Opinion

The Great Debate

How the Corvair’s rise and fall changed America forever

This is an excerpt from Engines of Change: A History of the American Dream in Fifteen Cars, published this month by Simon & Schuster.

However it unfolds, this year’s U.S. presidential election is unlikely to be as close as the one America experienced in 2000. That election was decided, after months of contention and suspense, by disputed ballots and a razor-thin result in Florida.

The historic events, however, were set in motion 40 years earlier by a badly flawed automobile, the Chevrolet Corvair. In the mid-1960s the Corvair made Ralph Nader famous. It also made lawyers ubiquitous, thereby making lawsuits one of the great growth industries of the late 20th Century. And decades after its demise, in the election of 2000, the Corvair’s legacy improbably helped to put George W. Bush in the White House. The car’s story is one of genius, hubris, irony and tragedy, not to mention unforeseen long-term effects on American life and thought.

The Corvair debuted as a 1960 model as one of the first American “compact cars.” (The term was coined by American Motors Chairman George Romney, later Michigan’s governor and father of current presidential candidate Mitt Romney.) The car was “the most profoundly revolutionary car … ever offered by a major manufacturer,” wrote Sports Car Illustrated when the Corvair was launched. It was the brainchild of a brilliant and uber-confident General Motors engineer, Edward N. Cole.

(View a slideshow of the fifteen cars that changed America here or click on the photo above)

How to stop the Whac-a-Mole of insider trading

Preet Bharara’s work rooting out insider trading is good news for U.S. investors, as long as you’re not one of the 240 people being investigated. But until governments tackle insider trading on a global basis, it’s like playing Whac-A-Mole. If your business model includes insider trading, you can pop up in Hong Kong or London almost as easily as Tokyo and Shanghai without much fear of prosecution.

That number — 240 people — is shocking. Prosecutors already have 57 convictions or guilty pleas since Raj Rajaratnam was arrested in October 2009, dozens more than during the Wall Street scandals of the 1980s. Bharara told the New York City Bar Association that insider trading on Wall Street was rampant. Rengan Rajaratnam, Raj’s brother, encapsulated the culture cynically but perfectly. Optimistic about his efforts to recruit a McKinsey consultant to their gang, he said to Raj, “Scumbag. Everybody is a scumbag.”

Alan Greenspan once famously said that the “market” would sort out financial fraudsters — regulators weren’t needed. Now we know the market actually includes quite a number of fraudsters who don’t seem to mind doing business with one another at all.

Why the bank dividends are a bad idea

On the basis of “stress tests” it ran, the Federal Reserve has given permission to most of the largest U.S. banks to “return capital” to their shareholders. JPMorgan Chase announced that it would buy back as much as $15 billion of its stock and raise its quarterly dividend to 30 cents a share, up from 25 cents a share.

Allowing the payouts to equity is misguided. It exposes the economy to unnecessary risks without valid justification.

Money paid to shareholders (or managers) is no longer available to pay creditors. Share buybacks and dividend payments reduce the banks’ ability to absorb losses without becoming distressed. When a large “systemic” bank is distressed, the ripple effects are felt throughout the economy. We may all feel the consequences.

The Trojan Horse of cost benefit analysis

By John Kemp
The writer is a Reuters market analyst. The views expressed are his own.

LONDON – Should federal government agencies have to prove the benefits of new regulations outweigh the costs before introducing them?

It sounds like a simple question with an obvious answer. But the role of cost-benefit analysis in writing federal regulations (and even laws) is shaping up to be one of the biggest battles between the Obama administration and business groups in 2012.

from Don Tapscott:

20 big ideas for 2012, continued

The views expressed are his own.

What will happen in 2012? In the spirit of the aphorism “The future is not something to be predicted, it’s something to be achieved,” let me suggest 20 transformations (which Reuters will publish in four groups of five; the first can be found here). We need to make progress on these issues now to prevent next year from being a complete disaster.

These ideas are based on the research I did with Anthony D. Williams to write our recent book which comes out in January 2012 as a new edition entitled Macrowikinomics: New Solutions for a Connected Planet.

All 20 are based on the idea that the industrial age has finally run out of gas and we need to rebuild most of our institutions for a new age of networked intelligence and a new set of principles – collaboration, openness, sharing, interdependence and integrity. These big ideas will be the focus of much of my writing next year.

from David Cay Johnston:

Closing Wall Street’s casino

The author is a Reuters columnist. The opinions expressed are his own.

A superb example of a sound rule in law and economics that needs reviving, because it can halt the rampant speculation in derivatives, is the ancient legal principle that gambling debts are not enforceable through court action.

Not so long ago -- before casinos, currency and commodities speculation, and credit default swaps became big business -- U.S. courts would not enforce gambling debts.

Restoring this principle offers a simple way to shrink the rampant speculation in derivatives that was central to the 2008 meltdown on Wall Street.

‘Random refereeing’ of economy is not what’s stagnating it

Apparently, the U.S. economy is being held back by massive uncertainty over new regulation, future taxation and the deficit and how it will be handled, a state so frightening and confusing that investors won’t invest, businesses won’t hire and nervous consumers have taken to their beds.

That, at least, is the account of Dallas Federal Reserve President Richard Fisher, who, in a speech last week, blamed fear of the arbitrary exercise of power by those in government for slowing the economy and putting those who make, employ and spend in a “defensive crouch.”

“For some time now in internal discussions with my colleagues at the Fed, I have ascribed the economy’s slow growth pathology to what I call ‘random refereeing’ — the current predilection of government to rewrite the rules in the middle of the game of recovery,” Fisher told business leaders in San Antonio.

The slow death of the regulatory state

At a time when public spending and deficits are ballooning on both sides of the Atlantic, taxes are rising and governments are enacting far-reaching reforms to financial regulation, healthcare and carbon emissions, it might seem strange to talk about the withering away of the state as an economic and industry regulator.

The past year has seen thousand-page bills on healthcare and banking reform and the greatest-ever increase in government spending outside wartime, prompting small-government conservatives to complain bitterly about over-reaching by the Obama administration and the resulting threat to individual freedom, enterprise and wealth creation.

Advocates for U.S. banks complain heightened capital requirements and compulsory clearing of derivatives will hamper their ability to extend credit and raise costs for customers. In the United Kingdom, retailers have fought a high-profile campaign against higher payroll taxes. Everywhere businesses groan about the burden of complying with an inexorably growing list of government regulations.

America needs sensible, bipartisan financial reform now

– By Rob Nichols is president & COO of the Financial Services Forum. The views expressed are his own. —

Reform of our financial supervisory framework is a top priority for the members of the Financial Services Forum, and should be for our nation. In addition to protecting investors, consumers, and shareholders, bipartisan financial regulatory reform will bring much needed certainty to our capital and credit markets and help to fuel our economy and create jobs.

To maintain a position of financial and economic leadership, the United States needs a 21st century framework of financial supervision that protects the interests of depositors, investors, and consumers, and policy holders; ensures the safety and soundness of financial institutions; ensures financial system stability; and ensures an effective and competitive financial marketplace to fuel economic growth and job creation.  Stated another way, financial reform must minimize the chances of another fire, while providing the means for effectively fighting another crisis should it occur.

Wall Street’s biggest trade of the year

Wall Street’s famed army of lobbyists does not seem to have had much success pushing back on the regulatory overhaul bills now being considered by the U.S. Congress.

The Street remains perilously isolated in Washington, deserted even by its normal friends. As a result it has little influence over the course of bills that will have a significant impact reshaping the industry over the next few years and risks being steamrollered.

Isolation is the result of a basic miscalculation about how angry voters are about the financial crisis and its aftermath in terms of lost jobs and income.

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