Immigrants and the economy
KAREN GIBBS: Well, New York has a lot more going for it than the Yankees. The city has always had a thriving immigrant community and the debate over immigration in this country has been going on since the second boat arrived in the New World. Many argue over the social costs of our open borders, but that misses the real story: the melange of ethnic groups now in the U.S. has a combined buying power of more than $1 trillion. I recently went to the heart of the New York immigrant community to see for myself the economic impact of this vibrant mix of cultures.
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GIBBS: Welcome to Astoria, where the streets are filled with people, traffic and commerce.
It’s one of the most ethnically diverse neighborhoods in the entire country, and like many other immigrant communities, is at the epicenter of a new American economy where immigrants are playing an increasingly more important role. We’re here to talk to some of those immigrant entrepreneurs to find out what they have to say about business, jobs and the economy.
No one knows the community better than Tony Barsamian, a second generation Armenian. Barsamian is the editor and publisher of the Queens Gazette, a highly successful local weekly.
TONY BARSAMIAN: Here we have complete ethnic diversity: every imaginable religion, every imaginable culture.
GIBBS: In fact, the variety of immigrants is staggering -- 118 different nationalities. From Bangladesh to Argentina to Lebanon, the streets sizzle with ethnic culture and cuisine.
BARSAMIAN: The opportunity is here, but you’ve got to work. Nothing is given to you.
GIBBS: Obviously, these people don’t mind working hard.
BARSAMIAN: They love working. They want to make a better place for their children and their families.
It is a little microcosm of old, small-town USA. It’s not the traditional Norman Rockwell, because everyone is a different skin color and shading is different, great colorful mixture. The only thing that I can say is that it works.
GIBBS: It worked for Thomas Chen, president and founder of a window and door manufacturing plant. Chen came from Taiwan 21 years ago with no English and little money. His company, Crystal Window and Door Systems now has sales of $46 million and 500 employees.
Immigrant success stories abound here. In the area of western Queens around Astoria, there are more than 6,000 companies, 20 percent more than there were in 1995.
What’s happening to create all the business activity? We took a subway ride with Dan Miner, a vice president of a local non-profit economic development group, to get some answers. From the subway we could see the Triborough bridge which links Astoria with Manhattan and Wall Street. Miner, who is of Ukranian descent, believes immigrants are the lifeblood of the local economy.
(To Miner) A lot of these immigrants are coming from nations where maybe the financial system is not as strong and they don’t have the confidence. What do these immigrants see here in the United States, the American dream, that makes it so attractive?
DAN MINER: Opportunity, Karen, they’re here for opportunity.
GIBBS: Opportunity. Talk about the opportunity and the independent thinking part.
MINER: The new Americans who have come to the United States to find their fortune, to strike it rich, to make a new future, from many, many different countries, are definitely independent thinkers. They’re willing to take risks, they’re willing to go places they haven’t been to. And Queens is an ideal place for these folks, perhaps moreso than other areas in the United States, because there’s already an unusual degree of ethnic diversity here.
GIBBS: Many national studies indicate the importance of immigrants to the economy: Creating new businesses, filling many entry level jobs. It all adds up to a $200 billion boost to the economy.
Given the importance of immigration to the economy, we invited four community and business leaders from Astoria to a local restaurant, famous for being the set for several episodes of the hit television series, The Sopranos.
Among the guests: Tony Barsamian; Thomas Chen also joined us; and Jitendra Tomar, an Indian business manager for Kawasaki Rail; and Syed Ullah, a Bangladeshi community leader.
GIBBS: What is it that immigrants see, the independent thinking that they pick up more so than people that are born here in the United States?
BARSAMIAN: They are driven because if they don’t succeed, the failure is far more deadly than it would be for somebody in this country who knows that they can loaf around for a year or two and find their way. It’s not such an easy thing. You have to succeed.
GIBBS: Syed, I see you agreeing with that. Tell me why this is a vibrant community. And can this vibrancy translate into the overall US economy?
SYED ULLAH: If these small entrepeneurs, if they make it, the US economy is bound to reflect their success.
GIBBS: Now Thomas, what I’m seeing is a very vibrant, diverse economy here in Astoria, a booming economy if I can say that, while much of the United States is going through an economic slump. Is this immigrant economy strong enough to pull the rest of the U.S. economy out of its malaise?
CHEN: I would say yes, definitely.
GIBBS: Chen said his company not only has expanded to other American cities like Boston and Chicago, but it has invested in a windows factory in China.
(To Tomar) Particularly with your company, Kawasaki Rail Car, not only in Yonkers but in the heartland, Lincoln, Nebraska.
TOMAR: Well, and that’s a huge investment. That’s the first plant in the United States to make 100-percent-made-in-America (rail) cars. No other car manufacturer has that capacity. So that’s counter to the argument that jobs are going out. In fact, we are bringing jobs in.
GIBBS: Tomar has some concerns, but he is still bullish on the American economy.
TOMAR: If I were buying the future, that’s where I would put my money actually, right here in the United States.
GIBBS: And on that note, gentlemen -- Thomas, Syed and Tony, thank you very much for a wonderful roundtable.
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Investing in immigrants
KAREN GIBBS: So how can investors take advantage of all this spending power? What companies are poised to profit from this trend?
Alex Lopez Negrete helps corporations tap into this wellspring. He’s owner of the ad agency Lopez Negrete and he joins us from Houston.
And joining us from San Diego, Todd Buchholz, an economic forecaster and managing director of Enso Capital Management.
So, Todd, tell me, you’ve seen the story about Astoria. Are there many Astorias across the United States?
TODD BUCHHOLZ: Oh, yes, Karen, and it’s not just in what we think of as the metropolitan areas: New York, Texas, California. Even in the Midwest, ketchup is no longer king. Salsa outsells ketchup. That’s just one symbol of how the economy has been changing, and the changing tastes of immigrant communities has spread across the nation entirely.
GIBBS: Alex, what does this increased buying power of multi-ethnic communities mean for corporate America?
ALEX LOPEZ NEGRETE: Well, it means a huge answer, Karen. What’s happening here is, you know, the immigrant and the ethnic communities have been here all along, but all of a sudden corporate America has really awakened to the fact that, “Wow, in the case of the Hispanic community, we have a market as large as the entire Canadian consumer market, actually larger, within our own borders, right here (with) access to our stores, to our banks, to our services. Boy, it’s time to really take a look at inviting them in.”
This is particularly salient in the post, shall we say the dot-gone era, where companies, corporate America is looking for new answers for new profits for growth.
BUCHHOLZ: In fact, Karen, that’s where the money is and the money is coming from. You look at the auto sector, almost all of the growth in the automobile sector is coming from Hispanic Americans.
Together Hispanics, Asian Americans and African Americans have over $1 trillion –- $1 trillion! -- of buying power. That’s more than the Pentagon. They’re not buying tanks. They’re not buying missiles. They’re buying homes, they’re buying automobiles, and they’re buying clothing and entertainment.
LOPEZ NEGRETE: At the agency, we seem to sometimes be in the myth-busting business where we really are showing our clients, you know, Hispanics are buying homes. Hispanics are buying new cars. Hispanics are buying luxury items, clothing, fragrance, whatever it is. I mean, it really is an amazing market. The Hispanic consumer segment alone represents $1.1 trillion in buying power by the year 2008. You’re absolutely right.
GIBBS: So we’ve got sectors. Let’s get some companies. Alex, starting with you, what companies are benefitting from this growing economic diversity?
LOPEZ NEGRETE: Anybody who has an initiative, Karen, is benefitting. This is a hugely responsive segment. You know, we’ve been doing business with Bank of America for 10 years, the same thing with Wal-Mart, and it’s just, you know, every seed you plant brings you business. It’s a very responsive consumer segment, mainly because it’s been so ignored for so many years and there’s such a huge need.
As Todd said, you know, not only do we have homes and cars, I mean it’s really everything. When you look at the average age of the Hispanic household and the size of that household, we’re in the prime buying times for setting up our household. So we’re buying refrigerators and we’re buying appliances and we’re buying furniture, you name it.
GIBBS: And it’s not just Hispanics, Todd, we’re looking at. You already mentioned the auto sector. Give me a company that benefits, and let’s talk about housing starts. These are the two main engines that drive this U.S. economy.
BUCHHOLZ: Well, exactly. Just quickly on the auto side, Toyota today was describing its $800 million investment in a new plant south of San Antonio. Well, I can assure you that most of those employees, a huge proportion of them will be Hispanic Americans. And you know what? They’re going to be buying Toyotas.
In the housing and finance sector, Bank of America was already mentioned by Alex. You know, they’ve developed a product whereby Hispanic Americans can deposit money in an ATM card and have their relatives in Mexico draw on that card in pesos.
Companies in the home building and home sector -- well, of course Fannie Mae has been a huge player in expanding home ownership, especially to minority communities. Let me give you a statistic, Karen. Over the last five years in this housing boom, Caucasian Americans have bought 9 percent more homes. That’s terrific. African Americans have bought 24 percent more homes, and Latin Americans have bought 36 percent more homes.
Now, the Asian Americans are also a big part of this story. And there are several companies, several small, medium-size banks that are either founded by or cater to that Asian American community. East West Bancorp is one of them, UCBH is another. The Asian Americans are notorious, or I should say famous for being big savers, and those kinds of banks are benefitting.
GIBBS: Alex, I see you nodding. How about media and fast food? What companies there are appealing?
LOPEZ NEGRETE: Well, in the fast food industry, the QSR segment has been very busy for a number of years. McDonald’s has always invested very well in the community and reaped great dividends from that. But you have Jack-in-the-Box where, you know, Jack is Jack whether he speaks English or Spanish. And it’s just the QSR segment has always done well. In our case we represent Sonic, and it’s a very American concept that seems to be taking off rather well with Hispanic consumers. So you certainly have a number of categories that are just becoming more and more active.
GIBBS: Alex, who’s behind the curve?
LOPEZ NEGRETE: Who’s behind the curve? Well, I would say that first and foremost we have the pharmaceutical industry. We have the apparel/fragrance, and just the wearables category. I think that they have been, they have suffered from what I call analysis paralysis, in that they just don’t know how to deal with the market, so they don’t. But I see a lot of them coming on. In fact you also see the high tech industry or the technological industry really getting very interested as they see Hispanics going online at dramatically fast rates.
GIBBS: Now, I have to ask both of you, Alex first, do you have a relationship with any of the companies that you’ve mentioned?
LOPEZ NEGRETE: Yes. Actually this year we were proud to be named Hispanic agency of record for Microsoft.
GIBBS: Todd, any disclosures from you?
BUCHHOLZ: I own shares in Bank America, and Fannie Mae has contributed to some of the research I’ve done on the housing sector.
GIBBS: Todd Buchholz and Alex Lopez Negrete, thank you very much for joining us.
Enron’s willing partners
GEOFF COLVIN: New revelations about who shares the blame for the enron scandal in the cover story of its new issue, FORTUNE reveals previously undisclosed e-mails from Enron’s major banks, including J.P. Morgan, Chase, Merrill Lynch, and Citigroup. These e-mails and other evidence show that these firms understood quite clearly that they helping Enron to fabricate earnings and conceal debt.
Bethany McLean is a senior writer at FORTUNE. She and senior writer peter elkind have amassed thousands of pages of documents, interviews, shedding new light on this remarkable scandal. Bethany, what were these banks doing?
BETHANY McLEAN: It’s really stunning, actually. The enron scandal, if you think about it, was an accumulation of transactions that misrepresented enron’s financial results. And almost every transaction involved a bank. And what’s really just stunning if the complicity of the banks and the fact that all of these bankers went along with it, and there are so few instances of someone saying, “No, we’re not going to do this.”
COLVIN: It sounds like all of these things that they were doing came down to enron borrowing money and telling the outside world that this was revenue. Is that more or less it?
McLEAN: It is. That’s a very large part of it. And what’s amazing is that the banks went along with it.
COLVIN: But if the banks knew that Enron was fabricating earnings and hiding debt, then they knew this company was essentially a fraud. And yet, some of these banks had equity analysts who were recommending the stock. How could it be?
McLEAN: Well, banks will argue that there’s a Chinese wall between what their investment bankers know and what their research analysts know. In other words, the research analyst wouldn’t have known about all these transactions Enron was engaging in. My personal opinion is that a Chinese wall is a handy excuse and banks invoke it when they feel the need to do so. And I think the research analysts also knew a fair amount of what Enron was doing, or certainly knew the gist of it. The issue is, even the banks kept on lending money to Enron, over all this time. No one added it up.
COLVIN: Well, so what you’re saying is, they could have known, and certainly, arguably, should have known that a disaster was inevitable, yes?
McLEAN: Right. Exactly. We like to believe that the biggest banks in the country should be sophisticated enough that if they were engaging in these transactions with Enron, certainly they would have seen what was coming given all that they knew. And it’s actually pretty frightening that they didn’t, and they didn’t add it up.
COLVIN: So what you’re saying is that they sort of averted their eyes from evidence that was before them. What was their motivation?
McLEAN: One, that they believed in the mystique that they had done so much to create, this illusion of this incredibly powerful company that could do no wrong. But second, it was money. The banks earned so much in fees from Enron. It was one of the biggest, if not the biggest fee payers in corporate, of all time in corporate America.
COLVIN: I think you report that, in one year, and I believe it was ‘99, it was, Enron was in fact the biggest fee payer to Wall Street in america, $230-some million dollars.
McLEAN: $237 million dollars.
COLVIN: In that one year.
McLEAN: Which is a stunning figure. And you see in the banks internal e-mails all sorts of examples of the bank saying, “This deal isn’t quite right and they’re using it to manufacture earnings, or they’re using it to hide debt, but Enron gave us $40 million in fees last year and it’s a must for us, we have to do it.” That’s the trade-off for them.
COLVIN: This was supposed to be a big, solid blue chip company, number seven on the FORTUNE 500. Why were these sleazy transactions necessary?
McLEAN: From the very beginning of the company, it had this insatiable need for cash. In the beginning, it was a result of the heavy debt from the merger that put the company together. Later on, the company was branching out into so many new businesses, and these new businesses weren’t bringing in the cash flow yet. On top of that, Enron used a form of accounting known as mark-to-market accounting, which allows you to recognize earnings well in advance of bringing the cash in the door.
COLVIN: Sometimes years in advance of bringing the cash in.
McLEAN: And yet rating agencies who looked at Enron’s credit status wanted to see cash flow, and they wanted to see cash flow that matched earnings. Well, Enron began to resort to a huge number of techniques to create the illusion of cash flow.
COLVIN: So was Enron ever a strong company?
McLEAN: Never as strong as people believed. It certainly became weaker and weaker as the debt accumulated in its final years, but there was always a certain element of illusion to the company.
COLVIN: I get the impression from some of what you’ve written that Enron had other ways of keeping the bankers on its side, not only with fees but sort of personal favors to some of the executives. Yes?
McLEAN: Well, it’s amazing the skill that Andy Fastow, Enron’s notorious CFO, he was incredibly skilled at working the banks and getting them to go along with he wanted them to do. He had this ranking of the banks. He would rank them as tier one, tier two, or tier three based on their willingness to extend capital to Enron, their willingness to do deals at the end of the quarter, their ability to quote “deliver the institution.” -- in other words, make sure no one said “No” to an Enron request. And banks clamored to be part of Enron’s tier one crowd.
COLVIN: Because if they were?
McLEAN: Because if they were it meant millions of dollars in fees.
COLVIN: This is all part of a larger story which you and peter elkind have told in a brand new book called The Smartest Guys in the Room: the Amazing Rise and Scandalous Fall of Enron. Did Enron’s leaders really believed that they could get away with all this because they were just smarter than everybody else?
McLEAN: I think they did things because they thought they were smarter than everybody else, and that was certainly the mystique that the company created, and that’s what kept people believing in it over all these years: “These guys are so smart, their stock price is so high. Well, since they’re so smart, their stock price should be even higher.” And for a long time it really was, in a sick sort of way, a kind of virtuous circle.
COLVIN: One of the questions everybody has been asking since the whole scandal really got to be big two years ago was, did Ken Lay, the CEO of Enron for most of its life, know what was going on. You’ve spent a lot of time on this story, what do you think?
McLEAN: I don’t think he did. But I don’t think that’s any excuse. I think he should have known. And while he might not be criminally liable, because that does require knowledge, I think he is ethically responsible, because you cannot collect the salary that he did from Enron and be ignorant of the things that are happening underneath you.
COLVIN: Well, that gets to another question. As of this date, Ken lay and Jeff Skilling, the other CEO for a period of six months anyway, have not been charged with anything. do you think they will be?
McLEAN: I would like to say that they will, but it’s a very dif -- it’s not for lack of effort on the part of the government, it’s just a very, very difficult case because Enron was an accumulation of transactions that misrepresented its financial results, and the details of any one transaction, you can find people who will argue that many of those transactions did follow the law. The letter of the law. They twisted the spirit of the law immeasurably, but they followed the letter of the law, and that’s make it hard to prosecute.
COLVIN: Well, leaving aside what the prosecutors are able to prove in court, do you think that they were criminals in their hearts?
COLVIN: I think to misrepresent a company’s financial economic realty to the extent that Enron did, there’s no other word for this than a giant fraud. Did people recognize that that’s what they were putting together as they did? Absolutely not. Enron people themselves believed in the illusion that they were creating. There’s a whole ego and power thing that happens to people at companies like that, and they believed in it.
COLVIN: What’s the lesson here for individual investors?
COLVIN: I think it’s, one, to always do your own homework to the extent that you can. And it’s the same lesson as in the past: If you don’t understand something don’t invest in it.
I think, two, it’s to have a diversified portfolio, because smart people can make mistakes, and people who believed in Enron, sure, some of them were sloppy, they didn’t do their homework -- I’m talking the research analysts and the portfolio managers who owned the stock -- sure, a lot of them were sloppy, didn’t read the notes, didn’t do their homework. But some of them made human mistakes, and it is possible to get seduced by something and be wrong. And it’s one of the important reasons to have a diversified portfolio.
COLVIN: Bethany McLean, thank you so much.
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