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About the Author

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.

  • How much would a Made-In-America iPhone cost?

    Ironically, the image above is from the Moto X, which can be made in America for approximately the cost of making it overseas. "How much would an iPhone cost if it were entirely made in the U.S.?" This question was posed on a recent Marketplace radio-cast. The supporting data had already been analyzed by IHS Technology . The bottom line? A 100% American-made iPhone would cost around $2,000...compared to the $650 - $850 retail cost of the iPhone on the market today. It turns out the the increased price is partly due to labor costs and partly due to supply-chain issues for component parts. Labor in the U.S. is two to three times the cost of labor in China, where the phones are currently manufactured. But access to the needed parts is a larger factor. Whole "villages" have evolved around iPhone manufacture in China (for example, Shenzen) . Component parts are nearby and few logistics problems exist to keep the assembly lines for iPhones moving. In addition, labor costs for the manufacture of component parts--the most expensive of which is the display-- are also a factor . Source: " How much would an all-American iPhone cost? " by Stacey Vanek Smith, Marketplace, American Public Media, May 20, 2014. F ollow up: Does it matter to you where the iPhone is made? Is maintaining production facilities and production jobs in the USA a value to you? List your reasons. Read the link regarding the Moto X as well. One point in that article is that customization is possible with the Moto X. What do the authors of that article see as the pros and cons of American production for that phone? What percentage mark-up, from cost to retail, is IHS assuming in arriving at the $2,000 retail estimate?
  • 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.
  • Alibaba: Who will be making millions from its messy IPO?

    image from 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?
  • Have a lot of followers? ZAP: In Russia, you're now a regulated media outlet

    cartoon from The Moscow Times article (in translation) Censorship is alive and well in Russia. Putin just signed a law that requires bloggers with more than 3,000 daily readers to register with the government as a "media outlet". But the bloggers are caught between Scylla and Charibdis . The law means that they have to abide by the same requirements legally to substantiate what they are saying on their blogs. However, because they are not "journalists," they are not allowed to make the official inquiries that could actually grant them the resources to provide the required documentation. Bloggers are stuck--not being able to write about the issues and situations that they find egregious if they cannot document them fully. Putin viewed the internet as a "special CIA project" in justifying this law. And he is not alone in tightening censorship of the internet. Crackdowns in China, Turkey, Venezuela and Pakistan have also occurred recently. Even in the United States, the recent controversy over "net neutrality" and broadband access has implications for free speech and censorship. The internet is a powerful platform for the dissemination of ideas...and where there is power, there is often a fight for control. Source: " Russia Quietly Tightens Reins on Web With ‘Bloggers Law’ , " by Neil MacFarquhar, the New York Times , May 6, 2014. F ollow up: What does "between Scylla and Charybdis" mean? What is another idiom that means the same thing? What other reference (from the article" refers to the same predicament? Why do you think there are so many cultural references to this situation? Think about the blogs that you read. What would be the pros and cons of these requirements being placed on the blogs with which you are familiar? Give specific examples.
  • Berkshire Hathaway: TRUST is matter what others say

    [View: :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 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 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?
  • Two Giant Banks Face Criminal Charges

    image of banks in Paris and Zurich by Jacques Brinon/Associated Press and Arnd Wiegmann/Reuters Two banks are under criminal investigation by the U.S. Federal government. What is interesting is this: neither of the banks are American banks. Being investigated are the BNP Paribas Bank in Paris and Credit Suisse Bank in Zurich. The crimes under investigation are: Credit Suisse: offering tax shelters to Americans BNP Paribas: doing business with countries such as Sudan, which is now blacklisted by the U.S. Facing criminal charges could mean revoking the banks' charters to operate in the U.S., which would mean they couldn't do business. Article authors refer to this as analogous to the death penalty. But since Federal guidelines require analyzing the effect this would have on the business before the penalty is enacted, it is unlikely that the full penalty would be applied. This requirement continues to be invoked throughout discussions of wrongdoing. So...what does "facing criminal charges" really mean? The penalty being considered is " temporarily suspending the bank’s ability to transfer money through New York branches on behalf of foreign clients, a move that could undercut the bank’s revenue." Hmm. That doesn't seem very harsh. In the BNP Paribas case, fines might also be incurred. It sounds like a cost of doing, that is. Their actions seem to be "above the law." Sources: " Two Giant Banks, Seen as Immune, Become Targets , " by Ben Protess and Jessica Silver-Greenberg, the New York Times , April 29, 2014. F ollow up: What does "above the law" mean? What are the hurdles involved in prosecuting these cases? What are the banks really trying to avoid in these cases?
  • 48,000 Adidas and Nike workers on strike in China

    image from the Associated Press via the Epoch Times; linked below " 48,000 workers at the Chinese shoe supplier to Nike and Adidas, Yue Yuen (part of the Pou Chen Group), have been striking since 14 April. Workers went on strike to demand that the company repay years of stolen social insurance payments, implement a significant wage increase, and sign legal labour contracts (having found that the company had been making them sign fake work contracts for nearly 20 years). The company had responded by offering a measly wage increase and cost of living payment that the workers rejected. The sheer scale and longevity of the action represents an historic turn in the formation of global capitalism. There are a number of reasons why this strike is terrifying not only for the supplier factory bosses in China but also for transnational capitalism." The above, slightly alarming report from first came to my attention while I was perusing the blog site The Daily Kos . Since the strike was large, since the strike involved American and European companies, and since the strike had been on-going on for almost two weeks, I was surprised that it wasn't being reported elsewhere. The Associated Press (AP) did report that about 75% of the striking workers returned to the job within the last few days, even though there was no formal agreement with the immediate Chinese employer, the Taiwan-based Yue Yuen Industrial Holdings Ltd . The AP also reported that the return to work had been "assisted by the police," and that it was unclear why the workers had, in fact, returned. Global labor issues influencing this industry include the shortage of a migrant labor, and increasing labor activism. These and other factors are driving up prices. It remains to be seen how this dispute finally settles out. Sources: " Huge Strike in China (and not a word from anyone) , " by James Leo, the Daily Kos , April 27, 2014. " Strike ends Partially at Massive Chinese Shoe Factory That Produces for Adidas, Nike, New Balance ," by the Associated Press , published by the Epoch Times , April 26, 2014. Follow us: @EpochTimes on Twitter | epochtimes on Facebook F ollow up: Why do you think a huge labor strike like this is not getting major media attention on CNN, MSNBC, FoxNews and in the major newspapers (New York Times, Wall Street Journal)? What are the major issues involved in this strike? Do you think they have been resolved? Why or why not?
  • What "the 1% don't want you to know": Paul Krugman on Thomas Piketty

    image is from an interview at, 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 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 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?
  • Researchers find USA is no longer a democracy; what does this mean for middle income business people?

    image from Many of us educated in the United States grew up thinking that "democracy" and "free markets" went hand-in-hand, and that both were "as American as apple pie." But a newly published research study, Testing Theories of American Politics: Elites, Interest Groups and Average Citizens , by Martin Gilens of Princeton and Benjamin I. Page of Northwestern University, makes the case that the U.S.A. is no longer a democracy. Their findings, in a nutshell: " Comparing the preferences of the average American at the 50th percentile of income to what those Americans at the 90th percentile preferred, as well as the opinions of major lobbying or business groups, the researchers found out that the government followed the directives set forth by the latter two much more often ." In other words, these groups have influence over public policy, regulation and law-making: Americans with income of 90% and above major lobbying groups major business groups In fact, Gilens and Page found that, " the preferences of the average American appear to have only a minuscule, near-zero, statistically non-significant impact upon public policy ." If there are few major employers, or power is concentrated in the hands of the few, what is the mechanism for paying adequate wages and salaries to workers and middle managers? There is no incentive to pay fair salaries if the number of employment options has diminished, and the regulatory bodies are controlled by the companies that are supposed to be regulated. There are an increasing number of op-ed pieces, research papers, and books addressing the issues of income inequality and the diminished existence of truly free markets. Both have affected the economy and business practices in the United States. Sources: " Princeton Concludes What Kind of Government America Really Has, and It's Not a Democracy ," by Tom McKay, PolicyMic , April 16, 2014, citing an article to be published this fall in Perspectives on Politics . F ollow up: Do an internet search for "oligarchy" AND "free markets". Summarize the results of your search. According to the article by Tom McKay (or the research paper itself), what are some specific implications of Gilens' and Page's findings for middle-class business people? Play the devil's advocate: why is an oligarchy good for American business?
  • Beer solves water crisis in California town

    image from article linked below--online version of radio story The drought in California does not just affect farmers--or homeowners worrying about their lawns. As it turns out...this drought is so bad that the state of California has made a list of cities that will actually run out of water soon. So the businesses in these towns have a big problem to worry about...especially a business that is water-dependent like the Bear Republic Brewing Company in Cloverdale, CA. Acting in self-interest--but also realizing that its investment must first serve the citizens of the town--Bear Republic Brewing Company loaned the city of Cloverdale $466,133,000 to dig two new wells. The owner of Bear Republic, Ricardo Norgrove, took this bold action because he was a 5th generation resident of Sonoma County, and he wanted to stay put. He also wanted to keep Bear Republic Brewing in Cloverdale if at all possible. Of course he has considered moving his company, but he figures the water problem is going to have to be addressed everywhere: it is a global issue. Sources: " Beer: Saving a town from drought ," by Kai Ryssdal, , April 15, 2014. F ollow up: What does Ricardo Norgrove recommend at the end of the online article? How might this be a marketing strategy by American Public Media to attract more hits to this article? What other strategies might be employed, if more hits to the website is APM's aim? What other business/community partnerships might be encouraged to solve sustainability problems or other environmental or life-style issues?
  • 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.
  • 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?
  • China wants U.S. milk

    image from powdered milk produced by Fonterra, and were part of a bribery scandal. Above is a picture of a shopping aisle in China--fully stocked with powdered milk. In the above photo, however, the milk is being removed because of a bribery scandal involving a foreign company that paid to have its product stocked on these shelves. The market for non-domestic milk product in China is particularly high for two reasons--breastfeeding is unpopular, and the 2008 melamine-tainted Chinese milk that poisoned over 100,000 infants is still on the minds of parents. Responding to this demand are tiny farming towns in the United States. The town of Fallon, Nevada, has built huge processing plants to convert milk into powdered milk for shipping overseas--since shipping to nearby California has been thwarted by "Real Milk from Real California Cows" advertising campaigns. image from Fallon, NV production plant from the article linked below Because U.S. milk consumption has plateaued, the new Chinese market represents a growth opportunity. Source: " China's thirst for milk gives dairy farmers a boost ," by David Pierson, The Los Angeles Times , March 15, 2014. Follow up: What might happen to domestic milk availability and prices as a result of factories being built to process powdered milk for overseas shipment? Is this production and sales system sustainable? Why or why not?
  • Foreign shoppers in the United States

    image from When American shoppers choose to shop in one state vs another--it is probably only the tax rate they are looking to get a deal on, as most product prices are similar. Moreover, this price dodge will even out in the end, as state taxes have to be paid in the state the product is going to be USED, anyway. But product prices between countries can change a lot. Here are some examples: Slingbox 350 : When it goes on sale in Mexico it will cost $75 more than it costs in the U.S. This is possibly because of the way things are taxed, but also because there is less competition among electronics dealers in Mexico. Apple computers : These can cost $500 more in the United Kingdom than in the U.S. And iPads can cost $160 more. Car tires : Black Friday sales on car tires brought Canadians over the border for bargains. Adobe software : According to the article it is " cheaper to fly to the U.S. and back to buy Adobe's software than it is to buy it in Australia" Some products, such as Photoshop, cost $1700 more overseas. Middlemen try to create other buying opportunities for foreigners: image from Source: " Why Foreign Consumers Shop In the U.S, " by Jeff Tyler, Marketplace Morning Report on American Public Media , March 7, 2014. Follow up: What products are cheaper for Americans overseas? What international laws may be violated in some of the travel-and purchase transactions? Can the workarounds be justified ethically?
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