Dancing to the Petrobeat

By Shohini Kundu

Since the summer of 2015, crude oil prices and the Dow Jones Industrial Average have been dancing a two-step tango. The pivot steps, marked by a sharp change in direction, are fully synchronized even when the music from the Fed signals no such turn. This is a sharp departure from the past five years when every turn of the stock market could be traced back to a change in key, orchestrated by the Fed.

The drivers for the oil market and stock prices are distinctly different. Oil prices are determined by supply and demand: demand increases during economic expansion, and the supply curves follow this trend in demand. The Organization of Oil Producing Countries, better known as OPEC, sought to buck this trend through collusion, and despite brief success in the 1970s in curtailing their crude supply, OPEC has not had a similar accomplishment in the recent past. Rivalry and mistrust among OPEC members and ballooning government budgets nudge them towards greater production, even at the risk of over-supplying the market.   On occasions when oil prices have increased, deflating consumer spending, infrastructure spending on clean technology and energy production has increased, offsetting the negative implications on the real economy. Consequently, the level of correlation between oil prices and the stock market has been low—only around 5%. This begs the question, why is the market ignoring cues from the Fed and dancing this tango with oil prices?

To understand this, one has to look no farther than the disproportionately large role Sovereign Wealth Funds (SWFs) are playing. SWFs are owned by states that seek to invest balance of payment surpluses for maximizing returns – accepting risks over liquidity. Nearly all countries that run a surplus balance of payments have created a SWF, and they generally fall into two categories. In the first category, there are industrial exporter countries such as China, Singapore and South Korea that have accumulated enormous amounts of foreign currency through trade surpluses. These states also have a persistently high rate of savings allowing governments to allocate a sizeable portion of savings for foreign investment. Apart from the obvious benefits of diversification, such investments assist countries in dispersing excess liquidity which may otherwise lead to appreciation of domestic currencies and imperil exports. The second group of countries that operate a SWF are commodity-producing countries. These countries use the SWF to hedge against precipitous drops in commodity prices. In other words, the SWF is used as a vehicle to manage windfalls when commodity prices increase above their fair valuation for use at a later date when the commodity prices fall. In terms of assets, the Norwegian Sovereign Wealth Fund tops with nearly $900 billion in investments, followed by the Abu Dhabi Investment Authority, Saudi Arabia Foreign Holdings, and China Investment Corporation at about $750 billion each, followed by the Kuwait Investment Authority at nearly $600 billion.

While the price of crude oil is set by supply and demand, the cost of production varies widely by country. For obvious reasons, the cost of crude production from shale oil or off-shore drilling is significantly higher than that of light sweet crude produced inland. While the cost of production per barrel of crude oil is just below $10.00 in Kuwait or Saudi Arabia, it is $23.50 in Venezuela, $36.00 in Norway and $52.50 in the United Kingdom.

At current prices of $30-35 per barrel of crude, the profit margin has shrunk significantly for Saudi Arabia and the United Arab Emirates, while losses are mounting for Norway, Brazil, Canada and the UK. Against this backdrop we are witnessing massive selloffs of SWFs by commodity-producing countries to meet pension and social welfare obligations. According to the Financial Times, SWFs from commodity countries pulled at least $46.5 billion in 2015. The rate of selloff accelerated sharply in 2016. The scale of redemption moves inversely with the price of oil; when the price of oil turns lower, the level of redemptions rise bringing the stock prices lower. Hence, we have this two-step tango.

In the long run, stock valuations are determined by earnings, wages, interest rates and production costs. Energy costs today comprise a small fraction of the overall production cost, thus we expect to see that stock valuations will decouple from oil prices. The current tango will end only when the redemption by SWFs wanes in magnitude, which will likely happen when crude prices again go above $50 a barrel. Until then, let us charm ourselves with the two-step tango to the petrobeat: down-down-up-up-down…

The Reality of Mini-IPOs: A critical look at the new A+ capital-raising rule for small businesses

By Sang Hyun Park

For the unsuspecting entrepreneur, the announcement of an “A+” regulation in the venture capital ecosystem may seem like remarkably good news. A closer examination of the terms, however, will leave many venture heads disappointed.

A new amendment to SEC Regulation A, called Regulation A+, now allows young companies to raise up to $50 million in new capital online through “mini-IPOs.” However, the lack of appetite for such offerings since the revision last June points to an unfortunate reality: the amendment is hardly the sea change in crowdfunding that entrepreneurs had imagined.

The concept of a mini-IPO as a way of raising capital has been in existence for some time, but has largely been ignored. The high costs associated with the complex registration process and the ownership costs of going public have been key reasons why small businesses have preferred alternatives such as equity crowdfunding. The recent Regulation A+ was an effort to jumpstart the old system of small offerings by providing several attractive new features. In particular, it substantially increased the amount that young private companies could raise in the offering through general solicitation. Furthermore, it created registration exemptions that would lay off the burden of following through with state blue sky-law compliance. The new regulation was made in hopes of spurring business startups by making capital formation much easier and simpler.

At first sight, entrepreneurs may see many reasons to be excited about Regulation A+. The tenfold increase in the possible amount of capital that can be raised is likely to delight many young executives with ambitions of making a conspicuous splash in the venture capital community. There is also the matter of the considerable savings that small businesses would enjoy from the registration exemptions. Previously, small companies attempting a mini-IPO were required under blue-sky law to register in each state in which their securities would be sold. Companies pursuing second-tier offerings amounting up to $50 million would no longer need to worry about going through such an exhaustive registration process. Perhaps the most notable feature of the regulation is the flexibility of the solicitation process. Issuers would be allowed to “test the waters” by communicating to investors via social media and measuring possible investment amounts before deciding to formally register. Moreover, even non-accredited investors in the public would be allowed to chip in, no matter how miniscule the amount.

So why haven’t we seen more mini-IPOs this past year? It turns out that, despite the hype, small initial public offerings are still not the ideal funding path for ventures for a number of reasons. Ventures seeking to go public under newly expanded rules may find relief from registration exemptions but will have to stomach the ongoing costs of audits and reports to the SEC. According to a report by the Financial Executives Research Foundation, latest estimates for the average audit fees that public companies pay on a yearly basis is approximately $1.5 million. While such fees will be drastically lower for smaller firms, they will still materialize to a significant slice of their revenues. This has created an incentive to cut corners by turning to unqualified registration consultants for their offerings, oftentimes leading to faulty registrations that would ultimately be rejected by the SEC. Thus, even for ventures with stellar prospects of expanding their businesses, the extra layer of costs to their operations from having to prepare audited statements will be hard to ignore.

This is not to mention the traditional reasons why young ventures hesitate in going public: ownership dilution and mandated transparency. For young companies just beginning to scrape together a viable business model, the dilution in ownership and pressure from venture capitalists could create complications and distract them from their company goals. Moreover, the transparency required from having to publicly disclose financials at a regular basis can hurt any competitive advantage companies may already possess or will develop with additional capital. Especially for young ventures, it is entirely possible to overlook such long-term difficulties in a rush to secure short-term funds.

It’s also worth noting that the costs do not end with simply registering the products. There are considerable costs involved in marketing the products to the public. In a traditional IPO issued by mid- to large-cap companies, the investment banks advising on the deal would easily take care of this by turning to their equity capital markets and sales force teams, taking the issuer on a roadshow to meet with institutional investors and carefully structuring offerings based on an analysis of the issuer’s needs and investor demand. Such a system will be hard to duplicate in the mini-IPO environment; without the same level of expertise that large investment banks can provide, microcap companies will find it more challenging to market their products to the public. More fundamentally, the investors themselves will not only be harder to identify but also be a tougher crowd to convince. As the amendment allows growth companies to raise from unaccredited investors, the sources of funding will be less predictable than when raising from recognized institutions. In addition, while institutional investors will typically examine each investment opportunity through careful analysis of the financial merits, investment decisions by the everyday American will typically be more psychologically-driven. Companies looking to issue a mini-IPO will thus need to spend extra attention to their marketing investors, recognizing that they will address a completely different investor base.

This is hardly to say, however, that Regulation A+ has added no value to the venture capital community. With its flexibility and grander scale, there are still many contexts in which the regulation could make sense for later-stage ventures seeking to raise capital. In particular, venture-backed companies that are either generating or have prospects of generating substantive revenue will most likely be able to sustain the accounting and registration costs that would put small companies without stable revenue-generating ability underwater. In December, real estate crowdfunding company Fundrise raised $38 million through the new regulation. As the world’s first online real estate investment trust, their dominance in the market for real estate crowdfunding fully enabled them to pursue and effectively execute the offering. More recently, Elio Motors raised $16 million in a Regulation A+ offering, topping their $12.6 million hurdle for funding their newest prototype. What was truly impressive about the offering was not the amount of the offering but the time in which it took place. Due to the market volatility caused by record low oil prices, there were very few regular IPOs that took place by February, when the deal was closed.

If this is any indication, mini-IPOs can be successful, and in some cases, wildly so; the only problem is that, in the current environment, they will only work for a very narrow segment of ventures and startups. Both Fundrise and Elio Motors had fully credible business models and ample prospects of growth through the new initiatives they would undertake. They were also well ahead of their competitors. Perhaps most importantly, the executives truly believed in the significance of going public. As CEO of Elio Motors, Paul Elio, put it, “Regulation A+ is how Wall Street was meant to work.”  For a large portion of later-stage ventures, it is hard to see all three conditions in place. At the very least, companies will be ill-advised in pursuing a mini-IPO without seeing revenue streams taking shape and prospects of achieving greater profitability by adding the extra millions on their balance sheets.

With all the hype that had built up over the amendment, most startups will find the offering process still less than satisfactory. The regulation may have given a leg up for small companies looking to raise capital, but it has hardly made it more desirable. Early-stage ventures without a clear business model or a revenue stream in progress will do well to stick with existing crowdfunding methods rather than incurring the costs of going public. Until a more refined offering process emerges, the current system will stand as a test for young entrepreneurs to look past the title of an “A+” offering and look closer at their income statements.

Brazil: A Reflection of Latin America

By Ignacio Garcia Conway

During the late 20th century, Brazil’s story was not very different from that of the rest of Latin America. As the 1980s began most South and Central American countries, along other developing nations of the world, faced stagnant economies with high levels of inflation. The Mexican default in 1982 augmented monetary pressures throughout the region, leading to the loss of Brazil’s access to foreign financial markets. By 1985 one thing was clear: economic and fiscal reform was necessary.

For close to a decade, the Brazilian government failed to reduce inflationary pressures or accelerate economic growth. It was not until 1994 and the election of President Fernando Henrique Cardoso, who would serve until 2003, that Brazil would start a successful stabilization program. The “Real Plan” managed to decrease levels of inflation and thus create a new consumer class in Brazil that would push for the development of the country. Initially, investors had doubts on the Real Plan’s success, but these were silenced by an increasing GDP and rapid growth.

The government’s actions were not unique to Brazil, but reflected the results of what economist John Williamson termed the Washington Consensus of 1989. It originally consisted of 10 policy areas Williamson observed to be common in the advice given to Latin American governments by Washington-based institutions such as the International Monetary Fund, the World Bank and the U.S. Treasury. The term quickly went on to represent the neoliberal and market-based approaches most governments took to confront the crisis.

Yet the Washington Consensus had social and political undertones as well. The quick economic recovery was at the expense of many, increasing inequality and leaving lower class citizens out of the equation. This led to a leftist backlash in the region, leading to many political victories for worker and socialist party leaders such as Hugo Chavez in 1999 and Evo Morales in 2006. In Brazil, Luiz Inácio Lula da Silva, founder of the Brazilian Worker’s Party, was inaugurated as president in 2003, and throughout his presidency, the country prospered. Many deemed the new political spectrum of Brazil and other South American countries a success, yet by the end of the decade and the beginning of the next, the economy would suffer a contraction.

Crippled with falling demand for exports, a devaluing currency, increasing levels of unemployment and a new administration, Brazil entered the second decade of the 21st century on tough terms. For most of the 2000s, Brazil had an export dependency on China, but as the Chinese economy began to slow down, fewer Brazilian products were demanded and prices plummeted along with a surplus of goods. Investment fell 12% in the second quarter of 2015 as unemployment rose to 8%. By August 2015, the real had devalued 25% against the dollar. The high levels of public and private debt led to a decrease in consumption of more than 1.5% in both sectors, and by the last quarter of the year, GDP had an annual growth rate of -5.9%.

Amongst all the economic turmoil, corruption scandals involving President Dilma Rousseff, da Silva’s handpicked successor, and Petrobras, a state-owned oil and Energy Company, spread through Brazilian society.  An investigation that began inspecting money laundering in car wash establishments led to the discovery of bribery to Petrobras executives from construction companies in order to secure contracts. It was estimated that the funds used in the scheme amounted to almost $2 billion. Since “Operation Car Wash” became public, many politicians and company executives have been detained and questioned. Coincidentally, the majority of these events were said to take place when Dilma Rousseff was chairman of Petrobras. While the current president denies any knowledge of the alleged events, Senator Delcídio do Amaral testified on March 15, 2016 that Rousseff was aware of the corruption and tried to impede the investigation along with members of her cabinet.  Unfortunately for Petrobras, these accusations greatly affected the company’s market value, reducing it by 60% in 2014.

By late 2015, Rousseff’s approval rating was a dismal 8%, and Brazilian society was infuriated with its government’s affairs and the general economy. Large protests began to form, calling for action, with some even leaning towards military intervention. The president reaffirmed the people’s right to protest and agreed with them that Petrobras should be cleaned up. Yet, she has not taken any immediate action against the company or the members of her party involved, relying on the already corrupt judicial system. The delicate situation reached a climax when former president Lula da Silva’s administration was also called into question.

On March 4, 2016, da Silva’s house was under federal investigation and the former president was taken in for questioning. Investigators claim that Lula da Silva received benefits, including renovations for his beach homes and campaign funding, in connection to the Petrobras scandal. Furthermore, doubts about the success of his presidency emerged. Lula left office with almost 80% approval after having improved the minimum wage and other popular measures, but in hindsight, his failure to deal with structural inequality is now said to have contributed to the current crisis. Moreover, in an attempt to help Lula da Silva avoid prosecution, Rousseff appointed him as her Chief of Staff. A federal judge later blocked the appointment.

Massive protests are calling for the impeachment of President Rousseff, for having allowed the economic situation to worsen as her party is investigated for corruption.  She has refused to step down on the grounds that she was elected in a democratic process, and Rousseff blames her political opponents for prolonging the economic crisis by creating a negative image of her administration, causing political disorder. However, members of the president’s administration also seem to disapprove of her tactics since some, such as Sports Minister George Hilton, have resigned from their positions in protest. As her administration and government coalition crumble before her, Dilma Rousseff’s impeachment becomes ever more likely, and on April 5, a justice of the Brazilian Supreme Court ordered the country’s legislature to begin impeachment proceedings against Rousseff’s Vice President, further deepening the crisis.

For all of the drama surrounding the scandals in Brazil, their government is not the only leftist administration facing problems in Latin America. On November 22, 2015, Mauricio Macri, a center-right politician, won the presidency of Argentina, marking the end of the 12-year Kirchner leftist government. In Venezuela, approval for Chavism has been in decline since 2007 and is now at an all-time low due to President Nicolas Maduro’s unsuccessful attempts to boost the mess that is the Venezuelan economy. Meanwhile, Evo Morales, Bolivia’s democratic socialist President, enters his last term after losing a referendum that would allow him to extend his presidency to a fourth term. A center-right backlash is beginning to solidify throughout most of South America as many of the region’s economies and governments cripple. Could it be then that, like in the late 20th century, Brazil’s story today is not very different from that of the rest of Latin America?

It’s Crunch Time! The Cayuga Crunch Story

By Sanjana Sethi

Adorning the shelves of cafés on the Cornell campus is a new entrant, and what they’re selling is not just a scrumptious mix of healthy goodness: Cayuga Crunch is selling a story. Their story. A story of unassuming freshmen who found something they loved doing and decided to share a bite of their passion with fellow students. And so the story goes.

Alex Strauch, founder and “Chief Crunch Officer” of Cayuga Crunch, recalls baking granola in the kitchen of his freshman dorm, Donlon. What began as an antidote to cure homesickness slowly started gathering momentum as business venture, with humble beginnings of a less than $1,000 investment and a mere five friends as inaugural customers. At the time, Alex likely did not predict that his innocent dorm activity would metamorphose into one of the most enviable start-ups at Cornell. Was this just a happy coincidence?

Enthused by the growing demand for his new venture, Alex began thinking about selling his granola on a larger scale.  As the idea began to develop, Alex discovered that the first granola ever made was in Dansville, New York, a little over 81 miles from Ithaca, not too far above Cayuga’s waters. Perhaps another fortunate coincidence?

Alex contemplated: why not make something as good, if not better, than what was originally produced here, by giving it a unique spin and serving it as an alternative to the sugary granola available in the market? Commencing from the dormitory kitchen, the Cayuga Crunch team began supplying Bear Necessities in RPCC. This attracted scores of freshmen midnight-snackers, resulting in a wave of success for the new venture. Next, the Crunch team, comprised of six friends, began baking granola every Sunday in a kitchen in the Cornell Law School. However, soon thereafter, authorities discontinued their use of Cornell premises for a private business. This meant an “emotionally exhausting” two-month long halt in manufacturing because of a lack of available kitchen space. Undeterred, Alex and his team viewed this unexpected hurdle as an imminent opportunity for growth.

Following deliberations, Cayuga Crunch partnered with Ithaca Bakery. Not only did this provide them with a professional kitchen, but also a unique partnership resulting in the supply of Cayuga Crunch to Collegetown Bagels (CTB) and Ithaca Bakery itself. As of now, Cayuga Crunch is available in five locations across campus: Mac’s, Terrace, Temple of Zeus, Manndible, and Fork and Gavel, apart from Ithaca Bakery’s locations and The Shop in downtown Ithaca.

What makes Cayuga Crunch succeed in the highly saturated market of snack bars, breakfast bars and granola? Unlike most competitors, Cayuga Crunch is handmade from locally-sourced ingredients including maple syrup, honey, dark chocolate chips and bananas. It promises to be less sugary and more wholesome than its processed counterparts, and markets itself as a healthy snack, one that will keep you going for the day. While the group promises that a full bag of Cayuga Crunch can keep you satiated for two hours, the product is designed to remind consumers that they are not meant to consume it in one go. This lends to Cayuga Crunch’s versatility, both in terms of consumption and shelving. Ziploc packaging enables consumers to keep the granola as a constant snack on hand, ready to be consumed with yogurt, ice cream, milk or on its own. Rounding out their product design, the quirky packaging and eclectic names–Monkey Business, Aztec Energy and Crumble Rumble–are a direct and tantalizing invitation to explore this new brand.

“The best way to market something is with great people. If they are passionate about the product, they’ll make other people passionate about it,” claims Alex. The Crunch team realizes that a good brand need not spend exorbitantly on marketing its product. The honesty of the brand and the passion of those who produce it are meant to be contagious, supplanting traditional marketing strategies. The first look at their website sends an immediate sign of the quirky nature of this brand. The Founder is named the “Chief Crunch Officer”, and then there are Financial “Gurus” and Advertising and Marketing “Guys”. The website is replete with outlandish biographies of each of the team members. Visitors to the website are immersed in this close-knit team having a great time producing what is not a business product, but a passion project. Apart from its website, Cayuga Crunch is present on Instagram and Facebook. The young entrepreneurs identify and capitalize on the importance of using social media particularly for attracting Cornell students, who can spread awareness of the brand through word-of-mouth.

Cayuga Crunch has achieved unprecedented growth in a short period of time, and from the sound of it, Alex, the Chief Crunch Officer, shows no signs of slowing down. The team is reaching for every opportunity to expand and grow the brand, first by hoping to partner with local farmers to make this growth process a collaborative one, as well as to pursue its endeavor of being a locally-sourced snack. Second, the group wishes to venture into Cornell Dining with the aim of becoming a staple of every Cornell student’s diet. Third, they wish to expand their sales space to coffee chains and cafés beyond the familiar surroundings of Cornell’s campus.

Although growth prospects are abundant and available, the challenges interspersed are many. At present, every member of the Cayuga Crunch team participates in hand-making the granola. Expansion would necessitate a rise in production and in turn more manpower. For students simultaneously balancing grades and their commitment to this venture, challenges are imminent. In the comfortable marketplace of Cornell campus, Cayuga Crunch received a roaring welcome, which augmented the immediate spur in demand. Venturing into the real world market and competing with existing substitute products entails a complete overhaul of business strategy to cater to the new market.

Even so, Alex’s passion for his brainchild shines through every time he speaks of his brand: “Cayuga Crunch is ingrained in who I am. I think about it when I sleep. It’s the first thing I think about when I wake up. It’s like you just can’t stop.” It is contagious, enough to make you immediately believe in him, in his brand, and that Cayuga Crunch will surpass or adapt to obstacles in its course as it edges closer towards the mass market. His sentiment is echoed by each of his teammates. Every new idea or concept learned in class spurs the mental conflict in each of them over how it can be applied to Cayuga Crunch.

It is the passion and hard work of the Crunch teammates that turned a string of coincidences into what Cayuga Crunch is today. If their journey up to this point in time is any indication, Cayuga Crunch is here to grow and go places (literally) far above Cayuga’s waters.

A big thanks to Alex Strauch, Hotel Administration ’18, for speaking with CBR and sharing his story! We are truly inspired. The Cayuga Crunch team includes sophomores Ritesh Shinde, Javier Perez, Kristin Zak, Sam Turer, Jacob Bigenwald, Kupono Liu.

Campaign Finance: Yesterday, Today, and Tomorrow

By Sam Torre

As the 2016 Presidential election nears, the anticipated and often feared influence of corporate wealth on politics through super PAC contributions continues to raise concern throughout the United States. As The New York Times Editorial Board predicted, “This election year will be the moment when individual candidate super PACs—a form of legalized bribery—become a truly toxic force in American politics.”

These apprehensions breed discussion about campaign finance reforms. Proponents of reform fear that contributions by large corporations will allow the donors to exert control over policy and push their own political agendas on the candidates to whom they contribute. They look to stop organizations from using their large sums of money as incentive for politicians to pass legislation in accordance with their special interests. Opponents of these reforms argue that the legislation violates the Constitution, specifically the right to freedom of speech, since monetary contributions enable candidates to communicate their platforms to voters. How have these regulatory policies changed in the last several decades, and how do they impact Presidential candidates’ campaigns today? Additionally, is the panic caused by fear of super PACS warranted or simply blown out of proportion?

After decades of mostly unsuccessful attempts at campaign finance reform dating back to the 1800s, policymakers enacted stricter regulations in 1971 with the creation of the Federal Election Campaign Act (FECA). Goals of replacing previous, evaded legislation, including the Federal Corrupt Practices Act of 1925 and the Hatch Act of 1939, with more enforceable legislation remained at the forefront of the discussion. FECA, signed by Richard Nixon in 1972, required candidates in federal elections to disclose campaign contribution details. Although FECA achieved some progress in terms of regulating campaign finance, it required amending following the infamous Watergate Scandal later that year. After the discovery of a link between the money used by Nixon’s reelection campaign and the Watergate break-in, the American public’s emergent distrust of government led to the FECA reforms of 1974.

The creation of the Federal Election Commission (FEC) arguably remains the most influential aspect of those 1974 FECA amendments. The FEC defines their duties as “to disclose campaign finance information, to enforce the provisions of the law such as the limits and prohibitions on contributions, and to oversee the public funding of Presidential elections.” This establishment provides enforcement practices which failed to exist in previous legislation. Additionally, the amendments included individual donation limits of $1,000 to a single candidate and no more than $25,000 delegated between federal election candidates. The reforms also validated Political Action Committees (PACs), or outside entities established to campaign for a candidate’s election, by limiting their contributions to $5,000 per candidate.

However, several provisions of the reforms, including candidate spending limits of $10 million in primaries and $20 million in general elections, were not readily accepted nationwide.

The Supreme Court case Buckley v. Valeo (1976) took a step away from regulation and determined unanimously that limiting campaign expenditures violated freedom of speech rights, except in the cases of candidates who received public funding. Buckley v. Valeo remains a landmark case due to its denial of financial equality as a standard for federal elections while also demonstrating the continued struggle between upholding individual rights and establishing an accepted sense of fairness in elections.

2002 marked the enactment of the Bipartisan Campaign Reform Act, more commonly known as the McCain-Feingold law in recognition of the act’s main sponsors, U.S. Senator John McCain (R-AZ) and former Wisconsin State Senator Russ Feingold. A major provision of the act included ending the use of soft money in federal elections, or what the FEC describes as nonfederal “money raised outside the limits and prohibitions of federal campaign finance law.” The act also coined the term ‘electioneering communications’ to describe paid television and radio ads which “discuss[ed] candidates in the context of certain issues without specifically advocating a candidate’s election or defeat,” and disallowed their funding by corporations or labor unions. Additionally, individual contribution limits became $2,000 to a single candidate and $95,000 every two years for overall contributions. While these alterations were, in part, adjusted for inflation, they also demonstrated a growing tendency toward deregulating campaign finance.

The Supreme Court case Citizens United vs. FEC (2010) struck down on parts of the McCain-Feingold law. The Court ruled that free speech rights also extend to corporations and unions, giving rise to super PACs. Individuals and corporations may contribute unlimited amounts of money to super PACs, permitting these super PACs to spend limitlessly on campaigns, as well. As a result, the use of super PACs in the 2008, 2012, and 2016 Presidential elections grew exponentially. While candidate money is capped and goes directly to the candidate, super PAC contributions have no limits and do not go directly to the candidates, but rather to outside campaigns. According to the New York Times, in 2008, before Citizens United vs. FEC created super PACs, roughly 99.9% of total campaign contributions went directly to the candidate. In 2012, the first Presidential election to follow the Citizens United case, approximately 8% of total funds were contributions to super PACs and 92% were contributions to the candidate. Surprisingly, in 2016, 49% of total funds were contributed to super PACs and 51% went directly to the candidate, nearly an even split. The ability to donate limitless amounts of money to super PACs tends to attract wealthy donors and corporations. Additionally, super PACs may target their campaigns to specific aspects of a candidate’s platform and often use smear tactics to create negative and typically distorted (or simply untrue) campaigns about a candidate’s opponents. Although considered unscrupulous by many, this ability to donate to smear campaigns through contributions to super PACs incentivizes others. Together, these features explain a proliferating trend toward super PAC use, only exacerbating concerns of a government swayed by wealthy contributors.  

The struggle between seeking equality in federal elections and avoiding infringement on individual liberties manifests in the 2016 election season. Senator Bernie Sanders repudiates the use of super PACs and claims that, “I am very proud to be the only candidate up here who does not have a super PAC, who’s not raising huge sums of money from Wall Street and special interests.” According to a report by the New York Times, as of February 20, 2016, Sanders received a negligible 0.1% of his total funds from super PACs/PACs, while Drumpf received 7%, Kasich received 25%, Clinton received 31%, and Cruz received 48%. Interestingly enough, these numbers hardly compare to the monstrous super PAC funds amassed by several former candidates in the election. Scott Walker received 61% of his total funds from super PACs/PACs, Chris Christie received 69%, and Jeb Bush received 79%, yet all still removed themselves from candidacy due to the meager prospects of their election. This raises the question of whether these corporate contributions are as formidable as they may seem or if hysteria may be partly to blame for the concern. Accordingly, fears regarding super PACs may be justified but misplaced; while raising the largest amount of money may not always win elections, as demonstrated by Jeb Bush, issues may still arise if a candidate heavily funded by super PACs does win and allows special interests to influence legislation.

Where does this leave us as a nation on the brink of electing a new national leader? We have been irresolute for many decades, wavering between more and less regulation of campaign finance; with the recent controversy surrounding super PACs, we can assume this indecisiveness will continue.  Because limitless contributions to super PACs are a fairly new phenomenon, we are still gauging their power and efficacy. Party nominations and the election in November may convey the initial impacts of these super PAC contributions; however, only time will reveal their true effects, as we wait in hope of an honest and upstanding President who will distinguish special interests from those of the nation as a whole.