Accurate Reporting? “Not totally”

What if Toyota built its cars according to the quality standards used by our news media?  Would there be a Toyota driver alive today?  Would they have to rename the company “Chrysler”?

“Toyota exec says recall won’t ‘totally’ fix problem” – This headline is typical of the way American news organizations have treated Toyota executive James E. Lentz’s testimony before the US House Commerce and Energy Committee.  Even the journals that use phrases like “Executive admits recall may not totally solve…” seem to be suggesting that Lentz had identified more serious problems with Toyota’s vehicles.

What Lentz really said was quite different, according to Colorado Springs’ news station, KRDO.

Lentz said that, while the company had not expressly ruled out an electronics malfunction, “We have not found a malfunction” in the electronics of any of the cars at issue. He cited “fail-safe mechanisms” in the cars that were designed to shut off or reduce engine power “in the event of a system failure.”

But when pressed by Energy and Commerce Committee Chairman Henry Waxman, D-Calif., on whether he could say with certainty that the fixes now being undertaken would completely eliminate the problems, Lentz hesitated a moment and then replied: “Not totally.” [italics added]

Waxman set Lentz up with a question whose answer he knew could only be either dishonest, or easily misinterpreted for sensational effect.  Lentz, should have evaded that question, but he responded in good faith.  And Toyota was promptly and roughly screwed for Lentz’s answer. 

It took more than 10 minutes of searching to find a transcript of this exchange, so most followers of this story will never see an accurate depiction of Toyota’s testimony.  The news media is selling panic – almost every account of this story is inaccurate. 

No wonder Americans have little respect for our news media.  No wonder voters have so much trouble making informed decisions at the ballot box.


Mix Red and Blue, Get Savings

Los Angeles is looking at a $200+ million deficit this year, and nearly $500 million in deficits for fiscal 2010-2011, so Mayor Antonio Villaraigosa is trying to cut costs.  The LA Times reports today that he has proposed combining the Department of Neighborhood Empowerment with the Community Development Department in order to save around $2 million. 

Really.  Don’t laugh.  Cry instead, since they’ll probably spend $3 million in attorney fees to decide the issue. 

(To be fair, Mayor Villaraigosa tried to lay off 1,000 city workers, but has been thwarted so far by the City Council.)

How about consolidating police and fire departments to save some real money?  Having separate public safety organizations just duplicates resources (raising costs, reducing the ratio of field personnel to support personnel), and creates coordination problems ranging from conflicting command hierarchies and emergency procedures down to incompatible radio systems.

Even if the mayor doesn’t feel like pushing two powerful unions under a single roof, there are other ways to stretch public safety dollars.  The City of Beaufort, SC, has hired a consultant to look at combining the city’s police and fire departments.  The consultant immediately pointed out that, since fire department employees spend only 5-10% of their time responding to emergencies, there is plenty of time during their 24-hour shifts for firefighters to do the work of other city departments.

Beaufort’s consultant might call Utica, NY, fire chief Russell Brooks, who favors combining Utica’s fire department with its department of building codes. Brooks thinks the combined departments might lead to more consistent code enforcement, since one department would enforce code standards and bear the consequences if those standards aren’t followed.

Villaraigosa could try a combination – combine police and fire, and then give the firemen clerical work to do while they are not fighting fires or posing for calendars – to bring LA’s budget down.  Of course, he might find out quickly how limited is the benevolence of the Police Benevolent Association.

Low-Impact Investing

Imagine you are paid to tell wealthy investors where to put their money.  Three years ago you believed in modern portfolio theory and the so-called efficient frontier.  But around the end of 2008 all asset classes started moving in unison – southward – and then governments started throwing around hundreds of billions of dollars to, well, er….  Anyway, markets recovered through the end of 2009, but now they look random and you have no idea what to tell your clients to expect for annual portfolio returns.  You have a problem.

Imagine you’re a wealthy client.  You’ve lost faith in your advisor, but you don’t know where else to go for good advice, since most of the honest ones are sitting in a corner, rocking back and forth like apes taken too soon from their mothers.  Maybe you’re even a little guilty about making a pile during the funny money years and then watching millions of your countrymen lose their homes.  Again, you have a problem.

Now imagine a miracle product that would satisfy both the investment advisor and his client.  It would let the advisor tell the client he was winning every quarter.  It would make the rich client feel like investment is still a noble enterprise, and it would make him feel smart for being able to post quarterly wins again.  How would you design such a product?

Well, the old definition of winning would have to be replaced, or at least supplemented, by a new standard, and the new standard would have to be vague enough to allow any reasonably smooth talker the chance to claim victory even when financial returns are sub-par.  Enter Impact Investing.

Impact Investing is a poorly-defined investment style (not really an asset class) that asserts a non-financial bottom line, specifically a social or environmental benefit that the investor should value as highly as they once did financial returns.  In practice, it is a filter: Impact investors will look for investment opportunities that have some plausible non-financial benefit, and will exclude those for which such benefits cannot be claimed.  (Of course, it will take most companies around 6 minutes to start publicizing phantom social responsibility achievements, so what will really matter is not objective social or environmental results, but how confidently and empathetically your advisor can relay company press releases.)

For the investment advisor, Impact Investing is a license to practice incompetence while distracting clients with dubious claims to success- “Sure, your portfolio performance hasn’t matched the old, unenlightened benchmarks, but you may have saved an Indri lemur or two.”  Impact Investing will generate new revenues and pacify rattled clients, so investment advisors are about as happy to offer it as obstetricians were to offer Thalidomide back in 1957.

For the client, Impact Investing means a clean conscience and the sort of predictable, every-child-gets-a-gold-star victories that let him hold his head up in polite and ignorant company.  Less thoughtful clients may even believe that Impact investments will deliver best available returns while still saving the world – they will watch their portfolios languish until they figure out that a few hot funds don’t outweigh an unlikely investment thesis.


  • If you are a fund manager, start an Impact Investing fund immediately.  Investment advisors will flock to it, and you’ll breathe easier knowing that you’re playing tennis with the nets down.
  • If you’re an investment advisor, and can stomach treating your clients with such cynical bad faith, allocate 10-20% of your clients’ assets to this new style.  And call it an asset class.  Simpler that way.
  • If you’re a client, run like hell from anyone who claims to advise on Impact Investing, since they are charlatans who are admitting that they can’t stand on their measurable investment returns.