Sunday, April 19, 2009

With Apologies

I now know there are some folks who are not members of Derwood or Rosemont who are reading this blog, therefore I am posting my 10 rules for young couples for this audience. I hope that those of you who have seen this before will accept my apologies.

Basics Financial Rules
For Young Couples

1)Stay out of debt unless absolutely necessary (four exceptions)
a)Just about no one can pay cash for a house
b)Medical bills come whether you have money or not
c)Borrowing for school (with and only with a goal) is OK.Scholarships and work study grants are better.
d)Starting a new business or expanding an existing business.Keep that cash flow positive.

2)Pay off your debts as rapidly as possible.Pay off the debt with the highest interest rate first and the debt with the lowest interest rate last.

3)Don’t use a Credit Card unless you can pay it off every month.

4)When your money stash is declining (and it will) find out where your money is going. Keep detailed records (every penny) of your expenditures if necessary. My wife and I did this twice during the early years of our marriage. It proved a very enlightening exercise.

5)Many people recommend a budget. We have never had a budget except the one in my head. That worked pretty well for us but I think a formal budget would be even better.

6)No secrets. If you or your spouse spend more than the cost of a CD or a paperback book on something, decide on that expense together, as a couple. There are exceptions. My wife does not want to know about the power bill, tires on her car, or specialized tools she does not understand. Set your own rules and limits for your own marriage and stick to them.

7)Start a “rainy day” fund in a bank or a money market fund. The goal here is six months cash reserve (six months take home, both salaries). It will take some time to reach this goal. Don’t beat yourselves up about this but keep putting a little something aside every month.

8)When you have a little extra cash beyond the six months fund or maybe even as a part of the six months fund, begin to experiment on a small basis with stocks, bonds, mutual funds, or even real estate.

9)Start thinking about retirement when you are young. Take advantage of anything offered by your employer. This was not a problem or an issue 50 years ago, but my retirement picture is not all that good. Your retirement picture is positively scary. This is a very low priority with so many other demands at this time in your life but don’t forget retirement is sitting out there if you are lucky enough to live that long.

10) Give something to God without expectation of return. It is good for your heart.

Sunday, April 12, 2009

I've Been Afraid of Changing (Part II)

It is easy to slam covenant breakers who enriched themselves while destroying a national treasure and a national trust. However, there is another side to the collapse of General Motors that is more disturbing because it can and does happen to good men or women trying very hard to do the right thing.

Peter Druker is generally considered the father of the scientific study of management behavior. About 14 years ago, Druker wrote an article based on his studies of once great corporations that fell into ruin. He discovered some similarities in these stories that correspond to psychological principles discovered by the behaviorists during the 1940s. If a company has a business model that has been very successful, they will keep working that business model into bankruptcy even if it is perfectly obvious to the outside observer that the business model is hopelessly irrelevant given the changes in the marketplace and the customer base. Back in the mid 1990s Druker used these findings as a basis to predict the bankruptcy General Motors is facing today.

There are several predictable stages in the decline and fall of a once mighty corporation. First, the controlling ownership of the corporation will notice a decline in revenues and profits. By the time these problems are finally confronted, the corporation is already in serious trouble. Firing the Chief Executive Officer (CEO) is always the first step taken by the board. They will then bring in a new man or woman to execute the business model with greater energy. The new CEO will in fact exercise the business model with greater energy and effort than his predecessor. It won’t make any difference; the company will continue its decline. Next the business model will be streamlined for greater efficiency and in fact operations will become more efficient, but it doesn’t make any difference, the company will continue to decline. Druker discovered many cases where the corporation continued working their business model with outstanding energy and efficiency right into bankruptcy court. At no time during the process, does the corporation ever question the basic assumptions of their business model.

General Motors based their business model on selling a wide range of new cars to their customers. They expected their customers to buy a new car every two or three years using the value of their late model used car as a down payment on the new car. The GM dealers would then add to their profitability by selling these late model used cars at a premium to second tier customers. GM also expected their customers to move up their line from Chevrolet, to Pontiac, to Oldsmobile, to Buick, and finally if they were very successful to Cadillac.

They ignored the changing marketplace. First GM ignored the Volkswagen. When the bug was introduced in America it was already over 20 years out of date. However, the VW was a well-made practical and reliable small car with a very low overall cost of ownership. Americans bought them by the millions until changes in safety and environmental law finally rendered them obsolete. Then GM ignored the Japanese invasion. Then they ignored the increasing reliability and technological advances offered by Toyota, Datsun, and Honda. Today, Toyota is larger than General Motors. GM ignored models by Lexus that were much better than comparable models produced by Cadillac and considerably cheaper than models produced by Mercedes Benz.

General Motors ignored changes in their customer base. My uncle was a poster child for the General Motors business model. Every two or three years he bought a new Pontiac. It was his thing. I live in a fairly comfortable middle class neighborhood. I don’t think any of my neighbors have ever kept a car for less than seven or eight years unless they wrecked it. Some of us keep a car for much longer than seven years. To the baby boomers, a car is more of an appliance and less of a fashion statement than it was to our parents. We want a car that is practical for its intended use, reliable, and affordable. We still have our foibles, just look at sales of giant SUVs over the last ten years, but even in this example, the SUV is a practical family car and people keep them for a very long time. We tend to waste our disposable incomes on other things such as luxury vacations, second homes at the beach or in the mountains, and inexplicably on gourmet kitchens. I found this somewhat comical as women of my generation cook much less than their mothers.

I am a child of the industrial age. I was trained to go to school get a degree and find the lifetime “good job” with a large company. My first degree was a B. A. in U.S. History and English Literature. This degree did provide me with a job in a factory, but night superintendent at a saw chain factory is no way to live. I decided to go back to school and get another degree, this time a B. S. in Mechanical Engineering. Again I found a “good job” this time at a government research laboratory. I perceived my opportunities for advancement were somewhat limited so I went back to school a third time and earned a M. S. in Technical Management. I found a job in our Office of Technology Transfer and worked there for ten years. However, times changed, staff was reduced and I was returned to my old job. I am very thankful to have a fairly secure Government job at a time of great economic distress. If I didn’t have this job I would not know how to start over in a postindustrial world. Time has past me by. I am too old to go to school and get another degree and start over using the only method I know.

I am left asking why did this happen to me? This is not a wise question. I should be asking, “These things being so, what should I do now?” I wouldn’t know how to answer that question. I only have my business model. It worked pretty well for me, although not as well as it worked for my father.

A young person would be wise to have more than one business model in this changing world. The “good jobs” are mostly gone. The wealth producing union jobs at great institutions like GM are gone. Most of our factory jobs went to China. Now many of our white collar jobs, including engineering jobs, are moving to India. We are stuck in a very interconnected world and are in a wage arbitrage war with the developing countries. We are in a race to poverty where the low bidder gets the work.

May God bless and protect us.
Isaiah 43
[1] But now thus saith the LORD that created thee, O Jacob, and he that formed thee, O Israel, Fear not: for I have redeemed thee, I have called thee by thy name; thou art mine.
[2] When thou passest through the waters, I will be with thee; and through the rivers, they shall not overflow thee: when thou walkest through the fire, thou shalt not be burned; neither shall the flame kindle upon thee.
[3] For I am the LORD thy God, the Holy One of Israel, thy Saviour: I gave Egypt for thy ransom, Ethiopia and Seba for thee.
[4] Since thou wast precious in my sight, thou hast been honourable, and I have loved thee: therefore will I give men for thee, and people for thy life.
[5] Fear not: for I am with thee: I will bring thy seed from the east, and gather thee from the west;
[6] I will say to the north, Give up; and to the south, Keep not back: bring my sons from far, and my daughters from the ends of the earth;
[7] Even every one that is called by my name: for I have created him for my glory, I have formed him; yea, I have made him.
[8] Bring forth the blind people that have eyes, and the deaf that have ears.
[9] Let all the nations be gathered together, and let the people be assembled: who among them can declare this, and shew us former things? let them bring forth their witnesses, that they may be justified: or let them hear, and say, It is truth.
[10] Ye are my witnesses, saith the LORD, and my servant whom I have chosen: that ye may know and believe me, and understand that I am he: before me there was no God formed, neither shall there be after me.
[11] I, even I, am the LORD; and beside me there is no saviour.

Saturday, April 11, 2009

I've Been Afraid of Changing (Part I)

As I thought about a subject relating to the intersection between money and faith my mind turned towards the recent fall of General Motors. I see at least two lessons to be learned from this disaster. The first I want to discuss concerns integrity, trust, and betrayal.

In the early 1970s GM management began to betray their customers by producing unreliable substandard cars. Oldsmobile diesel engines that blew up, Vega aluminum engines that warped, and automatic transmissions built with plastic parts for cars like the Chevette installed in full sized cars are just a few of many horror stories.

Then GM management began to betray their employees, treating them as enemies instead of partners. General Motors began sending American jobs out of the country. They spun off less profitable divisions, knowing full well they were abandoning their employees. Even when they tried to build a better car, the Saturn, they viewed their employees as the enemy and sought to replace humans with inflexible robot assembly lines (Toyota uses flexible robotics).

Then GM management betrayed their own dealership network and successfully destroyed Oldsmobile, one of the oldest and most popular marquees in American automotive history.

Finally, after many years of borrowing money to pay dividends, GM management has betrayed it shareholders and creditors. The government bailout and it will happen, will simply be an example of throwing good money after bad, unless we are forced by tax structure or import restrictions to buy GM automobiles or the Federal Government simply takes over the operation of GM, a real possibility.

There is nothing wrong with American engineers, who else can design a F-22 or a Virginia class nuclear attack submarine. There is nothing wrong with American workers; Honda, Toyota, and BMW have proven that fact. The problem remains greedy, immoral, shortsighted management that believes God gave us hands and feet to take the money and run.

GM did this to themselves. They betrayed their customers, their employees, their dealers, and their shareholders. Now no one trusts them, as they fly their luxurious private jets to Washington to beg for my money.

General Motors is not alone. They are just the largest and most visible example of a moral and social catastrophe. When management is given control of a major company, they are entering into covenants of loyalty with several groups, their customers, their employees, the owners, and the creditors. These covenants are broken, perhaps forever.

At one time, employees believed that if they were loyal, reliable workers, they could expect a lifetime job, excluding temporary layoffs during occasional recessions. In this country, health insurance was an expected benefit of full time employment. If a man worked his family’s health care was covered. If he didn’t work his family was on its own or more recently they became a burden on their betters, the stigma of welfare. If an employee gave the best thirty years of his or her life to a company, that employee expected to receive a pension in their declining years.

During the 1970s, management systematically broke this covenant in industry after industry. It took a while for the American worker to catch on to this change in the rules but now young employees expect nothing from their employer beyond the paycheck and benefit package they currently receive. Having seen their parents and older siblings treated like disposable machine parts, they neither give nor expect loyalty from their employers. In fact, if a young employee has been with a company for five years or more, his peers wonder if something is wrong. This could have interesting consequences in areas of national security, trade secrets, and proprietary technology in the next couple of decades.

Of course, you can guess where I am going with this rant. In this ever changing world we live in, be very careful where you place your trust. There is a God who does not change. Perhaps both the Children of God and the management of General Motors could benefit from a meditation on this scripture.

Hebrews 13: 5-8 NIV

Keep your lives free from the love of money and be content with what you have, because God has said, “Never will I leave you; never will I forsake you.” So we say with confidence, “The Lord is my helper; I will not be afraid. What can man do to me?”

Remember your leaders, who spoke the word of God to you. Consider the outcome of their way of life and imitate their faith. Jesus Christ is the same yesterday and today and forever.

P. S. There are also still good men and women in American management. The following quote comes from a recent article by Jim Citrin.

“Gerald Grinstein, former CEO of Delta Air Lines, addressed the volatile issue of executive compensation head-on. He decided in March 2007 to refuse more than $10 million in promised compensation after shepherding the No. 3 U.S. airline through bankruptcy. Instead, Grinstein decided to contribute this post-bankruptcy pay to scholarships and hardship assistance for Delta employees, families, and retirees. In doing so, Grinstein almost singlehandedly defused employee resentment and regained employee trust and confidence in Delta management. A representative reader comment from this column: "I only wish other 'overpaid' CEOs would follow Grinstein's example."

Friday, April 3, 2009

Small Unit Cohesion

In December 1944, the American armies were approaching the borders of Germany. The American soldiers were optimistic; believing that victory was only weeks away. However, the German High Command had a different idea. They committed virtually all their reserves in a desperate gamble designed to fracture the American battle line and drive to the sea. This would serve two purposes. It would allow the German army access to badly needed supplies at American expense and it would, perhaps, buy enough time for a third generation of wonder weapons to reach production, giving the Germans the edge they would need to defeat the superior forces arrayed against them. One of these wonder weapons could have been the atomic bomb. In the middle of a terrible blizzard that neutralized American air power, the Germans launched a huge mechanized assault. American units disintegrated in the face of this unexpected attack. The German blitzkrieg drove relentlessly towards its objectives, but the heroic stand of the 101st Airborne Division, the famous counter attack by Patton’s forces, and a lack of supplies stopped the Germans in time. The good guys won, but it was a very close thing.

American officers were shocked by the reaction of their troops to this attack. In some instances, veteran combat units collapsed and men who had repeatedly proven themselves in battle ran off in an attempt to save their own lives. In some instance, untrained replacements fought like tigers. For example, a group of Army cooks who had just finished their training, but had not yet been distributed to their ultimate postings with various combat units, made a heroic stand against a vastly superior German force. The Army brought in psychologists to study the problem. They termed their conclusion, “small unit cohesion.” They discovered that if an American soldier was not separated from his buddies, he would fight very well, even in the face of certain death. If the American solider was separated from his immediate unit and found himself with strangers, he was quite likely to run in an attempt to save his own life. If soldiers had shared the many hardships of combat with each other, if they really knew each other, those men trusted each other, and they respected each other. The thought of betraying someone who might have even saved your life and then looking into his eyes at some future time is simply not a possibility wired into human DNA. However, if it was some guy you didn’t know and would not be likely to ever meet again, who cares?

Last week I discovered and distributed an interesting sermon on the use of money, written by John Wesley. I have always admired John Wesley even though I don’t always agree with all his ideas. Of course the language sounds like it was written 250 years ago, so it can be a difficult read for a 21st century American.

Good historians always study a man as a man in his time and his culture. John Wesley’s impact on his time and culture was extraordinary. He was faced with a situation that is very similar to the situation that the Church in America faces today. Over the course of his lifetime, England changed from a rural, agrarian, feudal society to a more urban, industrial, proto-capitalistic society. Peasants were driven from their land into what Blake described as “Dark Satanic mills,” and into coal mines that were even more dangerous and horrible. Cut loose from their cultural roots and moral standards, Englishmen reacted as any humans would in such a situation. Drunkenness and prostitution were common in the lower classes. The upper classes were corrupt and equally degenerate. Somehow Wesley found a way to speak Jesus into this mess. One of the things he discovered was people were more likely to live a Christian life if they were closely connected to a small group of fellow believers. These “classes” became an integral part of the development of Wesley’s Methodism. Believers in these groups were encouraged to confess their sins to one another, share their testimonies, and lift one another up in prayer. They held each other accountable for their behavior. One of these areas of accountability was the use of money. In teaching his followers, “Gain all you can. Save all you can. Give all you can,” while remaining within the boundaries of acceptable Christian behavior, Wesley was equipping his followers with the tools necessary to face the disruptions of the industrial revolution. By championing hard work, sobriety, and thrift Wesley gave the criminals and uneducated laborers who came to Jesus as a result of his ministry what they needed to escape the mines, the factories, and the gallows. Instead of finding a short unpleasant route to death and eternal damnation, they became small businessmen or land holders capable of supporting themselves and their families.

Accountability is not really something that can be artificially given. It is something that must be earned. One of my favorite Bible stories concerns the four friends who literally ripped the roof off a building in their attempt to lay their buddy at the Master’s feet. Talk about accountability. Do you have four friends who would pay any price to carry you to Jesus? I think I do, but probably not many more than four. Most of my “friends” are just nice polite Christians. I have discovered that if I become inconvenient they quickly find a way to disappear or if they move out of the immediate area, I never hear from them again, even if I am making a good faith attempt to maintain contact. I do have a few friends with whom I have shared good times and bad times over many years. When I needed them they were there. They have earned the right to hit me in the head with a board if that is what I need. They also know me well enough to know when I need dope slapped in the side of the head. As it is written, “Faithful are the wounds of a friend.” I believe they would pay any price, financial or emotional to bring me to the feet of Jesus, when that is what I need. Find yourself four friends and hold each other accountable in all areas, including finance.

[1] And again he entered into Capernaum, after some days; and it was noised that he was in the house.
[2] And straightway many were gathered together, insomuch that there was no room to receive them, no, not so much as about the door: and he preached the word unto them.
[3] And they come unto him, bringing one sick of the palsy, which was borne of four.
[4] And when they could not come nigh unto him for the press, they uncovered the roof where he was: and when they had broken it up, they let down the bed wherein the sick of the palsy lay.
[5] When Jesus saw their faith, he said unto the sick of the palsy, Son, thy sins be forgiven thee.
[6] But there were certain of the scribes sitting there, and reasoning in their hearts,
[7] Why doth this man thus speak blasphemies? who can forgive sins but God only?
[8] And immediately when Jesus perceived in his spirit that they so reasoned within themselves, he said unto them, Why reason ye these things in your hearts?
[9] Whether is it easier to say to the sick of the palsy, Thy sins be forgiven thee; or to say, Arise, and take up thy bed, and walk?
[10] But that ye may know that the Son of man hath power on earth to forgive sins, (he saith to the sick of the palsy,)
[11] I say unto thee, Arise, and take up thy bed, and go thy way into thine house.
[12] And immediately he arose, took up the bed, and went forth before them all; insomuch that they were all amazed, and glorified God, saying, We never saw it on this fashion.