Not to go into it too deeply, the case in question involved the investment of much of a pension scheme’s assets into property. One of the trustees had a direct financial interest in two properties acquired by the pension scheme. Although it was claimed the conflict was declared, with the trustee ‘stepping out the room’ at the time other trustees took the decision to purchase, the Pensions Regulator was not convinced.

It was clear, said the Regulator after the conclusion of a lengthy investigation, that prior to that stage and right up to the point of purchase the conflicted trustee was actively involved in all decisions involving the property. As a result of the investigation, three trustees were banned for life from becoming trustees after admitting breaching regulations. A salutary lesson for all if one were needed. Thankfully, such cases are the exception rather than the rule.

The Pensions Regulator makes great play with regard to conflicts of interest, hammering home the need for trustees to always be on their guard and to have in place measures to effectively deal with them if they are discovered. In its guidance to trustees, the Regulator emphasizes the need of pension schemes to be “underpinned by a robust governance framework”. It was vital decisions were not affected or tainted by conflicts of interest so that valid decisions were made, and perceived to be made, in the best interests of the pension scheme’s members.

The Regulator continues, “It is trust law which imposes on trustees a duty to exercise their powers in the best interests of the beneficiaries. While it may be inevitable that conflicts of interest sometimes emerge, the important point is that they should be properly identified, monitored and managed. The failure to deal properly with a conflict of interest could result in a trustee’s actions being set aside and/or personal liability for the trustees.”

Trustees who are also employed by the sponsoring employer might bring additional benefits not easily replaced, the Regulator concedes, contributing to the operational effectiveness of the pension scheme. But it also needed to be recognised that such trustees might face conflicts of interest by virtue of their employment. There was also a need for trustees to decide the correct mix of trustees for their scheme, taking into account the scheme’s governing documents. If it could be afforded, this might mean the appointment of an independent trustee who almost by definition will ordinarily have no conflicts of interest yet will still bring knowledge and expertise to the scheme.

If you have a business that needs mostly online facility or are a freelancer and do not require many facilities that an ideal commercial office requires, home serviced office space is an ideal choice for you to make. The low rental and fewer restrictions on usage allow you to save quite a bit to take your business to heights. A simple apartment or residential room unit is mostly used for this purpose.

If you are choosing to expand your business to Australia or starting a commercial business in Australia keep in mind that commercial service office spaces should be your choice. The commercial offices spaces in Australia are provided with fitted room furnishings and the basic equipment to start your business. The rental rate for the commercial offices is higher compared to the home office spaces in Australia. However, if you choose to have a commercial serviced office space to start up a business, these benefits would help you in the long run. Nevertheless, if you are looking at expanding your business and need commercial office space this facility could be a boon for you to start searching for office space without any hassles of selecting room furnishings etc..

Australian offices spaces also require you to meet the expectations of regular expenses; the cleaning and maintenance services are also certain expectations that need to be followed. The expenses would differ from home office spaces to commercial serviced office spaces in Australia.

The trick of the trade is to know how to use the office space correctly for your business. Home or commercial office space is ideal for your business depending on how you can make most of it. What also plays a major role in running your business is correct management. Correct management can help you soar your business to heights and also run your business effectively.

Conflicts of interest, which can range from the subtle to the blatantly obvious, can sometimes arise when staff of an employer, for example, are appointed as trustees of the company’s pension scheme. There’s nothing inherently wrong with the practice because such trustees are likely to bring with them a great deal of useful knowledge and expertise. However, the trustees of the scheme are there to protect its members, not the interests of the employer.

The Pensions Regulator recognises such appointments can be “beneficial” but warns that conflicts are inherently likely to arise before and after such appointments, especially if senior staff are involved. Trustees also need to be wary of conflicts involving scheme advisers because that could affect the impartiality of any advice given. These need to be identified and appropriately managed.

The regulator concedes the way conflicts are managed will often be case specific, reflecting the nature or scale of the conflict. Some conflicts of interest can be managed by a variety of methods while others may be so acute or pervasive that it would be better to avoid them entirely.

According to the regulator, “When seeking to manage a non-trivial conflict of interest, and where the conflict could have the potential to be detrimental to the conduct or decisions of the trustees, the regulator would expect trustees to seriously consider obtaining independent legal advice, and to act on that advice.”

Conflicts management should be an on-going process, says the regulator, with trustees regularly reviewing their arrangements to ensure that they are still adequate, particularly when circumstances change. There should be a culture of openness – disclosure of conflicts should be embraced not ignored.

“We expect all conflicts of interest to be resolved sensibly. Where a conflict comes to the attention of the regulator and the regulator considers that it is not being managed appropriately, we will take appropriate action.”

Legal firms are expected to have robust procedures in place for managing conflicts of interest, and these will usually be documented by the trustees. The contract appointing a legal adviser should not only be clear and comprehensive, but also spell out any policy for managing conflicts of interest. Trustees will certainly request that any real or potential conflicts should be disclosed to them.

According to the regulator, “Conflicts of interest are a serious concern for the regulator. They arise in the trustee governance model because many trustees have a stake in the scheme or its sponsoring employer. If not managed effectively decisions may be taken that put the interests of beneficiaries at risk, or subsequently prove to be invalid. Our aim is to help trustees identify and manage conflicts and avoid such consequences.”

• utility – the measure of relative satisfaction gained from a good.

• total utility – the total amount of satisfaction gained from consuming a specific quantity. It is equal to all the marginal utilities added together.

• marginal utility – of a service or good is the utility gained or lost from the increase or decrease in consumption of that service.

• law of diminishing marginal utility – states that there is decline in marginal utility that a person derives from consuming each additional unit of that good.

A friend of mine took me  to an ‘All You Can Eat’ pizza place the other day. The place was good and offered some of the best pizzas in town. We both ordered and were served in no time. After having two slices I was done, but my friend, he kept on asking for more. When he was munching on his 7th slice, he  just gave up half way and complained that he was full and the pizza didn’t taste as good as the first slice. I smiled and went on to explain to him the law of diminishing marginal utility.

According to the law of diminishing marginal utility, the utility i.e. satisfaction derived from consuming successive units of a product will eventually decline as the rate of consumption increases.

So, in my friend’s case, the first slice of pizza that he had, gave him the satisfaction (i.e. utility) of lets say, 10 (an arbitrary number for the sake of understanding). However, his consumption of consecutive slices (increase i.e. marginal) didn’t give him the same amount of satisfaction; the satisfaction that he gained started to decrease with every next slice. The second slice gave him a satisfaction of, 9; the third, 7; fourth 5; and so on till his seventh piece, 1. Had he eaten that slice completely, his utility may had hit 0 and in case he had still asked for the eighth slice and had it, he most probably would have been either very uneasy or would have vomited. In case that would have happened, the utility i.e. satisfaction that he would derive from eating pizza would have turned negative, leaving him dis-satisfied from a thing that he actually loved.

Buffet-style restaurants function on one such principle. . They say ‘all you can eat’ but very well know that you cannot eat all; unless you give into the temptations and overindulge.

Also, this law explains why we don’t spend all our earnings or budget on just one or few of the products that we like. As we increase our consumption of any good, the utility we derive from it goes on decreasing with every additional consumption till it eventually becomes less than the cost of that good. If that happens, we wont feel like buying that product anymore.

But come January and the stores drop the prices of that same toy to sell off the remaining stocks as early as possible. So why do we – the consumers and the stores – the producers, behave in this way? The answer lies in perhaps one of the most fundamental concepts of economics called ‘supply and demand’ which is the backbone of market economy.

In a market, supply and demand is the economic model that determines the price. According to law of supply and demand, in a competitive market, the unit price for any particular good will differ till it settles on a point where the demand in quantity by the consumer at current price is  equal to the quantity that is supplied by the producer, which in turn will result in an economic equilibrium of quantity and price.

The are two main components of supply and demand, viz. the law of demand and the law of supply and since supply and demand form such an integral part of our economics, it is important to understand them to analyze decisions about quantity and pricing.

The Law of Demand
In the economic terms, demand depicts as to how much quantity of a product the consumers are willing to buy – at different prices, during a certain period of time. The law states that if all the other factors remain equal,  the higher the price of a product, the less the consumers will demand the product/good. In simpler terms, the higher the price of a product, the lower its demand in quantity will be. The quantity of a good that consumer buys at a higher price is less because as the the price of a good goes up, the opportunity cost of buying that good goes up as well. The converse, that when the price falls, demand increases, is also true.

The Law of Supply
Where the law of demand explains the consumer side of buying decisions, the law of supply relates to the profit making desire of the producer. Unlike the law of demand, the supply relationship states that the higher the price of a good, the higher is its quantity supplied at a given time period. The producers do so because at a low price only producers who are efficient can make a profit, whereas, at a high price, profit can be made by even high cost producers. Hence, they are simply driven by the motive to generate more or increase revenues.

Demand and Supply Curve
If the outcomes according to the law of demand and the law of supply are plotted on a graph, they are represented by curves. The demand curve illustrates the negative relation between the price and quantity demanded whereas the supply curve shows a positive relationship.

So I think now it is much clear as to why we the consumers and the producers behave this way at times and especially during the holiday shopping season.

In economics and especially for economists, the idea of cost is slightly quirky, as for them, the cost of something is not just the monetary value but ‘all’ of the value given up in acquiring that particular thing. Additionally, going by the definition, the cost of something is not just its cash value but is also the value of something that you didn’t get. A simple concept, opportunity cost however has powerful implications. It has been described as expressing the basic relation between scarcity and choice. Opportunity cost is that notion which plays a important part in making sure that there is efficient use of scarce resources.

Lets take the example of Mike, the mailroom clerk in my office who recently decided to quit his job and go back to school. The opportunity cost for him in this case would be the wages he loses for the four years he spends in school getting a degree. On the other hand, if Mike changes his mind and decides to stay, the opportunity cost will be the loss of future increase in his wages that he could have gained if he had a college degree.

Even if opportunity cost considers lots of non-monetary values, we often tend to monetize it, translating the cost in dollar terms for comparison purposes. Taking a look further into Mike’s education we can understand the powerful implications of opportunity cost.

Usually the government heavily subsidizes education; however, Mike will still have to pay more than half the cost of his education. Say, Mike attends a state college and pays an annual tuition fee of $5,000 where the state subsidy is $8000. So with the total tuition is of $13,000, one may say that Mike is paying less than half of his overall tuition fee. However, we haven’t considered the amount of money that Mike will be losing yearly since he won’t be working. Assuming Mike makes approximately $25,000 annually, the actual total cost of his education will be $38,000 yearly; $25,000 in wages lost plus $12,000 total tuition fees. So, Mike is going to pay a hefty price of $30,000 per year for his college degree ($25,000 wages lost plus $5,000 tuition fees). Hence he ends up paying more than 75% of his total educational cost even with a heavy subsidy. This is the reason why student don’t quit college en-mass even if the college raises the tuition fees. For example, if the college increases the tuition fee by 10%, Mike pays just extra $500 which is less than 2% of his total educational cost.

We wont consider the cost of his accommodation and food since he’d be spending on those regardless of whether he is at a job or at college.

The opportunity cost plays an important part while considering the differences between the ‘economic cost’ and ‘accounting cost’ concepts. The assessment of opportunity cost is key to assessing the true cost of any course of action. It should be noted however that it is difficult to compare most of the opportunities. Opportunity cost has been seen as the foundation of the ‘marginal theory of value’ and also the ‘theory of time and money’. Even though, it may be possible, in some cases, to have more of everything by making different choices.

The dot-com bubble

The decade open the new millennia on a high note, riding on the dot-com bubble. But like all bubbles, this one too burst in March 2000 pushing the economy into a recession and killing off behemoths like WorldCom and jeopardizing companies like Cisco. The ill-effects of the bubble were further amplified due to the 9/11 attacks.

A Decade ravaged by Scandals

The last decade saw a lot of scandals, typically more than its share of those. Right from the great scandal of Enron to the bribery scandals of Lockheed and Siemens, this decade almost had it all. Also inclusive in these are the scandals of oil companies overstating their reserves.

It should be noted that the great Enron scandal was really rooted in the dot.com years – as was most of the other scandals associated with that era. The fact that it took a few years, after the crash and the fallout for investigations to commence and for charges to be filed (Ken Lay of Enron, for example) is more of a note of “resolve and resolution” being accomplished during the “last decade” because of the graft and exceptional greed of the prior decade.

Wars, Terrorism and Hurricanes

The consecutive wars that the US raised on Taliban and Iraq post 9/11has cost the country and the soldiers serving it a great deal. There were also other terrorism acts against the country and several internal terrorist acts as well.
Hurricane Katrina caused widespread economic damage to the city of New Orleans where the city is still recovering from its effects.

The Housing Bubble and Recent Recession

The US banking sector’s greed for more money led to the subprime mortgage crisis which contributed majorly to the Great Recession. The subprime crisis left a lot of Americans homeless and the recession added to their woes by mass lay-offs resulting in record unemployment. Further turmoil was created by the collapse of Lehman Brothers and value of securities backed by these mortgages and its impact on other large investment banks trading in mortgage backed securities. The early 2007 saw the collapse of the subprime mortgage industry with the markets entering into a long and painful bearish phase. However, the cause of the housing bubble was many folds; from greedy realtors not performing their due-diligence, to equity out buy-ups and remodels and new automobile purchases, to equity out college education funding. But it is said that the housing bubble was in fact created by the federal government, by introducing new regulations which later on backfired badly triggering the huge crises.

A lot more happened during the course of the last decade in terms of economics. However these are just a few and important ones amongst them.

(Inputs by Gary)

Healthcare

As many would have guesses, this is the first reform that I want. The US healthcare system is too complex and puts a lot of power in the hands of the insurance companies. Also the cost of healthcare is high in this country than any other. Hence the government needs to not only tame the insurance companies but also needs to work towards bring down the cost of healthcare.

Supervising Financial Institutions

It is human tendency to try and find someone to blame for an incident or occurrence in part to let our frustration out. Hence, when the Financial Crisis Inquiry Commission stated in its report that the whole fiasco could be avoided, the very next question I would ask is that who was to be blamed for it. Surely the government would not have an answer for my questions and therein lies the problem. The government, especially after infusing trillions of tax payer dollars into the financial institutions, needs to keep a close watch on them. We surely don’t want the likes of the dot com bubble, Enron or worse, the recession all over again.
Better and simplified taxation

Even though I have blogged about it already, I cannot stress the point enough that we need a better and simplified tax code. What’s the use of a tax code that even the congress is not aware of fully or where the IRS itself doesn’t know how many pages of code is there? What’s the use of me being a ‘tax-abiding’ citizen when I still have nightmares of the IRS knocking on my door due to non-proper filing of taxes (due to complexities in doing so).
These are just the top economic reforms that I want in the system. If these are worked out properly the smaller ones will gradually work themselves out albeit sometimes with a little push.

People with such loans could not keep up with the payments and hence began to end up losing their homes. Approximately 80% of such subprime mortgages were ARMs.
On the market side, these subprime mortgages were being bundled and sold as ‘asset backed securities’ in the international markets. However, people had begun to default on loans in huge numbers when the AMRs began to reset on higher interest rates. Also, when the housing bubble burst, valuations began plummeting and these ‘asset backed securities’ began losing their values and actually became ‘toxic assets’ or worthless assets.
The whole affair led to a banks closing in on homes making foreclosures after foreclosures and leaving a considerable population homeless. However, even when they had acquired these homes, the banks couldn’t sell them as due to the bursting of the housing bubble, the prices had already plummeted and it became hard to find buyers. A lot of Americans lost their homes during this period with majority of the impact of the crisis on the middle class. Adding fuel to the fire, the market went into a financial crunch and a lot of people lost their jobs. Many of them were now jobless as well as homeless and many downgraded from four bedrooms to four wheels, living in their cars with nowhere to go.

It all began in the December of 2007 when the US banking system was hit by a liquidity shortfall which in turn, started a chain reaction that engulfed big financial institutions like Meryl Lynch, resulted in the bailout package and set the global stock markets to a downward spiral.

What triggered this financial meltdown was the collapse of the US housing bubble. The bubble had peaked in 2006 when the banks began to give out more and more subprime loans to people along with the facility of adjustable rate mortgages (ARM).

However when the interest rates increased in 2007, more home owners found themselves unable to make the payments. This led to foreclosures and evictions and ultimately there began a significant drop in the housing prices. The bubble had burst and by that time almost 80% of the mortgages in the United States were subprime or ARMs.

When the bubble burst the banking system, which had bought and sold into the ‘asset backed securities’ (which were just bundles subprime loans) suddenly found them to be worthless as the housing prices had plummeted. This led to a liquidity crunch which resulted in the recession.
With the recession, many companies, especially financial institutions, including big ones such as Lehman Brothers and Meryl Lynch went under. This led to a sudden spike in unemployment. People were now not only homeless but were without jobs as well. In such financial distress, the consumer strayed away from usual goods and services and instead sought their economical substitutes, their spending almost froze. This added to the economic downturn and business everywhere slowed down. Most hard hit were the markets of luxury goods.

What came as a shock to the country was the bailout package where government infused trillions of dollars into the banking industry to prevent it from crashing the economy. A great number of people were already against the bailout and what added to the shame of the banks was the news leak that these banks had paid millions of dollars in bonuses after receiving the package.

The people were so hard hit by the recession that they could not afford a funeral or even a cremation of their loved ones. The number of funerals dropped around the country and cremation rate showed considerable increase. Such was the recession that even the dead could not escape its icy grasp.
On the bright side, the death rate throughout the country dropped as well. Some accredited it to the hypothesis that people were eating less outside and cooking at home from scratch which resulted in low salt and sugar levels.

There were various other aspects of the recent recession whose complexities the layman will rarely understand. What the layman can only hope for is that the government and financial institutions learn from their mistakes and see to it that such a tragedy doesn’t occur again as avoiding such disasters lay only in their hands. According to the Financial Crisis Inquiry Commission this recession was very much avoidable.