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How will Puerto Rico's poor economy affect you?

Fri, 2014-07-25 16:51

For the first time in more than a decade, lawmakers in Puerto Rico balanced their budget. And during the past ten years, the US territory has had a rough economic go: A major recession hampered state revenues, while a major crackdown on the drug trade along the U.S. border pushed much of the trafficking (and violence) into Puerto Rico. The combination of a lingering recession and an influx of drugs has led to the highest murder rate in the U.S. – almost six times higher than the national average.

It’s also led some analysts to call Puerto Rico “the New Detroit.”

That got us wondering if the balanced budget is an indicator of brighter days ahead for the Puerto Rico. And if you’re thinking at this point, “who cares about some small, tropical island?” we’ll ask you: “Do you have mutual funds?”

Puerto Rico is one of the largest issuers of bonds in the U.S. And because of a preferred tax status granted to the commonwealth, Puerto Rico’s bonds end up in many portfolios. We wanted to find out whether Puerto Rico is, indeed, the new Detroit, so we spoke with the President of Maglan Capital,

An app that combats texting while driving accidents

Fri, 2014-07-25 16:46

Kids, you gotta start looking up. It’s never been a more dangerous time to be a pedestrian, in large part, because people are no longer looking where they’re walking. Instead, they keep their eyes fixed on their mobile phones, because a broken leg or a shattered clavicle is totally worth keeping up to the minute tabs on what your FB friends are eating, drinking, or how they’re dressing their pets.

In this installment of Tech IRL, Lizzie and Marketplace’s Tech Ben Johnson walk around Manhattan to spotlight new technology that is supposed to help mobile-phone caused pedestrian and motorist accidents.

Weekend Brunch: Health care, global income inequality, and how to dress well

Fri, 2014-07-25 16:41

Linette Lopez, Wall Street editor for Business Insider, and Ben Walsh, online editor for Reuters, discuss the week's news and what's on their plate in the upcoming week. 

Get prepped for your own brunch:

Reuters: Obamacare's circuitious path

New York Times/The Upshot: Income Inequality Is Not Rising Globally. It's Falling.

Business Insider: 18 Things Every Man Should Take Out Of His Closet And Burn

Have red light cameras reached the end of the road?

Fri, 2014-07-25 13:56

Chicago Mayor Rahm Emanuel has announced at least 9,000 drivers will get a second chance to appeal $100 tickets issued by red light cameras. The Mayor’s decision follows a Chicago Tribune report documenting periods where some cameras generated huge, sudden and completely inexplicable spikes in tickets.

For years, red light camera hatred grew almost as fast as the number of cities using them. Until around 2012, when the number of programs actually started to drop, according to data from the Insurance Institute for Highway Safety. The initial promise — safer streets and more city revenue — no longer seemed so promising.

Jeff Brandes, a Republican state senator from Florida, proposed a bill that would have put some limits on red light cameras there. Among other things, he was alarmed by media reports showing that after some local governments put in red light cameras, they also shortened the time for yellow lights

“Well, reducing yellow light timing has never been shown to be safer,” he says. “But it has been shown to generate a lot more red light camera revenue.”  

A state report he requested did show revenue going up year-by-year. His poster child was a mom who just missed a yellow light on a rainy day. He says no cop would’ve written her a ticket.

“You know, there’s a human factor to law enforcement,” says Brandes. “And we’re taking that out.”

Of course drivers hate the gotcha-every-time factor, says Joseph Schofer, a professor of civil and environmental engineering professor at Northwestern University. “From the perspective of the driver, you’ve really taken away my margin,” he says.  “I can’t push it a little bit and get away with it.”

Schofer also thinks there’s an upside, if cities want people to run fewer red lights, but he recognizes that the money creates a conflict of interest.

“If you’re doing this to make money, set up a tollbooth,” he says. “Then it becomes more transparent.  We know what you’re doing.”

There’s also a question about how well the cameras work. Some studies have shown that when red light cameras go in, rear-end crashes go up.

However, researchers who favor red light cameras have an answer for that one. Anne McCartt is Senior Vice President for Research at the Insurance Institute for Highway Safety. She cites a study by the National Highway Traffic Safety Administration:

“While rear-end crashes went up, the more serious right-angle crashes went down by a greater extent,” she says. “So there was an overall net safety benefit.”

The Florida study that Jeff Brandes requested showed the same thing. And fewer T-bone crashes generally means fewer deaths.

Amazon makes a lot of money. But it still loses more.

Fri, 2014-07-25 13:49

Amazon has developed a kind of parlor trick of not making a profit, despite the fact that it has gobs of revenue coming in.

The online retailing giant announced Thursday that its revenues soared to $20 billion in the second quarter. But high costs pushed it into the red. It lost $126 million.

"That in and of itself is quite a feat - to be able to crank up the spending machine to that degree," says Colin Gillis, senior technology analyst with BGC Financial.

Gillis says Amazon invests aggressively in many areas: E-commerce, its own smartphone, TV shows and web services like document sharing.

But Gillis and others wonder when Amazon, which has snubbed short-term profitability as a longer-term business strategy, is going to shift gears.

"If they shouldn't be valued based on profitability, what should they be valued based on?" asks Sucharita Mulpuru, a retail analyst at Forrester Research.

Mulpuru points out that other tech giants like Google and Facebook do turn in big profits even as they spend on innovation. Just yesterday, Facebook announced a second quarter profit of $800 million.

Mulpuru says Amazon is frittering money away with steep subsidies of shipping costs for stuff customers buy from its website.

But RJ Hottovy, an e-commerce analyst with Morningstar, says Amazon is building a lot of brand loyalty along the way.

"Really it's important to lock in those consumers and give them less of a reason to shop elsewhere," he notes.

Hottovy thinks Amazon's strategy will eventually pay off. But for now, the company is projecting up to $800 million in operating losses for the current quarter.

Want to shop like a pro? Buy generic

Fri, 2014-07-25 13:10

A new study from the University of Chicago and a university in the Netherlands asked who's more likely to spend a little extra for name brands. The conclusion? Professionals don't seem to care if what they're using is generic.

"More informed consumers are less likely to pay extra to buy national brands," the study says.

For example, pharmacists buy generic asprin 90 percent of the time.

The same's true with salt and sugar. It turns out chefs like to go generic too; they devote 12 percent less of their purchases to national brands than demographically similar non-chefs.

Who gets a healthcare rebate? 4 questions answered

Fri, 2014-07-25 13:07

This week the U.S. Department of Health and Human Services announced that nearly 7 million consumers would receive $330 million in refunds from health insurers.  

Under the Affordable Care Act, the carriers must spend 80 cents of every dollar in premiums towards medical care or steps to improve healthcare quality.

That leaves 20 cents for things like salaries, bonuses and other administrative costs.

This provision of the ACA is often called the 80/20 rule.

Q. What’s the reason for the 80/20 rule?

Kaiser Family Foundation Senior Vice President Larry Levitt was pretty succinct when he said “this is really a protection against insurers trying to gouge people.”

When Obamacare architects were designing the law, they wanted to make sure most of the money consumers spent on premiums would actually be dedicated to medical care.

While Levitt says 80/20 was a late addition to the legislation, he believes it’s actually changing the nature of the insurance industry.

“It’s in effect putting a cap on overhead and profits and that’s a pretty dramatic step that I don’t think people fully appreciate,” says Levitt.

Q. I’ve paid my premiums and haven’t visited the doctor once this year. Will I see some money in my mailbox soon?

It depends.

The only way someone qualifies for a rebate is if the particular insurance plan you’ve enrolled in falls short of the 80/20 ratio.

If you’re enrolled in an insurance policy that meets the target, you won’t be getting a check any time soon.

If you get coverage at work, your company gets the refund, or a credit towards next year’s coverage.

Q. How is this rule impacting insurance companies?

When the 80/20 rule began in 2011, insurers paid out more than $1 billion in rebates. This year it’s a third that much.

Matthew Eyles with Avalere Health says the industry has clearly figured out how to calculate their expenses and how money they’ll spend providing medical coverage.

“This is almost pixie dust really if you think about the amount of premiums that insurers collect in hundreds of billions,” he says.

Under this new system there is little incentive for insurers to inflate premium prices, particularly on the health exchanges.

If prices are too high, not only are consumers less likely to buy those plans, insures know they’ll have to return profits at the end of the year.

In that regard, Kaiser’s Larry Levitt says insurers are becoming more like public utilities.

“Insurers still have some flexibility in how they design these products. But an insurance policy is a much more standardized product. And the pricing is much more regimented as well,” he says.

Q. If insurers can’t make as much off of premiums, are they finding new ways to make profits?

HealthLeaders-InterStudy analyst Paula Wade says insurers can make up any lost revenue by increasing deductibles, co-pays and other out-of-pocket expenses consumers face.

“If you look at the how the major insurers are doing, they are doing very well,” she says.

“I wouldn’t lose any sleep worrying about their profits.”

Booming markets haven't translated to big profits on Wall Street

Fri, 2014-07-25 12:29

Markets have been setting records pretty much every other week for months, investors are making record money... and Wall Street?

Well, it’s looking a little lean.

"I think it’s really tough, even for people who are really good at it, to be honest," says Jesse Marrus, president of StreetID, a financial careers service. He says jobs on Wall Street have been drying up. "It’s definitely an ‘eat what you kill’ business, so there are people losing their positions in that space."

Why is there less of a killing to be made for Wall Street workers? 

"Trading volumes are way lower than they were," explains Max Wolff, chief economist at Citizen VC. Trading volumes - a.k.a. how many trades are done per day - is where Wall Street makes its money. Fewer trades mean a lot fewer commissions. Trading volume has been really low since the financial crisis. Last year, the number of trades was a third lower than it was in 2009.

A big reason for the low trading volume is the low level of investor enthusiasm. "It's no secret that this is one of the world’s most hated rallies," says Wolff. "It’s been pretty clear that the markets got well ahead of the macroeconomic health of the U.S. and they've stayed there. And everyone kept waiting for this correction that didn’t come and slowly, begrudgingly people jumped on board, because they couldn’t afford just to watch other people make money forever. But they didn’t believe in it and they definitely don’t want to catch the elevator ride down that everyone’s afraid may come."

So investors are putting their money in the markets and leaving it there: They’re not buying a hot new stock or selling it off based on a hot tip. Instead, they’re buying and holding. "For there to be trades, there have to be differences of opinion," says Lawrence White, a professor of Economics at the NYU Stern School of Business. "Somebody has to think, 'It’s a good time to buy!' and somebody else has to think, 'It’s a good time to sell!' When trading volumes are lower, it just means there’s less diversity of opinion, more consensus."

All of that consensus has had a very chilling impact on Wall Street. "It’s really alarming for the people who are in the broker/dealer seats that really rely on the trading volumes," says Marrus. "Despite the record highs, it’s still really hard for them to make the commissions that they were making and make the livings that they were making because the volume’s low and the volatilities are so low."

But even if volatility and volume come back, Wall Street workers probably won't be back to the good old days. Electronic trading has replaced brokers and traders to a large extent and the future Wall Street broker will probably look a lot more like Hal than a power player in a pin-striped suit.

Secretary of Agriculture Tom Vilsack on rural America

Fri, 2014-07-25 11:21

The Agricultural Act of 2014 – also known as the Farm Bill – was passed by Congress earlier this year. We talked with Secretary Tom Vilsack of the U.S. Department of Agriculture about what he thinks should happen next:

On agricultural business in rural America:

“I think it’s important for the folks to understand that there’s great profit opportunity and business opportunity in rural America. We’re about 75 percent of the land mass in the United States. The vast majority of America is located in rural areas. It’s where most of our food comes from, a lot of our water. So there’s an importance to this place and that’s why I think it’s worthy of attention and worthy of investment.”

Vilsack says we need to think more about agricultural products beyond food and fuel. He also said the infrastructure needs of rural America are well documented and need improvement:

“The American Society of Civil Engineers suggests that our infrastructure would rank a D+ - well, that’s not good enough for us to be competitive in a global economy.”

Rural America has had a hard time bouncing back from the recession. He says this bill will supply for jobs in that area:

“There are a lot of people looking for work that maybe have a community college education, maybe a high school education. These construction jobs, these trade jobs are great opportunities for them to rebuild the middle class.”

'Ace' Greenberg and the rise (and fall) of Bear Stearns

Fri, 2014-07-25 10:21

Alan “Ace” Greenberg, who rose from a Bear Stearns clerk in 1949 to become the firm’s CEO in 1978, died Friday at 86. The cause was complications from cancer.

When he joined the investment bank, it was a little, scrappy company. It rose to become one of the industry’s biggest, but never lost its outsider image, until it nearly collapsed in 2008. JPMorganChase acquired the company at a bargain basement price, in one of the first moves of the impending financial crisis. 

Ace Greenberg came from another era of Wall Streeters. He had no Ivy League degree. He was born in Kansas, and he grew up in Oklahoma. 

“He liked to gamble, he liked magic, he liked bridge, and, of course, the only way to legally gamble at that time was to go to Wall Street,” says William D. Cohan, author of “House of Cards, A Tale of Hubris and Wretched Excess on Wall Street,” a book that chronicles the fall of Bear Stearns.

During his career, Greenberg’s trades made a lot of money, and by 1978, he was the boss, instilling in the company a culture both of risk taking and frugality, reusing envelopes and giving new employees welcome packets with a note and some supplies. 

As former Bear Stearns trader Lee Munson remembers it, the note said, “You have 50 rubber bands and a box of paper clips, and use them wisely throughout your career at Bear Stearns because you’re not going to get any more.”

Greenberg stepped aside as CEO in 1993, making way for his successor, James Cayne. He had first met Cayne playing bridge.

“Bridgeplaying was the Facebook of their time,” says Cohan. 

As Bear Stearns was starting to unravel in 2007, Cohan says Cayne was in communicado at a bridge tournament. And, he says Greenberg developed a grudge against his former friend and successor for driving the firm into the ground.

“That, of course, ignores Ace’s role in it because Ace was part of the firm’s DNA,” Cohan says. 

Greenberg was on the executive committee when the firm was sold to JPMorganChase. Greenberg told host Kai Ryssdal on this program in 2010 that he didn’t have much influence by that point. 

“I did what I could. I tried as hard as I could. Kai, you have to understand that I was a very very small shareholder of Bear Stearns during this period,” Greenberg said. 

He told “Marketplace” that what he regretted most were all the Bear Stearns workers who lost their jobs in 2008.

CEOs get paid a ton, Mary Poppins makes almost none

Fri, 2014-07-25 10:00

As the song goes, "Just a spoonful of sugar makes the medicine go down!" That is, unless you're getting paid the federal minimum wage like Mary Poppins.

Or, rather, Kristen Bell as Mary Poppins in a Funny or Die video poking fun at how difficult it is to live on $7.25 an hour:

Mary Poppins Quits with Kristen Bell from Funny Or Die

Aside from lamenting that she has to buy her own birds (from Mexico, apparently), Poppins points out the irony of CEOs' growing paychecks, while she can't even live above the poverty line. Our own Paddy Hirsch has a video on this phenomenon. He doesn't sing:

Can't this British nanny catch a break? Or at least get a new umbrella?

PODCAST: Starbucks' big ideas

Fri, 2014-07-25 03:00

Continuing Marketplace's "Big Ideas" series, Starbucks CEO Howard Schultz stops by to talk about the principles that guide the coffee company's strategy. Hear the full interview in today's mid-day update.

Launching a reusable spacecraft

Fri, 2014-07-25 02:00

Private space transport company SpaceX announced a notable success recently: it soft-landed a Falcon 9 rocket in the Atlantic Ocean after it successfuly re-entered earth's atmosphere.

It's a significant development in that spacecrafts tend to be only good for one-time use. SpaceX president and COO Gwynne Shotwell is someone who's looking closely at space travel in the future. She says the next step in the evolution of space travel is rapid and complete reusability:

"What would air travel look like if airplanes were thrown out after each flight? No one would be flying in airplanes. We want to be able to re-use rapidly, just like an airplane."

It's a process that Shotwell thinks is inevitable, and in a lot of ways, just makes logical sense:

"From my perspective, it's really risk management, to ensure that humans have the ability to go somewhere else in case there were to be some huge disaster on earth."

Click the media player above to hear SpaceX president and COO Gwynne Shotwell in conversation with Marketplace Tech host Ben Johnson.

 

CORRECTION: An earlier version of this story incorrectly spelled Gwynne Shotwell's name. The text has been corrected.

4 ways Starbucks CEO Howard Schultz puts employees 1st

Fri, 2014-07-25 02:00

Howard Schultz believes in ensuring his company's success not only in front of the counter with consumers, but also behind it, with his employees.

Schultz is the chairman, president and CEO of Starbucks. He first joined the company in 1982 as the director of operations and marketing. At the time, Starbucks had been around a little over a decade, and was a young company with only four stores. A little more than three decades later, the company has established itself as what Schultz calls "the ultimate purveyor of coffee" with close to 21,000 stores in more than 65 countries.

Schultz's big idea has been to make the people who work for him a priority.

In an interview with Marketplace Morning Report Host David Brancaccio, Schultz shared his belief that a company's responsibility extends beyond ensuring that profits for its shareholders. He says the people who work for companies like Starbucks deserve to be taken care of.

He shared with us four ways he has made his employees a priority in ways that have bolstered Starbucks' success

Idea: Doing the right thing for your people and the communities you serve will ensure greater success for the company.

"I feel strongly that we have demonstrated that we are a performance driven company and organization by providing significant shareholder value," he says.

Schultz realizes that company profits aren't the only way to measure success:

"At the same time, we have done all this through the lens of humanity and that's what I'm most proud of and that's what I believe businesses should be."

Idea: Investing in the education of your employees benefits everyone — the employee and the company.

Schultz and Starbucks recently made headlines by announcing they were partnering with Arizona State University to offer to their employees a four-year college degree at a reduced cost.

"Our responsibility as a company is to recognize that if we could provide a free college education to our employees," he says, "it would help our company and it would help them professionally and personally."

Idea : The status quo is not good enough for a company trying to build a long term, enduring business.

Schultz places a premium on innovation, calling it the key to long-term growth and sustainability.

"The status quo just is not going to be good enough," he says. "We have to push for self-renewal and reinvention and at the heart of that, at the core of that, is innovation.

So, how do you encourage innovation? The answer leads us to Schultz's last big idea....

Idea: Stay curious. Have the courage and conviction to make big bets.

And Schultz should know... He signed a deal with Oprah Winfrey that has the media mogul producing a special line of tea for Starbucks. It's the kind of big bet that most brands could only dream about. One thing is for sure, no matter how much success Starbucks achieves, it hasn't stopped Schultz from planning the company's next move.

"I'm still looking around corners and I'm still trying to put Starbucks in a position to surprise and delight our customers and I think innovation has been the core reason behind our success."

No easy solutions for child migrant crisis

Fri, 2014-07-25 02:00

President Obama is set to meet with the Presidents of Honduras, Guatemala and El Salvador Friday to talk about the influx of young migrants crossing our borders. Officials estimate 57,000 have made it to the US since late last year -- Most are teenagers. It’s a big increase over years past.  

The unaccompanied children come to flee poverty, gangs, and drug cartels. There are more migrants than cots for them to sleep on.   

“There’s lots more that can be done to beef up border enforcement. But the real long term solution is to address the main drivers of migration,” says Cindy Arnson, director of the Latin American program at the Woodrow Wilson Center.  

Those drivers include ineffective institutions, poor security, and lack of opportunity. 

The President has asked Congress for $3.7 billion to deal with the immediate issue. Most of that appropriation would go to border enforcement and immigration courts. 

Arnson expects Latin American leaders to say the U.S. has a shared responsibility in solving the crisis.

“The smart answer to this situation is to address the root causes in a sustained and smart way with foreign policy and economic policy,” says Karen Musalo, director of the Center for Gender and Refugee Studies at the UC Hastings College of the Law. 

She hopes the conversation is candid and honest between the leaders.

But it’s up to Congress to decide whether it will approve anything at all before it heads off for Summer recess. 

Silicon Tally: Trash to power

Fri, 2014-07-25 01:00

It's time for Silicon Tally. How well have you kept up with the week in tech news?

This week, we're joined by Marketplace's own Lizzie O'Leary, host of Marketplace Weekend.

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Weekly Wrap: The week that was

Thu, 2014-07-24 23:11

David Gura talked with to Catherine Rampell from the Washington Post and Linette Lopez from Business Insider for a look back at the week’s biggest business news.

Following movie stars all the way to the theater

Thu, 2014-07-24 13:54

Keeping with the tech-heavy theme of the broadcast today, there's a report out from Nielsen saying 87 percent of people on Twitter said their decision to see a movie was influenced by the site. 

Plus, 65 percent of people on Twitter say they follow a film-related account. That is, specific movies, theater chains and actors.

I don't get it. I mean...I get it. But I don't get it.

 

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