How a "Gift" Turned Into Russell Simmons' "Most Significant Business"

Jan 17, 2011 11:05am EST by Peter Gorenstein in Newsmakers, Banking

Hip-Hop mogul Russell Simmons has made a fortune as a record producer (Def Jam) and fashion designer (Phat Farm) but it's his banking business he calls "my most significant business."

Somewhat of an accidental banker, Simmons created UniRush in 2003 as an alternative to check-cashing services. UniRush and it's Prepaid Visa RushCard allow those without access to traditional checking accounts to establish and build credit.

Like his other businesses, Simmons said the key to building a successful business starts by finding "what people need." (See: Russell Simmons' 5 Principles to Being "Super Rich")

Originally, Simmons viewed UniRush as a "gift" to "the 60 million Americans who can't get a bank account," and claims he wasn't sure it was even a business.

The RushCard has since grown to include more middle class users and currently has about 48 million customers. "A great number for the middle class pay twice as much for their 'free' bank account," he tells Aaron in this interview conducted earlier this month in New York.

As the Kardashian sisters’ learned last year, the debit card and banking business can be costly. The Kardashians were forced to drop their card after outrage over the exorbitant costs associated with the card that was targeted at teens and young adults.

Simmons' RushCard isn't free and does have charge users for services though he claims it costs the average user $200 per year, "half the price of most bank checking accounts."

Perhaps as a reaction to the Kardashian criticism, the RushCard changed its fee structure earlier this month. Users now pay between $3.95 and $14.95 to activate the card depending on the customizable features. This recent press release has more on the card fees.

Simmons is the author of Super Rich: A Guide to Having it All

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Welcome to the New Middle Ages. Don't Worry It's Not That Bad

Jan 17, 2011 10:00am EST by Peter Gorenstein in Investing, Banking, Politics

U.S. financial markets are closed Monday for Martin Luther King Day observance, but there’s trading in major bourses around the world. Most of us have become accustomed to the idea that we’re living in a global economy, whether we like it or not.

But few of us have dared to contemplate what author and researcher Parag Khanna believes: We are living in a “new Middle Ages.”

While most of us associate the Middle Ages with plagues, barbarian invaders and the Crusades, Khanna notes it was also a period of major cultural advances in China and India, the globalization of trade via the Silk Road, as well as the rise of Islam across Northern Africa and powerful city-states such as Venice.

“Now, globalization is again doing much the same, diffusing power away from the west in particular, but also from states and towards cities, companies, religious groups, humanitarian non-governmental organizations and super-empowered individuals, from terrorists to philanthropists,” Khanna writes in a recent FT op-ed. “This force of entropy will not be reversed for decades – if not for centuries. As was the case a millennium ago, diplomacy now takes place among anyone who is someone; its prerequisite is not sovereignty but authority.” (See: CEO as Statesman: Parag Khanna's New Plan for "How to Run the World")

Khanna joined Dan and I late last week to discuss his thesis, as detailed in his new book, How to Run the World.

Because of advance in technology and communications, the current era is like “the Middle Ages on steroids,” Khanna declares. And while other experts liken the U.S. to the Byzantine Empire of the Middle Ages, Khanna is not convinced the U.S. is necessarily an empire in decline, or that the rise of China, India, Brazil and other so-called emerging markets will necessarily means America’s economic influence will wane.

“It can be all at the same time,” he says.

Furthermore, Khanna optimistically notes the original Middle Ages ended with the Renaissance, a period characterized by major advances in science, culture and learning.

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If it ain’t broke, why fix it?

As that conventional wisdom goes, so goes Wall Street’s approach to selling the asset classes of “emerging markets.” But, there’s a new blog on the block that begs to disagree with Wall Street’s approach to sizing up the developing world.

From the BRICs to the PIIGs, Wall Street’s got its sales pitch down when it comes to selling investment vehicles into the developing world, says Stacy-Marie Ishmael, editor of FT Tilt, the new Financial Times blog. It’s an alphabet soup approach that FT Tilt feels lends itself to a certain “laziness of analysis.”

“We feel that 'emerging markets' as a term wrongly homogenizes an asset class that is actually very, very different from one country to another,” Ishmael tells Aaron in the accompanying clip. “We are talking about billions of people at totally different levels of development; different levels of capital market sophistication.”

Take the BRIC countries for example. People talk about them as a unified group of countries, but Ishmael makes the point that “if you have ever been to any of those countries you will know immediately how different Brazil is from Russia from India from China.”

These acronyms may be successful marketing tools, but they can sometimes be “patronizing” and “seen as démodé,” she writes, arguing these so-called "emerging markets" are in some ways more developed than some Western nations, including the U.S.

Americans like to think of the U.S. as the world’s great bastion of everything from technology, to education to infrastructure, but that's certainly not the case anymore.

Today the Chinese are beating us in math and science, and they now even have the world’s fastest operating super-computer. The U.S. is also falling behind when it comes to infrastructure. Our bridges, airports and public transportation, don't even come close those of many countries classified as “emerging markets” such as Dubai, Hong Kong and Brazil, says Ishmael.

Bottom Line: The FT believes the connotations associated with developing world need to be updated in a sort of "brand re-evaluation.”

Their suggestion: “replace 'emerging' with 'tilt', to better reflect the reality that economic and financial power is tilting away from the U.S. and Europe, and toward Latin America, Asia, the Middle East and yes, even Africa.”

Tell us what you think!

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From authoritarian regimes that violate human rights to deadly diseases that wipe out entire populations, it is safe to say the world’s got its fair share of problems.

But fear not, says Parag Khanna, author How to Run the World: There’s a new statesman in town.

The CEO statesman.

“These are people who have taken it upon themselves to play a public role,” says Khanna,  referring to the likes of Bill Gates, George Soros and Warren Buffett, who in the twilight of their careers have dedicated billions of dollars to various causes around the world.  The Bill and Melinda Foundation alone has granted nearly $25 billion to charity since 1994.

Khanna, a senior research fellow at the New America Foundation, believes the world needs a a new, hybrid-like, type of governance where the private and public sectors must play equal parts. (See: Is the Prius the New Model for Global Good Governance?)

Whether you like what these “philanthropreneur’s” promote or not -- and Soros is clearly a controversial figure -- “they create enormous tangible benefits on the ground,” says Khanna, who considers these charitable actions a positive for the future of globalization.

"CEOs should get used to being statesmen," he says. "These CEOs are making a name for themselves by doing things potentially in their business interest but certainly in their personal interest. Look at how we have a very hard time distinguishing between the two; how they're blurring together." 

 Billionaire Peer Pressure

To spur other incredibly wealthy individuals to give back to the world community, Gates and Buffet have been promoting The Giving Pledge. The pledge persuades every millionaire and billionaire to commit the majority of their wealth to philanthropy.

The pledge seems to be taking hold as intended due to the “shame effect,” or peer pressure, says Khanna. More than 40 people have signed the pledge, including billionaire Mark Zuckerberg, founder and CEO of Facebook.

Just like Zuckerberg, more and more CEOs who still have “day jobs” so to speak are contributing to the well-being of the world as well.  There’s Virgin’s Richard Branson who Khanna says is tirelessly looking to create incentives for a revolution in clean energy.  And, along those same lines is Wal-Mart’s Michael Duke, who has partnered with the Environmental Defense Fund to “green” the company’s supply chain by cutting 20 metric tons of greenhouse gas pollution by 2015.

What do you think of the new CEO statesman?

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The U.S. budget picture is improving. Earlier this week we found out the deficit shrunk in December by $80 billion vs. a year ago. Overall, the federal deficit for the first quarter of the fiscal year shrunk to $371 billion, compared to $388 billion in the first quarter of fiscal 2010. Before we start celebrating, economists still forecast another $1 trillion deficit this fiscal year.

The budget shortfall is likely to come to a head this spring when Congress has to vote on raising the debt ceiling. After "shellacking" the Dems in November, many Republicans say they won't agree to raising the debt ceiling until they see some spending cuts. Treasury Secretary Tim Geithner wrote to Congress in early January, warning a lack of compromise could lead to a U.S. debt default with "catastrophic" results for the economy. (See: Real "Showdown" Coming Over U.S. Debt Ceiling ... or Just More Political Theater?)

"This is playing with dynamite," former Senator Ted Kaufman (D-DE) tells Aaron and Henry in this clip.  

Kaufman firmly believes Congress needs to "put everything on the table," which means cutting spending AND raising taxes. The problem, he says, is making tough fiscal decisions is a surefire way to put your re-election in jeopardy. For many politicians, "it's daunting to get involved in this in any other way except a superficial way," he argues.

The last two Presidents to run budget surpluses did it by raising taxes and were punished for it, Kaufman recalls. President George H.W. Bush raised taxes after his famous (or infamous) "read my lips, no new taxes" campaign pledge. The result: He was a one-term President. His successor President Bill Clinton also raised taxes. That move gave birth to Newt Gingrich's "Republican Revolution," which captured both houses of Congress in 1994.

The other difficulty is cuts in discretionary spending, no mater how great, will do very little to shrink the deficit. "The vast majority of the deficit is being created by Medicare, Medicaid and Social Security, and defense," Kaufman says. (See: U.S. Deficit Is a National Security Issue, Defense Expert Says: "We Can Defend the Country Better for Less)

If politicians continue to avoid touching the "third rail" of politics, we'll never meaningfully cut the deficit. Eventually, something's got to give. If not, debt as a percentage of GDP will become unsustainable and America really will become like Europe's so-called PIIGS. 

 



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2010 was another banner year for emerging markets but 2011 is getting off to a bruising start amid fears of inflation, over-stretched valuations and good old-fashioned profit taking.

The trend resumed Friday as the Shanghai Composite fell 1.31% after the Chinese central bank raised bank reserve requirements for the fourth time in two months. Meanwhile, the Bombay Stock Exchange tumbled 1.7%, its eighth decline in 10 trading days this year, after India’s inflation rate came in hotter-than-expected for December, raising fears of more tightening.

“There is a genuine concern that some of these markets have gotten a bit frothy,” says Stacy-Marie Ishmael, editor of FT Tilt, a new blog dedicated to covering the emerging world.

All emerging markets are not created equal but, generally speaking, the fundamentals remain solid. Relative to the U.S., Western Europe and Japan, emerging markets boast faster growth, much lower debt and leverage, and better demographic profiles.

However, the emerging markets “story” is well known – a record $93 billion went into related equity funds in 2010 alone – and recent history shows financial markets can become detached from fundamental realities, especially in the era of easy money. Reflecting such concerns, the World Bank has warned about the potential for asset bubbles in emerging markets.

While food price inflation is the primary concern, as well as a property bubble in China, Ishmael notes many emerging economies now face wage inflation too. That’s good for workers but bad for profit margins of manufacturers such as Taiwan's Foxconn, the world's largest maker of computer components.

“There is some skepticism about whether valuations are really justified by the underlying economics of these places,” she says.

That’s particularly true of less liquid frontier markets like Bangladesh, where “valuations get divorced very quickly from actual real fundamentals people are purportedly to invest in,” Ishmael says. After surging 80% in 2010, the main Dhaka exchange tumbled at the start of 2011, sparking riots near the exchange earlier this week which forced a temporary trading halt and government efforts to prop up the market.

Such concerns notwithstanding, Ishmael remains confident the more established equity markets in places like Brazil, China and India will continue to outperform their G7 counterparts, echoing the view of U.S. Global’s Frank Holmes earlier this week.

That remains to be seen but given the "crowded" nature of the trade - and the herd mentality of hedge fund managers - individuals would be wise to rebalance their portfolios; both for prudence's sake and just in case the bears are right.

Aaron Task is the host of Tech Ticker. You can follow him on Twitter at @atask or email him at altask@yahoo.com

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10 Things You Need to Know Before the Opening Bell

Jan 14, 2011 07:58am EST by Gregory White in Investing, Computers, Newsmakers, Banking

Provided by Business Insider, Friday, January 14, 2011:

Good morning. Here's what you need to know:

•Asian markets were mostly lower in overnight trading, with the Shanghai Composite down 1.31%. European indices are also down, and U.S. futures are mixed.

•The Consumer Price Index is released at 8:30 AM ET. Consensus is for a 0.4% month-over-month increase.

•Retail sales data is released at 8:30 AM ET. Consensus is for a 0.8% month-over-month increase.

•China raised its reserve ratio for the country's banks by 0.5% this morning. The move is intended to slow inflation in the country. The impact has been a slide in emerging market indices. For a look into China's future, check out where Credit Suisse thinks the country will be in 2015.

•The rate of inflation in India rose to 8.4% in December, a sharp rise over November's 7.5% increase. India's BSE sold off, dropping 1.68%, likely on concerns the government will need to introduce more tightening measures to fight inflation. Here are photos of the food price riots sweeping the world.

•Inflation in the eurozone has surged to a 26-month high, rising 2.2% year-over-year and 0.6% month-over-month. Expectations for a rate hike in 2011 are rising, especially after ECB President Jean-Claude Trichet's hawkish comments on inflation yesterday. Don't miss Citi's report on why no sovereign is absolutely safe.

•JPMorgan beat earnings expectations, with EPS of $1.12 per share in Q4 2010 against the estimated $1.00. The firm's CEO, Jamie Dimon, indicated he was optimistic about future economic growth.

•Intel reported strong Q4 2010 earnings after the bell yesterday, beating expectations. Intel also suggested Q1 2011 revenues would be better than previously expected, at $11.5 billion.

•The SEC is investigating banks for possible bribes of sovereign wealth funds. Blackstone and Citi have been contacted by the SEC in relation to the case.

•The University of Michigan Consumer Sentiment Index is released at 9:55 AM ET. Consensus suggests a slight rise in the index from 74.5 to 75.0.

•Bonus: Selma Blair and boyfriend Jason Bleick are expecting a child, according to Us Weekly.

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Is the Prius the New Model for Global Good Governance?

Jan 14, 2011 07:00am EST by Daniel Gross

In his new book, How to Run the World: Charting a Course to the Next Renaissance, Parag Khanna makes a somewhat counterintuitive argument: to fix some of the world’s most intractable problems, we have to give more power to corporations and CEOs.

“We accord way to much power and authority to the official, state-centric diplomatic world,” Khanna told me and Aaron Task in the accompanying video. “Whether it’s the U.S. government or the United Nations, we assume they are going to solve problems because they have the legal responsibility to do so. That isn’t really the way it works today.”

Thanks to the rapid expansion of globalization over the last two generations, companies control vast supply chains, huge chunks of capital, and exert immense power and influence. “The trick is to harness public power, private power, and civic power,” so that they work toward the same goal, says Khanna who sees a particular need for a hybrid model of governance in failed and post-colonial states.

Call it the Prius model of global good governance. He asks: “What are the odds that the Afghan government in the next 20 years is going to be a strong sovereign bureaucratic entity controlling all of its territory and building a national health and education infrastructure? (Answer: quite slim.) By contrast, given proper coordination, investors, non-government organizations, foreign aid donors, and the local and U.S. government could get the job done.

Of course, one of the issues with promoting a greater role for companies, is that, compared with governments, they tend frequently to be less accountable. The largest corporations operate beyond the control of shareholders or any legal jurisdiction.

Khanna counters mutual accountability between government and the private sector can be built through monitoring and reporting, but also through incentives. In the 19th century, railroads were constructed in the U.S. because private companies were chartered (and in some cases, financed) by the government to build them. “We can incentivize companies to make investment in our infrastructure.”

India, he notes, is a country with a small government budget, a dynamic private sector, and huge infrastructure needs. It has created pooled financing mechanisms in which the private sector gets a guarantee of a modest return for investing in major infrastructure projects.

The need such development is most significant in post-colonial areas like the Middle East, South Asia, and Africa. “You have a tremendous amount of instability because decades after independence they still haven’t built the infrastructure they need, and still haven’t professionalized their workforces,” Khanna notes. “They have had population explosions, sometimes double or triple from 50 years ago, and have no systems to manage that.”

The path to stability may be through companies and the U.S. helping such countries leverage one of the big forces now bringing capital into resource-rich former colonies: China. Rather than denouncing China as a new colonial power in Africa, Khanna says, “we need to actually work with the local governments to take advantage of the infrastructure they are getting.”

Now that many countries are receiving capital influxes, the U.S., Europe, and other actors should offer to help these countries set up welfare funds, infrastructure funds, education programs, and anti-corruption efforts. Says Khanna: “That’s the kind of technical assistance that we can provide.”

Daniel Gross is economics editor and columnist at Yahoo! Finance.

Follow him on Titter: @grossdm. Email him at grossdaniel11@yahoo.com.

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Last weekend's tragic shooting in Tucson may usher in new era of civility across the country and in the halls of Congress. That's what President Obama hopes and called for at Wednesday's memorial service for the victims.

“Only a more civil and honest public discourse can help us face up to our challenges as a nation,” Obama told a crowd at the University of Arizona that included Mark Kelly, husband of shooting victim Rep. Gabrielle Giffords.

The shooting by suspect Jared Lee Loughner highlights several political and social issues that Aaron and Henry discuss in the accompanying video with former Delaware Senator and current Congressional Oversight Panel chairman Ted Kaufman.

Civilty

Kaufman applauds Obama's tone and sentiment in dealing with the shooting. "At a time when we are far too eager to lay the blame for all that ails the world at the feet of those who think differently than we do, it's important for us to pause for a moment and make sure that we are talking with each other in a way that heals, not a way that wounds," the President said at Wednesday's memorial.

However, contrary to popular perception, the former Senator says civility is not a lost art in Washington. "The vast majority of people I know in public life want to quiet the whole thing down," Kaufman says. "If you look at most of what goes on the floor of the United States Senate, discussions in committees and everything else - it's incredibly civil and incredibly thoughtful."

Media's role

That truth about civility doesn't get the attention it deserves Kaufman believes because confrontation sells much better in the media, especially on TV. "Frankly, part of this is the fact that the media would much rather watch an argument between two people," he says.

Kaufman makes a point not to blame the media for the uncivil tone but does go back to this point several times in the interview.

Gun control

"We've got to have a dialogue on guns," Sen. Kaufman says. "We never have a discussion because it's so polarizing." Kaufman hopes the Tucson tragedy prompts a reasonable discussion on gun control, but says there's a need to have more restrictions on assault weapons. "We should all agree there's no earthly reason to have a 30-shot magazine."

Can any good come from the Tucson tragedy? Let us know what you think.

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Russell Simmons’ rules for getting “super rich”

Jan 13, 2011 12:46pm EST by Stacy Curtin in Newsmakers

From music to fashion to flim, TV and other businesses, Russell Simmons -- who is worth more than $100 million -- seemingly has the “Midas Touch”. In his new book, Super Rich: A Guide to Having it All, he wants to show you how you too can achieve super richness.

Tech Ticker's Aaron Task recently sat down with the "godfather" of hip-hop after a Jivamukti yoga seminar in midtown Manhattan to glean some of the key principles that have made him a successful entrepreneur and one of the “Top 25 Most Influential People of the Past 25 Years," according to USA Today.

Simmons grew up in a middle-class neighborhood where he has noted, "the only entrepreneurs we knew were the numbers guys and the drug dealers.”

He has come a long way and some would even say he’s become the epitome of the American dream.  

After attending City College in New York, Simmons began his music career in the late 1970s. He started small by managing and producing artists like Run DMC and the Beastie Boys.

In 1984 he partnered with award-winning producer Rick Rubin to create Def Jam Recordings which led to the making of mega-stars Foxy Brown, Ludacris and Jay-Z, just to name a few. He helped take hip-hop mainstream. In 1994, Def Jam was sold to Universal Music Group with a final price tag of $300 million.

Just like the legendary Midas, Simmons realized the fruits of his golden touch are not all they are cracked up to be. “People I guess pursue money to be happy and money doesn’t really make you happy,” he says. “[Being] happy makes you money though;” in order to find that happiness one must “start from the inside out.”

After many more musical successes, Simmons saw a crossroads between hip-hop and style and in 1992 started a fashion company called Phat Farm. It was hugely popular and made him millions. He went on to add additional brands to the empire including Baby Phat, Run Athletics, Argyleculture and American Classics.

Now, as Chairman and CEO of Rush Communications, Simmons' philosophy is spiritual and based on the inner peace he has found from 15 years of practicing yoga and meditation.  So without further ado, here are: Russell Simmons’ Top Principles to Super Richness

#1 Give Your Talents Until They Can’t Live Without It

“Wake up in the morning and find out what you want to give as opposed to what you want to get,” he says. “Through this practice of becoming a good giver you become a good getter.”

Simmons gives examples of many of his former selfless, tireless and upaid interns that went on to greatness, including Sean Combs, Kevin Liles, and Julie Greenwald, recently named COO of Atlantic Records Group.

“Those who focus on being good servants usually attract the most in the end,” he says.

Basically, offer your talents and skills for free and the rewards will find you.

#2 Relentlessly Pursue Your Goals Without Appearing Needy

Simmons’ law of attraction says: “when you chase things, they will always run from you.”

This principle goes hand-in-hand with principle number one by virtue of the more you give, the more good that will just find you.

#3 If You Don’t Love it, Leave it Alone

This is not only the idea that you should do what you love and a wealth of richness will follow, but the idea that you should only do things you are “karmically” comfortable doing.

“People can sell anything,” from bombs to drugs, he says, even though there are very serious ramifications to those actions. “I want to stress that making money just for the sake of getting paid is a pedestrian activity that you can rise above.” 

If you don’t love it, don’t do it.

#4 Let Go of the Results

“You really have no control over the results, you have control over the action," he says. “So make sure you perform your action and your duty well.”

In the accompanying clip, he explains that he has no recollection of his very first paycheck, but says he certainly does remember making his first good record.

“All I could think is ?when my friends hear this record’ it will make them so happy,” he reminisces. “Do things you love. Do things that you have faith will make other people happy and that will give back what you give them.”

#5 Get Open

“You want to always be open, creative and fluid as possible, and never become rigid, old or tight,” he writes, encouraging readers to let loose and lower your defenses.

And if you're thinking these principles are easy for someone worth millions to say, Aaron asks him about that too in the accompanying clip.

The Joy of Giving

Simmons' list of his successes are deep but the endeavors most important to him may be those that go along with his first principle listed above. The idea of being a “good giver.”

He is known globally for not only his business acumen, but also his commitment to philanthropy. Simmons has devoted an entire division of empire to charity and non-profit work.

Russell Simmons is also the author of New York Times best-seller, “Do You!” 

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