Welcome to the weekly roundup of great articles, facts and figures. These are the weekly finds that made our eyes pop.
Corporations Park Over 60% of Their Cash Offshore
Large multinationals literally park 60% of their cash offshore. Don't let these facts argue for a corporate tax holiday. Cash would just be distributed to shareholders, not used to hire American workers or invest in America.
Large U.S. companies are holding at least 60% of their cash overseas with some keeping nearly all of their cash balances offshore, according to a study from J.P.Morgan accounting analysts published Wednesday.
In a review of disclosures, the bank’s analysts found that out of the $974 billion in cash on the balance sheets of 602 U.S. multinationals, at least $588 billion, or 60%, is sitting in foreign accounts.
“Foreign subsidiaries are becoming much more important in a lot of businesses, especially with companies that have substantial amounts of intellectual property,” JP Morgan accounting analyst Dane Mott told CFO Journal, noting that many of the companies with significant overseas cash stockpiles were in the technology and pharmaceutical industries.
J.P. Morgan found that Apple had the highest offshore corporate cash balance, with $74 billion held overseas, representing 67% of its total cash holdings. But as a percentage of total cash, J.P. Morgan said the company had a smaller amount sitting offshore than many of its tech rivals, including Microsoft, Cisco, and Hewlett-Packard, which had 89% or more of their cash overseas.
How Much Will It Cost if Greece Walks Away?
Are you wondering about the impact Greece will have if they leave the Euro or default? The estimates range from €150 billion to €1 trillion. In other words, no one really knows. This Wall Street Journal piece tries to answer the question of what happens if Greece leaves the Euro.
The amounts could vary sharply depending on how Greece walks away, with each scenario introducing its own set of uncertainties. There is no real precedent for economists to analyze, as prior defaults or devaluations are very different. And any signals from investors are ambiguous: It's impossible to isolate Greece's contribution to stock-market gyrations this week from other factors.
Any number "for the costs would involve a huge amount of error," says Dean Baker, co-director of the Center for Economic and Policy Research, a left-leaning Washington, D.C., think tank. "There is such a wide range of uncertainty around the exact course of events." More important, he adds, a Greek exit from the euro would spur policies in response, from the European Union and from member states. Predicting those is more a matter of politics than economics.
Greece Must Exit
The Greek euro tragedy is reaching its final act: it is clear that either this year or next, Greece is highly likely to default on its debt and exit the eurozone.
Postponing the exit after the June election with a new government committed to a variant of the same failed policies (recessionary austerity and structural reforms) will not restore growth and competitiveness. Greece is stuck in a vicious cycle of insolvency, lost competitiveness, external deficits, and ever-deepening depression. The only way to stop it is to begin an orderly default and exit, coordinated and financed by the European Central Bank, the European Commission, and the International Monetary Fund (the “Troika”), that minimizes collateral damage to Greece and the rest of the eurozone.
Finally, a workplace article that's actually useful. Know those office politics, the sound of meetings droning all day long? Ever heard of a box of chocolates being used as a meeting diffusion tool?
When it comes time for a meeting, co-workers can be deadly. Discussions get hijacked. Bad ideas fall like blunt objects. Long-winded colleagues consume all available oxygen, killing good ideas by asphyxiation. Co-workers wander off topic, send texts, disrupt decision-making or behave in other dysfunctional ways. Even the best leaders can resort to desperate measures to keep the discussion on track: chocolate rewards, Elmo dolls and ice-cold rooms.
Barack Obama, The Great Deceiver
If you want to confirm your worst fears about Barack Obama, read this post from Naked Capitalism. Hey, don't blame us, we told ya so back in 2008. Not that there is an actual choice here. After all Goldman Sachs has contributed to both the Obama and Romney campaigns.
Those times of heady promise are now a cruel memory. Again and again, Obama has shown his true colors. It isn’t simply that Obama lied. Politicians lie. But there are norms for political lying. The depth and dependability of Obama’s misrepresentations constitute a difference in kind.
Obama didn’t make compromises necessary to lead effectively. He entered office with majorities in both houses and a country eager for a new direction. He has repudiated or retraded every pledge he made. He promised transformational leadership, and instead emulated Wall Street, devising complex programs that to sell average Americans short and reap his funders handsome rewards in the process. Rather than elevate his fellow citizens, Obama’s transactional focus and neoliberal philosophy have kicked the struggling middle class down the road greased by the right.
New College Grads Congratulations & You're F@$#ed
Members of the Class of 2012,
As a former secretary of labor and current professor, I feel I owe it to you to tell you the truth about the pieces of parchment you’re picking up today.
Competition Killing Higher Education
This is a great anaysis piece by Bloomberg. Higher education expands, builds yet students and staff suffer with higher tuition and lower pay:
It’s about “keeping up with the Joneses,” an official at Wright State University said in a Dayton Daily News article last fall detailing why colleges in Ohio were spending hundreds of millions of dollars on student centers and other nonacademic attractions in a down economy. In Georgia, state legislators are reviewing questionable practices used to fund 173 projects to build student housing, parking garages, stadiums and recreation centers.
Private universities with large endowments often start the cycle. Schools such as Harvard University and New York University, for example, take on billion-dollar debts. In a trickle-down effect, less affluent schools also feel pressure to borrow and spend -- money they do not have.
Gaming the System
This is not the only cause of financial difficulties, but it makes them worse. Richard Kneedler, who was president of Franklin and Marshall College in Pennsylvania for 14 years, estimated in 2009 that an astonishing two-thirds of the 700 private colleges he studied were at risk of financial failure.
Obsession with school rankings is another way that competition has warped higher education in the past few decades. College presidents, administrators and professors dismiss the importance of the U.S. News and World Report survey and other ratings, but they are always looking for ways to gain advantage.
Derivatives Need a High Priest
Finally we're seeing some posts on how flawed many derivatives' mathematical models are. This post asks for a high priest. We just want engineering standards applied to finance. You can't build a bridge that will fall down, why is financial engineering allowed without international standards, certification and inspections?
Bad Models, or, Why We Need a Hippocratic Oath in Finance
The National Rifle Association is well-known for its slogan “Guns don’t kill people; people kill people.” This sentiment has a long history and echoes the words of Seneca the Younger that “A sword never kills anybody; it is a tool in the killer’s hand.” I have often heard fans of financial modelling use a similar line of defence.
However, one of my favourite comedians, Eddie Izzard, has a rebuttal that I find most compelling. He points out that “Guns don’t kill people; people kill people, but so do monkeys if you give them guns.” This is akin to my view of financial models. Give a monkey a value at risk (VaR) model or the capital asset pricing model (CAPM) and you’ve got a potential financial disaster on your hands.
Inequality and B.S.
How long can this continue? We have a nice call out on AEI for their economic fiction:
The conservative movement generally, and sensibly, has its cranks specialize their crankery, so that you have one set of people tasked with pumping up the fantasies of supply-side economics, another concentrating on denying climate change, another insisting income inequality isn’t increasing, and so forth. James Pethokoukis of the American Enterprise Institute is a somewhat unique figure in that he’s deeply involved in all these projects.
His latest project is to deny — or quasi-deny, or muddy the waters, depending on the day — the fact of rising income inequality. Pethokoukis is now taunting me, and I can’t possibly keep up quantitatively with his manic campaign to deny/minimize/muddy the fact of rising inequality. I can explain a few basic points that, if kept in mind, would help a reader so inclined to successfully navigate his way through Pethokoukis’s river of bullshit.
This Has Nothing to Do with Economics, It's Just Plain Cool
One of the most moral areas of engineering is helping the disabled. Of course, this type of research and design for the disabled doesn't pay out, not enough market share. That's why this story warms the heart. Engineers have mapped thoughts onto a robotic arm controller, which allowed two people with locked in syndrome to do a simple task by controlling a robotic arm with their brain. You can read more about the technologies at braingate2.org.
Two paralyzed patients used their thoughts to direct a robotic arm to grasp objects, a striking advance in the quest to restore some function to people with paralyzed limbs.
One of the patients, a 58-year-old Massachusetts woman named Cathy Hutchinson, used the technique to bring a coffee container to her lips for the first time in 15 years. Ms. Hutchinson was rendered immobile by a stroke she suffered while tending her garden in 1996.
Is John Edwards a Criminal?
There was always something fake about John Edwards, but that didn't stop Progressives from promoting him. Now that the truth comes out about what a sleazebag he is, people are asking does that make him a criminal? While Edwards is on trial, superPacs go unchecked and corporations, the super-rich, are outright buying elections.
So this is what enforcement of campaign finance laws has come to in 2012: In a courtroom in North Carolina, jurors hear harrowing testimony about Elizabeth Edwards’s deathbed fears and John Edwards’s delusional bid to trade his presidential endorsement for a spot on the ticket. Meanwhile in Washington, the real threat to “the integrity of democratic elections” that Breuer cited in going after Edwards grows unchecked.
The Supreme Court, with a dewy-eyed view of independent expenditures, blind to the inevitability of wink-and-nod coordination, opened the door to this flood of campaign cash. The entities that could close it are hamstrung and unmotivated. Congress has no appetite for fixing the law, and little ability in its gridlocked state to make that happen.
The Federal Election Commission, which could step in to write tighter regulations, is paralyzed in a 3 to 3 standoff between Democrats and Republicans. The terms of five of the six commissioners have expired. The president, who once pledged to ensure “strong, impartial leadership” at the commission, hasn’t bothered to submit a candidate since the one he nominated in 2009 withdrew after 15 months of congressional inaction.
Something is very wrong with this picture.
The Obligatory Facebook Mention
The Facebook IPO breaking even on it's first day of trading is no surprise, especially if one was alive during the dot con era. The Wall Street Journal picks apart the wreckage and compares it to some past much hyped out IPOs. Oops, seems not as many were hitting that like button as expected, time to prop up the price!
Lead underwriter Morgan Stanley received about 38% of the IPO shares to distribute, while J.P. Morgan got 20% and Goldman Sachs Group Inc.'s allotment was roughly 15%. Morgan Stanley is expected to command the largest percentage of more than $175 million in fees from the IPO.