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Archive for January, 2008

By Emily Sanderson

Since August 1, 2007, Minneapolis commuters who cross the Mississippi River using Interstate 35W have had to take a detour, and the most common one is taking Highway 280 to Interstate 94, which crosses the river — a combined stretch of freeway about double the length of the Interstate 35W route.

Undersized gusset plates, frequently used in construction to fuse any number of load-bearing columns with beams, may be to blame for the I-35W bridge collapse that killed 13 people and injured 145, according to findings by the National Transportation Safety Board released in January.

The gusset plates were part of the bridge’s original design.

The Minnesota Department of Transportation (Mn/DOT), with the assistance of federal funds, hopes to complete the replacement bridge by Christmas 2008.

“Crews will be working day and night on both sides of the river, seven days a week, until the piers are complete sometime in March,” according to Mn/DOT’s website.

The bridge, which crosses the Mississippi River in Minneapolis, normally carries more than 140,000 vehicles per day, and the loss of the bridge is costing $400,000 per day in lost revenue, increased commute expenses, and burden on surrounding roads, Mn/DOT’s website indicates.

The federal government will provide more than $300 million toward the rebuild project, according to the Wall Street Journal. Discussions in Congress to increase the gasoline tax are presently being considered.

The Safety Board recommended that the Federal Highway Commission conduct load capacity calculations on all steel truss bridges “to verify that the stress levels on all structural elements, including gusset plates, remain within applicable design requirements whenever planned modifications or operational changes may significantly increase stresses.”

However, the Safety Board emphasized that no other steel truss bridges are known to have gusset plate inadequacies.

“The Safety Board has issued this recommendation…to ensure that the original design calculations for other bridges of this type have been made correctly,” said Mark Rosenker, Safety Board chair.

A final report indicating the cause of the bridge collapse will be provided by the end of 2008.

Calls to step up infrastructure spending will likely grow, according to the Wall Street Journal. A report by the National Surface Transportation Policy and Revenue Study Commission said the country would need to spend $225 billion annually over the next 50 years to fix current deficits and address future transportation needs. Currently the nation spends less than 40% of that figure annually.

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By Emily Sanderson     

Recalls of toys as a result of a hazardous material, such as lead paint, affected only about 0.3% of the three billion toys imported into the United States from China last year, according to the New York Times.          

Recalls of toys as a result of a hazardous material, such as lead paint, affected only about 0.3% of the three billion toys imported into the United States from China last year.

“About 0.3%,” or 9 million, is 900,000 more than the six standard deviation policy (±0.27%) employed by Six Sigma followers. When dealing with a volume in the billions, the margin of error must be reduced to a smaller number.

The American Society for Quality (ASQ), in a recent press release, agrees, saying that much of the responsibility for quality problems with toys manufactured in China lies with U.S. importers who failed to provide adequate oversight.

“Companies are so used to dealing with suppliers in the United States or Europe that comply with their specifications that they aren’t taking into account that the whole concept of quality systems is a radically new thing to many foreign suppliers in countries like China,” said Randy Goodden, chair of ASQ’s Product Safety & Liability Prevention Interest Group.

Last year, “Americans fell prey to one of the many dangers of China’s rough and raw capitalism,” reported the Washington Post. “It’s a cutthroat, predatory world where many factories cut corners to make an easy buck or just stay ahead of the thousands of others vying for their business. Safety scares, copyright ripoffs, and outright thuggery are endemic.”

But Chinese officials defend their factories, reiterating that only a tiny fraction of the billions of dollars in exports had problems last year. However, it only takes one bad batch of toothpaste to cause deaths, according to the Post.

AsiaInspection, a quality assurance services firm based in Shenzhen, China, serves about 150 U.S. clients and approximately 1,500 clients worldwide.

“We have indeed felt a growing concern from our clients, especially in the U.S., but elsewhere, as well, following the quality issues mentioned in the news and related to lead paint, or, more generally, defective fillings and constructions in products made in China,” said AsiaInspection’s CEO Sebastien Breteau. Since July, when the first big news about defective products was reported, “we have experienced a raise of about 30% in our activity.”

“Our response to these concerns consists in the implementation of full quality control processes, from factories evaluation to laboratory tests when launching the order, to on-the-line inspections during and after production,” Breteau continued. “AsiaInspection helps importers enforce a safe and reliable supply chain in Asia.”

The U.S. toy industry is lobbying for a stronger safety system that involves better production-line audits of materials and approval of designs by independently certified auditors, reported the New York Times. “The move to tighter regulation will force toy companies to place a new level of scrutiny on Chinese suppliers.”

Chinese regulators have also intensified their inspections of manufacturers in recent months, the Times reported. “Li Qingxiang, an official in the Guangdong Province Entry-Exit Inspection and Quarantine Bureau, told a [recent conference in New York] that some 200 small manufacturers had been prohibited from exporting because of ‘substandard products.’”

The toy industry should consider application of the margin of error that airplane manufacturers employ. “When is a door not a door? When it’s on an aircraft,” reported US Industry Today. “An aircraft door is actually an integrated electromechanical system that includes sensors linked to a data unit which feeds the onboard computer and cockpit control panel.”

Aerospace Avionics “manufactures advanced aviation components such as proximity sensors that use inductors. The company uses solid-state electronics, meaning that there are no moving parts to maintain or wear out,” US Industry Today reported.

When airlines are constantly dealing with flight delays and weather inconsistencies, airplanes need to be manufactured with the smallest margin of error possible. Similarly, the toy industry should make product safety their number one priority.

The challenge will be doing so in a cost-effective manner. Despite safety concerns, most consumers will still want to pay the same price for their toys as they have been paying.

“I think there are probably a lot of shoppers who made the effort over Christmas to read the box and say, ‘It’s made in China; I won’t buy made in China this year,’” said Philip Shoptaugh, who owns Shoptaugh Games, as reported by the New York Times. “But having said that, are you going to pay twice as much for a doll because it’s not made in China?…You cannot make these products in the United States and have them be competitive on the shelf.”

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By Emily Sanderson

The U.S. manufacturing sector dropped 3.1 points to 47.7% on the Institute of Supply Management’s Purchasing Managers Index(PMI) in December, and it is the first month that the sector has failed to grow since January 2007, according to a recent report released by the organization.

The U.S. manufacturing sector dropped 3.1 points to 47.7% on the Institute of Supply Management’s Purchasing Managers Index (PMI) in December

The index is closely watched because a slowdown in factory production can translate to job cuts, which in turn reduce consumer spending — a major component of the economy.

”A PMI in excess of 41.9%, over a period of time, generally indicates an expansion of the overall economy. Therefore, the PMI indicates that the overall economy is growing while the manufacturing sector is contracting,” the American Machinist reported.

Department of Labor Statistics Mirror Market Sector Indicators

Accordingly, the U.S. Department of Labor’s employment report for December indicated declines in the number of non-farm construction and manufacturing jobs (goods-producing trades) and an increase in non-farm service-providing trades. The overall unemployment rate rose to 5.0%.

”Job growth in several service-providing industries, including professional and technical services, health care, and food services, was largely offset by job losses in construction and manufacturing,” the report from the U.S. Department of Labor concluded.

In response to slowing demand, employers are cutting hours for more workers to below the 35-hour-per-week threshold for full-time work, according to the Wall Street Journal.

”Hyundai Motor Manufacturing Alabama LLC, a unit of Hyundai Motor Co., idled 3,300 production workers for 10 Fridays over the past three months, effectively dropping their weekly hours to 32 during affected weeks,” the Journal reported. ”Pella Corp., a window and door manufacturer in Iowa, has trimmed hours for several hundred of its 10,000 employees over the past few months, many to part-time hours.”

Not all the news is bad for job-seekers in the manufacturing industries, according to a press release from EmploymentScape, the parent company of ManufacturingCrossing.com. ”Companies as diverse as Spherion and Peterbilt Motors are filling manufacturing positions, even with the overall decline in available manufacturing jobs.

”Professionals seeking these jobs will simply need to become more shrewd and will rely more on up-and-coming sources such as EmploymentCrossing.com that bring together jobs from employer websites and job boards, rather than relying on traditional job boards that rely on employers to post jobs.”

EmploymentCrossing.com and its industry-specific sister sites do not charge employers to post jobs.

Predictions for 2008’s Economy

The Associated Press forecasts a difficult U.S. economy in upcoming months.

”Many economists believe the U.S. economy grew at an anemic rate of about 1.5% in the final quarter of the year and that it could slow to 0.5% or less in [the first quarter] … A growing number expect a recession because of turmoil in the housing market and continuing tight credit conditions.”

However, Pensions & Investments indicated optimism for the economy in 2008.

”Money managers believe that after a rocky first half of the year, the U.S. economy and stock market will revive in the second half of 2008,” the financial newsletter reported, although it also predicted that the worst is not yet over.

”The Fed will continue to lower interest rates through the first half of the year, and more negative information likely will keep coming from banks regarding subprime exposure,” said Virginia Parker, CEO of Parker Global Strategies LLC, a hedge fund-of-funds manager based in Stamford, CT, as reported by Pensions & Investments. ”The combination of the bad news and a bit of a slowdown in the U.S. economy will continue to fuel the stock market sell-off in the first half, but we believe the market will then pick up in the last two quarters of the year.”

Nearly all money market managers interviewed by Pensions and Investments predicted that the unemployment level will remain below 5%; however, James L. Melcher, president and managing director of Balestra Capital Ltd., a New York hedge fund-of-funds manager, said that the figure is misleading because the Department of Labor statistic does not include undocumented workers, the financial newsletter reported.

The Institute for Supply Management’s Inventories Index also contracted 1.4 percentage points to 45.5% in December, the 17th consecutive month of inventory liquidation. An Inventories Index greater than 42.4%, over time, is generally an indicator of expansion in overall manufacturing inventories, according to the American Machinist.

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By Emily Sanderson

In a survey by the American Management Association, CEOs agreed that practicing creativity and innovation was what businesses need to survive in the 21st century, according to an article in Psychology Today by Stanley S. Gryskiewicz and Robert Epstein. However, only 6% of the CEOs felt that their organizations were doing a ”great job” of it.

Linda Naiman, founder of Creativity at Work, provides this illustration on her website of the Cycles of Creativity, a model developed by Gabrielle Roth in her book, Maps to Ecstasy.

”This creativity deficit may be the single most dangerous gap in American business today,” Gryskiewicz and Epstein say. ”More than just a buzzword, creativity is the secret to business success that American companies can no longer afford to ignore.”

FRCH Worldwide Design, a Cincinnati architecture and interior design firm, is known for facilitating a creative-friendly work environment for its employees, reports the Wall Street Journal.

”We are in the business of selling our creativity as our product, so it’s especially important to us,” said Jim Tippman, chief executive of FRCH, according to the Journal. ”But every business that’s going to thrive in this modern environment to stay competitive and beat offshore competition needs its employees to be innovative.”

In his book, A Whole New Mind, author Daniel Pink argues that the United States has passed through the ”Information Age” of its civilization cycle and has now reached the ”Conceptual Age.” Where the Information Age was brought about by knowledge and logic, the Conceptual Age will be facilitated by creators and empathizers.

”Pink points to Asia, automation, and abundance as the reasons behind the shift. Left-brain linear, analytical, computer-like thought is being replaced by right-brain empathy, inventiveness, and understanding as skills most needed by business,” says Linda Naiman, founder of Creativity at Work. ”Creativity requires whole-brain thinking; right-brain imagination, artistry, and intuition, plus left-brain logic and planning,” Naiman says.

FRCH’s Tippman says that providing an office with stimulating interior architecture was one of the first ways they approached encouraging creativity among their employees.

Interior Architects Inc. (IA) specializes in corporate design interiors. They have worked with a number of Fortune 500 clients. Among those, IA works with Motorola at multiple locations throughout the United States.

”For their new location on Pennsylvania Avenue, Motorola wanted not only to emphasize its world class leadership in the design, production, and distribution of communications technology and electronics, but to invigorate its workforce with a reinvented workplace,” IA’s website says.

”IA chose movement as a major design theme expressed through the curvilinear geometry of wall layouts, ceiling treatments, and carpet designs. Simple, easy-to-navigate circulation routes encourage communication across business units,” the site continues. ”Sliding glass doors and a full height re-positional wall system for all interior walls, including offices and ‘huddle’ spaces/rooms, provide maximum flexibility and efficiency. Modular and mobile furniture in both open and closed business areas can be easily reconfigured to meet personal preferences and changing business needs.”

For TiVo in San Jose, CA, IA designed a 127,000 square foot facility to reinforce the TiVo brand and to support the company’s collaborative culture.

”The main corridor through the facility acts as a storytelling device, leading visitors from the lobby along the computer room, editing suites, demonstration area, and boardroom. A product demonstration room, enclosed by curtains, evokes a home theater experience,” IA’s site explains.

”In the ‘town center,’ TiVo’s primary gathering area, the entire staff comes together to share information on the latest company and industry developments,” the site continues. ”An espresso bar and acoustically insulated music room are some of the amenities that provide a change of pace during the workday.”

Regarding methods of encouraging creativity in the office, ”The way forward is paradoxically not to look ahead, but to look around,” explains John Sealy Brown, director of the Palo Alto Research Center for Xerox, as reported by Gryskiewicz and Epstein.

”It is the responsibility of creative leaders to provide their organizations with opportunities for exploring the periphery. It can be done on both the individual and the organizational levels and can involve either internal or external resources,” Gryskiewicz and Epstein say.

Learning to streamline creativity in the workplace and to utilize it effectively is very rewarding on a personal and corporate level, Naiman indicates.

”Time is cyclical, and we can transform our lives through change. Nature itself is an example of constant birth, growth, death, and renewal,” Naiman continues. ”Understanding the nature of creativity and how to develop it at the personal and organizational level will help us to create the world we want.”

”One of the problems with creativity is that it tends to be chaotic and messy,” Naiman says. “It grows in a non-linear fashion, like an unruly visitor in the controlled environment of the boardroom. We need to learn to shift our thinking, to work with the chaos.”

By Emily Sanderson

In a survey by the American Management Association, CEOs agreed that practicing creativity and innovation was what businesses need to survive in the 21st century, according to an article in Psychology Today by Stanley S. Gryskiewicz and Robert Epstein. However, only 6% of the CEOs felt that their organizations were doing a ”great job” of it.

Linda Naiman, founder of Creativity at Work, provides this illustration on her website of the Cycles of Creativity, a model developed by Gabrielle Roth in her book, Maps to Ecstasy.

”This creativity deficit may be the single most dangerous gap in American business today,” Gryskiewicz and Epstein say. ”More than just a buzzword, creativity is the secret to business success that American companies can no longer afford to ignore.”

FRCH Worldwide Design, a Cincinnati architecture and interior design firm, is known for facilitating a creative-friendly work environment for its employees, reports the Wall Street Journal.

”We are in the business of selling our creativity as our product, so it’s especially important to us,” said Jim Tippman, chief executive of FRCH, according to the Journal. ”But every business that’s going to thrive in this modern environment to stay competitive and beat offshore competition needs its employees to be innovative.”

In his book, A Whole New Mind, author Daniel Pink argues that the United States has passed through the ”Information Age” of its civilization cycle and has now reached the ”Conceptual Age.” Where the Information Age was brought about by knowledge and logic, the Conceptual Age will be facilitated by creators and empathizers.

”Pink points to Asia, automation, and abundance as the reasons behind the shift. Left-brain linear, analytical, computer-like thought is being replaced by right-brain empathy, inventiveness, and understanding as skills most needed by business,” says Linda Naiman, founder of Creativity at Work. ”Creativity requires whole-brain thinking; right-brain imagination, artistry, and intuition, plus left-brain logic and planning,” Naiman says.

FRCH’s Tippman says that providing an office with stimulating interior architecture was one of the first ways they approached encouraging creativity among their employees.

Interior Architects Inc. (IA) specializes in corporate design interiors. They have worked with a number of Fortune 500 clients. Among those, IA works with Motorola at multiple locations throughout the United States.

”For their new location on Pennsylvania Avenue, Motorola wanted not only to emphasize its world class leadership in the design, production, and distribution of communications technology and electronics, but to invigorate its workforce with a reinvented workplace,” IA’s website says.

”IA chose movement as a major design theme expressed through the curvilinear geometry of wall layouts, ceiling treatments, and carpet designs. Simple, easy-to-navigate circulation routes encourage communication across business units,” the site continues. ”Sliding glass doors and a full height re-positional wall system for all interior walls, including offices and ‘huddle’ spaces/rooms, provide maximum flexibility and efficiency. Modular and mobile furniture in both open and closed business areas can be easily reconfigured to meet personal preferences and changing business needs.”

For TiVo in San Jose, CA, IA designed a 127,000 square foot facility to reinforce the TiVo brand and to support the company’s collaborative culture.

”The main corridor through the facility acts as a storytelling device, leading visitors from the lobby along the computer room, editing suites, demonstration area, and boardroom. A product demonstration room, enclosed by curtains, evokes a home theater experience,” IA’s site explains.

”In the ‘town center,’ TiVo’s primary gathering area, the entire staff comes together to share information on the latest company and industry developments,” the site continues. ”An espresso bar and acoustically insulated music room are some of the amenities that provide a change of pace during the workday.”

Regarding methods of encouraging creativity in the office, ”The way forward is paradoxically not to look ahead, but to look around,” explains John Sealy Brown, director of the Palo Alto Research Center for Xerox, as reported by Gryskiewicz and Epstein.

”It is the responsibility of creative leaders to provide their organizations with opportunities for exploring the periphery. It can be done on both the individual and the organizational levels and can involve either internal or external resources,” Gryskiewicz and Epstein say.

Learning to streamline creativity in the workplace and to utilize it effectively is very rewarding on a personal and corporate level, Naiman indicates.

”Time is cyclical, and we can transform our lives through change. Nature itself is an example of constant birth, growth, death, and renewal,” Naiman continues. ”Understanding the nature of creativity and how to develop it at the personal and organizational level will help us to create the world we want.”

”One of the problems with creativity is that it tends to be chaotic and messy,” Naiman says. “It grows in a non-linear fashion, like an unruly visitor in the controlled environment of the boardroom. We need to learn to shift our thinking, to work with the chaos.”

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By Emily Sanderson

Patricia’s company installed a new Shoretel VoIP phone system in her office last spring to replace the previous system, which was installed 20 years before. The system centralizes the Internet as the communication medium in her business and reclassifies her telephone as external computer hardware comparable to a keyboard or mouse. The new system revolutionizes the tasks associated with being a receptionist, providing additional tools but also creating new challenges.

”VoIP systems remove many technological barriers that have previously existed with phone systems.”

The Shoretel VoIP system was designed to maintain traditional phone features but to also provide much more. The system allows users to dial calls through a desktop application that is connected to their MS Outlook phone directories — without even touching the phone. The VoIP phones come equipped to use with headsets and also default to speaker phone. So make sure not to hit the wrong button, and be careful what you say at your desk. If you hear a ringing sound, you might be calling someone.

The systems give staff unlimited personal lines so that individuals who call in will never get a busy signal. In addition, staff members who travel to regional offices within the company on a regular basis can easily set their phone number to temporarily ring from another phone with no long distance charges.

Patricia, who has been an administrative professional for 25 years, said her company’s IT department spent weeks setting up the new system and has spent even more time training staff to use it. She has observed that a number of staff members now dial calls through the desktop application, but she has stayed with the traditional phone operating procedures — like picking up the receiver when the phone rings. She complains that the system is a lot more technical than the former system.

Transferring a call is more complicated now. There are more buttons to push, and Patricia is constantly referring to the “cheat card” that Shoretel provided. In addition, she has run into a few kinks. Ever since John, an executive in her office, got a new headset, she has been unable to reach him by speaker phone, something with which her IT department will need to assist her.

The VoIP system also has the capacity to indicate to callers a specific reason that a staff member is unavailable to take a call, such as that the staff member is in a meeting, on vacation, or out of the office; furthermore, the reason given can easily be changed throughout the day. However, Patricia has opted to maintain her office’s original phone answering techniques by using a live body; the personal touch is necessary in her office, which frequently interacts with powerful clientele.

VoIP systems remove many technological barriers that have previously existed with phone systems; however, businesses that are considering a phone upgrade to such a system must do so cautiously, allowing the new technology to assist their business processes — instead of dictating the processes themselves. In transferring to a new phone system, it is necessary to realize that the receptionist’s functions are part of the system — that is, the system of providing superior customer service.

With installation of a new phone system, it is necessary for staff to assess the effectiveness of their current phone processes, view the processes that are available with the new system, and select new processes that will make their old processes more efficient. For example, even though the technology exists to provide callers with detailed information about a staff member’s whereabouts, will doing so be in the staff member’s best interest, and will the information even be helpful to the caller?

Old fashioned receptionist standards are still the most effective in accomplishing superior customer service, and a new phone system should assist a business with accomplishing this.

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By Emily Sanderson

The lead paint scare could be compared to the Grinch who stole Christmas.

More than 25 million toys manufactured in China have been recalled in the past year, and more are expected to follow as toy manufacturers continue their investigations of possibly more products that have lead content which exceed the allowable limit in the United States.

Will the scare encourage parents, grandparents, aunts, and uncles to purchase toys made in America? The Environment News Service suggests a world-wide ban on lead paint. That would be nice, but it’s probably not enforceable. Marshall Loeb of the Wall Street Journal suggests purchasing toys made of unpainted hard wood, “since you can be sure it has no lead paint or toxic glues … [and] scout[ing] for toys labeled ‘Made in USA’ and ‘nontoxic’ … [or] if you feel like going to extra mile, consider buying toys made in Germany … [such as] Playmobil, Lego, and Ravensburger.”

How patriotic, and yet, I must admit, I purchased a Lego set for my niece this year. My other niece, nonetheless, actually asked for wooden building blocks or an erector set of some kind.

What do U.S. manufacturers think about the lead paint scare? Very few factories in the United States are even designed to manufacture children’s toys today, since larger U.S. toy companies have outsourced to countries such as China and Korea for decades.

A recent survey conducted by Standard and Poor’s Equity Research found that 25% of consumers said they were concerned about toy recalls, although 31% said they weren’t too concerned, CNN Money reported. The S&P survey also attributed the subpar holiday season to the lack of a “must-have” toy, combined with hot demand for electronics such as Nintendo’s Wii.

Toys ‘R’ Us experienced a strong start to the holiday season but fared erratic purchase levels mid-way through, which the toy store’s CEO Gerald L. Storch attributed to the economy in an interview with the Associated Press.

“With all … the scrutiny that toys have received, the consumers that we talk to believe the toys on the shelf now are safe,” Storch said.

Storch, when asked whether the risk of lead exposure in toys had been overblown, responded, “As we sit here today, the number one risk of lead exposure for children comes from house paint, primarily in substandard housing, but it can affect any older home where renovation work has been done and where lead is accessible.”

“I heard some people argue that the lead on the toys is so small that statistically it presents a very small risk to your child,” Storch continued. “That’s probably true. Having said that, it is simply inexcusable for products not to meet the safety standards that have been established for them.”

Mattel faces a class action lawsuit because of the toys it has voluntarily recalled this year. Plaintiffs seek to compel Mattel to set up a fund for testing children who may have been exposed to the recalled products for lead poisoning, CNN Money reported. Each test would cost about $50.

Mattel’s most recent recalls (in August) included a number of Fisher Price’s Nickelodeon and Sesame Street painted toys, including Dora the Explorer and Elmo toys. In the same month, Mattel also recalled a die-cast toy featuring the “Sarge” character from Disney’s “Toys.” One million of the Fisher Price toys were recalled, and 436,000 of the “Sarge” toys were recalled. Most of the toys manufactured had been shipped to U.S. vendors.

Toy manufacturers are paying attention to Capitol Hill regarding the matter. The U.S. Senate Committee on Commerce, Science, and Transportation is pursuing legislation to give more funding to the Consumer Product Safety Commission (CPSC) so that they can hire more employees to perform more tests. The legislation would increase the maximum civil penalty for violations from $8,000 to $250,000 and the maximum civil penalty for a related series of violations from $1.825 million to $100 million. Violators would also face criminal penalties for repeat offenses. In addition, the CPSC would establish third party compliance certification for manufacturers and importers.

Dollar Tree made the most recent toy recall of about 300,000 Baby Toys Baby Bead & Wire Toys and Speed Racer Pull Back & Go Action! Cars. Do all those toys end up zooming on a sleigh daring steep cliffs, or perhaps, succumb to a gigantic furnace deep inside the mountain? Perhaps, like the Grinch, lead paint will serve to remind us of what is really important this holiday season.

For more information about toy recalls, visit the Consumer Product Safety Commission’s website.

On the Net

Consumer Product Safety Commission’s website

Mattel’s Information about Recalled Toys

 

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By Emily Sanderson

“Accelerated adjustment in the U.S. housing sector … will drag down growth to low levels in the near term but will not trigger a recession and will only modestly push up unemployment.”

That’s what the global, Paris-based Organization for Economic Cooperation and Development (OECD) predicted in a report distributed on the same day as President Bush’s progress report in early December of his plan to prevent mass home mortgage foreclosures.

In his address, Bush announced that the Federal Housing Administration has helped more than 35,000 people refinance and is expected to help more than 300,000 families in the coming year. The Bush Administration has partnered with Hope Now Alliance to assist borrowers in one of three ways:

· By refinancing an existing loan into a new private mortgage

· By moving them into an FHA Secure loan

· By freezing their current interest rate for five years

“We should not bail out lenders, real estate speculators, or those who made the reckless decision to buy a home they knew they could never afford,” President Bush stated. “Yet there are some responsible homeowners who could avoid foreclosure with some assistance.”

Homeowners who will qualify for the aid cannot already be in foreclosure, cannot have already refinanced their homes, and cannot be more than 60 days delinquent on more than one payment over the last year. In addition, individuals will not qualify if they are deemed able to afford the higher interest rates scheduled to replace their introductory rates over the next two years.

Some were concerned that the plan would only be a temporary fix to the subprime loan imbalance.

“The evidence suggests that even when troubled borrowers receive a generous reset on their mortgage payments, as many as 40% of those borrowers still eventually default,” the Wall Street Journal stated in an opinion piece. “The refinancing plan might only delay the day of reckoning and lead to bigger losses in a falling market.”

Secretary of Treasury Henry Paulson, Jr., in a statement, discussed the Bush Administration’s approach to assisting the economy. “It is in everyone’s interest — homeowner, servicer, investor — to develop a market-based approach to avoid foreclosures that are preventable. And the current system for working out those problem loans would not be sufficient to handle the anticipated 1.8 million owner-occupied subprime mortgage resets that will occur in 2008 and 2009.”

The Decline of REITS

Real Estate Investment Trusts (REITs) have struggled in response to the subprime loan foreclosures, something the U.S. commercial real estate market has been subjected to, in addition to the U.S. housing market.

“The 128-member Bloomberg REIT index returned 78% with dividends in the two years before its February 8 peak, the day before New York based Blackstone Group bought Equity Office Properties Trust for $23 billion, or $39 billion including debt, in the U.S. real estate industry’s largest leveraged buyout,” the International Herald Tribune reported.

“Since then, the index has fallen 16.5% after dividends as commercial mortgage rates climbed as much as 2 percentage points above the 10-year Treasury note,” the International Herald Tribune continued. The last time the REIT index declined more than 10% in total return was in 1998 when investors were diverting funds to high-flying Internet stocks.”

Pensions and Investments reported that many institutional investors are opting for the global real estate market these days to reduce risk.

“For the first time, more REITS are based outside the United States than inside, as the U.S. market shrinks due to privatizations and mergers,” the newspaper reported.

REITS provided superior performance, growing 350% in just seven years. However, such growth usually does not last in the long term. Investors took advantage of the markets while they lasted, but now investors are balancing out their portfolios with the next hot thing. Global real estate investments capitalize on the need to develop infrastructure in Asian countries such as Singapore and China, which are quickly growing in response to the bustling manufacturing and now outsourcing fields, which Asian countries, in particular, can do for so much less than their American counterparts.

Presidential Politics and the Economy

In his address in early December, President Bush described Hope Now as “an example of government bringing together members of the private sector to voluntarily address a national challenge — without taxpayer subsidies or without government mandates.” However, some have criticized the government intervention.

“Most of the loans that will reset in the next two years were long ago bundled into securities and sold to investors. The value of these securities has already fallen,” the National Public Radio reported. “A freeze in interest rates would reduce the value of these investments even more. So some investors will consider going to court in order to stop the plan to freeze rates. Other investors have decided that fighting the freeze will only lead to more foreclosures — and an increased chance of recession. And that, they have concluded, isn’t good for anyone.”

Are the Presidential actions meant to simply delay the perhaps inevitable decline?

“Right on time, Hillary Clinton weighed in with the truly awful idea of freezing subprime mortgage rates for five years — presumably, through the end of her re-election campaign in 2012,” the Wall Street Journal criticized.

“… Many in the Bush Administration and mortgage industry privately agree that this is dubious policy, but they plead that it’s better than the alternatives being offered on Capitol Hill,” the Wall Street Journal continued. “These include ‘antipredatory lending’ laws and new bankruptcy provisions that are punitive and would delay any recovery in the mortgage market. … [T]he Bush Administration would be better off politically opposing anything that smacks of a ‘bailout.’”

The OECD predicts that a recession can be avoided by preventing inflation and by stabilizing consumer confidence.

“Well-anchored inflation expectations have allowed a number of central banks to respond flexibly to the financial turmoil, through provision of liquidity to interbank markets as well as through lower interest rates than markets had previously expected,” the OECD report explained. “Expectations of low inflation also help the adjustment to higher oil and commodity prices and allows for a monetary policy response to cooling housing markets where necessary. Overall, the confidence that inflation will remain low, built up through a long and sometimes painful process of disinflation, constitutes a major policy asset.”

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