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How Obama plans to tax the biggest banks

Mon, 2015-01-19 11:11

President Obama will address both houses of Congress and the American people Tuesday to discuss the State of the Union.

The address is expected to touch on tax reform, including new tax credits for families with two working parents; bigger, simpler tax credits for child care, college and retirement; and a plan to pay for it all with higher taxes on what the administration calls the "wealthiest." That includes the wealthiest people, with tax hikes on capital gains and inheritances, but also the wealthiest financial institutions: Those with at least $50 billion in assets.

More specifically, it's a tax on bank debt. Stanford professor of economics and finance Anat Admati explains this could help push back perverse incentives in the current tax code, which encourage banks to do business with borrowed money. But it's an approach that has been proposed before, as recently as 2010 when it was called the "Financial Crisis Responsibility Fee." It failed back then, and Joel Slemrod, professor of economics and director of the Office of Tax Policy Research at the University of Michigan, says with Republicans in charge of Congress, it doesn't have a chance.


Momentum builds to repeal medical device tax

Mon, 2015-01-19 11:09

In Washington, momentum may be building to repeal an important funding source for the Affordable Care Act – a 2.3 percent sales tax on an array of medical devices – everything from surgical gloves to artificial joints.

The industry has raised an army to battle the provision on Capitol Hill and spent more than $200 million since 2008 on the effort.

The manufacturers’ campaign is just the latest example of why it’s hard to reform an industry that’s crying out for change.

The daily rituals of creative people

Mon, 2015-01-19 05:41

There are only 24 hours in a day, but it sure seems like certain people are able to do way more with their time than the rest of us. Some of us barely have time to do the laundry, while others write plays or compose symphonies. 

Mason Currey writes about 161 creative minds, among them are painters, composers, philosophers and poets, in his book, "Daily Rituals: How Artists Work." He finds that many of these artists and geniuses accomplished so much each day because they used their time wisely and efficiently, and practiced rituals.

"People would find that a certain habit was associated with a period of productivity or great insight and they would often, kind of relentlessly stick to that one ritual in a sort of superstitious fashion believing that it somehow enabled their creativity," Currey says.

PODCAST: The World Economic Forum

Mon, 2015-01-19 03:00

It's the time of year when our January mood is lifted by the notion that other people are having a nice conference near the ski slopes in Switzerland. The annual world economic forum is convening in Davos at a time that the U.S. has been resurgent when other key economies are losing steam. Plus, a conversation with one of America's top entrepreneurs on the challenges that face female CEOs. And later this year, the US and the UK are set to conduct cyber war games with each other. It'll test the hardiness of the financial sector. More on that.

Growth industry: Preparing for a cyber attack

Mon, 2015-01-19 02:00

The U.S. and the U.K. plan to conduct cyber war-game exercises with each other later this year through a staged attack on the financial sector. The move is a first for the two countries even though simulated attacks are used often in private industry when companies concerned about becoming targets of hackers look to bolster their digital defenses. But the goals of businesses and nations differ.

"The government is more interested in infiltration and defensiveness than it is about process or remediation," says Joe Loomis, CEO of CyberSponse.

According to Loomis, the list of things private companies test for during cyber-attack simulations includes deciding what to do first after an attack, figuring out what data should be collected, determining how people in the company will communicate and checking to see if the network is compromised.

While cyber security is a growth industry, not enough businesses are running simulations, Loomis says.

"Companies have been doing terribly because they haven't been testing," says Bruce Schneier, chief technology officer of Co3 Systems. "Companies are realizing that this has been a hole in their security."

Global spending on information security is expected to grow 8 percent this year to $77 billion, according to research firm Gartner. The cost of digital crime is estimated in the hundreds of billions of dollars, according to the Center for Strategic & International Studies in Washington, D.C.

Resurgent U.S. economy to star at global summit

Mon, 2015-01-19 02:00

The global corporate and political elite descend upon Davos, Switzerland, once again Wednesday for the annual economic summit.

This year, much of the talk will focus on the resurgent U.S. economy. The World Bank’s top economist has called it the “single engine” in the global economy.

Still, Adam Posen, president of the Peterson Institute of International Economics in Washington, D.C., says this year the American economy is simply winning a global “least ugly contest.”

Click the media player above to hear more.

Addressing the obstacles facing female CEOs

Mon, 2015-01-19 02:00

From time to time, one of America's top entrepreneurs stops in — Jules Pieri is CEO of the Grommet, a site that helps launch other companies' new products.

Pieri joined us to talk about obstacles facing female CEOs; why they suffer higher rates of depression, and how to combat the statistic.

Click the media player above to hear more.

Davos participants gather amidst turmoil and growth

Mon, 2015-01-19 02:00

The global corporate and political elite descend upon Davos once again Wednesday, for the annual economic summit.

This year, much of the talk will focus on the resurgent U.S. economy. The World Bank’s top economist has called it the “single engine” in the global economy.

Still, Adam Posen, president of the Peterson Institute of International Economics, says this year the American economy is simply winning a global “least ugly contest.”

Click the media player above to hear more.

So, who's behind the online black market Silk Road?

Mon, 2015-01-19 02:00

Ross Ulbricht, the alleged mastermind behind Silk Road — the online marketplace that used bitcoin for transactions — is on trial this week. Ulbricht’s defense: he was set up by the real Dread Pirate Roberts or DPR, the site’s mysterious founder and administrator.

Who would that be? Mark Karpeles, according to the defense. That’s the former owner of Mt. Gox, a bitcoin exchange that went bankrupt in 2014.

Sarah Jeong, a tech policy journalist who has been writing about the case, says the defense is leaning on the fact that Karpeles had been a prime suspect at one point. She also says Jared Der-Yeghiayan, the agent from the Department of Homeland Security who arrested Ulbricht, is the one who suspected Karpeles.

Ulbricht doesn’t deny that he was involved. In fact, when he was arrested, he was logged into Silk Road on the account “Mastermind,” which showed the site’s finances in detail. But the defense is now claiming Ulbricht founded the site only as “an economic experiment," and that he later “handed it over to others” who lured him back to take the fall.

“The timeline is very odd,” says Jeong. “The same DHS agent who helped arrest Ross, who was undercover as a Silk Road moderator ... less than two months before he participated in arresting Ross Ulbricht, he swore in an affidavit that he had probable cause to believe that Mark Karpeles, the CEO of Mt. Gox was Dread Pirate Roberts. That is really strange.”

States play catch-up with sand mining

Mon, 2015-01-19 02:00

Fracking for oil and gas consumes about 100 billion pounds of sand every year, much of it from a few Midwestern states. The sand industry has grown faster than regulators can keep up in Wisconsin, which has more sand mines than any other state. Fines for pollution are modest, many mines have not received full inspections, and the state has failed to update its permit for sand mines, even though the old terms expired last year.

In December 2013, the Wisconsin Department of Justice settled its biggest case involving pollution from a sand mine. A company called Preferred Sands admitted to multiple air and water-pollution violations at a site in Trempealeau County. Most vividly, after a spring storm, discharge from the Preferred site went across a road and into a nearby home.

“This sort of mass of sandy, sludgy stuff literally went through an Amish family’s living room,” recalls Pat Malone, a University of Wisconsin Cooperative Extension professor who works with local government. “I mean, it’s like waking up in the middle of the night going, ‘I don’t think I’d like to swim!’”

Six inches of discharge blocked the road. Workers spent three days clearing it. But given sand mining’s scale, the fine doesn’t seem very big: $200,000. Six months after the settlement, an investment firm put $680 million into Preferred Sands.

The pace of inspections appears slow. The state Department of Natural Resources says that at last count, just 37 percent of all active mines had gotten full inspections since mid-2013. It hopes to inspect the rest by July.

State Senator Kathleen Vinehout represents Trempealeau County. Asked if she thinks the state is understaffed, she says, “That is an understatement. The state is woefully understaffed.”

The department has enough people, says Deb Dix, who describes herself as the contact person for industrial sand mining at the DNR. However, she says, the state can’t do everything some people would like.

“We are governed by the authority given to us by the legislature,” she says. “I know, that sounds like trying-to-avoid, but it’s not. We have certain authorities for what we can and can’t do.”

One of the department’s responsibilities is to review the terms of permits for sand mines. The most recent terms predate the frac sand explosion — they were written for gravel pits — and staff decided to rewrite them, says Water Division Administrator Russ Rasmussen.

Meanwhile, the old ones expired last spring. New rules haven’t come out yet, but the department has issued some permits under the old ones; an arrangement that Rasmussen describes as “a gray legal area.”


Inviting a cyber attack

Mon, 2015-01-19 02:00

The U.S. and the U.K. plan to conduct cyber war game exercises with each other later this year with a staged attack on the financial sector. It's the first time the two countries have conducted such an exercise, but simulated attacks are used often in private industry where companies concerned about becoming targets of hackers look to bolster their digital defenses. But the goals of businesses and nations differ.

"The government is more interested in infiltration and defensiveness than it is about process or remediation," says Joe Loomis, CEO of CyberSponse.

Loomis says among the things private companies test when they run cyber attack simulations are: "As soon as you're attacked, what are you going to do first ... what data are you going to collect ... how are we going to communicate ... if the network's compromised."

While cyber security is an industry in growth mode, Loomis says there are still not enough businesses running simulations.

"Companies have been doing terribly because they haven't been testing," says Bruce Schneier, Chief Technology Officer Co3 Systems. "So, I think companies are realizing that this has been a hole in their security."

Global spending on all information security is expected to grow eight percent this year to $77 billion, according to research firm Gartner. The cost of digital crime is estimated in the hundreds of billions of dollars, according to the Center for Strategic & International Studies.

When owning an apartment means paying $13,000 a foot

Mon, 2015-01-19 01:30
1 percent

According to anti-poverty charity Oxfam, the wealthiest 1 percent will soon own more than the rest of the world's population. As the BBC reports, the findings coincide with the start of the World Economic Forum in Davos.

76 percent

The portion of Americans who count protecting the country from terrorism as a top priority in the new year, according to a new survey from Pew, neck-and-neck with improving the economy. That's a marked change from last year, which pegged job creation and the economy as the top priorities by far.

50,000 jobs

Travis Kalanick, chief executive of Uber Technologies Inc. stated that his company would add 50,000 jobs to the European economy this year, taking 400,000 cars off the road in the process. As reported by the WSJ, Kalanick's comments at the Digital Design Life conference come at a time when Uber is facing major obstacles in entering the European market.


The year the Model Municipal Traffic Ordinance was created, providing a template for the regulation of roads nationwide. Most notably, the suggested model included laws against jaywalking, which were pushed through by the automotive industry. Vox has the full secret history of the petty law that ceded control of the road.

100 billion pounds

That's how many pounds of sand are used for oil and gas fracking every year, much of it from the Midwest. And in states like Wisconsin, mines often go uninspected, fines are modest, and some rules have lapsed.


That's about how many U.S. malls have a vacancy over 10 percent, a problem number that turns into an all-out "death spiral" by 40 percent. The New York Times has a fascinating look at the way malls die and the strangely beautiful husks that are becoming more common.

$100 million

New York City is notorious for expensive real estate, but the market for pricey apartments just got more ridiculous. A penthouse at One57, a luxury high rise, recently sold for a record breaking $100 million dollars. As Quartz reports, the previous record was held by Ekaterina Rybolovleva, the daughter of a Russian fertilizer billionaire, who paid $88 million for an apartment in 2012.

A quasi-healthy job market for 2015

Fri, 2015-01-16 14:56

The economy is now consistently producing more than 250,000 jobs per month. Unemployment hit 10 percent at the pit of the recession, but it has now fallen to 5.6 percent – and there's no reason to think it won't keep  improving for a while.

Yet the labor market still has some pain points: Long-term unemployment is higher than at any time since World War II, millions are not even looking for work and real wages are stagnant for most Americans.

Still, it's hard to call it a "sick" or "still-recovering" economy with unemployment this low and job-creation this strong.

"Unfortunately, for many, the purpose of work is survival," says William Rodgers, a Rutgers University economist who studies the changing American workforce. The economy  is producing too many jobs that pay the bare minimum, Rodgers says, and don't offer a way up the economic ladder. Work should offer more, he says.

"If we're creating workplaces where people aren't paid enough to meet their families' needs, aren't able to enjoy themselves, be creative – that's lower productivity, that's lower economic growth," Rodgers says. 

The post-recession employment landscape has been fundamentally altered because of the financial crisis, labor-saving technology and perpetual corporate cost-cutting, according to Susan Lambert, a University of Chicago professor of social work. 

One key change, Lambert says: the rise of part-time low-paid jobs, often temporary, with unpredictable schedules and too few hours. She says this "just in time" type of staffing is spreading in retail, manufacturing, academia, journalism and beyond.

"People have a greater sense of insecurity," says Lambert. "It makes it very difficult for people with unpredictable, unstable schedules to maintain employment. Because at some point often they have to decide: their kids or their job."

But these employment trends are not some post-recession "new normal," counters Douglas Holtz-Eakin, an economist with the American Action Forum.

"The degree to which the world is fundamentally different – this gets floated about every five years, and it's always overstated to a great extent," Holtz-Eakin says. "A very bad recession and financial crisis didn't change the fundamentals of how economies grow and the way people benefit from economic growth." 

Maybe Obama should just 'Shake it Off'

Fri, 2015-01-16 13:33

It's a time-honored Washington tradition – the president's rivals offer rebuttals to the State of the Union before the president has even delivered it. That's even easier this year, because the president has spent the last few days previewing his speech as he introduces new policy proposals at events across the country.

House Speaker John Boehner attacked Obama's "free college" proposal in a novel way this morning, in an email with this subject line: "12 Taylor Swift GIFs for you."

He used a different GIF of Taylor Swift to illustrate his argument that the presidents plan will cost taxpayers too much money. 

You can find the whole list here.


Apparently John Boehner is a Taylor Swift fan.



Poor children, a new majority in public schools

Fri, 2015-01-16 12:57

We’ve passed a sobering milestone in this country. For the first time in at least 50 years, the majority of students in public schools are considered poor. That’s according to a new report from the Southern Education Foundation, which found that more than half of students in 2013 qualified for free and reduced-price lunch at school – a widely-used, if imperfect, measure of poverty.

“This is a defining moment,” says Steve Suitts, vice president of the foundation.

We tend to think of poverty as a problem concentrated in rural areas or the inner city, he says. Those boundaries are falling away.

“Even in the suburbs, low-income students are now 40% of the student population in the public schools,” Suitts says. “It’s everyone’s problem.”

Google stops Glass production, at least for now

Fri, 2015-01-16 12:32

Google announced that it will stop the production of Google Glass … but is this the end for the glasses or the beginning of something bigger? Marketplace Tech host Ben Johnson shares his thoughts.

“This is the perfect example of how Google’s design and product philosophy can fail,” says Johnson. “The company had this kind of incredible idea of augmented reality where you could put data in front of you sort of while you’re going through life. And we’ve been imagining this since, what, the first Terminator movie?”

When Google Glass came out, it wasn’t a fully developed product. Google delivered the technology, tethered it to your phone and expected people to make stuff for it. It was controversial, expensive and raised concerns about privacy. “I think it was a misstep for the company," Johnson says, "I think they should have developed it in-house, as Apple would have done.

"I mean, think about Steve Jobs when he released the iPhone. That piece of hardware was so perfectly finished. It was ready for prime time and everybody who touched it became an evangelist," Johnson says. "Everybody who touched the Glass did not become an evangelist, and I think that was part of the problem for the company.”

Although production is stopping, Johnson believes the technology is here to stay and will transform as Tony Fadell from the home automation company Nest takes over Google Glass.



Free shipping a boon for Alaska's Amazon customers

Fri, 2015-01-16 12:24

With online retail taking a bigger chunk out of brick-and-mortar businesses, shipping and fulfillment services are becoming a commodity in their own right. How fast can you get it to my doorstep?

One place you might not expect online retail to be turning into a way of life, though, is rural Alaska.

"We're good for a couple weeks,” said Betsy Brennan after opening up a box with a few dozen rolls of toilet paper. Brennan works at a radio station in Nome, three blocks from the Bering Sea, and hundreds of miles from Alaska’s road system. She has an auto-order set up through online retail giant Amazon’s Prime service so that office essentials like paper towels, printer cartridges, and coffee arrive regularly by mail.

Prime’s popularity is exploding across rural Alaska because of the free shipping that comes with the $99 annual subscription fee. Brennan set up her household account two years ago for things one could easily take for granted in places that are accessible by road. 

“Really heavy items like flour,” she explained. “All kinds of food items that we pay a lot more for locally. Or very similar.”

For thrifty shoppers with discretionary income, the most cost-effective way of running a household used to be loading up on supplies at wholesale stores in Anchorage, then mailing them back home, or packing them into checked bags on commercial flights.

For Brennan and others, the service is a huge time-saver, and that is a big part of the appeal for placing online orders. “It comes, many times, right to your doorstep.”

Prime also does not charge anything extra for heavy items, even if they may not be eligible for two-day delivery. “We had a friend that ordered a wood-splitter through Amazon Prime,” Brennan said matter-of-factly, “a fairly heavy item." She summarized a few other orders from around town: dozens of bags of potting soil, bird-seed, and a $1,200 grill. A local sled-dog racer had even started ordering pallets of dog food.

Amazon is not a shipper itself. Instead, it takes advantage of where the U.S. Postal Service and freight companies already go. In doing so, it is bringing eCommerce further into markets where it has not had much of a foothold. For example, Unalakleet, 145 miles from Nome (by air), with around 700 residents, including Jeff Erickson, who has been using Amazon more and more over the last six years.

Recently, he ordered a mattress. “Three days later I hear somebody struggling up my stairs, and it's the UPS boy who's dropping it off,” Erickson recounted, sitting near a window in the library of Unalakleet’s one school.

He was disappointed because the box was smaller than he had expected, and he figured there had been a mix up with the order. Luckily, Erickson hauled the package up to his bedroom before opening it. “I got my knife out, made a tiny split in it, and all the sudden I had an instant California King-sized mattress that exploded in my face,” he says.

Overall, Erickson estimates he gets about 30 percent more purchasing power for all shipping fees that are no longer an expense. Before finding out his mattress was eligible for Prime shipping, he was prepared to bite the bullet and pay six or seven hundred dollars in freight fees. At $99, Prime is a bargain for rural customers.

Both Erickson and Brennan think that if Amazon knew what a steal they were getting, the company would put an end to Prime. 

But others disagree.

"Amazon is incredibly data-savvy,” explained R.J. Hottovy, a senior eCommerce analyst for research firm Morningstar. “I am absolutely sure they see higher penetration rates in rural markets, and I think part of that is by design.” Hottovy thinks the company is trying to build customer loyalty, and has decided it is worth losing money right now on mattresses and wood-splitters if that means recruiting long-term users.

Plus, Prime entices customers with free shipping to get them to use ancillary services like music and video streaming. Although that is not the case in Unalakleet, where 3G service only became available last month. We just suffer with bandwidth and speed issues out here,” said Erickson. “We're using Amazon Prime for the free shipping."

For the bargain-hunters out there eager to get the most bang for your buck, I recommend buying the JET 20x80 Geared Head Engine Lathe. It may cost $23,999 and weigh 8,514 pounds, but the price for having it mailed to your doorstep if you're a Prime member? Zero.

Fun fact Friday: Millions #TBT to their MySpace days

Fri, 2015-01-16 11:47

Leigh Gallagher with Fortune Magazine, and Sudeep Reddy with the Wall Street Journal talk with David Gura about the week's top stories. 

What else did we learn this week?

Fun fact: 50.6 million people still visit MySpace each month.

Thanks, millennial nostalgia. MySpace's most trafficked day of the week is Thursday due to people trying to find their old pictures to post on Instagram for “Throwback Thursday” or #TBT. 

Marketplace Tech's Silicon Tally quiz discussed this fun fact and others, including one about a glitter delivery service.

Silicon Tally: Et tu, glitter? Fun fact: The $2 bill has a historically dirty reputation: It’s the standard bet at a racetrack, often the amount of a political bribe and used to be standard payment for a lady of the night.

Coming soon: An entire documentary about $2 bills.

Why are there so few $2 bills? Fun fact: Sylvester Stallone is the actor who has the most Golden Raspberry nominations, which recognize the year’s worst in film. He's gotten 30.

Apparently he’s not a fan of the awards show, but they’re not a fan of him either.

The Razzies: Lampooning Hollywood for 35 years Fun fact: 30 to 35 percent of water pumped through the pipelines of utilities worldwide is lost to leaks and bursts.

The leaks add up to about 8.6 trillion gallons of water lost worldwide each year.

'Smart' devices used to hunt for water leaks Fun fact: “Wake me up” by Avicii is the most Shazam’d song of all time with 15 million-plus Shazams and counting.

At least someone is benefiting from that incessant earworm.

Shazam CEO: Introducing visual 'Shazaming'

Swiss move on franc catches currency brokers off guard

Fri, 2015-01-16 11:42

Fallout continues from the Swiss National Bank’s decision to stop pegging its currency to the euro. As the franc rapidly rose in value, many investors were caught off guard and suffered large loses.

In many cases, those trades were heavily leveraged, meaning customers might have to put down only a small percentage of the trade's value as a deposit. If they can’t pay their losses, their brokerage firms will be left holding the bag in some cases – and a handful are now raising zn alarm about their own financial health, says Boris Schlossberg of BK Asset Management.

Outside of brokerages and some financial institutions, don't expect the franc’s ripple effect to spread very far, says Nick Bennenbroek, head of foreign exchange strategy at Wells Fargo. However, in situations like this, uncertainty in one market can spread to others, and volatile exchange rates can be problematic for companies operating across multiple currencies, says Kevin Jacques, a professor at Baldwin Wallace University and former Treasury official.


Major health care player gets ready to retire

Fri, 2015-01-16 11:09

The most important person in health care you've never heard of said Friday she plans to retire next month. Marilyn Tavenner runs the Centers for Medicare and Medicaid Services and oversees those two giant health care programs. What makes her job so important? To borrow a phrase from E.F. Hutton – when CMS talks, people listen. Why? 

The usual: money and power.