Wednesday, December 10, 2008

The million-dollar-home dream goes poof!

If you paid seven figures, it probably isn’t worth that anymore; for buyers, $500,000 is the new $1 million.

By Prashant Gopal,
The million-dollar-home dream goes poof! © BusinessWeek

Half a million dollars is, by almost any standard, a lot of money. But during the past few years, when credit was easy and regulations were loose, for many Americans it didn't seem like all that much.

That's because they were able to borrow huge amounts of money to buy new homes, often with little or nothing down. And while most homes sold in the United States, even at the height of the housing bubble, were $500,000 or less, rising prices in many major cities and affluent suburbs around the country pushed the cost of a three-bedroom home into seven figures or more.

But the gap between $500,000 and $1 million is more than monetary. It is also psychological. And during the recent boom years, Americans became reckless consumers, buying cars, houses, clothes and much more that they couldn't really afford. The dream of a $1 million home, once so distant, became tantalizingly reachable.

Now that has all changed. While certain pockets, such as Manhattan, San Francisco and Boston, remain high, real-estate prices around the country have fallen dramatically. The downside to this, of course, is that many people now owe more money on their home than their home is worth. The upside is that valuations are much more realistic — and affordable.

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Washington Takes Risks With Its Auto Bailout Plans


WASHINGTON — When President-elect Barack Obama talked on Sunday about realigning the American automobile industry he was quick to offer a caution, lest he sound more like the incoming leader of France, or perhaps Japan.

“We don’t want government to run companies,” Mr. Obama told Tom Brokaw on “Meet the Press.” “Generally, government historically hasn’t done that very well.”

But what Mr. Obama went on to describe was a long-term bailout that would be conditioned on federal oversight. It could mean that the government would mandate, or at least heavily influence, what kind of cars companies make, what mileage and environmental standards they must meet and what large investments they are permitted to make — to recreate an industry that Mr. Obama said “actually works, that actually functions.”

It all sounds perilously close to a word that no one in Mr. Obama’s camp wants to be caught uttering: nationalization.

Not since Harry Truman seized America’s steel mills in 1952 rather than allow a strike to imperil the conduct of the Korean War has Washington toyed with nationalization, or its functional equivalent, on this kind of scale. Mr. Obama may be thinking what Mr. Truman told his staff: “The president has the power to keep the country from going to hell.” (The Supreme Court thought differently and forced Mr. Truman to relinquish control.)

The fact that there is so little protest in the air now — certainly less than Mr. Truman heard — reflects the desperation of the moment. But it is a strategy fraught with risks.

The first, of course, is the one the president-elect himself highlighted. Government’s record as a corporate manager is miserable, which is why the world has been on a three-decade-long privatization kick, turning national railroads, national airlines and national defense industries into private companies.

The second risk is that if the effort fails, and the American car companies collapse or are auctioned off in pieces to foreign competitors, taxpayers may lose the billions about to be spent.

And the third risk — one barely discussed so far — is that in trying to save the nation’s carmakers, the United States is violating at least the spirit of what it has preached around the world for two decades. The United States has demanded that nations treat American companies on their soil the same way they treat their home-grown industries, a concept called “national treatment.”

Yet so far, there is no talk of offering aid to Toyota, Honda, BMW or the other foreign automakers that have built factories on American soil, employed American workers and managed to make a profit doing so.

“If Japan was doing this, we’d be threatening billions of dollars in retaliation,” said Jeffrey Garten, a professor at the Yale School of Management, who as under secretary of commerce in the 1990s was one of many government officials who tried in vain to get Detroit prepared for a world of international competition. “In fact, when they did something a lot more subtle, we threatened exactly that,” referring to calls for import restrictions.

Mr. Garten said he was stunned by the scope of the intervention that Washington was now considering. “I don’t know that we’ve seen anything like this since the government told the automakers what kind of tanks to make during World War II,” he said. “And that was just for the duration of the war — this could be for much, much longer.”

It is hard to measure just what kind of chances Mr. Obama may be taking with this plan, in part because so many parts of it are still in motion.

In the short term, Democrats are floating the idea of linking $15 billion in immediate loans to the designation of a “car czar” who, in doling out the money, could require or veto big transactions or investments — essentially a one-man board of directors. The White House indicates that President Bush, who has spent his entire presidency proclaiming that the government’s role is to create an environment that spurs free enterprise and minimizes government regulation, would very likely sign the rescue plan.

The first $15 billion and the car czar who oversees it, however, are only the beginning. “After that, we’re in uncharted water,” said Malcolm S. Salter, a professor emeritus at Harvard Business School who has studied the auto industry for two decades and, until a few years ago, was an adviser to General Motors and Ford. “Think about this: Who in the federal government would have the tremendous insight needed to fix this industry?”

Depending on how the longer-term revamping of the industry proceeds, Washington could become a major shareholder in the Big Three, it could provide loans, or, in one course that Mr. Obama seemed to hint at on Sunday, it could organize what amounts to a “structured bankruptcy.” In that case, the government would convene the creditors, the unions, the shareholders and the company’s management, and apportion a share of the hit to each of them. If that “consensus building” sounds a lot like the role of the Japanese Ministry of International Trade and Industry in the 1970s and the 1980s, well, it is.

To promote the Japanese car industry on the way up, the trade ministry nudged companies toward consolidation, and even tried to mandate which parts of the market each could go into. (Soichiro Honda, the founder of the company, rebelled when bureaucrats told him he was supposed to limit himself to making motorcycles.) By the 1980s, Congress was denouncing this as “industrial policy,” and arguing that it put American makers at a competitive disadvantage — and polluted free enterprise.

Now, it is Congress doing exactly that, but this time as emergency surgery. Other nations will doubtless complain, or begin doing the same for their own companies. “We’re at this moment in history, in which the Chinese are touting that their system is better than ours” with their mix of capitalism and state control, said Mr. Garten, who has long experience in Asia. “And our response, it looks like, is to begin replicating what they’ve been doing.”

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Amazon Fails At Gift Wrapping Your Nephew's X-Mas Present

By Meg Marco

Matt would like to let Amazon know that there's no point in gift wrapping a present if you then put the gift wrapped item inside a box that says what the gift is. This should probably be self-evident — but alas — it isn't.

Matt ordered this copy of "Tales of Beedle The Bard" for his 13-year-old nephew. He paid an extra $4 to have it gift wrapped. Amazon actually gift wrapped it, then put the gift wrapped book inside a box that said what it was. Matt is annoyed.

My 13 year old nephew is a huge Harry Potter fan. So being the loving uncle that I am, I ordered for Christmas the “Tales of Beedle the Bard” special Amazon only deluxe edition. I also paid four dollars to have the gift pre-gift wrapped for Christmas. Unfortunately there will be no glow of surprise and joy as he opens his gift this Christmas. No I did not tell him what he got and yes the gift was properly wrapped. The fail here is the fact that the shipping box was covered in stickers and printing indicating exactly what was inside of the shipping box.

Enjoy this bad packaging.

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Whistle-Blowers in Chinese City Sent to Mental Hospital


BEIJING — Local officials in Shandong Province have apparently found a cost-effective way to deal with gadflies, whistle-blowers and all manner of muckraking citizens who dare to challenge the authorities: dispatch them to the local psychiatric hospital.

In an investigative report published Monday by a state-owned newspaper, public security officials in the city of Xintai in Shandong Province were said to have been institutionalizing residents who persist in their personal campaigns to expose corruption or the unfair seizure of their property. Some people said they were committed for up to two years, and several of those interviewed said they were forcibly medicated.

The article, in The Beijing News, said most inmates were released after they agreed to give up their causes.

Sun Fawu, 57, a farmer seeking compensation for land spoiled by a coal-mining operation, said he was seized by local authorities on his way to petition the central government in Beijing and taken to the Xintai Mental Health Center in October.

During a 20-day stay, he said, he was lashed to a bed, forced to take pills and given injections that made him numb and woozy. According to the paper, when he told the doctor he was a petitioner, not mentally ill, the doctor said: “I don’t care if you’re sick or not. As long as you are sent by the township government, I’ll treat you as a mental patient.”

In an interview with the newspaper, the hospital’s director, Wu Yuzhu, acknowledged that some of the 18 patients brought there by the police in recent years were not deranged, but he said that he had no choice but to take them in. “The hospital also had its misgivings,” he said.

Xintai officials do not see any shame in the tactic, and they boasted that hospitalizing people they characterized as troublemakers saved money that would have been spent chasing them to Beijing. There is another reason to stop petitioners who seek redress from higher levels of government: they can prove embarrassing to local officials, especially if they make it to Beijing.

The Xintai government Web site noted that provincial authorities had recently referred to Xintai as “an advanced city in building a safe Shandong.” They said that from January to May this year, the number of petitioners who went over the heads of local authorities was 274, a 4 percent drop from the same period in 2007. Although China is not known for the kind of systematic abuse of psychiatry that occurred in the Soviet Union, human rights advocates say forced institutionalizations are not uncommon in smaller cities. Robin Munro, the research director of China Labor Bulletin, a rights organization in Hong Kong, said such “an kang” wards — Chinese for peace and health — were a convenient and effective means of dealing with pesky dissidents.

“Once a detainee has been officially diagnosed as dangerously mentally ill, they’re immediately taken out of the criminal justice system and they lose all legal rights,” said Mr. Munro, who has researched China’s practice of psychiatric detention.

In recent years practitioners of Falun Gong, the banned spiritual movement, have complained of what they call coerced hospitalizations. One of China’s best-known dissidents, Wang Wanxing, spent 13 years in a police-run psychiatric institution under conditions he later described as abusive.

In one recent, well-publicized case, Wang Jingmei, the mother of a man convicted of killing six policemen in Shanghai, was held incommunicado at a mental hospital for five months and released only days before her son was executed in late November.

The article in The Beijing News about the hospitalizations in Xintai was notable for the attention it gained in China’s constrained state-run media. Such Communist Party stalwarts as People’s Daily and the Xinhua news agency republished the article, and it was picked up by scores of Web sites. At, the country’s most popular portal, the report ranked as the fifth most-viewed news headline, and readers posted more than 23,000 comments by evening. The indignation expressed was universal, with many clamoring for the dismissal of those involved. “They’re no different from animals,” read one post. “No, they’re worse.”

By Monday evening, the Xintai city government was rejecting the report by The Beijing News as reckless and slanted. In a telephone interview broadcast on Shandong provincial television, an unidentified municipal official suggested that those confined to the mental hospital had gone mad from their single-minded quest for justice. “There are some people who have been petitioning for years and become mentally aggravated,” the official said.

Reached by phone on Monday, a hospital employee said Mr. Wu, the hospital director who voiced his misgivings to The Beijing News, was unavailable. The employee, Hu Peng, said that officials from the local government had taken him away for “a meeting” earlier in the day.

Although he would not provide a reporter with contact information for the former patients, Mr. Hu defended the hospitalizations, saying that all those delivered by the Public Security Bureau were sick. He added that the hospital was not authorized to provide a diagnosis to the patients, only to treat them. “We definitely would not accept those without mental problems,” he said.

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And now for a world government

By Gideon Rachma

James Ferguson

I have never believed that there is a secret United Nations plot to take over the US. I have never seen black helicopters hovering in the sky above Montana. But, for the first time in my life, I think the formation of some sort of world government is plausible.

A “world government” would involve much more than co-operation between nations. It would be an entity with state-like characteristics, backed by a body of laws. The European Union has already set up a continental government for 27 countries, which could be a model. The EU has a supreme court, a currency, thousands of pages of law, a large civil service and the ability to deploy military force.

So could the European model go global? There are three reasons for thinking that it might.

First, it is increasingly clear that the most difficult issues facing national governments are international in nature: there is global warming, a global financial crisis and a “global war on terror”.

Second, it could be done. The transport and communications revolutions have shrunk the world so that, as Geoffrey Blainey, an eminent Australian historian, has written: “For the first time in human history, world government of some sort is now possible.” Mr Blainey foresees an attempt to form a world government at some point in the next two centuries, which is an unusually long time horizon for the average newspaper column.

But – the third point – a change in the political atmosphere suggests that “global governance” could come much sooner than that. The financial crisis and climate change are pushing national governments towards global solutions, even in countries such as China and the US that are traditionally fierce guardians of national sovereignty.

Barack Obama, America’s president-in-waiting, does not share the Bush administration’s disdain for international agreements and treaties. In his book, The Audacity of Hope, he argued that: “When the world’s sole superpower willingly restrains its power and abides by internationally agreed-upon standards of conduct, it sends a message that these are rules worth following.” The importance that Mr Obama attaches to the UN is shown by the fact that he has appointed Susan Rice, one of his closest aides, as America’s ambassador to the UN, and given her a seat in the cabinet.

A taste of the ideas doing the rounds in Obama circles is offered by a recent report from the Managing Global Insecurity project, whose small US advisory group includes John Podesta, the man heading Mr Obama’s transition team and Strobe Talbott, the president of the Brookings Institution, from which Ms Rice has just emerged.

The MGI report argues for the creation of a UN high commissioner for counter-terrorist activity, a legally binding climate-change agreement negotiated under the auspices of the UN and the creation of a 50,000-strong UN peacekeeping force. Once countries had pledged troops to this reserve army, the UN would have first call upon them.

These are the kind of ideas that get people reaching for their rifles in America’s talk-radio heartland. Aware of the political sensitivity of its ideas, the MGI report opts for soothing language. It emphasises the need for American leadership and uses the term, “responsible sovereignty” – when calling for international co-operation – rather than the more radical-sounding phrase favoured in Europe, “shared sovereignty”. It also talks about “global governance” rather than world government.

But some European thinkers think that they recognise what is going on. Jacques Attali, an adviser to President Nicolas Sarkozy of France, argues that: “Global governance is just a euphemism for global government.” As far as he is concerned, some form of global government cannot come too soon. Mr Attali believes that the “core of the international financial crisis is that we have global financial markets and no global rule of law”.

So, it seems, everything is in place. For the first time since homo sapiens began to doodle on cave walls, there is an argument, an opportunity and a means to make serious steps towards a world government.

But let us not get carried away. While it seems feasible that some sort of world government might emerge over the next century, any push for “global governance” in the here and now will be a painful, slow process.

There are good and bad reasons for this. The bad reason is a lack of will and determination on the part of national, political leaders who – while they might like to talk about “a planet in peril” – are ultimately still much more focused on their next election, at home.

But this “problem” also hints at a more welcome reason why making progress on global governance will be slow sledding. Even in the EU – the heartland of law-based international government – the idea remains unpopular. The EU has suffered a series of humiliating defeats in referendums, when plans for “ever closer union” have been referred to the voters. In general, the Union has progressed fastest when far-reaching deals have been agreed by technocrats and politicians – and then pushed through without direct reference to the voters. International governance tends to be effective, only when it is anti-democratic.

The world’s most pressing political problems may indeed be international in nature, but the average citizen’s political identity remains stubbornly local. Until somebody cracks this problem, that plan for world government may have to stay locked away in a safe at the UN.

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