ABCDE BUSINESS sunday, august 8, 2010 IN OUTLOOK
Farewell to the filthy rich As an era fades, the new tycoons are carbon-free. B1
KIPLINGER’S PERSONAL FINANCE How to lose big Investors take a risk by trying to time the market. G3
Debt tagging: When to call out collectors
An agency’s mistakes, harassment can become a consumer’s nightmare
by Sonja Ryst
Michael L. Hughes started get- ting the harassing phone calls several months ago. He figured they were from scammers and he tried to ignore them. Sometimes he’d pick up the phone just to hang up on them. Finally, he de- cided to find out what they want- ed. The caller said Hughes was $12,000 in debt. He checked his credit report and realized what had happened: The debt collectors had the
wrong person. His credit report showed a $12,000 debt — for Mi- chael B. Hughes. They even worked at the same company. And now one’s money troubles were dragging down the other’s credit. “They don’t give a flip,” Mi- chael L. Hughes said. “They’re not paying people to sit in an of- fice and correct people’s mis- takes. They’re in there to collect money.”
Credit experts liken the in- cident to a financially dangerous game of tag that has become in- creasingly common as consumer- default rates hit record highs. Debt tagging prompted a Federal Trade Commission investigation
tagging continued on G5 CAR PAGES
A car to put GM in control After a long run of mediocrity, the company pulls ahead with Cruze, a compact family car.
Plus, ads for thousands of cars. On the back page.
G K AX FN FS LF PW DC BD PG AA FD HO MN MS SM
MARKETS A boost as earnings beat estimates
Pfizer and News Corp. come out ahead, helping to drive the S&P 500 to a three-month high. G6 YTD: Dow
NASDAQ S&P 500 +2.16% +0.85% +0.59%
WHY COMPANIES CAN’T RESIST
MELINA MARA/THE WASHINGTON POST A debt collector mistakenly said Michael L. Hughes owed $12,000.
The anti-business president’s pro-business recovery
T
his White House has “vilified industries,” complains the U.S.
Chamber of Commerce. America is burdened with “an anti-business president,” moans the Weekly Standard. Would that all presidents were this anti-business: According to the St. Louis Federal Reserve, corporate profits hit $1.37 trillion in the first quarter — an all-time high. Businesses are sitting on about $2 trillion in cash reserves. Business spending jumped 20 percent last quarter and is up by 13 percent against 2009. And the Obama administration has cut taxes for small businesses and big ones alike. Maybe the president could be anti-me for a while. I could use the money. The reality is that America’s supposedly anti-business president has led an extremely pro-business recovery. The corporate community has recovered first, and best. The
EZRA KLEIN Economic and Domestic Policy
populist tone that conservative magazines and business groups decry is partly in reaction to this: As corporate America’s position is getting better and better, the recovery is looking shakier and shakier. Unemployment is high. Housing looks perilously close to a double dip. Job growth is weak. Businesses aren’t hiring. The 71,000 jobs the private sector added in July aren’t sufficient to keep up with population growth, much less cut into the ranks of the unemployed.
klein continued on G5
Something more than location I
n the real estate world, there was one word that used to be the cardinal rule: location,
location, location. Just about anybody — the informed and uninformed — could buy a house in a good location and easily make money by flipping, selling or refinancing the home, sometimes after just a short ownership. That was then, before the
Great Recession. This is now, and the new cardinal rule of real estate is information, information, information. “For decades, the real estate
industry has operated under the principle that the less information buyers and sellers have, the better it is for agents, lenders, title companies, and all the other folks who eat from the trough,” writes Ilyce Glink in “Buy, Close, Move In: How to Navigate the New World of Real Estate — Safely and Profitably — and End Up with the Home of
MICHELLE SINGLETARY The Color of Money
Your Dreams.” “But the real estate tide seems to be turning, as the housing and credit crises of 2008 have heightened awareness in Washington, D.C., and on Wall Street about the catastrophic consequences of a closed information loop.” I have no doubt that many professionals in the real estate industry will take great exception to Glink’s observation. But the evidence is on her side. We ended up in one of the worst housing market collapses because far too many borrowers were
color continued on G3 M
JAMES STEINBERG FOR THE WASHINGTON POST
U.S. tax code encourages them to rack up huge debt — just look at Macy’s by David Cho
acy’s has become the great American department store, with 850 locations scattered across all but four states. And it has gotten there the great American way, by running up huge debts and flirting with default, or worse. ¶ Like other U.S. corporations, it also has had a uniquely American incentive for its borrowing habits: the nation’s tax laws. ¶ These rules offer extensive tax breaks to companies that borrow money and penalize those that raise cash in safer ways, such as issuing stock. Yet despite
the recent financial crash, which exposed the perils of excessive borrowing, the rules are likely to persist in federal law because nearly all businesses in America would oppose eliminating these tax deductions, lawmakers say.
U.S. companies have had a long love af- fair with debt, and Washington has tacitly approved. Although the tax benefits are not the only driver of corporate America’s pref- erence for loans — cheap rates and corpo- rate strategy, as in Macy’s case, are other major factors — the tax code often tips the scales toward using debt for deals or for ex- panding a business. Over the past generation, debt in Amer-
ica has exploded, becoming a way of life in nearly every sphere of society. And the tax code has been its handmaiden. Home buy- ers, towns and corporations all enjoy tax breaks that grow as they borrow more. In- deed, federal officials have found that the deductions for business debt are so gener- ous that the government is, in many cases, essentially paying companies to borrow. The surge in borrowing has opened new
markets and financial industries. It has also at times powered economic growth — for instance, the boom preceding the hous- ing bust — and activities that wouldn’t have been possible under other conditions. Com- mercial developers build projects they otherwise wouldn’t. Private equity firms are able to buy out companies with huge
debt continued on G4
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