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Teri Bernstein, MBA, CPA has been teaching full time in the Business Department of Santa Monica College since 1985.  Prior to that, she worked in Internal Audit and Special Financial Projects for the 1984 Los Angeles Olympics, CBS, Inc., and Coopers & Lybrand (which is now part of PricewaterhouseCoopers).  She attended the University of Michigan and Wayne State University.


  • Tiny Hachette publishing is taking on Amazon

    image from the prnewswire Michael Pietsch (rhymes with "beach"), the CEO of the Hachette Book Group, is in a battle with Amazon over pricing and availability issues regarding manipulation of the market for books. All of the other book publishers are waiting to see what happens. Other publishers have been afraid to take a stand against Amazon, because of Amazon's tremendous clout. Amazon has huge volume and it is willing to sacrifice profits in pursuit of market share. Not every publisher can afford to pursue that strategy. But Pietsch seems willing to get the issues on the table in order to not lose everything in the long run. Unfortunately, because Amazon and Hachette have signed confidentiality agreements, the nitty-gritty details of their dispute remain secret. Nevertheless, other publishers guess that Amazon is trying to sell Hachette e-books at bargain prices, and Hachette is trying to maintain their profit margins. One tactic that Amazon is using to prevail in this fight is to deliver this message to potential customers wanting to buy a Hachette title: Image from Amazon...when they are trying to delay shipping your book, whether they have it or not... This is a risky strategy for Amazon, because delays tend to annoy customers. Amazon's "branding" includes being customer-friendly, so any delay tactic might tarnish their image. Nevertheless, it also thwarts sales of Hachette titles--especially for those customers who are loyal to Amazon via their Amazon Prime relationship, or those who have an Amazon gift card to spend. Other customers take the bait and switch to another title recommended by Amazon when they are on a Hachette author's pages. The "currently unavailable" strategy is also used by Amazon in dealing with independent, single-book-inventory booksellers (who know they have delivered inventory to Amazon's warehouses). Even if the titles are somewhere in Amazon's inventory, Amazon can put these low volume items on the back burner without tarnishing their reputation for delivery within two days...if they say the title is "currently unavailable." The roots of this dispute go back to before the 2012 Justice Department anti-trust lawsuit against book publishers. Five publishers were found to have conspired to raise e-book prices. They'd banded together to try to maintain their profits in the face of the Amazon undercutting of prices. [See: " Can eBooks get past the price-fixing scandal? "] The settlement included a two-year period where Amazon was allowed to discount e-book prices. That agreement has expired, and now Hachette is stepping up and bargaining on principle. Pietsch insists that books are a special kind of product and cannot be treated like some of the other mass-produced items sold by Amazon. A major Hachette author, James Patterson, supports Pietsch and has said, " Amazon also, as you know, wants to control bookselling, book buying, and even book publishing, and that is a national tragedy. ” Other booksellers may want Hachette to win, but like scared schoolchildren in the face of a bully, they are standing quietly on the sidelines, fearful of the retaliation that has already been directed at Hachette. Meanwhile, some customers are upset by Amazon's policies. " If Amazon thinks I don't care about its silence, it's wrong. I take it personally that the company doesn't think it owes me even a half-baked explanation for why I can't buy some books from it, " complained Jack Shafer, writing for Reuters .In addition, some legal observers think that Amazon is risking government anti-trust action. Who will "win" in the long run? Source: " Hachette Chief Leads Book Publishers in Amazon Fight " by Jonathan Mahler, the New York Times, June 1, 2014. " Amazon Absorbing Price Fight Punches ," by David Carr, the New York Times, June 1, 2014. F ollow up: Read the articles and previous post linked above. In hindsight, do you think that the anti-trust suit brought against the publishers in 2012 may have had the unintended consequence of creating a better environment for an Amazon monopoly? Give your reasons. What do some established authors think are the risks of this stand-off? How might this affect sales? What are the marketing and potential sales issues for Amazon, and for the publishing industry as a whole?
  • Apple bites Beats: will it get its groove back?

    Image above of The Beats by Dr Dre headphones cradling the Apple logo , signifying the new merger Jimmy Iovine has agreed to sell Beats Electronics to Apple Inc . for $3 billion. Beats Electronics, the maker of Beats by Dr. Dre premium headphones, currently has a contract with Hewlett Packard to integrate Beats hardware with their machines. (The HP contract will not be renewed when it runs out in 2015.) Apple seems to be buying a company that brings to the table some attitudes and features that Apple lacks. "Human curation" (rather than algorithms) drive the music selection of Beats' streaming music services. The Beats headphones couldn't be more unlike the Apple ear buds--they deliver sound quality far superior to what the tiny ear buds even attempt to offer. But Jimmy Iovine does share the key quality of showmanship coupled with "reality distortion" that Steve Jobs used to create a memorable business story. One claim that Jimmy Iovine makes about Beats is that it it built its $500 million business over three years while spending "zero dollars" on marketing--just by using their ability to "harness the media." They can talk all they want. It will still be a treat to see what products evolve from this partnership. Source: " A New Irreverent Spirit at Apple " by Vindu Goel, the New York Times BITS, May 29, 2014. F ollow up: Have you listened to music using Beats Electronics headphones? What are the pros and cons, compared to Apple ear buds? Compare and contrast this new acquisition by Apple with Beats Electronics' partnership with Hewlett Packard.
  • Food fight over sausage company

    image from coupon site There has been a bidding war on the stock market for a takeover of Hillshire Brands Co ., which makes Ball Park hot dogs and Jimmy Dean sausages, among other processed meat products. The bidders? Tyson Foods and Pilgrim's Pride Corp . Why would these companies want to own Hillshire Brands? According to the Marketplace article: 1) Diversification. Because of increasing prices on various meat commodities (beef, pork, chicken), producers want to control more of the market. 2) Hiring profits : the margins on Hillshire Brands products are higher, since they have more prepared food (for example, croissant sandwiches) 3) Competitive pressure : Hillshire Brands planned to buy another company-- Pinnacle Foods, Inc . Other companies want to get control of Hillshire before that happens. 4) Possible tax benefits . Some analysts claim that two years after they previous acquisition, the tax penalties on a subsequent acquisition might be less...and it has been two years since the association of Hillshire Brands with Sara Lee . Source: " Why does everyone want Hillshire these days? " by Kate Davidson, Marketplace American Public Media, May 29, 2014. F ollow up: What is Tyson Foods offering for Hillshire Farms? What is the current market price? If you are reading this after the takeover is complete, what was the sales price? Who was the successful purchaser?
  • Wanna make $21 per hour at McDonald's? Move to Denmark

    image from reuters In Denmark, there are two McDonald's wage levels: $21 per hour applies to adults 18 years of age and over. $15 per hour is the minimum wage for workers under 18 years old. Even the lower wage level is more than double the minimum wage for adults in the U.S.--and it exists in a public policy environment where health care is universal. These wage levels were not McDonald's idea. They were bargained for by a union--and putting that union in place required years of work. Sometimes the discussion in the U.S. media around the minimum wage ignores the profits being made by large corporations. The talking points center on the hurdles all costs are for small businesses just starting up. An additional argument for a higher minimum wage is that boosting wages for the lowest paid workers also boosts the salaries of entry-level professionals. This might mean less profit for stockholders of corporations like McDonalds--or fewer bonuses at the highest levels of management. Nevertheless, it also might mean that the social service costs of low-income wage earners are shifted away from middle class taxpayers and onto the corporations who are profiting from the labor provided at these low wages. What do you think? Source: " I’m making $21 an hour at McDonald’s. Why aren’t you? , " by Louise Marie Rantzau, Reuters: The Great Debate , May 15, 2014. F ollow up: One definition of the "minimum wage" is a " living wage ": the wage level that, with full-time work, can support a four person family at a lowest-rung middle class level. What do you think would be the living expenses at this level? What are the pros and cons of raising the minimum wage in the U.S.? What would be your definition of "minimum wage"? Is the concept of a "living wage" relevant? Would one wage work for the entire country? Research the wages paid at Chipotle, Costco and Walmart. How do minimum wage laws affect large corporations and small businesses differently? Have you ever supported yourself while being paid a minimum wage? Explain how that worked or didn't work. Read the article to find out how working for the current U.S. minimum wage affects others, if you do not have experience of your own.
  • The Income Gap: How to fix it

    image from therealsingapore.com Robert Reich , U-C Berkeley professor and noted economist, is a huge fan of the middle class. Therefore, income equality is an issue that he has a lot to say about. And--unlike Thomas Piketty --Reich does not believe we are doomed. Some major factors which influence his position include the following actions which need to be taken to counteract the income gap: Make work pay. If a minimum wage of $15 per hour were attached to the fast-growing fields of hospitality, restauranteurism, and tourism, this would make a huge difference. According to Reich, " No American who works full time should be in poverty. " Unionize Low Wage Workers . Unions gave the middle class clout, and unions are now the only way that low-wage workers can face off against global competiion. Invest in eduation. This might seem like a no-brainer, but education costs money and the uneducated sometime do not have a voice in policy decisions. According to Reich, " Education should not be thought of as a privae investiment; it is a public good that helps both individuals and the economy. " Invest in infrastructure . This means road, public transportation, decent rents in places near to work, affordable utilities, education from age 3-23. Everything. America is behind on investing in these basic, business-supporting needs. Pay for these investments with higher taxes on the wealthy . According to Reich, " Between the end of World War II and 1981 (when the wealthiest were getting paid a far lower share of toalt nation income), the highest marginal federal income tax rate never fell below 70 percent, and the effective rate (including tax deductions and credits) hovered around 50%. But with Ronal Regan's tax cut of 1981, followed by George W. Bush's tax cuts of 2001 and 2003, the taxes on top incomes wer slashed, and tax loopholes favoring the wealthy were widened ." M ake the payroll tax progressive . Since payroll taxes are 40% of government revenues, shouldn't they be progressive, if that is an American value? Government could exempt the first $15,000 of income from these taxes for a start. R aise the estate tax and eliminate the “stepped-up basis” for determining capital gains at death . OUCH. This one would personally hurt me, but I have to admit that inherited wealth is not really fair. Taxing wealth that has not been personally earned is actually a very good idea--especially as far as adjusting for income inequality is concerned. Fist step : reduce the taxable threshold on inherited wealth from $5.34 million down to $1 million. How many people is that going to hurt? And those that it does "hurt"--can they afford it? Stepped up basis inequality : Here is how the current rule works: If my parents sell their house before they die, they are subject to tax on the increase in its worth since they bought it. But...if it is in their estate, it passes to their heirs at the value it had the day they died. The increase in capital worth that occurred while they were alive is NEVER TAXED. Is that fair? Constrain Wall Street : Resurrect the Glass-Steagall Act in full and restrict the size of banks--back to the 1975 level ideally. (Fat chance). Give all Americans a share in future economic gains. According to Reich, one thing that aggravates the inequality is that, " The richest 10 percent of Americans own roughly 80 percent of the value of the nation’s capital stock; the richest 1 percent own about 35 percent. " He advises that," As the returns to capital continue to outpace the returns to labor, this allocation of ownership further aggravates inequality. Ownership should be broadened through a plan that would give every newborn American an “opportunity share” worth, say, $5,000 in a diversified index of stocks and bonds—which, compounded over time, would be worth considerably more. The share could be cashed in gradually starting at the age of 18 ." RADICAL. Get big money out of politics. If corporations, with multi-thousand...and now multi-million dollar contributions to lawmakers allowed didn't control our political representatives, average Americans might have a voice. the Supreme Court's Citizens United decision made that impossilbe. But a Constitutional Amendment (according to Elizabeth Warren) or at least full disclosure (still possible under current Supreme Court direction, but not yet mandated by law) would be a step in the right direction. Is there a chance to reign in income equality? What are we willing to do to make that a reality? Source: " Robert Reich: 10 ways to close the inequality gap: The former secretary of labor on American society's single greatest obstacle -- and what we can do about it , " by Robert Reich, the Salon , May 13, 2014. F ollow up: What are some of the highlights of Robert Reich's resume? Are you inclined to listen to his ideas because of this resume, or reject...
  • Twitter stock plunges...for a good reason

    image from sigalonit.soup.io Twitter stock is in "free fall" according to the New York Times . Stock prices fell 17.8% in one day last week. What happened? Here are some of the reasons stock prices might fall: the entire stock market is falling, due to outside economic data earnings reports for the company in question could be lower than projected a competitor company might have come out with a better, competing, product a derogatory news event involving company personnel could be trending the stock may have "split" the laws of "supply and demand" may have their expected effect. In the case of Twitter, "supply and demand" is the culprit. from Reuters via the New York Times article linked below Here is what happened: Twitter IPO purchasers were not allowed to sell their shares until last week...when several Twitter stockholders' dumped their shares on the market. The excess supply drove the price down. Meanwhile, the buzz about Twitter's ability to make money didn't help. Revenue is up, but user growth is almost flat. This bodes ill for the future. "User engagement" is also down by 3% domestically and 10% internationally (this is the screen-refreshing rate of Twitter users). Nevertheless, business consultants are all about "getting on to Twitter." Go figure. Source: " Twitter stock plunges as more shares hit the market , " by Nicole Perlroth and Vindu Goel, the New York Times , May 6, 2014. F ollow up: Can you think of other factors that may cause a stock price to fall? What factors might cause a stock price to increase? What is a stock split? Is it good for investors or bad? Explain. How do Twitter executives explain the recent stock problems?
  • Alibaba: Who will be making millions from its messy IPO?

    image from investorplace.com Check out the investorplace Alibaba IPO VIDEO STORY Alibaba is a huge Chinese online retailer that was started by a non-tech-savvy English teacher named Jack Ma. It is making news because of its proposed IPO...and the mysteries that its recently-released financial statements are revealing: A libaba runs two websites, but its financial statements combine the revenue in one line. Revenue grew 60% from 2012 to 2013, but there is no detail provided to support how this happened. Alibaba claims that mobile-device net revenue has increased 19.7%, but shows no detailed breakout of mobile revenue and expenses in its financial statements. Alibaba restricta searches of its site by Baidu , a popular Chinese search engine and information provider. Alibaba's financial statements do not disclose how this artificial means of protecting profits might change if access is opened after the IPO. In addition, Alibaba might need the internet hits that Baidu could provide. Alibaba is extremely profitable, but questions arise as to whether that profitability can be sustained. Its business model is not inventory-based, but is a service that links buyers and sellers. This is much more difficult to evaluate and audit. Initial Public Offerings can be full of surprises. We will see how this one plays out. Source: " Big Profits at Alibaba, but Filing Has Gaps , " by Peter Eavis, the New York Times , May 6, 2014. F ollow up: What is an IPO? Why would a Chinese company want to launch an IPO on an American stock exchange? How does restricting access to Baidu help Alibaba? How does it hurt Baidu? What are the pros and cons of this policy?
  • Berkshire Hathaway: TRUST is everything...no matter what others say

    [View:http://community.cengage.com/GECResource/themes/gew/utility/ :550:0] video from WSJ: Woodstock for Capitalists Charlie Munger, vice chairperson of Berkshire Hathaway ,was at " Woodstock for Capitalists " recently. Munger is a long-time friend of Warren Buffet. Munger's take-away quote: “ By the standards of the rest of the world, we overtrust. So far it has worked very well for us. Some would see it as weakness.” The statement was a response to the overwhelming trend in businesses and educational institutions to "lawyer up." In addition, businesses are now spending millions on consultants that specialize in (minimum-possible) compliance with regulations. Munger's point was that a better use of business energy is to hire those you trust...and to skip creating an environment of distrust and policing. The Rock Center for Corporate Governance (Stanford University) is studying Munger's thesis with respect to its validity and efficacy as corporate policy. Source: " Berkshire Hathaway Promotes Trust , " by Andrew Ross Sorkin, the New York Times , May 5, 2014. F ollow up: How much does Berkshire Hathaway spend on corporate counsel? Why is this unusual, and what other policy is unusual with respect to other corporations' behavior? Could it constitute "negligence," as suggested in this article? Munger has said (regarding the policy in Roman times), " If you build a bridge, you stood under the arch when the scaffolding was removed .” What do you think this means, in terms of being a metaphor for modern corporate behavior? In what other (major) ways is trust important to business transactions?
  • "Giffen goods": Apple bonds violate law of supply and demand

    image from lightandlife.org Giffen Goods -- when the rules of supply and demand go awry. When the price goes up, consumers buy MORE instead of less. The name comes from the individual who identified the aberration--a 19th century Scottish statistician/economist named Robert Giffen. The iconic example of this phenomenon was the consumption of potatoes in Ireland by the poor. When potato prices went down, the peasants could afford to buy meat as well as potatoes...so they consumed fewer potatoes. When potato prices were high, the poor in Ireland could not afford to buy meat, so they had to buy the more expensive (but still cheaper than meat) potatoes--so they bought more potatoes. "Supply and demand" usually predicts that prices decrease when demand is low, and prices increase when demand is high relative to supply. Here is what happened with Apple : Last year, they issued $17 billion in bonds. A bond issue in lieu of the issuance of additional stock means that current stock value is not diluted and the the return on stockholders' equity is improved, so this is a popular move with stockholders. Anyway, when they announced last week that they would be issuing $13 billion in new bonds, the price of the old bonds on the secondary market dipped a little, which would be the expected result according to supply and demand. But when they actually went on sale, the price was HIGHER than it had been before the additional bonds became available. Go figure. Because bond investors tend to be the same people that invest in packaged mortgage bundles, analysts are looking to that market to make sense of this development. What those analysts are seeing is that mortgage lending is getting "looser" again, so the bundled mortgages are becoming more risky. This pushes the return rate higher. So...lower quality or longer term investments (Apple's bonds are 30 year) become more appealing to investors. One analyst, Martin Fridson , writing for S&P Capital IQ LCD , predicted that these low-quality investments will begin pushing up the default rate in 2016--and the defaults will continue until 2020. “ During that period, we project that on a global basis, approximately 700 bond issuers and 1,150 debt issuers in total will default. The face amount of bonds and loans going into default should approximate $1.5 trillion, with the U.S. accounting for $1 trillion of the total .” This doesn't say anything about what will happen specifically with the Apple bonds, but since Apple's solvency and liquidity is very good, this dire prediction is unlikely to affect the Apple bondholders. Source: " Searching for Yield, At Almost Any Price , " by Floyd Norris, the New York Times , May 2, 2014. F ollow up: Look up the bond issue on the internet. What is the interest rate being paid on the old bonds? What is the interest rate on the new bonds? Can you think of any financial reason--market driven--for the popularity of these bonds? Hint: check out the rate your local banks are paying on their Certificates of Deposit. If you bought Apple's bonds last year, and sold them this week, the author of the NYT article notes that you would experience a net loss. Why is this?
  • What "the 1% don't want you to know": Paul Krugman on Thomas Piketty

    image is from an interview at BillMoyers.com, via VIMEO According to Paul Krugman 's analysis of newly observed changes in the structure of the U.S. economy, if you are not part of a family in which you will get a piece of inherited wealth--you and your own heirs are doomed. Not only will you never be rich--you and your family will become poorer with each generation...as those with inherited family wealth become richer. The focal point of the interview linked above between Bill Moyers and Paul Krugman is the new book by Thomas Piketty of the Paris School of Economics: Capital in the Twenty-First Century . In the book Piketty delineates how 67% of the increase in the top-heavy distribution of wealth that has occurred since the 1970's is the result of huge raises given to corporate executives. These huge salaries, combined with tax and other governmental policies in the U.S., have created the perfect storm for the formation of an oligarchical economic structure that has now become hard-wired and institutionalized. Krugman makes the additional point that wealth is now so concentrated that it is invisible to most of the public--the shear size of the fortunes are out of the realm of what the average person can understand in terms of wealth management. The impact of this wealth concentration on middle and lower income people in the United States is much more pronounced than it is in Europe because governmental policies in Europe create a higher standard of living for the poorest 20% by providing health care, higher minimum wage and other income and social service support. book image from amazon.com Krugman experienced reading Piketty's book as as "Eureka!" moment, as it showed how radically the economic structure had changed when analyzed over the long term. The book also pointed out that o nce wealth is held in the hands of the oligarchical few, it becomes nearly impossible to change the laws to tax the wealthy at a greater rate. The concentrated wealth has gained control over public policy as well. Can the situation be changed--to favor real competition and the growth of small businesses and the middle class? I'm going to read the book to find out... Source: " Bill Moyers w/Paul Krugman: “What the 1% Don't Want You to Know ” " by bobswern, the Daily Kos , April 18, 2014. F ollow up: According to Paul Krugman, what forces might counter the oligarchical situation which we now find ourselves in? [this is about 18 minutes into the interview] What is the "high r, low g" economy that Krugman refers to? According to Bill Moyers and tax analysts, how many times greater are top management salaries more than low income workers, based on recent tax data?
  • One really good bank for small businesses; Where is YOUR money?

    image from www.cleveland.com What makes a bank a "good bank" from the standpoint of supporting business growth and providing excellent service to customers? According to Steve Steinour, chairman and CEO of Huntington Bank: " Small businesses are the foundation of our Main Street economies throughout the United States. These businesses generate two-thirds of all of new jobs and help keep our neighborhoods healthy. Huntington is committed to supporting small-business growth as a key way to strengthen our communities as they continue through the economic recovery." Huntington Bank--a regional bank in Ohio--is the 33rd largest bank in the U.S. and has branches in Ohio, Michigan, Pennsylvania, Indiana, West Virginia and Kentucky. Nevertheless, Huntington Bank will probably be the number one small-business lender in the United States this year. For the first six months of federal fiscal year 2014 (which ends June 30, 2014), Huntington has the largest number of SBA loans. The classic business model for a traditional bank (as opposed to an investment bank) is to take depositors money, on which one interest rate is paid, and loan it out to regional businesses at a higher rate, thereby generating a profit. Investing in local businesses is the way to build strong business communities. On a side note, first quarter profits were down for Huntington, so a buy-back of shares is planned to help investor returns. First-quarter profits were $149 million, a declined of $4 million from a year ago. Per share, profits were unchanged at 17 cents. Sources: " Huntington Bank on track to become nation's largest small-business lender, but profits dip in first quarter, " by Teresa Dixon Murray, the Plain Dealer , April 16, 2014. F ollow up: What does "pent up demand" mean? Give another arena where this phenomenon has been observed. Where is YOUR money? In a mega-bank like Bank of American or Wells Fargo? Or in a bank with high numbers of small business loans? Watch the film " It's a Wonderful Life. " How does the Savings and Loan depicted in that film exhibit the characteristics of a bank that is important to small businesses? How does buying back shares help the returns for the bank's investors (as opposed to the banks depositors or creditors)?
  • Flash Boys: An insight into high speed--and seemingly "unfair" trading

    View the Bloomberg TV interview with Michael Lewis and Brad Katsuyama Michael Lewis's new book, Flash Boys , is about the chasm between stock market traders in the business world and the programmers--many from Russia--in the new environment of high-frequency trading. Brad Katsuyama was a trader new to Wall Street who worked for the Royal Bank of Canada (RBC). He had an outsider's view of the trading system, based on norms from his Canadian work experience. He expected to understand trading transactions. When his employer, RBC, bought Carlin Financial there was a bit of a culture shock. Carlin's CEO, Jeremy Frommer , was not the same kind of grounded trader that was the RBC norm. In addition, Frommer headed a company that championed super-fast computer trading. But this trading did not work as it was supposed to work, according to logical norms. Here is what started happening: " Before RBC acquired this supposed state-of-the-art electronic-trading firm, Katsuyama’s computers worked as he expected them to. Suddenly they didn’t. It used to be that when his trading screens showed 10,000 shares of Intel offered at $22 a share, it meant that he could buy 10,000 shares of Intel for $22 a share. He had only to push a button. By the spring of 2007, however, when he pushed the button to complete a trade, the offers would vanish. In his seven years as a trader, he had always been able to look at the screens on his desk and see the stock market. Now the market as it appeared on his screens was an illusion ." This meant that Katsuyama could not do his job the way he had always done it. He needed accurate information to be able to buy and sell stock for his clients. But his electronic screens showed him trades that would vanish whenever he took any action. At first, he thought it was an Information Technology problem, but the IT folks thought it was "user error." Then the IT folks blamed the distance between markets, and the number of people on the system. But these were never factors before. Finally Katsuyama hired Rob Park, a technology guy, to work with him in a two-way conversation that would shed some light on these transactions. RBC gave them a budget to conduct trading experiments...which led them to discover that if they approached only ONE trading exchange with a possible transaction, the screen data would be accurate. But if they approached multiple exchanges, transactions would disappear the moment the trader tried to act on information. They got a programmer, Allen Zhang, involved. Acting counter-intuitively but effectively, Zhang designed a program that would delay transactions a couple of milliseconds so that all the buy or sell orders would arrive at the exchanges at the same time. For some reason, this eliminated the problem of the disappearing transactions. The article goes on to explain further complications and elucidations involving this trading, explained fairly straightforwardly for someone interested in Wall Street finance. The earnest approach of Katsuyama and his colleagues--to fixing and understanding the trading system--almost makes high finance seem like a regular business. For the whole story, read the book, Flash Boys: A Wall Street Revolt by Michael Lewis. Sources: " The Wolf Hunters of Wall Street ," by Michael Lewis, New York Times Magazine , March 31, 2014. ...and the Bloomberg video linked above. F ollow up: Do you think that these risks described are blown out of proportion? Can these high speed trades be controlled and understood by the average investor after all? What is the role of regulation in this environment? Do you think it is best undertaken privately, as was done by the Royal Bank of Canada? What are the pros and cons of private regulation? What does "RBC nice" mean? How would that compare to the "Wolf of Wall Street" mentality?
  • Nothing is safe: Heartbleed coding flaw breaks encrypted financial transactions

    image from businessinsider.com How much of a problem is the Heartbleed coding mistake that endangered every encrypted financial transaction? According to Bruce Schneier, a cryptographer and security consultant: " I've been saying that on a scale of one to 10, this is an 11 ." There are public policy issues that are arising with respect to Heartbleed ( i.e .the NSA and other security organizations have known about the vulnerability, and have most likely taken advantage of it--without informing citizens and consumers). But, like many business problems--fixing the blame and finding those who abetted the crime does not help the "victims"--which are the millions of us who have been using online banking and retailing sites over the last few years. What do we do about this? The basic advice is: Don't change your password until you are sure the site has fixed its vulnerability problem; and DO change your password for every single institution with which you transact online business. Although it may seem daunting to make a list of all of the sites with which you have done business, and systematically go through them one by one to change the password--that hassle pales in comparison to dealing with identity theft once it has occurred. Make sure you don't forget to change your passwords on Google, Facebook and Yahoo--who have already admitted that they were affected by Heartbleed. They have already fixed the flaw on their side. Some institutions have said that the flaw did not affect them, but others have claimed the issue was "industry-wide" with respect to banking institutions. But if you have used the same password on more than one site--if your password was used on a vulnerable site, it is out there and can be tapped to invade your identity on sites that said they were safe. Sources: " Flaw Calls for Altering Passwords, Experts Say ," by Molly Wood, the New York Times , April 9, 2014. F ollow up: Have you changed your password for Google, Facebook, and/or Yahoo yet? If not, why not? Have any institutions informed you that their site was vulnerable? Have they encouraged (or required) you to change your password? What was the procedure like? How long did it take? Share your experience with others and encourage them to protect their identities as well.
  • "Silicon Valley": business start-up comedy comes to HBO...and YouTube

    [View:http://community.cengage.com/GECResource/themes/gew/ utility/ :550:0] from HBO via YouTube HBO's new comedy "Silicon Valley" premiered this past weekend. The show portrays young programmers--one of whom has developed a program he calls "Pied Piper." He designed this program to alert aspiring song writers to any copyright infringement problems, by searching all music libraries everywhere for the note sequences entered. Others realize that the main feature of this program is its ability to instantaneously search through compressed files and deliver sound quality that isn't distorted...and that there are limitless business applications of this rapid and high-quality search algorithm. In addition to the comic interactions portrayed in the series, there are business partnerships, business decisions to make, business entities to consider, and business values to ponder. By the end of the first episode, we learn the importance of a good business plan. The show is its own "Introduction to Business." Interestingly, HBO has decided to let the first episode air on YouTube, so everyone can take a look. Sources: " Watch the first episode of HBO's 'Silicon Valley' on YouTube ," by Chris Velasco, engadget.com , April 7, 2014. F ollow up: What are the pros and cons of HBO's decision to let the first episode air on YouTube? What entities stand to benefit? Can you identify with any of the characters? What business advice would you give the main character?
  • Oculus: what I don't understand might make a fortune for others

    This image of "The Rift" by Oculus was taken by Christina Ascani for Mashable (linked below) When I read the news that Facebook had purchased Oculus VR , a "virtual reality" start-up, my first thought was, "Huh? What does this have to do with Facebook?" The Oculus "Rift" device lets a user experience a video game as though they were inside it. Moving your head can result in dodging a virtual bullet, and turning your head gives a different view of your video game environment, as though you were really inside that environment. This device is still what I like to refer to as " vaporware "--it doesn't exist yet. Oculus developers were trying to raise enough money through Kickstarter to continue development (they'd already raised $2.4 million). Then Facebook came along...and for $2 billion bought the whole operation. While this solved the Oculus developer's cash problem, it didn't make some of the Kickstarter supporters very happy. David Prosser writes about those concerns in an online Forbes article . [View:http://community.cengage.com/GECResource/themes/gew/utility/ :550:0] from vimeo Still--what is in this for Facebook? Do they just want a piece of the video game action? Or do they foresee the Rift device as a way that Facebook friends can also interact? We'll see... Source: " What is Oculus Rift--And Why You Should Care ," by Samantha Murphy Reilly, Mashable online , March 26, 2014. Follow up: What is "virtual reality" and what makes it different from other media experiences? How do the potential users of Rift use Facebook now? Who might eventually be the users? What potential might this product have as an educational tool? Read the Forbes article written by David Prosser. What might be the issues for the original Kickstarter supporters, and what bigger concerns might that mean for Kickstarter?
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