Moneybox
A blog about business and economics.

April 6 2016 2:27 PM

The Obama Administration Is Finally Making Retirement-Savings Advisers Put Clients First

Saving for retirement might just get a bit easier for millions of Americans in the coming years, and for once, we don’t need to do a thing. This time, it’s our financial advisers who are being held to account.

On Wednesday, the Obama administration released the final version of new rules for professionals giving financial advice. It’s the culmination of a multiyear battle with the financial services industry, which argued that a higher standard of care would prove so costly it could be forced to dump lower- and middle-income savers en masse.

Under the new regs, financial advisers giving recommendations on retirement investments will have to offer advice that’s strictly in the best interests of their clients, something known as the fiduciary rule. Remarkably, as I’ve written many times, this is not the current standard. Instead, many financial advisers currently need to adhere to something called the suitability standard. That allows them to make suggestions for retirement investments that take into account how clients’ investments buttress their own bottom line. The advice just couldn’t be out-and-out malfeasant.

The Obama administration determined that this sort of advice was costing retirement savers up to $17 billion annually and decided to do something about it. The effort appeared to be languishing until early last year, when Sen. Elizabeth Warren took an interest in the subject. She ramped up the pressure by publicizing how, for instance, financial advisers in the insurance industry were rewarded with vacations at four-star Caribbean resorts in return for selling investors on particular annuities and other insurance offerings.

Under the current regulations, professionals giving retirement advice and working to the suitability standard don’t need to disclose these sorts of conflicts of interest to the savers they’re counseling. That’s going to change—and the financial services industry isn’t wrong when it says it will need to do more to ensure it’s meeting the enhanced standards. There will, for instance, be more paperwork. If the method of payment seems to suggest there could be a potential conflict of interest (like, say, a commission) between the adviser and the consumer, the adviser will need to sign a contract promising to put the consumer’s needs ahead of his or her own.

But doing more isn’t impossible. It seems highly unlikely that the changes put forth by the Department of Labor will force financial advisers to drop many of their customers, though it’s indeed quite possible they won’t earn as much money off of them. It’s almost certainly going to push advisers to recommend that retirement savers put their money in low-fee investments like index funds and make it harder for them to suggest complicated higher-cost options like variable annuities that just happen to be more lucrative for the advice-giver. That benefits the individual investor.

On the other hand, the final version of the new rules includes some changes from previous versions of the proposal—for example, it makes clear that commissions are still a permissible form of payment to advisers, something the industry was actively concerned about, and that retirement education in the workplace is not considered a covered activity. In addition, the fans of finance gurus on radio and TV can rest easy. The new rules make it clear that Dave Ramsey, Jim Cramer, Suze Orman, and other providers of financial infotainment aren’t in a one-to-one relationship with their fans, and can continue to offer up their opinions without fear of the feds knocking on their door.

The revised regulations won’t fully go into effect until 2018. While both Hillary Clinton and Bernie Sanders have said in the past that they support the Labor Department’s current initiative, the same is unlikely to be true of the eventual Republican nominee for president—last week, for example, House Speaker Paul Ryan tweeted out his opposition to the changes, calling them “Obamacare for financial planning.”  It seems almost certain there will be some sort of legal challenge to the new regulations, as well.

Moreover, these changes only impact retirement savings. Money that investors hold in regular investment accounts fall under the purview of the Securities and Exchange Commission. As I wrote last week, they aren’t doing much on this front at all.

One other thing: The enhanced standard can’t fix our overarching retirement savings problem. We’re still not saving enough money for our post-work lives. The retirement crisis continues. The median working-age family continues to hold only $5,000 in its retirement accounts. Better advice won’t fix that problem. We need a better safety net, beginning with enhanced Social Security benefits, and a stronger economy, so people can save more, to accomplish that.

April 6 2016 11:20 AM

The Real Reason It’s Hard to Take Bernie Sanders Seriously on Wall Street Reform

After his widely panned sit-down interview with New York Daily News editorial board, a few writers have concluded that even though it may be one of his signature campaign issues, Bernie Sanders has no real clue how he would go about breaking up Wall Street's biggest banks. “Sanders appeared to reveal a damning lack of understanding of the exact regulatory statutes, laws, and powers he and a cooperative Congress could use to break up 'too big to fail' banks during the first year of his administration, an oft-repeated promise in his stump speeches,” Tina Nguyen wrote at Vanity Fair on Tuesday. Talking Points Memo reported that Sanders “struggled to detail how he would break-up the big banks and move toward a ‘moral economy.’ ”

Indeed, Sanders' answers on financial reform were a bit vague and may have sounded outright incomprehensible to someone who hasn't been following the issue closely. Take this exchange, on busting up America's financial giants:

Daily News: How do you go about doing it?
Sanders: How you go about doing it is having legislation passed, or giving the authority to the secretary of treasury to determine, under Dodd-Frank, that these banks are a danger to the economy over the problem of too-big-to-fail.
Daily News: But do you think that the Fed, now, has that authority?
Sanders: Well, I don't know if the Fed has it. But I think the administration can have it.
Daily News: How? How does a President turn to JPMorgan Chase, or have the Treasury turn to any of those banks and say, "Now you must do X, Y and Z?"
Sanders: Well, you do have authority under the Dodd-Frank legislation to do that, make that determination.
Daily News: You do, just by Federal Reserve fiat, you do?
Sanders: Yeah. Well, I believe you do.

Sanders isn’t exactly relaying his thoughts in pointillist detail here. But it's unfair to conclude that the man simply doesn't know what he's talking about. His response, while a bit clipped, was basically coherent, and is entirely in keeping with what he laid out in a policy speech in January. Sanders wants to pass legislation that breaks up financial institutions he considers too big to fail—preferrably a modernized version of the late Glass-Steagall Act, which separated commercial and investment banking. Given the challenges he may face in Congress, however, the senator from Vermont has also outlined a plan to cut the banks down to size through administrative fiat. It involves using Section 121 of the Dodd-Frank Act, which gives a board of regulators including the head of the Federal Reserve and the treasury secretary the power to order large financial institutions to shrink if they pose a “grave threat to the financial stability of the United States.” Suffice to say, it's not clear that his plan would survive a court challenge. And given the time it would take to appoint enough amenable regulators, he almost certainly couldn't pull it off within a year, as he's promised. But it's certainly a concrete plan.

In fact, the problem with Sanders' approach to Wall Street regulation is that he’s too focused on breaking up the banks—so much so that he's pinning his hopes on regulatory schemes of dubious legality, to the exclusion of equally important issues. The Clinton campaign often criticizes Sanders for failing to address the shadow banking sector—the vast network of financial firms that, while not technically banks, act a lot like them, and which played a central role in the 2008 crisis. But even on the issue of the banks themselves, Sanders is oddly myopic.

As Federal Reserve Bank of Minneapolis President Neel Kashkari recently outlined, there are (at least) three broad ways you can try to deal with the issue of “too big to fail.” First, you can deal with the “big” part and just break them up, either through an approach like Glass-Steagall's, or perhaps by simply capping their total assets. (The latter would probably be more effective, since pure investment banks can get plenty large. Remember Lehman Brothers?) There are advantages to this approach. The failure of a small- or medium-size bank is probably less likely to pose an existential risk to the global economy, and as a side benefit, you might create some extra competition in the market for financial services while reducing the political power of individual institutions (though probably not the financial sector as a whole).

But the biggest problem with just breaking up JPMorgan and Bank of America and calling it a day is that downsized banks are still perfectly capable of taking stupid risks and failing. And if enough of them go bust at once, it can create systemic problems. For instance, the 1980s savings and loan crisis, which involved the failure of more than 1,000 small thrifts, ended up costing U.S. taxpayers some $124 billion and likely damaged the economy. That's why many financial reform advocates—most notably Anat Admati and Martin Hellwig—have argued that instead of shrinking banks, we should make them fail-proof by keeping them from borrowing too much. The most direct way to do that is through dramatically higher capital requirements, which force banks to fund more of their business through things like cash from retained profits and selling stock, rather than debt. (The less your bank is fueled by borrowing, the less likely it is to go bust if your loans and other investments go sour.) Dodd-Frank already raised capital requirements for the largest financial firms, but many think the government should go much further.

Finally, you can also try to reduce risk in the financial markets by simply taxing it, since making it expensive to borrow an obscene amount and leverage up your bets should encourage banks to do less of it. This is basically Clinton's preferred method, and while it might be the lightest-touch approach of the three, the way that financial institutions have slimmed down to avoid Dodd-Frank's regulatory requirements suggests it could be very effective. Plus, it has the advantage of directly addressing risk instead of size. Too-big-to-fail isn't quite such a problem if you don't have to worry about the fail part.

Now, personally, I suspect that Sanders would love the idea of higher capital requirements. Ditto for taxing leverage. There'd certainly be nothing stopping him from pairing them with the new Glass-Steagall bill he so desires. (Why pick just one flavor of financial regulation when you can have two or more?) But I've never seen him mention either idea, much less engage meaningfully with them. Instead, he focuses monomaniacally on outright breaking up the banks, which contributes to the sense that his understanding of these issues, on the specific policy level, doesn't go very deep beyond campaign sloganeering. That honestly might not be a problem for him in the White House—Sanders clearly has a powerful moral position about the need to rein in Wall Street, and if he has good advisers, I'm sure he'll listen when they lay out the various options for doing it. But for now, the candidate's tunnel vision makes it a little hard to take him seriously on the issue.

April 5 2016 6:46 PM

Bernie Sanders’ Bizarre Idea of Fair Trade

Bernie Sanders, it is often noted, has never met a free trade deal that he liked. But in his recent interview with the New York Daily News's editorial board, the senator from Vermont outlined the trade terms he might find acceptable. His statement should be absolutely chilling to the developing world.

Daily News: Another one of your potential opponents has a very similar sounding answer to, or solution to, the trade situation—and that's Donald Trump. He also says that, although he speaks with much more blunt language and says, and with few specifics, "Bad deals. Terrible deals. I'll make them good deals."
So in that sense I hear whispers of that same sentiment. How is your take on that issue different than his?
Sanders: Well, if he thinks they're bad trade deals, I agree with him. They are bad trade deals. But we have some specificity and it isn’t just us going around denouncing bad trade. In other words, I do believe in trade. But it has to be based on principles that are fair. So if you are in Vietnam, where the minimum wage is 65¢ an hour, or you're in Malaysia, where many of the workers are indentured servants because their passports are taken away when they come into this country and are working in slave-like conditions, no, I'm not going to have American workers "competing" against you under those conditions. So you have to have standards. And what fair trade means to say that it is fair. It is roughly equivalent to the wages and environmental standards in the United States. [Italics added]

With those last few words, Sanders has effectively written off trade with any country that is not already rich and prosperous—which is simply inhumane.

It is one thing to argue that we should not do business with nations that actively manage or manipulate their currencies, as Sanders sometimes does, since exchange rates are supposed to be the market's main mechanism for balancing trade. It's also entirely reasonable to support workers' rights to unionize abroad or push for stricter environmental protections. Indentured servitude and slavery, which are more widespread than many realize, need to be wiped off the face of the earth. Those are all issues that trade pacts should absolutely address.

But a blanket rule against trade with low-wage nations is different. The entire point of trade is that countries have to play to their strengths, which makes the entire global economy more efficient. If you happen to have a highly educated population, thriving capital markets, and lots of high-tech expertise—like the United States or Germany—you're going to export high-end services like banking and advanced manufactured goods like cars and airlines to the rest of the world. On the other hand, if your only advantage is an abundant pool of relatively unskilled labor willing to work 65 cents an hour, then you can probably carve out a niche in textiles and electronics assembly, then gradually build know-how and work up to something more lucrative. But if the United States comes along and says, "Sorry, Vietnam, we're not going to buy another T-shirt unless your people start earning $5 or $7 an hour," factory workers in Hanoi aren't suddenly going to get a raise. Factories are going to close, and businesses will move their operations to a country where employees are productive enough to justify developed-world wages—which typically means the developed world. The U.S. will have just undercut Vietnam's only relative strength.

What I can't tell is whether Sanders simply doesn't understand this, or doesn't care. Maybe he thinks the only reason seamstresses in Vietnam don't earn more is that they don't have enough bargaining power, which while wrong would be empathetic. Or maybe he's just more concerned about the well-being of a relatively small number of American workers than he is about the global poor. 

But if that's the case, he should wrestle with the moral implications of that stance, which Vox's Zach Beauchamp has explored in wonderful detail. Global trade has certainly hurt many American workers. But it's also been the driving force behind historic declines in poverty. Chinese imports may have cost the U.S. as many as 2.4 million jobs from 1999 to 2011. But during roughly that same period of time, the World Bank notes that China lifted 290 million people out of extreme poverty.

Balancing those human interests against each other isn't simple, and so far the U.S. has done a fairly miserable job supporting communities that lost their livelihoods because of trade. But simply writing off hundreds of millions of workers the world over doesn't seem like the right response.

April 5 2016 3:45 PM

Tesla’s New Car Might Be Too Popular for Its Own Good

On Thursday night, Tesla unveiled a prototype of its newest car, the $35,000 Model 3, and made it available for preorder online.

Within 90 minutes, some 115,000 people had paid $1,000 apiece to reserve one when it comes out in late 2017. And within two days, that number had hit 276,000, according to CEO Elon Musk.

No updated stats were available on Tuesday, but it’s relatively safe to assume the number of reservations has climbed to more than 300,000. Musk said he’ll release the final numbers for the week on Wednesday.

From the beginning, the Model 3 has been Tesla’s raison d’être: the vehicle that Musk hoped would bring electric cars to the masses. The company’s latest all-new model, the Model S, quickly broke sales records for an all-electric vehicle. But if the early demand for the Model 3 is any indication, it has a chance to set some records that even conventional cars can’t touch.

First, an important caveat that bears repeating: Reservations are not sales. The people paying $1,000 to preorder a Model 3 now could easily change their minds by the time the car is ready, given that Tesla has made it clear that the deposits are refundable. Technically, then, Tesla has not sold any Model 3s yet.

Tesla Model 3
The Model 3 will cost $27,500 after a federal tax credit. But not everyone will get that rebate.

That said, it’s fair to assume most people don’t just hand out $1,000 deposits unless they have at least some intention of making a purchase. And the numbers are pretty staggering. For comparison’s sake, here is the number of cars the leading automakers sold in March 2016, according to Automotive News. Note that these figures include all the cars they sold in that month, not just one model:

  • Ford: 253,064
  • General Motors: 252,128
  • Toyota: 219,842
  • Chrysler: 213,187

In other words, no automaker sold as many cars in the United States in the month of March as Tesla took orders for in two days.

This is, rather obviously, fantastic news for Tesla. And it should put to rest the notion that GM somehow stole the company’s thunder by releasing an electric car with a similar range and price tag a year earlier. (The $37,500 Chevy Bolt will go on sale by the end of 2016.)

And yet the success of the Model 3 is not a fait accompli. As this Statista chart shows, Tesla has been steadily ramping up production of its Model S since it debuted in 2012, nearly doubling its output each year. But the pace of Model 3 reservations suggests Tesla may have to exceed even this exponential growth curve if it is to keep up with demand.

Infographic: Tesla's Model 3 Pre-Orders in Perspective | Statista
You will find more statistics at Statista

To produce the Model 3 at a rate that dwarfs that of the ultra-pricey Model S has always been Tesla’s goal. It’s why the company is building the world’s largest lithium-ion battery factory in the Nevada desert. On the other hand, no company can sustain exponential production growth without running into some problems. And Tesla’s production target of 500,000 cars a year from its Fremont, California, assembly line was always going to pose a challenge.

Tesla, for its part, already has a track record of delays. In fact, it has yet to ship a new model on time. Its latest model, the Model X SUV, is finally beginning to hit streets this year, more than two years after it was originally scheduled to launch. On Tuesday, the company explained that production had been hamstrung by “severe Model X supplier parts shortages” that “lasted much longer than initially expected.” In a press release, spokeswoman Alexis Georgeson went on to attribute the snafu to, among other issues, “Tesla’s hubris in adding far too much new technology to the Model X in version 1.”

The self-awareness is refreshing, if not entirely reassuring: The Model 3, after all, is new from the ground up, unlike the Model X, which was based largely on the Model S. (Muskian flourishes like the “falcon wing” doors made the Model X more complicated than was strictly necessary.)

For those buying the Model 3, there’s one other reason to worry about its skyrocketing preorder figures: The $7,500 tax credit for buying an electric car starts to phase out once a company has sold 200,000 qualifying electric vehicles. So a lot of these Model 3s are going to end up costing the full $35,000 sticker price, rather than the effective post-rebate price of $27,500.

As I’ve written many times, it’s never wise to bet against Elon Musk when it comes to the success or failure of his products. Betting on him to be late, however, seems like a pretty safe wager.

Previously in Slate:

April 5 2016 1:06 PM

Bernie Sanders Sort of Saw This Whole Panama Papers Thing Coming

With the Panama Papers' revelations of transnational financial skulduggery now burning up the Internet, Bernie Sanders' many fans have started passing around this video of a fairly prescient speech the presidential candidate delivered back in 2011. At the time, the U.S. was considering a free trade agreement with the charming Latin America tax haven, supported by President Obama and his then–secretary of state, Hillary Clinton. But progressive activists argued that the deal would only make it harder for the U.S. government to deal with bank secrecy and tax avoidance. Sanders brought those concerns to the Senate floor:

Panama's entire annual economic output is only $26.7 billion a year, or about two-tenths of one percent of the U.S. economy. No one can legitimately make the claim that approving this free trade agreement will significantly increase American jobs.
Then, why would we be considering a stand-alone free trade agreement with Panama?
Well, it turns out that Panama is a world leader when it comes to allowing wealthy Americans and large corporations to evade U.S. taxes by stashing their cash in off-shore tax havens. And, the Panama Free Trade Agreement would make this bad situation much worse.
Each and every year, the wealthy and large corporations evade $100 billion in U.S. taxes through abusive and illegal offshore tax havens in Panama and other countries.
According to Citizens for Tax Justice, "A tax haven . . . has one of three characteristics: It has no income tax or a very low-rate income tax; it has bank secrecy laws; and it has a history of non-cooperation with other countries on exchanging information about tax matters. Panama has all three of those. ... They're probably the worst."
Mr. President, the trade agreement with Panama would effectively bar the U.S. from cracking down on illegal and abusive offshore tax havens in Panama. In fact, combating tax haven abuse in Panama would be a violation of this free trade agreement, exposing the U.S. to fines from international authorities.

While I haven't seen any proof that the free trade deal exacerbated the problems with Panama—the recent leaks cover 40 years of history, after all—Sanders was broadly on point. The U.S. could have forced Panama to significantly reform its secretive banking sector before rewarding it with a trade deal that was probably a tad more important to them than to us. Instead, it inked a relatively weak side deal on tax transparency, making it somewhat easier, theoretically, to uncover instances of evasion. But years later, Panama is still marketing its services as a well-hidden safety deposit box for the world's rich. You don't have to think the whole effort was a conspiracy on behalf of American billionaires—which Sanders sort of lightly implies here—to agree that, at the very least, this was a botched opportunity that demonstrated the U.S.'s lack of commitment to dealing with these issues. If you’re going to sign a trade pact with a tiny, economically marginal tax haven and don’t use it as an opportunity to clamp down on hard on its worst behavior, what, exactly, is the point?

April 5 2016 11:42 AM

How Twitter Won the Rights to Stream NFL Games. (It Wasn’t Just Money.)

Twitter will stream 10 regular-season, Thursday night NFL games for free online as part of a landmark deal announced Tuesday morning.

The games will still be broadcast on TV by CBS and NBC, who split the rights to the 10 games in a $450-million-per-year deal reached in February. (Each will broadcast five of the 10.) They’ll also be simulcast on cable via the NFL Network.

Now, however, they’ll also be simulcast for free to a global audience via Twitter.com and the Twitter apps for mobile devices, without requiring people to log in or certify that they pay for cable. That will open the games to cord-cutters and viewers around the world who until now have had no way to watch the games live.

This is a big deal for the NFL, which is flexing its market power in a bid to appeal to young viewers who devour social media and watch most or all of their TV online.

But it’s an even bigger deal for Twitter, which won the rights despite reports that deeper-pocketed rivals such as Facebook and Amazon were angling for them. The deal reaffirms Twitter’s position as a leader among social networks in live video and real-time discussion of events and TV shows. It could also help the social media platform pull in new users, something it has struggled mightily to accomplish via a series of hit-or-miss product tweaks in recent years.

Its successful bid left media analysts wondering: Wait, Twitter? How could Twitter, whose stock has lost half its value in the past year due to concerns about its stalled growth, afford to outbid a company like Facebook?

A source familiar with the negotiations gave me a very interesting answer: It didn’t.

That is, the source said, Twitter’s bid for the Thursday night simulcast was not the highest that the NFL received. In fact, Twitter paid less than $10 million for the rights, while others may have bid upward of $15 million. The source believed Facebook was among those that bid more. That would seem to contradict an earlier Bloomberg report that said Facebook withdrew from the bidding because it didn’t like the terms. Then again, those could just be two different interpretations of the same facts.

Facebook did not respond to a request for comment Tuesday morning. Twitter said it could not disclose the details of the talks or the amount the company paid.

If it’s true that Twitter won with a significantly lower bid, however, that implies that the NFL had other reasons for preferring Twitter as a streaming partner. My source said one reason was indeed that Twitter was more flexible as to the NFL’s advertising requirements. I’m told that CBS and NBC will retain the rights to sell the majority of the ad slots on the simulcast, with Twitter selling perhaps the remaining 20 percent or so. That's a big reason why these rights cost so much less than the ones Yahoo purchased to live-stream a single regular-season game in 2015.

Another, less obvious reason might be that Twitter’s core audience dovetails neatly with the young, cord-cutting demographic that the league is targeting.

At first glance, Facebook’s potential audience would seem to be much larger than Twitter’s. The social network famous has more than 1.5 billion active users, while Twitter has been stuck at around 300 million. But both Twitter and the NFL are estimating Twitter’s potential audience for these games at some 800 million—a figure that combines its active users with the many more who regularly view tweets without logging into the service. Throw in those who encounter tweets embedded on other sites across the Web, and you’ve got more than 1 billion. (Obviously, not nearly that many people are going to actually tune into a given game; we’re just talking potential scale here.)

That said, it seems that sheer audience size may not have been what the NFL was after here. I can think of at least one potential explanation for that. The biggest risk to the NFL in selling streaming rights to its games is that it will alienate its TV broadcast partners, on whom it relies for huge chunks of its revenue. Those partners fear that streaming games online for free will eat into their TV audience. Facebook’s vast user base cuts across virtually all demographics, whereas Twitter appeals most to the younger, urban types who are more likely to be cord-cutters anyway. In other words, Twitter might be less likely to cannibalize the audience the NFL was already reaching on network TV.

Twitter CEO Jack Dorsey
Jack Dorsey may be coming around to the idea of Twitter as a media company.

Bill Pugliano/Getty Images

This, to be clear, is speculation. What isn’t speculation is that Twitter and the NFL already have a relationship: They’ve partnered since 2013 as part of Twitter’s Amplify program, with the NFL showing video clips on the service—including, most recently, in-game highlights and instant replays—along with lucrative ads. That may have eased the talks between the two sides.

One final reason Twitter might have appealed to the NFL more than other streaming partners: For all its product tweaks and difficulties in attracting new users, Twitter’s service remains the most conducive of the social media platforms to following live events as they unfold. Facebook has made live video a major priority of late, but its algorithmically ranked timeline isn’t a natural fit for the format. People are used to going to Facebook to see and respond to what their friends have posted in the past day or two—not to interact with them in real time. Facebook is working hard to change that, but it’s the one realm in which Twitter maintains an edge that will be hard for it to overcome.

What exactly the games will look like on Twitter isn’t yet clear. What we know is that they’ll be available whether you’re logged in or not, which is significant in its own right. Twitter has tried for years to convince investors and the media that monthly active users, or MAUs, is the wrong metric by which to judge its reach. Under previous CEO Dick Costolo, especially, it strived to recast itself as a media company as much as a social network. Current CEO Jack Dorsey may be coming around to that strategy himself, following a series of high-profile product tweaks that so far seem to have done little to move the MAU needle.

The NFL deal, which could allow Twitter to show ads to millions of people who aren’t even logged in (or don’t even have accounts), may be exactly what the company needs to finally prove its point.

April 5 2016 11:03 AM

Donald Trump Unveils His Plan to Make Mexico Pay for a Big, Beautiful Border Wall

Having previously tried and failed to convincingly explain how he would achieve his signature campaign promise of forcing Mexico to pay for a wall along the U.S. border, Donald Trump has unveiled a newly detailed, three-day plan to bend our southern neighbor to his whims. As the Washington Post's Robert Costa and Bob Woodward (!?) report, the Republican front-runner says that he will threaten to block billions of dollars of remittance payments to Mexico using a creative rewriting of U.S. Patriot Act regulations—unless the country consents to his demands.

This mostly seems like an effort to arrest Trump's recent campaign skid by returning the conversation to his comfort zone—xenophobic rage. Nonetheless, we shall address the merits. Trump's is not an especially impressive plan. Mostly, it gives me some hope that even if the man does truly have authoritarian impulses, he may lack the sufficient creativity and ruthlessness to be a successful political strongman. (Not that I'd really want to find out.)  

Last year, Mexican emigrants around the globe sent about $25 billion worth of remittance payments back home, providing a crucial infusion of cash into the country's poorer regions. Trump has fixated on those funds as a pressure point he can exploit in order to force Mexico to pay for his wall. But he's been nebulous on the specifics. In August, for instance, he said he would “impound all remittance payments derived from illegal wages” without offering the slightest clue as to how he would do so. Through what mystical means would he divine which remittances were on the up and up and which were not? Shrug.

Now Trump is offering a slightly different, slightly more fleshed-out plan. It hinges on revamping, or threatening to revamp, the Patriot Act's "know your customer" rules, otherwise known as Section 326, which basically require banks and other financial institutions to ask for a reasonable amount of identification from the people who walk in their doors before letting them open an account. Currently, these regulations explicitly exclude wire transfers from companies like Western Union. That's where Trump’s three-day plan comes into play.

Day 1: Trump would direct his administration to propose a rewrite of the current regs so that they cover wire transfers, thereby blocking undocumented Mexicans living in the U.S. from sending remittances.

Day 2: Mexico “will immediately protest.”

Day 3: Trump will make them an offer they can’t refuse: Pony up a several billion to cover the wall, and the White House won't follow through and implement the final regulation.

Suffice to say, this is not how the painstaking process of federal rulemaking typically works. And unsurprisingly, Woodward and Costa very kindly called up some legal analysts who soberly explained that Trump's plan would “surely be litigated,” since it would involve "a large expansion" of banking regulations beyond the actual words of the Patriot Act. A blunter way of putting it: Western Union would probably sue the pants off the Trump administration and lock this issue up in court for years, if not derail it entirely. Section 326 states that the “Treasury shall prescribe regulations setting forth the minimum standards for financial institutions and their customers regarding the identity of the customer that shall apply in connection with the opening of an account at a financial institution.” (Italics mine.) It would not be hard to make a colorable legal claim that, when Congress wrote account, they were talking about things like brokerage and bank accounts, not one-off transactions like sending your grandmother in Oaxaca a birthday gift. 

Even if it could pass legal muster, it's also not clear whether Trump's regulatory scheme poses that much of a threat to Mexico. After all, “undocumented” immigrants often have fake documentation, such as stolen Social Security numbers and forged ID cards, precisely so they can work and send money back home.

But we probably shouldn't chase the man too far down this rabbit hole. Should Trump become president, he's somehow going to try and stop immigrants from sending money back to their families, unless Mexico cries uncle. In turn, I expect former Mexican President Vicente Fox will continue to speak for his nation.

April 1 2016 7:23 PM

The Fight for $15 Is Unreasonable. That’s Why It’s Winning.

When fast food workers first marched off their jobs in late 2012 to protest for $15-an-hour pay, their demands seemed as hopeless as they were heartfelt. In labor-friendly New York, where the protests began, the state minimum wage was just $7.25, same as the federal rate. President Obama was still a full year from backing a national minimum of $10.10. In most of the country, liberals had spent the past two years on defense, fighting kamikaze tactics by Tea Party Republicans in Congress and trying to fend off labor-gutting legislation in the states. Doubling the pay floor wasn’t on anybody’s to-do list.

Those marches, of course, kicked off the movement now known as Fight for $15. Far from hopeless, it has turned out to be the most successful progressive political project of the late Obama era, both practically and philosophically. On Thursday, California became the first state to pass a $15 minimum, which will be phased in by 2022, giving raises to a projected 5.6 million workers. Just hours later, lawmakers in Albany struck a deal that will raise the minimum within New York City to $15 by the end of 2018, before gradually ratcheting it that high across the rest of the Empire State.

Maybe the most remarkable things about both bills was that they were considered compromises. In California, elected Democrats chose to pass their own legislation in order to head off a popular, union-backed ballot initiative that would have raised the minimum even faster. In New York, Gov. Andrew Cuomo had pushed for a true statewide $15 minimum. But he agreed to let wages rise much more slowly in poorer regions upstate—first to $12.50 by 2020, then eventually up to $15 with raises following a set formula—all as a concession to conservatives who worried businesses in their districts wouldn’t be able to afford drastically higher payrolls.

Consider that for a moment. Raising the minimum to $12.50 in New York’s rust belt was considered a mushy fallback position to appease Republicans. That’s how far the Fight for $15 has shifted the Overton window when it comes to talking about pay. It has revived Franklin Roosevelt’s old idea that a minimum wage should be a living wage, or at least near to it—a concept that seemed thoroughly dead for decades.

Cuomo himself, who undoubtedly still has some national political ambitions, embodies this rapid shift as well as anybody. Just last year, before he found religion on wages thanks to political pressure from his left, the governor wrote off Mayor Bill de Blasio’s plea for a $13 minimum in New York City as a political “non-starter.” Today, that idea wouldn’t even count as half a loaf. 

Is is all this economically wise? Nobody really knows for sure, but I have my doubts. Living in cities like Los Angeles and San Francisco is expensive largely because of their dysfunctional housing markets. Asking low-margin businesses to make up for insane rents by paying their workers more could simply result in more unemployment, especially for less-educated and young adults who tend to rely on minimum wage jobs. And it’s hard to think of a good reason why a business in, say, Yuba County, California—unemployment rate 15.8 percent—should pay its employees enough to rent in the Bay Area. 

On the other hand, even California is being somewhat cautious. By the time the minimum reaches $15, it should be worth about $13 and change in today's dollars, thanks to inflation. States like New York and Oregon are using the wonk-approved model of raising wages higher or faster in rich cities than lower-income suburbs or rural areas, an idea that had little mainstream momentum before Fight for $15. 

In some ways, that's all besides the point. Successful political movements aren’t typically built on careful econometric analysis, after all. Workers rallied around the idea of $15 an hour in 2012 because it sounded like a wage they could live on, and was marginally more realistic than $20. The Fight for $15 is rolling up victories precisely because it hasn’t been reasonable.

April 1 2016 3:08 PM

It’s Apple’s 40th Anniversary. How Much Money Have You Given Them Over the Years?

Friday is Apple's 40th anniversary. If you've never bought one of their products, you're probably dismissing the birthday notices as easy-to-ignore hype. But for the rest of us, it's a day of contemplation. Some will be looking back happily on years of enjoyment—and others will be regretting that PowerBook 100 they bought in 1991 for $2,300 (about $4,000 in today's dollars!). Here’s a glimpse at what some of your own Apple purchases have cost you over time—and a sense of how much you may have spent in total. It's actually kind of intense.

April 1 2016 2:54 PM

These Firms Are Lying to Either the Government or Their Investors, and Elizabeth Warren Just Called Them Out

Pretty soon, the Obama administration plans to change the rules on the advice financial professionals can give to anyone seeking guidance on managing the investments in their retirement accounts. This seemingly narrow matter has pitted politicians, like Sen. Elizabeth Warren, against the financial services industry, which says the regulatory fix would make it too costly for it to advise some clients. One problem: That’s not what some companies are saying when they’re not addressing Washington—which is why this week, Warren called them out on it.

Yes, it’s another salvo in the long-running but incredibly important battle over expanding the fiduciary standard to cover individual retirement accounts. Warren’s action highlights not only the financial services industry’s continuing fight for the right to not do their best by their customers—that's you and me, people!—but how even within the federal government, this dispute is a lot more tangled than it might seem.

A quick review: Most of us believe that when we seek advice on handling our money, our adviser is duty-bound to act in our best interests (that’d be the fiduciary standard). This is often untrue. Instead, many financial advisers adhere to something called the suitability standard, which allows them to offer less-than-gold-standard advice that can boost their own bottom line. It just can’t be out-and-out unsuitable.

The Obama administration says this sort of behavior costs consumers $17 billion in retirement savings annually and is pushing for changes. Needless to say, the industry doesn’t want to give up that money. All sorts of claims have been made. (Including a rather ridiculous one I wrote about last month—that the expanded fiduciary standard would put television personal finance gurus out of business. No, it wouldn’t.)

In her letter to SEC head Mary Jo White, Warren highlighted a number of contradictory statements insurance company executives have made about the impact of the upcoming changes on their business and bottom lines. For example, last July, executives at Prudential Financial told politicians and regulators in Washington that the proposed standards “will significantly increase” expenses. But almost simultaneously, they were informing investors monitoring the company’s performance that they didn’t foresee an issue making their financial offerings available to investors “on terms that work for everybody,” referring specifically to the expanded fiduciary standard.

Prudential wasn’t alone. That same month, Jackson National Life Insurance Co. whined in an official comment letter submitted in opposition to the change that the new regulation would be “very difficult, if not impossible for financial professional and firms to comply” with. But barely a month later, an official at the company said that similar regulations in Great Britain led to an increase in financial sales, and that the company would not only be able to offer up services under the new regs, it would “adapt faster and more effectively than competitors,” though the exec didn’t say how.

Warren also highlighted statements that don’t appear to square with one another made by TransAmerica and Lincoln National. As Warren pointed out, it is all but impossible for the dire and optimistic scenarios described by these companies to both be true.

This is hardly Warren’s first salvo in the battle to expand the fiduciary standard. She’s issued a report showing how insurance companies are offering financial advisers gimmes like trips to exclusive resorts in the Bahamas and Mexico in return for selling their wares. She’s also highlighted how researchers putting together supposedly objective reports against the fiduciary standard are actually not only taking money from the financial services companies opposed to it for their work but are also allowing them what I described last year as “the traditional privileges of an editor,” permitting them to review the findings and make suggestions on them before publication.

Keep in mind, the upcoming change only impacts retirement accounts. Why? Well, regulatory authority over our financial investments is something of a bureaucratic morass. Retirement accounts are regulated by the Department of Labor, which has aggressively pushed this change for the better part of Obama’s two terms in office. Investments held in regular old brokerage accounts are under the purview of the Securities and Exchange Commission.

And just where is the SEC in this battle? That’s a really good question. The SEC, ordered to study the fiduciary standard under the mandates of the Dodd-Frank Act, has been slow to complete the task. Earlier this month, Mark Schoeff Jr. reported at Investment News that White told a congressional committee that “there’s no guarantee the agency will propose its own rule.”*

In other words, nothing doin’. The Department of Labor is more aggressively protecting investors than the SEC, a federal agency whose raison d’être is to protect Americans from the financial services sector.

So Warren’s asking the SEC to investigate companies for possibly making misleading statements to their investors, something that is a violation of securities law. But she’s specifically asking the SEC to determine if these financial services firms should be disciplined for violating regulations in an attempt to fight back a rule that the SEC itself is a laggard on.

Brilliant. Just brilliant.

*Correction, April 1, 2016: This post originally misspelled reporter Mark Schoeff Jr.’s last name.

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