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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.

  • Nothing is safe: Heartbleed coding flaw breaks encrypted financial transactions

    image from 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: 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, , 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: :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?
  • IRS says Bitcoin is not currency, it is "property"

    [View: :550:0] video from BizJournals Bloomberg Even though Bitcoin has an internet presence as a currency, the Internal Revenue Service sees it differently. This means that transactions in Bitcoin have to be reported on tax returns in a way similar to a stock investment. The plus side is that the ruling by the IRS gives Bitcoin more legitimacy. The downside is that tax consequences have to be a consideration in all Bitcoin transactions. The rationale used by the IRS in its determination was that Bitcoin "does not have legal tender status in any jurisdiction." What this means to an individual possessing Bitcoin is that a gain or loss between the date acquired and the date spent now has tax consequences...and there are vastly different consequences for short term transactions (taxed at "ordinary rates"--up to 39.6%) and long term transactions (taxed at "capital gains" rates, which are far less--20%). This may cause a slowdown on transactions in Bitcoin, as holders might "hoard" the currency to achieve "capital gains" rate status. The ruling by the IRS has shifted Bitcoin from an unregulated status to a traditional investment asset, at least for US taxpayers. For some Bitcoin enthusiasts, this is definitely unfavorable. Source: " I.R.S. Takes A Position On Bitcoin: It's Property ," by Rachel Abrams, New York Times , March 26, 2014. Follow up: What do you think the IRS ruling will have on the use of Bitcoin as an intermediate or virtual currency? Do you see the ruling as a positive or negative event for Bitcoin? If you were (or are) a Bitcoin enthusiast, what actions would you take with respect to the status of your investment as it now stands?
  • Reasonable compensation or crazy windfall?

    Coca-Cola recently sent out its annual report...and it seems that its executive compensation is excessive--much like the compensation of many U.S. corporations. image from the New York Times Coca-Cola disclosed that it planned to pay $13 billion over the next year to its top executives. This represents 14.2% of the value of the company. David Winters, an analyst at Wintergreen Adviser (and Coca Cola stockholder), who "wants to own Coca Cola stock forever," took exception to this proposed payment, and was surprised that Warren Buffett, who owns a 9.1% stake in Coca Cola, would tolerate this. Coca-Cola's response was inconclusive, but since the compensation package needs to be approved by the shareholders, it remains to be seen whether it flies. According to the article, " Mr. Winters’s analysis 'is misinformed and does not reflect the facts .'" The reality is that there are contingencies. Still, the upside is huge. What, really, is fair compensation? Source: " A Question of What’s a Reasonable Reward ," by Andrew Ross Sorkin, New York Times , March 24, 2013. Follow up: Research the ratio between lowest worker's compensation and the highest executive compensation as norms. Check out Japanese business norms, as well as historical (1970's) norms. How does this relate to the current levels Coca Cola is proposing?
  • Upcoming IPOs...and a source to watch for more

    screenshot of "Money Morning" IPO advertised website for IPOs. "Money Morning" (above) is an ad site, but the "IPO activity" site linked below is a more neutral source of new public stock offerings for those who are interested in investing in risky but potentially mega-profitable new companies. Source: "I PO activity ,", February 28, 2013. Follow up: Review the IPO activity items for the last 5 months. Do any of the issues interest you? Have any become news items? Could you have predicted the ones that have done well? What were the sources that helped you identify the "winners"? Pick three IPOs from the last year and track their performance to date.
  • "Old Economy Steve" meme-- Millenials comment on parental advantages

    This meme started with a picture of a young adult, circa 1970. Economic conditions, business environment, and opportunities were pretty different in the 1970's (although I do remember a pretty profound recession and extreme competition for jobs and grad schools when I graduated from college in 1975...of course, that was a peak baby boomer year). Although it is not "hot" right now, the meme had its "15 minutes of fame" on Reddit . So--what is the "New Normal" in terms of skills and life-style opportunities for young adults today? In my own family, it doesn't look as though there is a "normal" set of expectations--everyone seems to be carving out their own lives, in ways that work for them. The big difference that I see in general is the disparity between the very rich and the majority of Americans. The "middle class" lifestyle seems to be more difficult to obtain, and there seems to be less of an interest in sharing the wealth by progressive taxation. How are economic conditions affecting you? Source: " Old Economy Steve: a Meme for Frustrated Millenials ,"by Daryl Paranada, Marketplace, American Public Media, May 28, 2013. Follow up: Search the internet Images of the Old Economy Steve meme. Find one that speaks to you. What about the economic inequity can you change, or work with others to change? Would it be worth it? Explain. What about the meme you picked is totally out of everyone's control? Are there any advantages for people in their 20's in today's economy...compared with conditions in the early 1970's? What are they?
  • Corporations push 401(k) benefit toward a slippery slope

    image from Vanguard The slippery slope of pension benefit "norms" we go again. Forty, thirty, twenty--even ten years ago in many industries, the standard for pension benefits was a "Defined Benefit" plan. Corporations would set up plans to fund retirement benefits that were usually based on a formula valuing time-on-the-job and salary. For example, a typical benefit might be 2% of final salary x the number of years employed. Someone who had worked at one company for 30 years, and who retired with a salary of $100,000 would get 100,000 x 2% x 30 or $60,000 per year as a defined benefit pension. Now the standard has moved to the "Defined Contribution" plan, exemplified by the 401(k). In a typical scenario with a 401(k), the employee contributes a a pre-determined "defined" amount out of each paycheck and the employer matches that amount, or a percentage of that amount. The contributions are invested until the employee retires, and the benefit received in retirement is dependent on the success of the investments over time. (No guarantee.) But with all pension plans, a key factor is "the time value of money." Most employers contribute their portion at the same time the employee contributes: at each payday: However, lately, big employers have been shifting their policy to a "lump-sum" contribution. AOL was making this this shift during its recent privacy kerfuffle. As you can see from the graph above, waiting till the end of the year to make the payments means that the company has the use of the money for longer...and employees lose out on investment earnings. In addition, if employees change jobs mid-year, they lose the employer side of the contribution entirely--again saving the employer money. Employee compensation is a combination of salary, paid time off, reimbursed expenses, health benefits, retirement benefits, and other factors. Although it may be easiest to focus only on salary, all factors must be evaluated over the long term to really know what an individual employee is being paid. Sources: " Beware the End-of-Year 401(k) Match ," by Ron Lieber, New York Times, February 14, 2014. " Making Retirements Less Secure ," by the NYT Editorial Board, New York Times, February 14, 2014 Follow up: Read the article. What is the lifetime differential mentioned in the Vanguard analysis presented therein, based on typical job-changing events that would be likely to occur over an individual's working life? If you were looking for a job, what type of pension benefit would you look for? Would this be a major or minor factor in your job decision, assuming you had multiple offers? How might your decision change if you were in your 40's or 50's?
  • Making the post office $ profitable $

    image from The United States Postal Service (USPS) could be a money-maker. As in $$ Very Profitable $$. The problem is: banks don't want to see it happen. The USPS could offer bank-like services to the 68 million Americans who are "underbanked" now. "Underbanked" means that they do not live in areas that have decent branch banking services, or they fall so far below the median of easier-to-serve banking customers that they cannot get services from branches in their areas. Now, these potential customers are using paycheck-cashing services and draining up to $2500 a year from their meager earnings. Here are some of the services that a "bank-like" USPS could provide: check-cashing services bill-paying services small loan services re-loadable pre-paid credit cards According to the linked article, "of the nation's 35,000 post offices, more than half are in zip codes with one or no banks." This means that there would be a trustable institution with real estate already in place that could provide these banking services, with no additional investment. And the percentage fees charges would go to support the US Postal Service, rather than paying the almost usurious fees of the paycheck-lenders . As it turns out, going to the post office to cash a check was more of a "norm" for our great-grandparents. In the presidential campaign of 1908, post office banking helped the campaign of William Howard Taft. Source: " Post Office Could Rack Up Billions By Offering Money Services ," by Brian Naylor, National Public Radio, February 7, 2014. Follow up: List several of the attributes of the "underbanked" American. Why do banks disapprove of the post office adding these services? What is the monetary impact to banks, if any?
  • "Bull Market's 5th Birthday" may be its last...

    It seems as though the celebration of five years of a Bull Market , which I wrote about last week, was the last bit of stock market cheer we might be hearing for a while. Investors seem to be responding to several negative economic factors, and the Standard & Poor's 500 stock index is down 5.8% since January 15th.The S&P 500 index was at 1741.89 at the end of trading on Monday, February 3rd. Some of the negative economic factors include: the pullback of "quantitative easing" by the Fed, which stimulated the money supply the global response to the change in U.S. monetary policy a manufacturing industry survey released on February 3rd (whose "bad" numbers were a result of this winter's bad weather) Observers are now awaiting the market's response to the employment numbers which will be released later this week, on Friday, February 7th. Source: " As Recovery Looks Weak, Stocks Take a Deep Dive ," by Nathaniel Popper, The New York Times Dealbook, February 4, 2014. Follow up: What is the annualized percentage decrease, based on the 5.8% number noted above, that might be projected if the current bear trend goes unchecked? [Hint: it is an appallingly large number, and it is unlikely that the market will continue to plunge at the rate it has been falling over the last 2 weeks. Nevertheless, it is an interesting number to compute, to put the percentage in an annualized perspective.]
  • "Fragile Five"...what does THAT mean?

    Image from The "Fragile Five": Turkey, Brazil, India, South Africa and Indonesia. These are emerging-economy nations that have become too dependent on investments from foreign countries. The recent change in the U.S. government's stimulus policy has resulted in less availability of investment money. Much of this money flowed into these fragile emerging economies. The most recent event that has caused concern among global economic observers occurred this week: Turkey raised interest rates by 4.25%. This was followed by an interest rate increase by India...and then another by South Africa. The higher rates are meant to attract foreign investment. But now that investment funds are not as available as they were, the underlying value of the business investment becomes a more important factor in determining where an investment might be made. Sources: "‘ Fragile Five’ Is the Latest Club of Emerging Nations in Turmoil " by Landon Thomas, Jr., New York Times , January 28, 2014. " South Africa joins battle against sell-off "by Alanna Petroff, , January 29, 2014. Follow up: Research another important acronym for global business observers: BRIC. What countries does that acronym stand for? How have the economies of those countries fared? What does the bar graph in the attached article from the New York Times indicate for the Fragile Five versus the BRIC countries?
  • Bull Market's 5th Birthday

    image from STAN HONDA/AFP/Getty Images: on Wall Street The stock market has been doing well for almost 5 years now. What a surprise! The Dow Jones Average is three times what it was in March 2009 (6,447). As usual, observers are predicting a decline...or a "correction"--which would mean a drop of 10% or more. Since the Dow usually has a correction about every 18 months, and we haven't had one since 2011...some think that we are 2 years overdue. Part of the reason that the market has done well, is that Federal monetary policy has reinvested in the bond market and kept investment money in circulation. When the Fed pulls back on its stimulus policy, observers will be able to analyze whether it has been public policy or the business entities themselves keeping value in the market. Nevertheless, Gary Thayer, Chief Macro Strategist, Wells Fargo Advisors, feels that the correction would not be a "crash," and would be only temporary. Source: " Happy 5th anniversary, bull market? " by Stacey Vanek Smith, Marketplace, American Public Media , January 22, 2014. Follow up: If you have current stock investments, do you plan to hold them over the long term, or sell in anticipation of a stock correction? Explain your rationale. What is a stock market correction? When, historically, have they occurred?
  • Outside the box: high pay for workers increases profits

    [View: utility/ :550:0] " The Good Jobs Strategy " TEDx at Cambridge 2013 Zeynap Ton , an MIT professor, has studied retail sector jobs and profits, and has found that companies who pay workers well are more profitable in the long run. She found that, initially, cutting jobs and hiring minimum-wage workers produces short term gains, but when customer satisfaction decreases, sales and profits suffer. Originally writing in the Harvard Business Review , Ton noted that companies that offer high pay, flexibility, advancement opportunities and personal autonomy were also profitable. She profiled four companies in particular: Costco, Trader Joe's, Quiktrip and Mercadona (a Spanish company). photo taken by Wilfredo Lee for AP photo These were some of the practices employed by those companies that helped the human resource plan work: simplification of the product offerings and fewer sales promotions; training of employees in mastery of a wide range of tasks; letting employees make minor decisions (enriching individuals' expertise and job buy-in, as well as lessening the need for management time) elimination of waste in all other areas but staffing--such as advertising and logistics management. Adam Davidson's article in the NYT Magazine delineates his personal experience with the furniture retailer IKEA. IKEA changed their human resource strategy between one visit by Davidson and a second visit. Davidson's first experience was terrible--lost in the huge store, and unable to find staff capable of helping him, he vowed never to return. When he reluctantly DID go back--the experience was totally different (he was even greeted at the door by someone who pointed him directly to the area he needed to go to). What had happened in the meantime was that IKEA had hired an " operations management " firm named Kronos , who helped them set up a system along the lines of Ton's research. Sources: " Thinking Outside the (Big) Box, " by Adam Davidson, New York Times Magazine, January 5, 2014. " The Good Jobs Strategy ," by Zeynap Tom, published by New Harvest, January 2014. Follow up: Check out the stock prices for Walmart and Costco from 10 years ago, five years ago and today. What conclusions can you draw from an analysis of stock prices, compared with human resource policies? According to the NYT Magazine article, what other researcher backs up Ton's claims, and how many dollars in increased sales can be obtained for every dollar spent on workers? What does the field of "operations management" or "workforce management" entail?
  • Bitcoin Explained

    The five-year birthday for Bitcoin is January 3rd, 2014. Bitcoin's "daddy" is a group of hackers named "Satoshi Nakamoto." Five years ago "Nakamoto" set up the currency to be outside of any government's control. Bitcoin's software is set up to allow anonymous currency transactions. According to the explanatory essay that accompanied the currency's launch, bitcoin's purposes included: a protest against the government-controlled currency values that could be undercut by the issuance of an unlimited number of currency units easing the transfer of funds globally, directly from individual to individual empowering smaller economies avoiding transfer fees from near-monopolies like Western Union, or bank wire transfer fees allowing private transactions--sometimes involving products that are normally regulated by governments, such as weapons and drugs. Many libertarians were attracted to the independent-of-government aspects of bitcoin. And some financiers have invested in bitcoin as they might hedge investments in any "foreign" currency. But to bitcoin enthusiasts, such as Elizabeth Ploshay, bitcoin not just money, it's "a movement." Tradehill co-founder Ryan Singer has opined that just as email supplanted snail-mail...bitcoin will supplant traditional banking. One source of information for those wishing to keep up with this rapidly changing currency platform is Bitcoin magazine, which has the stated mission to be “the most accurate and up-to-date source of information, news and commentary about bitcoin.” Source: " The Bitcoin Ideology, " by Alan Feuer, the New York Times, December 14, 2013. Follow up: Have you been involved in a bitcoin transaction? Do you have an account? What do you see as the plusses and minuses of this online currency? Would you consider "investing" in bitcoin? Why or why not? What does "P2P" mean?
  • "The Wolf of Wall Street": riveting or risky?

    image from Leonardo DiCaprio as Jordan Belfort Here's a movie that might be of interest to business majors: " The Wolf of Wall Street " directed by Martin Scorcese. It is a story of the real-life Jordan Belfort , who did prison time for defrauding investors in a 1990's Wall Street and corporate banking scam. Not only is the subject matter of the movie finance-related, the circumstances under which it is being released are also interesting in terms of risk and marketing. The movie, produced by Paramount Pictures , was finished last Wednesday, but they still plan to release it on Christmas Day, which would make it eligible for the 2013 Oscar season. In some years, big studios go for the big dollars, and let the independent films soak up most of the Oscar honors. But it looks as if the end-of-the-year-release-in-time-for-awards-competition is producing a crowded movie marketplace this holiday season. There are some other issues with this movie that make it a risky release for the holidays: The film is rated R for “strong sexual content, graphic nudity, drug use and language throughout, and for some violence.” Not exactly in the spirit of the season... There are no moralistic lessons, such as those offered in other movies about high finance--"Margin Call" or "Too Big to Fail" for example. According to the NYT article, "This is a New York-based story about scammers scamming scammers." The movie is 2 hours and 59 minutes long! The writers of the article pose a question which is probably in the minds of Paramount studio executives as well, " Will the for crooked stock traders what Mr. Scorsese’s 'Goodfellas' did for the mob?" We'll see... Source: " A Scorsese Film Gets In Under the Oscar Wire ," by Michael Cieply and Brooks Barnes, The New York Times, December 1, 2013. Follow up: Does this movie appeal to you? Why or why not? What do you see as the marketing challenges for this film? How would you overcome them? Think globally...
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