, Research Professor, Georgetown University Health Policy Institute, and that of Janet Stokes Trautwein, Executive Vice President and CEO, National Association of Health Underwriters. A partial estimate of the cost of Title I to taxpayers (which excludes the cost of the subsidy to the poor) can be found on the Blog of the Congressional Budget Office at </span><a style="font-family: trebuchet ms;" href="http://cboblog.cbo.gov/?p=315" target="_blank">http://cboblog.cbo.gov/?p=315</a><span style="font-family:trebuchet ms;">.</span><br /><br /><span style="font-family:trebuchet ms;"><span style="font-size:85%;">See also <a href="http://jpfarrell.blogspot.com/2009/08/health-care-reform-takes-shape.html" target="_blank">Health Care Reform Takes Shape</a>.<br /><br /></span></span><span style="font-family:trebuchet ms;"><span style="font-family:trebuchet ms;"><span style="font-family:trebuchet ms;"><span style="font-family:trebuchet ms;"><span style="font-size:85%;">A collection of posts about the US Economy is maintained <a linkindex="349" href="http://jpfarrell.blogspot.com/2008/09/us-economy-and-bailout.html" target="_blank"><span style="text-decoration: underline;" target="_blank">here</span></a>.<br /><br /></span></span></span></span></span><span style="font-family:trebuchet ms;"><span style="font-family:trebuchet ms;"><span style="font-family:trebuchet ms;"><span style="font-family:trebuchet ms;"><span style="font-size:85%;">To learn more about our work in consulting, please </span></span></span></span></span><span style="font-family:trebuchet ms;"><span style="font-size:85%;">see our <a href="http://jpfarrell.blogspot.com/2008/08/profile-of-jp-farrell.html" target="_blank">Profile</a>, </span></span><span style="font-family:trebuchet ms;"><span style="font-family:trebuchet ms;"><span style="font-family:trebuchet ms;"><span style="font-family:trebuchet ms;"><span style="font-size:85%;">download a <a linkindex="350" href="http://tinyurl.com/y92lpqc" target="_blank">brochure</a> about our Practice, or check out our <a set="yes" linkindex="376" href="http://jpfarrell.blogspot.com/2008/08/case-studies.html" target="_blank">Case Studies</a>.<br /><br /><a href="http://tinyurl.com/y9486w4">Contact</a> JP Farrell & Associates, Inc.</span></span></span></span></span><span style="font-family:trebuchet ms;"><span style="font-size:85%;"><br /></span></span><span style="font-family:trebuchet ms;"><span style="font-family:trebuchet ms;"><span style="font-family:trebuchet ms;"><span style="font-family:trebuchet ms;"><span style="font-size:85%;"><br /></span></span></span></span></span><div class="blogger-post-footer">©2009 by JP Farrell & Associates, Inc. All rights reserved.</div>James P. Farrellhttp://www.blogger.com/profile/04396068595090164836noreply@blogger.comtag:blogger.com,1999:blog-508478158982864469.post-32132249160375280192009-06-22T19:08:00.005-05:002009-09-29T14:35:45.535-05:00Shotgun Economics: The Merrill Lynch Deal<span style="font-family:trebuchet ms;">The Frontline story on Bank of America's acquisition of Merrill Lynch was indeed a fascinating look behind the scenes at one of the more controversial government interventions into the banking system. You can view the program in its entirety below.<br /><br /></span><script type="text/javascript" src="http://www.pbs.org/wgbh/pages/frontline/js/pap/embed.js?frol02c29c2q9d7"></script><br /><span style="font-family:trebuchet ms;"><span style="font-family:trebuchet ms;"><span style="font-family:trebuchet ms;"><span style="font-family:trebuchet ms;"><span style="font-size:85%;"><br />A collection of posts about the US Economy is maintained <a linkindex="349" href="http://jpfarrell.blogspot.com/2008/09/us-economy-and-bailout.html" target="_blank"><span style="text-decoration: underline;" target="_blank">here</span></a>.<br /><br /></span></span></span></span></span><span style="font-size:85%;"><span style="font-family: trebuchet ms;"><span style="font-family: trebuchet ms;"><span style="font-family: trebuchet ms;"><span style="font-family: trebuchet ms;"><span style="font-size: 85%;">To learn more about our work in consulting, please </span></span></span></span></span><span style="font-family: trebuchet ms;"><span style="font-size: 85%;">see our <a href="http://jpfarrell.blogspot.com/2008/08/profile-of-jp-farrell.html" target="_blank">Profile</a>, </span></span><span style="font-family: trebuchet ms;"><span style="font-family: trebuchet ms;"><span style="font-family: trebuchet ms;"><span style="font-family: trebuchet ms;"><span style="font-size: 85%;">download a <a linkindex="350" href="http://tinyurl.com/y92lpqc" target="_blank">brochure</a> about our Practice, or check out our <a set="yes" linkindex="376" href="http://jpfarrell.blogspot.com/2008/08/case-studies.html" target="_blank">Case Studies</a>.<br /><br /><a href="http://tinyurl.com/y9486w4">Contact</a> JP Farrell & Associates, Inc.</span></span></span></span></span></span><span style="font-family: trebuchet ms;"><span style="font-size: 85%;"><span style="font-size:85%;"><br /></span><br /></span></span><div class="blogger-post-footer">©2009 by JP Farrell & Associates, Inc. All rights reserved.</div>James P. Farrellhttp://www.blogger.com/profile/04396068595090164836noreply@blogger.comtag:blogger.com,1999:blog-508478158982864469.post-63299197847086229212009-05-09T16:55:00.013-05:002009-09-29T17:37:17.416-05:00May I Have a Scone with my Coffee?<a onblur="try {parent.deselectBloggerImageGracefully();} catch(e) {}" href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEjwNNFR3FLxzKR1eEN6Vv_HQHbX_O0rlQ5AabnczZLiQlsLzkH7Uk8viZ1ArRcLiD2N4C1CHZUHjfKyU1lX-QPj2_SskbHWeplPDQ_9JRgixCe3pvaks_qDnInlkgystHEmfQ2A8C_RNwtE/s1600-h/PaneraPastry.jpg"><img style="margin: 0pt 10px 10px 0pt; float: left; cursor: pointer; width: 138px; height: 105px;" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEjwNNFR3FLxzKR1eEN6Vv_HQHbX_O0rlQ5AabnczZLiQlsLzkH7Uk8viZ1ArRcLiD2N4C1CHZUHjfKyU1lX-QPj2_SskbHWeplPDQ_9JRgixCe3pvaks_qDnInlkgystHEmfQ2A8C_RNwtE/s200/PaneraPastry.jpg" alt="" id="BLOGGER_PHOTO_ID_5333956151148191810" border="0" /></a><span style="font-style: italic;"><span style="font-size:85%;"><span style="font-family:trebuchet ms;">Fresh Pastry at Panera Bread</span></span></span><br /><br /><br /><span style="font-family:trebuchet ms;">How much information passes among how many people when a restaurant chain rolls out a new capability? If the chain is well organized and the change is not too great, such a campaign may well be handled through normal channels by a series of announcements and emails and follow up calls.<br /><br />Suppose, however, the change involves the roll out of a new store technology. For example, a coffee chain that has always brought ready-made muffins in through the back door may decide to bake muffins right in the store. Suddenly, a host of questions have to be answered:<br /><ul><li>Which of our stores are properly licensed to prepare food on premises? (Some coffee shops are not allowed to smear cream cheese on a bagel.)</li><li><span style="font-family:trebuchet ms;">Should the muffins be made from scratch or par-baked in advance and finished within hours of serving?</span></li><li><span style="font-family:trebuchet ms;">What equipment would be required to store and bake the muffins?</span></li><li><span style="font-family:trebuchet ms;">How should the restaurant be reconfigured to accommodate the new equipment?</span></li><li><span style="font-family:trebuchet ms;">Would new construction or wiring or HVAC capabilities be required?</span></li><li><span style="font-family:trebuchet ms;"><span style="font-family:trebuchet ms;">Would logistics systems need to be modified as the proportion of fresh and frozen product flowing into the restaurant changed?</span></span></li><li><span style="font-family:trebuchet ms;">How many stores could be retrofitted for the new capability within 3 months? Within 6 months? What would that cost?</span></li><li><span style="font-family:trebuchet ms;">How should the roll out be staged? How should it be announced?<br /></span></li></ul>It is the kind of daunting challenge that might cause one coffee chain to "stick to the knitting" and concentrate on the beverage trade, while another, equally aware of the costs, might seize the opportunity to take a strategic leap ahead of the competition.<br /><br />Of course, the chain with the best processes and systems for managing information about its stores' facilities, capabilities and capacities would find it easier to opt for change, while its competitors would be left to make excuses. And, over the not so very long run, the chains that decide to actively manage information about the lifecycle of their stores will eclipse the competition.<br /><br />Fresh pastry or fresh attitude?<br /><br /><br /></span><span style="font-family:trebuchet ms;"><span style="font-family:trebuchet ms;"><span style="font-size:85%;">See our newsletter on Restaurant Lifecycle Management <a href="http://tinyurl.com/r5mkzk">here</a>.<br /><br />See also </span><a href="http://jpfarrell.blogspot.com/2007/11/economist-on-mcdonalds.html"><span target="_blank" style="font-size:85%;">Brand, Menu and Store Design</span></a><span style="font-size:85%;"> and <a href="http://groups.google.com/group/management-consultant-at-large/web/hot-topic-chain-restaurant-development" target="_blank">Chain Restaurant Development</a>.<br /><br /></span></span></span><span style="font-size:85%;"><span style="font-family:trebuchet ms;"><span style="font-family:trebuchet ms;"><span style="font-family:trebuchet ms;"><span style="font-family:trebuchet ms;">To learn more about our work in consulting, please </span></span></span></span><span style="font-family:trebuchet ms;"><span style="font-size:85%;">see our <a href="http://jpfarrell.blogspot.com/2008/08/profile-of-jp-farrell.html" target="_blank">Profile</a>, </span></span><span style="font-family:trebuchet ms;"><span style="font-family:trebuchet ms;"><span style="font-family:trebuchet ms;"><span style="font-family:trebuchet ms;"><span style="font-size:85%;">download a <a linkindex="350" href="http://tinyurl.com/y92lpqc" target="_blank">brochure</a> about our Practice, or check out our <a set="yes" linkindex="376" href="http://jpfarrell.blogspot.com/2008/08/case-studies.html" target="_blank">Case Studies</a>.<br /><br /><a href="http://tinyurl.com/y9486w4">Contact</a> JP Farrell & Associates, Inc.</span></span></span></span></span><br /></span><div class="blogger-post-footer">©2009 by JP Farrell & Associates, Inc. All rights reserved.</div>James P. Farrellhttp://www.blogger.com/profile/04396068595090164836noreply@blogger.comtag:blogger.com,1999:blog-508478158982864469.post-37029243125733621672009-04-30T10:23:00.008-05:002009-09-29T17:32:34.349-05:00Prof. Courant on the Stimulus Package<a onblur="try {parent.deselectBloggerImageGracefully();} catch(e) {}" href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEh4EIwd5GIzwFB6za_qW33LjC6PBarS63lcSeD03GRUDB81BageXxffNK-G7fEj4fj1ePX7zc_iQFog4O2xeAwfugIK7q10HwquD6NFbyzxyCiGfqmHKH3hWPvQxo0Am0kY99v_9tgCaBFd/s1600-h/paul_courant.gif"><img style="margin: 0pt 10px 10px 0pt; float: left; cursor: pointer; width: 134px; height: 200px;" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEh4EIwd5GIzwFB6za_qW33LjC6PBarS63lcSeD03GRUDB81BageXxffNK-G7fEj4fj1ePX7zc_iQFog4O2xeAwfugIK7q10HwquD6NFbyzxyCiGfqmHKH3hWPvQxo0Am0kY99v_9tgCaBFd/s200/paul_courant.gif" alt="" id="BLOGGER_PHOTO_ID_5330509951775973250" border="0" /></a><span style="font-family:trebuchet ms;"><span style="font-style: italic;font-size:85%;" >Paul N. Courant, Economist<br /></span><br /><br />It was a pleasant surprise to find my erstwhile thesis adviser, Professor Paul Courant, blogging on matters related to economics, libraries and electronic publishing among other things (see <a href="http://paulcourant.net/">Au Courant</a>).<br /><br />HIs <a href="http://paulcourant.net/2009/02/07/the-stimulus-package-and-now-for-something-completely-different/">post</a> on the Stimulus Package, a masterpiece of clarity, begins:<br /></span><p></p><blockquote style="font-family: times new roman;"><p>Suppose that there were a major fire, and that in order to put out the fire you would need, say, a trillion gallons of water. Can you imagine a city council that would say, “oh no, we can only afford 734 billion gallons of water, so let’s leave out about a quarter of the neighborhoods. It’s the right thing to do because we won’t go into debt, and future residents will be better off for having had a quarter of the city burn down.”?</p> <p>Or, for a better analogy, suppose that your ship is sinking, through a hole that is 10 feet in diameter. How about saving on repair costs but inserting a plug that covers only 75 percent of the leak? Sound like a good plan? Not so much.</p> The reason that we need fiscal stiumus is that monetary policy is impotent to provide sufficient stimulus (not generally true, but true now, and essentially no one disagrees with this view).<br /></blockquote><br /><span style="font-family:trebuchet ms;"></span><br /><span style="font-family:trebuchet ms;"><span style="font-family:trebuchet ms;"><span style="font-family:trebuchet ms;"><span style="font-family:trebuchet ms;"><span style="font-size:85%;">A collection of posts about the US Economy is maintained <a linkindex="349" href="http://jpfarrell.blogspot.com/2008/09/us-economy-and-bailout.html" target="_blank"><span style="text-decoration: underline;" target="_blank">here</span></a>.<br /></span></span></span></span></span><span style="font-size:85%;"><span style="font-family:trebuchet ms;"><span style="font-family:trebuchet ms;"><span style="font-family:trebuchet ms;"><span style="font-family:trebuchet ms;"><br />To learn more about our work in consulting, please </span></span></span></span><span style="font-family:trebuchet ms;"><span style="font-size:85%;">see our <a href="http://jpfarrell.blogspot.com/2008/08/profile-of-jp-farrell.html" target="_blank">Profile</a>, </span></span><span style="font-family:trebuchet ms;"><span style="font-family:trebuchet ms;"><span style="font-family:trebuchet ms;"><span style="font-family:trebuchet ms;"><span style="font-size:85%;">download a <a linkindex="350" href="http://tinyurl.com/y92lpqc" target="_blank">brochure</a> about our Practice, or check out our <a set="yes" linkindex="376" href="http://jpfarrell.blogspot.com/2008/08/case-studies.html" target="_blank">Case Studies</a>.<br /><br /><a href="http://tinyurl.com/y9486w4">Contact</a> JP Farrell & Associates, Inc.</span></span></span></span></span><br /></span><span style="font-family:trebuchet ms;"><span style="font-family:trebuchet ms;"><span style="font-family:trebuchet ms;"><span style="font-family:trebuchet ms;"><span style="font-size:85%;"><br /></span></span></span></span></span><div class="blogger-post-footer">©2009 by JP Farrell & Associates, Inc. All rights reserved.</div>James P. Farrellhttp://www.blogger.com/profile/04396068595090164836noreply@blogger.comtag:blogger.com,1999:blog-508478158982864469.post-75604530242530945292009-04-08T07:44:00.015-05:002011-11-15T14:45:25.237-06:00Innovation Thrust Upon Us<a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEiLhKVzdirQc_s_7MTgoZQogA-VCyDEKDkLoR7sGkQgxryNM4uDq2Ce9LT5kjkApxu8bMtzXMECEp-l2dK1oiGbX3Z9ZvpjhX-kEw3J9BH81rWEeiWOUFKylvrgzxMR8XiY5PV_70SgPruE/s1600-h/Robertson.jpg"><img alt="" border="0" id="BLOGGER_PHOTO_ID_5322328762365973330" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEiLhKVzdirQc_s_7MTgoZQogA-VCyDEKDkLoR7sGkQgxryNM4uDq2Ce9LT5kjkApxu8bMtzXMECEp-l2dK1oiGbX3Z9ZvpjhX-kEw3J9BH81rWEeiWOUFKylvrgzxMR8XiY5PV_70SgPruE/s200/Robertson.jpg" style="cursor: pointer; float: left; height: 93px; margin: 0pt 10px 10px 0pt; width: 233px;" /></a><span style="font-family: trebuchet ms;"><span style="font-size: 85%;"><span style="font-style: italic;">Maestro David Robertson on kazoo</span></span><span style="font-size: 78%;"><span style="font-style: italic;"> - <span style="color: #000099;">Photos by Konrad Fiedler for The New York Times</span></span><br />
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<span style="font-family: trebuchet ms;">Sometimes innovation, like greatness, is thrust upon us. As last Friday's rains washed over LaGuardia, the St. Louis Symphony Orchestra kept time through a series of ground delays at Detroit Metro. Months of preparation had gone into the annual trip to Carnegie Hall and hours of flight delays were threatening that evening's off-beat program, which was to pair Mozart's "A Musical Joke" with H K Gruber's "Frankenstein!!", with Gruber himself singing the lead. In Chicago Gruber was having travel problems of his own, word of which had already spread to staffs in New York, St. Louis, and Detroit.<br />
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By the time the SLSO's plane hit the tarmac in New York at 6:08 p.m., rehearsal had already been canceled, Gruber had been written out of the program and members of the orchestra had been granted dispensation to appear on stage in street clothes. Then, in the kind of brash and brilliant move we have come to expect from him, Maestro Robertson handed the baton to his assistant, Ward Stare, and took on Gruber's solo role himself. It is a showman's role, not a singer's, and Robertson (who had voiced a part in The Music Man earlier this season) was more than up to the task. As reported by Anthony Tommasini in <a href="http://www.nytimes.com/2009/04/06/arts/music/06symp.html" target="_blank">The New York Times</a>:<br />
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<blockquote><span style="font-family: trebuchet ms;"><span style="font-family: trebuchet ms;">You do not need a proper singing voice to perform the part, but you do have to be uninhibited. Mr. Robertson's performance was a tour de force in uninhibition.</span></span></blockquote><span style="font-family: trebuchet ms;"><span style="font-family: trebuchet ms;"><br />
When necessity called, Robertson, Stare and the entire orchestra and staff rose to the occasion. Though physically separated, the team communicated throughout the day, developing a strategy (Robertson, already in New York, began rehearsing that afternoon), and adjusting the plan continuously. Orchestral musicians, masters of going with the flow, had shrugged off a day of travel delays, tight quarters, and nervous updates by the time the baton struck the first note. And the audience shared an experience that no recording could capture.<br />
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How do you get to Carnegie Hall? Practice.<br />
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<span style="font-size: 85%;">See the account of events by Eddie Silva on the excellent SLSO blog <a href="http://www.slso.org/blog/2009/04/david-robertson-as-utility-inf.html#more" target="_blank">here</a>. For a previous article on innovation and the orchestra (same time, last year), see <a href="http://jpfarrell.blogspot.com/2008/03/surprise-of-new.html" target="_blank">The Surprise of the New</a>.<br />
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</span></span></span><span style="font-size: 85%;"><span style="font-family: trebuchet ms;"><span style="font-family: trebuchet ms;"><span style="font-family: trebuchet ms;"><span style="font-family: trebuchet ms;">To learn more about our work in consulting, please </span></span></span></span></span><span style="font-family: trebuchet ms;"><span style="font-size: 85%;">see our <a href="http://jpfarrell.blogspot.com/2008/08/profile-of-jp-farrell.html" target="_blank">Profile</a>, </span></span><span style="font-family: trebuchet ms;"><span style="font-family: trebuchet ms;"><span style="font-family: trebuchet ms;"><span style="font-family: trebuchet ms;"><span style="font-size: 85%;">read a few of our <a href="http://jpfarrell.blogspot.com/2008/08/case-studies.html" linkindex="376" set="yes" target="_blank">Case Studies</a>, or <a href="https://docs.google.com/open?id=0B0cX8Ug8KUneOWFjNzA0NTgtZWYzMi00OTQ2LThhNjktYzYxZDk5MDNmM2Fh">Contact</a> JP Farrell & Associates, Inc.</span></span></span></span></span> directly.<br />
<span style="font-family: trebuchet ms;"><span style="font-family: trebuchet ms;"><br />
</span></span><div class="blogger-post-footer">©2009 by JP Farrell & Associates, Inc. All rights reserved.</div>James P. Farrellhttp://www.blogger.com/profile/04396068595090164836noreply@blogger.comtag:blogger.com,1999:blog-508478158982864469.post-78584759200811754112009-03-30T16:49:00.031-05:002009-09-29T17:31:42.346-05:00General Motors Surrenders<a onblur="try {parent.deselectBloggerImageGracefully();} catch(e) {}" href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEgFZDrxx-OOkVg0mZMWgFdALx7L7v0BV_iiFwzStrpdzEETBxI1AQahP9Mg8HD91H-bX9mTT9_zfLKP99iB0lr_MTHygXgHvDKNOtZJ980r9uFodvTfcxEoMHwo33mm20xMCSgnfpsy_qyI/s1600-h/auto_task_force_0330.jpg"><img style="margin: 0pt 10px 10px 0pt; float: left; cursor: pointer; width: 200px; height: 130px;" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEgFZDrxx-OOkVg0mZMWgFdALx7L7v0BV_iiFwzStrpdzEETBxI1AQahP9Mg8HD91H-bX9mTT9_zfLKP99iB0lr_MTHygXgHvDKNOtZJ980r9uFodvTfcxEoMHwo33mm20xMCSgnfpsy_qyI/s200/auto_task_force_0330.jpg" alt="" id="BLOGGER_PHOTO_ID_5319327749051691074" border="0" /></a><span style="font-style: italic;"><span style="font-size:85%;"><span style="font-family:trebuchet ms;">Steven Rattner (left) and Ron Bloom (right) - <span style="color: rgb(102, 51, 255);font-size:78%;" >Time Magazine<br /></span><br /></span></span></span><span style="font-family:trebuchet ms;">There is an element of politics whenever a chief executive departs, just as there must be in the timing of Rick Wagoner's departure from General Motors. In this case the White House has made quite clear its rationale in strict legal language. This week findings of the Presidential Task Force on the Auto Industry were <a href="http://www.whitehouse.gov/blog/09/03/30/GM-and-Chrysler/" target="_blank">posted</a> on the White House website, including "Determination of Viability Summary: General Motors Corporation," which states:<br /><blockquote>The Loan and Security Agreement of December 31, 2008 between the General Motors Corporation and the United States Department of the Treasury ("LSA") laid out conditions that needed to be met by March 31, including the approval of Labor Modifications, VEBA [pension plan] Modifications and the commencement of a Bond Exchange.<br /><br />As of the date of this memo, the above steps have not been completed, nor are they expected to be completed by March 31. As a result, General Motors has not satisfied the terms of its loan agreement.</blockquote><br />The report, which takes exception with a number of key assumptions in the plan put forth by General Motors, goes on to state:<br /><blockquote>...even under the the Company's optimistic assumptions, the Company continues to experience negative cash flow (before financing but after legacy obligations) through the projection period, failing a fundamental test of viability.</blockquote>In short, the Task Force put GM's best plan through a "stress test" and it failed.<br /><br />Those who fear the Administration is being heavy-handed are reminded that it was General Motors that asked for the loan, then asked for another, then failed to produce a viable business plan. Today it became clear that the Administration would enforce market discipline by putting General Motors through the same kind of "financial workout" that other lenders routinely enforce when companies fail to meet their obligations to bondholders.<br /><br />The Task Force is fully loaded with economists. Headed by Treasury Secretary Tim Geithner and Larry Summers, Director of the National Economic Council, the Task Force includes another seven members of the Cabinet and the Director of the White House Office of Energy and Climate Change, Carol Browner. The staff are directed by Steve Rattner, a corporate workout specialist, and Ron Bloom, whose experience includes advising the United Steelworkers union. Other Official Designees include economists Diana Farrell [no relation to the author], Gene Sperling, Austan Goolsbee, and Jared Bernstein, Chief Economist to Vice President Biden. Goolsbee's agency, headed by former Fed Chairman <a href="http://jpfarrell.blogspot.com/2008/11/paul-volckers-harsh.html">Paul Volcker</a>, is specifically charged with (among other things) "<a href="http://thepage.time.com/transcript-from-conference-call-with-peter-orszag/" target="_blank">reducing corporate welfare</a>," according to remarks made today by Office of Management and Budget <a href="http://jpfarrell.blogspot.com/2008/09/bailout-explained-by-cbo.html">Director Orszag</a>.<br /><br />This new toughness on corporate bailouts occurs just as President Obama heads off to London for the G20 (Group of Twenty) Summit. There the Administration faces one more important sales job--that of convincing leaders of the other major world economies to fully and harmoniously participate in resetting the global financial system. A <a href="http://www.reuters.com/article/topNews/idUSTRE52T46820090330" target="_blank">draft communique</a> prepared for issue on April 2, pledges participants to supporting an "open world economy based on market principles, effective regulation, and strong global institutions."<br /><br />One could fit nearly every version of capitalism within the confines of those broad, competing goals. For General Motors and its stockholders, lenders, suppliers, employees and pensioners, however, the options have decidedly narrowed.<br /></span><span style="font-family:trebuchet ms;"><span style="font-family:trebuchet ms;"><span style="font-family:trebuchet ms;"><span style="font-family:trebuchet ms;"><span style="font-size:85%;"><br />See also <a href="http://jpfarrell.blogspot.com/2008/11/responses-from-readers-auto-industry.html">Responses from Readers</a>, a summary of reader comments when we asked in November whether the auto industry should be bailed out.<br /><br />A collection of posts about the US Economy is maintained <a linkindex="349" href="http://jpfarrell.blogspot.com/2008/09/us-economy-and-bailout.html" target="_blank"><span style="text-decoration: underline;" target="_blank">here</span></a>.<br /><br /></span></span></span></span></span><span style="font-size:85%;"><span style="font-family:trebuchet ms;"><span style="font-family:trebuchet ms;"><span style="font-family:trebuchet ms;"><span style="font-family:trebuchet ms;">To learn more about our work in consulting, please </span></span></span></span><span style="font-family:trebuchet ms;"><span style="font-size:85%;">see our <a href="http://jpfarrell.blogspot.com/2008/08/profile-of-jp-farrell.html" target="_blank">Profile</a>, </span></span><span style="font-family:trebuchet ms;"><span style="font-family:trebuchet ms;"><span style="font-family:trebuchet ms;"><span style="font-family:trebuchet ms;"><span style="font-size:85%;">download a <a linkindex="350" href="http://tinyurl.com/y92lpqc" target="_blank">brochure</a> about our Practice, or check out our <a set="yes" linkindex="376" href="http://jpfarrell.blogspot.com/2008/08/case-studies.html" target="_blank">Case Studies</a>.<br /><br /><a href="http://tinyurl.com/y9486w4">Contact</a> JP Farrell & Associates, Inc.</span></span></span></span></span><br /></span><br /><span style="font-family:trebuchet ms;"> </span><div class="blogger-post-footer">©2009 by JP Farrell & Associates, Inc. All rights reserved.</div>James P. Farrellhttp://www.blogger.com/profile/04396068595090164836noreply@blogger.comtag:blogger.com,1999:blog-508478158982864469.post-83647935696619108192009-03-15T18:40:00.018-05:002009-09-29T17:31:05.867-05:00Jon Stewart: All Kidding Aside<a onblur="try {parent.deselectBloggerImageGracefully();} catch(e) {}" href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEhonebAszhta9hpLO0quPs4zX7TrN-9jyko9mjtiXLhZKNiBtHzCNSPOie4sN6bFw06lS2CJdWXVYX8z2GtXqCMsg3uut8VAe7PS2vAJ_GrKUFVZidIEDFY0yWhnhXG54qX1bigysPfT0zB/s1600-h/Stewart.jpg"><img style="margin: 0pt 10px 10px 0pt; float: left; cursor: pointer; width: 100px; height: 83px;" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEhonebAszhta9hpLO0quPs4zX7TrN-9jyko9mjtiXLhZKNiBtHzCNSPOie4sN6bFw06lS2CJdWXVYX8z2GtXqCMsg3uut8VAe7PS2vAJ_GrKUFVZidIEDFY0yWhnhXG54qX1bigysPfT0zB/s320/Stewart.jpg" alt="" id="BLOGGER_PHOTO_ID_5316084579896302082" border="0" /></a><span style="font-family:trebuchet ms;"><span style="font-style: italic;font-size:85%;" >Jon Stewart (right) and Jim Cramer, <u>The Daily Show</u>, March 12, 2009<br /></span><br /><a href="http://www.thedailyshow.com/video/index.jhtml?videoId=220534&title=intro-brawl-street-get-ready-to" rel="nofollow" target="_blank">Fight of the Century</a>. Comedy Central vs. CNBC. In one corner, Jon Stewart, court jester extraordinaire and master of "fake news;" in the other, Jim Cramer of the adolescent voice, purveyor of fake investment advice.<br /><br />Stewart takes off his comedy gloves and delivers a series of left jabs as Cramer retreats to the ropes, murmuring apologies. Stewart pulls him to his feet and delivers a hay-maker, forcing Cramer to view a clip of himself explaining to an interviewer some of the tricks he had used to deceive investors back in his trading days. </span><span style="font-family:trebuchet ms;">Bewildered, Cramer staggers from the set. Stewart never cracks a smile. The audience that had come for comedy witnessed bloodsport instead.<br /><br />It is telling that it was a comedian who focused populist ire against the financial Masters of the Universe and their apologists at CNBC. By the time word of AIG bonuses had leaked out two days later, public rage was in full boil. Congress, which had voted for restrictions on executive pay before they voted against them, scrambled for the low ground. And President Obama, who had spent two months trying to divert public attention from the injustice of the Wall Street bailouts toward the necessity of solving the financial crisis, finally had to begin to address the ways and means of punishing the whinging, unrepentant culprits.<br /><br />One may well ask what has happened to the Fourth Estate when the most trenchant journalism is left for television comedians to deliver. As mass media has become big business has it lost its taste for controversy?<br /><br />In his book <u>The Big Con</u>, Jonathan Chait devotes a chapter to "Media: The Dog That Didn't Watch." He laments that mainstream journalists now seem compelled to present at least two sides of every argument, no matter how patently ridiculous the argument may be on one side or the other. Ironically, his point is made by Jim Lehrer, whose Newshour on PBS routinely offers up some of the best reporting on television. </span><span style="font-family:trebuchet ms;">When asked how he treats official statements that are "blatantly untrue," Lehrer responded in the relativistic style that has become the hallmark of mainstream media:<br /><blockquote>There's always a germ of truth in just about anything...My part of journalism is to present what various people say about it the best we can find out [by] reporting and let others--meaning commentators, readers, viewers, bloggers or whatever...I'm not in the judgment part of journalism. I'm in the reporting part of journalism."<br /></blockquote><br />However harsh his delivery, Jon Stewart's message to CNBC and to journalists in general is that reporting goes beyond stenography; that the editorial page is not the exclusive realm of editorial judgment. Professional journalists and media that purport to be something more than publicists for special interests are at least expected to filter the nonsense before they file their reports. By transcending his comedic format to deliver a stinging rebuke, Stewart made the issue personal and identified himself with his outraged viewers. He reminded us that journalism has consequences. Failure to speak truth to power has its cost too.<br /><br /></span><span style="font-family:trebuchet ms;"><span style="font-family:trebuchet ms;"><span style="font-size:85%;">See <a href="http://search.barnesandnoble.com/The-Big-Con/Jonathan-Chait/e/9780618685400/?itm=1" rel="nofollow" target="_blank">The Big Con: the True Story of How Washington Got Hoodwinked and Hijacked by Crackpot Economics</a>, by Jonathon Chait (Houghton Mifflin, New York, 2007).<br /><br />For our previous posts on the financial crisis, see <a href="http://jpfarrell.blogspot.com/2008/09/us-economy-and-bailout.html">US Economy and the Bailout.<br /></a><br /></span></span></span><span style="font-size:85%;"><span style="font-family:trebuchet ms;"><span style="font-family:trebuchet ms;"><span style="font-family:trebuchet ms;"><span style="font-family:trebuchet ms;">To learn more about our work in consulting, please </span></span></span></span><span style="font-family:trebuchet ms;"><span style="font-size:85%;">see our <a href="http://jpfarrell.blogspot.com/2008/08/profile-of-jp-farrell.html" target="_blank">Profile</a>, </span></span><span style="font-family:trebuchet ms;"><span style="font-family:trebuchet ms;"><span style="font-family:trebuchet ms;"><span style="font-family:trebuchet ms;"><span style="font-size:85%;">download a <a linkindex="350" href="http://tinyurl.com/y92lpqc" target="_blank">brochure</a> about our Practice, or check out our <a set="yes" linkindex="376" href="http://jpfarrell.blogspot.com/2008/08/case-studies.html" target="_blank">Case Studies</a>.<br /><br /><a href="http://tinyurl.com/y9486w4">Contact</a> JP Farrell & Associates, Inc.</span></span></span></span></span><br /></span><span style="font-family:trebuchet ms;"><span target="_blank" style="font-size:85%;"><br /></span></span><div class="blogger-post-footer">©2009 by JP Farrell & Associates, Inc. All rights reserved.</div>James P. Farrellhttp://www.blogger.com/profile/04396068595090164836noreply@blogger.comtag:blogger.com,1999:blog-508478158982864469.post-50250679118877032212009-01-14T16:42:00.013-06:002011-11-15T14:44:08.871-06:00Obama at the Augean Stables<a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEjz6eGxLs9U6-44VeZ9t1jbGf1zxx7B0a46Bn88QjtbA9dItOa2P3WdASIO22OZvkSDYcWYJUil-Z2dKK23ZxPdIoc8RKVHFhKvjc1Pj3lnyKjJp8STL5-JT-9zxlKBYcQ6jQV3jUtdUyaP/s1600-h/dowd-ts-190.jpg"><img alt="" border="0" id="BLOGGER_PHOTO_ID_5307241368795861970" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEjz6eGxLs9U6-44VeZ9t1jbGf1zxx7B0a46Bn88QjtbA9dItOa2P3WdASIO22OZvkSDYcWYJUil-Z2dKK23ZxPdIoc8RKVHFhKvjc1Pj3lnyKjJp8STL5-JT-9zxlKBYcQ6jQV3jUtdUyaP/s200/dowd-ts-190.jpg" style="cursor: pointer; float: left; height: 153px; margin: 0pt 10px 10px 0pt; width: 120px;" /></a><span style="font-size: 85%; font-style: italic;"><span style="font-family: trebuchet ms;"><a href="http://www.nytimes.com/ref/opinion/DOWD-BIO.html">Maureen Dowd</a>, The New York Times</span></span><br />
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<span style="font-family: trebuchet ms;">We missed Maureen Dowd's columns throughout her December hiatus. She returned <a href="http://www.nytimes.com/2009/01/14/opinion/14dowd.html" rel="nofollow" target="_blank">this week</a> with fresh themes for a new administration: the novelty of "hot nerds" in the Cabinet and the looming internal conflict between fiscal stimulus and deficit control. Most intriguingly, she compares Obama's challenge of managing the Clintons to the Fifth Labor of Hercules, cleaning the Augean Stables.<br />
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Dowd writes as sparingly as a poet, asking the reader to complete her inferences. Wikipedia tells us this about the <a href="http://en.wikipedia.org/wiki/Augean_stables" rel="nofollow" target="_blank">Augean stables</a>:<br />
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<blockquote><span style="font-family: trebuchet ms;">The fifth of the Twelve Labors set to Hercules was to clean the Augean stables in a single day. The reasoning behind this being set as a labor was twofold: firstly, all the previous labors exalted Hercules in the eyes of the people and this one would surely degrade him; secondly, as the livestock were a divine gift to Augeas they were immune from disease and thus the amount of dirt and filth amassed in the uncleaned stables made the task surely impossible. However, Hercules succeeded by rerouting the rivers Alpheus and Peneus to wash out the filth.</span></blockquote><span style="font-family: trebuchet ms;"><br />
<span style="font-family: trebuchet ms;">One is left to wonder how far she meant to carry the analogy.<br />
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Dowd, who wrote an entire <a href="http://www.nytimes.com/2008/10/12/opinion/12dowd.html" rel="nofollow" target="_blank">column in mock Latin</a> this past October, makes frequent references to mythology and classical literature. In her book, <u>Bushworld: Enter at Your Own Risk</u>, she cast <a href="http://en.wikipedia.org/wiki/George_w_bush" rel="nofollow" target="_blank">George W. Bush</a> in the role of <a href="http://en.wikipedia.org/wiki/Oedipus" rel="nofollow">Oedipus</a>, in psychological battle with his father as he unwittingly brought down the House of Thebes. This is at least her second reference to Obama and the Twelve Labors, the other occurring in her July 12, 2008 column about Obama's European trip, <a href="http://www.nytimes.com/2008/07/20/opinion/20dowd.html" target="_blank">Ich Bin Ein Jetsetter</a>. In that column she refers to Ms. Clinton as "the Amazon Warrior Queen Hillary." When Dowd says "I have a girlfriend in New York who puts her boyfriends through Feats of Strength," we suspect she is putting Mr. Obama through the same paces, just as she did with earlier references to him as Obambi, a fawn cowering under the withering gaze of Mrs. Clinton during the debates.<br />
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Like the devoted followers of the famous Sunday crossword puzzles of The Times, one is encouraged to have reference materials handy when reading Ms. Dowd. The columns are worthy of the effort.<br />
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Myths, neither histories nor fates, are sung anew by each generation.<br />
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<span style="font-size: 85%;">See <a href="http://search.barnesandnoble.com/booksearch/isbninquiry.asp?ean=9780399152580" rel="nofollow" target="_blank">Bushworld: Enter at Your Own Risk</a>, by Maureen Dowd (Penguin Group, New York, 2004).<br />
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For a translation of Dowd's witty but intractable column in Latin, <a href="http://www.nytimes.com/2008/10/12/opinion/12dowd.html" target="_blank">Are We Romans, Tu Betchus</a>, see the blog <a href="http://ablativeabsolute.blogspot.com/2008/10/maureen-dowd-translated-from-original.html" target="_blank">Ablative Absolute</a>. The comments that follow the post offer further refinements. The translation reveals just how biting Ms. Dowd's satire can be when cloaked by a dead tongue.<br />
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</span></span></span><span style="font-family: trebuchet ms;"><span style="font-size: 85%;" target="_blank">To learn more about our work in consulting you may read a few of our Case Studies or <a href="https://docs.google.com/open?id=0B0cX8Ug8KUneOWFjNzA0NTgtZWYzMi00OTQ2LThhNjktYzYxZDk5MDNmM2Fh">Contact</a> us directly. <br />
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<br />
</span></span></span><div class="blogger-post-footer">©2009 by JP Farrell & Associates, Inc. All rights reserved.</div>James P. Farrellhttp://www.blogger.com/profile/04396068595090164836noreply@blogger.comtag:blogger.com,1999:blog-508478158982864469.post-66803203057124867062009-01-11T14:52:00.015-06:002009-09-29T17:34:48.706-05:00McDonald's: Relevant Retailer for a Down Economy<a onblur="try {parent.deselectBloggerImageGracefully();} catch(e) {}" href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEi7nT9C6SoiRjbt0nU7m5F8aqZvrC2tvUGT27kZhU4GQVZX0MnVjoAd1dT_BhnZz_aT1Z12-P4cmaFUy65Fud4hnmmr-CHuvfXUrfQAJaEo14u5mGOP11GiryfXsT8YOh67l0nWBuOINC6J/s1600-h/se05-small.jpg"><img style="margin: 0pt 10px 10px 0pt; float: left; cursor: pointer; width: 150px; height: 122px;" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEi7nT9C6SoiRjbt0nU7m5F8aqZvrC2tvUGT27kZhU4GQVZX0MnVjoAd1dT_BhnZz_aT1Z12-P4cmaFUy65Fud4hnmmr-CHuvfXUrfQAJaEo14u5mGOP11GiryfXsT8YOh67l0nWBuOINC6J/s200/se05-small.jpg" alt="" id="BLOGGER_PHOTO_ID_5290154798498226562" border="0" /></a><span style="font-style: italic;"><span style="font-size:85%;"><span style="font-family:trebuchet ms;">McDonald's restaurant, circa 1960</span></span></span><br /><br /><br /><span style="font-family:trebuchet ms;">The <a href="http://www.nytimes.com/2009/01/11/business/11burger.html?partner=permalink&exprod=permalink" target="_blank">lead business story</a> in this Sunday's <span style="font-weight: bold;">New York Times</span> on the continuing success of McDonald's Corporation sounds a number of themes that readers of this column will find familiar.<br /><br />The chain has broadened its merchandising appeal beyond kids and young parents just as management's renewed focus on value, quality, service, and cleanliness has taken hold.<br /><br />Minor adjustments in the menu in the form of fresher food, better coffee and more savory seasonings (including a return to the Big Mac sauce in use when CEO Jim Skinner and I worked on McDonald's crews in 1971) appeal to the tastes of an aging population. Reformatted restaurants feature more comfortable seating, faster drive-thru operations, and flat-screen TV monitors.<br /><br />Under Skinner this is a company that has rediscovered the secret sauce.</span><br /><br /><span style="font-family:trebuchet ms;"><span style="font-family:trebuchet ms;"><span style="font-size:85%;">See our newsletter on Restaurant Lifecycle Management <a href="http://tinyurl.com/r5mkzk">here</a>. </span></span></span><br /><span style="font-family:trebuchet ms;"><span style="font-family:trebuchet ms;"><span style="font-size:85%;"><br />See also <a href="http://jpfarrell.blogspot.com/2008/09/mcdonalds-strategy-meat-potatoes-and.html" target="_blank">McDonald's Strategy: Meat, Potatoes and Coffee</a> and </span><a set="yes" linkindex="351" href="http://jpfarrell.blogspot.com/2007/11/economist-on-mcdonalds.html"><span target="_blank" style="font-size:85%;">Brand, Menu and Store Design</span></a><span style="font-size:85%;"> and <a linkindex="352" href="http://groups.google.com/group/management-consultant-at-large/web/hot-topic-chain-restaurant-development" target="_blank">Chain Restaurant Development</a> or visit our <a linkindex="353" href="http://groups.google.com/group/management-consultant-at-large/web/reference-mcdonalds" target="_blank">Google Group page</a> featuring articles about McDonald's Corporation. </span><br /></span></span><span style="font-family:trebuchet ms;"><span target="_blank" style="font-size:85%;"><br /></span></span><span style="font-size:85%;"><span style="font-family:trebuchet ms;"><span style="font-family:trebuchet ms;"><span style="font-family:trebuchet ms;"><span style="font-family:trebuchet ms;">To learn more about our work in consulting, please </span></span></span></span><span style="font-family:trebuchet ms;"><span style="font-size:85%;">see our <a href="http://jpfarrell.blogspot.com/2008/08/profile-of-jp-farrell.html" target="_blank">Profile</a>, </span></span><span style="font-family:trebuchet ms;"><span style="font-family:trebuchet ms;"><span style="font-family:trebuchet ms;"><span style="font-family:trebuchet ms;"><span style="font-size:85%;">download a <a linkindex="350" href="http://tinyurl.com/y92lpqc" target="_blank">brochure</a> about our Practice, or check out our <a set="yes" linkindex="376" href="http://jpfarrell.blogspot.com/2008/08/case-studies.html" target="_blank">Case Studies</a>.<br /><br /><a href="http://tinyurl.com/y9486w4">Contact</a> JP Farrell & Associates, Inc.</span></span></span></span></span><br /></span><br /><span style="font-family:trebuchet ms;"><span target="_blank" style="font-size:85%;"><a linkindex="357" href="http://groups.google.com/group/management-consultant-at-large/web/case-studies" target="_blank"></a></span></span><div class="blogger-post-footer">©2009 by JP Farrell & Associates, Inc. All rights reserved.</div>James P. Farrellhttp://www.blogger.com/profile/04396068595090164836noreply@blogger.comtag:blogger.com,1999:blog-508478158982864469.post-49788831966886974502008-12-14T08:04:00.008-06:002009-09-29T17:38:00.802-05:00Paul Volcker's Harsh Economic Medicine<a onblur="try {parent.deselectBloggerImageGracefully();} catch(e) {}" href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEiGPhC1Ff9UbnHcwSuW7OBCZF_zvLkr_LjCElWkamy4Uuhs2DNmpdF91CFnOpVKcFdhIM149hayb3YnP6zMRjKvIQ987EdqItAcYzOs_ZLhloLDuJT-PSVPvAMGunKW35TRppYK7I7sqmqx/s1600-h/volcker.jpg"><img style="margin: 0pt 10px 10px 0pt; float: left; cursor: pointer; width: 96px; height: 147px;" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEiGPhC1Ff9UbnHcwSuW7OBCZF_zvLkr_LjCElWkamy4Uuhs2DNmpdF91CFnOpVKcFdhIM149hayb3YnP6zMRjKvIQ987EdqItAcYzOs_ZLhloLDuJT-PSVPvAMGunKW35TRppYK7I7sqmqx/s200/volcker.jpg" alt="" id="BLOGGER_PHOTO_ID_5291514003096558834" border="0" /></a><span style="font-style: italic;font-size:85%;" ><span style="font-family:trebuchet ms;">Paul Volcker, former Chairman, U.S. Federal Reserve Bank<br /><br /></span></span><br /><span style="font-family:trebuchet ms;">Paul Volcker speaks in a voice not quite up to the challenge of transiting his imposing frame. It is the voice of a man with nothing to prove: a leader chosen by acclamation when the Vandals have stood at the Gate.</span><br /><br /><span style="font-family:trebuchet ms;">Schooled at Princeton, Harvard and the London School of Economics in liberal arts, political economy and government, Mr. Volcker began his career as a summer research assistant at the <a href="http://www.newyorkfed.org/aboutthefed/PVolckerbio.html" linkindex="21" target="_blank">Federal Reserve Bank of New York</a> in 1949 and 1950. He returned twice, first as a research economist, then as President in 1975. By then he had already served two stints at Chase Manhattan (first as a research economist, later as vice president and director of forward planning), two stints at the US Treasury during the Kennedy and Nixon administrations, and a senior fellowship at the Woodrow Wilson School of Public and International Affairs at Princeton University.</span><br /><br /><span style="font-family:trebuchet ms;">President Carter, b</span><span style="font-family:trebuchet ms;">urdened by a deepening economic malaise with inflation running at 13.3%, </span><span style="font-family:trebuchet ms;">appointed Volcker to a four-year term as Chairman of the US Federal Reserve Bank in August, 1979. </span><span style="font-family:trebuchet ms;">Chairman Volcker immediately set about restricting the growth in the money supply</span><span style="font-family:trebuchet ms;">, </span><span style="font-family:trebuchet ms;">intent on getting inflation under control.</span><span style="font-family:trebuchet ms;"><br /></span><br /><span style="font-family:trebuchet ms;">Ronald Reagan defeated Carter for the US Presidency in 1980, pledging to rebuild the military and restore confidence in the US economy. His economic plan rested on the postulate of USC economist <a href="http://en.wikipedia.org/wiki/Laffer_curve" linkindex="22" target="_blank">Arthur Laffer</a> that under special circumstances lowering the income tax rate might increase tax revenue by stimulating growth. Reagan's budget featured a massive tax cut concentrated in the upper income brackets. It also included a</span><span style="font-family:trebuchet ms;"> net increase in government spending, with defense spending increases overtaking the much publicized cuts in other budgets.<br /></span><br /><span style="font-family:trebuchet ms;">While Volcker was encouraged by members of the Reagan administration to continue to restrict monetary growth, he publicly worried in 1981 about the consequences of simultaneously pursuing restrictive monetary policy and expansionary fiscal policy:</span><br /><blockquote><span style="font-family:trebuchet ms;">I know that in concept a case can be made that restraint on money and credit alone, sustained long enough and strong enough, could control inflation and thus lay the ground for renewed growth. But is that a realistic, believable and tolerable course if other instruments of policy and opinion are running counter to our purposes? Will the sustainability of the policy be credible if the costs in growth and employment seem excessive? And the costs fall unfairly on the industry and elements of the population most dependent on credit?**<br /></span></blockquote><br /><span style="font-family:trebuchet ms;">He had concisely laid bare the inherent contradiction in the policies of the Reagan team: supply side theory was to be crushed by a predictable monetarist outcome. When the excess demand for money set off by the unprecedented budget deficit was not accommodated by the Federal Reserve, interest rates spiked (spectacularly), inducing the recession of 1981-82.</span><span style="font-family:trebuchet ms;"><br /></span><br /><span style="font-family:trebuchet ms;">Volcker seems to have set the terms for the harmonization of monetary and fiscal policy that ensued in 1982. </span><span style="font-family:trebuchet ms;">Volcker began to loosen his grip on the money supply just as </span><span style="font-family:trebuchet ms;">Reagan put through a major tax increase to check increases in the federal deficit, taking back 1/3 of the value of the 1981 tax cut. Reagan again raised taxes in 1983 and 1984, enacting a major increase in taxes to fund Social Security, increasing taxes on gasoline, and closing certain business tax loopholes.<br /></span><br /><span style="font-family:trebuchet ms;">Many remember Reagan's tough stands against the strike of the air traffic controllers in 1981 and his unrelenting escalation of the arms race that contributed to the virtual bankruptcy of the Soviet Union. Nonetheless, in large part the economic success achieved during Reagan's second term was due to his willingness to follow the advice of his equally resolute Fed chief. By forcing Treasury Secretary Don Regan to finance the arms race with higher taxes, Volcker burst the inflationary bubble and set the stage for two more decades of prosperity. When President Reagan reappointed Volcker in 1983 the rate of inflation was 3.2%.</span><br /><br /><span style="font-family:trebuchet ms;">Perhaps Obama is looking to the doctor of the 1980 economy to administer some bitter medicine early in his own first term.<br /></span><br /><br /><span style=";font-family:trebuchet ms;font-size:85%;" >*To view his Oct. 9, 2009 interview with Charlie Rose in its entirety and other clips featuring Paul Volcker, see the <a href="http://www.charlierose.com/guest/view/239" linkindex="23" target="_blank">Charlie Rose</a> website.</span><span style="font-size:85%;"><br /><br />**<u>Secrets of the Temple: How the Federal Reserve Runs the Country</u>, by William Greider (Simon & Schuster, 1989), pp.358-359<br /></span><br /><span style="font-family:trebuchet ms;"><span style="font-family:trebuchet ms;"><span style="font-family:trebuchet ms;"><span style="font-family:trebuchet ms;"><span style="font-size:85%;">A collection of posts about the US Economy is maintained <a linkindex="349" href="http://jpfarrell.blogspot.com/2008/09/us-economy-and-bailout.html" target="_blank"><span style="text-decoration: underline;" target="_blank">here</span></a>.<br /><br /></span></span></span></span></span><span style="font-size:85%;"><span style="font-family:trebuchet ms;"><span style="font-family:trebuchet ms;"><span style="font-family:trebuchet ms;"><span style="font-family:trebuchet ms;">To learn more about our work in consulting, please </span></span></span></span><span style="font-family:trebuchet ms;"><span style="font-size:85%;">see our <a href="http://jpfarrell.blogspot.com/2008/08/profile-of-jp-farrell.html" target="_blank">Profile</a>, </span></span><span style="font-family:trebuchet ms;"><span style="font-family:trebuchet ms;"><span style="font-family:trebuchet ms;"><span style="font-family:trebuchet ms;"><span style="font-size:85%;">download a <a linkindex="350" href="http://tinyurl.com/y92lpqc" target="_blank">brochure</a> about our Practice, or check out our <a set="yes" linkindex="376" href="http://jpfarrell.blogspot.com/2008/08/case-studies.html" target="_blank">Case Studies</a>.<br /><br /><a href="http://tinyurl.com/y9486w4">Contact</a> JP Farrell & Associates, Inc.<br /><br /></span></span></span></span></span></span><div class="blogger-post-footer">©2009 by JP Farrell & Associates, Inc. All rights reserved.</div>James P. Farrellhttp://www.blogger.com/profile/04396068595090164836noreply@blogger.comtag:blogger.com,1999:blog-508478158982864469.post-38616842801943409152008-11-17T04:37:00.017-06:002009-09-29T17:38:28.722-05:00Responses from Readers: Auto Industry Bailout<a onblur="try {parent.deselectBloggerImageGracefully();} catch(e) {}" href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEgmLNuSGQQ-1SuT-A3Rx9RB-vMwgIp-lw2VOafIRrRn5x_AWWF4MMBbjn-JxrEweN4j3wQIT7-sgRghIDnyuMpkWFu6LWNUIqcQ4bI2LCHmgSbv-lhctoblV2e5f4snaUkCROqWzhXHbNJt/s1600-h/Suburban.jpg"><img style="margin: 0pt 10px 10px 0pt; float: left; cursor: pointer; width: 182px; height: 91px;" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEgmLNuSGQQ-1SuT-A3Rx9RB-vMwgIp-lw2VOafIRrRn5x_AWWF4MMBbjn-JxrEweN4j3wQIT7-sgRghIDnyuMpkWFu6LWNUIqcQ4bI2LCHmgSbv-lhctoblV2e5f4snaUkCROqWzhXHbNJt/s200/Suburban.jpg" alt="" id="BLOGGER_PHOTO_ID_5272189827602847170" border="0" /></a><span style="font-style: italic;font-size:85%;" ><span style="font-family:trebuchet ms;">Chevy Suburban</span><br /></span><span style="text-decoration: underline;"><br /></span><span style="font-family:trebuchet ms;">Last week we posed a simple question to readers of some of the new discussion boards on LinkedIn:<br /><blockquote>Do you think funds from TARP (Troubled Asset Relief Program) should be used to help the U.S. automotive industry? How about other troubled industries, like retail?</blockquote><br />Readers from the <a href="http://www.linkedin.com/groupAnswers?viewQuestionAndAnswers=&gid=37041&discussionID=426390&goback=.anh_37041" target="_blank">Strategic Business and Competitive Intelligence</a> board had the least sympathy for the industry. Eric Garland's first post favored the market-oriented approach:<br /><blockquote>If we really believe business is about innovation, then having businesses "too big to fail" is likely incompatible with future success. Plus, as a U.S. taxpayer, this is starting to get maddeningly expensive. Break them up, or let them fail.</blockquote>Jorge Buhler-Vidal added a few populist licks:<br /><blockquote>I am generally not sympathetic to a bailout to an industry led by people that have consistently ignored trends towards better quality, higher fuel efficiency and safety, while collecting high bonuses and keeping their golden parachutes.<br /></blockquote><br />Some cited the high cost of U.S. health care and the generous U.S. auto industry benefits packages as factors that reduced American competitiveness.<br /><blockquote>The US does not have "socialized" health care, the costs are directly in the vehicles. For Europe and Japan, the health care costs are a bit removed and spread out in the form of higher taxes for their national health care. <span style="font-style: italic;font-size:85%;" >- Bryan Gavini</span><br /><br />The cost structure of health in the U.S. is strangling the nation's ability to compete. Once we lose a few vital industries, corporate executives will be crying out for some form of social net that doesn't sit on their balance sheets. <span style="font-style: italic;font-size:85%;" >- Eric Garland</span><br /><br />Until the Big 3 can at least shed the legacy costs saddling them from the UAW, I don't see why they should get relief from us. <span style="font-style: italic;font-size:85%;" >- Anders Bjork</span><br /></blockquote><br />Responses to the <a href="http://www.linkedin.com/groupAnswers?viewQuestionAndAnswers=&gid=41029&discussionID=426354&goback=.anh_41029" target="_blank">University of Michigan Alumni</a> board tended to show greater concern for the welfare of workers and pay less heed to free market thinking.<br /><blockquote>I would support a bailout if the funds were used to lessen/deplete the legacy costs (retiree benefits) alone. We're going to pay to support the retirees if the companies go under anyway. We're also going to pay a ton to support the 3 million unemployed. If we could remove the legacy costs from the balance sheets, re-negotiate the UAW contracts and fix our trade agreements, maybe we could pull out of it. <span style="font-style: italic;font-size:85%;" >-Jennifer Ray </span><br /><br />The financial bailout has done nothing to help credit markets as of now. No credit markets have been thawed and the banks are being admonished for not lending the money. This has led to the further spiral of the auto industry because customers with good credit are being turned away because they cannot qualify for a loan.<br />I am disturbed by anyone who invokes the "free market" as if we are a purely capitalistic society. We are not. There is no such thing as a pure capitalistic society because each and every system has some sort of government control to either prevent catastrophic success (i.e., a monopoly) or catastrophic failure (what is going on now). The US did not emerge from the Great Depression by letting the free market have its way. <span style="font-style: italic;font-size:85%;" >-Jon Liu</span><br /></blockquote><br />Guy Powell on the <a href="http://www.linkedin.com/groupAnswers?viewQuestionAndAnswers=&gid=75840&discussionID=426392&goback=.anh_75840" target="_blank">Executive Decision</a> board wondered how best to manage our way out of the crisis.<br /><blockquote>If the auto industry goes bankrupt, then it takes money out of the banks. Will this then ripple over to the banking market again causing another higher bailout of the banks. It would seem that 'in for a penny, in for a pound.'<br /></blockquote><br />Respondents to our board, <a href="http://www.linkedin.com/groupAnswers?viewQuestionAndAnswers=&gid=1110717&discussionID=420868&goback=.anh_1110717" target="_blank">A Management Consultant @ Large</a>, took a long-term view.<br /><blockquote>The longer term fix is to retool that work in Michigan to cars that fit a better vision of low energy usage and elimination of emissions. <span style="font-style: italic;font-size:85%;" >-Rudy Westervelt<br /></span><br />Consolidation appears inevitable, given the ferocious international competition and sustained overcapacity in the industry -- so why not have two (or even all three) of the Big Three merge together as part of the bailout? <span style="font-style: italic;font-size:85%;" >-Ben Petree</span><br /><br />What if GM & Ford could "draft" assets from Chrysler--would they take any? How about people? <span style="font-size:85%;">-Joe McKinney</span><br /><br />The US auto industry (as distinct from the auto industry in the US) reminds me of the UK situation 40 years ago. Government bailouts failed. The lesson learned is that the best government involvement is that which greases the skids of change, and not that which just delays the change. Tax policy can be used as an incentive for value-added entrepreneur progress, and for humane retraining. <span style="font-style: italic;font-size:85%;" >-Robert Munro<br /></span><br /><span style="font-family:trebuchet ms;"><span style="font-family:trebuchet ms;"><span style="font-family:trebuchet ms;"><span style="font-size:85%;">A collection of posts about the US Economy is maintained <a linkindex="372" href="http://jpfarrell.blogspot.com/2008/09/us-economy-and-bailout.html" target="_blank"><span style="text-decoration: underline;" target="_blank">here</span></a>.<br /><br /></span></span></span></span><span style="font-size:85%;"><span style="font-family:trebuchet ms;"><span style="font-family:trebuchet ms;"><span style="font-family:trebuchet ms;"><span style="font-family:trebuchet ms;">To learn more about our work in consulting, please </span></span></span></span><span style="font-family:trebuchet ms;"><span style="font-size:85%;">see our <a href="http://jpfarrell.blogspot.com/2008/08/profile-of-jp-farrell.html" target="_blank">Profile</a>, </span></span><span style="font-family:trebuchet ms;"><span style="font-family:trebuchet ms;"><span style="font-family:trebuchet ms;"><span style="font-family:trebuchet ms;"><span style="font-size:85%;">download a <a linkindex="350" href="http://tinyurl.com/y92lpqc" target="_blank">brochure</a> about our Practice, or check out our <a set="yes" linkindex="376" href="http://jpfarrell.blogspot.com/2008/08/case-studies.html" target="_blank">Case Studies</a>.<br /><br /><a href="http://tinyurl.com/y9486w4">Contact</a> JP Farrell & Associates, Inc.</span></span></span></span></span><br /></span></blockquote><br /></span><br /><p style="margin-top: 10px; margin-bottom: 0pt; padding-bottom: 0pt; text-align: center; line-height: 0pt;"><a href="http://feeds2.feedburner.com/%7Er/AManagementConsultantAtLarge/%7E6/7"><img src="http://feeds2.feedburner.com/AManagementConsultantAtLarge.7.gif" alt="A Management Consultant @ Large" style="border: 0pt none ;" /></a></p><p style="margin-top: 5px; padding-top: 0pt; font-size: x-small; text-align: center;"><a href="http://feedburner.google.com/fb/a/headlineanimator/install?id=oskh7cu44hbgg2r0svjj4je5jk&w=7" onclick="window.open(this.href, 'haHowto', 'width=520,height=600,toolbar=no,address=no,resizable=yes,scrollbars'); return false" target="_blank">↑ Grab this Headline Animator</a></p><div class="blogger-post-footer">©2009 by JP Farrell & Associates, Inc. All rights reserved.</div>James P. Farrellhttp://www.blogger.com/profile/04396068595090164836noreply@blogger.comtag:blogger.com,1999:blog-508478158982864469.post-53377568299491448732008-10-31T08:55:00.020-05:002009-09-29T17:39:09.887-05:00Credit Default Swaps: Recent Stories from NPR<a onblur="try {parent.deselectBloggerImageGracefully();} catch(e) {}" href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEhKMkSs_RtkMwlgZ7EYL6TlhazzhnFv-1EaolWAMU_asfZk0m8UQwVtszWqqzZqCJfjzZ4Jhg7-BIHxjDOSrVezOQN8T8D8B_SjCeqVshz4he1AWWcqU8-P2wP6T6BmtNMfOyeflnf0Yy93/s1600-h/logo_npr_125.gif"><img style="margin: 0pt 10px 10px 0pt; float: left; cursor: pointer; width: 125px; height: 42px;" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEhKMkSs_RtkMwlgZ7EYL6TlhazzhnFv-1EaolWAMU_asfZk0m8UQwVtszWqqzZqCJfjzZ4Jhg7-BIHxjDOSrVezOQN8T8D8B_SjCeqVshz4he1AWWcqU8-P2wP6T6BmtNMfOyeflnf0Yy93/s400/logo_npr_125.gif" alt="" id="BLOGGER_PHOTO_ID_5263351697693497634" border="0" /></a><span style="font-style: italic;"><span style="font-size:85%;"><span style="font-family:trebuchet ms;">National Public Radio<br /></span></span></span><span style="font-family:trebuchet ms;"><br />In a </span><a style="font-family: trebuchet ms;" href="http://jpfarrell.blogspot.com/2008/09/can-this-system-hold-water.html" target="_blank">previous post</a><span style="font-family:trebuchet ms;"> I mentioned, without much explanation, that credit default swaps (CDS) were instrumental in creating the 2008 credit crisis. As it happens, </span><a style="font-family: trebuchet ms;" href="http://www.npr.org/templates/story/story.php?storyId=94077777" target="_blank">Alex Blumberg</a><span style="font-family:trebuchet ms;"> has done some of the clearest reporting on CDS for a National Public Radio (NPR) program, "This American Life." </span><br /><br /><a style="font-family: trebuchet ms;" href="http://jpfarrell.blogspot.com/2008/08/glossary-of-terms-used-on-site.html" target="_blank">Credit default swaps</a><span style="font-family:trebuchet ms;">, which have become featured players in the troubled asset drama, are over-the-counter contracts that have been widely used to hedge investors against the risk of mortgage-backed securities. Unlike insurance policies, however, they do not require that either party actually own the assets being protected. As one of their inventors, Gregg Berman, explains:</span><br /><br /><span style="font-family:trebuchet ms;"></span><blockquote><span style="font-family:trebuchet ms;">It is exactly like buying insurance for a house you don't own.</span> <span style="font-family:trebuchet ms;"><br /></span></blockquote><span style="font-family:trebuchet ms;"><br />And that is the very definition of moral hazard. Speculators can enter the market to bet against houses they consider at risk, thereby creating a market for arson. And bet they did.</span> <span style="font-family:trebuchet ms;">Berman and Satyajit Das, a risk consultant, were interviewed for the story, </span><a style="font-family: trebuchet ms;" href="http://www.npr.org/templates/story/story.php?storyId=96333239" target="_blank">How Credit Default Swaps Spread Financial Rot</a><span style="font-family:trebuchet ms;">.</span> <blockquote style="font-family:trebuchet ms;">Das says that during his time in the industry, the amount of credit default swaps that were speculative grew to dwarf the amount that were used for insurance...There are $5 trillion worth of bonds issued in the world, but the total amount that people have bet on those bonds is $60 trillion.<br /></blockquote> <span style="font-family:trebuchet ms;">Because they were traded over-the-counter, CDS have been unregulated and are nearly invisible to investors. We <a href="http://vvi.onstreammedia.com/cgi-bin/visearch?user=pbs-newshour&template=play220asf_noprefs_ws.html&query=credit+default+swap&squery=%2BClipID%3A2+%2BVideoAsset%3Apbsnh102208&inputField=undefined&ccstart=1036203&ccend=1698109&videoID=pbsnh102208" target="_blank">now know</a> that many of the obligations to cover mortgage-backed securities are held by AIG, an insurance firm. On <a href="http://www.nytimes.com/2008/10/02/business/02crisis.html?partner=permalink&exprod=permalink" target="_blank">16-Sept-08</a> the U.S. Treasury seized control of AIG and has now</span><span style="font-family:trebuchet ms;"> invested about $122 billion</span> <span style="font-family:trebuchet ms;">to prop it up.<br /><br />This week I received a letter from AIG offering me an Essential Health insurance plan. The envelope exclaimed: </span><blockquote face="trebuchet ms"><span style="font-weight: bold;">You Can</span> help get greater control of your medical expenses. (And for less than you think.)</blockquote><span style="font-family:trebuchet ms;">Imagine my excitement as I raced to read the fine print.<br /><br /><span style="font-family:trebuchet ms;"><span style="font-family:trebuchet ms;"><span style="font-size:85%;">A collection of posts about the US Economy is maintained <a linkindex="346" href="http://jpfarrell.blogspot.com/2008/09/us-economy-and-bailout.html" target="_blank"><span style="text-decoration: underline;">here</span></a>.<br /><br /></span></span></span></span><span style="font-size:85%;"><span style="font-family:trebuchet ms;"><span style="font-family:trebuchet ms;"><span style="font-family:trebuchet ms;"><span style="font-family:trebuchet ms;">To learn more about our work in consulting, please </span></span></span></span><span style="font-family:trebuchet ms;"><span style="font-size:85%;">see our <a href="http://jpfarrell.blogspot.com/2008/08/profile-of-jp-farrell.html" target="_blank">Profile</a>, </span></span><span style="font-family:trebuchet ms;"><span style="font-family:trebuchet ms;"><span style="font-family:trebuchet ms;"><span style="font-family:trebuchet ms;"><span style="font-size:85%;">download a <a linkindex="350" href="http://tinyurl.com/y92lpqc" target="_blank">brochure</a> about our Practice, or check out our <a set="yes" linkindex="376" href="http://jpfarrell.blogspot.com/2008/08/case-studies.html" target="_blank">Case Studies</a>.<br /><br /><a href="http://tinyurl.com/y9486w4">Contact</a> JP Farrell & Associates, Inc.<br /><br /></span></span></span></span></span></span><div class="blogger-post-footer">©2009 by JP Farrell & Associates, Inc. All rights reserved.</div>James P. Farrellhttp://www.blogger.com/profile/04396068595090164836noreply@blogger.comtag:blogger.com,1999:blog-508478158982864469.post-35064819332476606502008-10-19T07:16:00.016-05:002009-09-29T17:39:35.198-05:00Financial Crisis: Stepping Back from the Precipice<a onblur="try {parent.deselectBloggerImageGracefully();} catch(e) {}" href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEio8RNatHJDNHGMXoyvJnXHK7LidEANa9AJTAnR9ngDtyuz8hlQs8R4MpuQz3aP6RGhwBOL9WmIR034dcI90kjN3T_4cQZAZCwxyJAmse3kXUodSkVeND5JMUeiskGPvB4AY0VIGvuWHDjI/s1600-h/TarpeianRock.JPG"><img style="margin: 0pt 10px 10px 0pt; float: left; cursor: pointer;" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEio8RNatHJDNHGMXoyvJnXHK7LidEANa9AJTAnR9ngDtyuz8hlQs8R4MpuQz3aP6RGhwBOL9WmIR034dcI90kjN3T_4cQZAZCwxyJAmse3kXUodSkVeND5JMUeiskGPvB4AY0VIGvuWHDjI/s200/TarpeianRock.JPG" alt="" id="BLOGGER_PHOTO_ID_5258861910411262002" border="0" /></a><span style="font-family:trebuchet ms;"><span style="font-size:85%;"><span style="font-style: italic;">Tarpeian Rock, Rome</span></span><br /><br />Economists, bloggers and amateur historians will read with interest the rich exchange of ideas on the Paulson bailout plan instigated by Christopher Carroll, the economist from Johns Hopkins University, on the Economists' Forum blog of the Financial Times, <a href="http://blogs.ft.com/wolfforum/2008/10/henry-paulson-and-mount-vesuvius/#comment-28729">TARP and the Ruin of Pompeii: An Analogy</a>.<br /><br />Professor Carroll poses a simple model of a financial system in crisis that results when an under-capitalized bank holding mortgages of the citizens of Pompeii learns that its balance sheet has been compromised by an unforeseen event, the eruption of Mount Vesuvius. Writing during the critical days immediately following passage of the Emergency Economic Stabilization Act of 2008, Carroll and a cast of contributors try out a number of policy alternatives as they enrich the model, in the process making it ever more analogous to the present situation.<br /><br />Mr. Carroll takes the question directly to Secretary Paulson, wondering rhetorically why the classical, free-market solution--let the banks fail--would not be more sensible than the approach initially suggested by Paulson, by which agents of the U.S. Treasury would inject capital into financial institutions by purchasing troubled assets at prices to be set by auction on exchanges to be named later. Carroll doubts that any auction can establish </span><span style="font-family:trebuchet ms;">the real value of these securities and thus suggests that policy-makers consider direct investments in bank equity.<br /><br />The contributors poke at Carroll's model and his history, variously:<br /><ul style="font-family:trebuchet ms;"><li>Defending TARP <span style="font-family:trebuchet ms;">(Troubled Asset Relief Program)</span> as a mechanism for creating liquidity in the short term<br /></li><li>Introducing complexity (e.g., suppose Pompeii's mortgage had been insured by entrepreneurs at Vandelsbank)</li><li>Considering the fallout of market failure ("it will trigger a run on all the other banks in the Empire, putting millions of potential tourists to the new Pompeian ruins out of work and unable to afford the trip") and<br /></li><li>Noting that Titus and not the despised Nero was Emperor at the time of the Eruption</li></ul>One commentator remarked:<br /><blockquote>How strange to call this plan “TARP” when the old Romans used to say “The <a href="http://en.wikipedia.org/wiki/Tarpeian_rock" target="_blank">Tarpeian Rock</a> is not far from the Capitol.”<span style="font-family:trebuchet ms;"> <span style="font-size:85%;">(Editor: Following his link, one finds that the Tarpeian Rock is the precipice from which ancient Romans flung traitors, murderers, and those "cursed by the gods.")</span></span></blockquote>Within days of Carroll's article the finance ministers of the G7, <a href="http://www.ft.com/cms/s/0/6c527a36-9b93-11dd-ae76-000077b07658.html" target="_blank">led by the UK</a>, announced <a href="http://www.ft.com/cms/s/0/0fd36eac-99fc-11dd-960e-000077b07658.html?nclick_check=1" target="_blank">plans to battle the world liquidity crisis</a> by directly injecting capital into their respective banks. Secretary Paulson</span><span style="font-family:trebuchet ms;">, in what seemed a <a href="http://www.nytimes.com/2008/10/12/business/12imf.html?partner=permalink&exprod=permalink" target="_blank">remarkable turnabout</a>, shifted his policy focus from purchase of troubled assets </span><span style="font-family:trebuchet ms;">to direct investment in financial institutions. Calling a meeting of the leaders of the nine largest U.S. banks, Paulson called on each of them to contract immediately with the US government for a direct infusion of federal cash in the form of escalating loans, along with warrants for preferred stock and limits on executive pay. In dramatic reporting for the <a href="http://www.nytimes.com/2008/10/15/business/economy/15bailout.html?partner=permalink&exprod=permalink" target="_blank">The New York Times</a>, Mark Landler and Eric Dash wrote:<br /><blockquote>In addition to the capital infusions, which will be made this week, the government said it would temporarily guarantee $1.5 trillion in new senior debt issued by banks, as well as insure $500 billion in deposits in noninterest-bearing accounts, mainly used by businesses.<br /><br />All told, the potential cost to the government of the latest bailout package comes to $2.25 trillion, triple the size of the original $700 billion rescue package, which centered on buying distressed assets from banks.<br /></blockquote><span style="font-family:trebuchet ms;">Carroll and his contributors have provided a masters class in political economy, open to the public. In it we read the thinking behind policy as it is crafted and revised in real time. More than that, we are witness to the development of economic theory. Hypotheses are set out. Models are postulated, tested and examined for implications. (One commentator, <a href="http://cedar.barnard.columbia.edu/faculty/mehrling/mehrling.html" target="_blank">Professor Perry Mehrling</a> of Columbia University, interprets the technical balance sheet entries of the U.S. Federal Reserve Bank on October 1, 2008 to conclude that the Fed had run out of ammunition to battle the crisis.) Consequences of policy provisions, with their inevitable compromises and disappointments, are weighed against the risks of doing nothing.<br /><br />For the moment, the consensus view that banks should be forced to recapitalize despite concerns about damage to free market principles, seems to be carrying the day. And it should.<br /><ul><li>Direct investment in bank reserves is considerably more efficient than purchase of troubled assets in producing liquidity because such action dramatically improves banks' reserve ratios.<br /></li><li>Under the latest plan banks remain responsible for their balance sheets.<br /></li><li>The government has agreed to charge a fair price for the required capital investment and has provided banks incentives for banks to buy back the the government's stake through privately financed equity. (The Treasury will purchase preferred stock paying 5% dividends initially, but rising to 9% on shares held beyond five years. Treasury will also get warrants to purchase common shares equivalent to 15% of its initial investment.)</li><li>Compulsory action against the largest banks provides cover for others to volunteer for the program without suffering the financial taint of appearing weak. Without compulsion, which bank would have been first to appear at the government's lending window? Which executives would have volunteered to cap their own pay?</li></ul></span></span><span style="font-family:trebuchet ms;"><span style="font-family:trebuchet ms;">The crisis is not over and the full implications are not well known. Governments around the world will need to act responsibly and in coordination to bring the world economy to a soft landing.<br /><br /><span style="font-size:85%;">Our thanks go out to <a href="http://jpfarrell.blogspot.com/2008/08/blogroll-other-sites-of-interest.html" target="_blank">bloggers</a> like economists Christopher Carroll, <a href="http://krugman.blogs.nytimes.com/" target="_blank">Paul Krugman</a>, <a href="http://gregmankiw.blogspot.com/" target="_blank">Greg Mankiw </a>and <a href="http://cboblog.cbo.gov/" target="_blank">Peter Orszag</a> for raising the level of discussion above that achieved by the mainstream media.</span><br /><br /></span><span style="font-family:trebuchet ms;"><span style="font-size:85%;">See also previous reports on the financial crisis, including <a href="http://jpfarrell.blogspot.com/2008/10/review-of-emergency-economic.html" target="_blank">A Review of the Economic Stabilization Act of 2008</a>, <a set="yes" linkindex="337" href="http://jpfarrell.blogspot.com/2008/09/bailout-explained-by-cbo.html" target="_blank">The Bailout Explained by the CBO</a>,</span></span><span style="font-family:trebuchet ms;"><span style="font-size:85%;"> <a set="yes" linkindex="328" href="http://jpfarrell.blogspot.com/2008/09/greg-mankiws-blog-case-against-paulson.html" target="_blank">The Case Against the Paulson Plan</a> and <a set="yes" linkindex="329" href="http://jpfarrell.blogspot.com/2008/09/can-this-system-hold-water.html" target="_blank">Can the Banking System Hold Water?</a><br /><br />A collection of posts about the US Economy is maintained <a href="http://jpfarrell.blogspot.com/2008/09/us-economy-and-bailout.html"><span style="text-decoration: underline;" target="_blank">here</span></a>.<br /><br /></span></span></span><span style="font-size:85%;"><span style="font-family:trebuchet ms;"><span style="font-family:trebuchet ms;"><span style="font-family:trebuchet ms;"><span style="font-family:trebuchet ms;">To learn more about our work in consulting, please </span></span></span></span><span style="font-family:trebuchet ms;"><span style="font-size:85%;">see our <a href="http://jpfarrell.blogspot.com/2008/08/profile-of-jp-farrell.html" target="_blank">Profile</a>, </span></span><span style="font-family:trebuchet ms;"><span style="font-family:trebuchet ms;"><span style="font-family:trebuchet ms;"><span style="font-family:trebuchet ms;"><span style="font-size:85%;">download a <a linkindex="350" href="http://tinyurl.com/y92lpqc" target="_blank">brochure</a> about our Practice, or check out our <a set="yes" linkindex="376" href="http://jpfarrell.blogspot.com/2008/08/case-studies.html" target="_blank">Case Studies</a>.<br /><br /><a href="http://tinyurl.com/y9486w4">Contact</a> JP Farrell & Associates, Inc.</span></span></span></span></span><br /><br /><br /></span><div class="blogger-post-footer">©2009 by JP Farrell & Associates, Inc. All rights reserved.</div>James P. Farrellhttp://www.blogger.com/profile/04396068595090164836noreply@blogger.comtag:blogger.com,1999:blog-508478158982864469.post-35557243600850252332008-10-03T06:41:00.025-05:002009-09-29T17:40:03.320-05:00A Review of the Emergency Economic Stabilization Act of 2008<a onblur="try {parent.deselectBloggerImageGracefully();} catch(e) {}" href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEg35C2Rij1vGFqxWN3Mj8GM9axUzoi5s78ulvyvkD17DzzYBQ2Nzy3jRb9DTU0KXmEU7JB2brGS_kfGbRdEUIpgWlvIkjQQu-1hwlRCA4OWxcAZrPTE6XFJbg08J-shbM1w7WtSgP8UBaI9/s1600-h/libraryofcongress.jpg"><img style="margin: 0pt 10px 10px 0pt; float: left; cursor: pointer;" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEg35C2Rij1vGFqxWN3Mj8GM9axUzoi5s78ulvyvkD17DzzYBQ2Nzy3jRb9DTU0KXmEU7JB2brGS_kfGbRdEUIpgWlvIkjQQu-1hwlRCA4OWxcAZrPTE6XFJbg08J-shbM1w7WtSgP8UBaI9/s200/libraryofcongress.jpg" alt="" id="BLOGGER_PHOTO_ID_5252939990301265458" border="0" /></a><span style="font-style: italic;font-size:85%;" ><span style="font-family:trebuchet ms;">The Library of Congress</span><br /></span><br /><span style="font-family:trebuchet ms;"><br />The U.S. House is expected to vote today on the Senate version of the bailout plan, <a href="http://banking.senate.gov/public/index.cfm?FuseAction=Articles.Detail&Article_id=76b1aea4-39b8-404f-b3cd-f8b6c46e3b14&Month=10&Year=2008" target="_blank">HR1424</a>, the Emergency Economic Stabilization Act of 2008. Following two weeks of intense scrutiny, debate, political wrangling and even some soul searching, Congress seems ready to pass a bill that offers hope of cutting the <a href="http://www.answers.com/topic/gordian-knot" target="_blank">Gordian knot</a> strangling credit markets. Action could not come too soon.<br /><br /></span><span style="font-family:trebuchet ms;">The bill, summarized <a href="http://management-consultant-at-large.googlegroups.com/web/hr1424Dodd.pdf?gda=VyZa40AAAAB1iikhPwrMaGtUQl2cT77v2BISG-NUtrpuuUEVcUMyyA7GdXbR4XadjXE3rLkRe5ptxVPdW1gYotyj7-X7wDON&gsc=T7KRuwsAAAAjgWMvw2Wc2yZ0eyjuWnrC" target="_blank">here</a>, has undergone some important changes over the past two weeks and its scope and intent have been clarified. Initially dubbed the "bailout plan" or the "Troubled Asset Rescue Plan," the bill's original intent was to grant sufficient authority to the U.S. Treasury to take steps that would avert panic in the credit markets. </span><span style="font-family:trebuchet ms;">The most controversial portion of the plan, would create a</span><span style="font-family:trebuchet ms;">:<br /></span><blockquote><span style="font-family:trebuchet ms;">Troubled Assets Relief Program (TARP)</span><span style="font-family:trebuchet ms;">, under which the Secretary of the Treasury would be authorized to purchase, insure, hold, and sell a wide variety of financial instruments, particularly those that are based on or related to residential or commercial mortgages issued prior to March 14, 2008 - <span style="font-size:78%;">CBO Director Peter Orszag</span><br /></span></blockquote><span style="font-family:trebuchet ms;"><br /></span><span style="font-family:trebuchet ms;">As Joe Nocera <a href="http://www.nytimes.com/2008/10/02/business/02crisis.html?pagewanted=all" target="_blank">reported </a>Oct. 1 in the New York Times, large investors fearing imminent bank failures were cashing out even very liquid assets and moving them between institutions. Witnessing what appeared to be the first stages of a full-blown run on the banks, Treasury Secretary Hank Paulson and Federal Reserve Chairman Ben Bernanke sounded the alarm, outlined emergency measures, and began to rally the political forces required. The name of the rescue plan was impolitic (why should the Public be troubled about bank assets?), details of the actions required were sketchy, estimates of the cost were imprecise, and oversight measures were missing entirely, but the critical first steps had been taken. The body politic was in motion.<br /><br />On Monday, 29-Sept-08 the first bill sculpted from the plan, HR3997 (summarized <a href="http://management-consultant-at-large.googlegroups.com/web/09-28-HonorableFrank.pdf?gda=g3MiYUoAAAB1iikhPwrMaGtUQl2cT77vmxIrpFZvfu7AJVY4GapxukMUby-sHQSp_dm7W5kgptULoyax3YeAsf-RhN3BHviT_e3Wg0GnqfdKOwDqUih1tA&gsc=T7KRuwsAAAAjgWMvw2Wc2yZ0eyjuWnrC" target="_blank">here</a>), failed to pass the House of Representatives, despite the incorporation into the bill of substantial improvements and clarifications to the plan, particularly in the area of oversight. Then, with unusual speed the Senate crafted the new bill, <a href="http://thomas.loc.gov/cgi-bin/bdquery/z?d110:HR1424:" target="_blank">HR1424</a>, adding two unrelated divisions designed to bring more Members of Congress on board. The new Division B, The Energy Improvement and Extension Act of 2008, and Division C, Tax Extensions and Alternative Minimum Tax Relief, would add approximately $112 billion to deficits over the next ten years. More importantly, they provide political cover to Members of Congress who will have to explain to constituents in this month before the election how they could enact an expensive and unpopular bailout plan.<br /><br />It now seems clear that passage of the bill is necessary, but not sufficient to avoid a major recession. By insuring bank deposits and money market funds up to $250,000 per account, the measure substantially reduces the risk of runs on banks by depositors and will forestall a substantial amount of unproductive movement of deposits from bank to bank and account to account. This insurance provision will also calm investors in those banks.<br /><br />TARP provides a mechanism for the Treasury to inject capital into financial institutions, transforming unproductive, illiquid assets at participating institutions into cash that can then support new loans.<br /><br />Investors should watch closely the provisions of the bill relating to</span><span style="font-family:trebuchet ms;"> "mark-to-market" accounting requirements</span><span style="font-family:trebuchet ms;">, </span><span style="font-family:trebuchet ms;">which were instituted earlier this year to provide more transparency to financial reports. The bill would </span><span style="font-family:trebuchet ms;">authorize the SEC to restate those requirements and require the Commission to reconsider them and report its findings back to Congress. The practical effect of these provisions will be to improve the balance sheets of financial institutions holding devalued assets, such as mortgage-backed securities, thereby allowing them to make more loans against those assets.</span><span style="font-family:trebuchet ms;"><br /><br />In combination, these provisions are designed to calm investors, create liquidity, and buy time for Treasury to help troubled institutions recapitalize.<br /><br />The next Administration will have to preside over a period of further consolidation of financial institutions as it tries to keep mounting federal debt from further slowing the economy. It must also address the accounting rules that have confused investors and regulators alike about the underlying values of American assets and corporations.<br /><br /><span style="font-size:85%;">A detailed analysis of the legal implications of the Act has been provided by the firm of Davis, Polk & Wardwell (available <a href="http://management-consultant-at-large.googlegroups.com/web/dpweesamemo.pdf?gda=OW8o10EAAAB1iikhPwrMaGtUQl2cT77vj4S6pm7I37YYKr-FOxN2QGDAJQow6g-66YnuRAHTAI9TCT_pCLcFTwcI3Sro5jAzlXFeCn-cdYleF-vtiGpWAA" target="_blank">here</a>).<br /><br />See also previous reports on the bailout bill, including <a href="http://jpfarrell.blogspot.com/2008/09/bailout-explained-by-cbo.html" target="_blank">The Bailout Explained by the CBO</a>,</span></span><span style="font-family:trebuchet ms;"><span style="font-size:85%;"> <a set="yes" linkindex="328" href="http://jpfarrell.blogspot.com/2008/09/greg-mankiws-blog-case-against-paulson.html" target="_blank">The Case Against the Paulson Plan</a> and <a set="yes" linkindex="329" href="http://jpfarrell.blogspot.com/2008/09/can-this-system-hold-water.html" target="_blank">Can the Banking System Hold Water?</a><br /><br />A collection of posts about the US Economy is maintained <a href="http://jpfarrell.blogspot.com/2008/09/us-economy-and-bailout.html"><span style="text-decoration: underline;" target="_blank">here</span></a><a href="http://groups.google.com/group/management-consultant-at-large/web/hot-topics-political-economy"></a>.<br /><br /></span></span><span style="font-size:85%;"><span style="font-family:trebuchet ms;"><span style="font-family:trebuchet ms;"><span style="font-family:trebuchet ms;"><span style="font-family:trebuchet ms;">To learn more about our work in consulting, please </span></span></span></span><span style="font-family:trebuchet ms;"><span style="font-size:85%;">see our <a href="http://jpfarrell.blogspot.com/2008/08/profile-of-jp-farrell.html" target="_blank">Profile</a>, </span></span><span style="font-family:trebuchet ms;"><span style="font-family:trebuchet ms;"><span style="font-family:trebuchet ms;"><span style="font-family:trebuchet ms;"><span style="font-size:85%;">download a <a linkindex="350" href="http://tinyurl.com/y92lpqc" target="_blank">brochure</a> about our Practice, or check out our <a set="yes" linkindex="376" href="http://jpfarrell.blogspot.com/2008/08/case-studies.html" target="_blank">Case Studies</a>.<br /><br /><a href="http://tinyurl.com/y9486w4">Contact</a> JP Farrell & Associates, Inc.</span></span></span></span></span><br /></span><br /><br /><p style="margin-top: 10px; margin-bottom: 0pt; padding-bottom: 0pt; text-align: center; line-height: 0pt;"><a href="http://feeds2.feedburner.com/%7Er/AManagementConsultantAtLarge/%7E6/7"><img src="http://feeds2.feedburner.com/AManagementConsultantAtLarge.7.gif" alt="A Management Consultant @ Large" style="border: 0pt none ;" /></a></p><p style="margin-top: 5px; padding-top: 0pt; font-size: x-small; text-align: center;"><a href="http://feedburner.google.com/fb/a/headlineanimator/install?id=oskh7cu44hbgg2r0svjj4je5jk&w=7" onclick="window.open(this.href, 'haHowto', 'width=520,height=600,toolbar=no,address=no,resizable=yes,scrollbars'); return false" target="_blank">↑ Grab this Headline Animator</a></p><div class="blogger-post-footer">©2009 by JP Farrell & Associates, Inc. All rights reserved.</div>James P. Farrellhttp://www.blogger.com/profile/04396068595090164836noreply@blogger.comtag:blogger.com,1999:blog-508478158982864469.post-47747369143404072532008-09-28T12:09:00.022-05:002009-03-24T07:26:41.139-05:00The Bailout Explained by the CBO<a onblur="try {parent.deselectBloggerImageGracefully();} catch(e) {}" href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEgMNaLuyiNXAHjScVqRR78tbdylDfM7h-MyLED612UhrZXcimrbXcUYhyphenhyphennYiToa71DcRBaHWzeaFobKdMeLo9ycowJcnNU6DuhKCGA1nkNifd2Z7YXukGmMxKL3ePw56GrkffYZ37Zhy3Sd/s1600-h/orszag.jpg"><img style="margin: 0pt 10px 10px 0pt; float: left; cursor: pointer;" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEgMNaLuyiNXAHjScVqRR78tbdylDfM7h-MyLED612UhrZXcimrbXcUYhyphenhyphennYiToa71DcRBaHWzeaFobKdMeLo9ycowJcnNU6DuhKCGA1nkNifd2Z7YXukGmMxKL3ePw56GrkffYZ37Zhy3Sd/s200/orszag.jpg" alt="" id="BLOGGER_PHOTO_ID_5251122123165691106" border="0" /></a><span style="font-style: italic;font-size:85%;" ><span style="font-family:trebuchet ms;">Peter <span class="blsp-spelling-error" id="SPELLING_ERROR_0">Orszag</span>, <span class="blsp-spelling-error" id="SPELLING_ERROR_1">Ph</span>. D., Director of the <span class="blsp-spelling-error" id="SPELLING_ERROR_2">CBO</span></span><br /></span><br /><span style="font-family:trebuchet ms;"><br />The Director of the Congressional Budget Office (<span class="blsp-spelling-error" id="SPELLING_ERROR_3">CBO</span>), economist Peter <span class="blsp-spelling-error" id="SPELLING_ERROR_4">Orszag</span>, publishes a <a href="http://cboblog.cbo.gov/" target="_blank">blog</a> with detailed information about the issues shaping current legislation. In his role as the leader of the non-partisan research office of the U.S. Congress, Dr. <span class="blsp-spelling-error" id="SPELLING_ERROR_5" target="_blank">Orszag</span> is the ultimate insider--a primary source of impartial information to which Members of Congress often turn when seeking deeper insight.<br /><br />Of course Dr. <span class="blsp-spelling-error" id="SPELLING_ERROR_6">Orszag</span> has posted a number of comments over the past few weeks on the current liquidity crisis. For example, the article posted 26-Sept-08, entitled <a href="http://cboblog.cbo.gov/?p=171" target="_blank">Net Budget Cost of Treasury Proposal</a>, begins:<br /></span><span style="font-family:trebuchet ms;"></span><blockquote><span style="font-family:trebuchet ms;">A Wall Street Journal </span><a style="font-family: trebuchet ms;" linkindex="4" href="http://blogs.wsj.com/economics/2008/09/26/believe-it-or-not-bailout-wont-expand-the-deficit/" target="_blank">blog posting</a><span style="font-family:trebuchet ms;"> <span class="blsp-spelling-error" id="SPELLING_ERROR_7">mischaracterizes</span> <span class="blsp-spelling-error" id="SPELLING_ERROR_8">CBO</span>’s </span><a style="font-family: trebuchet ms;" set="yes" linkindex="5" href="http://cboblog.cbo.gov/?p=168" target="_blank">testimony</a><span style="font-family:trebuchet ms;"> earlier this week on the net budget impact of the Treasury proposal to buy troubled assets. The Wall Street Journal blog states that the plan “likely won’t have any effect on the 2009 budget deficit.” That is incorrect.<br /></span></blockquote><span style="font-family:trebuchet ms;"><span class="blsp-spelling-error" id="SPELLING_ERROR_9">Orszag</span> goes on to discuss how the plan would impact the 2009 budget deficit with the kind of specificity and understanding typically lacking in media coverage.<br /><br />In his remarks of 25-Sept-08, <a href="http://cboblog.cbo.gov/?p=169" target="_blank">Troubled Asset Relief Act and Insolvencies</a>, Director <span class="blsp-spelling-error" id="SPELLING_ERROR_10">Orszag</span> focuses attention on the distinction between competing goals: increasing liquidity for the financial system as a whole and avoiding insolvency at particular financial institutions.<br /><blockquote>A company holding an overvalued asset would have to write down the value of that asset not only if it actually sold that asset to the government at a price beneath its current book value, but also if other companies sold comparable assets to the government at a price beneath that book value. This is the essence of mark-to-market accounting.<br /><br />...Even if this process revealed more financial institutions to be insolvent, the result would not necessarily worsen the financial crisis. As I stated in my testimony yesterday before the House Budget Committee, the current crisis is fundamentally one of collapsing confidence in the financial markets and “providing more transparency about the lack of solvency at specific institutions may be necessary to restore trust in the financial system.”<br /><br />...Financial markets face two distinct, but related, problems. One problem is that the markets for some types of assets and transactions have essentially stopped functioning. To address that problem, the government could conceivably intervene as a “market maker,” by offering to purchase assets through a competitive process and thereby provide a price signal to other market participants. That type of intervention, if designed carefully to keep the government from overpaying, might not involve any significant subsidy from the government to financial institutions. The second problem involves the potential insolvency of specific financial institutions. Restoring solvency to insolvent institutions requires additional capital injections, and one possible source of such capital is the federal government. Although the problems of <span class="blsp-spelling-error" id="SPELLING_ERROR_11">illiquidity</span> and insolvency are interrelated, they are at least conceptually distinct. Indeed, some policy proposals appear to be aimed primarily at the <span class="blsp-spelling-error" id="SPELLING_ERROR_12">illiquidity</span> of particular asset markets, and others appear to be aimed primarily at the potential insolvency of specific financial institutions. The Treasury proposal appears to be motivated primarily by concerns about illiquid markets. The more the government overpays for assets purchased under that act, however, the more the proposed program would instead provide a subsidy to specific financial institutions, in a manner that seems unlikely to be an efficient approach to addressing concerns about insolvency.</blockquote><br />We expect to learn more about how well policymakers have actually performed when the revised proposal is published, which is expected to happen later today. It is difficult for this consultant to remember an economic episode that played out more dramatically or with greater consequences.<br /><br />Update: <a href="http://jpfarrell.blogspot.com/2008/10/review-of-emergency-economic.html">Review of the Emergency Economic Stabilization Act of 2008</a>, signed 3-Oct-08.<br /></span><br /><span style="font-family:trebuchet ms;"><span style="font-size:85%;">The Senate passed a modified version of the bill, now called HR1424, the night of 1-October-08. A letter of summary and analysis of <a href="http://management-consultant-at-large.googlegroups.com/web/hr1424Dodd.pdf?gda=txQKqkAAAAB1iikhPwrMaGtUQl2cT77vvBEO5C86oRZi0o6tmu5J4A7GdXbR4XadjXE3rLkRe5ptxVPdW1gYotyj7-X7wDON">that version</a> was prepared by Director <span class="blsp-spelling-error" id="SPELLING_ERROR_13">Orszag</span> for Sen. <span class="blsp-spelling-error" id="SPELLING_ERROR_14">Dodd</span>. That bill is expected to be put up for a vote by the House 3-October-08. If passed without amendment, it will go to the President, who will then have 10 days to sign it into law.<br /><br />A collection of our posts about the US Economy is maintained <a href="http://jpfarrell.blogspot.com/2008/09/us-economy-and-bailout.html" target="_blank">here</a>. See also <a href="http://jpfarrell.blogspot.com/2008/09/greg-mankiws-blog-case-against-paulson.html" target="_blank">The Case Against the <span class="blsp-spelling-error" id="SPELLING_ERROR_15" target="_blank">Paulson</span> Plan</a> and <a href="http://jpfarrell.blogspot.com/2008/09/can-this-system-hold-water.html" target="_blank">Can the Banking System Hold Water?</a></span></span><br /><br /><span style="font-family:trebuchet ms;"><span style="font-size:85%;">A permanent link to the <a href="http://cboblog.cbo.gov/"><span class="blsp-spelling-error" id="SPELLING_ERROR_16" target="_blank">CBO</span> Director's Blog</a> has been added to <a href="http://jpfarrell.blogspot.com/2008/08/blogroll-other-sites-of-interest.html" target="_blank"><span>Reference Websites</span></a>.<br /><br />See <a href="http://management-consultant-at-large.googlegroups.com/web/BailoutPlan.pdf?gda=Pco6h0EAAAB1iikhPwrMaGtUQl2cT77vOyIWdZdxmnlGpW-HXnYmx7QxIFhO192k0C3bppqybwxTCT_pCLcFTwcI3Sro5jAzlXFeCn-cdYleF-vtiGpWAA&gsc=a1IJDAsAAABlvJZEqVHyeVWEzckjmwFc" target="_blank">Key Provisions of the Bailout Plan</a> as summarized by Reuters 28-Sept-08. For the <span style="font-weight: bold;" target="_blank">complete text</span> of the 28-Sept-08 version of HR 3997 The Emergency Economic Stabilization Act of 2008, click <a href="http://management-consultant-at-large.googlegroups.com/web/BailoutBillDraft1.pdf?gda=PtUwcUcAAAB1iikhPwrMaGtUQl2cT77vOPTir1jFVARo2p3h5i9zxtjx9xRLMTckV7FBSkG0EjFhmrMR3uGvvPr01Poh-10xeV4duv6pDMGhhhZdjQlNAw&gsc=senRsBYAAACEcOgrL1LZc3gTVS3Dj_H2sJrAtjd9Fq-fV8M8HcFQDQ" target="_blank">here</a>.<br /><br />To learn more about our work in consulting, read about our <a href="http://management-consultant-at-large.googlegroups.com/web/JP_Farrell_and_Associates.pdf?gda=jQkqs04AAACWwCRtwaDbXokpIwq8cbMxY-0sbHEo-kVzsifZT_ToMmG1qiJ7UbTIup-M2XPURDSo_GTNpKiBREqPra3ASgwWNSLdamUUmAXCkfx7U-ebuw" target="_blank">Practice</a> or check out our <a href="http://groups.google.com/group/management-consultant-at-large/web/case-studies" target="_blank">Case Studies</a></span></span>.<div class="blogger-post-footer">©2009 by JP Farrell & Associates, Inc. All rights reserved.</div>James P. Farrellhttp://www.blogger.com/profile/04396068595090164836noreply@blogger.comtag:blogger.com,1999:blog-508478158982864469.post-24905436855835411072008-09-27T08:29:00.007-05:002009-03-24T07:26:41.143-05:00The Case against the Paulson Plan<a onblur="try {parent.deselectBloggerImageGracefully();} catch(e) {}" href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEhgpqUXXl2Mf0zvdCL6wawp884cuXVBhqhRwqktOHH7JzJHGbTx52n1zNY3Y9vZ0A6cPwkvfTPJEGq27HTULRJ7VzuA6ojePH4LWzwDrQbUGcJViea5mRoCsB2lZjQTmZ1Ev6e4LNTo1aLQ/s1600-h/shimer.jpg"><img style="margin: 0pt 10px 10px 0pt; float: left; cursor: pointer; width: 164px; height: 129px;" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEhgpqUXXl2Mf0zvdCL6wawp884cuXVBhqhRwqktOHH7JzJHGbTx52n1zNY3Y9vZ0A6cPwkvfTPJEGq27HTULRJ7VzuA6ojePH4LWzwDrQbUGcJViea5mRoCsB2lZjQTmZ1Ev6e4LNTo1aLQ/s200/shimer.jpg" alt="" id="BLOGGER_PHOTO_ID_5250699854622152770" border="0" /></a><span style="font-style: italic;font-size:85%;" ><span style="font-family:trebuchet ms;">Professor Robert Shimer, University of Chicago</span><br /></span><br /><br /><span style="font-family:trebuchet ms;">In a letter to Greg Mankiw, Professor of Economics at Harvard, Professor Robert Shimer of the University of Chicago shines a bright light on the $700 billion financial system bailout proposed by Henry Paulson. His prescription, that financial institutions be forced to raise capital in the market to increase their liquidity, </span><span style="font-family:trebuchet ms;">would put the onus on the institutions themselves, and not the taxpayers, to solve their crisis. Participation would need to be coerced because no individual institution has the incentive to do so acting alone, fearing that such a unilateral move would signal desperation.<br /><br /></span><a style="font-family: trebuchet ms;" href="http://gregmankiw.blogspot.com/2008/09/case-against-paulson-plan.html">Greg Mankiw's Blog: The Case against the Paulson Plan</a><br /><br /><span style="font-family:trebuchet ms;">The letter makes clear that the Paulson plan may be neither necessary nor sufficient to solve the liquidity crisis.<br /><br /><span style="font-size:85%;">A collection of our posts about the US Economy can be found <a href="http://jpfarrell.blogspot.com/2008/09/us-economy-and-bailout.html">here</a>. See, for example, <a href="http://jpfarrell.blogspot.com/2008/10/review-of-emergency-economic.html">Review of the Economic Stabilization Act of 2008</a> (3-Oct-08)<br /><br />See also <a href="http://jpfarrell.blogspot.com/2008/09/can-this-system-hold-water.html">Can the Banking System Hold Water?</a><br /></span><br /></span><span style="font-family:trebuchet ms;"><span style="font-size:85%;">To learn more about our work in consulting, read about our <a href="http://management-consultant-at-large.googlegroups.com/web/JP_Farrell_and_Associates.pdf?gda=jQkqs04AAACWwCRtwaDbXokpIwq8cbMxY-0sbHEo-kVzsifZT_ToMmG1qiJ7UbTIup-M2XPURDSo_GTNpKiBREqPra3ASgwWNSLdamUUmAXCkfx7U-ebuw">Practice</a> or check out our <a href="http://groups.google.com/group/management-consultant-at-large/web/case-studies">Case Studies</a></span></span><br /><span style="font-family:trebuchet ms;"><br /></span><div class="blogger-post-footer">©2009 by JP Farrell & Associates, Inc. All rights reserved.</div>James P. Farrellhttp://www.blogger.com/profile/04396068595090164836noreply@blogger.comtag:blogger.com,1999:blog-508478158982864469.post-47952719383216377472008-09-26T10:22:00.015-05:002011-10-07T08:46:27.838-05:00The US Economy and the Bailout<a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEjyXBtCD21iRfbz-daZIF8SL-NZXJAPUGq4AhYRyU4VpBANcOI71hO9BEGR8M551OmFzIV9LwHKcX8bYkFzp_sQ7EAibwiqmAo95EHlEmzXKZf9ivAIapCZu8rj0VMVJzCq1XbMaNc_kYxU/s1600-h/SiteHeader.jpg"><img alt="" border="0" id="BLOGGER_PHOTO_ID_5261484319404562178" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEjyXBtCD21iRfbz-daZIF8SL-NZXJAPUGq4AhYRyU4VpBANcOI71hO9BEGR8M551OmFzIV9LwHKcX8bYkFzp_sQ7EAibwiqmAo95EHlEmzXKZf9ivAIapCZu8rj0VMVJzCq1XbMaNc_kYxU/s400/SiteHeader.jpg" style="cursor: pointer; display: block; height: 103px; margin: 0px auto 10px; text-align: center; width: 400px;" /></a><br />
See these posts from our blog, <a href="http://jpfarrell.blogspot.com/" linkindex="50" rel="nofollow" set="yes">A Management Consultant @ Large</a>, for our perspective on the Political Economy and the issues confronting economic policy makers in the U.S.<br />
<ul><li><a href="http://jpfarrell.blogspot.com/2009/08/timeline-of-financial-bailout-of-2008.html">Timeline of Financial Bailout of 2008</a> presents a list of key dates associated with the near collapse of the world economy<br />
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<li><a href="http://jpfarrell.blogspot.com/2009/06/explanation-of-health-care-bill.html" rel="nofollow" target="_blank">An Explanation of the Health Care Bill</a> examines Title 1 of the Affordable Health Care Choices Act (Senate H.E.L.P. Committee version)<br />
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<li><a href="http://jpfarrell.blogspot.com/2009/08/health-care-reform-takes-shape.html" rel="nofollow" target="_blank">Health Care Reform Takes Shape</a> describes key provisions of HR 3200, the version of the Health Care bill being considered by the U.S. House of Representatives</li>
<li><a href="http://jpfarrell.blogspot.com/2009/07/businesses-going-shopping.html" rel="nofollow" target="_blank">Businesses Going Shopping</a> advises corporations to realign their assets, obligations and capabilities to position themselves for growth as the economy recovers.<br />
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<li><a href="http://jpfarrell.blogspot.com/2009/03/general-motors-surrenders.html" rel="nofollow" target="_blank">General Motors Surrenders</a> reports on the rejection of the General Motors restructuring plan by the Presidential Task Force on the Auto Industry</li>
<li><a href="http://jpfarrell.blogspot.com/2008/11/paul-volckers-harsh.html" rel="nofollow" target="_blank">Paul Volcker's Harsh Economic Medicine</a> reviews Volcker's stand against inflation in the early 1980's as Chairman of the US Federal Reserve<br />
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<li><a href="http://jpfarrell.blogspot.com/2008/10/credit-default-swaps-recent-stories.html" rel="nofollow" target="_blank">Credit Default Swaps: Recent Stories from NPR</a> provides further explanation of the role of credit default swaps (CDS) in destabilizing the world economy. The post links to stories from National Public Radio about CDS.<br />
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<li><a href="http://jpfarrell.blogspot.com/2008/10/financial-crisis-stepping-back-from.html" linkindex="51" rel="nofollow" set="yes" target="_blank">Financial Crisis: Stepping Back from the Precipice</a> comments on the latest U,S. Treasury plan to directly invest in U.S. banks. The article reviews commentary by economists on the blog of the Financial Times.<br />
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<li><a href="http://jpfarrell.blogspot.com/2008/10/review-of-emergency-economic.html" linkindex="52" rel="nofollow" target="_blank">A Review of the Emergency Economic Stabilization Act</a> of 2008 discusses the intent of the major provisions of the bailout plan.<br />
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<li><a href="http://jpfarrell.blogspot.com/2008/09/can-this-system-hold-water.html" linkindex="53" rel="nofollow" target="_blank">Can the Banking System Hold Water?</a> examines the September, 2008 liquidity crisis and the bailout proposed by Treasury Secretary Henry Paulson.</li>
<li><a href="http://jpfarrell.blogspot.com/2008/09/bailout-explained-by-cbo.html" linkindex="54" rel="nofollow" set="yes" target="_blank">The Bailout Explained by the CBO</a> highlights details of the Paulson plan as explained by the Director of the Congressional Budget Office.<br />
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<li><a href="http://jpfarrell.blogspot.com/2008/09/greg-mankiws-blog-case-against-paulson.html" linkindex="55" rel="nofollow" target="_blank">The Case Against the Paulson Plan</a> introduces a well-reasoned and informative letter about the liquidity crisis authored by University of Chicago economist Robert Shimer.<br />
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<li><a href="http://jpfarrell.blogspot.com/2008/04/how-does-elephant-in-room-like-your.html" linkindex="56" rel="nofollow" set="yes" target="_blank">How Does the Elephant in the Room Like Your Lapel Pin</a> takes a serious look at the importance of the National Debt and how it has been ignored during the 2008 political debates. Long-term imbalances need to be addressed before they destroy the U.S. economy in the coming decade.<br />
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<li><a href="http://jpfarrell.blogspot.com/2008/04/no-time-for-panic.html#links" linkindex="57" rel="nofollow" target="_blank">No Time for Panic</a>, (misnamed, with apologies) was a reminder in the midst of the credit crunch that many good things were happening in the world economy that would keep the U.S. economy out of free fall.<br />
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<li><a href="http://jpfarrell.blogspot.com/2008/03/getting-it-right-on-us-economy.html" linkindex="58" rel="nofollow" target="_blank">Getting it Right on the U.S. Economy</a> offered early encouragement to the U.S. Federal Reserve as it successfully postponed a credit crunch in the run up to the Bear Stearns collapse</li>
<li><a href="http://jpfarrell.blogspot.com/2008/02/us-export-opportunity.html" linkindex="59" rel="nofollow" target="_blank">The U.S. Export Opportunity</a> encouraged U.S. businesses to take advantage of the historically low value of the U.S. dollar to export more goods and services and asks policy makers to do more to facilitate that process</li>
<li><a href="http://jpfarrell.blogspot.com/2007/11/what-is-outlook-for-business-investment.html" linkindex="60" rel="nofollow" set="yes" target="_blank">What is the Outlook for Business Investment in 2008?</a> , first published in mid-November, 2007, forecast the weakness in the U.S. economy heading into the 2007 Christmas season and warned about the impending credit crunch. It also pointed to sectors that could be expected to thrive in world markets.</li>
</ul><span style="font-family: trebuchet ms;"><span style="font-family: trebuchet ms;"><span style="font-family: trebuchet ms;"><span style="font-family: trebuchet ms;"><span style="font-size: 85%;">To learn more about our work in consulting, please </span></span></span></span></span><span style="font-family: trebuchet ms;"><span style="font-size: 85%;">see our <a href="http://jpfarrell.blogspot.com/2008/08/profile-of-jp-farrell.html" target="_blank">Profile</a>, </span></span><span style="font-family: trebuchet ms;"><span style="font-family: trebuchet ms;"><span style="font-family: trebuchet ms;"><span style="font-family: trebuchet ms;"><span style="font-size: 85%;">download a <a href="http://tinyurl.com/y92lpqc" linkindex="350" target="_blank">brochure</a> about our Practice, or check out our <a href="http://jpfarrell.blogspot.com/2008/08/case-studies.html" linkindex="376" set="yes" target="_blank">Case Studies</a>.<br />
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<a href="http://tinyurl.com/y9486w4">Contact</a> JP Farrell & Associates, Inc.</span></span></span></span></span><span style="font-family: trebuchet ms;"><span style="font-size: 85%;"><br />
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<div style="line-height: 0pt; margin-bottom: 0pt; margin-top: 10px; padding-bottom: 0pt; text-align: center;"><a href="http://feeds2.feedburner.com/%7Er/AManagementConsultantAtLarge/%7E6/7"><img alt="A Management Consultant @ Large" src="http://feeds2.feedburner.com/AManagementConsultantAtLarge.7.gif" style="border: 0pt none;" /></a></div><div style="font-size: x-small; margin-top: 5px; padding-top: 0pt; text-align: center;"><a href="http://feedburner.google.com/fb/a/headlineanimator/install?id=oskh7cu44hbgg2r0svjj4je5jk&w=7" target="_blank">↑ Grab this Headline Animator</a></div><div class="blogger-post-footer">©2009 by JP Farrell & Associates, Inc. All rights reserved.</div>James P. Farrellhttp://www.blogger.com/profile/04396068595090164836noreply@blogger.comtag:blogger.com,1999:blog-508478158982864469.post-6015470146996982242008-09-23T07:30:00.024-05:002009-03-24T07:26:41.152-05:00Can The Banking System Hold Water?<a onblur="try {parent.deselectBloggerImageGracefully();} catch(e) {}" href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEiPiRmv1k7xDnhq1JwL10tSueYlrhReNFmAIFoh0Y2fH9UJBbSP-W7dGAEliZeQuCxHlkaCdVGuPDPUdKUv0H5HpcU0MM6xE3CbVKAb2a8nEm5BmV0ddyes9QujcjZ5DXTTm24DogjnBKGx/s1600-h/kuhlman.jpg"><img style="margin: 0pt 10px 10px 0pt; float: left; cursor: pointer;" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEiPiRmv1k7xDnhq1JwL10tSueYlrhReNFmAIFoh0Y2fH9UJBbSP-W7dGAEliZeQuCxHlkaCdVGuPDPUdKUv0H5HpcU0MM6xE3CbVKAb2a8nEm5BmV0ddyes9QujcjZ5DXTTm24DogjnBKGx/s200/kuhlman.jpg" alt="" id="BLOGGER_PHOTO_ID_5249203991607265234" border="0" /></a><span style="font-style: italic;font-size:85%;" ><span style="font-family:trebuchet ms;">John Kuhlman (left), economist, teacher and humanitarian</span><br /><br /></span><br /><span style="font-family:trebuchet ms;">Struggling to understand the depth and breadth of the liquidity crisis enveloping us, I thought back to a quote projected onto a giant screen behind Professor John Kuhlman in the 900-seat auditorium at the University of Missouri many years ago.</span><br /><br /><blockquote style="font-family:trebuchet ms;">The society which scorns excellence in plumbing because plumbing is a humble activity, and tolerates shoddiness in philosophy because philosophy is an exalted activity, will have neither good plumbing nor good philosophy. Neither its pipes nor its theories will hold water. <span style="font-size:85%;">- John William Gardner</span></blockquote><span style="font-family:trebuchet ms;">Henry Paulson, U.S. Treasury Secretary, has put forth an emergency plan by which taxpayers would buy up some $700 billion of "troubled" mortgage-related credit instruments in order to inject liquidity into the financial system. </span><br /><ul style="font-family: trebuchet ms;"><li>Would it solve the problem?<br /></li><li>What would we be buying?</li><li>From whom?</li><li>Why us?</li><li>Why now?</li></ul><span style="font-family:trebuchet ms;">It is easiest to answer the questions in reverse order. Most immediately, the Treasury Secretary needed to coordinate an international effort to avert a liquidity crisis. It is not just that the money market funds were losing value; they were at risk of default. Nervous investors were redeeming money market funds for cash at such a rapid rate that some funds were on the verge of stopping or postponing payments, unable to sell assets fast enough to keep pace. Fearing a disastrous run on the entire financial system, Paulson's team reached for the most powerful defensive weapon in the arsenal, promising to put the full faith and credit of the U.S. Government behind those instruments. Only U.S. taxpayers could float that kind of cash, and it would take an Act of Congress to get them to do it.<br /><br />Both presidential candidates, currently Members of that Congress, have rightly asked what they are expected to buy and under what terms. After all, $700 billion is the kind of money usually reserved for major programs like tax cuts, health care system overhauls, global wars, or all three combined. As it happens, the most troubling financial instruments at issue, credit default swaps (<a href="http://en.wikipedia.org/wiki/Credit_default_swap" target="_blank">CDS</a>), are mind-numbingly complex instruments by which investment bankers, mortgage lenders, and others have been able to transform risky portfolios of assets into profitable streams of cash, at least in the short run. </span><span style="font-family:trebuchet ms;">In an <a href="http://www.investors.com/editorial/IBDArticles.asp?artsec=16&issue=20080917" target="_blank">article</a> last week in Investors Business Daily, Ken Hoover states that "the worldwide CDS market has been estimated at $58 trillion at the end of 2007, a hundredfold increase from seven years ago."</span> <span style="font-family:trebuchet ms;">According to <a href="http://en.wikipedia.org/wiki/Credit_default_swap" target="_blank">Wikipedia</a>:<br /><blockquote>A <b>credit default swap</b> is a contract between two counterparties, whereby the "buyer" or "fixed rate payer" pays periodic payments to the "seller" or "floating rate payer" in exchange for the right to a payoff if there is a default or "credit event" in respect of a third party or "reference entity"...A credit default swap resembles an insurance policy, as it can be used by a debt holder to insure against a default under the debt instrument. However, because there is no requirement to actually hold any asset or suffer a loss, a credit default swap can also be used for speculative purposes and is not generally considered insurance for regulatory purposes.</blockquote><br /></span><span style="font-family:trebuchet ms;">"In the long run," </span><span style="font-family:trebuchet ms;">however, as economist John Maynard Keynes famously quipped, "we are all dead." Issuers of credit default swaps, like AIG, make money as long as the instruments they insure are safe. Holders of CDSs, like banks, are insured so long as the insurer stays solvent. However, when the underlying portfolios of insured assets began to fail, as did mortgage-backed securities, CDSs became unprofitable and more visible to investors. So many CDSs were becoming so unprofitable that the values of their issuers and some of their holders began to fall in spectacular fashion. Had AIG been allowed to fail, it might have taken hundreds of banks with it.</span><br /><span style="font-family:trebuchet ms;"><br />And so U.S. taxpayers are being told to cover the failed bets of financial institutions or suffer the consequences of an insolvent financial system that brings down speculators, investors and savers alike. </span><span style="font-family:trebuchet ms;">The details of the plan are still being worked out and the price tag may change as well. As initially proposed the Government would buy mortgage-backed securities. Now Congress wants to include mortgages themselves.<br /><br />The timing of the crisis does not bode well for devising a comprehensive solution, nor is it clear that Paulson has asked for one. The Federal Reserve and Treasury have already taken steps to provide liquidity to financial markets, extending federal loans to banks and equity to AIG, as well as supporting the transition of the two solvent investment banks, <a href="http://money.cnn.com/news/newsfeeds/articles/djf500/200809221446DOWJONESDJONLINE000561_FORTUNE5.htm" target="_blank">Morgan Stanley and Goldman Sacks</a>, to more regulated bank holding company status with access to federal lending.<br /><br />When Paulson asks for federal government help in cleaning up the balance sheets of private corporations, however, he raises profound issues about the role of government and the responsibility of private corporations to accept the consequences of the risk they freely take on. Demanding immediate and absolute authority to spend $700 billion to clean up private debt smacks of brinksmanship. A prudent Congress will take only the emergency measures required and leave the comprehensive solutions for its succeeding Congress in January.<br /><br />Any comprehensive solution will require far greater measures of oversight, accountability and respect for federal debt than has been in evidence as of late. In a democratic republic such measures should be subject to careful deliberation and open debate.<br /><br /></span><span style="font-family:trebuchet ms;">There will be plenty of time in the coming weeks and years for the accountants and politicians to count the dead and bury the wounded. </span><span style="font-family:trebuchet ms;">For thirty years politicians have found it useful to paint civil servants with the broad brush of "fraud, waste, and abuse" while promoting the virtues of Wall Street's "Masters of the Universe." Regulation and regulators, disparaged as unnecessary and incompetent, were ushered out of the financial markets with the passage of the Financial Services Modernization Act of 1999.<br /><br />Had we paid more heed to John Gardner and John Kuhlman, would our financial plumbing flow more freely today?<br /><br /><a href="http://www.nytimes.com/2008/05/21/education/21education.html?_r=1&ref=education&oref=slogin" target='_blank'>Professor Kuhlman</a> himself, now 85 and retired from a distinguished academic career, continues his career of service, teaching English to immigrants.<br /></span><br /><span style=";font-family:trebuchet ms;font-size:85%;" >A collection of posts on the US Economy can be found <a href="http://jpfarrell.blogspot.com/2008/09/us-economy-and-bailout.html" target='_blank'>here</a>. See also <a href="http://jpfarrell.blogspot.com/2008/10/review-of-emergency-economic.html" target='_blank'>Review of the Economic Stabilization Act of 2008</a> (3-Oct-2008)<br /><br />See <a href="http://www.reuters.com/article/newsOne/idUSMAR85972720080918?pageNumber=1&virtualBrandChannel=0" target='_blank'>How AIG Fell Apart</a> by Adam Davidson, in Slate.</span><br /><br /><span style=";font-family:trebuchet ms;font-size:85%;" >See also <a href="http://www.nytimes.com/2008/05/21/education/21education.html?_r=1&ref=education&oref=slogin" target='_blank'>Nearly Deaf Professor Teaches English Literacy, One Student at a Time</a>, by Samuel G. Freedman, New York Times, May 21, 2008.<br /><br /></span><span style="font-family:trebuchet ms;"><span style="font-size:85%;">To learn more about our work in consulting, read about our <a href="http://management-consultant-at-large.googlegroups.com/web/JP_Farrell_and_Associates.pdf?gda=jQkqs04AAACWwCRtwaDbXokpIwq8cbMxY-0sbHEo-kVzsifZT_ToMmG1qiJ7UbTIup-M2XPURDSo_GTNpKiBREqPra3ASgwWNSLdamUUmAXCkfx7U-ebuw" target='_blank'>Practice</a> or check out our <a href="http://groups.google.com/group/management-consultant-at-large/web/case-studies" target='_blank'>Case Studies</a></span></span><br /><span style="font-family:trebuchet ms;"><br /></span><div class="blogger-post-footer">©2009 by JP Farrell & Associates, Inc. All rights reserved.</div>James P. Farrellhttp://www.blogger.com/profile/04396068595090164836noreply@blogger.com