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Saturday, December 3, 2011

Fannie and Freddie: Lavish Corporate Lifestyle

Fannie Mae and Freddie Mac spent more than $640,000 to send 100 employees to a mortgage-industry conference in Chicago in the fall of 2011. According to a letter from the Federal Housing Finance Agency, which oversees Fannie and Freddie, the spending included nearly $342,000 for travel, food, hotel and meeting-room space. Incredibly, $74,000 was spent on four invitation-only dinners for mortgage-lending companies that are regular customers of Fannie and Freddie. Because Fannie and Freddie “dominate the U.S. mortgage market, purchasing and guaranteeing about 70% of new loans from mortgage lenders,” who in turn thus have few alternative potential buyers, managers at Fannie and Freddie still felt the need to wine and dine their customers under the subterfuge of valuing “face-to-face meetings with customers as a way to understand their needs,” according to the Wall Street Journal. Apparently the folks at Fannie and Freddie were not familiar with customer surveys or even the telephone. Instead, Freddie spokesman Doug Duvall bragged, “[We were able to meet] with our lender customers in a cost-efficient way. In just two days we held approximately 200 meetings.” Undoubtedly some of those “meetings” were held at the dinners, each of which cost the taxpayers $18, 500.

The $640,000 spent on the conference can be racked up to the lack of competitive pressure facing a government-owned organization that is close enough to the private sector to want to enjoy perks that are no doubt common on Wall Street. In other words, while it might be less bothersome to us to see stockholders’ money spend on corporate luxuries, it is not clear that Adam Smith would feel very comfortable amid modern corporate capitalism (and he did include a role for government in his economic theory).

The particularly sad thing about the lavish spending by managers at Fannie and Freddie is that those agencies had been firmly opposed to refinancing the mortgages of borrowers “under water” since the collapse of the housing bubble. Over 3 million foreclosures had taken place in the three years since September 2008. The luxury amid harm bespeaks such inequity that even underlying societal values may be at issue—namely, I should be able to eat, drink and be merry while people I don’t know lose their homes. Beyond the ethical problems with this attitude, it evinces a pathology—that of malignant narcissism and perhaps even sociopathy. It is interesting (i.e., convenient) that no terms could be given up on even the questionable (i.e., the producers’ role) mortgages, while plenty of money was available to be spent on lavish dinners ostensibly for guaranteed customers. The managers at Fannie and Freddie could not very well say that they could not afford to relax some of the overly-stringent terms of the ARMs in the sub-primes (and Alts). In fact, given the roles of policy makers and mortgage producers in enabling the housing bubble with questionable mortgages, a moral obligation exists for the government (and the related agencies) to act so as to obviate the foreclosures (which would have obviated the need for TARP for the banks, as the toxic assets were based on the bad mortgages in default). Had the managers at Fannie and Freddie recognized this point rather than stood on sanctity of contract, the Obama administration might have found a way to compensate the two agencies for doing so—perhaps even throwing their managers a lavish dinner at the White House.

Alan Zebel, “Fannie, Freddie Spend $640,000 on Conference,” The Wall Street Journal, December 1, 2011. http://online.wsj.com/article/SB10001424052970204397704577070752397313184.html?mod=googlenews_wsj

Thursday, December 1, 2011

Conflicting Business Models at Singapore’s Airport

Singapore’s Changi may be “the world’s most fabulous airport,” according to Scott McCartney of the Wall Street Journal. To be sure, the airport’s amenities are amazing. How they are operated, however, detracts in certain respects with the goal. “We wanted to transform the way travel is done and create a stress-free experience,” Foo Sek Min of the airport’s management said. This goal dovetails with the airport being “a key economic development element” for Singapore. Accordingly, the state-owned company that runs the airport receives “plenty of government support.” In line with these goals is a business model that is long-term oriented? Rather than trying to “nickel and dime” customers so as to minimize the funding from airlines and the government while maximizing revenue on a daily basis, resisting such urges in order to provide a truly stress-free experience is more consistent with the goals. To the extent that Changi provides such a business model, other industries (and airports) might follow suit—revolutionizing (or at least challenging) what had come to be the dominant business mentality by the second decade of the twenty-first century.

I contend that a stress-free experience in a pure (and realistic) sense does not include feeling manipulated or pressured to do or buy something. More concretely, paying for X and Y during one’s stay brings with it stress. Even the thought of one’s credit card or cash balance brings with it some stress. To be stress-free, an experience should not include even the thought of money—much less using it. This is where Changi falls short of its own mission: to attract more flyers to the airport and ultimately to (indirectly) add positively to Singapore’s economic development.

Not charging for the local bus tour that for immigration purposes is considered within the airport is perhaps the epitome of how the stress-free and economic development objectives dovetail with a business model. The lack of stress that comes with not having to do anything but get on the bus and take in the sights could lead to interest in investing in Singapore in some way. Indeed, potential business deals may even be negotiated during the tour as tourists chat. The lack of stress (i.e., lack of demands) on the people using the airport can thus benefit Singapore down the line, whereas charging for the tour, collecting the fare, and having the passengers go through immigration would hardly be conducive to a mood to invest or even visit Singapore.

In a general sense, charging for each service in order to (ideally) cover the airport’s operating costs on a daily basis is eons away from the business model that is oriented to long term investment even with regard to particular services. Having the roof-top pool free to customers who stay in one of the airport’s in-transit hotels while costing people going through the airport $11 not only adds to stress monetarily, but also insinuates an insider/outsider exclusivism that is not going to endear the travelling public to Singapore, whether to visit or invest in economically. Similarly, having a four-story amusement-park type slide “tied into retail” at the airport by requiring users to show a receipt from an airport merchant showing roughly $8 or more in purchases or else you can only ride the bottom one and a half stories of the slide evinces a pettiness that even in itself gives rise to stress in others—not to mention the stress involved making sure your receipt is “enough” as your kids pull at you demanding a FULL ride. Feeling manipulated to buy something at the airport’s “mall” would just add to the stress. Considering the limited cost of the slide and how eliminating the financial “rules” and price itself would make a huge difference in terms of stress (both for the employees and the public), one might wonder if the stated goals are authentic, or even known by the managers themselves. This is not rocket science, after all.

My favorite example of Changi’s management working at cross-purposes with its own mission unnecessarily would have to be the $17 for 20 minutes—are you ready for this?—“to put your feet in a tank with tiny fish that eat dead skin.” I must admit that having only the necessary amount of skin on my feet is enticing (I usually use a file, which never seems to do the job on the hardened skin . . . which we ALL have). Still, paying $17 for 20 minutes plus the inevitable worry—what if one of the fish likes live skin too?—is not likely to contribute much to a stress-free experience at the airport.

Similarly, charging $23 for three hours in a nap room would detract from one’s ability to sleep, let alone feel rested and comfortable. What if someone oversleeps? Are they charged more (and might they miss their respective flights?), or are they woken up by a loud “stress-reducing” horn or buzzer just after 2:59?  It is no wonder the bus tour of Singapore is free—people using the airport after having their dead skin eaten off and being woken up by some noise or demand for more money after having had to deal with a child unsympathetic to the $7.50 receipt are likely to want to get away from the damn place for an hour or so. Lest the butterfly garden seem like an alternative escape (it is free), it is also apparently a smoking garden, as smoking is not allowed "in doors." There are, however, two (smoke-free) complimentary movie theatres. Even so, given the apparent thoughtlessness that has gone into some of the payable amenities, I would not be surprised if an airplane crash movie were playing.

In short, while the innovative approach at Changi airport does warrant some praise (e.g., free wifi and movies, and in general for the extent of amenities), the major incongruences within the business model show how difficult it is to fly from the dominant model to one characterized more for its long-term investment orientation to eventual pay-offs. Given the government’s involvement in the state-owned corporation, the airport’s management company should have enough cushion from competitive pressures to be able to go all-out with the new model. Either amenities like the pool and nap rooms would be free, or everyone passing through the airport would pay a general airport fee that would cover all of the perks (other than in the merchants’ stores, of course). The fee would either be low enough that it is not stressful and inconvenient (given the sheer volume) or, more ideally in terms of the new model, money would be “recouped” in future tourism and foreign investment instead of any fee on air travelers. The government’s involvement in the operating company could effectively support the longer-term and less direct financial loop, as well as buffer any “pressures” from the old model for specific charges to be added during customers’ “experience.”

Imagine the stress-relief among the flying public just in knowing that for a few hours no employee will demand money for something or other. In knowing that one doesn’t have to worry about money—even from being reminded of it in being manipulated into using it—one can spend a few hours in an oasis of sorts where “real life” is put on hold. The butterfly garden (if smoke free) intimates such an atmosphere, which the airport itself could reflect, given a conducive business model. Besides endearing the travelling public (and the employees!) to the airport “experience,” Singapore itself would surely benefit in the long term, and not just economically. Unfortunately, this takes faith, which the extant business model does not allow for, at least in terms of the requisite patience.

So my verdict on the most fabulous airport in the world—which, admittedly, I have not seen in person—is: so close and yet so far. The sad thing is, the airport’s management need not be so far from their own objectives; we are not talking about rocket science here (and yet to business schools it probably is). Given the gravity of the “maximize daily revenue” business model that assumes that a constant focus on getting and an uncompromising rigidity are necessary in dealing with customers, a rocket—rather than merely a jet—is undoubtedly necessary to travel to the sort of business model that I have in mind, and not just for airports. If I am correct in this, then business schools are perpetuating the problem in their training rather than teaching alternative business paradigms. That dog is chasing its own tail.

Behind the new model hinted at (but not achieved) by the example of Changi airport is the basic feeling that life doesn’t have to be as hard as we make it. We don’t have to check receipt totals before letting a kid slide down a slide. It is as though managers set up jungle-gym bars right in front of themselves (and their customers) and then convince themselves (and others!) that the equipment must be navigated in order to get to the other side. Moreover, managers seem to have great difficulty simply in relaxing enough to play and enjoy other’s playing. Beyond the greed and urge to manipulate others (i.e., selfishness), the modern managerial mentality is too constricted, even as it paradoxically assumes that societal rules do not apply to it. So, for example, we have managers redefining words such as “guest” to suit a business interest; the rest of us are somehow obliged to recognize the validity of the misuse as a legitimate use, as in “customers are guests” (who must pay nonetheless). It is as though managers as so fixated on manipulating others without any limit or external constraint that the too-serious creatures cannot let themselves or other people simply enjoy something without required procedures and an immediate monetary exchange. The new model rejects the typical managerial mentality as too petty—too small.

I suspect that many elderly people on their death-beds shake their heads as if in achieving distance from us they have suddenly been freed in the awareness that the world is much more petty in what it takes as important and necessary that it knows. We moderns, complicit stewards of the hegemonic business model, micromanage ourselves right out of life experience itself, and we even impose our modern sickness on others. Then we act surprised when they get annoyed at us!

It is like the steward on the Titanic who (in Cameron’s film at least) shouts (little men do that), “You’ll have to pay for that!” to the young couple just after they have broken through a wall to escape the rapidly rising water. Everything must be paid for. No free ride, even on the Titanic on its way down to the darkness. This is the modern dogma that has been instilled in all of us, and we are utterly ignorant of the fact that it is exceedingly petty and narrow-minded even in its ideal. In the movie, the steward gets hit (justifiably) by the hero.  In cheering this, we, the audience, feel the hero’s natural reaction is our own, vicariously. We regard it as a valid verdict on the extant business model that stood for modernity itself back in 1912. A century later, that model had become the default—“the way the world is.” Even so, this need not have been so. Modernity could have developed differently than it did. The example of Changi airport hints at a better alternative in terms of business models. So in advertising a “stress-free experience” only to undercut it by demanding money for various “amenities” and making explicit (or creating) different classes of customers (which is also a theme in Titanic), the managers running Changi airport deserve annoyed customers and charges of insufficiency and even outright hypocrisy. Even so, we can take the Changi example as at least pointing to a different alternative.


Scott McCartney, “The World’s Best Airport?” The Wall Street Journal, December 1, 2011. 

Tuesday, November 29, 2011

An American President Meets the E.U.: Corrective Exigencies of a Debt Crisis

Political protocol can take some time to catch up to changed political realities. For over two hundred years, it has been assumed that U.S. presidents have met with their counterparts in E.U. states such as Britain, France, and Germany. During the European debt crisis, the New York Times reported, “in numerous private conversations and increasingly forceful public statements, [American] policy makers are urging their European counterparts to take big steps and move fast to reassure markets.” It was undoubtedly assumed that the counterparts were at the state level in the E.U., rather than in E.U. governmental institutions. So how are we to situate Barak Obama’s meeting on November 27, 2011 with José Manuel Barroso, president of the European Commission; Herman Van Rompuy, president of the European Council; and Catherine Ashton, the European foreign policy chief? 

                                                                   Doug Mills/NYT

Monday, November 28, 2011

A Syrian Offensive: Taking on International “Enforcement” of Human Rights

In Geneva on November 28, 2011, the Independent International Commission of Inquiry on Syria presented its report, which had been requested by the UN Human Rights Council. According to the report’s summary, the “deteriorating situation in the Syrian Arab Republic prompted The Human Rights Council to establish an independent international commission of inquiry to investigate alleged violations of human rights since March 2011.” The Commission interviewed 223 victims and witnesses. The Commission was able to document “patterns of summary execution, arbitrary arrest, enforced disappearance, torture, including sexual violence, as well as violations of children’s rights.”One might suppose that the Syrian government would have been seeking to placate the international organization and other governments.

The full essay is at "Taking on International Enforcement."


Neil MacFarquhar and Nada Bakri, “Syria Calls Arab League Sanctions ‘Economic War.’” The New York Times, November 28, 2011.