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GP 9 September 2009: Ancien Regime: That’s How The Cookie Crumbles

Laredo, Will You Help Us Out? Ted Kennedy bowed out very gracefully.  More than a year ago, on January 28, 2008, he sounded his retreat by endorsing Barack Obama for president at American University in Washington, D.C, passing the mantle of leadership on to a new generation.  Just as he had campaigned stridently for his brothers decades ago, he strode across America to put Obama over at the polls.  With Irish charm, in Laredo, Texas, he sought out the votes of Spanish speakers, literally singing to the crowds, appealing to the Hispanic citizens who will dominate the next America.  “Laredo, Will You Help Us Out?”

We never much liked Kennedy as a young man.  He was callow, and we darted off in another direction whenever we chanced to bump into him.  But the seasons and adversity gave him some heft, and he shined in his passing.  Even as he and his world were crumbling, he put a smile on our faces.  He was the last warrior from Camelot, since there is no Kennedy in the present generation who can pick up the load or really excite the electorate. Nor make us laugh.

Nowhere was this more evident than at the memorial service convened for him at the Kennedy Library in Boston.  The hit at that occasion was onetime Senator John Culver of Iowa, a Harvard buddy and carousing companion, who gave a comic account of their shared Nantucket Regatta.  They bounced about on the stormy waters, slept amidst a few inches of water in the boat, came in second—apparently, and earned a plaudit or two from Joe Kennedy, the patriarch of the family.  It was a haphazard voyage which only reached land—eventually—because the gods were laughing!

Boston Amiss.  Not just Ted, but Boston itself is on the fritz.  Years of boondoggles awash with swag ladled out by Irish politicians such as Tip O’Neill have sort of kept things afloat.  But all the charm and all the pork cannot quite conceal the fact that things are coming apart at the seams.  The “T,” Boston’s subway, is fun to ride if you have a lot of time, but put 5 or 6 extra minutes in your schedule for unexpected halts along the way.  As well, if you have idle time, check out Boston’s best private clubs, which have great names, but which are rather tattered.  You may have to switch rooms because the radiator suddenly breaks, or find that the swankiest enclave around does not serve breakfast.  For that matter, Boston’s hotels have really never been first rate, despite the renown the Ritz has enjoyed:  it’s just as well not to spend the night.  Many of the clubs actually serve excellent food, though they are not well patronized.  Boston’s businessmen are too foolish to take advantage of them, preferring instead the overpriced eateries with lesser cuisine a bit closer to the office. There are also hideaways in both the South and North Ends, outside the Financial District, where the food does shine.

The Harvard Bank.  Should you ask a Boston limo driver to single out what makes his business tick, it’s the colleges. When the students come back after vacation, revenues soar.  Boston is an education town, but even here the rot is setting in.

The center of the education industry is Harvard, and it has become a bit fatuous. Just last Sunday, The New York Times in “Crimson and Green,” Style, pp.1 & 8, headlined the school’s entry into the clothing business, it having franchised its name for a line of preppy clothing.  It does not take much marketing imagination to understand that the school has cheapened its brand.  A Harvard grad, Nick McDonnell, is just out with a spy thriller, which is all about Harvard Yard.  A perceptive critic (New York Times Book Review, September 6, 2009, p.6) says An Expensive Education “demystifies the mechanisms of Harvard’s exclusionary culture” but “confirms its author’s place firmly inside it.”  In other words, the book and the clothing line imply that there are worms in the apple, but Harvard’s best critics, its own graduates, have bitten so deeply into the apple’s flesh that they cannot free themselves of the Cambridge addictions.

Harvard’s current president just authored an essay “The University’s Crisis of Purpose,” New York Times Book Review, September 6, 2009, p. 18, in which she queries “As the world indulged in a bubble of false prosperity and excessive materialism, should universities—in their research, teaching and writing—have made greater efforts to expose the patterns of risk and denial?  Should universities have presented a firmer counterweight to economic irresponsibility?” 

The trouble is that Harvard is not the exception that proves the rule.  It has sat on top of a huge and growing endowment, and is about as materialistic as it gets. It’s where you go to become a fat cat.  Arguably, it has not bettered the community in which it subsists.  As many of the leading private universities, it has become more of a bank that is conserving financial assets than an institution of higher learning. It thrust out its last real president—Larry Summers—who, though manifestly unpopular and rather arrogant, was at least trying to bring the baronies that run Harvard under control so that it could have an integrated purpose.  Ms. Faust, it would seem, will be place keeper, moralizing while Harvard and Boston come unglued.  She’s trying to close the barn door when the cows are already out in the field, eating green corn.  The crisis she talks about sorely afflicts her own university.  As psychologists would say, she is simply projecting her own deepest problem onto others.

In fact, all sorts of commentary is now springing up questioning the value of a college education, and the exorbitant price college administrators are charging for sorely flawed educational experiences.  USA Today put the question on its front page, August 31, 2009.  It asked:  “In a recession, is college worth it?” A chorus is now saying, “No.!”  ‘No’ to lousy residence halls, poor food, mediocre health services, and, most of all, to weak courses that are now overlaid with political correctness that is alien to a thoughtful education.

Bank of America Astray.  We’d be merely churlish if we claimed Harvard was the only giant that has faltered.  We have said earlier that the whole of our national infrastructure is both broken and out of tune with our needs, presenting massive opportunities for businessmen with imagination.  All sorts of huge things are turning to dust.  America’s vaunted companies are similarly afflicted with the bacteria of decline.

That is certainly true also of what is from time to time our largest bank—Bank of America.  We could have picked almost any company in the Fortune 500 to examine, but the banks are a good place to start, because they highlight a policy failure of our political masters. B of A, as virtually all the major banks, got into deep trouble during the recent financial hurricane that swept America and the world.  The top dogs in Washington rained money on all of the mega institutions that were deemed too big to fail, including Goldman Sachs. But the Feds got little for their money, not extracting the thorough overhaul they should have demanded from our pock-marked goliaths. If one takes a close look at B of A, or all the rest, one discovers that it was not just financial influenza that put them in sick bay.  B of A is badly run, with the wrong strategy and badly flawed operations.  The evidence is that it cannot do the simplest things well.

Recently a consumer paid two credit card bills at a Bank of America branch.  Unfortunately the teller reversed the accounts, putting the wrong sums against each bill. The cardholder, through no fault of his own, was in arrears.  When he went to the bank to get the mistake cured, he discovered the unbelievable.  The branch could not reverse its own error due to the bank’s horrible, patchwork systems: he had to call some central operations center for a remedy. But even operations said it could not get the mistake corrected right away, instructing the poor cardholder to pay the wrongheaded bills and wait for the numbers to right themselves during the next 15 to 30 days. That meant the bank would be extracting extra float from the customer.  Only after the most strident, vociferous protest did operations reverse itself and say the error would be rectified in four days or so. If left to its own devices, the bank would have let the cardholder bear extra expense, allowing it to profit from its egregious mistakes.

Another customer, in New England, recently opened a new B of A checking account. The process took 1½ hours.  What a debacle!  He was told he could not have access to the account through an ATM unless he agreed to accept a debit card.  Meanwhile, the bank made at least six errors in opening the account.  Needless to say, all the extras they sold him were not really mandated by official bank policy.  Its rogue branch was simply out of control. He could and should have been able to set up a simple checking account with an ATM card.

Yet later, a customer, aware of these whoppers, tried to bring them to the attention of bank officials.  But, calling Charlotte, where B of A is now headquartered, he learned that he could not even reach a secretary of any senior official, just to report the problems.  The top brass of Bank of America is hermetically sealed, not at risk of talking to its customers. When the so-called associate on the phones was asked the names and addresses, etc. of audit officials (internal and external) who should know about these errors, she said there was no way she could get the information for the customer. She simply said the caller would have to write the bank, but did not even specify who should be contacted.  He had been stonewalled.

If the bank cannot credit payments properly, correct mistakes promptly, or even open a simple account, is it any wonder that it is sinking in the quicksand?  Is it any wonder that it bought—for the wrong price—Merrill Lynch, which is a pig in a poke, even with its vast client base?  Or that it scooped up Countrywide and all its problems? Or that it appears to have rogue units with much bigger problems than those we have enumerated here, not unlike the infamous AIG.  Beleaguered consumers, like the fellows mentioned above, are paying excessive fees for dreadful services to offset the losses taken by bankers who take flyers on risks such as these that they surely do not understand. The consumer pays doubly for the dreadful mistakes of the top dogs.  Bank of America is a domestic bank with strong protected franchises in California and North Carolina insulated from normal risk and effective regulation.  It has very much gotten in over its head.

Such horror stories happen with bank after bank all the time.  Recent government aid has propped up many such failed institutions, entities which are a drag on the whole economy.  The problem here is to decide how to gracefully do away with these mentally and financially defunct organizations, so that something new can grow up in their place.  We cannot fix the unfixable.  But these institutions are not as graceful as the late Senator.  They are hanging on and prolonging the nation’s agony, refusing to just go away. Despite Lady MacBeth’s injunction  “not to stand on the order of their going,” they’re clutching their life support systems, which mainly consists of a sympathetic Federal Reserve.

Companies You Love To Hate. It does not have to be this way.  We have mentioned before a terribly important article that ran in the Harvard Business Review, “Companies and the Customers Who Hate Them.” It decries all the useless trickery dreamed up by marketing hawks at banks, telecommunication companies, and other large companies to lure consumers into buying cheap products that are only a prelude to expensive surcharges and come-ons.  It’s what we call the old bait and switch.  Importantly the authors cite up-and-coming companies who, in reaction to the big boys, devise straightforward products offered at reasonable cost. Very often, these are foreign enterprises with great entrepreneurial flair that have not been infected by big company malaise.  “Virgin Mobile USA, for example, has lured millions of angry cell phone customers away from the incumbents by offering a straightforward plan with no hidden fees, no time-of-day restrictions, and no contracts. ING Direct, now the fourth-largest thrift bank in the United States, offers accounts with no fees, no tiered interest rates, and no minimums.”  As a West Coast banker who ran a gem of a bank once said to us, “We’re in the put and take business.  You put money in or take it out.  If we do that simple thing well, we will make a living and have happy customers.”  It’s hard to get bankers to be bankers, phone companies to be phone companies.

The Indians Are Coming.  One nation that spews out a lot of brainpower and which is used to overcoming extreme obstacles is India.  Despite incredible gaps in its infrastructure, it is now producing superior growth, almost on a par with China. What’s more, its citizens are showing their stuff around the world.  For instance, we were stunned recently to learn that although the Norwegian cricket team “is by name Norwegian, the players all currently descend from the countries of the Indian subcontinent, i.e. Pakistan, India, or Sri Lanka. 90% of players domestically are of Asian descent, although most are Norwegian citizens and nationals. [1]”  Norway, of course, is all the stronger for it. The list begins with Zaheer Ashiq and ends with Aamer Waheed. 

Our own website, The Global Province, has always enjoyed a worldwide readership.  But it is amazing to learn that its current readership is often more than 60% Indian.  The Indians have a huge English-speaking and reading audience, much enhancing their intellectual growth.  Often they know more about America than Americans. It is in this context that we must see the contributions of Vivek Wadhwa, an Indian-American entrepreneur who spends almost full time proselytizing for an end to the unwholesome restrictions we have put on Indian academics and professionals wanting to come here. The government, in the name of security or some such nonsense, is barring the gates, locking out the talent and imagination we desperately need.  Theoretically, at least, it will be foreigners, free of the mental cobwebs and practical inhibitions of our white collar classes, who will create the imaginative schools and the rebellious enterprises we need in order to regain our footing.  It goes without saying that the Indians should and can supply oodles of the necessary brainpower.

Y2K. Really Did Happen.  Back around 2000 we all thought our computer systems might melt down, because nobody had anticipated the electronic problems posed by the date changes of the new millennium.  If nothing else, the Year 2000 problem generated awesome amounts of revenue for the fellows in the computer industry who created the software glitch in the first place.  They got to do heaps of consulting.  In the modern age, we love to reward failure, so we give increasing, huge salaries to CEOs who are running companies into the ground.  The Sarbanes Oxley Act of 2002 mandated lots of rewards for lawyers and accountants, though they can legitimately be held most accountable for the fraud at Enron and elsewhere that has wracked the economy and hurt so many citizens.

More importantly, we think Y2K really did happen.  Our systems, beliefs, laws, companies, universities, and churches in the year 2000 were not geared to deal with the post-mass market era, with rapid digital information transfer, with uncontrolled international financial markets, and with the other wholesale breaks with the past that have occurred in the new millennium.  Short circuits are popping up everywhere, and the ancien regime is slowly dissolving even as our leaders try to bolster it.  The question is whether we can get on to something new, when, all about us, most are trying to reclaim yesterday.

P.S.  This talk about cricket reminds us that America knows little about the most popular sports in the world that flourish outside its borders such as cricket or soccer.  We’re just now starting a Best of Sports section on the Global Province where we will mostly comment about the kind of athletics and such that don’t get much attention in Sports Illustrated or USA Today. There’s a lot of fun to be found in pastures far removed from the National Football League and the other big money sports that plague our airwaves. We’re beginning by giving our assessment of the 2009 NHL Draft.

P.P.S.  The versatile Paul Krugman authors a fine article “How Did Economists Get It So Wrong?” in The New York Times Magazine, September 6, 2009, pp.36-43.  Roughly, he says that the monetarists at the University of Chicago got it wrong.  Markets he finds often operate imperfectly, and governments have to step in to put things right. So, he says, Mr. Keynes got it right, and those who worship ‘the invisible hand of the market’ got it dead wrong.  In other words, we should more or less turn our backs on Friedman and Chicago, and puts Keynesian theory back to work. Of course, Krugman has got it wrong, too. Affairs on the globe have become so intertwined that we’re in need of a new economics that does not look backwards.  Economists of all stripes are getting it wrong, because they, like so many, are trying to rescue old ideologies rather than putting forward fresh thought.  We need a global economics that looks at the U.S. economy as just a subset of a larger whole.  Economists of all kinds tend to believe that unrestricted free trade will make every nation function better: in effect, they think the invisible hand puttering around in world markets will make everything hunky dory. Don’t you believe it!  We need much more sophisticated economic thought as to how parts of the globe should interact with each other, so as not to let rogue nations game the system.

P.P.P.S.  Decent thinkers, who run against the Harvard crowd, often do crop up in Boston, but they are discarded in favor of prevailing ideologies and power structures.  The interconnection of folic acid and cardiac health was offered up in Boston eons ago, but cholesterol was then all the rage, and the proponent was exiled. A. Stone Freedberg, a Harvard cardiologist, early discovered the connection between ulcers and bacteria, but his work was ignored, so Australians had to rediscover the obvious 4 decades later and walk off with a Nobel Prize. Valuable speculation about Alzheimer’s had also been ignored in Boston, again since the interesting notions are at odds with prevailing dogma.

P.P.P.P.S.  The elegant West Coast architect Bernard Maybeck authored a series of modest, even humble domestic structures with bits of flair that suggested great dreams. But, as fate would have it, he also designed a San Francisco favorite, the Palace of Fine Arts in the Marina, for the Panama Pacific Exposition in 1915.  His idea was that it would become a Romantic Ruin that would slowly fall apart and disappear. As his local fame became more and more attached to the Palace, we heard less and less from him about its artistic disintegration.  He wanted it to last. At first we are bold advocates for the future, but time and circumstance too easily turn us into defenders of the past.

P.P.P.P.P.S. Japan, finally, has become a democracy.  Since the end of World War II, it has both prospered and suffered under one-party rule courtesy of the Liberal Democrats.  Emerging regions, for a while, actually profit from the consensus that a dominant, even dictatorial, party can offer.  But, as the economy matures, one party rule and factionalism cause the economy to stagnate.  Now the Democratic Party of Japan offers the kind of dialectical change that comes from healthy give and take. The same sort of stagnation affects much of the southern United States.  Some sort of similar populism will have to take hold in the U.S. before the country achieves ongoing stability and growth. Read “Japan Comes of Age,” The New York Times, September 8, 2009, p.A.21.


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