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Convertible Debt Beats Bonds, S&P 500 as Ciena Leads Sales: Credit Markets

by on March 16, 2010

By John Detrixhe March 17 (Bloomberg) — Convertible bonds are returning more than the broader debt market and the Standard & Poor’s 500 Stock Index this year, prompting sales to double. The securities have gained 3.6 percent this month, boosting year-to-date performance to 4.6 percent, according to Bank of America Merrill Lynch index data. That’s better than the 2.8 percent return through March 15 for the overall U.S. corporate credit market and the S&P 500’s 3.6 percent rally. Priceline.com and Ciena Corp., a maker of fiber-optic gear, led $4.74 billion of convertible debt sales this year, more than double the same period in 2009, according to data compiled by Bloomberg. Convertibles are in a “sweet spot” as corporate bond yields fall relative to benchmark rates and stocks rise, said Venu Krishna , a Barclays Capital analyst. “There’s not enough supply,” Krishna said in a telephone interview from New York. “That is also keeping prices firm. Supply is picking up but the market can absorb significantly more than what is coming now.” European equity-linked issuance totals $5.17 billion year- to-date, making this the biggest first quarter since 2007, when the total reached $7.8 billion, Bloomberg data show. The UBS AG Convertible Global Index has risen to 232.85 from 227.97 at the start of the year. Elsewhere in credit markets, the extra yield investors demand to own corporate bonds rather than government debt fell yesterday to 156 basis points, or 1.56 percentage point, the lowest this year, from as much as 174 basis points Jan. 4, the Bank of America Merrill Lynch Global Broad Market Corporate Index shows. Yields averaged 3.978 percent. U.S. Steel Bonds U.S. Steel Corp. , the country’s second-largest steelmaker, sold $600 million of 10-year senior unsecured notes after boosting the offering by $10 million. The Pittsburgh-based company’s 7.375 percent notes priced to yield 382 basis points, or 3.82 percentage points, more than similar-maturity Treasuries. American International Group Inc. ’s plane-leasing unit is planning its first offering of unsecured bonds in almost two years to pay down existing debt . AIG’s International Lease Finance Corp. plans a benchmark offering, the Los Angeles-based plane unit said yesterday in a statement. Benchmark typically means at least $500 million. Mexico hired Bank of America Corp., HSBC Holdings Plc, ING Groep NV and Citigroup Inc.’s Banamex unit to manage a sale of 30-year inflation-linked peso bonds in the local market. The government will offer the bonds at a rate of 4 percentage points above inflation, the Finance Ministry said in a statement on its Web site. The statement gave no date or size for the sale. Virgin Media Virgin Media Inc ., the U.K.’s second-largest pay-television company, said it’s seeking as much as 2 billion pounds ($3 billion) of loans. The facility will include a five-year term loan of 1 billion pounds and a five-year revolving credit line for 250 million pounds, Hook, England-based Virgin Media said in a statement. The company is also seeking as much as 750 million pounds in another term loan for which it doesn’t yet have commitments. The Federal Home Loan Bank of San Francisco sued nine securities dealers alleging they misled it about the credit quality and risks of loans behind $19.1 billion in private-label residential mortgage-backed securities. Units of Credit Suisse Group AG , Deutsche Bank AG , JPMorgan Chase & Co. and Bank of America Corp. were among the defendants named in two complaints filed March 15 in state court in San Francisco, according to the court’s Web site. Bill Halldin , a Bank of America spokesman, and Renee Calabro , a Deutsche Bank spokeswoman, declined to comment yesterday on the lawsuits. David Walker , a spokesman for Credit Suisse, and JPMorgan spokesman Brian Marchiony didn’t immediately return voice-mail messages seeking comment after regular business hours yesterday. Derivatives Index Markit Group Ltd., the London-based provider of bond and derivatives indexes, plans to create a benchmark for credit- default swaps on Asian-Pacific government bonds, according to six traders familiar with the matter. The Markit iTraxx SovX Asia Index may track swaps on the debt of China, Malaysia, Thailand, South Korea, Vietnam, the Philippines, Indonesia, Japan, Australia and New Zealand, said four of the traders, who asked not to be named because the proposal is private. Credit-default swaps protecting against a default by Boston Scientific Corp. fell from the highest in a year as Standard & Poor’s said the company’s decision to halt sales of cardiac defibrillators won’t affect its credit rating outlook. Credit Swaps The five-year contracts, which are used to speculate on the Natick, Massachusetts-based company’s creditworthiness or to protect against losses on its debt, dropped 11 basis points to 143.5 basis points, according to CMA DataVision. The swaps jumped to as high as 179 basis points yesterday, prices from broker Phoenix Partners Group show, the most since March 10 of last year. The credit swaps have climbed 43.5 basis points since Boston Scientific said two days ago it was suspending sales and voluntarily recalling its inventory of implantable defibrillators until the U.S. Food and Drug Administration could review two manufacturing changes that weren’t submitted to regulators. The company attributed the oversight to a documentation error. Credit swaps pay the buyer face value if a borrower defaults in exchange for the underlying securities or the cash equivalent. A basis point equals $1,000 a year on a contract protecting $10 million of debt. The Markit CDX North America Investment Grade Index, a credit-swaps benchmark that investors use to hedge against losses on corporate debt, declined 1.2 basis point to 82.8 basis points, CMA prices show. It’s trading near the seven-week low of 82.5 basis points of March 8. Interest Rate Treasuries advanced as Federal Reserve officials pledged to keep the target rate for overnight loans for banks near zero for an “extended period” and traders reduced bets that the central bank will raise rates over the next 12 months. The Fed has maintained the federal funds rate target in a range of zero to 0.25 percent since December 2008. In London, the Markit iTraxx Europe index of 125 companies with investment-grade ratings fell 0.5 basis point to 75.5 basis points, JPMorgan Chase & Co. prices show. The Markit iTraxx Asia index of 50 investment-grade borrowers outside Japan fell 1.5 basis points to 91 basis points, Citigroup Inc. prices show. The Markit iTraxx Australia index declined 1 basis point to 80.5 basis points in Sydney, according to ICAP Plc, while the Markit iTraxx Japan index rose 0.5 basis point to 122.5 in Tokyo, Morgan Stanley prices show. Chinese Bonds Chinese corporate bonds will beat sovereign securities for a third straight year as limits on fund raising by local government investment companies halts a “debt issuance spree,” said Yinhua Fund Management Co. Corporate bonds maturing in five years or more may hand investors a return of at least 5 percent in 2010, said Jiang Yongkang , director of fixed income at China’s 10th largest fund management firm. The spread between corporate bond and treasury yields will narrow as the economy recovers at a faster pace, reducing the risk of default, he said. Convertible bonds returned 47 percent last year as they rebounded from forced hedge-fund selling caused by the financial crisis in the fourth quarter of 2008. Convertibles are still undervalued almost by 5 percent, said John Calamos , the chief executive officer of Naperville, Illinois-based Calamos Asset Management Inc., which oversees $32 billion in assets. “Convertibles are doing what they’re supposed to be doing,” Calamos said in an interview. The bonds are “defensive” because investors are paid a coupon and can reap gains if shares rise, he said. Ciena Notes Excluding self-led offerings, companies have sold $4.74 billion of U.S. convertible securities this year, compared with $1.65 billion in the same period last year, $7.39 billion in 2008 and $15.6 billion in 2007, Bloomberg data show. Ciena issued $375 million of 10-year, 4 percent senior convertible notes on March 9, Bloomberg data show. The securities can be converted into 49.0557 shares of Ciena for $1,000 of notes, or a conversion price of about $20.38 per share, the Linthicum, Maryland-based company said in a statement. The initial conversion premium was 35 percent. Priceline.com , the Norwalk, Connecticut-based online travel agency, issued $575 million of five-year, 1.25 percent convertible securities on March 5, Bloomberg data show. The initial conversion premium was 30 percent. Group 1 Automotive Group 1 Automotive Inc. sold $100 million of convertible senior notes in a private offering, the Houston-based car dealership operator said yesterday in a statement. Proceeds may be used to redeem its 8.25 percent senior subordinated notes and other corporate purposes. Convertible securities may continue to rally as yields relative to benchmark rates tighten closer to historical levels, said George Douglas , chief investment officer of Los Angeles- based SSI Investment Management Inc. The firm has about $1.2 billion in assets under management. “With the economy recovering, I think the convertible market can do reasonably well,” said Douglas, whose firm oversees $900 million of convertible securities. “We’d like to see more supply and issuance because it makes for a healthier market.” Non-investment-grade and non-rated convertible bonds yielded 7.38 percentage points more than Treasuries as of March 15, according to Barclays Capital. Spreads narrowed from 7.96 percentage points at the end of 2009, and compare with 21.5 percentage points in 2008 and 5.32 percentage points at the end of the previous year. “In a normal environment, convertibles don’t outperform equities unless it’s a very credit driven return,” said Krishna of Barclays. The debt is now “fairly valued,” he said. To contact the reporter on this story: John Detrixhe in New York at jdetrixhe1@bloomberg.net .

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Dr. Jim Taylor: The Travesty of Education Budget Cuts

by on March 15, 2010

I’ve been hearing so much about budget cuts to public education in the news lately. Last week, there were demonstrations all over the Bay Area protesting the massive budget cuts to public colleges, and secondary and elementary schools throughout California. And these protests weren’t just on the college campuses of Berkeley, Santa Cruz, and Davis, but also at elementary and high schools with kids and parents expressing their outrage. It’s particularly unsettling for me because our eldest daughter will be going to kindergarten next year and we’ve been touring the local schools. The constant drumbeat we hear from administrators, teachers, and parents is how painful it is to have to fire teachers, reduce or eliminate teachers’ aides and specialists, scrap arts, language, and physical education programs, and increase class sizes. Public education used to be the foundation of our country and a model for education all over the world. It was responsible for upward mobility, the establishment of the middle class, and the basis for financial security for the vast majority of our citizens. It was also the springboard to higher education, providing students with the information and skill sets they needed to succeed in college and beyond. In other words, it was the basis for the American Dream. No longer for much of public education. School facilities are crumbling, dropout rates are soaring, test scores are falling, and, at a fundamental level, more and more young people are leaving public education without the tools necessary to become vital and contributing citizens or the ability to participate, much less survive in, the global economy. There are many problems with our public education system, including entrenched bureaucracies, powerbrokers invested in maintaining the status quo, outdated curricula, overly powerful teachers’ unions, incompetent teachers, and students unprepared by their families to succeed in school. And there are an abundance of proposed solutions coming from both sides of the political aisle that include closing failing schools, charter schools, school vouchers, universal pre-school, student testing, and increased teacher salaries. But any changes have to begin with money. I’m not saying the dollars are a universal panacea. We need only look back over the last 25 years and see how billions of dollars have been spent with little appreciable return on that investment in the form of improved schools and better educated students. But no improvements will be possible without sufficient funding to enact any changes. And reductions in school funding will only guarantee further declines in the already low quality of much of public education in America. Now we get to the sticking point. Everyone wants quality public education, but no one seems willing to pay for it. Why? Because the only way to adequately fund public education is to increase taxes. Uh oh, now I’m really skating on thin ice. For those who are fiscally conservative, raising taxes is anathema. And during these tough economic times, who wants to take money out of the pockets of hard-working Americans. But I actually believe that most Americans would be willing to pay higher taxes for something as important as our children’s educations. Americans have always been willing to make sacrifices for good of our country and, if called on today, would step up to the plate. And there is nothing more important to the future of our country than the education of our future generations. Our ability to have a vibrant and flourishing democracy is at stake. Our offer of the American Dream is at stake. Our preeminence on the world stage is at stake. Because, folks, we either pay now or pay later. Better to pay now because the price later will be unaffordable and it will also be too late; the damage to our children and to our country will be irreparable.

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Greek Financial Crisis `Over’: Week in Review

March 12, 2010

March 12 (Bloomberg) — Former European Commission President Romano Prodi tops a review of the week’s stories after saying that the worst of Greece’s financial crisis is over and other European nations won’t follow in its path. Click the VIDEO tab above to watch the March 10 interview with Bloomberg Television. The future of television is the cover story of Bloomberg BusinessWeek, in Revenge of the Cable Guys . See the slideshow on the Top Ten Alternatives to Cable . Other popular slideshows include the Best Affordable Suburbs in America and the Best Undergraduate B-Schools . For an interactive visual analysis of the costs of middlemen managing your money, click here . Following is a selection of more top stories from the past week, chosen by senior editors at Bloomberg News. Obama Defies Pessimists as Rising Economy Converges With Stocks March 10 (Bloomberg) — The political consensus may be that President Barack Obama’s handling of the economy has been weak. The judgment of money in all its forms has been overwhelmingly positive, and that may be the more lasting appraisal. Pfizer Cholesterol Flops Cleared Path for Resverlogix March 5 (Bloomberg) — Resverlogix Corp., without a marketed product, may accomplish what Pfizer Inc., the world’s biggest drugmaker, couldn’t: Creating a new medicine that fights heart disease by raising so-called good cholesterol. NFL Brain Collector Shows Violence in Slices of Gray Matter March 10 (Bloomberg) — Five years of hell ended in a hard death. Those are the widow’s words. Buyout Firms Can’t Spend $503 Billion as Fund Deadlines Loom March 10 (Bloomberg) — Buyout funds sitting on half a trillion dollars committed by investors may need more than a decade to put the money to work if mergers and acquisitions continue at the current pace. China to Nullify Loan Guarantees by Local Governments March 8 (Bloomberg) — China plans to nullify all guarantees local governments have provided for loans taken by their financing vehicles as concerns about credit risks on such debt increases. De Gregorio Says Chile’s Peso May Have ‘Overshot’ on Quake March 8 (Bloomberg) — Chilean Central Bank President Jose De Gregorio said the peso may have “overshot” after the country’s worst earthquake in 50 years and he doesn’t see any “dramatic changes” in the bank’s expansionary interest rate outlook. Sex Slaves, Scandals Drive Fairstein’s ‘Hell Gate’: Interview March 9 (Bloomberg) — When the rusty Ukrainian freighter ran aground on a sandbar near New York City’s Rockaway Beach, the bodies started washing ashore. The boat was crammed with human cargo, poor men and women desperate for a new life, exploited by traffickers known as “snakeheads.” The most-read opinion columns of the past week: 1. Rich Guy Carries His Own Bags to No-Name Motel: Scott Soshnick 2. Oh, the Luxury of New Jersey Transit at $4,965: Andy Davidson 3. ‘ Berkeley Mafia’ Now Has $514 Billion at Stake: William Pesek 4. Smart Banks With Dumb Customers Don’t Exist: Roger Lowenstein 5. Never Trust a Naked Massa in a Tickle Fight: Margaret Carlson Following are the most-read stories on Bloomberg.com from the past week: 1. Obama Delays Trip as Health-Care Faces New Hurdle 2. Pelosi Says Democrats Didn’t Push Massa to Resign 3. Greek Crisis Is Over, Rest of Region Safe, Prodi Says 4. Pimco’s El-Erian Says Public Finance Shock May Deepen 5. Citigroup Selling TruPS After Repaying Bailout 6. S&P Rally Slowed by Fastest Cash Depletion Since 1991 7. China Inflation Quickens as Industrial Output Climbs 8. JPMorgan, Citigroup Helped Cause Lehman Collapse 9. Fannie Mae Mortgage Bond Spreads Fall to Record 10. Sex Life Ends at 70 as Health Declines, Study Says # # -0- Mar/12/2010 18:19 GMT

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China to Nullify Local Governments’ Loan Guarantees as Credit Risk Grows

March 7, 2010

By Bloomberg News March 8 (Bloomberg) — China plans to nullify all guarantees local governments have provided for loans taken by their financing vehicles as concerns about credit risks on such debt surges. The Ministry of Finance will also ban all future guarantees by local governments and legislatures in rules that may be issued as soon as this month, Yan Qingmin, head of the banking regulator’s Shanghai branch, said in an interview. The ministry held meetings on the rules on Feb. 25 with regulators including the China Banking Regulatory Commission and the People’s Bank of China , Yan said March 5. China’s local governments are raising funds through investment vehicles to circumvent regulations that prevent them from borrowing directly. A crackdown on local- government borrowing, estimated at about 24 trillion yuan ($3.5 trillion) by Northwestern University Professor Victor Shih , could trigger a “gigantic wave” of bad loans as projects are left without funding, Shih said this month. “Beijing’s fiscal situation probably isn’t as good as it looks at first glance,” said Brian Jackson, an emerging markets strategist at Royal Bank of Canada in Hong Kong. “Perhaps at some stage the central government is going to have to bail out the banks or the regional governments and take it on its own balance sheet.” Fiscal Risks Central bank governor Zhou Xiaochuan said March 6 during the National People’s Congress that while “many” local financing vehicles have the ability to repay, two types cause concern. One uses land as collateral, while the other can’t fully repay borrowing, meaning that the local governments may be liable, leading to “fiscal risks.” Premier Wen Jiabao , at the opening of the annual parliamentary meetings last week, said the central government would sell 200 billion yuan of bonds for a second year to help local governments fund infrastructure projects. Wen also warned of “latent risks” in China’s banking system as he pledged to continue a moderately loose monetary policy and a proactive fiscal stance. The parliamentary meetings will end March 14 with Premier Wen’s annual press conference in Beijing. A few cities and counties may face very large repayment pressure in coming years because of debt ratios already exceeding 400 percent, a person with knowledge of the matter said in January. The ratio is of year-end outstanding debt to annual disposable fiscal income. Regional Concerns The financing vehicles of large coastal cities are well-funded as most have publicly traded subsidiaries that can raise capital from the markets and rely less on bank loans. Entities in northern and western China are of particular concern, the banking regulator’s Yan said while attending the parliamentary meetings. The 1998 collapse of Guangdong International Trust & Investment Corp., which borrowed domestically and overseas on behalf of southern China’s Guangdong province , left creditors including Dresdner Bank AG of Germany and Bank One Corp. in the U.S. with $3 billion of unpaid bonds. It marked the first time that Chinese authorities failed to bail out one of the nation’s state-owned trusts. Commercial banks have already been told to assess their exposure to such lending and stop providing further credit if problems are found, Yan said. Commercial Banks Bank of China Ltd. President Li Lihui said in an interview last week that the nation’s third-largest lender has reviewed its exposure to borrowings by local governments and identified some financing vehicles that didn’t have adequate liquidity to make payment. The bank plans to exit projects without proper collateral and reduce new advances to local governments this year, Li said. Industrial & Commercial Bank of China Ltd . Chairman Jiang Jianqing said the lender found some risks in such borrowing arms. These situations aren’t yet widespread, Jiang said. The bank has already inspected its loans extended to local government financing vehicles in 2008 and 2009 and “so far didn’t find many big problems,” ICBC President Yang Kaisheng said yesterday. China’s banks doled out a combined 9.59 trillion yuan in new loans last year, helping the government engineer a turnaround in the world’s third-largest economy . The credit binge sparked concern about more bad loans and asset bubbles. Northwestern’s Shih estimated that borrowing by China’s 8,000 local-government entities may have totaled 11.429 trillion yuan in outstanding debt by the end of last year and they had credit lines with banks for an additional 12.767 trillion yuan. That may result in bad loans of up to 3 trillion yuan. China’s banks had 497 billion yuan of non-performing loans as of Dec. 31, accounting for 1.58 percent the nation’s total advances, according to the banking regulator. — Luo Jun , Kevin Hamlin . With assistance from Zhang Dingmin in Beijing. Editors: John Liu , Richard Dobson. To contact Bloomberg News staff of this story: Luo Jun in Shanghai at +8621-6104-7021 or jluo6@bloomberg.net

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Toyota Begins Zero-Percent Financing Program in China After Car Recalls

March 4, 2010

By Makiko Kitamura March 5 (Bloomberg) — Toyota Motor Corp. , the world’s biggest carmaker, started a zero-percent financing program this month to lure buyers in China after global recalls of more than 8 million vehicles marred the company’s reputation. The Japanese automaker will offer the financing for its Crown sedan from March 10 through the end of April. It began offering the same incentive for the 2.4-liter version of the Camry sedan on March 1 and will do so through the end of this month, said Hitoshi Yokoyama, a Toyota spokesman in Beijing. The Camry offer may be extended further, he said. The campaign follows company President Akio Toyoda ’s visit this week to China, the world’s biggest car market, to apologize for vehicle defects that have been linked to unintended acceleration. Toyota recalled 75,552 RAV4 sport-utility vehicles in China due to faulty gas pedals. The carmaker’s local venture with China FAW Group Corp. is also offering a year’s worth of car insurance and two years of 24-hour roadside assistance to new buyers, as well as gasoline cards worth 88 yuan ($13) for potential customers who test drive models, Yokoyama said. Chinese customers usually pay for half the price of the car when they receive it and then pay the rest a year later, Yokoyama said. Toyota’s no-interest loan offer applies to the second payment, he said. U.S. Incentives Toyota announced U.S. incentives to win back customers on March 2, including no-interest loans for as long as five years and discounted leases for models including Camry, Corolla, Matrix, Prius and Matrix cars. The incentives generated almost a 40 percent spike in purchase intent by visitors to Edmunds.com, the industry data provider said yesterday. Toyota boosted China sales about 30 percent from a year earlier to 45,400 vehicles last month, the company said in Beijing on March 1. The carmaker raised its Chinese sales 21 percent to 709,000 last year and forecasts a 13 percent increase this year. By comparison, General Motors Co. , China’s biggest foreign automaker, boosted 2009 sales in the country 67 percent to 1.83 million and expects to sell about 2 million vehicles this year. Sales-tax cuts for smaller vehicles combined with rural subsidies boosted nationwide auto sales in China 46 percent last year to 13.6 million, helping it supplant the U.S. as the world’s largest auto market. First Plant Toyota’s first car plant in China opened in December 2000 in Chengdu, Sichuan province. The company entered the local market in 1997 with an engine-making factory in Tianjin. Toyota plans to increase capacity at a joint-venture plant with FAW in Chengdu to 30,000 units from 13,000 units by June 2010. The plant builds the Coaster and Land Cruiser Prado models. Toyota also plans to build a second plant in Changchun, Jilin province, where it may build Corolla compact cars. The company hasn’t decided when the factory will open or how much capacity it will have. To contact the reporter on this story: Makiko Kitamura in Tokyo at mkitamura1@bloomberg.net .

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Ron Carlee: The Local Government CEO: Making the Business of Governance Run

March 2, 2010

What is a city, town, or county manager? This is the question I heard repeatedly as county manager for Arlington County, Virginia, and even more often now that I work at ICMA, the International City/County Management Association. ICMA advances the professional management of all local governments. We require allegiance to a stringently enforced code of ethics, maintain a voluntary credentialing and training/professional development program. We research leading practices, provide technical assistance, and recruit and train the next generation of local government leaders. We do not lobby and are not involved in partisan politics. This blog will provide a glimpse into what city, town, and county managers do and why. First, a definition: local government managers are the chief executive officers in some 4,300 local governments across the U.S. and a number of other countries. In the U.S., more than 92 million people live in communities that operate under the manager form of government. Most people are unaware of what managers are or what they do because they operate in a system that is very different from the federal and state governance models we all studied in civics class as children. The federal and state governments are managed by elected chief executives: the president and governors. This political model was created by the Founding Fathers in reaction to the English monarchy. They created a highly decentralized and diffused form of governance. Our founders, with great intent, designed a system that makes it very hard for government to infringe on our most sacred value: personal freedom. The federal and state systems were intentionally designed to work, shall we say, “deliberately.” Thus, we should not be surprised that major policy issues, such as health care and immigration, languish without action. When it came to local government in the U.S., initially we employed a similar political model of governance complete with elected executives (mayors, board chairs, and county executives) who are elected for defined terms and whose power is checked and balanced by the local legislative body (city/town councils and county councils/boards). The problem with the political model at the local level is the retail nature of what local government does. Cities and towns are formed as municipal “corporations” to provide goods and services upon which complex societies depend: clean water, sewage treatment, streets and roads, trash removal, law enforcement, and protection against fires, disasters, and disease. Local governments also provide amenities to enhance our quality of living: parks, recreation centers, libraries, museums, and arts facilities. Today, most county governments, once seen as only local extensions of the state government, also perform the same range of municipal services as cities and towns. Not only does the political model of governance often result in partisan bickering and gridlock, too often, it also encourages incompetence and corruption. This statement is by no means intended to paint all elected chief executives as incompetent or corrupt. In fact, I am in this business primarily because a mayor gave me a political appointment at age 21 and taught me that government could do good things for people while being honest and ethical. Unfortunately, we are constrained by the luck of the draw, i.e., those who are willing to run for office, and those who run the best campaigns. The mayor who inspired me, for example, finished fourth in a field of six when he ran for re-election. As the U.S. grew more urbanized, and local services became essential to the safe and harmonious functioning of society, people grew uncomfortable with their reliance on the luck of the political draw. Largely in reaction to mismanagement, a “good government” movement emerged during the early 20th century. The reformists involved in that movement created a new governance model for local government. Rather than focusing on politics, this new form of governance recognized that local governments are indeed public “corporations” that provide the services upon which our quality of life depends and which should be managed as businesses. Called the council-manager plan, this new form of government was designed to get work done, with honesty, efficiency, and effectiveness. Policy authority rests with the collective judgment of the elected legislative body (council or board). The legislative body — often referred to as the “governing” body — appoints a professional chief executive officer, just as the board of directors of any other corporation would do. The CEO, or “manager,” is an experienced professional who runs the company. If a manager fails to perform, the council doesn’t have to wait for a new election cycle; they simply fire the manager and hire someone more qualified for the job; thus, the power of the executive is “checked” in a highly effective manner; however, a competent manager can provide continuity across multiple election cycles and elected officials. Today, even among local governments that operate under the political model, smart elected executives hire professional managers to serve as their chief operating officers and run the government’s business while the former focuses on politics and community leadership. So much for the quick history lesson. In future postings, I plan to write about the work of managers: balancing budgets in these difficult economic times; engaging with the public in ways that respect participatory democracy but without being partisan or political; and efforts to build more sustainable and resilient communities.

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Toyoda Visits China to Apologize for Recalls, Skipping Auto Show in Geneva

March 2, 2010

By Laurence Frost and Makiko Kitamura March 2 (Bloomberg) — Toyota Motor Corp. President Akio Toyoda traveled to China from the U.S. to apologize for vehicle defects, while skipping the Geneva auto show , underscoring the company’s priority to expand in the world’s biggest car market. The world’s biggest carmaker sent Vice Chairman Kazuo Okamoto to Europe’s only annual automotive industry gathering even though the Japanese company has recalled 1.8 million cars in the region, compared with 75,552 sport-utility vehicles in China. Toyoda met with Commerce Minister Chen Deming as part of his trip to Beijing. Toyoda is prioritizing China, where passenger-car sales surged 53 percent last year, as European vehicle sales decline. Industrywide auto sales in Germany, the region’s largest car market, may shrink by 1 million units this year after governments ended incentive programs, Didier Leroy, Toyota’s head of Europe sales, said at a press conference in Geneva. “China’s market is very important,” Toyoda, 53, told reporters in Beijing yesterday. “I hope that China customers can be reassured to a certain degree after I speak to them personally.” The Toyota City, Japan-based carmaker has recalled about 8 million vehicles worldwide to fix problems including cases of unintended acceleration in vehicles. Last week, Toyoda visited the U.S. to testify before Congress and apologize for the defects. Global Recall In Beijing, Toyoda again apologized for the recalls and pledged to cooperate with any investigation in the country. He reiterated a goal of boosting China sales by 13 percent this year to 800,000 vehicles. In Europe, Toyota has predicted that its vehicle sales will fall 5 percent to 840,000. Toyoda also said all Toyota models assembled in China from now will be equipped with brake override systems that prevent unintended acceleration. GM, the biggest foreign automaker in China, aims to sell about 2 million vehicles in the country this year, Kevin Wale , the Detroit-based company’s China chief, said Jan. 23. Wolfsburg, Germany-based Volkswagen sold a record 1.4 million vehicles in China last year, an increase of 37 percent. China “is a key market that cannot be ignored,” said John Zeng , a Shanghai-based analyst at IHS Global Insight. “If Toyota doesn’t choose the right time to clear up the recall issues, it will affect new model launches.” No Discounts Toyota has been criticized for delaying recalls. The carmaker fixed gas pedals in Europe in August, months before the same change was made for U.S. cars. An initial recall of cars in the U.S. on Sept. 29 cited a defect that may cause floor mats to jam down the accelerator pedal. The company has so far fixed 200,000 vehicles in Europe for sticky accelerator pedals, Leroy said. He ruled out offering discounts to win customers back. “We cannot expect to convince customers about the quality of the products with this kind of message,” he said. A plan to set up quality committees in each region with “more of our people going to the customers and listening to complaints” could result in an increase in recalls, Okamoto told journalists in Geneva, calling the possibility “hypothetical.” The program’s aim is to reduce the need to bring vehicles back for repairs in the future, he said. Shares Fall Even though Toyota’s president doesn’t attend the Geneva show every year, Katsuaki Watanabe, for example, used the event in 2006 to promote its Lexus range in Europe. Toyota has lost about $34 billion in market value since Jan. 21, when it announced plans for a U.S. recall of about 2.3 million vehicles to fix accelerator pedals. The stock gained 0.6 percent to 3,315 yen in Tokyo trading today. Toyota’s Chinese sales jumped 21 percent to 709,000 vehicles in 2009, trailing a 46 percent increase in the market. Nissan boosted China sales 39 percent to pass Toyota as the biggest Japanese carmaker in the country. Nationwide Chinese vehicle sales rose to 13.6 million, surpassing the U.S. for the first time. Toyota, which makes vehicles in the country with China FAW Group Corp. and Guangzhou Automobile Group Co. , boosted February sales about 30 percent from a year earlier to 45,500. Its first car plant in China opened in December 2000 in Chengdu, Sichuan province. The company entered the local market in 1997 with an engine-making factory in Tianjin. The carmaker plans to increase capacity at a joint-venture plant with FAW in Chengdu to 30,000 units from 13,000 units by June 2010, according to company spokeswoman Ririko Takeuchi . The plant builds the Coaster and Land Cruiser Prado models. Toyota also plans to build a second plant in Changchun, Jilin province, where it may make Corolla compact cars. The company hasn’t decided when the factory will open or how much capacity it will have. — Yidi Zhao . With assistance from Stephanie Wong in Shanghai and Emily Chan in Hong Kong. Editors: Neil Denslow , Tom Lavell To contact the Bloomberg News staff on this story: Laurence Frost in Geneva via lfrost4@bloomberg.net ; Makiko Kitamura in Tokyo at mkitamura1@bloomberg.net

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Singapore’s GIC, Abu Dhabi Face $10 Billion Loss on UBS, Citigroup Stakes

March 2, 2010

By Elena Logutenkova and Yalman Onaran March 2 (Bloomberg) — It took the Government of Singapore Investment Corp. three days in 2007 to agree to prop up UBS AG , ailing from subprime losses. It may take a decade to recoup that investment of 11 billion Swiss francs ($10 billion). GIC, manager of more than $100 billion of the city-state’s foreign reserves , faces a paper loss of about 5.6 billion francs when it becomes the biggest shareholder of UBS on March 5, as shares of Switzerland’s largest bank trade at a third of the conversion price on notes it holds. Singapore isn’t alone among sovereign wealth funds facing losses from supporting banks in Europe and the U.S. in the credit crisis. More than $69 billion in investments by such funds has so far produced $20 billion in realized and paper losses, according to data compiled by Bloomberg. Hurt by their contributions to the health of the financial system and stuck with some of the investments for years, sovereign wealth funds may shy away from coming to the banks’ aid the next time. “Once burned, twice shy,” said Charles Whitehead , a finance law professor at Cornell University in Ithaca, New York, who has tracked the strategy of such funds. “If a weak bank came back to them again for capital in the next crisis, the sovereign wealth funds won’t be there.” European and U.S. bank chiefs made personal pitches to the funds during the height of the mortgage market meltdown. Marcel Ospel , then chairman of Zurich-based UBS, called GIC Chief Investment Officer Ng Kok Song , according to comments they made at the time. Talks began on Dec. 6, 2007, and by the evening of Dec. 9, GIC had committed to make its biggest single purchase at the time. ‘Long-Term Prospects’ Acknowledging that recouping the money might take longer than initially expected, Ng said in GIC’s annual report, published in September, that he still has “confidence” in the “long-term prospects” of the investment. GIC, which declined to comment for this article, will receive 230.7 million UBS shares for its mandatory convertible notes this week for 47.68 francs each. UBS shares closed yesterday at 14.98 francs. “The game turned out not as easy as it may have seemed,” said Florian Esterer , who helps manage about $55 billion, including UBS shares, at Swisscanto Asset Management in Zurich. “It will take probably more like a decade than three years” for UBS shares to return to 2007 levels. Qatar, Abu Dhabi There were some profitable deals too, such as Qatar and Abu Dhabi funds that waited until the depth of the crisis to invest in London-based Barclays Plc and Credit Suisse Group AG of Zurich. Yet one third of the winnings, which totaled $12 billion, resulted from a regulatory change rather than timing. After the U.S. government required troubled banks to have more common equity instead of weaker tiers of capital, Citigroup Inc. had to offer favorable prices for its preferred shareholders to convert to common. That led to windfall profits of $4 billion for Kuwait and GIC on investments that would have lost $9 billion under their original agreements. Abu Dhabi Investment Authority didn’t benefit because it didn’t buy preferreds when it came to the aid of New York-based Citigroup. So it may face a $4.8 billion paper loss when it is forced to convert its so-called equity units to shares starting this month at a price almost 10 times higher than the current value. Abu Dhabi filed an arbitration claim against Citigroup, which has the most writedowns and losses from the credit crisis, alleging the bank wasn’t forthcoming about its financial health when it was seeking capital. In a December statement, Citigroup said the claim is “without merit.” A spokesman for the Abu Dhabi Investment Authority declined to comment. More Due Diligence “One lesson that all investors, including the sovereign wealth funds, learned from this crisis is that you have to do the due diligence before investing,” said Rachel Ziemba , a senior analyst who tracks such funds at Nouriel Roubini’s RGE Monitor in New York. “The funds are already looking at fundamentals more closely. They’ll be more wary to take such big stakes in banks in the future.” The funds’ banking investments in the crisis diverged from their traditional strategy of taking smaller stakes in an array of companies, Ziemba said. The diverse distribution of stakes in close to 100 firms in the U.S. that the China Investment Corp. revealed in a regulatory filing last month is proof that they’re going back to their original goals, she said. CIC, Morgan Stanley In June, CIC increased its investment in New York-based Morgan Stanley by $1.2 billion, even though its first purchase was out of the money by about $2 billion on the $5.6 billion it put in the Wall Street firm. The fund took part in Morgan Stanley’s sale of new shares, saying it expects the investment bank to become more competitive. The equity units CIC bought in 2007 will convert to stock at $48 in August. Morgan Stanley shares closed yesterday at $28.19. CIC declined to comment. Sovereign wealth funds tend to support the companies in which they had invested in times of need, said Nuno Fernandes, professor of finance at IMD Business School in Lausanne, Switzerland, who has been studying the funds. Still, the recent losses “had huge implications internally, and the funds were criticized by their local constituencies. They will invest less in financials going forward.” Temasek Holdings Pte, a separate Singapore government fund that oversees more than $120 billion, sold its shares in Charlotte, North Carolina-based Bank of America Corp. for a $4.6 billion loss in early 2009. It had acquired the stock during the conversion of its stake in Merrill Lynch & Co. when the investment bank was bought by Bank of America. Surging Losses After the initial round of investments by the sovereign wealth funds in late 2007 and early 2008, banks and brokers announced more losses on their mortgage assets. And they kept going back to investors for more money. The dilutions since then and the losses — $1.25 trillion worldwide — may make it difficult for some bank shares to recover to 2007-08 levels. In the two years following GIC’s investment, UBS’s writedowns and losses from the credit crisis swelled almost threefold to more than $57 billion. UBS boosted the number of its shares by 98 percent since the end of 2007. Citigroup’s share count jumped almost six times in the same period. After UBS’s capital raising was announced on Dec. 10, 2007, it drew criticism from other shareholders. Profond, a Swiss pension fund, said it was treated unfairly by the bank because it wasn’t offered the same deal, which included a 9 percent interest payment on the mandatory convertible notes sold to GIC and an unidentified Middle Eastern investor. Swiss tabloid Blick christened UBS the “United Bank of Singapore.” “The majority of people at the end of 2007 expected this crisis to be a lot less severe than it in the end turned out,” said Dirk Hoffmann-Becking , a London-based analyst at Sanford C. Bernstein Ltd. To contact the reporters on this story: Elena Logutenkova in Zurich at elogutenkova@bloomberg.net ; Yalman Onaran in New York at yonaran@bloomberg.net .

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Mukherjee Pledges to Narrow India’s Budget Deficit as Economy Accelerates

February 26, 2010

By Cherian Thomas and Kartik Goyal Feb. 26 (Bloomberg) — India’s government pledged to shrink its budget deficit by more than one percentage point of gross domestic product this year from the highest level since 1994, spurring a rally in the nation’s stocks and bonds. Finance Minister Pranab Mukherjee , presenting the annual budget to parliament, said he plans to narrow the gap to 5.5 percent of GDP in the year starting April 1 from 6.9 percent the previous year. He also said economic growth may reach 10 percent in “not-too-distant future.” Government figures earlier showed GDP rose 6 percent in the fourth quarter from a year before. The effort may help bolster investor confidence in India, which has the lowest sovereign-debt rating among the BRIC nations that include Brazil, Russia and China. India and China, the world’s fastest-growing major economies, are both taking steps to rein in stimulus measures as the global economy emerges from recession and inflation pressures escalate. “India and China have bounced back strongly and the challenge now is to check excessive demand and inflation,” D. H. Pai Panandiker , president of New Delhi-based RPG Foundation, an economic research group, said before the budget announcement. “Slashing the deficit will send the right signal to investors about the government’s seriousness to cut debt.” India’s Sensitive stocks index jumped 1.5 percent as of 12:16 p.m. in Mumbai, helping pare its losses since the start of the year that were spurred in part by global investor concern about sovereign debt quality. Yields on benchmark 10-year government notes fell to 7.78 percent, from 7.82 percent earlier, according to the central bank’s trading system. Inflation Battle The reduction in fiscal stimulus also comes as Prime Minister Manmohan Singh ’s government is battling to restrain inflation that threatens to erode the purchasing power of the nation’s consumers and worsen poverty rates. Prices paid by industrial workers in India rose almost 15 percent in December from a year earlier, the most in 11 years. Industrial production grew 16.8 percent in December, the quickest pace since at least 1994, prompting the central bank to say manufacturers are nearing capacity. Rising prices prompted lawmakers yesterday to debate the issue in parliament and blamed Singh for failing to keep his promise of taming inflation within 100 days of his reelection. Singh was voted back for a five-year term in May last year. China, which saw an expansion of 10.7 percent last quarter from a year before, the fastest pace among major economies, is battling to slow property prices that surged 9.5 percent in January, the most in 21 months. Central Bank Central bank Governor Duvvuri Subbarao said last month that India needs to cut its budget deficit to help check inflation and that it was a “bigger risk” to the economy than any other factor. Even so, the annual Economic Survey, prepared by officials advising Mukherjee, said yesterday that expansion in gross capital fixed formation, a proxy for investment growth, is at 5.2 percent, below the economic growth rate. That makes it necessary to watch the growth recovery in private investment in the fiscal third and fourth quarters while scaling back fiscal stimulus, according to the report. “It is important to maintain the policy framework in order not to throttle the spontaneous growth momentum that the economy is demonstrating currently,” said Amit Mitra , secretary general of the New Delhi-based Federation of Indian Chambers of Commerce and Industry. Corporate Earnings Company performance has been mixed. Larsen & Toubro Ltd., India’s biggest engineering company, reported a 50 percent decline in profit last quarter after some orders were deferred. Car sales by Maruti Suzuki India Ltd. and other companies gained in January to a record, Society of Indian Automobile Manufacturers said Feb. 9. Economists at Goldman Sachs Group Inc. and Morgan Stanley expect Mukherjee to increase excise tax by 2 percentage points in the budget. Goldman Sachs economist Tushar Poddar said service tax may also be raised to 12 percent from 10 percent, helping boost total tax revenues by 17 percent next year after a 2 percent gain in the current year. “Improved growth outlook suggests the government has greater scope to wind back fiscal stimulus and make real structural improvements to the deficit,” said Brian Jackson, the Hong Kong-based emerging-market strategist at Royal Bank of Canada. Jackson expects the government to accelerate asset sales. Morgan Stanley Research Managing Director Chetan Ahya said Prime Minister Manmohan Singh’s government may target 250 billion rupees ($5.4 billion) from sale of stakes in state-run companies and another 300 billion rupees from auction of licenses for third-generation mobile-phone services. Wireless Licenses As many as 13 wireless operators, including Vodafone Group Plc and Bharti Airtel Ltd. may compete for the licenses. The companies in which equity stakes will be sold include Coal India Ltd., India’s monopoly coal producer, and Steel Authority of India Ltd., the nation’s second-largest steelmaker. The additional revenue may help Mukherjee allocate more money for the government’s rural jobs program after poor monsoon rains last year hurt farm production and reduced incomes of the country’s 700 million people who live in the countryside. The drop in agriculture output slowed economic growth to 6 percent in the quarter ended Dec. 31 after a 7.9 percent gain in the previous quarter, the nation’s statistics office said in a separate statement in New Delhi today. Investment Need “India needs to use its budget to achieve more investment in agriculture and infrastructure,” Gerard Lyons , the chief economist at Standard Chartered Bank said in an interview in New Delhi on Feb. 11. “Fiscal consolidation is important.” Subsidies for food and fertilizer now consume 10 percent of the budget. With another 14 percent of the budget devoted to defense, 19 percent to pay interest on the national debt and another 25 percent given to states as their share of the federal government’s revenue, there’s little left to pay for schools, power plants and other investments that can boost growth. As a result, debt sales may rise 2 percent in the 12 months starting April 1 to a record 4.6 trillion rupees, according to the median forecast in a survey of 13 economists and investors. With a debt level almost quadruple China’s — at an estimated 86 percent of GDP this year according to the IMF — fiscal restraint may also aid a sovereign-debt rating that’s the lowest among the BRIC nations, which include Brazil, Russia and China. “If the exit path is well articulated and well executed, the local-currency rating could be upgraded,” Moody’s Investors Service sovereign analyst Aninda Mitra said in a Feb. 19 interview. Moody’s ranks India’s rupee-denominated debt at Ba2, two levels below investment grade. To contact the reporters on this story: Cherian Thomas in New Delhi at cthomas1@bloomberg.net ; Kartik Goyal in New Delhi at kgoyal@bloomberg.net .

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Mukherjee May Raise India Taxes to Avoid `China-Like’ Economic Overheating

February 24, 2010

By Cherian Thomas and Kartik Goyal Feb. 25 (Bloomberg) — India’s government may tomorrow raise excise taxes and slow spending in an effort to shrink a 16-year-high budget deficit and foster sustainable growth that avoids the asset bubbles emerging in China. Finance Minister Pranab Mukherjee will promise to cut the deficit to 5.5 percent of gross domestic product from 6.8 percent in his budget speech, according to the National Council of Applied Economic Research in New Delhi and Morgan Stanley economist Chetan Ahya. The challenge for Mukherjee is to unwind 7.5 trillion rupees ($162 billion) of fiscal stimulus and curb consumer-price inflation that’s the highest in the Asia-Pacific region, according to data compiled by Bloomberg. The payoff may be cheaper debt-financing costs and averting investor concerns at the sustainability of faster economic growth such as in China. “India wants to avoid a China-like overheating problem,” said Shashanka Bhide , chief economist at the National Council, a corporate-funded analysis group. “Mukherjee has a tough balancing act — to support growth and cut the budget deficit to control inflation.” Prime Minister Manmohan Singh ’s administration, which won reelection last year, will also aim to avoid stifling an economic rebound that’s yet to produce earnings gains for DLF Ltd. , India’s largest real-estate developer, and has left out an agriculture industry hammered by a poor monsoon. Growth to Quicken The government may tomorrow report GDP growth slowed to 6.9 percent last quarter from a year ago, compared with a 7.9 percent rate the previous three months, the median of 19 forecasts in a Bloomberg News survey shows. At the same time, a waning impact from the hit to farming and strengthening domestic demand is forecast to see the expansion approach 8 percent this year, according to the International Monetary Fund. “You can’t maintain your policy settings at crisis levels” when growth rebounds, Stephen Roach , chairman of Morgan Stanley Asia Ltd., said in an interview in Mumbai Feb. 12. “If monetary and fiscal accommodation persists for an indefinite period, you run the risk” of consumer and asset-price inflation, he said. Roach’s Singapore-based colleague Ahya expects the government to lift excise taxes by 2 percentage points on almost all products and cut expenditure by 0.6 percentage points of India’s GDP, Asia’s third largest. Mukherjee wrote off farm loans, raised government salaries and cut excise taxes by 4 percentage points as the global recession deepened, providing fiscal stimulus worth 3.5 percent of GDP. The budget for the fiscal year beginning April 1 is scheduled for presentation to parliament at 11 a.m. in New Delhi. Debt Burden With a debt level almost quadruple China’s — at an estimated 86 percent of GDP this year according to the IMF — fiscal restraint may help stoke India’s bonds and currency, Goldman Sachs Group Inc. analysts said this month. It may also aid a sovereign-debt rating that’s the lowest among the BRIC nations, which include Brazil, Russia and China. “If the exit path is well articulated and well executed, the local-currency rating could be upgraded,” Moody’s Investors Service sovereign analyst Aninda Mitra said in a Feb. 19 interview. Moody’s ranks India’s rupee-denominated debt at Ba2, two levels below investment grade. Mukherjee may accelerate sales of state-run companies including Coal India Ltd., India’s monopoly coal producer, and Steel Authority of India Ltd. , the nation’s second-largest steelmaker, to boost revenue. India is also aiming to pare a subsidy bill that amounts to 10 percent of spending, by reducing aid to fertilizer producers. Hit to Stocks Debt woes have become an investor focus after a Greek rating downgrade spurred a sell-off in the euro. India’s Sensitive stocks index declined 6.6 percent since Jan. 1, while China’s Shanghai Composite Index fell 8.5 percent this year. Bonds have retreated, with benchmark 10-year Indian government note yields climbing 20 basis points to 7.79 percent this month. Bond sales may rise 2 percent in the fiscal year to a record 4.6 trillion rupees, according to the median forecast in a Bloomberg survey, reflecting the need to refinance a surge in maturing debt. Central bank Governor Duvvuri Subbarao said last month that India’s budget deficit was a “bigger risk” to the economy than any other factor and called on the finance ministry to trim it to help curb inflation. Inflation Rate Prices paid by industrial workers rose almost 15 percent in December from a year earlier, the most in 11 years. Consumer- price inflation for farm workers is 17.2 percent, hurting the purchasing power of the 700 million people who live in the countryside. Industrial production grew 16.8 percent in December, the most since at least 1994, prompting the central bank to say manufacturers are nearing capacity. Even so, earnings have been mixed. New Delhi-based Hero Honda Motors Ltd. , India’s biggest motorcycle maker, reported a better-than-estimated 79 percent increase in profit last quarter. Gurgaon-based DLF’s earnings fell for the sixth straight quarter on subdued office demand. “We have seen some growth in the last two quarters,” Ravi Sud , chief financial officer at Hero Honda, said in an interview. “But is a two-quarter period sufficient to take a call on withdrawal of all the stimulus packages? One is not too sure.” To contact the reporters on this story: Cherian Thomas in New Delhi at cthomas1@bloomberg.net ; Kartik Goyal in New Delhi at kgoyal@bloomberg.net .

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Ellen Brown: Growing Number of Candidates Campaign for State-Owned Banks

February 22, 2010

While bank bailouts fatten Wall Street, states continue to battle the credit crisis. In the search for innovative solutions, some political candidates are proposing that states generate their own credit by setting up their own banks. State budgets for 2010 face the largest shortfalls on record, totaling $194 billion or 28 percent of state budgets; and 2011 is expected to be worse. Unemployment has already officially hit 10 percent, and many economists expect it to rise higher. Continued high unemployment will keep state income tax receipts at low levels and increase demand for Medicaid and other essential services states provide. The existing alternatives are spending cuts or tax increases, but both will just serve to make the downturn deeper. When states cut spending, they lay off employees, cancel contracts with vendors, eliminate or lower payments to businesses and nonprofit organizations that provide direct services, and cut benefit payments to individuals. The result is a reduction in overall demand. Tax increases also remove demand, by reducing the amount of money people have to spend. Amanda Paulson, writing in the Christian Science Monitor , quotes Arturo Perez, fiscal analyst with the National Conference of State Legislatures, which released its survey of state budget situations in December: “Unless you’re North Dakota, you’re probably a state that has had some degree of difficulty or crisis involving finances. It’s the worst situation states have faced in decades, perhaps going as far back as the Great Depression in some states.” Unless you’re North Dakota — a state with a sizable budget surplus , and the only state that is adding jobs when other states are losing them. A poll reported on February 13 ranked that weather-challenged state first in the country for citizen satisfaction with their standard of living. North Dakota’s affluence has been attributed to oil, but other states with oil are in deep financial trouble. The big drop in oil and natural gas prices propelled Oklahoma into a budget gap that is 18.5% of its general-fund budget. California is also resource-rich, with a $2 trillion economy; yet it has a worse credit rating than Greece. So what is so special about North Dakota? The answer seems to be that it is the only state in the union that owns its own bank. It doesn’t have to rely on a recalcitrant Wall Street for credit. It makes its own. Candidates Across the Political Spectrum Pick Up on the Public Bank Model In the quest to find ways to divorce the well-being of their states from the financial sector, a growing number of candidates are picking up on the public bank alternative. Florida, Illinois, Oregon, Massachusetts, Idaho and California all have candidates whose platforms contain this proposed solution to the credit crisis. A publicly-owned bank has also been proposed on the federal level. Nationalizing the Federal Reserve (which is not actually federal but is owned by a consortium of private banks) was advocated by 2008 Presidential candidates Dennis Kucinich , a Democrat, and Cynthia McKinney , the Green Party candidate. In 2009, Nobel laureate Joseph Stiglitz said the government would have been better off funding a federally-owned bank than doling out trillions of dollars to private investment banks and CEOs who speculated their way into bankruptcy. Speaking at the New York Society for Ethical Culture on March 6, 2009, he said: If we had used the $700 billion to create a new financial institution, allowed it to lever 10 to 1, which is very modest compared to the 30 to 1 that we were doing, 10 to 1 would have generated $7 trillion of new lending capacity, far in excess of what our country needs. So the issue here is not about lending. It’s really about saving the bankers. And what we confused was saving the banks versus saving the bankers and their shareholders. But nationalizing the Federal Reserve faces powerful opponents in Congress. Meanwhile, on the state level the public bank concept is gaining ground, attracting proponents across the political spectrum, including Democrats, Republicans and Greens. The issue transcends party lines. In North Dakota, a Republican state, the state-owned bank was inaugurated by a political party appropriately called the “Non-Partisan League.” Oregon: The Bankers’ Bank Model In Oregon, Bill Bradbury has included a state bank platform in his bid for governor. Bradbury, a Democrat, was formerly secretary of state and has been endorsed by former Vice President Al Gore. His website declares: It is time to put Oregonians back to work. It is also time to declare economic sovereignty from the multi-national banks that in large part are responsible for much of our current economic crisis. We can achieve these two goals by creating our own bank. The Oregonian , Oregon’s largest newspaper, reported that Bradbury plans to deposit tax revenues in the public-interest bank, keeping Oregon’s money in Oregon. The bank would then lend the money to get the economy going again, targeting small and medium-sized businesses. Interest would be poured back into the state through more loans to start-up businesses, agriculture, and other key sectors. Currently, Oregon deposits hundreds of millions of dollars in tax revenues into large out-of-state banks, siphoning the money off from productive in-state uses. Many of these banks are the very banks needing federal bailouts to keep from failing in 2008, after years of handing out risky mortgage loans. These banks have now grown tight-fisted with Main Street borrowers, making Bradbury’s plan to get money flowing again especially appealing to Oregonian voters. Bradbury uses the Bank of North Dakota (BND) as his model. Like the BND, the Bank of Oregon would return a dividend to the state based on its earnings, while creating jobs and stimulating the economy through lending. The state bank would not replace private banking institutions but would partner with them, particularly with community banks, providing them with new customers and helping them provide new services. To assure the state bank’s independence from existing financial powers, Bradbury proposes that a board of directors appointed by Oregon’s Senate should govern the bank, while taking advice from an advisory committee of experts. Idaho: Keeping State Assets in the State In Idaho, James Stivers , a Republican candidate for the State Senate, has also proposed a state bank to fill state coffers and protect the local economy. In the first indication of a political shift among grassroots Republicans, Stivers swept a closed-ballot preference poll at the GOP District 2 Central Committee meeting in Coeur d’Alene on February 13, winning the non-binding poll 10-0. Stivers declares: An important part of sovereignty is the monetary authority. Currently, banks are allowed to multiply many times over the tax receipts deposited in their institutions. This special privilege is partly responsible for the ‘sucking sound’ in our local economies, as regional banks send their assets to central banks that are playing the derivatives markets of the world. A state bank would restore this privilege to the people in a public trust and would give us the opportunity to back our deposits with the wealth from our public lands. Stivers sees the bank as a way to facilitate small business start-ups, end the ability of private banks to cream profits from the public treasury, protect key budget items, and stave off excessive influence from the federal government. He suggests the novel approach of expanding the role of Idaho’s Bond Bank authority into a full-fledged state bank. The current banking system, he says, causes inflation, one of the “greatest detriments to a living wage”: Inflation is caused by the secret tax of the banking industry in which lenders use the multiplier effect to the benefit of their cronies. This secret tax takes the form of a decline in the value of the dollar and results in higher prices. Wages never keep up with this process because its very purpose is to extract wealth from the wage earner to support the privileged classes who curry the favor of lenders. A state bank would restore this privilege to the people in a public trust and would give us the opportunity to back our deposits with the wealth from our public lands. Illinois: Using a State-owned Bank to Fund Infrastructure In Illinois, Green Party gubernatorial candidate Rich Whitney has other ideas for a state-owned bank. Illinois is listed by the Pew Center for the States as one of nine states confronting historic budget problems. In a recent response to the governor’s State of the State Address, Whitney said: I am the only candidate in this race who proposes to fund public improvements, and promote economic health, without any further tax increases, through the establishment of a state bank, a progressive idea that North Dakota adopted years ago, and that has helped keep that state debt-free even in these troubled economic times. Instead of going into more and more debt, to further enrich private banks, we should be using our tax revenue to further invest in our own State and its people, for the enrichment of our own economy. The bank would use tax revenues and pension contributions as the financial base to expand credit where it is most needed. Illinois’ bank would borrow from the Federal Reserve at the same 1 percent rate as commercial banks. Once the budget was balanced, Whitney’s top priorities would be to use the new money to modernize energy infrastructure and promote solar and wind power. To achieve this, property owners of land where wind and solar generators could be located would be lent money through the state bank at a minimal 1 percent interest rate. To secure repayment, Whitney would require utilities to buy power from the solar and wind-based producers at a premium rate. One option would then be to require part of this premium to be paid to the state bank until the loan is returned. This arrangement, says Whitney, would create a win-win situation: The bank is paid back. The homeowner, farmer or business investing in solar or wind generation realizes immediate savings on energy costs and in many cases will go from being a net consumer to a net producer of energy. Their greater income will further stimulate the economy. The utilities will have to pay the cost of the premium rate but in the long run will realize the benefits of having a greater, stable, more diversified and decentralized energy grid, ultimately cheaper in the face of rising fossil fuel prices. As economies of scale are realized in wind and solar power generation, the costs will fall, as will the necessary premium rate. And we all benefit from the reduction in greenhouse gas emissions. Florida: The Commercial Bank Model Economist and author Farid Khavari , a Democratic gubernatorial candidate in Florida, proposes a state-owned bank that would lend directly to borrowers. The Bank of North Dakota usually uses a “lead lender” such as a bank, savings and loan company, or credit union rather than doing commercial lending directly. Dr. Khavari maintains that the Bank of the State of Florida could be launched at no cost to taxpayers by using the state’s assets as the reserves for making loans, employing the same fractional reserve lending rules used by private banks today. In this way, he says, the bank could drive an “economic miracle” in Florida, instigating massive job creation, cutting costs in half or more, providing low interest financing to homeowners and businesses, and improving teacher salaries and care for veterans and the elderly, while at the same reducing taxes. He explains : The economy is collapsing due to lack of demand. The economy needs money, but the banks are cutting credit, and then sucking all the cash out of the economy by raising interest rates to make sure no one has any cash left at the end of the month. The cost of interest is built into the cost of everything. People already work ten years of their lives just to pay interest in one form or another. The Bank of the State of Florida will end that for Floridians. And this model will work for every state. . . . We can pay 6% interest on savings. Using the same fractional reserve rules as all banks, we can create $900 of new money through loans for every $100 in deposits. We can loan that $900 in the form of 2% fixed rate 15-year mortgages, for example, and the state can earn $12 every year for every $100 in deposits. That means Floridians can save tens of billions of dollars per year while the state earns billions making it possible for them. State and local government budgets will balance without higher taxes when the BSF cuts interest costs. Six percent BSF credit cards will save people billions per month, money that stays in Florida instead of going to the big banks — and the state will make huge profits on that, too. Saving billions in interest costs will create millions of jobs without subsidies just by keeping those billions circulating in Florida. Eventually the state will earn enough to reduce and eliminate state and local taxes while every Floridian has economic security in a recession-proof Florida. The Federal Reserve states on its website that the banking system as a whole leverages $100 in deposits into $900 in loans, but whether a single bank can do it alone has been challenged. Critics say that while banks do create money as loans, they have to replace the deposits when the checks leave the bank in order for the checks to clear. How this all works is a bit complicated and will be the subject of another article, but suffice it to say here in response that if a bank does not have the deposits to cover its outgoing checks, it borrows from the interbank lending market at very low rates, or issues commercial paper or CDs; and the state bank could do the same thing. It would not be fighting with the other banks for old deposits. Loans create new deposits, which can be borrowed back from the pool of “excess deposits” thereby created. Ninety-seven percent of the money supply has been created by commercial banks by turning loans into deposits, but that credit machine has frozen up. A state bank could get it flowing again. California: Catching the Wave California leads the nation in the sheer size of its budget gap. It too now has a gubernatorial candidate proposing to alleviate the state’s credit woes with a state-owned bank. Running on the Green Party ticket, Laura Wells is a former financial analyst who received 420,000 votes in her 2002 bid for State Controller, more than any other Green Party candidate has earned in a partisan statewide race. According to her website: Rather than drowning in debt and begging Wall Street for loans, California can institute a State Bank that invests in California’s infrastructure, and future generations. She stated in a comment, “A state bank for California is part of my platform as a candidate for the Green Party nomination for Governor. I ran for State Controller to ‘Follow the Money.’ Now, we need to Fix the Money. A state bank would keep California’s wealth in the state. Rather than invest in Wall Street (we’ve hit the wall on that one) we can invest in our infrastructure and our future generations.” Legislative Proposals It is not just political hopefuls who are exploring the public bank option. Therese Murray currently presides over the Massachusetts State Senate. She has introduced legislation that would study the formation of a state-owned bank with the principal aim of boosting job creation in the state. Massachusetts now faces a 9.4 percent unemployment rate. “It wouldn’t be in competition with our small community banks,” she says. “We’ve got to free up some credit, and mortgage companies and banks have got to do a better job of allowing people to redo their mortgages.” In Virginia, Congressman Bob Marshall , a Republican, introduced a bill in January to study whether to establish a bank that was owned, run, and controlled by the state. However, the plan was tabled in committee. On February 16, the front page of the Huffington Post featured an article on the Bank of North Dakota and the precedent it sets for financially-strapped states. Besides political candidates promoting this option, it noted that a Washington State legislator and a Vermont House committee were exploring it. North Dakota hit the Wall Street wall in 1919, when the Bank of North Dakota was established by the state legislature specifically to free farmers and small businessmen from the clutches of out-of-state bankers. For over 90 years, it has demonstrated the success of the public banking model. Other credit-choked states are finally taking notice and devising their own variations on the theme.

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Moody’s May Raise India Rating on Mukherjee’s Steps to Cut Budget Deficit

February 22, 2010

By Kartik Goyal Feb. 22 (Bloomberg) — India’s credit rating may be raised from junk if Finance Minister Pranab Mukherjee provides a comprehensive plan to roll back fiscal stimulus and cut the budget deficit this week, Moody’s Investors Service said. “If we think the exit path is well articulated and well executed, the local currency rating could be upgraded,” Aninda Mitra, a Singapore-based sovereign analyst at Moody’s, said in a telephone interview on Feb. 19. India’s long-term local currency debt is placed at Ba2 by Moody’s, two levels below the investment grade and at par with Armenia and Turkey. Mukherjee has an opportunity to narrow the budget shortfall as accelerating economic growth boosts tax revenue and a stronger political mandate after last year’s elections paves the way to resume asset sales. Rating changes have less impact on India than other countries like Greece, which borrow more from abroad. India’s foreign borrowings make up only about 4 percent of government debt compared with 83 percent for Greece, according to Citigroup Inc. More Signaling “India has lived with a budget deficit for so long, and with a high growth rate you can run a deficit,” said Andrew Michael Spence, a Nobel prize-winning economist and professor emeritus at the Graduate School of Business, Stanford University. “You don’t want the credit rating to go too low. It’s more signaling rather than anything else.” India’s budget deficit may narrow to 5.5 percent of gross domestic product in the financial year starting April 1 from 6.8 percent of GDP in the previous year, Chakravarthy Rangarajan, Prime Minister Manmohan Singh’s top economic adviser, said on Feb. 19. Mukherjee is scheduled to unveil the budget in parliament in New Delhi on Feb. 26 at 11 a.m. Indian government debt accounts for about 80 percent of the gross domestic product . Standard & Poor’s and Fitch Ratings have a BBB-, the lowest investment grade rating, on Indian local currency debt. “Although, the debt level is high relative to other emerging markets, the fact remains that it’s not increasing sharply,” Mitra said. “It’s hovering around 80 percent of the GDP. So, that’s a reasonably good outcome and which is why we shifted towards the positive outlook,” in December 2009. Asset Sales Mukherjee, who allowed the budget deficit to widen to provide fiscal stimulus to the economy amid a global recession, is relying on asset sales and faster growth to spur tax collections in next year’s budget. India’s $1.2 trillion economy may grow 7.2 percent in the current fiscal year through March, accelerating for the first time since 2007, the statistics office said Feb. 8. Singh’s government plans to reduce stakes in 68 companies including NMDC Ltd., the nation’s largest iron-ore producer, and NTPC Ltd., the biggest electricity provider, after he returned to power in May without the help of communist parties, who as part of the previous coalition had opposed the policy. Indian bond yields gained 30 basis points to 7.86 percent since Jan. 1 on concern the government’s net borrowings next year may remain near record levels. The government may borrow a net 3.8 trillion rupees in the year starting April 1, compared with 3.97 trillion rupees this year, said Abheek Barua , an economist at the Mumbai-based HDFC Bank Ltd. Inflation Risk Central bank Governor Duvvuri Subbarao last month urged the finance ministry to cut borrowings to support the monetary policy’s goal to contain inflation. Subbarao raised the proportion of deposits lenders need to maintain as cash reserves to 5.75 percent from 5 percent and said monetary policy alone won’t be effective in curbing price-gains unless Mukherjee rolls back fiscal stimulus. “The growth has rebounded and at the same time there is a risk of inflation,” Mitra said. “Inflation expectations need to be anchored better, either through higher policy rates and it would be great if that process could be helped by lower government borrowing and spending.” India’s inflation accelerated to 8.56 percent in January, the most in 15 months. “India in on the cusp of a new tryst, which is fiscal destiny and I hope they will take it,” Mitra said. To contact the reporter on this story: Kartik Goyal in New Delhi at kgoyal@bloomberg.net

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China New Village in the Sky Makes Chanos Predict Dubai One Thousand Times

February 22, 2010

By William Mellor (Corrects lending figure in eighth paragraph to 1.39 trillion yuan.) Feb. 22 (Bloomberg) — The township of Huaxi in the Yangtze River Delta is a proud symbol of how Chinese communists embraced capitalism to lift 300 million people out of poverty during the past three decades. Its leaders took a farm community with bamboo huts and ox carts in the 1970s and transformed it into an industrial and commercial powerhouse where today many of its 30,000 residents live in mansions and most have a car. Per-capita income of 80,000 yuan ($11,700) — almost four times the national average — allows Huaxi to claim it’s China’s richest village. Huaxi is also emblematic of the country’s construction and real estate boom. Communist Party officials there are building one of the world’s 30 tallest buildings, a 2.5 billion yuan, 328-meter (1,076-foot) tower. The revolving restaurant atop the so-called New Village in the Sky offers sweeping views of paddy fields, fish ponds and orchards, Bloomberg Markets reports in its April issue. Marc Faber , publisher of the Gloom, Boom & Doom Report, says China is overdoing it. “It does not make sense for China to build more empty buildings and add to capacities in industries where you already have overcapacity,” Faber told Bloomberg Television on Feb. 11. “I think the Chinese economy will decelerate very substantially in 2010 and could even crash.” Huaxi has an even more ambitious project coming up: a 6 billion yuan, 538-meter skyscraper that would today rank as the world’s second tallest. The only loftier building is the new Burj Khalifa in Dubai. Dubai Times a Thousand Such undertakings figured in warnings hedge fund manager Jim Chanos delivered in January that China is Dubai times a thousand. The costs of wasteful investments in empty offices and shopping malls and in underutilized infrastructure will weigh on China, Chanos, president of New York-based Kynikos Associates Ltd., said in a speech at the London School of Economics. “We may find that that’s what pops the Chinese bubble sooner rather than later.” China has defied the global recession of the past two years and remained the fastest-growing major economy. Gross domestic product soared 10.7 percent in the fourth quarter. The government has provided 4 trillion yuan in stimulus spending and encouraged banks to lend a record 9.59 trillion yuan last year, trying to bridge the gap until demand for exports rebounds or domestic consumption takes off. Risk for Commodities Last month, banks lent a further 1.39 trillion yuan — almost one-fifth of the target amount for the whole of 2010. Also in January, foreign direct investment climbed 7.8 percent to $8.13 billion. While China’s resilience has helped support the world economy, raising demand for energy and raw materials, the bursting of a bubble would have the opposite effect. Government efforts to wean the economy off its extraordinary support may roil markets. In January, the central government ordered banks to curb lending, which put China’s stock market into reverse. In a sign, in part, of how dependent the world has become on China, stocks and currencies slumped in places such as Australia and Brazil that supply commodities to the People’s Republic. On Feb. 12, the eve of the one-week Lunar New Year holiday, China for the second time in a month ordered banks to set aside more deposits as reserves. The Shanghai Composite Index has fallen 8 percent year-to-date, after gaining 80 percent in 2009. Bidding Up Prices “If the Chinese economy decelerates or crashes, what you have is a disastrous environment for industrial commodities,” said Faber, who oversees $300 million at Hong Kong-based Marc Faber Ltd. The stimulus tap that Beijing turned on has flowed to projects such as its 2 trillion yuan high-speed-rail network. The 221 billion yuan Beijing-Shanghai line has surpassed the Three Gorges Dam as the single most expensive engineering project in Chinese history. Some beneficiaries of the government efforts have plowed their loans into real estate and stocks. Property prices across 70 cities jumped 9.5 percent in January from a year earlier, according to government data. Bridge of Strength Instead of concentrating on their core businesses, giant state-owned enterprises, or SOEs, have bet on real estate, according to Zhang Xin , a former Goldman Sachs Group Inc. analyst who’s chief executive officer of Soho China Ltd. , the biggest property developer in Beijing’s central business district. “All the SOEs are bidding the prices up to the sky,” Zhang told China International Business, a magazine backed by China’s Ministry of Commerce, in December. That’s despite office vacancies in China’s capital being at record highs, according to Boston-based commercial real estate company Colliers International. Chanos, a short-seller who was early to warn about Enron Corp., is one of a growing number of investors sounding the alarm. “Right now, the Chinese market is overheating,” George Soros said in a Jan. 28 interview. Local-government officials have wasted stimulus funds by replacing infrastructure that was fine in the first place. State media complained in May 2009 that party chiefs in Jianyang, Sichuan province, decided to help boost the local economy by rebuilding a bridge that was in such good condition it had emerged unscathed a year earlier from the earthquake that killed 70,000 people. The so-called Bridge of Strength withstood a demolition crew that tried to blast it to pieces with dynamite, the official China Daily reported. Real Estate or Soybeans? Another example Chanos has cited is the city of Ordos, where party officials have built an entire new downtown on the windswept grasslands of Inner Mongolia , 25 kilometers (15 miles) outside the existing municipality of 1.5 million people. Mark Mobius , meanwhile, is sticking with China. The executive chairman of Templeton Asset Management is encouraged that the government is pulling back some of its extraordinary economic support. “We see the government’s tightening of lending as a positive because it moderates the risk to some degree,” says Mobius, who oversees $34 billion. “This is a correction in an ongoing bull market.” Chris Ruffle , who helps manage $19 billion for Edinburgh- based Martin Currie Ltd., also remains confident China will avoid a bust. “It’s not a highly leveraged situation,” says Ruffle, who works in Shanghai. “I was in Japan in the 1980s, and that was a bubble. Here in China, we are nowhere near that.” Still, even Mobius says investors have to be wary. He got rid of an investment in a Chinese food company after discovering that it was using funds to buy apartments instead of to process soybeans. To contact the reporter on this story: William Mellor in Sydney at wmellor@bloomberg.net

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Asian Stocks, Oil Advance as U.S. Interest Rate Concern Eases; Yen Weakens

February 22, 2010

By Will McSheehy and Shani Raja Feb. 22 (Bloomberg) — Asian stocks jumped the most since November, oil rose and the yen fell on speculation Federal Reserve Chairman Ben S. Bernanke will signal that U.S. interests rates will be kept near a record low. The MSCI Asia Pacific Index gained 2.4 percent to 118.10 as of 4:15 p.m. in Tokyo, the most since Nov. 30. Futures on the Standard & Poor’s 500 Index climbed 0.2 percent and those for the Dow Jones Euro Stoxx 50 slid 0.2 percent, oil rallied for a fifth day, rising above $80 a barrel. The yen weakened against all of its 16 most-traded counterparts. Bernanke may tell Congress this week that an interest rate increase isn’t imminent amid a weak jobs market, said Ethan Harris, head of economics for North America at Bank of America Merrill Lynch. New York Fed President William Dudley said on Feb. 19 that policy makers need to focus on growth rather than inflation, citing a smaller-than-forecast increase in the consumer-price index for January, a day after the Fed raised its discount rate to 0.75 percent from 0.5 percent. “Markets were spooked last week by the U.S. Federal Reserve’s decision to lift the discount rate,” said Tim Schroeders , who helps manage $1.1 billion at Pengana Capital Ltd. in Melbourne. “The news on the U.S. consumer-price index is a net positive which should allow markets to push higher.” Fifteen stocks rose for every one that fell on the MSCI Asia index. A gauge of raw material producers posted the biggest gain of the MSCI Asia Pacific Index’s 10 industry groups today. BHP Billiton Ltd., the world’s largest mining company, increased 2.8 percent to A$42.16. Mitsubishi Corp., a trading company that gets about 40 percent of sales from commodities, advanced 3.2 percent to 2,282 yen in Tokyo. Nikkei Surges Japan’s Nikkei 225 Stock Average advanced 2.7 percent, Hong Kong’s Hang Seng Index jumped 2.5 percent and South Korea’s Kospi Index gained 2.1 percent. China’s financial markets opened after a week-long Lunar New Year holiday. S&P 500 futures expiring in March increased, indicating that a four-day rally that lifted the index up 3.1 percent last week may continue. United Co. Rusal Ltd. , the world’s largest aluminum producer, surged 5.9 percent to HK$7.94 in Hong Kong. The company said today that it plans to produce 3 percent more aluminum this year than in 2009 and 7 percent more alumina. Suruga Bank surged 7.4 percent to 801 yen in Tokyo. The lender increased its stock buyback program. Sun Hung Kai Properties Ltd. , the world’s biggest developer by market value, gained 1.9 percent to HK$102 in Hong Kong after selling HK$4.2 billion ($540 million) of apartments in the city over the weekend. Won Gains The won gained against all the most-traded currencies, climbing 1.1 percent against the dollar, the most in seven weeks, and 1.3 percent versus the yen. Sales at South Korea’s major department-store chains rose in January for an 11th month, the government said today. “We should see more foreign buying interest in the local stock and bond markets along with the recovery,” said Calbert Loh, head of treasury at Bangkok Bank Bhd. in Kuala Lumpur. “The plus point is that the U.S. won’t be in a hurry to raise interest rates as the recovery is still fragile and inflation benign.” The yen dropped to 125.00 per euro in Tokyo from 124.58 in New York on Feb. 19, after touching 125.24, the lowest since Feb. 4. The dollar was at $1.3633 per euro from $1.3613 on Feb. 19, when it touched $1.3444, the highest since May 18. Euro Bears Futures traders are more bearish than ever on the 16-nation euro, and strategists are slashing forecasts at the fastest clip since December 2008, data compiled by Bloomberg show. Greek Finance Minister George Papaconstantinou said “a few hedge funds” are “betting against the euro in general and Greece in particular,” speculating that other euro-region states will fail to rein in their budget deficits, Welt-am-Sonntag reported yesterday. Credit default swaps show Asia bond risk fell to the lowest in almost three weeks. The Markit iTraxx Australia index fell 5.75 basis points to 92.75 basis points while the Markit iTraxx Asia index of 50 borrowers outside Japan fell 5 basis points to 113, Citigroup Inc. prices show. Crude oil above $80 a barrel for a second day, gaining as much as 0.8 percent to $80.47 a barrel in New York, on speculation energy demand will increase as the global economy recovers. Global consumption may increase by as much as 1.4 million barrels a day in the second half, Iran’s OPEC governor Mohammad Ali Khatibi said in an interview on the Shana Web site yesterday. Copper for three-month delivery dropped 0.8 percent to $7,370 a metric ton on the London Metal Exchange after jumping 9.1 percent last week, the most since July. Gold climbed for a third day to a one-month high as the dollar’s rally slowed. Metal for immediate delivery rose as much as 1 percent to $1,131 an ounce, the highest since Jan. 20, before trading at $1,125.22. To contact the reporter for this story: Will McSheehy in Singapore at wmcsheehy@bloomberg.net Shani Raja in Sydney at sraja4@bloomberg.net .

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China’s New Village Makes Chanos See Dubai

February 22, 2010

By William Mellor (Corrects lending figure in eighth paragraph to 1.39 trillion yuan.) Feb. 22 (Bloomberg) — The township of Huaxi in the Yangtze River Delta is a proud symbol of how Chinese communists embraced capitalism to lift 300 million people out of poverty during the past three decades. Its leaders took a farm community with bamboo huts and ox carts in the 1970s and transformed it into an industrial and commercial powerhouse where today many of its 30,000 residents live in mansions and most have a car. Per-capita income of 80,000 yuan ($11,700) — almost four times the national average — allows Huaxi to claim it’s China’s richest village. Huaxi is also emblematic of the country’s construction and real estate boom. Communist Party officials there are building one of the world’s 30 tallest buildings, a 2.5 billion yuan, 328-meter (1,076-foot) tower. The revolving restaurant atop the so-called New Village in the Sky offers sweeping views of paddy fields, fish ponds and orchards, Bloomberg Markets reports in its April issue. Marc Faber , publisher of the Gloom, Boom & Doom Report, says China is overdoing it. “It does not make sense for China to build more empty buildings and add to capacities in industries where you already have overcapacity,” Faber told Bloomberg Television on Feb. 11. “I think the Chinese economy will decelerate very substantially in 2010 and could even crash.” Huaxi has an even more ambitious project coming up: a 6 billion yuan, 538-meter skyscraper that would today rank as the world’s second tallest. The only loftier building is the new Burj Khalifa in Dubai. Dubai Times a Thousand Such undertakings figured in warnings hedge fund manager Jim Chanos delivered in January that China is Dubai times a thousand. The costs of wasteful investments in empty offices and shopping malls and in underutilized infrastructure will weigh on China, Chanos, president of New York-based Kynikos Associates Ltd., said in a speech at the London School of Economics. “We may find that that’s what pops the Chinese bubble sooner rather than later.” China has defied the global recession of the past two years and remained the fastest-growing major economy. Gross domestic product soared 10.7 percent in the fourth quarter. The government has provided 4 trillion yuan in stimulus spending and encouraged banks to lend a record 9.59 trillion yuan last year, trying to bridge the gap until demand for exports rebounds or domestic consumption takes off. Risk for Commodities Last month, banks lent a further 1.39 trillion yuan — almost one-fifth of the target amount for the whole of 2010. Also in January, foreign direct investment climbed 7.8 percent to $8.13 billion. While China’s resilience has helped support the world economy, raising demand for energy and raw materials, the bursting of a bubble would have the opposite effect. Government efforts to wean the economy off its extraordinary support may roil markets. In January, the central government ordered banks to curb lending, which put China’s stock market into reverse. In a sign, in part, of how dependent the world has become on China, stocks and currencies slumped in places such as Australia and Brazil that supply commodities to the People’s Republic. On Feb. 12, the eve of the one-week Lunar New Year holiday, China for the second time in a month ordered banks to set aside more deposits as reserves. The Shanghai Composite Index has fallen 8 percent year-to-date, after gaining 80 percent in 2009. Bidding Up Prices “If the Chinese economy decelerates or crashes, what you have is a disastrous environment for industrial commodities,” said Faber, who oversees $300 million at Hong Kong-based Marc Faber Ltd. The stimulus tap that Beijing turned on has flowed to projects such as its 2 trillion yuan high-speed-rail network. The 221 billion yuan Beijing-Shanghai line has surpassed the Three Gorges Dam as the single most expensive engineering project in Chinese history. Some beneficiaries of the government efforts have plowed their loans into real estate and stocks. Property prices across 70 cities jumped 9.5 percent in January from a year earlier, according to government data. Bridge of Strength Instead of concentrating on their core businesses, giant state-owned enterprises, or SOEs, have bet on real estate, according to Zhang Xin , a former Goldman Sachs Group Inc. analyst who’s chief executive officer of Soho China Ltd. , the biggest property developer in Beijing’s central business district. “All the SOEs are bidding the prices up to the sky,” Zhang told China International Business, a magazine backed by China’s Ministry of Commerce, in December. That’s despite office vacancies in China’s capital being at record highs, according to Boston-based commercial real estate company Colliers International. Chanos, a short-seller who was early to warn about Enron Corp., is one of a growing number of investors sounding the alarm. “Right now, the Chinese market is overheating,” George Soros said in a Jan. 28 interview. Local-government officials have wasted stimulus funds by replacing infrastructure that was fine in the first place. State media complained in May 2009 that party chiefs in Jianyang, Sichuan province, decided to help boost the local economy by rebuilding a bridge that was in such good condition it had emerged unscathed a year earlier from the earthquake that killed 70,000 people. The so-called Bridge of Strength withstood a demolition crew that tried to blast it to pieces with dynamite, the official China Daily reported. Real Estate or Soybeans? Another example Chanos has cited is the city of Ordos, where party officials have built an entire new downtown on the windswept grasslands of Inner Mongolia , 25 kilometers (15 miles) outside the existing municipality of 1.5 million people. Mark Mobius , meanwhile, is sticking with China. The executive chairman of Templeton Asset Management is encouraged that the government is pulling back some of its extraordinary economic support. “We see the government’s tightening of lending as a positive because it moderates the risk to some degree,” says Mobius, who oversees $34 billion. “This is a correction in an ongoing bull market.” Chris Ruffle , who helps manage $19 billion for Edinburgh- based Martin Currie Ltd., also remains confident China will avoid a bust. “It’s not a highly leveraged situation,” says Ruffle, who works in Shanghai. “I was in Japan in the 1980s, and that was a bubble. Here in China, we are nowhere near that.” Still, even Mobius says investors have to be wary. He got rid of an investment in a Chinese food company after discovering that it was using funds to buy apartments instead of to process soybeans. To contact the reporter on this story: William Mellor in Sydney at wmellor@bloomberg.net

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China’s New Village Makes Chanos See Dubai

February 22, 2010

By William Mellor (Corrects lending figure in eighth paragraph to 1.39 trillion yuan.) Feb. 22 (Bloomberg) — The township of Huaxi in the Yangtze River Delta is a proud symbol of how Chinese communists embraced capitalism to lift 300 million people out of poverty during the past three decades. Its leaders took a farm community with bamboo huts and ox carts in the 1970s and transformed it into an industrial and commercial powerhouse where today many of its 30,000 residents live in mansions and most have a car. Per-capita income of 80,000 yuan ($11,700) — almost four times the national average — allows Huaxi to claim it’s China’s richest village. Huaxi is also emblematic of the country’s construction and real estate boom. Communist Party officials there are building one of the world’s 30 tallest buildings, a 2.5 billion yuan, 328-meter (1,076-foot) tower. The revolving restaurant atop the so-called New Village in the Sky offers sweeping views of paddy fields, fish ponds and orchards, Bloomberg Markets reports in its April issue. Marc Faber , publisher of the Gloom, Boom & Doom Report, says China is overdoing it. “It does not make sense for China to build more empty buildings and add to capacities in industries where you already have overcapacity,” Faber told Bloomberg Television on Feb. 11. “I think the Chinese economy will decelerate very substantially in 2010 and could even crash.” Huaxi has an even more ambitious project coming up: a 6 billion yuan, 538-meter skyscraper that would today rank as the world’s second tallest. The only loftier building is the new Burj Khalifa in Dubai. Dubai Times a Thousand Such undertakings figured in warnings hedge fund manager Jim Chanos delivered in January that China is Dubai times a thousand. The costs of wasteful investments in empty offices and shopping malls and in underutilized infrastructure will weigh on China, Chanos, president of New York-based Kynikos Associates Ltd., said in a speech at the London School of Economics. “We may find that that’s what pops the Chinese bubble sooner rather than later.” China has defied the global recession of the past two years and remained the fastest-growing major economy. Gross domestic product soared 10.7 percent in the fourth quarter. The government has provided 4 trillion yuan in stimulus spending and encouraged banks to lend a record 9.59 trillion yuan last year, trying to bridge the gap until demand for exports rebounds or domestic consumption takes off. Risk for Commodities Last month, banks lent a further 1.39 trillion yuan — almost one-fifth of the target amount for the whole of 2010. Also in January, foreign direct investment climbed 7.8 percent to $8.13 billion. While China’s resilience has helped support the world economy, raising demand for energy and raw materials, the bursting of a bubble would have the opposite effect. Government efforts to wean the economy off its extraordinary support may roil markets. In January, the central government ordered banks to curb lending, which put China’s stock market into reverse. In a sign, in part, of how dependent the world has become on China, stocks and currencies slumped in places such as Australia and Brazil that supply commodities to the People’s Republic. On Feb. 12, the eve of the one-week Lunar New Year holiday, China for the second time in a month ordered banks to set aside more deposits as reserves. The Shanghai Composite Index has fallen 8 percent year-to-date, after gaining 80 percent in 2009. Bidding Up Prices “If the Chinese economy decelerates or crashes, what you have is a disastrous environment for industrial commodities,” said Faber, who oversees $300 million at Hong Kong-based Marc Faber Ltd. The stimulus tap that Beijing turned on has flowed to projects such as its 2 trillion yuan high-speed-rail network. The 221 billion yuan Beijing-Shanghai line has surpassed the Three Gorges Dam as the single most expensive engineering project in Chinese history. Some beneficiaries of the government efforts have plowed their loans into real estate and stocks. Property prices across 70 cities jumped 9.5 percent in January from a year earlier, according to government data. Bridge of Strength Instead of concentrating on their core businesses, giant state-owned enterprises, or SOEs, have bet on real estate, according to Zhang Xin , a former Goldman Sachs Group Inc. analyst who’s chief executive officer of Soho China Ltd. , the biggest property developer in Beijing’s central business district. “All the SOEs are bidding the prices up to the sky,” Zhang told China International Business, a magazine backed by China’s Ministry of Commerce, in December. That’s despite office vacancies in China’s capital being at record highs, according to Boston-based commercial real estate company Colliers International. Chanos, a short-seller who was early to warn about Enron Corp., is one of a growing number of investors sounding the alarm. “Right now, the Chinese market is overheating,” George Soros said in a Jan. 28 interview. Local-government officials have wasted stimulus funds by replacing infrastructure that was fine in the first place. State media complained in May 2009 that party chiefs in Jianyang, Sichuan province, decided to help boost the local economy by rebuilding a bridge that was in such good condition it had emerged unscathed a year earlier from the earthquake that killed 70,000 people. The so-called Bridge of Strength withstood a demolition crew that tried to blast it to pieces with dynamite, the official China Daily reported. Real Estate or Soybeans? Another example Chanos has cited is the city of Ordos, where party officials have built an entire new downtown on the windswept grasslands of Inner Mongolia , 25 kilometers (15 miles) outside the existing municipality of 1.5 million people. Mark Mobius , meanwhile, is sticking with China. The executive chairman of Templeton Asset Management is encouraged that the government is pulling back some of its extraordinary economic support. “We see the government’s tightening of lending as a positive because it moderates the risk to some degree,” says Mobius, who oversees $34 billion. “This is a correction in an ongoing bull market.” Chris Ruffle , who helps manage $19 billion for Edinburgh- based Martin Currie Ltd., also remains confident China will avoid a bust. “It’s not a highly leveraged situation,” says Ruffle, who works in Shanghai. “I was in Japan in the 1980s, and that was a bubble. Here in China, we are nowhere near that.” Still, even Mobius says investors have to be wary. He got rid of an investment in a Chinese food company after discovering that it was using funds to buy apartments instead of to process soybeans. To contact the reporter on this story: William Mellor in Sydney at wmellor@bloomberg.net

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Obama Announces ‘Modest’ Foreclosure-Prevention Initiative

February 19, 2010

In what senior administration officials repeatedly stressed as a “modest” effort, President Barack Obama announced a $1.5 billion initiative to help five states and their local housing agencies deal with an expected influx of foreclosures. In a pair of Friday speeches in Nevada, Obama laid out his plan to help the five states — Nevada, Michigan, Arizona, California and Florida — arguably hardest hit by the housing meltdown. Each has suffered at least a 20 percent decline in home values since the peak of the housing bubble. “And now that that bubble has burst, it’s left devastation that we’re still grappling with today,” Obama told a crowd in Henderson, Nevada. The state is the only one in the nation where homeowners cumulatively owe more on their mortgages than the underlying homes are worth, according to real estate research firm First American CoreLogic. For every $1 their homes are worth, Nevadans owe lenders $1.14. The entire state is “underwater.” “Now, government has a responsibility to help deal with this problem. Government can’t solve this problem alone. We got to be honest about that. Government alone can’t solve this problem. And it shouldn’t,” Obama said. “It can’t stop every foreclosure, and tax dollars shouldn’t be used to reward the very irresponsible lenders and borrowers who helped bring about the housing crisis. But what we can do is help families who’ve done everything right stay in their homes whenever possible. “So this fund is going to help out-of-work homeowners avoid preventable foreclosures, and it will help homeowners who owe more than their homes are worth find a way to pay their mortgages that works for both the borrowers and the lenders alike, and will help folks who’ve taken out a second mortgage modify their loans.” The money, which will come from the administration’s $50 billion Home Affordable Modification Program, will be used as an “innovation fund” so state and local agencies can experiment with different methods to reduce preventable foreclosures, the administration said in a statement. The Treasury Department has to approve the programs. While the money can be used to target troubled homeowners suffering from unemployment, negative equity (homeowners who are underwater), and even those with multiple mortgages on their homes (like second mortgages or home equity lines), the ultimate amount available for the five states — $1.5 billion — is a pittance compared to the amount of delinquent homeowners. As of Dec. 31, the Mortgage Bankers Association estimates that about 1.5 million homeowners in those five states were delinquent on their mortgages, according to data released Friday. Separately, the administration has set aside about $47 billion to modify the mortgages of distressed homeowners who meet specific Treasury Department guidelines. That program promises to help up to four million homeowners by lowering their monthly payments. Thus far about 950,000 homeowners are getting at least temporary payment relief. Comparing the goals of the national program to the amount of money allocated, Treasury is estimating that it will cost about $12,000 to successfully modify each troubled mortgage. Using that figure, the administration’s latest $1.5 billion effort could end up helping just 125,000 homeowners. About 4.3 million homeowners nationwide are at least 90 days delinquent on their mortgages or in foreclosure proceedings, according to the latest figures from the Mortgage Bankers Association. Most of them will lose their homes. At the very least, though, the administration’s latest effort can be viewed as an acknowledgment that changes are needed. “What we’re trying to do here is foster innovation,” Herbert M. Allison Jr., the Treasury Department’s assistant secretary for financial stability, said in a Friday conference call with reporters. While administration officials wouldn’t say whether specific changes are coming, Diana Farrell, deputy director of the White House National Economic Council, said during the conference call that the money is being targeted to encourage state and local housing agencies to “innovate to address what are these much thornier issues” like homeowners who are underwater, unemployed, or burdened with multiple mortgages. That innovation, if successful, may be applied to the national program, which many analysts and experts perceive to be inadequate and, in its current form, ultimately doomed to fail. Nearly one year after the program was announced, less than 120,000 homeowners have achieved the kind of permanent relief that was promised. But in case homeowners thought the administration was trying to help everyone with mortgage difficulties, Obama made it clear Friday that wasn’t the case: “I’ve got to again repeat — government can’t stop every foreclosure. There’s not enough money in the Treasury to stop every foreclosure. And we shouldn’t be using tax dollars to reward the same irresponsible lenders or borrowers who helped precipitate the crisis.”

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Dave Johnson: Whirlpool Bites Hands Of American Taxpayers That Feed It

February 19, 2010

This post originally appeared at Campaign for America’s Future (CAF) at their Blog for OurFuture as part of the Making It In America project. I am a Fellow with CAF. Whirlpool, recipient of federal stimulus “smart grid” dollars, is closing an Evansville, Indiana freezer-topped refrigerator and icemaker production plant and moving the 1,100 jobs to Mexico. Whirlpool knows that taxpayers will shoulder the unemployment and other costs. Closing a plant like this also means all the supplier, transportation and other third-party jobs go away. For example, 100+ Disabled Workers Could Lose Jobs Whirlpool employees aren’t the only ones losing their jobs when the plant closes. More than 100 blind or disabled individuals could also be left jobless. The Evansville Association for the Blind has issued a public plea, asking businesses to consider using their employees. There will be more home foreclosures, and local businesses are stressed or have to go out of business. Whirlpool is profiting from making all this someone else’s problem. Whirlpool is even playing nearby Iowa against Indiana, shaking the state down for millions to move just 60 of the 1,100 jobs there. So, of course, Wall Street celebrates the move, the setting states against each other, the cost-shifting and the resulting “increase in margins.” The workers are still trying to do something about this. Inside Indiana Business writes about a rally on February 26, Organizers have invited guests including AFL/CIO President Richard Trumka and Jim Clark, president of the IUE-CWA union with which Local 808 is affiliated. Employees with the least seniority are expected to lose their jobs first, March 26. The remaining workers will be let go until production ceases in early summer. Richard Trumka, AFL-CIO President, writes: The Whirlpool Corp. is closing a refrigerator manufacturing plant in Evansville, Ind., putting more than 1,100 people out of work. Even worse, Whirlpool will continue to produce these refrigerators, but not in Evansville and not anywhere else in America. They are planning to manufacture them in Mexico, where weaker labor and environmental laws make them “cheaper” for Whirlpool to produce. This is outrageous and unacceptable, especially in light of Whirlpool’s profitability and the $19 million dollars in economic recovery money Whirlpool recently received from the federal government as a part of the American Recovery and Reinvestment Act. Those are OUR economic recovery funds, not Mexico’s. You can sign their Whirlpool: Keep It Made in America petition here . Will Congress listen?

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Damien Hoffman: Outrageous But Legal: EU Knew Goldman Sachs Helped Greece Use Derivatives to Conceal Deficits

February 16, 2010

Bloomberg reports: Greece turned to Goldman Sachs Group Inc. in 2002, just after adopting the euro, to get $1 billion in funding through a swap on $10 billion of debt, Christoforos Sardelis, head of Greece’s Public Debt Management Agency at the time, said in an interview last week. Eurostat, the EU’s statistics office, was aware of the plan, he said. This is like your local bank ignoring video footage of a mortgagee borrowing money from a loan shark to make a down payment. Clearly, the EU should have more closely analyzed this financial engineering given the high risk use of derivatives to manage critical sovereign debt. Outrageous … But Legal. What do you think of Goldman’s dealings with Greece? The EU’s knowledge? Share your thoughts in the comment section below…

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Charlie Cray: Banana Land and the Corporate Death Squad Scandals

February 15, 2010

A federal judge recently refused to dismiss a civil suit filed against Chiquita which charges that the company paid leftist (FARC) guerrillas operating near its plantations in Columbia — during a period when the FARC killed four American missionaries, according to CNN . The company’s position – which it has held consistently since it voluntarily disclosed the payments to the Department of Justice – has been that both left-wing guerrillas and right-wing paramilitaries forced the company in an extortionate manner to make the payments “to protect the lives of its employees.” But that’s become an increasingly untenable position — esp. since some of the same paramilitaries who took the payments have come in from the cold, disarming and submitting to Columbia’s “Justice and Peace” process – which allows them to receive reduced jail time for confessing to all of their terrorist crimes. The problem for Chiquita – and now for Dole (and potentially for Del Monte) – is that the confessions reveal a much different story. One of the ex-paramilitaries — Jose Gregorio Mangones Lugo (aka “Carlos Tijeras”) – was the former commander of the William Rivas Front of the United Defense Forces (“AUC”) – the group that operated in northern Columbia, in the zone where the companies and their suppliers grew bananas. In a sworn statement Tijeras described the AUC’s relationship with the multinational banana companies as “an open public relationship” involving everything from “security services” to the kidnapping and extrajudicial assassination of labor leaders fingered by the companies as “security problems.” Tijeras’ statement – which reads like the confessions of a corporate death squad leader and directly refutes his paymasters’ version of events — has now been entered into the record in a case filed against Dole last April in California by attorneys with Conrad and Scherer : “I’ve been told that Chiquita has asserted that they paid the AUC funds, but that this was coerced and was a form of extortion. I have also heard that Dole claims to have never paid us any funds. Both of these assertions are absolutely false. In fact, my agreement with Chiquita and Dole was to provide them with total security and other services.” Tijeras is not a lone whistleblower by any means. Salvatore Mancuso, the overall commander of the AUC, also testified in early 2008 that Dole and Del Monte, like Chiquita, had been providing major support to the AUC since its inception. He repeated the accusation to “60 Minutes,” which originally aired the segment in September, 2008. According to these and other witnesses as well as investigators familiar with the bloody history of Columbia, the AUC was originally hired by the companies to drive the leftist FARC guerillas out of the banana-growing region and protect their plantations from “the gangs of common delinquents that robbed their supplies and equipment.” (Tijeras) Once the FARC was vanquished and order restored, the banana companies continued to pay the AUC to “pacify” their work force, suppress the labor unions and terrorize peasant squatters seeking their own competing land claims. Tijeras: “After we restored order and became the local agents of law enforcement, managers for Chiquita and Dole plantations relied upon us to respond to their complaints…We would also get calls from the Chiquita and Dole plantations identifying specific people as “security problems” or just “problems.” Everyone knew that this meant we were to execute the identified person. In most cases those executed were union leaders or members or individuals seeking to hold or reclaim land that Dole or Chiquita wanted for banana cultivation, and the Dole or Chiquita administrators would report to the AUC that these individuals were suspected guerillas or criminals.” According to Tijeras, for years the companies provided up to 90% of the AUC’s income. When a case was filed by the families and heirs of dozens of victims against Dole this past April (2009), the company immediately rejected the charges as “baseless allegations” that “are the product of the most untrustworthy sources imaginable” and “nothing more than the false confessions of convicted terrorists from Columbia, who had every motive to lie about their activities in order to minimize their jail time.” (The plaintiffs’ complaint is a horrific litany of summary executions, off-the-bus abductions, forced-entry murders and kidnappings, ghoulish disappearances and other crimes committed against trade unionists and land reform activists.) Of course Dole is correct to refer to the AUC as “terrorists” – a designation that the U.S. State Department assigned to the group (coincidentally) on September 10, 2001. But if the payments are proven, then, as Chiquita learned, the consequences will be harsh: Payments to designated terrorists are illegal – whether coerced or not – and whether or not the company is cognizant or indifferent to the consequences. As mentioned, Chiquita pleaded guilty in March 2007 after voluntarily disclosing the payments, and ended up agreeing to pay a $25 million criminal fine for violating U.S. antiterrorism laws. The Chiquita criminal case was remarkable for numerous reasons, not least because the company continued to make the payments against the advice of its own outside counsel, and even AFTER notifying the Justice Department. As part of that settlement, Chiquita acknowledged that it had also made payments to the FARC from 1989 to at least 1997 – the period when the missionaries were abducted and killed. Now the families are suing Chiquita under the civil provisions of the Anti-Terrorism Act of 1991, which allows American citizens and their heirs to be compensated for injuries resulting from international terrorism. Meanwhile, an “independent” review commissioned by the company’s board reinforced Chiquita’s claim that its sole motivation was to protect the lives of its employees – from both the FARC and the AUC. That report may help deflect derivative lawsuits filed by the company’s own shareholders, but the conclusion won’t pass the laugh test in Columbia, where attorney general Mario Iguaran has roundly rejected Chiquita’s explanation and reportedly threatened to extradite as many as eight Chiquita executives (including John Paul Olivo, Charles Dennis Keiser and Dorn Robert Wenninger) who he says were responsible for approving the payments and maintaining a “criminal relationship” with the paramilitaries. Another remarkable thing about the Chiquita case is the fact that its attorney at the time is now the U.S. Attorney General. When he was Chiquita’s attorney, Eric Holder told the Washington Post that it would be unfair to treat any company “harshly” that voluntarily discloses payments to designated terrorists, and that if the company is penalized, the individuals within the firm should not be. Yet just a few years before he first passed through the revolving door, when he was Deputy Attorney General, Holder himself had authored a famous corporate crime policy memo (known as the “Holder Memo” ) which suggested that the “prosecution of a corporation is not a substitute for the prosecution of criminally culpable individuals within or without the corporation.” At this point you’d think Holder would automatically and very publicly recuse himself from any decision concerning the requested extradition of Chiquita execs (would the U.S. tolerate it if a government official tied to the cartels blocked an extradition request?) or any other matter related to the investigation of multinational complicity in violence in Columbia. Maybe it’s time for Congress to peel away any doubts. Rep. William Delahunt (D-MA), chair of the House Subcommittee on International Organizations, Human Rights, and Oversight, launched an investigation into U.S. multinationals’ complicity with human rights violations in Columbia back in 2007 with a hearing in which witnesses testified about a pattern of multinational complicity with Columbian terrorists – including the Alabama-based Drummond Co., Inc., which allegedly paid members of a Colombian terrorist group to kill three union organizers. (Drummond denies all of the allegations that have been made against the company and its employees by attorneys working for relatives of murdered Drummond employees, even while the Miami Herald reported just days before the hearing that paramilitaries had also come forward to talk in detail about payments Drummond made to the paramilitaries). Other companies with operations in Columbia that were mentioned at Delahunt’s hearing include Occidental, CocaCola and ExxonMobil Attorney General Eric Holder is the nation’s top cop, overseeing a department that we are regularly reminded has fighting terrorism (and presumably punishing those Americans who aid and abet it here or abroad) as its top priority – so it’s worth asking where the Department’s investigation is regarding companies like Dole, which unlike Chiquita won’t volunteer any facts, and patently deny any allegations – when there is so much obvious evidence pointing their way. To learn more about the situation in Columbia and other countries check out The Banana Land Campaign and International Rights Advocates .

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Beijing Seen Vacant for 50% of Commercial Space as Chanos Predicts a Crash

February 12, 2010

By Bloomberg News Feb. 12 (Bloomberg) — Jack Rodman , who has made a career of selling soured property loans from Los Angeles to Tokyo, sees a crash looming in China. He keeps a slide show on his computer of empty office buildings in Beijing, his home since 2002. The tally: 55, with another dozen candidates. “I took these pictures to try to impress upon these people the massive amount of oversupply,” said Rodman, 63, president of Global Distressed Solutions LLC, which advises private equity and hedge funds on Chinese property and banking. Rodman figures about half of the city’s commercial space is vacant, more than was leased in Germany’s five biggest office markets in 2009. Beijing’s office vacancy rate of 22.4 percent in the third quarter of last year was the ninth-highest of 103 markets tracked by CB Richard Ellis Group Inc. , a real estate broker. Those figures don’t include many buildings about to open, such as the city’s tallest, the 6.6-billion yuan ($965 million) 74- story China World Tower 3. Empty buildings are sprouting across China as companies with access to some of the $1.4 trillion in new loans last year build skyscrapers. Former Morgan Stanley chief Asia economist Andy Xie and hedge fund manager James Chanos say the country’s property market is in a bubble. “There’s a monumental property bubble and fixed-asset investment bubble that China has underway right now,” Chanos said in a Jan. 25 Bloomberg Television interview. “And deflating that gently will be difficult at best.” Third Costliest Investor concerns have spread beyond real estate. Among 15 major Asian markets, the benchmark Shanghai Composite Index is valued third-highest relative to estimates for this year’s earnings, after Japan and India, even after falling 8.5 percent in the past six months. A glut of factories in China is “wreaking far-reaching damage on the global economy,” stoking trade tensions and raising the risk of bad loans, the European Union Chamber of Commerce in China said in November. More than 60 percent of investors surveyed by Bloomberg on Jan. 19 said they viewed China as a bubble, and three in 10 said it posed the greatest downside risk. The quarterly poll interviewed a random sample of 873 Bloomberg subscribers and had a margin of error of 3.3 percentage points. Digesting the debt from a popped property bubble may slash bank lending and drag growth lower for years in an economy that Nomura Holdings Inc. , Japan’s biggest brokerage, says will provide more than a third of world growth in 2010. The risks are so great that a decade of little or no growth, as Japan experienced in the 1990s, can’t be dismissed, said Patrick Chovanec , an associate professor in the School of Economics and Management at Beijing’s Tsinghua University , ranked China’s top university by the Times newspaper in London. ‘Astronomical Rates’ The Nikkei 225 Stock Average surged sixfold and commercial property prices in metropolitan Tokyo rose fourfold before the bubble burst in 1990. The Nikkei trades at about a quarter of its December 1989 peak. “You have state-owned enterprises using borrowed funds from the stimulus bidding up the price of land — not even desirable plots of land — in Beijing to astronomical rates,” Chovanec said. “At the same time you have 30 percent-plus vacancy rates and slumping rents in commercial property so it’s just a case of when you recognize the losses — or don’t.” China’s lending surged to 1.39 trillion yuan in January, more than in the previous three months combined. Property prices in 70 cities climbed 9.5 percent from a year earlier, the most in 21 months. Reasonable Control Policy makers are starting to rein in the loans that helped fuel the property boom . Banks should “strictly” follow real estate lending policies, the China Banking Regulatory Commission said on its Web site on Jan. 27. It called for banks to “reasonably control” lending growth. “The liquidity bubble last year went to the property market,” said Taizo Ishida , San Francisco-based lead manager for the $212-million Matthews Asia Pacific Fund, in a phone interview. “I was in Shanghai and Shenzhen three weeks ago and the prices were just eye-popping, just really amazing. Generally I’m not buying Chinese stocks.” Chanos, founder of New York-based Kynikos Associates Ltd., predicted that China could be “Dubai times 100 or 1,000.” Real estate prices there have fallen almost 50 percent from their 2008 peak as the emirate struggles under at least $80 billion of debt. The economy may shrink 0.4 percent this year, Shuaa Capital, the biggest U.A.E. investment bank, says. The commercial property space under construction in China at the end of November was the equivalent of 6,800 Burj Khalifas — the 160-story Dubai skyscraper that’s the world’s tallest . Industrial Loans It’s difficult to determine how exposed Chinese banks are to real estate debt because loans booked to some state-owned companies as industrial lending may have been used to invest in property, say Xie and Charlene Chu , who analyzes Chinese banks for London-based Fitch Ratings Ltd. in Beijing. A downturn in the property market may be accompanied by a surge in nonperforming loans. The Shanghai office of the banking regulatory commission said on Feb. 4 that a 10 percent fall in property values would triple the ratio of delinquent mortgages there. Shares of Industrial & Commercial Bank of China Ltd. , the world’s largest bank by market capitalization, are down 13 percent this year. China Construction Bank Corp. , the second- largest, has fallen 10.2 percent. Both are based in Beijing. The Shanghai index is down 9 percent. Fund manager Joseph Zeng says he has a contrarian view on China’s banks, on the grounds that rising interest rates this year will benefit their net interest margins. Economic Cycle “For us, non-performing loans are not expected to be a big issue until 2013, the peak of the current economic cycle,” said Zeng, head of Greenwoods Asset Management Ltd.’s Hong Kong office, in a phone interview. He declined to say what he is buying. Greenwoods has more than $500 million under management. China has firepower to deal with a crisis. The nation has the world’s largest foreign exchange reserves, at $2.4 trillion, and government debt of only about 20 percent of GDP last year, according to the International Monetary Fund. That compares with 85 percent in India and the U.S. and 219 percent in Japan. CB Richard Ellis doesn’t count empty office buildings bought by banks and insurance companies when calculating vacancy rates, since some of the space is for the owners’ use. The Los Angeles-based company said in a report that vacancy rates are starting to fall and rents to rise for the best office buildings as China’s fast economic growth buoys demand. Gross domestic product expanded 10.7 percent in the fourth quarter from a year before, a two-year-high, after the government introduced a $586-billion stimulus package. Full Buildings “In many cases when you look at these buildings and say, that’s never going to be fully occupied, somehow 12 to 18 months later the building is full,” said Chris Brooke , CB Richard Ellis’s Beijing-based president and chief executive officer for Asia. Overcapacity may be looming in manufacturing as well. China’s investments in new factories and properties surged 67 percent last year to 15.2 trillion yuan, more than Russia’s gross domestic product. Excess steel capacity may have reached about 132 million tons in 2009, more than the 87.5 million tons from Japan, the world’s second-biggest producer. The Beijing- based EU Chamber of Commerce report said a “looming deluge” of extra cement capacity is being built. While neither Xie nor Chu see nonperforming loan ratios reaching the level of a decade ago, when they made up 40 percent of total lending, they say banks will see deterioration in their balance sheets. Losing Money? “A lot of people will lose a lot of money, but the banks will probably not go down like in the 1990s,” Xie said in a phone interview. “Of course there will be a lot of bad debts. There will be a lot of mortgages gone bad I think.” Rodman displays the slide show to private equity and hedge fund clients brought in by banks such as Goldman Sachs Group Inc. at his office in eastern Beijing. “China is the only place in the world that despite having more empty buildings than the rest of the world has yet to reflect those valuations on their balance sheet,” Rodman said. Gazing south from the building that houses the Beijing headquarters of Goldman Sachs, UBS AG and JPMorgan Chase & Co., one of the first structures in the field of vision is a 17-story office tower at No. 9 Financial Street. Empty. Farther along are the two 18-story towers of the Bank of Communications Co. complex. Dirt is gathering at the doors and the lobby is now a bicycle parking lot. A spokeswoman for the Shanghai-based lender didn’t return phone calls and emails. More Offices The supply of office buildings will continue to grow. Jones Lang LaSalle Inc., a Chicago-based real-estate company, estimates that about 1.2 million square meters (12.9 million square feet) of office space in Beijing will come on line this year, adding to the total stock of 9.2 million square meters. The city government is driving growth regardless of the market. Financial Street Holding Co. , whose biggest shareholder is the local municipal district, plans to build 1 million square meters of additional office space starting this year, and is talking to potential clients such as JPMorgan, said Lydia Wang, the company’s head of investor relations. Across town, the district government is seeking to double the size of the city’s Central Business District, which already has the highest vacancy rate ever recorded in Beijing. It was 35 percent at the end of 2009, according to Jones Lang LaSalle. All Rented For its part, Beijing-based Financial Street Holdings has “100 percent” of its properties, which include the Ritz Carlton hotel and a shopping mall, rented out, Wang said. The empty buildings along Finance Street don’t belong to the company, which is 26.6 percent owned by the district government. Zhong Rongming , deputy general manager of the Beijing- based China World Trade Center Co. , which built China World Tower 3, said the company is “optimistic about 2010 prospects” given China’s accelerating economic growth. He said the new tower will include tenants such as Mitsui & Co. and the Asian Development Bank. One new addition to Finance Street may give real estate boosters cause for concern. No. 8 Finance Street will be the headquarters for China Huarong Asset Management Corp. The company’s mission: selling bad debt from banks. — Michael Forsythe , Kevin Hamlin . With assistance from Shelley Smith and Darren Boey in Hong Kong, Chris Bourke in London and Margaret Brennan in New York. Editors: Anne Swardson , Chris Anstey To contact Bloomberg News staff on this story: Michael Forsythe in Beijing at +8610-6649-7580 or mforsythe@bloomberg.net . Kevin Hamlin in Beijing on +86-10-6649-7573 or khamlin@bloomberg.net

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Bill Clinton Taken to New York City Hospital for Procedure, ABC News Says

February 11, 2010

By Brad Skillman Feb. 11 (Bloomberg) — Former President Bill Clinton has been hospitalized in New York City, ABC News said in a statement. According to a press release from the local New York City affliate. Clinton underwent a procedure at Columbia Presbyterian Hospital.

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Record Snowfalls in Washington Area Cost U.S. Taxpayers, Local Businesses

February 10, 2010

By Catherine Dodge and Kate Andersen Brower Feb. 11 (Bloomberg) — The blizzard and record snowfall that brought the U.S. capital to a standstill is costing taxpayers about $100 million each day the federal government is shut. Near-whiteout conditions left federal offices closed for a third straight day yesterday, and last night the Office of Personnel Management announced the shutdown remains in effect for today. The office estimates that each day the government closes results in a loss of about $100 million in productivity and other costs. Washington yesterday broke its annual snowfall record. The nation’s capital received at least 9.8 inches (24.9 centimeters), pushing the seasonal total to 54.9 inches, which breaks the old mark of 54.4 set in 1898-99, according to the National Weather Service in Sterling, Virginia. The storm was the second for Washington in less than a week; 20 inches of snow fell over the weekend. Many government employees are working, even as their offices have been officially closed. “Employees either telecommute or bring work home,” said Steve Ellis , vice president of Taxpayers for Common Sense , a Washington-based watchdog group. “Not being in the office doesn’t necessarily mean not being productive.” Essential employees report to their offices and critical work is completed, he said. “The country can get by a few days without people manning the offices and the phones, but I imagine if it went much longer we would start to run into problems,” Ellis said. ‘Cost of Doing Business’ The government shutdown “is a cost of doing business,” Robert Bixby , head of the Washington-based Concord Coalition , a nonpartisan budget watchdog group, said. “What are they supposed to do, bring people in and get them killed on the roadways?” Washington’s electric supplier, Pepco, a subsidiary of Pepco Holdings Inc ., pulled its crews off the streets yesterday because of unsafe conditions, according to the company’s Web site. Washington’s Dulles International and Reagan National airports were closed yesterday. Even the U.S. Postal Service suspended delivery during the blizzard, and city snow plows were pulled out of service during whiteout conditions, the local ABC station reported on its Web site. Peter Morici , an economist at the University of Maryland in College Park, said the government closure won’t have a big effect. “The checks will still be written, the money will be spent and tax revenue will be collected,” he said Won’t Lose Customers “The federal government isn’t going to lose customers to anybody,” he said. “It isn’t like the Japanese government is going to get the sales.” Any work that isn’t finished this week will just get made up later on, Morici said. Although the shutdown is bad news for restaurants that cater to government workers, the local economy isn’t likely to take a big hit because the money is spent elsewhere, such as in hardware stores on salt, shovels and other tools, he said. “This is a great inconvenience, but for the losers, there are winners,” Morici said. “It tends to even out.” One of the losers yesterday was the Old Ebbitt Grill in downtown Washington, across from the U.S. Treasury Building. Just a handful of customers were trickling into the normally bustling restaurant, said manager Jenna Velella. “We’re kind of known as the power-lunch place in the area,” she said. With all the government workers, attorneys and lobbyists snowed in, there was little action. ‘A Lot Quieter’ “When they aren’t here, it’s definitely a lot quieter,” Velella said. In the five years Velella has been at the restaurant, she said she’s never seen it as slow as it’s been the past couple of days. Barbara Lang, president of the D.C. Chamber of Commerce, said the snow and the double whammy of the government closure is “disastrous” for small stores and restaurants downtown. She estimates losses in the millions of dollars for these businesses. “You’re not going to make up five or six days of activity,” she said. “That money is just gone.” Some businesses took advantage of the bleak weather. The Dupont Hotel hosted an “ice bar,” serving beer, malts and Irish coffee outside on Feb. 6, a Saturday. The hotel made twice as much money at the bar than it would have on a normal weekend day, said Aaron Gillespie, director of sales and marketing. ‘A Wash’ Gillespie said the money he’s making on food sales — and the fact that most hotel occupants can’t leave — make the blizzard “a wash” for business. The people who were going to check out aren’t leaving and the people who were going to check in can’t get into town, he said. Vida Fitness , a three-floor gym and spa in Washington’s Chinatown, stayed open from 9 a.m. to 5 p.m. yesterday seeking to capture business from cooped-up city dwellers. David von Storch, president and founder of three Vida Fitness gyms in Washington, said while attendance is down 50 percent, he’s winning a lot of “positive PR points” with customers. “You can only stay inside so long before you get cabin fever; the gym is an outlet to blow off some steam,” he said. Von Storch also owns three Capital City Brewing Company restaurants, two in Washington D.C. and one in northern Virginia, where business isn’t doing so well. “We are getting slammed,” he said. “We’ve lost $250,000 in sales since Saturday and there’s no way to make the money back from the meals we’ve lost, so we’re just going to have a bad quarter.” Civil Rights Leaders At the White House, even with most staff staying home, President Barack Obama’s schedule went on as planned yesterday. Obama met to discuss job creation for about an hour with civil rights leaders including Al Sharpton and Benjamin Jealous , the president of the National Association for the Advancement of Colored People . “We were glad the president, even on this day of a blizzard, decided to have the meeting and be so open and free with his time,” Sharpton told reporters outside the West Wing after the meeting while holding an umbrella and standing in a driving snow. “I would say good afternoon, but it’s cold out here,” Jealous said. To contact the reporters on this story: Catherine Dodge in Washington at cdodge1@bloomberg.net ; Kate Andersen Brower in Washington at kandersen7@bloomberg.net .

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China’s Imports Jump 85.5% in January as Exports Rise 21%, Government Says

February 10, 2010

By Bloomberg News Feb. 10 (Bloomberg) — China’s exports jumped 21 percent in January from a year earlier, providing more ammunition to trading partners calling for a stronger yuan. Imports climbed a record 85.5 percent, according to data released by the customs bureau on its Web site today. U.S. officials may see Chinese trade gains as a sign that the nation no longer needs to protect exporters by keeping the yuan pegged to the dollar. At the same time, China’s policy makers may see the below-forecast exports and trade surplus as indicating that global demand is only gradually improving. “Chinese policy makers will be very cautious in interpreting the January data, which is highly distorted by the Chinese lunar new year holiday,” said Lu Ting , a Hong Kong- based economist at Bank of America-Merrill Lynch. “They may wait a few more months before making major policy moves.” Twelve-month non-deliverable yuan forwards dropped 0.3 percent to 6.6808 per dollar as of 12:20 p.m. in Hong Kong. Also today, an editorial in the state-owned China Securities Journal said that the currency may not have “big gains” in the first half because economic conditions haven’t improved. Stocks pared gains after the trade release, with the MSCI Asia Pacific index up 0.3 percent as of 12:10 p.m. in Hong Kong after earlier rising as much as 0.8 percent. China’s export gain was the biggest since September 2008. It compared with a 17.7 percent increase in December and the median 28 percent estimate of economists. The trade surplus of $14.17 billion fell short of economists’ $20 billion forecast. Imports rose by the most since Bloomberg data began in 1991. Fastest-Growing Economy The week-long lunar holiday was in January last year and February in 2010. The “positive trend remains intact,” and today’s report bolsters the case for the government to tighten policies and let the yuan strengthen in coming months, said Brian Jackson , an emerging-market strategist at Royal Bank of Canada in Hong Kong. The central bank has already raised banks’ reserve requirements to cool the world’s fastest-growing major economy. U.S. officials, pressing for a stronger Chinese currency to reduce trade imbalances, also argue that yuan gains against the dollar would also help China to restrain inflation. China last year overtook Germany as the world’s largest exporter, the German statistics office confirmed yesterday. Germany itself is benefitting from the expansion of China’s market, with its BGA wholesale and export federation projecting a 10 percent gain in shipments abroad in 2010, propelled by Chinese demand. Arms Sales, Chickens In Taiwan, government figures this week showed the biggest gain in its exports in more than 30 years on spending in China before the lunar holiday. Comparisons from a year earlier are also affected by depressed readings in early 2009 due to the financial crisis. China’s exports slid 17.5 percent in January 2009 and imports tumbled 43.1 percent. China’s static currency is fueling tensions with the U.S. that span anti-dumping duties on American chicken, arms sales to Taiwan, and the Dalai Lama’s planned meeting with President Barack Obama . On Feb. 4, China’s Foreign Ministry rejected Obama’s call for a stronger yuan, adding that “accusations and pressure will not help solve the issue.” The Chinese economy risks overheating this year as exports rebound, government economist Zhang Ming wrote in the China Securities Journal this month, adding that inflation pressures will encourage policy makers to let the yuan gain. Economic Acceleration Gross domestic product climbed 10.7 percent in the fourth quarter from a year earlier, the fastest pace in two years, after the government loosed an unprecedented expansion in credit to counter the effects of the financial crisis. China this year is projected to overtake Japan as No. 2 in global GDP rankings, after the U.S. “It’s getting too big a part of the global pie to keep relying on exports for growth, and so we do think there’s going to be a lot more policies to drive domestic consumption going forward,” Robert Subbaraman , chief economist for Asia excluding Japan at Nomura International Ltd., said in an interview on Bloomberg Television in Hong Kong today. Policy makers may opt to shrink the trade surplus through raising wages rather than yuan gains, Credit Suisse Group AG economist Tao Dong said in an interview yesterday. Higher labor costs would cut Chinese export competitiveness while boosting domestic spending power and sustaining growth, he said. Jiangsu’s Wage Boost Jiangsu, the nation’s third-largest exporting province in 2008, boosted the minimum wage 13 percent this month in an effort the local labor department said was aimed at attracting workers. Central bank Governor Zhou Xiaochuan said yesterday that policy makers need to “closely watch” inflation. Fan Gang , the academic member of the monetary policy committee, warned Feb. 1 that asset bubbles are “the real worry” for the Chinese economy. A report tomorrow may show consumer prices increased 2.1 percent in January from a year earlier, the most since November 2008, according to the median forecast in a Bloomberg News survey of economists. Property price figures are also due this week. To contact the reporter on this story: Sophie Leung in Hong Kong at sleung59@bloomberg.net

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China January Exports Jump 21%, Adding Pressure to Calls for Stronger Yuan

February 10, 2010

By Bloomberg News Feb. 10 (Bloomberg) — China’s exports jumped 21 percent in January from a year earlier, providing more ammunition to trading partners calling for a stronger yuan. Imports climbed a record 85.5 percent, according to data released by the customs bureau on its Web site today. U.S. officials may see Chinese trade gains as a sign that the nation no longer needs to protect exporters by keeping the yuan pegged to the dollar. At the same time, China’s policy makers may see the below-forecast exports and trade surplus as indicating that global demand is only gradually improving. “Chinese policy makers will be very cautious in interpreting the January data, which is highly distorted by the Chinese lunar new year holiday,” said Lu Ting , a Hong Kong- based economist at Bank of America-Merrill Lynch. “They may wait a few more months before making major policy moves.” Twelve-month non-deliverable yuan forwards dropped 0.3 percent to 6.6808 per dollar as of 12:20 p.m. in Hong Kong. Also today, an editorial in the state-owned China Securities Journal said that the currency may not have “big gains” in the first half because economic conditions haven’t improved. Stocks pared gains after the trade release, with the MSCI Asia Pacific index up 0.3 percent as of 12:10 p.m. in Hong Kong after earlier rising as much as 0.8 percent. China’s export gain was the biggest since September 2008. It compared with a 17.7 percent increase in December and the median 28 percent estimate of economists. The trade surplus of $14.17 billion fell short of economists’ $20 billion forecast. Imports rose by the most since Bloomberg data began in 1991. Fastest-Growing Economy The week-long lunar holiday was in January last year and February in 2010. The “positive trend remains intact,” and today’s report bolsters the case for the government to tighten policies and let the yuan strengthen in coming months, said Brian Jackson , an emerging-market strategist at Royal Bank of Canada in Hong Kong. The central bank has already raised banks’ reserve requirements to cool the world’s fastest-growing major economy. U.S. officials, pressing for a stronger Chinese currency to reduce trade imbalances, also argue that yuan gains against the dollar would also help China to restrain inflation. China last year overtook Germany as the world’s largest exporter, the German statistics office confirmed yesterday. Germany itself is benefitting from the expansion of China’s market, with its BGA wholesale and export federation projecting a 10 percent gain in shipments abroad in 2010, propelled by Chinese demand. Arms Sales, Chickens In Taiwan, government figures this week showed the biggest gain in its exports in more than 30 years on spending in China before the lunar holiday. Comparisons from a year earlier are also affected by depressed readings in early 2009 due to the financial crisis. China’s exports slid 17.5 percent in January 2009 and imports tumbled 43.1 percent. China’s static currency is fueling tensions with the U.S. that span anti-dumping duties on American chicken, arms sales to Taiwan, and the Dalai Lama’s planned meeting with President Barack Obama . On Feb. 4, China’s Foreign Ministry rejected Obama’s call for a stronger yuan, adding that “accusations and pressure will not help solve the issue.” The Chinese economy risks overheating this year as exports rebound, government economist Zhang Ming wrote in the China Securities Journal this month, adding that inflation pressures will encourage policy makers to let the yuan gain. Economic Acceleration Gross domestic product climbed 10.7 percent in the fourth quarter from a year earlier, the fastest pace in two years, after the government loosed an unprecedented expansion in credit to counter the effects of the financial crisis. China this year is projected to overtake Japan as No. 2 in global GDP rankings, after the U.S. “It’s getting too big a part of the global pie to keep relying on exports for growth, and so we do think there’s going to be a lot more policies to drive domestic consumption going forward,” Robert Subbaraman , chief economist for Asia excluding Japan at Nomura International Ltd., said in an interview on Bloomberg Television in Hong Kong today. Policy makers may opt to shrink the trade surplus through raising wages rather than yuan gains, Credit Suisse Group AG economist Tao Dong said in an interview yesterday. Higher labor costs would cut Chinese export competitiveness while boosting domestic spending power and sustaining growth, he said. Jiangsu’s Wage Boost Jiangsu, the nation’s third-largest exporting province in 2008, boosted the minimum wage 13 percent this month in an effort the local labor department said was aimed at attracting workers. Central bank Governor Zhou Xiaochuan said yesterday that policy makers need to “closely watch” inflation. Fan Gang , the academic member of the monetary policy committee, warned Feb. 1 that asset bubbles are “the real worry” for the Chinese economy. A report tomorrow may show consumer prices increased 2.1 percent in January from a year earlier, the most since November 2008, according to the median forecast in a Bloomberg News survey of economists. Property price figures are also due this week. To contact the reporter on this story: Sophie Leung in Hong Kong at sleung59@bloomberg.net

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China May Choose to Increase Wages Over Yuan Gains to Narrow Trade Surplus

February 9, 2010

By Bloomberg News Feb. 10 (Bloomberg) — China, under international pressure to reduce its trade surplus , may choose to shrink it through raising workers’ wages rather than letting the yuan appreciate, Credit Suisse Group AG said. Higher labor costs would cut Chinese export competitiveness while boosting domestic spending power and sustaining economic growth, according to the bank. Premier Wen Jiabao ’s government has been pressed by U.S. and European officials to end a 19- month yuan peg to the dollar to help diminish trade and investment imbalances that contributed to the credit crisis. “Wage increases are a better option because they largely benefit Chinese workers,” Tao Dong , a Credit Suisse economist in Hong Kong who has covered the Chinese and Asian economies for more than 15 years, said in an interview yesterday. “Currency appreciation will only result in Chinese exporters losing out to competitors in countries such as Malaysia and Mexico.” The strategy may limit gains in the yuan to 3 percent this year, according to Tao. This month’s 13 percent increase in minimum wage in eastern China’s Jiangsu province indicates that higher pay will play an important role in officials’ efforts to rebalance growth in the fastest-growing major economy, Tao said. In Jiangsu, which was the nation’s third-largest exporting province in 2008, the government raised the minimum wage to attract workers, the local labor department said. Shanghai, the No. 2 exporter, is following suit from April 1, Mayor Han Zheng said. Beijing, Zhejiang and cities in the southern Guangdong province also plan increases, the China Business News reported Jan. 27, citing labor officials. Yuan Jump Unlikely The wage decision “argues against a large one-off yuan revaluation,” Ben Simpfendorfer , an economist with Royal Bank of Scotland in Hong Kong, wrote in a note this week. China has kept the yuan at about 6.83 per dollar since July 2008 to shield exporters from the global slump after a 21 percent gain in the previous three years. The foreign ministry last week rejected U.S. President Barack Obama’s call for the yuan to appreciate, saying the Chinese currency has little impact on American trade deficit. U.S. and European pressure will only delay appreciation because Chinese officials won’t let themselves be seen as buckling, Tao said. “Beijing will continue to resist pressure from the U.S. and other nations and look for ways that will benefit its own economy when it seeks to contribute to global rebalancing,” Tao said. “Higher wages will aid policy makers’ aim to boost domestic consumption and move away from depending on exports.” ‘No Delay’ President Hu Jintao on Feb. 3 urged “no delay” in efforts to reduce dependence on exports and investment and boost service industries and consumption. China’s current-account surplus fell 35 percent last year to $284.1 billion as exports declined because of the global slump. The government will need to manage inflation expectations as wages climb, Tao said. Consumer prices jumped 1.9 percent on year in December and may have climbed 2.1 percent in January, according to the median estimate of economists in a Bloomberg News survey ahead of a government report scheduled for this week. Improved global trade is boosting demand for labor in China, which overtook Germany last year as the world’s biggest exporter. China’s overseas shipments jumped a more-than-forecast 17.7 percent in December from a year earlier and imports surged to a record. — Li Yanping . Editors: Paul Panckhurst , Chris Anstey To contact Bloomberg News staff for this story: Li Yanping in Beijing at +86-10-6649-7568 or yli16@bloomberg.net

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Stacy Mitchell: Small Business Lending: Big Banks vs. Small Banks

February 9, 2010

The New Rules Project, in partnership with HuffPost’s Move Your Money campaign, is using its Community Banking Initiative to get out the word that banking locally can put the power back in the hands of individuals and communities, rather than Wall Street’s CEOs. Just before Thanksgiving last year, the U.S. Small Business Administration’s flagship loan program, which provides banks with a government guarantee of up to 90 percent of the value of loans made to small businesses that fall just shy of qualifying for a standard bank loan, ran out of money. SBA loan guarantees are arguably one of the most efficient uses of stimulus funds. The $325 million included in the Recovery Act of last February covered the cost of backing $16.5 billion in loans to small businesses. Yet, as loan volume spiked in the fall, reaching pre-recession levels, Congress let the pipeline run dry. Within weeks, more than 1,000 small businesses found themselves in loan purgatory: their loans had been approved, but banks couldn’t release the funds. Such a turn of events seems unconscionable amid a recession. But it’s about to happen again. An additional $125 million appropriated in December will run out toward the end of February unless the Senate moves quickly to approve legislation that would support SBA loan guarantees through the end of the year. These days, all eyes are on small businesses, and for good reason. They’ve created the majority of new jobs over the last decade and, in past downturns, it’s been small business growth that has pulled us out of recession. The ability of small businesses to finance growth is, in turn, largely dependent on the capacity of local community banks to lend them money. Although small and mid-sized banks ($10 billion or less in assets) control only 22 percent of all bank assets, they account for 54 percent of small business lending. Big banks, meanwhile, allocate relatively little of their resources to small businesses. The largest 20 banks, which now command 57 percent of all bank assets, devote only 18 percent of their commercial loan portfolios to small business. (See our graphs for more detail.) As big banks have consolidated the market, small businesses have had a harder time obtaining loans. In a study published in 2007 in the Journal of Banking and Finance , Steven G. Craig and Pauline Hardee examined different regions of the country and concluded, “Credit access in markets dominated by big banks tends to be lower for small businesses than in markets with a relatively larger share of small banks.” Other research has found that, all else being equal, regions with a robust network of small, local banks are home to significantly more small firms. Why is it that community banks do so much more small business lending than their big competitors? One reason is that big banks rely on computer models to determine whether to make a loan. Because the local market conditions and the circumstances surrounding each borrower and his or her enterprise are so incredibly varied, this standardized approach does not work very well when it comes to understanding the nuances of risk associated with a particular small business. By drawing on qualitative information – getting to know the borrower, learning about the business, and understanding the local market – small banks can better assess risk and successfully make loans to a wider group of small businesses. “We don’t use credit scoring, where certain parameters about the business are put in and the computer says yes or no. We still rely on a thorough understanding of the financial information that the borrower brings us. You get to know the borrower and understand what the numbers mean in the context of that business,” said John Kimball, vice president of Park Midway Bank, a $272 million-asset bank in St. Paul, Minnesota. Small banks regularly finance businesses that big banks have turned away. Andrew Atwood, who sought financing last year to expand his auto repair business in Phoenix, was rejected by seven large banks. “It was a nightmare,” he said. “They had a ‘you’re lucky we’re even looking at you’ kind of attitude.” Then a customer introduced him to Sonoran Bank, a small, locally owned bank. “From the get-go they treated us like your next door neighbor,” he said. Not only did Atwood get the loan, but the rate, 5.25 percent, was lower than the 6.75 percent the big banks would have offered had he been approved. At Sonoran, Atwood dealt directly with a senior loan officer empowered to approve his loan. This is another significant difference between small and big banks. “The decision-makers are at the community level,” explained Fidel Gutierrez, senior vice president of Los Alamos National Bank, a 47-year-old locally owned bank in New Mexico. “At our bank, the bank president and the senior loan officers are visiting face-to-face with the borrowers. At larger banks, the person you deal with may take the loan request, but they do not make the decision.” Because big banks are run from afar, it’s impossible, or at least very expensive, for them to obtain the kind of qualitative information about risk that local bankers pick up naturally by being part of the community and interacting with borrowers. As a result, there are no economies of scale in small business lending; just the opposite. Small banks are, on average, more efficient small business lenders and make a better return on their assets. All of this makes plain the fallacy of thirty years of banking policy that has fueled mergers and consolidation on the grounds that bigger banks mean greater efficiency and more growth. Banking consolidation has in fact constricted the flow of credit to the very businesses most likely to create new jobs. It’s no surprise then that the money taxpayers have spent over the last 16 months shoring up big banks has done nothing to free up credit for small businesses. To do that, we need to focus on expanding the lending capacity of small banks. The Obama Administration has finally grasped this, putting forward a flurry of proposals in recent weeks aimed at increasing the flow of loans from small banks to small businesses. Although some community banks will benefit from Obama’s plan to make $30 billion in low-cost capital available to them, for most small banks, the issue right now is not a lack of capital. Most small banks are in pretty good shape and have money to lend. The problem is that loan demand is down and many of the small businesses that are seeking loans are not creditworthy by standard measures. Their cash flow has been battered by the recession. Many no longer have equity in their homes or businesses to borrow against. Through no fault of their own, small businesses are operating in an economy in which they are more likely to fail and thus constitute much riskier investments. This is where SBA loan guarantees come in. They allow banks to absorb more risk. “For a bank, if more than one or two percent of your loans go bad, you’re out of business,” explained Kimball of Park Midway Bank. “The SBA guarantees allow you to get that into a range of 5-8 percent. It allows you a lot more leeway in terms of risk.” While SBA-backed loans constitute only about 8 percent of overall small business lending, they account for 40 percent of long-term loans and thus provide an essential source of patient capital for growing small businesses. Under the SBA’s flagship 7(a) lending program, which backs loans of up to $2 million that small businesses can use for working capital, equipment or expansion, the payback period is 7 to 25 years, a longer term than most standard bank loans. In the 12 months before the credit crisis, some 2,500 banks, mostly small community banks, made over 69,000 loans under the 7(a) program. Three-quarters were for amounts under $150,000, one-third went to minorities, and nearly 40 percent funded start-ups. In good economic times, fees paid by borrowers cover the cost of the program, including defaults. When the credit markets froze in the fall of 2008, the volume of SBA-backed bank loans plummeted to about half of normal. Big banks, especially, sharply cut back their lending. SBA loan volume at JP Morgan Chase, for example, fell 66 percent. The Recovery Act sought to bolster 7(a) lending by expanding the maximum guarantee from 75 to 90 percent of the loan and waiving the fees charged to borrowers. It worked: monthly loan volume climbed from $700 million during the darkest months of the crisis to an average of over $1.5 billion during the last six months – a higher volume than in the year before the collapse. Yet, despite the fact that SBA loan guarantees effectively and inexpensively address one of the most debilitating aspects of this recession – reduced credit for small businesses – Congress has allowed the program to run dry once already and is on the verge of doing so again in the next few weeks. Obama has called for extending the higher guarantees and fee waiver through the end of the year. The House has passed a bill to do so. And now, like so much of the legislative agenda, further action depends on the Senate.

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Paul Helmke: Guns And Starbucks: Espresso Shots, Not Gunshots

February 8, 2010

What would your reaction be if you and your kids walked into the local Starbucks and, while contemplating the choice between a latte and a mocha cappuccino, you noticed several fellow customers had semi-automatic pistols and ammunition magazines hanging from their hips ? This scenario has become more than a flight of imagination. In several communities in California, and elsewhere, it has become reality. Welcome to the ” open carry ” movement, an effort by “gun rights” extremists to foist their interpretation of the Second Amendment on the rest of us by openly carrying handguns in public places. While virtually all states have at least some minimal restrictions on the carrying of concealed weapons, few states do anything to regulate the “open carry” of firearms. Particularly in the Bay Area in Northern California, “open carry” adherents have been gathering in Starbucks and other coffee shops and restaurants — their semi-automatic pistols and revolvers in plain view — apparently to make an ideological statement. The sight of such gun-toters in Starbucks reminds us of the incidents last summer, when anti-Obama protestors appeared at political events and “town hall meetings” with handguns and assault rifles openly strapped to their bodies — including events attended by President Obama himself . The “open carry” folks view this as “normalizing” their self-defined “right” to carry guns with them at all times wherever they please, regardless of its impact on public safety. But what about the rights of everyone else who wishes to be free from lethal weapons in public places, except for trained law enforcement? Surveys show that the presence of more guns in a community does not make people safer, or feel safer; indeed, it has the opposite effect. Studies show that the more guns there are, the more gun violence there is in that location. In addition, 80 percent of those who don’t own guns say they would feel less safe if more people in their community acquired guns; only eight percent would feel safer. Even among gun owners, roughly equal proportions would feel less safe if more people had guns versus those who would feel more safe. Take the reaction of one coffee shop customer in San Ramon, California when faced with a group of pistol packers: “I’m scared. I’m getting out of here. They say they want to make a statement. What’s wrong with a T-shirt?” The “open carry” gatherings provoked an immediate reaction from Californians who were appalled that coffee shops and restaurants would allow guns on their premises. At least two national chains have responded responsibly. For example, Peet’s Tea & Coffee stated that its policy “is not to allow customers carrying firearms in our stores” unless they are uniformed law enforcement officers. It also indicated that it would post a notification of that policy in all its stores and would call the local police for assistance should a customer display a firearm in the future. After being alerted by local chapters of the Brady Campaign about a scheduled “open carry” meeting at one its Northern California stores, California Pizza Kitchen issued a statement that it “does not allow guests other than uniformed officers to display firearms in our restaurants” because of its concern “that the open display of firearms would be particularly disturbing to children and their parents.” But now we come to Starbucks. When asked about the company’s policy on the “open carry” of firearms in its stores, its Customer Relations Department responded to the Brady Campaign’s California chapters that “Starbucks does not have a corporate policy regarding customers and weapons; we defer to federal, state and local laws and regulations regarding this issue.” Here’s the problem with that answer: generally speaking – and certainly in California – businesses have the right to bar guns on their premises. It is their property and, just as they can prohibit entry by people with bare feet, they can do the same for people with guns. Despite its response, Starbucks clearly does have a policy and it is one that should be deeply disturbing to the vast majority of its customers. Starbucks has apparently chosen to allow civilians to carry semi-automatic pistols and possibly even assault weapons into its stores. Such a policy is disturbing to law enforcement officials as well as Starbucks patrons. As a San Mateo County Sheriff’s Lieutenant put it, “Open carry advocates create a potentially very dangerous situation,” because when police respond to a “man with a gun” call, they have no idea what the intentions of the gun carrier are and “the result could be deadly.” If a mistake in judgment or perception results in a shooting at a Starbucks, will the company still have no “corporate policy regarding customers and weapons”? This is no idle consideration. Just this past September, at a picnic hosted by “open carry” activists at a Michigan state park, a gun activist was charged with reckless use of a firearm after he unintentionally fired his semi-automatic handgun in a parking lot. Then there was the California “open carry” activist in December who was arrested for carrying his .357 magnum revolver near a school , complaining, “I just can’t see what I did wrong.” Even more disturbing was the man – ” of high interest to the FBI because of his alignment with violent demonstrators at abortion clinics ” – who was arrested for possession of a semi-automatic handgun which he was carrying openly outside a North Carolina abortion clinic last October. As these and other incidents show, the “open carry” movement clearly has implications beyond Starbucks. It is part of a broader campaign, led by the National Rifle Association, to force guns into every corner of American society by “normalizing” the carrying of guns in public places, openly and concealed. The gun pushers want an America where there is nowhere that you and your family can go to be free from guns. As just one example, the same lawyer who won the U.S. Supreme Court case two years ago which declared a Second Amendment right to have a gun in your home for self defense, has filed a new lawsuit seeking to force localities to allow civilians to carry guns on the streets. The “open” carrying of guns is just the visible tip of the “guns everywhere” iceberg. The gun lobby’s clout in state legislatures has forced consideration of dangerous proposals to allow people to legally carry concealed weapons into bars , churches , workplace parking lots , airports , parks , college campuses and elsewhere. While most states do not require any permit, license or training of any kind to carry a semi-automatic pistol openly, the NRA assures us that those who have permits to carry concealed weapons are all ” law-abiding citizens ” whose gun-toting behavior protects the rest of us. Since May, 2007, however, these “law-abiding citizens” have killed at least 117 people , including nine law enforcement officers. During that same period, they have committed eleven mass shootings. So, Starbucks, what will it be? Like Peets Tea & Coffee, will you do the socially responsible thing and stand up for the rights of families and children to be free from guns when they visit your coffee shops? Or will you take the chance that there will be more than just shots of espresso being served up in your stores? If you think Starbucks is wrong here, sign our petition today: http://act.credoaction.com/campaign/starbucks_guns/?rc=brady Sign our petition to tell Starbucks to keep guns out of its stores: http://act.credoaction.com/campaign/starbucks_guns/?rc=brady

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Jeffrey Shamma Named Leader of UHY Advisors’ National Property Tax Practice

February 8, 2010

HOUSTON, TX–(Marketwire – February 8, 2010) – UHY Advisors announces that Jeffrey Shamma has been promoted to National Director of Property Tax for the firm’s State & Local Tax practice, based in Houston.

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Dennis Santiago: Little Bank Savvy on the Oregon Trail

February 5, 2010

During the first week of the Move Your Money campaign one of the towns complaining loudly that there weren’t enough well rated little banks showing up in the MYM zip code tool in their area was Portland, Oregon. I put it in the back of my mind to revisit this part of the world at a later date to understand just how do the little banks living there get along. The Willlamette River — I’m told pronounced “will lah met” — that bisects the city of Portland is so named because it is the French pronunciation of a village of the Clackamas Indians. And so we find little Willamette Community Bank and it’s CEO Dave Wood looking out of his office window surrounded by mega banks Key Bank, Wells Fargo, Chase, USB and northern regional players Washington Federal and Umpqua. Six year old Willamette Community (Ticker: WMCB) was an “A” rated bank in the IRA bank stress system in the 3rd Quarter of 2009 and I’m happy to report that the preliminary 2009 end of year calculation in our system raises that rating to an “A+” based on our look at their 1/20/2010 CDR filing. When I spoke to Dave he carefully recounted how a year of diligence and discipline has turned this institution that specializes in lending to local small businesses into a zero current defaults, four-year weighted average maturity, eleven percent exposure at default banking operation. Those, ladies and gentlemen, are stellar performance metrics. Willamette Community does this not by competing on price against its’ gargantuan neighbors but on emphasizing superior reputation and service. If you call their telephone number a real person answers you. They ask what they can do for you and they transfer you to another real human being. Is that cool or what? Mr. Wood backs this up by staffing his 20 person bank with experienced bankers who understand the landscape of local lending and can work with clients to find the best solutions to their needs. These are, he notes, capabilities not as available to his larger neighbors because their internal processes are more rigid, disjoint and restrictive with regards to delivering the kind of service oriented solutions banking his customers need. Is he right? A minuscule 0.72% troubled lending percentage says yeah his business plan is probably onto something here. The market success proof is in the pudding of course and the numbers say Willamette Community’s model does seem to mean something to their market because WMCB has been growing at about $1 million dollars of new deposits per month for a number of months now. They did grow by another $1M in January 2010 although Mr. Wood wasn’t able to pinpoint any transfers directly attributable to Move Your Money. He takes the larger view attributing his bank’s progress to what he sees to be a growing recognition by people that good banking is attractive to good people. I heartily agree with him. It’s also my observation that blossoming of American common sense intuition is something the Move Your Money campaign has tapped into and helped amplify but not invented. It’s been there all along and it’s not going to go away. Dave Wood and company are not sitting still. They want more business in the Portland area and their IRA bank report readout shows they are indeed investing to grow in that direction. We track an 86% efficiency ratio for the bank which gets to today’s bank math lesson. Efficiency ratio is a measure of how much money it costs a bank to make a buck. The classic benchmark number is 65% which means it costs 65 cents of expenses to earn one dollar of revenue. Lower numbers mean you are coasting on a platform of loyal depositors. Higher numbers mean you are expending more effort to either attract new customers or retain skittish ones. The worst business scenario is drowning in marketing costs the way Pasadena’s IndyMac was in May 2008 at an efficiency ratio of 236% chasing what bankers call “hot money” — opportunistic CD’s with little or no loyalty to the bank. What I like about WMCB is that they are working on growing by emphasizing a quality small business lending model sitting on top of a platform of superior quality core deposits — that’s your local deposits to you people of Portland who sent all those emails complaining there weren’t enough of these kinds of banks in your area. If it helps you to take the measure of the man, Dave Wood’s quote is “I’ll put my group of twenty up against any big bank in this town any day.” Semper Fi Dave! Next let’s jump across the river to Oregon City and visit with Larry Baker, CEO of Lewis & Clark Bank. Yes I am smiling about the poetry of these two bank names bookending the same article. This $110 million dollar single branch bank also rated “A” by IRA in the 3rd Quarter of 2009 and again shows as an “A” per our preliminary review of their 1/20/2010 CDR filings for the period ending 12/31/2009. Larry Baker’s bank has also been growing at around $722K per month in new deposits in the last quarter of 2009. He reports that January was a little slower for them with around $398K in new deposits but one of those was a whopper $240K that he’s pretty sure was prompted by something, maybe Move Your Money. He also reports another $80K event in February also from a new customer coming in from a larger bank. This is splendid stuff because Lewis & Clark, like Willamette Community, also specializes in lending to small businesses in the local area. They also have a core philosophy of sitting down with customers to solve problems and pride themselves on having the experience and resourcefulness of see the range of available options and ideas. You talk to people you get to know. You work with the same loan officer over the long term. Heads up the rest of these United States. These aren’t the only two banks I’ve heard this theme music refraining repeatedly in my ear this last month. Larry notes that “banks like us can benefit greatly by having a few people transfer their balances” into his bank. That’s a call to common sense action if I ever heard one. Never mind this latest government TARP CPP preferred stock funded by future taxpayer liabilities where you owe quarterly dividends at 5% or at 1% if you tow the line and do what the U.S. Treasury dictates to your bank. Do you think Washington will ever figure out that all these banks out in the provinces already know that TARP is a “Scarlet Letter”? Heck man! These guys are already executing on plans to do this with good old fashioned private ordinary people money. Mr. Baker’s bank costs a little more to run than Mr. Wood’s at efficiency ratio of 102.7% per our last calculation. Our look at the readout sheet indicated it’s due to a bit more brokered deposits than Lewis & Clark would probably like and Mr. Baker acknowledges he’s quite keen to replace these with core deposits from local patrons to the extent possible. He’d like you to consider opening a checking account or even an IRA (the retirement kind) with his bank. And what kind of service can you get from this single branch bank? Start with the reception person who answers the incoming line at Lewis & Clark might actually have a better located office than the CEO. Next did you know deposits can be made in other parts of town because they are part of a correspondent group in the Portland area where you can drop off your money on a special deposit slip at one bank and the ACH transaction forwards into your account by the next day? Ok so these are sort of nice. Are you ready for the really good part? So if you go on vacation to some other part of the country and use an ATM and they’ll credit back the transaction fee to your account. That good folk of Portland means the ATM’s of the world are your globetrotting oyster bed thanks to banks like Lewis & Clark. Like I said I do love the poetry of this one. Ok it’s time for the corny line. Yes indeed there is a lot of savvy in Willamette Valley. Is it safe for me to show my face in Portland again?

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Are Your Tax Dollars Sitting In Big Banks?

February 5, 2010

When it comes to banking, state and local governments are choosing Wall Street over Main Street. As of the third quarter of 2009 (the latest data available), state and local municipalities have a total of $230 billion socked away in the 85 national banks with assets over $10 billion, according to the FDIC. They have just a third that amount, around $78 billion, in the 6,386 banks institutions with assets under $1 billion. That’s a disparity that has disturbed politicians in New Mexico , Oregon and New York City who have proposed measures to move government accounts out of big banks and into community banks and credit unions. Their efforts are akin to the Move Your Money campaign, which encourages individuals to take a stand against the nation’s major banks by closing down their accounts and putting their dollars into small financial institutions. Money deposited into local banks is more likely to be redistributed out into the local economy, creating jobs and encouraging growth, according to economists. Community banks also do a disproportionate share of small business lending. The New Rules Project’s Community Banking Initiative’s analysis of FDIC data shows that small banks (those with under $1 billion in assets) facilitate a third of all small business loans — more than the largest 20 banks, despite having just a fifth of their assets. About a quarter of small banks’ loans are dedicated to small business and farm loans, compared to 3 percent for big banks with assets over $10 billion. “Our banks’ niche is serving the local communities and the way to do that is serve the local businesses” said Steve Verdier of the Independent Community Bankers of America. In the nation’s largest banks, on the other hand, deposits are often shipped out of state or overseas, or even into executive compensation. “The theory is that these smaller banks are finding ways to put that money to work where they are,” said Jason Judd, who is leading the Service Employees International Union’s effort to encourage states to bank locally. “If you’re parking billions of dollars in Bank of America or Chase or Wells Fargo that money could be going to work anywhere, and there’s a good chance that some of it is going to bonuses.” Each state organizes its banking system somewhat differently, and many use a combination of community and large banks for their deposits and investments. Maryland, for instance, uses large banks for its main depository accounts, which officials within the state Treasury Department explained was because of the breadth of their reach across the state. Money in those accounts, however, is promptly invested, officials maintain. The only accounts kept full of readily-available funds are the working funds and escrow accounts of local agencies which are granted to the highest-bidding banks. For accounts like these, the state has a preference for local institutions. But keeping the full deposit account in a small bank would lose the state money on investment interest, the officials said. Small banks can sometimes be hesitant to accept deposits of tax dollars because of insurance precautions, among other concerns. A financial institution must meet 100 percent of a government deposit as collateral, which can be prohibitive at times. Local banks also may be wary of capital requirements imposed by the Federal Reserve, and could be more likely to put government deposits into a reserve fund. The Bank of North Dakota, the only state-owned bank in the nation, is an extreme model of banking locally. But it works, according to David Flynn, Assistant Professor of Economics at the University of North Dakota and Associate State Director of the state’s Small Business Development Center. The BND backs up loans granted by local banks to provide more financial security and act as a “backstop” for the existing financial system. It’s been in business since 1919, and is at least part of the reason why the state is one of just two that has not reported a budget shortfall. In the last year, Flynn said, small businesses in North Dakota were still able to obtain credit, even while credit became tighter across the country. “This is the taxpayer-funded government trying to directly help the businesses in the state,” he said. While a programmatic investment in small banks is less practical for larger states, even their towns and counties could still be keeping taxpayer money near those taxpayers. According to Flynn, it “isn’t an idea that should be dismissed anywhere.”

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Stacy Mitchell: Move Your Borrowing Along with Your Money

January 29, 2010

The New Rules Project, in partnership with HuffPost’s Move Your Money campaign, is using its Community Banking Initiative to get out the word that banking locally can put the power back in the hands of individuals and communities, rather than Wall Street’s CEOs. As more of us ditch the big banks in favor local banks and credit unions, we need to give thought to both the saving and lending sides of a bank. Each is crucial. On the savings side, community-based financial institutions need our deposits much more than the big banks do. Big banks have access to other capital. While deposits account for 82% of the funds small banks have to work with, their share at the biggest banks is just 66% (and deposits made in the U.S. account for even less: just 39%). But to be profitable community banks need to convert those deposits into loans. “Deposits are extremely important to small banks. But the only way we can be successful is if we turn those into loans,” said Frank Coumides, senior vice president for lending at Sonoran Bank, a small, locally owned bank in Phoenix. When it comes to consumer lending, however, community-based financial institutions have lost a lot of ground over the last two decades as big banks raided two large segments of this market: mortgages and credit cards. Since 1985, community banks (those with under a $1 billion in assets) have seen their share of mortgage and credit card lending fall much faster than their share of deposits. While their share of all bank deposits fell 41%, their share of bank-owned mortgages dropped 63% and their share of consumer credit, including credit cards, fell 71%. Big banks went after mortgage and credit card lending because these loans were easier to turn into mass-produced commodities (and toxic derivatives) and offered major profit potential. Credit cards, in particular, became highly concentrated and incredibly lucrative, as the big banks devised new fees and manipulated terms for cardholders, while also jacking up the hidden fees they charge merchants each time your card is swiped. By 2006, credit card revenue had skyrocketed to $115 billion. Just ten banks control 90% of this market and the top three — Citibank, Bank of America, and JP Morgan Chase — control a staggering 63%. It’s not hard to see how, for many households, the interest and fees we pay on our mortgage, credit cards, and other loans generate far more income for the financial industry than what a bank can make on our deposits. So, as we start down the path of breaking up with the big banks and exercising our economic citizenship on behalf of our own interests and that of our communities, we should think about the whole range of financial services we use. Credit cards are one place to start. About three-quarters of community banks and just over half of credit unions offer credit cards. Unlike big banks, these smaller institutions generally do not view their credit cards as major profit centers (you have to do a lot of volume in credit cards to make real money), but rather as a service for customers with whom they often already have a relationship. That means that the fees and interest rates are often lower. Although data for small banks is hard to come by, a recent Pew study compared a group of credit unions with the largest banks and found that the credit unions had significantly lower interest rates, penalty fees that were half the cost, and “fewer dangers associated with unfair or deceptive practices.” “We never participated in the kinds of abusive practices common in the industry, because our credit card clients are also our depository clients,” explained Kathy Fitzcharles of the 60-year-old Delaware County Bank in Ohio, which stepped up its marketing of credit cards this year as public hostility toward big card issuers spiked. The bank saw a 15% increase in the number of cards issued. It’s not alone. In an open letter to customers, Nancy Ruyle president of the Citizens Bank of Rogersville in Missouri, wrote, “We don’t employ such tactics as short billing cycles that can cost you a late fee, or raising your interest rate because you were late paying some other bill. We believe in treating our customers fairly.” Some small banks and credit unions do their own underwriting and retain credit card loans on their books. Others rely on a third-party to manage the risk, such as TCM Bank, a subsidiary of the Independent Community Bankers of America that handles credit cards only on behalf of community banks. But even then, the local bank typically services the card, meaning that if you have a problem, you call the bank and deal directly with their staff, not an automated phone-tree. (Except for lost or stolen cards: there’s a 24-hour 800-number for that.) Moving your mortgage is more involved, but there are community banks and credit unions, like the 83-year-old Coast Line Credit Union in South Portland, Maine, that have been refinancing mortgages this past year for customers who were motivated in part by a desire to have their interest payments working in their local economy, not on Wall Street. While some community banks do a robust mortgage business, others offer very little mortgage lending. And, among those who do, some keep mortgages on their books for the duration of the term, while others sell all or part of them into the secondary market to free up capital to lend again in their communities (in which case, they may still continue to service your mortgage). So the key is to talk with several local banks and credit unions to find the right fit. Other types of consumer loans, like car and home equity loans (if you are fortunate enough to still have home equity), are often readily available from credit unions and banks. A good rule of thumb for these types of loans is to always shop local banks and credit unions first. Depending on the institution, you may be able to get a substantially better rate than you’d find at a big bank, especially if you already have a relationship with it (i.e., an account there and a history of timely payments on a credit card or other loan). Where you bank matters a great deal, but many community bankers told me this week that perhaps the most significant thing you can do to help their bottom line and your local economy is to shift some of your spending away from chains and other big businesses. “One of the most important things people can do is support local small businesses. When they start to expand, they’ll come back to community banks for loans,” explained Mary Anne Carson, senior vice president of the Santa Cruz County Bank in Santa Cruz, California, which has seen a cascade of people looking to move their money and asking the bank’s staff, “Are you truly local?” Small business lending is the bread-and-butter of many community banks. Small business growth, in turn, is the key to pulling out of recession, say many economists. I’ll take a closer look at this symbiotic relationship in an upcoming post. Stacy Mitchell , author of Big-Box Swindle, is a senior researcher with the New Rules Project and its newly launched Community Banking Initiative .

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UBS Man Drops Bonus, Escapes Trading Floor for Luxury Ski-Maker Near Davos

January 28, 2010

By Joseph Heaven and Matthias Wabl Jan. 29 (Bloomberg) — UBS AG senior currency strategist Benedikt Germanier decided that he had become just another battery hen on a trading floor where money was everything that counted. So he ditched his bonus and banker life in the U.S. for a pair of handmade skis. “I feel much more down to earth, and I have my destiny in my hands,” says Germanier, 43, sitting in his office in Disentis , an Alpine village 44 miles from Davos where global executives are meeting this week. He is now chief executive of Zai AG and its 10 staff, including carpenters and craftsmen. Germanier says he halved his pay, without giving figures. He also gave up his $7,000-a- month, 250-square meter house with gardener, located 15 minutes from UBS’s Stamford, Connecticut trading floor, which is the size of two football fields. Banks and brokerages worldwide have announced plans to shed about 329,000 jobs, or 5.9 percent of the total, since the beginning of the credit crisis, according to Bloomberg data. Some bankers are now trading for their own account, with private equity firms or boutique investment advisers. Others, such as Germanier, voluntarily left for work outside finance. “To move ahead you need to push yourself out of your comfort zone, and that’s very important,” he says. “It’s not very comfortable” to give up the regular large pay-checks, says Germanier, a 1.87-meter (6-ft-1-inch) sports lover. Germanier, whose dark hair is cropped short, is sitting on a low wood-and-felt bench in his office, wearing Levi’s jeans, a blue V-neck pullover and North Face trekking boots. He used to favor suits and 180-pound ($291) Jeffrey-West shoes. London, New York Germanier’s previous jobs with Switzerland’s biggest banks shuttled him between Zurich, London and New York. He’s still getting up at 5:30 a.m. for a two-and-a-half hour train commute twice a week. His new office, cluttered with skis, maps and photographs, is next to a workshop measuring 500 square meters (5,382 square feet). In the U.S., money was the driver, says Germanier, who grew up in Zurich as the son of a manager in a cement company. “Sometimes I even thought they would sell their grandmother for a trade,” he says, talking about East Coast bankers, and he realized that he had become one of these “hens” on a trading floor, reminding him of a battery farm. Now he’s selling skis built using 50 million-year-old granite as well as high-tech materials. The cheapest cost 3,300 Swiss francs ($3,150) — about four times as much as the high- street average — and the most expensive sell for 9,800. Moving Markets Germanier graduated in Economics from Zurich University aged 28 with the equivalent of a Master’s Degree. His research on global capital flows eventually landed him a job at UBS, making the bank money when Germanier predicted the dollar would fall versus the Swiss franc. “It’s a great feeling of power to make a call and move the market,” he says. His network in Swiss banking still includes central bank President Philipp Hildebrand and Walter Berchtold , today the head of private banking at Credit Suisse Group AG. He misses presentations to senior executives at the U.S. Department of the Treasury, the European Central Bank or the Swiss National Bank, Germanier says. As the S&P 500 Index fell through a 12-year low in February 2009, Germanier went on a two-week ski trip to the southeastern region of Switzerland. At a time when colleagues left banks in droves, he met with Simon Jacomet, a ski- instructor who he’d befriended in the 1990s. Business Appeal Jacomet founded Zai in 2003 in search of the perfect ski. Zai means “tough” in the local Romansch language and the company hasn’t turned a profit since its founding. Jacomet asked Germanier to help him improve the business. “I didn’t even think. It came out of my stomach so strongly,” Germanier says. “Sometimes you know you have to do this.” Germanier’s office has windows looking across the empty valley and back to the 2,300-population Disentis and its monastery. Zai sold about 800 skis last season and had 2.5 million francs in revenue. Germanier says there’s a market potential to more than double sales to 2,000 a year. Zai offers to tailor the properties and camber of the skis to individual tastes. They have as many as 18 layers of walnut and cedar wood, woven polymers, India-rubber and gneiss stone from near St. Moritz. The skis are bought by instructors, businessmen, lawyers and farmers’ wives, Germanier says. Large Wallet “You can’t say that the ski is three times as good only because it’s three times as expensive as a normal one,” says Marco Meier, of the Och Sport shop on Zurich’s Bahnhofstrasse. “You also pay for the design and the fact that they are handmade.” Meier, who has tested Zais in the past, says the skis are mostly bought by “rather good skiers with a large wallet,” and he describes the skis as part of the “top-notch category” and “very comfortable and smooth.” The quiet of the village doesn’t prevent Germanier from following the markets on his iPhone, and he still trades on his own account. Instead of expensive meals with clients, he’s having his loyalty card stamped after a 16.80-franc lunch in the buffet restaurant by the train station. “Can I afford this job?” he says. “I wasn’t actually sure, but showing my kids and myself to be free and to do things independently was worth much more than double my salary.” To contact the reporter on this story: Joseph Heaven in Zurich at jheaven1@bloomberg.net ; Matthias Wabl in Zurich at mwabl@bloomberg.net

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Davos Is Closest Most London Bankers Will Get to Swiss Move Post Bonus Tax

January 28, 2010

By Dylan Griffiths and Warren Giles Jan. 28 (Bloomberg) — Toscafund Asset Management LLP decided to stay in London last year after looking at Geneva, Dubai and the Channel Islands as the U.K. increased taxes on high earners. Prime Minister Gordon Brown ’s one-time, 50 percent levy on bankers’ bonuses hasn’t changed that stance. “I’m a victim of high taxes, but I’m a realist and the grass isn’t greener,” said Savvas Savouri , who runs the Metriks hedge fund at Tosca , which has about $4.5 billion under management. “In terms of physical infrastructure, London is unparalleled.” While U.K. bankers may grumble about rising taxes when they join peers this week at the World Economic Forum in Davos, Switzerland, few are likely to return as permanent residents. The new taxes don’t undercut London’s importance as a global financial center or the lure of its theaters, museums and restaurants, Savouri said. Financial professionals who consider moving will find a shortage of housing and spaces in international schools, according to Swiss real estate agents. While some hedge funds and private equity firms will relocate because they are convinced tax increases show the U.K. is becoming less welcoming to the finance industry, the cost of moving is prohibitive for banks and other large firms, said Kevin Rex , who advises wealthy people on financial decisions, including where to base their companies. “If you’re looking to be in a hub as a financial professional to earn money, then you can’t get much better than London,” said Rex, a partner at Summit Financial Resources Inc. in Parsippany, New Jersey. “And the quality of life is good. Some clients say it’s a civilized version of New York.” Jobs Exodus Forecast Chancellor Alistair Darling ’s Dec. 9 announcement that the U.K. would impose a supertax on banks paying bonuses of more than 25,000 pounds ($41,000) triggered criticism from the financial industry and headlines about an exodus of jobs. London Mayor Boris Johnson , a member of the opposition Conservative Party, said Jan. 11 that as many as 9,000 bankers may leave London. There were 201,000 financial jobs in London in 2007, according to International Financial Services London, which promotes the U.K. finance industry. HSBC Holdings Plc Chief Executive Officer Michael Geoghegan told Sky News that higher taxes are hurting London as a financial center. The bonus levy comes as the U.K. raises its top income tax rate to 50 percent and rescinds tax breaks for foreigners who live in the U.K. “I know a large number of bankers are moving out of the U.K.,” Geoghegan said. “They can move because they have opportunities in Switzerland and other places to set up their business.” ‘Lot of Hype’ There is no sign of a big increase in financial professionals moving to Switzerland, said Judith Wuarin, who founded a relocation firm in Geneva eight years ago. “I’m reading that hundreds of people are coming, but like bird flu there’s a lot of hype,” she said. Threats of large-scale departures aren’t credible, and London’s financial industry will probably create at least 100,000 jobs in the next decade, said Savouri, 43. London’s appeal is underlined by the presence of the world’s largest markets for insurance, reinsurance, foreign exchange, international bond trading and non-ferrous metals, as well as being the center of half of Europe’s investment banking activity, he said in a Jan. 13 report. ‘Mono-Cultural Cities’ The lure of London extends to its theaters and the world’s richest soccer league, said Savouri, who supports Arsenal, currently second in the English Premier League. His team is set to attract more than 60,000 supporters to its north London stadium when Manchester United visits later this week. Geneva’s Servette FC, 13th in the Swiss second division, has attracted an average of 3,100 spectators this season. “From its top flight football clubs, wide range of restaurants and theaters, and large expatriate communities, London is attractive to individuals in a way that more mono- cultural cities such as Paris, Geneva and Hong Kong will never be able to match,” Savouri said. That hasn’t deterred everyone. Eight London hedge funds decided in December to relocate to Switzerland, with more showing interest this month, said David Butler , one of the founders of Kinetic Partners LLP, which advises hedge funds on relocation. He expects London to lose as many as 1,300 people, or 20 percent of its hedge fund industry, to Switzerland, with 800 of those opting for Geneva. “There are enough managers in Geneva to make it a worthwhile club,” Butler said. “Some people love it and some people hate it, but all the guys I’ve moved over are still here.” BlueCrest Eyes Geneva BlueCrest Capital Management Ltd., a London-based hedge fund firm that oversees about $15.4 billion, plans to open a Geneva office because of the U.K.’s new 50 percent tax rate. As many as 50 people may move to Switzerland, BlueCrest Chief Financial Officer Andrew Dodd said in an interview. Each Swiss canton sets its own income tax rates, with Geneva’s top rate at 44 percent and Zurich at 40.3 percent, according to Swiss law firm FBT. The absence of a capital gains tax makes Switzerland attractive to hedge fund managers who invest in their own products, said John Melsom , a partner at Tiresias Capital , which has about $540 million under management. That made Geneva both a financial and lifestyle choice when he left London in 2008. “I’m a very keen skier, and it’s a less punitive jurisdiction generally,” said Melsom, 30, who is renting a chalet in Morzine, across the border in France, this winter. “For big houses on the lake and apartments in the center of Geneva, it’s very expensive, but it was still worth it.” ‘A Bit Boring’ Zurich and Geneva placed in the top three for quality of living in a survey of 215 cities published by Mercer Consulting in April, with London ranked 38th. Those rankings, based on 39 measures such as political stability, crime, personal freedom, health and sanitation, don’t tell the whole story, Rex said. “Even though Switzerland has a reputation for being a serene, peaceful place, it also has a reputation for being a bit boring and that is a particular concern for spouses,” he said. “A lot of financial professionals work such long hours that the family member that really deals with the city and makes the dinner reservations is the spouse.” Rosetta Stone With a population 40 times larger than Geneva, scale is part of London’s draw. While the Art & History Museum is one of Geneva’s most popular attractions, it drew 206,820 visitors in 2008 compared with 5.93 million at the British Museum , home to the Rosetta Stone and Elgin Marbles, according to the museums. Schools are the “biggest headache” for families relocating to Geneva, said Wuarin, who founded the relocation company. At the International School of Geneva , where fees can total 28,000 francs ($26,740) a year, applications for next September are almost double the number of likely vacancies. Keir Ashton, chief legal officer for Europe and the Black Sea at Louis Dreyfus & Cie.’s commodities trading business in Geneva, said he has already put his two-year-old son on the waiting lists for all of the canton’s international schools after moving from New York 18 months ago. Geneva’s vacancy rate of 0.21 percent, less than a tenth of London’s, means that housing is also an issue for those settling in the canton . The median price of a four-bedroom house in Geneva was 1.62 million francs ($1.56 million) in the third quarter, 22 percent more than the average property price in Kensington and Chelsea, London’s most expensive borough. James Persse advises rich Britons who are considering relocating in his capacity as managing director for the U.K. and Ireland at Barclays Wealth in Switzerland. “We always ask, ‘When can we meet your wife?’ because nine-times out of 10 it’s a family decision,” Persse said. “You need to be prepared to speak a little French and get involved in the local culture. But we also tell people, if you prefer sun and fast living to snow and lakes there are plenty of other low-tax choices with better weather.” To contact the reporter on this story: Dylan Griffiths in Geneva at dgriffiths1@bloomberg.net Warren Giles in Geneva at wgiles@bloomberg.net

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Michael H. Shuman: Community Food Enterprise: Local Success in a Global Marketplace

January 25, 2010

It’s time to connect the headlines between persistent unemployment in the United States and growing food insecurity. The next Obama stimulus package should focus on how local food can address both simultaneously. A study done two years ago found that a 20% shift of retail food spending in Detroit redirected to locally grown foods would create 5,000 jobs and increase local output by half a billion dollars. A similar shift to Detroit-grown food by those living in the five surrounding counties would create 35,000 jobs – far more than ever will come out of the multibillion-dollar bailout of the auto industry. The experience of microenterprise organizations around the country suggests that each of these jobs can be created for $2,000-3,000 of public money–a tiny fraction of the price of the last stimulus. To some skeptics, locavorism is a cute hobby only embraced by Prius-driving environmentalists in rich countries. Libertarians like those at the Cato Institute argue that the best way to localize is to open Walmarts in every community. Progressives like Peter Singer of Princeton University ask, “If you’re living in a prosperous part of the United States, what’s really ethical about supporting the economy around you rather than, say, buying fairly traded produce from Bangladesh, where you might be supporting smaller, poorer farmers who need a market for their goods?” What these critics fail to appreciate is that there are a growing number of profitable and competitive locally owned food businesses, here and abroad, that provide exciting models for communities becoming more food secure. A multi-year study my colleagues at BALLE and at the Wallace Center at Winrock International and I just completed on 24 exemplary “community food enterprises” (CFEs) — locally owned food related businesses — came to five surprising conclusions about local food and its economic potential (examined in more detail at a pair of upcoming DC-area and online panel discussions on the CFE study): Local food is not just about the proximity of production and short supply chains . Equally important is local ownership of the enterprises involved, which stimulates local income, wealth, jobs, taxes, charitable contributions, tourism, and entrepreneurship. Restaurants like the White Dog Café in Philadelphia draw customers in part by highlighting their business relationships to nearby farmers and other food suppliers. Part of what draws Americans to local food is its stimulus effect. Every dollar spent at a locally owned food grocer, for example, probably contributes two to four times as many economic benefits as does a non-locally owned food business like a Walmart Supercenter. Community food enterprises are deploying more than a dozen interesting strategies for competing effectively against multinational enterprise. Many CFEs take characteristics that were once regarded as liabilities, such as limited capital or a dedication to high social standards, and turn them into competitive assets. The Weaver Street Market in Research Triangle, North Carolina, is a consumer cooperative whose members are motivated to buy from the store – because of profit sharing – even when other groceries have nominally cheaper prices. Zingerman’s Community of Businesses in Ann Arbor, Michigan, has become an economic powerhouse – now employing 535 people and achieving sales of30 million per year – by creating new local businesses around inputs to the deli (like bread and cheese) and around outputs from the deli (like selling the food in a sit-down restaurant called the Roadhouse). One way CFEs have become more competitive is through scale. Local does not necessary mean small. For example, Organic Valley , a producer cooperative that distributes organic foodstuffs via regionally owned and operated networks, involves 1,300 farmers and operates in nearly all 50 U.S. states. Many CFEs also export only once they’ve met local demand, such as Cargills in Sri Lanka, a family-owned company that connects – through food processing, manufacturing, and distribution — 10,000 farmers on the island with their grocery chain, is now reaching out globally. CFEs are in operation on every continent – including the developing world. For instance, in Zambia, an enterprising woman named Sylvia Banda is promoting the virtues of local eating and cooking in her own television show, a catering business, and small-business training center. In Paraguay, the Financially Self-Sufficient Organic Farm School , based in a rural region of Villa Hayes, teaches CFE entrepreneurship to low-income high school students through local enterprises that defray the costs of running the school. Economic developers, both in the U.S. and internationally, would be wise to give CFEs greater priority as vehicles for creating new jobs and enhancing local food security. Local food, by the way, also increasingly means cheaper food. Few economists appreciate how inefficient traditional global food production has become. Some 73 cents of every U.S. dollar spent on food goes to distribution, including advertising, trucking, packaging, refrigeration, middle people, and so forth. Seven cents goes to the farmer. A local food business, like the Oklahoma Food Cooperative we studied, has reduced distribution costs to 20 cents on the dollar, which means lower prices for consumers and more income for farmers. This is also why local food is important globally. The worst way to help poor Bangladeshi farmers to get out of poverty is to continue buying their produce, since even under fair trade standards maybe a penny or so of every food-sale dollar reaches them. It’s far better for Americans to help Bangladesh residents become more self-reliant on food by sharing our best models of CFEs (and their sharing their best models with us) to encourage local ownership of economic stimulating local food businesses. Plus, the community wealth generated by greater food self-reliance will give us more purchasing power to buy those items, like coffee or bananas, that only can be grown in the global south. Spreading CFE models in the name of creating jobs and food security everywhere is the kind globalization all of us can embrace. Michael Shuman is the research director for the Business Alliance for Local Living Economies (BALLE), author of The SmallMart Revolution and lead author of Community Food Enterprise: Local Success in a Global Marketplace , published by the Wallace Center at Winrock International. The Wallace Center will be a hosting a pair of panel discussions on CFEs this Thursday in Washington, DC and broadcast live online; for more information, please visit: www.communityfoodenterprise.org/event .

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Michael H. Shuman: Community Food Enterprise: Local Success in a Global Marketplace

January 25, 2010

It’s time to connect the headlines between persistent unemployment in the United States and growing food insecurity. The next Obama stimulus package should focus on how local food can address both simultaneously. A study done two years ago found that a 20% shift of retail food spending in Detroit redirected to locally grown foods would create 5,000 jobs and increase local output by half a billion dollars. A similar shift to Detroit-grown food by those living in the five surrounding counties would create 35,000 jobs – far more than ever will come out of the multibillion-dollar bailout of the auto industry. The experience of microenterprise organizations around the country suggests that each of these jobs can be created for $2,000-3,000 of public money–a tiny fraction of the price of the last stimulus. To some skeptics, locavorism is a cute hobby only embraced by Prius-driving environmentalists in rich countries. Libertarians like those at the Cato Institute argue that the best way to localize is to open Walmarts in every community. Progressives like Peter Singer of Princeton University ask, “If you’re living in a prosperous part of the United States, what’s really ethical about supporting the economy around you rather than, say, buying fairly traded produce from Bangladesh, where you might be supporting smaller, poorer farmers who need a market for their goods?” What these critics fail to appreciate is that there are a growing number of profitable and competitive locally owned food businesses, here and abroad, that provide exciting models for communities becoming more food secure. A multi-year study my colleagues at BALLE and at the Wallace Center at Winrock International and I just completed on 24 exemplary “community food enterprises” (CFEs) — locally owned food related businesses — came to five surprising conclusions about local food and its economic potential (examined in more detail at a pair of upcoming DC-area and online panel discussions on the CFE study): Local food is not just about the proximity of production and short supply chains . Equally important is local ownership of the enterprises involved, which stimulates local income, wealth, jobs, taxes, charitable contributions, tourism, and entrepreneurship. Restaurants like the White Dog Café in Philadelphia draw customers in part by highlighting their business relationships to nearby farmers and other food suppliers. Part of what draws Americans to local food is its stimulus effect. Every dollar spent at a locally owned food grocer, for example, probably contributes two to four times as many economic benefits as does a non-locally owned food business like a Walmart Supercenter. Community food enterprises are deploying more than a dozen interesting strategies for competing effectively against multinational enterprise. Many CFEs take characteristics that were once regarded as liabilities, such as limited capital or a dedication to high social standards, and turn them into competitive assets. The Weaver Street Market in Research Triangle, North Carolina, is a consumer cooperative whose members are motivated to buy from the store – because of profit sharing – even when other groceries have nominally cheaper prices. Zingerman’s Community of Businesses in Ann Arbor, Michigan, has become an economic powerhouse – now employing 535 people and achieving sales of30 million per year – by creating new local businesses around inputs to the deli (like bread and cheese) and around outputs from the deli (like selling the food in a sit-down restaurant called the Roadhouse). One way CFEs have become more competitive is through scale. Local does not necessary mean small. For example, Organic Valley , a producer cooperative that distributes organic foodstuffs via regionally owned and operated networks, involves 1,300 farmers and operates in nearly all 50 U.S. states. Many CFEs also export only once they’ve met local demand, such as Cargills in Sri Lanka, a family-owned company that connects – through food processing, manufacturing, and distribution — 10,000 farmers on the island with their grocery chain, is now reaching out globally. CFEs are in operation on every continent – including the developing world. For instance, in Zambia, an enterprising woman named Sylvia Banda is promoting the virtues of local eating and cooking in her own television show, a catering business, and small-business training center. In Paraguay, the Financially Self-Sufficient Organic Farm School , based in a rural region of Villa Hayes, teaches CFE entrepreneurship to low-income high school students through local enterprises that defray the costs of running the school. Economic developers, both in the U.S. and internationally, would be wise to give CFEs greater priority as vehicles for creating new jobs and enhancing local food security. Local food, by the way, also increasingly means cheaper food. Few economists appreciate how inefficient traditional global food production has become. Some 73 cents of every U.S. dollar spent on food goes to distribution, including advertising, trucking, packaging, refrigeration, middle people, and so forth. Seven cents goes to the farmer. A local food business, like the Oklahoma Food Cooperative we studied, has reduced distribution costs to 20 cents on the dollar, which means lower prices for consumers and more income for farmers. This is also why local food is important globally. The worst way to help poor Bangladeshi farmers to get out of poverty is to continue buying their produce, since even under fair trade standards maybe a penny or so of every food-sale dollar reaches them. It’s far better for Americans to help Bangladesh residents become more self-reliant on food by sharing our best models of CFEs (and their sharing their best models with us) to encourage local ownership of economic stimulating local food businesses. Plus, the community wealth generated by greater food self-reliance will give us more purchasing power to buy those items, like coffee or bananas, that only can be grown in the global south. Spreading CFE models in the name of creating jobs and food security everywhere is the kind globalization all of us can embrace. Michael Shuman is the research director for the Business Alliance for Local Living Economies (BALLE), author of The SmallMart Revolution and lead author of Community Food Enterprise: Local Success in a Global Marketplace , published by the Wallace Center at Winrock International. The Wallace Center will be a hosting a pair of panel discussions on CFEs this Thursday in Washington, DC and broadcast live online; for more information, please visit: www.communityfoodenterprise.org/event .

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Ronald D. Paul: Move Your Tax Money and Your Business Money Too

January 25, 2010

Arianna Huffington and Rob Johnson’s clarion call to “move your money” to community banks should be extended to your local governments and businesses. When you bank local, your money stays in the local economy. Too many businesses and even municipalities bank with big nationals without realizing that their money could go much further if it stayed on Main Street. Last year I urged my hometown, Washington DC, to bank local . I promised that if they deposited with community banks like mine, we could return the funds at a ratio of 2-to-1 with loans to local small and mid-sized businesses. DC government coffers are filled with tens of millions of dollars and so that promise represents a real economic opportunity for an area struggling with job losses. The D.C. government is still considering the switch, but communities across the country need to consider it as well. With enough calls and inquiries from constituents and employees, I’m confident that a real sea change is possible because I know that local banks can deliver (for information on how to reach you local representatives, go here ) I was pleased to see New Mexico and New York City take strides to move their funds to local institutions, but they are just a small fraction of what’s possible. Beyond the obvious benefits of keeping money in the local economy, good community banks can deliver three essential attributes to businesses and government clients: 1) Personal Service – You’ll know who you’re banking with because we’re your neighbors. We can be flexible in devising solutions for you and can answer your questions quickly and honestly because the decision-makers are all here. 2) Local Expertise – We understand the local economy better than national banks and so we can execute smarter loans that are safer and reflect the businesses and projects that best serve the community. 3) Product Diversity – If you haven’t inquired lately, we can match the diversity of products offered by the big nationals – from online banking to currency exchange. An intangible that you’ll find at community banks is a real passion for banking. We thrive on pointing out a hardware store, an office building or physician’s group that we helped finance and grow. In short, we take pride in our work. I can’t tell you how many banking executives are heading back to “their roots” in community banking. And it’s not just because the big banks aren’t hiring. To be clear, I am not opposed to large banks. I just see them as less capable of serving the needs of local customers. As Arianna and Rob said, moving your money is about moving towards “re-rigging the financial system so it becomes again the productive, stable engine for growth it’s meant to be.” Community banks understand where the growth opportunities are in communities across the country because they live there. They also have the sense of personal and professional accountability that can only come from seeing their customers every day.

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UAW Wages Campaign Against Ford to Protest Raises for White-Collar Workers

January 22, 2010

By Keith Naughton (Corrects to 12 months in last paragraph.) Jan. 22 (Bloomberg) — The United Auto Workers, which gave up bonuses and cost-of-living increases at Ford Motor Co. last year, is waging a campaign against the carmaker to protest reinstatement of raises and benefits for salaried employees. UAW Vice President Bob King , nominated as the union’s next president, is asking all 41,000 of Ford’s hourly U.S. workers to file a “policy grievance” against the company for restoring raises, 401(k) matches and tuition assistance to white-collar employees, said Mark Caruso, president of a union local in Saline, Michigan. King has said he protested directly to Ford. “We’re disappointed that Ford Motor Co. would give back these take-aways to the salaried folks and not to us,” said Nick Kottalis, president of the Dearborn, Michigan, truck unit of UAW Local 600. “They’re violating the policy that called for equity of sacrifice in the modifications we passed in 2009.” Ford’s hourly workers agreed in March to give up annual bonuses, cost-of-living increases and some unemployment benefits that the company said would save $500 million in annual labor costs. Ford, the only major U.S. automaker to avoid bankruptcy, posted a surprise $997 million third-quarter profit last year after losing a record $14.7 billion in 2008. “This sends a signal that people are angry; it’s a warning,” said Harley Shaiken , labor professor at the University of California at Berkeley. “Ford understands the importance of good relations with the union. I suspect the company will be in the position to redress something, whether restoring something to hourly workers or rescinding something to salaried workers.” Added Concessions Rejected The Dearborn-based company told employees it wouldn’t grant raises last year, and said it suspended tuition assistance in 2008 and 401(k) matches last year. In November, 70 percent of Ford’s production workers and 74 percent of skilled trades rejected additional concessions that included a six-year ban on some strikes and a freeze on entry- level wages until 2015. Reached by telephone, Marcey Evans, a Ford spokeswoman, declined to comment. Christine Moroski, a UAW spokeswoman, didn’t immediately respond to a request for comment. Mark Fields , Ford’s president of the Americas, told the company’s 17,000 U.S. salaried workers in a Dec. 10 memo that they would be eligible for merit raises in 2010 and the company would resume matching 401(k) retirement savings for as much as 5 percent of base pay. “The members are tired of being the only one taking concessions,” Caruso said. “We’d like some equality of sacrifice.” Ford shares fell 66 cents, or 5.9 percent, to $10.52 at 4 p.m. in New York Stock Exchange composite trading. The stock has climbed fourfold in the past 12 months. To contact the reporter on this story: Keith Naughton in Southfield, Michigan, at Knaughton3@bloomberg.net

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Gavin Newsom: An Alternative to Payday Lenders

January 21, 2010

We’ve all seen them. Neon signs advertising fast cash and instant money on so many street corners in our low-income neighborhoods. In the United States, there are more than 23,000 of these payday lending loan stores, more than Starbucks and McDonalds combined. But, it wasn’t until I truly delved into how these fast cash operations take advantage of people in need that I began to understand the impact payday lenders have on our poorest communities. With interest rates as high as 400% APR and a two-week loan term that does not give much of a chance for the loan to be repaid on time, payday loans trap mostly low-income borrowers in a cycle of debt. On average payday loan customers are paying back $800 on a $300 loan, costing consumers more than $4 billion in predatory fees each year. For many people with low or no credit scores, payday loans offer the only means of dealing with a financial emergency. Sometimes people really do need their paycheck before payday, today more than ever. But a payday loan company is not the solution. So San Francisco set out to find an alternative to predatory payday lenders. We convened the City’s credit unions and asked them to work with us to find a solution. Together, we developed a new program, Payday Plus SF , an alternative small dollar loan with a maximum interest rate of 18% APR. Payday Plus SF is latest in a series of successful financial empowerment and financial literacy programs spearheaded by San Francisco Treasurer José Cisneros. This program builds on an initiative the Treasurer and I launched three years ago called Bank on San Francisco , which has helped more than 45,000 thousand unbanked San Franciscans into checking accounts. Seventy other cities and states across the country are already replicating this program locally. And this week, I met with Treasury Department officials in Washington to talk about replicating Bank on San Francisco on a national scale. Last month, we launched the Payday Plus SF program at 13 San Francisco credit union locations. This first of its kind program is already showing results. We created Payday Plus SF to help people like Mark Laws, a low-income San Franciscan who found himself in need of emergency cash. If you are like Mark and can’t get a credit card and are living paycheck to paycheck with no savings, a financial emergency can be devastating. In Mark’s case, the unexpected death of his mother left him scrambling for the funds to attend her funeral. Even after approaching family and friends, he still needed a few hundred dollars for funeral and travel expenses. Mark walked into a payday lender and walked out with the $250 he needed. Two weeks later when the loan was due Mark could not afford to pay. Instead, he went to another payday lender and took out another loan to pay off the first — and so on and so on. Unfortunately, Mark’s story is typical — 99% of payday loan borrowers are unable to pay off their loan within the two-week term. The typical California payday borrower will take out 10 loans in a year before they are finally able to repay the original loan. Mark is now one of our success stories — he took out a Payday Plus SF loan, paid off his debts and is now rebuilding his credit as he makes reasonable monthly payments at his local credit union. We may be the first City to do this, but I know we will not be the last. Predatory payday lenders are a national problem. But with no cost to taxpayers, Payday Plus SF shows what can happen when elected leaders, neighborhoods and the financial community come together to help low-income families in dire, but temporary, financial straits.

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Michael Martin: Moving Your Money – Meet Alan I. Rothenberg

January 20, 2010

Arianna’s call to action to move your money is a great idea. Your local bank is highly likely to more fully understand who you are b/c you’ve been in a relationship for years. They know your business cycle specifically; they know your family members and childrens’ names without having to look in their ACT! files. In my business neighborhood of Century City, the community banks actually invest in their relationships by flexing their civic duty muscles, oftentimes through the Century City Chamber of Commerce . Alan I. Rothenberg is the Founder and Chairman of 1st Century Bank . But calling him only a banker is a bit of a misnomer. He is Chairman of the Los Angeles Sports Council and a Member of the USA Boxing Board of Directors. He is a Past-President of everything: the Los Angeles Convention and Visitor Bureau, the Music Center’s Fraternity of Friends, and the Constitutional Rights Foundation. Rothenberg is the founder of Major League Soccer (MLS) , the outdoor professional soccer league which commenced operations in 1996. You may have heard of it… Rothenberg has been at the helm of 1st Century Bank since March of 2004, when he first saw the need for such a bank. “1st Century Bank is a community bank that is built on relationships,” he said. “We know our clients, we know our investors, and we know our community.” He’s not kidding. For his decades-long commitment to community involvement, the Century City Chamber of Commerce named Rothenberg their 2007 Citizen of the Year – their highest honor. “It’s our job to support our community – if our community is strong; we are strong and that strength has allowed us to continue to grow our franchise.” Here’s the interesting part…Rothenberg and 1st Century Bank looked at TARP, but decided they didn’t need it. “No one has been insulated by the last year of turmoil in the finance industry. Everyone has been affected. Yet, we have been tested and have met the challenges head on, he said. “At 1st Century Bank, we stayed true to our core values, integrity, customer care and always putting our shareholders and depositors first.” That is quite a job for a man who was just named President of The Board of Airport Commission for the City of Los Angeles. A lawyer by education, Rothenberg retired from Latham & Watkins after joining that firm in 1990 and having served as Managing Partner at Manatt, Phelps, Rothenberg & Phillips for more than 20 years before that. With his free time , he serves on the Boards of California Pizza Kitchen Inc. (NASDAQ: CPKI) and Zenith National Insurance (NYSE: ZNT) besides the Board of his own firm. His vast career in business, law, banking and civic duty in the community certainly qualifies Rothenberg for quite a few things: center of influence, arbitrator and mediator, and confidant. “It is important to know your clients during times like these, and we take great pride in not only knowing our clients, but knowing them on a first name basis. The end result is in the best interest of our customers, our employees and our shareholders.”

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Michael Martin: Moving Your Money – Meet Alan I. Rothenberg

January 20, 2010

Arianna’s call to action to move your money is a great idea. Your local bank is highly likely to more fully understand who you are b/c you’ve been in a relationship for years. They know your business cycle specifically; they know your family members and childrens’ names without having to look in their ACT! files. In my business neighborhood of Century City, the community banks actually invest in their relationships by flexing their civic duty muscles, oftentimes through the Century City Chamber of Commerce . Alan I. Rothenberg is the Founder and Chairman of 1st Century Bank . But calling him only a banker is a bit of a misnomer. He is Chairman of the Los Angeles Sports Council and a Member of the USA Boxing Board of Directors. He is a Past-President of everything: the Los Angeles Convention and Visitor Bureau, the Music Center’s Fraternity of Friends, and the Constitutional Rights Foundation. Rothenberg is the founder of Major League Soccer (MLS) , the outdoor professional soccer league which commenced operations in 1996. You may have heard of it… Rothenberg has been at the helm of 1st Century Bank since March of 2004, when he first saw the need for such a bank. “1st Century Bank is a community bank that is built on relationships,” he said. “We know our clients, we know our investors, and we know our community.” He’s not kidding. For his decades-long commitment to community involvement, the Century City Chamber of Commerce named Rothenberg their 2007 Citizen of the Year – their highest honor. “It’s our job to support our community – if our community is strong; we are strong and that strength has allowed us to continue to grow our franchise.” Here’s the interesting part…Rothenberg and 1st Century Bank looked at TARP, but decided they didn’t need it. “No one has been insulated by the last year of turmoil in the finance industry. Everyone has been affected. Yet, we have been tested and have met the challenges head on, he said. “At 1st Century Bank, we stayed true to our core values, integrity, customer care and always putting our shareholders and depositors first.” That is quite a job for a man who was just named President of The Board of Airport Commission for the City of Los Angeles. A lawyer by education, Rothenberg retired from Latham & Watkins after joining that firm in 1990 and having served as Managing Partner at Manatt, Phelps, Rothenberg & Phillips for more than 20 years before that. With his free time , he serves on the Boards of California Pizza Kitchen Inc. (NASDAQ: CPKI) and Zenith National Insurance (NYSE: ZNT) besides the Board of his own firm. His vast career in business, law, banking and civic duty in the community certainly qualifies Rothenberg for quite a few things: center of influence, arbitrator and mediator, and confidant. “It is important to know your clients during times like these, and we take great pride in not only knowing our clients, but knowing them on a first name basis. The end result is in the best interest of our customers, our employees and our shareholders.”

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Commercial real estate feeling recession’s impact (Fort Worth Business Press)

January 18, 2010

All indicators show the commercial real estate depression that has gripped the country for the past year has started to appear in Tarrant County as vacancy averages in two of the local industry sectors are reporting higher numbers than the national averages.

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Mort Zuckerman: How to Get Americans Working Again

January 15, 2010

There is no silver lining to the dark cloud that has enveloped America. A slight decline in the rate of job losses at the end of last year, coupled with a rise in the gross domestic product, gave hope that we were at the beginning of a sustained recovery from the Great Recession. The December jobs report has doused that hope. Unemployment has graduated from being a difficulty, a headache, a setback, a worry. Now it is nothing less than a catastrophe. The true measure of it is that nearly a million Americans have become so demoralized that they are no longer even trying to find work. No fewer than 929,000 men and women who want a job haven’t looked in the past year. That is nearly 50 percent more than the number who felt it was a hopeless quest a year ago (642,000 in 2008). With 15.3 million out of work in the longest and deepest downturn in our economy since the Great Depression, the unemployment rate managed to hold at 10 percent in December only because of an extraordinary shrinkage in the labor force: Some 661,000 gave up their searches for work. (Job losses totaled 85,000, according to the Bureau of Labor Statistics’ nonfarm payroll data; the bureau’s household survey indicated a loss of 589,000 jobs.) Roughly 40 percent of the unemployed, or a total of 6.1 million, have been out of work for more than 27 weeks. The average period of unemployment exceeds 26 weeks, the highest level in postwar history; the previous peak, in July 1983, was just 21.2 weeks. The better and more comprehensive measure of both the unemployed and underemployed, the household survey, edged up to 17.3 percent, up from 8.4 percent two years ago and just a shade below the all-time record. But the bureau’s unemployment numbers are extrapolations from only 60,000 household interviews. Experts who have looked at these statistics and made adjustments to account for the survey’s limitations get an unemployment/underemployment rate of a staggering 22 percent. Since the recession began, some 8.6 million jobs have been lost! There is no end in sight. Because our potential labor force is expanding by almost 1.3 million job seekers annually, even if we had the strong job growth we saw in the 1990s, it would take at least six years to get unemployment down to 5 percent. Instead, businesses continue to slash labor costs at rates not seen in any downturn since World War II. The fall in employment is so bad that last year’s decline of 3.7 percent was the worst since 1938, when Franklin Roose­velt misjudged an incipient recovery and cut public investment, resulting in a 5.8 percent plunge in employment. See our descent: Last year’s average unemployment rate was 9.3 percent, compared with 5.8 percent in 2008 and 4.6 percent in 2007. The employment-to-population ratio for men ages 25 to 54 is the lowest since the Bureau of Labor Statistics began keeping track in 1948. Those without a high school diploma have an unemployment rate of 15 percent, compared with 5 percent for those with a bachelor’s degree or higher. For adult heads of household younger than 25, the unemployment rate is approximately 16 percent, reflecting the dearth of jobs for recent graduates and other young people. More than 4 million people have exhausted their regular unemployment benefits and are surviving on emergency jobless insurance. And months after we supposedly emerged from the recession, we are facing about 450,000 monthly claims for unemployment insurance. Small businesses, the normal source for new jobs, are still shedding workers. Fewer than 10 percent added employees, while more than 20 percent cut back–and the cuts averaged nearly twice as many per firm as the hires at the expanding companies. Economists may see the recession as being over, but the man in the street sees it differently. From his perspective, these are by far the worst times for American workers since the 1930s. Expectations are low, too. Roughly 60 percent of the public believes the recession still has a way to go, compared with 52 percent in September. Only 29 percent of those polled in a Wall Street Journal/NBC News Poll believe the economy has hit bottom. Even those who have not suffered know someone–a friend, a neighbor, a family member–who is being hurt. Two in three say the rally in the stock market has not changed their views. There are sound reasons for this gloom. Consumers have learned a bitter lesson. They understand that increased consumption–private and public–will have to come from income and not borrowing, and income will have to come from employment. This is the new normal, and it is not going away for a long time: We will have unemployment rates of 8 percent or higher for years to come. A University of Michigan survey of consumers finds that family finances have been deteriorating for more than 13 consecutive months, the longest decline in the survey’s 60-year history. With 85 percent still believing we are in serious economic difficulties, mainstream Ameri­cans are going on a financial diet. They know now that they cannot spend what they don’t have. Household attitudes toward borrowing have made a U-turn as the painful consequences of too much debt have hit home. For years, homeowners borrowed against soaring home values. They can’t now. Home prices are down by some 30 percent, on average, and possibly heading for a fall of an additional 5 percent to 10 percent. With 25 percent of home mortgages exceeding the value of the properties, more than 10 million homeowners have negative home equity. Many others have little equity. Naturally, consumers are increasing their savings when they can. Even the top 20 percent of the nation’s households, who account for 40 percent of all spending, no longer trust their home equity or rising stock portfolios (up by almost $5 trillion this past year) as a basis for spending in lieu of saving. All they see ahead are taxes, taxes, taxes. So the dollars have not yet started to flow. In summary, we have overleveraged households weighed down by debt and worried about layoffs, thus curtailing their spending. We have businesses unwilling to hire until they are certain that the recovery is solid. They are unlikely to invest in new machinery and plants when they are using less of the nation’s industrial capacity than they have at any time since the end of World War II. What this means is that larger-than-typical head winds face two of the three normal engines of recovery: consumption and residential investment. These usually make up about 4.5 percent of the growth in the gross domestic product in the first year of a recovery. This represents a subtraction on the order of three quarters of a trillion dollars annually from consumer spending. Given how high our fiscal deficits are, it is hard to imagine how consumers will be in any position to make up the difference. Rather than pumping more cash ­willy-nilly into a fragile economy, the government will have to focus on its next big task: drawing up credible plans for bringing bloated budget deficits under control without triggering another downturn. The public understands this. The prospect, therefore, is sluggish GDP growth; employment gains that are too slow to prevent further increases in the unemployment rate; slowing and probably falling inflation; a Federal Reserve policy that may be forced to unravel some of the Fed’s unconventional monetary stimulus but still will keep the fed funds rate at its current near-zero level; banks more willing to lend, but only gradually; and firms probably still very reluctant to hire vigorously. How can we accelerate a substantial recovery in job growth that will generate additional labor income? There is no snap answer. If government officials try to pretend that there is, they will undermine what little is left of their credibility. But this is no argument for inertia. We don’t need another Andrew Mellon at the Treasury Department advising the president, as Mellon did Herbert Hoover: “Liquidate labor, liquidate stocks, liquidate the farmers, liquidate real estate.” We must have programs that create some degree of confidence America can be rebuilt, and jobs with it. I have written before of the benefits that would flow from a national infrastructure bank. The unemployed have to be supported, but it would be better if the financial support employed labor in rational, long-term, major infrastructure projects. These wouldn’t be entitlement programs but regeneration programs. Infrastructure projects–broadband Internet access across the nation, restoring decaying bridges and canals, building high-speed railways, modern airports, sewage plants, ports–have the highest multiplier for employment. One worker in an infrastructure project leads to almost 1.7 jobs for others. And we will be fulfilling a desperate national need. It is time the obstacles created by the profusion of bureaucracies at the local, state, and national level were cleared away. The second proposal would be to enhance technology, the area of our greatest strength. We are depriving ourselves of productive talent by a fearful attitude toward immigration. We make it hard for bright people to come and we make it hard for them to stay, so once they have graduated from our universities they go home to work for our competitors. This is not the way to run a railway. Foreign students are a significant proportion of those with graduate degrees in the hard sciences in American universities. We should restore the quotas for H-1B visas to 195,000 annually. This has been blocked by shortsighted special-interest groups that fear jobs will be taken from Americans. On the contrary. The kind of people we should be striving to keep are those whose work in technology and engineering provides more than their share of new jobs. Technology has given us our greatest job growth over the past decade. The administration must initiate policies that help reignite the investment-driven engines of our economy. This means we must support continuous technological and business-model innovation. The good news is that deep economic recessions tend to produce dramatic innovation. Just think: In 1800, about three quarters of the U.S. labor force was devoted to agriculture. Today, it is less than 3 percent. Manufacturing employed one third of the workforce at the end of World War II. Today, it is down to about one tenth. We are accustomed to economic transformation, but we must focus on accelerating the role of technology in our economy, especially since consumer spending will probably fall as a part of GDP for many years. However, America will never recover its full prosperity and the jobs it can create as long as individual legislators yield to the blandishments and blackmail of special-interest groups. We must follow rational economic policies in the interest of the nation and not in the interest of narrow parochial groups that will lobby individual legislators. Otherwise, we will deteriorate into a politics of corruption. Cross-posted from U.S. News & World Report

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Video: De La Fuente Sees Higher Inflation Ahead for Venezuela: Video

January 15, 2010

Jan. 15 (Bloomberg) — Rafael de la Fuente, chief Latin America economist at BNP Paribas SA, talks with Bloomberg’s Margaret Brennan about the outlook for Venezuela’s economy and currency. Venezuela’s bolivar fell the most in four days in the unregulated market after a central bank official said the country will refrain from auctioning dollar bonds in the local market today. (Source: Bloomberg)

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Haiti Quake Survivors Face Deadly Outbreaks of Diarrhea, Measles, Malaria

January 14, 2010

By Tom Randall, Meg Tirrell and Michelle Fay Cortez Jan. 14 (Bloomberg) — Survivors of the earthquake in Haiti that may have killed as many as 100,000 people face deadly outbreaks of diarrhea, measles and malaria after its already fragile clean water and health-care systems were destroyed. Even before the bodies of the dead have been removed from the rubble, health officials say it’s critical in the next few days that massive containers of water be set up throughout the capital of Port-au-Prince, temporary treatment centers established and tons of antibiotics and basic medical supplies delivered. Haiti has long suffered from the highest rates of malnutrition and lack of access to basic health services in the Western Hemisphere, according to the World Health Organization . The crisis has left no health infrastructure for aid workers to build upon, and disease outbreaks may be worse than in the aftermaths of comparable natural disasters, said Thomas Kirsch, director of operations at Johns Hopkins School of Medicine’s department of emergency medicine in Baltimore. “This is such a delicate situation,” said Margaret Aguirre, a spokeswoman for the emergency response team of International Medical Corp., a non-profit based in Santa Monica, California, in a telephone interview from Port-au-Prince. “We need to bring in medical supplies ourselves. So much of the infrastructure is lost in terms of buildings and personnel. A lot of the people who normally do relief work are missing themselves.” Doctors have set up operations outside the main hospital, because the building isn’t stable, according to Aguirre. The epicenter of the 7.0 magnitude earthquake was close to the city. “There have been many, many aftershocks,” she said. Flourishing Diseases Diarrheal diseases, including cholera and e. coli, cause severe dehydration and strip the body of needed nutrients. Diarrhea will flourish as survivors struggle to find clean water and safe food, Kirsch said. Children are most susceptible to severe infections. Measles outbreaks, which sometimes follow natural disasters, may flash through neighborhoods of tightly packed courtyards where thousands of homeless residents are gathering. Measles spreads rapidly and kills 15 percent of infected children in regions with malnutrition, Thomas Frieden , director of the U.S. Centers for Disease Control and Prevention, said in an interview in December. “The health system has been eliminated, water and sanitation entirely knocked out,” Kirsch said in an interview today. “The chance of them recovering even to the low level that they were before is almost zero.” No Basic Care Half of the children in Haiti are unvaccinated and just 40 percent of the population had access to basic health care before the crisis, according to the Geneva-based WHO. After a natural disaster of this magnitude, the delivery of needed supplies is usually managed by the military, Kirsch said. In Haiti, the armed forces were dismantled in 1995. The UN typically coordinates aid from international agencies. Those efforts were complicated after the UN headquarters at the Christopher Hotel collapsed in the quake. UN Assistant Secretary-General for Peacekeeping Operations Alain LeRoy said 14 workers in Haiti were confirmed dead, and 150 civilian and military personnel are unaccounted for. Other UN offices have also been damaged, and 10 people are missing from a compound that houses these groups. ‘Poorly Governed’ “Haiti is considered one of the most poorly governed countries in the world,” said Egbert Sondorp, a senior lecturer in public health and humanitarian aid at the London School of Hygiene and Tropical Medicine. “It’s a fragile state which wasn’t very well able to provide social and health services to its population even before the earthquake.” The initial period of medical crisis, when rescuers look for people buried beneath the rubble and care for those with the most severe injuries from the earthquake, will last just a few days, Sondorp said in a telephone interview. The bigger challenge, and one that could take decades to resolve, is rebuilding the infrastructure needed to provide food, clean water and health care to citizens nationwide, he said. “It’s quite essential, as soon as you can, to come up with a proper rehabilitation plan,” he said. “You need to get people together to pool resources and do common planning that will make the conditions better.” Drugmaker Donations Drug companies are donating needed medicines and medical supplies. New York-based Pfizer Inc., the world’s biggest drugmaker, is giving medicines including the antibiotic Zithromax to fight bacteria and Diflucan for fungal infections, said Pfizer spokeswoman Tyrene Frederick-Mack in a telephone interview. GlaxoSmithKline Plc, based in London, sent antibiotics on one of the first airlifts to Haiti after the earthquake, said spokeswoman Claire Brough in a telephone interview. The drugs included Bactroban cream and ointment, Augmentin for respiratory tract infections, Zovirax for herpes virus, Ceftin and Zinacef for bacterial infections and Zantac for heartburn and stomach ulcers, she said. The company plans to extend donations once the local infrastructure is repaired, she said. Abbott Laboratories, based in Abbott Park, Illinois, is donating $1 million in grants and pharmaceutical and nutritional products. Eli Lilly & Co., based in Indianapolis, is contributing $250,000, matching employee donations, and plans to donate medicines, the company said in the statement. Death Toll Estimates The earthquake may already have killed 45,000 to 50,000 people, Victor Jackson, an assistant national coordinator with Haiti’s Red Cross, told Reuters. Haitian Prime Minister Jean-Max Bellerive said yesterday in an interview with CNN that “well over” 100,000 may have died, basing his estimate on reports of the number of buildings that collapsed with people inside. The Red Cross estimates as many as 3 million people may be affected by the earthquake. Haiti has a total population of 9.6 million, with about 2 million located in Port-au-Prince. The Western Hemisphere’s poorest country, Haiti has a per capita income of about $560, with 54 percent of Haitians living on less than $1 a day and 78 percent on less than $2 daily, according to the World Bank. Traumatic Injuries “Immediately we’re dealing with a very significant amount of physical trauma-related injuries which are going to be responsible for virtually all of the prompt fatalities,” said Irwin Redlener , director of the National Center for Disaster Preparedness at Columbia University Mailman School of Public Health. The chance of survival plummets for someone buried under rubble after 48 to 72 hours, he said in an interview today. When those with more serious injuries are being treated, people with broken bones and other more moderate ones can get infections while they wait. “The fact that the system is overloaded spells trouble even for people with moderate injuries,” Redlener said. After the initial period, “the rubble itself creates hazards. We start seeing lots of cuts, bruises, falls,” he said. Chronic illnesses, such as diabetes or asthma, that were previously under control may become exacerbated with lack of medical care or the inability for people to obtain medicines, Redlener said. Some will develop stress-related disorders from emotional trauma. “The emotional burden of this is going to be overwhelming,” he said. Doctors Without Borders The aid group Doctors Without Borders has had more than a thousand patients in its four tented medical facilities in Port- au-Prince, according to a statement. Many people have come in with fractures, head injuries and other major trauma, and food, water and shelter materials are running low, the group said. “Basic provisions were always problematic for people in Port-au-Prince but the position is far worse now,” said Vincent Hoedt, an emergency coordinator for the group, in the e-mailed statement. “There’s a concern for people who are already weakened by injuries. There are also shortages of things like gasoline, which affects the working of all kinds of vital equipment.” Port-au-Prince had 21 public health facilities, including four hospitals, before the earthquake, according to Greg Elder, deputy operations manager for Doctors Without Borders in Haiti. Half of the city’s inhabitants lived in slums, Elder said in an e-mailed update from the organization. “It’s a really catastrophic event where absolutely no one knows really what the scope of this is in terms of casualties and fatalities,” Elder said. Flights Depart Doctors Without Borders has almost 800 staff members in Port-au-Prince and plans to send an additional 70 people to help in the next few days, including several surgical teams, Elder said. A flight will leave today with equipment to establish a 100-bed inflatable tent hospital with two operating rooms, and two surgical teams are leaving today from Miami, he said. Lester Hartman, a Westwood, Massachusetts, pediatrician and Harvard Medical School faculty member, said he expects to see greater demand for services at Mt. Carroll Clinic, which he helped establish in 2003 in the town of Juampas, about 40 miles outside Port-au-Prince. While the clinic, where Hartman is medical director, itself was unscathed by the earthquake, survivors will soon begin arriving in hill towns such as Juampas in search of food and medical services, he said. Food Supplies “There’s going to be a secondary wave of people migrating from Port-au-Prince to the towns,” he said yesterday in an interview in Boston. “They’ll come up to live with relatives and they won’t have housing or food. So people who don’t have enough food to begin with will have to split their food.” Food supplies may remain scarce because most deliveries come to the country via Port-au-Prince, Hartman said. He’s also looking for ways of bringing extra doses of antibiotics. Hartman said he may fly into the Dominican Republic capital city of Santo Domingo and drive eight hours to Juampas to avoid the chaos of Port-au-Prince. Workers in the clinic, which typically serves about 300 people each week, often see temporary migration from Port-au- Prince to hill towns during riots, Hartman said. The displacing effects of the earthquake on may last much longer, he said. “Think of it a little bit like Katrina,” he said. “People are going to need help for years.” To contact the reporter on this story: Tom Randall in New York at trandall6@bloomberg.net

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Ellen Friedman: Encouraging Charitable Efficiencies: More Productive Than Discouraging Nonprofits

January 12, 2010

The nonprofit sector is a sector of innovation, creativity, and people for the common good. More than 14 million Americans – 11 percent of American workers – are employed by or volunteer full-time in the nonprofit sector; more than the financial industry and the auto industry combined. In a recent article entitled, “Charities Rise, Costing U.S. Billions in Tax Breaks,” Stephanie Strom of the New York Times raises concerns about an out of control nonprofit sector that is flooding the IRS with frivolous new applications to establish new public charities that will deprive the federal budget of billions of dollars. There are plenty of reasons for concern about the federal budget, but singling out the nonprofit sector in this way overlooks some important points. Not only is this sector working on innovative ways to make the world a better place and connecting people with a sense of common good , nonprofits also contribute billions in tax revenue through employee payroll alone. Moreover, in an age of dwindling public resources, when the role of government in addressing social problems is feverishly debated, the American public is taking matters into their own hands. This heightened wave of community activism, volunteerism and social entrepreneurship needs to be celebrated, not discouraged. In a time when Facebook and Twitter make broadcasting your ideas and passions part of daily life, we should not be surprised that communities are finding new ways to match their values with their time and pocketbooks. Is there potential waste in creating thousands of new nonprofits every year? Undoubtedly yes, but the problem is not people’s motivations. The problem is that not enough people know about the alternatives to establishing nonprofit organizations; alternatives like fiscal sponsorship and donor advised funds that exist to create greater efficiencies and cost-effectiveness for charitable activities. If you’re raising funds for your favorite cause, you don’t have to go through the hassle of establishing and managing a brand-new nonprofit. Instead, talk to your local community foundation or a grantmaking intermediary like Tides to create a donor advised fund or a collective giving fund. If you’re looking to fill a need in your community, look to fiscal sponsorship as a solution instead of creating a brand-new nonprofit. Fiscal sponsors, such as Tides, provide their projects with all of the financial, human resources and governance infrastructure of a well-managed nonprofit, allowing activists and social entrepreneurs to focus their attention on the content and mission of their work, not the administrative and regulatory details. If we want to create greater capacity for the IRS to monitor nonprofit activity, improve efficiency in the charitable sector, and continue to support the social innovation and dedication of the American people, we need to raise the visibility – and availability – of these alternative structures. The nonprofit sector and the IRS could be well-served by partnering to create a referral pipeline between those with passion, ideas and access to resources and those organizations able to manage and administer charitable activity most effectively.

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Cold Snap of 2010 to Ease in U.S. as Britain, China Gird for More Snowfall

January 11, 2010

By Randall Hackley Jan. 11 (Bloomberg) — European transport was delayed following weekend snow in the U.K. and Germany while China curbed its power use because of extreme cold. Australia warned of “catastrophic” brushfires as temperatures soared. Eurostar Group Ltd. operated a reduced service as wintry weather in Europe snarled transportation, with plans for 15 trains to London instead of 26 and 15 to the continent instead of 27. Airlines in the U.K., France and Germany, including British Airways PLC , reported scattered delays and cancellations as hundreds of weather-related road accidents in Germany followed two days of heavier-than-usual snow. Frankfurt airport canceled about 60 flights and in southeastern France, Lyon airport briefly shut, stranding 800 passengers. Weather-related accidents left at least 26 dead in Britain, including a 90-year-old woman who fell and froze to death in her garden, the Press Association news agency said. Crude oil rose to a 15-month high on speculation that fuel demand will increase amid freezing temperatures in the Northern Hemisphere. Futures have risen in 11 of the past 12 sessions as cold in the U.S., Europe and Asia boosted heating fuel demand. “Weather is always a wildcard for energy demand,” said Victor Shum , a Singapore-based senior principle at the energy consultant Purvin & Gertz Inc. “In general, the winter season will boost overall demand unless there is so much snow that transportation is disrupted and industries get shut down.” German Growth Affected Germany’s first-quarter economic growth might be reduced as a winter storm over the weekend and the continued cold hobbled construction and shipping, said Volker Treier , chief economist at the DIHK chambers of trade and commerce. If the cold snap persists through January, the DIHK’s forecast for as much as 0.7 percent growth in the first three months could be cut, he said. “Right now this is a concern,” Treier told Bloomberg Television today in an interview in Berlin. “The construction sector is hit, the transport sector is hit and a lot of building installations are also hit by this weather.” Freezing temperatures in China have led to the worst sea ice off Shandong province’s coast in three decades, the Xinhua news agency reported . Some 200 fishing boats were frozen at a port in Dongying by ice as thick as 30 centimeters (12 inches). In the U.S., the National Weather Service issued a “hard- freeze warning” for parts of Florida this morning. Florida Crop Damage Florida, the biggest orange grower after Brazil, may have suffered at least 5 percent damage to its orange crop from what was likely the coldest night of the current spell of unusually low temperatures, AccuWeather Inc. said. Orange-juice futures rose to a two-year high on Jan. 8 on concern that the cold will reduce output already expected to be the lowest in three years. The futures have climbed 95 percent in the past 12 months on ICE Futures U.S. in New York. The Met Office today warned Wales and much of central, western and southern England to expect widespread icy roads while “heavy snow” was predicted for the Yorkshire and Humber region. Low supplies of salt and grit for de-icing walkways and roads to hospitals prompted the diversion of loads of salt meant for export. U.K. highway authorities and local governments have been told by ministers to cut salt usage by one-fourth. “Councils will focus more on gritting the most important roads so hospitals stay open and essential supplies of food and fuel get through,” the Local Government Association said in a statement. “Ministers have decided that reducing salt use by a quarter will ensure that all councils have enough salt to last, providing they prioritize appropriately.” Prolonged Cold Snap The country is in the grips of its most prolonged cold snap since 1981, according to the government forecaster. Hundreds of schools opened their doors today after being forced to close last week because of the icy conditions. In London, the subway system was running a “good service” with minor delays affecting only the Metropolitan line, according to the Transport for London Web site. Snow and floods are easing in Germany after bringing northern parts of the nation to a standstill yesterday, leaving cars and trains stranded and cutting off coastal villages. “We’ve got extra workers on standby but so far there have been no disturbances on the high voltage grid,” said Marian Rappl , spokesman for RWE AG’s Amprion power-grid unit in Dortmund. “Some pictures of the snow look dramatic but there has been no impact.” Storm Winds, Snow Dikes remained intact and storm winds abated though parts of Luebeck’s old city were left submerged and waves tore off parts of the pier in the seaside resort of Travemuende, Spiegel Online reported today, citing police and local officials. Snowfall let up in France after forcing Lyon’s airport to shut over the weekend, stranding hundreds of passengers. The national French electrical grid asked households in the Brittany area where storms hit Jan. 9 to curb power use. French electrical demand may rise to a record today as power prices jumped to the highest in a year, grid operator Reseau de Transport d’Electricite said on its Web site. In Switzerland, where the Gotthard tunnel, a main north- south artery to Italy, was briefly closed by storm conditions, the St. Moritz ski resort reported fresh snow and sunny skies. In the Southern Hemisphere, Australia issued “catastrophic” fire warnings amid forecasts for soaring temperatures. Code Red The Australian state of Victoria activated its Code Red warning, the highest level, for the first time today as South Australia yesterday issued a statewide “catastrophic” fire danger warning after temperatures passed 40 degrees Celsius (104 degrees Fahrenheit). The alert system was introduced after the Black Saturday fires killed 173 people in Victoria last year. More than 40 people were reported to have collapsed from the heat in Melbourne, Australia’s second-most populous city. Electric demand in South Australia is expected to reach a summer record today as the heat wave that started Jan. 5 enters its second week, the Australian Energy Market Operator said. Blizzards in China’s westernmost province of Xinjiang, meanwhile, killed one and forced authorities to evacuate 5,000 residents, the Ministry of Civil Affairs said. More snow is forecast for Xinjiang today and tomorrow, the China Meteorological Administration said. Freezing weather in China is also forcing cities including Beijing and Shanghai to ration the use of natural gas and electricity to ensure sufficient energy for heating as temperatures fall. Blizzards in China Blizzards in the Tacheng and Altay regions of Xinjiang also destroyed 799 homes, according to the Ministry of Civil Affairs. Beijing will limit the supply of natural gas to industrial users to guarantee supplies for residential needs as daily consumption is close to maximum capacity, Xinhua reported yesterday. Temperatures in the Chinese capital are forecast to fall to as low as minus-12 degrees Celsius. Electricity is also being rationed in portions of China including Shanghai and the southwestern municipality of Chongqing. Snow fell in parts of Shanghai today, with temperatures as low as zero Celsius, the weather bureau said. To contact the reporter for this story: Randall Hackley in Zurich at rhackley@bloomberg.net

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Melinda Gopher: America Needs Another Fair Housing Summit to Abolish Financial Apartheid

January 11, 2010

“I have a passion for social justice, and a lifelong commitment to the principle of equality. In Montana, the principles of fair housing with the passage of the 1968 Fair Housing Act, were slow in coming. By the late 1980s, Montana was one of a few remaining states lax in fair housing protections. We started out as a small organization, the Council for Concerned Citizens, in the south side of Gt. Falls, to work on housing justice.” This nation is due for another summit on national fair housing. The voices missing from the realm of discourse on the subprime debacle are those very people who have been affected by it. In my earlier years, I worked in fair housing, first as a volunteer and then as a board member and staffer of the Concerned Citizens Coalition (CCC). Under the leadership of Mark Good, the CCC embraced a controversial enforcement method called “fair housing testing.” The method involved a white “tester” and a Native American “tester” applying for the same housing unit, after which, their results were compared. The findings were pretty astounding. In 57% of the tests conducted, Native Americans were discriminated against by housing providers. This is an extraordinarily high rate, far above the national average. Findings indicated that Native Americans experience discrimination more frequently than any other ethnic or racial group in America. Good and Incomplete Intentions for Naught As a result, the CCC requested HUD funds pursuant to the FHIP program. It took several years, but eventually the funds made their way to Great Falls. By then, the CCC had experienced a gradual change in leadership. I had been hired as an Education and Outreach Coordinator and I executed the program in its first year. What was significant about this time, in early 1994, mid-way through the first Clinton term, HUD sponsored a Fair Housing Summit in DC. I attended this and served as a panelist at the summit. I spoke on the very issue I had written about many times before: Hill 57. Hill 57 is a timeless issue that never seems to improve. It has never been addressed and it is always forgotten. I mention this instance because it is significant to now. There was a lot of optimism in America-buoyed by the Clinton presidency, just as there had been this time last year. It looked like things would be different back then and that real changes would be made. I see this general timeframe of 1994 as a renewal in America’s commitment for social justice. Maybe some things changed, but upon reflection, I cannot help but think there was a Clinton dogma put in place in this nation’s financial system with the clamour around the CRA, which was intended to provide fair access to credit. Instead, what became entrenched in this era, as far as I can see — was the subprime market. This marked the retrenchment of a newer, more virulent “separate-and-unequal” financial system in America. We must look at a general timeframe when the Federal Reserve failed to regulate lenders; paving the way for predatory lending. This became a significant issue toward 1998; the Federal Reserve initiated a quiet policy that ignored blatant discrimination by banks who charged higher interest rates to minorities. To put it bluntly, President Clinton either did not care or could not care; he was busy denying that he spent a good deal of time in November of 1995 masturbating Monica Lewinsky with cigars. This was an opportunity lost, it looks as though we are repeating a failed pattern, once again. Financial apartheid; one market for the haves — mostly whites, and a secondary market for the have-nots; mostly minority. This only rooted and became a system of extremes under the two Bush terms. The secondary market by 2008 that consisted of home mortgages that were higher than the value of the home, and adjustable teaser rates that left the homeowner unable to pay their mortgage. Freddie Mac and Fannie Mae were major players in this system. The objectives may have been good, but the effort misguided. Whether this was intentional or just was not well thought out by the Clinton administration, remains to be seen. Even though the official record of numbers goes back a couple of years, the trending in federal policy, or the lack thereof, predates the actual meltdown by several years. And we can see this taking root back to the Clinton administration. Matt Taibbi, in Obama’s Big Sellout, ( Rolling Stone ) details how Obama’s Team of Rubinites, leftover from the Clinton administration have hijacked the Obama White House. The Montana progressive, native urban/reservation, women, youth, people with disabilities, LGBTQ, all have a stake in this issue at the state level. Fair housing efforts must be resurrected in Montana; there is a need for protection on a state level, as well as the strengthening of Title 49, the Montana Human Rights Act. The Montana Legislature at some point in the past; watered down the state civil rights law, Title 49, resulting in loss of HUD funding at the state level. Neither the Schweitzer administration, nor the state legislature has reversed this. It is time to put the pressure on. I cannot stress enough, of the need of the Indian voting electorate to stay engaged in the process; especially in off-election years. This tends to be when politicians think the voters are not looking; this is when the damage is done. One only needs to look at the mess that is the stimulus bill, now the health care bill. We can point to the Cobell settlement, and the undue influence of John Echohawk in particular. This man is in the hazing phase as a flegdling member of the Team of Rubinites, he is a wannabe limo liberal who was part of the Obama transition team. His brother, Larry Echohawk, is now BIA Assistant Secretary. I am amazed Indian Country has not scrutinized the settlement in greater detail. The Cobell settlement is outrageously low, about 3.5 billion (in legal terms, outrageous has added weight, meaning conduct so bad as to be unconscionable to the normal reasonable person). This is a direct result of the Indian community treating the Obama administration with kid gloves. This settlement is a swindle, the settlement calls for 2.4 billion for “land consolidation” it will result in landlessness of the average tribal member. Again, at the bargain basement price of 2.4 billion, this is chump change in comparison to the TARP bailouts and the stimulus. In summary, it matters if you are a white person, this past year was the great recession of 2009. Your 401(k) tanked, your stock portfolio has taken a temporary hit, your credit is or near maxed out. You will recover, the stock market is steadily buoyed. The week after passage of the Senate health bill, health insurance stocks ran up 52% in one day. But if you are a minority, this is in fact the Great Depression of 2008-2009 and counting. Unemployment, even in major metropolitan black communities such as Detroit — tops 50%. The state of Montana does not quantify urban Indian unemployment, there is no way to tell for sure, there is no official estimate. Times are tough, it has been a couple of years tallying now, in urban areas people had been selling scrap metal to stay alive. Then the recyling business hit with high gas prices in the summer of 2008, cut back — scrap metal stockpiled. The people at the bottom of the ladder were hit, no one could even sell their scrap metal. People donate their plasma to Bio-Life in urban areas to put gas in their tanks, buy food, and try to survive. This has become daily life and reality for urban Indians dating back to the early years of th second Bush term. This, like the health care bill, which puts profits over lives, has a strange Orwellian feel of the commodification of human life. It is scary and creepy. The help for urban Indians was needed several years ago. It still has not arrived. Child and youth poverty are back to levels prior to President Johnson’s War on Poverty. This is another failed legacy of the Clinton presidency. The Personal Work and Responsibility Act of 1996 cut welfare that was already annililating the poor, minority household. The Act time-limited life time benefits to five years — for many people who never had an economic lifeline, or was cut by the Clinton administarion that constantly was dogged by a Republican Congress — their lifeline ran out long ago. Welfare laws dictated that the poor and minority households MUST be headed by a single, female. This destructive policy has damaged the culture and fabric of Indian families. America’s poor and urban minorities need policies that empower and lift them, as opposed to policies that entrap them. I urge the Indian communities, do not wait for anyone to throw you a lifeline. Organize yourselves and take action, be the change you seek, hold our local governments accountable, vote in any and all elections that come up. Run for office yourselves. We need leadership at all levels. If something is not right, take the time to voice your opinion. Organize for the Durbin – Dorgan Jobs Bill — the time to do it is NOW. Read more of the urban Indian experience in both the U.S. and Canada at http://site.urbannativemagazine.com . Melinda Gopher is a paralegal, writer and Candidate for the U.S. Congress. Her philosophy is to democratize the law, so that the ordinary person can understand it. She is the Editor-in-Chief of Urban Native Magazine .

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Move Your Money Campaign Helps Trustco Bank

January 11, 2010

Aside from taking the media world by storm , the Move Your Money campaign is having a real-world effect. Albany’s WTEN reports that Glenville-based Trustco Bank has seen a surge in business ever since the Move Your Money campaign began calling for consumers to stop lining the pockets of the too-big-to-fail banks and to support their local community banks. Trustco saw 30 new accounts opened in one day, including one worth seven-figures. Bank officials say that other branches of the bank are seeing similar results. Watch the report below: Visit MoveYourMoney.info to find a community bank near you. Click here for answers to frequently asked questions about how to move your money.

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Australia Warns of Bushfires as Winter Freeze Grips Much of China, Europe

January 11, 2010

By Bloomberg News Jan. 11 (Bloomberg) — Australia issued “catastrophic” fire warnings amid forecasts for soaring temperatures as snow and freezing weather forced China to evacuate thousands and snarled transportation in Europe. The Australian state of Victoria activated its Code Red fire warning, the highest level, for the first time today as South Australia yesterday issued a statewide “catastrophic” fire danger warning after temperatures soared above 40 degrees Celsius (104 degrees Fahrenheit). The alert system was introduced after the so-called Black Saturday bushfires killed 173 people in Victoria last year. Blizzards in China’s westernmost province of Xinjiang killed one and forced authorities to evacuate more than 5,000 other residents, according to the Ministry of Civil Affairs. More snow is forecast for Xinjiang today and tomorrow, with temperatures in the provincial capital of Urumqi expected to fall to as low as minus-15 degrees Celsius (5 degrees Fahrenheit), the China Meteorological Administration said. Freezing weather in China is also forcing cities including Beijing and Shanghai to ration the use of natural gas and electricity to ensure sufficient energy for heating as temperatures fall. Electricity demand in South Australia is expected to reach a summer record today as the heat wave that started Jan. 5 enters its second week, according to the Australian Energy Market Operator. Flights Cancelled Wintry weather in Europe has snarled transportation as the cold and snow forced airlines in the U.K., France and Germany to cancel flights and Eurostar Group Ltd. cut the number of trains from the continent to London by almost half yesterday. The reduced schedule is expected to continue today, with Eurostar planning 15 trains to London instead of 26 and 15 to the continent instead of 27. Snowfall in France forced Lyon’s airport to shut on the evening of Jan. 9, stranding hundreds of passengers. The national French electrical grid maintained its request that households in the western region of Brittany moderate power use. The region produces only 8 percent of its electricity needs. Urumqi airport in Xinjiang canceled 84 flights from Jan. 6 to Jan. 10 because of snow, according to the local government’s Web site. Blizzards in the Tacheng and Altay regions of Xinjiang also destroyed 799 homes and damaged a further 4,897, according to the Ministry of Civil Affairs. A total 261,800 residents had been affected by the snowfalls that caused power outages and disrupted transportation in Xinjiang as of late Jan. 8, it said. Gas Limits Beijing will limit the supply of natural gas to industrial users to guarantee supplies for residential needs as daily consumption is close to maximum capacity, the official Xinhua News Agency reported yesterday. Temperatures in the Chinese capital are forecast to fall to as low as minus-12 degrees Celsius, according to the weather bureau. The city of Wuhan is also limiting gas supplies, Xinhua reported. Electricity is also being rationed in portions of China including Shanghai and the southwestern municipality of Chongqing. Shanghai may get snow today, with temperatures as low as zero degrees Celsius, according to the weather bureau. More snow is also forecast for today and tomorrow in provinces including Shandong, Jilin, and Liaoning, according to the weather bureau. Temperatures in the state of South Australia touched 43 degrees Celsius in some areas yesterday. The state has closed all national parks and reserves until midnight. Victoria closed parks in the Wimmera region, as temperatures in the western portion of the state rose to 44 degrees Celsius yesterday. Florida Oranges In the U.S., the National Weather Service issued a “hard- freeze warning” for parts of Florida from last night to this morning, which means below-freezing temperatures are “imminent or highly likely,” according to the service. Florida, the world’s biggest orange grower after Brazil, may lose 6 percent to 10 percent of its crop as temperatures plunge, said Alan Reppert , a senior meteorologist at AccuWeather Inc. Freezing temperatures in China have also led to the worst sea ice off the coast of the eastern province of Shandong in three decades, Xinhua reported , citing Guo Kecai, deputy general engineer of the State Oceanic Administration’s North China Sea branch. Temperatures on the Bohai Sea and Yellow Sea have fallen to minus-10 degrees Celsius, Xinhua reported. More than 200 fishing boats were frozen at a port in Dongying with the ice sheet as thick as 30 centimeters, Xinhua reported. China increased monitoring of the situation and sent warnings to local residents and governments, it said. For Related News and Information: Find stories about weather in China: TNI CHINA WEATHER BN Finds stories about power generation in China: TNI CHINA ELC BN Most-read stories about China today: MNI CHINA 1D China economic statistics: ECST CH

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