Wednesday, May 8, 2013

The two Bobs are at it again…

I introduced you to the two Bobs a year ago (Kodak-town andthe Two Bobs).  They are kind of like one of those old cartoons.  You know…  the cartoon character is faced with a moral dilemma and up pops a devil on one shoulder and an angel on the other.

It all started a couple of weeks ago.  Bob’s wife – my niece – invited me over for steaks on the BBQ.  While we were munching on hors d’oeuvres, Bob made a comparative statement about job safety that ended something like this “… or else we’d be just like Texas.” 

“What’s wrong with that?” I said.  “Texas is creating jobs!

Bob was referring to the recent fertilizer plant explosion in Texas, which he speculates was the result of lax regulation.  I debated the point but not too forcefully.  (After all, I hadn’t had my steak yet.)  There needs to be some regulation, we agreed.  The question is how much is too much?

On the other shoulder, you’ll find the other Bob, an old friend. I had sent him a news item featuring an opinion by Vanguard founder John Bogle wherein he asserts that our 401K’s should be diversified so that unsophisticated investors won’t take too much risk.  So far, so good except that Bogle also suggests that the government regulate the holdings in these funds. 

It’s an interesting idea.  There is clearly a social cost to 401K investors failing to achieve their retirement goals.  More pressure on social security, Medicare, Medicaid and food stamps to name a few.  Why shouldn’t government require sound investment practices in exchange for tax-advantaged treatment?

I’m sure Bob would agree.  No, not that Bob.  The other one.

As for business regulation, it is legitimate to ask how much regulation is too much.
My answer is simple: when jobs are leaving the state (as they are in NY), it’s too much. Texas is creating jobs because they are at the other end of the pendulum swing (or sitting on the other shoulder if you prefer).

I’m sure Bob would agree.  No, not that Bob.  The other one.

I don’t feel strongly about Bogle’s idea one way or the other.  However, I love a good debate and, since Bob stands someplace to the right of Ron Paul on these matters, a great debate ensued.  What Bob believes is that people should have the freedom to choose -- to be rewarded by their good choices or pay for their mistakes. Bob identifies examples where industries have regulated themselves to the benefit of both businesses and their customers.  It’s a great model when it works.

An example of self-regulation in financial services is the rating agencies, S&P and Moody’s.  They are private companies paid by the industry they are rating.  During the real estate boom, their customers (Goldman Sachs, JPMorgan, Lehman, etc.) convinced them that Collateralized Mortgage Obligations should be AAA rated.  The banks hired top mathematicians, paying them 7 figure salaries, to develop presentations to the poor dummies at the ratings agencies (5 figure salaries).  We all know what happened next.  Wouldn’t we be well served by a bit more oversight on these activities?

I’m sure Bob would agree.  No, not that Bob.  The other one.

Bob espouses a principled approach. “First, people must learn from their mistakes… One idea that applies here is don't put your money into something you don't understand. Stupidity will hurt. Repeated stupidity will bankrupt you.”

He makes a lot of sense.  However, former Fed Chairman Alan Greenspan famously posited that financial institutions didn't need to be regulated because they wouldn't take risks that threatened their own existence. When questioned by Henry Waxman following the credit crisis he admitted that his "view of the world" was wrong.  Little solace for the rest of us. 

I am sure Bob would agree.  No, not that Bob.  The other one.

Bob tells me I have “way too much faith in government”. He would agree if he “thought they'd ever be good protectors”.  As bad as Wall Street has been, the  “government has been massively worse”. Further, the “complexity of today's world” argues “against a central decision-making authority with growing power to confiscate wealth”.

Still, I think some degree of government involvement is necessary.  I mean, weren’t we well served by having federally insured deposits (FDIC) during the crisis?

I am sure Bob would agree.  No, not that Bob.  The other one.

Now, where’s my steak?



  1. Liberals and statists think we need big government to protect us from unscrupulous people and companies (run by people) but don't seem to understand that government is comprised of people and agencies are run by people. So, are we to believe that the government people are always the good people? I would argue to the contrary. Anyone striving for power and authority probably has more "control issues" than altruism. Recent case in point -- the IRS' inappropriate actions. Give anyone too much power and authority and you are going to see corruption. Thoreau had it right when he said that government is best which governs least.

  2. James Caron • Politics and regulation, wonderful tool for those temporarily in power to reward their friends and punish their enemies.

  3. Tom Jeanette, MEM, PMP • The disaster in West, Texas wasn't a matter of too little regulation. There were regulations in place at the federal level but the feds lack the resources to monitor and enforce the safety regulations.

    "(Reuters, Sat Apr 20, 2013) - The fertilizer plant that exploded on Wednesday, obliterating part of a small Texas town and killing at least 14 people, had last year been storing 1,350 times the amount of ammonium nitrate that would normally trigger safety oversight by the U.S. Department of Homeland Security (DHS).

    Yet a person familiar with DHS operations said the company that owns the plant, West Fertilizer, did not tell the agency about the potentially explosive fertilizer as it is required to do, leaving one of the principal regulators of ammonium nitrate - which can also be used in bomb making - unaware of any danger there.

    Fertilizer plants and depots must report to the DHS when they hold 400 lb (180 kg) or more of the substance. Filings this year with the Texas Department of State Health Services, which weren't shared with DHS, show the plant had 270 tons of it on hand last year."

    How much regulation is too much? Too much regulation doesn't cause disasters and cost lives. I guess it comes down to a cost/benefit analysis ... just as Firestone did with the SUV tires in 2000 and Ford did with the Pinto in 1977.

  4. Keith Jibben • Just keep in mind there are TWO kinds of ammonium nitrate fertilizer, one is not explosive and the other is. Where I farm the explosive kind is not available. The chance that the blast in Texas was not an accident is also still out there.

    I take exception to the "too much regulation doesn't cause disasters and cost lives".
    What the feds are trying to cram down the throats of the trucking industry in the name of safety is going to cause a lot of accidents and cost lives.

    There are some segments of society where regulation has reached a point of diminishing returns if not being downright limiting to.productivity and safety.

  5. Tom Jeanette, MEM, PMP • Keith, perhaps you should give examples to support your claim that "What the feds are trying to cram down the throats of the trucking industry in the name of safety is going to cause a lot of accidents and cost lives."

    My stepson is a OTR driver, and he claims the same thing, maintaining that truckers will falsify records and employers will work to get around regulations, thereby endangering safety of drivers and the public. In my mind, it is the act of SUBVERTING the regulations that creates the dangers and not the regulations themselves.

    I look forward to hearing from you on these regulations you claim are dangerous. I will help to work to rollback the rules that do indeed do more harm than good.

  6. Jason G. Ramage, MS, MBA, RBP • Tom, would you perhaps agree the problem comes from those who employ the drivers, insisting on delivery times that are unreasonable unless the truck drivers use "creative accounting" to get around the regulations limiting driving hours?

  7. Tom Jeanette, MEM, PMP • Jason, I would say that the employers in the trucking industry are a very large part of the problem, but the drivers are not entirely blameless. I've been told about drivers making runs while being extremely sick, over-tired, or on drugs in an effort to get as much per-mile pay as possible.

    Back to the main point, I've generally found that regulations are the RESULT of abuses, not the CAUSE of abuses. Unfortunately, regulations seem to impact only those who are unfortunate enough not to be able to buy the political influence necessary to create loopholes and exemptions.

  8. Keith Jibben • Here are some examples. Under the old 10 hours driving/ 13 hours total working/ 8 hours off rules, if you needed a nap you took one. Say you start your day with 1/4 hour vehicle inspection, 45 minutes driving, one hour loading, drive 6 hours, 3 hour nap, 3 1/4 hours driving, one hour unload and then off duty for 8 hours. You have spent 2 1/4 hours on duty not driving and 10 hours driving for a total of 12 1/4 hours worked. BUT it has taken you 15 1/4 hours total to do this thanks to your nap. You haven't been driving tired and the freight got there.

    Now you have 14 hours from start to finish, 11 hours driving and 10 hour off duty cycles. Yes, the circadian clock isn't disturbed as much with the new 11 driving/ 10 off duty rules.

    It is the 14 hour start to finish that has drivers pushing and driving when tired, not being able to stop and avoid rush hour etc. that is the problem.

    Under the old rules most teams ran 5 hours driving and 5 hours off and as long as you got 8 hours in the sleeper in a 20 hour period the feds were happy.

    Now you have to be in the sleeper for 8 consecutive hours so your partner is driving tired and since most people don't really get good rest in a moving truck, you are not in good shape either. You can rest well for a few hours but not eight.

    And to top it all off the proposed rule changes are going to require a mandatory half hour break but no extension of the 14 hours.

    It used to take me 24 hours to get an oversize load from Des Moines to Duluth but with all the rule changes it is now a 48 hour delivery time. 407 miles by the way.

    Read a book called "Sweatshops on Wheels" if you want a good non-trucker look at the trucking industry. Or call the Owner Operator Independent Drivers Association at 800-444-5791 and tall to Todd Spencer or Gary Green for a truckers viewpoint.

    And as for the proposal for Electronic On Board Recorders, I don't need one with over 2 million accident free miles behind me. If these end up in trucks, personal vehicles will be next. The proposed laws for requiring EOBRs in passenger vehicles are already out there. Want big brother riding in the back seat? Just sit back and do nothing.

  9. Tom Jeanette, MEM, PMP • Wow ... you talk about circadian rhythms being disturbed by the 11 driving / 10 off duty rules, but you seem perfectly happy with the 5 driving / 5 off duty rules while admitting that "most people don't really get good rest in a moving truck."

    You also state that you don't need an EOBR since you have over 2 million accident free miles behind you. Since driving while tired is a physiologically the same as driving while intoxicated, isn't that like a drunk saying he's ok to drive since he's never had a wreck? We need EOBRs because drivers break the rules, either on their own or with the encouragement or demand of their employers.

    The proposed rules for EOBRs in "passenger vehicles" is for buses, taxis and limos, which fall under the Federal Motor Carrier Safety Administration, not for my wife's car.

  10. Keith Jibben • You had better go look again. There are proposals out there to require EVERY vehicle to have EOBRs.

    NO, the 11/10 rules are fine. It is the time limit from start to finish of your day that are causing problems.

    5 on and 5 off WORKS because you get the best rest in the first 3 hours in the sleeper.

    The rules keep getting more and more restrictive with a "One size fits all." approach. There are many different types of trucking operations out there and what works for a local delivery or dedicated run may not work for a coast to coast refrigerated operation.

    What has happened is removing the individual drivers ability to determine when it is OK to go and when it isn't and replacing it with a set of rules to follow, safety be damned.

    You have a lot of letters behind your name, Tom but I do not see CDL holder as one of them. Until you have actually spent time behind the wheel of a big truck you should not be criticizing nor offering solutions to safety problems.

    That is the problem right now in that the people who write and enforce the regulations have no clue as to what life is like in the real world.
    Writing the regulations should be limited to the people involved who have lives and property at stake. NOT some bureaucrat.

    My driving record speaks for itself in that I KNOW what it takes. Until such time as you can equal my driving record or surpass it, kindly shut up about that which you know nothing.

  11. Jason G. Ramage, MS, MBA, RBP • "Writing the regulations should be limited to the people involved who have lives and property at stake"

    Which could mean everyone who has to share the road with truck drivers. But it's not feasible to have a discussion with 300 million + people, so we have a government charged with addressing the issues.

    Self-regulation works well for those being regulated; it's not so great for everyone else.

  12. Tom Jeanette, MEM, PMP • Wow, Keith ... you display a great deal of hostility about politics, legislation, and regulations. Let me try to use your own rule-making rules in responding to you here.

    First, I'm a Republican politician (much to the dismay of the GOP) who has served as a mayor, lobbyist, and presidential campaign official. I've written legislation, chaired public hearings, and have lobbied county, state and federal governments. As you have obviously not served in any of these capacities, per your own rules, you're not qualified to comment about "bureaucrats."

    Second, I worked for 20 years at FedEx headquarters in Memphis. One of my projects was to implement EOBR technology in our courier vans. As you don't have EOBR in your vehicle(s), according to your own rules you are not qualified to talk about the technology.

    Third, you forgot to mention the broad base of support for the new regulations by the American Trucking Association, the International Brotherhood of Teamsters, and law enforcement agencies. As much as you'd like everyone to think that the rules are made in secret by bureaucrats and then are forced upon drivers, there is a robust process in place that solicits input from all affected parties before creating rules that enhance both public and driver safety.

    I've been fortunate enough in my life to be exposed to many things. Other than my experience investigating healthcare, the most seriously deficient business I've seen is trucking. The months I've spent in truck stops and on the road talking to company drivers, owner-operators, trainers, DOT inspectors, state troopers, insurance investigators, and "lot lizzards" has shown me the danger and abuses prevalent in the industry.

    Yet in spite of all of the narcotic drugs, the stimulants (whole cases of 5 Hour energy drinks sold at the same counter where drivers get paid through their Com data card), the poor condition of the vehicles, the unpaid time waiting for loads ... the list goes on and on .... truckers are worse than gun nuts when it comes to their disdain for public safety and protection of their own self interests. It's a shame that truck drivers like my stepson are forced by economics to live the life they do, but they see no other viable way of life even if conditions cause them to have a much shorter lifespan than most of the rest of us.

    Keith, you keep advocating for your business, and I'll keep working for the safety of everyone who shares the public roads.

  13. Christopher Smith • There seems at times almost a totemistic faith that more regulation = more safety.
    This is most prevalent in the case of firearms, where if we could get just One. More. Bill. then nothing bad would ever happen again.
    Legislation is like brakes on a car. You need to manage your velocity. But passing One. More. Bill. seems like riding the brake pedal AND the accelerator simultaneously, wondering why all that lead-footed stimulus isn't moving the economy much.
    In a Naval context (since we're chatting here), we understand that we need SORMs, Standing Orders, OPORDS, &c, but that, to be useful, they should be pared down to a nubbin, so that they will be read, digested, and employed.
    This is in stark contrast to bureaucrats, who behave as though paid by the page of legislation/regulation at times.

  14. Ralph Michalske, MBA • Hi Chris,

    I come from an industry that is largely self-regulating. It's the automotive industry. There are other industries that do quality self-assessment based on federal standards. Mil Spec is a directive from the government on how parts sold to the US government must perform. These rubrics have been implemented into other industries that don't build things for the US Government. Industry standards are derived and to a certain extent managed by the government. In the case of automobiles, it's the National Highway Traffic Safety Administration (NHTSA). Automobile manufacturers and their suppliers must provide a self-assessment of their products before the vehicle can come to market. Moreover, in the event of a system failure, there must be traceability for corrective action. This is what automobile recalls are all about. Automobile companies do all the testing required by government to insure vehicles are safe for the public. The government does almost no testing. So, all the safety you and your family enjoy driving costs you almost nothing in terms of your sacred tax dollars.

    The aerospace industry is also self-regulating. Recently Boeing introduced the 787 Dreamliner. It uses a new battery technology found in cell phones, Lithium Ion, and electric vehicles. Although the batteries are safe, their chargers were not and caused fires onboard the Dreamliner. Luckily, the fires happened on the ground before take-off. Boeing spent huge resources trouble-shooting the root cause of the fires and providing corrective actions for their battery charger suppliers. Although NHTSA was kept informed of Boeing's progress, no tax dollars were spent to research and correct the problem. You and your family can now enjoy flying a Dreamliner safely.

    Personally, I think more industries should be regulated by self-assessment. It works and it's cost-effective. An industry of topical interest would be the banking industry. This industry invented a product that was never tested to any standard, the credit default swap. This new financial product almost brought our whole banking system to its knees within a few years. Legendary financial institutions went into meltdown, like, Lehman Brothers, Merrill Lynch, Countrywide Savings, and others. It took massive amounts of cash to resolve the issues of toxic assets. New words and concepts were created deal with the debacle, like, TOO BIG TO FAIL. We're not even certain if we're out of the woods yet. The housing industry is still in shambles and the American Dream no longer involves real estate. This is a good example of banks gone wild and affecting other industries severely.

    As long as America fails to provide OPORDS (Mil Specs) to the banking industry, as well as other industries, along with self-assessment of new products for quality and reliability, we should stay braced for more broadsides economically. We will also need to plan for the Great Recession II as it's inevitable.

  15. Mike Whitfield • I enjoyed it. I'm a new resident of Texas. In this state you have things like energy, as your article hints at. I must admit even though I have a background as a technologist (generational), law and policy fascinate me.

    Playing around with magic (since nothing is prompting this), I'd rank environment, foreign diplomacy, exploration and research as top policy drivers for my personal toolbox.

  16. @Mike, where do energy and alternatives to carbon based fuels fit into your toolbox?

  17. Christopher Smith • @Ralph => these ideas seem in tension:

    "Personally, I think more industries should be regulated by self-assessment. It works and it's cost-effective."


    "As long as America fails to provide OPORDS (Mil Specs) to the banking industry, as well as other industries, along with self-assessment of new products for quality and reliability, we should stay braced for more broadsides economically."

    I'd contend that it's really hard to engineer a system that permits success, while engineering out the possibility of failure. We seem to be trying for the latter, and destroying the former.

    Warren Buffet famously sat out the Internet bubble of the late '90s because he "didn't understand it". I submit that, if you can't explain your investments to a non-specialist, maybe reconsideration is in order.

    What we'd do with our system (if they screwed up and left me in charge) is start unwinding the Federal over-reach, and get the States to own the student loans & mortgages they contain. Maybe equity markets, too. Not that the net corruption, itself, would be lowered thereby. Rather, the throats making decisions would be closer to the hands that vote for them. Also, compartmentalizing our system would mean that, say, an Illinois totally breaking down would be less likely to sink the whole country.

    But that's just the squid in me thinking about damage control.

  18. Ralph Michalske, MBA • Okay Chris,

    In the case of Warren Buffet, his strategy of reconsideration worked for a short period of time what you called the Internet bubble of the 90's. This was possibly his best strategy of all time. However, you can't spend your entire career in finance scratching your head and reconsidering everything.

    Engineering always involves some risk management. There's no such thing as developing a product that is totally free of failure. So, you allow for failure, but you manage how you get out of failure mode in advance. This is not an early warning system, rather it is vigorous reliability testing and analysis of failures. The FDA does such things every day to assure you and your family don't kill yourselves by what you ingest.

    In the case of the new financial product dubbed credit default swaps, they worked as long as real estate prices rose. AIG, an insurance company, bought billions of dollars of these new products. There was no risk management on their part in the event of failure (falling real estate prices). AIG was leveraged to the hilt. They, and many large banks, ended up owning a boat load of toxic assets. More than the value of the company itself (insolvency). Only the Federal Reserve and the US Treasury could write a check big enough to keep them solvent. At that time in late 2008, we really didn't know the extent of the financial failure. George Bush and Barrack Obama added funds to the system, but didn't know if it was enough. Other industries became affected and began to go into failure mode (teetering on bankruptcy). More funds were added to shore up the industries that could be saved.

    I contend that if this new financial product, the credit default swap, had been fully tested in advance for reliability, the risk of failure could have been managed appropriately. Boundaries and limits could have been set for AIG and the banks that owned them. Where was Warren Buffet when we needed him?

    Lastly, the States can't do everything for us, even if their throats are closer to the voters hands. States can manage who sells insurance within their boundaries, but this is much simpler than managing global financing. For one thing, States can't mint money. This is something Greece and other EU countries are learning the hard way. Student loans and mortgages will always be the province of Wall Street in the US. This is the way our capital (bond & equity) markets are set up. We are already compartmentalized down to the local community (city and towns). These societal units have already written bonds and covenants that they can't pay. If you thought GM provided us with a multi-billion dollar joy ride, wait until we get the bill from many of the cities and towns in California and Michigan. We will then realize why America is just a big insurance company with an Army.

  19. Chuck Rosselle • This discussion is an indication of what is "right" about how things should be done in this country, in my opinion. There are always contradictions. Government should stay out of business, but the country with perhaps the most government involvement (China) is kicking the free world's butt. Regulation is good if it keeps harmful food and drugs off the market and the banks from losing your money, but it's bad when it is. Self regulation works when industries thrive but it doesn't, well when it doesn't. Like when banks bring home prices and the economy down. We have a nation built on balance, state vs. federal government, three branches of government, a free press to ferret out abuse of power and different political parties to balance our different points of view regarding governance. It's probably a bromide, but if we fail in letting the processes work properly, it is because of the "Pogo" problem (for those old enough to remember). "We've met the enemy and it is us". It seems to me we have two responsibilities, one is to stay involved and understand the issues that are important to us, the other is to be able to come together around common solutions that work for everyone. I think the failure (to the extent there's been one) has been in our inability to properly fulfill these responsibilities, especially the latter.

  20. Christopher Smith • @Ralph, quoting above:

    "I contend that if this new financial product, the credit default swap, had been fully tested in advance for reliability, the risk of failure could have been managed appropriately. Boundaries and limits could have been set for AIG and the banks that owned them. Where was Warren Buffet when we needed him? "

    Where, indeed? What if CDSs were just a scam? What if the vast amounts of money involved, crossing well into political territory, meant that the propeller-heads making the bets devoured way too much risk, knowing that somebody else's skin was more in the game?