Kathleen Madigan's "After the housing boom" (Cover Story, Apr. 11) missed the boat about today's real estate market on steroids. Granted, low interest rates, along with government-backed loan programs and almost insatiable demand, have all contributed to the runup in real estate prices. But the driving force behind any real estate market is still supply and demand. And as long as demand for property outstrips supply, real estate will continue to be the investment of choice for most Americans.
Thomas J. Lucier
President & CEO
Home Equities Corp.
As a commodities trader in the morning and a landlord in the afternoon, I am aware of the bull market going on in hard assets. When you look at gold, silver, copper, oil, and real estate, you see that real estate has gone up proportionately to the others. Are you expecting gold or oil to bust when interest rates rise? If not, you should at least discuss this new shift in any intelligent discussion of real estate.
A thorough discussion must also include U.S. housing prices in terms of foreign currency. With the drop in the dollar, foreigners have been buying U.S. properties. If the dollar continues to decline, housing prices in the U.S. will have some upward pressure even if rising mortgage rates price some Americans out of the market.
So American International Group (AIG) CEO Maurice R. Greenberg abruptly resigned amid an accounting scandal unearthed by New York Attorney General Eliot Spitzer ("AIG: What went wrong," News: Analysis & Commentary, Apr. 11). I've prayed for this day. I worked at AIG for years. Greenberg led the meanest management team anywhere.
AIG set the standard in 1994 by permanently laying off its U.S. technology workers after forcing them to train their foreign replacements. AIG was the company cited by then-Labor Secretary Robert Reich in testimony to Congress on abuse of the H-1B visa by greedy companies. AIG boasted that it saved money as the lives of those who built its computer systems were ruined. AIG's profits were soaring, yet it squeezed the last drop of blood out of its loyal, competent employees. Spitzer is a true hero.
Many of us in the insurance industry have had difficulty understanding how AIG has managed, year after year, to post a return on equity significantly better than those of its competitors. History shows that the insurance business is not known for consistency, particularly in maintaining ROEs over 10%. It is a very cyclical industry.
From the late 1990s through about 2002 insurers were going through a down cycle. AIG's rivals were turning in combined ratios (claims payments, reserves for claims payments, and operating expenses divided by premium received) of 105% to 130%, while AIG was usually under 100%. These ratios appeared to run counter to the types of business that AIG wrote.
It now appears that the reasons for the low combined ratios may have included factors that had not yet come to the forefront, i.e., limited incurred-but-not-reported (IBNR) reserves, under-reserving for those losses that have not yet been reported, underfunding for both existing and future asbestos and environmental claims.
While many may believe Spitzer's investigations are not positive, he is making the industry more transparent to the financial community. As a result, stockholders of well-run, properly reserved insurers will ultimately benefit from his office's inquiries.
Editor's note: The writer is a retired vice-president of an international property-casualty insurer.
In "Giving hybrids a real jolt" (Environment, Apr. 11), the impression given is that there is no environmental downside to the scheme of plugging in a hybrid vehicle. But caution is advised when phrases such as "dramatically reduce pollution" get thrown around without considering where those electrons might come from. No doubt, for those of us in Southern California there would be a noticeable improvement in air quality should such a scheme be widely adopted.
However, I am curious as to what the effect would be on other regions' air quality. Would there be a net increase in global greenhouse-gas emissions? For example, how much total energy does it take to create and transmit electricity from a coal-burning plant in Arizona to Los Angeles?
Newbury Park, Calif.
Editor's note: For more on this topic, see "Developments To Watch".
Your excellent "A first-class crisis in the making?" (Finance, Apr. 11) made no mention of the fact that the U.S. Postal Service has more than $70 billion in unfunded liabilities -- mostly money promised to employees in retirement and health benefits. The USPS doesn't have that money. And a massive taxpayer bailout may be required down the road.
Another critical problem facing USPS is its inability to improve its financial transparency. In 2004 the Postal Service had $69 billion in revenue and $66 billion in costs. Where did that $3 billion of income come from? Nobody really knows. With only 60% of costs directly accounted for, it's virtually impossible to know where the organization is losing or making money. If USPS is to become more efficient, it must provide more accurate accounting.
No one can argue the point that Mark Hurd's achievements as CEO of NCR Corp. (NCR) brought the stock price to record levels -- every newspaper and business magazine in the world is trumpeting his success ("Memo to: Mark Hurd," News: Analysis & Commentary, Apr. 11). However, no products were brought to market during Hurd's tenure that led to real growth in NCR's revenue. His success resulted from drastic cost-cutting. Sure, NCR benefited from streamlining outlays, but it remains to be seen whether that alone will contribute to long-term profitability and any new growth.
As a seven-year veteran of NCR, I believe that its long-term prognosis is grim because Hurd's strategy severely damaged the core of the corporation -- the employee base. Here's what Hewlett-Packard Co. (HPQ) employees can look forward to under Hurd: loss of pension benefits, less attractive and more expensive health-care benefits, loss of educational benefits, massive layoffs, jobs lost to outsourcing, and demotions coupled with loss of pay.
Is this the picture of a "mecca for talented" employees? Makes you want to run right out and apply for a job at HP, doesn't it?
Deborah Cincilla Sze