Almost no place in the world outside Scandinavian countries like Sweden, have such comprehensive and massively cross-indexed dossiers on their citizens. For a social science or public health researcher, this is heaven.
Neuroskeptic notes a recent example of a study demonstrating a link between both bipolar disorder and schizophrenia and creative occupations (visual artists (photographers, designers, etc.) non-visual artists (musicians, actors, authors) and academics (university teachers)) in both the individual with that condition and their relatives as distant as first cousins.
Bipolar people and their relatives are more likely to be in creative professions, confirming the stereotype. Relatives of people treated on an inpatient basis for schizophrenia, but not the individuals themselves, were likewise more likely to be in creative professions. The odds ratio for being in a creative profession due one of the conditions is about 1.5. Creative occupations were slightly less common in people who experienced unipolar depression and their relatives. Unipolar depression reduced one's odds of being in a creative profession by 5-10%. IQ was a bit lower in inpatient mental health patients and a bit higher in creative professionals. The mental health condition-creative occupation link was even stronger after adjusting for IQ.
A comprehensive health records data base derived from the national health care system, census records showing occupation, age, and family relationships, and military IQ test records for men (who have mandatory military service), and the huge national database, gave the study a sample size of 200,000 people with unipolar depression alone, and 100,000 people treated for bipolar or schizophrenia over a 30 year period that includes every single person who ever received treatment for any of those conditions in the entire country for the entire study period. The control group was every single adult in Sweden in that time period. It is the ultimate in comprehensive data sets that are very rich in information for every single data point. This study looks at heredity without genotyping, but there is also a considerable amount of genetype information in the health care database that I've seen used in other studies.
Of course, the downside is that the government knows a huge amount about you and has it in a form that is relatively amenable to being used in a coordinated fashion. If any government is to be trusted with that information, it is probably the Scandinavians, who have some of the least corrupt and most competent civil services in the world. A relatively homogeneous population compared to places like the U.S. or India, also helps build trust that allowing this information to be collectivized will produce data that is used for the good of everyone. But, it isn't hard to imagine how this information might be abused in a government that operated the way that American governmental bureaucracies do.
To the extent that Americans are like Scandinavians with respect to the matter studied, this is great. They get all the Big Brother privacy costs, and we still get the benefits of stunningly comprehensive public health and social science studies. To the extent that Americans aren't like Scandinavians with respect to the matters studies, this is less good. We avoid the Big Brother privacy costs, but in exchange, have lower quality data and have to rely on relationships established with data that may not hold true in our own populations, thus leading to lower quality decision making.
Ultimately, I think the technology is going to sooner or later drive us towards the Swedish model. We will ultimately give up privacy in exchange for the knowledge that comes from wider availability of the data that is collected for useful purposes. Privacy, like an oil based economy, seems likely to be a temporary luxury and historical outlier that is sandwiched between the vast stretch of history when neither internal combustion engines powered by oil nor privacy was available (because people lived in small communities where everyone knew everyone else's business), and the future where we will run out of oil and technology will triumph over efforts to maintain privacy.
Sooner or later, rather than hiding our personal shortcomings and flaws through privacy, we will have to learn to acknowledge them and tolerate them in ourselves and others more than we do today.
Showing posts with label Creative Class. Show all posts
Showing posts with label Creative Class. Show all posts
13 October 2011
20 January 2010
The Denver Post Bankruptcy In Context
First, the Rocky Mountain News shut its doors.
Then, the company that owns both the Denver Post and Boulder Daily Camera filed for bankruptcy. These companies aren't going out of business. They are doing what homeowners are not being allowed to do (due to a bar on "cramdowns" for personal residences in the bankruptcy code, something allowed in business Chapter 11 bankruptcies for property other than personal residences). They are writing off their debts to principal amounts commensurate with the current value of their assets, so that their debt load is low enough to allow them to continue to operate normally.
The design of the pre-packaged and pre-approved bankruptcy is rather elegant, and is the product of considerable negotiation with lenders over an extended period. According to the Denver Post's own coverage of the deal:
As explained by the Denver Daily News, the long term debt of the company is an obligation of Media News Group, which owns subsidiaries that operate its 54 daily newspapers. Only the parent company is going bankrupt, so the customers, trade creditors and employees who deal with the subsidiaries are unaffected.
The Terms of the Deal
Creditors of the parent company get, in the aggregate, about 17 cents on the dollar, with the $930 million of debts owed to them trimmed to $165 million, and a non-controlling 80% equity stake in the surviving company. But, different creditors come out differently. Senior creditors get about 29% for the amount they loaned back as debt with collateral, and share in the 80% equity state in the company that creditors will receive. Subordinated debt is all but wiped out, receiving only stock warrants that are worthless unless the company's stock increases in value.
Specifially, Publisher and Media News Group principal Dean Singleton, together with Media News Group President Joseph J. Ludovic IV, will control class A shares that name a majority (4) of the seven members of the Board of Directors. According to the Post story (and contrary to other reports that this increases Singleton's stake from 10% to 20%), "Singleton, who once owned as much as 45 percent of MediaNews Group and currently has 29 percent, will see his interest fall below 20 percent," while "Singleton and MediaNews president Joseph Lodovic will own 20 percent of the equity, with rights to additional shares in the future." One does get the impression that Singleton will own the lion's share of the 20% of the stock (and majority of the voting rights) retained by these two senior managers, although the exact split is not disclosed in any of the reporting that I have seen.
The $590 million owned to senior debt gets them a pro-rata share of the remaining $165 million secured term loan (presumably the collateral consists of subsidiary stock), and 80% of the economic value of the company in company stock, with a minority (3 board member) say on the Board of Directors.
Subordinated debt, to the tune of $326 million of notes, will get warrants for future equity (i.e. currently worthless stock options) but nothing more.
Stockholders in the privately held company other than Singleton and Ludovic get nothing. The shareholders in the privately held old company who lose their shares include the Scudder family and the Hearst Corp.
The deal was reached with "a Bank of America-led consortium of 116 banks and 49 bondholders leaves Singleton in full control of MediaNews. . . . The restructuring plan was approved by 95 percent of the banks and 91 percent of the bondholders. Because all sides have agreed to its terms, Affiliated should be able to exit bankruptcy in about 30 days[.]"
A bankruptcy company that is reorganizing can deny any creditor receiving less than they would have in a Chapter 7 bankruptcy any vote on a plan, so any deal even marginally better than a Chapter 7 liquidation of the company is likely to be approved by creditors by an overwhelming margin.
Since according to the press release, all but one of the underlying newspaper subsidiaries are profitable, and the new secured loan amount was set by management at a level that management thought that it could pay, one presumes that the equity in the reorganized company that is owned mostly by the creditors is worth something even on day one.
Analysis: Another Case For A Trade Creditor Preference
A key point of this deal, which is typical of many of the most successful and clean Chapter 11 reorganizations (including the Lehman Brothers and Bear Sterns collapses) is that only financing debt was reorganized. Trade credit, obligations to customers, business property leases, obligations to employees and similar obligations all of which are creditor's claims under the formal definition used in bankruptcy law are left untouched.
Those who are having their rights adjusted under this plan intentionally entered into long term transactions to finance this business with cash or the equivalent, after evaluating the creditworthiness of the business, and unrelated to any particular operational need of the operating companies. The junk bond holders (i.e. subordinated debt) and equity holders knew in advance that their debts involved particularly high risk because they were leveraged by all of the other obligations of the company. They consciously made a risk and return calculation that didn't pan out.
Limiting the affected creditors to these kind of long term financial creditors dramatically reduces the number of creditors affected by the bankruptcy, and keeps disruptions of operating activities to a minimum. Notably, this kind of bankruptcy looks very much like the FDIC brokered transactions that are arranged for failed banks, and the deals for non-FDIC financial institutions that were arranged by the Fed and other government players at the height of the financial crisis. This reorganization is also similar in structure to that used by the two collapsed investments banks, Lehman Brothers and Bear Sterns.
This plan also has considerable similarity to a significant share of successful Chapter 11 reorganizations that involve large non-financial institutions that manage to ultimately leave bankruptcy and conduct ordinary operations again.
In contrast, a large share of smaller Chapter 11 reorganizations ultimate result in the shut down of the business, frequently with tax creditors receiving a large share of all of the assets of the enterprise. And, a significant share of larger Chapter 11 reorganizations that go beyond a mere bankruptcy assisted refinancing of long term debts also ultimately fail to produce a viable reorganized company that emerges from bankruptcy.
Greater priority for the claims of employees and trade creditors in bankruptcy would increase the frequency with which relatively uncomplicated and benign long term debt refinancings could be facilitated through a quick bankruptcy process with a modest litigation and administration cost that does not disrupt the web of commerce, even in cases, unlike this one, where there are holdout creditors or creditors who can not be located or are unresponsive.
Bankruptcy, unlike government facilitated bailouts, place the losses from business failures squarely on the private investors who financed these businesses, and don't involve appropriations of public funds or assumptions of private risks by government agencies. They also allow the private sector to respond to a financial crisis without much regard to who currently holds political power or their political interests.
This would come at the costs of modestly greater losses for unsecured general creditors of bankrupt companies, but would make day to day conduct of business more secure which would discourage the kind of crippling distrust seen at the height of the financial crisis when big banks started to refuse to buy commercial paper from large creditworthy companies, and expensive administrative burdens, that have encouraged the government to look for non-bankruptcy alternatives to resolve the affairs of overleveraged businesses that are otherwise viable.
Analysis: Governance
The good news about the Media News Group bankruptcy is that it reduces the size of the ownership group that might have an interest in how the business is run. So long as it can make payments on the $165 million of debt that remains on the books and doesn't need more financing, it doesn't have to listen to creditors at all.
Singleton's considerable percentage stake in the equity of the company gives him an immense upside interest in making the business profitable, while also giving him a potential for downside losses that are far greater than those of a typical Fortune 500 senior executive who has stock options rather than stock ownership. His interests are aligned more closely with his new shareholders than your typical big business CEO.
The former senior creditors who are now the owners will have to hope that this incentive provides all of the governance guidance that Singleton needs, because as minority shareholders they will have almost no say in corporate decisions short of a corporate takeover or Singleton's inability to continue to run the company due to death or some other serious distraction like a major scandal or an issue in his personal life.
Singleton can effectively run his newspaper empire as a dictator with a free hand.
Singleton doesn't have any particular biases favoring short term, over long term gains, although his creditors do, because most of the shareholders need to unload their new stock holdings within five years as large equity interests in real economy firms acquired by foreclosure are not assets that commercial banks are permitted to hold in the long run. Generally speaking, commercial banks are in the lending business, while investment banks and investment funds are in the equity business. Most of the new company's consortium of equity owners will have to start looking for investors to buy them out, or consider a public offering of the company, soon. It takes many months to arrange these deals, so they need to have an exit plan in place by early 2014, and must judge how long they need to stay on as owners to maximize their returns by showing that the reorganized company has value without making them so "motivated" as sellers that they much offer firesale prices for their stakes.
How does this impact the way that the papers are run day to day?
It isn't easy to say, a priori, what makes a newspaper more profitable, although it is safe to guess that Singleton will be ruthless in seeking profits for his papers. While Singleton no longer has pressure from financial interests, he must still please advertisers, both with circulation and by not biting that hand that is feeding the enterprise. About 80% of revenues come from advertisers, so they, and not the customers, are ultimately calling the tune.
The pool of advertisers won't be much different than they were immediately before the bankruptcy, so the media bias pressures on Singleton may shift now that he has more freedom to pursue medium term relationship building deals, instead of short term liquidity maximizing deals. Singleton's own editorial preferences likewise, cannot be expected to be much different than they were before the bankruptcy.
This bankruptcy was a financial transaction, but it wasn't driven by any obvious new business ideas. The PR for the deal has emphasized continuity, not new, company saving ideas. If the basic business model in place now is working (and there is every reason to doubt this assumption), then that isn't a problem. But, if the basic business model in place now is not working, the bankruptcy only buys time to come up with another one.
Analysis: An Industry In Crisis
The Denver Post's publisher is not alone in seeking bankruptcy protection:
The Denver Post's own coverage of its publisher's imminent bankruptcy spells out that point in detail:
Other newspaper companies, like those that own the Washington Post, New York Time and Boston Tribune are also in dire straights financially due to falling advertising revenue and reduced circulation numbers. The financial crisis simply brought push to shove for an industry that has been suffering from a sustained period of slow but certain decline.
First, the afternoon paper concept died, as more and more afternoon papers either shifted to a morning format or went out of business. They aren't all gone yet, but their numbers have dwindled dramatically and their circulations have fallen even more so. This led to industry consolidation, with fewer and fewer markets having two or more daily papers, despite tools like Joint Operating Agreements, like the one that used to be in place between the Denver Post and Rocky Mountain News that delayed the process. And, coincident with industry consolidation, the newspaper itself began to see slow but steady declines in overall circulation that seem to be continuing with no end in sight.
Who would have figured that purveyors of information would be on the losing end of the economy as we shift from an "industrial" economy to a post-industrial one called by many commentators some variation on the "information economy"?
It isn't clear where this ends. Media News Group may have a positive pro forma profit and loss statment in the immediate wake of its reorganization, but what are its long term prospects? Was it really simply overleveraged and overvalued? Or, is its current profitability unsustainable?
Then, the company that owns both the Denver Post and Boulder Daily Camera filed for bankruptcy. These companies aren't going out of business. They are doing what homeowners are not being allowed to do (due to a bar on "cramdowns" for personal residences in the bankruptcy code, something allowed in business Chapter 11 bankruptcies for property other than personal residences). They are writing off their debts to principal amounts commensurate with the current value of their assets, so that their debt load is low enough to allow them to continue to operate normally.
The design of the pre-packaged and pre-approved bankruptcy is rather elegant, and is the product of considerable negotiation with lenders over an extended period. According to the Denver Post's own coverage of the deal:
Last spring, MediaNews reached an agreement with its lenders to make interest-only payments on its debt and started to negotiate a restructuring. The company worked out a separate agreement to rework loans used to finance The Denver Post's operations last summer, avoiding a bankruptcy filing.
As explained by the Denver Daily News, the long term debt of the company is an obligation of Media News Group, which owns subsidiaries that operate its 54 daily newspapers. Only the parent company is going bankrupt, so the customers, trade creditors and employees who deal with the subsidiaries are unaffected.
The Terms of the Deal
Creditors of the parent company get, in the aggregate, about 17 cents on the dollar, with the $930 million of debts owed to them trimmed to $165 million, and a non-controlling 80% equity stake in the surviving company. But, different creditors come out differently. Senior creditors get about 29% for the amount they loaned back as debt with collateral, and share in the 80% equity state in the company that creditors will receive. Subordinated debt is all but wiped out, receiving only stock warrants that are worthless unless the company's stock increases in value.
Specifially, Publisher and Media News Group principal Dean Singleton, together with Media News Group President Joseph J. Ludovic IV, will control class A shares that name a majority (4) of the seven members of the Board of Directors. According to the Post story (and contrary to other reports that this increases Singleton's stake from 10% to 20%), "Singleton, who once owned as much as 45 percent of MediaNews Group and currently has 29 percent, will see his interest fall below 20 percent," while "Singleton and MediaNews president Joseph Lodovic will own 20 percent of the equity, with rights to additional shares in the future." One does get the impression that Singleton will own the lion's share of the 20% of the stock (and majority of the voting rights) retained by these two senior managers, although the exact split is not disclosed in any of the reporting that I have seen.
The $590 million owned to senior debt gets them a pro-rata share of the remaining $165 million secured term loan (presumably the collateral consists of subsidiary stock), and 80% of the economic value of the company in company stock, with a minority (3 board member) say on the Board of Directors.
Subordinated debt, to the tune of $326 million of notes, will get warrants for future equity (i.e. currently worthless stock options) but nothing more.
Stockholders in the privately held company other than Singleton and Ludovic get nothing. The shareholders in the privately held old company who lose their shares include the Scudder family and the Hearst Corp.
The deal was reached with "a Bank of America-led consortium of 116 banks and 49 bondholders leaves Singleton in full control of MediaNews. . . . The restructuring plan was approved by 95 percent of the banks and 91 percent of the bondholders. Because all sides have agreed to its terms, Affiliated should be able to exit bankruptcy in about 30 days[.]"
A bankruptcy company that is reorganizing can deny any creditor receiving less than they would have in a Chapter 7 bankruptcy any vote on a plan, so any deal even marginally better than a Chapter 7 liquidation of the company is likely to be approved by creditors by an overwhelming margin.
Since according to the press release, all but one of the underlying newspaper subsidiaries are profitable, and the new secured loan amount was set by management at a level that management thought that it could pay, one presumes that the equity in the reorganized company that is owned mostly by the creditors is worth something even on day one.
Analysis: Another Case For A Trade Creditor Preference
A key point of this deal, which is typical of many of the most successful and clean Chapter 11 reorganizations (including the Lehman Brothers and Bear Sterns collapses) is that only financing debt was reorganized. Trade credit, obligations to customers, business property leases, obligations to employees and similar obligations all of which are creditor's claims under the formal definition used in bankruptcy law are left untouched.
Those who are having their rights adjusted under this plan intentionally entered into long term transactions to finance this business with cash or the equivalent, after evaluating the creditworthiness of the business, and unrelated to any particular operational need of the operating companies. The junk bond holders (i.e. subordinated debt) and equity holders knew in advance that their debts involved particularly high risk because they were leveraged by all of the other obligations of the company. They consciously made a risk and return calculation that didn't pan out.
Limiting the affected creditors to these kind of long term financial creditors dramatically reduces the number of creditors affected by the bankruptcy, and keeps disruptions of operating activities to a minimum. Notably, this kind of bankruptcy looks very much like the FDIC brokered transactions that are arranged for failed banks, and the deals for non-FDIC financial institutions that were arranged by the Fed and other government players at the height of the financial crisis. This reorganization is also similar in structure to that used by the two collapsed investments banks, Lehman Brothers and Bear Sterns.
This plan also has considerable similarity to a significant share of successful Chapter 11 reorganizations that involve large non-financial institutions that manage to ultimately leave bankruptcy and conduct ordinary operations again.
In contrast, a large share of smaller Chapter 11 reorganizations ultimate result in the shut down of the business, frequently with tax creditors receiving a large share of all of the assets of the enterprise. And, a significant share of larger Chapter 11 reorganizations that go beyond a mere bankruptcy assisted refinancing of long term debts also ultimately fail to produce a viable reorganized company that emerges from bankruptcy.
Greater priority for the claims of employees and trade creditors in bankruptcy would increase the frequency with which relatively uncomplicated and benign long term debt refinancings could be facilitated through a quick bankruptcy process with a modest litigation and administration cost that does not disrupt the web of commerce, even in cases, unlike this one, where there are holdout creditors or creditors who can not be located or are unresponsive.
Bankruptcy, unlike government facilitated bailouts, place the losses from business failures squarely on the private investors who financed these businesses, and don't involve appropriations of public funds or assumptions of private risks by government agencies. They also allow the private sector to respond to a financial crisis without much regard to who currently holds political power or their political interests.
This would come at the costs of modestly greater losses for unsecured general creditors of bankrupt companies, but would make day to day conduct of business more secure which would discourage the kind of crippling distrust seen at the height of the financial crisis when big banks started to refuse to buy commercial paper from large creditworthy companies, and expensive administrative burdens, that have encouraged the government to look for non-bankruptcy alternatives to resolve the affairs of overleveraged businesses that are otherwise viable.
Analysis: Governance
The good news about the Media News Group bankruptcy is that it reduces the size of the ownership group that might have an interest in how the business is run. So long as it can make payments on the $165 million of debt that remains on the books and doesn't need more financing, it doesn't have to listen to creditors at all.
Singleton's considerable percentage stake in the equity of the company gives him an immense upside interest in making the business profitable, while also giving him a potential for downside losses that are far greater than those of a typical Fortune 500 senior executive who has stock options rather than stock ownership. His interests are aligned more closely with his new shareholders than your typical big business CEO.
The former senior creditors who are now the owners will have to hope that this incentive provides all of the governance guidance that Singleton needs, because as minority shareholders they will have almost no say in corporate decisions short of a corporate takeover or Singleton's inability to continue to run the company due to death or some other serious distraction like a major scandal or an issue in his personal life.
Singleton can effectively run his newspaper empire as a dictator with a free hand.
Singleton doesn't have any particular biases favoring short term, over long term gains, although his creditors do, because most of the shareholders need to unload their new stock holdings within five years as large equity interests in real economy firms acquired by foreclosure are not assets that commercial banks are permitted to hold in the long run. Generally speaking, commercial banks are in the lending business, while investment banks and investment funds are in the equity business. Most of the new company's consortium of equity owners will have to start looking for investors to buy them out, or consider a public offering of the company, soon. It takes many months to arrange these deals, so they need to have an exit plan in place by early 2014, and must judge how long they need to stay on as owners to maximize their returns by showing that the reorganized company has value without making them so "motivated" as sellers that they much offer firesale prices for their stakes.
How does this impact the way that the papers are run day to day?
It isn't easy to say, a priori, what makes a newspaper more profitable, although it is safe to guess that Singleton will be ruthless in seeking profits for his papers. While Singleton no longer has pressure from financial interests, he must still please advertisers, both with circulation and by not biting that hand that is feeding the enterprise. About 80% of revenues come from advertisers, so they, and not the customers, are ultimately calling the tune.
The pool of advertisers won't be much different than they were immediately before the bankruptcy, so the media bias pressures on Singleton may shift now that he has more freedom to pursue medium term relationship building deals, instead of short term liquidity maximizing deals. Singleton's own editorial preferences likewise, cannot be expected to be much different than they were before the bankruptcy.
This bankruptcy was a financial transaction, but it wasn't driven by any obvious new business ideas. The PR for the deal has emphasized continuity, not new, company saving ideas. If the basic business model in place now is working (and there is every reason to doubt this assumption), then that isn't a problem. But, if the basic business model in place now is not working, the bankruptcy only buys time to come up with another one.
Analysis: An Industry In Crisis
The Denver Post's publisher is not alone in seeking bankruptcy protection:
The Associated Press estimates that at least 13 U.S. daily-newspaper publishers have filed for bankruptcy since late 2008. In Denver, the Rocky Mountain News ceased publication in February 2009, with owner E.W. Scripps Co. of Cincinnati citing major losses in the market.
The Denver Post's own coverage of its publisher's imminent bankruptcy spells out that point in detail:
Newspaper publishers and broadcasters have struggled with slumping advertising sales, a trend the recession accelerated. Sustained double-digit revenue declines have left many publishers unable to support their debt payments. More than a dozen media companies are trying to reorganize or have already done so.
The Tribune Co., owner of the Chicago Tribune and Los Angeles Times, sought bankruptcy protection in December 2008 and expects to have a plan filed next month to deal with $13 billion in debt.
Last September, Freedom Communications Holdings Inc., owner of the Orange County Register and The Gazette in Colorado Springs, sought a bankruptcy plan that left existing holders with only 2 percent of the company.
And on Thursday, Morris Publishing Group, which own 13 daily newspapers, said it would seek a prepackaged bankruptcy filing next week. . . .
MediaNews Group is the nation's second-largest newspaper publisher by circulation, with 54 daily newspapers and more than 100 non-daily newspapers in 12 states. It also operates numerous websites, a television station in Alaska and several radio stations in Texas.
Other newspaper companies, like those that own the Washington Post, New York Time and Boston Tribune are also in dire straights financially due to falling advertising revenue and reduced circulation numbers. The financial crisis simply brought push to shove for an industry that has been suffering from a sustained period of slow but certain decline.
First, the afternoon paper concept died, as more and more afternoon papers either shifted to a morning format or went out of business. They aren't all gone yet, but their numbers have dwindled dramatically and their circulations have fallen even more so. This led to industry consolidation, with fewer and fewer markets having two or more daily papers, despite tools like Joint Operating Agreements, like the one that used to be in place between the Denver Post and Rocky Mountain News that delayed the process. And, coincident with industry consolidation, the newspaper itself began to see slow but steady declines in overall circulation that seem to be continuing with no end in sight.
Who would have figured that purveyors of information would be on the losing end of the economy as we shift from an "industrial" economy to a post-industrial one called by many commentators some variation on the "information economy"?
It isn't clear where this ends. Media News Group may have a positive pro forma profit and loss statment in the immediate wake of its reorganization, but what are its long term prospects? Was it really simply overleveraged and overvalued? Or, is its current profitability unsustainable?
05 June 2009
Democracy and the Financial Crisis
Three unrelated observations about Democracy and the Financial Crisis:
1. Bond funds should create a consumer cooperative that runs credit rating agencies. They have the right incentive to police overgenerous credit ratings, and unlike individual bond issuers or investors, they have diversified portfolios of bonds, so they care about percentage accuracy of ratings, not a particular bond issue's default or lack thereof.
2. The financial crisis has resulted in massive layoffs of highly skilled and specialized Wall Street financial professionals and the lawyers who serve them, in more or less inverse proportion to their seniority -- many associate lawyers and junior level professionals, quite a few mid-level lawyers (of counsel and non-equity partners) and mid-level financial professionals, and a small number of full partner level professionals. Media layoffs are doing much the same thing to reporters who cover business issues, and vast number of experience mortgage finance and real estate professionals are also on the outs. (There is also a huge surplus of professionals with backgrounds in construction and manufacturing.)
My question is this: What happens to this group of people?
When World War I ended, enlisted men and junior offices appalled at the idiocies of their aristocratic senior officers were a major force for social change in Europe. Emigration of Jews from Europe in the face of pre-WWII persecution transformed both America and Israel. Taiwan was remade by Nationalists leaving China. Florida was transformed by Cuban emigration. The wave of foreign doctors allowed to immigrate to the U.S. in the 1960s dramatically increased the ethic diversity and changed the perspectives of the medical profession. Jewish lawyers who couldn't get jobs in white shoe firms in New York City transformed big firm legal practice a couple of decades later.
One way to explain the social history of the union movement is that the limited availability of college educations, and the limitation of management jobs to the socially connected and the educated, prevented a lot of smart people who would of made good managers but came from poverty, working class backgrounds or even the middle, middle class from being coopted into management; instead they were forced into blue collar jobs where their highest change to advance was as a foreman supervising a small group of blue collar levels at the most direct and basic level. Union activists were would have been managers who secured power in huge organizations by other means. Greater meritocracy, in addition to political gains for even non-union employees won by the union movement, help explain the dramatic long term decline of the private sector union movement. When you exclude competent and effective smart people from power they trickle up anyway.
Do mass financial sector layoffs create a class of laid off, highly skilled, best and brightest professionals who will have a collective impact and identity that will sew the seeds of "insurgency" in the financial sector? Does it breed distrust of institutions? Does it breed commitment to new business models (see, e.g., the dot.com generation of venture capitalists, and the non-bank finance/private equity/hedge fund generation that followed). Do they go and reinvigorate some other part of the economy, and if so, which part? Do they simply slump and end up as massive human capital waste and turned useless? Because they are younger and less entrenched than their superiors who were not laid off, they have time to retool and build careers on adjusted trajectories. But how?
Do they create a political class of former big business professionals who understand big business but don't trust big institutions? Do they form a new generation of financial industry regulators, a booming field as government tries to right the ship?
Meanwhile, one impact of the construction crisis seems to be that many immigrant construction workers are returning to the places from which they emigrated. How does this change the construction market in the U.S.? Do those who stick it out have a big edge when and if this market comes back? Does reduced labor supply from reverse immigration and from people who leave the industry for something else in the downturn improve wages when demand picks back up? Do those who stay organize to keep out new entrants into the industry with tighter licensing and regulation? Does a smaller class of skilled tradespeople in construction discourage young people from entering the industry at all?
More interestingly, how does this transform the economies to which they are returning? While they may not be the "best and brightest" of their societies in the same way Wall Street professionals have been in the U.S. for the last decade, they are people who are ambitious, willing to take risks, willing to work around the regulatory state, and people who have significant exposure to U.S. ways of doing business, both at a skilled trade technical level and more remotely at a business model level, and who have much better than average command of the English language compared to those who spent no time in the U.S. Many are also overqualified for their U.S. jobs but sought employment here because it was lucrative compared to work they are qualified to do at home. The return of millions of people with those kinds of experiences has to provide a major boost to the domestic economies of much of Latin America and particularly Mexico, while reducing the availability of foreign injections of money via remittances. Do they lead an entrepreneurial neo-conservative class in Latin America?
Manufacturing is a different story perhaps. This industry has seen continuous relentless declines in employment for four decades, pretty much in good times and bad, which are particularly tough now. It may not come back at all. New hires have slowed to a trickle, particularly in the Rust Belt, and retirees are not being replaced. Those losing jobs now are not new comers (who have the lowest pay, so management wants to keep them), often in Southern non-rust belt states, but older workers who have spent careers in the industry surviving while others were laid off in round after round after round. The UAW sought layoff protections and retiree benefits from the Big Three for a reason. They saw which way the wind was blowing. They are going to get burned on many of the long term promises received in those contracts, but they are getting substantial ownership stakes in two of the Big Three automakers in exchange for the debts created by those promises (something their counterparts in Germany have had for many decades on a de facto basis).
I am concerned that there isn't enough of a critical mass of knowledgeable people starting their careers who really know how to make stuff and how manufacturing works. We have lots of engineers, but not so many really talented and encouraged machinists and foremen and tool and die makers. Professor Florida's observations about the rise of a "creative class" with people wanting to be hair dressers rather than machinists, is partially a product of a decline of this sector and of this knowledge base that goes with it. Ditto, declines in areas like textiles. If the critical mass were there, I'm not sure that the industry would be declining so deeply, although I am not sure how the U.S. would re-industrialize, or whether it makes economic sense in a big picture to do so.
3. At a human level, the Financial Crisis has been a war between a smaller and only intermittently effective "insurgent group," and a large "establishment group," both within a diversified class of financial and economic technocrats (as an aside, I'll bet birth order predicts quite powerfully which sides people took in that war). The good guys and bad guys alike were highly educated, wonkish technocrats. It has not been a particular partisan conflict by traditional measures until very late in the game, and even then the general public has had a hard time getting control of the debate and policy decisions.
This war of ideas was one that lay people without expertise were not qualified to judge. And, many of the issues that turned out to be important in hindsight, were issues that looked like obscure side shows when they were being fought in board rooms and administrative offices of corporations and big businesses and non-trial litigation in courts in opinions that most people, even lawyers, never read. The wars were umpired by financial regulators and judges and expert legislative staffers, who were in turn selected by politicians with more expertise than the average person but more ideology and judgment than expertise, who were in turn selected by the public on even more vague criteria.
While many of the umpires were chosen by politicians, the vast majority of politicians were in offices that simply had no power to influence the outcome no matter how savvy and prescient they were about what was going on (not that many of them had a clue in any case). No amount of policy work or business climate in Tennessee could have prevents the mistakes made in California and New York that killed the economy that killed manufacturing demand and in turn hurt Tennessee businesses. Likewise, even rank and file offices in Congress may not have been enough to make much of an impact -- the key issues in the Financial Crisis were dealt with at the committee level and in key parts of the federal regulatory state (which makes up only a small part of federal employment which is largely comprised of military, postal and public land oriented officials).
Both the top official in the Bush Administration's TARP program, and the top official in the Obama administration's automobile bailout program are young men in their thirties who are long on enthusiasm, political connections and general smarts, and short on relevant industry or large scale management experience. They are typical of junior to mid-level players in the legislative branch (political aides), executive branch (political appointees), and judiciary (law clerks). These are the people who bridge the gap between non-expert principals (judges and senior politicians) and technocratic experts within industries who are actually waging the political wars and wars of ideas.
This isn't unusual. Foreign policy has a very similar character. Subject matter experts and select political appointees chosen for disparate reasons make many key decisions that politicians only dimly understand and the general public has no clue about until it goes horribly wrong.
More so than in past wars, U.S. military involvement in Iraq and Afghanistan has cast junior officers, NCOs and mid-level military contractors in the key decision making roles, rather than the colonels, generals and senior civil agency officials.
It isn't clear whether we are moving towards technocratic consensus, policy confusion as politics only dimly interfaces with the actual decisions that need to be made, or new fault lines forming as we speak in these intramural wars of ideas. To win the war of ideas, one has to get ones ideas credibly into the mix with these people first, at any rate. Otherwise, issues won't get identified as politically important in the first place (one of the key roles of actual politicians) and won't ever have the debate and deliberation needed for ideas that the public understands and supports with the wisdom of the masses being held.
1. Bond funds should create a consumer cooperative that runs credit rating agencies. They have the right incentive to police overgenerous credit ratings, and unlike individual bond issuers or investors, they have diversified portfolios of bonds, so they care about percentage accuracy of ratings, not a particular bond issue's default or lack thereof.
2. The financial crisis has resulted in massive layoffs of highly skilled and specialized Wall Street financial professionals and the lawyers who serve them, in more or less inverse proportion to their seniority -- many associate lawyers and junior level professionals, quite a few mid-level lawyers (of counsel and non-equity partners) and mid-level financial professionals, and a small number of full partner level professionals. Media layoffs are doing much the same thing to reporters who cover business issues, and vast number of experience mortgage finance and real estate professionals are also on the outs. (There is also a huge surplus of professionals with backgrounds in construction and manufacturing.)
My question is this: What happens to this group of people?
When World War I ended, enlisted men and junior offices appalled at the idiocies of their aristocratic senior officers were a major force for social change in Europe. Emigration of Jews from Europe in the face of pre-WWII persecution transformed both America and Israel. Taiwan was remade by Nationalists leaving China. Florida was transformed by Cuban emigration. The wave of foreign doctors allowed to immigrate to the U.S. in the 1960s dramatically increased the ethic diversity and changed the perspectives of the medical profession. Jewish lawyers who couldn't get jobs in white shoe firms in New York City transformed big firm legal practice a couple of decades later.
One way to explain the social history of the union movement is that the limited availability of college educations, and the limitation of management jobs to the socially connected and the educated, prevented a lot of smart people who would of made good managers but came from poverty, working class backgrounds or even the middle, middle class from being coopted into management; instead they were forced into blue collar jobs where their highest change to advance was as a foreman supervising a small group of blue collar levels at the most direct and basic level. Union activists were would have been managers who secured power in huge organizations by other means. Greater meritocracy, in addition to political gains for even non-union employees won by the union movement, help explain the dramatic long term decline of the private sector union movement. When you exclude competent and effective smart people from power they trickle up anyway.
Do mass financial sector layoffs create a class of laid off, highly skilled, best and brightest professionals who will have a collective impact and identity that will sew the seeds of "insurgency" in the financial sector? Does it breed distrust of institutions? Does it breed commitment to new business models (see, e.g., the dot.com generation of venture capitalists, and the non-bank finance/private equity/hedge fund generation that followed). Do they go and reinvigorate some other part of the economy, and if so, which part? Do they simply slump and end up as massive human capital waste and turned useless? Because they are younger and less entrenched than their superiors who were not laid off, they have time to retool and build careers on adjusted trajectories. But how?
Do they create a political class of former big business professionals who understand big business but don't trust big institutions? Do they form a new generation of financial industry regulators, a booming field as government tries to right the ship?
Meanwhile, one impact of the construction crisis seems to be that many immigrant construction workers are returning to the places from which they emigrated. How does this change the construction market in the U.S.? Do those who stick it out have a big edge when and if this market comes back? Does reduced labor supply from reverse immigration and from people who leave the industry for something else in the downturn improve wages when demand picks back up? Do those who stay organize to keep out new entrants into the industry with tighter licensing and regulation? Does a smaller class of skilled tradespeople in construction discourage young people from entering the industry at all?
More interestingly, how does this transform the economies to which they are returning? While they may not be the "best and brightest" of their societies in the same way Wall Street professionals have been in the U.S. for the last decade, they are people who are ambitious, willing to take risks, willing to work around the regulatory state, and people who have significant exposure to U.S. ways of doing business, both at a skilled trade technical level and more remotely at a business model level, and who have much better than average command of the English language compared to those who spent no time in the U.S. Many are also overqualified for their U.S. jobs but sought employment here because it was lucrative compared to work they are qualified to do at home. The return of millions of people with those kinds of experiences has to provide a major boost to the domestic economies of much of Latin America and particularly Mexico, while reducing the availability of foreign injections of money via remittances. Do they lead an entrepreneurial neo-conservative class in Latin America?
Manufacturing is a different story perhaps. This industry has seen continuous relentless declines in employment for four decades, pretty much in good times and bad, which are particularly tough now. It may not come back at all. New hires have slowed to a trickle, particularly in the Rust Belt, and retirees are not being replaced. Those losing jobs now are not new comers (who have the lowest pay, so management wants to keep them), often in Southern non-rust belt states, but older workers who have spent careers in the industry surviving while others were laid off in round after round after round. The UAW sought layoff protections and retiree benefits from the Big Three for a reason. They saw which way the wind was blowing. They are going to get burned on many of the long term promises received in those contracts, but they are getting substantial ownership stakes in two of the Big Three automakers in exchange for the debts created by those promises (something their counterparts in Germany have had for many decades on a de facto basis).
I am concerned that there isn't enough of a critical mass of knowledgeable people starting their careers who really know how to make stuff and how manufacturing works. We have lots of engineers, but not so many really talented and encouraged machinists and foremen and tool and die makers. Professor Florida's observations about the rise of a "creative class" with people wanting to be hair dressers rather than machinists, is partially a product of a decline of this sector and of this knowledge base that goes with it. Ditto, declines in areas like textiles. If the critical mass were there, I'm not sure that the industry would be declining so deeply, although I am not sure how the U.S. would re-industrialize, or whether it makes economic sense in a big picture to do so.
3. At a human level, the Financial Crisis has been a war between a smaller and only intermittently effective "insurgent group," and a large "establishment group," both within a diversified class of financial and economic technocrats (as an aside, I'll bet birth order predicts quite powerfully which sides people took in that war). The good guys and bad guys alike were highly educated, wonkish technocrats. It has not been a particular partisan conflict by traditional measures until very late in the game, and even then the general public has had a hard time getting control of the debate and policy decisions.
This war of ideas was one that lay people without expertise were not qualified to judge. And, many of the issues that turned out to be important in hindsight, were issues that looked like obscure side shows when they were being fought in board rooms and administrative offices of corporations and big businesses and non-trial litigation in courts in opinions that most people, even lawyers, never read. The wars were umpired by financial regulators and judges and expert legislative staffers, who were in turn selected by politicians with more expertise than the average person but more ideology and judgment than expertise, who were in turn selected by the public on even more vague criteria.
While many of the umpires were chosen by politicians, the vast majority of politicians were in offices that simply had no power to influence the outcome no matter how savvy and prescient they were about what was going on (not that many of them had a clue in any case). No amount of policy work or business climate in Tennessee could have prevents the mistakes made in California and New York that killed the economy that killed manufacturing demand and in turn hurt Tennessee businesses. Likewise, even rank and file offices in Congress may not have been enough to make much of an impact -- the key issues in the Financial Crisis were dealt with at the committee level and in key parts of the federal regulatory state (which makes up only a small part of federal employment which is largely comprised of military, postal and public land oriented officials).
Both the top official in the Bush Administration's TARP program, and the top official in the Obama administration's automobile bailout program are young men in their thirties who are long on enthusiasm, political connections and general smarts, and short on relevant industry or large scale management experience. They are typical of junior to mid-level players in the legislative branch (political aides), executive branch (political appointees), and judiciary (law clerks). These are the people who bridge the gap between non-expert principals (judges and senior politicians) and technocratic experts within industries who are actually waging the political wars and wars of ideas.
This isn't unusual. Foreign policy has a very similar character. Subject matter experts and select political appointees chosen for disparate reasons make many key decisions that politicians only dimly understand and the general public has no clue about until it goes horribly wrong.
More so than in past wars, U.S. military involvement in Iraq and Afghanistan has cast junior officers, NCOs and mid-level military contractors in the key decision making roles, rather than the colonels, generals and senior civil agency officials.
It isn't clear whether we are moving towards technocratic consensus, policy confusion as politics only dimly interfaces with the actual decisions that need to be made, or new fault lines forming as we speak in these intramural wars of ideas. To win the war of ideas, one has to get ones ideas credibly into the mix with these people first, at any rate. Otherwise, issues won't get identified as politically important in the first place (one of the key roles of actual politicians) and won't ever have the debate and deliberation needed for ideas that the public understands and supports with the wisdom of the masses being held.
26 May 2009
Less Red Tape Means More Research
The more layers of budget approval a project needs, the more likely it is that a project won't happen at all. The report vindicates the concept of fiscal autonomy for colleges and universities. Colorado's highly autonomous research universities are among the most productive in the nation and the world.
02 May 2007
Which States Have Civil Unions?
Oregon joins California, Connecticut, Massachusetts, New Hampshire, New Jersey, and Vermont in extending all of the benefits and responsibilities of marriage to same-sex couples. Hawaii, Maine, Washington state, and D.C, grant legal recognition and some of the rights of marriage to same-sex couples.
From here.
In the 2006 general election in Colorado, a domestic partnerships proposal (Referendum I) won 47.65% of the vote, which obviously wasn't enough to pass, but was also a big step forward from previous popular votes on gay rights issues in the state. A narrow marriage is between a man and a woman proposal (Amendment 43), that did not ban domestic partnerships, passed with 55.02% of the vote in the same election.
County by county results on Referendum I show that it had overwhelming support in Boulder, Denver and most resort dominated counties. But, most of rural Colorado and Colorado Springs overwhelmingly opposed the measure. Opinion was quite evenly divided in suburban Denver metropolitian area counties.
The political upshot of this outcome is that Democrats have taken some basic steps in 2007 to protect gay rights (like employment discrimination protection and second parent adoption), but have not pushed for full domestic partnership rights, as Colorado voters have expressed their will on that issue for now.
Richard Florida argues in his book on the "Creative Class" that being gay friendly is strongly linked to local economic prosperity. Recent news from Colorado seems to support that view. Gay unfriendly rural Colorado (particularly places within anti-gay Congresswoman Marilyn Musgrave's 4th Congressional District) are seeing real estate values collapse by 8% this year, while the Denver metropolitan area has seen only a 1.9% drop, with gay friendly Boulder actually posting a slight increase in real estate values.
Subscribe to:
Posts (Atom)