• Mergers, monopolies and anti-trust law

             Above, an explanation of monopolies in the US, from testtube on YouTube

    Monopolies are not viewed as beneficial for the American economy and (voting) consumers by the U.S. Congress. Nevertheless, monopolization remains the ultimate aim of many large businesses. Recently, Comcast made moves to take over Time Warner Cable, and this plan was opposed by many in Congress.

    More details about the Comcast merger are described below by CNN:

        additional information: hour-long explanation of Comcast-TWC merger issues


    But now it looks as though the Comcast-Time Warner Cable merger is not going to happen, at least in the foreseeable future:

    Sources: "LA weighs in on big cable merger," by Meg James and Saba Hamedy, the Los Angeles Times, April 15, 2015. 
    "Europe is Said to be Set to Charge Google in Antitrust Case," by Mark Scott and James Kanter, New York Times, April 14, 2015.
    "Comcast-Time Warner Merger DEAD," the Young Turks, April 24, 2015.

    Follow up:

    • Corporate bullying: What weree the dangers of the Comcast-Time Warner Cable merger? Who would have benefited? Who would have lost? What did Al Franken say about this merger (in the YoungTurk video)?
    • Free speech/information availability: What parallels does this have regarding the European regulators and Google's market share? Who benefits from Google's dominance? Who loses? 

  • Paying for free internet: the Universal Service Fund charge

    The Universal Service Fund (USF) charge has been around for a while...but hidden in the fine print of each of our phone bills. The fees currently amount to an average of $3 per household. The recent issues surrounding "net neutrality" have brought the fees into the public limelight. The the USF charge--set up to provide affordable telecommunications services in underserved areas such as rural and inner city communities--might also now be applied to internet provider services as well. (These are referred to as "broadband" services in the article).

    I'm not sure why the question is being asked, since I know that I have been paying PLENTY for internet services for years. The net neutrality ruling basically says that I can't be gouged for even higher prices (without a concomitant increase in service quality). Here is a graphic from the Los Angeles Times that illustrates the fee structure currently in existence:

    My take on the graphic is that the fees exceed the costs already. Hmmm.

    Sources: "FCC's net neutrality rules open door to new fee on Internet service," by Jim Puzzanghera, the Los Angeles Times, April 9, 2015.
    Universal Service Fund Charge, Wikipedia.

    Follow up

    • What is the Universal Service Fund Charge? How is it assessed now?
    • How might the USF charge be changed in the future? What are the pros and cons?
    • How do you read the graphic above?
  • Managing a ballplayer for profit--the Chicago Cubs disappoint their fans

    The Chicago Cubs' Kris Bryant is a fan favorite...but he was not part of the opening day roster at Wrigley Field for this year's baseball season. A clause in the Major League Baseball (MLB) contract says that a player has to be on the major league roster for 172 days out of the 183 day season in order for it to count as a year of play for service credit. Baseball "owners" can keep a player under contract an additional year if they hold a player back in the minors for the first eleven days of the season. And this is what the Cubs did to Kris Bryant. 

    Of course, what they said was that Bryant "wasn't ready" for the intense extravaganza that an opening day baseball game can be. It wouldn't be legal to just be manipulating his paycheck and the club's ownership rights. Nevertheless, the situation with Bryant highlights some of the issues that will be on the table when the MLB collective bargaining agreement (CBA) comes up for renewal next year.  Some of the issues include:

    • service credit and contract year manipulation
    • salary "caps" for players
    • the percentage of MLB revenue that goes to player salaries (as opposed to administrative costs and profits)
    • avoiding a negotiations impasse that would lead to a lockout, similar to the one that occurred in 1994.

    Meanwhile, Cubs fans hope to see Kris Bryant playing ball this year, and helping the team win the pennant.

    Source: "Is Kris Bryant a Turning Point for Baseball?" by Mary Pilon, the New Yorker, April 28, 2015. 

    Follow up

    • Do you think it is fair to keep a talented young player in the minors for 11 days out of a season, to avoid a contractual obligation to pay the player a major league salary, as well as to keep "ownership" of the player for an additional year? Why or why not? Consider all of the stakeholders, including the fans...
    • How to major league baseball clubs make their money?
    • Define the following: 
      • collective bargaining agreement
      • lockout
      • impasse
      • service credit
      • winning the pennant
  • The history of Monopoly, the game

    Have you played the game Monopoly? Some features of the game include:

    • Accumulation of property and wealth
    • Ruthless avarice in the face of the poverty of others
    • Forcing others into bankruptcy for fun--

    Believe it or not, this was not the intent of the game's originator, Elizabeth (Lizzy) Magie, who originally developed the game, The Landlord's Game, as a teaching tool. She wanted people to understand how awful and destructive it was to be a tyrant of a landlord, and to experience how the poor suffered at the hands of wealthy, greedy property owners.

    Her original game had two versions:

    • The Anti-Monopolist version, in which the players were rewarded for working together to improve the prospects and lives of everyone involved; and
    • The Monopolist version, where the purpose was to accumulate wealth and destroy others. 

    Lizzy Magie thought that folks would find the first version more enjoyable. Nevertheless, as chronicled in Mary Pilon's book, The Monopolists: Obsession, Fury and the Scandal Behind the World's Most Popular Game, it was Charles Darrow's version of the game, sold to Parker Brothers, that became the one we know today.

    Actually, playing the game is an effective--albeit time-consuming and sometime painful--way to learn about money, debt and wealth accumulation.

    Source: "Is Monopoly Anti-capitalist propaganda?" by Evan Puschak, for Seeker Daily, March 7, 2015.

    Follow up:

    • What was the intention of "The Landlord Game"? 
    • Why did Monopoly--the way it is played today--become more popular? How might you have marketed it?
  • Personal finance help

    The state of California has a financial literacy campaign in place, and Project Money is a cornerstone for that campaign. It is offered to the public at large, but is directed at people who are at the beginning stage of knowledge about financial well-being. 

    Business majors may find that these basic tools as a good starting point for building their own program for financial self-sufficiency. 

    Source:  Project Money

    Follow up:

    • What are the major points in the 2-page document linked from the source above?
    • What will you do to implement your own plan, or build on the one you have in place?

  • Home ownership compared to a Ponzi scheme

    Making money without working is a wage-earner's "dream come true." Here is the fantasy, which many middle-income workers try to actualize through home ownership:

    1. Buy an asset
    2. Wait while the asset appreciates over the years
    3. Sell the asset at a gain

    This scenario depends on these factors:

    • The purchase of the asset must be financed at an interest rate less than the amount of annual appreciation, expressed as a percent, and
    • The appreciation of the property (perhaps due to the increasing scarcity of land) must exceed wage inflation, and
    • There must be buyers who are willing and able to pay for the asset at the higher price.

    The doomsayers in the article and video compare home ownership to a Ponzi scheme. They focus on the reality of the cyclical bursting of the housing price bubbles, saying that any ratcheting up of housing prices will eventually end up with the last-to-buy homeowners being stuck with an asset they cannot sell.  Investors in Ponzi schemes, once the scheme is unmasked, also have an asset that has far less (or negligible) underlying value.

    Countering this argument are the successes of many homeowners in paying off their mortgages, leaving them with low-cost housing in their retirement years, when income sources may be lower than they were while they were working. They also have the alternative of selling the appreciated assets and purchasing an annuity for an additional revenue stream.

    Source: "Ponzi Property: the neoliberal delusion of home ownership," by Kean Birch, Roar Magazine, March 22, 2015.

    Follow up:

    • What is a "Ponzi scheme"? Why is it illegal? Who wins? Who loses?
    • Do you agree that home ownership is similar to a Ponzi scheme? Why or why not?
  • New Minimum Wage: $70,000 per year

        Gravity Payments CEO on company video about the company's mission

    Gravity Payments' CEO, Dan Price, took a massive pay cut in order to begin implementing a plan to pay all employees a minimum wage of $70,000 per year.  Why?

    The market rate for me as a C.E.O. compared to a regular person is ridiculous, it’s absurd,” he said.

    The pay restructuring is being phased in over 3 years...$50,000 starting now, then $60,000 next year and $70,000 the year after that; other increments are also in place. 

    The $70,000 number was based on happiness research. Higher pay correlates with higher happiness up to the pay rate of $75,000, after which there is no positive correlation between pay rate and happiness. 

    In the following video, CEO Dan Price makes his announcement: 

    Source: "One Company's New Minimum Wage: $70,000 per year," by Patricia Cohen, New York Times, April 13, 2015.

    Follow up

    • What is the motivation for Dan Price to pay this wage? What does he say? What do others speculate?
    • Who did the happiness research that arrived at the $75,000 pay rate? What meaningful credentials did those researchers have? What conclusions did they draw?
    • What are the additional pay increments that Price is putting in place?
    • If you want to know more about the life of Dan Price, view and comment on this video: News story
  • Finance workers dissatisfied with their jobs

     The above graphic represents a more positive outlook (in the United Kingdom) than reported in
     the U.S. survey below

    Are you thinking about a job in finance? Consider this: a recent survey by the Options Group (executive search) found that job satisfaction among Wall Street finance workers was low.

    The survey measured satisfaction along these four parameters:

    • the job itself
    • the firm at which they worked
    • the pay
    • the prospects for advancement

    These were the results:

    • 20% were satisfied with all four parameters
    • 30% were satisfied with two of the four parameters
    • 50% were satisfied with NONE of the four parameters

    Those that were more satisfied tended to be the executives, traders, and investment bankers. Those least satisfied were those that worked in support areas--risk management, compliance and human resources. These findings dovetailed with anecdotal evidence of Wall Street job dissatisfaction.

    Something to consider...

    Source: "Few in finance are happy in their jobs, survey finds," by Dean Starkman, the Los Angeles Times, April 13, 2015.

    Follow up:

    • How would you improve this survey? How could it be skewing the results?
    • What is the job satisfaction among ALL workers in the United States? How might that influence your analysis of these survey results?
  • Should financial advisors put their commissions over fiduciary responsibilities?

                image from lady advisor.com 

    The U.S. Labor Department has proposed rules that will require financial advisors to actually act in the best interests of their clients--people trying to save for their retirement. 

    About $7 trillion in investments (defined contribution plans of several types) would be covered. These rules would update ERISA (the Employee Retirement Income Security Act of 1974). When ERISA was enacted, it focused on "defined benefit plans," which are far more beneficial to employees--and were more the norm before the demonization of pension benefits by corporation spinmeisters. 

    The newly proposed rules WILL BENEFIT THE JOB-HOPPING MILLENNIAL the most--even though they are about retirement (often of little interest to young adults). Here's why employees with several jobs on their resume are at risk, according to the New York Times

    "Investors are particularly vulnerable when they roll over the savings they have accumulated in 401(k)-type retirement accounts, which are overseen by their employers, into individual retirement accounts (IRAs). Brokers who are advising customers on that transaction do not necessarily have to act in the customer’s best interests and may be influenced by higher commissions or other incentives the firm has put in place.

    As a result, investors’ money may not end up in the most appropriate investment, potentially costing them thousands of dollars over many decades."

    See "Are your Retirement Savings at Risk?" for further explanation, by the U.S. Department of Labor, for why these new regulations are needed. 

    Source: "U.S. Plans Stiffer Rules Protecting Retiree Cash," by Tara Bernard Siegel, New York Times, April 14, 2015.

    Follow up

    • Are you contributing to a 401K or other retirement plan at your present employer's? Or have you or your parents set up an IRA for you? If so, how is it invested?
    • What are the downsides of regulations such as these, from the standpoint of the financial advisor?
    • What is "fiduciary duty" according to the article?
    • What is a "defined contribution plan"? Why is it less beneficial to employees than a defined benefit plan?