HEDGE FUNDS?----HIGH ROLLER CRAPSHOOT

Unless you’ve been hiding under a rock somewhere, you’ve been hearing a lot about hedge funds as a form of investment. Investment? Maybe crapshoot? See for yourself. How does this sound for an investment program? You give me a chunk of your money to invest for you. Here are my terms: ---You will pay me an annual fee of 2% for my services. ---I will take 20% of any gains I generate for you, but I won’t reimburse you for any losses. ---I may not tell you how I have invested your money and what risks I’ve taken. ---You cannot cash in your chips without giving me three months notice. ---I am not regulated by the government, so you’re unprotected if I mess up. ---Your investment is not insured or guaranteed. ---Your future rate of return is totally unknown, despite past performance. Who would be crazy enough to put their money at risk in this way? No one, you say? Wrong. This scenario, in general terms, is what “hedge funds” are all about, and at last count hedge funds in the U.S. had well over $1 trillion dollars of investor’s money under management. And in large measure, it’s the mismanagement of investors money that has caused the financial turmoil that we’ve been going through. Granted, hedge funds are available only to very wealthy investors---multi-millionaires and up. They can’t be sold to the public at large, as normal mutual funds are. (But we’ve started seeing publicly sold mutual funds that invest in hedge funds, and the risks involved therein can be very scary.) Wall Street on Steroids Hedge funds don’t just buy stocks and bonds like normal people do. They have invented some techniques that would take a team of Harvard MBAs to figure out. How does “derivative arbitrage” sound? Hedge funds do that a lot. Don’t ask. It’s Wall St. on steroids, and as rich as hedge fund investors might be, they’d flunk any exam that asked them to explain how their money is working for them. Hedge funds have soaked up just about all the money that’s floating around the world looking for something better than a federally insured CD at your local Eighth National Bank. Indeed, they have absorbed so much of the commonplace types of investments that, as of recently there was hardly anything of quality left for them to invest in. They had gobbled up shopping centers…and apartment buildings…and start-up electronics companies…and leases on airplanes and freight cars… and packages of credit card debts, college loans, car loans and home loans. Ah, yes, home loans. Mortgages. The good ones were already taken, so how about buying bad ones, or “subprime mortgages” as they’ve been called. They pay higher rates of interest, and we can mix them up in packages with good homes loans so that our investors won’t be able to tell the difference. Sound familiar? Indeed, the greed of many hedge funds, their aggressiveness and their blind rush to invest in anything that they could turn around and sell to their investors, were part of the root cause of the subprime mortgage chaos that has stunned the nation. (Legions of banks and other investment companies were also on the bandwagon, equally complicit with the hedge funds.) Of course, if it weren’t for the rich individual investors throwing their personal money into the hedge fund’s machinery, the whole debacle might not have happened. But greed is a mighty motivator. And now the downside of greed---lost money---has been taking its toll. Read more about this shocking display of monetary madness in my posting: “Banks That Ignore the Mistakes of the Past Are Doomed to Repeat Them---A Mini-History of Financial Folly.”

GOODBYE BANGALORE, HELLO PORTLAND

Wouldn’t it be nice, for a change, to make a telephone call for tech support, or customer service, or to make a purchase, and speak to a real live human being who is based right here in the United States of America? Help might be on the way. “Impossible,” you say? “People in India are willing to work for a fraction of American wages, so companies that need to serve the public will hire them instead of Americans.” In recent years, hundreds of thousands of American jobs have been “outsourced” to India and other countries that have a strong base of English speakers. For some American companies the experiment has not worked. Complaints from U.S. customers about their problems in dealing with incompatible accents and robotic personalities have caused many companies to “insource” those jobs back to the States. Now along comes a company that has not experimented with outsourcing. Most of their communications have been through email. But they have begun a daring and costly program to win the hearts and minds and dollars of their U.S. customers. The company is Netflix, and according to the New York Times it has opened a call center in the suburbs of Portland, Oregon, to handle all customer dialogue. Reason? They are losing customers to Blockbuster, which last year began a program that allowed DVD renters to exchange their rented discs at Blockbuster stores, thereby eliminating the need to wait a few days for a Netflix disc to arrive in the mail. Blockbuster, of course, has well-stocked rental stores all across the country, and Netflix has none, relying solely on the mail to generate its business. The Customer Is Always Right---Except When a Computer is Involved Particularly in service businesses, customer satisfaction is the engine that drives profits. Netflix carefully surveyed the market and found that an outstanding percentage of American Netflix customers wanted to discuss their DVD renting questions with Americans Netflix human-being-customer-service-reps. Person to person. On the phone. Not online. Not across the Pacific Ocean. Not “please-leave-a-message-when-you-hear-the-tone-and-we-will-get-back-to-you-as-soon-as-possible.” So they have invested millions of dollars to create a 2007 version of “taking care of business.” Will they succeed? A lot of people who are growing increasingly angry at having to deal with outsourced personnel certainly hope so. So do people who have lost their jobs because of outsourcing. If you’re not happy with the telephone service you’re getting as a customer of any company, complain! If they don’t hear from you, they will assume that you don’t mind talking to someone 7,000 miles away. Use your search engine to locate the home office address of any U.S. corporation, and write/ phone/ email to the VIPs in charge of Public Relations or Corporate Communications. It will take you less time than you’ll have to wait on hold to talk to someone in Bangalore. One more tip: While you’re waiting on hold to talk to Bangalore, go to www.gethuman.com. It’s a unique data base that will show you how to get directly through to a real live human being at hundreds of major U.S. companies. (No guarantee that you won’t get a Bangalorian human again, but that can be better than weaving your way through those diabolical “menus” or sitting on hold interminably.