Wall Street Journal looks for boogeyman for bad housing market and can only come up with appraisers

In what must be one of the most absurdly reasoned analysis articles in years, The Wall Street Journal argues that appraisers are to blame for the continuing housing bust that has now lasted more than four years.   

Let’s be clear: the author, S. Mitra Kalita, doesn’t blame appraisers for creating the bust, only for extending it.  

And what are appraisers doing to hold down sales? They’re being overly conservative in their appraisals.  

The article cites a survey by the National Association of Realtors (NAR) that says that 10-12% of their members had a contract canceled because of a low appraisal last year.  Another 10-13% saw a contract delayed, while 16-20% made less commission because a lower appraisal led to a lower sales price.

First of all, these numbers prove nothing, because it’s not a measure of sales that were canceled, delayed or lowered, but of agents who had sales canceled, delayed or lowered.  Sales delayed or lowered shouldn’t figure into the equation, because they’re still sales. Now, each realtor sells an average of 7 houses a year, according to NAR.  If the 10-12% of agents with canceled contracts had only one contract canceled each because of the low appraisal, which would work out to only 1.7% of all contracts scratched.  Even if all these dead contracts went through, it would not create a roaring, or even a modest, comeback in housing.  The very fact that the Journal article and NAR measure the wrong thing leads me to believe that they couldn’t come up with good numbers, and that the numbers of lost contracts from low appraisals is minimal.

Apart from these meaningless numbers, the premise of the Journal article is completely ridiculous.  The idea that low appraisals are continuing the housing bust falls into many illogical pieces when you review Economics 101.  I think somewhere in the first 25 pages, every economics introduction defines the law of supply and demand, also called the law of demand, which states that consumers buy more of a good when its price decreases and less of it when its price increases.  Low appraisals should therefore lead to lower prices, which in turn should lead to more sales.

Except that few people have money to buy a new or first-time home. When we add in those who have stopped looking for a job and those working part-time who want to work full-time, we have a 16% unemployment rate.  Meanwhile, most people with full-time jobs haven’t had an increase in their purchasing power in years and face increased transportation, education and healthcare costs. The fewer people who can afford a product, the lower its sales, that is, until the price of the product drops to the point that more can afford it and demand starts to pick up.

Not only do we have few buyers, those buying have the choice of many houses.  There is a glut of properties on the market, primarily because of overbuilding during the boom years and the high number of recent and current foreclosures.

Few buyers is why the real estate bust continues.  Many properties is why prices remain low and in many markets continue to decline.  It has nothing to do with appraisals.

In fact, we should be happy that appraisers are tending on the conservative side now. We know that appraisers were part of the problem in the first place.  They gave overly optimistic appraisals that whipped up the prices of properties to a frenzied froth, but everyone was happy:  Sellers got more money for their house; banks took their cut, and then packaged and sold the loans, the bad with the good; buyers thought that houses would continue to appreciate at historically high rates.  Of course the happiest then (and among the saddest now) were those who borrowed more money on a house they already owned than they had initially paid for the house: happy then, to treat the house like a personal bank; sad now, because they owe far more than the house is currently worth.

Appraisers were an integral part of the system of lies that created the bubble.  If they’ve cleaned up their act and are acting more conservatively now, a loudly blaring free market clarion such as the Wall Street Journal should commend them for it.

Let’s change tax policy to favor only those capital gains going to productive ends.

A capital gain, according to Investopedia, is “an increase in the value of a capital asset (investment or real estate) that gives it a higher worth than the purchase price. The gain is not realized until the asset is sold.”  Investments in this context include stocks, bonds, mutual funds and exchange-traded funds (ETF).

Capital gains are taxed at a lower rate than other income like salary, taxable benefits and interest income.  Capital gains are also exempt from Social Security and Medicare taxes (also called FICA or payroll taxes). 

The federal government gives special tax treatment to capital gains to encourage people to take risks with their money by investing in ventures that could produce jobs and wealth for society.  The government distorts the marketplace by lowering the cost to invest.  It does so to help our society by encouraging the creation of jobs and wealth.

All well and good, but what does most of the buying of stocks and all of the trading in investment hedges like puts and calls have to do with creating jobs?

When you buy the stock of General Electric or a bond of Wells Fargo Bank you are not helping the company one bit, unless you buy it directly from the company.  But most stock is bought on secondary markets such as the New York Stock Exchange or NASDAQ.  In all trading of stocks and bonds and all hedging strategies, you buy from someone else or sell to someone else.  The company gets no additional money.

Now companies do from time to time issue stock or float bonds, and the people who buy them deserve a tax break for helping companies expand or develop new products, all of which create jobs and wealth and meet societal needs.  And even before a stock is public, people invest privately, usually buying shares or loaning money.  These people all deserve a tax break.  I have no problem with that.

For that reason, I propose that we change our tax law so that only when all the funds to buy the security go directly to the company (less fees to investment bankers, to be sure), will the investment qualify for the capital gains rate when the investment is sold. 

Many people are already paying taxes on capital gains at the rate of income taxes if they have traditional IRAs.  When you take money out of a traditional IRA (or exchange the IRA for a Roth IRA), you pay both the tax-deferred investment amounts and all capital gains as income, and not as capital gains.  I’m guessing that most people have all or almost all of their stocks, bonds, mutual funds and ETFs in IRAs and so don’t care much about the capital gains tax break.  But because there are strict limits on how much income you can shelter in an IRA, the wealthier you are, the more gains you will likely have that are currently getting the capital gains tax break. 

Some will say that this move will kill the stock market and therefore make it harder for companies to find financing.  My response: “Horse feathers!”  People have to do something with their money, and so will still buy bonds and stocks on the secondary markets.  They’ll just pay more of their profit in taxes, and why not?  That money did not really help to create any jobs.

If we want to tax rich folk less for creating jobs, let’s at least make sure that they’re actually creating jobs with the extra money they have; for example, the extra billions our government leaders recently gave the wealthy by extending temporary tax breaks for another two years.  You know, that $38.5 billion ripped from social service, educational, mass transit and other important job-creating programs in the latest federal budget.

The idea that tax breaks for wealthy create jobs is hooey; in fact it’s taxing the wealthy that creates jobs.

I’m a little late to mention it, but the usually estimable Charles M. Blow added to the massive evidence that lowering taxes on the wealthy does not create jobs, nor build additional wealth, but in fact destroys jobs and wealth.

In his “charticle” (chart plus short article) titled “The Pirates of Capitol Hill,” first published in the New York Times of Saturday, August 16, Blow presents a chart that tracks the marginal tax rates on the highest incomes and gross domestic product (GDP) since 1913, a good start date for the modern industrial state in The United States.

The marginal tax rate, BTW, is the amount of tax paid on an additional dollar of income. The marginal tax rate is the highest rate, but people will only pay it on the amounts earned above the highest cut-off point, not on all their income.

In these past 98 years, whenever the marginal tax rate for the wealthy went up, so did GDP. Whenever marginal tax rates on the wealthy went down, so did GDP.  The only time that GDP has ever declined in this country coincides with the times that we have had the lowest marginal tax rates on the highest incomes. In other words, when the wealthy pay less in taxes, our rate of GDP growth takes a swan dive and we sometimes even get GDP shrinkage.

The explanation for the relationship between low taxes on the wealthy and poor economic performance is easy: For every dollar that the government spends, it will put 100% of it back into circulation, either as salary to its own employees, benefits to citizens or payments to its suppliers.  All this circulation of money back into the economy creates jobs either directly or indirectly.

But when someone who already is rich gets the money, that money is likely to exit the productive economy, because it will likely go into:

  • Traditional investments: The only time that buying a stock or bond significantly helps create jobs is when the bond or stock is a new issue, that is, when the money goes to the company to create the jobs.  When you buy existing stocks, no additional money goes to the companies whose stock it is, and therefore no additional jobs are created. 
  • Financial machinations, such as options and other hedging, which create no additional companies or jobs beyond a relatively few highly-paid financial whizzes.
  • Art work and other high-end goods for which the price of the object primarily represents non-productive added value that sits in the product rather than being circulated around the economy.  To put simply, when you buy a Picasso for $45 million it creates fewer jobs than when 4.5 million people pay $100 each for a nicely framed print of the painting. 

To those who say that the wealthy do in fact use a goodly portion of the additional money they have under low tax regimes, I respond in three ways:

  1. That’s not what the statistics say.
  2. But not as much as the government does, since the government spends 100% of what it takes in.
  3. Do they now? (Read with sarcasm!)  My analysis of 35 years of analyzing business news media has been that the wealthier one is, the more likely one will finance job-creating ventures with OPM—other people’s money.

Blow ends his article with “But the spurious argument that cutting taxes for the wealthy will somehow stimulate economic growth is not borne out by the data. A look at the year-over-year change in G.D.P. and changes in the historical top marginal tax rates show no such correlation. This isn’t about balancing budgets or fiscal discipline or prosperity-for-posterity stewardship. This is open piracy for plutocrats. This is about reshaping the government and economy to benefit the wealthy and powerful at the expense of the poor and powerless.

Amen, brother!


American Express steps into the deep fertilizer big-time by making outrageous claims for a savings account.

Yesterday, I analyzed an ad in which, by selecting the value to attach to its product, Home Depot communicates the ideological American imperative of mindless over-consumption.

Let’s turn now to a print ad by American Express that tries to fit the round peg of a set of values into the square hole of its product/service.  The product/service is a savings account that American Express advertised in the national edition of the New York Times earlier this week, which means that there is a good chance that it was also in the Wall Street Journal, and perhaps USA Today as well.

In this full-page ad, American Express digs deeply into the world of symbols, using gardening as a metaphor for growing net assets for the future.  The top half of the ad is a photo of a person’s lower legs and feet, probably a woman judging from the stylish boots and workpants that cover what we see of the person.  The person stands in a little patch of dirt surrounded by what looks like a field of young ground cover: a crowded bunch of small plants each consisting of five or six small but very vibrant-looking green leaves.   The headline over the boot tops reads: “My reason for saving: To help my dreams take root.”

Doesn’t the image carry you into a pleasant daydream of future happiness? 

American Express hammers home the message with a terse but poignant bit of copy: “EVERYONE HAS A REASON. SAVE FOR YOURS. Earning your money takes work.  But helping it grow for the future doesn’t have to.  Take advantage of our High-Yield Savings account and ensure that your future has a strong foundation to build on.”

In the current environment, we’re all worried about having enough money for future goals, typically retirement and paying for our children’s post-secondary education.  We all want to do a little digging in the garden today and have the confidence that with time, we’ll have a nice big harvest. 

We would all like to “ensure that your future has a strong foundation.”

One big catch, though.  According to the ad, the American Express high-yield savings account currently earns 1.3%.  This ridiculously low amount may be the best you can get in the current market for simple savings accounts (or maybe not, I didn’t check), but it most certainly is not a foundation for future growth.

To show you how absurd it is for American Express to try to attach the metaphor of mending your garden to ensure a plentiful future harvest to a 1.3% interest payment, let’s take a look at Yahoo’s retirement planning calculator.

I plugged the following middle-of-the-road assumptions into the calculator: Married couple; age 35 with zero current savings; retiring at age 65; wanting 20 years of retirement income equal to 75% of their current $100,000 in combined income; assume 3% inflation.  I ran the calculations twice, and here’s the results:

  • Earn 1.3% on your savings and assume you get no Social Security: Must save 75.4% of income every year until turning 65.
  • Earn 1.3% on your savings and assume Social Security at current benefit levels: Must save 30.5% of income every year until turning 65.

In other words, earning 1.3 % just doesn’t hack it.  American Express knows it.  Anyone who has had a savings account knows it.  Anyone who can do simple math knows it.

In simple fact, American Express embarrasses itself because it tries to connect 1.3% with building a future.  Better it should take another approach, e.g., earn as much as you can on the money that you have to keep liquid.

Whether it was in the age when savings accounts made 4% or 5%, or the current no-interest environment, most people have always opened a simple savings account where they currently have other accounts or close to their home or business, or they comparison shop for rates.  American Express might win the comparison with other savings accounts, but because it has connected its product/service to future growth, it now has to compete with corporate bonds, municipal bonds, mutual funds, exchange traded funds, common stocks, preferred stock and a bunch of other investments that all tend to do a lot better than 1.3% over a long time frame.

In other words, except to the completely inexperienced rube, instead of building a case for opening its so-called high yield savings account, American Express has actually hurt its cause in this ad.  Somebody misread or misapplied the research big time.  


More stupid PR tricks from Mylan

Don’t the executives at Mylan Inc. ever learn?  The company has filed another lawsuit against The Pittsburgh Post-Gazette, related to a series of stories that the Post-Gazette ran a few months back about an FDA investigation into allegations that Mylan employees were overriding automatic safety controls.  As it turns out, Mylan took care of it, the FDA’s investigation cleared Mylan and no one was hurt.

But Mylan hurt itself by the way it managed the story.  Even after the FDA said that it had not yet completed its investigation, Mylan’s chief executive officer, Robert Coury kept insisting that the investigation had indeed been completed; he was of course mistaken.  (I should disclose that Jampole Communications worked on a project for Mr. Coury that did not involve public relations or media relations more than 10 years ago when he was a financial planner.)  Because of Mylan’s insistence on its initial version of the story—that the investigation had ended—instead of coverage on two news days, the story received coverage on five or six news days.

Here are just some of the negative stories Mylan generated about itself:

And Mylan’s latest move, to sue The Pittsburgh Post-Gazette, also hurts Mylan, especially its standing with consumers who buy generic drugs; remember these folks endure a steady stream of advertising touting the innate superiority of brand-name drugs.  Why remind them that the FDA recently investigated?

Filing and publicizing these lawsuits probably qualifies for any top 10 list of “Stupid PR Tricks of 2009.” 

The lawsuits only keep the story of the two employees overriding a safety system in the news.  The fact that Mylan came out pretty much smelling like a rose in the FDA report is lost in the hubbub over the lawsuit, which will revolve around the Post-Gazette’s right to pursue a story and its accuracy of facts.  In both these areas, the newspaper stands on very solid ground, but even if it didn’t, I would have advised Mylan not to pursue a lawsuit because the publicity could never be 100% positive in favor of Mylan. 

Mylan would have been better off moving away from the incident altogether.  I would have advised the company to do a positive PR campaign based on the safety of its manufacturing process.

Speaking of the Devil “They”

No sooner did I post a rant about syntactical mistakes that editors (and teachers) hate to see, in yesterday’s blog on ways to get the media to toss away a news release, when low and behold—I pull from my mailbox an incredibly embarrassing example of the offense that gets made fun of by editors perhaps more than any other: the use of “they” for “he’, “she” or “it.”

Here is the headline from a 9” X 6” postcard sent by Fragasso Financial Advisors, a financial planning firm:

 Did your advisor talk with you during the downturn?

What did they say?

The mistake, of course, was to use “they” to refer to “your advisor,” since “advisor” is singular and “they” is plural.   Of course, to write “What did he or she say” is pretty stiff, as are all the variants: he/she, he or she, heshe, shehe, et. al. 

I would rewrite it as “Did your advisors talk with you…,” pluralizing “advisor” so that “they” can refer to it. 

If the text were for a speech, radio ad, TV or other spoken application, “they” would be useable, if not preferred.  Spoken language is always less formal than written nonfiction prose.  On the other hand, those elements of language that arbiters most resist changing usually have to do with logic and there is nothing logical about a single entity being referred to as plural entities.

An open question is why the firm uses “advisor” instead of “financial advisor?”  The less precise term could refer to a wide range of professional service vendors and thus lends an element of inaccuracy, or perhaps imprecision, to the headline.

Six ways to get the media to throw out your news release

Every day, reporters and editors endure an overwhelming tide of news releases and story ideas—in their email inboxes, in the mail, by fax.  From this ocean of information they hope to fish out a few stories that are truly newsworthy to their audience.  Some stories cry out for coverage, and I don’t just mean acts of violence or the snafus of politicians.  For example, it’s newsworthy when two large companies merge or if an international rock star gives a benefit concert. 

But what if the story is smaller? Why do some get selected and some don’t?

Although I have been a public relations professional or news reporter for more than 25 years, I still can’t tell you how to guarantee media coverage of a smaller news story or one that may be part news and part feature. 

But I can share a number of mistakes that will typically guarantee that the news release ends up in the trash bin.  When I was a television news reporter years ago, not a day went by in which I did not see at least one news release with one of these mistakes.  And, judging from the complaints I hear from reporters and the news releases that I see on company websites today, these mistakes are still quite widespread. 

Here are six of the most common errors that organizations and marketing agencies make when approaching the news media:

1.  Send the news release to a reporter or to a media outlet that would never consider covering the story because it’s not in their editorial scope.

2.  Send it to a reporter in a way that he/she doesn’t like and perhaps doesn’t use.  While most reporters like email, some still prefer facsimile transmissions or even regular mail.  It’s best to find out ahead of time what each reporter prefers.

3.  Write the news release from the point of view of your organization or its customers and not from the point of view of the audience for the media outlet. 

4.  Use too much jargon or make the news release too technical.

5.  Make syntactical errors that virtually all reporters know are wrong.  For a full list of some of the more common of these glaring writing mistakes, see the Associated Press Style Book or any edition of Strunk & White.  Here are two examples:

  • Misuse of “comprise:” saying that “animals comprise the zoo” when in fact “the zoo comprises animals”
  • Referring to a company as an animate object or a plural object in the use of pronouns, “the company who…” and “the company and their employees…” are both wrong.  It should be “the company that…” and “the company and its employees.”  Don’t trust the word check function in Word on this point: it is just plain wrong to say “the company who” and “the person that.” 

6.  Use some overworked words that signal that there is more hype than news.  Our research shows that many reporters and editors automatically delete email that contains words they hate to see; the words that will most commonly turn off reporters include “solutions,”  “scalable,” “state-of-the-art” and that enduring classic of hyped language, “unique.”  By the way, a recent study showed that the media receive a news release containing the word “solution” every eight minutes.

The common theme in these mistakes is lack of knowledge of or respect for journalists and the news gathering process.  It is a lack of knowledge that causes organizations to misuse words or send a news release to the wrong reporter.  It is a lack of respect for the process that is at the heart of focusing the message of a news release on something that is important to the organization, but not to anyone else.

The best way to approach reporters is to treat them like you treat a customer: know what makes them tick, understand how your product—the news story—helps them out, communicate in the language they like to use, and make it as convenient as possible for them to work with your organization. 

A Crisis Plan for Acorn

Here is what I would have told Acorn if it had asked me to handle the crisis involving two employees who were videotaped advising a fake pimp and prostitute how to defraud the government:

  1. Fire the people and immediately announce you have fired them because they are rogue employees.
  2. Demonstrate that the company has ethics and malfeasance policies that it enforces and communicates to employees on a regular basis.
  3. State that the organization is doing a full-scale investigation that will look into how policies can be improved to prevent a reoccurrence.
  4. Remind everyone with easy-to-understand facts how much Acorn helps people.
  5. Announce results of the investigation, which will likely reveal that these are isolated instances of rogue employees, and make sure you include at least three concrete steps the organization is taking to make sure it doesn’t happen again.
  6. Consider rolling the head of an executive who takes the blame for poor oversight.

What I just described is the standard crisis communications strategy when a corporation steps into the deep stuff.  I have used these communications principles to help maybe 25 organizations to successfully overcome crises caused by malfeasance, stupidity, acts of nature, mistakes and bad luck.  My shorthand for this strategy is: fix it, tell why it happened and tell why it will never happen again.

Now it occurred to me that perhaps Acorn tried this strategy, but the news media did not let it succeed for ideological reasons.  And while it’s true that the conservative media has been after Acorn’s blood for some time now, my analysis of the news releases on the Acorn website suggests that Acorn efforts to “fix it, tell why it happened and tell why it will never happen again” have been too little, too late.

Of course, it doesn’t help the situation much when in responding to the announcement that the IRS was severing ties with the group, Acorn’s chief executive lets herself be quoted saying, “We had already made that decision to not deliver these services.”  Few things are more detrimental to an organization with a social or political mission than for it to characterize that mission as just another business product or service.

How Not to Get a Job, Part 3

I’ve reserved for its very own blog entry what may be the most important tip I have for job-seekers: Never lie on the resume or in the interview.

Employers detest lies and usually can smell them. And a half-truth is considered the worst of all lies, as Alfred Lord Tennyson once observed.

When someone claims to have done something that is not associated with the job he or she held at the time, or when the applicant cannot provide details of an assignment or job, that’s usually a good sign that some unhealthy fibbing has occurred.

My favorite example is a lie we didn’t smell, but still uncovered through some standard checking.

After hiring an advertising professional a few years back, we called the company that he claimed was his current employer to do a standard check, only to discover that he had been laid off six months earlier.

I immediately rescinded the offer of employment because our business operates on a basis of trust. We are trusted because we are trustworthy. It takes only one lie to a client to destroy what years of honesty have built up.

The sad thing is that being laid off from an ad agency during a recession was, and is, no big deal, and would not have affected in the slightest what we thought of the job applicant.

A special type of lie is to submit a work sample that was not yours.  In my business, the most frequent work samples are writing or design samples.  Unbelievable as it might seem, in 20 years of doing business my company has uncovered three instances of people claiming writing that someone had done at Jampole Communications was their own work product! 

You ask, how could people be so dumb?

In one case, a former employee responded to a blind ad with work samples that others had written at the agency.  In another, the applicant had taken the work sample from a former employer who had engaged Jampole Communications to write it for them.

My last example is a bizarre variation on the theme of lying about a work sample: A client called us because someone claimed he/she had written something while employed at Jampole Communications. Now it was true the person worked briefly (and well) at my company and it was also true that the person had written the work sample she had submitted to my client.  Unfortunately she had not written it for us, but rather as a writing test as part of our hiring process.  While the sample was well written enough to get an entry level job at Jampole Communications, we would never have released it to a client or the public.  And our client (thank goodness!) recognized that the quality of the writing was beneath our high standards immediately. To claim that a writing test was work you did for a company as opposed to being a writing test to get a job is a fairly self-evident kind of lie to virtually every employer.

So what have we learned, class?

Follow directions, avoid mistakes, do research, never lie. If you run down this list of tips for job seekers, you’ll find these suggestions are precisely the skills that make for good employees. Sometimes they are called good work habits. But call them what you may, they not only increase the chance of landing the job but also help employees to thrive on the job and build successful careers.

How Not to Get a Job, Part 2

Getting in the hiring mode has got me started on a screed about mistakes that far too many job applicants make.  In my last entry, I detailed faux pas on resumes and application forms.  Now to interviews.

I start with something that many people forget to do before the interview and that is research the company. Once you learn the identity of the potential employer, find out something about the organization. Since most companies have websites, researching a prospective employer has become relatively easy.

Employers always appreciate it when job applicants have taken the time to understand their businesses. Knowing something about the company can help you formulate questions and guide you in answering the employer’s questions. It enables you to present your experience and capabilities in terms of the employer’s needs.

What else? Focus on what you can do for the employer. In interviews (and also in cover letters) too many job candidates want to talk about only what they want out of a job.

One job applicant sent a press release, the lead of which was that he was sitting at home watching TV since he couldn’t find a job; another compared herself to a frog on a pond waiting for the “kiss of inspiration” from an employer to turn her into a princess of creativity.

I’ll leave it to the reader to determine if these were fresh, creative approaches; one thing I know is that they demonstrated a self-centeredness that does not make for a competent professional service provider.

To paraphrase John F. Kennedy, ask not what the employer can do for you, ask what you can do for the employer.