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.
Anthony Weiner, candidate for mayor of NYC, with his spokesperson Barbara Morgan (on the phone);photo by Alo Ceballos of FilmMagic
This time the communication issue was NOT Anthony Weiner tweeting an inappropriate picture. It was his spokesperson, Barbara Morgan, giving a name-calling and profanity-laced tirade to a reporter.
None of the exchange is printable here, but the gist of the rant, which occurred as part of an interview with Talking Points Memo, was that former intern Olivia Nuzzi possesses neither positive personality traits nor good work habits, and Ms. Nuzzi did not write a fair article about her internship experience with the Weiner campaign. [To put it mildly, none of the tone of Morgan's monologue comes across in that paraphrasing.]
photo of Olivia Nuzzi by Sofia Colvin for The Daily News
Olivia Nuzzi had by-lined a "tell-all" article in The Daily News the day before about her internship experiences with the Weiner campaign. And Barbara Morgan claims that her comments about Ms. Nuzzi were "off the record."
Source: "Top Weiner Aide Offers Communicators a Lesson on How Not To Talk To Reporters," by Caysey Welton, PR News, July 31, 2013.
Filner, mayor of San Diego, has been accused by several female
colleagues of sexual harassment. The video posted above was his initial
apologetic response, but he hedges his apology with this statement: "It
is a good thing that behavior that would have been tolerated in the
past is being called out in this generation for what it is:
inappropriate and wrong." He seems to be justifying his behavior as
being acceptable based on the standards of a previous time period.
have complained that Mayor Filner has not resigned his office, but
instead has chosen to govern in absentia. Mayor Filner made another
statement (in the video linked below) explaining that governing issues
will be handled well while he takes a leave of absence for sexual harassment training.
Source: "Video of San Diego mayor announcing his plans to undergo therapy ," by Robert Mackey, New York Times: The Lede, July 26, 2013.
image of ads with apps on Facebook, on an iPhone
is doing some new things, and seems to be doing them well. Second quarter
earnings were up, and over $650 million of those earnings were from mobile ad
revenues. The market responded after the earnings announcement with a bump in
share prices. Marketplace reported anecdotal evidence that the new ads are
engaging potential customers.
I've seen some
of these ads on my own phone. They show up in the Newsfeed, and they can be
manually removed...but the same click effort can satisfy any curiosity about
what is being promoted. I have to admit even I--a veteran avoider of ads
and sales pitches--have clicked through a few times.
course, is counting on millions of curiosity clicks just like these...
Source: "In Your Face, Wall Street!"
by Noel King, Marketplace, American
Public Media, July 25, 2013.
image from motherjones.com
"Is Goldman Sachs really raising the price of a Coke?" asks a Fortune headline. The answer is: YES it is. It is raising the price of aluminum ingot artificially, and for its own financial benefit, by trucking the ingots from warehouse to warehouse for no reason...except to take advantage of some strange regulations that allow an investment bank to buy and hoard commodities. The $.0002 increase in price per can of Coke adds up to $5 billion of profit for Goldman Sachs.
Goldman Sachs logo
What are the mechanisms that make this work for Goldman Sachs and other investment banks?
So, Goldman Sachs just moves the aluminum around, keeping it off the market and raising the price at which it might be sold. According to the NYT article, "The inflated aluminum pricing is just one way that Wall Street is
flexing its financial muscle and capitalizing on loosened federal
regulations to sway a variety of commodities markets, according to
financial records, regulatory documents and interviews with people
involved in the activities."
Here is the real alchemy, and it is being played out again and again in today's market place--the Reverse Robin Hood: Take pennies or portions of pennies from
hundreds of thousands of consumer transactions (so no one will have the energy or incentive to stop it)--and concentrate the
accrued profit in the hands of one corporate entity.
Why do our financial regulators allow this? It is baffling. Last December, right before Mary L. Schapiro left the SEC as chair, she oversaw the approval of the same kind of scheme for copper, believing that "reducing the amount of copper on the market would not drive up prices." So much for "supply and demand." Did anyone on the Securities and Exchange Commission ever take Econ 101?
Sources: "A shuffle of Aluminum, But to Banks, Pure Gold," by David Kocieniewski with contributions from Gretchen Morgenson and Alain Delaquérière, New York Times, July 21, 2013.
"Is Goldman Sachs Really Raising the Price of Coke?", by Stephen Gandel, Fortune, July 22, 2013.
image from gsoftnet.blogspot.in
As governments world-wide are running out of cash as the wealthiest 1% of individuals and corporations become more and more wealthy, the possibility of a "Wealth Tax" is becoming a reality. Professors Thomas Piketty and Gabriel Zucman of the Paris School of Economics have recently published a paper called, “Capital Is Back: Wealth-Income Ratios in Rich Countries 1700-2010.” In it they studied wealth in 8 countries: the United States, Canada, Britain, France, Italy, Germany, Japan and Australia.They found, among many other trends, that wealth-to-income ratios have doubled from 1970 to 2010. This means, in countries where only income is being taxed, that there is a pool of increased wealth that has not been taxed. This wealth is concentrated in the pockets of a small percentage of the population (based on other studies). It follows logically that countries may want to tax this pool of resources in order to solve long-term and short-term government debt issues.
The effect on businesses of such a tax was not analyzed as a part of this study, but it is clear that there would be considerable political turmoil and intense corporate lobbying should a wealth tax be seriously considered in the United States. A wealth tax is already being implemented in India, with several types of property (e.g. farm land) being exempted.
Source: "Wealth Taxes: a future battleground," by Tyler Cowen, New York Times Business Day, July 20, 2013.
image from the August issue of Rolling Stone magazine
Rolling Stone's choice of a cover model for its August issue has had a ripple effect. Pictured on the cover is Dzhokhar Tsarnaev, one of the brothers implicated in the bombing at this year's Boston Marathon. Several retailers, including CVS and Walgreen's, have refused to carry the issue in their stores. Many have spoken out against the magazine's choice, since the magazine usually pictures "rock stars" on the cover.
The editorial in the New York Times suggests that singling out Rolling Stone for "shunning" is an over-reaction, since the picture had appeared in print in countless publications prior to Rolling Stone's publication of their August issue. The editorial board also points out that periodicals have printed cover photos of Hitler, Osama bin Laden and Charles Manson without incurring this kind of reaction.
This kind of censorship by business retailers is quite unusual. I wonder what the businesses refusing to sell the issue are trying to accomplish, from a business communication or marketing perspective.
Source: "Judging Rolling Stone by its cover," by the NYT editorial board, New York Times Economix, July 18, 2013.
Image from breathecast.christianpost.com
The city of Detroit, Michigan declared bankruptcy this week. I was on the Michigander bike tour when the bankruptcy became public, so I was surrounded by "locals," many of whom had an opinion about what happened. The knee-jerk reaction was to blame corrupt government officials, but the underlying reality seems to be pension management.
In the growth economy of the 1960's, the most equitable benefits to negotiate for labor were pension benefits. Pensions would allow even low-skilled workers who worked their entire lifetimes to retire in their old age and not fear homelessness or poverty. In the post WW II economic boom, this seemed (even to the most conservative managers) to be humane and fair. So, workers, traded off their wage increases, to get pension benefits instead.
Even when the economy stopped booming, pension benefits continued to be negotiated for workers, but for different reasons. The "short-term planning focus" that increased in popularity for both business and government management from the 1970's through the present saw pension benefits as a cheaper benefit that increased wages, so pension benefits were maintained and increased, in lieu of wage increases in many years.
That would not have been a problem leading to bankruptcy if the pensions had been adequately funded. But funding for future retirement is a very complicated process. Actuaries calculate the amounts to be contributed each year--based on complicated calculus problems involving worker demographics, current and anticipated returns on investment and fund balance variables. The calculations have to satisfy GAAP (generally accepted accounting principles) established by the FASB. The problem, it seems, is that the standards established allowed underfunding to continue from year to year without detection--on Detroit's books, and probably for many other entities.
Part of the problem has to do with the changes in market rates of return...the "boom" years in the stock market allow companies and government entities to contribute less to pensions--and the rules allow for "smoothing" so that huge contributions are not required in the "bust" years. One expert within the actuarial industry, Jeremy Gold, has been very vocal about correcting these rules. A Blue Ribbon Panel of actuaries and public officials has also called for changes in the rules, but city managers and corporations have lobbied against rule changes that would require higher contributions.
Corporations and government entities whine that changing the rules would create instability.
Will the rules change, or will there be more government entities filing for bankruptcy like Detroit?
Source: "Detroit Gap Reveals Industry Dispute On Pension Math," by Mary Williams Walsh, New York Times Dealbook, July 19, 2013.
image from marquetinternational.com
Do you remember Charles Keating? He became a symbol of what was wrong with business and unregulated investment management when Lincoln Savings collapsed in the 1980's.
Some banks in China are now offering "wealth management" products that do not disclose how the money is being invested. The Financial Times reported recently that Argyle Street Management analysts found that Chinese investment product buyers,“think everything is backed by the government" and that "as long as the Communist Party remains in power, these products are safe.” Some buyers are being promised a 12 percent return, but are not being told what products their funds are being invested in.
image from chinacampatrol.wordpress.com
In the Lincoln Savings case, similar less-than-fully-transparent transactions led to total losses for investors and criminal prosecutions. Does China have the regulatory infrastructure to protect individual investors in a similar situation?
Source: "China's Answer to Charles Keating," by Floyd Norris, New York Times Economix, July 12, 2013.
image from www.eweek.com
In an interview with Lauren Indvik of Mashable, Marketplace discusses the ruling by a federal judge against Apple. There was "overwhelming evidence" that Apple conspired to fix prices on its eBooks.
Market control and the resulting litigation--rather than the innovation that has been the hallmark of Apple success--may be a direction that mires Apple in busywork that results in loss of market share. We will see over the next few years...
Source: "Apple gets hit for e-book price-fixing," by Ben Johnson, Marketplace Morning Report, July 10, 2013.
image from alexisgrant.com
It is tough to balance home life and work life. Some individuals and some generations do better at it than others. A recent book by Sheryl Sandberg, the COO of Facebook, encourages women to "lean-in" to their careers as a primary priority. But not everyone wants to live that way--not all men, and not all women.
The National Study of the Changing Workforce recently, as part of its once-every-five-years survey, asked: "Thinking about your plans for the future, do
you want to move to a job with less responsibility, stay at your current
level of responsibility, or move to a job with more responsibility?” Here is a chart summarizing the trend of responses, over a 16-year period from 1992 to 2008:
image from "National Study..." link in article and sourced below
Clearly, as of 2008, both men and women (who were parents as well) want more life/work balance--that is: less responsibility at work--than they felt they could ask for in 1992. What lessons does this hold for employers and employees?
Source: "Office advancement vs. home duties," by Catherine Rampell, New York Times Economix, July 8, 2013.
image from fastfoodnutrition.org
McDonald's won't admit that it has a problem with marketing to "millennials," but it is clear that they are trying to solve it. The McWrap, McDonald's hopes, will be "relevant to all of our customers," according to a senior McDonald's marketing representative. Internal memos obtained by Advertising Age suggest that the McWrap will address the needs of this very important millennial customer.
image from adage.com
What is the sandwich? Basically, it is a chicken sandwich (either grilled, or like a big McNugget) plus lettuce, spring greens, sliced cucumbers, tomatoes, "cheddar-jack' 'cheese, and a dressing of your choice wrapped in a flour tortilla. It looks more hip than a chicken sandwich on a bun, but is it enough to bring millennials back into McDonald's?
The good news, from a business-analysis perspective, is that McDonald's is trying to adapt. It is a mature business, with solid penetration in the marketplace, but it knows that it needs to adapt to maintain its market share in an environment where the "new thing" might seem better.
Did I mention that it is made-to-order? Like your 6-inch at Subway?
My savvy and connected millennial daughter has this to say: "McDonald's took up so much real estate in elementary school--after soccer, and all those Happy Meals and toys. If I sneak into McD's to get a coffee and a breakfast sandwich, I'm not going to be tweeting about it to my friends."
That is just one person's opinion. What will the generational answer be to this new product?
Source: "Why the McWrap is so Important to McDonald's," by Susan Berfield, Bloomberg Businessweek, July 3, 2013.
Now that the rate on federally subsidized Stafford loans has officially doubled-- from 3.4% to 6.8%--many concerned observers are looking for ways to handle student loans that make more sense. One option is to try to legitimately get out of paying the loans. Here are some of the ways suggested by American Student Assistance in an eBook called "60+ Ways to Get Rid of Your Student Loans (Without Paying Them)":
There are other ways that student debt could be better managed for American citizens, but it could involve radically re-thinking priorities.
A long term public policy solution might be to adopt the program in place for the last 25 years in Australia, and that has also been adopted in England, New Zealand, Hungary and South Korea: structure loan repayment based on a progressive rate, tied to income. Each year that the former student with loans makes $0 to $50,000, there is NO repayment required. When income reaches $50,000, then 4% of the income is due as a loan repayment. The rate increases as the income goes up. There seems to be no fear that students will take low-paying "non-profit" jobs to avoid loan repayment, because eventually they are likely to make enough money to begin loan repayment. According to Dr. Bruce Chapman of the Australian National University at Canberra, the data shows that 85% to 90% of the loans are repaid, and this occurs without incurring legal costs to enforce collection.
Sources: "How to get rid of your student loans without paying," by Daryl Paranada, Marketplace Money, American Public Media, July 5, 2013.
"What the U.S. could learn from Australia's student loan program," by David Brancaccio, Marketplace Morning Report, American Public Media, July 1, 2013.
image from newjerseybankruptcynow.com
Cengage Learning has filed for Chapter 11 bankruptcy. What does this mean? This type of bankruptcy will require the restructuring of debt, and negotiations with creditors to pay reduced amounts on the liabilities that Cengage Learning owes. This type of situation can be seen in a positive light. The "zero-based budgeting" that is involved in negotiating a debt restructuring plan can streamline operations and make decisions more transparent to stockholders and the Board of Directors.
I have been a member/shareholder of a food co-op for over 30 years. This co-op was in Chapter 11 bankruptcy about 25 years ago. It emerged from the bankruptcy in a much better position to take advantage of opportunities. It moved its location and built a new building, and it currently competes well in an environment where there are multiple Trader Joe's stores and Whole Foods stores within a 4 mile radius. In the long run, the bankruptcy made the store stronger.
Let's hope this is how the Cengage bankruptcy plays out. Students, professors, and future employers are all stakeholders in the Cengage bankruptcy--as well as the financial participants (investors, managers and the Board). The number of textbook publishing companies has been shrinking radically over the few decades, and there are only a handful of viable companies that dominate the market. No one in the user communities would benefit if this bankruptcy does not succeed in giving Cengage new life. An educational environment in which there are only two or three major publishers will create higher costs and fewer choices for educators, students...not to mention the unforeseen consequences.
Source: "Cengage Learning Files for Chapter 11 Bankruptcy," by Steven Church and Beth Jinks, Bloomberg.com News, July 2, 2013.
illustration by Jason Rietman, in the NYT
The number of individuals on federal disability pensions for mood disorders (primarily depression) is on the rise. "Eliza" (a pseudonym) is featured in a NYT story about how individuals like Eliza can become one of the 1.4 million Americans receiving aid for depression. The aid includes housing subsidies, food stamps, social security payments (SSDI) and fuel and transportation aid. In the last 15 years the number of individuals receiving this aid has doubled. The direct and indirect costs have also risen.
The direct costs are first to the employers for sick time taken, and the costs of employing workers to cover for the employee. Then, there are direct costs for doctor's visits and medication--sometimes even hospitalization. If the individual gets to the point where they can no longer work, the medical costs are borne by taxpayers.
In addition, there are indirect costs, which can include:
It is estimated that the cumulative costs to society of various mood disorders is half a trillion dollars per year--more than the U.S. spends on annually on Medicare.
Research has shown that increasing care (and costs) in the short term (while individuals are still employed) can save money in the long term. A study in 2007 followed an "enhanced care" group and an control group. The "enhanced care" included telephone outreach, care management, and optional psychotherapy. The results were greater job retention in the "enhanced care" group, and an average of $1800 per employee reduction in costs to the employer, which was more than the cost of the enhanced care. The study was repeated with similar results at 12 primary care facilities. In a related study, similar outcomes also pointed to the effectiveness of early intervention and expanded mental health care.
Obamacare will not automatically provide early-intervention mental health care, and the additional research on all relevant parameters to justify the costs in a political environment is prohibitively expensive. Nevertheless, it might be a good investment in terms of decreasing costs to businesses and to taxpayers in the long run.
Source: "The Half-Trillion Dollar Depression," by Catherine Rampell, New York Times, July 2, 2013.