$110 million fibre optic deal

Kenya said it was on track to deliver high-speed broadband through a new fibre optic cable by the end of June, as the project’s corporate shareholders signed a financing agreement worth $110 million on Tuesday.

Bitange Ndemo, a top official at the information and communications ministry, said the route for The East African Marine Cable (TEAMS) cable had been shifted an extra 200 km (124 miles) from the coastline for fear of piracy off Somalia.

Eleven communications companies had agreed to be part of the project. They will contribute $110 million while the government will give another $20 million, he said, dismissing as “nonsense” a local media report that there had been a blowout in the budget and delays.

“The signing of the shareholder subscription and loan agreement is a culmination of a process initiated by the Kenyan government in 2006,” Ndemo said.

The major shareholders are the government, Safaricom and Telkom Kenya, each with 20 percent. Kenya Data Networks and Econet Wireless each hold a 10 percent stake, TEAMS acting chief executive Victor Kyalo told Reuters.

Other investors include Wananchi Online (5 percent) and Jamii Telkom (3.75 percent). Another five companies plan on buying a 1.25 percent stake each while the remaining 5 percent awaits a buyer.

The firms now have 90 days to pay for their stakes in the project which will will give Kenya access to high-speed internet services through a sub-sea fibre optic cable that will stretch from Mombasa to Fujairah in the United Arab Emirates.

Rival undersea project SEACOM has reportedly already landed its cable at the port city of Mombasa, which is to become a regional telecommunications hub.

Ndemo said technology was moving fast with video-based communications using up ever greater amounts of bandwidth and the extra capacity offered by the new fibre optic cable would help Kenya to be at the cutting edge of online service delivery.

IMF says in talks with Kenya on $100 million loan

Kenya has requested a loan of up to $100 million from the International Monetary Fund (IMF) to cushion its currency from global economic downturn and help counter a severe food crisis, the body’s resident representative said on Tuesday.

Official forex reserves in Kenya’s central bank declined to $2.6 billion, equivalent to 3.13 months of imports, from $3.3 billion or 4.75 months of imports in the year ago period, according to the bank’s statistics.

Like other nations across the world, Kenya has been feeling the heat from the global financial crisis, but it has been hit harder than most because the crisis slowed its recovery from deadly post-election violence early last year.

The east African nation is also facing a drought that has left about 10 million people in need of food aid.

“What we are exploring right now is … to make available to Kenya as much as $100 million,” Scott Rogers told Reuters in a telephone interview.

He said they are hoping to forward Kenya’s proposal to the IMF board by early April.

“Once the board approves the government’s request, disbursement occurs in a matter of days. That will be late April, early May,” said Rogers.

MONEY FOR IMPORTS

Rogers said the money will augment the central bank’s hard currency reserves.

“This will allow the country to support a high level of importation without putting as much pressure on the exchange rate as would otherwise occur without funding,” he said.

He said the crisis that began in major developed economies was hurting the whole sub Saharan region.

“We are already seeing the impact of the (global) crisis on Kenya’s stock market and exchange rate,” he said. “We are expecting growth in most sub Sahara African countries to be about half what we saw in 2007. All countries will be affected,” the resident representative said.

Kenya’s shilling was hit hard last year by the global financial crisis, a higher import bill due to rising commodity prices and the importation of maize after harvests were destroyed and planting disrupted in the post-election crisis.

It has remained under pressure so far, slipping to a four-year low last week on news of a 27 percent drop in the amount of hard currencies sent home by Kenyans abroad in January.

Rogers said the currency is likely to hold its own against the dollar in future, barring any unforeseen risks.

“The prospects of the stability of the Kenya shilling are good. There may be additional pressures out there. Right now we are not seeing them. They could emerge on factors not under Kenya’s control,” he said.

Rogers said the terms of the concessional loan would be a 5-year grace period and a 10-year repayment time.

Can Facebook hurt your job prospects?

You have a bullet-proof resume, stellar references, and you just aced the interview with the HR manager for the job you really, really want to get. But you don’t get it.

Who knew that sharing would come back to bite you and leave a huge black mark on your job application? After all, we all grew up being reminded over and over that sharing is a good thing.

Well, it turns out some companies are now using social networking sites to check out job candidates. And social media has made it easier than ever for big brother to keep tabs on us.

According to a study conducted by Careerbuilder.com, 22% of 31,000 employers surveyed said they search social networks to screen candidates. And one-third of those said they found information on sites like Facebook and MySpace that eliminated candidates from consideration.

Have a look at the top areas of concern those employers found on social networking sites:

•    Information about alcohol or drug use (41% of managers said this was a top concern)
•    Inappropriate photos or information posted on a candidate’s page (40%)
•    Poor communication skills (29%)
•    Bad-mouthing of former employers or fellow employees (28%)
•    Inaccurate qualifications (27%)
•    Unprofessional screen names (22%)
•    Notes showing links to criminal behavior (21%)
•    Confidential information about past employers (19%)

Maybe posting those pics of your latest inebriated romp showing you in a, well, compromised state, wasn’t such a good idea?

Universities and colleges have become aware about the new practice and are now counseling students to be more cautious.  Northwestern University in Chicago started over a year ago after one career services staffer was baffled why an outstanding student with a GPA above 3.7 couldn’t get an internship interview. When questioned, the employer simply said, “Have a look at her Facebook.”

The CareerBuilder.com study found that employers in the media, professional services and finance industries were most likely to go online to check out candidates’ profiles with more than 35% admitting to the practice. Among the least likely were charity and retail industries, with just 8% and 7% of companies respectively going on sites like Facebook to check out applicants.

No question, it’s an unsettling feeling to know you might be the subject of spying. I don’t even like the idea of people I know spying on me let alone virtual strangers.

Yet it’s hard to be outraged. Privacy and the net are hardly compatible. It might feel like spying, but at the same time, we’ve kind of flung open the doors to our homes and told the paparazzi to leave their telephoto lenses behind. You want to get up close and personal? C’mon in — we’ll make it totally easy for you!

And how many people have you invited into your virtual home that you don’t know terribly well? I know people with 200 to 300 friends on their Facebook, and chances are, there are more than a few unknowns about some of them.

So as companies start to use social networking sites to screen candidates, could we see a reverse trend in the amount that we choose to share? Could the notion of boundaries become a bit more, uh, fashionable? (At the very least, it’s a good idea to ensure you’re taking full advantage of privacy settings to ensure a “friends only” policy. But don’t be mistaken that’s it’s full protection. Privacy and the web are like birth control – nothing is 100 percent.)

Why We Keep Falling for Financial Scams

By STEPHEN GREENSPAN

There are few areas where skepticism is more important than how one invests one’s life savings. Yet intelligent and educated people, some of them naïve about finance and others quite knowledgeable, have been ruined by schemes that turned out to be highly dubious and quite often fraudulent. The most dramatic example of this in American history is the recent announcement that Bernard Madoff, a highly regarded money manager and a former chairman of Nasdaq, has for years been running a very sophisticated Ponzi scheme, which by his own admission has defrauded wealthy investors, charities and other funds of at least $50 billion.

Financial scams are just one of the many forms of human gullibility — along with war (the Trojan Horse), politics (WMDs in Iraq), relationships (sexual seduction), pathological science (cold fusion) and medical fads. Although gullibility has long been of interest in works of fiction (Othello, Pinocchio), religious documents (Adam and Eve, Samson) and folk tales (“The Emperor’s New Clothes,” “Little Red Riding Hood”), it has been almost completely ignored by social scientists. A few books have focused on narrow aspects of gullibility, including Charles Mackey’s classic 19th-century book, “Extraordinary Popular Delusion and the Madness of Crowds” — most notably on investment follies such as Tulipmania, in which rich Dutch people traded their houses for one or two tulip bulbs. In my new book “Annals of Gullibility,” based on my academic work in psychology, I propose a multidimensional theory that would explain why so many people behave in a manner that exposes them to severe and predictable risks. This includes myself: After I wrote my book, I lost a good chunk of my retirement savings to Mr. Madoff, so I know of what I write on the most personal level.

A Ponzi scheme is a fraud in which invested money is pocketed by the schemer and investors who wish to redeem their money are actually paid out of proceeds from new investors. As long as new investments are expanding at a healthy rate, the schemer is able to keep the fraud going. Once investments begin to contract, as through a run on the company, the house of cards quickly collapses. That is what apparently happened with the Madoff scam, when too many investors — needing cash because of the general U.S. financial meltdown in late 2008 — tried to redeem their funds. It seems Mr. Madoff could not meet these demands and the scam was exposed.

The scheme gets its name from Charles Ponzi, an Italian immigrant to Boston, who around 1920 came up with the idea of promising huge returns (50% in 45 days) supposedly based on an arbitrage plan (buying in one market and selling in another) involving international postal reply coupons. The profits allegedly came from differences in exchange rates between the selling and the receiving country, where they could be cashed in. A craze ensued, and Ponzi pocketed many millions of dollars, mostly from poor and unsophisticated Italian immigrants in New England and New Jersey. The scheme collapsed when newspaper articles began to raise questions about it (pointing out, for example, that there were not nearly enough such coupons in circulation) and a run occurred.

Another large-scale scandal that some have called a Ponzi scheme involved famed insurance market Lloyd’s of London. In the 1980s, the company rapidly brought new investors, many from the U.S., into its formerly exclusive market. The attraction to these new investors, aside from the lure of good returns, was the chance to become a “name,” a prestigious status which had been mainly limited to British aristocrats. These investors were often lured into the most risky and least productive syndicates, exposing them to huge liability and, in many cases, ruin.

The basic mechanism explaining the success of Ponzi schemes is the tendency of humans to model their actions — especially when dealing with matters they don’t fully understand — on the behavior of other humans. This mechanism has been termed “irrational exuberance,” a phrase often attributed to former Federal Reserve chairman Alan Greenspan (no relation), but actually coined by another economist, Robert J. Shiller, who later wrote a book with that title. Mr. Shiller employs a social psychological explanation that he terms the “feedback loop theory of investor bubbles.” Simply stated, the fact that so many people seem to be making big profits on the investment, and telling others about their good fortune, makes the investment seem safe and too good to pass up.

In Mr. Shiller’s view, all investment crazes, even ones that are not fraudulent, can be explained by this theory. Two modern examples of that phenomenon are the Japanese real-estate bubble of the 1980s and the American dot-com bubble of the 1990s. Two 18th-century predecessors were the Mississippi Mania in France and the South Sea Bubble in England (so much for the idea of human progress).

A form of investment fraud that has structural similarities to a Ponzi scheme is an inheritance scam, in which a purported heir to a huge fortune is asking for a short-term investment in order to clear up some legal difficulties involving the inheritance. In return for this short-term investment, the investor is promised enormous returns. The best-known modern version of this fraud involves use of the Internet, and is known as a “419 scam,” so named because that is the penal code number covering the scam in Nigeria, the country from which many of these Internet messages originate. The 419 scam differs from a Ponzi scheme in that there is no social pressure brought by having friends who are getting rich. Instead, the only social pressure comes from an unknown correspondent, who undoubtedly is using an alias. Thus, in a 419 scam, other factors, such as psychopathology or extreme naïvete, likely explain the gullible behavior.

Two historic versions of the inheritance fraud that are equal to the Madoff scandal in their widespread public success, and that relied equally on social feedback processes, occurred in France in the 1880s and 1890s, and in the American Midwest in the 1920s and 1930s. The French scam was perpetrated by a talented French hustler named Thérèse Humbert, who claimed to be the heiress to the fortune of a rich American, Robert Henry Crawford, whose bequest reflected gratitude for her nursing him back to health after he suffered a heart attack on a train. The will had to be locked in a safe for a few years until Ms. Humbert’s youngest sister was old enough to marry one of Crawford’s nephews. In the meantime, leaders of French society were eager to get in on this deal, and their investments (including by one countess, who donated her chateau) made it possible for Ms. Humbert — who milked the story for 20 years — to live in a high style. Success of this fraud, which in France was described as “the greatest scandal of the century,” was kept going by the fact that Ms. Humbert’s father-in-law, a respected jurist and politician in France’s Third Republic, publicly reassured investors.

The American version of the inheritance scam was perpetrated by a former Illinois farm boy named Oscar Hartzell. While Thérèse Humbert’s victims were a few dozen extremely wealthy and worldly French aristocrats, Hartzell swindled over 100,000 relatively unworldly farmers and shopkeepers throughout the American heartland. The basic claim was that the English seafarer Sir Francis Drake had died without any children, but that a will had been recently located. The heir to the estate, which was now said to be worth billions, was a Colonel Drexel Drake in London. As the colonel was about to marry his extremely wealthy niece, he wasn’t interested in the estate, which needed some adjudication, and turned his interest over to Mr. Hartzell, who now referred to himself as “Baron Buckland.”

The Drake scheme became a social movement, known as “the Drakers” (later changed to “the Donators”) and whole churches and groups of friends — some of whom planned to found a utopian commune with the expected proceeds — would gather to read the latest Hartzell letters from London. Mr. Hartzell was eventually indicted for fraud and brought to trial in Iowa, over great protest by his thousands of loyal investors. In a story about Mr. Hartzell in the New Yorker in 2002, Richard Rayner noted that what “had begun as a speculation had turned into a holy cause.”

While social feedback loops are an obvious contributor to understanding the success of Ponzi and other mass financial manias, one also needs to look at factors located in the dupes themselves. There are four factors in my explanatory model, which can be used to understand acts of gullibility, but also other forms of what I term “foolish action.” A foolish (or stupid) act is one in which someone goes ahead with a socially or physically risky behavior in spite of danger signs or unresolved questions. Gullibility is a sub-type of foolish action, which might be termed “induced-social.” It is induced because it always occurs in the presence of pressure or deception by other people.

The four factors are situation, cognition, personality and emotion. Obviously, individuals differ in the weights affecting any given gullible act. While I believe that all four factors contributed to most decisions to invest in the Madoff scheme, in some cases personality should be given more weight while in other cases emotion should be given more weight, and so on. As mentioned, I was a participant — and victim — of the Madoff scam, and have a pretty good understanding of the factors that caused me to behave foolishly. So I shall use myself as a case study to illustrate how even a well-educated (I’m a college professor) and relatively intelligent person, and an expert on gullibility and financial scams to boot, could fall prey to a hustler such as Mr. Madoff.

Situations. Every gullible act occurs when an individual is presented with a social challenge that he has to solve. In the case of a financial decision, the challenge is typically whether to agree to an investment decision that is being presented to you as benign but may pose severe risks or otherwise not be in one’s best interest. Assuming (as with the Madoff scam) that the decision to proceed would be a very risky and thus foolish act, a gullible behavior is more likely to occur if the social and other situational pressures are strong.

The Madoff scam had social feedback pressures that were very strong, almost rising to the level of the “Donators” cult around the Drake inheritance fraud. Newspaper reports described how wealthy retirees in Florida joined Mr. Madoff’s country club for the sole reason of having an opportunity to meet him socially and be invited to invest directly with him. Most of these investors, as well as Mr. Madoff’s sales representatives, were Jewish. The fact that Mr. Madoff was a prominent Jewish philanthropist was undoubtedly another situational contributor.

A non-social factor that contributed to a gullible investment decision was, paradoxically, that Mr. Madoff promised modest rather than spectacular gains. Sophisticated investors would have been highly suspicious of a promise of gains as spectacular as those promised decades earlier by Charles Ponzi. A big part of Mr. Madoff’s success came from his apparent recognition that wealthy investors were looking for small but steady returns, high enough to be attractive but not so high as to arouse suspicion. This was certainly one of the things that attracted me to the Madoff scheme, as I was looking for a non-volatile investment that would enable me to preserve and gradually build wealth in down as well as up markets.

Another situational factor that pulled me in was the fact that I, along with most Madoff investors (except for the super-rich), did not invest directly with Mr. Madoff, but went through one of 15 “feeder” hedge funds that then turned all of their assets over to Mr. Madoff to manage. In fact, I am not certain if Mr. Madoff’s name was even mentioned (and certainly, I would not have recognized it) when I was considering investing in the ($3 billion) “Rye Prime Bond Fund” that was part of the respected Tremont family of funds, which is itself a subsidiary of insurance giant Mass Mutual Life. I was dealing with some very reputable financial firms, a fact that created the strong impression that this investment had been well-researched and posed acceptable risks.

I made the decision to invest in the Rye fund when I was visiting my sister and brother-in-law in Boca Raton, Fla., and met a close friend of theirs who is a financial adviser and was authorized to sign people up to participate in the Rye (Madoff-managed) fund. I genuinely liked and trusted this man, and was persuaded by the fact that he had put all of his own (very substantial) assets in the fund, and had even refinanced his house and placed all of the proceeds in the fund. I later met many friends of my sister who were participating in the fund. The very successful experience they had over a period of several years convinced me that I would be foolish not to take advantage of this opportunity. My belief in the wisdom of this course of action was so strong that when a skeptical (and financially savvy) friend back in Colorado warned me against the investment, I chalked the warning up to his sometime tendency towards knee-jerk cynicism.

Cognition. Gullibility can be considered a form of stupidity, so it is safe to assume that deficiencies in knowledge and/or clear thinking often are implicated in a gullible act. By terming this factor “cognition” rather than “intelligence,” I mean to indicate that anyone can have a high IQ and still prove gullible, in any situation. There is a large amount of literature, by scholars such as Michael Shermer and Massimo Piattelli-Palmarini, that show how often people of average and above-average intelligence fail to use their intelligence fully or efficiently when addressing everyday decisions. In his book “Who Is Rational? Studies of Individual Differences in Reasoning,” Keith Stanovich makes a distinction between intelligence (the possession of cognitive schemas) and rationality (the actual application of those schemas). The “pump” that drives irrational decisions (many of them gullible), according to Mr. Stanovich, is the use of intuitive, impulsive and non-reflective cognitive styles, often driven by emotion.

In my own case, the decision to invest in the Rye fund reflected both my profound ignorance of finance, and my somewhat lazy unwillingness to remedy that ignorance. To get around my lack of financial knowledge and my lazy cognitive style around finance, I had come up with the heuristic (or mental shorthand) of identifying more financially knowledgeable advisers and trusting in their judgment and recommendations. This heuristic had worked for me in the past and I had no reason to doubt that it would work for me in this case.

The real mystery in the Madoff story is not how naïve individual investors such as myself would think the investment safe, but how the risks and warning signs could have been ignored by so many financially knowledgeable people, including the highly compensated executives who ran the various feeder funds that kept the Madoff ship afloat. The partial answer is that Madoff’s investment algorithm (along with other aspects of his organization) was a closely guarded secret that was difficult to penetrate, and it’s also likely (as in all cases of gullibility) that strong affective and self-deception processes were at work. In other words, they had too good a thing going to entertain the idea that it might all be about to crumble.

“The great showman P. T. Barnum , was of course, one of the early masters of such hype, and his credo “there is a sucker born every minute” sums up nicely the view that people are gullible when it comes to allowing others to determine whether or not an entertainment event or activity is deserving of one’s time, interest and money.” Read an excerpt from Stephen Greenspan’s new book, ‘Annals of Gullibility’

Personality. Gullibility is sometimes equated with trust, but the late psychologist Julian Rotter showed that not all highly trusting people are gullible. The key to survival in a world filled with fakers (Mr. Madoff) or unintended misleaders who were themselves gulls (my adviser and the managers of the Rye fund) is to know when to be trusting and when not to be. I happen to be a highly trusting person who also doesn’t like to say “no” (such as to a sales person who had given me an hour or two of his time). The need to be a nice guy who always says “yes” is, unfortunately, not usually a good basis for making a decision that could jeopardize one’s financial security. In my own case, trust and niceness were also accompanied by an occasional tendency toward risk-taking and impulsive decision-making, personality traits that can also get one in trouble.

Emotion. Emotion enters into virtually every gullible act. In the case of investment in a Ponzi scheme, the emotion that motivates gullible behavior is excitement at the prospect of increasing and protecting one’s wealth. In some individuals, this undoubtedly takes the form of greed, but I think that truly greedy individuals would likely not have been interested in the slow but steady returns posted by the Madoff-run funds.

In my case, I was excited not by the prospect of striking it rich but by the prospect of having found an investment that promised me the opportunity to build and maintain enough wealth to have a secure and happy retirement. My sister, a big victim of the scam, put it well when she wrote in an email that “I suppose it was greed on some level. I could have bought CDs or municipal bonds and played it safer for less returns. The problem today is there doesn’t seem to be a whole lot one can rely on, so you gravitate toward the thing that in your experience has been the safest. I know somebody who put all his money in Freddie Macs and Fannie Maes. After the fact he said he knew the government would bail them out if anything happened. Lucky or smart? He’s a retired securities attorney. I should have followed his lead, but what did I know?”

I suspect that one reason why psychologists and other social scientists have avoided studying gullibility is because it is affected by so many factors, and is so context-dependent that it is impossible to predict whether and under what circumstances a person will behave gullibly. A related problem is that the most catastrophic examples of gullibility (such as losing one’s life savings in a scam) are low-frequency behaviors that may only happen once or twice in one’s lifetime. While as a rule I tend to be a skeptic about claims that seem too good to be true, the chance to invest in a Madoff-run fund was one case where a host of factors — situational, cognitive, personality and emotional — came together to cause me to put my critical faculties on the shelf.

Skepticism is generally discussed as protection against beliefs (UFOs) or practices (feng shui) that are irrational but not necessarily harmful. Occasionally, one runs across a situation where skepticism can help you to avoid a disaster as major as losing one’s life (being sucked into a crime) or one’s life savings (being suckered into a risky investment). Survival in the world requires one to be able to recognize, analyze, and escape from those highly dangerous situations.

So should one feel pity or blame toward those who were insufficiently skeptical about Mr. Madoff and his scheme? A problem here is that the lie perpetrated by Mr. Madoff was not all that obvious or easy to recognize. Virtually 100% of the people who turned their hard-earned money (or charity endowments) over to Mr. Madoff would have had a good laugh if contacted by someone pitching a Nigerian inheritance investment or the chance to buy Florida swampland. Being non-gullible ultimately boils down to an ability to recognize hidden social (or in this case, economic) risks, but some risks are more hidden and, thus, trickier to recognize than others. Very few people possess the knowledge or inclination to perform an in-depth analysis of every investment opportunity they are considering. It is for this reason that we rely on others to help make such decisions, whether it be an adviser we consider competent or the fund managers who are supposed to oversee the investment.

I think it would be too easy to say that a skeptical person would and should have avoided investing in a Madoff fund. The big mistake here was in throwing all caution to the wind, as in the stories of many people (some quite elderly) who invested every last dollar with Mr. Madoff or one of his feeder funds. Such blind faith in one person, or investment scheme, has something of a religious quality to it, not unlike the continued faith that many of the Drakers continued to have in Oscar Hartzell even after the fraudulent nature of his scheme began to become very evident. So the skeptical course of action would have been not to avoid a Madoff investment entirely but to ensure that one maintained a sufficient safety net in the event (however low a probability it might have seemed) that Mr. Madoff turned out to be not the Messiah but Satan. As I avoided drinking a full glass of Madoff Kool-Aid — I had invested 30% of my retirement savings in the fund — maybe I’m not as lacking in wisdom as I thought.

Stephen Greenspan is emeritus professor of educational psychology at the University of Connecticut and author of the 2009 “Annals of Gullibility.” A longer version of this essay appeared at skeptic.com and will be in Skeptic magazine in early 2009.

How to Manage Your Boss

By PATRICK LENCIONI

It’s one of the most common questions I hear: “How can I influence my boss? How can I manage up?”

My response disappoints people who are looking for a subtle, clever interpersonal strategy for manipulating a manager. I put the onus right back on the employee.

Anyone who wants to influence their boss has to start by accepting that the manager actually does want to do better. Many employees seem to think their bosses have no desire to improve. How do I know this? Because whenever I ask mid-level managers if they want to improve their management skills, and if they are open to suggestions, they say yes. Most of them genuinely seem to mean it. But when I ask if they think their bosses share that desire for improvement and feedback, they usually give me a skeptical look and shake their heads — without realizing the contradiction of their response.

This discrepancy can be attributed to the fundamental attribution error, a concept I learned in a social psychology class I took in college. According to the theory, we tend to assume that other people’s faults stem from internal, fundamental flaws. But we attribute our own faults to temporary environmental factors. For instance, when our boss manages poorly, we believe that he does it because he intends to and is inherently a bad leader. When we manage poorly, we’re simply making a mistake because of the pressure we’re under.

Of course, this makes no sense. Until we realize and address our natural but dangerous biases, we won’t be able to give our managers the benefit of the doubt and accept that they are really open to our suggestions for improvement. When we do that, we can move on to the second step of managing upward: Taking the right approach.

The key to doing this second step right is mastering something I call the “kind truth.” To understand the kind truth approach, it is helpful to look at the two most ineffective standard approaches.

The “activist” method is best demonstrated when a frustrated employee charges into the manager’s office as a self-appointed representative of the people, defiant and determined to put the clueless leader in his place. This often works on television and in movies, but in reality it is usually ineffective. It puts the leader in an extremely difficult situation, forced to choose between defending himself in the face of an apparent revolt and cowering under pressure. Most leaders with any pride will choose to defend.

The other approach that doesn’t work is the sycophantic method, whereby a well-intentioned employee ingratiates himself to the leader by regularly agreeing with him and telling him how wonderful he is, with the intention of one day slipping in helpful and subtle suggestions for improvement. This doesn’t work because subordinates who suddenly find themselves in the good graces of a boss quickly realize that they like their new status. So they balk when it comes to being honest and putting their improved position at risk. And their boss isn’t usually going to beg them to be tough on him, happy to have new friends.

The best approach, the kind truth method, involves honestly empathizing with the manager’s situation, and expressing that empathy. By appreciating what the manager is facing and why he might be struggling, you open him up to hearing a well-intentioned suggestion about how he can do a better job.

How do I know this works? Because for many years I used it and found myself rewarded for doing so by my superiors. I was the guy that people pushed into the CEO’s office and said, “You tell him!” Virtually every time I spoke the kind truth, I found that the CEO listened to me and heeded my advice. Over time I found that he started turning to me. He knew I wouldn’t rant and rave at him, nor kiss up. Instead, I would offer candid, helpful advice.

What if this approach doesn’t work for you? What if you are punished or shunned for this? That is probably a good sign that it’s time to polish your résumé, without guilt or second thoughts, and find someone new who is open to being upwardly managed.

Rekindle your job search drive

Property sector envisages an upbeat 2009

By Ferdinand Mwongela, Standard

Last year was an eventful year for the real estate industry, with both positive and negative effects.

The year started with the destruction of property of which the housing sector bore the brunt. According to the Vision 2030 first half-term plan (2008 to 2012), 9,000 housing units were destroyed and close to 100,000 residents displaced in Nairobi alone.

Photo: Martin Mukangu

However, the resilient spirit of Kenyans was seen when the industry rose from the ashes to become a significant player in the economy.

There was a lot of activity in the real estate sector with the successful hosting of several property exhibitions, among them the second edition of the Kenya-London Expo held in the UK capital in August and the twin local exhibitions, the Kenya Homes Expo and the Property and Home Living Expo, all of which recorded high attendance.

The formation of the Nairobi Metropolitan Development Ministry to oversee the region’s development and the launching of a strategic plan was also good news for Nairobi residents and stakeholders.

Notable construction projects sprung to the limelight, among them the Hacienda eco-city at the Coast, Flame Tree Park in Thika and Fourways Junction development off Kiambu Road.

But it has not all been good news as the global property market took a hit and slumped, with North America being the epicentre and other regions suffering blows of various magnitudes. Luckily, the African market remained stable despite fears of a ripple effect.

The New Year

Many have predicted an upturn for the sector this year. However, there are conditions that must be met for this to happen, chief among them being the creation of a cohesive working environment between the public and private sectors.

Elly Ongoma, a member of the Kenya Private Developers Association expresses optimism that the housing sub-sector will continue on the upward trend.

“It is possible that the global property market slump could deal the local market a blow, resulting in reduced activity and thus lower prices for houses,” says Ongoma. He is, however, quick to add that intervening measures are being taken even at the international level.

On the question of affordable and adequate housing, Ongoma expresses reservations and emphasises the need to broach the issue of affordable housing for the low income earners, saying that currently the focus is the on middle and high end markets.

Ongoma proposes the exploration of alternative building technologies in order to reduce the cost of housing units and pass the benefit on to the buyers.

Reginald Okumu, the managing director of Ark Consultants Limited promises an active year.

“Several of our clients have lined up a number of projects, which are at various stages of development. Other estate managers are also swamped with projects,” he says.

Land Policy

One such project, according to Okumu is the Nanyuki Shopping Mall, which is scheduled to open to the public in March.

Photo: George Mulala

Okumu attributes the changing trends in the real estate sector to changing lifestyles and technological advancement. He says this year is likely to be the year for enactment of reforms and the real estate sector will not be left out.

“The proposed National Land Policy will hopefully be tabled in Parliament. Also the National Housing Bill is likely to be brought before the House this year. These documents if adopted will initiate major changes by streamlining the real estate sector,” he says.

Mwenda Makathimo, the Institute of Surveyors of Kenya chairman also says that the industry’s outlook for this year is good. “Last year, the industry was faced with the worst possible shake-up — the post election crisis — but it did not collapse. This year can only be better,” he said.

The high deficit in the supply of housing units for the lower and middle lower income earners, however, is a source of concern. Makathimo says that the huge untapped market presents prospects for investors wishing to go into real estate.

Makathimo fears that should the government start borrowing from internal sources the money available for property investments will be lower, thus grinding down the property sector.

His fears are justified as the slump could force the government to revert to local sources in financing the budget deficit, reducing the money available to real estate investors.

George Laboso, the sales manager of S&L (Savings and Loan), the mortgage arm of the Kenya Commercial Bank Group, hopes that the interest rates will remain low and inflation be contained for property prices to be stable.

He is confident that the market will be more vibrant this year due to the high demand for housing units.

“Demand for houses going for below Sh7m is high. There are also great developments in the offing, especially along Mombasa Road,” he said.

Photo: George Mulala

Costly Materials

Laboso says S&L is introducing three new products into the market this year, among them a product for group investors and a project finance product for people constructing houses for low-income earners.

Although the high cost of building materials threatens these developments, Laboso argues that the entry of more cement companies in the market could lead to a reduction in price.

Dr Laila Macharia, chairperson of KPDA (Kenya Private Developers Association) agrees that the industry is expected to mature in many ways. But she points out a number of attendant conditions.

“We need an improved policy environment and incentives for developers so that construction is less risky and cheaper. We want a new building code enacted so that we can use more cost-effective technologies and we need construction and mortgage finance to be more accessible to low and middle income Kenyans,” she said.

The association intends to be more proactive and is pushing for the development of master plans for all the major cities to ensure the industry grows in an economical, ethical and organised way.

Macharia also said that the association was pleased with the growing relationship between the public and private sectors.

“We are actively involved in the Prime Minister’s Round Table initiative, where he meets leaders in business to discuss partnership between government and the private sector. We found policy-makers more open and responsive last year,” she said.

Upper Hill

This year kicks off with the prestigious IABA (Invest in Africa Build Africa) awards, an event to fete developers who have reached out to Kenyans in Diaspora. It is organised by Networking for Professionals, Realken International and the Kenya High Commission in the UK and will be held in February.

The property market has so far seen unprecedented diversification. As residential blocks shoot up, commercial and industrial complexes have not been left behind.

Upper Hill area that is fast becoming an alternative for those shopping for office space and commercial developers are eying any space left out around the area.

Coca Cola company’s regional headquarters in Upper Hill was opened last year. Another complex, the Prof Nelson Awori Centre is under construction.

This shift of focus has, however, strained resources because this area was originally meant for lower traffic and a smaller population.

Along Mombasa Road, business and residential blocks are fighting for space with industrial complexes. Under construction in the area is Sameer Industrial Complex and the new Standard Group Headquarters.

Big Banks in Plot to Kill M-Pesa

Nairobi — The unexpected M-PESA probe ordered last week by acting Finance minister John Michuki may have been influenced by an informal cartel of local banks unhappy with the threat posed by Safaricom’s mobile money transfer service poses to their business. According to well-placed sources, four big local banks have formed an “ad hoc committee” to try and get M-PESA stopped. The bankers pitched their case to Michuki at dinner on Monday, 8th December. They argued that M-PESA was similar to a ‘pyramid scheme’ and that people could lose their money if it collapsed.

On Tuesday 11th December, speaking at the Kenya School of Monetary Studies, Michuki ordered the Central Bank of Kenya to audit the M-PESA service saying that government and even parliament had become jittery over its increasing usage and popularity.

“Pyramid schemes can use it,” Michuki said. “I am not sure M-PESA is going to end up well but I stand to be corrected.”

Since then, Safaricom CEO Michael Joseph has made several loaded references about the threat to M-PESA.

“I don’t know who prompted it (the probe), but there are other forces who would like to see M-PESA gone,” Joseph said at the launch of the ’12 in 12 days’ promotion last Thursday to celebrate Safaricom hitting 12 million subscribers on its network.

Joseph welcomed the probe as it would reassure his customers adding that M-PESA had complied with all the anti-money laundering and Know Your Customer requirements.

“We consulted with the Central Bank and we got their blessings on all the things that regularize M-PESA,” said Joseph.

At the Safaricom Dealer of the Year awards, Joseph insisted that M-PESA would not go so long as he was CEO.

Safaricom has also been lobbying behind the scenes to ensure that M-PESA is properly understood and protected. Joseph reportedly went to the Finance minister’s office the day after the probe was announced and Michuki has now reportedly moderated his position on M-PESA.

The problem for the banks seems to be the extraordinary popularity of M-PESA.

Launched in March 2007, it now has over 5,000,000 registered users and almost 5,000 registered outlets. It has transferred almost Sh60 billion since it started. In September M-PESA transferred Sh9.61 billion and in October reportedly over Sh10 billion.

Safaricom’s stated revenue for SMS, Data and M-PESA in its half year accounts released last month was Sh 3.75 billion. Reportedly around Sh925 million of that was generated by the M-PESA business.

By comparison the banks only have 750 banking outlets and 3,000,000 bank accounts between them countrywide.

Some, but not all, banks are alarmed by the growing popularity of the service. They are doubly fearful of M-PESA becoming a “mobile wallet” in the future which Safaricom boss Michael Joseph has said is his dream.

According to a well informed source, the ad hoc committee has opened up the assault on M-PESA on three fronts. One is to lobby MPs to investigate the risk of a collapse; the second is to pressure CBK to insist that M-PESA be stopped until there is legislation to regulate it; while the third initiate court cases across the country by allegedly aggrieved M-PESA customers.

Safaricom insists that there is no risk of a default.

“It’s not a pyramid scheme. The money is not with Safaricom, it is in a trust account managed by Commercial Bank of Africa which Safaricom cannot touch”, said a representative of Safaricom who preferred not to be quoted. The M-PESA account at CBA now has a balance of close to Sh3billion.

“I don’t know and I’m absolutely not aware of how any of our members would be trying to block M-PESA,” said Wanyela on the phone yesterday.

“The only concern (with M-PESA) was whether we can have a level playing field”, said Wanyela, Executive Director of Kenya Bankers Association.

“If they (Safaricom) are providing a financial service, they should come into the sector. If they are providing communication services they should stay in the sector so that we all play in the same field”.

Another banking source said the banking industry is divided over whether M-PESA is good or bad. Some banks believe it would be better to embrace M-PESA rather than to reject it.

M-PESA was originally set up by Vodafone in the UK as a pilot project to increase financial access in developing countries. It was partly funded by DFID, the aid arm of the British government.

The Kenya model of mobile money transfer is still unique and is being closely watched around the world.

Vodafone rolled out M-PESA in Tanzania in April but the take-up has been much slower than in Kenya.

The maximum amount that can be transferred in Kenya is Sh 35,000 and the maximum that can be held in an M-PESA account is Sh 50,000. Safaricom says it does not intend to substantially increase these limits as it is providing a service for the un-banked or the under-banked.

NewMarket Technology, Expands Emerging Market Technology Strategy in Kenya

NewMarket Technology, Inc. (PINKSHEETS: NMKT) CEO Philip M. Verges today released a letter to shareholders. The letter addresses the Company’s upcoming virtual Town Hall scheduled for January, its plans for Kenya, updates on its Chinese and Latin American subsidiaries, a planned management buyback and the Company’s progress towards an exchange listing. The letter is included in its entirety below.

Dear Shareholders –

Last week I published a letter to shareholders announcing our upcoming virtual Town Hall scheduled for January. In the letter, I extensively reviewed topics that would not be part of the upcoming Town Hall. The Town Hall will focus on reviewing NewMarket’s projected historically high 2008 operational performance and NewMarket’s plans for 2009.

In the virtual Town Hall, we will feature our updated strategy for continuing to grow our technology services footprint in additional emerging markets around the world. NewMarket’s greatest successes have come from our core technology service offerings in emerging markets, to date in those of Asia and Latin America. Much of our growth has been achieved by acquiring and investing in systems integration companies local to those markets. In each emerging market where NewMarket has acquired and invested in a systems integration company, the acquired company has grown significantly within the first 24 months after the acquisition in most cases. Today, our operations in China produce over $40 million in annual revenue, and our operations in Latin America have grown to over $20 million in annual revenue.

The Emerging Market Opportunity for Technology Service Providers

The Internet and its use is expanding around the world. While those countries recognized as world powers have high per capita Internet usage, in most emerging markets only a fraction of the population has gained access to the Internet. A technology service provider has tremendous growth potential in an emerging market facilitating the inevitable growth of the Internet as consumers and businesses in the region gain access. The growth of the Internet and regional access is just one indicator of technology demand growth in a region, but is one we can, in general, easily identify with when discussing the growth opportunity for technology service providers. For example, the expansion of the Internet drives sales of hardware, such as switches, routers and hubs, as well as PCs and other peripherals, and the sales of the corresponding software applications, from PC software to corporate databases and business software solutions. All of these building block hardware, software and networking technologies have to be sold, installed, often customized, and constantly maintained and updated. That’s what NewMarket does as a technology service provider and systems integrator, and the Company has established an impressive track record as an emerging market technology service provider.

Kenya as an Example of the Emerging Market Opportunity

NewMarket has targeted Kenya as an emerging market opportunity. If you will recall, we have been invited to speak at the upcoming African Advanced Level Telecommunications Institute (AFRALTI) WiMax Conference in Nairobi and last year participated in the “Connecting Rural Communities Africa Forum 2007,” also in Nairobi. We have been developing the Company’s opportunities and relationships for the Kenyan market for some time.

Kenya has fiber-optic cable installed throughout the country, and three submarine cables under construction — one to Dubai, one to India and one to South Africa. With a population of around 38 million people, Kenya has only about 3 million Internet users today. The groundwork has already been laid for a rapid increase in Internet penetration. NewMarket plans to be prepared to provide the necessary products and services to facilitate and profit from the inevitable Internet usage demand growth and related government and business technology needs in Kenya.

In the upcoming virtual Town Hall, I will discuss our Greenfield strategy for opening new emerging markets — a strategy we will trial in Kenya.

NewMarket and the Over the Counter Marketplaces

In my previous letter, I addressed in more detail the short selling problems NewMarket has encountered (http://biz.yahoo.com/iw/081217/0461105.html). The NewMarket shareholders have watched revenues and profits increase and share price decrease. NewMarket management cannot single-handedly fix the economic issues impacting the share price, but we can get smarter about avoiding the market abuse that has plagued the share price. NewMarket remains confident that the OTC and OTCBB markets, regardless of all their issues, still provide an excellent opportunity for shareholders to realize a return on investment. OTC and OTCBB listed companies can deliver long-term and short-term returns. However, OTC and OTCBB markets do not generally support a seamless transition for an early stage company to mature into a later stage company and deliver a long-term return. Early stage OTC and OTCBB listed companies can produce exceptional short-term returns generated by milestone events. For example, the early stage company may file a patent, sign a notable contract or perhaps announce a quality board member. None of these milestones will necessarily guarantee long term success for the company, but each milestone is likely to create a short-term share price increase by demonstrating the long-term potential of the company’s plan. A milestone share price increase will likely also attract subsequent short selling. Short sellers will bet on the milestone not being adequate to support long-term success. After all, sixty percent of start-ups fail within three years after launching. While making a legitimate bet on an early stage company not succeeding in the long-term, that short sale bet can be illegally waged by failing to legitimately borrow shares. Unchecked short selling creates a counterfeit, artificial supply of shares and the laws of supply and demand often take over and help to drive a share price down.

Nevertheless, a legitimate opportunity exists to purchase shares before a milestone event and take a profit when the milestone is achieved. Legitimate retail investors can make legitimate returns even though illegal short selling will likely continue in the foreseeable future. The challenge is to find and qualify potential milestone events and make winning bets on the right milestone opportunities.

Long-term Profits from Early Stage OTC and OTCBB Investments

Retail investors can also realize excellent long-term returns on OTC and OTCBB quoted companies. OTC and OTCBB quoted companies generally have substantially lower market capitalizations when compared to similar operations listed on exchanges (the OTC and OTCBB are only public quotation systems, not exchanges). Accordingly, as an OTC or OTCBB listed company transitions from its early stage beginnings and manages to have its share price recognized in comparison to its exchange listed brethren, a substantial return can be realized by long-term investors. However, that early stage business that matures, regardless of its operational success, has likely experienced a fair amount of share price volatility (see above on short-term milestone returns) and it has also probably issued a large number of shares in conjunction with fundraising and acquisitions. The shareholder base is correspondingly likely to be weary from the journey that started with a reverse merger and brought the company to its current stage.

The challenge to transition from generating short-term milestone returns to delivering long-term capital appreciation is one of revitalizing the shareholders, and as part of that revitalization, halting the ongoing issuance of stock. Before a shareholder revitalization, short sellers will continue to exploit profit opportunities by demoralizing weary shareholders into giving up hope in a long-term return and otherwise releasing their stock at a loss. The short seller is of course happy to purchase that stock and close out their short position. To anyone that does not believe in short seller manipulation, try to offer an alternative explanation to who is buying stock when others are selling stock while the share price is going down.

NewMarket Long-Term Return, Exchange Listing and Management Buyback

2008 looks to be a historically high year for NewMarket’s operations. The Company has continued to grow and is on track to report historically high revenue. Notably, NewMarket has not made an acquisition in over two years, so the Company’s growth is the result of increased organic sales. The Company may realize historically high net income as well, however, we have not yet finalized all decisions on how cash produced by operations might be utilized in the best interest of shareholders.

Management is considering the use of some cash produced by operations as part of an effort to reduce or eliminate debt. However, using cash to reduce or eliminate debt is not management’s primary strategy to reduce debt, and we maintain that the best use of cash produced by operations is for the ongoing support of operations.

You may recall that the Company entered into a $7 million debt transaction just over one year ago. The $7 million debt transaction consisted of a $4 million term note and a $3 million revolving line of credit. We have already retired the $3 million revolving line of credit, and management has been endeavoring, on behalf of the Company, to borrow the necessary funds for management to replace the $4 million term note. Management’s intention is to convert the $4 million term note to a secondary class of equity that would not be convertible to common stock. Management’s only exit from that security would be the sale of the Company. The risk of additional common stock being issued to reduce the $4 million debt would be eliminated. If the lender has sold NewMarket stock short to hedge against their risk associated with the loan to NewMarket, then genuine NewMarket shareholders would enjoy the benefit of the senior lender having to buy back stock to cover the short position once their debt was paid in cash.

Management has not at this time completed the retirement of the $4 million term note with the current lender and may not be able to successfully retire the note. Management has secured a lender willing to sponsor management in the proposed transaction and negotiations are underway.

Management has referred to this transaction as a ‘buyback,’ as management will be buying back a substantial equity position in NewMarket if they are successful. This is not a buyback of common stock from the open market, and we believe this buyback would be more beneficial to the Company’s shareholders than a buyback on the open market. The transaction proposed by management would have a substantial operational benefit to the shareholders by eliminating a substantial debt. The transaction would also substantially reduce further common shareholder dilution that could be realized if the current debt with the existing lender were to be serviced in stock.

Subsequent to a transaction removing the current lender and reducing the Company’s debt, NewMarket would then initiate steps to move toward an exchange listing. The details associated with the Company’s strategy to achieve an exchange listing will vary depending on the final details associated with the potential retirement of the existing term note.

Management is working to align the Company’s strong fundamental financial performance and its market valuation to deliver a return on investment to its long-term shareholders. The buyback strategy described herein, and the highlights of management’s intention to subsequently move to another exchange are central to our plans to deliver that long-term return.

NewMarket Latin America, Inc. and China Crescent, Inc.

NewMarket Latin America, Inc. and China Crescent, Inc. represent the Company’s most substantial emerging market operations and the first operations listed independently as part of the Company’s plan to directly share the benefit of its emerging market growth with shareholders.

The consolidation of operations into the Latin American public subsidiary has been slower than anticipated, and the cleanup of past public filings associated with the operations that pre-dated the transaction with NewMarket has been problematic. As the largest shareholder, NewMarket has elected to voluntarily de-register NewMarket Latin America, with the intention of accelerating the cleanup and consolidation. The necessary filings to support a new registration are currently being reviewed. When the registration is complete, the Latin American operations will be consolidated. As the filings are reviewed and finalized for submission, the Company will release an anticipated time frame for the completion.

China Crescent has had a good year operationally, however the stock performance has been disappointing and difficult to understand. From the fundamental financial performance of China Crescent, we anticipated better stock performance to date. The Company’s operational base is strong, and we are happy with the progress the company has made this year as it matures and grows independent of NewMarket. For instance, the Company has changed its name this year to better position itself in the Chinese market, its primary place of business, and has transitioned to new leadership, from its entrepreneurial leadership team. The Company has recently announced its plans to increase its footprint in China by increasing its ownership in one of its Chinese operating subsidiaries by 25%. China Crescent has focused on the growing need in China for computer hardware and software since its inception in 2005, and we look forward to the Company’s continued growth in 2009. Both NewMarket and China Crescent management are aware of the frustrating stock performance and will continue to focus on improving it in 2009, while continuing to keep our focus on improving and growing the Company’s established operational base. China Crescent is scheduled to provide more updates on its plans and activities to its shareholders starting in January. Please look for those updates from China Crescent.

I look forward to sharing more with all of our shareholders in the upcoming virtual Town Hall. I also look forward to kicking off 2009 and providing updates to you all throughout the first quarter. I am confident long-term shareholders will be rewarded for their ongoing commitment, and I am grateful for the support shareholders have shown the Company.

Best Regards during this Holiday Season,
Philip M. Verges
Founder and CEO
NewMarket Technology, Inc.

Corporate E-mail Updates

To be added to NewMarket Technology’s e-mail database to receive company updates or to obtain more information on the Company, please send an e-mail to ir@newmarkettechnology.com or call 214-722-3065.

About NewMarket Technology, Inc. (www.newmarkettechnology.com)

NewMarket helps clients maintain the delicate balance between maintaining legacy systems and gaining a competitive edge from the latest technology innovations. NewMarket provides certified systems integration and maintenance services to support the prevailing industry standard solutions from companies such as Microsoft, Oracle, Infor, Cisco Systems, SAP, Siebel and Sun Microsystems. Concurrently, NewMarket continuously seeks to acquire emerging technology assets to incorporate into an overall product portfolio carefully packaged to complement the prevailing industry standard solutions.

NewMarket delivers its portfolio of products and services through its network of Solution Integration subsidiaries in North America and the leading emerging markets around the world to include Latin America, China and Singapore.

NewMarket ranked Number One in Texas, Number Three in the United States and Number Five in North America on Deloitte’s 2006 Technology Fast 500, a ranking of the 500 fastest growing technology, media, telecommunications and life sciences companies in North America. Rankings are based on percentage revenue growth over five years, from 2001-2005. The Company grew from less than $1 million in revenue in 2001 to over $50 million in profitable revenue in 2005.

The company has continued its rapid growth, reporting $77.6 million in revenue with a net income of $5.8 million in 2006 and most recently $93.1 million in revenue with a net income of $7.3 million in 2007.

“SAFE HARBOR STATEMENT” UNDER THE PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995

This press release contains forward-looking statements that involve risks and uncertainties. The statements in this release are forward-looking statements that are made pursuant to safe harbor provision of the Private Securities Litigation Reform Act of 1995. Actual results, events and performance could vary materially from those contemplated by these forward-looking statements. These statements involve known and unknown risks and uncertainties, which may cause NewMarket’s actual results in future periods to differ materially from results expressed or implied by forward-looking statements. These risks and uncertainties include, among other things, product demand and market competition. You should independently investigate and fully understand all risks before making investment decisions.

Contact:
NewMarket Technology, Inc.
Investor Relations
ir@newmarkettechnology.com
214-722-3065
http://www.newmarkettechnology.com

Tips for Navigating Turbulent Financial Times

by Teri Brown

The prevailing economic downturn has been hard on Americans. The high jobless rate, lowered earnings and corporate downsizing have all taken their toll on the average family’s income. While experts are busy debating the recovery or lack of, most households are just trying to survive.

Ellen Ferlazzo, mother of two from Pleasanton, Calif., is experiencing the economy’s effects firsthand. As a self-employed single mother in the hig- tech field, Ferlazzo has watched her income plummet in the past year. She has received fewer and fewer contracts, and the contracts she did obtain paid less and less.

“I find smaller jobs, but have not yet landed a major contract like I used to be able to find,” Ferlazzo says. “Hourly rates are down by 60 percent, so I’m doing less work and getting less money.” Ferlazzo’s ex-husband was also hit by the high-tech downturn, leaving her family in a fairly stressful situation, but she has managed to adapt.

Rudy Cavazos, director of corporate and media relations for Money Management International (MMI), a nonprofit community service organization offering confidential financial guidance, free consumer credit counseling services and debt management assistance, believes that families need to work together in order to remain solvent during times of financial difficulty. “It’s a family affair,” Cavazos says. “Communicate openly with your family. Ask them to assist you in reviewing where the money goes and determining what areas can be trimmed. This keeps everyone involved and provides support during times of crisis.”

Cavazos suggests that you stop spending money on anything but the bare necessities, and you may want to consider selling assets to keep afloat. “Assess your situation and set up a survival budget,” he says. “First, determine the amount of take-home income you can realistically count on. Then take into account your set monthly payments such as housing, vehicles and insurance, and then consider your current variable expenses such as costs for food, utilities and gasoline.” When setting up your budget, don’t forget to consider periodic expenses such as auto registration, insurance or school tuition.

“Stop charging and overextending yourself,” Cavazos says. “You will not get out of this problem by attempting to get more credit. If you know that the income interruption is only temporary, then a small loan to tide you over may be appropriate.”

If you are falling behind on your bills, the most important thing you can do is to communicate with creditors. Let creditors know your situation. They may have programs to help you through the period of unemployment.

“Try to realistically determine how long your income will be reduced,” Cavazos says. “Create a plan for repaying your debt to each creditor by determining a reasonable amount to pay each month. It is best to contact your creditors before they have to contact you.”

After Sandy Pickett’s husband lost his job, they realized that his unemployment benefits amounted to less than half of his previous income. Economizing became a way of life for the Pickett family. Pickett, the mother of two from Evansville, Ind., began shopping at discount stores and running the errands all at once in order to save gas money. Even their pets have felt the pinch as they bargain-shop for the cheapest dry pet food they can find.

Ferlazzo also had to dramatically reduce her household’s expenditures. “I canceled the housekeeper and gardener first thing,” she says. “Then when it became clear things were not quickly picking up, I pulled the girls out of their after-school daycare. I canceled any optional expenses and cut back as much as I could on services like NetFlix, phone features like caller ID and my cell phone plan.”

Cavazos agrees. “Trimming luxuries such as cable TV, cell phones and dinners out can help make ends meet during this turbulent time,” he says.

“I cut the food bill down drastically by careful shopping, and we never eat out,” says Ferlazzo. “We shop for clothing at thrift stores and clearance racks about 90 percent of the time and buy fewer clothing items for sure. We use the library rather than the bookstore and video stores and look for free entertainment where possible.”

While you may be cutting back on some of the entertainment your family is used to, don’t eliminate all the fun.

Though the Picketts have worked hard not to let their financial stress affect their family relationships, it isn’t easy. “We do have times when the kids want to do something or need something, and we have to postpone it or say no because of no money,” Pickett says. “They are a bit tired of hearing it, but are doing better at understanding.”

According to Deborah Taylor Hough, author of Frugal Living for Dummies (For Dummies, 2003), cutting back on entertainment doesn’t have to mean cutting out entertainment all together. Many local libraries now offer free movie rentals, and discount movie theaters are becoming more popular.

Taylor Hough believes that family fun and togetherness is one way to keep the stress of cutting back from rupturing family ties. “Frugal living and family entertainment often feel like terms on the opposite end of the spending spectrum,” Taylor Hough says. “But if money’s tight, it’s important to plan some fun into those sunny weekends and summer vacation, otherwise life can get a bit dull, and frugal living can seem more like a straight-jacket rather than a means to help you reach your financial goals.”

Taylor Hough also suggests that you rediscover the joy of taking walks together as a family. “Whether it’s taking a stroll around the neighborhood every evening after dinner or walking a local nature trail, it’s a great way to spend some time together and get a little exercise in the process,” she says.

Once you’ve weathered this downturn, MMI suggests you plan for the next – just in case. Cavazos recommends families begin investing in themselves, especially considering today’s economic climate.

“The safest place for someone’s money is in their own accounts,” Cavazos says. “We recommend that people invest in themselves and their financial futures by building an emergency savings fund equaling three to six months worth of income. This can be the difference between survival and disaster in the case of unemployment, major illness or other financial hardships. The biggest mistake that families can make is not saving money for a rainy day. By continuing to incur debt and limit savings, consumers are placing themselves in a precarious and vulnerable situation.”

The most important thing for families to remember is that no matter what the state of the economy, economizing is a good habit that can always come in handy. And with careful planning, even the worst financial surprises can be survived and overcome.

• Establish priorities – What must be done first? Obviously, spending must be reduced to the bare essentials. Overall spending must be evaluated. This takes a budget!
• Keep a handle on credit and charge accounts – What must be continued and which can be deferred? Notify and negotiate with all creditors for reduced or extended payments. Be honest and forthright. Explain that there is not enough to go around but you will eventually pay everyone.
• Stop charging and overextending yourself – You will not get out of this problem by attempting to get more credit. EXCEPTION: If you know that the income interruption is only temporary, then a small loan to tide you over is OK.
• Protect your home and assets necessary to gain income once again – This means you must make every effort to keep the rent or mortgage payments up to date (and utilities), along with the car payments, if that car is necessary to look for work. However, the second car or recreational vehicle or boat can go.
• Consider selling assets to keep afloat – What do you own that you can sell (including the gun collection, vacation home, boat and/or trailer)?

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