Decision Quality Blog

There is a very interesting piece in the Wall Street Journal called “Pricey Drugs Put Squeeze on Doctors.” It provides yet another view into the very knotty problem of runaway medical costs. The issues here are that doctors have to buy cancer drugs for their patients vs. sending them to a pharmacy. It’s just a mess of thin margins (to the doctor), sky-high prices, and a nightmare getting reimbursed. The upshot is that doctors are now wrestling with having to have an economic discussion along with a treatment discussion. That may be a good thing, but it crashes into centuries of medical ethics. Here’s a snip.

Unlike most physicians, who write patients prescriptions that they can fill at a pharmacy, oncologists must buy many drugs upfront because they’re delivered intravenously in the office. As a result, doctors are on the hook until patients or insurers pay the bill. Reimbursement delays and denials are now more common as insurers clamp down on claims. Some patients can’t afford high co-payments.

“Twenty years ago, when I was in training, nobody really dealt with economics,” says Stephen Hufford, an oncologist in San Francisco. The prevailing thinking, he says, was: “Cost should never be an issue in someone’s care.”

That approach increasingly looks untenable. In February, after delays in payments from insurers, Dr. Hufford was working to pay off several hundred thousand dollars of past-due bills to his drug distributor. When he ordered $20,000 of chemotherapy for three patients he was to see the next day, he says the distributor refused to deliver the drugs unless he paid in advance and reduced his outstanding balance by another $20,000. He didn’t have $40,000 in his bank account.

There was a time when none of this mattered. Margins at retail were huge and reimbursements were easy to come by. Now, all that’s on its ear and many cancer docs are on financial ropes themselves trying to cash flow expensive drugs, help patients deal with their own financial problems, and fighting to get reimbursed.

Until recently, prescribing chemotherapy to patients was a rich source of doctors’ revenue. Through the 1990s, oncologists profited from liberal markups of up to 100% on some staple chemotherapy drugs. Pricier cancer drugs created through biotechnology offered slimmer margins of 10% to 15%. Still, oncology remained lucrative thanks to “big bucks” in cancer drugs, says oncologist Thomas Marsland of Florida Oncology Associates, a practice in Jacksonville. “We became retail pharmacists.”

The exorbitant markups drew congressional scrutiny and sharp cutbacks with the passage of the Medicare Modernization Act in 2003. In 2005, Medicare limited doctors to a 6% markup on intravenous drugs, which account for a large share of new cancer drugs. Private insurers followed. Margins shrank. Payments from patients were less reliable, too, as many struggled to cover co-payments.

One obvious conclusion is don’t get cancer. Beyond that, this is just the tip of the cake. Over the next 20 years, there will be more and more shifting of costs and complexity towards patients and doctors, creating more and more uncertainty and risk for both. That may or may not be a good idea, but that’s what’s coming.

The alternative is European style government vetting and intervention, but that’s not the American way. At least not yet.

Tags: Medicalreimbursement, Medicare Modernization Act, decision making, decision ethics

In the late ’70s, then-President Carter addressed the nation in what became known as the “national malaise” speech. The gist of it was, people are worried and don’t see any answers in sight. Washington was dysfunctional, the economy was stuck, and things weren’t going well in the middle-east. But the big bell ringer was an oil shock that left people reeling. Carter called for all sorts of bold moves and got shuffled back to Georgia at the next available election.

Fast forward 30 years and it’s no exercise in cynicism to wonder, “what’s changed?” A lengthy piece on American Energy policy in the New York Times pins the tail on the donkey: Oil prices have come unhinged, probably on a permanent basis. The American consumer is going to take it on the chin as will big chunks of American industry. While there may be a bit of roll-back from the current price, the long-term outlook is not good for cheap oil. As an exercise in public policy and decision making on a grand scale, American “energy policy” is a gigantic failure.

Ninety percent of Americans, meanwhile, expect the pain at the pump to pose a financial hardship in the next six months, according to a recent Associated Press-Yahoo News poll. Stocks now trade inversely to crude prices, and the Dow Jones industrials are in bear-market territory. Old icons have been written off, with Starbucks boasting nearly twice the market value of General Motors, which some on Wall Street say faces the possibility of bankruptcy.

Outside the thriving oil patch, it makes for a bleak economic picture. But it didn’t have to be this way.

Over the last 25 years, opportunities to head off the current crisis were ignored, missed or deliberately blocked, according to analysts, politicians and veterans of the oil and automobile industries. What’s more, for all the surprise at just how high oil prices have climbed, and fears for the future, this is one crisis we were warned about. Ever since the oil shortages of the 1970s, one report after another has cautioned against America’s oil addiction.

Even as politicians heatedly debate opening new regions to drilling, corralling energy speculators, or starting an Apollo-like effort to find renewable energy supplies, analysts say the real source of the problem is closer to home. In fact, it’s parked in our driveways.

Nearly 70 percent of the 21 million barrels of oil the United States consumes every day goes for transportation, with the bulk of that burned by individual drivers, according to the National Commission on Energy Policy, a bipartisan research group that advises Congress.

SO despite the fierce debate over what’s behind the recent spike in prices, no one differs on what’s really responsible for all that underlying demand here for black gold: the automobile, fueled not only by gasoline but also by Americans’ famous propensity for voracious consumption.

There will be lots of rhetoric between now and the general election, but no progress. Meanwhile, another anchor has been attached to the American economy and to public confidence.

Tags: Oil, energy, national malaise, Jimmy Carter, 1970s, renewable energy, decision making

Crowdsourcing, opening the design and marketing of a product to a social network (my definition) has found a new proponent in a hot new shoe company called Ryz. Anyone can play. If you have an idea for a visual design, you download a template, do your cleverest, and post it on the company’s website. If the crowd digs it, you get money in your pocket, accolades and fame, and the product gets produced. It’s trendy, but some people think it’s a model whose time has come.

our first will always be special

Here’s the lead on an article about the company from the Oregonian.

Dozens of young creatives packed into a Pearl District loft Thursday night to judge a shoe-design contest.

The entries — five high-tops — came from artists outside the footwear industry and as far away as New York City. They’d been picked from 60 entries submitted online to a Portland startup, Ryz, which promised to make and market 100 pairs of the winning design.

Ryz founder Rob Langstaff watched excitedly in the background. The former Adidas America Inc. president hopes to replicate this contest each month.

But he plans to do so entirely on Ryz’s Web site, where users can submit designs, vote on the entries and buy the winning shoes. Winners will get $1,000 and a $1 royalty for each pair he sells.

Langstaff’s startup joins a number of young companies nationwide engaged in “crowdsourcing,” a practice that relies on online clusters of consumers to design products and decide which ones to sell. In Ryz’s case, it’s MySpace meets “American Idol,” with footwear as the unit of expression.

It’s a model some believe to be the future of consumer product making, combining social networking, open-source design and word-of-mouth marketing.

Some academics think consumer-driven design will displace corporate research-and-development centers at many companies because it outsources both design and marketing in a way that cultivates and retains customers.

“It’s a more economic model,” said Eric von Hippel, a management professor at the Massachusetts Institute of Technology and author of the 2005 book “Democratizing Innovation.”

“The users are making designs, and other users are getting to choose the ones they like. The first function replaces in-house research and development. The second function replaces marketing research,” von Hippel said.

Tags: crowdsourcing, Ryz, Rob Langstaff,

I’ve known about Stanley Milgram’s breakthrough work on obedience for some time. The classic study involved participants administering progressively greater electrical shocks to a learner at the instruction of a researcher. As the shocks increased in intensity, the learner became increasingly uncomfortable and vocal. At some point, and participants had been told what that point was, the level of shock would be damaging if not lethal. Some people stopped when the screaming started. Many didn’t. The truth was the learner was just acting. But the participants didn’t know that at the time. The experiment was about them, not the person strapped to the electrodes.

Recently two researchers went back and revisited this landmark experiment. As reported in the NYT . . .

The participants usually began with what they thought were 15-volt shocks, and worked upward in 15-volt increments, as the experimenter instructed. At 75 volts, the “learner” in the next room began grunting in apparent pain. At 150 volts he cried out: “Stop, let me out! I don’t want to do this anymore.”

At that point about a third of the participants refused to continue, found Dominic Packer, author of the new paper. “The previous expressions of pain were insufficient,” Dr. Packer said. But at 150 volts, he continued, those who disobeyed decided that the learner’s right to stop trumped the experimenter’s right to continue. Before the end of the experiments, at 450 volts, an additional 10 to 15 percent had dropped out.

This appreciation of another’s right is crucial in interrogation, Dr. Packer suggests. When prisoners’ rights are ambiguous, inhumane treatment can follow. Milgram’s work, in short, makes a statement about the importance of human rights, as well as obedience.

That last bit is the bell ringer and points to the hugely compromising dynamic many of our service members and intelligence people have been put in by our political leaders. More generally, I think it also points to the ease with which we objectify and demonize people we have no real contact with. If you’re not a person to me, I see you very differently than if you are.

In the other paper, due out in the journal American Psychologist, a professor at Santa Clara University replicates part of the Milgram studies — stopping at 150 volts, the critical juncture at which the subject cries out to stop — to see whether people today would still obey. Ethics committees bar researchers from pushing subjects through to an imaginary 450 volts, as Milgram did.

The answer was yes. Once again, more than half the participants agreed to proceed with the experiment past the 150-volt mark. Jerry M. Burger, the author, interviewed the participants afterward and found that those who stopped generally believed themselves to be responsible for the shocks, whereas those who kept going tended to hold the experimenter accountable. That is, the Milgram work also demonstrated individual differences in perceptions of accountability — of who’s on the hook for what.

Another interesting finding. If we perceive we’re accountable for what’s going on, we behave one way. If not, many of us behave differently. Not just differently, but potentially horribly.

And finally not this . . .

The Milgram data have unappreciated complexities of their own. In his new report, Dr. Burger argues that at least two other factors were at work when participants walked into the psychologist’s lab at Yale decades ago. Uncertainty, as it was an unfamiliar situation. And time pressure, as they had to make decisions quickly. Rushed and disoriented, they were likely more compliant than they would otherwise have been, Dr. Burger said. [emphasis added]

In short, the Milgram experiments may have shown physical, biological differences in moral decision making and obedience, as well as psychological ones. Some people can be as quick on the draw as Doc Holliday when they feel something’s not right. Others need a little time to do the right thing, thank you, and would rather not be considered sadistic prison guards just yet.

Those two dimensions of uncertainty and time pressure to produce results, to get something done, are ready reagents that expose our true convictions, or lack thereof, along with predictable human foibles when it comes to making decisions under stress and uncertainty. Thankfully, few of us will be exposed to the kind of stresses mimicked in the Milgram experiments. Unfortunately, many people acting on our behalf at the “sharp end of the spear” are exposed to those pressures all the time, but that’s a subject for another discussion. For the rest of us, take it as caution that stress and uncertainty have the capacity to expose both simple decision traps and parts of ourselves that may not serve as as we wish. The good news is you can do something about it.

Tags: StanleyMilgram, Obedience, Perspectives on Psychological Science, Dominic Packer, Jerry M. Burger, Thomas Blass

One of the chestnuts of neo-liberal thought is the pre-eminence of the idea of free markets and the “creative destruction” that goes along with them (as if any of the ardent believers has ever even read Schumpter or actually looked at economic data to check their assumptions).

Ha-Joon Chang, an economicst of deep credentials and convictions, argues convincingly that free-market proponents are at best players at the revisionist history table, and at worst, cynical defenders of the “rich should be richer” mantra. Here’s a snip from a piece in the Independent.

When they needed to protect their nascent producers, most of today’s rich countries restricted foreign investment. In the 19th century, the US strictly regulated foreign investment in banking, shipping, mining, and logging. Japan and Korea severely restricted foreign investment in manufacturing. Between the 1930s and the 1980s, Finland officially classified all firms with more than 20 per cent foreign ownership as “dangerous enterprises”.

While (exceptionally) practising free trade, the Netherlands and Switzerland refused to protect patents until the early 20th century. In the 19th century, most countries, including Britain, France, and the US, explicitly allowed patenting of imported inventions. The US refused to protect foreigners’ copyrights until 1891. Germany mass-produced counterfeit “made in England” goods in the 19th century.

Despite this history, since the 1980s the “Bad Samaritan” rich countries have imposed upon developing countries policies that are almost the exact opposite of what they used in the past. But these countries condemning tariffs, subsidies, public enterprises, regulation of foreign investment, and permissive intellectual property rights is like them “kicking away the ladder” with which they climbed to the top - often against the advice of the then richer countries.

But, the reader may wonder, didn’t the developing countries already try protectionism and miserably fail? That is a common myth, but the truth of the matter is that these countries have grown significantly more slowly in the “brave new world” of neo-liberal policies, compared with the “bad old days” of protectionism and regulation in the 1960s and the 1970s (see table). And that’s despite the dramatic growth acceleration in the two giants, China and India, which have partially liberalised their economies but refuse to fully embrace neo-liberalism.

Growth has failed particularly badly in Latin America and sub-Saharan Africa, where neo-liberal reforms have been implemented most thoroughly. In the “bad old days”, per capita income in Latin America grew at an impressive 3.1 per cent per year. In the “brave new world”, it has been growing at a paltry 0.5 per cent. In sub-Saharan Africa, per capita income grew at 1.6 per cent a year during 1960-80, but since then the region has seen a fall in living standards (by 0.3 per cent a year).

That’s the funny thing about orthodoxy. It takes on the well worn patina of absolute truth even when the observable facts tell a different story. One possible lesson when listening to such pronouncement, pro or against “orthodox” positions, is to ask yourself, “What’s in it for the person doing all the preaching?”

Both the history of rich countries and the recent records of developing countries point to the same conclusion. Economic development requires tariffs, regulation of foreign investment, permissive intellectual property laws, and other policies that help their producers accumulate productive capabilities. Given this, the international economic playing field should be tilted in favour of the poorer countries by giving them greater freedom to use these policies.

Tags: Ha-JoonChang, Heterodox Economics, Interventionist Economic Policies, Kicking Away the Ladder, Bad Samaritans

Green-washing is the new word for the hot new trend in marketing . . . painting what you sell and do “green.” I found this list by TerraChoice while reading an article in the Seattle Times. I think it relates nicely to the topic we like to yammer about, “decision making.”

Sin of the Hidden Trade-off

e.g. paper (including household tissue, paper towel and copy paper): “Okay, this product comes from a sustainably harvested forest, but what are the impacts of its milling and transportation? Is the manufacturer also trying to reduce those impacts?” Emphasizing one environmental issue isn’t a problem (indeed, it often makes for better communications). The problem arises when hiding a trade-off between environmental issues.

Sin of No Proof

e.g. Personal care products (such as shampoos and conditioners) that claim not to have been tested on animals, but offer no evidence or certification of this claim. Company websites, third-party certifiers, and toll-free phone numbers are easy and effective means of delivering proof.

Sin of Vagueness

e.g. Garden insecticides promoted as “chemical-free.” In fact, nothing is free of chemicals. Water is a chemical. All plants, animals, and humans are made of chemicals as are all of our products. If the marketing claim doesn’t explain itself (“here’s what we mean by ‘eco’ …”), the claim is vague and meaningless. Similarly, watch for other popular vague green terms: “non-toxic”, “all-natural”, “environmentally-friendly”, and “earth-friendly.”

Sin of Irrelevance

e.g. CFC-free oven cleaners, CFC free shaving gels, CFC-free window cleaners, CFC-disinfectants. Could all of the other products in this category make the same claim? The most common example is easy to detect: Don’t be impressed by CFC-free! Ask if the claim is important and relevant to the product. (If a light bulb claimed water efficiency benefits you should be suspicious.) Comparison-shop (and ask the competitive vendors)

Sin of Fibbing

e.g. Shampoos that claims to be “certified organic”, but for which our research could find no such certification.
When I check up on it, is the claim true? The most frequent examples in this study were false uses of third-party certifications. Thankfully, these are easy to confirm. Legitimate third-party certifiers – EcoLogo^CM, Chlorine Free Products Association (CFPA), Forest Stewardship Council (FSC), Green Guard, Green Seal (for example) – all maintain publicly available lists of certified products. Some even maintain fraud advisories for products that are falsely claiming certification.

Sin of the Lesser of Two Evils

e.g. Organic tobacco. “Green” insecticides and herbicides.
Is the claim trying to make consumers feel ‘green’ about a product category that is of questionable environmental benefit? Consumers concerned about the pollution associated with cigarettes would be better served by quitting smoking than by buying organic cigarettes. Similarly, consumers concerned about the human health and environmental risks of excessive use of lawn chemicals might create a bigger environmental benefit by reducing their use than by looking for greener alternatives.

Tags: Green-washing, Green, Eco, TerraChoice, Six sins of greenwashing, decision making

I had a fascinating conversation with best-selling author and observer of life, Malcolm Gladwell not long ago during which I asked him about what was next for him. It’s his thunder, and I don’t want to steal it, but the gist of it is he’s concerned that the collective “we” are doing a lousy job when it comes to grooming talent to ensure a bright future. The problem shows up in a bad mix of three themes.

Broken Education System. This topic is so big and hairy it’s hard to know where to start. According to Malcolm, there is a 10 percentile point difference between good and bad teachers. Meaning, at the end of one year, a good teacher can move a student five points up, and a bad teacher has exactly the opposite effect. Scary.

Broken Immigration. Lost in the hysteria about porous borders, “illegal immigrants,” fences, and all the rest is the fact that we make it very, very difficult for skilled people to work in this country, much less emigrate. We offer all sorts of ways to come here via marriage, family, and preferences for the country of origin of powerful politicians. But if you’re a hyper-smart guy or gal from somewhere over there, you’re pretty much out of luck.

Broken Apprenticeships. Historically, the path to a profession was through apprenticeship. In more recent times, large organizations have filled that need via in-house training and development programs. It’s at least an open question how well companies are doing that anymore.

All of this leads Gladwell to wonder, where will the talent come from in the future?

I had reason to ruminate on this same question having just spent a few days doing decision quality training with some “high-potential” young leaders at one of my bank clients.

It would be unfair to suggest that large banks don’t train and develop people and that senior executives in these banks don’t worry about talent. Having said that, I think there are plenty of opportunities and needs.

1. There continues to exist an unproductive schizophrenia about training and development in many of the companies I traffic in and with. The argument against is, “We’ll wind up training them and then they’ll just go down the street and someone else will get the benefit.” It’s a classic case of linking ideas together that don’t go. True, it’s a reasonable strategy to poach talent from your competition (leaving aside the open debate whether or not people who succeed in one place will be as successful in another). But that sort of simplistic syllogism steps over the more obvious issues like: “Why do you suppose they choose to leave?” “What is it that the other guy is offering that’s so much more attractive than what you offer?”

The truth is, we’re talking about banks here, not Silicon Valley start-ups. Leaving Big Bank A to work for Nearly as Big Bank B is not a dramatic leap on the same order as leaving Google to work for a start-up. It’s more like trading your Chevy in for a Ford.

So thought one is this: If that’s why you’re not developing your people, may I humbly suggest you’re looking at this upside down.

2. It’s true that training and development is a pricey undertaking. It’s not just procuring or developing content. It’s time away from the job; it’s coaching overhead; it’s ramp up time. Retail banking is a game of inches, minutes, and basis points. So every iota of productivity counts. The thinking goes that a day out of the field equals ten core products not sold (or something like that).

As before, this line of thinking seems at least short-sighted. It’s correct on a day-by-day basis, but misses the benefit of decreased time to higher productivity, higher sales effectiveness and efficiency, and longer time on the job (and all the benefits that go with it). We’ve done extensive financial modeling on the trade-offs between higher turnover and the resulting hiring, onboarding, and training costs vs. paying a bit more and developing people in place and it’s not even close. In a big retail distribution network, the difference in something like NOI is hundreds of millions of dollars.

3.  Having spent time in a wide variety of enterprises, I would say that I’m impressed with the quality of talent I see in retail distribution jobs. I realize that’s a very broad statement, but viewed from a slight distance, I find it true. I think there are bigger discrepancies when you look in IT for example, where banks compete with much sexier companies and offers for the very best talent. 

This leads me to two observations.

a) Every large financial institution I have dealt with over the past decade has spoken with pride about their commitment to people and how they view people as a source of competitive advantage. Keep believing that and keep making those investments, but don’t kid yourself in thinking that there are step-change differences between your people and those employed by your direct competitors. Yes, your best 100 may be better than their best 100, but your 10,000 aren’t better than their 10,000.

b) Unless you’re constantly creating new lines of business, opening DeNovos at a furious rate, developing new routes to market, or making big acquisitions, you have a hidden problem which is this: your best people are either at, or about to arrive at, a career dead-end.

This last point I think is the most troublesome as there’s an easy financial answer. But what about all that good young talent that’s stuck in a Market Manager or District Manager job with no where to go because his or her boss is 42 and similarly stuck?

Back in the mythical “good ole days,” people didn’t seem to worry as much about upward mobility. In the years immediately following the last good war, the domestic economy was booming and large companies were expanding their job base. It’s different today, and the generation now entering the work force is even less interested in patiently waiting than any group before. And I see it getting worse, not better.

DeNovos. The industry is deep into a DeNovo bubble that simply has to burst. So count this out as a path to advancement. Call it a “sell.”

New lines of business / new routes to market. During the nineties, banks were hot beds of innovation when it came to new products and distribution specialization. Lots of the star leaders of today made their bones building out brand new small business, instore, mortgage, merchant services, treasury management, and licensed banker programs (to name a few). Over in the back shop, careers were made in creating and growing remote channels: contact centers, online, e-commerce, ATMs, etc. And of course the propeller heads have had a field day securitizing everything in site. So lots of opportunities to grow something from scratch, create lots of new jobs, and polish your star. Today, those are all mature business forms and I honestly don’t see the next one. In fact, many of these former hot beds of innovation have grown stale and sclerotic. Call this one a “hold.”

Acquisition. True, this is a net job destroyer, but if you’re on the buying side, an acquisition is a fabulous way to give your up-and-comers a shot at the brass ring through the tried and true formula of buy-fire-re-org-promote. Call this a “buy” with a caveat. While retail banking will continue to consolidate, probably forever, it’s certainly no the reason why you do this sort of thing. In fact, in businesses other than banking, it’s often done as a way to ACQUIRE talent, not as a way to make room for the people you already have.

Job Reinvention. I’ve been in a number of conversations lately where people have wondered aloud about two linked ideas: Where are the Commercial Bankers (or many other jobs) of the future going to come from; We need to reinvent a bunch of our job families. I pick on commercial banking, but I think it’s true about many of the specialized sales forces. I can think of several banks where the top producers today are exactly the same people who were the top producers ten years ago. That’s good if you look at this through the lens of retention; it’s appalling on almost any other front. Go over to a big technology shop and this is far less the case. Yes, there is no replacement for life experience and industry connections. But I do think there is a screaming need to think radical thoughts when it comes to many of the job families.

So back to the beginning. I’m with Malcolm Gladwell on the general topic of talent: I think we have a long-term systemic challenge that offers no easy solution. Like our national and local infrastructure, we’re underinvested with no obvious pool of free dollars to spend on it.

At the enterprise level, I would encourage even more thought and action around talent development. Right beside that I would encourage more attention to the corporate analogue to the point about good teachers / bad teachers and the difference in performance that creates. There are lots of people putting up good numbers that are wearing out people and skating by on soft measure like team member engagement and customer engagement. Think about the long term cost they create. Finally, and I don’t have the answer to this one, give some thought to how to keep all those high-potentials working in your company. That’s the future. Losing them because of boredom or frustration doesn’t serve anyone.

Tags: MalcolmGladwell, talent, job reinvention, acquisition, mergers, DeNovos, District Manager, Immigration, Education, Aprenticeship

All the jawboning about the “real cause” of the high price of oil points out one of the common pitfalls of decision making: the use of information. On the front end of a decision, information is useful to help define the issue and frame the problem. Later, information is needed to determine the costs and difference between the alternatives and to assess the uncertainties (information you don’t have).

On the front end, there is no such thing as objective data. There is data and there is the lens you view it through. For example, according to a recent piece in the Seattle Times, one side says the problem with oil prices is financial speculators.

And the reason?

Since September 2003, traders holding crude-oil futures contracts jumped from 714 contracts traded to more than 3 million contracts traded in May 2008, said Rep. Bart Stupak, D-Mich., who chairs the House Energy and Commerce Subcommittee on Oversight and Investigation. His panel held its second hearing on energy speculation Monday.

Speculators now account for 71 percent of the oil-futures market, up from 29 percent in 2000, he said, citing data from the CFTC. Overall, commodity index speculation has jumped from $13 billion in 2003 to some $260 billion today.

So what’s going on then . . .

In fact, recent industry statistics show demand both within the United States and globally for petroleum has actually been falling and inventories have been rising as consumers, faced with escalating prices at the pump, use less fuel, said David Edwards, president and portfolio manager at Heron Capital Management.

But it doesn’t seem to have any effect on the direction of prices. “The price pattern looks much like the Internet stocks index in late 1999, early 2000,” he said.

On the supply side, Evans noted the Organization of Petroleum Exporting Countries pumped an average of 32.24 million barrels per day of crude oil in May, an increase of 370,000 from April.

So if you follow the logic, the volume of contracts and the dollars associated with those contracts have piled into the market at the same time that supply has risen and demand has fallen. The money wouldn’t be flowing in if investors didn’t see a financial win. So add all that up–rising supply, falling demand, riding prices– and this side of the argument says, in effect, “What other conclusion is there?”

The other side sees it differently . . .

Treasury Secretary Henry Paulson and many financial-industry analysts say prices are still set by the fundamentals of supply and demand.

“There’s no evidence of speculative influence. Speculators are not contributing to the demand for physical oil as they almost always roll positions prior to delivery,” says Craig Pirrong, a professor of finance at the University of Houston and a member of the CFTC energy markets advisory committee.

“Speculators are not the cause of high oil prices,” said Representative Joe Barton of Texas, the senior Republican on the committee. Prices are driven by the lack of supply, he said.

Energy Secretary Samuel Bodman said June 21, while attending a meeting of oil producers and consumers in Saudi Arabia, there is “no evidence that speculators are driving prices.”

The article I’ve referenced doesn’t offer data to support the contra point of view, so we’re left with data to support the “speculators are the problem” thesis, and orthodoxy and assertion by people with obvious ties to Big Oil holding down the other chair. The third argument, that the issue is “uncertainty about credit and geopolitics” is a good talking point but doesn’t hold up based on the apparent facts about the current state of supply and demand. But to return to my point, coming to an agreement on the definition of a problem requires a common understanding about what’s actually going on. The people in the big seats don’t seem to agree.

Tags: oil, gas prices, Masters Capital Management, Heron Capital Management, OPEC, Henry Paulson, Samuel Bodman, decision making

My colleague, Clint Korver blogged the other day on the pickle Senator Kent Conrad finds himself in due to the appearance of favorable treatment at the hands of Countrywide Mortgage . . .

The Washington Post today showed this morning how it worked. Sen. Kent Conrad, D-N.D. upon advice from an old friend, called up Countrywide CEO Angelo Mozilo to obtain a $1.07 million loan for his Bethany Beach, Del. vacation home. Apparently they hit it off and Mozilo took up the cause of getting Sen. Conrad a good deal.

I don’t see any ethical issues for Mozilo with the above activities — so long as  Mozilo was not being deceptive about this practice. In fact, it sounds like he was quite open with his special favors. “It was something he handed out like party favors. He was fairly forthcoming with it,” said Guy Cecala, publisher of Inside Mortgage Finance Publications. “As long as I can remember, he was offering that.”Countrywide Gave Special Attention To Lawmakers - washingtonpost.com. Mozilo wasn’t being deceptive, he wasn’t stealing (company’s give discounts to customers for all kinds of reasons), and he wasn’t hurting anyone.

The ethics of the Sen. Conrad is potentially a different story. The Senate ethics committee has a gift rule that frowns on Senators getting benefits of this magnitude.

In today’s WSJ, Senator Conrad has this to say . . .

Regarding your June 16 editorial “Beltwaywide Financial,” I never once asked for or expected discounted mortgages or a so-called “sweetheart” deal from Countrywide Financial.

Here are the facts: In 2002 I was looking for a mortgage and went to several lending institutions. I also called a close friend of mine who knew a lot about mortgages for advice. My friend happened to be with the head of Countrywide Financial when I called and put him on the line. I spoke with a gentleman by the name of Angelo Mozilo for about 30 seconds, and he referred me to a junior loan officer.

Because I did not know if Countrywide would grant me a loan or what terms they would offer, I also consulted a mortgage broker in Washington, D.C. He offered me the identical rate as Countrywide. He is quoted in my hometown newspaper confirming that fact.

He goes on to detail other transactions and ends by saying . . .

In terms of questions about this matter, I immediately disclosed my personal financial records to the news media, answered every reporter’s question and sought out guidance from the Senate Ethics Committee.

There is nothing I value more in my public life than the trust I have earned from my constituents in North Dakota, and I will take every measure possible to ensure them that I sought no favor, expected no favor, and was not aware of any favor provided by Countrywide Financial.

Like I said, he’s in a pickle, how big remains to be seen.

The fact is, beyond his public position, Mr. Conrad is a homeowner and apparently the owner of at least one commercial property. The man needed a mortgage. Having spent a number of years consulting to financial institutions, I can assure you with 100% certainty, that regardless of what Mr. Conrad said or did, he got extra attention. There is simply no way that someone doing this piece of business wouldn’t note his day job and make a point of drawing it to the attention of anyone going near his loan. Screwing up a US Senators loan falls in the category of “bad”.

As Clint points out, the fact that the CEO of Countrywide let it be known that there was a special window for people of importance is a typical business practice. In fact, he didn’t make bones about it. Anyone in business reading this post or the articles referenced knows this. The fact that Senator Conrad compared the rate he was offered to what an independent loan broker could get him seems prudent on his part, though the idea that he was referred off to a “junior loan officer” is a huge stretch. I would bet serious money that part didn’t happen. Again, there’s no way the CEO of Countrywide was going to send this piece of business to a newbie. But not a hanging offense.

Clint doesn’t like words like “in comparison,” but in comparison to the excitement surrounding the dealings with Jack Abramoff, this one is a complete non-starter. Dollars to donuts says the Ethics Committee has nothing to say about this. I’m guessing this one doesn’t cost him much at the polls. That leaves his conscience. For public consumption, his story seems pretty sound. Like I said, it’s a pickle.

Tags: CountrywideFinancial, Senator Kent Conrad, mortgage, Ethics Committee, Jack Abramoff, Decision Making

One Minute to Midnight

Michael Dobbs. Knopf 2008, Hardcover, 448 pages, $28.95

I’m a fan of the Cuban Missile Crisis as a study in decision making and leadership. A new book by Michael Dobbs adds some new insight according to a review in the New York Times.

And in a shot at the current administration . . .

It is hard to read this book without thinking about what would have happened if the current administration had faced such a situation — real weapons of mass destruction only 90 miles from Florida; the Pentagon urging “surgical” air attacks followed by an invasion; threatening letters from the leader of a real superpower and senators calling the president “weak” just weeks before a midterm Congressional election.

Life does not offer us a chance to play out alternative history, but it is not unreasonable to assume that the team that invaded Iraq would have attacked Cuba. And if Dobbs is right, Cuba and the Soviet Union would have fought back, perhaps launching some of the missiles already in place. One can only conclude that our nation was extremely fortunate to have had John F. Kennedy as president in October 1962. Like all presidents, he made his share of mistakes, but when the stakes were the highest imaginable, he rose to the occasion like no other president in the last 60 years — defining his goal clearly and then, against the demands of hawks within his administration, searching skillfully for a peaceful way to achieve it.

My own sense is that the current administration will go down in history for many things, but decision-craft and thoughtful leadership won’t be among the lauded attributes

Tags: cubanmissle crisis, JFK, Bobby Kennedy, Richard Holbrooke, decision making