Bin Laden’s gone, but what about al Qaeda’s finances?

As the world absorbs the news of Osama bin Laden’s death, government warnings of counter strikes show that the death of one man won’t kill al Qaeda. One reason: the terrorist group doesn’t need bin Laden for money.

“There are two things a brother must always have for jihad, the self and money.” — An al Qaeda operative

This truism is cited by none other than the 9/11 Commission in the detailed report that it published in 2004. One of the first and most important chapters in that document looks at how al Qaeda raises cash and moves it to its operatives around the world, weaving a financial web that the Commission said “allows the organization to support itself, its operations, and its people.”

“You can’t run a terror network without funding because it takes money to train operatives, transport them, and buy equipment,” Thomas Kean, the former New Jersey governor who chaired the Commission, tells Fortune. “When you cut off those supplies, it becomes very difficult to operate.”

Contrary to popular opinion, the death of bin Laden does not strike a blow to the organization’s financial health. “[Osama bin Laden] Does not support al Qaeda through a personal fortune or a network of businesses,” the Commission wrote in its report.

“Al Qaeda relied on fund-raising before 9/11 to a greater extent than thought at the time,” the Commission wrote. “Bin Laden did not have large sums of inherited money or extensive business resources. Rather, it appears that al Qaeda lived essentially hand to mouth.”

And yet the myth has persisted that bin Laden has been the organization’s financial pillar. This is likely because he was the son of a billionaire who used a portion of his inheritance to start al Qaeda in the 1980s and he nurtured it to become, in the words of the New York Times, “a multinational enterprise to export terror around the globe.”

But by 2004, al Qaeda financed itself by raising money from “witting and unwitting donors, mosques and sympathetic imams, and nongovernment organizations such as charities,” says the report. Intelligence reports reveal a financial web that is nearly impossible to track, as the money is distributed as fast as it is raised by a network of couriers. Each strand in the web is taken down and distributed as fast as it is woven. There is no war chest to discover and no bank from which al Qaeda draws funds.

The reality of how al Qaeda actually survives has kept intelligence officials and operatives in other countries fighting to stay one step ahead of the organization. “One lesson of 9/11 was that you can’t fight the last war,” says Kean. “We talk about a failure of imagination on 9/11 because the terrorists did something we never imagined they would do. The way they raise money is no different.”

This game of whack-a-mole has changed global finance. Banks now must take responsibility for knowing who their customers are and for sussing out unusual behavior.

Kean says the Treasury has used its powers to disrupt the flow of money to al Qaeda, including tracking down individual financial deals.

But it hasn’t stopped terrorism.

“A lot of what al Qaeda is doing now doesn’t require a lot of money, like recruiting people over the Internet,” says Kean, who notes that the amounts seem to have gotten smaller since 9/11. “That huge 9/11 operation only took $500,000 maximum.”

Bin Laden’s death is an important moral blow to al Qaeda, but it is less of a blow to the organization’s lifeline.

By Katie Benner (CNN MONEY)


Lady Gaga’s Potentially Meaty Tax Deduction

Lady Gaga wears her controversial meat dress, ...Last September, Lady Gaga caused quite a stir by showing up to the MTV Video Music Awards in a dress made entirely of meat. The episode set the blogosphere ablaze, earning Gaga admiration from the avant garde and scorn from vegetarians and other opponents of wretched excess.

Strangely enough, the meat dress and other costumes may end up saving Gaga some cash–in the form of a tax deduction. According to the IRS, “musicians and entertainers can deduct the cost of theatrical clothing and accessories that are not suitable for everyday wear.” A meat dress certainly seems to fit that description.

“Her concert wear is far enough out there that it wouldn’t qualify for everyday use,” says Andrew Blackman, an accountant at New York firm Shapiro Lobel, which specializes in representing entertainers. “I’d bet you dollars to donuts that her accountant is deducting everything she wears.”

Blackman estimates that Gaga’s wardrobe expenditures are in the low seven figures, which means she could lower her tax bill quite a bit if her accountant indeed added the cost of her clothing as a business deduction before this week’s tax deadline. Gaga’s income, which totaled $62 million last year and figures to be even higher this year, puts her squarely in the top federal tax bracket of 35%. So if she spent $3 million on clothing and costumes this year–a distinct possibility, given her proclivity for bizarre designer outfits and fire-spewing brassieres–the tax savings could add up to $1 million or so.

There is a bit of gray area, though. The IRS explicitly allows entertainers to deduct unusual outfits used for income-generating performances but frowns on deductions aimed solely at maintaining an image. That didn’t stop Ozzie Nelson from declaring his trademark cardigans as a deduction or Diana Ross for doing the same for evening gowns that were so tight she couldn’t sit down, says Blackman. In Gaga’s case, her offstage behavior is such a part of her income-generating persona any outfit she wears, even when not performing, could be seen as an acceptable tax deduction.

“She may just be the test case the IRS doesn’t want,” says Blackman. “She may be maintaining an image, but she gains so much from being somebody who has the type of image she has. If I’m her accountant, I’d be pushing the envelope.”

If Gaga’s accountant didn’t attempt to claim deductions for costumes this past year, there’s always 2011: it’s safe to say that the giant egg in which Gaga was carted to the Grammys in February doesn’t qualify as “everyday wear.”


How to Find Thousands in Lost Pension Money

My wife and I were hiking with some friends recently, and as often happens now with people our age, we started talking about retirement — more specifically, about whether we’d have enough retirement income to make ends meet. Our friend, Bill, commented that he had two small pensions from prior employers for whom he had worked more than ten years ago, but that he hadn’t stayed in touch with them. He wondered if it was worth his time to track them down. Here’s how our conversation went after that.


“Between you and your wife, one of you will probably live 25 years or more in retirement, and $350 paid to you each month for 25 years comes to about $105,000.”

Hearing that, Bill was now on fire to find this money, so he spent the time to track them down. One pension wasn’t hard to find — he called the HR department of his former employer, and they gave him the phone number and website of the plan administrator. One phone call was all it took to find out exactly how much his pension is worth and how to claim it.

Getting information on the other pension took a little more digging. His former company had gone bankrupt, and its pension plan had been taken over by the Pension Benefit Guaranty Corporation (PBGC), a federal agency that guarantees pensions of bankrupt companies. The agency also maintains information on any pension plan that has been terminated, even if the company is still in business. After contacting the PBGC, Bill found that an annuity had been purchased in his name from an insurance company. Then, just one phone call to the insurance company had Bill hitting paydirt.

Bill’s situation was a fairly easy one to resolve; he knew how to contact one of his former employers, and the other employer’s plan was in the PBGC’s database because it had been terminated. It’s more difficult to find lost pensions if your plan hasn’t been terminated in that case, the PBGC can’t help you. And if you no longer know how to contact your former employer because the company has moved, or if your former company has been folded into a larger company, you may have a bit of detective work on your hands.

First, remind yourself that it’s worth the time to track down your pension remembering Bill’s example may just motivate you to pick up the phone or surf the Internet. If you’re in this situation, start with the PBGC. They’ve got a pamphlet, Finding a Lost Pension, posted online that offers a number of good tips that can help you get started on your search.

In addition, when you terminated employment with your former employer, your pension should have been reported to the Social Security Administration. When you apply for Social Security benefits or Medicare, the administration is required to tell you about pensions that have been reported to them.

But what if you want to learn about your pension before you apply for Social Security benefits? You can simply write to the Social Security administration and ask for information about your pension.

Here are a few other things to know about finding missing pensions:

• All of the above information only applies to traditional defined benefit pension plans; they don’t apply to 401ks, profit-sharing plans, or any other defined contribution plan. For information on these latter types of plans, you’ll need to keep in touch with the plan’s administrator or the HR department of your former employer.

• Also, the information here only applies to private employment, not government employment. Hopefully, your former government employer is still in business, although it could be quite a hunt to find the right person who’ll be able to give you the information you need.

This story should reinforce the need to organize your retirement planning documents, and the importance of storing and organizing important papers in your retirement inventory.

Bill estimated that it was worth about $10,000 per hour of his time that he spent tracking down his lost pensions. That’s pretty hard to beat!

Most people need to make every dollar count in retirement, so finding pensions that pay even just a few hundred dollars per month is well worth the time you might spend tracking them down. Happy hunting!

By Steve Vernon (Yahoo Finance)

Facebook at $50 Billion Looks More Like Tencent Than Google

Jan. 6 (Bloomberg) — Facebook Inc., with a valuation of $50 billion, looks more like Tencent Holdings Ltd., China’s top Internet company by market capitalization, than fellow U.S. Web company Google Inc.

Goldman Sachs Group Inc. and Russian investor Digital Sky Technologies ascribed that value to Facebook through a $500 million stake, three people familiar with the situation said this week.

That puts Facebook on par with Tencent, whose services include online games and instant messaging, has 600 million users and is worth more than $42 billion on the Hong Kong stock exchange. U.S. Web pioneers Google and Yahoo! Inc. are poor barometers because they’ve struggled in social networking, while fast-growing social media startups Twitter Inc. and Zynga Game Network Inc. are still private.

“What’s public at that scale in social networking in the U.S.?” said Hans Swildens, founder of Industry Ventures LLC, a San Francisco-based investing firm that owns a Facebook stake. “When you look at the Asian comparables, there are companies that are at scale there in social networking.”

Investors are betting Facebook, which has surged fivefold in value over two years, will parlay its lead in social networking into sales of online advertising. While revenue at Palo Alto, California-based Facebook more than doubled last year to about $2 billion, the company has yet to tap the mobile-ad market, start selling ads on partner sites or take full advantage of such services as e-mail and location features.

Buzz, Bloom, Hype

Compared with Google, Facebook at $50 billion looks expensive. That valuation is about 25 times its 2010 revenue, almost triple Google’s price-to-sales ratio of 9, based on analysts’ estimates.

“Right now, there is a lot of buzz, there’s a lot of bloom on the rose, there’s a lot of hype,” said Robert Ackerman, founder and managing director of Palo Alto, California-based Allegis Capital. “Expectations are probably running somewhere ahead of reality.”

Facebook instead more closely resembles Tencent, which is valued at about 15 times revenue, according to Bloomberg data. Tencent, based in Shenzhen, also owns a stake in Facebook.

Baidu Inc., China’s most-used search engine, trades at about 31 times revenue. Inc., China’s largest online video site, is valued at about 90 times revenue after selling shares to the public last month.

“There are companies in Asia with high valuation multiples and somewhat similar growth and reach characteristics, but where the monetization is still largely to come,” said Clayton Moran, an analyst at Benchmark Co. in Boca Raton, Florida.

Friending Donuts

Some advertisers are just starting to spend money on Facebook. Dunkin’ Brands Inc.’s Dunkin’ Donuts had 1 million fans on its Facebook profile page by the end of 2009 without buying any ads, said David Tryder, director of interactive marketing at the Canton, Massachusetts-based company.

Last year, Dunkin’ Donuts began buying banner ads on Facebook to drive traffic to its fan page, where it promoted products like its Coolatta frozen coffee drink.

Dunkin’ Donuts now has more than 2.9 million fans on its Facebook page and plans to continue spending this year to market new products and promotions.

“It’s become a great place for fans to give us feedback, discuss with each other and give us ideas,” Tryder said. “Where we’ve tried to intervene are in those places where we think we can add value, places where we feel like we can promote our products and things important to our business in fun and interesting ways.”

Ads That Work

Facebook may have taken about 9.4 percent of the display- advertising market in the U.S. last year, up from 6.6 percent in 2009, according to EMarketer Inc. in New York. Yahoo, which leads the market, was expected to grab about 16.2 percent, down from 16.5 percent, the firm estimates. Google, which is stronger in search ads, may have had 6.7 percent, up from 4.7 percent.

“I have been in the Internet space since the early days of display and the early days of search, and I have not seen anything grow as fast” as Facebook, said David Karnstedt, a former Yahoo executive who is now chief executive officer of Efficient Frontier, a Sunnyvale, California-based company that helps clients advertise online. “The most important thing is advertisers that are participating are finding it’s working.”

Tencent’s market value has more than tripled in the past two years as the company’s instant-messaging product, called QQ, has captured 77 percent of China’s market, with more than 630 million users.

Body Armor, Assault Rifles

The company also sells online games like “CrossFire,” which makes money by selling virtual items such as body armor and assault rifles. Tencent is expanding its QQ service and games business by offering products in other languages and countries.

While Facebook and Tencent may look similar in terms of revenue and number of users, the comparable valuations may not be justified, said Ackerman at Allegis Capital. Tencent is serving the world’s most populous country and largest Internet market. It makes money from online ads and mobile services in addition to instant messaging and games.

“There probably is a valuation premium because of the market,” said Ackerman. “Those premiums probably aren’t applicable to things in the United States. You’re talking about a new category, and trying to evaluate a new category and come up with good rational comparables is not easy.”

When Google reached the $50 billion mark in 2004, the Mountain View, California-based company had sales of $3.2 billion and a price-to-sales ratio of about 17. By the end of the following year, revenue had almost doubled and the company was worth more than $120 billion.

‘Huge Growth’

Goldman Sachs and Digital Sky, having seen Facebook’s financials, may be expecting the social network to grow more like Google did five years ago than it has more recently, said Larry Albukerk, founder of EB Exchange Funds LLC, a San Francisco-based firm that specializes in private share sales.

“They know the financials, they know the prospects, they know what deals are coming down the pipeline,” Albukerk said. The valuation “tells me that Goldman and DST and other insiders see huge growth prospects in terms of monetizing the business.”

By: Ari Levy and Brian Womack (Bloomberg)

The Business of Hip-Hop, and How It Grew

Dan Charnas’ The Big Payback details the genre’s origins and evolution into a branding and marketing phenomenon

After the end of the 2000 fiscal year, Loud Records co-owner Rich Isaacson discussed his label’s finances over lunch with Mel Ilberman, the chairman of its parent company, Sony Music International. Although the previous 12 months had seen Loud artists such as Wu-Tang Clan, Big Pun, and Xzibit haul in gold and platinum albums, an exasperated Ilberman confronted Isaacson: Never before had he seen a company spend $100 million without making any money.

Isaacson, understandably, was taken aback. This was, after all, how Loud operated: The company had recently lavished $1 million on a promotional video for a single Mobb Deep track. Surely Sony must have known that the label and its previous partner, Bertelsmann Music Group, had parted due to years of inadequate profit margins? Apparently not. Sony shuttered Loud shortly thereafter.

This episode, described in Dan Charnas’ The Big Payback: The History of the Business of Hip-Hop, typifies the music business in general and hip-hop in particular. This new genre wasn’t exactly built on solid financial ground. The first successful rap record, Sugarhill Gang’s 1979 Rapper’s Delight, was facilitated by a $5,000 loan from Morris “Mo” Levy, a grizzled music business veteran with close ties to the Gambino crime family. Yet over the intervening decades, hip-hop invaded the suburban zeitgeist and launched its own full-blown ancillary industry replete with clothing lines, fragrances, liquors, travel agencies, and antique-looking chalices known as “pimp cups.”

Is there financial wisdom to be gleaned from this multibillion-dollar enterprise? Perhaps. Charnas, a former talent scout and a writer for The Source magazine, has written a book that presents itself as a business manual of sorts, “focusing on successful marketing strategies” and providing a “primer on hip-hop’s bold and compelling paradigm for business success.” Unfortunately, as Charnas reveals in his 600-page-plus tome, the paradigm was actually based on the old business practice of winging it, then cashing out.

During its three tumultuous decades, hip-hop’s top executives often appeared to be improvising as adroitly as their platinum-certified rappers. For years the so-called rap game was a virtual gold rush that attracted all manner of colorful entrepreneurs and left countless artists nursing serious financial grievances. The moguls who came to dominate the industry in the mid-’90s—Sean “Diddy” Combs, Russell Simmons, and Damon Dash—were all gifted self-promoters who, as portrayed in The Big Payback, were more or less extemporizing in a marketplace created by a young, capricious demographic.

This formula didn’t guarantee big bucks for record companies. In the early ’90s, Charnas writes, Sony was exasperated at the “endemic disorganization” through which its Def Jam imprint, under Simmons’ stewardship, had accrued some $17 million in debt. If only they’d realized that record sales were becoming a secondary revenue stream. With the creation of the clothing line Phat Farm in 1992, Simmons became the first rap entrepreneur to look beyond mere music and attempt to market the ghetto-quixotic lifestyle preached in hip-hop’s lyrics. Five years after he and his partner Lyor Cohen had unloaded their stakes in Def Jam for $135 million, Simmons cashed out of Phat Farm, in 2004, for nearly $140 million.

The message hidden within The Big Payback is that while hip-hop may be a volatile industry, few of its business strategies are unique. After Simmons’ initial success, virtually every major rap figure tried to establish a presence in the rag trade. Combs’ Sean John label and Jay-Z’s Rocawear line were among the most prominent companies to follow in Simmons’ footsteps. (Combs recently signed an exclusive distribution deal with Macy’s (M), while Rocawear was sold for $219 million in 2007.) Rapper 50 Cent also launched a successful clothing line, G-Unit, before entering a 2004 partnership with Vitamin Water parent company Glacéau. 50 Cent’s unimpeachable street credibility—he was shot nine times at close range in 2000—helped sell millions of bottles of his signature drink, Formula 50. In 2007, Coca-Cola (KO) purchased Glacéau for $4.1 billion, and “Fitty” walked away with, Charnas writes, upwards of $60 million.

Of course, others weren’t as lucky. Jay-Z’s former wingman Damon Dash steered Roc-A-Fella Records on a self-immolating expansion drive that included magazines, movies, and a vodka brand. Despite Dash declaring himself the Tiger Woods of business, banks foreclosed on his two New York condos in 2009.

While The Big Payback is no business primer, it does contain hope for aspiring music moguls. Despite record sales’ free fall, most of hip-hop’s ruling class is enjoying some well-earned rest after making millions on all the lifestyle extensions they launched. Looking on the bright side, there’s now ample room for a new cohort of inventive mavericks to take over.

By: Steven Daly (Business Week)

How To Buy Life Insurance

While Americans are out shopping for holiday gifts, few are likely to pick life insurance policies as stocking-stuffers. The percentage of American households with individual life insurance policies has hit a 50-year low of 44%. Blame unemployment, confusing products, reports of denied claims and high commissions among the declining ranks of dedicated agents.

But many people who are going without life insurance may really need it. Among the 35 million Americans households that have no life insurance, 11 million include children under age 18. Of those 11 million, 40% say they’d have trouble paying everyday bills if the breadwinner were to die today. That’s according to LIMRA, an insurance industry research outfit, which based its study on a survey of 3,766 households.

To be sure, if you don’t have life insurance, you shouldn’t necessarily rush out and get it. Many senior citizens, for example, have no need to heed TV ads urging them on. William Wixon, owner of Wixon Advisors in Maple Grove, Minn., says many of his clients no longer have children or other financially dependent family members, so he advises them to let their life insurance policies lapse.

Who should consider coverage? Relatively young breadwinners with mortgages, college tuition or other bills that will require a back-up plan if they are no longer around to cover them. If you’re fortunate enough to have substantial assets, life insurance can also help cover estate taxes for your heirs.

“To me your insurance is an aspect of your overall financial plan,” says Roger Wohlner, a fee-only financial advisor in Arlington Heights, Ill. “Ideally you should look at it annually, or every couple of years, and see if circumstances have changed.”

Instead of planning ahead, many people are prompted by a major life event to consider buying life insurance. Simply figuring out how much coverage you need can be challenging. Insurance agents often recommend coverage that will replace the equivalent of 15 times your annual income. Wixon says he advises clients to consider buying enough coverage to replace 3.5 times annual incomes, plus outstanding debts.

Once you decide on an amount, the next question is what form of life insurance to buy. Many financial planners recommend sticking with term coverage. This provides insurance for a set number of years, usually in exchange for fixed premiums, which can be paid monthly, quarterly or annually. A 40-year-old breadwinner with young children, for example, might decide on a 15- or 20-year term to ensure that the kids’ expenses are covered until they’re financially independent.

Permanent insurance is a far more complex product that combines life insurance with some form of savings plan and is often designed to stay in force for life. Wohlner, like many advisors, recommends buying insurance as insurance–meaning a term policy–rather than as an investment.

When does permanent insurance make sense? Because of life insurance’s special status under tax law, permanent policies are sometimes used by wealthy individuals as an estate-planning tool. If this appeals to you, make sure to get advice from an unbiased planner rather than from an insurance agent, who is paid for selling you the policy.

It’s also important to buy life insurance from a financially sound underwriter to ensure they’ll be in business at least as long as you are. Check out the company’s ratings from A.M. Best or another rater.

The process can be intimidating, but with some premiums having fallen recently, now might be an opportune time to plan ahead. Here’s a step-by-step guide to what you need to know.

By: Emily Lambert (Forbes)

Kiss 4% mortgage rates goodbye

The era of near 4% mortgage rates has ended after a quick rate rise since early November. But some industry experts think that may be a good thing for the flagging housing market.

The average 30-year fixed mortgage rate has risen to 4.86% from 4.17%, according to Freddie Mac’s weekly mortgage market survey. In the weekly survey, the rate has risen to 5.02% — crossing the 5% mark for the second time in three weeks — after being as low as 4.42% as recently as early November.

Rates haven’t been this high since May and forecasters now predict them to remain between 5% and 6% for all of 2011.

“You can kiss those record lows goodbye,” said Greg McBride, chief economist for

Keith Gumbinger of HSH Associates, a provider of mortgage information said that the market reached a new plateau.

“I don’t think we’re going back to a 50-year low anytime soon without an economic collapse,” he said. “Rates will probably never revisit those levels.”

The increase will push mortgage payments higher for homebuyers. When rates rise from 4.25% to 5% it takes away about 9% of buying power, according to McBride.

“That’s nothing to sneeze at,” he said. “But it’s still small relative to the steep drop in home prices over the past few years.”

Good for the market?

Higher interest rates may even prove stimulating to the still quiet housing market in which sales volume and prices are scraping near their bottoms.

“The initial phase of an interest rate increase generally does not hurt markets,” said Lawrence Yun, chief economist for the National Association of Realtors. “In fact, it can help.”

The rapid rise introduces an element of urgency for potential homebuyers. They may now rush to buy before rates spurt even more.

The strength of the economic recovery will have far more impact on the housing market that this relatively modest increase in mortgage rates, according to Yun. If hiring gains momentum, housing markets should revive.

“If we add 2 million jobs as expected in 2011, and mortgage rates rise only moderately, we should see existing-home sales rise to a higher, sustainable volume,” said Yun.

Gumbinger said that demand for homes may be tempered somewhat by the increased mortgage costs and so affect home prices a bit but the improving job picture and better consumer confidence matter much more.

“If the other factors are aligned,” he said, “interest rates are not a big thing.”

The real mortgage challenge, according to Yun, is to increase the number of loan applicants winning approvals. Too many potential homebuyers are still finding it difficult to qualify for loans.

“The current mortgage market is a unique situation” he said. “It’s less about rates than it is about underwriting standards, which are, in my opinion, still too stringent.”

“If lenders return to more normal, safe underwriting standards for creditworthy buyers, there would be a bigger boost to the housing market and spillover benefits for the broader economy.”

By: By Les Christie (CNN Money)

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