May 2010

Video: Merk Says Europe Bailout May Spark More Rating Cuts: Video

May 28, 2010

May 28 (Bloomberg) — Axel Merk, president and chief investment officer of Merk Investments LLC, talks with Bloomberg’s Lori Rothman about Fitch Ratings’ decision to cut Spain’s AAA credit grade and the possibility of further downgrades in Europe. Fitch lowered the grade one step to AA+ as Spain struggles to cut debt amid a fiscal crisis that prompted the European Union to forge an almost $1 trillion bailout package. (Source: Bloomberg)

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CIB Marine Bancshares, Inc. Announces Certified Results of Annual Meeting of Shareholders

May 28, 2010

PEWAUKEE, WI–(Marketwire – May 28, 2010) –  CIB Marine Bancshares, Inc. ( PINKSHEETS : CIBH ) has announced it has received certified voting results from the independent inspector of election for the Company’s May 27, 2010 annual meeting of stockholders.

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Obama Faces a `No-Win’ Dilemma in Decision to Take Ownership of Oil Spill

May 28, 2010

By Edwin Chen May 28 (Bloomberg) — By claiming ownership of the Gulf of Mexico oil spill, President Barack Obama may stem criticism that he hasn’t been sufficiently engaged. Avoiding political fallout from what may become the nation’s worst environmental disaster will be more difficult. “It really is a no-win situation,” said Democratic strategist Mike McCurry , who served as former President Bill Clinton ’s spokesman. “The consequences environmentally could be dreadful and last for a long, long time.” And while Obama vowed that BP Plc would “pay every dime they owe for the damage,” the consequences from an ecological catastrophe could also ripple through the economy. In an hour-long White House news conference, Obama yesterday defended his actions so far, saying he and his administration made the spill “our highest priority” immediately after BP’s oil rig caught on fire on April 20 and collapsed. “I had my team in the Oval Office that first day,” Obama said. “Those who think that we were either slow on our response or lacked urgency don’t know the facts.” Obama said it’s his job to “get this fixed,” adding, “I take responsibility.” He suspended oil exploration in two areas off Alaska; canceled pending lease sales in the Gulf of Mexico and those that were proposed off Virginia’s coast; extended by six months a moratorium on deepwater drilling permits, and suspended operations at all 33 exploratory wells being drilled in the Gulf of Mexico. ‘Federalize’ the Response He is scheduled to travel today to the Gulf region for his second visit to Louisiana since the disaster began. Obama will view some of the damage and attend a Coast Guard briefing. He may encounter pressure from local residents who have joined environmental groups in urging the president to “federalize” the response to the disaster, including using the military to help with the cleanup. He has a way to go in reassuring the American public. In a USA Today/ Gallup Poll , 53 percent of Americans said Obama has done a “poor” or “very poor” job handling the spill, compared with 43 percent who said he’s done a “very good” or “good” job. The poll of 1,049 adults was taken May 24-25 and has a margin of error of plus or minus 4 percentage points. Republicans stepped up their attacks. “The president under the law has a responsibility to act,” said House Republican Leader John Boehner of Ohio. It’s “clear the president has failed in his obligations to the American people to uphold the law.” Bound by Law Tennessee Senator Lamar Alexander , who heads the Senate Republican Conference, cited the 1990 Oil Pollution Act , which he said requires presidents to ensure sufficient personnel and equipment are available to clean up oil spills. “What was the president’s cleanup plan and where were the personnel and equipment necessary to implement that plan?” Alexander said in a C-Span interview. Other Republicans such as strategist Karl Rove sought to draw parallels between Obama’s response and that of former President George W. Bush after Hurricane Katrina devastated the Gulf Coast in 2005. The White House and Democratic allies rejected the comparison. And Representative Eliot Engel , a Democrat from New York, said Obama was likely mindful of that criticism when he faced the press yesterday. Fending Off Enemies The president “probably wanted to just catch up with it and say, ‘Look, I take full responsibility,’ because otherwise his political enemies are attacking him for not doing anything,” Engel said. Representative Jay Inslee , a Washington Democrat, warned of the political peril ahead for the president. “Once you have a massive blowout, there’s no good solution,” he said. “It doesn’t matter who’s president. And that’s a hard thing for people to accept.” For now, the president’s political standing, and the damage to the Gulf, may depend largely on BP’s ability to stop the leak. BP has made progress, the Coast Guard said yesterday, as a federal panel issued a new estimate indicating the oil spill has become the largest in U.S. history. The effort to block the well bore with mud, a procedure called “top kill” began May 26. ‘Top Kill’ “If top kill works, we will probably see today as a turning point that will probably staunch Obama’s decline in public-approval ratings on his handling of this,” said Tom Mann , an analyst at the Brookings Institution in Washington. “It would allow the government to get involved in something they have some control over, namely the cleanup,” he said. McCurry agreed. “The important thing is to have some kind of action plan moving forward and have an accountable voice from the administration,” he said. As a result of Obama’s appearance yesterday, McCurry said, “I think people will be saying: ‘You know, it looks like Obama is doing everything he can do.’ But it sure would help them if BP got this thing capped.” To contact the reporter on this story: Edwin Chen in Washington at Echen32@bloomberg.net

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Consumer Spending Expansion in U.S. Pauses as Households Rebuild Savings

May 28, 2010

By Timothy R. Homan and Shobhana Chandra May 28 (Bloomberg) — Consumer spending paused in April after growing in the first quarter at the fastest pace in three years as Americans used gains in wages to rebuild savings. Purchases were little changed last month after climbing 0.6 percent in March, indicating an early Easter holiday may have pushed demand into the prior month at the expense of April, according to figures from the Commerce Department today in Washington. Other reports showed households gained confidence in May and businesses expanded for the eighth consecutive month. More jobs mean households will be less dependent on government help to maintain spending, which accounts for about 70 percent of the economy. Profits at retailers including Target Corp. are beating estimates, and General Electric Co. is among companies saying the global economic rebound is strong enough to withstand the turmoil in financial markets. “We are looking at fairly decent gains in consumer spending in the second quarter,” said Conrad DeQuadros , a senior economist at RDQ Economics in New York. “There is a pickup in income growth which is reflective of the improved labor-market picture. That’s what’s required to sustain this moderate pace of spending.” Stocks fell, trimming this week’s gain. The Standard & Poor’s 500 Index fell 0.5 percent to 1,097.85 at 12:35 p.m. in New York. The S&P 500 Consumer Staples Index, which includes companies like Wal-Mart Stores Inc. and Procter & Gamble Co. climbed 0.2 percent on signs incomes were improving. Treasury securities rose, pushing the yield on the benchmark 10-year note down to 3.31 percent from 3.36 percent late yesterday. Gain Projected The median forecast of 77 economists surveyed by Bloomberg News projected a 0.3 percent gain in spending. Estimates ranged from a decline of 0.1 percent to a 0.6 percent increase. Incomes rose 0.4 percent in April for a second month, matching the survey median. Wages and salaries rose 0.4 percent last month after climbing 0.3 percent in March. The savings rate climbed to 3.6 percent last month, the highest level since January, from 3.1 percent in March as incomes increased and purchases cooled. Consumer sentiment improved in May, a report from Thomson Reuters/University of Michigan showed. The group’s confidence index rose to 73.6 from 72.2 in April. The final number exceeded a preliminary reading of 73.3 issued earlier this month, indicating the slump in stocks hasn’t unnerved households. “Important fundamentals, like resumption of job growth and rising wealth, are helping consumers get back in the game,” said Richard DeKaser , chief economist at Woodley Park Research in Washington, who had forecast the May index to rise to 73.8. Continued Expansion The Institute for Supply Management-Chicago Inc. said today its business barometer fell to 59.7 this month from 63.8 in April, which was the highest level in five years. Figures greater than 50 signal expansion. “Clearly the factory sector continues to move ahead at a very healthy clip though it’s slowed somewhat from the torrid April pace,” said DeKaser, who correctly forecast the decline. “We’re coming down to a more sustainable pace.” Rising sales and lean inventories are prompting companies to increase production and hiring, helping to broaden the economic recovery beyond manufacturing. Profits at retailers from Target to Gap Inc. are beating estimates as employment picks up. Employers have increased payrolls in five of the past six months, culminating in a 290,000 gain in April that was the biggest gain in four years, according to figures from the Labor Department. More Jobs Payrolls probably increased again this month, and the unemployment rate likely fell to 9.8 percent, according to the median estimates of economists surveyed before a Labor Department report due June 4. “Because employment is growing, we’re starting to create some labor income and that is positive for future consumer spending,” said Nigel Gault , chief U.S. economist at IHS Global Insight in Lexington, Massachusetts, who projected spending would pause. The economy grew at a 3 percent annual rate in the first quarter, after expanding at a 5.6 percent pace in the last three months of 2009, figures from the Commerce Department showed yesterday. Consumer spending accelerated to a 3.5 percent pace, the best performance since the first three months of 2007. Target, the second-largest U.S. discount retailer, this month said it posted first-quarter earnings that beat analysts’ projections. Chief Executive Officer Gregg Steinhafel cited a better-than-expected economic environment that boosted sales of profitable items such as clothes. General Electric Chief Executive Officer Jeffrey Immelt said May 24 that Europe’s debt troubles can be fixed and they’re not enough to slow a global economic recovery. “In Europe, I think this is going to be solvable; it’s going to mean slow growth,” for the region, Immelt said after his commencement address at Boston College. “I don’t think it’s enough to slow the recovery, I really don’t.” He also said the U.S. economy is “very good and improving.” To contact the reporters on this story: Timothy R Homan in Washington at thoman1@bloomberg.net ; Shobhana Chandra in Washington at schandra1@bloomberg.net

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Video: House Passes Jobs Bill With Buyout Managers’ Tax Rise: Video

May 28, 2010

May 28 (Bloomberg) — The U.S. House approved legislation to extend unemployment insurance, restore some tax breaks and raise taxes on managers of buyout funds and other investment partnerships. Lawmakers voted 215-204, largely along party lines, for the legislation costing about $112 billion. The Senate plans to consider the plan during the week of June 7 after lawmakers’ Memorial Day recess. Bloomberg’s Lori Rothman and Hans Nichols report. (Source: Bloomberg)

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U.S. Economy: Spending Pauses as Households Rebuild Savings

May 28, 2010

By Timothy R. Homan and Shobhana Chandra May 28 (Bloomberg) — Consumer spending paused in April after growing in the first quarter at the fastest pace in three years as Americans used gains in wages to rebuild savings. Purchases were little changed last month after climbing 0.6 percent in March, indicating an early Easter holiday may have pushed demand into the prior month at the expense of April, according to figures from the Commerce Department today in Washington. Other reports showed households gained confidence in May and businesses expanded for the eighth consecutive month. More jobs mean households will be less dependent on government help to maintain spending, which accounts for about 70 percent of the economy. Profits at retailers including Target Corp. are beating estimates, and General Electric Co. is among companies saying the global economic rebound is strong enough to withstand the turmoil in financial markets. “We are looking at fairly decent gains in consumer spending in the second quarter,” said Conrad DeQuadros , a senior economist at RDQ Economics in New York. “There is a pickup in income growth which is reflective of the improved labor-market picture. That’s what’s required to sustain this moderate pace of spending.” Stocks fell, trimming this week’s gain. The Standard & Poor’s 500 Index fell 0.5 percent to 1,097.85 at 12:35 p.m. in New York. The S&P 500 Consumer Staples Index, which includes companies like Wal-Mart Stores Inc. and Procter & Gamble Co. climbed 0.2 percent on signs incomes were improving. Treasury securities rose, pushing the yield on the benchmark 10-year note down to 3.31 percent from 3.36 percent late yesterday. Gain Projected The median forecast of 77 economists surveyed by Bloomberg News projected a 0.3 percent gain in spending. Estimates ranged from a decline of 0.1 percent to a 0.6 percent increase. Incomes rose 0.4 percent in April for a second month, matching the survey median. Wages and salaries rose 0.4 percent last month after climbing 0.3 percent in March. The savings rate climbed to 3.6 percent last month, the highest level since January, from 3.1 percent in March as incomes increased and purchases cooled. Consumer sentiment improved in May, a report from Thomson Reuters/University of Michigan showed. The group’s confidence index rose to 73.6 from 72.2 in April. The final number exceeded a preliminary reading of 73.3 issued earlier this month, indicating the slump in stocks hasn’t unnerved households. “Important fundamentals, like resumption of job growth and rising wealth, are helping consumers get back in the game,” said Richard DeKaser , chief economist at Woodley Park Research in Washington, who had forecast the May index to rise to 73.8. Continued Expansion The Institute for Supply Management-Chicago Inc. said today its business barometer fell to 59.7 this month from 63.8 in April, which was the highest level in five years. Figures greater than 50 signal expansion. “Clearly the factory sector continues to move ahead at a very healthy clip though it’s slowed somewhat from the torrid April pace,” said DeKaser, who correctly forecast the decline. “We’re coming down to a more sustainable pace.” Rising sales and lean inventories are prompting companies to increase production and hiring, helping to broaden the economic recovery beyond manufacturing. Profits at retailers from Target to Gap Inc. are beating estimates as employment picks up. Employers have increased payrolls in five of the past six months, culminating in a 290,000 gain in April that was the biggest gain in four years, according to figures from the Labor Department. More Jobs Payrolls probably increased again this month, and the unemployment rate likely fell to 9.8 percent, according to the median estimates of economists surveyed before a Labor Department report due June 4. “Because employment is growing, we’re starting to create some labor income and that is positive for future consumer spending,” said Nigel Gault , chief U.S. economist at IHS Global Insight in Lexington, Massachusetts, who projected spending would pause. The economy grew at a 3 percent annual rate in the first quarter, after expanding at a 5.6 percent pace in the last three months of 2009, figures from the Commerce Department showed yesterday. Consumer spending accelerated to a 3.5 percent pace, the best performance since the first three months of 2007. Target, the second-largest U.S. discount retailer, this month said it posted first-quarter earnings that beat analysts’ projections. Chief Executive Officer Gregg Steinhafel cited a better-than-expected economic environment that boosted sales of profitable items such as clothes. General Electric Chief Executive Officer Jeffrey Immelt said May 24 that Europe’s debt troubles can be fixed and they’re not enough to slow a global economic recovery. “In Europe, I think this is going to be solvable; it’s going to mean slow growth,” for the region, Immelt said after his commencement address at Boston College. “I don’t think it’s enough to slow the recovery, I really don’t.” He also said the U.S. economy is “very good and improving.” To contact the reporters on this story: Timothy R Homan in Washington at thoman1@bloomberg.net ; Shobhana Chandra in Washington at schandra1@bloomberg.net

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Video: Johnston Says Drilling Moratorium to Cost Oil Producers: Video

May 28, 2010

May 28 (Bloomberg) — Robert Johnston, director for energy and natural resources at Eurasia Group, talks with Bloomberg’s Lori Rothman about the outlook for offshore drilling in the U.S. following BP Plc’s oil spill in the Gulf of Mexico. President Barack Obama yesterday extended by six months a moratorium on new deep-water drilling permits that began after oil started to spill from BP’s well. The president also canceled a proposal to drill for oil off the coast of Virginia and suspended planned drilling by Royal Dutch Shell Plc of exploratory wells in the Arctic off Alaska. (Source: Bloomberg)

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U.S. Stocks Halt Global Advance on Korea While Treasuries Rally

May 28, 2010

By Michael P. Regan and Elizabeth Stanton May 28 (Bloomberg) — A drop in U.S. stocks halted a global advance and Treasuries rose as economic reports that missed estimates damped optimism about the strength of the recovery and concern grew that tensions are escalating on the Korean peninsula. The Standard & Poor’s 500 Index slipped 0.6 percent to 1,096.19 at 11:58 a.m. in New York, led by petroleum companies after U.S. President Barack Obama extended a moratorium on deep- water drilling. Oil erased gains after rallying as much as 1.6 percent to more than $75 a barrel. Ten-year Treasury yields decreased 4 basis points to 3.32 percent after surging 17 basis points yesterday. U.S. consumer spending was unexpectedly unchanged in April as Americans used higher wages to rebuild savings, Commerce Department data showed, while the Institute for Supply Management-Chicago Inc.’s business barometer fell more than the median economist projection. Equities extended losses as a North Korean general warned of “all out war” if any accidental clashes with South Korea break out. “This definitely sent some jitters through the market,” Craig Peckham , equity product strategist at Jefferies Group Inc. in New York, said of the tensions in Korea. “People seem to be rattled by it, but also are receiving the information a little bit skeptically. The timing seemed peculiar given that it’s the middle of the night in Korea.” ‘All Out War’ The S&P 500 fell to its low of the day after North Korean Major General Pak Rim Su disputed the results of the international investigation that found his nation sank a South Korean warship. He said “any accidental clash that may break out in the waters of the West Sea of Korea or in areas along the Demilitarized Zone will lead to all-out war,” according to a statement from North Korea’s official news organization. Less than 3.8 billion shares changed hands so far today on all U.S. exchanges, 52 percent below the same time last week, as trading slowed before the Memorial Day holiday. “With volumes being as they are today ahead of the holiday weekend, there is not much in the way of conviction among traders,” said Mark Turner , head of U.S. sales trading at Instinet LLC, which handles about 4 percent of U.S. equity trading volume. “So any headline has the potential to move the market. And the situation in North Korea has especially been in our crosshairs.” The retreat in the S&P 500 today came after the benchmark index rallied 3.3 percent yesterday as China assured investors it was committed to maintaining European investments even as a sovereign debt crisis rattles confidence in the region. Weekly, Monthly Returns The S&P 500 clung to a 0.8 percent advance for the week, while the MSCI World Index of shares in 24 developed nations is up 1 percent over the past five days. This week’s gains pared a May drop in the MSCI World to 9.5 percent. The S&P 500 is down 7.6 percent in May. Both are headed for their deepest monthly declines since February 2009. The Stoxx Europe 600 Index erased gains, dropping 0.3 percent after rallying as much as 0.7 percent. The MSCI Asia Pacific Index climbed 1.5 percent. BP Plc slid 6 percent in London after Europe’s second- largest oil company said procedures to plug a leaking well in the Gulf of Mexico may last another day or two. BP added rubber golf balls and scraps to the mud it was pumping into its leaking Gulf of Mexico oil well in an effort to stop the spill. Oilfield Services Shares Baker Hughes Inc., Halliburton Co., Transocean Ltd. and Schlumberger Ltd. slumped at least 3.7 percent to lead declines in U.S. energy shares. Obama is suspending exploration in two areas off Alaska, canceling pending lease sales in the Gulf of Mexico and proposed sales off Virginia’s coast, extending by six months a moratorium on deepwater drilling permits and suspending operations at all 33 exploratory wells being drilled in the Gulf. Treasuries headed for the biggest monthly gain since January, as concern Europe’s fiscal crisis will slow economic growth lifted demand for the safety of government debt and data showed U.S. inflation remained subdued. The 10-year touched 3.06 percent on May 25, the lowest level since April 2009. Its 17 basis-point gain yesterday was the most since June. Crude oil for July delivery slipped 0.1 percent to $74.45 a barrel in New York trading. Copper for July delivery slipped 0.6 percent to $3.1405 a pound in New York. Nickel, tin and zinc also retreated in London. Default Swaps Rise The cost to protect against corporate defaults in the U.S. rose, erasing earlier declines. The Markit CDX North America Investment Grade Index Series 14, which investors use to hedge against losses on corporate debt or to speculate on creditworthiness, increased 2.7 basis points to a mid-price of 118.53 basis points, according to Markit Group Ltd. The index typically falls as investor confidence improves and rises as it deteriorates. Credit markets slowed this month, with global companies selling the smallest amount of bonds in a decade, according to data compiled by Bloomberg. Borrowers issued $61.1 billion of notes in currencies from dollars to yen, a third of April’s tally and the least since December 2000. The extra yield investors demand to hold the securities instead of benchmark government debt widened 44 basis points to 193, Bank of America Merrill Lynch index data show, the biggest increase since the aftermath of Lehman Brothers Holdings Inc.’s collapse. To contact the reporters on this story: Michael P. Regan in New York at mregan12@bloomberg.net ; Elizabeth Stanton in New York at estanton@bloomberg.net .

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House Passes U.S. Jobs Legislation With Higher Tax on Buyout Firm Managers

May 28, 2010

By Ryan J. Donmoyer May 28 (Bloomberg) — The U.S. House approved legislation to extend unemployment insurance, restore some tax breaks and raise taxes on managers of buyout funds and other investment partnerships. Lawmakers voted 215-204, largely along party lines, for the legislation costing about $112 billion. The Senate plans to consider the plan during the week of June 7 after lawmakers’ Memorial Day recess. “It’s a good bill for jobs, it’s a good bill for closing tax loopholes, it’s a good bill for dissuading people from taking jobs overseas,” Majority Leader Steny Hoyer , a Maryland Democrat, said on the House floor before the vote. The plan would continue funding for extended unemployment benefits through Nov. 30 and renew a variety of tax cuts for businesses and individuals. The House also voted 245-171 to give doctors a 19-month reprieve from scheduled cuts in their reimbursements from the Medicare program. Before the Senate acts next month, some jobless benefits will begin to expire May 31, at a time when the national unemployment rate remains near 10 percent. A record 45.9 percent of the jobless have been out of work for 27 weeks or more. When the payments lapsed earlier this year during a dispute over their extension, lawmakers made new benefits retroactive. The legislation drops funds for extended health insurance subsidies for jobless workers while retaining dozens of tax breaks for businesses. Buyout Firms The Congressional Budget Office said the bill would add $54.2 billion to a deficit projected to reach $1.5 trillion this year. To help cover its cost, the measure would raise tax rates on some income for managing partners at buyout firms, venture capital funds and real estate partnerships by about $17.7 billion over 10 years. It also would raise taxes by an estimated $14.5 billion on global operations of U.S.-based companies such as International Business Machines Corp. Michigan Representative David Camp , a Republican, said those taxes shouldn’t be imposed permanently to pay for extension of temporary policies. “This bill has nothing to do with jobs,” Camp said. “Virtually every business group is opposed to this package,” he added, citing the U.S. Chamber of Commerce and the National Federation of Independent Businesses. Democratic leaders secured the votes needed to pass the bill by scaling back a larger measure to appease fiscally conservative party members concerned about voting for deficit spending just months before November’s congressional elections. Health Insurance Lawmakers dropped an extension of health insurance subsidies for jobless workers as well as higher matching funds for state-run health programs such as Medicaid. Lawmakers delayed until Jan. 1, 2011, a proposed tax increase on profit shares paid to managers of buyout funds and other financial partnerships. Earlier, the increase was to be applied to income earned this year. Texas Representative Henry Cuellar , a member of the fiscally conservative Blue Dog Coalition said the changes helped switch his vote from “no” to “yes.” “The bigness issue and the deficit issue for me has been addressed to a much more acceptable level,” Cuellar said. The legislation would provide subsidies for local infrastructure projects by extending the Build America Bonds program. It also would require retirement plan administrators to disclose more information about fees charged to 401(k) retirement accounts and give companies with underfunded pension funds more time to make those accounts solvent. Carried Interest Approval of the legislation would end a long battle over Democrats’ efforts to increase taxes on so-called carried interest paid to executives at private equity, venture capital and real estate firms. The House has voted three times in three years to raise the levy, only to see the measure stall in the Senate. Lawmakers said it has broader support this year amid pressure to avoid adding to the deficit. Carried interest is the share of profit that fund managers are paid as part of their compensation. That share often qualifies for capital gains tax rates of 15 percent; the bill would eventually subject three-quarters of the income to ordinary tax rates of more than 40 percent. The legislation would spend $23 billion to give doctors a 2.2 percent increase in Medicare reimbursement rates this year and a 1 percent rise next year. Physicians were facing a 21 percent cut in their payment rates this year and a 6 percent reduction next year. Other provisions would make it harder for lawyers and other professionals to avoid Social Security and Medicare taxes by organizing what are known as S corporations. Oil companies would be another loser under the bill, which would increase to 34 cents from 8 cents a per-barrel tax to raise $12 billion. Senate Finance Committee Chairman Max Baucus said earlier this week that Democrats in his chamber will have the votes to approve the legislation, offering assurances to House members concerned about voting for a bill that may not become law. “We’re ready,” said Baucus, a Montana Democrat. “It will pass the Senate.” To contact the reporters on this story: Ryan J. Donmoyer in Washington at rdonmoyer@bloomberg.net ; Brian Faler in Washington at bfaler@bloomberg.net

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BP Uses `Junk Shot’ to Plug Well That’s Spilled More Oil Than Exxon Valdez

May 28, 2010

By Jessica Resnick-Ault May 28 (Bloomberg) — BP Plc added rubber golf balls and scraps to the mud it was pumping into its leaking Gulf of Mexico oil well in an effort to stop the spill, which Chief Executive Officer Tony Hayward called an “environmental catastrophe.” The company restarted its effort to block the well with mud in a procedure known as “top kill” at 7 p.m. New York time yesterday, said U.S. Coast Guard Chief Bob Laura . The attempt began May 26 and was suspended the same day at 11 p.m. for adjustments, including use of rubber material already on hand in case BP tried a separate procedure called a “junk shot.” BP said in a statement today that it has spent $930 million responding to the spill, which began after an April 20 rig explosion that killed 11 workers. The well has been spewing an estimated 12,000 to 19,000 barrels of oil a day into the Gulf, a U.S. government panel said yesterday. The midpoint of that estimate would make it the nation’s largest oil spill on record and more than twice as big as the Exxon Valdez disaster in 1989. “This is clearly an environmental catastrophe,” Hayward said today in a CNN television interview. He also called the situation “a very significant environmental crisis” and said BP is pumping “loss-control” material into the so-called blowout preventer atop the well to stanch the flow of oil. Today’s comments came two weeks after Hayward was quoted by The Guardian newspaper in the U.K. as saying the spill was “relatively tiny” compared with the “very big ocean.” Louisiana Governor Bobby Jindal said May 26 that the spill had polluted 100 miles (161 kilometers) of his state’s coastline. Junk Shot The giant oil slick in the Gulf threatens the region’s fishing and tourism industries. The amount of oil being spilled will help determine BP’s liability for the leak, according to U.S. Coast Guard Admiral Thad Allen . BP added the junk-shot materials after pumping mud alone into the well for 11 hours Wednesday. The company previously said it would add the rubber pieces if needed. BP opted to add the material to block leaks in the well, Doug Suttles , chief operating officer for the London-based company’s exploration and production business, said at a press conference yesterday in Robert, Louisiana. Some of the junk-shot pieces are fibrous and small, and others are larger rubber balls, he said. The mud alone may not have been sufficient to hold back the leaking oil, said Pedro Alvarez, chairman of the department of civil and environmental engineering at Rice University in Houston. ‘Oil Bubbling Up’ “It became fluidized in a way, like quicksand,” Alvarez said today in a telephone interview. “When you have the oil bubbling up from this gorge, the oil coming up pushed the mud out.” The rubber materials may allow the mud to set completely enough for BP to cap the well with concrete, he said. The first phase of the top-kill effort used less than 15,000 barrels of drilling mud, Suttles said. BP had 50,000 barrels available and has made sure there are additional supplies on hand for when pumping resumes, he said. The 19-hour pause in injecting material in the well may have allowed BP to evaluate whether the mud would stop the flow of oil completely enough to allow the company to add concrete, Alvarez said. “I don’t see it as something really weird, necessarily,” he said. Don Van Nieuwenhuise, director of the Professional Geoscience Programs at the University of Houston, said he sees BP’s chances of success with top kill at 60 percent to 70 percent. Outlook Dims? “If they hadn’t had to do the junk shot, I would have thought the things are working really well, but the fact that they’ve done this junk shot suggests that they decided that they needed to do something a little bit extra to do it more effective,” Nieuwenhuise said in a telephone interview. If successful, the top-kill procedure would serve as a temporary block on the damaged well until a relief well can be drilled and used to plug Macondo. BP leased the rig destroyed in the explosion, the Deepwater Horizon, from Geneva-based Transocean Ltd. , the world’s largest deep-water driller. BP has a 65 percent stake in the well, known as Macondo. Its partners in the project are Anadarko Petroleum Corp. and Japan’s Mitsui & Co. Because of safety concerns raised by the fatal blast and spill, President Barack Obama yesterday extended a moratorium on deep-water drilling permits by six months. Shares Fall BP fell 4.2 percent to 498.75 pence in London and has lost 24 percent of its market value since the blast. It rose 5.9 percent yesterday, its biggest gain in more than a year, after reports of progress on the top kill. Anadarko , based near Houston, dropped 4.4 percent to $53.10 at 10:37 a.m. in New York Stock Exchange composite trading. Transocean fell 3.5 percent to $57.64. Mitsui rose 1.4 percent to 1,321 yen in Tokyo. Congress has scheduled at least 20 hearings on the Deepwater Horizon and offshore drilling since the rig exploded, and the Minerals Management Service and Coast Guard are holding hearings in Louisiana on the reasons for the incident. The spill has cost BP about $24 million a day. BP’s profit last year averaged $45 million a day. The response has involved more than 1,300 tugs, barges and other vessels. More than 3.15 million feet of containment boom is in place to protect the shoreline and fish nurseries. About 26,000 damage claims have been filed and 11,650 have already been paid, BP said today. To contact the reporter on this story: Jessica Resnick-Ault in New York at jresnickault@bloomberg.net .

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Fed to Hold Test of Term Deposit Facility as New Tool to Tighten Credit

May 28, 2010

By Joshua Zumbrun May 28 (Bloomberg) — The Federal Reserve announced the schedule for the first tests of the term deposit facility, a tool that may be used to eventually tighten credit by draining cash from the banking system. The tests “are a matter of prudent planning and have no implications for the near-term conduct of monetary policy,” the Fed said today in a statement in Washington. The Fed announced earlier this month that it would hold five tests of the facility in the summer. The first auction will be held June 14 and will offer $1 billion of 14-day term deposits. An auction for 28-day deposits will be held June 28, and a sale of 84-day deposits will be held July 12. The statement didn’t specify the size of those auctions. The maximum interest rate for the deposits will be the primary credit rate, or discount rate , currently 0.75 percent. Chairman Ben S. Bernanke is planning to use the facility, which he says is analogous to certificates of deposit that banks offer to customers, to help policy makers raise interest rates when they decide to do so. The traditional tool of the federal funds rate may be less effective than previously, officials have said, so the Fed is testing new facilities. At a meeting last month of the Federal Open Market Committee, the central bank signaled it is not ready to begin its exit from its unprecedented expansionary monetary policy. The Fed pledged to keep rates low for an “extended period.” Excess Reserves The central bank is aiming to prevent $1.06 trillion in excess reserves , pumped into the banking system as the Fed expanded its balance sheet to combat the financial crisis, from stoking inflation. The term deposits will be offered through competitive auctions, with the maximum award to a single bidder of $250 million. The program’s offerings will also have a non- competitive bidding option to ensure smaller banks will have access, the central bank said. Two more tests may be scheduled later in the summer, the central bank said. More details of the first auction will be available June 11 on the Fed’s term deposit facility website . To contact the reporter on this story: Scott Lanman in Washington at slanman@bloomberg.net .

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Apple IPad Outshines Mona Lisa at Louvre as Sales Start in Paris, Sydney

May 28, 2010

By Jonathan Browning and Matthew Campbell May 28 (Bloomberg) — In the basement of Paris’s Louvre museum, the early line for Apple Inc. ’s iPad far surpassed that for entry to see the Mona Lisa. Hundreds queued up at the Apple store in the Carrousel du Louvre shopping center in the museum complex, with staff cheering every purchase, as sales outside the U.S. of the tablet computer began today. In Sydney, fans braved the chill of the Southern Hemisphere autumn to be among the first to buy the device, while in Tokyo people waited for as long as 40 hours to make a purchase. “I tried to buy one in Seattle when I was there about 15 days ago, but they were sold out; so I decided to wait till it came to Europe,” said Julien Boidin, 28, who works for Microsoft Corp. in Paris and has an iPhone and a Macintosh computer. “I live in Normandy and commute for four hours a day. I needed something for the train ride.” Following the sale of one million of the devices in less than a month of its April 3 debut in the U.S., the iPad is now available in Australia, Canada, Japan and six European countries. The maker of the iPhone and iPod, which this week became the world’s most valuable technology company, has popularized a new category of computer between a smartphone and a laptop. Apple may sell 8 million iPads this year, according to Royal Bank of Canada. “The thing with Apple is it’s not just a piece of technology, it’s actually the whole experience,” said Rahul Koduri, 22, an engineering student in Sydney, who arrived at 2 a.m. yesterday to be first in line. “They just fit into your lifestyle so well. There’s no other product that does it.” Underestimated Demand The company, based in Cupertino, California, delayed the release of iPads outside the U.S. after underestimating demand at home. In Europe, the iPad will be available in Germany, France, Italy, Spain, Switzerland and the U.K. Apple is betting the iPad, which starts at 499 euros ($618) in continental Europe — more than the $499 it sells for in the U.S. to reflect higher value-added taxes — will entice enough consumers willing to pay a premium over low-cost notebooks. Rivals such as Microsoft have failed to turn tablet computers into popular consumer devices. “I don’t really need it, but I want it,” said Jake Lee, a 17-year-old student, who camped overnight outside the store on London’s Regent Street. “I wanted to be one of the first people to get the iPad in the U.K.” ‘Big Hit’ Countries outside the U.S. are likely to account for 43 percent, or 3.5 million units, of iPad shipments this year, Mike Abramsky , an analyst at RBC in Toronto, wrote in a May 20 report. The U.S. will probably be the biggest market with 4.7 million units, followed by France with 805,000 and the U.K, with 585,000, according to the report. The iPad has a 9.7-inch touch-screen display that lets users view books, magazines, video, play games and surf the Internet. “I’m going to use it for the Internet, e-mail, video, and controlling the other Macs at home,” said Andy Parkinson, a communications engineer, 51, who bought his iPad in London. “I think it is a big hit here. It already looks very good.” German companies such as Allianz SE , Europe’s biggest insurer, may equip thousands of sales reps with the devices as a way to improve consultations and speed contract signings, weekly magazine WirtschaftsWoche reported. ‘American Hype’ Apple Chief Executive Officer Steve Jobs said the company sold 1 million iPads in the first 28 days, compared with the 74 days the iPhone took to reach that mark. Apple said this month that demand continues to exceed supply. “I’m buying it for my friend in Malta because it’s not available there yet,” said Isma Lanani, standing in line at the Louvre. “He manages a hotel there, but this is for his personal use. He’s Apple crazy.” Some U.K. customers said they don’t expect such a huge rush for iPads as in the U.S. “Americans are very good at hyping these things up; perhaps British people are a bit more wary,” said Emily Dexter, 22, who works for a television production company. “I’m not going to buy one because I can’t afford it.” The iPad will spur a sixfold increase in industrywide shipments of tablet computers to 398 million by 2014, research firm IDC said this month. Shipments worldwide will rise to 46 million from 7.6 million this year, according to the Framingham, Massachusetts-based IDC. For All Generations On May 26, Apple became the most valuable technology firm in the world, after its market value hit $222.1 billion, higher than Microsoft’s $219.2 billion, on optimism it can keep adding customers for its iPhone, Macintosh computer and iPad. The shares gained 3.8 percent yesterday to $253.35 in Nasdaq Stock Market trading. Jobs last month said second-quarter profit almost doubled and sales soared 49 percent on demand for the iPhone. The results don’t yet include the iPad, which went on sale after the close of the period for the company. The iPad’s first wave of reviews praised its ability to deliver digital books and video quickly, saying it measures up well against other devices, including Amazon.com Inc. ’s Kindle e-book reader. “To all those people who don’t think they need one, I just want to say, ‘you just wait and see,’” said Toru Iijima, a 39- year-old information technology professional in Tokyo. “This is great for people who don’t like computers. I want to get one for my grandparents and my child.” To contact the reporter on this story: Matthew Campbell in London at mcampbell39@bloomberg.net ; Jonathan Browning in London at jbrowning9@bloomberg.net

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Leveraged-Loan Returns Headed for First Monthly Loss Since December 2008

May 28, 2010

By Richard Bravo May 28 (Bloomberg) — A broad index that tracks the leveraged-loan market is poised to post a loss for May, its first negative monthly return in almost a year and a half. The S&P/LSTA Leveraged Loan Index was down 2.33 percent for the month as of yesterday, after a streak of 16 positive monthly returns going back to December 2008, when it lost 2.95 percent, according to Standard & Poor’s. Europe’s sovereign debt crisis and subsequent market volatility damped loan and high-yield, high-risk bond prices, increasing financing costs for companies seeking new debt. Issuance in loan and bond markets shrank in May with deals reworked or scrapped. The extra yield investors demand to own junk-rated debt instead of Treasuries narrowed to 6.88 percentage points yesterday, up from 5.61 percentage points on April 30, according to Bank of America Merrill Lynch data. “At times of stress, the equity and leveraged-finance markets become highly correlated,” said Leland Hart , portfolio manager at New York-based BlackRock Inc., which manages more than $20 billion in leveraged-finance assets. “The market is trying to digest where the world is going and that is reflected in both the debt and equity markets.” The S&P/LSTA U.S. Leveraged Loan 100 Index , which tracks the 100 largest dollar-denominated first-lien leveraged loans, rose to 89.06 cents on the dollar yesterday, down from 92.72 cents on April 30. Prices are up 50 percent from Dec. 17, 2008, when the index closed at 59.2 cents. High-yield, high-risk debt is rated below Baa3 by Moody’s Investors Service and BBB- by S&P. Mutual Fund Outflow For the week ended May 26, loan mutual funds had an outflow of $127.5 million, the largest outflow since the week ended Nov. 25, 2008, according to Lipper FMI data. High-yield bond funds had $1.22 billion in outflows for the week. “Given the recent global events, there has been a reduction in investor risk appetites,” said Stephen G. Moyer , a distressed-debt portfolio manager at Pacific Investment Management Co. in Newport Beach, California, which has $1.07 trillion in assets under management. “The premise of this rotation into riskier asset classes being safe was a stronger economic growth outlook that appears, to many, not to have panned out.” At least two transactions were pulled in the past two weeks. Genband Inc. shelved a $250 million term loan that would have been used for its acquisition of a unit of Nortel Networks Corp., according to S&P’s Leveraged Commentary and Data. National Vision Inc. postponed a $220 million term loan it sought for a dividend payment to its owner, Berkshire Partners LLC, according to people familiar with the decision, who declined to be identified because the deal was private. More Expensive Rising interest rates also will make transactions more expensive for companies seeking new loans. The rate banks charge each other for three-month loans in dollars climbed to its highest level yesterday since July 6, according to the British Bankers’ Association. The three-month London interbank offered rate, or Libor, fell to 0.536 percent today. That’s up from 0.347 percent on April 30. “The calendars of loan and bond deals are both being reconsidered,” BlackRock’s Hart said. “The better companies are not having a problem accessing capital, but companies and structures that are pushing the envelope are getting shoved aside.” As of yesterday, $18.3 billion of U.S. leveraged loans have been arranged this month, almost half the $35.1 billion assembled in April, according to data compiled by Bloomberg. About $6.5 billion of U.S. high-yield bonds have been priced so far in May, down from $33.4 billion last month. Sovereign-Debt Crisis The European sovereign-debt crisis, which sent yields on Greek two-year bonds to 18.27 percent on May 7 before the European Union agreed to a $1 trillion aid package, brought a return of risk aversion to the markets, said AJ Murphy , head of leveraged loans capital markets for the Americas at Bank of America Merrill Lynch in New York. The Chicago Board Options Exchange Volatility Index , known as the VIX, was at 29.68 yesterday, up 35 percent since the beginning of the month. “You had a bad confluence of events,” Murphy said. “High yield, which had been overbought, sold off and there was a loss of liquidity in the high-yield and loan markets. The market had been so frothy and this event caused people to take a step back and see that it’s come up pretty far pretty fast.” A record $163 billion of debt was sold in the high-yield bond market last year, Bloomberg data show. In more than 100 of those transactions, proceeds totaling $48.6 billion were used to pay down loans, JPMorgan Chase & Co. analysts led by Peter Acciavatti in New York wrote in a May 7 report. High-Yield Market Reduced access to the high-yield market is a concern for companies that have outstanding loan maturities coming due, said Pimco’s Moyer. Collateralized loan obligations, which bundle loans, have a diminished presence in the market and banks have contracted lending, Moyer wrote in a research note released on Pimco’s website this week. For the week ending May 12, banks were holding $1.26 trillion of commercial and industrial loans on their balance sheets, down from $1.65 trillion in October 2008, according to Federal Reserve data. Over the next five years, speculative-grade companies have about $555 billion in bank credit facilities coming due and about $250 billion in bonds maturing, according to Moody’s. “If you do have some shift away from enthusiasm in the high-yield bond market, it’s hard to see where these capital demands are going to be satisfied from,” Moyer said. “They’re not going to be able to go back to the bank-loan market and if you can’t go to the high-yield bond market, then where does a below investment-grade credit get refinanced?” To contact the reporter on this story: Richard Bravo in New York at rbravo5@bloomberg.net .

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AIG Is Said to Have Treasury, Fed Approval to Cut AIA Asian Unit’s Price

May 28, 2010

By Hugh Son and Zachary R. Mider May 28 (Bloomberg) — The U.S. Treasury Department and Federal Reserve, which bailed out American International Group Inc. in 2008, are willing to allow the insurer to lower the price it would accept in the sale of a unit to Prudential Plc, said two people with knowledge of the situation. Prudential said today it has asked New York-based AIG to change the terms of the $35.5 billion transaction that the two companies announced in March for AIA Group Ltd. AIG’s board of directors had scheduled a meeting today to discuss the company’s options, according to the people, who declined to be identified because the talks are private. Before announcing the deal in March to sell the unit to Prudential, AIG had planned to divest AIA through a public offering, an option the insurer has retained. Mark Herr , a spokesman for AIG, declined to comment. Jack Gutt of the Federal Reserve Bank of New York, declined to comment. Andrew Williams of the Treasury didn’t immediately return messages seeking comment. To contact the reporter on this story: Hugh Son in New York at hson1@bloomberg.net

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Stocks in U.S. Extend Losses After Fitch Downgrades Spain’s Credit Rating

May 28, 2010

By Esme E. Deprez May 28 (Bloomberg) — U.S. stocks slid, wiping out most of the market’s weekly gain, as a downgrade of Spain’s debt spurred concern the European credit crisis will worsen and energy shares sank on President Barack Obama ’s moratorium on new deepwater drilling permits. Wells Fargo & Co., Bank of America Corp. and JPMorgan Chase & Co. paced declines in all 79 financial stocks in the Standard & Poor’s 500 Index after Fitch Ratings stripped Spain of its AAA rating. Baker Hughes Inc. , Halliburton Co. and Schlumberger Ltd. fell more than 6.7 percent after Obama canceled pending lease sales in the Gulf of Mexico as work continued to plug BP Plc’s oil spill. The S&P 500 fell 0.9 percent to 1,093.13 as of 1:01 p.m. in New York. The Dow Jones Industrial Average declined 95.23 points, or 0.9 percent, to 10,163.76. Three stocks declined for each that rose on U.S. stock exchanges. “The credit issues are not going away in Europe — it’s a simple fact that everyone has to accept,” said David Kovacs , head of quantitative strategies at Turner Investment Partners, which manages $18 billion in Berwyn, Pennsylvania. “Credit markets are seizing up because investors are concerned. So when they see further downgrades by the credit agencies it reminds them that these issues are not going away and on a Friday before a long weekend you can expect selling off of equities.” Benchmark indexes extended losses earlier after North Korean Major General Pak Rim Su disputed the results of the international investigation into the sinking of a South Korean warship. ‘All-Out War’ “Any accidental clash that may break out in the waters of the West Sea of Korea or in areas along the Demilitarized Zone will lead to all-out war,” he said at a press conference today, according a KCNA statement. Equities opened lower after government data showed spending in the U.S. was unchanged last month as Americans used wages to rebuild savings. The pause in purchases compared with a 0.3 percent increase projected by the median forecast of economists surveyed by Bloomberg News, Commerce Department figures showed. Incomes climbed 0.4 percent and the savings rate rose for the first time in four months. Baker Hughes declined 7 percent to $38.21. Halliburton lost 7.5 percent to $24.98. Schlumberger slipped 6.5 percent to $55.94. BP Plc ’s U.S. shares fell 5.4 percent to $42.92 after it restarted its effort to block a damaged oil well to halt a Gulf of Mexico spill that may be the largest in U.S. history. Well Leak The well began leaking after an April 20 explosion and fire on the Deepwater Horizon drilling rig, which resulted in the deaths of 11 workers. BP leased the rig from Geneva-based Transocean Ltd. , the largest deep-water driller, which fell 4.8 percent to $56.86. Energy companies lost 1.7 percent as a group, for the second-biggest decline of 10 industries in the S&P 500. Obama is suspending exploration in two areas off Alaska, including planned drilling by Royal Dutch Shell Plc, canceling pending lease sales in the Gulf of Mexico and proposed sales off Virginia’s coast, extending by six months a moratorium on deepwater drilling permits and suspending operations at all 33 exploratory wells being drilled in the Gulf. He also said more must be done to wipe out the “cozy and sometime corrupt relationship” between oil companies and federal officials. ‘Waiting for Clarity’ “We’re watching closely the details of the Obama administration’s plan to halt new drilling in the Gulf of Mexico and some existing deepwater drilling facilities,” said Eric Green , senior money manager at Penn Capital Management in Philadelphia, which oversees about $5 billion. “We’re waiting for clarity. It’s been hard to determine who will benefit from this and who will be hurt by it.” To contact the reporter on this story: Esme E. Deprez in New York at edeprez@bloomberg.net .

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Spain Loses AAA Rating at Fitch on Concern Debt Burden Will Hamper Growth

May 28, 2010

By Esteban Duarte and Charles Penty May 28 (Bloomberg) — Spain lost its AAA credit grade at Fitch Ratings as it struggles to cut debt amid a fiscal crisis that prompted the European Union to forge an almost $1 trillion bailout package for the region’s weakest economies. The ratings company cut the grade one step to AA+ and assigned it a “stable” outlook, according to a statement from London today. Spain has held the top rating at Fitch since 2003. Standard & Poor’s lowered Spain’s ratings to AA on April 28. U.S. stocks extended losses after Fitch’s announcement, with the Standard & Poor’s 500 Index sliding 1.3 percent to 1,089.21 at 12:39 p.m. in New York. The euro weakened 0.5 percent to $1.2303. “The process of adjustment to a lower level of private sector and external indebtedness will materially reduce the rate of growth of the Spanish economy over the medium- term,” Brian Coulton , Fitch’s head of Europe, Middle East and Africa sovereign ratings in London, said in the statement. Spain’s parliament yesterday approved the country’s deepest budget cuts in 30 years by a single vote, casting doubt on the future of the government as Prime Minister Jose Luis Rodriguez Zapatero seeks to garner support for his 2011 budget. Spain has the third-largest budget deficit in the euro region. “The Spanish government had been in denial from 2008 to early 2010 about the magnitude of the crisis so now you have consequences,” said Raphael Gallardo, who helps manage 500 billion euros ($615 billion) as chief economist at Axa Investment Managers in Paris. “Now with the acceleration of austerity measures, like the shocking cut to civil servant wages, they finally got real and measured the severity of the crisis.” To contact the reporter on this story: Emma Ross-Thomas in Madrid at erossthomas@bloomberg.net

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Video: Attorney Burns Says SEC Is `Stepping Up’ Enforcement: Video

May 28, 2010

May 28 (Bloomberg) — Douglas Burns, a formal federal prosecutor, talks with Bloomberg’s Mark Crumpton and Lori Rothman about the U.S. Securities and Exchange Commission’s oversight of financial markets. Burns also discusses Pequot Capital Management Inc.’s payment of $28 million to settle a lawsuit filed against it by the SEC and the possibility that Goldman Sachs Group Inc. may settle. (Source: Bloomberg)

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Video: Bernard Calls Danica Patrick `Superstar’ for IndyCar: Video

May 28, 2010

May 28 (Bloomberg) — Randy Bernard, chief executive officer of Indy Racing League LLC, says Danica Patrick is a “superstar” for the sport and says the League’s IndyCar Series needs more drivers like her. Bloomberg’s Michele Steele reports. (Source: Bloomberg)

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Richard Zombeck: Nina Easton, Fortune Magazine Blogger, Panders to Rich Friends and Readers

May 28, 2010

Last week, Nina Easton, Fortune Magazine’s Washington Bureau Chief, described an apparent traumatic event on her blog : “Last Sunday, on a peaceful, sun-crisp afternoon, our toddler finally napping upstairs, my front yard exploded with 500 screaming, placard-waving strangers on a mission to intimidate my neighbor, Greg Baer.” The protest was organized by Chicago-based grassroots organization National People’s Action , in coordination with the SEIU who bused more than 700 workers from 20 states to Easton’s neighborhood — one of Washington’s wealthiest neighborhoods. The event kicked off several days of protests targeting K Street for lobbyists’ role in financial reform. The protesters, representing millions of people in this country who have either lost, are in the process of losing, or will inevitably lose their home as a result of the continued refusal by banks to work with homeowners, were there to picket in front of Gregory Baer’s house . Baer is deputy general counsel for Bank of America, the bank with the worst record of loan modifications according to treasury reports . Easton, who worked as a lead editor during her eight years at the Boston Globe goes on to say: Now this event would accurately be called a “protest”; if it were taking place at, say, a bank or the U.S. Capitol. But when hundreds of loud and angry strangers are descending on your family, your children, and your home, a more apt description of this assemblage would be ‘mob.’ Contrary to how Easton portrays it, this is not an isolated event. Similar protests have been organized since the modification programs were introduced last year. Groups like Neighborhood Assistance Corp. of America (NACA) held protests in front of banker’s homes as early as February of last year . When a person of Easton’s apparent stature writes something, even in a blog post, one would expect a certain level of research and professionalism.  According to her Wikipedia entry , Easton was a reporter with the LA Times and worked as lead editor during her eight years at The Boston Globe , yet her blog does little more than sensationalize the event and minimize the reasons behind the protest. Easton quotes Steven Lerner, SEIU’s point person on Wall Street reform as being, “more comfortable sticking to his talking points: ‘Millions of people are losing their homes, and they have gone to the banks, which are turning a deaf ear.’” Millions of people losing their homes is far from a talking point and Easton dismisses the comment as irrelevant. One Easton sympathizer, Tary McMillian, writes in her comment to the blog, “I hope the children of these protesters never have to endure the fear they put this boy through. I can’t even rap (sic) my mind around the fact that people would act like this and treat anothers (sic) family like this.” Lerner’s remark refers to millions of families losing their homes, uprooting their kids from schools, neighborhoods, and friends they’ve had for years. Not to mention the devastating financial blow it takes on a family and the stress it can add to an already hopeless situation. A bit more to endure than the inconvenience Easton and her toddler suffered by being woken up from their nap on a peaceful, sun-crisp afternoon, as she put it. Easton doesn’t stop with protesters when it comes to her condescension and disdain. She uses her platform to put down HuffPost reporter Arthur Delaney, who she refers to as a “blogger.” “There were no reporters from organizations like the Washington Post, no local camera crews who might have aired criticism of this private-home invasion… Instead, a friendly Huffington Post blogger showed up, narrowcasting coverage to the union’s leftist base,” Easton writes, pandering to her readers in the same way as she accuses the HuffPost reporter of doing. The irony of her statement is that Delaney, along with Shahien Nasiripour also of HuffPost, are among the few reporters covering this issue with accuracy and objectivity. Many homeowners on shamethebanks.org are thankful to both of these reporters and the continued coverage of this topic. Maybe the four years at Fortune Magazine, rubbing elbows with and covering the lives of the top one percent have resulted in Easton’s myopic view. Or maybe her marriage to Russell Schriefer has affected her in some way.  Schriefer’s  PR firm, SSG, claims the Chamber of Commerce and the Business Roundtable as clients. Bank of America CEO Brian Moynihan is a member of the Business Roundtable, according to SEIU’s own post . Easton also downplays the role of the banks in all of this. She writes, “Waving signs denouncing bank ‘greed,’ hordes of invaders poured out of 14 school buses,” childishly putting “greed” in quotes as if referring to unicorns, hobbits, or some other imaginary entity. Astoundingly she manages to insinuate that we, at the bottom, are fabricating an imaginary syndrome targeting her audience, neighbors, and subject matter of her magazine. It exists. Leo Hindery Jr. described the industry in his recent post as a: profit-driven, greedy, selfish institution that, with its unbridled compensation practices and current light-touch regulatory regime is, I truly believe, behind almost every major societal and economic ill that has befallen the United States since 1980. I’d suggest to Nina Easton that she attempt a return to her journalistic roots and have a look at what’s going on outside of her posh neighborhood and insulated circle. Maybe draw from her Berkley education and Boston Globe experience to venture into some of the homes and meet some of families that are affected by the decisions some of her “friends” are making. At the very least, read some of the stories from homeowners at shamethebanks.org and get a sense for why people are protesting against the very people she writes about, associates with, and panders to.

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Video: Yamarone Discusses `Fab 5′ Indicators of Spending: Video

May 28, 2010

May 28 (Bloomberg) — Bloomberg economist Richard Yamarone talks with Lori Rothman and Mark Crumpton about his “Fab 5″ indicators of consumer spending. Purchases were little changed last month after climbing 0.6 percent in March, indicating an early Easter holiday may have pushed demand into the prior month at the expense of April, according to figures from the Commerce Department today in Washington. (Source: Bloomberg)

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Anna Bernasek: What does good financial reform look like? And where is it today?

May 28, 2010

My vote for the best financial reform ever goes to the system of mandated disclosure introduced in 1934 as the centerpiece of the SEC. In response to the worst stock market crash in the nation’s history, lawmakers made a bold and inspiring decision to require full disclosure from publicly listed companies. It was a stroke of genius. Instead of burdening companies with endless rules about how they should or shouldn’t operate, the law required firms to tell the public what they were doing. That way, investors could decide for themselves whether to invest or not. It was a powerful way to rebuild trust in the stock market at a time when it had been broken and it has underpinned trust in the market for decades. The principle of full disclosure is something that we can all understand. Over time though, that simple and powerful principle has been distorted. The agency itself has gummed up the system of disclosure by introducing rule upon rule of how companies should disclose things and what they need to include and so on. I understand the impulse to clarify but this approach has actually been counterproductive. By introducing endless details in the rules, companies have sought out the help of technicians to make sure they’re in compliance. That can result in situations like AIG where the insurer seems to have complied with GAAP and everything else but it did not disclose the one thing that would have made a huge difference to investors and the market–the fact that it had created an incredibly risky structure that could come tumbling down at any point. Unfortunately, I believe we’re going to see more cases like AIG if the current financial reform package is any guide. Instead of simple and powerful principles everyone can understand we’re getting lots of technical rules that can be run around. Encouraging good behavior isn’t easy but it starts with the introduction of simple, clear rules that make sense. Once you do that you can hold people accountable to those principles. Anything else just seems to make matters worse.

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Video: Spain Loses AAA Rating at Fitch on Debt Concerns: Video

May 28, 2010

May 28 (Bloomberg) — Spain lost its AAA credit grade at Fitch Ratings, which said the country’s debt burden is likely to weigh on economic growth. Bloomberg’s Mark Crumpton reports. (Source: Bloomberg)

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Mitchell Bard: GOP Hypocrisy Has Been Exposed by the BP Oil Disaster

May 28, 2010

As I read about President Obama’s press conference yesterday addressing the government’s plans for the cleanup of the oil spill in the Gulf of Mexico, I was reminded of two of the major ills affecting our modern democracy. The first has to do with the political blame game. For the first 16 months, the Republicans (aided by their loyal ally, the right-wing propaganda machine) have engaged in a cynical, anti-patriotic campaign to demonize the president and his policies through lies. (To be clear, opposing the president is not, in itself, unpatriotic. Honest opposition to work towards the best policy for all Americans is patriotic. But, in this case, the GOP was looking out for its own political fortunes ahead of the best interests of the country, and was dishonest in its approach.) What made this plan of action particularly disturbing is that not only was Obama tasked with trying to address major problems he inherited when he assumed office (a failing financial system and economy, two wars, a massive deficit, etc.), but these problems were created in large part by an incompetent and reckless Republican president, aided and abetted by a capitulating Republican-controlled congress. So, all for political gain, the Republicans engaged in more than a year of lies and distortions, from creating “death panels” to trying to convince the American people that the president was an extremist, a socialist on the fringes of American political ideology, while offering no solutions to address the existing overwhelming problems (no, more tax cuts for the rich will not help create jobs). That doesn’t even include the Tea Party types who told the world, often via complimentary right wing media, that the president was a Hitler-like, Communist/Nazi Kenyan Muslim seeking to destroy the United States of America from within. The GOP strategy might be successful in November, but when a real tragedy happens, like the BP oil disaster in the Gulf of Mexico, the hypocrisy of this kind of approach becomes apparent. Many of the same right-wingers who tell tall tales of Obama wanting to initiate a government takeover of American industry now criticize the president for not pushing aside BP and overseeing the efforts to stop the flow of oil flooding the gulf. Many of the same conservatives who chanted “Drill baby, drill” are now using the BP oil spill to score political points, accusing the president of Katrina-like incompetence. (As an aside: It is sad our mainstream news system has become so ineffectual that nobody seems able to point out the simple factual differences between the BP oil disaster and Hurricane Katrina. Katrina was an act of nature with no responsible party — although the government did nothing in advance to ensure the levees could handle the flooding, and what was required — search and rescue, humanitarian aid and rebuilding — was firmly under the traditional banner of government action. But Bush did next to nothing. Meanwhile, the BP oil disaster was caused by a corporate entity, who bears the responsibility of addressing the situation, and the action that needs to be taken is of a technological and industry-specific nature not generally thought of as being within the expertise of the government. I guess it’s easier for ratings-seeking news outlets to simply play up the political rhetoric, since, they believe, conflict sells. To be clear, I’m not saying that the Obama administration’s response to the BP oil disaster was unassailable. But it would be hard for any objective party to compare the government’s responsibility and failures in the two situations and say there were in any way equivalent.) Put another way, if the president had stepped in a few days after the explosion and announced that the government was leading the operation to stop the flow of oil, Republicans would have undoubtedly screamed “Another government takeover!” to anyone who would listen. GOP complaints of government inaction reek of hypocrisy. The second aspect of this story that I find disturbing is the cowardice of the right in failing to take any responsibility for its positions. During the 2008 election season, it sometimes felt like the GOP platform had one plank: “Drill baby, drill!” Despite the flawed math in play (the amount of oil to be gained from Arctic or offshore drilling represents a tiny fraction of the amount of oil we import from foreign countries), Republicans advocated for increased drilling as if this would solve the nation’s energy problems. So when there is a huge oil disaster in the Gulf of Mexico, do we get any kind of mea culpa from the right? Hardly. We get Republicans blaming the president and Rush Limbaugh blaming the Sierra Club (seriously?). I see the oil disaster not as a unique example of this problem, but as just the latest symptom of the disease. Americans seem to lack any short-term memory. The 2008 financial crisis led to a prolonged recession, and yet Republicans opposed financial reform, and the final bill that made it out of the Senate was so toothless, Wall Street was said to breathe “a sigh of relief.” I understand why the GOP, whose reason for being is to protect corporate and wealthy interests over those of the majority of Americans, would oppose fixing a system that the party not only defended, but which delivered huge amounts of profit to its wealthy base. But what I don’t understand is why there is no political price to pay for these actions. How can nearly every Republican vote against the bill, but those decisions seem to have no effect on public opinion? We are surrounded by casualties of Wall Street recklessness, from out-of-work neighbors to foreclosed houses, and yet Republicans and banking lobbyists win the day in Congress? This is unfathomable to me. What is it going to take for people to wake up to the need for real financial regulation? We’ve had a crisis that led to a recession. Do we need a collapse that leads to a depression? I hope not. The ability of Republicans who supported offshore drilling to act as though they have no responsibility for the BP disaster is not unusual. Like the amnesia related to financial regulation, it is just another instance of GOP hypocrisy. Clearly, the existence of a right-wing media machine that lies and distorts to create its own set of “facts” has been instrumental in allowing the lines to blur. But, ultimately, if democracy is going to work, citizens have to fight through the propaganda to learn the facts. If not, they get what they deserve (like, for example, re-electing Bush in 2004). For me, a lesson to be learned from the politics of the BP oil disaster is that the Republicans have spent 16 months attacking the president with lies and distortions, and now that he has to address a real crisis, the GOP rhetoric is smashing into the face of reality. The Republicans are standing knee-deep in hypocrisy, and their true priorities (their political interests) have been laid bare. While I’m not optimistic, I hope Americans learn this important lesson before casting ballots in November.

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Video: Simmons Says Government Should Take Over BP Oil Clean Up: Video

May 28, 2010

May 28 (Bloomberg) — Matt Simmons, founder and chairman emeritus of Simmons & Co., talks with Bloomberg’s Mark Crumpton and Lori Rothman about BP Plc’s leaking oil well in the Gulf of Mexico. BP said in a statement today that it has spent $930 million responding to the spill, which began after an April 20 rig explosion that killed 11 workers. The well has been spewing an estimated 12,000 to 19,000 barrels of oil a day into the Gulf, a U.S. government panel said yesterday. (Source: Bloomberg)

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Video: North Korean General Warns of ‘All Out War’ in Remarks: Video

May 28, 2010

May 28 (Bloomberg) — North Korean Major General Pak Rim Su disputed the results of the international investigation into the sinking of a South Korean warship and said “any accidental clash that may break out in the waters of the West Sea of Korea or in areas along the Demilitarized Zone will lead to all-out war,” at a press conference today, according a KCNA statement. Bloomberg’s Margaret Brennan reports. (Source: Bloomberg)

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Video: Butowsky Would Be `Very Cautious’ With Toys R Us IPO: Video

May 28, 2010

May 28 (Bloomberg) — Ed Butowsky, managing director at Chapwood Capital Investment Management LLC, talks with Bloomberg’s Matt Miller about plans for a $1 billion initial public offering of Toys R Us Inc., the retailer purchased in 2005 by buyout firms KKR & Co. LP and Bain Capital Partners LLC. (Source: Bloomberg)

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Video: Berkeley’s Lavitt Discusses BP Spill Costs, Litigation: Video

May 28, 2010

May 28 (Bloomberg) — Joseph Lavitt, a professor at the University of California at Berkeley’s School of Law, talks with Bloomberg’s Deirdre Bolton about potential costs and litigation facing BP Plc following the oil spill in the Gulf of Mexico. (Source: Bloomberg)

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Video: Holland Calls Stocks `Cheap’, Sees Recovery Continuing: Video

May 28, 2010

May 28 (Bloomberg) — Michael Holland, who oversees more than $4 billion as chairman of Holland & Co., talks with Bloomberg’s Margaret Brennan about stock valuations and the outlook for economic recovery. (Source: Bloomberg)

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Gilbert B. Kaplan: Let’s Move the iPad Back to America

May 28, 2010

Corporate citizens like Apple have a greater responsibility than just making money for their shareholders. They have a responsibility to the future of this country. Given the problems that are occurring at the Foxconn plant where they have been subcontracting iPad production, they should fulfill their responsibilities and move the production of the iPad back to the United States. Let’s first look at what’s gone wrong at Foxconn, the sprawling subcontracting plant where iPads and other high tech products are made in Shenzhen, north of Hong Kong. Let’s look at the most fundamental point first, at least as it relates to the United States. That is that the workers at Foxconn’s plant are paid $130 a month. Assuming that they work four fifty hour weeks a month, this translates to a wage of 65 cents an hour. That is basically a slave labor wage, at least as compared to the wages in western markets where the iPad is sold. How can we continue to tolerate a trading system that not only allows this, but in fact encourages it? It is true that workers in China seem to want these jobs because the alternative is even worse, but even that conclusion has now been thrown into doubt. If it’s such an ideal career path, why have ten workers thrown themselves off buildings at the Foxconn plant (nine died and the other suffered severe injuries), why have their been reports of security guards abusing workers, and why has the work been described as relentless, as “making people numb,” as turning them into machines? It is a scandal that this is where the high tech goods that people across America are enjoying are being made. And Apple does not need to make them there. The classic economic argument that the very low wages are economically necessary for a product like the iPad simply makes no sense at all. iSuppli, a well respected international economics firm, estimates that the cost of manufacturing including labor in the iPad, is about $10 in a product that retails for about $600, in other words less than 2% of the price. And the profit Apple makes on the iPad is over $300 an item. Even if this $10 manufacturing cost (which includes such other things as factory overhead and energy costs) were doubled or tripled or quadrupled by paying a U.S. worker a reasonable wage and helping restore the U.S. economy, Apple’s profits would still be enormous. About 100 years ago Henry Ford realized you cannot have a sustained industrial economy if the people who make goods don’t have enough money to buy them. So he paid his workers enough money that over time they could buy his cars, buy their homes and move into the middle class. Apple, now the largest technology company in America, is trying to squeeze every penny it can out of the U.S. consumers, and give nothing back, not even a manufacturing job in Silicon Valley or somewhere else in the United States for people making the iPad. 65 cents an hour is a better wage from their point of view. I’m a lawyer and I like to make a good income. I guess I should try and figure out how to pay my employees 65 cents an hour too. One of the saddest footnotes, to me, in the whole Foxconn suicide story came from a nonchalant comment made by one of the Foxconn employees who an AP reporter interviewed next to the company swimming pool. The pool was supposedly built for the workers. But the worker commented that the pool closes at 9 pm, and she gets off too late to ever use it. It was sad both because this is just part of the whole Foxconn picture, unending routine, depersonalization, and migrant workers coming to Shenzhen with no way out. But it was also sad because it appears that Foxconn has built a Potemkin village, a fake façade, to appeal to U. S. outsourcers and U. S. journalists, and until recently, we all bought it.

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Elisabeth Rhyne: Why are microfinance interest rates so high?

May 28, 2010

Americans often suffer sticker shock when they hear about interest rates charged in international microfinance. At annualized rates above 20 percent, most Americans start getting uncomfortable, and when they hear that in some places annual rates rise as high as 100 percent or even more, their moral outrage beepers start to malfunction. This is unfortunate, because when we are in a state of high outrage, it’s hard to listen. When asking “how much is too much?” it is important to reserve judgment long enough to examine the conditions that determine international microfinance interest rates. Here are three factors that international microfinance providers have to consider as they face the hard task of determining what constitutes responsible pricing. The arithmetic of tiny loans. Interest rates face an uncompromising arithmetic of three main cost elements, all context-specific. How big are the loans? What is the maximum loan officer caseload? How much are loan officers paid? A lender making $1,000 loans in a dense city market with a labor market that allows modest loan officer salaries can charge a much lower interest rate (think Bolivia, with rates in the 20s) than a lender making $100 loans in the rural parts of a middle income country where loan officers earn a lot (think Mexico with rates in the 60s). The need for sustainability to ensure coverage and permanence. Should prices support lender sustainability? Microfinance grew to reach 150 million clients worldwide by pursuing financial sustainability – and profitability — as the ticket to reaching more people permanently without heavy donor dependence. Most of today’s international microfinance providers believe the poor should be treated as clients, not recipients of charity. This point does involve moral judgment. Is it more moral to help (a few of) the poor through subsidies or to provide (many of) them with services on a business basis? Answers may differ in different places. The wealthier United States may be able to afford to subsidize the less fortunate, while in the resource-strapped developing world, subsidies are a luxury not available to the masses of the excluded. The needs and the existing options of the poor. Many people are surprised to learn that the poor in the developing world lead complex financial lives as they struggle to make their small, often intermittent incomes cover basic needs as well as unusual expenses and opportunities. Poor families are often both savers and borrowers, setting aside money in informal savings clubs, and borrowing from relatives, employers, and local grandees as well as professional moneylenders. While not all moneylenders by any means are the evil loan sharks of legend, they do generally charge rates far in excess of those charged by microlenders. Still, it’s fair to ask: can a microloan that tops out at a compound annual rate of say 80 percent inclusive of fees and taxes be a boon to poor borrowers? Client returns to investment are not well documented, but we do know that for short term loans, especially for the kinds of retail and restaurant businesses found in urban microfinance markets, opportunities to leverage an immediate lump sum of cash are often available. At an 80 percent APR, a microfinance client borrowing $500 for three months will pay back $600 – which many clients find to be an acceptable opportunity cost for equipment or stock that will boost a microenterprise’s earning ability or for consumption needs such as school fees or home improvements. That said, as interest rates come down and loan terms lengthen, microfinance loans become economically attractive to a wider range of businesses, and support longer term investments. In countries such as Mexico where rates are high, market entrants and regulators need to do everything they can to bring rates down. Ultimately, the best means of doing so is to promote competition, which spurs the innovation that brings better products at lower prices. The microfinance market in Bolivia provides a good example. In 1992 BancoSol, one of a few small microfinance loan providers at the time, charged an annual rate of 65 percent. Today, in a much more competitive environment, BancoSol and its direct competitors charge much lower rates, in the range of 18 to 22 percent. Worldwide, as microfinance has grown and many more providers have entered the market, a CGAP study found that average interest rates dropped by 2.3 percent per year from 2003 to 2006, with a median rate for profitable MFIs of about 26 percent. Ultimately, responsible pricing makes good business sense. With the relatively high cost of acquiring new clients in microfinance, financial service providers survive based on long term customer relationships. Setting a price that allows the client’s business to thrive helps to generate more future business for the financial institution.

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Goldman Seeks To Settle With SEC Over Fraud Charge

May 28, 2010

Goldman Sachs is looking to avoid a charge of fraud from the Securities and Exchange Commission by coming to a settlement over a lesser offense, The Financial Times reported, citing people familiar with the bank’s negotiating position.

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Video: Bern Says Oil Drilling Costs Will Rise After Gulf Spill: Video

May 28, 2010

May 28 (Bloomberg) — Gianna Bern, president of Brookshire Advisory & Research, talks with Bloomberg’s Betty Liu about the implications of the BP Plc oil spill in the Gulf of Mexico for the oil industry. (Source: Bloomberg)¶

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Video: Book Says BP Spill May Cause `Legislative Stampede’: Video

May 28, 2010

May 28 (Bloomberg) — Kevin Book, managing director at Clearview Energy Partners LLC, talks with Bloomberg’s Betty Liu about the possible legislative actions Congress may take in response to the BP Plc oil spill in the Gulf of Mexico. (Source: Bloomberg)

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U.S. Michigan May Consumer Sentiment Index Rises to 73.6 From April’s 72.2

May 28, 2010
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United to Fight Delta Wooing New York Business Fliers With Upgrades, Perks

May 28, 2010

By Mary Schlangenstein and Mary Jane Credeur May 28 (Bloomberg) — New York business travelers may see a flurry of seat upgrades and free airport lounge passes as carriers fight for the most valuable passengers when Continental Airlines Inc. and United Airlines merge. United, Delta Air Lines Inc. and AMR Corp.’s American Airlines will probably step up their pursuit with better seats and perks like greater access to last-minute tickets on overbooked flights, said Chris McGinnis, a consultant and travel-blog editor in San Francisco. At stake is a bigger slice of the $13.6 billion spent each year by passengers who start or end trips in New York, which no carrier dominates. More than 100 million people, including the corporate travelers who pay the most for business-class and walk-up tickets, flew through the world’s largest aviation market last year. “The airlines are going to have to shower these passengers with free lounge access or upgrades if they want their loyalty,” said McGinnis, who flies to New York several times a year. Spokesmen for Continental, UAL Corp.’s United, Delta and American declined to discuss specific plans to win business at Kennedy, LaGuardia and Newark airports. One service the merged United-Continental should expand is United’s P.S. three-class flights from New York to Los Angeles and San Francisco, which include lie-flat seats in first class, business-class cradle seats and as much as 5 more inches of legroom in coach, said McGinnis. He flies P.S. several times a year and pays as much as $3,000 per trip. ‘All the Difference’ “Those extra inches of legroom make all the difference in the world, and it’s kept a lot of travelers faithful to United,” he said. Delta recently added a perk for its American Express SkyMiles card holders that allows travelers to check one bag for free, a savings of about $50 per round trip. Continental has a similar offer through its Chase credit card. The competition will create “one of the best times for a traveler to belong to a frequent-flier program,” said Henry Harteveldt , a senior analyst at Forrester Research Inc. in San Francisco. United-Continental will displace Delta as the world’s biggest carrier, and be the largest U.S. airline across both the Atlantic and Pacific, offering more direct service from its 10 hubs. The carriers announced their all-stock merger on May 3, and say the deal will be completed by year-end. The company plans to keep United’s name and Chicago headquarters, and be run by Continental Chief Executive Officer Jeff Smisek . Biggest Market New York differs from most hubs, where one carrier dominates. Delta accounts for 70 percent of passengers in its hometown of Atlanta, while American handles 85 percent at Dallas-Fort Worth. Continental flew 29 percent of New York area travelers in 2009, while United had 4 percent, according to U.S. Bureau of Transportation Statistics. Delta handled 23 percent, JetBlue Airways Corp. had 16 percent and American had 15 percent. “This is going to become a gloves-off, brutal, three-way battle between United, American and Delta,” said Harteveldt. “You better get the emergency services on standby, because blood is going to be shed.” The new United will focus on corporate sales accounts, especially in Manhattan, in a bid to win business from Delta and American, United CEO Glenn Tilton said yesterday after speaking at a hearing in Washington. “What this combination does is makes us competitive with American, both in Latin America and in New York,” Tilton said. “That’s just something we lacked, and that’s something Continental brings.” Top Travel Agencies The two companies also reached out to their top travel agencies. Within hours of announcing the merger, Continental executives called and e-mailed Jennifer Wilson-Buttigieg, co- president of Manhattan-based Valerie Wilson Travel Inc. , which books travel for business clients on American, British Airways Plc, Delta and Continental. United officials visited that week. “It made all the difference in the world when they simply said, ‘Thank you for your business,’” said Wilson-Buttigieg. “Something as simple as how they handle a meet-and-greet with clients or work with us on sales calls lets us know how important we are.” The stiffest competition will be for business fliers who buy first-class and walk-up tickets, often determining whether a flight makes or loses money. Continental charges $6,149 for a walk-up ticket in business or first class from Newark to London Heathrow, while an advance- purchase coach ticket to Los Angeles is $482, according to the Houston-based carrier’s website. ‘Hotbed for Competition’ “The $3,000 to $5,000 ticket range is going to be a hotbed for competition,” said Rick Seaney , CEO of Dallas-based FareCompare.com, a ticket pricing and research firm. “If there’s discounting, that’s where you’re going to see it.” The carriers have also invested to spruce up facilities. Continental spent $1.5 billion at Newark over the past 25 years, primarily for a new concourse and international arrivals center because that airport is “one of our key strengths,” said Julie King , a spokeswoman for the carrier. American spent $1.3 billion on an international terminal at Kennedy that opened three years ago, and is investing $30 million at LaGuardia. In March, American proposed a flight slot- swap with JetBlue to expand at Kennedy. Best Customers “We want to be sure we’re big in the markets that matter most to our best customers — New York to London, for example,” Dan Garton , American’s executive vice president for marketing, said in an interview. Delta established an international hub at Kennedy airport with service to 30 new cities abroad, and is trying to expand at LaGuardia by swapping flight-slot rights with US Airways Group Inc. Delta hasn’t yet renovated its facilities in New York, and Treasurer Paul Jacobson last month likened its 1960s-era Kennedy terminal to “third-world” conditions. Delta is in talks with the airports about improvements, said Heather Faulkner, a spokeswoman for the airline. “New York will remain the most contested and competitive aviation market in the world, and we are and will continue to be fiercely competitive,” Faulkner said. The winner will be whoever can lure an extra three to five passengers per flight and take market share profitably, said Michael Derchin , an analyst at CRT Capital Group LLC in Stamford, Connecticut. He recommends buying Delta shares, and holding American, United and Continental. “We’ll have three hungry airlines who all want this corporate business, and whoever is the most aggressive will win,” Derchin said. To contact the reporter on this story: Mary Schlangenstein in Dallas at maryc.s@bloomberg.net ; Mary Jane Credeur in Atlanta at mcredeur@bloomberg.net .

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Dollar Libor Advance Doesn’t Indicate `Imminent Disaster,’ Citigroup Says

May 28, 2010

By Anchalee Worrachate May 28 (Bloomberg) — An increase in the rate banks pay for three-month dollar loans isn’t indicative “of any imminent disaster in the financial system,” Citigroup Inc. said. “This is not the stuff that financial crises are made of,” Mark Schofield , head of interest-rate strategy at Citigroup in London, wrote in a research note yesterday. “A return to the more prudent lending patterns of the 1980s and 90s, however, should be welcomed rather than feared from the perspective of the long-term health of the financial system in our view.” The London interbank offered rate, or Libor, for three- month loans in dollars was at 0.536 percent today, after reaching the highest since July 6 yesterday, British Bankers’ Association data show. The Libor-OIS spread , a gauge of bank’s reluctance to lend, was at 30.6 basis points. That compares with an average of about 9 basis points in the first three months of the year, Schofield said. Three-month Libor is a benchmark for about $360 trillion of financial products worldwide, ranging from mortgages to student loans. To contact the reporter on this story: Anchalee Worrachate in London at aworrachate@bloomberg.net

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Stocks in U.S. Drop as Stall in Personal Spending Spurs Recovery Concern

May 28, 2010

By Esme E. Deprez and Sarah Jones May 28 (Bloomberg) — U.S. stock-index futures rose, indicating the benchmark Standard & Poor’s 500 Index may extend yesterday’s rally, as more reports showed the economy may be strong enough to weather the debt crisis in Europe. Apple Inc., the computer maker turned producer of mobile gadgets, climbed 1.8 percent in pre-market trading as its iPad tablet computer went on sale outside of the U.S. Exxon Mobil Corp. and Chevron Corp. climbed as crude oil rose above $75 a barrel for the first time in two weeks. June contracts on the S&P 500 gained less than 0.1 percent to 1,101.8 as of 9 a.m. in New York after the index jumped 3.3 yesterday. Dow Jones Industrial Average futures rose less than 0.1 percent to 10,242 and Nasdaq-100 Index futures climbed 0.1 percent to 1,866. “It’s encouraging that personal income continues to go up and was revised higher,” said Eric Green , senior money manager at Penn Capital Management in Philadelphia, which oversees about $5 billion. “The consumer is in pretty good shape, and the job markets and housing markets are improving.” Consumer spending in the U.S. unexpectedly stalled in April, staying even as Americans used growing wages to rebuild savings. The pause in purchases compared with a 0.3 percent increase projected by the median forecast of economists surveyed by Bloomberg News, Commerce Department figures showed today in Washington. Incomes climbed 0.4 percent and the savings rate rose for the first time in four months. Stocks Rebound U.S. stocks rebounded from a three-month low yesterday, sending Dow rallying above 10,000, after China committed to investing in Europe and BP Plc temporarily stopped the flow of oil from a Gulf of Mexico leak. The S&P 500 is on course for its worst month since February 2009 after amid concern that European nations will have difficulty reducing their budget deficits without harming the economic recovery. U.S. equity markets are closed on May 31 for Memorial Day. Economic data today may show the slump in stocks this month has not strained the economy. The Institute for Supply Management-Chicago Inc.’s business barometer, due at 9:45 a.m. New York time, probably fell to 61 from a five-year high of 63.8 in April, according to the survey median. Figures greater than 50 signal expansion. Another report from Thomson Reuters/University of Michigan may show its consumer sentiment index climbed to 73.3 this month from 72.2 in April, according to an economist survey. Apple Advances Apple rose 1.5 percent to $257.91 in early New York trading. The iPad is now available in Australia, Canada, Japan and six European countries following the sale of one million of the devices within a month of its April 3 debut in the U.S. The maker of the iPhone and iPod has popularized a new category of computer between a smartphone and a laptop. Apple may sell 8 million iPads this year, according to Royal Bank of Canada. Crude oil for July delivery gained as much as 1.6 percent to $75.72 a barrel in New York as U.S. data yesterday signaled that the economic recovery is gathering pace and may revive fuel demand. To contact the reporters on this story: Esmé E. Deprez in New York at edeprez@bloomberg.net ; Sarah Jones in London at sjones35@bloomberg.net

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Honda Strike: The End Of Cheap Chinese Labor?

May 28, 2010

A strike at an auto-parts factory owned by Honda in southern China has unexpectedly become a cause célèbre in the nation’s struggle with income inequality, with Chinese media reporting extensively on the workers’ demands and calling on the government to do more to increase wages nationwide.

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Soldier in Iraq Loses Home Over $800 Debt

May 28, 2010

Michael Clauer is a captain in the Army Reserve who commanded over 100 soldiers in Iraq. But while he was fighting for his country, a different kind of battle was brewing on the home front. Last September, Michael returned to Frisco, Texas, to find that his homeowners’ association had foreclosed on his $300,000 house–and sold it for $3,500. This is story illustrates the type of legal quagmire that can get out of hand while soldiers are serving abroad and their families are dealing with the stress of their deployment. And fixing the mess isn’t easy.

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Video: FDA Weighs J&J Criminal Charges; KKR Drops EMI Talks: Video

May 28, 2010

May 28 (Bloomberg) — Bloomberg’s Betty Liu reports on the latest breaking business news and top stories in today’s Business Briefs. (Source: Bloomberg)

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Gulf Oil Spill Has Cost BP $930 Million So Far

May 28, 2010

NEW YORK — BP PLC says it has spent $930 million so far responding to a ruptured oil well in the Gulf of Mexico. The British oil giant owns the well that’s gushed millions of gallons of crude for more than a month. The company made the estimate Friday in a regulatory filing. The costs include what it has spent on responding to the spill, drilling relief wells, paying grants to Gulf states, damage claims and federal costs. BP says it’s too early to quantify other potential costs and liabilities associated with the spill. Scientists say the Gulf spill much worse than the Exxon Valdez disaster of 1989.

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Rep. Raúl M. Grijalva: Let’s Tell Big Oil: You Break It, You Buy It

May 28, 2010

In 1989, the Exxon Valdez tanker leaked 11 million gallons of oil into Alaskan waters. The spill took over the American imagination – no one thought a single accident would cause so much ecological damage. It was, for lack of a better term, our environmental Chernobyl. Arctic habitats for birds and marine life quickly became a wasteland. The lawsuits lasted for nearly two decades. Ultimately, the Supreme Court found a punitive damages judgment of $5 billion against Exxon excessive, and the company was asked to pay very little for the economic pain the spill had caused. Exxon recouped most of its cleanup and legal costs thanks to insurance policies. For the world’s oil companies it was a signal that if disaster strikes, toughing it out is preferable to paying your fair share. That cannot happen again with the BP Deepwater Horizon spill. It’s time we brought corporate liability law in line with the scope of this catastrophe. According to the U.S. Geological Survey, Horizon has already leaked between 17 and 39 million gallons. It has officially eclipsed the Exxon Valdez. This spill will impact the Gulf region, and the nation, for decades to come. There’s no question that BP is to blame. There’s also no question that when it comes to oil rig safety, we’ve lived in blissful ignorance long enough. Oil rigs can no longer be presumed safe and sound, either structurally or environmentally. Indeed, this spill is only a surprise to those who weren’t paying attention. On Feb. 24, before Horizon exploded, I wrote a letter to recently departed Minerals Management Service (MMS) Director Elizabeth Birnbaum calling for an MMS investigation of why BP was allegedly allowed to operate a separate rig known as Atlantis, also in the Gulf of Mexico, without 90 percent of its subsea construction documents approved by an engineer. A whistleblower brought his concerns to BP’s and MMS’ attention last year, but nothing was done. Why should it take an act of Congress and a major environmental emergency to get MMS to investigate credible allegations of mismanagement at one of the world’s largest oil rigs? This was not a one-time slipup – the entire MMS culture of cheerleading for the drilling industry has to be recognized for what it is, and it needs to end. MMS is currently conducting its investigation of Atlantis’ safety, but has recently said it will miss its original deadline of May 31 to issue its report. I eagerly await the agency’s findings. But whatever MMS concludes regarding Atlantis, we already know much of what we need to know: oil drilling is about large profits, and MMS allowed industry to pursue those profits at any cost. This is not just hyperbole. Eleven people died on Deepwater Horizon. We’re told that no one could have predicted this, and no one is to blame. I don’t believe that, and neither do the American people. Neither should Congress. BP will pay for the Gulf cleanup, which some experts estimate could cost as much as $14 billion. The effort will take years. But the damage done extends far beyond the environment. Fisherman cannot fish. Tourists are not visiting the hotels or beaches. Restaurants and other small businesses are losing customers left and right, and the tide of oil shows no signs of stopping. The economic life of the Gulf has been devastated. Yet the Oil Pollution Act of 1990 limits the liability of parties responsible for offshore oil spills to cleanup costs, plus $75 million in economic damages. $75 million will not even scratch the surface of the long-term economic damages that Horizon has wrought. That’s why, last week, I introduced HR 5355. The “no cap” bill would completely eliminate the arbitrary $75 million liability cap, because the best way to ensure responsible behavior is to make corporations responsible for their actions. They benefit when things are going well, so why should taxpayers take the hit when things go badly? A single dollar of public money spent to clean up after BP is one dollar too many. When the bottom line is at stake, industry will change its behavior for the better. Any cap we place on economic compensation is inherently arbitrary, so let’s not have one. Hundreds of millions, if not billions, of dollars in revenue will be lost as a result of BP’s careless actions. Livelihoods will be put on hold or simply destroyed. Under current law, BP will only have to pay for a fraction of the damage — yet the company is still blocking journalist access to affected beaches for fear of exposure. It’s time to demand greater responsibility and accountability from the oil industry. Only when these multi-billion dollar companies are forced to bear the full costs of their actions will they take safety seriously. Let’s send a simple, responsible message to Big Oil: “You break it, you buy it.”

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Video: Alpine Mutual Funds’ Hunt Likes Statoil, Petrobras: Video

May 28, 2010

May 28 (Bloomberg) — Sarah Hunt, a portfolio manager at Alpine Mutual Funds, talks with Bloomberg’s Adam Johnson about investing in oil stocks following the BP Plc oil spill in the Gulf of Mexico. (Source: Bloomberg)

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Video: U.S. Consumer Spending in April Stalls, Savings Increase: Video

May 28, 2010

May 28 (Bloomberg) — Personal income climbed 0.4 percent for a second month, while consumer spending in the U.S. unexpectedly stalled in April as Americans used growing wages to rebuild savings. Bloomberg’s Betty Liu and Mike McKee report. (Source: Bloomberg)

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Video: Greg McCormack Discusses BP’s Efforts to Stop Oil Leak: Video

May 28, 2010

May 28 (Bloomberg) — Greg McCormack, director of the Petroleum Extension Service at the University of Texas at Austin, talks with Bloomberg’s Betty Liu about BP Plc’s efforts to stop the flow of oil from a leaking well in the Gulf of Mexico. (Source: Bloomberg)

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America’s Poorest Presidents (PHOTOS)

May 28, 2010

US Presidents are, by nature, risk takers. You have to be to “lead the nation into war, annex millions of square miles of territory, or drop the atomic bomb to end a war,” news site 24/7 Wall St. aptly points out. In some cases, the audacity of past presidents has caused some woeful financial collapses. The following list from 24/7 Wall St., America’s Poorest Presidents , shows past commanders in chief to have been bold investors, businessmen, and plantation owners who, like most risk takers, had their luck run out once or twice. For more on the financial lives of US presidents, check out The Net Worth Of The American Presidents: Washington To Obama . Here’s the list of America’s Poorest Presidents from 24/7 Wall St.: (Slideshow text by Douglas A. McIntyre, Michael B. Sauter and Ashley C. Allen, Editors, 24/7 Wall Street)

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Gulf Oil Spill: Two More Days Before BP Knows If Mud Stops Leak

May 28, 2010

ROBERT, La. — BP won’t know until Sunday if pumping heavy mud into a blown-out well on the seafloor is successful in stopping the massive Gulf of Mexico oil spill, its chief executive said. CEO Tony Hayward said on the CBS “Early Show” that his confidence level in the well-plugging effort remains at 60 to 70 percent. BP PLC, which owns the well and is the largest oil and gas producer in the United States, began injecting mud into the well on Wednesday afternoon in an untested bid to end a spill whose millions of gallons have surpassed the Exxon Valdez disaster. The catastrophe started with an oil rig explosion April 20 that killed 11 workers. The maneuver, called a top kill, has worked on land but has never been tried in deep water. It comes after BP failed to plug the leak with a blowout preventer, a massive piece of machinery on top of the well that is supposed to be a fail-safe device, and couldn’t capture the crude with a mile-long tube or a 100-ton containment box. The Obama administration’s point man on the disaster, Coast Guard Adm. Thad Allen, said BP’s work Friday will tell if a cap can hold. Allen told ABC’s “Good Morning America” that the mud pumped into the well has pushed the oil down, but the challenge is going to be to keep enough pressure on the oil flow to put a cement plug in place. “The real question is, can we sustain it, and that’ll be the critical issue going through the next 12 to 18 hours,” Allen said. As the world waited, President Barack Obama announced major new restrictions on drilling projects, and the head of the federal agency that regulates the industry resigned under pressure, becoming the highest-ranking political casualty of the crisis so far. Obama was scheduled to attend a briefing Friday at the U.S. Coast Guard Station in Grand Isle, La., by Adm. Thad Allen, who is overseeing the response to the spill. It would be his second visit to the region since the disaster began. At the White House on Thursday, Obama acknowledged that his administration could have done a better job dealing with the spill and that it misjudged the industry’s ability to handle a worst-case scenario. “I take responsibility. It is my job to make sure that everything is done to shut this down,” Obama said. Hayward said on CBS that things were progressing as planned. He said BP engineers had completed a second phase by pumping what he called “loss prevention material” into the blowout preventer to form a bridge against which they could pump more heavyweight mud. That part of the operation was completed early Friday and appeared to have been partially successful. BP would go back to pumping more mud later Friday, he said. “I believe it will be around 48 hours before we’ll have clarity as to whether or not it has been successful,” Hayward told CBS. If the mud works, BP would pour cement to seal the well. “Clearly I’m as anxious as everyone in America is to get this thing done,” Hayward said. BP has spent $930 million so far responding to the ruptured well, it said in a regulatory filing Friday, including costs for clean-up and prevention work, drilling relief wells, paying grants to Gulf states, damage claims and federal costs. BP says it’s too early to quantify other potential costs and liabilities associated with the spill. The stakes were higher than ever as public frustration over the spill grew and a team of government scientists said the oil has been flowing at a rate 2 1/2 to five times higher than what BP and the Coast Guard previously estimated. Two teams of scientists calculated the well has been spewing between 504,000 and more than a million gallons a day. Even using the most conservative estimate, that means about 18 million gallons have spilled so far. In the worst-case scenario, 39 million gallons have leaked. That larger figure would be nearly four times the size of the Exxon Valdez disaster, in which a tanker ran aground in Alaska in 1989, spilling nearly 11 million gallons. The spill is not the biggest ever in the Gulf. In 1979, a drilling rig in Mexican waters – the Ixtoc I – blew up, releasing 140 million gallons of oil. ___ Associated Press Writers Seth Borenstein, Matthew Brown, Jason Dearen, Andrew Taylor and Matthew Daly contributed to this report.

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Video: Ferrell Sees Need to Improve Portfolio Risk Management: Video

May 28, 2010

May 28 (Bloomberg) — William Ferrell, chief executive officer for Ferrell Capital Management, talks with Bloomberg’s Erik Schatzker about the need for “much better” risk management in investment portfolios. Ferrell also discusses investment strategy, market volatility and increasing transparency within the hedge-fund market. (Source: Bloomberg)

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Video: Gary Aguirre Says Galleon Case May Have Been Avoided: Video

May 28, 2010

May 28 (Bloomberg) — Gary Aguirre, a former U.S. Securities and Exchange attorney, talks with Bloomberg’s Erik Schatzker about his investigation into hedge-fund firm Pequot Capital Management Inc.’s trading activities before he was fired from the SEC in 2005.¶ Pequot and its founder Arthur Samberg agreed to pay almost $28 million to settle regulatory claims they illegally tapped information from a Microsoft Corp. employee to bet on the software maker’s stock in 2001, the SEC said yesterday. (Source: Bloomberg)

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Glaxo Beat Baxter in U.K. Test of Swine Flu Shots in Children

May 28, 2010
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