How to Pay Yourself – Salary Dividends & Benefits

♪ The best things in life are free ♪ ♪ But you can give them
to the birds and bees ♪ ♪ I need money ♪ ♪ That’s what I want ♪ ♪ That’s what I want ♪ ♪ That’s what I want ♪ (laughing) – Hi, everybody. Did you like that little
bit of lip synching there? Okay, so, today we’re
gonna be talking about how to pay yourself out
of your business, okay? So, here’s Scampi again, as you can see we’ve paid him, he’s got his salary there, and his dividends. Okay, so over to Mahmood, who’s going to go through some really important points, guys. – Thank you very much Serena. Thank you very much Scampi. Now, a common question that we always get
asked by business owners is how we pay ourself. Now, the most rehearsed route we know is you pay yourself a salary, when it comes up on the board. Typically, just rehearsed that, typically it just set
a relatively low level, so you can get some credit
for your state pension when you eventually retire. The rest is taken out as dividends. You got the difference here. You got a dividend free allowance here. We’re not gonna rehearse and go over the same old details. We’re gonna table to
illustrate the impact. The third thing that
is not often considered is actually the company
providing benefits to you. So let’s have a look first of all in terms of the salary. Summary of the general situation here. You’ve got three things to consider, your status as a taxpayer. So if your income is below 50 grand, salary, overall tax rate for company and yourself personally is 40%. You as an individual in terms you take it out as dividends. The overall tax rate is 25. Really good advantage for
dividends in that situation. If you happen to be what’s
called a high rate taxpayer, 50 grand plus, then paying yourself salary is an overall tax rate for
you and the company at 49. Pay yourself dividends is about 45%, so the gap really narrows, but dividends are still,
you know, more preferred. If you have to be in the blimey rate. That’s if you’re 150 grand a year plus, you know, great target to get to, then the salary route is 53% overall tax burden for
you and the company. Dividend rate is 50% overall. So the gap’s really narrowed, but still the edge is given to dividends. Now, route number three is benefits. So there are some benefits
the company can pay for which is all tax free, Tax Deductible. So things like providing a Mobile Phone, Health Screening, Eye tests and the like. In other situations though, it’s still worthwhile to consider the company actually paying for things you would pay for personally. And when you’re gonna look at it is, what do you need to take home to actually pay for those benefits. So what I’ve done here. I’ve summarised three scenarios. If you’re a basic rate payer, look at those wonderful savings. The company provides the benefit, you still pay tax, but you’re still better off. And it’s all about
money, in this situation. You’re a high rate payer, the savings become that much bigger. Again, that’s taking all those wonderful factors into account. And lastly, if you’re in the blimey rate, then the savings become much more bigger. So always worth considering. So hope you found this useful. – Okay, guys. So come on, get on Facebook, like us on LinkedIn. We know you look at it guys. Keep liking us, and head over to the website as well, have look at the blog in more detail ’cause there’s lots
interesting stuff on there as most of you will know if you’ve been on there. – So this is all from us
from the numbers guys. Hoping to turn your tax frowns – Into smiles. – [Both] Ciao! (upbeat music)

Actuary Career Information : Actuary Salary

As in any job the amount of money that you
make depends on your skill and your experience and actuaries are in the same category. Actuaries
require quite a bit of training in order to become qualified in their profession. There
is increasing amounts of money that you generally make as you progress along the professional
path. At the time that I took the exams there were ten exams that you have to pass in order
to get your full qualification as a fellow of the society of actuaries.By the time that
you are a full fellow you can expect to be making over 100,000 dollars or when you get
out of school and start your first job the jobs are generally competitive with other
college graduates. As you progress in the exams then your salary increases as do your
responsibilities. Salaries go hand in hand with responsibilities generally and people
are willing to pay you for more than you are able to provide. Actuaries can earn lots of
money. I mean many actuaries are Presidents of insurance companies or principals in consulting
firms it really depends on your skills. The field of financial analysis has generally
been exploding. There are lots of kinds of financial analysis that have been increasing
recently. The actuarial profession is just one of the financial areas that somebody might
pursue. The particular assignments that you have will determine the kind of work that
you’ll do.

How Does Shorting a Stock Work? And How is it Different than Buying Stock?

Dylan Lewis: Hi, I’m editor
Dylan Lewis, and on this episode of FAQ, we’re going to go through the long
and short of shorting stocks. When you buy a stock, you’re hoping that the
value will go up over time. When you’re shorting a stock, you’re expecting the opposite,
that the value of the company will go down in the future. Buying a stock is simple. You have
money in your account, you buy it, it’s yours. Shorting is a little more complicated.
When you’re short, you actually borrow the shares via your brokerage, and then immediately sell
them at market price. The proceeds from the sale get deposited into your account,
and you have an open short position. To close this position, you have to go out and buy
shares and return the same number of shares to the person you borrowed them from. 
A little example. You borrow one share at $10 and sell it. The $10 is deposited into
your margin account. Let’s walk through two different scenarios one month later. Shares
are at $7. You buy a share and return it to your brokerage and pocket the $3. Situation
two: shares are at $13. You’ll probably get a call from your brokerage asking you to put
more money in your margin account to cover the losses. You can either commit to the position
and put that money there or buy shares at market price, close out
the position, and eat the $3 loss. Shorting is a lot riskier than buying stocks,
and the main reason for that: the upside and downside are flipped. When you own a stock,
the worst case scenario is that you lose all of your money. In the example before,
you bought it for $10, the business fails, and shares go to $0, you lose your $10.
But on the flip side, if the business does well over time, the stock could double or triple, earning
you more than you originally invested. When you’re short, it’s the opposite. The most
you can gain is 100% of your money back, but you could lose more than you originally invested
because there’s no theoretical limit on the price of a stock. Say you were short,
and the stock tripled. You gained $10 by selling it after you borrowed it, but you now have
to go out there and buy it back for $30, meaning that you’re taking a $20 loss.
There are some other downsides to being short. You have to pay to watch your thesis
play out. Generally, there is a stock loan fee associated with shorting. It’s stated as a
percentage and you’re basically paying it daily, so every day that you have the
position open, it eats into your returns. You have massive downside with big earnings
surprises, M&A activity, or black swan type of events like Brexit and the U.S. election
results as well. When unexpected events like those happen, shares can spike as people that
are short panic to cover their positions, and this is called a short squeeze.
With shorting, you’re also betting against the general motion of the market. Historically,
the U.S. stock market has returned 6% to 7% annualized. Going short is a bet
against that general growth trend. Lastly, you’re on the hook for
dividends paid out while the shares are on loan. As a market tool, shorting is a good thing.
Allowing people to bet against companies creates an incentive for people to identify fraud,
and the shorts can also be a good check on irrational exuberance. But generally,
the average investor should stay away from shorting. It’s risky and complicated. Hopefully this
video made it a little less complicated. Thanks for watching, guys! If you enjoyed
this video, we have plenty more like it coming. Hit subscribe down in the bottom right and
give us a thumbs up. If you have any questions on things I hit in the video, drop them in
the comments section below. We love getting ideas for future episodes!

How Buybacks Have Warped the Stock Market & Boeing (w/ Dr. William Lazonick)

MAX WIETHE: Hello, everybody. Welcome to Real Vision’s Interviews. I’m Max Wiethe, sitting down with Dr. Bill
Lazonick of the Academic-Industry Research Network. As well, Bill has been an economics professor
at many different academic institutions over the course of his career. We’re here today to talk about your recent
book that you’re publishing, Predatory Value Extraction, and to understand how stock buybacks
and the warping of the stock market has really disrupted what is actually driving stock gains
over the past three to four decades. Thanks for coming in today, Bill. WILLIAM LAZONICK: Okay. My pleasure. MAX WIETHE: Why don’t we just start out with
what you do at this? It’s a nonprofit organization, which focuses
mostly on economic research, if I’m not mistaken. WILLIAM LAZONICK: Yeah. Basically, I’ve had a career as an academic,
been a professor at various universities, as you mentioned, and I set this nonprofit
up, this 501(c)(3) nonprofit up almost 10 years ago, to do research outside the university
for a variety of reasons, and I’ve been working with a number of people, now it’s about 15
people who I’m working with regularly who are in various parts of the world who have
worked with me, some for as long as 20 years to do research on how companies become innovative,
how they create products that people want to buy at prices that they are willing to
pay, and can compete on national and global markets. What happens once they actually become successful
to the profits that they make, so the profits are really outcome of some value creation
process. That makes these companies successful, which
I can get into how that works. Basically, once they are successful, there
is a huge pot of gold there in these companies, and if someone can say, that’s mine, and take
that money, they can become very rich. If it’s not theirs, someone’s got to talk
about that. That’s what I do. A lot of the changes that I talk about from
going from companies retaining their profits and reinvesting them in their organizations
to what I later, in the ’90s, called downsizing the companies and distributing cash to shareholders
not just as dividends, but stock buybacks, a lot of that transition took place in the
1980s when companies started articulating and imbibing this idea that company should
be run for shareholders. I was at Harvard Business School in the mid-1980s
when that ideology came in in 1984, no one was talking about that at Harvard Business
School. 1986, they were. There was an easy explanation for that. 1985, Harvard, went out of its way to hire
the guru of maximizing shareholder value, a guy named Michael Jensen. I came out of economics by that time. I had been in the Harvard Economics Department
for over a decade and a half, I was now at Harvard Business School. I saw that no, those aren’t the people are
creating value. Shareholders are just buying and selling shares
on the market. People have gone to work for these companies,
often for decades. They are the ones who create the value. We as taxpayers, have supported these companies
with the infrastructure and knowledge, we should get a decent tax rate back. This ideology is not an ideology that’s being
put forward or it’s being put forward as an ideology of value creation, but it’s actually
an ideology of value extraction. I started researching that and learning about
how that was going on and did that, within the university structure, often with collaborations
on people not just looking at the United States, but places like Japan, Korea, various countries
in Europe, then got into looking closely at China, India, and trying to understand basically,
what we’re talking about is capitalism. How countries get rich and what happens when
they get rich and whether there is a way in which we can explain, particularly what’s
going on in the United States, of this extreme concentration of income at the top and the
loss of middle class jobs, extreme income inequality. I started this organization outside the university
for various reasons. In, I think it was 2010, there is an organization
that started up which has its offices probably about a 10-minute walk from here, called the
Institute for New Economic Thinking which started it up and I’ve gotten through this
organization, the Academic-Industry Research Network. Various grants from them to do research, they’ve
been one of the one of the main funders of the research. I pulled together, this group of people, many
of them who are doing PhDs, now have academic jobs. Some of them are mid-career, who were in touch
with basically all the time. It’s almost a virtual organization but we
can write about things that have been going on historically, can write about things like,
let’s say, the Boeing crashes that have occurred more recently. We have a certain level of expertise that
I don’t think actually is things quite unique in terms of academics and really digging critically
into business and saying, not just the dark side, but the bright side. How businesses become successful. That’s what we’re mainly interested in, is
how you can understand the way the central institution in our economy, the business enterprise,
some which grow to be bigger than whole countries, small countries, how they actually can create
value, share the value with their employees, not just because they wanted to show the value
of in place, because it helps those employees get some incentives to be more productive. It’s the result of them being more productive,
how you get this positive dynamic going on in these companies, which we call retain and
reinvest and how we can all be better off as a result. Then critiquing a lot of what’s going on in
the last particularly last 30, 40 years, in people who have often very little role, if
any, to play in these companies claiming those profits of theirs, and even more being able
to lay off 5,000, 10,000 people and claim. The stock price goes up and they gain, how
that can happen. The book that just came out this past week,
which with a colleague of mine, Jang-Sup Shin, who is a professor of economics in Singapore,
he’s originally from Korea, it’s called Predatory Value Extraction as you mentioned. The subtitle summarizes the book, it’s How
the looting of the business corporation became the US norm, and how sustainable prosperity
can be restored. By sustainable prosperity, it’s a shorthand
for stable and equitable growth that we want. Growth, it’s stable employment, equitable
distribution of income, which we have neither of those. We want to get productivity growth, which
can support those things. Right now, we have sagging productivity growth
problems, real problems of many US companies competing in global competition, partly the
because of what I call the predatory value extraction, this looting of the business corporation. That has been something that we’ve been doing
a lot on this group of mine and getting a lot of visibility for that research through
various outlets because it strikes a chord with a lot of people who are saying, where’s
all this inequality coming from? MAX WIETHE: Well, that visibility, I came
across your New Yorker profile, and I got to read about some of the research you had
done and it really sounded like something that I felt would resonate with a lot of our
viewers here at Real Vision. We’ve covered buybacks, and we’re very interested
in what’s driving the stock market. You mentioned briefly before that you’re not
just looking at the bad, looking at the predatory value extraction, you are also looking at
what makes these companies good. That’s really how you started out your book,
was looking at the theory of the innovative enterprise, as you call it. I think that’s a great place for us to start. WILLIAM LAZONICK: Well, yeah. Trying to summarize in a 30-second something,
that’s going to be another book because there actually is a real problem if you’re trained
as an economist as I was. I’m a PhD economist, got my PhD at Harvard
early 1970s. Things have basically in this regard have
gotten worse since then. Economists generally, PhD economists, do not
understand how business enterprise operates. They see the states, they see the markets
and in fact, what is being taught in introductory economics courses every year and it’s been
taught to millions and millions of people since a guy named Paul Samuelson wrote his
introductory textbook in 1948 is– and I’m not going to get into this other than just
state it because as I stated, it’ll sound totally absurd– it’s actually being taught
that the most unproductive possible firm is the foundation of the most efficient economy. They call that perfect competition, of course,
then they say, well, that doesn’t really exist. Then the whole mindset of economists is that
oh, competition is imperfect so we have to move through policy, through business, what
business does and make it more perfect, so that we get rid of monopolies that we just
have lots of competitors out there who are all competing the same way, producing commodities. Now, if we actually had that state of affairs,
we’d be living in poverty. The reality is that well, first of all, that
building even a small business enterprise is in many ways, a heroic feat. I would tell students when I’m teaching students
if you can start a company and can keep people productively employed, pay them a decent wage,
let’s say for 10 years, that must mean you have something that people is buying, some
product that people out there are buying. You’re probably going to do quite well, you’re
going to do quite well for you, and they’re going to what? Profitable employees. How do you get to that point that actually
you can be around for 10 years? You can’t do it by doing what everybody else
is doing. You can’t do it just by saying, well, here
with the market says you should do in terms of technology prices, you have to make an
investment in learning. Now, obviously, in some companies that we
can see that on their financial statements, it’s called R&D. That’s not the only type of learning that
goes on. In fact, if you take the S&P 500 and you look
at how many of those companies is one of the 500 largest companies United States, only
about 210 of those do any R&D at all. About I think it’s something like 38 of those
companies do about 75% of all the R&Ds so it’s some pharma companies, aerospace companies
like Boeing, companies like technology like Apple, etc., but any organization, including
your little organization here, people are learning how to make the product, how to do
it better. If you’re going to survive, it’s because you
have might be a neat short, might be a mass production market, but you’re going to be
able to produce a higher quality product and you’re going to get a larger market share,
you’re going to then cover the costs of the people and which are often the fixed costs
that you’re investing in, not just buildings and get up competitive advantage. That’s what I basically study how companies
do that. It’s when you’re talking about companies that
grow to be 10,000, 20,000, 30,000, hundred thousand people, you’re talking about credibly
complex social organizations. When they work well, when they’re actually
over a sustained period of time, generating a high quality product that they can get economies
of scale and get the low unit costs, even as they’re paying their employees more, and
they’re giving them employment stability, you’re getting productivity growth, it has
a big impact on the economy, particularly if lots of companies are doing that. If we look at a time historically, when American
companies were really very good at this value creation, innovative enterprise, it was a
fast forward two decades, when there was much more set of norms that prevailed that once
you hired people, you kept them employed over their career, it wasn’t a contract, but it
was basically in practice, you could see it by defined benefit pensions that were not
partible that had to do with how long you stayed with the company. You could see it at the blue collar level
with collective bargaining and sometimes enforced by unions but this was so that you would get
a labor force that showed up every day and cooperated in mass production, but you also
saw it at the white collar level without any unions, that companies crane people, and they
want to retain them. We had that system, which actually made the
US the world leader in the international economy, the US got the challenge by that in the early
19, late in the ’70s and ’80s by the Japanese, but the Japanese actually did that, perfected
that system. Now, that system doesn’t work quite as well
anymore in any case, because we live in a much more open system environment, much more
global value chains. China’s not really competing with the same
thing as the Japanese system but this way in which you understand innovative enterprise,
not just the level of the enterprise, but the whole ecosystem that supports it is changing
all the time. We’re talking about a moving target. Just that part of the research and that part
of the documentation, that part of the argument that that’s a real challenge for anybody who
is looking at these things seriously, and we look at them seriously because we’re academics. We looked at seriously, as I do, coming out
of a training in economics where I know that most economists actually don’t have the slightest
idea how to do that research or were doing because they think the market should just
be allocating resources. I just thought at this point that just by
making one more comment, because one of the markets that of course is looked to allocate
resources to alternative uses, is a stock market. The fact is that historically the stock market,
that’s not been the role of the stock market in United States. The stock market has been the way for private
firms to allow their owner entrepreneurs or their venture backers, capitalists backers
or private equity backers, to exit from having the money tied up in the company. You do that by going public on the stock exchange. If the stock exchange is liquid enough, then
you have no problem capitalizing your investments, and that’s the main function of the stock
market. The other side of that, historically, is that
you can then use the stock markets to separate ownership control, you can break the link
between the original owners who build up a business and the ongoing management of the
business. Here, I’m very highly influenced by a business
historian who I got to know after I had done my PhD, he was at Harvard Business School,
named Alfred Chandler wrote a book called The Visible Hand, The Manager Revolution in
America Business, which was published in 1977, won the Pulitzer Prize in history, and really
ended at 1920 as a historical book and said, by 1920, or in the 1920s, you had people who
were not the founders of business running companies, they were managers. What made those companies strong is that those
people came up through the business through the stock market, the old owner entrepreneurs
got out of the way and now, you could move up to the company, to the top of the company
being an employee, which is basically this situation today, except now some companies
go public much quicker and the founder stay around. Basically, the stock market’s rule is really
fundamentally historically to separate ownership control, not to fund company. That’s one of the implications, or big implication
of the research we’ve done. MAX WIETHE: There was one exception that you
mentioned in your book, which I thought was just too interesting not to bring up here,
just in that late ’20s, where the companies that realized that the stock market had gone
too far, actually sold stock and it was one of the only occurrences ever that a company
had a secondary issue of stock on the market and they had a cash surplus that they were
able to weather the Great Depression with and it actually worked, but since then, you
don’t see it at all. WILLIAM LAZONICK: Well, you see it– because
we don’t get into much of the details of some of the research we do, you see them in biotech. Certainly companies are going public on the
stock market around where I live in Cambridge, Massachusetts. There’s a lot of them, we call them product
list IPOs. They do an IPO. They’re a research entity. They might have some investment from Big Pharma. What happens there is people make lots of
money in those companies they want, they never produce a product. It’s not that you can’t use the stock market
that way, although, and we saw it also in the internet boom of the late ’90s, the dot-coms,
often it’s very speculative. If companies are sound companies, they can
generally grow organically, not be exposed to the stock market until they actually have
that growth secured through their own profits and then can control their own growth because
they have as long as they can control the profits and reinvest them a significant amount. They can then leverage that with debt, by
the way, the world– I won’t get into this, but it also totally says throw up my Danny
Miller because debt and equity are not substitutes, debt is a compliment to the equity that you
retain in a company. What you’re referring to there is probably
the biggest period or a period of ’28, ’29 when companies actually sold shares on the
market is that all the speculators were out there, the companies that had become dominant
on the New York Stock Exchange in the 1920s now had a lot of profits. They were paying their workers better, but
they were just awash with cash. They actually started lending that money out
on the New York call market for 10% to 15% for people by their stocks on margin speculating
up, and then they sold the shares at the higher prices and paid off their debt. The Japanese did the same thing in the 1980s. It’s financial engineering, but it’s actually
to solidify the corporate Treasury to pay down debt or to just put money in the corporate
Treasury which then became very useful once you get slow demand in the Great Depression,
just to say right now, we have an article– hadn’t been published yet but it’s on debt
finance buybacks is just the opposite. You’re actually using debt to finance buybacks
that don’t– so now, not only do you not have productive investment that is going to generate
returns related to the buybacks, but you have debt on your books that you have to pay off. There was actually a very good article in
CNBC yesterday on Oracle and Larry Ellison and them getting into trouble. Actually, it’s an article that fits everything
we say about companies getting into trouble by just trying to boost their stock price
through buybacks and not investing in the products of the future. MAX WIETHE: Well, you mentioned a period of
time when we did have innovative enterprise, which was that that post-World War II era,
the decades following that we as America, we grew at an astronomical rate. What was different about that time that allowed
that innovation to occur that we haven’t seen today? WILLIAM LAZONICK: Yeah, well, so first of
all, I think it was the financial sector was highly regulated. They used to talk about 3-6-3 banking, 3%
was what you got if you put your money in the bank and let that out to its prime customers,
corporations at 6% and the other 3% was when the time of day when the bankers went to play
golf. That’s actually what prevailed into the 1970s. The ’70s changed a lot of this in terms of
the financial sector. In terms of the companies themselves, there
was a norm that set in that once you employed people, if you just started laying those people
off, you’re not going to get good people to join your company, that you are building this
company by investing a lot of vertically integrated activities. It could take decades to build a company you
would invest in research, if you’re a research oriented company, not just in research and
development of corporate research labs, very long term research that could result in products
in the future, but no one really knew when they were doing the research, even what closed
products will result in. In companies more generally, you just treated
your workers better because you wanted those workers to show up every day, give the customers
good service, and that became the norm. Companies that didn’t do that are not company
people would want to work for. Unfortunately, that was mainly a white man’s
world. Even up until the Civil Rights Act, companies
had marriage bars where they could tell women to leave quite legally from the company if
they got married. Harvard Business School didn’t admit women
to the MBA until 1964 when they saw the writing on the wall with the Civil Rights Act, that’s
now over 50 years old but that’s not that long ago. Also what– we have a book coming out on what’s
happened to African-American employment over the last 50 years. One of the things that happened in the 1960s
and 1970s, there’s still a big demand for blue collar labor in the US. This is just before the Japanese impact started
to occur. There’s expansion, particularly the automobile
industry of blue collar work. If you could get a semi-skilled blue collar
job, that meant you’re on the assembly line and you’re represented by union, you had very
good pay. Well, whites were the children of blue collar
whites were moving, going to university, often free tuition, or very low tuition and moving
into white collar work. Blacks who had been, of course, in a less
privileged position in the United States or much more disadvantaged position, there was
a big push helped by also by the setting up of Equal Employment Opportunity Commission,
to move those people up in the companies from unskilled jobs to semi-skilled jobs. That started to work. Unfortunately, I think one of the reasons
why the system was not maintained in the 1980s was because, in fact, as those jobs get challenged,
I think of it had been more still a white male society, the companies might have– there
might have been more of a consensus, but we need to retain and reinvest. It fed into it. Well, no, we can buy take responsibility for
people we don’t care about. I think in the end, we can see what’s happened
to the white blue collar worker now downward mobility, lower life expectancy, opioid crisis. It hurt everybody, but I think that that fed
into it. What I’m trying to get at here is there are
lot of social influences on what companies do and how they act and what the norms are. Those norms changed. Then they changed dramatically in the 1980s. As I said, what I saw at Harvard Business
School that Harvard Business School went away from this notion, which they really had retained
and reinvested and call it that, to yeah, it’s good to downsize and distribute. That’s what they started teaching the students. That’s what the students started getting jobs
on Wall Street and be able to make a lot of money by participating in that, as if it’s
all about value creation. That’s when things went from really changed. That’s when you went from having stable and
equitable growth coming out of the practice of these companies, these companies to contributing
to unstable employment in equitable incomes, and actually in the end, in many industries,
say in productivity growth, loss of international competitiveness. MAX WIETHE: You talked about the maximizing
shareholder value, but also it was coupled with changing regulations. You really think it was more of the changing
regulations or this new economic theory which really was the driver, or obviously, it was
a combination of both, but they’re both major factors. WILLIAM LAZONICK: Yeah. There was a lot of changes in the institutional
environment which are often regulatory that fed into this. The creation of NASDAQ in 1971, out of basically
the National Association of Security Dealers automated system, you had all these security
dealers around the country trying to sell small shares and small companies. There was no national market nor liquid market. The Security Exchange Commission in 1963 had
a special study of the potential of companies being able to go public more quickly if there
was a national market for more speculative companies. The impetus to that was that there were a
number of companies which were called glamour stocks, which they get on the market in the
late ’50s and ’60s coming out of military technology that started catching people’s
attention that you could use this for commercial purposes. Of course, then you had the rise of Silicon
Valley. Silicon Valley, actually got named that name
the same year that NASDAQ was started in 1971, where you had all these things startups going
and taking a lot of the technology. They’ve been done in corporate research labs,
and developing, in this case, semiconductor chips and people leaving one company to another
and then being able to get listed on the stock market, Intel, which was founded in 1968,
was listed in 1971. By comparison, Hewlett Packard, which was
founded in 1938 in Silicon Valley, the heart of Silicon Valley was really an old economy
company right into the ’90s. The HP way was you never laid people off. That’s how you got innovation. They didn’t go public until I think it was
a 1957. I think that one of the reasons they went
public in 1957 was precisely Hewlett Packard were now looking at not just being the only
people who control that company, brought managers up. There wasn’t so much finance at that point. They were still a very careful company in
terms of growth. You started getting this market where you
could put companies on Stock Market Watch more easily. That then meant that you could get things
like the dot-com boom, you could get things like these biotech startups that I’ve talked
about. MAX WIETHE: It changed the reason that people
own stocks. Was that owning stocks now– WILLIAM LAZONICK:
Yeah. Then the other thing was that if you held
stocks in the 1970s, you had a problem because there’s no inflation. Then people started saying, and also there
was global competition. There’s a question, can you pay dividends? The stock market was not doing very well throughout
the 1970s. There was the change into fixed commissions,
which was actually forced upon the New York Stock Exchange by– in 1975 by NASDAQ, there
was very important was the Employee Retirement Income Security Act, ERISA, which was 1974. Now, that was actually impetus to that was
a bankruptcy, and a particular case, Studebaker, the auto company got bankrupt in the ’60s,
their employers were left with their defined benefit pension so there was a movement for
defined benefit pensions to have some backup by the government. That was the impetus behind it. However, you had the other side of that, how
were the fund managers in this case, mainly the companies that ran the pensions like GE’s
pension. How are they going to get enough yield to
fund the pension when you have all this inflation? There was lobbying basically to clarify under
what was called the prudent man rule, which was part of a risk of what a fund manager
could invest in without being liable for if they lost money for being too risky. On July 23rd , 1979, the Department of Labor
which was overseeing ERISA clarified that you could put a certain proportion of your
pension fund into risky assets like venture capital, and not violate the prudent man rule
and not be held liable for taking undue risk with your– MAX WIETHE: Other people’s money. WILLIAM LAZONICK: Yeah, other people. From that moment, there has never been a shortage
of money for venture capitals in the United States. It’s always been a question of what are good
companies to invest in. We always find things like the dot-com boom,
it happened actually in the mid-1980s. They call it vulture capitalism, venture capital
just setting up companies just to go public in then not being worth much. You had a lot of that going on. The problem really has not been any lack of
money. The institutions made the money flow more
easily through the system. There’s certain amount of that that you want
money to be able to flow through the system but how it flows through the system is another
question. Now on that particular issue, because what
happened at that point, buybacks we’re not being done. If you are a company, you are paying out dividends. You were– the last speech by a guy named
Harold Williams, who was the head of the SEC when Ronald Reagan got elected and then he
resigned, he had some time to go in as the chair of the SEC was to security dealers,
this was called the corporation as a continuing enterprise. This was 1981. He said, corporations are paying up too much
dividends, they have to reinvest more. That was before stock buybacks became a problem. Now, companies have been doing stock buybacks,
which is something that I spent a lot of time researching over the last decade. There’s a major regulation that actually just
led to what I call the looting of the company, company tried to do stock buybacks. Sometimes they did through tender offers,
I’m not talking about it but sometimes, they just went to the open market and did repurchases. The Security Exchange Commission, their lawyers
said well, is that manipulation of the market? It looks like manipulation of the market to
me. There was a rule proposed that would have
tried to limit– not ban them, and they were never really illegal, but limit them. It was proposed three times, but never adopted. Then once the Security Exchange Commission
changed under Reagan, they put a guy named John Schad from Wall Street as the head of
the commission. He believed in Chicago economics, efficient
markets, the more markets sloshing around through this system, the better of what as
he stills says today, capital formation. That’s not capital formation, it’s the money
sloshing around through the system. They adopted really under the radar without
public comment in 1982, in November of 1982, a rule called Rule 10 B18, which was totally
obscure until some academics written about it, but until the research that we did say
this is when you allow buybacks to occur on a massive level, and we call rule 10 B18 a
license to loot basically. It now said you can do massive amounts of
stock buybacks with a safe harbor against being charged with manipulation. Even if you exceed that safe harbor, you won’t
necessarily be charged with violation. It turns out right to this day, the Security
Exchange Commission doesn’t know whether you’re ever exceeding it because they don’t collect
the data on the days of buybacks, but some people do. Then that was a regulation which basically
created a whole new instrument, on top of dividends. Not instead of dividends, because they haven’t
been instead of dividends, but on top of dividends, our data shows this to take money out of companies,
and it’s one that’s favored by people who want to go into the company, get the stock
price up, and then cash in because if they can time the buying and selling of shares,
they can make more money than they would otherwise. In the book, we have a framework for looking
at this looting, which, so it’s the core of the book after we get through the theory of
innovative enterprise, the critique of shareholder value and ideology, the role of the stock
market, not what people think it is. We get into how is this predatory value extraction
occurring? We have a framework where we talked about
one chapter is the value extracted insiders. There are the CEOs and top executives who
are motivated by the way they’re paid, stock based pay, stock options, stock awards, which
are structured in a way as a stock price goes up, you cash in. There’s a long history of stock based pay,
it goes back really to 1950 in the United States, that we’ve gone through that history. I won’t go into it now but then we talked
about it a bit in the book, where basically it was a capital gains tax dodge up until
it was eliminated in 1976. It really came back in the 1980s. Stock based pay, actually, not because of
the large corporations, but because of Silicon Valley startups that were now using stock
not simply to separate ownership control, but also to pay people as a mode of compensation
and not just people at the top, they were paying people down through the organization
and actually, what the reason they’re often paying people in stock was because they want
to lure them away from in the ’80s and even in the ’90s, from secured employment in the
old economy companies. MAX WIETHE: Like the HPs and IBMs– WILLIAM
LAZONICK: If you think of pharma, Big Pharma, one of the reasons Big Pharma started having
problems with their corporate research labs and doing really invest original research
and new drug development was not just shareholder value ideology, but a lot of their best people
now, there was an institutional framework for startups, for products that take billions
of dollars and 10, 20 years ago through, it wasn’t really appropriate but there’s a way
of just going to a startup, getting lots of money, making a lot of money, much more money
that you can make as a research scientist in, well, in the pharma or at Lou Center,
HP or IBM, etc. These companies started themselves trying
to change to that new model of stock based pay. This then, at the old economy companies often,
when they weren’t paying stock based paid down through the organization, this then led
them to adopt that as the main way in what they were paying top executive. Then one by one, these companies changed their
own internal ideology. Later, we’re going to talk a little bit about
Boeing, but Boeing did that in 1997 when it merged with McDonnell Douglas and brought
in a lot of people who were much more imbued with shareholder value ideology as a way of
running a company than the existing management of Boeing. It changed in different ways, different places. Hewlett Packard, it lasted the old economy
model into the late 1990s. Even though Hewlett and Packard who had founded
the companies were no longer active in managing it in the 1990s, David Packard, the year before
he died, published a book called The HP Way, which said, we don’t fire people here. We keep them employed, we find other work
for you. Then at the back of the book, he had looked
at all the innovations we did over the decades with this model. That then gave it some legitimacy until they
brought in a new CEO. Her name was Carly Fiorina in 1999. She went with the flow and turned it into
IFR company, a company that’s shareholder value oriented. You had these changes going on that. If you hadn’t had that change in the regulation
at the Security Exchange Commission in 1982, well, you would have had to have at some point,
but that’s when it occurred and what happened then is that the agency itself turned from
being a regulator of the stock market, in this case to being a promoter of the stock
market. It started being promoter of the stock market
by allowing companies to do something that was contrary to the original mandate, and
supposedly, the current mandate of this SEC, and that is to eliminate fraud and manipulation
in the stock market. Open market repurchases, I would argue are
nothing but a manipulation of the market and they’re legal. Hence the license the looting, legalized looting
of business corporation and they’re massive, which I could go into. MAX WIETHE: Well, we’ll get into that with
the example of Boeing later. I think it’s a fantastic example. It’s really visceral, especially with what’s
happened recently. I wanted to get into some of the accomplices
that these value extracting insiders have you bring up to, which are the value extracting
enablers, and then also the value extracting outsiders. I think both of them are equally implicit
in this process. Why don’t we start with these enablers? WILLIAM LAZONICK: Beyond the value extracting
insiders, then the framework of the book, we then look at the enabler. We put our money into securities to a certain
extent, increasingly not as individuals but indirectly through pension mutual funds, and
they hold about 60% or 65% of all the stocks outstanding, stocks still tend to be concentrated
among the top 10% of income earners in the population, not everybody holds stock, but
a lot of our stock is controlled by pension funds and mutual funds. Let’s say the case of pension funds, I would
argue if you’re running a pension fund, just from the point of view of those 2,000, 4,000
stocks or whatever you have in your portfolio, first of all, you’re not going to know what’s
going on with those shares, you can’t possibly know. What you should want in general is a set of
rules that say okay, when companies can afford to pay dividends, they should pay dividends
and then under the rules for savings that we have, they’ll accrue tax deferred until
people want to make use of that money, pull the money out if you have a pension that’s
accumulating through dividend payments coming into the pension. We don’t want buybacks because buybacks are
people who are timing the buying and selling of shares now, and what we want is them to
pay out a reasonable amount of dividends and reinvest in the company so that if and when
we sell the shares in the company at some future date, change our portfolio, those shares
are likely to be worth more rather than less. From an individual point of view, that should
be the same. If I have hundred thousand dollars and then
putting it into the stock market, I should put it in– unless I think I have some particular
insights on when companies are manipulating the market, I should put it into dividend
stocks and I should look at companies that are reinvesting and I should have a notion
of what an innovative enterprise looks like, which I’m not going to get from studying economics
generally, but from understanding the fact historically how businesses become successful
and put it into those companies. Now we could make mistakes, but I would say
if you had a portfolio of those shares, you would do better. Now, of course, one of the reasons we don’t
do it ourselves is because we can get diversification and expertise, etc. from the fund managers,
but that’s how fund managers should be behaving. In fact, what turns them into enablers is
the fact that they’re being judged by the yields that they can get. In here, you can say quarter to quarter, I
don’t think everything is quarter to quarter, but it often is in this world. If someone else is getting a higher yield,
and you’re not getting it, you might not be the fund manager for all. Everybody is looking to get those higher yields
so they start trying to figure out where are the companies that are going to get this price
boost and they stop thinking or even trying to understand of course, because of the way
they’re trained, not just now in economics department, particularly business schools,
they’re just going to be thinking about how you diversify, get a high yield, etc. They’ll just go with the flow. They become enablers. Now, here’s again regulation that made them
more powerful enablers is that in the 1980s, there was a movement in the name of shareholder
democracy, for shareholders to not only have votes but exercise more power in companies. Now, on some level, you might think that’s
a good idea but if shareholders are just people who buy and sell shares, it’s not such a good
idea from my point of view. In fact, at the time, the push really came
not because more and more people were holding shares, but because shareholding was becoming
concentrated among a few big asset managers, which has become quite extreme now. You then have the question, well, what do
those asset managers do with the proxy votes to those shares? Now, an argument can be made that they’re
just holding the shares for you, why should they get to vote the shares? Well, it was ruled basically, yeah, they get
the vote the share, but in 2003, the SEC sanctioned a rule that says not only they vote the shares,
they have to vote the shares. That gave rise to two companies that want
to exist, that ISS, [indiscernible] shared services, the other, Glass Lewis that divide
up the market in proxy advising and have very small number of people working for them and
advising on massive numbers of proxy votes and then shareholder proposals. They then became part of a system where if
you could get them to advise in a particular way, then you could actually with a very small
percentage of the shares of a company have an outsized influence on the shares, and that’s
where the outsiders come in. They’re the shareholder activists. The one we write about in the book is Carl
Icahn has been around since the late 1970s. People like Paul Singer, Nelson Peltz, William
Ackman, there’s about a dozen of them, and I wouldn’t say in every case, they go in and
do damage. There’s a few of them who tried to get into
companies and cooperate with the companies in investing for the future, but in general,
the way they’re going to make their money is by getting them to pump money out of the
company and figure out when to sell their shares. That doesn’t mean they’re going to hold on
just for a month or two. They might hold it as we show with the case
of Icahn on Apple for 30 months and took out $2 billion in 3.6 billion in just buying shares
on the market. In that period of time, Apple did the highest
amounts of buybacks of any company in history. This was in 2014-2015 when Icahn was holding
in the shares, 45 billion in one year, 36 billion the next year. Apple actually is far outstripped that since
then. That was a game changer because now you take
an iconic company that actually, we document in the stuff we wrote when Apple had previously
gone to this shareholder value mode which was between 1985 and 1997 when Steve Jobs
wasn’t there. They almost drove themselves into bankruptcy. Jobs came back, it was retain and reinvest. We know the story. Now they have lots of money. He died and Tim Cook became the CEO. Since 2013, they’ve done 288 billion in buybacks. Just in case anybody thought that Warren Buffett,
who built up Berkshire Hathaway by protecting all those companies from the stock market
is a patient capitalist, he’s not. He’s now is the biggest, by far biggest, about
10 times the stake that Icahn has and he’s just a rabid cheerleader for stock buybacks
to increase his stay. What that means is you’re not going to replace
an Apple. It means that Apple is not taking money. It’s 288 billion just in buybacks since 2013
and investing in the Tesla’s and other companies of the future that it could be investing and
this is even with someone like Al Gore on the board, one of the longest standing board
members since 2003 who is, of course, we all know, not just the former Vice President,
but one of the main advocates for climate change. What Apple have done with $288 billion in
saying, we have a company that can hire the best people, that has an iconic brand name
that can compete globally and can move into new technologies if it had gone into green
technology, if it had gone in that direction, which it could have, it hasn’t. That’s a lost opportunity and you don’t just
recreate those companies to be in that position to have all this money, to have the ability
to track people, all that learning that’s available. We then get to these outsiders who have become
much more powerful, and were made much more powerful by this rule in 2003, this proxy
voting system where you can hold a very tiny fraction of the shares, still a couple billion
dollars, maybe of a company like Nelson Peltz at GE with never more than .8% or 1% of the
shares but get that company just pump all kinds of money out of the company for the
sake of shareholder value, and cease to have any potential to be that it had to be the
innovative company. It’s in the case of GE, it’s we rely on GE
as US as it’s the main– the really the big company in energy. What damage does that do to its ability to
compete? Actually, it’s losing markets, even in the
United States, so a Danish company investors. That’s the thing we look at it and we see
it again and again but we see that there’s now this whole configuration of the insiders,
enablers, the outsiders all focused on getting stock price up. Buybacks are the tool in which they do that
and we’re saying, hey, let’s stop letting them do this. Let’s change the rules, so that we have a
system that doesn’t allow this predatory value extraction and allows the value creation,
sharing the gains with the employees, paying us as taxpayers who help support this infrastructure
of knowledge, a decent tax rate so we can not only get a return on that, but invest
in the next round of innovation without the government going more into debt to support
the companies in innovation. That’s the model we have and well, that’s
the model we put forward but it’s not the model we have. We have this model, which is really deeply
entrenched now in what we call predatory value extraction. MAX WIETHE: Well, and I thought, also a really
interesting transition you did was from Carl Icahn as the corporate raider where he’s taking
25% stakes and now he only has to take less than 1% stake and people would suppose maybe
that that’s because they’re afraid of him becoming the corporate raider, but really,
all the incentives are aligned. He doesn’t have to, it’s really that he doesn’t
have to, not that they’re afraid. WILLIAM LAZONICK: Yeah. It was because of him that the term green
mail got coined. It actually only looked at it, only that he
puts [indiscernible] around 1982, ’83 and he went after a small number of relatively
small companies in that were locally based. He started getting control and/or threatening
control. All he had to do was threaten and then they
would buy him out green mail. They were doing that even before it got turned
green mail. Now, what is fine? We’ve looked at a few of these cases is that
within those companies, there were some people, there was actually– should we try to fight
him off? Should we let him in? There are some people who said no, okay, let’s
do this, we’ll get our stock price up and offered then their own stocks. You start getting this aligning, but sometimes
it was called hostile takeovers at the time because often, it was seen as hostile. The people who are running the company do
not want these outsiders so they say, well, they’re incumbent, they’re just protecting
their own interests. It could be that those companies are not being
run properly, but it’s not going to help to have someone come in whose only purpose is
to get the stock price up and using the ideology of shareholder value as to legitimize this,
you have to understand the principles of innovative enterprise. I think good executives do understand that. The only one case that that occurred relatively
recently that everybody probably knows about is Whole Foods. Whole Foods was known as now owned by Amazon,
but known as being a really good employer, charging high prices, but it was getting–
yeah, people going there, shopping there. In the fall of 2015, I was asked, actually
by someone in one of the presidential Democratic presidential Bernie Sanders campaign actually,
someone asked me why is Whole Foods, because I’ve been saying Sanders should talk about
buybacks. Why is Whole Foods, they’ve done about a billion
of buybacks? Why did they do that? I looked at it, I saw that in fact, in September
of 2015, Whole Foods had laid off about 7% of its labor force, about 1400 people. The stated purpose was that so they could
charge somewhat lower prices to compete with Trader Joe’s other premium brand. I thought unreachable, that means the other
93% of the people are going to have to work harder and I then did a calculation of what
they did in terms of buybacks per laid off employee, it turned out $727,000 per employee. If they hadn’t done the buybacks, they could
have kept those people employed, what their benefits if they’re 60,000, which is probably
high, they could have kept those people employed, and they would have had plenty of money to
lower prices, and they wouldn’t have forced people to work harder, who are the main people
that would have been much more rational thing to do. The reason they didn’t do that was because
they were being attacked by hedge funds. Now, when just before or just after they sold
to Whole Foods, the CEO of Whole Foods who was on the record of saying, and it’s one
of the few times I’ve ever seen this, calling those activists, a bunch of bastards, a bunch
of just– hardly anybody will speak out against him, he actually did. The reason he sold to Amazon which what they
used to call a white knight, there was someone there who could at least protect the company
then there was a logic in their business model. We see that going on still to some extent. Now, the other thing that changed with someone
like Carl Icahn, although he was making lots of money, he actually– when he ended up having
to take run TWA because the green mail didn’t work. That was he lost a lot of money in that. The notion is you get in, you get out. The other thing that changes as he became
wealthier, he didn’t have to rely on other people’s money so in 2011, Icahn Enterprise
is just his own money basically. That gives them even more power too because
he doesn’t need to keep his own investors aligned with the raid or whatever he’s doing. He always, right from the late ’70s when he
started doing this, called this money is a war chest. The more he has, the more the value he extracts,
the more of a war he has, the more power he had. I think the other thing that’s going on is
that on the boards of companies first of all, I think there are a lot of people just believe
in shareholder value. A lot of people on boards who don’t have the
slightest idea what those companies are really doing in many cases. You often can, without a proxy fight, just
influence people on the board to say, yeah, back doing more buybacks, back pumping more
money out, back things that are– do a merger or do an acquisition but do the acquisition
so we can get control of the money in that company and pump the money out rather than
do the acquisition so we can spend a lot of money to build that company up. You don’t really know what’s going on, the
bearing point, it’s like I can talk about an era back then when it was more retain and
reinvest, that’s still going on in some companies now. I think this conflict is still going on now. We talked about a tension between innovation
financialization, and you don’t really know how it’s being played out until you look at
these companies, but there’s much more forces are aligned for being played out on the financialization
side than on the innovation side. MAX WIETHE: We touched on a few examples of
places where stock buybacks and insiders, outsiders enablers have allowed predatory
value extraction to take over the place of reinvest and innovation. I think one of the most the best examples
right now that you can see, because it’s one thing to say the company isn’t innovating
anymore, or they’re not making as much money as they could be, but Boeing people are actually
dying because of this process of the financialization of what was really an engineering company
for so long, and I actually had a conversation with my father. He said they kicked the engineers out of the
boardroom. You brought it up earlier, I think it was
1997, they had that merger with what was the company? WILLIAM LAZONICK: McDonnell Douglas. MAX WIETHE: McDonnell Douglas, and I think
really just starting with that, and moving forward, what happened at Boeing, and how
did we get where we are today? WILLIAM LAZONICK: Yeah. Boeing was founded in 1916. It was a beneficiary of a lot of government
subsidy, including the couple of acts from the postmaster general office at 1925, 1930
that created subsidies for airlines to buy more advanced planes– I’ve written about
this in Boeing Emerged Along with Douglas as the innovators in– it was integrated wing,
all-metal fuselage planes in the depths of the pressure between 1930, 1932. Actually Douglas ended up doing better as
a commercial company in the 1930s and beyond. Boeing was much more oriented towards the
military side. Boeing then with their jumbo jets, was able
to emerge as a stronger company. That was lucky, there was a few other companies
and was able to then consolidate as the main, really the only big aircraft manufacturer
in 1997 when it acquired McDonnell Douglas. At that point, you had Airbus which had been
created from a consortium of European companies to be a competitor to Boeing which was rising
as competitors. It’s well documented that there were a lot
of financially oriented people who came into Boeing with the merger, some of them had come
from General Electric and they started pushing shareholder value. That year actually, 1997, significant to other
ways. That was the year in which the Business Roundtable
declared that shareholder value would be the primary purpose of companies. This is an organization of which CEOs are
members of major companies. People might know, recently this few months
ago, they changed the tune on that. They said, now, we’re run for stakeholders,
but Boeing at that point actually turned to being a shareholder value company. The other thing that happened in 1997, it
was the first year that dividends– that buybacks surpassed dividends in the form of distribution
of shareholders and you had the stock market boom going on and many companies trying to
keep up with companies that had high flying stocks by doing buybacks. Let’s say Cisco, which ended up having the
highest market capitalization in the world in 2000, March of 2000, didn’t do buybacks. Other companies tried to keep up like Microsoft
and Intel by doing lots of buybacks, so this was increasing. Now, at Boeing by 2001, the top executives
said we don’t want to be too close to the engineers here in Seattle, which was the original
birthplace of Boeing and they have been for since 1916 so they moved their headquarters
to Chicago specifically to be away from the engineers and said, okay, you can do the hinge. Now, you started having lots of business. Their business is producing major aircraft,
their large aircraft under that time, there still is the case, or two companies capable
of doing it. The Chinese are on the horizon, maybe the
Japanese in the future. They needed a new long haul plane, they needed
new mid-range plane, and partly it’s because of advanced materials, avionics and fuel efficient
engines. They built the Dreamliner, which was what
they call a clean sheet, it was a wholly new plane really. It wasn’t even a replacement, it was just
a new plane. They had a number of problems with that in
terms of the outsourcing of stuff, they were doing a lot of outsourcing of the capabilities,
but they were doing that from the early 2000s. Then they knew they had to have a replacement
for the 737 and gee, and the 737 series was a single aisle narrow body plane for mid-range
flights, which they call the workhorse. This is the one who would be biggest selling
plane, and it would be one where they would be used for a lot of longer domestic flights,
some shorter international flights. They had this architecture from the 1960s
for the 737. It had been reengined two or three times. The last one was 1993, which was called at
737NG, reengine just meant they kept the same architecture and put in a new engine. Already with the NG which meant New Generation,
they, which was a big selling plane and their main competitor is the product in terms of
these narrow body mid-range plane, they had a problem because of the wing being too close
to the ground, which Airbus did not have, because they’re series 320 originally in the
1980s, when you were using the loading equipment and you built the wing higher up from the
ground, so you could put more of an engine, a bigger engine underneath. The fact is that the bigger the engine, the
higher the fan diameter– the longer the fan diameter, the higher the bypass ratio, the
more fuel efficiency, generally, all other things equal. This had already become a problem with the
NG, it’s actually doesn’t have a purely round shape. It’s flat at the bottom to give a bit of extra
space between the wing and the tarmac. The fact is when they were thinking of what
to do in the– probably about 2003, 2004, 2005, they actually had a project called the
Yellowstone Project One to think about what they were going to do to replace the 737NG. What they should have done, there’s no doubt
in my mind, what they should have done is done what they call is clean sheet replacement. They would have been enough to take advantage
of all the modern avionics, all the modern materials, and have plenty of space for the
most fuel efficient engine. That was on the books. Apparently, apparently, it was still a possibility
even up until the spring of 2000 or summer 2011 when they announced that they would do
a re-engine plane, the 737 Max. They did that also in reaction to the fact
that in December of 2010, Airbus had put out the 320neo using their company CFM, which
is a joint venture between GE and Saffron, a French company. Leap engines which were much more fuel efficient. Actually, the fan diameter on the leap engines
that Airbus uses are 78 inches. Now, this was a problem for Boeing because
they’re already had reached the limits. There was then a debate at Boeing which I’ve
been able to find out a little information about, of how big those engines could be. There was never even an issue that they could
possibly be 78 inches so it was a question. On the NG, they had been 61 inches the fan
diameter, they may be up to 68 inches, in the end, they put some extra height on the
front landing gear and they got it up to– well, first supposed to 68 inches, actually
69 inches so they reached the limit. If they hadn’t done that, they would have
been subject to a critique, as they were, in fact quite vocal from Airbus is that you
weren’t going to get the fuel efficiency on the Max to compete with the Neo. That would have been a big problem so they
were trying to figure out how to get these fuel efficient engines on there, given an
architecture where you had to reposition them more forward, more upward. Now, here’s something where a lot of people
have opinions but the investigations really haven’t been done to really say what’s going
on and that is that the opinion, there seemed to be a widespread opinion that that repositioning
of the engines created a tendency of the nose to pitch up during takeoff when– it’s on
manual before you get up to your cruising speed. If it peaked up too much, the plane could
enter a stall and so often, you want to get back to a safe what they call angle of attack. This is something that pilots to be aware
of and will be looking at readings from two sensors that are on the exterior of the fuselage. If they agree, then they just see what the
angle attack is. If they disagree, they would get a lightness
on the NG and say disagree and then they would just shut the system off, they would just
figure out how to get the angle of attack. They would– MAX WIETHE: Fly manual. WILLIAM LAZONICK: Yeah, but what was happening
here was that this, they put on a system which later became known as MCAS, maneuvering characteristics
augmentation system, that was doing this for them and they didn’t even know about it until
after the Lion Air crash which happened in October of 2018. The timeline is the planes launched in 2011,
the end of 2012, they have 2500 orders. It just before the second crash of the Ethiopian
Airline’s plane, that was in March 10th of this year, 2019, they had just over 5000 orders,
387 delivered. The plane had been certified in March of 2017. The first delivery in 2018. Now, a year and a half later, you have this
crash. Immediately, it’s well, suspected that it
was a faulty sensor. Then Boeing was forced to reveal when American
Airline’s pilots went after them, what’s going on here that they had this MCAS system on
there. They didn’t call it that at first, but then
it became known as that and they hadn’t put it into the flight manuals, and there’s all
kinds of issues that have been written about whether they let the FAA, the Federal Aviation
Administration know about the system or know how more powerful the system had become. There’s a whole lot of issues of concealment
that are there and still being investigated in Congress and an issue right now because
as of today, what’s today, December 6 th , 2019, those planes have not flown since last March
13th around the world and nobody knows when they’re going to fly. The issue is, are they going to fly? I wouldn’t know whether I should bet on this
because I don’t bet but I’d say the odds are, in my view, that they won’t ever fly again. That would be true if they have this structural
defect and there’s been more evidence that there is this defect, that it’s not just a
software fix, and it’s going to– the deal with it is not a software fix and now, pilots
know about it. If it was, you would think that plane would
be up in the air again. The other thing is, you would think that Boeing
would have come and rebutted the notion that it had this structural design flaw, because
obviously that’s out there, everybody’s talking about it. You just see it on the chat on an article,
people think of it as a structural design flaw. If that’s not the case, come out and say no,
that’s not the case. Now, obviously, if they– here’s the crux
of it, if they had built a plane they should never should have built back when they had
the choice 2011, when they launched the Max and they could have gone to the clean sheet
replacement, by some estimates, it would have cost them $7 billion more, maybe $8 billion
more to do that, rather than the re-engine plane, it might have taken a year or two longer,
but this is one of the greatest engineering companies in the world. There was every reason to do it in terms of
material avionics, fuel efficiency in the planes and they actually still have it on
their books that they’re going to do it, that they should have done it then, they didn’t. Why didn’t they do it? Well, we don’t know for sure. We have some possibilities. We do know that Southwest Airlines, which
was the biggest purchaser of 737 planes wanted a plane that would fly just like its previous
plane, so it didn’t have to retrain the pilots. The pilots were in an airport, they’re going
from an NG to a Max, it would be not going to a different type of plane. That might be a part of it, but they could
have paid a million dollars for pilot to retrain them or give him a- – they could have figured
that out financially. It may be it’s more speculative that they
already are having problems with the Dreamliner with all the outsourcing they had done, which
was part of their business model and they didn’t want to start that whole process anew
at the same time with the mid-range plane. That’s possible. Then there’s also possibility that’s where
the financialization comes in, but it’s not the only reason. The fact is the period when they should have
been thinking, how do we mobilize all our resources to build the planes of the future,
between 2004-2011 and on top of paying very ample dividend, they paid $11 billion out
in buybacks and so when you come to 2011, most companies stopped doing buybacks and
a lot of them in 2009 in particular, the financial crisis or a little reticent in 2010. MAX WIETHE: When you actually should have
done that. You ever actually should have done it. WILLIAM LAZONICK: When I was buying stock
with the high prices, but that money would have come in handy, that money plus interest
that if they had had it, we don’t know if there is. I think there really should be an investigation
into why they didn’t build a clean sheet replacement at that point. Once they went the route of the reengined
plane, if it’s true, and this, we don’t really know but there are congressional investigations
that could find out that this plane had a design flaw that made it inherently unsafe,
and they didn’t want their customers to know about this so they tried to fix it with the
MCAS, and they didn’t tell anybody about it. Oh, that’s pretty serious. Now, where does financialization come in beyond
that? They didn’t do much in the way of buybacks. I didn’t do buybacks up through 2012, but
in 2013, right at the beginning 2013, they started doing them. By that time, it was clear that in terms of
sales that the Max was a success. It’s the fastest selling plane they’ve had
in history. I think the NG might have sold more than they’ve
sold so far, but any case the fastest selling plane and this looked pretty good. Airbus was doing very well with its planes
so it wasn’t just that it was huge demand for planes, which also particularly why Lion
Air is one of the biggest purchasers, it means that you’re also getting huge demand for pilots. You’re not going to have every pilot being
trained as a military pilot so we need planes that we need competent people, pilots, but
when we get on a plane, we can’t assume that solly is on their [indiscernible]. Any case, at that point, we don’t really know
what they do, or they didn’t know but we do know that they started propping up the stock
price. Between January of 2013, and the week before
the Ethiopian Air crash, they did 43 billion in buybacks, including about a little over
9 billion in 2017, 9 billion in 2018. Less than two months after the Lion Air crash,
they increased the dividend by 20%. They authorized a new $20 billion buyback
program but it hadn’t been for the Ethiopian Air crash in March, they probably would still
be doing buybacks and another plane didn’t crash. We’re not sure, but I would have said they
probably would have done 12 billion this year or something like that. March 1st , 2019, which is when the new dividend
went into effect, they hit their all-time peak in stock price. The Ethiopian Air crash 10 days later. Now, here’s think that this might have occurred
if they hadn’t been focused on their stock price. You might have had, I use the example of like
Volkswagen with the diesel emissions, not a particularly financialized company coming
out of Germany but if you’re at the top of the company, and you’re trying to meet regulations,
and you can fake the data, and you can sell your cars, there might be some executives
who are tempted to do that. Actually, I think there’s some in jail now
because of that. It’s not that it’s only going to happen in
a company where you have all these buybacks going on and you’re focused on your stock
price, but it certainly supercharges the incentive to do this. If the public is buying into the notion that
a high stock price means a company is doing fine, then it creates a certain aura of success
of the company. That it’s got its high stock price, it must
be okay. Even what’s– the frightening thing is that
even after the Lion Air crash when they knew that this may have been– they started discovering
why this may have occurred, there was still an attempt by Boeing to blame it on the pilots
to say that one particular plane was not air worthy and they doubled down in a sense on
trying to get their stock price up. Meanwhile, the executives are doing very well
in this. McNerney who had been the CEO from 2005-2015,
I think we had something like $257 million went into his pocket, his actual pay, a large
percentage of it stock based and other related to higher profits, which of course come from
having all the order for the plane. For Muhlenberg, the current CEO, then now
stepped down as chairman, but he was between 2015, summer 2015 when he became CEO and the
end of ’18, for which you have the data, it was about $2 million a month falling into
his pocket. Now that’s a lot of money, even if you are
successful in producing a safe plane because it’s really the engineers– the whole, but
if in fact, you’re not doing what you basically should do is produce a safe plane, then it’s
a big problem. Now, one last thing I’ll say about this is
that a lot of the– and we have this an article in American prospect group published last
May, which talks about this, a lot of the notion, the ideology behind shareholder value
is traced back to an article by Milton Friedman, well known as Conservative Economist of Chicago
School in 1970 in the New York Times Magazine, where he said the only social responsibility
of a company increases profits. This was actually came out in direct response
to Naderism and Ralph Nader and the push for more fuel efficient and safer cars and in
fact, the context was that there something called Campaign GM that wanted to put three
public interest people on the board of General Motors to push for more fuel efficient and
safer cars. Friedman publishes articles solicited by an
editor at the New York Times and called this and it was repeated in some editorializing
opinion of that article by the editor. Pure unadulterated socialism. Now, we know the future of the auto industry. They should have had people on there who were
pushing for producing safer cars because that’s what went out in the auto industry. The only social responsibility of a company
is, you could say, is to produce fuel efficient safe cars. It’s not a social responsibility. It’s an innovative strategy so he was basically
telling people, saying there’s pure unadulterated socialism, don’t be an innovative company. It comes full circle back to what the start
of the book is about what the value creating company is, what innovation is, where it comes
from. It doesn’t come from saying we’re going to
increase our profits. It comes from producing a high quality product
that people want, in this case, fuel efficient cars, safe cars, in the case of Boeing plane,
first and foremost, obviously a safe plane and then getting a large market share to spread
out the fixed costs and get economies of scale and make it more affordable. That’s where we get productivity growth, that’s
where we get a basis for paying people higher wages, paying higher taxes. That’s where we get the posit of some scenario
in the economy as a whole. The Milton Friedman article was really putting
the cart before the horse and we say you want the profits, no, if you want the profits,
produce the product that the market needs. MAX WIETHE: They actually want. Well, I think you make a very strong case
and I was hoping today, we’d be able to get into your last five points. I don’t think we have the time so we’ll leave
it to everybody. If you want to hear Bill does lay out, he
doesn’t just lay out the problem, he also does give five points as to what he thinks
will be the way to fix this problem of the lack of innovation in major corporations in
America but also across the globe. Bill, I just want to say thank you for coming
in today. It was really fascinating. WILLIAM LAZONICK: Yeah. My pleasure. Thanks.

13 Everyday Things You Should Really Stop Paying For | The Financial Diet

Hey, guys. It’s Chelsea from The Financial
Diet with some new short hair. And this week’s video is
brought to you by FreshBooks. So today I kind of want
to hop right into it because I wanted to put together
a list of everyday items that we’re used to
spending money on, that we almost think is
kind of obligatory expenses, but are super easy to
cut out in our budgets. Now granted, you might
not be spending money on every single
one of these items, but chances are there’s at
least one or two that you could cut out right away. So let’s get right into it. Here are 13 everyday
items you should really stop spending money on. Number one is the
most obvious, and that is individual bottles of water. Get the Brita filter. And if you like sparkling
water, like myself, get the SodaStream. Not only is it
pennies on the dollar to fill your own water
bottle, but it’s also way, way better for the environment. And yes, we all
generally know this, but it always bears repeating. And for further incentive,
you can get yourself a really cute water bottle. Number two is expired food. So here’s a fun fact. There’s actually no uniform
government regulation on how food companies
are required to label their sell by dates,
their good until dates, et cetera. For example, with milk, it’s
a state by state regulation, and there are many
states that don’t even have a mandatory
regulation on dating milk. And because these are
very arbitrary standards in a lot of cases, put
yourself in the mind of the food company. They want you to buy
more of these items at a faster rate, which
means that the sell by dates on these products are often
way too early if they’re not totally unnecessary period. On average, if food
is stored properly, you can almost double
the average sell by date. And for things like
raw meat and fish, you can put them in the freezer
to store for months at a time if you don’t think you’ll
use them right away. We’ve included a link below
to a handy database that will give you a really good idea
of how long each food item can be kept past their sell by date. Stop wasting money on
unnecessary replacements for food. Number three is all of
the unlimited passes and memberships for
things that you’re not getting your money’s worth on. This is everything from gym
classes to public transport to Amazon Prime to Costco. Anything where you’re
getting a membership that allows you to do something
in an unlimited fashion, but you’re not doing it
enough to justify the price. For example, Holly,
our managing editor, used to pay for the unlimited
subway pass here in New York. It cost about $120. But she did the
math and realized that she was only
using about $75 worth of that pass every month. So now she just pays per ride. On the other hand,
for example, I use the hell out of my
Amazon Prime membership, and it’s totally worth
it in terms of shipping. But you might be someone who
almost never orders off Amazon so that $100 yearly
fee is not worth it. Just make sure that you don’t
automatically think unlimited means the best deal possible. Actually do the math
on how much you use it. Number four is
excessive paper towels. We encourage you to limit
yourself to one roll every two weeks. There are obviously
certain times when you’re going to
have to use paper towels, so we’re not saying
never use them. But there are things like
cleaning surfaces where you should not be using
them because that’s how you unnecessarily waste
rolls and rolls of it. We recommend you grab yourself a
sturdy reusable pack of kitchen rags to do everything from
wipe down counters to dust to just clean up when
something accidentally spills. It’s better for the
environment, and it’s also way cheaper in the long run. Number five is data
overages on your cell phone. There’s a couple
pronged checklist that you should follow to
make sure that you’re always getting the most out
of your phone plan and never unnecessarily
burning through data. A, make sure you are always
connected to your Wi-Fi when you’re home. You have to recheck it every
so often because sometimes it will just disconnect. B, if you want to
listen to something like a playlist or a
podcast while you’re out and about
during the day, make sure to download it
offline when you’re at home so that you don’t have to burn
through data listening to it. And C, if you’re spending a long
time in like a cafe or a bar and might go online,
make sure to see if they have Wi-Fi that
you can connect to, so even just for things
like your applications, you’re not using a ton of data. These are small changes,
yes, but if you follow them religiously, you can find
yourself saving dozens of dollars at the
end of the month because you’re not constantly
going through data overages. Number six is fancy pet treats. Now, something you
are probably not aware of if you don’t
have your own pet is that treats, especially
the nice organic treats that are not just 90% chemicals,
are really weirdly expensive. No joke. Just one of the bags
of natural chicken chews that we have for Mona
in our cabinet was $14. I don’t even eat $14 snacks. We’ve recently tried making
homemade treats for her, and let me tell you, the price
difference is night and day. You can literally
make the same quantity of actual meat-based treats
for your animal for like $2. Yes, it takes a little effort,
but you can make them in bulk. And if your animal
treat budget is getting into the $100s every
year, it’s definitely worth it. We’ve linked you in the
description to a great resource to start making your
own DIY dog treats. Number seven is overpriced
chemical-laden cleaning products and cosmetics. Most of the products
in our cabinets, whether for our
countertops or our faces, are extremely
overpriced and full of chemicals that
are not necessary. For example, one of the
big myths that we live with is that we need a separate
cleaning product for basically every surface in our home. Not only are there great
all-purpose cleaners out there that are good for
everything from a floor to a stove to a wood
countertop, but there are also super easy to make
DIY in a lot of cases. Just a little lemon
juice and vinegar will take care of about
half of the cleaning that you’ve been outsourcing
to these expensive bottled products. And when it comes to cosmetics,
things like oils and sugars are great for doing
the everyday cleansing that we’re used to
doing with products. For example, everyday
olive oil and a raw sugar make a great scrub
for your body. And that same olive
oil, by itself, is great to take
off your eye makeup. And one of the best
all-purpose facemasks out there is just some
organic honey. Put on your face, allow to dry,
and then gently washed off. We’ve linked you to
some great resources in the description to starting
to make your own cleaning products and cosmetics at home. And while you’re not going to
replace every item overnight, what’s important is that you
start shifting your mindset from how much of these products
need to be store-bought and how many of them in
total you really need. Number eight is stained
or ruined clothes. Now this one is a little bit
in reverse because instead of spending money on
replacing clothes, you need to start spending
money upfront on keeping things like little stain remover
sheets, bleach pens, and Tide pens to keep with you. So that when something happens,
you can take care of that right away before the
clothing item is ruined. For example, last
night I was cooking, and I accidentally flicked
a little bit of pesto on a white shirt,
which if you’re not familiar with the wide
world of clothing stains, is probably one of
the worst things that you can get on
a piece of clothing because it’s not only oil,
it’s extremely bright green. Luckily though, I had a
bleach pen on hand right in my kitchen
cabinet, which I was able to remove the
stain with immediately, and then soak it in
a little cold water. Without having that
on hand, I would have needed to replace the
shirt because letting that stain sit would have ruined it. I can think of like five
occasions in the past year or so that I’ve been able
to use these wipes or pens, and each time it has
saved an item of clothing. It’s a tiny bit
of planning ahead, but you will be so
glad when you have it. Number nine is full-sized jars
of things like herbs and spices that you will probably
not use again. It’s important that
from time to time we step outside of our culinary
comfort zone and cook things that we are not used to cooking. And a lot of times, these dishes
require something like a spice that we’ve never used
before and are honestly not likely to use again. And in that case,
take the time to go to a store like a Whole Foods
or a specialty store where they have bulk herbs and
spices so that you can get just enough of what you need. Take it from someone whose
spice cabinet is like 30% spices that I got randomly for like
one kind of complicated dish and then never used again,
such as this jar of turmeric that I have that I’ve taken with
me through like four apartments and now it’s just
solidified and hardened into this weird like
clump of turmeric. It’s not worth it. There are some
spices that you will use on an almost
daily basis and some that you’ll never use again. Doesn’t mean you
shouldn’t try it, but just don’t get
a $10 jar of it. Number 10 is sliced and
individually packaged foods. As a general rule,
any time of food is pre-sliced or pre-portion
or individually wrapped, it is going to be more expensive
for basically no reason. And this is everything
from cheese to bread to little snack cakes to meat. Start buying things
un-portioned. And if you absolutely
want to have everything in an individual
serving size, you can do it yourself with
reusable containers. But generally speaking, taking
the two seconds to do something like slice a fresh
slice of cheese off a block for your
sandwich is going to be way better in terms
of money, in terms of taste, and also for the environment
because you’re not using a ton of plastic for no reason. Number 11 is separate
kitchen storage and bakeware. A lot of times,
I think mentally, we imagine that we have
to have separate items for each part of our cooking
and food storage life. For example, I think
a lot of times, we’ll have like plastic
Tupperware or bags for storage, and then you’ll
have Pyrex bakeware, and then you’ll even
have perhaps something else for freezer storage. Cut that shit out. Get yourself one set of several
different sizes of the Pyrex containers that have the
plastic tops on them. You can use them to store
food, to take it with you. You can bake with them,
and you can freeze them. You only need one item to serve
all these different functions. And plus, they’re way more chic
than the plastic Tupperware or takeout containers. One tip though, never
ever put a Pyrex dish straight from the
freezer into the oven unless you love having
exploded glass everywhere. You must thaw them first. Number 12 is wasted
space in your home. Start thinking of
every square foot of your home both
in terms of storage and practicality as having a
dollar value because it does. When you have a totally useless
junk drawer or a closet that’s totally unoptimized or
a bunch of old clothes that are just taking up space,
that is costing you money. At least once every
six months, you should be doing a
cleaning/purging/reorganizing in your home to make sure that
every square foot, especially in terms of storage, is
being used efficiently and for things you actually use. When you are paying
rent to store things that you don’t even use, that is
throwing money out the window. And that goes doubly for people
who have houses with rooms that they don’t
even really go in. But I live in New York. I don’t know people like that. Number 13 is needlessly
disposable products. There are a lot of products
in our day to day lives that we’re used to thinking of
in terms of being disposable, and that is costing us money. And a great example of that,
for women at least, is razors. We’re marketed those really
nice Venus disposable razors that cost like $16. And you get like, what? A couple weeks of good use out
of them before they get dull. On a real razor,
which are often metal or some other fancy material,
the actual little blade that you swap out every so
often is pennies on the dollar. The problem is they’re
really only marketed to men now as this sort
of like vintage hipster thing that takes you back
to the barbershop days. But Mark uses one,
for example, and he must have saved like $300
in the past couple of years on disposable razors. They’re not marketed
to us, but women should start using them too. There’s no reason that we should
be throwing our money down the drain, whether on
the super disposable Bic razors or the fancy
Venus ones that have to have the head of the
razor replaced like every three weeks. Some other examples of
needlessly disposable products are travel-sized toiletries. Get those little bottles that
you put your regular stuff into. Chopsticks, Swiffer
pads, K Cups, non-rechargeable
batteries, sandwich bags. AKA, Anything that you are
constantly throwing away that could be easily replaced
with something you use again. Whatever your individual
items happen to be, the point is that you get out
of the disposable mentality whenever possible. Generally speaking,
a disposable product just means costing you
more money for a little bit of convenience. As always guys, thank
you so much for watching and don’t forget to hit
the Subscribe button and to come back every Tuesday
for new and awesome videos. Bye. This week’s video was
brought to you by FreshBooks. So as you guys know,
Lorne and I run TFD, which means a lot
of number crunching, invoicing, and keeping
track of paperwork. And if you’ve ever
freelanced, side hustled, or had your
own project you probably know what it feels like
to be overwhelmed just keeping track of numbers. So that’s where
FreshBooks comes in. Basically, it’s cloud
accounting software that allows you to keep
track of your business and get paid in the
easiest way possible. It basically acts like your
own mini personal assistant keeping track of everything from
deposits to money you’re owed and reminding you along the way. Plus, their unique
tools are set up to make sure that
you get paid faster. And most importantly,
for everyone listening who’s not a numbers
person like me, FreshBooks is designed
to be extremely simple and easy
to use, especially if you’re not so good at math. And FreshBooks is offering TFD
viewers a free 30-day trial, no restrictions. So go to
and enter the financial diet in the how did you
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This Couple Did Something CRAZY to Pay Off Debt

– Next is an amazing story about a couple who did something radical, you guys. They sold their house to pay off debt. So let’s take a brief look at their story before I have them come on. – [Steph] We were poor when we were first married. – [Taylor] My card had got declined at a fast food restaurant one day. So we met in college. – We got married in October 10th 2009. I didn’t really have knowledge
about what that meant to have student loans, so we
lived off of student loans. – We went through
Financial Peace University within six months of being married. So we finally got on a budget,
and we’ve been budgeting for seven years. Well one of the things
we never talked about was how much debt we had. And I would try and present it to Steph and she’d just—brick wall. – Yup.
– Just, “No. I don’t want to know the number.” – Mm-hmm. I felt a lot of shame
because I was the one that carried the bulk of this debt. – With student loans we
had $137,000, and then last fall our daughter was
having trouble breathing: ended up being a three night
stay in the Vanderbilt ICU. And so that racked up about
$5,000 worth of medical debt. – Even though I was obviously
very present with my daughter, in the back of my mind I
was still thinking, oh no. I know this is going to be an expense, and we already have this
huge amount of debt. – A couple months later
we were looking at how we were gonna debt snowball this thing. What could we sell? What do we do? And then she came to me. – I just had this, I don’t
know if it was vision or what it was, but just this thought of, what if you sold the house? – That would leave us
with like $35,000 in debt. We could snowball that quickly. And that presentation of the question was what got me on board. – Wow. What an incredible story. I love these kinds of stories
where people do something that’s so difficult and so
different than what the world says they should do. And it pays off, literally. So here I brought in
Taylor and Steph to join me because I just want to
dive more into their story. So thanks, you guys, for being here. – Yeah.
– You’re welcome. – Seriously, I mean,
you all sold your house to get out of debt. – It’s crazy.
– We did. – It’s crazy, yes. Okay I want to dig into that
’cause that’s just huge. But first, majority of your
debt was student loans, right? – Yes. – And how much total again was it? – 137
– 137,000 dollars. So when you when you signed
up for student loans, I’m just curious, what was your thought as you were going into it? Like did you have any idea the
repercussions later in life? – Yeah so the majority of
those student loans were mine. (Rachel laughs) – It’s okay, Steph, you’re
gettin’ through it. (Steph laughs) – Yes, I chose to go
to two private schools for my bachelor’s and my master’s degree. And my parents owned a farm
and just couldn’t afford to pay for that. So that was the majority of our debt. I didn’t understand, I mean,
you’re brain’s not even fully formed at 18; let’s be honest. – Right, right, I’ve heard that. (Steph laughs) So I didn’t even understand
what that looked like later on in life. Once we got married we had to live off some of those student loans. – Yes, yes. – So we took out even more
than actually was was paid for just through education. – Yeah, totally, which is so normal. Like I’m hearing that more and
more people are doing that. And the repercussions of
it, they don’t know at 18. You guys were great because
you guys budgeted together pretty early on, right? – Mm-hmm. – So were you always on the
same page, do you feel like? – Ah no. (all laugh) My card got declined. We had no idea what we were gonna do. So we called my parents, and they bought us a Financial
Peace University kit, sent it to us. It took me a while still
to kind of get into it. – So you guys have been
married a little over 8 years. – Yes. – So what year was this? – This was six months in. – Within six months.
– Okay. So you’re newlyweds. – Yes. – Yeah, we’re newlyweds.
– It was 2010. – Don’t have any money, have no idea how we’re gonna pay for anything. – Mm-hmm. – Did you guys start
budgeting more together after Financial Peace University? – I did it after Financial
Peace University. I am the, let’s see, he’s the free spirit. And I am the planner. I
did a lot of the budgeting. – Yes. – At the beginning. We had some conversations,
but not until fairly recently did we get really serious
about where we were as far as debt snowballing goes. – Yes, because you guys budgeted together, but you weren’t necessarily
talking about the debt. Which I think is so interesting.
So what prevented both of you, because I heard
a little bit of shame because you were like, “All the student loans were mine.” You already just confessed to that. – Yes. – Was that a lot on your
part, or why didn’t you guys talk about the debt? – Any time I would bring
up debt snowballing and kind of starting
to tackle that amount, I would go to tell Steph the amount and she just, she would shut it down. Didn’t want to even know
what the number was. – Because why? ‘Cause it was so overwhelming? – It was so overwhelming,
and I’m the type that I want to achieve, and I was afraid; I just didn’t see an end. I didn’t see an end, and
if I can’t see an end, then I don’t even want to know what it is. I just didn’t want to know the number. And there was a lot of
shame associated with that amount for me. – Yes. Yeah. – So you guys shifted, though,
the conversation obviously. And so when that shift
happened, it really was a cause because of your daughter being in the hospital, right? – Mm-hmm. – So tell me a little about that. – Well, Annabelle got really
sick to the point where she was struggling to breathe. – Which is so terrifying anyways. – Yes, it was awful. – And how old was she? – She was 15 months, I believe. So we took her to the pediatrician, pediatrician sent us to
hospital, and then we eventually got transported through
ambulance to Vanderbilt. – All of these things were
happening, and we had started the discussion at that point of . . . – Selling the house. – Yeah. – Just came to the point where we like, we have to do something. We have to do something. We can’t just sit here
with this mountain of debt. – Yes, okay, so the discussion
of selling the house came up. – Mm-hmm. – Which is like A, amazing
of what you guys did. But it’s extreme, right? A lot of people
may be watching and thinking like, “I’m not gonna sell my
house to get out of debt.” But talk about the benefits of it. I mean talk about
when you first had the idea. I know one of you was not on board, right? You weren’t, right?
– Yeah. (Rachel laughs) Because it was so extreme
in your mind, or what was it? – Yeah, so the first time
she asked the question, she asked, “Do you want to sell the house and move to an apartment?” – You’re like, and no! (Rachel and Steph laugh) – Absolutely not. – ‘Cause you had two kids at this point. – Yeah.
– Mm-hmm, mm-hmm. – Yes. – So we were . . .we just
didn’t even talk about it. I shut it down. That’s not even something
we’re gonna talk about. – Yeah.
– Mm-hmm. – So a few months went by,
and she asked it again. – Yeah, I think it was
just the presentation of: hey, we have this much in equity. We had about $100,000 in equity. And we had, at that time, $137,000 in student loan debt. So if we sell the house, we
still would have some to pay off but that is a ginormous mountain that we would have conquered, and we can rent a place. And that’s when the wheels started turning, and I could tell Taylor was
like, “Okay, you know what; you might be onto something here.” – So when it came to actually
selling, I’m just curious, did it sell quickly? – Yeah. (Steph and Rachel laugh) – He’s like, yes. – Yeah, we were under
contract in thirty hours for 5,000 above asking. – Oh my goodness. Okay so when that happens,
and you get the offer in, you’re like: we’re about to sell our house. Emotionally, like, is that sad for you? ‘Cause I always think about
moving out of the house that you brought your babies home to? Is that the same place? – Yes. – All these memories, and
you know you’re about to do this amazing step, but
it’s an emotional thing to sell your home. – Mm-hmm. – So how was it? Were you guys
just like gung-ho about it or what? – We had to find a place to live. – Yeah. (laughs) – We didn’t have anything lined up. – I had an emotional moment
after we accepted the offer. But it was a moment because
I knew just what the ending would look like. And I knew at that point
that we just had so many confirmations of peace
throughout that process that that’s exactly what
we were supposed to do. – Okay, so what have been the biggest changes so far? – Well on March 7th we walked
out with a check of over $100,000, and that was incredible. (Rachel claps and laughs) – That’s so crazy. – We would just like check
our bank account and be like, oh my gosh this is awesome. We have this amount of money. (Rachel laughs) That will probably never happen again. Well, maybe we will. So we paid off a substantial amount. We completely paid off
Annabelle’s medical bill — – Wow. – which was over $4,000, and then we paid off, how much in student loans now? Probably $100,000 in student loans. – Mm-hmm. We paid off $105,000 total. – Okay, so I have to ask. Was it worth it? – Absolutely.
– A hundred percent. – A hundred percent. – And the relief you felt, is it everything you thought it would be? – I think it’s been more. – Yeah, we were looking at
20–30 years to being debt-free, and now we should be totally debt-free within a couple years. – I mean absolutely incredible. I’m not kidding you—the
amount of sacrifice you did, and just to think of how
quickly you’re gonna get out of debt, and your kids’ lives,
and everything around it. It’s really a
decision that not a lot of people want to make because they’re
scared and probably intimidated by the idea, and you guys
stepped into that even with a little bit of fear, maybe
even a little bit of uh. And you did it. For you guys out there
watching, maybe some of you are hundreds of thousands dollars in debt. And you’re sitting there
thinking, you know, it’s gonna take us 20–30
years to pay this off. And maybe you choose to make a decision from being inspired by
their story of like, hey, we are gonna sell our house to do this. Or maybe for some of you, it’s
just sacrificing lifestyle, but no matter who you are,
if you’re looking to sell your home make sure you
find someone in your area that you trust. And I have agent all over
the country that I recommend. And these agents can get you
close to five thousand dollars more at closing, and your
home is only on the market for 10 days on average. I mean, seriously, these
people are amazing. So make sure to click the
link in the description below. Well thanks, you guys, again, for being here and sharing your story. I mean absolutely incredible.

Amazon Pay is Growing Fast – Should PayPal and Apple Pay Be Worried?

Jason Moser: Let’s kick right
off here talking about Amazon. There are a few different
points to this discussion we want to get to. We’re talking primarily about Amazon’s effort
to gain more share in the payments space. That’s through Amazon Pay. We can couple this discussion also with the
fact that according to Adobe Analytics, Black Friday pulled in a record $6.22 billion in
online sales, which was up almost 24% from a year ago. It was the first day in history to see more
than $2 billion in sales stemming from smartphones. That’s where I really want
to pick this conversation up here. Not only are we living in an e-commerce world,
we’re certainly living in a mobile world, as well. For a lot of us, Amazon Pay probably isn’t
top of mind, yet we’re reading now that they’re really making efforts to gain share, it seems
like initially with companies that are not necessarily direct competitors,
like gas stations or restaurants or what have you. It does seem like they’re trying to take a
little bit more of that role in the transaction, much like we’ve seen Apple do to date
with Apple Pay. But it’s also not just Apple. There are all these payments companies out there,
trying to get a little piece of that transaction. Talk a little bit about your
experience with Amazon Pay. Give us a little bit of your perspective here
as to what the endgame is with Amazon. Matt Frankel: I was on
a certain retailer’s website. I can’t tell you what I bought, or who I bought
it from, because it was an anniversary gift for my wife, who listens to the show.
Moser: Oh, so you really can’t. I was going to say, “You can’t,
or you won’t?” But it’s both. Frankel: I really can’t. It was a small business, something you
would see featured on Shark Tank. It struck me as somewhere that gets most of
their sales from Amazon to begin with. This was directly on their website. I went to check out, they were
having a great Black Friday sale. I went to their website,
selected my products, and went to the checkout. And there were two buttons. There was
a PayPal button and an Amazon Pay button. I was curious, because I had never
seen that on a merchant’s website. Amazon really hasn’t
pushed it until recently. So, I clicked Amazon Pay, and it took me right
to my Amazon checkout, where I have my Amazon credit card already set up. It was just like
checking out for a normal Amazon purchase. It took me about two clicks. It was very easy. I was actually going to use PayPal,
and I like this alternative because it lets me keep all my purchases in one place. I’d say about 50% of what my wife and
I order is already through Amazon. It lets me organize my purchases
into one payment portal. I actually think PayPal might
have something to worry about here. Moser: That’s a good perspective there. I want to ask you, the initial thing that
comes to mind here where I think they may have a little bit of a challenge, we know
that to date, the U.S. consumer isn’t necessarily all that digital-wallet-focused yet. That’s still something that we’re in the very
nascent stages of, and I think it’s going to take a while for
that behavior to really change. You look at something like Apple Pay,
for example, as clever as that is, consumers still aren’t embracing that wholeheartedly. Whether it’s Apple Pay or Google Pay or Amazon Pay,
the digital wallet, there’s a big opportunity there. That explains why
Amazon is pursuing this. The one hang-up here I have with Amazon and
the process that you just described, it sounds like there’s a little bit more friction in
there vs. if I go somewhere, whatever website it may be, and I have the option to pay with Apple Pay.
When it says, “Do you want to use Apple Pay?” And you can just use your thumbprint to verify
the transaction, as opposed to having to go to another website and
verify that purchase. What I’m getting at here is ultimately,
it feels like Apple, and to a degree Google, have a hardware advantage
that Amazon doesn’t have to date. Does that make sense?
Frankel: Yes, but here’s my perspective on that. I don’t necessarily think this will steal
any market share from people who are already on Apple Pay or PayPal. Both of
those are, like you said, very easy portals. They both have hardware
advantages over Amazon. But there are a lot of people who are not
using digital wallets yet who are already comfortable with
Amazon’s checkout process. I don’t necessarily think they’re going to
steal market share or steal existing customers from any of the other ones, but I do think
it gives them an advantage recruiting new adopters to digital wallets.
Moser: Probably, you’re right. We talk about this all the time, this is not a zero-sum
game. It’s not as if one wins and everybody else loses. This is a massive opportunity out there. At the end
of the day, money is going everywhere. That’s what dictates everything, basically,
is money getting from point A to point B. Pursuing even just a small piece of that pie
makes a lot of sense, particularly in Amazon’s case, because really, you have to figure for
them, this is a very easy bet to make. The business certainly isn’t hinging on it.
At the most, they get a tiny scrape of that transaction. When Apple Pay is used, Apple gets a very,
very tiny scrape of that transaction. It’s not terribly meaningful. It becomes meaningful if you have a billion
people using it on a consistent basis. And obviously, we’re not to that point yet. But even beyond the financial implications,
I would imagine that a company like Amazon, as smart as they are about using data and
doing things with that data, just gleaning the data from transactions like these would
be seen as a reasonable pay-off. Frankel: Right, and that seems
to really be what they’re after here. I’ve actually read that Amazon is subsidizing
the swipe fees for merchants — not swipe fees, but whatever the
swipe-fee-equivalent of digital wallet fees are. They’re actually subsidizing the fees to get
retailers to put the Amazon Pay button on their website at a lower cost to them. It’s fair to say Amazon’s not making money
on this, but it’s expanding their reach. Anything that expands Amazon’s reach, data-wise,
customer-wise, merchant-wise, is good for the long-term business.
Moser: Makes sense to me. I don’t think Amazon’s going to ever going
to have a hardware advantage at least on the smartphone side.
They tried with the Fire phone. They were late to the game, tried to do something
a little bit different, but there was nothing terribly compelling to get someone to switch, particularly
if you’re already used to a certain operating system. I’m also skeptical when it comes to incorporating
things like voice assistant technology into actually paying for things.
With all that said, things change very quickly. Technology is evolving
seemingly on a daily basis. I’m going to be interested
to see where Amazon takes this. Amazon Pay has been around for a while,
they just haven’t done much with it. Perhaps we’re entering this stage now where
consumers are going to be a bit more open to adopting digital payments
and digital wallets and whatnot. If that’s the case, clearly we can see there’s
a lot of market share there to pick up. For Amazon to try to be
a part of that makes perfect sense. Frankel: To be perfectly clear, PayPal, Amazon Pay,
and Apple Pay all have tremendous growth runways. PayPal’s growth rate could go from 20% to 19%.
I’m not saying they’re going to really suffer. To be clear, I still love
PayPal on a long-term basis. Moser: Gotcha! We want to make sure we respond
to the inevitable e-mail we’re going to get. We’re not saying, “Short PayPal, long Amazon.”
You’re probably saying go long on both, right? It’s reasonable to just diversify your portfolio,
own shares in both companies. Frankel: Right. Both companies
are going to be winners. I could just see the tweetstorm going off
in my head when I was saying that. Moser: Well, we’ll get out in
front of it if that does happen.