Marketplace - American Public Media

Why is it so hard to cut Pentagon spending?

Wed, 2014-01-15 03:46

Initially the budget agreement would curbs pension increases for all military retirees under age 62.  Instead of keeping up with inflation, pensions would rise by one percent less than the inflation rate.  But disabled veterans were accidentally included. Everyone agreed they should be exempt from the cuts.  And at the last minute, veterans’ survivors were also exempted. 

Retired colonel Mike Barron is a lobbyist for the Military Officers Association of America.  He says nobody’s pension should be cut.

"It’s very unfair, and it’s harmful," he explains. "It’s a breach of faith.”

And the lobbying is effective. The Pentagon runs into a brick wall in Congress, even when it tries to make minor cutbacks in personnel.  

Lawrence Korb is a former assistant defense secretary for manpower. He says the military is straying away from its core mission.

"We’re going to be like General Motors or something," he says. "We’re going to spend more and more on people who used to make things rather than people making them now."

Meanwhile, the cost of military pay and benefits has doubled over the past ten years. 

The Fed: Cash cow or sitting duck?

Wed, 2014-01-15 03:10

The price of gold has plummeted over the last year and that's been putting the squeeze on the Swiss Bank, which holds quite a bit of it. Now, the Swiss National Bank can't pay a dividend to shareholders. 

At the U.S. Federal Reserve, the issue is less about gold and more about all the bonds that it has been buying for its portfolio -- and those aren't collapsing. But what about the longer term trend?

Allan Sloan, senior editor at large of Fortune Magazine, joins Marketplace Morning Report host David Brancaccio to discuss. 

Bringing the long-term unemployed back to the office

Wed, 2014-01-15 02:57

President Obama's visit to Raleigh, N.C., Wednesday to discuss the economy comes a day after the U.S. Senate failed to advance a plan restoring jobless benefits for the long-term unemployed. 

Those workers, who've been without a job for six months, number roughly 3.8 million. Russ Lane of Durham is one of them. He left a newspaper job six years ago to take care of a sick family member, and he says he hasn’t had steady work since -- no matter what companies think of his resume.

"If the paper doesn’t look exactly as they so choose," he says, "they’ll make their decisions."

William Dickens of Northeastern University says if you’re qualified and recently unemployed, you have about 10 to 20 percent chance of landing an interview for a job. 

"Compared to after six months, you have somewhere in the range of a one to two percent chance of being called in for a job," he says.

Dickens commends the President for calling on CEOs to give the long-term unemployed a shot. Many companies just weed them out electronically. Michael Strain of the American Enterprise Institute has his own ideas, including using unemployment insurance to help pay people to move to places where there are jobs. 

"It may make sense to say, hey, we’ll cut you a check and help you move to, say, North Dakota where there are a lot of jobs for truck drivers," he says.

Strain also thinks a lower minimum wage might entice companies to take a chance on these workers, though he doesn’t expect the president to take him up on that idea. 

The World Bank has a sunny forecast for the year

Wed, 2014-01-15 01:48

The World Bank thinks 2014 is going to be a good year for many global economies. Last year's 2.4 percent growth could increase to 3.2 percent this year. 

The BBC's economics correspondent Andrew Walker joins Marketplace Morning Report host David Brancaccio to discuss the report and the speculation that swirled around the Fed's tapering. 

This is not your grandfather's tin foil hat...

Wed, 2014-01-15 01:21

Tin foil hats just got way more interesting. Italian designers made a hat, a collar and a visor that look fancy but also serve a classic tinfoil hat purpose. The accessories actually work to ward off neuroimaging surveillance.

If a brain scan is detected, the device will distract the wearer for a second to scramble their brain activity and protect their privacy. How? In one case, by hitting the wearer with an electric shock.

Small price to pay for protecting your privacy for a millisecond? 

Anti-NIS Accessories from Caitlin Morris on Vimeo.

Why the medical testing biz is like Gucci handbags

Wed, 2014-01-15 01:15

You'd think with millions of new patients coming on under the Affordable Care Act - many who haven’t seen a doctor in years, and need lots of tests - lab owners would be drooling over their microscopes.

There will definitely be more tests done.

Physicians like Penn Medicine internist Dr. Michael Cirigliano says he will order tests for cholesterol, kidney and thyroid function among others for a new patient

“Because you are like snow with no footprints in it. I don’t know where you are coming from. I don’t know where I stand with you,” he says.

But that doesn’t mean lab owners are hunting for second homes in Hawaii.

“It’s not a great time to be involved in this industry,” says Dennis Weissman, a medical lab consultant. “Laboratory revenues did see a decline in 2013, for the first time since I’ve been following this industry for 35 years.”

Even with a small bump from new ACA patients, a report from market research firm G2 Intelligence predicts the $75 billion industry will continue to slow down through 2015.

Why? Shrinking reimbursements from both the federal government and private insurers.

Dan Mendelson with consulting company Avalere Health,  says the industry’s economics are changing.

“It’s getting less expensive for lab companies to do the routine tests. And the federal government wants a part of that action,” he says.

To protect their businesses, labs like Quest and LabCorp are moving beyond that routine work. 

Richard Nicholson who runs West Pacific Medical Lab in southern California says the money is in the more sophisticated, specialized tests, like cancer tumor profiling and pediatric sequencing for genetic disorders.

“It’s like selling a Gucci purse vs. a purse at JC Penny. They sell less of them, but they make more money,” he says.

Dr. Eleanor Herriman - who did the G2 Intelligence industry analysis - says what’s happening with labs is what’s happening throughout healthcare: simple volume doesn’t drive business anymore.

The new healthcare currency she says is value, like a new DNA test for sepsis.

“Instead of it taking three days to figure out what the bug is, these new DNA tests are rapid so they move it to 12 hours. So these tests are lowering death rates and savings thousands of dollars per patient,” she says.

More and more doctors and hospitals must live within tight budgets to care for their patients.

Herriman says the future of the lab industry lies in finding tests that help the providers do just that.

Mobile messaging is more popular than ever. But not TEXT messaging.

Wed, 2014-01-15 01:04

According to the mobile analytics firm Flurry, mobile use arount the world in 2013 increased by 115 percent over the previous year. 

While music, games, news and other factors all played a role in the growth, messaging turned out to be the bulk of what drove the spike in increased usage. 

But surprisingly, text messaging actually decreased for the first time. That's because people are starting to use different services to communicate -- ones that are cheaper or more fun to use. 

Lindsey Turrentine, editor-in-chief of reviews at CNET, joins Marketplace Tech host Ben Johnson to discuss why messaging apps are becoming more popular.

NCAA to debate paying college athletes a stipend

Wed, 2014-01-15 00:57

As the NCAA annual convention opens in San Diego, one issue being discussed is a proposal to allow schools to pay student athletes. Several college football players wore patches in recent bowl games, with the letters APU on them, All Players United.

They believe athletes deserve a share of the hundreds of millions of dollars in profits generated by their performance. NCAA president Mark Emmert supports a system that would allow schools to pay athletes modest stipends.

There are two questions at the heart of this issue.

One is: can schools afford to pay players? Second: should they pay players?

"If we are considering it from a purely economic point of view, of course, if they create value they should be compensated, as we do in any business," says Lake Forest College economics professor Robert Baade. He says there's no question that teams can afford to pay players.

Profits from TV contracts, bowl games and endorsements generate tens of millions of dollars for college football programs.

If the NCAA decides to allow schools to pay players, that money will have to come out of someone's pocket. One likely target is the coaches.

"Not all, but close to all the states in the United States, the highest paid public official is the football coach at the flagship state university," says sports economist Allen Sanderson, at the University of Chicago.

In the current system, coaches play a crucial role in luring players to teams. Sanderson says that role would be diminished if teams could use money to lure athletes.

Drug cartels have an offer you can (and should) refuse

Tue, 2014-01-14 14:03

More and more, Mexican drug cartels are partnering with small American businesses. The U.S. companies don't ever come in contact with drugs. Instead, they help the cartels launder dirty drug money.

In Mexico, the cartels have a money problem. They literally have more cash than they know what to do with.

If you bring a lot of cash to a Mexican bank, the teller will insist on an invoice or a receipt for deposits of more than $10,000.

It's gotten harder to deposit cash because of new Mexican banking laws. The cartels end up warehousing mountains of money in various stash houses around the country.

When Mexican police confiscated the loot from a cartel business partner, U.S. agent Jere Miles got closer than most of us ever will to $200 million in cash.

"Wall-to-wall, three feet high, to within like a foot-or-two-feet of the entryway to the room. Just stacks of money," says Miles, a deputy special agent with Homeland Security Investigations.

To keep those walls of cash from being confiscated by police, the cartels need a way to legitimize their drug money and show that their revenues were made legally. That's what we know as money laundering. And the cartels do a lot of it here in the U.S.

"We're seeing money come back into the United States as part of the scheme to launder money," says Miles.

He co-manages the Los Angeles office that investigates what is known as trade-based money laundering. In its most basic terms, the scheme involves buying and selling consumer goods to disguise the criminal origins of the money.

For example, imagine the cartel buys a shipment of widgets in the U.S. and pays $100,000. But on the Mexican customs form, the representative of the cartels will lie and report that the widgets cost $200,000.

The widgets are then sold in Mexico.

"I've seen organizations that are willing to invest their money in a product and wait for it to sell. And then they absolutely can make a profit, consistent with the market," says Miles. "But in most cases, the cartels aren't interested in a profit. All they're really interested in is really recouping their money."

Often, the products are sold at a slight loss. But for the sake of example, let's say the widgets get sold at cost. That's $100,000.

From that point, Miles says the cartels "take the $100,000 where they really sold the widgets. Then they take another $100,000 of their own money – the dirty money – and they say, 'See? I sold all these widgets for $200,000. Here's $200,000.' It's a lot more complicated than that. But that is like the basic concept of it."

The law enforcement strategy is similar to the way the Feds went after Al Capone for tax evasion. The Mexican drug cartels make money by selling drugs and murdering their competition. But it is the fraud on the customs paperwork that could compromise them.

"Every crime that they commit just increases the chances of them getting caught," says Miles. "So, I've often asked myself: Why would they do that? Just to beat the duties? Even though it's a minor crime, they still could lose all their product, they could lose all their investment. And I've yet to get anyone to give me a legitimate answer as to why they do it, other than greed. They just want to make a few extra pennies."

Nonetheless, Miles says it would be a mistake to underestimate the business savvy of the guys running the Mexican cartels. Even though the cartel leaders usually have little or no formal education, Miles says, "I would say they are on a par with any CEO of a Fortune 500 company."

Others in law enforcement make similar comparisons.

"We've always believed that cartels operate as if they were a corporation," says special agent Hector Colon, who works for a special branch of Immigration and Customs Enforcement.

Colon says Mexican drug cartels use a criminal version of the chief financial officer.

"They employ people that you could consider to be CFOs, or those people who are responsible for laundering their money," says Colon. "Basically, these individuals... their role and their purpose is to find licit ways to move money, so that they can continue to layer the money through different schemes, so the cartels can then get access to their illicit funds."

He says a cartel CFO will open corporations, or partner with businesses that are willing to move money for the cartels. That brings us back to trade-based money laundering.

Colon runs something called the Trade Transparency Unit, where elite customs agents pour over international trade data. The U.S. has partnerships with nine countries that have agreed to share customs data, and it is developing partnerships with two more countries.

The trade information allows agents to identify inconsistencies.

"In its simplest form, what the system allows us to do is determine that what was actually shipped from one country is what was actually delivered in another," says Colon. "Anomalies that we find in the comparison of that trade data is what allows us to then investigate for trade-based money laundering."

As an example, Colon looks at the trade of gold bullion and scrap gold on his computer. The data is represented by dots on a graph.

"What I'm noticing in this graph is that the value of gold bullion down here is being declared well below the value of scrap gold," says Colon. "And we know that gold bullion is more pure than scrap gold."

Those discrepancies in the paper trail often trip up the criminals and help law enforcement identify money launders.

But what about merchants? Is it easy for them to spot cartel intermediaries trying to launder money?

To find out, I stick with the example of gold, and I visit the jewelry district in downtown Los Angeles. I spend two days cold-calling wholesale and retail jewelers.

Several tell me that they frequently get propositions for major cash transactions on the condition that the deals would be off the books. But they're afraid to speak on the record.

Then I meet Alberto Hernandez. Actually, I have to pass through three separate security doors before I reach him. Hernandez is president of Pegasus Metals. The company buys and sells gold. It also melts gold in a special furnace that can get as hot as 4,000 degrees Fahrenheit.

I tell Hernandez that I've heard rumors about people who come around with bags of cash, looking for deals where there's no paperwork involved.

"We get customers who do ask that. They don't want to report to IRS," says Hernandez.

He always gives them the same answer. "We don't do any cash," says Hernandez.

But downstairs in the same building, retail jewelers sell gold necklaces and bracelets and rings. Many merchants tell me that business is bad. As the price of gold has increased, consumer demand has decreased.

You can imagine how desperate retailers teetering on bankruptcy might rationalize bags of questionable cash.

And it's not just the gold and jewelry businesses. The cartels are diversified. In the past, they've invested in products ranging from kids' toys to plasma TVs.

"We expect this is going to become a bigger problem in the near- to mid-term future," says agent Miles.

Homeland Security Investigations predicts significant arrests and prosecutions related to trade-based money laundering schemes in the coming months.

Google infiltrates the home through your thermostat

Tue, 2014-01-14 13:47

Google has purchased smart thermostat and smoke alarm maker Nest for $3.2 billion. That billion-dollar price is not unusual for a succesful startup in 2014.

For Google, it's another foray into an area the tech giant hasn't really entered yet: the connected home. Tech companies see big opportunities to make products and software for devices that talk to you and to each other.

For Nest, Google offers a chance to scale up quickly and effectively while building products it believes in.

"Nest, thus far, has been kind of the spoiler, the little guy. Nest has made a really nice product but they haven't been able to scale up," Marketplace Tech host Ben Johnson says. "Google gives them that. Google, says, alright, you want global reach? We got that."

But are we about to be handing over even more of our personal data to Google?

"Tony Fadell, the CEO of Nest, says their privacy [policy] hasn't changed, they're not going to give all their data over to Google," Johnson adds. "It's a long way off. Right now, Nest is going to be focused on building stuff that is great and works in your house and makes your house more efficient. But eventually, Google is wanna give you an ad and have you log in to Google+, that social network we love to hate."

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