Tuesday, August 21, 2007

2 reports from the "what could possibly go wrong?" department

Say you're a large toy "manufacturer," like Hasbro. You find that one of your main costs is labor, and that subcontracting the actual manufacture of your products to another country, say China, reduces your labor cost. By like 90%. You might find this a really attractive option, and hey, what could possibly go wrong?

Well, they might do things a little differently in China, use lead-based paint for instance. And it might turn out that labor conditions are extremely bad, and someone might eventually point this out, to your possible embarrassment.

Better yet, say you're a bank. You find that as housing prices escalated throughout the 1990s and early 2000s, and as income stagnated or dropped in real terms (as it has overall since the early 1970s), fewer and fewer people can afford to buy houses. This is inconvenient, since mortgages are such a solid profit-maker. So you might decide to offer mortgages with unique features to attract customers, like a $400,000 loan with payments starting at $1200 a month. Then, when you've got a deal made, you raise the interest and payments to about $3500 a month. What could possibly go wrong?

On the other hand, if all the other banks do it too, and if nobody's really backing these loans with actual money, you might create a gigantic international mortgage and banking crisis. And you might have to close your own mortgage branch. Oops!

1 comment:

Bobo the Wandering Pallbearer said...

This is why I try never to buy cheap toys made in china. Buy Indonesian!