Mexico’s economy may expand more than expected in 2010 as the nation recovers from last year’s global slump, central bank Deputy Governor Manuel Sanchez Gonzalez said in an interview yesterday.
“Everything points towards the direction of a recovery,” Sanchez said in Sydney. While the central bank forecasts growth of 3.2 percent to 4.2 percent this year, “I’m ready to be surprised as to the results of the economic recovery,” he said.
Mexico’s $1.09 trillion economy was the worst performer in Latin America last year, shrinking 10.1 percent in the second quarter and 6.2 percent in the third quarter from a year earlier. Gross domestic product may expand “slightly” more than the government’s current 3 percent estimate this year, Deputy Finance Minister Alejandro Werner said Feb. 5.
Sanchez is among policy makers visiting Sydney this week to attend a symposium organized by the Reserve Bank of Australia to celebrate its 50th anniversary. The Basel, Switzerland-based Bank for International Settlements is also hosting a meeting of central bank officials in Sydney.
Global policy makers have to be “very careful” about how quickly they withdraw stimulus measures after cutting interest rates and boosting public spending to counter the deepest global recession since World War II, Sanchez said yesterday.
“There is a tradeoff between sustaining the stimulus measures and having some risks as to maintaining those,” he said. “You have a risk of withdrawing too quickly, of leaving those measures too rapidly, so that this recovery may be interrupted. You want to be very careful to maintain those stimulus measures for the right time.”
Inflation Outlook
Central banks also have to remain watchful of inflation and maintain price stability, he said.
“Every country has different situations as to the inflation prospects, but I’m confident also that the inflation pressures will continue to be relatively subdued in the near future,” Sanchez said.
Mexico’s inflation in December was 3.57 percent, the slowest since 2006.
The central bank kept the benchmark interest rate unchanged at 4.5 percent in January for a fifth straight meeting and warned that higher costs for state-controlled goods such as gasoline may fuel broader price increases. The latest monetary policy position is consistent with the central bank’s growth forecasts, Sanchez said.
The region’s second-largest economy probably shrank about 7 percent in 2009, the most since 1932, the central bank estimates.
“I’m very optimistic about the prospects of the Mexican economy in the short term and long term,” Sanchez said. “We had a very harsh recession last year. We’re going to have a very important improvement relative to the base we had last year.”
The fourth quarter probably showed “very good dynamism of economic activity” and the unemployment rate has declined, Sanchez said.
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DETROIT — As Toyota dealers across the country work to repair the defective gas pedals in millions of vehicles, they also are trying to repair the automaker’s reputation by extending hours, making house calls and offering other services.
Toyota Motor Corp. recalled eight vehicles Jan. 21 and stopped selling those vehicles five days later because their accelerator pedals could stick in a depressed position. Toyota is sending dealers a piece of steel about the size of a postage stamp that can be inserted into the accelerator mechanism and eliminate the friction that causes the problem.
Kent Newbold, president of Newbold Toyota in O’Fallon, Ill., said Wednesday that he was even offering customers free tickets to a movie at the nearby O’Fallon 15 Cine while repairs are made to their recalled vehicles.
Nobody had taken him up on that offer, but he said it would remain until all of the recalled vehicles were fixed. "They’re our customers and we’re going to take care of them. … I was even tempted to sneak out and see ‘Alvin and the Chipmunks 2′ myself," Newbold said.
Jim White Toyota, a dealership in Toledo, Ohio, received about 350 steel pieces, or shims, and began repairs Wednesday morning. By mid-afternoon, about 25 cars were fixed, said Terry Treter, service manager.
Repairs were going smoothly and a little faster than the half-hour Toyota estimated, he said. Technicians do a test drive as part of the repair.
Dealers said they would extend service hours as needed to make repairs at the convenience of their customers. "The main thing the dealers want to do is to get the cars repaired and back on the road," said John S. Poppell, president of Twin City Toyota in Herculaneum.
Tom Seeger, owner of Seeger Toyota in Creve Coeur, added, "We’re going to get this done as seamlessly and comfortably for our customers as possible."
Dealers said customers had been calm despite a warning early Wednesday from U.S. Transportation Secretary Ray LaHood, who said owners of recalled Toyotas should stop driving them. LaHood later said he misspoke and told owners to get their cars repaired.
"There was an (increase in) concerned calls five minutes after Ray LaHood made his first comment, but people calmed down after he later explained himself," Seeger said.
Toyota is giving U.S. dealers payments of up to $75,000 to help them offer extra measures such as house calls. The automaker also suggested other steps, such as additional hires to help with recall repairs, dedicated recall service lanes and complimentary oil changes.
Toyota is sending checks this week based on the number of cars each dealer sold in 2009. Dealers who sold fewer than 500 cars will get $7,500. Dealers who sold more than 4,000 will get $75,000.
Robert Kelly of the Post-Dispatch contributed to this report.
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As Toyota’s mass recall threatens the leading automaker’s reputation, several rivals are rolling out incentives to reel in Toyota customers looking to get rid of their cars.
General Motors is offering incentives of $1,000 and low financing rates specifically for Toyota customers worried about their recalled vehicles.
"We decided to make this offer after receiving many e-mails and calls from our dealers, who have been approached by Toyota customers asking for help," GM said in a statement. The offers will run through the end of February.
Starting Wednesday, GM started offering $1,000 rebates or up to $1,000 to help pay off current leases on Toyota products. The automaker is also offering 0% financing on most models for Toyota customers. The offers apply to 2009 and 2010 model year cars.
Hyundai said it is offering a $1,000 rebate for anyone who trades in a Toyota from Thursday to February 1. Customers who trade in their Toyotas with the trade incentive can purchase one of three models only: a Hyundai Sonata, Elantra or Elantra Touring.
Ford is offering $1,000 to customers trading in Toyota Motor Co. products. The offer began Wednesday but a Ford spokeswoman said the offers are not targeted at Toyota’s recall problems. Customers are also being offered the same $1,000 on Honda products.
Chrysler is offering an additional $1,000 to customers who trade in their Toyota Tundra, Tacoma or Sienna and purchase or lease a new Chrysler, Jeep, Dodge car or Ram truck. It is also offering $1,000 in bonus cash to drivers who want to turn in a leased Toyota to buy or lease a Chrysler product.
Such "conquest incentives" — incentives targeted at owners of other manufacturers’ vehicles — are common in the industry, GM spokesman Tom Henderson said.
However, some of the incentives are designed to take advantage of Toyota owners’ worries at a time when they’re concerned about the safety and quality of their cars.
Toyota announced last week that it was recalling 2.3 million cars, SUVs and trucks for a problem with a potentially sticky gas pedal. This was after the company recalled 4.2 million vehicles — many of them the same as last week’s recall — for a problem in which the gas pedal could become stuck on the floormat.
Toyota recently announced that will temporarily stop selling models affected by the most recent recall, including some of their most popular products like the Camry sedan and the Rav4 small SUV.
For its part, Honda said the recall "has no impact whatsoever on Honda or Acura customers" and that it "will not undertake any sales activities that expressly target Toyota customers."
The problem plays to GM’s current strengths, said James Bell, an analyst with Kelley Blue Book’s KBB.com. Some of GM’s strongest products, like the Chevrolet Malibu sedan and Chevrolet Equinox SUV, are strong competitors to products Toyota is now not selling.
"The Equinox is the obvious buy over a Rav4," he said.
If the Chevrolet dealers were still selling last year’s Equinox, before the new, completely redesigned model was introduced, GM’s position wouldn’t have been as strong, he said.
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In his State of the Union speech Wednesday night, President Obama touted a slew of federal initiatives aimed at stimulating small business hiring and growth. Again.
Small companies employ around half of America’s workers and drive most of the country’s job growth. Obama talks frequently in his speeches about the vital role small companies play, and his administration has launched several efforts to bolster struggling Main Street businesses. But most of the president’s small business proposals remain in limbo, caught in bureaucratic logjams and the Great Black Hole of Congress.
A year ago, Obama set the stage during his first major economic speech to Congress. "I will not spend a single penny for the purpose of rewarding a single Wall Street executive, but I will do whatever it takes to help the small business that can’t pay its workers or the family that has saved and still can’t get a mortgage," Obama said in February. "That’s what this is about. It’s not about helping banks; it’s about helping people."
But small business owners across the nation say they feel left out of the stimulus and recovery action.
"Basically, it seems to me that Washington’s efforts have been to help Wall Street, not Main Street," said Kim Griebling, president of Custom Flag Company in Westminster, Colo. Griebling and her father bought the company in 1998 and now employ a staff of eight. As the economy deteriorated, so did the demand for flags.
Griebling applied in September for an America’s Recovery Capital (ARC) loan, an emergency financing program created as part of February’s stimulus bill. The program offers qualifying business owners a small, government-backed loan on very attractive terms, but those trying to land ARC loans face a gauntlet of administrative obstacles. While bailed-out financial giants like AIG got financing fast from Washington, business owners wait months.
"People don’t realize that $35,000 for a small business makes a huge difference. I am on the verge of possibly having to lay off people," said Griebling. Her loan was approved in December, but she hasn’t received the money yet — and her patience is wearing thin.
"I definitely pay attention, but I would say I am more skeptical," she says of politicians’ talk of helping small companies like hers.
Geoffrey Zeamer, the owner of scientific instrument maker Abbess Instruments in Holliston, Mass., also feels that small companies are being overlooked.
"I listen very carefully and on a daily basis as to what is going on, and I have found the last year extremely disheartening because everything is going to banks," Zeamer said.
Zeamer is an engineer who has owned his 17-employee company since 1982. He thinks the government got it backward by funneling money to banks to save the economy.
"If the government really wanted to stimulate business, then you give out orders. You order more planes, trains, you buy more bridges. If you give banks money, they look out and say, ‘nobody has any orders, we are not going lend out,’" said Zeamer. "That seems to have escaped them. I think it’s Basic Economics 101."
Here’s a rundown on where President Obama’s small business proposals from throughout the past year currently stand:
Tax credits for jobs: The government’s economists estimate that small businesses have created 65% of America’s new jobs over the past 15 years. In December, Obama delivered a speech at the Brookings Institution in which he endorsed tax breaks to encourage small businesses to hire.
But there’s a blizzard of competing proposals for what form those incentives should take, from a temporary payroll tax holiday to per-worker tax credits for new hires, and none have yet gained momentum in Congress.
In the same speech, Obama backed a trifecta of tax cuts intended to spur small business investment and capital spending. Congress hasn’t yet taken significant action on any of them.
TARP for community banks: Small businesses are still struggling to access the capital they need for their day-to-day operations.
"When you talk to small business owners in places like Allentown, Pennsylvania or Elyria, Ohio, you find out that even though banks on Wall Street are lending again, they are mostly lending to bigger companies," Obama said Wednesday. "Financing remains difficult for small business owners across the country."
In October, the President proposed a collaboration between the Treasury Department and the Small Business Administration to make capital cheaper for community banks that commit to increasing their small business lending.
Under the proposed plan, banks with less than $1 billion in assets would be able to borrow money from the government at a 3% dividend rate. That’s a discount on the 5% rate the Treasury currently offers borrowers through its Capital Purchase Program, a TARP (Troubled Asset Relief Program) initiative.
Three months later, the government is still drafting guidelines for the initiative.
Obama invoked the plan in Wednesday’s speech.
"I’m proposing that we take $30 billion of the money Wall Street banks have repaid and use it to help community banks give small businesses the credit they need to stay afloat," he said.
Loan limits: In the same October speech, Obama also threw his support behind Congressional efforts to raise the ceiling on SBA loans. Currently, the maximum loan size available under the SBA’s major lending programs is $2 million. Policymakers would like to lift that limit to $5 million.
Both houses of Congress have considered the measure, but they’ve failed to agree on legislation to enact it into law.
Bigger incentives for loans: Amid a slew of stalled initiatives, one program has seen success.
SBA-backed loans represent a tiny portion of the overall small business lending landscape, but they’re a vital lifeline for many new and growing companies. Last year, the SBA’s loan volume plunged.
February’s Recovery Act set aside a $375 million funding pool to temporarily eliminate fees for a SBA loans and increase the portion of each loan that the government guarantees, up to 90%. That move proved so popular that the money allocated for it ran out around Thanksgiving. Just before Christmas, Congress appropriated another $125 million to keep the incentives running.
The data shows that lending has rebounded from last year’s lows. In the three months ended Dec. 31, the SBA’s 7(a) program processed more than 12,000 loans totaling $3.8 billion. That’s a sharp pickup from the 9,070 loans, totaling $1.9 billion, the agency backed a year earlier.
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NEW YORK — Wal-Mart Stores Inc. will cut about 11,200 jobs at Sam’s Club warehouses as it turns over the task of in-store product demonstrations to an outside marketing company.
The move is an effort to improve sales at Sam’s Club, which has underperformed the company’s namesake stores in the U.S. and abroad.
The cuts represent about 10 percent of the warehouse club operator’s 110,000 staffers across its 600 stores. That includes 10,000 workers, most of them part-timers, who offer food samples and showcase products to customers. The company also eliminated 1,200 workers who recruit new members.
Employees were told the news at mandatory meetings on Sunday morning.
"In the club channel, demo sampling events are a very important part of the experience," said Sam’s Club CEO Brian Cornell in a phone interview. "Shopper Events specializes in this area, and they can take our sampling program to the next level."
Shopper Events, based in Rogers, Ark., currently works with Wal-Mart’s namesake stores on in-store demonstrations. Sam’s Club is looking to the company to improve sampling in areas such as electronics, personal wellness products and food items to entice shoppers to spend more.
Sam’s Club has performed more poorly than Wal-Mart Stores Inc.’s namesake stores in the U.S. and abroad. Cornell has been working to improve results since taking the helm in early 2009, introducing new store formats, price cuts and offering more variety and more brands of items from take-home meals to baked goods.
As consumers eat out less in the shaky economy, Sam’s Club has tried to steal customers from grocery chains and rival warehouse stores such as Costco Wholesale Corp no fax payday loans. by offering more everyday goods such as food and health and beauty items and by paring its assortment of general merchandise such as furniture and clothes.
But in Wal-Mart Stores’ most recent quarter, revenue at the Sam’s Club division slipped nearly 1 percent to $11.55 billion while U.S. Walmart stores posted a 1.2 percent sales increase to $61.81 billion. Earlier this month, Wal-Mart Stores closed 10 underperforming Sam’s Club locations, resulting in the loss of about 1,500 jobs.
"Sam’s has been the relative laggard, and it has lagged relative to its direct competitors, Costco and the smaller BJ’s (Wholesale Club)," said Craig Johnson, president of retail consultancy Customer Growth Partners.
The move to outsource its food sampling efforts is a way for the company to tout its fresh food offerings in a cost-effective manner, Johnson said.
—"’Fresh’ is where the real competitive battles are being fought in the club sector," he said.
Shopper Events will launch a new demo program called "Tastes and Tips" with new carts, signs, uniforms and a trained team, said Cornell. He said the move was not made to save money.
"It’s not a cost-cutting measure, it’s really an investment in enhancing our demo program," he said. Cornell added that Shopper Events planned to hire "roughly the same number of people" cut, and said Sam’s Club workers are invited to apply for those positions.
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Independent Bank Corp., the parent of Rockland Trust Co., said net income in the fourth quarter increased 33 percent to $9.1 million from the previous three months as the bank saw a strong upswing in wealth-management revenue.
Net income was up more than 200 percent when compared with the year-ago quarter, or before the bank acquired Benjamin Franklin Bancorp Inc.
For the year ended Dec. 31, Rockland Trust’s (Nasdaq: INDB) net income was $23 million compared with $24 million in 2008.
Total assets increased by $48 million, or 1.1 percent, to $4 us fast cash.5 billion in the fourth quarter, compared with the previous quarter.
The company recorded non-interest income of $10 million during the fourth quarter, an increase of $5.6 million when compared with the quarter ended Sept. 30. The change in non-interest income included a wealth management revenue increase of $451,000, or 19.8 percent, because of general stock market appreciation and strong sales results. Assets under management in the wealth management division were $1.3 billion at the end of December.
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BAGHDAD–Iraq gave final approval Sunday to a deal by a Shell-led consortium to develop one of its largest oilfields, marking a crucial step toward the nation’s postwar rebuilding by boosting the production of its most lucrative resource.
Royal Dutch Shell PLC and its partner, Malaysia’s state-run Petronas, won the right to develop the 12.5 billion barrel Majnoon field last month during Iraq’s second postwar bidding round. As part of the deal, Shell and Petronas will pay the Iraqi government a $150 million (U.S.) signing bonus.
At a Baghdad signing ceremony, Oil Minister Hussain al-Shahristani hailed the deal as a "major step that will transform the region from an area of misery and deprivation into a prosperous one."
Shell chief executive Peter Voser refused to say how much money will be spent on the project.
The oil deal for Majnoon, located in Basra province near the Iranian border, was one of seven the Iraqi government awarded last month.
The 20-year contract calls for the companies to be paid $1.39 per barrel produced above current output levels. The firms have said they hope to raise production from the current 45,900 barrels per day to 1.8 million barrels per day by 2020.
The Majnoon field was discovered in 1976 and was partially developed until the Iran-Iraq war halted work. Oil production resumed in 2002.
For Iraq, the oil deals mark a crucial step forward in the country’s so-far faltering bid to raise oil output. Although it sits atop the world’s third-largest proven reserves of conventional crude oil, Iraq produces a comparatively modest 2.5 million barrels per day, of which about 1.9 million barrels a day are exported.
Of the seven deals awarded in December, Iraq’s Cabinet has approved four, including Majnoon, and has asked for changes to proposals for the remaining three – awarded to consortiums led by Russia’s private oil giant Lukoil, China’s CNPC and Russia’s Gazprom – before signing off on them as expected by the end of January.
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Four top bank chief executives told a panel probing the financial crisis Wednesday that they made mistakes but didn’t realize how bad they were at the time.
In a heated exchange in Washington with the head of the Financial Crisis Inquiry Commission, Lloyd Blankfein, Goldman Sachs’ CEO, agreed the banks had assumed too much exposure to risk at the height of the crisis, and he wished he could go back and change things.
"Anyone who says I wouldn’t change a thing, I think, is crazy," Blankfein said. "Knowing now what happened, whatever we did, whatever what the standards of the time were — It didn’t work out well."
"Of course, I’d go back and wish we had done whatever it took not to find ourselves in the position we found ourselves in," he added.
The remarks came during a hearing of the Financial Crisis Inquiry Commission, a 10-member panel appointed last summer by Congress. Testifying were chiefs of some of the best-known and largest banks: Goldman Sachs (GS, Fortune 500), Morgan Stanley (MS, Fortune 500), J.P. Morgan Chase (JPM, Fortune 500) and Bank of America (BAC, Fortune 500).
The panel’s chairman, Philip Angelides, said he wanted to hear about the banks’ role in creating the crisis and benefiting from the Troubled Asset Relief Program, which was set up to provide them with liquidity.
During the hearing, Angelides cast doubt on Blankfein’s defense of Goldman Sachs’ actions in the mortgage markets — such as buying parts of risky mortgages and then placing bets against such morgages — as part of their job as a "market maker."
"It sounds to me a little like selling a car with faulty brakes and then buying an insurance policy on the buyers of those cars," Angelides said. "It doesn’t seem to me that that’s a practice that inspires confidence."
Blankfein responded that Goldman was just selling what investors wanted.
"These are the professional investors who want this exposure," he said. "Even today, people are coming for exposure to these very products. .. That’s what a market is."
The chief executives — Blankfein, John Mack of Morgan Stanley, Jamie Dimon of JPMorgan Chase, and Brian Moynihan of Bank of America — testified under oath, standing up for a swearing-in during the public session.
The hearing lasted more than three hours and most of the testimony revolved around bad lending in the housing market.
Dimon said that one of the the banks’ "big misses" was failing to "stress test" the housing market.
"We didn’t stress test housing prices going down by 40%," Dimon said.
It has been suggested that this lack of accountability could be remedied if all of the firms and individuals involved in the creation of financial instruments had to "eat their own cooking." That would, for example, require that the bulk of their fees not be taken in cash, but in the securities they created, which they would be required to hold unhedged until maturity.
One commissioner asked Morgan Stanley’s Mack if investment banks could have remediated the volume of illiquid toxic securities by eating "their own cooking," and taking fees for financial transactions via toxic securities, instead of cash. Mack said his firm did hold some of those securities.
"We did eat our own cooking and we choked on it," Mack said. " We kept positions and it did not work out."
‘Sound’ regulatory changes
Blankfein, Dimon and Mack all talked about the need for "sound" regulatory changes to help ward off future crises bad credit unsecured personal loans.
"I want to be clear that I do not blame the regulators … however, it is important to examine how the system could have functioned better," Dimon said. "The current regulatory system is poorly organized with overlapping responsibilities, and many regulators did not have the statuatory resolution authority needed to address the failure of large, global financial companies."
In written testimony, the bank chiefs laid out their banks’ mistakes that led to the crisis, detailing the housing bubble, with "new and poorly underwritten mortgage products," "excessive speculation," and mortgage securitization that allowed people to duck responsibility for poorly underwritten loans.
However, they added they didn’t expect the financial crisis and especially its magnitude.
"After the fact, it is easy to be convinced that the signs were visible and compelling," Blankfein said. "In hindsight, events not only look predictable, but look like they were obvious or known. But none of us know what is going to happen."
In the past several weeks, the commission has talked to Treasury Secretary Tim Geithner and Federal Reserve Board Chairman Ben Bernanke, but that testimony isn’t being made public yet.
Lawmakers say the commission was modeled after the Pecora Commission, a panel that was convened after the 1929 Wall Street crash and other events leading to the Great Depression.
The Pecora panel’s findings led to an overhaul of federal banking laws, including the creation of the Glass-Steagall Act of 1933. Glass-Steagall divided investment banking from government-insured commercial banking; ending that separation in the 1990s was seen by some critics as contributing to the current crisis.
Slow start
The Financial Crisis Inquiry Commission has taken a while to get up on its feet.
The panel was appointed last July and held its first meeting in September. It has only started getting staffed up over the past few months.
It has new offices in downtown Washington, a few blocks northwest of the White House. Funded to the tune of $8 million, it aims to employ between 40 and 50 investigators and other staffers.
The crisis panel’s one big goal is to complete a final report, sort of like the final 9/11 Commission report that found federal agencies missed signs of the impending terrorist attacks in 2001. The financial crisis report is due Dec. 15.
Critics have noted the panel’s impact may be blunted by timing, as the House has already passed a bill to overhaul regulations and the Senate is deep in negotiations on similar proposals.
But panel members have consistently pledged their work will serve as more than window dressing for politicians worried about the appearance that they allowed the financial crisis to happen.
The panel, which has subpoena power, plans to issue interim reports as it collects data, Angelides has said.
The panel’s second-in-command is Bill Thomas, a retired California Republican congressman described as strong-willed during his tenure running the powerful Ways and Means Committee.
Other key panel members include: Keith Hennessey, an economic adviser under President George W. Bush; former Sen. Bob Graham, a Florida Democrat; and Brooksley Born, a past chairwoman of the Commodities Futures Trading Commission, who called for stronger regulation of complex financial products such as derivatives in the 1990s.
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Money is overrated: In fact, pay has little, if anything at all, to do with motivation in the workplace. That’s the controversial argument put forth by best-selling author Daniel Pink in his new book, Drive: The Surprising Truth About What Motivates Us (Riverhead Books). "Pay for performance has to be exposed as folklore," he says.
Pink contends that, provided employees receive a baseline level of compensation, three other factors matter more than moola: a sense of autonomy, of mastery over one’s labor, and of serving a purpose larger than oneself.
One case in point: the results-only work environment at Best Buy’s Richfield, Minn., corporate offices. Beginning in 2008, salaried workers there were allowed to shape their work day, putting in only as many hours as they felt necessary to get their jobs done. Productivity increased by 35% and turnover fell sharply, according to The Harvard Business Review.
Hmmm. There may be something in all this — but the executives at Goldman Sachs (GS, Fortune 500) aren’t exactly busting a gut to adjust. Like others on Wall Street, the banking giant, which is expected to earn $6 per share in the fourth quarter, argues that fat bonuses are crucial to making its numbers.
Responds Pink, in a now common refrain: That’s precisely the attitude that led to the recent financial meltdown, as traders and mortgage brokers focused on short-term rewards that encouraged "cheating, shortcuts, and unethical behavior."
Moreover, the 45-year-old author and former Al Gore speechwriter cites social-science experiments and experiences at such workplaces as Google (GOOG, Fortune 500), JetBlue (JBLU), 3M (MMM, Fortune 500), online shoe retailer Zappos, and software companies Meddius and Atlassian.
In one 2005 experiment he describes, economists working for the Federal Reserve Bank of Boston tested the power of incentives by offering monetary rewards to those who did well in games that included recalling a string of numbers and tossing tennis balls at a target. The researchers’ finding: Over and over, higher incentives led to worse performance — and those given the highest incentives fared worst of all.
From this and other cases, Pink deduces that monetary inducements remove the element of play and creativity, transforming "an interesting task into a drudge." It’s even possible, he elaborates, for outsized rewards to have dangerous side effects, like those of a drug dependency in which a recipient requires ever larger doses. He cites neuroscientific testing that shows the promise of cash rewards activates a chemical surge in the brain similar to that brought on by cocaine or nicotine.
Pink says his approach isn’t just for knowledge workers — it can motivate even those doing less creative work. He points to Zappos, where call-center employees are not given scripts and are instead instructed to handle relations with customers in whatever way they think best. Turnover, ordinarily high at call centers, is minimal at Zappos.
Pink is aware that his company examples — no GE, no IBM, no Microsoft — hardly represent the commanding heights of the economy. But he thinks his approach will catch on, even in the biggest outfits. "Executives tend to be pragmatic, and in time they will respond," he says.
Federal Reserve Bank of Richmond President Jeffrey Lacker said the U.S. economy will probably expand at “a reasonable pace” this year on growth in spending by households and businesses.
“Housing should continue to recover from a very depressed state, consumers should gradually expand spending, business investment should make something of a comeback,” Lacker said today in remarks to the Maryland Bankers Association in Linthicum, Maryland. Even with a resumption in growth, “the level of economic activity will disappoint many people for quite some time,” he added.
Fed Chairman Ben S. Bernanke and his fellow policy makers have left the benchmark lending rate in a range of zero to 0.25 percent since December 2008 to revive lending and end the worst recession since the Great Depression.
Policy makers will need to “choose carefully when and how rapidly” to remove monetary stimulus, Lacker said without indicating his own views on the timing.
The risk of a “pronounced” reduction in inflation has diminished, Lacker said.
“During the recovery period ahead we may face an increasing risk of inflation edging upward, which has sometimes occurred during past recoveries,” he said. “While that risk appears to be minimal at this point, we will have to be careful as the recovery unfolds to keep inflation and inflation expectations from drifting around.”
Not Strong Enough
Growth hasn’t been strong enough to reduce the unemployment rate. The U.S. lost 85,000 jobs in December after revisions showed payrolls increased the prior month for the first time in almost two years, a report today from the Labor Department showed. The jobless rate held at 10 percent.
The U.S. Congress has mandated that the Fed pursue low inflation and full employment. The 7.2 million drop in payrolls over the past two years has been the biggest decline as a percentage of total jobs since the end of World War II.
“The labor market could conceivably recover more slowly than many expect, which would restrain consumer spending and dampen growth,” Lacker said. “But household incomes and household confidence could conceivably rebound more vigorously than many expect, in which case consumer spending could expand more briskly.”
Services Expanded
Service industries expanded in December, with the Institute of Supply Management’s index of non-manufacturing businesses rising to 50.1 percent from 48.7 percent in November. Manufacturing last month expanded at the fastest pace in more than three years, the ISM said in a separate report.
The economy probably expanded at a 4 percent annual rate in the fourth quarter, according to a Bloomberg News survey.
Federal Open Market Committee members maintained an outlook for “moderate growth and subdued inflation” in 2010, minutes of their Dec easy online payday loans. 15-16 meeting showed. “A moderate pace of expansion would imply slow improvement in the labor market next year, with unemployment declining only gradually,” the minutes said.
The U.S. central bank’s efforts to restore liquidity and credit have resulted in the expansion of its balance sheet to $2.24 trillion in total assets, up from $858 billion at the start of 2007. As a result of the Fed’s direct purchases of $1.7 trillion in mortgage-backed, federal agency, and Treasury bonds, banks now hold more than $1 trillion in reserves in excess of what they are required to hold against deposits.
No ‘Huge’ Increase
Lacker said he doesn’t expect the conclusion of Fed purchases of mortgage-backed securities scheduled for the end of March to lead to a “huge” increase in mortgage rates.
Central bankers are now discussing how they will eventually exit their low-rate policy and drain excess cash in the banking system to head off inflation. The timing of such moves depends on economic performance, the minutes showed.
“A few members” suggested “it might become desirable” to expand the scale of asset purchases and continue them beyond the first quarter if the outlook for growth weakened or mortgage markets deteriorated, the minutes said. One member thought the purchases could be scaled back, and said it “might become appropriate” to begin selling assets if the recovery “gains strength over time,” the minutes said.
Banks haven’t started to circulate their reserves into expanding credit. Loans and leases of commercial banks in the U.S. declined to $6.8 trillion in November from $7.2 trillion a year earlier, according to Fed data.
Criticism of Policy
Proposed congressional audits of monetary policy would lead to criticism of decisions to increase the benchmark interest rate, Lacker said to reporters. The House voted last month to approve a proposal by Representative Ron Paul, a Republican from Texas, to end a ban on audits of monetary policy over Bernanke’s warnings the measure threatens to compromise Fed independence.
“The kind of audits of recent monetary policy decisions that the Paul amendment would allow are almost certainly going to result in criticism of interest rate increases,” Lacker said. “They are going to be biased in one way.”
The central bank hasn’t “settled on an approach” on how its various tools will be used with the federal funds rate, he said. “One option you might want to consider is that our policy rate is the interest rate on excess reserves and we let the fed funds rate trade with some spread to that.”
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