Microsoft has had three CEOs since it was founded in 1975: Bill Gates, Steve Ballmer, and Satya Nadella, who's been on the job eight months now.
As Bethany McLean writes in this month's Vanity Fair magazine, this is a pivotal moment for Microsoft and its leadership as the company shifts focus to cloud computing and mobile devices.
Click the media player above to hear Bethany McLean in conversation with Marketplace's David Gura.
This week, we've gotten good news about the third quarter from Yahoo! Comcast's revenue was up 4 percent. Boeing reported profit up 18 percent. This morning, we've heard from Southwest Airlines and Jet Blue. They both had record earnings last quarter. More on the current state of the markets. And we know what Amazon sells, but how about what the company buys? Analysts say they're going to pay close attention to the company's investments. We take a look at why. Plus Marketplace's economics guy, Chris Farrell, has been thinking a lot about water. How we use it. How we pay for it. And he's been asking himself a lot of questions many consumers don't. More on that.
Amazon announces third quarter results after the closing bell on Thursday, and one thing that analysts may be paying close attention to is Amazon’s investments: how much money Amazon is spending and on what.
"If you traditionally think of Amazon as a retailer, be aware that they’re growing a strong advertising business,” says Colin Gillis, a senior technology analyst and director of research at BGC Financial.
That strong advertising business, Gillis says, is competing with Google. As of 2012, Amazon accounted for about a third of e-commerce searches. Even Google’s Executive Chairman Eric Schmidt says that Amazon is the company’s chief rival in search.
"Google values customers who are searching to purchase products,” Gillis says.
Amazon has captured those customers through aggressive investment into its business. And while Gillis predicts Amazon will announce third quarter revenue of $21 billion, investors will likely not see a penny of that, as Amazon reinvests into more growth.
"The one thing I’d say to look for would be the stock market’s reaction," says Brad Stone, author of the book, "The Everything Store: Jeff Bezos and the Age of Amazon.”
Stone says investors have historically been patient with Amazon as it increased revenue, but spent that money on itself instead of shareholders. But he says that arrangement is a potential source of vulnerability for the company.
"If investors start to waiver, maybe at some point Amazon needs to start providing returns to shareholders, and that means they can’t invest as much in the new business,” says Stone.
And if Amazon can’t invest, it might have less resources for its battle with Google. That battle has grown from search to a number of other areas, including mobile payments, smartphones, same-day shopping delivery, and cloud services.
Mark Zuckerberg is trending across Chinese social media today. Yesterday, the Facebook founder delivered a 30 minute speech in Mandarin at Tsinghua University, known as the MIT of China. Zuckerberg himself told his Chinese audience that his Chinese was terrible — a display of culturally appropriate false modesty to be sure — but his Chinese language skills appeared strained at times.
But this appearance wasn't about Zuckerberg's Chinese language ability. Facebook has had its eye on China for years. Since 2009, the site has been blocked inside of China, inaccessible without a VPN that helps you get over the country’s so-called "Great Firewall." And for a man who wants to connect the world, not having access to a fifth of humanity is a problem. Like every other internet company, Zuckerberg is doing whatever he can to appeal to the Chinese government in the hopes of getting access to the China market.
Does he stand a chance in China?
"At this point, probably not," says Marketplace's Rob Schmitz. "Facebook’s biggest draw is that it puts you in touch with a user base of millions of people with whom you can share any sort of content. China’s government has shown that it’s scared of sites like this because it wants to control the information its citizens have access to, not cede that power to a foreign company that doesn’t self-censor."
Schmitz says if Facebook wanted access to China, it would have to offer some sort of localized censored version that would be cut-off from the rest of the world.
But Zuckerberg deserves a lot of credit for laying his pride on the line. In the world of business, if you’re going to stand any chance with the Chinese, you have to show that you’re willing to invest in Chinese culture and Chinese language. And according to Schmitz, no matter how messy his speech was, Zuckerberg is certainly doing that, and the Chinese are giving him big points for that effort.
Southwest Airlines long ago outgrew its role as a regional discount carrier. But the company continues to grow — this fall, it’s running its first non-stop flights from its Dallas home base to cities like New York, Chicago and Los Angeles — and it has seen some growing pains. Once the leader in on-time performance, Southwest slipped to the bottom last year, and the airline is still working its way back.
Here's what happened: In August 2013, Southwest tried to make some extra money by adding flights without adding new planes. The tighter schedule didn’t work. Lots of delays.
But putting in a new schedule took months because of the airline’s antiquated reservation system.
"They would have had to go in and manually re-book every person," says Brett Snyder, who runs the site The Cranky Flier. "So they said, 'Well, this isn’t really feasible.'"
Because lots of plane tickets get booked months in advance, Southwest had to delay the start of a new, less-aggressive schedule until August of this year. Meanwhile, flights kept running late.
Southwest is still learning how to be a major airline, says Vinay Bhaskara, senior business analyst for Airways News. "They haven’t been this kind of airline for a very long time," he says. "It’s only been about seven years. United, Delta, and American have been that kind of airline for 30, 40 years."
However, Bhaskara thinks Southwest has strengths that will let it keep customers while it sorts things out, like non-stop flights to mid-size cities that don’t get much love from other big airlines, and — for now — no fees for the first two checked bags.
Young adults with degrees are increasingly moving to inner cities, according to a study by City Observatory.Where do college grads, ages 25 to 34, make up the greatest percentage of the total population?
It’s Halloween, so we’re all busy planning what to wear for the annual scary holiday party.
I’m going as the VIX. Why? Because nothing scares the Street like the Fear Index.
Sure, James Carville may insist that the bond market is way more intimidating, but if it’s a short, sharp shock you want, I say you can’t beat the VIX. Just like the Headless Horseman, it gallops in and scares the bejeezus out of everyone with great results: witness the global markets last week. Traders and investors were reduced to a bunch of terrified, shivering jellies when they were told the VIX had soared to a two-year high of 30.
So what is the VIX?
The VIX is the volatility index. Volatility is when something goes up and down. Like my mood. If I’m all happy one day and in a raging fury the next, you might say I have a volatile temper. Not necessarily a bad temper – more mercurial. It’s the same with stocks and the indices that track them. The more up and down they go – the wilder the swings in the market – the more volatile they are, and some smart boffins have worked out how to measure that volatility on an index: the VIX.
So how does the VIX measure volatility?
It does it by taking traders’ temperature. Not literally – that would really be something – rather, it tracks their expectations by watching how they make bets on what they think the S&P 500 index will do over the next 30 days. Using the wonder of math, those bets are crunched in various ways, and then displayed on a graph. If the traders think the market will only be a little bit bumpy, the VIX number will be low. If they fear there will be crazy wild swings, with stocks bouncing up and down like a roller coaster, the VIX number will be high. Hence the Fear Index.
So a high VIX number is bad?
Not necessarily. Think of the markets as the ocean and the VIX as a surf forecast. If the report says we’re going to have double overhead waves, driving rain and five mile-an-hour rip currents, a lot of surfers (like me) are going to stay in bed. Or maybe we’ll go down to the beach, stand on the shore and watch as the more adventurous and professional surfers (nutters) paddle out. Some of those daredevils will rue the day. They’ll come back with broken boards, splintered limbs and shattered dreams. But the really good – or lucky – ones will have an amazing time. Traders are like surfers. When the market is plunging one day and soaring the next, many step out of the market, which is why volume often falls when volatility is high. Most of those who have the nerve to hang in there will be shredded. But a lucky few will make pots of money, buying on the dips and selling on the highs. Like Goldman Sachs, which reported in its latest earnings release that a big chunk of its profits came from trading on the volatility in the markets.
What’s behind this latest bout of volatility?
You can pick your villain. On the downside, you’ve got Ebola, continued conflict in the Middle East, protests in Hong Kong, poor earnings from some select blue chips in the U.S. (GE, IBM), fears of a global slowdown, and worries about the draw-down in government stimulus. On the upside, here in the U.S. you’ve got falling unemployment, rising consumer sentiment, falling oil prices, some great earnings from banks and tech companies, the upcoming holiday season and, of course, the fact that stock prices have fallen recently, creating a buying opportunity.
Sounds dangerous. Should we worried that the end is nigh?
It’s true that the VIX is still at a two-year high, but don’t panic. Breathe in and out of a paper bag and keep saying to yourself, “this too shall pass.” If you’re an individual investor, that means you should leave your stock where it is. Remember that these days you’re not just up against some sleazy dude in a fancy Italian suit and loud suspenders, you’re up against the machines, too. So do the smart thing, and hang out on the beach sipping coffee while you watch the show. Remember, the VIX is just like the Headless Horseman: it gallops through the market, scares the wits out of everyone, and creates a hell of a mess. But the fear never lasts for long, and besides, it usually makes for some great stories.
Along the West Coast, in Oregon, Washington and Alaska, fishermen are hauling in their salmon catches before winter sets in. Wild-caught salmon—the premier varieties of Chinook, Sockeye and Coho—can sell for $15/pound to $25/pound.
This year, that wild salmon has been more abundant, and possibly a bit cheaper, than in recent years. And yet, Google "salmon" and ominous headlines also come up: about this year's severe drought, endangered salmon runs across the western U.S, as well as looming long-term threats from climate change.
“The abundance of salmon that we have is sort of a conundrum to consumers, because they also hear stories about ESA-listed (Endangered Species Act) runs of fish, and that can make it quite confusing." said Stuart Ellis, fish biologist at the Columbia River Inter-Tribal Fish Commission in Portland, Oregon. CRITFC represents several Native American tribes with treaty rights to catch fish and manage hatcheries throughout the Columbia River system, which stretches hundreds of miles from the Oregon-Washington coast, to British Columbia.
Native fisherman Ira Yallup, 45, knows both sides of this story from a lifetime of fishing for salmon in the tributaries of the Columbia River in Washington. In October, he was fishing with friends and family from the Yakama Nation at a traditional site above Lyle Falls on the Klickitat River. The method of fishing has been passed down for generations; the fishermen use dipnets to snag the fish as they make their way upriver, jumping the rapids.
“This is the most fish I've ever seen,” said Yallup, who uses the catch to feed his family, donate to other tribal members, as well as sell to supplement his income as a forester. “This year, with the significant amount of fish that have returned, the price has dropped, because there's an overabundance of fish.” Yallup said he’s been getting between $0.80/pound and $1.50/pound for fresh-caught fish. Prices were higher in the spring before there was as much oversupply.
Stuart Ellis said salmon returns this year to the Columbia River above Bonneville Dam (about 150 miles from the mouth of the river) are higher than at any time since the 1920s. “This year it's going to be a little over 2 million fish total,” he said. “So it's a modern-day record.” Fish returns are believed to have been in the 15-million-plus per year range in the mid-1800s, before dams, agriculture and over-fishing decimated the fish returning to the river.
Alaska has also seen some strong salmon runs so far this year, after a record harvest in 2013. Meanwhile, in California, which is home to another major river system that historically produced large numbers of fish, the situation has been grave this year.
“After this year's drought, millions of salmon would be migrating down the Sacramento River right now. But instead, the salmon are headed for the ocean in a convoy of tanker trucks,” was the headline on a news report in March 2014 on KCRA television in Sacramento. Fish biologists worried that low water levels and high temperatures caused by the multi-year drought were endangering salmon eggs and hatchlings.
Stuart Ellis explains the disconnect in the West Coast salmon’s health this way: favorable ocean conditions over the past few years helped salmon that are now coming back to Pacific Northwest rivers to spawn. The numbers have also been boosted by hatchery-released fish, improvements in fish-passage technology at dams, better water management and habitat restoration.
Meanwhile, disastrous river conditions for eggs and juvenile salmon, caused by the severe drought that has hit the West, and especially California, may kill off some of the fish that would be returning from the ocean in 2017 and beyond.
And long-term problems threaten salmon across the region: habitat loss, water shortages and conflicts with agriculture, dwindling snowpack, climate change.
“Regardless of a consumer's socioeconomic status or ability to buy, we're all concerned global warming could be an issue, we're all aware of these longer-terms problems,” said Kelly Goldsmith, assistant professor of marketing at the Kellogg School of Management at Northwestern University.
Goldsmith studies the interplay of environmental issues and consumer decision-making. She thinks at this point, it is hard for even well-informed foodies to sort through the news and science, as well as environmental labeling programs by groups like the Monterey Bay Aquarium’s Seafood Watch, that certify fish in grocery stores and restaurants as “sustainable.”
“Consumers develop this conditioned response where, ‘if I eat salmon, I'm doing something bad,’” said Goldsmith. “The salmon is delicious, but another element of my consumption experience is, ‘I feel bad, because I know there are only so many left in the river.’ It becomes nearly impossible to know how to do the right thing.”
So far, though, consumers aren’t abandoning wild salmon; quite the contrary. With health concerns increasing, and savvy marketing of wild salmon by fishing groups, consumption has risen over the past decade. So have the prices consumers are willing to pay for their prime salmon steaks and filets.
While there is no such thing as a free lunch, it seems that might hold true for free shipping, too.
Retailers are apt to promote free shipping around the holidays, but online shoppers using Amazon, Best Buy or the Gap will have to spend more money this year.
According to the Wall Street Journal, a customer must spend $82 on average to qualify for free shipping, based on data from July, up from $76 at the same time last year.
The companies claim the increased price is to cover the cost of the service in the first place.Last year, for instance, Amazon spent about $6.64 billion on shipping, but brought in only about $3.1 billion in payments for shipping.
The article also reports customers tend to change their shopping behavior in order to qualify for the free shipping, like adding an extra item to meet the minimum requirement.
Nelson Bunker Hunt, the billionaire oil tycoon who once tried to corner the world's silver market, died yesterday in Dallas at the age of 88. He was an heir to the Hunt oil fortune and at one time, among the richest people on the planet. But a huge bet on the silver market in the late '70s led to a silver craze and a financial debacle.
Hunt's obituary in The Dallas Morning News describes him as an oilman, patriot, horseman, Christian and John Birch Society member, among other things. But in financial circles he and his brother were best known for owning a frighteningly big chunk of the world's silver. They wanted to hedge against raging inflation, they said.
"They bid up the price of silver from $9 an ounce to, at its peak, something like $50 an ounce in January 1980," said John Coffee, a professor at Columbia University.
But when worried regulators set new trading limits on silver, the Hunts couldn't meet a margin call. Silver prices collapsed, they lost over a billion dollars, their lenders were in trouble, and yes, a federal bailout of sorts ensued. Hunt declared bankruptcy – the largest personal bankruptcy in American history.
"It took me probably 30 days to get an organizational chart dealing with probably more than 250 companies that he owned or had an interest in all over the world," said Hunt's bankruptcy lawyer, Russell Munsch, of Munsch, Hardt, Kopf and Harr. The front page of the New York Times on March 28, 1980 with a headline about Silver Thursday and the Hunt brothers. It reads, Silver's Plunge Jolts Hunts' Empire And Brings Turmoil to Wall Street, Fears of Sell-Off of Metal Depress Stock Prices and Pose Threat to Broker.
The front page of the New York Times on March 28, 1980 with a headline about Silver Thursday and the Hunt brothers. It reads, Silver's Plunge Jolts Hunts' Empire And Brings Turmoil to Wall Street, Fears of Sell-Off of Metal Depress Stock Prices and Pose Threat to Broker.
Jeffrey Williams, who wrote "Manipulation on Trial: Economy Analysis and the Hunt Silver Case," says lots of people lost money. But reforms? Not so much.
"The more time has passed," says Williams, who is a professor of agricultural and resource economics at UC-Davis, "the more I'm forced to conclude that the case did not have much effect on the way we regulate commodity markets."
Jim Stone, who chaired the Commodity Futures Trading Commission at the time, today said the silver crisis "nearly torpedoed top financial institutions in much the same way mortgage derivatives did in 2008." The Hunts were highly leveraged, and that problem, Stone says, remains "unfixed" and "the lesson unlearned."
Ottawa was in lockdown after a shooting at the Canadian Parliament building and a war memorial Wednesday morning. A soldier and one suspect were killed, the CBC reported. Details are scarce, but Vox has a summary of what's confirmed and unconfirmed as of late Wednesday morning. Another useful reference: the breaking news consumer's handbook from "On the Media."
As we wait to learn more, here are the stories we're reading — and some numbers we're watching — Wednesday.17
That's how many Pulitzers the Washington Post won under the leadership of Ben Bradlee, who served as editor for 26 years and died Tuesday at age 93. Bradlee lead the Washington Post during the Watergate scandal and the publication of the Pentagon papers, and he's credited with elevating the Post to one of the top newspapers in the country.11 out of 20
According to the Federal Reserve, that's how many banks totally failed to meet the last big chunk of Dodd-Frank rules, in part because they weren’t thorough enough or made mistakes in their reporting. It's why some are turning to a computer program called the Volcker Assistant. It is, for all intents and purposes, like a Turbo Tax for banks trying to comply with financial regulations.40 percent
Four in 10 people surveyed by Pew Research said they've experienced harassment online. A little less than half of those — 18 percent of all Internet users — said that harassment went on longer, or involved physical threats, sexual harassment or stalking.
The giant Russian oil company was bankrupted almost a decade ago after the oligarch owner – Mikhail Khodorkovsky — clashed politically with President Vladimir Putin. Khodorkovksy was stripped of his shares, jailed, and had his company carved up and taken under state control.
Could something similar be happening to Vladimir Yevtushenkov, billionaire owner of telecom, tourism and oil giant Sistema?
Another oligarch – who’s much closer to Putin and runs the state-energy company Rosneft — made Yevtushenkov an offer for his oil interests. Yevtushenkov deemed the offer derisory and refused and is now paying the price. Under house arrest, he’s facing prosecution for fraud and money laundering.
In one crucial respect, Yevtushenkov is very different from the Yukos boss.
“He is widely regarded as a figure who is loyal to the authorities in Russia, he’s never previously stepped out of line.” says John Lough of the Chatham House think tank. “ He’s never criticized the Putin administration to my knowledge. It’s very striking that a figure so loyal to the system, has been put in this situation.”
Lawyer and Kremlin watcher Jamison Firestone is not surprised that Yevtushenkov has fallen foul of President Putin and his close associates.
“He’s got something they want. And they want to take it. It’s pretty simple.” says Firestone. “ Like in the Soviet Union, there is no such thing as private property in Russia today. You own stuff while they allow you to own it.”
Firestone knows more than most about such shenanigans. He fled Moscow after his colleague Sergei Magnitsky died in custody after allegedly uncovering high level corruption.
The attempted asset grab against Yevtushenkov could be an encouraging sign for the West. It could suggest that the EU and U.S. sanctions levied against Russia over Ukraine are biting and the oligarchs are starting to fight over their dwindling assets.
“The pie is no longer growing and therefore the fights over particular portions can become more excessive.’ says Nick Redman of the International Institute for Strategic Studies.
But this may be more than a case of greedy oligarchs squabbling over their loot, with Putin backing a close associate. Lough says Putin many have singled out the unoffending Yevtushenkov for political reasons, and as a preemptive example.
“There are some Russian business people who interpret this as a sign to business from Mr Putin that says : ‘you may be unhappy about what’s happening at the moment with the sanctions, you may be feeling a degree of pain, but don’t think of stepping out of line.’ ”
It’s a risky tactic. It could backfire, claims Firestone, it could alienate all the oligarchs in the outer circle and eventually lead to the President’s toppling. This could be curtains for Putin.
“Most of Russian transitions in power happen the following way: you wake up and “Swan Lake” is playing on every single official channel. And then you know something has happened.” Firestone says. “A few hours later when they figure out the official story somebody gets on TV and tells us who the new leadership is .”
But –after the annexation of Crimea - the Russian leader’s public approval rating soared and now stands at around 80 percent. In contrast, all the oligarchs are universally loathed. So the humbling of Yevtushenkov is likely to be popular with ordinary Russians. It still could be some years before Putin has his “Swan Lake moment”.
Picture a mortgage, and you're likely imagining a down payment of 20 percent of the price of the house.
"I think the 20 percent down payment has become the default, no pun intended," says Jonathan Miller, president of Miller Samuel Real Estate Appraisers and Consultants. "To many homeowners, I think it symbolizes a commitment."
The requirements of Fannie Mae and Freddie Mac — the government-backed entities that support the vast majority of new mortgages — are the most obvious reasons the standard applies today.
"Under Fannie and Freddie's rules, you can get a lower down payment mortgage, but that then requires extra payment in the form of mortgage insurance," says Susan Wachter, professor of real estate and finance at the University of Pennsylvania's Wharton School.
The history of that requirement dates back to the Great Depression. According to Wachter, before the 1930s most mortgages were short-term and non-amortizing: a home buyer had to either pay off the whole house in a lump sum after a few years, or roll over the loan at a new interest rate. Down payments, on the other hand, were typically more than 30 percent.
After the resulting foreclosure crisis and construction halt — similar to what happened after the recent financial crisis — the government created the Federal Housing Administration, which backed mortgages, but required a 20 percent down payment. After World War II, the Department of Veterans Affairs and the FHA adopted a 30-year, fixed-rate standard. By the mid '50s, most mortgages fit that description.
But 30-year, fixed-rate, 20 percent-down loans weren't strictly the result of government-sponsored enterprises, or GSEs.
"When I bought my first home it was $22,000 and I had to put 20 percent down, and it was a conventional loan," says Chris Polychron, president-elect of the National Association of Realtors. "The conventional lenders mimicked what the GSEs did."
Since the 1950s, 20 percent has remained the average down payment — with the exception of the run-up to the financial crisis in 2008. But how did 20 percent become that dividing line in the first place, back in the 1930s? As with so much of our economic life, it’s anybody’s guess.
"I would speculate if you scored 80 percent, you’re a B-minus student, and I guess that means you’re above average," says Miller. "So maybe that has something to do with it."
Johnson & Johnson is the latest pharmaceutical firm to say it will join the race to find a vaccine for Ebola. The firm has even been talking with rival GlaxoSmithKline about ways to collaborate to speed up development.
That urgency speaks to the idea that while the epidemic is well under control in the U.S., it’s out of control in West Africa, where the World Health Organization reports nearly 1,000 people have been infected in just the past week.
“What you are seeing is a collaboration among industry, a collaboration with governments, a collaboration among charities to address what is becoming a horrific public health crisis,” says GSK’s Donna Altenpohl.
Until recently, developing a vaccine wasn’t viewed as lucrative in the industry. But Adel Mahmoud, former President of Merck Vaccines says the power of this virus is persuasive.
“What has changed today is failure of almost all control methods that we now exist,” he says.
Mahmoud says with public health efforts like quarantine and containment falling short it’s now obvious a vaccine is essential. With millions of Africans in need as well as medical workers worldwide, Mahmoud says it’s clear there’s a huge market.
It’s not clear how profitable that market will be. But believe it or not, that’s a secondary concern right now to drug makers, says USC economist Joel Hay.
“They hope if they develop good vaccines they can be compensated at some point. But I don’t think they are doing this out of a profit motive, they are doing it because they believe it’s the right thing to do,” he says.
Certainly down the road, the company that comes up with a vaccine first could score a major public relations win. But right now, Hay says, nobody – including the drug makers – stand to benefit if Ebola spreads beyond West Africa.
“Just think what would happen if people though that airplanes were not safe to fly in. the economy could be devastated very quickly,” he says.
Hay says for pharmaceutical companies in the business of making people better it’s gut check time.
The official rulebook that allows federal employees paid time off has a very long list of legitimate reasons to miss work and still get paid. Perhaps you're donating blood? Maybe an organ? Or you have to go to a Boy or Girl Scout jamboree?
But what if you're accused of a crime or of misbehavior in the workplace, and are in the process of an investigation? In that case, stay home...and still get paid. The total number of workers on paid administrative leave? Well that's a number that the government does not track.
"The real tension point here, I think is that they end up being at home for months, and in many cases years, while their cases are investigated," says Washington Post reporter Lisa Rein.
Listen to the full conversation in the audio player above.
This morning, the U.S. Labor Department released the latest Consumer Price Index. That indicator of inflation was up only slightly. More on that. And banks have about nine months until they'll have to comply with what's called The Volcker Rule. That's the part of Dodd-Frank that's named after Paul Volcker, the former Federal Reserve chairman. The Volcker Rule says banks cannot own hedge funds or invest for their own benefit. They'll have to stick to helping their customers make money. Simple as it may sound, the Volcker Rule is incredibly complex. But banks have a new tool to help them implement it.
Everybody’s focused on the races for Senate seats in the November election. But it turns out more money is being spent on TV ads in gubernatorial races. All you have to do is look at the numbers.
“As of the 9th of October, to date we have about $426 million spent on gubernatorial campaign ads," says Michael Franz, a professor of government at Bowdoin College and co-director of the Wesleyan Media Project, which also tracks spending on TV ads for Senate campaigns this election. Franz says about $337 million has been spent on Senate races — $90 million less than the spending on gubernatorial races.
Why? Franz says the tightest Senate contests are in relatively cheap media markets, like Iowa. But money is also pouring into the governors’ races because of the gridlock in Washington.
“People think governors can get something done," says Allan Lichtman, a history professor at American University. "They have no hope that anything is going to get done in the congress, which has approval ratings lower than Attila the Hun.”
The result? Almost 22,000 TV ads in a recent two-week period, in just the gubernatorial race in Florida.
Donald Lamson points to a red and blue maze on a screen at law firm Shearman and Sterling.
“This is a maze,” says Donald Lamson, a partner at Shearman and Sterling. “It’s a metaphor to reflect the complexity that institutions must go through as they encounter an increasingly bewildering array of regulatory requirements they must deal with.”
Banks have until July 21, 2015, to follow one of those requirements, the Volcker Rule.
That is the part of Dodd-Frank Wall Street Reform and Consumer Protection Act that says banks can’t own hedge funds or invest for their own benefit; they have to stick to just helping their customers make money.
“I wrote the first draft,” Lamson recalls, “which was a page and a half.”
It is not, however, a page and a half anymore.
“The final regulation implementing the Volcker Rule has ballooned to several hundred pages of small type in the federal register,” he says. There are hundreds of footnotes, some of them quite detailed.
50...000 SHADES OF GRAY
There are also a great many gray areas and exceptions for when activities are allowed or not allowed, says Mike Konczal, a fellow with the Roosevelt Institute.
“Volcker and Dodd-Frank wanted to make sure that banks could still do what we want them to do — interact with clients, do market making, buy and sell things for their clients — and what happens is a lot of that activity kind of blurs with proprietary trading,” he says. Another reason the rules have become complicated is that, simply put, a lot of people have sued. The rules have had to become extra detailed to pass scrutiny.
"These rules from Dodd-Frank have come under extensive criticism in the courts,” says Konczal. “We want that kind of scrutiny it’s important to have it, but it’s become so obsessive and so burdensome that it’s actually made the rules a lot clunkier than they need to be.”
SIRI... YOOHOO...OH, SIRI?
For banks with hundreds of billions of dollars in thousands of different funds, compliance is a massive undertaking. This summer, the Federal Reserve said 11 out of 20 banks totally failed to meet the last big chunk of Dodd-Frank rules, in part because they weren’t thorough enough or made mistakes in their reporting. In some instances, some financial institutions had a 70% error rate according to Robert Marks, CEO of Casewise Financial Solutions and Lamson’s business partner.
Lamson and Marks’ solution: a computer program, called the Volcker Assistant. It is, for all intents and purposes, like a Turbo Tax for banks trying to comply with financial regulations.
Step by step, the software leads Lamson — who would in the real world be likely hundreds of different people across a large company from a fund manager on up to an auditor — through an assessment of which investments pass legal muster and which do not. A lawyer signs off at the end.
Once the program figures out whether a bank is following the rules, it remains as “a management tool”, says Lamson — calculating legal exposure based on changing circumstances (a credit downgrade, for example).
There is at least one other such automated legal compliance tool on the market, called the Volcker Portal by firm Davis Polk.
“Software use has just not penetrated in the legal profession as it has in other professions at this point such as banking for example where it really has saturated the space,” says Lamson.
“Lawyers have a way, if they want to, of obfuscating, where the answer to so many questions begins with, 'it depends.' It’s used as a device to preserve options,” he says. “Digitizing and rendering into computer based format removes those options. And as a result, the fear among lawyers is that they will become less relevant to the process when actually they will become even more relevant.”
LAWYERS WILL STILL HAVE JOBS
History may prove Lamson right. One section of law where digital tools have penetrated more successfully is in discovery — searching through documents for evidence before a law suit gets going. Highly sophisticated algorithmic tools that could search documents better and faster began gaining prominence several years ago, and raised the specter of lawyers losing jobs to software programs.
“Just a few years ago, we had hyperbolic headlines of ‘will computers replace your lawyer?’ and there seemed to be a fear among lawyers of technology and what it might do to the legal profession,” says David Horrigan, an analyst and counsel for information governance at 451 Research. That fear has not come to pass, he says. “That fear is still the case with a lot of lawyers, but a lot of law firms are embracing it,” he says.
Teams of junior lawyers may not be digging through boxes of paper as they once did, but lawyers are still needed to work with the data and legal questions that digital tools raise.
“The law is changing,” says Horrigan. “But as far as trying a case you’re not gonna see Watson before the Supreme Court any time soon.”
A report from the U.S. Government Accountability Office says that lifting 40-year-old restrictions on exporting U.S. crude oil could drive down gasoline prices at home. The idea is that more oil on the world market means lower prices.
However, the report was written more than a month ago — That is, before world oil prices, and U.S. gasoline prices, went down sharply on their own. It's worth asking if those declines change the equation.
In a way, U.S. crude is already affecting world markets, by reducing U.S. imports. That leaves oil exporters like Nigeria looking for takers and lowering their prices. So, do world markets really want U.S. crude right now?
"Nobody can be certain," says energy consultant Geoffrey Styles. "We’re really exploring new territory here. The new crudes that have brought all this about came to the market when prices were pretty high. These are not-inexpensive crudes to get out of the ground."
So, it might not be worthwhile for U.S. drillers to increase production if world prices stay low.
Which is still an if.
"I don’t think anyone knows what the price of oil will be in a year," says Michael Levi, senior fellow for energy and the environment at the Council on Foreign Relations. "The big news in the oil markets is not just lower prices — it’s the return of volatility, and volatility works in both directions."
Either way, it’s not an argument for keeping the export ban. "In the worst case," he says, "relaxing the ban doesn't do anything."
Women with bachelor's degrees in the humanities earn less than men in other majors, according to a report by the American Academy of Arts and Sciences.