Another heart warming story of jobs going to India

The official line from the US government and the vast majority of American Business leaders is "outsourcing is good for America." The number of games played to provide evidentiary support for such a notion is truly mind boggling (a subject for another post), but reality keeps raising its ugly little head and whispering "psst, buddy, there go some more jobs."

What's really fascinating is how the business press does back flips to spin a story of jobs going to India rather than the US into a classic feelgood story. Kafka and Orwell could not do a better job of absurdity reported via new speak.

Take this little gem from the Chicago Tribune on how using Indian labor to start a new Information Technology (IT) venture just made the whole startup even more special, spiced up with a few other heartwarming anecdotes about how other white collar jobs, including legal research and basic legal services, are now drifting India-ward (emphasis added):

For starters, firms turn to India
Companies find edge by using full-time outsourced workers

By Ann Meyer
Special to the Tribune
Published March 5, 2007


Entrepreneur Bill Lederer is no stranger to dot-coms, but his latest venture has taken him to a new place--India.

Lederer, the founder of Art.com a decade ago and an investor in several other early dot-coms, is rolling out CompleteLandlord.com and RentSlicer.com, two niche sites that aim to deliver comprehensive listings, legal forms and other information for landlords, property investors and renters. Both are part of Lederer's Socrates Media, financed by Lederer and other local investors.

But this time Lederer is relying on a wholly owned subsidiary in India to keep costs low and service high. The strategy will help make the company profitable sooner, he said.

"If we had gone to do this in only Chicago, it would have cost us considerably more," Lederer said. "We are able to do it faster, cheaper, better."
...
The company's subsidiary in Hyderabad is doing more than IT work. It's involved in accounting, marketing support, editorial, creative services and a customer call center, Lederer said.

"Everything we do in Chicago, they do in India," he said, though strategic decisions and new-product development are concentrated in Chicago.

Lederer started Socrates after acquiring a paper-legal-forms company, Made E-Z, in 2003. He brought it online in 2005 in a brick-to-click model, where landlords' in-store purchases of legal forms were supplemented with services from Socrates.

In December, CompleteLandlord.com launched as a separate Web site. And Lederer is taking a similar approach with RentSlicer.com, which will offer comprehensive listings and information for renters when it is launched next month.
...
Socrates employs 50 workers in India and 15 in Chicago. It started setting up its India team by hiring managers with experience working with American companies, said Bruce Masterson, Socrates' chief operating officer, who formerly ran Reuters North America.
...
CVM Solutions, an Oakbrook Terrace-based provider of supplier diversity data and technology, first outsourced its IT work to a provider in India but later formed a wholly owned subsidiary as its needs grew, said Rajesh Voddiraju, president, technology solutions. Now the company employs 36 people in India, while 46 work in Oakbrook Terrace, he said.

"Having a low-cost arm has helped us grow," he said, noting that the company saves about 70 percent in costs from the India operation.

Legal-services firm Mindcrest, with a headquarters of four in Chicago, wouldn't be in business without a wholly owned subsidiary operating in Mumbai and Pune, India, which employs about 150 Indian workers, most of them lawyers with knowledge of American law, said Ganesh Natarajan, the Chicago attorney who founded the company six years ago with three partners.

Natarajan, who is from Mumbai, saw legal services in India as a natural fit because India is a common-law country and its lawyers are used to researching case law, he said.
...
Mindcrest does not give legal advice but provides basic legal services, such as reviewing documents, drafting contracts and doing research, at savings of 50 percent to 90 percent from U.S. rates, Natarajan said. Most of the firm's clients are law firms, consulting firms and corporations with their own in-house counsel who use Mindcrest to save time and money, he said.

A positive experience using a similar legal services firm, QuisLex, based in New York but with 100 employees in India, gave Socrates the confidence to pursue Indian labor for other aspects of the start-up, Masterson said.

I think we have seen the future, and it doesn't work if you live in America.

And ask yourself, would the trusty old US government bother tracking down these jobs which originated in India, but clearly would have been in the US in decades past, and include them in its very suspect analysis of jobs lost to outsourcing?

I think not. I really, really think not.

Contradictory economic indicators reconciled in the direction of bad

If you remember back to the beginning of the year, there was a lot of ballyhoo about how fast the GDP grew in the 4th Quarter of 2006. Cheerleaders for the business sector used that great news to pooh-pooh the set of troubling indicators announced around the same time, such as falling housing prices.

Well, a few days ago the conflict in indicators sort of got reconciled, and it looks a lot like the falling housing market was closer to reality than the wildly rising GDP, according to this NY Times story from March 1:

The paradox has been solved: the economy was not bounding. The Commerce Department reported yesterday that economic growth inched ahead by 2.2 percent in the fourth quarter of last year, only slightly faster than the 2 percent growth recorded in the third quarter and substantially below the economy’s long-term trend rate of growth

The downward revision, by 1.3 percentage points, in the preliminary estimate of gross domestic product was almost three times the average adjustment since the early 1980s, which is 0.5 percentage point.

Coupled with a 17 percent decline in new-home sales in January and a 7.8 percent drop last month in orders of durable goods like computers and washing machines, the new data indicated the economy was much weaker than it seemed.

“I think we are going to discover that the economy is softer than the Fed thinks,” said Robert Barbera, chief economist at ITG Hoenig.

Mortgage defaults again (and again, and...)

The economic fallout from the wave of mortgage defaults continues to settle over the financial markets.

As the AP reported today:

Banks, Sub-Prime Mortgage Firms Hurt After Disclosure Of Probe At New Century
March 6, 2007

By JOE BEL BRUNO, Associated Press NEW YORK -- Mounting concerns on Wall Street that mortgage lenders might be hurt by increasing defaults and delinquencies sent investors fleeing Monday from some of the biggest names in the industry.

The meltdown among lenders that specialize in home loans to people with weak credit, known in the industry as sub-prime lenders, again ravaged stock prices. Financial institutions ranging from Britain's HSBC Holdings PLC to sub-prime leader Countrywide Financial Corp. sank amid reports of strained portfolios as loans went bad.

The latest to rattle the markets was New Century Financial Corp., the nation's second-largest sub-prime lender. The Irvine, Calif.-based company disclosed a criminal probe into the trading of its securities, and into the lender's accounting procedures.

Already beleaguered investors were swift to react. New Century's shares lost 60 percent on Monday - wiping $532 million from its market value. Wall Street, still wobbly after last week's huge plunge, also punished the rest of an industry blamed for loosening lending standards amid an eroding housing market.

In Connecticut, Middletown-based Mortgage Lenders Network filed for bankruptcy protection last month when its sources of funding disappeared.

"We see increasing evidence that this industry is now in a downward spiral whereby each negative development fuels additional deterioration in key fundamentals, including origination volume, pricing, credit, and most importantly, funding," Stifel Nicolaus analyst Christopher Brendler said.

And that ain't all, folks. The sub-prime market re-contracts its obligations to major commercial lending entities, so if the sub-prime market really goes sour, look forward to a domino effect...which appears to have already begun as the story linked above reports:

Concerns about a meltdown at New Century include the possibility it will not be able to meet covenants with major financial backers, the company said. Sub-prime lenders enter into agreements with big banks to finance their operations. These backers require sub-prime lenders to meet minimum financial targets or face breaching loan agreements that would force banks to pull out of the deals.

This dragged down shares of some of the top U.S. banks and investment banks.

Morgan Stanley Inc., which had a 5.5 percent stake in New Century as of Dec. 31, dropped $1.33, or 2 percent, to $72.03. State Street Corp., with a 3.8 percent stake, shed 12 cents, to $64.96. Citigroup Inc., with 3.5 percent stake, traded as low as $49.56 before recovering to post a 27-cent gain, at $50.24.

Other sub-prime lenders also tumbled. Countrywide Financial fell $1.03, or 2.8 percent, to $35.99, and it is down about 14 percent since January. Novastar Financial Inc. shares plunged $2.17, or 30 percent, to $5.07, and are down about 40 percent this year.

Higher U.S. interest rates and a stagnant housing market began to take their toll on borrowers who had been relying on the rising value of real estate markets to help them refinance mortgages.

Last year, 13.5 percent of mortgages originated in the U.S. were sub-prime, according to the Mortgage Bankers Association. This is up from 2.6 percent in 2000. The subprime market accounted for about 20 percent, or $600 billion, of the $3 trillion mortgage market.

The stock market drop last week may or may not turn out to be the beginning of a huge slide--it's hard to tell in an arena that is so cyclical and in which so many factors can produce a given downturn. But the mortgage default phenomenon and its consequences, that's pretty much sure to be a problem. With a capital P.

Those great business ethics on display again

Wall Street Journal and CNBC types love to pretend that private sector ethics are far better than government ethics. If you've been alive and conscious over the last decade, you know that isn't true (they're equally corrupt, and generally run by the same kinds of folks).

Two more examples just hit the fan:

1. Huge insider trading ring broken up:

It started in 2001 with two old friends meeting at the Oyster Bar in the basement of Grand Central Terminal in Manhattan, discussing a $25,000 debt.

It ended yesterday with federal authorities saying that they had exposed one of the most far-reaching insider trading schemes on Wall Street in decades, involving four investment banks and a web of hedge funds, day traders, lawyers and even a few supervisors, who upon discovering evidence of insider trading, blackmailed the traders to keep quiet about it.

Thirteen people were accused yesterday of taking part in the trading ring, including a former Morgan Stanley compliance official, a senior UBS research executive, three employees from Bear Stearns and a Bank of America employee.

Linda C. Thomsen, chief of enforcement at the Securities and Exchange Commission, described the scheme as one of the most “pervasive Wall Street insider trading rings since the days of Ivan Boesky and Dennis Levine.”

Nine of the defendants have been arrested, and four have pleaded guilty to charges ranging from securities fraud, conspiracy to commit securities fraud and bribery. The investigation, conducted by the S.E.C., the Federal Bureau of Investigation, and the office of the United States attorney in Manhattan, has been under way for more than a year and is continuing.

The schemes described by federal authorities were unusual for their breadth and the seniority of the executives involved.

The tactics, however, were all too familiar: Wall Street executives tipping hedge fund traders about potential upgrades or downgrades of stocks, information sure to move a stock’s price; leaking information about pending mergers and acquisitions, and taking kickbacks to get access to hot deals. In the middle, authorities say, was a hedge fund manager looking for an edge.

2. Largest subprime mortgage lender under fed investigation:

Federal prosecutors and securities regulators are investigating stock sales and accounting errors at the New Century Financial Corporation, the biggest mortgage company that specializes in lending to people with weak, or subprime, credit, the company disclosed in a corporate filing yesterday.

The company also warned that a delay in filing its financials may put vital financing into jeopardy.

The troubles at New Century are the latest sign of the deterioration in subprime lending — until recently the fastest-growing segment of the mortgage business. The market has been struggling to contain the fallout from rising default rates and weakening home prices. Late last year, some smaller lenders started going out of business and last month several bigger companies, including New Century, started reporting problems.

Another large lender, the Fremont General Corporation, said yesterday that it planned to sell its subprime mortgage business after reaching an agreement with the Federal Deposit Insurance Corporation to restrict its activities in that area. As part of the agreement, Fremont will be able to continue taking deposits.

The investigations into New Century, which is based in Irvine, Calif., and wrote $33.9 billion in mortgages last year, started after the company said on Feb. 7 that it would restate earnings for three quarters, which sparked a huge sell-off in its shares. Yesterday, it said its problems had prevented it from filing its annual report, which was to be released Thursday. The board is conducting an investigation of the accounting problems.

Neither one rises to the level of Enron or Global Crossing fraud, but, come on, business ethics in America in the 21st century? An absolute oxymoron.

Classless society indeed

Remember how America was always portrayed as a classless society? How proud we were that we didn't stratify ourselves by class the way those silly Europeans did?

Well, how does that old concept fit with this, from the Federal Reserve Bank of St. Louis?

Residential neighborhoods throughout the nation's metropolitan areas have become increasingly divided into high-
and low-unemployment sections, and an analysis by an economist with the Federal Reserve Bank of St. Louis suggests that people may be "sorting" themselves by both income and education.
The analysis was conducted by Christopher H. Wheeler, writing in the March/April issue of Review, the Reserve Bank's bimonthly journal of economic and business issues.
...
The rate of unemployment is one of the most basic indicators used to gauge the economy's health. As the economy fluctuates between periods of expansion and recession, corresponding changes in the rate of unemployment are observed.
Between 1980 and 2000, the aggregate national unemployment rate fell from 6.3 percent to 3.9 percent, suggesting that workers in the United States faced better unemployment prospects in 2000 than in 1980.
"Yet, underlying these figures," said Wheeler, "is a trend that is not widely known: Unemployed workers became increasingly concentrated in certain neighborhoods within the nation's metropolitan areas. That is, neighborhoods in the United States became increasingly polarized into two groups: those with high rates of unemployment and those with low rates."

Tell me that this doesn't sound like a damn good beginning toward the stratification of America by class.

Mortgage defaults: "don't worry, be happy" doesn't go very deep

A few weeks ago, the news briefly touched on the rising rate of mortgage defaults in the U.S. (roughly one of every 92 households in America during 2206). Since then, the official government experts and economic gurus have been busy pooh-poohing the significance of this phenomenon--the usual "don't worry, be happy." But if you keep following the story and the comments by these guys when they speak away from the general public eye, you start to see that the pooh-poohing is mostly for consumption by the masses. In front of an audience of other experts you get:

1. This, from a story about a Ben Bernanke speech before the Stanford Institute for Economic Policy Research:

In response to a question after the speech, Bernanke reiterated that the central bank sees no ``spillover'' from rising delinquencies in subprime mortgages. ``We're obviously going to watch it very carefully,'' he added.

2. This, from the Chicago Tribune:

Home loan rules studied

Stricter guidelines may cut default rate

...

As more Americans default on home loans, federal regulators and members of Congress are looking to place new restrictions on mortgages for people with shaky credit, a move that could make it harder for many people to buy homes or refinance their mortgages.

Government officials on Friday issued for public comment proposals to address problems that have rattled the mortgage-lending industry and left growing numbers of people in homes they cannot afford.

These measures call on lenders to exercise caution in making such loans and to closely evaluate borrowers' ability to repay them. Other proposals include requiring that such loans be granted only to those who have the ability to make payments for the entire mortgage, rather than just an initial period with a "teaser" rate that later shoots up, typically adding hundreds of dollars to the monthly payment.

Another proposal would ensure that consumers receive enhanced disclosures about their loans, so that fees and rate hikes do not catch them by surprise.

--------------------

Tell me again why the default rate isn't a problem---but the Fed is going to keep a damn close eye on the rate and its consequences, and the federal government itself is getting involved to see what it can do to calm the default rate down.  Nothing like a good fairy tale to get you to sleep so the parade of nightmares can begin.

Now that's a robust economy (isn't it?)

While the media tend to publish the government's own "good news" statistics on the economy without any critical analysis at all, and to reprint verbatim the press releases of the various government officials assigned to the task of keeping Americans' eyes averted from the deteriorating economic structure around them, every once in a while we get a bit of underreported honesty. This is from Investment News:

One in 10 Americans fear losing their job

February 26, 2007
About 10% of Americans responding to a recent public-opinion study feared losing their job in the next year, though most said that they were keeping up financially, according to a report released Friday by the American Enterprise Institute for Public Policy Research in Washington.
But only about half said they thought they had enough money to live comfortably when they retired, according to the report, which was compiled from a variety of public-opinion polls done over the past year.

Health care is the issue Americans are most anxious about, the report found. The report found that 54% of respondents said they were worried that they wouldn’t be able to pay their medical costs if they had a serious illness.

In addition, 20% of people cited in one of the studies said they’d had problems paying medical bills in the previous 12 months.

Since it seems to be mandatory to try to spin all economic news, let me try this:

If you worry that you wouldn't be able to pay your medical bills if you had a serious illness, Good News! You're now part of a solid American mainstream majority. Here's to your health, you're going to need it.