Source: pfala (Flickr)

The Consumerist notes today that Senator Barney Frank (D-Mass) has watered down a proposed Consumer Financial Protection Agency in an attempt to make it passable.  I’m unclear who is against this proposal, though I’m assuming that it’s the standard Democrats for, so Republicans are against it pattern.

Stepping back and thinking about the state of the industry, it appears that consolidation has been the most prominent trait of the financial services industry, along with “innovation” (think negative amortization mortgages for unqualified borrowers as probably one of the most controversial recent products).  Consolidation generally leads to Corporate Poop’s biggest irritant: less competition.  This story is also indicative of Corporate Poop’s second biggest irritant – the excessive bias in the U.S. against regulation.

The recent mortgage crisis and subsequent bailout was, in Corporate Poop’s opinion, a perfect storm of several factors.  House of Cards, a special on CNBC, does a brilliant job of breaking down the various factors, which in my opinion included:

• Political forces: Deregulation in the financial services industry, including a repeal of part of the Glass-Steagal Act via the 1999 Gramm-Leach-Bliley Act which allowed commercial banks, investment banks, securities firms and insurance companies to consolidate – and consolidate they did, with more and more power being concentrated into fewer and fewer hands.  This was aided by Republican control in 2000 to 2006 of government, which generally resulted in a “laissez-faire” no regulation attitude .  Democrats aren’t exactly heroes in this either, showing little inclination over the period to do much of anything beyond impotent whining – and the fact that Wall Street has traditionally been a big contributor.  When the house of cards fell, it should have surprised no one that there was so much consolidation that the big players in the financial services industry were too big to fail.  Dear yahoos (that are predominantly, sadly, hard line Republicans) – regulation does not equal socialism.  Dear hippies – capitalism generally works.  Unchecked capitalism does not always work.
• Financial innovation with no oversight: Ah, the old days.  When you wanted to buy a home, you used to go to a bank, which had a loan officer turn you inside out financially to understand whether or not their loan to you would be paid back.  Loans used to be boring, 30 year fixed interest rate mortgages, where you brought 20% of the home’s cost to the table as a down payment.  Then, there were three key financial innovations that exploded in the market, none of which which are inherently not good or bad despite being villified in the press: securitization, exotic mortgages, and credit default swaps.  Securitization permitted banks to sell the loans they issued to Wall Street banks, who chopped them up and mixed them up with other loans and sold them as investment products.  By chopping them up so that an investment product might have a partial piece of many mortgages, risk was theoretically minimized because to lose a lot of money, many different homeowners would have to default since the investment product was comprised of a piece of many investment products.  Of course, in the crash, the market overall caused many homeowners to default.  Many homeowners defaulted in part because of exotic mortgages, such as negative amortizing loans which actually result in the amount of principal due on a loan increasing over time.  The vast majority of exotic mortgages made it less expensive for people to get into a home quickly, and as any economist knows, if you make something cheaper, you increase the number of people who partake.  This helped the real estate market eventually get overheated, with people treating real estate like stocks to be flipped in short-term horizons of less than 2 years.  Of course, the investors buying the securitized loans started to get a whiff that the loans were actually poop before the bottom fell out of the market – and the only way that Wall Street could continue to sell these securitized, chopped up loans was to issue credit default swaps.  They would sell securitized loan products but also sell CDS’s, making billions.  CDS’s were essentially insurance for the securitized loan products they were also selling; if the securitized loans went bad, the CDS’s acted as insurance to allow purchasers to recoup their losses.  The existence of CDS’s as another financial instrument was yet another financial product that Wall Street could make money on by creating them and initially selling them, as well as creating a market for the trade of CDS’s and making even more money via transaction fees.  CDS’s were insurance – but they were never called insurance, as insurance is a highly regulated industry; CDS’s were the wild west, with no regulation whatsoever.
• Ratings Agencies: As enablers to the financial services addicts, they perpetrated the mess by giving good marks to the securitized loans issued by Wall Street making them seem much less financially risky than they actually were.  This increased demand for securitized mortgage products.
• Greenspan-can-do-no-wrong-itis: Alan Greenspan and the Fed artificially kept interest rates low during the period, even when the economy was hot, making loans cheap and homes easier to buy.  There were economists who predicted the fallout – they were shunned by Greenspan and other economists (many of the famed University of Chicago).  We can blame politicians for not regulating the industry, but at the same time, can we really blame pols when most of the country’s leading economists had little idea of the magnitude of the crash?
• 9/11: While no one’s ever mentioned this, I suspect that we pay less attention to just about every kind of crime that doesn’t have a link to terrorism since 9/11.  I think this includes white collar crime, which the FBI used to play a major role in prosecuting.  The shame of it all is that white collar criminals can cause horrendous damage to thousands of lives easily, but the penalties they receive compared to street criminals seems minor.  Anyway, off my soapbox – the bottom line is that there was no shortage of mortgage fraud and real estate fraud during this boom, and more of it might have been headed off at the pass had we not been as focused on terrorism.
• Bias towards homeownership: In this country, we provide tax breaks for homeowners, thus making the purchase of a home relatively cheap compared to the rental of a home.  It is part of the fabled “American Dream.”  From an emotionless, rational standpoint however, economists would suggest that this distorts the market, pushing more people to buy homes that would normally rented.  While a bias towards homeownership isn’t necessarily a bad thing (I have some ideas about homeownership and “broken windows” theory), it felt like it was pushed to an extreme during the first half of this decade.  In my own experience for example, I lived in Las Vegas from 2006 to 2009.  During my last year and a half, I lived in a fantastic new (built after 2000) 2BR condo, which cost me $1150 per month to rent.  I was curious about buying a place as was everyone at the time, and in 2007 I found out from public records how much the condo was purchased for.  Knowing this plus the community fees, I found this number to be insanely high compared to the rent, which suggested that this was a situation that was out of whack; the imbalance between rental rates and monthly cost to pay the mortgage et. al, even taking into account tax breaks, suggested it was much more favorable to rent.  This leads us to one more major factor, in my opinion, that lead up to the crash.
• Real Estate Industry Insanity and the Fools that Listened to Them: Eric Sussman of the University of California – Los Angeles Anderson School of Management had one useful piece of advice for me that has always stuck to this day.  I paraphrase: “realtors are parasites.”  Realtors are not your friend, they create little actual value.  They are just salespeople.  I’m always amused by reading the real estate industry’s economist forecasts, always predicting now that we are about to turn the corner and that now is the time to buy homes.  Of course, it’s their job to say that.  Americans should be blamed for listening to such helpful maxims as, “real estate prices only go up.”  America and its love affair with realtors is now over, or at least, taking some time apart.  Beyond perpetuating the insanity, they also made a critical error.  When people bought homes, they generally did so by valuing the home based on comparables, or similar homes that had recently sold in their community.  During the boom, when everyone’s prices were going up, you might have been able to get a good deal compared to other homes – but what if all the homes were overpriced?  There’s no good deal there, as millions of homeowners have found out the hard way.  This also includes real estate and mortgage fraud, which I suspect bloomed during the period.

Some critics like to loudly blame Fannie Mae and subprime loans.  While these no doubt contributed, I don’t think they directly contributed as much as politicians seeking scapegoats like to make us think.  Fannie Mae, by purchasing loans made by banks (similar to the securitization without the chopping up) made the overall financial services market more liquid, as banks could quickly get the money back that they had loaned out for people to buy homes and make those loans to others.  This adds further liquidity to the market which isn’t a bad thing, just as the notion that credit default swaps or exotic mortgages aren’t inherently bad, and in fact may be good (for example, there might be individuals for which exotic mortgages are perfect, such as people who have volatile income streams).  Subprime loans aren’t inherently bad either; there are some people who might be considered “higher risk” from a credit standpoint, but can be suitable loan candidates; they pay higher interest rates because they are more risky so creditors make more profit, and the borrower gets a home. Win-win, if executed properly.  Disastrous if not.  I tend to blame subprime borrowers less than the regular public, as the people making the loans should have had considerably more financial savvy and understood the risks much better than they actually did.  That, plus the fact that less risky borrowers, or “Alt-A” borrowers have also shown that they are at risk of default in big numbers too.

The bottom line: keeping in theme with this blog, corporations, including those in financial services, are like psychopaths in the sense that they have no feelings but are “persons” in the eyes of the law.  Normal people have shame when involved in wrongdoing or when they make mistakes.  This is not anyone’s fault – corporations simply have one mission only – to create value for shareholders no matter what.

If Citibank was a normal person, it would say, “we really screwed up in causing this toxic mess of mortgages, we’ll accept our punishment now.”  Government, as the parent, needs to say, “we still love you and want you to do well Citibank (along with your brothers WaMu, etc.), but we’ll have to create rules which will prevent you from hurting us and society overall.”  The kids wouldn’t like the new rules, but given the damage they’d done and all that the parent had to do in cleaning up the mess, they’d shut their mouths and take their punishment.

Of course, Citibank and it’s financial services bretheren are not normal people but corporations.  These corporations have no remorse and are now back to business as usual, fighting any attempts to regulate them.  This situation is compounded by the fact that few of us actually understand enough about economics and the complexities of the financial markets to “know” what should be done.  I have an MBA and consider myself far more financially literate and knowledgeable than the average person about economics – yet I think I only have an understanding that is at the tip of the iceberg.  How can a grassroots movement for more regulation form when most people simply are angry about having to bail out banks, with no understanding of what has actually happened?

None of these factors mentioned up to this point were entirely to blame – it took a perfect storm of all of these things happening at one time.  At the end of the day, in my opinion the public is to blame.

Politicians are reactionary creatures – they need to be prodded – LOUDLY – by constituents to do anything.  The public has permitted themselves to be lulled into a false sense of security, buying into the notion that any kind of regulation is bad.  Even now, it seems like Obama doesn’t have the grassroots underpinning supporting efforts to really push Wall Street into more hard line regulation.  This strikes me as insane – like a battered spouse that returns to a domineering husband, when we should be slapping restraining orders against it.  Capitalism is an incredible system, and probably the best one we have for fomenting the creation of goods and services to society’s benefit.  However, because corporations have no remorse no matter what the ramifications are of their actions, we must make sure that the politicians we elect protect society’s interests, including both corporations and citizens.

Source: StephenMitchell (Flickr)

Lovely story today from the AP about the rejection of application “Google Voice” from the iPhone.  Why should this matter to you, dear readers?

In short, we don’t know why Apple rejected Google Voice from the iPhone.  Now, it might seem on the surface that Apple should be able to do whatever they want with their iPhone, but what if…

• Apple dominated the market for phones (or more specifically, phone operating systems), the same way they dominate music players (or the same way Microsoft dominates desktop computer operating systems)?
• By controlling the market for phone operating systems, they also control what applications users can install on their phones?
• By controlling what applications users can install on their phones, Apple leverages their monopoly in phone operating systems to dominate other areas of software?

Taking it from the top…

Apple’s entry into the cell phone space with the iPhone was a tremendous one, spurring some serious innovation in the cell phone market.  Since it’s release, the iPhone has made a big splash in the smartphone market, selling almost 4 million units alone in the first quarter of 2009.

The iPhone is perfectly consistent with Apple’s overall go-to-market strategy for its products.  Apple routinely markets attractively designed high-technology devices with unparalleled ease-of-use and strong service (think Apple Geniuses at Apple stores) at a cost premium.  Apple’s strengths lie not in cutting edge technology, but merging sex appeal and ease of use with high tech – the perfect combination for mass appeal, mass sales and of course, massive profits.

Part of the reason why Apple has been able to make ease-of-use such a core part of their products has been tight control over the user experience.  For example, Microsoft’s operating systems are usually considered buggy and prone to crashes, while Apple operating systems are considered relatively rock solid*.

[*This is in part because of their relative market shares - pretty much anyone can create a program for Microsoft's operating systems and put it out on the market - this prompted more people to get computers with Microsoft operating systems, which prompted more programmers to put out software for Microsoft...this is an economic concept called "network effects," where the more of a good/service is on the market, the more valuable that service is.  The classic economic example is a telephone.  Let's say you have a telephone.  Your one telephone alone in the world is pretty useless.  One hundred telephones makes your telephone a little more useful.  One hundred million telephones makes your telephone quite useful.  This partially explains why Microsoft operating systems are dominant (in terms of market share) while Apple's computer operating system market share has languished.  The downside of this for Microsoft is that with so many different potential programs out there interacting with their operating system, it's impossible for them to predict how their operating systems will interact with all the software created in the marketplace, thus resulting in many more bugs and crashes than Apple's operating systems.]

Apple has typically kept tight control over their user experience, which has been much easier with relatively smaller market share in many of their technology products and tightly controlling the interplay between hardware and software (with some brief exceptions in the past aside).

Of course, iPods have bucked that trend, with superior sales and dominant market share (approximately 74%) in the portable music player market.  What’s interesting is that the iPod has historically been, from a features standpoint, technically inferior and expensive to its competition.  (For example, I own a 1GB iRiver music player from 2005 that had FM playback and recording, along with a built in microphone for recording.  My next music player was a Sansa e260 that was expandable (with a microSD card), had 4 GB of memory onboard, as well as the iRiver’s capabilities. When I purchased these devices, they offered more capabilities for less than what an iPod would cost.) Of course, now in 2009 the recently released 5th generation Nano finally sports FM capability, which has actually already been around for a long, long time.

So why have people turned to Apple’s inferior product in droves?  Four fundamental reasons:

1. Legendary Apple ease-of-use (your mom and dad can use an iPhone or iPod, but would probably throw my beloved iRiver into a drawer) – folded into this is the iTunes program, which is in my experience, easier to use than any other non-iTunes program
2. Legendary Apple world-class  industrial design (it’s just plain sexy, kids!)
3. Easy customer service (try and see how painful it is to get immediate help when your Dell laptop breaks down compared to the ease of taking an iPod into an Apple Store in your local mall)
4. Most importantly, the Apple Ecosystem

What is the Apple Ecosystem?  It’s basically the support system that Apple has constructed around their hardware.  In particular, the iTunes store.

One of the fundamental lessons I learned in marketing – at the end of the day, you have to keep an eye on what your customers want.  Customers are not interested in buying Black and Decker drills.  They are, however, interested in the holes those drills make.  At the end of the day, they’re interested in solutions, not products.  iRiver and Sandisk put out superior products, by many measures.  However, Apple put out a superior solution to the problem of, “how do I listen to music I like?”

The iTunes store has superior music offerings, even today.  For example, Rob Pegoraro of the Washington Post compared the new iPod Nano against Microsoft’s Zune, and informally found that the Microsoft-backed Zune Marketplace had only two out of four random songs he had discovered he wanted from listening to the radio, while the iTunes Store had all four.

So…Apple’s solution makes up for relatively inferior value (because iPods have typically been overpriced relative to its competition) and feature set.  Apple’s dominance in the music player space comes from offering an attractive, easy-to-use product, that made it easy to access almost all the music someone would want via the iTunes Store.  The iTunes Store is key to the success of Apple in the music player space.

Now, why is all this relevant to Apple’s Corporate Pooping today?

Well, with the excellent iPhone and iPod Touch product (full disclosure: I own a first-gen 8GB iPhone – unlocked and jailbroken, BECAUSE I POOP ON YOU AT&T, BUT THAT’S ANOTHER POOP FOR ANOTHER DAY), and their seamless integration with the iTunes Store, Apple is moving into the mobile software / operating system space in a serious way.

If you’ve been paying any attention to technology news, you’d know that the latest technology gold rush is into creating applications for the iPhone, usually charging $1 to $10 for each download (though there are plenty of free apps to download too).  As of April 2009, almost 1 billion iPhone apps had been downloaded by iPhone loving owners.  That’s a lot of apps.  As part of its overall strategy to preserve a good user experience, Apple has strict rules about what apps marketed on its iTunes Store can and can’t do, from both a technical and functional standpoint.  Apple has been known to reject an app from time to time, sometimes in seemingly arbitrary fashion.  Regardless, the bottom line is that Apple has built a hugely popular, dominant lead in the mobile apps sector, which is inextricably linked to its mobile operating system platform.  This lead, thanks to network effects, may likely grow as time passes, and reinforce sales of its hardware – in particular, smartphones.

Now, even though it feels like smartphones have been around for a while, we’re actually in the early days of the smartphone industry.  As Moore’s Law continues its inexorable march, our phones will get smaller and more capable, and I figure before too long, smartphones will be the majority of cell phones, rather than the minority.  Almost every cell phone will have smartphone capability (though I believe there will always be a small market for simple phones that are inexpensive for those who aren’t technically savvy, or want super-cheap hardware).  Think about it – your first cell phone was probably capable of only making calls and storing numbers.  Now, I defy you to find a cell phone that doesn’t have a calculator on it.  Features will continue to creep onto “basic” phones.

So right now, there’s a struggle amongst mobile computing platforms for dominance, as everybody would love to be the Microsoft Windows of cell phones.  Google’s jumped into the fray with Android, Palm jumped into the 21st century of handheld operating systems with a revamped Palm webOS, Microsoft chugs along with Windows Mobile, Nokia seems to plug along with Symbian OS, etc.  And maybe, just maybe, one day there’s some money to be made as King of the Mobile Operating Systems (Microsoft might have some insight into this). The analogy between desktop operating system markets and mobile operating system markets are a little convoluted because of the intricate ties between hardware and mobile operating systems, but that’s a whole other kettle of kittens.

So, over 1,500 words into this lengthy blog, what does this have to do with today’s article?  Well, Google created an application called Google Voice, which will allow iPhone users to speak to others without using cell phone minutes.  Think Skype for the iPhone…plus some other benefits.  Apple initially rejected Google Voice from being a part of the iTunes Store, for no apparent reason.  This sparked some interest from the good folks at the FCC, who asked AT&T and Apple why the app was rejected when it ostensibly followed Apples guidelines for admittance into the iTunes Store.  To make a long story short, Apple tried blaming their partner AT&T (who is a legendary Corporate Pooper, but that’s for another blog), throwing the cellular carrier under the bus, but now Google’s pointing fingers at Apple.

Admittedly, it’s unclear to me exactly how rejecting Google Voice benefits Apple; if anything, it’s inadvertently brought down lots of unwanted scrutiny on the Cupertino-based company.  I figure that the presence of Google Voice, which supposedly does duplicate some of the functionality inherent to the iPhone’s operating system, could undermine Apple’s iPhone OS in a small way.  I leave this matter to those far more technically adept than me.

Initially, as a free market advocate it feels like Apple should be free to control the marketplace it has created in the form of the iTunes Store.  But the goal of every business is to drive its competition out of business – and then jack up the price to make monopoly profits when there’s no more competition to keep them in line.  So in regards to the huge market for mobile operating systems and applications, and potential antitrust issues, it might be indicative to see what Apple has done with the music player market, as arguably their goal in the long term is to have the level of dominance in phones that they do in music players.

iPods have almost 3/4ths of the music player market, and iTunes is arguably the top program for managing music on computers.  Yet for right now, prices for their products aren’t insanely out of line – they don’t have a complete monopoly over the portable music market.  Would they charge more for iPods if Sandisk and Microsoft (two of their other major competitors) stopped competing in this market?  Would their rate of innovation slow down?  I think it would be safe to say that eventually, they would.  We all perform best when we’ve got some competition breathing down our necks, and I don’t see why Apple is any different.  There’s a ton of money at stake too, pennies made over millions of transactions.  Apple controls 25% of the overall music distribution and almost 70% of digital distribution in the United States.  Estimates peg Apple keeping about 35 cents out of every 99 cent song, which adds up to a lot of money made when volumes are as large as iTune’s.

By extension, imagine a world where 90% of the phones are smartphones, and users download applications left and right, each one costing a few dollars at a time.  What if Apple dominated either the mobile operating system market or the digital applications distribution market?  What if it used dominance in one to reinforce the other, rejecting applications that threaten its lead in operating systems?  Apple has already shown they won’t allow competing operating systems to access iTunes.

So, to the central question at hand, does Apple’s pooping on Google and Google Voice matter?  In the short term, I see it as a strategic blunder on Apple’s part because it calls attention to their quietly burgeoning dominance in the marketplace for mobile application platforms and mobile application distribution.  Had Google Voice been allowed, early adopters would have largely jumped on the technology, with some potential for long term growth in its use.  My understanding of what Google Voice’s capabilities are would suggest that the impact would potentially hurt AT&T more directly, since with Google Voice calls can be made for free so users wouldn’t be using up their minutes to make calls.  However, cell phone companies don’t make much of their money on voice minutes anymore; the real money and growth is in their data usage plans.  So I believe that AT&T could possibly more than recoup their losses in voice via data.

In the long term, this could be the equivalent of Hitler invading Poland, with the rest of the world hoping that Germany would cease aggressive actions afterwards.  It seems like people are hoping that Apple will benevolently manage the Apple Ecosystem to the benefit of consumers, when they’ve clearly shown a logical propensity to manage the ecosystem to their own benefit.

The scary part is that this is largely seen as a non-issue by the press and public.  The few who do understand what’s at stake haven’t fully explained the ramifications of Apple’s dominance.

So, why should it matter if Apple has pooped on Google Voice?

The Pooper: The Hyatt Regency Boston, Hyatt Regency Cambridge, Hyatt Harborside @ Logan International Airport

The Poopee: About 100 housekeepers earning ~$15/hour plus benefits

The Corporate Poop: “As part of an ongoing drive to address challenging economic conditions, the Hyatt hotels of Boston have restructured their housekeeping services…Regrettably, the restructuring included staff reductions.’’

The Straight Poop: The Boston Globe has a breathtakingly appalling article today about the corporate pooping on 100 housekeepers employed by three Boston-area Hyatts.  According to the article, the Boston Hyatts needed to cut costs.  Sadly, this kind of story is not a surprise in today’s economic environment.

As an ex-employee of one of the largest hotels in the world, I understand the pressures hoteliers are under to cut costs.  One of the most interesting things about the front-line employees I met like housekeepers and food service staff was how many of them were veterans of the property, having worked there sometimes for decades, despite the frequent changes in ownership experienced by the hotel.  In the wake of the recent economic downturn, I, along with many manager level employees were cut, as well as a few senior executive managers and a few front-line people.  However, the ones who have a ton of seniority tend to stay because when you operate a hotel, you need a certain minimum level of staffers to operate the hotel.  You need to have a certain number of cooks to provide a minimum level of service in the restaurants.  You need a minimum level of housekeepers to clean rooms. Management might take some extreme tacks, shutting down entire hotel towers, etc. to enable them to cut staff and other ancillary costs even more, but at the end of the day, you need a skeleton crew to keep things going at a hotel.

What’s interesting about this story is that these Boston-area Hyatts took an alternative tack to the usual strategy of cutting staff where possible but maintaining a few staffers.  They decided to replace their entire housekeeping staff, about 100 in total, with a much lower-paid contracted workforce from outside the company.  It appears that the old housekeeping staff, which once made about $15/hour with full health, dental and 401k benefits, will be replaced with contractors making $8 per hour.

So far so good.  Sounds like your garden variety “corporate-layoff-in-modern-times” scenario.  What was spectacular about this?  Well, the old housekeeping staff was asked to train their replacements before they were notified of their dismissal, innocently told by management that they were just training employees that would fill in for them when they went out on vacation.  On August 31st, the housekeepers, some with at least two decades of time in at their properties, were cut loose, with two weeks of severance for each housekeeper plus an additional week of severance for every year of service they had, up to five or ten years depending on the property.

There is something truly spectacular about lying to your employees to trick them into training their replacements, then cutting them loose as soon as the job is done.  It was almost like a professional hit – they never saw it coming, and it was brutally efficient.

In the story, the housekeepers were not part of any union, though the local hotel workers union has adopted their cause.  Now, the hotel where I worked, the housekeepers were unionized.  I wonder if these Boston hotel workers were unionized, whether or not they would have been protected from their fates.  Maybe it wouldn’t have prevented them from losing their jobs, but perhaps it would have kept them from such an ironic professional demise to their Hyatt careers.

After being laid off from my first job, I understood the basic notion that corporations are not worthy of anyone’s loyalty, though I still believe that you can be loyal to people, such as mentors, in corporate environments.  Still, being loyal is fraught with peril – after all, some of the employees in the article had put in two decades with the hotel, undoubtedly making some friends around the hotel in the process.  Yet we all know what happened in the end.

The Pooper Scooper: One of the basic things you can do, if you want to punish Hyatt for their acts is to not patronize Hyatts in the future.  Whenever you buy a good or service, your money is essentially votes to perpetuate the creation of that good or service; alternatively, boycotting a product is a vote to end that service.  Want to do more?  Launch an Executive Carpet Bomb.  It may also be worth your effort to write directly to the management of the hotel properties.  Like all corporate environments, 80% of the job is CYA – “cover your ass.”  The focus is often on avoiding situations where you’d make customers angry, rather than creating situations to make them happy.  While voicing displeasure to management over this situation isn’t likely to get these housekeepers their jobs back, you can give the perpetrators of such a cruel pooping a headache.

For the longest time, I’ve been perfectly content to enjoy reading the blogs of others, with my favorite subjects being politics, gaming (casino and video), TV and online deals.  A regular website for me to visit on a daily basis has been Consumerist.  A consumer advocacy site with modern-day populist overtones, the site is worth a daily read, which is why I guess the venerable Consumer Reports bought them.

Today, I read a story that made me very, very angry.  That’s the next blog entry.  After reading this story, I realized that I was fed up with passively reading about corporate malfeasance.  Corporations touch every part of our daily lives, building the cars we drive, construct the homes we live in, and create the entertainment we watch.

Sadly, corporations also pollute the air we breathe, eliminate the jobs we work at, and lobby the politicians who govern us.  Corporations make the food we eat, which is sometimes toxic.  Corporations make drugs to address the effects of the toxicity of the food other corporations produce.  When we die, corporations bury us.

The story I read reminded me of the central concept of Joel Bakan’s 2005 book “The Corporation: The Pathological Pursuit of Profit and Power.”  You see, corporations, like each of us, are recognized as distinct legal entities.  Since corporations are like people in the eyes of the law, the book ingeniously set out to describe what kind of person the corporation would be.  That “person” has only one goal: to make profits.  Because corporations have no “soul” or “conscience” to speak of, they do everything legally (and sometimes illegally) possible to make profits, including things that the employees and shareholders who make up a corporation would never do themselves out of a sense of personal decency.

One word to describe behavior like this that Bakan used: “psychopath.”

Now, some of you may be rolling your eyes, thinking I’m just some liberal, knee-jerk anti-business socialist.  That’s absolutely false.  I went to two different business schools (one undergrad, one graduate) – both top national programs.  I have worked for several Fortune 500 companies.  I am a believer in Adam Smith classic free-market economics.  Now, what a lot of people think of as “free-market” economics is a business environment free of rules.  I strongly disagree.  I think government plays a role in regulating business as lightly as possible to ensure a vigorously competitive environment.  Competition between business entities is what creates value and at the end of the day, better value for consumers and society.  I’m all for profits – the pursuit of profits is what makes computers smaller, cheaper and more powerful every year, for example.  But I’m all for corporations making profits by creating better widgets, and putting them into customer’s hands more efficiently.  I am not for corporations making profits by being better than other corporations at lobbying or endangering public interests.

I think the recent Wall Street fallout of 2008 shows pretty clearly why government intervention into markets is required.  For example, what brought Bear Stearns and other mighty financial institutions down were now infamous credit default swaps.  Essentially, CDS’s were insurance policies for buyers of toxic mortgages.  However, unlike the insurance market for health insurance or life insurance which is highly regulated, credit default swaps were largely unregulated, allowing Wall Street institutions to make increasingly riskier bets with these financial instruments and making huge profits for a time – until the bottom fell out of the market.

What I see happening in America is that corporations, despite being staffed by people and owned by people from the society in which they operate, are increasingly making calculations where the end result is maximizing profitability but a component of that calculation is indifference to the often spectacular cruelty of their actions.

That’s what this blog is about.  Let’s take a look and laugh at corporations as they poop on us.  It’s better than cryin’.