You get what you pay for

A recent e-mail from a friend extolling the virtues of Walmart in providing cheap goods to the American masses persuaded me to pen this response: You get what you pay for as I have said elsewhere on the blog. We wanted goods, cheap goods, really cheap goods to fill our homes. Initially Walmart sourced those from Americans who were happy to get the work. But the goods were not cheap enough so Walmart began to source those goods from overseas. Of course, Walmart was not the only one. Dozens of corporations began to outsource their production facilities. One can hardly find a product these days that is not labeled Made in China or, to a lesser extent, some neighboring Asian country. Continue reading

So, just how corrupt is America?

The stranger, a Western businessman, slipped into the chair next to me at an Asia Society lunch here in Hong Kong and asked me a question that I can honestly say I’ve never been asked before: “So, just how corrupt is America?” Thus begins a column by Thomas Friedman that ends with a line that I have repeated again and again: Which is why we don’t just need a financial bailout; we need an ethical bailout. Read the whole article. There is an eye-opening accompanying article in the NY Times outlining how Fairfield Securities fed money to Madoff Securities and how much the Noel family who ran Fairfield made and charged for, in retrospect, doing nothing. One wonders whether this is all corruption or just good, old-fashioned incompetence. Why, one wonders, would people put millions of their own money into a fund about which they knew absolutely nothing?!

So, where are we now?

I have been asked to give a talk to a Rotary Club today. This is what I am going to try to tell them:

CDO’s and CDS’s

Our first mortgage was a face-to-face affair with a local company. That got replaced by financial intermediaries who converted our mortgage into CDO’s. And then to protect themselves against this financial skullduggery, everyone bought CDS’s. The market is huge and completely opaque – witness the billions being poured into AIG. We need to either make a market or to shut the CDS market down completely. Lehmann Brothers CDS’s closed at 90 cents on the dollar so things might be OK. Continue reading