Can Facebook be broken up? What you need to know

Can Facebook be broken up? What you need to know

Facebook CEO Mark Zuckerberg wields so much power that even one of the social network's co-founders thinks it's both "unprecedented" and "un-American."

Chris Hughes, who co-founded Facebook with Zuckerberg while they were students at Harvard, called for the social network to be broken up in an op-ed published Thursday by The New York Times. "I'm angry that his focus on growth led him to sacrifice security and civility for clicks," Hughes wrote, referring to Facebook's boss and major shareholder. "I'm disappointed in myself and the early Facebook team for not thinking more about how the News Feed algorithm could change our culture, influence elections and empower nationalist leaders."

Facebook's rapid growth has been fueled by acquisitions, including Instagram and WhatsApp, a messaging service. Critics and experts say Facebook simply purchased its competition, rather than innovating to meet the challenges they posed.

"Their whole business model is to identify potential threats and then buy them or beat them in some way," said Stephen Diamond, an associate professor of law at Santa Clara University School of Law.

And Facebook has been called out for not doing enough to combat election meddling, misinformation and hate speech. Its enormous power, critics argue, needs to be kept in check. Facebook doesn't want to spin off Instagram and WhatsApp.

Here's what you need to know:

Who wants Facebook broken up? Why?

Calls to break up Facebook aren't new. But it is startling to hear one of the company's co-founders call for such an extreme measure. Hughes argues that Zuckerberg holds so much power that even the company's board of directors can't keep him accountable. Zuckerberg controls around 60 percent of Facebook's voting shares, which means the board technically can't fire him even if he messes up.

Hughes isn't alone. Advocacy groups, including the Electronic Privacy Information Center, Color of Change and Common Sense Media, have previously asked the Federal Trade Commission, the agency that enforces antitrust law, to make Instagram and WhatsApp separate companies. A split would also make it easier for other social media companies to compete with Facebook, the organizations argue.

In addition, a group called Freedom from Facebook has called on the FTC to force Facebook to spin off its Messenger service too.

Sen. Elizabeth Warren, a Democrat from Massachusetts who's also a presidential candidate, is among the lawmakers who want to break up Facebook, as well as other tech giants, including Google and Amazon.

How would Facebook be broken up?

One way to break up Facebook would be for the federal government to file a lawsuit against the company, arguing it stifles competition. That could prompt a negotiation between the parties that could lead to Facebook agreeing to make itself smaller.

Another alternative would be for Congress to pass a law covering tech monopolies. Warren has proposed such a law, which would require tech platforms that take in $25 billion or more in sales to "structurally separate" their products. Amazon, for example, would have to spin off its house brand Amazon Basics. Warren said that if she won the presidential election her administration would also appoint regulators to unwind the mergers of Instagram and WhatsApp from Facebook.

What does Facebook think about the idea?

Facebook has pushed back, arguing that breaking up the company wouldn't hold the social network more accountable for its actions. Instead, Facebook has called for more internet regulation around harmful content, election integrity, privacy and data portability.

"Accountability of tech companies can only be achieved through the painstaking introduction of new rules for the internet," Nick Clegg, Facebook's vice president of global affairs and communications, said in a statement Thursday. The social network also said that having Instagram and WhatsApp under Facebook helps them fight spam, election meddling and crime. Facebook says it has plenty of competition, pointing to YouTube, Snapchat, iMessage and WeChat, among others.

Clegg touched on all those points in a Saturday editorial in The New York Times.

Have tech companies been broken up in the past?

Yes, but it's unusual. In 1974, the US Department of Justice filed an antitrust lawsuit against AT&T but the matter wasn't settled until eight years later. The telephone company was required to spin off two-thirds of its assets into separate companies, according to a 1982 article from The Washington Post. The government has also tried to break up Microsoft and in 2000 a US federal judge ordered that the tech giant split into two companies. Microsoft appealed and the decision was reversed.

What would this mean for users of Facebook?

Facebook is trying to integrate its messaging services so users of Facebook, Instagram and WhatsApp can send messages to one another without switching apps. Splitting up the companies might prevent that from happening.

Those who want the government to break Facebook up argue the move would fuel more competition among social media companies, which could mean more options for consumers. About 2.7 billion people use Facebook, Instagram, WhatsApp or Messenger every month.

Diamond said that breaking up Facebook could also lead to the company stepping up its privacy efforts to match its social media competitors.

What are the chances this happens?

The FTC declined to comment on whether it's looking to break up Facebook. But if history is any indication, it would be a rare move.

"I doubt there is sufficient political momentum to break up Facebook," Diamond said. "I'm skeptical, even though I think there might be good reasons to do it."

Originally published May 10, 5:40 a.m. PT.
Update, May 11: Adds mention of Facebook VP Nick Clegg's Saturday editorial in the Times.

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Inflation, Interest Rates and Jobs: How Today's Economy Compares to Recessions of the Past

Inflation, Interest Rates and Jobs: How Today's Economy Compares to Recessions of the Past

This story is part of Recession Help Desk, CNET's coverage of how to make smart money moves in an uncertain economy.

What's happening

There's still debate about whether the US economy is officially headed into a recession, but the economic downturn is causing widespread stress.

Why it matters

Periods of financial volatility and market decline can drive people to panic and make costly mistakes with their money.

What's next

Examining what's happening now -- and comparing it with the past -- can help investors and consumers decide what to do next.

Facing the aftershocks of a rough economy in the first half of 2022, with sky-high inflation, rising mortgage rates, soaring gas prices and a bear market for stocks, leading indicators of a recession have moderated slightly in the past month. That could mean the economic downturn won't be as long or brutal as expected. 

Still, the majority of Americans are feeling the sting of rising prices and anxiety over jobs. The country has experienced two consecutive quarters of economic slowdown -- the barometer for measuring a recession -- even though the National Bureau of Economic Research hasn't made the "official" recession call.  

At a time like this, we should consider what happens in a recession, look at the data to determine whether we're in one and try to maintain some historical perspective. It's also worth pointing out that down periods are temporary and that, over time, both the stock market and the US economy bounce back. 

I don't mean to minimize the gravity and hardship of the times. But it can be useful to review how the economy has behaved in the past to avoid irrational or impulsive money moves. For this, we can largely blame recency bias, our inclination to view our latest experiences as the most valid. It's what led many to flee the stock market in 2008 when the S&P 500 crashed, thereby locking in losses and missing out on the subsequent bull market. 

"It's our human tendency to project the immediate past into the future indefinitely," said Daniel Crosby, chief behavioral officer at Orion Advisor Solutions and author of The Laws of Wealth. "It's a time-saving shortcut that works most of the time in most contexts but can be woefully misapplied in markets that tend to be cyclical," Crosby told me via email. 

Before you make a knee-jerk reaction to your portfolio, give up on a home purchase or lose it over job insecurity, consider these chart-based analyses from the last three decades. We hope this data-driven overview will offer a broader context and some impetus for making the most of your money today.

What do we know about inflation? 

Historical inflation rate by year

Macrotrends.net

Current conditions: The US is experiencing the highest rate of inflation in decades, driven by global supply chain disruptions, the injection of federal stimulus dollars and a surge in consumer spending. In real dollars, the 8.5% rise in consumer prices over the past year is adding about $400 more per month to household budgets. 

The context: Policymakers consider 2% per year to be a "normal" inflation target. The country's still experiencing over four times that figure. The 9.1% annual rate in July was the largest jump in inflation since 1980 when the inflation rate hit 13.5% following the prior decade's oil crisis and high government spending on defense, social services, health care, education and pensions. Back then, the Federal Reserve increased rates to stabilize prices and, by the mid-1980s, inflation fell to below 5%.

The upside: As overall inflation rates rise, the silver lining might be increased rates of return on personal savings. Bank accounts are starting to offer more attractive yields, while I bonds -- federally backed accounts that more or less track inflation -- are attracting savers, too. 

What's happening with mortgage rates? 

30-year fixed-rate mortgage averages in the US

Current conditions: As the Federal Reserve continues its rate-hike campaign to cool spending and try to tame inflation, the rate on a 30-year fixed mortgage has grown significantly. In June, the average rate jumped annually by nearly 3 percentage points to almost 6%. In real dollars, that means that after a 20% down payment on a new home (let's use the average sale price of $429,000), a buyer would roughly need an extra $7,300 a year to afford the mortgage. Since then, rates have cooled a bit, even dipping back down below 5%. What happens next with rates depends on where inflation goes from here.

The context: Three years ago, homebuyers faced similar borrowing costs and, at the time, rates were characterized as "historically low." And if we think borrowing money is expensive today, let's not forget the early 1980s when the Federal Reserve jacked up rates to never-before-seen levels due to hyperinflation. The average rate on a 30-year fixed-rate mortgage in 1981 topped 16%. 

The upside: For homebuyers, a potential benefit to rising rates is downward pressure on home prices, which could cause the housing market to cool slightly. As the cost to borrow continues to increase with mortgages becoming more expensive, homes could experience fewer offers and prices would slow in pace. In fact, nearly one in five sellers dropped their asking price during late April through late May, according to Redfin. 

On the flip side, less homebuyers mean more renters. Rent prices have skyrocketed, and housing activists are asking the White House to take action on what they call a "national emergency."

What about the stock market? 

Dow Jones Industrial Average stock market index for the past 30 years

Macrotrends.net

Current conditions: Year-to-date, the Dow Jones Industrial Average -- a composite of 30 of the most well-known US stocks such as Apple, Microsoft and Coca-Cola -- is about 8.5% below where it started in January. Relative to the broader market, technology stocks are down much more. The Nasdaq is off almost 19% since the start of the year. 

The benchmark S&P 500 stock index hit lows in June that marked a more than 20% drop from January, which brought us officially into a bear market. Since then, it's bounced back up a little, but some experts warn that a current bear market rally is at odds with expected earnings and we could see even lower stock prices in the near future.

The context: Stock price losses in 2022 are not nearly as swift and steep as what we saw in March 2020, when panic over the pandemic drove the DJIA down by 26% in roughly four trading days. The market reversed course the following month and began a bull run lasting more than two years, as the lockdown drove massive consumption of products and services tied to software, health care, food and natural gas. 

Prior to that, in 2008 and 2009, a deep and pervasive crisis in housing and financial services sank the Dow by nearly 55% from its 2007 high. But by fall 2009, it was off to one of its longest winning streaks in financial history. 

The upside: Given the cyclical nature of the stock market, now is not the time to jump ship.* "Times that are down, you at least want to hold and/or think about buying," said Adam Seessel, author of Where the Money Is. "Over the last 100 years, American stocks have been the surest way to grow wealthy slowly over time," he told me during a recent So Money podcast.

*One caveat: If you're closer to or living in retirement and your portfolio has taken a sizable hit, it may be worth talking to a professional and reviewing your selection of funds to ensure that you're not taking on too much risk. Target-date funds, a popular investment vehicle in many retirement accounts that auto-adjust for risk as you age, may be too risky for pre- or early retirees. 

What does unemployment tell us? 

US unemployment rates

Current conditions: The July jobs report shows the unemployment rate holding steady, slightly dropping to 3.5%. The Great Resignation of 2021, where millions of workers quit their jobs over burnout, as well as unsatisfactory wages and benefits, left employers scrambling to fill positions. However, that could be changing as economic challenges deepen: More job losses are likely on the horizon, and an increasing number of workers are concerned with job security. 

The context: The rebound in theunemployment rate is an economic hallmark of the past two years. But the ongoing interest rate hike may weigh on corporate profits, leading to more layoffs and hiring freezes. For context, during the Great Recession, in a two-year span from late 2007 to 2009, the unemployment rate rose sharply from about 5% to 10%. 

Today, the tech sector is one to watch. After benefiting from rapid growth led by consumer demand in the pandemic, companies like Google and Facebook may be in for a "correction." Layoffs.fyi, a website that tracks downsizing at tech startups, logged close to 37,000 layoffs in Q2, more than triple from the same period last year. 

The upside: If you're worried about losing your job because your employer may be more vulnerable in a recession, document your wins so that when review season arrives, you're ready to walk your manager through your top-performing moments. Offer strategies for how to weather a potential slowdown. All the while, review your reserves to see how far you can stretch savings in case you're out of work. Keep in mind that in the previous recession, it took an average of eight to nine months for unemployed Americans to secure new jobs.

§

What's happening

Home prices overall are up by 37% since March 2020.

Why it matters

Surging home prices and higher interest rates make monthly mortgage payments less affordable.

What's next

Rising mortgage rates will make borrowing money more expensive, which will lessen competition to buy homes and eventually flatten prices.

Home prices continued to skyrocket in March as buyers tried to stay ahead of rising mortgage rates. 

Prices increased by 20.6% this March compared to last year, according to the S&P CoreLogic Case-Shiller Indices, the leading measures of US home prices. This was the highest year-over-year increase in March for home prices in more than 35 years of data. Seven in 10 homes sold for more than their asking price, according to CoreLogic. 

Out of the 20 cities tracked by the 20-city composite index, Tampa, Phoenix and Miami saw the highest year-over-year gains in March. Tampa saw the greatest increase, with an almost 35% increase in home prices year-over-year. All 20 cities experienced double-digit price growth for the year ending in March.

The strongest price growth was seen in the south and southeast, with both regions posting almost 30% gains in March. Seventeen of the 20 metro areas also saw acceleration in their annual gains since February. 

"Those of us who have been anticipating a deceleration in the growth rate of US home prices will have to wait at least a month longer," said Craig Lazzara, managing director at S&P DJI, in the release. "The strength of the Composite indices suggests very broad strength in the housing market, which we continue to observe."

Since the start of the pandemic in March 2020, home prices overall are up by 37%. The current surge in home prices is a result of tight competition between buyers in a low-inventory market as they attempt to lock in lower mortgage rates before rates jump even higher throughout the year, as experts predict they will.

If you're considering buying a new home -- or are actively in the market -- the news isn't all bad. Interest rates are at their highest point in more than 40 years, and one potential benefit of that may, eventually, be downward pressure on home prices. As it becomes increasingly expensive to borrow money, fewer people will seek to do so, and homes for sale may receive fewer offers leading to, eventually, lower prices. In fact, nearly one in five sellers lowered their asking price during a four-week period in May and April, according to Redfin.

"Mortgages are becoming more expensive as the Federal Reserve has begun to ratchet up interest rates, suggesting that the macroeconomic environment may not support extraordinary home price growth for much longer," said Lazzara. "Although one can safely predict that price gains will begin to decelerate, the timing of the deceleration is a more difficult call."

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Twitter Whistleblower Accuses Company of Covering Up Security Problems

Twitter Whistleblower Accuses Company of Covering Up Security Problems

A whistleblower complaint against Twitter accuses the social network of deceiving the public, federal regulators and the company's board of directors about serious security vulnerabilities, according to reports Tuesday from The Washington Post and CNN. 

The "explosive" whistleblower complaint reportedly comes from Twitter's former head of security Peiter "Mudge" Zatko. It alleges that the vulnerabilities pose a threat to national security and to democracy, in addition to putting the company's nearly 230 million daily users at risk, according to the reports. 

The complaint was filed last month with the US Securities and Exchange Commission, the Department of Justice and the Federal Trade Commission, according to the Post, which obtained a redacted version that was also given to some congressional committees. 

Nonprofit law firm Whistleblower Aid, which is representing Zatko, confirmed to CNET that the complaint is authentic. The firm also represented former Facebook product manager turned whistleblower Frances Haugen. Twitter hired Zatko to lead the company's security efforts in late 2020, but Twitter CEO Parag Agrawal reportedly fired him in January.

The complaint comes at a chaotic time for Twitter, a social media company that is in a high-profile legal battle with billionaire Elon Musk, who is trying to back out of purchasing the company for $44 billion. Musk, who leads Tesla and SpaceX, accused Twitter of misleading him about the number of spam and fake bot accounts on its platform. On Tuesday, Musk tweeted a meme that said "Give a little whistle."

Among the accusations in the complaint, Zatko reportedly alleges that the company's servers were using "out-of-date and vulnerable software" and that "thousands of employees still had wide-ranging and poorly tracked internal access to core company software," according to the Post. In addition to security vulnerabilities, the complaint also alleges that Twitter "prioritized user growth over reducing spam," the Post reported. 

A Twitter spokesperson pushed back on the reports, calling the whistleblower complaint inaccurate and opportunistic. 

"What we've seen so far is a false narrative about Twitter and our privacy and data security practices that is riddled with inconsistencies and inaccuracies and lacks important context," the spokesperson said in an emailed statement. "Mr. Zatko's allegations and opportunistic timing appear designed to capture attention and inflict harm on Twitter, its customers and its shareholders." 

The spokesperson added that "security and privacy have long been company-wide priorities at Twitter and will continue to be."

Agrawal reportedly sent an email to employees Tuesday morning addressing the complaint. "Given the spotlight on Twitter at the moment, we can assume that we will continue to see more headlines in the coming days -- this will only make our work harder," he told staff.

The complaint is already sparking scrutiny from US lawmakers. Sen. Richard Blumenthal, a Connecticut Democrat, urged FTC Chair Lina Khan to investigate Twitter.

"These troubling disclosures paint the picture of a company that has consistently and repeatedly prioritized profits over the safety of its users and its responsibility to the public, as Twitter executives appeared to ignore or hinder efforts to address threats to user security and privacy," Blumenthal wrote in a letter to Khan.

The SEC and FTC declined to comment. The DOJ didn't immediately respond to a request for comment. 

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