A blog about business and economics.

Aug. 22 2014 1:36 PM

The Last Six Months Were Surprisingly Good Ones for U.S. Airlines

This winter's polar vortex may have dinged sales at Walmart and Whole Foods, but it couldn't stop U.S. airlines. According to a new report from industry group Airlines for America, nine major U.S. passenger airlines overcame ice and freezing temperatures to more than double their net profit in the first half of 2014. Those airlines—Alaska, Allegiant, American, Delta, Hawaiian, JetBlue, Southwest, Spirit, and United—saw the increase in profits on a 6 percent jump in operating revenues versus a 2 percent rise in operating expenses, the report said.

The strong financial performance should be welcome news to airlines, especially after they were plagued by cancellations and delays during the unusually frigid winter. In early January, extremely low temperatures in the North and the Midwest forced airlines to cancel more than 6,000 flights over the course of just two days. JFK International Airport was temporarily shut down after a Delta plane skidded off a runway. The winter storms lasted well into February and March, only to be replaced by severe thunderstorms for the months after that.


On the other hand, airlines already had some indication that they had escaped the toll weather was taking on sales and profits at other businesses, most notably retailers. In the latest round of earnings reports, shares of Delta, American, JetBlue, and Southwest all bounced initially on strong results. Passenger revenue per available seat mile—a key measurement of airline efficiency—also rose across the board. They're expected to keep the business rolling come Labor Day: Airlines for America predicts passengers that weekend will rise 2 percent from the previous year, up to some 14 million.

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Aug. 22 2014 12:13 PM

The Government Weighs In on the Great Monkey-Selfie Controversy of 2014

The copyright gods have spoken, and David Slater is out of luck. The British photographer has been in a tiff with the Wikimedia Foundation over the rights to the self-portrait (above) that a wild monkey took after hijacking his camera during an expedition to Indonesia. Slater argued the rights were his. Wikipedia argued the image belongs to the public domain, because only works by humans can be copyrighted.

This week, the U.S. Copyright Office weighed in decisively on the side of Wikimedia, declaring in updated rules that no, you cannot claim the rights to a photo taken by a primate. (Two law professors I spoke with earlier this month said pretty much the same.) "Because copyright law is limited to 'original intellectual conceptions of the author,' the Office will refuse to register a claim if it determines that a human being did not create the work," the rule states. Then it gets into some pretty priceless specifics: 

The Office will not register works produced by nature, animals, or plants. Likewise, the Office cannot register a work purportedly created by divine or supernatural beings, although the Office may register a work where the application or the deposit copy(ies) state that the work was inspired by a divine spirit.
• A photograph taken by a monkey.
• A mural painted by an elephant.
• A claim based on the appearance of actual animal skin.
• A claim based on driftwood that has been shaped and smoothed by
the ocean.
• A claim based on cut marks, defects, and other qualities found in
natural stone.

So the famous monkey selfie belongs to the public. And if you think God has burnt an image of Jesus into your toast or carved the Virgin Mary's face into your backyard tree, you can't copyright that either.

Aug. 22 2014 10:22 AM

You’ll Never Guess the Best State for Women-Owned Business

This article originally appeared in Inc.

The areas where women entrepreneurs are lacking get a lot of attention—in the tech industry, say—but perhaps we should spend a little more time celebrating the many and growing spaces where female business owners are doing really well.


Based on the fourth annual OPEN State of Women-Owned Business Report, these are numerous and sometimes stereotype-shattering. The comprehensive look at the state of female-owned firms delves into the rate of business formation by women (an impressive 1,200 new businesses or so a day), the demographics of female business owners (happily, increasingly diverse), and the economic impact of women-owned firms. And it zooms in on geographic trends. If you want to know what areas of the country are home to the most women business owners and where those businesses are truly thriving, this report is for you.

As you'd expect, the most populous states, like California, have the most female-owned businesses in a straight head count, but things got more interesting when the researchers looked not just at the quantity of firms but where women-owned companies are contributing the most to the economy. The report calls this metric "growth in economic clout" and reached a number for each state by "averaging together the rankings of growth in the number, revenues, and employment of women-owned firms."

So where are women-owned firms an increasingly large share of the business landscape? Not California or any other recognized entrepreneurial hot spot—not by a long shot. Here are the top 10:

  • North Dakota
  • District of Columbia
  • Nevada
  • Arizona
  • Georgia
  • Wyoming
  • Virginia
  • Maryland
  • Texas (tied for ninth place)
  • Utah (tied for ninth place)

Where are women-owned businesses the least dynamic? New England and parts of the Midwest, I'm looking at you. "At the other end of the spectrum, the states in which the combined growth in the number, revenues, and employment of women-owned firms lag the national average to the greatest extent are Iowa, Vermont, Rhode Island, Ohio, and Maine," the report reads.

But the dominance of western states in the ranking isn't the only mildly surprising but cheerful news on the expanding territory being conquered by women-owned businesses. The ladies are also breaking into new areas vis-à-vis sector as well as geographic location.

"Women-owned firms are starting and growing businesses in all industries, diversifying into sectors previously described as 'non-traditional' for women. Over the past 14 years there has been an evening-out in the concentration of women-owned firms, meaning that an increasing number of women-owned firms can be found in all industries," concludes the report.

Aug. 21 2014 3:58 PM

One Group of Law School Applicants That’s Growing: High-Scoring Students

When law school applications began collapsing a couple of years back, a troubling pattern emerged. Some of the biggest percentage drops were among elite applicants with high LSAT scores. The smallest declines, meanwhile, were among candidates with especially low LSAT scores—the aspiring J.D.s who were most likely to end up at diploma mills that leave scads of graduates unemployed. The higher-scoring students got the message that the job market was a mess. But the news wasn’t filtering down to the students most likely to get screwed by the system. As I wrote at the time, “The wrong people have stopped applying to law school.”

Since law school classes are still shrinking, I found myself wondering if the trend had changed at all. Judging from data provided to me by the Law School Admission Council, applications still aren’t falling nearly enough on the very low end of the LSAT range. Year-to-date, applicants scoring less than a 140 have ticked down less than one-tenth of a percentage point.


But here’s the most interesting bit: The number of top-tier applicants—those with at least a 170 on their LSAT—is growing again. These are students who can probably make it into one of the very few law programs where graduates never experienced significant underemployment. Their numbers are still well down from a few years ago but seem to have stabilized—they're realizing that now really is a good time to go to law school (so long as you can get into a decent program).


* * *

For those who are extra-obsessive about this topic, I've put together this chart showing the three-year changes to law school applications by LSAT band. Main takeaway: The declines we've seen in the past few years are going to hit middle-range schools the hardest unless they significantly lower their admissions standards.


Aug. 21 2014 2:43 PM

Dollar Drama Overtakes America’s Dollar Stores

Drama is heating up at America's dollar stores. First, Dollar Tree said in late July that it was buying the struggling Family Dollar for some $8.5 billion, a merger that would create a megachain of 13,000 affordably priced stores. But since that time, Dollar General has looked to get in on the action and earlier this week made an $8.9 billion buyout offer to Family Dollar. Now its overtures have been repeatedly rejected—and Dollar General isn't happy about it.

In a fresh round of disagreement, Dollar General on Wednesday sent a letter to the Family Dollar board that accused its CEO, Howard Levine, of looking out for himself rather than his company. Dollar General claims that Levine is ignoring its buyout offers because the deal could jeopardize his job. Family Dollar had denied this and said that the higher bid from Dollar General is riddled with antitrust issues; on the other hand, Dollar General has promised to close up to 700 stores to help the deal get the green light from regulators. Analysts suspect that antitrust issues might not be the real reason behind the rejection. "It is not clear to us why the antitrust concerns could not be resolved via methods such as store divestitures," S&P Capital IQ analyst Efraim Levy told Reuters.


Dollar General is the biggest of the three chains, followed by Family Dollar. Both of those companies are less true dollar shops than simply cheaply priced stores, selling items that approach $10. Dollar Tree is the smallest but also the most profitable, and it keeps item prices below the $1 threshold. Dollar stores as a whole are a $48.2 billion market in the U.S. and are projected to grow 18 percent over the next five years, according to data from Euromonitor International.

At the same time, dollar stores have struggled lately alongside shrinking store traffic across the retail sector and increased competition from e-commerce. They've also been weakened by cuts to food stamps and federal aid programs, which are used by more than 40 percent of their customers. On Thursday morning, Dollar Tree reported lower profits and cut its full-year outlook. So times aren't looking great for any of the country's massive dollar stores. But if one is going to survive, it might be the one that gets Family Dollar's stores, customers, and brand on board.

Aug. 21 2014 1:17 PM

Bank of America Settles for $17 Billion—and It Still Feels Like Wall Street Got Away With Murder

Finally, we have a hat trick. Today, the Justice Department officially announced that Bank of America would pay a record $16.65 billion to settle allegations that the bank knowingly packaged dud mortgages into securities and sold them to unwitting investors without fair disclosures. The agreement follows similar multibillion-dollar deals with Citigroup and JPMorgan Chase & Co., and is just about equally unsatisfying for anybody still angry about the events of 2008.*

And the government knows it. Just check out the defensive coda in Attorney General Eric Holder’s speech announcing today’s settlement:

I want to be very clear: the size and scope of this multibillion-dollar agreement go far beyond the “cost of doing business.” This outcome does not preclude any criminal charges against the bank or its employees. Nor was it inevitable, over these last few weeks, that this case would be resolved out of court.

The American people appreciate the reassurance. But let’s quickly review the big reasons why this settlement, like the ones that came before, feels so meager.

1. Nobody Is Getting Prosecuted

Yes, Holder is offering a slim reed of hope that somebody important might one day face criminal comeuppance for the actions that set the economy on fire. But given the government’s record so far, it doesn’t seem particularly likely. It’s important to be clear why this matters. The threat of criminal prosecution probably isn’t going to prevent the next great crisis. It might help a little by giving bankers an incentive to think long and hard about doing anything that might fall into a legal gray area. But pushing iffy, combustible assets onto foolish clients is coded into Wall Street’s DNA. And so is a measure of straight up law breaking. It’s not as if insider trading suddenly disappeared after Michael Milken went down for it.

No, this is an issue about fairness. If there was criminal fraud, somebody ought to go to jail for it. That’s the point of having criminal laws. But because the Justice Department has been so cripplingly hesitant to bring prosecutions in cases where it believes there was even a small chance of losing, it’s hard to tell how many people, if anybody, might have done something worthy of jail time. We’re all just left with a vague sense that somebody got away with financial murder—which is infuriating.

To give the Justice Department its due, it probably could have gone a lot easier on Bank of America than it has. Most of the behavior in question actually happened at Merrill Lynch and Countrywide Financial before the bank purchased them in the middle of the financial crises.* Bank of America’s lawyers apparently tried to argue that it shouldn’t have been punished for the sins of its acquisition targets, but the government didn’t give in. Also, the New York Times notes that prosecutors are prepping a lawsuit against ex-Countrywide CEO Angelo Mozilo, one of the single worst actors of the entire subprime era.

But that’s just one especially awful executive. It’s like the entire population of Arkham Asylum escaped and ransacked Gotham, and the authorities responded by bringing a civil case against the Joker.

2. Bank of America Isn’t Really Going to Pay $16.65 Billion

That $16.65 billion is an extremely mushy figure. First, a large portion of it will be tax deductible as a “loss.” Second, only about $9 billion is going to be paid in cash. The other $7 billion and change come in the form of consumer aid, such as principal reductions for troubled borrowers (which the bank should frankly be doing anyway, for the sake of its own business) and donations for struggling communities. But, as the AP reported, those aid dollars might not be all that they seems

Under Citi's deal, for example, each dollar spent on legal aid counselors is worth $2 in credits, and paper losses on some affordable housing project loans can be credited at as much as four times their actual value.
How much the total package of cash and non-cash borrower aid is worth is impossible for outside observers to say.

The issue here isn’t that Bank of America’s fine isn’t big enough, or that they’re somehow pulling one over on the government by writing off part of the cost of their punishment. Lawyers for both sides are well aware that the bank will be taking tax credits on the deal, and presumably negotiated the size of the fines accordingly. And frankly, we don’t want prosecutors levying penalties big enough to actually destabilize a major bank, because we still haven’t figured out a way to deal with too-big-to-fail. Rather, it’s about transparency. It’s hard to feel like justice is being served when the attorney general knowingly gets up on stage and trumpets an inflated dollar figure in order to get a few oohs and ahs from the press. Rather, it feels like we're being lied to via omission—kind of like those investors who got duped.

*Correction, Aug. 21, 2014: This post originally misspelled the names of JPMorgan Chase & Co. and Merrill Lynch.

Aug. 21 2014 12:44 PM

Junior Bankers Are Getting More Money

Less than one year after implementing new "protected weekend" policies for junior bankers, some of the biggest Wall Street firms have decided to pay them more, too. Goldman Sachs, JPMorgan Chase, and Bank of America are all planning to increase salaries for junior bankers by at least 20 percent beginning in 2015. The move is expected to bring the base salary (before bonus) to around $85,000 for analysts at Goldman Sachs, and likely something similar for JPMorgan and Bank of America.

Is Wall Street going soft? Some seem to think so. "Analysts at Goldman May Have the Perfect Entry-Level Job," Businessweek declared yesterday. Suddenly, those 90- to 100-hour workweeks aren't looking so bad. On the other hand, it's possible that base salaries are being increased to compensate for another, less encouraging shift in the industry: lower bonuses. Before the financial crisis, top-tier bonuses at big banks were expected to well exceed the base salary and easily top six figures. But word on the Street now is that the highest bonuses for analysts are now closer to $70,000.


When I checked in with several junior bankers late last month about how policies designed to free up their Saturdays and Sundays were working out, a few expressed concern that this perk was just one way of making up for lower bonuses. "A huge perception among folks I've talked to is that the reason these policies are becoming more important is because banks don't pay the way they used to," a source at Bank of America told me at the time. "If you ask any junior banker, they would rather get paid the way bankers used to be paid and work the way bankers used to work than have protected weekends."

Of course, a 20 percent raise is a big increase, and $85,000 is a lot to make straight out of college. But if it's true that bonuses in banking still haven't bounced back (and the New York Post noted that Goldman at least has no plans to change those) then the salary raise might be similar to protected weekends—something that makes junior bankers happy in the short term, but leaves them feeling disgruntled when those smaller bonuses roll around.

Aug. 20 2014 3:39 PM

Bank of America Is Handing Over a Record Sum to the Justice Department, and Investors Don’t Care

It's been a boring day for Bank of America's stock. Shares dipped a bit after the Fed released minutes from its latest policy meeting but have basically stayed flat (up less than 1 percent) through the afternoon. In fact, if you glanced at Bank of America's stock, you'd have no idea that the company just agreed to a record $17 billion settlement with the U.S. government over sales of mortgage-backed securities.

How could an agreement like this barely budge the stock? For starters, investors had probably already priced it in. Rumors have been circulating for some time that Bank of America and the Justice Department were in talks to settle for many billions of dollars. A $13 billion figure was tossed around in July and was followed by reports of a $16 billion or $17 billion deal. Now that the settlement has finally become official, it already feels like old news.


The other reason the market probably isn't balking is that huge settlements from banks over mortgage-backed securities probes and other financial-crisis-related issues have become the status quo. Just one month ago, Citigroup agreed to turn over $7 billion to the Justice Department to settle claims that it deliberately misled investors with its mortgage packaging and repackaging processes. JPMorgan sealed a $13 billion dollar deal earlier this year.

And here's one last point to keep in mind about that big headliner figure: The settlement might be for $17 billion, but only $10 billion will be paid out in cash, and the rest in "consumer relief" valued at $7 billion. When potential tax deductions and clever bookkeeping is taken into account, a $17 billion settlement might end up costing Bank of America a whole lot less than that.

Aug. 20 2014 1:54 PM

Starbucks and McDonald’s Raise the Heat on the Coffee Wars

Competition for coffee drinkers is heating up as bean supplies dwindle and prices everywhere increase. Now two big players in the industry are testing new strategies to peddle their caffeinated wares.

Starbucks is focusing its efforts on some of the biggest caffeine-guzzlers of all: college students. The company plans to introduce coffee-carrying food trucks on three campuses this fall: Arizona State University, James Madison University, and Coastal Carolina University. (ASU has also partnered with Starbucks on a plan to bring affordable college education to the coffee giant's employees.) Starbucks has a surprisingly small presence in colleges at the moment, with only 300 of 11,500 stores on U.S. campuses, according to Businessweek.


McDonald's, the other company to recently announce a new development in coffee strategy, has decided to start selling its McCafe brand as packaged coffee in U.S. grocery stores next year. No prices have been announced yet, but presumably they'll reflect the increases that just about every other major brand has announced this summer. But McDonald's will have the benefit of following those price hikes without having to formally announce one of its own.

Aug. 20 2014 1:22 PM

Contraception Is Saving the U.S. Billions of Dollars on Teen Pregnancy

The sharp decline of teen pregnancy in the U.S. isn’t just one of the great (and underappreciated) public health victories of the past few decades—it’s also a budget victory.

As the Centers for Disease Control and Prevention explains in a report this week, the teen birth rate has nosedived 57 percent since 1991. The total number of children born to adolescent mothers is lower today than it was in 1950, when the country was a bit less than half the size it is today.




Teen mothers are especially likely to use safety-net programs like Medicaid and WIC (which provides food for new moms and their infants), so as their numbers have shrunk, taxpayers have saved money. The CDC cites survey research by the National Campaign to Prevent Teen and Unplanned Pregnancy, which estimated that federal, state, and local governments avoided spending $12 billion in 2010, thanks to the post-1991 drop.

But why are teens having fewer children? That's a complex social and economic question that academics are still trying to break down. (Sometimes the research leads to surprising results: One study suggested MTV shows such as 16 and Pregnant and Teen Mom may have played a role in declining rates.) Since the early 1990s, when births began their drop after rising for several years, the fraction of teens having sex has fallen while contraception use has become more common. That’s given ammo to fans of abstinence-only education and safe-sex-education advocates alike. It’s also possible that the recession helped hasten the fall of teen births after 2007. (Fertility fell pretty much across the board after the meltdown, just like employment.)

For its part, the CDC cites one telling paper from the American Journal of Public Health. Using government survey data on adolescent sexual behavior, it concluded that 86 percent of the decline in teen pregnancy between 1995 and 2002 could be chalked up to increased contraception use; the other 14 percent was due to abstinence. “The decline in U.S. adolescent pregnancy rates appears to be following the patterns observed in other developed countries, where improved contraceptive use has been the primary determinant of declining rates,” the researchers wrote.