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Warren Buffett finds tax advantage in Duracell deal

Thu, 2014-11-13 11:00

When Warren Buffett's company Berkshire Hathaway buys the battery brand Duracell from Procter & Gamble, Berkshire will pay the $4.7 billion price tag in stock. Not Berkshire Hathaway stock, but Procter & Gamble stock, which Berkshire just happens to have.

Berkshire Hathaway did a very similar swap earlier this year, when it bought a TV station from Graham Holdings — formerly and better known as the Washington Post Co. Same thing when it bought a subsidiary of Phillips 66 last December. Why not just pay cash?

First, these trades line up with something Berkshire Hathaway has come to favor over time: Owning and managing whole companies. According to Larry Cunningham, a George Washington University law professor and the editor of “The Essays of Warren Buffett,” Berkshire was once happy to either own stock or a small stake in a business. He says as Berkshire grew, that outlook changed.

"Now, it prefers to own entire businesses rather than small positions," he says. "So, this is a neat way to achieve that objective."

Also, these swaps allow Berkshire Hathaway to save a boatload on taxes. Procter and Gamble’s stock is worth much more than when Berkshire bought it, so selling that stock would mean paying taxes on the profit — probably more than 33 percent.

Thomas Lys, a finance professor at Northwestern University’s Kellogg School of Management, has done the math. Berkshire originally bought its shares for $336 million, and the stock is now worth $4.7 billion.  

"So that's a profit of $4.4 billion," Lys says. "So a third of that is — hefty tax." 

But in this deal, Berkshire isn’t selling the stock. It’s trading one piece of Procter and Gamble — the stock — for another piece, Duracell. Going for big tax savings seems like it would sit uncomfortably with Buffett’s role as the rich guy who’s always calling on the government to change the tax code and raise his taxes. But Lys says there is an important distinction to be made because Buffett is the CEO of Berkshire.

"Warren Buffett has an obligation to his shareholder," Lys says. "And that obligation is to pay as little as the code allows."

Hollywood's next 'it' celebs – toys

Thu, 2014-11-13 11:00

The latest buzz on Wall Street is that toy maker Hasbro might acquire Dreamworks Animation, the company behind Shrek and Kung Fu Panda.

Neither company has commented on the rumor and, according to reports, talks could still fall apart. 

The possible acquisition reflects the modern big business of selling toys. Once upon a time, toys were, well, just toys. You built stuff with Legos and played make-believe with Transformers.

But that's changed, says Chris Byrne, a toy analyst at TTPM. Popular toys are now considered entertainment “properties.” For example, Hasbro's Transformers and even its Ouija board are now the stars of movies

Bryne says the question is now, "'How do we think about this property in all the ways in which kids encounter that entertainment?' So that could be toys, that could be TV, that could be movies, that could be video games." 

The shift reflects the way kids are buying toys, says  Sean McGowan, analyst at Needham and Co. Children's entertainment used to focus on toys and cartoons, but today, McGowan says, "the claims on kids' time and attention and money are growing. So you see them using their smart devices."

Featuring toys as movie stars has helped, but overall, toy sales have remained flat for more than a decade, McGowan says.

Paul Sweeney, an analyst at Bloomberg Intelligence, says the fact that movie studios have also grown bullish on featuring toys also drives the trend.

"What’s happening in Hollywood, [is] the studios are really looking for tried-and-true already proven franchises, if you will, either stories or characters," Sweeney says. 

Sweeney says this deal would make sense on some levels – but the list of companies that have lost fortunes trying to make it in Hollywood is a long one.

Hollywood's next it celebs: Toys

Thu, 2014-11-13 11:00

The latest buzz on Wall Street is that toy maker Hasbro might acquire Dreamworks Animation, the company behind Shrek and Kung Fu Panda.

Neither company has commented on the rumor, and according to reports, talks could still fall apart. 

The possible acquisition reflects the modern big business of selling toys. Once upon a time, toys, were, well, just toys. You built stuff with Legos and played make-believe with Transformers.

But that's changed, says Chris Byrne, a toy analyst at TTPM. Popular toys are now considered entertainment “properties.” For example, Hasbro's Transformers and even its Ouija board are now the stars of movies

Bryne says the question is now, 'How do we think about this property in all the ways in which kids encounter that entertainment? So, that could be toys, that could be TV, that could be movies, that could be video games." 

The shift reflects the way kids are buying toys, says  Sean McGowan, analyst at Needham and Co. Children's entertainment used to focus on toys and cartoons, but today, McGowan says, "the claims on kids time and attention and money are growing. So, you see them using their smart devices."

McGowan says featuring toys as movie stars has helped, but overall, toy sales have remained flat for more than a decade. 

Paul Sweeney, an analyst at Bloomberg Intelligence, says the fact that movie studios have also grown bullish on featuring toys also drives the trend. "What’s happening in Hollywood, [is] the studios are really looking for tried-and-true already proven franchises, if you will, either stories or characters," Sweeney says. 

Sweeney says this deal would make sense on some levels, but he says the list of companies that have lost fortunes trying to make it in Hollywood is a long one.

Why the Reddit CEO stepped down

Thu, 2014-11-13 11:00

Reddit CEO Yishan Wong stepped down Thursday. In a blog post, investor Sam Altman said the departure was over a fight with the board about a new office.

That's right: Wong didn't get the office he wanted so he quit.

"To be clear, though, we didn't ask or suggest that he resign — he decided to when we didn't approve the new office plan," Altman explained.

Whether this is actually what happened or just corporate nonsense is up for the debate.

 

Why toymaker Hasbro could buy DreamWorks Animation

Thu, 2014-11-13 08:27

Deadline Hollywood reported this week that Hasbro—the second-largest toy maker in the United States—is in talks to acquire DreamWorks Animation. 

DreamWorks Animation has been looking to get acquired—a deal with Japanese SoftBank fell apart just last month. And Hasbro has been looking to get more involved in the movie business. 

But why? 

For DreamWorks Animation, part of it is a need to diversify beyond a marketplace for movie ticket sales that is increasingly challenging, especially for computer animated films.

"Like any technology, it's become easier, cheaper and faster," says Phil Contrino, chief analyst at BoxOffice.com. "So what that means is there's more competitors than in 1995, when Toy Story came out."

Now, DreamWorks Animation competes not only with Toy Story's Pixar, but with Sony and Universal, with its "Despicable Me" franchise. 

As DreamWorks Animation has sought more revenue elsewhere, it has, in part, turned to merchandise. This is a business where Hasbro has excelled, with profits bouyed by toys based on the Star Wars movies and those of Marvel comic books, like Spiderman and Iron Man. 

But it also works the other way around. Hasbro has profited off games and toys that have turned into movies: GI Joe, Ouija and—most of all—Transformers. 

"The Transformer movies have been very lucrative not just because of the toy side but also because the toy side provided the [intellectual property] to make movies which did very well at the box office," says Martin Brochstein, senior vice president of industry relations and information at the International Licensing Industry Merchandisers' Association.

This trend can be seen throughout the toy industry. "Mattel, Hasbro, Lego have kind of turned on to the fact that they have this asset that can be mined," says Brochstein. 

In other words: Toys are the new comic books.

PODCAST: Movies become child's play

Thu, 2014-11-13 03:00

We know that unleaded is less than $3 dollars a gallon on average now. The Department of Energy is now saying it'll stay that way for 2015. More on that. And a Hollywood trade publication Deadline.com was first to report that the toymaker Hasbro is in talks to buy DreamWorks Animation. More on the move to make movies out of toys. Plus, we take a look at a new book that shows how a currency crisis was pivotal to the history of George Washington, and to the United States as we know it.

World of Warcraft competes in a 'freemium' world

Thu, 2014-11-13 02:00

The latest incarnation of the World of Warcraft video game is released Thursday. The PC-based online multi-player game is among the most popular with more than seven million subscribers, who pay a fee up-front to join the game.

But the subscriber base is down from a peak of 12.3 million in 2010. That decline is opposite the rest of the video gaming industry, which has seen rapid growth—four times that of the rest of the U.S. economy, according to industry data.

A lot of the growth has been in free mobile game apps—so-called freemium apps, which mobile consumers can download for free, but which entice players to pay for extras inside the game.

"The question of whether or not free to play is evil, is of course a fair question,” says Joost van Dreunen, who heads SuperData Research, a firm that tracks the video game industry. Van Dreunen says a lot of game designers themselves refer to "freemium" apps as "evil."

But despite any misgivings or criticisms, growth of mobile has changed video games, says van Dreunen, to the point that “only 20 to 25 percent of games in the app stores are charging people up front." 

And Brian Blau, research director at the technology-focused firm Gartner, says the free-to-play model is expanding. 

"There are many games across all platforms that are looking at the free-to-play monetization model as their ticket for the future,” says Blau.

That may mean a lot more freemium games, and certainly a continued growth in the mobile market, as the global video games industry is forecast to hit the $100 billion mark by 2017. 

Average college student debt on the rise

Thu, 2014-11-13 02:00

New statistics on student loans show the cost of newly minted bachelor’s degrees continuing to rise. The latest report from the Institute for College Access and Success says the average debt for undergraduates sits at $28,400, up 2 percent from last year.

But the people with the really big debt loads are not the ones to worry about.

Across the country, student debt levels vary widely, from student to student and college to college. Lauren Asher, president of the institute, notes that even though the rate at which tuition is increasing is going down, “that’s still growth on top of growth on top of much-faster growth before—far exceeding inflation, let alone where family wages are.”

Asher says that even as unemployment rates among college graduates improve following the Great Recession, loan defaults still continue to rise.

But those students with the highest debt are typically entering more lucrative career fields. 

“The people with the largest debts are the ones who went to professional school,” says Susan Dynarski, an economist at the University of Michigan. “They’ve got a B.A. already, typically the default rate for that group of students is about 3 percent.”

Compare that with students with just a bachelor’s degree defaulting at 16 percent, and even higher for those who drop out before graduating.

An apartment in the sky, for just $20,000 one-way

Thu, 2014-11-13 02:00

Have you ever day-dreamed about flying first class and getting those precious extra inches of space? Well, how about 125 square feet of space? 

Abu Dhabi-based Etihad Airways is offering what it calls the first-ever apartment cabin on an airplane, called “The Residence.” It has three rooms—a living room, bedroom and bathroom—and comes with a butler and personalized cuisine provided by an on-board chef. 

Among the other amenities are a two-seat reclining leather sofa, a chilled mini-bar, two LCD TVs and a shower in the bathroom. The bedroom boasts a double bed with Egyptian cotton sheets. 

The service is aimed at the ultra rich of the Persian Gulf. The airline says the experience is comparable to staying at a fine hotel, traveling by yacht, or having a private jet. 

It also costs $20,000 for a one-way ticket. 

“These are societies where there are some of the highest proportion of millionaires and billionaires per capita anywhere in the world,” says David Andrew Weinberg, a senior fellow at the Foundation for the Defense of Democracies, who specializes in the Persian Gulf region. 

The three big airlines in the region all have ties to the area’s monarchies, says Weinberg.

“All of these are prestige projects for principalities in the Gulf," he says. "It’s an outbidding contest of who can build the most luxurious new feature.”

But the airlines are also an important part of the region’s future economic plans. Those billionaires and millionaires were created through oil wealth. The oil will run out eventually, and Weinberg says the area’s governments are trying to build up industries, including airlines, that can take over.  

The 10-year-old Etihad Airways became profitable only a couple of years ago. In 2008, it spent $43 billion to purchase new airplanes. It has 220 aircrafts on order, including 10 Airbus A380s and 71 Boeing 787 Dreamliners. 

It is building one residence apartment in each of the new Airbus A380s that come into service, the first of which will be active in December. The apartment is first being offered on a London/Abu Dhabi route, but the airline plans to expand the service to New York, Paris, and other cities. 

“International airlines are leading the way in super-premium services,” says Andrew Schmahl, an airline industry consultant with the firm Strategy&.

Etihad Airways is competing with a host of international carriers, which are all trying to out-luxury each other. Etihad’s competitor Emirates Airlines announced it also plans to offer apartments on some of its planes.

The first-class amenities on international airlines are starting to trickle down to U.S. carriers, as well. Amenities such as lie-flat beds, higher end cuisine that can be custom ordered, and even luxury cars that ferry first-class passengers between connecting flights. 

Schmahl says airlines are willing to offer high-end luxury service to their first-class passengers, because while competitive pressures keep prices down for the vast majority of travelers, first-class passengers are willing to pay more for better service—and that means higher profit margins for airlines. 

Norman Lear and Amy Poehler Talk creativity

Wed, 2014-11-12 13:39

During Marketplace's LA Roadshow, Kai Ryssdal sat down with actor, writer and producer Amy Poehler as well as veteran TV producer Norman Lear to talk about their careers.

 

Bill Youngblood

For Lear, fights with network executives were the norm. But for Poehler? Not so much.

"Because there's a lot of different outlets for television now... people that want to be a bit more provocative know that they have a place and a home in cable," Poehler says.

Bill Youngblood

But Lear and Poehler weren't always big-time TV producers. Lear's family had to make it through the Great Depression. Growing up, Poehler says her family always had to keep track of money too.

"When no one really has any money, everybody knows how much money everybody makes," Poehler says.

Even though money comes a little easier for Poehler these days, she admits her career sometimes seems like a bad boyfriend.

"Your career will never call you back, it flirts openly with other people. It's never gonna marry you... It likes it when you ignore it."

Bill Youngblood

Listen to the full conversation with Poehler and Lear, from our stage show "How I Learned the Business of Creativity," in the audio player above.

 

 

 

Using data to head off high school dropouts

Wed, 2014-11-12 11:12

Principal Kelley Birch’s office at Willis Jepson Middle School in Vacaville, California, has the usual stuff: elaborate scheduling calendars, photos and a neat stack of papers. 

What you won’t see, unless you walk around to Birch’s desk, is a whiteboard with handwritten names of the 56 students at Willis Jepson who have been struggling – the 7th and 8th graders who might not graduate high school a few years down the road.

Next to each name on the list trouble spots are noted, things like poor grades, poor attendance or serious behavior issues. The list also keeps track of the way the school has tried to help. The more marks next to a student’s name, the more interventions the teachers and counselors have attempted. 

“When I see that board,” says Birch, “I have an urgency that these kids need something now.” 

In the past, Birch says, getting a full view of which kids were in trouble took time.

“We would wait for the teacher. And the teacher would go to the counselor and say, 'I have this student and they aren’t doing well," Birch says. "And the counselor would go look and say, 'Yeah, they aren’t doing well.' But by then, it’s a quarter into the school year, a semester into the school year.” 

Birch now uses what’s known as an Early Warning System. Her team gathers and processes a steady stream of student data – such as GPA, attendance, demerits, and test scores – to peer into the future and spot the 7th and 8th graders most at risk of dropping out of high school.

 

An example of an Early Warning System.

Maine Department of Education

“It’s about using data that are available to predict which students are at risk, identify them, and then provide supports and interventions so they can get back on track,” says Susan Bowles Therriault, principal researcher for the education program at American Institutes for Research. 

The national graduation rate has been climbing steadily. Today, about 80 percent of public high school seniors will graduate. A decade ago, that number was closer to 70 percent. Educators, parents, and politicians all want to see that number continue to increase.

Early Warning Systems are one way schools are trying to make that happen. Therriault says the proliferation of individual-level student data has made these systems possible, even common.

“There are probably schools and districts in every state across the nation that are using Early Warning Systems in some format,” she says. 

Research shows that the two most important factors when trying to predict whether a student will graduate from high school on-time are academic performance and attendance. But different schools, districts and states have their own models. They might include their own variables, or they start looking for signs that a child is at risk at different points in their education. And they flag them in different ways.

Dan Hill for LearningCurve

In Wisconsin, every 6th grader in the state is given a score between 0 and 100 that represents the child’s expected chances of finishing high school on time. Students under 78.5 are flagged as “high risk,” and their names are highlighted in red in the state’s student database.

“It’s early, and that’s the real advantage of it,” says Jared Knowles, a research analyst at the Wisconsin Department of Public Instruction, which calculates the scores.

Knowles says predicting the path of a 6th grader gives teachers a long lead time to change that path. Plus, he says, it can be cheaper to intervene early, before problems multiply.  

But Knowles acknowledges there are risks to using data to mark students as potential dropouts. “We do a lot of work to communicate about the limits of the prediction,” Knowles says, to show “that it’s not destiny.”

Educators wouldn't want a teacher to give up on a student with a score of, say, 20 in order to help those with 80s. They don’t want a student to find out she’s got a red flag next to her name – and give up on herself.

The data, says Knowles, is just a snapshot of how a child is doing. It’s a symptom of trouble, but it’s not a diagnosis, and it’s not a cure.

“The school has to do that hard work to re-engage them back into the education system,” Knowles says.

That is the work that will actually change an outcome for a struggling student, not data or data systems, experts say.

Back at Principal Birch’s middle school in Vacaville, these school interventions take many forms, including special-ed evaluations, behavioral counseling, mentoring, and intervention classes in a specific subject area.

In the English intervention class, about a dozen students are going over the basics of reading comprehension. In the math intervention class, students are struggling to calculate discounts and tips.

These classes take resources, and Willis Jepson Middle School didn’t have extra money, so Birch came up with an elaborate bell schedule to squeeze them into the day. She also made some classes a little bigger, to free up teachers to run these interventions.

Birch says all the extra work like data crunching and schedule crunching is worth it to get students back on track.

And, hopefully, erase their names from that list in her office.

Using data to predict students headed for trouble

Wed, 2014-11-12 11:12

Principal Kelley Birch’s office at Vacaville, Calif.'s Willis Jepson Middle School has the usual stuff: elaborate scheduling calendars, photos, and a neat stack of papers. 

What you won’t see, unless you walk around to Birch’s desk, is a whiteboard with handwritten names of the 56 students at Willis Jepson who have been struggling, the 7th and 8th graders who might not graduate high school a few years down the road.

Next to each name on the list are their trouble spots, things like poor grades, poor attendance, serious behavior issues. On the same list are notes about the ways the school has tried to help. The more marks next to a kid’s name, the more interventions the teachers and counselors attempted. 

“When I see that board,” says Birch, “I have an urgency that these kids need something now.” 

In the past, Birch says, getting a full view of which kids were in trouble took time. “We would wait for the teacher. And the teacher would go to the counselor and say, 'I have this student and they aren’t doing well," Birch says. "And the counselor would go look and say, 'Yeah, they aren’t doing well.' But by then, it’s a quarter into the school year, a semester into the school year.” 

Now, Birch uses what’s known as an Early Warning System. Her team gathers and processes a steady stream of student data, like GPA, attendance, demerits, and test scores, to peer into the future and spot the 7th and 8th graders most at risk of dropping out of high school in the future. 

An example of an Early Warning System.

Maine Department of Education

“It’s about using data that are available to predict which students are at risk, identify them, and then provide supports and interventions so they can get back on track,” says Susan Bowles Therriault, Principal Researcher for the education program at American Institutes for Research. 

The national graduation rate has been climbing steadily. Today, about 80 percent of public high school seniors will graduate. A decade ago, that number was closer to 70 percent, but educators, parents, and politicians all want to see that number increasing. 

Early Warning Systems are one way schools are trying to make that happen. 

Therriault says the proliferation of individual-level student data has made these systems possible, even common. “There are probably schools  and districts in every state across the nation that are using Early Warning Systems in some format,” she says. 

Research shows that the two most important factors when trying to predict whether a kid will graduate from high school on-time are academic performance and attendance. But, different schools, districts, and states have their own models. They might include their own variables, or they start looking for signs a kid is at risk at different points in their education. And they flag them in different ways.

Dan Hill for LearningCurve

In Wisconsin, every 6th grader in the state is given a score between 0 and 100 that represents the child’s expected chances of finishing high school on time. Students under 78.5 are flagged “high risk,” and highlighted in red in the state’s student database.

“It’s early, and that’s the real advantage of it,” says Jared Knowles, a Research Analyst at the Wisconsin Department of Public Instruction, which calculates the scores.

Knowles says predicting the path of a 6th grader gives teachers a long lead time to change that path. Plus, he says, it can be cheaper to intervene early, before problems multiply.  

But Knowles acknowledges, using data this way, to mark kids as potential dropouts, has risks. “We do a lot of work to communicate about the limits of the prediction,” Knowles says, “that it’s not destiny.”

Not destiny.

You don’t want a teacher to see a kid with score of 20, and give up, in order to help the kids with 80s. You don’t want a kid to know she’s got a red flag next to her name, and give up on herself.

The data, says Knowles, is just a snapshot of how a child is doing. It’s a symptom of trouble, but it’s not a diagnosis, and it’s not a cure. “The school has to do that hard work to re-engage them back into the education system,” says Knowles.

It’s that work that’ll actually change an outcome for a struggling student, not data or data systems.

These school interventions take a lot of forms, everything from special-ed evaluations, to behavioral counseling, to mentoring, to intervention classes in a subject area back at Principal Birch’s middle school in Vacaville.

In the English intervention class, about a dozen students are going over the basic of reading comprehension. In the Math intervention class, students are struggling to calculate discounts and tips.

These classes take resources, and Willis Jepson Middle School didn’t have extra money, so Birch came up with an elaborate bell schedule to squeeze them into the day. She also made some classes a little bigger, to free up teachers to run these interventions.

Birch says all the extra work like data crunching and schedule crunching is worth it to get kids back on track.

And, hopefully, erase their names from that list in her office.

Big banks get fined in foreign exchange rigging

Wed, 2014-11-12 11:00

The big banks had a fine time on Wednesday – as in they had to pay $4.3 billion worth of fines to financial regulators in the United States, the United Kingdom and Switzerland.

Traders at several big banks – including UBS, JPMorgan Chase and Citigroup – manipulated foreign exchange rates over a five-year period starting in 2008. Essentially, they banded together to get rich at the expense of their clients.

Foreign exchange, or forex, is by far the biggest market in the world in terms of the amount of money that changes hands. According to Carol Osler, a professor at the Brandeis University International Business School, forex is “easily 10 or 20 or 30 times bigger than any other single market you could imagine.”

Every day, more than $5 trillion moves through the market.

“Trading is literally 24/almost-7,” Osler says. “Over the weekends, very little happens, but there is trading almost any time you want to trade.” 

Companies trade currencies to import and export products, and to buy and sell bonds. Banks want to be sure they have enough yen or euros to buy or sell something at a moment’s notice.Because currency trading happens all the time, there is no closing price.

“There was a need for some sort of formal price that institutions could use to value their portfolios,” Osler says.

And so the “fix” was born.

“They had to find an arbitrary time to grab off a rate, and they just decided to do it at 4 p.m.,” says Kathryn Dominguez, a University of Michigan professor of public policy and economics.

Every day, for one minute around 4 p.m. London time, Reuters takes the average exchange rate and that becomes the “fix.”

According to Darrell Duffie, who teaches finance at the Stanford Graduate School of Business, if you are buying and selling currencies, sometimes you do it in real time, “but sometimes you tell the bank, well, never mind giving me a price now, I’ll just pay whatever the 4 p.m. fixing price is.”

And because of that, currency dealers had an easy time colluding to drive that price up or down. Brandeis’ Carol Osler says that, in private chat rooms, traders told each other how much they had to buy and sell to move the price.

“The dealers are thinking, 'Well, gosh, if almost all of us are going to be buying, then we know the price is going to go up,'” Osler says. “Well, it would be helpful to know what is going on with everyone else.”

When they announced the fines, regulators called on banks to change their corporate culture – and left the door open for criminal prosecution.

Big banks get fined for fixing the forex fix

Wed, 2014-11-12 11:00

The big banks had a fine time on Wednesday, as in, they had to pay $4.3 billion worth of fines to financial regulators in the United States, the United Kingdom, and Switzerland.

Traders at several big banks, including UBS, JPMorgan Chase, and Citigroup, manipulated foreign exchange rates over a five-year period starting in 2008. They, essentially, banded together to get rich at the expense of their clients.

Foreign exchange is the biggest market in the world, by far, in terms of the amount of money that changes hands. According to Carol Osler, a professor at the Brandeis University International Business School, forex is “easily 10 or 20 or 30 times bigger than any other single market you could imagine.”

Every day, more than $5 trillion moves through the market. “Trading is literally 24/almost-7,” Osler says. “Over the weekends, very little happens, but there is trading almost any time you want to trade.” Companies trade currencies to import and export products, and to buy and sell bonds. Banks want to be sure they have enough Yen or Euros to buy or sell something at a moment’s notice.

Because currency trading happens all the time, there is no closing price. “There was a need for some sort of formal price that institutions could use to value their portfolios,” Osler says.

And so, the “Fix” was born.

“They had to find an arbitrary time to grab off a rate, and they just decided to do it at 4:00 p.m.,” says Kathryn Dominguez, a professor of public policy and economics at the University of Michigan. Every day, for one minute around 4:00 London time, Reuters takes the average exchange rate and that becomes the “Fix.”

According to Darrell Duffie, who teaches finance at the Stanford Graduate School of Business, if you are buying and selling currencies, sometimes you do it in real time, “but sometimes you tell the bank, well, never mind giving me a price now, I’ll just pay whatever the 4:00 p.m. fixing price is.”

And because of that, currency dealers had an easy time colluding to drive that price up or down. Brandeis’s Carol Osler says that, in private chat rooms, traders told each other how much they had to buy and sell to move the price.

“The dealers are thinking, 'Well, gosh, if almost all of us are going to be buying, then we know the price is going to go up,'” Osler says. “Well, it would be helpful to know what is going on with everyone else.”

When they announced the fines, regulators called on banks to change their corporate culture, and they left the door open for criminal prosecution.

Why the U.S.-China climate deal isn't crazy ambitious

Wed, 2014-11-12 11:00

The agreement between President Barack Obama and his Chinese counterpart, Xi Jinping, committing both countries to major reductions in greenhouse-gas emissions in the next 10 years, has been widely hailed as a political and diplomatic breakthrough. Until now, one big point of contention in debates about reducing U.S. emissions has been, “What’s the point? China’s the biggest emitter now. Without their participation, world emissions barely budge.”

Less-discussed has been the size of the undertaking itself. President Obama is committing the U.S. to dialing back emissions to less than 75 percent of 2005 levels. That sounds tough. 

But here’s the secret: Essentially, these are reductions the Obama administration has already committed to. 

"If you’re in the clean energy industry in the U.S., and you’ve been keeping up on these developments already, then this announcement probably doesn’t represent a major game-change for you," says Ethan Zindler, an analyst with Bloomberg New Energy Finance.

If you’re not in the clean-energy industry, you may wonder what developments Zindler is talking about. One should be familiar: The Environmental Protection Agency’s Clean Power Plan, proposed in June, is designed to decrease emissions from existing power plants. That’s big.

A less well-known rule — still getting finalized — would strictly limit emissions from any new power plants. Old-style coal plants, the biggest emitters — effectively, new ones would be forbidden.

Then there’s a rule that’s already in force: fuel-efficiency standards for cars.  "The average car that’s sold this month is about 25 percent more fuel-efficient than the one that was sold about five years ago," says Zindler.

The power-plant rules are still proposals, and a new president could eventually undo them. But this agreement makes the whole framework a little stronger. "Any time two major leaders reach an agreement, it has some level of authority to it," says Dan Bakal, director of the electric-power program at the non-profit group CERES.

Finally, a diplomatic partnership opens the door wider to cooperating on the how of reducing emissions. "There will continue to be really advanced technologies that we will cooperate on together," says Susan Tierney, an energy consultant with The Analysis Group. "We need to figure out how to deal with the carbon emissions associated with coal."

Right now, technology for cleaning up emissions from coal generators is experimental and costly. Tierney thinks teaming up with China could help.

At a Starbucks near you: Chestnut Praline Lattes

Wed, 2014-11-12 11:00

Just in time to satisfy your holiday sweet tooth, Starbucks announced its first new holiday beverage in five years: the Chestnut Praline Latte.

In the lineage of holiday flavor trends, Starbucks is throwing chestnut into the ring. 

The drink, according to Starbucks is, "a blend of fresh espresso and flavors of caramelized chestnuts, with freshly steamed milk, topped with whipped cream and spiced praline crumbs."

Which ultimately just sounds like a delicious cup of caffeinated ice cream. So why not just eat ice cream?

Twinkies: brought to you by private equity

Wed, 2014-11-12 11:00

Private equity saved the Twinkie by buying up its manufacturer, Hostess Brands, and reportedly tripling its value in the process.  

Hostess’ owners, Apollo Global Management and Metropoulos and Co. bought the company for $410 million almost two years ago.  Today, there’s speculation it’s worth almost $2 billion.  How do private equity firms do it?

“They buy the company’s assets and then they start looking for inefficiencies,” says David Robinson, a finance professor at Duke University's Fuqua School of Business.

In the case of Hostess, that meant outsourcing delivery of Twinkies and Ding Dongs, slashing the labor force, and closing some plants.

But the private equity buyers also capitalized on nostalgia for Hostess snacks, and the panic that they would soon disappear. 

Their social media campaign featured stars like Snoop Dogg tweeting about a special delivery of Twinkies. 

Even Wall Street analysts weren’t immune.

“I’m a Ding Dong man,” says Bruce Cohen, senior partner at Kurt Salmon.   He did some panic-buying for his office. “We went on Amazon and we bought Twinkies and Ding Dongs and apple pies and the small doughnuts and we had a big celebration.”

With Hostess’s value apparently soaring, other private equity firms are trying the same thing. 

“Just because a company is financially a wreck, it doesn’t mean there’s not a loyalty and it symbolizes a certain thing and it  brings a certain joy and a deliciousness,” says Peter Cowen, managing director of  Clear Capital Advisors.

Cowen says there are other examples of money being made from nostalgia.  Just look at the turnarounds of  Pabst Blue Ribbon beer and Old Spice cologne.

The numbers for November 12, 2014

Wed, 2014-11-12 10:16

Before leaving to continue his tour of Asia, President Barack Obama signed a climate change agreement with Chinese President Xi Jinping.

The announcement Wednesday was part of a nine-month planning process. The U.S. will double its current rate of carbon cuts with a target of reducing 26 to 28 percent by 2025, while China pledged to peak its emissions growth by 2030. The plan is already getting pushback from the new Republican Senate majority, the Wall Street Journal reported.

Here are some stories we're reading and other numbers we're watching Wednesday:

$9.9 billion

That's how much merchandise Alibaba sold during its 11/11 shopping event Tuesday, shattering last year's 11/11 and all online sales around Thanksgiving last year, AdAge reported. Nearly half of those sales came from mobile and Chinese brands dominated.

50 million

That's Spotify's active user base, and 12.5 million of them pay for the subscription service. Spotify has seen powerful growth, but the start-up could very well be threatened by YouTube, which is launching its own service with an invite-only beta this week. It's called YouTube Music Key, and yes, it has Taylor Swift.

732,732

The number of followers Alex Lee, a.k.a #AlexFromTarget, had on Twitter as of Wednesday morning. When a photo of Lee at work went viral earlier this month, he was bombarded with requests for photos, endorsements and television appearances as well as threats and harassment. A New York Times story published Wednesday tracked the explosion of fame from Lee's perspective.

39 grams

That's how much sugar is in Starbucks' first new holiday beverage in five years, the Chestnut Praline Latte, which debuts Wednesday. That's actually on the low side - the eggnog latte, peppermint mocha and pumpkin spice latte all hover around 50 grams. ABC News has a taste test.

The cost of living up to the U.S.-China climate deal

Wed, 2014-11-12 06:00

The United States and China made a surprise announcement Wednesday: After months of secret talks, the two largest emitters of greenhouse gases had come to a joint agreement on climate change.

In its first commitment of this sort, China set a target of 2030 to halt emission increases and to produce 20% of its energy using non-fossil-fuel sources. 

The United States set a more nuanced target: a reduction of emissions by 2025 to 26-28% below 2005 levels. 

"I would characterize it as a call to accelerate what we’re already doing," says Bob Perciasepe, president of the Center for Climate and Energy Solutions. "I use the word accelerate, because in order to get there 10 years from now we have to start going a little faster."

The Obama administration claims this target is reachable under existing laws—an important consideration given that the Republican-controlled congress is highly unlikely to pass any related legislation.

To meet these goals will require building on initiatives the administration has put forward that do not require congressional approval, such as tougher fuel standards and the proposed Clean Power Plan to reduce emissions from power plants (Automobiles and electricity are the two largest sources of greenhouse gas emissions in the United States).  

Under the Clean Power Plan proposal, different states could determine how to cut carbon pollution in a variety of ways. 

"But the quickest, fastest, most cost effective option available is switching from carbon intensive coal generators to low carbon natural gas," says John Larsen, senior analyst with the Rhodium Group.

According to the Rhodium Group’s analysis, that switch could cut coal revenue by $15 to $20 billion—and boost revenues for natural gas producers by as much as $30 billion.

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