A blog about business and economics.

Feb. 8 2017 6:09 PM

Trump’s Tweets Used to Decimate Companies’ Stock Prices. Why Didn’t Nordstrom’s Plummet?

At 10:51 a.m. on Wednesday, President Trump fired up Twitter to denounce Nordstrom. The upscale department store, beloved by coastal elites and red-state suburbanites for its customer service and classy fashion, had recently dropped Ivanka Trump’s line of clothing and accessories from its shelves. The president was angry.

Nordstrom didn’t react, other than to note, as it had last week, that it had dropped Ivanka’s brand because of its wan sales performance. And neither did its stock. After dipping slightly, Nordstrom shares quickly recovered their equilibrium. In this instance, the Trump effect was a blip.

What’s going on here? Set aside for a moment the sheer raging lunacy of the idea that a sitting president, the guy who controls nuclear codes and commands a vast army, is using his office to attack a American department store. Markets tend to normalize to new environments. A few months ago, it was shocking, unprecedented, inconceivable that a president would bash individual publicly held companies and publicly strike deals with others. And so company-specific Trump tweets tended to inspire an immediate reaction. Trump has a huge following, which he had managed to convert into real power. So if he’s calling out a company as a bad actor, you hit the sell button first and asked questions later. Lockheed Martin’s stock, for example, dived in December when president-elect Trump bashed the high costs of the F-35.

But the more normal these attacks become—there he tweets again!—the easier it has become for investors to ignore or look through them, even as some smarties have devised algorithms to trade on the news of Trump’s company-specific tweets. The market has learned to ignore Trump’s tweets in part because the histrionics haven’t been followed by meaningful action. As Trump has realized, you can’t run the entire government by executive order. Making moves to punish or aid businesses—like reforming health care, or having Medicare negotiate drug prices, or cutting corporate taxes, or building a wall—requires legislation, assent by the courts, and bureaucracies to execute the policy. Given that many of Trump’s threats won’t materialize, investors have concluded that they shouldn’t sell on his bluster.

There’s also another dynamic at work that helps explain the Nordstrom nonreaction. Markets are smart. In sifting through Trump’s tweets, investors are quickly distinguishing between the companies that Trump, his administration, and his followers can actually help or hurt directly and those they can’t.

Into the first category fall companies for whom the federal government supplies a large amount of revenues via contracts or appropriation: defense contracts like Lockheed Martin, drug companies, hospitals. They are exposed directly to the wrath of Trump. A subset of this category includes companies for whom the link is less direct—a change in regulations or policy could either hurt or harm their bottom line over time. This subset includes for-profit colleges and prisons, student lenders, Fannie Mae and Freddie Mac, and Wall Street firms who might benefit from decreased regulation. They’re less levered to Trump tweets but can still be affected.

But some stocks are likely impervious to Trump’s rage. These include consumer-facing companies that don’t depend on government contracts for revenues, or that don’t need favorable government policy to buttress their business model. Instead, they rely on their brand, products, customer service, and position in the marketplace. And it takes a lot more than a tweet from a historically unpopular president to get consumers to sour on brands they like.

Companies are even less vulnerable if the type of people who are most likely to respond to Trump call for a boycott or vindictive shunning aren’t likely to be their patrons in the first place. This describes Nordstrom to a tee. It’s a higher-end department store. It doesn’t have government contracts. Spend some time on Nordstrom’s store locator map, and you’ll see that, electorally speaking, Nordstrom is as un-Trumpian a company as they come. The chain is based in Seattle and its physical outlets are clustered on the seaboards, plus the urban and suburban havens of red states. There are 80 Nordstrom stores or outlets in California alone, and none in many of the lightly populated states that Trump won: Kentucky, Arkansas, Mississippi, North and South Dakota. If you were to construct a Venn diagram of Nordstrom shoppers and the subjects of the book Hillbilly Elegy, the two circles wouldn’t touch. Many of Trump’s supporters are already boycotting Nordstrom—they just don’t know it. And others, like upper-income suburban whites, may ultimately not much care.

In fact, in some instances, a hostile Trump tweet can actually be a positive to investors. In recent weeks, we’ve seen a phenomenon whereby people quickly rally to the side of those who have been attacked by Trump or who take actions that can be perceived as being part of the resistance. Nordstrom is already well-liked by its core customers, some percentage of whom may take the tweet as an excuse to support and patronize the store. And that would be good for business. So it’s not all that surprising that, by late afternoon, Nordstrom’s stock had risen nearly 4 percent.

In January, busloads of well-off groups of progressives traveled to the National Mall in Washington to rally against Trump. This weekend, we may just see them taking their activism to their closest Nordstrom.

Feb. 8 2017 5:38 PM

France’s Nationalist Party Has a Plan to Break Up the Euro and Probably Start a New Financial Crisis

Marine Le Pen, the depressingly popular, proto-Trumpish leader of France's anti-EU, anti-immigrant National Front party, is probably not going to win her country's upcoming presidential election. Polls show that she's leading the first-round vote at 25 percent but would get creamed in the runoff. However, considering the way we've all watched seemingly unlikely political nightmares spring to life over the past year, it seems at least worth noting that Le Pen has more or less promised to rock the global financial system to its foundations with a half-baked scheme to pull France from the euro.

Le Pen's top economic adviser, Bernard Monot, outlined the plan to Bloomberg recently, and reportedly discussed it back in September with a governor from the Bank of France. The plot has three steps:

  1. Le Pen would call a meeting with the EU and ask it to replace the euro with brand-new national currencies. If it balked, France would go it alone.
  2. Le Pen would commandeer the French central bank, ending its independence.
  3. She would print “new French francs” to finance government spending.

Not to put too fine a point on it, but the National Front is essentially threatening to suicide-bomb the whole EU monetary system. It's long been said that if Spain or Italy were to abandon the euro, it could spell doom for the entire currency bloc. (Greece, not so much, which is why it has close to zero leverage in debt negotiations. Sorry, Greece.) Were France—the eurozone's second largest economy—to unilaterally bid adieu, it would be even more devastating. Markets would seize. The cost of borrowing would skyrocket and become prohibitively expensive for many smaller countries in anticipation of a chaotic breakup, which could conceivably lead to sovereign defaults by governments unable to roll over debts. Banks holding lots of euro-denominated assets would be imperiled. There would be bank runs (I'm guessing people would rush to withdraw euros and convert them to dollars). It would be carnage.

And if the rest of Europe decided to go along with Le Pen's plan? I doubt the outcome would be much better. People have tried to imagine an orderly process for breaking down the euro, but the plots tend to rely on springing the news quickly and slamming down controls on the movement of money between borders to prevent chaos. Obviously, that's not what anybody who inhabits the real world is looking at anytime soon.

As for the National Front's plan to end central bank independence and monetize government spending, well, Monot tries to present it in the least Zimbabwe-ish way possible. According to Bloomberg:

The Bank of France would be “autonomous” but supervised by parliament and allowed to add new money into the system up to an annual maximum of 5 percent of the total money supply, Monot said. That’s roughly equivalent in size to the ECB’s current program of quantitative easing, he said. Monot forecast that inflation in France would rise to 3 percent under the new regime.
“What’s worse?” he asked. “A reasonable rate of inflation or the near-deflation we’ve been living in?”

Suffice to say, that is not how things usually work out when populist governments take control of a nation's printing press.

In any event, what if things didn't go quite according to plan? Monot says he's got it under control:

“I don’t think it will be a catastrophe because France is after all a major country and people will understand soon enough that we are working as patriots to restore France’s sovereignty,” Monot said in an interview. “If there is a catastrophe, I have a plan—it’s in here,” he added, pointing to his head.

Sound familiar?

Feb. 7 2017 6:00 PM

Trump Administration Breaks Out Fifth-Grade Math Skills to Weaken Obamacare Regulations

Will Obamacare be repealed? Will it be replaced? Will it be repaired like an old bridge collapsing over a river somewhere in Tennessee? Who knows! But while we wait to find out, President Donald Trump wants to use his executive power to tinker with some of the law's rules that govern the insurance market—and his health policy team is apparently making some incredibly creative use of their middle-school math skills to do it.

According to the Huffington Post's Jonathan Cohn, Trump's Department of Health and Human Services has already submitted a list of rule changes to the Office of Management and Budget, which has to approve them before the lengthy public process required to rewrite a regulation can start. The list isn't public, but Cohn talked to a number of insurance industry “consultants and lobbyists” who said the White House has been kicking around three ideas, one of which would be a truly remarkable feat of legal hairsplitting.

Under Obamacare's current rules, insurers are only allowed to charge seniors up to three times more than younger adults. This is called the age-rating band, and it generally makes coverage cheaper for the older customers and more expensive for the young. Insurers themselves happen to hate the current setup—they'd prefer something closer to a 5-to-1 ratio, which was more the norm pre-ACA. They also claim that would lead to a better functioning insurance market overall.

Trump can't expand the age band that far without legislation. But he's going to try to widen it a bit. Here's Cohn (bolding mine):

Insurers would have more leeway to vary prices by age, so that premiums for the oldest customers could be 3.49 times as large as those for younger customers. Today, premiums for the old can be only three times as high as premiums for the young, which is what the Affordable Care Act stipulates. According to sources privy to HHS discussions with insurers, officials would argue that since 3.49 “rounds down” to three, the change would still comply with the statute.

It's legal because rounding! Rounding! I am a pretty big fan of the Chevron principle, which says courts should generally defer to executive agencies when it comes to statutory interpretation. But man does this stretch credulity. I'm not even saying it's necessarily bad policy; insurers have had trouble enrolling enough young folks to stabilize the Obamacare markets in many states and, who knows, maybe a more flexible band would help a little. But the legal justification is just priceless.

Anyway, to whomever came up with this: Your fifth grade math teacher should be beaming.

Feb. 7 2017 5:35 PM

Farewell, Big Board: Penn Station Didn’t Deserve You

Two weeks ago, workers began disassembling Penn Station’s dimming Amtrak departures board, a hanging timetable that announced times and destinations to hundreds of thousands of passengers leaving Manhattan each day.

A stained dark seam in the ceiling now marks the spot, in the central waiting area of America’s busiest train station, where the 10-foot-tall slab used to connect to the ceiling. Today, the room is ringed with 38 smaller flat-screen monitors mounted above boarding gates and in waiting rooms. Two larger ceiling-hung “video walls,” on either end of the room, list departures in white on blue.

On a technical level, this change is about as banal as installing a digital intercom. The board was a vessel for plenty of misplaced nostalgia. Many fans, myself included, initially misremembered it with the clicking, whirring mechanics of a Solari board. But Penn Station’s Solari board made way for a newer, digital timetable around the millennium. Though that millennial iteration shared aesthetic qualities with the older board, its panels were made of segmented LCD glass. Its closest consumer analog is the display panel of an old clock radio.

Feb. 7 2017 3:10 PM

Trump Has One Big Idea to Fix America’s Trade Deals. It’s Not Very Good.

Donald Trump thinks he has a simple strategy to fix America's trade agreements. From now on, multilateral deals are out. Bilateral deals are in.

Translation: Now that the White House is under new management, the United States is done negotiating sprawling trade pacts that cover many countries at once. That means accords like the 12-country Trans-Pacific Partnership, which Trump withdrew the U.S. from last month, are a thing of the past. Instead, the administration will focus on cutting deals with individual trade partners, one at a time.

Trump has been clear on this point since his days on the campaign trail, and often speaks as if it were the miracle cure for our trade deficit. “There is no way to fix the TPP,” he said during a high-profile economic speech in June. “We need bilateral trade deals. We do not need to enter into another massive international agreement that ties us up and binds us down.” The president offered the same message more recently after officially pulling out of TPP. “Believe me, we’re going to have a lot of trade deals,” he said. “But they’ll be one-on-one. They won’t be a whole big mash pot.”

What's wrong with a mash pot, you might ask? And is negotiating mano a mano, nation-state to nation-state, really the key to unlocking the terrific trade deals Trump has promised?

Count me as skeptical.

For starters, there is a good reason trade experts tend to favor big, multilateral and regional deals in the first place, and it’s not because they are conniving globalists under the thumb of George Soros. One rationale is that large deals keep things simple for businesses by establishing a single set of rules, which encourages more trade. When governments negotiate lots of separate bilateral agreements, some policymakers argue it can create a messy “spaghetti bowl” of overlapping and conflicting standards that make exporting around the world a pain. “You don't want inconsistent rules and inconsistent approaches,” Mickey Kantor, the former U.S. trade representative who led negotiations to create the World Trade Organization and NAFTA during the Clinton administration, told me.

Sometimes, it's also easier for multiple countries to reach a deal than it is for just two countries. Chad Bown, a senior fellow at the Peterson Institute for International Economics, compared it to a three-way trade in the NBA: A pair of countries (or teams) might not have much to offer each other, but add another into the mix, and everyone can leave happy.

One former high-ranking trade official offered me this real-world example: At the start of TPP negotiations, United States negotiators knew that New Zealand would want access to the American dairy market, something that likely wouldn’t sit well with U.S. farmers. However, because American dairies stood to gain from more access to the Canadian market, it was possible to find something in the deal for everybody. (The official did not want to be seen publicly criticizing the new administration this early in its term and asked to be quoted anonymously in order to speak candidly.)

As far as I've seen, Trump and his brain trust have never fully explained why they think bilateral deals are a better way to manage trade. But there are enough clues to figure out their reasoning. First and probably foremost, Trump and his close adviser Steve Bannon are philosophically opposed to anything that smells faintly of international governance. They envision a world of solitary countries doggedly pursuing their own national interests, not the “globalist” status quo they campaigned against. One-on-one trade deals fit that model much better than groups like the WTO or TPP-style pacts that span multiple continents.

More prosaically, Trump seems to dislike agreements like TPP because they keep the U.S. from throwing its full weight around on the world stage. The president thinks they're too hard to get out of once implemented (he's compared them to “quicksand”) and his team has suggested they give small countries too much clout during trade negotiations. (Press Secretary Sean Spicer recently complained that TPP left the U.S. “on par with some very small countries.”) Sticking to bilateral talks would give the U.S. more leverage at the bargaining table while making it easier to walk away from deals that don't work out in America's interests—or so their thinking seems to go. The president has even promised that any new trade agreement he strikes will include a 30-day termination clause, just in case “that particular country doesn't treat us fairly.” He wants to be able to fire our trade partners, and on very short notice.

Trump might be right that bargaining one on one will give the U.S. the upper hand during trade talks. We're big. We're rich. Lots of foreign companies want access to our market. “Tactially, it is true” that we'd have more leverage, Lori Wallach, director of Public Citizen's Global Trade Watch, told me. As an illustration, she explained that during the TPP negotiations small countries were able to team up and present a united front to resist some of the U.S.'s most extreme demands about pharmaceutical regulations. South Korea, in contrast, wasn't able to put up the same kind of fight when it negotiated its own solo free trade agreement with the Bush administration. “The pharmaceutical industry’s wish list was pushed further in a bilateral deal with a relatively powerful country, compared to how a group of relatively small countries bound together and stopped them in the TPP,” Wallach said.

If other governments turn out to be absolutely desperate to sign free trade agreements with the United States in the coming years, Trump's bilateral approach might look pretty smart. And some countries surely will be desperate. Great Britain, which is presently sawing itself off from the European Union, is betting hard that it will be able to strike some sort of deal with its former colony. They won't have much choice but to deal with an administration whose motto is “America first”—which may mean learning to love all our genetically modified produce, among other concessions, whether they really want to or not.

But how many other countries are really going to be that desperate? Sure, Japan or India might be open to a bilateral deal with the U.S. right now. But Trump and his advisers have laid out a three-part doctrine that says all trade deals must decrease the U.S. trade deficit. So long as all of our deals are two-way negotiations, that means they will have to increase our trade partners' deficits. What foreign politician wants to sign a pact on those terms?

Trump may also find that he has a bit less leverage in bilateral talks than he expects. Thanks to the WTO, most of the big remaining hurdles to world trade aren't tariffs; they're nontariff barriers like regulations. But countries don’t generally agree to dramatic regulatory changes that could reshape their domestic economy—like winding down state-owned companies or eliminating popular subsidies—in order to win a bilateral trade deal, the former trade official who preferred to remain anonymous told me. They’re more willing to do it in large, multilateral pacts where they stand to gain “more than access to the U.S. market,” the official said.

Consider how this might play out with Japan, which, again, seems to be one of the administration's early candidates for a free trade agreement. Trump has said that he wants future trade agreements to deal with currency manipulation. Japan is known for keeping the value of the yen low, partly because its exporters like it that way, and partly because it has decided lately to experiment with aggressive expansionary monetary policy to boost growth. As part of TPP, it was willing to sign a legally unenforceable side agreement about currency practices. Would it really be willing to sign something more binding as part of a deal that only involves the U.S.? It seems unlikely. Perhaps Trump will try to bully them into it by threatening new tariffs, but it's not clear Americans have any appetite for launching an all-out trade war with one of our close global allies.

In the end, Trump might end up starting negotiations on a lot of trade deals. But at the moment, his strategy seems designed to ensure a lot of those negotiations fail.

In some ways, Trump's obsession with bilateralism is also a little bit beside the point, as far as most longtime trade critics are concerned. As Wallach told me, the problem with deals like TPP, from her perspective, isn't that they were negotiated between 12 countries at once. It was that they were negotiated mainly in secret, with U.S. officials taking advice more from corporate interests than consumers or unions. Unless that changes under Trump, she said, “It doesn’t matter if you do it with one country or 100. It’s going to be a bad deal.”

Feb. 6 2017 12:48 PM

The Corporate Resistance to Trump Is Hardening

Nearly 100 companies have signed an amicus brief in opposition to President Trump’s now-stayed immigration order. The document was submitted to the 9th U.S. Circuit Court of Appeals in San Francisco late Sunday evening.

The list includes Apple, Google, and Microsoft, the country’s three largest companies by market capitalization, as well as most of the tech companies you will use today: Facebook, Intel, LinkedIn, Netflix, PayPal, Reddit, Twitter, Uber, and Yelp. The list also includes a handful of nontech companies, like Chobani and Levi Strauss.

The brief joins the corporations to the case filed by the attorneys general of Washington state and Minnesota, who won a nationwide block of the Trump order on Friday night from a district court in Seattle. Amazon and Expedia had already filed briefs in support of the states’ case.

Feb. 3 2017 7:07 PM

A Key Obamacare Enrollment Number Just Came Out, and It’s Ugly

The number of Americans who signed up for health insurance on Obamacare's federal marketplace fell this year compared with last, according to a new report from the Department of Health and Human Services. In total, shoppers selected 9.2 million plans on during the open-enrollment period that ended Tuesday, compared with 9.6 million the previous year.

This is very bad news for the Affordable Care Act and is certain to fuel Republican claims that the law is collapsing in on itself.

Now, this is not the final tally for Obamacare enrollment. Last year, some 3.1 million additional customers bought plans on the state-based exchanges. We won't see the equivalent figures for this cycle until March, according to the Centers for Medicare and Medicaid Services.* Nonetheless, it's enough to conclude that total sign-ups will probably end up down.

Practically, that means insurers may end up losing more money than they expected this year, thanks to a thinner, possibly sicker customer base. That, in turn, could lead to higher premiums in 2018, or persuade more carriers to drop out of the market entirely. Insurance providers need to decide whether they will participate in the next open-enrollment period within the next couple of months, when they'll be required to file notices with state insurance regulators. Many were already concerned about whether the Trump administration would continue funding key pieces of the law; the enrollment drop could compound those issues.

Politically, this is also a gift to Republicans like House Speaker Paul Ryan, who has long claimed that Obamacare had entered the unraveling cycle of rising premiums and falling enrollment known as a death spiral. It was easy to dismiss his rhetoric because, despite the 22 percent average price increases on this year's individual market, enrollment was on pace to rise overall as recently as late December. Now it's down.

Liberals will argue that Republicans and the Trump administration sabotaged enrollment. (Sample headline from blogger Charles Gaba: “Congrats, Trumpublicans: Your ACA sabotage efforts 'worked' beautifully.”)* And, frankly, even though it can't be proven beyond all doubt, that's my suspicion about what happened. Talk of repeal may have dissuaded some customers from signing up. The Trump administration also quashed millions of dollars of last-minute advertising during the final week of open enrollment, though it backed off a plan to also end outreach efforts like reminder emails and automated phone calls. Between the news about the ACA's impending doom and the weakened recruiting drive, it's entirely possible that Trump may have undercut the markets.

So Democrats will have their talking point. Republicans will have theirs. And the individual health insurance markets will be a little closer to peril.

*Correction, Feb. 3, 2017: This post originally misidentified the Centers for Medicare and Medicaid Services as the Center for Medicaid and Medicare Services. It also misspelled Charles Gaba’s last name.

Feb. 3 2017 6:39 PM

The Conditions at Bangladeshi Apparel Factories Are Still Horrible. What Happens to Workers Who Speak Up Might Be Worse.

At least 24 garment workers and labor leaders in Bangladesh remain in police custody without bail Friday, more than a month after being arrested during a spontaneous wave of walkouts by thousands of workers at factories in the industrial hub of Ashulia. The protests began at a factory called Windy Apparels, which makes clothes for Swedish clothing giant H&M and British retailer Tesco. I visited Ashulia in late October for the Nation Institute Investigative Fund and Slate, and wrote about the death of a 23-year-old seamstress at Windy Apparels, Taslima Akter, who collapsed on the factory floor after being denied sick leave for weeks. Less than two months later, the factory where she worked has become the epicenter of the country’s largest wage protests in years.

On Dec. 11, about two dozen workers at Windy walked off the job, after factory management refused to address concerns they had been raising since Taslima’s death. Their primary demand was for an increase in the monthly minimum wage of $67 to roughly $200—a figure closer to a living wage in a country where the minimum wage has failed to keep pace with rapidly rising inflation. Labor advocates told me that their demands also included a stop to the arbitrary abuse and firing of workers, six months of paid maternity leave, and, to prevent a recurrence of a death like Taslima’s, allowing workers who fall ill to take the paid sick leave they are guaranteed by law. As the first small group of workers walked out of the factory, many of their co-workers joined them, and as word spread in the days that followed, workers from as many as 40 other factories took to the streets in a series of wildcat strikes.

The retaliation was swift and severe, led by factory owners who are members of the powerful trade association, the Bangladesh Garment Manufacturers and Exporters Association and the Ashulia police. Within 10 days, the strike was over, 85 factories were shuttered—most of which had not been involved in the strike—and, according to a consortium of human rights groups, at least 1,500 workers were fired or forced to resign. Most of them are now having trouble finding work in Ashulia, according to labor activist Kalpona Akter of the Bangladesh Center for Worker Solidarity, and believe that they have been blacklisted. Owners of eight factories, including Windy Apparels, filed criminal complaints against labor leaders with the Ashulia police, accusing them of vandalism, looting, and assault—despite scant evidence of any violence during the protests. One television journalist, Nazmul Huda, was arrested for his coverage of the strike, charged with inciting the unrest and spreading false information.

International labor rights organizations have condemned the arrests as part of the government’s strategy of using arbitrary detention to halt labor organizing, describing the ongoing crackdown as a “clear step backwards” for the garment industry. Many of those detained are being held under the draconian Special Powers Act of 1974 that allows for detention without charges for up to six months. Three of the detained labor leaders are being held under cases filed in 2015 for unrelated incidents of political violence that occurred two years ago. While the new cases only list 14 people by name, the charges could cover several hundred more, according to the consortium of human rights groups, leaving open the risk of more arrests in the future. A labor lawyer told the New York Times that “when they find someone they want to put in jail, they enter that person’s name into the case.”

The factories reopened in late December, but a “really intense” security presence is everywhere, Jennifer Kuhlman from the Dhaka office of the Solidarity Center, an international affiliate of the AFL-CIO, told me: not just in Ashulia, but also in other industrial areas across the country. She said the arrests, the mass firings, and the continuing heavy surveillance by police have created a climate of fear among workers and labor organizers. Akter, from the Bangladesh Center for Worker Solidarity, told me by phone that the group’s Ashulia office was shut down last month and that one of her organizers, Mohamed Ibrahim, who is among those arrested, reported having been blindfolded and subjected to death threats while in police custody. She herself had to go into hiding for two weeks, she said, fearing that she too might be arrested. She said the crackdown has had a chilling effect on organizing and it’s become even harder than it was before to address workers’ concerns. The only intervention that could make a difference now, she told me, is for brands to step in and demand that their suppliers drop all charges and reinstate the fired workers.

The eight factories that filed criminal complaints, according to data compiled by Workers Rights Consortium, make clothing for dozens of global brands, including H&M, Gap Inc. (the parent company of Gap, Banana Republic, Athleta, and Old Navy), the VF Corporation (parent of North Face, Jansport, Vans, and Eagle Creek), Walmart, and Inditex (which owns Zara). Six of the eight factories are suppliers for H&M, which has a global framework agreement with the unions IndustriALL and IF Metall to support factory-level unions within its supply chains.

I asked H&M what kind of pressure they were putting on their suppliers. In an emailed response, H&M press officer Ulrika Isacsson said they were in “close dialogue with several stakeholders, including suppliers” and referred to a joint letter they sent to the prime minister of Bangladesh last month, along with 20 other brands, urging the government to protect workers’ rights, which gave, she said, “special attention to the legitimate representatives of the workers who were arrested.” She added, “We take a positive view on wage increases and we are prepared to pay the necessary prices.”

Scott Nova from the Workers Rights Consortium in Washington told me H&M is not acting responsibly and could be doing far more. “If global retailers threatened to halt garment orders until the unionists are released, people would be out of jail by tomorrow,” he said by email. “Instead, they languish in dank jail cells while the factory owners whose false complaints put them there keep pumping out clothes for H&M, Zara and the rest.”

This post originally appeared at the Investigative Fund.

Feb. 3 2017 6:19 PM

Trump Is Trying to Preserve Financial Advisers’ Right to Rip Off Clients Saving for Retirement

Until Friday, it seemed like millions of retirement savers would soon be forced to suffer the indignity of getting investment advice that was actually in their best interest. It was all the fault of the Obama administration. Financial advisers had long had the freedom to offer investment guidance that favored their own financial interests, so in 2016 the Department of Labor issued a rule that was set to take effect this April, one that would have ordered advisers to put their clients first.

But no worries! President Donald Trump signed on Friday an executive order ordering further study of the regulation, known as the fiduciary rule. The Labor Department told Reuters that it was studying its “legal options” for delaying implementation of the measure.* It’s now very reasonable to assume the measure will never happen, or will be realized in extremely watered-down form. Many in the financial services industry, not to mention the Republican legislators who have carried water for them on this issue for the better part of a decade, are jubilant:

But for the rest of us, it’s just another reminder that Trump is a creature of that swamp he promised to drain.

Making it harder for financial services firms to profit at the expense of their clients should be a no-brainer. It is such an easy call, in fact, that many of the criticisms of it amount to gibberish. Gary Cohn, the former Goldman Sachs president who now directs Trump’s National Economic Council, told the Wall Street Journal this week that expanding the fiduciary standard “is like putting only healthy food on the menu, because unhealthy food tastes good but you still shouldn’t eat it because you might die younger.” Huh?

While many of us assume our financial advisers only offer the best possible advice, most actually work to something called the suitability standard, which allows them to give less-than-perfect advice and not say so. The Obama administration thought such behavior was costing Americans $17 billion a year. The new rule was going to force the more stringent fiduciary standard to apply to all advice governing retirement savings, like IRAs.

The concern of the wealth-management industry was that the financial razzamatazz that earns them the most money in commissions and fees is rarely in clients’ best interests. Less than 1 percent of investors are able to outguess the markets year in and year out, and that includes professional money managers. As a result, they’ll do best placing clients’ money in low-fee, passively managed index funds, ones that simply seek to replicate the results of such market measures as the S&P 500. The new rule would have forbidden financial advisers from, say, selling their clients more expensive and (to borrow Cohn’s weird analogy) less nutritious mutual funds and other investments without telling them about the benefits of simpler, cheaper, and healthier options. But you still could have put your retirement funds in the financial equivalent of tasty junk food. It’s just that the Obama administration was guessing you wouldn’t want to do so once this was all explained to you.

So what now? The administration can change a regulation, but it almost certainly needs to open the proposal to public comment first. And it’s also quite possible someone will take the administration to court. The fiduciary rule was, after all, a finalized rule. Even if that happens, Friday’s action by Trump gives the Republican-dominated Congress time to pass legislation rolling back the Obama-era retirement savings initiative, something it’s tried to do in the past.

To be fair, many financial services firms have already made changes to be in compliance or near-compliance with the now-stalled standards. Merrill Lynch, for one, announced it would soon no longer allow its advisers to take commissions for retirement account investments. But that’s a small comfort. There’s nothing to stop the financial services industry from backsliding over time.

Moreover, just as not all bosses offered raises or salary changes in advance of the Obama administration’s now-stalled overtime regulations, not all financial services firms assumed the enhanced retirement guidelines were a done deal. Last month, Paul Reilly, the chief executive officer of Raymond James Financial, said it’s possible his firm was “lucky” that it hadn’t announced any changes to customers. “We certainly don’t want our advisers to have to make changes they’ve already made … to go back and undo them,” he told financial analysts.

In particular, many in the variable and indexed annuities industries had held out hope for a delay of the rule or even full outright revocation. Sen. Elizabeth Warren released an updated version of a report Friday morning of her 2015 look at the industry, documenting the goodies companies offer up to insurance agents for selling their wares. Assurity Life Insurance Co., for instance, rewards its top sellers with a stay in a Dublin hotel in the spring of 2017 right now. Not shockingly, the flier promoting the gimme warns recipients that it is “NOT TO BE FORWARDED TO CONSUMERS.” No kidding!

One last point: It’s easy to say “Democrats good, Republicans bad” here, but things aren’t so simple. Yes, Trump is directly and primarily responsible for the action, but the Obama administration and congressional Democrats played a role too.

The Department of Labor initially proposed buffing up the standard during Obama’s first term only to encounter fierce pushback from the financial industry, which lined up both Democratic and Republican members of Congress to back it. Even Sen. Bernie Sanders signed a letter early in the process questioning the impact of a revised version of the rules. Momentum behind the effort didn’t pick up until Warren began speaking out about the rule.

Trump clearly took a lesson from this. He’s not waiting around to take action. He’s been in office for two weeks and he’s signed more than a dozen executive orders, albeit somewhat sloppily. Still, the next Democratic president, whoever he or she is, should take note.

*Correction, Feb. 5, 2017: This post originally misstated that the executive order delayed implementation of the fiduciary rule for 180 days. The final order instructed officials to conduct further study of the rule.

Feb. 3 2017 2:57 PM

Donald Trump’s Excuse for Gutting Wall Street Regulations Is Hilariously Flimsy

President Donald Trump signed an executive order Friday instructing his administration to start rolling back Dodd-Frank's banking regulations. This was not a surprise. Republicans have hated the financial reform law, which was passed in 2010 in the wake of the housing bust and Wall Street’s meltdown, from the moment it was signed.1 Trump spent a whole campaign saying he'd dismantle the legislation. Now the president is following through.

And as usual, Trump’s rhetorical justification is both hilarious and transparently divorced from reality. “We expect to be cutting a lot out of Dodd-Frank because, frankly, I have so many people, friends of mine, who have nice businesses who can’t borrow money. They just can’t get any money because the banks just won’t let them borrow, because of the rules and regulations in Dodd-Frank,” Trump said at a Friday morning meeting with CEOs.

So Trump's “friends” can't get credit. Because of Dodd-Frank. The premise here is that financial reform has hamstrung commercial lending. Meanwhile, back here on Earth-1, commercial and industrial lending has risen to an all-time high since 2010.


Even as a percentage of the economy, lending is back to levels not seen since the 1980s.


Maybe the problem is that Trump's “friends” are in commercial real estate? Maybe this is an industry-specific drought? Nope—sure doesn't look like it.


Perhaps the problem is large banks. They've been hit with higher capital requirements and with more stringent oversight are having trouble? Maybe they're stuck in the spiderweb of onerous federal regulation?

No dice.


Is there a problem with community banks? Perhaps. Lending by the little guys has rebounded far more weakly compared with bigger financial institutions.

But that doesn't necessarily mean that Dodd-Frank is at fault. Community banks have seen their market share eaten by large and nonbank lenders. And so, as this graph from a 2016 Federal Reserve Bank working paper shows, overall credit to small businesses rose healthily in the years after financial reform.


So I'm going to go out on a limb here. Maybe the fact that Donald Trump's “friends” can't get credit says more about them than it does anything about Dodd-Frank. Or maybe he's just talking out of his (presumably) orange-tinted ass.

1Often forgotten: The bill won votes from three Senate Republicans, including current member Susan Collins of Maine, which just goes to show that nominally bipartisan legislation isn't really that much safer from criticism than bills jammed through on a party-line vote. But I digress.