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Harlan Green: Corporate Austerity Not the Answer in 2012

by Harlan Green on February 2, 2012

Huffington Post…

Why so much doom and gloom about U.S. economic growth when all the indicators are looking up for 2012? For instance, the Conference Board’s Index of Leading Economic Indicators again showed positive growth ahead. It rose 0.4 percent with seven of its 10 indicators positive. Graph: Econoday And the Q4 ‘advance’ estimate of GDP growth was 2.8 percent, almost double Q3. Equipment and software, which includes autos and exports, was the largest component. Growth would be even higher, if corporations would begin to invest more of their cash hoard in job creation, rather than in speculative investments and excessive CEO compensation. Graph: Econoday The euro’s problems shouldn’t be much of a threat to U.S. growth. “This somewhat positive outlook for a strengthening domestic economy would seem to be at odds with a global economy that is losing some steam,” said Ken Goldstein, a Conference Board economist. “Looking ahead, the big question remains whether cooling conditions elsewhere will limit domestic growth or, conversely, growth in the U.S. will lend some economic support to the rest of the globe.” But JP Morgan’s President Jamie Dimon said even the damage from a default of Greek debt would be “negligible,” in a CNBC interview at the Davos, Switzerland economic summit. So what’s the problem? The austerity (meaning deficit) hawks have their hands around the throats of European commerce. Why? They have the mistaken belief that more stimulus spending will increase debt without actually causing enough growth to pay for it. Professor Robert Shiller, co-author of Animal Spirits with Nobelist George Akerlof, calls it debt delusion. When the private sector, including households, becomes over indebted, they begin to save more and spend less. But if governments do it at the same time, it causes a downward spiral towards deflation and recession — even depression. This comes from the belief of fiscal conservatives that public borrowing takes money away from private users. That, however, isn’t the case, because the private business sector has plenty of funds, but is hoarding them (more than $2 trillion cash holdings), rather than creating more jobs. So if governments are also hoarding their monies — in the form of trade or currency surpluses, excess bank reserves and the like as is happening in most of Europe today, then the bottom falls out of the economy; i.e., if no one is buying and everyone is saving, then no business gets done. This should be self-evident, because such a truth has been known since the Great Depression and New Deal that established our modern safety net, and ultimately put so many people back to work. What underlies that truth is that Great Depressions and Great Recessions only happen when there is a wrenching transformation of whole economies. It was transformation of a mostly rural economy to manufacturing in the 1920s that brought on the Great Depression, and now it is wholesale migration of manufacturing jobs overseas and transformation to the Information Age, when little needs to be manufactured in the U.S. Rutgers Econ Professor Richard Livingston has explained this transformation best in recent papers and articles. The great wealth shift away from wage earners-consumers to corporate profits began in the 1920s, according to Livingston: The underlying cause of that economic disaster (the Great Depression of 1929-33, 1937-38) was a fundamental shift of income shares away from wages/consumption to corporate profits that produced a tidal wave of surplus capital that could not be profitably invested in goods production–and, in fact, was not invested in good production…and that, on the other hand, produced the tidal wave of surplus capital which produced the stock market bubble of the late-1920s. And in a recent New York Times op-ed, ” It’s Consumer Spending, Stupid “, Livingston expands on the reasons for our current prolonged malaise: As an economic historian who has been studying American capitalism for 35 years, I’m going to let you in on the best-kept secret of the last century: private investment — that is, using business profits to increase productivity and output — doesn’t actually drive economic growth. Consumer debt and government spending do. Private investment isn’t even necessary to promote growth. This, to put it mildly, explodes that rationale used by Wall Street and corporations to justify not passing on more of their profits to consumers — 80 percent of which are wage and salary earners. The reasoning being that it is their profits that drive growth. Professor Livingston says: Economists will tell you that private business investment causes growth because it pays for the new plant or equipment that creates jobs, improves labor productivity and increases workers’ incomes. As a result, you’ll hear politicians insisting that more incentives for private investors — lower taxes on corporate profits — will lead to faster and better-balanced growth… … But history shows that this is wrong. Between 1900 and 2000, real gross domestic product per capita (the output of goods and services per person) grew more than 600 percent. Meanwhile, net business investment declined 70 percent as a share of G.D.P. What’s more, in 1900 almost all investment came from the private sector — from companies, not from government — whereas in 2000, most investment was either from government spending (out of tax revenues) or “residential investment,” which means consumer spending on housing, rather than business expenditure on plants, equipment and labor. In other words, over the course of the last century, net business investment atrophied while G.D.P. per capita increased spectacularly. And the source of that growth? Increased consumer spending, coupled with and amplified by government outlays.” Much has been written already about the record profits of both financial and non-financial corporations that have drained consumption, and that is the main reason why average real household incomes have actually declined over the past 30 years. In fact, corporate profits today are highest in history as a percentage of GDP. Graph: Trading Economics And this could be actually endangering economic growth by causing rampant market speculation, rather than productive investments, say many pundits, including Professor Livingston: So corporate profits do not drive economic growth — they’re just restless sums of surplus capital, ready to flood speculative markets at home and abroad. In the 1920s, they inflated the stock market bubble, and then caused the Great Crash. Since the Reagan revolution, these superfluous profits have fed corporate mergers and takeovers, driven the dot-com craze, financed the “shadow banking” system of hedge funds and securitized investment vehicles, fueled monetary meltdowns in every hemisphere and inflated the housing bubble. How to cure the record income inequality that has resulted from so much power going to Wall Street and the corporations? At least, let us return to the income tax brackets that brought so much prosperity to the middle class during the 1960s and 1970s. What were they? The maximum bracket has fluctuated from 91 percent for those earning more than $400,000 in 1960, to the current low of 35 percent for those earning more than $379,150 today. And this has coincided with the astronomical increase in both household and government debt. It should be a no-brainer, if we want to see American growth restored to historical levels. Higher taxes have meant more growth, because public revenues are invested in growth-inducing infrastructure, better public safety, and upward mobility inducing education, for starters. Whereas lower taxes mean higher debts, with less growth and more speculative risk-taking to show for it. Why is that so hard to understand should be the question, or maybe even more apropos is why do so many chose to remain stuck in the last century?

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Harlan Green: Corporate Austerity Not the Answer in 2012

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James Altucher: The 10 Keys to Selling Anything

by James Altucher on February 1, 2012

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Someone I don’t know at all just wrote me with the worst selling technique of all time. He wrote, “I really need to talk to you. Can I have 20-30 minutes of your time?” The answer is, “no.” Not that I think I’m so great. Or my time is so valuable. But his message sort of suggests that my time is worth zero. He is offering me nothing, even less of nothing since there’s opportunity cost to 20 to 30 minutes of time. I could be watching half an episode of Mad Men , for instanace. There are some variants on this horrible technique. Like, “I have a great idea I’ll give you equity in if you give me 20-30 minutes of your time.” I don’t know if his equity is worth anything yet so it’s the same problem as above. Another sign of a bad salesman is a good negotiator. This might not always be true but it’s true for me. I am horrible at negotiation. If I say “this car is for sale for $10,000″ and they say, “$8,000″ I shrug my shoulders and say “ok.” When you’re negotiating you have to say “no” a lot. When you are selling, you are always trying to find the “yes.” Everyone has a “yes” buried inside of them and a good salesman knows how to find where that “yes” is buried and then how to tease it out. Great salesmen know it instinctively. When you’re a negotiator you have to be willing to say “no,” regardless of what the other side says. So although they aren’t total opposites, the goals are completely different. But big picture: Negotiation is worthless. Sales is everything . Why? Because when someone says “yes” to you, you are in the door. Eventually then, you’ll get the girl in bed (or guy, whatever). If you negotiate right at the door, then you might have to walk away and try the next house. That takes time, energy, and still might not work out. In fact, often “bad negotiation” will result in great sales. (I’d rather be in the bed then walking door to door.) Some examples of my bad “negotiation” that have worked out for me. A) I sold my first business for much less than other Internet businesses were going for at the same time. But it was 1998, the Internet was about to go bust, but first all the stocks went up, and many businesses in the same category held out for more and ended up going bust. Even the guys who sold for a lot more, went broke when they didn’t sell their stock. B) I gave 50% of Stockpickr to thestreet.com for no money. Blogs were written about how bad my deal was. But when someone owns 50% of your business, they care about what happens. They had to buy my company four months later rather than risk someone else owning 50% of it. For companies they only owned 10%, they gave up on them. I was able to sell about four months before the market peaked. After that, it never would’ve happened. My one employee quit on me because he was so disgusted with the deal I did. [See, How I Sold Stockpickr, Osama Bin Laden, and the Art of Negotiation] C) I sold Claudia’s car for $1000 less than she wanted to. But now the car was gone. We didn’t have to worry about it. That was worth $1000 to me. D) I got my old company to do websites for New Line Cinema for $1000 a movie . That was 1/200 what we got for doing The Matrix even though some of the sites were the same size. Why did I do that? The best designers wanted to be hired by us to work on those movies. Meanwhile, they stayed late on Saturday night to work on Con Edison sites that paid a lot better. I didn’t negotiate at all. E) I’m selling my last book on Kindle for almost nothing instead of a higher price. But this got my ideas out more and 20,000+ people have downloaded the book. F) I get offers every day to advertise on my blog. I say “no” to every one of them. Not my big picture. The key is, only negotiate with people you really want to sell to. Else it boils down to money. You don’t want to be stupid. Only sell something you love to someone you love. Always think “what is the bigger picture here?” In many cases in the bigger picture, the negotiation is not as important as the “sale.” Hence, the rise of models like “freemium.” Ten Keys to selling: A) Ask what’s the lifetime value of the customer? When I give away a book for free, it gets my name out there. That has lifelong value for me that goes way beyond the few dollars I could maybe charge. B) Ask, what are the ancillary benefits of having this customer? When we did Miramax.com for $1000, we became the GUYS THAT DID MIRAMAX.COM! That helped get 20 other customers that were worth a lot more. I would’ve paid them money to do that site. C) Learn the entire history of your client. You need to love your client. Love all of their products. Infuse yourself with knowledge of their product. I wanted to work at HBO because I loved all of their shows and I studied their history back to the ’70s before I applied for a job there in the ’90s. D) Give extra features. Do the first project cheap. And whatever was in the spec, add at least two new cool features. This BLOWS AWAY the client. Don’t forget the client is a human, not a company. That human has a boss. And they want to look good in front of their boss. If you give them a way to get promoted, then they will love you and always hire you back. THE EASIEST SALE is worth a current customer. ALWAYS. E) Give away the kitchen sink. One of my biggest investors in my fund of hedge funds had just been ripped off in Ponzi scheme. They almost went out of business. I introduced them to reporters at every newspaper to help them get the word out about the Ponzi scheme. They were infinitely grateful and even put more money in my fund. Whenever the main guy was depressed about what had happened I would talk to him for an hour trying to cheer him up. I wasn’t just an investment for him but a PR person and therapist. Go the extra mile. F) Recommend your competition. Think about it this way: what are two of the most popular sites on the Internet? Yahoo and Google. What do they do? They just link to their competition: other websites. If you become a reliable source then everyone comes back to you then your knowledge has value and they can only get that by having access to you. They get access by buying your product or services. [See, 10 Unusual Things I Didn't Know About Google, Plus my Worst VC Experience Ever ] G) Idea machine. There’s that phrase “always be closing.” The way that’s true is if you are always putting yourself in the shoes of your client and thinking of ways that can help them. When I sold stockpickr.com to thestreet.com the superficial reason was that they wanted the traffic, community, and ads my site generated. The real reason was that they needed help coming up with ideas for their company. I was always generating new ideas and talking to them about it. Often the real reason someone buys from you is not for your product but for you. H) Show up. When I wanted to manage some of Victor Niederhoffer’s money I read all his favorite books. I wrote articles for him. At the drop of a dime I would show up for dinner wherever and whenever he asked me to. If he needed a study done that required some programming beyond what he or his staff was capable of doing, I would offer to do it and would do it fast. Nobody was paying me, but ultimately he put money with me (at ridiculously low fees but I did not negotiate), which I was able to leverage into raising money from others. Plus, I really liked him. I thought he was an amazing person. I) Knowledge. When I was building a trading business I must’ve read over 200 books on trading and talked to another 200 traders. No style of trading was off limits. This helped me in not only building a trading business, but building a fund of hedge funds, and ultimately building stockpickr.com. I knew more about trading and the top investors out there than anyone else in the world, I felt. Creating value was almost an afterthought. When I was building websites I knew everything about programming for the web. There was nothing I couldn’t do. And the competition, usually run by businessmen and not programmers knew that about me. And knew that I would always come in cheaper than them. J) Love it. You can only make money doing what you love. If you work a nine-to-five job that you hate , then you’re on a leash and you’ll only make enough to get by and you won’t be happy. If you love something, you’ll get the knowledge, you’ll get the contacts, you’ll build the site with the features nobody else has, you’ll scare the competition, you’ll wow the customers. I didn’t enjoy writing finance articles. I’d write a finance article for some random finance site and then repost this on jamesaltucher.com. I had zero traffic. Then I decided to write articles I enjoyed. To get back to my true roots where I loved writing and reading. I also l wanted to really explore all of my failures, my miseries, my pain. In public. I love being honest and intimate with people. I love building community. I love emailing with readers. That was about a little over a year ago I decided to make the shift where I was just going to open the kimono at jamesaltucher.com and say everything I wanted to say, and at the same time indulge in my love of writing, art, creativity, and reading. 4mm+ “customers” later, I’m enjoying more than ever doing what I love.

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James Altucher: The 10 Keys to Selling Anything

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Bill Moyers: The Party People of Wall Street

January 30, 2012

A week or so ago, we read in the New York Times about what in the Gilded Age of the Roman Empire was known as a bacchanal — a big blowout at which the imperial swells got together and whooped it up. This one occurred here in Manhattan at the annual black-tie dinner and induction ceremony for Kappa Beta Phi. That’s the very exclusive Wall Street fraternity of billionaire bankers and private equity and hedge fund predators. People like Wilbur Ross, the vulture capitalist; Robert Benmosche, the CEO of AIG, the insurance giant that received tens of billions in bailout money; and Alan “Ace” Greenberg, former chairman of Bear Stearns, the failed investment bank bought by JPMorgan Chase. They got together at the St. Regis Hotel off Fifth Avenue to eat rack of lamb, drink and haze their newest members, who are made to dress in drag, sing and perform skits while braving the insults, wine-soaked napkins and petit fours — those fancy little frosted cakes — hurled at them by the old guard. In other words, a gilt-edged Animal House , food fight and all. This year, the butt of many a joke were the protesters of Occupy Wall Street. In one of the sketches, the bond specialist James Lebenthal scolded a demonstrator with a face tattoo, “Go home, wash that off your face and get back to work.” And in another, a member — dressed like a protester — was told, “You’re pathetic, you liberal. You need a bath!” Pretty hilarious stuff. The whole affair’s reminiscent of the wingdings the robber barons used to throw during America’s own Gilded Age a century and a half ago, when great wealth amassed at the top, far from the squalor and misery of working stiffs. Guests would arrive in the glittering mansions for costume balls that rivaled Versailles, reinforcing the sense of superiority and the virtue of a ruling class that depended on the toil and sweat of working people. That’s consistent with the attitude expressed by several of these types after Occupy Wall Street sprung up; bankers told the Times on the record that they could understand the anger of the protesters camped on their doorstep; but privately, a hedge manager said , “Most… view [it] as ragtag group looking for sex, drugs, and rock ‘n’ roll.” So sayeth the winners in our winner-take all economy. The very guys who were celebrating at the St. Regis because they were too big to fail. Even when they fell flat on their faces, the government was there to dust them off, bail them out and send them back to fight the class war with nary a harsh word or punishment. Talk about a nanny welfare state. None of this was by accident. The last three decades have witnessed a carefully calculated heist worthy of Robert Redford and Paul Newman in The Sting — but on a massive scale. It was an inside job, politically engineered by Wall Street and Washington working hand-in-hand, sticky fingers with sticky fingers, to turn the legend of Robin Hood on its head — giving to the rich and taking from everybody else. Don’t take our word for it — it’s all on the record. The biggest of the big boys was Citigroup, at one time the world’s largest financial institution. When the meltdown hit in 2008, the bank cut more than 50,000 jobs and you and other taxpayers shelled out more than $45 billion to save it. And how are Citigroup executives doing? Nicely, thank you. Last year, its CEO, Vikram Pandit, took home $1.75 million in base salary, and was awarded $3.7 million in deferred stock. According to the Times , “Citigroup is expected to disclose the rest of his pay, cash, be it upfront or deferred, in March. In addition, while not necessarily for work performed in 2011, Mr. Pandit last year was awarded a $16.7 million retention bonus, plus stock options that could add $6.5 million to the package’s overall value.” Makes you want to cry out, “Retain me! Retain me!” To be fair, Vikram Pandit was at the World Economic Summit in Davos, Switzerland last week, where he told Bloomberg News , “It’s important for the financial system to acknowledge that there’s a great deal of anger directed at it… Trust has been broken. Banks have to serve clients, not serve themselves.” What’s more, he has said that the “sentiments” expressed by Occupy Wall Street demonstrators were “completely understandable.” This, in contrast to the financial industry official who told a reporter that the protesters’ issues were “a lot of sound and fury, signifying nothing.” Or, as they used to say while partying down at the court of Louis XVI and Marie Antoinette, let them eat petits fours. See more at BillMoyers.com , including his most recent full show on how big banks are rewriting the rules to our economy , featuring a candid interview with former Citigroup CEO John Reed.

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John R. Talbott: The End of Romney, Part 2

January 28, 2012

In Part 1 of this story, I said that Mitt Romney had made aggressive use of loopholes in IRA legislation to accumulate $20 to $100 million of his assets in an IRA “retirement” account and thus avoid any taxation on this compensation and its future earnings until it is withdrawn which must begin when he reaches 70 ½ years of age. If one can defer paying taxes on compensation for decades and it compounds tax free, it is almost as good as not paying them at all on a present value basis. And, it has recently been reported that Romney made extensive use of off-shore vehicles in places like the Cayman Islands that traditionally have been centers for tax avoidance . It was also disclosed that Romney had a Swiss bank account that he closed in 2010 on the advice that it might look bad if he were to run for president. Romney has said that he has paid every dollar of tax that he owed, and not a dollar more. His supporters have said that he never entered into aggressive tax shelters that were structured to avoid paying his fair share of taxes. And Romney has argued that his assets are held in a blind trust managed by Goldman Sachs, and not himself, so he is not responsible for the investment decisions that led to his having a Swiss bank account or monies held in multiple offshore funds. But the New York Times today is

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Miles Mogulescu: You Can Bet Romney Doesn’t Stash Millions of Dollars in Cayman Islands to Work on Its Tan

January 27, 2012

Mitt Romney’s tax returns and financial disclosures reveal that Romney has millions of dollars stashed in Cayman Islands funds. According to ABC News , Romney has as much as $8 million invested in at least 12 Cayman Islands funds, and another investment worth between $5 million-$25 million domiciled in the Caymans. There are many places in the world — including the United States — to safely park millions of dollars in assets. People don’t seek out a P.O. Box in the Caymans to stash their cash to help their money get a deeper tan. The generally do so to lower their taxes, to take advantage of bank secrecy, or both. This is almost certainly true of Romney. According to the Wall Street Journal , Romney has tax-deferred IRA retirement accounts valued at between $20.7 million and $101.6 million which hold stakes in 13 investment entities run by Bain Capital. The most likely reason for Romney investing substantial amounts in Cayman Island funds is to legally launder millions of dollars in Romney’s IRA retirement money to avoid or defer paying an obscure 35% US tax called the Unrelated Business Income Tax (UBIT). Taxes can be pretty boring, but stay with me a minute. Although income from IRAs are generally tax deferred, the 35% UBIT tax is an exception. A 35% UBIT tax is assessed on retirement accounts which invest in an unrelated trade or business, and/or which uses debt. Since the Bain funds in which Romney’s IRA put much of their money often invest in ongoing businesses, and since to increase returns they are likely highly leveraged through the use of debt, a substantial amount of Romney’s IRA income could be in danger of losing its tax deferred status and being taxed at 35%. But smart, highly-paid tax lawyers and accountants have come up with a neat trick to shelter to 0.01% individuals like Romney who invest their IRAs in Bain-type hedge funds and private equity funds from paying this 35% American tax. Romney’s IRA may, as his trustee claims, be set up in the US. But Romney’s filings suggest that many of the Bain entities in which it invests are likely set up offshore in the Caymans. The Cayman entities (called offshore blocker corporations by tax experts) may invest in ongoing businesses and use leverage without owing US taxes. When the earnings on the Cayman-based funds are repatriated to Romney’s US IRA as dividends, they’re no longer treated as taxable Unrelated Business Income. The US IRA investment may be legally laundered through the Bain funds in the Caymans and the 35% US UBIT tax avoided. Presto Chango! Oh, and then there’s the question of Romney’s Swiss bank account, which his trustee closed in 2010 as Romney was preparing to run for the presidency. Was Romney’s money parked in Switzerland to work on its skiing? Or is it that you wouldn’t want to have money in a Swiss bank account when you’re running for President, for Pete’s sake? The deeper you drop down the rabbit hole of Romney’s fortune, the “curiouser and curiouser” things become, as Alice in Wonderland famously said. POSTSCRIPT: An interesting question for further investigation by an enterprising reporter is how Romney accumulated $20.7 million-$101.6 million in his tax-deferred IRA account in the first place. The annual IRA contribution limit for ordinary Americans is $4,000-$5,000, and , if part of Romney’s IRA was rolled over from a 401(k) account when he left Bain Capital, the annual limit on 401(k) employee and employer contributions, depending on the year, is $30,000-$35,000 plus some potential further matches for “highly compensated” individuals. Even with the deferred income in Romney’s IRA compounded at extremely high rates, it’s hard to imagine how the IRA grew to tens or hundreds of millions of dollars… Curiouser and curiouser.

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David Morris: The Five Republican Myths About Inequality

January 27, 2012

Recent comments by Mitt Romney, still the probable Republican nominee for president, all but guarantee the inequality issue will remain front and center this election year. When asked whether people who question the current distribution of wealth and power are motivated by “jealousy or fairness,” Romney insisted , “I think it’s about envy. I think it’s about class warfare.” And in this election year he advised that if we do discuss inequality we do so “in quiet rooms” not in public debates. A public debate, of course, is inevitable. And welcome. To help that debate along I’ll address the five major statements that comprise the Republican argument on inequality. 1. Income is Not All That Unequal Actually it is. Since 1980 the top 1 percent has increased its share of the national income by an astounding $1.1 trillion. Today 300,000 very rich Americans enjoy almost as much income as 150 million. Since 1980, the income of the bottom 90 percent of Americans has increased a meager $303 or 1 percent. The top 1 percent’s income has more than doubled, increasing by about $500,000. And the really, really rich, the top 10th of 1 percent, made out, dare I say, like bandits, quadrupling their income to $22 million. Meanwhile a full-time worker’s wage was 11 percent lower in 2004 than in 1973, adjusting for inflation even though their productivity increased by 78 percent. Productivity gains swelled corporate profits, which reached an all time high in 2010. And that in turn fueled an unprecedented inequality within the workplace itself. In 2010, according to the Institute for Policy Studies, the average CEO in large companies earned 325 times more than the average worker. 2. Inequality doesn’t matter because in America ambition and hard work can make a pauper a millionaire. This is folklore. A worker’s initial position in the income distribution is highly predictive of how much he or she earns later in the career. And as the Brookings Institution reports , “there is growing evidence of less intergenerational economic mobility in the United States than in many other rich industrialized countries.” The bitter fact is that it is harder for a poor person in America to become rich than in virtually any other industrialized country. 3. Income inequality is not a result of tax policy. Nonsense. A painstaking analysis by economists Thomas Piketty, Emmanuel Saez and Stefanie Stantcheva found “a strong correlation between the reductions in top tax rates and the increases in top 1% pre-tax income shares from 1975-79 to 2004-08.” For example, the U.S. slashed the top income tax rate by 35 percent and witnessed a large ten percent increase in its top 1% pre-tax income share. “By contrast, France or Germany saw very little change in their top tax rates and their top 1% income shares during the same period.” 4. Taxing the rich will slow economic growth An examination of 18 OECD countries found “little empirical support for the claim that reducing the progressivity of the tax code has spurred economic growth, business formation or job growth”. Indeed, Piketty, Saez and Stantcheva’s rigorous analysis came to the opposite conclusion. Our economy may be growing more slowly because we are taxing the rich too little, not too much. Economists Peter Diamond and Saez estimated the optimal top tax rate, that is the tax rate that would maximize revenue without slowing economic growth, could be as high as 83 percent. Redistributing income stimulates economies in part because when 1% make more they save whereas when the 99% make more they spend. As a result, according to Mark Zandi, chief economist for Moody’s, a dollar in tax cuts on capital gains adds .38 cents of economic growth while a dollar in unemployment benefits gives the economy a boost of $1.63 and a dollar of food stamps adds $1.73. 5. Taxing the rich would not raise much money Of course it would. If only the richest 400 families, whose average income in 2008 was an astounding $270 million, actually paid the statutory rate of 39 percent (revived as of next January 1) an additional $500 billion would be raised over 10 years, putting a substantial dent in the projected deficit. In 2010 hedge fund manager John Paulson made $5 billion. That year, according to Pulitzer Prize winner David Cay Johnston, Paulson paid no income taxes. Am I envious, Mr. Romney? You bet I am. But I’m also angry at the stark injustice of it all. And terrified of the power such wealth can wield in a country that allows billionaires to spend unlimited sums influencing legislation and elections. A recent survey by the Pew Research Center found that two-thirds of Americans now believe the conflict between rich and poor is our greatest source of tension. I agree. It is a conflict that deserves to be aired fully and in public.

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‘Warren Buffett Of The North’ Comes To BlackBerry Maker’s Rescue

January 25, 2012

By Cameron French and Alastair Sharp TORONTO (Reuters) – The arrival of the man known as “the Warren Buffett of North” on Research In Motion’s board this week offers a ray of hope to the BlackBerry maker’s impatient shareholders after their disappointment that an insider was named new chief executive. That’s not to say the reclusive Watsa – who heads Fairfax Financial, now RIM’s fourth-largest shareholder – has a reputation as a turnaround artist who will agitate for radical change at the struggling company. But his 2.25 percent shareholding and new role as director suggest Watsa sees real value in the withered share price, even though some say the company has fallen hopelessly behind its rivals in the hyper-competitive smartphone and tablet markets. Based from the Indian-born Canadian’s track record, fellow shareholders have good reason to be optimistic. “Prem is attracted to companies that are out of favor and unpopular with the market,” said Todd Johnson, a portfolio manager at BCV Asset Management in Winnipeg, which holds Fairfax bonds. “He likely believes RIM is salvageable and that the market is unfairly punishing the stock now. His investing acumen has helped shares of Fairfax Financial, technically an insurer but also his investment vehicle, rise more than 100-fold in just over 25 years. Watsa is chairman and CEO of Fairfax and controls its voting shares. Watsa’s appointment to RIM’s board was part of a head office shuffle in which Mike Lazaridis and Jim Balsillie gave up their shared chief executive role to Heins, a company insider. RIM investors, who have watched their stock drop 84 percent in the last three years, sent the shares down sharply after the change in leadership was announced. They’re concerned that Heins, with his close association with the pair who presided over RIM’s swoon, may not have what it will take to reverse the decline. Heins reinforced that impression when he said he saw no need for a seismic shift at the BlackBerry maker, even though its market share has tumbled. BUFFETT OF THE NORTH Watsa started receiving comparisons to Buffett – the best-known proponent of investing on the basis of a company’s value – back in the 1990s. He’d already shown his investment chops by selling stock ahead of the 1987 stock market crash and buying Japanese puts – or rights to sell stocks at guaranteed prices – ahead of the Tokyo market’s collapse in 1990. But it was his call on the U.S. mortgage crisis that cemented his reputation as a savvy investor. Watsa began raising alarms on the U.S. mortgage industry in 2003, and Fairfax began selling or hedging its equity holdings, and buying credit default swaps that it later sold when the market began to collapse. A CDS enables the holder to be compensated in the event of a loan default. The move initially didn’t pay off, as stock markets churned higher in the mid-2000s. But when the market crashed in 2008, Fairfax notched a profit of $1.5 billion on the back of a $2.7 billion investment gain. In late 2008, with markets still reeling and other investors licking their wounds, he started to plow money back into equities, notching another strong year in 2009. Since then Watsa has changed gears again, hedging the company’s equity portfolio in 2010, and making more contrarian investments such as buying a 9 percent stake in troubled Bank of Ireland last year. “He’s gotten very very strong investment returns, I don’t think you can argue with that,” said one portfolio manager who holds RIM shares. “Whether he’s being brought on the board to support his existing equity positions or maybe ascertain whether value is there for a potential takeover and what that level would be at, I think there’s a lot that can be taken from his being added to the board,” said the manager, who requested anonymity because of his firm’s policy on speaking on the record. To be sure, not all of Watsa’s moves have been golden. Fairfax was forced to write off most its investment in Winnipeg-based media company Canwest in 2009 as the company filed for bankruptcy protections. It also wrote down a significant investment in publisher Torstar in 2008-09 and took losses on its holding of forestry company Abitibi Bowater. LOW PROFILE Born in 1950 in Hyderabad, India, and trained as a chemical engineer, Watsa has maintained a public profile that has at times bordered on the reclusive since he took over Fairfax in 1985. For his first 15 years at the company, he barely spoke to a reporter, and only started holding investor conference calls in 2001. Fairfax has generally not been known as an activist investor, but Watsa has hardly shied away from a fight, launching a $6 billion lawsuit against a group of hedge funds in 2006, accusing them of conspiring to the drive the company’s shares down so they could be shorted. A short position enables an investor to profit when a stock drops. With a board seat, Watsa will have a prime position to make sure his RIM investment is a winner. “He sees the value in this company, he sees where sentiment is, he sees where the asset value is and the cash value is and he sees the strategy. By joining the board he’s giving a vote of confidence and perhaps can have more hand in overseeing this transition,” said Matthew Thornton, analyst at Avia Securities in Boston. “That doesn’t mean it’s going to work.” (Editing by Frank McGurty) Copyright 2012 Thomson Reuters. Click for Restrictions .

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Broadway Technology Appoints Jonathan Fieldman as Chief Operating Officer

January 18, 2012

NEW YORK, NY and AUSTIN, TX–(Marketwire – Jan 18, 2012) – Broadway Technology, LLC, the emerging leader in high-performance trading solutions for top-tier global banks and hedge funds, announced today the appointment of Jonathan Fieldman as Chief Operating Officer. In this capacity, he will oversee global business operations, finances, corporate sales, marketing, recruiting and business development as well as spearhead strategic initiatives.

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Startup Evisors Bets On E-Advice

January 17, 2012

By Deborah L. Cohen CHICAGO (Reuters) – As a student at top U.S. universities, Norwegian entrepreneur Fredrik Maro quickly learned it’s not always what you know but who you know that can advance your career. So he and three fellow Harvard business school alumni set out to build a company based on the premise that everyone should have a shot at reaching advisors with direct knowledge in their field at an affordable price. Their online startup, Evisors , provides a range of consulting expertise for aspiring students, entrepreneurs and others. “I realized there could be a business model here built around democratizing the access to all these great people with all this great know-how, making the people you need to know available to everybody, not just a select group,” said Maro, who was introduced to costly and exclusive consulting networks in niche areas such as hedge funds during his own stint at the global management consulting firm McKinsey & Co. Maro and his cofounders began developing Evisors as MBA students, eventually bootstrapping the venture with less than $25,000 of their own money. To keep costs down, they outsourced site development to engineers in India. “We were very focused on a lean startup model,” said Maro, noting that much of the online platform had to be rebuilt once the venture began scaling up. Realizing they couldn’t start off being all things to all people, the cofounders focused first on what they knew best: helping aspiring students with admissions strategies for elite schools and career moves. The topic had particular resonance for Maro, who spent countless hours studying for the SATs during mandatory army service in Norway. “I got into Penn (University of Pennsylvania) despite what must have been a terrible, terrible application,” he recalled, adding that Evisors consultants are enlisted to help with everything from mock admissions interviews to resume reviews. Expert advice, bargain price New York-based Evisors, which launched in beta in September of 2010 and went live about a year later, has amassed about 1,200 experts who charge anywhere from $30 to $700 an hour for advice in the form of a phone consultation or email. The average rate is about $100, far below elite consulting networks, Maro said. The venture has to date sold more than 1,000 sessions. Evisors takes a cut of the proceeds, typically 30 percent for first-time users, in exchange for facilitating the match and handling details such as toll-free phone calls, file sharing and billing. Michael Mayhew, chairman of Integrity Research, a research advisory firm to institutional investors, said Evisors has tapped an un-served market. Other online consulting networks such as Zintro are focused squarely on financial services, he said. “I do think there is a going to be first mover, branding type advantage,” Mayhew said. Surprisingly, the site hasn’t had to work too hard to recruit advisors, relying instead on its founders’ network and word-of-mouth referrals. Consultants set their own rates and are later evaluated, with their scorecard made public to potential customers. Ben Schumacher, a Harvard business school alumnus and director of strategy for the teachers’ network Teach for America, is among the site’s highest-volume consultants, offering career advice to recent graduates and mid-career executives alike. “When I see clients succeed, I get addicted to their success,” said Schumacher, who recently finished his 90th consultation and typically charges $195 per hour. Access to seasoned alumni from top schools has been appealing to a variety of universities, which have contracted Evisors to develop proprietary consulting networks for their students. The University of Cambridge was the first of some 20 schools, said Maro, whose company gives the universities a break on rates due to volume. Business connections Beyond career advice, Evisors has progressively honed other sweet spots, with entrepreneurial consulting emerging as its second-biggest area. A quick glance at experts in this area revealed a host of startup founders as well as a project director at a large museum. “A conversation or two with the right individual is very valuable,” said Alan Mark, a member of the New York Angels, among the investors that have provided nearly $700,000 in startup capital to Evisors. “This can be really helpful for small business and individuals who otherwise wouldn’t have access to these experts.” Dr. James Maisel, a retina surgeon and serial entrepreneur, found an advisor with specialized venture capital expertise in medical technology to help with a pitch to potential VC investors. The total cost: less than $500. “We got the IT advisor from a New York venture capital firm that has been in the business for a number of years and was familiar with our space,” said Maisel, whose venture, ZyDoc, uses speech recognition to aid in medical transcription. “He could not have been more well-suited to help us.” Those are the types of success stories Evisors is betting on for growth. “We’re getting these people into schools,” Maro said. “We’re getting startup funding. We’re getting people into their jobs.” Copyright 2012 Thomson Reuters. Click for Restrictions .

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Merkel: Mass Eurozone Downgrade Highlights Need For Strong ‘Fiscal Compact’

January 15, 2012

* Leaders see downgrades as wake-up call * Italy seen as problem child number one * Merkel says decision should not impede EFSF * S&P says France could fall further, no euro break-up By Robin Emmott and Brian Rohan BRUSSELS/BERLIN, Jan 14 (Reuters) – European leaders promised on Saturday to speed up plans to strengthen spending rules and get a permanent bailout fund up and running as soon as possible, a day after U.S. agency S&P cut the ratings of several euro zone countries’ creditworthiness. In a conference call with reporters and analysts after downgrading nine of the euro zone’s 17 countries, Standard & Poor’s said it saw continued risks from the debt crisis that has overshadowed Europe for the past two years and said the single currency area was heading towards recession. It also warned that France, which suffered a downgrade to AA+ from the top-notch AAA, was at risk of further cuts if a recession further inflates its debt and budget deficit. “The policy response at the European level has in our view not kept up with the rising challenges in the euro zone,” S&P credit analyst Moritz Kraemer said on the call, forecasting a 40 percent chance of euro zone gross domestic product contracting by up to 1.5 percent in 2012. The downgrades were delivered hours after talks between private bond holders and the Greek government aimed at restructing Greece’s vast debts broke down, pushing Athens closer to default, an event that would tarnish euro zone unity and pose a contagion threat which could engulf the bloc. In Germany – whose top AAA rating survived unscathed – Chancellor Angela Merkel said the downgrades underlined why a so-called ‘fiscal compact’ must be signed by member states quickly, and the next bailout mechanism, known as the ESM, should be funded soon. “We are now challenged to implement the fiscal compact even quicker … and to do it resolutely, not to try to soften it,” she said at a meeting of her conservative Christian Democrats (CDU) in the northern city of Kiel. “We will also work particularly to implement the permanent stability mechanism, the ESM, so soon as possible — this is important regarding investor trust,” she added. European Central Bank policymaker Joerg Asmussen warned that Europe’s drive to tighten fiscal rules was being softened, considering the latest draft of the agreement a “substantial watering down” of budgetary discipline because it would allow extra spending in extraordinary circumstances, the Financial Times Deutschland reported. Leaders including Merkel have urged countries to tighten their belts with higher taxes and deep spending cuts to rein in massive budget deficits. But that has heightened market concern about their ability to grow their way back to health, pushing borrowing costs even higher for heavily indebted governments. S&P said it was not working on the assumption of a euro zone break up, although it blamed its leaders for focusing too much on cutting debts and not sufficiently on competititveness. “We think that the diagnosis of policymakers regarding the crisis is only partially recognising the origin of the crisis,” said Kraemer, mentioning the focus on budget austerity. “The proper diagnosis would have to give more weight to the rising imbalances in the euro zone in terms of the external funding positions, current account positions, much of it is based in diverging trends of competitiveness,” he said. WAKE-UP CALL Austria, which was downgraded one notch from AAA, called S&P’s decision a wake-up call for the country to cut debt and deficits, and for Europe to move more quickly on reforms. “The downgrade is bad news for Austria but it should wake everyone up when such a thing happens,” Finance Minister Maria Fekter said. “Now everyone recognises that this … is a matter of debt and deficits, not primarily of the economy.” The ratings decision hit some countries harder than others, with France, Austria, Malta, Slovakia and Slovenia suffering single-notch downgrades, but Italy, Portugal, Spain and Cyprus falling two notches. Portugal’s debt is now rated junk. ECB policymaker Ewald Nowotny, an Austrian, said Italy in particular would now face problems given large refinancing needs this year in that country and its banks. Asked in an interview broadcast by Austrian radio if Italy – now rated at the same BBB+ level as Kazakhstan – was “problem child number one”, Nowotny agreed. “In a certain sense, yes, because we know this year Italy has a very significant refinancing need. Italian banks also need refinancing,” he said. “In normal times this is all possible, in very nervous and difficult times it can be a problem and in my view this sharp downgrade of Italy is probably one of the most difficult and problematic aspects of this sweeping blow from the ratings agency.” NO TORPEDO Long-standing frustration with ratings agencies echoed across Europe after the S&P decision. While Germany and France downplayed the decision and called it expected, Spain’s finance minister was more alarmed. “The downgrade is far too broad, it effects too many countries, it effects the very credibility of the euro,” Treasury Minister Cristobal Montoro said on the radio. “It’s important that the European institutions understand that it’s time to do everything possible to build and reinforce the euro,” said Montoro, whose highly indebted country has the highest unemployment level in the euro zone. Meanwhile, in a move to circumvent their influence, Germany’s Merkel backed a proposal to reduce the reliance of institutional investors on ratings agencies, which some of her allies say are politically driven. The idea would be to introduce legislation to allow institutional investors to evaluate risk themselves and make decisions independent from the U.S.-based agencies. “I think it is very useful to look at this and see where if necessary we can make changes to legislation,” Merkel said at her party meeting. European leaders are set to meet at a summit on Jan. 30 to discuss how to boost growth and jobs, and Merkel’s words on Saturday suggest she will also be looking for faster progress on tighter common fiscal rules. But now, policymakers at the meeting may have bigger fish to fry. The downgrades threaten the top rating of Europe’s current bailout fund — the European Financial Stability Facility — as contributors France and Austria are no longer rated AAA. A downgrade of the EFSF could increase its borrowing costs, reducing its ability to protect the currency bloc’s weaker members. S&P said it would deliver its view on the impact to the EFSF from the sovereign downgrades “shortly”.

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Hedge funds hunker down for Greek debt standoff

January 14, 2012

(MENAFN – Saudi Press Agency) Hedge funds are positioning to profit from a plan to slash Greece’s towering debt pile as Athens enters final talks that could sway the country’s membership of the …

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Cordray Dialing CEOs Of Major Banks To Win Support

January 13, 2012

* Top bankers among scores of introductory calls * Says protecting consumers and supporting honest businesses * Tells reporters: 20-yr member of local Chamber of Commerce By Dave Clarke WASHINGTON, Jan 12 (Reuters) – New consumer financial chief Richard Cordray has been calling the heads of some of the top U.S. banks in an effort to build support for his agency, which is viewed skeptically by the financial industry. In a controversial decision, President Barack Obama installed Cordray as director of the Consumer Financial Protection Bureau on Jan. 4 to get around Senate Republicans’ efforts to block his nomination. Since that time, an agency spokeswoman said Cordray has reached out to about 100 people at banks, trade associations and consumer groups to make introducations and get feedback. Among those at the top of the banking food chain he has chatted up are Bank of America CEO Brian Moynihan, Citigroup CEO Vikram Pandit, JPMorgan Chase chief Jamie Dimon, US Bancorp CEO Richard Davis and PNC Financial Services Group’s James Rohr. Cordray has also spoken with leaders of consumer groups such as the Consumer Federation of America and Public Citizen and trade groups like the American Bankers Association and the Consumer Bankers Association. The bureau was created by the 2010 Dodd-Frank financial oversight law to police financial products like mortgages and credit cards. Consumer groups have heralded its creation while the business community has warned an overzealous regulator could hurt the economy by making it harder to get loans. Through his outreach and public statements Cordray has been eager to show that he is not a wild-eyed activist but a level-headed regulator who will seek feedback from all sides. Cordray, a former Ohio attorney general, told reporters on Thursday that he has belonged to the Chamber of Commerce in his hometown of Grove City, Ohio for 20 years. He said his pitch to the business community is that his goal is to go after those breaking the law or abusing consumers and that will help the majority of lenders who are on the up and up. “They should embrace the bureau because not only are we going to protect consumers but we are going to support the honest and responsible businesses,” he said. Cordray’s elevation to director has kicked up a political sandstorm because it was done through a recess appointment rather than by a Senate vote. Republicans were blocking a vote on his nomination because of concerns about the bureau’s power and they argue Obama may have broken the law by making the appointment when the Senate was technically in session. The administration disagrees and said the president’s decision is on firm legal ground. Cordray is scheduled to appear at a Jan. 24 House of Representatives hearing to discuss his agency’s work. POSSIBLE LAWSUIT The bureau and the Obama administration continue to face questions over whether the appointment will be successfully challenged in court, which could jeopardize rules and any enforcement actions taken while Cordray was in charge. The U.S. Chamber of Commerce held its 2012 kickoff event on Thursday where its president, Thomas Donohue, said the organization was keeping the option of a lawsuit open but tempered any expectation it would come soon. “Let me put that into context – we take decisions on law suits in a big damn hurry,” he said. “On this one we are working our way through it.” (Reporting By Dave Clarke and Alexandra Alper; Editing by Tim Dobbyn)

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Big Bank’s Profit Plunged Last Quarter

January 13, 2012

NEW YORK — JPMorgan Chase’s income fell 23 percent in the fourth quarter of 2011 after the bank set aside a large sum for litigation reserves and its investment banking income declined. The largest bank in the nation said Friday it earned $3.7 billion, or 90 cents per share. The results fell short of the 93 cents per share estimated by analysts surveyed by FactSet. Revenue fell 17 percent to $22.2 billion. For the full year, JPMorgan Chase & Co. posted record net income of $19 billion, compared with $17.4 billion in the prior year. The New York bank set aside $528 million for additional litigation charges in the quarter, the latest sign that the banking industry is still dealing with the fallout from poorly-written mortgages from years past. Volatility in stock and bond markets caused by Europe’s debt crisis also hurt JPMorgan’s investment banking business. Fees declined 39 percent to $1.1 billion. Debt underwriting fell 40 percent, and stock underwriting fell 65 percent. JPMorgan also had to book a loss of $567 million loss from an accounting rule that applies to the value of its own corporate debt. Because the value of its debt rose in the fourth quarter, the bank would theoretically have to pay more to buy it back in the open market. When that happens, accounting rules require that the bank record a charge against earnings. Corporate bond prices recovered in the fourth quarter after declining sharply in the third quarter. In another sign that American households are becoming more stable financially, JPMorgan said more credit card customers have been paying their bills on time, leading to lower losses for the bank. JPMorgan was able to take a profit of $730 million by reducing its loan reserves set aside for credit card defaults. That was good news. As the largest bank in the country serving 50 million customers, JPMorgan’s results provide a pulse for how well the U.S. economy is performing. JPMorgan’s stock fell 2.3 percent to $36.01 in pre-market trading.

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Why Wall Street Bankers Are Fleeing To Main Street

January 13, 2012

Shane Robinson celebrated his Merrill Lynch job offer over lunch and cocktails at a trendy Manhattan restaurant. His bosses toasted him and asked what he planned to do with the $10,000 end-of-internship bonus. Robinson, then 24, in late 2007, said he would probably save it. “Why?” he recalls them saying. “Just go spend it — you’re going to make a lot more.” As the economy started to spiral downward less than six months later, bonuses dried up, layoffs ensued and the young banker was told by his superiors that he might want to begin looking for other opportunities. “It left a bad taste in my mouth,” Robinson says. “Why would I want to have my fate determined by things that are outside my control? If I’m going to fail, I would much rather fail because of my own doing.” Not long after the recession hit, Robinson decided to ditch finance. He contacted A.J. Steigman, a former Merrill Lynch colleague who had quit to start a sneaker store, and the two hashed out plans to create an urban clothing website that was part social network, part e-commerce. For months, they slept on friends’ couches while fundraising in different cities. They spent countless hours online, building the core technology and a community around their streetwear blog . Finally, in 2010, the duo secured $265,000 from investors to make their startup Soletron a reality. Soletron’s founders’ path from high-finance to high-tech is becoming increasingly well-trodden, according to economists, venture capitalists and startup CEOs — especially now, as we see some contraction once again on Wall Street, not to mention the stigma Occupy Wall Street protesters have bestowed on the “1 Percent.” As employee dissatisfaction spreads through the financial-services industry amid waning profits, slashed bonuses and layoffs, New York’s bustling world of tech startups is attracting and absorbing fed-up financiers, offering them jobs, cash and a shot at creating empires of their own. “At the end of 2008, we started seeing more people who graduated from college three or four years before, went to work at a large bank, but became disillusioned with Wall Street and were moving on to tech and entrepreneurship,” says Matt Harris, a managing partner at Village Ventures , a Manhattan-based venture-capital firm. Harris says that over each of the past three years he has seen the flow of talent from Wall Street to Silicon Alley increase. For many Wall Street refugees, a “logical next step is technology and entrepreneurship,” Harris says. That’s because the world of tech startups “has some of the same elements as Wall Street,” including the adrenaline, the high stakes and — for a lucky few — the outsized returns. Bankers “are accustomed to the prospect of being able to earn a really good living,” he adds. “And while entrepreneurship is risky, when it works, it can really pay off.” According to a recent study , an average successful startup raises $25.3 million, sells for $196.8 million and gives its shareholders a 676 percent return. While those numbers represent a small percentage of all startups, they leave bankers, who have watched their salaries shrink and their colleagues get axed, squirming in their penny-loafers. From 2008 to 2011, national employment in the financial services industry fell by 7.3 percent, while high-tech employment excluding manufacturing jumped 7.1 percent, according to the U.S. Bureau of Labor Statistics. In startup hubs like New York, where large numbers of new tech companies have popped up in recent years, the trend is even more pronounced. The number of investment bank and brokerage firm employees in New York dropped by 17 percent from 2008 to 2011 , according to analysis of government data by The New York Times . The number of bankers aged 20 to 34 fell by 25 percent in the same period. Meanwhile, in New York’s high-tech sector, employment shot up by 30 percent from 2005 to 2010, city officials report. While layoffs at large Wall Street banks continue to winnow the number of employees in New York’s financial services sector, the allure of starting or joining technology firms in a city where Internet startup investments are soaring has pushed some bankers to the exits. Glamorized media accounts of financiers turned successful startup CEOs provide added encouragement to professionally frustrated Wall Streeters. There’s the poster-boy in Silicon Valley, Mark Pincus, who began his career as a lowly stock analyst, graduated into private equity, but ultimately dumped finance to launch Zynga, the social-gaming startup that recently sold shares to the public at a $7 billion valuation . Then there are the homegrown New York stories of Wall Street number-crunchers who started some of the city’s hottest startups, including Vinicius Vacanti, the founder of Yipit , Andy Dunn of Bonobos , Alexa Von Tobel of Learnvest and Barry Silbert of SecondMarket . Silbert, for his part, spent the early part of his career as an investment banker selling off pieces of bankrupt Enron. He soon discovered that the way people buy and sell illiquid assets was ripe for disruption, and went on to build an online marketplace that facilitated such transactions. That marketplace, now known as SecondMarket, currently employs more than 200 people in New York, is worth an estimated $200 million and has changed the way private-company shareholders trade their stock ahead of an initial public offering . But for each successful startup that has grown out of a Wall Street hangover, or received a boost from ex-Wall Street talent, there are at least 100 new businesses that flop, creating and then ultimately destroying jobs. Some fear those numbers will grow as the threat of a startup credit crunch becomes more real. As such, some experts believe established tech giants like Google and Facebook — rather than the droves of young New York-based startups — are the drivers of the city’s rising high-tech employment numbers. Facebook, for its part, is opening a large office in New York, the social network recently announced , and Google already employs about 1,200 engineers in the city . It’s at these large technology companies, not at Goldman Sachs, where the new “status jobs” are , a former Goldman analyst recently told The New York Times . Regardless of which group draws more people away from Wall Street — the tech giants or the tech startups — Google and Facebook building engineering talent in New York is a net positive for the city’s startup community, according to John Frankel, a partner at ff Venture Capital , who spent 21 years at Goldman Sachs before he became a full-time venture investor in 2008. “Google and Facebook, much like Goldman, attract a lot of very smart people to New York,” Frankel says. “And many ex-Googlers end up starting their own businesses here. Much like people in finance move from big Wall Street banks to hedge funds after a few years, folks often spend two to three years at Google, get fed up with whatever aspect there, and then go off and do their own thing.” In the past week alone, Frankel says several people currently employed on Wall Street have sought him for advice on transitioning into the tech sector. One, a 55-year-old banker, told Frankel that he’s thinking about creating a group that helps funnel Wall Street refugees into positions at high-growth startups. (Arguably, those mechanisms already exist in the form of New York’s growing network of incubators and accelerators , many of which have seen an increase in the number of applicants with finance backgrounds.) But perhaps the flow of talent from Wall Street to Silicon Alley, and more broadly, from financial services firms to entrepreneurial technology firms nationwide, is just a fad. After all, previous economic downturns have caused the financial services industry to shrink in the short-term. And perhaps this time around, it’s just that the contraction is coinciding with a ’90s-style tech startup bubble that will soon pop and send all the Zuckerberg-wannabes back to their trading desks. Harris, of Village Ventures, who was investing in startups in the immediate aftermath of the late-’90s bubble popping, is concerned about what exactly draws the best and brightest to startups in the age of Facebook. “I think venture capitalists have been guilty of creating a monolithic and, on average, incorrect view of what entrepreneurship means,” Harris says. “If entrepreneurship means building the next Facebook, then 99.9 percent of people involved are going to be really disappointed with the outcomes. “But I don’t think this is just a phase,” he adds. “Entrepreneurship is about building a career for yourself that doesn’t rely on a large corporation and a boss to give you direction and give you security and give you a paycheck. Whether you should raise venture capital is an open question. Whether the outcome is an acquisition or a merger or just a lifetime job in a company that you own part of or all of is another open question. In most cases, the answer is you should not raise venture capital and you should never sell the business — this is just how you live.” “As for going to back to a world in which people just check their own initiative at the door of a large company when they take the job there and don’t reemerge until they’re laid off,” Harris says, “people’s thinking on that has changed.”

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Ex-MF Global CFO Tapped For Board That Oversees Billions In Assets

January 6, 2012

(Adds details about violations in 7th paragraph) By Tim McLaughlin BOSTON, Jan 5 (Reuters) – An exclusive group of funds at Fidelity Investments is seeking shareholder approval to extend the brief tenure of a former executive of MF Global Holdings Ltd on a board that oversees billions of dollars in assets, according to U.S. regulatory filings. Independent trustees for Strategic Advisers Inc, a unit of Fidelity, had appointed Amy Butte Liebowitz, a former MF Global chief financial officer and board member, as a director in September, and want her reelected at a Jan. 20 meeting in Boston. Liebowitz earned plaudits at MF Global for helping raise about $2.9 billion in a July 2007 initial public offering. But just months later, some investors accused the company of misrepresenting its risk management prowess in IPO registration documents she and other top executives signed. Strategic Advisers manages about $98 billion in assets. Its funds are not open to the public, but exclusive to clients enrolled in Fidelity’s customized Portfolio Advisory Service. Liebowitz declined to comment for this story. Fidelity spokesman Vincent Loporchio said she was recruited for her significant experience in business and finance. Liebowitz represents a link to MF Global’s short-lived honeymoon as a publicly traded company. Even before MF Global’s collapse into bankruptcy on Oct. 31, the company had been repeatedly cited for lax risk controls. During her tenure of about 17 months, MF Global and its divisions were ordered to pay more than $75 million in restitution and settlements over regulatory violations. Liebowitz, however, was not personally accused of any violations. In a December 2007 settlement involving the collapse of a Philadelphia hedge fund, the alleged violations happened before Liebowitz joined MF Global and its predecessor company. Just months before Liebowitz became a trustee for Strategic Advisers’ funds, MF Global agreed to pay $2.5 million of a $90 million in a preliminary settlement to resolve a shareholder lawsuit that accused the company of lax risk management over a rogue wheat trader in February 2008. Liebowitz and other former MF Global executives were defendants in the civil case in U.S. District Court in Manhattan. In court papers, they denied any wrongdoing. The dispute preceded Jon Corzine, who became MF Global’s CEO in 2010 and led the company’s collapse with wrong-way bets on European debt. Without explanation, Liebowitz, 43, abruptly quit MF Global in January 2008, just before the rogue trader case helped push the company’s stock down 94 percent that year, wiping out $3 billion in shareholder equity. The trades happened about a month after Liebowitz left the company. But some investors pounced on MF Global with lawsuits, alleging that the company senior management team, including Liebowitz, glossed over a shaky risk management system when they took the company public in 2007. A Wall Street veteran and star financial-stocks analyst at Bear Stearns earlier in her career, Liebowitz joined MF Global in September 2006 to spearhead the spin-off and initial public offering of the former Man Financial from Man Group. As the CFO of the New York Stock Exchange, she helped the Big Board go public with its acquisition of Archipelago Holdings Inc. As part of her separation from MF Global, she received a $3 million transition payment and IPO-related restricted stock worth about $11.5 million at the time, according to filings with the U.S. Securities and Exchange Commission. About a month after Liebowitz left the company, MF Global’s credibility as a risk manager suffered a major blow. On Feb. 27, 2008, an MF Global broker made more than 100 trades from his home computer, placing a bet of nearly $1 billion to buy thousands of wheat futures contracts, according to a lawsuit by several investors. The next day, MF Global said it would take a $141.5 million loss from those trades. At MF Global, Liebowitz’s base salary was $1 million. At Strategic Advisers she would receive about $80,000 a year to attend a handful of meetings for the funds. After leaving MF Global, Liebowitz founded TILE Financial Inc, a financial education firm in Manhattan. The company’s biography on her says she is a new mother and has four stepchildren. (Reporting By Tim McLaughlin; Editing by Richard Chang, and Carol Bishopricu)

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Big Year Awaits In Atlantic City

January 1, 2012

ATLANTIC CITY, N.J. — You know that all-in moment, when you push most of your pile of chips out onto the table, and wait to see where the little white ball lands, or which card flips from the deck, to know whether you’re a winner or a big loser? 2012 is looking a lot like that for Atlantic City. Pummeled by a five-year losing streak brought on by unrelenting competition from casinos in neighboring states and worsened by the sluggish economy, Atlantic City is anxious for the new year to arrive, and with it, the $2.4 billion Revel casino-hotel that should bring new gamblers and new money to the resort. Hard Rock International expects to break ground for its own new smaller “boutique” casino at the opposite end of the Boardwalk, and this will be the first full year that Gov. Chris Christie’s Atlantic City rescue plan – including state supervision of safety, cleanliness and planning in the casino and shopping zones – will be in place. Yet pitfalls lurk as well: the ramping up of New York City’s Aqueduct casino, the continuing financial fragility of the casino formerly known as the Atlantic City Hilton, which has only committed to stay in business through Halloween, and the almost inevitable psychological blow of Pennsylvania passing Atlantic City to become the nation’s second-largest gambling resort in terms of revenues, which should happen sometime in 2012. “It’s a crucial year,” said Tony Rodio, president of the Tropicana Casino and Resort. “I think it’s the beginning of a turnaround; I really do.” The opening of Revel, set for May 15 but likely to happen sooner than that, will be the best thing that has happened to Atlantic City since the Borgata Hotel Casino & Spa opened in 2003. The resort will likely be Atlantic City’s last huge casino-hotel for quite some time. CEO Kevin DeSanctis said Atlantic City should not look at his project as the savior of the city – though that’s exactly how many are viewing it. “Revel is not a silver bullet. That’s never what we set out to be, or frankly, what we are now,” he said. “Revel is another tool in the toolbox for Atlantic City to be successful. We’re adding product to a market that desperately needs it. This market needs to re-establish itself as a regional destination. We will give people another reason to give Atlantic City another try. “I hear people say, `I don’t go to Atlantic City; I go to the Borgata,’ ” DeSanctis said. “That’s clearly a problem. When we open, it will help expand that to `Borgata and Revel.’ As other folks put a little more capital investment into their properties, that will have a positive effect.” Christie wants that to happen, too, and he thinks many casinos will be forced to follow Revel’s lead. “It is an extraordinary facility and it is going to draw tens of thousands of people to Atlantic City just to see it,” the governor said. “And when they do get there, I hope what they’re going to find is a cleaner, a safer Atlantic City. I’m anticipating 2012 to be a comeback year for Atlantic City. “Now it has been on the decline for years so we are not going to come back entirely in 2012, so let’s set appropriate expectations here,” Christie said. “But I think you should start to see a turnaround.” Revel will add 5,000 full-time jobs to a market desperate for them, and has put thousands of construction workers to work at a time when little else was being built. The casino-hotel also plans to make an aggressive play for conventions and group meetings, and will have a 5,000-seat concert hall capable of attracting the biggest names in entertainment. A big question leading up to Revel’s opening has been whether the mega-resort will bring new business to Atlantic City, or merely siphon it off from existing casinos who can ill afford to lose any customers. DeSanctis expects some combination of the two to occur. Michael Pollock, managing director of Spectrum Gaming Group, an Atlantic City-area casino consulting firm, said it would not be surprising to see one or two casinos have to close in 2012 due to the cutthroat competition in the industry amid a still-weak economy. ACH, the casino formerly known as the Atlantic City Hilton, appears to be on the shakiest ground. In November, state regulators approved a plan for the casino to stay open with a fresh infusion of capital from its owners, Los Angeles hedge fund Colony Capital LLC, and a cancellation of its debt. But the casino has committed to staying open only through the end of October, and it’s going after the smallest of small fish in a market that prizes whales. It recently got permission to use table game gambling chips worth as little as 25 cents – the first time Atlantic City has let any casino use a chip worth less than $1. Resorts Casino Hotel also has yet to turn a profit in the first year of new ownership, although it expects to at least break even by the end of 2012. Atlantic City’s casino revenue peaked in 2006 at $5.2 billion; it has since fallen to $3.6 billion at the end of 2010, mostly due to casinos opening in neighboring Pennsylvania and New York, and the poor economy. Many expect revenues for 2011 to be in the range of $3.2 billion. Atlantic City desperately needs new money, Pollock says. “The spigot had been turned off on new capital investment and it’s crucial that that spigot get turned back on again,” he said. “Atlantic City was on its way toward reinventing itself with a new business model” when the bottom fell out of the economy. The Seminole Indians, through their Hard Rock franchise, say they are ready to do just that. They plan to break ground by July 15 on Atlantic City’s first so-called “boutique casino,” a smaller, less expensive gambling hall authorized under a pilot program to jump-start the stagnant casino market here. The first phase of the project, with 208 hotel rooms. will cost about $465 million, and eventually grow to 850 rooms. New Jersey’s state government adopted a number of reforms for Atlantic City in 2011 that will have the chance to bear fruit in 2012. It beefed up the Casino Reinvestment Development Authority and put it in charge of revitalizing the resort, including making sure its streets are clean and safe. But the reform likely to have the most immediate impact is the formation of the Atlantic City Alliance, a private casino-financed nonprofit corporation that will spend $30 million a year for the next five years to promote Atlantic City to the rest of the world. That’s money the casinos were required to pony up to the state’s racetracks in return for keeping slot machines out of racetracks, until Christie intervened and killed the arrangement, much to the delight of the casinos. “What did Revel do in its first year, and what did we do with the $30 million we suddenly had at our disposal to market Atlantic City?” said Rodio, the Tropicana president. “That’s what we’ll be debating next New Year’s Eve.” ___ Associated Press writer Beth DeFalco in Trenton contributed to this report. ___

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Could Housing Market Rejoin The Living In 2012?

December 30, 2011

Just as housing was the first bubble to burst, sinking the American economy into crisis, a revived housing market could force some life back into the listless economy. The only questions are if and when the market will improve. Because it certainly didn’t this year. Housing prices hit a low in 2011 not seen since 2002, losing an average of nearly one-third of their 2006 peak value and creating a “double dip” decline, according to the S&P/Case-Shiller National Price Index. As a result, nearly one-quarter of all homeowners are underwater, owing an average of $75,000 more on their mortgage than the home is worth, according to research firm CoreLogic. But one leading real estate analyst thinks 2012 will be better. Tom Lawler, an independent consultant who retired from Fannie Mae in 2006 after 22 years at the mortgage giant — and after predicting the impending end of the housing bubble at the height of the boom — sees potential in the continued dearth of newly built homes, a slowly rebounding job market and a population in need of housing. Lawler is not alone in his optimism. Stocks of homebuilders are trading 30 percent higher since the end of the third quarter and large hedge funds like Blackstone Group are making housing-related investments, reports the Wall Street Journal . Earlier this month, Goldman Sachs stated that “the housing-price bottom is probably in sight,” adding that although home prices could decline in 2012, there should be a 30 percent gain over the next decade. The newly bullish real estate market and analysts like Lawler anticipate increased housing demand in 2012. Specifically, Lawler predicts a rebound in headship rates, defined as the number of people who qualify as the head of a household — which matters to housing economists because each head of household represents a home. In the first half of the decade, roughly 1.3 million new households formed each year , according to Harvard University’s Joint Center for Housing Studies. Since 2005, that number has dropped to less than a million per year. Some of the decrease is due to declining immigration. Another chunk can be blamed on the hesitance of 20- and 30-something Americans to become heads of household. While economists like Freddie Mac’s Frank Northcut have argued that the downward trend in household growth will stifle the housing market in 2012, Lawler believes it represents an opportunity. “The job market has been terrible, and it hit younger people very hard,” he said. “As a result, we’ve seen more young people staying in school, or moving home with their parents, or sharing a place with roommates. But those aren’t permanent situations. Instead, it suggests an emerging, pent-up demand because they are going to ultimately form their own households.” The Joint Center for Housing Studies seems to agree, as the group projects total household growth at about 12.5 to 14.8 million over the decade. When Americans do go looking for housing, the market will be helped by the fact that relatively few new homes are currently under construction, Lawler notes. For 16 consecutive years — 1992 to 2007 — at least a million new single-family homes were built every year , according to the National Association of Home Builders. By 2010, that number had dropped to almost 471,000, and early estimates predict that it fell even further this year. As long as new construction remains low, people will turn to the stock of existing homes, purchasing those now sitting empty and thereby helping to clear the market. In other good news for the housing market, the number of job layoffs has been steadily declining, as reported earlier this week by the Labor Department, while the unemployment rate dropped from 9 percent in October to 8.6 percent in November. Most analysts agree that the job and housing markets are linked. As more people find work, they are better able to qualify for a mortgage and more likely to buy a home. Lawler cautions that there is one large unknown complicating predictions: the “shadow inventory.” That is, homes that are not yet for sale but likely will come up for sale because the current homeowner is seriously behind on the mortgage payments. “In a normal world, which we haven’t been in for so long, those loans would have been dealt with one way or another,” Lawler said. “But in our abnormal world, it’s all unknown.” He added, “If you didn’t know about that shadow inventory, you’d say, ‘My god, it’s a slam dunk that 2012 looks better.’”

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Mahendra Ramsinghani: 2011 A Year Of Recovery For Venture Capital, But Still A Ways To Go

December 30, 2011

For venture capital, 2011 was a year of recovery. Investors in venture funds (called Limited Partners) wryly pointed out in 2010 that venture capital had not produced returns in the past decade. 2011 may have corrected that, but investors still continue to shy away from VC. But let’s start with the good news first. A Year of IPOs and returns: For most VCs, the big payday is when a company gets acquired or goes public. Of course, going public has its own cachet, not to mention returns. On an average, IPOs generate at least 5X the rate of return as compared to an acquisition. Some worthy tech IPOs of note in 2011 were LinkedIn, Groupon and Zynga. Others included ZipCar (Short term car rentals), RenRen (China’s Facebook), Yandex (Russia’s search engine) Fusion I-O, (Hardware) to name a few. Venture funds that had at least two IPOs include Accel, Andresseen-Horowitz, Benchmark, Greylock, Kleiner Perkins, Sequoia, Technology Crossover Ventures and New Enterprise Associates. Others of note include Foundry Group and Union Square Ventures (Zynga) and Battery (Angie’s List). Indeed, the National Venture Capital Association (NVCA) US VC Index showed one year returns of 26.3% as of Q2 2011. This number will continue to beat other indexes, including S & P 500 in 2012, but will that help VCs? VC asset class gains respect (but no money): Even as venture capital as an asset class recovers from its depths and the ten-year average return moves into the black, investors continue to shun the VCs. The NVCA Cambridge Associates VC Index shows 1.25% return over the past ten years while S & P 500 generated 2.72% for the same period. But on the whole, VC is no more than 4% of any institutional portfolio. The entire asset class attracts merely $20 billion or so each year. In comparison, hedge funds attract trillions, as do treasury bonds. The rationale provided is that it’s a risky asset class, and being tied in the relationship for 10 years is not fun. But risk, as we know it, is not restricted to VC — every asset class in the past 3 years has encountered the black swan and taken a hit. So while the definition of risk has changed, the asset allocation formulas have not changed. In fact, it continues to get worse: CalPERS, the largest investor in venture capital, plans to reduce its allocation down to 1% . In fact, it will be skipping on its commitment to Khosla Ventures, one of the largest venture funds in the valley. The entire industry is down by orders of magnitude. In 2011, 147 venture funds raised $12.2 billion in the first 3 quarters. Ten years ago, at the height of the bubble, over 1100 firms raised $100 billion. And for those raising funds, according to Preqin, a Private Equity research firm, partners spend at least 16 months, if not longer, raising their funds. Done Deals (What’s a few Solyndra’s here and there?) : Some of the largest investments in 2011 were in pharma, social media and energy: Reata Pharmaceuticals raised $300 million – the largest amount as of Q3 2011. Social Media / Local Commerce companies that raised larger rounds include discounted luxury brand e-tail provider, Gilt Groupe ($136 million), event management software company, Cvent ($135 million), short term accommodation rentals facilitator Airbnb ($112 million), Coupons.com ($100 million), Blog hosting platform Tumblr ($84.9 million). Even as the sun may be setting on the energy sector with Solyndra’s debacle, energy was one of the larger sectors that attracted mucho VC dinero. BrightSource ($201 million) HelioVolt ($84.9 million) SoloPower ($78.5 million) and Fulcrum BioEnergy ($75 million) were a few big ones of note in 2011. On the other end of the spectrum, Y Combinator attracted as many as 3,000 applicants – where an average class size is 40 to 60 start-ups – which means a lot of work for Paul Graham. VCs get actively involved on Capitol Hill; No Occupy Tactics yet: For any VC to get involved in legislation is a royal pain in the rear. Most do not know how the elected officials make decisions, why the process is so archaic and how to inject the voice of reason to ensure the outcomes are balanced. Despite this, VCs across the board joined hands to have their say in legislation. The recording industry and movie industry have pushed for Stop Online Piracy Act (SOPA), which targets online traffickers of copyrighted materials. VCs say it is over reaching and will cripple the Internet and is tantamount to censorship. (You can spot an overzealous legislation when the law wants to chase the connectivity providers and not those infringing the copyright,) Similarly, Protect Intellectual Property Act (PIPA) aims to curb IP infringement, VCs and Tech entrepreneurs protest that it will inhibit innovation as the law would go after search engines and web advertising firms. VCs have also voiced their opinions on start-up visa to help restore innovation and entrepreneurship by attracting immigrants. CNET predicts that in 2012, SOPA opponents will go nuclear . Of course, all of these will keep VCs distracted for most part of 2012. A wag of a VC told me over beers that if Donald Trump is elected President in 2012, all of this would go away as he could fire everyone on Capitol Hill. Finally, it seems VCs have lightened up a bit and found a way to express themselves in more entrepreneur-friendly ways. In 2011, Foundry Group debuted “I’m a VC” video . As the story goes, Jason Mendelson was inspired to create the video when a 8 year old and his co-founder (a dog) were expecting $20 million pre-money valuation for their start-up!

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Ernan Roman: 2012: Year of Preference-Driven Multichannel Marketing Breakthroughs

December 28, 2011

PREDICTION: Marketers who deploy their multichannel marketing mix at key points in customer’s lifecycles with the company and per customer’s individual preferences will win. Those who don’t will just be creating multichannel irritation. Brand Paths in 2012 For some brands, this will be the year of multichannel breakthroughs. For other brands, the next twelve months will be another painful period of trial and error — mostly error. Per recent Voice of Customer research we conducted with major BtoB and BtoC marketers, customers want brands to use an integrated multichannel mix that engages them to share their preferences regarding offers, alerts, frequency of contact and media preferences. Using this integrated multichannel mix, marketers can provide relevant communications … at key points in the consumer’s lifecycle with the company. Thriving in 2012 … and Beyond To thrive in 2012, assume that both “old” and “new” media will play a role in your customer’s personalized multichannel mix. Elements of a preference-driven mix include online, social, direct mail, print, broadcast, narrowcast, and all the possible person to person “touch points,” including both face to face and phone interactions. As an excellent Epsilon study, “The Formula for Success: Preference and Trust,” referenced here , put it: “Consumers use and trust certain communications channels more than others. This means that marketers need to understand which channels resonate most at various points in the consumer purchase cycle and incorporate a cross-channel strategy that leverages data and technology to communicate on a one-to-one basis … Our study suggests that brands should use a variety of mediums to build relationships, starting with trusted channels like direct mail, then layering the message to re-enforce it through other channels.” This multichannel mix must be deployed at key points in the customer’s lifecycle with your company and per the consumer’s individual preferences … or you will lose ground in 2012! Four Takeaways for Marketers Trust your customers to tell you: Gather Voice of Customer (VOC) research-based insights regarding how your customers define a truly personalized multichannel relationship, and which communications are most relevant at key points in their relationship lifecycle with you. Understand the behaviors that equal “engagement”: Use VOC insights to understand what range of actions from your side drive engagement from the consumer’s side, such as recognition, personalized rewards, the opportunity to share their point of view, the chance to enter a contest, etc. Be media agnostic: Offer both “old” and “new” media options your customers can select to satisfy their media preferences. Measure it. Track the results carefully over time. What matters is not how many eyeballs or fans you have. It’s what people are actually doing … and buying! Ernan Roman is President of the marketing consultancy, Ernan Roman Direct Marketing. Recognized as the industry pioneer who created three transformational methodologies: Integrated Direct Marketing, Opt-In Marketing, and Voice of Customer Relationship Research. Ernan was recently inducted into the Marketing Hall of Fame. Clients include Microsoft, NBC Universal, Disney, Hewlett-Packard and IBM. Ernan was named to “B to B’s Who’s Who” as one of the “100 most influential people” in Business Marketing by Crain’s B to B Magazine. His fourth and latest book on marketing best practices is titled: Voice of the Customer Marketing: A Proven 5-Step Process to Create Customers Who Care, Spend, and Stay . Ernan is also the co-author of “Opt-In Marketing: Increase Sales Exponentially with Consensual Marketing” and author of “Integrated Direct Marketing: The Cutting Edge Strategy for Synchronizing Advertising, Direct Mail, Telemarketing and Field Sales.” www.erdm.com ernan@erdm.com

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Former Obama Adviser: Geithner Set Obama Up For Payroll Tax Success

December 28, 2011

Progressives have a spring in their step this holiday season after the debacle suffered by House Republicans in the debate over the payroll tax. Many liberals will be surprised to learn that a good deal of the credit belongs to one of their least-favorite members of the president’s economic team: Treasury Secretary Timothy Geithner, whose economic and strategic counsel set the trap that the House hardliners fell into.

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Dan Solin: Don’t Be Fooled by "Best Fund Manager" Lists

December 27, 2011

This is the time of year when the financial media goes into overdrive. You can expect no end of predictions for 2012. Some will be right. Others will be wrong. Those who are right will anoint themselves (or be anointed) as new “gurus” with magical predictive powers. Actually, they were just lucky. More insidious are lists of “best fund managers”. Investors rely on these lists, especially when they are created by credible sources. Morningstar is arguably at the top of the food chain in the investment research biz. According to its web page , it offers data on 330,000 investment offerings and has $167 billion under management. It operates in 26 countries. Much of the advice provided by Morningstar is excellent should be studied and followed by investors. My favorite is an article demonstrating that low fees are likely to be the best predictor of a mutual fund’s future success, which is summarized here . Morningstar, like many others, picks active fund managers who it believes stand out from the crowd. Much like the Grammy awards, Morningstar designated five “nominees” for domestic stock manager of 2011. In making these selections, Morningstar noted that the nominees “…have done an outstanding job not just this year but over the long haul to produce strong returns for shareholders.” Sounds impressive. And the nominees are: 1. Bob Goldfarb and David Pope. Sequoia Fund (SEQUX) 2. Bill Nygren. Oakmark Select (OAKLX) and Oakmark (OAKMX) 3. Don and Stephen Yacktman. Yackman (YACKX) and Yacktman Focused (YAFFX) 4. Scott Satterwhite, James Kieffer and George Serti. Artisan Mid Cap Value (ARTQX), Artisan Small Cap Value (ARTVX) and Artisan Value (ARTLX) 5. Pat English and Andy Ramer. FMI Large Cap (FMIHX) and FMI Common Stock (FMIMX). The lucky winner will be announced the first week in January. Readers of the article were encouraged to vote for their favorite. I thought it would be helpful to give you some data to guide your decision. First, I can understand the basis for picking these fund managers. Not only did they have a good year, they had a great decade. I ran the ten year returns for each of these fund managers. All of them clobbered their benchmark. The performance of the Yackmans was particularly impressive. The ten year return of their two funds was 10.78 percent and 11.63 percent, against a benchmark of only 3.93 percent. In a previous blog , I noted that stellar performance can be as easily attributed to luck as to skill. It can take many years of data for outperformance by a fund manager to have statistical significance. I ran what is called a “t-test” calculation on each of the five managers nominated by Morningstar. I used data from the inception date when the fund manager nominated began to manage the fund. I determined that I needed more years of data to determine whether the outperformance of all these fund managers was due to luck or skill. You can find details of my calculations, and an explanation of the t-test calculation here . Without this information, how would you decide which of these managers you should select to manage your funds? Worse yet, how could anyone determine which funds to include in this list of “best manager?” Wouldn’t the “best manager” necessarily be able to demonstrate investment skill? If you must vote for your favorite fund manager, follow Morningstar’s previous advice. Go with the fund manager whose fund has the lowest expense ratio. The winner would be the Yackman Fund (YACKX), with an expense ratio of 0.85 percent. A far more intelligent choice would be to ignore list of “best fund managers” altogether. You can buy low management fee index funds from Vanguard for a fraction of the expense ratio of the lowest actively managed funds. Vanguard’s Total Stock Market Index Fund (VTSMX) has an expense ratio of only 0.18 percent. According to Vanguard , this expense ratio is 84 percent lower than the average expense ratio of funds with similar holdings. This fund is managed by Gerard C. O’Reilly. He would be my pick for “best fund manager.” Dan Solin is a senior vice president of Index Funds Advisors. He is the New York Times bestselling author of The Smartest Investment Book You’ll Ever Read, The Smartest 401(k) Book You’ll Ever Read, The Smartest Retirement Book You’ll Ever Read and The Smartest Portfolio You’ll Ever Own. His new book, The Smartest Money Book You’ll Ever Read, will be available December 27, 2011.The views set forth in this blog are the opinions of the author alone and may not represent the views of any firm or entity with whom he is affiliated. The data, information, and content on this blog are for information, education, and non-commercial purposes only. Returns from index funds do not represent the performance of any investment advisory firm. The information on this blog does not involve the rendering of personalized investment advice and is limited to the dissemination of opinions on investing. No reader should construe these opinions as an offer of advisory services. Readers who require investment advice should retain the services of a competent investment professional. The information on this blog is not an offer to buy or sell, or a solicitation of any offer to buy or sell any securities or class of securities mentioned herein. Furthermore, the information on this blog should not be construed as an offer of advisory services. Please note that the author does not recommend specific securities nor is he responsible for comments made by persons posting on this blog.

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Stocks Rise As U.S. Data Improves, Italy Moves Towards Austerity

December 16, 2011

BANGKOK — World stocks rose Friday amid improving U.S. jobs and manufacturing data and the expected approval in Italy of an austerity plan intended to get the country’s finances under control. Benchmark oil hovered near $94 per barrel while the dollar rose against the euro and the yen. European shares rose in early trading, following gains in Asia. Britain’s FTSE added 0.3 percent to 5,415.04. Germany’s DAX inched up 0.3 percent to 5,745.07. France’s CAC-40 was steady at 2,997.89. Wall Street also appeared ready to head higher. Dow Jones industrial futures rose 0.4 percent to 11,872 while S&P 500 futures gained 0.6 percent to 1,218.80. Japan’s Nikkei 225 index was 0.3 percent higher to close at 8,401.72. South Korea’s Kospi rose 1.2 percent to 1,839.96 and Hong Kong’s Hang Seng added 1.4 percent to 18,285.39. Benchmarks in Singapore, Taiwan and Indonesia also rose. Mainland China shares ended a six-session losing streak, with the benchmark Shanghai Composite Index gaining 2 percent to close at 2,224.84. Analysts stopped short of calling the gains a recovery, as trading was light ahead of the holidays. The Hang Seng, snapping a six-day losing streak, was higher on a technical rebound, said Linus Yip, a strategist at First Shanghai Securities in Hong Kong. “The market dropped for six straight days. Now it may find some excuse for a technical rebound. So the U.S. job figures may be the excuse,” Yip said. Later Friday, the Italian government will hold a critical confidence vote in the lower house of parliament on a multibillion euro austerity package. Despite widespread opposition, the plan aimed at persuading bond markets that the country can emerge from the widening European debt crisis is expected to pass. The country now sits on a 1.9 trillion euros ($2.5 trillion) powder keg of debt that could spark a global economic recession if a default occurs. “While the plan will very likely get the required support from MPs, it will be important to see whether amendments are proposed in terms of spending cuts and implementation schedule, in particular,” Frederik Ducrozet, an economist at Credit Agricole CIB, said in a research note. Signs emerged that the Chinese central bank may have intervened in the currency market by offering dollars to support the Chinese yuan, which has been weakening in recent sessions. That raised speculation that authorities may plan more market-boosting measures. The yuan strengthened to a record 6.3294 against the U.S. dollar, but later eased to 6.3446. Weakness in the yuan could raise tensions with countries such as the U.S. that complain it is already undervalued. Among Japanese stocks, online game firm Gree rose 0.8 percent after Nomura Holdings rated the stock a “buy” on an expected increase in profits, Kyodo News Agency reported. Major automakers fell, including Toyota Motor Corp., down 1.8 percent, and Mazda Motor Corp. dropping 2.2 percent. Retailers led Australia stocks down. JB Hi-Fi tumbled 14.9 percent after surprising investors with a profit warning late Thursday. Myer Holdings fell 2.6 percent. Investor sentiment rose after the U.S. government reported that the number of people applying for unemployment benefits dropped sharply last week to 366,000, the fewest since May 2008. That’s a sign that layoffs are easing, a first step toward bringing down the unemployment rate, which currently stands at 8.6 percent. Traders were also encouraged by a report from the Federal Reserve of New York that its index measuring regional manufacturing jumped to the highest level since May. That was far more than economists were expecting. A similar report from the Philadelphia branch of the Fed also increased more than analysts anticipated. The Dow Jones industrial average rose 0.4 percent to 11,868.81. The Standard & Poor’s 500 rose 0.3 percent to 1,215.76. The Nasdaq rose marginally to 2,541.01. Benchmark oil for January delivery was up 12 cents to $93.99 per barrel in electronic trading on the New York Mercantile Exchange. The contract fell $1.08 to finish at $93.87 per barrel on Nymex on Thursday. In currency trading, the euro fell to $1.3009 from $1.3011 late Thursday in New York. The dollar rose to 77.94 yen from 77.91 yen. ___ AP Business Writer Elaine Kurtenbach in Shanghai contributed to this report. ___

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Crunch Time: Bank Downgrade, Credit Squeeze Signal Possible Return To 2008

December 15, 2011

The situation in Europe is hitting global credit markets, making it harder for companies and banks to secure loans. Investors are buying fewer corporate bonds, and banks are finding it more difficult to borrow from each other. On Thursday, as the European Central Bank again resisted pleas for it to rescue the eurozone, worries about a severe credit crunch along the lines of the 2008 crisis grew. “In some ways this is part two of the U.S. financial crisis,” said Srinivas Thiruvadanthai, an economist at the Jerome Levy Forecasting Center. Credit rating agency Fitch Ratings downgraded nine major banks on Thursday, including Goldman Sachs, Bank of America and Morgan Stanley. While acknowledging that the banks are in better shape now than in 2008, the rating agency cited vulnerability to the increased market turmoil stemming from “economic developments and regulatory challenges.” Many fear that one cataclysmic event — such as the default of Italy or a major European bank failure — could freeze credit markets, plunging the world into a recession similar to the downturn resulting from the bankruptcy of Lehman Brothers in 2008. “As the situation in Europe goes, so does the global economy,” said Adrian Miller, fixed-income strategist at Miller Tabak Roberts Securities. Miller said that the bond markets have been moving in sync with the European crisis; recently he’s noted that investors are growing wary of lending even to so-called safe businesses. Global investors are buying about 40 percent fewer new high-quality U.S. corporate bonds than in mid-May, according to Miller. Meanwhile, there’s been about a 70 percent plunge in the purchasing of new, risky U.S. corporate bonds: While global investors bought about $8 billion of these bonds per week in mid-May, now they are buying just $2.5 billion. As European banks slash lending in order to meet new capital requirements, European companies have been hit somewhat harder. Purchases of newly issued risky European corporate bonds have plunged about 80 percent since mid-May, according to Miller. Banks also are finding it harder to borrow from one another. It is now more than twice as expensive to secure a three-month loan from another bank than at the beginning of August, according to Rich Gordon, managing director of fixed-income market strategy at Wells Fargo Securities. On Thursday Fitch downgraded Bank of America and Goldman Sachs’ long-term debt to A from A+, Barclays’ long-term debt to A from AA-, BNP Paribas’ long-term debt to A+ from AA-, Credit Suisse’s long-term debt to A from AA-, and Deutsche Bank’s long-term debt to A from AA-. The downgrades reflect “balance sheet damage” emanating from the increased riskiness of European sovereign debt, but they would not result in any major economic repercussions, said Michael Spence, a Nobel Prize-winning economics professor at New York University’s Stern School of Business. “There has been some significant credit tightening already,” Spence said. He added that the Federal Reserve ultimately would step in if credit markets dry up. “If left unattended, it will cause some damage, but I don’t think it will be left unattended,” he said. In a speech in Berlin on Thursday, European Central Bank President Mario Draghi disappointed investors when he repeated that the bank would not come to the rescue and step in to buy large amounts of government bonds. “There is no external savior for a country that doesn’t want to save itself,” Draghi said. In an attempt to reassure the audience and jittery investors across the globe, Draghi said that “a return of confidence,” stemming from government budget cuts, likely would materialize and mitigate the economic damage of austerity measures in struggling countries. Observers were not reassured. “There isn’t any likelihood of it [confidence] returning,” said Jay Bryson, global economist at Wells Fargo Securities. Bryson added that the ECB is the only organization with the firepower to save European countries and banks from default, and that ultimately when it seems to have no other choice, it will most likely step in. “Authorities at least in the past have always blinked, or generally have always blinked,” Bryson said. Markets slightly recovered but remained cautious on Thursday after the previous day’s turmoil. The interest rate on 10-year Italian government bonds fell slightly but remained above the unsustainable 7 percent level. Russian leaders said that they would step in to help, indicating that the country would lend more than $10 billion to the International Monetary Fund, as a backstop for struggling European governments. Europe’s troubles first came to light in 2010 when Greece’s debt troubles caused a financial panic. And the situation continues to evolve, reminding some of the slow motion pace of the U.S. housing market collapse, which took hold in 2007 and triggered the financial crisis in 2008. After Lehman Brothers declared bankruptcy in September of that year, banks stopped lending to each other, fearful that more failures were coming. Banks hiked the cost of their loans to other banks (like they’re doing now), making it more difficult for banks to come up with the capital necessary to cover all of their liabilities. Meanwhile, as more investments in the housing market fell apart, banks were forced to pay out insurance on those mortgage defaults. But they didn’t have the money. Companies that relied on short-term financing to maintain their daily operations found themselves on the brink of shutting down, as loans became prohibitively expensive. Major banks were about to fail. After the U.S. Treasury and Federal Reserve rescued the U.S. banking system from collapse, credit remained tight in 2009, and companies that were unable to secure loans ended expansion plans and laid off workers, reducing consumer demand and worsening the economy. That forced companies to cut even more workers and making lending even tighter. Though the vicious cycle of layoffs and reductions in lending has ended, it could resume again if the crisis in Europe spirals out of control with a default by the Italian government, said Stijn van Nieuwerburgh, associate finance professor at New York University’s Stern School of Business. “As banks become less and less solvent, or their bottom lines are hit, they’ll be less inclined to do risky lending,” he said. Catherine New contributed reporting.

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Ben Bernanke: Fed Doesn’t Have ‘Authority’ To Bail Out Europe

December 14, 2011

WASHINGTON – Federal Reserve Chairman Ben Bernanke told Republican senators on Wednesday the Fed can’t and won’t provide bailout funds to support European banks or nations, lawmakers said. “We’re all concerned, is the American taxpayer going to be bailing out European nations and banks,” Senator Lindsey Graham told reporters after a meeting with the Fed chairman. “He said, no, he doesn’t have the intention or authority to do that,” Graham said. (Reporting By Mark Felsenthal and Pedro Nicolaci da Costa; Editing by Chizu Nomiyama) Copyright 2011 Thomson Reuters. Click for Restrictions .

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MF Global’s Collapse Puts Self-Regulation In Harsh Light

December 14, 2011

WASHINGTON (Philip Shishkin) – Two weeks after MF Global’s collapse, officials from the Commodity Futures Trading Commission briefed Senate staff on the brokerage firm’s final days. When asked about reports that the brokerage firm had written checks that bounced when customers tried to cash them, the regulators had an admission that surprised the room: they didn’t know about the bad checks. “This seemed like something they should be aware of,” a Senate staffer present at the meeting recalled. A CFTC spokesman declined to comment. Customers still have no explanation of what happened to MF Global and some $1 billion missing from its customer accounts more than a month after the firm’s failure. And regulators struggling to solve the mystery are now forced to play catch-up. That’s in part because over the past decade, as trading volume soared, federal regulators eased direct oversight of the industry and handed more regulatory powers to the major exchanges. Now, this self-policing arrangement is prompting concerns about the regulators’ and the exchanges’ ability to detect and deter suspicious conduct in the rapidly expanding marketplace. A look at the recent history of self-regulation shows the government repeatedly raised concerns about the resources the major exchanges dedicate to market oversight, while the federal agency also experienced staff cutbacks and retreated from hands-on policing. Both the federal regulators and the exchange where MF Global operated, the CME Group, maintain they did all they could in the run-up to MF Global’s collapse. But calls are growing for a better system of auditing and enforcement to prevent similar crises in the future. “I think we’ve gone too far in allowing the exchanges to be so self-regulatory that it’s obfuscated the need for the cop to be on the beat all the time,” says Bart Chilton, a Democratic commissioner on the CFTC. Even the industry itself is acknowledging that there will need to be some changes. While defending the self-regulatory system, Dan Roth, president of the National Futures Association, said “we should be able to identify certain frailties of the current structure that will need to be addressed.” THE FUTURES POLICE Self-regulation is the hallmark of the U.S. futures industry. Proponents argue that by placing oversight in the hands of the people who really understand the industry, the system benefits everyone. Critics point to the recent transformation of the exchange business, away from a non-profit cooperative model, as a reason the exchanges’ commercial interests are overshadowing their market-oversight role. Though it dates back to the middle of the 19th century, the self-regulatory nature of trading futures got a boost in 2000 with the passage of the Commodity Futures Modernization Act. The main thrust of the bill, signed into law by Bill Clinton in the waning days of his presidency, was to exempt the rapidly growing market for certain types of financial and energy derivatives and swaps from federal futures regulation. The law was lobbied heavily by the financial industry, which argued that too many rules were hindering financial innovation and economic growth. But it became an easy target after the 2008 financial crisis, in which these types of complex financial products played a role. So lawmakers passed the Dodd-Frank financial-reform law, which pulled the swaps back under the federal regulatory umbrella and instructed the CFTC to write new rules to govern them. Another, less-discussed, purpose of the 2000 deregulation effort was to limit the prescriptive powers of the CFTC and to give more freedom to the exchanges to set their own rules. The goal was “to provide regulatory relief to futures and options exchanges,” James Newsome, who was the agency’s chairman in 2001, said at the time. The overall U.S. futures and options industry grew nearly five-fold between 2000 and 2010 when 7.12 billion futures and options contracts were traded, according to Futures Industry Association. Just as futures trading was exploding in volume, the federal agency was taking a step back from direct oversight of the markets both because of the 2000 deregulation and because of agency understaffing. For instance, when the CFTC in 2003 went after a futures trader allegedly operating a foreign currency boiler room, a court told the agency it had no jurisdiction. Even in areas where the federal agency retained jurisdiction, direct oversight of the markets rested with the futures exchanges themselves. And those exchanges began ripping up their century-old business models and consolidating rapidly. Ever since a group of brokers formed the Chicago Board of Trade in 1848, the exchange industry was organized into nonprofit cooperatives of brokers setting their own rules. Technological and competitive pressures began building on the exchanges that forced more change. In 2000, the Chicago Mercantile Exchange shed its old cooperative structure and soon went public. It later bought the Chicago Board of Trade. And then the newly formed CME Group Inc. acquired the owner of New York’s mercantile and commodities exchanges. That made CME Group a dominant U.S. exchange, and one of the largest in the world. OVERSIGHT STAFF CUTS FLAGGED As CME Group grew, federal regulators were relying on the exchange operator to be their eyes and ears on the ground. But in several recent assessments, the CFTC said that CME failed to adequately staff its oversight arm, while some of its fines lacked the necessary bite to scare repeat offenders. Combined with the rapid growth in trading volume and complexity of financial products, these staff cuts “could impair the effectiveness of an exchange’s compliance program and impede enforcement,” federal regulators warned in a 2010 audit of the company. The flurry of mergers that swept the world of commodity exchanges was partly to blame for the alleged shortfalls, the regulators said. “Prudence suggests that when exchanges merge, they should avoid substantial reductions in their combined compliance staff,” federal regulators said in the 2010 audit, urging the company to add employees. In a follow-up audit a year later, the regulators criticized CME Group for the same alleged staffing shortfalls and noted the issue is “of particular concern because of the substantial share of the entire U.S. futures and options marketplace accounted for by the CME Group exchanges.” A CME official said that merger synergies “didn’t reveal themselves quite as quickly” but noted that CME’s exchanges have always conducted effective internal oversight. Since those audits, CME says it increased its market oversight staff to about 150 employees and has been increasingly relying on technology to keep tabs on the market amid large growth in the trading volume. FINES A SLAP ON THE WRIST In their recent audits, federal regulators also said that fine amounts for some types of trading-related violations “may be low enough that traders could view them as merely a cost of doing business.” The regulators urged the CME Group to have a fine schedule that would penalize repeat offenders with progressively higher fines. The issue has prompted federal regulators to step in with their own penalties in cases where they thought the CME was merely slapping traders on the wrist. Consider the track record of Edward Sarvey and David Sklena, two longtime Chicago Board of Trade brokers who traded U.S. government debt. By 2004, Sarvey had already drawn five penalties for trading violations, with exchange fines ranging from $100 to $25,000 and short bans from the trading floor. Sklena had been sanctioned twice, according to records from the National Futures Association. In 2004, the two traders engaged in what amounted to insider trading on futures pegged to five-year Treasury notes, according to court documents. The trades netted Sarvey $357,000, while Sklena earned $1.65 million in a single morning. Their customers lost about $2 million, court documents say. In 2007, the Chicago exchange fined Sarvey and Sklena $125,000 and $175,000 respectively, and banned them from trading for about two months. But federal regulators deemed the penalties insufficient and brought their own civil case against the pair in 2008. That complaint morphed into a federal criminal indictment. Sklena was found guilty of fraud last year and sentenced to five years in prison. Sarvey died before the trial. His former lawyer, John Legutki, says he is “surprised and saddened” by the escalation of the case from “relatively minor” exchange penalties to a full-blown criminal prosecution. “This all weighed on him very heavily,” he says of Sarvey. The case also weighed on federal futures regulators who say it is indicative of soft exchange penalties that fail to deter unscrupulous brokers. “It is not an isolated case,” a CFTC official told Reuters. The agency declined to provide numbers on how many times it intervened to correct what it thought were insufficient exchange sanctions. A CME official said that it was the exchange that first caught Sarvey and Sklena, and that the subsequent federal case was built on “all the good work that the exchange did.” He said that “maybe with some exceptions, (federal regulators) find the fines and the penalties that we issue are appropriate.” CME also says that the number of enforcement actions brought by its subsidiary exchanges grew from 83 in 2000 to 132 so far in 2011. During his congressional testimony on MF Global’s collapse on December 8, CME Group’s executive chairman Terrence Duffy said one way to deter future abuses would be to have “stricter penalties.” Duffy said the exchange had conducted its audits and spot checks of MF Global “at the highest professional level” and that the alleged misappropriation of customer funds by the firm was “disguised from all regulators.” In a common refrain, many market participants have accused CME Group of not doing enough to supervise large brokerages whose business and trading volume are key to the company’s bottom line. “I’ve had more than one person say to me that all CME wants is volume, volume, volume, and they don’t necessarily care about the integrity of the marketplace,” says Jerod Leman, an account executive at Wellington Commodities, a Carmel, Ind.-based broker that works with farmers who lost money in the MF Global collapse. In 2010, CME reported that its average daily trading volume grew to 12.2 million contracts, up 19 percent from the year before. “DON’T FIX WHAT AIN’T BROKE” This is not new territory for commodity exchanges. A prominent farmer advocate in 1932 complained that the members of the Chicago Board of Trade “have set up a little government of their own, in which trials are held like a secret lodge,” according to Jerry Markham’s 2001 book “The Financial History of The United States.” Since those days, the futures business has grown to include hedge funds and other investors, large and small, trading at high volume and using increasingly esoteric financial products, which makes oversight more challenging. For its part, CME argues it has an obvious self-interest in policing its trading floors because if traders lose faith in the integrity of the exchange, CME Group will lose business. In a 2006 hearing on the matter, CME’s chief executive Craig Donohue dismissed assertions of a conflict between the company’s profit-making and regulatory missions as “conjecture” and said “don’t fix what ain’t broke.” Ted Butler, a veteran silver trader, has been pushing Comex, the New York metals exchange owned by CME Group, to investigate allegations of price manipulation on the silver futures market by a handful of large brokerages. But, he says, the exchange hasn’t shown much interest. “It is a continuing mystery how the conflicted CME could be responsible for any regulatory oversight given their inherent clear conflict of interest,” Butler, who himself had drawn a CFTC sanction in the 1980s, wrote in a recent newsletter. The federal agency is conducting its own investigation into the silver market, having found no evidence of wrongdoing in an earlier probe. A CME official declined to comment, citing the ongoing federal inquiry, with which the exchange is cooperating. CME SIDING WITH BUSINESS In a rapidly growing futures industry, CME Group often has to wade into policy debates between federal regulators and the businesses they oversee. In several of those debates, CME sided with the firms in opposing disclosure rules and trading curbs that could cut into those firms’, and the CME’s, bottom line. The CME, for instance, opposed registration requirements for high-frequency traders. CFTC officials hoped the registration would force the traders, some based overseas, to disclose more about themselves and their trading software, and allow regulators to step in quickly in case of trouble that was seen in the so-called “flash crash” of 2010. Because of the sheer volume and the number of transactions, high-frequency traders provide an attractive business to the exchange. CME Group balked at efforts to saddle them with additional requirements. A CME official says there’s no uniform definition of what constitutes high-frequency trading, and that CME’s internal systems already provide the exchange with “incredibly granular information that allows us to look at trading activity.” Last year, for instance, CME Group fined a high-frequency trader called Infinium Capital Management $850,000 for glitches in its algorithm that unleashed rapid-fire trading orders and caused a brief spike in oil prices. UNDERFUNDING OVERSIGHT Over the past decade, the federal agency has tried to address potential conflicts of interest within the exchanges by insisting they appoint independent directors to their boards and increase the funding and independence of their regulatory oversight committees. “There was a concern about underfunding the regulatory function of the exchange,” recalls Sharon Brown-Hruska who served as a CFTC commissioner between 2002 and 2006. Major exchanges going public only heightened concerns about self-regulation, she says. CME Group, and other exchange operators, resisted what they saw as the federal agency’s unwarranted meddling. But the CFTC prevailed and decreed the exchange boards should be more than one-third independent and that regulatory oversight committees should be properly funded. Ever since the passage of the Dodd-Frank law, the CFTC has been consumed with writing new rules to prevent future abuses in the derivatives industry. As a result, the resources the agency can devote to enforcing the existing rules may have suffered. “Unfortunately, in response to the financial crisis, the CFTC has been off on a series of tangents, proposing one regulation after another,” Senator Pat Roberts, a Republican, said at a recent hearing. “Meanwhile, back at the ranch for the first time ever, we have a major problem. The agency says it is being asked to effectively walk and chew gum at the same time, in an era when Congress is in no mood to increase the size of the federal government. CFTC now has about 700 employees, a 10% increase since the 1990s. In the same time period, the futures market has grown five-fold, CFTC Chairman Gary Gensler said in recent congressional testimony. Two weeks after MF Global’s bankruptcy, Congress denied the Obama administration’s request for a CFTC budget increase despite the agency’s insistence that it needs more money to do its job. “The CFTC just doesn’t have the staffing and the resources to audit the brokerages,” says a former senior agency official. That means the CFTC will likely continue to rely on the exchanges to police themselves, although the agency may choose to take a closer look at the markets in some cases. Shortly after the MF Global bankruptcy, for instance, federal regulators said they would conduct a review of the major futures brokerages to make sure their customer accounts are intact. (Reporting by Philip Shishkin; Editing by Tim Dobbyn) Copyright 2011 Thomson Reuters. Click for Restrictions .

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Republican Leaders Quietly Support Unemployment Reauthorization

November 30, 2011

WASHINGTON — For the second year in a row, Congress must decide during the holiday season whether to renew federal jobless benefits for people out of work six months or longer. While Democrats have been making a huge fuss, with a press conference Wednesday featuring hundreds of unemployed workers, Republicans have been relatively quiet — but that doesn’t mean they’re against reauthorizing the benefits. Republican leaders in both Houses of Congress have expressed support for continuing the benefits, saying the holdup is just a matter of how the legislation is put together. “We’re going to be discussing between the House and Senate ways to deal with both continuation of the payroll tax reduction and unemployment insurance extension before the end of the year,” Sen. Mitch McConnell (R-Ky.) said Tuesday. “And in the end, it will have to be worked out in a joint negotiation between a Democratic Senate and a Republican House.” If the benefits are not reauthorized, 1.8 million jobless will stop receiving checks over the course of January, according to worker advocacy group the National Employment Law Project. The federal benefits kick in for laid off workers who use up to six months of state-funded compensation without finding work. Congress routinely provides extensions during recessions and hasn’t dropped extended benefits with the national unemployment rate above 7.2 percent. Yet the need to reauthorize benefits has been overshadowed by the looming expiration of a payroll tax cut put in place last December, which would result in a tax hike on every working American — an average hike of $1,000 — a scenario Republicans would like to avoid. And Congress also needs to pass a so-called “doc fix” by the end of the year to prevent a 27 percent cut in pay for doctors who see Medicare patients. “Nobody is coming out with any definitive statements on [unemployment insurance]. Last year they were happy to,” Judy Conti, a lobbyist for NELP, told HuffPost. “I think it’s indicative of the fact that on a bipartisan basis people understand that workers families and the economy need these programs to continue.” The sticking point over renewing the benefits through next year will be their roughly $50 billion cost. Republicans typically insist that the aid must be “paid for,” but that calculation may not apply if the benefits can be attached to something attractive like a tax cut. Republicans blocked renewed unemployment aid last year until President Obama agreed to extend the Bush-era tax cuts for two more years — at a cost much greater than unemployment. Earlier this year President Obama pressed Congress to pass a jobs package that included many items Republicans favored — for instance a “Bridge to Work” training program — but so far congressional Democrats have not signaled support for those programs. Many members of Congress expected the deficit reduction super committee to craft a deal that included the benefits, but the committee turned out to be less super than advertised . “Any kind of grand deal that we’ve been after has eluded us,” House Speaker John Boehner (R-Ohio) said Tuesday, referring to the failed broader talks on the budget and debt. “So let’s try and work incrementally towards a conclusion this session that can benefit all Americans. Because we Republicans do care about people that out — that are out of work. We don’t want to raise taxes on anybody. We want to provide the help to the physicians and the providers in the health care arena in this country, and we want to make sure this country has a sound national defense policy.” Even Sen. Orrin Hatch (R-Utah), who suggested during an standoff on jobless benefits last summer that unemployed people blow the money on drugs, sounded sympathetic to jobseekers on Wednesday. “Nobody really has a real quick answer. We’re studying it, looking at it. We’re clearly going to have to do something — nobody wants to see people suffer,” Hatch told reporters outside the Senate floor on Tuesday. “There’s a huge underemployment rate as you know, of 16, 18 percent, somewhere in that area. People don’t even want to look for jobs anymore. There oughta be some incentives to find jobs, to get to work. It’s easier said than done. I think there’s a general consensus that we need to help people.”

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Dave Johnson: Will Republicans Shut Down The FAA Again To Help Delta’s Union Busting?

November 29, 2011

Once again Republicans are ready to shut down the FAA to help a union-busting effort by Delta Airlines. At issue is a provision added to the FAA funding reauthorization that changes the rules for union elections, saying that anyone not voting must be counted as a “no” vote. So if the company can just keep people from voting, the union loses even if everyone that shows up to vote says that they want a union. Delta Airlines, called ” The Official Airline of the One Percent ,” is fighting to keep unions out, and Republicans — in their usual pay-for-play fashion — are assisting. The Washington Post, reporting recently in, Chances for long-term FAA funding bill seen as bleak , explained Delta’s interest, It is a dispute over a labor ruling that would make it easier for employees of Delta Air Lines to unionize. House Republicans are dead set on undoing a ruling by the National Mediation Board, which said that airline unionization efforts should be decided by a majority of those who vote. The ruling negated a long-standing rule that said eligible voters who opted not to vote would be counted as voting against unionization. The NMB ruling is expected to have its most immediate impact on Delta, which has so far staved off union organizers. Last week, Talking Points Memo reported that, Just In Time For The Holidays: FAA Fight Heats Up … , … the House and Senate are … supposed to pass long-term legislation to reauthorize FAA programs. But a dispute over worker rights has held up the bill for months and even led to a partial FAA shutdown earlier this year. Rinse, repeat. Republicans want to make it more difficult for transportation workers to unionize by requiring officials to count abstentions as votes against forming a union. This provision underlies the stalemate between the House and Senate on a so-called permanent reauthorization. TPM reports that the Communications Workers of America are asking people to contact specific members of Congress to ask them to set aside this union-busing effort and pass FAA funding. The Communications Workers of America will target vulnerable Republicans with 1,300,000 phone calls, mailers, and an online pressure campaign, according to a release sent my way. “It is beyond time to finalize a long-term FAA Reauthorization bill that improves our aviation infrastructure, grows our economy, creates hundreds of thousands of new jobs and keeps elections fair for air and rail employees,” the flyer reads. “Congress is very close to passing a long-term FAA Reauthorization bill – after 22 extensions! But Delta Air Lines continues to lobby Republican leadership to include an unrelated, controversial, union-busting provision in the legislation to benefit the company. Call your Member of Congress and House Leader Eric Cantor TODAY and tell them to stop playing political games and pass a clean, long-term FAA Reauthorization bill with no special interest provisions.” The targeted members are below. Rep. Eric Cantor (R-VA); Rep John Mica (R-FL); Rep. Mary Bono Mack (R-CA); Rep. Charlie Dent (R-PA); Rep. Robert Dold (R-IL); Rep. Sean Duffy (R-WI); Rep. Blake Farenhold (R-TX); Rep. Jim Gerlach (R-PA); Rep. Richard Hanna (R-NY); Rep. Andy Harris (R-MD); Rep. Nan Hayworth (R-NY); Rep. Leonard Lance (R-NJ); Rep. Tom Latham (R-IA); Rep. Dan Lungren (R-CA); Rep. Shelley Moore Capito (R-WV); Rep. Tom Petri (R-WI); Rep. Tom Reed (R-NY); Rep. Reid Ribble (R-WI); Rep. David Schweikert (R-AZ); Rep. Charlie Bass (R-NH); Rep. Chip Cravaack (R-MN-08) According to and Aviation Week report, Angry Rockefeller Calls For Help In Passing FAA Reauthorization Bill , West Virginia Senator Jay Rockefeller talked about the FAA union-busting situation in a Nov 14 speech to the Aero Club in Washington, DC, [emphasis added] Without naming the issues specifically, Rockefeller alluded to problems with a provision repealing National Mediation Board rules that has been blamed by members of both parties for holding up a resolution on the bill. And though Rockefeller in the past has blamed Delta Air Lines and its CEO, Richard Anderson, for the impasse, he restricted his comments Monday to “one airline” without naming the carrier. Rockefeller suggested that fixing the wording in the House version of the FAA bill is not in his purview because the Senate Commerce Committee does not have control over it. The Communications Workers of America released this video: This post originally appeared at Campaign for America’s Future (CAF) at their Blog for OurFuture . I am a Fellow with CAF. Sign up here for the CAF daily summary .

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Steven Strauss: Actually, Despite GOP Claims — the U.S. Isn’t Over-regulated

November 29, 2011

The GOP presidential candidates believe, as an article of faith, that the United States is an overly-regulated society. They want to eliminate “unnecessary” regulations and even entire regulatory agencies to, in their view, unleash the growth potential of American business. Governor Perry wants to eliminate 3 federal regulatory agencies (2 he named; one whose name he couldn’t remember), Ron Paul wants to eliminate 5 agencies, and so on ( Republican Presidential Debate , November 9th 2011). The GOP candidates claim that the U.S. regulatory environment is not competitive with that of our peer group, and risks losing jobs to other countries. Still another article of faith among GOP candidates is that the regulatory scheme has worsened under President Obama. I describe these as “articles of faith”, because to my knowledge — they have not shown any non-partisan research, or international benchmarks, to demonstrate that our overall regulatory environment is particularly burdensome. Leaving aside the GOP candidates’ anecdotal views, it is helpful to examine real data that compares the U.S. regulatory burden with that of our peer group. The World Bank conveniently prepares an Ease of Doing Business Index (Index) whereby: ‘Economies are ranked on their ease of doing business, from 1 – 183. A high ranking on the ease of doing business index means the regulatory environment is more conducive to the starting and operation of a local firm. This index averages the country’s percentile rankings on 10 topics, made up of a variety of indicators, giving equal weight to each topic. The rankings for all economies are benchmarked to June 2011.’ As with any index of this nature, this Index is not a perfect proxy for each country’s actual level of regulatory burden. Nonetheless, it is a good indicator of how the U.S. compares to its peer group and to a list of 183 other countries. The Index examines: starting a business, protecting investors, enforcing contracts, among other relevant topics. The Index data can be sorted three ways: 1. Large Countries (List 1 below): I view this as our peer group. In this category, the U.S. is the easiest country where one can do business. 2. High Income Countries (List 2 below): In this category, the U.S. is the fourth easiest for doing business, behind several much smaller high-income countries. 3. All Countries (List 3 below, including many under-developed countries): Again, the U.S. ranks fourth. The World Bank Index samples 10 regulatory categories, so is not exhaustive across all regulations. But it clearly shows that overall — we are among the easiest of countries in which to conduct business, particularly when compared with our peers. As for the Obama administration’s performance, a recent General Accounting Office study found no particular increase in the regulatory burden by comparison with the preceding Bush administration ( Bloomberg News , ‘Obama Wrote 5% Fewer Rules Than Bush’, October 25, 2011). Finally, an additional interesting piece of data comes from a recent survey of high net worth entrepreneurs in China — 60% of which are considering emigrating, most to the U.S. The reasons cited include: the strength of the American regulatory system — and the resulting safety of our food, environment, workplace, etc. ( Bloomberg Business Week ,’China’s Super-Rich Buy a Better Life Abroad’, November 22, 2011). Not every regulation or law in the U.S. is perfect; not every regulator is a paragon of virtue. We can all name individual failures. Certainly, we should strive, as a country, to be the best we can be, and compare ourselves against international standards. But we cannot make our economy stronger or more competitive by making judgments and major structural changes based on faith — rather than reality. The data collected for the U.S. and its peer group — over several years — does not show that the U.S. has a systematically bad regulatory environment. But if we eliminate several major regulators (e.g., EPA) we: a) Will likely make our country significantly less safe, less healthy, and more unpleasant, b) Won’t improve our international competitiveness, and c) May actually dissuade foreign investors from coming to the U.S. What do you think? List 1: Large Countries Ranked for Ease of Doing Business (Top 5) 1. U.S. 2. UK 3. Republic of Korea 4. Saudi Arabia 5. Canada List 2: High Income Countries Ranked for Ease of Doing Business (Top 5) 1. Singapore 2. Hong Kong 3. New Zealand 4. U.S. 5. Denmark List 3: All Countries Ranked for Ease of Doing Business (Top 5) 1. Singapore 2. Hong Kong 3. New Zealand 4. U.S. 5. Denmark Steven Strauss was founding Managing Director of the Center for Economic Transformation at the New York City Economic Development Corporation. He will be an Advanced Leadership Fellow at Harvard University for 2011-2012. He has a Ph.D. in Management from Yale University. Follow him on Twitter @steven_strauss.

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99 Percenters Hurt More By Austerity Measures Than The 1 Percent: Study

November 29, 2011

Government belt tightening hurts the budgets of the 99 percent more than those of top earners, a recent study finds. Income inequality rises when countries use spending cuts instead of tax hikes to deal with budget deficits, according to a new paper from researchers Luca Agnello and Ricardo Sousa. The paper analyzes data from 18 countries between 1970 and 2010. The findings come after a 12-member congressional panel failed to agree on measures to reduce the budget deficit in time to avoid triggering $1.2 in spending cuts starting in January 2013. What deadlocked the committee? A stalemate over whether to use spending cuts or tax hikes to reduce the deficit. “During periods of fiscal consolidation, income inequality significantly rises,” the researchers wrote in the study. “Moreover, fiscal adjustments that are led by spending cuts tend to have a more detrimental impact on income distribution than those driven by tax hikes. Similarly, we show that the top 1% income share in total income increases after consolidation.” Spending cuts are a controversial around the globe right now. In Greece, unions are planning a mass strike on December 1 to protest the 2012 austerity budget as lawmakers grapple with a sovereign debt crisis. Greece’s negative reaction to the budget may be because they could face government salary cuts or lose some social services if the budget is passed. The majority of residents of France, Germany and Spain — like their Greek counterparts — say that it’s important to make sure no one else is left in need . But if European leaders implement an austerity budget while the economy is weak, it may have less of an effect on income inequality , the study found. Fiscal austerity that takes place during banking crisis episodes leads to a negligible effect on income inequality, while budget tightening in the absence of crises boosts the income gap. Nations that implement austerity after a banking crisis is resolved experience an “amplified” effect on income inequality. The wealth gap in the U.S. has skyrocketed in the last thirty years . The top one percent of earners saw their incomes grow by 275 percent between 1979 and 2007, according to the Congressional Budget Office, while the bottom fifth of earners saw their incomes rise by 20 percent. Americans’ median income fell for the second year in a row in 2010 to $26,364, while nearly half of households lack access to basic needs . At the same time, the 400 richest Americans control as much wealth as the bottom 50 percent of earners.

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Richard (RJ) Eskow: Tax the Rich! In Fact, Let’s Double Their Taxes

November 23, 2011

Conservatives say they want to “bring back” the old USA, the one that existed during those decades of the twentieth century they only seem to see through a gauzy golden haze. Whatever its problems, that country was a place where Republicans and Democrats agreed on two simple principles: That the most fortunate among us should pay their fair share, and that our government must invest in the nation and its future. When Rick Perry says he wants to bring back “the America I where I grew up,” he’s talking about the era when Dwight D. Eisenhower, a Republican President, built the Federal highway system. One of the reasons Eisenhower was able to do that is that the top tax rate was much higher than it is today. While today’s highest marginal today is 35% and capital gains are taxed at only 15%, the highest tax bracket was 91% the year Rick Perry was born. Whenever I talk about tax brackets I’m attacked by right-wingers who say I don’t understand, that high taxes discourage job creators. They’ll say things like “You hippies just don’t get it! If taxes are too high rich people will stop working and investing. The Job Creators will go away!” Well, I do get it. When I was spent a student year in Great Britain the top marginal tax rate was 102%. Once a person reached a certain level of income, they had to pay more in taxes than they earned. And a few years before that, George Harrison made a compelling case against the 95% tax bracket on the Revolver album by singing “Taxman.” (The line is “that’s one for you, nineteen for me.” I make that a 95% marginal tax rate, but you can check my math if you like.) So I’ll come right out and admit it: Taxes can be too high. But that doesn’t answer the biggest question of all: What’s the ideal top tax bracket? Where can we set the percentage so that it provides the most revenue for the Federal government without discouraging high earners from making more money? Thanks to a new and very thoughtful paper by economists Peter Diamond and Emmanuel Saez , we have the answer: 76%. That’s right. The most effective top tax bracket in this country, the one that will provide the most revenue for the Federal government, is 76%. Know what that means, ladies and gentleman of Washington DC ? That’s the rate that will cut the deficit the fastest. You see where I’m going with this, don’t you? All those self-proclaimed “deficit hawks” in Washington have their answer: Double the top marginal tax rate to 70%. I say 70%, rather than 76%, to show that we’re reasonable people. It’s true that the six-point difference would save some billionaires tens of millions of dollars. Sure, that’s a lot of deficit-cutting revenue to lose, but it’s important to make them feel good about themselves. A 70% rate will show them that we care about them enough to lose all that money. That ought to bolster their confidence. Democrats have been framing the tax debate around the issue of letting the Bush tax cuts expire for the highest earners. That would bring the top tax rate to 39.5% from its current 35%. But why think small? Why embrace the radical, reckless, and irresponsible fiscal behavior of the Reagan era? A 70% tax rate will take us back to the tax levels we had during this country’s boom years. Just to be clear, this tax rate wouldn’t double taxes for the wealthy. It would only apply to income about the highest cutoff point. What should that cutoff point be? Again, we’re willing to be reasonable, so let’s make it $1,000,000. No, wait! My manager’s in a good mood. Let’s make it $2,000,000, with graduated increases that begin at the $400,000 level. It wouldn’t even affect everybody in the 1%. Agree to these terms and you can drive your new, lower-deficit Federal government off the lot right now! And no, I’m not kidding. They’ll say it’s politically impossible. Really? Dwight Eisenhower’s economic platform is politically impossible? Then change the range of possibility. There was a time when 15% tax rates for hedge fund managers was politically impossible, too, but they got it done. We need a little more can-do spirit around this place, people! Conservatives will say, What about jobs? Lower taxes create jobs! There’s a simple answer to that one: Since the wealthy have had today’s low tax rates for ten years, where are the jobs? That theory’s been conclusively disproved. Higher rates don’t discourage the real job creators, the people who really create and innovate and build. 70% was the top tax rate when Steve Jobs and Steve Wozniak started Apple and it didn’t stop them. These findings may feel intuitively “wrong” to conservatives (although they don’t feel wrong to Paul Krugman or others in a position to know). But if conservatives want to challenge these conclusions, they better be prepared to tell us why they think this is wrong: Kevin Drum quite reasonably allows that “(government) revenue maximization isn’t our only social goal.” He’s right, of course. Job creation’s another big one, but we’ve covered that. So is eliminating poverty, educating our children, ensuring a secure retirement, and making sure nobody dies from a lack of food, shelter, or medical care. People have other goals for our society, too, of course. They range from inspiring ones like freedom, liberty, and self-reliance, to unspoken and less admirable ones like the right to crush your competitors by any means necessary, the right to deceive consumers out of their hard-earned savings, or the right to indulge in gross overconsumption and meaningless excess at others’ expense. I’m inspired by freedom, liberty, and self-reliance too. But I think the young Jobs and Wozniak were free and self-reliant under a 70% tax rate. I don’t think Dwight D. Eisenhower was a socialist oppressor of the masses. And while I’m open to an argument that says doubling the top tax rate offends core American values, I can’t think of one. Eisenhower seemed pretty American to me. So the ball’s in your court, conservatives. Make your case. But until then let the new rallying cry be, Double the top tax rate! It’s time for those who have benefited from our system to pull their own weight again. Or as politicians used to say but don’t seem to anymore, “From whom much is given, much is expected.” They’ll say I hate the rich, but I don’t. I used to work with them. I admire the ones who ignore their own self interest and work for the betterment of all. Are the Rick Perrys of this country suggesting that today’s rich people aren’t as patriotic as they were in the fifties? You’re not going to bring back the America you loved as a child with that attitude, Mister! I don’t hate the other ones either, the greed junkies or the scam artists. I care about them. I want them to live in a stable, just, and vital society with a strong and growing economy. I want them to be able to deliver products to their customers using safe and efficient highways, railroads, and bridges. I want them to have a healthy, well-paid, and well-educated workforce, now and in the generations to come. Most of all, I care about their consciences. Everybody in the nation’s capital wants to reduce the deficit, so we know they’ll be thrilled with this solution. It’s like they’re always saying: Why, government has to act more like a family does! When Mom and Dad sit at the kitchen table paying their bills, they have to face facts. There comes a time when they’ve got to look up from the papers scattered all around them and say “Honey, we need more income.” Earning as much as you can is the responsible way to behave. Raise the top rate to 70%? That’s just doing what any smart family would do. Good news, Washington! Fiscal sanity is on its way. The solution to your deficit problem is here, and so is your new slogan: 70% or bust.

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Rabbi Shmuley Boteach: Why Critics of Wall Street Exist Among Avowed Capitalists

November 21, 2011

A Wall Street banker friend of mine dismissed Occupy Wall Street as a bunch of socialists with too much time on their hands. Indeed, I myself criticized the protestors in an interview on CNN recently by saying that I lived under socialism in Western Europe for 11 years and the complete meltdown of their economies shows it leads to bankruptcy. I believe that people who can work have to work. I believe the government should be kept small and empower its citizens to be self-sufficient. I believe that human dignity is achieved through individual effort and receiving handouts undermines our self-sufficiency and our self-confidence. There have been times in my life when, due to financial pressures, I have had to turn for help from others. I obviously never felt good about it. It was humiliating, and I cannot imagine that anyone would believe that economic dependency of any kind should be a first choice. While government must, of course, provide a safety net for those in need, it dare never create an unhealthy reliance. But we should not dismiss the protests outright for, whatever they have morphed into, there exists an important message that ought to be heard. About 18 years ago I started writing columns about how the banking industry is taking over every other profession. My students at Oxford, where I had already served for four years as Rabbi, would discard their training as doctors and attorneys if the investment banks made them offers. I worried that the brain drain into banking would handicap professional talent in so many other sectors. How could it not? With the banks offering starting salaries in the hundreds of thousands of dollars and the potential to make tens of millions a year, you had to be crazy not to accept it. But even I could not foresee hedge fund managers routinely making half a billion dollars a year or feeling like failures for making just 10 to 20 million, a phenomenon I addressed in my book The Broken American Male . Now, since I am an avowed capitalist, why should there be any issue with banks or those who have legitimately found a means by which to produce staggering wealth, especially when a great many of the hedge fund managers known to me are highly charitable? For two reasons. The first is that any of us who have dealings with banks have learned just how awful they can be, how condescending, how greedy, and how dismissive. The second is that there seem to be two standards, one for Wall Street, the other for Main Street, and to the extent that OWS has garnered wider support, then it deserves it, because Wall Street refuses to reform itself and insists on retaining unfair privileges. I have earlier written of my battle with Bear Stearns over my treatment at the hands of a trader who tried to gorge me with fees. Then I had my issues with JP Morgan Chase, and I wrote about how, amid tens of billions of dollars in TARP money they received, they obstructed virtually every effort I attempted at a mortgage adjustment, which was the purpose of them receiving government assistance in the first place. Just getting someone on the phone was a near impossibility, and it was common, after waiting an hour to speak to someone, to suddenly have the line drop and nobody call you back. I have also had my run-ins with American Express and the utter incompetence and arrogance of some of the staff associated with the elite cards they offer, even as they charge you an annual fortune to have it. And if these were just my experiences, you could dismiss me as a grouch, but in the most prestigious and reliable news outlets, you will see endless horror stories of how the banks treat their customers. The same arrogance is manifest in the fact that the fund managers are insisting on retaining their absurd 15-percent capital gains loophole. Said loophole allows hedge fund managers and private equity firms to treat a substantial portion of their compensation as capital gains, meaning they are taxed at 15 percent rather than the 35-percent rate that applies to income such as wages and salary. To be sure, I think all taxes in this nation are way too high, and the last thing I want to see is tax raised anywhere. But I don’t want us little people to be suckers, either. And the idea that the tax rate is 35 percent on income over $379,150 but fund managers like John Paulson, earning as much as $15 billion in a single year, are able to pay a 15-percent tax rate on the majority of their income is unfair. The same of course applies to the bailouts that were given to banks but did not trickle down to end users like me. In August 2009 The New York Times released a story detailing former Treasury Secretary Henry Paulson’s calls to his former firm, Goldman Sachs, in the days leading up to the A.I.G. bailout and financial collapse of 2008. Paulson asked for and received an ethics waiver from both the White House counsel’s office and the Treasury Department, allowing him to speak freely with Goldman Sachs chairman Lloyd Blankfein. Information obtained by The Times shows that during the week of the A.I.G. bailout Paulson spoke with Blankfein two dozen times, making their communication far more frequent than with any other bank chairman. Goldman Sachs, of course, was the bank that benefitted most from the A.I.G. bailout. All the above highlights a huge conflict of interest that the public is arrogantly told to accept as necessary on account of the “too big to fail” notion. And why, when the banks are borrowing money at 0.25 percent from the Federal Reserve, do we have to borrow at a minimum 3.25-percent prime rate that is often far greater for individuals with even a single credit blemish? Why the huge spread? This is where the objectors to Wall Street are gaining traction even among avowed capitalists, by demonstrating to the public that too many bankers insist on a privileged position, as if they are masters of the universe whom we have to support. I don’t want to see Wall Street punished, and I don’t want bankers treated any worse than anyone else. I reject class warfare. If people work hard and find ways to become extraordinarily wealthy, G-d bless them, and I hope they devote huge sums to charity. But just as the bankers should not be treated worse, they should not be treated better, either. What is needed is an even playing field, which, once achieved, will help reestablish the credibility of bankers and undermine their opposition. Rabbi Shmuley Boteach has just published Ten Conversations You Need to Have with Yourself (Wiley) and will shortly publish Kosher Jesus . Follow him on his website, www.shmuley.com , and on Twitter @RabbiShmuley .

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Goldman Sachs Names New Managing Directors, Amid Wall Street Layoffs

November 18, 2011

Goldman Sachs Group Inc (GS.N) promoted 261 employees to managing directors this week, according to an internal memo sent this week, as the bank seeks to retain top talent amid a wave of layoffs across Wall Street. This year’s list represents a 19 percent drop from the 321 employees named managing director in 2010 and the lowest amount since 259 were promoted in 2008. The decline in promotions correlates with layoffs occurring at Goldman and most of its Wall Street competitors during a tough period for trading and investment banking revenue. Goldman’s overall workforce declined by 1,300 employees from June 30 to September 30 as the bank tries to wring out at least $1 billion in cost savings to protect its bottom line. During the quarter, Goldman lost $428 million, only the second quarterly loss in its 12 years as a public company, while revenue declined 60 percent from the year-ago period. Still, the bank is also working to retain talented young professionals, particularly in growth markets such as Asia and Latin America. In a presentation on Tuesday, Chief Executive Lloyd Blankfein said nearly 300,000 people applied to work at Goldman Sachs in 2010 and 2011 and the bank hired less than 4 percent of that pool. “Our commitment to attract talented professionals doesn’t end with recruiting,” said Blankfein. “We commit significant resources to their continued development.” Managing director is a coveted position among more junior Goldman employees and often takes years to achieve. The position is one level below partner managing directors, the most senior position at the firm and a relic from its days as a private Wall Street partnership. Blankfein said the average tenure of a managing director is about 12 years, while partners average 15.5 years at the bank. Goldman declined to comment on the promotion memo, which was sent on Wednesday. (Reporting by Lauren Tara LaCapra in New York; editing by Andre Grenon) Copyright 2011 Thomson Reuters. Click for Restrictions .

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Wendy’s Game Plan: Take On Five Guys

November 10, 2011

NEW YORK — Wendy’s new CEO on Wednesday laid out his action plan for re-energizing the fast-food chain against the backdrop of a quarterly loss driven by costs related to the recent sale of Arby’s. Emil Brolick, who joined Wendy’s as CEO less than two months ago, said in a call with analysts that he was focused on beating a relatively new crop of competitors of “fast-casual” brands like Five Guys and Smashburger. He gave more details on the company’s push to offer breakfast nationwide, something that virtually all of its major fast-food rivals already do. He also outlined plans to expand into international markets like Japan and Russia. Restaurants of all price ranges are facing the double challenge of higher costs for ingredients and customers who are wary of spending on eating out in the weak U.S. economy. Most fast-food chains are playing catch-up to the much larger McDonald’s Corp., which has fared well throughout the recession and its aftermath by emphasizing low prices, remodeling restaurants and adding products like smoothies and fancy coffee drinks. For years, Wendy’s had carved out a niche as quality fast-food for adults, but sales have suffered recently because customers decided its offerings had grown stale. Adding to that, after founder Dave Thomas died in 2002, Wendy’s struggled to find a new face for its advertising. Brolick, a company veteran who became CEO in September, said Wednesday that the company had gone through “an identity crisis.” Brolick’s strategy for Wendy’s is to be on the high end of the fast-food pecking order because he thinks customers will be willing to pay more than they would at other fats-food chains if the food is better. But they’ll also get the benefit of prices that are lower than those at a fast-casual chain, he reasons. “I’m not for the moment suggesting that we want to try to pretend to become a Five Guys or a Smashburger or something like that,” Brolick said on a call with analysts. “But I do believe that there is a significant opportunity in the marketplace for higher-quality products that are fresh, made-to-order products.” Wendy’s has been reshaping its menu with new ingredients and preparation methods for its salads, hamburgers and the rest of its offerings in an effort to attract more customers. Brolick said the new Dave’s Hot `N Juicy burgers had “exceeded our expectations” and would help Wendy’s reclaim its “leadership in the premium-quality hamburger category.” Wendy’s has previously talked about taking a “barbell” approach to pricing: offering high-priced and low-priced items to appeal to customers at both the top and bottom. On Wednesday, Wendy’s said later this month it will introduce a new “W” cheeseburger line, which it describes as mid-tier. Prices for those burgers would be around $2.99 – between the 99-cent “value” cheeseburger and the premium Dave’s Hot `N Juicy burger, which can cost nearly $6 for the biggest size. Wendy’s is hoping that customers who previously bought the cheap burgers will trade up to the middle. Additionally, Brolick said Wendy’s, the only major fast-food chain that doesn’t offer breakfast nationally, would take the same approach to breakfast as to the other meals: offer higher-quality items than other fast-food chains. He also said the company would stop reporting each quarter on how many restaurants were now offering breakfast, citing competitive reasons. Wendy’s hopes its efforts will help it boost results. For the period covering roughly July through September, Wendy’s Co. lost nearly $4 million, or a penny per share. In the same period a year ago, the chain lost $909,000, which was break-even per share. This quarter’s loss was largely from costs related to selling Arby’s in July, including expenses for cutting some jobs and retaining other employees. Wendy’s was combined with Arby’s for less than three years, in a deal engineered by hedge fund magnate Nelson Peltz. Wendy’s sold Arby’s to a private-equity firm in July, saying it needed to concentrate on improving Wendy’s rather than trying to revive Arby’s. The Wendy’s/Arby’s Group lost money in seven of the 10 quarters in which it reported results as a combined company. Wendy’s is under pressure to prove it can do better on its own. Though revenue missed expectations by analysts polled by FactSet of $617 million, it still rose 2 percent to $611 million. Shares fell 4 percent Wednesday afternoon to $5.26, though Janney Capital Markets analyst Mark Kalinowski reiterated his “buy” rating on the company and said he expects it will overtake Burger King as the No. 2 seller of fast-food burgers in the U.S. Meanwhile, the company has been growing overseas. Wendy’s has only a small presence outside the U.S.: about 300 restaurants out of a total of about 6,600 are international, but Brolick said the company has agreements for growing to 1,000 international restaurants, including additions in Japan and Russia.

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Lynn Forester de Rothschild: Restoring Capitalism — Restoring America

November 10, 2011

Although portrayed as opposites, the Tea Party and Occupy Wall Street protesters are essentially kissing cousins, both with important contributions to make to America. Neither movement believes that our nation is working for them. They see a society rigged by big government, big labor and big business against the people. They have a point. Ironically, they would each be more persuasive if they acted together, instead of allowing themselves to be exploited by the squabbling and ineffective political parties. Engagement in a war of attrition dilutes the power of both groups. However, the two movements could claim victory if they force our nation to rethink and rebuild our economy and our civil society based on a shared belief in the best of our democratic values and capitalist roots. President Obama has broken trust with the American people. Not only has he left us more bitterly divided than ever imaginable, but since the beginning of his presidency, 1.3 million more Americans are unemployed, 913,000 private sector jobs have been destroyed, 13 million people have been added to food stamp dependency and over 6 million have lost their homes. While our economy needs 90,000 new jobs each month just to keep up with our national birth rate, we have reached that threshold only 9 times since February 2009. All that is bad enough, but at the same time our government has increased our debt burden from $5.8 trillion in 2008 (40.3% of GDP) to over $9 trillion in 2011 (67% of GDP). And, our annual federal government budget deficit has grown from $458 billion in 2008 to $1.4 trillion in 2011. Only 19% of Americans “always” or “mostly” trust the government to do what is right, down from 75% in 1958. Millions are fed up and are opting to “starve the beast”. That is not crazy. In light of all this, the government’s disproportionate protection of the financial sector is appalling. The implied guarantee for “too big to fail” banks, a tax regime that levies lower tax rates on financial engineers making millions at hedge funds and private equity funds than on earners in any other industry, and the failure of banks to loosen financing for small and medium sized businesses hurts the majority. Lending to small and medium businesses has fallen to $607 billion from $711 billion in 2008. This is in spite of the June 2011 report by the Federal Reserve that excess reserves at banks totals nearly $1.57 trillion — 20 times what banks need to satisfy their reserve requirements. These realities provide evidence of collusion between the political and financial elites. Frustration, even anger, with this state of our country is not insane or unreasonable. But, to blame either a duplicitous government or a greedy private sector is too simple. Instead, we need to ask all sides to put aside their divisive rhetoric and work together to restore the shared greatness of America. Although abused in recent years, capitalism has been the bedrock of our prosperity and our fairness. In order for our economy to lift all of our citizens, our economy will need to be powered by the private sector and government will have to take actions that are anathema to the vested interests of both parties. We must find common ground to reform our tax system, eliminate most tax subsidies, recalibrate our regulations, restructure our entitlement programs, re-create a smaller and wiser government and establish private-public partnerships for many essential tasks. We have had leadership in America in the past that has brought us together in this way. Bill Clinton had it right in his State of the Union Address in 1996 when he said, “the era of big government is over. But we cannot go back to the era of fending for yourself. We have to go forward to the era of working together as a community, as a team, as one America, with all of us reaching across these lines that divide us — the division, the discrimination, the rancor — we have to reach across it to find common ground. We have got to work together if we want America to work”. The Occupy Wall Street and the Tea Party movements both have legitimate gripes. We need to be what we have always been; a nation that creates better opportunities for a greater number of people. It is through the hopes and dreams and hard work of the believers in the American Dream that our differences will disappear and our confidence will return. After all, deep down in our soul we know that with inspired leadership, which we sorely lack right now, success, and even outrageous fortune, should be available to anyone who works hard and plays by the rules in America. Lynn Forester de Rothschild is CEO of EL Rothschild, LLC and the co-Chair of the “Better Values, Better Markets” Task Force at the Henry Jackson Society in London.

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Occupy Wall Street Protesters Clash With Police Outside Courthouse

November 6, 2011

NEW YORK — Hundreds of Occupy Wall Street protesters clashed with police in front of the New York Supreme Court building Saturday afternoon, after they and thousands others marched across to Foley Square from Zuccotti Park. At first, police officers stationed along the route largely stood by and watched as protesters marched up Broadway, playing tambourines, drums and harmonicas and chanting slogans like “How do you fix the deficit? Stop the wars, tax the rich!” As the protest swelled near Foley Square, New York Police Department motorcycles and cars began blocking off intersections. Stranded drivers honked — angrily, as they impotently inched forward towards the protesters, or in support, cheering and sticking thumbs ups and peace signs out the windows of their vehicles. The protesters were met on the steps of the courthouse by a line of officers, and more soon arrived, armed with plastic ties and rolled up orange barricades. Before moving in, a group of officers coordinated. One, holding a rolled piece of paper, told the group, “We’re saying it’s blocking a pedestrian walkway.” “Let’s go,” another officer shouted at his colleagues waiting with zip ties and barricades. “Get up there!” “Let’s stand fast there, huh?” a female officer encouraged, as other officers began saying through megaphones: “Right now, it’s illegal to be on the sidewalk, it’s a hazard.” Protesters began questioning the NYPD’s actions, citing their right to peacefully assemble. They paced the sidewalk in an effort to defend against the argument that the crowd was an obstruction. Several got in the faces of officers forming a human barricade on the courthouse steps. “You’re supposed to be our nation’s finest,” they shouted. “You’re the ones blocking the sidewalk!” Physical altercations began, with several officers roughly shoving protesters and protesters refusing to move, shouting in the faces of officers narrowing the sidewalk space behind the orange net barriers. “We don’t want nobody to get hurt!” an officer shouted on the megaphone. Officers provided several different reasons for the courthouse crackdown. “It’s our jobs, it’s taxpayer money,” a plainclothes man standing with the officers on the steps shouted at protesters. “It’s the rules.” An Officer Vance described the space as a “frozen zone” and said the officers’ actions were “securing the area.” “You can see I’m having a bad day here,” Vance said, asking HuffPost to keep moving. “They asked me to clear it and I cleared it out,” said Officer Birmingham beside him, confirming that the NYPD had “deemed it unsafe.” According to witnesses, one woman was caught between advancing cops and protesters and dragged across the barricade. She was taken up the courthouse steps and cuffed with zip ties against a courthouse column. Desiree Frias, 18, cried as two cops brought her down the steps toward squad cars. “I just want to go back to college,” she said, gasping. She tried to spell her name between sobs, asking for someone to tell her fiance what had happened as the arresting officers urged her to calm down. Activist and former New Jersey city councilman Jim Keady, 40, tried to advise Frias of her rights before officers took her. “It’s going to be okay,” he said. “You might not make it back to class on Monday, but this is going to be one of the most important lessons you’ll ever learn, in exercising your rights.” One officer said she was to be taken to One Police Plaza and likely processed back at the courthouse. “They just handed her to me, I have no choice,” said the female officer on her right. The number of officers present swelled to about one hundred but only an estimated half-dozen protesters were arrested, according to witnesses. Officers declined to comment or stated they didn’t know the number arrested. Despite physical altercations and heated exchanges, there are no known injuries at this time. Pepper spray did not appear to be used to push back the crowd. The standoff between protesters and police lasted several hours before protesters dispersed, many headed back to Zuccotti Park. After they had cleared out, several dozen officers remained stationed on the courthouse steps. Later on Saturday night, several hundred protesters marched to One Police Plaza, where the arrested protesters were due for arraignment, in a show of solidarity. The march organizers interrupted a meeting of the General Assembly in Zuccotti Park to recruit support. Several dozen police officers responded by accompanying the protesters from Zuccotti Park on foot and by vehicle. Motorcycles formed a barrier in front of the courthouse steps. The protesters stopped in front of the courthouse on the corner of Hogan and Centre streets, where officers also blocked the steps. “They say this shit can’t happen,” said a speaker on the steps via the “people’s mic,” while officers looked on. Rumors have swirled in recent days that officers will attempt a clean-up or clear-out of the park this weekend, but those rumors are as of yet unconfirmed. An officer standing near City Hall Saturday afternoon additional authorities had been mobilized for the night to perform duties beyond a nightly counterterrorism check of the city’s most iconic sites. Nearly 30 additional cars were out beyond the usual 100. “We’re on standby in case anything goes on downtown,” the officer said, clarifying, “at Zuccotti.” UPDATE: 9:45 p.m. — Desiree Frias is being charged with assaulting an officer, a felony, and obstructing government administration and resisting arrest, both misdemeanors, according to the clerk’s office at One Police Plaza. According to witnesses, Frias was caught between officers trying to clear the area in Foley Square and protesters trying to hold their ground. It remains unclear what type of assault was allegedly committed by Frias, who was wearing a purple knitted cap and long blue skirt at the time of her arrest. Court clerk Joe Simon said he could not provide information about the other protesters who were arrested, and he said he believed Frias would not come before a judge Saturday night. He expected the protesters would be arraigned no sooner than 1:00 p.m. Sunday, which is when the courthouse is scheduled to open. It typically takes at least 24 hours to process the paperwork, Simon said, but he noted that at least 350 people were awaiting processing at the 5th precinct where Frias was being held. Frias’s fiance Hector Asavedo said he had not been able to reach her and had not been given any information, though the clerk said she would have access to a phone at the precinct and could consult legal aid once her paperwork was processed. The lawyer would then stand with her before the judge “once she’s physically brought up.” Moira Meltzer of the New York office of the National Lawyers Guild contacted this reporter in search of information about Frias’ charges. Meltzer said her office had so far had difficulty obtaining information from the authorities. The Lawyer’s Guild Is representing all the protesters arrested at the demonstration in front of the court building and associated protests Saturday. Meltzer said she has 21 names, but doesn’t know if that list includes all who were arrested.

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Foreclosure-Mocking Law Firm Issues Apologies For Costumes

November 2, 2011

BUFFALO, N.Y. — The head of a foreclosure law firm whose employees mocked victims of the mortgage crisis at a Halloween party last year apologized Wednesday to an outraged advocate for the homeless who said the firm showed “a disgusting lack of sensitivity.” Pictures from the Steven J. Baum law firm’s 2010 Halloween party turned up last week in The New York Times, which said it received them from an unidentified former employee. The pictures show people dressed to look homeless and a sign reading “Baum Estates” near part of the office decorated to resemble a row of foreclosed homes. Another picture features a tattered green tarp over what appears to be a hovel for the homeless. The Baum law firm in suburban Buffalo is one of the largest-volume mortgage foreclosure firms in New York. Last year, it handled nearly 40 percent of the 46,572 foreclosure actions brought in New York courts, the New York Law Journal reported in February. Amid an investigation by the U.S. attorney’s office in Manhattan, Baum agreed last month to pay $2 million and change its practices after admitting to errors in legal filings that it blamed on the high volume of mortgage defaults and foreclosures it handles. New York Attorney General Eric Schneiderman also is investigating the firm’s practices, a person familiar with the investigation said, speaking on condition of anonymity because active investigations are not discussed publicly. After denying to the Times that employees had mocked those who had lost their homes, the firm has in recent days acknowledged the costumes were inappropriate and apologized for last year’s Halloween party. The news comes as foreclosures continue to create a drag on the American economy and protests have erupted around the nation to protest what activists say is rampant corporate greed and influence on government that maintains a crippling disparity between rich and poor. “I again want to sincerely apologize for the inappropriate costumes worn by some of our employees at our Halloween Party in 2010. It was in extremely poor taste and I take full responsibility,” Steven J. Baum said in an emailed statement to The Associated Press on Wednesday. “I know people were extremely offended and people have every right to be upset with me and my firm.” Baum later met with Dale Zuchlewski, executive director of the Homeless Alliance of Western New York, who had sent a letter demanding an apology and offering to educate employees on the plight of the homeless. “Your firm and its employees profit at the misfortunes of others and are an active participant in making people homeless in the first place,” Zuchlewski wrote. “Allowing employees to participate in a company sponsored function such as this shows a disgusting lack of sensitivity. … Mocking others is a former of bullying that simply cannot be tolerated in our society.” After the meeting, Zuchlewski said Baum reported that he didn’t know about the party at one of the firm’s offices, but that he took responsibility. “He offered no excuses, apologized several times and has offered to have himself and his employees volunteer for homeless causes on a regular basis,” Zuchlewski said.

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Dan Solin: The Citigroup Settlement: Legal Fiction Exposed

November 1, 2011

There are times when I have a very jaded view of the judicial system in this country. The O.J. Simpson and Casey Anthony verdicts showed that justice is not always done in criminal cases. Civil cases are much worse. The securities industry routinely victimizes its clients with impunity. A cozy mandatory arbitration system administered by FINRA, which is basically a shill for the securities industry, often serves the interest of its benefactors at the expense of its clients. If investors recover anything, it’s typically a fraction of what they deserve. Hopefully, mandatory arbitration for all consumers will be banned by Congress, but I am not optimistic. In last week’s blog , I wrote about the proposed settlement with Citigroup over its sale of $1 billion in toxic housing debt. Citigroup allegedly didn’t tell the investors who bought this debt that it exercised significant influence over the selection of $500 million of the assets in the portfolio and then took a short position against those assets. The investors lost everything. Citigroup pocketed $34 million for structuring and marketing the transaction and an additional $126 million by betting against the interest of its investors. The proposed settlement involved the payment by Citigroup of $285 million. As is customary in these cases, Citigroup did not admit to any wrongdoing. This legal fiction permits companies to defend against civil lawsuits arising out of this conduct, and forces plaintiffs in those cases to relitigate the issue of liability. Settlements of this sort are required to be submitted to the Federal Courts, where Judges routinely sign off on them without further inquiry. Not U.S. District Court Judge Jed Rakoff. Judge Rakoff is a Clinton appointee who joined the federal bench in 1996. He was previously a federal prosecutor and a defense attorney in white collar criminal cases. He has a long history of asking prickly questions about settlements with big Wall Street firms, and the Citigroup case was no exception. He wants an explanation of how Citigroup can be accused of serious securities fraud, but not be required to admit or deny wrongdoing. The response will be interesting. To the average citizen, engaging in the kind of conduct alleged in the Citigroup complaint looks like fraud. If they are guilty, why shouldn’t they admit their guilt? He would like to know if the public interest would be better served by a trial, which would determine conclusively whether the charges are true. He is right. Either Citigroup should admit its guilt or there should be a trial where all the evidence will be made public and a jury can determine guilt or innocence. He is concerned that the amount of the proposed $95 million penalty might not have deterrent effect. It won’t. It is a drop in the bucket for Citigroup, which reported third quarter 2011 revenues of $20.8 billion. Here’s his real zinger: Why is the penalty in this case to be paid in large part by Citigroup and its shareholders rather than by the “culpable individual offenders acting for the corporation.” There is no good reason why those who engage in this kind of conduct should not be personally responsible for the consequences of their actions. Finally, he asks how this alleged conduct can be characterized as mere negligence rather than fraud. It clearly is fraud. You don’t “negligently” fail to disclose this kind of conduct. Judge Rakoff should be commended for taking on a system that encourages fleecing of investors by their “trusted” advisors. Usually, the only penalty is a slap on the wrist, which actually encourages repeat behavior of this sort. Exposing the legal fiction of these settlements is a service to all investors. Dan Solin is the author of the New York Times best sellers The Smartest Investment Book You’ll Ever Read , The Smartest 401(k) Book You’ll Ever Read , and The Smartest Retirement Book You’ll Ever Read . His new book, The Smartest Portfolio You’ll Ever Own , was released in September, 2011.The views set forth in this blog are the opinions of the author alone and may not represent the views of any firm or entity with whom he is affiliated. The data, information, and content on this blog are for information, education, and non-commercial purposes only. Returns from index funds do not represent the performance of any investment advisory firm. The information on this blog does not involve the rendering of personalized investment advice and is limited to the dissemination of opinions on investing. No reader should construe these opinions as an offer of advisory services. Readers who require investment advice should retain the services of a competent investment professional. The information on this blog is not an offer to buy or sell, or a solicitation of any offer to buy or sell any securities or class of securities mentioned herein. Furthermore, the information on this blog should not be construed as an offer of advisory services. Please note that the author does not recommend specific securities nor is he responsible for comments made by persons posting on this blog.

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Marc Ostrofsky: Sell Before You Buy: 10 Steps to a Successful "Reverse E-Commerce" Business

November 1, 2011

One of the most exciting opportunities posed by the Internet today is “reverse e-commerce.” You can “sell before you buy” with virtually no limits! And it could not be simpler. Here are 10 steps to get you started with a successful reverse e-commerce business of your own. 1. Go down to your own version of ” Harwin Street .” That’s a location in Houston, Texas, where importers sell large and small quantities of products at wholesale prices. Most cities have a Harwin Street. New York has Canal Street, Los Angeles has a few streets downtown, San Francisco has a handful of them in or around Chinatown. If your city doesn’t have a concentrated location for importers, check out your local flea market or a major city that has a shipping port where items flow into the United States. 2. Take some digital photos of 20, 30 or 50 products you think might sell well online. These could be watches, statues, automotive products or articles of clothing. This is a test to see what will sell. 3. Make sure to note the costs and how much inventory the importer or wholesaler has available. 4. Write advertising copy to accompany your photos to try and sell your newly found “virtual inventory.” 5. Post them on eBay or any other online sales outlet ( Craigslist , etsy , online classifieds,etc.). 6. See which products sell and which don’t. 7. Collect the money. 8. Fulfill the sale. 9. Repeat steps 4-7 for the products that sell. 10. Go back out and find more products to test for sale. Then, repeat the same process, often with the very same copy and photo you just used. Remember, the most successful sellers sell and resell and resell again — often from the very same photo. As long as there is inventory to sell, why not keep selling if the customers keep buying? You can also take a picture of something in your home, in a friend’s home, in a wholesaler’s warehouse, in a used car lot or from anyone who wants to sell more of what he’s already selling. The ideas are endless. CLICK TIP: Suppose your friend has a car for sale. Make an agreement, preferably in writing, that if you can sell his car you keep all the money above his asking price. Then take a picture of the car and sell it (with your profit or markup included) via the Internet. Your friend is happy because he has money for his car. The customer is happy because he got the car he wanted. You’re happy because you’re pocketing your profit. You can do this with any product, any supplier or any importer who has inventory he or she wants to move.

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Dr. Sasha Galbraith: Meg Whitman Takes Charge to Help HP Find Its Way

November 1, 2011

Mother Meg, the matron saint of eBay, is now settling in as den mother of the Hewlett-Packard boy and girl scouts. HP has always been known as the “do gooders” of Silicon Valley, long before Google’s “Do no harm” slogan came into vogue. Hopefully, with the help of a relatively new board — four of which are women — she can bring the longstanding “HP Way” back to its roots as the guiding principal of the company. She’s got a tough road ahead. After three CEOs in six years, HP needs adult leadership and a sustainable strategy — neither of which were in abundant supply during the past decade. On the other hand, coming in as the fourth CEO after a string of less-than-stellar prior chiefs might give her the room to roam. While many might deride some of the decisions she made at the helm of eBay during her later years there, few can argue that Whitman created real value at the web auction company. When she joined privately held eBay in 1997, the company posted $4 million in revenue. At her departure in 2008, the now public company had grown 200-fold, to $8 billion in sales. In many ways, Whitman’s skills and experience could be a great match for HP. She was brought in to eBay for her notable marketing expertise — something that HP as an engineering-dominated company has always lacked. The old joke was that if HP had to sell sushi, the sales force would advertise it as, “Wanna buy some cold, dead fish?” Moreover, Whitman has always believed in metrics, another HP passion, leading to a popular saying at eBay, “If it moves, measure it.” By most accounts, Whitman is a decisive, if low-key, leader who has a talent for listening to her troops and actually getting things done. Critics cite Whitman’s power-hungry bent and consequent “angling” for the CEO role at HP. And in California, her failed bid for governor did more to win her enemies than friends. It showed a rough and ruthless side that most observers hadn’t seen. Frankly, I think that most CEOs have at least some degree of psychopathic DNA and a strong need for control. After all, how many truly humble CEOs do you know? If more women, like Whitman, actually reach out and grab such a high profile job like CEO of HP then perhaps we are actually moving toward equality in the corporate (boy scout) world. This post first appeared on Forbes.com

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Dag Detter: Women — a Competitive Advantage

October 31, 2011

In war as in sports, ‘organization’ is often the decisive factor that wins the day. Especially when competitors have similar resources and equally well-trained team members, then how we organize ourselves and deploy our resources determines success. The current economic crisis is not just financial; it is just as much a cultural crisis. The social contract has been broken in many countries. A small homogenous elite has lost touch with its role to lead and generate sustainable growth for all. It is time to recharge our culture and with a more dynamic leadership model. One creative way would be to promote women in the business world in a more comprehensive and professional way. For example, women played a decisive role in creating a new corporate culture for the largest corporate owner in Sweden, a portfolio controlling more than 25 per cent of the corporate sector — the Swedish state portfolio. On the back of consecutive deregulations and a rising globalization, the financial crisis in the 1990′s exposed the flaws of state capitalism in Sweden. The portfolio had been a protected part of society and managed by a small elite of people that had lost sight of a common purpose. The financial statements laid bare the fact the model was in desperate need of radical change. Apart from increased transparency and improved capital structure, the tools used to achieve this transformation were, evaluating and recruiting the relevant professionals able to execute the fundamental restructuring of each company. More than 85 per cent of the Non-Executive Board members and 75 per cent of the CEOs in the portfolio were replaced over a three-year period, in total several hundred people. One important factor that made this this vast cultural transformation of the leadership, from self-serving elite to dynamic group focused on serving the company, possible was that almost 30 per cent of these new leaders were women. The objective was clearly to regain the trust in the management of this vast portfolio by improving the performance of the portfolio empowering the only institution that, by law, is responsible and accountable for the development of the corporation — the Board. A board is not a democratic institution that requires equal representation. Every person that is nominated to a board must not only be able to add value to the leadership of the company, but also enhance the dynamics of the board as a team. The Board is a team of people working together, not unlike a football team or a symphony orchestra. Although the captain of the team, the conductor of the orchestra and the chairman of the corporation are incredibly important, it is their ability to inspire a concerted effort that creates the best results. In the corporate world the aim is to create value. Creating value is based on three fundamental strategies; operational, capital structure and business development. With each member being able to contribute along at least one of these strategies and the capacity to share and debate issues from a wealth of knowledge and experience, the board is a competitive advantage when developing an ailing corporation. Resilient group dynamics relies on both intellectual and psychological integrity prevailing in order for a board to be effective and not reduced to a rubber stamp. Trust in the nomination process being based on merit is essential, in order to ensure potential board members feel comfortable relying on each other as they are collectively accountable for the company. Given the relevant professional background, the personal background, outlook and social network are decisive for the relations that determine performance as a group. Women are not a minority and do not deserve to be included for some misplaced democratic reasons, or based on a quota. Naturally, in some countries it may take time to grow a substantial base of female professionals that can gain the relevant experience. Acquiring such experience may warrant not only a wide range of social changes in order to combine work with family in a reasonable way, but most of all a change in attitude. Sweden was fortunate to have an education system, culture and business sector that has fostered generations of women in business. The result in Sweden was overwhelming. The portfolio outperformed the stock market for more than one and a half year. Not a small part was attributable to women, as their professional contribution did not only matter as individuals, but more importantly changed the culture of each team as a whole and thereby the entire portfolio. The aim in the corporate world is clear — to improve the long-term value of the corporation. Including more women in the leadership of business is a creative and strategic step towards sustainable growth.

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Appeals Court Overturns Key Cape Wind Clearance

October 29, 2011

BOSTON — A federal appeals court on Friday overturned the Federal Aviation Administration’s ruling that the array of turbines proposed for the Cape Wind project don’t pose a danger for local air traffic, possibly further delaying the wind farm proposed a decade ago. The U.S. Court of Appeals for the District of Columbia said the FAA misread its own rules when assessing Cape Wind, which aims to be the nation’s first offshore wind farm. The court said the FAA did not adequately determine whether Cape Wind’s 130 turbines – each 440-feet tall – would pose a danger to pilots relying on sight rather than the plane’s instruments. The court vacated the government’s “no hazard” finding and sent the case back to the FAA, agreeing with plaintiffs that “the FAA did misread its regulations.” The project has faced relentless opposition since it was first proposed in 2001 for Nantucket Sound, off Massachusetts. Critics say its power would be too costly and the wind farm will spoil beautiful vistas, while posing environmental and navigational threats. The court ruling came in an appeal of the FAA finding by the town of Barnstable and the Alliance to Protect Nantucket Sound. The decision could mean further delays for the $2.6 billion project. FAA spokesman Jim Peters said the agency was reviewing the court decision. He said the FAA does not know yet whether it will have to start over its review of Cape Wind. Audra Parker of the Alliance to Protect Nantucket Sound suggested the decision could sink the project. She said a significant delay could make it impossible for Cape Wind to attract needed investors, “a key step toward Cape Wind’s ultimate failure.” A lawyer for Barnstable, Eric Pilsk, said the FAA took 2 1/2 years to return a new finding in a similar case in Nevada that his firm handled. But Cape Wind spokesman Mark Rodgers said the ruling won’t affect the project schedule, which calls for producing power by 2014. He said the project needed a renewed hazard determination from FAA within coming months anyway. The suit is just another delay tactic by project critics, he added. “The FAA has reviewed Cape Wind for eight years and repeatedly determined that Cape Wind did not pose a hazard to air navigation,” he said. “The essence of today’s court ruling is that the FAA needs to better explain its Determination of No Hazard ruling.” Bill Short, a consultant working the renewable energy industry, said the ruling was a blow to Cape Wind, but the project can likely withstand any delay because it already has a buyer for half its power under very favorable terms. “(It’s like) driving down the road and you’ve hit one hellacious, enormous pothole and it has given you a flat tire. That’s what this is like (for Cape Wind),” he said. “As opposed to you’re driving down the road and your car goes into a sinkhole and you don’t come out.” Cape Wind backers say the costs for the project are worth the numerous benefits, including kicking off a new clean energy industry, while lowering carbon emissions and reducing dependence on foreign oil. Last year, Cape Wind sold half its projected power output to the utility National Grid, after the project became the first U.S. offshore wind farm to win a lease from the U.S. Department of the Interior. But it has struggled to find a buyer for the other half of its electricity. Without one, it likely can’t attract financing to fully build out the project. It could move ahead with a smaller project, but that would raise the price of its power and make it less economical to build. In its ruling Friday, the court said the FAA made its initial finding of “no hazard” after inadequate analysis, basing it solely on the fact Cape Wind’s turbines aren’t 500 feet tall – the threshold for when turbines become a concern to pilots flying primarily by sight, not instruments, under “visual flight rules.” The court said the FAA’s handbook indicates the turbine height is just one possible factor the FAA must consider, including how Cape Wind would affect pilots flying by visual flight rules. It said there were hundreds of such flights in the area over a three-month span and cited testimony from some local pilots worried about colliding with the turbines in the frequently foggy and rough weather over Nantucket Sound. “The FAA might ultimately find the risk of these dangers to be modest,” the ruling read, “but we cannot meaningfully review any such prediction because the FAA cut the process short in reliance on a misreading of its handbook and, thus, as far as we can tell, never calculated the risks in the first place.”

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Businessman Robert Pritzker Dead At 85

October 28, 2011

CHICAGO — Businessman Robert Pritzker, who led a global industrial conglomerate and whose family founded the Hyatt chain of hotels, has died. He was 85. Pritzker died Thursday evening in a Chicago nursing facility after suffering from Parkinson’s disease, his executive assistant Becky Spooner said Friday. Pritzker founded and was chairman and president of the Marmon Group, an international conglomerate of manufacturing and service companies. His business acumen helped Marmon Group revenues grow into the billions of dollars and through hundreds of acquisitions over 50 years, company officials said. The company was sold to Berkshire Hathaway in 2008. In 2002, at age 76, Pritzker acquired several caster, medical device and hardware companies to form Colson Associates. Pritzker was the brother of Jay Pritzker, who was founder and chairman of the Hyatt Hotel chain and among the richest people in the United States when he died in 1999 in Chicago. Pritzker was born in Chicago on June 30, 1926. He graduated from the Illinois Institute of Technology with an industrial engineering degree in 1946 and later became chairman of the school’s board of trustees. The school now has a Pritzker Institute for Medical Engineering. Throughout his career Pritzker taught management and engineering courses at IIT, the University of Chicago and Oxford University. He also was chairman of the National Association of Manufacturers and worked with the National Academy of Engineering. Pritzker is survived by his wife, Mayari, five children, 10 grandchildren and two great-grandchildren.

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Marian Wright Edelman: Just Say No to Corporate Greed

October 28, 2011

Repatriation . It’s a word many schoolchildren probably haven’t yet learned to define or even seen very often outside of spelling bees. But when it comes to corporate taxes, repatriation is the cornerstone of an idea that has the potential to severely hurt millions of children and parents and widen the already historic and unconscionable gap between the rich and the poor. In its simplest definition, repatriation is bringing something back to its country of origin—returning it back home. One of the solutions to the jobs crisis being proposed by some of our Congressional leaders and lobbied for aggressively by some of the country’s richest corporations is a rehash of an old experiment: enacting a repatriation tax holiday that would temporarily allow U.S.-based multinational companies to bring home profits they currently hold overseas at a 5.25 percent tax rate, instead of the usual 35 percent corporate tax rate. Under current tax law, multinational companies generally pay no U.S. corporate taxes on foreign income until those profits are brought back to the U.S. As the Center on Budget and Policy Priorities (CBPP) explains, “This effectively allows such firms to defer payment of the U.S. corporate income tax on their overseas profits indefinitely , even though they may obtain an immediate tax deduction for many expenses incurred in supporting the same overseas investments. This can produce a negative U.S. corporate income tax—that is, a net government subsidy—for overseas operations. In addition to causing the federal government to lose tax revenue, this structure gives multinationals a significant incentive to shift economic activity—as well as their reported profits—overseas.” The argument for the repatriation holiday is that giving corporations a huge incentive to bring profits back right now—in the form of an enormous tax break—would bring billions of dollars back to the U.S. economy that would be reinvested and provide a big stimulus to our economy. Corporate proponents and their Congressional bullies argue this will create desperately needed jobs. But the last time this was tried, under a 2004 Bush Administration plan, it didn’t work out that way. Instead, as CBPP points out, “The evidence shows that firms mostly used the repatriated earnings not to invest in U.S. jobs or growth but for purposes that Congress sought to prohibit, such as repurchasing their own stock and paying bigger dividends to their shareholders. Moreover, many firms actually laid off large numbers of U.S. workers even as they reaped multi-billion-dollar benefits from the tax holiday and passed them on to shareholders.” Many economists and scholars believe that if corporations get their way and get another repatriation holiday, history will repeat itself—and once again the corporations and their shareholders, not American workers, families, and children, will be the only winners. The nonpartisan congressional Joint Committee on Taxation has estimated the holiday would cost the federal government about $80 billion over ten years in lost revenue. The Economic Policy Institute’s Andrew Fieldhouse puts it this way: “While there are numerous job creation proposals that would meaningfully lower unemployment, some lawmakers are pushing counterproductive policies disguised as job creation packages. The proposed repeat of the corporate tax repatriation holiday is one such wolf in sheep’s clothing.” When the nation is already facing a jobs crisis and many Congressional leaders are threatening to slash nutrition, child care, and other safety net programs children and families rely on as a means of balancing the budget, revisiting a failed idea instead of coming up with real solutions and real jobs is a threat children and families and our country cannot afford. As the Occupy Wall Street protestors are shouting, let’s “just say no to corporate greed” and to Congresspeople who continue to raid from the poor and children to curry favor and campaign contributions from the rich.

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U.S. Ducks Recession For Now

October 15, 2011

WASHINGTON (Lucia Mutikani) – Consumers and businesses pulled the sickly U.S. economy back from the brink of recession in the third quarter but don’t pop the champagne just yet. After wobbling early in the quarter, the economy regained some footing, with retail sales rising solidly in September and labor market conditions improving. Business spending has held up despite volatility in financial markets and factory activity has kept expanding. Economists now estimate U.S. gross domestic product grew at an annual pace of between 2.3 and 2.7 percent in the July-September period, a sharp step up from the 1.3 percent logged in the first quarter and a far cry from what some feared just a few weeks ago. “The economy held up surprisingly well in the third quarter but it’s too early to celebrate,” said Ryan Sweet, a senior economist at Moody’s Analytics in West Chester, Pennsylvania. Much of the re-acceleration in growth reflects the fading of disruption to motor vehicle production and sales after the big March earthquake in Japan. A surge in auto sales contributed to a solid 1.1 percent rise in retail sales in September. Declining gasoline prices, which stretched household budgets in the second quarter and crimped consumer spending, are also seen supporting third-quarter economic growth. But those factors should prove temporary, and with Europe’s economy likely to slow as it battles its debt crisis and the U.S. labor market still weak, economists believe the fourth quarter will prove weaker, with some fearing a contraction in the first half of 2012. “The euro zone debt crisis is still playing out. That remains a dark cloud on the horizon that can present a direct hit to the U.S. economic recovery,” said Anthony Karydakis chief economist at Commerzbank in New York. Although European leaders sound determined to come to grips with the debt crisis and could announce a bold plan in the next couple of weeks, analysts worry they might once again move too slowly for jittery financial markets. A DAY LATE “A bold plan would require some form of centralized fiscal policy, which means years of voting and changing the treaty and voting in individual parliaments,” said Diane Swonk, chief economist at Mesirow Financial in Chicago. “It’s not clear whether financial markets will have the patience for them to execute on it because you don’t have the ability in Europe to move as quickly on it and they have always been a day late in dealing with the crisis.” U.S. exports to the euro zone account for only about 2 percent of U.S. gross domestic product, but a worsening of the debt crisis could lead to a financial panic, with ripple effects on American banks and consumers. The euro zone turmoil has already led to tightening in credit availability, weighing on spending and employment. Economists at Goldman Sachs see U.S. growth slowing to a pace between 0.50 percent and 1 percent in the next two quarters, with the risk of a recession at about 40 percent. Others, however, think another recession is far fetched. “The economy is not in great shape but it is hardly falling apart,” said Joel Naroff, chief economist at Naroff Economic Advisors in Holland, Pennsylvania. “We are in a slow, steady, grinding recovery that is not creating lots of jobs.” Naroff, like many other economists, draws solace from the solid rise in retail sales in September reported on Friday and the need for auto manufacturers to replenish inventories after production was disrupted early this year. “Some of the momentum in final demand growth could carry into the fourth quarter. Early indications suggest that auto sales, which were an important element in third-quarter growth, are holding up well in October,” said Michael Feroli, an economist at JPMorgan in New York. “And while energy prices have backed up in recent days it should still be the case that moderation in headline inflation could give some lift to consumer spending power.” Much as Europe’s shadow looms large over the U.S. economy, belt tightening at home also poses a risk to growth, with a payroll tax cut and an extension of emergency unemployment benefits scheduled to expire in December. While economists expect the payroll tax cut to be extended, many doubt whether the emergency jobless benefits will be renewed, which would undercut already weak household income. “If political parties are unable to agree on any of these measures, that could be the straw that breaks the camel’s back,” said Harm Bandholz, chief U.S. economist at UniCredit Research in New York. “The spending cuts would impact growth not only directly via lower disposable incomes, but also indirectly via a massive loss of confidence in the ability of policymakers to steer events in the right direction in these critical times.” (Editing by James Dalgleish) Copyright 2011 Thomson Reuters. Click for Restrictions .

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China inflation ticks lower, policy on pause

October 14, 2011

By Aileen Wang and Koh Gui Qing BEIJING (Reuters) – China’s consumer inflation dipped to 6.1 percent in September, retreating further from three-year highs, although stubborn food price pressures will deter the central bank from loosening its policy reins anytime soon. A downtrend in inflation would be welcomed by policymakers as confirmation that a flurry of increases in interest rates and bank reserve requirements is working, just when China’s economy is showing increasing strains from the global downturn. Since inflation is still close to the three-year peak of 6.5 percent hit in July, few analysts believe China will follow the likes of Brazil, Indonesia and Singapore and ease policy in the near-term, barring a marked deterioration in Europe’s debt woes. “The slowdown in the CPI last month is not drastic enough to reduce inflationary expectations, and it is still too early to confirm an easing trend in price pressures,” said Qiao Yongyuan, an analyst with CEBM in Shanghai. “The central bank is more likely to keep its current monetary stance unchanged and will wait for data in coming months to judge the direction of policy,” Qiao said. The slowdown in inflation in September was right in line with a poll of economists’ forecasts and lower than August’s reading of 6.3 percent. Food price pressures remained strong, rising 13.4 percent from a year earlier, unchanged from the pace in August’s data. Non-food inflation eased to 2.9 percent from 3.0 percent in August, the data showed. China’s producer price index in September came in below market expectations with a 6.5 percent rise from a year ago, compared with August’s 7.3 percent. “The data will come as a relief to the Chinese government, which now faces a deadlock in policymaking. It will fine-tune policies in December,” said Shen Jianguang, an economist with Mizuho Securities Asia in Hong Kong. China’s ruling Communist Party usually holds an annual agenda-setting economic policy conference in December. “Right now, they are not sure that inflation is slowing just (based on) one month’s number. The policy will be on hold for one or two more months,” said Shen. Such doubts were underscored by the monthly price changes. The consumer price index rose 0.5 percent in September from the previous month, faster than August’s 0.3 percent rise. Food prices rose 1.1 percent in the month, while non-food prices were up 0.2 percent. The government pays particular attention to prices for pork, the staple meat for many ordinary citizens griping about inflation. Pork prices rose 43.5 percent in September from a year ago, barely down from a 45.5 percent rise in August. Residential costs, which measure rents, mortgages and power bills, cooled to 5.1 percent, the slowest rise since October 2010. POLICY ON HOLD After lifting interest rates five times and banks’ reserve requirements nine times since October 2010, Beijing has put policy tightening on hold as a slowdown in Europe and the United States threaten global growth. Friday, Singapore eased its monetary policy, saying the “outlook for the global economy has deteriorated sharply.” That followed rate cuts in Brazil and Indonesia in recent weeks. China’s economic growth has been slowing down this year alongside growing concerns that the developed world may be heading into a recession. Data Thursday showed China’s import and export growth eased in September, with export growth hitting seven-month lows, as domestic and overseas demand cooled. The annual pace of exports to the troubled European Union in September more than halved from August. Some analysts say China may relax monetary policy if push comes to shove, although milder moves such as relaxing credit restrictions and lowering banks’ reserve requirements are likely to come before a more drastic rate cut. “The central bank may even see fit to ease policy before the end of the year, perhaps starting with cuts to very high reserve requirements, though it will be keen to keep a grip on lending growth,” said George Worthington, the chief Asia Pacific economist for IFR Markets. “Rate cuts are unlikely to be on the agenda barring a renewed global slump given the relatively modest tightening on that front since the last crisis in 2008/09.” (Reporting by Aileen Wang and Koh Gui Qing; Writing by Chris Buckley; Editing by Ken Wills)

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Insight: Wisconsin clash spotlights U.S. labor-management rift

October 14, 2011

By John D. Stoll OSHKOSH, Wisconsin (Reuters) — Oshkosh Corp has been a rare lifeline for the beleaguered United Auto Workers, one of the few American manufacturers to have added significantly to its ranks of well-paid union workers in a brutal decade for factory hands. But now, as the UAW renews conciliatory contracts with major automakers that have dismissed tens of thousands of hourly workers, union employees are turning against Oshkosh. Tim Jacobson, 32, is among the workers who have rejected a new contract forged by union leaders with the maker of military vehicles and fire trucks. They are marching in the streets of this university city on Lake Winnebago to denounce an employer that has nearly doubled its UAW staff to 3,100 over the five-year span of its last union contract. Jacobson himself was hired by Oshkosh two years ago, less than a month after he was laid off from a nearby Harley Davidson plant. “What’s disgusting?” Jacobson shouts, carrying an American flag as he leads a line of 150 workers at a recent rally downtown. “Union busting,” the crowd responds. This seemingly paradoxical labor standoff stems from grievances almost unique to Oshkosh, whose profits have been flush in recent years, and from a broader animus between labor and management, both nationally and in particular in Wisconsin, where a clash over the power of public-sector unions transfixed the country over the summer. “Frankly, a lot of people here are pissed off,” Jacobson said. Workers complain that the new contract erodes work rules, security and seniority rights – such as a demand that workers can be required to work up to ten Saturdays per year. Particularly galling to them is the company’s call for more temporary, non-union positions. When Oshkosh sought union approval to hire as many as 300 temporary workers starting in 2013 as part of its original contract offer, the workforce rejected it. The most recent rejection, on Saturday, was the second in a week. The company had offered as much as an 8.5 percent raise and $2,000 signing bonus to offset to rising healthcare premiums. Oshkosh had attempted to craft a similar deal in 2010, a year before the contract’s expiration, and met resistance then as well. An outright strike is unlikely. UAW and Oshkosh officials returned to the bargaining table on Wednesday. A third deal, without any demands for temporary worker provisions, will likely be handed to workers this weekend, according to people familiar with the talks. These people expressed confidence that the third attempt for ratification will work. But with protestors on the streets of Oshkosh, Wisconsin where even the deep erosion of the industrial heartland has been kept at bay, the thread of distrust sewn into labor-management relations is proving difficult to sever. Oshkosh’s desire to bring in temps follows a pattern set by most of the nation’s industrial heavyweights, such as Caterpillar Inc, who want to meet shorter-term production needs without having to bring on another crop of permanent employees. Workers here firmly believe this will lead to an inevitable loss of union jobs. “Our members have been getting very angry out there,” UAW Local 578 President Nick Nitscke recently said while standing in the lobby of the Oshkosh hotel, the site of the labor negotiations. He pointed to a street corner where hundreds of workers have protested several times in recent weeks. “They do not want anything to do with temp workers.” PICKET FEVER This schism between the workers and their union has many outside observers scratching their heads, coming as it does with the rest of the country plagued by economic malaise. Oshkosh has been on a roll thanks to winning big contracts to build military vehicles in recent years, though it now faces new headwinds as government-spending cuts and increased competition squeeze the defense industry. Management has been hitting this theme hard. In a letter accompanying its first offer to UAW workers last month, Chief Executive Charles Szews said, “the company’s offer takes into consideration today’s economic realities for our principal customer, the U.S. Department of Defense, which is facing hundreds of billions of dollars in budget reductions.” Workers are largely dismissive of that outlook. Like many others in the area, Rep. Gordon Hintz, a Democrat representing Oshkosh, sees the current conflict as at least partially influenced by the protests over public-sector unions that polarized public opinion, just 87 miles to the south in Madison. The Occupy Wall Street movement is also energizing workers, he said. “Does Wisconsin have picket fever? Yes, I think there is a little of that.” A broader anxiety is also underpinning the workers’ resistance, says Mike Schroeder, a longtime Oshkosh worker recently elected as a chief bargaining steward. “People have not gotten the entire story of what is really going on here. This isn’t really about money,” he said. “This is about job security.” A significant portion of Oshkosh’s workers here were hired as the company was scrambling to fill orders from the Department of Defense, while other Wisconsin manufacturers — including Kohler Co., Harley Davidson, and Mercury Marine – were laying people off and, in some cases, hiring more temps. As a result, Oshkosh was able to hire skilled manufacturing workers who harbored a deep resentment toward non-unionized employees doing short-term work. Jacobson, who worked in a Harley Davidson factory for seven years, is one such employee. “I was laid off from Harley on September 25, 2009,” he said. Two weeks later, after applying for a job online, he went to work in an Oshkosh factory. “I don’t want to go through that again.” Harley didn’t actually negotiate a temporary worker deal with its union until after Jacobson left, a spokeswoman said. The company has yet to hire temps due to a lack of market demand, she said. ENGINE TROUBLE? Oshkosh Corp. is a key cog of the local economy. “Had it not been for Oshkosh Corporation and the success they had in the defense sector, this region could have been in serious trouble,” said John Casper, president of the local Chamber of Commerce. State and city officials recently authorized hundreds of millions of dollars in economic incentives to encourage Oshkosh to keep key defense work in the region. Even facing headwinds, the company’s impact on job creation in the community is wide-ranging. This spring, more than 3,000 people packed into the local convention center, where Oshkosh was holding a two-day job fair to fill up to 750 jobs, all of which went to the UAW. Since Oshkosh signed its last contract in 2006 with the UAW, revenue has more than tripled, hitting $9.8 billion in 2010, with operating profit nearly quadrupling to $1.4 billion, although Wall Street estimates suggest those numbers are falling in 2011 due to softness in defense spending. A contract to build billions of dollars worth of M-ATV and F-MTV military vehicles fueled the boom, allowing Oshkosh to wipe away much of the debt it took on when it purchased aerial-lift maker JLG Industries Inc. in 2006. That acquisition was intended to help Oshkosh diversify away from its core military business. Oshkosh also makes heavy vehicles for municipal use, such as fire and garbage trucks. But with more than $1 billion in long-term debt, the heavy reliance on defense contracts for operating profit has turned one of the company’s best sources of optimism into become something of an Achilles heel. Its signature M-ATV is now nearing the end of a hugely profitable production run, and its new bread-and-butter military vehicle, the F-MTV, has failed to turn a profit. In its earnings call in July, Oshkosh said the vehicle will be profitable in the fiscal second quarter of 2012, later than initially expected. “There’s been a great recognition that defense contracts are running off,” JP Morgan equities analyst Ann Duignan said in a telephone interview. She said the defense industry is stuck in a “brutal cycle” and “you could almost say absent another new war we could be in a secular (defense) decline” that could accelerate Oshkosh’s issues. Shares of Oshkosh have suffered under the weight of these concerns, sinking nearly 50 percent this year. Some on Wall Street have speculated that the company’s market value – falling from a 52-week high of $3.6 billion to about $1.7 billion currently – makes it an attractive takeover target. Billionaire investor Carl Icahn reported owning a 9.51 percent stake in the company over the summer, saying in a federal filing that he would meet with management to enhance shareholder value. Icahn did not return calls and emails requesting comment. A LONG WAY FROM DETROIT Dissent isn’t a new phenomenon for the UAW. In Detroit – home of the union’s core constituency – workers have shown a willingness to vote down automaker contracts in even the worst of times. And now, as Ford Motor Co seeks ratification for a new deal that includes lucrative bonuses, there is widespread concern that workers there will vote no. As of Thursday, two Ford factories had rejected a proposed four-year deal, throwing its ratification into doubt. But in many ways, Oshkosh feels light years away from the troubles of Detroit. Unlike other Rust Belt communities in the Midwest, the City of Oshkosh has been a pocket of relative stability. The Fox Valley has benefited from diversification efforts that the business community employed after the collapse of the region’s paper industry decades ago. Employers Kimberly Clarke Corp. and Gulfstream are two big ones that continue to invest. For the City of Oshkosh, the presence of a state prison and the University of Wisconsin Oshkosh provide an added layer steady employment. Local officials say unemployment is trending lower than the state average. But recent developments in Wisconsin’s public sector have shaken confidence. “There’s a lot of uncertainty, and I would even say fear around here,” said Tom Willadsen, pastor of First Presbyterian Church in Oshkosh. “We have university professors who effectively had an eight percent pay cut because of a health care increase.. These people were hit very hard, and hit very suddenly, and clearly there is a sense that unions are under attack.” That uncertainty has spilled directly into the private sector, leading to talk among Oshkosh workers about perceived threats to job security. “A lot of people even spend a lot of time on Facebook dealing with this,” said Shawn Cronin, a 27-year-old father of two who joined Oshkosh while in the National Guard. Cronin, who said he suffers from post-traumatic stress disorder after serving overseas, complained that Oshkosh managers change shift start times in defiance of union objections. Union members said they have more than 2,000 grievances outstanding against the company, Cronin said, including alleged abuses of the Family Medical Leave Act. Company spokesman John Daggett said the number of grievances is part of normal process and “not reflective of our good relationship with the union and its members.” The company has recently hired additional human resources staff to help resolve outstanding problems, he said. “But really, my issues are one small pinhole in a much bigger wall,” Cronin said. “The bottom line in all these conversations is that many of us just don’t trust management.” (Reporting By John D. Stoll; Editing by Mike Williams and Chris Kaufman)

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Separation Forced Hedge Fund Couple To Split Businesses

October 13, 2011

David Murrin and Susan Payne, the UK-based husband and wife hedge fund team accused by one U.S. thinktank of fuelling and exploiting a global commodity crisis, are to split the two businesses they founded together after agreeing to separate. Murrin, a former oil company geologist well known in the hedge fund industry for his outspoken geopolitical views, has taken sole ownership and become CEO of London-based Emergent Asset Management, a spokesman said on Wednesday.

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Jeff Danziger: Merkelslovakia

October 13, 2011
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US- Paulson loses more in September, fund now off 47%

October 9, 2011

(MENAFN – Saudi Press Agency) Hedge fund manager John Paulson lost more money in September thanks to ill-timed bets on an elusive economic recovery that left one of his biggest funds off 47 …

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