Wall Street Profits and Bonuses Increases

Last year, profits in the Wall Street rose to $17.3 billion. This represents a 21% jump from 2015 profits as well as its first increase in four years. The measure that they use is the profits made in the broker-dealer operations at the New York Stock Exchange.

According to the New York State Comptroller’s office, the increase in profits is critical because the financial industry supports 1 in 10 jobs in New York whether directly or indirectly. The financial industry also makes up a fifth of private sector wages. Wall Street last year employed 177,000 people, which is the highest since 2008. However, this is still 6% below pre-financial crisis employment figures.

The New York State Comptroller Thomas P. DiNapoli said in a statement, “Lower costs more than made up for the continued decline in revenues.”

The increase in profits benefits tax collections for New York. The securities industry provides 18.5% of the state budget and 7% of the city budget.

As a result of the increase in profits, the bonuses also followed. Last year, the average bonus was at $138,210. Total bonuses in 2016 reached $23.9 billion. This represents a 1% increase from the previous year. However, in 2015, bonuses fell on Wall Street. Since 1985, bonus amounts have jumped 890%.

The estimate of the average bonus was based on the bonuses Wall Street employees got between December and March. Bonuses are given between December and March and usually are a mix of cash and stock.

One of the reasons why bonuses have increased is because the stock prices of investment banks have been rising. Goldman Sachs, Morgan Stanly and JPMorgan Chase stocks are up by 30% while Bank of America is up by almost 50%.

According to the Institute Policy Studies (IPS), a left-wing think tank in Washington, D.C., “The much faster increase in Wall Street bonuses has contributed to racial and gender inequality, since workers at the bottom of the wage scale are predominantly people of color and female, whereas those in the financial industry’s upper echelons are overwhelmingly white and male.” 84% to 87% of top executives and managers at the five largest investment banks are white males.

According to the IPS, the average salary in the securities industries in 2015 was at $388,000. With the bonuses, this puts the average take-home pay at over half a million.

Despite the massive bonuses, only 10% of the employees benefited from it according to Michael Karp, CEO of Options group which is a top recruitment firm.

According to compensation firm Johnson Associates Inc., the increase in market volatility due to Donald Trump’s administration may boost trading profits and thus continue to boost Wall Street bonuses. The forecast for financial services pays this year was described as “upbeat.”

Bankers are looking forward to regulation being loosened under the Trump administration. This is seen to boost trading profits and will allow more creativity with pay packages. This could mean more stock options and other unique financial products rather than just restricted stocks.

Former Goldman Sachs President Cohn to Sell His Stake in ICBC

Gary Cohn, director of the National Economic Council, is also President Donald Trump’s top economic adviser. To reduce conflicts of interest and for compliance with federal ethics law, he is willing to sell his stake in Beijing-based Industrial and Commercial Bank of China, Ltd (ICBC) which happens to be the world’s largest bank regarding assets (around $3.5 trillion).

This is an interesting finding because the Trump Administration has placed China as the villain and a threat to economic growth in America.

Cohn owns almost 23.4 million shares of ICBC valued at over $15 million. This investment is part of a 2006 investment made by Goldman Sachs Group Inc., and its private equity funds. This gave them access to millions of Chinese customers. Goldman held its position in ICBC for seven years and sold off its last block of investment in it in 2013.

Aside from this divestment plan, Cohn also wants to let go of his 872,712 Goldman Sachs Stock worth more than $216 million as well as investments in 18 other publicly traded shares and funds managed by Goldman Sachs. These other investments hold a total value of $5.1 million based on March 16, 2017, closing prices. Cohn has at least $1.1 million positions in cigarette makers Philip Morris International Inc., and Reynolds American Inc. He also has holdings in Microsoft Corp., Facebook Inc., and Twitter, Inc. as well as 9,174 shares in Bank of America Corp.

Cohn will also be able to defer in paying any capital gains taxes from the sale of these shares. Government officials are allowed to defer payment of capital gains taxes as long as they reinvest the proceeds of the sale in any government-approved mutual fund or government securities.

Cohn served as President of Goldman Sachs for a decade and has a net worth of about $600 million. He was once considered to be the heir-apparent to Goldman Sachs CEO Lloyd Blankfein.

ICBC is expected to negotiate its lease at Trump Tower in Manhattan. It is Trump’s Tower largest office tenant. Ethics experts this arrangement is against the constitution because the bank is state-owned. The law also forbids U.S. government officials from accepting gifts and payments from governments.

Richard Painter who was an ethics lawyer during the administration of President George W. Bush said, “If we get into a big spat with China, it is obviously going to have an effect on that bank economically. There is no way you should be a senior adviser on an economic or military policy and have a big stake in a Chinese bank. That’s an invitation for trouble.”

When former Goldman chief executive Henry M. Paulson Jr. became treasury secretary in 2006, he also had to sell is ICBC position worth at least $25 million.

Donald Trump is set to meet China’s President, Xi Jinping next month where they will likely discuss trade policy as well as territorial rights disputes in the South China Sea.

Disney Settles Labor Violations

Two subsidiaries of Walt Disney Co. will pay $3.8 million in back wages by July 31 to thousands of their employees in the hotel and resort industries. The U.S. Labor Department has found them guilty of violating various labor rules such as minimum wage, overtime as well as record keeping rules. The subsidiaries involved are Disney Vacation Club Management Corp., and Walt Disney Parks and Resorts U.S. Inc.

The investigation of the U.S. Labor Department also included Disney’s Old Key West Resort and Fort Wilderness Resort & Campground, which are both near Orlando, Florida.

A Walt Disney World Resort spokeswoman said, “The Department of Labor has identified a group of cast members who may have performed work outside of their scheduled shift, and we will be providing a one-time payment to resolve this.”

The $3.8 million in back wages will be given to 16,339 employees. This calculates to around $233 per worker. This agreement in back wages includes almost 700 employees who were employed in Old Key West Resort since November 2013. The other 15,000 employees are from other Florida resorts and have worked since January 2015.

Daniel White, district director for the Labor Department’s wage and hour division in Jacksonville, said, “Employers cannot make deductions that take workers below the minimum wage and must accurately track and pay for all the hours their employees work. We hope the resolution of this case alerts other employers who may be paying employees in a similar manner so that they too can correct their practices and operate in compliance with the law.”

The investigation of the U.S. Labor Department showed that the company did not pay them for 15 minutes of work before and after shifts. They also found out that Disney was deducting a uniform expense and costumes expense which led to some hourly rates to be less than the federal minimum wage. Another clear labor violation of Disney was failing to maintain records of how many hours of work were done by their employees.

Seth Harris, Obama’s secretary of labor, said, “This is a very large amount of money, but even more important because a large number of workers were involved. This case is another illustration of the fact that wage and hour enforcement is just as critical today as it has ever been.”

According to Paul De Camp who was in charge of the wage and hour division during President W. Bush’s administration, the issues highlighted in this Disney case which are incorrect record-keeping, unpaid work before or after the shift of an employee are fairly common and often arise in employment law enforcement.

Disney has agreed to adjust their work procedures to avoid this kind of situation. Within 30 days, Disney will also boost the training of their managers into time logging matters such as what constitutes “compensable work time.” They will also train their manager’s basic computer literacy skills like logging in and out of computers.
Disney cooperated well with the Department of Labor throughout the investigation.

U.S. Fed Raises Interest Rates

The U.S. Fed has raised the target overnight interest rate by 25 basis points. This is the 2nd time the Fed has raised it in three months. The U.S. Fed believes that the U.S. economy is steadily growing and that this is evidenced by strong job gains and an increasing inflation rate that is within the Fed’s target of 2%.

The move represents a normalizing of the Fed’s monetary policy. Yellen said that the Fed was willing to allow inflation to temporarily overshoot its 2% target. It also intends to keep its monetary policy accommodative for “some time.” Core inflation remains below 2% in January. The Fed’s forecast for the core inflation at the end of 2017 is at 1.9%.

Fed Chair Yellen said in a press conference, “We have seen the economy progress over the last several months in exactly the way we anticipated. We have some confidence in the path the economy is on.”

For the past three months, there has been an average of 209,000 job gains. The unemployment rate is at 4.7%. This is the level the U.S. considers as full employment.

The Fed is looking to increase rates two more times this year and three more in 2018. Yellen reiterated that future rate increases would be “gradual.” She expects that it will only be at the end of 2019 that rates would return to a neutral level.

The Fed also notes that business investment has now firmed up. However, labor groups urge the Fed to raise the rates slowly so that hiring and wage increases can continue to materialize. Investor and business confidence has increased due to Trump’s vow of cutting taxes, boosting infrastructure spending and easing regulations.

Yellen remains optimistic but sober about the state of the U.S. economy. She says that the economic data does not show any signs that the economy is heating up rapidly and that the economy has “more room to run.” She noted that despite the increase in business and consumer confidence, it has not translated to any significant increase in investment and spending. This suggests that there is no hurry to tighten monetary policy.

Yellen said, “It is uncertain just how much sentiment impacts spending decisions, and I would not say at this point that I have seen hard evidence of any change in spending decisions. Most of the business people that we have talked to also have a wait-and-see attitude.”

The Fed is waiting for more concrete economic plans to arise from the Trump administration. Only then will the Fed adapt their monetary policy in response. Yellen said, “There is great uncertainty about the timing, size and the character of policy changes that may be put in place. I do not think that is a decision or set of decisions that we need to make until we know more about what policy changes will go into effect.”

Some analysts believe that the Fed is going to collide with the economic policies of the Trump administration, but Yellen disputed that idea. The Fed chair says, “We would welcome stronger economic growth in the context of price stability.”

Federal Rate Hike And Its Effects On The General Public

The financial market has been pinning its hopes on interest rate hikes by the Federal Reserve for some time now. Earlier in March, the Fed Chair Janet Yellen hinted that there will be a rate hike after the Mid-March meeting. A number of economists predicted that there will be at least 25 base points increase. Falling in line with the predictions, the Federal Reserve has confirmed a 25 base point increase as it hiked the interest rate to 0.75-1%. This was welcomed by the investors who were betting in favor of the interest rate hike.

The Federal Reserve has hiked the interest rate in the last part of 2016. It was expected that there will be at least 3 hikes in 2017. Now, experts hope that the interest rate will be increased 4 times in 2017.

The Fed which acts as a Central Bank has commented that the economy has improved greatly. The interest rates were lowered to sustain growth after the Great Recession in 2009. At the start of the year, Fed was hesitant to make announcements as it wanted to see the path taken by the Trump White House. The economy shows great signs of recovery and Janet Yellen had said that an interest rate hike is appropriate at the moment.

The raising interest rate is supported by fewer unemployment claims and better economic figures. It also means that it would change the way debt is perceived by the general public. While the change won’t be drastic to shrink your wallet, Americans are sure to deal with higher interest rates in the near future.

Mortgage loans are not going to increase steadily following Fed’s step. In fact, the mortgage loans are notorious for traveling in the opposite direction. The long-term mortgages focus on 10-year Treasury yield rates and numerous factors affect the loan rates. Mainly, the inflation in the future and US Treasury demands in the global market affect the mortgage loan rates. Experts forecast that the interest rates on 30-year mortgages may reach 4.5% to 4.75% which is still lower than the interest rates before 2008.

Credit card rates, interest rates of lines of credit and other variable debts will increase in tandem with the Fed rate hikes. These interest rates are fixed based on the prime interest rates of the bank which varies according to Fed’s rate. Auto loans and car loans are not likely to increase because of the competition in the market.

The interest rate hike will not bring any significant change in the return on savings accounts and other money maker accounts. Banks try to use the higher interest rates to generate more profit by charging the borrowers. The increased income is not necessarily shared with savers. Stock investors, on the other hand, will be able to enjoy a stronger market that welcomes the rate hikes. The market has gained significantly after the surprise election results which made Donald Trump, the president of the United States. The Fed is taking several measures to sustain growth by limiting inflation.

Chinese Producer Prices Post First Increase in Over Four Years

Gu'an, China

Contrary to expectations, producer prices in China rose in September for the first time in almost five years to help allay fears of investors about the health of the economy to an extent.

Data released by the National Bureau of Statistics (NBS) on Friday showed that the producer price index (PPI) in China edged up 0.1 last month from a year ago.

While the increase may appear quite negligible, it is the first positive reading of the index year-on-year since January 2012. The reading exceeded what had been predicted by analysts.

In a survey by Reuters, analysts had expected an improved reading but predicted a fall of 0.3 percent on-year, compared to the 0.8-percent decline seen in August.

The slight rise in the PPI would come as a relief to China’s government as it battles to deal with rising corporate debt and ease investors’ fears on the state of the economy. Chinese companies, majority of which are state-owned, are indebted to a tune of $18 trillion, according to the Bank for International Settlements. The total debt figure is equal to around 169 percent of the country’s gross domestic product (GDP).

Producer prices in China continued to inch up on a month-on-month basis last month. They rose by 0.5 percent to continue a trend that started over the summer.

Yu Qiumei, senior statistician at the NBS, said in a statement that the improvement in the PPI for September was, in part, as a result of higher prices in a number of key industries, such as ferrous metals metallurgy and coal mining.

Prices in the coal mining industry rose 4.1 percent year-on-year in September – the first rise posted since July 2012. A 10.1 percent rise from a year ago was recorded in prices of the ferrous metals metallurgy and rolling industry.

The number of industries in which price increases were seen rose by eight from the number in August to 25 last month.

The latest official data also showed that consumer prices rose in September, something that may further help to boost investors’ confidence. The consumer price index rose faster than expected by 1.9 percent year-on-year. It edged up 0.7 percent on a monthly basis.

A rise of 1.6 percent in the CPI was predicted my analysts.

“An uptick in inflation, if sustained, would be good news for China’s ability to service its overhang of corporate debt,” said Bill Adams, PNC Financial Service Group’s senior international economist, as reported by Reuters. “With low interest rates keeping debt service costs in check and producer prices rising, the outlook for Chinese industrial profits is improving.”

The higher consumer price inflation was driven mainly by higher food prices, which rose 3.2 percent on-year in September. That was more than double the 1.3 percent rise – the lowest in 10 months – recorded in the previous month.

Industrial production has been significantly hurt in China by producer price deflation of over four years, with slump in factory prices having been on since March 2012. Analysts say the profits of around a quarter of local companies in the first half of 2016 were too low for servicing their debt obligations.

Recent spending on infrastructure by the Chinese government has helped to drive a boom in the real estate market. Prices of building materials have risen as a result, with this contributing to the improved PPI.

The improvement seen in the latest official data suggests the People’s Bank of China may no longer go ahead with predicted interest rate or bank reserve ratio cuts.

Legislation May Shut Down New Brunswick Payday Loan Stores?

Everything Must Go

With one Canadian province’s economy tanking, local officials are trying to prevent consumers from taking out payday loans by putting forward new legislation that could rein in the contentious industry.

Earlier this month, the province of New Brunswick proposed legislation that would limit how much credit payday lenders could extend to borrowers. The proposal would also include how much payday loan stores could charge customers. These measures are meant to protect impoverished consumers.

According to a draft regulation presented by the province’s Department of Finance, the maximum total cost of a credit a customer could be charged is $15 for every $100 lent. Moreover, if a borrower defaults on the payday loan then the lender may charge a maximum penalty of 2.5 percent per month. Another $20 could be charged if a check or pre-authorized debit transaction fails.

New Brunswick residents will have until July 29 to make a public comment on the draft legislation.

Many analysts are wondering if payday loan stores could shut down because of these proposed regulations, which are being described as the toughest restrictions across the Great White North.

However, one expert suggests that the issue of constant borrowing from multiple stores is the biggest issue that the provincial government has to contend with. But it isn’t happening, says Credit Counselling Services of Atlantic Canada client program specialist Gordon Arsenault.

“They go to one company, then they go to another company and to another company and then they do internet payday loans,” said Arsenault.”They’re into a circle of payday loans where they’re borrowing from one to pay the other and it just goes on and on and on.”

Some industry trade groups feel the restrictions could severely impact several operators. Ryan Murphy, a media relations manager warns some businesses could actually close their doors. This, he says, will ultimately negatively affect the most vulnerable who rely on payday loans.

“I certainly think there will be some businesses that will find it very difficult to operate and in fact may have to close,” said Irwin. “Where will borrowers go? What they’ll end up doing is they’ll go online and more often than not, they’ll find themselves going to an illegal unlicensed lender.”

If New Brunswick does move ahead with the regulation then Newfoundland and Labrador will be the only remaining province without any payday loan regulations in the books.

Provinces and municipalities across the country have been installing their own rules and regulations to minimize the impact of payday loan stores. The Ontario Government has, for instance, suggested placing limits on how much payday loans can be charged, while the city of Calgary has placed ordinance laws to stop new payday loan stores from clustering in impoverished neighborhoods.

Critics of payday loans say these alternative financial products hurt the impecunious by getting them into endless cycles of debt. Proponents argue that payday loans help the poor because most of them do not have access to traditional forms of credit.

Medical Errors Cause Patients to File for Bankruptcy

medical bill

Current news reports reveal that healthcare providers who make errors typically do not bear the resultant financial responsibilities for their mistakes. Instead, when a patient’s condition worsens because of treatment, he or she is usually expected to foot the bill.

Taking on a debt for a medical mistake does not seem fair. However, it happens quite often. According to research conducted in 2013, around 1.7 million Americans regularly filed for bankruptcy because they could not pay their medical bills.

Future Projections

  • Statistics compiled for adults, ages 19 to 64, show these projections:
  • Around 56 million people will have difficulties paying their medical bills.
  • Over 35 million people will be contacted by collection agencies about their medical bills.
  • More than 15 million people will have to drain their savings in order to pay for their medical costs.
  • Over 11 million people will use their credit cards to pay for hospital costs.

Nearly 10 million people will not be able to pay for such basic necessities as food and rent because of their medical expenses.

Noted Statistics

Healthcare research revealed that around 26% people in the US experience financial issues because of health costs. Of that amount, 42% spent most of the savings on medical bills while 23% took on more credit card debt. Almost 20% took out a loan and 7% declared bankruptcy.

Although the Affordable Care Act has lowered the number of uninsured people, high-deductible policies that are require higher out-of-pocket costs quickly increase the debt. A family of four with a preferred provider plan currently owes about $25,000 in healthcare costs – a figure that is triple of what it was in 2001. Some of the increases are traced to increased insurance rates – meant to circumvent the added claims for medical mistakes.

In cases where negligence may be proven, a medical malpractice claim may be possible. If you believe you are a victim of medical malpractice, you need to talk to a malpractice lawyer who practices in your state. In instances where filing legal action is not possible, you can file for bankruptcy protection. Both Chapter 13 and Chapter 7 of the US Bankruptcy Code cite credit card debt and medical debt to be unsecured, or eligible for dismissal.