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WATCH: Fox News Host Spars With Guest Over Occupy Wall Street

by The Huffington Post on November 20, 2011

Huffington Post…

Fox News Sunday host Chris Wallace sparred with Fox News analyst Juan Williams over Occupy Wall street. After Williams charged that Wall Street protesters made the Republican presidential candidates look like “protectors of the super rich”, Wallace dismissed the movement. “I don’t think we should talk about Occupy Wall Street as a plus anymore,” he said, adding that “most people are…getting fed up with it.” Williams then began to explain the message Occupy Wall Street, including anger about banks’ greed and income equality. Wallace cut him off, saying “there’s a limit.” “You’re not playing fair,” Williams retorted. WATCH (h/t, video courtesy of Think Progress ):

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WATCH: Fox News Host Spars With Guest Over Occupy Wall Street

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PHOTOS: Rome On Fire

by on October 16, 2011

Huffington Post…

(Reuters) – Anti-greed protesters rallied globally on Saturday, denouncing bankers and politicians over the international economic crisis, with violence rocking Rome where cars were torched and bank windows smashed. Galvanized by the Occupy Wall Street movement, protests began in New Zealand, touched parts of Asia, spread to Europe, and resumed at their starting point in New York with 5,000 marchers decrying corporate greed and economic inequality. After weeks of intense media coverage, U.S. protests have still been smaller than G20 meetings or political conventions have yielded in recent years. Such events often draw tens of thousands of demonstrators. The demonstrations by the disaffected coincided with the Group of 20 meeting in Paris, where finance ministers and central bankers from major economies were holding talks on the debt and deficit crises afflicting many Western countries. The Occupy Wall Street movement has gathered steam for a month, culminating with the global day of action. It remains unclear what momentum the movement, which has been driven by social media, has beyond Saturday. While most rallies were relatively small and barely held up traffic, the Rome event drew tens of thousands of people and snaked through the city center for miles (kilometers). Hundreds of hooded, masked demonstrators rampaged in some of the worst violence seen in the Italian capital in years, setting cars ablaze, breaking bank and shop windows and destroying traffic lights and signposts. Police fired volleys of tear gas and used water cannon to try to disperse militant protesters who were hurling rocks, bottles and fireworks, but clashes went on into the evening. Smoke bombs set off by protesters cast a pall over a sea of red flags and banners bearing slogans denouncing economic policies the protesters say are hurting the poor. The violence sent many peaceful demonstrators and local residents near the Colosseum and St John’s Basilica running into hotels and churches for safety. NOT AS LARGE AS HOPED American protesters are angry that U.S. banks are enjoying booming profits after getting massive bailouts in 2008 while average people are struggling in a tough economy with more than 9 percent unemployment and little help from Washington. In New York, where the movement began when protesters set up a makeshift camp in Lower Manhattan on September 17, organizers said the protest grew to at least 5,000 people as they marched to Times Square in midtown Manhattan. Some were disappointed the crowd was not larger. “People don’t want to get involved. They’d rather watch on TV,” said Troy Simmons, 47, who joined demonstrators as he left work. “The protesters could have done better today. … People from the whole region should be here and it didn’t happen.” The Times Square mood was akin to New Year’s Eve, when the famed “ball drop” occurs. In a festive mood, protesters were joined by throngs of tourists snapping pictures, together counting back from 10 and shouting, “Happy New Year.” Police said three people were arrested in Times Square after pushing down police barriers and five men were arrested earlier for wearing masks. Police also arrested 24 people at a Citibank branch in Manhattan, mostly for trespassing. At about 8 p.m., police arrested another 42 people for blocking the sidewalk. Protesters complained they had no place to go with a wall of police in riot gear in front of them and thousands of demonstrators behind them leaving Times Square. Small and peaceful rallies got the ball rolling across the Asia-Pacific region on Saturday. In Auckland, New Zealand’s biggest city, 3,000 people chanted and banged drums. In Sydney, about 2,000 people, including representatives of Aboriginal groups, communists and trade unionists, protested outside the central Reserve Bank of Australia. Hundreds marched in Tokyo. Over 100 people gathered at the Taipei stock exchange, chanting “we are Taiwan’s 99 percent” and saying economic growth had only benefited companies while middle-class salaries barely covered basic costs. In Hong Kong, home to the Asian headquarters of investment banks including Goldman Sachs, over 100 people gathered at Exchange Square in the Central district. Students joined with retirees, holding banners that called banks a cancer. Portugal was the scene of the biggest reported protest action, with more than 20,000 marching in Lisbon and a similar number in the country’s second city Oporto, two days after the government announced a new batch of austerity measures. Hundreds broke through a police cordon around the parliament in Lisbon to occupy its broad marble staircase. “This debt is not ours!” and “IMF, get out of here now!,” demonstrators chanted. Banners read: “We are not merchandise in bankers’ hands!” or “No more rescue loans for banks!” Around 4,000 Greeks with banners bearing slogans like “Greece is not for sale” staged an anti-austerity rally in Athens’ Syntagma Square, the scene of violent clashes between riot police and stone-throwing youths in June. Many were furious at how austerity imposed by the government to reduce debt incurred by profligate spending and corruption had undermined the lives of ordinary Greeks. In Paris, around 1,000 protesters rallied in front of city hall, coinciding with the G20 finance chiefs’ meeting, after coming in from the working class neighborhood of Belleville where drummers, trumpeters and a tuba revved up the crowd. “This is potentially the start of a strong movement,” said Olivier Milleron, a doctor whose group of trumpeters played the classic American folk song “This land is your land.” “THE INDIGNANT ONES” The Rome protesters, who called themselves “the indignant ones,” included unemployed, students and pensioners. “I am here to show support for those don’t have enough money to make it to the next pay check while the ECB (European Central Bank) keeps feeding the banks and killing workers and families,” said Danila Cucunia, a 43-year-old teacher. “We can’t carry on any more with public debt that wasn’t created by us but by thieving governments, corrupt banks and speculators who don’t give a damn about us,” said Nicla Crippa, 49. “They caused this international crisis and are still profiting from it. They should pay for it.” In imitation of the occupation of Zuccotti Park near Wall Street in Manhattan, protesters have been camped out across the street from the headquarters of the Bank of Italy for days. The global protests were a response to calls by New York demonstrators for others to join them. Their example has prompted similar occupations in dozens of U.S. cities. At a small protest in Dublin, Ireland, Gordon Lucas, an unemployed software developer said “We don’t have economic democracy anymore. … I don’t feel I am being represented.” In Madrid, around 2,000 people gathered for a march to the central Puerta del Sol. Placards read: “Put the bankers on the bench” and “Enough painkillers — euthanasia for the banks.” “It’s not fair that they take your house away from you if you can’t pay your mortgage, but give billions to the banks for unclear reasons,” said 44-year-old telecom company employee Fabia, who declined to give her surname. In Germany, thousands gathered in Berlin, Hamburg, Leipzig and outside the European Central Bank in Frankfurt. Demonstrators gathered peacefully in Paradeplatz, the main square in the Swiss financial center of Zurich. In London, around 2,000 people assembled outside St Paul’s Cathedral, near the City financial district, for a rally dubbed “Occupy the London Stock Exchange.” Joe Dawson, 31, who lost his job as a product developer at Barclays Bank, said he had taken his two children aged 10 and 8 to the rally to show them people had a voice. “I’m not passive anymore and I don’t want them to be. This is their future too,” Dawson said. “I work four jobs part-time, I take whatever I can get.” WikiLeaks founder Julian Assange told the crowd: “I hope this protest will result in a similar process to what we saw in New York, Cairo and Tunisia,” he said, referring to revolutions in the Arab world. Outside of New York, similar protests were held in other U.S. cities and Canada. Hundreds turned out in Washington, D.C., while a couple of thousand people gathered near Toronto’s financial district as well as in Portland, Oregon. A protest in Los Angeles drew about 5,000 people. (Additional reporting by Catherine Hornby in Rome, Naomi O’Leary and Michael Holden in London, Natalia Drozdiak in Berlin, Alexandria Sage and Gus Trompiz in Paris, Iciar Reinlein, Jonathan Gleave and Carlos Ruano in Madrid, Cameron French in Toronto, Edith Honan, Ray Sanchez and Ed McAllister in New York, Carmel Crimins in Dublin; Writing by Mark Heinrich; Editing by Angus MacSwan, Mark Egan and Todd Eastham) Copyright 2011 Thomson Reuters. Click for Restrictions .

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PHOTOS: Rome On Fire

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Occupy Wall Street: Egyptian Activist Goes ‘From Liberation Square To Washington Square’ (VIDEO)

October 8, 2011

Thousands of Occupy Wall Street supporters gathered in Washington Square Park on Saturday afternoon for a General Assembly intended to spread the movement’s message. After several introductory speakers, the crowd lit up when an Egyptian activist named Mohammed Ezzeldin explained what he saw was the connection between Occupy Wall Street and the protests against Hosni Mubarak. “I am coming from there — from the Arab Spring. From the Arab Spring to the fall of Wall Street,” Ezzeldin said, his voice echoed by the crowd of thousands. “From Liberation Square to Washington Square, to the fall of Wall Street and market domination, and capitalist domination.” His passionate speech, which even included a reference to Karl Marx, made a startling comparison between what happened in Egypt earlier this year and what is now happening in the United States. “Many things separate us,” he said. “National borders. Homeland insecurities. Armies, corporations and police. They have their laws. They have their debts. And we have our revolution. We are the 99 percent.” Ezzeldin, a 28-year-old self-described “leftist activist” who is currently living in Jackson Heights and studying at the City University of New York’s Graduate Center, told HuffPost he was camped out in Tahrir Square just a few months ago and is now spending days in Zuccotti Park. “There are some differences,” he said, but he believes “any success for the struggle in the United States is helpful for the rest of the world.” Ezzeldin argued that making the protests more confrontational and bringing in labor unions will be critical for the success of the movement in the United States. “There is an illusion about freedom — about freedom of speech and freedom of organization in this country,” he observed, pointing to New York’s laws against tents and megaphones. “What I thought the image exported to the rest of the world… Well, it’s not completely false but there are many obstacles.” As for the NYPD’s response to demonstrations so far, Ezzeldin was philosophical. “Police is the police, in Egypt, in the United States. Police is the police. There is no good cops and bad cops, they are all cops,” he said. Relations between police and demonstrators at Saturday afternoon’s gathering were cordial .

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Andrew Keen: Sir Martin Sorrell: "Our Game Is Over" (video)

September 19, 2011

There are few more global characters than Sir Martin Sorrell. The co-founder and CEO of WPP , the world’s largest communications company, Sir Martin presides over a company that has 153,000 people working in 2,400 offices in 107 countries. So when Sir Martin says, of the West, that “our game is over” and the decline of the US and Europe is “inevitable” and “irreversible,” we need to sit up and listen very carefully. And that’s exactly what Sir Martin told me when I interviewed him at WPP’s annual Stream conference just outside Athens. Saying that the west is “focused on our navels,” Sorrell argued that power in the world is shifting not only east, to China and India, but also south and south-east to Latin America and Africa. Indeed, Sir Martin would advise a young American or Western European to go and live in dynamic economies like Brazil, Vietnam or Indonesia in order to fully realize themselves in today’s global economy. So what’s the solution to what Sorrell calls the “scary” economic crisis in the west? Sir Martin has three answers: leadership, leadership, leadership. “We have to have leadership,” he insists, if we are to compete with the strong, well managed economies outside the US and Europe.

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UBS CEO Gruebel in firing line over rogue loss

September 19, 2011

By Emma Thomasson ZURICH (Reuters) – The rogue trade disaster at UBS will put pressure on the Swiss bank to accelerate plans to install a successor to Chief Executive Oswald Gruebel with a mission to dramatically slash the investment bank and renew the focus on wealth management. UBS has been grooming Sergio Ermotti, the former deputy chief executive of UniCredit who joined the bank as Europe, Middle East and Africa chief in April, but until the scandal Gruebel had signaled that he was in no hurry to go. Gruebel said on Sunday that “the buck stops with me” and he would “bear the consequences” of the shock $2.3 billion trading loss that was discovered last week, adding the news would influence the future strategy of the investment bank A UBS insider said bearing the consequences did not necessarily imply Greubel would leave immediately, but he might be thinking of forgoing his annual bonus again, speeding up restructuring or making other senior management changes. Gruebel, a gruff 67-year-old German who previously ran Credit Suisse , was brought out of retirement in 2009 to help clean up UBS after huge losses on subprime assets forced the Swiss government to bail out the bank. He initially indicated he would only stay in the job for a couple of years to get the bank back on its feet but suggested recently that he could stick around at least until former Bundesbank boss Axel Weber takes over as chairman in 2013. As part of his strategy to restore the former glory of the investment bank, Gruebel — himself a former bond trader — promoted Carsten Kengeter to lead the business. The 44-year-old former co-head of Goldman Sachs’ Asia securities division was initially seen as possible CEO material, but his star was already fading before the discovery last week of the huge unauthorized trades in his business. “We estimate that the investment banking chief Carsten Kengeter … will be sacrificed after this scandal,” said Kepler analyst Dirk Becker. “He was the fourth head of the investment bank since the crisis and this fluctuation at the top is clearly harmful.” But that is unlikely to be enough. Pressure will mount on Gruebel, especially if an internal investigation launched on Sunday reveals systematic risk control failures. ARROGANT, IRRESPONSIBLE? “It doesn’t seem so certain after the weekend that he will stay. If the internal controls show severe failings then he will probably have to go,” said one Zurich trader. UBS Honorary Chairman Nikolaus Senn said he did not believe Gruebel would be able to resist the pressure to step down: “I do not know how often Gruebel flew to London to ask the people in charge how the business was going,” Senn said. The Social Democrats, Switzerland’s second-biggest party which wants to ban big banks from engaging in risky investment banking, has called for his head. “Arrogant and irresponsible managers like Oswald Gruebel must finally be replaced by people who have learnt the lessons of the 2008 financial crisis,” the party said in a statement. Even Christoph Blocher, a leading figure in the right-wing Swiss People’s Party, said UBS should look for a replacement. “If UBS has somebody better then he should resign. But it’s not that easy as Gruebel is called upon every time when something goes wrong,” he told Der Sonntag newspaper. Helvea analyst Peter Thorne said Ermotti was definitely the frontrunner as UBS lacked few credible alternative candidates. “We’re hoping for great things from Ermotti to resize the business,” he said. “He’s got the background, he’s a senior financial figure, Swiss and not tainted by the past problems of UBS.” The 51-year-old from the Italian-speaking Ticino region of Switzerland trumps possible alternative candidates Lukas Gaehwiler, CEO of UBS Switzerland, and Juerg Zeltner, CEO of Wealth Management, in terms of broad international experience. Ermotti worked at Merrill Lynch for nearly 18 years, lastly as head of global equity markets, before joining UniCredit in 2005, rising to deputy CEO with responsibility for corporate and investment banking as well as private banking. At UBS for only five months, Ermotti has met key clients, taken charge of UBS’s relationship with regulators in Europe and driven the bank’s strategy of making sure its investment bankers and private client advisers work closely together. While few outsiders are likely to be tempted by a move to the crisis-stricken bank, Hugo Baenziger, chief risk officer at Deutsche Bank , has been touted as one possibility, given his Swiss nationality and experience working at Credit Suisse and the Swiss regulator. (Editing by Hans-Juergen Peters)

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Federal regulator considering higher mortgage fees

September 19, 2011

RALEIGH, North Carolina (Reuters) – The regulator for Fannie Mae and Freddie Mac said on Monday he is considering some reform scenarios that include higher costs for mortgages backed by the government and sharing more risk with the private sector. “A series of periodic, gradual price increases makes more sense than or two large price adjustments,” said Edward DeMarco, acting director of the Federal Housing Finance Agency. Speaking at a mortgage conference sponsored by the North Carolina Mortgage Bankers Association, DeMarco said the goal is to lessen the long-term exposure to risk for the two government-sponsored enterprises. The increased guarantee fees will “not happen immediately but should be expected in 2012,” he added. Fannie and Freddie, seized three years ago amid fears the two were at risk of failing, have so far cost taxpayers more than $140 billion. DeMarco also said the regulator will look at a number of ways to dampen the two firms’ exposure to risk, including expanding the use of mortgage insurance and securities structures that allow for greater private-sector risk sharing. “These types of risk-sharing alternatives have an added benefit of providing feedback into the Enterprises’ guarantee fee pricing decisions,” DeMarco said. (Reporting by Margaret Chadbourn; Editing by Andrea Ricci)

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Fox News, Google To Hold Presidential Debate

September 1, 2011

Fox News and Google are expected to announce plans on Thursday to host a Republican presidential debate in Florida on September 22, The Huffington Post has learned. The forum will be moderated by network anchor Bret Baier. Fox News Sunday host Chris Wallace and anchor Megyn Kelly will be panelists at the event. Fox News has presented two debates already this election season. The first took place in South Carolina in May and the second was held in Iowa last month. The upcoming Fox News-Google debate is expected to incorporate an interactive element. HuffPost has learned that viewers will be able to participate by submitting questions through YouTube and Fox News. They will also have the ability to vote on questions they would like to see the candidates answer. UPDATE (11:33 a.m. ET): Below, full text of the debate announcement released on Thursday. FOX News and Google announced today that they will present a presidential debate on September 22nd from 9:00-11:00 PM/ET in Orlando, Florida, in conjunction with the Republican Party of Florida. In making the joint announcement, Michael Clemente, Senior Vice President of News Editorial, FOX News, said, “For access to news and information, it’s hard to imagine two more powerful brands than FOX News and Google, which is why we are proud to partner with a leader in global technology. The strength and reach of both should ensure a thorough and engaging debate that anyone can participate in.” Moderated by Special Report anchor Bret Baier with panelists Chris Wallace, host of FOX News Sunday and Megyn Kelly, anchor of America Live, the debate will incorporate video and text questions submitted by the public on YouTube.com/FOXNews. Viewers will be able to vote on the questions they want the candidates to answer, and FOX News will use the votes to help choose which questions are posed to the candidates. In addition, FOX News and Google will present public data and Google search trends on air to help provide context to the questions and inform the debate throughout the evening. Steve Grove, Head of News and Politics for YouTube, said, “We’re delighted to give voters across the country this opportunity to ask their questions of the GOP candidates. Through this joint debate with FOX News we hope to bring more voices into the arena to create an informed and lively dialogue about the future of our country.” The FOX News/Google debate will be presented live from the Orange County Convention Center on FOX News Channel (FNC) and live-streamed on YouTube.com/FOXNews, in addition to FOX News Radio, FOX News Mobile, and FOXNews.com. About FOX News FOX News Channel (FNC) is a 24-hour all-encompassing news service dedicated to delivering breaking news as well as political and business news. A top five cable network, FNC has been the most watched news channel in the country for nearly ten years and according to Public Policy Polling, is the most trusted television news source in the country. Owned by News Corp., FNC is available in more than 90 million homes and dominates the cable news landscape, routinely notching the top ten programs in the genre. About Google Inc. Google’s innovative search technologies connect millions of people around the world with information every day. Founded in 1998 by Stanford Ph.D. students Larry Page and Sergey Brin, Google today is a top web property in all major global markets. Google’s targeted advertising program provides businesses of all sizes with measurable results, while enhancing the overall web experience for users. Google is headquartered in Silicon Valley with offices throughout the Americas, Europe and Asia. For more information, visit www.google.com.

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Labor Unions, Benefits Understood, Have Almost Never Been Less Popular

August 31, 2011

The vast majority of Americans say labor unions raise wages and better working conditions, a new survey finds. Yet despite those benefits, Americans have almost never disliked them more. Indeed, according to a Harris Interactive poll , more than seven in ten of those surveyed said labor unions are too politically-oriented and concerned “with fighting changes” as opposed to “bring[ing] about change.” Still, over six in ten say labor unions also provide workers with better conditions and pay. A Gallup poll also released Wednesday finds, more directly, that approval of labor unions has held at 52 percent, just above its lowest-recorded level going back to the Great Depression. Still, at 52 percent, the majority of Americans continue to support labor unions. The lowest recorded approval of labor unions was 48 percent in 2009, Gallup says. Labor unions have become particularly politically polarizing in the last decade. While Democratic support of unions has held relatively steady since 1999 — 78 percent of Democrats say they support labor unions — the percent of Republicans supporting unions has plummeted to 26 percent from 51 percent, according to Gallup. That diminishing approval can be in part explained by the 59 percent of those surveyed by Harris Interactive that say they disagree with the idea that unions help pass laws that help all workers, not just unions. Union members disagree, but not by much. Among union workers, 55 percent say unions pass legislation to help all workers, Harris Interactive says. Between 1973 and 2007, union membership has dropped to 8 percent from 32 percent among men, according to The New York Times . A recent study found that decline in union participation accounted for roughly one-third of the increasing gaps in pay between the rich and poor. In a weak economy, labor unions have been close scrutinized, especially in government. Wisconsin Governor Scott Walker earlier this year proposed a bill to limit labor unions’ right to collective bargaining in the name of cutting government spending. Within the Union Auto Workers, disputes between union management and the rank-and-file has caused deepening rifts , as The Huffington Post reported in August. Even larger unions are seeing their power tested. A recent strike by over 45,000 Verizon workers over pensions led by unions Communications Workers of America and International Brotherhood of Electrical Workers has been largely ineffective. Employees have returned to work after the two-week long strike, and as negotiations continue it’s said that Verizon will likely win out on several key disputed issues .

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Tech Stock Crash: End Of The Bubble?

August 8, 2011

As the stock market continued a sharp slide on Monday, technology companies found themselves hammered particularly hard, with the Dow Jones U.S. Tech Index ending the day down 5.8 percent. For entrepreneurs and investors alike, the drop begged the question: Is this the beginning of the end of Tech Bubble 2.0 ? In particular, high-profile tech darlings saw significant declines in their stock prices: Pandora shares were down below their IPO price, while LinkedIn stock fell 17 percent. Faced with this, industry analysts were united in an assessment that the crash would have a negative impact on upcoming IPOs. Howard Lindzon, the CEO of StockTwits , told HuffPost, “This definitely hurts IPO prospects — it’s harder to get deals done when people are cranky. They are the first thing to be pulled.” And delayed IPOs would have a ripple effect, according to John Frankel, a partner at ff Venture Capital . “If there are delays in IPOs, companies cannot go public,” he said in an interview with HuffPost. “Meaning VCs are going to be returning money a little slower to their LPs [limited partners].” Mark G. Heesen, president of the National Venture Capital Association , told HuffPost that the market volatility might impact the venture capital industry in a number of ways. “Investors will flock to more conservative fields in uncertain periods,” he said. Given the “50-plus venture-backed companies now in IPO registration,” whose future is now in doubt, Heesen said, “none of this is good news and we will need to see a stabilization very quickly if we want to avoid long-term implications.” Frankel, for his part, felt that in the long run, the crash would not dampen the investment scene. “In the longer term, I don’t think it disrupts me one iota,” he said. “I’m still having meetings with companies, I’m still putting up funds. ” Any downturn would have to persist for several months, he explained, to have a tangible adverse effect on the startup landscape. Lindzon called the market slide a “necessary correction,” but rebuffed assertions that it signaled the bursting of any bubble. “Prices were getting a little silly,” he said. “But it wasn’t a bubble — no one owns these [companies].” Russell Hancock, the president and CEO of Joint Venture , an industry coalition, spoke with HuffPost regarding the prospects of a second bubble. He noted that the “hype and excess” of the late-’90s bubble was “not the case this time. Companies are behaving prudently, bringing genuine product and value — and investors recognize it.” If anything, he added, “tech stocks have been victimized” in the current slide. “They’re being pulled in. But [the sector] is as strong as it ever has been.” To some degree, analysts attributed the steep decline in tech stocks to the nature of the market in general. “Stocks always fall faster than they go up,” said Lindzon. “The fundamentals of tech leaders are better than ever — and those that are suffering have oodles of cash” — giving them strength in an uncertain market. For nervous entrepreneurs and jittery startups, Foundry Group’s managing director Brad Feld made what he termed a “public service announcement” on his website over the weekend. “Ignore the Dow and the stock market and get back to work on your business,” he wrote. “Over time, I’ve learned that none of the short term moves in the stock market matter at all in my life.”

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Jared Bernstein: The Depressing Impact of a Spending Only Trigger (Update)

August 1, 2011

Update below We’re not there yet but the contours of the budget deal that will raise the debt ceiling are coming into focus. The White House has consistently sought three things in the deal: No default Revenues to take pressure off of spending cuts Not to be back in this debate until after 2012 It’s looking like they’ll get one and three. Both are very important. But so is two. As I and others have written from the beginning of this debacle, absent new revenues, we’ll end up with spending cuts carrying too much of the load. And that looks to be where we’re headed. As I understand it, the first tranche of cuts — about $1 trillion in discretionary spending — occurs soon after passage. Then, by the end of this year, a committee of 6 Republicans and 6 Democrats comes up with a proposal for about $2 trillion in round two cuts. If the committee fails to do so, or Congress fails to enact, then an across-the-board spending-cut-only trigger takes over. Especially after the first round of cuts went exclusively at discretionary programs, this means round two will go hard after entitlements. That sounds a lot like what Speaker Boehner proposed last week. Here’s what my CBPP colleague Bob Greenstein had to say about that proposal : The first round of cuts under the Boehner plan would hit discretionary programs hard through austere discretionary caps that Congress will struggle to meet; discretionary cuts thus will largely or entirely be off the table when it comes to achieving the further1.8 trillion in budget reductions. As Speaker Boehner’s documents make clear, virtually all of the1.8 trillion would need to come from cuts in entitlement programs. (Cuts in entitlement spending totaling more than1.5 trillion would produce sufficient interest savings to achieve $1.8 trillion in total savings.) To secure $1.5 trillion in entitlement savings over the next ten years would require draconian policy changes. Policymakers would essentially have three choices: 1) cut Social Security and Medicare benefits heavily for current retirees, something that all budget plans from both parties… have ruled out; 2) repeal the Affordable Care Act’s coverage expansions while retaining its measures that cut Medicare payments and raise tax revenues, even though Republicans seek to repeal many of those measures as well; or 3) eviscerate the safety net for low-income children, parents, senior citizens, and people with disabilities. There is no other plausible way to get $1.5 trillion in entitlement cuts in the next ten years. If it’s true that the trigger in the deal is spending-only, no revenues, then the American people are about to end up with a very tough deal indeed. I’m already hearing a lot of blame cast toward the president as per this outcome. I’ll speak to that later — right now I have to go weed the back yard in 97 degree heat, which I actually find way preferable to dealing with the debt ceiling. But for now, let me say this: it is not the president who brought us to this spot. It is the actions of a group of far-right conservatives who were and are ready to push America into default for the first time in our history. Their actions would force the government into prioritizing payments and sharply increase the likelihood of our already frail economy becoming even worse. President Obama would not go there. We may have honest disagreements about that choice, but it’s a choice the president was not willing to make, and that has made all the difference. **** Update: Again, quickly running down the deficit-reduction framework as it stands: $1 trillion in cuts in discretionary spending over 10 years What does that mean? It refers to the non-entitlements in the budget: defense and non-defense programs where dollar amounts are appropriated every year. On the non-defense side, it’s transportation, education and training, child care, housing assistance, health research, energy. From a jobs perspective, a lot of infrastructure and investment in stuff like clean energy comes out of this part of the budget. A bipartisan committee (6 R’s, 6 D’s) must identify another1.5 trillion in cuts; entitlements and tax increases can be on the table, though Speaker Boehner claims his R’s will not countenance any new revenues, and I’m prone to believe him. Assuming the committee agrees on the cuts, it reports out by Thanksgiving and their proposal gets a fast-track procedure–up or down vote by the end of the year. But if the committee fails to report out or Congress won’t enact their cuts, a spending-cut-only trigger kicks in, with cuts split 50/50 between domestic and defense spending. This sequester, as it’s called, would exempt “Social Security, Medicaid, unemployment insurance, programs for low-income families, and civilian and military retirement. Likewise, any cuts to Medicare would be capped and limited to the provider side” according the White House . Those are welcome exemptions, but man, I don’t see how you get $1.2 trillion (that’s the savings required if this part triggers) after you’ve already taken $1 trillion out of discretionary and still maintain those exemptions. I predict they’ll be a lot of pressure to violate this part of the deal. Now, here’s a wrinkle a commenter asked about. Again, from the White House fact sheet: “If the Committee does not succeed in meaningful balanced deficit reduction with revenue-raising tax reform on the most well-off by the end of 2012, the president can use his veto pen to raise nearly $1 trillion from the most well-off by vetoing any extension of the Bush high income tax cuts.” Here, the White House is saying they have a fail-safe to get revenues in the deal. If the committee gets to the trigger stage without revenues, they’ll go after the high-end Bush cuts. OK, but those cuts were presumably going to sunset anyway, so on one hand, no new revenue there relative to what we expected. And what if the committee does come up with cuts (unlikely, but just sayin’)…then does the administration punt on the high end sunset? So it’s no replacement for a balanced sequester, one that required both cuts and new revenues. On the other hand, given the tenor of the times, expected or not, it would be an accomplishment to finally see the sun set on those tax cuts. The president spoke on the pending deal tonight, ending with this: “[The deal allows us to] turn to important business of doing everything we can to create jobs, boost wages, and get this economy growing faster. That’s what American people sent us to do and that’s what we should focus on in months ahead.” I agree. It’s about time. But he also bragged that “these discretionary caps will put us on track to reduce non-defense discretionary spending to its lowest level [as a share of GDP] since Dwight Eisenhower was President.” Why is that a good thing? Why are 1950s levels (relative to GDP) of investment, infrastructure, and research in medicine and innovation so damn optimal? And with all this incessant emphasis on deficit reduction, it’s going to be extremely tough to convince people that we actually might need to spend some money right now, in the short run, to help get this economy out of neutral. There’s a lot of cognitive dissonance out there…stay tuned. This post originally appeared at Jared Bernstein’s On The Economy blog.

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Democrats Rip Page From Republican Playbook To Make Case

July 20, 2011

Now House liberals have hit on a fun new way of emphasizing this point: They are sending a letter today to every House Republican asking them to raise the debt limit. Only the letter wasn’t written by House liberals. It was written by Reagan himself.

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Minnesota Shutdown Sees Light At The End Of The Tunnel (LATEST UPDATES)

July 15, 2011

The post and live blog below are a collaboration between Patch and HuffPost reporters. Minnesota Gov. Mark Dayton and top Republicans struck a deal Thursday to end a budget impasse that prompted the state government to shut down, with the Democratic governor giving up on raising taxes. The agreement came after a three-hour negotiating session that followed Dayton’s announcement of his offer earlier in the day. If details are worked out and approved by state legislators, it would end the shutdown over how to resolve a $5 billion deficit that has lasted two weeks so far. Dayton said the government would be back in business “very soon,” but didn’t say exactly when. The two sides agreed on a proposal that would raise $1.4 billion in new revenue, half by delaying state aid checks to school districts and the other half by selling tobacco payment bonds. It was a big sacrifice by Dayton, who had made new income taxes a central plank in his campaign last year and the centerpiece of his budget. Republicans said they agreed to drop a list of policy changes and a plan to cut the state workforce by 15 percent. “It was about making sure that we get a deal that we can all be disappointed in, but a deal that is done, a budget that was balanced, a state that was back to work,” said Republican House Speaker Kurt Zellers, who appeared with Dayton and Senate Majority Leader Amy Koch after the private meeting. The glum looks on their faces testified to a hard bargain. “Nobody is going to be happy with this, which is the essence of real compromise,” Dayton said. The date of a special legislative session to pass a budget and end the shutdown has not been set. Some terms of the deal still need to be filled in. Below, a live blog of the latest developments to unfold in Minnesota.

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Americans Deeply Pessimistic About Economy

July 14, 2011

WASHINGTON (Reuters) – Americans are deeply pessimistic about the future as economic concerns rise and White House talks on raising the U.S. debt limit sputter, according to a Reuters/Ipsos poll released on Wednesday. The number of Americans who believe the country is on the wrong track rose to 63 percent this month, up from 60 percent in June, with stubbornly high unemployment and prolonged gridlock in Washington dashing hopes of a swift economic recovery. But voters do not appear to be holding President Barack Obama responsible for the problems so far. Obama’s approval rating held relatively steady at 49 percent, down 1 percentage point from June. His approval rating among independents — a group Obama needs to win re-election — fell to 39 percent from 44 percent. Obama’s standing could deteriorate quickly if the economy does not begin to generate jobs and if Washington cannot show it is capable of solving problems, Ipsos pollster Julie Clark said. “If those things don’t happen, Obama will be in for a real challenge in getting re-elected next year,” Clark said. Obama and Republicans have hit an impasse in negotiations to raise America’s borrowing limit before the government runs out of money to pay all of its bills on August 2. That could force the government to try to prioritize its payments. Asked what bills the government should stop paying if the debt limit is not raised, 36 percent listed international creditors like banks and 12 percent listed government departments like agriculture and education. The sputtering economy and high unemployment are certain to dominate the race for the White House in 2012, and the Republican candidates for the nomination to challenge Obama repeatedly have criticized his economic leadership. Copyright 2011 Thomson Reuters. Click for Restrictions .

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Minnesota Shutdown Sees No End In Sight

July 8, 2011

The post and live blog below are a collaboration between Patch and HuffPost reporters. The Minnesota state government has been shut down for more than one week. Governor Mark Dayton (D) and Republican legislators remain at odds in contentious talks to close the state’s $5 billion budget gap. The AP reports : Minnesota saw one of its three main credit ratings slip on Thursday over budget problems that have led to the state’s week-old government shutdown. Fitch Ratings downgraded the state’s bond rating a notch from AAA to AA+, citing the government interruption and “an increasingly contentious budgeting environment.” Former vice president Walter Mondale and former Minnesota governor Arne Carlson are just two members of a bipartisan panel of North Star State politicians and policy experts who have joined forces in attempt to solve the ongoing budget dispute. St.Michael Patch’s Jeff Roberts and Katelynn Metz report : A whopping $2.2 billion in permanent cuts, $1.4 billion in accounting shifts and $1.4 billion in new revenue — including a temporary, across-the-board 4 percent tax increase on personal incomes. Those are the key proposed recommendations from the independent panel of Republicans, Democrats and policy experts who came together to solve Minnesota’s budget impasse. The bipartisan committee tasked with creating a so-called third alternative issued its recommendations Thursday afternoon to Gov. Mark Dayton and Republican lawmakers. The AP reports that the paralyzation of the Minnesota government is costing the state millions of dollars. Eagan Patch’s Britt Johnsen reports that union workers and residents spoke out at a local public forum on the situation on Thursday night. Marilyn Remer, a utilities engineer at the Minnesota Department of Transportation, was laid off. She got up in front of the crowd. “I just can’t believe how much money we’ve already wasted,” she said. After the meeting, she said this is also terrible for state workers’ morale. Some of her colleagues even expressed that they wanted to keep working, despite the shutdown. That’s because their plates were already full. “We’re going to have so much work to do,” she said. “It’s so hard not knowing how long it’s going to be” until they can go back to work, Remer said. Below, a live blog of the latest developments to unfold in Minnesota.

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Democrats Slam GOP As ‘Clueless’ On Debt

June 28, 2011

WASHINGTON — Republicans are clueless about the economic devastation they are courting with brinksmanship over raising the nation’s debt limit, Democrats charged Tuesday. Senate Majority Leader Harry Reid (D-Nev.) leveled the charge in his floor speech Tuesday morning, and his office followed with a press release pointing to a list of influential business leaders and economists who warn that the U.S. government’s failure to pay its bills would spark a new financial catastrophe. “Failure to avert this crisis would have dire consequences,” Reid said. “It would result in the most serious financial crisis this country has ever faced. Millions of Americans could lose their jobs. Social Security checks could stop. So could paychecks to our troops.” Reid argued that the GOP was willing to risk those financial hardships in order to protect subsidies for the oil industry and tax breaks for corporate jets. Soon after he fired that broadside, Reid’s policy shop pointed to a Tuesday morning discussion between MSNBC’s Joe Scarborough and two top Republicans — presidential contender Tim Pawlenty, the former governor of Minnesota, and Republican Party Chairman Reince Preibus. Pawlenty and Preibus had said they did not know what to expect from a default: Scarborough : What’s the impact if it’s not raised? Pawlenty : Well, we don’t know that. Scarborough : Well, I don’t know what’s going to happen to me if I jump off a cliff. But I think I’ll go splat. Preibus had a similar view: Scarborough : What do you believe, though? Do you believe that if we don’t raise the debt ceiling the economy will just keep chugging along normally or do you believe it will cause a financial crisis? Preibus : You know, I don’t know, because we’ve never been there before, Joe. Reid’s team noted that numerous economists, business leaders and Republican leaders have warned of disaster if the nation’s spending cap — now set at $14.3 trillion — is not raised by early August. Under a release titled “REPUBLICAN LEADERS CLUELESS ON THE CONSEQUENCES OF DEFAULT” Democratic Policy and Communications Center spokesman Brian Fallon named several of those who have been warning of the consequences of default. “While [Pawlenty and Preibus] may be at a loss to explain the consequences of a failure to raise the debt limit, many business leaders and fellow Republicans know the dire consequences of a failure to raise the debt limit,” the release said. Among those singled out were Warren Buffett, who said not raising the limit would be ” asinine ;” Republican elder statesmen James Baker , who backed the hike, and JP Morgan Chase boss Jamie Dimon, who echoed Treasury Secretary Tim Geithner in saying a default would be ” catastrophic .” Despite the Democrats’ criticism of Republicans, Don Stewart, a spokesman for Senate Minority Leader Mitch McConnell (R-Ky.) was unimpressed with Reid’s own plan to reduce the deficit, citing a list of tax cuts Reid had mentioned and arguing that Democrats want to hike taxes a lot more. “The point is, Sens. Reid and [New York's Chuck] Schumer complained this morning that Sen. McConnell doesn’t support the Democrat plan to raise hundreds of billions in new tax hikes on job creators in the middle of an employment crisis,” Stewart said. “They’re correct: Sen. McConnell does not support hundreds of billions in new tax hikes on job creators. He agrees with what the President said last year — tax hikes in a down economy will make matters worse and slow job growth.” Stewart was referring to Obama’s decision to extend the Bush-era tax cuts for the wealthy for two years. He also argued the money saved by ending the breaks for oil companies would not be nearly enough to eliminate the deficit, and suggested Democrats should offer their full list of tax hikes or revenue raisers. Fallon said the Obama administration has offered McConnell and Republican leaders hundreds of billions of dollars worth of choices to raise revenue, and all were turned down.

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California Man Arrested After IRS Mistakenly Deposits $110K In His Account

June 18, 2011

This post has been corrected Last September, Laguna Beach resident Stephen McDow found $110,000 deposited in his bank account, courtesy of the IRS. That same deposit has now landed him in hot water, according to CBS Los Angeles . (h/t The Consumerist) The IRS mistakenly sent the tax refund money, meant for a 67-year-old woman, to McDow, instead, reports local news station KCAL . The Los Angeles woman reportedly failed to inform the IRS that she had closed the bank account she had filed with them, and the account number was subsequently assigned to McDow. When the woman discovered that McDow had been the recipient of her refund, she called him and demanded her money back. McDow, in turn, offered to pay back the balance in monthly payments, as he had already spent $60,000 paying off student loans and his home mortgage. Unsatisfied with the suggested size of the monthly payment, the woman declined the offer, according to KCAL. McDow was subsequently arrested and charged with one felony of grand theft by misappropriation of lost property. He reportedly faces four years imprisonment and is currently being held on bail for the exact amount he first received: $110,000. Correction: An earlier version of this post said McDow had received a prison sentence. He is currently being held on bail. Watch KCAL report here:

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Minnesota Sends Layoff Notices To 36,000 Workers Ahead Of Possible Government Shutdown

June 10, 2011

MINNEAPOLIS — In preparation for a potential shutdown of state government, Minnesota sent layoff notices on Friday to more than 36,000 state workers, according to the governor’s office. With Democratic Governor Mark Dayton and the Republican-controlled Legislature unable to agree on a spending plan, the state could face closing down services on July 1, the start of the fiscal 2012-13 biennium. Dayton called the notices “a grim reminder of a deadline that is just 20 days away.” “I continue to hope that the Legislature will join me in compromising, in finding a balanced solution to our budget, and in standing up for Minnesotans,” the governor said in a statement. On May 24, Dayton vetoed budget bills passed by the Legislature, which rejected his $37.1 billion, two-year budget and its income-tax hike on wealthy residents to help erase a $5 billion deficit. Republicans instead opted for spending cuts even after Dayton offered to cut down his tax proposal. On Monday, Republican leaders agreed to match the governor’s spending levels for education, public safety and the judiciary. The governor and leaders continued to negotiate on the budget in the hope of avoiding a shutdown, according to Katharine Tinucci, Dayton’s spokeswoman. She added that a state judge will ultimately decide which jobs are critical and should continue during a government shutdown. The last time that a budget impasse closed portions of Minnesota government was a nine-day shutdown in 2005. (Reporting by Karen Pierog in Chicago and David Bailey in Minneapolis; Editing by Jan Paschal ) Copyright 2011 Thomson Reuters. Click for Restrictions .

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Nobel Prize-Winning Economist Paul Krugman: ‘I’m A ‘Loner’

April 25, 2011

Paul Krugman is a Nobel-Prize winning economist and world-famous blogger. According to a new article, you can add self-described loner to that list as well. In a New York magazine profile, “What’s Left of the Left,” Krugman, author of the New York Times ‘ highly-influential blog, “The Conscience of a Liberal”, is described as a “lonely man” that had trouble naming a single friend that could be interviewed to provide the author with a better understanding of one of America’s most famous liberals. Asked to describe himself, Krugman, who allegedly avoids eye contact with colleagues in the elevator, quickly points to his own solitary characteristics: “Loner. Ordinarily shy. Shy with individuals.” The portrayal differs somewhat from the March 2010 profile by the New Yorker in which a relatively-content Krugman allows the public into his life and mariage with fellow economist Robin Wells. “I think he’s happy,” his friend Craig Murphy said at the time. “A much happier person now than when we first met him.” The New York profile’s author, Benjamin Wallace-Wells, instead, contrasts Krugman with his bombastic former classmate at Harvard graduate school: Larry Summers, ex-director of Obama’s National Economic Council. “Let’s put it this way,” Krugman says when describing the difference between the two. “When things go crazy, my instinct is to go radical on policy, and Larry’s is to be a little more cautious.” Summers, in return, took aim at Krugman as “the guy in the bleachers who always demands the fake kick, the triple-reverse, the long bomb, or the big trade,” without ever getting in the game. Krugman has previously said his wife pushed him to remain true to his gut, denouncing filibusters and holding strong to his belief that that Obama’s health-care bill needed a public option. In an interview with New York , Krugman describes his first years blogging for the NYT as “a radicalizing experience,” primarily because of wading through the Bush administration’s economic policy closer than ever before. Krugman says he discovered a world in which the president of the United States could say something “demonstrably false” and no one would say anything. “That was pretty awesome,” he said.

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Supreme Court Skeptical Of Arizona Campaign Finance Law

March 28, 2011

WASHINGTON — The Supreme Court appeared poised Monday to strike down a provision of a campaign financing system in Arizona that gives extra cash to publicly funded candidates who face privately funded rivals and independent groups. Such a decision would be another blow to public campaign financing, once thought of as an antidote to the corrupting influence of money in politics. President Barack Obama has been the most prominent example of politicians who have abandoned public financing because they can raise far more money privately. The justices heard arguments in a challenge to the Arizona system that gives candidates who opt for public financing up to two times their base amount when they’re outspent by privately funded rivals or targeted by independent group spending. The court’s conservative-leaning justices, who have issued a string of decisions upending campaign finance laws in the past five years, appeared skeptical of the Arizona law because it, in their view, is designed to level the playing field for all candidates. The court has said such leveling often runs afoul of the First Amendment. Among the recent rulings were last year’s Citizens United decision that removed most limits on election spending by corporations and organized labor, and a 2008 decision that voided the federal “millionaire’s amendment” to increase contribution limits for congressional candidates facing wealthy opponents. Both decisions were ideologically split 5-4 votes in which the conservative justices prevailed. On Monday, several justices seized on the contention that the law discourages candidates and independent groups from spending money when they know it will result in more money going to the candidate they oppose. “Just as a common-sense matter, if I’m someone with the capacity and will to make an independent expenditure, why don’t I think twice?” Justice Anthony Kennedy asked. Bradley S. Phillips, the Los Angeles-based lawyer defending the law, said it encourages more competition by ensuring that publicly funded candidates have the chance to run credible races. Phillips said the system is strictly voluntary. Candidates decide whether to take public funds, and if so, they agree not to raise any private money. William Maurer, the Seattle-based lawyer for the challengers, said elections are a “zero-sum game,” and that what benefits one candidate, harms the opponent. Tying disbursements of campaign funds to the activities of privately funded candidates means “each time they speak, the more work that they do, the more their opponents benefit,” Maurer said. The law was enacted by voters in the aftermath of a public corruption scandal in Arizona in the 1990s. Four other states, Maine, New Mexico, North Carolina and Wisconsin, have similar “trigger” provisions that affect some political races, and could be vulnerable if the Supreme Court strikes down the Arizona provision. Another state, Connecticut, changed its law to eliminate its trigger after a federal appeals court struck it down. Los Angeles and New York are among big cities that also provide public money to candidates. Retired Justice Sandra Day O’Connor sat through part of the argument dealing with a law from her native Arizona. O’Connor looked more favorably on campaign finance restrictions than does her successor, Justice Samuel Alito. Alito seemed to suggest that giving a publicly funded candidate campaign money in one lump sum – so that the amount of money does not depend on an opponent’s campaign activity – could resolve the potential First Amendment problems in Arizona’s law. Justice Elena Kagan seemed strongly supportive of the Arizona law. “I think the purpose of this law is to prevent corruption,” Kagan said. “That’s what the purpose of all public financing systems are.” But there appeared to be five votes to rule otherwise. Doug Kendall, head of the liberal interest group Constitutional Accountability Center, attended the argument and said afterward that the court seemed ready to “gut an effort by Arizona to expand speech while combating the worst public corruption scandal in the state’s history.” A decision should come by summer. The cases, joined together at the high court, are Arizona Free Enterprise v. Bennett, 10-238, and McComish v. Bennett, 10-239.

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Rick Santorum: Obama’s Plans Are ‘Wasteful Government Spending’

January 27, 2011

While some supported President Barack Obama’s call, in his 2011 State of the Union address, for investments to restore America’s global competitiveness, former Pennsylvania Sen. Rick Santorum dismissed the president’s proposals as “wasteful government spending.” In an op-ed today in the Union Leader , Santorum writes: “Rather than letting the American entrepreneurial spirit ignite the free-market economic engine, Obama is again choosing to depend on government to lead us to economic prosperity. But when has government ever succeeded in doing this?” The former senator, who may have his eyes on a 2012 presidential run, also accuses the president of ignoring the deficit and entitlement reform and claims that the “real employment rate” — those who are underemployed or stopped looking for work — is growing. He ends his letter with a clear statement that the president has failed: “I sat watching Tuesday night with great hope to see a new Obama: a President who recognized the message that voters in New Hampshire and across the country overwhelmingly sent just three short months ago. But instead, we saw Obama the liberal try, try again.”

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Audrey Watters: Update to Higher Ed Classification System Shows Huge Growth in Private, For-Profit Institutions

January 20, 2011

The Carnegie Foundation for the Advancement of Teaching released an update to its classification system today, a revision to one of the leading frameworks for describing institutional diversity in U.S. higher education. The update finds two “striking changes” in higher ed: a dramatic increase in private, for-profit institutions and an increase in institutions whose programs focus on professional fields like business and health. The Carnegie Classification offers researchers a standardized way to describe and compare institutions. The system represents some of the main differences between colleges and universities in the U.S, monitoring things like undergraduate and graduate programs offered, enrollment profiles, and school size and setting. The classification framework was originally published in 1973 and was last updated in 2005. The update released today includes the most recent national data. According to Chun-Mei Zhao, the project’s director, more schools are offering professional programs at both the undergraduate and graduate level that are “less selective and non residential.” She says this trend has been “triggered by the growth of the private, for-profit sector” and adds that “this suggests that the higher education landscape is shifting further away from the traditional model of the liberal arts college.” Since its last update, 483 newly classified institutions have been added (bringing the total to 4633). 77% of these are private, for-profit institutions. On the contrary, the growth in public and private, not-for-profit institutions has been small, only 4% and 19% of the newly classified schools respectively. The classification framework also points to the increase in the number of what it calls “professional focus” institutions — schools that award more than 60% of their degrees in professional fields. The number of institutions that grant more than 60% of their degrees in arts and sciences, on the other hand, fell by 5%. Health profession programs increased by 6% at both for-profit and not-for-profit institutions. Business and management programs increased by roughly the same percentage, but the growth was almost entirely at for-profit schools. Also notable in today’s figures: substantial growth in the number of traditional two-year colleges, as well as the number of two-year colleges starting to offer bachelor’s degrees. The Chronicle of Higher Education suggests that the growth of for-profit schools might be slightly exaggerated by the Carnegie Classification lists the individual campuses of the University of Phoenix, ITT Technical Institute, DeVry University and the like as separate institutions. The Chronicle cites at least one university official who’s “cool” on the significance of the new numbers, contending that the growth in the number of these private, for-profit institutions may be a question of supply, but not necessarily demand. Indeed, recent enrollment figures from the University of Phoenix revealed a 40% drop in enrollment in the last quarter of 2010.

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Obama-Republican Deal Could Mean Tax Hike For One In Three Workers

December 10, 2010

WASHINGTON – The tax deal reached between President Obama and congressional Republicans could mean a higher tax bill for roughly one in three workers as a result of the Social Security tax cut Republicans pushed as a replacement for the current Making Work Pay tax credit. The Making Work Pay credit gives workers up to $400, paid out at 8 percent of income, meaning that anybody making at least $5,000 gets the full amount — and gets as much as anybody else. Its replacement knocks two percentage points off the payroll tax cut, meaning a worker would need to make $20,000 to get a $400 break. Of the nation’s roughly 150 million workers, around 50 million make less than $20,000 and will see at least some increase as a result. Additionally, roughly a quarter of 20 million state and local workers pay no payroll tax, because they have a separate pension system. Some of those workers with children will benefit from the extension of other tax credits, but overall will have less money in their pocket. Rep. Raul Grijalva (D-Ariz.), co-chair of the Congressional Progressive Caucus, said many House liberals were opposed to the payroll tax cut because of its effect on the poorest workers. Progressives are also concerned that the tax cut will become permanent and undermine Social Security’s funding stream and political support over time. Senior White House adviser Larry Summers told reporters on Wednesday that the GOP wanted to replace Making Work Pay with the payroll cut. “It came out of the process of compromise with the Republicans who were more attracted to the payroll tax holiday concept, and that was a proposal that, as had been coming out of here, we had been giving considerable thought to in the context of the President’s budget,” he said. White House officials have said that the situation must be viewed in the context of the entire package and that Republicans strongly resisted extending the refundable tax credits, such as the child tax credit or earned income tax credit, that will more than offset the loss of MWP for many workers. Had those credits expired, lower income workers would have been worse off. House Democrats, in their package, did not extend MWP, so, in that sense, the White House proposal is more generous. Making Work Pay is a more effective stimulus, economist Dean Baker said, because a higher proportion goes to the poorest workers, who are most likely to spend it immediately. “Dollar for dollar, undoubtedly, Making Work Pay is going to be more stimulative. The higher-end people will get five times as much than someone earning $20,000,” said Baker, of the liberal-leaning Center for Economic Policy and Research. Summers, asked by reporters about the effect on poorer workers, conceded that they would suffer slightly under the payroll tax cut as compared to Making Work Pay, but said the other tax credit extensions would balance it out or make the family better off. And if GDP goes up by one percent, he said, “that’s $2,000 for the average family.” Of course, wealth is not distributed to each family equally in the United States, so the poorest are very unlikely to see as much of a benefit from economic growth as the wealthiest. But the extensions of the tax credits, ultimately, are merely extensions, so workers won’t see a change in their income like they will see the change as a result of the change from Make Work Pay to a payroll tax cut. “It is just kind of an absurdity that we’re making so many low income and moderate income workers suffer as a result of a downturn that was brought about by Wall Street greed and incompetence,” Baker said. The White House, meanwhile, is circulating a chart comparing “What We Got” and “What They Got,” making the case that Democrats got much more, with the “We Got” stack roughly doubling up its rival. But, noted Rep. Donna Edwards (D-Md.) after Thursday’s Democratic meaning, the payroll tax cut could just as easily go in the Republican side. And if the temporary Democratic victories expire and the tax cuts for the wealthy are extended, the chart looks that much redder, as put together here by MoveOn.org in response to the White House.

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Bill Zimmerman: Time for Strategic Philanthropy

October 21, 2010

America can’t wait any longer. Trillions of dollars are urgently required to repair and expand the aging physical infrastructure that permits our economy to function. American tax revenue, the lifeblood of any national rebuilding effort, is not adequate for the job. In fact, our reduced tax revenue has become the single most vexing and important political problem we face, yet our politicians are unable to confront it. Trillions of dollars are also necessary to rebuild our failing public schools and our fire and police departments, before we even consider delivering improved universal health care, effective mass transit or renewable energy. The opportunity to accumulate wealth is one of the great engines of our economy, but that opportunity is lost without the support of a well-functioning societal infrastructure. Failure to improve America’s economic foundation will condemn us to second-tier global status. Unrepaired roads, substandard electric grids, inferior rail transport, lackluster public schools, unfulfilled health promises, bridges, parks, sewers and water projects crumbling or unusable — these problems will not be solved until America’s ultra-rich stop resisting fair and graduated taxation. In today’s economic crisis, many citizens still mistakenly believe our taxes are graduated and fair. They are not. The graduated income tax, begun in 1913, set the top rate at 7% on income over $500,000 ($10 million today). When the Great Depression arrived, the top bracket increased to 63%, and at the onset of World War II climbed to 94%. That last astronomical level kicked in at an annual income of $200,000 ($2.6 million today). Revealingly, during the prosperity of the 1950s, the top bracket remained at 91% until 1963. Since then, it has steadily declined to 35%, where it remains. Because of today’s convoluted tax code, which makes deductions and loopholes disproportionately available to ultra-high earners, many of those with incomes in the stratosphere actually pay a smaller portion of their total income than the rest of us. Similarly, corporations with multi-billion dollar annual profits escape fair taxation through complex foreign investments, loopholes and depreciation allowances that leave many of them paying less proportionately than much smaller businesses. Two core pieces of propaganda have gradually become pervasive and now prevent politicians from passing tax increases on ultra-high earners and the ultra-wealthy. These politically motivated misunderstandings are, first, the demonization of “big government” as riddled with waste, fraud, and abuse, and second, the belief that taxing the ultra-rich somehow hobbles the economy and reduces employment opportunities. These misrepresentations are new. Throughout the Great Depression, Americans applauded “big government” and the sweeping laws that rebuilt our fractured economic structure and saved our nation. During World War II, they watched “big government” manage the remarkable industrial expansion that supported our military and won the war. And, during the Fifties, the highest tax rates in our history did not prevent a period of great prosperity. In the late 1960s, however, President Johnson’s War on Poverty and his vision of a “Great Society” swung the political pendulum toward more liberal government, until the pendulum crashed into Vietnam. That war fractured the liberal coalition, derailed Johnson’s plans, and gave Republican ideologues the opportunity to exploit the resulting confusion. They invented a very effective straw man – the threat of “big government.” Alienated middle-class voters were driven into the waiting embrace of these conservatives who advertised symbols of government ineptitude and excess: gasoline shortages, long lines at the DMV, “welfare queens,” $2,000 hammers on Pentagon shopping lists. George Wallace, Richard Nixon, and Ronald Reagan all championed this anti-government, anti-tax ideology, and by the 1980s it was enshrined as conservative dogma. Today, this dogma is unassailable right-wing political gospel, so compelling that we find an aging Tea Party activist holding up a sign saying, “Keep your government hands off my Medicare.” For him, the irony that Medicare is a hard-won “big government” single-payer program is entirely lost. Dogma this strong is not easily undone. Presently, it is beyond the will or the capacity of our elected officials to confront these political misrepresentations. The solution now lies entirely in the hands of philanthropy. It is only the philanthropic community, acting strategically, that can launch and fund a multi-year public education campaign to teach Americans about the proper role of taxation in society. Such a campaign, on the scale of those used to curtail tobacco use or convince people to recycle, can succeed because these anti-tax, anti-government attitudes are relatively new and are readily countered by powerful and long-held American values. Most citizens remain firmly committed to the notion that everyone should pay his or her fair share of taxable income. A scientifically based public education campaign can bring the issue of fairly taxing ultra-wealthy individuals and corporations to the center of the political debate. Americans will respond, if given enough unbiased information over a substantial period of time. The politically cynical manipulation of our fears about jobs and social programming must be rolled back. We all want and deserve a working infrastructure, good schools, secure borders, safe air and water, reliable mass transit, fair and reasonable healthcare, and cleaner energy. Instead of constantly trying to fill in the empty holes left by underfunded government programs, private philanthropy must take on a more strategic role and help Americans understand their best interests. The ultra-wealthy must recognize that America has supported their success. It’s time for them to willingly pay their fair share to support America’s future. Bill Zimmerman is a partner in Zimmerman & Markman , a California political consulting firm. Thom Mount is a motion picture producer and former president of the Producers Guild of America and of Universal Studios.

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Britain’s Austerity Movement Will Hurt The Poor Most, Economists Say

October 21, 2010

LONDON — Britain’s poor and powerful clashed Thursday over who will lose out most under austerity measures that will slash benefits, jobs and government services to reduce the country’s crippling debts. Treasury chief George Osborne has announced 81 billion pounds ($128 billion) in spending cuts through 2015 that will cost as many as half a million public sector jobs and trim welfare payments to families and the disabled. Government departments will, on average, have their budgets cut by about 19 percent, forcing them to lay off staff and limit the scope of their work. It means Britain will have fewer police, pay less to those without jobs and send fewer criminals to prison. Embassies will be shuttered, as will courts and military bases. Britons will lose billions in benefit payments, retire later, and pay more for day-to-day items like train tickets. Even the Royal Mint faces cutbacks: It will use cheaper metals in British coins in an attempt to make savings. Osborne had said Wednesday in an address to Parliament that “those with the broadest shoulders should bear the greatest burden,” saying Britain’s highest earners would be worst affected by the cuts. But economists and the public disagree, believing the measures will cause most hardship for lower-paid government workers and Britons reliant on welfare checks. The Institute for Fiscal Studies, an economic think tank, said that – aside from the richest 2 percent of people – most of the pain would be inflicted on working families, the sick and the poor. “You’re really picking on the weakest people in society and it’s completely unfair how you’re applying these budget cuts,” Margaret Lynch, 52, told Prime Minister David Cameron and his deputy, Liberal Democrat leader Nick Clegg, as they defended the plan at a public meeting in Nottingham, in central England. Lynch, who has multiple sclerosis and uses a wheelchair, said outside the event that her government benefits were being cut by about half. Hundreds of Britons demonstrated against the cuts outside Downing Street, the prime minister’s official residence in London, late Wednesday. Police said three people were arrested for breaking into the government’s business ministry. Some legislators worry that women will lose out more than men, as about 65 percent of the public sector work force is female. Pension plans for women are changing more quickly than those of men, standardizing the retirement age at 66 for both genders by 2020. “Women are more likely to work in the public sector, and more likely to use public sector services,” said Stella Creasy, a Labour lawmaker who represents the London district of Walthamstow in Parliament. The Institute for Fiscal Studies said Osborne’s spending cuts are the deepest since World War II, and public services face the harshest budget limits since the mid-1970s. Britain’s opposition Labour Party said the Conservative-led coalition government is exploiting the economic gloom to reduce the size of government, a long-held Conservative ideal. “It is a blueprint for a smaller, meaner and nastier society ,” Labour lawmaker Angela Eagle told the BBC. The opposition says cutting public sector jobs could hamper Britain’s economic growth, favoring instead a slower pace of cuts. Osborne said Wednesday the cuts were an unavoidable remedy for the debts Britain piled up during the global financial crisis. The Labour government spent billions to bail out two major banks – the Royal Bank of Scotland and Lloyds Banking Group – and took full ownership of mortgage lender Northern Rock. The Labour Party was in office for 13 years, until May of this year, and was responsible for the initial response as the financial crisis began. The Treasury confirmed Thursday there will be a permanent levy on the balance sheets of banks – expected to raise about 2.5 billion pounds ($4 billion) a year by 2014 – and there will be further discussion of measures to curb bankers’ bonuses. ___ Associated Press Writer Benjamin Timmins in London contributed to this report.

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Health Insurers Drop Coverage For Children Ahead Of New Rules

September 21, 2010

Health plans in at least four states have announced they’re dropping children’s coverage just days ahead of new rules created by the healthcare reform law, according to the liberal grassroots group Health Care for America Now (HCAN).

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Video: Costello Sees Another Australian Election Within a Year: Video

August 22, 2010

Aug. 23 (Bloomberg) — Former Australian Liberal Treasurer Peter Costello talks about the country’s election and political outlook. Neither Prime Minister Julia Gillard nor opposition leader Tony Abbott gained an outright majority in the Aug. 21 election, meaning one side must win negotiations with independent lawmakers to form a government. Costello speaks from Melbourne with Bloomberg’s Rishaad Salamat. (Source: Bloomberg)

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Credit Scores Sink To New Lows For More Americans

July 12, 2010

NEW YORK — The credit scores of millions more Americans are sinking to new lows. Figures provided by FICO Inc. show that 25.5 percent of consumers – nearly 43.4 million people – now have a credit score of 599 or below, marking them as poor risks for lenders. It’s unlikely they will be able to get credit cards, auto loans or mortgages under the tighter lending standards banks now use. Because consumers relied so heavily on debt to fuel their spending in recent years, their restricted access to credit is one reason for the slow economic recovery. “I don’t get paid for loan applications, I get paid for closings,” said Ritch Workman, a Melbourne, Fla., mortgage broker. “I have plenty of business, but I’m struggling to stay open.” FICO’s latest analysis is based on consumer credit reports as of April. Its findings represent an increase of about 2.4 million people in the lowest credit score categories in the past two years. Before the Great Recession, scores on FICO’s 300-to-850 scale weren’t as volatile, said Andrew Jennings, chief research officer for FICO in Minneapolis. Historically, just 15 percent of the 170 million consumers with active credit accounts, or 25.5 million people, fell below 599, according to data posted on Myfico.com. More are likely to join their ranks. It can take several months before payment missteps actually drive down a credit score. The Labor Department says about 26 million people are out of work or underemployed, and millions more face foreclosure, which alone can chop 150 points off an individual’s score. Once the damage is done, it could be years before this group can restore their scores, even if they had strong credit histories in the past. On the positive side, the number of consumers who have a top score of 800 or above has increased in recent years. At least in part, this reflects that more individuals have cut spending and paid down debt in response to the recession. Their ranks now stand at 17.9 percent, which is notably above the historical average of 13 percent, though down from 18.7 percent in April 2008 before the market meltdown. There’s also been a notable shift in the important range of people with moderate credit, those with scores between 650 and 699. The new data shows that this group comprised 11.9 percent of scores. This is down only marginally from 12 percent in 2008, but reflects a drop of roughly 5.3 million people from its historical average of 15 percent. This group is significant because it may feel the effects of lenders’ tighter credit standards the most, said FICO’s Jennings. Consumers on the lowest end of the scale are less likely to try to borrow. However, people with mid-range scores that had been eligible for credit before the meltdown are looking to buy homes or cars but finding it hard to qualify for affordable loans. Workman has seen this firsthand. A customer with a score of 679 recently walked away from buying a house because he could not get the best interest rate on a $100,000 mortgage. Had his score been 680, the rate he was offered would have been a half-percent lower. The difference was only about $31 per month, but over a 30-year mortgage would have added up to more than $11,000. “There was nothing derogatory on his credit report,” Workman said of the customer. He had, however, recently gotten an auto loan, which likely lowered his score. Studies have shown FICO scores are generally reliable predictions of consumer payment behavior, but Workman’s experience points to one drawback of credit scoring: lenders can’t differentiate between two people with the same score. Another consumer might have a 679 score because of several late payments, which could indicate he or she is a bigger repayment risk. On a broader scale, some of the spike in foreclosures came about because homeowners were financially irresponsible, while others lost their jobs and could no longer pay their mortgages. Yet both reasons for foreclosures have the same impact on a borrower’s FICO score. In the past too much credit was handed out based on scores alone, without considering how much debt consumers could pay back, said Edmund Tribue, a senior vice president in the credit risk practice at MasterCard Advisors. Now the ability to repay the debt is a critical part of the lending decision. Workman still thinks credit scores alone play too big a role. “The pendulum has swung too far,” he said. “We absolutely swung way too far in the liberal lending, but did we have to swing so far back the other way?”

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Santos Seeks Landslide Win in Colombia as World Cup Keeps Voters at Home

June 20, 2010

By Helen Murphy June 20 (Bloomberg) — Colombians may hand a landslide victory today to presidential candidate Juan Manuel Santos , won over by his pledges to build on Alvaro Uribe ’s successes in boosting investment and beating back Marxist rebels. Santos, Uribe’s former defense minister, was favored by 66.5 percent of those surveyed in a Gallup Colombia poll taken June 5 to June 7, compared with 27.4 percent for the Green Party’s Antanas Mockus . The next president will take over Aug. 7 from Uribe, who brought record growth and slashed by half the number of murders while in office since 2002. Turnout may be low as voters expecting Santos to coast to victory stay home to watch the World Cup soccer tournament. Santos, who won 47 percent in the first round, has capitalized on Uribe’s 63 percent popularity while pledging to create jobs. Mockus, a former Bogota mayor who garnered 21 percent of the vote on May 30, is pledging to improve the education system and eliminate corruption associated with Uribe’s administration. “This will be an historic election in terms of margin between the two candidates,” said Monica Pachon, a political analyst at Bogota’s Universidad de los Andes. “It’s going to be a huge win for Santos.” Colombia’s peso and dollar bonds rose for a fourth straight week on speculation Santos would prevail. The peso gained 0.8 percent in the week ending June 18 to 1,909.60 per U.S. dollar and is up 7 percent this year, the best performance among world currencies tracked by Bloomberg. The IGBC stock index has climbed 7.7 percent this year, beating a 4.8 percent decline in the MSCI EM Latin America Index. Colombia’s security forces have been deployed at polling stations to guard against violence by the Revolutionary Armed Forces of Colombia, Latin America’s biggest and oldest insurgency. The campaign has been the safest in four decades, the government says. Latest Poll Turnout will be lower than in the first round because of the World Cup, said Claudia Lopez, an analyst with the Electoral Observation Mission, a Bogota-based election monitoring group. In the biggest turnout since 1998, 49 percent of 30 million eligible voters cast ballots in the first round. “The margin between candidates in the first round was so great that people think it’s already over,” Lopez said. “There’s little enthusiasm for going out to vote, and the football will influence things.” Italy, Brazil and Paraguay all play matches while polls are open between 8 a.m. and 4 p.m. local time. ‘Biggest Goal’ “Let’s lose a few minutes of World Cup football,” said Santos, 58, during a campaign rally in Cartagena June 12. “Let’s score the biggest goal for Colombia.” Santos is credited with delivering some of the biggest blows against the FARC while serving as defense minister from 2006 to 2008. These include the 2008 rescue of 15 hostages including French-Colombian politician Ingrid Betancourt and three U.S. defense contractors. He also ordered the raid into Ecuador that killed the group’s second in command, Raul Reyes . Santos has benefitted from Uribe’s support. In 2002, the year Uribe took office, Colombians suffered 1,645 terrorist attacks, 28,837 murders and 2,882 kidnappings. By 2009, those numbers had been cut to 486, 15,817 and 213 respectively. Christopher Sabatini , policy director for the Council of the Americas in New York, said the true winner is Colombia’s democracy even though the “lopsided” result will favor Santos. “The process — for its peacefulness, quality of candidates and convergence toward a consensus over broad policy continuity — should be seen as a sign of political maturity in a country that only eight years ago was in the midst of a near crisis,” he said. Campaign Pledges If elected, Santos says he’ll fulfill Uribe’s pledge to crush the rebels and maintain the pressure on drug-traffickers responsible for 51 percent of global cocaine production last year, according to the United Nations. As the U.S.’s caretaker in the war on drugs, the Andean nation receives more than $600 million a year in American foreign aid. Santos promises to boost tax revenue by bringing millions of informal workers into the system, close by 2014 a budget gap equal to 3.6 percent of gross domestic product and achieve annual growth of 6 percent within two years. Mockus, 58, has presented himself as an anti-corruption politician who will improve Colombia’s education system by raising taxes on the rich. While respectful of the government’s security gains, the former philosophy professor says he wants to prepare for a post-Uribe era of greater social justice. “Both candidates have campaigned in favor of maintaining a hard line on security and broad economic policy orthodoxy,” said Patrick Esteruelas , an analyst at Eurasia Group in New York. “But Santos’ broader support base in congress provides a much more stable political platform.” Pro-Uribe parties won 68 of 102 Senate seats in March congressional elections, compared with 5 for the Green Party. The Liberal Party, which had been the biggest opposition bloc to Uribe’s government, is split on whether to support Santos. To contact the reporter on this story: Helen Murphy in Bogota at hmurphy1@bloomberg.net

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Uribe’s Shadow May Hang Over Santos Win in Colombia Presidential Election

June 18, 2010

By Helen Murphy June 18 (Bloomberg) — Colombian presidential candidate Juan Manuel Santos may coast to victory in this weekend’s runoff election. A bigger challenge in office will be escaping the shadow of the kingmaker who helped get him there: President Alvaro Uribe . Santos, who as Uribe’s defense minister delivered some of the biggest blows in Colombia’s five-decade fight against Marxist rebels, won 47 percent of first-round votes May 30 against 21 percent for the Green Party’s Antanas Mockus . Santos was supported by 66.5 percent of those interviewed in a Gallup Colombia poll taken June 5 to June 7, compared with 27.4 percent for Mockus, a two-time Bogota mayor. “One of Santos’ great challenges will be building autonomy from Uribe without losing the benefits of being associated with him,” said Elisabeth Ungar, director of Transparency for Colombia, a Bogota-based anti-corruption group. Uribe has an approval rating above 60 percent after eight years in office, credited with cutting kidnapping by 93 percent and boosting foreign investment five-fold to a record $10.6 billion in 2008. With his legacy as one of Colombia’s most popular presidents assured, the 57-year-old lawyer may not be content to sit on the sidelines after handing power to his chosen heir, said Adam Isacson , senior associate at the Washington Office on Latin America. Santos’ Main Opponent “If Uribe gives weekly media interviews and remains in the public eye, it will be a dual-run government,” said Isacson, who has led several U.S. congressional delegations to Colombia. “Santos’ main opposition may not come from the left, but from Uribe, if he doesn’t like what Santos does.” Santos, as Uribe’s defense minister from 2006 to 2009, oversaw the rescue in 2008 of 15 hostages held by the Revolutionary Armed Forces of Colombia, including French- Colombian politician Ingrid Betancourt and three U.S. defense contractors. He also ordered the raid into Ecuador that killed the group’s second in command, Raul Reyes . While vowing to continue Uribe’s security policies, Santos has emphasized his plan for creating jobs and spurring growth. Colombia’s unemployment rate , at 12.4 percent in April, is the highest in South America. The International Monetary Fund predicts the $242 billion economy will grow 2.25 percent this year, the region’s second-worst performance after recession- battered Venezuela. Santos may not be willing to match Uribe’s intense schedule, which includes town hall meetings every weekend in remote, often rebel-besieged towns, Isacson said. The cousin of the current vice president, Santos is the scion of the family that founded Colombia’s biggest newspaper, Bogota’s El Tiempo . Short Honeymoon “Santos’ honeymoon will be shorter because of the comparisons he faces with Uribe,” Isacson said. “If he takes a long weekend or doesn’t do the community broadcasts, he will be compared unfavorably.” Santos may also be dogged by the outgoing government’s human-rights record, which Democratic leaders in the U.S. Congress have cited as a reason for holding up approval of a free-trade agreement reached in 2006. As defense minister, Santos oversaw the army amid allegations by prosecutors that soldiers murdered hundreds of civilians and passed them off as rebels killed in combat. Santos says he took unpopular decisions to punish those responsible and bring their crimes to light, including firing 27 officers. His Own Man “From day one, this will be a Santos government,” the 58- year-old candidate said in an interview June 12 aboard his campaign airplane. “I won’t stop praising all that Uribe has done, but I will have my own legacy to rid Colombia of the stigma of violence we have faced for more than 40 years, to bring down poverty and unemployment, and create the conditions for a very competitive economy.” Unlike the 58-year-old Mockus, who has pledged to raise taxes on the rich to pay for improvements in education, Santos says he’ll close loopholes to eliminate by 2014 a budget deficit equal to 3.6 percent of gross domestic product. A former finance minister who studied economics at Harvard University in Cambridge, Massachusetts, Santos says he’ll boost economic growth to 6 percent within two years. Santos said his vice presidential choice of Angelino Garzon , a former trade union leader and human rights advocate, may soften criticisms that he and Uribe cut corners while pursuing the FARC. Uribe is banned by law from campaigning on Santos’ behalf. Still, in interviews and speeches the past month, he’s urged voters to stay with the “hen” that safeguards Colombia’s “three little eggs” of prosperity, investor confidence and social development. Congressional Leverage Santos may have more of an advantage in dealing with Congress than his former boss. His La U party, with 28 seats, is the biggest in the 102-seat Senate . After the first round, he won the endorsement of three other pro-Uribe parties with a combined 40 seats. The Liberal Party, which had been the biggest opposition bloc to Uribe’s government, is split on whether to support Santos. Mockus’s Green Party has five seats. “If Santos names a team of new faces to his government, not Uribe people, then Colombia will move on to Santos quickly,” said Monica Pachon, a political analyst at Bogota’s Universidad de los Andes. “He has such strong political capital in congress that he will be able to pass reforms quickly and easily. That will help make him his own man.” To contact the reporter on this story: Helen Murphy in Bogota at hmurphy1@bloomberg.net ;

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UBS Tax Dispute With U.S. Settled as Swiss Pass Treaty Without Referendum

June 17, 2010

By Klaus Wille June 17 (Bloomberg) — Swiss lawmakers approved a UBS AG tax treaty with the U.S., ending a two-year legal battle that threatened the American business of Switzerland’s largest bank. The approval, by majority votes in both chambers of Parliament , came after week-long negotiations between the upper and the lower house during which deputies dropped a demand for the treaty to be opened to a nationwide referendum. UBS rose as much as 2.9 percent in Zurich trading. “It’s a breakthrough for UBS and for Switzerland as a financial center,” Peter V. Kunz , head of the business law department at the University of Bern, said today in a telephone interview. The approval means the bank can complete the handover of client data of suspected tax dodgers by August, allowing the Zurich-based bank to close a chapter that the Justice Minister had called an “existential threat.” Almost 37 percent of UBS’s 65,233 employees worked in the Americas at the end of 2009. UBS’s Wealth Management Americas unit managed 690 billion Swiss francs ($604 billion) at the end of the year. Switzerland agreed in August 2009 to hand over data on as many as 4,450 UBS clients suspected of tax evasion to the U.S. Internal Revenue Service. Parliamentary approval became necessary after a court ruled in January that the agreement couldn’t be enforced as it then stood. A referendum would have meant a deadline for disclosure of the information was missed. The agreement was part of global efforts by countries such as the U.S. or Germany to crack down on tax evasion as budget deficits are ballooning in the wake of the economic crisis. Switzerland, Liechtenstein, Luxembourg and Austria agreed to facilitate the exchange of bank account data. No Obstacles “Nothing now stands in the way of UBS client details being disclosed in cases where the decision handed down has taken legal effect,” the Justice Ministry said on its website. Efforts to meet the August deadline are “on course,” it said. The Bern, Switzerland-based lower house voted 81 to 63 to endorse the treaty without the referendum option, with 47 abstentions. The upper house approved the accord earlier today. UBS, Switzerland’s biggest bank by assets , said it’s “confident” it can meet all its obligations under separate deals with the U.S. Department of Justice and the Securities and Exchange Commission by the relevant deadlines in August, commenting in an e-mailed statement. “I welcome the parliament’s approval of the state treaty,” UBS Chief Executive Officer Oswald Gruebel said. “I and the whole bank thank the government and those parliamentarians who lobbied for finding a solution in this matter.” Shares Gain UBS gained as much as 2.9 percent, adding 36 centimes to 15.87 francs by 12:40 p.m. in Zurich. That gave the bank a market value of 60.8 billion francs. “This is good for the sentiment on UBS,” said Georg Kanders , a WestLB analyst, who has a “neutral” rating on UBS. “The strong Swiss franc and relative security” will help the bank to stop outflows from its wealth-management businesses. Though supported by the government and the Liberal and Christian Democratic parties, the agreement became entangled in partisan politics as both the nationalist Swiss People’s Party , or SVP, and the Social Democrats made their support conditional on their own agendas. “This is a good result for the constructive forces in this Parliament,” Swiss Justice Minister Eveline Widmer-Schlumpf told reporters after the debate. “I’m relieved.” The SVP dropped its initial opposition and its insistence on the referendum option, saying that rescuing the UBS treaty was in the country’s higher interest. Political Opposition The Social Democratic Party remained opposed to the end, on the grounds the deal should have been linked to a tax on bankers’ bonuses and measures to contain the risk of failure at UBS and the second-biggest lender, Credit Suisse Group AG. In February 2009, UBS avoided U.S. prosecution by paying $780 million, admitting it helped wealthy Americans evade U.S. taxes from 2000 to 2007, and handing over account data on more than 250 U.S. clients. The next day, the U.S. sued UBS, seeking data on 52,000 Swiss accounts. Today’s vote removed the threat of further civil litigation against UBS and additional fallout under criminal law. The U.S. Justice Department agreed last year to defer prosecution of UBS. To contact the reporter on this story: Klaus Wille in Zurich at kwille@bloomberg.net

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British Buyout Dealmakers Resigned to Losing Carried Interest Tax Fight

June 15, 2010

By Anne-Sylvaine Chassany June 16 (Bloomberg) — U.K. private equity executives are lobbying against a government plan that may more than double the tax they pay on the profit from their investments. Privately, they say it’s a battle they’re resigned to losing. The coalition government plans to increase capital gains tax from 18 percent to rates closer to those applied to income. Earnings of more than 150,000 pounds ($222,000) a year are subject to a 50 percent levy. The CGT increase may raise 1.9 billion pounds, the Liberal Democrats, the coalition junior member pushing for the levy, said before the May 6 election. Carried interest, the share of profits that executives traditionally receive as the largest part of their compensation, is subject to capital gains tax. Dealmakers say they should be exempt from the rise because their work fuels economy growth. They are going to struggle to win that argument as Prime Minister David Cameron faces a near-record budget deficit . “They are an easy political target,” said Andrew Goldstone , the partner in charge of the personal tax and estate- planning practice at law firm Mishcon de Reya in London. “Capital gains tax is going up, and one of the big targets will most probably be private equity.” Cameron says he plans to raise capital gains tax for “non- business” assets, promising “generous exemptions” for entrepreneurs. Pensioners, who face paying the levy as they sell second homes to fund their retirements, and business owners, are all pushing for exemptions in Chancellor of the Exchequer George Osborne’s first budget on June 22. Tax ‘Injustice’ “It wouldn’t be appropriate to give private equity firms more favorable treatment than retirees,” Brendan Barber , general secretary of the Trades Union Congress, said in an interview. “Private equity is an area of the economy where injustice of the current capital gain tax regime is most evident.” It would be “bizarre” if the dealmakers’ carried interest , their share of the profit from asset sales, wasn’t considered as “business,” Simon Walker , chief executive officer of the British Venture Capital and Private Equity Association said after Cameron’s announcement on CGT last month. “Raising the level of CGT to income tax levels would actually hinder endeavors to stimulate the economy and reduce the deficit, and result in a lower tax take,” he said. Even so, taxes for the industry are likely to rise, executives said. The BVCA, the industry’s lobby group, wasn’t able to provide an estimate for how much the plans will cost their members. Rise ‘Almost Certain’ “It’s almost certain taxes are going to rise,” said Jon Moulton , who helped start the funds that grew into CVC Capital Partners Ltd. and Permira Advisers LLP, two of Europe’s biggest private equity firms. “Firms have been paying very little taxes on their carried interest in the past. They will have to learn to work in a high-tax environment.” The proposed capital gains increase would echo a draft U.S. bill that would make partners pay income tax of as much as 35 percent on carried interest, up from 15 percent. Meanwhile, the European Union is preparing legislation tightening disclosure and fundraising rules for private equity firms to limit systemic risk. Lawyers and accountants are already starting to work on ways to mitigate the increase. Some partners may relocate to Switzerland, according to Gary Heynes, head of the private clients group at London-based accounting firm Baker Tilly. Locking in Lower Rate “Others are looking at crystallizing their gains now to secure an 18 percent rate, by transferring their co-investment or carry to a trust or a company for example,” Heynes said. The CGT rate may rise to about 40 percent, Heynes estimates. CGT generated 7.8 billion pounds in revenue from April 2008 to March 2009, before the worst of the credit crisis hit, according to the government. Before the election, the Treasury forecast it will raise 2.7 billion pounds for the year starting in April 2010. Fund managers pay the 18 percent tax rate on the share of a fund’s profit, or carried interest, they receive from investors when all the assets have been sold above a minimum annual return known as the hurdle. Partners also pay the levy on gains made on their personal money they invest alongside their firms, usually 2 percent of the fund’s total. U.K. firms generated about 2.1 billion pounds of carried interest in 2007, the peak of the buyout boom, according to estimates by London-based research firm Preqin Ltd . Senior partners and executives typically get two thirds of that money, with junior dealmakers receiving the rest, according to Preqin. That would have netted the approximately 1,000 partners and top executives who work for the 340 U.K. firms an average of 1.4 million pounds each that year, calculations by Bloomberg show. ‘Two Years Late’ An increase in the capital gains tax to 50 percent would have boosted a partner’s carry tax bill by 446,000 pounds to about 700,000 pounds that year, the calculations show. In the wake of the credit crisis, only a fifth of active private equity funds in the U.K. are making carried interest as returns dry up, according to Preqin. “The argument that it would not produce much revenue is not politically good, but economically that’s true,” Mishcon de Reya’s Goldstone said. “The government is two years late.” To contact the reporter on this story: Anne-Sylvaine Chassany in Paris at achassany@bloomberg.net

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Penn State Drilling Study Questioned Over Industry Tie

June 14, 2010

STATE COLLEGE, Pa. — A Penn State study that paints a rosy forecast on the economic potential of natural gas drilling has been greeted with skepticism from a citizens’ group and a think tank that favors a severance tax largely because the research was funded by an industry group. The Marcellus Shale Coalition will pay more than $50,000 for the study released last month co-authored in part by researchers at Penn State’s College of Earth and Mineral Sciences, the university said. The industry group, in a release on its website, has boasted that among key findings are that “safe and steady development of clean-burning natural gas” in Pennsylvania had the potential to create 212,000 new jobs over the next decade, along with thousands already created. The study also said gas drilling-related activities could create more than $1.8 billion in state and local tax revenues over the next 18 months. Skeptics are wary of results, especially at a time when lawmakers are weighing the merits of installing a severance tax on natural gas extracted from the rich reserve that lies deep underneath most of Pennsylvania. The study was an update of a report last summer from the same researchers, and the Marcellus Shale Coalition paid more than $43,000 for that work. The cover page of the study includes the Penn State name and logo. The second page notes the industry group paid for the study, and includes a disclaimer that opinions and conclusions “are those of the authors and not necessarily those of” the university or the coalition. “What they are doing is distorting the discussion in Pennsylvania,” Jon Bogle, a member of the Responsible Drilling Alliance, said in a phone interview, “because they’ve been able to use Penn State as an authority in what they say.” A separate study by the school in 2008 set off the current wave of public interest in the potential of natural gas drilling and burnished the school’s reputation as a go-to source for industry, lawmakers and citizens. Bogle, in a letter for his Williamsport-based citizens group, asked university president Graham Spanier to “publicly disavow” the recent research because of what he called “greatly exaggerated” results. The group’s letter also makes reference to questions about the research from the liberal-learning Pennsylvania Budget and Policy Center, which favors a natural gas severance tax to help fund drilling-related environmental and local costs, as well as education and health care. Michael Wood, research director for the Harrisburg-based center, said the issue is not so much with funding behind the study, as much as methods used by researchers. As an example, the center has noted that the U.S. Bureau of Labor Statistics estimated there were more than 10,000 people directly employed by the industry in Pennsylvania. A report last year from the Marcellus Shale Education & Training Center, at the Pennsylvania College of Technology in Williamsport – which is also affiliated with Penn State – estimated the number of full-time natural gas-related jobs in north-central Pennsylvania could more than double to between 3,200 and 5,400 positions by 2013, depending on the success of wells. A study earlier this year from the state’s Center for Workforce Information & Analysis estimated gas drilling jobs could grow 55 percent from 2006 to 2016 to more than 12,400 positions statewide. “This is great. … These are good paying jobs, but a lot different than the 200,000 jobs,” Wood said. State Rep. David Levdansky, D-Allegheny, who favors a severance tax and a moratorium on leasing public land for gas drilling, said he was disappointed his alma mater “has chosen to serve as a facade for an industry-sponsored project … It doesn’t meet the rigorous standards of good academic research as far as I’m concerned.” But it was not unusual for such technical or economic impact studies to be funded by industry, said one of the study’s authors, University of Wyoming energy economics professor Tim Considine, who taught at Penn State until 2008. Considine said while their work may serve as a lightning rod for a sensitive topic, “the methods we use are standard … our analysis can stand up to any sort of scrutiny.” The university has taken no position on the findings or recommendations. “At the end of the day our faculty try to stay out of the politics and just focus on the science,” Bill Mahon, vice president of university relations, said Monday. “Penn State is doing more than $765 million in annual research and the claim that we would jeopardize a stellar international research reputation over a small research project is a pretty big stretch,” he said.

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U.K. Budget Deficit Is Forecast to Narrow Even as Pace of Growth Weakens

June 14, 2010

By Gonzalo Vina June 14 (Bloomberg) — Britain has a bigger budget hole to fill than the previous Labour government forecast, the country’s fiscal watchdog said in an initial report that sets the stage for the deepest spending cuts in a generation. Cyclically adjusted net borrowing, the part of the deficit that is structural, is forecast to fall from 8 percent of gross domestic product this year to 2.8 percent by April 2015 instead of the 2.5 percent predicted by the Treasury in March, the Office for Budget Responsibility said in London today. The economy will expand at a slower pace than forecast, it said. Chancellor of the Exchequer George Osborne is set to outline the deepest spending cuts since the 1970s in his emergency budget on June 22. Fitch Ratings said last week that Prime Minister David Cameron’s coalition needs to step up the pace of reductions to protect Britain’s top credit rating. “The problem may not be any bigger but the proportion of the problem that needs to be addressed with spending cuts or tax increases is greater,” said Danny Gabay , director at Fathom Financial Consulting and a former Bank of England and government economist. “The reason the U.K. has a fiscal problem is not to do with the crisis, it’s structural.” Sterling climbed 1.4 percent to $1.4753 as of 3:03 p.m. in London. The 10-year gilt yield was 4 basis points higher at 3.50 percent, after reaching 3.52 percent. ‘Credibility’ Needed “Credibility will be a key issue in next week’s budget,” said Hetal Mehta , senior economic adviser to the Ernst & Young ITEM Club. “Any hint that there is a lack of conviction in tackling the huge deficit will undermine market confidence and make it even more difficult to consolidate fiscal policy in the years ahead.” The budget office, set up after the Conservatives formed a coalition with the Liberal Democrats following the May 6 election, will release revised forecasts on June 22 to take account of the measures announced by Osborne. The OBR, led by former Bank of England policy maker Alan Budd , forecast the overall deficit will be 22 billion pounds ($33 billion) lower over the next five years than the Treasury predicted in March. That reflects the impact on tax receipts and spending of abandoning the deliberately “cautious” planning assumptions used by the Treasury under Labour’s Gordon Brown and Alistair Darling , Budd said. The deficit will narrow from 155 billion pounds in this fiscal year to 71 billion pounds by April 2015, or 3.9 percent of GDP. Net debt will increase to 74.4 percent of economic output, the OBR forecast. Pinning the Blame The six-week-old coalition is pinning the blame for the size of the deficit on Labour, which ruled Britain for 13 years. Cameron said last that the squeeze to come will “affect every single person in our country.” “The structural deficit is larger than anyone realized,” Deputy Prime Minister Nick Clegg said in a speech in central London. Labour left the U.K. “very nearly bankrupt,” he said. “We will not allow our hand to be forced by the markets,” Clegg said, citing the fiscal crisis engulfing Greece and other euro-area countries. “The OBR couldn’t be clearer,” Osborne said in a statement released by the Treasury. “Growth lower in every year. The structural deficit — that’s the borrowing which doesn’t fall even when the economy grows — higher in every year, and that’s on what the OBR say are optimistic assumptions.” Slower Growth While the OBR accepted the economy will grow about 1.3 percent this year, it said the Treasury had been too optimistic about future years. It forecast 2.6 percent growth in 2011 and 2.8 percent in 2012, compared with Treasury predictions of 3.25 percent and 3.5 percent. The Treasury said a surprise 10 billion-pound improvement in the deficit will be eroded to about 3 billion pounds by 2015. Budd said the forecasts are based on market interest rates that have fallen since May because of expectations that the government will take steps to reduce the deficit. Osborne created the OBR to provide forecasts that are independent of the government. Labour fought the election on a pledge to maintain spending this year to sustain the nascent economic recovery. The new government has already announced 6 billion pounds of budget cuts to take effect this year. “I’m extremely concerned that the fiscal conservatism that’s now so dominant in so many countries in Europe is going to result in there being less growth,” Darling told BBC News television today. To contact the reporter on this story: Gonzalo Vina in London at gvina@bloomberg.net .

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U.K. Budget Deficit Is Forecast to Narrow Even as Pace of Growth Weakens

June 14, 2010

By Gonzalo Vina June 14 (Bloomberg) — Britain has a bigger budget hole to fill than the previous Labour government forecast, the country’s fiscal watchdog said in an initial report that sets the stage for the deepest spending cuts in a generation. Cyclically adjusted net borrowing, the part of the deficit that is structural, is forecast to fall from 8 percent of gross domestic product this year to 2.8 percent by April 2015 instead of the 2.5 percent predicted by the Treasury in March, the Office for Budget Responsibility said in London today. The economy will expand at a slower pace than forecast, it said. Chancellor of the Exchequer George Osborne is set to outline the deepest spending cuts since the 1970s in his emergency budget on June 22. Fitch Ratings said last week that Prime Minister David Cameron’s coalition needs to step up the pace of reductions to protect Britain’s top credit rating. “The problem may not be any bigger but the proportion of the problem that needs to be addressed with spending cuts or tax increases is greater,” said Danny Gabay , director at Fathom Financial Consulting and a former Bank of England and government economist. “The reason the U.K. has a fiscal problem is not to do with the crisis, it’s structural.” Sterling climbed 1.4 percent to $1.4753 as of 3:03 p.m. in London. The 10-year gilt yield was 4 basis points higher at 3.50 percent, after reaching 3.52 percent. ‘Credibility’ Needed “Credibility will be a key issue in next week’s budget,” said Hetal Mehta , senior economic adviser to the Ernst & Young ITEM Club. “Any hint that there is a lack of conviction in tackling the huge deficit will undermine market confidence and make it even more difficult to consolidate fiscal policy in the years ahead.” The budget office, set up after the Conservatives formed a coalition with the Liberal Democrats following the May 6 election, will release revised forecasts on June 22 to take account of the measures announced by Osborne. The OBR, led by former Bank of England policy maker Alan Budd , forecast the overall deficit will be 22 billion pounds ($33 billion) lower over the next five years than the Treasury predicted in March. That reflects the impact on tax receipts and spending of abandoning the deliberately “cautious” planning assumptions used by the Treasury under Labour’s Gordon Brown and Alistair Darling , Budd said. The deficit will narrow from 155 billion pounds in this fiscal year to 71 billion pounds by April 2015, or 3.9 percent of GDP. Net debt will increase to 74.4 percent of economic output, the OBR forecast. Pinning the Blame The six-week-old coalition is pinning the blame for the size of the deficit on Labour, which ruled Britain for 13 years. Cameron said last that the squeeze to come will “affect every single person in our country.” “The structural deficit is larger than anyone realized,” Deputy Prime Minister Nick Clegg said in a speech in central London. Labour left the U.K. “very nearly bankrupt,” he said. “We will not allow our hand to be forced by the markets,” Clegg said, citing the fiscal crisis engulfing Greece and other euro-area countries. “The OBR couldn’t be clearer,” Osborne said in a statement released by the Treasury. “Growth lower in every year. The structural deficit — that’s the borrowing which doesn’t fall even when the economy grows — higher in every year, and that’s on what the OBR say are optimistic assumptions.” Slower Growth While the OBR accepted the economy will grow about 1.3 percent this year, it said the Treasury had been too optimistic about future years. It forecast 2.6 percent growth in 2011 and 2.8 percent in 2012, compared with Treasury predictions of 3.25 percent and 3.5 percent. The Treasury said a surprise 10 billion-pound improvement in the deficit will be eroded to about 3 billion pounds by 2015. Budd said the forecasts are based on market interest rates that have fallen since May because of expectations that the government will take steps to reduce the deficit. Osborne created the OBR to provide forecasts that are independent of the government. Labour fought the election on a pledge to maintain spending this year to sustain the nascent economic recovery. The new government has already announced 6 billion pounds of budget cuts to take effect this year. “I’m extremely concerned that the fiscal conservatism that’s now so dominant in so many countries in Europe is going to result in there being less growth,” Darling told BBC News television today. To contact the reporter on this story: Gonzalo Vina in London at gvina@bloomberg.net .

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Australia’s Rudd, Facing Mining-Tax Revolt, Gets Backing for Next Election

June 12, 2010

By Jason Scott June 13 (Bloomberg) — Australian Prime Minister Kevin Rudd , facing an electoral backlash over plans to introduce a 40 percent tax on mining profits, will remain as the leader going into the next election, Federal Finance Minister Lindsay Tanner said. “Rudd will lead the government to the election,” Tanner said on ABC Television today. “I believe the government will win. Suddenly, it’s become a much tighter contest and we’re under a bit of pressure. It will be a tough fight.” BHP Billiton Ltd. , the world’s largest mining company, and Xstrata Plc have called on the Australian government to roll back or ditch plans for the tax to avoid a flight of investment from the country, while Sinosteel Corp. today said it was “concerned.” The so-called “super tax” is proving a hard sell in the main mining states of Western Australia, where a poll showed support for Rudd’s Labor Party has fallen to a record low, and Queensland. “The mining tax, it’s a severe negative for the government at the moment,” Galaxy Research pollster David Briggs said on Sky News today. He said Labor would probably lose four of its 15 seats in Queensland should an election be held now. Australia , which voted Rudd’s center-left Labor Party into power in October 2007 after 12 years of conservative Liberal Party rule, must go to the polls within 10 months. Most political experts are predicting the election will be held later this year. Gillard Speculation Deputy Prime Minister Julia Gillard said speculation she may challenge Rudd’s leadership was “absolutely absurd.” “I’ve read the newspapers and the thing that matters is not what’s in the pages of the daily newspapers but a focus on making a difference to working families,” Gillard told reporters in Brisbane yesterday. Nationally, a survey conducted between June 3 and June 5 showed 53 percent of voters preferred the opposition, compared with 47 percent who backed Rudd’s party, the first time Labor has trailed in four years. The proposed 40 percent levy would be imposed on resource companies’ returns that exceed the rate on long-term Australian government bonds, currently about 6 percent, and be offset by a credit for royalties paid to state governments, according to government documents. China Concern Sinosteel is investigating the impact the proposed tax will have on its cashflow, Guilio Casello, chief operating officer of Sinosteel Midwest Corp., told ABC Television today. China’s biggest iron ore trader bought Australian company Midwest Corp. for A$1.4 billion in 2008 and is developing a mine in Western Australia. “Obviously there’s concern,” Casello said. “The Chinese are very large investors into the region. They invest in obviously not just our project but in a number of projects into the region. They’re still very committed to the region. They understand the potential.” BHP and Xstrata has joined Rio Tinto Group and Peabody Energy Corp. in reviewing, suspending or slowing Australian projects because of the tax. The government may raise the threshold at which the levy kicks in to more than 10 percent from 6 percent, the Herald Sun newspaper reported June 12. Resources Minister Martin Ferguson has said the government is open to “refinements” to the tax. “Our tax reforms are about making sure mining companies pay a fairer price for our mineral wealth,” Treasurer Wayne Swan said in an e-mailed statement today. Facing Protests Rudd faced protests from mining executives in Perth last week as he met with business leaders to promote the tax. Industry groups say the tax would force companies to shift operations overseas, jeopardizing investment in a business that represents about 10 percent of the A$1.2 trillion ($980 billion) economy. Rudd has countered that the companies involved are exaggerating their importance to Australia, the world’s biggest shipper of iron ore and coal. Wild West Labor’s support has fallen to a record low of 26 percent in Western Australia, compared with 52 percent for the Liberals and their coalition partner the Nationals, according to a West Australian newspaper poll released yesterday. On those figures, Labor would lose all four of the seats it holds in the state, generator of a third of the nation’s exports. “The Western Australian market has been unsettled by the combined impacts of the instability in Europe, the uncertainty caused by the proposed resource super profits tax in Australia and declining commodity prices,” Keith Jones, managing partner of Deloitte in the state, said in an e-mailed statement today. The value of Western Australian-listed companies in May decreased by A$20.7 billion, or 13 percent, to A$143.8 billion, Deloitte said. Western Australia, about four times the size of France, accounts for 62 percent of the nation’s mineral production, 73 percent of natural gas and 64 percent of crude oil and condensate. In Rudd’s favor, voters supported his actions during the global financial crisis when he implemented a stimulus program that helped the nation avoid recession. He was aided by demand for raw materials from India and China , the world’s largest buyer of iron ore, which fueled purchases of Australia’s natural resources. “People need to get serious,” Transport Minister Anthony Albanese said on the Ten television network today, referring to calls for Rudd to be replaced. “The fact is our prime minister is the one leader of the advanced world who negotiated successfully through the global financial crisis.” To contact the reporter on this story: Jason Scott in Perth at jscott14@bloomberg.net ;

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Dutch Leaders May Face Months of Coalition Talks After Election Deadlock

June 10, 2010

By Jurjen van de Pol June 10 (Bloomberg) — Dutch leaders face months of talks to form a government after preliminary election results showed Mark Rutte ’s Liberals one seat ahead of the Labor Party. Geert Wilders ’s anti-immigrant Freedom Party surged to third place. The Liberal Party, which led in pre-election opinion polls, took 31 seats, up from 22, Dutch television reported today with 99.5 percent of the vote counted. Labor had 30 seats, down from 33. Wilders more than doubled his representation to 24 seats. Prime Minister Jan Peter Balkenende quit as Christian Democrat leader after his party’s support was cut in half. “We should be happy if we have a coalition Cabinet by October or November,” said Andre Krouwel , who teaches political science at VU University in Amsterdam. He said he expects Labor and the Liberals to try to work together “as the nucleus” of a government, along with the D66 and Green Left parties. The leader of the biggest party gets the first shot at forming a government. The results suggest the winner may need a coalition with three other groups to have a majority in the 150- seat parliament. “It appears as if for the first time in our history that the VVD has become the largest party in the Netherlands,” Rutte, 43, said in comments to his supporters early today, referring to his party by its initials in Dutch. Ten Parties Possible three-party coalitions would involve the Liberals and Christian Democrats working with either Labor or the Freedom Party. There will be 10 parties represented in parliament in The Hague. The Amsterdam Exchanges Index rose 2.50, or 0.8 percent, to 323.13 as of 11:17 a.m. local time. The leaders of the two biggest parties refrained from speculating on possible coalitions last night. Rutte called his party’s performance “fantastic.” “In these difficult circumstances we will be conscious of our responsibility and ensure our country moves ahead,” said Job Cohen , 62, Labor’s leader and former Amsterdam Mayor. “We will do that with all the parties that are close to us,” such as Green Left and D66, which advocates more direct democracy and was set to have 10 seats. The government is scheduled to present next year’s budget on Sept. 21 and Rutte said during the campaign he wanted a new Cabinet in place by July 1. ‘Hilarious Expectation’ That’s a “hilarious expectation, considering the Dutch history of taking months for a new government to be established,” analyst Sep van de Voort from SNS Securities NV in Amsterdam said in a note to investors. It’s taken an average of almost three months to form a coalition since World War II. The longest was 208 days in 1977. The Liberals and Labor would have to overcome differences on their programs to rule together. Cohen has set out plans to cut spending by 10 billion euros ($12 billion). His party aims to narrow the deficit to 1.8 percent of gross domestic product by 2015. Rutte wants to reduce expenditure by 20 billion euros and seeks to balance the budget in five years. Cohen also wants to phase out a tax break on home-mortgage payments, a step opposed by both the Liberals and Christian Democrats . The government last week raised its forecast for the 2010 budget deficit to 6.6 percent of GDP, the biggest shortfall in 15 years, from 6.3 percent. That’s less than the 8 percent deficit the French government is expecting, though more than the 5.5 percent Germany is predicting. ABN Amro Falling natural-gas revenue and aid to keep ABN Amro Bank NV and other banks afloat have added to the shortfall in the euro region’s fifth-largest economy. The government forecasts debt will rise to 66 percent of GDP this year. Even so, Moody’s Investors Service gives Dutch state debt its top AAA rating, citing the government’s healthy balance sheet and an “exceptionally high level of economic competitiveness, productivity, and economic resilience” in a Feb. 12 report. “Purchasing power is most likely going to decrease no matter what coalition is ultimately agreed upon,” Mark Pieter de Boer , an analyst at Royal Bank of Scotland Group Plc in Amsterdam, said in a note to investors. Wilders’s Gains The Freedom Party will have 24 lawmakers, an increase from 9 in the last parliament. Only the Liberals and the Christian Democrats haven’t ruled out teaming up with the anti-immigrant party. Wilders, 46, is being prosecuted for comments in his 2008 film “Fitna,” in which he calls on Muslims to rip out “hate- preaching” verses from the Koran. “More safety, less crime, less immigration and less Islam is what the Netherlands has chosen,” Wilders said last night in The Hague, where he was given a tickertape welcome by supporters. “We would love to govern. I don’t think other parties can ignore us.” He called it a “glorious day for the Netherlands.” A government involving the Christian Democrats, Liberals and the anti-immigrant Lijst Pim Fortuyn party, named for its leader murdered two months before a 2002 election, collapsed after 87 days. The Christian Democratic Alliance’s 21 lawmakers would be the smallest number in the party’s history, down from 41 in 2006. Christian Democrat Balkenende, 54, has led four governments since 2002, three of which collapsed. “The Christian Democrats won’t join a coalition with the Liberals and Labor because they would be the junior partner with three ministers at the most, getting mangled in the clashes,” Krouwel said. The coalition thought most likely by Krouwel — the Liberals, Labor, D66 and Green Left — would have 81 seats. To contact the reporters on this story: Jurjen van de Pol in Amsterdam at jvandepol@bloomberg.net

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Cameron Gains as Merkel Wanes With European Debts in Global Investor Poll

June 8, 2010

By John McCormick and Catherine Dodge June 9 (Bloomberg) — Newly elected British Prime Minister David Cameron enjoys the backing of investors, while Europeans are more sour on his German counterpart, Angela Merkel , a Bloomberg survey shows. Cameron, 43, the Conservative Party leader who replaced Labour’s Gordon Brown last month, gets a favorable rating of 52 percent, while 15 percent of respondents have an unfavorable opinion, according to a global quarterly poll of 1,001 investors and analysts who are Bloomberg subscribers. In Europe, his approval rating is 63 percent. That is a stark contrast to his predecessor; only about a quarter of investors had a favorable view of Brown in the previous survey in January. Merkel, 55, the German chancellor who is leading efforts to manage the euro zone’s debt crisis, is viewed unfavorably by more than half of those polled in Europe and by 40 percent worldwide. Poll respondent Clark Toews , managing director of institutional equity trading at Paradigm Capital Inc. in Toronto, said the election of Cameron is helping to give him renewed confidence in the U.K. “He is willing to make the hard decisions in getting their budget deficit under control, namely cutting spending and government services,” said Toews, 38. “Amid uncertainty, leaders often take the heat,” said J. Ann Selzer , president of Selzer & Co., a Des Moines, Iowa-based firm that conducted the survey. “Merkel appears to suffer while the newcomer, whose hands are unsullied at this point, offers promise.” Obama Slips President Barack Obama continues to see his favorability erode, most notably among European investors, the survey shows. While more than 6 of 10 Bloomberg subscribers in Europe view Obama favorably, his rating there is down 19 percentage points since January. His approval rating globally is 51 percent, though in the U.S. it is 29 percent, unchanged from January. The quarterly Bloomberg Global Poll of investors, traders and analysts in six continents was conducted June 2-3 by Selzer & Co. It is based on interviews with a random sample of 1,001 Bloomberg subscribers, representing decision makers in markets, finance and economics. The poll has a margin of error of plus or minus 3.1 percentage points. While Cameron earns praise, his countryman, BP Plc ’s Chief Executive Officer Tony Hayward , gets the worst ranking of any of the 10 public figures tested in the poll. Two-thirds of global investors say they have an unfavorable view of Hayward, whose company has struggled for weeks to plug a gushing oil well in the Gulf of Mexico that may end up causing one of the worse environmental calamities in U.S. history. ‘Poster Boy’ “Regrettably, Tony Hayward has become the poster boy for the Gulf oil spill,” said Sean Keville , 48, a mortgage-backed securities broker at ICAP Plc in Jersey City, New Jersey. “He should quit now.” Cameron may owe some of his appeal to the governing coalition he formed with Deputy Prime Minister Nick Clegg of the Liberal Democrats, said Chris Low , 45, chief economist at FTN Financial in New York. The prime minister “has been honest about Britain’s challenges and is not wed to one way of meeting them,” Low said. “He is treating the Liberal Democrats as partners, which suggests an encouraging open-mindedness and focus on results.” In a June 7 speech, Cameron said Britons should prepare for spending cuts to combat a deficit that reached 11.1 percent of gross domestic product in the fiscal year through March. ‘Decades to Come’ “The decisions we make will affect every single person in our country,” he said. “And the effects of those decisions will stay with us for years, perhaps decades to come.” Still, the popularity may not be lasting. A third of investors said they don’t yet know enough about Cameron to form an opinion. In the U.S., there is even more uncertainty, with 42 percent not yet sure what to think about him. U.K. stocks retreated for a third day yesterday as Fitch Ratings said Britain’s deficit challenge is “formidable,” fueling concern Europe’s sovereign debt crisis is spreading. The benchmark FTSE 100 fell 0.8 percent to 5,028.15 in London after earlier rising as much as 0.3 percent. Germany’s Merkel has been struggling to help her country and the European Union recover from the worst recession since World War II. The euro has fallen 17 percent against the dollar in the past six months as the debt crisis exposed cracks in the monetary union and prompted deficit cuts across Europe that may hobble the economic rebound. Merkel Cuts On June 7, Merkel’s cabinet approved levies on banks, air travel and nuclear-power plants as part of what she called an “unprecedented” round of budget cuts . The program, a mixture of spending reductions and revenue-raising steps, amounts to 81.6 billion euros ($97.5 billion) from 2011 through 2014, the government said. In the poll, Merkel does far better with respondents outside her continent. In Europe, 53 percent of investors have an unfavorable opinion of her, while in the U.S., she gets a 51 percent favorability rating, and 46 percent in Asia. Of the other figures in the poll, investors remain bullish on U.S. Federal Reserve Chairman Ben S. Bernanke , who is viewed favorably by two-thirds of respondents. His numbers are strongest in Asia, where 72 percent of poll participants have a positive view. Paul Volcker , the former Fed chairman who now leads Obama’s Economic Recovery Board, is viewed favorably by half of those in the poll. U.S. Secretary of State Hillary Clinton ’s ratings have moved higher since last measured by the poll in January, with 54 percent now having a favorable view of her. In the U.S., 47 percent have a positive view of Clinton, while 53 percent have that opinion in Europe. More than two- thirds in Asia have a positive view of the former first lady and U.S. senator. To see the methodology and exact wording of the poll questions, click on the attachment tab at the top of the story. To contact the reporters on this story: John McCormick in Chicago at jmccormick16@bloomberg.net . Catherine Dodge in Washington at Cdodge1@bloomberg.net .

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JPMorgan London Unit Gets Record Fine From U.K.&rsquos FSA

June 3, 2010

By Caroline Binham June 3 (Bloomberg) — JPMorgan Chase & Co. ’s London unit was fined a record 33.3 million pounds ($48.6 million) by Britain’s financial regulator for not properly separating client money from the firm’s accounts. An average of $8.6 billion wasn’t properly segregated by JPMorgan Securities Ltd. in an error that went undetected for seven years, the Financial Services Authority said in a statement today. As much as $23 billion of client money held by the bank’s futures and options business wasn’t put in separate overnight customer accounts between 2002 and 2009, the FSA said. The bankruptcy of Lehman Brothers Holdings Inc. , which roiled financial markets worldwide in 2008, forced the FSA to put financial companies on notice that they must properly separate client funds. New York-based Lehman’s creditors filed more than $830 billion of claims and regulators worldwide are trying to unravel how money moved through its global units. “The FSA has repeatedly emphasized the importance of ensuring that client money is adequately protected,” said Margaret Cole , the FSA’s enforcement director. “This penalty sends out a strong message to firms of all sizes that they must ensure client money is segregated in accordance with FSA rules. Firms need to sit up and take notice of this action — we have several more cases in the pipeline.” Had the company gone bankrupt, clients could have lost all their money because they would have been unsecured creditors rather than having the right to claim back money from ring- fenced accounts, according to the regulator. Reduced Fine JPMorgan spokesman David Wells declined to comment. The New York-based bank escaped a 47.6 million-pound fine by cooperating with the regulator, according to the FSA’s statement. No clients lost money, and the mistake didn’t affect the bank’s financial reporting, the FSA said. JPMorgan said in August that it may have mixed 8.5 billion pounds of clients’ money with its own funds, and that it hired KPMG LLP to review its accounts. The breach was “regretful,” according to an internal memo by JPMorgan Securities Chief Executive Officer Daniel Pinto and obtained by Bloomberg News. “The settlement involves us paying a fine based on a fixed formula of 1 percent of the average amount of client money held by our F&O business,” Pinto said in the memo. “As the FSA acknowledges, JPMorgan Securities Ltd. is one of the largest holders of client money in the U.K., and the size of the fine reflects that.” ‘Patently Inconsistent’ The error stemmed from the 2000 merger of JPMorgan & Co. with the Chase Manhattan Corp., according to the FSA’s investigative report . After the merger the combined treasury function didn’t recognize client money from the futures and options business, according to the report. The regulator said in January that two firms that it didn’t identify faced a penalty after the FSA started investigations into how they held client money. Those inquiries were started at the same time as a London judge ruled that the FSA’s client- money rules were “patently inconsistent and flawed” in a case over the administration of Lehman’s European unit. The regulator said at the time that it would consult on changes to parts of its rulebook, specifically over transfer arrangements and on firms keeping buffers that could top up client-money accounts. Proposals are scheduled later this year. “The client-money regime was neglected by the FSA prior to the financial crisis,” said Darren Fox , a regulatory lawyer at Simmons & Simmons advising a hedge fund in the Lehman case. “I wonder whether today’s fine is symptomatic of the FSA’s guilty conscience in relation to the Lehman client-money failings, for which the FSA received a fair bit of flak.” Tougher Approach Today’s fine is nearly twice as much the then-record 17 million-pound fine levied against Royal Dutch Shell Plc in 2004 for market abuse. The agency has said fines will increase as part of its new tougher approach following the financial crisis. In some cases, penalty size will triple. The U.K.’s coalition government has said it will merge some of the FSA’s enforcement powers with other prosecutors to form a white-collar crime agency even in the wake of increased penalties and criminal cases filed by the FSA. The FSA may also lose its independence to the Bank of England and Chancellor of the Exchequer George Osborne is considering scrapping it, the Guardian newspaper reported today, citing government sources. “It’s good to see they’re doing their job; they’ve got to crack down on abuses,” Vince Cable , the Liberal Democrat lawmaker who is the coalition government’s business secretary, said of today’s fine in a Bloomberg TV interview. “The basic point, which I know the chancellor is trying to ensure, is that the Bank of England has proper oversight of systemic risk. How you do it administratively is not an easy task.” Amid the uncertainty, the FSA enforcement team separately suffered a defeat today with its first loss of an insider- trading trial. Two lawyers and a former chief financial officer were cleared today by a London court in the regulator’s fourth criminal case of insider dealing to reach jury trial. To contact the reporters on this story: Caroline Binham in London at cbinham@bloomberg.net

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Switzerland’s Discontented Lawmakers to Tackle Rules on UBS, Credit Suisse

June 3, 2010

By Simone Meier and Paul Verschuur June 3 (Bloomberg) — Switzerland’s disgruntled lawmakers are set to turn against the country’s two largest banks in an unprecedented effort to toughen financial regulation. During their three-week session that started May 31, lawmakers in Bern probably will approve the handover of thousands of UBS AG account details to the U.S. In turn, they may today ask for measures to restrict bankers’ bonuses and limit lenders’ risk to shield the economy from a future banking collapse, according to comments from politicians, including Social Democrat Christian Levrat. UBS and Credit Suisse Group AG each have assets of more than 1 trillion Swiss francs ($863 billion), twice the size of the economy and a source of unease for a country that relies on the perception of stability to attract wealthy investors. Lawmakers have stepped up calls for tougher banking rules since UBS in 2008 was forced into a government-led bailout after piling up losses from subprime mortgage investments. “There’s a lot of discontent with UBS,” said Georg Lutz, a professor of political science at the University of Lausanne, Switzerland. “Previously, banks were left in peace as long as they earned astronomical profits. Now there’s a clear swing of opinion from the liberal dogma towards attempts to gain more control, but it will still be difficult to push through.” Bankers’ Pressure Upper-house lawmakers today are likely to bow to pressure from bankers by approving the government’s settlement with the U.S. over tax evasion. The agreement requires Switzerland to turn over details on as many as 4,450 UBS accounts to the Internal Revenue Service after the lender faced a lawsuit over aid to suspected tax evasion. Some lawmakers have linked their support to measures including changed taxation on bankers’ bonuses or threatened to ask for a public vote on the accord. Swiss Economy Minister Doris Leuthard said yesterday a referendum would be “embarrassing” for the country. Daniel Kuebler, a political science professor at the University of Zurich, said the near-collapse of UBS united political parties in their attempt to toughen financial rules and may force the government to give in to their demands or face the possibility of a referendum and more delays. “Lawmakers always thought that banks respect the rules,” Kuebler said. “The financial crisis and the dispute with the U.S. over tax evasion came as a bit of a rude awakening. They’re now asking themselves whether they were too lax.” A parliamentary panel on May 31 criticized the government’s handling of the UBS rescue and its client-data crisis, saying the seven-member Cabinet was badly informed and left the initiative to the financial-market regulators. Far-Reaching Consequences The government “underestimated the far-reaching consequences of this conflict for Switzerland as a financial center for too long and deprived itself of any scope of action whatsoever,” the panel said in the report. The political leaders “didn’t assume their collective responsibility.” Jean-Pierre Roth, then chairman of the Swiss National Bank, told the government in January 2008 that UBS was in serious trouble because of the U.S. subprime crisis, according to the account given by the panel. On Sept. 21 that year, days after the collapse of Lehman Brothers Holdings Inc., the SNB and the ministers were told that UBS needed public support “fast,” the committee said. “It took only a few days for the difficulties besetting UBS to become so serious that the bank’s survival was under threat,” it said. The lower house is scheduled to discuss the U.S. tax treaty on June 7 as both chambers try to find a compromise. Lawmakers are also scheduled to debate a proposal about the possible breaking up of banks in a crisis situation on the following day. “It’s still unclear what proposals will win a majority in parliament,” Lutz said. “The financial industry is very important to the economy. At the end of the day, there’s no interest in significantly weakening that position.” To contact the reporter on this story: Simone Meier in Zurich at smeier@bloomberg.net ; Paul Verschuur in Zurich at pverschuur@bloomberg.net .

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Switzerland’s Discontented Lawmakers to Tackle Rules on UBS, Credit Suisse

June 3, 2010

By Simone Meier and Paul Verschuur June 3 (Bloomberg) — Switzerland’s disgruntled lawmakers are set to turn against the country’s two largest banks in an unprecedented effort to toughen financial regulation. During their three-week session that started May 31, lawmakers in Bern probably will approve the handover of thousands of UBS AG account details to the U.S. In turn, they may today ask for measures to restrict bankers’ bonuses and limit lenders’ risk to shield the economy from a future banking collapse, according to comments from politicians, including Social Democrat Christian Levrat. UBS and Credit Suisse Group AG each have assets of more than 1 trillion Swiss francs ($863 billion), twice the size of the economy and a source of unease for a country that relies on the perception of stability to attract wealthy investors. Lawmakers have stepped up calls for tougher banking rules since UBS in 2008 was forced into a government-led bailout after piling up losses from subprime mortgage investments. “There’s a lot of discontent with UBS,” said Georg Lutz, a professor of political science at the University of Lausanne, Switzerland. “Previously, banks were left in peace as long as they earned astronomical profits. Now there’s a clear swing of opinion from the liberal dogma towards attempts to gain more control, but it will still be difficult to push through.” Bankers’ Pressure Upper-house lawmakers today are likely to bow to pressure from bankers by approving the government’s settlement with the U.S. over tax evasion. The agreement requires Switzerland to turn over details on as many as 4,450 UBS accounts to the Internal Revenue Service after the lender faced a lawsuit over aid to suspected tax evasion. Some lawmakers have linked their support to measures including changed taxation on bankers’ bonuses or threatened to ask for a public vote on the accord. Swiss Economy Minister Doris Leuthard said yesterday a referendum would be “embarrassing” for the country. Daniel Kuebler, a political science professor at the University of Zurich, said the near-collapse of UBS united political parties in their attempt to toughen financial rules and may force the government to give in to their demands or face the possibility of a referendum and more delays. “Lawmakers always thought that banks respect the rules,” Kuebler said. “The financial crisis and the dispute with the U.S. over tax evasion came as a bit of a rude awakening. They’re now asking themselves whether they were too lax.” A parliamentary panel on May 31 criticized the government’s handling of the UBS rescue and its client-data crisis, saying the seven-member Cabinet was badly informed and left the initiative to the financial-market regulators. Far-Reaching Consequences The government “underestimated the far-reaching consequences of this conflict for Switzerland as a financial center for too long and deprived itself of any scope of action whatsoever,” the panel said in the report. The political leaders “didn’t assume their collective responsibility.” Jean-Pierre Roth, then chairman of the Swiss National Bank, told the government in January 2008 that UBS was in serious trouble because of the U.S. subprime crisis, according to the account given by the panel. On Sept. 21 that year, days after the collapse of Lehman Brothers Holdings Inc., the SNB and the ministers were told that UBS needed public support “fast,” the committee said. “It took only a few days for the difficulties besetting UBS to become so serious that the bank’s survival was under threat,” it said. The lower house is scheduled to discuss the U.S. tax treaty on June 7 as both chambers try to find a compromise. Lawmakers are also scheduled to debate a proposal about the possible breaking up of banks in a crisis situation on the following day. “It’s still unclear what proposals will win a majority in parliament,” Lutz said. “The financial industry is very important to the economy. At the end of the day, there’s no interest in significantly weakening that position.” To contact the reporter on this story: Simone Meier in Zurich at smeier@bloomberg.net ; Paul Verschuur in Zurich at pverschuur@bloomberg.net .

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Hatoyama Resignation Makes Japanese Equities Less Attractive, ING, AMP Say

June 2, 2010

By Shani Raja June 3 (Bloomberg) — Yukio Hatoyama ’s resignation has added to Japan’s political instability, blunting the appeal of equities at their cheapest in 17 months, fund managers at ING Investment Management and AMP Capital Investors Ltd. said. Prime Minister Hatoyama quit yesterday, less than nine months after a landslide election victory, as funding scandals and a broken promise to relocate U.S. troops cost him the support of four in five voters. The Nikkei 225 Stock Average sank 1.1 percent, the most in a week, while the yen depreciated to a two-week low versus the dollar. “The political instability has made Japan less attractive,” said ING’s Philip Schwartz , who manages about $1.2 billion of international equities in New York for the firm. “I’ve been gradually reducing exposure to Japan due to both economic and leadership issues. I’m not so sure what will drive the market higher.” The Nikkei 225 has fallen 8.8 percent since the end of August, when Hatoyama’s Democratic Party of Japan ousted the Liberal Democratic Party, ending almost 50 years of rule. Hatoyama’s term was the shortest for a Japanese leader since 1994, and his resignation forces parliament to select the nation’s fifth prime minister in four years. The DPJ may choose a new head on June 4, legislator Yoshimitsu Takashima told reporters yesterday, and the new leader would become prime minister because of the party’s majority in the lower house of parliament. ‘Structural Problems’ “For a while there’s been an atmosphere of political instability,” said Nader Naeimi , a Sydney-based strategist at AMP Capital, which holds $90 billion. “There were hopes this new government would address the country’s structural economic problems, but still you’re not seeing enough in terms of improving domestic demand because people are afraid about their jobs and salaries.” The Nikkei has tumbled 15 percent from its high this year on April 5 on concern Europe’s debt crisis will spread and on signs Japan’s economic recovery is losing momentum. Companies on the Nikkei 225 were priced at an average 17.7 times estimated earnings on May 25, the cheapest since Dec. 24, 2008. They were valued yesterday at 17.9 times. The country’s industrial production grew in April by less than economists forecast, according to a May 31 Trade Ministry report. Data last week showed the nation’s export-led revival has been slow to spread to consumers — the nation’s unemployment rate rose in April, job prospects worsened, and household spending and consumer prices fell. Bonds, Yen Japan’s public debt is approaching 200 percent of gross domestic product, the biggest among the 30-member Organization for Economic Cooperation and Development. Takao Komine , a professor at Hosei University and a former bureaucrat, has said the government may suffer fiscal collapse in 10 to 15 years if the DPJ maintains its expansionary spending policy. “We’re waiting for more clarity on the political landscape before making any new investment decisions even though valuations are looking pretty attractive,” said AMP Capital’s Naeimi. “We’re looking to see improvements in household spending, alongside a clear economic roadmap for moving forward.” The cost of insuring corporate bonds from non-payment in Japan rose yesterday, according to Morgan Stanley prices, while the yen weakened against all of its most-traded counterparts. Any weakness in the yen will give little more than a short- term boost to companies reliant on overseas sales such as Toyota Motor Corp. , the world’s largest carmaker, and electronics maker Sony Corp., said ING’s Schwartz. Japan’s currency has risen 1.5 percent versus the dollar and 19 percent against the euro this year through yesterday, curbing the appeal of export stocks. “If the yen stays weak, that’s great,” Schwartz said. “I’m just not sure it can stay weak.” Fifth Leader Hatoyama’s resignation makes him the shortest-serving Japanese Prime Minister since Tsutomu Hata led a minority government for two months in 1994. He would also make way for the country’s fifth leader since Junichiro Koizumi stood down in September 2006. Likely candidates to replace Hatoyama include Finance Minister Naoto Kan , National Strategy Minister Yoshito Sengoku and Foreign Minister Katsuya Okada , according to Gerald Curtis , a professor of Japanese politics at Columbia University in New York. “We won’t majorly change our investment strategy,” said Ayako Sera , a strategist at Tokyo-based Sumitomo Trust & Banking Co., which manages the equivalent of $307 billion. “The only change we would make is if we get a more coherent group of policymakers.” To contact the reporters for this story: Shani Raja in Sydney at sraja4@bloomberg.net .

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Cameron Gilt Bull Market Beats Bunds as U.K. Retains AAA Rating

June 1, 2010

By Paul Dobson and Anchalee Worrachate June 1 (Bloomberg) — U.K. government debt investors are gaining confidence in Prime Minister David Cameron’s plan to tame a budget deficit that the world’s biggest bond-fund manager described as a “bed of nitroglycerine.” Gilts returned 2.2 percent since Cameron’s Conservatives agreed to govern with the Liberal Democrats on May 11, compared with 1 percent for U.S. Treasuries and 2 percent for German bunds, according to indexes from Bank of America Corp.’s Merrill Lynch unit. Ten-year gilt yields fell to the lowest in more than seven months on May 25, a day after the government announced 6.25 billion pounds ($9.1 billion) of spending cuts for 2010. Fidelity International, Loomis Sayles & Co. and investors overseeing more than $1 trillion say Cameron, 43, will reduce the biggest deficit among the Group of Seven nations and avoid a downgrade of the U.K’s AAA credit rating. The coalition said it designed the cuts to send a “shockwave” through state departments and promised a “comprehensive and credible” plan to tackle the 156 billion-pound shortfall. “The market is inclined to give the new coalition government the benefit of the doubt and see what the spending cuts look like,” said David Rolley , who helps oversee $106 billion as co-head of global fixed-income in Boston at Loomis Sayles. “There is local institutional bid for long-dated government paper, and that’s pretty useful.” Financial Shock Investors demanded 90 basis points in extra yield to hold U.K. 10-year bonds rather than German bunds as of May 28, narrowing from a four-and-a-half-year high of 103 basis points, or 1.03 percentage points, on May 7. The 10-year gilt yielded 3.57 percent at the close of trading on May 28, after reaching a low of 3.45 percent on May 25. British securities returned 4.4 percent in 2010, beating the 3.9 percent gain for Treasuries and trailing the 6.4 percent return for bunds, according to the Merrill Lynch indexes. “The very first decision the government has made is to bring down the deficit and that’s good news,” said Axel Botte , a strategist at AXA Investment Managers in Paris who helps oversee about 500 billion euros ($615 billion). “It’s taken out some of the risk premium and after that vote of confidence, gilts are well placed compared to U.S. Treasuries and bunds.” European nations are under pressure from investors to cut debt after Greece’s budget deficit soared to 13.6 percent of gross domestic product last year, precipitating the biggest shock to world markets since the 2008 collapse of Lehman Brothers Holdings Inc. Merkel’s Share Europe’s leaders pieced together a rescue package of almost $1 trillion amid speculation the euro area may break up. The extra fiscal obligations that German Chancellor Angela Merkel is taking on are making bunds riskier to investors relative to gilts. German lawmakers agreed to contribute as much as 148 billion euros to indebted European states. Germany’s auction last week of five-year notes drew the lowest demand since March 2008. Investors bid for 6.1 billion euros of 5.45 billion euros of securities sold, a bid-to-cover ratio of 1.1, the least since the sale of similar securities on March 26, 2008, according to data compiled by Bloomberg. The government originally planned to sell 7 billion euros. The Bundesbank was forced to retain 22 percent of the offer. ‘Avoid’ Bunds “Yields have to go higher,” Michael Markovic , a senior fixed-income strategist at Credit Suisse Group AG in Zurich, said May 27 in an interview with Bloomberg Television. “Our advice to clients is really to avoid this intermediate-to-longer segment of the German yield curve.” In the U.S., President Barack Obama is banking on measures to stimulate job growth and the economy to reduce the deficit. The White House budget office projects a record $1.55 trillion gap in the year ending Sept. 30, up almost 10 percent from last year’s $1.41 trillion. The U.K. budget gap is like a “bed of nitroglycerine,” Bill Gross , who runs the world’s biggest mutual fund at Pacific Investment Management Co., said in January. He cited the nation’s debt load and the potential for currency devaluation as risks for bondholders. The coalition between the Conservatives and Liberal Democrats “is a step in the right direction,” Michael Amey , Pimco’s executive vice president of U.K. fixed income, said in an interview on May 20. “But that’s just the first of a number of steps that one will need to see before gaining comfort on a longer-term outlook for the gilt market.” Schroders Is ‘Cautious’ Schroders Plc’s David Scammell said he is “cautious” on gilts because of the size of the government’s task. David Laws , the new government’s chief secretary at the Treasury until he resigned during the weekend following revelations about his parliamentary expenses, said he found a note from his predecessor, Liam Byrne , that said: “I’m afraid to tell you there’s no money left.” “If they can’t do something that is deemed to be credible, we are in danger of higher yields and a downgrade,” said Scammell, a money manager at Schroders in London, which oversees about $223 billion of assets. “At the moment the U.K. is in the good-market camp. But it’s right on the edge.” Cameron’s challenge is to maintain growth in a nation whose debt will rise to 77 percent of GDP this year and may approach 100 percent by 2014, according to Standard & Poor’s. The rating company affirmed its “negative” outlook on the U.K.’s AAA grade on March 29 “in the absence of a strong fiscal consolidation plan.” Investec Turns Bullish The U.K. prime minister promised to accelerate deficit reductions. A newly-created Office of Budget Responsibility, headed by former Treasury adviser Alan Budd , will produce new forecasts before a June 22 emergency budget. “The situation in the U.K. is salvageable,” said John Stopford , co-head of global fixed income in London for Investec Asset Management Ltd., which oversees about $65 billion. Stopford has an “overweight” position in the bonds after changing from “underweight.” That means his funds now hold a greater percentage of gilts than in the benchmark indexes he uses to measure performance. Britain’s ruling parties said May 20 they are united over the need for swift action to reduce the record shortfall. “I fully support the efforts of the chancellor of the exchequer, George Osborne , to deal with this problem urgently,” Liberal Democrat Business Secretary Vince Cable told reporters in London as the new government presented its policy program. Shared Program Osborne, a Conservative, said deficit reduction “takes precedence, and that’s very, very important.” The program commits the coalition to cutting the deficit at a faster pace than planned by the Labour government, he said. Bank of England Governor Mervyn King said May 12 he backs the bid to start cuts this year. For Standard Life Investments, the outlook for gilts has improved since before the election, when investors speculated a so-called hung parliament with no outright winner would lead to a minority government too weak to tackle the deficit. “The market has given them a bit of a thumbs up,” said Richard Batty , a global investment strategist in Edinburgh who helps to oversee Standard Life’s $175 billion. “It seems the government can work more effectively on its fiscal plan than we thought it could a few months ago.” Cameron, who called Liberal Democrat leader Nick Clegg a “joke” before the election, made deficit reduction a focus of his manifesto. Cable, who spoke for the Liberal Democrats on financial matters before the May 6 poll, said in April rising unemployment exposed the “folly of Tory plans to pull the rug from under the recovery” with early spending cuts. Losing ‘Patience’ Any sign of a disagreement between the two parties over the deficit strategy may send bond yields soaring, according to Ignis Asset Management. “The market could lose patience very quickly if it is disappointed by their efforts,” said Russ Oxley , head of rates in Glasgow at Ignis, which has about $100 billion of assets. “A market crisis would precipitate a downgrade.” Concern that the U.K.’s rating will be lowered is premature, said Ian Fishwick , a money manager who oversees about $3.5 billion at Fidelity International, the London-based affiliate of Fidelity Investments, the world’s biggest mutual-fund company. “The U.K. does have sufficient flexibility to deal with these problems and so long as it’s evident that they are moving in the right direction, I think the rating agencies will give the U.K. time,” he said. “The key thing that this government is going to do differently from the old government is to start tackling the deficit more quickly.” To contact the reporter on this story: Paul Dobson in London at pdobson2@bloomberg.net ; Anchalee Worrachate in London at aworrachate@bloomberg.net .

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U.K. Posts Record April Deficit of $14.4 Billion as Emergency Budget Looms

May 21, 2010

By Craig Stirling May 21 (Bloomberg) — Britain had the biggest fiscal deficit for any April since monthly records began in 1993, underlining the scale of the squeeze to come as Chancellor of the Exchequer George Osborne prepares an emergency budget. The 10 billion-pound ($14.4 billion) shortfall compared with 8.8 billion pounds a year earlier, the Office for National Statistics said in London today. The result was lower than the 10.9 billion-pound median forecast in a Bloomberg News survey of 15 economists. The report sets the scene for what economists say will be the sharpest cuts in public spending for a generation. Osborne has ordered departments to find 6 billion pounds of savings this year and will set out further reductions in his June 22 budget. “The direction of the public finances will be given a huge steer by the emergency budget,” said Philip Shaw , chief economist at Investec Securities in London. “We suspect that the new chancellor will announce some draconian changes to fiscal policy, resulting in a significant and necessary decline in public borrowing this year.” The pound extended gains against the dollar and was trading up 0.6 percent at $1.4404 as of 9:36 a.m. in London. The 10-year gilt yield was up 1 basis point at 3.57 percent. Britain this month formed its first coalition government for 65 years following inconclusive elections, ending 13 years of Labour Party rule. Coalition Unity Conservative Prime Minister David Cameron and his Liberal Democrat deputy Nick Clegg yesterday said they were united over the need for immediate action to reduce the deficit, the largest in the Group of Seven at 11.1 percent of gross domestic product last year. Cameron has refused to rule out raising the rate of value-added tax, a 17.5 percent levy on sales. The looming budget-cutting drive has overshadowed prospects for consumer spending as the economy emerges from its worst recession on record. Osborne has pledged to cut the deficit at a faster pace than Gordon Brown ’s Labour government had planned. Next Plc, the U.K.’s second-largest clothing retailer, said on May 5 that it was “very cautious” on the outlook for households because “whatever form this action takes, it is likely that it will act to restrain growth in consumer spending.” Tax Take There were signs the economic recovery is starting to help the public finances, with tax revenue rising 7.2 percent in April from a year earlier. In cash terms, VAT soared 34 percent from a year earlier, corporation tax gained 13 percent and national insurance contributions, a payroll tax, increased 22 percent. Central government spending climbed 6.5 percent. There was also a 7.5 billion-pound downward revision to the last fiscal year, 5.5 billion pounds of which came in March alone. The statistics office said the revision was due to higher tax receipts, particularly income tax and VAT, than initially estimated. For the fiscal year through March, net borrowing excluding financial interventions was 156 billion pounds, instead of 163 billion pounds. Total borrowing was 145 billion pounds rather than 153 billion pounds. A measure of cash entering and leaving the Treasury showed an 8.8 billion-pound deficit in April. Economists predicted a 7 billion-pound shortfall, according to the median forecast of 8 economists. Separate data released today showed business investment rose in the first quarter. Corporate spending on equipment, vehicles and buildings increased 6 percent from the previous three months. It dropped 11 percent from a year earlier. To contact the reporter on this story: Craig Stirling in London at cstirling1@bloomberg.net .

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Arlen Specter’s 30-Year Senate Career Ends With Pennsylvania Primary Loss

May 18, 2010

By John McCormick and Catherine Dodge May 18 (Bloomberg) — The 30-year U.S. Senate career of Arlen Specter came to an end with his primary election loss in Pennsylvania to Democratic Representative Joe Sestak . Specter’s defeat today came as Rand Paul , a favorite of Tea Party activists, won the Republican nomination for Senate in Kentucky in a demonstration of the movement’s ability to convert anger against Washington into a political win. Specter, 80, was seeking to overcome anti-incumbent sentiment in his primary race for re-nomination, as was two-term Democratic Senator Blanche Lincoln in Arkansas. She was in a close primary race with Lieutenant Governor Bill Halter , according to returns from the Associated Press. “It’s been a great privilege to serve the people of Pennsylvania,” Specter told supporters tonight after the Associated Press declared Sestak the winner in their race. “It’s been a great privilege to be in the United States Senate.” Sestak led Specter, 54 percent to 46 percent, with about 91 percent of the vote counted, according to AP. “This is what democracy should look like — a win for the people over the establishment,” Sestak told his supporters tonight. “It should come as no surprise to anyone that people want a change.” Results from the votes in Kentucky, Pennsylvania and Arkansas will be analyzed for the clues they offer about November’s midterm elections. Incumbent Losses Specter’s loss was the third for a congressional incumbent in less than two weeks and underscored potential difficulties for lawmakers in both parties in November’s general election. The Utah state Republican convention’s May 8 vote ended three- term Senator Bob Bennett ’s re-nomination bid. Democratic Representative Alan Mollohan , a 14-term incumbent from West Virginia, lost in a May 11 primary. Sestak, 58, campaigned in part by questioning Specter’s commitment to Democratic causes. Last year, Specter switched parties and, at the time, gave Democrats the crucial 60th vote needed to thwart Republican stalling tactics in the chamber. When Specter made the change, he said his decision was based in part on his slim prospects of winning the Republican nomination in 2010. At the time, President Barack Obama pledged to back his re- election. Specter used the president in his advertising, although Obama didn’t campaign in the state in the race’s closing days. Flew Over Pennsylvania As voters were casting their ballots, the president flew over Pennsylvania on his way to an event highlighting the administration’s efforts on the economy. He made no mention of the primaries during his appearance today in Youngstown, Ohio. Pat Toomey , a former congressman, won the Republican nomination for Senate in Pennsylvania. Paul, 47, defeated Secretary of State Trey Grayson , 38, who was backed by Kentucky’s Republican establishment, including Senate Minority Leader Mitch McConnell . An ophthalmologist and son of Representative Ron Paul of Texas, Paul called the mandate of his victory “huge” as he embraced the Tea Party’s quest to promote limited government. “Washington is horribly broken,” he said in his victory speech. “We are encountering a day of reckoning and this movement, this Tea Party movement, is a message to Washington that we’re unhappy and that we want things done differently.” Paul led Grayson, 59 percent to 35 percent, with about 90 percent of the vote counted, according to AP. Arkansas Contest In Arkansas, Halter, 49, was backed by labor unions and the liberal activist group MoveOn.org in his race against Lincoln, 49. Halter gained favor among Democratic activists when Lincoln in March voted against landmark health-care-overhaul legislation. Since then, Lincoln pushed a derivatives provision into the financial-overhaul bill before Congress that would require commercial banks to wall off their swaps-trading desks. It has been among the bill’s most contentious issues. The presence of a third primary candidate, businessman D.C. Morrison , may force a June 8 runoff between the two top finishers if nobody wins at least 50 percent of today vote. With almost 40 percent of the vote counted, Lincoln had 44 percent, Halter 42 percent and Morrison 14 percent. With nationwide unemployment at 9.9 percent, Republicans are hoping voter discontent will enable them in November to reduce Democratic House and Senate majorities — or perhaps take control of one or both chambers. Democrats control the Senate, 59-41, and the House, 254-177. Special House Election Another race that could provide insight into the midterm elections occurred in a coal-mining area of western Pennsylvania, Democrat Mark Critz, 48, won a special election for a U.S. House seat against Republican Tim Burns, 42, according to the AP. The election was held to fill the seat vacated by the death of Democratic Representative John Murtha . The district is the kind Republicans may need to win in November, if they are to take control of the House. Although Democrats have about a 2-to-1 advantage in the district’s voter Registration, it was the only district in the nation where 2004 Democratic presidential nominee Senator John Kerry won and where Obama lost in 2008. With about 84 percent of the vote counted, Critz led 53 percent to 45 percent, according to AP. Paul will be the favorite in Republican-leaning Kentucky this November to fill the seat of retiring Republican Jim Bunning . His father once ran for president as the Libertarian Party candidate and, as a Republican House member, for years has sought the abolishment of the Federal Reserve. McConnell has said he will support the party’s nominee. Palin Endorsement Paul had the backing of 2008 Republican vice presidential nominee Sarah Palin , as well as that of South Carolina Senator Jim DeMint , a Republican who is donating funds to more conservative candidates within the party. Democrats in Kentucky picked Attorney General Jack Conway over Lieutenant Governor Daniel Mongiardo for their Senate nominee. In the race for Pennsylvania governor, Attorney General Tom Corbett won the Republican nomination, while Allegheny County Executive Dan Onorato won the Democratic nomination. In Oregon, where term limits prevent Democratic Governor Ted Kulongoski from running again, voters were selecting Democratic and Republican candidates for that office. The nine- candidate Republican field includes Chris Dudley , a former National Basketball Association player for the Portland Trail Blazers. To contact the reporters on this story: John McCormick in Chicago at jmccormick16@bloomberg.net ; Catherine Dodge in Washington at cdodge1@bloomberg.net

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Rob Stone M.D.: WellPoint CEO Angela Braly: "Scrappy" and Looking More Like Sarah Palin Every Day

May 18, 2010

I first watched Angela Braly perform at the WellPoint Inc. annual shareholders meeting in Indianapolis in May, 2008. I went to the meeting as a stockholder exercising my rights, and I stood and read a litany of bad news the media had reported on the company in the preceding year, which I contrasted to the rosy report the CEO had just made. I finished by asking Ms. Braly to comment. Without batting the proverbial mascara’d eye, she thanked me for my question and began a three minute reply where she nodded and smiled like a robotic Barbie doll, panning back and forth across the room, and when she was done, nothing had been said. There was nothing “scrappy” about it. It was pure smooth. Now The Sunday NY Times (” A Scrappy Insurer Wrestles With Reform “) calls her “scrappy” as she takes on Barak Obama, state insurance regulators, and an increasingly angry public. “We are being targeted and villainized,” she whined last week. Not so smooth any longer. WellPoint announced huge premium increases last February at a point when many feared Congress might not pass anything. “They threw gasoline on the dying embers of health reform,” said Robert Laszewski, an industry analyst, in The Times. He went on to say “WellPoint is the most incredibly tone-deaf insurance company in an industry full of deaf executives.” Angela squirmed under bipartisan questioning from the House Energy and Commerce Committee, as they pushed her on her pay and the company’s record profits at the same time millions are being priced out of the insurance market, no longer maintaining that imperturbable Barbie appearance. Last week Professor Douglas Branson of the University of Pittsburg took aim at Angela on the HuffPost, ” How Various Corporate CEOs Aim for Celebrity Status ,” “At Wellpoint Angela Braly now seems to be the sitting female CEO most focused on achievement of celebrity status, at least among the current crop of 15 women CEOs. “Braly’s latest grab at headlines was in response to President Obama’s radio broadcast on Saturday, May 8. He stated that his administration recently asked a health insurer (unnamed) to cease systematically dropping coverage of women policy holders who had been diagnosed with breast cancer. Rather than remain quiet, Braly stepped into the fray, concluding that the President had singled out Wellpoint and that Obama’s generic observation “grossly misrepresented the facts.” The address neither referred to nor raised any innuendo about Wellpoint. Braly then gilded the lily”: “To be absolutely clear — Despite your claim [what claim?] Wellpoint does not single out women for breast cancer for rescission. Period.”
 Branson goes on to describe how she has sought the limelight, with her photo and bio in full page Wall Street Journal ads for events at which she was appearing. He concludes [with perhaps, a whiff of sexism]: “Keep your ego in check is one of the first lessons any corporate CEO but especially women should learn. Be a plowhorse rather than a showhorse. Angela Braly seems intent on becoming the center of attention, unmindful of a fitting role for herself as a CEO.” But what can you say when Forbes named her #4 on its list of The 100 Most Powerful Women in 2008 and Fortune ratified her status again at #4 on their list of The 50 Most Powerful Women in 2009? She thought she could turn for some solace to The Wall Street Journal. Joseph Rago came to her defense February 7th in a feature on her ” A Wasted Opportunity -WellPoint’s CEO on ObamaCare’s mistakes and how to pick up the political pieces .” “Angela Braly is in good spirits considering that her company seems to have narrowly avoided being converted into a public utility, if not destroyed outright. One gets the sense that she’s always in good spirits. After years of sustained political assault, the power of positive thinking probably helps.” Of course, this piece was from those heady days right on the heels of Scott Brown’s Senate victory, and Rago went on to gloat, “Merely days before this interview in WellPoint’s lower Manhattan offices at the edge of Ground Zero, Massachusetts voters effectively sent ObamaCare to its own death panel.” Rago missed that call, and lately the WSJ hasn’t cut her as much slack either. In WellPoint to Beef Up Rate Reviews on May 5, the Journal reports on a memo she sent to the company’s 40,000 employees about the debacle around WellPoint having made major math errors in its California 2010 rate hike calculations. Her CFO Wayne DeVeydt admitted, “It’s very disappointing and very embarrassing.” It is embarrassing to have to face publicity like this. But that’s why she is reminding me more and more of Sarah Palin these days, another “scrappy” woman who just isn’t discouraged by relentless bad press, at least at the hands of “the liberal media.” I can’t help but ask, “Angela, how’s that $13 million salary workin’ for you now?” Dr. Stone and associates will be meeting with Ms. Braly at the WellPoint/Anthem annual meeting again this year, on Tuesday, May 18. See: ” WellPoint/Anthem Shareholders Revolt !”

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Cameron Refuses to Rule Out Increasing U.K. Sales Tax in Emergency Budget

May 16, 2010

By Kitty Donaldson May 16 (Bloomberg) — U.K. Prime Minister David Cameron refused to rule out an increase in value-added tax in his coalition government’s emergency budget, due by the end of June. In an interview with BBC television’s Andrew Marr program, his first since becoming leader of the Conservative-Liberal Democrat coalition, Cameron was pressed on whether he would need to raise the sales tax from its current rate of 17.5 percent to help narrow the U.K.’s record budget deficit. “We said before the election, during the election and I am happy to say it now, that spending should bear the brunt of the burden,” Cameron said. “So that is not something we plan to do,” he said of a VAT rise. Even so, he stopped short of explicitly ruling out an increase, telling Marr, “You will have to wait for the first 50-day budget.” With the U.K. deficit approaching that of Greece at almost 12 percent of economic output, Cameron is under pressure to reduce borrowing and pledged to hold a budget within 50 days of coming to power in the May 6 election. The Conservatives favor the burden of deficit-reduction being split 4-1 between spending cuts and tax increases. VAT raised 85 billion pounds ($124 billion) in the financial year through March 2009, accounting for 16 percent of total revenue. Cameron said Chancellor of the Exchequer George Osborne will tomorrow set out “a proper independent audit of government spending,” the first step to tackling the hole in the nation’s finances. ‘Bad Behavior’ “What we have seen so far are just individual examples of very bad practice and frankly just bad behavior; spending decisions taken in the last year or so of a Labour government that no rational government would have done,” Cameron said. “Giving something like 75 percent of senior civil servants bonuses after everything that has happened — that’s not a fiscal stimulus, it’s a crazy thing to do.” Britain has not had a coalition government since 1945 and Cameron was questioned on how well his Conservatives are working with their Liberal Democrat partners. He described Liberal Democrat leader and Deputy Prime Minister Nick Clegg as “clearly part of the inner core,” adding that the government will publish a fuller statement on its coalition agreement within “the next couple of weeks.” “I think probably more important, there’s no document in the world, there’s no agreement in the world that’ll keep you all together,” Cameron said. “In the end it’s going to be people working together and the relationship between me and Nick Clegg, the relationship of Cabinet ministers with each other.” Kennedy’s Refusal Even so, divisions emerged within the Liberal Democrats over their coalition with Conservatives. Former leader Charles Kennedy said in a newspaper article published today he refused to vote for the deal when it was put to a meeting of party lawmakers during coalition negotiations on May 11. Writing in The Observer , Kennedy said he had favored an alliance with the Labour Party, which formed the outgoing government. A ComRes Ltd. poll for the Sunday Mirror and Independent on Sunday newspapers published today shows that 34 percent of those who voted Liberal Democrat at the May 6 election think Clegg “sold out” the party’s principles. ComRes interviewed 1,010 voters on May 12-13. A special conference of the Liberal Democrats in Birmingham, central England, today “overwhelmingly” endorsed the coalition deal, the party said in an e-mailed statement. ‘Taking Risks’ “I know the stakes are high — for me personally, as well as the party — but I came into politics to change things, and that means taking risks,” Clegg told the conference. “Real, big change never comes easy, so it would simply be wrong for us to let this chance of real change pass us by.” The Sunday Telegraph newspaper reported today that Cameron intends to ask Labour lawmaker Frank Field to lead a review into levels of poverty in Britain. He has also asked Will Hutton , an economist and former newspaper editor, to head a separate review into pay inequality, the newspaper said. The Telegraph also reported that John Browne , the former chief executive officer of BP Plc, who sits in the upper House of Lords as a cross-bencher, attached to no party, has been approached to take on a role “scrutinizing” government departments. To contact the reporter on this story: Kitty Donaldson in London at kdonaldson1@bloomberg.net .

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Cameron Refuses to Rule Out Increasing Value-Added Tax in Emergency Budget

May 16, 2010

By Kitty Donaldson May 16 (Bloomberg) — U.K. Prime Minister David Cameron refused to rule out an increase in value-added tax in his coalition government’s emergency budget, due by the end of June. In an interview with BBC television’s Andrew Marr program, his first since becoming leader of the Conservative-Liberal Democrat coalition, Cameron was pressed on whether he would need to raise the sales tax from its current rate of 17.5 percent to help narrow the U.K.’s record budget deficit. “We said before the election, during the election and I am happy to say it now, that spending should bear the brunt of the burden,” Cameron said. “So that is not something we plan to do,” he said of a VAT rise. Even so, he stopped short of explicitly ruling out an increase, telling Marr, “You will have to wait for the first 50-day budget.” With the U.K. deficit approaching that of Greece at almost 12 percent of economic output, Cameron is under pressure to reduce borrowing and pledged to hold a budget within 50 days of coming to power in the May 6 election. The Conservatives favor the burden of deficit-reduction being split 4-1 between spending cuts and tax increases. VAT raised 85 billion pounds ($124 billion) in the financial year through March 2009, accounting for 16 percent of total revenue. Cameron said Chancellor of the Exchequer George Osborne will tomorrow set out “a proper independent audit of government spending,” the first step to tackling the hole in the nation’s finances. ‘Bad Behavior’ “What we have seen so far are just individual examples of very bad practice and frankly just bad behavior; spending decisions taken in the last year or so of a Labour government that no rational government would have done,” Cameron said. “Giving something like 75 percent of senior civil servants bonuses after everything that has happened — that’s not a fiscal stimulus, it’s a crazy thing to do.” Britain has not had a coalition government since 1974 and Cameron was questioned on how well his Conservatives are working with their Liberal Democrat partners. He described Liberal Democrat leader and Deputy Prime Minister Nick Clegg as “clearly part of the inner core,” adding that the government will publish a fuller statement on its coalition agreement within “the next couple of weeks.” “I think probably more important, there’s no document in the world, there’s no agreement in the world that’ll keep you all together,” Cameron said. “In the end it’s going to be people working together and the relationship between me and Nick Clegg, the relationship of Cabinet ministers with each other.” Kennedy’s Refusal Even so, divisions are emerging within the Liberal Democrats over their coalition with Conservatives. Former leader Charles Kennedy said in a newspaper article published today he refused to vote for the deal when it was put to a meeting of party lawmakers during coalition negotiations on May 11. Writing in The Observer , Kennedy said he had favored an alliance with the Labour Party, which formed the outgoing government. A ComRes Ltd. poll for the Sunday Mirror and Independent on Sunday newspapers published today shows that 34 percent of those who voted Liberal Democrat at the May 6 election think Clegg “sold out” the party’s principles. ComRes interviewed 1,010 voters on May 12-13. Today Clegg will address a special conference of the Liberal Democrats in Birmingham, central England. The meeting may vote against endorsing Clegg’s decision to enter into coalition with Cameron, though it has no power to overturn the agreement. The Sunday Telegraph newspaper reported today that Cameron intends to ask Labour lawmaker Frank Field to lead a review into levels of poverty in Britain. He has also asked Will Hutton , an economist and former newspaper editor, to head a separate review into pay inequality, the newspaper said. The Telegraph also reported that John Browne , the former chief executive officer of BP Plc, who sits in the upper House of Lords as a cross-bencher, attached to no party, has been approached to take on a role “scrutinizing” government departments. To contact the reporter on this story: Kitty Donaldson in London at kdonaldson1@bloomberg.net .

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Blanchflower Says Mervin King May Not `Dance’ to Cameron’s Tune: Tom Keene

May 14, 2010

By Daniel Kruger and Thomas R. Keene May 14 (Bloomberg) — Austerity measures proposed by the U.K.’s new coalition government run the risk of reviving the recession unless Bank of England Governor Mervyn King loosens monetary policy, former BOE member David Blanchflower said. “The dance will be, we will be cutting but you need to be loosening, and will you dance to our tune,” Blanchflower said in a Bloomberg Radio interview today with Tom Keene . “I suspect Mervyn King will be Mervyn King and be independent. The worry will be that they generate a double dip.” The pound declined for a third day after the Bank of England said May 12 that there are “somewhat greater downside risks” to its forecast that growth will reach a 3.5 percent annual pace by 2012, while inflation is likely to be below its 2 percent target. The bank, which has kept the benchmark interest rate at a record low for the past year, hasn’t ruled out further asset purchases under a policy known as quantitative easing, King told reporters May 12. Prime Minister David Cameron ’s government plans measures within 50 days to cut spending by 6 billion pounds ($9 billion). “It looks from the forecast that they produced this week they should have been doing lots more QE and they’re not,” Blanchflower said. “If you cut you need the governor, or the Bank of England to be loosening monetary policy.” Blanchflower predicted that that government formed by Cameron’s Conservative Party and the Liberal Democrats will collapse by year-end as differences over policies become too great. ‘12-Hour Bounce’ The decline in the pound since the cuts were agreed to shows investors are concerned whether growth will slow, Blanchflower said. “They had about a 12-hour bounce in the exchange rate and then the pound started to tumble against the dollar ever since these things were announced,” he said. King compromised his independence by supporting the new government’s austerity package at a press conference to launch the Monetary Policy Committee’s inflation report, Blanchflower wrote in a column published today by Bloomberg News. “This clearly isn’t the MPC’s view, but simply his own, as there would have been no time to consult his colleagues on the committee,” Blanchflower wrote. “As a former MPC member, I recall King’s strict dictum that we shouldn’t speak on fiscal matters, which weren’t part of our purview.” The U.K. budget deficit was a record 166.5 billion pounds last year and was forecast to be 163 billion pounds, or 11.1 percent of gross domestic product, for the current fiscal year, according to the U.K. Treasury’s budget. The pound dropped 0.6 percent to $1.4521 at 11:26 a.m. in New York, from $1.4613 yesterday. It reached $1.5045 on May 12 after Conservatives and Liberal Democrats agreed to form a government. Sterling appreciated 0.6 percent to 85.23 pence per euro, from 85.78. To contact the reporter on this story: Daniel Kruger in New York at dkruger1@bloomberg.net Thomas R. Keene in New York tkeene@bloomberg.net

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Stocks Gain as Europe Financial Crisis Eases; Treasuries Fall, Gold Rises

May 12, 2010

By Rita Nazareth and David Merritt May 12 (Bloomberg) — Stocks rallied, with the Standard & Poor’s 500 Index recovering losses from its May 6 plunge, as a successful Portuguese bond sale and planned budget cuts in Spain and the U.K. bolstered optimism the European debt crisis is subsiding. Treasuries fell and gold rose to a record. The S&P 500 surged 1.4 percent to 1,171.67 at 4 p.m. in New York, above its highest close since May 4. The Stoxx Europe 600 Index climbed 1.5 percent as all 19 of its industry groups gained. The 10-year Treasury yield increased six basis points to 3.58 percent after a $24 billion auction of the notes, while gold futures surged to a record $1,249.20 an ounce on speculation international financial support for indebted European nations will depress currencies. Portugal’s bond sale, Spain’s reduction in public wages and new U.K. Prime Minister David Cameron ’s plans to cut the deficit added to optimism that Europe’s debt crisis will ease after leaders pledged almost $1 trillion in emergency loans over the weekend. Better-than-estimated earnings at companies from A.P. Moeller-Maersk A/S to ING Groep NV and faster-than-forecast growth in the euro region’s economy also lifted sentiment, as did a potential $15 billion leveraged buyout in the U.S. “It’s not another Lewis Carroll ’s ‘Alice in Wonderland’ tale,” said Michael Holland , who oversees more than $4 billion as chairman of Holland & Co. in New York. “David Cameron’s budget-deficit plan reminds people that you have some adults in the world when it comes to addressing the problems. The European package was another adult response. The global economic recovery is continuing and will likely not be derailed by the European crisis.” U.S. Rally Gauges of technology and industrial companies rose at least 2 percent to lead gains among all 10 groups in the S&P 500, with International Business Machines Corp., Intel Corp., Cisco Systems Inc. and Caterpillar Inc. rising at least 3 percent to help lead the Dow Jones Industrial Average up 148.65 points, or 1.4 percent, to 10,896.91, also the highest since May 4. Cisco reported better-than-estimated results after the close of trading, while IBM forecast earnings-per-share may double by 2015. Morgan Stanley fell 2 percent after the Wall Street Journal reported that U.S. prosecutors are investigating some of the bank’s transactions in collateralized debt obligations, citing people familiar with the matter. Chief Executive Officer James Gorman , speaking at a press conference in Tokyo today, said there is “no substance” to any allegations. M&A Watch Blackstone Group LP slipped 0.2 percent as the world’s biggest private equity company, Thomas H. Lee Partners LP and TPG Capital are in talks to pay more than $15 billion including debt for Fidelity National Information Services Inc., according to a person with knowledge of the deal. Fidelity National rallied 2.9 percent. Sybase Inc. jumped 35 percent after Bloomberg News reported SAP AG is close to buying the company for $6 billion, according to two people with knowledge of the matter. The MSCI World Index of stocks in 23 developed nations advanced 1.1 percent, recouping yesterday’s drop. Maersk , the owner of the world’s largest container-shipping line, rallied 9 percent after saying it returned to profit as freight rates jumped and global trade picked up. ING , the largest Dutch financial services company, jumped 4.2 percent in Amsterdam after reporting a better-than-estimated profit as bad loans fell. European Austerity The U.K.’s FTSE 100 Index rose 0.9 percent as Conservative leader Cameron took over as prime minister. Cameron’s chancellor of the exchequer, George Osborne , will prepare an emergency budget within 50 days containing 6 billion pounds ($9 billion) of spending cuts to narrow the deficit. The measure is part of the Conservative Party’s deal with its coalition partners, the Liberal Democrats, announced yesterday. Spain’s IBEX 35 Index, which jumped a record 14 percent two days ago after the European loan package was announced, climbed 0.8 percent today and the cost of insuring against default on Spain’s largest banks fell to the lowest in three weeks after Prime Minister Jose Luis Rodriguez Zapatero announced measures to cut the country’s deficit. Credit-default swaps on Banco Santander SA, Spain’s biggest lender, declined 35 basis points to 130, the lowest since April 20, according to CMA DataVision prices. Contracts on Banco Bilbao Vizcaya Argentaria SA fell 31.5 basis points to 148, indicating an improvement in the perception of credit quality. Spain, France Spain will reduce public-sector wages 5 percent this year and freeze them in 2011 in response to calls from European finance ministers for deeper budget cuts as part of the aid package for the region’s most indebted nations. Zapatero’s deficit reduction plan triggered a 22 basis-point decline in the country’s sovereign default swaps to 139. The CAC-40 Index of French equities rallied 1.1 percent today, trimming its 2010 decline to 5.1 percent. Nicolas Lenoir , chief market strategist at ICAP Futures LLC in Jersey City, New Jersey, advised shorting the French equity market on speculation that any potential austerity measures will not be well-received in that nation. “Being French I can promise you first hand that if there is any form of austerity required as part of the $1 trillion package it will not fly one bit,” Lenoir said in a note to clients. “We had riots with a daily car-burn rate above 1,200 for over a week because a teenager electrocuted himself trying to escape from the cops, so just try and imagine if railway workers can no longer retire at 50 or 55 after being driven to exhaustion watching a computer do their job 35 hours a week.” Portugal Bond Sale In Portugal, Finance Minister Fernando Teixeira dos Santos said the nation’s sovereign debt is enjoying better market conditions as borrowing costs eased. Portugal sold 1 billion euros ($1.3 billion) of 10-year bonds today, getting more demand than at previous auctions. The country’s debt agency priced the 4.8 percent bonds due 2020 to yield 4.52 percent, 181 basis points below last week’s high, which was a record since the euro’s introduction. Gross domestic product in the 16 euro nations rose 0.2 percent from the fourth quarter, when it remained unchanged, the EU’s statistics office in Luxembourg said today. Germany’s economy unexpectedly grew in the first three months of the year as rising exports and company investment outweighed the effects of the cold winter. Gains for the Greek two-year note drove the yield down 4 basis points to 6.98 percent. The nation’s 10-year bond yield lost 20 basis points to 7.24 percent, with the yield premium demanded to own the debt instead of benchmark German bunds narrowing for a third day to 430 basis points from a record 965 basis points on May 7. Asset-Backed Downgrade Moody’s Investors Service lowered 22 billion euros ($28 billion) of Greek bonds backed by loans to consumers and companies as the country adopts austerity measures to qualify for European aid, leaving the notes under review for further downgrades. Spain’s 10-year bond yield slipped one basis point to 3.91 percent, the lowest since April 21, and Italy’s decreased two basis points to 3.92 percent. The MSCI Asia Pacific fell 0.1 percent. Mitsubishi UFJ Financial Group Inc., which holds about 20 percent of Morgan Stanley, sank 2.4 percent in Tokyo. China Resources Land Ltd., a property developer, lost 3.1 percent in Hong Kong. Posco, South Korea’s largest steelmaker, declined 2.5 percent. The yen weakened against 14 of its 16 most-traded counterparts, dropping more than 1 percent against the Brazilian real, Mexican peso, South African rand and Swedish krona and at least 0.2 percent against the dollar and euro amid demand for high-yielding currencies. The Dollar Index, a gauge of the currency against six major trading partners, rose 0.5 percent to 84.889. Emerging Markets The MSCI Emerging Markets Index of equities rallied 1 percent, with the Micex Index in Russia, the world’s largest energy exporter, jumping 4.3 percent for the biggest gain among global equity gauges. Brazil’s Bovespa increased 1.2 percent after retail sales rose at the fastest pace on record and BM&FBovespa SA, Latin America’s biggest securities exchange, reported better-than- estimated earnings. . Argentina gave institutional investors more time to turn over defaulted bonds in a $20 billion restructuring offer and said it may shelve plans to sell new debt as its borrowing costs surge. Argentina Restructuring Argentina extended the deadline for swapping securities to May 14 from today and said further extensions are possible, according to a government statement distributed by Barclays Capital, which is managing the offer. Economy Minister Amado Boudou said yesterday the country may scrap a $1 billion bond sale that formed part of the restructuring after yields rose to a two-month high on concern the Greek crisis was spreading. Gold futures for June delivery rose $22.80, or 1.9 percent, to $1,243.10 an ounce. In electronic trading after settlement, the price reached $1,249.20, the highest ever. Crude oil declined, losing 0.9 percent to $75.65 a barrel in New York, after a U.S. government report showed that inventories climbed for the 14th time in 15 weeks. To contact the reporters on this story: Rita Nazareth in New York at rnazareth@bloomberg.net ; David Merritt in London on dmerritt1@bloomberg.net .

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U.K. Coalition Government Plans to Cut Record Deficit, Curb Bank Bonuses

May 12, 2010

By Kitty Donaldson and Thomas Penny May 12 (Bloomberg) — Prime Minister David Cameron ’s Conservative Party and his Liberal Democrat partners put cutting Britain’s record budget deficit and tighter banking regulation at the heart of their coalition agreement. After five days of negotiations following the May 6 election, Cameron, who appointed Liberal Democrat leader Nick Clegg as deputy prime minister, set out an agreement to cut 6 billion pounds ($9 billion) from “non-front line” public services in the 2010-11 financial year. Some of the savings will be used “to support jobs, for example through the canceling of some backdated demands for business rates,” according to the text of the deal released today by the parties. The coalition also promised “robust action to tackle unacceptable bonuses in the financial-services sector,” without specifying what it would do, adding that the measures would be “effective in reducing risk.” An independent commission will bring forward proposals within a year for the separation of retail and investment banking. The government will also increase the regulatory powers of the Bank of England. A key Liberal Democrat demand to raise the annual threshold to start paying income tax to 10,000 pounds ($14,900) will take precedence over the Conservatives’ signature policy of only charging inheritance tax on estates worth more than 1 million pounds. The parties will seek an agreement for tax on “non- business” capital gains to be charged at the same rate as income tax. European Policy Divided in their approach to European Union integration, the Conservatives and Liberal Democrats agreed that there should be no further transfer of powers to the bloc over the next five years, adding that Britain will not join the euro in the same period. The U.K. will also press for the European Parliament to abandon its base in Strasbourg, France, in favor of a single center at Brussels. The parties agreed to set a cap on non-EU immigration into the U.K., an issue Clegg and Cameron repeatedly clashed on in the leaders’ televised debates during the election campaign.      The new government will also repeal legislation that the parties said eroded civil liberties, including plans to introduce identity cards and a national identity register. There will be limits on the U.K.’s DNA database and a review of the libel laws to protect freedom of speech, the agreement said. Third Runway The government said it would halt plans to build a third runway at London’s Heathrow airport and block expansion of Stansted and Gatwick airports. Clegg and Cameron gave their backing to a high-speed rail network, which the Conservatives have linked with reducing demand at Heathrow. Air passenger duty will be replaced with a levy charged per plane rather than per passenger, the document said. Despite the Liberal Democrats campaigning on a platform of Britain’s non-renewal of its nuclear deterrent, the parties have agreed to maintain the Trident submarine-based missile program, although it will be examined to see if it is “value for money.” The parties also agreed to allow the Liberal Democrats to maintain their opposition to nuclear power stations, while letting the government to bring forward plans to allow new nuclear construction. Liberal Democrat lawmakers will be allowed to abstain when the matter reaches Parliament. The coalition partners decided to increase spending on the state-funded National Health Service in line with inflation and to give extra funding for “disadvantaged pupils” in schools by reducing spending elsewhere. Cameron’s government will establish an independent commission to review the long-term affordability of pensions for public-sector workers. It will also restore the link between what the state gives pensioners and average earnings. The parties also agreed to the establishment of five-year fixed-term parliaments, meaning Britain’s next election will be on May 7, 2015. The new government will also introduce an electoral-reform bill that includes provision for the introduction of the alternative-vote system, in which electors list candidates in order of preference, if it gains backing in a referendum. To contact the reporters on this story: Kitty Donaldson in London at kdonaldson1@bloomberg.net ; Thomas Penny in London at tpenny@bloomberg.net .

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