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Diane Francis: Japan and Libya Mark Canada’s Energy Victory

March 21, 2011

Japan’s nuclear catastrophe, and the UN Security Council’s support for Libyan people against Muammar Gaddafi, have financial implications well beyond market volatility. The Japanese “brand”, based on brilliant planning and execution, has been permanently tarnished. First it was Toyota’s colossal recalls and now the world discovers that six reactors were built in an earthquake zone, subject to tsunamis, without sufficient fortifications or back-ups to back-ups. Instead, the repair job has become a Kamikaze-like effort by several dozen middle-aged volunteers whose failure will take the world into uncharted territory. This fiasco guarantees that the nuclear option, to replace fossil fuels and save the world from the effects of over-population, is about as attractive as having Colonel Gaddafi drop by for dinner. This increases dramatically the probability that two Canadian pipeline projects, and others, will be invited to dinner: The Keystone Pipeline expansion bringing oil sands output to US refineries and the Mackenzie Valley Gas Pipeline will proceed. The US government has been dithering about Keystone’s environmental impact (they already have 50,000 miles of pipelines there) and the Canadian government has dithered for decades about Mackenzie, mostly recently over a request to back a small portion of the line so aboriginals can own a piece of the action. Both governments must approve these lines. In the US, this is because, without construction of new nuclear facilities, the country will need more oil and Middle East volatility means that region is undesirable as a supplier. So Canada’s oil sands are essential. Tellingly, USA Today editorialized in favor of Canada’s “dirty” oil. “The Keystone expansion would provide an extra 500,000 barrels of oil a day from a secure ally and neighbor, enabling the US to offset declining supplies from Mexico and Venezuela and avoid having to reach out to less-stable oil exporters. At a time of rising gasoline prices and turmoil in the Middle East, the US is in no position to be finicky about its oil imports,” said the newspaper. “And here’s something else to consider: If the US blocks the pipeline, Canadian developers have made it clear they’ll be glad to build west instead of south — and sell oil from the West Coast to China.” The Mackenzie Pipeline will, and should, proceed because increasing oil sands production (which needs natural gas), removal of the nuclear option in Canada and commitments to take coal plants out of service by 2025 will require four times more natural gas than it can bring to markets. According to Ziff Energy, a leading energy consultancy, the Mackenzie, Alaska gas pipeline, producible shale gas and conventional gas deposits would all be needed and viable in future. For instance, Ziff said that Canadian conventional gas reserves are declining by up to 20% per year, which requires the replacement of up to 4 billion cubic feet per day of new supplies. That’s equivalent to the total production from three Mackenzie Valley Pipelines. Decline rates are similar south of the border and will require at least ten times’ more gas. Power generation is also starting to switch from coal or oil to natural gas for environmental reasons. In June 2010, this was mandated in a Canadian Federal Government policy which will phase out 33 inefficient coal-fired plants in Canada whose economic life will end by 2025. Their licenses will not be renewed unless their emissions are reduced dramatically to the same level as gas-fired plants. The amount of gas needed to replace these 33 dirty coal plants totals 1.2 billion cubic feet per day, or the entire annual output of the Mackenzie Valley Pipeline. Fossil fuels brings me to the democratization of the Arab world and this week’s Libya support in the United Nations. Ten countries voted in favor of a resolution to crush him some time soon by any method necessary, while the other five — China, India, Russia, Brazil and Germany — were smart enough to simply abstain and get out of the way. This vote was historically significant for two reasons: It was backed by broad-based support for democracy and against tyrants and, secondly, it marked a stepping down by the United States from the role of superpower which, frankly, it cannot any longer afford financially or reputationally. The fact is that President Obama is delivering on his promises to take the training wheels off Iraq’s fragile democracy and to be multilateral and let others do the heavy lifting. As an American taxpayer, and a Canadian one, I applaud his behind-the-scenes community activist role in letting if not encouraging the French, of all nations, to take the lead in the Libya initiative, followed by the British, Arab League and African Union. It’s also a sign of fiscal prudence on the part of Washington which is good news for Americans and Canadians alike. Cross-posted in the Financial Post .

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Ex-Goldman Progammer Gets Big Sentence For Stealing Codes

March 19, 2011

(Reuters) – A former Goldman Sachs Group Inc (GS.N) computer programmer was sentenced to eight years in prison on Friday for stealing secret code used in the Wall Street bank’s valuable high-frequency trading system. Sergey Aleynikov, was arrested by the FBI and charged in July 2009 with copying and removing trading code from Goldman before taking a new job at Teza Technologies LLC, a high-frequency trading startup firm in Chicago. A onetime collegiate-level competitive ballroom dancer, Aleynikov, 41, was convicted of trade secrets theft and transporting stolen property across state lines on December 10 after a two-week long jury trial in Manhattan federal court. High-frequency, computer-driven trading has become an important and competitive business. The software codes that trade shares in milliseconds are closely guarded secrets. “I very much regret the foolish thing of downloading information,” the Russian-born father of three said at his sentencing on Friday. “Part of this information was proprietary to Goldman. I never meant to cause Goldman any harm or harm anyone at the bank.” Aleynikov’s words fell short of U.S. District Judge Denise Cote’s hopes for “an open and honest statement of responsibility” for his criminal conduct. “You did not do that,” said Cote, imposing a sentence of 97 months that was within the eight to 10 years recommended by the government. Cote also fined him $12,500. Aleynikov’s lawyer, Kevin Marino, had originally asked for a sentence of probation but in court on Friday he suggested two years was adequate for what he called Aleynikov’s “foolish, tragic, horrible, ridiculous mistake.” Aleynikov has the right to appeal the sentence. His defense lawyers have argued that the matter belonged in civil, not criminal court. U.S. prosecutor Joseph Facciponti said the stolen code was Aleynikov’s “golden ticket” to Teza and “he stood to make millions more” there than he did at the bank. Facciponti said Aleynikov spent several months planning his move, eventually transferring 500,000 lines of Goldman Sachs source code to an outside server. Cote had revoked the bail of Aleynikov, a dual citizen of the United States and Russia, on the grounds that there was a risk of him fleeing before sentencing. Throughout the trial and sentencing phase, many comparisons were made with a similar case in the same courthouse against a former Societe Generale (SOGN.PA) trader, Samarth Agrawal. The citizen of India was found guilty by a jury last November of stealing high-frequency trading code from the French bank before going to a new job. On February 28, a judge sentenced him to three years in prison and he will be deported when he completes his sentence. The case is USA v Aleynikov, U.S. District Court for the Southern District of New York, No. 10-00096. (Reporting by Grant McCool; Editing by Tim Dobbyn) Copyright 2011 Thomson Reuters. Click for Restrictions .

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Air France Faces Manslaughter Charges For 2009 Crash

March 18, 2011

PARIS — A French judge filed preliminary charges Friday against Air France over a 2009 crash that killed all 228 people aboard a jet that plunged into the Atlantic Ocean. Air France CEO Pierre-Henri Gourgeon said the decision is “unfounded.” Judge Sylvie Zimmerman filed the preliminary charges Friday, a day after doing the same against Airbus, the maker of the doomed jet. Preliminary charges allow investigating judges to continue their probe before deciding whether to send the case to trial. Air France Flight 447 dived into the Atlantic on June 1, 2009, amid an intense, high-altitude thunderstorm while flying from Rio de Janeiro to Paris. The cause of the crash remains unclear, and may never be determined without the “black box” flight recorders, somewhere in the ocean depths. A fourth search operation aimed at looking for them starts next week. Automatic messages sent by the Airbus 330 jet’s computers show it was receiving false air speed readings from sensors known as pitot tubes. Investigators have said the crash was likely caused by a series of problems, and not just sensor error. “We are protesting this,” Gourgeon told reporters at the courthouse. “It seems to us that it is unfounded.” Air France and Airbus will finance the estimated $12.5 million cost of the new search effort, in which three advanced underwater robots will scour the mountainous ocean floor between Brazil and western Africa, in depths of up to 4,000 meters (13,120 feet).

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Nicholas Carroll: Making the Case Against Mortgage Banksters: Legalities

March 3, 2011

Federal prosecutors have trotted out three reasons why they aren’t prosecuting mortgage banksters: difficulty gathering evidence, the cases are too complex for a jury, and it’s too hard to prove intent. No lawyer I’ve spoken to agrees. Nor do I. This is an analysis of why the criminal cases can be made. The first two excuses are summed up in Shahien Nasiripour’s article of 2/4/2011 , which quotes former SEC enforcer Stanley Sporkin: They’re handicapped by the fact that they’re looking at potential violations not while they’re in the act, but long after they were committed. And they deal with complicated transactions that could be difficult to explain to juries, rendering their efforts to take cases to trial more challenging. “These are tremendously difficult cases to make,” said retired federal judge Stanley Sporkin, who worked at the SEC for 20 years, seven of them as head of the commission’s enforcement division. Momentarily shelving the fact that Sporkin himself successfully made many prosecutions during his SEC years, let’s look at the issue of complexity first. In the 1980-90s savings and loan failures over 1,000 executives were convicted of felonies , all based on jury presentations assembled by prosecutors. Today the groundwork is done, because the WWW provides a ready source of explanations that a jury can readily understand – there are numerous videos on YouTube explaining mortgage fraud at an 8th-grade level, easily found by searching “CDOs explained” or “CDSs explained.” For juries that prefer print, this excerpt from The Looting of America by Les Leopold clearly and simply explains that “tranche” is a French word meaning “a slice [of a pie, cake, quiche – or mortgage].” With the French translated, the web page quickly makes the mortgage-slicing shell game transparent with a three-tier graphic of wine glasses, showing the banksters’ glasses brimming over in the top tranche, while the suckers wait in vain for the spillover at the bottom tranche. As to the second difficulty in prosecuting, gathering evidence on stale crimes: this is part of policing. That’s why police departments have detectives – because not everyone conveniently robs the 7-11 just as the beat cop stops for a cup of coffee. It’s called “legwork.” In this the WWW helps again, since many white-collar criminals don’t seem to fully understand that an email is like a postcard, readable by anyone who lays hands on it – and erase it though they may from their hard drives, copies are lurking in Internet mail servers all over the U.S. – including “anonymous” Hotmail accounts. The careless ones certainly don’t follow former Louisiana Governor Earl Long’s rules, “Don’t write anything you can phone. Don’t phone anything you can talk. Don’t talk anything you can whisper. Don’t whisper anything you can smile. Don’t smile anything you can nod. Don’t nod anything you can wink.” Earl Long would not have used email much, and anyone who sends email that does more than wink is riding for a fall. (Other banksters are careful in email, and criminal cases against them may fail on either facts or intent.) On the third difficulty, intent, both prosecutors and media have been wringing their hands about the failed DOJ case against Bear Stearns hedge fund managers Ralph Cioffi and Matthew Tannin, with a sort of vague prophecy that this hamstrings prosecuting financial cases. However, if the prosecution had gotten a conviction, the case still would not have been on point (a good legal precedent) for the mortgage meltdown fraud. This was two hedge fund managers acting like excitable day traders – or typical hedge fund managers – alternately gloating and panicking about market fluctuations that were largely beyond their influence. That they may have concealed all their misgivings from their clients would simply make them stock hypesters on a grand scale. By contrast the mortgage meltdown involved planned, controlled, systemic fraud by a huge number of perpetrators at many levels in the chain of fraud, some actively making bad loans under fraudulent circumstances, others packaging and selling those toxic loans as prime investments. This constitutes a pattern of abuses on the part of both individual participants and companies. (The felony of conspiracy to commit fraud may be harder to prove, because in an industry like real estate, loosening lending standards to the point of insanity was message enough. Wall Street and Fannie Mae didn’t have to tell the brokers and other local lenders in the fraud chain to run amok – they would have done that on their own just to get the mortgage commissions.) This brings us back to Sporkin, who in Nasiripour’s article was cited again, Sporkin’s team, he said, looked for laws that enabled them to go after what they viewed as fraudulent activity. This sounds like what was described as “creative prosecution” in the Department of Justice by the 1980s, but by any name has been going on a long time. Long before RICO racketeering laws allowed prosecutors to cast a broad net for patterns of behavior, in a pinch they would call on good old crimes like tax evasion, which was used to put away gangster Al Capone when he couldn’t be nailed for his main businesses of bootlegging and prostitution. Is creative prosecution ethical? Often it’s not, particularly when used to destroy political enemies by the spaghetti theory, throwing a lot of charges at the defendant and hoping something sticks. In this case, however, there is not much doubt about the massive criminality of the mortgage banksters. That said, it appears that Federal prosecutors intend to do little, simply cutting deals with the banksters for fines. A plea requiring no admission of guilt, a few million dollars in easily-affordable in fines, and the banksters walk – not the perp walk, but on to their next crime. Part 2 will look at how state Attorneys General offices can deliver some genuine punishment to the criminals. Legal annotations to this article.

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Lynn Parramore: Crank Up the Casino! Hedge Funds to Short American States and Cities

February 9, 2011

Today, Washington’s lawmakers began hearings on the massive fiscal problems the Great Recession dumped on American states and cities. The looming possibility of municipal defaults, which some say could total hundreds of billions of dollars, is causing grave concern. Hedge funds are also deeply concerned about America’s municipal debt crisis. They worry about how to best profit from it. The Wizards of Wall Street have looked over the catastrophe of cash-strapped America and found it good for business. In their corporate laboratories, they are working furiously to whip up wondrous new financial products that will allow them to reap millions from misery. You might think that after plunging the country into said Recession with their fancy financial products, these Wizards might feel a little indelicate about gearing up for a game of shorting a community near you. Clearly you don’t know Wall Street. The Financial Times reports that once-boring muni bonds are suddenly sexy: For decades, this $3,000bn bond market was safe, predictable and dull. The traditional buyers of the bonds issued by states, cities and other local bodies were wealthy local residents lured to them by the tax breaks on offer for individual investors. They bought the bonds, held them until they matured and then bought more. Not now. State deficits have ballooned, local authorities are grappling with huge public sector pension liabilities and triple A bond insurance that used to prop up even the riskier municipal bonds is harder to find. The mounting concern over “munis” has brought with it hedge funds and financial institutions who want to bet on the bonds’ creditworthiness, or make money on the back of volatile “spreads” — the premiums at which munis trade relative to benchmark debt. So much suffering. So many ways to squeeze money from it. The FT quotes the head of municipals at Arbor Research and Trading, who sums up the current hedge fund frenzy building: “There is a lot of blood in the water in the municipal space. Hedge funds smell that blood and are trying to figure out the best way to make money in the marketplace.” What the Wizards have to do is figure out how to take short positions that will soar in value as the creditworthiness of munis fall into the crapper. And it’s to credit default swaps — those “innovative” financial products that helped bring you the financial crisis — that the hedge hogs are turning. Credit default swaps are like insurance. Except that unlike insurance, which you can only buy on assets you really own, you can buy these goodies on your neighbor’s house, too. The moral hazard problems of this sort of nonsense are well known, which is why Wall Street fought so hard to make sure credit default swaps were not regulated like insurance. Once upon a time, as my colleague Tom Ferguson explained to me, English insurers discovered that scoundrels would buy insurance on ships they didn’t own and then leak voyage details to the French navy, so they could collect. Guess who sells most municipal bonds? Many of the same people who’ll be betting on their failure now. See a problem here? If you don’t own the underlying asset, then credit default swaps are simply gambling. So what we are talking about is an extension of casinos to every state and city in America. The European Union is finally moving on these vultures. But not us, it seems. The perversity of gorging on suffering never seems to bother the American financial sector. JPMorgan feeds on our hunger with its lucrative food stamp card business. And AIG gets into the game of letting strangers bet on your life. Why shouldn’t hedge funds make a little extra dough from the collapse of your hometown? Cross-posted from New Deal 2.0 .

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ABN Newswire Announces New French, Thai and Portuguese Press Release Publishing Partnerships for Public Companies Seeking Investors

February 6, 2011

ABN Newswire Announces New French, Thai and Portuguese Press Release Publishing Partnerships for Public Companies Seeking Investors

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Nancy F. Koehn: Davos Diary: Day Three

January 28, 2011

The day dawned clear and cold in Davos, but most participants in the World Economic Forum here had little bandwidth for the weather. Typically, Thursday and Friday are the days when some of the most powerful leaders come to town. This means larger entourages (and bigger traffic jams to accommodate convoys), higher energy levels in the Congress Center, the Forum’s main hall, and greater attention to who’s who in formal sessions and those behind closed doors (I, for one, could not help staring when former U.S. president Bill Clinton walked by as I was standing at one of the two coffee bars). During the lunch break, the substantive buzz was about French president Nicolas Sarkozy’s morning address and his unflagging support for the European single currency in the wake of Greece and Ireland’s pressing fiscal problems and broader mass protests. Over a cheese sandwich, I eavesdropped on an animated conversation about how important it was (or was not) for Sarkozy to send such a signal at this moment. I left this debate midstream to scurry on to an interactive session on Shakespeare’s lessons for leadership. For more than an hour, about 50 men and women analyzed several passages in the Bard’s plays, looking for insights and assorted “takeaways” to apply in our respective lives. The arts, our discussion leader explained, appeal to the heart as well as the head, so the lessons we glean from understanding literature and other similar pursuits stick (“Here, here,” I said under my breath, relieved to find myself in a professional setting without PowerPoint slides). I have long been drawn to Shakespeare’s stories, particularly the characters that shape and drive these stories. In my leadership work with MBA students and executives, I often use examples from Shakespeare, finding that these instances resonate with most people. As our discussion leader said, we “learn best from stories.” The conversation in the afternoon about three Shakespeare excerpts had a number of takeaways. The passage from Hamlet , for example, in which Polonius, a courtier in Hamlet’s uncle’s court, sends his son, Laertes, off to school in France, is full of important lessons for business and life, including: listen more than you speak; make friends carefully and keep those you have close; be careful with your personal finances; dress well, but do not be flashy; and perhaps most significant, “to thine own self be true.” A second excerpt, from Julius Caesar , between two angry Roman leaders, Brutus and Cassius, dealt with conflict management. Avoid getting personal in stressful encounters, don’t assume another person’s motivations, and be mindful of outside influences were several of the insights from this dramatic exchange. The final, and most famous excerpt, was the St. Crispin’s Day speech that Henry V delivers near the end of the play named after him. The short speech, intended to rally the English king’s troops before the Battle of Agincourt, is elegant and moving. Behind the power and unforgettable language are a number of lessons for those trying to motivate others in difficult situations: appealing to a worthy mission that is bigger than any one individual, instilling pride in colleagues and comrades, bringing the future into the present to help others understand the broader impact of what they are doing, offering one’s team a choice about whether to invest in a particular undertaking, and fostering a sense of collective enterprise. I left the session engaged and heartened, not only by what I had learned from the session but by how I had learned it. Late in the afternoon, I filed into the largest auditorium in the Congress Hall to hear a conversation between Bill Clinton and Klaus Schwab, the founder and executive chairman of the World Economic Forum. For 45 minutes, Clinton answered a range of questions about Haiti, the global economy, job creation, U.S. politics, and the shifting geopolitical order. He looked thinner–by some measure–than he has and as a result perhaps a bit less robust. But his answers were thoughtful, confident without being arrogant, and consistently supported by relevant facts. At several moments during his remarks, I marveled at his speed and breadth of thinking, all powered by great engagement. Unconstrained by the limits imposed on officeholders, Clinton talked about the mistakes the Democratic Party made in the midterm elections by not offering up another narrative to that told (relentlessly) by the political right. When asked for his advice to leaders, he said individuals should not just talk about particular challenges; they should go out and do something, no matter how small, about these challenges. The world, he continued, is “so hungry for examples of things that work.” I was most struck by Clinton’s implicit call for a revised version of capitalism, one that accounted for the interconnectedness of our global village, that no longer regarded aspects of economic activity such as environmental concerns as externalities but rather as critical parts of a viable business model, and that recognized a broader breadth of stakeholders than do older, narrower conceptions of free markets. Late in the evening, a friend in Boston sent me a text message about a small explosion here in a Davos hotel. It was the first I had heard of this although the blast, which happened in an underground storage area of the Morosani Posthotel, occurred about 9 a.m. Blessedly, no one was injured, and authorities are saying little about causes or circumstances. Security will no doubt be very tight for the remainder of this gathering. Yesterday, U.S. Secretary of the Treasury Timothy Geithner is speaking in the morning. And in the afternoon–in what was the Forum highlight for me–so did Bono. Coming up: Stay tuned for my World Economic Forum recap on Monday and keep following my tweets live from the event.

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Lower French unemployment expected in 2011

January 28, 2011

Lower French unemployment expected in 2011

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Despite tepid growth, French 2010 consumption remains resistant

January 25, 2011

Despite tepid growth, French 2010 consumption remains resistant

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‘Global Burnout Syndrome’ May Hurt Recovery, Official Warns

January 20, 2011

GENEVA (By Jonathan Lynn) – The world is suffering from “global burnout syndrome” and is too weak to tackle the web of interrelated threats facing businesses and governments, the head of the World Economic Forum said on Wednesday. Klaus Schwab, who chairs the WEF that organizes the annual meeting of executives and politicians at Davos, said the world had not yet fully digested the crisis that emerged from the financial crunch, and was not yet in post-crisis phase. “We have to be careful that this crisis does not become a social crisis — which it has in some countries,” the German business studies professor told a media conference on the gathering at the Swiss resort from January 26 to January 30. “We have in the world a situation where the political system and the institutions are just overwhelmed by the complexity which they have to face,” he said. The Davos meeting, protected by beefed-up Swiss security which includes the closing of local airspace, is the world’s top networking event, allowing bankers and CEOs to rub shoulders with presidents and prime ministers, and to cut deals. But the uneven economic recovery makes it a particularly challenging time to be meeting, with emerging economies rebounding but rich countries still struggling. In the rich world social tension is rising as governments bring in austerity measures to pay off debt or postpone hard decisions on borrowing, while companies return to profitability and banks resume controversial bonus payments. Global forecasting and analysis group IHS says a restructuring of eurozone sovereign debt is inevitable and while it is unlikely that fringe countries will drop out of the euro, financial markets could force the next phase of crisis management as early as this year. “This will very likely include a debt restructuring plan, with ‘haircuts’ for investors and further aid for the European banks holding much of this debt,” IHS Chief Economist Nariman Behravesh said in a briefing for the Davos forum. COMBINATION OF RISK, FAILURE OF GOVERNANCE In a report last week, the WEF identified three interrelated nexuses of risks — economic, such as fiscal, trade and currency problems; raw materials, particularly the impact of rising energy costs and dwindling water supplies on food prices; and illegal trade, corruption and failed states. “It’s not just risks in isolation, it’s the combination of risks that can be so dangerous,” said WEF Chief Business Officer Robert Greenhill. Rising economic disparity and social tension nationally and the increasing inability of the global community to tackle problems proactively exacerbates these threats. “It’s that failure of global governance… which is perhaps the greatest risk of all,” Greenhill said. Glitz and hype surround the meeting in Davos, an upmarket ski resort made famous by German novelist Thomas Mann in his novel “The Magic Mountain” written at a time when it was better known for its sanitoriums for wealthy tuberculosis sufferers. But the organizers do not claim it can actually solve the problems it discusses — although anti-capitalist campaigners denounce it as a plutocratic cabal plotting global domination. “The World Economic Forum is not a decision-making body. It fosters dialogue, it fosters understanding,” Schwab said. But Greenhill said it will try to help with the complex of threats by launching a “global risk response network” bringing together company risk officers and government policy-makers. As usual the WEF will wheel out several global leaders among its 2,500 participants. The chair of the G20, French President Nicolas Sarkozy, addresses the forum on Thursday, January 27. Among 25 government heads expected are German Chancellor Angela Merkel and Russian President Dmitry Medvedev, who opens the forum on Wednesday, January 26. Medvedev, a keen user of the micro-blogging site Twitter, will take questions from the public via “crowdsourcing” on www.wef.ch/askdmitrimedvedev. The cast list also features eight central bankers, including European Central Bank President Jean-Claude Trichet, who will also take part in an open session accessible to the public, and 14 labor leaders and more than 1,400 CEOs and other business chiefs — 400 of whom will be using Twitter as “CEO reporters.” Davos’s reputation in the past was made by several high-profile diplomatic meetings on the sidelines. This year, seven key trade ministers hosted by the European Union will meet on Friday, January 28, as part of renewed efforts to conclude the nine-year-old Doha round to free up world trade — itself one of the biggest failures of global governance. For full coverage, blogs and TV from Davos go to www.reuters.com/davos (Editing by Louise Ireland) Copyright 2010 Thomson Reuters. Click for Restrictions .

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Georges Ugeux: The European crisis was predictable and is salutary for the Euro

January 12, 2011

Until the Euro was put in place, Europe was living through regular competitive devaluations: the same countries who are in trouble today were adjusting their economic imbalances by lowering the value of their currency. They included the French Franc, the Spanish Peseta, the Italian lira and the Portugueses Escudo. It was called “competitive devaluations” and infuriated their European business partners. Furthermore it was creating intra European uncertainties on the values of their imports and exports from their neighboring countries. It was therefore essential to create a monetary zone that would get rid of those currency uncertainties. Hence the European Monetary Union followed by the creation of a full monetary zone with a single currency and a single central bank. For those of us who participated in the development of this thirty-year process, the Euro was clearly depriving the countries of the Eurozone from that adjustment mechanism: the exchange rates. It was not only a consequence, but the purpose of the Euro. It was deemed to be the engine of the indispensible economic convergence between European countries to strengthen the Member States economies, and Europe as a whole. To ensure that economic convergence would be applied, a Financial Stability Pact was enshrined that included sanctions and corrective measures for those countries that were diverging. That was essential, had it been implemented. Unfortunately the corrective mechanisms had to be decided at the political level, and were never applied. Several crises resulted in successions of complacencies, lack of courage and…complete disrespect of the Stability Pact. All the countries of the Eurozone bear the responsibility for this derailing of the Eurozone. The reasons for that are triple: first, the usual lack of political courage (the traditionally missing ingredient in European politics). Second, the “Maastricht criteria” themselves were wrong. Rather than using sliding ratios over a period of three of five years, the annual criteria were leading to lack of decisions: it is indeed inept to expect every single Eurozone country to respect every single year the Maastricht criteria. The financial crisis washed those criteria all together. Third, the European statistical agency (Maastricht criteria) had no investigative powers to ensure that the numbers communicated by the members were actually correct. Greece was the most notorious cheater, but Italy was not far behind. The economic divergence was therefore reflected in the only variable that remained free: interest rates. As countries were gradually taking liberties from fiscal discipline, the debt of the least compliant country started to bear higher interests; the market was not prepared to take Greek bonds with the same yield as Germany. As the situation deteriorated, the spread widened: today, Greece’s 10-year yields are five times higher than Germany’s. This crisis, as innerving as it seems to be, is in fact salutary: it was time that the Eurozone members realize that the Euro is a privilege, but that they have to act responsibly and that the Eurozone as a whole is bound by solidarity and accountability. This “discovery” took one year to translate into action, mostly because Germany could not come to grips that they actually had signed up for a system that was giving the benefits of the Euro and the absence of competitive devaluations at a cost: they are responsible for the health of the entire Euro area. The Eurozone will never be the same again: this crisis has been a live demonstration of what a common currency is. It is the challenge of the European authorities to strengthen their solidarity and provide with serious preventive mechanisms. Nobody can ignore, any more, what they signed up when they joined the Euro. The Euro will remain, but Member States will need to adopt converging fiscal discipline and economic and social policies. It won’t happen overnight, but it is salutary for Europe and for the world. US investors would be wrong, as they have been in the past, to assume that the Euro is a structurally week currency and that European companies are structurally underperforming. The “shorters” might be unpleasantly surprised.

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Top Venture Capitalist To Head Ohio Jobs Panel — For $1 Salary

January 7, 2011

COLUMBUS, Ohio — Gov.-elect John Kasich chose a prominent Silicon Valley venture capitalist Friday to launch his new private economic development effort – and the high-paid executive has agreed to do the job for a dollar. Mark Kvamme, a partner at Sequoia Capital in Menlo Park, Calif., will serve as interim state development director, Kasich said during an event at Ohio State University’s Fisher College of Business. Kasich announced during his successful 2010 campaign against Democratic Gov. Ted Strickland last year that he would create the private, nonprofit JobsOhio board to oversee state economic development efforts. Kasich, a Republican former congressman, Fox News commentator and Lehman Brothers managing director, succeeds Strickland on Monday. The new governor envisions replacing the Ohio Department of Development with a 12-member board that would include executives, industry experts and entrepreneurs appointed by the governor. He has said not all the agency’s more than 400 employees would lose their jobs. Kvamme said about some employees would move to JobsOhio, while others will go to other state agencies. “And some won’t go anywhere,” Kasich added. “The simple fact of the matter is is that if people don’t do their job, they’re not going to be there. And we also at the same time want to have our own team.” Kvamme said Indiana has a similar hybrid model. Kvamme will serve as interim director of the Development Department during the process, probably for about six months. Under the JobsOhio plan, the department would lose its role as lead economic development agency of the state once the new board is in place. In an interview with The Columbus Dispatch, Kasich said he expects Kvamme to land a seat on the board after the transition. “The Silicon Valley is coming to Ohio,” Kasich said Friday. “He will lift our game.” Kvamme and Kasich are longtime friends. The two worked together when Kasich was at Lehman Brothers, but they met in Washington, D.C., the governor-elect said. Kasich said Kvamme’s job will include sorting out tax incentive and job creation programs and determining which are most effective. Some of the department’s current programs, such as weatherization, will be moved to other agencies, Kasich said. Kvamme acknowledged at the news conference that he knows very little about public policy, but said he looks forward to learning that aspect of the job quickly. Details of the transition to the JobsOhio model will need to be approved by the Republican-led Legislature. Kvamme joined Sequoia Capital in 1999, according to the Board of Directors biographies on social-networking site LinkedIn. He was chairman of USWeb/CKS and chairman and CEO of CKS Group before the merger with USWeb. Earlier in his career, he served as a director of international marketing for Wyse Technology and as president and CEO of International Solutions. He was also a founding member of Apple France. Kvamme has a bachelor’s degree in French economics and literature from the University of California at Berkeley.

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Nataly Kelly: Lady Gaga Sings the Language of Global Marketing

December 8, 2010

Lady Gaga, who was recently crowned CNN’s most provocative entertainment icon of 2010, is well-known for her creative costumes and performances. Now, she’s planning to mix things up from a language perspective. According to Lady Gaga’s promoter, Ralph Simon, her forthcoming album in May 2011 may include one song in Russian. The international music phenomenon has also been discussing plans to release tunes in Hindi, Mandarin, Portuguese, and Spanish. Releasing international hits is a savvy business move, one that many music super-stars have practiced long before her. Back in 1988, Sting released a version of his album “Nothing Like the Sun” which included songs in Portuguese and Spanish. In 1995, Madonna’s Spanish-language version of her hit, “You’ll See” (“Verás”) was a hit on the Billboard Hot Latin Songs. What Sting and Madonna did decades ago — making their music available to potential fans in more languages — was a smart move. In today’s highly globalized and digital world, adopting a multilingual approach not only makes sense, but will help Gaga optimize the potential of the world wide web to deliver more relevant content to her global fan base. Which languages should Lady Gaga pick? Earlier this year, we published a study that revealed the top 57 languages for expanding global brand presence. If Gaga wants to target the 10 most economically significant tongues, she should select Japanese, German, Spanish, French, Mandarin, Italian, Dutch, Portuguese, Korean, and Arabic. Russian comes in at #11 on our list, but is growing in importance. Hindi is much further down the list of languages of global importance on the web. But in the music industry in general, Hindi could be a very smart move, as it could help Lady Gaga ease into the enormous — and potentially lucrative — Bollywood music scene. However, songs might not be enough to achieve global music dominance. If Lady Gaga wants to effectively crack the global code, she’ll need to do much more, including implementing a multilingual social media strategy. She currently has more than 24 million fans on Facebook, but to truly take her brand global, the Gaga team will need to look at strategies such as the one Anheuser-Busch recently announced to make social media content available in many languages. Lady Gaga is considering what other artists have done for decades — singing in other languages. That alone is not a revelation. Yet, in all other areas of artistic expression, Lady Gaga balances the mainstream with the avant-garde. What’s the linguistic equivalent of the gravity-defying shoes for which she’s known? Instead of just selecting the languages that will help her global brand, she also should choose a less common language to add to her music arsenal. Recording a tune in, say, Tibetan, would not only help her make a statement, but would draw attention to languages and populations that might benefit from the positive publicity. Such a stunt would certainly get people talking — and beyond her music, that’s what Gaga does best.

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Lloyd Chapman: Unemployment Jumps As Obama Continues Giving Small Business Funds to Corporate Giants

December 4, 2010

On Friday, the U.S. Department of Labor announced the national unemployment rate jumped to 9.8 percent in November. The figure marks a seven-month high, and an increase from 9.6 percent in October. Despite consistently high unemployment and a stagnant economy, the Obama Administration continues to allow the diversion of billions of dollars a month in federal small business contracts to large businesses. Small businesses are the backbone of the nation’s economy. According to the U.S. Census Bureau, small businesses are responsible for more than 90 percent of net new jobs , 50.2 percent of the non-farm private sector workforce, 50 percent of the gross domestic product (GDP) and 90 percent of exports and innovations. More than a dozen federal investigations have uncovered the diversion of billions of dollars a month in federal small business contracts to corporate giants. In Report 5-15, the Small Business Administration Office of Inspector General (SBA IG) described the issue as, “One of the most important challenges facing the Small Business Administration and the entire Federal government today.” Despite promising to end the abuse in February of 2008 , the Obama Administration’s most recent contracting data indicates the recipients of federal small business contracts include: Lockheed Martin, Boeing, Raytheon, Northrop Grumman, Dell Computer, British Aerospace (BAE), Rolls-Royce, French giant Thales Communications, Ssangyong Corporation headquartered in South Korea, and the Italian firm Finmeccanica SpA . The American Small Business League (ASBL) estimates that during the Obama Administration over $300 billion in federal contracts earmarked for small businesses have been diverted to corporate giants. This abuse is destroying our economy, and yet the Obama Administration is refusing to take action. It’s irresponsible. Ending the diversion of federal small business contracts to Fortune 500 firms would do more to stimulate the middle class economy, and create jobs than anything President Obama has proposed to date.

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EU Launches Antitrust Probe Into Google Searches

November 30, 2010

BRUSSELS — European Union regulators will investigate whether Google Inc. has abused its dominant position in the online search market – the first major probe into the online giant’s business practices. The move announced Tuesday follows complaints from rival search engines that Google put them at a disadvantage in both its regular and sponsored search results, by listing links to their sites below references to its own services in an attempt to shut them out of the market. The EU Commission will also see whether Google prevented advertising partners from placing ads from competitors on their sites. Competitors allegedly shut out include computer and software vendors, the commission said. If the Commission finds that Google has abused its market position, the company could be fined up to 10 percent of its revenue – that would put it on the line for a $2.4 billion fine based on 2009 earnings figures. The Commission has shown resolve in confronting U.S. corporations and only last year concluded a long-running antitrust case involving Microsoft Corp. that lead to over $1 billion of fines. Three companies – U.K.-based price-comparison site Foundem, French legal search engine ejustice.fr and Microsoft-owned shopping site Ciao – lodged complaints against Google with the commission in February. The investigation does not imply any wrongdoing by Google, which controls about 90 percent of the online search market in Europe, but shows that the antitrust watchdog is taking the complaints seriously enough to launch an in-depth examination of the company’s practices. Google has maintained it is confident that it hasn’t done anything wrong. “Since we started Google we have worked hard to do the right thing by our users and our industry – ensuring that ads are always clearly marked, making it easy for users and advertisers to take their data with them when they switch services, and investing heavily in open source projects,” Google said in an emailed statement. “But there’s always going to be room for improvement, and so we’ll be working with the Commission to address any concerns,” the company said.

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WATCH: How One Entrepreneur Built Her Company Amid Detroit’s Wreckage

November 23, 2010

When Torya Blanchard was a child, she was caught shoplifting from a local store on the eve of a family trip to Paris. Given the timing of the transgression, her immediate grounding was all the more painful. Only good girls get to go to Paris , her mother told her. Crushed, Torya quickly cleaned up her act, but never forgot Paris. As an adult, she took a job at a Detroit public school where she taught French for five years until her passion for Paris and its cuisine, sparked years before by her mother’s slap on the wrist, finally bubbled to the surface. Blanchard quit her job in 2008 at the age of 31. She cashed out her 401(k) and, without any business or restaurant experience, used the $20,000 to open up a tiny creperie in downtown Detroit. In the spirit of her mother’s motto, Ms. Blanchard named it Good Girls Go To Paris . Good Girls was born during a bad time in Detroit — amidst abandoned factories , vacant commercial buildings, and homes that were either boarded up or bulldozed. The median home price in the city fell to $7,500 in December 2008 while the jobless rate jumped to nearly 50 percent over the next year. Weak demand in the Motor City’s sputtering real estate market enabled Blanchard to rent out space on the cheap. And her risky bet that the neighborhood would buy low-cost, high-quality crepes, a dish she says most locals had never even heard of, has paid off. Today, business is booming. Good Girls offers 40 different types of crepes, has expanded to a midtown location, and is about to open another spot. “When I started out, [Good Girls] was 48 square feet and it’s moved to 1,000 square feet. I have more employees, I’m able to give employees that want it insurance — and I’m able to insure myself,” Ms. Blanchard told Huff Post. In the first installment of The Huffington Post’s new video series on individuals who dove into entrepreneurship after losing or leaving their nine to five, we give you the story of Torya Blanchard and her Detroit creperie, Good Girls Go To Paris. Watch the story below: Did you start a business after leaving or losing your job? Want your story featured on The Huffington Post ? Contact us at: nhindman@huffingtonpost.com

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Kraig Biocraft Laboratories Announces That Raymond Kutsunai Has Joined Its Business Advisory Board

November 22, 2010

Renowned Former SmithKline & French Laboratories Executive Joins Kraig Advisory Board

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Janine R. Wedel: Shadow Elite: Truthiness, Porn and the Real Problem With Reality TV

November 18, 2010

What do the makers of reality TV and the makers of pornography have in common with some of America’s top power brokers? It may be less of a stretch than it sounds. All three exploit (and have helped usher in) a culture of truthiness, resulting in a polarized citizenry content to sit in their own self-assembled fact “cocoon”. This culture has also created a sort of backlash quest among viewers and voters for the scarcest of commodities these days: authenticity. Good luck finding it. Truthiness was named by Stephen Colbert only five years ago, but the trend he identified was already at least a decade in the making. It is one of the ways in which Western culture has moved away from many of the distinctions it once made. Institutional lines of authority frayed with the Cold War’s end. Today, think tanks act as news outlets, news outlets act as entertainment companies and corporations daily stand in for government. In the broader culture, new technology and social networking, along with the collapse of old-school media, fostered an explosion of (cheap) opinionated and confessional content. This meant that the distinctions between politics and entertainment, work and play, truth and fiction have become increasingly amorphous. The concept of truthiness itself bears some similarity to the French philosopher Jean Baudrillard’s notion of “simulacra.” Baudrillard argued that today’s society is constructed around “simulacra,” which (then) become reality. Simulation, unlike pretense, and like “truthiness,” produces real intuitive feelings, emotions, or symptoms in someone, and, therefore, blurs the difference between the “real” and “imaginary.” Today, it is the idea of reality that is often being performed and sought by the media, leaving the reality much more elusive. And there are examples across the culture that people are craving displays of certitude and authenticity, emphasis on the word “displays”: more often than not, what’s billed as true and real is merely the idea of reality or a kind of hyperreality. The explosion of reality TV, of course, is a blatant case. One would have to be as guileless as, say, Kenneth the Page on NBC’s 30 Rock to believe that reality TV is real and yet, does anyone believe that Jersey Shore would reach such a cultural saturation point if it was a fictional program? Its appeal seems to lie in the fact that it’s neither real nor fake, but actually exists in a limbo land between the two. “Snooki” is the bastard child of the contrived and the authentic. It’s notable too that the desperate TV housewives with the most buzz these days aren’t the fictionals ones on ABC, but the supposed “real” housewives on Bravo, who seem more fake than the fake ones. Janine spoke last spring with reality TV creator Howard Schultz who saw a niche to be filled in an environment where verifiable truth was in very short supply: Lying [has now been] elevated to an art form… We have many names – like ‘little white lies’ and ‘spin doctoring’. When the truth becomes relative, you lose your compass for traveling in life. I created [a show] that’s trying to introduce people back to the thing called truth–which is not your opinion, not what you feel. When opinion or feeling becomes the method of the moment, you lose sight that there is something called the truth. The moment everything becomes relative, there’s no way out….Nothing is held to account. People were held to account on Schultz’ show, to be sure – Fox’s wince-inducing Moment of Truth program from a few years ago. Contestants were asked increasingly embarrassing and personal questions, and the answers were judged true or false depending on the polygraph the contestants took before the show. The program aims for what most reality shows aim for and exploit: emotional spectacle. And at the heart of the marketing is that these are real people – would the spectacle be a spectacle if it was fictionalized? In a truthiness era, fiction just doesn’t hold the appeal and the reality has to be “realer than real.” The commodification of authenticity is even seen in what we think of as the land of artificial desire and silicone dreams, where everything is almost by definition a performance: the porn business. Anthropology professor Hülya Demirdirek who studies cyber porn culture, among other things, argues that these days one of the most compelling selling points in online porn is that what you are seeing is “real”, performed by supposed “amateurs”, whereas in the past there was little denial that the porn stars were acting. (It’s worth noting that non-simulated “real” sex has also been showing up in art house films like Michael Winterbottom’s 2004 9 Songs and 2003′s Brown Bunny , which is probably best known for featuring real sex acts between director Vincent Gallo and ex-girlfriend, actress Chloe Sevigny.) Janine in Shadow Elite explores how the most nimble power brokers of our day — she calls them flexians — are not supposed to be performing, but in fact are performing in whichever role suits their interest at that moment. Demirdirek’s porn stars are supposed to be performing but are going to great to lengths to show that they are not performing and that what they are doing is actually real. She argues that once a culture is saturated with performance, the artificial is no longer the premium product. So what does it matter that reality TV isn’t real (cue the collective “Duh”), or that porn stars are (gasp) faking it? The problem is that this blurring of the real and the fake — enabled by technology and social networking — is now hardly confined to popular culture. Those flexians, in Janine’s view, many of whom are purportedly working in the public interest, exploit all these vast new gray spaces where once was black and white. Players can easily get away with stage-managing their self-presentations, portraying themselves in ways that baldly contradict their previous presentations and realities. This is why a top power broker with a dismal track record and numerous controversies (like, say, former Treasury Secretary Larry Summers) can keep taking on roles of influence. Some argue that the public has gotten so used to constructed narratives with the veneer of truth that when neoconservatives within the Bush administration wanted to take the U.S. to war with Iraq in 2003, they were readily able to peddle, as the New York Times ‘ Frank Rich put it, “the greatest story ever sold.” For some porn stars, though, the pressure to offer the pretense of real can mean a more private tragedy: some Los Angeles production companies recently shut down because a performer tested positive for HIV. In the porn world, unfortunately, “real” sex is often, by all appearances, unprotected sex. No amount of performing or truthiness can rewrite that harsh bit of reality.

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The Debt Problems Of The European Periphery

November 17, 2010

Last week’s renewed anxiety over bond market collapse in Europe’s periphery should come as no surprise.  Greece’s EU/IMF program heaps more public debt onto a nation that is already insolvent, and Ireland is now on the same track. Despite massive fiscal cuts and several years of deep recession Greece and Ireland will accumulate 150% of GNP in debt by 2014.   A new road is necessary: The burden of financial failure should be shared with the culprits and not only born by the victims. The fundamental flaw in these programs is the morally dubious decision to bail out the bank creditors while foisting the burden of adjustment on taxpayers.  Especially the Irish government has, for no good reason, nationalized the debts of its failing private banks, passing on the burden to its increasingly poor citizens.  On the donor side, German and French taxpayers are angry at the thought of having to pay for the bonanza of Irish banks and their irresponsible creditors.

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FEAR: Ireland’s Debt Crisis Could Infect Other Vulnerable Nations

November 16, 2010

BRUSSELS — Ireland’s debt crisis, and the question of how to avoid a domino effect that could topple other vulnerable nations like Portugal, is set to dominate a meeting of European finance ministers Tuesday. The 16-country eurozone has been shaken by concerns that Ireland will not be able to endure high debt levels and that a bailout might be necessary to soothe jittery investors. Market tensions are making borrowing more expensive for countries like Portugal, threatening to spread the crisis across the region. “This is a time for cool heads,” Amadeu Altafaj Tardio, a spokesman for the EU’s Monetary Affairs Commissioner Olli Rehn, said of the finance ministers meeting due to start in Brussels in the afternoon. “This is a time for political determination and this is a time for serious implementation of decisions that have been taken.” The interest rate, or yield, on Irish bonds inched up again Tuesday, suggesting greater worries among traders even though Dublin repeatedly rejected reports that it would need to tap the eurozone’s euro750 billion ($1 trillion) financial backstop. In early afternoon trading, the yield on Ireland’s 10-year bonds reached 8.14 percent, up from 7.98 percent at the open. Ireland is struggling to slash a budget shortfall that will likely balloon this year to a staggering 32 percent of GDP – a record for postwar Europe. The government’s budget dropped deep into the red after its euro45 billion rescue of five banks that were hit hard when the country’s real estate bubble burst in 2008. While well below last week’s record of 8.95 percent, the high yields signal that confidence in Ireland’s ability to repay its debts is still low and that it will have a hard time raising money once it has to return to the markets some time next year. Dublin has said that it has enough money to fund itself until the middle of 2011. The surge in yields has pushed the EU back into the depths of crisis management, after policymakers had spent their recent gatherings focusing on crisis prevention. In an interview with French newspaper Le Figaro published Tuesday, Greek Prime Minister George Papandreou insisted his country won’t default on its euro298 billion ($406 billion) in debt because doing so would be a “catastrophe” for Greece, Europe and the euro. On Monday, Greece said this year’s deficit would likely reach 9.4 percent, well above the 8.1 percent level it forecast earlier this year when it received a euro110 billion ($140 billion) bailout from European partners and the International Monetary Fund. Portugal, which is struggling with high budget deficits, also saw itself forced to deny rumors that it would seek financial assistance. “Portugal has made no official or informal contacts with a view to seeking European aid,” Finance Minister Fernando Teixeira dos Santos said in an interview Monday with financial newspaper Jornal de Negocios. But he added that “if Ireland’s situation deteriorates” the market pressure on Portugal would increase.

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Bernie Madoff Auction Bidding Reaches Fever Pitch

November 14, 2010

NEW YORK — Anyone wanting to walk in the shoes of fallen financier Bernard Madoff was in luck Saturday: Thousands of belongings from his New York City penthouse, including his used shoes, went on the auction block. An anonymous bidder paid the highest price of the auction – $550,000 – for a 10.5-carat diamond engagement ring that belonged to Madoff’s wife, Ruth. The winning bid topped the $300,000 minimum pre-sale estimate. Ruth Madoff’s French diamond earrings fetched the next highest price. Valued at $100,000 to $137,500, they went for $135,000 to an undisclosed buyer. The man who became a symbol of greed and deceit on Wall Street also had a lavish collection of watches. One of his vintage steel Rolex “Moon Phase” watches sold for $67,500, topping a $60,000 minimum estimate. The sale started Saturday morning at the Sheraton New York Hotel & Towers, with an auctioneer from Texas-based Gaston & Sheehan rattling off lots at a tongue-twisting speed all day and into the evening. Buyers responded at fever pitch. They raised their hands to signal a bid – accompanied by bloodcurdling shouts from bid-spotters marking a winning price. Their swaggering style – as if herding bulls instead of selling Madoff’s artsy ones – seemed appropriate for an auction of the belongings of a Wall Street trader who cherished the winning bull in every form. He bought statues and paintings of them and even named his boats “Bull,” “Sitting Bull” and “Little Bull.” A leather bull foot stool – including a tail that had broken off – sold for $3,300, against a pre-sale estimate of $250 to $360. While many of the more than 400 lots included luxury items, the Madoffs’ penthouse did have touches of culture. A 1917 Steinway grand piano from their living room went for $42,000 – six times the minimum estimate of $7,000. The buyer was an 81-year-old Long Island real estate executive. “I’ve got loads of pianos, but this one has history – it’ll make an interesting conversation piece,” said John Rodger, an amateur pianist who will keep the Steinway in his home in East Islip. An oil painting by the late American artist Frederick Carl Frieseke sold for $47,500, against a pre-sale estimate of $20,000 to $45,000. The Manhattan sale is the last auction in New York of Madoff belongings. A third and final auction is to be held in Florida to sell off items from a Palm Beach home that went for more than $5.5 million last month. Madoff was arrested two years ago and quickly admitted his scheme. Investigators said he used billions of dollars in cash from new investors to pay old ones, cheating charities, celebrities and institutional investors. U.S. marshals seized everything in the Madoffs’ Manhattan apartment and Long Island beach house: worn socks, new monogrammed boxer shorts, Italian velveteen slippers bearing the initials “BLM” in gold embroidery. All of it was being sold – with morbid fascination for mundane articles from the couple’s daily life that also were on the block, from bed linens, clothing, cookware and luggage to intimate items like cuticle scissors and bottles of shampoo. Valued at $75 to $110, the lot with the slippers included Ruth Madoff’s monogrammed shirt. A young man paid $6,000 for all of it, saying he’ll never be able to wear the slippers because his shoe size is 13; Madoff wore a size 8. He declined to give his name. For $1,700, 11 pairs of boxers came with a pair of silk Armani pants and one of Prada pantyhose, along with dozens of pairs of used socks, in a lot estimated to be worth $960 to $1,370. Besides bulls and fine watches, Madoff loved shoes. He owned about 250 pairs, many never worn – made in Italy, France, Belgium and England. Ten pairs of Madoff’s used designer shoes sold for $900, against a minimum of $250. The disgraced 72-year-old trader is behind bars for life in a North Carolina prison, and his wife was ordered to leave their homes. Despite their vast wealth, the Madoffs didn’t seem to make much room for house guests. The auction included their early 19th-century bed with fabric hangings and “intense sun fading,” at a pre-auction estimate of $8,000 to $11,400. “Just $500?” the incredulous auctioneer, Bob Sheehan, said of the first bid, adding, “This was the only bed in the whole house, I’m not kidding! $500? My God, it’s not a pullout.” It sold for $2,250. Sheehan conducted the auction for the U.S. Marshals Service, which said it had grossed more than $2 million from the auction, far above the pre-sale goal of at least $1.2 million. Proceeds will go to more than 3,000 clients Madoff swindled in a multibillion-dollar Ponzi scheme. “All 489 lots of ill-gotten gains sold today and the proceeds will go towards something good for a change,” said Deputy U.S. Marshal Roland Ubaldo. Last year’s New York auction of Madoff’s property raised $1 million. The Manhattan penthouse went for $8 million, and his yacht and boats also were sold.

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Video: Lagarde Says `All Stakeholders’ Must Share Bailout Costs

November 12, 2010

Nov. 12 (Bloomberg) — French Finance Minister Christine Lagarde talks about Germany’s proposal to make investors share the cost of sovereign debt restructurings. Lagarde also discusses this week’s meeting of Group of 20 leaders in Seoul, and concerns over Ireland’s debt. She spoke Nov. 10 in Paris with Francine Lacqua for Bloomberg Television.

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Robert Lenzner: New Global Currency Is Gold Sell Signal

November 11, 2010

QE2 will be followed by QE3 until we see “the end of the U.S. dollar standard,” a leading gold enthusiast and emerging markets expert, declared yesterday. No one can predict the timing, but the signal to sell all your gold will be an emergency economic meeting to create a new global currency, says Asia-based investment analyst Christopher Wood, who has been recommending gold as an investment since 2002. Wood is on record as predicting that gold will sell over $3,000 an ounce some day. His portfolio allocation for U.S. pension funds includes 25% gold bullion and 15% gold mining shares. Another signal that gold is in danger of big price slippage is when Ben Bernanke raises interest rates by 1/4 of 1%, but he sees no reasonable chance that would happen anytime in the near future- and certainly not unless there is inflationary growth in the U.S. economy. “The biggest beneficiary of QE2 will be the Asian emerging markets,” says Christopher Wood, emerging markets analyst at CLSA. “Investors must be overweight these Asian markets,” because that’s where Bernanke’s buying of Treasuries will end up. Or investors can buy U.S. multinationals with major operations in the emerging markets.” Wood says the stock market in China sells at the same market multiple as the U.S., and he believes Chinese banks and insurance stocks are especially cheap right now and due for a move. His biggest weighting is in India. Wood’s Asian portfolio of 25 stocks has gained 671% in value since late 2002, compared to the MSCI index, which has risen 217%. Wood’s portfolio picks have turned in an annual return rate of 28.9%. Wood told a small group of journalists he did not believe that QE2 would work and that it will lead on to QE3, just as QE1 led to QE2. Because of expected weakness in the dollar, Wood recommended buying strong Asian currencies like the Singapore dollar, his favorite. He flatly predicted the Singapore dollar would rise in relationship to the dollar. One way to play Singapore is to own high dividend yielding stocks there, or to get a slice via the iShares MSCI Singapore ETF that trades under “EWS.” He believes the economy will continue to be soft because of the foreclosure troubles facing the housing industry. Housing can’t recover until there is a clearing of all the homes in trouble, and this possibility is being held up by all the legal snafus and litigation. He also predicted that Portugal “would blow up” and believes the French banking industry faces an enormous problem in the $495 billion of loans they have outstanding with Greece, Ireland, Portugal and Spain.

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French Women Lose Battle To Stop Renault From Calling Their Electric Car ‘Zoe’

November 10, 2010

PARIS — It could be the French version of “A Boy Named Sue” – a car named Zoe. A judge ruled Wednesday that the automaker Renault can call its new electric car Zoe, much to the chagrin of some French women and girls with that first name. Parents of two children named Zoe Renault (pronounced ZOH-eh ruh-NO) had argued in court that their children could end up enduring a lifetime of teasing and annoyance – just like the fictional youth named Sue in the famous Johnny Cash song. The families, who are not related to the car company, wanted Renault to choose another name for the model. “There’s a line between living things and inanimate objects, and that line is defined by the first name,” lawyer David Koubbi told The Associated Press in an interview. “We’re telling Renault one very simple thing: First names are for humans.” But a judge found against Koubbi’s clients in a fast-track proceeding, ruling that the parents would only have a case it they could prove that naming the car “Zoe” would cause the children “certain, direct and current harm.” Koubbi said he would appeal the decision. He insisted that while it’s clear the Zoe Renaults of the world would be most affected by the release of the car – slated for 2012 – all of France’s estimated 35,000 Zoes would feel the sting. “Can you imagine what little Zoes would have to endure on the playground, and even worse, when they get a little bit older and someone comes up to them in a bar and says, ‘Can I see your airbags?’ or ‘Can I shine your bumper?’” Koubbi said. The lawyer said Renault named it the Zoe ZE because of the electric-powered auto’s zero emissions. Renault, one of France’s two main carmakers, has already given several of its cars female first names – including its compact hatchback Megane and its mini Clio. Both are popular girls’ names in France, but there was no organized opposition to either name. The fight over Zoe, which means “life” in Greek, has gotten considerable media attention in France, where a petition on a Facebook page called “Zoe’s not a car name” has garnered more than 6,000 signatures. First names are a serious matter in France, which formerly restricted parents’ choices to a specific list of traditional names. The rules have since been loosened, but even today officials can oppose parents’ choices on the grounds that ridiculous names can hurt their future. In June, Renault CEO Carlos Ghosn said he was aware of the issue and wanted to avoid any controversy that could potentially hurt the car’s sales. “We don’t want our car to come on the market with a name which is a handicap,” he told Europe-1 radio. Still, a Renault official emphasized that there’s no plan to change the car’s name. “We ordered several studies that showed that it’s not a handicap for the car, so there’s no reason to make any changes,” said the official, who declined to give his name in accordance with company policy. “We’re very happy with the judge’s decision.” Attorney Koubbi said the two Zoes at the heart of the case are 2 and 8 years old and their parents were not seeking any damages. Koubbi, who has represented French celebrity clients, took the case on a pro bono basis. Why? Because his stepdaughter’s name is Zoe. ___ Associated Press writer Pierre-Antoine Souchard in Paris contributed to this report.

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Georges Ugeux: Barack Obama Visits Mumbai…on Diwali!

November 5, 2010

Diwali is the most important celebration in India: it begins today and continues through November 9th. It is the equivalent of Christmas for the Christians or Yom Kippur for the Jews. This is the day that the President of the United States has chosen to visit Mumbai. While the Indian authorities have obviously agreed with the decision to pick this time for the President’s trip, much of the Indian press and public percieve the timing as a lack of sensitivity on the part of the U.S. However, this was not an oversight, and the President lit the traditional “diya” or oil lamp for Diwali at the White House yesterday before embarking on this trip. While observing Diwali was a tradition initiated by George W. Bush, Obama is the first U.S. President to attend events associated with the Indian holiday. “To those celebrating Diwali in India, I look forward to visiting you over the next few days. And to all those who will celebrate this joyous occasion on Friday, I wish you, your families and loved ones Happy Diwali and Saal Mubarak,” said the President. He will pay homage to the victims of the heinous Mumbai attack of November 26, 2008, by Pakistani terrorists. He even decided to stay at the Taj Mahal Hotel Palace in Mumbai, the iconic landmark that remained under the control of terrorists for four days. Was it, however, necessary to send home 90% of the 1,400 employees of the hotel, in order to replace them with US staff sent from thousands of miles away? Was it necessary to have a party of 3,000 people accompany the President? And what about the 43 warships around Mumbai? Was it really important to remove the coconuts from the trees surrounding Mumbai’s Gandhi museum? Was it necessary to prohibit Diwali celebrations in the whole District of Colaba in Southern Mumbai? At a time when we are looking for public saving opportunities, shouldn’t we rethink such escalations in security? The United States protects itself by constantly building higher walls. It reminds us of it the illusion of the Babel Tower: we cannot protect ourselves against the sky, let alone reach it. We human beings, are not able to protect ourselves against every risk. Our denial is very expensive. It is interesting to note that he will visit Holy Name High School, run by the Archdiocese of Mumbai, a very exclusive school but not exactly representative of Indian education. What matters, however, is that Mumbaites and Indians in general, are thrilled to receive the U.S. President who enjoys a hugely positive reputation in India. He and the First Lady are extremely popular, and the pride of welcoming them will supersede the rather strange aspects of the trip. The most delicate economic issue that will be addressed by business leaders from India is the attitude of the United States towards outsourcing. Generally demonized and sometimes considered the source of unemployment in the United States, outsourcing has massively improved the competitiveness of US companies and created hundreds of thousands of jobs in the United States. Outsourcing is for India what the value of the Yuan is for China: the target of considerable misconceptions as well as blunt attacks by U.S. officials. Ultimately, the fact of the matter is that the United States could not satisfy its IT needs with the insufficient number of engineers produced by the country’s Universities. At the end of the day, India and the United States have more fundamental issues to discuss, such as the situations in Pakistan and Iran. And it is true: the countries are natural partners. If the U.S. could realize the immensity of its power and influence in India, perhaps any feelings of being threatened by the country would subside. As to the question of a permanent seat for India at the United Nations Security Council, President Obama acknowledges the difficulty of the issue. There is no doubt that President Sarkozy (who favors India’s entrance) will relinquish the French seat to India! Happy Diwali, the Festival of Lights.

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Video: Sheffi Says 100% Screening of Air Cargo Is `Unrealistic’

November 4, 2010

Nov. 4 (Bloomberg) — Yossi Sheffi, a professor at the Massachusetts Institute of Technology and director of the school’s Center for Transportation and Logistics, discusses the outlook for air cargo security following last week’s discovery of explosive devices in packages. Greek police detonated a parcel bomb addressed to the French Embassy in Athens today and are investigating at least two more packages, the latest in a spate of mail bombings targeting embassies and European leaders. Sheffi speaks with Mark Crumpton on Bloomberg Television’s “Bottom Line.” (Source: Bloomberg)

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James M. Russell: Chris Rabb Talks Invisible Capital

October 26, 2010

When asked about the overriding concept of his new book, Invisible Capital: How Unseen Forces Shapes Entrepreneurial Opportunity , Chris Rabb put it in five simple words: “why Donald Trump is evil.” Though he says this with a laugh, Trump nonetheless represents to Rabb “how we view entrepreneurship, transcendent of political ideology” and why “a lot of people still believe there’s a meritocracy within [entrepreneurship].” This well-researched and argued book digs deep into the unseen privileges evident in even the most equitable business models. Rabb and I met recently to discuss this and other concepts in his new book. James M. Russell: So what is invisible capital? Chris Rabb: Essentially, invisible capital is human, social and cultural capital and the ways in which they manifest: human capital being your skills, credentials and experiences; social capital being your network and what they think of you; and cultural capital being how you operate in different environments and your ability to communicate in ways that inspire confidence and create opportunity. Though the top predictors for success in business are not race, class or gender that doesn’t mean that the most successful elements of an entrepreneur aren’t related to one’s race, class, or gender. If we talk about invisible capital and how it is manifested, we will be directly dealing with race, class and gender in a meaningful way. JMR: Why did you choose entrepreneurship as the topic? CR: A lot of people simply don’t have the literacy about American entrepreneurship that can actually help them start and run a business or even be an advocate for people who start enterprises, whether for profit or non-profit. But because we do not have that literacy, we do not have the structure nor the capacity to help people in meaningful ways. Right now, it is about rugged individualism. The people we could help, as well as the entrepreneurs, believe this notion that, regardless of background, they’ll just work harder. Because you know, if you watch Oprah and you have that positive attitude, you can do anything. There’s no evidence that proves this myth – because that is what it is: a myth. So the book tries to have us understand that there are different ways of defining entrepreneurship. JMR: Is there a correlation between your solution and social entrepreneurship? CR: Yeah, this overlaps the social entrepreneurship but a lot of advocates of social entrepreneurship do not talk about invisible capital.. Social entrepreneur’s projects require massive resources and a select group of consumers to buy the stuff they sell and often times, leverage pre-existing privileges that by definition excludes others. So if you don’t come to talk about the structural issues that create this invisible capital, then you’re doing a good thing, but you’re not really changing anything structurally. While my solution, commonwealth enterprises, create community assets for shared prosperity, that’s not necessarily the case with social entrepreneurship. Ben and Jerry’s is a good example of a social enterprise. They make great ice cream in a country that is obese. They gave more money to good causes than most corporations of the same size – before they sold out to multinational that is. But at the end of the day, they had a conventional product that was not particularly healthy. Ultimately if you talk about entrepreneurship as a vital part of the economy, you talk about creating businesses that will be self-sustaining and sustain communities and local economies JMR: What kind of existing enterprises are considered “commonwealth”? CR: We need to innovate entrepreneurship. The co-op model is one way which commonwealth enterprises can be facilitated but there are also other forms like low profit limited liability companies, l3cs or certified B corps Benefit corporations, as they’re called. These are just a few of the structural ways to look at building shared prosperity and community assets. JMR: You mention in the book that entrepreneurship transcends political ideology. Explain. CR: Politically, those of us who care about these issues in the terms of how progressive it is, are not invested. Mostly because many people who self identify as progressive or left feel that you have to French kiss capitalism to talk about entrepreneurship. You don’t. Entrepreneurship predates capitalism and there’s nothing inherent in entrepreneurship that is about profit maximization. JMR: Any final thoughts about your book? CR: It’s like the two fish: two fish were swimming along in the ocean and one fish looks at the other and says, “I love the water.” And the other fish looks at him and says, “What’s water?” At some point, somebody is going to have to acknowledge the obvious thing, that we’re surrounded by water and air. But if you don’t ever think about breathing nor the composition of air nor how the lungs work, you can make a lot of bad decisions. And the same thing is true with regard to entrepreneurship. Thank you to Natalie Trujillo for her help with this interview.

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Video: Marseille’s Port Lockdown Sees Fuel Disruptions Worsen

October 25, 2010

Oct. 25 (Bloomberg) — Bloomberg’s Elliott Gotkine reports from Marseille on the strike against working conditions at the French city’s port, which is disrupting fuel supplies. The port of Marseille said the strike has left 73 vessels stranded including 37 tankers carrying crude, 19 with refined products and 10 with natural gas.

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French Senate Passes Pension Cuts To Raise Retirement Age

October 23, 2010

PARIS — Under pressure from the government, the French Senate voted Friday to raise the retirement age from 60 to 62, a victory for President Nicolas Sarkozy after days of street rage, acrimonious debate and strikes that dried up the supply of gasoline across the country. The vote all but sealed passage of the highly unpopular measure, but it was unlikely to end the increasingly radicalized protests. The coming days promised more work stoppages and demonstrations by those who feel changing the retirement age threatens a French birthright. Sarkozy made overhauling the money-losing pension system a centerpiece of his project to modernize France. Undaunted by weeks of strikes, he ordered measures to unblock fuel depots and refineries to get gas flowing again to desperate motorists. “History (will remember) who spoke the truth,” Sarkozy declared during a visit Friday to a factory in central France. “What do you expect of a president? That he tells the truth and does what must be done.” With about a quarter of gas stations on empty – down from a third earlier in the week – motorists have been forced to reinvent their lives, particularly at the start of a school vacation period Saturday. Hours before Friday’s vote, riot police forced the reopening of a strategic refinery to help halt crippling fuel shortages. The impact on the crucial energy sector was an ominous specter for whole sectors of the economy. Employment Minister Laurent Wauquiez said this week that 1,500 jobs have been lost daily since the strikes began in earnest on Oct. 12. Friday’s vote came after some 140 hours of debate, with senators casting ballots by hand into a large green urn, approving the bill 177-153. The measure is expected to win final approval by both houses of parliament next week. Sarkozy’s conservative government cut short the debate via a constitutional article that accelerates the process – and gives the government final word on which of more than 1,000 amendments will get into the bill. He accused strikers of holding the French and their economy “hostage.” Speaking before the Senate vote, Labor Minister Eric Woerth said the day will come when opponents of the change “will be grateful to the president, to the government and the parliamentary majority for having had the courage to fully assume their responsibilities.” Leftist critics called the move a denial of democracy by an increasingly confrontational president. “No, you haven’t finished with retirement. You haven’t finished with the French,” said Socialist Sen. Jean-Pierre Bel, alluding to an apparently unflagging determination by unions, now joined by students, to keep protests alive – even through the upcoming week of school holidays. Students planned to block schools Tuesday, and unions scheduled strikes and protests for Thursday and again Nov. 6. Sarkozy says overhauling the pension system is vital to ensuring benefits for future generations. Many European governments are making similar choices as populations live longer and government debts soar. But French unions say the minimum retirement age of 60, in place since 1982, is a hard-earned right and maintain the working class will be unfairly punished. Many fear it is also a first step to dismantling an entire network of benefits, including long vacations and state-subsidized health care, that make France an enviable place to work and live. Guy Fischer, a Communist senator, denounced the pension overhaul as “brutal, unjust and inefficient.” Like other critics, he said that under the proposal, 85 percent of costs are paid by workers, leaving companies off the hook. The legislation phases in the new system, with retirement at 62 in force in 2018. It also raises the age for retirement with full benefits from 65 to 67. Hours before the Senate vote, helmeted riot police in body armor shoved striking workers aside to force open the gates of the Total SA refinery at Grandpuits, east of Paris, one of four refineries in the Paris region. A bastion of resistance, Grandpuits had been shut down for nine days – one of the nations’ 12 refineries on strike. “The strikers have opened the valves,” said Franck Monchon, a delegate of the hard-line CGT union. Protesters symbolically burned a coffin after the police intervention. Despite the government’s efforts to conquer union resistance, Prime Minister Francois Fillon said it would take several days to end gasoline shortages. The government began unblocking fuel depots days ago and is allowing tanker trucks on the road on Sunday, when they are normally forbidden. It has ordered oil companies to pool fuel to ensure gas stations are stocked. The prime minister convened oil industry executives Friday to review the country’s lagging fuel supplies. The head of the national petroleum industry body, Jean-Louis Schilansky, says it is struggling to import fuel to make up for the shortfall, because strikers are also blockading two key oil terminals, in Le Havre and Marseille. Dozens of tankers remained anchored in the waters off Marseille, unable to unload. “The problem isn’t so much finding the oil; it is getting it in to the country,” he said. “If the depots and refineries remain blocked, we will not make it.” Nevertheless, Schilansky insisted that France has weeks or months of fuel reserves. Marc Touati, head economist for Global Equities, was somber about the consequences of prolonged protests by the fuel sector, saying such a scenario could wipe out between 0.1 and 0.2 percentage points of economic growth. The government predicts economic growth of 2 percent next year, after 1.5 percent in 2010. Violence around student protests have added a new dimension to the volatile mix. “It is not troublemakers who will have the last word in a democracy,” Sarkozy told workers at a factory in the Eure-et-Loir region, promising to find and punish rioters. “If we stop companies like you from working, who will pay?” ___ Duclos reported from Grandpuits. Associated Press writers Angela Charlton and Greg Keller and AP Television News reporters Jonathan Shenfield in Lyon and Oleg Cetinic in Paris contributed to this report.

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Robert Teitelman: Felix Rohatyn’s ‘Dealings’

October 21, 2010

Felix Rohatyn has led one incredible life. Born in Vienna, he fled Nazi-occupied France to the U.S. in 1940 at the age of 12. After graduating from Middlebury College (he was hardly a destitute refugee), he went to work for the legendary Andre Meyer at Lazard Freres in New York. He developed clients in the ’50s and ’60s like Harold Geneen at ITT and Steve Ross at what became Time Warner. He helped rescue Wall Street in the back-office crisis of the late ’60s, then played an instrumental role in saving New York City from bankruptcy in the ’70s. He was a key banker in the RJR Nabisco leveraged buyout. He served as ambassador to France during the Clinton administration. He was friends with, well, nearly everyone. In his spare time, he regularly opined on economic and fiscal matters for The New York Times and New York Review of Books. And all the while he maintained one of the great rainmaking practices on Wall Street. Now Rohatyn has written his memoirs, “Dealings: A Political and Financial Life.” It’s a fairly thin book, particularly considering the density and length of his career, and it has real charm. If his acknowledgments are any clue, he actually wrote it himself, a rare achievement these days. He opens with a bang, offering an anecdote of meeting, then getting a job with, French torch singer Edith Piaf on a ship sailing to New York from France in 1947. Piaf needed help with her English; Rohatyn, still in college (he was apparently a mediocre physics major), spoke fluent French and English. And off he goes. Rohatyn’s New York life has a charmed quality. His father, a brewer in France, knows Meyer and gets him a job in foreign exchange at Lazard. He happens to be having breakfast at the Bronfman’s one weekend (he’s friends with a Bronfman daughter) when the patriarch of the clan and founder of Seagrams, Sam Bronfman, suddenly rounds on him and tells him he should be an investment banker. Meyer grudgingly agrees, then cuts his salary. Many of these anecdotes have the sheen of tales told many times; but they foreshadow what’s both good and bad about this book. This is a life by anecdote, linked, sometimes sparingly, sometimes preachily, with commentary. Indeed, as charming and readable as it is, this is less a retelling of the past than an active shaping of it. Not that Rohatyn is twisting the truth, at least in any obvious way. Rather, it’s what he tells you and what he leaves out. Throughout, he describes himself as trying to live up to an image of an investment banker passed on by Meyer, the brilliant and autocratic Frenchman who dominated Lazard after the war. Such a banker was distinguished by clear thinking, fair-mindedness and a willingness to submerge self-interest in the client’s interests. (This was an ideal Meyer himself occasionally failed to always live up to, see Cary Reich’s “Financier: The Biography of Andre Meyer.”) Such a banker was, above all else, discrete; reputation was everything. And discretion defines this book. Large chunks of Rohatyn’s life go missing. He mentions one wife, then some children, then another wife, but leaves out the connecting tissue. He describes the death of Meyer, and its effect on him, and the maneuvering around the ascension of Michel David-Weill at Lazard. But then David-Weill disappears. Rohatyn never mentions his struggles with Steven Rattner in the late ’90s, though he offhandedly passes on that the firm was getting too big and too complicated for his taste. Instead, he simply says he was losing interest in banking after half a century. Perhaps the largest omission occurs even before meeting Piaf. While he mentions Nazi-occupied France, Rohatyn says almost nothing about his own experience. We’re left to wonder. He was a child; the family was breaking up; their lives were threatened. He flees to New York, a city he comes to love above all others. Tell us more, Felix. Throughout, he is reflective but hardly introspective. He is always moving on. That self-image, that ideal, of the investment banker as the soul of discretion and as a figure of unimpeachable reputation and moral discipline, shapes this book, as it undoubtedly shaped him. There are many things to be said about the way Wall Street has evolved over the past, say, 50 years, but discretion and a sense of limits isn’t one of them. And Rohatyn himself, for all his soul searching and remarkable public service, found himself involved with any number of transactions and situations that, in retrospect, helped shape the “new” ethos of Wall Street. He learned the business in the ’50s from Meyer. But he established his reputation as a rainmaker by advising clients that shattered the old restraints on M&A, most controversially, the mastermind of the conglomerate, Harold Geneen at ITT. Geneen was not alone, but he was arguably the greatest of the conglomerate builders; and Rohatyn not only executed many of his deals, but also sat on ITT’s board. Rohatyn has great respect for Geneen’s business genius and rejects some of the wilder charges about him (some of which, like ITT’s involvement in Chile and the death of Salvador Allende, scorched Rohatyn). But even if that’s the case, did the conglomerate make real business sense beyond a kind of pyramiding of deals in a favorable climate? If Geneen was a genius, how many geniuses were available to succeed him? And didn’t Geneen’s construction of a dealmaking machine at ITT help shatter an earlier regime in which mergers were difficult, personal, friendly and relatively rare? Despite his defense of Geneen and ITT, Rohatyn does admit that in those days he was young and fascinated by the people and the deals. He didn’t recognize, he admits, how things were changing in the ’60s. This is fair. Who sees the future? But Rohatyn tells several stories that suggest, but only explores superficially, the historical complexities and his own role in them. In the ’60s, he’s invited to join the board of the New York Stock Exchange. This is a great honor; he’s still relatively young, and Lazard is not a big trading or brokerage house. Rohatyn says he was surprised, but he never discusses how that occurred (at that period his youth may have helped, plus he was obviously very smart and had big clients; he did have to seek Meyer’s permission, which he does whenever he makes big move). He recounts the day Donaldson, Lufkin & Jenrette announced that it was going public, which was against the rules of the NYSE. In hindsight, he recognizes what a seminal moment it was; it’s the first real change that will sweep away “the antediluvian” Wall Street and sweep in the new, competitive, technologically sophisticated Street. A vitriolic debate broke out on the NYSE board of governors: “It was not too difficult to pick the objectively correct side of the showdown, or so it would seem nearly forty years later. Nevertheless, at the time I opposed DLJ’s petition. … How can I justify this narrow position? I can’t. All I can offer up in the way of logic is that I exhibited a prideful conservatism of someone who had just been granted membership in an exclusive club. With my appointment, I became another of the insiders eager to preserve our historic and fraternal practices, regardless of how outdated — wrongheaded, really — these rules and traditions were.” Rohatyn is being honest. He admits he later changed his mind and supported reforms — and of course he was a key figure in saving Wall Street from its own debilities a few years later — but that phrase, “prideful conservatism,” rings out. Prideful conservatism was in many ways the self-image of the Meyer investment banker. Prideful conservatism was a perspective on the world Rohatyn would take with him as the changes he first opposed, then supported, created a powerful new finance he would soon have qualms about. He recognizes the failures of the past but fears the future. He is shocked when Morgan Stanley rips up “the unwritten ‘social contract’ ” by making a hostile bid for International Nickel in 1975. He does not like hostile deals, but he recognizes how “a new breed of combative, successful, high-profile investment bankers” and lawyers had arrived that “would make celebrated, hard-driving deals, and fortunes for themselves and their firms.” He does not see how Geneen and the conglomerateurs paved the way for this new kind of dealmaking; nor does he acknowledge how changes that had to be made at the NYSE ushered in an ambiguous new era of greater conflict, competition and compensation. The deluge crashed upon him with the RJR Nabisco leveraged buyout. After a lengthy recounting of his own involvement in the RJR Nabisco LBO, Rohatyn argues that within the excesses of that deal was “a defining moment in my own evolving thoughts on American business … the raging avarice of the 1980s was a pernicious force that would undermine the marketplace. I am a capitalist and I believe in making a profit. … The bottom line was no longer simply the bottom line — the ultimate cost of the profit had to be considered.” This is not to suggest that Rohatyn, whose activities on behalf of Wall Street in the late ’60s and New York in the mid-’70s were heroic, is wrong about these practices or unjust in his characterizations. It is to suggest how complex the undercurrents are. By the time RJR occurred, Rohatyn occupied a unique place in investment banking. He had his choice of clients; and his experience meant that he could practice banking with a sense of prideful conservatism, though he remained politically a liberal Democrat. But he was that rarest of cases; and for all the excesses of the moment, his nostalgia for the past is palpable. He could argue against hostile deals, LBOs, transactional banking, speculation. He could argue for stakeholder, as opposed to shareholder, governance. He could argue against greed. But in some quarters, these sermons elicited mutters about hypocrisy and self-righteousness; and in a dichotomy that still persists, he stood increasingly on the side of “entrenched” managers, his clients, over shareholders. He was a special case. Even at Lazard, he never took a real management position — he wanted to deal with clients and engage in public policy and service — but, as the anecdote about the change in regime from Meyer to David-Weill suggests, he had a huge say in what took place there: He had power without responsibility, a sweet deal made possible by his immense ability and client list. Rohatyn concludes the book with an epilogue written after the fall of Lehman Brothers. His ambassadorship over, he had moved his small office into Lehman after being offered space by Dick Fuld. He seemed to have been as shocked as the rest of us by Lehman’s sudden demise. He uses the episode for more soul searching, reminding us again that he had warned about excesses and offering up one more coda for investment-banking-as-it-should-be: “The financial services industry is at a turning point. If it is going to help companies and investors during a decade when doubts continue to undermine the marketplace, if it is going to help businesses to provide jobs and services — then I believe, it needs to return to the values and practices that were first instilled in me by Andre Meyer. Investment banking is not a business; it is a personal service where bankers work hand in hand with their clients. And it is a service that must not simply be about making bigger and bigger deals that reap rewards for only a small group of executives. It should aim to create new partnerships that result in strong, more innovative companies able to provide new jobs and better services. These are the fundamental beliefs that guided me in the past. And they will once again guide me in the future.” Worthy sentiments. But how? The real question that hangs over investment banking — all of Wall Street really — is how can you turn back the clock? Is there a prideful conservatism of a past that is worth recreating? How do you take great size, great compensation, great risk and stuff them back into their box? There are, as always, signs that some of what Rohatyn seeks exists in the marketplace, notably in the rise of boutiques that, like Lazard, are not driven by trading, aren’t massively capitalized and that still can offer unconflicted, sensible, even wise advice (and there are lawyers who approach that ideal as well). But for all their dynamism, Wall Street remains dominated by the big banks, with their massive financing capabilities and enormous trading desks — and that’s not including private equity and hedge funds. The world, whether we like it or not, is driven by performance, which operates globally; and for all the greed and excess, lots of wealth has been spread around. True, at the top of the profession, ultra-senior advisers like Rohatyn and Meyer — true consiglieres to CEOs — will continue to exist and to thrive. But the rest of the world will sadly stagger on in its messy, greedy way down in the valley. The trouble is, while every day is a turning point of some sort, you can rarely go back, even in a memoir. – Robert Teitelman Robert Teitelman is editor in chief of The Deal.

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Todd Kashdan: Three Clues That CEOs or Politicans Are Lying to You

October 19, 2010

Living with your grandmother is a recipe for miscommunication. On a random Tuesday, when I was 15, a plan was being hatched to meet up with a few friends at the local 7-11 convenience store to eat a few hot dogs. Unbeknownst to me, my grandma was outside my room listening in on the phone conversation. To her defense, it would be hard for anyone to make sense of the whispers and jargon on my end. “Marc, do you think we can afford the stuff?” “Do we know if anyone else is going to be there?” “If this doesn’t go down well, I’m going to have to sneak through the garage when I get home.” Upon leaving my bedroom, there was my grandmother blocking my path with arms folded across her chest. The first words out of her mouth were, “Todd, I need to talk to you. Look at me. Are you on drugs?” Essentially, this is what Selma deduced: 7-11 was for derelicts because skateboarders congregated there. Unless it was an illegal transaction, why would I refer to the planned purchase as “stuff?” My eyes were always bloodshot and this is a clear marker of drug use (as opposed to the hard contact lens that I never removed). Now let’s be clear, Gene Hackman was in no danger of losing his job on the narcotics bureau in “The French Connection.” Selma breathed heavily, walked with lead feet, and possessed a grandmotherly smell that will forever be endearing to me (but problematic in covert operations). But this incident raises the question of whether Selma could tell if I was lying…. I was reminded of these regular, bizarre interactions with my grandmother this morning. New research emerged at Stanford University on how to tell whether CEO’s are lying. When Kenneth Lay shared news about the earning reports of Enron, did his selection of words offer insight into hidden lies and deceit? What about the phrasings of BP executives as they shared plans to financially compensate everyone who suffered from the oil spill? While each of us has careful control over the story we want to tell, our true motives and feelings can “leak out” in our word use. Two researchers analyzed 29,663 conference calls by business executives from 2003 to 2007. Of particular interest were the narratives carefully sculpted by CEO’s to tell the media and public about company performance and plans. These Stanford researchers found a few interesting findings. First, be wary of words that distance the speaker from personal ownership of what they are saying. Instead of first-person pronouns, the speeches of lying CEO’s overflowed with plural words such as “we,” “us,” “team,” and “group.” You might be saying to yourself, that doesn’t sound problematic, perhaps they are grateful of everyone in their organization. Remember, it only takes one or two references to make the point that you didn’t attain success on your own. It is the lack of self-references that is linked with deception. If a person knows they are going to deceive you, the last thing they want to do is emphasize that they are the person to contact if things go wrong. Most speakers are consciously unaware of their avoidance of self-references. Second, be wary of over-the-top glowing positive statements. The expression of positive emotions has a tipping point. Be skeptical when a CEO uses an excessive number of flowery terms to describe the future prospects of the company. Notice the intense positive emotional terms in speeches by Kenneth Lay, words such as fantastic, amazing, wonderful, and superb. If a CEO sounds like a hypomanic mother touting the artistic mastery of their two-year old doodler, there is reason to be afraid, very afraid. Third, be wary of absolute certainty. This might be the most valuable take-home finding. Not surprisingly, we feel less anxious when leaders appear confident without any ambivalence about their decisions. The only problem is that few decisions are clear cut and none of us know what the future holds in terms of the economic and political climate. I only worry about people who claim they know what is going to happen. I worry about people that lack anxiety. CEO’s that use an overabundance of words reflecting absolute confidence and a lack of words reflecting hesitation are more likely to be lying. A speaker’s linguistic style offers a portal into their motives. This research has powerful implications for understanding how little we know about other people, especially when we don’t have the same access to the information. I suspect that the findings would be the same if we focused on grandstanding politicians, media pundits, journalists, scientists, real estate agents, teachers, and anyone trying to sell you something, anything. Seriously, look at the three findings above and tell me that doesn’t describe the last person trying to sell you a car. There’s nothing wrong with an assumption that people are inherently good while giving them the benefit of the doubt. All I ask is that you go beyond the surface content of what people talk about. Mindfully attend to how they speak and you might uncover something interesting, something terrifying, something that prevents you from being suckered. And if you don’t want to be mindful, you now have three tips for how to lie better. Go ahead, feign a story about how great of an athlete you were in high school or how incredible you are at seducing strangers in bars. Perhaps you’ll be lucky and your audience won’t read this post and call you out. For more about the research in this article, check out : Larcker, D.F., & Zakolyukina, A.A. (2010). Detecting Deceptive Discussions in Conference Calls. Dr. Todd B. Kashdan is a clinical psychologist and professor of psychology at George Mason University. He is the author of ” Curious? Discover the Missing Ingredient to a Fulfilling Life ” For more about his speaking engagements, books, and research, go to www.toddkashdan.com or Research Laboratory.

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Robert Teitelman: Michael Hirsh’s "Capital Offense"

October 18, 2010

There is a long and distinguished literature on what’s known, in the sniffy French, as “la trahison des clerics” – the betrayal of the intellectuals. In “Capital Offense: How Washington’s Wise Men Turned America’s Future Over to Wall Street,” former Newsweek, now National Journal writer Michael Hirsh makes his own contribution to that genre. “Capital Offense” has a broad, sometimes canvas-busting, scope: He examines the wise men, most of them buzzing in and around the great honey pot of Washington, who provided much of the intellectual architecture for what became the great financial crisis of 2008. The book features many characters and ideas, but if there is a single, unifying theme, it’s the fallibility of economic thinking, and of ambitious economists and their fellow travelers, in creating the bubble, and the failure to anticipate its consequences. For devotees of the crisis, and you wouldn’t be reading this if you weren’t, much of Hirsh’s story is known. But Hirsh has generated some fresh reporting and, more importantly, he has constructed a narrative to try to make sense of it all. There are, inevitably, conflicts and confrontations – at the heart of the book Hirsh features the struggle between Larry Summers and Joe Stiglitz for both preeminence in academic economics and in policymaking – that inevitably morphs into a bad guy (Summers) vs. good guy (Stiglitz) stereotype. But despite that, and despite the fact that Hirsh is never shy about making his own opinions known, these portraits break from the caricatures that too-often substitute for analysis. Hirsh recognizes that these are complex personalities, driven by complex motivations, both good and bad. There is sadness to the ambition and drive of the eternally brilliant Summers; a modesty and realism to Milton Friedman; an endearing goofiness to Stiglitz (who for all his absentmindedness, notes Hirsh, seems to have a way with women). Hirsh gives us a sense about why these folks, to a person, were successful enough to influence events. Robert Rubin’s quiet political surefootedness. Alan Greenspan’s mastery of data. Stiglitz’s ability to listen. Summers’ ineradicable sense that the world was one long debating society. And then there is the technocratic Tim Geithner, less a disciple of Rubin and Summers in Hirsh’s view than a man married to saving the status quo. And at bottom, Hirsh is asking a question many others have tried to answer: How could these wise men, the best and the brightest, have failed to see this coming? How could economics have failed to predict the disaster? And given that failure, what are its components and how are they weighed against each other? Hubris, ignorance, greed, self-interest, ambition, self-satisfaction and probably the most insidious, pride all jostle with each other. If there’s an omission here, it’s that Hirsh does not really ever step back and ponder the limitations and uncertainties of all economic thinking, which renders prediction a fool’s game (for a crisis book that handles that subject quite well, see Yves Smith, “Econned: How Unenlightened Self Interest Undermined Democracy and Corrupted Capitalism”). Stiglitz is lionized in part because his analysis turned out to be at least partly on target. Summers is condemned to the darkness of those who failed history’s test: He supported a financial regime that broke down. But what Hirsh doesn’t say is that, given the ambiguities and perplexities of predicting human economic behavior, the game could as easily have swung the other way – and did for a very long time. Summers’ zest for arguing both sides of any economic issue may well be rooted in a profound realization: There are no (or very few) absolute truths in economics. Sophistry is always a temptation. That said, where’s the betrayal? That sense of betrayal begins when skepticism gives way to certainty, when possibilities congeal into formulaic ideology. From Friedman to Greenspan to Rubin to Summers, they all traded their doubts at one point or the other for a soaring confidence and a deep, nearly utopian belief. The way to the bountiful future involved market liberalization, free trade, deregulation, privatization, integration. A mighty finance sector bursting with innovation and complexity was a good, not a bad, thing. Size was important; speculation provided liquidity; the markets were self-correcting and self regulating. The Anglo-Saxon model, the Washington Consensus, had been proven far superior to other alternatives, whether the smoking ruins of Soviet communism or the Asian Model, with its crony capitalists. Free-market finance was the veritable engine of liberal internationalism. Finance trumped politics. What Hirsh doesn’t do is to confuse errors of policy or theory with criminality. There is no smoking gun here, no indictable offenses that I can find. Although he begins with the famous defenestration of the Commodities Futures Trading Commission’s Brooksley Born, who sought derivatives regulation, at the hands of Greenspan, Rubin and Summers, what he presents here is less dramatic declarations and more the steady construction of a shaky consensus, part free-market economics, part Wall Street reality, part Washington realpolitik. (After all, many of these folks, including Bill Clinton, were liberal Democrats, who needed convincing.) The fact was, for all the 20-20 hindsight, the ideas that supported the system were steadily confirmed by reality, with a few exceptions, throughout the ’90s and into the new century. Of course, those “exceptions” were quite serious – in real life and intellectually — notably the Asia crisis and the failure of Long-term Capital Management. But the very fact that we survived them, that contagion spread only so far, provided more fodder that the Washington Consensus was correct. There was, indeed, a bubble being born – both in the markets and in economics. Each step forward was a further descent into dogmatic orthodoxy. Debate was increasingly stilled; critics, like Stiglitz, were lampooned and ignored. Regulators were captured. The media was quiescent (Hirsh himself occasionally admits his own failures to see the future.) Shareholders were partying. The public was clueless. Those who questioned any of the underpinnings of the system, like economist Raghuram Rajan who warned of risk at Greenspan’s Jackson Hole valedictory in 2005, were dismissed, sometimes politely, sometimes brutally (a job Summers seemed to revel in). Well, we know how it turned out. An entire orthodoxy was upended the weekend Lehman Brothers failed. Economics, like Wall Street, was caught out by reality. But it’s not as if the entire discipline, with its roots in Adam Smith and the physiocrats and its tradition of rational inquiry, has been debunked; rather it was the predictive aspect of the field, with its all-seeing, all-knowing markets and its powerful grip on policymaking, that has taken the most knocks. How can anyone who has suffered through 2008 ever trust an economic forecast again? Well, apparently a lot of folks. Economics and economists continue to busily predict and advise, often with the kind of bullying certitude Summers mastered (and Summers, of course, has himself been busy, not only as Barack Obama go-to economics adviser, but before that, as a much-cited columnist during the crisis in the Financial Times). The depth of the crisis and recession, in fact, has sent economists opining not only on technical questions but also on broader, political and social questions, like latter-day John Stuart Mills. Economics, and its sidekick prediction, apparently remains a drug we cannot live without. The question that needs to be asked – and it’s one that is larger than just this crisis – is whether error represents a larger betrayal, not just a mistake of the intellect, but a conflict, a sellout, a failure of moral rectitude, at its most extreme, a crime. Now there are clear tests for criminality, which are adjudicated in the courts; the rest are judgments, guesses, opinions. It is becoming clear that one of the great problems of economics evolving from an indeterminate, philosophically based inquiry to a discipline with pretension to a science and thus the raw material of policy, is that making the wrong call is more than just a mistake, it’s a moral transgression. Economists then, like Greenspan or Summers, are thus strapped to the table and analyzed. Where does the flaw lie? What combination of weakness deep in their opaque hearts led them into the corruption of error? Hirsh is a sophisticated observer, sensitive to the inevitable crooked timbers of humanity. But many others are not as subtle. Journalism, punditry, even movie-making has, in its earnest attempts at analysis, labored to establish patterns and motivations and attempted to penetrate souls they can never truly enter. The analysis that wins is the one that accumulates the most votes, which may be the way retail politics and the box office works, but isn’t exactly intellectually rigorous. Hirsh does, I think, occasionally fall for the fallacy of hindsight, suggesting that these great minds should have seen this coming but did not, or chose not to look. But this is where we get to what’s often presented, perhaps unfairly, as the treason of the intellectuals: a kind of willful blindness, for whatever reason, a retreat into dogma and faith for their own selfish reasons. This is where Stiglitz is so vital to this story; not because he was omniscient, but because he raised contrarian issues that were systematically ignored by policymakers. Perhaps these wise men were in the bag to Wall Street, as a thousand bloggers insist, or ripe with hubris. Or perhaps they truly believed. Like Dick Fuld, if they could see what was coming, why would they not have acted? Still, the charge of bad faith sticks to them because we have already decided they were smarter and more far seeing than the rest of us on a subject as foreign to the Average Joe as nuclear physics; in fact they’ve briefed us over the years (through a willing media) on the reality of their brilliance: the Committee to Save the World. If the best and the brightest, the Nobelists and the market geniuses, failed to see the future, what hope do the rest of us have? They told us it was safe. – Robert Teitelman Robert Teitelman is editor in chief of The Deal.

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Oil workers expand strikes at French refineries

October 16, 2010

Oil workers expand strikes at French refineries

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Lloyd Chapman: Obama Rhetoric on Infrastructure Spending Doesn’t Match Administration Actions

October 12, 2010

On Monday, President Barack Obama emphasized the importance of putting Americans back to work using federal infrastructure projects. Yet, despite strong rhetoric on jobs, President Obama has failed to stop the purge of jobs caused by the diversion of billions of dollars a month in federal small business contracts to corporate giants. Since 2003, more than a dozen federal investigations have uncovered billions of dollars in federal small business contracts, actually flowing into the hands of Fortune 500 corporations and other clearly large businesses. In Report 5-15, the Small Business Administration (SBA) Office of Inspector General referred to the issue as, “One of the most important challenges facing the Small Business Administration and the entire Federal government today.” The most recent information released by the Obama Administration indicates that of the top 100 recipients of federal small business contracts, 65 percent of the dollars actually went to large businesses. Some of the firms the Obama Administration has allowed to be included as small businesses are: Lockheed Martin, Boeing, Raytheon, L-3 Communications, British Aerospace (BAE), Northrop Grumman, Dell Computer, French firm Thales Communications, Ssangyong Corporation headquartered in Seoul, South Korea and Finmeccanica SpA, which is located in Italy with 73,000 employees. Textron Inc., a Fortune 500 firm with 43,000 employees and annual sales over $14 billion, received approximately $775 million in federal small business contracts in a single year. In February of 2008, presidential candidate Barack Obama recognized the magnitude of the problem when he promised to , “End the diversion of federal small business contracts to corporate giants.” To date, President Obama has failed to honor that promise. In May, the ASBL conducted an examination of the Obama Administration’s track record for small businesses and uncovered a dramatic disparity between President Obama’s rhetoric and his actions. In addition to failing to stop the diversion of federal small business contracts to corporate giants, the Obama Administration has: 1. Reduced overall transparency in federal small business contracting data by eliminating fields such as the “small business flag.” 2. Failed to allocate more than 3 percent of stimulus funds to small businesses. 3. Failed to bring an end to the Comprehensive Subcontracting Plan Test Program, which allows prime contractors to circumvent their small business subcontracting goals.

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Mark Engler: Newman’s Own as Alternative Economics

October 8, 2010

Is Newman’s brand just more “philanthrocapitalism” — or something better? I recently started shopping at a grocery store that is conveniently located near where I live, but that unfortunately doesn’t have a lot of organic food options. What it does have is a lot of Newman’s Own products. A company founded by Paul Newman and a friend, writer A. E. Hotchner, in 1982, Newman’s Own is known by many people for its flagship line of all-natural salad dressings. But in the past decade or so the brand has expanded dramatically, and it now has products in many aisles of my local store. These range from pasta sauces and instant popcorn to organic lemonade and “sweet enough” cereals. An offshoot company, Newman’s Own Organics , was founded by Newman’s daughter Nell in 1993. It sells pretzels, dried fruits, olive oils, chocolate bars, coffee, and selections for the cookie section (“Fig Newmans,” anyone?). Both companies have lived on after Paul Newman’s death in 2008. What distinguishes Newman’s Own from other boutique lines of health food products is that the company gives all of its after-tax profits to charity. To date, it has given away around $300 million. Mostly, the money has supported social service initiatives such as the Hurricane Katrina Relief Fund and the Hole in the Wall Camps for kids with serious medical conditions. But it has also funded some environmental causes and First Amendment advocacy. Now, there’s nothing particularly novel or compelling about the wealthy giving away a portion of their fortunes to charity. Likewise, having a company with a commitment to using natural and organic ingredients, as well as to promoting healthier food, is nice, but it’s not exactly revolutionary. However, when it comes to giving away all your profits … well, that one falls a little further outside the capitalist playbook. I’ve been very critical of the trend toward “philanthrocapitalism.” This school of thought contends that more business thinking and market-based practices are needed to address social problems, or, in the words of author Michael Edwards , that “more capitalism [can be] the answer to the problems that capitalism has already created.” The category of philanthrocapitalism covers a wide range of activity, from microcredit, to socially weighted investment funds, to “social entrepreneurialism” that aims to meet a “double bottom line” of shareholder profit and positive social benefit. It also includes “corporate social responsibility.” A good business-side critique of this idea recently appeared in the Wall Street Journal . There, business professor Aneel Karnani argued: Large companies now routinely claim that they aren’t in business just for the profits, that they’re also intent on serving some larger social purpose….But it’s an illusion, and a potentially dangerous one. Very simply, in cases where private profits and public interests are aligned, the idea of corporate social responsibility is irrelevant: Companies that simply do everything they can to boost profits will end up increasing social welfare. In circumstances in which profits and social welfare are in direct opposition, an appeal to corporate social responsibility will almost always be ineffective, because executives are unlikely to act voluntarily in the public interest and against shareholder interests. For Paul Newman, the Newman’s Own company was always a bit of a lark. He coined a tongue-in-cheek slogan for the business: ” Shameless Exploitation in Pursuit of the Common Good .” This type of language would seem to put him in the tradition of philanthrocapitalism. But his company is quite different from something like Ben & Jerry’s. That premium ice cream company projects a liberal image, but it was acquired in 2000 by the multinational food giant Unilever. The people who now run Ben & Jerry’s still claim to give a portion of profits to charity, but overall they face the same pressures to turn a profit for shareholders as do other mainstream companies. Newman’s Own, on the other hand, is under no obligation to squeeze out profits for investors. The “shameless exploitation” tag line notwithstanding, I haven’t yet seen an exposé about its treatment of its workers or anything charging it with hypocrisy with regard to its proclaimed environmentalism. Marx argued that the kind-hearted capitalist will always be driven out of business by more ruthless competitors. By being more exploitative, these rivals can more quickly come up with the money to invest in new technology, and soon their more modern operations will have the ability to undercut less hardnosed producers. I’ve felt that such a fate would befall many efforts at social entrepreneurialism, especially if they ever grew large enough to threaten the profit-making of mainstream corporations in any serious way. For example, a few years ago Muhammad Yunus, the Bangladeshi ” godfather of microcredit ” who is also a big advocate of social business, convinced French multinational Danone to join him in launching a nonprofit enterprise to produce inexpensive, nutritionally fortified yogurt for impoverished kids in Yunus’s home country. I have little doubt that, should the charity yogurt operation ever become big enough to actually cut into Danone’s profits, the multinational could and would use its economic power to drive the start-up into the ground. With Newman’s Own, I’m not so sure. The company seems to have pretty effectively established itself, despite competition from multinationals eager to tap into premium health food and organic food markets. It’s possible that being exempt from the obligation to secure a profit margin, in addition to savvy marketing, has given it whatever edge it needs to stay alive. I think there is something of note here for progressives. When made to point to examples of actually existing economic initiatives that they support, many global justice activists (including Naomi Klein ) have turned to champion the occupied factories that emerged in the wake of Argentina’s 2001 economic collapse. I’m under no illusion that something like Newman’s Own represents a similarly bold alternative. But the occupied factories had limitations of their own. While certainly laudable, these operations were always quite small, struggled to stay alive, and sometimes were not nearly as radical as their international supporters assumed. They, too, were islands in a sea of conventional businesses, forced to compete in a profit-driven marketplace. More importantly, occupied factories in Argentina are pretty remote to the experience of most Americans, and that limits their resonance here. In a country where “socialism” is used almost exclusively as a scare word, finding clear and relatable ways to discuss what elements of an alternative economy might actually look like is an important task. What’s appealing to me about Newman’s Own is that, because the salad dressings and pasta sauces are there on the supermarket shelves, it creates an opportunity to talk about building an economy that’s not founded on holding up profit and greed as virtues. [This post first appeared at the "Arguing the World" blog at Dissent magazine.]

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Vivian Norris de Montaigu: Green Energy Boys Not So Different Than the Good Ole Oil Boys

October 8, 2010

I just saw the film, Wall Street: Money Never Sleeps last night, sitting next to one of the heads of technology for a major bank, and we both had the same feeling at the end of the film. Basically all of the good ole banking boys (there was one woman in those Fed meetings… that is the real problem in the financial world, not enough women!) in cahoots with the black gold kingpins were focusing on oil shale and African oil field investments. But the young “hero” of the film was just as greedy in wanting to focus on green energy. Someone explain to me how, if they were going to altruistically donate their $100 million investment in fusion, they were going to afford that Manhattan penthouse apartment, no matter how bohemian it was!? Or perhaps they were living off the Soros/Papa gone to London hedge fund money Gordon Gekko had made for them. Either way, Greed is Still Good was still the message twenty years later and that is the problem! Perhaps the best part of the film was the founder of the financial firm based on Lehman’s Fuld mixed in with a little bit of old school Wall Street throwing himself in front of the subway train. I had just said to my French banker friend that somehow the French still actually felt real remorse, and “moral hazard” still had real meaning. I mean the head of the will-not-be-mentioned French bank which just helped send a trader to jail had a nervous breakdown and left his post. And the Connecticut-based French financial advisor who lost his clients huge amounts of money with Madoff offed himself. I’m not saying suicide is the answer, I’m just saying these guys actually took a hit and “admitted” they screwed up royally. There is some kind of honor in actually paying personally, emotionally for hurting people and having not done one’s due diligence. Most of the financial greed seekers just hit the ground running greedily again after losing money on their empty bubble-based swaps, flips and derivatives. There is no moral hazard of any kind! Of course they think they can get away with it because they can. And once they have gutted our country they will just move on to London if they have not already or Paris (where I see and hear more and more New Yorkers and bankers every day!) or Asia or bunker down in their 100,000 acre estancia in Paraguay. What worries me about the new Green Good Ole Boys is the Self-Righteous holier than Thou trope that they are doing so much good for the planet that it does not matter if they are indeed moral humans (or not). Those who made millions and billions in the dirty Wall Street old energy way are just green-wahsing themselves and, in some cases just making more money creating what could be the green energy bubble. I will not name names but there are quite a few now living in multimillion dollar West Coast homes pretending to be so wonderful and evolved and green when in reality it’s just a bunch of male egos, including former politicos who are running things in the new green world. And as a woman from Texas who grew up with a close look at how the Oil Good Ole Boys operated all my life, I am frankly even more scared of the Green Tech Good Ole Boys. At least with the oilmen, I knew what I was dealing with and they did not even try to hide that they were focused on power, control, profits and sexist, macho gun-toting racist everything. The Green Boys actually pretend to be about Equality and Sustainability and Democracy, but they are just as obsessed as the oil and Wall Street guys with accumulating more, having more power and “buying” arm candy, all with a do-gooder smile on their faces. This hypocrisy is going to ruin us sooner or later. The Green Boys could make some real changes, firstly by being more inclusive of women executives leading the way, whether in finance or running the green energy companies. They could also start building green energy companies in places where the good ole boy system needs to be challenged and though there are some green biotech companies in places like Houston, I would invite the green boys to help rebuild the poverty stricken Gulf Coast area with electric car factories and green energy plants. But will old fashioned attitudes still limit the presence of women in the new energy sector? When there are too many official real working women around on the private (green?) jets, that kind of ruins the deal. I mean the wedding rings have to stay on and all that. In Houston, there used to be (still is?) a private men’s club called the Normandy Club, which I believe was in the basement of the Texas Commerce Tower or some old bank or oil company building downtown, where the deals would be signed over lunches with scotch and mistresses and sexy waitresses and lawyers coming down with papers from the offices above all to be signed in the atmosphere of a boys’ club. Be it the golf playing or the hunting or the boys’ weekends in Cabo, nothing has really changed as the new Green boys have their own hierarchy of politicos and start-up dudes to fawn over. And that money racing to finance them also comes from the male-dominated banking sphere. Not a lot of women present however. And this is a real problem, because we need real women in positions of power with the real ability to change things. Not the Meg Whitman types, but those who did not have to play the man’s game to succeed, but who actually are just plain smart, and not scared of confronting the status quo. We don’t need Tea Party reactionaries and Sarah Palinites but serious, thoughtful women we can all respect. If a woman had bought the Chicago Tribune and the LA Times instead of Sam Zell, I hope and imagine she would not have placed a bunch of macho sexist idiots in control, who aided women who literally kissed and slept their way up the ladder, to run what should be considered a respectable business which has a huge responsibility to actually keep Americans informed! Who raised these people? And what kind of corporate culture keeps this kind of insanity going? This is going to be the ruin of our country, putting egos like these and unevolved, sexist men in charge of the backbone of our financial, energy and media sectors!?! Then they go and fire the security folks who reported the misdoings instead of the abusive executives! What is the world coming to?! If these guys keep getting away with it they will keep doing it. It has to be stopped Countries in Scandinavia demonstrate that you can have an extremely successful and sustainable business and energy sector and still promote women to positions of real authority and even grow when the rest of the world is falling apart. Interestingly enough there is more private-public cooperation. In our purely private capitalistic system, part of the problem is that men tend to run things. I studied this when writing a dissertation on Globalization and Media. I want to see successful brilliant women alongside our President helping make serious decisions about the future of our country, and I want to see them in the boardrooms and running this new green energy sector! Get some modern humans in there, and some real women. Or we are headed for more of the same old same old and the United States will be going nowhere fast.

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Antonio Garcia-Martinez: Pseudorandomness, Or How I Got Into Y Combinator and Had a Child With a Woman I Barely Knew, Almost Simultaneously

October 8, 2010

Forms, forms, everywhere are forms Filling out an online form can change your life. I filled out two such forms. One was an online dating profile at Match.com around June 2009. The second was the application to Y Combinator in February 2010 1 . Little did I know then how these two forms would guiltily conspire to change everything. Guitar Strings in Half Moon Bay [ February 21, 2010 | 10:36 AM] 2 Sunday morning phone calls often have far-reaching implications. Anything that interrupts a matinal sabbath repose is bound to stir things up. It was Matt McEachen calling about guitar strings, and his inability to find any in the small ocean-side village he resided in. We start an idea katamari 3 and roll it everywhere, picking up just about every piece of local search, social media, marketing and technology we know about. The end result is a crazy scheme to turn local shopping on its head by joining backend inventory control (think small-business Quickbooks) with front-end Web shopping databases (like Google shopping). Our ball of ideas grows bigger than us, and rapidly gets its own momentum. Our startup baby needs a midwife. We’re filling out an application to Y Combinator the day before the deadline. My co-founders are unconvinced as to the wisdom of this. We had real jobs. The money on offer was paltry. The equity taken was large. The idea so vague and ill-formed it might just vanish like smoke in a breeze. I’m a sucker for a fine prose style, so I print out and give a copy of this essay to both. That essay is the gateway drug of startups, it is entrepreneurship crack and meth rolled into one 4 . The co-founders are convinced. We submit the written portion of the application. Love on the installment plan [ June 5, 2009 ] Match.com conversation turns into a first date. First date followed by a random run-in at the boatyard. Her ex-boyfriend is there too, and we make friends. Random run-in turns into a dumping. It’s too weird I know her ex-boyfriend. Dumping turns into ambiguous opera outing with date and her friend. Opera outing followed by brunch at her place. Brunch leads to dinner. Dinner leads to a pornographic scene on her kitchen counter. Mayhem breeds more mayhem. And now she’s pregnant. Present at the creation [ February 17, 2010 | 1145 PM ] All that remained was a one-minute video presenting ourselves and what we wanted to do 5 . I was in the initial throes of a Joaquin Phoenix-esque descent into anti-social malaise, whose principal expression was the growth of a truly Fidel Castro-sized beard. The thought did occur that I might look like an uncouth barbarian. Screw it, YC would get me beard and all. As in almost every YC activity, the challenge with the video was to distill down a lot of complex stuff to impossibly short time constraints 6 . By 11:50 PM I had it down to a minute and ten seconds. I go to email it to Posterous 7 to discover Gmail has a 30GB email limit. More editing, at lower resolution, and by 12:30 we have a video (deadline was at midnight). A miss is as good as a mile. ESPN, Maxim, and a No. 2 hair clipper. [March 6, 2010 | 11:34 AM ] The Razor’s Edge in Alameda is a wormhole in spacetime to the American 1950s. Girlie mags on the racks, ESPN on the TV, and an old, crusty barber who’ll crack racist jokes or discuss auto repair with equal panache. I tell him to do something interesting with my Yeti’s beard, and he sets to work with razor and scissor. He fancies me a thick goatee and thin moustache. I look like I just got released from either San Quentin or trucker’s school. Si quieres hacer reír a Dios, cuéntale tus planes 8 [ March 7, 2010 | 8:35 PM] If you had been standing on the corner of Broadway and MacArthur in Oakland the night of March 7, 2010, you would have seen a curious sight. A heavily pregnant woman, bent over in pain and scarcely able to walk, was being half-carried, half-dragged across the street by a tall, goateed man. The woman could barely stand, and needed to pause and cling to either the man, or any fixed object, to support herself as they struggled across the last couple hundred feet. Every twenty feet or so, the woman would double over and gasp in pain, bringing everything to a halt. The man was simultaneously trying to check for traffic, keep his female companion from collapsing, keep in tow a large hastily-packed suitcase, and navigate the whole lurching ensemble toward the emergency room door. That goateed man, gentle reader, was me. The woman was a former City of London derivatives trader. She was 37 weeks pregnant. We had known each other for 39 weeks. James Brown and Mr. Limpy [March 21, 2010 | 4:00 PM ] Two hours before we’re due in Mountain View, over thirty miles away, we decide to do our first end-to-end test of the system, entering a UPC code, extracting product information, and generating a product page. Our test product thus far had been Mr. Limpy, an imposingly large rubber phallus, the sort of gag gift you buy for a bachelorette party (or God knows what), and it had worked astonishingly well so far. That wouldn’t do for the Y Combinator pitch for obvious reasons. Argyris is an indie-music junkie, and was still anchoring an evening spot at KZSU, Stanford’s student radio station. I start rifling through one of his mountains of CDs and trying them one by one. No dice. They’re all weird, niche bands even Amazon hasn’t ever heard of. I flip quickly through the entire pile, trying to find the most mainstream thing imaginable. James Brown’s ‘In the Jungle Groove’ flashes by, and I try it. Amazon recognizes it, and returns a cover photo and product description. We’re golden. I carefully make sure no user has Mr. Limpy 9 in their product database, and we pile into Argyris’ VW beetle for the drive down to Mountain View. Along the way, I pull out, what else?, the James Brown CD and we listen to ‘Sex Machine’ as we barrel along the 101. Argyris and I agree that if we get funded, we’re declaring the Godfather of Soul our official patron saint. St. James of Augusta would see our company through. Mucosal plug 10 [ March 7, 2010 | 9:30 PM ] Amanda passed out on a gurney and began bleeding profusely. I watched with increasing alarm as red streaks traced bloody spiderwebs across her thighs. The nurses milled around like bored bureaucrats at a foreign post office, and talked about paperwork and the weather. The milestones of birthing are measured in centimeters. Seven centimeters dilated; too late for anesthesia, too late for fashionable breathing exercises. It was show time. I invite anyone with a philosophical bent to witness a human birth and observe as unstoppable forces meet immovable objects, with neither yielding. Modern medicine does little to resolve this paradox made flesh. The only real difference between the bloody, screaming tableau before me and that of, say, my grandmother’s birth a century ago in rural northern Spain, by candlelight, in some country home, were the little plastic packets of mineral oil, like the salad dressing at a Denny’s, that nurses would regularly crack open and pour over the heaving, tumescent mass down south 11 . It was a sweaty, white-knuckle affair shattered by piercing shrieks of pain that resonated across the maternity ward, and which the heavy institutional doors the nurses slammed shut did little to stifle. I quietly entertained Mad Men -esque bouts of nostalgia for an unknown time when men simply paced nervously and smoked in some other room while the dirty business was done elsewhere. After two hours of battle, old flesh yielded bloodily to new, and Zoë Ayala came into the world. As some sort of perverse parting gift, I was given the honor of cutting the umbilical cord. As thick as a man’s finger, and a sort of pus-like yellow film over a deep purple core, it yielded to my snipping with a pair of small scissors, making a satisfying ‘snap’ as I sheared the last fleshy connection between mother and child. Zoë wailed mightily. The nurse plopped her on a stainless steel scale, topped by two infrared heating lamps, like the french fry station at a McDonald’s. Length and weight taken, she used a thick, cotton blanket like a tortilla and wrapped up Zoë. She put the baby burrito in my arms. For the first time, Zoë settled, the tight swaddling fooling her into thinking, for a few minutes, that she was back in the warm embrace of a mother’s womb. She looked unbelievably small and frail and unready for a cold, hard world. Shake your moneymaker [March 21, 2010 | 3:45 PM ] So there I was looking like Captain Morgan 12 with Argyris and Matthew and the partners of YC. There was a large and official-looking clock, like something you see poolside at the Olympic swimming competition, to the left of the desk by Jessica. It read “10:00″ and started counting down immediately. Paul Graham demolished immediately whatever premise we had of a demo script by greeting us with my application sound bite: “so, you’re creating the Charles Schwab of local product marketing…” What followed was a meandering rough-and-tumble debate about local search. Trevor would chime in with a tough question, McEachen would begin to respond, but not before Paul jumped in with another, which Argyris would field. I would chip in on one of the going threads, but not before another one started. It was all over much too soon. We came out of the demo and, to a man, thought we had completely blown it. We were heartened somewhat when Paul Graham chased us out the door to ask us a follow-up question, then immediately disheartened again when we pitched the idea to a YC alum who was milling about 13 . We decided to go to the Rose and Crown in Palo Alto to drown the worries. Before we had managed to order the first round, we had a phone call from Paul Graham offering to back us, which we accepted after a bit of discussion 14 . Back at home that night, after all the excitement, Zoë slept in her cocoon of blankets, and took no notice of the idea that had just been birthed alongside of her. The two applications aren’t unrelated, even in content. One of the Y Combinator questions asked you to name one non-computer system that you’d hacked in some interesting way. My answer concerned a man-in-the-middle attack I once did on Craigslist personals. I placed an ad as a woman seeking a man, and as a man seeking a woman, and then simply crossed the email streams by forwarding mail from one to the other, and vice versa. Most Craigslist personals didn’t even have photos back then, so the switch went undetected, even after the couples had met. I handed off the relationship by telling one that the other’s email address had changed, from my fake one to the real one, and likewise vice versa. For all I know, those couples are still together and having kids. They probably don’t know to this day what happened or what brought them together. [ ↩ ] The date and time are my lame way of juxtaposing two convoluted processes which evolved on different time scales, but culminated around the same time. Another way to think about these is like the computerized timestamp that adorns the first few seconds of a cutaway scene in every Jason Borne or Tom Clancy film ever made. You know, “Cairo: 0345 GMT”, in the lower right hand corner, in green monochrome typeset, complete with beep-y computer noises. [ ↩ ] If the concept is foreign to you, check out this. It’s basically a massive ball of disparate stuff. The Japanese invented a quirky and strangely addictive video game of the same name, in which you roll this ball all over the earth. The end result is you have this immense, lurching ball, with everything from cows to a tractor sucked into it, being rolled over hill and dale. You have to see it to understand it. Being slightly drunk helps. [ ↩ ] For more fine startup erotica, check out Jessica Livingston’s Founders at Work . Paul Graham’s chapter is especially good. [ ↩ ] Don’t do as we did and wing it. PG has said more than once that if there was one thing in the application he would keep at the expense of everything else, it’s the video. So get it right. [ ↩ ] The final climactic demo is now down to two and a half minutes. 2.5 minutes! I couldn’t really explain how a salt shaker works in that time, much less how we’ve built the future of online marketing. Tough. Get used to it, entrepreneur. Everyone else is in the same jam. [ ↩ ] Another YC quirk: any piece of YC administrative or technical machinery will use a YC company’s product, if possible. It’s a product patriotism verging on extremism. The day PG funds an airline startup, you can be sure that’s the only thing he’ll ever fly again, and he’ll expect you to do the same. I fully expect PG to use AdGrok if he ever advertises anything. [ ↩ ] A Mexican proverb which translates as: if you want to make God laugh, tell him your plans. The Old Bugger must have had a chuckle over this one. [ ↩ ] To be fair, I’m probably guilty of introducing Mr. Limpy into the AdGrok memepool. The idea was a sort of negative reinforcement anti-prize: if you broke the code build, or did something amusingly and uniquely stupid, you’d win the Limpy Prize for that week. Ideally, the prize would be gifted in a Godfather-esque scene, whereby the guilty hacker would suddenly find a disembodied phallus inside a drawer or under some papers on their desk, and they’d clutch at it madly while screaming at the top of their lungs. The reality of course was that we each would have earned a Limpy prize four or five times over during those early days of development. [ ↩ ] You don’t want to know what that is. Really. [ ↩ ] The oil was a lubricant to get the head through at the final moment, when it looked like the birth was really hitting the apex of improbability. [ ↩ ] The ‘Captain Morgan’ was the moniker bestowed by Paul on our first official meeting, once YC started. Evidently, he expected me to keep that ridiculous piece of facial hair. The disappointment with which its disappearance was met made us all kind of think that the crazy goatee might have been why he funded us. This is the same meeting where he talked us out of the idea he we pitched at the demo. AdGrok, in current form, is actually plan ‘J’. [ ↩ ] YC alums typically hang around on pitch day, to put aspiring YCers through their paces and give them some advice on their pitches. The idea is to quiet anxieties. This one, intentionally or no, did exactly the opposite. [ ↩ ] Note, Paul kind of expects an answer immediately, and our hemming and hawing was in poor form. So make up your minds beforehand [ ↩ ]

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Richard (RJ) Eskow: The French Connection: That Jailed Banker Raises US Issues

October 6, 2010

Remember 2003, when so many Americans hated France for refusing to participate in the Iraq invasion? The airwaves were filled with insults about “effete” and “cowardly” Frenchmen, the phrase “cheese eating surrender monkeys” was on many a pair of lips, and rich patriots were boycotting Rhône wine in the spirit of national sacrifice. Well, munch on a Freedom Fry and ponder this: Finally, after one stunning revelation of big bank lawlessness after another, a banker is going to jail… in France. That’s a bit of a national embarrassment, n’est-ce pas? Jerome Kerviel was sentenced today to five years in prison (with two years suspended), and was ordered to pay the equivalent in $6.7 billion US in damages. There are a number of questions about Kerviel’s case, including the fact that he never profited personally from his massive trades. That part of Kerviel’s psychology is incomprehensible to the Wall Street mind: He made his bank billions of dollars, and earned less than $200,000 US per year for his efforts. A true American shark would have nothing but contempt for a sucker like that. Guess who got off pretty much scott free in the whole deal? Société Générale, the bank that employed him. If the name sounds familiar, here’s why: SocGen was one of beneficiaries of the US taxpayers’ largesse when, as a counterparty to AIG, the government directed AIG to pay the French bank $11.9 billion. That’s 100 cents on the dollar for the money AIG owed SocGen for credit default swaps and CDS collateral postings. Newspaper reports about Kerviel say that he generated more than 1.4 billion Euros in profits during a single year. And yet there was so little curiosity about his activities that he was still able to bet more that $50 billion Euros, more than the entire market value of the bank that employed him, without getting caught. As an AP story reported , ” an internal report by the bank found managers failed to follow up on 74 different alarms about Kerviel’s activities.” They were shocked — shocked — to find out that gambling was going on in there. In that sense, the judge’s ruling was odd. While the French are to be applauded for their willingness to indict a banker, the court’s ruling bent over backward to exonerate and placate the bank itself. The court ordered Kerviel to pay back the entire amount the bank allegedly lost. While Kerviel will actually never be able to do that, it was the judge’s was of saying that the bank bore absolutely no responsibility for what occurred on its premises. It was also a repudiation of Kerviel’s assertion that other traders were doing the same things he was. Instead of reprimanding the bank for its horrible risk management practices — controls so sloppy that the entire bank could be put at risk by mid-level employee — presiding judge Dominique Pauthe praised the bank’s response to the crime once it had happened. If the bank had left the vault doors open, presumably the judge would have praised it for promptly sounding the alarm after it had been robbed. But then, Société Générale has a way of getting lucky where the authorities are concerned. The US decision to pay the bank the full value of its AIG obligations demonstrates that. Think about it: In the course of a year, an allegedly “rogue” trader wreaked so much havoc that it cost Société Générale $6.7 billion — and the US government honored an obligation for nearly double that amount. Had the US let AIG go down, or refused to honor this obligation, SocGen’s fate might have been very different. Instead it survived this incident pretty much unscathed. The French bank seems to have done well by its association with Goldman Sachs, which brokered a number of its arrangements with AIG. It’s important to remember the role those two firms played in the months preceding the financial collapse. As Bloomberg News reported : Banks that bought swaps as protection against losses on mortgage-linked assets demanded cash collateral as the market value of the securities plunged last year, overwhelming AIG’s ability to pay. “It was precisely that drain of liquidity to Goldman and SocGen that put AIG in a position of illiquidity and ultimately threw them into the government’s arms,” said Charles Calomiris, a finance professor at Columbia Business School in New York. In other words, they had already bled a lot out of AIG before it collapsed, and yet were still able to receive 100 cents on the dollar where others might have been forced to settle for less. As with the Kerviel affair, SocGen’s oversight appears to have been lax when it came to its AIG agreements. David Fiderer properly notes SocGen’s casual indifference to a major investment, deferring that task to Goldman. Not that Goldman didn’t work for its client (and itself): It’s been accused of engaging in serious gamesmanship over its valuation of some of the securities in question. Many Americans who are already outraged over AIG’s counterparty payouts may know that AIG believed it had overpaid Goldman $1.56 billion, or that Goldman had refused to have its valuations reviewed by a panel of independent firms. One of the open questions about l’affaire Kerviel is whether he acted alone. At the very least, there were enormous gaps in SocGen’s internal controls. At worst, the bank looked the other way while one or more of its traders generated huge profits. But the real question are for our country, not France: Where are the US indictments and convictions? We’ve already discussed the curious decision not to prosecute anyone at AIG. But then, the French don’t have our SEC, which has so often chosen to cut sweetheart deals that leave bank shareholders on the hook for the illegal behavior of bank executives, while letting the bankers themselves walk away with their freedom and their bonuses. Senators aren’t the only ones upset about that. Judges are furious with these slap-on-the-wrist SEC agreements. In fact, “sweetheart deal” was the phrase a judge used to describe the SEC’s agreement with Barclay’s Bank. The Barclay’s case was the fourth in a series of cases where banks violated international law only to be let off easy, prompting the judge’s comments. As the New York Times reports: “Judge Sullivan asked why the government had not indicted and prosecuted the foreign banks, rather than agreeing to the settlements. He also asked whether any individuals from Barclays were being held responsible, though no one else has been charged in the case. “One must wonder what the penalty is, said Judge Sullivan … Judge Sullivan’s comments was part of a litany of judges’ complaints along the same lines. These judges understand that criminal prosecution of banks — and bankers — has precisely the deterrent effect we need to protect society. We’ve seen rampant bank criminal behavior go unpunished, from stock fraud to forged mortgage documents to laundering drug money. The French court’s air kiss to SocGen was unacceptable, given that bank’s negligent or complicit role in Kerviel’s action. That means that, at least in one sense, Kerviel’s the fall guy (even if he’s not the hero some of the French seem to think he is). But at least Kerviel’s conviction and sentence might deter future bad bankers. The US bankers who engaged in criminal behavior are walking around free. They’re writing big checks to political candidates, whining that nobody likes them and, of course, drinking nothing but the best French wines. DISCLAIMERS: Two potential conflicts of interest here — I used to work for AIG, and I’m one-quarter French. When I was about 18 I mentioned that second fact to a very pretty young woman on a train to Paris, in my broken French, to which she responded in true Gallic fashion: “How nice for you.” _________________________ Richard (RJ) Eskow, a consultant and writer (and former insurance/finance executive), is a Senior Fellow with the Campaign for America’s Future. This post was produced as part of the Curbing Wall Street project. Richard also blogs at A Night Light . He can be reached at “rjeskow@ourfuture.org.” Website: Eskow and Associates

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Lloyd Chapman: Bush Administration Policies Continue to Short Change Small Businesses Out Of Billions

October 1, 2010

Federal policies established during the Bush Administration are still allowing billions of dollars a month in federal small business funds to be diverted to thousands of the largest companies in the world. Information from the Federal Procurement Data System – Next Generation (FPDS-NG) compiled by the American Small Business League (ASBL) found that during the last two years, Bush era policies have allowed as much as $180 billion a year in federal small business funds to be diverted to many of the largest corporations in the world. Some of the firms that have received small business contracts include Boeing, Lockheed Martin, Northrop Grumman, Raytheon, Dell Computer, Xerox, SAIC, General Dynamics, Bechtel and John Deere. Textron, a Fortune 500 defense contractor with 43,000 employees and over $14 billion a year in annual sales received over $775 million in federal small business contracts in a single year. In addition to a “who’s who” of corporate giants in America, Bush policies are still allowing many of the largest firms in Europe and Asia to receive U.S. government small business contracts. Ssangyong Corporation headquartered in Seoul, South Korea landed more than $250 million in U.S. small business contracts. Finmeccanica SpA located in Rome, Italy received over $280 million in small business funds. Other European corporate giants that have landed federal small business funds include British Aerospace (BAE), Rolls-Royce and French defense giant Thales Communications. Since 2003, over a dozen federal investigations have found hundreds of billions of dollars in federal small business contracts that have been diverted to thousands of large businesses around the world. In 2005, the Small Business Administration (SBA) Office of Inspector General described the problems as, “One of the most important challenges facing the Small Business Administration and the entire Federal government today.” ( http://www.asbl.com/documents/05-15.pdf ) President Obama recognized the magnitude of the abuses and promised American small businesses he would end them when he stated, “It is time to end the diversion of federal small business contracts to corporate giants.” ( http://www.barackobama.com/2008/02/26/the_american_small_business_le.php ) Research by the Senate Committee on Small Business and Entrepreneurship found that every one percent increase in federal contracts to small businesses would create over 100,000 new jobs. Research by the ASBL indicates ending the diversion of small business contracts to large businesses could increase federal contracts to small businesses by over 18 percent and could create over 1.8 million net new jobs.

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Thomas Hoenig, Federal Reserve Governor, Is Fed Up

September 23, 2010

Thomas M. Hoenig, dressed in a gray suit, white shirt with French cuffs, and baby-blue tie, faces an edgy crowd of 150 people in a hotel meeting room in suburban Lenexa, Kan. A large “Kansas City Tea Party” banner covers a table at the door. Attendees wear anti-tax stickers on their lapels. This is not an after-dinner speech for which most central bankers would volunteer. … Hoenig smiles at his audience and begins: “This is a support-the-Fed rally, right?” … And, by the way, if it were up to him (though it’s not, really) he would break up the biggest Wall Street banks.

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Moody’s raises outlook for French banks

September 22, 2010

Moody’s raises outlook for French banks

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Iqraa Bookstore Reveals Iraq’s Progress And Uncertainty

September 21, 2010

BAGHDAD — The Iqraa bookstore on Mutanabi street has more than tripled in size in the last two years. Business is up 50 percent since 2003. But, say the store’s two owners, the future is uncertain as long as they can’t count on safe streets, stable government and reliable electricity supplies. Yet Iqraa’s growth reflects a tiny step forward in a nation that centuries ago was a beacon of literature and science, and which has suffered sustained and bloody bouts of bloody turmoil over the past 30 years. ___ EDITOR’S NOTE: Associated Press correspondent Hamza Hendawi reports on his latest visit to a corner of Iraqi cultural life whose fortunes he has tracked since the U.S.-led invasion seven years ago. ___ Iqraa’s owners, Atta Zeidan and Mohammed Hanash Abbas, are close friends. In a series of interviews this summer, they talked about the winding down of the U.S. military mission in Iraq, the political deadlock since the March election, the stillfragile security situation and its impact on their business. “Our dreams are one thing and the reality is another,” Zeidan lamented. The dreams came with Saddam Hussein’s overthrow in the 2003 U.S.-led invasion. The reality, on one August morning, was a long power outage during a blistering sandstorm, and the nagging unease about violence which, though dramatically down since 2008, still manifests itself in sporadic, almost daily incidents. “Our future plans depend on electricity, security and the economy,” Zeidan said. The future also depends on how the Iraqi police and military manage without the Americans, all of whom will be gone by the end of next year. Both men said they had welcomed the Americans as liberators but were now glad to see them leaving. “No one in Iraq likes the idea of a stranger coming into his house,” said Zeidan. “This is our homeland.” “A year ago, I used to say the Americans should stay, but not now,” said Abbas. “I think it is best if they leave, but without stopping their support for the government and the army.” Zeidan and Abbas are Shiite Muslims, the majority that was long oppressed by Saddam and had the most to gain from his ouster. The two men, both college graduates, opened their store in 1995, hoping to ease the poverty inflicted by the U.N. sanctions that had followed Saddam’s 1990 invasion of Kuwait five years earlier. Today, what began as a secondhand bookstore and a lending library for students has become a major supplier of texts and language-skills books for colleges across the country. Tucked among many other bookstores on a street named for a 10thcentury Baghdad poet, it is also one of the best sources of used books – some dating back a century – on Iraq, Islam and the Arab world. In the past two years, Zeidan and Abbas have leased a store next door to expand, plus a storeroom in the dusty two-story mall where Iqraa (an Arabic command meaning “read”) is located. Abbas is getting a passport so he can travel to neighboring Iran to buy books directly from Iranian presses, rather than pay agents to buy and import them overland. “Iran is closer than India and cheaper than Syria,” he said. They also are slowly building a stock of audio material for language students and contracting a Baghdad press to print pirated English and French classics. “The world of books will not make us rich and fat,” said Zeidan, 45 and a father of three. “But it’s not making us poor and skinny either.” “Business has been good the past year,” said Abbas, 47. “People’s purchasing power is healthy, but every time there is a security situation, business drops.” In 2007, a year before Iraq turned the page on the post-invasion violence, a bombing on Mutanabi street killed nearly 40 people and wrecked scores of bookstores. But on the day Abbas and Zeidan spoke, things seemed peaceful. An elderly, sweat-soaked man came looking for a Russian-Arabic dictionary to send to his son who is studying medicine in Moscow. A young student returned a borrowed volume of Byron’s verse, and three others searched for textbooks that would help them learn English. Nowadays Iraqis are traveling abroad more and studying for college degrees. They have connected to the outside world through satellite TV, the Internet and cell phones. “For so long, we were a society governed by a single ruler – an oppressed people,” said Zeidan. “We were an isolated society with Saddam’s pet issues and slogans nonnegotiable. We have a new life now. Anyone can run for office. Anyone. ” But democracy has also turned out to be messy. Six months after the March 7 election, bickering politicians still haven’t formed a new government. Abbas and Zeidan say that despite their store’s success, they have yet to reap the full benefits of a world without Saddam. But they manage to see hope even in the fact that the political deadlock is driven by personal rivalries rather than the sectarianism that spilled so much blood during the post-invasion violence. “I don’t care who is the next prime minister,” said Abbas. “All that I care about is that we have a man who can run the country.”

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Simon and Clement complete French rout of Argentina

September 20, 2010

Simon and Clement complete French rout of Argentina

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Dan Dorfman: Bad Guys Ballooning on Wall Street

September 17, 2010

Wall Street’s bad guys continue to multiply even though their idol, Bernie Madoff, currently serving a 150-year jail term, would be the first guy to tell them that crime doesn’t pay. Indicative of this accelerating bad guys trend is the stepped-up number of insider trading probes by two of Wall Street’s leading regulators on the securities beat — the Securities and Exchange Commission (SEC) and the Financial Independent Regulatory Authority (FINRA), which oversees nearly 4,700 brokerage firms. Both, I’ve learned, have recently kicked off investigations into the stock trading of a trio of prominent companies prior to their receiving well publicized buyout offers in recent months totaling about $58.5 billion. These fresh, unreported investigations center on what one aspect of Wall Street killings — the illegal kind — are all about. In brief, you buy a stock and you’re lucky. Some firm steps in and makes a bid for the company at a sizable premium to the existing share price and you reap a big gain as the price of the shares balloon. Then again, maybe you weren’t so lucky. Maybe it was a sure thing transaction. Maybe you bought the stock after obtaining privileged, non-public information, which is precisely what Gordon Gekko did before winding up in jail. That’s basically what the SEC and FINRA are looking into with regard to the three takeover offers in question. They involve: –The $38.6 billion hostile bid by Australian-based BHP Billton, the world’s largest mining company, to acquire Canada’s Potash Corp., the globe’s biggest fertilizer supplier. The bid was rejected. –An $18.5 billion offer by French drug maker Sanofi-Aventis to buy Genzyme Corp., a leading U.S. biotech company. That bid was also rejected. –A $1.2 billion offer by Hertz Corp., later raised to $1.43 billion, to acquire a rival in the rent-a-car business, Dollar Thrifty Automotive. It’s all very legal, of course, to buy the shares of a takeover candidate, but not if you have precise knowledge of an impending buyout offer that has not been publicly disclosed. That’s not playing the game on the up and up. If you’re caught cheating — namely, illegally trading on inside information — you can, as you well know, get hit with a hefty fine, join Madoff and Gekko in the clink, or both. With the mergers and acquisitions game heating up, thanks to low interest rates, strengthened balance sheets, a desire by companies to beef up their growth prospects in a weak economic environment and pent-up efforts by overseas corporations to crack the U.S. market, the opportunities to beat the system with inside knowledge of non-publicly announced deals have become much greater. Apparently suspicious that some unethical trading may indeed have taken place in the shares of Potash, Genzyme and Dollar Thrifty Automotive, the SEC and FINRA in recent weeks sent out inquiries to the brokerage community in which they specifically requested the names of any clients who traded in these securities both in domestic and foreign markets in specific time periods. It’s unclear whether any of the investigations mentioned here extend beyond the trading in the companies’ securities. Both agencies declined comment, but I have obtained copies of internal SEC and FINRA documents from a regulatory contact that detail the three investigations. In addition, both agencies recently initiated a number of other stock trading investigations, with energy companies particularly conspicuous. Again, I have gotten my mitts on copies of regulatory documents detailing these investigations. Included here are SEC probes into such stocks as Valero Energy, Hess Corp., Adobe Systems, Transocean, Ltd., Occidental Petroleum, Valeant Pharmaceuticals International, Annaly Capital Management, Lennar Corp., Hewitt Associates, Americredit Corp., BMC Software, Halliburton, Cameron International and Las Vegas Sands. Meanwhile, FINRA, the documents show, is probing the trading in such stocks as Priceline.com, BJ’s Wholesale Club, Atlas Pipeline Partners, L.P., Prospect Medical Holdings and DigitalGlobe. What does it all mean? That insider trading is far from dead and the securities industry’s cops monitoring the Wall Street beat probably need more handcuffs. I don’t want to sound like a broken record, but about a year ago I wrote a similar kind of piece on stock trading investigations and tried to explain why there are so many bad guys on Wall Street. One answer — “Because our product is money and money attracts scum” — was given to me then by Malcolm Lowenthal, a stockbroker at Kern Suslow Securities. That covers it all. What do you think? E-mail me at Dandordan@aol.com .

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Mars, IBM & USDA Successfully Map Chocolate Genome

September 15, 2010

Two competing studies have unlocked the cacao tree’s complete genome, which could yield a stable supply of chocolate beans and could one day lead to tastier, more nutritious candy bars. Mars, the company behind M&Ms and Milky Way, spent $10 million on a project, which also involved the U.S. Agriculture Department and computer megalith IBM, to produce the Cacao Genome Database. As of today, the genome map will be available on the Web, free of cost, for interested readers, scientists and chocolate manufacturers. But the announcement from that consortium is expected to be met by a similar one from Hershey, which worked with the French government and Pennsylvania State University to create its own version of the cacao tree genome.

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Dr. Sasha Galbraith: Quota Me On This: U.S. Companies Should Enact Board Quotas

September 11, 2010

Should the United States jump on the female quota bandwagon? Norway has had a quota law in place for the past four years stipulating that all publicly traded companies must have between 33 and 50 percent women on their boards of directors (depending on size). France and Spain are enacting similar laws — minus the penalties. Any Norwegian company that didn’t comply with the law faced penalties and dissolution. Disobedient French companies will simply get a slap on the corporate wrist. For those who are counting, women occupy a paltry 16 percent of Fortune 500 board seats — and this number has hardly budged for years. Some common explanations: it’s only a matter of time, women don’t have the requisite CEO experience; too many women drop out of the corporate rat race before their time; they are unpredictable and want too much too fast and they don’t factor in the “right” networks (i.e. those who pick board members). In Europe and Asia the numbers are even more dismal; less than 10 percent of board members in Europe, on average, are women. And that number includes Norway, which means there are many countries like Italy, Portugal, Greece, Spain and Switzerland with truly pathetic female representation. In Asia, the number is 3.6 percent for developed countries (Japan, Hong Kong, Singapore, Australia and New Zealand) and 4.7 percent for emerging markets. Critics of the board quota system claim there are just not enough qualified women to go around. In fact, one frequently cited study claims that the average market value of a company dropped by 2.5 to 5 percent in the 3 days surrounding the announcement of the board quota law in Norway. The authors, however, do not place the blame on women, but rather claim it’s the lack of experience and young age (46) of the new board members on relatively small boards (7 members on average) which likely contributed to the decline in value. But maybe market value isn’t a good measure. After all, market value is a somewhat subjective measure involving expectations of firm performance in the future. Another group of researchers* found investors systematically penalized companies with at least one woman on the board, since all-male board member companies commanded a market value 37 percent higher than the more female-forward firms. However, when those researchers looked at other measures such as Return on Assets and Return on Equity, the women-populated boards did better than those that were exclusively male. Combine that result with several other studies indicating higher earnings quality, higher profits, more long-term focus on a firm’s holistic value and less risk in companies with more women at the top, and it’s hard to argue against the logic of putting more women in senior positions – not least on the board of directors. So how can we achieve parity on boards? Typically, I’m not a fan of quotas or other affirmative action programs. But in this case, I think that asking companies to “do the right thing” and appoint more women won’t happen anytime soon unless we force them to do so. I reject the notion there is a lack of qualified women in the United States. The good old boys on today’s boards are just not looking hard enough. *”Investing with Prejudice: the Relationship Between Women’s Presence on Company Boards and Objective and Subjective Measures of Company Performance” by S.A. Haslam, M.K. Ryan, C. Kulich, G. Trojanowski and C. Atkins. British Journal of Management . Volume 21, Issue 2, pp. 484-497, June 2010

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Egg Recall: U.S. Chose Not To Require Vaccine For Salmonella Egg Threat

August 25, 2010

DES MOINES, Iowa — Low-cost vaccines that may help prevent the kind of salmonella outbreak that has led to the recall of more than a half-billion eggs haven’t been given to nearly half the nation’s egg-laying hens. The vaccines aren’t required in the U.S., although in Great Britain, officials say vaccinations have given them the safest egg supply in Europe. A survey conducted by the European food safety agency in 2009 found about 1 percent of British flocks had salmonella compared to about 60 to 70 percent of flocks elsewhere in Europe, said Amanda Cryer, spokeswoman for the British Egg Information Service. Since Britain’s vaccinations began, the only salmonella outbreaks in eggs have been linked to those imported from elsewhere in the European Union, Cryer said. Overall salmonella cases in the country dropped by half within three years. There’s been no push to require vaccination in the U.S., in part because it would cost farmers and in part because advocates have been more focused on more comprehensive food safety reforms, those watching the poultry industry said. And the U.S. Food and Drug Administration has not yet determined how the hens in Iowa became infected. But Darrell Trampel, a poultry veterinarian at Iowa State University, predicted vaccination will become more common after the recent outbreak. “I think (vaccination) will move from hit and miss to being a standard,” Trampel said. About 125 million of the 218 million egg-laying hens in the U.S. have been vaccinated, said Gary Baxter, a spokesman for French pharmaceutical company CEVA, which makes some of the vaccines available in the U.S. The salmonella vaccine prevents chickens from becoming infected and then passing the bacteria on to their eggs. It has been available in the U.S. since 1992. There are two forms. One is a spray that uses a live bacteria, and chickens inhale it. The other contains dead bacteria that’s injected. Jewanna Porter, a spokeswoman for the Egg Safety Center, an industry group, said both forms provide good protection. The injected vaccine lasts longer, but veterinarians recommend both be updated. In most cases, laying hens are vaccinated at between 10 and 16 weeks old, which is before they are put into production. The FDA said last month it doesn’t believe mandatory vaccination is necessary, but it supports farmers doing it voluntarily. Data on the vaccine’s effectiveness in field trials conducted in real world conditions “was insufficient to support a mandatory vaccination requirement,” the agency said in the text of new rules requiring increased inspections and testing of eggs. “If individual producers have identified vaccines that are effective for particular farms, FDA encourages the use of vaccine as an additional preventative measure,” the agency said. Telephone and e-mail messages left for FDA spokeswoman Patricia El-Hinnawy for further explanation were not immediately returned Tuesday. Doug Grian-Sherman, senior scientist at the Union of Concerned Scientists, said the vaccine deserves additional study, but it would likely have only have limited effectiveness against a bacteria like salmonella, which has many different strains. “It’s only going to be a Band-Aid on a much bigger problem,” he said. It would be more effective to give the FDA additional authority to stop repeat offenders and pull contaminated products off shelves and to move away from big production facilities that ship across the nation and can quickly spread disease, Grian-Sherman said. “The way we produce a lot of our food and meat and eggs in particular, has gotten to a scale where it’s very difficult to prevent these problems,” he said. “That needs to change and we need to think about producing food on a scale that is better for the communities and safer for consumers.” Trample, the Iowa State University veterinarian, said no vaccine for any disease is required for chickens. “They are all left up to the decision of the producer,” he said. “Almost all other vaccines are strictly for chicken diseases that have no public health significance.” Both farms involved in the recall vaccinated some of their chickens. Julie DeYoung, a spokeswoman for Hillandale Farms, said the company began purchasing vaccinated laying hens in September 2009. The company didn’t vaccinate older hens but replaced them with vaccinated ones as they went out of production, she said. “So about 80 percent of the hens have been vaccinated,” DeYoung said. Wright County Egg has vaccinated some hens since 2009, investing more than $570,000 in the effort, spokeswoman Hinda Mitchell said. She declined to offer details due to an FDA investigation but said young hens were vaccinated “when they are in our care.” The FDA’s El-Hinnawy said Monday it appeared the company vaccinated some but not all of its hens. In Great Britain, farmers use a vaccine that goes into the water hens drink. The British government began encouraging, but not requiring, vaccination after a salmonella scare in the late 1980s crippled its egg industry. There was a 60 percent drop in egg sales overnight, Cryer said. “Looking back, that scare was probably the best thing for the industry because we sorted out the problem, and we now have very high standards and there are no consumer concerns about safety,” she said. At least 90 percent of eggs in Great Britain come from vaccinated hens. The other 10 percent come from very small farmers who may have vaccinated chickens but don’t sell to major retailers. Dr. George Boggan, a veterinarian with CEVA, said they aren’t always effective. If egg farms are dirty, and there’s a lot of contamination, the bacteria can “overwhelm” the protection from the vaccine, he said. “It’s in the best interest to keep the environment as clean as possible,” Boggan said. S&R Farms near Whitewater, Wis., began inoculating its 2.5 million hens seven years ago. “We kept our birds on that program and we’ve never had a positive (salmonella) result in the thousands of tests we’ve done,” manager Dave Hill said. He didn’t know exactly how much the company paid for the vaccines, but others estimated vaccination costs between 40 and 60 cents per bird. That includes the cost of the vaccine and the expense involved in administering it. “It’s a relatively inexpensive thing to do for the safety you get from it,” Hill said. ___ AP Medical Writer Maria Cheng in London contributed to this report.

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Video: S&P’s Six Says Sarkozy’s Tax Promise `Not Sustainable’

August 20, 2010

Aug. 20 (Bloomberg) — Jean-Michel Six, chief European economist at Standard & Poor’s, discusses the outlook for the French economy as President Nicolas Sarkozy meets government ministers in preparation for next month’s budget. He talks in Paris with Elliott Gotkine on Bloomberg Television’s “The Pulse.”

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Video: Deutsche Bank’s Moec Sees Cut in French Growth Forecast

August 20, 2010

Aug. 20 (Bloomberg) — Gilles Moec, an economist at Deutsche Bank AG, talks about the outlook for the French economy and the government’s austerity measures. He speaks with Maryam Nemazee on Bloomberg Television’s “Countdown.”

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