The news came to us at HBR just after our newest issue went to the printer; that issue contains, sadly, the last article he wrote for our pages. Because it is the July-August issue, and will arrive on newsstands two weeks hence, it will seem strange to many readers that the byline makes no note of his passing — and worse, that the editor’s letter is mute on the many accomplishments of his rich and long life. Such are the perils of print publishing, and for that we apologize.
But here let it be said that, when work began last January on envisioning the July-August issue — a special, double-sized issue devoted wholly to exploring how the business landscape would be transformed by the financial crisis and recession — Peter Bernstein’s voice was the first we sought to include. He was the master at explaining issues of financial risk, and there has scarcely been a time when the world needed his kind of clear analysis more.
In response to a vaguely worded invitation from us (deliberately so, in the interests of giving Peter full license to address what he felt needed to be addressed), he came back with a tightly crafted essay called “The Moral Hazard Economy.”
Category: Business
The End of the Affair
The phrase “bankrupt General Motors,” which we expect to hear uttered on Monday, leaves Americans my age in economic shock. The words are as melodramatic as “Mom’s nude photos.” And, indeed, if we want to understand what doomed the American automobile, we should give up on economics and turn to melodrama.
Politicians, journalists, financial analysts and other purveyors of banality have been looking at cars as if a convertible were a business. Fire the MBAs and hire a poet. The fate of Detroit isn’t a matter of financial crisis, foreign competition, corporate greed, union intransigence, energy costs or measuring the shoe size of the footprints in the carbon. It’s a tragic romance–unleashed passions, titanic clashes, lost love and wild horses.
Foremost are the horses. Cars can’t be comprehended without them. A hundred and some years ago Rudyard Kipling wrote “The Ballad of the King’s Jest,” in which an Afghan tribesman avers: Four things greater than all things are,–Women and Horses and Power and War.
Organic Dairies Watch the Good Times Turn Bad
When Ken Preston went organic on his dairy farm here in 2005, he figured that doing so would guarantee him what had long been elusive: a stable, high price for the milk from his cows.
Sure enough, his income soared 20 percent, and he could finally afford a Chevy Silverado pickup to help out. The dairy conglomerate that distributed his milk wanted everything Mr. Preston could supply. Supermarket orders were skyrocketing.
But soon the price of organic feed shot up. Then the recession hit, and families looking to save on groceries found organic milk easy to do without. Ultimately the conglomerate, with a glut of product, said it would not renew his contract next month, leaving him with nowhere to sell his milk, a victim of trends that are crippling many organic dairy farmers from coast to coast.
For those farmers, the promises of going organic — a steady paycheck and salvation for small family farms — have collapsed in the last six months. As the trend toward organic food consumption slows after years of explosive growth, no sector is in direr shape than the $1.3 billion organic milk industry. Farmers nationwide have been told to cut milk production by as much as 20 percent, and many are talking of shutting down.
An Interview with George Roberts & Henry Kravis
Henny Sender interviews KKR founders George Roberts & Henry Kravis on the economy, buying “defensive” companies and government intervention.
A Letter to America from a Dodge Dealer
My name is George C. Joseph. I am the sole owner of Sunshine Dodge-Isuzu, a family owned and operated business in Melbourne, Florida. My family bought and paid for this automobile franchise 35 years ago in 1974. I am the second generation to manage this business.
We currently employ 50+ people and before the economic slowdown we employed over 70 local people. We are active in the community and the local chamber of commerce. We deal with several dozen local vendors on a day to day basis and many more during a month. All depend on our business for part of their livelihood.
We are financially strong with great respect in the market place and community. We have strong local presence and stability. I work every day the store is open, nine to ten hours a day. I know most of our customers and all our employees. Sunshine Dodge is my life.
On Thursday, May 14, 2009 I was notified that my Dodge franchise, that we purchased, will be taken away from my family on June 9, 2009 without compensation and given to another dealer at no cost to them.
Southwest Airlines Enters Milwaukee
Good news for travellers and business:
Today, Southwest gave the residents of Wisconsin something to talk about around the bubbler.
We’re adding Milwaukee and General Mitchell International Airport to our network!!! Starting late this year, the home of the Cunninghams, the Fonz, Laverne and Shirley, the Bucks, the Brewers, and the Packers will become the 68th airport on the Southwest Airlines route map. (Yeah, I realize the Packers are technically based in Green Bay, but they’re the professional football team for the whole state of Wisconsin, so I’ll include them here!)
We know many of you in the Milwaukee area are already familiar with Southwest (low fares and GREAT Customer Service!)—but for our Customers that aren’t familiar with Milwaukee, you’ve got a treat in store for you. Besides having a vibrant business base, Milwaukee is just a lot of fun. Amazing food (please, PLEASE visit Mader’s for German food!), the arts (the Milwaukee Art Museum has masterpiece buildings designed by both Saarinen and Calatrava!), the home of Harley-Davidson (don’t miss their museum!), sausage, cheese, beer, sports, the lake….and of course, the people. Good people. Just don’t plan anything other than watching football on a Sunday afternoon when the Packers are playing. You could be very lonely…. *grin*
Milwaukee is going to be a GREAT addition to our network. Wisconsin’s legendary work ethic, which mirrors Southwest’s exceptionally productive Culture, is going to make us a great fit in the land of the Cheesehead.
Likely not so hot for Madison’s airport traffic….
Khosla on Renewable Energy
EC (13:40): In the past 90 days we have seen something like a billion dollars being put into solar investments – whether in the form of equity or debt. Is that stupid money?
VK: The people who are putting in gobs of money, behind people chasing First Solar at billion dollar valuations – I won’t say it’s stupid but it’s not something I would do with my money. (EC: That pretty much counts as stupid). A diversity of opinion is good. I am often wrong. (EC: Sometimes you are). You only need to be correct once in a while because in our business you only lose one time your money but you can make 100 times quite easily. I don’t have to be very right.
(RR: I would like to hear that during his next congressional testimony where he is trying to drive the direction of energy policy: “I am often wrong.” But this also gets to the heart of why I often object to what he is saying. If he uses his high level of influence to help put us down the wrong path on energy policy, then what are the consequences of being wrong? They could be severe.)
EC (14:38): How many companies do you currently have in your portfolio?
VK: Our clean tech portfolio has probably about 50 companies.
EC (15:48): Which was the biggest disappointment?
VK: We have not had any large cut-offs – I am trying to think – in our clean tech portfolio. When we have invested a lot of money, there’s one or two places – well one we wrote off; one called Altra. (RR: Altra is a corn ethanol producer that is on the ropes). There’s one place we actually decided to change the plan – Cilion – and made it capital neutral, so they don’t need a lot of cash. Got rid of the debt; the company is going fine, but sort of on the slow boat.
Flawed Credit Ratings Reap Profits as Regulators Fail and a Wachovia Photo
Ron Grassi says he thought he had retired five years ago after a 35-year career as a trial lawyer.
Now Grassi, 68, has set up a war room in his Tahoe City, California, home to single-handedly take on Standard & Poor’s, Moody’s Investors Service and Fitch Ratings. He’s sued the three credit rating firms for negligence, fraud and deceit.
Grassi says the companies’ faulty debt analyses have been at the core of the global financial meltdown and the firms should be held accountable. Exhibit One is his own investment. He and his wife, Sally, held $40,000 in Lehman Brothers Holdings Inc. bonds because all three credit raters gave them at least an A rating — meaning they were a safe investment — right until Sept. 15, the day Lehman filed for bankruptcy.
“They’re supposed to spot time bombs,” Grassi says. “The bombs exploded before the credit companies acted.”
As the U.S. and other economic powers devise ways to overhaul financial regulations, they have yet to come up with plans to address one issue at the heart of the crisis: the role of the rating firms.
I noticed this Wachovia building recently and thought the sunset scene was, perhaps appropriate.
A Scion Drives Toyota Back to Basics
Norihiko Shirouzu & John Murphy:
Toyota Motor Corp.’s incoming president, Akio Toyoda, has a sobering message for the giant company founded by his grandfather: It has gotten too fancy for its own good.
On Monday, three top executives who helped lead Toyota the past four years — including Mitsuo Kinoshita, one of the primary architects of the company’s global expansion — announced their retirement. The departures clear the way for Mr. Toyoda’s planned makeover of the world’s biggest auto maker.
He is expected to focus, most of all, on abandoning kakushin, or “revolutionary change,” current president Katsuaki Watanabe’s term for changing the way Toyota designed its cars and factories. It spawned technological advances, but led to cars that were often costlier to produce.
The 52-year-old Mr. Toyoda is also working to fix a pricing strategy that put the company at odds with some U.S. dealers, who felt its cars were getting too expensive, according to people familiar with the situation.
An Interview with FedEx CEO Fred Smith
Frederick W. Smith, the founder, president, chairman and CEO of FedEx, built the first overnight express delivery company in the world, starting in 1971. Today, FedEx, based in Memphis, has service in more than 220 countries and territories.
Like most other businesses, FedEx is encountering economic turmoil and is operating by Smith’s belt-tightening orders. He cut his own salary by 20 percent.
Legend has it that Smith, 64, outlined his concept for FedEx in a paper in an economics class at Yale University for which he earned a C. (He corrects the record in this interview.) At Yale, he was a friend and fraternity brother of former President George W. Bush, to whom he believes history ultimately will be more kind.
In the Marine Corps in Vietnam, Smith received the Silver Star, the Bronze Star and two Purple Hearts as a platoon leader and forward air controller. It was there that he observed military procurement and delivery procedures and thought he could improve on them.
Smith is unwavering in his belief that U.S. corporate tax policy must change, but practical enough to know that the new administration and Congress will not go along with the idea. He still believes one aspect could be enacted – accelerating the expensing of capital investment that would put money into corporate hands sooner.