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Governors Reflect Partisan Divide In Contentious Debate

July 16, 2011

SALT LAKE CITY — Governors nationwide are nervously watching the debt-ceiling debate in Washington, fearing that a partisan impasse could rattle financial markets and slow the economic recoveries they desperately want for their states. Yet many of them are sticking to the same partisan loyalties and talking points that are making it so difficult for President Barack Obama and Republican lawmakers to find a way to avoid a borrowing cutoff, which could force the government to default on some of its bills. In fact, some of the harshest rhetoric was heard this weekend in Salt Lake City, where the National Governors Association is holding its annual meeting. At stake is “the full faith and credit of the United States of America, and we have Republican members of Congress that say `Faith and credit, baloney. We don’t care about that,’” said Montana Gov. Brian Schweitzer, a Democrat. He called those lawmakers “the same yahoos who didn’t pay for two wars,” a reference to the Afghanistan and Iraq invasions, which President George W. Bush launched while cutting taxes. Maryland Gov. Martin O’Malley, chairman of the Democratic Governors Association, said Republicans should be a moderating voice in the debt talks. He criticized House Majority Leader Eric Cantor and “the dinosaur wing of the Republican Party” for adamantly opposing tax increases on the wealthy, which Obama and demands as part of a deficit-reduction package. Republican governors defend their party’s lawmakers. Iowa Gov. Terry Branstad laughed at the notion that “dinosaurs” are heading the GOP effort in Washington. “The dinosaurs are the ones that spent all the money,” he said “This is the new energy.” “I don’t think Eric Cantor and Paul Ryan are out of touch,” Branstad said. “I think they might be a little more bold than most politicians have historically been. But maybe the times call for that.” Ryan, a Wisconsin Republican, chairs the House Budget Committee and authored a major spending plan passed this year by the House. Despite the rhetoric, governors in both parties agreed that failing to problem could gravely injure state economies. Noting that dozens of Chinese political and business officials are attending the governors’ meeting here, Schweitzer said potential investors from Asia and Europe might steer away from Montana and other states if they feel the U.S. government is in fiscal disarray. “The amount of havoc that would be created in the financial markets would make Greece and Portugal and Ireland and Italy look miniscule,” said Connecticut Gov. Dan Malloy, also a Democrat. Republican Gov. Scott Walker of Wisconsin said the impasse in Washington created uncertainty, which employers hate when deciding whether to expand their businesses. But he said he was not surprised because Washington decisions are usually made based on what will win the next election. “What states are better at doing is courage,” Walker said. “It’s having the courage to make decisions that some might view as more about the next generation than about the next election.” But neither Walker nor other governors here found any fault with specific stands taken by their party in the debt showdown. Branstad strongly defended Cantor’s opposition to new taxes, even if they were to hit only wealthy people. “This anti-wealth rhetoric actually hurts the economy,” Branstad said, “because it makes these people afraid to invest for fear that whatever they make is going to get confiscated.” “Those are the people you want to invest in great jobs,” he said. Branstad, who notes that he has never lost an election in his long career, said Republicans credit much of their 2010 campaign success to a fiercely anti-tax stand. He said voters sent a message last fall: “The last time the Republicans had control of the Congress, they lost their way on spending. And you’d better not do that again.” Mississippi Gov. Haley Barbour, who strongly considered a presidential bid this year, echoed those remarks, even as he left the door slightly ajar for a possible compromise. “I think a tax increase would be terrible,” said Barbour, who once chaired the national Republican Party. But Republicans might have to grimace and accept a compromise, he said, if they can win deep spending cuts and cost-saving changes to Medicare and Social Security. “At the end of the day,” Barbour said, “you have to look at the whole package.” The governors here differ widely on how that package should be shaped. But to a person, they say they desperately want an end to the debt brinkmanship in Washington. ___ Associated Press writer Josh Loftin contributed to this report.

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Italy Crisis, Ireland Downgrade Intensify Euro Nightmare

July 12, 2011

The European debt crisis is escalating. Investors’ fears that financial strain in Greece might spread to other nations garnered potent confirmation Monday and Tuesday, as interest rates on Italian government debt skyrocketed and bank stocks in Italy plunged. The loci of concern span the continent, from Greece, Spain and Portugal to Ireland , whose debt was downgraded to junk status Tuesday by Moody’s Investors Service, calling into question that nation’s ability to financially survive on its own. A crisis that began in the Mediterranean has become Europe’s problem, and it risks becoming the world’s. Markets the world over are riveted by developments among the countries that share the euro, which appear only to be weakening. Policymakers are scrambling to craft a fix, but financial players and economists fear governments will not be able to do enough to stem the contagion. While it remains a remote prospect in the estimation of economists, the probability of an Italian default is nonetheless growing as mounting anxiety in markets translates into steep borrowing costs for Italy’s government. The euro zone’s third largest economy, Italy is potentially too large to be rescued with the European Union’s current arsenal of tools, Reuters reports . In the absence of a definite policy response, concerns are intensifying that the euro zone crisis could send punishing shockwaves throughout the world’s financial system. “We’ve moved to a much more systemic situation where Italy is now the big elephant in the room,” said Silvio Peruzzo, euro-area economist at Royal Bank of Scotland Group in London. “Given the size of the market, the policy response that is in place is not sufficient at all to address concern that may arise about the solvency of the country.” Italy’s fresh woes are driven by market forces, said International Monetary Fund head Christine Lagarde during a press briefing this week. Interest rates in 10-year Italian government debt shot above 5.5 percent Monday, and the difference between those rates and the yields on German government bonds widened to 3 percentage points, according to Bloomberg data . That spread, which indicates that Italian debt is seen as especially risky, was the largest in the history of the euro . Stock markets around the world fell Monday, and lost more ground Tuesday. The Standard & Poor’s 500 index dropped 1 percent at Monday’s open and kept falling, closing Monday at 1.8 percent below Friday’s close. The index fell further Tuesday, to close 2.2 percent below Friday’s closing value. Before news of Ireland’s downgrade came across the wires, it looked as if stocks might enjoy a small recovery. The MSCI All-Country World Index climbed slightly on Tuesday, after earlier falling as much as 1.4 percent, Bloomberg News reports . Mounting anxiety about the euro nations poses further challenges for European leaders, who are still in the process of crafting a rescue plan for Greece. That nation has staved off default thanks to continuing life support from its stronger peers, and European officials are planning further steps to help the country manage its crippling burden of debt. But the longer action is delayed, experts say, the worse the crisis could become. Ireland’s downgrade comes on the heels of last week’s announcement that Moody’s docked Portugal to junk status. Greece last month received the lowest credit rating in the world from Standard & Poor’s. If the IMF and the nations that share the euro do not craft a rescue plan for Greece in the coming days, financial markets risk “spinning out of control,” the bank lobbyist group Institute of International Finance said in a paper, according to Reuters . A firm plan for Greece could shield Italy and avert a broad disaster, experts say. But a Greek default in some form may be inevitable — and might be the only way to relieve Greece’s debt burden, European finance ministers said Tuesday, according to Reuters . Any plan involving default could spark unforeseen consequences, as the rating of Greek debt, which many European banks hold on their balance sheets, would likely be downgraded even further. Italy, with Europe’s largest bond market, is a potentially much larger domino than Greece. Its outstanding debt reached 1.8 trillion euros at the end of December, Bloomberg News notes. Greece, for its part, has about 340 euros of debt outstanding, according to Reuters . The debts of both nations run well above the levels of their economies’ respective outputs. The fallout from a sovereign default could touch the world’s strongest economies. The United Kingdom’s central bank released a report last month quantifying the indirect vulnerability of British banks to various European economies, arguing that the risks stemmed not merely from direct exposure to a defaulting nation’s debt, but also from exposure to other banks and financial institutions that hold that debt. Mervyn King, governor of the Bank of England, said the scale of this risk cannot be measured, calling it an “infinite regress.” A crisis could be worsened, moreover, by a panic that would affect a range of assets, economists said. The IMF’s Lagarde called for Italy to ramp up its program of fiscal austerity as borrowing costs rose, but some experts say a domestic Italian policy response won’t be enough to stem the crisis. “The way the debate is being conducted domestically is clearly not up to the challenges that the market situation is currently imposing,” said Peruzzo, the RBS economist, who himself is Italian. A sustainable solution, he added, might require some euro zone countries to give up some of their fiscal sovereignty. “When the market action binds and pushes policy makers to the wall, they will take actions,” he said. “The only way out is probably converging towards more fiscal integration.”

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BofA Gives $30K Worth Of Social Security Payments To Wrong Person

July 12, 2011

Bank errors with serious consequences continue to pile up, and not only because of the “robo-signing” that has become so closely associated with allegedly wrongful foreclosures. Robert Weber, 88, of Riverside, California, reportedly failed to receive his monthly Social Security checks for as long as 2 years, the total amount that he failed to receive equaling roughly $30,000, according to the Los Angeles Times . (h/t The Consumerist) This, the newspaper reports, was because BofA had given his bank account number to another customer, who had been receiving the monthly social security deposit instead. When Weber’s grandson, David Madden, confronted BofA, he was told that while they were certain the money was being deposited in the wrong account, there was nothing they could do about it, according to reports. BofA only actively corrected the problem when the District Attorney’s office initiated its own investigation. Ultimately, it was the Federal Government, not BofA, that gave Weber the money he was owed. He’s only the latest victim of an unforced banking error, which now include stories of unnecessary arrests, lost jobs, wrongful foreclosure notices and even more misallocated money. In June 2010, as King 5 Seattle reported, Chase Bank had 28-year-old Ikenna Njoku of Auburn, Washington jailed for trying to cash a check that they believed was a forgery. He, as a result, lost his job, his car as well and the roughly $8,500 he was trying to cash. The check was, in fact, not only legitimate but issued by Chase Bank itself. In June of this year, Laguna Beach resident Stephen McDow was arrested when it was discovered that he spent $60,000 of $110,000 that was misallocated into his account by his own bank. As CBS Los Angeles reported at the time, Mr. McDow used the money to help pay down his personal debt. Earlier this year, a Northampton resident was asked by Bank of America to pay off a balance of $0.00 or his home would go into foreclosure. BofA, when it realized the mistake, apologized and sent a $150 gift certificate. Read the entire story here.

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Moody’s Cuts Irish Bonds To ‘Junk’ Status

July 12, 2011

Credit ratings agency Moody’s downgraded Ireland’s foreign and local government bond ratings to junk status on Tuesday, increasing the cost of borrowing in the country and putting further pressure on the eurozone. Moody’s said that the country would likely to need another bailout before its situation recovered. Ireland’s bonds were cut by one notch from from Baa3 to Ba1, and Moody’s said the overall outlook remains negative. Investors are likely to read the move by the credit-ratings agency as further evidence that the problems affecting the Greek economy could spread. Last month Moody’s downgraded Portugal’s ratings on similar fears, and there are now growing concerns about the situation in Italy and Spain. In its statement Moody’s recognised Ireland’s economy for its “continued competitiveness and business-friendly tax environment”, but said the government there would have to work hard before the agency would consider raising its rating: Moody’s Investors Service has today downgraded Ireland’s foreign- and local-currency government bond ratings by one notch to Ba1 from Baa3. The outlook on the ratings remains negative. The key driver for today’s rating action is the growing possibility that following the end of the current EU/IMF support programme at year-end 2013 Ireland is likely to need further rounds of official financing before it can return to the private market, and the increasing possibility that private sector creditor participation will be required as a precondition for such additional support, in line with recent EU government proposals.

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Europe Acknowledges Greek Default May Be Necessary

July 12, 2011

BRUSSELS (Julien Toyer and Luke Baker) – European Union leaders are poised to hold an emergency summit after finance ministers acknowledged for the first time that some form of Greek default may be needed to cut Athens’ debts and stop contagion to Italy and Spain. “There will be an extra summit this Friday,” a senior euro zone diplomat told Reuters, suggesting policymakers have been seized with a new sense of urgency after markets started targeting Italian assets. A French government source said Paris was in favor, although the timing was not yet fixed, and in Spain, European Council President Herman Van Rompuy said he had not ruled out a meeting. Earlier, Germany’s finance minister had said a second Greek rescue package could wait until September after euro zone finance ministers effectively accepted that private creditor involvement meant a selective debt default was likely, despite the European Central Bank’s vehement opposition to such a move. “We have managed to break the knot, a very difficult knot,” Dutch Finance Minister Jan Kees de Jager told reporters. Asked about whether a selective default was now likely, he replied: “It is not excluded any more. Obviously the European Central Bank has stated in the statement that it did stick to its position, but the 17 (euro zone) ministers did not exclude it any more so we have more options, a broader scope.” Participants said a buy-back of Greek debt on the secondary market and a German proposal for a bond swap for longer maturities were under consideration after a complex French plan to roll over bonds made no headway. Both would likely be regarded by ratings agencies as a default, or at best a selective default, which although it would not necessarily cover all Greek debt and could be lifted quickly, would have major repercussions for financial markets. The Institute of International Finance, the lobby group representing private creditors, said the EU and IMF needed to deliver a plan for Greece, including a debt buyback, within days to avoid markets “spinning out of control. The increased likelihood of some form of default, and a lukewarm response from the IMF, hit European bank stocks and debt markets and propelled the euro sharply lower against the dollar although markets settled later. Ten-year bond yields in Italy, the euro zone’s third-largest economy, shot above six percent for the first time since 1997 but then subsided to around 5.7 percent, still at a level which bankers say will put heavy pressure on finances. Borrowing costs at an Italian 12-month bill sale surged to their highest since the 2008 financial crisis, putting a Thursday bond auction firmly in focus. There is now acute concern about contagion to Italy, where political tensions between Prime Minister Silvio Berlusconi and Finance Minister Giulio Tremonti have exacerbated concerns, and to Spain, the euro zone’s fourth largest economy. In Rome, Berlusconi tried to calm fears Italy could be swept into full-scale crisis, pledging to accelerate debt-cutting measures and run a primary surplus this year. Willem Buiter, chief economist at Citi and a former UK central banker, said there was a clear spread beyond Greece, Ireland and Portugal, the three nations bailed out so far. “We’re talking a game changer here, a systemic crisis,” he said. “This is existential for the euro area and the EU.” The euro fell to a four-month low against the dollar before recovering, in part because IMF Managing Director Christine Lagarde said the lender and its EU partners were not yet ready to discuss terms for a second Greek bailout. “Nothing should be taken for granted,” she told reporters in Washington. FUNDAMENTAL SHIFT While the finance ministers were not explicit about how they planned to tackle Greece’s debt, saying only that proposals would be discussed “shortly,” they acknowledged that the debt pile — at around 160 percent of GDP — had to be reduced. “We stress the need to make Greek debt more sustainable,” Jean-Claude Junker, the chairman of the Eurogroup of finance ministers, said after more than eight hours of talks on Monday. Economists regarded Junker’s words and the comments from other finance ministers as a fundamental shift. “The euro area now seems to be moving more explicitly toward debt relief via EFSF-funded purchases of secondary market debt,” JPMorgan economist David Mackie wrote in a research note, referring to the euro zone’s 440 billion euro emergency loan fund, which as it stands would not have enough resources to bail out Italy. “Greece will need debt relief at some point, but it is not clear it is much of a help now. More likely the shift toward debt relief is intended as an attempt to limit contagion.” The decision to call an extra leaders’ summit helped counter negative market reaction to an apparent absence of hurry, after German Finance Minister Wolfgang Schaeuble said there was time to wait on Greece, with no new tranche due until September. That lack of urgency prompted stern criticism from Greece’s prime minister but the finance ministers did hint at the prospect of more fundamental steps to come. “Ministers stand ready to adopt further measures that will improve the euro area’s systemic capacity to resist contagion risk, including enhancing the flexibility and the scope of the EFSF, lengthening the maturities of the loans and lowering the interest rates, including through a collateral arrangement where appropriate,” they said in a statement. There was no indication, though, that they had broken a stalemate over how to make banks, insurers and other funds share the cost of additional funding for Athens. A senior member of Germany’s governing coalition acknowledged, however, that a debt restructuring was coming. “We just need to ensure that it’s as orderly a process as possible,” he said, adding that it could come in the autumn. Germany, the Netherlands, Finland and others want the private sector to provide at least 30 billion euros in a new package for Greece that could total 110 billion euros. (Additional reporting by John O’Donnell, Leigh Thomas, Dan Flynn in Brussels, Silvia Westall in Vienna, Huw Jones in London, Stephen Brown in Berlin, Lesley Wroughton in Washington and Milan/Rome bureaus, editing by Mike Peacock) Copyright 2011 Thomson Reuters. Click for Restrictions .

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Warren Mosler: A Modern Monetary Theory Approach to Solving Greek Solvency

July 12, 2011

The following is an outline that I proposed for a new Greek government bond issue to provide all required medium term euro funding for Greece on very attractive terms. It is now making the rounds in Europe as an alternative to the French Plan that is currently under serious consideration The new bond issue includes an addition to the default provisions that eliminates the risk of loss to investors. The language added to the default provisions states that while in default, and only in the case of default, these transferable securities can be used directly, by the bearer on demand, at face value plus accrued interest, for payment of any debts, including taxes, owed to the Greek government. By eliminating the risk of loss, Greece will be able to independently fund all required financial obligations in the market place for the foreseeable future. The immediate benefits are both reduced interest costs that substantially contribute to deficit reduction, and the elimination of the need for the funding assistance from the European Union and the IMF. Introduction — Restoring National Sovereignty: Current institutional arrangements have resulted in Greece being faced with escalating interest costs when it attempts to fund itself in the market place, to the point where timely funding is not currently available without external assistance. This requirement for external assistance to avoid default has further resulted in a loss of sovereignty, with the EU and IMF offering funding only on their approval of deficit reduction plans by the Greek government that meet specific requirements. Compliance with these demands from the EU and IMF not only include tax increases, spending cuts, and privatizations, but also include aggressive time lines for achieving their deficit reduction goals. It is also understood by all parties that the immediate near term consequences of these imposed austerity measures will include further slowing of the economy, and rising unemployment. Greece will restore national sovereignty, and regain control of the process of full compliance with the general EU requirements for all member nations, only when it restores its financial independence. Financial independence will allow Greece to again be master of its own destiny, on an equal basis with the other EU members. And the lower interest rate that result(s) from this proposed bond issue will itself be a substantial down payment on the required deficit reduction, easing the requirements for tax increases, spending cuts, and privatizations. While this proposal restores Greek national sovereignty, and eases funding burdens, we recognize that it is only the first step in restoring the Greek economy. Even with funding independence and low interest rates the Greek government still faces a monumental task in bringing Greece into full compliance with EU requirements and restoring economic output and employment. However, it should also be recognized that financial independence and low-cost funding are the critical first steps to long-term success. The Bond Issue — No Risk of Financial Loss : Market based funding at the lowest possible interest rates requires investors who understand there is no ultimate risk of financial loss, and that the promise to pay principal and interest by the issuer is credible. To be credible, a borrower must have the means to meet all contractual euro obligations on a timely basis. For Greece this has meant investors must have the confidence that Greece can generate sufficient revenues through taxing and borrowing to repay its debts. The credit worthiness of any loan begins with the default provisions. While there may be unconditional promises to pay, investors nonetheless value what their rights are in the event the borrower does not pay. Corporate debt often includes rights to specific collateral, priorities in specific revenues, and other credit enhancing support. The new proposed Greek bond issue, with its provision that in the event of default the bonds can be used at face value, plus interest, for the payment of taxes by the bearer on demand, gives the bond holder absolute assurance that full maturity value in euro can always be achieved. And with this absolute assurance that these new securities are necessarily ‘money good’ the ability to refinance is established, which dramatically reduces the risk of the default provisions actually being triggered. And, again, should there be a default event, the investor will still get full value for his investment as the entire euro value of the defaulted securities can be used at any time for the payment of Greek taxes. So while this discussion concerns the case of default, the removal of the risk of loss means there will always be demand for them at near risk-free market interest rates, and that the default discussion is, for all practical purposes, hypothetical. These new Greek government bonds will be of particular interest to banks, which, again, encourages bank ownership, which makes default that much more remote a possibility. This is because, in the case of default, a bank holding any of these defaulted securities will be able to use them for payment of taxes on behalf of bank clients (using that bank for payment of their taxes). Under these circumstances, a bank depositor client making payment of euro would, in effect, simultaneously buy the defaulted securities from the bank and use them to pay the Greek government taxes due. Again, the fact that the bank would be fully paid for, its defaulted securities in the process of depositors paying their taxes means there will be no default in the first place, as these favorable consequences mean there will be continuous demand for new securities of this type at competitive market interest rates, to facilitate all Greek refinancing requirements. The new ‘money good’ Greek bonds will be attractive to all global investors, both private and public. This will include international banks, insurance companies, pension funds, and other private investors, as well as sovereign wealth funds and foreign central banks which are accumulating euro reserves. Fiscal Responsibility: As a member in good standing of the European Union, Greece, like all the member nations, is required to be in full compliance of all EU requirements. Therefore, while this proposal will restore national sovereignty, financial independence, and lower interest rates for Greece, austerity measures will continue to be required to bring Greece into EU compliance. However, Greece will gain substantial flexibility with regard to timing and other specific detail, and will be able to work to achieve its goals in an organized, orderly manner, without the continued pressures of default risk and without the specific terms and conditions currently being demanded by the EU and the IMF. Nor will the ECB be required to buy Greek bonds in the market place, obviating those demands as well.

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Obama Considers Tax Credit For Businesses That Hire Vets

July 12, 2011

WASHINGTON, July 7, 2011 – A tax credit for companies that hire military veterans could be the next step in helping the acutely underemployed group, President Barack Obama suggested yesterday in his Twitter town hall meeting. The president addressed many economic issues surrounding his theme of how to reduce the federal deficit, and was asked about jobs for veterans while fielding questions submitted on Twitter.

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Starbucks Wins Dismissal Of Worker Tips Lawsuit

July 11, 2011

NEW YORK (Jonathan Stempel) – Starbucks Corp on Monday won dismissal of a lawsuit by former assistant store managers in New York who accused the world’s largest coffee chain of cheating them out of customer tips. U.S. District Judge Laura Taylor Swain in Manhattan said the plaintiffs failed to show that they had a right to share in money left in the plexiglass cube containers, known as tip boxes, that Starbucks places beside cash registers. She also said the plaintiffs did not support their claim that Seattle-based Starbucks coerced or else required them to put tips that customers left them personally into the boxes. According to the opinion, Starbucks’ written policy on tips lets baristas and shift supervisors, who are typically part-time hourly workers, handle and receive tip box proceeds. In contrast, store managers and assistant store managers, who are typically salaried, full-time workers receiving other benefits such as holiday and sick pay and life insurance, do not handle tips. The policy is silent about individual tips. Adam Klein, a lawyer for the workers, did not immediately return a request for comment. Starbucks spokesman Alan Hilowitz had no immediate comment. The 2008 lawsuit was brought by five former assistant store managers who worked in Starbucks stores in New York City or Long Island and sought class-action status. They said Starbucks violated state labor law by denying them tips, given that they performed similar duties to eligible workers, and forcing them to contribute to tip pools. But Swain said the “plain language” of state labor law does not grant workers any right to share in such pools. “Plaintiffs’ claims that Starbucks improperly retained gratuities that plaintiffs were entitled to receive fail as a matter of law,” she wrote. The case is Winans et al v. Starbucks Corp, U.S. District Court, Southern District of New York, No. 08-03734. (Additional reporting by Lisa Baertlein in Los Angeles. Editing by Robert MacMillan) Copyright 2011 Thomson Reuters. Click for Restrictions .

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Foxes Guarding The Henhouse? Auditors Criticize Self-Regulation Of Hedge Funds

July 11, 2011

Allowing the hedge fund and private equity fund industry to regulate itself might not be very effective, according to a new Government Accountability Office audit released Monday . Since the Securities and Exchange Commission lacks adequate resources to police the sector, the GAO was tasked under the Dodd-Frank Act with determining the feasibility of forming a self-regulatory organization to provide primary oversight of private fund advisers. Though such an SRO could supplement oversight, it presents challenges and trade-offs, according to the report. By “fragmenting regulation between advisers that advise private funds and those that do not, a private fund adviser SRO could lead to regulatory gaps, duplication and inconsistencies,” concluded the GAO. Some of the disadvantages of a private fund adviser SRO include its potential to (1) increase the overall cost of regulation by adding another layer of oversight; (2) create conflicts of interest, in part because of the possibility for self-regulation to favor the interests of the industry over the interests of investors and the public; and (3) limit transparency and accountability, as the SRO would be accountable primarily to its members rather than to Congress or the public. Treasury Deputy Secretary Neal Wolin offered a vigorous defense of Dodd-Frank in Politico, warning that to carry out the reforms effectively, “we need to make sure regulators have the resources they need to do their jobs.” Warren Heads Back Into The Lion’s Den Elizabeth Warren, the presidential adviser who temporarily heads the Consumer Financial Protection Bureau, heads back to the lion’s den on Thursday — to testify before the House Oversight Committee. At the close of her last appearance before the committee, Rep. Patrick McHenry (R-N.C.) accused her of lying during a YouTube-worthy exchange about how much time she would be testifying. As iWatchNews.com notes, the hearing to be led by Chairman Darrell Issa (R-Calif.) is ominously titled, “”Consumer Financial Protection Efforts: Answers Needed.” Elsewhere in the world of financial regulatory reform, Monday is the deadline for public comments on a proposal to set margin and capital requirements for swap dealers and traders, and on an SEC proposal to raise the threshold at which investment advisers can charge a performance fee. ‘Fracking’ Wastewater Ruins National Forest Wastewater from natural gas hydrofracturing — known as “fracking” — decimated a national forest in West Virginia, according to a new study by a U.S. Forest Service researcher. The fracking fluids killed more than half of the trees and caused radical changes in soil chemistry in a quarter-acre section of the Fernow Experimental Forest in the Monongahela National Forest, reported Public Employees for Environmental Responsibility . The study found the following effects of the application of 75,000 gallons of fracking fluids over a two-day period in June 2008: • Within two days all ground plants were dead; • Within 10 days, leaves of trees began to turn brown. Within two years more than half of the approximately 150 trees were dead; and • “Surface soil concentrations of sodium and chloride increased 50-fold as a result of the land application of hydrofracturing fluids…” These elevated levels eventually declined as chemical leached off-site. The exact chemical composition of these fluids is not known because the chemical formula is classified as confidential proprietary information. SEC Slow to Police Problems at U.S.-Listed Chinese Companies After the SEC promised to overhaul and beef up its enforcement in the wake of the Bernie Madoff scandal, the agency been caught flat-footed with mounting problems at U.S.-listed Chinese companies. Since March, more than two dozen companies have announced auditor resignations or accounting problems, reported Reuters . Yet the SEC has been slow to respond, say critics, taking too long to tighten oversight of U.S. shell companies acquired by Chinese firms through “reverse mergers,” which allow the companies to avoid initial public offerings. Part of the problem is that such mergers fall under state law. This week, SEC officials are in China trying to get Chinese auditors access to inspect such companies. How Big Pharma Cornered Market On Asthma Inhalers Today’s must-read: how pharmaceutical companies took advantage of the 1987 ban on the use of ozone-depleting chlorofluorocarbons to corner the market on CFC-free asthma inhalers — squeezing out competitors and raising prices. Mother Jones’ Nick Bauman reports: Many of the patents for the new inhalers won’t expire for another six years, so there likely won’t be any generics until then, unless the patents are challenged in court. The switch to the new inhalers will cost American consumers, insurance companies, and the government some $8 billion by 2017, according to FDA estimates. That’s money in the drug companies’ pockets. In 2007, a top market-research firm alerted investors that the US inhaler market “will soon change from low-value to significant.” Sure enough, at nearly $1 billion a year, sales of the market-leading inhaler, ProAir, now rival Viagra’s. The FDIC vs. Forbes After Forbes published a tough piece on the Federal Deposition Insurance Corporation’s outgoing director, Sheila Bair, the agency’s counsel penned a sharp retort, calling the editorial “more personal attack than commentary.” That of course prompted editorial co-author Vern McKinley to write his own reply to the reply. It’s not exactly as scintillating as the volleys between Nadal and Djokovic at Wimbledon, but here’s the back and forth . Meanwhile, Bair will have plenty of space to vent in her upcoming book for the Free Press. In a proposal obtained by the New York Times , she wrote: “I will share perspectives on the problems of regulatory capture and the continuing reluctance of bank regulators to fully acknowledge current problems in the financial sector, which are substantial.” The Goat Watching Over The Lettuce Patch A 14-year-old program in Puerto Rico that allows companies to regulate themselves on workplace health and safety issues may not be adequately protecting the workers, reported the Centro de Periodismo Investigativo. Since 1997, the program has resulted in only two findings of a serious nature — one involved a non-work-related death in a parking lot of a company and a second incident, which was resolved outside of court and is confidential. CPI reports : Think it sounds too good to be true? Well, maybe that is precisely the problem with the Voluntary Protection Programs (VPP) – that it contradicts its own definition because it leaves in the hands of employers the establishment of health and safety parameters, with the supposed participation of the workers, and far from the eye of the state’s regulatory agencies. All of this in exchange for less inspections and exemption from fines in the majority of cases.

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Douglas LaBier: Deal with Abusive Bosses and Unhealthy Management Through ‘Engaged Indifference’

July 11, 2011

In my previous post I described how abusive bosses and psychologically unhealthy management harm both employees and business success, and I explained that such behavior in the workplace is increasingly dysfunctional in today’s highly interconnected, interdependent economic and social environment . This follow-up piece offers some suggestions for dealing with such situations when you find yourself within them. Many people struggle to find ways to better cope when subjected to unhealthy, abusive management. Often that means learning stress management techniques . They can be helpful, especially when you don’t think any alternatives exist. But ultimately, they aren’t enough. However, reframing how you envision your situation to begin with can open the door to proactive, positive actions in the situation you feel trapped in. Cathy’s example contains some ways you can do that. She was at mid-level in her company and had a record of steady promotion. At one point, senior leadership in her area changed abruptly, and she was now reporting to a newly appointed boss. “I’m here to shake things up,” he told everyone when he took over. “Everyone’s job is on the line.” Cathy’s assessment of her new boss was that he didn’t really know her area of expertise, nor was he very interested in learning about it. Nevertheless, he freely criticized her work. Moreover, he kept sitting on a promotion that she had been in line for. It wasn’t just her: Her boss stirred up much resentment among others because of his arrogant, controlling, dismissive style. When Cathy researched something he had requested and presented it to him, he exploded, saying that she had wasted her time doing something that had “no relevance.” When she pointed out that he had requested the analysis to begin with, he denied it. But Cathy didn’t just hunker down, become stressed and depressed, or feel disempowered. First, she used a meditative technique to focus her attention on just observing the negative emotions her boss’ behavior aroused in her. That is, she practiced “watching” her emotions as they passed through her. This helped her refrain from being pulled by angry emotions into greater, more debilitating depths, or into unproductive behavior. Doing that enabled her, in turn, to step “outside” herself (that is, outside the narrow vantage point of her own ego). She looked at herself as if she were a character in a movie. She imagined rewriting the dialogue and actions of the character that was herself, and she envisioned how this “character” might create a different scenario. This is a form of what I called learning to “forget yourself” in a previous post (that is, moving beyond and through your immediate self-interest to see yourself in a larger context). Cathy’s enlarged perspective enabled her to accept that her boss was simply acting in accordance with the person he was, regardless of the reasons or how she judged them. Doing that helped prevent her from being drawn into taking his behavior personally, even though it impacted her personally. She rose “above” her situations with, in effect, “engaged indifference.” That is, she remained “indifferent” to her own emotional reactions, yet she stayed very engaged in looking for solutions from within her broadened perspective. She considered the possible viewpoints and agenda of her boss, from within his possible mindset. That added to her capacity to figure out what might be going on — and what might help. For example, she thought about what might be some drivers of her boss’ behavior. Was he simply a jerk? An unskilled manager? Did he have an agenda that she didn’t understand? Was he dealing with some insecurities of his own? Personal issues at home? She did a little sleuthing and learned that her new boss had been brought in under a lot of pressure to create some major changes in that part of the organization. Moreover, she learned that he had a troubled teenager at home. Knowing these things didn’t change her opinion about his behavior, but it helped her realize that it would be useful to both of them if he didn’t think of her as a thorn in his side. And it was up to her to try to make that happen. In essence, she saw the whole picture as a set of circumstances that created a “perfect storm” for her, and that called for an effective solution, from her. So, when her boss criticized a report she had prepared — on the grounds that it didn’t include something that he had previously told her to ignore, but which he now claimed he needed and had told her so — she anticipated that. Rather than reacting with anger, defensiveness or frustration, she simply said she would provide it immediately and asked how she could best help him with anything else that he needed at this point. Now this may sound counterintuitive, or that it’s “giving in” to a tyrant. But from an enlarged perspective of indifference and engagement, it’s not. That’s because you’re taking into account the emotional drivers and needs of the difficult person you’re dealing with. And you can’t do that if you’re driven solely by your own. By stepping “outside” herself, Cathy saw some ways to provide her boss the support he need to feel, which, in turn, could help calm his anxieties. She asked him for ways that she could aid his objectives. At the same time, she decided to cede control of some areas that didn’t matter to her, but which her boss seemed to enjoy micromanaging. Cathy felt secure in the knowledge that her expertise wasn’t diminished by her boss’ agenda or his actions. But there was one more important step that she took: looking down the road, Cathy concluded that her future under him was probably a dead end for the foreseeable future. So she immediately updated her resume and began looking for a new position. She kept her eyes on her own career development objectives, while at the same time navigating through her situation with as little friction as possible. Learn To ‘Enlarge The Problem’ President Eisenhower once said , when speaking about his experience as Allied commander during World War II, that if you have difficulty understanding a problem or figuring out how to solve it, “enlarge the problem.” That’s what Cathy did. Her example provides some general guidelines that can help, at least in some situations. They include: Create an emotional buffer zone. Observe your internal emotional responses to your situation, but recognize that you’re not obligated to act on them. Visualize a “space” between your emotions and how you choose to deal with them in your behavior. If you don’t, you’re likely to say or do something unhelpful or damaging to yourself. That is, stay fully aware of your buttons that your boss is pushing, but separate that from simply reacting to what he’s triggered, or from taking his behavior personally. Don’t get drawn into reacting to your boss’ emotional issues. Recognize that you always have a choice about what you do with your emotions in your conduct. Expand your perspective. By not reacting externally to your internal reactions, you are, in effect, learning to be “indifferent” to them. This allows you to enlarge your perspective about the whole situation: what’s feeding into it, and what’s driving your boss’ conduct. When you expand your vision beyond your personal, narrow vantage point, you can see the problem in a much larger context. That includes the multiple factors that feed into it, such as the role of other players or other organizational issues and politics, regardless of what your opinion is about them. This includes getting inside your boss’ mental perspective to understand what he or she may be sensitive to or reacting to. For example, some of your boss’ controlling or abusive behavior may reflect fear about her or his own security in the position. Create productive actions with “engaged indifference.” That means staying proactively engaged with solving the problem, yet “indifferent” to your own emotional reactions. Then, you avoid getting sucked into unproductive behavior fueled by anger, resentment or self-pity, or staying fixed within too narrow an understanding of the problem, which leads to a dead end. Ask yourself what you can do proactively, even if it means “feeding the dog what it wants to eat,” regardless of your opinion of your boss’ choice of “food.” Visualize alternative takes of the “movie” about your situation, as Cathy did. Use them to identify some new actions that reflect “turns of the plot.” You might decide to go along with some parts of your situation, because your enlarged perspective enables you to see down the road, as you might from the rooftop of a building. You may decide that that’s the best strategy for achieving your longer-range objectives. That might sound like “giving in,” but it’s not when you know what you’re doing and why. For example, you might look for ways to help your boss feel more secure or supported, despite what you think of him or her, because that diminishes your boss’ anxiety and will therefore make your life a bit easier, as long as you remain there. Of course, it’s important to self-examine at the outset, when you find yourself in a bad situation. Look honestly, with outside help, if necessary, at what you might be contributing to the problem. Ask yourself, “How much is it me or the situation?” Without doing that, you might take actions that you later regret or that prove to be unhelpful. Finally, it’s crucial to leave any situation that becomes outright abusive, or if you’re subjected to humiliation and extreme denigration. And then, do the research when considering a new job: look for signs of a potentially negative situation, tune in to what you hear during interviews, ask people within the organization what it’s like to work for that company or that boss, heed any red flags raised by what you hear, and don’t enable history to repeat itself. Douglas LaBier, Ph.D., a business psychologist and psychotherapist, is Director of the Center for Progressive Development in Washington, D.C. You may contact him at dlabier@CenterProgressive.org .

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Fred Wilson: Startup Financing 101: What Is Convertible Debt?

July 11, 2011

MBA Mondays are back after a one week hiatus. Today we are going to talk about convertible debt. Convertible debt can also be called convertible loans or convertible notes. For the purposes of this post, these three terms will be interchangeable. Convertible debt is when a company borrows money from an investor or a group of investors and the intention of both the investors and the company is to convert the debt to equity at some later date. Typically the way the debt will be converted into equity is specified at the time the loan is made. Sometimes there is compensation in the form of a discount or a warrant. Other times there is not. Sometimes there is a cap on the valuation at which the debt will convert. Other times there is not. There are a number of reasons why the investors and/or the company would prefer to issue debt instead of equity and convert the debt to equity at a later date. For the company, the reasons are clearer. If the company believes its equity will be worth more at a later date, then it will dilute less by issuing debt and converting it later. It is also true that the transaction costs, mostly legal fees, are usually less when issuing debt vs equity. For investors, the preference for debt vs equity is less clear. Sometimes investors are so eager to get the opportunity to invest in a company that they will put their money into a convertible note and let the next round investors set the price. They believe that if they insisted on setting a price now, the company would simply not take their money. Sometimes investors believe that the compensation, in the form of a warrant or a discount, is sufficiently valuable that it offsets the value of taking debt vs equity. Finally, debt is senior to equity in a liquidation so there is some additional security in taking a debt position in a company vs an equity position. For early stage startups, however, this is not particularly valuable. If a startup fails, there is often little or no liquidation value. Friends and family rounds, which we discussed earlier in this series , are often done via convertible debt. It makes sense that friends and family would not want to enter into a hardball negotiation with a founder and would prefer to let the price discussion happen when professional investors enter the equation. The typical forms of compensation for making a convertible loan are warrants or a discount. Warrants are another form of an option. They are very similar to options. In the typical convertible note, the Warrant will be an option for whatever security is sold in the next round. The Warrant is most often expressed in terms of “warrant coverage percentage.” For example “20% warrant coverage” means you take the size of the convertible note, say $1mm, multiply it by 20%, which gets you to $200,000, and the Warrant will be for $200,000 of additional securities in the next round. Just to complete this example, let’s say the next round is for $4mm. Then the total size of the next round will be $5.2mm ($4mm of new money plus $1mm of the convertible note plus a Warrant for another $200k). The total cost of the convertible loan is $1.2mm of dilution at the next round price for $1mm of cash. A discount is simpler to understand but often more complicated to execute. A discount will also be expressed in terms of a percentage. The most common discounts are 20% and 25%. The discount is the amount of reduction in price the convertible loan holders will get when they convert in the next round. Let’s use the same example as before and use a 20% discount. The company raised $4mm of new cash and the convertible loan holders will get $1.25mm of equity in the round for converting their $1mm loan ($1mm divided by .8 equals $1.25mm). Said another way $1mm is a 20% discount to $1.25mm. Convertible notes also typically have some cap on the valuation they can convert at. That cap is anywhere from the current valuation (not very common) to a multiple of the current valuation. Recently we are starting to see uncapped convertible notes. These notes have no cap on the valuation they can convert at. Startups typically think about raising capital via convertible debt early on in the life of a startup. They want to move fast, keep transaction costs low, and they are often dealing with a syndicate of angel investors and it is easier to get the round done with a convertible note than a seed or series A round. While these are all good reasons to consider convertible debt, I am not a big fan of it at this stage in a company’s life. I believe it is good practice to set the value of the equity early on and start the process of increasing it round after round after round. I also do not like to purchase or own convertible debt myself. I want to know how much of a company I’ve purchased and I do not like taking equity risk and getting debt returns. However, later on in a company’s life convertible debt can make a lot of sense. A few years ago, we had a portfolio company that was planning on an exit in a year to two years and needed one last round of financing to get there. They went out and talked to VCs and figured out how much dilution they would take for a $7mm to $10mm raise. Then they went to Silicon Valley Bank and talked to the venture debt group. In the end, they raised something like $7.5mm of venture debt, issued SVB some Warrants as compensation for making the loan, and built the company for another year, sold it and did much better in the end because they avoided the dilution of the last round. This is an example of where convertible debt is really useful in the financing plan of a startup. My guess is we will see the use of convertible debt, particularly with no compensation and no cap on valuation, wane as the current financing gold rush fizzles out. It will remain an important but less common form of early stage startup financing and will be particularly valuable in things like friends and family rounds where all parties want to defer the price negotiation. But I expect that we will see it used more commonly as companies grow and develop more sophisticated financing needs. It is a good structure when the compensation for making the loan is fair and balanced and when the debt vs equity tradeoff is useful for both the borrower and lender. This post originally appeared on AVC.com .

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Ray Leach: 3 Ways Washington Can Boost Job Growth At Startups

July 11, 2011

A couple of weeks ago, the National Advisory Council on Innovation and Entrepreneurship , a council of entrepreneurs, innovators, investors, university and economic development leaders that provides policy recommendations to the White House and the Secretary of Commerce, released a report with eight specific recommendations for improving access to capital for high growth companies. Young high potential companies need funds to create and fill jobs. And it’s the nation’s fastest growing young companies that create a disproportionate number of our nation’s jobs. In fact, the top-performing 1 percent of young firms generate roughly 40 percent of new jobs . If the Obama administration and Congress agreed to these recommendations, it would create lots of jobs across the U.S. Here are just a few of the recommendations from the report, two of which I’ve personally seen work in Greater Cleveland: 1) A 30 percent refundable tax credit for members of accredited angel groups for investments in U.S.-based startups. This credit would be refunded in the first fiscal year the investment is made. We have a similar program in Ohio. Called Ohio’s Technology Investment Tax Credit, it gives the state’s individual investors a tax credit of 25 to 30 percent the amount they invest in Ohio’s technology-based startups which have qualified with the state. I’ve seen its benefits first hand. Steve Spoonamore is CEO of ABSMaterials , a company selling a swelling glass that absorbs toxins in water. He says this program helped him raise a $2.4 million Series A investment round, which included money from several individual angel investors. “There are always people willing to step into the ‘ Valley of Death ,’ but you increase that pool with things like the Ohio tax credit. It’s been critical.” Steve is just one of nearly 600 tech-based Ohio startups that have attracted $146 million from angel investors since the state’s tax credit program started in 1996. These investments helped companies hire talent, purchase equipment, and pay for development activities. And, as the companies made progress, the angel investors received an immediate return on their investments — $36 million in the form of tax credits. Encouraging angel investment is not only good conceptually, but there’s precedence for its ability to increase funding for innovative companies. In British Columbia, where a similar program was instituted, 80 percent of angel investors who received the credits increased the amount of their investments. Ultimately the program also benefited taxpayers, with every $1 of angel tax credits resulting in $1.41 of additional tax revenue from the recipient companies. 2) 100 percent exclusion on corporate income tax for qualified small businesses on their first taxable year of profit and 50 percent exclusion on the following two years of profit. The idea behind this recommendation is that if a fast-growing company is able to avoid all its corporate income taxes for a year and pay at 50 percent of its regular rate the next two years, it can invest that precious cash into the business and grow more quickly. Imagine a young company being able to afford to double its sales staff as a result of not needing to pay corporate taxes during this critical first year. This not only creates jobs more quickly, but has the potential to create more revenues and more profit, with the impact then being multiplied due to the 50 percent reduction in taxes for the next two years. 3) Reducing the time it takes for SBIR/STTR grants to be approved from the current average rate of six to 12 months, to three months. Small Business Innovation Research (SBIR) and Small Business Technology Transfer (STTR) grant programs are administered by the federal Small Business Administration and represent grant funds for companies to further research ideas they have and their applicability into a market. Again, I’ve seen what these grants can do for fledgling companies in my own backyard. MesoCoat is a nanotechnology material-science company that is fast becoming a world leader in metal protection and repair through their breakthrough ‘high-speed’ cladding process and ‘life-extending’ nanocomposite materials. The company has received several SBIR awards from the Department of Energy and Department of Defense to help commercialize their coating, which could replace the carcinogenic and toxic hexavalent chrome coatings and expensive carbide coatings that the U.S. Army and other industries use to protect metals against corrosion. Since receiving the funding, MesoCoat has signed a co-op agreement with one of the biggest global players in the oil and gas industry to develop their proprietary high-speed cladding process. Beyond the technical progress it allows, what’s even better about these government grants is that they don’t need to be repaid and don’t dilute ownership in a company. It’s simply money companies need to continue developing cutting-edge technologies. And when an entrepreneur is working feverishly to get a new technology through the commercialization process, time really is money. Speeding up the process to know if you have up to $1 million on the way just makes sense.

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Nestle Expands In China With Large Stake In Candymaker

July 11, 2011

SINGAPORE/ZURICH (Saeed Azhar and Silke Koltrowitz) – Nestle, the world’s largest food company, is paying a hefty $1.7 billion for a 60 percent stake in candymaker Hsu Fu Chi International to move deeper into fast-growing markets in China. Nestle’s biggest deal in China so far will take it closer to its target of 45 percent of sales from emerging markets in about 10 years, and analysts said on Monday securing growth opportunities in China was worth a relatively high price. “It is certainly not cheap but that is the price you have to pay to get access to this high-growth market,” Vontobel analyst Jean-Philippe Bertschy said. “The fact that Hsu Chen will continue to lead the company is also very positive because he must be very well linked and have a well-established distribution network,” he said. International companies have been rushing to expand in Asian markets, where buoyant economic growth has boosted consumers’ purchasing power. On Monday alone, Asia-related deals worth some $15 billion were announced, such as Dutch group Philips’s buy of Chinese appliance firm Povos. Nestle paid about 3.3 times sales for the stake, more than the 2.4 times U.S. food group Kraft Foods paid for British candy group Cadbury. The Nestle deal was relatively expensive when compared with top deals in the food sector. Only Mars Inc had to put more on the table for Wrigley at 4.2 times sales in 2008 and Danone for Numico at 4.5 times in 2007. Kepler Capital Markets analyst Jon Cox said: “The deal makes strategic sense as, inevitably, China will become the biggest market for confectionery in the future. It looks a bit expensive at 3.5 times sales at first glance but you are paying for the future growth prospect.” The Vevey-based maker of KitKat chocolate bars and Nescafe coffee strengthened its dairy business in China earlier this year when taking a 60 percent stake in Yinlu Foods Group for an undisclosed sum. “Together with Yinlu Foods and Hsu Fu chi, Nestle will increase its Chinese business from around 2.8 billion Swiss francs ($3.35 billion) in 2010 to 4.2 billion francs,” Helvea analyst Andreas von Arx said. The deal will allow Nestle to increase its footprint in emerging markets and get closer to catching up with rivals Danone and Unilever, von Arx said. Gaining access to Hsu Fu Chi’s comprehensive distribution network was also key for Nestle which has been present in China for over 20 years, operates 23 factories and employs 14,000 people. Nestle shares were down 1.1 percent at 1310 GMT, versus a 0.6 percent weaker European food and beverage sector. Hsu Fu Chi, which makes sugar sweets, cereal-based snacks, cakes and the traditional Chinese snack sachima, is listed in Singapore and reported sales of 669 million Swiss francs in 2010. It employs 16,000 people. “The outlook for China’s consumption demand is quite positive,” said Dan Bin, a fund manger at Shenzhen-based Eastern Bay Investment Management, which invests in consumer companies. “Nestle has a lot of experience in consumer brands and with the deal, they can build on what Hsu Fu Chi already has in the Chinese market.” Under their agreement, Nestle will buy 43.5 percent of Hsu Fu Chi’s shares from independent shareholders at S$4.35, a premium of 8.7 percent over the July 1 closing price — trading in the Dongguan-based company’s shares were halted on July 1 when the companies said they were in talks. If the scheme is approved by the independent shareholders, Nestle will acquire a 16.5 percent stake from the Hsu family, which founded the company in 1992 and leaving it with 40 percent. The company will then be delisted. APPROVAL The deal, for which Credit Suisse advised Nestle, requires approval from China’s commerce ministry and authorities from Cayman Islands, where the company is incorporated, Hsu Fu Chi spokeswoman Christine Sun said. “There are some concerns, especially after Coca-Cola’s failed bid for Huiyuan. There is a sense that the Chinese government might be trying to protect Chinese brands,” Shaun Rein, managing director at China Market Research Group, said. “I would think that, in this case, it would not be a problem because we estimate the candy company only has about a 5.5 percent of the market, so it is a fairly niche market, and it is also a Taiwanese brand.” Another analyst said partnering with a family minority shareholder should increase the likelihood and speed of regulatory approval. The process will likely take 3-5 months, a source close to the deal said. Investors have worried that foreign bids for well-known Chinese brands were off the table since Chinese regulators blocked Coca-Cola’s $2.4 billion bid in 2009 for the country’s top juice maker, Huiyuan Juice. However, British drinks group Diageo won approval last month to increase its stake in Sichuan Shuijingfang, China’s fourth largest white spirits group. Nestle’s offer came at a time when a series of accounting scandals at foreign-listed Chinese companies have triggered a sell-off in China-based stocks, prompting owners to consider mergers or partnerships. Shares of Chinese companies listed in Singapore, known as S-chips, trade at a discount to their Singapore counterparts, which is forcing controlling shareholders to seek exits, said Tan Han Meng, an analyst at DMG & Partners. The FT ST China Index , which tracks shares of Chinese companies listed in Singapore, has fallen 11 percent since the start of the year, versus the Straits Times Index’s .FTSTI 1.9 percent fall. (Additional reporting by Lee Chyen Yee, Charmian Kok and Rachel Armstrong; Editing by Vinu Pilakkott and Dan Lalor) Copyright 2011 Thomson Reuters. Click for Restrictions .

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Germany Confident Italians Will Institute Austerity

July 11, 2011

BERLIN (Erik Kirschbaum, Eric Kelsey and Sarah Marsh) – Germany’s government has full confidence in Italy to take the necessary decisions regarding austerity measures and sees no need to expand the euro zone bailout mechanism, a government spokesman said on Monday. “The German government has full confidence in the Italian government that it will take the clearly necessary decisions for an austerity budget,” said Chancellor Angela Merkel’s spokesman Steffen Seibert. Seibert also told reporters at a government news conference that Germany agreed with other euro zone leaders that a second bailout package for Greece must be agreed quickly and would top the agenda of Monday’s euro zone talks in Brussels. “Germany has never said ‘This all has time until the autumn,’ but rather said there’s a need for a quick, joint solution that nevertheless has to include the fulfillment of certain criteria,” Seibert said. But Seibert said Italy, the latest focus of worries about possible contagion of the euro zone debt crisis, was not on the agenda of a special meeting of the European Union’s top finance officials ahead of talks between euro zone finance ministers. “According to our information, Italy is not on the agenda of this meeting,” Seibert said. The issue on the agenda is a new program for Greece, he added. (Writing by Stephen Brown) Copyright 2011 Thomson Reuters. Click for Restrictions .

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Greece, Italy Center Of Focus At Emergency Meeting

July 10, 2011

European Council President Herman Van Rompuy has convened an emergency meeting of top EU officials for Monday morning to discuss efforts to assemble a second rescue package for Greece and growing concerns about market pressure on Italy, three EU sources told Reuters. European Central Bank President Jean-Claude Trichet, Eurogroup Chairman Jean-Claude Juncker, European Commission President Jose Manuel Barroso and the European commissioner for economic and monetary affairs, Olli Rehn, have been invited to the meeting in Brussels, the sources said. The talks are expected to focus on the stalled effort to secure the private sector’s involvement in a second bailout package for Greece, and mounting concerns about Italy after a heavy sell-off in Italian assets on Friday. The meeting will aim to forge a clearer consensus among policymakers before euro zone finance ministers meet later on Monday to discuss Greece and the results of stress tests on European banks, which are scheduled for release on July 15. Copyright 2011 Thomson Reuters. Click for Restrictions .

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U.S. Consumer Credit Rose By $5 Billion In May

July 8, 2011

WASHINGTON (Glenn Somerville) – U.S. consumer credit rose by another $5.08 billion in May, according to a Federal Reserve report on Friday that suggested a willingness to keep borrowing despite a tight job market. The May rise, coming after a revised $5.67 billion increase in April, handily topped forecasts by Wall Street economists for a $4 billion increase and marked the eighth straight month of growth in consumer credit. The total of all consumer credit outstanding in May was $2.432 trillion, up from a total of $2.427 trillion in April. The key change in May came in a category called “revolving credit,” principally credit-card debt, that shot up by $3.36 billion in May after declining by $876.7 million in April. That was the biggest increase in credit-card debt for any month since mid-2008, when the economy was in the midst of the 2007-2009 financial crisis. The Fed provides no commentary with its report to help understand the big monthly shifts. One possibility is that consumers facing limited job prospects were forced to turn to credit cards more frequently to pay bills. For a lengthy period from late 2008 until recently, consumers had been paying down credit-card debt on a fairly regular basis. Analysts said that trend, which effectively meant debt loads were easing, was healthy because it should put consumers in a better position in future to resume spending and thus add to economic growth. A category called “nonrevolving credit,” which includes such items as student loans and car loans, expanded by $1.7 billion in May after shooting up by $6.54 billion in April. (Editing by Jan Paschal) Copyright 2011 Thomson Reuters. Click for Restrictions .

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Top White House Adviser: ‘This Is Not A Double Dip’

July 8, 2011

The U.S. economy is not facing a double-dip recession, but weak job growth is “a call to arms” for policymakers to take steps to reinvigorate the private sector, a top White House adviser said on Friday. “This is not a double dip,” Council of Economic Advisers Chairman Austan Goolsbee told Reuters Insider after the government report showed the economy created only 18,000 jobs in June. “This is a reflection and reiteration that the growth rate slowed at the beginning of this year.” “This should be a call to action,” he added. “We need to take bipartisan action to help the private sector stand up and start growing, hiring and investing,” Goolsbee said. He cited steps from passing free trade agreements to securing a deal on long-term deficit reduction. (Reporting by Tim Ahmann; Editing by Padraic Cassidy) Copyright 2011 Thomson Reuters. Click for Restrictions .

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Max Fraad Wolff: June Jobs Blues

July 8, 2011

The June non-farm payroll numbers are deeply below consensus forecast. The Bureau of Labor Statistics (BLS) reports that non-farm payrolls expanded by 18,000 in June . The BLS narrow U-3 unemployment rate is now 9.2%; it was 9.1% after the May report. The BLS broad measure of unemployment, U-6 including involuntary part time workers and discouraged workers, rose to 16.2% in June from 15.8% in May . This is 85% below the Bloomberg and Dow Jones average forecasts for over 120,000 jobs. We also saw April and May jobs creation revised down. We have had 545,000 people added to employment across the period April-June 2011. These are significantly weaker numbers than the May report, +54,000. We continue to see significant weakness in public sector employment, led by local public sector job losses. Public sector employment contracted by 39,000 jobs in June . Federal stimulus is declining and states and localities are feeling the pinch. State difficulties and budget issues are being passed along to municipalities. In June we continued to see heavy reductions in local employment, particularly education employees. Local governments reduced payrolls by 18,000 in June. 12,600 of these local job losses came in education. These declines are accentuated by the June end and July start of the fiscal year for most states and municipalities. The public sector lost 39,000 jobs in June with the federal government making a larger contribution than in recent months, reducing payrolls by 14,000. State and local governments have been shedding jobs for over 2 years. Productivity in the first quarter of 2011 continued its increase. For the lived experience of American households, and consumption strength, we continue to see productivity rising more rapidly than hours worked. The good news is that Americans are working harder and producing more per hour. The more troubling news is that this is restraining the pace of new hiring. Our success at doing more with less has contributed to profit rebound and helped the economy. It has also allowed more profit and production rebound despite one of the most anemic employment recoveries in American economic history. Compensation is rising, but less rapidly than prices. The BLS reported consumer price increases across 1Q2011 of 5.3% and compensation increases of 2.5%. It appears that the large pool of unemployed is having a depressive impact on wages. Once again, real wages are under pressures as increases in compensation remain below increases in the cost of goods and services. In June 2011 average hours and wages declined slightly. We see restrained job and wage growth as contributing to widespread displeasure with the economy in polling and other general sentiment indicators. We are moving closer to the jobs market as it will inform perceptions of the economy in the primaries and eventual general election cycle 2012. Monthly jobs numbers are now economically and politically influential.

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Carol Roth: Five Lessons Your Business Can Learn From the Hottest Celebrities

July 7, 2011

Today’s celebrities aren’t just entertainers, they are brands and businesses. Here are 5 lessons you can learn from some of the hottest celebrities around: Lady Gaga — Love Your Customers and They Will Love You: Lady Gaga loves her fans so much that she has nicknamed them (Little Monsters) and makes sure to acknowledge them often. This is a great strategy for business — it is much easier to market more products and services to your existing customers that are already raving fans than to try to find new ones. So, make sure your customers know that they are loved and keep telling them — they will buy more from you and advocate for you — loyalty is the way to go! Justin Bieber — Go Niche: Many of us don’t understand the appeal of Justin Bieber, but we aren’t his niche — it’s tween and teen girls. They love him and he knows how to leverage that. Focus on a very distinct target market and know what that market cares about. I remember a very successful shoe store in Chicago that employed a similar strategy. They had only really cute guys working there, who flattered every female customer incessantly as they tried on shoes. That store did very well. Once you are solid in knowing your target market, find a hook that has a strong appeal to them. The Kardashians — Strike While the Iron Is Hot: To say that the Kardashians have not been shy about exploiting their brands is like saying that fire is kind of hot. The Kardashian girls endorse clothing, perfume, diet supplements and more! What they know is that no business cycle lasts forever, so they are not shy about maximizing their potential while they can. The same goes for your business. Business cycles are shortening, so don’t be afraid to make the most of your opportunities while you are hot. Chelsea Handler — Do it Your Way: You don’t have to recreate the wheel to be innovative, you just need to bring something new to the table. There are many late night talk shows, but Chelsea Handler has become the queen of late night by bringing a new authentic voice to the market. So, the innovation comes from the way that she approaches something that has existed for decades. Your business can bring a new marketing strategy, distribution channel or value-add to the market without having to come up with the next big idea. Charlie Sheen, Lindsay Lohan (And Some Other New Celebrity Just About Every Day) — Even a Good Brand Can Become Tarnished: Even if you have something valuable to offer, if you are a jerk, eventually folks won’t want to do business with you. Tiger Woods, Charlie Sheen and Lindsay Lohan are just some of the celebrities that have learned that the hard way. You can’t get complacent in your business — you need to continually work to earn the trust and respect of your vendors, clients and employees! Who are other celebrities that teach you great business lessons? Share below.

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WikiLeaks Reportedly To Begin Receiving Credit Card Funds

July 7, 2011

LONDON — WikiLeaks has again begun accepting credit card donations, a company affiliated with the secret-spilling site said Thursday. Andreas Fink, the chief executive of Icelandic payment processor DataCell, told The Associated Press that Visa and MasterCard were again processing payments to WikiLeaks after a seven-month hiatus. Fink claimed the move as a tacit admission of guilt from the credit card companies, but it may well have been accidental. Visa Europe spokesman Simon Kleine told AP that processing the payments was “not something that we’ve sanctioned” and that the company was investigating. An email and phone calls seeking comment from MasterCard were not immediately returned. Visa and MasterCard pulled the plug on the company, DataCell ehf, in early December, shortly after WikiLeaks began publishing about 250,000 U.S. State Department cables. But Fink said Thursday that card services had been restored – saying that lawyers had made sure of it by making test donations. “We have seen donations going through,” he said, although he added that he wouldn’t get a clear idea of how much money was flowing into WikiLeaks’ coffers for another couple of days. Visa Inc. and MasterCard Inc. were two of a host of financial and Internet services companies which severed their links with WikiLeaks following the publication of the State Department cables. PayPal Inc., Amazon.com, EveryDNS and others also cut their ties with the site amid intense government criticism of the online activist group – leading WikiLeaks founder Julian Assange to accuse them of bowing to pressure from the Pentagon. Last week, WikiLeaks and DataCell said they were preparing to take the credit card companies to court in Denmark. On its website, WikiLeaks claims that the block placed on WikiLeaks by companies such as MasterCard and Visa have cost it more than 90 percent of its donations, or $15 million. It has offered no explanation as to how those figures were derived. The company is still raising money through bitcoins, a kind of online currency, and direct bank transfers to accounts in Iceland and Germany. ___ Online: http://www.datacell.com

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Fortune Global 500 Now Richer, More International, But With Same Number Of Female CEOs

July 7, 2011

On Thursday, Fortune released its annual Global 500 list of the world’s largest corporations by revenue. The U.S. tops the list with 133 corporations, including three in the top 10 — Wal-Mart, Exxon Mobil, and Chevron, whose profits all rose in the past year. But the number of American corporations on the list is down from 185 in the 2001 rankings . Meanwhile, China has 61 corporations on the 2011 list, including three — Sinopec Group, China National Petroleum, and State Grid — in the top 10. That’s a precipitous rise from 2001, when China had 12 entries in the Global 500, or even 2006, when it had only 20. In general, Fortune notes , the list is getting more international. Colombia appears in the Global 500 for the first time this year with the oil and gas company Ecopetrol , which had revenues of $21.4 billion. According to a press release from Fortune , the combined profits of the Global 500 increased 59 percent from last year. Wal-Mart, the top company on both the 2010 and 2011 lists, reported profits of $16.3 billion this year, up from $14.3 billion in 2010 . Chevron saw profits of $19 billion, up from $10.4 billion in 2010, and Exxon Mobil made $30.4 billion in profits, up from $19.2 billion last year. There are 12 corporations on the list with female CEOs — the same number as on the Fortune 500 list of U.S. companies, and the same number as on last year’s Global 500, though only 10 of the 12 women appeared on last year’s Global list. Of those 12 corporations, the highest-ranked is Archer Daniels Midland, led by Patricia Woertz, at No. 122. The newcomers are Ursula Burns at Xerox, which did not appear on last year’s list, and Alison Cooper at Imperial Tobacco Group, who replaced Gareth Davis in 2010. Of the five mortgage lenders audited this spring for improper foreclosure practices, three — Bank of America, Citigroup, and Wells Fargo — appear in the top 100. The full list can be seen here .

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UK Vulnerable To Greece Debt Crisis

July 6, 2011

As financial markets brace for the possibility of a Greek debt default, economic officials here are sketching out doomsday scenarios in a grim acknowledgment that even the world’s strongest economies are vulnerable. With Greece shelling out record interest rates, and with some frustrated investors pushing for a default , economists fear that the collateral damage from a credit event could reach these shores. By virtue of our connections to institutions throughout Europe and our reliance on credit, British banks bear heavy indirect exposure to Greece, setting them up for significant losses if the currently perilous Greek debt situation were to evolve into a full-blown crisis, the UK central bank said in a news conference late last month. No one, in other words, is immune. “It’s this issue of interconnectedness in the financial system that policymakers are so worried about,” said Richard Barwell, a London-based economist at Royal Bank of Scotland. “It’s difficult for anyone to be convinced their balance sheet is secure unless they know that the people they’ve lent to, and the people that they’ve lent to, all their sheets are secure, too.” “At the end of the day,” he added, “that’s how you can get those cascades of defaults.” After European finance ministers approved the latest installment of Greece’s bailout package Saturday, concerns remained about the troubled nation’s ability to repay its mounting debt, which is projected to total 160 percent of the country’s economic output this year. For many investors and economists, the question isn’t whether Greece will default, but when. The emergency aid extended to Greece is widely seen as a time-buying measure, and not a long-term solution. Greece likely cannot service its debt on its own, with its 10-year paper yielding nearly 16.5 percent, and its two-year debt throwing off more than 26 percent, according to Bloomberg data. But efforts to hammer out a longer-term fix have been stymied. French President Nicolas Sarkozy outlined a plan last week for banks to stretch their short-term Greek debt into long-term bonds, offering Greece some interest-rate relief. But such a plan would impose losses on creditors and would constitute a default, the ratings agency Standard & Poor’s said Monday. If a default were to spark a broader crisis, weaknesses among Greece’s immediate creditors could quickly spread. “If UK banks are exposed to banks in France which are themselves exposed to a bank in Germany, which is then exposed to Greece, that’s another indirect exposure,” said Mervyn King , governor of the Bank of England, during the news conference. “There’s an infinite regress here.” The direct exposure of UK banks to Greece was relatively small at the end of 2010, at about £12 billion at the time, according to the latest figures from the Bank for International Settlements . But indirect exposure potentially dwarfs that figure. If significant damage were to spread other countries’ private sectors, UK banks could face severe strains, suggests a June report from the Bank of England. The banking sector’s claims on the non-bank private sectors of Spain and Ireland combined constitute about half of those banks’ so-called Tier 1 capital, the money banks set aside to cushion against losses, according to the report. As for UK banks’ claims on France and Germany, those together represent about 130 percent of Tier 1 capital, the report says. “You just don’t know all the interbank connections,” said John Whittaker, an economist at Lancaster University Management School. “It’s like when Lehman went down. Nobody knew who was indebted by how much to who else.” The years after the financial crisis have seen a host of weak European banks become even weaker. Now, the credit ratings on Europe’s 100 largest banks span the widest range in 30 years, according to S&P, the Bank of England said. Calculating the total magnitude of the UK’s exposure to a broader meltdown is impossible, King said. Moreover, any crisis would likely be worsened by a broader loss of confidence, affecting a range of institutions, he added. Creditors would flee and markets would likely freeze, heaping pain on beleaguered governments. “There’s a risk that if something went wrong, you may get a drying of liquidity more generally,” said Simon Hayes, chief economist at Barclays Capital. Or put another way, creditors might decide they “simply don’t understand the complexity of the interconnectiveness of these exposures, and just won’t take the risk of lending,” King said at the June 24 news conference. Such a panic would likely affect the world’s strongest economies. If the crisis spreads here, it would likely also touch the United States, said Barwell, the RBS economist. “The price of a whole range of risk assets would fall,” he said. “There are these huge channels that certainly come into play, which won’t get captured by the simple numbers.”

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Simon Johnson: Italy Could Be Next

July 5, 2011

In recent days, Greece’s parliament adopted new austerity measures and Europe’s finance ministers approved another round of Greek loans. So the European debt crisis is under control, right? Probably not.

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JP Morgan Forces Vegas Project Bankruptcy

July 2, 2011

A consortium of lenders consisting of JP Morgan Chase Wells Fargo and Credit Agricole has pushed the housing project Inspirada into bankruptcy

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Companies Moving Jobs To U.S. From China To Avoid Inflation

June 28, 2011

MILWAUKEE (Scott Malone) – On a recent morning at Master Lock’s 90-year-old factory in Milwaukee, a cluster of machinery was whirring, every 2 seconds spitting out one of the combination locks used by American high schoolers as the company readied for the back-to-school rush. The seven-day-a-week, three-shift-per-day whirlwind of activity marked a change from two years ago, when the machine normally ran for just a few hours a day because the unit of Fortune Brands Inc was ordering more padlocks from suppliers in China instead of making them. Why move production from the world’s low-cost workshop back to a unionized U.S. factory where wages are six times higher than in China? Efficiency: The machine in Milwaukee is about 30 times as fast as the Chinese factories the company had been buying from, more than making up for the difference in wages. “I can manufacture combination locks in Milwaukee for less of a cost than I can in China,” said Bob Rice, a senior vice president at the largest U.S. padlock manufacturer. The factory has added about 78 workers over the past two years, boosting its workforce to 440. That is a small bit of good news for the long-suffering U.S. manufacturing sector, which shed about 2 million jobs, or some 14.6 percent of its employees, in the last recession. It has not recovered since and now employs 11.7 million people, down 34,000 from the recession’s official end in June 2009. Master Lock is not alone. General Electric Co and Boeing Co are also part of the small group of U.S. companies that are boosting production at their U.S. factories. A variety of factors are driving the shift, including rising wages in parts of Asia, surging fuel prices and the complexity of transporting goods across the Pacific. (Reuters Insider show: “Made in USA” Making Comeback as U.S. Manufacturers Expand: link.reuters.com/nuf42s ) ECONOMIC IRONY “What you’re starting to see is the economics shifting more into the United States’ favor regarding sourcing from the United States versus sourcing from a low-cost country,” said Daniel Meckstroth, chief economist at the Manufacturers Alliance/MAPI, a Washington trade group. There is an element of irony here. The United States’ sluggish economic recovery, coming at a time when emerging economies including China and India are enjoying brisk growth, is helping its manufacturers to close the cost gap on their foreign rivals. China’s inflation rate hit 5.5 percent in May, well ahead of the United States’ 3.6 percent headline rate. With Chinese wages rising at 15 to 20 percent per year, the labor costs of manufacturing in the two countries could pull even by 2015, a Boston Consulting Group study predicted in May. Rising oil prices, which drive up the cost of shipping goods by boat or plane, are also eating in to China’s edge. Automation also helps tilt the balance toward the United States. Bruce Crass, the Master Lock plant’s general manager, estimated that his plant — where the average worker oversees the operation of six high-speed machines — produces 24,000 locks a day with about one-sixth the number of workers needed by the company’s Chinese suppliers and rivals. Master Lock today makes about 55 percent of its padlocks in North America — in Milwaukee and at a satellite location in Nogales, Mexico — with the rest made in China. That is down from a 50-50 split two years ago. To be sure, these companies are the exception in the U.S. economy, where businesses from Apple Inc to Nike Inc focus on design and marketing, leaving production to independent contractors. Copyright 2011 Thomson Reuters. Click for Restrictions .

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Jim Randel: How Debt Collectors Play Unfair

June 27, 2011

Like it or not, your credit score is hugely important. One expert told me that even small differentials in credit scores can — over time — create large differences in net worth. Since a credit score will affect the cost at which you can borrow money (the interest rate), over a period of years the difference in interest rate will have a major impact on your disposable income and thus your assets. It is well known that the #1 way to maintain a good credit score is to pay your bills on time. Credit experts also know that your score is heavily weighted toward RECENT payment history — a debt or late payment that is a few years old, for example, affects your credit score much less than any such event within the preceding six months. But, here is where you can get tripped up (unfairly so): Let’s say that on January 1, 2010 John Doe owed ABC Bank $1,000 and made a decision that he could not pay the debt. For about a year, that non-payment will have a big impact on John Doe’s credit score. Now it is January 1, 2011 and that debt is a year old. ABC Bank sells the debt to DEF Collections for $.10 on the dollar. Now here is the RUB: DEF Collections reports the debt to the big three credit reporting agencies — such that it appears as a NEW debt/non-payment. DEF Collections should not be doing that but the laws are not clear enough and enforcement is very spotty. The upshot to John Doe is a new CURRENT hit on his credit report and thus a big SMACK on his credit score. If John Doe is aware of what is happening, he can make a claim to the credit reporting agencies and they should remove the DEF claim. But, there is most often a big gap between what happens, and what consumers know or do. So, if you are being chased by a collection agency, check your credit report to ascertain whether any old debts are showing as NEW debts and thereby unfairly impacting your credit score. Jim Randel is the founder of Rand Media Co. and the primary author of The Skinny On Book series. His latest publication titled Street Smarts teaches 125 critical life skills that are not traditionally taught at universities.

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Bant Breen: The Revealing Conference Call

June 26, 2011

Today we live in an always-on world of networked PC’s and mobiles. As these digitally connected devices continue to add more cameras it is important to remember that we live in an always-seen age as well. Last summer I arrived at my in-laws farmhouse for a vacation. But before my holiday could begin I had one last web conference call presentation with several my colleagues that needed to be attended. I set up my computer and logged into the conference call. The meeting was going to start in about 15 minutes so at the urging of my wife and kids I ran outside and jumped into the pool to cool down and wash the long trip and my worries away. I was having a great time playing with my kids in the water and was shifting into rest and relaxation mode when I remembered about the conference call. I jumped out of the pool and ran back to the house to join the meeting. I sat there in the dark bedroom as my colleagues made presentations about their monthly activities followed by discussion. Finally my name was called and I was asked to speak. My presentation appeared on the screen and in a professional voice I started outlining our corporate progress on various initiatives. My associates were strangely silent as I presented. Finally one of my coworkers from England piped up, “Uh, mate, uh, are you naked?” This was followed by several other affirmative murmurs and chortles. I had not put on a shirt after being in the pool, did not realize the webcam was on and appeared to the global conference call as if I was sitting there au naturale. My colleagues had a field day with this gaffe and I still receive e-mail invitations to conference calls with the line at the end, “Remember to wear a shirt.” There are numerous examples of our connected video cameras capturing the good, bad, funny and ugly. Earlier this year, a Wyoming couple accused a national rent-to-own chain of spying on them at home using their rented computer’s webcam without their knowledge. ‬Thousands of people followed Joshua Kaufman’s saga in Oakland as he took pictures of the thief that had stolen his MacBook from his Oakland apartment in March until the criminal was apprehended. I cannot see the usage of connected video abating. I am a heavy user of virtual meeting technologies and love the ability to share my screen and work with collaborators all over the world. Certainly there are significant privacy concerns and limitations will need to be established. Just remember, if there is a connected camera on your computer or mobile, it is advised to wear a shirt to the virtual meeting.

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Cost Of Childcare Has Skyrocketed In Last 50 Years

June 25, 2011

It cost $25,299 to raise a child from birth to age 18 in 1960. The amount rose to $226,920 last year. This may be one of the reasons many reasons Americans are having fewer children these days. Adjusted for inflation, the 1960 sum equals about $192,497 compared to $235,996 in 2010, about a 22% increase. Neither number paints a complete picture. Median household income rose 25% between 1960 and 2010. The cost of raising a child is, in comparison to income over the 50-year period, up very modestly.

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Americans Have Never Been More Distrustful Of Banks: Poll

June 24, 2011

The recession might be officially over, but American views toward the institutions that brought the economic system close to collapse have never been worse. According to a new poll by Gallup , 36 percent of Americans now say they have “very little” or “no” confidence in U.S. banks, the highest percentage on record since Gallup first started tracking that data. Those saying they have a “great deal” or “quite a lot” of confidence in banks has also stagnated, stuck at 23 percent for the second straight year, after falling to a low of 22 percent in 2009. Safe to say it’s been a tough year in the banks’ public relations departments. U.S. banks have spent much of the past year aggressively lobbying against the implementation of Dodd-Frank financial reform. This week, Treasury Secretary Timothy Geithner called out banks for the “huge amount of money [spent by banks] to erode, weaken, walk back” financial reform. Indeed, the largest-lobbying institutions of last year spent 2.7 percent more in the first months of this year in an attempt to combat rules including higher capital requirements and restrictions on swipe fees. The nation’s five largest mortgage servicers — Bank of America, JPMorgan Chase, Wells Fargo, Citigroup and Ally Financial — have also been the focus of a federal investigation into whether the banks defrauded taxpayers in their handling of foreclosures, first reported by The Huffington Post in mid-May. In addition, in April, Goldman Sachs, the nation’s first-largest bank by assets, was accused in a Senate report of systematically misleading clients by selling them assets known to be junk and then subsequently betting against that junk. So this year’s Gallup results only further emphasize the growing animosity toward banks in America. Never before 2009 had more Americans expressed more distrust than trust in banks. That has not only been the norm for three years now, but the gap is widening. Gallup, who has been tracking confidence in banks for over thirty years now, notes the steady decline of confidence in their release, pointing out that 60 percent of Americans had at least “quite a lot” of confidence in banks in 1979. That fell to 30 percent in the early 1990s, but then steadily rose to 53 percent in the mid-200s. The percentage of Americans with a good deal of trust in banks has been nearly halved since 2007: Although levels of confidence have fallen in all regions since the first years of the financial crisis in 2007, confidence is again on the rise in the Midwest and West. This year, it is the East that has the least confidence in banks, at 20 percent. The below graph charts levels of confidence since the financial crisis:

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Stocks Fall On Concerns Over Greece

June 24, 2011

NEW YORK (Edward Krudy) – Stocks headed for three days of losses on Friday on worries about the Italian banking sector and Greece’s austerity plan, but the S&P 500 managed to hold its 200-day moving average in a sign of market strength. Italian banks UniCredit SpA (Milan:CRDI.MI – News) and Intesa Sanpaolo (Milan:ISP.MI – News) fell sharply on concerns about their capital positions alongside uncertainty about the euro-zone crisis. Trading in the banks’ shares was briefly suspended. Greece’s government faced an electorate vehemently opposed to austerity measures that must be passed in parliament next week to avert default. But progress is being made in persuading banks to take part in a second bailout. “They (politicians) may not believe that financial markets are as sensitive to their decisions as they actually are, and there is a worry that somewhere along the line, some political vote goes against the market,” said Nicholas Colas, chief market strategist of the ConvergEx Group in New York. The S&P 500 remained within striking distance of its 200-day moving average — a line that has been tested twice in recent trading and has so far acted as a springboard for stocks. The level was at 1,263.49. “Every time you test a resistance or support level, you make it weaker,” Colas said. “It’s almost like a piece of metal. Every time you hit it, it grows more fragile and that’s why people are really worried the third or fourth time.” The Dow Jones industrial average (DJI:^DJI – News) dropped 82.04 points, or 0.68 percent, to 11,967.96. The Standard & Poor’s 500 Index (^SPX – News) fell 10.82 points, or 0.84 percent, to 1,272.68. The Nasdaq Composite Index (Nasdaq:^IXIC – News) lost 26.51 points, or 0.99 percent, to 2,660.24. The KBW Banks Index (Philadelphia:^BKX – News) lost 0.8 percent and the S&P Financial Sector Index (^GSPF – News) shed 0.7 percent. On Thursday, the market welcomed Greece’s agreement to a five-year austerity plan. The euro declined against the dollar for a third straight session on worries Greece’s parliament might not pass austerity measures needed for the country to secure more bailout funds. In the latest economic data, new orders for long-lasting U.S. manufactured products, known as durable goods, increased 1.9 percent in May after dropping 2.7 percent in April as bookings for transportation equipment rebounded strongly. Oracle Corp (NasdaqGS:ORCL – News), off 3.9 percent at $31.21, was the biggest drag on both the S&P 500 and Nasdaq 100 indexes (Nasdaq:^NDX – News) a day after the world’s No. 3 software maker posted disappointing results, especially in hardware sales. Oracle’s results sparked concerns about a bigger slowdown in technology spending. Micron Technology Inc (NasdaqGS:MU – News) tumbled 13.8 percent to $7.27 after the memory chipmaker recorded results below expectations late Thursday. (Reporting by Edward Krudy; Editing by Jan Paschal) Copyright 2011 Thomson Reuters. Click for Restrictions .

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Marty Zwilling: You Never Learn Anything While You Are Talking

June 24, 2011

When you are not presenting to investors or your team, try to spend more time listening than talking. You can’t learn anything new while you’re talking, yet many entrepreneurs seem to never stop. It’s a sad spiral, since the more you talk, the less people really hear, meaning they don’t learn anything either. If someone left this article on your desk, read extra carefully. Building a business is all about building relationships, and one of the most important elements of a relationship is effective communication. Communication doesn’t happen unless both parties practice the art of effective listening. Check to see if you are practicing the key disciplines of listening, as outlined by Brian Tracy in No Excuses: the Power of Self-Discipline : Listen attentively. Listen as though the other person is about to reveal a great secret or the winning lottery number and you will hear it only once. Since you always pay attention to what you most value, when you pay close attention to another person, you tell that person that they are of great value to you. You will be remembered. Pause before replying. When you pause, you avoid the risk of interrupting the other person if they are reformulating their thoughts. It also enables you to hear not only what was said, but what was not said. Then you can respond with greater awareness and sensitivity. Ask for clarification. Never assume that you automatically know what the other person is thinking or feeling. It is when you ask questions and seek clarity that you demonstrate that you really care about what he or she is saying, and that you are genuinely interested in understanding how he or she thinks and feels. Feed it back. The acid test of listening is to see if you can paraphrase what you heard in your own words. It is only when you can repeat back what the other person has just said, in your own words, that you prove you are really listening, and understood the message. For all feedback, be sure to mirror the other person’s pace and communication style. Even good communicators average only about half their time listening. Yet experts assert that most people listen with only about 25 percent of their attention, hear about 25 percent of what is said, and after two months, remember only half of that. That’s not effective communication. There are also things you can do to encourage others to listen to you, when you do speak, to improve the overall communication: Lower voice, no emotion. This causes the other party to listen more carefully, and facilitates a more pleasant and more effective conversation. Adapt to listener interests. Use analogies and terminology that are easy for the other person to relate to, and they will respond with attention and higher comprehension. Choose the right environment. Wait for the right opportunity, when you can be easily heard and understood, and the listener is in the right mood. Address people by name. This gets their attention and focus. Sometimes it helps to bring others into the conversation to support your input. In business, you need to always be listening – to customers, to advisors, to investors, and to your team members. When you do talk, concentrate on making it effective. You don’t have the time to have things repeated to you four times before you really hear and understand them. Responsible, effective listening is a rare skill that will give you a sustainable competitive advantage over your peers and your competitors. It’s also a skill that can be developed with practice. You can never know enough in business, so even top entrepreneurs find time to listen. Are you learning anything these days?

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Mark Bourrie: Canada’s New Bills Won’t Change Old Financial Habits

June 24, 2011

In a drawer somewhere, I have a nickel-sized coin of the Roman emperor Gallienus (ruled 253-268 AD). Gallienus is long-forgotten, but he shouldn’t be. He is one of the true fathers of inflation, and there should be a statue to him on the Acropolis in Athens and in the lobby of every government’s central bank. Gallienus was a victim of bad timing. Plagues and invasions had weakened the Roman Empire. Big chunks of it were seceding and rebelling. Gallienus rarely visited Rome. He spent most of his reign on the road, hunting down various barbarian hordes and rebel legions. And he fretted over his finances. Because of the wars and the decline of trade, (along with hoarding by nervous Romans), silver disappeared from circulation. Coins were almost impossible to come by. Gallienus’ money guys came up with a solution to this problem. They got the mint to stamp his coinage in copper. Then they put a silver wash on the coins. Gallienus paid his army with it. The resulting carnage left Gallienus and his entire family dead, his statues smashed and his monuments pulled down. Geneologists re-wrote family histories to erase Gallienus. I bring up poor Gallienus just hours after seeing Canada’s new polymer $100 bills. I was at a news conference where these bills were handed out to reporters. We had to give them back, but, while we had them, I went at mine with every intention of seeing if it really could not be torn or mutilated, as the Bank of Canada’s people said. Some of the people around me reacted in horror at the disrespect I showed to my little piece of plastic, as though “money” — even a piece of holographed chemistry that no one would accept as money right now — was somehow sacred. Money is what people think it is. A “dollar” used to be the same everywhere: one ounce of silver, give or take a small nip. A dime was 1/10 of an ounce of silver. A “penny” was, for hundreds of years, 1/240 of a Roman silver pound, which was 12 troy ounces. A British pound morphed from those 12 ounces of silver to ¼ ounce of gold, which was also about the size of a U.S. $5 gold piece. A U.S. $20 gold piece was just under one troy ounce of gold. A century ago, Canadians were very familiar with the big British copper penny, which was about the size of a loonie and had about the same purchasing power. But now money is all numbers, articles of faith. Canada’s paper money used to bear the words “The Bank of Canada will pay to the bearer on demand…” the number of dollars on the bill. The bill was a promise to pay money. By sleight of hand, the bill somehow became money. Money and governmental jiggery-pokery have always been intertwined. Henry VIII’s subjects called him “Old Copper Nose” because he watered his silver coins down with so much copper. I have a $50 trillion Zimbabwe note around the house somewhere, one of the last bills issued by Robert Mugabe’s regime before the German printers stopped the presses until their account was settled (in Euros). Somewhere else, I have a stash of billion-mark bonds issued by Germany’s Weimar Republic in 1923. That inflationary trick, which conned some of my gullible relatives and wiped out the bond-holding German middle classes, helped seal the German republic’s fate. (The company that printed the German bank notes in the worst weeks of the inflation submitted a bill to the government for 32,776,899,763,734,490,417.05 marks.) Sound currency issuers: Elizabeth I, Julius Caesar, Constantine the Great, Napoleon, George Washington, Sir John A. Macdonald, Otto von Bismarck. Unsound currency issuers: Richard Nixon, Jimmy Carter, unlamented Gallienus, the Soviet Union, Communist China, Robert Mugabe (and Abraham Lincoln, just to throw a wrench into my own argument. But war is hell on currency). We’re in for a reckoning about money, not because we’ve physically debased it, but because we don’t understand it. The yuppie who stiffs a waitress on a tip has no problem bidding up a house by $50,000 over its asking price, which already reflects a speculative “value” that has no basis in intrinsic costs. Politicians in Canada hold a five-week election campaign to argue about economics, then pass $275 billion in spending, some 800 pages of estimates, in far less time than it takes to read them. Each Canadian family has, on average, some $180,000 in mortgage and personal debt. Take out the renters, the people making minimum wage, people with bad credit, the elderly who have the sense to be debt-free at retirement, people who abhor debt or have religious scruples about usury, and the small number of people who are so rich that they rarely borrow, and you have a skilled working class and a professional middle class in deep, deep financial trouble. The CMHC, which insures most of the worst of Canadian mortgages, has more risk on its books than the amount of the federal debt. We also hide debt by spreading it among pension plans, provinces and municipalities. Our statisticians play with numbers to try to convince us that inflation is much lower than it actually is. Our allies and friends are already showing us the future. In Greece, revolution is in the air because the government is worse than broke. In the U.S., public debt levels are above the ability of most people to comprehend. It’s like trying to calculate the number of stars in the universe. Eventually, things will work out. People will need stuff. People will make stuff. People will carry stuff around and sell it. Barter is far less efficient at setting prices than a cash economy, so people will create good money out of necessity. But the road between now and then could be pretty rough. I doubt the new plastic currency will help, though I did find that if you do pull really hard, you can stretch the new bucks. You just can’t stretch them far enough.

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Steve Mariotti: Subjective Versus Objective Costs: How the Labor Theory of Value Almost Destroyed the World

June 20, 2011

Over the past 200 years or so, many of the world’s conflicts have developed around a little-known debate in economic theory. The outcome of this argument has had an impact equal to that of a major war. As an educator, I find it one of the most important but difficult concepts to teach to students, but let me take a shot at explaining it to adults. The issue is valuation, what something is worth. The debate started in 1776 with the publication of Adam Smith’s landmark book The Wealth of Nations (it was a pivotal year on this side of the Atlantic as well!). In his text, Smith posed this question: Why are diamonds more valuable then water? His answer, synopsized, is that there is more labor involved in obtaining diamonds. In one of the most erroneous sentences ever written, Smith explained, “The real price of every thing, what every thing really costs to the man who wants to acquire it, is the toil and trouble of acquiring it.” This was not an accurate answer. It led directly to the Labor Theory of Value and the Exploitation Theory of Capitalism, which became the cornerstone of Marxism/Leninism. One could say that this one misstep in economic analysis led to the virtual imprisonment of over a billion people in the USSR and China and other nations, and brought the world close to nuclear destruction. What made this mistake so tragic was that Smith originally had it right: the price of diamonds is higher than that of water because of the difference in supply and demand. Smith wrote in 1763: “It was only on the account of the plenty of water that it is so cheap as to be got for the lifting and on account of the scarcity of diamonds that they are so dear.” (Quoted in Mark Skousen, The Making of Modern Economics , 2nd ed. (Armonk, NY: M. E. Sharpe, 2009), p. 175.) Nobody knows why Smith forgot this true principle of marginal utility when he wrote his magnum opus, The Wealth of Nations , 13 years later. The price of anything is determined by the intersection of the marginal supply and demand for it. From that idea comes the concept that prices are signals to both entrepreneurs and consumers about the relative value and availability of particular goods and services. Prices carry information that drives people’s behavior at the margin — guiding the “invisible hand” of the market to respond by increasing the amount supplied when there is an increase in price, and by a decrease in the amount demanded as prices rise. A price will be reached that balances the two forces, determined at the margin; this is “the market clearing price.” Example: Suppose a tornado hits a midwest city and disrupts the supply distribution of milk, creating a temporary shortage of milk — the price of milk soars. The local government, unaware of basic economics, puts controls on milk prices. Supplies shrink even further, because there was no signal (price rise) to entrepreneurs saying: “Bring milk quick!” If officials lift the price freeze, suppliers will respond, flooding the area with milk so that prices will soon go down dramatically, until the normal balance of supply and demand is restored. Understanding the role prices play in communicating value is based on an insight made by Carl Menger in 1871, that prices and values are determined on the margin; that is, the “last unit” of any product is the key building block of analysis. The contemporary economist Mark Skousen (whom I regard as the nation’s top economist today) writes: “Menger demonstrated that prices and costs are determined at the margin — by the marginal benefit-cost to buyers and sellers.” Much of the world took a dark road down the path of totalitarianism by the acceptance of Smith’s earlier error. The English economist David Ricardo had the brilliant insight of “comparative advantage,” creating the argument for international free trade, but he compounded Smith’s mistake and defended the Labor Theory of Value, arguing passionately that the value of something is determined by how much labor goes into making it. Ricardo had second thoughts about this, however, and repeatedly posed the question as to why bottles of wine increased in value over time. So, what gives something value? It was not until almost a century later after the publication of The Wealth of Nations that, working independently, three economists made what is called “the subjective value breakthrough.” Menger was the most clear: a product’s value was determined by the demand for it by consumers in the marketplace and its marginal supply. Hence, value could change moment by moment and was ultimately determined by consumers responding to the current supply. Both Jevon and Walrus also argued in favor of the subjective value theory of value. Together Menger, Jevons, and Walrus created the Marginalist Revolution of the 1870s and transformed political economy (as it was called back then) to the science of economics. This was a radical departure from the Labor Theory of Value, and it had important political implications. If value is subjective, then one person cannot tell another what the worth of something is. Ultimately, it gave an individual the right to voice opinions on what was of value, and these could change and no doubt would. People were free as consumers. This scenario became the basis for “voluntary trade.” When values are objective, on the other hand, it gives the government the right to tell its citizens what the monetary worth of goods and services are and, by extension, how the citizens should best spend their time and earn their livelihoods. This scenario became the basis for totalitarianism, both communism and fascism. Under communism, the Labor Theory of Value became a science of oppression. Until the collapse of the Soviet Union and its satellites, in 1989, most prices were determined by central authority, as they are now in North Korea. This fatal conceit — that government bureaucrats in an office can determine how goods and services should be priced and allocated — violates a basic human concept: every individual has unique knowledge of personal needs and wants and how those could best be satisfied. That was Nobel Prize economist Friedrich Hayek’s brilliant insight. This knowledge leads to the voluntary decisions that, collectively, drive the prices of goods and services. Without this economic base of subjective value, a government will become totalitarian. At one time or another, over a billion people in about three dozen countries have lived under a political system which, at its heart, was driven by the Labor Theory of Value. This concept of subjective value is often misunderstood at the pre-college level (and beyond!). Here is how I teach it to my junior- and high-school-level students. (Thanks to Les Charm for imparting this lesson at the SEE seminar at Babson college.) I hold up a picture (say, from a magazine) of something of value that would not be known to the students — like a house — and ask each to write down its worth. Typically, students list a wide range of estimates. This lesson brings home the fact that value is subjective, and that everyone has the right to an opinion. In addition, it is a great way to teach young people about ignoring fixed costs and focusing on the next marginal decision. This can have special implications for those children who are suffering from poor choices made in the past, and gives them a mental framework to begin again with a clean slate. Subjective value may be the hardest concept to teach to young people but is perhaps the most important, because of its implications for human freedom.

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Bill Clinton: 14 Ways To Fix The Job Crisis

June 20, 2011

Next week in Chicago, the Clinton Global Initiative will focus on America for the first time, inviting business and political leaders to make specific commitments in support of the former president’s jobs blueprint, which he details below.

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TEPCO’s Credit Rating Reduced To Junk By Moody’s

June 20, 2011

TOKYO – Moody’s Investors Service cut its credit rating on Tokyo Electric Power Co to junk status on Monday and kept the operator of Japan’s crippled nuclear power plant on review for possible further downgrade, citing uncertainty over the fate of its bailout plan. Moody’s said it had lowered Tokyo Electric Power’s (Tepco) senior secured rating to Ba2 from Baa2 and long-term rating to B1 from Baa3, citing rising costs and compensation fees related to the disaster at Tepco’s Fukushima Daiichi nuclear plant after the March 11 earthquake and tsunami, the world’s worst nuclear disaster in 25 years. “The latest downgrade reflects further escalation of costs and damages from the continuing Fukushima nuclear plant disaster and increased concern that government support measures may not completely protect creditors from losses,” Moody’s said. “The continued review for possible further downgrade is due to the uncertainty surrounding the passage of the support plan through the Diet, and the difficulty in estimating the ultimate total for Tepco’s total compensation liability,” it said. The move follows a similar downgrade to junk status by ratings agency Standard and Poor’s, which late last month cut its long-term credit rating on Tepco to B+ from BBB, and the utility’s secured bonds rating to BB+ from BBB. Moody’s said likely damages were now beyond Tepco’s ability to finance without government support, and the ratings agency said it is “very likely that a support program in some form will be legislated eventually due to TEPCO’s role as Japan’s largest provider of electricity.” Tepco is Japan’s largest corporate bond issuer, and its shares are widely held by financial institutions. “A failure to approve the support program would result in a multi-notch downgrade to reflect likely default through some form of debt restructuring, or court-supervised bankruptcy proceeding,” Moody’s said. Even if a support program is enacted on a timely basis, Moody’s said it expected Tepco to remain financially weak for several years. Tepco will likely face rising costs for replacement power, bear higher costs for stabilizing the Fukushima plant, as well as its decommissioning, Moody’s said. “Prospects for passing higher costs onto its customers in timely manner that meets the company’s financial needs are in doubt under the current regulatory regime and in view of the unfavorable economic environment,” Moody’s said. “These factors would together put its equity base under significant pressure. In addition, no losses have yet been booked for compensation claims which size is still uncertain,” Moody’s said. Reactor cooling systems were knocked out by the earthquake and tsunami, causing a meltdown at three of the reactors and forcing the evacuation of about 80,000 residents near the plant. Efforts to restore control over the plant have faced repeated setbacks, with the latest on Saturday, when a rise in radiation halted the clean-up of radioactive water at the Fukushima plant hours after it got under way. Japan’s government last month agreed to set up a fund with taxpayer money to help Tepco avoid insolvency and compensate victims of the radiation crisis at the plant. Japan’s ruling party will extend a session of parliament to approve extra spending needed to rebuild areas ravaged by the earthquake, although it is unclear if the bills will win support from a combative opposition. Besides the extra budget, lawmakers have yet to approve a draft law on compensation to Tepco victims, among others. There is much criticism about the scheme. Japan’s main opposition Liberal Democratic Party (LDP) is not prepared to accept the government’s scheme to help Tepco pay billions of dollars in compensation to victims of its nuclear plant disaster, a LDP lawmaker said on Monday. But the LDP is not united on its own counterproposal to a government bill that would allow the establishment of a fund to help Tepco compensate those affected by radiation leaks, Taro Kono told the Reuters Rebuilding Japan Summit in Tokyo. Tepco’s next shareholder meeting will be held on June 28. (Reporting by Chikako Mogi; Editing by Chris Gallagher) Copyright 2011 Thomson Reuters. Click for Restrictions .

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Wendell Potter: Got Health Insurance Through Your Employer? Maybe Not for Long (But Not Because of Reform)

June 16, 2011

The global consulting firm McKinsey & Company set off a firestorm when it released a report last week suggesting that 30 percent of U.S. businesses will stop offering health care benefits to their employees after most of the provisions of the Affordable Care Act go into effect in 2014. The White House was quick to challenge the validity of the report, noting that McKinsey has so far refused to provide any details of the methodology used to reach its conclusion. All McKinsey will say is that its report was based on a survey of 1,300 employers and “other proprietary research.” White House deputy chief of staff Nancy-Ann DeParle, who previously headed the president’s office of health care reform, called it an ” outlier ” and cited other studies predicting that that few if any employers would drop coverage because of the Affordable Health Care Act. Congressional Republicans were just as quick to defend the McKinsey report, which they are citing as fresh evidence that the new federal law — crafted in part to protect the employer-based system — will have disastrous consequences. Who’s right? Well, pardon the cliché, but only time will tell. What we can say with certitude right now is that the hubbub over the McKinsey report has obscured a reality neither side is acknowledging. What is indisputably true is that the employer-based system has been crumbling for several years. And, with or without the Affordable Care Act, it’s very possibly on its last legs. Repealing the law, as every GOP presidential candidate pledged to do during the debate in New Hampshire Tuesday night, would probably only hasten its complete collapse. When I began working in the insurance industry in 1989, the vast majority of Americans — well over two-thirds of the population — got their coverage through employers. Just about every year since then, the percentage has been declining. According to the Economic Policy Institute, the share of Americans with employer-sponsored health insurance declined from 64.2 percent in 2000 to 58.5 percent in 2008. Most of that decline occurred during the Bush administration, and before the most recent recession began. The figure is undoubtedly lower today because millions of workers lost their jobs — and along with them, their health insurance — during the recent economic downtown. When the recession officially began in December 2007, the U.S. unemployment rate was just 5 percent. It peaked at 10.1 percent in October 2009, four months after the official end of the recession, but it is still more than 9 percent today. Another factor in the decline of Americans with employer-sponsored coverage is that the number of businesses still offering it has also dropped precipitously in recent years. The Kaiser Family Foundation, which keeps track of health insurance trends, found that the number of firms offering coverage fell from 69 percent in 2000 to 60 percent in 2009. The erosion was even more pronounced among companies with fewer than 10 workers, falling from 57 percent to 46 percent during the same period. According to Gallup, the situation has only gotten worse since 2009. In a November 2010 Gallup poll , just 44.8 percent of American adults reported having health insurance provided through their employer. One of the less obvious reasons for the unraveling of the employer-based system is that an ever-increasing number of workers are taking a pass on the coverage even if their employers still offer it, according to the Employee Benefit Research Institute. Why? Because employers are requiring that their workers pay a bigger portion of the premiums, and they’re making them pay more out of their own pockets in the form of higher deductibles and co-payments. Many workers simply can’t afford to take on the additional financial burden. The insurance industry has also played a leading role in the decline of the employer-based system. The reason more and more small employers are no longer offering coverage is because many of them have been “purged” by their insurance carriers. Insurers routinely “purge” employer customers they believe have become too much of a risk to profits. All it takes is one employee of a small business — or the spouse or child of one employee — to get critically ill for the company’s insurer to jack up rates so high that the business owner has no choice but to drop coverage for everyone. A survey conducted last month by Crain’s Detroit Business of 300 Michigan small businesses found that 24 percent considered canceling their health care coverage this year, primarily because of premium increases demanded by their insurance carriers. Behind all these numbers are real people. In the coming weeks, to take us from the abstract world of figures to the real world of American-style health insurance, I will be writing about the experiences of several small business owners who say they want to continue offering health care benefits to their employees but are finding it increasingly difficult to do so. Do you own or manage a small business? I’d like to hear what it’s been like to try to get health insurance coverage for your employees. Please go to http://bit.ly/mweBe2 and fill out a brief questionnaire. Thank you.

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PHOTOS: 10 Careers Derailed By A Tweet

June 16, 2011

These days, you have to be extra careful what you say on social networks. A single message could jeopardize your career in an instant. Many have been fired over Twitter and canned over Facebook , but only a select few make the high-profile list below, sending hugely controversial tweets that put their careers in disarray. Of course the latest major Twitter debacle has involved Anthony Weiner . But AOL Jobs reports he’s far from the first to misfire a tweet and face an unstable career as a result. [Weiner's] congressional sabbatical may very well culminate in his departure from Congress. This is America, and at 46 years old, Weiner still has a future as something. But as the most famous Twitter casualty to date, his experience reinforces the lesson that all tweets might as well be seen by your boss. In his case, that’s the American people, and public opinion. Here are 10 notable cases in which a career was severely damaged by a tweet. (Of course, Twitter can be used the opposite way too .) Each of these mishaps could have been avoided had the tweet deliverer simply avoided hitting “send” on such a public forum – Twitter .

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JPMorgan Chase Settles Claims It Used High-Pressure Tactics On Customers

June 15, 2011

(AP) WASHINGTON — JPMorgan Chase Bank has agreed to pay $2 million to settle federal regulators’ civil claims that it used high-pressure tactics and false statements to get auto loan customers to buy contracts that would suspend or cancel loan payments in case they lost their job. The Office of the Comptroller of the Currency, the Treasury Department agency that oversees national banks, announced the fine Wednesday for how the credit protection product was marketed in 2008 and 2009 by its Chase Auto Finance division. The bank neither admitted nor denied wrongdoing under the settlement agreement. In 2009, JPMorgan Chase Bank stopped selling the credit protection contracts, which carried a monthly fee, as well as a similar product for home mortgage borrowers. JPMorgan previously reimbursed affected customers for about $25 million.

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Man Fired After Disclosing Wife’s Cancer To Employer

June 15, 2011

Cancer is an awful thing for any family to deal with. It’s even more of a problem when it gets you fired. When Carl Sorabella, of Massachusetts, told his employer that he would need to take some medical leave in order to deal with his wife’s cancer, he thought it was a reasonable request. But according to ABC News , when he walked into work on Monday, he found a note on his desk saying that he had been fired. “When I told my boss, she said ‘We were thinking about laying you off.’ I thought, ‘You can’t do that,’” Sorabella told WCVB 5 in Boston. Sorbella’s wife of 23 years, Kathy, had learned she had stage 4 untreatable cancer in April. But according to the report, the request for a modified schedule in order to deal with the problem was too much for his employer, Haynes Management, a real estate company in Wellesley Hills, Mass. According to ABC , Sorbella feels he was wrongfully terminated: “Ultimately she said don’t worry about it and come in on Monday, and when I came in on Monday I got a letter that I would be laid off,” he said. Sorabella said the letter stated he was being laid off due to “workforce modifications.” But one week after he was fired, he says he saw a listing for his job on the company website. “She said, ‘It’s business. I’m running a company here, and I need to make sure the department runs.’ And I argued that I would make sure the company runs,” Sorabella said. While there are laws in place to protect employees from this sort of thing, The Family and Medical Leave Act only applies to companies with 50 or more employees. As a result, many small business employees are left with few legal options. For video, click here for more from ABC.

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Manisha Thakor : Are High Gas Prices Leaving You "Gas"-ping for Relief?

June 15, 2011

Recently a friend emailed me a photo from a gas station. It showed a $100 price tag for filling up the tank on his 2004 SUV. The message said:  “Holy Cow – I’ve never seen a bill like this before.” Welcome to the new normal in transportation. Millions of consumers who are already reeling from job losses, stagnant wages, and declining home prices now have a new life challenge to add to the list: the specter of $4/gallon gasoline. According to an Associated Press poll, a whopping 4 out of 10 Americans are experiencing financial hardship due to rising gas prices. With the average family spending $110 or more a month on gas than they were just six months ago, it’s no wonder many people are finding themselves “gas”-ping for relief. So what can you do to help ease the financial pain? Check with your employer to see if they offer a Commuter Account. This nifty employee benefit enables you to pay for commuting-related expenses, such as public transportation costs (think: bus, subway, train, ferry, bicycle and vanpool expenses), as well as parking (either near public transportation or at work)…with pre-tax dollars. Those last three words, “with pre-tax dollars,” contain the hidden treasure. In plain English, that phrase means you could save up to 40 percent on these qualified commuter-related costs. The reason is that, when you sign up for a Commuter Account, the money used to pay for those expenses comes right out of your paycheck before Uncle Sam takes his share , so you are not taxed on those dollars. Another neat feature of Commuter Accounts is that they are quite flexible. You can sign-up (or sign-off) on a monthly basis throughout the year. This monthly enrollment feature is in contrast to the other types of pre-tax benefits, like health care flexible spending accounts, which limit your ability to sign-up to just once a year during open enrollment period or when you experience a qualifying life event, such as the birth of a child. As luck would have it, around the corner on June 16th is ” Dump the Pump ” day. This is a nationwide celebration of the myriad of ways in which we can each rethink our transportation strategies. So if you are driving yourself to work each day and getting sick of the prices at the pump, this is a great time to think about switching to public transportation, as well as taking advantage of Commuter Accounts to pay for your qualified commuting expenses. Shockingly, only 1 in 5 workers eligible for Commuter Accounts takes advantage of this money-saving benefit. That’s why I’ve teamed up with WageWorks to help raise awareness around this cost savings opportunity. And given that signing up for this benefit is like getting a coupon for up to 40 percent off qualified expenses, you’ll want to run–not walk–to your benefits office to see if you are eligible. Last but not least–let’s talk bottom line. How much could you realistically expect to save by taking advantage of these types of programs? Well, each month participants can contribute up to $230 for public transportation and $230 for parking costs – if the parking lot is near the workplace or used to get to the workplace. (To get a sense of the cost savings for your specific situation, check out this online calculator ). Assuming full use of these benefits is made by a participant who is in the maximum tax bracket, annual savings can be in the $1,800 to $2,200 range. Now that’s something worth “gas”-ping about…but this time for joy. [This post originally appeared at ManishaThakor.com .] Manisha Thakor on Twitter at @ManishaThakor , sign up to get her email updates delivered right to your inbox here , and enroll in her innovative new online personal finance course called ” Money Rules .”]

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Struggling Walmart Finds Early Success In Scaled-Down Stores

June 15, 2011

CHICAGO (Jessica Wohl) – After hitting a couple of easy layups by opening small stores in its home state, Wal-Mart Stores Inc (WMT.N) is ready to take some more difficult shots that will show whether it can win over shoppers from small towns to big cities, a top executive said on Wednesday. Wal-Mart, the world’s largest retailer, opened its first “Walmart Express” store in Gentry, Arkansas, about six miles from the nearest Wal-Mart supercenter, in early June. Sales there and at another brand new Walmart Express in Arkansas have been “very, very good,” Walmart U.S. President and Chief Executive Bill Simon said during a William Blair conference in Chicago. Walmart Express stores, at around 15,000 square feet, are roughly one-tenth the size of a Walmart supercenter and sell everything from fresh and frozen food to sheets and towels. As Simon noted, the first Walmart Express stores were essentially built in Wal-Mart’s backyard, where the openings received a lot of attention. Wal-Mart even took analysts and reporters to see the store in Gentry on June 2, the day before the company’s annual meeting in Fayetteville, Arkansas. On Wednesday, Walmart is opening its first Walmart Express outside of its home state, in the small town of Richfield, North Carolina. One of the biggest tests will come in July, when it opens the first urban Walmart Express. “We’ve got a jump shot coming today in North Carolina and we’re optimistic, and hopefully we’ll be able to hit the jump shot, and the real three-pointer opens next month here in Chicago,” Simon said during his presentation, comparing the Express openings with progressively more difficult basketball shots. The company’s first Walmart Express store in Chicago, only its second store within the city limits, is set to open in the Chatham neighborhood that is part of the city’s South Side. Opening 15 to 20 of the small stores as it tests the format this year is one way that Walmart hopes to attract shoppers who have been shopping at dollar stores, online and elsewhere. Walmart is also adding thousands of items such as fishing lures and plus-sized women’s clothing back to its larger U.S. stores after sales at existing locations fell for two straight years due to a failed streamlining effort and the lingering economic concerns pressuring low and middle-income shoppers. Walmart is still banking on its supercenters as well, with plans to open 152 this year, up from 135 in 2010. It is also moving faster to build more of its mid-sized Neighborhood Market stores, which are being renamed Walmart Market. Those stores, which more like traditional grocery stores, are delivering returns on the same level as supercenters and can be approved and built in less time. Walmart should have about 300 of the Market stores by fiscal 2013, up from 185 now, Simon said. Those stores showed 4 percent same-store sales growth during the first quarter, while overall U.S. same-store sales fell 1.1 percent. Shares of Wal-Mart were down 1.3 percent at $52.20 in afternoon trading amid a broad market decline. (Editing by Gerald E. McCormick) Copyright 2011 Thomson Reuters. Click for Restrictions .

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U.S. Housing Crisis Now Officially Worse Than Great Depression

June 15, 2011

It’s official: The housing crisis that began in 2006 and has recently entered a double dip is now worse than the Great Depression. Prices have fallen some 33 percent since the market began its collapse, greater than the 31 percent fall that began in the late 1920s and culminated in the early 1930s, according to Case-Shiller data.

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Dan Solin: Coping With the Bogeyman of a Market Crash

June 15, 2011

In December, 2010, Meredith Whitney, a highly respected banking analyst, went on 60 Minutes and predicted massive defaults in the municipal bond markets. Investors took note. The outflow from municipal bonds totaled $49 billion. Investors who ignored the dire predictions of Ms. Whitney fared well. Municipal bonds have outperformed the broad market year-to-date. According to Stephen Weiss of Short Hills Capital, “Local governments are actually in better shape because of higher tax income and lower costs this year.” Undeterred, Ms. Whitney recently proclaimed : “I know I’m right.” Mohamed El-Erian doesn’t think so. Mr. El-Erian ought to know. He is the CEO of PIMCO, which is one of the largest bond investors in the world. PIMCO manages over $1.2 trillion in assets. According to Mr. El-Erian, the “top down” approach used by Ms. Whitney in her analysis is fundamentally wrong. On the stock side, things are no better. The Dow dropped below 12,000 for the first time since March, extending the longest weekly losing streak since 2002. How fortunate investors are to have the benefit of the views of financial pros to guide them through this crisis. James Altucher, who pretends to be able to predict the future of the market, has gazed into his crystal ball and tells the unwashed masses that the Dow will not only recover, but is destined to hit 20,000. He provides 10 reasons to support his prediction. Stock market newsletter editors see things quite differently. According to one report , bullish sentiment has fallen to 40.9%, which is the lowest since the market rally began in September. Should investors pay heed to Ms. Whitney or Mr. El-Erian? To Mr. Altucher or to editors of stock market newsletters? The answer is simple: Ignore them all. There is no evidence anyone has the ability to predict the future of the markets. There is significant data to the contrary. One study looked at 15,000 predictions by 237 market timing newsletters over a 12.5 year period. 94.5% of the newsletters studied went out of business. The average length of operations was only four years. The authors of the study found no evidence the newsletters were able to time the market. If Mr. Altucher and other bulls turn out to be right, they will tout their skill. If the bearish editors of newsletters correctly call a falling market, they will do the same. Both will be mistaken. They confuse luck with skill. Skill has persistence. Luck doesn’t. There is a better way. If you have less than five years before you will need 20% or more the money you are investing, you should have no exposure to the stock market. If you have a longer time horizon, you should determine your asset allocation by taking an asset allocation questionnaire, so that your stock market exposure will permit you to hold (and not panic) during periods of short term volatility. Limit your investments to a globally diversified portfolio of low management fee, stock and bond index funds, passively managed funds or exchange traded funds. Listening to “financial astrologers” causes investors to jump in and out of the markets, usually at the wrong times. It’s great for the securities industry. More fees, more readers, more viewers and more advertising revenues, as they all try to make sense out of events that are random and unpredictable. It’s terrible for investors, most of whom would be better off if they never invested. The next time you read or view the market timing predictions of one of the endless stream of ego driven “experts,” remember this quote from Investments, Fifth Edition, a leading investment text book used at the nation’s top 30 business schools: “Statistical research has shown that, to a close approximation, stock prices seem to follow a random walk with no discernible predictable patterns that investors can exploit.” What is being “exploited” are investors whose savings are being decimated by the false prophets of Wall Street. The views set forth in this blog are the opinions of the author alone and may not represent the views of any firm or entity with whom he is affiliated. The data, information, and content on this blog are for information, education, and non-commercial purposes only. Returns from index funds do not represent the performance of any investment advisory firm. The information on this blog does not involve the rendering of personalized investment advice and is limited to the dissemination of opinions on investing. No reader should construe these opinions as an offer of advisory services. Readers who require investment advice should retain the services of a competent investment professional. The information on this blog is not an offer to buy or sell, or a solicitation of any offer to buy or sell any securities or class of securities mentioned herein. Furthermore, the information on this blog should not be construed as an offer of advisory services. Please note that the author does not recommend specific securities nor is he responsible for comments made by persons posting on this blog.

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Big Bank Considering Office Space In World Trade Center

June 14, 2011

Citigroup Inc (C.N) is in the early stages of looking for about 1 million square feet of office space in Manhattan and considering space at the World Trade Center site and at the Hudson Yards, according to two people familiar with the matter. Citigroup currently leases over 1 million square feet in Manhattan from Boston Properties Inc (BXP.N), including its headquarters at 399 Park Avenue and a building at 601 Lexington Avenue. It also has a long lease for 2.6 million square feet at 390 Greenwich Street in lower Manhattan. That building is owned by SL Green (SLG.N) and SITQ, the real estate unit of Canadian pension fund Caisse de depot et placement du Quebec. Bloomberg reported earlier on Tuesday that Citigroup was considering leasing space at the World Trade Center site. Hudson Yards is a 26-acre site on the west side of Manhattan that Related Cos and Oxford Properties are developing for office, retail and residential uses. The development — sited on top of the rail yards — is expected to accommodate much of Manhattan’s growth over the next 30 years. Citigroup spokeswoman Shannon Bell said in an email: “Although we are always in touch with the real estate community about space that is coming on the market over the next few years, we have no plans to change our footprint in New York City.” (Reporting by Ilaina Jonas and Maria Aspan; editing by Andre Grenon) Copyright 2011 Thomson Reuters. Click for Restrictions .

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Lisa Earle McLeod: How to Be More Persuasive and Influential at Work

June 14, 2011

You know who they are, they’re the people who can walk into a meeting and charm the socks off everyone in the room. They inevitably wind up with bigger budgets, more support for their ideas and more promotions than their less persuasive peers. Knowledge is not enough, being the boss is not enough, if you want to succeed you have to be able to persuade and influence. Three significant changes in the workplace have made the ability to influence and persuade absolutely critical: 1. Ambivalent workforce : Employees still show up for work with their bodies, but many of them are leaving their brains at home. Gallup research confirms that only 29 percent of employees are actively engaged. If you want to get anything done, you have to win the hearts and minds of your employees, peers and boss. 2. More complexity and change : Companies are reorganizing at a furious pace. With cross-functional teams and blurred reporting lines, the days of command and deploy leadership are over. Getting results depends on garnering support from outside your department and being able to persuade others to buy into your ideas. 3. ADD culture : Facebook, Twitter, iPhone. Lots of bright shiny objects are competing for your customers’ and coworkers’ time and attention. Your topic might be important to you and your company, but if it’s less interesting than what’s on the Facebook feed, no one is going to give it any incremental effort. It doesn’t matter how smart and skilled you are, if you don’t know how to persuade and influence others, you won’t get results and you will eventually become irrelevant. Scared yet? Don’t be. I’ve spent over 10,000 hours studying the interactions of top performers to identify what makes them more persuasive than everyone else. You don’t have to be a master manipulator to be more persuasive. Here are three techniques of top performers that you can use in your own workplace interactions to be more persuasive and influential by Monday morning: 1. Lose your attachments : We tend to think of great persuaders as silver-tongued devils who manipulate others. But my research revealed that the most effective influencers are actually quite flexible in their interactions. They have goals and plans, but they’re not overly attached to everything playing out in a certain way. You’ll increase your influence if people perceive that you’re open to changing circumstances and hearing their perspectives. 2. Ask questions about other people’s goals : When you ignore the other people’s agendas, the result is resistance and lack of engagement. One of the things that differentiates top performing influencers is that they always make a point to understand where the other person is coming from. They ask about the person’s goals early in the conversation, and they do it often. 3. Validate their goals out loud : It’s not enough to hear people, they need to know that you understood them. When you repeat their point of view out loud, they know that you “get it.” They’re then more likely to listen to what you have to say. The guy who rambles on about his great new system isn’t nearly as persuasive as the person who connects their ideas to the goals of every person and department in the room. Persuasive and influential people don’t focus on their own goals; they understand everyone’s goals. The fastest way to get people excited about you is to start being excited about them . Business strategist Lisa Earle McLeod is President of McLeod & More, Inc. , a consulting firm that specializes in sales force and leadership development. A sought after keynote speaker , she is the author of The Triangle of Truth , a Washington Post Top 5 Business Book for Leaders . www.TriangleofTruth.com Copyright 2011, Lisa Earle McLeod. All rights reserved.

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Jason Alderman: Teach Your Kids About Interest Rates

June 13, 2011

One of the most valuable financial lessons you can share with your kids before they leave the nest is to explain what interest rates are and how they work. The important financial transactions they’ll conduct as adults will likely be affected in some way by interest rates, whether as a lender or a borrower. Here’s some background information that can help you guide those conversations: Interest rates for lenders. Anyone who has a savings account or owns government or business bonds is, in effect, lending money to those institutions and earning interest on the loan. Unless you buy tax-free municipal bonds, however, this interest income is probably taxable, so shop around for favorable rates to maximize your earnings and help offset inflation. Savings and interest-bearing checking accounts typically offer low rates and often charge fees for not maintaining minimum balances. You may do better by putting your money into a money-market deposit account or certificates of deposit. Compare bank CD, savings and checking account interest rates at Bankrate.com . To find credit unions for which you’re eligible, visit Credit Union National Association . Interest rates for borrowers . Interest rates have even more impact on you as a borrower, especially for large purchases. For example, most home mortgages are for 15 to 30 years, so reducing the interest rate by a point or two could save tens or hundreds of thousands of dollars over the life of the loan. Credit card rates may vary by 10 points or more, depending on your credit rating. Practical Money Skills for Life, a free personal financial management site run by my employer, Visa Inc., contains handy calculators that can help you compare total mortgage payments under different interest rates, as well as compare credit card balance payoff scenarios under different interest rates. Most borrower interest rates are expressed in terms of an annual percentage rate (APR). With credit cards, the issuer may charge a fixed APR, or change it as bank interest rates vary (“variable rate”). Each billing period, the company charges a fraction of the annual rate, called the “periodic rate,” on outstanding balances. With mortgages, the APR also factors in points, origination fees, mortgage insurance premiums and other fees. Two key interest rates affect the rate you’ll get from your bank or other lender: Discount rate: The rate the Federal Reserve Bank (the Fed) charges banks for short-term loans. In a sluggish economy (like now), the Fed often lowers the discount rate to spur lower interest rates for borrowers, thereby boosting the economy. Prime rate : The rate banks charge their commercial customers with high credit ratings for short-term loans. Interest rates for credit cards and home equity loans/lines of credit are often tied to the prime rate (for example, “prime plus 5 percent.”) Your interest rate may also depend on several other factors, including: Whether the loan is “secured” (secured by collateral such as a house or car) or “unsecured” (not tied to collateral — like credit cards — so the lender relies on your promise to pay it back). Because they’re riskier for the lender, unsecured loans typically have higher interest rates. Your credit score — people with higher credit scores are deemed less risky and therefore are charged more favorable rates. Term length — long-term loan rates are usually higher than short-term rates, because the longer the loan, the greater the risk to the lender that you might default. Quality of asset being financed — houses tend to increase in value over time compared to cars, which typically lose value; thus, mortgage rates are often lower than car loan rates. New credit cards often come with an introductory (teaser) rate, which may increase after at least six months have passed if terms are clearly disclosed. Fixed vs. adjustable. Mortgage interest rates are either fixed for the life of the loan or adjustable at predetermined intervals for part or all of the loan period. They’re tied to an index such as the 10-Year Treasury Note. When rate indexes are relatively high, some people opt for an adjustable rate mortgage (ARM), which typically charges a lower initial rate. However, when rates climb due to inflation or other factors, monthly ARM payments can increase sharply, which is why many people prefer the more dependable fixed rate. It pays to think of yourself as both a lender and a borrower. Remember, if you’re earning 1 percent on savings but shelling out 18 percent on credit card balances, you’re actually losing 17 percent — plus paying taxes on the earnings. Bottom line: Many factors in setting interest rates are beyond our individual control; however, teach your kids that they can control their own credit score, which can have a tremendous impact — good or bad — on interest rates. There are many good resources for learning more about what you can do to protect or repair your credit scores, including MyFICO.com’s Credit Education Center , the Federal Trade Commission’s Credit & Loans Page , and What’s My Score , a financial literacy program run by my employer, Visa Inc., which also features a free FICO Score Estimator that can help you approximate your score. This article is intended to provide general information and should not be considered legal, tax or financial advice. It’s always a good idea to consult a legal, tax or financial adviser for specific information on how certain laws apply to you and about your individual financial situation. To Follow Jason Alderman on Twitter: http://twitter.com/PracticalMoney

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Larry Summers: More Stimulus Now

June 13, 2011

By Lawrence H. Summers CAMBRIDGE, Mass., June 12 (Reuters) – Even with the massive 2008-2009 policy effort that successfully prevented financial collapse and depression, the United States is now halfway to a lost economic decade. Over the last five years, from the first quarter of 2006 to the first quarter of 2011, the U.S. economy’s growth rate averaged less than 1 percent a year, about like Japan during the period when its bubble burst. At the same time, the fraction of the population working has fallen from 63.1 percent to 58.4 percent, reducing the number of those with jobs by more than 10 million. The fraction of the population working remains almost exactly at its recession trough and recent reports suggest that growth is slowing. Beyond the lack of jobs and incomes, an economy producing below its potential for a prolonged interval sacrifices its future. To an extent that once would have been unimaginable, new college graduates are this month moving back in with their parents because they have no job or means of support. Strapped school districts across the country are cutting out advanced courses in math and science and in some cases only opening school four days a week. And reduced incomes and tax collections at present and in the future are the most important cause of unacceptable budget deficits at present and in the future. You cannot prescribe for a malady unless you diagnose it accurately and understand its causes. Recessions are times when there is too little demand for the products of businesses, and so they fail to employ all those who want to work. That the problem in a period of high unemployment like the present one is a lack of business demand for employees, not any lack of desire to work is all but self-evident. It is demonstrated by the observations that (i) the propensity of workers to quit jobs and the level of job openings are at near-record low levels; (ii) rises in nonemployment have taken place among essentially all demographic skill and education groups; and (iii) rising rates of profit and falling rates of wage growth suggest that it is employers, not workers, who have the power in almost every market. I belabor the idea that lack of demand is the fundamental cause of economies producing below their potential because the failure to recognize the centrality of demand can have catastrophic consequences. But for Hitler and the military buildup up he caused, FDR would have left office in early 1941 a failure, with American unemployment above 15 percent and with the recovery promise of the New Deal shattered by the premature attempt in 1937 to reassert the traditional virtues of deficit reduction and inflation control. When I entered the Clinton administration in 1993, it was generally believed that Japan had the potential to grow its economy by 4 percent a year going forward, enough to have doubled output from that time until now. Instead output has barely grown, a consequence of the post bubble stagnation that Japan suffered. A sick economy constrained by demand works very differently than a normal one. Measures that usually promote growth and job creation can have little effect or can actually backfire. When demand is constraining an economy, there is little to be gained from increasing potential supply. In a recession, if more people seek to borrow less or save more, there is reduced demand and hence fewer jobs. Training programs or measures to increase work incentives for those with both high and low incomes may affect who gets the jobs, but in a demand-constrained economy will not affect the total number of jobs. Most paradoxically, measures that increase productivity and efficiency, if they do not also translate into increased demand, may actually reduce the number of people working as the level of total output remains demand constrained. Traditionally, the American economy has recovered robustly from recession as demand has been quickly renewed. Within a couple of years after the only two deep recessions of the post-World War II period — those of 1974-1975 and 1980-1982 — the economy was growing in the range of 6 percent or more — rates that seem inconceivable today. Why? Inflation dynamics defined the traditional post-war American business cycle. Recoveries continued and sometimes even accelerated until they were murdered by the Federal Reserve with inflation control as the motive. When the Fed became concerned about inflation accelerating, usually too late, it raised interest rates and crunched credit, stifling housing, business investment, and consumer durable purchases and causing the economy to go into recession. After inflation slowed, rapid recovery propelled by dramatic reductions in interest rates and a backlog of deferred investment was almost inevitable. Our current situation is very different. With more prudent monetary policies, expansions are no longer cut short by rising inflation and the Fed hitting the brakes. All three American expansions since Paul Volcker brought inflation back under control have run long. They end after a period of overconfidence drives the prices of capital assets too high and the apparent increases in wealth give rise to excessive borrowing, lending and spending. After bubbles burst, there is no pent-up desire to invest. Instead, there is a glut of capital caused by overinvestment during the period of confidence: vacant houses, malls without tenants, and factories without customers. At the same time, consumers discover that they have less wealth than they expected, less collateral to borrow against and are under more pressure than they expected from their creditors. Little wonder that private spending collapses and that post-bubble economic downturns often last more than a decade and are only ended through external events like military buildups. Pressure on private spending is enhanced by structural changes. Take as a vivid example the publishing industry. As local bookstores have given way to megastores, megastores have given way to Internet retailers, and Internet retailers have given way to ebooks, two things have happened. The economy’s productive potential has increased and its ability to generate demand that fulfills the potential has been compromised as resources have been transferred from middle-class retail and wholesale workers with a high propensity to spend up the scale to those with a much lower propensity to spend. And the need for capital investment in distribution networks has come down. What then is to be done? This is no time for fatalism or for traditional political agendas that the two parties have pushed in more normal times. The central irony of financial crisis is that while it is caused by too much confidence, borrowing and lending, and spending, it is only resolved by increases in confidence, borrowing and lending, and spending. It follows that the central objective of national economic policy until sustained recovery is firmly established must be increasing confidence, borrowing and lending, and spending. Unless and until this is done, other policies, no matter how apparently appealing or effective in normal times, will be futile at best. We should recognize that it is a false economy to defer infrastructure maintenance and replacement, and instead take advantage of a moment when 10-year interest rates are below 3 percent and construction unemployment approaches 20 percent to expand infrastructure investment. It is far too soon for financial policy to shift toward preventing future bubbles and possible inflation and away from assuring adequate demand. The underlying rate of inflation is still trending downward, and the problems of insufficient borrowing and investing exceed any problems of overconfidence. The Dodd-Frank legislation is a broadly appropriate response to the hugely important challenge of preventing any recurrence of the events of 2008. It needs to be vigorously implemented. But under-, not over-confidence is the problem of the moment and needs to be the focus of policy. Most important, the fiscal debate needs to take on board the reality that the greatest threat to the nation’s creditworthiness is a sustained period of slow growth that, as in southern Europe, causes debt-GDP ratios to soar. This means that essential discussions about medium-term measures to restrain spending and raise revenues need to be coupled with a focus on near-term growth. Without the payroll tax cuts and unemployment insurance negotiated by the president and Congress last fall we might well be looking today at the possibility of a double dip. Substantial withdrawal of fiscal support for demand at the end of 2011 would be premature. Fiscal support should be continued and indeed expanded by providing the payroll tax cut to employers as well as employees. Raising the share of the payroll tax cut from 2 percent to 3 percent would be desirable as well. At a near-term cost of a little over $200 billion, these measures offer the prospect of significant improvement in economic performance over the next few years translating into significant increases in the tax base and reductions in necessary government outlays. It is appropriate that policy in other dimensions be informed by the shortage of demand that is a defining characteristic of our economy. For example, the Obama administration is doing important work in promoting export growth by modernizing export controls, promoting U.S. products abroad and reaching and enforcing trade agreements. Much more could be done through changes in visa policy, for example, to promote exports of tourism as well as education and health services. In a similar vein, recent presidential directives regarding relaxation of inappropriate regulatory burdens should be rigorously implemented to boost confidence. Perhaps the most fundamental strength of the United States is its resilience. We averted Depression by acting decisively in 2008 and 2009. Now we can avert a lost decade by recognizing current economic reality. (Lawrence H. Summers is the Charles W. Eliot University Professor at Harvard University and a former U.S. Treasury secretary. He speaks and consults widely on economic and financial issues.) (Editing by Jonathan Oatis) Copyright 2011 Thomson Reuters. Click for Restrictions .

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Nicholas Carroll: Credit Rating Ruined for Seven Years? Serial Bankrupters Know Better

June 9, 2011

The bankster propaganda machine relentlessly grinds out the fear-laden hype: your credit will be “ruined for seven years.” Your credit will be “wrecked!” But as Russians say somewhat wearily about economic propaganda, “That was a long time ago… and it was never true anyway.” Credit being “ruined” doesn’t really mean anything anyway, because having “good credit” simply means having good enough credit to achieve a particular goal . That goal might be renting, perhaps after a foreclosure. Bankster fear-mongering is pretty much of a yawn in this case, because most landlords just want the rent and no property damage or aggravation. Foreclosure is of little interest to them; what counts is whether you skipped out on another landlord. (Covered in a previous HuffPost article .) Buy a car? As the used car lot signs say in the Hispanic region I live in, “Su trabajo es su credito,” or “Your job is your credit [rating].” So you pay 18% instead of 3% for a good used car instead of a new one, drive it for two years, and now you’re back to 4.2% interest on car loans. (If you have zero income, yes, you might have a problem — but credit rating itself is not an insurmountable issue.) Buy a house? Why not? If a poor credit rating is due to a convergence of being behind on credit card payments and having your car repossessed on top of a foreclosure, that’s a problem (for the next three-five years). If it’s just a foreclosure, and you were lucky or wise enough to walk away while you still had assets, well — in a hard-hit area of the US., the new house might only cost half what the last one did, and so your assets-to-payment ratio looks a lot safer to the next lender. Of course Fannie Mae has said they are going to penalize (or was it punish ?) strategic defaulters, but they may not have the resources or the math to differentiate between a strategic defaulter and a situational defaulter (who simply could not pay). It may not make much difference anyway. At the end of Q1 the average value of a house in the U.S. had dropped to $158,700 according to figures from the National Association of Realtors . Most analysts expect the downtrend to continue into 2012. At that point Fannie Mae may not have the leverage it did when housing was ridiculously overpriced — because if someone is putting down $15,000 or more on a $150,000 house, the house is realistically valued, and the mortgage debt is back to a sane 1970s level of three times their annual gross income, a lender does not have a lot of worries. A local financial institution could be comfortable making the loan and holding it, without feeling the urge to flip it to Wall Street. That much can be learned by reading the news. Serial bankrupters — those who default like clockwork every eight years — know more. They have generously taught me their methods, even though I haven’t joined their ranks. Now, you have to allow for the fact that declaring bankruptcy helps your credit rating in some ways, since you can’t declare again for eight years. That said, this is the typical timetable for a serial bankrupter to return to the loving embrace of lenders: Year One : Get your name as co-signer on some regularly-paid utility bills. Buy a $200 piece of jewelry on time, making sure the jewelry store reports to credit agencies. Take out a Visa or Master credit card on one of those ripoff deals that requires a $100 deposit; then start using it regularly, paying down the balance to zero every month, or almost every month. Year Two : After 12-15 months contact the credit card company and ask them to turn the card into a real credit card. Pay off the last of the jewelry. Buy an affordable used car on credit. Year Three : Coast, keeping up the “good profile” on the credit card and the auto payments. As the credit card limit rises, occasionally run it up to over half the credit limit, and then pay it down to zero again in two months. Never be late on a payment. Year Four : You are now good to go for another financed car at much lower interest rates. Year Five : Congratulations, you’re homeowner material again. That’s the traditional timetable for serial bankrupters. I’m guessing that in the Great Recession, that timetable will be accelerated, and a lot of people with “ruined” credit will be getting workable credit ratings back in as little as 2-3 years, and be good for a mortgage again in four years.   This Blogger’s Books Walk Away From Debt For a Better Future by Nicholas Carroll

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Chriss Street: Is America on the Verge of Another Credit Crisis?

June 3, 2011

Late yesterday afternoon the highly respected credit rating firm, Moody’s Investor Services, officially warned that if there is no imminent progress in Congress on the debt ceiling fight, the United States of America’s Aaa credit rating would be cut. Understanding that such a draconian event as a U.S. credit downgrade would infuriate voters, it should not come as any surprise that the media was distracted today over news that The Manhattan Attorney’s office happened to issue a subpoena to Goldman Sachs in regards to its role in the financial crisis. Goldman Sachs is the perfect scapegoat to blame for America’s credit woes. The firm is the largest investment bank in the world and its history of ethics violations are legendary. Goldman agreed to pay $550 million to settle Federal claims that it misled investors in a subprime mortgage product just as the housing market began to collapse. It was alleged that the company recommended to its individual, hedge funds, banks, and money manager clients that they make investments in sub-prime mortgages loans Goldman Sachs was betting were already failing. The settlement was among the largest in the 76-year history of the Securities and Exchange Commission, but it represented only a small financial hiccup for Goldman, which reported a profit of $13.39 billion for 2009, the worst period of the credit crisis. As the charts here show, Goldman Sachs has shown its appreciation to each of America’s political parties by donating handsomely to their elections success. As a show of appreciation, U.S. taxpayers have been very good to Goldman Sachs. When the credit crisis broke out in September 2008, the firm was allowed to borrow 84 times and at an interest rate of one hundredth of one percent for a total of over $18 billion dollars from the U.S. Federal Reserve in the first month of the crisis. Over the 18 months of crisis, Goldman Sachs was able to borrow an astounding total of $590 billion . Friends in high places are usually good to have, but with America’s credit rating going over the falls, operatives in both of our political parties are now busy tearing up Goldman business cards and will be soon returning some of those political contributions. Moody’s was very emphatic today that only a credible agreement on a substantial deficit reduction would support the United States maintaining the premier credit rating in the world. Although Moody’s stated that they had fully expected political wrangling prior to an increase in the statutory debt limit, “the degree of entrenchment into conflicting positions has exceeded expectations.” They went on to say that the “heightened polarization over the debt limit has increased the odds of a short-lived default.” Moody’s had previously indicated that its stable outlook on the triple A rating was based on the assumption that meaningful progress would be made within the next eighteen months in adopting measures to reverse the U.S. upward debt trajectory. Moody’s had assumed that the likelihood that significant progress would be achieved prior to the start of the 2012 election cycle. Moody’s is now unsure that “significant progress is possible in today’s political environment. The credit crisis of 2008 became visible with the bankruptcy filing of Lehman Brothers, but the mentality of crony companies being able to take outrageous risk with the confidence their friends in government will bail them out is a sad story that has been repeated for centuries. The problem is that eventually too much risk is taken and the taxpayers end up suffering extreme pain. Hopefully America will listen to Moody’s and make meaningful changes before having to suffer meaningful pain.

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Angela Haines: Girl Tech Inventors and Mentors!

June 2, 2011

HailNYC Team , credit C. Colon One night in May, the premises of AOL in downtown NYC vibrated with the chatty energy and nerves of 47 teenage girls from 17 local high schools getting ready to pitch their newly created apps to a group of four judges from the worlds of both technology and venture capital. The Technovation Challenge pitch night, the first on the East Coast, was the culmination of a nine week program, matching high school girls with high tech mentors from local industry and universities to create mobile phone app prototypes using Google’s App Inventor for Android. The teams met weekly for three hour sessions at Google ‘s New York offices. Early support for the program came from the U.S. Office of Naval Research seeking solutions to a crisis in recruiting sufficient tech savvy professionals. The winning team created a product called HailNYC to help both passengers and drivers find each other efficiently, so they can both navigate the city at a safer and faster rate. Both drivers and passengers open maps on their apps; passengers request a driver at a specific location which alerts drivers who consult maps with dots indicating locations of waiting passengers. Drivers then notify passengers that they are on the way. One member of the winning team, Sharnice Ottley, a senior at Boys and Girls High School, says the idea occurred to the team when they brainstormed the problems of getting around New York City. While Sharnice “jumped at the chance” to participate in the program, the process “really got our brains churning and showed us how to design our app. I learned, for example, that to make the graphics we had envisioned, we had to do a lot of math. This wasn’t the kind of chalk and talk education I am used to; besides creating technology, we had to do marketing research so we could come up with a good business plan.” Team mentor Tamar Shinar, a postdoctorate fellow at NYU’s Courant Institute , says that what surprised her was her team’s deep engagement in a process which was so different from their more passive, routine school work. She observes, “They showed an amazing amount of persistence and patience for three months to get to the end line.” Their victory gave all members of the winning team an Android Tablet, donated by Dell, along with an all-expense-paid trip to San Francisco a week later to participate in the national Technovation Challenge where they placed third, competing against five other wining teams. Technovation Challenge Founder, Anuranjita Tewary, currently a senior data scientist at Linked In , started the program two years ago after spending a weekend with a program called Startup Weekend which paired professionals for an intense weekend of bringing an idea to launch with a prototype. Despite her math and physics degree from MIT and a PhD in applied physics from Stanford, followed by good jobs at Microsoft and Ad Mob, Anu remained a successful scientist who had never considered she could start, or become CEO of, a company. The Startup Weekend, she says, “made me think if I had had this experience early on, my outlook on life would have been as different as I pursued my career.” So she left her job to develop the Technovation Program for underprivileged girls around the Bay Area, relying heavily on her network to bring in mentors, instructors and coaches for the girls. “I wanted to show these girls not to use computer science only as a tool, but to learn to program so they can create products that become tools.” Because she had little experience in the nonprofit world, Anu folded her program into Iridescent Learning , a nonprofit educational organization in Los Angeles founded by Tara Chklovski, an aerospace engineer and former school principal. Currently, Iridescent stimulates interest in science, technology, engineering and mathematics (STEM) for about 8,000 underprivileged students and their families with a number of programs, including Summer Engineering Boot Camp, Family Science Program and Science Studios in Los Angeles and New York. In her opening remarks at Pitch Night NYC, current executive director of Irisdescent , New York, Erika Allison, formerly a Dow engineer who has initiated several engineering programs for high school girls, told the assembled girls and their families that because there is a critical shortage of women in technology, the goal of the Challenge is to inspire girls to see themselves not just as users but as inventors and designers of technology. After the event, Erika admits, “I was completely blown away by all that these 47 girls mastered in just 12 weeks, along with the level of detail in both their apps and their business plans, including market research.” Another New York Technovation mentor, Vanessa Hurst, a database engineer for Paperless Post which provides customized formal invitations online, says since her days as a computer science major at the University of Virginia, she has been aware of the underrepresentation of women in computer science. Working with Technovation to develop an app that allows people to monitor their personal recycling habits, Vanessa was amazed “at how capable the girls were, but then how easily they got caught up in the tango of timidity so that no one wanted to step up, even when she had a great idea because she didn’t want to take the credit.” Vanessa continues, “Besides teaching the girls technical skills like programming and product design, the Challenge also provided a psychological journey for the girls to believe they can do anything.” For more on women entrepreneurs, visit www.wStartup.com .

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