Tag: ek Politics

Conventional Media–

NBC criticised over Olympics 2012 TV fumbles

Matt Williams, The Guardian

Sunday 29 July 2012

(A)fter taking a online shellacking over perceived failings in its opening ceremony coverage, host Meredith Vieira belatedly mentioned on Saturday night’s show a memorial segment it had failed to air live the previous night.

But it was the decision to not show some of the action live on TV that drew the apparent ire of online complainers.

New Media–

Smug American Elitism at the Olympics Opening Ceremony

By: Kevin Gosztola, Firedog Lake

Saturday July 28, 2012 1:11 pm

It is a running joke that Americans learn geography or about countries outside the United States only when the US military decides to invade a country. Presumably, this is why NBC broadcasters Bob Costas, Matt Lauer, and Meredith Viera announcing the Olympics opening ceremony would be sharing trivia about each country, especially information that Americans might be able to understand even if they were terribly uneducated. But that should be no justification for the candor of the commentary during the broadcast of the Opening Ceremony, which was frankly an example of smug American elitism and often outright condescension.

For example, Bob Costas said North Korea’s greatest athletic achievement belongs to “dear leader Kim Jong-Il who, according to his official biography, carded 11 holes-in one, not over a lifetime but over the first round he played.

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This went on for just about every other country. “Churchill never met Idi Amin,” Costas said as Ugandan athletes walked in the stadium. An anecdote about Kuwait mistakenly playing the Kazakhstan national anthem in the film Borat was shared as Kazakh athletes made their entrance. He mentioned the animated movie franchise Madagascar as Madagascan athletes strode by the camera. And, of course, like a school boy learning the country’s name for the first time or a character in a Christopher Guest film, he said, “There are some countries whose names just make you smile,” as Djibouti walked by.

The comments were not limited to quips that fell flat. Costas’ introductions of many of the countries seemed to highlight the worst aspects of each country’s history or inadequacies in the country that Costas himself may or may not have experienced personally. He said, Egypt is in “a transition of some sort,” and added, “From military dictatorship to Jeffersonian democracy? Not quite.” He noted that Kiribati does not have regularly scheduled flights to Honolulu. He ominously reminded audiences that world leaders are keeping a “wary eye” on Pakistan. He described how Australia was “originally founded as a penal colony.”

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Coupled with the fact that NBC cut out the ceremony’s memorial of the 7/7 terror attacks in London and Saudi Arabia’s first female athletes entering, NBC’s presentation of the opening ceremony was appalling, hokey, and downright imbecilic. Broadcasters of the American idiocracy were in true form.

It is not like Americans are given much exposure to people or culture in countries outside of the United States. They are consistently indoctrinated with this idea from all politicians that they are citizens of the Greatest Nation on Earth. So, perhaps, it is not surprising that broadcasters on NBC would reinforce this predominant ideology of exceptionalism in our society. But is it too much to expect that NBC announcers would, for the few seconds that these countries go by, not offer smug or sneering remarks that call out the imperfections of each country’s current politics or past history?

From Up w/ Chris Hayes

Crossposted from The Stars Hollow Gazette

Could this be accountability?

Management shuffle at JPMorgan

DAVID HENRY and JED HOROWITZ, Reuters

Published Friday, Jul. 27 2012, 12:37 PM EDT

JPMorgan Chase & Co. chief executive Jamie Dimon reshuffled managers just below him, signalling that the biggest U.S. bank is preparing for life after its famed boss.

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The management moves will mean a number of senior positions are jointly held by two executives. Analysts said the shared responsibility is a response to the trading losses that came from the bank’s chief investment office.

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This is at least the third management shakeup in three years for the bank, which has long faced questions about who would lead it after Mr. Dimon, 56, steps down. In a June 2011 shakeup, reporting lines were streamlined.

Maybe not so much.

Mr. Dimon has said he likes to move promising executives around to give them experience in different parts of the bank, a management philosophy popularized by General Electric Co. The moves were being lined up earlier this year, but were delayed when multibillion-dollar losses surfaced in a portfolio of credit derivatives, bank spokesman Joseph Evangelisti said.

Adapted from The Stars Hollow Gazette

Of course every Olympics begin with the Opening Ceremonies in which the host nation showcases its culture, its history, and terrifying lockstep unity.

Our good buddy Mitt didn’t strap Rafalca to the roof of his Bain Capital Gulfstream to drop him off, he’s not even going to visit; but he did use his Salt Lake City cred to win the hearts and minds of his United Kingdom hosts.

David Cameron hits back at Mitt Romney over London 2012 doubts

Owen Gibson, Olympics editor, The Guardian

Thursday 26 July 2012

Romney said the fallout from the G4S security fiasco and a threatened strike by immigration officials were “disconcerting” and questioned whether British people would get behind the Games.

“Do they come together and celebrate the Olympic moment? And that’s something which we only find out once the Games actually begin. It is hard to know just how well it will turn out,” said Romney.

But Cameron, who was due to meet Romney later on Thursday, said: “In terms of people coming together, the torch relay demonstrated that this is not a London Games, this is not an England Games but this is a United Kingdom Games. We’ll show the world we’ve not only come together as a United Kingdom but are extremely good at welcoming people from across the world.”

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Asked whether the Games and Danny Boyle’s opening ceremony, which will be watched by a predicted 1 billion people, offered an opportunity rebrand the country, Cameron said: “We don’t need to rebrand Britain. Britain has a great brand. I hope people will see all the things they like about Britain’s past, our history, our contributions to world development. But I also hope they will see a very open country and one that has an enormous amount to offer for the future.”

Olympic Games already have their share of controversies

By Shashank Bengali, McClatchy Newspapers

Thursday, July 26, 2012

Some 36,000 troops, police and hired contractors will stand guard at Olympic venues and on the streets of London and other cities. After the private security firm G4S acknowledged last week that it wouldn’t be able to furnish all of the 10,000 contractors it had agreed to, British officials called up additional service members to fill the gap.

The foul-up compounded what for many Londoners is beginning to seem like a long, costly summer, which began with a lavish diamond jubilee for Queen Elizabeth II and has coincided with ever bleaker economic news: The Office for National Statistics reported Wednesday that the economy had shrunk by 0.7 percent from April to June, a far worse contraction than had been forecast, deepening a double-dip recession that’s the severest in decades.

Meanwhile, the cost of staging the games has risen to several times the initial projection, exceeding even the infamous budget-busting standards of the 1996 Atlanta games. London’s now are expected to end up as the most expensive ever, at a cost of more than $14 billion.

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Competition got under way Wednesday, but a women’s soccer match that involved Colombia and North Korea was delayed by an hour after North Korean players were introduced on a video with their faces next to the South Korean flag.

The BBC reported that the rather dramatic mix-up – the neighboring countries are still technically at war, having never signed a treaty after a cease-fire took effect in the 1950s Korean conflict – occurred at the studio that produced the pregame video. The Christian Science Monitor pronounced it perhaps the worst blunder by a host nation in the Olympics’ 116-year modern history.

No, that would be Cameron’s austerity policies.  Watch what happens when the Olympic stimulus is cut off.

Crossposted from The Stars Hollow Gazette

(Joseph Stiglitz w/ Jon Stewart 7/25/12)

The Price of Inequality

Joseph E. Stiglitz, Project Syndicate

Jun. 5, 2012

America likes to think of itself as a land of opportunity, and others view it in much the same light. But, while we can all think of examples of Americans who rose to the top on their own, what really matters are the statistics: to what extent do an individual’s life chances depend on the income and education of his or her parents?

Nowadays, these numbers show that the American dream is a myth. There is less equality of opportunity in the United States today than there is in Europe – or, indeed, in any advanced industrial country for which there are data.

Part 1

A closer look at those at the top reveals a disproportionate role for rent-seeking: some have obtained their wealth by exercising monopoly power; others are CEOs who have taken advantage of deficiencies in corporate governance to extract for themselves an excessive share of corporate earnings; and still others have used political connections to benefit from government munificence – either excessively high prices for what the government buys (drugs), or excessively low prices for what the government sells (mineral rights).

Likewise, part of the wealth of those in finance comes from exploiting the poor, through predatory lending and abusive credit-card practices. Those at the top, in such cases, are enriched at the direct expense of those at the bottom.

It might not be so bad if there were even a grain of truth to trickle-down economics – the quaint notion that everyone benefits from enriching those at the top. But most Americans today are worse off – with lower real (inflation-adjusted) incomes – than they were in 1997, a decade and a half ago. All of the benefits of growth have gone to the top.

Defenders of America’s inequality argue that the poor and those in the middle shouldn’t complain. While they may be getting a smaller share of the pie than they did in the past, the pie is growing so much, thanks to the contributions of the rich and superrich, that the size of their slice is actually larger. The evidence, again, flatly contradicts this. Indeed, America grew far faster in the decades after World War II, when it was growing together, than it has since 1980, when it began growing apart.

Part 2

America is paying a high price for continuing in the opposite direction. Inequality leads to lower growth and less efficiency. Lack of opportunity means that its most valuable asset – its people – is not being fully used. Many at the bottom, or even in the middle, are not living up to their potential, because the rich, needing few public services and worried that a strong government might redistribute income, use their political influence to cut taxes and curtail government spending. This leads to underinvestment in infrastructure, education, and technology, impeding the engines of growth.

Part 3

America’s inequality is undermining its values and identity. With inequality reaching such extremes, it is not surprising that its effects are manifest in every public decision, from the conduct of monetary policy to budgetary allocations. America has become a country not “with justice for all,” but rather with favoritism for the rich and justice for those who can afford it – so evident in the foreclosure crisis, in which the big banks believed that they were too big not only to fail, but also to be held accountable.

Crossposted from The Stars Hollow Gazette

Economy in U.S. Grows at 1.5% Rate

By Shobhana Chandra, Bloomberg News

Jul 27, 2012 8:57 AM ET

Today’s report showed household consumption rose at a 1.5 percent from April through June, down from a 2.4 percent gain in the prior quarter. The median forecast in the Bloomberg survey called for a 1.3 percent advance. Purchases added 1.05 percentage points to growth.

Recent data signal consumers are reluctant to step up purchases. Retail sales fell in June for a third consecutive month, the longest period of declines since 2008. Same-store sales rose less than analysts’ estimates at retailers including Target Corp. (TGT) and Macy’s Inc. (M)

Slowing sales and currency fluctuations led Procter & Gamble, the world’s largest consumer products company, to cut profit forecasts three times this year.

…

Consumers may remain cautious until hiring accelerates. Payroll gains averaged 75,000 in the second quarter, down from 226,000 in the prior three months and the weakest in almost two years. The unemployment rate, which held at 8.2 percent in June, has exceeded 8 percent for 41 straight months.

…

Cutbacks by government agencies continued to hinder growth as spending dropped at a 1.4 percent annual rate in the first quarter, the ninth decrease in the last 10 periods. The decline was led by a 2.1 percent fall at the state and local level that marked an 11th consecutive drop.

Business investment cooled last quarter reflecting stagnant spending on commercial construction projects. Corporate spending on equipment and software improved, climbing at a 7.2 percent pace, up from a 5.4 percent increase in the previous quarter.

A report yesterday showed the corporate spending outlook has dimmed. Bookings for non-military capital goods excluding aircraft, a proxy for future investment, fell at a 3.1 percent annual rate in the second quarter, the first decrease since the same period in 2009, when the U.S. was still in a recession, according to Commerce Department data.

US economic growth slowed to 1.5 pct. annual rate in Q2 as consumer spending weakened

By Associated Press

Friday, July 27, 9:14 AM

Growth at or below 2 percent isn’t enough to lower the unemployment rate, which was 8.2 percent last month. And most economists don’t expect growth to pick up much in the second half of the year. Europe’s financial crisis and a looming budget crisis in the U.S. are expected to slow business investment further.

“The main take away from today’s report, the specifics aside, is that the U.S. economy is barely growing,” said Dan Greenhaus, chief economic strategist at BTIG LLC. “Along with a reduction in the actual amount of money companies were able to make, it’s no wonder the unemployment rate cannot move lower.”

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The U.S. economy has never been so sluggish this long into a recovery. The Great Recession officially ended in June 2009.

Until a few weeks ago, many economists had been predicting that growth would accelerate in the final six months of the year. They pointed to gains in manufacturing, home and auto sales and lower gas prices.

But threats to the U.S. economy have left consumers too anxious to spend freely. Jobs are tight. Pay isn’t keeping up with inflation. Retail sales fell in June for a third straight month. Manufacturing has weakened in most areas of the country.

24.6% Unemployment Rate in Spain

By RAPHAEL MINDER, The New York Times

Published: July 27, 2012

Just over 5.69 million Spaniards ended the second quarter jobless, raising the unemployment rate to a record 24.6 percent, compared with 24.4 percent in the first quarter, according to the latest national employment statistics published Friday.

Youth unemployment rose to 53 percent in the second quarter, up 1.3 percentage points from the previous quarter and 7 percentage points from a year ago.

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Some of Spain’s leading banks reported significant drops in earnings Friday, largely the result of having to set aside more money to cover loans that could default.

CaixaBank said its first-half profit fell 80 percent to €166 million as it provisioned another €3.735 billion against loans made to Spain’s collapsed property sector. Banco Popular reported a 42 percent decline in first-half profit, to €176.5 million, after provisioning €3.4 billion. On Thursday, Banco Santander, Spain’s biggest commercial bank, had also reported a sharp drop in profit as a result of higher provisioning.

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The yield, or interest rate, on the 10-year Spanish sovereign bond was at 6.726 percent, down 0.10 percentage point. The Italian 10-year yield was at 5.938 percent, down 0.077 percentage point.

Adapted from The Stars Hollow Gazette

Because the big problem is not the U.S. obsession with guns, violence, and fame or a corrupt conventional media establishment and cowardly politicians; it’s people who dress up in fishnet stockings and teddies.

Madness takes its toll.

Crossposted from The Stars Hollow Gazette

Geithner Raked Over the Coals in House Committee About Libor

By: David Dayen, Firedog Lake

Wednesday July 25, 2012 9:35 am

Barney Frank operated as Geithner’s lawyer through all of this, saying that the 2008-era financial regulators were all Bush appointees. But that’s not the point; none of those regulators had access to documentary evidence of the commission of fraud.

Here’s the backstory. When Geithner ran the New York Federal Reserve Board, they failed to inform US regulators that they had an admission of guilt from a Barclays employee that the Libor was being rigged. The Commodity Futures Trading Commission and the Justice Department had to build their case without the direct evidence of rigging that Geithner and his staff knew all about.

Geithner denied this today. He claimed that he did everything he could. “We took the initiative to bring those concerns to the attention of the broader U.S. regulatory community, including all the agencies that have responsibility for market manipulation and abuse,” he said in testimony.

Well, someone’s lying. And Geithner’s claim that he didn’t know about rate rigging until 2008, when the NY Fed acknowledged in documents that they had evidence in 2007, doesn’t make him a credible witness. Not to mention the fact that the NY Fed set the payouts for the AIG bailout, and the TALF lending facility, using Libor as a benchmark.

…

If there were any justice in the world, Geithner would be dead to rights. He had documentary evidence of fraud, and he didn’t send it up the chain to the authorities. In fact, he continued to use the fraudulent rates in the NY Fed’s everyday business.

N.Y. Fed quiet on Barclays’ admission of rigging Libor

By Jia Lynn Yang and Danielle Douglas, Washington Post

Published: July 24

Geithner, who was then head of the Federal Reserve Bank of New York, did not communicate in key meetings with top regulators that British bank Barclays had admitted to Fed staffers that it was rigging Libor, according to people familiar with the matter.

Instead, regulators at the Commodity Futures Trading Commission and the Justice Department worked largely without the Fed’s help to build a case against Barclays. That work has culminated in a massive scandal rocking the banking industry on both sides of the Atlantic.

…

Still, the Fed proceeded to use Libor as a benchmark to determine how much insurance giant American International Group would pay back the government during its bailout. The measure also was used in the fall of 2008 to set the interest rate for the emergency lending program called the Term Asset-Backed Securities Loan Facility, or TALF.

“That number [Libor] determined how the taxpayer would be compensated,” said Neil Barofsky, who was the chief watchdog of the financial system’s $700 billion bailout. “That’s putting the Federal Reserve’s imprimatur on a rate it has suspicion to think was fraudulent. The Federal Reserve’s use of that and Treasury’s use of that in the bailout sends a powerful message to the market: ‘Hey don’t worry about this, we’re endorsing it.’ ”

He added that the Fed’s response can be measured by the fact that no one has reformed Libor.

Libor is critical because it is used worldwide to set the rates for trillions of dollars’ worth of mortgages, student loans, auto loans and many other financial contracts. It was an especially important metric during the financial crisis because it was a key indicator for the health of the banking industry.

SIGTARP: Taxpayers still exposed as AIG shrinks CDS portfolio

By Jon Prior, HousingWire

July 24, 2012

Taxpayers are still owed more than half their original investment in American International Group even as its non-insurance business operates without a consolidated banking regulator, according to the Special Inspector General for the Troubled Asset Relief Program.

AIG still has $30.4 billion from the original $67.8 billion TARP investment outstanding as of July, which is on track to actually earn a return, SIGTARP said in a special report (.pdf) Wednesday.

…

“For more than two years, AIG has had no consolidated banking regulator of its non-insurance financial business,” SIGTARP said in its report.

Despite the regulatory uncertainty, AIG continues to bet on the mortgage market. From December 2010 through March 31, it doubled its commercial mortgage-backed securities and private-label mortgage bond holdings to $28.4 billion.

New York Fed Faces Questions Over Policing Wall Street

By BEN PROTESS and JESSICA SILVER-GREENBERG, The New York Times

July 24, 2012

(T)he JPMorgan debacle and the interest-rate investigation have raised questions about the New York Fed. They highlight how the regulator is hampered by its lack of enforcement authority and dogged by concerns that it is overly cozy with the banks.

Mr. Geithner is expected to face questions from lawmakers on Wednesday about the rate-rigging inquiry that has ensnared more than a dozen big banks. In June, Barclays agreed to pay $450 million to authorities for manipulating the London interbank offered rate, or Libor.

…

(T)he New York Fed, which knew Barclays had been reporting false rates at the time, did not stop the actions.

And when Mr. Geithner briefed other American regulators about Libor in May 2008, he did not disclose the specific wrongdoing, according to people briefed on the meeting. In later briefings, New York Fed officials did warn their counterparts about “allegations of misreporting.”

“The regulator has an obligation to make a criminal referral if it suspects a crime may have occurred,” said Bart Dzivi, who served as special counsel to the Federal Financial Crisis Inquiry Commission. “How this doesn’t rise to that level, simply boggles the mind.”

Crossposted from The Stars Hollow Gazette

Small Business Owners, Job Creators.

Randy Wray: Why We’re Screwed

L. Randall Wray, Naked Capitalism

Monday, July 23, 2012

A century ago Veblen analyzed religion as the quintessential capitalist undertaking. It sells an inherently ephemeral product that can not be quality tested. Most of the value of that product exists only in the minds of the purchasers, and most of that value cannot be realized until death. Dissatisfied customers cannot return the purchased wares to the undertakers who sold them-there is no explicit money back guarantee and in any event, most of the dissatisfied have already been undertaken. The value of the undertaker’s institution is similarly ephemeral, mostly determined by “goodwill”. Aside from a fancy building, very little in the way of productive facilities is actually required by the religious undertaker.

But modern finance has replaced religion as the supreme capitalistic undertaking. Again, it has no need for production facilities-a fancy building, a few Bloomberg screens, greasy snake-oil salesmen, and some rapacious traders is all that is required to separate widows and orphans from their lifesavings and homes. Religious institutions only want 10%; Wall Street currently gets 20% of all the nation’s output (and 40% of profits), but won’t stop until it gets everything.

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And that is just the start. They also place tens of trillions of dollars of bets on derivatives whose value is purely “notional”. The thieves get paid when something goes wrong-the death of a homeowner, worker, firm, or country triggers payments on Death Settlements, Peasant Insurance, or Credit Default Swaps. To ensure that death comes sooner rather than later, the undertaker works with the likes of John Paulson to handpick the most sickly households, firms and governments to stand behind the derivative bets.

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The top four US Banks hold $171 Trillion worth of derivative deals like this. Derivatives are really just bets by Wall Street that we will get screwed-it is all “insurance” that pays off when we fail. Everything is insured-by them against us.

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You see, all the top financial institutions are dens of thieves, and thieves know better than to trust one another. So lending to fellow thieves has to be collateralized by safe financial assets-which is the traditional role played by Treasuries. But there were not enough of those to go around so Wall Street securitized home mortgages that were sliced and diced to get tranches that were supposedly as safe as Uncle Sam’s bonds. And there were not enough quality mortgages, so Wall Street foisted mortgages and home equity loans onto riskier borrowers to create more product.

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Suddenly there was no collateral behind the loans Wall Street’s thieves had made to one another. Each Wall Street thief looked in the mirror and realized everything he was holding was crap, because he knew all of his own debt was crap.

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And that is why we are screwed.

I see two scenarios playing out. In the first, we allow Wall Street to carry on its merry way, as the foreclosure crisis continues and Wall Street steals all homes, packaging them into bundles to be sold for pennies on the dollar to hedge funds. All wealth will be redistributed to the top 1% who will become modern day feudal lords with the other 99% living at their pleasure on huge feudal estates.

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In the second, the 99% occupy, shut down, and obliterate Wall Street.

Crossposted from The Stars Hollow Gazette

Banks Caught Up In Libor Scandal Seek Group Settlement

By: David Dayen, Firedog Lake

Friday July 20, 2012 7:04 am

As regulators and law enforcement officials around the world begin to dig into the Libor scandal, the 15 or so banks who know they’re responsible for the massive rate-rigging are trying to limit the damage. That’s right, it’s time for another round of: let’s have a global settlement!

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Reuters did add that regulators would like the idea of a global settlement because they would get to have a big press conference and announce a headline number, and I think that’s right. We saw the appeal of that in the foreclosure fraud settlement.

Yves Smith @ Naked Capitalism–

Dudes, we gave you a link last week from Sky News saying the same thing!

Exclusive: Banks in Libor probe consider group settlement – sources

By Katharina Bart and Diane Bartz, Reuters

2012/07/19

A group agreement would appeal to financial watchdogs because they would be able to announce a headline-grabbing figure, showing that they were dealing firmly with the banking industry’s misdemeanors, a banker told Reuters on condition of anonymity.

Earlier this year, five top U.S. banks negotiated a $25 billion settlement with the U.S. Justice Department and other federal and state agencies to resolve allegations of mortgage services abuses.

…

However, if they were able to reach a group settlement it would enable them to share the pain of negative publicity.

…

Analysts have estimated that the scandal could cost the industry between $20 billion to $40 billion, further damaging a sector that is struggling to work its way through the aftermath of the 2007-2009 financial crisis, economic downturns in Europe and the United States, and increased regulatory demands.

Told you so–

Exclusive: Push For Libor Settlement

Mark Kleinman, City Editor, Sky News

Wednesday 11 July 2012

Investors believe that an industry-wide settlement will be necessary if other banks are to avoid a clear-out of their top executives, although one mitigating factor which might assist those who get fined for Libor-rigging is likely to be the fact that many of them have changed their top management since the periods under investigation.

“A drip-feed of Libor-related fines would be hugely damaging to investors with large exposures to international banks,” one leading shareholder told me.

Of course, it’s the view of many that banks which are found guilty of such an important offence as manipulating the rate of Libor should sack those responsible and that they should face further punishment under the law.

Hah hah hah.

DirecTV and Viacom reach deal, end blackout

By Joe Flint, Los Angeles Times

July 20, 2012

“There was an increase, but not nearly the increase they were seeking,” DirecTV Executive Vice President Derek Chang said.

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Although programmers and distributors often bicker over new contracts, the Viacom-DirecTV battle was particularly public and nasty. Both companies ran ads blasting each other and their executives took potshots at one another as well.

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When Viacom’s channels went off DirecTV, which is in about 20 million homes, ratings for its networks dropped more than 20% in some cases. The longer the networks were off DirecTV, the more Viacom had at stake.

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DirecTV did get one concession from Viacom. As part of the deal, DirecTV subscribers will now be able to access live feeds of Viacom’s channels on tablets and mobile devices outside the home. This marks the first time that Viacom has agreed to allow such an arrangement with a distributor.

However, Viacom also is likely to continue to put a lot of its television shows on its own websites for free, which was a sore point for DirecTV.

Lifeguard’s ordeal is parable about outsourcing

By Steven Pearlstein, Washington Post

Published: July 14

Because they are generally free from union contracts and the unwritten norms of pay equality that exist within any enterprise, contractors are able to pay lower wages and benefits – in many cases, a lot lower. That was certainly the case with Ellis and the Hallandale lifeguards.

The second big advantage that outsourcing firms enjoy is the economies of scale. A firm that specializes in one function and does a lot of it can generally do it at a lower cost simply by spreading fixed costs over a much larger base of business.

Simply by having more experience, a specialty contractor is also more likely to hit upon the most efficient and effective ways of doing things and can quickly adopt those improvements throughout its operations.

…

There is, however, an important trade-off that is made by outsourcing that contractors reflexively deny but is inherent in any firm that derives its competitive advantage from having carefully constructed systems for doing just about everything.

It is these systems – the rules, the procedures, in effect the operational software – that allow companies to take relatively low-skilled, low-paid workers with relatively little experience and have them do tasks that were once done by people with higher skills, higher pay and more experience. And it is the very nature of these systems that workers are discouraged, if not prohibited, from exercising their own discretion. Their only job is to follow rules, stick to the script and leverage the experience and expertise that are embedded in the system.

That’s why the person in the airline call center in Bangalore can’t do what is necessary to help you catch your honeymoon cruise after your flight has been canceled because a co-pilot failed to show up on time. Her computer simply won’t allow her.

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The reason these various systems can deliver reliable service at lower cost most of the time is precisely because front-line workers are willing and able to act like cogs in a machine. So when two of Lopez’s colleagues later told supervisors they would have done the same thing, they were fired as well.

If you want discretion and judgment, if you want workers who really understand and relate to customers, if you want the flexibility necessary to respond to individual needs or unforeseen circumstances, then you can go back to paying twice as much to have your own, longtime employees doing the work. That’s the outsourcing trade-off. It may be a good trade-off – most of the time I suspect it is. But it is an unavoidable trade-off, no matter how good the contractors or their systems.