Film Review: The Warning – PBS / Frontline Documentary
Rated: 4/5 stars.
PBS’ The Warning Documentary
The Warning is a PBS documentary discussing a warning from Brooksley Born, an attorney and a former Commodity Futures Trading Commission (CFTC) chairperson. She explained that derivatives were extremely risky insurance vehicles and sent a warning that these vehicles needed regulation during her tenure as CFTC chairperson, but her warnings went unheeded. She resigned in 1999 from the CFTC position after legislation was passed preventing her agency from regulating derivatives.
Vision of this Documentary
While I would like to rate The Warning higher, its take is pretty much tunnel vision on the derivatives markets. While the derivatives markets did melt down and did, to a large degree, spur the meltdown onward, the meltdown was not started because of derivatives. The derivative meltdown was a casualty of and was exacerbated by the sub-prime mortgage meltdown. Had the mortgage industry bubble not burst, the derivatives market might have gone unchecked for many more years. The warning was and should have been about placing regulations onto mortgage lending practices. The mortgage lending industry is the industry that failed and sent the economy into a tailspin, let’s make that perfectly clear. The derivatives (insurance) market, which speculated on the mortgage industry, single-handedly sent Wall Street into a tailspin (along with several large insurance companies like AIG).
Derivatives and the Mortgage Meltdown
Anyone with half a brain in their head could see that using questionable lending vehicles like interest only loans for the first two years or adjustable rate mortgages were ticking time bombs. When the actual monthly payments came due years later after rates went up to where they should have been, people couldn’t afford pay. This was especially true when lenders were handing these loans to people who could barely afford the ‘introductory period’ payments. So, loans came due, people defaulted and the rest is history. The derivatives (insurance policies) that were issued also came due because of the en masse foreclosures. Insurance companies that issued derivative policies speculating people wouldn’t default en masse began to fail because their speculation was wrong. So then, these insurance companies couldn’t pay off on the insurance claims. So, when consumers defaulted, so did the insurance companies offering derivatives.
It wasn’t as if warnings weren’t being issued regarding the inevitable mortgage meltdown, it’s just that Brooksley Born (the focus of this film) was not one of the people issuing the mortgage warning. Her warning was strictly about the highly risky derivatives. More specifically, the black box non-transparent nature of them. The danger, of course, is that derivatives can be placed on any speculative and risky investment as insurance. The reason derivatives need to be regulated is to prevent companies the size of AIG from making stupid decisions about such risky vehicles. However, from a consumer perspective, banks should never have gotten into the position of issuing such risky mortgages like water to people who couldn’t afford them. This was the single mistake that led to where we are today and that mistake has nothing to do with derivatives and everything to do with Government and the Federal Reserve making stupid decisions.
Overall, the movie is worth watching, but also understand its information’s place in the larger meltdown that was at work in our economy.
Is Obama hostile towards big business?
To answer this question, we need to delve a little deeper. Note, I am neither condoning nor praising Obama’s handling of his regulatory efforts. However, I would like to point out certain corrections that do need to be made.
“The truth is that not even the Franklin Roosevelt administration was as hostile to and ignorant about free enterprise as this [Obama’s] administration is.”
–Steve Forbes.
But, is Obama really hostile towards business? Or, is he making needed corrections? There is a fine line here. This issue also points out a serious problem in politics today. That problem is, you guessed it, money. Without money, the world doesn’t work. Without money, candidates don’t get elected. Without money, businesses don’t sell things and make money. Back up the train.. Businesses make plenty of money without governmental help. The trouble is that businesses want to be able to make laws that enable their businesses to make more money and then have the government be lenient with them when issues arise.
The reality, though, is that like the separation of church and state, the government now needs separation of business and state. The two are oil and water, they don’t mix. Government needs to be able to make law without interference from any party. But, businesses have deep pockets and hefty lawyers. These two elements help elect officials and help sway these same officials into making good on promises they made towards these businesses during the election.
Obama’s corrections
While I don’t agree with every single thing Obama has done, I do agree that change is necessary. The change that he is making is intended to correct the issues that led to the economic downturn. The trouble comes with statements from people like Steve Forbes. Mr. Forbes believes that he is the end-all-be-all-know-it-all when it comes to all-things-business. The trouble is, he doesn’t. Yes, he runs a successful magazine, but that doesn’t make him an authority. That makes him a successful business owner.
Obama is walking that fine line. A fine line that shouldn’t even be necessary. But, there it is. The line that’s there to help Obama help the economy, help spur business and growth and reduce the chances of a repeated failure. At the same time, the line is there to show that government values business, but isn’t there to socialize it. The trouble is, this economic downturn was of our own making. By our, I mean Wall Street. The housing bubble was just that, a bubble. Bubbles eventually burst and this bubble was no exception. It’s not as if analysts and intelligent minded people couldn’t see the handwriting on the wall. When the mortgage interest rates got down to 1% and all of those ARM and specialty loans were being issued like water flowing down the Mississippi, trouble was inevitable. We just didn’t know that banks and insurance companies were tying their financial soundness to these extremely risky loans using credit default swaps.
Until the bubble burst, no one really knew just how deep the rabbit hole went. Then, everything came crashing down and all of the nasty subprime mortgage and credit default swap issues came into view in their all fugly detailed glory. The first evidence of that was Bear Stearns followed by AIG (and the subsequent governmental bailout). I still think they should have let AIG fold, I digress.
Government and Business
It’s high time that government distanced itself from corporate businesses. It’s high time congress made laws to separate government from business (including political support). It’s high time that government stopped being a pawn for corporate businesses. Forbes clearly seems to think that Free Enterprise requires socialism to function. Free Enterprise is not part of and does not need socialism. Free Enterprise means that businesses can do whatever they need to do (within the limits of the laws) to make their business succeed. Clearly, there have not been laws enabled that have dramatically impacted Free Enterprise. The laws that have been enacted have been placed there to prevent corporations from producing risky investment vehicles with a high likelyhood of crashing down again. If businesses are now floundering, it’s not because of laws. It’s because corporations have lost their way and are still expecting handouts. Well, you can keep your hand out, but don’t expect the government to be dropping any coin in it.
Corporations have relied, no… depended on the US Government for handouts. That time needs to end. Subsidies for business need to go away. Businesses need to fend for themselves just like Free Enterprise mandates. If a business can’t make it on its own, then let it fail. I’ll repeat, LET IT FAIL. Failure is also part of Free Enterprise. Businesses that will succeed, will succeed because they produce a good product or service. Businesses that fail, will fail because they don’t produce good products or services.
Lost our way
America, and specifically corporate enterprises, have lost their way. For far too long have big corporations depended on favorable governmental conditions (sounds like a weather report) to help them stay in business. Well, that train has left (and must leave). It should be solely up to you and your business practices alone to make or break your company. It is the quality of your products, services and support that makes people want to buy your products or invest in your company. Nothing has changed about this aspect of Free Enterprise.
We need to go back to a time when quality was the key. When providing a superior product was the answer to getting people to buy things. If that also means deflation, then so be it. Businesses need to find their way by learning how to do more with less. How to manage their staff better and stop over-hiring. At the same time, many of them need to stop under-hiring and also value the employees that they have right now.
The key to keeping your business flowing is by keeping your employees active, productive and happy. Morale is a big problem in companies during any downturn. Once fear sets in over the next reduction in force (RIF), then morale falls to all-time-lows. No, taking the employees on an outing doesn’t boost morale. The way to boost morale is to stop RIFing the staff out the door. Yes, I know it gives a temporary boost to the stock price and makes the shareholders happy, but that’s a temporary fix with limited effects. Once the dust settles, the employees who are left become disgruntled, unhappy and produce less. This is completely backwards thinking. Which is why business has lost its way.
Shareholder value vs quality products
I know, someone’s going to say that it is all about ‘shareholder value’. That may be the way things seem now, but it is wrong. Currently accepted actions that lead to improved shareholder value tend to undercut production, stifle innovation, reduce profit margins and lower productivity. Why would you intentionally do this to your business? So, while these measures may seem to help the stock price, it does nothing to help the company improve its quality of products and services. In fact, in the long run, these actions almost always negatively impact the bottom line. So, the fundamental question is, are you in business to make the shareholders happy or are you in business to sell quality products and services? This fundamental question must be answered.
The true answer to this question also shows that Free Enterprise priorities today are all wrong. It used to be that the customer is #1. Now, shareholders are #1 and customers are #2. This is both wrong and stupid. Until businesses go back to the idea that the customer is #1, corporations will continue to fail and need governmental subsidies. While shareholders are considered #1, there is really no such thing as Free Enterprise when it comes to multi-million dollar corporations… which is why they always need a handout from the government.
What’s wrong with Vista / Windows?
This post comes from a variety of issues that I’ve had with Vista (specifically Vista 64 Home Premium). And, chances are, these problems will not be resolved in Windows 7. Yet, here they are in all their glory.
Memory Leaks
Vista has huge and horrible memory leaks. After using Vista for a period of time (a week or two without a reboot) and using a variety of memory intensive 3D applications (Daz Studio, Carrara, The Gimp and Poser.. just to name a few), the system’s memory usage goes from 1.69GB to nearly 3GB in usage. To answer the burning question… yes, I have killed all apps completely and I am comparing empty system to empty system. Worse, there is no way to recover this memory short of rebooting. If you had ever wondered why you need to reboot Windows so often, this is the exact reason. For this reason alone, this is why Windows is not considered ‘stable’ by any stretch and why UNIX outperforms Windows for this reason alone.
Startup and Shutdown
Microsoft plays games with both of these procedures.
On Startup, Microsoft’s engineers have tricked you into thinking the system is functional even when it isn’t. Basically, once the desktop appears, you think you can begin working. In reality, even once the desktop appears, you still cannot work. The system is still in the process of starting up the Windowing interface on top of about 100 background services (on many of which the windowing interface relies). This trick makes Windows appear snappier to start up than it really is. In fact, I would prefer it to just ready the system fully, then present the Windowing interface when everything is 100% complete. I don’t want these tricks. When I see the windowing interface, I want to know I can begin using it immediately… not before.
On Shutdown, we have other issues. With Vista, Microsoft Engineers have done something to this process to make it, at times, ridiculously slow. I have seen 8-15 minute ‘Shutting Down’ screens where the hard drive grinds the entire time. I’m sorry, but shutdown time is not housekeeping time. That needs to be done when the system is running. It should not be done during shutdown procedures. A shutdown should take no more than about 1-2 minutes to complete flushing buffers to disk and killing all processes. If it can’t be done in 1-2 minutes, shut the system down anyway as there is nothing that can be done to finish those tasks anyway.
Windows Updates
Microsoft was supposed to eliminate the need to shutdown/reboot for most Windows updates. For some updates, this is true. For the majority of Windows updates, this is still not true. In fact, Microsoft has, once again, made this process multistep and tediously slow in the process. Don’t get me wrong, I’m grateful that they are now at least verbose in, sort of, what’s going on.. but that doesn’t negate the fact that it’s horribly slow. The steps now are as follows:
- Windows installation process (downloading and installation through the Windows dialog box). You think it’s over when you..
- Restart the system and it goes through finishing Step 2 of this process during shutdown… and then you think it’s over again when
- The system starts back up and goes through Step 3 of the update process.
Ok, I’m at a loss. With Windows XP, we had two steps. Those first during Windows updater and the second when the system starts back up. Now with Vista, we have to introduce another step?
Windows Explorer
For whatever reason, Windows Explorer in Vista is horribly broken. In Window XP, you used to be able to configure your Windows how you liked then lock it in with Tools->Folder Options and then View->Apply to Folders. This would lock in exactly how every window should appear (list or icon format, size of icons, etc). With Windows Vista, this is completely and utterly broken. Basically, this functionality simply no longer works. I’ve tried many many times to lock in a format and Windows just randomly changes the folders back to whatever it feels like doing.
For example, I like my windows to look like this:
Favorite Format
Unfortunately, Windows has its own agenda. If I open a file requester (the standard Vista requester… the one that looks like the above) and I change the view to ANY other style than the one above, this change randomly changes other folder views on the system permanently. So, I might open the above folder and it will later look like any of these:
Format Changed 1
Format Changed 2
or even
Format Changed 3
All of which is highly frustrating. So, I’ll visit this folder later and see the entire headers have changed, or it’s changed to icon format or some other random format. Worse, though, is that I’ve specifically changed to the folder to be my favorite format with Tools->Options. In fact, I’ve gone through this permanent change at least 3-4 times after random changes have happened and inevitably it changes to some other format later. Again, highly frustrating.
Access Denied / Enhanced Security
For whatever reason, Microsoft has made shortcuts to certain folders. Like for example, in your profile directory they have renamed ‘My Documents’ to simply ‘Documents’. Yet, for whatever reason, Microsoft has created shortcuts that don’t work. For example, if I click on ‘My Documents’ shortcut, I see ‘Access Denied’. I don’t get why they would create a shortcut and then prevent it from working.
The only thing the enhanced security has done for Windows users is make it more of a problem to work. Security goes both ways. It helps protect you from malicious intent, but it can also get in the way of usability. Security that ultimately gets in the way, like UAC, has failed to provide adequate security. In fact, it has gone too far. UAC is a complete and utter failure. Combining this with making nearly every security issue tied to the SYSTEM user (with practically zero privileges), makes for stupid and exasperating usability.
Filesystem
To date, Windows still relies heavily and ONLY on NTFS. Linux has about 5-6 different filesystems to choose from (Reiser, VxFS, XFS, Ext2, Ext3, JFS, BSD and several others). This allows systems administrators to build an operating system that functions for the application need. For example, some filesystems perform better for database use than others. On Windows, you’re stuck with NTFS. Not only is NTFS non-standard and proprietary (written by Veritas), it also doesn’t perform as well as it should under all conditions. For database use, this filesystem is only barely acceptable. It has hidden limits that Microsoft doesn’t publish that will ultimately bite you. Microsoft wants this to become a pre-eminent datacenter system, but that’s a laugh. You can’t trust NTFS enough for that. There are way too many hidden problems in NTFS. For example, if you hit a random limit, it can easily and swiftly corrupt NTFS’ MFT table (directory table). Once the MFT table is corrupt, there’s no easy way to repair it other than CHKDSK. Note that CHKDSK is the ONLY tool that can truly and completely fix NTFS issues. And, even CHKDSK doesn’t always work. Yes, there are third party tools from Veritas and other companies, but these aren’t necessarily any better than CHKDSK. Basically, if CHKDSK can’t fix your volume, you have to format and restore.
Note, however, that this isn’t a general Vista issue. This problem has persisted back to the introduction of NTFS in Windows NT. But, Microsoft has made no strides to allow or offer better more complete filesystems with better repair tools. For example, Reiser and EXT3 both offer more complete repair tools than NTFS ever has.
Registry
The registry has got to be one of the most extensive hacks ever placed into any operating system. This kludge of a database system is so completely botched from a design perspective, that there’s really nothing to say. Basically, this system needs to be tossed and redesigned. In fact, Microsoft has a real database system in MSSQL. There is no reason why the registry is not based on MSSQL rather than that stupid hack of a thing call a hive/SAM. Whomever decided on this design, well.. let’s just hope they no longer work at Microsoft.
Failure
For the above reasons (and others), Microsoft has completely failed with Windows Vista. This failure was already in the making, though, when Longhorn was announced ages ago. In fact, Microsoft had planned even more draconian measures to enable heavy DRM on Windows. Thankfully, that was removed from Vista. But, what remains makes Vista so encumbered and exasperating to use, it’s no wonder users are frustrated using Vista. Combining that with its incredibly large footprint (1.6GB of memory just to boot the OS), and you have a complete loser of an OS.
Windows 7 is a glimmer of hope, but it is still heavily tied to Vista. If UAC and these stupid SYSTEM user security measures remain, then nothing will really change. Microsoft needs to take Windows back to the drawing board and decide what is necessary and what isn’t. Preventing the user from actually using the operating system is not and should not be a core value, let alone part of security. Yet, here we are.
Microsoft, you need to take a look at the bigger picture. This is your final chance to get Windows right. There are plenty of other unencumbered operating systems out there that do not get in the way of desktop computing. These operating systems are definitely a threat to Microsoft’s continued viability… especially with blundering mistakes like Vista. Windows will never win any awards for Best Operating System with issues such as these. Consider Microsoft’s stupid filesystem layout that allows operating system and application files to be thrown all over the hard drive and you’ll begin to understand why Windows continues to fail.
The single reason why Microsoft continues to exist is because users feel compelled to buy this antiquated dog of an operating system strictly due to application support. If developers would finally and completely jump ship to other more thoughtfully designed operating systems, then Windows would finally wither and die… eventually, this will happen.
Does CitiGroup deserve a government umbrella?
I guess the broader question, does any large commercial business deserve to be bailed out? Well, clearly Mom and Pop businesses fail every day. Yet, the government does nothing. Why do large conglomerates deserve special treatment?
The short answer is that there is some magical threshold where there are too many people who would lose their jobs as a result of the failure combined with possible economic ramifications. But, still, does that warrant a bailout? No.
If a business cannot run itself in a fiscally appropriate manner (large or small) it deserves to fail and go away. If any of your family is employed by CitiGroup or any financial company caught up in the turmoil of the financial sector crisis, I feel for you. But, that doesn’t mean that the company deserves to continue to exist if they cannot maintain profitability even in the toughest of times. Fiscal responsibility starts at the top of the company and trickles down to even the most bottom level employee.
What does this mean? It means, don’t request a new computer every year. Don’t ask for Herman Miller chairs and the most expensive ergonomic keyboard simply because you can. If the item is considered ergonomic, the company is almost obligated to make sure you get it. Buying all of these expensive amenities for your desk makes you fiscally irresponsible to the company if you don’t really need it (and, in most cases, you don’t). But, that’s not to say that this is responsible for CitiGroup’s problems.
Who knows where the money hemmorage is going inside these companies. But, clearly, it’s not going back into the business. Again, I ask, why do these companies deserved to be bailed out? What makes them special? I have no sympathy for large companies that can’t properly manage themselves. Neither should the government. Spending all of this money to prop up these badly run organizations is clearly counter to free enterprise.
In Free Enterprise you have to take the good with the bad. That means, when business is good, you profit. When it’s bad, you bankrupt and close. There needs to be no governmental cushion here to soften the fall.
Does CitiGroup or any other badly run business deserve an umbrella? What do you think?
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