The best way to think of an exchange is to imagine a huge swap meet taking place in a supermarket.
Let’s say we’re in a Whole Foods. Anyone can set up a stall, or shop at the store, so long as they’re members.
And there are two types of product for sale on the stalls: There’s the supermarket’s own 365 line, which is always available, and there could be products from other markets, if someone’s selling them. So instead of Whole Foods, think of the New York Stock Exchange.
The NYSE’s name-brand goods are the shares of companies listed on the exchange. Like Bank of America or AT&T. You can always buy or sell those shares: the exchange has arrangements with certain companies to make a market in them. But you might be able to buy Apple or Microsoft there, too, even though they’re listed on another exchange (the Nasdaq).
It’s a bit like being able to buy Trader Joe's pretzels at Whole Foods, or Kroger yogurt at the Safeway.
Some exchanges don’t have any listings. They’re like big supermarkets that sell goods from all sorts of other stores, but have no lines of their own.
The exchanges are all connected, and they’re committed to getting customers the best possible deal. That means an exchange may have to send a buyer or seller to a competitor, if they offer a better deal -- imagine that happening at Whole Foods. That’s the upside to connectedness.
The downside is that if one part of the system fails, the whole thing could be affected. And that could leave us very badly needing a drink.
And some consumers have no problem using that return policy.
Take the couple who filmed themselves returning a wedding gift at a Kohl’s department store in 2011 -- seven years after they were married.
“I’m so embarrassed right now,” the wife says in the YouTube video. “The receipt is like all worn out and everything.”
The cookie maker was unused but so old, the cashier couldn't find it in the system. But because Kohl’s has such a generous return policy, she happily gave the couple store credit.
"Seven years later, $32!” the wife says. “Let's go look in the house goods stuff."
At some stories, shoppers have returned items that were even 40 years old. The problem is that many returns are fraudulent, like products the buyer broke or power tools used for a weekend for construction project and handed back as if unopened.
“It’s a pretty widespread problem,” says Richard Mellor, vice president for loss prevention at the National Retail Federation.
He says a particular concern for retailers is what’s known as “wardrobing,” when someone buys a product, say a prom dress, uses it once and then returns it the next day.
“It’s now affecting just shy of 65 percent of retailers we survey. Back in 2009, it was in the 45 percent range,” Mellor says.
Wardrobing is behind Bloomingdale’s decision to put big black tags on dresses that cost at least $150. The tags are attached in conspicuous places, and Bloomingdale’s won’t accept a return if the tags have been removed.
Wardrobing isn’t limited to clothing, however. Mellor says retailers from construction equipment to electronics complain about the problem. Electronics retailers see spikes in TV and audio-equipment purchases before the Super Bowl, World Series and the Olympics, only to have them returned after the event.
Outdoor equipment retailer REI -- famous for its unlimited return policy -- has changed its policy, capping returns at one year because shoppers were bringing back so many items that the cost was “material to our profits,” according to an REI spokeswoman.
In all, fraudulent returns of all types cost the retail industry $8.8 billion last year.
It’s tempting to blame the recession, but there may be a different explanation in an age where people publicize their use of generous return policies on YouTube or in blogs.
“It’s possible, though far from proven, that other people read or hear about it happening and might say, ‘Let’s do it ourselves,’” says Stephen Barkan, a sociologist at the University of Maine.
Problem is, those copycats ruin return policies for everyone else.
Ride-sharing apps like Lyft, Uber and Sidecar let people hail a ride with their smartphones. And, for a lot of people, they work great -- as long as they don’t mind that their ride might come decked with an ironic moustache on the grill and that the guy driving it is some dude in his own car.
“I like the big, pink moustaches,” says Lisa Schweitzer with the USC Price School of Public Policy, “but I can honestly say no one asks me anything when it comes to matters of taste.”
But when it comes to matters of sustainable transportation, she’s a good person to call. And she thinks these car services make a lot of sense: “You make your request by your iPhone, and all of those transactions about who’s going to take the cab, where are you headed, that’s arranged by virtue of geolocating.” Plus, the payment piece is taken care of online. Not in the cab, awkwardly fumbling for a wallet or trying to calculate a tip.
Until today, the future of these pop-up cabs and cab drivers in California was murky; no one knew for sure if they’d be allowed to keep driving. Today’s vote by the California Public Utilities Commission answers that.
These amateur cabbies are here to stay.
“I think this is quite significant,” says Juan Matute with the UCLA Institute of Transportation Studies.
The new California regulations mean the companies will have to get a license from the state, run background check on drivers, provide training, insurance-- lots of things they say they do already.
It’s a clear win for the up-and-comers. And a loss for old-school cabbies.
“It will be difficult for taxi cab drivers to continue doing exactly what they’ve been doing in the past,” says Matute. Without a monopoly, cabbies are going to have to step up. Improving the way people find them and the quality of the ride.
Today was a day of financial reckoning for JPMorgan Chase over the case of the “London Whale," the nickname given to a trader in the company's London office who was blamed for a $6 billion loss last year. Today, regulators -- the Federal Reserve, the Securities and Exchange Commission (SEC), the Office of the Comptroller of the Currency (OCC), and the United Kingdom’s Financial Conduct Authority (FCA) -- announced JPMorgan will pay $920 million in fines. Based on how fast JPMorgan made money last quarter, that is about 13 days' worth of profit, give or take a few hours.
According to James Cox, Brainerd Currie Professor of Law at Duke University, a lot of that JPMorgan settlement money will help us pay down our federal debt.
“It just goes into the vast sieve called ‘the federal purse,’” he says.
Some money from JPMorgan could end up in your purse or wallet. In a separate settlement with the Consumer Financial Protection Bureau, the company agreed to pay an additional $309 million to credit card customers charged for add-ons they didn’t receive.
Now, not all of the London Whale settlement will go to the Treasury Department. Some $220 million will go to the U.K., and some money could end up with investors.
According to Hillary Sale, the Walter D. Coles Professor of Law at Washington University in St. Louis, the SEC has options.
“The SEC can take money and, instead of putting it into the Treasury, can, at its discretion, figure out how to route that money back to the harmed investors,” she says.
That process could take a while, and so could civil suits. Those could grow because JPMorgan did something today other big financial firms haven’t done: It admitted wrongdoing.
Sale says it seems JPMorgan has anticipated more legal bills. A few weeks ago, the company announced it is building up its legal reserves.
“They also made public that they have hired 3,000 new employees to do legal and compliance work,” Sale says.
Those employees don’t come cheap. JPMorgan has earmarked an extra $1.5 billion to cover litigation costs.
The SEC said JPMorgan Chase broke the cardinal rule of corporate governance regarding the bad bets. Marketplace's David Weinberg says what's most surprising is that JPMorgan Chase admitted wrongdoing.
"That rarely happens in cases like these because it makes it easier for investors to file lawsuits against the bank and that's exactly what they're doing right now to JPMorgan."
In a memo this week, Morgan's CEO Jamie Dimon said the bank has been aggressively bringing in new personnel to beef up auditing and compliance safeguards.
Marketplace's David Weinberg joins Morning Report host David Brancaccio to discuss. Click the audio player above for more.
Looking for a steal on a house? There's a handful of homes in Indiana going on sale for one dollar. But there's a catch. There are strict rules around making sure the houses are fixed up and compliant with city code quickly after you buy the home. They're available to locals in Gary, Indiana -- a city hit hard by the mortgage crisis and the long decline of U.S. steel.
Karen Freeman-Wilson, mayor of Gary, Indiana, joins Marketplace Morning Report host David Brancaccio to discuss.
Click the audio player above to hear more.
Aircraft maker Boeing says it has built the first helicopter that can take off and land without the help from a human. The Unmanned Little Bird helicopter uses a rotating laser scanner on its nose, which pulls in detailed real-time data on what's ahead and what's below the helicopter. Other companies have developed similar helicopters before, but they've been only for use in the military. Boeing's innovation could potentially be useful for more efficient rescue operations and cargo transportation.
Check out the video below to see it in action.
The nation's first inpatient treatment program for Internet addiction opened this month in Bradford, Pennsylvania. It's a ten-day program that involves a thorough search for internet connected devices, a three-day quarantine, and hopefully a cure. There are more and more documented cases of Internet addiction in the United States, affecting everyone from gamers to online gamblers.
Dr. Kimberly Young, director of the treatment program at the Bradford Regional Medical Center, says Internet addiction has taken on a variety of forms throughout the years. In the early 1990s, those addicted to the Internet often found their problems stemmed from too much time spent in online chat rooms and on porn sites. By the late 90s, day trading became a popular source, and as we approached the 2000s, eBay and social media became more popular as places where people got addicted online.
Young says there's still a misconception that Internet addiction is not as serious as other afflictions, like drug and alcohol addiction. But that's a dangerous mentality she says.
"We don't know a lot about [the Internet's] long term impact and effects and if you start too young or if you do it too much, what that's going to mean," she says.
Dr. Kimberly Young, director of the treatment program at the Bradford Regional Medical Center, joins Marketplace Tech host Ben Johnson to discuss. Click on the audio player above to hear more.
A recent federal court decision has ruled that 'liking' something on Facebook is an expression of free speech. The decision overturned a lower court ruling involving a policeman and a local election. Cyrus Farivar, senior business editor at Ars Technica, joins Marketplace Tech host Ben Johnson to discuss.
The Fed’s decision to not trim its $85 billion a month spending on bonds caught nearly everyone on Wall Street by surprise. Bernanke even seemed a bit flustered at the market’s nearly unanimous consensus on the Fed’s plans. So why did the Fed decide not to taper?
The main reason is that the economy isn’t recovering as fast as Bernanke would like. One indicator of that is the housing market which is growing.
“But it’s growth at lower rates of price increase then we’ve seen in recent quarters and years,” says Stuart A. Gabriel, Director of the Ziman Center for Real Estate at UCLA and Professor of Finance at UCLA Anderson School of Management.
Those projections are part of the data that Bernanke’s announcement referred to when he said asset purchases have always been “conditional on the data.” But there is more to the Fed’s decision than just numbers.
“This includes whether we are going to have a government shutdown or whether we are going to settle the national debt ceiling in a sensible way or congress will do something crazy,” says Alan Blinder, a former economic advisor to the Clinton White House.
The Fed would like to see resolution on the fiscal crisis before it makes any big decisions. Whether Congress is sensible or crazy should be evident in the upcoming debt ceiling debate at the end of the month.
This final note on the way out today, in which this time-honored question gets answered: What's the matter with you people whose desks are always messy?
Researchers at the University of Minnesota have been doing some experiments. Apparently, those who work in tidy surroundings tend to be more conscientious and generous as a result of those surroundings; that is, regardless of how they normally act. Those whose desks and offices are a wreck tend to be more creative.
It's all there for the reading in this Sunday's New York Times Magazine.
European stock markets are jumping for joy, surging by more than 1 percent this morning. It’s thanks to the Federal Reserve. Investors have been cheered on by the Fed's announcement that it was not going to start tapering or reducing its monetary stimulus yet.
There had been a widespread expectation that the Fed would cut its bond purchases by at least $10 billion a month. The fact that the bond purchases will go on as before and the flood of cheap money will continue has buoyed up stocks and bonds.
But some financial analysts are not celebrating the extension of this level of stimulus.
“Where do you stop?” asks independent commentater Howard Wheeldon. “Do we reach a period where it’s impossible to stop it and it goes on permanently? I think that would be dangerous.”
The fear is that the continued stimulus will inflate another bubble in the price of houses and shares. Allister Heath, editor of the financial website City A.M., says the Fed’s decision could lead eventually to a catastrophic implosion that would make the crisis of 2007 and 2008 look like a blip.
With just two matches remaining in the qualifying rounds, Mexico is dangerously close to missing out on next year's FIFA World Cup in Brazil -- something that hasn't happened since 1990.
An absence at soccer's grandest stage would create a deep cut in the Mexican economy. During the last World Cup in South Africa, Mexico's team jersey outsold every other country and the team has an ongoing multi-million dollar sponsorship deal with Coca-Cola.
But León Krauze of Univision News says the effect will resonate in America as well. Radio and television stations in the U.S. would suffer a big blow from the loss of ratings and advertising money.
"The Mexican team is a revenue machine for companies on both sides of the border so it would be a tragedy if the team does not qualify for [the World Cup]," says Krauze.
Leon Krauze with Univision's KMEX in Los Angeles joins Marketplace Morning Report host David Brancaccio to discuss.
Publicly traded companies already have to report how much their CEOs earn. The Securities and Exchange Commission now has proposed a rule requiring them to disclose how much more that is than the median employee pay.
The pay-ratio idea gained strength after the financial crisis and was included in the Dodd-Frank financial reform legislation. Companies don’t like pay ratios, saying they’re complicated and expensive to calculate.
That argument has some merit. But even if someone finds an easy way to do the math, companies worry that the resulting rankings -- lumping together very different kinds of businesses -- won’t be fair.
“Retail, supermarkets and things like that, you’re going to have a lot of workers that are paid at a fairly low level. It’s just the nature of that business,” says Dave Larcker, a Stanford professor who studies corporate pay. “That ratio, generally speaking, is going to be quite high.”
A Bloomberg analysis this year showed that JPMorgan Chase and Chipotle Mexican Grill had similar CEO pay packages, about $19 million, but completely different pay ratios: 229:1 and 778:1, respectively. That’s because rank-and-file bankers make a lot more than burrito rollers. (The average multiple for S&P 500 companies was 204, according to Bloomberg, and the pay gap has been rising.)
Whole industries could look bad. But University of Denver law professor Jay Brown says concern about the public images of companies misses the point.
“While maybe other people can take it out of context and use it for different reasons, the reality is securities laws are designed to inform shareholders,” he says. “This information is useful in making an informed decision when they vote on executive compensation.”
Brown thinks pay ratios are most useful not for comparing companies to each other, but viewed over time to track how individual companies change pay packages.
Mark Garrison: Companies say they don’t like pay ratios because they’re complicated and expensive to calculate. There’s some merit to that, but let’s say someone finds an easy way to do the math. Stanford business professor Dave Larcker says the resulting rankings won’t be fair.
Dave Larcker: Retail, supermarkets and things like that, you’re gonna have a lot of workers that are paid at a fairly low level. It’s just the nature of that business. And that ratio, generally speaking is gonna be quite high.
A Bloomberg analysis shows JPMorgan Chase and Chipotle had similar CEO pay, but completely different pay ratios, simply because bankers make a lot more than burrito rollers. Whole industries could look bad. But University of Denver law professor Jay Brown says that worry misses the point.
Jay Brown: While maybe other people can take it out of context and use it for different reasons, the reality is securities laws are designed to inform shareholders and this information is useful in making an informed decision when they vote on executive compensation.
He thinks pay ratios will be helpful as a way to compare how companies change pay packages over time. In New York, I'm Mark Garrison, for Marketplace.
Serious wine drinkers know the best red wine in the world comes from vineyards in southwest France -- the Bordeaux region. But a curious thing has happened to the price of wine from that region.
“The top level wines of Bordeaux went up something like 1,000 percent in about five-six years," says Warwick Ross, a co-creator of the new documentary about the skyrocketing price of Bordeaux wines, “Red Obsession.”
There are a couple of reasons, says Ross, that the price has gone up. There’s the classic issue of supply and demand -- fewer bottles of each vintage exist every year as people drink them.
But five or six years ago -- when that spike happened, the Chinese started buying wine.
“The Chinese are very brand oriented," Ross says. "They want Nike, Louis Vuitton, Hermes and now Bordeaux.”
And some wine-producing chateaus in Bordeaux, like Château Lafite Rothschild, have had particularly good luck with Chinese buyers.
“Those top level Chateaus that pushed the prices of the 2010 vintage to an all time historic high of something like $2,000 a bottle at retail," he says. "They are making a lot of money.”
Ross says there are plenty of good wines at more reasonable budgets but, “if you’ve got the cash,” drinking a Lafite wine is a “pretty amazing experience.”
"Starlight Express," the musical in which actors on roller skates portray toy steam trains, has been running in Bochum, in northwest Germany, for 25 years. It is the world’s longest-running musical production.
Perhaps it’s because Bochum was once a real locomotive of the German economy -- but now Bochum is earning a more dubious distinction. When General Motors shuts its three Opel-brand car plants in the city next year, it will be the first major car factory closure in Germany since the World War II.
"We are very angry about it," says local resident Christophe Schweitzer. "A great number of people will become poor. Not only the 3,500 Opel workers, but people indirectly connected with the General Motors plants. Unemployment will rise. Small shops will close. It will be a great disaster."
Many worry that with unemployment already above 10 percent in the region, the closure of the factory will put Bochum closer to economic ruin.
"Look at Detroit," says Milan Sommer, a 23 year-old trainee at one of the plants. "It's what could happen to our city here. Detroit is a warning for Bochum."
There is no such pessimism at City Hall. City spokesman Tim Froelich says that since coalmining and steelmaking began to decline in the 1970s and 1980s, Bochum has been forging a non-industrial future and it won't be devastated by the General Motors closure.
"Bochum will not be a second Detroit," Froelich says. "The closure will affect our economy but not to a threatening extent."
For instance, the city says it has diversified into health care, internet security and education. Bochum has seven universities with 50,000 students.
Tourism is big, too. There's a planetarium, a zoo and don't forget the "Starlight Express."
"Fourteen million people have seen this beautiful musical," says Mario Schiefelbein, Bochum's tourism chief. "I’m pretty sure there are a couple more million who will want to see Starlight Express.”
Hitching a ride on a foreign musical is hardly a substitute for making cars, however.
"It’s perceived rather as a failure of Opel and its American parent GM," says economist Gustav Horn, who thinks it won't reflect too poorly on the German auot manfuacturing sector. "[Opel and GM] concentrated too much on the European market where things are pretty bad with the Euro crisis.
"Much of the German car industry focused its export effort in high growth markets -- China, Brazil, Mexico, Indonesia -- and they’re doing very well," Horn says.
Businesses rally behind a controversial new set of math and literacy standards, which they view as crucial to preparing an educated workforce.
A huge chunk of immigrant-founded start-ups were developed by Chinese and Indian entrepreneurs. But now a new group is emerging on the scene -- Latinos.
The Federal Open Market Committee has been meeting the past couple of days to talk interest rates. They wrapped up this afternoon with, it must be said, something of a bombshell. There will be no taper today.
That is, no immediate reduction of the Fed's big bond-buying program to keep interest rates low.
The financial media world had expected the annoucement to go the other way, which might have created a bit too much hype about the promise of the taper.
"Guilty as charged," joked the Guardian's Heidi Moore.
"This is courage," she argues. "This is the Federal Reserve confronting the reality of the economy and saying it would be madness to start pulling out stimulus now -- when unemployment is not doing so well; when personal incomes are falling; and when the housing recovery looks soft."
Seemingly bad news, that the economy isn't as recovered as we all though -- except maybe for the stock market, which was way up today.
"We've used that metaphor before of the quantitiave easing stimulus being something like drugs, and the market being like a meth addict," adds Moore. "You can think of the market basically saying, 'Yay, we're going to keep getting more drugs!' because if there has been one thing that QE has done well, it's been to boost the stock market."
If you’ve traveled, you’ve probably noticed those little signs in your hotel room -- about the hotel being "green." Usually those signs say the hotel won’t replace your towels every day unless you leave them on the floor. You might guess that this would save a hotel money, and it does.
But, it turns out, it might also help them win business. Big business.
Take the Aria hotel and casino is Las Vegas. When you walk in, you’ll feel the cool rush of air conditioning. You’ll see the flash, hear the jangle, of slot machines.
You’re not going to notice all the ways the space has been designed to use less energy. Except one. If you stay the night, you’ll have to ask for clean towels. Throwing them on the floor doesn’t count.
“We say, if you want us to wash your towels every day, we will do it, just let us know,” says Cindy Ortega, chief sustainability officer for MGM Resorts, which owns Aria, “but other than that, we’re just going to hang the towels up every night.”
But don’t most people, secretly or not-so-secretly, want clean towels? At the end of the day, are hotels really gaining that much by not changing towels?
The answer is yes. Companies save money with sustainability measures, but going green can also get them business.
At Aria about a third of the hotel’s room revenue comes from conferences and meetings. And before businesses book the space, they’ve got a lot of questions. “Companies like IBM and other big companies, they give us a whole survey that might be two, three, four pages long saying not just do you recycle, what do you recycle,” says Ortega. “It’s a very sophisticated questionnaire.”
IBM asks every supplier it works with, from MGM to the company that makes circuit boards, for an environmental plan. Which is a lot of suppliers.
“We have also said to them that we would like it to cascade down to their own first-tier suppliers, so that way it gets cascaded down the supply chain,” says Wayne Balta, IBM's vice president of environmental affairs.
So, IBM encourages MGM. MGM encourages its vendors. And more and more businesses feel pressure to go green.
According to the Boston Consulting Group, about 70 percent of large companies require their supply chain partners to sign up for certain sustainability practices.
That’s a lot of businesses driving other businesses, with more impact than any individual shoppers have.
Say, for example, that you need paper towels. “You go up to the shelf and look at what product you want and you grab it and you go,” says Howard Connell, director of the Center for Business Strategies for Sustainability at Georgia Tech. “Most people don’t have time to worry about ‘what are the sustainability implications of the choices that I’m making.’”
But a business might be buying a million dollars worth of paper towels. And, says Connell, “the discussion that occurs around that purchase is much more involved.”
There are those detailed questionnaires. Businesses buy more. And they often buy more thoughtfully.
Connell says companies don’t get contracts just because they have a sustainability plan. But it can help.
Which brings us back to those hotel towels, and all those other sustainability initiatives. Maybe you like them. Maybe you don’t. Maybe you don’t notice.
But big business is paying attention. And often, it gets what it wants.
The Forbes 400 is out and the annual write-up on the country’s richest residents still turns heads after more than three decades. But now it’s one of countless lists that go live daily on the web. They’re so ubiquitous that even the Forbes 400 is on a list of the best lists.
And it’s not like the content is all that surprising; Forbes says Bill Gates is the richest man in America again, for the 20th year in a row. So what’s the draw, if not suspense? According to Forbes wealth editor Luisa Kroll, people like to read about people.
“So many of the people at the tops of our lists are behind the companies that we’re buying from. The Walmarts of the world, Microsoft,” Kroll explains.
Advertisers like sharing pages with those companies -- on glossy paper and the web -- but what about readers?
“Well, lists are like cotton candy -- ephemeral but satisfying,” says Sid Holt, chief executive of the American Society of Magazine Editors. “They have an appeal that is so immediate, so grabbing. I don’t know anybody who doesn’t like a list.”
Holt says the list is an important tool for organizing information even if the information is not exactly important. Case in point: besides the 400 list, Forbes on its website also ranks the Top-Earning Dead Celebrities.
The Ultimate List of Lists:
Money: Forbes 400 - Lists the top 400 richest people in the United States.
Influence: Time's 100 Most Influential People in the World - The icons who 'define the world' every year.
Potential: Fortune's 40 Under 40 - The up-and-comers in the world of business.
Beauty: People's 100 Most Beautiful People - Celebrating celebrity beauty.
Style: Vanity Fair's 100 International Best-Dressed List - The most stylish people across the globe.
Generosity: Bloomberg Businessweek's 50 Most Generous Philanthropists - Measuring who's given or pledged the most over the past five years.
Smarts: Wired's Smart List - Fifty people who can change the world in big ways.
Cool: NME's Cool List - An annual list of who's doing the right thing at the right time.
Funny: Rolling Stone's 50 Funniest People Now - Who's making us laugh.
What are we missing? Tweet us @MarketplaceAPM and let us know.