TIME Crime

Bernie Madoff Victims’ Fund Breaches $10.6 Billion After Feeder Firm Settlement

File photo of Bernard Madoff exiting the Manhattan federal court house in New York
Brendan McDermid—Reuters Bernard Madoff exits the Manhattan federal court house in New York in this Jan. 14, 2009, file photo

Victims gain and additional $90 million as Madoff feeder fund settles

Victims of the biggest investment scam in U.S. history, run by disgraced financier Bernard Madoff, have gained an additional $93 million from a “feeder fund” settlement, bringing the total recovered to $10.6 billion.

Irving Picard, the trustee charged with recovering money for those duped by Madoff, said that Defender Ltd., which used to send money to the swindler’s firm, will receive $520 million from the liquidation of Bernard Madoff’s Investment Securities LLC, owing to significant overpayment.

The first $93 million of this will got to Madoff’s victims, while Defender Ltd. will recoup its share from future payouts, reports Reuters.

Picard has regained around 60% of the estimated $17.5 billion total loss perpetrated by Madoff’s Ponzi scheme, which lures investors by promising unusually high returns.

In 2009, Madoff was sentenced to 150 years in prison for fraud, the maximum term possible.

[Reuters]

TIME Economy

Don’t Trust the Markets: A Correction Is Coming

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Getty Images

The Fed, despite its recent pronouncements, will trigger a fall in stock prices later this year

Up until yesterday’s Fed meeting, America’s central bankers said they were going to be “patient” about the timing of an interest rate hike, which most experts believe will ultimately result in a significant stock market correction (see my recent column about why). So why did that make markets go up so dramatically yesterday?

Because everything else about the Fed’s communication said “we’re going to be more patient than ever” about when and how to raise rates. The central bank downgraded its forecast on the US economic recovery, saying that the pace of the recovery had “moderated somewhat,” in large part because of the strong dollar.

Why is the dollar strong? Mainly because everyone knows that the easy money monetary policy in the US is coming to an end. (QE is over, and most economists are now predicting a rate hike by September.) Meanwhile, pretty much every other central bank is now easing monetary policy—witness the ECB’s new money dump, which has sent European markets soaring.

What does all this tell us? That markets and the real economy are disconnected in a way that is terrifying. Central banks are, as chief economic advisor to Allianz and former PIMCO CEO Mohamed El-Erian put it to me recently, “the only game in town.” Every time the Fed says it will keep rates low a little longer, the market party goes on. All that means is that there will be more pain, eventually, when the punch bowl gets pulled away.

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.

TIME Business School

5 Things You Can’t Learn in Business School

Howard HBCU
Jonathan Ernst—Reuters Graduates celebrate during the 2014 graduation ceremonies at Howard University, a well-known HBCU, in Washington on May 10, 2014.

An MBA will help your career but some skills you need to learn outside campus

Let me start by saying that I have an MBA and am proud of my alma mater. Business schools provide a valuable education and professional network, but there are some skills they can’t always cultivate:

  1. Ethics. Teaching ethics as a course is difficult to begin with. As a result, business schools often focus on how ethical behavior can help companies improve their profits, which makes sense. But while honest business practices are definitely essential to the well-being of a company, real ethics require taking the profit motive out of the equation in order to be genuine. Outside of the MBA program, students themselves need to recognize that ethical behavior is its own reward instead of a cost-benefit equation.
  1. Humility. Business schools, especially those that turn out high-octane bankers and executives, can fail to balance the confidence that they inculcate in their graduates with humility. This breeds arrogance, which can harm businesses. Like ethics, humility is challenging to teach in a classroom, but the result of ambitious people exerting authority in organizations without recognizing their limitations can be disastrous. MBA programs could do more but companies themselves are better positioned to address this issue; they can engender humility by putting employees through the paces and emphasizing self-awareness before giving them more control.
  1. Diplomacy. The ability to navigate volatile situations or people at work, to negotiate with your peers or boss without creating an argument, and lead an organization without resorting to a draconian management style is an invaluable asset. In its simplest form diplomacy is tact, in a deeper form, true empathy with others. This can enable you to disagree with your co-workers or build consensus with minimum friction and maximum effect. But since this is more an art than a professional skill, business school students should make an effort to learn it outside. Today’s workplace, populated by millennials who demand more respect and empathy from companies than previous generations, requires diplomacy more than ever.
  1. Deconstructive thinking. Deconstructive thinking is about breaking a business situation into its component parts and reassembling it in an optimized fashion. For example, the CEO of a bakery chain looking to enter a new market might modify his company’s supply chain so that he can deliver bread to retailers from the closest distribution points, thereby minimizing transport costs and ensuring freshness of the product. Lengthy analysis can lead to the same result but the real skill is in being able to rapidly see the full picture with all its intricacies, and adapt. An MBA can help develop this faculty only partially; most of it comes from prolonged work experience.
  1. Judgement. The modern business world, with its heavy and fast-paced workload, requires constant prioritizing and the aptitude to differentiate between the important and the irrelevant. Yet many business school graduates enter the workforce seemingly without the judgment to do effective triage. The likely reason is an overemphasis on ‘productivity’ instead of ‘efficiency’. Think of it as working hard rather than working smart. MBA programs, probably responding to the rigorous demands of today’s job market, are more concerned with developing reliable workhorses than in cultivating thoughtfulness in how those people perform their jobs. But students can pick this up on their own by asking the simple question: ‘what’s really important?’

As business schools increasingly require prior work experience for new students, you may gain some of the above skills through interaction with your peers, and an MBA will still help you further your career. But recognizing the limits of a classroom education is also important for rounding out your professional skill set and setting you on the path to success.

Sanjay Sanghoee has an MBA from Columbia Business School. He has worked at investment banks Lazard Freres and Dresdner Kleinwort Wasserstein, and at hedge fund Ramius Capital.

Read next: 10 Resume Mistakes That Can Cost You a Job

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TIME Economy

Why Finance Is Still a Problem

TIME.com stock photos Money Dollar Bills
Elizabeth Renstrom for TIME

Inequality, tepid job growth, lack of innovation are partially the result of finance's warped incentives

Warren Buffett warned investors that bankers were still up to their old tricks in his recent investor letter. Vanguard founder Jack Bogle is writing about how high fee mutual funds are ripping off investors and endangering retirement security. And Fed Chair Janet Yellen is touting new, tougher capital rules for “Too Big to Fail” banks. Despite the recovery and strong jobs numbers last week, the re-regulation of the financial sector isn’t yet finished. But a deeper worry, and one that’s taking center stage amongst academics, is the fact that finance has yet to be re-moored to the real economy. That may be dampening the recovery for many.

A growing slew of research, including several just-published papers, has found that over a multi-decade period, the rise of finance is associated with lower capital investment in the real economy, greater inequality, and the demise of more productive industries. Brandeis International Business School professor Stephen G. Cecchetti and Enisse Kharroubi, a senior economist at the BIS, recently published a paper entitled “Why Does Financial Sector Growth Crowd Out Real Economic Growth?”

The answer: because finance looks for quick growth rather than long-term rewards. And because finance wants to invest in industries like real estate and construction where there are tangible assets to be collateralized, rather than intangible assets like the ideas and intellectual property that typically power more productive sectors like, say, technology, pharmaceuticals, or advanced manufacturing. What’s more, the disproportionate pay of bankers (they still make about three times what their similarly well-educated colleagues in other sectors do, even post crisis) continues to lure talent away from areas that create more and better jobs for the population as a whole. “When I was at MIT many years ago,” says Cecchetti, “everyone wanted to work in cold fusion or recombinant DNA. By the 1990s, nobody wanted to do that.” Solution? “I think we should take some proportion of the smartest people in the room and make sure they don’t go into finance,” says Cecchetti, only half joking.

Part of the problem with the rise of finance is that it encourages the culture of shareholder value over all else. That means CEOs focus more on buoying stock prices rather than making the best long-term decisions. The effects can be seen in the fact that since the 1980s, share buybacks and dividend payments have increased in direct proportion to a decrease in productive capital investment, according to a recent Roosevelt Institute paper entitled “Disgorge the Cash: The Disconnect Between Corporate Borrowing and Investment.”

What’s more, says JW Mason, a Roosevelt fellow who authored the paper, the low interest rates that have prevailed particularly since the 2008 crisis have sped up the trend as firms actually borrow money at lower rates to do more buybacks, rather than invest in the real economy. (The later is, by the way, what the Fed’s easy money policy was intended to encourage.) In fact, business investment dropped 20 % since 2008, as almost all borrowing went back to investors in the form of such payments. “It may be that we need to move to a more active control of investments to make sure that useful projects get funded,” says Mason, who says a kind of “World Bank for the US” might be one answer.

All this dovetails with the country’s inequality problem, which is an issue that will be big in the 2016 election cycle. As Wallace Turbeville, a Demos fellow who has done yet another influential paper on financialization points out, both the Republican and Democratic positions on inequality are lacking. Conservatives believe in bootstrapping, and liberals in redistribution of wealth. But if the very structure of our capitalism is designed to reward mainly elites (something Thomas Piketty’s best seller Capital in the 21st Century pointed out so well last year), then no amount of redistribution or hard work can fix the problem.

We need to fix the structure of capitalism itself and, in particular, figure out a way to make it work better for the masses. Turbeville has some of his own ideas about how to do this, including incentivizing long-term share ownership over high-speed trading, and limiting the use of derivatives. I hope that the economic debate in the primary season will be filled with many more.

Correction: The original version of this story misstated the surname of Brandeis International Business School professor Stephen G. Cecchetti.

TIME Parenting

8 Simple Ways to Avoid Raising Spoiled Kids

savings jar
Getty Images

First up, get rid of that piggy bank.

No one intends to raise spoiled brats, but it’s sometimes hard to see the consequences of your actions several years down the road.

Ron Lieber, personal finance columnist for The New York Times, offers his advice on the subject in his new book The Opposite of Spoiled: Raising Kids Who Are Grounded, Generous and Smart about Money.

Here are his eight most practical tips:

Hand out on a regular allowance.

Commit to doling out the funds once a month or once a week, and offer raises on birthdays.

But there’s a catch: Allowance money shouldn’t be given to children as a reward for chores completed.

“If they do (their chores) poorly, there are plenty of valuable privileges we can take away, aside from withholding money. So allowance ought to stand on its own, not as a wage but as a teaching tool that gets sharper and more potent over a decade or so of annual raises and increasing responsibility,” says Lieber.

Instead, let allowance work as “practice money,” and let children learn about finances by controlling their own allowance.

Keep their money where they can see it

The cover of Lieber’s book shows three mason jars labeled spend, save and give. This is his preferred method for helping children track their finances.

“I hate piggy banks, and the problem begins with the metaphor itself. Pigs are dirty, and they eat a lot, so piggish behavior isn’t something to aspire to,” writes Lieber. “Meanwhile, ceramic or metal containers are problematic, since we want kids to be able to see what’s inside and watch it grow.”

Let them spend

Allow for a little bit of impulse, but also teach your children the difference between wants and needs. Show them where to draw the line between high quality and high dollar.

“My wife and I are still debating exactly where we’ll put the line,” Lieber writes. “I’m making the case for a broad-based ‘Land’s End Line.’ If we adopt it, that means we’d pay whatever Land’s End (my definition of a suitably mid-priced merchant that sells quality clothing) would charge for any clothing needs, even if an item comes from some other designer or shop. Anything with a price to the right of the Land’s End Line would be a want.”

Help them save, but only to a point

Money in the savings jar should be collected with a goal and timeline in mind, Lieber writes.

For younger children, the concept of time and goals are already fuzzy enough, so keep it short and specific.

For teenagers, their savings goals might be a bit loftier – it might be earmarked for a first car or senior class trip – and they might outgrow the jar system. Help them establish a savings account and transfer their allowance there automatically.

Use an app

Use Allowance Manager to make automatic weekly payments to your children’s accounts. They can spend their money with prepaid Allowance Cards and track their purchases with mobile and desktop apps.

Lieber also recommends FamZoo, another family banking app that also offers prepaid cards and money tracking functions. It also has an IOU feature that lets parents owe money to children and vice versa.

Show them how you use your money

Accordine to Lieber, a remarkable “64% of kids said they had no idea what their parents were giving, if anything,” so he suggests parents make an example of their charity while also giving kids a chance to get involved.

Let children help decide where mom and dad should donate money and time and teach them how to vet the worthiness of charities asking for money by evaluating if they provide essential services or goods to those in need.

Throw around less cash but more imagination

Lieber pokes at the problem with elaborate birthday parties and bar mitzvahs (for example, this stage show in honor of one Texan youngster) and Tooth Fairy inflation. It can all lead to materialism. But he offers some advice: Do things more modestly, but make them more special.

The Tooth Fairy can (and should!) visit to stay in line with lore, but Lieber encourages parents to put their own twist on the tale. Maybe your Tooth Fairy leaves glitter on the windowsill or gets caught on camera.

Birthdays are still cause for celebration, but in lieu of expensive gifts, Lieber suggests requesting party guests’ parents spend about half what they normally would and donate the other half to charity. This also eliminates the envy-inducing gift opening ceremony.

Finally, let grandparents break all the above rules

Accept that grandparents are the X factor. They’re bound to come through with the North Face jacket your teen is dreaming of while you’re striving to tow the Land’s End Line.

“We’ve found that grandparents will gleefully disrupt this attempt at standard setting with spontaneous bursts of generosity,” write Lieber. “Still, as long as it doesn’t happen too often, the continuum will hold if we parents apply it consistently.”

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TIME Economy

What’s Really to Blame for Weak Economic Growth

The George Washington statue stands covered in snow near the New York Stock Exchange (NYSE) in New York, U.S. Wind-driven snow whipped through New Yorks streets and piled up in Boston as a fast-moving storm brought near-blizzard conditions to parts of the Northeast, closing roads, grounding flights and shutting schools.
Jin Lee—Bloomberg via Getty Images The George Washington statue stands covered in snow near the New York Stock Exchange

Finance is a cause, not a symptom, of weaker economic growth

After years of hardship, America’s middle class has gotten some positive news in the last few months. The country’s economic recovery is gaining steam, consumer spending is starting to tick up (it grew at more than 4 % last quarter), and even wages have started to improve slightly. This has understandably led some economists and analysts to conclude that the shrinking middle phenomenon is over.

At the risk of being a Cassandra, I’d argue that the factors that are pushing the recovery and working in the favor of the middle class right now—lower oil prices, a stronger dollar, and the end of quantitative easing—are cyclical rather than structural. (QE, Ruchir Sharma rightly points out in The Wall Street Journal, actually increased inequality by boosting the share-owning class more than anyone else.) That means the slight positive trends can change—and eventually, they will.

The piece of economic data I’m most interested in right now is actually a new report from Wallace Turbeville, a former Goldman Sachs banker and a senior fellow at think tank Demos, which looks at the effect of financialization on economic growth and the fate of the working and middle class. Financialization, a topic which I’m admitted biased toward since I’m writing a book about it, is the way in which the markets have come to dominate the economy, rather than serving them.

This includes everything from the size of the financial sector (still at record highs, even after the financial crisis and bailouts), to the way in which the financial markets dictate the moves of non-financial businesses (think “activist” investors and the pressure around quarterly results). The rise of finance since the 1980s has coincided with both the shrinking paycheck of most workers and a lower number of business start-ups and growth-creating innovation.

This topic has been buzzing in academic circles for years, but Turberville, who is aces at distilling complex economic data in a way that the general public can understand, goes some way toward illustrating how the economic and political strength of the financial sector, and financially driven capitalism, has created a weaker than normal recovery. (Indeed, it’s the weakest of the post war era.) His work explains how financialization is the chief underlying force that is keeping growth and wages disproportionately low–offsetting much of the effects of monetary policy as well as any of the temporary boosts to the economy like lower oil or a stronger dollar.

I think this research and what it implies—that finance is a cause, not a symptom of weaker economic growth—is going to have a big impact on the 2016 election discussion. For starters, if you believe that the financial sector and non-productive financial activities on the part of regular businesses—like the $2 trillion overseas cash hoarding we’ve heard so much about—is a cause of economic stagnation, rather than a symptom, that has profound implications for policy.

For example, as Turberville points out, banks and policy makers dealt with the financial crisis by tightening standards on average borrowers (people like you and me, who may still find it tough to get mortgages or refinance). While there were certainly some folks who shouldn’t have been getting loans for houses, keeping the spigots tight on average borrowers, which most economists agree was and is a key reason that the middle class suffered disproportionately in the crisis and Great Recession, doesn’t address the larger issue of the financial sector using capital mainly to enrich itself, via trading and other financial maneuvers, rather than lending to the real economy.

Former British policy maker and banking regular Adair Turner famously said once that he believed only about 15 % of the money that followed through the financial sector went back into the real economy to enrich average people. The rest of it merely stayed at the top, making the rich richer, and slowing economic growth. This Demos paper provides some strong evidence that despite the cyclical improvements in the economy, we’ve still got some serious underlying dysfunction in our economy that is creating an hourglass shaped world in which the fruits of the recovery aren’t being shared equally, and that inequality itself stymies growth.

TIME Companies

American Express Shares Plunge As Costco Dumps its Credit Cards

AmEx’s stock decline erased more than $5 billion from its market value Thursday

As of next year, Costco Wholesale shoppers will be safe to leave home without their American Express cards.

AmEx shares dropped to their lowest levels since mid-October on Thursday after the credit card company announced that its exclusivity deal with wholesale club retailer Costco is set to expire at the end of March 2016. The market reacted swiftly and sharply to the prospect of Costco no longer accepting AmEx cards. AmEx is currently the only credit card accepted by the retailer, which is one of the largest U.S. retailers with nearly 470 stores across the country.

The credit card company’s shares dropped to around $80 in early trading and were recently trading down by about 6.7%, at $80.88. The steep decline erased roughly $5.9 billion from the payment card giant’s market value, which is still nearly $88 billion.

Costco previously dropped AmEx as its exclusive credit card issuer in Canada and Bloomberg reported last fall that the retailer was considering making the same move in the U.S. The retailer negotiated a deal to partner with Capital One Financial Corp. and MasterCard in Canada. Shares of Capital One and MasterCard were each up roughly 3% on Thursday.

In a Thursday morning earnings call, AmEx said losing the Costco contract would drag down its earnings and revenue this year and in 2016. The company said it now expects earnings to be flat this year after analysts projected 10% earnings growth, based on polling by Thomson Reuters. AmEx expects earnings growth to return next year.

AmEx and Costco had been engaged in negotiations to extend their agreement in the U.S., but the two sides were unable to reach a deal, AmEx CEO Kenneth Chenault said in a statement. The chief executive added that his company will instead “focus on opportunities in other parts of our business where we see significant potential for growth and attractive returns over the moderate to long term.”

AmEx shares are down 13% on the year and the company announced last month that it plans to cut more than 4,000 jobs this year.

This article originally appeared on Fortune.com

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