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Milberg’s Former Class-Action Kings, Out of Prison, Head for Links, Slopes

by on March 19, 2010

By Carlyn Kolker March 19 (Bloomberg) — The four lawyers who ran Milberg Weiss Bershad Hynes & Lerach LLP, the firm that got investors $45 billion from securities lawsuits against publicly traded companies, are reacquainting themselves with life on the outside now that they’ve left prison. “I am enjoying my freedom,” Melvyn I. Weiss , 74, said in a phone interview from his apartment in Boca Raton, Florida. “I am honing my skills at golf. I am thinking about the experience I just went through and what I should do with it.” His former partner, William S. Lerach , 64, was freed March 8. Two others, David J. Bershad , 70, and Steven G. Schulman , 58, left prison in July. Prosecutors said the men, who industrialized the filing of securities fraud class actions, secretly paid clients to pursue such cases, bringing the firm $251 million in attorney fees from 1979 and 2005. All four pleaded guilty. Their old firm, now Milberg LLP , agreed to pay $75 million to end the case. Milberg, based in New York, used intermediaries to pay clients who would serve as plaintiffs in shareholder lawsuits, the government said. The practice helped the firm file cases faster than rivals at a time when being first to sue meant it would likely control the case, reap a larger reward in the verdict or settlement, and get bigger fees. Bershad was first to plead guilty in Los Angeles federal court in July 2007, agreeing to cooperate with prosecutors. He was followed by Schulman, Lerach and finally Weiss, who pleaded guilty in April 2008 to racketeering conspiracy. “It’s no fun being in prison,” Lerach said in an interview when asked about his time behind bars. “You are away from your family, your loved ones and your dogs.” Lists of Clients Before the Private Securities Litigation Reform Act of 1995, a law aimed squarely at Milberg Weiss, shareholder lawyers seeking to lead class actions, or group suits, needed simply to be the first to file. Law firms had lists of clients who owned shares in huge companies that were considered susceptible to litigation. The reform act required plaintiffs with the biggest losses, usually institutional investors such as pension funds, to assume the lead plaintiff role, regardless of who filed first. Milberg Weiss and firms like it adapted by lobbying state and union pension funds to hire them as regular counsel. Even with the restrictions, Weiss’s firm collected $1.7 billion in legal fees and expenses from 1995 and 2005, according to a study commissioned by the U.S. Chamber Institute for Legal Reform. The firm also handled 43 percent of the 755 shareholder class actions that settled. Six Month Sentences Bershad and Schulman were given six-month sentences when they were sentenced for the client-kickback scheme. Lerach received two years and Weiss 2 1/2 years. All four men, once feared in corporate boardrooms, have been disbarred. Weiss said he is practicing his golf swing, doing charitable work and considering assisting the Haitian art community, all while reflecting on his prison experience. “At my age it’s not easy,” he said of being incarcerated. “You have to get used to sleeping on a one-inch mattress on a metal frame, sharing toilets with 80 other guys. The food is not what you’re used to. The medical facilities are vastly understaffed.” Weiss added that, in prison, “you meet a lot of people who you feel a great deal of sorrow for, because they have grown up in sad conditions and there is seemingly no way out for them. These are all things that I am thinking about.” As one of the oldest inmates at the low-security prison in Morgantown , West Virginia, Weiss said he was given the moniker ‘Pops.’ Mel ‘Pops’ Weiss “They would call me Pops, because some of these people never had a father,” the ex-lawyer explained. Weiss declined to discuss any involvement with his former law firm. He was released from federal custody Feb. 5, after serving his last month and a half in home confinement. Lerach said he plans to teach a course titled “Regulation of Free Market Capitalism — Why We Have Failed,” at a law school he declined to name. He is also planning to lecture at universities and work with a progressive think-tank, Lerach said in a phone interview from a ski vacation in Steamboat Springs, Colorado. His future also includes trout fishing in Alaska and exploring his roots in Bavaria, he said. While in Prison While in prisons in Lompoc, California, and Safford, Arizona, Lerach read books, kept a diary and stayed abreast of the financial crisis, he said. “I tried to stay current on the events by watching financial and other news. You sometimes have to push and shove to get CNBC on rather than big truck crash programs, but that was all right,” said Lerach, who also spent time in a halfway house and home confinement. Schulman declined to comment. “Right now I am getting my life together,” said Bershad, when reached at his home in Montclair, New Jersey. “I am happy and doing fine.” Of his prison time in Otisville , New York, he said, “It was a learning experience.” He declined to give details about what he is doing. Lerach left Milberg Weiss in 2004 to help found his own securities-fraud firm in San Diego. He said he won’t be returning. Coughlin Stoia That firm, now called Coughlin Stoia Geller Rudman & Robbins LLP , has more than 150 lawyers, partner Michael Dowd said. It is changing its name to Robbins Geller Rudman & Dowd as partner Patrick Coughlin , who negotiated a $7.2 billion settlement for Enron Corp. investors, steps down from partnership status. The Milberg firm paid the government more than two-thirds of the $75 million it owes, ahead of the five-year schedule set forth in its plea agreement, partner Matthew Gluck said in a phone interview. “Over the past couple of years, while everybody has been laying off lawyers and cutting pay, we’ve been giving lawyers raises and extra bonuses,” Gluck said. To contact the reporter on this story: Carlyn Kolker in New York at ckolker@bloomberg.net .

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Insurers Bought Most Company Debt Since 2004 as Buffett Saw `Raining Gold’

by on March 19, 2010

By Sapna Maheshwari and Andrew Frye March 19 (Bloomberg) — U.S. insurers, holders of more than $2.2 trillion in corporate debt, bought the bonds at the fastest pace in five years in 2009, taking advantage of a market that Warren Buffett said was “raining gold.” Insurers’ net purchases of corporate bonds climbed to $153 billion in 2009, with the greatest portion coming in the first quarter when yields were at their highest of the year, according to Federal Reserve data released last week. That compares with outflows of $59 billion in 2008, and accounts for the biggest inflows for the industry since $172 billion in 2004. “It has paid off very nicely,” said Judy Greffin , chief investment officer for Allstate Corp. , whose corporate-debt holdings swelled by 20 percent last year to $33.1 billion. “With the benefit of hindsight, I would have loved to have bought more.” A corporate-debt rally helped insurers including MetLife Inc. and Prudential Financial Inc. to recover capital lost in the housing and stock market slumps of 2008 and early 2009. Life insurer inflows were more than eight times those of property- casualty companies in 2009. Buffett, the property-casualty industry’s most visible executive, lamented that he didn’t invest enough in the debt. Corporate and municipal bonds “were ridiculously cheap relative to U.S. Treasuries” in early 2009, Buffett, Berkshire Hathaway Inc.’s chief executive officer, said in an annual letter to investors on Feb. 27. “Big opportunities come infrequently. When it’s raining gold, reach for a bucket, not a thimble.” 2009’s Returns Returns on corporate debt including reinvested interest totaled 26 percent last year after an 11 percent loss in 2008, according to Merrill Lynch’s U.S. Corporate & High Yield Master index. Life insurers may spend as much as $100 billion on corporate debt in the next 18 months, Barclays Capital credit strategists Matthew Mish and Alex Gennis wrote in a March 12 report. Allstate, the biggest publicly traded U.S. home and auto insurer, cut back on commercial real estate and municipal bonds to buy corporate bonds. Of the $100 billion portfolio managed by Greffin, almost a third was corporate debt as of Dec. 31. “If you don’t like credit risk, you should not own our stock,” Tom Wilson , CEO of the Northbrook, Illinois-based company, said in an interview in August. Insurers were joined in the market by mutual funds, which had $144 billion in inflows last year. Households and nonprofit organizations had $149 billion in outflows, and foreign banking offices in the U.S. had $156.9 billion of outflows, according to the Fed’s report. The Fed data for corporate debt includes some asset-backed securities. MetLife MetLife acquired corporate debt last year even as it wrote down the value of existing holdings. Its $358 million in corporate-debt impairments in the first quarter of 2009 accounted for almost half of the firm’s total credit-related writedowns in the period. The New York-based company had net losses in the first three quarters last year, and after each period CIO Steven Kandarian reiterated to investors that he was buying more corporate debt. The extra yield investors demand to own U.S. corporate debt instead of Treasuries fell 520 basis points last year, a record rally in spreads, Merrill data show. Spreads were at 262 basis points as of yesterday, compared with 797 basis points a year earlier. Life insurers, which can hold policyholder premiums for decades before paying claims, need to earn returns on those funds to pay workers, remunerate investors and ultimately satisfy customers. Companies that were shut out of debt markets during the credit freeze returned to selling bonds in 2009 as demand strengthened. Firms issued $1.2 trillion of dollar-denominated bonds in 2009, according to data compiled by Bloomberg. That’s the most since at least 1999, and a 42 percent jump from 2008, when Lehman Brothers Holdings Inc.’s bankruptcy prompted investors to withhold debt financing. “This trend could continue as long as this asset class makes sense,” said Rajeev Sharma , who oversees $1.4 billion of investment-grade debt at First Investors Management Co. in New York. “So far, corporate credit is still the asset class of choice.” To contact the reporters on this story: Sapna Maheshwari in New York at sapnam@bloomberg.net ; Andrew Frye in New York at afrye@bloomberg.net .

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Federal Reserve Must Disclose Bank Bailout Records

March 19, 2010

By David Glovin and Bob Van Voris March 19 (Bloomberg) — The Federal Reserve Board must disclose documents identifying financial firms that might have collapsed without the largest ever U.S. government bailout, a federal appeals court said. The U.S. Court of Appeals in Manhattan ruled today that the Fed must release records of the unprecedented $2 trillion U.S. loan program launched primarily after the 2008 collapse of Lehman Brothers Holdings Inc. The ruling upholds a decision of a lower-court judge, who in August ordered that the information be released. The Fed had argued that it could withhold the information under an exemption that allows federal agencies to refuse disclosure of “trade secrets and commercial or financial information obtained from a person and privileged or confidential.” The U.S. Freedom of Information Act , or FOIA, “sets forth no basis for the exemption the Board asks us to read into it,” U.S. Circuit Chief Judge Dennis Jacobs wrote in the opinion. “If the Board believes such an exemption would better serve the national interest, it should ask Congress to amend the statute.” The opinion may not be the final word in the bid for the documents, which was launched by Bloomberg LP, the parent of Bloomberg News, with a November 2008 lawsuit. The Fed may seek a rehearing or appeal to the full appeals court and eventually petition the U.S. Supreme Court . David Skidmore, a Fed spokesman, didn’t immediately return a call seeking comment. Freedom of Information The court was asked to decide whether loan records are covered by FOIA. Historically, the type of government documents sought in the case has been protected from public disclosure because they might reveal competitive trade secrets. The Board of Governors of the Federal Reserve System had argued that disclosure of the documents threatens to stigmatize lenders and cause them “severe and irreparable competitive injury.” Bloomberg, majority-owned by New York Mayor Michael Bloomberg , sued after the Fed refused to name the firms it lent to or disclose loan amounts or assets used as collateral under its lending programs. Most of the loans were made in response to the deepest financial crisis since the Great Depression. Lawyers for Bloomberg argued in court that the public has the right to know basic information about the “unprecedented and highly controversial use” of public money. Wall of Secrecy “Bloomberg has been trying for almost two years to break down a brick wall of secrecy in order to vindicate the public’s right to learn basic information,” Thomas Golden , an attorney for the company with Willkie Farr & Gallagher LLP, wrote in court filings. Banks and the Fed warned that bailed-out lenders may be hurt if the documents are made public, causing a run or a sell- off by investors. Disclosure may hamstring the Fed’s ability to deal with another crisis, they also argued. Much of the debate at the appeals court argument on Jan. 11 centered on the potential harm to banks if it was revealed that they borrowed from the Fed’s so-called discount window. Matthew Collette , a lawyer for the government, said banks don’t do that unless they have liquidity problems. FOIA requires federal agencies to make government documents available to the press and public. An exception to the statute protects trade secrets and privileged or confidential financial data. In her Aug. 24 ruling, U.S. District Judge Loretta Preska in New York said the exception didn’t apply because there’s no proof banks would suffer. Payment Processors The Fed’s balance sheet debt doubled after lending standards were relaxed following Lehman’s failure on Sept. 15, 2008. That year, the Fed began extending credit directly to companies that weren’t banks for the first time since the 1930s. Total central bank lending exceeded $2 trillion for the first time on Nov. 6, 2008, reaching $2.14 trillion on Sept. 23, 2009. The Clearing House Association , which processes payments among banks, joined the case and sided with the Fed. The group includes ABN Amro Bank NV, a unit of Royal Bank of Scotland Plc, Bank of America Corp. , The Bank of New York Mellon Corp., Citigroup Inc. , Deutsche Bank AG, HSBC Holdings Plc, JPMorgan Chase & Co ., US Bancorp and Wells Fargo & Co. More than a dozen other groups or companies filed friend- of-the-court briefs. Those arguing for disclosure of the records included the American Society of News Editors and individual news organizations. The case is Bloomberg LP v. Board of Governors of the Federal Reserve System, 09-04083, U.S. Court of Appeals for the Second Circuit (New York). To contact the reporters on this story: David Glovin in New York at dglovin@bloomberg.net ; Bob Van Voris in New York at vanvoris@bloomberg.net .

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How To Start Your Own Bank

March 19, 2010

Starting a bank sounds like an impossible Gilded Age enterprise more befitting of a Rockefeller than today’s small business owner, especially in these dour economic times. But it’s not as impossible as one might think — or as risky. According to Smart Money.com , “the three-year failure rate for new banks is less than one in 1,000,” which, compared with a “60 percent failure rate for new restaurants,” is not so horrible. The profits are not too shabby either. The site reports: “6,770 community banks earned $67 billion over the past five years.” Based on a recent Wall Street Journal interview , even Former Federal Reserve Chairman Alan Greenspan says that he would start a bank — if he were 50 years younger. Inspired by the Move Your Money campaign , the Huffington Post is investigating different options to make banking more local and personal. For enterprising individuals, one way to make your banking experience more individual could be to start your own. Here are some tips on how to get started. Identify a Need One of the first things any prospective small business owner must assess is the need for her business in the community. Being a bank owner is no exception. When starting Global Trust Bank in Mountain View California, James Wall says that the surrounding community needed to be analyzed to see if it presented a need. “The community banks in the general geography are all gone,” said Wall, president and CEO of Global Trust Bank. Global Trust was situated in Silicon Valley and many of the small banks in the area have recently been bought up by big conglomerates. That’s left a hole in the banking community which Wall and his partners were only too happy to fill. Global Trust Bank opened on December 3, 2008. “The customer has the ability to walk in the door and meet face-to-face with the senior executives and get decisions made on the spot” says Wall. “It’s one-stop shopping for very high-quality personal service.” Capital and Regulation Generally banks need about $12 to 20 million in capital to get started. Many community banks are able to raise that money locally. Mike Schultz, the CEO of Harmony Bank in New Jersey, found that 90% of the capital he raised came from within the community. In Harmony Bank’s case, the board of directors was made of up of business leaders from within the community including a 40 year-old law firm, a construction company and an accounting firm. Once capital is assembled, the process is hardly finished. The application to the regulatory agencies is an arduous process, especially in the aftermath of the financial crisis. Specifically, community bank applications have slowed since the recession. “Turning this downturn, the regulators have gotten much more strict in their review of applications,” says Wall. “It’s probably harder today to get a bank approved than it would have been a couple of years ago.” Once the regulatory approval process is over, however, the bank is free to go into business. Benefits to Community Banking Richard Whitsell, president & CEO of Fresno First Bank, has started three community banks — or as they call them in the industry, Denovo banks (from the Italian for new). Whitsell used to work at Bank of America but, after a long career there, he needed a change. “[I wanted to] get closer to real banking, and making real decisions and having an impact on the community in which we live,” Whitsell reflects. Currently Whitsell has 22 employees. He sits on the same floor as the bank’s transactions and enjoys having a direct impact on the community he resides in. “We really do create an economic force in the communities that we serve,” says Whitsell.

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Rio Tinto Trial Highlights Communist Party Role in China’s `Scary’ Courts

March 18, 2010

By Debra Mao March 19 (Bloomberg) — Foreign companies that do business in China will be tracking the criminal trial next week of Rio Tinto Group iron-ore chief Stern Hu and three colleagues to see if politics plays as big a role in any conviction as the evidence, lawyers said. The detentions of Hu, Liu Caikui , Ge Minqiang and Wang Yong for allegedly stealing state secrets — later downgraded to taking bribes and infringing company secrets — sharpened the focus on a judicial system largely avoided by foreign parties because of its lack of transparency, the lawyers said. Chinese judges openly say Communist Party politics influence their decisions, with Supreme People’s Court President Wang Shengjun encouraging jurists in December to prioritize the “causes of the party,” the “interests of the people” and “the constitution and laws.” “While we generally feel the judicial system is improving, for foreign investors it is still kind of scary,” said Betty Tam , a Shanghai-based partner at U.K. law firm Herbert Smith who advises on foreign direct-investment issues. “The laws and regulations may not be as clear as we want them to be.” Those investors almost always prefer using arbitrators with agreed rules instead of going to court, Tam said. The four Rio Tinto defendants didn’t have that option. They go on trial March 22 in Shanghai. Under Article 126 of the Chinese constitution, judges aren’t barred from political interference, whereas it states that courts should be free from interference by administrative organs, social organizations and individuals. Law and Politics “Will politics play a role? Of course it will,” said Nanping Liu , co-founder of Shanghai law firm Liu & Wang. What makes a Chinese judge “outstanding” is the ability to juggle legal and political issues simultaneously, said Li Shicheng , vice-president of the High People’s Court of Sichuan province. “Practicing law and politics together is not always bad,” Li said in January at a legal training program in Hong Kong. Foreign Ministry spokesman Qin Gang said yesterday that Rio Tinto is “just an individual business case” that shouldn’t be “politicized.” Hu, an Australian national, and his colleagues were detained in July by Chinese authorities who said their actions harmed the nation’s economic interests and security. They were indicted Feb. 10. The defendants will be tried by the Shanghai No. 1 Intermediate People’s Court, Australia’s foreign affairs department said. Open and Closed Proceedings related to charges of receiving bribes will be open, while those concerning allegations of infringing on commercial secrets will be closed. The trial is listed on the court’s calendar for three days. The fact that the detentions came so closely on the heels of Rio’s iron-ore price negotiations with Chinese steel companies created an impression the cases were “arbitrary acts,” said New York University law professor Jerome Cohen , who has advised foreign companies in China for more than 20 years. Concerns about the rule of law haven’t affected China’s ability to attract foreign direct investment , which rose almost 8 percent in January from a year ago. Foreign companies parked $90 billion in investment there last year. China became Rio’s largest market last year, accounting for 24.3 percent of its sales, compared with 18.8 percent the year before. The proportion of sales to China, the world’s biggest iron-ore consumer, has doubled since 2004. Rio’s largest shareholder is state-owned Aluminum Corp. of China, the nation’s largest producer of the metal. “A Prism” “The trial is a kind of a prism through which you can see a lot of the problems of doing business in China,” said William McCahill , the Beijing-based vice chairman of Pacific Epoch, which provides research to institutional investors. “Better business people have been aware of those all along.” Courts were used mainly for political trials during Mao Zedong ’s Cultural Revolution, which ended in 1976. The nation’s Justice Ministry resumed operations in 1979, and a criminal procedure code was adopted that year. It was amended in 1997. The country now has about 166,000 lawyers and more than 15,000 law firms. Law firms from 21 countries operate 224 foreign law offices in China. Litigation rose by 6.3 percent to more than 11 million cases in 2009, according to the Supreme People’s Court, the nation’s highest. Legal Reforms Since joining the World Trade Organization in 2002, China overhauled antitrust regulation and labor contract law, and in December introduced a comprehensive tort law. China also has specialized intellectual property courts for trademark, copyright and patent issues. “China has invested heavily in establishing and strengthening institutions,” according to Randy Peerenboom , the author of “China’s Long March toward Rule of Law.” In the past year, courts jailed people pirating Microsoft Corp. software and ruled in favor of Isle of Man-based electric kettle controls maker Strix Ltd. in a patent suit against two Chinese companies. “When litigation does not affect sensitive issues, there is no limit to what you can do, the rights you enjoy,” said Flora Sapio , a lecturer on Chinese legal institutions at the University of Naples L’Orientale in Naples, Italy. “When the case is considered sensitive, the differences are very interesting.” “Not a Good Look” Politically sensitive cases may include those involving organized crime, collective petitioning or foreign investment projects, Human Rights Watch said in a 2006 report . Protectionism has also been perceived in commercial cases involving foreign parties in lower courts. In 1998, when Groupe Danone SA lost two municipal court lawsuits against its local joint-venture partner, the world’s largest yogurt-maker said “the legality or fairness of these two judgments are clearly doubtful.” The two-year dispute was resolved after arbitration in Sweden and a settlement brokered by the Chinese and French governments. Danone sold its stake in the partnership. “The lessons from Rio are being absorbed by every other company that deals with China,” said Ann Kent , a doctor of international law at the Canberra-based Australian National University. “It is really not a good look for the Chinese government.” To contact the reporter on this story: Debra Mao in Hong Kong at dmao5@bloomberg.net

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Dodd Chief Counsel Traded Financial Securities as Panel Wrote Crisis Laws

March 18, 2010

By Robert Schmidt March 18 (Bloomberg) — Senate Banking Committee Chairman Christopher Dodd’s chief counsel in 2008 traded stock in Morgan Stanley , Wells Fargo & Co., American International Group Inc. and other rescued companies as the panel considered legislation to address the credit crisis, according to her financial disclosure form filed with the Senate. Amy Friend , 51, who is now leading the panel’s effort to write a bill overhauling Wall Street regulations, bought $1,000- to-$15,000 stakes in four banks, weeks after Dodd hired her in January 2008, the form shows. She also owned shares of Fannie Mae , Freddie Mac , AIG and other insurance firms, according to the disclosure document, which she signed on June 5, 2009. The transactions, permissible under Senate rules, included buying $1,000 to $15,000 of Federal Home Loan Bank bonds and Fannie Mae debt in June and July, 2008. On July 30 of that year, then-President George W. Bush signed into law a Dodd-sponsored bill setting out new regulations for the housing finance agencies and allowing the Treasury Department to give them cash injections. “This looks very bad,” said Melanie Sloan , the executive director for Citizens for Responsibility and Ethics in Washington and a former Democratic congressional aide. “At the very least it’s inappropriate and it gives the appearance of wrongdoing, even if there is none.” Ethics Committee Dodd, a Connecticut Democrat, defended his chief counsel. “Amy Friend is one of the fiercest public advocates on Capitol Hill today,” Dodd said in an e-mailed statement. “Her integrity is second to none.” Friend, who declined to comment, informed her supervisor of her holdings, and consulted the Senate Ethics Committee when she was hired, Kirstin Brost , the Senate Banking Committee spokeswoman, said. Friend lists the investments as jointly owned with her husband. She continues to hold financial securities, Brost said. Friend’s disclosure form for 2009 is due in May. Sloan and other ethics specialists say Friend’s stock ownership and trading reflect the leeway lawmakers and congressional staff have with their investments. Unlike Treasury Department employees or bank examiners at independent regulatory agencies who aren’t allowed to hold shares of companies they oversee, U.S. lawmakers and their staff are free to invest with few restrictions. Still, Friend’s counterparts on the banking panel’s Republican side and on the House Financial Services Committee didn’t own financial instruments, according to their 2008 disclosures. ‘Squishy’ Rules The rules “are kind of squishy intentionally,” said Kenneth Gross , a partner at the Skadden, Arps, Slate, Meagher & Flom LLP law firm in Washington who counsels people on ethics regulations. “Congress has permitted the holding and trading of securities virtually unfettered.” Senate rule 37 states that no lawmaker or employee “shall knowingly use his official position to introduce or aid the progress or passage of legislation, a principal purpose of which is to further only his pecuniary interest.” In additional guidance, the Senate Ethics Manual notes that the restriction is “narrow” and says that if the legislation has broad impact, a prohibition wouldn’t apply. The rules require staff that have “substantial holdings” that could be directly affected by a committee’s work to divest, unless they are given a waiver by the Senate Ethics Committee. The ethics panel has told congressional staff that a fair definition of “substantial” would be any single holding equal to 3 percent to 5 percent of total liquid assets. Friend’s combined financial investments constituted less than 2 percent of her liquid assets, below the ethics guidance, Brost said. ‘Not Unethical’ John Hasnas , who teaches ethics as an associate professor at Georgetown University’s McDonough School of Business in Washington, said that while her actions may not look good politically, “the fact that it may appear unethical to others doesn’t mean what you did was wrong.” “If the rules say that she is allowed to do it and the only problem is that it gives the appearance of impropriety, in my opinion she has not behaved unethically,” Hasnas said in a telephone interview. It is impossible to tell the exact amount of Friend’s purchases and sales from the ethics records, which require her to value investments only in broad ranges. She listed each of her financial stocks as being worth $1,000 to $15,000. They included: AIG, Bank of America Corp., Bank of New York Mellon Corp. , Discover Financial Services, Freddie Mac, Fannie Mae, Federated Investors Inc., M&T Bank Corp., Wells Fargo, MetLife Inc. and MGIC Investment Corp., a mortgage insurer. Company Stocks Friend’s portfolio included stocks of more than 100 companies, many non-financial, ranging from Coca- Cola Co. to Target Corp. to Xerox Corp. She also owned mutual funds, municipal bonds and Treasury bills. Friend was an attorney at the Office of the Comptroller of the Currency before joining the banking committee. She also teaches a spinning class at a Northern Virginia gym in her spare time, earning $1,200 in 2008. Friend’s first year working for the panel included the near-collapse of Bear Stearns Cos., the bankruptcy of Lehman Brothers Holdings Inc., the government bailouts of AIG, Fannie Mae and Freddie Mac, and passage of the $700 billion financial rescue law. The committee also considered the Housing and Economic Recovery Act, which provided foreclosure assistance to struggling homeowners, created a more powerful regulator for the home loan banks and Fannie Mae and Freddie Mac, and gave the Treasury emergency authority to bail out the housing-finance giants. Fannie Mae Shares On July 23, as lawmakers neared agreement on the bill, shares of Fannie Mae rose 12 percent to close at $15 in New York Stock Exchange composite trading. Friend’s own Fannie Mae stock holdings would have increased in value as well, though not enough to cover steady declines since she acquired the shares on January 23, when they closed at $34.78 Friend also made five purchases of Federal Home Loan Bank Board bonds in 2008, each valued at $1,000 to $15,000, according to the form . Two were in January, one in February, one in March and one in June of that year. Friend valued her total holdings of the bonds at $50,000 to $100,000, according to the form. She also purchased Fannie Mae debt on July 1, two weeks before the bill, sponsored by Dodd and Senator Richard Shelby of Alabama, the senior Republican on the banking committee, passed the Senate. Bank of America Some of Friend’s trades listed in the disclosure statement were stock purchases — all in 2008 — and may not have been profitable. For example, when she bought Bank of America on Feb. 20, its closing share price was $42.97. She acquired additional shares on May 27, when the closing price was $34.17. It was $17.03 a share at yesterday’s close. Friend purchased AIG on Aug. 12 when its closing share price was $457. About a month later, the firm received an $85 billion loan from the Federal Reserve, the first of several bailouts. AIG shares closed yesterday at $33.61 a share. Very few of the trades in Friend’s portfolio were sales. She did unload $1,000 to $15,000 of Morgan Stanley shares on Sept. 22, several days after then-Treasury Secretary Henry Paulson asked Congress to pass the Troubled Asset Relief Program designed to remove toxic debt from banks’ books. To contact the reporter on this story: Robert Schmidt in Washington at rschmidt5@bloomberg.net .

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Mike Elk: The Bipartisan Solution that Creates 2 Million Jobs and Costs Nothing

March 17, 2010

Monday a bipartisan group of 130 members of Congress, ranging from Dennis Kucinich on the left to Joe Wilson on the right, wrote to President Obama asking him to stop Chinese currency manipulation. The Congressman wrote: By pegging the renminbi (RMB) to the U.S. dollar at a fixed exchange rate, China unfairly subsidizes its exports and disadvantages foreign imports. As we work to promote a robust U.S. economic recovery, it is imperative that we address this paramount trade issue with all available resources. We urge your agencies to respond to China’s currency manipulation with the actions outlined in this letter. Doing so will allow American companies and workers to compete fairly against their Chinese counterparts and will boost U.S. economic recovery and growth. The impact of China’s currency manipulation on the U.S. economy cannot be overstated. Maintaining its currency at a devalued exchange rate provides a subsidy to Chinese companies and unfairly disadvantages foreign competitors. U.S. exports to the country cannot compete with the low-priced Chinese equivalents, and domestic American producers are similarly disadvantaged in the face of subsidized Chinese imports. The devaluation of the RMB also exacerbates the already severe U.S-China trade deficit. Statistics show that between January 2000 and May 2009, China’s share of the U.S. trade deficit for non-oil goods grew from 26% to 83% — an untenable pattern for American manufacturers. The crisis with China is accelerating quickly, and is so severe that economists from all over the political spectrum are calling for the U.S. to take drastic action against China currency manipulation. Economists such as Paul Krugman, who was long a champion of free trade and opponent of tariffs, are saying that what China is doing isn’t free trade, but cheating. Writing Monday in the New York Times Paul Krugman reversed positions on tariffs, saying : Some still argue that we must reason gently with China, not confront it. But we’ve been reasoning with China for years, as its surplus ballooned, and gotten nowhere: on Sunday Wen Jiabao, the Chinese prime minister, declared — absurdly — that his nation’s currency is not undervalued. (The Peterson Institute for International Economics estimates that the renminbi is undervalued by between 20 and 40 percent.) And Mr. Wen accused other nations of doing what China actually does, seeking to weaken their currencies “just for the purposes of increasing their own exports.” But if sweet reason won’t work, what’s the alternative? In 1971 the United States dealt with a similar but much less severe problem of foreign undervaluation by imposing a temporary 10 percent surcharge on imports, which was removed a few months later after Germany, Japan and other nations raised the dollar value of their currencies. At this point, it’s hard to see China changing its policies unless faced with the threat of similar action — except that this time the surcharge would have to be much larger, say 25 percent This follows similar sentiments echoed last month by free trade loving, tariff hating Robert Samuelson. Samuelson writing in the Washington Post said : Greater conflicts and a collision of national egos seem inevitable. No longer should we sit passively while China’s trade and currency policies jeopardize jobs here and elsewhere. Political differences between the countries are increasingly hard to ignore. The crisis has gotten so severe that economists who have long fought for conservative ideology and against tariffs are saying we need them to correct the imbalance. Last week, progressive economist Rob Scott of EPI and C. Fred Bergsten, director of the conservative Peterson Institute for International Economics as well as Nobel Prize winning economist Paul Krugman. Bergsten heads the Peterson Institute for International Economics

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Christie Calls `Non-Negotiable’ Plan to Let New Jersey Tax Increases Lapse

March 17, 2010

By Stacie Servetah and Terrence Dopp March 17 (Bloomberg) — New Jersey Governor Chris Christie said his plan not to renew a business-tax increase or an income- tax surcharge on residents earning $400,000 a year or more is “completely non-negotiable.” The $29.3 billion budget that Christie presented to lawmakers yesterday was “well-received” by the credit-rating companies, Treasurer Andrew Eristoff said. The plan closes a $10.7 billion deficit by suspending property-tax rebates, skipping the state’s $3 billion pension contribution and reducing aid to schools, towns and higher education. Christie, in an interview today at Bloomberg headquarters in New York, said he expects his proposal to ultimately pass the Democrat-controlled Legislature because lawmakers don’t “have a great number of alternatives.” The governor, a Republican who took office Jan. 19, said his decision to skip the contribution to New Jersey’s pension system, which will exacerbate a $46 billion funding hole, was “about making priority judgments.” “I don’t have the money,” Christie said. “It’s just that simple.” Christie’s plan for the fiscal year that begins July 1, which includes $28.3 billion in state spending and $1 billion in federal aid, is 9 percent lower than the current budget. In a 50-minute speech yesterday in Trenton, he said he’d veto any tax increase. ‘Millionaires’ Tax Lawmakers and former Governor Jon Corzine , the one-term Democrat who enacted the temporary boost in the state’s top income tax rate, could have extended it after it expired Dec. 31. The Democrats are raising the issue now for political purposes, Christie said. “If they wanted it so badly, they could have had it,” he said. The first-term governor must convince legislators to forgo both taxes as he seeks $820 million in cuts to public school aid and $445 million less for cities and towns. He asked lawmakers and voters to support a 2.5 percent cap on local property tax- increases to deter towns and schools from raising the levies to counteract the lost funding. The education-funding cut “does nothing to help local governments and schools get off the need to rely on property taxes,” Assembly Budget Committee Chairman Lou Greenwald , a Camden Democrat, said yesterday in a statement. School Budgets Christie’s aid reduction would amount to as much as 5 percent of district budgets. The governor said his proposed cap should apply to this year’s spending plans, even if lawmakers don’t pass it before school budgets are adopted in April. “They can always go back and make cuts,” he said. “I certainly don’t think we should just go back and throw up our hands.” Bret Schundler , Christie’s education commissioner, said yesterday that a state-law provision that allows school boards to boost property taxes when state aid is reduced will prompt many communities to propose raising local taxes this year. “I suspect what will occur in many districts this year is you will have budgets voted down as a function of large levies being included in the budget,” Schundler told reporters. Transit Fares Christie defended his decision in February to reduce the state subsidy for New Jersey Transit by $33 million, or 11 percent, to help close a $2.2 billion gap in the current state budget. The move led the transit agency to propose raising fares by a record 25 percent system-wide and reducing service to help close a $300 million budget deficit. “There’s no way to fix that without fare hikes,” he said. Christie said he supported raising transit fares over putting tolls on free roads in New Jersey including Interstates 78, 80, 195 and 295. The governor said he will sign legislation aimed at reducing the pension deficit by excluding part-time workers from the system, trimming benefits and forcing teachers to pay more for health care. Those bills passed the Senate in February and may be considered by the full Assembly as soon as next week, said Tom Hester, a spokesman for Assembly Democrats. New Jersey won’t issue pension bonds to fill the system’s deficit, Eristoff said. To contact the reporters on this story: Stacie Servetah in Trenton at sbabula@bloomberg.net Terrence Dopp in Trenton, New Jersey, at tdopp@bloomberg.net .

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Japan freezes key interest rate at 0.1%

March 17, 2010

Japan freezes key interest rate at 0.1%

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Clinton Awaits Israeli Response on Commitment to U.S.-Brokered Peace Talks

March 16, 2010

By Indira A.R. Lakshmanan March 17 (Bloomberg) — Secretary of State Hillary Clinton said the U.S. is seeking assurances from Israel and the Palestinian Authority of each side’s commitment to U.S.-brokered indirect peace talks following a flap over Israeli settlements. A scheduled trip to Israel and the Palestinian territories by U.S. special envoy George Mitchell was postponed in part because the Obama administration is awaiting a response from Israeli Prime Minister Benjamin Netanyahu to requests Clinton made during a phone call to him on March 12, State Department spokesman Phillip J. Crowley said yesterday. “We are engaged in a very active consultation with the Israelis over steps that we think would demonstrate the requisite commitment to this process,” Clinton told reporters in Washington yesterday. Mitchell was planning to set the so-called proximity talks in motion, adding momentum to President Barack Obama ’s efforts to settle Israeli-Palestinian differences and move toward creation of a Palestinian state. The Israeli government stood firm yesterday on its policy of building Jewish homes in all parts of Jerusalem in the face of U.S. objections and outbreaks of violence in the capital’s Arab neighborhoods. Israeli Foreign Minister Avigdor Lieberman said any ban on Jewish building in east Jerusalem is unacceptable. “There can’t be a situation where only Jews are prohibited from building in Jerusalem, while Arabs are allowed to both build and buy,” Lieberman said in an interview with Israel Radio. Protesters Dispersed Police used stun grenades to disperse Palestinian protesters in two areas of east Jerusalem and arrested 60 of the demonstrators yesterday. Fifteen policemen were injured in the disturbances. Clinton said she had expressed to Netanyahu U.S. “dismay and disappointment” over Israel’s announcement during a visit last week by Vice President Joe Biden of plans to construct 1,600 apartments for Jewish residents in east Jerusalem. Palestinians want east Jerusalem as the site of a future capital of an independent state. The U.S. asked Palestinian leaders this week to refrain from any incitement that could stoke tension in the region. Clinton dismissed the suggestion that U.S.-Israeli relations were experiencing their worst strain in three decades, saying, “I don’t buy that,” and stressing Washington’s “close, unshakeable bond” with the Israeli people. Speech Planned Clinton plans to speak next week at the Washington policy conference of the American Israel Public Affairs Committee, which has called on the administration to “defuse the tension” with Israel. Michael Oren , the Israeli ambassador to the U.S., said in a statement late yesterday that “recent events do not — I repeat — do not represent the lowest point in relations between” the two countries. He added: “Though we differ on certain issues, our discussions are being conducted in an atmosphere of cooperation as befitting long-standing relations between allies. I am confident that we will overcome these differences shortly.” Clinton’s Call In the 43-minute call on March 12, Clinton told Netanyahu that the U.S. wants three things from Israel to prove its commitment to Mideast peace: a freeze on construction of the new housing units announced for east Jerusalem; a gesture to bolster the Palestinian Authority, such as the restoration of economic exchanges, and a pledge that talks would tackle substantive issues, such as the final status of Jerusalem and the return of refugees, a U.S. official familiar with the talks said. The official, who was privy to the talks, spoke on condition of anonymity because the conversation was private. A response from Netanyahu is possible as early as today, the official said. As a gesture to kick-start stalled peace talks, Netanyahu had pledged a 10-month settlement freeze, with certain exclusions, on territories annexed by Israel since 1967. Palestinian officials for the past year had opposed any return to negotiations without a settlement freeze first. Arab states earlier this month endorsed U.S. plans for indirect talks, in part because of Israel’s conditional moratorium. The State Department last week used some of its strongest language toward Israel since Obama took office, going so far as to question Israel’s attitude toward its friendship with the U.S. Crowley said Clinton had told Netanyahu that he would have to “demonstrate not just through words, but through specific actions, that they are committed to this relationship and to the peace process.” To contact the reporter on this story: Indira Lakshmanan in Washington at ilakshmanan@bloomberg.net

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China Is in Midst of `Greatest Bubble in History,’ Ex-LTCM’s Rickards Says

March 16, 2010

By Bei Hu March 17 (Bloomberg) — China is in the midst of “the greatest bubble in history,” said James Rickards , former general counsel of hedge fund Long-Term Capital Management LP. The Chinese central bank’s balance sheet resembles that of a hedge fund buying dollars and short-selling the yuan , said Rickards, now the senior managing director for market intelligence at McLean, Virginia-based consulting firm Omnis Inc. “As I see it, it is the greatest bubble in history with the most massive misallocation of wealth,” Rickards said at the Asset Allocation Summit Asia 2010 organized by Terrapinn Pte in Hong Kong yesterday. China “is a bubble waiting to burst.” Rickards joins hedge fund manager Jim Chanos, Gloom, Boom & Doom publisher Marc Faber and Harvard University professor Kenneth Rogoff in warning of an overheating and potential crash in China’s economy following a rally in stocks and property prices. The government has raised lenders’ reserve requirements twice this year to cool an economy that grew at the fastest pace since 2007 in the fourth quarter. Leveraged speculation in the stock market , wasteful allocation of resources by state-owned enterprises, off-balance- sheet debt through regional governments and the country’s human rights record are concerns, said Rickards, who worked for LTCM between 1994 and 1999, helping negotiate a $3.6 billion rescue after the hedge fund lost $4 billion in a few weeks in 1998. “Take Russia and China together, neither of them is really deserving any investment” except for short-term speculation, Rickards said. India and Brazil are two of the “real economies” among the developing countries, he said. U.S. Treasuries Rickards also disputed an argument that China could hold U.S. policies hostage through its U.S. Treasury securities holdings. The Asian nation remained the largest overseas owner of the debt after trimming its holdings by $5.8 billion in January to $889 billion, according to Treasury Department data released March 15. China would suffer massive losses if the debt was dumped, reducing the funds available in the U.S. securities market and forcing the prices lower, he said. The U.S. president also has the authority, rarely used, to freeze such positions, he said. Harvard’s Rogoff said Feb. 23 that a debt-fueled bubble in China may trigger a regional recession within a decade, while Chanos, founder of New York-based Kynikos Associates Ltd., predicted a slump after excessive property investments. To contact the reporter on this story: Bei Hu in Hong Kong at bhu5@bloomberg.net .

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AMR Flight Attendants Take Step Toward First U.S. Carrier Strike Since ’05

March 16, 2010

By Mary Schlangenstein March 16 (Bloomberg) — American Airlines ’ flight attendants requested federal approval to end contract talks, a step toward the first strike at a major U.S. carrier in almost five years. The Association of Professional Flight Attendants asked the National Mediation Board to declare bargaining with AMR Corp. ’s American at an impasse, union President Laura Glading said. Only the board can approve a halt to negotiations, putting the parties into a 30-day “cooling-off” period before a walkout. Glading’s proposal to break off talks made the attendants union the second labor group at American to try to trigger a countdown toward a strike. The Transport Workers Union , which represents ground workers, asked permission last week to be freed from contract discussions. “I can’t imagine anyone really wants to strike,” William Swelbar , a research engineer at Massachusetts Institute of Technology’s International Center for Air Transportation, said before the attendants made their request. He said a walkout would disrupt cash flow in the busy U.S. summer travel season. Federal law sets out the mediators’ role in airline labor talks. No large U.S. carrier has suffered a strike since 2005, when 4,200 Northwest Airlines Corp. mechanics and aircraft cleaners walked off the job. Northwest, which was acquired by Delta Air Lines Inc. in 2008, responded by hiring replacements. A telephone message left with American’s media office for comment wasn’t immediately returned. Talks between American, the world’s second-biggest airline behind Delta, and the APFA began June 10, 2008. The union, which represents 16,550 active attendants and 1,450 on furlough, has said it will conduct a strike authorization vote. Three Unions Attendants, ground workers and American’s pilots union are all in contract negotiations, trying to recoup $1.6 billion in pay and benefits given up in 2003 to save the Fort Worth, Texas- based carrier from bankruptcy. American wants to reduce its industry-leading labor costs and raise productivity. Mediators haven’t decided on the TWU’s March 11 request to be freed from talks with American. The TWU represents ground workers including mechanics and bag handlers. Should the board conclude that further talks wouldn’t yield a contract, American and the attendants would be offered binding arbitration. Rejection by either side would start the “cooling- off” period, which would still allow for further discussions. The board also may order the airline and union to resume talks, or decree a recess in negotiations. Opposing Views American refused to “bargain in good faith,” Glading said in a March 12 statement. American said yesterday in a Web-site update about the talks that “we made progress and look forward to getting back to the table and back to work.” AMR fell 18 cents, or 1.8 percent, to $9.66 at 4:15 p.m. in New York Stock Exchange composite trading. The shares have gained 25 percent this year. American has told the Federal Aviation Administration that it was considering training managers and other employees as replacement attendants in the event of a strike. In 1993, American trained about 1,300 replacements to try to keep some planes flying during a five-day walkout. The strike ended when then-President Bill Clinton intervened. It cost American about $10 million a day. To contact the reporter on this story: Mary Schlangenstein in Dallas at maryc.s@bloomberg.net

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AMR Flight Attendants Take Step Toward First U.S. Carrier Strike Since ’05

March 16, 2010

By Mary Schlangenstein March 16 (Bloomberg) — American Airlines ’ flight attendants requested federal approval to end contract talks, a step toward the first strike at a major U.S. carrier in almost five years. The Association of Professional Flight Attendants asked the National Mediation Board to declare bargaining with AMR Corp. ’s American at an impasse, union President Laura Glading said. Only the board can approve a halt to negotiations, putting the parties into a 30-day “cooling-off” period before a walkout. Glading’s proposal to break off talks made the attendants union the second labor group at American to try to trigger a countdown toward a strike. The Transport Workers Union , which represents ground workers, asked permission last week to be freed from contract discussions. “I can’t imagine anyone really wants to strike,” William Swelbar , a research engineer at Massachusetts Institute of Technology’s International Center for Air Transportation, said before the attendants made their request. He said a walkout would disrupt cash flow in the busy U.S. summer travel season. Federal law sets out the mediators’ role in airline labor talks. No large U.S. carrier has suffered a strike since 2005, when 4,200 Northwest Airlines Corp. mechanics and aircraft cleaners walked off the job. Northwest, which was acquired by Delta Air Lines Inc. in 2008, responded by hiring replacements. A telephone message left with American’s media office for comment wasn’t immediately returned. Talks between American, the world’s second-biggest airline behind Delta, and the APFA began June 10, 2008. The union, which represents 16,550 active attendants and 1,450 on furlough, has said it will conduct a strike authorization vote. Three Unions Attendants, ground workers and American’s pilots union are all in contract negotiations, trying to recoup $1.6 billion in pay and benefits given up in 2003 to save the Fort Worth, Texas- based carrier from bankruptcy. American wants to reduce its industry-leading labor costs and raise productivity. Mediators haven’t decided on the TWU’s March 11 request to be freed from talks with American. The TWU represents ground workers including mechanics and bag handlers. Should the board conclude that further talks wouldn’t yield a contract, American and the attendants would be offered binding arbitration. Rejection by either side would start the “cooling- off” period, which would still allow for further discussions. The board also may order the airline and union to resume talks, or decree a recess in negotiations. Opposing Views American refused to “bargain in good faith,” Glading said in a March 12 statement. American said yesterday in a Web-site update about the talks that “we made progress and look forward to getting back to the table and back to work.” AMR fell 18 cents, or 1.8 percent, to $9.66 at 4:15 p.m. in New York Stock Exchange composite trading. The shares have gained 25 percent this year. American has told the Federal Aviation Administration that it was considering training managers and other employees as replacement attendants in the event of a strike. In 1993, American trained about 1,300 replacements to try to keep some planes flying during a five-day walkout. The strike ended when then-President Bill Clinton intervened. It cost American about $10 million a day. To contact the reporter on this story: Mary Schlangenstein in Dallas at maryc.s@bloomberg.net

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Gilbert B. Kaplan: If China Throws Out Google, We Should Throw Out their Computers

March 16, 2010

The concept of reciprocity in trade has a long and storied history, and one that ought to be remembered today. Simply put, if we allow market access for the fruits of the great Chinese industrial machine, creating jobs for 100 million Chinese workers (the number of Chinese employed in manufacturing), they need to allow access to our creative enterprises, such as Google. But not only is Google being forced out by a series of actions and deliberate inactions of the Chinese government, but Google’s affiliate, YouTube, was never even let into China in the first place. It is perennially blocked by their “great firewall”. Nor do most other U. S. websites have unfettered access to China. eBay has left China. Many newspaper websites are regularly censored. The Chinese competitive sites that are willing to go along with the censorship and the dictates of the Chinese government, like Baidu and Alibaba, are the dominant players on the Chinese internet. This is not only a question of freedom of speech. It is also a trade barrier and a major economic problem for the United States. Google alone has over 20,000 employees, many in the United States, and they and the company are undercut by these actions, as are the workers at eBay and other website companies. We are struggling to rebuild our manufacturing sector, but while that occurs, we need to make sure companies like Google have full access to the largest internet market in the world, China. If a company cannot access the largest market in the world for its product it loses enormous revenue opportunities. And as a matter of economies of scale and ability to move down the learning curve, it becomes economically disadvantaged versus its competitors going forward. There had been an implicit agreement about the internet made between China and the United States. The United States agreed to lower all its tariffs on high technology manufactured goods to zero, and we agreed to let in all that China could send over here, no questions asked. What is the result of that? The result is that substantially all United States computers are now made in China. We even went so far as to allow the first U. S. PC maker, IBM, to sell its PC division to a Chinese company, Lenovo. That sale could have been stopped, under a U. S. law called the Exon-Florio Act, but not only did we not stop it, we did not even question it. Why? Because we believed that as China industrialized and moved along the economic and knowledge highway they would become a great market for those goods where we continue to have an advantage, things like search engines, and streaming video, and innovative web sites. We believed they would keep their side of the bargain. But they have not. So we are now in a completely untenable position, as a country and as an economy. The hardware of the internet, computers, disk drives, semiconductors, peripherals, are all made in China, not here. Much of the software of the internet, which is made here, advanced here, and continually reinvented here, is banned from China. So their industries grow, they develop more jobs, their economy avoids the recession. Our economy shrinks, our job base deteriorates, and our creative enterprises suffer because they are denied access to the largest internet market in the world. And the trend is only getting worse. More and more high-tech producers are moving their factories to China, because of subsidies, cheap labor, low environmental standards, and currency manipulation. Ironically, it was only a short time ago that we thought computers and semiconductors were the kind of creative industries we would always keep in the U. S. But they have now basically left our shores, though the even more creative side of the internet has not (yet). The largest computer manufacturing area in the world is in Guangdong Province, north of Hong Kong, where Foxconn employs 200,000 people as a subcontractor to many U. S. and other worldwide computer brands. While this is occurring, thousands of U. S. engineers and assembly line workers are unemployed. The Chinese government wants trade to be a completely one-sided affair where China builds up knowledge and industrial might and trade reserves and we get nothing. If there is any area where we clearly have a comparative advantage it is the complex and dynamically creative space that Google occupies. In 2009, China exported $126 billion of computers and electrical equipment to the United States. We exported a paltry $14 billion to them. Given these favorable terms of trade, one would think they would be careful with our further downstream internet companies, but they are not. Demanding reciprocity is not protectionist and should not subject us to criticism from China, the WTO, or even the most free of free traders. Reciprocity is what the trade agreements of the world are about. We let you sell in our market the goods you can make more efficiently and more creatively. You let us sell in your market the goods and services we produce. If China shuts out our internet companies, we need to shut out their hardware that the internet runs on.

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Steven Chu: Energy Efficiency: Achieving the Potential, Realizing the Savings

March 16, 2010

For the next few decades, energy efficiency is one of the lowest cost options for reducing US carbon emissions. Many studies have concluded that energy efficiency can save both energy and money. For example, a recent McKinsey report calculated the potential savings assuming a 7% discount rate, no price on carbon and using only “net present value positive” investments. It found the potential to reduce consumer demand by about 23% by 2020 and reduce GHG emissions by 1.1 gigatons each year — at a net savings of US$ 680 billion. Likewise, the National Academies found in 2009 that accelerated deployment of cost-effective technologies in buildings could reduce energy use by 25-30% in 2030. The report stated: “Many building efficiency technologies represent attractive investment opportunities with a payback period of two to three years.” Some economists, however, don’t believe these analyses; they say there aren’t 20-dollar bills lying around waiting to be picked up. If the savings were real, they argue, why didn’t the free market vacuum them up? The skeptics are asking a fair question: why do potential energy efficiency savings often go unrealized? I asked our team at the Department of Energy to review the literature on savings from home energy retrofits. We are pursuing energy efficiency in many areas — from toughening and expanding appliance standards to investing in smart grid — but improving the efficiency of buildings, which account for 40% of US energy use, is truly low hanging fruit. In this review, we looked only at studies that compared energy bills before and after improvements and excluded studies that relied on estimates of future savings. We found that retrofit programs that were the most successful in achieving savings targeted the least efficient houses and concentrated on the most fundamental work: air-tight ducts, windows and doors, insulation and caulking. When efficiency improvements were both properly chosen and properly executed, the projected savings of energy and money were indeed achieved. In science, we would call the successful programs an “existence proof” that efficiency investments save money. Too often, however, the savings went unrealized, due to a number of reasons, including poor efficiency investment decisions and shoddy workmanship. There are other reasons why energy savings aren’t fully captured. Market failures include inertia, inconvenience, ignorance, lack of financing and “principal agent” problems (e.g., landlords don’t install energy efficient refrigerators because tenants pay the energy bills). To persuade the skeptics and spark the investments in efficiency we need, the Department of Energy is now focused on overcoming these market failures. First, the Department is working to develop a strong home retrofit industry. We are creating a state-of-the-art tool that home inspectors can use on a handheld device to assess energy savings potential and identify the most effective investments to drive down energy costs. We’re also investing in training programs to upgrade the skills of the current workforce and attract the next generation. The Department is also focused on measuring results — to both provide quality assurance to homeowners and promote improvement. For example, we’re pursuing new technologies such as infrared viewers that will show if insulation and caulking were done properly. Post-work inspections are a necessary antidote and deterrent to poor workmanship. To address inconvenience and to reduce costs, we’re launching an innovative effort called “Retrofit Ramp-Up” that will streamline home retrofits by reaching whole neighborhoods at a time. If we can audit and retrofit a significant fraction of the homes on any given residential block, the cost, convenience and confidence of retrofit work will be vastly improved. Another goal of this program is to make energy efficiency a social norm. To help pay for investments, we’re working with the Department of Housing and Urban Development to encourage new financing tools. For example, homeowners might pay back energy improvement loans via an assessment on their property tax bill. Out-of-pocket expenses are eliminated and energy savings will exceed the increase in property tax. Both the savings and the loan payments would stay with the house if the owners decide to sell. Another opportunity comes when a property changes hands. Banks require a structural inspection and a termite inspection; they should also ask for the last year’s worth of utility bills, which speaks directly to the home’s affordability. If improvements are needed, the costs could be seamlessly tacked onto the mortgage. The greatest gains can be realized in new construction. By developing building design software with embedded energy analysis and building operating systems that constantly tune up a building for optimal efficiency while maintaining comfort, extremely cost-effective buildings with energy savings of 60-80% are possible. Regardless of what the skeptics may think, there are indeed 20-dollar bills lying on the ground all around us. We only need the will — and the ways — to pick them up. This op-ed appears in a new report by the World Economic Forum and IHS Cambridge Energy Research Associates entitled “Energy Vision 2010: Towards a More Energy Efficient World.” The full report can be found here .

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Christie Seeks to Suspend New Jersey’s Tax Rebate in $29.3 Billion Budget

March 16, 2010

By Terrence Dopp March 16 (Bloomberg) — New Jersey Governor Chris Christie proposed a $29.3 billion budget that would suspend property-tax rebates, skip the state’s $3 billion pension contribution and fire 1,300 workers next year. The plan would reduce aid to schools by $820 million, towns by $446 million and higher education by $173 million. Christie, a Republican who took office Jan. 19, also called for a constitutional amendment that would limit annual growth in the state’s highest-in-the-nation property taxes to 2.5 percent. “Today, we stop sweeping problems under the rug,” Christie, 47, said during his first budget address to a joint session of the Democrat-led Legislature in Trenton. “We will not hide our problems until another day. And we are certainly not increasing the tax burden we place upon our people.” Christie pledged not to raise income, sales or corporate taxes to close a record $10.7 billion deficit in the budget for the fiscal year that begins July 1. His plan, which includes $28.3 billion in state spending and $1 billion in federal aid, is 9 percent lower than the budget for the current fiscal year, which ends June 30. New Jersey will get $1.3 billion less from the U.S. government in fiscal 2011, according to Christie’s administration. The budget contains a total of $10 billion in reductions and would have swelled to as much as $38 billion without any action, Treasurer Andrew Eristoff said. Revenue Projections The plan counts on projected revenue rising 2.2 percent to $28.3 billion, which would be the first increase in three years. Christie also expects to receive $490 million in federal funding for a six-month extension of the Medicaid health-care program for the poor which is still being debated in Congress. The new governor didn’t renew a business-tax increase or an income-tax surcharge on residents earning $400,000 or more, both of which make the state less competitive, his Chief of Staff Richard Bagger told reporters yesterday. Eristoff said the budget will seek $8.8 million in “employee actions” including firings of as many as 1,300 workers after Jan. 1. Christie said last week he can’t lay off or furlough any of the 70,000 state workers before then because of a 2009 agreement his predecessor Governor Jon Corzine negotiated with unions as part of a $450 million wage freeze. Spending Cap Christie said he will ask lawmakers to institute an immediate 2.5 percent spending cap on state and local governments. The legislation would be used until a permanent, constitutional amendment can be approved, Bagger said. Real-estate levies, the main source of funding for schools and local governments, averaged $7,281 last year, up from $7,045 in 2008, state data show. The levy has climbed 72 percent since 1999, when the average was $4,239. Christie last month withheld $475 million in school aid to help close a $2.2 billion mid-year deficit. The education funding cuts in fiscal 2011’s plan would amount to as much as 5 percent of district budgets. “All this is doing is pushing the state’s budget problems down to the local property taxpayers,” Assembly Budget Committee chair Louis Greenwald , a Cherry Hill Democrat, said in an interview yesterday. “I get the argument that the wealthiest New Jerseyans have options, but I wish they would get the message that many middle-class taxpayers don’t.” Rebates Bagger said the state would save $848 million by suspending the property tax rebate program this year and then giving homeowners direct credits on their bills beginning in May 2011. Another $50 million would come from an unspecified plan to have some government functions run by private companies. Christie last week said he may privatize some state jobs in 2011 amid rising costs for employee salaries and benefits. New Jersey would skip its full $3 billion pension payment, under Christie’s plan. The system was underfunded by $46 billion as of 2009 because of investment declines and a failure to make full contributions, according to annual financial reports. “Our pension system must be reformed before we can or should fund a broken, out-of-control system,” Christie said. New Jersey’s Senate last month passed bills aimed at closing the pension deficit by excluding part-time workers from the system, reducing benefits and forcing teachers to pay more for health care. The measures await Assembly approval. Christie urged lawmakers to act on the bills and said he would sign them “the moment they hit my desk.” Christie’s budget includes $2.5 billion in payments on the state’s record debt, which grew to $33.9 billion last year from $3.9 billion in 1989. The state has the third-largest net tax- supported debt among U.S. states, according to a 2009 report by Moody’s Investors Service. Its general obligation bonds are rated Aa3 by Moody’s, its fourth-highest ranking, and AA by Standard & Poor’s, its third-highest. To contact the reporter on this story: Terrence Dopp in Trenton, New Jersey, at tdopp@bloomberg.net .

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Nobel Winner Sharpe’s Firm Becomes First 2010 U.S. IPO Priced Above Range

March 16, 2010

By Michael Tsang and Craig Trudell March 16 (Bloomberg) — Financial Engines Inc. raised $127 million in an initial public offering, making the investment adviser co-founded by Nobel laureate William Sharpe the first U.S. company to sell shares above its forecast range this year. The provider of portfolio-management services to individuals with employer-sponsored retirement plans priced 10.6 million shares at $12 each yesterday, a filing with the Securities and Exchange Commission and Bloomberg data show. The IPO will give Financial Engines, which offered a 27 percent stake for $9 to $11 a share, a market value of $474 million when it starts trading today on the Nasdaq Stock Market. Financial Engines commanded a higher price for the offering than its underwriters estimated after the Standard & Poor’s 500 Index rallied to its highest level this year. While the previous 14 sales of 2010 were cut an average of 25 percent, the IPO by Financial Engines showed buyers were willing to pay up for a company that increased revenue by 19 percent last year as the earnings and sales of its biggest competitors fell. “It’s a great sign,” said Darren Fabric , managing director at Chicago-based IPOX Capital Management LLC, which started the Direxion Long/Short Global IPO Fund this month. “It’s definitely encouraging. There’s appetite for companies with growth prospects.” Sharpe, 75, established Palo Alto, California-based Financial Engines in 1996, six years after winning the Nobel Prize for Economics with Harry Markowitz and Merton Miller for their work in the theory of financial economics. Now a director emeritus, he also developed the Sharpe ratio, a formula to analyze if investments return enough to offset their risks. The Dealmakers Goldman Sachs Group Inc. of New York led the initial sale, while Financial Engines turned to Pillsbury Winthrop Shaw Pittman LLP in Palo Alto for legal counsel. At the original midpoint price of $10, Financial Engines was valued at 6.21 times tangible net assets, a discount to its largest rivals. Morningstar Inc. and T. Rowe Price Group Inc., which Financial Engines listed among its competitors for investment advice and retirement savings, trade at 6.82 times and 6.23 times the value of their shareholders’ equity, excluding assets that can’t be sold in liquidation, Bloomberg data show. Financial Engines , which has about $26 billion in assets under management, generated 62 percent of its revenue last year from overseeing accounts for individuals. Sales from that part of the business rose by 35 percent, according to its filing. T. Rowe, BlackRock The company runs simulations for each investor to choose blends of stocks, bonds and mutual funds tailored to their tolerance for risk and other financial goals. The analysis is based on the work of Sharpe , now a professor emeritus of finance at Stanford University’s Graduate School of Business. Financial Engines competes with target-date funds offered by T. Rowe Price of Baltimore, which oversees $391.3 billion, and BlackRock Inc. , the New York-based manager that oversees $3.35 trillion. Target-date funds move from riskier investments such as stocks to more conservative alternatives like bonds as an investor approaches retirement. T. Rowe’s revenue slid 10 percent last year, while BlackRock posted an 8.1 percent drop. Sales at Chicago-based Morningstar , which Financial Engines cites as a direct competitor for investment-advisory services, fell 4.7 percent. Relative Value The IPO’s midpoint price valued Financial Engines at about 4.65 times its 2009 sales of $84.98 million, its filing and data compiled by Bloomberg show. That’s lower than Morningstar’s 4.92 price-sales ratio, a 37 percent discount to T. Rowe and 25 percent less than BlackRock, according to data compiled by Bloomberg. Financial Engines was also cheaper than Morningstar and T. Rowe on a free cash flow basis, data compiled by Bloomberg show. “It’s a reasonably established business model that’s shown good growth, and the valuation was reasonable relative to its competitors,” said Sean Kraus , who oversees $2 billion as chief investment officer at Citizens Business Bank in Pasadena, California. “It’s definitely something in the IPO market that you haven’t seen much of.” The sale came after Baltic Trading Ltd. and Sensata Technologies Holding NV priced at the low end of the range set by underwriters last week. The two companies had joined Bellevue, Washington-based Symetra Financial Corp. , the insurer backed by Warren Buffett’s Berkshire Hathaway Inc. that raised $420 million in January, as the only IPOs to sell within the forecast range this year, data compiled by Bloomberg show. Baltic Trading, Sensata Baltic Trading, the New York-based company that will operate dry-bulk vessels, raised $228 million. Sensata , the Almelo, Netherlands-based maker of sensors for Ford Motor Co. of Dearborn, Michigan, sold $569 million in the biggest U.S. offering this year. Film Department Holdings Inc. , the independent film producer making “The Beautiful and the Damned” starring Keira Knightley , has pushed back its IPO from yesterday until at least next week, according to Bloomberg data. The West Hollywood, California-based company is seeking $64.6 million after cutting the size of its deal twice since its December filing. To contact the reporter on this story: Michael Tsang in New York at mtsang1@bloomberg.net ; Craig Trudell in New York at ctrudell1@bloomberg.net .

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Obama, Governors Shift Focus to U.S.-Wide `College-Ready’ School Standards

March 15, 2010

By John Hechinger, Molly Peterson and Oliver Staley March 15 (Bloomberg) — The first U.S.-wide set of academic standards for schoolchildren may be adopted by half of all states this year, while President Barack Obama presses to overhaul the main law designed to hold accountable 100,000 public schools for their students’ achievement. Obama is scheduled today to present to Congress a blueprint for transforming the No Child Left Behind law, which uses testing to gauge student achievement, into a measure that would offer schools more flexibility in demonstrating academic progress. Governors and chief schools officers on March 10 proposed specific grade-level requirements for reading, writing and math. The twin initiatives may transform U.S. education with a common goal of prodding schools to produce more graduates ready for college-level work, Dane Linn, director of education for the National Governors Association said in an interview yesterday. The common standards and Obama’s proposals together represent “a fundamental shift in the way we think about school reform,” Linn said. No Child Left Behind, the signature education legislation of George W. Bush , mandates that all children be proficient in reading and math by 2014 while leaving the definition of proficiency up to individual states. The law, enacted in 2002, requires states to measure student gains through standardized tests. While states may set their own standards to determine what constitutes an adequate education, they lose some federal funds if they don’t show yearly progress toward those goals. Lowering Standards Most states made their academic benchmarks easier so kids would pass state tests, said Chester E. Finn Jr ., who served as an assistant secretary in the Education Department under President Ronald Reagan . No Child Left Behind created “perverse incentives” for states to lower academic standards to meet federal progress benchmarks, U.S. Secretary of Education Arne Duncan said in a telephone briefing on March 12. The new plan is designed to reward schools for improving student achievement and use multiple measures to show progress, he said. It would drop the 2014 proficiency deadline and focus on Obama’s goal of preparing more students for college-level work by 2020. “We’ve got to get accountability right this time,” Duncan said. “We’re much more interested in absolute gains than in test scores.” Competitive Grants The proposal would fund the overhauled law at $28 billion in fiscal 2011, which is $3 billion more than states, districts and schools received this year under No Child Left Behind, according to an Education Department summary. It includes $7.8 billion in competitive grants for states that embrace Obama’s priorities. The Obama plan would let schools be judged on subjects other than reading and math, responding to criticism that the law narrowed what is taught in schools. It would also eliminate labeling schools under a rigid pass-fail system that deemed one in three schools as failing. Instead, the law would require action to turn around the lowest-performing schools, the bottom 5 percent, and offer financial rewards to the best performers. The Obama administration risks a backlash by linking the award of federal grant money to the meeting of common standards at a time when Republicans have already accused the Obama administration of attempting a federal takeover of the health- care system, Jack Jennings , president of the Center on Education Policy, a Washington-based nonprofit research group, said in an interview. Standards still have significant Republican support, especially among state officials, Jennings said. Avoid Dictating “The federal government has to be supportive of the movement without appearing to dictate the movement,” Jennings said. U.S. Representative John Kline of Minnesota, the senior Republican on the House education and labor committee, said he objects to the federal government’s using the lure of money to convince states to adopt common standards. “If the federal government is going to insist that the states adopt these standards, then the federal government is using coercion, and will move inevitably to a national curriculum,” Kline said in an interview. In a meeting earlier this month, Kline told Duncan that he would object to including any requirements of national standards into the reauthorization of the Elementary and Secondary Schools Act, which includes the No Child Left Behind provisions. The Education Department declined to comment. Voluntary Standards Linn said the standards were voluntary, did not require a specific curriculum and the states were free to come up with their own ways to teach. Obama’s proposal to change No Child Left Behind built on Bush administration accomplishments, including programs that gave teachers credit for progress in the classroom, Margaret Spellings , Duncan’s predecessor as education secretary, said in an e-mail. She said she disagrees with Obama’s scrapping of provisions that provided free tutoring and the chance for families to switch their children out of low-performing schools. The proposal also wouldn’t hold schools accountable for the progress of poor, minority and disabled students over the next several years, Spellings said. Under the current law, schools can be deemed failing if any of these groups at a school isn’t considered proficient. “No Child Left Behind’s greatest accomplishment was its focus on these students and the corresponding increases in student achievement in reading and math,” Spellings said. “We cannot backtrack on this progress.” Unions’ Disappointment Both the National Education Association and the American Federation of Teachers, which together represent about 4.6 million educators, expressed disappointment with Obama’s No Child Left Behind overhaul. Obama’s proposal places “100 percent of the responsibility on teachers and gives them zero percent authority,” Randi Weingarten , president of the AFT, said in a statement. “For a law affecting millions of schoolchildren and their teachers, it doesn’t make sense to have teachers — and teachers alone — bear the responsibility for school and student success,” Weingarten said. The union said it can’t support Obama’s plan “at this time,” in part because the proposal still relies on standardized tests and requires states to compete for limited resources. The NEA sees “too much scapegoating of teachers and not enough collaboration,” in Obama’s revised plan, said Dennis Van Roekel , president of the association in a statement. Specific Requirements Putting more pressure on teachers, the standards developed by the National Governors Association and the Council of Chief State School Officers , both based in Washington, have specific grade-level requirements for reading, writing and math that replace the hodgepodge of curriculum approaches in different states. States that agree to adopt a set of common standards also improve their chances of winning federal education grants in this year’s $4.35 billion Race to the Top competition. The fund rewards states for finding ways to recruit better teachers, collect data on student performance and fix failing schools. Florida, Illinois, Indiana, Maryland, Maine and Kentucky are likely to be among the first wave of states to sign onto the common benchmarks for math and English developed by the nation’s governors and state school superintendents, Linn said. State governing bodies for education, usually school boards, can decide whether to adopt the standards. While Florida has committed to approving the proposed benchmarks this year, providing the necessary course materials, textbooks and training will take four years, Mary Jane Tappen, Florida’s deputy chancellor for curriculum, said in an interview. ‘Little Women’ The proposed common standards call for kindergartners to read at least 25 basic words. By middle school, they should understand Louisa May Alcott ’s “Little Women” and Mark Twain ’s “The Adventures of Tom Sawyer.” By high school, they should comprehend works by William Shakespeare and Emily Dickinson. In math, first- and second-grade students should master addition and subtraction and third- and fourth-graders should learn multiplication, division and fractions. Eighth graders are expected to solve algebra problems. Forty-eight states and the District of Columbia participated in drafting the proposed common core standards. The final set is scheduled to be available in May after a period of public comment. New York plans to adopt the standards by August, after approval by its Board of Regents, said Anne Schiano, assistant director of curriculum instruction for the state education department, based in Albany. Implementing the guidelines will require training 250,000 teachers who work with 2.75 million students, Schiano said. “This is all about preparing students for 21st-century skills,” Schiano said. “That’s the business we’re in. We can’t afford not to change our standards. This is our future.” Massachusetts, which has been cited in many studies as having among the toughest state standards, will be examining the quality of the benchmarks to make sure they are as rigorous as the state’s own guidelines, Paul Reville, the state’s secretary of education, said in an interview. To contact the reporter on this story: John Hechinger in Boston at jhechinger@bloomberg.net ; Molly Peterson in Washington at mpeterson9@bloomberg.net ; Oliver Staley in New York at ostaley@bloomberg.net

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Wen Rebuffing Yuan Calls Risks Retaliation From U.S. Congress

March 14, 2010

By Bloomberg News March 15 (Bloomberg) — Chinese Premier Wen Jiabao rebuffed calls for the yuan to appreciate, risking a further downturn in relations with the U.S. where lawmakers and economists say his stance is hampering a global recovery. “I don’t think the renminbi is undervalued,” Wen said yesterday at a press conference in Beijing marking the end of China’s annual parliamentary meetings, using another term for the yuan. “We oppose countries pointing fingers at each other and even forcing a country to appreciate its currency.” U.S. lawmakers, including Senator Charles Schumer , are proposing that China should be hit with stiffer tariffs to compensate for the unfair export advantage they say comes from an undervalued currency. Economist Paul Krugman says that global growth would be about 1.5 percentage points higher if China stopped restraining the value of the yuan. “Currency is the issue in Washington that is really welling up and getting more and more pressure,” said James McGregor , a senior counselor in Beijing at APCO Worldwide, a public-affairs group advising clients including China Cosco Holdings Co. , operator of the world’s largest dry-bulk fleet. President Barack Obama “has tried to be low key and work with China behind closed doors — the problem is they have given him no face in return and he is under real pressure in Washington because he’s looking weak against China.” ‘Concrete Steps’ Wen also urged America to “take concrete steps to reassure investors” about the safety of dollar assets, repeating concerns that he expressed a year ago, sparked by a growing U.S. fiscal deficit . The U.S. currency has climbed about 7 percent from last year’s Nov. 25 low, according to the Dollar Index, a six- currency gauge of the greenback’s value. Treasury Department figures show China’s holdings of Treasury securities dropped for a second month in December to $894.8 billion. Only Japan holds more U.S. Treasury assets. Wen, 67, echoed central bank Governor Zhou Xiaochuan’s comments that China needs to be cautious in ending crisis policies, which have included pegging the yuan at about 6.83 per dollar since July 2008 as the global financial crisis took hold. The premier reiterated that the nation will keep the yuan “basically stable” and maintain a moderately loose monetary policy and a proactive fiscal stance. He said it’s “essential” for the timing of any policy changes to be appropriate. One-Off Revaluation “This is a sign that there will be no one-off revaluation in coming months,” said Lu Ting , an economist at Bank of America-Merrill Lynch in Hong Kong. “China’s top policy makers do have their own currency reform plans but coercion from other countries will do disservice to this cause.” A bipartisan group of U.S. senators including Schumer, a New York Democrat, wrote Commerce Secretary Gary Locke last month, saying imports from China are being subsidized by that nation’s intervention in the currency market. The Chinese premier said that pressure for currency gains can amount to trade “protectionism,” adding that “I’m a strong supporter of free trade.” Protectionism affecting China will backfire because much of the nation’s trade involves foreign-invested exporters, Wen said. The yuan rose 21 percent against the dollar between July 2005 and July 2008, before the government halted its advance to protect exporters. Non-deliverable yuan forwards show that traders are betting on a gain of about 3 percent in the next 12 months. The dollar and the yuan have strengthened against the euro this year, pushing up the cost of Chinese exports in the European Union, the Asian nation’s biggest market. ‘Depressing Effect’ Krugman, a Nobel Prize-winning economist, said China’s currency policy has a “depressing effect” on economic growth in the U.S., Europe and Japan. If the yuan were not undervalued, it would have a “significant” impact on the global recovery, he said in a March 12 speech in Washington. Ballooning sovereign debt and high unemployment around the world could send the global economy into a second, or “double dip” downturn, Wen said. In China, inflation, combined with wide income gaps and official corruption, could lead to social instability “and even affect the government’s hold on power,” he said. Policy makers have made managing “inflation expectations” a key task for this year. February’s gain in consumer prices was 2.7 percent, compared with Wen’s target of about 3 percent for the year. Zhou said yesterday that while the increase was a little higher than forecast, it hadn’t altered the central bank’s plans. Unbalanced, Unsustainable China’s difficult task is to grow without stoking inflation and while adjusting an economic model that has led to an “‘unbalanced, uncoordinated and unsustainable” expansion, Wen said. Officials will maintain “appropriate and sufficient” liquidity and keep interest rates at “reasonable” levels, he added. Wen blamed strains in China’s relationship with the U.S. on Obama’s meeting with the Dalai Lama and American arms sales to Taiwan. He expressed hope for an improvement in “our most important diplomatic relationship.” Asked about increasing dissatisfaction among foreign businesses in China over the investment climate, the premier sought to reassure international investors. In January, Mountain View, California-based Google Inc. said it may close down its Chinese Web site because of alleged cyber attacks and China’s ongoing online censorship. “China will unswervingly pursue the policy of opening up to the outside world,” Wen said. “Foreign businesses are welcome to come to China to set up businesses according to the law.” — Michael Forsythe , Eugene Tang , Li Yanping , Kevin Hamlin . Editors: Paul Panckhurst , John Liu To contact the reporter on this story: Michael Forsythe in Washington at mforsythe@bloomberg.net

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Andy Kroll: Ponzi Nation: How Get-Rich-Quick Crime Came to Define an Era

March 14, 2010

Cross-posted with TomDispatch.com . Every great American boom and bust makes and breaks its share of crooks. The past decade — call it the Ponzi Era — has been no different, except for the gargantuan scale of white-collar crime. A vast wave of financial fraud swelled in the first years of the new century.

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David Kirby: Obama Keeps Two Factory Farm Promises – Will Hold "National Rural Summit"

March 14, 2010

(NOTE: This is the first of a two-part series on President Obama and the regulation of animal factories) The Obama Administration on Friday fulfilled two campaign pledges that affect factory farming in America: It agreed to hold a long-delayed National Rural Summit and, on the same day, two Cabinent members began confronting the problem of entrenched Agribusiness monopolies. A USDA official told me on Friday that the Administration will soon announce a “National Rural Summit,” something that candidate Obama had promised but failed to accomplish within the first 100 days of his term. Obama had originally promised to hold the summit while campaigning in Iowa in 2007, boasting that: “When I’m President, I’ll have a department of agriculture, not simply a department of agribusiness.” The summit would allow citizens to address the growing displacement of family farms by large corporate-backed factory farms. Meanwhile, also on Friday, in the town of Ankeny, Iowa, USDA Secretary Tom Vilsack and US Attorney General Eric Holder held the first of five promised hearings on competition in agriculture. “One of the greatest threats to our economy is the erosion of free competition in our markets,” Attorney General Holder told a standing-room-only crowd, most of whom seemed to support tighter restrictions on corporate-dominated agriculture and factory farms. “And we’ve learned the hard way that recessions and long periods of reckless deregulation can foster practices that are anti-competitive and even illegal.” “Is today’s agriculture industry suffering from a lack of free and fair competition in the marketplace?” Holder continued. “We know that a growing number of American farmers find it increasingly difficult to survive by doing what they’ve done for decades. And we’ve learned that some of them believe the competitive environment may be, at least in part, to blame.” These statements are consistent with President Obama’s “Rural Agenda,” which asserts that “Consolidation has made it harder for mid-size family farmers to get fair prices for their products and compete on the open market,” and that “rural communities are often left behind.” The Attorney General’s words will also be welcomed by family farm actitvists, and dreaded by the large companies that dominate the modern American food chain. As I write in my new book “Animal Factory – The Looming Threat of Industrial Pig, Dairy and Poultry Farms to Humans and the Environment”: Large companies with kitchen-table names like Perdue, Tyson, Smithfield, Cargill, ADM, and Land of Lakes now control much of the poultry and livestock in the United States. They own the animals, they control the all-important processing and packing plants, they often operate their own distribution networks, and they often market their own brands to consumers in the supermarket. This “vertical integration” model of production – some would call it an old-fashioned, illegal trust in search of a Teddy Roosevelt-style buster – leave small and independent growers at such an obvious disadantage that many of them give up animal agriculture altogether. Two percent of US livestock facilities now raise 40 percent of all animals, and the vast majority of pigs, chickens and dairy cows are produced inside animal factories. During the all-important Iowa race, in the fall of 2007 when Obama was still in third place, the candidate adopted an aggressive, anti-factory farming posture and took his populist message into the deepest rural precincts of the state. At the time, Senator John Edwards was sinking: He probably had overstayed his Iowa welcome, camping out in the Hawkeye State for more than a year (and fretting, we now know, over certain extramural activities). Meanwhile, presumed front-runner Hillary Clinton was getting very cozy with the industrial pork people, something that shocked and appalled many rural Democratic caucus goers. One could reasonably argue that Barack Obama won Iowa – and then went on to gain the nomination, and the presidency – because of his bold stance taken against Big Ag in small town halls and school gyms stretching from Sioux City to Davenport. Obama’s Plan to Support Rural Communities read like a manifesto from grassroots groups trying to defend their vision of what a traditional, sustainable agrarian way of life should be. Among many other pledges (some unfulfilled, others reneged upon – coming soon in Part 2), Candidate Obama promised to hold a “National Rural Summit” within 100 days of taking office, to address the American family farm crisis that plagues a sizeable swath of the country. He also vowed to take on the more egregious excesses of corporate agribusiness practices – especially the anti-competitive measures that drive small and medium-sized livestock and poultry operations out of business, leaving the playing field wide open to corporate-controlled “Confined Animal Feeding Operations (CAFOs) – better known as factory farms. But the Rural Summit never materialized, and many rural activists questioned the President’s vow to booster anti-trust laws and ensure fair access to markets. Now, the Administration has taken steps to make good on both pledges – even if one of them comes a year late. (Even so, I imagine that most rural activists will forgive Obama’s tardiness, given the pressing nature of other matters on his presidential plate). Both measures will be applauded in many rural precincts that went for Obama. Those voters will be heartened to see that President Obama in 2010 may be finally fulfilling some – though not all – of the animal factory pledges that propelled candidate Obama to victory on that cold Iowa night back in January, 2008. ————————————– Animal Factory is now available from St. Martin’s Press

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China Defends Trade Policy, Blames U.S. For Tensions

March 14, 2010

BEIJING — China sought Sunday to deflate rising pressure from the U.S. and other powers over Chinese economic policies and growing assertiveness in world affairs, with its prime minister promising cooperation to bolster the global recovery. Premier Wen Jiabao took on critics in the West who say Chinese policies lift China while keeping global growth anemic. He defended China’s currency against charges that it is undervalued to boost Chinese exports. He promised that Beijing would import more and urged countries to resist protectionism, saying one country should not seek to disadvantage others during the fragile economic recovery. “We are opposed to the position of engaging in mutual finger-pointing or taking strong measures to force other countries to adjust exchange rates,” Wen said in a more than two-hour news conference. Wen also criticized Washington for souring relations with the recent White House reception for the Dalai Lama, the exiled leader of Chinese-controlled Tibet, and for approving arms sales to Taiwan, which China claims as its own. “The responsibility does not lie with the Chinese side, but the United States,” he said. His arguments, while breaking little new ground, were offered in Wen’s characteristically mild, carefully rational manner. No. 3 in the Communist Party hierarchy and chiefly in charge of the economy, Wen is also the generally stiff leadership’s most popular figure; grand-fatherly and solicitous, he is known as the “people’s premier.” His news conference is the only one Wen holds all year and is thus often used by the government to send a message to the public and world. Questions from the foreign and domestic media were prescreened. This year, Beijing is on the defensive in Western capitals. Beijing’s seeming intransigence at climate change talks in Copenhagen riled some. Other governments are grappling with high rates of unemployment and swelling deficits to fend off recession, even as the Chinese economy bounced back to 10.7 percent growth last year. The Chinese currency, known as the yuan or the renminbi, has become a focal point for criticism in Washington, Europe and other countries. U.S. President Barack Obama in a speech last Thursday urged China to move “to a more market-oriented exchange rate” to help rebalance world growth. More ominously, the Treasury Department must report to Congress in April whether China qualifies as a “currency manipulator” – a label that could precede a complaint to the World Trade Organization and possible sanctions on Chinese goods. With these storm clouds brewing, Wen said more coordination was needed among economic powers to prevent the world economy from sagging into a “double-dip” recession. He cited high unemployment rates, debt crises in nations such as Greece and high government deficits abroad, while at home, he said, there are worries about inflation and businesses’ over-reliance on the massive stimulus and loans China used last year to keep the economy running. “I believe that free trade not only promotes growth of the world economy. At the same time, it promotes harmony in the world and changes and improves people’s lives,” Wen said. Wen spoke following the closing of the annual session of the party-dominated national legislature, which earlier Sunday approved a blueprint to keep government spending high, though at half the rate of last year, to buffer any economic turbulence. Sizable increases were given to education, pensions and low-cost housing – part of a yearslong effort by Wen and President Hu Jintao to more fairly spread the benefits of growth among rural and working-class Chinese. Wen spoke frankly that economic ills left untended could threaten Communist rule. A particularly toxic combination, he said, were inflation, the rich-poor income gap and corruption – all current problems. “These will be strong enough to affect our social stability and even the stability of state power,” he said. Normally high security in Beijing was tightened further in the past two weeks for the National People’s Congress and a meeting of the top government advisory body. After Wen’s news conference, police dragged away and put into a van at least two people – one of whom was complaining about a housing dispute – as they tried to get the attention of officials and reporters outside the hulking Great Hall of the People. A third person, who said he was a teacher, was led away separately. Turning the tables on the U.S., Wen renewed appeals for assurances from Washington about the safety of China’s $800 billion in foreign exchange reserves invested in U.S. Treasury securities. Wen said the value of the U.S. dollar was a “big concern” and asked Washington to take unspecified steps to reassure investors. Wen also fired back at critics of China’s performance at the last year’s Copenhagen climate change conference. Asked why he skipped a meeting of some foreign leaders, including Obama, Wen said he was snubbed, having never been formally invited, and so sent a vice foreign minister instead. “So far no one has given us any explanation about this and it still is a mystery,” he said. When asked if China would play a bigger role in international affairs, Wen said China is still a developing country, focused on improving living standards, and even when rich and powerful, it would not seek to dominate others.

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Abbott MitraClip Valve Clamp Offers Safe Alternative to Open-Heart Surgery

March 14, 2010

By Meg Tirrell March 14 (Bloomberg) — Abbott Laboratories ’ MitraClip cardiac clamp safely repaired leaking heart valves in a study, potentially providing a less invasive alternative to open-heart surgery. Among the 279 participants in the research, 9.6 percent of those treated with the MitraClip had a major stroke, heart attack, repeat operation, other major adverse event or died within 30 days, compared with 57 percent in the surgery group, the study showed. The results, presented today at the American College of Cardiology meeting in Atlanta, were from the third and final round of tests generally required for U.S. approval. The MitraClip, gained last year in Abbott’s $320 million purchase of Evalve Inc. , is already sold in Europe, and Abbott has submitted an application with the Food & Drug Administration, the Abbott Park, Illinois-based company said in a statement today. This clip “will usher in a whole new field of interventional cardiology,” said Gregg Stone , head of cardiovascular research at Columbia University Medical Center in New York, in a March 4 telephone interview. The MitraClip may transform valve repair in the same way balloon angioplasty changed procedures to clear blocked arteries, Stone said. Both introduce an alternative to open-heart surgery that’s a “much simpler, safer procedure” and get patients out of the hospital and on their feet faster, he said. Mitral Valve Defect The MitraClip is inserted with a catheter through a leg vessel to correct mitral regurgitation , which occurs when the mitral valve doesn’t close properly causing blood to flow backward, according to a statement from Abbott. The condition, which can lead to heart failure, affects more than 8 million people in the U.S. and Europe. The defect is currently managed with drugs or repaired with surgery, the statement said. For decades, patients with severe mitral regurgitation underwent a procedure called the double orifice technique, in which a surgeon sews together two sides of the mitral valve, leaving the ends open and ensuring blood flows in the proper direction. The MitraClip procedure mimics that surgery without the intensive operation, inserting the clip through a catheter in the leg and clamping the two sides of the valve shut. Patients typically spend about a week in the hospital after open-heart surgery, and the total recovery period can take at least six weeks, said Ted Feldman , director of the Cardiac Catheterization Laboratory at NorthShore University HealthSystem in Evanston, Illinois, and a principal investigator of the trial. Frail and Elderly For the frail and elderly, who may be discharged to a rehabilitation facility, “recovery can take several months,” he said. That compares with a hospital stay of about two and a half days, with “no real additional recovery period” at home for the clip procedure. The trial, dubbed Everest II , was designed to see whether the MitraClip would be safer than open-heart surgery and “non- inferior” in terms of effectiveness, said John Capek , Abbott’s executive vice president of medical devices, in a March 10 telephone interview. The device met the study’s goal for effectiveness, measured as freedom from death, mitral valve surgery or repeat procedures at 12 months, as well as a decrease to a certain level in mitral regurgitation. Patients with the device had a success rate of 72.4 percent, compared with 87.8 percent for those who had surgery, results showed. The difference in clinical success rates was within the study’s specified margin to determine non-inferiority, according to Feldman. Safety Profile “The catheter-based system exhibited a highly favorable safety profile, while providing meaningful and sustained clinical benefits,” Feldman said in a statement. “The therapy has the potential to transform the lives of thousands of patients, and enable some to go from bed rest to a more active lifestyle.” The results also show that patients treated with the MitraClip still have the option for surgery afterward if needed, said Donald Glower , a professor of surgery at the Duke University School of Medicine in Durham, North Carolina, and a co-principal investigator of the trial. Abbott anticipates receiving regulatory approval next year, Capek said. The company’s shares fell $1.02, or 1.8 percent, to $54.52 on March 12 in New York Stock Exchange composite trading. They have gained 17 percent in the past 12 months. To contact the reporter on this story: Meg Tirrell in New York at mtirrell@bloomberg.net .

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Netanyahu Says Israel’s Decision on East Jerusalem Housing Was `Harmful’

March 14, 2010

By Gwen Ackerman and Calev Ben-David March 14 (Bloomberg) — Israeli Prime Minister Benjamin Netanyahu called last week’s announcement of approval to build new homes in east Jerusalem during Vice President Joe Biden ’s visit “harmful” and “unfortunate.” U.S. Secretary of State Hillary Clinton called Netanyahu to lodge “strong objections” to what she said was “a deeply negative signal,” State Department spokesman Philip J. Crowley told reporters on March 12 in Washington. The Israeli leader was “surprised” by the condemnation, having thought his apology to Biden was sufficient, the daily Haaretz reported yesterday, citing unidentified officials in Netanyahu’s office. “There was an unfortunate incident carried out in good faith, that was harmful and certainly should not have happened,” Netanyahu said in comments to ministers ahead of today’s weekly Cabinet meeting. Biden’s visit was intended to make further progress toward the start of indirect talks between Israel and the Palestinians, announced just before his arrival. Instead, Israel’s approval of 1,600 homes in east Jerusalem prompted the Palestinians to reconsider their participation in U.S.-backed negotiations. Palestinians seek east Jerusalem, captured by Israel from Jordan in the 1967 Middle East war and later annexed in a move not internationally recognized, as the capital of a future state. “The announcement on the new construction was interpreted by Washington as a breach of faith and a breaking of the rules of the game,” said Avraham Ben-Zvi, professor of international relations at Haifa University. “It is unfortunate for Israel in terms of political impact.” New Committee Netanyahu decided last night to form a committee headed by the director-generals of the Housing Ministry and the Jerusalem municipality to look into the events, Netanyahu’s spokesman, Nir Hefez, said in a statement. The committee will establish procedures to prevent a repeat, it said. Israel, which announced a partial 10-month construction freeze in the West Bank in November, has said the building halt doesn’t include Jerusalem. U.S. Middle East envoy George Mitchell , the former U.S. senator and peace mediator in Northern Ireland, is scheduled to return to the region next week to get the indirect talks on track. To contact the reporters on this story: Gwen Ackerman in Jerusalem at gackerman@bloomberg.net .

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Canada’s Dollar Approaches Parity With U.S. For First Time Since July 2008

March 13, 2010

By Chris Fournier and Allison Bennett March 13 (Bloomberg) — Canada’s dollar came the closest to parity with its U.S. counterpart since July 2008 as traders bet faster-than-forecast job creation increases odds that the central bank will raise interest rates. The currency, dubbed the loonie after the aquatic bird that adorns the C$1 coin, gained 0.9 percent to C$1.0193 per U.S. dollar from C$1.0288 on March 5. It touched C$1.0156 yesterday, the strongest level since July 25, 2008. One Canadian dollar purchases 98.11 U.S. cents. A report next week is expected to show consumer prices rose as the recovery gains traction. “The Canadian dollar has certainly been the flavor of the month,” said Dean Popplewell, an analyst in Toronto for Oanda Corp., an online currency-trading firm. “I would not be surprised to see a U.S. dollar bounce from here before the loonie again continues its assault on parity and beyond.” The loonie gained for an 11th straight session yesterday, the longest winning streak in 23 years, as crude oil, the nation’s largest export, reached $83 a barrel. The dollar last traded equal to the greenback on July 22, 2008, which was 11 days after crude reached a record high $147.27. Government bonds fell and the yield on interest-rate derivatives that track interest rates rose this week to the highest since January. The yield on the two-year security rose 8 basis points, or 0.08 percentage point, to 1.59 percent, after climbing 24 basis points the week before. The 1.5 percent security due in March 2012 fell 16 cents to C$99.82. Index Swaps The economy added 20,900 jobs in February after gaining 43,000 in the previous month, Statistics Canada said yesterday in Ottawa. The median forecast of 22 economists in a Bloomberg News survey was for an increase of 15,500. Canada’s unemployment rate fell to 8.2 percent, from 8.3 percent. “The Canadian dollar as a relative-value play in the G10 space is an attractive one,” said Brian Kim , a currency strategist at UBS AG in Stamford, Connecticut. “Fundamentals are doing quite well in Canada, and the improvement in the labor situation is definitely a positive.” The Bank of Canada said on March 2 that inflation and economic output are higher than expected, adding to speculation policy makers are moving closer to increasing the 0.25 percent target lending rate . The yield on Canada’s overnight index swap due in one year, a security based on what investors expect the Bank of Canada’s rate will average over that period, rose to 0.91 percent, compared with 0.80 percent a month ago. Commodity Boom The Canadian currency has gained 3.2 percent against the U.S. dollar since the beginning of the month. The Bank of Canada said on March 2 that inflation and economic output are higher than expected, adding to speculation policy makers are moving closer to increasing the 0.25 percent target lending rate . Canada’s dollar traded equal to the U.S. currency in September 2007 for the first time in three decades, capping a five-year run on the back of booming demand for the nation’s commodities. Before that the Canadian currency broke parity November 1976, when Pierre Trudeau was the nation’s prime minister. Canada has benefited over that period from rising demand for copper , gold, wheat and oil from neighboring U.S. and emerging economies such as India and China. The country is the world’s largest producer of uranium, the second-biggest exporter of natural gas, and sits on the largest pool of oil reserves outside the Middle East. Canada’s financial system was named the soundest in the world for two consecutive years by the Geneva-based World Economic Forum. Central Bank Expectations Canada’s central bank will raise its key overnight rate to 2.25 percent by the middle of next year, according to the average of 11 analysts in a Bloomberg News survey. Finance Minister Jim Flaherty said yesterday the currency gain is a “double-edged sword,” as Canadian goods become more expensive abroad and imports are cheaper to domestic companies. “The increasing value of the dollar does help manufacturers in Canada acquire technology and equipment, a lot of that is priced in U.S. dollars,” he said. Still, “we’re always concerned about the volatility in the dollar.” Canada’s dollar will weaken to C$1.06 by the end of the next quarter, according to the median forecast of 35 economists and analysts surveyed by Bloomberg News. “There is not a strong sense, at the moment at least, that spot is running away on the downside,” Shaun Osborne , chief currency strategist in Toronto at Toronto-Dominion Bank, wrote in a note to clients yesterday, meaning the U.S. dollar is not in freefall versus the Canadian. “The U.S. dollar is looking very over sold already.” To contact the reporter on this story: Chris Fournier in Montreal at cfournier3@bloomberg.net ; Allison Bennett in New York at Abennett23@bloomberg.net .

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Clinton Calls Netanyahu to Condemn Israel’s Plan for Jerusalem Settlements

March 12, 2010

By Indira A.R. Lakshmanan and Bill Varner March 12 (Bloomberg) — U.S. Secretary of State Hillary Clinton called Israeli Prime Minister Benjamin Netanyahu to lodge “strong objections” to Israel’s announcement of a Jewish housing project in east Jerusalem during Vice President Joe Biden ’s visit to Israel this week. Clinton told Netanyahu the announcement of 1,600 apartments for Jews in east Jerusalem, which the Palestinians want as their capital under U.S.-backed plans for a two-state peace deal, was “a deeply negative signal about Israel’s approach” to relations with the U.S., State Department spokesman Philip J. Crowley told reporters today in Washington. “The secretary said she could not understand how this happened, particularly in light of the United States’ strong commitment to Israel’s security,” Crowley said. “And she made clear that the Israeli government needed to demonstrate not just through words, but through specific actions, that they are committed to this relationship and to the peace process.” The Obama administration was blindsided and embarrassed by Israel’s settlement announcement on March 9, which caused an uproar in the Arab world. Arab League ministers agreed in Cairo March 3 to back a return to indirect talks between Israel and the Palestinians. The so-called Middle East Quartet also condemned the announcement of the housing project, the UN said in a statement released in New York. The Quartet was set up by the U.S., Russia, European Union and the United Nations to promote Israel- Palestinian peace efforts. Quartet Monitors Developments “The quartet has agreed to closely monitor developments in Jerusalem and to keep under consideration additional steps that may be required to address the situation on the ground,” the statement said. “The quartet reaffirms that unilateral actions taken by either party cannot prejudge the outcome of negotiations and will not be recognized by the international community.” Clinton told Netanyahu that Israel’s announcement, in its timing during a visit by a top U.S. official who is a longtime supporter of Israel and its contradiction of Israel’s pledge to freeze settlements, “undermined trust and confidence in the peace process and in America’s interests,” Crowley said. Netanyahu’s Responsibility Asked by a reporter if the U.S. disputed Netanyahu’s explanation that he did not know the announcement was coming, Crowley replied, “He is the head of the Israeli government and ultimately is responsible for the actions of that government.” The U.S. is trying to keep a new round of Middle East peace talks on track, with a flurry of calls yesterday by U.S. envoy George Mitchell and assistant secretary of State Jeffrey Feltman to Arab leaders. Wrapping up his four-day visit to Israel and the West Bank, Biden said yesterday he’s counting on Israelis and Palestinians to restart talks that have been frozen 15 months. “The most important thing is for these talks to go forward and go forward promptly and go forward in good faith,” Biden said in a speech at Tel Aviv University before flying to Jordan. “We can’t delay because when progress is postponed, extremists exploit our differences.” Palestinian negotiator Saeb Erakat said no decision will be made about joining the talks until Mitchell returns to clarify the Israeli position on the housing project. Regarding Netanyahu’s statement, he said: “It’s not good enough because it talks about an error in timing and not the error in substance. This project must be revoked.” Mitchell, the former U.S. senator and peace mediator in Northern Ireland, is scheduled to return to the region next week. To contact the reporter on this story: Indira Lakshmanan in Washington at ilakshmanan@bloomberg.net ; William Varner in New York at wvarner@bloomberg.net

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Dan Dorfman: PIGGS Problems Could Pepper U.S.

March 12, 2010

A few months ago, if you read something that mentioned PIIGS, chances are you would probably mutter, hey, some goofball out there doesn’t know how to spell pig. No more. Now we all know what PIIGS stands for: Portugal, Italy, Ireland, Greece and Spain, five countries in the Euro-zone that foolishly did what a lot of big-time spenders do, borrow way too much during good times and then run into problems repaying their debt. That, of course, raises the specter of debt defaults, the kind of news that rattles investors and pounds world markets. As we all know, the pounding has already begun, what with Greece wreaking international havoc with its sovereign debt woes, causing stock markets around the world to slide. The general Wall Street consensus is that if the PIIGS undergo more financial and economic pain–which a number of overseas economic trackers consider a foregone conclusion–markets around the globe will get slammed again. So the $64,000 question is whose next, although some global market trackers insist Greece’s problems, contrary to some expectations, are far from over. Why, some might wonder, should any of us give a hoot, about the debt difficulties of such countries as Portugal, Italy, Spain, Ireland or Greece? The relevance, as investment adviser Michael Larson explains it, is the symptoms that provoked the financial difficulties of the PIIGS–too much debt, oversized federal deficits, shaky economies, politicians spending money like drunken sailors, and government lack of fiscal discipline–are all present in the U.S. Wall Street, Larson says, is clinging to the misguided notion that the debt and deficit problems will stay bottled up in the PIIGS countries. “That’s hogwash,” he says. “Mark my words, the PIIGS problems are coming to American shores.” Larson, the associate editor of the Safe Money Report newsletter in Jupiter, Fla., says the U.K. and the U.S. face the very same dismal underlying fundamentals vexing the PIIGS. And that means, he says, they will suffer a similar fallout–a sharp decline in government bond prices, a drastic rise in long-term interest rates and tanking stock markets. He’s hardly alone in his sour view that that the U.S. could copycat the PIIGS. Bill Gross, the managing director of Pimco, the world’s largest bond house, and Marc Faber, publisher of the Gloom, Boom & Doom report, recently expressed similar thoughts. Gross, in fact, in a recent “ring of fire” commentary, lumped both the U.S. and U.K in with the PIIGS and took note of the negative implications–namely that hefty debt levels slow growth by 1%, or more, which, in turn, reduces returns on both investment and on financial assets. In simple terms, observes Costa Rican money manager Felix Heligmann, “if the problems of the PIIGS expand to the point to where they embrace the U.S. and U.K. in a substantial way, “a lot of global investors will follow the PIIGS to the slaughterhouse.” To grasp it all, Larson gives us an insight into what he views as the most “blatantly obvious debt disasters,” which are most conspicuous in the PIIGS. Greece, for example, is running a deficit equivalent to 12.7% of its GDP, more than four times the 3% cap mandated for the 27 countries in the European Union. Both Standard & Poor’s and Fitch’s have recently responded by slashing Greece’s sovereign debt ratings and Moody’s is also contemplating its own ratings cut. In reaction, Greek bonds have collapsed in value, with yields surging to a decade high. Portugal’s economy is in freefall, with last year’s GDP shrinking to 2.7%, the worst showing in more than six decades. The unemployment rate there just surged to a 23-year high of 10.1%. In response, the rating agencies downgraded Portugal’s credit outlook, sending its government bond prices down and their yields up. Ireland is even shape, what with the collapse of its real estate bubble devastating its economy, which plunged 7.5% last year. What’s more, the nation’s budget deficit is closing in on 12% of GDP. As for Spain, its economy has been shrinking for almost two years, while unemployment has ballooned to 19.5% and to 45% for the 25 and under age group. In addition, its deficit now stands at 11.4% of GDP. Making matters worse, instead of cutting back, the Spanish government has ramped up spending to reinvigorate the economy, a move that’s starting to backfire as global investors rush for the exits. Discussing Italy, Larson notes that its debt load this year should hit 117% of GDP, the second worst in the European Union, right behind Greece. Again, the common thread is too much debt, oversized deficits. And the market’s response is also the same–plunging bond prices and surging interest rates. Typically, rates fall in a weak economy, but in this case they are rising despite severe recessions and declining inflation. In another ominous note, Larson recently put together a table which shows the projected 2010 debt-to-GDP ratios and the projected budget deficit-to-GDP ratios for the PIIGS, the U.S. and the U.K. The key conclusion: The U.S. is not the least vulnerable. Quite the contrary, other than its shaky status as the world’s dominant economic power, it is actually among the most vulnerable with the third worst debt-to-GDP ratio and the fourth worst deficit-to-GDP ratio. The inference here is we, too, could face plunging bond prices and rising rates. The only reason, observes Larson, the U.S. has gotten away with relatively lower borrowing costs–so far at least–is its elite status as the center of a dollar-dominated global financial system. “But that special privilege,” he says, “does not give us a free pass to use and abuse the good-will of foreign creditors. Nor will it prevent us from an avalanche of bond selling similar to what struck Greece and the U.K. in recent weeks.” As Larson sees it, a sovereign debt crisis is unfolding before our eyes, what with government bond prices falling, long-term rates climbing and insurance against government defaults rising. He ends with an ominous warning: “A bond collapse is beginning, with massive losses now looming. If you’re in long-term government notes and bonds (10 and 30-year durations), you’re going to get crushed.” Likewise, he sees a similar fate befalling investors in bond mutal funds and bond ETFs (exchange traded funds). What do you think? E-mail me at Dandordan@aol.com .

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Chile May Tap Savings as Earthquake Losses Near $30 Billion, Pinera Says

March 12, 2010

By Sebastian Boyd March 12 (Bloomberg) — Chile plans to tap its copper savings funds and borrow in international debt markets to pay for an estimated $30 billion in reconstruction from the 8.8- magnitude earthquake that struck the country on Feb. 27. “We don’t have a definitive estimate, but estimates indicate that the damage caused by this earthquake could be close to $30 billion,” President Sebastian Pinera told reporters in Santiago today. Pinera plans to rewrite the 2010 budget to free up resources for a reconstruction fund, he said. The government will also tap its savings, he said. Chile has $11.3 billion invested overseas in an economic stabilization fund that the government can use to finance a budget deficit. Using money from the fund could mean selling dollars to buy pesos, boosting the Chilean currency. “We will study the possibility of contracting debts overseas,” Pinera said. “Chile has hardly any public sector debt.” The high price of Chile’s main export, copper, may also help pay for reconstruction, the president said. Pinera took office yesterday. To contact the reporter on this story: Sebastian Boyd in Santiago at sboyd9@bloomberg.net

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Homeowners take ‘cash for keys’ to escape debt

March 12, 2010

the exchange, and a pay-off to a second-lien holder, Culver was freed of $120,000 in crushing mortgage debt on the house, said Daurio, who had bought the right to cut the deal when he purchased the mortgage months earlier. The house, after repairs, is

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“Cash for keys” aids home borrowers, investors (Reuters)

March 12, 2010

the exchange, and a pay-off to a second-lien holder, Culver was freed of $120,000 in crushing mortgage debt on the house, said Daurio, who had bought the right to cut the deal when he purchased the mortgage months earlier. The house, after repairs, is

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“Cash for keys” aids home borrowers, investors (Reuters)

March 12, 2010

the exchange, and a pay-off to a second-lien holder, Culver was freed of $120,000 in crushing mortgage debt on the house, said Daurio, who had bought the right to cut the deal when he purchased the mortgage months earlier. The house, after repairs, is

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Damien Hoffman: Five Major Reasons the Economy is Screwed

March 12, 2010

5) The parking lot at Applebee’s is thinning while the drive-thru line at McDonald’s is lengthening Many Americans are continuing to Super Size their order while downsizing the bill. The Dollar Menu is how people are “Eatin’ Good in the Neighborhood.” This is evidenced by increasing sales at McDonald’s and decreasing sales at Applebees. Cutting back on restaurant bills is the opposite of how people behaved during the most recent bubble when disposable income was flowing in from Flip That House winnings. Forget fancy polls: this consumer sentiment gauge speaks louder than words. 4) Uncle Sam is holding up the housing market At the moment, the only thing “stabilizing” house prices are historically low mortgage rates and a monster home buyer tax credit. Without these major subsidies, the housing market may have fallen into the great abyss. So don’t get too complacent. If Atlas shrugs while unemployment is high, mortgage prices will rise and the housing market will get slammed. The Home Buyer Tax Credit is set to expire in April. Let’s see if politicians can stomach another round of foreclosures. 3) A bunch of countries are on the verge of going bust Yes, countries (not corporations). Remember what happened when Lehman Brothers imploded? Now imagine Portugal, Italy, Ireland, Greece, or Spain (affectionately known as the PIIGS) going belly up. Throw in some Eastern European countries and a black swan (the UK or US), and fear could spread faster than swine flu. Don’t think it can happen? The math is simple. Countries have borrowed and spent much more than they make. That is like breaking a fundamental law of the universe. And when that law is broken, bankruptcy or bailouts loom. 2) Many jobs have been lost forever The US was once a job creating machine . In the 1940s, 10 million jobs were created. In the 1990s, 19 million jobs were created. In the economically crappy 1970s, almost 16 million jobs were created. However, in the 2000s, the private sector deleted 208,000 jobs — many of them are now permanently overseas. We cheered for free market trade agreements like NAFTA, but did we truly understand the consequences? Apparently not. Now the only way to grapple back many manufacturing and tech jobs is to lower wages and compete in the free market. That could get more bewildering than an episode of Lost . 1) 78 million baby-boomers are eligible for Social Security and Medicare This is the economic atomic bomb. There are not enough greeter jobs at WalMart to offset the back-breaking burden of 78 million people falling into the social safety net. Politicians have used the Social Security and Medicare funds as ATMs for tons of unrelated spending projects over the years. Unfortunately, no one refilled the cookie jar. As tax collectors reach into our purses to make good on promises made to the Boomers, there will be less money to drive the economy back to prosperity. This would hurt a booming economy. What will it do to a fragile one? What other obstacles stand in the way of prosperity? What are some reasons we will pull out of this mess? Let us know below …

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‘Cash for Keys’ Deals Helping Homeowners Escape Debt

March 12, 2010

the exchange, and a pay-off to a second-lien holder, Culver was freed of $120,000 in crushing mortgage debt on the house, said Daurio, who had bought the right to cut the deal when he purchased the mortgage months earlier. The house, after repairs, is

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`Invisible Power’ of London Money Exposed as Lord Mayor Fights Politicians

March 12, 2010

By Simon Clark March 12 (Bloomberg) — When money needs to talk in London, it’s the lord mayor who speaks. Nick Anstee , the 682nd mayor of the U.K. capital’s financial district, is battling politicians from all parties who blame the bankers and brokers he represents for wrecking the country’s economy. Taxpayers assumed more than 800 billion pounds ($1.2 trillion) of liabilities to bail out financial firms, and an election must be held by June. “The taxpayer doesn’t understand how critical the financial services industry is to them,” Anstee, 51, said in an interview at his 252-year-old Mansion House residence opposite the Bank of England. “This absolutely overwhelming tide of negative attitudes has been brought about in taxpayers’ minds.” City of London chiefs have championed trade and challenged politicians for centuries. They befriended William the Conqueror, helped overthrow King Charles I and one backed U.S. founding father George Washington. Yet the top lobbyist for Britain’s financial services industry isn’t well-known in the square mile he presides over and where 6,000 companies operate. The lord mayor is an “invisible power” who Britons don’t recognize as the representative of the banks they bailed out, said London Metropolitan University politics lecturer Maurice Glasman . He’s campaigning to merge Anstee’s government with that of Greater London Authority Mayor Boris Johnson , which was started in 2000 to represent the capital’s 7.5 million people. ‘The Invisibles’ “The bailout made the invisibles visible in a really disturbing way,” said Glasman, 49, walking in front of the City’s six century-old Guildhall a few streets away from Mansion House. “This is the invisible heart of an invisible City that protects invisible earnings.” Financial services, once known as “invisibles” in the U.K. because loans, insurance and trading can’t be seen in the way manufactured goods like cars can, are a vital source of investment, tax and employment, Anstee said. “That’s what I’m promoting and that’s what I’m defending,” Anstee said in his Georgian palace, which is decorated with paintings by Dutch masters and plasterwork of cornucopias spilling coins and fruit. In 1968, the Bank of England started the Committee on Invisible Exports to promote finance. It was renamed British Invisibles, and is now International Financial Services London . ‘Unique Platform’ Lord mayors travel with the rank of cabinet minister and host annual dinners for the prime minister and chancellor. Their speeches to the U.K. premier from 2003 to 2009 called for low taxes, limits to regulation and easier visa requirements for foreigners. The first lord mayor was named in 1189. The lord mayor has a “unique platform” to influence politics, said Bob Wigley , the former chairman of Merrill Lynch & Co.’s European unit. Wigley led a review of the City’s competitiveness as a financial center for Mayor Johnson. Guests at the City banquet in Mansion House on Sept. 22 dined on smoked fish and filet of beef and Madeira syrup. They drank Chablis and Chateau Moulin a Vent wines and toasted Britain’s financial services industry as well as the queen. Barclays Plc Chairman Marcus Agius , former Lloyds Banking Group Plc Chairman Victor Blank , BT Group Plc Chairman Michael Rake and Financial Services Authority Chairman Adair Turner were on the table plan. Yet in a spot poll of 25 people passing Mansion House on March 10, 19 didn’t know the lord mayor lived there. None could name him. ‘Golden Age’ In his 2007 speech to the lord mayor at Mansion House, then Chancellor Gordon Brown pledged “a competitive tax regime” and heralded “a new golden age” for the City. “Britain needs more of the vigor, the ingenuity, the aspiration that you demonstrate daily,” he said. In September, Brown, now prime minister, attacked the “bankrupt ideology” of free market “fundamentalism” at his party’s conference. In October, opposition Conservative leader David Cameron said he won’t cut the 50 percent rate of income tax for top earners so “the rich will pay their share.” The City defends free markets whenever possible. Anstee disagrees with a so-called “Robin Hood tax” on financial transactions that film director Richard Curtis and U.K. non- profits including Oxfam want to fund anti-poverty projects. At Guildhall, Stuart Fraser , chairman of the City’s policy and resources committee, rejects labor unions’ criticism that overseas takeovers of companies like chocolate maker Cadbury Plc by Kraft Foods Inc. cause job losses. “We believe in the Cadbury example,” Fraser said. “The whole City is based on that.” ‘Friendly’ Tax Anstee wants politicians to provide “business-friendly” tax and regulation, defend British companies in the European Union, improve transport networks such as airports, cut the budget deficit and boost investment in research and development. At a March 1 dinner, Anstee asked all political parties to endorse policies that promote financial services, which employ 1 million and accounted for 10.1 percent of gross domestic product and 27.5 percent of corporate taxes in 2007, according to the government and accounting firm PricewaterhouseCoopers LLP. “It’s counter-productive to compete with each other to think of ways to punish the City,” Anstee told Business Secretary Peter Mandelson and 350 guests in Mansion House’s Great Egyptian Hall. “I am challenging each of Britain’s political parties to commit publicly to growth.” Dragons Supporting the City is politically difficult, Mandelson said. His Labour Party government last year imposed a one-time levy on bankers’ bonuses. “People who are losing their own jobs find it jarring when many in the City are reported as having had a good year,” Mandelson said. As head of the City of London Corporation, the area around St. Paul’s Cathedral whose boundary is marked by dragon motifs and statues, lord mayors lead a local police force and travel 90 days a year to promote financial services. Anstee has visited the U.S., Dubai and Saudi Arabia and will travel to South Africa, India, China, Russia and other countries. Anstee, a City resident and marathon runner, trained as an accountant and is a director of law firm SJ Berwin LLP . He lives at Mansion House with his wife for the duration of his one-year term, and speaks to about 10,000 people a month. “Nick is being outspoken at a time when the City desperately needs a positive voice,” said Wigley, who is now chairman of yellow pages publisher Yell Group Plc. “You can’t realistically expect any serious senior politician to be standing on a pro-City platform at the forthcoming election after the financial crisis.” Baltic Exchange The City’s focus on money has led to its local population dwindling to 9,000, while about 320,000 workers arrive each weekday. Uniquely in the U.K., companies as well as individuals vote for City representatives. From the Baltic Exchange for shipping to the Lloyd’s of London insurance market and the London Metal Exchange, the legacy of centuries of global British trade and finance lives on in the City, championed by the lord mayor. “The City of London has definitely represented the interests of money over a very long time,” said Glasman, standing in the square built over the gladiatorial amphitheater of London’s Roman founders. “I want to make the ancient City the center of all London so all citizens are represented here.” Glasman is a member of London Citizens, a non-profit whose campaign to raise the minimum wage for London workers was adopted by Barclays and other companies. His 1996 book, “Unnecessary Suffering,” criticizes excessive market reforms in eastern Europe after the collapse of communism there. In history, some challengers to the City did so at their peril. King Charles I failed to get the City to expand its boundaries to include new populations. He was beheaded in 1649. More than three centuries later, the challenge to explain and justify the City’s focus on capitalism remains. “One of the biggest risks following the banking crisis is the development of an unhealthy attitude towards business and open markets in general,” Mandelson told Anstee at Mansion House. “I realize talking about trust probably sounds rich coming from a politician. Let’s just say: I feel your pain.” To contact the reporter on this story: Simon Clark in London at sclark4@bloomberg.net

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BBVA Chairman Gonzalez’s $109 Million Pension Pot Riles Spanish Investors

March 12, 2010

By Charles Penty March 12 (Bloomberg) — Francisco Gonzalez , chairman of Banco Bilbao Vizcaya Argentaria SA, Spain’s second-biggest lender, has a pension worth 79.8 million euros ($109 million). That’s almost four times the pot accumulated by Stephen Green , his counterpart at HSBC Holdings Plc, Europe’s largest bank. Alfredo Saenz , chief executive officer of Banco Santander SA, has 80 million euros of pension rights, 20 times more than Deutsche Bank AG CEO Josef Ackermann . Pension awards at Spain’s biggest lenders mean top bankers receive total compensation that dwarfs the amount earned by executives at many of the companies they consider peers, an analysis of annual reports shows. Bilbao, Spain-based BBVA awarded Gonzalez 45.6 million euros over the past three years, including salary, bonus and the value of pension benefits. Green’s total was 14.8 million pounds ($22.4 million). “Pensions are absolutely a part of overall pay, and it’s up to shareholders to intervene,” said Peter Braendle , who holds BBVA and Santander shares as part of the $54 billion he helps manage at Swisscanto Asset Management in Zurich. “If these companies were owned by your family, you would never allow something like this to happen.” BBVA will face protests over the pension payments during the bank’s annual shareholders meeting today in Bilbao as a debate rages in Spain over the future of social security benefits sparked by the country’s soaring budget deficit. “It borders on the immoral,” said Sebastian Moreno, banking industry secretary in the services federation of the General Workers Union , adding that BBVA contributes 540 euros a year to the pension plans of ordinary staff. Unions plan to deliver a statement to the bank saying its remuneration policies are “socially controversial,” because it sets an example to society during times of crisis, he said. BBVA Pension Policy Gonzalez’s pension vested in October, when he turned 65. BBVA makes pension awards as part of a long-term remuneration policy that’s in line with the industry’s best practice, and executives don’t receive the money unless they stay with BBVA until they retire, a bank spokesman, who asked not to be named in line with company policy, said in an e-mailed statement. The bank has fulfilled its contractual obligations to Gonzalez and will make no further contributions to his pension, the spokesman said. “It’s compensation after 14 years of work in a bank that has always posted profits and that has not received any type of public aid,” according to the statement. Looking to the future, BBVA has reduced its pension commitments, while freezing salaries and reducing bonuses, the spokesman said. Best Practice Santander’s remuneration policy is in line with the best banking industry practices, said a Santander spokesman who also asked not to be identified, citing company policy. Both banks determine payments to executive pension plans based on a percentage of salary and bonuses. Linking pensions to bonuses may encourage risk-taking, said Cliff Weight, director of MM&K Ltd ., a London-based remuneration consultant. “You shouldn’t make the bonus pensionable,” Weight said. “It’s a very bad form of arrangement because it creates an incentive to award a large bonus in the last years of employment.” From 2007 to 2009, Gonzalez received 5.7 million euros in salary, 10.5 million euros in variable pay, and 454,400 shares valued at 2.84 million euros, according to company documents. The cost of covering his accrued pension rights rose by 26.6 million euros to 79.8 million euros. Rivaling U.S. Compensation HSBC’s Green, 61, was paid 5.5 million pounds in the period, and the value of his pension pot increased by 8 million pounds. Michael Geoghegan , the bank’s CEO, earned 10.9 million pounds, including contributions to a personal pension. The bank said in its 2009 annual report that increases in the value of pensions shouldn’t be treated as remuneration. Ackermann, 62, has 4.1 million euros in his pension account and is entitled to a monthly pension of 29,400 euros under a prior entitlement, Christoph Blumenthal , a Deutsche Bank spokesman, said in an e-mail. He earned 15.4 million euros in salary and bonuses in 2007 and 2008, and the amount of his pension increased by 316,250 euros in that period. In the U.S., Wells Fargo & Co. CEO John Stumpf received total compensation of $47.7 million from 2007 through 2009, and his pension pot is worth $12.6 million, according to the San Francisco-based bank’s annual reports. The $21.3 million Stumpf, 56, received for 2009 is the biggest reported so far among U.S. banking chiefs. Brian Moynihan , CEO of Bank of America Corp., earned $20.1 million during the period, according to the Charlotte, North Carolina-based bank. JPMorgan Chase & Co. CEO Jamie Dimon received a $17 million bonus in 2009, as well as combined remuneration of $54 million in 2007 and 2008. ‘Out of Favor’ BBVA, which relies on retail banking businesses from Spain to the Americas for more than four-fifths of operating income, included the five banks among 18 lenders it considers peers when it reviews long-term compensation. Santander has more than 241 million euros in pension obligations to six executives, according to the bank’s 2008 remuneration committee report. Chairman Emilio Botin , 75, had a 25.6 million-euro pension. His daughter, Ana Patricia Botin , 49, a board member since the age of 28 and chairman of Banco Espanol de Credito SA, a retail bank owned by Santander, had 22 million euros in accrued benefits. “Pensions and perquisites are kind out of favor,” said Alan Johnson , founder of New York-based Johnson Associates Inc., a compensation consultant. Bankers “get base pay and bonus and when the stock does well, they should make a lot of money,” Johnson said. Pension awards like those at Spanish banks are “just too big,” he said. ‘Impossible Sums’ BBVA fell 34 percent, including reinvested dividends, over the three-year period, ranking it sixth in its peer group. Santander dropped 2.8 percent in the period, sixth-best among its peer group. The 16 banks against which Santander compares its performance for a stock awards plan include Brazil’s Itau Unibanco Holding SA, Mitsubishi UFJ Financial Group and Nordea Bank AB, as well as JPMorgan and Credit Suisse. Santander pays its top managers a pension equal to 100 percent of final salary, plus 30 percent of the mean of the last three variable pay amounts. On that basis, CEO Saenz, 67, who earned a 3.7 million-euro salary in 2009 and 15 million euros in bonus in the preceding three years, would be entitled to a 5.2 million-euro annual pension if he retired now. “They take the money out of the bank and away from shareholders, but you can’t say they earned it,” said Hans- Martin Buhlmann , president of Vereinigung Institutionelle Privatanleger, a Cologne, Germany-based shareholder proxy group that has represented the interests of investors at Santander board meetings. “It’s impossible for any human being to earn these sums from pensions from their work.” To contact the reporter for this story: Charles Penty in Madrid at cpenty@bloomberg.net

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Lehman Misled Investors on Leverage, Fuld Was `Negligent,’ Examiner Says

March 12, 2010

By David Scheer and Joshua Gallu March 12 (Bloomberg) — Lehman Brothers Holdings Inc. used off-balance-sheet transactions to downplay its leverage in late 2007 and 2008, deceiving shareholders about its ability to withstand losses, a bankruptcy examiner’s report said. Then-Chief Executive Officer Richard Fuld was “at least grossly negligent” for letting Lehman file financial reports in which a key gauge of strength was “reverse-engineered” through transactions known as Repo 105s, bankruptcy examiner Anton Valukas said in a report yesterday. Lehman auditor Ernst & Young LLP could be accused of “professional malpractice,” he said. “The balance sheet manipulation was intentional, for deceptive appearances, had a material impact on Lehman’s net leverage ratio” and caused financial reports to be misleading, Valukas wrote of the New York-based company. Higher leverage undermines a firm’s capacity to absorb financial shock. Lehman filed the biggest bankruptcy in U.S. history in September 2008 after mounting losses on mortgage-backed securities spooked investors and creditors. The Wall Street investment bank’s failure helped trigger a freeze of global credit markets, forcing the U.S. government to provide $700 billion in bailout funds. Fuld didn’t know what the Repo 105 transactions were, his lawyer, Patricia Hynes of Allen & Overy LP in New York, said in a statement. He “didn’t structure or negotiate them,” she said. “Nor was he aware of the accounting treatment.” Concern Among Workers The transactions increased just before the end of financial reporting periods, temporarily moving $49 billion to $50 billion of assets off the balance sheet at the end of the first and second quarters of 2008, according to the report. Many employees expressed concern that Lehman was alone among its peers in using such methods, Valukas said. Ernst & Young last audited Lehman for the fiscal year ending Nov. 30, 2007, the accounting firm said in a statement yesterday. “Our opinion indicated that Lehman’s financial statements for that year were fairly presented in accordance with Generally Accepted Accounting Principles,” the firm said. “We remain of that view.” The leverage ratios that were reported in Lehman’s management discussion and analysis “were the responsibility of management, not the auditor,” Ernst & Young said. “They are not part of the audited financial statements.” Valukas, appointed by a federal court in Manhattan last year to probe Lehman’s demise, doesn’t have prosecutorial authority. Instead, the report outlines what claims creditors may bring to recoup losses. Archstone-Smith Trust In its final year, Lehman also overvalued some real-estate holdings, including a stake in U.S. apartment developer Archstone-Smith Trust, Valukas said. Lehman and Tishman Speyer Properties LP completed a joint acquisition of Archstone for $22 billion, including debt, in October 2007. In the first three quarters of 2008, Lehman’s valuations for an equity holding in Archstone “were unreasonable,” the examiner wrote. In the second quarter of 2008, for example, the stake may have been overvalued by as much as $450 million. As Wall Street’s mortgage losses mounted in 2007, banks struggled to win back investor confidence. By at least January 2008, Fuld had become focused on net leverage and reducing Lehman’s balance sheet, Valukas’s report shows. Failing to do so could lead to a ratings downgrade, inflicting “an immediate, tangible monetary impact” on Lehman, the report said. The bank, which had been using the repos since 2001, ramped them up in mid-2007, breaching internal limits, the report shows. Lehman’s former president, Herbert “Bart” McDade , commented on them in an April 2008 e-mail exchange, after he was asked whether he knew about their effect on the balance sheet, Valukas said. “I am very aware,” McDade wrote back. “It is another drug we r on.” Repo Presentation Fuld received a presentation referencing Repo 105s in March 2008, and McDade recalled discussing the transactions with the CEO in June of that year, according to the report. “Fuld knew about the accounting of Repo 105,” McDade said in an interview with Valukas on Jan. 28 this year. “At no time did Lehman’s senior financial officers, legal counsel or Ernst & Young raise any concerns about the use of Repo 105 with Mr. Fuld, who throughout his career faithfully and diligently worked in the interests of Lehman and its stakeholders,” Hynes wrote in her statement. The transactions were done in accordance with an internal accounting policy and supported by legal opinions, she said. In a repo agreement, one party temporarily transfers a security to another as collateral for short-term cash. A Repo 105 transaction requires extra collateral, making it a more costly form of borrowing. Lehman accounted for the Repo 105s as “sales,” as opposed to financing transactions, Valukas said. The bankruptcy case is In re Lehman Brothers Holdings Inc., 08-13555, U.S. Bankruptcy Court, Southern District of New York (Manhattan). To contact the reporters on this story: David Scheer in New York at dscheer@bloomberg.net .

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Simon Johnson: The Speech For Which We Have Been Waiting

March 11, 2010

For nearly two years now we have waited for a speech. We need a simple speech and a direct speech – most of all a political speech – about what exactly happened to our financial system, and therefore to our economy, and what we must do to make sure it can never happen again. President George W. Bush apparently did not consider giving such a speech, and Secretary Paulson could never talk in this way. President Obama seemed, at some moments, close to making things clear – when he talked on Wall Street in September and, most notably, when he launched the Volcker Rules in January. But President Obama has always come up short on the prescriptive part – i.e., what we need to do – and his implementation people still move as if there were lead weights in their shoes. Without a definitive speech, there is no political reference point, there is no convergence in the debate, and there is not even any clarity regarding what we should be arguing about. Without the right kind of speech, there are just many lobbyists working the corridors and a lot of backroom deals that most people do not understand – by design. Thursday, hopefully, we should finally get the speech. Not – sadly – from the White House, not from anyone in the executive branch, and not even from within the Senate Banking Committee (although Senators Merkley and Levin took a big step today), but rather on the floor of the Senate. On Thursday, Senator Ted Kaufman (D., DE) is due to deliver a strong blow to the overly powerful and unproductively mighty within our financial sector. He will say, according to what is now on his website, 1. Excessive deregulation allowed big finance to get out of control from the 1980s – but particularly during and after the 1990s. This led directly to the economic catastrophe in 2007-08. 2. We need to modernize and apply the same general principles that were behind the Glass-Steagall, i.e., separating “boring” but essential commercial banking (running payments, offering deposits-with-insurance, etc) from “risky” other forms of financial activity 3. We need size caps on the biggest banks in our financial system, preferably as a percent of GDP. 4. We should tighten capital requirements substantially. 5. And we must regulate derivatives more tightly – on this issue, he likes at least some of the steps being pushed by Gary Gensler at the CFTC. To be sure, a speech is not legislation. And, as yet, this is just one senator’s point of view. But because the administration so completely lost the narrative regarding what happened and why, there is now a free, open, and fair competition to explain what we need to do. The lobbyists will still prevail on this round. But a big debate around the nature of our financial system is exactly what we need. People who want to defend finance as-is now need come out of the woodwork. Senator Kaufman has set a very high standard. If you wish to oppose this agenda, speak clearly and in public about why we should not pursue exactly what the senator proposes. If opponents of reform do not come out and argue the merits of their case, people will reasonably and increasingly infer that Senator Kaufman and his allies are right on all the substance. Reform is blocked by a perverse combination of bankrupt ideology and deep-pocketed corporate interests. The only way to break through is to bring a lot of sunshine into the true affairs of finance – including by speeches like the one we will hear Thursday.

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Goldman Sachs Offers Small Business Owners Inane Advice In The New York Times

March 10, 2010

One thing that we all learned from the financial crisis is that Goldman Sachs is a “great vampire squid wrapped around the face of humanity” — its name to be spat aloud with an expletive to ward off evil spirits and succubi. But that’s why the good people at Goldman have undertaken a long and artful campaign to convince America that they’re not the rapacious dicks they’ve been made out to be. Part of that charm offensive is “a $500 million pro bono project last November called 10,000 Small Businesses,” which is “intended to kick-start small businesses, especially in inner cities, by providing applicants with mentoring, scholarships and — through grants to community development institutions — investment capital.” And, hey ho! Lookee what’s in the New York Times today! An article on this “10,000 Small Businesses” program , attesting to the sort of smart business practices that tomorrow’s entrepreneurs can be taught by the sorts of Goldmanites who have started small businesses of their own. If the Times truly captures the essence of the advice Goldman is able to dispense, then would-be small business owners are sure to take away some pretty sophisticated business lessons — if, by “sophisticated,” you mean “banal.” To wit, here are the teachings that Goldman Sachs appears to be ready to pass on to you: “LEARNING TO ACT QUICKLY” : Yeah, see, a couple of Goldman employees opened a home security company, but got bogged down in a bunch of bullshit “brand building exercises” that were suggested by the “marketing consultant” that they hired, for some reason. They eventually fired this guy, and the lesson learned was this: When you are doing something stupid, stop doing it, quickly . You can’t learn that at business school! (Seriously, you probably can’t.) “BE WARY OF EXPERTS” : HAHAHAHAAHAHA. Ahh, irony . Moving on! “A NEW VOCABULARY” : There’s a long anecdote provided about a woman who opened a maternity classes/accessories business, and how she once gave a PowerPoint presentation that was filled with the sort of jargon that only a Wall Street quant could understand, and her employees were like, “Whaaaa?” So she stopped doing that! And now, YOU CAN STOP DOING IT, TOO. I think it’s fun to compare and contrast this article with this January 2006 segment produced by NPR , which detailed how former Enron employees were taking the lessons of Enron’s collapse and starting their own small businesses. The big takeaway from the Enron-entrepreneurs was that once you’ve been caught up in the mess created when the company you work for decides to decimate a portion of the economy and devour the future, you learn that you better get as far away from that disaster as you can and make your own way in the world. The reporting is of an entirely different quality. I suspect the reason why is that the Enron-entrepreneur story was not handed to a freelancer by a company flack (as I strongly suspect this Goldman Sachs-small biz story was). By the way, remember that woman who started that maternity business and then spoke in Wall Street gibberish for a while until her employees told her to stop? At the end of the Times piece, she suggests that something Goldman Sachs can do to help out small businesses was to hold a “financing competition” — “like a real-life version of Donald Trump’s show,” she says. Ask yourself: if that suggestion had come in the first paragraph of this article, would you have bothered to continue reading it all the way to the end? No, you would not, because you are not some sort of idiot. [Would you like to follow me on Twitter ? Because why not? Also, please send tips to tv@huffingtonpost.com -- learn more about our media monitoring project here .]

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Stephen Balkam: Sex.com To Be Auctioned: Hey, Bill Gates, How About Bidding on it?

March 10, 2010

One of the most valuable pieces of cyber-real estate is up for sale. According to Wired, sex.com will be auctioned on March 16 and the opening bid is a mere one million dollars. Do we really need another porn site? Can we make do with the estimated 1.3 million sex-related sites already on the web? Never mind the ever popular user-generated sites where folk upload last night’s activity for free without so much as a fee or password required. No, I think it would be an amazing piece of largess – not to mention an inspired acquisition – if Bill Gates and his Foundation, were to outbid everyone and snap up this heavily trafficked site. Then the smart folks at the Bill and Melinda Gates Foundation could convert sex.com into the world’s leading safe sex portal in an effort to stop the spread of HIV and the myriad of other sexually transmitted diseases, while also curbing the rise of unwanted teenage pregnancy. Whatever you think of online porn — whether you have a laissez-faire attitude or are an outright opponent of the stuff — the world wide web would not miss the disappearance of sex.com as a sexual shop front. What would be inspired would be the appearance of educated and fact-based messages, videos, tips and guides on how to have a wonderful and loving sex life being responsible and safe for you and your partner. Who better to deliver such a site than the man who presided first over the spread of the personal computer to every corner of the globe and who is doing his level best to give away his personal fortune, particularly to those corners where HIV/AIDS and other STD’s are so rampant. So come on, Bill, be a sport. $1M or thereabouts certainly won’t break the bank. Put a smile on our faces and a good feeling in our hearts. And, in the future, when kids land on sex.com they’ll get some real sexual education and tips that will keep them, their partners and, eventually, their own children safe. You know it’s the right thing to do.

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Retail Sales Probably Fell as Snowstorms Blocked Trips to Malls, Dealers

March 7, 2010

By Bob Willis March 7 (Bloomberg) — Sales at U.S. retailers probably declined in February as blizzards kept Americans away from malls and auto-dealer showrooms, economists said before a government report this week. Purchases dropped 0.2 percent after a 0.5 percent gain the prior month, according to the median estimate of 56 economists surveyed by Bloomberg News before Commerce Department figures on March 12. Other reports may show the trade gap widened in January and consumers grew more confident this month. Figures last week showing the U.S. lost fewer jobs in February than anticipated, overcoming the effects of the snowstorms that caused some companies to temporarily close, signals employment is on the verge of accelerating. More hiring and wage increases will be critical in lifting consumer spending, the biggest part of the economy. “Retail sales likely would have squeaked out a modest gain if not for the severe snowstorms,” said Ryan Sweet , a senior economist at Moody’s Economy.com in West Chester, Pennsylvania. Nonetheless, “consumers will have to spend more freely for the recovery to sustain itself.” A Labor Department report March 5 showed the economy lost 36,000 jobs in February and the unemployment rate held at 9.7 percent for a second month, indicating the labor market is stabilizing. President Barack Obama , speaking at a Washington-area energy company, said the job report was “actually better than expected.” Even so, he said the number of unemployed is “more than we should tolerate” and urged Congress to pass a jobs bill to help lower unemployment. Auto Sales Auto sales fell last month to an annual pace of 10.4 million vehicles from 10.8 million in January, according to industry data last week. Toyota Motor Corp. sales fell 8.7 percent from a year earlier as it struggled with global recalls that halted demand for some models. Ford Motor Co., overcoming the snowstorms that curbed showroom traffic, beat General Motors Co. in monthly sales for the first time since 1998. Excluding automobiles , retail sales were probably little changed after a 0.6 percent gain the prior month, according to the Bloomberg survey. Chain stores turned in a better-than-forecast performance last month, compared with a low point last year, industry figures showed last week. Macy’s Inc. , Abercrombie & Fitch Co . and Gap Inc. beat analysts’ estimates in February as holiday sales and spring collections tempted consumers to go shopping in a month of record snowfalls. Same-Store Sales February comparable-store sales climbed 4.1 percent, topping the Retail Metrics 3 percent estimate. It was the sixth straight monthly gain and the biggest in 27 months. Purchases fell 4.1 percent in February 2009, Ken Perkins , president of Swampscott, Massachusetts-based Retail Metrics, said last week. TJX Corporation Inc ., an off-price apparel chain, reported a 16 percent sales increase in the four weeks ended Feb. 27 from a year earlier. “We achieved these sales despite the harsh snowstorms that affected many regions in the country,” said Sherry Lang, investor vice president, in a teleconference on March 4. “The month ended on a stronger note than we had anticipated.” Households are feeling less pessimistic. The Reuters/University of Michigan preliminary index of consumer sentiment for March probably rose to 73.8 from 73.6 a month earlier, according to the Bloomberg survey before the March 12 release. Fewer Claims In a sign that job losses are abating, a report from the Labor Department on March 11 may show initial jobless claims fell to 460,000 last week from 469,000 the previous week, according to economists surveyed. Stocks have recovered from a January slump prompted by concerns of a possible Greek default and government plans to boost oversight over banks. The Standard & Poor’s 500 Index has gained 6 percent since the end of January. The economy grew at a 5.9 percent annual pace in the fourth quarter, the strongest showing in more than six years as companies tried to stabilize inventories, the government reported last month. Economists surveyed by Bloomberg early last month forecast growth will slow to 3 percent in this quarter. A Commerce Department report on March 12 may show business inventories rose 0.2 percent in January after dropping 0.2 percent the prior month, according to economists surveyed. As companies begin rebuilding stockpiles and consumer purchases recover, demand for imports is rising. That probably caused the trade deficit to widen to $41 billion in January from $40.2 billion in December, according to the survey median before a March 11 report from the Commerce Department. The collapse in trade earlier last year brought the deficit down to a near- decade low of $25.8 billion in May. To contact the reporter on this story: Bob Willis in Washington at bwillis@bloomberg.net

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Iceland Rejects Icesave Bill as Voters Refuse Demands to Cover Bank Losses

March 6, 2010

By Omar R. Valdimarsson March 6 (Bloomberg) — Icelanders are voting in a referendum on a bill that would saddle each citizen with $16,400 of debt. Polls show they will reject the measure in protest at U.K. and Dutch demands that they cover losses triggered by the failure of a private bank. The bill obliges the island to take on $5.3 billion, or 45 percent of last year’s economic output, in loans from the U.K. and the Netherlands to compensate the two countries for depositor losses stemming from the collapse of Landsbanki Islands hf more than a year ago. A March 1 poll showed 74 percent of the electorate of 230,014 people will reject the bill. “Ordinary people, farmers and fishermen, taxpayers, doctors, nurses, teachers, are being asked to shoulder through their taxes a burden that was created by irresponsible greedy bankers,” said President Olafur R. Grimsson , whose rejection of the bill resulted in the plebiscite, in a Bloomberg Television interview yesterday. Failure to reach an agreement on the so-called Icesave bill has left Iceland’s International Monetary Fund -led loan in limbo and prompted Fitch Ratings to cut its credit grade to junk. Moody’s Investors Service and Standard & Poor’s have signaled they may follow suit if no settlement is reached. Prime Minister Johanna Sigurdardottir , who in a March 4 interview called the referendum “pointless,” said she won’t cast a ballot today. Finance Minister Steingrimur Sigfusson has also said he sees no point in voting. Polling ends at 10 p.m. and first results will be available shortly after with a final count to be published early tomorrow. ‘Obsolete’ Political leaders have already moved on and are trying to negotiate a new deal with the U.K. and the Dutch, making the bill in today’s vote “obsolete,” Sigurdardottir said. “This referendum is very peculiar and without any parallel in Iceland’s history,” said Gunnar Helgi Kristinsson, a professor of political science at the University of Iceland, in an interview. The Icesave deal being voted on today passed through parliament with a 33 to 30 vote majority. Grimsson blocked it after receiving a petition from a quarter of the population urging him to do so. The government has said it’s determined any new deal must have broader political backing to avoid meeting a similar fate. Even so, signs of disunity across the political divide have emerged, prompting concerns that the government may be forging ahead without the backing of opposition parties. “It’s extremely important that we try in full to complete the negotiations in harmony with the opposition,” Sigurdardottir said. “If that’s not possible, we will have to try to resolve this by ourselves.” Outrage Icelanders will use the referendum to express their outrage at being asked to take on the obligations of bankers who allowed the island’s financial system to create a debt burden more than 10 times the size of the economy. The nation’s three biggest banks, which were placed under state control in October 2008, had enjoyed a decade of market freedoms following the government’s privatizations through the end of the 1990s and the beginning of this decade. Protesters have gathered every week, with regular numbers swelling to about 2,000, according to police estimates. The last time the island saw demonstrations on a similar scale was before the government of former Prime Minister Geir Haarde was toppled. Icelanders have thrown red paint over house facades and cars of key employees at the failed banks, Kaupthing Bank hf , Landsbanki and Glitnir Bank hf, to vent their anger. The government has appointed a special commission to investigate financial malpractice and has identified more than 20 cases that will result in prosecution. Economic Impact The island’s economy shrank an annual 9.1 percent in the fourth quarter of last year, the statistics office said yesterday, and contracted 6.5 percent in 2009 as a whole. Household debt with major credit institutions has doubled in the past five years and reached about 1.8 trillion kronur ($14 billion) in 2009, compared with the island’s $12 billion gross domestic product, according to the central bank . Icelanders, the world’s fifth-richest per capita as recently as 2007, ended 2009 18 percent poorer and will see their disposable incomes decline a further 10 percent this year, the central bank estimates. Grimsson, who has described his decision to put the depositor bill to a referendum as the “pinnacle of democracy,” says he’s not concerned about the economic fallout of his decision. “The referendum has drawn back the curtain and people see on the stage the matter in a new perspective,” he said in an interview. “That has strengthened our position and our cause.” To contact the reporter on this story: Omar Valdimarsson in London at valdimarsson@bloomberg.net

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BP’s Hayward Gets 41% Pay Raise as Explorer Beats Exxon in Oil, Gas Output

March 5, 2010

By Brian Swint and Eduard Gismatullin March 5 (Bloomberg) — BP Plc Chief Executive Officer Tony Hayward received a 41 percent pay increase last year, after the company produced more oil and gas than Exxon Mobil Corp. for the first time. Hayward was paid 4.01 million pounds ($6 million) in cash and shares compared with 2.85 million pounds in 2008, the London-based company said in its annual report published today. The figures don’t include his pension fund, which is worth about 2.7 million pounds. The CEO has promised to increase production further over the next five years after outpacing Exxon in 2009 with 4 million barrels a day of oil equivalent in output. BP aims to increase profitability by an annual $3 billion over the next three years after exceeding 2009 cost-cutting targets. “In a volatile year for the world economy, the BP executive team produced excellent results,” DeAnne Julius , chairman of BP’s remuneration committee, said in a statement. “While salaries were frozen for all directors in 2009, the variable performance-related pay reflected the impressive achievements of the year.” Royal Dutch Shell Plc , which was overtaken by BP in terms of market value in January, last month announced plans to freeze the salaries of Chief Executive Officer Peter Voser and others. That was in response to a shareholder backlash last year, when bonuses were paid even as executives missed performance targets. Lower Earnings BP posted a 22 percent drop in annual profit last year as the recession dragged down demand for oil products and average selling prices fell. The producer still ranked first in four of six comparisons with its peers used by BP’s pay committee to determine compensation, including production growth, earnings per share, return on capital employed and free cash flow, Julius said. The committee said that base salaries were frozen in July 2008 and suggested that part of executives’ bonuses must be deferred in the future, subject to the company’s environmental and safety record. Shareholders will vote on a plan to defer a third of directors’ bonuses, to be paid in shares with an option to defer another third, for three years, at the annual general meeting on April 15. Safety “This change would place more focus on the long term, highlight the importance of safety and build a larger equity stake for executives that we believe aligns their interests well with shareholders,” Julius said. Andy Inglis , head of exploration and production at BP, saw his overall compensation rise to 2.7 million pounds from 2.3 million pounds, and Iain Conn , in charge of marketing and refining, received 2.4 million pounds compared with 1.9 million pounds. Chief Financial Officer Byron Grote , who is paid in dollars, received $4.4 million, up from $3.7 million in 2008. Carl-Henric Svanberg , who became chairman of BP on Jan. 1, will receive a salary of 750,000 pounds, the report said. That compares with his predecessor Peter Sutherland ’s salary of 600,000 pounds. BP has gained 16 percent in London trading since the beginning of last year. To contact the reporter on this story: Brian Swint in London at bswint@bloomberg.net .

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Russell Simmons: The Secret Relationship Between Blacks and Jews

March 5, 2010

There is no question about the well-documented history where the Black and Jews have stood together in their fight for civil rights, equality and political power. But not so much is said about the creative alliances in business where Blacks and Jews are and have been forging new businesses and ideas that have helped enable Blacks and Jews to enter the mainstream in American business. These are the partnerships that have and will create goodwill and change the future. There are many examples of how Blacks and Jews have come together to fight against hatred and bigotry. In fact, as my friend Rabbi Marc Schneier at The Foundation for Ethnic Understanding , often states (and he even wrote a book about it called Shared Dreams ), Dr. King was an ardent supporter of Israel and the Jewish people, including taking part in efforts to ease discrimination against Jews in the Soviet Union and the safety and security of the State of Israel. Dr. King also spoke out strongly against anti-Semitism in the United States. We all know that no segment of the American population provided as much and as consistent support to Dr. King and to African Americans as did the Jewish community. But, like any relationship, the bond between Jews and African-Americans has experienced its ups and its downs. However, despite claims to the contrary, the relationship between Blacks and Jews today remains strong. Maybe it’s because the Jewish community has suffered from tremendous anti-Semitism throughout history and as a result of their plight, Jews have been able to better sympathize with the struggles facing Blacks. Or maybe it is because the Jewish community knows that if it happens to the Black community it can also happen to them. So for generations, Jews and Blacks have marched together in the streets of Birmingham and Washington, and shared the stage at venues in Harlem and elsewhere. Our two communities are not afraid to stand side by side, continually defying those who would prefer to see us behind solitary bars and forgotten, not in front of cheering crowds. Rabbi Schneier and I travel the country sharing these stories, discussing our tale with anyone who will listen – Blacks, Jews, or otherwise. This is true in synagogues and churches as well as college universities like Queens College – which Rabbi Schneier and I will address next week. Despite the years of anti-Semitism, the Jewish community has not let the hatred of others hinder their ambitions or drive for success. The Jews have been resourceful and have stood together and time and time again prospered in business, medicine, law and entertainment. This is a great example of what a tight knit family and education can accomplish even against a world filled with shut doors and hate. While I have many first hand experiences in records, jewelry, fashion, internet, TV, film, financial services, and much more, I have also noticed Jay Z, Puffy, and most of hip-hop out-branding the record business that is dying its own death, and building partnerships in areas previously reserved for white men. Both Jay Z and Puffy are truly creative entrepreneurs, and both have learned a lot of these skills from their Jewish partners and suppliers. Entrepreneurs are usually raised in cultures that feed that free spirit that allows them to dream up new ideas and break the mold. Without documentation I can still safely state that in most hoods, and certainly in mine, going to school to “get a good job” was the goal. But I built many businesses with Jews who didn’t let school dim down their dreams and they were comfortable with the idea to let go of the idea of job security and fly. This I learned from Orthodox Jews, Syrian Jews, Reform Jews and other sects of Judaism. All of these communities have welcomed me. Since the days when the white gang “The Green Ways” in Queens chased me into the white housing development where the kids and mothers accepted me, and I learned the difference between the “different whites in Queens,” the Jewish community has proven to be a safe haven and a place to empower myself and other Blacks. From our president to everyone in the hip-hop community, we have a strong history and partnership with the Jewish community and today I thought I would restate this fact in case there is any doubt about who else has struggled like Blacks and who else has stood by Blacks in our most difficult times. We know that we still have work to do, however, each individual must exude the kind of tolerance and love that we would want to receive ourselves. We must learn how to love everyone, not just within our own community, as the world is too small, and our potential is too great.

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Mint.com Manages Money for Attention-Impaired: Tech by Rich Jaroslovsky

March 5, 2010

Commentary by Rich Jaroslovsky March 5 (Bloomberg) — In Mint.com ’s creation story, as recounted on its Web site, founder Aaron Patzer started the free online personal-finance service after a tedious 2005 session with Intuit Corp. ’s Quicken budgeting software. These days, any complaints about Quicken should be directed at Patzer himself. Tired of getting its clock cleaned by his upstart operation, Intuit last year bought Mint and put Patzer in charge of its entire consumer-finance operation. Now he and his new parent face the task of figuring out how the various pieces will fit together and rejuvenating Intuit’s Quicken franchise. Mint’s greatest strength is its ability to create a budget for people who don’t have the time or patience to make one themselves. Think of it as “Quicken: Short-Attention-Span Edition.” Once you provide log-ins for your bank accounts, credit cards and other financial activities, the site gathers your transactions, categorizes them, analyzes your spending patterns and says, “OK, here’s how much you have to play with.” Now, I long ago got over any reluctance to trust software with my financial information. Still, it felt a little weird to know Mint was looking at my spending habits. It’s much the same feeling I get knowing Google Inc. is analyzing the contents of my Gmail messages in order to show me ads. No Input There are two ways of looking at how good a job Mint does. On the one hand, it’s impressive to have a budget at all, given that Mint constructs it with, essentially, no input from you. On the other hand, you’d think that a service that smart ought to know that a teenage daughter’s purchases from the Sephora cosmetics chain are more likely to be in the “personal care” realm than “clothing.” While Mint correctly guessed that purchases made at Whole Foods Market were likely to be groceries, it couldn’t figure out that transactions from Kings Super Markets were, too. So what do you do? You notice the problems and fix them yourself. In other words: You’re refining your budget. After a while, you may even find yourself clicking over to the Planning tab and beginning to do more serious work on your financial future. The key is that you’re doing it as you go along, and on your own timetable. Among other nice features, Mint provides a simple way to track the value of your investments, a useful companion iPhone app and a set of e-mail or text alerts for low balances, pending bills and exceeding your budget. Home-Equity Stumble On the other hand, the service stumbled over handling a home-equity line. Mint’s customer-service department replied promptly via e-mail with a solution that turned out to be incorrect, but that set me on the path to solving the problem myself. Mint makes money by collecting bounties from financial institutions for steering you to their products based on your spending patterns. (It also provides aggregated consumer- spending data, including to Bloomberg LP, the parent company of Bloomberg News.) To Mint’s credit, it clearly labels which offers come from its sponsors, and you’ll find unsponsored ones mixed in as well. Beware, though: There may be less to some of those purported “savings” than meets the eye. For instance, Mint suggested a credit card from its sponsor Discover that would supposedly save me a bunch of money by showering me with rewards and perks. But the comparison failed to take into account the rewards and perks of my current card. Once I went back and added those details, a lot of the purported savings evaporated. Missing From Mint Missing from Mint is the ability to make online payments, as are powerful investment-management tools. For that, you will still need Intuit’s Quicken, which comes in various editions ranging in price from $29.99 to $89.99, including its first new Mac version in three years. Quicken, which is one of the longest continually produced PC programs this side of Microsoft Word, could use a dash of Mint’s more youthful DNA. The program’s annual updates have become increasingly indistinguishable from each other, save when some annoying new feature is introduced and you have to go hunting for the command to turn it off. (My least favorite was the now-defunct Zipingo, which constantly prompted you to rate people to whom you were making payments.) Quicken also requires frequent software patches that are sometimes more trouble than they’re worth. Update No. 7 for the 2010 version promptly blew away my ability to download transactions from or send payments through my main checking account. I’ve got nothing against Quicken. It sort of runs in the family: One of my relatives works at Intuit in a non-product role, and even my father was a devoted Quicken user. But Dad passed away in 1989. For better or worse, Mint.com isn’t my father’s Quicken. Mostly for the better. ( Rich Jaroslovsky is a Bloomberg News columnist. The opinions expressed are his own.) Click on “Send Comment” in the sidebar display to send a letter to the editor. To contact the writer of this column: Rich Jaroslovsky in New York at rjaroslovsky@bloomberg.net

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Latin America M&A Jumps in Best Start Since 2000 as Brazil, Mexico Recover

March 5, 2010

By Serena Saitto March 5 (Bloomberg) — Takeovers in Latin America are off to the best start in at least a decade, bucking a global slump, as economic recoveries in Brazil and Mexico spur consolidation in the telecommunications, food and commodities industries. America Movil SAB’s $25.7 billion purchase of Carso Global Telecom SAB in Mexico was the largest in the region this year and the second biggest globally. Latin America tallied 192 announced deals worth $72 billion since Jan. 1, the most in Bloomberg data going back 10 years and the only region to see an increase in transactions this year from the end of 2009. More than a third of 2010’s transactions were in Brazil, where the economy is rebounding from a recession, the currency is up 32 percent against the dollar in the past 12 months and interest rates are at record lows. The region may have its best year for acquisitions since 2007, said Udi Margulies , head of Latin American M&A for Barclays Capital in New York. That year takeovers in the region totaled $123.5 billion. “International companies are increasingly interested in investing in resource-rich Latin America,” said Nicolas Aguzin , the region’s chief executive officer for New York-based JPMorgan Chase & Co. “At the same time, Latin American companies are expanding abroad to become global leaders in their sector.” Deal Volume Falls Mexican and Brazilian companies were the top acquirers in the region with $55 billion worth of deals. Buyers in Latin America paid 7.44 times earnings before interest, taxes, amortization and depreciation, the lowest ratio for any area except Asia, data compiled by Bloomberg show. In the U.S., buyers paid on average 10.87 times Ebitda. Buyers from Europe also acquired companies in Latin America this year, including Heineken NV of Amsterdam and Royal Dutch Shell PLC. Global M&A volume fell 27 percent to $1.81 trillion last year, the lowest level since 2003, as the financial crisis froze credit. Latin American deals’ volume declined 9.5 percent to $115 billion. The region is having its best overall quarter since the last three months of 2006, when there were $98.6 billion worth of deals, Bloomberg data show. Takeovers are increasing as economists surveyed by the central bank forecast Brazil’s economy, Latin America’s largest, will grow 5.5 percent this year after shrinking each of the first three quarters last year from the same period in 2008. Mexican Growth Mexico’s government raised its estimate last month for 2010 economic growth to 3.9 percent from 3 percent, citing signs of a recovery in domestic and international demand. Gross domestic product shrank 6.5 percent last year, the country’s worst annual slump since 1932. “The increased competition for local assets and the region’s declining risk perception is driving acquisition prices up,” said Martin Sanchez, the head of Latin America mergers and acquisitions at Bank of America Corp. in New York. Investor optimism over Brazil’s recovery has been tempered by concern that China, the country’s biggest trading partner, may further curb bank lending to slow growth. Brazil’s presidential elections in October and the end of economic stimulus programs worldwide may “reduce visibility for the second half of this year,” said Charles Stewart , Morgan Stanley’s head of Latin American investment banking in Sao Paulo, who relocated from New York in 2008. Resource Play America Movil’s purchase of Carso Global Telecom in January was the second biggest globally after Prudential Plc’s $35.5 billion acquisition of American International Group Inc.’s Asian life insurance unit AIA Group Ltd. Heineken bought Fomento Economico Mexicano SAB, Mexico’s second-largest brewer, the same month for about $7.7 billion to tap faster growth in Latin America. Rio de Janeiro-based Vale SA, the world’s largest iron-ore producer, bought the Brazilian fertilizer assets of White Plains, New York-based Bunge Ltd. for $3.8 billion in cash. Royal Dutch Shell formed a $12 billion ethanol joint venture with Barra Bonita, Brazil-based Cosan SA Industria & Comercio to share control of the world’s largest sugar cane processor. “International investors are looking for opportunities in Brazil,” said Daniel Weinstein, co-head of investment banking for Goldman Sachs Group Inc. in Sao Paulo. “At the same time, local companies are looking for synergies abroad and they are consolidating locally to access capital at a lower cost.” M&A Fees Credit Suisse Group AG of Zurich, the largest Swiss bank, won the most M&A business in the region since the start of the year with seven deals worth $46 billion, followed by Spain’s Banco Santander SA and JPMorgan. In 2009, Credit Suisse was second after Santander. Investment banks earned $1.1 billion in M&A fees in the region last year, up from $992 million in 2008, according to estimates from New York-based research firm Freeman & Co. Globally, total M&A fees in 2009 were $22.2 billion. Marcello Hallake , a New York-based partner at Thompson & Knight LLP of Dallas, expects companies that process natural resources, such as ethanol and iron ore, as well as consumer- related industries to contribute to merger activity in Brazil. His law firm specializes in advising the energy industry and is about to open an office in Rio de Janeiro President Luiz Inacio Lula da Silva ’s plan to make Rio de Janeiro-based Petroleo Brasileiro SA the sole operator of the pre-salt oil fields may delay some transactions in the sector, he said. Still, it won’t constrain long-term interest in Brazil’s oil industry, Hallake said. Oil Assets “Most oil companies are still interested in having a presence in Brazil despite the government’s increasing control over the nation’s huge oil reserves,” he said. China’s reliance on Brazilian commodities is also driving investments, said Stewart of Morgan Stanley, which has doubled its staff in Brazil since 2006 to 162 bankers. After Petrobras made the biggest discovery of crude in the Americas since 1976, China Development Bank lent $10 billion to the company in exchange for 100,000 barrels a day for the next 10 years. “If you believe in China, almost by definition you believe in Brazil,” said Stewart. Source: Bloomberg data, values based on announced total. To contact the reporter on this story: Serena Saitto in New York at ssaitto@bloomberg.net .

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Levin Says Obama’s Bank Fee `Worth Considering,’ Will Push Buyout Firm Tax

March 5, 2010

By Ryan J. Donmoyer March 5 (Bloomberg) — Representative Sander Levin , the new acting chairman of the House Ways and Means Committee, said imposing a fee on financial firms is “worth considering” and that he intends to press his proposal to boost taxes on executives at private equity firms. Levin, a Michigan Democrat, said in an interview yesterday he’ll convene the committee soon to examine the $90 billion fee plan proposed by President Barack Obama to compensate the government for bailout money provided to American International Group Inc. and other companies through the Troubled Asset Relief Fund. “I think it’s worth considering, but we need to sit down, look at the proposals and study them,” Levin said of the Financial Crisis Responsibility Fee. “The committee hasn’t had a chance to do it, and we will.” The committee already is considering changes to the proposal, such as basing it on a financial institution’s income rather than liabilities, panel spokesman Matthew Beck has said. Levin, 78, took control of the panel yesterday following the March 3 decision by Representative Charles Rangel , a New York Democrat, to step down from the chairmanship, at least for now, amid a House ethics committee investigation of multiple alleged misdoings. Rangel, 79, last week was admonished by the ethics panel for violating the chamber’s gift rules. Levin, who first won his House seat in 1982, ascends to the Ways and Means Committee helm as the panel is pivoting from playing a crucial role on overhauling the health legislation to addressing a series of pressing tax matters. Middle-Class Taxes In addition to considering Obama’s bank fee, the committee is gearing up to debate extending lower tax rates for the middle-class due to expire on Dec. 31, as well as address a two- month lapse in a levy on multimillion-dollar estates. The panel also is preparing to confront the growing reach of the alternative minimum tax, a levy that may surprise some 30 million households with an unexpected bill this year if it isn’t indexed for inflation. His new role also gives Levin new leverage to push a proposal he first floated in 2007 that would end the capital gains tax treatment of carried interests, the incentive-based compensation paid to managing executives at partnerships. Levin’s proposal is aimed at managing partners of private equity firms who typically receive a 20 percent share of a fund’s profits above a predetermined level. The managers currently pay 15 percent capital gains tax on this pay. Ordinary Tax Rates Levin would reclassify the income as wages subject to ordinary tax rates that currently top out at 35 percent. The proposal also would apply to venture capital firms, real estate partnerships and hedge funds that hold long-term investments that appreciate. While the House has adopted the proposal on multiple occasions to help fund tax relief legislation, it has gone nowhere in the Senate. Levin said he’d press his case directly to Senate Finance Committee Chairman Max Baucus , a Montana Democrat who has been reluctant to advance the legislation. “I hope we can have a discussion on that,” Levin said in the interview, adding he tried and failed to reach Baucus yesterday. “And we can take it apart, look at the arguments. My own view is it’s something we need to act on.” ‘Active Chairman’ Levin describes himself as the “active chairman, pending the decision of the ethics committee” on Rangel’s conduct. If Rangel doesn’t return, Levin may face a challenge from Massachusetts Representative Richard Neal next year for the seat, the Boston Globe reported today, citing aides close to Neal it didn’t identify. Levin said the committee will act this year to extend the lower rates for middle-class Americans enacted under President George W. Bush in 2001, citing “broad support” for that among congressional Democrats. In keeping with Obama’s policy, he won’t seek to extend lower rates for high-income families, he said. The committee may turn to addressing the lapsed federal estate tax first, he said. The tax expired Dec. 31, triggering a capital gains tax that applies to inherited assets in excess of $1.3 million when they are sold. The capital gains tax is calculated on a “carryover basis,” meaning it can apply to all appreciation in value since an asset such as a house originally was purchased. Estate Tax These capital gains tax rules are only in force for 2010. Unless Congress acts, the estate tax is scheduled to be reinstated in 2011 with a 55 percent rate applicable to bequeathed assets in excess of $1 million. The House in December backed a 45 percent tax rate on estates that exceed $3.5 million in value for individuals or $7 million for a married couple. Opposing a return of the 55 percent rate in 2011, Senators Jon Kyl , an Arizona Republican, and Senator Blanche Lincoln , an Arkansas Democrat, are pushing an alternative 35 percent tax that exempts the first $5 million of an individual’s estate from tax, or $10 million per couple. “I think the main point is we have to act,” Levin said. “I think this interval is not helpful; people need to be able to plan.” With a soft-spoken style and a solicitous manner, Levin will bring a new tone to a committee that has jurisdiction over tax policy, Social Security, Medicare, welfare and trade. Brother Carl Levin is the older brother of Michigan Senator Carl Levin , a Democrat and chairman of the Senate Armed Services Committee. Sander Levin represents a district in which manufacturers are based and many auto workers reside, and he is closely aligned with unions. Of his 20 top donors since 1989, 15 are labor unions, including the American Federation of State, County and Municipal Employees with $91,250 and the International Brotherhood of Electrical Workers with $90,200, according to the Washington-based Center for Responsive Politics . The top Republican on the Ways and Means panel is also from Michigan: Representative Dave Camp. Camp cited a “long and good working relationship” with Levin in a statement yesterday. One area of potential conflict, Levin’s critics say, is trade. Levin is the former head of the Ways and Means trade subcommittee, and is a leading congressional critic of a pending free-trade agreement with South Korea. While Rangel pushed the Obama administration for a commitment on when it would move another trade accord with Colombia, Levin advocated a more deliberate approach for those pending deals. Trade Agenda “Any glimmer of hope that there was for a trade agenda, just vanished,” Sean Spicer , a trade official in former President George W. Bush’s administration, said in an interview. With Rangel in place “you could always hope to go over Levin and work around him. You can’t go around the chairman.” Rob Leonard , a tax lawyer at the Washington firm Akin Gump Strauss Hauer & Feld LLP who served as chief counsel for the committee several years ago, said Levin’s “trademark” is open and honest debate that gives all views a “fair shake.” “It’s all very much on the level with him,” Leonard said. “He is far from the ‘liberal’ caricature that some may choose to paint — and as a chairman seeking consensus from a very diverse congressional audience, I expect him to be drawn to balanced policy responses to the complex problems that come before the Ways & Means Committee.” To contact the reporter on this story: Ryan J. Donmoyer in Washington at rdonmoyer@bloomberg.net

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Brown to Face Iraq War Inquiry Into British Government’s Role in Conflict

March 4, 2010

By Thomas Penny and Kitty Donaldson March 5 (Bloomberg) — U.K. Prime Minister Gordon Brown will today face four hours of questioning in London on the conduct of the Iraq war and Britain’s part in the conflict. The inquiry into the U.K.’s role in the U.S.-led invasion of Iraq in 2003 has already heard evidence from senior diplomats and ministers who were involved in the government’s decision to go to war, including former Prime Minister Tony Blair . No report will be published until after the general election that must be held by June. “The prime minister welcomes the inquiry and its independence and his opportunity to give evidence,” Brown’s spokesman, Simon Lewis , told reporters in London yesterday. The probe, which opened on Nov. 24 and is chaired by a retired civil servant, John Chilcot , is the fifth into the war since the invasion that ousted Saddam Hussein from power. Brown was chancellor of the Exchequer at the time and will be questioned about funding for equipment for the 40,000 troops sent to Iraq. When Blair gave evidence Jan. 29, he said he had no regrets about removing Hussein. Blair’s former communications chief, Alistair Campbell , told the inquiry on Jan. 12 that Brown was a member of the inner circle that made the key decisions in the period leading up to the invasion. A poll by ComRes Ltd. for the Independent newspaper published Feb. 3 found 60 percent of those surveyed saying Brown shares responsibility with Tony Blair for the war. ‘So Many Accusations’ “There are serious questions which the British people and the armed forces will want Gordon Brown to answer,” Liam Fox, defense spokesman for the main opposition Conservative Party, said in an e-mailed statement. “There have been so many accusations that he knowingly underfunded defense, that he blocked equipment orders, cut the budget while we were at war, and played politics with announcements of troop numbers.” Brown will meet privately today with families of some of the 179 British service personnel who died in the conflict, Lewis said. “There was a request from the families, as they requested to meet Mr. Blair and others, and the prime minister clearly thinks it’s the right thing to do,” Lewis said. The review is being carried out by a panel of the Privy Council, which is investigating the period from summer 2001 to July 2009. The panel, which includes Usha Prashar , a member of the House of Lords, Lawrence Freedman , a security academic, Martin Gilbert , a historian, and Roderic Lyne , a senior adviser to JPMorgan Chase & Co., has the authority to question any British citizen and to see all relevant documents. U.K. combat troops carried out their last patrol in Iraq on April 30 last year and have left the country, according to the Ministry of Defense. Between 95,568 and 104,266 civilians have died in the conflict, according to the Web site Iraq Body Count . To contact the reporters on this story: Thomas Penny in London at tpenny@bloomberg.net ; Kitty Donaldson in London at kdonaldson1@bloomberg.net .

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Greek, Portuguese Workers Strike as Protests Over Austerity Measures Grow

March 4, 2010

By Maria Petrakis March 4 (Bloomberg) — Greek demonstrators took over the Finance Ministry building in central Athens, blocking streets in the city center, and Portuguese schools and hospitals were shut as unions stepped up protests against government deficit cuts. In Athens, about 200 members of the PAME union group, aligned with the Communist Party of Greece, occupied the six- story ministry building today while protesters took over the nearby General Accounting Office, according to a police spokeswoman. Another group blocked a central road in downtown Athens, snarling traffic. Greek Prime Minister George Papandreou yesterday unveiled 4.8 billion euros ($6.6 billion) of additional deficit cuts as he tries to convince European Union allies and investors he can tame the region’s biggest budget gap. EU officials praised the moves and Greek bonds gained on the measures, which include a 30 percent cut to three bonus-salary payments to civil servants. “The measures are grossly unfair,” Dimitris Bratis, the president of the Greek teaching federation , which will strike for 24 hours tomorrow, told NET TV today. “We’re being asked to pay for the crisis. Greek taxpayers are being asked to foot the bill again.” The main union for public workers, ADEDY, called a three- hour work stoppage for tomorrow and a protest rally in the city center that the country’s private-sector union group, representing 2 million Greek workers , will also join, according to spokesman Stathis Anestis. Most unions representing public- transport services also called a 24-hour strike tomorrow, affecting trams, rail and bus services in the Greek capital as well as the Athens subway. Portuguese Strikes Portugal’s public workers held a 24-hour strike today to protest a wage freeze that’s part of government efforts to convince the EU and investors that it can pare its own budget deficit to 8.3 percent of output from 9.3 percent last year. The Greek Finance Ministry building was draped with a banner urging Greeks to “rise up” against the budget measures and protesters on the roof of the building exhorted passersby to join a protest march by PAME scheduled for later today. The same group blockaded the Athens stock exchange headquarters last week, preventing staff from entering the building. ADEDY said it is considering rescheduling its March 16 24- hour strike, the third this year, to next week. The General Confederation of Workers of Greece’s executive met today to decide on new strike and protests. Papandreou’s package includes reductions in spending for education and an increase in value-added taxes, as well as cuts to the bonuses paid to civil servants for holidays and a pension freeze. The measures are due to be voted on tomorrow in parliament, where Papandreou has a 10-seat majority. The GSEVEE federation, which represents small businesses and craftsmen, said the measures are “neither fair nor effective.” “The attempt to fix the fiscal crisis underlines clearly the government’s desire to move the cost of its efforts to the real economy,” Nikos Skorinis , the secretary of GSEVEE, said in an e-mailed statement. To contact the reporter on this story: Maria Petrakis in Athens at mpetrakis@bloomberg.net

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Greek Workers Occupy Finance Ministry, Block Streets in Challenge to Cuts

March 4, 2010

By Maria Petrakis March 4 (Bloomberg) — Greek demonstrators took over the Finance Ministry building in central Athens and blocked streets in the city center as union groups stepped up protests against government wage cuts and tax increases to curb the deficit. About 200 members of the PAME union group, aligned with the Communist Party of Greece, were at the ministry today and protesters also took over the nearby General Accounting Office, according to a police spokeswoman. Another group blocked a central road in downtown Athens, snarling traffic. Greek Prime Minister George Papandreou yesterday unveiled 4.8 billion euros ($6.6 billion) of additional deficit cuts as he tries to convince European allies and investors he can tame the region’s biggest budget gap. European Union officials praised the moves and Greek bonds gained on the measures, which include a 30 percent cut to three bonus-salary payments to civil servants. “The measures are grossly unfair,” Dimitris Bratis, the president of the Greek teaching federation , which will strike for 24 hours tomorrow, told NET TV today. “We’re being asked to pay for the crisis. Greek taxpayers are being asked to foot the bill again.” The main union for public workers, ADEDY, called a three- hour work stoppage for tomorrow and a protest rally in the city center, that the country’s private-section union group, representing 2 million Greek workers , will also join, according to spokesman Stathis Anestis. ‘Rise Up’ The Finance Ministry building was draped with a banner urging Greeks to “rise up” against the budget measures and protesters on the roof of the building exhorted passersby to join a protest march by PAME scheduled for later today. Last week, the same group blockaded the Athens stock exchange headquarters, preventing staff from entering the building. ADEDY said it is considering rescheduling its March 16 24- hour strike, the third this year, to next week. GSEE’s executive met today to decide on new strike and protests. Papandreou’s package announced yesterday includes cuts in spending for education and an increase in value-added taxes, as well as to the bonuses paid to civil servants for holidays and a pension freeze. The package of measures is due to be voted on tomorrow in parliament, where Papandreou has a 10-seat majority. The GSEVEE federation, which represents small businesses and craftsmen, said the measures were “neither fair, nor effective.” “The attempt to fix the fiscal crisis underlines clearly the government’s attempt to move the cost of this attempt to the real economy,” Nikos Skorinis, the secretary of GSEVEE said in an e-mailed statement. To contact the reporters on this story: Maria Petrakis in Athens at mpetrakis@bloomberg.net

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Greece Starts 10-Year Bond Sale as Protests Mount Against Austerity Plan

March 4, 2010

By Caroline Hyde and Tony Czuczka March 4 (Bloomberg) — Greece began selling 10-year bonds as protesters in Athens stormed the finance ministry and blocked roads after Prime Minister George Papandreou pledged to reduce Europe’s largest budget deficit by cutting wages and spending. Greek bonds fell after a banker involved in the sale said the securities would yield about 310 basis points over the benchmark mid-swap rate, which equates to a yield of 6.47 percent. The government hired Barclays Capital, HSBC, Nomura, National Bank of Greece and Piraeus Bank SA, the banker said. German Chancellor Angela Merkel snubbed Greek Prime Minister George Papandreou ’s bid for assistance after he announced his third package of deficit cuts this year, saying a meeting in Berlin tomorrow won’t be “about aid commitments.” Her finance minister, Wolfgang Schaeuble , said the measures were probably enough to convince investors to buy Greek debt. While Papandreou is risking a backlash at home to meet European Union demands for more cuts, Merkel is facing domestic opposition to tapping taxpayers to extend a financial lifeline to Greece. “There would be no understanding in Germany for bailing out Greece,” Henrik Enderlein, a political economist at the Hertie School of Governance in Berlin, said by phone. “It’s a bit of catch-22 situation: if you give in to Greece and you put 5 billion or perhaps even 10 billion into some kind of rescue package or into some guarantees, then the German government would look irresponsible. However, if it doesn’t, then European Union leaders might put a lot of pressure on Merkel and say, look, we have to bail out Greece.” Premium Widens The premium investors demand to buy Greek government debt over comparable German bonds, the European benchmark, rose 6 basis points to 2.92 percentage points at 10:06 a.m. in London after yesterday’s 19 basis point drop. The government wants to avoid a repeat of its sale of five- year notes in January, when the debt tumbled on the first day of trading. Greece faces more than 20 billion euros in debt redemptions in April and May. The EU is devising a plan to grant Greece about 25 billion euros in emergency aid should the need arise, German lawmakers have said, enough to cover the maturing debt. One option could involve using state-owned lenders such as Germany’s KfW Group to buy its bonds. Athens Protests In Athens, about 200 members of the PAME union, aligned with the Communist Party, were reported at the finance ministry and protesters also took over the nearby General Accounting Office, according to a police spokeswoman. Another group blocked a central road, snarling traffic. The demonstrations followed the Cabinet’s backing yesterday of 4.8 billion euros ($6.6 billion) of cuts and Papandreou’s statement that Greece was prepared to turn to the International Monetary Fund as a last resort. “We have fulfilled to the utmost all that we must from our side; now it’s Europe’s turn,” Papandreou told his ministers yesterday, according to an e-mailed transcript. “It is a historic moment for the European Union.” Papandreou’s Cabinet endorsed a package of revenue-raising and budget-cutting steps, including higher fuel, tobacco and sales taxes and a cut of 30 percent in three bonus payments to civil servants on top of a wage and benefits freeze. The measures are “convincing,” the European Central Bank said in a statement. The ECB appreciates the Greek government’s recognition of the need to “rapidly adopt and implement decisive structural reforms.” ‘Coordinated Action’ For now, European governments have not stepped up since a statement at a Feb. 11 EU summit promised “determined and coordinated action” to support Greece. “There’s no need for such a thing at this point in time,” French Finance Minister Christine Lagarde said late yesterday on Sky television. “If it was required, the partners in the club would be available to restore stability.” After meeting Merkel in Berlin, the Greek leader is due in Paris two days later for talks with French President Nicolas Sarkozy . Merkel’s comments were the clearest signal yet that Germany isn’t convinced. “I expressly want to say that Friday isn’t about aid commitments, but about good relations between Germany and Greece,” Merkel said yesterday in an interview with N-TV, according to a transcript provided by her office. Greece’s steps are “an important signal” toward restoring confidence in the euro. Papandreou Package Greece has pledged to trim a deficit of 12.7 percent of gross domestic product to 8.7 percent this year. Concern that Greece won’t be able to tame the shortfall saw the euro lose almost 5 percent against the dollar this year. Greece has blamed market speculators for fueling the decline in its securities. European officials have warned hedge funds that they shouldn’t try to profit from the woes of the region’s nations. U.S. authorities have told some hedge funds not to destroy trading records on euro bets, according to a person with knowledge of the requests. Banks and regulators across Europe were summoned by the European Commission to discuss regulation of the market for sovereign credit-default swaps in the wake of the Greek debt crisis. To contact the reporters on this story: Caroline Hyde in London at chyde3@bloomberg.net ; Tony Czuczka in Berlin at aczuczka@bloomberg.net

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