Friday, March 07, 2014

Silicon Valley boom eludes many, drives income gap

Silicon Valley boom eludes many, drives income gap - Yahoo Finance:

"Silicon Valley is entering a fifth year of unfettered growth. The median household income is $90,000, according to the Census Bureau. The average single-family home sells for about $1 million. The airport is adding an $82 million private jet center.

But the river of money flowing through this 1,800-square-mile peninsula, stretching from south of San Francisco to San Jose, also has driven housing costs to double in the past five years while wages for low- and middle-skilled workers are stagnant. Nurses, preschool teachers, security guards and landscapers commute, sometimes for hours, from less-expensive inland suburbs.
Now the widening income gap between the wealthy and those left behind is sparking debate, anger and sporadic protests.
"F--- the 1%" and other rants were spray-painted last month on walls, garages and a car in the Silicon Valley town of Atherton, home to many top tech CEOs that Forbes magazine last year called the nation's most expensive community. In Cupertino, security guards rallied outside Apple's shareholder meeting on Feb. 28 demanding better wages. "What's the matter with Silicon Valley? Prosperity for some, poverty for many. That's what," read their banner."
"Buditom, also 44, said the reality of working for some of the nation's richest companies has sapped his belief in the American dream. For the past four years, he has been living in his sister's apartment, commuting an hour in stop-and-go traffic for a $13-an-hour security job.
"I'm so passed over by the American dream, I don't even want to dream it anymore," said Buditom, who emigrated from Indonesia 30 years ago. "It's impossible to get ahead. I'm just trying to survive.""
"From the White House to the Vatican to the world's business elite, the growing gap between the very wealthy and everyone else is seizing agendas. Three decades ago, Americans' income tended to grow at roughly similar rates, no matter how much they made. But since about 1980, income has grown most for the top earners. For the poorest 20 percent of families, it has dropped.
A study last month by the Brookings Institution found that among the nation's 50 largest cities, San Francisco experienced the largest increase in income inequality between 2007 and 2012. The richest 5 percent of households earned $28,000 more, while the poorest 20 percent of households saw income drop $4,000. To the south, Silicon Valley's success has made it a less hospitable place for many, said Russell Hancock, president of Joint Venture Silicon Valley, an organization focused on the local economy and quality of life."
"Once a peaceful paradise of apricot, peach and prune orchards, the region is among the most expensive places to live in the U.S. Those earning $50,000 a year in Dallas would need to make $77,000 a year in the Silicon Valley to maintain the same quality of life, according to the Council for Community and Economic Research; $63,000 if they moved from Chicago or Seattle.
Housing costs are largely to blame. An $800-a-month, two-bedroom apartment near AT&T's Dallas headquarters would cost about $1,700 near Google's Mountain View headquarters. Dental visits, hamburgers, washing machine repairs, movie tickets — all are above national averages.
Five years ago, Sacred Heart was providing food and clothing for about 35,000 people a year. This year it expects to serve more than twice that. On one brisk morning recently, families, working couples, disabled people and elderly lined up out the door for free bags of food, just miles from the bustling tech campuses."
"While some are struggling to survive, others are fighting back.
Twice in December and again in January, activists in San Francisco, where recent tax incentives have lured Twitter, Yelp, Spotify and other firms, swarmed privately run shuttle buses that ferry workers for Google, Facebook and other tech companies from the city to work. Tires were slashed, rocks hurled. Signs taped to the buses read: "Gentrification & Eviction Technologies: Integrated Displacement and Cultural Erasure" and "F--- Off Google."
Last month, as protesters beat drums outside, former Daily Show member and comedian John Oliver mocked the tech elite during an annual awards ceremony in San Francisco that honors startups and Internet innovations. "You are no longer the underdogs," he told the audience. "You're pissing off an entire city, not just with what you do at work, but how you get to work. It's not easy to do that."
The crowd roared with laughter, and he went on.
"I heard the latest design for your buses is to use tinted windows but reverse, with the tint on the inside, the reason being, 'Look, I don't mind if the peasants see me, but I would rather not see them, hmm?'"
Fewer laughs followed that one."
"Activist Sara Shortt of the Housing Rights Committee of San Francisco said the protests weren't intended to target the workers themselves.
"We're going after the bus as a symbol, a very palpable symbol, of the dramatically growing income divide in our city," she said. "Frankly those gleaming white buses with their tinted windows are a slap in the face to the rest of us who are waiting for the public bus or riding our bicycles down the bike lanes competing with these mammoth vehicles."
"A few prominent figures in the tech elite have fanned flames on the issue of income disparity. Greg Gropman, CEO of the tech startup AngelHack, ridiculed San Francisco in a now-deleted Facebook post in December: "Why the heart of our city has to be overrun by crazy, homeless, drug dealers, dropouts, and trash I have no clue."
A month later, in an open letter to The Wall Street Journal, venture capitalist Tom Perkins likened what he called "the war on the one percent, namely the 'rich'" with fascist Nazi Germany: "Kristallnacht was unthinkable in 1930; is its descendent 'progressive' radicalism unthinkable now?""

When Regulation Threatens, Bankers Predict Doom For Main Street - ProPublica

When Regulation Threatens, Bankers Predict Doom For Main Street - ProPublica

"Collateralized loan obligations, as the acronym is known, are bundles
of loans, usually made to junk-rated companies. They use the same
techniques as collateralized debt obligations, which were often made up
of subprime mortgage investments and were the rotten core of the
financial crisis. C.L.O.’s caused billions in losses for banks during
the market panic of 2008, but most recovered strongly and memories
faded. Junk-rated companies rallied, and C.L.O.’s roared back.

Under the Volcker Rule, which prevents banks from making speculative
investments or owning large pieces of hedge funds or private equity
firms, some C.L.O. holdings might be prohibited. Some C.L.O.’s own
securities or bonds, and those are considered more speculative. (In a
regulatory quirk, bonds and loans get different regulatory treatments.)
Some C.L.O.’s give certain investors the ability to remove the manager
that makes the C.L.O.’s investment decisions. That could be construed as
a form of ownership control, which would bar banks from participating
under a strict construction of the Volcker Rule.

The banking industry has been making loud noises about how the
uncertainty could have dire consequences. As with the TruPs ruckus, the
big banks have defended their interests in the name of smaller and more
sympathetic entities. According to the banking lobby and its friends in
Congress, any threat to the C.L.O. market is actually a dagger pointed
at midsize businesses, which will have trouble finding capital as a
result. In written testimony to the House subcommittee, a United States
Chamber of Commerce representative expressed “serious concerns that the
regulators had failed to take into account the impact of the Volcker
Rule upon the capital formation of Main Street businesses,” adding
ominously that “it may only be the first wave of capital formation
problems that may crop up as a result of the Volcker Rule.”

Like the TruPs fight, and countless other similar Washington
showdowns, this skirmish is largely about preserving a market for the
largest banks. Just three “too big to fail” banks — JPMorgan Chase,
Citigroup and Wells Fargo — account for 71 percent of bank C.L.O.
holdings, according to Better Markets, the banking reform group. And the
large banks get fees from creating the deals.

And so banking interests have massed their forces to preserve this
business. At the House subcommittee hearing last week, four industry
representatives counterbalanced a lone professor from Georgetown Law School, Adam J. Levitin, who was tasked with defending Dodd-Frank.

Professor Levitin’s testimony made clear what the central public concern is here: The C.L.O. market hides embedded systemic risk.
When banks sponsor C.L.O.’s by creating and marketing them, they imply
that they back them without actually doing so. Investors rely on this
implied guarantee because banks have bailed out comparable affiliated
entities in the past. Ultimately, Professor Levitin argued,
taxpayer-funded deposit insurance backstops the banks making these
potentially speculative investments — exactly the thing the Volcker Rule
is supposed to end."

Big Company CEOs Just Aren't Worth What We Pay Them - Forbes

Hmm.. this is from Forbes! A good piece...

Big Company CEOs Just Aren't Worth What We Pay Them - Forbes

"It isn’t every day that academic research comes along to tell you
something you really wanted to hear and that you suspected was the truth
all along? In this case it’s about the long running debate around top
executive pay.

A recent paper by J. Scott Armstrong of the Wharton School
and Philippe Jacquart of France’s EMLYON, seem to have finally
established that paying top dollar simply doesn’t get a better job done.
And, in fact, it might actually get a worse one done.

According to Armstrong and Jacquard, while there is plenty of
evidence that financial incentives can be effective in motivating people
to do mundane and boring tasks, individuals do the more interesting and
challenging stuff…well, because it’s interesting and challenging.

Perversely, they say, very large financial incentives may actually
hinder top performance. The paper argues there  is strong evidence that
individuals can become fixated on incentives and either become limited
in their thinking, unable to digest and adopt new ideas or alternately
become convinced that they will achieve the goal automatically so do not
need to try as hard as they might otherwise. Whatever the outcome,
every other stakeholder from the more modestly earning employee to the
corporate stockholder loses out.

And finally the research also suggests that we might not really be
getting the brightest and best talent at the top because the tools and
processes used to identify candidates are either limited or downright
faulty. There is simply too much emphasis on past performance, personal
recommendation, unstructured interviewing, an unwillingness to ask
really difficult and searching questions and that more dangerous
selection criterion of all – gut instinct. Worryingly, it seems that the
headhunters and in-house recruiters charged with hiring occupants of
the corner office may be relying too much on perception and too little
on good, hard facts. The paper points out that CEOs who win prestigious
industry awards constantly out-earn those that don’t. Yet the stocks of
the companies the award winners head up consistently underperform in
comparison to those of their less publicity hungry peers. Perhaps
because the latter spend their time running their businesses well

So far, so good. I’d never quite got the fact that a CEO might be
worth several hundred times the average person working for them (around
380 times, according to estimates from the AFL-CIO as recently as 2012.)
But what do we do about it?

Unlike many academics, who might shy away from coming up with a
solution, EM Lyon’s Jacquart is one willing to give the obvious if
uncomfortable answer – namely that current incentive models need to be
abandoned and overall executive pay should be reduced. And he’s also
ready with a counter to those who will doubtless argue that this will
make it impossible to recruit the right people and bring major banks and
corporations crashing to the ground. “Yes, of course this may make it
more difficult to recruit very senior individuals from outside an
organisation, at least in the short term. However it would force
businesses to focus more on the development of the talent it already
has, the talent that is more likely to be more loyal to and
understanding of its aims, goals and methodologies.”

As the old Bob Dylan lyric goes, “Don’t follow leaders.” And if
Messrs Armstrong and Jacquart are right, don’t pay them quite so much