Moneybox
A blog about business and economics.

Feb. 12 2016 1:09 PM

Banks Don’t Want to Work With the Legal Marijuana Industry. Can This Startup Convince Them?

This post originally appeared on Inc

Although selling marijuana is now legal in 24 states and the District of Columbia, doing business as a legal marijuana company is a logistical nightmare. That's because marijuana is still federally illegal, and banks open themselves up to potential seizure by the FDIC if they take money that is the result of a federally illegal act.

Despite the fact that President Obama has given financial institutions the green light to serve the legal cannabis industry (so long as they monitor closely for potential money-laundering and other violations), most banks won't work with the $6.7 billion marijuana industry. The result is that 70 percent of cannabis companies don't have a bank account. The few banks that do take on marijuana clients do not advertise what they're doing.

Enter Hypur, a startup in Scottsdale, Arizona, that for the past year has been quietly convincing banks that it is safe and profitable to work with cannabis businesses. Hypur, which was founded by a team of banking compliance and software entrepreneurs in 2014, has successfully helped about five banks in Colorado serve a number of cannabis businesses in the state. Hypur would not reveal which banks, citing nondisclosure agreements.

Feb. 12 2016 12:30 AM

Clinton’s Social Security Plan Is a Little Hazy. And Sanders Called Her Out on It.

One of the more contentious moments in Thursday night’s Democratic debate on PBS stemmed from a seemingly innocuous question that came via Facebook: “My father gets just $16 in food assistance per month as part of Medicaid's family community program in Milwaukee County for low-income seniors. How will you, as president, work to ensure low-income seniors get their basic needs met?”*

Can we talk about the candidates’ plans for Social Security?

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Yes, we can. Here was an instance in which Bernie Sanders came armed with specifics and Hillary Clinton, usually the master of detail, offered not so much.

Let’s review.

Sanders is currently sponsoring a Senate bill that would give Social Security beneficiaries a boost of about $65 a month, which he would pay for by adjusting the payroll tax cap. As of right now, Social Security stops taxing earned income at $118,500. Under Sanders’ proposal, the Social Security Expansion Act, income in excess of $250,000 would be subject to Social Security taxes. He would also tax the investment income of high earners to support Social Security, another thing we currently don’t do.

Yes, that would mean a tax increase for some people. As Sanders said Thursday night:

Yes, the wealthiest people, the top 1.5 percent will pay more in taxes. But a great nation like ours should not be in a position where elderly people are cutting their pills in half, where they don't have decent nutrition, where they can't heat their homes in the wintertime. That is not what America should be about. If elected president, I will do everything I can to expand social security benefits, not just for seniors, but for disabled veterans as well.

Clinton’s position on Social Security, meanwhile, somehow manages to be both specific and diffuse at the same time. She’s offering people (usually women) a credit toward future Social Security benefits when they take time of out of the workforce to handle caregiving responsibilities. She’s also proposing a change in how benefits are calculated when a spouse dies, so the surviving partner (usually a woman) doesn’t lose half or more of the family’s Social Security benefit. She does not—and said so in the debate—plan to expand everyone’s benefits.

But Clinton hasn’t offered much detail on how she would finance her plans or how it would all work, and her statements on the issue have worked in plenty of wiggle room. Last month, for instance, she told the Des Moines Register, “Obviously lifting the cap at some point or another is a very live possibility.” On Thursday she wasn’t much more specific: “I'm interested in making sure we get the maximum amount of revenue from those who can well afford to provide it. So I'm going to come up with the best way forward. We're going to end up in the same place. We're going to get more revenue.”

That’s where Sanders pounced:

In all due respect, Secretary Clinton, a lot of the progressive groups, the online groups, have really asked you a simple question. Are you coming on board a proposal and what is that proposal? The proposal I outlined should be familiar to you, because it's essentially what Barack Obama campaigned on in 2008. You opposed him then. I would hope that you would come on board and say this is the simple and straightforward thing do.

That was a successful hit. Not a huge one, maybe, but a hit nonetheless.

In fact, Clinton did oppose raising the payroll tax cap during the 2008 campaign. And Social Security advocates have been concerned until very recently about her positions in 2016, noting that her website says she would “oppose” benefit cuts or raising taxes on the “middle class” to close the Social Security shortfall. What did that mean exactly?

The result was this exchange with Sanders on Twitter last week, in which Clinton committed to not cutting Social Security.

But Sanders offered up a reminder Thursday night that Clinton’s position isn’t as comprehensive as his. And it may soon need to be.

And, oh yes, all of this is important because without Social Security, the Census Bureau estimates that half of all Americans 65 or older would live in poverty. That’s something everyone should remember. 

Correction, Feb. 12, 2016: The article originally misquoted a debate question by paraphrasing it, rather than quoting the moderator word-for-word.

Feb. 11 2016 8:09 PM

Marco Rubio’s Tax Plan Is a Grotesque Gift to America’s Plutocrats

At this point, a Republican tax plan would not be a Republican tax plan if it weren’t a morally and mathematically risible giveaway to America’s wealthy. The latest reminder of this fact comes to us from the nonpartisan Tax Policy Center, which Thursday released an assessment of Florida Sen. Marco Rubio’s especially plutocrat-friendly proposal.

Rubio’s blueprint is interesting because it drowns one big, potentially very popular idea—an expanded child tax credit of up to $2,500 per young one—in a heap of giveaways to the GOP donor class. This seems to have been part of Rubio’s strategy to appear as all things to all Republicans. But the end result is just a bit silly-looking, the tax-policy equivalent of getting drunk at Golden Corral and going overboard on the buffet line. (Oooh, pot roast. Oooh, banana pudding. Oooh, immediate expensing of capital investment.) Rubio’s plan eliminates taxes on dividends and capital gains—so you pay nothing to the IRS from money earned on stocks. It significantly lowers the corporate tax rate without really trying to balance the revenue loss. It crunches the number of income-tax brackets while lowering rates. And it eliminates the estate tax, which currently only applies to millionaires, anyway.

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Total tab: $6.8 trillion during the first 10 years. (That’s more than Washington is projected to spend on the defense budget this decade, by the way.) Then, another $8 trillion over the next 10.

The biggest beneficiaries of this tax largesse are, of course, the affluent. By 2025, more than 70 percent of these tax cuts go to the highest-earning fifth percent of tax payers; more than 40 percent go to the top 1 percent. The average taxpayer of the top 0.1 percent of taxpayers would get a $1.12 million break. The average taxpayer in the poorest 20 percent of Americans would get $232 under the Rubio plan.

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It didn’t have to be this way. One can sort of imagine a world in which Rubio would have campaigned primarily on his expanded child tax credit, which alone costs more than $1.2 trillion over a decade. It would have been an ambitious, middle-class-friendly tax cut that, while perhaps not enough to satiate the Wall Street Journal’s editorial board, would have at least distinguished Rubio’s economic thinking as something other than cartoonish supply-siderism.

Of course, Republicans (including the candidate’s advisers) argue that Rubio’s tax plan would unleash a surge of economic growth that would help make up for the lost revenue. But mainstream economics suggests that insofar as tax cuts are good for long-term growth at all, they only help if they're balanced by spending cuts. And, as Jonathan Chait illustrated at length earlier Thursday, Rubio, who among other things wants to increase defense spending, makes only the most pitiful gestures toward balancing his budget math.

But who knows. Maybe Rubio is waiting for after the campaign to make the numbers work. If that's the case, his plan isn’t so much laughable as cruel, as the spending cuts necessary to balance his tax cuts would almost certainly require decimating federal programs that service the poor.

Remember, Rubio is fighting to represent the Republican mainstream. He’s the conservative establishment’s vision at work.

Feb. 11 2016 2:24 PM

This Legal Dispute Says Everything About the Shadiness of Personal Finance Gurus

Remember Robert Kiyosaki, the it financial guru of the housing-bubble years? He co-wrote a small, self-published book with accountant Sharon Lechter called Rich Dad, Poor Dad that became a sales phenomenon. It spent years—from 2000 to 2008!—on the New York Times bestseller list. And as Slatewrote in 2002, it peddled some very, very suspect advice.

Rich Dad, Poor Dad is considered one of the bestselling personal finance books of all time. It combined the wish-fulfillment appeal of The Secret with what could be called a practical action plan in the age of easy credit—mainly, buy homes and properties with as little money down as possible, then enjoy the income flow.

No one ever went broke underestimating the financial smarts of the American public. In some cases, like Kiyosaki’s, they earned millions.

Kiyosaki’s still out there, but he’s kept a lower profile in recent years. But this month brings news of the former favorite personal finance guru in the form of an ongoing legal dispute between Kiyosaki and his former sponsor, the seminar company the Learning Annex.

According to the Wall Street Journal, the Learning Annex is petitioning a U.S. Bankruptcy Court in Wyoming to unseal a lawsuit pertaining to the bankruptcy of one of Kiyosaki’s company’s Rich Global LLC, which has been closed to the public since it was filed in 2014. The Learning Annex’s interest? Well, the Kiyosaki-controlled company declared bankruptcy in 2012, after the Learning Annex won an almost $24 million judgment against it.

Here’s the backstory, a saga that might perfectly illustrate the shadiness of the personal-finance advice racket.

Feb. 11 2016 1:45 PM

Could Our Cruddy Stock Market Cause a Recession?

Conventional wisdom says that the health of the stock market doesn't matter much to the wider economy. Shares go up. Shares go down. But the swings of the S&P 500 don't really influence things like growth rates or unemployment. On days like today, when global markets are getting slaughtered—JPMorgan's trading desk said it was "hard to imagine an uglier morning”—that consensus is pretty comforting.

But not everybody agrees with it. UCLA economist Roger Farmer has been arguing for some time that the stock market does, in fact, sway the real economy. The man is generally something of a contrarian but is also respected for his “fearsome math skills and deep understanding of how modern [economic] models work,” as Bloomberg View's Noah Smith has put it. Last year, the professor published a paper titled “The Stock Market Crash Really Did Cause the Great Recession.” On days like today, it's pretty discomforting.

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Using a statistical tool known as a Granger causality test, Farmer finds that changes in the stock market can predict changes in unemployment a quarter later. Using that relationship, he's then able to build an economic model that very closely matches what transpired in the Great Recession. Of course, that doesn't necessarily mean the plummeting share prices are what caused mass joblessness in 2008 and 2009. It's possible the stock market was just reacting to other changes in the economy that happened to drive unemployment as well. But other data you might expect to help forecast the jobless rate—including “real GDP, real investment spending, the three month treasury bill rate, the CPI inflation rate and the spread of BAA bonds over ten year treasuries”—don't have the same predictive relationship as stocks, Farmer finds. He concludes that the drop in the stock market alone could have driven unemployment far higher than it actually rose had it not been for the drastic interventions by the Federal Reserve.

What this leaves unanswered is how the stock market could crash the economy. Previously, Farmer has blamed "animal spirits"—which is just the term of art economists have adopted to describe what the rest of us call human emotion. The stock market plunges, businessmen get pessimistic, and they stop hiring or start laying off workers. During a recent appearance on Bloomberg's What'd You Miss, however, he suggested "wealth effects" might be at play. That's another fairly common-sense—but up-until-recently controversial—notion that when people feel richer they spend more, even if their wealth might only exist on paper. Likewise, when they feel poorer, they spend less. Here's how Farmer put it:

If you’re, say, a 65-year-old couple, and your 401(k) drops by 10 percent and goes up again the next day, you’re not going to do very much. If your 401(k) drops by 10 perent and stays down for three or four months, you might decide not to take that cruise you were going to take, you might decide you’re not going to put as much money into your grandchild’s college fund. And you’re going to cut back on spending. And that I think is the channel. So confidence, in my view, drives the real economy.

Here's where this story sort of falls apart for me. The most recent research suggests Americans' spending habits just aren't that sensitive to stock prices. When Nobel Prize winner Robert Shiller and his collaborators Karl Case and John Quigley last looked into the subject, they found “at best weak evidence of a link between stock market wealth and consumption.” Insofar as the link was real at all, it wasn't very large. This makes sense when you consider that stock ownership is concentrated among relatively well-off households who can often keep spending like normal when the economy turns rocky. Middle-class Americans care a lot about home values, since that's where their money is tied up, not the S&P 500.

But even if Farmer's theory has some weak points, it's at least interesting. Given how far markets have already dropped, does he think we're headed for a downturn? “A lot depends on whether declines remain persistent or whether the U.S. economy comes back up again,” he told Bloomberg. In other words: who knows. 

Feb. 10 2016 6:07 PM

Twitter Lost Users Last Quarter. Welp.

Well, you're probably going to hear more about the death of Twitter on Thursday. 

The little blue bird released its latest financial results Wednesday evening, and while it beat investors’ expectations on earnings, the company reported that its user base shrank slightly during the winter. Not including “fast followers” who access the service only through text messages, Twitter’s monthly active users declined from 307 million during the third quarter to 305 million in the fourth. Including those fast followers, who are concentrated among feature-phone owners in the developing world, monthly active users stayed steady at 320 million.

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Twitter has struggled to grow its user base quickly enough to satiate Wall Street, and initial news of the decline seemed to fulfill investors’ collective nightmares about the company's future. Its stock immediately fell almost 12 percent in after-hours trading. However, shares bounced back shortly as the market seemed to process the actual news. In its letter to shareholders, the company said monthly users returned to their third quarter levels during January and add it was “confident that, with disciplined execution, this growth trend will continue over time.” During a conference call with investors, executives also noted that the company actually grew its number of new users over the fourth quarter. Its overall monthly numbers declined because it failed to court back enough former users who had stopped checking their feeds.

So in management's telling, Twitter stumbled a bit on user growth, but things are picking back up apace. Presumably, the investor freakout will be a tad more severe if the promise doesn't come true next quarter.

In other news, the exec team said that the algorithmic timeline it debuted Wednesday is already increasing user engagement. Perhaps #RIPTwitter was a little premature, after all.  

Feb. 9 2016 7:02 PM

So, People Are Getting Nervous About Germany’s Biggest Bank

It's never a good look when a major bank has to pipe up and reassure the world that it's still financially sound. But such is the lot this week of Deutsche Bank, which has been getting absolutely savaged by the markets as of late. Its shares, down more than 40 percent this year on the New York Stock Exchange, are trading at a record low, while the cost of insuring its debt has spiked, a sign investors are becoming more worried that it might default. The beating has been so bad that CEO John Cryan felt compelled to send his employees an upbeat memo on Tuesday promising them that the bank “remains absolutely rock solid.”

Its stock kept tumbling.

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The ups and downs of Teutonic high finance might not seem like a super pressing concern here in the United States, where Donald Trump might still be on the verge of turning the presidential election into a full-on Idiocracy prequel. But given the fragile state of global markets, it's possible that any trouble at Germany's largest bank could spread.         

What's wrong with Deutsche Bank? In part, it's dealing with the same problems facing banks all across Europe. The combination of sagging global growth and low interest rates has made it difficult to earn money from lending. Loans to energy companies are going bust. Stricter rules designed to make the financial system more stable have made investment banking less lucrative, leading some institutions to shrink that line of business. This has all culminated in a “chronic profitability crisis” among Europe's banks, as the Wall Street Journal puts it.

Things have been especially ugly for Deutsche Bank, though, because of its legal rap sheet. Last month, Frankfurt's finest announced a prodigious 6.7 billion euro annual loss, thanks in large part to the billions of dollars it has had to set aside to pay fines and settle litigation involving all manner of fraud and international sanctions violations. With more law-enforcement trouble potentially looming, investors are worried that Deutsche Bank is one big, unforeseen financial penalty away from serious trouble. Forget turning a profit—the bank might have to stiff some of its bondholders.

Understanding why requires a little bit of background. In order to prepare for new international requirements set under the Basel III agreement, banks have been trying to build up their capital bases—the financial safety cushions that are supposed to buffer them from losses on riskier assets. One can spend many deeply dull hours learning the ins and outs of what does and doesn't count as bank capital. But to simplify, “tier 1” capital, the type that's relevant to Deutsche Bank's predicament, is basically money that a financial institution doesn't have to pay back to a lender. That typically includes funds raised by issuing stock, or retained profits.

But in Europe banks have also been fattening up their capital ratios by selling large quantities of so-called contingent convertible bonds, or CoCo Bonds, which Bloomberg has described as "high-yield hand grenades." These securities are a sort of cross between a stock and a bond. Like a regular bond, they pay interest. But banks can choose to skip payments if need be. And should their capital levels fall too low, the bank can convert them into stock or, in many cases, simply write off the debt.  

Investors have gone cuckoo for CoCo bonds—sorry, I'm so sorry—in part because they offered fairly high interest rates, which have been hard to come by in recent years, but also because they were pretty sure banks would treat them as normal debt. Now that seems like less of a sure bet. This week, CreditSights analyst Simon Adamson warned that Deutsche Bank might have to miss coupon payments by next year. “While we are confident about 2016 coupons, we are less so about coupon payments in 2017,” he wrote. The bank has tried to reassure CoCo bondholders that in fact it has all the money it needs to keep paying them, but credit markets still went into a tizzy.The anxiety has been fueled, in part, by Deutsche Bank's precarious legal situation since, again, one big settlement could change its entire financial standing. In a worst-case scenario, the bank could theoretically have to force losses on bondholders by swapping their CoCos for stock or wiping away the debt entirely.

Is that really something to lose sleep over? Maybe. “When the first one goes sour and halts coupon payments, it’s possible investors could suddenly wake up to the inherent risk and flee all CoCos, destabilizing the corporate bond market and possibly even the financial system,” Bloomberg opines. At the very least, it's one more potential source of instability at a moment when markets are already full of them. So much for German reliability.

Update, Feb. 10, 2016, at 8:40 a.m.: Deutsche Bank’s stock jumped in Frankfurt on Wednesday after the Financial Times reported that it was considering buying back billions of euros worth of bonds as a show of financial strength. Repurchasing debts that have fallen below their face value could also help the bank book a profit. Notably, the program would not include the CoCo bonds that have had investors worried

Feb. 7 2016 8:15 PM

Quicken Loans Ad Promises Fast Mortgages on Your Phone. What Could Possibly Go Wrong?

Advertisements during the Super Bowl often make plays for attention by aiming for offense. This year, however, our early contender for winner of the controversy sweepstakes wasn’t particularly vulgar. Instead, it was a commercial for Rocket Mortgage, an app from Quicken Loans that promises to deliver mortgage judgments in as little as eight minutes. It proposes to “do for mortgages what the Internet did for buying music, and plane tickets, and shoes.” If we embrace this model, the ad suggests, we would be patriotically creating jobs and swelling the economy, as new homeowners rush to buy goods to fill their new homes.

Wondering how “people [are] going to afford all of this,” CNET’s Chris Matyszczyk worries that by making mortgages easier to acquire Quicken’s service might undermine “rational decision-making.” On Twitter, meanwhile, the judgments came fast and hard.

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Ultimately, Rocket Mortgage may not even be equipped to make good on its advertised promises. On the website Marketwatch, Andrea Riquier observes that while it’s “technically possible for a mortgage applicant to have all the data and documentation lined up” to make it through the process in less than 10 minutes, most are likely to “move more slowly.” 

Feb. 5 2016 4:44 PM

Why Legal Marijuana Could Be a $6 Billion Industry in 2016

This post originally appeared on Inc.com

…America's homegrown marijuana industry is expected to bring in $6.7 billion in 2016

Feb. 4 2016 11:33 PM

Hillary Is Finally Being Honest About Bernie’s Health Care Plan

Hillary Clinton's early attacks on Sen. Bernie Sanders' plan for single-payer health care were at best convoluted and at worst simply dishonest. In earlier stages of the campaign, she seemed to suggest that the Vermont senator's desire to "dismantle" America's current suite of public health care programs and replace them with a system of universal government insurance would somehow give Republicans permission to roll back Medicare, Medicaid, and Obamacare. She also attacked Sanders for wanting to raise taxes on the middle class without mentioning that those taxes would, theoretically, just be replacing their health premiums. For whatever reason, she seemed to think Democratic voters couldn't handle the obvious argument that moving to a single-payer system is politically and logistically unrealistic and instead settled for debating in bad faith. Ezra Klein summed it up at Vox with the line, "Hillary Clinton Doesn't Trust You.”

Tonight, at the Democratic debate, she did a better job explaining herself.

Senator Sanders and I share some very big progressive goals. I've been fighting for universal health care for many years and we're now on the path to achieving it. I don't want us to start over again. I think that would be a great mistake to once again plunge our country into a contentious debate about whether we should have and what kind of system we should have for health care. I want to build on the progress we've made. Go from 90-percent coverage to 100-percent coverage. And I don't want to rip away the security that people finally have. Eighteen million people now have health care. Pre-existing conditions are no longer a bar. So we have a difference.
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You may not especially like this argument, but it's honest. The wars over Obamacare aren't even over, and Clinton doesn't want to relitigate the fundamental question of how our health care system should be structured. She also doesn't think the government should take away coverage that people already have (likely because, as she learned in the early 1990s, people who have insurance tend to be incredibly protective of it). Instead, she wants to build on the framework that Obamacare put in place and try to expand insurance to those who still don't have it.

Again, you might not agree with all these points. You could argue her own goals aren't even especially achievable, so long as Republicans control the House. But, at least it's a straightforward, sincere argument.

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