How bad is the crisis going to get?

36 hours in September changed the world. When investment bank Lehman Brothers collapsed, the credit crunch became a global financial crisis.

But how bad is that crisis? Was it wrong to let Lehman fail? Or was Lehman just a symptom not the cause of the chaos in the global economy?

Tough questions, and the World Economic Forum had lined up five top experts (including two Nobel prize winners) to find answers.

The economists among them were Crunch Cassandras; two or three years ago they had predicted that our financial system was headed for a huge liquidity crisis – Nouriel Roubini, Nassim Taleb and economic historian Niall Ferguson.

A pity then, a participant said, that two years ago nobody had thought of inviting them to speak at the forum.

Little wonder that this session was hugely oversubscribed, with 150 people on the waiting list and probably more than that crowding into one of the cavernous dining rooms that are the hallmark of Davos hotels.

Under Davos rules this was a closed session, to encourage frank debate. So with a few exceptions I am not allowed to attribute quotes to individual speakers.

But I can report what was said, and this session was an intellectually stimulating eye opener – and utterly depressing (at least economically).

Depression 2.0?

The biggest question, of course, is how bad is it going to get, and nobody – neither on the panel nor in the audience – dared to provide any cheer.

There was talk of “Depression Lite” and “Depression 2.0″, although the experts also pointed out that it was unlikely to get as bad as the 1930s.

Back then, the US economy shrank on average 14% a year, prices fell at 8% a year and unemployment peaked at 25%.

The sharp rate cuts and fiscal stimulus packages around the world would prevent a repeat, everybody agreed.

Still, warned one of the experts, the world would have to brace itself for “a best case scenario” of at least a year of recession and a “lost decade” of low growth – and most people were still in denial about this prospect.

Nouriel Roubini warned of a credit crunch two years ago.

Root causes

But what caused the crisis? A popular theory is that Washington is to blame for the “global cardiac arrest”, because it allowed Lehman to fail.

The panellists rejected this suggestion as “tosh” and “a myth”.

 

This crisis, several economists said, started two years earlier and was “bound” to lead to a financial meltdown – whether it was a bank like Washington Mutual or the likes of Lehman and other parts of the lightly regulated shadow banking system of investment banks, hedge funds and broker dealers.

 

“How could banks be so stupid?,” several panellists asked, and allow things go so wrong so quickly?

The root causes for the economic crisis were too much debt, a culture of short-term rewards for long-term risk-taking and fatally flawed mathematical risk models. And plain old greed.

“Derivatives trading is all about how to make a bonus and how to screw your client,” said Nassim Taleb, a former derivatives trader and author of “The Black Swan,” a book about expecting the unexpected.

The result was a mountain range of “troubled assets” (one of the great euphemisms of the crisis, one expert said) that resulted in billion dollar losses and the need to bail out financial institutions like Fannie Mae, Freddie Mac and AIG even before Lehman collapsed.

Into the hurricane

Morgan Stanley, one expert ventured, was saved only because its share price bounced back when rumours emerged of Washington’s $700bn bail-out package.

Two thirds of the world’s hedge funds would collapse, suggested another. Financial institutions took on debt worth 40 times their assets – and failed to understand how risky this was. Bank’s risk models, a prominent participant revealed, were based on one year’s worth of data.

It was, another expert said, as if a pilot was assuming that he would never fly into a hurricane, because he hadn’t come across one during the past year.

Bankers had no memory, another panellist said, they had forgotten about the Asian crisis in the late 1990s, the collapse of the LTCM hedge fund, and much more.

But it is too easy to single out the bankers – a banker said.

Where were the regulators, rating agencies, corporate boards and central bankers?

What about the borrowers, who did not read contracts and had to know they could not afford these mortgages?

And what about the shareholders and investors, who did not question the business models of the companies they owned? 

 

 

By Tim Weber 
Business editor, BBC News website, in Davos.

http://news.bbc.co.uk/2/hi/business/davos/7859179.stm

Filed under: Business , Bad, Crisis, economic

Do You Want An Internship? It’ll Cost You

Faced with a dismal market for college summer internships, a growing number of anxious parents are pitching in to help — by buying their kids a foot in the door.

Some are paying for-profit companies to place their college students in internships that are mostly unpaid. Others are hiring marketing consultants to create direct-mail campaigns promoting their children’s workplace potential. Still other parents are buying internships outright in online charity auctions.

 

Even as the economy slows, internship-placement programs are seeing demand rise by 15% to 25% over a year ago. Critics of the programs say they deepen the divide between the haves and have-nots by giving students from more affluent families an advantage. But parents say the fees are a small price for giving their children a toehold in a treacherous job market. And operators of the programs claim they actually broaden access to internships by opening them to students who lack personal or political connections to big employers.

The whole idea of paying cash so your kid can work is sometimes jarring at first to parents accustomed to finding jobs the old-fashioned way — by pounding the pavement. Susan and Raymond Sommer of tiny St. Libory, Ill., were dismayed when their daughter Megan, then a junior at a Kentucky university, asked them to spend $8,000 so she could get an unpaid sports-marketing internship last summer in New York City. Paying to work “was something people don’t do around here,” says Ms. Sommer, a retired concrete-company office worker; her husband, a retired electrical superintendent, objected that if “you work for a company, you should be getting paid.”

But Megan, then 20, had already applied for 25 summer internships and hadn’t received any replies. The Sommers gave in, and Ms. Sommer says they’re glad they did. After working last summer for a sports-memorabilia auction concern, Megan has come “out of her shell. It really made her grow as an individual,” Ms. Sommer says. Megan agrees, saying the internship helped her focus her post-graduation career plans.

The program they used, University of Dreams, Los Gatos, Calif., is one of a handful of for-profit internship companies that have sprung up in the past few years. After screening out some applicants — the company won’t say how many — University of Dreams helps students polish their résumés, arranges interviews with employers that offer internships, such as fashion house Donna Karan International or public-relations shop Ruder Finn, and also provides on-campus housing and after-hours social and educational programming for the students during their eight-week internships. The company guarantees an internship placement or refunds students’ fees, which range from $5,000 to $9,500.

Other parents are paying consultants to mount the equivalent of a direct-mail campaign on behalf of their children. Sheila Miller, Albuquerque, says her daughter, Amber, couldn’t find the internship she needed to complete her degree in emergency-management planning at a Texas university; 18 months after completing her course work, Ms. Miller says, Amber was stalled working a $10-an-hour retail job that wasn’t paying the rent.

To jump-start their daughter’s career, Ms. Miller and her husband dipped into the remainder of Amber’s college fund late last year to send her to Fast Track Internships, a Highland Village, Texas, consultant founded in 2005. For $799, the firm helped her polish Amber’s résumé and cover letter, identify 133 target employers and mail them all letters and résumés. Amber soon received 15 calls from employers and last week took an unpaid internship with a city police department, writing their emergency-response plan. “She’s just thrilled,” Ms. Miller says.

Other parents are purchasing internships outright in charity auctions. CharityFolks.com, a fundraising Web site, saw a sharp rise in internships offered for sale last year at such employers as Rolling Stone, Elle magazine and Atlantic Records, says Chief Executive Kelly Fiore. Another site, CharityBuzz.com, says a one-week internship at a music-production company sold last month for $12,000.

Ms. Fiore sees internships as one way to help charities fight “an otherwise staggering downturn” in donations. Mindful of the trend, hard-pressed nonprofits are pounding the pavement to drum up internships to sell. Gina Philips, Los Angeles, a consultant to the Alzheimer’s Association, says demand from wealthy parents has led employers in the entertainment industry to create internships that otherwise wouldn’t exist, just to help raise money.

Some critics say the programs distort students’ job-seeking experience by easing the rigor of the job search. “The type of students corporate America wants are the students who can find their own internships,” says Claudia Tattanelli, CEO of Universum North America, Philadelphia, which consults with employers on recruiting. The vast majority get internships through campus career-services offices or Web sites such as MonsterTrak.com.

Others question the value of the unpaid internships the programs often provide. Another novel internship program, Brill Street & Co., Chicago, founded in 2006, places students only in paid positions and derives its profit by taking a percentage of their paychecks. Nancy Lerner, co-founder, says this is the only way to ensure applicants will get “quality work assignments.” Brill’s applicants have doubled in the past year to about 150 a week.

While career counselors warn that unpaid interns often do little more than pour coffee or run errands, several employers and interns I interviewed said the work was worthwhile. Ruder Finn, New York, has found 29 of its 36 unpaid interns since 2003 through University of Dreams and has hired at least two of them into permanent jobs, says Cathleen Graham, a Ruder human-resources executive.

The internship programs also contend they actually broaden access for students — allowing firms to recruit from lesser-known schools and distant cities. “It’s a huge misconception to say this is a program for rich kids,” says Eric Lochtefeld, CEO of University of Dreams, which operates programs in six U.S. and five overseas cities. “The average student comes from the middle class, and their parents dig deep” to pay for it. His company has begun funding scholarships and grants for low-income applicants.

Mike Esterday of Nashville, Tenn., whose daughter got photography and marketing internships in London and Hong Kong through University of Dreams, says, “it would be really tough to get anything of this caliber, unless you know somebody.”

While some fault parents for “buying your kids an ‘in,’ ” says CharityFolks’ Ms. Fiore, “I happen to feel that a foot in the door is fair, because it’s talent that’s going to seal your fate. It’s your drive and what you do once you’re given the opportunity” that determines how far kids finally get.

Criticism aside, parents see the education and experience their children gain as priceless. Teresa Hayes, Evanston, Ill., plans to pay $3,400 to the Washington Internship Program, which guarantees placement and helps secure housing for students, to secure a Capitol Hill internship this summer for her daughter Leah Barnes, 19, a Stanford University sophomore. Ms. Hayes regards this as just another of many opportunities she has provided her child, from foreign-exchange programs to teen-leadership conferences.

“People say, ‘you’re nuts, are you kidding me? You’re spending thousands of dollars on your kids,’ ” says Ms. Hayes, a pharmaceutical sales representative, who is also paying college tuition for Leah’s younger sister. But Leah “worked so hard. Whatever she wants to do, I want her to have the background to do it intelligently.” Leah, who hopes for a career in international law, says she is grateful and excited.

Without such programs, says Linda Bayer, executive director of the Washington Internship Program, the capital would be “the playground of the children of the rich, whether they were capable or not” — because snaring internships would largely be based on personal connections. But with programs such as hers, “there’s no distinction here between the uber-rich and someone whose parents are schoolteachers.” Her placements are running about 25% ahead of a year ago.

 

By SUE SHELLENBARGER (sue.shellenbarger@wsj.com)

Work & Family JANUARY 28, 2009  - http://online.wsj.com

Filed under: Business , cost, Crisis, internship

oh, cars…

Filed under: Business, Jokes , cars

Getting Paid for Your A’s

When Samantha Antonietti was accepted to Connecticut’s Sacred Heart University last spring, her parents sat her down for a talk. “We had a family meeting about how I was going to pay back all the student loans,” said Antonietti, whose family lives in New Jersey. “It felt like a financial cloud hanging over my head.”

Antonietti vented to a friend, who told her story to Columbia Business School student and entrepreneur Michael Kopko. Eight months later, Kopko has launched a website he hopes can help college and graduate students feeling the loan crunch, as well as kids as young as middle school. On GradeFund.com, students can upload their transcripts each semester and earn money for every A. More than 750 students have signed up since the site went live Nov. 15, and the number is growing fast. (See pictures of the college dorm’s evolution.)

Pay for performance is not an entirely new concept — public schools in New York City have started paying students up to $50 for performing well on standardized tests, and other school districts are experimenting with giving gift certificates to top-performing students. But GradeFund puts the rewards in students’ hands. Or rather in their friends’ and families’ hands. The site is akin to Facebook in that it lets students create a profile and send out invitations asking for sponsors to pledge whatever they please for each A — $1, $2 or more. Sponsors can also donate by subject area, giving money to students who ace, say, organic chemistry or film studies. For example, ZooToo.com, a website for pet enthusiasts, is GradeFund’s first corporate sponsor, pledging $15 to the first 100 students each semester who earn an A in veterinary medicine.

When a student reaches $100 in donations, GradeFund mails them a check. (Students can withdraw the money before they reach the $100 mark for a $5 fee.) Kopko will be adding features to bring in revenue — including a job search engine that will let employers search for a computer science major who aced Spanish or any other equally specific set of skills.

In the weeks since the site launched, Antonietti has busily sent out GradeFund invites. “I’ve asked relatives, friends of the family, teachers I’ve had in previous years,” she says. So far, she has 15 donors who’ve pledged $10 per A. The money could add up: if she gets straight As in her five classes, she’d earn $750 a semester.

Kopko recognizes that this is small potatoes considering that many students are accumulating debt at a rate of $20,000 and up a year. “Our service doesn’t solve the problem, but it’s a step down that path,” he says.

Even though he’s only 24, this isn’t Kopko’s first education-related business. When he was a freshman at Harvard, Kopko hired a maid to tidy his dorm room and soon had friends asking how they could do the same. Sensing a good business opportunity, he started DormAid. When The Harvard Crimsoncaught word of the business, they wrote a scathing editorial. “They said it’s a service that divides classes into the haves and have-nots,” explains Kopko. “At the time, I was upset. But looking back, the Crimson did so much for me I should send a commission check.” 

After the article ran, a media whirlwind ensued and Kopko appeared on The Daily Show and was quoted in the New York Times. DormAid took off and is now available on more than 65 college campuses. The company is valued at about $3 million.

Like DormAid, GradeFund has arrived amid raised eyebrows. Isn’t it supporting the wealthiest students rather than the neediest? (Kopko says a range of students are signing up.) Couldn’t students just use the money to buy pizza? (Donors can have checks sent to the tuition office rather than directly to the student.) And won’t it encourage students to obsess even more about grades? Kopko isn’t worried. “So far the closest thing I’ve gotten to a critique was an administrator at Adelphi University who posed the question, “Might this increase the incentives for cheating?,’” he says. “I think the incentive’s always there. GradeFund won’t change that.”

But he hopes GradeFund will change students’ motivation level. “We’re setting up small, little carrots,” he says. “Let’s say there’s a seventh grader who is contemplating cutting class with his friends. If he has $100 on the line, maybe he’ll go to class.” And if he’s really on the ball, maybe one day he’ll realize that GradeFund’s 5% transaction fees amounted to a pretty hefty commission.

 

By KATE TORGOVNICK , Time.com, Tuesday, Dec. 02, 2008

Filed under: student , grades, money, paid, student, website

Who’s gonna lead “US”?

Its kinda funny to know (or maybe even not know) who’s actually take in charge of “our” economy now.

Filed under: Jokes , economy, president, president-elect, row, USA

How Presidents Pass the Torch

 

The torch passes on election day; the power follows in January. But in between comes a personal transaction, like the one that just took place at the White House. It’s not simply ego that has a way of fouling up this moment. Both parties have an eye on the history books, as the outgoing President airbrushes the epilogue, and the arriving one prepares the prologue.

By historical standards, George W. Bush and Barack Obama were remarkably civil in their Oval Office summit. They had never engaged in hand-to-hand combat. Despite the loathing for Bush that animates many in his party, Obama ran less against the man than his record. Bush, apparently in an undisclosed location throughout Campaign 2008, seldom had a bad word to say about Obama, beyond privately dismissing him as a naive lefty. He called Obama’s victory a “triumph of the American story, a testament to hard work, optimism and faith in the enduring promise of our nation.” Obama’s team has been quick to praise the Administration for its commitment to continuity at a moment when enemies crouch and markets quiver.

This civility distinguishes Bush and Obama from many past rivals turned fraternity brothers sharing the secret handshake. Bush takes such rituals seriously, and he had tagged Obama long ago, during White House rush. When freshman Senators visited for breakfast in 2005, Obama wrote in 2006, Bush sought him out to offer some advice. “You’ve got a bright future. Very bright,” the President said. “But I’ve been in this town awhile, and let me tell you, it can be tough.” When your star rises fast, people will come after you from all sides, he warned. “So watch yourself.”

Three years and 130 million votes later, there is much to talk about–not just plans and protocol but personal challenges: How’s the food? Where’s the gym? How do you raise two daughters under bright lights, stay fit and strong and sane while managing a job that can eat you alive? This too is a presidential tradition. Outgoing President James Buchanan advised Abe Lincoln that water from the right-hand well was better than from the left, and he shared the secrets of the pantry. During John F. Kennedy’s visit the day before his Inauguration, Dwight Eisenhower demonstrated the panic button, instantly summoning an evacuation helicopter to the White House lawn. Fatefully, Lyndon Johnson gave Richard Nixon a tour of the hidden tape recorders.

There is a rich history of mischief and malice in the interregnum, particularly during the last transfer of power to take place in the middle of a fiscal firestorm. In 1932 it didn’t help that the two men neither liked nor trusted each other: Herbert Hoover called Franklin Roosevelt a “chameleon on plaid,” while F.D.R. preferred the image of Hoover as a “fat, timid capon.” Since Inauguration Day was not until March 1933, there was an urgent need for action, but Hoover’s efforts to reach out to Roosevelt in the name of bipartisan cooperation were dismissed by critics as an attempt to annul the election and obstruct the New Deal. Hoover called Roosevelt a “madman” for digging in his heels on economics and refusing to compromise, which guaranteed that Roosevelt took the oath of office in an atmosphere of crisis.

It would be 20 years before the Democrats had to hand power back, and this didn’t go much better. After the 1952 election, Harry Truman wrote in his diary that Eisenhower was being coy about cooperation: “Ike and his advisers are afraid of some kind of trick. There are no tricks … All I want to do is to make an orderly turnover.” When it was Eisenhower’s turn, he was determined to handle things better, and to their mutual surprise, he and Kennedy impressed each other when they met at the White House. The young President later found himself relying on Eisenhower for both private guidance and, after the Bay of Pigs fiasco, some public cover.

And that’s another important ritual. Former Presidents tend to rise to the occasion when the call comes from the Oval Office, even if the caller is an adversary. It is an act of patriotism and perhaps pity by men who, knowing what the job entails, are uniquely positioned to help. Obama will take office with at least this advantage: he will have four predecessors with very different skill sets to call on. It’s by no means certain who would be the most useful, since the history of these ex-Presidents is full of plot twists. There’s Jimmy Carter, the acclaimed humanitarian who has seemed at times to delight in tormenting his successors; Bill Clinton, who has shown he can be a mighty ally or a massive headache; and two men named Bush, who, if their own histories are any guide, might offer the 44th President very different advice, given the chance.

 

By NANCY GIBBS, Thursday, Nov. 13, 2008

www.time.com

Filed under: U.S.

Lose the BlackBerry? Yes He Can, Maybe

 

Senator Barack Obama with two campaign constants: his BlackBerry and his chief strategist, David Axelrod.

 

 

Sorry, Mr. President. Please surrender your BlackBerry.

Those are seven words President-elect Barrack Obama is dreading but expected to hear, friends and advisers say, when he takes office in 65 days.

For years, like legions of other professionals, Mr. Obama has been all but addicted to his BlackBerry. The device has rarely been far from his side — on most days, it was fastened to his belt — to provide a singular conduit to the outside world as the bubble around him grew tighter and tighter throughout his campaign.

“How about that?” Mr. Obama replied to a friend’s congratulatory e-mail message on the night of his victory.

But before he arrives at the White House, he will probably be forced to sign off. In addition to concerns about e-mail security, he faces the Presidential Records Act, which puts his correspondence in the official record and ultimately up for public review, and the threat of subpoenas. A decision has not been made on whether he could become the first e-mailing president, but aides said that seemed doubtful.

For all the perquisites and power afforded the president, the chief executive of the United States is essentially deprived by law and by culture of some of the very tools that other chief executives depend on to survive and to thrive.

Mr. Obama, however, seems intent on pulling the office at least partly into the 21st century on that score; aides said he hopes to have a laptop computer on his desk in the Oval Office, making him the first American president to do so. Mr. Obama has not sent a farewell dispatch from the personal e-mail account he uses — he has not changed his address in years — but friends say the frequency of correspondence has diminished. In recent days, though, he has been seen typing his thoughts on transition matters and other items on his BlackBerry, bypassing, at least temporarily, the bureaucracy that is quickly encircling him.

A year ago, when many Democratic contributors and other observers were worried about his prospects against Senator Hillary Rodham Clinton, they reached out to him directly. Mr. Obama had changed his cellphone number, so e-mail remained the most reliable way of communicating directly with him. “His BlackBerry was constantly crackling with e-mails,” said David Axelrod, the campaign’s chief strategist. “People were generous with their advice — much of it conflicting.”

Mr. Obama is the second president to grapple with the idea of this self-imposed isolation. Three days before his first inauguration, George W. Bush sent a message to 42 friends and relatives that explained his predicament. “Since I do not want my private conversations looked at by those out to embarrass, the only course of action is not to correspond in cyberspace,” Mr. Bush wrote from his old address, G94B@aol.com. “This saddens me. I have enjoyed conversing with each of you.”

But in the interceding eight years, as BlackBerrys have become ubiquitous — and often less intrusive than a telephone, the volume of e-mail has multiplied and the role of technology has matured. Mr. Obama used e-mail to stay in constant touch with friends from the lonely confines of the road, often sending messages like “Sox!” when the Chicago White Sox won a game. He also relied on e-mail to keep abreast of the rapid whirl of events on a given campaign day.

Mr. Obama’s memorandums and briefing books were seldom printed out and delivered to his house or hotel room, aides said. They were simply sent to his BlackBerry for his review. If a document was too long, he would read and respond from his laptop computer, often putting his editing changes in red type. His messages to advisers and friends, they say, are generally crisp, properly spelled and free of symbols or emoticons. The time stamps provided a window into how much he was sleeping on a given night, with messages often being sent to staff members at 1 a.m. or as late as 3 a.m. if he was working on an important speech.

He received a scaled-down list of news clippings, with his advisers wanting to keep him from reading blogs and news updates all day long, yet aides said he still seemed to hear about nearly everything in real time. A network of friends — some from college, others from Chicago and various chapters in his life — promised to keep him plugged in. Not having such a ready line to that network, staff members who spent countless hours with him say, is likely to be a challenge. “

Given how important it is for him to get unfiltered information from as many sources as possible, I can imagine he will miss that freedom,” said Linda Douglass, a senior adviser who traveled with the campaign. Mr. Obama has, for at least brief moments, been forced offline. As he sat down with a small circle of advisers to prepare for debates with Senator John McCain, one rule was quickly established: No BlackBerrys. Mr. Axelrod ordered everyone to put their devices in the center of a table during work sessions.Mr. Obama, who was known to sneak a peek at his, was no exception.

In the closing stages of the campaign, as exhaustion set in and the workload increased, aides said Mr. Obama spent more time reading than responding to messages. As his team prepares a final judgment on whether he can keep using e-mail, perhaps even in a read-only fashion, several authorities in presidential communication said they believed it was highly unlikely that he would be able to do so.

Diana Owen, who leads the American Studies program at Georgetown University, said presidents were not advised to use e-mail because of security risks and fear that messages could be intercepted. “They could come up with some bulletproof way of protecting his e-mail and digital correspondence, but anything can be hacked,” said Ms. Owen, who has studied how presidents communicate in the Internet era. “The nature of the president’s job is that others can use e-mail for him.”

She added: “It’s a time burner. It might be easier for him to say, ‘I can’t be on e-mail.’ ”

Should Mr. Obama want to break ground and become the first president to fire off e-mail messages from the West Wing and wherever he travels, he could turn to Al Gore as a model. In the later years of his vice presidency, Democrats said, Mr. Gore used a government e-mail address and a campaign address in his race against Mr. Bush.

The president, though, faces far greater public scrutiny. And even if he does not wear a BlackBerry on his belt or carry a cellphone in his pocket, he almost certainly will not lack from a variety of new communication.

On Saturday, as Mr. Obama broadcast the weekly Democratic radio address, it came with a twist. For the first time, it was also videotaped and will be archived on YouTube.

 

By JEFF ZELENY

Published: November 15, 2008

newyorktimes.com

Filed under: U.S.

uhmm.. are we in the recession?

 

You still have a job?

 

WMD

 

Where the economy go?

 

Nobel Prize 2008

Old man and the sea

"Sinking Ship"

Rescue

 

Broker

 

Filed under: Jokes , broker, Cartoon, economy, funny, job, Jokes, nobel, recession, rescue

Top 10 Scared Stock Traders of the Week

New York Stock Exchange 
October 9
Dow Jones down 675 points on the day

Frankfurt Stock Market
October 7
DAX declines 1.1% adding to the previous day’s fall of 7.1%

New York Stock Exchange 
October 9
The day was the 9th worst day in NYSE history

Frankfurt Stock Market
October 10
DAX down 401.92 points

New York Stock Exchange
October 10
Dow down 128 points

New York Stock Exchange
October 10
At one point during the day, the market dipped below 8,000 points, before rebounding

New York Stock Exchange 
October 9
The day was the Exchange’s 8th day of losses in a row.

New York Stock Exchange

October 10
The market has fallen 21% since the beginning of October.

New York Stock Exchange
October 10
The S & P 500 also was down on the day, declining 21.5%.

Frankfurt Stock Market
October 10
The day also say the Euro decline against the dollar.

time

Filed under: Business , desperate, dollar, euro, exchange, face, fall, market, points, stock

Making the Most Of Customer Complaints

Dealing with service failures means a lot more than just fixing the immediate problem. Here’s how to do it right.

 

Nobody’s perfect. That’s a fact, not an excuse.

Which is why it’s crucial for companies to realize that the way they handle customer complaints is every bit as important as trying to provide great service in the first place. Because things happen.

Customers are constantly judging companies for service failures large and small, from a glitch-ridden business-software program to a hamburger served cold. They judge the company first on how it handles the problem, then on its willingness to make sure similar problems don’t happen in the future. And they are far less forgiving when it comes to the latter. Fixing breakdowns in service — we call this service recovery — has enormous impact on customer satisfaction, repeat business, and, ultimately, profits and growth.

But unfortunately, most companies limit service recovery to the staff who deal directly with customers. All too often, companies have customer service sort out the immediate problem, offer an apology or some compensation, and then assume all is well. This approach is particularly damaging because it does nothing to address the underlying problem, practically guaranteeing similar failures and complaints.

What businesses should be doing is looking at service recovery as a mission that involves three stakeholders: customers who want their complaints resolved; managers in charge of the process of addressing those concerns; and the frontline employees who deal with the customers. All three need to be integrated into addressing and fixing service problems.

Tensions naturally arise in and among the groups. For example, customers can be left feeling that their problem wasn’t addressed seriously, even when they’ve received some form of compensation. Service reps can start seeing complaining customers as the enemy, even though they point out flaws that need fixing.

Managers in charge of service recovery, meanwhile, can feel pressure to limit flows of critical customer comments, even though acting on the information will improve efficiency and profits.

However, successfully integrating these three perspectives is something that fewer than 8% of the 60 organizations in our study did well.

Based on our research and our own years of work in service management, here is a look at the three stakeholders in service recovery, focusing on their different perspectives and the tensions that arise among them. We then make recommendations on how to address these tensions and integrate the aims of all three to achieve better — if not perfect — service.

 

The Customer

Fairness is typically the biggest concern of customers who have lodged a service complaint. Because a service failure implies unfair treatment of the customer, service recovery has to re-establish justice from the customer’s perspective.

Say a bank customer requests a deposit receipt from an ATM but the machine fails to print one. The customer becomes worried and goes to one of the bank tellers. The teller checks the account, and assures the customer that there is no problem, that the deposit was made. But if the teller only focuses on the fact that the account was credited, he or she has ignored what in the customer’s view was the most severe and critical aspect of the service failure: the worry initially felt, and the extra time it took to verify the deposit.

Customers often want to know — within a reasonable time — not only that their problem has been resolved, but how the failure occurred and what the company is doing to make sure it doesn’t happen again.

A customer’s faith can be restored using this kind of approach — once. We have even noted something referred to as a “recovery paradox,” in which customers can be more delighted by a skillful service recovery than they are by service that was failure-free to start with.

But there is a flip side to this as well: Customers have more tolerance for poor service than for poor service recovery. And if a customer experiences a second failure of the same service, there is no recovery strategy that can work well. In all likelihood, that customer will be lost forever.

Our research suggests that after a failed service recovery, what annoys — and even angers — customers is not that they weren’t satisfied, but that they believe the system remains unchanged and likely to fail again.

 

The Manager

The chief aim of managers in service recovery is to help the company learn from service failures so it doesn’t repeat them. Learning from failures is more important than simply fixing problems for individual customers, because process improvements increase overall customer satisfaction and thus have a direct impact on the bottom line.

But companies generally obtain and study only a fraction of the service-failure data that could be gathered from customers, employees and managers. Even when managers agree that customer feedback is essential, there is often poor information flow between the division that collects and deals with customer problems and the rest of the organization.

In some cases, one study revealed, the more negative feedback a customer-service department collects, the more isolated that department becomes, because it doesn’t want to be seen by the company at large as a source of friction. Some companies even create specialist units that can soak up customer complaints and problems with no expectation of feeding this information back to the organization. Others actually impede service recovery by rewarding low complaint rates, and then assuming that a decline in the number of reports indicates customer satisfaction is improving.

Some managers in our study saw conflicts between providing great customer satisfaction and achieving high productivity. For instance, incentive structures sometimes placed equal values on sales and on customer service. But as one manager noted: “If you want to achieve 100% [satisfaction], you don’t have time for selling. It’s questionable whether you can score 100% on service quality and 100% on [sales] objectives.”

In any kind of business, there comes a point at which a service recovery can become excessive in the company’s eyes, and be seen as giving away the store. However, many customers don’t want a payoff. They simply want to have their problem fixed and to be reassured that it won’t happen to other people in the future.

 

The Employee

Frontline service employees have the greatest job satisfaction when they believe they can give customers what they expect.

These workers have the difficult task of dealing with customers who hold them responsible even when the failures in question are completely out of their control. The attitudes of customer-service workers, positive and negative, spill over onto customers.

Yet companies do surprisingly little to support them.

To be successful, these workers need to feel that management is providing the means to deliver successful service recovery on a continuing basis. Alternatively, when employees believe management doesn’t support them, they tend to feel they are being unfairly treated and so treat customers unfairly. They display passive, maladaptive behaviors and can even sabotage service.

This alienation is compounded when the workers believe that management is not improving the service-delivery process, which keeps employees in recurring failure situations. Even though complaining customers represent an opportunity to fix problems and improve satisfaction, alienated employees often see them as the enemy. In a study of a major European bank, employees in Switzerland consistently indicated that they did not consider reports of missing account statements to be complaints. As one said: “These things happen. There is nothing we can do about that.”

At companies that reward low complaint rates, frontline employees become tempted to send dissatisfied customers away instead of admitting a failure has occurred.

 

Craig Frazier

 

Resolving the Tensions

Our experience with managers interested in improving service recovery indicates that most hope for a quick fix of some specific tensions. But quick fixes only treat the symptoms of underlying problems. Real resolutions should involve closer integration among the three stakeholders, such as gathering more information from customers and sharing it throughout the company, and adopting new structures and practices that make it easier to spot problems and fix them.

We suggest the following five strategies:

• Create a “service logic” that explains how everything fits together. This should be a kind of mission statement or summary of how and why the business provides its services. It should integrate the perspectives of all three groups:

What is the customer trying to accomplish, and why?

How is the service produced, and why?

What are employees doing to provide the service, and why?

The results should serve as a guide both for delivering service and for help with service recovery. It should include a detailed study of internal operations; map out how the company responds to customer complaints; and describe how the company uses that information to improve service-recovery processes. Similar mapping should detail every step of customer experiences, including those of real customers with complaints, highlighting their thoughts, reactions and emotions along the way. Highly skilled managers and employees who can think outside the box are a must.

TNT NV, a Netherlands-based global delivery company, developed a service logic to help it grow in a mature market. Using a small, high-powered management team backed up by customer discussion forums, the company mapped its processes from a customer point of view, including a map of customer emotions during both regular processes and service recovery. The mapping exercise and the service logic that it produced led to a redesign of processes by managers and field staff that cut across traditional functional boundaries.

For example, previously a driver running late for a scheduled delivery had to call into the control center, which would then contact customer services, which would then contact the customer. Such calls often arrived after the delivery already had been made, thus further annoying the customer and embarrassing the driver. Since the process redesign, however, a driver running late is allowed to contact the customer directly. TNT drivers frequently visit the same customers almost every day, so their customers know them and appreciate the personal contact. The drivers also appreciate being able to make the calls directly.

• Draw attention to the successes of customer-service groups. Companies use in-house publications, intranets and training programs to share stories that emphasize their values and culture. Employees who come up with cost-saving ideas, for example, are often singled out for praise. But rewards and recognition also should flow to heroes in service-recovery stories. Such heroes can be on the operations side, helping to develop cost-efficient systems for handling complaints, and on the marketing side, giving a customer extraordinarily helpful treatment after a service failure. Singapore Airlines Ltd., in its in-house magazines, frequently tells stories about employees who have provided not only outstanding service, but exceptional service recoveries. Senior managers, too, will not hesitate to swoop in anywhere there is an issue, creating more stories about internal vigilance. When customer-service employees believe that their goals are in line with the organization’s values, they are more willing to exert the extra effort required in a failure-and-recovery situation.

• Give customer-service staff as much freedom as your business strategy allows.When a business has very few routines and its ties to customers are based on individual relations, service representatives should have more autonomy in resolving complaints. For such businesses, spending more time on service recovery — and retaining customers — has a clear effect on the bottom line. By contrast, in a highly standardized business with purely transactional customer relationships, such as a fast-food restaurant, employees should adhere to procedures in resolving complaints. Customer satisfaction in such businesses is closely aligned with high productivity, so there is less to be gained by customizing resolutions of complaints. 

Ritz-Carlton, for example, the luxury brand of Marriott International Inc., authorizes personnel at the front desks of its hotels to credit unhappy customers up to $2,000 without asking a supervisor’s approval. On the other hand, in one of our consulting projects, a client reacted very negatively to this approach, claiming that such a policy would be too expensive for his company. We replied that the high cost of poor service is exactly what makes this system work so well: It forces management to eliminate service failures in the first place.

• Collect as much data as you can, and share it widely. Companies must gather more feedback about poor service, record it and make it accessible. Managers and other employees have to be armed with strong information to be effective at resolving disputes.

It should be easy for customers to file complaints. One way to achieve this is by offering many communication channels. A regional airline in Asia, for example, uses annual passenger surveys, interviews with frequent fliers, focus-group discussions, customer hot lines, critical-incident surveys, onboard suggestion leaflets and even live call-in radio shows. Software should be used that serves as a database for both positive and negative communications with customers. Employees and managers should be trained to mine the data and put it to use easily and quickly.

• Use meaningful measures of employee performance — rewards and demerits. Positive reinforcement and incentives should be offered for solving problems and pleasing customers. A system for measuring customer satisfaction should be devised to help rate employee performance. Salary increases and promotions then should be linked to an employee’s achieving certain levels. There also should be disincentives or demerits for poor handling of customer complaints. Performance reviews thus may include a balanced scorecard — one that recognizes the need for both productivity and customer satisfaction.

—By STEFAN MICHEL, DAVID BOWEN and ROBERT JOHNSTON. Dr. Michel is associate professor of marketing at Thunderbird School of Global Management, Glendale, Ariz. Dr. Bowen is the Robert and Katherine Herberger chair in global management and a professor at Thunderbird. Dr. Johnston is professor of operations management at Warwick Business School, University of Warwick, Coventry, England. Wall Street Journal, SEPTEMBER 22, 2008.

Filed under: Uncategorized , Complaints, Customer, failures, profit, satisfaction, service