Trimming the Fat

The New PS3 (Photo Credit: Sony)

After six years on the market and one redesign, Sony has once again decided to release a new version of its Playstation 3 video game console, making the latest model half the size of the original behemoth. Sony has also decided to up the configurations to 250GB and 500GB models while also aggressively pricing the configurations at $269 and $299 in North America, respectively. This move comes in anticipation of Nintendo's Wii U console, which will have a price point of $300-$350.

Will this redesign save Sony's lagging entertainment division? While sales of the PS3 remain steady, they are nowhere near the level of its predecessor, the Playstation 2. The slimming down of the PS3 will be a good thing for Sony and for consumers in general; however, it displays a glaring problem in Sony's corporate business model at large. For several years, the PS3 was sold at a loss with the hopes of eventually trimming it down to turn a profit. Only "eventually" happened three years later. When looking at the corporation overall, Sony has had its largest consecutive losses in the last four years, and with each one, corporate cutbacks are promised. Management has cut over 30,000 jobs and shuttered 11 factories in the past 5 years, hoping to reduce costs to make an operating profit. Yet Sony still lags behind its competitors in practically all of the fields it once dominated: laptops and music players to Apple, phones to both Apple and Samsung, and TVs to Samsung and LG, among many others. Ultimately, the problem with Sony is believing that its core business model will work given enough time. This has led to a lack of innovation with Sony simply waiting it out until their production processes gradually become cheaper. But underneath Sony's fat are just skin and bone, no muscle to support the frame.

-Aureen Sarker

Financial Fair Play

With the new Premier League, La Liga, Bundesliga and Serie A campaigns several weeks into their respective seasons, new trends for predicting the eventual winners of the world's biggest leagues are  becoming as popular as fantasy football tables. And all these trends point to one thing: spending brings silverware home. It took close to a $1 billion investment over the last couple years by Sheikh Mansour to bring home the Premier League trophy to Manchester City last season, and since then, clubs are retaliating. Chelsea has spent over $100 million on just two players this pre-season, and that seems like a bargain in comparison to the skill Eden Hazard brings to the pitch. All over the world, the clubs with the richest owners are spending, and spending big. Which is why Financial Fair Play cannot come soon enough. 

Already, we are seeing some effects of the rules that require teams to at least break even on spending, with the Europa League champions Atletico Madrid and over a dozen other teams not receiving their tournament earnings due to insolvency issues. But for the near-term, Financial Fair Play cannot definitively solve the problem. Barcelona and Real Madrid have the two highest pay-rolls in the world, but they also have individual tv rights that allow them to spend beyond any other club in La Liga; the result is an uncompetitive table that has two familiar names always at the top. The same is occurring in other markets, such as France where Paris Saint-Germain is outspending the competition, and the Premier League where Manchester City and Chelsea have taken the reigns in record transfer fees. Financial Fair Play will be good for the sport, and will only attract true lovers of the game to become owners, instead of businessmen that pile on debt to the clubs in the hopes of making a chunk of change back. The question now becomes: will these largest teams be too big to stop if they decide Financial Fair Play isn't for them? Rumors of discontent have led to the idea of a new "Super League" being formed by the world's largest teams. Soon enough, deficit spending by football teams may even topple the bills of governments. But what do football fans care, so long as they get to watch the beautiful game?

-Aureen Sarker (Photo Credit: Manchester City F.C

How Staples's Failures Will Hurt Mitt Romney

A consortium of private equity firms including Bain Capital is said to be in preliminary talks to take-private struggling office supplies retailer, Staples. Though an official announcement has not been made, an offer could be announced by the end of this year. What does this mean for Mitt Romney?

As the Obama campaign continues to portray Mitt Romney's role at Bain Capital in a negative light, Mitt Romney has always retaliated with a list of companies he helped become successful. In almost all of his speeches regarding the recovery of the economy, he mentions how Bain Capital invested in Staples, created jobs, and caused it to become what it is today.

Based on recent news which has come out about Staples, it doesn't make sense for Mitt Romney to keep touting Staples as one of his major successes as it continues on a downward spiral. Just last month, Staples cut its profit and sales expectations citing a weak retail market. Staples shares have fallen 25% in the last six months, as it continues to face competition from Amazon and other online retailers. Even more, it may be delisted from the stock market and placed into the hands of private equity firms, which may or may not be able to turn it around.

Granted, an informed voter would realize that Staples was once one of the most successful retailers, and Mitt Romney's involvement played a huge role in making that happen. However, as long as Mitt Romney keeps showcasing his involvement with Staples at every campaign event, most voters will naturally connect Staples to Mitt Romney. Soon they will ask themselves, "If Staples fails after Romney's involvement, will the American economy fail too?"

This psychological correlation, though not completely rational, is inevitable. How can someone claim success by aligning himself with something that is failing?

-Smit Purohit

The Impact of the Olympics on Local Economy

    

    According to the Office for National Statistics, the number of unemployment fell by 7,000 to 2.59 million in July and London contributes most to the number. We think of the Olympics as an opportunity for host country to build the country image, attract foreign visitors and boost the local economy. However, in a long-term perspective, the Olympic game brings limited economic benefits to the host country and the degree of its impact varies widely between countries.

     Countries hosting the Olympics spend millions of dollars building new sports facilities and infrastructures, which, in short-term, indeed brings increasing number of tourists. They visit the newly built stadium, pools and sports facilities. However, as the game ends, people move on to the next Olympic game. Unlike other infrastructures, these sports facilities and constructions will not be rebuilt into some productive and economic effective buildings that can be used for further investment. The long-term economic benefits gained from pure tourism are doubtful and limited. Further, by attracting tourists in the short-term, the host country creates for itself an image of crowd and congestion, which to some extent make it lose potential tourists. The tourism boom also increases the local hotel prices, restaurant prices, and leads to an inflation that prevents potential tourists from coming. These are the unavoidable negatives that host countries may confront both in short-terms and long-terms. 
     Yet, since Beijing has been authorized to host the 29^th Olympic games, its average increase in GDP from 2002 to 2007 is 12.1% and according to statistical research, the Olympic game accounts for 1% increase each year. Beijing pays for its long-term impact: it invests 370 billion dollars, which is more than other industrialized countries such as America and Australia’s expenses. Unlike London, a country with a rooted image of well development and prosperity, China has been consistently finding opportunities to open its door of both trade and culture to the world since it joined the WTO in 2001. The Olympics stimulates the world’s interest in China, which is a new land with potential resources to invest and explore as it presents itself during the Olympics. Even though the unemployment rate in London drops greatly in short-term, the economy boost in London can hardly last as long as that in China for its saturated tourism market. 
Ruijia Tan.

Regulators hope to make whistles echo on Wall Street

Whether its laundering money for drug cartels, manipulating benchmarks or trading insider information, we have already seen a fair share of scandals and frauds this year. Our economic condition has made it crucial to provide increased transparency, due diligence and regulations to increase investor trust and to begin repairing the finance industry’s damaged reputation. So what measures are being taken to spot and prevent such acts of fraud from occurring again?

The Dodd-Frank Wall Street Reform and Consumer Protection Act, signed into federal law by President Obama in 2010, has a section specifically dedicated to the “Whistleblower Program”. This program’s goal is to encourage employees and corporate insiders to report any fraud or wrongdoing they come across in their companies.

However, this law is nothing new- Sarbanes–Oxley Act of 2002 also had a “False Claims Act”, which provided employees financial incentives to report fraud to the SEC. However, the newer version has increased the scale of the financial incentive. The ‘whistleblower’, the individual that reports a wrongdoing, could receive an award that amounts to 10-30 percent of the penalties faced by the company accused (in excess of $1 million). So how many whistles have been blown?

Well, just last month the SEC reported the first whistleblower award of $50,000 to an individual that reported information that was critical in stopping a Ponzi scheme. And yesterday, a former UBS banker, Bradley Birkenfeld, received a whooping $104 million from the SEC for providing insider information regarding UBS's illegal practice of encouraging secret offshore accounts.

Such enormous monetary incentives ought to shed light on more frauds and wrongdoings, right? Not necessarily. According to a new study by Ethics Resource Center, the percentage of employees that experienced backlash, or retaliation, for reporting misconduct increased from 15% in 2009 to 22% in 2011. Such retaliation decreases the likelihood of employees reporting misconduct or reaching out to the SEC. But we can hope that the recent rewards encourage more individuals to rise above the potential backlash and come forth to do the right thing, even if it is for a purely monetary reason. 

Written by: Ritika Gawande 
Photo credit: http://www.darkgovernment.com/ 

Painful Exchange Rates

Since the start of my semester in London I’ve been experiencing something across the Atlantic that’s been difficult to deal with.  It's something I heard about before traveling to the UK, but something I had never experienced first hand.  No, it's not the adjustment I’ve had to make to the differences in culture, how classes are taught differently, or even how apparent it is, at least to me, how badly the United States & Americans in general are made fun of outside of the States.  Nope, it’s how expensive the UK's sterling pound is compared to its American counterpart, the dollar and subsequently the euro.  

Last week, the sterling pound posted its best numbers against the dollar since June.  This occurred due to a variety of reasons, but simply, the world has pretty much lost faith in the ECB and the Fed.  With respect to the ECB, it has recently revealed a plan to lower borrowing costs to peripheral euro zone countries.  The UK is the Eurozone’s largest trading partner and this easing of the debt crisis is what has been inflating the sterling's value -- especially against the dollar. Also, on Wednesday we will know for sure whether Germany will back the Eurozone’s plan to issue a permanent bailout fund.  There will be skepticism whichever way the decision goes.  What we can see here is that it's not so much how well the sterling is actually doing, but how badly the euro is.  In terms of the Fed, anticipation of QE3 has caused backlash among investors.  Big banks have been issuing warnings suggesting that they are expecting the Fed to embark on its third round of quantitative easing.  Goldman Sachs, Deutsche Bank, Barclays, Morgan Stanley, and JP Morgan all expect over $300 Billion of purchases by the Fed.  Even Barclays’ Olivier Desbarres recently announced that the US dollar would weaken if and when QE3 is announced. All of this anticipation has left a considerable amount of doubt in the minds of investors.  With problems looming with both the euro and the US dollar, investors have limited options to choose from, thus inflating the value of the sterling pound and making my semester abroad in London extremely painful on my wallet.

- Vivek Shah

Fall Kickoff

Come to our kickoff event this upcoming Thursday to learn more about what Finance Society can offer you. We will discuss our goals for the semester, the events we have planned, as well as our membership requirements and benefits. At the end of the meeting, we will introduce our E-board and give you an opportunity to mingle with them and other members.