TIME Economy

U.S. Attacks Britain Over Support For China-Backed Bank

A family photo shoot fir the APEC leaders' meeting at the International Convention Center at Yanqi Lake in Beijing
Kim Kyung Hoon—Reuters U.S. President Barack Obama gestures next to China's President Xi Jinping during the APEC leaders' meeting at the International Convention Center at Yanqi Lake in Beijing on Nov. 11, 2014.

In a rare public spat between the two allies, an Obama aide has criticized the U.K's stance toward Beijing

The U.S. government has expressed its disapproval of the U.K.’s application to become a founding member of the $50 billion Asian Infrastructure Investment Bank (AIIB), the first G7 country to do so since the institution was launched last year to provide funds for infrastructure in the Asia-Pacific region.

“We are wary about a trend toward constant accommodation of China, which is not the best way to engage a rising power,” a senior Obama administration official told the Financial Times on Thursday. The statement marks a rare breach in the “special relationship” that has long defined U.S. – U.K. relations.

Washington officials view the Beijing-led institution with suspicion, fearing it will not meet the standards of governance and safeguards set by the Washington-based World Bank and the International Monetary Fund (IMF), and the Japanese-backed Asia Development Bank.

The White House has been lobbying its allies not to join the AIIB, concerned that China is trying to extend its reach in the region and that the bank could end up being overly influenced by Beijing foreign policy if it has veto power over decisions.

Meanwhile British Chancellor George Osborne, the driving force behind the U.K.’s decision to join the bank, said in a statement that Britain should be involved early on to promote “closer political and economic engagement” with the Asia-Pacific region and encourage the two regions “to invest and grow together.”

[Financial Times]

MONEY TV

Here’s Everything That’s Wrong With Cable and Satellite TV Bills

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Getty Images

A new complaint filed by the FTC alleging deceptive advertising by DirecTV is a case study in everything that customers hate about how pay TV providers do business.

This week, the Federal Trade Commission filed a complaint against the satellite pay TV provider DirecTV, alleging deceptive advertising. The FTC charges that DirecTV violated the FTC Act in many instances by failing to clearly and prominently disclose various “gotchas” in subscriber contracts, including that customers are locked into services for two years, and that an extra fee for premium channels kicks in automatically unless subscribers proactively cancel the option.

A federal court in San Francisco will decide if DirecTV is guilty as charged, and if so how much the company will owe in fines and payments to customers. Regardless of the outcome, however, the complaint exposes pretty much everything that’s misleading, hated, and just plain wrong with the way pay TV providers—DirecTV as well as Comcast, Time Warner Cable, and the rest—reel in subscribers in and then get them on the hook for a lot more money than they’d anticipated.

Specifically, the case calls attention to the following annoying and atrocious practices routinely employed by virtually all pay TV providers.

Loads of fine print. “It’s a bedrock principle that the key terms of an offer to a consumer must be clear and conspicuous, not hidden in fine print,” FTC Chairwoman Edith Ramirez said in the press release announcing the complaint against DirecTV. Yet to this day, details regarding DirecTV’s plans, including a requirement to keep the service for 24 months or face a cancellation fee up to $480, are explained in typeface that’s minuscule compared with the $19.99 monthly rate. It’s also confusing that while it’s necessary to subscribe for 24 months, the $19.99 rate is only valid for half that time. What happens after the first 12 months have ended?

Exploding bills. “DIRECTV does not clearly disclose that the cost of the package will increase by up to $45 more per month in the second year,” the FTC complaint states. This strategy—drawing in subscribers with a cheap rate, then jacking it up as soon as possible—is the consensus business model of all the major pay TV providers. What this commonplace tactic shows is that these companies value new subscribers over older, more loyal ones. It essentially punishes loyal customers who accept the bill hikes without complaint, while giving price breaks to newcomers and people who threaten to jump ship to a competitor. Assuming that’s a possibility, of course.

Difficult to change or cancel. DirecTV hits subscribers with a big fee if they try to drop the service before the allotted two-year introductory period has ended. The widespread use of “retention specialists” whose job is to stop customers from canceling or downsizing plans, as well as various cancellation or change fees, plus the fact that most Americans only have one or two pay TV options where they live all help to conspire to keep subscribers paying whichever provider they currently have.

Surprise fees. The cancellation fee cited by the FTC is only one of many charges that drive pay TV subscribers crazy. The others include a dizzying roster of taxes and fees for things like modems or some vague “Voice/data Equipment.”

Overall deception and opaque pricing. How much will your total monthly bill come to after all taxes and fees? What’s the exact breakdown on fees? When will introductory prices rise, and what rate will they rise to? For that matter, what’s the full price for various package plans in your neck of the woods? Good luck finding answers to any of these spelled out clearly and prominently on a pay TV provider ad or website.

The providers prefer to keep customers in the dark, and you can see why: If people knew how much their bill would actually be, and how quickly and significantly the monthly rate will soar, they’d be a lot less likely to sign up in the first place.

TIME Companies

Steve Jobs Turned Down a Partial Liver Donation From Apple CEO Tim Cook

Revelation is contained in a new Jobs biography

During the final years of Steve Jobs’ life the former Apple CEO was in desperate need of a liver transplant but refused his successor Tim Cook when he suggested a partial one, reveals a new biography set for release on March 24.

In the upcoming book Becoming Steve Jobs, written by Brent Schlender and Fast Company executive editor Rick Tetzeli, Cook reportedly went through a series of tests and discovered that a partial liver transplant was feasible, but said Jobs heatedly turned him away.

“Steve only yelled at me four or five times during the 13 years I knew him, and this was one of them,” Cook says in the book.

Read the full excerpt here and check out the April edition of Fast Company for more.

[Fast Company]

TIME Economy

What Did We Learn From the Dotcom Stock Bubble of 2000?

Nasdaq board
Chris Hondros—Getty Images A passer-by looks over the prices on the Nasdaq board in Times Square in New York, April 3, 2000.

It was 15 years ago that the tech-stock bubble burst

Fifteen years can seem like a long time — and the year 2000 can seem like a different world. Back in those halcyon days of the early new millennium, America was enjoying a post-Lewinsky Scandal, pre-9/11 glow. The Yankees were winning World Series. Justin and Britney were America’s hottest couple. And the “dotcom” economy was chugging along, with new internet-based companies seeming to pop up every single week.

But in March of 2000, 15 years ago, one of those things came to a crashing halt. The dotcom bubble, which had been building up for the better part of three years, slowly began to pop. Stocks sunk. Companies folded. Fortunes were lost, and the American economy started to slip down a slow mudslide that would end up in full-on recession.

Today, in the middle of another boom in technology-based businesses, let’s look back at what happened to the early techno-tycoons — and what, if anything, we can learn from their mistakes.

The Buildup

The dotcom bubble started growing in the late ’90s, as access to the internet expanded and computing took on an increasingly important part in people’s daily lives. Online retailing was one of the biggest drivers of this growth, with sites like Pets.com — you know, the one with the cute sock-puppet mascot starring in the funny ads — getting big investors and gaining a place in American consumer culture.

With the investment and excitement, stock values grew. The value of the NASDAQ, home to many of the biggest tech stocks, grew from around 1,000 points in 1995 to more than 5,000 in 2000. Companies were going to market with IPOs and fetching huge prices, with stocks sometimes doubling on the first day. It was a seeming wonderland where anyone with an idea could start making money.

The Burst

In March of 2000, everything started to change. On March 10, the combined values of stocks on the NASDAQ was at $6.71 trillion; the crash began March 11. By March 30, the NASDAQ was valued at $6.02 trillion. On April 6, 2000, it was $5.78 trillion. In less than a month, nearly a trillion dollars worth of stock value had completely evaporated. One JP Morgan analyst told TIME in April of 2000 that a lot of companies were losing between $10 and $30 million a quarter — a rate that is obviously unsustainable, and was going to end with a lot of dead sites and lost investments.

Companies started folding. (Pets.com was one.) Magazines, including TIME, started running stories advising investors on how to limit their exposure to the tech sector, sensing that people were going to start taking a beating if their portfolios were too tied to e-tailers and other companies that were dropping like flies.

During the 2000 Super Bowl, 17 dotcom companies had paid $44 million for ad spots, according to a Bloomberg article from the following year. At the 2001 Super Bowl, just one year after that bonanza, only three dotcom companies ran ads during the game.

Does history repeat itself?

The shadow of 2000 dotcom bubble burst looms especially large now, as the economy is in another era of huge growth in the tech sector. Chinese e-tailer Alibaba had a history-making IPO last fall. Companies like Uber, Palantir and AirBnB are “Unicorns,” start-ups held privately and worth more than $1 billion — so-called because, for a long time, people thought they couldn’t really exist.

Are we in for another bubble burst?

Entrepreneur and Dallas Mavericks owner Mark Cuban thinks so, arguing recently on his blog that the difference between the 2000 bubble and today’s economy is that today’s bubble isn’t really about the stock market. It also includes private “angel” investments, which can’t just be sold off like stocks. And that, he says, is a problem:

So why is this bubble far worse than the tech bubble of 2000?

Because the only thing worse than a market with collapsing valuations is a market with no valuations and no liquidity.

If stock in a company is worth what somebody will pay for it, what is the stock of a company worth when there is no place to sell it?

Essentially, Cuban thinks that despite the huge investments many start-ups are getting, there just isn’t any real cash in those companies. Eventually, that will become apparent, but the investors will be stuck.

Some claim that we’re safe, though, that there’s more scrutiny from investors today. In response to Cuban, entrepreneur Amish Shah wrote on Business Insider that investors today aren’t looking for the type of quick return many were in 2000. Instead, they know that private investment is a long-term process, where earning a profit would likely take years. Plus, he adds, investors today are so wary of what happened 15 years ago that they’re careful. In other words, whether or not the world has learned anything else from the problems of the year 2000, one thing won’t be forgotten: it was bad, and nobody wants it to happen again.

Read next: How the Cheap Euro Is Hurting Your Investments

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TIME Transportation

Uber, Lyft Lawsuits Could Spell Trouble For the On-Demand Economy

Lyft Car
Justin Sullivan—Getty Images A Lyft customer gets into a car on January 21, 2014 in San Francisco, California.

Judges allowed the lawsuits over drivers to be heard by juries

The ride-app services Uber and Lyft were dealt a setback by two separate California judges Wednesday, who ruled that juries would decide the fate of lawsuits that could have broad implications for a range of tech startups.

The lawsuits were filed by workers who allege they are misclassified as independent contractors so the businesses don’t have to reimburse the drivers’ expenses like they would for employees. The plaintiffs believe they’re owed money for outlays like gas, insurance and vehicle maintenance—costs that could be enormous if juries determine they’re owed to tens of thousands of active drivers working for Lyft and Uber in California. The companies had sought separate summary judgments dismissing the cases, but the judges in California’s North District Court denied them, saying their peers would have to determine the status of the drivers.

“This is a huge milestone and major victory for drivers in both cases,” says Shannon Liss-Riordan, a Boston-based labor lawyer working on both cases. Her firm has brought cases on behalf of a range of low-wage workers, from Starbucks baristas to exotic dancers to house cleaners. “There’s this whole wave of companies who seem to think that they’re above the law and don’t need to comply with employment and wage laws,” she says. “They’re claiming there’s something new and different because their services are provided through technology, through a smartphone … but there’s nothing new about this.”

A spokesperson for Lyft says they are not commenting on pending litigation. Uber sent TIME a similar statement.

The legal fight is being closely watched by the many other startups who depend on the growing “1099 workforce,” people who are generally willing to trade a 9-to-5 work week and health insurance for a more flexible job. The ranks of this workforce have been growing along with the public’s appetite for the services they provide, like on-demand rides, groceries, hot meals, flowers and house cleaning. “It’s not only the consumer who says ‘I want it on demand.’ The supply is on demand,” says Ravi Dhar, a Yale management professor.

Businesses that use these on-demand workers have been able to scale fast partly because they are not on the hook for treating their personal shoppers or drivers or deliverymen like employees. Among the other startups that could be affected by the eventual rulings is Instacart, a company that organizes workers who shop for and deliver groceries to users in as little as an hour. The company is less than three years old and has been valued at $2 billion. Just as Uber has long insisted that the company is a not a transportation service, executives at Instacart say that they are not a grocery delivery company but a software platform whose app allows people to deliver groceries to other people who want them.

Liss-Riordan notes that in rejecting the companies’ requests to have the cases dismissed, the judges were also rejecting the notion that Uber and Lyft are not in the business of providing transportation. As U.S. District Court Judge Vince Chhabria wrote in his ruling:

Lyft tepidly asserts there is no need to decide how to classify the drivers, because they don’t perform services for Lyft in the first place. Under this theory, Lyft drivers perform services only for their riders, while Lyft is an uninterested bystander of sorts, merely furnishing a platform that allows drivers and riders to connect, analogous perhaps to a company like eBay. But that is obviously wrong.

Yet that doesn’t mean the juries will have an easy decision to make. Chhabria noted in his ruling that the labor laws at issue were written in a pre-sharing economy era. “As should now be clear,” he wrote, “the jury in this case will be handed a square peg and asked to choose between two round holes. The test the California courts have developed over the 20th Century for classifying workers isn’t very helpful in addressing this 21st Century problem.”

For now, these cases apply only to drivers in California, though Liss-Riordan says she has been contacted by hundreds of drivers and intends to create a nationwide class-action suit. She expects Uber to invoke an arbitration clause that prohibits many drivers from joining a class-action suit, forcing the them to bring any claims against the company on a individual basis. Lyft has waived a similar clause. “If Uber really wants to try these cases one by one in arbitration, we’ll do that,” she says.

If the juries find that drivers for the two biggest players in the new ride-app economy are owed for gas, that could lead to other standard employee benefits. The companies could be on the hook for workers’ compensation and unemployment insurance. They could be forced to pay drivers overtime and make sure they’re at least making minimum wage. Uber, the larger company, would also be looking at larger payouts. While Lyft has been valued at $2.5 billion, Uber has garnered valuations of $40 billion.

Read next: Cab Drivers No Longer Required to Learn N.Y.C.’s Streets

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TIME Companies

Uber Rival Lyft Valued at $2.5 Billion

Lyft Car
Justin Sullivan—Getty Images A Lyft car drives along Powell Street on June 12, 2014 in San Francisco, California.

The ride-sharing service still trails its much larger competitor

Investments in the ride-sharing firm Lyft have valued the company founded three years ago at roughly $2.5 billion.

Lyft raised $530 million in its latest round of funding, including $300 million from Japanese online retailer Rakuten Inc., as it looks to continue expanding, Reuters reports.

But the private company still lags behind Uber, the largest startup in the U.S, which has also rapidly expanded abroad. Uber is valued at around $40 billion.

[Reuters]

Read next: Uber, Lyft Lawsuits Could Spell Trouble For the On-Demand Economy

Listen to the most important stories of the day.

MONEY Retirement

Don’t Save for College If It Means Wrecking Your Retirement

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Mark Poprocki—Mark Poprocki

When you short-change retirement savings to pay for the kids' college, they may end up paying way more than the price of tuition to support you in later life.

Making personal sacrifices for the good of your children is Parenting 101. But there are limits, and financial advisers roundly agree that your retirement security should not be on the table.

Still, parents short-change their retirement plans all the time, often to set aside money for Junior to go college. More than half of parents agree that this is a worthwhile trade-off, according to a T. Rowe Price survey last year. Digging into the reasons, the fund company followed up with new results this month. In part, researchers found:

  • Depleting savings is a habit. Parents say it is no big deal to steal from retirement savings. Some 58% have dipped into a retirement account at least once—most often to pay down debt, pay day-to-day living expenses, or tide the family over during a period of underemployment.
  • Many plan to work forever. About half of parents say they are destined to work as long as they are physically able—so why bother saving? Among those who plan to retire, about half say they would be willing to delay their plans or get a part-time job in order to pay for college for their kids.
  • Student debt scares them. More than half of parents say spending retirement money is preferable to their kids graduating with student debt and starting life in a hole. They speak from experience. Just under half of parents say they left college with student debt and it has hurt their finances.

We love our kids, and the past seven years have been especially tough on young adults trying to launch. So we shield them from some of life’s financial horrors, indulging them when they ask for support or boomerang home—to the point that we have created a whole new life phase called emerging adulthood.

Yet you may not be doing the kids any favors when you rob from your future self to keep them from piling up student loans today. Paying for college when you should be paying for your retirement increases the likelihood that they will end up paying for you in old age, and that is no bargain. They may have to sacrifice career opportunities or income in order to be near you. You’ll go into assisted living before you become a burden on the kids? Fine. At $77,380 per person per year for long-term care, it could take a lot more resources than the cost of borrowing for tuition.

It sounds cold to put yourself first. But the reality is that your kids can borrow to go to school; you cannot borrow to retire. So get rid of the guilt. Some 63% of parents feel guilty that they cannot fully pay for college and 58% feel like a failure, T. Rowe Price found. Nonsense. Paying for college for the kids is great if it does not derail your savings plan. But if it does that burden must become theirs. That’s Parenting 101, rightly understood.

Read next: Don’t Be Too Generous With College Money: One Financial Adviser’s Story

TIME stocks

The Average Wall Street Bonus Was $172,860 in 2014

A trader works on the floor of the New York Stock Exchange shortly before the end of the day's trading in New York July 31, 2013
Lucas Jackson—Reuters A trader works on the floor of the New York Stock Exchange shortly before the end of the day's trading in New York July 31, 2013

But that's only a 2% rise on the previous year

Despite falling profits, the average bonus on Wall Street rose to $172,860 last year, according to a report released Wednesday by New York State Comptroller Thomas P. DiNapoli.

That marks a 2% increase from 2013 and is the highest average payout since 2007 — right before the financial crisis.

The bump comes as estimated pre-tax profits fell by 4.5% from $16.7 billion in 2013 to $16 billlion last year.

“The cost of legal settlements related to the 2008 financial crisis continues to be a drag on Wall Street profits, but the securities industry remains profitable and well-compensated even as it adjusts to regulatory changes,” DiNapoli said in a press release.

The New York Office of the State Comptroller, whose main duty is to audit government operations and operate the retirement system, has been tracking the average bonus paid on Wall Street for nearly three decades. When it began recording in 1986, the average payout was $14,120. The highest average bonus was $191,360 in 2006.

After two years of job losses, the industry added 2,300 jobs in 2014 to a total of 167,800 workers.

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