Thursday, May 10, 2018

List of Distributed Computing, Storage, or Data Projects Using Blockchain

This list is a compilation of Blockchain based projects for distributed computing, storage, or data, and links to articles mentioning them.

It will be continually updated as more projects are found or more projects come on board. If you know of a project not listed here, leave a comment so that we can review it and add it to the list.

https://www.investinblockchain.com/distributed-computing-blockchain-projects/

  • Mentions: SiaCoin, Golem*, SONM, GridCoin, iExec*, SPARC**

    https://medium.com/tokenreport/filecoin-v-sia-storj-maidsafe-the-crowded-push-for-decentralized-storage-7157eb5060c9

  • Mentions: FileCoin, SiaCoin, Storj, MaidSafe, Cryptyk

    https://techcrunch.com/2017/11/08/chia-network-cryptocurrency/

  • Mentions: Chia, a proof of storage financial coin

    https://coincentral.com/off-races-best-decentralized-storage-solutions-storj-sia-filecoin-maidsafe/

  • Mentions: FileCoin, SiaCoin, Storj, MaidSafe

    https://blockapps.net/blockchain-disrupt-data-storage/

  • Mentions: FileCoin, SiaCoin, Storj, MaidSafe

    https://medium.com/swlh/origintrail-data-exchange-platform-for-supply-chains-and-distribution-on-the-blockchain-dcbde84bedc9

  • Mentions: Origin Trail (TRAC)* **

    https://datum.org/assets/Datum-WhitePaper.pdf

  • Mentions: Datum* **

    --- Key ---
    * Built on Ethereum
    ** Upcoming ICO/Launch

  • Thursday, January 29, 2015

    The Executive to Minimum Compensation Ratio: How to Curb Super-Salaries and the Widening Income Gap

    A straight across minimum wage of $11 an hour would put the US on the fast track to poverty as millions of jobs would be cut by small businesses.

    However, I think the minimum wage should be tiered to reflect the differences between businesses and their available resources. The small business with 50 employees or less should be able to remain at the current levels, as long as that business owner's compensation does not exceed 150 times that of the minimum paid worker. 

    But the large businesses should be required to pay $11 an hour or even $15 an hour as a minimum depending on their executive to minimum compensation ratio. If their CEO is getting paid over 150 times or more than what the minimum wage worker is currently making, they have to boost the minimum wage at that company to $11 an hour, and face higher corporate taxes -or- reduce the executive pay to a level below the 150 times minimum compensation mark to avoid this. 

    If the CEO is making over 250 times what the minimum wage worker is currently making, they have to pay $15 an hour, and face higher corporate taxes -or- reduce the executive pay to a level below the 150 times minimum compensation mark to avoid this. This would entice boards, shareholders, and executives to ensure that ratio doesn't go higher than the 150 times level, and protects small businesses from having to do something they don't have the resources to do.

    Thomas Piketty has pointed out some intriguing data on this problem, lets use logic to solve it.  In the scenario above, I believe, everyone wins.

    Saturday, November 01, 2014

    3 Ways to Make Much of What You Buy Cost Less or be Free - Part 2 of 3

    Click here to go back to Part 1 of the series.

    Second Way To Save:  Stack Your Savings Potential

    Savings Stacking is a great way to reduce your costs on purchases, and it can really add firepower to the previously mentioned "dimes to time" method of getting the cost of your purchase returned to you over time, because the more you save in the purchase itself, the less time it takes to get a 100% return.

    But savings stacking isn't just about clipping coupons.  It is looking for combined deals on items, and usually includes some sort of cash back offer. 
    Currently, one of the best ways to stack is to use an American Express Serve card with the Softcard app to make purchases.  The reason why is you can get things at the sale price, or even discount offers through Softcard, and then make the purchase through Softcard using a Serve card and you'll get $1 back on that purchase.

    Depending on what you're buying, that dollar back can mean anywhere from 1% to over 100% back.  Yes, you read that right.  There were times where I made money from my purchases. 
    Over the Summer, Softcard and a local gas station were offering f'real ice cream shakes for $0.29.  They are regularly $3.  So I was already saving a ton of money on them.  But add in the $1 cash back from using my Amex Serve card with the Softcard app, and I netted $0.71 on the transactions.  Not bad!  Then I bought gas using the same method and got $1 back on 10 gallons of gas, or 10 cents off per gallon.

    Or take for instance a local movie theater that accepts Softcard where I've gone on dates with my wife.  We purchased $5 Tuesdays tickets and got $1 back, saving 25%.  At this same theater, you can take a refill cup and get a drink for $1 instead of $4.  But wait, there's more.  Use the Amex Serve/Softcard combo and the $1 back makes it free.  I even do the same thing at McDonald's, which also accepts Softcard.  Free drinks, cheaper movie tickets and food?  Yes, please!

    One of my other favorite ways to stack is using a Delta Skymiles card that is tied with the Delta Skymiles dining program and using them in addition to coupons or other deals offered in the store.  A few times, I have been able to stack 5 savings together at Dickey's BBQ.  It went something like this:  I was on a date with my wife and we both ordered the daily special, which is basically already discounted.  We both used a $5 off coupon which made them even cheaper.  I used my Skymiles card which gives me miles for every purchase, and since Dickey's participates in Skymiles dining, I get more miles for using a registered card there.  Then I put my number in the Spendgo terminal at the register, which gives you about 1 point for every dollar you spend.  Once you earn 80 points or so, you can buy a daily special for free. 

    See how awesome that is?  Something that was going to cost about $8 each ended up costing about $2 each.  And only one of the methods required me to bring in a coupon.  The other savings were automatic or electronic. 

    In the next part of the series, we'll put it all together and show you more ways you can save by combining all of these ideas.

    Saturday, May 10, 2014

    3 Ways to Make Much of What You Buy Cost Less or be Free - Part 1 of 3

    We all want to save money on purchases.  We scour for deals and subscribe to services like Groupon to help us find them.  We go to great lengths to bid the right price on eBay, or search a local classifieds section for a price break.

    But these deals and decreased sticker prices are just the beginning.  They are front end cost savings, which are typically one time savings, but sometimes you can save even more on the back end of the transaction, and sometimes save over and over again.  

    Let me demonstrate the most significant way to save first, because it is the most important and most effective.  Following it will make much of what you buy become free.  "Ah", you say, "there is no such thing as a free lunch, so what kind of gimmick is this going to be?"  I assure you it is not a gimmick.  What we are going to do is use the relationship that time and money have mathematically.  Think of it like the relationship mass and energy have to each other in physics, or like the relationship frequency and time have to one another in a Fourier transform.  Even Albert Einstein said this principle "is the greatest mathematical discovery of all time".  Using this principle, we can calculate a way that instead of things costing you money, they will only cost you time.  I call this method "Dimes to Time".  Dimes to Time takes advantage of a few things: what I call a Value Reclaim, and also what is called compounding and the time value of money, but in a way you may not have thought of it before.

    First Way To Save: Reclaim Some Value out of a Used Product

    So you bought some clothes at a discount sale at your local department store that offered you 30% off.  Great!  You saved good money up front - money that never left your hand which you can now use elsewhere in your personal economy.  The rest of the money you spent was transferred into the value of what you purchased, and most of the things we purchase depreciate - declining in value as we use them.  Once you use your clothing though, it still has some value that you can reclaim to save even more.  There are two ways to do this.  The first way is to sell the clothing, the second way is to donate it and receive a tax deduction.  Say you sell your clothing for a price that was 5% of the original cost to you.  Great again!  You just saved another 5% for a total savings so far of 35%.  Or say the Feds kicked you back $5 of the value of your donation by reducing your tax liability.  Great, that's $5 off your total cost of the product.

    But wait! You're not done saving!  Take that value, that capital you reclaimed from your sale or the money you got back for your tax deduction, and put it to work.  If you invest the capital in an equity fund or something similar, you can literally grow your savings year after year.  And it gets better.  Leave it in the fund long enough, and that item of clothing you bought will have cost you nothing but time.  Let's calculate this and turn our dimes into time!

    Say the 10% savings we previously mentioned was $20, meaning that the original cost to us was $200.  If we invest the capital we reclaimed in a stock fund that returns 8% per year, it will take just under 30 years' time to return that value to us.  Which isn't bad at all.


    This equation was used to calculate the above figure.  n is the number of periods (in this case years) that it will take to make a Final Value (FV) out of a Present Value (PV) with a given Interest rate (i).

    Use the same formula, and calculate the time it takes to reclaim the total cost if we receive 20% back instead of 10%.  We get:  (log(200)-log(40)) / log(1+0.08) = Just under 21 years.

    So, what we're basically saying, the dimes-to-time cost of clothing purchased for $200 with a reclaim value of $20 is 21 years.

    Here's where it gets really cool.  Say over 10-15 years you've spent $50,000 on stuff, and you are just now selling things off to reclaim some value for them.  Perhaps your average is 25% being reclaimed ($12500).  How long will it take to get your $50,000 back?  (log(50000)-log(12500)) / log(1+0.08) = Just over 18 years.  You've quadrupled the money returned to you from the sale, and nearly made it like you never spent it.  Now, you may say that 18 years is a long time to wait.  And that is somewhat true.  However, after 18 years you'll have $50,000 you otherwise wouldn't have if you didn't try to reclaim some value (such as just throwing things away, which is a $0 return) or if you'd have spent the $12,500 on something else that depreciates, such as that sweet new jet ski, which in even 10 years time is an old jet ski worth maybe $2,000.  You also didn't have to do anything.  Your money, time, and returns did all the work.

    Another great thing is that at an 8% rate of return it will only take about 9 years for that money to double again, meaning you will have $100,000 after a total of 27 years.  To me, that's like having your cake and eating it too.  It's like the typical way we think of saving, but in reverse - almost like deferring the savings until after the purchase.  I think this can be a great way to save in a supplemental way to a normal savings plan (i.e., doing both at the same time), because there are things we need now such as clothing, a car, school books, etc., and you can't save 100% of everything you earn because of that.  But reclaiming value from used goods and making sure to invest the returned capital in a way it can be compounded can obviously do wonders to your overall savings rates.

    The great thing is that since this capital can be considered "trash money" (money you got from "useless" things - useless to you, at least), you can "set it and forget it" in a fund with good returns and not worry about it.  If things go badly and you only earn 3% returns over 20 years instead of 8%, you didn't really lose anything because your reclaim would have been $0 if you would have thrown it away or given it away.  You'll just be a bit behind your original dimes-to-time calculation.

    Our example above detailed what happens if you sold some things that cost you $50,000 all around the same time and invested the $12,500 reclaimed capital at once.  But what if all along those 10-15 years, you were selling off a few things as you bought new ones, and invested the reclaimed capital as you went?  Well, no surprise, but you would return your money quicker.  The calculations for this become complicated, and I won't delve into them here, but you can use calculators like this one to see how fast your money would return to you.

    I'll be writing a follow-up post to this one doing over what happens when you continually reclaim value and invest it, so come back to see it here in a few weeks.

    Let's move to the next great way to save: Savings Stacking....

    For Part 2 on "Savings Stacking" in the 3 Part Series, click here.

    Monday, April 28, 2014

    FoxFi and PDAnet HotSpot Hardware Hack Idea for Android 4.4 KitKat

    So you got the latest Android Phone, put FoxFi or PDAnet on it, and started using your free wireless hotspot with ease.  It was perfect, right?  You then heard about the latest and greatest version of Android called KitKat and couldn't wait to get it installed on your phone.  In your haste, you didn't realize that people were finding out that their FoxFi/PDAnet hotspots were no longer working on KitKat.  Once KitKat was installed, you found this out the hard way with a message that read like this:

    "Your carrier has blocked wifi mode in latest phone update.  Please use USB mode or Bluetooth mode instead."

    Total bummer.  You joined with all those other Android users now on KitKat who now are blocked from creating hotspots, and wept.

    And as of yet there is no word on whether or not the FoxFi/PDAnet people will be able to find a way around this lockdown.  But, what if there was a way to do it with a simple piece of hardware?

    The idea is this.  PDAnet allows you to tether to your computer using USB or Bluetooth.  On the computer installed application, there is an option called "Wifi Share" that allows your computer to share the USB/Bluetooth tether using your computer as a wifi router.

    PDAnet (or someone adventurous) should create a small device that works in a similar way as a computer being tethered to the phone, but is small enough to be carried in around with the phone in your pocket.  This device could have a small wifi NIC in it as well as a low profile linux OS on it to run PDAnet.  Once the device is connected to the USB port on the phone, the PDAnet app could detect this and set up the wifi NIC to create a wifi network through the USB tether.  They could also make this happen with a Bluetooth device as well.  It would be great to see these devices be capable of attaching to the phone in a way that they would be easy to carry around for usage anytime.

    This would work in a similar way to the ISIS iPhone Case that gets around the fact that iPhones don't support NFC.  The case itself has an NFC chip and connects to the phone using bluetooth.

    What do you think?  Are you a techie or a hacker with the skills to do this or the time to throw something together and try to make this happen?  Post a comment or share your work.  Let's see if we can create a nice solution to the problem of FoxFi being locked down on KitKat.

    Tuesday, May 14, 2013

    Follow up on How to Stop Paying So Much for Gas

    New information is being released by the IAEA that is confirming the logic presented below.  To see those reports, read on to the bottom of the article where the links are provided.  

    A reader recently questioned on a Facebook link exactly how the logic works that by filling up with less gasoline, that prices might be affected.  I am following up with this article, which copies the response to the question that was posted on Facebook.  Click the link to see the previous article titled "How to Stop Paying So Much for Gas" if you haven't read it already.

           

    The logic is explained a bit more in a previous article linked in this one. The idea is maybe better explained this way. Imagine that your family currently purchases seven 2 liter bottles every week, one for each day, and you purchase them all in one day. Then imagine that this is common practice among everyone to do this. Stores and suppliers then would expect to meet specific demand, meaning production, logistics, and inventory management need to be timed well to meet the demand. Also, because large quantities (7 per customer) are purchased in blocks, stores would know that they can charge a bit more if demand were to ever outpace their supply for a day or two.

    Now imagine that instead of buying seven 2 Liters all at once, instead you buy a 3 day supply, and then imagine almost everyone changes to do this. This does a number of things to the distribution model. One, it means that there will be a sudden oversupply of soda bottles at the stores. Due to this, stores will either discount the items, because they know a truck with more bottles are coming, or they will find a place to store them, which decreases the margin the store gets for selling the product. Also, because there are now 2.333 more transactions occurring to sell the same amount of bottles as before, the store will either try to normalize by lowering price (buy 3 get 3 free!), or will tell the supplier not to ship as much product.

    The supplier then has a few options. Store the excess supply they are receiving from production, at their expense, or lower costs to their downstream to move product, or tell the producers to slow production.

    Now, most producers have specific mathematical models on how much product they must create in order to maintain profitability. If they lower production, they will almost assuredly run at an operating loss because though they might be able to furlough employees on the production line, the mothballed equipment on the accounting books will be depreciating on the books regardless. So, producers have that option (which shareholders will not like because it means a decrease in shareholder equity), or the factory can store the excess at their own expense, or they can lower price and *increase* production to maintain revenue levels and profitability. Doing so reduces price for everyone downstream.

    In effect, this is what the OPEC nations did for decades that made oil prices per barrel get into the low teens. They produced lots and lots of oil to meet specific revenue numbers, knowing that if they didn't produce as much oil, even though they could fetch a higher price for what they did produce, their revenues would in fact be lower because they would allow more competitors into the market (such as US competitors), who would jump on the prospect of producing oil at 60 per barrel, but would never even think to produce it at 20. 

    It is the same thing that is causing the glut in natural gas prices, but even at historic lows, producers are producing more than ever. 

    Whether at the beginning of the supply chain model or at the end, disruptions of the model can and do have impact on the bottom line: price. The article is proposing that now that OPEC producers are no longer able to flood the world in oil (there is too much demand), that we as consumers disrupt their demand models. Futures traders would be spooked (I don't want to be holding a futures contract in gasoline if there ends up being too much supply on hand in July), meaning prices would go down, and mid stream producers (refineries) would lower prices as well to entice buyers. Refineries wouldn't be able to "stop" producing gasoline, because it is a bi-product of oil feed stock that produces many other chemical products. Slowing production at the refinery would reduce output for all products, some of which carry higher margins than gasoline. Refineries have been known to loss lead on gasoline for that reason.

    Lastly (whew), human behavior is to binge on supply. Take the soda example. When you buy lots of soda in advance, most of the time you go through it faster than intended. The same goes for gasoline. And you'll be able to take advantage of price fluctuations since on that chance you come across a station with a really low price, you'll have at least a half a tank of empty space to stock up on it.

    But don't take my word for it. It is open for debate and discussion. Let's find holes in the logic to improve it.


    The interesting thing is that just today, the IAEA is confirming that the US is putting a lot of oil on the market.  This increase in supply, along with reported "demand destruction" are going to hold prices lower.  Let's keep up the pressure on prices from both the demand side and the supply side.

    Sunday, May 05, 2013

    How to Stop Paying So Much for Gas



    Previously, I wrote a few blog posts on how to "short" sell the oil companies as prices of gasoline increase. If you haven't read them, you can take a look at them here for some economics backrground of why this idea works.

    I am reviving this discussion again because prices typically start to ramp up in the late spring for summer driving, and because I've been seeing Facebook posts telling everyone to fill their tanks full, among other things, to save money. You can view that article text here. There are a few reasons I don't agree with filling a tank full if you are driving only relatively short routes (around 50 miles per day or less). The biggest reason is explained in more detail in my previous articles, but briefly it has to do with "just in time" distribution. Energy distribution models today are highly efficient, and the distributors are counting on meeting certain demand numbers on average. Meaning they are expecting most people to fill their tanks full at each fill up, and will work to meet that demand. But, what if we change the demand from what they expect it to be? Remember supply and demand curves from your Econ class? There will be too much supply, and the price will go down until the curve reaches equilibrium again.

    So, how can we do this? By not storing gasoline for the oil companies by filling your tank full and getting a 500 mile range of driving before having to fill up again. Instead, fill to half full or to a dollar amount that gets you somewhere near the half tank mark. There are plenty of gas stations around these days along most driving routes that making 2 or 3 stops per week will not make you lose much time. It might even save you from wasting time and gas idling at a red light if you stop at a station on a corner.

    Another reason I don't see a need to fill to full unless driving a very long distance is that many tanks these days are 17 to 20 gallons. That's a lot of flammable fuel, first of all, and it isn't weightless either (meaning it does take energy to haul it around. Whether it is negligible or not is debatable). More importantly, cars that were much less fuel efficient in the 1950's and 60's had tank sizes around 16 gallons. If a tank that size was fine for a car that got 10 mpg fuel efficiency, why do I need to fill up with 20 gallons in a car that gets well over double the mpg's? If anything, 8 gallons should be fine. Something tells me they want us to buy more product for more revenue... kind of like how restaraunts have increased portion sizes so they can charge more, without you feeling completely ripped off. Fill to half full, and they'll think twice about their pricing models.

    Yet another reason is that most cars these days have fuel pumps that won't be affected by low fuel levels, as long as you don't run out of gas. And they have built in screens to keep out any debris or settled material (which would end up at the bottom of the tank whether half full or not, which goes against the claims of the Facebook posts), and even then most tanks are built with very good materials these days that won't corrode easily.

    Do you really need more reasons? Another reason is the widely used rule in investing of dollar cost averaging. Everyone knows you want to buy low, sell high. But how do you time it just right? Even highly trained professional traders get it wrong. Dollar cost averaging theorizes that if you just buy at smaller, more frequent, but evenly placed intervals, your cost basis will be better than if you try to time the market, or buy in lump sums (i.e., filling to full). Gasoline prices are volatile, and that is where dollar cost averaging by buying 2 or 3 times a week and filling only half full will help. This means that because you'll be filling at quite a few different gas stations along your many routes, you'll be averaging a better price than you would otherwise. And chances are you'll be able to take advantage of a "dip" in prices when you drive by that gas station with a ridiculously low price and you only have an 1/8 of a tank left, further averaging down your overall cost of gasoline.

    Lastly, we all know it is human nature to conserve, or at least to remind ourselves to be more economical with, our goods when we see a limited supply. Hoarding, or in this case filling to a full tank, can lead to an increase in consumption just because of feeing comfortable in our bounty. Who knows, you may save two or three percent off of your weekly gas cost just due to the fact that you are more aware and keeping yourself from making unneeded extra trips because in the back of your mind, you don't want to have to stop at a gas station sooner than usual.

    Wednesday, April 24, 2013

    Google Doodle Celebrates Ella Fitzgerald: Hear Her Great Style in This Video

    I'm a big fan of lots of music, but jazz is a mainstay for me.  When I visited New Orleans years ago to watch the Sugar Bowl in 2009, I made a point to go to as many jazz clubs as I could.  From the historic sounds of New Orleans Jazz, to the rich and deep sounds of Miles Davis (who's recently dropped vinyl re-release of "Round About Midnight" I picked up last weekend on Record Store Day), to Dave Brubeck's cool transcendent rhythms, to Ella Fitgerald's boisterous and energetic sound and fantastic singing range, there is just something magical about jazz.

    As if the era of bustling downtowns and newly lighted streetscapes was meant to be accompanied by jazz's breadth of technicality, volume, swinging notes, and improvised soundscapes, we constantly see the two intertwined in film, story, and culture.

    Ella Fitgerald had a major role in that, by recording over 200 albums and selling over 40 million recorded works, she was a centerpiece of jazz music with a career that spanned many decades.

    Her unique style, energy, and passion continue to be praised and emulated today in many genres beyond jazz.  Here is a great performance recording of Ella singing one of my favorite classic jazz tunes, "Mack the Knife".  Watch it and ask yourself "is there any wonder why she has been named The First Lady of Song"?

    Tuesday, April 23, 2013

    What not to do With Facebook Profiles When You Get Married



    It seems like a trend among many of the people I know that once they get married, they "merge" their Facebook or other social networking profiles together, and use a name that combines both of theirs.  For example, something like "John Jane Doe", or something like that.

    I dislike this trend (if only there was such a thing as dislike on Facebook, but that's another post for another time), and my reason for disliking the trend is that it becomes confusing who the messages are being posted by and seen by, and who is actually in our friends list, etc.  I also don't like how it combines both names together, without an "and" or something similar (it makes Jane look like John's middle name), and I don't like that if you were previously friends with one or both of the newly weds, you may have to re-friend them depending on how they go about making the newly-merged accounts.  And let's not even talk about divorces, and how that all plays out when the accounts have to be split... I can't imagine how that will work!

    Instead, I think Facebook ought to promote the idea that married couples, if they want to have merged information, ought to create a Facebook page that represents their marriage, such as The John and Jane Doe Couple, or John and Jane are Hitched! page.  Assign both members of the marriage to be admins of the page, and both will be able to post as the page name and also receive posts from friends who post to the page directly.  Friends of the couple can also "like" the page to show their support or to receive updates on what they are up to as a couple, while letting those who only want individual updates from one of them to receive them through the husband's or wife's individual account.

    There are many other benefits to this as well.  The page idea could be expanded to represent a family if the couple begins having children.  And in cases of divorce (which I hope never happens for my friends), the page can be dealt with or split up much easier.  If a couple doesn't want to create a page, they can always create an open or closed group relating to their marriage.  There are a few less things you can do with a group than you can with a page, but it is also an option.

    Anyway, it's just something I've noticed happening more often and so if you're thinking of doing it yourself, hopefully some of the reasons I've given will help you change your mind.  What do you think?  Have a differing opinion?  Post a comment below.

    Wednesday, April 17, 2013

    UPDATED: Who Will Be Google Fiber's Next City of Choice?



    Update: We were right, Google Fiber announced today on 03/24/2015 that Google Fiber will be made available in Salt Lake City, Utah. More details to follow. Below are the arguments we previously made about why Google Fiber should look at Salt Lake City next nearly two years ago.

    Google Fiber just announced today that they will be moving to a third city by the end of 2013.  In the announcement, they stated that if the deal goes through, they will be acquiring the fiber network infrastructure that made up what used to be iProvo - a municipal fiber internet network that was created for residents in Provo, Utah.

    Since I first learned about Google Fiber, I figured it would be a good fit for them to look for under-utilized fiber networks, many of which are municipal networks.  (Which it turns out is basically what they do)  It really came as no surprise to me that Google would pick a network like iProvo, in a city like Provo, Utah, because the fiber is there, the customers are there, but for whatever reason (I chalk it up to municipalities not knowing how to get the word out about the offerings of the service), the amount of subscriber growth never seems to keep up with the costs of operating and expanding the network.

    So it made sense to me to think that Google would first be interested in these downtrodden networks, many of which are under fire because the cities that invested in them are not getting the full benefit that was promised when they were proposed and constructed.  Take a desperate former network operator like the City of Provo and match them up with the 1 Gbps offering Google Fiber, and it seems like you have a win-win.

    Which may make one of the next "cities" that Google Fiber announces seem a bit different than what we've seen so far.  To this point, the cities announced have not been relatively close.  Kansas City is not near Austin, TX, and Provo, UT is not near either of those.

    But the cities of Orem, Murray, West Valley, Midvale, Brigham City, Centerville, Layton, Lindon, Payson and Tremonton, Utah, are all relatively close to Provo.

    Am I crazy?  Why would these cities possibly be on the list to be next for Google Fiber, when they are near Provo, and are all suburbs of larger cities such as Salt Lake City?  I think the answer is simple.  It is because of a municipal fiber network that has been struggling for over six years to keep it's subscribers, partner cities, and others in the State of Utah happy.  That network is called UTOPIA, and I have thought for some time that it is a prime candidate for Google to pick up for its expansion of Google Fiber.  For all intents and purposes, UTOPIA and iProvo are almost identical in how they were set up, using similar revenue, subscriber, and provider models.  In fact, both of them use the "wholesale" model, where the network itself provides the venue for multiple providers to offer services.

    Yet, like iProvo, UTOPIA has struggled to gain users, even though for much of the six or seven years it has been available in it's partner cities, it has had higher speed offerings at lower cost than the major competitors in the land:  Comcast (Xfinity) and Qwest (CenturyLink).  For a while, I was able to use UTOPIA at home and it was great.  At that time in 2006-2007, I constantly received 40 Mbps download for about $40 per month.  That was back six years ago.  Speeds on Comcast in Salt Lake County have just barely begun to reach 40 Mbps, and the full cost of that internet service is around $60.

    I would imagine that every mayor of those 11 partner cities of UTOPIA are talking about the Google Fiber acquisition of iProvo, talking to the mayor of Provo, and wondering if that is the same course of action they should take.  And I wouldn't even be surprised if talks with Google have occurred. (although they say they have not).

    Speaking of which, as I searched for some information on UTOPIA's website, I came across a headline in the Salt Lake Tribune that was published today that reads: Executive of troubled UTOPIA sees hope in Google Fiber deal.

    While, ultimately, UTOPIA cities may not agree to the terms necessary to complete a sale to Google of the infrastructure, at least for the time being, under the "wholesale" service model, I don't see why Google Fiber couldn't work a deal to at least be a carrier on the network, and sell the 1 Gbps service as well as their other service tiers since the UTOPIA network already has that capability.  Especially since they will already have an office in Provo where they are running iProvo.  Eventually, a buy out or a significant stake in the ownership of the UTOPIA fiber could then be negotiated.

    This already fits into Google Fiber's apparent strategy, as they have been buying "dark fiber" for years, and recently leased more fiber in Kansas City.  That municipal network, called LINKCity, has also had similar issues that iProvo has had, and that makes them also somewhat similar to UTOPIA.

    In some cases, leasing fiber first, rather than owning it outright, could be a great secondary strategy to bolster their footprint where networks like UTOPIA are already being rolled out, without having to put up their own money upfront.  Some estimate that it would cost Google over $11 Billion of their own cash to roll out their own network nationwide --a cost they can definitely lower if they lease some of their fiber network while awaiting momentum gains to offset costs.

    It will also be interesting to see what the big competitors do in the surrounding areas of Provo and in Salt Lake County, with Google Fiber coming to their back door.  Will they scoff and shrug it off, or will they try to beat Google to offering faster speeds in those surrounding cities?  AT&T promised Austin a competing 1 Gbps service following Google Fiber's announcement in that city.  Stay tuned.

    Monday, April 08, 2013

    How To Get Rid of Pennies Without Paying Fees or Rolling Coins

    If you're like me and most Americans, you probably have pennies and other coinage lying around that  you may feel is quite useless.  And we've all seen the penny counting machines that charge a fee to process them, such as CoinStar, or the coin rolls you must use to deposit them into the bank.


    If you've decided it is time to stop storing these monies in your couch, seat cushions, under the driver's seat, in the piggy bank, or that glass mason jar, now might be a great time to use your money while completing your spring cleaning.

    But who wants to take the time to roll coins, stand in a bank like, or wait for a coin counting machine to process all of the coins and charge a fee, when you can immediately use your coins for purchases for free?

    And, no, I am not speaking of taking an embarrassing bag of coins up to a cash register...annoying a sales clerk in the process (like Cramer so famously did in Seinfeld).


    What I am suggesting is a split payment.  Many automated checkout kiosks make this a cinch!  And the great thing is, you don't need to worry about how much coinage you have or carrying exact change.  Just bring in 30-40 cents or so (maybe 20 cents if all pennies) to the store each time you go shopping.  When checking out, choose the cash option and deposit your coins and pennies.  Your balance due is now decreased by 20, 30, or 40 cents.  Now choose credit/debit and put the remaining balance on your card.  Congratulations! You now used your 'useless' coins and paid no fees or rolled any coins.



    You can do the same thing at most registers with a clerk, but they may be less willing to split the payment, so be aware of it and look for a machine checkout system.  (Most that I have run into don't care, though, and will do it.)  Additionally, do you see why it doesn't matter whether or not you have exact change?  If your balance due is $41.56, and you bring in $0.30 and deposit that first, you easily put the remaining $41.26 on your card, taking advantage of the fact that cards make dealing with any cents easy regardless of the number.  

    Soon, you will be rid of your excess coins, and will have saved a bit from being debited from your bank as well, all with very little effort and time taken to do so.

    And now, a proposal...

    Many retailers are finally starting to send receipts to your email account of choice!  So, why don't retailers and credit/debit card processors come up with a way that change can be dealt with electronically?  For example, say $20 cash is used to make a $13.46 sale.  Why couldn't the clerk swipe the $0.46 to a bank card, or to a special purpose, industry standard 'coin card', that works like a sort of digital coin purse and can be used like a credit/debit card for later purchases?


    Thursday, October 11, 2012

    Open Enrollment for the Nation

    I was able to see some recent figures for health insurance costs for the year 2013, and I have to say I hope companies are doing their open enrollments now - before the election.

    If not, many people may be in for a surprise after the election.  Of course, I know a lot of people who support Obamacare who say they don't mind paying more for health care if it means everyone is covered, among other things.  Fine and good, but let's let the People decide if they agree with that as a majority.

    Based on the surprise to the increases and changes I've already seen, there may be quite a few Americans that are unprepared for just how much getting everyone covered is going to cost them, especially in light of the promises that came with Obamacare to reduce health care costs.

    Health Savings Accounts are taking some of the biggest hits, and it looks like employer support of them could be dropping significantly.  That isn't good news for many who saw it as a good option between being covered and being frugal by cutting overall health care costs yourself and saving money for future health needs.  Costs for the minimum premiums are going up for both individuals and employers, and how contributions to the HSA accounts are accounted for is also causing controversy over whether it really makes sense to contribute much money to them at all.

    And if you liked the idea of using Flexible Spending Accounts, the $2,500 contribution limit may really  hamper your plans if you have kids that need braces, or have needs that exceed $2,500 per year.  Unless someone can show me otherwise, this new limit is an "invisible" tax on every dollar above $2,500 that the normal FSA account holders was used to contributing to their accounts in years past.

    But it isn't just those costs that have gone up.  Even traditional plan premiums are going up for employers and individuals.

    I'd start asking your employer and/or health care provider to get you information about what next year's costs are going to be, before you vote this year.  Once you determine how it will affect you, then cast your vote.

    The next few weeks left in the election are America's open enrollment period.  We'd better be ready for what the majority decides it wants.  Because it will be many years before we again have a chance to change our plan as a nation.

    Below is some information from the HSA Council on changes being made through Obamacare.


    The primary issues of concern for high-deductible plans are that:
    • The medical loss ratio formula doesn’t take into account contributions to HSAs.  Many high deductible health plans are accompanied by an HSA, which covers much of the first-dollar costs before the plan’s deductible is reached.  HSA contributions are currently not reflected in the medical loss ratio calculations.
    • High deductible health plans may not be able to raise rates fast enough to keep up with rising costs.  High deductible health plans will require larger annual rate increases than typical medical plans because medical inflation will have a greater impact on claim levels than plans with lower deductibles. 
    • High deductible health plans have fewer premium dollars to cover their fixed expenses.  Every plan has fixed expenses that it covers with premiums. Since high deductible health plans have lower premiums than other plans, a greater percentage of the premium must be used to pay these fixed expenses.  For example, $400 of fixed expenses represents 40 percent of a $1,000 premium, but only 20 percent of a $2,000 premium and just 8 percent of a $5,000 premium.  Therefore, it is harder for a lower premium plan to keep its non-claim expenses below 20 percent of its adjusted premiums as the medical loss ratio rule requires.
    • High deductible health plans have less predictable claims experience that could increase the risk of paying rebates.  High deductible insurance plans pay fewer claims than plans with low deductibles.  But when high deductible health plans pay claims, the claim dollar amounts tend to be larger. This lower-frequency/high-payment creates less actuarial predictability which can result in high claims in one year and low claims in another. If the plan has low claims, it may not meet the 80 percent medical loss ratio and be required to pay rebates.  If the plan has high claims, it may lose money that it cannot “make up” in other years.

    The information below was provided by HSA Bank:

     • Qualified Medical Expenses: Starting January 1, 2011 you will no longer be able to pay for over-thecounter medications from your HSA as a qualified medical expense. The new law removes over-the-counter 
    drugs not prescribed by a physician from being paid from an HSA, FSA, or HRA on a tax-free basis.
     • Non-qualified expense penalty: Under the new law, if you use your HSA funds for non-qualified expenses, 
    you will face a higher penalty. The tax penalty for non-qualified HSA distributions will increase, effective 
    January 1, 2011, from 10% to 20%.
     • Mandated insurance coverage: Effective January 1, 2014, the legislation will require most U.S. Citizens 
    and legal residents to have health insurance. It also outlines the minimum coverage and essential health 
    benefits that need to be provided for a plan to qualify for the mandated coverage. This could potentially limit 
    the types of health plans that will be available to consumers. Below are a few of the areas which require 
    clarification by the Secretary of Health and Human Services: 
       • Preventive care services:  All insurance policies will be required to provide first dollar coverage for 
    preventive care services. While HSA-compatible health plans are currently allowed to provide first-dollar 
    coverage of preventive care services, in the future, all plans will be required to do so. These provisions 
    will go into effect in 2014. Additionally, further clarification must be provided regarding what constitutes 
    “preventive care” under the new regulations and whether or not that definition conflicts with current IRS 
    guidance on what constitutes “preventive care” for HSA purposes.
       • Minimum actuarial value: All insurance policies will be required to provide a minimum actuarial value 
    of at least 60 percent for the benefits covered. Clarity must be provided regarding how “actuarial value” 
    is defined. It is also not clear whether a plan’s actuarial value would include employer or individual 
    contributions made to the individual’s HSA. Including the contributions in the calculation of a plan’s 
    actuarial value would make it easier for more HSA-compatible health plans to meet the minimum 
    actuarial value requirement. If contributions are not included, many plans could no longer be sold. 
     • Small employer benefit requirements: The legislation also includes a provision that would prevent small 
    employers from offering plans with deductibles greater than $2,000 for singles and $4,000 for families 
    (indexed annually). Employers may offer plans with deductibles higher than $2,000 / $4,000 if the employer 
    offers a flexible spending arrangement (FSA) that reimburses the difference between the higher deductible 
    and $2,000 / $4,000. This provision will affect the health plans that can be offered to small employers and 
    still qualify for HSA contributions. This provision goes into effect in 2014.
     • Excise tax on ‘Cadillac’ plans: The new law will impose an excise tax of 40 percent on employersponsored coverage that has a benefit value in excess of $10,200 for single coverage and $27,500 for 
    family coverage (indexed annually). The benefit value of employer-sponsored coverage would include the 
    value of the group health plan and contributions to employees’ FSAs, HRAs, and HSAs. This tax would be 
    imposed on insurance companies, including self-insured plans and plans sold in the group market, and plan 
    administrators. However, this provision does not go into effect until 2018.
    Medical loss ratio requirement:  The new law imposes a “medical loss ratio” requirement. It would require 
    a set percentage of premiums to be paid directly to medical claims. Since HSA-compatible plans have lower 
    premiums, this may make it challenging for plans to meet the established ratios and still qualify for HSA 
    coverage.

    Monday, August 20, 2012

    Looking back at Stock Options Backdating: A Debate

    The following is a mock debate between John Ruskin and Andrew Carnegie over the problem of whether options should be allowed to be backdated.  The arguments are made based on my interpretation of their individual viewpoints from studying their works.  It was originally composed in 2006, but is being republished as we look back on the backdating scandal that occurred in 2006, namely with Apple and Steve Jobs.


    A Debate Between Mr. John Ruskin and Mr. Andrew Carnegie


    Commentator: Backdating Stock Options, that is the subject of our discussion and debate

    today on our program. The business world has been immersed in discussion over the

    ethics of this strategy, and whether or not it should be allowed. With me today, I have

    two authorities on business to discuss this very issue, Mr. John Ruskin, and Mr. Andrew

    Carnegie, both of whom have commented on creating wealth and the best practices for

    So, Mr. Ruskin, I will start with you. How do you see this issue?

    Ruskin: I won’t go as far as to say that I am surprised by it, nor will I go as far as to say

    it is appalling behavior. However, I am one to study the effects of such behaviors on

    organizations and society as a whole, and will say that I don’t believe that backdating

    options is good for the creation of wealth.

    Commentator: How so? Isn’t backdating stock options a way to help executives stay on

    top and be competitive?

    Ruskin: It comes down to the fact that backdating these options to buy stock is merely

    the way that executives can increase their wealth solely for the purpose of mortal

    luxury. They are doing this in spite of any concern to investors in the company, and

    even sometimes doing so while the industry in which they operate and the market and

    profitability of their business is decreasing. These are ill gotten gains obtained most

    often at the peril of many.

    Carnegie: If I may, I am going to have to disagree with Mr. Ruskin on a few issues.

    I argue that the purposes of backdating options are not always solely to benefit these

    industrialists with some form of “ill gotten” gains, as my colleague Mr. Ruskin has

    stated. These backdating procedures are in place by executives to keep the businesses,

    and the directors, as well as the employees a few cases, competing amongst themselves

    and the other companies. Let us not forget, Mr. Ruskin, that the Law of Competition is

    in play here, which is absolutely central and essential to the advancement of society and

    mankind. Individualism is the best and most fertile field, which always produces the best

    fruit, and this fosters individualism.

    I think also that Mr. Ruskin has not correctly suggested the idea that these procedures are

    somehow adrift from the desires and considerations of the stockholders. In most cases,

    these modes of increasing the value of the options have been accepted by the voters as a

    means for the option to be exercised at its greatest value and return.

    Commentator: Then, aren’t there ethical and moral consequences for gaining greater

    wealth in this way, or is this something that, as interest was for so long, will eventually be

    viewed as not only acceptable but necessary?

    Ruskin: I would never hope such a thing would be seen as necessary, or advantageous

    for society, business or mankind. I am somewhat surprised at Mr. Carnegie, whom I

    respect as a fellow gentleman and colleague in the science of economic thought, because

    he forgets that there is at all times present the question of justice. Backdating stock

    options puts a negative value to the wealth gained, and therefore draws downward on

    the economy. Already, we are seeing this effect in the figures that show the amount

    of money that was lost, or misreported, by these programs. Corporations are having to

    go back and restate their financial statements to the public, and the majority of those

    reissued statements show a correction for hundreds of millions in losses.

    Is putting the benefit and favour of one man ahead of another the proper thing, if the rules

    and measures by which it is achieved are not justly or nobly stated, or not fully disclosed

    to all parties involved? In my view, this is selling the dying man the loaf of bread.

    Although there exists no illegality in the least, one is commercially rich and the other is

    commercially poor, and without reason, as I have said, due to the fact that in most cases,

    the executive never made the company’s stock rise, or ever increased the market share

    during that period of time. Let Mr. Carnegie not forget, and society also, that “Many joys

    can be given to men which cannot be bought for gold.”

    Commentator: Mr. Carnegie, how does one respond to this idea, and is your view one

    that sees these practices as becoming acceptable or necessary?

    Carnegie: One could argue the point of whether or not these practices are necessary, or

    whether or not they are moral or should eventually be made illegal. I won’t pretend to

    know the answer, nor will I sit as a judge of that issue. We’ll let time and the overall

    markets dictate that, and they will decide whether or not these things are acceptable.

    The rudiments of business are such that sometimes can have the appearance of being

    immoral or unjust. But I believe that such costs of injustice within the system, many of

    which are allowed injustices, are far outweighed by the benefits that can be produced

    as the individual is given his right to obtain, and aspire to new heights, “with none to

    make afraid.” As such, I don’t believe laws or legislation should be introduced on such

    matters. I strongly advocate the free play of economic forces. The laws and fundamental

    theories surrounding the governance of Corporations, and the very purpose for a charter

    for such from a State or governmental body, has always been to allow for private

    governance of internal business affairs. This is part of the legal right the millionaire

    has to his money. He has the right to control it. If the shareholders and directors of that

    organization have voted such to allow for these actions, and know about their existence,

    then they should be allowed to continue, as they have the rights entrusted to them to

    govern the trade and rules of their property and issuance of stock. I would argue that this

    inequality of environment and concentration of business is helpful to the overall aspects

    of society. The wealth of a few is always beneficial to society if the wealthy know how

    to use their wealth correctly.

    Commentator: Mr. Ruskin, Mr. Carnegie makes the point that the millionaire must

    have the right to control his money, and that these corporate boards and shareholders

    are merely voting to allow for these programs by way of corporate law which allows for

    corporations to govern themselves with articles and bylaws. How then, Mr. Ruskin, can

    we take away from these advantages, and take away such opportunity from the rich? I’ll

    give you the last word.

    Ruskin: Many men of business hardly know the meaning of what it is to be rich, and

    frankly cannot govern themselves to make such decisions without help from outside

    thought. I have dealt with the likes of Mr. Carnegie’s argument before. Are these so

    called stocks really their stocks, just as I argued in my book that the heathen leads forth

    to say “These are MY jewels”?

    economy. The blood that comes from fever resembles the ill gotten wealth of these

    executives. The grounds have already been made known by which we can judge the

    great question of justice, and so Mr. Carnegie’s argument of the need for markets to

    determine such is not applicable to this argument. What we need is a system that is

    made that will help to develop an honest man. One that will deal with these men, and

    send the clear message to the others in the arena of business that if they persist in such

    things that we as a society will deal with them just as cunningly as they stole from us and

    our economy when backdating their options to reap a seemingly better one.

    Remember that economic wealth is the blood of that

    Stock Options Backdating: A Look Back At Steve Jobs

    With Apple Computer stock reaching the historic highs in recent days, it is interesting that I have seen some people mentioning the "options backdating scandal" that caught up with Steve Jobs, former Apple CEO and Co-founder, back in 2006.  It was then a hot-button issue, and some believe should have lead to his conviction and imprisonment.

    At the time, I wrote a paper on the subject describing the issues at hand and also what makes it so enticing to backdate options.  Imagine if you could backdate options on Apple that had a $150 strike price that ended in the money but were issue when Apple was at $110, to a back date when the stock price was around $80.  You would make much more profit from holding that option.  Do it a few times over as the stock price rises, as Apple's has over the last decade, and you would build up a small fortune.

    Should these companies have been held more accountable for these actions?  Should back dating be illegal, and not just un-ethical?

    First, I will republish the original paper from October 14, 2006.  I will also publish a mock debate on the subject between two experts: John Ruskin and Andrew Carnegie, which can be read here.

    Stock Option Backdating

    Should Stockholders Be Worried?


    The stock option, both powerful in its potential, and complicated in its design, has made

    some of the richest investors and businessmen of our times. But the manipulation of their price, a

    strategy called backdating, has also recently been in the scope of controversy.

    Stock options originate from the idea of purchasing the right to by property or securities

    without having to buy the property or security upfront, and within a specified time period. This

    type of purchasing power has numerous advantages, and was first used in land and real estate

    purchases.

    Options, whether it is an option on stocks or a real estate option, allows the party

    interested in buying the asset to buy at what is called the strike price. This guarantees the owner

    of the asset a specific buying price sometime in the future when the option holder exercises the

    option. The option buyer pays an option price to purchase the option, which has an expiration

    date, by which time the option holder must exercise the option. The option holder has the right to

    sell either the option, or the underlying asset.1

    This means that if you buy an option on a stock, currently worth $20, for an option price

    of $1 per option, and then a few months later, exercise your option when the price of the stock is

    $25, you will make $4 on each option. So, if you bought 100 options, you would have paid $100,

    and made $400, because the option would have been what is called “in the money’ which means

    the stock is above the strike price. From this we can see that a lot of money can be made from a

    small buying price, which helps to minimize risk, and makes a convenient way for investors who

    wouldn’t have enough money to put down, to still play off their bets. If we wanted to have made

    the same $400 on the above hypothetical example by purchasing the actual stock, you would

    have to purchase 100 shares of stock at $20, which is a $2000 investment. Remember, however,

    that with the option we made the same amount of money by spending only $100. Similarly, if

    the stock were do have gone down instead of going up, say to $10 per share, you would have

    (Jim Cramer’s Real Money as well as Characteristics and Risks of Standardized Options)

    lost $1000. However, with the option, you would have only lost $100 since your option would

    become void and worthless, or what is called “out of the money” which means the stock is below

    the strike price, and it cannot be exercised.

    Options to buy the underlying stock are called “call” options and options to sell the

    underlying stock are called “puts”. Puts are different from calls, in that you make money

    on the put option as the price of the stock goes down. Jim Cramer explains in his book Real

    Money: “Options are quite handy, and most of us have used them; we just haven’t used them to

    buy or sell stock. When we speculate in real estate, we often ask for an option to buy something.

    We pay for that option even if we end up not buying the land beneath it. When we buy insurance,

    we are buying a put. We are putting a little money… 2. Options are also similar to the way in

    which movie producers buy the right to produce a movie from a book; however, they are not

    obligated to make the movie because they have only purchased an option.3

    From our example, it can be seen how stock options are a great way for companies to

    offer incentives and benefits to their employees. These types of stock options, called Employee

    Stock Options, are the same as call options on the company stock at which the employee works,

    except they have more restrictions.4 The company issues the employee a stock option grant,

    which is a grant of a certain number of shares. The grant usually has a schedule that determines

    how fast the grant will vest, and also has an expiration period. Because of the vesting schedule,

    usually over a series of years, options are seen as a way that companies can attract bright,

    hardworking employees, and keep them, due to the fact that the employee may feel obligated or

    wish to stay at the company until the options can be exercised. The strike price is determined by

    taking the stock price at the time of the grant, or sometimes the average price between the price

    on first day of the month and the last day of the month in which the grant was issued. There are

    also other ways to do this as determined by each individual company.

    Jim Cramer’s Real Money Pg. 266
    Wikipedia - http://en.wikipedia.org/wiki/Stock_options - Historical uses of options
    4 Wikipedia - http://en.wikipedia.org/wiki/Employee_stock_option - Employee stock option

    Employee Stock Options also differ from regular call options, in that the employees are

    not required to pay for the option. Normally, the grants are part of the companies’ incentive plans

    or their benefit plans, and are granted at the time the employee is hired. This makes Employee

    Stock Options an added benefit to the employee, since a good amount of money can be made,

    without having to expend any funds. Also, because of the nature of options explained above, the

    employee suffers no loss if the options become worthless, because nothing was paid, and nothing

    becomes due when the option expires or becomes void.

    Adding to this, companies will sometimes offer additional grants to employees who have

    outperformed their peers, or to top executives for having great successes. Some of these so-called

    incentive stock options have the benefit of being charged reduced taxes.5  They sometimes

    even make stock options the method of payment. An example is Gil Amelio, who was made the

    CEO of Apple, and five-hundred days later was fired. His stock options became worthless: “

    AMELIO 6

    There were numerous other examples of this, as dot com companies could not afford

    to pay high wages, and attempted to compensate the employees with stock options. For some

    companies, this worked fantastically, and stories ran the presses about low level employees

    making millions. However, many other employees never made a dime from their grants. As their

    companies sank into the whirlpool of dot com destruction; as they were laid off from the ailing

    companies, or simply ousted, their options grants became worthless paper. They found out the

    hard way, just like Amelio.

    To counter these potentially large losses, or the potential that an option won’t meet the

    specified strike price, some companies have been involved in the backdating strategy. Although

    it is questionable whether backdating is illegal, it has ethical and moral ramifications that must

    be considered. Among the frontrunner companies to be investigated for such activities are

    SmartMoney - http://www.smartmoney.com/tax/capital/index.cfm?story=options_iso - Taxes on Incentive
    Stock Options
    6 Gil Amelio On the Firing Line: My 500 Days at Apple

    Apple Computer, Brocade Communications, and CNET. These are a few out of some 120 other

    companies under investigation by the FBI and the SEC. 7 Interestingly, only a few months ago,

    no one was worried –or discussing the issue, of options backdating. Adding to that fact, the main

    group finding and reporting options backdating issues as requested by the SEC are the tech sector

    companies, the same sector of companies that only a few years ago faced tough declines in stock

    prices, and suffered the most from the declines in the overall economy and the crashing dot com

    The way backdating works is by manipulating the option’s strike price date. If the strike

    price was issued at, say, $20, but the stock then falls to $18, the option becomes worthless.

    However, what if the option could be backdated a few months when the stock price as $16? Then

    the option is no longer worthless, and can be exercised for a profit. SEC Chairman Christopher

    Cox stated before congress: “There are many variations on the backdating theme. But here is a

    typical example of what some companies did: They granted an "in-the-money" option-that is, an

    option with an exercise price lower than that day's market price. They did this by misrepresenting

    the date of the option grant, to make it appear that the grant was made on an earlier date when

    the market value was lower. That, of course, is what is meant by abusive "backdating" in today's

    parlance.”8 This may be considered unethical, but it is not illegal.

    What causes the questions and scrutiny, and potential illegality is how options are

    supposed to be reported by the companies in their quarterly reports -–as an expense. It is also

    questionable due to the fact that someone was sold a stock, or had the likelihood of being sold a

    stock, at a value that was less than what was predetermined by the option grant’s strike price.

    This is the reason the SEC is investigating these cases. Since the option grants are

    supposed to be reported as expenses on the quarterly balance sheets of the companies that offer

    them, if the options are backdated, or manipulated in any way to the benefit of the company

    CNN.com and AppleInsider.com
    SEC - http://www.sec.gov/news/testimony/2006/ts090606cc.htm - Testimony Concerning Options
    Backdating

    or option holder, the expense report will not be accurate. In fact, it will show that company

    expenses were actually less than what they were, making profits seem larger. This has huge

    implications, due to the fact that the stock price of a company is largely based on the earnings per

    share ratios. The so-named P/E Ratio is a key determinant of how much an investor should be

    willing to pay for a particular stock. If the company appears to be earning more money than it

    actually is, then the stock price will not reflect the true P/E ratio, and will be higher than it should,

    because investors would, theoretically, bid the price up to the false P/E Ratio. The shareholders

    of the company are then being cheated because they are putting confidence in a stock and a

    company which they think is earning a lot more money than is actually true.

    The SEC Chairman stated further: “A few years ago, the SEC began working with

    academics to decipher market data that provided the first clues something fishy was going on.

    One of the academics with whom the SEC worked was Erik Lie of the University of Iowa, who

    subsequently published a paper in 2005 that showed compelling circumstantial evidence of

    backdating.

    “Dr. Lie's data showed that before 2003, a surprising number of companies seemed to

    have had an uncanny ability to choose grant dates that coincided with low stock prices…

    “For example, in 2003, the Commission charged Peregrine Systems, Inc. with financial

    fraud for failing to record any expense for compensation when it issued incentive stock options.

    The SEC's complaint alleged that at each quarterly board meeting, the company's directors would

    approve a total number of options for employees. The company would then allocate the options to

    the employees during the quarter. But the options wouldn't be priced until the day after the next

    quarterly Board meeting. On that day, the company looked back at the market price of its stock

    between the two quarterly Board meetings, and picked the lowest price. That turned the options

    into in-the-money grants. But even though accounting rules required that they then be recorded as

    compensation expense, the company didn't do that. As a result, Peregrine understated its expenses

    by approximately $90 million…

    “When these stock option practices surfaced, Brocade was required to restate and revise

    its financial statements for six fiscal years, from 1999 through 2004. The scheme resulted in the

    inflation of Brocade's net income by as much as $1 billion in the year 2000 alone…”9

    As can be seen, untold billions of dollars were misreported over the years for companies

    who were involved in backdating their stock option grants. It means that the stocks for these

    companies may have been overvalued. It means that purchasers of the stock may have had to

    purchase at a higher price, much to the elation of cunning executives. This affects employees

    who did not know they were being granted backdated options. It affects board members, top

    executives, and shareholders, whose companies will now face investigations, and who have

    similarly faced a decline in stock value due to the investigations. Some executives have even had

    to resign, some have been fined, others convicted. "I'm not an opponent of stock options. They

    can be a good incentive tool if used correctly. But they can also be dangerous for companies and

    shareholders when they are exploited by executives. I'm not for that,” said Erik Lie, the college

    professor whose research has led to this newfound corruption.10

    Moreover, this corruption affects the overall economy, as Emerson put it so plainly:

    TheStreet.com - http://www.thestreet.com/_tscs/stocks/general/10299710.html and SEC - http://
    www.sec.gov/news/testimony/2006/ts090606cc.htm - Testimony Concerning Options Backdating
    10 The Salt Lake Tribune - http://www.sltrib.com/search/ci_4387153