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. She attended the University of Michigan and Wayne State University.
Citicorp, JPMorgan Chase, Bank of America, Wells Fargo...
Link for more detail
Ten banks now hold 54% of all of our financial assets according to Mother Jones magazine. In 1990, these banks held only 20%.
This graphic, prepared by the Government Accounting Office for the Federal Reserve, shows how banks have systematically merged and consolidated in the last 20 years (since deregulation)--becoming "too big to fail."
It is interesting to see that some observers feel that China needs to break up its "Big Four" banks, which control 58% of retail deposits (according to a report by the consulting firm McKinsey). This level of bank control of the economy is seen to threaten business growth.(from a report on cnbc.com by Jean Chua)
Source for graphic: Upworthy.com
Business is changing faster than most of us can keep up with it. The principles of investing and finance that I was taught in business school are no longer valid. Even the accounting principles of conservatism and fair value have changed. Deregulation has changed business relationships in ways that could not have been anticipated.
Beverly Macy's piece in Huffington Post, "This Is Not A Bubble: It's a Wave, and You're Not On It," addresses the changing business environment as we look forward. Students in school now have more to learn from keeping up with trends in social media and networking than they can learn from the case studies of past successes. Studying history can help a businessperson avoid mistakes, but keeping current and looking toward the future is the only way to innovate and respond to current and burgeoning markets.
Macy's piece is responding to the current press that expects the Facebook and social media "bubble" to burst, and for things to go "back to normal." Macy believes that the Social/Mobile/Local/Cloud forms of communicating have permanently changed marketing and the way that people do business.
Source: Huffington Post, May 29th, 2012
Credit: flickr user edwin.bautista
Changing Gears posted an article earlier this Spring about Oberon Day. But it is Oberon Season in Michigan throughout Spring and Summer only...and the Memorial Day holiday kicks production into high gear. Michigan's craft breweries have invested over $70 million dollars in facilities upgrades from 2011 to 2012, and have hired more workers, according to Kalamazoo Gazette writer John Liberty.
Bell Brewery is the producer of Oberon beer in a township near Kalamazoo, Michigan. It is one of many craft beer producers that have grown their businesses over the last several years. In a time of an incredible economic downturn throughout Michigan and the "manufacturing belt," craft beer sales have grown:
By the way, Changinggears.info, the website that I first looked at in researching this topic, has been devoted to chronicling:
"the economic transformation of the industrial Midwest, through the stories of people driving and experiencing the change."
BUT the website and the radio stations that support it will not be keeping it up as regularly as before, as of April 30th, 2012. I wonder what that bodes.
Inspiring (or polarizing) personalities often find their places at the heads of large corporations. Hollywood's fictionalized CEO portrayals can be even more compelling. Alexander Diedrick discussed his favorite silver-screen corporate chiefs (and the lessons we can learn from them) in a recent post on our MyFootpath.com. His top 5 are:
book cover from Amazon.com--not related to the material in this post.
A Santa Monica Daily Press column on May 22, 2012 decries the recent deluge of articles about investing in a single stock (e.g. Facebook). Author Marv Hecht, in "Past, Present and Future" instead reveals his own personal strategy for investing in puts and calls. His thesis is that past performance of investments is no longer a predictor of future performance (and it was never a very good predictor at that). What investors really want to know is: what is going to happen in the future?
Because that is hard to know, Hecht has a strategy for placing bets on what will happen, and then hedging those bets--much in the way that big money managers at investment houses do. Hecht uses an example where he buys shares in Proctor & Gamble...then sells 10 calls against those shares, for $3.50 more per share than his purchase price, at 5 months in the future. He hedges this with a purchase of Apple stock "puts" at 10% below the current sales price. He will lose if Apple falls more than 10%.
Students who are very interested in investing and personal finance might want to study his strategy, and analyze it to see if it can work. More importantly, those interested in trading with puts and calls should analyze how the strategy can go wrong. Without investing real money, an interested reader might want to select and look up the prices of stocks to buy "put" or "call" options for, then establish a short time-frame over which to analyze performance. Follow up:
Julie Hanks, a therapist from Salt Lake City, wants her clients,when they catch themselves whining, to ask themselves, "Would I hang out with this person?"
The Wall Street Journal did a piece this week about WHINING. Habitual complaining can be a detriment to positive interactions. As a business communication choice, whining may not be the most effective option.
Article author Elizabeth Bernstein approached the issue by interviewing therapists who deliberately take a "tough love" approach to whining. These therapists do not attract the stereotypical client who seeks out therapy to have a venue for non-stop "venting." Unfortunately, some individuals use their co-workers in the same way. Clients often want to change this behavior to improve both their business and personal lives.One approach taken by therapists is instructing the complaining client to make a list of how their lives might improve if they stopped whining. Therapist Christina Steinorth suggests that clients set aside 10 minutes a day to devote to whining, then stop.
Some people are unaware that they are whining. Some whine because it was an effective strategy as a child, to wear down parents into granting privileges. But whining is negative, and studies have shown that negative communication can have a deleterious effect on relationships.
Moreover, since whining is indicative of vulnerability and helplessness in a situation, it reveals traits that are not positive to business outcomes. Whining is a way of saying, "You fix it," according to Dr. Fran Walfish, a Beverly Hills psychotherapist.
Source: Wall Street Journal, May 15, 2012: "For a Nation of Whiners, Therapists Try Tough Love," by Elizabeth Bernstein (no relation to blog author).
Two of the Big Four accounting firms--Ernst & Young LLP and PricewaterhouseCoopers LLP--announced last week that they would comply with the Chinese government's ultimatum regarding staffing of the firms' offices in China. China's Ministry of Finance is requiring that, within three years, all senior audit partners must be Chinese citizens with local accounting certifications. Both Ernst & Young and PWC China (as PricewaterhouseCoopers LLP is known locally) issued statements indicating they had been moving in the direction of "localizing" employment in recent years.Ironically, this new rule comes just a year after "dozens of Chinese companies disclosed auditor resignation or accounting irregularities, leading to the suspension or de-listing of their shares." In addition, the Securities and Exchange Commission of the US and its auditor watchdog group has met repeatedly with Chinese officials to try pierce the barriers against SEC review of companies operating in China that are listed on US stock exchanges.
Source: NYT print article "2 Auditing Firms Accept Chinese Rule on Employing Citizens" via Bloomberg News; link is to online article.
in case you missed the "joke"...without regulation, disasters can happen...
In the Paul Krugman article cited below, the plot of the movie "Stagecoach" is invoked. A lead character, Gatewood, extols, "'As if we bankers don’t know how to run our own banks!' As
the film progresses, we learn that Gatewood is in fact skipping town
with a satchel full of embezzled cash."
Krugman points out that Jamie Dimon has often paralleled the remarks of Gatewood-proclaiming that investment banks know what they are doing. In fact however, they sometimes overstep their bounds. The consequences are disastrous...sometimes not only for the bank and its shareholders, but also for the larger community of financial participants.
According to Krugman, the recent losses by JPMorgan Chase involved bets "LIke the bets that the insurer A.I.G. made on housing
debt a few years ago. The key point is not that the bet went bad; it is
that institutions playing a key role in the financial system have no
business making such bets, least of all when those institutions are
backed by taxpayer guarantees."
High-risk investments might be OK for some investors, but if the investment in regular bank deposits is guaranteed by the Federal government, then there should be no high-risk investments made.
Source: NYT May 14, 2012. Paul Krugman: "Why We Regulate"
Source: NYT: The Case for Global Accounting by Floyd Norris
For the last decade, the Financial Accounting Standards Board (FASB), the Securities and Exchange Commission (SEC) and various financial entities representing other countries, have been discussing the adoption of uniform accounting standards that would apply world-wide. In the United States, we currently follow GAAP (Generally Accepted Accounting Principles), which are promulgated by the FASB.
A London-based organization has proposed the International Financial Reporting Standards (IFRS, pronounced "eye-furs"), and these have been the center of discussion over the last several years. Last week, the U.S. government and China announced in a joint statement: "China and the United States support the objective of a single set of high-quality global accounting standards." The SEC promised that it would make a decision by the end of the year regarding the adoption of IFRS.
Several entities, including the FASB, worry that the international standards will degrade the quality of of U.S. financial statements. There are several differences in presentation, notably in depreciation, revenue recognition timing, and the valuation of assets. Fewer disclosures are required under IFRS.
In addition, the entity that would be in charge of enforcing the rules, the SEC, does not have a great track record of enforcement. It also lacks the infrastructure.
One way that differences between the international pressure to adopt IFRS, and the concerns of domestic entities might play out is that there might be an agreement in principle to move to IFRS, but a long timetable for actual adoption.
Have we heard anything GOOD about "credit default swaps" in the last few years? JP Morgan Chase announced Thursday that they incurred over $2 billion in losses last year, due to trading in these risky and baffling derivative investment instruments. Ironically, just a few weeks ago, at a dinner party, CEO Jamie Dimon strongly berated individuals who questioned him about these rumored losses. At that point, Dimon denied the losses vigorously. In a press conference announcing the losses this week, however, he said that there was no requirement to disclose bad information before it had to be disclosed, and he was within his rights to fend off the accusations then. The results are now in, however, and the losses are extreme.
When questioned about whether other banks had made the same type of risky investments, Jamie Dimon said, "I don't know. Just because we're stupid doesn't mean everybody else was. I have no idea what other people are doing."
Jamie Dimon, JPMorgan Chase CEO
The losses occurred in a department whose job it is to "hedge" risk. They are going to sometimes experience losses, but they did not anticipate losses of this magnitude. These results are causing some industry observers to call for tighter regulations.
Sources: 1) NPR article and link to radio broadcast; reported by Jim Zarroli:
2) New York Times print edition and online article by Nelson D. Schwartz, May 11, 2012: "A Shock from JPMorgan is New Fodder for Reformers"
First, check out the YouTube video:
This video recently set a record for the number of hits. It probably didn't hurt that Roger Ebert said that this was the "best music video ever made."
YouTube commenter "artawhirler" posted this summary of how and why the video came be:
"For those who don't know the backstory - it's even more amazing than the video itself. In 2011 Newsweek ran a list called "America's Dying Cities." Just in case we missed the point, it was also subtitled, "Cities With Bleak Futures Ahead." And Grand Rapids, Michigan was on this list. They were not happy. A local filmmaker named Rob Bliss raised $40,000 basically overnight; turned out thousands of his fellow citizens; and filmed this whole video in one continuous shot. So there. "
The message of the video was "underdog shows Newsweek that this middle American city is doing great." The song, the weather, the people, the upbeat movements, and the continuous camera shot panning to pods of "singers" all across downtown Grand Rapids combined to signify a sustainable good life quality that is the best essence of the American Midwest.
Very easy to listen to...and to share. And it makes a very good advertisement for the city of Grand Rapids. BTW--If you are there, be sure to have a Cottage Burger at the Cottage Bar downtown.
Rob Bliss was the producer of the video Follow him on Twitter @robblissgr
Check out the company that made the video: http://statuscreative.com/
Now, read the article that I read in Communities: Washington Times social media. "The 2nd Golden Era of Advertising" by Rob Bliss. It provides an in-depth analysis of the lessons this incredible advertising investment has for others who want to make a media impact.
from swzc.com turning hearts council
The Ojai Foundation's Center For Council Practice has a mission: to promulgate "Council practice" as a tool to improve communication and increase understanding in business settings, schools, families, non-profits, and social welfare programs. Last week, the organization launched its fundraising program to expand its outreach programs.
I attended an event to find out about what "Council practice" actually was. Attendees were allowed to be "flies on the wall"--observing a council session in action. The structure seemed simple: there was a theme to the conversation. People took turns speaking, using a "talking piece" that gave the speaker the right to speak without being interrupted. The people involved in the conversation sat in a circle, and listened carefully to each person as they spoke. There was no script, no agenda to be funny or entertaining, no sarcasm, no criticism or correction. The stated rule of "no interrupting" the person speaking guaranteed that some of the behaviors that lead to misunderstandings did not occur. People were allowed to finish their thoughts. Listeners could relax and listening, knowing that they would get their turn to speak.
The conversation that unfolded was very meaningful, and instructive regarding "council practice," since that was the theme of the talk. Some of the factors that make council practice communication different from other communication:
I did not attend a training, and I have never participated in a Council personally, so I am certain there are several other attributes that make Council successful that I am missing. Nevertheless, experienced practitioners of Council shared that the bonds that are created in these communications are like "money in the bank" for times when there are differences of opinion. Resolution and problem-solving can occur without lingering resentments or in-fighting using this process.
Seems as though a lot of business environments could use this training.
from the Personal Finance on a Napkin series by Carl Richards
In "Five Ways to Think about Diversification of Your Investments," Carl Richards leaps past the first hurdle in personal finance planning: that there is ONLY ONE right way to "make a bundle" of money.
Mr. Richards makes two assumptions that may not necessarily apply to most students, but that can give a new investor a fundamental base as they are starting out:
He then shares his thoughts about the following major contributing factors that influence success...and failure:
This may sound like a boring plan, but, with investing, slow and steady often wins the race. Plus it provides safety and security and decreases worry.
Services that are exported from the United States; balloons represent relative Sales. from the US Bureau of Economic Analysis; extracted by author Lam Thuy Vo
Ideas, or intellectual property, can be as valuable a commodity as a product. The IDEAS that America exports is the topic of a radio piece on NPR by Lam Thuy Vo. In the chart of Export Services above, the balloon labeled "Royalties and Licensing" represents the ideas that are exported. This category can be broken down as follows:
from the US Bureau of Economic Analysis; extracted by author Lam Thuy Vo
The companies that make their money from intellectual property include Microsoft and entertainment companies. What would happen to the US economy and to these businesses if all of their ideas were pirated?
from iStockPhoto; posted at the Marketplace website for Tess Vigeland's article
Marketplace NPR ran two stories this week about 401K retirement plans.
Jeremy Hobson of Marketplace interviewed Chris Farrell to look at the performance of 401K plans this year compared to the stock market. They focused on Fidelity, because it is the largest mutual fund company in the United States. Fidelity said that their account balances were up by 8% this year. But stocks overall have increased more.
Tess Vigeland interviewed Teresa Ghilarducci in the audiocast linked above. Ghilarducci is a labor economist who has some definite opinions about the options Americans have for funding their retirement. She says that the 30-year experiment with 401K plans has failed most Americans, because accounts are eroded by high fees, and people don't understand the consequences of withdrawing money in times of need (house purchase or divorce, for example).
401K plans, says Ghilarducci, work best for the highest income Americans. Money is put aside and subtracted from taxable income--giving the worker/investor a big tax break. If the money stays untouched over a 30 or 40 year working life, and is invested well, with no money withdrawn, there is a substantial sum available upon retirement to be paid out in a lump sum, or as an annuity over retirement years.
If Ghilarducci had her way, all Americans' retirement security would be built on a base of Social Security, plus a mandated withdrawal of funds from each paycheck, to be deposited in a private investment account that could only be accessed upon retirement. The principal on the account would be guaranteed by the Federal government. The hope would be that the account balance, over a working lifetime, would amount to much more.
These radio pieces were inspired by "My Faith-Based Retirement" by Joe Nocera in the New York Times. Nocera's personal story was that his 401K failed him. Ghilarducci says Nocera's experience is not uncommon for people in his age group.
Jill Schelsinger of CBS News MoneyWatch had some good suggestions for students and recent graduates about getting credit cards and establishing good credit.
Many banks on or near campuses and target-market credit cards with extremely high interest rates to students or soon-to-be graduates. Often, parents need to co-sign the applications and act as "guarantors" of the card for the first few years while the young adult is establishing credit.
Ms. Schelsinger discussed some credit cards that, in her opinion, were better choices for new credit card applicants:
I have not personally investigated each of these options. If you look into them, please be sure to read all of the "fine print" and know what you are signing up for.
Here are my suggestions for dealing with credit cards: Just use them for convenience. Pay them off in full every month. If you make the purchase of a long-term asset such as furniture using a credit card, set yourself a plan for paying off the card within 6 months or a year. Stick to it.
If you find yourself building up debt and unable to pay off your balances each month, join a (free) support group such as Debtors Anonymous to learn tools that will help you live within your means. Managing credit to maximize your long term financial progress is an important skill for every adult.
illustration by Adam Cole in article linked below.
NPR's All Things Considered did a fabulous piece this week, telling the true story of Toby Groves, a decent guy who ended up in prison. "Psychology of Fraud: Why Good People Do Bad Things," by CHANA JOFFE-WALT and ALIX SPIEGEL, can be listened to (it is about 18 minutes long) and can be read--in graphic novel format!--also at the link. Adam Cole did the illustrations.
Toby's downfall began when he realized the financial trouble he was in. He needed a loan, and to get the loan, he "had to" lie about his income. This decision point is key to where people fail themselves, according to Ann Tenbrensel, a Notre Dame researcher. People think they are looking at the big picture, but research shows that people can have an "ethical blind spot," depending on how a situation is framed. One study presented groups with a dilemmas and told the research subjects that they were working on a "business decision." The other group was told they were working on an "ethical decision." The groups came up with very different "mental checklists" for how to proceed.
illustration from linked article
It is remarkable the extent to which Toby Groves was able to get others to lie for him and create false documentation in support of his loan application, but it makes sense within the context of the decision-making framework described above.
Everyone faces ethical dilemmas in the workplace. Handling them can be challenging. Framing the decision with respect to possible long-term consequences and downside risk is an important skill.