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Why BP Will Get Off Easy
Tweet Share on Facebook June 16, 2010 Comment (2)How much would you be willing to pay to punish BP?
It might sound like a backward question, since it's supposed to be BP that pays for the damage caused by its ruptured well in the Gulf of Mexico. But the unhappy reality is that it's extremely hard to punish a company without also punishing its employees, customers, and many others who bear no responsibility at all for the harm caused by a few.
[See 10 companies back from the brink.]
President Obama has promised that BP will cough up "whatever resources are required" to compensate the fishermen, tourism workers, and everybody else harmed by the oil fouling the Gulf and its shorelines. BP, with its tail between its legs, is going along for now, agreeing to set aside $20 billion for a compensation fund. But it will take years to determine all the damage, clean it up and attach a final price tag to it, and by some estimates the ultimate cost could be much higher than $20 billion. By the time we know that, however, the headlines will have faded, the outrage will have dissipated—and BP will have dug in its heels.
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How to Plan For a Double-Dip Recession
Tweet Share on Facebook June 11, 2010 Comment (40)The insurance company Aflac didn't lose money during the recession, and it managed to pare costs without any layoffs. But it did institute a hiring freeze, which could stay in effect until the economy looks a lot stronger than it does right now. Many of Aflac's customers are small businesses like construction firms and car dealerships, and until they see a big pickup in business and start hiring themselves, Aflac's own sales won't increase enough to justify more hiring. "For us to see a pickup in new sales, somebody else needs to start it first," says Aflac CEO Dan Amos. "Jobs are going to be very slow in coming back."
[Slide Show: 11 Ways to Prepare for a Double-Dip Recession.]
In the aftermath of the Great Recession, that seems to be the whole problem: Everybody's waiting for somebody else to kick-start a robust recovery. Consumers typically get the ball rolling as they boost spending on homes, cars, appliances, and other purchases that they put off during the downturn. But millions of consumers remain out of work or dogged by too much debt. Companies would start hiring again if they felt economic activity was heating up, but CEOs like Amos have their doubts. The weak hiring then creates a circular effect, reinforcing consumers' reluctance to spend.
If consumers and businesses don't get traction soon, there could even be another recession. The dreaded "double-dip" scenario seems unlikely: Moody's Economy.com, for example, says there's just a 23 percent chance that the U.S. economy will be in a recession six months from now. But other forecasts are gloomier, and there's plenty of economic trouble to worry about. Europe seems much more prone to a double-dip, thanks to debt problems in Greece, Spain, Italy, and other countries, and any pain there could hurt here, too. In the United States, meanwhile, the housing bust refuses to end, government stimulus spending will soon peter out, and a mushrooming federal debt is spooking investors. If the American economy is ready to stand on its own, it's sure taking its time getting up off the floor.
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Why Obama Might Be Better as a CEO
Tweet Share on Facebook June 10, 2010 Comment (7)What's the president's job?
The Founding Fathers took a stab at this thorny question in Article II of the Constitution. They gave the president responsibility for commanding the armed forces, initiating treaties, appointing ambassadors and judges, keeping Congress informed of the state of the union, recommending legislation, and making sure "that the Laws be faithfully executed."
[See why voters will get a lot angrier.]
How quaint. The Constitution might have been a nice start, but the Founders obviously didn't anticipate the needs of an anxious nation desperately seeking an outlet for their feelings on TV, the Internet, and Twitter. We know that the president's job is to enforce the laws. Duh. But we also now expect him to channel the mood of the nation, express what we ourselves are feeling but can't muster the right words to express, and when we're feeling ornery, to kick somebody's ass so we can collectively feel better.
President Obama is a miserable Emoter-in-Chief. As commentators from the right, left, and center have pointed out, Obama isn't angry or vindictive enough about the appalling BP oil spill in the Gulf of Mexico, and it's leaving the rest of us feeling spiritually naked, since we're emoting all by ourselves. At a recent White House briefing, reporters dickered with Press Secretary Robert Gibbs over whether a "clenched jaw" is sufficient proof of Obama's anger at BP. Liberal bomb thrower James Carville has turned on his own party, arguing that Obama's passivity over the spill is politically foolish, plus insensitive to Carville's home state of Louisiana. And conservative critics, never shy of hyperbole, are eagerly pronouncing the BP spill Obama's Katrina and even his Bay of Pigs. Pearl Harbor anyone? Gettysburg? Thermopylae?
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5 Lessons From Oil Spills and Reform Bills
Tweet Share on Facebook June 9, 2010 Comment (4)There are days when a glance at the headlines can make you wonder: Is anything going right?
A few things are. Gasoline remains affordable, 4G is rolling out, and pay on Wall Street has finally followed the bankers' performance downward. Still, there are times when America feels like Rattletrap Nation, in constant need of repair. An army of workers battles a gargantuan oil spill that seems likely to pollute the Gulf of Mexico for years. In Washington, legislators and lobbyists battle over financial reforms that may or may not fix a culture of greed that wrecked the economy. Meanwhile, government itself seems broken, as elected officials dicker over trivialities that don't matter to most Americans and continue to spend money the nation doesn't have.
[See 10 companies back from the brink.]
Distressing, yes, but there are some commonalities in these breakdowns that should help us understand what to do about them. And if they don't improve public life, they can still enhance our personal decision-making in a scary economy. Here are five things that recent calamities have taught us about life in the 21st century:
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Why the Gulf Spill Won't Touch Most Consumers
Tweet Share on Facebook June 7, 2010 Comment (10)It's horrifying. Infuriating. Depressing, even. But the ghastly oil spill in the Gulf of Mexico is likely to have little impact, if any, on the majority of Americans.
[See 10 companies back from the brink.]
The damage to the Gulf region, of course, could be catastrophic, especially in Louisiana. Seafood and tourism are huge sources of jobs and revenue for the star-crossed state, and the undersea blowout could disrupt those industries for years. The Harte Research Institute at Texas A&M estimates the annual damage to Louisiana alone at nearly $2 billion. Other states like Mississippi, Alabama, and Florida will obviously be hit as well, as the oil slithers up on beaches far from the wellhead. Damage to the whole region could top $4 billion per year, for an uncomfortably long time.
Aside from outrage, however, most Americans won't feel a thing. And that could limit the scope of reforms resulting from the spill, along with any real changes in our love-hate relationship with oil.
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10 Companies Back From the Brink
Tweet Share on Facebook June 1, 2010 Comment (17)The recession left behind a graveyard of corporate carcasses, from Circuit City to Linens n' Things to Lehman Brothers. Thousands of smaller businesses closed. AIG, Fannie Mae and Freddie Mac are staggering along as wards of the state. General Motors, Chrysler, Citigroup and several other name-brand firms would probably be toast too, if not for bailouts and forgiving consumers.
But other companies stared into the abyss—and backed away from it on their own power. To identify notable recession survivors, I analyzed data provided by Capital IQ, a division of Standard & Poor's, on hundreds of big and mid-sized companies. I looked specifically at companies that ranked near the bottom on two key metrics over the last two years: S&P's long-term debt ratings, which estimate a company's ability to pay back what it has borrowed, and S&P's quality rankings, which grade the prospects for long-term growth and stability in a company's earnings. Then I looked for companies whose debt or quality ratings have improved recently, after bottoming out.
[Slide Show: 10 Companies Back from the Brink.]
The improvers constitute a thin list, as you might expect during a prolonged downturn. Out of roughly 835 companies whose S&P quality rankings were lower than average at some point over the past two years, for example, only about 75—less than 10 percent—have improved to average or better. And of 323 companies with speculative or "junk" credit ratings since 2008, only 91 have become more creditworthy. The firms that made our final list still face challenges, indicated in some cases by their stock price performance over the past two years. (For comparison, the S&P 500 index has fallen about 21 percent over the same period.) But these 10 companies have begun to make notable turnarounds:
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Why Consumers Aren't As Crazy As They Seem
Tweet Share on Facebook June 1, 2010 Comment (1)In his 2008 bestseller Predictably Irrational, Dan Ariely executed some intellectual loop-de-loops that helped explain why we make a lot of decisions that on the surface seem less than logical. The Duke University professor now has a follow-up, The Upside of Irrationality, in which he continues the mental gymnastics and suggests a variety of ways that companies can be more effective and consumers can be happier. I spoke recently with Ariely about workplace habits, coffee, online dating, and revenge. Excerpts:
How is this book different from your first? This book is very different. It's much more personal than my first. Since I wrote Predictably Irrational, I had the opportunity to talk with many of my readers, and as a consequence, I feel that we are having a discussion with an increased level of intimacy. So I talk about my injuries and how they helped me think about life in a different way. A severe injury makes you stop and think a little differently. It took me out of my regular cycle of life, and made me able to contemplate some stuff I wouldn't have thought about otherwise.
[See 10 New Things We Can't Live Without.]
You apply some of that thinking to ordinary things, like how people behave in the workplace. How do we act irrationally at work? We tend to fall in love with the wrong ideas. I show this in many ways. People love ideas that they created. They think their own ideas are more valuable than somebody else's. Now, you could say this is terrible, because it makes you susceptible to lots of mistakes. But it turns out that it's also useful because it gets us to focus and concentrate and put time and money into things. You could say that we should value an idea on the merits, regardless of who came up with it. But we don't do that.
