Our financial system is crumbling this week.

[TimeForGuinness]

This guy says they are doing it because Wal-Mart's business model is broken. Just follow for a minute - Wal-Mart pays a lot lower than competitors like Costco....however, their overall labor costs as a percent of sales are very similar to Costco's. Why? Because Wal-Mart has a ton more turnover than Costco, so Wal-Mart spends a ton more on training employees than Costco. Then on top of that, Costco gets a ton of side benefits from paying employees better. Less turnover, more experienced employees, happier employees, and no P.R. black eyes like Wal-Mart has gotten (like when they were doing Thanksgiving food drives for their own employees). When you add all this up, Costco ends up with happier customers, too, which is the most important thing. Same-store sales at Wal-Mart have declined.

It also points out how Wal-Mart employees got $2.6 billion in welfare last year.

http://www.bloombergview.com/articles/2 ... ets-scarce

Another thing it seems Wal-Mart misses is that if they pay their employees more, their sales will rise since Wal-Mart is probably the place their employees shop more than any other place. Wal-Mart is going to get back X% of any wage increase. Same reasoning Ford used to pay his auto workers more. He knew they'd be his customers.

If the bean counters at Wal-Mart were smart, they'd know what X is in that equation and put it into their spreadsheets. Why not? Anyone know if they do?

I'm pretty sure Walmart didn't get to where they are for being dumb. They know that price is everything to the majority of people, so they go into small/mid-sized towns, drive out the competition and pay their employees the bare minimum. Employees will shop their because it's convenient, or the only option, and if they don't make enough money? Well, Walmart helps employees sign up for welfare. Still don't have enough? Credit cards, pay day loans will always be around to help loan people money.

In short, why would they want to pay a better wage when it hurts their bottom line, especially when they have little to no competition in some markets.

edit: I don't support Walmart in any way.

[pioneer98]

Morgan Stanley created a Hunger Games parody for their managers (or something???) called "The Margin Games: Manager on Fire". It features a lot of their executives.

http://www.investmentnews.com/article/2 ... you-to-see

[UK]

Our HR said that on avg. every time there is employee turnover it costs the company around 20K. We had a 25% turnover rate in our department last year (not including transfers).

[pioneer98]

The good news is NYC pension funds made $2.9 billion in the last 10 years. The bad news is $2.5 billion of that was paid to their Wall Street managers in fees. :/

http://mobile.nytimes.com/2015/04/09/ny ... rrer=&_r=1

[pioneer98]

http://blogs.wsj.com/economics/2015/05/ ... ford-rent/

There is no state in the country where someone earning either the state or federal minimum wage can afford a market-rate one-bedroom apartment, according to the report.

[Jocephus]

Adding another entry to Wall Street’s growing rap sheet, five big banks have agreed to pay more than $5 billion and plead guilty to multiple crimes related to manipulating foreign currencies and interest rates, federal and state authorities announced on Wednesday.

The Justice Department forced four of the banks — Citigroup, JPMorgan Chase, Barclays and the Royal Bank of Scotland — to plead guilty to antitrust violations in the foreign exchange market as part of a scheme that padded the banks’ profits and enriched the traders who carried out the plot. The traders were supposed to be competitors, but much like companies that rigged the price of vitamins and automotive parts, they colluded to manipulate the largest and yet least regulated market in the financial world, where some $5 trillion changes hands every day, prosecutors said.

Underscoring the collusive nature of their contact, which often occurred in online chat rooms, one group of traders called themselves “the cartel,” an invitation-only club where stakes were so high that a newcomer was warned, “Mess this up and sleep with one eye open.” To carry out the scheme, one trader would typically build a huge position in a currency and then unload it at a crucial moment, hoping to move prices. Traders at the other banks agreed to, as New York State’s financial regulator put it, “stay out of each other’s way.”

http://www.nytimes.com/2015/05/21/busin ... .html?_r=0

[GeddyWrox]

Adding another entry to Wall Street’s growing rap sheet, five big banks have agreed to pay more than $5 billion and plead guilty to multiple crimes related to manipulating foreign currencies and interest rates, federal and state authorities announced on Wednesday.

The Justice Department forced four of the banks — Citigroup, JPMorgan Chase, Barclays and the Royal Bank of Scotland — to plead guilty to antitrust violations in the foreign exchange market as part of a scheme that padded the banks’ profits and enriched the traders who carried out the plot. The traders were supposed to be competitors, but much like companies that rigged the price of vitamins and automotive parts, they colluded to manipulate the largest and yet least regulated market in the financial world, where some $5 trillion changes hands every day, prosecutors said.

Underscoring the collusive nature of their contact, which often occurred in online chat rooms, one group of traders called themselves “the cartel,” an invitation-only club where stakes were so high that a newcomer was warned, “Mess this up and sleep with one eye open.” To carry out the scheme, one trader would typically build a huge position in a currency and then unload it at a crucial moment, hoping to move prices. Traders at the other banks agreed to, as New York State’s financial regulator put it, “stay out of each other’s way.”

http://www.nytimes.com/2015/05/21/busin ... .html?_r=0

But according to the GOP, we need less regulation on the financial industry. SMH

[pioneer98]

And at least for now, the Justice Department did not indict any traders or sales employees whose errant instant messages underpin the criminal cases against the banks. The banks long ago dismissed most of the employees suspected of wrongdoing, though the New York State financial regulator, Benjamin M. Lawsky, forced Barclays to dismiss eight additional employees thought to be at the center of the scheme.

As usual, the little guys take the hit for this stuff while the guys at the top get to stay and collect giant bonuses, because there's no way they had any idea what was going on.

[pioneer98]

Pretty interesting read:

http://www.dark-bid.com/accounting-rule ... class.html

One of the most insidious rules in accounting is that labor must be classified as an expense on the income statement. Actually, it should be classified as an asset on the balance sheet. The accounting profession has rigged the system against the worker. The misclassification of labor as an expense has branded every employee with a negative dollar sign. The way the accounting system defines labor causes CEOs and upper management to view employees as expendable. When profits decline, the CEO says, "It must be those damned employees dragging us down! Let's fire a few thousand of them. That will get us on track again."

The proper way to account for labor would be to classify it as an asset on the balance sheet. The employee would be valued with mark to market accounting at every reporting period, and the value would be determined by calculating the profit per employee, the average tenure, and the net present value of this amount. This would accurately account for the true value of labor. If this rule were implemented, balance sheets would be dramatically altered. Some companies that appeared valuable before might look like complete garbage. Other companies would prove to be much more valuable than previously thought.

One company that understands the true value of employees is Costco. Their full-time employees make $43,000 per year, which is very high for the retail industry. The turnover there is only 5% for employees who have been there a year or longer. In 2004, The Wall Street Journal published an article about Costco's skeptics. Bill Dreher, retail analyst at Deutsche Bank, said, "From the perspective of investors, Costco's benefits are overly generous. Public companies need to care for shareholders first." Dreher said profit margins weren't as high as they should be.

However, Costco CEO Jim Sinegal, who owned 3.2 million shares of Costco at the time, said,

The last thing I want people to believe is that I don't care about the shareholder. But I happen to believe that in order to reward the shareholder in the long term, you have to please your customers and workers.

[greenback44]

Hank Greenberg had the chutzpah to sue the government over the terms of its bailout of AIG. He won, sorta. The judge, Thomas Wheeler, recognized that without government intervention AIG would have entered bankruptcy, likely leaving Greenberg and other AIG shareholders with squat, so no damages were awarded, but...

Greenberg had sought as much as $40 billion in damages for shareholders. Though the absence of an award may temper Wheeler’s dramatic rebuke of the government handling of the bailout, the ruling may still limit the Federal Reserve’s ability to deal with the next crisis.

“It is a huge loss for the government because it calls into question its actions in the crisis, and more importantly, calls into question what it will have latitude to do in future crises,” said Erik Gordon, a business professor at the University of Michigan in Ann Arbor.

Leadership may be a little more fastidious with the legal details next time around, but you would hope that faced with a financial crisis of biblical proportions, they wouldn't give this kind of consequence much thought.

Also, Betty Liu's hair is amazing.