• Lanzhou New Area: a financial plan that no longer works

       a promotional video for the Lanzou New Area Development

    China had great hopes for the Lanzhou New Area in the Gansu Province.  Lanzhou is a city situated between two mountain ranges. The Yellow River flows through it. The plan was to revive the Silk Road trading channels and create another industrial metropolis to the west of the rapidly developed Beijing and Shanghai.

    A 315-square-mile city was planned. A plateau was leveled to make that possible. Huge rows of apartment buildings were erected. Infrastructure (water, electricity) to support a growing city was installed. Monuments were built. Industrial parks were planned...but construction has stopped. Lanzhou New Area is practically a ghost town. 

    What happened? Global economic expansion has slowed...but China has not adapted to the change. The policies that were so successful in building up the economic centers in Shanghai and Beijing no longer work. Debt is rising and there is no positive outlook for a decent investment return. 

    Perhaps economic conditions will improve over the timetable for growth planned: the target date for completion is 2030. But several hurdles exist to meeting that goal. Meanwhile, construction projects are stalled: building materials remain unused and cranes are motionless. 

    Source: "Along the new Silk Road, a city built on sand is a monument to China's problems," by Simon Denyer, Washington Post, May 29, 2016.

    Follow up:
    ---  Read the article and its embedded links: Why won't China shut its factories in light of changing economic conditions?
    ---  List the problems--economic, financial, logistical and environmental--that face the Lanzou New Area. Are there any solutions?

        _________________________________        __________________________________


  • Food Truck Business Success

      image from NPR

    The food truck business--long dominated by Mexican food--has taken off in the last fifteen years. Specialty cuisines have dominated the boom: Asian/Mexican fusion, gourmet grilled cheese, lobster rolls, sausages, Iraqi food, Japanese love balls, bao, and New Orleans cuisine, to name a few.  Seeing so many food trucks might give the general impression that it is easy to get into the business, but there are many hurdles to overcome. 

    The podcast linked below tells the saga of Rickshaw Dumplings, based in New York City.

    Podcast: Episode 366: How to make it in the food truck business
       by Robert Smith, NPR Planet Money, May 18, 2016; originally aired in 2012.

    Follow up
    ---  Listen to the podcast. Identify the problems inherent in starting a food truck business, and how Rickshaw Dumpling Truck managed them.
    ---  List the costs incurred in starting up and maintaining a food truck business.

        _______________________________               _______________________________


  • Office etiquette: the erosion of dress codes

        from the television series, "Mad Men", via wallpapers .com 

    Have you ever gone to school or worked in an environment that required a uniform or a dress code? According to the linked article in the New York Times, dress codes are on their way out. 

    First, it was the institution of  "Casual Friday" where "business casual" rather than "business professional" dress was appropriate. Then it was the "flat shoe" issue for women. Casual Friday started to creep into the "business ready" clothing styles. Gender-equity laws prohibited differences in clothing requirements for men and women. Attire was deemed irrelevant at tech company start-ups, so many employees showed up in their most casual clothes. Tech company executives started wearing turtlenecks...then hoodies and jeans. 

    The standard is often higher on days when customer contact is required (and "business professional" per the presentation  linked in the Follow Up questions). And the restaurant requirement of "shirts and shoes" still seems to apply to work wear. In any event, human beings are social animals, and communicate their desire to be part of a team by adopting the company norms in attire as their own.  

      lead actors from the TV series "Silicon Valley," which features a tech start-up.

    Source: "The End of the Office Dress Code," by Vanessa Friedman, New York Times, May 25, 2016.

    Follow up:
    ---  If you have been subject to a dress code, what was it? How did people adhere to it...and stretch its boundaries? How was it enforced?
    ---  If you are unsure what might be acceptable work wear, and want to err on the conservative side (which is not the position taken in the linked article), check out this link which includes a quiz: Professional Etiquette: How to Dress For Success
    --  using the powerpoint linked above as a source, make a four column chart: 1)  the business situation (i.e. "regular day in the office"); 2)  Clothing style designation; 3) what items of clothing are appropriate for women in each category; 3) what items of clothing are appropriate for men in each category.  Make additions and indicate subtractions or changes to the material presented in the text, based on your experience.

        _________________________________        ___________________________________

  • Bank of America fraud judgment reversed by an appeals court

         analysis and history of the case against BofA/Countrywide,  on The Lip via YouTube

    This week a federal appeals court overturned the fraud conviction (and $1.27 billion penalty) of Bank of America for its sales of overvalued bundled mortgages of the type that led to the financial crisis of 2008. The original judgment against Bank of America also held the executive overseeing the program, Rebecca Mairone, liable for $1 million.

    Bank of America, through its affiliated company, Countrywide, had set up a program called High Speed Swim Lane (HSSL, pronounced "Hustle"). The goal of this project was to speed up and cut the employee costs of the approval of home mortgages (both prime and sub-prime). Re-selling these mortgages was also part of this streamlining plan. Countrywide sold many sub-prime mortgages to Fannie Mae and Freddie Mac. These sub-prime mortgages were sold at prices that could only be obtained by misrepresenting their low value.

    The definition of fraud, from Black's Law Dictionary, includes the word "intentional," which is also included in the recent reversal. Check out the link for the whole definition, but it begins: 

    "Fraud consists of some deceitful practice or willful device, resorted to with intent to deprive another of his right, or in some manner do him an injury. As distinguished from negligence, it is always positive, intentional." 

    However, the three-judge panel ruled:

    "...On appeal, Defendants argue that the evidence at trial shows at most an intentional breach of contract--i.e., that they sold mortgages that they knew were not of the quality promised in their contracts--and is insufficient as a matter of law to find fraud."

    It is interesting to me that the standard of fraud, according to the appeals court, has not been met in the Countrywide case when an intentional misrepresentation occurred. The standard for "fraud" is much lower for individuals filing a tax return. If an individual fails to report rental income (for example, subletting one of the bedrooms in an apartment in a situation similar to Airbnb), a fraudulent tax return has been filed. Note below that the penalties assessed for omitting income from an individual tax return can amount to an additional 75% of the tax owed. 

                                         --from an article by Steve Lander for Demand Media

    Observers note that the reversal of the Bank of America/Countrywide case may make it more difficult to prove fraud in other cases. The standard to produce contemporaneous evidence seems rather difficult to meet--especially when an institutionalized program with an acronym pronounced "Hustle" doesn't qualify as evidence for fraud. 

    Source: "Federal Court throws out fraud case against Bank of America," by Lewis Wallace, Marketplace, American Public Media, May 24, 2016.

    Follow up:
    ---  Why are fraud cases brought by the Justice Department? Who are the stakeholders they are trying to protect? Who gets the settlement money?
    ---  Who benefits (or benefitted) from the "Hustle" (HSSL) deals? Do you think businesses always (or usually) provide adequate disclosures when they are selling an asset? Think of some expensive purchases as you consider this question: houses, used cars, cameras, entertainment systems, car repairs, and plumbing repairs. Have you ever felt cheated in a transaction? Do you think the seller or provider of services knew that they weren't giving you your money's worth? Should they be held liable if they did it intentionally?

  • Juggling and consolidating credit card balances

        image from www. quicken loans.com

    If a person carries credit card debt from month-to--month, it is often a source of stress. This is particularly true if the balance keeps rising because interest is always adding up. Progress payments cover the interest first, before reducing the principal. The interest rates on revolving credit card balances can be 15%, 18%, even over 20% in some cases.

    Some consumer debtors juggle their credit cards, transferring balances from one to another to take advantage of teaser rates--sometimes 0% for a year. Maybe they don't read the fine print that discloses the up-front fee for the transfer. [On one of my credit cards, the fee is 3% of my transferred balance...but I never transfer a balance; I pay my credit cards off in full every month.]

    One option that has actually saved consumers money is Lending Club. They are a peer-to-peer unsecured loan company that began as a Facebook app in 2006, and went public in 2014. A consumer could use a loan from Lending Club  loan to consolidate credit card debts at a lower interest rate. Lending Club, however, is in financial trouble at this point.

    Tally is a start-up launching a service that goes a step further in terms of consumer service to those with credit card debt. Tally pays off all the credit cards, creating a new principal balance. Each month, Tally pays all of the new credit card debt (assuming the consumer has not taken the smart step of cutting up their cards). There shouldn't be any interest on those cards, since the debt from the previous month was fully paid, but if straggling charges remain, Tally would pay that, too. The consumer then makes one monthly payment to Tally.

    If a consumer has a financial goal of paying off all credit card debt, they would stop using their credit cards, and pay down as much of the principal balance to Tally as they could afford each month (on top of the interest which Tally would be charging them). There is no pre-payment penalty for paying off the balance at any time. 

    Not everyone can get a Tally debt consolidation--there is a minimum FICO score of 660. This does reduce some of the business risk to Tally. But can Tally make a profit with a business model that overlaps with the model used by Lending Club? Will they have some of the same problems? We will see. 

    Source: "A Service to Pay Off High-Interest Credit Cards, But a Bad Time to Start," by Ron Lieber, New York Times, May 13, 2016.

    Follow up:
    ---  How many credit cards do you use? Do any of them carry balances? Have you ever transferred a balance from one card to another?  What was your reason? Discuss the way you use credit cards as part of your financial life.
    ---  In your own words, explain the risks inherent in its business model that Tally must face. What can go wrong? Why would venture capitalists invest in this company?

        _________________________________       ___________________________________


  • Managing a customized pre-production process: Miller-Mize Precast

      graphic flowchart of pre-production process for cast stone at Miller-Mize Precast, Inc.
      (Legend: MMPI is the acronym for Miller-Mize Precast; D&E is Design and Engineering)

    Managing customer contact for a made-to-order product requires serious management skills. Communication--both inside and outside the company--as well as patience, attention to detail, and other soft skills are essential. The flowchart above is a template for managing the communication process during pre-production. Seeing the process laid out in a flowchart can reassure clients in terms of the timetable and the seriousness with which the manufacturer takes client input. This way, the manufacturer can maximize customer satisfaction for the project as a whole--before incurring the financial and logistical costs of actual production.

    The process illustrated above is for Miller-Mize Precast, Inc., a company based in Columbus, Georgia. It makes architectural building materials for specific construction projects. In the video linked below, one of their customers comments on a project that is already in production.

    Sources: "Trinity Construction Update: Precast Cross Medallions," (video) YouTube, March 20, 2015.
    Miller-Mize Precast Inc. website

    ---  Create a pre-production flowchart for a project with which you are familiar. This could be planning a dinner party for friends, planning a wedding, or planning a move--either permanent or temporary. 
    ---  Examine the chart above closely. Where do you think there might be some delays? Which loops might have to be repeated several times?

  • Oil price fluctuation and demand

    The graph above shows the prices of oil since 2006. The price of oil has decreased over the last year...and the short answer to the question "Why did it drop?" is the basic economic principle of supply and demand.  Here are some of the events that have increased supply:

    ---  United States production of oil has doubled.
    ---  One consequence of the U.S. production increase is that, instead of selling to the U.S., Saudi, Nigerian and Algerian oil producers are all trying to sell to Asia. This increased supply creates price competition, driving the price down.
    ---  Exports of oil from Canada and Iraq are also increasing.
    ---  Russian production is also increasing.

    On the demand side of the equation:
    ---  Cars are becoming more energy-efficient
    ---  Electric cars are making a dent in gasoline consumption

    Recently, however, oil production has slowed in Canada due to a forest fire, has slowed in Nigeria due to civil unrest, and has slowed in Middle Eastern countries, perhaps as a reaction to pressure on OPEC (the Organization of Petroleum Exporting Countries)..

    This might mean the the recent decreases in gas prices will begin to rise again.  Is this a good thing for the economy? Read the linked article to explore both sides of the issue.

    Source: "Oil Prices Explained: Signs of a Modest Revival," by Clifford Krauss, New York Times International Business, May 16, 2016.

    Follow up
    ---  What is the Law of Supply and Demand?
    ---  Where do you stand with respect to being positive or negative about oil prices rising...or falling? Explain your answer.
    ---  What are the pros and cons of the Keystone Pipeline project? How does it fit in to the production impact on oil prices?

        _______________________________         ________________________________


  • "Skimming" fraud at ATMs: what it is and how you can avoid it

      image from bitcointalk .org

    "Skimming" is a form of theft that targets users of ATM machines. Specifically:

    "Skimming involves stealing debit card numbers by putting an illegal card reading device on an A.T.M. Criminals use the devices in tandem with hidden cameras that record personal identification numbers entered onto the keypad. They then make duplicate cards using the information and drain cash from bank accounts."

    Cards with a magnetic strip (as opposed to a chip) are easier to counterfeit. ATMs at banks and at stand-alone retail outlets are both at risk. Even the card readers at gasoline pumps are used for skimming.

    Even though ATM users are protected by the Electronic Funds Transfer Act, there is a requirement that the theft be reported within 60 days. So it is important for consumers to monitor their accounts as well as use some of the techniques mentioned in the article linked below to avoid the thefts entirely.

    Source: "A.T.M. 'Skimming' Fraud is Surging, but You Can Take Precautions," by Ann Carrns,  New York Times, April 9, 2016.

    Follow up
    --- What are the suggestions for preventing this kind of fraud, according to the article?
    --  What precautions do you take at ATMs?

        _________________________________        _________________________________

  • Thieves hack into world's most secure financial network...again

         image from SWIFT Financial Network, which was recently hacked

    Is any of our digital information safe? SWIFT Financial Network--a messaging system used by many banks throughout the world to move money between accounts--has just announced yet another breach of its system. This time the bank was a commercial bank, but the specific institution has not yet been publicly identified.  Last month, when SWIFT disclosed information concerning a previous breach, the New York Times had this to say: 


    If SWIFT is the best system, is there any protection from sophisticated hackers? In February, an $81 million theft from a central bank in Bangladesh occurred by hacking the SWIFT system and re-routing money being handled by the Federal Reserve Bank of New York to casinos in the Philippines. The vulnerability is not in the central records themselves of these financial institutions, but occurs when money is on the move. 

    Analysts within SWIFT indicate that the hackers must have access to information about the most up-to-date internal controls to be able to accomplish these breaches. In the latest heist, the thieves knew that printed materials in a .pdf file were one part of that system, so the hackers targeted the printers. SWIFT assured banks worldwide that the core systems were secure, but warned all financial entities to increase their vigilance. 

    Source: "Once Again, Thieves Enter Swift Financial Network and Steal," by Michael Corkery with Andrew Ross Sorkin, New York Times DealBook, May 12, 2016.

    Follow up
    ---  Discuss your procedures for handling your passwords, including when you change them, how you create them, and where you store them when you forget them. 
    ---  Have you ever had a credit card replaced because the financial system has been hacked? What happened? Were you offered any identity monitoring services? Were there personal consequences?
    ---  How often do you check your credit reports? (Equifax, Experian, and TransUnion).  

        _________________________________        ___________________________________


  • Can you pass a drug test as part of a hiring process?

       poster from the DrugFreeWorkplace website

    According to research compiled by the New York Times, the number of workers who fail a drug test is on the increase. Moreover, at a recent hiring fair for a heavy-equipment manufacturer in Georgia, half of the potential applicants disappeared when the drug testing requirement was announced. 

    Drug testing is a growth industry: more and more white collar and grey collar jobs are requiring drug tests as well blue collar jobs. 

    Passing a drug test does not mean abstaining from use just for the night before testing. Evidence of drug use can remain in your system for quite a while:

     Drug  Time in blood   Time in urine   Time in hair
     Marijuana   2 weeks  7-30 days  up to 90 days
     Heroin & other opiates (Vicodin)                12 hours                    4 days                    up to 90 days               
     Benzodiazapines (Valium, Xanax)  2-3 days  3-6 weeks  up to 90 days
     Cocaine  1-2 days  3-4 days  up to 90 days
     Alcohol  10-12 hours  3-5 days  up to 90 days
     MDMA (ecstasy)  1-2 days  3-4 days  up to 90 days

     12 hours

     1-3 days

     up to 90 days

    Employers definitely have the right to test employees for drugs if their demeanor seems impaired. If physical safety issues for themselves or others are present, drug tests may also be legally conducted. It is less clear about the legality of random drug tests when being drug free (or alcohol free) is not a part of the job requirements. Generally, workers need to sign a document attesting to their understanding of a random policy at the time of their hire, or at a future point if a policy is implemented.

    Source: "Hiring Hurdle: Finding Workers Who Can Pass a Drug Test," by Jackie Calms, New York Times, May 17, 2016.

    Follow up:
    ---  Can you pass a drug test? 
    ---  Do you think that drug testing should be a part of "blue collar" jobs?  Do you think that drug testing should be a part of managerial positions? Should the drug tests occur randomly or periodically throughout employment? Discuss the pros and cons. 
    ---  How does alcohol use fit into the mix, in your opinion?

        ________________________________       ___________________________________

  • Unlimited water...for a price

      video from 2014, before the Poseidon plant was open

    The desalinization plant in San Diego is now open, and it supplies 10% of the city's water needs. Since the water source is the Pacific Ocean, it is a much more reliable source of water than the imported water that relies on snowpack and rainfall in locations far north. Global warming makes these imported sources less reliable moving forward. Poseidon Water has built this plant and plans to build their next plant between San Diego and Los Angeles, in Huntington Beach. 

    Under present market conditions, however, the price of the purified ocean water is double that of the imported water. Tut the price differential is predicted to diminish and reverse over time. However, another problem exists: some environmental groups oppose the desalinization, because of its impact on the ocean. Poseidon asserts that the impact is minimal. 

    Maintaining an adequate water supply is essential for the economic health of the region, and Poseidon is working with local water management agencies to create sustainable options for coastal regions. 

    This is a snapshot of how the desalinization process works:

        graphic from Mercury News; specific credits within the image

    For desalinization plants powered by solar energy, the environmental impact can be even more meaningful. 

    Source: "San Diego Taps a Bottomless Well: the Pacific Ocean," by Jeff Tyler, Marketplace: American Public Media, May 17, 2016 (print and podcast).

    Follow up
    ---  If you were a consumer in the San Diego area, and you could choose, for as long as you lived in the area, to pick and stay with one source of water (imported or desalinized), which would you choose. Assume that you cannot change your choice, ever. Explain your choice, considering the comparative importance of cost, environmental and other factors by delineating the pros and cons of each choice
    ---  Explain the integration of solar power with the desalinization process. Discuss the profitability potential for merging these processes, according to the linked article pertaining to solar.

        _______________________________          _________________________________

  • Digital purchases: they are not really owned by you

    What can you do with a book or CD that you have physically purchased?  You can loan it to a friend, give it away, sell it, or move it from one bookshelf or CD rack to another without a password.  You can also keep it, without any fear that Barnes and Noble will come into your house and re-possess it. 

    This doesn't hold true with digital purchases. One example of a "repossession" of material occurred in 2009. Amazon erased George Orwell's "Animal Farm" and "1984" from all Kindles because of a copyright problem. In Amazon's defense, they did issue refunds. Nevertheless, if a reader is trying to finish a novel before her book club meets, a refund isn't really want she wants. 

    Consumers are also not allowed to sell or lend their purchases. It is unclear whether consumers can leave their iTunes and Kindle purchases to others in their wills. 

    If you didn't know this, you are not alone. According to the LA Times' David Lazarus, from his interviews with co-authors Aaron Perzanowski and Chris Hoofnagle:

    "A study by Case Western Reserve University School of Law and UC Berkeley finds that 'a sizable percentage of consumers' have no clue about what they're really purchasing when they 'buy' digital content."

    This is a business law problem, since it doesn't seem as though the limited purchase rights are being conveyed clearly to buyers. "Buy now" could be deceptive advertising. The authors of the study are bringing their findings to the Federal Trade Commission.

    Source: "When You Buy Digital Content on Amazon or iTunes, You Don't Exactly Own It," by David Lazarus, Los Angeles Times, May 13, 2016. (Photo above is from that article as well)

    Follow up
    ---  What is the difference between a purchase and a user license?  Read the fine print (all of it) before you check the "I agree" box on your next purchased download. What are you really buying?
    ---  What, according to the article, are the prohibited actions that are usually part of a digital purchase?
    ---  What are your thoughts about this practice? Have you found that it has negatively affected you in any way?

        _______________________________        _________________________________ 

  • Whole Foods to open cheaper "365" markets

      Bloomberg News interviews Walter Robb, one of the CEOs of Whole Foods, via YouTube

    Growth is important to stockholders and investors...and Whole Foods Markets have had trouble in recent years attracting new customers. Organic foods in clean, attractive stores with deli-counter take-out are now available at traditional chain supermarkets like Ralph's and Krogers--even Costco. Habitual Whole Foods shoppers might be accustomed to the high prices there, but new shoppers--particularly millennials--are more responsive to price differences. Whole Foods got the nickname "Whole Paycheck" for a reason.

    Whole Foods is introducing a new, cheaper pricing structure in the upcoming "365" stores. "365" is their in-house "proprietary" label. Nevertheless, not everyone is convinced that this new strategy will succeed. One industry observer, Phil Lempert, had this to say:

    “Frankly, it looks like a 1950s Pantry Pride or Safeway store," he said. "So, I don’t know, once we get in the store whether it’s warm, curated. That’s really going to dictate whether millennials are going to shop there.”

    Others note that the produce might not be quite as premium in appearance, but it still will offer wholesome value. 

    Plenty of rumors have arisen about these 365 stores. Will they have tattoo parlors? Will they have a marijuana dispensary inside? In my neighborhood, Santa Monica, the rumors are a little less far-fetched: Will the new construction on a popular corner be one of these 365 stores? (It is supposed to be the fourth 365 store opened).

    The first store is going to open in Silverlake, an area within Los Angeles.  I can't wait to see one of these stores for myself. 

    Source: "Whole Foods to Launch Cheaper Version in Los Angeles," by Andy Uhler, Marketplace: American Public Media, May 12, 2016.
    Additional 365 link above to the NYT

    Follow up:
    ---  What market niche has Whole Foods occupied up to this point?  Why are they thinking of changing up their pricing? What is the downside of this new strategy? Is there any way to mitigate possible problems?
    ---  Read the New York Times article linked at "365" stores above.  List how the 365 stores will differ from the original Whole Foods.

        _______________________________      _________________________________ 

  • Bill Gates' funds sue for common stockholder rights

      image, Bill & Melinda Gates Foundation, which is funded by the foundation trust

    Two basic common stockholder rights are: 1) one share, one vote; and 2) a pro-rata distribution of profits based on shares owned. These principles can be compromised, however, when special classes of stock exist. This is the case with Sika, a Switzerland-based company in which Bill Gates' Foundation Trust and Gates' personal fund, Cascade Investment, have investments. Both entities' portfolios are managed by a third party, Michael Larson. 

    The descendants of Sika's founding family, the Burkards, own 16% of the company. However, special rights give them a "controlling interest," which normally means more than 50% of the shares. These family members decided to sell their stock to a French company, Cie de Saint-Gobain, at 1.8 times the market value of the stock. Cie de Saint-Gobain declined to purchase any of the stock owned by non-family stockholders. Gates' funds, representing a 5% share, were part of this group excluded from the sale and the profits. 

    Gates' funds have joined forces with Columbia Threadneedle and Fidelity International--two European-based companies--to represent their interests in court. Several Swiss laws and exceptions make this case complicated and the outcome murky. For starters, this case is comprised of four separate law suits.

    Bill Gates stated his position in principle at a shareholder meeting:

    "If this were only about money we could have sold our shares and moved on...[but it is instead about] the rule of law trumping individual greed and ensuring respect for the shareholder protections put in place by previous generations of the Burkard family."

    We'll see how this case plays out.

    Source: "How Bill Gates Became Embroiled in a Swiss Shareholder Fight," by Steven Davidoff Solomon, New York Times DealBook, May 10, 2016.

    Follow up
    ---  Check out the links above that relate to the foundation. How are the investment entities structured vis-a-vis the Foundation itself? How does Bill Gates fit into this structure?
    ---  What other companies have two classes of stock, where one group (often a founding family) has rights that subvert the rights of common stockholders?
    ---  Who do you want to win this battle? Why? 

        _______________________________       _________________________________


  • Sustainability Plus

      NBC Nightly News, May 2, 2016, via You Tube

    The sustainability movement axiom is "Repair, Reuse and Recycle." But a new word has been coined that combines all three: "Upcycle." In this process, new products that have value-added properties are created from goods that would otherwise be discarded. 

    The video above depicts a crayon upcycling project. Used crayons (that a restaurant owner provides to distract kids while they are waiting for their meals) are collected and sorted by color. They are then combined to make brand-new crayons that are given to a children's hospital. 

    Children not only outgrow their fascination with crayons, but they also grow tired of the used or broken crayons in an older collection, and convince their parents to buy  a new box. The used crayons could also be collected and become part of a bigger upcycling operation--maybe even with a profitable application. 

    Source: "Upcycled Old Crayons Bring Simple Comfort To Patients At Children’s Hospital," by Emerald Pellet, Little Things, May 6, 2016, and the NBC Nightly News video above.

    Follow up:
    ---  Describe the production cycle of the crayon project. Can any of these operations be done more efficiently? Or mechanized? Develop your own improved product manufacturing process for this project.
    ---  To what products has the concept of upcycling already been applied? Which are non-profit and which are part of profit-making operations?
    ---  To what other situations might upcycled products be developed? Can these products be profitable?

        ______________________________        _________________________________ 

  • OxyContin: profit maximization vs. known health safety problems

    All too frequently, there is an investigative news story where a product problem has become publicly known...and it is also discovered that the company producing that product knew of the problem months or years before the public reveal. Business decisions were made to continue to accrue profits from the products, while hiding the problem from public scrutiny and outrage. Some examples of this behavior include the Ford Pinto gas tank problem, the cancer issues with cigarette smoking, the General Motors ignition switch problems, and the Takata airbag issue currently in the news. 

    The story of Purdue Pharmaceuticals and OxyContin is particularly relevant now, when the federal government has stepped in to regulate the sale of all opiate pain killers, due to the escalating number of deaths from abuse and overdoses. Here is how OxyContin's part in this crisis has been particularly insidious, according the the LA Times: OxyContin marketed itself as a 12-hour medication--an improvement over medications that had to be taken every 4-or 6-hours. The problem was--it didn't actually last for 12 hours in many (if not most) patients--and as the medication wore off, real symptoms of withdrawal would be experienced. 

    To avoid these symptoms (an understandable choice), patients would take their medications early, and therefore more frequently, taking the first steps on the road to self-medication and addiction. 

    Did Purdue Pharma know about this problem? Yes. But the popularity of the drug--as well as the increased demand--meant higher profits. Purdue opted not to disclose the problem--and lose its market edge as a "twice-a-day" medication. Profits superseded public health as a value. 

    Purdue Pharma did have a response to the LA Times article. They shifted the blame to the FDA.

    Source: "'You want a description of hell?': OxyContin's 12-hour problem,'" by Harriet Ryan, Lisa Girion, and Scott Glover, Los Angeles Times, May 5, 2016.

    Follow up
    ---  Read the article. When Purdue Pharmaceuticals became aware that OxyContin's pain relief effects were not lasting 12 hours for many patients, what action did they tell their pharmaceutical reps to take? What this motivation for this decision? What was the result?
    ---  Imagine and describe two OTHER courses of action that Purdue Pharmaceuticals could have taken in this situation. What motivations would underlie the choice to pursue either of those courses of action? What may have been the positive and negative outcomes of those choices?
    ---  Do businesses have a responsibility to protect the public interest in matters of health (or life-and-death)? Do businesses have a responsibility to put profits and stockholders' interests first? Explain your position.

        ______________________________          ______________________________ 

  • Mark Twain deals with poor money management skills

    Just because a person is great at something doesn't mean they will become rich because of their gifts. Investing prudently is important. Mark Twain had serious trouble in the money department--he invested in a series of ideas that went nowhere. Twain lost hundreds of thousands of invested dollars (millions, adjusted for inflation). He could have used a course in financial literacy.

    But as a creative person, he came up with a scheme using his own talents to pull himself out of debt in his sixties. He embarked on a comedy tour, which is described in the book, “Chasing the Last Laugh: Mark Twain’s Raucous and Redemptive Round-the-World Comedy Tour” by Richard Zacks.  

    We all have to do what we have to do to survive...

    Source: "The Adventures of Mark Twain's Debt," by Jordan Holman, [podcast], Marketplace American Public Media, May 6, 2016. 

    Follow up:
    ---  Listen to the podcast linked above. List the failed investments made by Twain, and describe how he ended up financially.
    ---  What jobs or entrepreneurial activities have you taken on to make ends meet? What is your financial plan for the future?
    ---  Research the finances of other famous authors...or athletes...or any successful public figure.
    ---  Take the linked course in financial literacy.

       _______________________________         ________________________________


  • Crooked Scoreboard: Sports analysis start-up with depth and humor

    Crooked Scoreboard is an online blog-a-zine with a different approach to sports coverage. Instead of focusing on box scores and statistics, Crooked Scoreboard's niche encompasses psychology, culture, commentary and humor. One of its brief features is "Loser of the Week," which can highlight both bad behavior and bad luck. Other articles, such as "Baseball and Sisyphus: Repetition Brings Focus and Purpose," can be more literary and inspirational. 

    The philosophy of its private equity investor is to give the site a "long runway" to develop its online presence and penetration. The success arc of this original and important concept is envisioned on a five-year plan rather than a one- or two-year plan. Monetizing is not the immediate priority--establishing the website's presence as meaningful, in-depth and entertaining is a primary goal. 

    The entrepreneurs behind Crooked Scoreboard developed this mission statement:

    "Crooked Scoreboard was founded in February 2014, a humble three-man operation based out of Washington DC (much like the Redskins’ offensive line). The site relaunched in October 2015 as a sportswriting collective, featuring over 20 writers, comedians, cartoonists, and journalists from around the United States.

    Simply put, so many people in sports media have been telling the same old stories for too long. We want to be different. Sometimes we’ll be funny, other times we’ll be serious. But no matter what we’re up to, we want to be memorable in ways that a certain company headquartered in Connecticut often isn’t."

    Sources: "Loser of the week: Pablo Sandoval," by Nate Koehler and Dustin Petzold (and other material from the website), crookedscoreboard.com, April 4, 2016.
    panel discussion (Editor-in-Chief Dustin Petzold and others, hosted by Paul Shirley) at Writers Blok, May 3, 2016.

    Follow up
    ---  Check out the whole menu on the website. Evaluate the layout and content. How is it different from other sports websites?
    ---  To what demographic do you think this website might appeal? What additions to the site would you suggest to round out its coverage?
    ---  To what company in Connecticut does the mission statement refer? What is the mission of that company?

        _______________________________       __________________________________

  • Resurgence in junk bonds raises the question: What is a junk bond?

    Following up on the Michael Milken story from an earlier post, Paddy Hirsch explains junk bonds in a straightforward way in the video above. It is a helpful refresher, since the junk bond market seems to be in resurgence. According the the Financial Times:

    The record move into junk bond funds, which buy debt from companies rated double B plus or lower by one of the major rating agencies, has buoyed prices and sent yields lower. Yields fall when bond prices rise.

    Junk bond yields slid to 8.73 per cent [in March 2016] from a recent high of 10.1 per cent hit in mid-February, when a global market sell-off reduced new bond issuance to a trickle.

    In contrast, Treasury bond rates for 3 month to 1 year terms have been less than 1% for more than a year. But with the greater reward of the junk bonds, there comes a much higher risk of default on the bonds.

    Sources: "What is a junk bond?" by Paddy Hirsch, Marketplace Whiteboard, American Public Media, December 16, 2011.
    "Investors Pile Into Junk Bond Funds, by Eric Platt, Financial Times, via CNBC news, March 4, 2016.

    Follow up:
    ---  Explain junk bonds in your own words. 
    ---  Why is there a resurgence in junk bond popularity?
      ________________________________   ___________________________________

  • Michael Milken's long influence over investment banking

     The Insider Trading Scandal That Nearly Destroyed Wall Street (1991)

    Michael Milken is an infamous business figure who made headlines in the 1980's and 1990's. First, he was praised for being one of the smartest guys in the room--creating a market for junk bonds by creating shell companies and issuing bonds to pay for the stock in an existing company. The bonds were "junk" because they were risky--since the new company was over-leveraged--it had too much bond debt relative to its assets. But risky bonds had a higher interest yield, and big time investors had come to expect double-digit yields during the inflationary early 1980's, creating a market for these bonds. Michael Milken took advantage of it. 

    Milken ventured into the criminal realm (insider trading and misappropriation of client funds), for which he served a prison term. He was also barred from the investing business. His company, Drexel Burnham Lambert, declared bankruptcy shortly thereafter, but his co-workers and subordinates used their Drexel contacts to create other private equity firms that are thriving today. A few of these firms and their principals are: 
    ---  Leonard Green & Partners: Peter Nolan and Jonathan Sokoloff
    ---  Turner Impact Capital: Bobby Turner
    ---  Ares Management: Antony Ressler
    ---  Crescent Capital: Mark Attanasio
    ---  TCW: Jess Ravich
    ---  Moelis & Co.: Ken Moelis

    Milken, meanwhile, has become a medical research philanthropist, but it hasn't stopped his foundation from setting up the Milken Institute Global Conference. His former colleagues will be part of this gathering. I wonder what they will be talking about...

    Source: "Junk bond king Michael Milken looms large in L.A. finance industry," by James Rufus Koren, Los Angeles Times, May 1, 2016. 

    Follow up:
    ---  Do a synopsis of Michael Milken's life, beginning in the 1980's. How do you think he has managed to maintain his wealth, having been barred for life from investment banking?
    ---  What are some of the companies backed by these investment firms?
       ________________________________   ___________________________________

  • Creamy yogurt...and rich employees

       clip from NBC Nightly News

    This week, Chobani yogurt founder, Hamdi Ulukaya, turned over about 10% of his company to his employees--a little over 2,000 of them. The ownership portion was distributed based on the length of employment; Chobani was started in 2005. Since the company is currently valued at around $5 billion, this is a $500 million give-away.

    It seems as though this is quite generous. But Ulukaya stands to benefit as well, since employee-owners tend to work harder and provide more added value over the long term (See the Forbes article and ESOP article linked below).

    Tech start-ups are known for this type of employee incentive program, but it does not happen much in food businesses. In any event, employees stand to actually see the benefit from this stock redistribution when there is an IPO or an outside buyer. 

    Sources: "At Chobani, Now It's Not Just the Yogurt That's Rich," by Stephanie Strom, New York Times, April 26, 2016.
    additional background from Forbes.

    Follow up:
    ---  What other companies have employee profit-sharing plans? Which are structured as bonuses, and which are structured as ownership (stock)?
    ---  Read this linked article that provides background about Employee Stock Ownership Plans (ESOPS). What are some of the pros and cons of employee-owned businesses--for the business and for the employees? 

        _________________________________        ___________________________________