A New Take on the Prosperity Gospel?

I've written a couple of times in the past about the apparent inability of bankers to understand why so many of us are furious with them (see here and here for the previous posts). Things are not improving.

You may have read last week's reports from London (one example, Julia Werdigier's piece for the New York Times is here) of bankers like Barclay's John Varley defending the purity of their motives ("Profit is not satanic," was my favorite among the quotes from his speech at the church of St. Martin in the Field. Meanwhile, over at St. Paul's Cathedral, you have Brian Griffiths, an advisor to Goldman Sachs, saying, "We have to tolerate the inequality as a way to achieve greater prosperity and opportunity for all.").

If you thought you heard an unrefined "Oh, yeah?" from me, you were right.

Compare the bankers' comments to these from Rowan Williams, the Archbishop of Canterbury: "There hasn't been a feeling of closure about what happened last year. There hasn't been what I would, as a Christian, call repentance. We haven't heard people saying 'well actually, no, we got it wrong and the whole fundamental principle on which we worked was unreal, empty'."

He added, "I feel that .... what I call the 'lack of closure' [is] coming home to roost. It's a failure to name what was wrong. To name that, what I called last year 'idolatry', that projecting of reality and substance onto things that don't have them."(click here for the complete article from the Times of London)

In today's Salon, Andrew Leonard pointed out an excellent (but long) article by John Arlidge in yesterday's Times of London, in which Goldman Sachs chairman and CEO Lloyd Blankfein claims to be doing, yes, "God's work."

My "Oh, yeah?" just got louder and more cranky.

Blankfein is aware that "people are pissed off, mad, and bent out of shape" at what bankers have wrought.

He just thinks that we're wrong to be so angry: "If the financial system goes down, our business is going down and, trust me, yours and everyone else's is going down, too."

Doesn't that sound like a threat? Doesn't it sound as though he's saying, 'Let me do whatever I want, unless you want me to wreck it all.'

Yeah, that's what I thought, too.

Snap, Crackle, Pow?

Kellogg's Corp. announced Wednesday that it will remove "immunity" labels from its Rice Krispies cereals. ("Now supports your child's IMMUNITY" the label announces across the front of the package. In smaller letters, it adds, "25% daily value of antioxidants and nutrients, vitamins A, B, C, and E")

In its press release, Kellogg's called the addition of antioxidants to the Rice Krispies (and Cocoa Krispies) formula "one way the Company responded to parents indicating their desire for more positive nutrition in kids' cereal."

"While science shows that these antioxidants help support the immune system, given the public attention on H1N1, the Company decided to make this change," the release continued.

According to Bruce Horovitz's article in USA Today, San Francisco's city attorney last week asked Kellogg's to prove its claim.

Many nutritionists were appalled by the claim; my favorite comment (quoted by USA Today) came from Kelly Brownell, director of Yale University's Rudd Center for Food Policy and Obesity: "By their logic, you can spray vitamins on a pile of leaves, and it will boost immunity."

Writing in her blog, Marion Nestle, Paulette Goddard Professor of Nutrition, Food Studies, and Public Health at New York University, said, "In the absence of FDA action, food marketing is allowed to run rampant, and city and state attorneys are doing the FDA’s job."

This isn't the first time I've written about wacky claims for breakfast cereals (click here for comments on the "Smart Choices" program). But these claims aren't just wrong (although they are); they're stupid, too.

Rice Krispies is one of the best-known cereal brands in America. When you've spent years building a brand, why on earth would you risk it by tacking on a claim that, as Dr. Brownell said, "belongs in the hall of fame" (and, obviously, not in a good way).

Many years ago, the late great advertising genius David Ogilvy told his "Mad Men", "The consumer is not an idiot. The consumer is your wife."

Fool me once...

When Is "Free" Not Free? When It Isn't Really Free.

The Federal Trade Commission has to date collected about $1.25 million (over five years) from Experian, one of the three major credit-reporting services, to settle charges that the firm misled consumers seeking genuinely free credit reports.

But it might not be enough.

As reported in Ron Lieber's article in today's New York Times, the annual revenues for monthly credit-monitoring services range from $650 million to $700 million. Experian is by far the biggest player in the sector. When an annual report is free, why are so many people -- upwards of nine million -- paying for monthly reports?

Could it be that these consumers are confused about what they're getting, and what they're paying for? Heaven forbid. If you've seen the many ads for freecreditreport.com, you too might think that what is being sold is a free credit report.

(I considered embedding one of the ads for freecreditreport.com, which Experian owns, here, but the jingle is one of the worst earworms out there. The FTC is now sufficiently annoyed about the freecreditreport situation that it has created and run its own parody ads, which are actually quite funny; I've posted one, below.)

Experian, of course, denies that it is doing anything dishonest. Lieber quotes the president of the firm's Consumer Direct division: "You get a free credit report and free score for test-driving our product... We've always felt that it's been very upfront and a fair opportunity for the consumer to become more aware and comfortable with the credit reporting concept."

That first report is free, but if you do not cancel immediately, you get hit with a monthly fee of $14.95. It appears that the amount is small enough that many consumers let such a relatively small amount slide, often for months, before they get around to canceling (canceling the service is not a completely stress-free experience, either; for example, while you can sign up for the service online, you can only cancel it by phone).

Remember that a genuinely free -- but annual, not monthly -- credit report is available from annualcreditreport.com, which is the only authorized (by the government) source for a free annual report. Obtaining a genuinely free report will still route you through the major suppliers (Experian, TransUnion, and Equifax) who will of course try to upsell you to a monitoring program before they provide the single free report (For more information, go to freecreditreport.gov -- which will redirect to an FTC site, ftc.gov/freereports).

Congress has since 2003 required the three major credit bureaus to provide one free credit report to every American each year. The similarity between the URLs has been confusing consumers since day one, to the point that, according to Lieber, "the FTC [at one point] asked Experian to give it the freecreditreport.com URL to end the confusion, but the company declined.")

I would feel a lot less suspicious of Experian's motives if they had given up that URL, wouldn't you?

Credit Card Fees and Rates: Follow-Up

Yesterday, about the time that I was posting about the "evil" things that credit card companies are still doing, Sen. Christopher J. Dodd (D-CT, and chairman of the Senate Banking Company) proposed a new bill that will "immediately freeze credit card interest rates on existing balances." (click here for Dodd's press release)

The senator said, "..[No] sooner had it [the Credit CARD Act of 2009] been signed into law, but credit card companies were looking for ways to get around the protections this Congress and the American people demanded."

Meanwhile, over at the Financial Service Roundtable, as reported today by Andrew Martin in the New York Times, banking companies continue to assure us that they're not raising fees because of the new legislation, but "because of risks posed by the unsteady economy and by card holders themselves, who are defaulting on their payments or paying late more often."

Good idea, that, blaming the banks' customers, don't you think?

Don't Be Evil: The Memo the Credit Card Companies Haven't Gotten

At least not yet.

Today's CNNMoney.com carries a nice roundup of the problems facing credit-card consumers, under the title "5 evil things credit card companies can (still) do". The top five:

1. Rate hikes (APRs now run as high as 36%, according to the Center for Responsible Lending (CRL) which sounds more like loan-sharking than banking to me);
   
2. New fees (since current legislation addresses only existing fees and practices);
   
3. Higher minimum monthly payments (in some cases, a sudden jump from 2% of the monthly balance to 5%);
   
4. Fewer rewards (some cash-back cards have gone from 2-3% to 1%); and
   
5. Slashed credit limits and canceled accounts (without so much as a call from the bank).

If you thought that the Credit CARD (Card Accountability, Responsibility, and Disclosure) Act of 2009, signed in May, and taking effect, in parts, from August of this year to February 2010 for most of the terms of the act, you were -- like me -- sadly mistaken.

The act was intended to ban unfair rate increases, prevent unfair fee traps, require plain sight / plain language disclosure of terms, provide a new level of accountability, and offer special protections for students and young people. (Click here for the White House press release at the time of the bill's signing) Sounds great, doesn't it?

But banks are taking advantage of this interim period to, for example, raise rates while they still can.

What's a consumer to do? Well, the easy answer is to stop using credit cards entirely (or at least to pay off the total amount owed every month).

Unfortunately, that's not an option for everyone (CRL research shows that a majority of low- and middle-income families depend on credit cards to pay for basic living expenses).

At least you can shop around for cards, and not to remain wedded to one simply because "I've had it for years." That takes time, of course -- something else a lot of us don't have -- but is better than nothing. Note, however, that abruptly canceling a card can negatively affect your credit score....

Banks, of course, will argue that these additional fees are necessary to protect themselves from fraud and non-payment (but -- who started handing out cards to every person with a pulse, not to mention the occasional family dog?). They have responsibilities to shareholders, they note.

But while these moves may add to the banks' bottom lines, the real bottom line is that they only increase the resentment that consumers feel towards the banks. If they think that the only thing that matters is this quarter's returns, then nothing I say or that we as consumers do will make a difference.

But if they believe that the long run matters, then they themselves should be pushing for greater transparency and accountability throughout the industry. Smart banks will get out in front of this parade.

It's a Fine Line Between Love and Hate....

... and between lots of other things too.

Earlier this week, the billionaire head of the Galleon Group, a hedge fund, was arrested and charged with conspiracy and securities fraud, having profited, as the New York Times put it, "not from his trading genius but from his Rolodex" (click here for the initial story, here and here for selected follow-up pieces).

Information is life-blood of smart investing, and most of it is of course obtained legally. But inside information is, by definition, non-public and material to an investor -- whether or not the information ends up making that investor money (although, of course, it usually does, or it wouldn't be "material").

The problem is that the line between aggressive research and insider trading is often a fine one. In a Times DealBook blog, Leslie R. Caldwell, the co-chief of the white-collar crime division at the law firm Morgan, Lewis & Bockius, says that insider trading can be difficult to prove: "The line between buying legitimate research, trading rumors and gossip, and illegally paying for market-moving information can be complicated." (Click here for the complete DealBook post)

So ... we should just throw up our hands and walk away? No.

But this case got me thinking about fine lines and ethical decision-making. Ethical problems are at their thorniest when the choices are less than clear: not between an obvious good and an obvious evil, but between two apparent goods, or two apparent evils. How can we determine the "righter" thing to do?

There are two key questions to ask: one "pre" and one "post".

The "post" question is, What will be the consequences of my choices? You can never be sure of all the possible consequences of a decision (that's why we have that phrase, "unintended consequences"!), but it's worth taking the time to explore as many potential ramifications as possible: the probable and the improbable, the preferable and the less preferable.

Unless, of course, you are a Kantian, and live by "categorical imperatives" -- if one of your categorical imperatives, for example, is "Always tell the truth", then the potential consequences of telling the truth in any particular situation aren't relevant. The proper course of action is to tell the truth.

For the categorical types, the "pre" question is more important: What's my motivation for making this choice? There's no honor in doing the right thing if doing the right thing is what you want to do anyway; there's only honor in it if your inclination is not to do it, but your sense of duty or honor or will compels you.

The problem with both of these approaches, while important, is that we humans are so good at rationalizing: we concentrate on those consequences that are preferable (whether or not they are probable), and we concentrate on those motivations that show us off in the best light.

But that still doesn't mean that you have a free pass to do whatever you like....

When Is a "Smart Choice" Really Smart?

According to the Smart Choices program website, to qualify for the "Smart Choice" checkmark, "a product must meet a comprehensive set of nutrition criteria based on the Dietary Guidelines for Americans and other sources of nutrition science and authoritative dietary guidance."

The Smart Choices nutrition labeling campaign was "created by a diverse group of scientists, academicians, health and research organizations, food and beverage manufacturers and retailers. The group worked collaboratively to develop the program's foundation, goals and criteria" and was launched with some fanfare earlier this summer.

Different criteria were established for the 19 different product groups (beverages, soups, dairy products, snacks, etc.). Sounds good doesn't it? Just what consumers need in the grocery aisles: a helping hand to steer them toward "smart" buying and eating habits.

But back in early September, the New York Times reported that high-sugar-content cereals like Froot Loops (41% sugar, by volume) had earned the "Smart Choice" check. How could Froot Loops be a "smart" choice, you ask? Well, according to the nutritionist who heads the program board, it's because it's a smarter choice than doughnuts. Moreover, asserted a Kellogg's senior nutrition executive, "Froot Loops is an excellent source of many essential vitamins and minerals and it is also a good source of fiber..." (Click here for the earlier story.)

Today, William Neuman reported in the Times that the Food and Drug Administration would, early next year, "issue proposed standards that companies must follow in creating nutrition labels that go on the front of food packaging.... [which] could force manufacturers to deliver the bad news with the good, putting an end to a common practice in which manufacturers boast on package fronts about some components, such as vitamins or fiber, while ignoring less appealing ingredients, like added sugar or unhealthy fats."

Dr. Margaret Hamburg, the FDA commissioner, is quoted as "repeatedly" mentioning a British package labeling program "that uses red, yellow or green dots -- like traffic signals -- to indicate the relative amounts of important ingredients" (like saturated fat, salt, or added sugar). This, she said, "could provide a model for the FDA."

What I found particularly interesting, and particularly depressing, about this unfolding story is that Smart Choices itself lists the following principles for developing its goals and criteria: Transparency, Coalition-based, Comprehensive, Applied Voluntarily, and Flexible.

What on earth is "transparent" about presenting a sugary breakfast cereal as a "smart choice"?