April 30, 2005

This Weekend’s Unanswered Questions (TWUQs for 043005)

Another installment in an irregular series of mysteries and pseudo-mysteries this inquiring mind would like to have answers for:

  • If individuals and families aren’t taking on significantly more debt compared to income than they have in the past (a central claim of the “see no evil problem” proponents of laissez faire non-regulation of lenders combined with means-tested bankruptcy “reform”), why is the average length of a car loan over 5 years (vs. 53 months in 2001), and why are one-third of new-car buyers (link requires free registration) “upside down” on their current loans (i.e., they owe more on the vehicle than it is worth) when they go to buy their next car? I realize that zero-rate loans, incentives, and pure financial foolishness and are all factors, but don’t tell me financial stress isn’t relevant. Heaven help Detroit (see GM item below), and for that matter the other car producers, if all such borrowers unilaterally and universally decide to keep their cars a year or two longer.
  • Why won’t the supporters of Social Security privatization say more about Chile? A New York Times (!) writer (link requires free registration) went there and found that if he had invested his Social Security money in the privatized social pension system (reflecting real results in real mutual funds since 1981′s privatization there), he would be able to retire with benefits nearly triple that of what he’ll get from the US Social Security system. Chile has had problems with participation by self-employed people and day-laborer types, but the fact is that it has undeniably worked out marvelously for those who are in it. I personally feel robbed by Alan Greenspan, who, though a supporter of private accounts, did not push for them when Social Security was fixed band-aided in the early 1980s.
  • When, oh when, is General Motors (blogpost from a few days ago is here) going to realize that it’s in an honest-to-goodness serious crisis? A Fortune article tease (link to full article requires subscription, and I don’t have one) indicates that:

    “…while (CEO Rick Wagoner) is throwing himself into the job with gusto, there’s no sign so far that truly radical change is on his agenda.

    Memo to GM–Your competitors are eating you alive, and the car-buying climate in general appears to be deteriorating (see first item above). What does it take for you guys, and your union, to get radical? Serious investors and bondholders appear to have no choice but to conclude that this is not a serious company.

UPDATE: As if on cue, I go to the mailbox and what do I see but Biz Weak’s Cover: “Why GM’s Plan Won’t Work–and the Ugly Road Ahead” (link is free for the time being). The first sentence says it all: “If General Motors Corp. were any other company, its problems would have sorted themselves out a long time ago.”

April 28, 2005

Links of the Day–042805

There IS more happening than the talk vs. blog discussion. Here are some interesting things that came at me today.

First, a new form of Internet mischief — Typosquatting: Preying on people who slightly mistype the URL of a popular web site in order to install spyware, malware, and the like. Example: “Be very careful when you enter in Google’s URL on your web browser. Miss just one letter and you’ll end up on a rapaciously nasty site that could install viruses and spyware on your system.”

Next, a potential mea culpa (not yet though)–Based on the low level of filings in the first two months of this year, I said “I would not be surprised if the expected rush (to file for bankruptcy before the new law kicks in) does NOT materialize.”
        So far, so wrong: “Americans made a stampede to Bankruptcy Court last month as passage of bankruptcy reform was inevitable. A record 165,000 filings were made during March, compared to 152,000 for March 2004. The 8.5% gain in filings reverses a steady decline in bankruptcy filings over the past two years.”
        Of course I didn’t know quite as much then as I know now about the bill. The bill’s draconian provisions, particularly the unreality of the Means Test, plus the impending increase in minimum payment requirements (independent of the law) may be leading many to conclude that they’ll have no chance of being treated fairly in the new system. I’m certainly not going to argue with them. OTOH, the first quarter 2005 total filings, even with the very high March number, is the lowest since 2001.

Finally, I’m sure this capability has been around for a while, but that doesn’t make me any more pleased about it. If you Google your home phone number or business phone number in the search box, you will probably see that you have a directory listing and can click to see where your house or business is located on a map. So can a coworker, stalker, or thief. If this gives you the creeps and you want out of Google’s phone book, Google has a phone book removal form. But it’s all like trying to put toothpast back in the tube–it probably won’t do anything to keep you out of The Ultimates, which does the same thing, though less elegantly, and who knows what other directories. What have we wrought?

Talk Radio in Beginning of Decline? Blame Blogs? (Part 2)

Filed under: Business Moves,Economy,MSM Biz/Other Bias — Tom @ 6:58 pm

Part 1 is HERE.

Radio and Records Ratings has the Arbitrons for the 1st Qtr of 2005 for many of the top markets all apparently released this week. Many larger markets are missing, and I don’t know why.

This is more data than I can stand, so I’ll try to limit the look to the major markets and other noteworthies (first set of numbers is 4Q04 to 1Q05, and second set is 1Q04 to 1Q05, followed by standing in market from 1Q04 to 1Q05):

- NY City:
WABC — 4.5-3.5, 3.7-3.5, 8th to 8th
WOR — 2.2-2.2, 2.2-2.2, 20th to 19th

- Los Angeles:
KFI — 4.4-4.6, 3.9-4.6, 3rd to 2nd
KLSX — 3.0-2.5, 2.5-2.5, 14th to 15th
KABC– 2.9-2.3, 2.4-2.3, 15th to 16th

- Chicago:
WGN — 5.8-5.3, 5.9-5.3, 1st to 4th
WLS — 4.4-4.2, 4.5-4.2, 2nd to 7th

Seat of the pants evaluations of some other big markets:

  • Dallas-Fort Worth–dropping a bit at WBAP
  • Philadelphia–nice gains at WPHT
  • Detroit–very big gains at WJR (suspect this is the result of moving Dr. Laura from late AM to late PM)
  • Minneapolis–big gains at monster WCCO offset almost exactly by losses at the little talkers
  • Cincinnati–WKRC (no, not WKRP, silly) down 6% in 12 months and down 24% after election, fell from 5th to 8th place in market in past year with no lineup change
  • Denver–KOA down 20% in past quarter but up 17% in past year
  • St. Louis–KMOX Down 23% in past quarter and 5% in past year; 2nd place talker has doubled listeners in past year

Seat of the pants overall and admittedly broad-brush observations:

  • The talk stations that are holding their own or improving appear to be the ones who have Savage, Glenn Beck, or both.
  • Stations that are relying on the “ABC duo” of Limbaugh and Hannity appear to be taking big hits.

A pure speculation, tying back to my take on why blogs may be taking listeners from talk radio–Savage and Beck are gaining because they are less predictable and perhaps more entertaining than Limbaugh and Hannity, who even diehard fans must admit have gotten very predictable. Savage and Beck cover many items that have not been blogged; Limbaugh and Hannity cover what’s been blogged already. Blog readers, and bloggers, can leave them alone at relatively little risk of missing anything big.

That’s enough armchair analysis for a non-expert. Let’s just say that I believe I see the beginning of a trend, and it bears watching.

UPDATE: Just heard Savage and Chris Ruddy of Newsmax (in the car, of course) give very little love to the blogosphere, and Ruddy characterized the talk radio decline as something the MSM will overemphasize when it’s just part of a “normal cycle.” We’ll see, guys.

UPDATE 2: A while back, Zmetro opined that radio as a medium is in a long-term decline for a wide variety of reasons.

UPDATE 3: My View of the World points out that the Milwaukee market may be resistant to a talk decline due to strong local hosts. Good point to possibly apply in other places where local talent is strong.

April 27, 2005

Talk Radio in Beginning of Decline? Blame Blogs? (Part 1)

Filed under: Business Moves,General,MSM Biz/Other Bias — Tom @ 9:57 pm

Go HERE for Part 2.

The first paragraph below was last updated at 5:15PM ET April 27–The rest of the post, with minor edits and added links, is as of the time indicated Wed. night, except for clearly identified updates below.

The question marks are in the title only because I don’t think there is yet enough evidence to KNOW that is happening. I heard it for the first time at about 9PM on Wednesday (yes, on the radio), have decent info relating to only two cities (but they are biggies), and contrary evidence for other cities from a radio insider (see below). I’m going to be following this over the next few days because I think it may represent an important shift.

What I heard is that talk radio listenership declined significantly in the first quarter of this year, virtually across the board.

Now, it doesn’t surprise me. Most obviously, the presidential election is over.

But I get the sense that the decline is more than one would expect for that reason alone (I will hopefully find more numbers than currently provided).

I believe the blogosphere has been taking listeners away from talk radio, and that the pace of this shift is accelerating. I believe it’s true on the left and the right, as Air America, having gained no meaningful traction during the election season, has fallen back as well.

The logic behind the decline is simple:

  • Five-plus years ago, people listened to Rush, Liddy, and the rest to learn things the mainstream media either would not report, or would not emphasize.
  • Today, those who follow the blogs have 24-7 access to alternative information. Many of us can predict what Rush, Hannity, Franken and the rest are going to talk about even before the show starts, and we can feel pretty confident that we won’t learn much that is new. So, why listen? Since the left-of-center blogosphere is just as active, one would expect that many of them feel the same way about Franken, Imus (whose program has gone through a steep decline), et al.

Speaking only for myself, I can say that almost all of my current talk radio listening occurs in the car and not in the office. Five-plus years ago, the ratio was about 50-50. Even in the car, when I get the sense that a topic I’m current with is going to be beaten up, I turn the radio off.

I sense I am not alone in this. Perhaps more than one tipping point has been reached.

Whoa. Taking a closer look at the NRO piece that takes shots at Air America:

The ratings also show WABC radio, which airs Rush Limbaugh, consistently beating Air America in New York City even though Franken had at one time claimed to be beating the conservative host there. In the 10 a.m. to 3 P.M. period in the Winter of 2005, WABC (and Limbaugh) won 2.7 percent of the audience to Air America’s 1.4 percent. In Spring 2004, WABC beat Air America 2.7 percent to 2.2 percent. In Summer 2004, WABC won 2.7 percent to 2.3 percent. In Fall 2004, WABC won 3.6 percent to 1.6 percent.

For those keeping score, that’s a 25% drop (3.6 to 2.7) at WABC/Limbaugh.

A WaPo piece is directly on topic:

WMAL-AM (630), home of Rush Limbaugh, Sean Hannity and other mighty righty talkers, was one of the big losers in the latest survey. WMAL lost nearly 30 percent of its core audience (adults ages 25-54) from the preceding three months, when the election was the dominant story. What had been an up-and-coming station a few months ago (WMAL ranked 11th among all stations during the fall) is now a middle-of-the-pack afterthought (it tied for 16th in the latest survey).

…….WMAL was at least able to record some ratings. Two of its AM talk competitors, WTNT (570) and WRC (1260), barely registered. WTNT — which features conservatives Laura Ingraham and Joe Scarborough — captured an average of just 0.5 percent of the Washington area’s 2.3 million adult (25-54) listeners; it finished in a tie for 26th. WRC, which turned to a liberal talk format in January by adding Al Franken and some of his “Air America” crew, was nowhere to be found. It captured less than 0.1 percent of the audience, too low to be counted.

What happened? “It’s a good question,” said Bennett Zier, regional vice president of radio giant Clear Channel Communications, which owns WRC and WTNT. “You would think that 90 days after an election, a lot of topics would still be very [hot]. . . . People are very passionate, but it’s difficult sometimes to tell where that passion is.”

I think 30% represents much more than election falloff, especially since the election was a white-hot topic only during the first 45 days of the fourth quarter of 2004. Maybe the “passion” has migrated to the blogosphere.

I’ve been Malkinized (thanks, Michelle). Welcome to Malkin’s minions. Continued efforts at evidence accumulation are in progress.

A commenter at Outside the Beltway says ” The broadcast radio industry is also blaming IPods and satellite radio for their demise.” I’m speculating on DECLINE, not demise, but it’s an interesting point. I would think iPods would hurt the FM and music stations more than talk radio.

UPDATE 5: A radio insider Cam Edwards (with permission) e-mails the following:

…the large drops in ratings in D.C. and New York don’t hold up across the board. KGO in San Francisco is still at a 6.5, a drop of a tenth of a point from last ratings period. That 6.5 is also 4/10ths of a point better than their Spring ’04 ratings period, however. WLS in Chicago has lost a 2/10ths of a point. WPHT in Philly’s lost 3/10ths of a point. RKO in Boston is actually UP 2/10ths. Again, not really surprising considering the elections are over and a lot of casual listeners are now back to sports talk or their favorite music.

If the numbers go down even during the mid-term elections, then the radio industry might start paying more attention to the blogs. As it stands now, I don’t think blogosphere is cutting into the talk radio audience (at least in large numbers).

In a second e-mail, Edwards adds:

I said in my post that television didn’t kill radio, cable didn’t kill the networks, and the blogs aren’t going to kill any other form of media. It’s my belief that talk radio’s here to stay, although it’s certainly going to have to adapt (maybe as I’ve done, by having a lot of bloggers on my show).

Perhaps. I didn’t reveal, because I wasn’t sure it was important, that the person who raised the issue of talk-radio decline last night was one Michael Savage, who claimed that he is an exception, and that his ratings are WAY up, and not down (and Savage is sometimes a bit on the hyperbolic side). If so, this could explain the minor declines noted at KGO and RKO noted by Edwards (if Savage is up, the others are down, and they offset each other), especially since (if I recall correctly) Savage was changing stations in San Francisco in the early part of 2004.

Edwards posts on the topic here, and gets a bit hyperbolic on me. No, I don’t think blogs are killing or will kill talk radio, and no I am not trying to engage in wishful thinking. Zheesh. Otherwise, some very good info at the post. (UPDATE 5A: He mellows a bit on the characterizations–I appreciate his timely response.)

UPDATE 6 (SIX?-zheesh):
Myopic Zeal agrees.
Uncorrelated notes that the best talkers are also entertainers. I would suggest that they need to get even better at the entertainment part to keep people interested in tuning in. Also, I should note that if I want to know what’s on Rush’s mind, I go to his blog, I mean home page, and review what he covered that day (but, that means I didn’t tune in earlier).

April 26, 2005

General Motors on the Ropes (Maybe Ford, Too)

So how bad is it at Generous General Motors?

Rumor has it that GM may file for bankruptcy (and maybe should). Ford, though not in the same dire straits as GM appears to be, nevertheless is facing similar seemingly intractable but less immediately urgent problems.

Full business disclosure: I did a great deal of business with the UAW-Ford National Center, the cooperative education effort of the two entities, in the late 1990s, and have done much less business with UAW-Ford since then. I have not done business with the analogous UAW-GM or UAW-Daimler Chrysler entities.

Full personal disclosure: I have the utmost respect for the Ford’s experienced UAW rank and file and local union leadership, less for the national UAW leadership, and even less for much of Ford’s top management. Thanks to retired and currently employed relatives, I buy and drive Ford vehicles at the employee discount, and am generally pleased with their performance. I have no direct experience with the other two companies beyond following the same news stories everyone else is.

How bad is it? Well, can you imagine McDonald’s announcing price increases so that Burger King and Wendy’s can better compete against them? Has Procter & Gamble ever offered to do that for Colgate Palmolive? Would Wal-Mart raise prices for Target’s or K-Mart’s benefit? No, no, and heck no.

But that’s nearly what has happened with Toyota and GM-Ford, except that one hand at Toyota didn’t tell the other hand what they were thinking.

One hand offered the idea:

The Japanese group’s chairman, Hiroshi Okuda, has urged companies which export vehicles to the US, the world’s largest car market, to wind back their competitiveness. If they didn’t, there could be a trade backlash from the US, he said.

“I’m concerned about the current situation GM is in,” Mr Okuda told a press conference in Japan, where he was speaking as president of the Keidanren, the Japanese Business Federation.

Mr Okuda suggested that measures like technical assistance and price rises would give the US companies “time to breathe” and turn their businesses around.

He said that, while price rises might reduce vehicle sales, the profit on each sale would be higher, making the overall effect negligible.

Offering “technical assistance” to GM and Ford? How humiliating can it get?

But the other hand (apparently one that matters more) nixed the concept:

Toyota Motor Corp. said Tuesday it will not raise its car prices to help U.S. rivals, breaking with its chairman’s comments a day earlier that voluntary price increases and other steps were in order to help restore health to the U.S. auto industry.

“Our basic stance is that prices are something for the market to determine,” a spokesman at Japan’s top auto manufacturer said. “We are not thinking about changing (vehicle) prices in order to help the U.S. auto industry.”

Japanese brands collectively grabbed a record 30 percent share of the U.S. auto market last year, and some executives have become more sensitive about how their companies’ success would play out at the political level.

Maybe some execs at Toyota are more “sensitive” (zheesh), but not enough to carry the argument.

Outside the Beltway strongly objects to Toyota easing up, and his thoughts will serve as a starting point for my take on things:

The very idea that companies would raise prices so as to help out their less efficient competitors is mind boggling…… While I’ve got some sympathy for protectionism to combat illegal state subsidies abroad, it’s outrageous to do it in cases where it’s a case of bloated companies being challenged by more efficient and innovative competitors.

General Motors has been a behemoth in the world auto market for decades. If they haven’t figured out how to make cars that Americans want by now, the (bleep) (deleted to conform with site standards) with them.

So what’s up here? And while we’re at it, why is Ford not in jeopardy to the degree that GM is?

Start with the (in my opinion) non-arguable premise that the UAW was for the most part a noble but occasionally violent and overaggressive outfit from its early existence until perhaps the late 1950s, and served as a necessary counterweight to the arrogant and exploitive management cultures that had developed at the the Big Three. If you don’t believe that the UAW was needed, you haven’t seen the pictures in the halls at Local 600 of the beatings Walter Reuther and others received at the hands of Ford thugs at The Battle of the Overpass (story here), and you don’t understand the conditions that led to the Flint sit-down strike, which forced the first national contract with GM.

In the 1960s, though, everyone involved just got too greedy, and sloppy. Hourly pay, pensions, and benefits were raised beyond reason, and very relevant to today, many of the costs involved, particularly pensions and retiree health care, were pushed out into the future (which, unfortunately, is NOW). Product quality deteriorated.

Through most of the 1970s, the union-management adversarial relationship continued, and an entitlement mentality developed on both sides. The Big Three felt they owned the American consumer and could charge whatever they pleased for mediocre vehicles (think Vega, Gremlin, Pinto), while the UAW believed they could continue to milk the companies for ever-higher benefits without consequence. This gave the foreign automakers a chance to make meaningful inroads into the US market. Toyota and Honda, with their high-quality cars made in Japan, and to a lesser extent Volkswagen in Germany, became significant threats for the first time, going after business beyond what the Big Three were willing to concede.

By 1979, the party was over. Chrysler teetered on the edge of bankruptcy and survived because of UAW concesssions, meaningful labor-management teamwork, and bailout financing from the government. Ford’s problems were perhaps worse–the losses ($1 billion in 1979 dollars) were nearly as severe as Chrysler’s, and Ford knew that no government help would come. The union-management quality circles and other cooperative measures that began during this crisis, and which mostly remain in place today, not only saved Ford, but made it the most solid and by far highest quality producer of The Big Three by the mid-1980s.

GM, though, was much bigger and much more able to absorb the shocks of the late-1970s and early-1980s; this, in my opinion, ultimately turned out to be company’s undoing. The cooperation and the culture change required to save Chrysler and Ford wasn’t required, and never came into being, at GM.

In the early 1980s, The Big Three successfully lobbied the Reagan Administration to negotiate “voluntary” quotas with Japan, which in the short term limited the damage Toyota and Honda could do and gave The Big Three the breathing room they arguably needed to shake off their adversarial union-management legacies. As noted, it worked at Chrysler and Ford, but GM did not meaningfully change its ways. In fact, in a shocking (to me) admission of impotence, GM in the late 1980s began a “new company” (Saturn) with a new cooperative framework in an attempt to get around what they couldn’t solve, and never have solved, at their existing plants.

But the quotas ended up being a classic case of “be careful what you wish for.” Honda’s, Toyota’s, and then Subaru’s and Nissan’s decisions to build plants in the United States were direct results of those quotas, because those companies did not want to have their unit sales in the biggest vehicle market in the world constrained by quotas in the next domestic auto crisis (and you’ll note, they haven’t been). I believe the Japanese companies’ entry into American manufacturing would have come much later without the quotas, and conceivably may never have happened at all.

So in return for the breathing room, the Big Three eventually got fiery competitors right at their doorstep with huge built-in competitive advantages. The Japanese (and then the Germans) have been able to build brand-new ultra-efficient plants in relatively low-cost areas, hire fresh, young workers at near-UAW wages, provide very generous (but nowhere near UAW-level) benefits, and, perhaps most important, don’t have The Big Three’s UAW pension and retiree health-care baggage from the 1960s and 1970s or an aging workforce to worry about.

The Big Three’s lead in SUVs, minivans, and light trucks carried Ford and GM through the 1990s. Chrysler was sold, and even in the midst of the best vehicle market in history, hemorrhaged money in the late 1990s. (I’ll be the first to admit that I don’t understand how the Chrysler situation deteriorated so badly and so quickly, and as far as I can tell, it has never returned to acceptable profitability in the American market. Anyway, it really shouldn’t be considered an American entity any more).

But you knew the Japanese (and the Germans) were going to figure out how to produce good SUVs, and minivans, and light trucks. Now, considering all factors, the Japanese and German versions of these vehicles are often better values. GM and Ford really have no remaining unique product niches or significant competitive advantages. The situation is indeed grim.

It appears from here that Ford may be able to weather this immediate storm, but it won’t be easy. Both the UAW and the company need to redouble their efforts at competitiveness. IF management pays attention to the type of people I’ve met from the shop floor over the years, and IF the younger people on the floor get serious about working (a big problem in recent years), and IF the UAW leadership and Ford’s top leaders can get creative about solving the mess they are in, I think it can be done. The cooperative culture, though frayed, is still largely there to support survival. Product development? There’s no shortage of creative minds in Silicon Valley and elsewhere looking for meaningful work, but the existing engineering culture and organization at Ford needs to be totally revamped, and immediately.

GM? Yikes. I just don’t see the UAW or management summoning up the will to solve the problems. Barring an acquisiton by a competitor (with the legacy costs, you have to wonder who would even consider it), it may be that the unthinkable is just around the bend. The potential impact of a company like GM effectively off-loading a large portion of its pension and retiree health costs on taxpayers in bankruptcy is frankly scary.

Horatio Alger, Charles Stuart Mott, William Durant (scroll down to 1908 at the link), and the others who built what was once the most admired company in the world are spinning in their graves.

UPDATE: A Biz Weak editorial (link requires subscription) calls GM “a finance company that actually loses money making cars.”

UPDATE 2: More on GM’s mediocre response here (go to third item).

UPDATE 3: George Will on GM as a Welfare State.

April 25, 2005

Biz Weak Blathers On Blogs

Filed under: Biz Weak,Business Moves,MSM Biz/Other Bias — Tom @ 11:59 am

Thanks to my friends at the US Post Office, I have yet to receive my dead-trees edition of Business Week (known in these parts as Biz Weak), the one with blogs on the cover.

Looks like that makes me three days behind everyone else (sigh).

The good news is the Blogads blog has done my work for me by blogging the Biz Weak blog story (Biz Weak link appears to be free for the time being):

  • A stinging critique of the story’s central premise that the big corporations will eventually figure out blogging and crowd the little guys out. Yeah, right–just like they figured out how to emulate Drudge. (Ed.: Oh, you mean they haven’t? After 8-plus years? /sarcasm)
  • A Devaststating Recap of how Biz Weak covers have totally missed the truth over the years, and a good explanation as to why: “….Precisely because the publication’s staff does a wonderful job. Each cover is a finely tuned encapsulation of conventional wisdom. The magazine’s editors and staff cannot afford to go out on a limb and highlight truly revolutionary ideas or un-heralded companies — they might be wrong and look idiotic. They are not paid to be visionaries or speculators, they are paid to report. Covers can be done only if enough of the “right” people agree on something and are willing to be quoted. So, for the savvy patient investor, Business Week covers can be a contrarian gold mine…..bold declarations on Business Week’s cover are a good sign that the opposite will soon happen.

This of course means that indie bloggers need not jump out of buildings screaming “The Corporates are coming, The Corporates are coming!”

Read ‘em all.

April 23, 2005

This Weekend’s Unanswered Questions (TWUQs for 042305)

Another installment in an irregular series of mysteries and pseudo-mysteries this inquiring mind would like to have answers for:

  • Why hasn’t anyone pointed out that to the extent that Congress, as it has since the 1960s, takes Social Security’s annual surpluses and uses them to help operate the rest of the government, it is regressively taxing those who are paying into Social Security? A middle-income earner pays in 12.4% of all earnings, while a million-dollar earner only pays in 12.4% of the first $90,000 earned.
  • How has the fantasy that it’s mostly spendthrifts and wastrels who file for bankruptcy, as typified by this mindless poll, where only two available answers make this assumption about EVERYONE who files, survived in the face of these, this, and this?
  • How is it that anyone who gets my name or some amount of personal information from me as a result of a business transaction has the presumptive right to store that information and use it without asking me? Buying something at Radio Shack or any other store should not automatically subject me to their weekly mailings; they should have to ask first, and get a “yes” from me. I’m not a grouch (okay, sometimes I’m a grouch)–sometimes I’d welcome it, usually I won’t. The point is that I should be able to decide that.

UPDATE: Vodkapundit rips Radio Shack for wanton privacy intrusion after seeing Lileks rip Best Buy for the same reason. Great minds……

April 22, 2005

The Real Impact of The OCC’s Minimum Payment “Crackdown”

Filed under: Consumer Outrage,General,Taxes & Government — Tom @ 4:47 pm

As noted previously (second item of post), the Office of the Comptroller of the Currency, the alleged watchdog over national banks, is “strongly encouraging” banks to raise required minimum payments on credit card balances over the next 12-18 months from 2% of the outstanding balance to 4%. Business Week (link requires subscription to magazine) characterizes this requirement as a “crackdown” on bank practices and “Tough Love for debtors.”

No one would deny that requiring higher minimums is a GREAT idea for all NEW card accounts opened from this day forward. But it’s a lousy idea to impose it on existing balances, simply because:
– Lenders have been using the 2% threshold in making loan approval decisions.
– Lenders, especially mortgage lenders in the past year or so, have lowered their approval standards, and have made more loans to riskier customers.

The combination of these two points could be lethal for many existing borrowers, and I’ll show you why.

First, my support for relaxed lending standards has three sources, two of which are from conversations and one I can document:

  • I had a conversation late last year with a loan rep from one of the major national mortgage lenders. He told me Fannie Mae and Freddie Mac (Fan and Fred), the quasi-private corporation that buys mortgages from lenders and packages them for securitization, had regprogrammed their loan underwriting programs to allow consumers with credit scores as low as 660 to get conventional loans at the best rates. Previous practice for years had been to require a credit score of 720 for the best rates (for a quick explanation of credit scores, go here).
  • Last week I spoke with mortgage broker I have used a few times in the past. He told me that Fan and Fred have relaxed the underwriting standards even further–a score as low as 620 can still get you a conventional mortgage, and you can qualify for a subprime (higher-risk, higher rate) mortgage with a score as low as 550 and “debt ratios” as high as 48%-50%.
  • What I can show is that subprime mortgages have exploded to a degree never previously seen in just the past year: “Subprime originations soared by 59.6 percent in 2004 according to the trade publication Inside B&C Lending (Bethesda, MD) to reach $529.9 billion. In contrast, a decline in demand for refinancings caused total 1-4 family mortgage originations to fall by 25.3 percent. Consequently, the proportion of all mortgage originations in the United States that were subprime rose sharply to 18.9 percent.”

So what are these “ratios” I referred to earlier? There are two when it comes to mortgage lending: Front-end and Back-end.

    - The Front-end Ratio divides a borrower’s monthly mortgage payment, including real estate taxes and homeowner’s insurance (even if not escrowed), by the borrower’s monthly gross income. Lenders don’t want that ratio to be any higher than 25%-30%, and 28% is generally considered the norm.
    - The Back-end Ratio divides ALL monthly payments, including the mortgage payment plus what is called consumer debt (credit cards, student loans, car payments, and any other loans or lines of credit) by monthly gross income. Lenders don’t want that ratio to be any higher than 35%-40%, and 36% is generally considered the norm.

So, let’s say a couple earning $90,000 annually combined, or $7,500 per month, applies for a mortgage. Let’s assume that their mortgage will have a payment of $2,100, enabling them to pass the Front-end Ratio requirement (28% x $7,500 = $2,100).

Now let’s say they also walk in with two car payments of $350 each and $9,000 in credit card balances (just below the average for Americans who owe on their credit cards). Here’s how the Back-end Ratio shakes out under the current 2% and future 4% minimum payment requirements:

2% Min.: $2,100 + $700 + $180 (2% of $9,000) = $2980 =
39.7% of Monthly Gross

4% Min.: $2,100 + $700 + $360 (4% of $9,000) = $3,160 =
42.1% of Monthly Gross

Using the current 2% minimums, this loan application probably gets approved (barely). Under the new minimums, the loan application gets rejected (or pushed into a subprime situation). Raising the minimum payment requirements after the fact will will push this couple into a situation that (as defined by the approval guidelines) they cannot afford. Many people who just barely qualified will therefore be pushed into untenable situations, especially if most of the consumer debt is credit cards and not installment loans. Late payments and foreclosures will increase. The effect on subprime borrowers who just barely qualified under subprime standards with the higher Back-end Ratios noted earlier will be even more dramatic.

This is not fair and not right. More important perhaps, even if you don’t buy into the ethical aspect of all of this, is that large numbers of foreclosures, late payments, and bankruptcies slow down new home sales, then new home construction, and then other related industries, and may eventually slow the economy down, even perhaps leading to a recession.

Of course, a reasonable response to this is that people should never allow themselves to get into situations where they can barely afford to make payments, especially if in the process they will make very little progress in paying off their credit cards (which is usually the case with 2% minimums). But the underwriting models should have considered this, should have built in 4% minimums from the very beginning, and didn’t, because generating sales and commissions was more important. For better or worse, too many borrowers assume that if the bank says they can afford it, they can. They shouldn’t think this way, but they do, and that’s reality. Many lenders in the past, when banking was built on personal relationships, would often have intervened to turn down a loan if it was clear to them that the applicant couldn’t cut it, regardless of what the ratios said; few such lenders exist any more. It doesn’t help that realtors and others encourage people to “buy as much house as possible.”

The new minimum-payment requirements should only be applied to new card accounts, because only new loan applications will be evaluated using these new minimums.

April 20, 2005

Bankruptcy “Reform” (B-”R”) Primer

Filed under: Bankruptcy & Reform — Tom @ 3:13 pm

Update–April 26, 10:30 AM ET: You know, not everything relating to bankruptcy legislation is about the money. It’s also about dreams deferred or destroyed, or worse (original CNN story is here).

Update–April 25, 12:45 PM ET: Welcome Volokh Conspirators and thanks to Todd Zywicki for the link. While B-”R” has been a recent focus obsession, there are other worthwhile contributions to the dialog (in my not so humble opinion) here, as well as some info and pointers that can benefit you personally.

Update–April 20, 3PM ET: Caught the end of the President’s speech before he signed B-”R”. Harped on “serial filers” and “bankruptcy mills.” Don’t know whether he made better arguments earlier; those two were weak. So, assuming the pen wasn’t out of ink, it’s law.

Some matters below didn’t get addressed (in which case no underlined link exists), but I’ll keep the ones I intend to get to on the list. I think we may be facing serious economic issues relating to the credit explosion (which despite the claims of B-”R” supporters, IS a related issue), and will be exploring that in the coming weeks.

This will be the controlling post for all the information you need about B-”R”. It has or will have links to all major issues and topics addressed before and after the bill’s passage.

Here is the menu of topics addressed so far:

    - Bankruptcy “Reform” Declares War on Bankruptcy Bar
    - President Bush: Veto Bankruptcy “Reform”
    - Bankruptcy “Reform”: The “Fraud” Canard, Today’s Word Games, and Tomorrow’s Word Games
    - The Legality of Bankruptcy “Reform” — “What About the Word “All” Don’t You Understand?
    - The Harsh Real-World Impact of the Bankruptcy “Reform” Means Test (summary)
    - The B-”R” Means Test:
    Part 1: What’s Wrong with Its Definition of “Income”
    Part 2: What’s Wrong with Its Definition of “Statewide Median Income”
    Part 3: What’s Wrong with How It Handles “Expenses”
    Some 2005 Cost Increases Bankruptcy “Reform” Will Ignore
    - House Judiciary staff Dems “leak” Objections to B-”R”–and Make Some Conservative Points
    - The Shameful Disinterest of AARP and the AFL-CIO
    - Bankruptcies are going down–A Lot

Here are the older posts that led up to the primer:

    - The Bankruptcy Debate: A Question of Values
    - Pro-”Reform” Prof: Bankruptcy is “Easy”
    - Prof. Zywicki’s View on Rising Bankruptcies
    - Why Both Professor Zywicki and the Bankruptcy Legislation Are Wrong
    - Deconstructing Todd Zywicki’s “Bankrupt Criticisms”: Talking Points Summary; Detail Part 1; Detail Part 2
    - SmartMoney.com Column: “Look Out Debtors”
    - Open Letter to Todd Zywicki on Bankruptcy “Reform”
    - The Bankruptcy Debate: Interest Costs Have RISEN, Despite Falling Rates: Original and Follow-up

Bankruptcy “Reform” Status–PRESIDENT SIGNS

Filed under: Bankruptcy & Reform — Tom @ 3:12 pm

FINAL UPDATE–April 20, 3PM ET: Caught the end of the President’s speech before he signed B-”R”. Harped on “serial filers” and “bankruptcy mills.” Don’t know whether he made better arguments earlier; those two were weak. Anyway, it’s law.

If you are on the main page, click “more” to see what the detailed progress of the bill was.

April 19, 2005

Links of the Day

Filed under: Consumer Outrage,Corporate Outrage,Privacy/ID Theft — Tom @ 1:45 pm

This is an evening travel day, which means a go-crazy-getting-ready day, so this will probably be the only post today. I’ll also be lucky if I can do one post each day during the next couple of days while I’m out.

Anyway, a few pretty important developments must be noted:

  • DSW x 10–The DSW personal data heist that was first brought to public attention a few weeks ago was originally thought to involve records of over 100,000 people. Now we learn that:

    Thieves who accessed a DSW Shoe Warehouse database obtained 1.4 million credit card numbers and the names on those accounts — 10 times more than investigators estimated last month. DSW Shoe Warehouse said Monday that it has contact information for about half of those people and started sending letters notifying them of the thefts, which happened at 108 stores in 25 states between November and February. A list of the stores is available on the company’s Web site.

    The stolen information did not include home addresses or personal identification numbers, the Columbus, Ohio-based company said in a statement.

    …….Besides the credit card numbers, the thieves obtained driver’s license numbers and checking account numbers from 96,000 transactions involving checks, the company said. Customer names, addresses and Social Security numbers were not stolen, DSW said.

    I would suggest that this represents a tipping point in the regulation of datakeepers. For better or worse, I don’t see how datakeepers can expect to avoid significant legislation. There have been too many incidents, and the number of records involved is just too large. Sometimes the cure is worse than the disease (I would cite Sarbanes Oxley in the public-company regulation arena as an example), but it appears that doing nothing about data privacy has just been eliminated as an option.

  • This was noted in my veto suggestion to President Bush on Bankruptcy “Reform,” but for those without the patience or time to read to the end, be aware that required minimum payments on credit cards will probably double in the next 12-18 months, from the usual 2% to 4% of the outstanding balance. This is a good news/bad news story–more on the potential effects of this when time allows.
  • ITAC update: The Identity Theft Assistance Center, an effort by the country’s largest financial institutions to help ID theft victims minimize the enormous hassle factor, has gone from a pilot project to a permanent service. I covered ITAC about six weeks ago, and noted that while it is a good idea, victims need to know to ask about it if an account at a participating financial institution is involved. I’ll provide more on the details of the service now that it’s permanent when I get a response from ITAC, but these two paragraphs from InfoWeek (the last two at the link) are encouraging.

    On the business front, the Financial Services Roundtable, a group of financial institutions, has made permanent its Identity Theft Assistance Center, which helps ID-theft victims for free. The center has operated on a pilot basis since August and has helped 700 people restore their identities. The center is funded by banks and operated by Intersections Inc., a provider of bank-branded ID-theft-protection services.

    The center’s rapid-response system shortens the time thieves can take advantage of stolen data and collects evidence to use against them in court. It takes, on average, two to three weeks to restore a victim’s credit history once the center is notified. The center wants to reduce that to two to three days through process improvements.

Fixing things in 2-3 days would be pretty impressive.

April 18, 2005

President Bush: Veto Bankruptcy “Reform”

UPDATE April 20, 3PM ET: Caught the end of the President’s speech before he signed B-”R”. Harped on “serial filers” and “bankruptcy mills.” Don’t know whether he made better arguments earlier; those two were weak. So, assuming the pen wasn’t out of ink, it’s law.

UPDATE: Welcome, Instapundit readers!
Insta says “(a veto) won’t happen. Alas.”
My head agrees. But there is prayer……

President Bush:

The “Bankruptcy Reform and Consumer Protection Act of 2005″ that has reached your desk is an unacceptable imposition of many of the lending industry’s greediest wishes on financially troubled American families.

You should veto this bill for these reasons:

  • The large majorities that passed the legislation did so mostly because of lending industry campaign contributions, not because of the legislation’s alleged “merits” or any groundswell from the public at large.
  • There is significant grass-roots, conservative opposition to Bankruptcy Reform from those who understand it, and overwhelming, passionate, and principled grass-roots opposition in the other party.
  • The bill’s effects will be much, much rougher on financially troubled individuals and families than the bill’s supporters claim. It will force hundreds of thousands of filers into partial-payment plans that, due to the inflexible and insensitive standards it mandates, will usually be pre-ordained to fail. It will also force many filers to sell household items that reasonable people would expect to be able to keep at fire-sale prices to satisfy the same creditors whose predatory or unethical actions often led to or accelerated the downward financial spiral into bankruptcy.
  • As a political calculation, the bill is a disaster that has the potential to jeopardize much of the rest of the GOP agenda during the rest of your presidency, cause the GOP to lose the White House in 2008, and leave the party of Lincoln in the political wilderness for years to come.
  • Signing this bill into law will make it easier for your opponents to paint your most important domestic objectives of Social Security reform and death tax repeal as sops to the rich and takeaways from the poor, because that is in fact what Bankruptcy “Reform,” despite its surface reasonableness, really is.
  • A veto, on the other hand, will be a political masterstroke. It will energize the rest of the Bush agenda, and convincingly refute the hollow Social Security and death tax scare tactics of the opposition.
  • The term “compassionate conservatism,” which seems to have already fallen into disuse, may as well quietly disappear. It surely will no longer ring true.
  • Religious and Christian people of all political persuasions have not paid appropriate attention to the substance of this bill. To the extent that there has been interest at all on the part of religious people, it has been to express relief that the Schumer abortion amendments were excluded. But most religious people will not be pleased when they see the actual effects of this law play out, and many will be righteously indignant that this was allowed to happen. The fact that Dave Ramsey (talk show host and Christian financial planner and counselor) and a few others like him are so opposed to this bill should be a clear warning that your signing it will mean trouble, for both you and your party, with people of faith (as an aside, have you asked your minister and religious counselors their opinion of this bill?).
  • You and your advisers apparently need to be reminded that the only Senator not to cast a vote on Bankruptcy “Reform” was Hillary Clinton. This was no scheduling accident. If you sign this bill into law, Mrs. Clinton can raise campaign money from the money-center banks that were behind this bill, and let her designated mouthpieces denounce it for her–a very effective 2008 strategy.
  • Any horror stories that occur will come straight back to haunt the GOP, and will give the opposition mountains of ammunition, most likely in time for the 2008 campaign, but perhaps even in time for 2006. For the next 6 months, we may see stories about people by the hundreds of thousands rushing to beat the bill’s October effective date to get in ahead of this harsh, lender-underwritten, GOP-backed legislation. Groups that either inexplicably did not oppose Bankruptcy “Reform,” or expressed only token opposition to it, will be out in force to denounce it when the casualties mount. It is not inconceivable that this bill will kill the presidential hopes of every single GOP senator and Washington insider dreaming of a run in 2008.
  • You may not be aware that the Comptroller of the Currency has incredibly decided that the onset of tougher bankruptcy legislation is the perfect time to require that credit-card issuers double their minimum payment requirements on cardholders, jeopardizing the financial well-being of a large percentage of the 19 million households that currently make only minimum payments on their card balances each month. Bankruptcy “Reform,” combined with the Comptroller’s action, will ripple through to the housing market, since fewer borrowers will qualify to buy or refinance a home. This chain of events could very well sew the seeds of a recession in 2006 and beyond.
  • Unlike welfare reform, which led to genuine improvement in people’s lives and successfully broke the cycle of dependency for so many people, there will be real horror stories and casualties of Bankruptcy “Reform.” The only question is how much visibility victims will get.

The Senate’s 74-25 margin of passage may appear to be veto-proof, but support for the bill will collapse once you veto it. In fact, you can expect that the Senate won’t even try to bring the bill up for an override vote. It is a virtual certainty that nine Democratic Senators will switch their votes and reduce the bill’s support below the two-thirds override requirement. You can be sure, if the Senate Majority leader is foolish enough to attempt an override vote, that Mrs. Clinton will be there this time under pressure from her strongest supporters to vote against it.

In your veto message, you should tell Congress and the American people that while this legislation is unacceptable, lawmakers should pass, and you will sign, meaningful and compassionate Bankruptcy Reform that will:

    — Go after chronic credit abusers and those whose financial circumstances were not caused by personal setbacks like divorce and illness.
    — Authorize more money for the IRS, FBI, and the courts themselves to investigate and root out fraud that may be occurring in the current system.
    — Focus on preventive credit-counseling and financial education to replace the current crisis-oriented framework. Credit bureaus should be required to notify individuals whose credit scores have fallen below 600 that their financial situation has deteriorated, and suggest that they visit a qualified and pre-screened credit-counseling agency to educate themselves about money management if that knowledge is lacking, put their financial house in order, and, if necessary, restructure their finances before matters get serious beyond repair.
    — Require that creditors negotiate with counselors in good faith to establish reasonable payback plans that debtors will be able to successfully adhere to. This step, when combined with the previous requirements for notification, will likely prevent hundreds of thousands of bankruptcies and their attendant family and social disruption every year.
    — Place commensurate and meaningful restrictions on the punitive and predatory rate, fee, and universal default practices of the lending industry.

In sum, a veto would send an resounding message to the country as to what the GOP and your presidency are supposed to be all about, and prove that “compassionate conservatism” isn’t merely a clever phrase. Signing this bill into law, on the other hand, may set the economy, your noble causes, and your party back for years.

Please do the right thing, Mr. President. Veto Bankruptcy “Reform.”

Tom Blumer
Mason, OH

April 16, 2005

Some 2005 Cost Increases Bankruptcy “Reform” Will Ignore

Filed under: Bankruptcy & Reform — Tom @ 11:54 pm

The Wall Street Journal reported earlier this week (link requires paid subscription) that steep increases are coming on many toll roads (bolds added):

The toll increases are steep and affect millions of commuters on some of the busiest traffic arteries in the U.S. It now costs $3 — up from $2 last summer — to cross the San Francisco-Oakland Bay Bridge and six other state-owned bridges in the Bay Area. Pennsylvania socked drivers with an average price rise of 43% on the Pennsylvania Turnpike, the fastest route between Philadelphia and Pittsburgh. The New York State Thruway Authority plans an average increase of 25% for cars and 35% for trucks starting in mid-May on the 641-mile highway system, the country’s longest toll road. Tolls there will rise as high as $18.50, from the current $14.70.

The Means Test in Bankruptcy “Reform” is based on the Internal Revenue Service’s Collection Financial Standards as of Jan. 1, 2005, in this case the portion of those standards relating to Tranportation. The Means Test will therefore ignore these toll increases in any filings that take place after the law takes effect (October 16) until January 2006. It will also ignore the 20%-plus increase in gas prices. It will ignore any and all inflation in any cost element that has taken place since Jan. 1.

Every dollar of ignored cost will potentially be, and will usually be, an extra dollar that a person or family subject to Chapter’s 13 partial-payment regimen will have to pay out of money that in most cases won’t be available. In some cases, it will cause what should have been a Chapter 7 if accurate costs had been used to become a Chapter 13.

The bill’s writers certainly knew of this lag factor when they wrote the misnamed “Bankruptcy Prevention and Consumer Protection Act of 2005,” and they could have compensated for it by padding the IRS dollar amounts by about 5%-10% across the board. 10% especially would have overcome the time-lag problem, and it would have taken care of a lot of the objections from those in high-cost areas who spend more than their respective regional averages on food, clothing, and the like.

But, as I’ve said before: Bankruptcy “Reform” isn’t about fairness. It’s about punishment.

This Weekend’s Unanswered Questions (TWUQs for 041605)

Filed under: General,Privacy/ID Theft,Taxes & Government,TWUQs — Tom @ 2:12 pm

The first installment in an irregular series of mysteries and pseudo-mysteries this inquiring mind would like to have answers for:

  • Why doesn’t New York Attorney General Eliot Spitzer ever indict any of the “criminal” business types he’s stepping on and over to get to the Governor’s office (or is it the 2008 Democratic VP slot)? I’ll use “criminal” in quotes until I start seeing real trials. (HT to the April 13 Wall Street Journal Editorial Page) *
  • Why do many, if not most, company health plans still issue insurance cards with Social Security numbers on them? Don’t these people have lawyers?
  • Why is the Small Business Adminstration in the venture capital business, when their efforts have led to $2.7 billion in losses over 10 years, and over $11 billion in exposure on current deals? (HT again to the April 13 WSJ Ed Page–they were having a very good day)
  • Why should we believe death/estate tax repeal opponents who now object to how much it will cost (see this post for why it won’t cost as much as feared, and may be a net positive when all factors are considered), when they opposed it in the supposed “surplus” days of 1997-1999? (HT to April 14 WSJ Ed Page–make that a very good week)
  • Will we still be talking about asbestos litigation, which first appeared in the 1960s, in the 22nd century?

* – When Business Weak chimes in against a Democrat (which Spitzer is), he must be getting out of control (link may be available briefly, after that requires paid subscription):

So much for innocent until proven guilty. No charges have been filed against AIG. Spitzer had yet even to interrogate Greenberg when he publicly slammed the company’s actions before millions of TV viewers. Instead, Spitzer has been busy serving up red meat to a scandal-weary public — and pressing any corporate director who has ever heard of Sarbanes-Oxley to think about settling. That may be a good way to bring a swift conclusion to the AIG mess, but it’s bad for American traditions such as due process and the rule of law.

It doesn’t take a Harvard-educated lawyer (which Spitzer is) to recognize that winning a battle in the court of public opinion is easier than winning in a court of law. And Spitzer has had an amazing run using the threat of public vilification. Another weapon is New York’s expansive Martin Act, giving him extraordinarily broad subpoena powers in financial fraud investigations, which usually unearth tons of documents that can be used in civil suits. These tools have induced miscreants to settle charges and pay hefty fines. Think Merrill Lynch (MER ), Salomon Smith Barney (C ), and the mutual-fund industry.

We wouldn’t find this expedient path to justice so worrying except that Spitzer seems more and more convinced that the end always justifies the means. Indeed, in a speech in Dublin last week to the Law Society of Ireland, he seemed actually to question the right of AIG executives to refuse to answer regulators’ questions. As any lawyer knows, simply invoking the Fifth Amendment protection against self-incrimination is not an admission of guilt. It’s an option used by many defendants for many reasons — and a tenet of the of the American legal system.

The editorial’s highlight sentence in the magazine (not provided online) says: “No AG ought to be cop, judge, jury, and prosecutor all in one.” Ouch.

UPDATE 2: (April 18) A WSJ letter-writer notes “I don’t recall Mr. Spitzer saying a word about the price of dot-com stocks while the bubble was expanding. No politician stepped into that maelstrom because anyone who did would have faced the wrath of hysterical investors who were making money every day and would have reacted badly to anyone who tried to ruin their party.” And angering a President of his own “party,” I might add. More wealth (hundreds of billions) “disappeared” while NASDAQ dove from 5000 to 1200 than perhaps during any other non-wartime period in human history.

April 15, 2005

Identity Theft: D’ya Think An Envelope for Social Security Cards Might be a Good Idea?

Filed under: Privacy/ID Theft,Soc. Sec. & Retirement — Tom @ 11:49 pm

Letter writer Eugen Sura tells the Arizona Republic:

I recently decided to replace my wallet-weary, wash-cycle-surviving Social Security card. After the necessary phone call, I was assured that my replacment card would be mailed in two weeks.

Imagine my complete surprise and amazement when the card arrived in what we used to call (I’m 87) a penny postcard with my cut-out card, including my Social Security number, address, etc., for the whole world to see.

I admire our government officials for their prudent attempt to save money, but how much would an envelope cost?

The Social Security Administration needs to get a grip and use envelopes.

Mr. Sura should put a fraud alert on his credit files (numbers to do that are HERE), and lobby the state of Arizona to pass a credit freeze law.

UPDATE: Let’s just say that Arizona is not the best place to be mailing Social Security cards with the numbers visible.