Posts tagged ‘visa’

My Abusive Spouse Just Offered Me Flowers

I got a call today from the National Conference of Mayors.  They wanted to send somebody by to talk to me about just how committed these great folks were to small business success.

The call began poorly, as their representative tried to use a tactic I mostly only get from penny-stock boiler rooms - pretending that she and I had talked some time in the past and that I had committed to meeting with her.  I suppose this tactic might have worked with a frazzled exec, but it is one sure fire way to immediately get me pissed off in a phone call.  After telling her that she and I had no such call and that I did not appreciate the cheap telemarketing tactic, I said that I had absolutely no desire to help the mayors put some fake pro-business patina on their activities that are generally hostile to commerce and free markets.   I told them that I did not want a subsidy, handout, any special access, training programs, etc., I just wanted to be left alone.  I was not going to participate in some program where I get my picture taken shaking some politicians right hand while he is whacking me with a stick with his left.  The representative, to her credit before she hung up, admitted she gets this reaction a lot.

One only has to look at their "plan" (pdf)  to see what their vision entails for "helping" small business.  Here is a summary of the planks:

  1. More Federal spending on local infrastructure
  2. More Federal unemployment spending and lower Federal payroll taxes
  3. Create new Federal subsidy and loan programs and job training programs for businesses in favored, sexy-sounding industries (e.g. "manufacturing" or "high-tech").  I presume someone starting a restaurant or hair salon or without any political clout need not apply.  To their credit they also advocate free trade agreements and visa reform, though they then lose that credit by also advocating failed ideas like "trade adjustment assistance" and "metropolitan export plans"
  4. More Federal spending in urban areas (police, job training, affordable housing, community development).

As will not be surprising, absolutely nothing in the Mayor's plans dealt with actual issues under their control, such as business, occupational, and occupancy licencing reform.   Also not surprisingly, the mayors call for hundreds of billions of dollars in new Federal spending narrowly aimed at urban areas without once explaining why these can't or shouldn't be funded locally.  If Los Angeles wants more money for its police, or trains, or schools, and if that spending has real demonstrable value to the city, then why can't they sell the new taxes and spending to their own citizens?  Why do they need the money from the Feds (ie from the rest of us)?

But you can just see the corporate state a work.  A few companies will cynically climb on board, knowing this is all BS, but also knowing that they will get a nice subsidy or sweetheart project in exchange for letting the majors check their "pro-business" box  (pro-business used here as distinct from pro-market).

 

Ayn Rand, Illegal Immigrant

Interesting story via Reason

As a vehement anti-Bolshevist, she knew that she would die waiting in line if she applied for permission to permanently relocate to America, although that’s exactly what she intended to do. Temporary tourist visas were easier to land, but only for those who could prove they didn’t plan to settle here. So what did Rand do? She committed perjury. She convinced an American visa officer that she had a fiancé waiting for her in Russia whom she intended to marry after a six-month visit with her relatives in Chicago.

But Rand instead married an American citizen in 1929, gaining a path to citizenship. According to Mimi Gladstein’s biography, Rand timed her wedding before her visa, which she had gotten extended, finally expired.

However, others doubt that Uncle Sam would have handed a three-year extension to a Russian passport holder, raising suspicions that Rand might have been—gasp!—an illegal immigrant when she got married.

The Last Temptation

Nothing makes purity more interesting than temptation.  This applies to ideological purity just as much as the physical sort.  As a libertarian, my greatest temptation to call for government action comes when I deal, as a retailer, with Visa and Mastercard (V/MC).

This post is not a call for government action, so I guess I am resisting temptation.  But I at least need to vent, sort of like a monk pounding his head on the wall after getting the Victoria's Secret catalog in the mail.  So here is my rant.

First, let's start with how credit card companies make their money.  I will confess that I do not know how the card companies (V/MC) and the card processors (often large banks) split the take, so this is how they make money together.  V/MC and the processors charge fees to merchants.  Typically this is a fixed fee per transaction plus a percentage.  On average, a merchant might be paying 2.5-3.5% of a transaction.  The card companies also make money from card holders, charging annual fees, interest fees, etc.

You will have seen of late that most credit cards offer various loyalty programs, from airline miles to cash rebates.  You might have thought those were marketing expenses paid by the credit card companies.  Wrong.  The card companies simply charge merchants a higher fee for processing transactions using these cards.  In a sense, the card companies have organized with card users to use their power to extract extra value from merchants.

All of this I can generally live with.   Visa and MasterCard, through both their credit facility and their implicit standardization, bring enormous value to retailers and customers.  Its a big circular game anyway -- customers get 1% back and think they are getting a deal, merchants pay this extra 1% in fees, and then add it into the price of what they are selling.  It's a wash, except to the extent that customers with reward cards in the end extract a bit of value from customers who pay cash (for reasons explained below).

For this value one must accept the typically arrogant and indifferent customer service provided by any monopoly  (American Express is particularly awful to deal with as a retailer).   But they are no worse to deal with than the government, so its unclear how the government could make the service any better.

What tends to tick me off, though, are rules and restrictions.  Like the creeping work rules in the UAW contract, these are in many ways more insidious than the service and pricing.  Here is what set me off today, from one of my card processors  (in this case Bank of America, which, to be fair, is someone I would recommend for merchant account processing).  Click to enlarge.

visa

So, why are businesses breaking these rules so often?  Let's take a look:

  • No minimum transaction. Remember that V/MC charges a minimum fee, from 10-40 cents or so, per transaction.  So if someone buys a pack of gum in our store, likely 100% of the sales price is going to V/MC.  Typically it takes at least a one dollar total sale for there to be any money left over beyond paying cost of goods sold and the credit card folks.  So merchants logically want to set a minimum.   V/MC hates this practice, but it is rampant.  I plead the fifth on our own practices.
  • Surcharging. Credit card customers cost more than cash customers.  Sure, we get some non-sufficient funds checks, but the eventual cost of these is nowhere near 2.5% of sales.  Merchants logically don't like having their cash customers having to subsidize the frequent flyer rewards of their credit customers.  However, unlike transaction minimums, card processors have mostly been able to drive out cash discounts.
  • Requiring ID and Fraudulent Transactions. I will take these two together, since they are so ironic one after the other.  V/MC is telling merchants that they can't check ID, which is the only reasonable approach to limiting fraud, but that they can't submit fraudulent transactions.  You say that the text says "known fraudulent?"  Well, read on --

To the latter point, I think most people assume that the credit card companies are absorbing the fraud, which is how they justify the fees they charge.  Wrong again.  Credit card companies only absorb credit risk.  Over the last 10+ years, they have pushed fraud back on the retailer.  If a consumer claims fraud on his card with some transaction, then the credit card company refunds the customer and takes the money from the merchant unless the retailer can absolutely prove he made delivery to the consumer personally (which he can't prove because he can't check identification) .  Merchants bear the cost of fraud, not card companies.  Which I could accept (since I have more ability than the card companies to control fraud) expect the card companies ban me from controlling fraud.  So I have to take financial responsibility for something I am not allowed to prevent.  And that really ticks me off.

Anyway, maybe someday we can organize a large merchant boycott, where, even for a day, we all refuse to accept Visa and Mastercard.  Of course we would be breaking the rules, because that is not allowed by our V/MC agreement.

Postscript: I suspect that a few retailers with some power are starting to crack this, at least for themselves.  Costco only takes American Express.  Sams Club only take one card (MC, I think).  My guess is that both, with their large size, bargained for exclusivity in exchange for concessions on fees and/or terms.

Postscript #2: I expect comments like, "Well so-and-so always makes me show an ID."  I don't doubt you.  I am merely saying that by doing so, they have either negotiated an exception to the V/MC agreement (very unlikely, as V/MC holds to these rules like the Maginot Line) or the retailer is breaking the rules.

Agency Costs and Airlines

Apparently, USAirways (the recently merged product of America West and US Air) has made a bid for buying Delta out of bankruptcy.  The bid is around $4 billion in cash and $4 billion in USAirways stock.  Which got me thinking about airline mergers in general.

Companies can be thought of as having tangible assets (trucks, airplanes, factories) and intangible assets (reputation, employees, brand names, contracts).  Most companies are worth far more than the book value of their tangible assets.  Most of Microsoft's value, for example, is in it's products, its brand, its franchise, its contracts, its people, etc., not in hardware or buildings.  As a result, most acquisitions are completed at prices far above the book value of the assets of the purchased company.  The difference is called "goodwill" by accountants and "enterprise value" by economists.

But enterprise value is a problem in airline mergers.  Most investors expect to pay and get paid a premium over asset values in a merger.  But I am not sure there should be any such premium nowadays for airlines, because I fear that the typical airline's "goodwill", or the value of their intangible assets, may be negative.

Take the example of Delta.  Unlike scrappy competitors like Southwest and JetBlue, Delta has a lot of baggage (so to speak).  First and foremost, they have terrible legacy union contracts that mean that pay all of their employees much more money than do startup airlines and they are much more constrained by work rules in improving productivity.  They have huge and building under-funded retirement and medical accounts.  They have legacy contracts that may suck, and they often have hodge-podge mixed fleets that are hard to maintain.  All of this tends to add up to a negative effect on value.

The one positive intangible companies like Delta have is their brand value, and I would argue that most of that is tied up in their frequent flier programs[** Update Below].  Without these programs, most frequent fliers have demonstrated that they would switch airlines for trivial improvements in fares.  This value in the frequent flier programs was demonstrated in the America West merger (among others), when Juniper Bank contributed $455 million (!) to the merger for the right to issue the visa card attached to the program.  Wow.

Given this problem of negative enterprise value, it is not surprising that savvy upstarts like JetBlue and Southwest before it have not grown by acquiring other companies.  Both are willing to take advantage of bankrupt competitors to grow, but they only have bought assets (like planes and gates) rather than whole enterprises, so they don't inherit legacy contract or union issues.  When the companies who are making money do things one way, and the companies who find themselves in bankruptcy court every five years do it another way, the difference probably matters.

Which brings me to the title of the post and agency costs.  It is really, really uncertain whether buying Delta is good for the USAirways shareholders.  Since buying airline equities has always been a losing proposition over the long haul, the deal only makes sense if 1)  They are getting a screaming deal, either because of Delta's bankruptcy or because they are doing the deal in just the right part of the business cycle; or 2) They can really harvest synergies, which in this case would have to include shutting down entire hubs, such as Charlotte in favor of Atlanta or Cincinnati in favor of Pittsburgh.   While I can't speak to the latter with any facts, you have a better chance betting Arizona will win the Superbowl than betting any acquisition hits its promised synergy values.

But if the value of the acquisition is unclear for shareholders, there is one group that almost certainly benefits:  USAirways management.  Management, even if shareholders don't get a great deal, will benefit in both monetary and non-monetary (e.g. status) ways from running an airline three or four times as large as the current enterprise.  This mis-match in incentives between hired management and shareholders is called agency costs, and is something every board should be more cognizant of when approving acquisitions.

**Update:  A rant on the ethics of frequent flier programs

Free Speech, But Only If Its Bilateral

I sense I am in the minority on this (what's new) but I just don't understand the outrage directed at the decision to let Muhammad Khatemi into the US for some speaking engagements.  I guess I am enjoying the spectacle, though, of conservatives attacking McCain-Feingold for limiting free speech and then attacking the state department for letting a former head of state (albeit a fairly crazy one) into the country to, uh, speak.

The letter says that allowing
Mr. Khatemi to visit America "undermines U.S. national security
interests with respect to Iran and the broader Middle East." It also
says permitting Mr. Khatemi's "unrestricted travel through the United
States runs contrary to U.S. priorities regarding homeland security."

Taking the first part of this objection, I suppose they are arguing that granting this person a visa is somehow a reward, and we don't want to reward Iran.  Now, I will confess that Iran sucks, but I don't get how this rewards them or sets back our cause.  Yes, if he was received in the White House or by a prominent government official, I can understand it, and I would oppose doing so.  Besides, when our former head of state Jimmy Carter goes to other countries, the trips always seem to have the opposite effect that people fear here, as he tends to hurt rather than somehow advance his home country's interests every time.

As to the second part, I could understand it if someone had a legitimate concern that this was a terrorist leader and he would be spending his time visiting and organizing terrorist cells, but I have not seen anyone make that claim.  Besides, if I was in the FBI, I would love it if he was here to do that, and would follow him all over the place.  The CIA and FBI often leave known agents in place, because it is much easier to stay on top of the person you know about than the person you don't.  A high profile visit by Khatemi should be the least of our security concerns.

This just strikes me as one of those silly political loyalty tests that Democrats seem to like to conduct on domestic policy and Republicans conduct on foreign policy.  If you let this guy in, you are branded as a supporter of terrorism and fascism and whatever else. 

As I said just two days ago:

I am constantly irritated by efforts to ban a certain speaker from
speaking or to drown out their message with taunts and chanting.  If
you think someone is advocating something so terrible - let him talk.
If you are right in your judgment, their speech will likely rally
people to your side in opposition.  As I like to tell students who want
to ban speakers from campus -- Hitler told everyone exactly what he was
going to do if people had bothered to pay attention.

By the way, in explanation of the title of this post, I was reacting to something quoted from Rick Santorum.  Now, I often hesitate to react to comments by Santorum, because, like Howard Dean and a few others, he is sort of a human walking straw man.  But here goes:

On it, Mr. Santorum, who
has cut his deficit against his Senate challenger in Pennsylvania to
single digits, wrote that he should be granted a visa only if Iran
allows their people to hear "free American voices."

Mr. Santorum wrote: "We should insist, at a minimum, that the
Iranian people can hear free American voices. Iran is frightened of
freedom. They are jamming our radio and television broadcasts and
tearing down television satellite dishes in all the major cities of the
country. It seems only fair that we be able to speak to the Iranians
suffering under a regime of which Muhammad Khatemi is an integral part."

So now are we going to allow people free speech only if their country does so in a bilateral manner?  All you Americans of North Korean, Chinese, Iranian, Saudi Arabian, Venezuelan, etc. decent, Beware!   This logic betrays a theory of government that rights don't extend from the fact of our existence, but are concessions granted by the government.  By this logic, people have free speech only as long as the government allows it, and the government has the right to trade away an individual's free speech as a part of a negotiation.