Category Archives: Business and Economy

Symbolic punishment? Fraudulent French trader ordered to pay $6.7 billion

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The economic crisis has raised interesting questions about who is responsible. In the United States, much blame has been placed on the large financial institutions, investment firms and banks, who played a role (though others have also argued that the government and consumers share the blame).

But in the courts, blame could be assigned to any of these parties. In a recent decision in France, a trader who worked for France’s second largest bank was ordered to pay the bank $6.7 billion in damages for fradulent activity linked to the economic crisis. Here is a quick summary of the case’s outcome:

The court rejected defense arguments that the 33-year-old trader was a scapegoat for a financial system gone haywire with greed and the pursuit of profit at any cost — a decision sure to take some pressure off the beleaguered banking system overall.

By ordering a tough sentence for a lone trader, the ruling marked a startling departure from the general atmosphere of hostility and suspicion about big banks in an era of financial turmoil. It was a huge victory for Kerviel’s former employer Societe Generale SA, France’s second-biggest bank, which long had a reputation for cutting-edge financial engineering and has put in place tougher risk controls since the scandal broke in 2008.

Kerviel maintained that the bank and his bosses tolerated his massive risk-taking as long as it made money — a claim the bank strongly denied.

The story goes on to say that both sides, the trader and the bank, admitted to mistakes along the way. But the court ruling suggests that the trader was the culpable party.

The assignment of blame after large traumatic events is a fascinating phenomenon to observe. Who is eventually seen as the responsible party can depend on a number of factors including national culture, time in history, court cases, public opinion, and other particularities. Whoever becomes the scapegoat can often become the symbol of the traumatic incident, forever linking that person or party to phenomenon that are often quite complex.

The noisy biodegradable SunChips bag dies a quiet death

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The biodegradable SunChips bag has been pulled from the market because it is not convenient enough for customers. The issue? It is too noisy:

The noise of the bag — due to an unusual molecular structure that makes the bag more rigid — has been compared to everything from lawnmowers to jet engines. There’s even an active Facebook group with more than 44,000 friends that goes by the name of “Sorry But I Can’t Hear You Over This SunChips Bag.”

“Clearly, we’d received consumer feedback that it was noisy,” says Aurora Gonzalez, a Frito-Lay spokeswoman. “We recognized from the beginning that the bag felt, looked and sounded different.”

The bag illustrates the sometimes unexpected bumps that can trip up companies trying to do the right thing environmentally. SunChips sales have declined more than 11% over the past 52 weeks (excluding Wal-Mart, which doesn’t share its data), reports SymphonyIRI Group, the market research specialist.

A little noise doesn’t seem to be a bad price for having a compostable bag. If products have to be convenient to be successfully green, then one might suggest many consumers aren’t terribly serious about being green.

Also, what is with the journalistic trend of using the size of certain Facebook groups to lend weight to certain “movements”? “Even” 44,000 Facebook users are against the product – is the company reacting to this group or other consumer pressure or data?

The new American normal: pursuing an enriched social life rather than spending

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Sociologist Amitai Etzoni argues that Americans have reached a point where from this point on they may choose to enhance their social lives rather than consume:

The Great Recession provides a golden opportunity to test Maslow’s prescription. As most everybody has read by now, we lived beyond our means for decades, and we borrowed about all we could from overseas and indebted our children. It’s payback time.

There is no way on earth Americans over the next decade will continue to experience the kind of increases in income, and hence standards of living, we have seen since World War II. The question is if they will respond in anger — or benefit, by dedicating themselves, once their basic needs are sated, to spending more time with each other, their children, in social activities and cultural pursuits.

Polls suggest that large numbers are ready.

As Etzioni notes at the end of this piece, the real test of these opinions will come once the economy recovers. If people have more income and disposable income, will they return to their consumerist ways?

But perhaps these attitudes will lead to something different: a society that no longer desires or tries to attain explosive growth periods. Perhaps the true non-consumerist society will be content with slow but consistent growth.

Measuring the economy by looking at midnight Walmart shoppers

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There are all sorts of figures and statistics that are used to measure how the economy is doing. This NPR story introduces a new metric: looking at midnight sales at Walmart on the first day of the month.

Wal-Mart noticed that sales were spiking on the first of every month. In a recent conference call with investment analysts, Wal-Mart executive Bill Simon said these midnight shoppers provide a snapshot of the American economy today.

“And if you really think about it,” Simon said, “the only reason somebody gets out and buys baby formula is they need it and they’ve been waiting for it. Otherwise, we’re open 24 hours, come at 5 a.m., come at 7 a.m., come at 10 a.m. But if you’re there at midnight you’re there for a reason.”

And so Wal-Mart has changed its stocking pattern. It brings out larger packs of items in the beginning of the month, and smaller sizes toward the end. It makes sure shelves have plenty of diapers and formula.

This is a creative data source – but we would need more information before making broad conclusions about the American economy. Do other stores experience similar spikes? How big of a spike is this? What Walmart locations have seen the biggest jumps?

It strikes me that Walmart probably possesses a treasure trove of data that would be very interesting to look at.

Rebounding from the economic crisis in Dubai

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The economic crisis didn’t just affect American building or construction. The city that has grown out of the desert, Dubai, was also strongly affected and now is making a slow recovery:

Chastened after an extravagance-fueled debt crisis last year at Dubai World, the state-run investment giant, Dubai is getting back to basics.

Glamorous whimsies like a giant artificial island shaped like a palm tree are giving way to more pragmatic priorities meant to revive Dubai’s status as the dominant trading hub between the industrially advanced West and the oil-rich Middle East.

The article goes on to mention a number of factors that need to accompany building and development for it to last long-term including stable governance and a diversified economy.

One factor that is cited as aiding Dubai’s recovery is its established infrastructure.

World War I reparation payments from Germany to end soon

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From the dustbins of history, CNN reports that Germany will on Sunday (October 3) make its last reparations payment from World War I. Here is a brief history of the payments:

The initial tally in 1919, according to the German magazine Der Spiegel, was 96,000 tons of gold but was slashed by 40 to 60 percent (sources vary) a few years later. The debt was crippling, just as French Premier Georges Clemenceau intended.

Germany went bankrupt in the 1920s, Der Spiegel explained, and issued bonds between 1924 and 1930 to pay off the towering debt laid on it by the Allied powers in 1919’s Treaty of Versailles…

Germany discontinued reparations in 1931 because of the global financial crisis, and Hitler declined to resume them when he took the nation’s helm in 1933, Der Spiegel reported.

After reaching an accord in London in 1953, West Germany paid off the principal on its bonds but was allowed to wait until Germany unified to pay about 125 million euros ($171 million) in interest it accrued on its foreign debt between 1945 and 1952, the magazine said.

In 1990, Germany began paying off that interest in annual installments, the last of which will be distributed Sunday.

I had no idea that these payments were still being made. I don’t know the answer to this: are reparation payments between nations still a common method for helping to rectifying the wrongs of war?

It is also a reminder of the major consequences of World War I, a war that gets a lot less attention in the United States due to a smaller US role and a majority of the fighting taking place away from American shores.

Becoming more popular in New York City: the pod hotel

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In order to provide hotels at a cheaper price in New York City, several groups are building “pod hotels.” These hotels are characterized by their small, but well-appointed, rooms:

With their wood paneling, velvet benches and Oriental carpets, most of the 150 rooms occupy just 50 square feet (4.6 square meters) and recalls boat cabins. A large mirror hangs on the wall to counter any claustrophobic feelings…

These hotels promise “micro-luxury:” air conditioning, a safe, a flat-screen television and free Wi-Fi. The Jane also offers its clients a bathrobe and slippers.

“We don’t sell a bed, we sell a room,” said Pod Hotel managing director David Bernstein. “The atmosphere is much cleaner and more upscale than in a hostel. The size is really what makes them affordable.”

As long as they can avoid the New York problem of bedbugs, I can imagine these would be popular in a city full of expensive hotels.

An innovative revenue stream for suburbs: exclusive advertisements on city property

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Naperville, Illinois is considering a new tactic to provide for funds for the city’s coffers as there is nearly a $5 million budget shortfall projected for next year:

Naperville is considering an unusual option for long-term revenue: giving corporations exclusive rights to advertise on city property.

In a memo to the City Council this month, finance director Karen DeAngelis cited several examples of how this could work, including a program in which KFC pays for pothole repairs in cash-strapped cities in exchange for stamping the fresh asphalt with the chicken chain’s logo.

Naperville also could sell the naming rights of buildings or allow companies to advertise their products as “the official drink” or “the official burger” of the suburb for a fee, DeAngelis said.

“It’s not something we’ve done before, so we would be on the leading edge and we would need to be careful,” she said in an interview.

This might lead to some very interesting scenes – “Naperville City Hall, brought to you by Geico.” I imagine such ads might be attractive to businesses for the amount of people who might see them, particularly in a vibrant downtown Naperville.

Would a majority of suburban residents go for this? As one expert suggests in the story, this could lead to some negative repercussions and a process of “NASCAR-ization.”

If the city of Naperville couldn’t raise a significant amount of money with a program like this, would it be worth doing it on a small scale or would it just lead to more trouble than its worth?

How much fun should one have at work?

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Schumpeter at The Economist takes a look at the idea of having fun at work:

ONE of the many pleasures of watching “Mad Men”, a television drama about the advertising industry in the early 1960s, is examining the ways in which office life has changed over the years. One obvious change makes people feel good about themselves: they no longer treat women as second-class citizens. But the other obvious change makes them feel a bit more uneasy: they have lost the art of enjoying themselves at work…

This cult of fun is driven by three of the most popular management fads of the moment: empowerment, engagement and creativity. Many companies pride themselves on devolving power to front-line workers. But surveys show that only 20% of workers are “fully engaged with their job”. Even fewer are creative. Managers hope that “fun” will magically make workers more engaged and creative. But the problem is that as soon as fun becomes part of a corporate strategy it ceases to be fun and becomes its opposite—at best an empty shell and at worst a tiresome imposition.

A good point: forced “fun” is hardly fun at all.

A question: what really makes work satisfying for people? Having fun? Collegial relationships? Meaningful tasks? Praise from bosses and higher-ups?

Another question: what can’t this “fun time” at work be left up to the employee’s discretion? One might prefer a half hour to quietly read a book while another might prefer a volleyball game. While this means managers may not be able to rave about how their group came together in an activity, it might provide even higher levels of productivity.