mood

Simon Johnson: Davos: Two Worlds, Ready or Not

by Simon Johnson on January 29, 2011

On the fringes of the World Economic Forum meeting in Davos this week, there was plenty of substantive discussion — including about the dangers posed by our “too big to fail”/”too big to save” banks, the consequences of widening inequality (reinforced by persistent unemployment in some countries), and why the jobs picture in the U.S. looks so bad. But in the core keynote events and more generally around any kind of CEO-related interaction, such themes completely failed to resonate. There is, of course, variation in views across CEOs and the people work intellectual agendas on their behalf, but still the mood among this group was uniformly positive — it was hard to detect any note of serious concern. Many of the people who control the world’s largest corporations are quite comfortable with the status quo post-financial crisis. This makes sense for them — and poses a major problem for the rest of us.The thinking here is fairly obvious. The CEOs who provide the bedrock of financial support for Davos have mostly done well in the past few years. For the nonfinancial sector, there was a major scare in 2008-09; the disruption of credit was a big shock and dire consequences were feared. And for leaders of the financial sector this was more than an awkward moment — they stood accused, including by fellow CEOs at Davos in previous years, of incompetence, greed, and excessively capturing the state. But all of this, from a CEO perspective, is now behind them. Profits are good — this is the best bounce back on average in the post-war period; given that so many small companies are struggling, it is reasonable to infer that the big companies have done disproportionately well (perhaps because their smaller would-be competitors are still having more trouble accessing credit). Executive compensation at the largest firms will no doubt reflect this in the months and years ahead. In terms of public policy, the big players in the financial sector have prevailed — no responsible European, for example, can imagine a major bank being allowed to fail (in the sense of defaulting on any debt). And this government support for banks has translated into easier credit conditions for the major global corporations represented at Davos. The public policy issue of the day, from the point of view of such CEOs, is simple. There needs to be sufficient fiscal austerity to strengthen public balance sheets — so that states can more effectively stand behind their banks in the future, and to keep currencies from moving too much. Leading bankers, in particular, insisted on the paramount importance of providing unlimited government support to their sector during 2008-09; now they insist with equal or greater vigor that support to all other parts of society be curtailed. This is where cognitive dissonance creeps in. Most CEOs feel that the provision of general public goods is not their responsibility, although they are very happy to help guide (or capture) the provision of public goods specific to their firm. But it is reckless decisions by some in the financial sector that produced the crisis and recession — this is what accounts for the 40 percent of GDP increase in net government debt held by the private sector in the United States (to be clear: it’s the recession and mostly the consequent loss of tax revenue). And CEOs are happy to lead the charge both against raising taxes and in favor of deficit reduction. This adds up to public goods being weak and so much under pressure around the world. No one can put significant resources to work helping to bring down unemployment. No one is seriously addressing the loss of skills faced by the long-term unemployed. No one is offering real resources to help improve education for lower-income children or adults who did not finish high school. Self-anointed “fiscal conservatives” claim the budget issues we face are all about discretionary nonmilitary spending. This is nonsense. The U.S. faces an incipient fiscal crisis (a) in the shorter term, because of what the big banks did and what they are likely to do in the future, and (b) over the next few decades, if we fail to control rising health care costs (both in general and as funded by government budgets). The gap between the CEOs’ world and the real world should be bridged by the official sector. But where are the politicians and government officials who can explain what we need and why? Who can confront the CEOs in the highest profile public forums, and push them on the social responsibility broadly defined? The biggest disappointment at Davos was not the attitude of the corporate sector; these people are just doing their jobs (as they see it). To the extent the U.S. or eurozone official sector showed up at all, it continued to demonstrate the deepest levels of intellectual capture. The reasoning seems to be: As long as we do what the big banks and big firms want, everything will turn out all right. There was zero high-profile public debate at Davos this week on anything related to this way of seeing the world. Corporate Davos was borderline exuberant. Even if a deeper crisis looms, does the global business elite really care? This post originally appeared on The Baseline Scenario .

See more here:
Simon Johnson: Davos: Two Worlds, Ready or Not

Arianna Huffington: Davos Diary: Heading to the World Economic Forum at a Crossroads Moment for the World

by Arianna Huffington on January 25, 2011

As soon as I hit “Publish,” I’m getting on a plane for the seven-hour flight to Zurich, followed by a two-hour drive to Davos for the 2011 World Economic Forum. According to early reports , the mood in Davos this year will be “somber.” “Humanity is at a cross-roads,” Klaus Schwab, the Forum’s founder, plans to say in his open remarks. “We can either continue to work as lobbyists for our narrowly defined self-interests and keep doing the same old things that got us into the crisis in the first place,” or we can “act together as true global leaders, with the long term global public interest in mind and at heart.” It’s a sweeping statement, but I don’t think Schwab is overstating the case. Nearly 40 years ago, Jonas Salk talked about how the world was moving from Epoch A (based on survival and competition) to Epoch B (based on collaboration and meaning). But a global economy that leaves millions behind and is driven by greed, injustice, and the “narrowly defined self-interests” that Schwab warns of, makes it harder to move to Epoch B any time soon. It’s telling that a survey of Davos participants found that growing economic disparity is seen as one of the two biggest risks facing the world in the coming decade. In a piece previewing Davos, James Ledbetter, the editor of Reuters.com, describes the growing gulf between the world’s rich and poor as “not only immoral, but dangerous, as it can lead to open conflict between nations and internal political turmoil.” Indeed, today, a country’s internal economic health is as much a national security issue as the size and quality of a country’s army was in the 20th century. The solution, according to Schwab, is an embrace of “basic values and shared norms” that can “guide the decision-making of leaders and help ensure inclusive rather than exclusive outcomes.” As part of the push for inclusive outcomes, the forum is once again granting full access to a collection of social entrepreneurs from around the world. This is the 10th year the conference has offered a platform to what it considers “voices from the ground.” But there is something different this time around. In the past, social entrepreneurship and efforts at developing civil society were the Davos equivalent of icing on the banker/CEO/head-of-state cake. Now they are an essential ingredient, baked into the cake. This shift stems from the growing sense, even among the elites, that our current political and economic systems are inadequate to the task of addressing the multiple crises the world is facing. As Schwab puts it, “One thing is certain: we can’t keep doing the same old thing in a new era that requires new responses.” So there are panels like the one on “Scaling Up Big Ideas,” moderated by James Gregory Dees, a professor of Social Entrepreneurship at Duke University. According to the Davos schedule, it will look at “models of collaboration,” the “nature of social innovation,” and the “challenges of scaling,” while addressing the question, “How can social innovations be scaled up for wider effect and greater impact?” There’s also an IdeasLab featuring Marissa Mayer of Google, the Crown Prince of Norway, and “young global leaders,” including Calvin Chin, the CEO of Qifang, a Shanghai-based online community that helps poor Chinese students pay for college, and Allon Raiz, CEO of Raizcorp, a South African company that helps entrepreneurs grow their businesses. Among the topics to be discussed: “promoting transparency in government, business, and civil society.” I’ll also be interested in a panel on the “Media’s Role in Shaping Norms” that will feature David Brooks, Peggy Conlon, CEO of the Ad Council, and Naif Al-Mutawa, a Kuwaiti social entrepreneur. The overarching theme of this year’s forum is “Shared Norms for the New Reality.” Among the shared norms Schwab will highlight in his opening remarks is “collective sacrifice.” It’s a notion that has been conspicuously missing from America’s political dialogue — even in the face of the economic hardships of the last two-plus years. As David Leonhardt recently noted in the New York Times , countries like Germany and Canada have avoided mass layoffs by cutting hours and pay for everyone, while the notion of shared sacrifice has failed to catch on among our political leaders. That’s why early reports that President Obama will use his State of the Union speech to deliver a theme of national unity and renewal have been so encouraging. It’s expected that the 44th president will hearken back to another president who faced a crossroads moment, JFK, who, in 1961, responded to the national shock at the Soviet Union having pulled ahead in the space race with the launch of Sputnik by promising to put a man on the moon by the end of the decade. “Expect the president on Tuesday to hearken back to that time,” wrote HuffPost’s Howard Fineman, “and to say we face another ‘Sputnik moment’ — an economic one.” And the New York Times calls the president’s speech “a pivot point not only for himself but also for the nation.” Crossroads and pivot points. This is one of those moments when you have the feeling that if we get it wrong, we’ll be living in a very different world. From Davos to DC, it’s clear that the world is in need of big ideas. Let’s hope the president, and those business and government leaders gathering a continent away, rise to the challenge.

Go here to read the rest:
Arianna Huffington: Davos Diary: Heading to the World Economic Forum at a Crossroads Moment for the World

Ford Unveils ‘Car Of The Future’

January 8, 2011

NEW YORK–The car of the future is here, at least according to Ford, which unveiled its first all-electric car today with glitzy events here in New York and in Las Vegas. Unlike its competitors, Ford will roll out its electric vehicle as a new version of an existing model, the popular Ford Focus. In a further move to distinguish itself from the field, the Focus will be available not just as an all-electric car, but also as a hybrid, a plug-in hybrid, and as a conventional gas engine vehicle. At New York’s Altman building, frenetic dance music geared up the crowd of auto journalists, car dealers and executives. As the lights dimmed, a smooth-voiced announcer directed the audience to take their seats. This was no mere car announcement. It was automotive theater. In fact, some analysts suggest that a performance is all the product release really amounts to. Electric cars are still an extremely minor part of the auto market–only about 2 percent of cars sold are even hybrids. Building an all-electric car provides extraordinary fuel economy credits for automakers looking to comply with nationally mandated fuel efficiency standards, as well as boosting a progressive, green-minded company image. Skeptics suggest the electric Focus is more about satisfying those requirements than making money. “There wouldn’t be any automaker making electric cars if not for fuel economy regulations,” said Aaron Bragman senior analyst for IHS Global Insight. “They’re not a moneymaker.” Even if Ford has genuinely ambitious plans for its latest cars, it is taking on enormous obstacles that could prevent electric vehicles from penetrating the consumer market. Not only are electric cars substantially more expensive than ordinary gas automobiles, but the lack of an overall U.S. infrastructure to charge electric car batteries induces major anxiety for drivers looking to drive more than 100 miles at a time. But in New York on Friday, the mood was distinctly triumphant as the company still associated with the earliest roots of the American auto industry took aim at capturing a slice of its next iteration. “This really is a milestone for Ford Motor Company,” proclaimed Bill Ford, the company’s executive chairman of the board and the great-grandson of the automotive pioneer, Henry Ford. “The future has arrived and you are the first to witness it.” Everyone cheered as a fake garage door ascended and a gleaming electric Focus pulled out of the mock-garage (complete with mulch, shovel and sled). Ford posed by the lit-up circle where a driver might ordinarily pump his gas. But of course, this car had instead a long cord connecting the car’s electric battery to a small charging station. Unlike the Nissan Leaf or the Chevrolet Volt–the company’s primary competitors in the electric car market– Ford has chosen to capitalize on the popularity of the Focus name rather than produce a new brand for their all-electric car. The electric Focus looks almost exactly like its gas predecessor. “Frankly, why mess with something that’s great?” asked Ford, praising the Focus as “gorgeous,” “good-looking” and “attractive.” Rolling out its line of electrics under an established name is part of Ford’s tactic to bring electric cars to the average consumer. “It’s part of an overall strategy of trying to consolidate brands and model names,” said Jesse Toprak, VP of Industry Trends at TrueCar.com. “They’ll spend money on a few brands and just a few models.” The Focus is a compact car, the most popular variety in the world. “To make this the electric vehicle for them means just about anyone can sell it just about anywhere,” said Bragman. “They’re going to build off the Focus name and simply make it an additional option.” For Ford, offering a wide range of electric options is a matter of catering to different consumers’ needs. They will build the hybrids, plug-in hybrids, all-electrics and conventional Fords in one factory in Wayne, Mich. Depending on demand, this will allow Ford to ramp up production of whichever flavor of electric proves to be the most successful more easily than if they had to separate production locations. “Each automaker is going for their core competency,” said Brandon Mason, lead powertrain analyst at Autofacts of PricewaterhouseCoopers, of the electric market. “Ford is taking the path that we’re going to offer a bit of everything.” While an all-electric runs purely on an electric battery charged through an at-home charging station, a plug-in hybrid switches from an electric battery to a gas engine once the battery is depleted, while a hybrid combines an internal combustion engine with an electric propulsion system. “One size doesn’t fit all,” said Ford. “Customers have different needs.” But green is far from mainstream. Electric vehicles–hybrids, plug-ins, and all-electrics combined–make up only about two percent of the actual market. Ford Director of Global Electrification Nancy Gioia’s confident prediction that market share will jump to ten to 25 percent by 2020 is not matched by more conservative analysts. “We predict sales of 1.4 million units annually in 2017,” said Mason. “That’s about one and a half percent market share.” Two issues confront prospective buyers: affordability and range anxiety. Even with the $7,500 tax credit buyers can receive for buying electric, such vehicles still cost much more than conventional cars. “Cost is a huge prohibiting factor to make it a better business case for consumers,” said Mason. “[Electric cars] are 10 to 15 thousand dollars higher now and mainstream consumers aren’t willing to pay that kind of premium.” Ford has not yet revealed how expensive the new Focus will be, though they let slip a coy remark that it would be priced better than the Chevrolet Volt, and competitively with others. The Volt, a hybrid plug-in, currently sells for $41,000, while the Nissan Leaf, an all-electric, goes for $32,780, pre-credit. And even though drivers can certainly save on gasoline money by going electric, George Peterson, President of AutoPacific, estimates that it still takes something like 12 years to pay back the electric price premium. “Unless gasoline goes up to 5 or 6 dollars a gallon, you can’t really economically decide that it pays back,” said Peterson. Aside from cost, range anxiety about the distance a car can drive on a single full charge is the major prohibiting factor of the all-electric vehicle. Though hybrids and plug-ins address the range issue by combining traditional gas engines with the electric component, all-electric cars mainly suit the lifestyle of urban drivers who have only short distances to go. Though Ford has not released their exact efficiency statistics, they have said the all-electric Focus will be competitive with the Nissan Leaf, which provides about 100 miles on a full charge. This will remain the case until a national infrastructure for electric charging is built. The owner of an all-electric car that runs out of charge on the side of the highway can’t exactly expect a fellow driver to pull up with a portable charging station they way they might with a cup of gas. “The electric infrastructure still has a long way to go in the U.S.,” said Peterson. “There are not enough public chargers out there to fulfill the requirements of a broad-base infrastructure for an electric vehicle.” For now at least, early adopters of these new electric cars are likely to be green-minded citizens for whom affordability is not the main concern. “Is it being viewed as a toy by people who want something cool, or is it really going to be sustainable transportation?” asked Bragman, “I think it’s somewhere in the middle of that.” AutoPacific’s research shows that only 2 to 3 percent of consumers today would consider buying an electric car. “It’s easy to sell 2000 units of any technology to early adopters,” said Toprak. “The challenge is to sell them to Middle America who will buy on financial reasons and not because they look cool or for environmental factors.” Of course, looking cool isn’t exactly a bad thing. Ford’s decision to unveil the electric Focus at the tech mecca that is the Consumer Electronics Show, rather than at next week’s North American International Auto Show, is a sign of increasing confluence between the automotive and electronics worlds. The Focus is CES’s official car, a two-peat for Ford, whose Taurus bore the honor in 2010. Ford has also led the way in automotive infotainment with their wildly popular Sync system, which lets users control music and hear audio text messages. It has been installed in 3 million cars since its introduction in 2007. Toyota just announced their version of Sync, called Entune, at CES this week. Ford’s ability to establish itself as a leaders of technology has been one important part of their astonishing recovery since the auto industry’s major crisis in 2008. Ford was the only one of the Big Three domestic automakers not to take bailout money, and recently topped Toyota both in sales and in consumer preference . “Their tech is two generations more advanced than any other automaker,” said Bragman. “They’ve done a lot of things that have been very painful, but they’ve done them well, and now they’re starting to reap the rewards.”

Read the full article →

Holiday Shoppers Sprint To End; Retail Revenue Up

December 23, 2010

NEW YORK — Holiday shoppers are racing to the end of the season at a more feverish pace this year, with retail revenue up 5.5 percent during the last weekend before Christmas. The figure, released by ShopperTrak on Wednesday, is a drastic improvement from the same weekend last year, when revenue dropped 6.2 percent because a big East Coast snowstorm closed malls and kept shoppers at home. This year’s improvement is especially encouraging for retailers, for whom a big weekend all but sealed a shopping season of healthy revenue gains. ShopperTrak reported shoppers spent $18.83 billion Dec. 17-19. That includes $7.58 billion spent on what retailers call “Super Saturday” – the Saturday before Christmas. The number of shoppers rose 3 percent over the weekend before Christmas last year. ShopperTrak expects retail spending to rise 4 percent for the holiday season. It fell 0.4 percent during the 2009 season. Anything over 4 percent is considered a healthy gain. The final days leading up to Christmas are important for retailers. Some do a third of their annual business during the season. The final countdown to Christmas is especially important. ShopperTrak estimates that the 10 days before Christmas usually make up 31 percent to 34 percent of holiday-season retail revenue. Consumers appeared to be in the mood to hit just one location for their shopping needs, with Thomson Reuters reporting that traffic at malls was higher on Super Saturday than a year ago. But ShopperTrak anticipates this Thursday will likely edge out Super Saturday to become the second-biggest sales day this season behind Black Friday, as last-minute shoppers scramble to pick up gifts. Black Friday sales were $10.69 billion, according to ShopperTrak. The Walking Co. store at Circle Centre Mall in downtown Indianapolis has seen a steady flow of customers. “We’re at least breaking even with where we were last year, if not better,” manager Robert Stapleton said. Recent data from MasterCard Advisors’ SpendingPulse, which tracks spending across all transactions including cash, shows Americans were spending more on clothing, luxury goods and even furniture during the period from Oct. 31 through Saturday. Online spending has also been strong. As of Friday, shoppers have spent $27.46 billion online since Nov. 1, up 12 percent from a year ago, according to research firm comScore Inc. Improved spending is also a sign that the economy may be regaining its footing. The Commerce Department reported earlier this month that November retail sales rose 0.8 percent, marking the fifth straight monthly gain. Department stores led the way with a 2.8 percent gain, the biggest for this category since a 3 percent increase in November 2008. Retailers are expected to have a strong December, with Thomson Reuters predicting that revenue at stores open at least a year will be up 3.6 percent on average for the month. Discount stores like Target Corp. and BJ’s Wholesale Club Inc. are expected to do well, along with teen clothing retailers like Abercrombie & Fitch Co. and Zumiez Inc. This figure is a key gauge of a retailer’s health because it measures results at existing stores instead of newly opened ones. ___ AP Business Writer Tom Murphy contributed to this story from Indianapolis.

Read the full article →

Dave Johnson: How About A Summit With The Unemployed?

December 14, 2010

We had bailouts and bonuses for Wall Street but letdowns and layoffs for Main Street. We had a deficit commission but no jobs commission. We have tax cuts for the rich and budget cuts for the rest of We, the People. And this week the President is having a ” summit ” with the heads of giant corporations. So how about holding a summit with the unemployed? President Obama is holding a “summit” with 20 or so CEOs Wednesday, “to ease strained relations with business.” NY Times: Obama to Meet With Executives , President Obama will host a roundtable with about 20 corporate chiefs on Wednesday, according to the White House, part of an attempt to ease strained relations with business. … With the mood for the meeting already lightened by his recent announcements of a trade deal with South Korea and a compromise on tax cuts with Congressional Republicans, Mr. Obama and the executives will discuss an overhaul of the tax system… See if you can guess what sort of “overhaul of the tax system” suggestions are likely to come out of a “summit” with top CEOs. Hint: a recent “summit” with Republican leaders resulted in a plan for extending tax cuts for the rich and cutting the inheritance tax. Record Profits The Washington news types talk about “strained relations” between business leaders and President Obama. The business news reports I’ve been reading don’t reflect a “strain” at all. A recent NY Times story: Corporate Profits Were the Highest on Record Last Quarter , American businesses earned profits at an annual rate of $1.659 trillion in the third quarter, according to a Commerce Department report released Tuesday. That is the highest figure recorded since the government began keeping track over 60 years ago, at least in nominal or noninflation-adjusted terms. Record corporate profits. Wow. Just wow. And for the rest of us? High Unemployment, Very High Long-Term Unemployment But wait, something else is at high levels as well. This year’s headlines: January: Number of long-term unemployed hits highest rate since 1948 June: Long-Term Unemployment at Highest Recorded Rate September: Long-term unemployment reaches crisis level December: Long-term unemployed are left without assistance Susie Madrak , over at Crooks and Liars, has a few things to say about this summit in her post, Obama To Hold CEO Summit Wednesday; Execs To Present Their Very Reasonable Demands For Ransom Basically, they want to run untaxed, unregulated businesses with few (if any) legal obligations to the people who still work for them. Oh, and they want “austerity” for the working classes… … Now perhaps the president can convene a one-day summit of the unemployed and the working poor to ask them what they think, for a change. Yes, perhaps the President can convene a summit with the unemployed. Playing The Ref In November I wrote about this idea that President Obama is “anti-business,” Here is what has been going on. In a classic “playing the ref” move, the Chamber of Commerce has been pitching the idea that the Obama administration is “anti-business” because they don’t give the big, monopolist, multi-national corporations everything they want. “Playing the ref” is a sports term, the idea being that if you complain enough about the calls a referee makes the referee will feel the need to give your team a few breaks in order to appear to be making fair calls. So the Chamber, by complaining that Obama is “anti-business,” is really trying to get Obama to be even more pro-business. (The same strategy is at work when you hear complaints about the “liberal media.” After so may years of this accusation by right-wingers, newsroom editors are terrified of appearing to be left-leaning, resulting in so many right-leaning news stories.) This summit to “ease strained relations” with business leaders is in response to a classic “playing the ref” move. While sitting on the highest profits ever they complain that the President is :anti-business” and get what they want. It’s too bad the unemployed — with the highest rates of long-term unemployment ever — are not represented in Washington by swarms of well-paid lobbyists, or by campaign contributions, or by “independent expenditure” smear-ad campaigns, or by astroturf (providing a corporate-purchased appearance of “grassroots” support) organizations. That seems to work. Being one of the regular old-fashioned “We, the People” doesn’t seem to buy much influence on our government and its leaders any more. So how about holding a summit with the unemployed, and taking their suggestions? This might “ease strained relations” between the unemployed and the country’s leaders and their policies. This post originally appeared at Campaign for America’s Future (CAF) at their Blog for OurFuture . I am a Fellow with CAF. Sign up here for the CAF daily summary .

Read the full article →

Marc Stoiber: Innovation in a Crisis Economy

December 10, 2010

I recently spoke at a marketing conference in Athens, Greece. Predictably, the conference theme was creativity in the face of austerity. Although the mood was dour, it was fascinating to hear delegate perspectives on what would heal the economy. I asked many for their take on green innovation. Most thought it was a luxury for more prosperous times. Few made the connection between sustainability and cost savings, although they knew the story of Wal-Mart’s rise to green fame with eco-efficiency. That said, I unearthed some great innovation stories, like the imaginative (and popular) subsidies Piraeus Bank was offering customers for everything from solar power to organic farming. There were also rumblings that ‘old school’ public officials were being drummed out in favor of younger, more innovative thinkers. But on this front, the opinions seemed to reflect wishes more than facts. The feeling overall was surreal. Although everyone sensed a pending emergency, nobody could paint a picture of the future or see the innovation opportunities the coming upheaval might bring. Greece’s situation is anything but unique. Ireland has signed up for EU bailouts, with Spain and Portugal on the brink. Closer to home, Detroit’s demise and reinvention has been the subject of a yearlong reportage by TIME Magazine. Throughout North America, there is an incredible sense of uncertainty. What will the new normal be? Less Is More Necessity is the mother of invention. Desperate times breed desperate measures. Diamonds form under pressure. If these old saws are to be believed, innovation should accelerate in bad economies. After all, teams with tight budgets and tough goals make critical decisions more quickly than teams with abundant resources and no pressing agenda. Recessions are also wonderful for clearing the forest of competitors. Large, cumbersome companies fall, while small wily upstarts gain ground. And recessions lead to rethinking. When the status quo fails, it makes you question your beliefs. Should my product even be a product? Or should it be a new business model, or service? The examples of recession success are legion. Instead of boring you with them, I’ll simply guide you to some examples that will make every recession-weary entrepreneur smile. Lessons From Detroit While it’s too early to say how economies like Greece and Ireland are going to react to austerity, Detroit provides a successful example of radical rethinking. As TIME writers Daniel Okrent and Steven Gray write , “Detroit once thrived on bigness, but now it has to leave that idea behind. The secret of Rust Belt urban revival: smaller is better. If you want a healthy, bustling city, huddled masses are better.” Necessity has forced Detroit to abandon sprawl — servicing vast, deserted suburbs simply isn’t viable. Instead, the city is focusing on building density. Tighter, interconnected communities that are easy to navigate on foot are bringing a flourish of small business with them. And big business. Drawn by the reinvigoration, Quicken Loans chairman Dan Gilbert moved 1,700 employees into downtown Detroit. Gilbert’s business incubator Bizdom U was launched in Detroit in 2007. Detroit’s rebirth warrants a closer look for more than economic reasons. Abandoned suburbs are quickly turning into green corridors, with the promise of urban agriculture. And smaller live/work hubs mean fewer cars — and a healthier pedestrian populace. Of course, the transformation is messy, and there are casualties. School systems need to be overhauled to draw young families. And people isolated in the suburbs can’t simply be abandoned. But Detroit is proof that innovation does flourish in a crisis economy. Innovation Learnings There are consistent innovation themes that can be seen in examples like Detroit. For example, the key to innovation is getting outside your personal comfort zone, your status quo, your jar. Outsiders have an incredible power of perception when it comes to spotting root problems, consumer needs, and potential solutions. It’s one of the reasons clients turn to us for solutions, instead of working exclusively with in-house innovation teams. It’s also the reason companies like P&G mandate 50% of their innovations come from outside sources. Another learning is that innovation needs champions as much as great thinkers. Working in green business innovation, I have seen again and again that the mandate for change needs to come from the top. Otherwise, challenging new ideas will be killed by the defenders of the status quo, and progress logjammed. Finally, innovation should not be expected to turn a crisis economy into a utopia. In fact, idealists and utopians are often the worst agents of change . A crisis can’t be solved through social engineering — instead, the process involves co-creation, brainstorming and support from a wide swath of constituents. Yes, it could get messy. But economies and communities are living, organic things… not intellectual theories.

Read the full article →

Lynn Parramore: Green Tide: The More Money You Make, the More Likely You Voted Republican

November 5, 2010

Memo to David Brooks, whose sentimental, fact-free musings on working class Americans and how they rejected the Democrats graced the Opinion page of the New York Times today: Think that ordinary, hard-working folks have gone Republican? Think again. The Wall Street Journal has posted some very illuminating charts on 2010 voter preferences that help us blow through the blather and by-pass the baloney. Despite what you are hearing about Tea Party Populism and hopping mad Main Streeters, one thing is indisputable. The more money you make, the more likely you were to cast a ballot for Republicans in the 2010 elections. The GOP was swept into office by a green tide of affluence. The numbers do not lie, friends. And here they are. Voters who said their income is… Less than 30K per year voted 58% for Dems, 40% for Repubs 30K – 49,999: 52% for Dems, 45% for Repubs 50K-74,999: 46% for Dems, 52% for Repubs 75K – 99,999: 43% for Dems, 56% for Repubs 100K-199,999: 43% for Dems, 56 for Repubs Over $200,000: 36% for Dems, 62% for Repubs Notice that as soon as you past the average household income level in the United States, which is currently around 50K per year , you see voters trending Republican. What to make of this? Well, poor and working class people are not stupid. They know darn well that Republicans are out to put the squeeze on them. Make no mistake: they’re plenty mad at Democrats for all the bank-centric bullshit and backroom deals. They are outraged that the same crooks that got bailed out are now kicking them out of their houses. But they aren’t fooled by the phony populism that the Right is spewing. They know that between the two parties, the Democrats at least have a vestigial memory of standing against the brutal income inequality, exploitation, wage depression and ripping of social safety nets that the Right has come to think of as the norm. More affluent folks, on the other hand, are feeling greedier as their uncertainty about the future heightens. Apparently many of them aren’t in the mood to share. The Journal observes that the 2010 trend represents a distinct shift from 2006. “Democrats saw support in their long-term stronghold of low earners, while Republicans – many of whom have espoused tax overhauls that would limit income taxes – saw more support at higher income levels. A two-point edge in 2006 among voters with income between $50,000 and $75,000 a year turned into a deficit for Democrats, the preliminary data showed. And a five-point advantage among those with income of $75,000 to $100,000 has turned into a more substantial deficit for Democrats. These income groups made up a third of the 2010 electorate, early data showed.” Somehow, we have got to convince more of the affluent voters that the ever-widening gap between the rich and poor is not in their interest, no matter how uncertain the future looks. It rips communities apart. It leads to every kind of social ill and unrest, from increased crime to depression to teen pregnancy. It’s ruinous to democracy and it’s even destructive to capitalism. Society will absorb only so much unfairness, only so much disparity between haves and have-nots. Ideas like cutting Social Security, extending tax breaks to millionaires and billionaires, cutting unemployment benefits so that Americans will take any job they can get, no matter how shitty, are the kinds of things these Republicans who have just been elected are going to be talking about. The trick is to get the Democrats to stop getting cowed and call them out. To get them to ask themselves tough questions about how they drifted from their roots, and how they can come back to being the party that they historically have been: the one that protects average, hard-working Joe and Jane. Cross-posted from New Deal 2.0 .

Read the full article →

Twitter Mood Predicts Stock Market Changes, Study Says

October 18, 2010

In the latest effort to determine how exactly Twitter will help the world , a new study argues that the micro-blogging platform can predict movements in the stock market. The report (pdf) , authored by Johan Bollen, Huina Mao and Xiao-Jun Zeng, says that the degree of “calmness” of the Twitterverse can predict — with 87.6 percent accuracy — how the Dow Jones Industrial Average will move, two to six days before the movements occur (hat tip to the Awl ). To reach this conclusion, the researchers examined two already-existing Twitter “mood tracking tools”: OpinionFinder, which measures positive versus negative mood, and Google-Profile of Mood States, which measures “six dimensions” of mood: alert, sure, vital, kind, happy and calm. After double-checking the accuracy of these tools, they looked at 9.7 million tweets between March and December 2008 and determined that Twitter calmness predicts the behavior of the DJIA. They find it “surprising,” they say in the report, that OpinionFinder’s positive/negative indicators didn’t have more influence, and that it was “calmness” that appeared to anticipate moves in the market. The study’s authors are quick to note that they have no idea why this should be the case. The researchers say their findings “offer no information on the causative mechanisms that may connect public mood states with DJIA values in this manner.” While “calmness” might predict market movements, it doesn’t necessarily cause them. Also perplexing is the fact that the tweets came from around the world, and the researchers don’t know how many of them were conceived in the U.S., where the DJIA is based. And of course, other influences, such as news, can trump the “calmness” factor. As the researchers put it, “The deviation between Calm values and the DJIA … illustrates that unexpected news is not anticipated by the public mood yet remains a significant factor in modeling the stock market.” Still, as Technology Review notes, these potential flaws don’t detract from the fact that the findings could be “hugely influential.” If nothing else, the results suggest the influences on the DJIA extend far beyond the financial community. “One could speculate that the general public is presently as strongly invested in the DJIA as financial experts, and that therefore their mood states will directly affect their investment decisions and thus stock market values, but this too remains an area of future research,” the report says.

Read the full article →

Dominique Strauss-Kahn: Weekend in Washington: Cooperating Our Way Out of Crisis

October 12, 2010

This past weekend in Washington DC, as the economic leaders of 187 countries gathered for the Annual Meetings of the IMF and World Bank , the mood was tense. The world’s finance ministers and central bank governors were concerned because the global recovery is fragile. And uneven. And it is fragile because it is so uneven. In the emerging markets of Asia, Latin America, and the Middle East, things are going pretty well. Even in Africa, many countries have returned to growth much faster than in previous recessions. In Europe, however, the recovery is sluggish. And in the United States, it remains subdued. The IMF’s latest economic outlook, released during the meetings, does not anticipate a “double dip”. But there are risks. The first risk is the very high levels of public debt in the advanced economies–the highest since World War Two. What is needed to restore fiscal balance depends, of course, on the situation facing each country. In the medium term, they all need to restore fiscal sustainability. In the short-term, however–and while the recovery is still fragile–it is a case of consolidate as much as you have to, and stimulate as much as you can. The greatest risk to fiscal sustainability at this point is that growth stalls. A second and related risk is jobs. The world lost 30 million jobs during the crisis; and 450 million more people will enter the labor market over the next decade. So we need growth, but we need growth with jobs. This crisis will not be over until we see unemployment levels begin to go down. The third risk is linked to the financial sector. We all know how this crisis began. We all know that a lot of promises have been made to fix the financial sector so it will not happen again. And while there has been progress in a number of countries and new regulations from the recent Basel III process, it is not enough. We need to ensure that those new rules are implemented. And we need better tools to resolve financial crises when they occur. The financial system is not yet safe enough. On top of all this, there is concern that the strong international cooperation that was shown during the crisis is in danger of receding. After Lehman collapsed, we avoided a second Great Depression because the leaders and nations of the world came together and coordinated their response. We saw this when the leaders of the Group of Twenty industrialized and emerging market economies (G-20) met in London and Pittsburgh, for example. The most concrete action was the coordinated fiscal stimulus. And it worked. Now, as we move into post-crisis mode, that spirit of cooperation seems not to be as strong. Perhaps the clearest indication of this were the headlines over the past week about “currency wars” and some countries seeking to devalue to gain competitive edge over others. And yet, we know that beggar-thy-neighbor policies do not work. There are no solely domestic solutions to global problems. So, coming out of the weekend–after the meetings–was the atmosphere less tense? Yes…and no. On the plus side, the economic leaders represented in the IMF’s governing body–the International Monetary and Financial Committee –found common ground on several important things. There was a strong commitment to “the rejection of protectionism in all its forms.” And an equally strong statement about the importance of “working collaboratively”–to ensure growth and to create jobs. There was a recognition of the need to go further on financial sector reform. And there was a call–which I welcome–for the IMF to contribute to this agenda in collaboration with other international bodies already at work in this crucial area. Also on the IMF, our membership asked that we focus our economic analysis even more on “spillover” issues–that is, the effect that one country’s policies might have on others. I believe that by doing this, bringing our unique cross-country experience to bear, we can contribute to helping resolve the tensions we have seen among countries, and to the global rebalancing that is so important for a sustainable recovery. It was also reiterated over the weekend that the voice and representation of the emerging market and developing countries in the IMF should be enhanced to reflect better their standing in the new global economy. We did not come to final agreement on these “quota and governance” reforms over the weekend, but we are not far off. So the bottom line is that the world made some progress over the weekend. But we shouldn’t be too self-congratulatory. We are not yet out of the woods. As I said earlier, we still have a long way to go to achieve sustainable and balanced growth, to bring back employment, and to make the changes necessary to reduce financial sector risks. Above all, we need to keep pushing, keep fighting, for cooperation. Why? The IMF’s analysis indicates that improved economic policy coordination, over the next five years, could increase global growth by 2.5 percent, create or save 30 million jobs, and lift 33 million more out of poverty. With such high potential returns, can we really afford each to go our own way? That question will be high on the agenda for the next G-20 leaders meeting to be held in Korea in November. So all eyes now turn from Washington this weekend to Seoul next month…. From iMFdirect blog

Read the full article →

Lita Smith-Mines: The Ebbs & Flows of the Economy

October 4, 2010

As the co-owner and editor of a niche publication focusing on the Long Island boating lifestyle, attending regional boat shows is a great way to attract new readers. We started our publication in 2007, just before gas prices rose and the industry ran aground, so the majority of the shows we’ve attended have been less than heartening. In fact, at various boat shows vendors talked among themselves just to break the tedium, and I could consume a giant doughy pretzel without any fear a passerby would catch me with my mouth full. Yet things seemed different at the 2010 New York Boat Show in the dead of the winter. The Javits Convention Center was packed with people expressing enthusiasm to begin boating once the weather turned warm. After that show, I felt slightly encouraged that things might be improving, sooner than later. The summer of 2010 came and went, and while our readership grew, I gather the season didn’t turn out the way many recreational boaters wanted. At least, that’s the tales some of them told me recently at the boat show in Norwalk, Connecticut. They didn’t trade up for new boats, or outfit present boats with upgraded maritime gadgets. Boaters didn’t fill up their gas tanks often and they didn’t go as far. Every time they ventured out, they felt they had to justify the expense. One attendee shared: “My wife and I decided that at the end of every week, we’d see if we had the slightest balance left in our checking account. That’s the only time we went boating.” Another aisle stroller confessed to me that he loved to go boating, but had to “quit inviting buddies” to go along “because it cost a fortune for sandwiches and Coronas.” A woman pushing a stroller disclosed that her family’s reduced income this past year meant “we sat on the boat a lot more than ever.” For every melancholy mariner, though, there were two cheerful captains. Would-be boat buyers picked up copies of the magazine, wanting to learn more about places to take their new vessels. A positively bubbly couple felt confident that the stock market’s recent uptick meant they could buy more at the show. Chatting with some people revealed positivity about their own personal prospects, and one financial prophet told me that she knew the economy “was definitely getting better” because lots of her friends were planning to spend more this coming holiday season. Charting the economy by talking to boat show attendees is far from scientific. Like the tides, the mood rose and fell depending on who stopped and talked to a stranger handing them a free magazine. While the depressing recession has taken a mighty toll, I read the tea leaves of strolling swarms and the occasional flash of a wallet as indicating a definite drift towards some consumers abandoning their thrift-anchors. Proclaimed one particularly prosperous-looking woman who floated past our table on the way to raise some boat dealer’s bottom line, “It’s about time we spent on ourselves again… being miserly is no fun at all!”

Read the full article →

Stocks Fall Sharply As Investors’ Gloom Grows

August 11, 2010

NEW YORK — Stocks and interest rates fell sharply Wednesday as more bad news chipped away at investors’ view of the economy. The Dow Jones industrial average fell 265 points, and all the major indexes fell more than 2 percent and are now showing losses for the year. The Dow has now fallen four days out of five, and it has lost almost 320 points in just the past two days. Meanwhile, the yield on the Treasury’s 10-year note fell to its lowest level since March 2009 as investors avoided stocks and sought the safety of government securities. Only 442 stocks rose on the New York Stock Exchange, while 2,627 fell, a sign that investors expect all businesses to suffer if the economy continues to weaken. Investors’ gloom deepened a day after the Federal Reserve said it would begin buying government bonds as a way to stimulate the economy. News of slower industrial growth in China and a disappointing economic indicator in Japan helped send stocks plunging first in Asia, then in Europe. The economic news in the U.S. was also troubling. The Commerce Department said the trade deficit widened in June to its highest level in 20 months as exports dipped. Falling exports mean U.S. manufacturing could be slowing down. And early this year, manufacturing showed the most consistent signs of recovery. Investors got more bad news after trading ended. Cisco Systems Inc.’s revenue in the company’s latest quarter fell short of analysts’ expectations. Companies’ revenue shortfalls have sent stocks falling over the past month, and Cisco’s stock slid 8 percent in after-hours trading. Other stocks fell as well, and the report was likely to touch off more selling across the market on Thursday. Stock traders tend to buy and sell based on their expectations for what business will be like in six to nine months. The problem is that economic data has been so muddled lately that investors have no sense of whether the recovery will hold. In its economic assessment statement on Tuesday, the Fed was still talking about a recovery, although the central bank said it would more modest than forecast in June. “Uncertainty, uncertainty, uncertainty,” was the way that Javier Perez-Santalla, managing director for futures and foreign exchange at the institutional brokerage firm Dinosaur Group, described the mood in the market. “Everyone is scratching their heads, saying ‘which way?’” Perez-Santalla said. “We’re kind of stuck in this no man’s land, where we’re damned if we do, damned if we don’t.” The Fed said Tuesday it will start buying government bonds with money it gets from the maturing mortgage-backed bonds that it bought during the recession. The goal is to try to cut interest rates on mortgages and corporate loans and in turn increase lending and help the economy grow faster. But the Fed’s moves were expected to be quite small in comparison to what the economy needs. And many investors were selling because the debt purchases would have only a limited impact on the economy. The Dow dropped 265.42, or 2.5 percent, to 10,378.83, its largest slide since it fell 268.22 on June 29. The Standard & Poor’s 500 index fell 31.59, or 2.8 percent, to 1,089.47. The S&P 500 slipped below 1,100, a key psychological level. Falling and holding below that level could lead to more selling as computer-driven trading sets in. The Nasdaq composite index fell 68.54, or 3 percent, to 2,208.63. The Nasdaq tends to have the biggest losses when stocks are falling sharply because many of its component companies are smaller businesses that struggle the most in a weak economy. The Dow is now down 0.5 percent for 2010, while the S&P 500 is down 2.3 percent and the Nasdaq is down 2.7 percent. Consolidated volume was fairly light on the NYSE at 4.6 billion shares, up from Tuesday’s 4 billion. Trading has been particularly slow, even by summer standards as uncertainty about the economy led many investors to exit the market completely. Low volume also can exaggerate swings in the market. The Chicago Board Options Exchange’s Volatility Index rose 3.02, or 13.5 percent, to 25.39. The VIX is known as the market’s fear gauge because a rise signals traders are expecting more drops in stocks. It is still well below the record of 89.5 it reached during the height of the financial crisis in 2008. The yield on the 10-year Treasury note, which moves opposite its price, fell as low as 2.68 percent before edging up to 2.69 percent late Wednesday. That was down sharply from late Tuesday’s 2.77 percent. Interest rates are often set based on the yield of 10-year Treasurys. The 10-year yield is at levels not touched since late March 2009 just weeks after recession worries sent the stock market to a 12-year low. Investors were willing to take a lower return from Treasurys in exchange for the safety of government debt. Ryan Detrick, senior technical strategist at Schaeffer’s Investment Research in Cincinnati, described the bond market as “saying major problems are still out there.” Britain’s FTSE 100 fell 2.4 percent, Germany’s DAX index dropped 2.1 percent, and France’s CAC-40 fell 2.7 percent. Japan’s Nikkei stock average dropped 2.7 percent. Although recent earnings report were overall strong, the market has been rattled when companies’ revenue has fallen short of expectations. Their concern is that companies are selling less because consumers aren’t buying. Cisco’s revenue was slightly off of forecasts, but that was enough to send the company’s stock down $1.90, or 8 percent, to $21.83 in after-hours trading. During regular trading, it was down 58 cents. Stocks will struggle to rally further until some of the uncertainty is removed about the strength of the economy and how government policy could affect companies, said Duncan Richardson, chief equity investment officer of Eaton Vance. “What’s lacking is confidence and no one can have confidence in an uncertain world,” Richardson said. There has been a “huge reluctance to reinvest in businesses because of uncertainty.” Companies are hesitant to hire new workers, buy new equipment or acquire new businesses to grow operations until there is more confidence, he said.

Read the full article →

Donna Flagg: The Ins and Outs of Writing Employee Handbooks

August 4, 2010

It can be a daunting task to know what should be included in an employee handbook or company manual. There are so many things that need to be said that often aren’t and also, many things that don’t need to be said that often are. So how do you know what information, and how much of it, should make the cut? Well there are a couple of things to consider. The first of which is that there is a legal component that dictates certain policies must be in place. But these can vary by state and apply (or not). Other laws are federal and apply to everyone, but vary based on the size of the company. The Family Medical Leave Act (FMLA) is a good example of this. And still others apply by industry, such as certain safety standard laws. So before putting anything down “in stone,” check the requirements that apply to your business type and company size, in your state. Then after you get the legal technicalities out of the way, there should be elements included that apply specifically to your company. These are the organizational components that help define, and then shape the behaviors within your business. Third, there are informational components — like benefits — that don’t fall (necessarily) into either of the above categories, but that employees need to be aware of nonetheless. And finally, on a less tangible note, it is important to try to write policies in a tone that reflects your brand. I can’t tell you how many times I’ve seen wonderfully forward, friendly, flexible companies hand over a manual that not only didn’t represent the heart of the company — at all — but also, that was outright offensive and off-putting to their employees. When that happens, it’s usually because lawyers have written it, and writers haven’t. The end result is often a combative and adversarial document that reads like a contract and starts the entire employment relationship off with an “us against them,” attitude before it even has a chance to get started. My advice is to get the laws down correctly and then have someone who both understands the company and who does not write in legalese prepare the manual in the “right” voice. So below, I’ve outlined a basic template of headings that can help you start thinking about the best policies, practices and procedures for your organization. It is by no means an exhaustive list, but rather a high-level guide to serve as a compass. Keep in mind that the order in which you place them is up to you and should be arranged to flow in a way that makes sense for your company. Set up: This is just some basic introductory information to set the mood and welcome employees into your company. * Introduction to the Handbook * Introduction to the Company * Corporate Values, Mission, Vision… Legal: These are some of the things that are predetermined for you by law and that typically require companies to communicate the corresponding policies to employees in writing: * Employment “At Will” * Equal Employment Opportunity * Anti-Discrimination * Harassment * Sexual Harassment * FMLA * Safety * Privacy * Drug and Alcohol Testing * COBRA Organizational: These define some of the things that the company expects from employees and what the employees can expect from the company. * Introductory Period (Many call this a “Probation Period”) * Attendance and Punctuality * Professional Conduct * Dress Code * Email, Internet and Voicemail Usage Policy * Smoking Policy * Expenses * Travel * Computer Software * Personal Property * Workplace Monitoring * Confidentiality of Corporate Information * Conflict of Interest * Employee Development and Evaluation * Termination of Employment Informational: I call this the “boring but important” category. * Employee Benefits * Salary Administration * Paydays * Holidays * Deductions * Meals and Breaks * Overtime * Vacation * Personal/Sick Days * Bereavement * Leave Time * Jury Duty * Voting Wrap up: This section just closes it out with an opportunity to make a statement about the enforcement of the policies set forth within the manual and a place for signatures. * Maintaining the Integrity of the Policies * Acknowledgment of Receipt Again, the key to a successful handbook/manual is to create one that fits who you are as a company. We have written versions as small as 25 pages and gone up to over 1000, and have also seen cases that involve volumes that span thousands of pages. It really depends on your needs as a company. The point being that all needs are not the same.

Read the full article →

DK Matai: Japan Takes Lead in Wireless Power? 21stC Global Energy Supply

June 13, 2010

In the footsteps of Nicola Tesla , Japan intends to send its first solar-panel-equipped satellite into space that could wirelessly beam Gigawatt-strong streams of power down to earth, each enough to power nearly 300,000 homes eco-efficiently. A Gigawatt is what a mid-size nuclear power station produces. Putting solar panels in space bypasses many of the difficulties of installing them on Earth. In orbit, there are no cloudy days, very few zoning laws, and the cold ambient temperature is ideal for causing the least amount of weathering and degradation in performance. The Ministry of Economy, Trade and Industry (METI) and the Japan Aerospace Exploration Agency are leading the project. They plan to launch a small satellite fitted with solar panels in the coming few years, and test beaming the electricity from space through the ionosphere, the outermost layer of the earth’s atmosphere. The full-fledged satellites will have a surface area of four square kilometres each, and transmit power via microwaves to a base station on Earth. Japan’s eventual plan is to have a Space Solar Power System (SSPS), in which arrays of photovoltaic dishes several square kilometres in size would hover in geostationary orbit outside the Earth’s atmosphere. The entire system is likely to be fully operational in stages in the coming two decades. The USD 21 billion Wireless Power Transmission (WPT) project has received major backing from Mitsubishi and designer IHI, in addition to research teams from 14 other countries. Space Solar Power System (SSPS) 21st Century Innovations Innovations enabled by Wireless Power Transmission (WPT), originally pioneered by Tesla, are likely to exert profound influence on global business and national competitiveness. The key issue with wireless power solutions is not whether humanity can deploy them; but whether we can deploy them safely and efficiently. It turns out the human body is not affected by magnetic fields; it is affected by electric fields. So what needs to be done in Wireless Power Transmission (WPT) is to transmit the energy using the magnetic field whilst minimising the electric field. Commercial opportunities from WPT include: 1. Long Range Cars: Roadway powered electric vehicles may charge electric batteries via WPT from microwave generators embedded in the roadway while a vehicle is travelling at highway speed. This eliminates stops to exchange or recharge batteries greatly extending travel range. Japan proposed wireless charging of electric motor vehicles by Microwave Power Transmission (MPT) in 2004. 2. Long Endurance Aircraft: High-altitude aircraft may be maintained at a desired location for weeks or months for communications and surveillance instead of satellites. This greatly reduces costs. The world’s first Microwave Power Transmission (MPT) in the ionosphere called the MINIX — Microwave Ionosphere Non-linear Interaction eXperiment — was demonstrated in Japan in 1983. The world’s first fuel free airplane powered by microwave energy broadcast from the ground was tested in Canada in 1987. This system is called SHARP or Stationary High-Altitude Relay Platform. In 2003, Dryden Flight Research Centre of NASA demonstrated a laser powered remote control airplane. 3. Power Relay Satellites can access remote energy sources by uncoupling primary electricity generation from terrestrial transmission lines. Power is transmitted from distant sites to geosynchronous orbits and then reflected by Power Relay Satellites to a receiver on Earth in a desired location. 4. Solar Power Satellites (SPS) in low-Earth or geosynchronous orbits or on the Moon can be utilised to supply terrestrial power demands on a global scale. 5. Intel has demonstrated the wireless powering of a 60 watt light bulb with 75% efficiency in 2008 using their Wireless Energy Resonant Link . Potential applications include the rigging of airports, offices and other buildings to supply wireless power to laptops, mobile telephones and other electronic devices added to them. Initially WPT eliminates chargers and eventually it eliminates batteries altogether. Eco-efficiency High level response to our briefing, ” Beyond Oil: Beginning of a New Era? ” concludes that post the Gulf of Mexico oil gusher in 2010 and mounting public pressure, a massive restructuring of the energy industry sector may be in the offing, as profound changes on a global scale are set in motion. These changes could be a complex combination of: 1. Strict conservation measures and environmental regulations being enacted across the globe; 2. Accelerated global industrialisation hitting natural resource limits; and 3. Restricted and highly-efficient consumption of fossil fuels because of the unprecedented manifestation of severe risk to Earth’s ecology. Humanity is in need of a new power source and more efficient distribution and consumption of power. Fossil fuels are dirty, dangerous to extract and transport, and will eventually run out. Nuclear power is cleaner in production but has its own waste issues and a catastrophic failure could present a near doomsday scenario as well as spent fuel being used as a weapon. Ground based solar power can be too small scale and inefficient, but Solar Power Satellites (SPS) are ground-breaking. This is the big idea that makes large-scale unencumbered solar power work because one isn’t covering the countryside with panels, or receiving intermittent power as weather changes. With WPT, ‘transporting’ the remote solar power becomes much more efficient making it usable virtually everywhere on Earth. Wireless Power Transmission (WPT) Per our original briefing, ” Wireless Power: Has The Time Come? ” the vision of achieving WPT on a global scale was proposed over a century ago when Nikola Tesla, the inventor of Alternating Current (AC) power generation, first started experiments with WPT. This culminated with the construction of the Wardenclyffe tower for WPT on Long Island, New York, at the start of the 20th century. Tesla’s objective was to develop the technology for transmitting electricity to anywhere in the world without wires. He filed several patents describing wireless power transmitters and receivers. He was awarded the patent for wireless radio in 1940. Two basic alternatives are available for WPT: radio waves (microwaves) and light waves (lasers). Radio waves are beamed in a cloud-penetrating radio-frequency band reserved for Industrial, Scientific and Medical (ISM) applications. Light waves are beamed in a wavelength which can be generated efficiently and easily transmitted through the atmosphere in the optical or infra-red “window”. Reducing Losses via WPT One of the major issues in global power systems is the loss which occurs during the transmission and distribution of electrical power. As the demand increases day by day, the power generation increases and the power loss is also increased. The percentage of loss of power during transmission and distribution is approximated at 25% or much higher. The main reason for power loss during transmission and distribution is the resistance of wires used for the grid. The efficiency of power transmission can be improved to a certain extent by using high strength composite over head conductors and underground cables that use high temperature super conductors. But the transmission is still inefficient. WPT can significantly reduce the terrestrial losses by providing a highly efficient quantum jump — near 10% pickup in efficiency — for alternative energy power transfer and distribution. That is an important incremental step because it also allows for the extension of electricity to transportation. One could simply argue that the less fuel that is used in transportation the safer, greener, and more efficient we get. This is a positive by itself, because of the incremental nature of the gains. USA: NASA and DoE In the US, the National Aeronautics and Space Administration (NASA) and the Department of Energy (DoE) have spent significant sums over three decades in not so coherent — somewhat sporadic — efforts to study solar generation in space, according to a 2007 report by the US National Security Space Office. The deployment of WPT was not effectively pursued until the 1960s when the US Air Force funded the development of a microwave-powered helicopter platform. A successful demonstration of a microwave beam-riding helicopter was performed in 1965. This demonstration proved that a WPT system could be constructed and that effective microwave generators and receivers could be developed for efficient conversion of microwaves into DC electricity. In 1975, a successful demonstration of microwave wireless power transmissions was performed at the NASA Deep Space Antenna facility at Goldstone, California. In this demonstration of point-to-point WPT, 30 kW of microwaves were beamed over a distance of one mile to a receiving antenna. Microwaves were converted directly into DC at an average efficiency of 82%, confounding critics who claimed that such high conversion efficiencies could not be achieved. By 1976 engineering, environmental, and economic analyses of several Solar Power Satellite (SPS) concepts had been performed by NASA. WPT systems have not been considered seriously for civilian purposes by US government agencies since 1980. However, the mood has been changing in favour of WPT in recent years. However, nascent efforts in regard to Space Solar Power (SSP) and WPT by NASA are likely to be trimmed by the recent focus on budget deficit reductions. Conclusion The demand for power on Earth is growing exponentially, and associated environmental consequences are becoming significant. Global electric power production is about a USD 1 trillion per year market currently, and represents the largest market on Earth. In this new century, Space Solar Power (SSP) may provide a clean, safe energy source, alleviating some of the problems we would otherwise expect from increasing nuclear and fossil fuel use. SSP combined with Wireless Power Transmission (WPT), offers the far-term potential to solve major energy problems on Earth. WPT is an enabling technology for utilising renewable and inexhaustible energy sources on Earth and in space to meet projected electrical energy demands in the 21st century on a global scale. With few energy resources of its own and heavily reliant on oil imports, Japan has long been a leader in solar and other renewable energies. The current opportunities that Japan’s nascent Wireless Power Transmission (WPT) industry is providing will be the basis not only for energy independence domestically from imported energy sources, but as a supplier of “clean” energy, Japan is likely to gain significant political influence and leverage globally. Penetration of this market by gradually substituting WPT to access renewable and inexhaustible energy sources anywhere on Earth and in space is an opportunity that Japan has clearly recognised. The implications of successful developments of WPT systems by the Japanese are profound enough to merit a deliberate US or European competitive decision either to pursue further coherent development of WPT or to abandon pursuit of WPT markets to other countries. The consequences of abandoning WPT may include adverse impact on Western industrial competitiveness in the 21st century and beyond. It is now obvious that: 1. Nicola Tesla and his early 20th century unique work in regard to Wireless Power generation and transmission was extremely far sighted and accurate; 2. The Japanese government and multi-nationals are committing tens of billions of dollars to the deployment of SSP and WPT because this is a lucrative area; and 3. Given the fallout from the Gulf of Mexico oil catastrophe, there is going to be little choice left other than to move towards SSP and WPT type solutions. The Western nations including the US and Europe are still in a position to lead a Space Solar Power (SSP) and Wireless Power Transmission (WPT) effort but not for long. The question is not whether we harness power from space; but rather who will get there first to garner first mover advantage with significant impact on global economic competitiveness. Now is the time to plan for the WPT future that can be discerned in broad outlines only. The inability to see the future except as a continuation of the present and not to plan for asymmetric threats and opportunities will prevent critical technological evolution and progress. Maximising the opportunities to participate in the development and applications of SSP and WPT systems would provide not only an outlet for the considerable experience and talents residing in the global aerospace and manufacturing industries, but ensure that these industries remain competitive in the markets for environmentally compatible energy sources where carbon based fuels are no longer the essential element for electrical power generation. The evolution of the human species into the cosmos, including harnessing the moon and immediate outer space, appears to provide a viable space solar and wireless power solution. There is no turning back from this final frontier in the 21st century and beyond!

Read the full article →

Georges Ugeux: Bankers, Regulators and Governments: the Difficult Consensus

June 11, 2010

Writing from Vienna, June 11, 2010 As the Washington-based Institute of International Finance (IIF) gathers for its semi-annual event, it has the unique ability to attract decision makers involved in reshaping the banking industry. In the middle of the Eurozone debt crisis, the debates were as hot as the early summer weather in Vienna and the performance of the famous Lipizzaner stallions of the Spanish Riding school reminded the participants of the difficult equilibrium between horse and rider is not unlike the current balancing act of finding financial stability. What is even more remarkable, is the consensus that the IIF manages to build amongst its members, as expressed through substantive publications on “Systemic Risks and Systematically Important Firms,” “Reform in the Financial Services Industry” and “A Global Approach to Resolving Failing Financial Firms” where tough resolutions are proposed, and for many of the banking members, starting to be implemented. Yet despite this progress, the mood here is somber and probably overly pessimistic. It took the IIF (and Deutsche Bank) Chairman, Josef Ackermann, to remind the attendants that there was no question of the Euro disappearing, and that the Eurozone would stay the course. European Central Bank President Jean-Claude Trichet added that “Central Banks have changed, because the financial world against them has changed.” The changes in the regulatory landscape are part of a unique dialogue between the IIF and the Basel Committee of the Bank for International Settlements, chaired by the Dutch Central Bank President, Arnout Wellink. It does not mean that the new banking standards currently prepared by the BIS and the Financial Stability Board will please the bankers. Just like the new U.S. financial regulation, he was insisting on liquidity buffers, a better capturing of trading risks and the creation of a “global liquidity framework.” Basel III is still hotly debated, but seems now certain that it will happen and will include serious provisions. With all this action is everything under control? Are we making sure that what provoked the last crisis will not happen again? Despite all of this new regulation, banks seem reluctant to sever their links from the most speculative activities and leave the hedge funds to finance themselves in the public markets rather than through their balance sheets. The recent crisis was a failure of risk management — a diagnosis widely shared among the members of the IIF. But we are also starting the next crisis: the public finance crisis in Europe, the United States and Japan. As we saw during the Greek crisis, the banks are the largest holders of Government Bonds. It makes them the biggest lender of their regulators. A public finance crisis is also a bank crisis. The interconnectedness of the financial markets leave no real escape: only diversification allows for risk mitigation. There is afterall a close correlation between the quality of banks and the quality of its risk managers. But all this discussion is happening within the financial bubble that doesn’t involve consumers and other companies. In this context, the risk management of banks encompasses a set of variables that make this job closer to an art than a science. As I leave for the closing dinner where the speaker is Greek Prime Minister George Papandreou who managed the impossible for his country, I was thinking of a quote from Mark Twain: “it is not the dangers we are afraid of that are worrying it is those we are not afraid of because we are not anticipating them.”

Read the full article →

Lincoln Survives Arkansas Democratic Primary Challenge Angle to Face Reid

June 9, 2010

By Patrick O’Connor and Catherine Dodge June 9 (Bloomberg) — U.S. Senator Blanche Lincoln survived a challenge for the Democratic nomination in Arkansas, dodging an anti-incumbent wave that swept two fellow senators out of office earlier this year. Lincoln’s win in a primary runoff came as voters went to the polls in 12 states yesterday. In Nevada, Republicans chose Sharron Angle , a favorite of Tea Party activists, as their Senate nominee. She will run against Senate Majority Leader Harry Reid , a top Democratic target for Republicans in November’s general election In South Carolina, Republicans Nikki Haley and Gresham Barrett will meet in a June 22 runoff to determine the Republican nominee for governor after neither won at least 50 percent of the vote in a four-candidate race. Haley, a state representative who faced allegations of extramarital affairs in the campaign’s closing days, had 49 percent of the vote with all precincts reporting, according to the Associated Press. Barrett, who serves in the U.S. House, had 22 percent. In Arkansas, Lincoln had 52 percent of the vote with 99 percent of the precincts reporting, the AP said. Lieutenant Governor Bill Halter had 48 percent. Lincoln will face Republican U.S. Representative John Boozman in November; polls have shown her trailing him. ‘Long Odds’ Lincoln avoided the fates of Utah Republican Senator Bob Bennett and Pennsylvania Democrat Arlen Specter , who both were denied renomination this year. “She beat some pretty long odds” in winning the runoff, said Jennifer Duffy , senior editor at the nonpartisan Cook Political Report in Washington. “The biggest loser is labor,” which spent millions to defeat the two-term senator, Duffy said. “Your message is loud and clear — that Washington needs to work for us, for us in Arkansas,” Lincoln told supporters. In California, Republicans picked two former businesswomen as their Senate and gubernatorial nominees. In the Senate race, former Hewlett-Packard Co . Chief Executive Officer Carly Fiorina won the right to oppose Democratic Senator Barbara Boxer . Former EBay Inc. CEO Meg Whitman won the gubernatorial primary and will run against Democrat Jerry Brown , a former governor now serving as the state’s attorney general. The votes took place as surveys show the political environment becoming more toxic for incumbents. Gallup Poll A Gallup Poll conducted May 24-25 found that 60 percent of registered U.S. voters would rather vote for a House candidate who has never served in Congress, compared with 32 percent who said they favored a candidate with some congressional experience. In the same survey, the Princeton, New Jersey-based polling firm found that 50 percent of registered voters wanted to re- elect their own member of Congress, one of the lowest numbers since 1993. The poll’s margin of error was plus or minus 4 percentage points. Lincoln, 49, has been a target for Republicans and some Democrats since last year. Organized labor helped recruit Halter, also 49, to run against her because she opposed unions’ top legislative priority, a measure to ease union-organizing requirements, and because of her support for free-trade agreements. As the election approached, opponents in both parties scrutinized her Senate votes. Republicans blasted her for backing initial versions of President Barack Obama ’s health-care bill, while some Democrats bristled that she voted against the measure that cleared Congress in late March. Union Money Unions poured money and people into the contest. During a June 6 appearance on CNN’s “State of the Union,” Lincoln said Washington-based unions had spent about $10 million in the last three months trying to unseat her. Working American, an AFL-CIO offshoot, spent $1.3 million on the race, according to the Federal Election Commission. Lincoln touted her clout as chairwoman of the Senate Agriculture Committee and a provision she added to the pending financial-markets overhaul bill that would force commercial banks to wall off their swaps-trading desks. She had raised more than $9 million by May 19, according to the Center for Responsive Politics, almost three times the $3.4 million Halter raised. She also campaigned with former President Bill Clinton , who served 12 years as governor of Arkansas. The anti-Washington mood that imperiled Lincoln figured prominently in Nevada’s Republican race. The state has the highest foreclosure rate in the country and the second highest unemployment rate behind Michigan. Angle, a former state legislator with a record of opposing tax increases, benefited from support from Tea Party adherents. Also backing her and paying for ads in the race was the anti-tax Club for Growth. Electability Questions As Angle, 60, surged ahead in the final polls before yesterday’s vote, her two main foes in a 12-candidate race, former Nevada Republican Party Chairwoman Sue Lowden and Las Vegas businessman Danny Tarkanian , sought to raise concerns about her electability against Reid, 70. With 66 percent of the vote counted, Angle had 39 percent, Lowden 27 percent and Tarkanian 23 percent, AP reported. The Republicans spent much of their campaign treasuries on their primary campaigns, a factor that could aid Reid. “It looks good for Harry Reid,” said David Damore, an assistant political science professor at the University of Nevada at Las Vegas. The Republicans have “already spent all their money, and they’re cutting each other up,” he said. California Results In California, Fiorina, 55, and Whitman, 53, faced the first tests of their political careers. Each won their races handily. With 21 percent of the vote counted, Fiorina led her closest opponent, former U.S. Representative Tom Campbell , 55 percent to 25 percent, AP reported. Whitman was running ahead of Steve Poizner , the state’s insurance commissioner, 63 percent to 27 percent in an eight- candidate race. Fiorina was confident enough in the primary result that she had turned her attention to the general election fight with Boxer, 69, already airing a television spot that attacked Boxer, the chair the Senate Environment and Public Works Committee, for calling climate change “one of the very important national security issues we face.” Boxer’s campaign responded by assailing Hewlett-Packard’s business practices when Fiorina was CEO. Candidate Funding Whitman funded her campaign with $71 million of her own money, state records show. She spent part of her campaign treasury rebutting attacks by opponents, who ran ads that featured circling vultures to criticize Whitman’s ties to Goldman Sachs Group Inc. Brown, 72, previously served as California’s governor from 1975 to 1983. California’s unemployment rate reached 12.6 percent in April, the nation’s third-highest. Economic unease among voters and concern about expanding government put Boxer, a three-term incumbent, at risk of losing in November, said Duffy of the Cook Political Report. “Voters seem to be in the mood for some change right now, even in a state as Democratic as California,” Duffy said. In other results yesterday, U.S. Representative Bob Inglis was forced into a runoff in South Carolina’s Republican primary. He will face Trey Gowdy , an official in Spartanburg County, on June 22. Gowdy led Inglis 39 percent to 28 percent with all precincts counted, according to AP. An Inglis loss in the runoff would make him the third House incumbent to be defeated in a primary this year. Democrat Alan Mollohan of West Virginia, a 14-term incumbent, was defeated in a May 11 vote and Republican Parker Griffith of Alabama, a freshman lawmaker, lost a June 1 primary. In Georgia, Republican Tom Graves , 40, won a special election for an open U.S. House seat. To contact the reporter for this story: Patrick O’Connor in Washington at Poconnor14@bloomberg.net

Read the full article →

Prudential Says Collapse of AIA Bid to Cost 450 Million Pounds

June 2, 2010

By Kevin Crowley and Jon Menon June 2 (Bloomberg) — Prudential Plc said the collapse of its $35.5 billion takeover of American International Group Inc.’s main Asian unit will cost it about 450 million pounds ($660 million). The failure may also cost Chief Executive Officer Tidjane Thiam his job. The costs, about a third of 2009 operating profit, include 153 million pounds in break fees and 81 million pounds in underwriting charges and currency hedges, Prudential said in a statement today. The insurer also said it’s in talks to end the deal after failing to win a $5.1 billion cut in the price. Thiam sought to lower the purchase price after shareholders including BlackRock Inc. said the transaction was too costly. The takeover is the biggest to collapse since miner BHP Billiton Ltd. abandoned its $66 billion acquisition of Rio Tinto Group in November 2008, according to data compiled by Bloomberg. “What a mess,” said Ben Collett , head of equities at broker Louis Capital Markets in Hong Kong. “This will make it very hard for Thiam to continue. Even if they claw back some costs for the deal, it’s still a massive waste, and is anyone in the mood for that in Europe?” Prudential, which was due to pay AIG in dollars after raising the cash in pounds, may have made a “significant gain” on a 500 million-pound currency hedge, according to Barrie Cornes , a London-based analyst at Panmure Gordon & Co. with a “buy” rating on the stock. The insurer fell 2.7 percent to 560 pence as of 9:15 a.m. in London today. The stock rose 2.2 percent to HK$64.90 at the 4 p.m. close of trading in Hong Kong. Offer Cancelled Prudential will also cancel a $21 billion rights offer it had planned to fund the offer. The share sale would have been the biggest by a British company. At least 20 companies worldwide postponed or withdrew initial offerings in May as the European debt crisis sent the MSCI World Index of developed- nation stocks down 9.9 percent. “We agreed with shareholders that a renegotiation of the terms was necessary given market movements, but it has not proved possible to reach agreement,” Thiam said in the statement today. AIG Chief Executive Officer Robert Benmosche , 66, may return to an earlier plan of a public offering in Asia to divest AIA, which operates in markets spanning China to Australia and has more than $60 billion in assets. “Without a doubt, the size of AIA magnifies the execution risk of closing a deal,” said Angelo Graci , managing director at Chapdelaine Credit Partners, a New York-based bond broker. “At this point it’s difficult to see another single buyer come in with a competitive price.” AIA IPO AIG announced it would divest AIA in October 2008 and last year said it would seek a public listing on an Asian stock exchange. AIG, which was rescued by the U.S. in 2008, could return to its earlier plan of holding a stock offering, the Treasury Department said May 26. “It’s not surprising given that Prudential’s shareholders initially thought AIA had more high-growth China exposure than it did,” said Winston Barnes , head of sales and trading for Asian markets at WJB Capital Group Inc. in San Francisco. “I would expect if Pru doesn’t come back again, AIA would IPO in Hong Kong.” Thiam, who took over as CEO in October, “will probably have to review his position,” said Paul Mumford , who helps manage 417 million pounds including Prudential shares at Cavendish Asset Management Ltd. in London. Mumford opposed the deal when it was announced in March. The original takeover offer included about $25 billion in cash and the rest in securities linked to Prudential shares. Prudential’s planned revision to $30.4 billion included $23 billion in cash, the insurer said yesterday. Break Up? The combined company would have created the largest life insurer in Hong Kong, as well as in Singapore, Malaysia, Thailand, Indonesia, the Philippines and Vietnam. Prudential’s shareholders may now favor breaking up the business, according to Rupert Armitage , head of U.K. equities at Shore Capital Group Ltd. “It leaves them very vulnerable to a break up,” he said in a Bloomberg Television interview. “The chairman and the CEO, having staked their reputations on it, it puts them in an almost untenable position.” Prudential’s bid was hurt by a series of mistakes in dealing with regulators and shareholders. Ivory Coast-born Thiam, 47, was criticized by shareholders in March for agreeing to join the board of Paris-based bank Societe Generale SA , a decision he reversed a day later. Prudential was also forced to delay the start of the planned rights offer in May after the U.K. regulator asked the firm to hold more capital in reserve. Opposition to Deal Neptune Investment Management Ltd., a London-based investor, said on May 26 it had 20 percent of shareholders to back its opposition to the transaction. Thiam, who needed 75 percent of shareholders to back the offer, made a failed attempt to resurrect the deal by asking AIG to reduce the price two days later. The takeover was to be the world’s biggest this year, according to data compiled by Bloomberg. The collapse of the deal deprives Prudential’s advisers of as much as 850 million pounds in fees. Prudential is being advised by Credit Suisse Group AG, JPMorgan Cazenove, Lazard LLC and Nomura Holdings Inc. AIG is being advised by Blackstone Group LP, Citigroup Inc., Deutsche Bank AG, Goldman Sachs Group Inc. and Morgan Stanley. To contact the reporter on this story: Jon Menon in London at jmenon1@bloomberg.net ; Kevin Crowley in London at kcrowley1@bloomberg.net

Read the full article →

Prudential’s Failed AIA Bid May Cost Company $660 Million, Thiam His Job

June 2, 2010

By Kevin Crowley and Jon Menon June 2 (Bloomberg) — Prudential Plc said the collapse of its $35.5 billion takeover of American International Group Inc.’s main Asian unit will cost it about 450 million pounds ($660 million). The failure may also cost Chief Executive Officer Tidjane Thiam his job. The costs, about a third of 2009 operating profit, include 153 million pounds in break fees and 81 million pounds in underwriting charges and currency hedges, Prudential said in a statement today. The insurer also said it’s in talks to end the deal after failing to win a $5.1 billion cut in the price. Thiam sought to lower the purchase price after shareholders including BlackRock Inc. said the transaction was too costly. The takeover is the biggest to collapse since miner BHP Billiton Ltd. abandoned its $66 billion acquisition of Rio Tinto Group in November 2008, according to data compiled by Bloomberg. “What a mess,” said Ben Collett , head of equities at broker Louis Capital Markets in Hong Kong. “This will make it very hard for Thiam to continue. Even if they claw back some costs for the deal, it’s still a massive waste, and is anyone in the mood for that in Europe?” Prudential, which was due to pay AIG in dollars after raising the cash in pounds, may have made a “significant gain” on a 500 million-pound currency hedge, according to Barrie Cornes , a London-based analyst at Panmure Gordon & Co. with a “buy” rating on the stock. The insurer fell 2.7 percent to 560 pence as of 9:15 a.m. in London today. The stock rose 2.2 percent to HK$64.90 at the 4 p.m. close of trading in Hong Kong. Offer Cancelled Prudential will also cancel a $21 billion rights offer it had planned to fund the offer. The share sale would have been the biggest by a British company. At least 20 companies worldwide postponed or withdrew initial offerings in May as the European debt crisis sent the MSCI World Index of developed- nation stocks down 9.9 percent. “We agreed with shareholders that a renegotiation of the terms was necessary given market movements, but it has not proved possible to reach agreement,” Thiam said in the statement today. AIG Chief Executive Officer Robert Benmosche , 66, may return to an earlier plan of a public offering in Asia to divest AIA, which operates in markets spanning China to Australia and has more than $60 billion in assets. “Without a doubt, the size of AIA magnifies the execution risk of closing a deal,” said Angelo Graci , managing director at Chapdelaine Credit Partners, a New York-based bond broker. “At this point it’s difficult to see another single buyer come in with a competitive price.” AIA IPO AIG announced it would divest AIA in October 2008 and last year said it would seek a public listing on an Asian stock exchange. AIG, which was rescued by the U.S. in 2008, could return to its earlier plan of holding a stock offering, the Treasury Department said May 26. “It’s not surprising given that Prudential’s shareholders initially thought AIA had more high-growth China exposure than it did,” said Winston Barnes , head of sales and trading for Asian markets at WJB Capital Group Inc. in San Francisco. “I would expect if Pru doesn’t come back again, AIA would IPO in Hong Kong.” Thiam, who took over as CEO in October, “will probably have to review his position,” said Paul Mumford , who helps manage 417 million pounds including Prudential shares at Cavendish Asset Management Ltd. in London. Mumford opposed the deal when it was announced in March. The original takeover offer included about $25 billion in cash and the rest in securities linked to Prudential shares. Prudential’s planned revision to $30.4 billion included $23 billion in cash, the insurer said yesterday. Break Up? The combined company would have created the largest life insurer in Hong Kong, as well as in Singapore, Malaysia, Thailand, Indonesia, the Philippines and Vietnam. Prudential’s shareholders may now favor breaking up the business, according to Rupert Armitage , head of U.K. equities at Shore Capital Group Ltd. “It leaves them very vulnerable to a break up,” he said in a Bloomberg Television interview. “The chairman and the CEO, having staked their reputations on it, it puts them in an almost untenable position.” Prudential’s bid was hurt by a series of mistakes in dealing with regulators and shareholders. Ivory Coast-born Thiam, 47, was criticized by shareholders in March for agreeing to join the board of Paris-based bank Societe Generale SA , a decision he reversed a day later. Prudential was also forced to delay the start of the planned rights offer in May after the U.K. regulator asked the firm to hold more capital in reserve. Opposition to Deal Neptune Investment Management Ltd., a London-based investor, said on May 26 it had 20 percent of shareholders to back its opposition to the transaction. Thiam, who needed 75 percent of shareholders to back the offer, made a failed attempt to resurrect the deal by asking AIG to reduce the price two days later. The takeover was to be the world’s biggest this year, according to data compiled by Bloomberg. The collapse of the deal deprives Prudential’s advisers of as much as 850 million pounds in fees. Prudential is being advised by Credit Suisse Group AG, JPMorgan Cazenove, Lazard LLC and Nomura Holdings Inc. AIG is being advised by Blackstone Group LP, Citigroup Inc., Deutsche Bank AG, Goldman Sachs Group Inc. and Morgan Stanley. To contact the reporter on this story: Jon Menon in London at jmenon1@bloomberg.net ; Kevin Crowley in London at kcrowley1@bloomberg.net

Read the full article →

Budget Process May Be Bypassed by Democrats in Face of Spiraling Deficits

May 14, 2010

By Brian Faler      May 14 (Bloomberg) — Democrats will likely skip the annual task of writing a budget for the U.S. government this year amid lawmakers’ unwillingness to endorse a plan sure to include huge deficits . With the midterm elections looming and primary results showing voters in a sour mood, Congress will probably forgo laying out tax-and-spending plan for the fifth time in the last 12 years. “It’s still on the outer range of possible” that a budget will be produced, “but increasingly less plausible,” said Representative Earl Blumenauer , an Oregon Democrat on the House Budget Committee . “With each passing day it gets a little less likely.” House Speaker Nancy Pelosi , a California Democrat, and House Majority Leader Steny Hoyer , a Maryland Democrat, signaled yesterday they are prepared to write separate spending measures rather than lay out a five-year fiscal plan. Republicans said Democrats are shirking a basic congressional responsibility. Representative Paul Ryan , the top Republican on the House Budget Committee, said Democrats are refusing to make the “hard choices American families and small businesses must make every day.” He called that “alarming as spending, deficits and debt continue to spiral out of control.” 10-Year Deficits The government is projected run $10 trillion in deficits over the next 10 years, with interest payments on the debt forecast to quadruple to more than $900 billion annually. Moody’s Investors Service has said it might eventually cut the government’s bond rating if the fiscal outlook doesn’t improve. “Failure to adopt a budget resolution when fiscal resolution is needed most would send the worst possible signal,” said Bob Bixby , head of the Washington-based Concord Coalition . “It would say to investors in Treasury securities, foreign and domestic, that the federal government is still in denial about its fiscal problems and has no plan to address the situation anytime soon.” The past failures by Congress to pass a budget occurred under either Republican or divided control of Congress, and coincided with election years. “You have the problem, always, of people not wanting to cast difficult votes in an election year,” said Senate Budget Committee Chairman Kent Conrad , a North Dakota Democrat. Political Ads “It isn’t the vote people fear, it’s the television ad” by a lawmaker’s election opponent on budget issues, said Steve Bell, former Republican staff director of the Senate Budget Committee . “Given the discontent of the electorate,” Democrats “know how powerful and damaging such ads can be,” he said. The Senate Budget Committee adopted a plan last month that anticipated cutting the deficit to $545 billion by 2015 from the current $1.5 trillion. House Budget Chairman John Spratt said he hasn’t given up telling colleagues that adopting a plan would show constituents that Democrats are trying to put the government’s books in order. Still, he said the prospects of Congress reaching agreement on a budget are “iffy.” Spratt, who is among lawmakers facing a serious re-election challenge, said “there are those who have tough seats who, probably some of them would like not to have a budget.” He also said lawmakers could limit spending this year without a budget, by means such as adopting a cap on the government’s discretionary spending. “There are other ways to skin this cat,” he said. Democrats have been unable to agree, though, on what the Obama administration called a modest proposal to freeze discretionary spending unrelated to national security issues. To contact the reporter on this story: Brian Faler in Washington at bfaler@bloomberg.net

Read the full article →

Steve Rosenbaum: How Kodak Got It’s Mojo Back: CMO Hayzlett’s "Mirror Test"

May 6, 2010

There’s a change in the winds at some of the larger brands as they try to shift from telling their story in paid media to engaging users and customers. Social media has come on fast, and there’s no doubt that its left some folks a bit disoriented. Kodak has been surprisingly nimble in adopting social media practices, in no small part due to the work of Chief Marketing Officer Jeffrey Hayzlett. The CMO lends his South Dakota sensibilities and entrepreneurial history to Kodak as the shift from film to digital opens new opportunities for the Rochester-based image and printing company. Hayzlett’s story starts with a failed attempt to corner the commercial pheasant market. Really — you can’t make this stuff up. He explains, “I am one of the biggest ambassadors for the state of South Dakota and one of the biggest cash crops that we have is pheasant hunting. So why not start a pheasant farm? I was letting my heart drive my business decisions, rather than my head, and that’s when people have big problems. I tried to corner the market on pheasant farming, until I realized there was not one.” Lesson learned? Temper your passion with data. Hayzlett says lots of “C” level execs believe their own PR. “We get these entourages of people around us who tell us what’s in the press release is true, and it’s not, and so it’s good to have that.” For some marketing execs, the world is moving too fast, so they’ll wait it out till the new standards develop. But not Kodak. Hayzlett says, “I’m about speed. I have a program inside of Kodak that’s called F.A.S.T. It means speed, right? Even if we screw up, let’s do it faster. Social media is nothing but a tool. I look at social media like a fax machine. It’s just a different way of me telling the world what I’m doing, or what’s going on. Getting my message out.” But Hayzlett isn’t saying that social media replaces advertising. In fact, he says it’s less selling, and more connecting. He explains: ” You don’t just vomit up information and sell, sell, sell. But there are some things that you can do; contests and some other things that get people attracted to it from a brand prospective. And really build community. So it’s not about building eyes and ears, it’s about building hearts and minds. And I think that’s what’s really good. If your business isn’t doing this, then you’re really screwing up. I think you’re making a big, big mistake.” In part channeling his experience at Kodak, and in part connecting with his career experience in business building, Hayzlett has written a book out this week, The Mirror Test. The book is 110% Hayzlett, full of stories and real life examples of how he leads his life as a marketer, business builder, and human dynamo. One story begins in line at a McDonalds drive through: “So I was a customer, I went to McDonald’s. I yelled into the little box of what I wanted. And I pulled up to the first window, I gave them my money — that’s a contract, I pull up to the second window and nothing’s there. And they said: ‘Well, Sir. If you move right over here — park over here, we’ll bring it out to you.’ Well, that’s like purgatory. You know, it’s hell over there. Parking purgatory. And I just turned back to the person and said: ‘No. I’ll wait.’ And I rolled my window up.” Minutes passed as the line backed up, with Hayzlett waiting for his burgers. Finally, the assistant manager tapped on his window: “He says: ‘Sir, if you don’t mind pulling up… We have other orders.’ I said: ‘No, I don’t mind waiting.’ And I rolled my window back up. I’ve made this contract with them. This is what they’ve promised. This is a fast-food place, I expect it fast, you know, and so forth.” As Hayzlett sees it, a contract is a contract. And FAST means fast. He explained it to the McDonalds manger this way: “‘Look, you didn’t offer me free fries. You didn’t offer me hash-browns, you didn’t offer me a little chocolatey-shake, or minty shake. Or something, maybe I would like. So no, I think I’ll wait.’ So then they rushed to get my order. Now I know when I go through there, my order comes out pretty doggone quick.” This kind of story is woven through The Mirror Test — real-world fables about businesses that need to do more than make empty promises. “I sit down with my team and I say: “This is what I expect. Are you gonna deliver?” And if they say that they are, then I expect that to be delivered. It comes with trust and trust is something that we grant sincerity for, but then there’s reliability and competency. I think that they were very competent in taking my order, and I trusted that they were going to deliver it.” The web speeds all this up for brands. But they ignore it at their peril. “At Kodak, our complaints used to be like 40-some percent of our internet traffic. You know, before, cause that’s just the way it works. Now it’s less than 7 because we integrated with this and said ‘Okay, when someone says ‘f you and your f-ing product, you f-ing suck’. Okay, that’s someone who has a problem. I wanna hear that. I wanna know that person. And I wanna reach out to them and say ‘what’s your problem?’. I call it the R.O.I., return on ignoring. So, if you ignore these people, these conversations are going on with or without you. I’d much rather be engaged with them.” Today, brands are having a conversation with their public, and sometimes those conversations aren’t all warm and fuzzy. There’s no doubt that all this change doesn’t come easy, and given his outgoing nature you can imagine that from time to time the folks at Kodak might wish if he were, ehm, a bit less ‘social.’ Hayzlett tells one story this way: “I’ve had in the corporate world my public relations, community relations people walk up to me and say Jeff, I don’t think this is appropriate that you wrote “Bite Me” to this guy. I look at them and I go, well that’s who I am. The guy said something very offensive, he had no right to say it, I’m sorry. They say well please be nicer, so now I write “Please Bite Me”. How Kodak Got Its Mojo Back There’s no doubt that there’s good news at Kodak these days. First quarter profits of 119 million dollars may not have wowed Wall Street, but it certainly bodes well for the digital transformation underway at a company whose revenues were primarily film just a mere five years ago. For Hayzlett – the ‘mojo’ is about getting the brand re-aligned with the passion of capturing emotions and sharing them. “It’s just we’ve finally been able to change the mood,” says Hayzlett. “If you change the mood in any business, you can be successful. That’s my opinion. Or at least if you’re not successful, you’re having fun just going down. So at least do that. You know? And I think most companies, their best days are ahead of them not behind them. And if you think of it from that perspective, you can do different things.” The Fortune 500 CMO says the secret sauce is in sharing: ideas, conversations, even company secrets. “When we developed a social media policy in the company, I said, “‘Share ‘em.’ Some folks thought those were internal documents. I said ‘share ‘em,’” said Hayzlett. “It’s like a nuclear secret or something, or state secret from the United States Government, or Chinese Government? No, it’s just a bunch of stuff about blogging, and Facebook, and Twitter. You know it’s something we do. If we share it with people, then they’ll talk about us and they’ll say this is great, and look what they’ve done and these guys are leaders. I say, hey lets share, Lets be creative. Lets be innovative. Lets have some fun.” Hayzlett’s book, The Mirror Test, is almost a social media experiment for the author. He’s tweeting, speaking, blogging, and Facebooking the message of the book all across the social media universe. Working hard to be authentic, even if it puts him at odds with his image as a big time CMO from time to time. “Somebody said ‘I bought your book and it’s so exciting I’m buying it again for other people.’ And he said ‘I’m stoked’, remembers Hayzlett. So I said, ‘Not only am I stoked, I just wet myself.’ Somebody wrote back you shouldn’t tweet that. Well that’s me, that’s who I am. So what you see reflective of a major CMO of a major company is that I’m just me. So why not be me and I think if you’re anything else than that, I think quite frankly online, and Twitter, and Facebook, and social media, you’re uncovered pretty quick.” You can view the video of this entire interview on CurationNation.org

Read the full article →

British Airways Says Contingency Plans Working `Well’ in Cabin-Crew Strike

March 21, 2010

By Steven Rothwell and Beth Mellor March 21 (Bloomberg) — British Airways Plc entered the second day of a strike by 12,000 cabin crew attempting to force Chief Executive Officer Willie Walsh to drop cuts to pay and staffing levels after saying it made a “good start” at operating on the first day. All cabin crew reported for duty at Gatwick Airport yesterday and London City airport service operated as normal, the carrier said in an e-mailed statement yesterday. The Unite union said BA had managed to fly only a third of normal scheduled flights, with 85 planes grounded at Heathrow, and its main terminal there “a ghost town.” This weekend’s walkout, the first at London-based British Airways since 1997, will be followed by a four-day strike from March 27. The stoppages may cost more than the 63 million-pound ($95 million) saving Walsh is seeking in a labor deal. “We have to wait and see what the mood is like on both sides and who comes out of it better, if anyone comes out of it better at all,” said John Strickland , director of aviation specialist JLS Consulting Ltd. “At the minute we are in a situation where both sides are losing.” BA aims to fly about 65 percent of customers with bookings during the strike, helped by 6,000 volunteers from other parts of the company, including 1,000 stand-in flight attendants. About 49,000 passengers, representing 65 percent, had flown as of late afternoon yesterday, a spokeswoman for the carrier said. Union Support Unite said 80 percent of cabin crew were supporting the strike on the first day of the dispute, with only 10 flights leaving Heathrow between 12:20 p.m. and 2:30 p.m., compared with the normal 50. BA has scrapped about 50 percent of flights scheduled to carry about 30,000 people a day during the dispute, which began yesterday, and will concentrate on operating as many long-haul services as possible using rented planes and volunteer crews. “This is the first time in 10 years I haven’t flown with BA — I just couldn’t take the risk that they were going to be on strike” said Richard Bland, associate director of finance careers at a London business school, who was travelling to Heathrow to catch a Qantas Airways Ltd. flight to Hong Kong. “I invariably fly with BA — the strike was the only reason I changed my plans,” said Roger Jones, who had flown from Copenhagen to London, a journey he does every two to three weeks. “I will go back to BA as I’m an executive club member but I think it’s disastrous for the company really. People who are not loyal will switch pretty easily.” ‘No Difference’ BA has also hired 25 planes from other airlines and charter companies, together with pilots and crew, in an effort to operate about 30 percent of short-haul services from London’s Heathrow airport . “There was absolutely no difference at all,” said Gabauer Siegmund, a manager for Millennium Hotels, who flew on a business trip from Stuttgart to London on a jet2.com plane chartered by BA. “BA have kept us very well informed.” Talks with Unite union General Secretary Tony Woodley broke down after three days on March 19 when Walsh presented a proposal he acknowledged was less attractive than previous offers, saying it had been modified to take account of expenses from keeping planes flying during the strike. The plan was still “fair and sensible” and would be accepted if put to cabin crew, he said. Relations with Unite worsened in November, when Walsh used voluntary departures to cut crew levels without consulting the union. He’s also seeking to reduce pay for new recruits to help lower costs following a global slump in demand for travel. ‘Fit for Purpose’ British Airways will likely log a record pretax loss of 600 million pounds in the fiscal year to March 31, Chief Financial Officer Keith Williams said in the company’s internal newsletter on March 11. The seven-day walkout may cost 105 million pounds, according to Citigroup Inc. analyst Andrew Light . “The cupboard is bare as far as BA is concerned,” said Howard Wheeldon , a senior strategist at BGC Partners LP in London. “The airline has to change, and so far the staff aren’t changing enough. The outcome of this dispute will decide not only whether BA has a viable future but also whether in the eyes of the public it can ever be seen as truly fit for purpose.” BA , which agreed in November to merge with Iberia Lineas Aereas de Espana SA , has jumped 30 percent this year on the London exchange, and Iberia is up 37 percent in Madrid. The two carriers were the best performers in the Bloomberg European Airlines Index, which climbed 4 percent. Deutsche Lufthansa AG , whose pilots halted a four-day strike last month after their union agreed to resume talks on the first day of the walkout, is up 4.3 percent in Frankfurt this year. ‘Flag Flying’ Virgin Atlantic Airways Ltd., the carrier founded by U.K. billionaire Richard Branson , said this past week that bookings have increased as a result of the strife at BA, with traffic up 3 percent in December, the month cabin crew at its rival voted for a Christmas walkout that was later blocked by a U.K. court. Walsh said in advertisements in U.K. newspapers on March 19 that “a significant number” of cabin crew will reject the strike call. The ad, with the banner headline “We will keep our flag flying,” said Unite had misjudged the public mood. Allies of British Airways in the Oneworld alliance are also taking steps to help add capacity on services to the U.K. Finnair Oyj will fly larger aircraft on the Helsinki-London route, adding 20 seats per flight, spokesman Taneli Hassinen said in a phone interview. Iberia will also add bigger planes between Madrid and the U.K. capital, together with one extra flight, a spokeswoman said. AMR Corp. ’s American Airlines, the world’s second-largest carrier, is allowing passengers on Heathrow flights operated by it or BA through March 31 to make one change to tickets without penalty, or to request a full refund, spokesman Tim Smith said. ‘Hawks’ Unite’s Woodley said March 19 that BA’s management had ruined chances of a deal by refusing to resubmit its last pay offer. Walsh took the deal off the table on March 12 after the union announced the strike, and subsequently rejected an offer to suspend the walkout in return for the proposal being revived. “The hawks at BA who wanted a war have won the day,” Woodley said on exiting the talks at the Trades Union Congress headquarters in London. “They put an offer on the table that was worse than the one they took off. That makes it impossible for us to go back to our members and ballot them.” U.K. Prime Minister Gordon Brown said yesterday that the walkout should be called off and that the two sides should reconvene talks. Brown “believes that this strike is in no one’s interest and will cause unacceptable inconvenience,” according to a spokesman for the premier. Transport Secretary Andrew Adonis also urged BA and Unite to negotiate to find a settlement. Labour Party Conservative leader David Cameron said in a speech in London today that Brown hasn’t done enough to stop the strike, blaming the Labour Party’s dependence on union funding. Since he became PM in 2007, a quarter of donations have come from Unite. As the parties get ready to contest a general election in the coming weeks, Cameron is seeking to evoke in voters’ minds the difficulties the Labour government of the 1970s had in tackling the unions before the Conservatives took power under Margaret Thatcher in 1979. “This threatens the future of one of Britain’s greatest companies along with thousands of jobs,” Cameron said in a speech in London today. “But will the prime minister come out in support of those people who would cross the picket line? No – - because the Unite union is bankrolling the Labour Party.” The opposition launched a poster campaign today depicting Brown as an airline pilot, with the line “Gordon’s doing sweet BA. Is it because he’s taken 11 million pounds of Unite’s cash?” To contact the reporters on this story: Steven Rothwell in London at srothwell@bloomberg.net ; Beth Mellor at Heathrow airport via bmellor@bloomberg.net

Read the full article →

Pelosi Signals Aim to Pass Health-Overhaul Bill Before Obama’s Asia Trip

March 12, 2010

By James Rowley and Laura Litvan March 12 (Bloomberg) — U.S. House Speaker Nancy Pelosi signaled her determination to seek passage next week of legislation overhauling the health-care system after President Barack Obama put off the start of his Asia trip until March 21. The president’s new itinerary will enable him to talk with any wavering Democratic lawmakers and help Pelosi forge a majority in the House to pass a Senate-approved bill along with a package of changes to remove provisions that are objectionable to some members of her caucus. By staying in Washington, Obama “believes he can make a very strong case why this is important,” spokesman Robert Gibbs told reporters at the White House after Obama postponed by three days the scheduled March 18 start of the trip. Pelosi, speaking to reporters at her weekly news conference, said she’s “delighted the president will be here for the passage of the bill.” White House officials consulted with House leaders about the prospect of passing the legislation next week before the president delayed his departure, said a Democratic official who spoke on condition of anonymity. The legislation, which may cost about $1 trillion over 10 years, will extend health coverage to 31 million uninsured Americans by requiring people to purchase policies and providing subsidies to help low-income people buy them. CBO Weighs In Once the Congressional Budget Office completes a cost analysis, the House Budget Committee will begin drafting the legislation that contains changes to the Senate measure, which was passed late last year. Pelosi, of California, said she hoped those cost estimates would be completed in time for the budget panel to begin work early next week. The House would then put the measure “on the Internet and then take a vote,” she said. The committee scheduled a March 15 session to consider the changes, which would be packaged in a budget-reconciliation measure, allowing for a simple majority vote in both chambers. Under reconciliation, the House will be required to pass the Senate legislation and the companion measure containing the changes before the Senate acts. That will require House members to overcome their distrust of the Senate, which has failed to act on almost 300 House- passed bills, according to Senator Dick Durbin , of Illinois, the No. 2 Senate Democrat. Reassuring Lawmakers To help House members overcome their fears of Senate inaction, Obama will talk to senators “to be sure they are supportive of those legislative fixes,” spokesman Gibbs said. Pelosi dismissed speculation that a decision by the Senate parliamentarian that Obama must sign the Senate legislation into law before Congress can amend it makes it harder to persuade House Democrats to pass the Senate measure. “It isn’t going to make any difference, except maybe the mood that people are in,” she said. She blamed the backlog of House-passed legislation in the Senate on “obstructionism” by Senate Republicans, who require 60-vote supermajorities on major legislation. With simple majorities needed in both chambers to pass the budget-reconciliation bill, House Democrats “are much more comfortable” approving the Senate measure, she said. Still, “there are certain assurances that they want” that the Senate will approve the changes “and we will get them before I ask them to take the vote,” Pelosi said. Twisting ‘Into Pretzels’ Senate Republican Leader Mitch McConnell of Kentucky told reporters that Democrats are “twisting themselves into pretzels” to try to pass legislation that voters don’t want . “What we have here is Democrats versus their own constituents,” he said on a conference call. House leaders said they were ready to proceed to a vote without addressing concerns by some Democratic lawmakers that restrictions on federal financing of abortions in the Senate measure aren’t stringent enough. Majority Leader Steny Hoyer said “it is clear that matter can’t be dealt with” in the reconciliation legislation, which must be limited to budget and spending items. Hoyer, of Maryland, said he was no longer trying to negotiate a concession with Michigan Democrat Bart Stupak , a leader of a group of anti- abortion Democrats. In an interview taped for Bloomberg Television’s “Political Capital with Al Hunt ” Hoyer challenged the claim Stupak has made that without tighter abortion language, 12 Democrats who voted to pass the House measure in November would oppose it now. Picking Up Votes “I don’t think we’ll lose a dozen votes,” he said. “We may lose some, but I think we’re going to pick up some.” Stupak spokeswoman Michelle Begnoche said she wouldn’t respond to Hoyer’s comment, saying only that Stupak “has not changed his position that he will not vote for the Senate bill on the promises that it will be fixed afterward.” The health legislation would require insurers such as Indianapolis-based WellPoint Inc. to cover people with pre- existing medical conditions. It would set up insurance exchanges on which eligible consumers could shop for the lowest-priced policies. Opponents, including WellPoint Chief Financial Officer Wayne DeVeydt , say the measure doesn’t do anything to control costs and contains insufficient penalties for people who don’t buy coverage. The bill will price healthy people out of the insurance market, he said March 10 at an investor conference. The reconciliation package will also include legislation to expand a government direct student-loan program and end federal guarantees and subsidies to such lenders as SLM Corp., commonly known as Sallie Mae. House Education and Labor Committee Chairman George Miller of California said that’s “critical” to getting support for the health-care changes. “People have made it very clear they want to take this home.” SLM dropped 3.4 percent, or 43 cents, to $12.11 in composite New York Stock Exchange trading as of 3:33 p.m. To contact the reporters on this story: James Rowley in Washington at jarowley@bloomberg.net ; Laura Litvan at llitvan@bloomberg.net

Read the full article →

Toyota Hearing: Driver To Describe Six Miles Of Nonstop Terror

February 23, 2010

WASHINGTON — Rhonda Smith’s story of six miles of interstate terror, as her Lexus suddenly zoomed to 100 miles per hour, will set the mood Tuesday for the first congressional hearing on Toyota’s acceleration problems. The Sevierville, Tenn., woman shifted to neutral. She tried to throw the car into reverse. She hit the emergency brake. Nothing. Then, her Toyota-made car miraculously slowed down before she crashed. Smith’s description of her nightmare ride in October 2006 will precede testimony by safety experts, Toyota’s U.S. president and the secretary of transportation Tuesday. Members of the House Energy and Commerce Committee’s investigative panel will be armed with preliminary staff findings that Toyota and the government failed to protect the public. Rep. Bart Stupak, D-Mich., chairman of the subcommittee, wrote Toyota that the company misled the public by failing to reveal that misplaced floor mats and sticking gas pedals accounted for only some of the acceleration problems. He said the company resisted the possibility that electronics problems were the cause. And he told Transportation Secretary Ray LaHood in a letter that his agency lacked the expertise and will to thoroughly investigate Toyota, which has recalled 8.5 million vehicles to fix acceleration problems in several models and braking issues in the 2010 hybrid Prius. Tuesday’s hearing, along with a second House hearing Wednesday, present a high bar in the company’s attempts to convince the public it cares about safety. James Lentz, president and chief operating officer of Toyota Motor Sales U.S.A. Inc., won’t have the benefit of speaking to consumers in company ads Tuesday. Rather, he’ll have to convince customers of company sincerity while facing expected hostile questioning from lawmakers venting their anger before television cameras. The atmosphere outside the hearing won’t be pleasant for the company, either. Toyota revealed Monday that federal prosecutors and the Securities and Exchange Commission are now investigating the company’s safety problems and what it told government investigators. On Wednesday, the House Committee on Oversight and Government Reform will hear from company president Akio Toyoda, who is expected to speak to the committee through a translator. In an opinion piece published by The Wall Street Journal, Toyoda acknowledged that the automaker had stumbled badly. “It is clear to me that in recent years we didn’t listen as carefully as we should – or respond as quickly as we must – to our customers’ concerns,” wrote Toyoda. LaHood, who testifies Tuesday, is expected to assure Americans that the government is addressing the possibility that electromagnetic interference played a role in the acceleration problems. LaHood also will remind Americans that his agency is investigating whether Toyota acted quickly enough in reporting defects and took appropriate action to protect consumers. The government has demanded that the company turn over a wide range of documents. Stupak said Monday that documents and interviews demonstrate that Toyota relied on a flawed engineering report to reassure the public that it had found the answer to the acceleration problem. In his letter to Toyota, he said a review of consumer complaints shows company personnel identified sticking pedals or floor mats as the cause of only 16 percent of the unintended acceleration reports. Some 70 percent of the acceleration incidents in Toyota’s customer call database involved vehicles that are not subject to the 2009 and 2010 floor mat and “sticky pedal” recalls. In a letter to LaHood, Stupak raised questions about whether the transportation agency lacked the expertise to review defects in vehicle electronics and said it was slow to respond to 2,600 complaints of sudden unintended acceleration from 2000 to 2010. As regulators looked into reports that accelerator pedals were becoming jammed in floor mats on Lexus ES350 sedans, a Toyota safety official told colleagues that government officials didn’t appear concerned. “I ran into a lot of different investigators and (Office of Defect Investigations) staff and when asked why I was there, when I told them for the (Lexus) ES350 floor mats, they either laughed or rolled their eyes in disbelief,” wrote Chris Santucci, a former government transportation safety employee.

Read the full article →

British Food Bested by Burger, Cheese Fondue Cooked by Finn: Richard Vines

February 5, 2010

Review by Richard Vines Feb. 5 (Bloomberg) — The Avenue has been around for years, surviving in business without becoming a destination, except for drinkers in search of a bar in St. James where you can enjoy decent wines without paying indecent prices. That’s not all going to change overnight, but the restaurant has been reborn under a young Finnish chef whose menu and cooking are deserving of attention and even a detour if you’re thinking of other haunts in the area such as Le Caprice. Mikko Kataja, 31, is an unlikely champion of modern British cooking and ingredients. He was born in Lojha, near Helsinki, and has become such a fan of U.K. produce that he cooks with rapeseed oil, rather than olive oil, and his improbable signature dish is a fondue made from three British cheeses. Fondue is something you don’t often find on a menu in London. The only other place I know serving it is the wonderful Swiss venue St. Moritz, and the Avenue’s version is unique. It’s made from Coolea, Lincolnshire Poacher and Danegeld, all from Neal’s Yard Dairy . It’s nutty and rich. I can’t resist ordering it each time I visit, even while realizing I should be exploring the menu. That’s not a great problem because most dishes are also offered in small portions, so you can order a bunch of different things to try. There’s a Caesar salad with intense home-cured sardines and a starter that’s not to be missed: wild mushrooms on toast with a slow-cooked hen’s egg and hazelnuts. Clam Chowder There’s a welcome focus on presentation. You would expect no less when you realize that Kataja is a protege of Tristan Welch at Launceston Place. The fondue comes in a sleek pot; the Caesar salad on a board; the fish wrapped in paper; the chips in a metal beaker. The letdown is roast cod and clam chowder. While it looks clever in a hollowed-out loaf, it is heavy. Why bother when there is a superb burger in a beautiful seeded bun, with English mustard, home-pickled cucumber and a slice of Lincolnshire Poacher? It’s soft and rich and melting, a match for the ultimate West End burger at the Wolseley. The burger costs 13.50 pounds ($21.63) and a small fish & chips costs 9.50 pounds. Most of the desserts are 7 to 8 pounds. The desserts are fine. Take your pick. You might do worse than the light raspberry cheesecake with black-pepper ice cream. But my favorite is the prune and Armagnac ice cream, which comes in a cone and is as much fun as a childhood treat. Piper Heidsieck Talking of treats, there’s currently an offer on cocktails whereby you get a choice of about 10 for 5 pounds. The wines start at about 20 pounds. The cheapest Champagne is Piper Heidsieck Brut at 9.50 pounds a glass, or 47 pounds the bottle. The room looks great. I’m so bored with beige and gray that any splash of color improves my mood. There are bright and bold paintings of camp-looking guardsmen. The art will change every few months, and I hope the owners — D&D London — invest in an artistic talent to make the selection. If I return in six months and find the kind of tasteful modern art that lets down many a restaurant, I’ll feel like finding a new use for the fondue. The Avenue, 7-9 St James’s Street, London, SW1A 1EE. Information: +44-20-7321-2111 or http://www.theavenue-restaurant.co.uk/ . The Bloomberg Questions Cost? The fondue is 18 pounds. Sound level? Not noisy away from the bar: 75 decibels. Inside tip? Tables in the raised corner area are good. Special feature? British tapas. Will I be back? Yes. Date place? Yes. Rating? *** ( Richard Vines is the chief food critic for Bloomberg News. Opinions expressed are his own.) To contact the writer on the story: Richard Vines in London at rvines@bloomberg.net .

Read the full article →

Japan’s Homebuilding Probably Hit Lowest Level Since 1964 Olympics Heyday

January 28, 2010

By Toru Fujioka and Aki Ito Jan. 29 (Bloomberg) — Japan’s housing starts probably fell to the lowest level since the nation celebrated its postwar recovery by hosting the Olympics in 1964, as builders are hobbled by dwindling household incomes and sustained deflation. Construction companies broke ground on 18.8 percent fewer homes in December from a year earlier, bringing the annual total to 785,856, the lowest since the 751,429 recorded in 1964, according to the median estimate of 26 economists in a Bloomberg News survey. The pace of decline eased in the past three months. The report, scheduled for release today, highlights a decline that’s likely to see Japan lose its place as the world’s second-largest economy to China this year. Government programs to stimulate the property market have been unable to reverse expectations that home prices will fall, keeping households away from investing in real estate. “It’s been a very miserable year,” said Richard Jerram , chief economist at Macquarie Securities Ltd. in Tokyo. “There certainly is an improvement underway, but it’s been slow to materialize, and it’s starting from very low levels.” Falling wages and mounting job losses sapped demand for new homes last year, sending apartment builder Anabuki Construction Inc. into bankruptcy in November. Starts totaled 719,112 in the first 11 months of 2009. The Land Ministry is scheduled to release the report at 2 p.m. in Tokyo. Figures already published today signaled that the economy continues to recover from its worst postwar recession. Deflation Continues Industrial production rose for a 10th month in December, households increased spending and the unemployment rate fell to 5.1 percent. At the same time, consumer prices slid for a 10th month and minutes of Bank of Japan meetings showed officials were concerned that deflation and a rising yen would hamper the recovery. Japan has been blighted by price declines and sluggish economic growth since an asset bubble burst two decades ago. An index of residential land prices has slid more than 40 percent from its 1991 peak, Japan Real Estate Institute data show. Respondents in a Bank of Japan survey released this month said they expect property values to slump for a seventh quarter. The central bank’s index of household expectations for future land prices dropped, reversing two quarters of improvements. Condo Slump The average price of condominiums fell 5 percent last year in the metropolitan area of Tokyo, Kanagawa, Saitama and Chiba, according to the Real Estate Economic Institute. Nationwide residential land prices slid 3.2 percent in 2009 after rising for the previous two years, Land Ministry data show. “More people are asking for discounts, or are looking to share rooms with others,” said Wataru Ichinari, president of Tokyo-based Ichinari Real Estate. “We’re not going to see a full-fledged recovery in the housing market” for at least a couple of years, he said. Policy makers are trying to revive the market. Former Prime Minister Taro Aso ’s administration expanded and extended tax deductions on housing loans. The current government under Yukio Hatoyama included incentives to build and renovate energy- efficient homes in a 7.2 trillion yen ($80 billion) stimulus package passed by parliament yesterday. The housing recession is depleting business at the country’s construction firms. Anabuki Construction filed for bankruptcy with 140 billion yen in debt, becoming the country’s sixth-largest corporate failure last year, according to Tokyo Shoko Research Ltd. Profits in Anabuki’s condominium business plunged following the global financial crisis, the company said in a statement on its Web site. Construction Bankruptcies Bankruptcies in the construction industry last year accounted for more than a quarter of 15,480 failures , the highest among all industries, according to Tokyo Shoko. Even as the employment market starts to improve, the jobless rate has been above 5 percent since last April and wages have slumped for 16 straight months. Employee compensation will slide a record 3.9 percent in the fiscal year ending March 31, and a further 0.7 percent in the following 12 months, the government said last week. The job environment will further dissuade potential home buyers, said Hiroshi Miyazaki , chief economist at Shinkin Asset Management Co. in Tokyo. “With unemployment so high and wages dwindling, households just aren’t going to be in the mood to buy a new home.” To contact the reporters on this story: Aki Ito in Tokyo at aito16@bloomberg.net ; Toru Fujioka in Tokyo at tfujioka1@bloomberg.net

Read the full article →

Adam Hanft: The U.S. Government Controls GM; Do They Have the Guts to Go After Toyota?

January 28, 2010

It’s the biggest post-bankruptcy gift GM can have. Toyota’s massive recall of five million cars – nearly half of the total number of cars it sold worldwide in its peak year – could be a turning point in the public’s perception that Japanese cars win the quality Olympics, versus America’s tinny junk. The AP is blunt in its assessment: ” A flood of recalls in the U.S. shows Toyota compromised on quality control in an overzealous drive to cut costs and expand sales during its climb to the top of the world auto market.” Meanwhile, American cars have dramatically improved their quality ratings. The gap between imports and domestics is lower than it’s ever been, and American cars have improved their “initial quality” ratings more than imports, says JD Powers . But perception has lagged, and that continues to be a huge problem for Detroit. The massive Toyota recall is one of those high visibility moments that can be a catalyst for a profound realignment of consumer thinking. GM needs to use the recall and the massive news coverage it’s generated to re-activate the latent but recoverable archetype of “Made in Japan” standing for cheap and unreliable stuff. This is an unprecedented opportunity, a moment for GM to paint a stark contrast between its commitment to making great cars – a new era of American quality – and Toyota’s sloppiness in pursuit of global dominance. Take everything Toyota stands for and turn it upside down and inside out. Remind us that cheapness has a price, and that price can be life-threatening. And use every communication channel in your arsenal to pump this out – advertising, PR, social media, your employees, your dealer network, happy owners. The UAW. This would be smartly opportunistic, given not just the recall, but the mood of the American people. We’re looking for glimmers of American resurgence, and we want our investment in GM to pay off. We want to believe that a smaller, tighter, more quality-obsessed GM is prepared to beat the global, grow-at-any-cost monolith that Toyota has become. The question is, would the GM have the testosterone to do this, and would the U.S. government approve a big, bold, feisty campaign that strikes directly at the business practices of an iconic Japanese company, and could have geopolitical consequences? I can imagine the firestorm this species of government-approved trade warfare would trigger. Prime Minister Hatoyama would be on the phone with Secretary of State Clinton before you could say “accelerator pedal.” After all, this wouldn’t be just a competitive strategy for GM. It would be an effort to bring the perception of Japanese quality tumbling down by seizing this national embarrassment and turning into a broader indictment. The unacknowledged truth is that United States Government has an inherent conflict-of-interest problem. There is an undeniable structural stress between its role as the controlling shareholder in GM, and its global economic needs. So the law of unintended consequences appears once again. The loan guarantees to GM restrict its ability to seize opportunity, and the gift of the recall will remain unopened and unenjoyed.

Read the full article →

Republican Leaders to Watch Obama’s State of the Union Speech From Waikiki

January 27, 2010

By John McCormick Jan. 27 (Bloomberg) — The Republican Party’s leadership plans to watch President Barack Obama’s State of the Union speech tonight from a Hawaiian resort’s South Pacific Ballroom. The picture-perfect weather along Honolulu’s Waikiki Beach matches the mood of Republican National Committee members gathered for their winter meeting starting today. They convene following Scott Brown’s Jan. 19 win in Massachusetts to claim the U.S. Senate seat formerly held by the late Democratic Senator Edward M. Kennedy , a victory that invigorated the party. “We feel very positive about Republican success in 2010,” said Sean Mahoney, an RNC member from Portsmouth, New Hampshire. “Independent voters are coming back to Republican principles.” The Republicans say this can be a year of opportunity as they seek to capture congressional seats and governors’ offices held by Democrats. More than 100 RNC members are at the conference at the oceanfront Hilton Hawaiian Village amid swimming pools and lagoons in the city where Obama was born. Brown’s victory, in a state Obama won by 26 percentage points in 2008, was the third recent high-profile Democratic loss. In November, the president’s party lost the governor’s mansions in New Jersey and Virginia. Mahoney, 43, said his party is poised to take advantage of an angry electorate amid a national unemployment rate of 10 percent and gridlock in Congress. “People are now questioning whether more government spending is the right remedy for long-term prosperity,” he said. Senate and House After Brown is seated, Democrats will control 59 Senate votes compared with 41 for the Republicans. In the House, Democrats outnumber Republicans 256 to 178. Bob Bennett, 70, an RNC member from Cleveland, Ohio, said there is no shame in meeting in a palm-tree-lined locale, though he also said, “If you took a poll of members, they probably would have held it a little closer to home.” Hawaii Governor Linda Lingle , the state’s first Republican governor since 1962, is a former state party chairman who has long lobbied for a gathering in her state, Bennett said. “She has a lot of friends on the committee,” said Bennett, wearing a Hawaiian shirt. “It’s a show of support.” Michael Steele , the RNC chairman, told the Associated Press he isn’t concerned about gathering in a lush place and wants to recognize the efforts of Republicans from Hawaii and U.S. territories in the Pacific Ocean who usually must travel to the mainland for such events. “Hawaii’s going through a recession, too,” Steele told AP. “So we’re going to help the economy a little bit.” Luau After Obama Speech After the State of the Union, RNC members plan a luau with a speech by Hawaii Lieutenant Governor James “Duke” Aiona, a Republican candidate for governor in the state. Before adjourning Jan. 30, the committee is considering a resolution that would bar party contributions to Republicans who fail to meet a test of conservative principles. As drafted, the resolution would require Republican candidates to agree to at least eight of 10 positions on issues including abortion, gay marriage and gun control. “There is no final text on the purity resolution,” said Gail Gitcho, a committee spokeswoman. “I don’t know what it will say, or if it will be in fact voted on.” The idea was proposed by James Bopp Jr ., an Indiana lawyer, after discontent over the party’s handling of a special election last fall in upstate New York. Democrat Bill Owens won the open seat in November after some Republicans rebelled against the party’s pro-choice nominee, who withdrew from the race, leaving a Conservative Party candidate to oppose Owens. Mahoney said he is undecided on the resolution, which is named after former President Ronald Reagan . “It is important that we have Republicans that both campaign as Reagan Republicans and govern as Reagan would, not as Jimmy Carter would,” he said. Mahoney said Republicans will also look at how to work with the anti-establishment “Tea Party” movement. “Our candidates would be wise to engage anti-tax advocates of all stripes,” he said. To contact the reporter on this story: John McCormick in Honolulu at jmccormick16@bloomberg.net .

Read the full article →

Doll in Sync With Biggs Queries Roubini Exit Strategy With Davos Wise Men

January 25, 2010

By Simon Kennedy and Scott Lanman Jan. 25 (Bloomberg) — The bears of Davos are brandishing their claws again, even as investors declare it’s time for them to hibernate. Billionaire George Soros , Nobel laureate Joseph Stiglitz and Roubini Global Economics LLC Chairman Nouriel Roubini return to the Swiss ski resort this week warning the economic recovery will prove weaker than financial markets are betting and the 10- month rally in global stocks may falter. Investors are lining up against the pessimists, who were lauded at last year’s meeting of the World Economic Forum for predicting the economic and financial crisis. The MSCI World Index of stocks is up 67 percent since March, as money managers at companies including BlackRock Inc. , the world’s largest asset manager, and Barton Biggs’s Traxis Partners LP buy equities partly on the expectation the recovery will strengthen. “The bears continue to preach,” Bob Doll , vice chairman and chief investment officer for global equities at New York- based BlackRock, said in a Jan. 6 presentation. “We lean to the bull case.” BlackRock predicts the Standard & Poor’s 500 Index will end the year at 1,250, up 13 percent from the Jan. 22 close, and the 10-year Treasury note will yield almost a percentage point more at 4.5 percent. Biggs began 2010 projecting a 10 percent gain in stocks and the dollar. Weaker Dollar Roubini’s firm forecasts corporate bonds will outperform equities, the dollar will weaken and the interest rate on longer-dated U.S. government securities will fall toward the end of the year. A report with specific projections is currently being prepared. “If I’m correct, by the second half of the year there’s going to be a slowdown of growth in the U.S., Europe and Japan,” Roubini said in Hong Kong on Jan. 21. “That could be the beginning of a market correction, because the macroeconomic news is going to surprise on the downside.” Who is right will be one of the debates dominating this week’s 40th Davos conference of more than 2,500 political, business and financial leaders. With the crisis ebbing and the International Monetary Fund set to raise its forecast for global growth in 2010 from 3.1 percent, “the mood is likely to be upbeat,” said Niall Ferguson , 45, a history professor at Harvard University in Cambridge, Massachusetts. “Dr. Dooms will be somewhat at a discount in the Davos market.” Stocks Decline The MSCI World Index dropped 3.8 percent last week, the biggest decline since October, after U.S. President Barack Obama sought limits on the size and trading activities of financial institutions and China moved to remove stimulus from its economy. Ben S. Bernanke ’s renomination to lead the Federal Reserve Board also ran into resistance in the Senate, and governments are under pressure to cut the debt they ran up fighting the turmoil. Investors are nevertheless upbeat. Forty-three percent of respondents in a quarterly global poll of market professionals who are Bloomberg subscribers said the international economy is improving, up from 37 percent in October. Thirty-eight percent said their country’s benchmark stock index will rise in the next six months; 33 percent say it will vary little and 27 percent say it will fall. “The global economy is picking up strength,” said Traxis Managing Partner Biggs, 77, who piled into equities at the bottom of the market in March. Exceeding Estimates A “whole load of positive feedbacks” are in place as companies have to reverse the cuts they made to inventories and capital spending when the crisis flared, he said in a Jan. 13 interview. Of 62 companies in the S&P 500 that reported fourth- quarter earnings last week, 46 were better than the average analyst estimate, according to data compiled by Bloomberg. After shrinking an estimated 3.4 percent last year, the economy of the Group of Seven nations will outpace BlackRock’s projection of a 2 percent potential growth rate by rising 2.5 percent this year, led by a 3.2 percent expansion in the U.S., Doll said. While the U.S. recovery will be slower than the 5 percent of previous rebounds, it will be spurred by $400 billion from Obama’s fiscal-stimulus program, low borrowing costs, demand from emerging markets and companies rebuilding inventories, Doll said. Although he acknowledges the doomsayers have a greater probability of being right given the depth of the crisis, he added that stocks will also benefit from earnings growth linked to cost cutting and productivity gains. ‘Good 2010’ “We’ll have a good 2010,” Doll, 55, told Bloomberg Television on Jan. 6. “Caution, given where we’ve come from, makes some sense, but there’s an awful lot of stimulus in the system.” He forecast 2009’s double-digit percentage increase in U.S. stocks. Such optimism was hard to detect a year ago at what Harvard Professor Kenneth Rogoff called the “grimmest Davos” ever amid the worst financial crisis in seven decades and deepest recession since World War II. The turbulence that began in August 2007 wiped out more than $30 trillion of stock-market wealth and forced policy makers to cut interest rates to record lows, adopt so-called quantitative-easing measures such as buying bonds and hand out more than $2 trillion in fiscal support. They also provided the financial industry with more than $11 trillion of aid, bailing out banks including New York-based Citigroup Inc. and Royal Bank of Scotland Group Plc in Edinburgh. ‘Hard Landing’ Attendees praised Roubini, 51, who teaches at New York University, for his 2007 forecast of an imminent “hard landing.” Morgan Stanley Asia Chairman Stephen Roach , 64, also had reason to be proud after warning of a looming global recession at the forum in 2008, the same year Soros, 79 and founder of the $25 billion hedge-fund firm Soros Fund Management LLC, declared that a U.S. recession was “almost inevitable.” Their forecasting record has been patchier since. Roubini, an adviser to Timothy Geithner a decade ago before he became U.S. Treasury secretary, said in a Davos interview last year that the world economy would shrink through 2009. Instead, growth resumed in Japan in the second quarter of last year, followed by the U.S. and 16-nation euro-area in the subsequent three months. The S&P 500 has climbed 45 percent since Roubini said March 14 that its advance that month was a “dead-cat bounce.” He will sit on the first Davos panel on Jan. 27, where he will debate the economic outlook with Carlyle Group co-founder David Rubenstein and former IMF Chief Economist Raghuram Rajan . IMF Forecast While Roubini was unavailable for an interview, Christian Menegatti , his head of global research, said the firm had underestimated the amount and success of liquidity that governments and central bankers injected. The IMF estimates the Group of 20 central banks expanded their balance sheets by $4.1 trillion from June 2007 to April 2009 to combat the crisis. “Policy made a difference,” Menegatti said, calculating that 90 percent of the U.S. economy’s 2.2 percent growth in the third quarter was linked to emergency aid. Officials were “more successful in putting a bottom to the global economy than I anticipated,” Roach, who is unable to attend Davos this year for the first time in a decade, said in a Jan 5 Bloomberg Television interview. Expanding Economy At the forum last year, he said the then-median forecast of economists for the U.S. to grow 2 percent in the fourth quarter was “overly optimistic.” The Commerce Department will report Jan. 29 that the U.S. economy expanded 4.6 percent in the final three months of 2009, according to the median estimate of 74 forecasters surveyed by Bloomberg News. Soros, who made $1 billion selling the pound in 1992, said in a syndicated column this month that he “failed to anticipate the extent of the rebound.” Many of the Davos delegates nevertheless return downbeat on the assumption that the impact from stimulus will wear out and consumers and companies remain too weak to take over. JPMorgan Chase & Co., the biggest New York-based bank by market value, estimates fiscal stimulus will add just 0.2 percentage point to global growth this year, down from 1.2 percentage point in 2009. Meantime, central banks from the Fed to the European Central Bank are beginning to peel back support for financial markets and may raise interest rates before year- end. “The recovery is liable to run out of steam and may even be followed by a second economic downturn , though I am not sure whether it will occur in 2010 or 2011,” Soros said in his column, adding that his views are “at variance with the prevailing mood.” Capacity Glut Roubini forecasts the G-7 will grow 1.7 percent this year, almost a percentage point less than BlackRock’s estimate. Hiring and incomes will stay weak in advanced economies, fiscal policy will begin to drag in the second half of the year, banks need to clean balance sheets more than markets calculate and companies must fill a glut of capacity before they invest, he said in his Hong Kong speech. There’s even a 40 percent chance of a relapse into recession this year, Roach said. Unemployment , currently at 10 percent, will lower the consumption share of the U.S. economy by 5 percentage points from its record 71.2 percent of gross domestic product, while China can’t sustain the investment that accounted for 70 percent of its GDP growth in 2009, he said. Stiglitz argues the current disconnect between the economy and stocks should be no surprise. Stocks are up because interest rates are low and companies such as New Brunswick, New Jersey- based Johnson & Johnson, the world’s largest maker of health- care products, are cutting costs by reducing payrolls. The Stiglitz View All this buoys equities and suggests that underlying economies are lackluster, he said in a Dec. 29 interview. He predicts a full recovery won’t be in place before 2012 at the earliest. “People at Davos and elsewhere want to believe things are good,” said Stiglitz, 66, a professor at Columbia University. “They will be more optimistic than me.” Harvard’s Rogoff, a former IMF chief economist who co- authored a recent book on financial crises over eight centuries, said history shows stocks tend to rebound rapidly after an economic slide. The historical norm is for recessions caused by financial turmoil to run for 1.7 years and equity markets to return to their previous peak within two to three years, according to his research. “There’s a famous saying at Davos that whoever are the heroes one year, you can guarantee something happens in between,” Rogoff said. “Last year I would say the extreme pessimists were celebrated and we didn’t get the extreme outcomes.” To contact the reporter on this story: Simon Kennedy in Paris at skennedy4@bloomberg.net Scott Lanman in Washington at slanman@bloomberg.net .

Read the full article →

New York’s Park Avenue Set Ignores Dow’s Slump, Shops for Art

January 24, 2010

By Lindsay Pollock Jan. 23 (Bloomberg) — New York’s Park Avenue set has begun buying art again — battered stock markets be damned! — judging from the buzz and sales Thursday at the opening night of the 56th Winter Antiques Show . Just ask Barbara Israel. In the first half-hour of the upscale art fair, the New York-based dealer who specializes in garden statuary sold 10 pieces, including a pair of life-size doe-and-fawn groups once owned by Doris Duke for $135,000. “The stock market wasn’t great this week, but the mood is good,” said Arie Kopelman , chairman of the show committee and vice chairman of Chanel SA. “I’ve seen a bunch of red dots and the show just opened a few minutes ago.” Tickets to attend the first hour of the annual show, held at the Park Avenue Armory , cost $1,000 to $2,500. Publisher and collector Peter M. Brant and Sallie Krawcheck , president of Global Wealth & Investment Management at Bank of America Corp., the fair’s main sponsor, were among attendees. “Last year was somber,” said folk-art dealer David Schorsch. “This is a different year and it’s back. It’s not crazy, but it’s back.” Sales were sluggish at the 2009 edition, amid a dismal economic outlook. A year later, buyers are more confident and eager to spend. The Winter Show, known to cater to the tastes — and pocketbooks — of New York’s rich, hosts 75 exhibitors this year and runs through Jan. 31. Proceeds benefit East Side House Settlement , a South Bronx nonprofit organization. German Armor The fair presents a smattering of American and European furniture and fine art. London arms-and-armor dealer Peter Finer offered a 16th-century suit of German armor for $750,000 and an impressive 1574 German sword for $48,000. Other marquee offerings include sculptor Paul Manship’s neo-classical, 9-foot-tall pink marble urn, priced at $6 million, at dealer Gerald Peters’s stand. Manship’s best-known work is Rockefeller Center’s golden “Prometheus” statue. The 7-ton urn, featuring American Indian-themed designs, was originally commissioned in 1914 for the driveway of Cleveland, Ohio, industrialist William Gwinn Mather’s estate. Peters is also selling four gilt-bronze panels by Manship, originally designed for the facade of the American Telephone & Telegraph building on Lower Broadway. The panels represent the four elements — air, fire, water and earth — and are available as a set of four for $6 million. Less expensive yard fare is available from Maine dealers James and Nancy Glazer, whose stand is dominated by a 1903 turquoise copper elk, which formerly topped an Elks club in Johnstown, Pennsylvania. The price: $425,000. Maine Landscape There is art for walls as well, including Winslow Homer’s black-and-white 1884 charcoal of a Maine landscape, priced at about $500,000 at the Thomas Colville Fine Art booth. The work is among the artist’s earliest renderings of Prouts Neck, Maine. Modern American art at dealer Bernard Goldberg’s stand includes Arthur Dove ’s jagged 1937 landscape, once owned by Inland Steel Co., and now available for $850,000. Several other art souks have sprung up around New York, timed to coincide with the Winter Show, including the New York Ceramics Fair at the National Academy Museum & School of Fine Arts. Berlin artist Hinrich Kroeger presented his own ornate vessels, plates and wall hangings, priced from about $400 to $19,000. A witty white poodle with a gold nose, titled “Poodle in Love,” was for sale at $5,900. Other work featured large phalluses and erotic couplings. “Some people smile,” said Kroeger, of the reactions he’d been receiving among tweedy ceramic fans. While most of the ceramics fair seemed sleepy Thursday afternoon, Paul J. Katrich’s shiny glazed vessels were a hot item.  Katrich sold out a dozen within the first hour of the fair and stuck a handwritten sign in his glass vitrine reading “Sold Out! We Love New York.” His work sells for $400 to $4,000. “If you don’t blow your own horn, who is going to do it for you,” Katrich said. To contact the reporter on the story: Lindsay Pollock in New York at lindsaypollock@yahoo.com ;

Read the full article →

Obama’s `Unilateral’ Bank Plan Shows Lack of Global Coordination on Rules

January 21, 2010

By Gavin Finch, Andrew MacAskill and Caroline Binham Jan. 22 (Bloomberg) — President Barack Obama’s plan to curb proprietary trading shows banking regulations are being implemented unilaterally, not on the global scale lenders urged, according to lawyers. Obama proposed yesterday to limit the size of banks and prohibit them from investing in hedge funds and private equity funds as a way to reduce risk-taking and prevent a repeat of the credit crisis. Other countries, including the U.K., are pushing firms to cut risk by boosting their capital reserves instead. “There seems to be an element of governments trying to outbid each other in regulation proposals,” said Michael Wainwright, a London-based partner in financial services at law firm Eversheds LLP. “They are all trying to catch the mood of the moment with the electorate.” Governments are stepping up regulation of banks and insurers after pumping in trillions of dollars to bail out firms from American International Group Inc. to Edinburgh-based Royal Bank of Scotland Group Plc. Deutsche Bank AG Chief Executive Officer Josef Ackermann and Barclays Plc Chairman Marcus Agius said yesterday regulation that wasn’t globally coordinated may threaten both their industry and the economic recovery. “You must eschew the temptation to seek refuge in the alleged safety of national borders,” Ackermann said at a London conference yesterday, before Obama announced details of his plan. “The re-fragmentation of global markets is in nobody’s interests. It will leave us all poor. We need internationally harmonized rules and global and consistent implementation.” Too Big To Fail While lawmakers and policy makers around the world have been grappling with what to do with banks that are deemed too- big-to-fail, measures taken by governments so far have tended to favor surcharges rather than a legal split to make risky trades less economically viable. In the U.S., the Glass-Steagall Act separated retail banking from investment banking until 1999. “This is absolutely unilateral,” said Simon Gleeson , a regulatory lawyer at Clifford Chance LLP in London. “This is Glass-Steagall Mark Two,” he added. “Banks can take just as much risk in commercial lending as they can in proprietary trading as Northern Rock and HBOS show,” he said referring to two lenders bailed out by the U.K. government. Obama’s call “is moving a long way from the existing Basel recommendations on capital charges, which is another way of dealing with this issue,” said David Green, a former Bank of England and U.K. Financial Services Authority official who now advises regulators outside Britain. He was referring to the Switzerland-based Basel Committee on Banking Supervision, which is preparing to raise capital standards for banks. Obama’s Loss Obama’s plan is subject to approval by Congress, where his previous regulatory proposals have hit resistance from some lawmakers and opposition from financial firms. He announced the plan on the day Goldman Sachs Group Inc. , facing criticism from politicians and labor unions for near-record compensation pools, set aside $16.2 billion to pay employees. This week, Republicans won a victory in the race for the U.S. Senate seat in Massachusetts, a state represented by the late Senator Edward M. Kennedy for almost half a century. “The events of the last few days politically with Obama’s loss may be a factor,” said Jonathan Herbst , a former FSA attorney now at London-based Norton Rose LLP. “This is a U.S. solution, which effectively has a historical resonance in the U.S.” he said. “European policy makers have been very skeptical about this as a solution to the problem.” ‘Obama is Right’ Others welcomed Obama’s plan. “If banks engage in very high-risk activities, they can endanger the money of their depositors,” Antonio Borges , chairman of the Hedge Fund Standards Board, said in a telephone interview. “In this sense, Obama is right.” In October, U.K. Chancellor of the Exchequer Alistair Darling ruled out Bank of England Governor Mervyn King’s suggestion to separate investment banks from operations that take deposits from consumers and manage payment systems. Banks conduct proprietary trading for their own benefit, not for that of their clients. Adair Turner, chairman of the U.K.’s FSA, has said he is against splitting banks. Turner is leading a committee at the Financial Stability Board, which sets policy for the Group of 20 nations, on whether banks should be split. The FSB is due to report to the G20 by October. The proposals could affect trading at U.S. firms including New York-based Goldman Sachs, Morgan Stanley and JPMorgan Chase & Co., according to Frederic Dickson , chief market strategist at D.A. Davidson & Co. in Lake Oswego, Oregon. U.K. Banks U.K. banks with the most to lose under Obama’s plan would be Barclays Plc , RBS and HSBC Holdings Plc , said Simon Maughan , an analyst at MF Global Securities in London. Barclays fell 5.9 percent to 283 pence in London trading yesterday, RBS slid 7 percent to 35.32 pence and HSBC slipped 1.2 percent to 675 pence. The U.K. Treasury will consider proposals, an official said. The British Bankers’ Association, an industry trade group, said it was studying Obama’s plans to see how they align with what has already been discussed in the U.K. and abroad, spokesman Brian Mairs said in an e-mailed statement. Obama’s plan follows a slew of banking regulations proposed since the credit crisis. The U.K. government last month imposed a one-time 50 percent tax on bonuses, to be paid by banks. France’s government also said it will impose a similar levy. Osborne Pledge George Osborne, the Conservative lawmaker that shadows Darling in the U.K. Parliament, said that if elected his party would implement a similar plan to Obama’s in the U.K. A YouGov survey for the Sunday Times this week showed the opposition Conservatives at 40 percent, 9 points ahead of the ruling Labour party, with an election due by June. “The whole process of re-regulating the banks is just starting,” said Florian Esterer , a money manager at Swisscanto Asset Management in Zurich, which oversees about $58 billion. “This is just the early warning shots.” To contact the reporters on this story: Gavin Finch in London at gfinch@bloomberg.net ; Andrew Macaskill in London at amacaskill@bloomberg.net ; Caroline Binham in London cbinham@bloomberg.net

Read the full article →

Dennis Santiago: Train ‘Em Up!

January 16, 2010

“Gulp!” That was my last thought just as I released the safety catch and enabled access to the Move Your Money zip code search tool. It wasn’t the accuracy of the system that worried me. IRA has been tuning it’s risk modeling system to understand everything from Basel II analysis — remember the days when the “global economy” would grow forever — to FDIC failure risk triggers for the better part of the decade. The gulp was because I knew that the “why not me?” calls were about to start from the banks that didn’t make “the list.” Three weeks later and the phone calls have been non-stop. For the record: You cannot ask to be on the list. You cannot pay to be on the list. You cannot ask or pay for the core IRA system to not evaluate your institution. If you are a bank and you file a CALL REPORT we will use that public data filed with a United States of America regulator empowered by the U.S. Banking Act — these are evidentiary grade documents — to run computations to determine what, if any, risk indicators are inherent within the banking operations of your institution. We do that for every bank to the best of our ability. We’ve got data on this for every quarter going back to 1995 and every year end prior to that to 1989. The system pinpoints in naked detail things that banks can be proud of and things that need attention. For you math wonks, when we built the indexing system that underlies the simplified letter grades, it tested with an R-Squared of 0.9. That’s because we do a census not a sample. Oh if only the rest of financial analytics had shown such rigor maybe Nassim Taleb would have never had to write his “Black Swan” critique of the system. The IRA process is mechanistic like a yard stick. It covers all banks. Yes we do cover the big ones too. Read The IRA Analyst edited by my partner Chris Whalen if you’re in the mood for that stuff. From this universe we run a filter to identify the smaller banks with total assets less than $65 billion. From there we apply our stress tests allowing only the ‘B’ or better performers on the Move Your Money zip code list. Yes folks this is deliberately a conservative approach. The “why” is today’s lesson in one of my favorite things, asymmetric warfare. We decided on this path because strategically it’s the best way to support a plural movement of consumers attempting to generate a grassroots impact serving the national interest. Consumer are not expert financial analysts; not that I believe professional financial analysts are much better mind you. My own main advantage in this world is I believe Dirty Harry’s caution about “A man’s got to know his limitations”. So by concentrating forces on the “best of breed” and you’ve created a naturally risk managed avenue of advance for change. Think about it. MYM would not have worked if consumers had to contend with having to individually learn to discover how to detect good from risky banks as they made their decisions. The switching costs would have been prohibitive. The “killer app” as they call it in internet land is one that reduces transaction friction to zero. I say again. The IRA donation to this process was never designed to serve the interests of the banking industry but to serve the interests of ordinary people. The banks are the means not the end. I wish President Obama the best in transmitting the same message. Two-thirds of all banks made the list, a number of them quite handily. What about the other third? They need some training up. And so begins the cacophony of stress. Trumpeting loudly in the forefront of complainants at least until two days ago were the “de novo” banks. These are the new start ups of the banking industry. The FDIC statutes dictate these are bank less than three years old. There are just over 300 of these institutions at the moment. These banks are expected to execute business plans submitted to their regulator that will result in a stable profitable institution able to join the ranks of healthy “established” banks when their “de novo” period expires. It’s a stressful uphill race that requires smart hard work to “get ‘er done” and the IRA system correctly detects the stress artifacts of that challenge. They don’t all make it. Like all start-up environments, the pudding does not always come out like the recipe says it will. Over the past three weeks I’ve had the pleasure of talking to a number of bankers and former regulators about the subject. Have no doubt that there are a lot of smart people working in this industry. I can’t thank you all enough about the insight you’ve contributed in terms of evaluating years one, two and three of the “de novo” life cycle. It resulted in creating the Youngest Banks in America page. It shows the world all of America’s “de novo” banks with the birthdates they first appeared on the FDIC records. It breaks them down by years of age and the expectations of them at each age. It identifies those that have reached break even and those that have made it to ‘B’ or better. As one would expect, the results are a mix. In this economic climate I am particularly impressed by anyone who can execute on their plans and beat the challenge. You should be too. As one would expect, the next group calling in heavily are “established” banks that didn’t make the list. They are the ones with C, D and F grades. Overwhelmingly these become consultative calls. They already know they have strikes against them. They’re really more curious to know just how much the system knows about those strikes. And they’re hoping for a free peek to glean some thoughts and maybe suggestions about their prospects. I offer what I can bearing in mind that there’s a line that — for both business and legal reasons — cannot be crossed in casual conversations. They are beginning to get the message that when I say no to discussing things that are “privileged”, forward looking or might require the filing of an 8K with the SEC it’s because I’m looking out for them more than me. At IRA, we can see what a bank’s condition is plain as day. We can see where the trend line is going. What’s always intrigued me most of all though are the little artifacts revealing how hard whoever is running that troubled bank is working. These phone calls have put a voice to that data and I have to say, if nothing else, being part of the Move Your Money process has greatly humanized the way I view these numbers. Personally, I’ve been a fan of what we call “banks on the mend” for a long time and hearing from the people captaining these banks this month has only strengthened my resolve to continue to work to identify workable systemic avenues to help relieve the stresses impeding these institutions. They’ve been forgotten on the sidelines of a titanic feud between the federal government and the money center/super regional banks. Still, with a little coaching, I do believe that a number of these “banks on the mend” will yet make it back to good health and rejoin the ranks of ‘B’ or better institutions. Final note for the day is about credit unions. Status is we’re still working on it. There are 8,000 of them. I fully expect they will spread out into stellar, struggling and yikes just like their bank brethren when all is said and done. Here’s your anecdotal factoid on this. In the first week of 2010 ending January 8th, the FDIC closed one bank ; during the same week, the NCUA also closed one credit union . The FDIC closed three more banks on January 15th. So it’s not like both regulatory bodies aren’t actively sifting through the flock. The FDIC has much larger staffing this year so they can sift faster.

Read the full article →

Bear Stearns Alumni Stage Holiday Parties as Goldman Sachs Cancels Again

December 24, 2009

By Matt Townsend and Courtney Dentch Dec. 24 (Bloomberg) — While Goldman Sachs Group Inc. scrapped its holiday party for a second straight year and some JPMorgan Chase & Co. bankers had their yuletide gathering in a cafeteria, staffers of Bear Stearns Cos. reunited at a velvet- roped bar that sells bottles of Cristal champagne for $450. About 100 alumni from the defunct securities firm that JPMorgan acquired in March 2008 assembled Dec. 18 at the Dream Hotel’s Rm. Fifty5 on West 55th Street, described on its Web site as neo-Gothic “surreal luxury.” Courtney Dickson, a 25-year-old former Bear Stearns employee who organized the event, said the mood was “nostalgic.” Dozens more former Bear Stearns employees met a few weeks earlier in the upstairs bar at Connolly’s Pub , the watering hole on East 47th Street a few blocks from Bear Stearns’ old headquarters on Madison Avenue, said Justin Brannan, who worked in the firm’s wealth management unit for three years. The affair brought together about 100 people who paid for their own drinks at the Irish pub’s long, wooden bars. “That’s where we went after we got sold, so it was a pretty fitting place to get together,” said Brannan, 31, who now raises money for the Bnai Zion Foundation, a charity that funds humanitarian projects in Israel and the U.S. “It was cool. It was like a high-school reunion.” By contrast, “holiday trimmings” took on new meaning at banks that survived the credit crunch as they cut back or eliminated parties. Goldman Sachs, Citigroup Inc., Morgan Stanley and Bank of America Corp. , didn’t host official events this year, after a public outcry over perks and bonuses awarded to bankers whose firms accepted taxpayer bailouts. No ‘Lavish Parties’ At JPMorgan, which didn’t host a companywide party at its New York headquarters, about 200 people from the investment banking unit shared wine and beer for a few hours after work last week in the cafeteria at the JPMorgan Chase Tower on Park Avenue, said two bank employees. They spoke anonymously because they weren’t authorized to speak about the matter. Spokesman Joseph Evangelisti declined to comment. The bank bought Bear Stearns last year as the securities firm collapsed amid the global credit crisis. “They should not be trying to broadcast to America how successful they are right now by having lavish parties,” said Richard Dukas , president and founder of New York-based Dukas Public Relations Inc., whose clients include Mario Gabelli’s Gamco Investors Inc. “It’s absolutely the right thing to do.” Two-thirds of Americans say they have an unfavorable view of financial firm executives, making them less popular than Congress and lawyers, according to a Bloomberg National Poll conducted Dec. 3-7. Obama’s Opinion President Barack Obama recently joined the criticism, saying in a Dec. 13 interview with CBS’s “60 Minutes” program that he was frustrated that “fat-cat bankers” continue to take large bonuses and fight his effort to revamp financial regulation. “Given the environment, the firm does not believe it’s appropriate to host or sponsor holiday parties,” Goldman Sachs spokeswoman Gia Moron said. Two years ago, Morgan Stanley held a holiday party at Lotus, a three-level nightclub in New York’s Meatpacking District and Goldman Sachs hosted one at BLVD, an 18,000-square- foot venue on the Bowery in downtown Manhattan, according to The Business Insider, a Web site started by former Merrill Lynch equity analyst Henry Blodget who follows the business and social happenings of Wall Street. Charity Drives Citigroup didn’t sponsor any events this year, said Stephen Cohen , a spokesman for the New York-based company, whose biggest stakeholder is the U.S. Treasury. Kelly Sapp , a spokeswoman for Charlotte, North Carolina-based Bank of America, said the lender doesn’t host or fund holiday parties on the corporate or regional level. Individual lines of business might organize initiatives to benefit a local charity, such as a clothing drive, she said. The Royal Bank of Scotland Group Plc, recipient of the world’s biggest banking bailout, is among British lenders limiting entertainment budgets this year to avoid fueling public anger after taxpayers provided more than 1 trillion pounds ($1.6 trillion) to bail out lenders including RBS and Lloyds Banking Group Plc. RBS is contributing $16 a head toward employee Christmas parties this year, enough to buy two pints of lager and a packet of potato chips. In New York, 65 percent of companies were likely to either cancel or significantly scale back holiday events, according to a survey by online grocery store Fresh Direct Holdings Inc. and event industry tracker BizBash Media. Plastic Substitutes Russ Sonnier, president of Sonnier & Castle, a Manhattan event planner, said his clients, which include financial firms, cut back on food, flowers and entertainment. One law firm removed desserts from the menu and switched to plastic cups from glass stemware, Sonnier said. Across the U.S., companies also planned smaller holiday celebrations than they’ve held in the past, even as the number of parties is about the same, said Dale Winston , chairwoman and chief executive officer of Battalia Winston Amrop, a New York- based executive search firm. The firm’s annual survey found that 81 percent of companies planned to hold parties, the same number as last year, and 43 percent of those celebrations were expected to be less lavish, Winston said in a Dec. 18 interview. “The country isn’t in a big celebratory mood,” Winston said. To contact the reporters on this story: Matt Townsend in New York at mtownsend9@bloomberg.net ; Courtney Dentch in New York at cdentch1@bloomberg.net ;

Read the full article →

Jobs Bill Squeaks Through Despite Dem Defections

December 16, 2009

Speaker Nancy Pelosi (D-Calif.) muscled a $154 billion jobs bill through the House on Wednesday evening just before Congress departed for a holiday recess. With the vote in serious doubt until seconds before it was gaveled to a close, Pelosi worked the floor furiously, imploring her caucus to stick with her and move the measure through. The bill passed 217-212, but when the time on the clock expired, it was losing 208-212. A few minutes later, when it hit 214-213 and then 215-213, someone shouted “gavel it!” from the Democratic side. A bill doesn’t need the full 218 to pass — only a simple majority of those voting. The presiding officer took the suggestion and closed the vote. Not a single Republican approved of the bill. The slim margin is strong evidence that deficit hawks have momentum in the ideological battle between one camp that demands more spending on job creation and another, dominated by the GOP and Blue Dog Democrats, calling for immediate reductions in the deficit. Even the fact that the money was being redirected from Wall Street couldn’t sway 38 Democrats, who voted with the Republicans. A vote moments earlier Wednesday showed much the same thing: 39 Democrats split with their leadership on a measure to raise the debt ceiling. Lifting the debt limit is a politically un-fun vote for any member of Congress — and one that has a habit of popping up on TV ads during campaign season — but is necessary to continue the functioning of the government. It barely passed, 218-214. The jobs bill would use $75 billion in money earmarked for the Wall Street bailout and redirect it to infrastructure investment and aid to states. The bill also extends the duration of the COBRA subsidy from nine months to 15 months, extends the deadline for eligibility from December 31, 2009 to June 30, 2010, extends by six months unemployment benefits that would have expired at the end of the year, and expands a child tax credit to 16 million families. Rep. David Obey (D-Wisc.), chairman of the Appropriations Committee, worked the floor on behalf of the bill, aggressively pressuring newly elected Rep. Mike Quigley (D-Ill.), who took White House Chief of Staff Rahm Emanuel’s seat. Obey’s legendary temper wasn’t enough to sway Quigley, who voted against the bill. Rep. Gerry Connolly (D-Va.), president of the freshman class, was worked over hard on the House floor by a red-faced George Miller (D-Calif.), chairman of the Education and Labor Committee and a close Pelosi ally. At one point, Connolly tossed his hand in the air, dismissing a Miller argument. Miller pressed Connolly, arguing that if the House doesn’t preserve the unspent bailout funds now, they’ll be lost for good, Connolly said later. Pelosi tried Connolly next, energetically making her case. But he leaned forward, put his right hand on her left arm, and told her he couldn’t give her his vote. He then stepped out in to the Speaker’s Lobby just off the House floor and spoke to a few reporters. “I’m sure she’s not happy,” he said in an understatement. Freshman defections, as he spoke, were threatening to defeat the bill. “I wrote the Speaker several weeks ago, along with [thirteen] other freshman, saying that at least half of the TARP money should be reserved for deficit reduction, and then we can address jobs.” Pelosi argued back that all of the bailout money that is repaid by banks goes to reduce the deficit, a point Connollly conceded but wasn’t swayed by. “Tonight, obviously a decision was made that what we’re going to do is address jobs. Maybe some day we’ll address the deficit. And I don’t think that’s the right sequence,” he said, saying that both are important (a point of agreement on all sides). HuffPost asked if Democratic freshmen are more concerned about the deficit than the jobless situation. Connolly said that the way people voted would answer the question. Eight of the fourteen freshman who joined the Connolly letter rejected the jobs bill, along with a sizable number of other new members and Blue Dogs. The sight of Democrats standing in opposition to spending on job creation with unemployment over 10 percent struck an angry Rep. Charlie Rangel (D-N.Y.), chairman of the Ways and Means Committee, as reason to ask where the party stands. “We may have to take a reevaluation,” Rangel said, “of Democrats.” Rep. Stephen Lynch (D-Mass.), who voted for the jobs bill, summed up the mood. “People are worried,” he said. If anybody has a right to be worried, it’s Rep. Chris Van Hollen, the chairman of the Democratic Congressional Campaign Committee, who will take the lead in fending off a wave of angry voters, many intent on tossing his members out of office. “Clearly, taking the TARP money that would have gone to Wall Street and spending it on infrastructure for Main Street I think is an important move, but obviously we need to get right back to work when we get back here focusing on long-term debt deficit and debt reduction. That will be a priority,” he told HuffPost. The key word Van Hollen’s analysis is “long-term.” House leaders are pushing for more spending now, along with efforts to structure the budget so that future deficits are reduced. The GOP and vulnerable Democrats, meanwhile, want to cut spending yesterday. “You can’t accomplish the fiscal stability goal if the economy doesn’t turn around,” Van Hollen said. Rep. Brad Miller (D-N.C.) echoed Van Hollen’s argument. He noted that for every one-point reduction in the unemployment rate, the federal deficit is reduced by more than $200 billion due to increased tax revenue. “If we want to close the deficit, we’ve got to grow the economy and put people to work. And if we don’t do that, nothing else we do is going to work,” he said. Connolly, the freshman leader, said that passing the bill would give fodder to political opponents — even as it is uncertain the Senate will move on it. “Why do we want to pass a bill that seems to lend credence to critics who say, well, maybe the stimulus really isn’t succeeding?” he argued. Connolly’s opposition to the spending, however, is particularly striking, because many of his Northern Virginia constituents are employed by or through the federal government itself. “I have to represent my district. My district has five percent unemployment. My district is right here in the shadow of the nation’s capital and it’s filled with federal employees and people who work for federal contractors and lots of other people. And within reason they are absolutely sympathetic to the need for jobs for people in other districts who aren’t so fortunate. But, remember, they’re the ones being asked to foot the bill,” he said — though his constituents are also being paid from the proceeds of that bill. “And they want to know that if we’re going to be doing that, that it’s balanced with prudent fiscal stewardship and with some attention to the red ink we inherited. And given the fact that that’s not in tonight’s bill and I asked for it two or three weeks ago, I cannot bring myself to vote for this bill. Reluctantly,” he said. Peering back into the chamber, Connolly noticed Pelosi and several aides watching him. “They’re looking at me. I’ve gotta go.”

Read the full article →

Vivus Erection Drug Avanafil Helps Men in 30 Minutes, Company Study Says

November 18, 2009

By Rob Waters Nov. 18 (Bloomberg) — Vivus Inc ., an unprofitable biotechnology company, said its experimental impotence drug helped men achieve erections in as little as 30 minutes in a study, or about twice as fast as Pfizer’s Inc.’s Viagra. Data showing the drug, called Avanafil, acts quickly will help Vivus seek U.S. permission to enter the $3.7 billion erection-drug market in 2011, said Chief Executive Officer Leland Wilson . Vivus shares rose as much as 12 percent. Wilson said he may introduce Avanafil in early 2012. As many as 322 million men worldwide may have erectile dysfunction by 2025, according to an Oct. 19 report by the American College of Physicians. Avanafil will grab market share because it works faster than the market-leading Viagra, which takes an hour to produce results and Eli Lilly & Co.’s Cialis, which takes about two, Wilson said in a telephone interview. “Patients want on-demand therapy because when the mood is right, the mood is right,” Wilson said. “We’ve shown efficacy in 30 minutes and no one else has done that.” Vivus jumped 48 cents, or 5.6 percent, to $9.05 at 10:06 a.m. New York time in Nasdaq Stock Market composite trading, after earlier touching $9.60. The company had risen 61 percent in the year before today. Avanafil could bring in $350 million by 2015, grabbing about the same market share as Levitra, said Jason Butler , an analyst for JMP Securities in New York, in a telephone interview yesterday. The key, he said, will be for Vivus to find a partner willing to spend money on promotion. Viagra, Cialis, Levitra In 2008, Viagra, made by New York-based Pfizer, the world’s biggest drugmaker, had about half of the erectile-dysfunction market. Cialis, made by Indianapolis, Indiana-based Eli Lilly & Co . had 40 percent and Levitra, made by Germany-based Bayer AG 10 percent. “This is a hugely promotion-driven market,” he said. “Viagra and Cialis win because they have sales reps that call on doctors every day of the week and they spend a huge amount on advertising.” Vivus won U.S. approval for its first erection product Muse in 1996, two years before Viagra was cleared for sale. Muse, a product designed to push erection-boosting medicine into the urethra, was quickly displaced by the little blue pill Viagra. Muse had revenue of $18.05 million last year. Vivus also is competing to introduce a new weight-loss drug for obesity patients with Arena Pharmaceuticals Inc. and Orexigen Therapeutics Inc. , both based in San Diego. The Mountain View, California-based company has said it will seek permission from the Food and Drug Administration to sell the treatment, Qnexa, by the end of the year. Partnership Needed While Vivus needs to form a partnership with a major drugmaker to market its erectile dysfunction pill, Wilson said he may wait to make a deal until the company has completed its clinical trials and submitted its application to the FDA. “As we move forward, it will increase our value,” he said. The Vivus study compared three doses of Avanafil to placebos in 646 patients with erectile dysfunction , a condition that affects 15 to 30 million U.S. men, according to a National Institutes of Health Web site. Before the late-stage study, 12 to 14 percent of men achieved erections that allowed them to have sexual intercourse. Men taking the lowest 50-milligram dose got erections 40 percent of the time, while those taking either the 100 milligram or 200 milligram doses achieved erections 57 percent of the time, according to a Vivus statement. Men taking placebos were able to have sex 27 percent of the time. Visual Distortions None of the patients had visual distortions such as those reported rarely by some Viagra and Cialis patients who said the drug added a blue tinge to their vision, Wilson said. The visual changes on those pills cleared up within a few hours, according to an Indiana University study reported April 13. About 85 percent of patients taking the Vivus drug completed the 16-week study. The most-common side effects were headaches, experienced by 7 percent of the men, facial flushing, experienced by 4.6 percent and nasal congestion, experienced by 2.3 percent. Patients in the study were men older than age 18 who had erectile problems for at least six months and excluded those taking nitrate heart medicines. Men using these medicines are also warned not to take the erectile dysfunction drugs on the market. Trials are under way for patients whose erection difficulties are linked to their diabetes , one of the most common causes of impotence, and for men who had surgery for prostate cancer, Wilson said. Viagra works within 30 minutes to 2 hours, according to prescribing information on the drug’s label. The median time to effectiveness is 60 minutes. Cialis, when taken as needed, can work within 30 minutes to 6 hours, according to prescribing information , with effectiveness achieved after a median of 2 hours. The drug can also be prescribed for daily use. To contact the reporter on this story: Rob Waters in San Francisco at rwaters5@bloomberg.net .

Read the full article →

Vivus Drug Helps Men Get Erections in 30 Minutes, Faster Than Competitors

November 18, 2009

By Rob Waters Nov. 18 (Bloomberg) — Vivus Inc ., an unprofitable biotechnology company, said its experimental impotence drug helped men achieve erections in as little as 30 minutes in a study, or about twice as fast as Pfizer’s Inc.’s Viagra. Data showing the drug, called Avanafil, acts quickly will help Vivus seek U.S. permission to enter the $3.7 billion erection-drug market in 2011, said Chief Executive Officer Leland Wilson . Vivus shares rose as much as 12 percent. Wilson said he may introduce Avanafil in early 2012. As many as 322 million men worldwide may have erectile dysfunction by 2025, according to an Oct. 19 report by the American College of Physicians. Avanafil will grab market share because it works faster than the market-leading Viagra, which takes an hour to produce results and Eli Lilly & Co.’s Cialis, which takes about two, Wilson said in a telephone interview. “Patients want on-demand therapy because when the mood is right, the mood is right,” Wilson said. “We’ve shown efficacy in 30 minutes and no one else has done that.” Vivus jumped 48 cents, or 5.6 percent, to $9.05 at 10:06 a.m. New York time in Nasdaq Stock Market composite trading, after earlier touching $9.60. The company had risen 61 percent in the year before today. Avanafil could bring in $350 million by 2015, grabbing about the same market share as Levitra, said Jason Butler , an analyst for JMP Securities in New York, in a telephone interview yesterday. The key, he said, will be for Vivus to find a partner willing to spend money on promotion. Viagra, Cialis, Levitra In 2008, Viagra, made by New York-based Pfizer, the world’s biggest drugmaker, had about half of the erectile-dysfunction market. Cialis, made by Indianapolis, Indiana-based Eli Lilly & Co . had 40 percent and Levitra, made by Germany-based Bayer AG 10 percent. “This is a hugely promotion-driven market,” he said. “Viagra and Cialis win because they have sales reps that call on doctors every day of the week and they spend a huge amount on advertising.” Vivus won U.S. approval for its first erection product Muse in 1996, two years before Viagra was cleared for sale. Muse, a product designed to push erection-boosting medicine into the urethra, was quickly displaced by the little blue pill Viagra. Muse had revenue of $18.05 million last year. Vivus also is competing to introduce a new weight-loss drug for obesity patients with Arena Pharmaceuticals Inc. and Orexigen Therapeutics Inc. , both based in San Diego. The Mountain View, California-based company has said it will seek permission from the Food and Drug Administration to sell the treatment, Qnexa, by the end of the year. Partnership Needed While Vivus needs to form a partnership with a major drugmaker to market its erectile dysfunction pill, Wilson said he may wait to make a deal until the company has completed its clinical trials and submitted its application to the FDA. “As we move forward, it will increase our value,” he said. The Vivus study compared three doses of Avanafil to placebos in 646 patients with erectile dysfunction , a condition that affects 15 to 30 million U.S. men, according to a National Institutes of Health Web site. Before the late-stage study, 12 to 14 percent of men achieved erections that allowed them to have sexual intercourse. Men taking the lowest 50-milligram dose got erections 40 percent of the time, while those taking either the 100 milligram or 200 milligram doses achieved erections 57 percent of the time, according to a Vivus statement. Men taking placebos were able to have sex 27 percent of the time. Visual Distortions None of the patients had visual distortions such as those reported rarely by some Viagra and Cialis patients who said the drug added a blue tinge to their vision, Wilson said. The visual changes on those pills cleared up within a few hours, according to an Indiana University study reported April 13. About 85 percent of patients taking the Vivus drug completed the 16-week study. The most-common side effects were headaches, experienced by 7 percent of the men, facial flushing, experienced by 4.6 percent and nasal congestion, experienced by 2.3 percent. Patients in the study were men older than age 18 who had erectile problems for at least six months and excluded those taking nitrate heart medicines. Men using these medicines are also warned not to take the erectile dysfunction drugs on the market. Trials are under way for patients whose erection difficulties are linked to their diabetes , one of the most common causes of impotence, and for men who had surgery for prostate cancer, Wilson said. Viagra works within 30 minutes to 2 hours, according to prescribing information on the drug’s label. The median time to effectiveness is 60 minutes. Cialis, when taken as needed, can work within 30 minutes to 6 hours, according to prescribing information , with effectiveness achieved after a median of 2 hours. The drug can also be prescribed for daily use. To contact the reporter on this story: Rob Waters in San Francisco at rwaters5@bloomberg.net .

Read the full article →

Market Rally Feeds Optimism at Annual REIT Confab

November 18, 2009

Participants in last week’s annual NAREIT convention in Phoenix described the mood in terms ranging from hopeful to full-on ebullience — adjectives not often used for the past two years with respect to most gatherings of commercial real estate professionals…

Read the full article →

Jessica Rovello: Attention Walmart Corpses!

November 16, 2009

A few weeks back Walmart quietly added a new product to their website – caskets. That’s right, I said caskets — as in where dead people sleep. I know that all things vampire are the hottest thing these days (Twilight, True Blood) but with Walmart now involved I think we can declare that death has officially jumped the shark. So why would Walmart.com enter a space that’s traditionally been left to funeral homes and the Adam’s family? I suspect one of two things has happened. Either Walmart did a marketing study and found that the Goth community is terribly underserved or they realized that death was the one stage of life that they had yet to monetize. After all, not everyone registers for a wedding or needs a garden hose, but everyone dies. A product becomes hard to resist when everyone needs it at some point. To be fair, Walmart is following Costco.com’s lead on this. Costco.com added caskets to their product list two years ago. More recently Costco started featuring caskets in store. I don’t know about you, but nothing gets me in the mood to buy a 160 oz jar of mayo like a nice coffin. Never to be undersold or outdone, Walmart had no choice but to get in the game. Is there really anything wrong with America’s biggest discount retailers dealing in death? I suppose not. After all, if the product is defective or the materials are asbestos laden your customers certainly won’t be calling to complain. The only real hiccup is how to offer something so creepy without it appearing to be so, um, creepy. Seeing as how this is a pretty sensitive marketing issue, I thought I’d check out both sites and do a little comparison shopping. I must say, Walmart.com has come out of the gate strong. They have a larger selection (fourteen coffins to Costco.com’s seven) with prices starting at under $1,000. Quite a nice range too, with one model titled (I kid you not) “Executive Privilege” and another adorned with The Pieta and The Last Supper. As for creepiness, they’re both doing a super job. Costco.com’s FAQ page asks “Can you order a casket for pre-planning purposes?” (the answer is “yes”), while Walmart.com places their coffins in the “For the Home” section. Maybe they should consider changing their tagline to “Save money. Die better.”

Read the full article →

Darling Asks U.K.’s Four Biggest Banks to Stop Paying `Automatic Bonuses’

September 28, 2009

By Robert Hutton Sept. 28 (Bloomberg) — Chancellor of the Exchequer Alistair Darling today begins an effort to crack down on bonus payments made by Britain’s biggest banks to end what he calls “greed and recklessness” in the financial system. Darling will tell the ruling Labour Party’s annual conference today that he’s weeks away from proposing legislation imposing higher capital requirements on banks with pay policies that regulators deem too risky. He also will meet directors of Britain’s four biggest banks, asking them to change the way they compensate staff before the new law is enacted, his office said. “Let me assure the country and warn the banks that there will be no return to the business as usual,” Darling will say in his speech, according to excerpts of his speech released by his office. “We will introduce legislation to end the reckless culture that puts short-term profits over long term success. It will mean an end to automatic bank bonuses year after year.” Prime Minister Gordon Brown’s government is attempting to shore up support among voters by attacking the practices it blames for causing the worst recession since World War II. With the next election due by June, Labour’s support is tied with the Liberal Democrats, the third-biggest party, 15 points behind the Conservative opposition, a ComRes Ltd. poll today shows . Meetings Scheduled This week, Darling will speak to Richard Broadbent , chairman of Barclays Plc’s remuneration committee, along with Colin Buchan of Royal Bank of Scotland Group Plc , Mark Moody- Stuart of HSBC Holdings Plc and Wolfgang Berndt of Lloyds Banking Group Plc . His proposals are based on an agreement among leaders of the Group of 20 nations last week. Brown yesterday told the BBC the proposed Business and Financial Services Bill will “ban the old bonus systems.” He also pledged a Fiscal Responsibility Bill that would require future governments to cut the deficit. Those steps are meant to reassure bond investors that the Treasury is serious about reducing the deficit, which it expects to surpass 12 percent of gross domestic product next year, the most in the G-20. That forecast prompted Standard & Poor’s in April to threaten a downgrade for Britain’s AAA credit rating. “What you will get, as the chancellor has made very clear to you, in the pre-budget report is greater clarity — greater reassurance and a demonstration that what we are prepared to do is commit ourselves to fairness and protection of frontline services,” Business Secretary Peter Mandelson told BBC radio. He said regulation of banks should have been “more intrusive” and that the U.K. depends too much on financial services and should stimulate other parts of the economy. Conservative View Conservatives questioned whether the government, which spent the first half of the year insisting that no spending cuts were needed, is serious about reining in the deficit. “The idea that Gordon Brown can reinvent himself as the guardian of the nation’s finances after doubling the national debt and spending the whole year opposing anyone who said that borrowing was getting out of control is the latest attempt to treat the public like fools,” said George Osborne , the Conservative lawmaker who speaks on finance. Brown also is seeking to reassure Labour supporters that he’s the right person to lead the party into the next election, which must be called by June 2010. The ComRes survey in the Independent newspaper found voters said they preferred every one of the possible alternative Labour leaders to Brown. “This is the last chance for the Labour Party to go into an election with a new leader,” said Ivor Gaber , professor of political campaigning at City University. “If Brown is seen to have a good conference, Labour members of Parliament may shrug their shoulders and let him continue. If he has a bad conference there is still time to elect a new leader.” Unease in Labour There are signs of unease about Brown’s leadership coming from his own Cabinet. Darling compared the party to a losing sports team when he spoke to the Observer in an interview published yesterday. “Their heads go down, they start making mistakes, they lose the will to live,” Darling told the newspaper. His office confirmed the comments, saying that Darling had immediately added that the mood at the top of the party had been “more buoyed up and enthusiastic” in recent weeks. Brown said he wouldn’t step aside, denying problems with his health or that he’s using painkillers or antidepressants. “This is not a battle about me,” Brown said in a question and answer session with party activists yesterday. It is a “fight for the values” Labour believes in, he said. Poll Readings The ComRes survey of 1,003 adults showed Labour and the Liberal Democrats both with the support of 23 percent of voters compared with 38 percent for the Conservatives. No error margin was given. At the 2005 election, Labour won six times as many parliamentary seats as the Liberal Democrats. Potential challengers to Brown yesterday remained loyal to the prime minister. Climate Change Secretary Ed Miliband said Labour “can triumph over adversity.” Education Secretary Ed Balls called for the party to unify and fight for its values against the Conservatives. “We want more fighters not quitters,” Balls told BBC radio yesterday. “We can win this election. If we believe in ourselves and have a go, we can go out and win this election.” To contact the reporter on this story: Robert Hutton in Brighton at rhutton1@bloomberg.net

Read the full article →

Brown Plans Law to Cut Record U.K. Budget Deficit, Will Maintain Spending

September 27, 2009

By Robert Hutton Sept. 27 (Bloomberg) — British Prime Minister Gordon Brown will push through legislation setting out how the U.K. will cut its record budget deficit as the country emerges from recession. “We will be maintaining public investment in recession as long as there’s a need to ensure the economy is strong,” Brown told the BBC’s Andrew Marr Show in Brighton, where his Labour Party begins its annual conference today. “Then we will be cutting waste, getting affordable public pay settlements.” The Sunday Telegraph said the legislation, called the Fiscal Responsibility Bill, will require future governments to reduce the deficit by a set amount every year. The newspaper cited its own interview with the prime minister. The Treasury expects a deficit above 12 percent of gross domestic product next year, a shortfall Brown today defended as necessary to fight recession. He has previously argued the government needs to be flexible in its plans to cut spending to continue stimulating the economy as it moves back to growth. Binding future governments to reduce spending could help reassure debt markets. The Treasury plans to sell a record 220 billion pounds ($350 billion) in debt this year, and Standard & Poor’s has threatened to downgrade Britain’s AAA credit rating. “The idea that Gordon Brown can reinvent himself as the guardian of the nation’s finances, after doubling the national debt and spending the whole year opposing anyone who said that borrowing was getting out of control, is the latest attempt to treat the public like fools,” George Osborne , Treasury spokesman for the opposition Conservatives, said in an e-mailed statement today. Banker Bonuses The government’s final legislative program before the next election, due by June 2010, will also contain new laws covering banks and bonuses, Brown said. “We will have a new Business and Financial Services Act as well,” he told the BBC. “That will ban the old bonus systems. We’re not going to allow in any way a return to the old days when people justified these big bonuses and we found they were based on speculation.” The Labour conference is also the last before the next general election. Polls put the party on course to lose, with one pressure group publishing an analysis that showed the party could never regain power. Compass, which argues that Labour should impose caps on high pay and raise taxes, said plans by the Conservatives to reduce the number of members of parliament and change funding rules would hurt Labour and make it difficult to win back power. ‘Heads Go Down’ Chancellor of the Exchequer Alistair Darling will address the Labour conference tomorrow. In an interview with the Observer newspaper today, he compared the party to a losing sports team. “Their heads go down, they start making mistakes, they lose the will to live,” he said. His office confirmed the comments, saying that Darling had immediately added that the mood at the top of the party had been “more buoyed up and enthusiastic” in recent weeks. When he addresses members on Sept. 29, Brown said he would urge his party not to give up. “This party has got to fight,” he told the BBC. “I’ve had to fight for everything I’ve got. A setback can either be a challenge, or you roll over. I do not roll over.” Brown also said he didn’t use painkillers or antidepressants. A recent test of his good eye had showed his sight wasn’t deteriorating, he said. To contact the reporter on this story: Robert Hutton in London at rhutton1@bloomberg.net

Read the full article →

Your Table Awaits You at Nobu, Ducasse, Ramsay, Robuchon: Richard Vines

September 25, 2009

By Richard Vines Sept. 25 (Bloomberg) — If you have something to celebrate or you’re just in the mood for gastronomic indulgence, now might be a good time to try a fashionable London restaurant. How difficult can it be to get a booking when expense accounts are being squeezed, bonuses are shrinking, jobs are disappearing and conspicuous consumption is a Starbucks coffee? The short answer is: Not easy. During 90 minutes on Wednesday morning, I called 20 London eateries seeking a table for two at 8 p.m. today. Two said fine. Some offered other time slots. Marcus Wareing at the Berkeley offered Jan. 22, 2010. It’s even harder than when I did a similar survey on Jan. 14. Here’s what happened this time around: Alain Ducasse at the Dorchester: “Will 6:30 p.m. do for you, sir? Friday is a really busy day for us. No? All right, I have something at 8 p.m. for you.” Bocca di Lupo: “I haven’t anything left in the middle of the evening. I could do 6 p.m. or 10:15 p.m. if you sit at the counter. For a table, I’m afraid you’d need to book four or five weeks in advance.” Le Caprice: “I don’t have a table, I’m afraid, only at the bar. For a table, it would be 6 p.m.-8 p.m. or 10:30 p.m. Our reservations book is open all year. We tend to get booked up, so I can’t really say how early you’d need to call.” Dinings: “I don’t have anything. I only have a table from 6 p.m.-8:30 p.m. Nothing later. I could do Oct. 2.” Fat Duck (Bray): “The restaurant is now fully booked for lunch and dinner for the next two calendar months.” Le Gavroche: “I’m sorry, we’re fully booked. Shall I put you on a waiting list? For Friday and Saturday nights, I’d say you need to book one month in advance, or two.” Goodman: “That would be absolutely fine.” Gordon Ramsay: “To be honest, most Fridays are full. There’s a 6:30 p.m./6:45 p.m. on Oct. 30. That’s the only availability for two.” Hakkasan: “I don’t have a table. It’s going to be 6 p.m.-8 p.m. or late in the evening, at 10:45 p.m. For 8 p.m., it’s going to be at least a couple of weeks.” Hibiscus: “We’re fully booked on Friday night. On Oct. 2, I have a table at 9:15 p.m.” The Ivy: “It’s going to be 7:15 p.m. and I’m going to need that back at 9:30 p.m. Otherwise, I can do 10:30 p.m. It’s going to be four to six weeks in advance for 8 p.m. or 8:30 p.m.” Locanda Locatelli: “For Friday, at the present time, I’ve only got 10:30 p.m. Would you like me to call you if something comes up? For Fridays and Saturdays, you need to call three to four weeks in advance.” Marcus Wareing at the Berkeley: “I’m afraid we’re fully booked. I am able to put your details on the waiting list if you like. Fridays and Saturday are our busiest nights and we take bookings six months in advance. I have something on Jan. 22. That would be 7:30 p.m. or 9:30 p.m.” Murano: “We’re completely full at the moment. We’ve got Oct. 9 at 10:15 p.m. For 8 p.m. on a Friday, the first I’d be able to offer you is Friday, Nov. 13.” Nobu: “We don’t have anything around 8 o’clock. We’ve got 9:45 p.m. or 6:30 p.m. or we can put your details on the waiting list if you like. We can do the following Friday, which is Oct. 2, for two people at 8 o’clock. River Cafe: “We are fully booked. We usually recommend a month ahead for the weekend.” Roka: “Not at 8 p.m., I’m afraid. We have a table at 6:30 p.m. or 10:30 p.m., nothing in between. Even the following Friday, the availability is 6:30 p.m. or 9:30 p.m. For 8 p.m., you’re looking at Oct. 9.” Scott’s: “Only 10 p.m. now sir. Oct. 2? It’s only early or late or I could do two at the bar at 8:30 p.m.” Terroirs: “I have only 5:30 p.m. and 9:30 p.m. For 8 p.m., you’d need to call at least three or four days before.” Wolseley: “I’ve got an 8:30 p.m.-10:30 p.m. that I can do for you on Friday night. Would that work for you? I’ve also got a 7 p.m. I could do 8 p.m. on Oct. 2.” ( Richard Vines is the chief food critic for Bloomberg News. Opinions expressed are his own.) To contact the writer on the story: Richard Vines in London at rvines@bloomberg.net .

Read the full article →

Silver lining seen in declining commercial real estate prices (Las Vegas Sun)

September 25, 2009

Short-term pessimism and long-term optimism sum up the mood about Las Vegas’ commercial real estate.

Read the full article →

Steve Parker: "Clunker" program over, but private versions sprout

August 27, 2009

Washington’s CARS Program (the clunker law) is officially over, after moving somewhere between 700,0000 and 750,000 new cars and trucks off showroom floors. Considering your point-of-view, the program has been either a wild success or just another step on the way towards Obama Socialism (when will your neighborhood’s Clunker Panel show up at your front door and demand you get rid of your old car and buy a new one, and with the law on their side, too?). But something we predicted here weeks ago seems to be coming true: on their own, dealers are offering their own versions of the clunker program. I saw one TV ad yesterday in southern California for a local dealership offering up to $2,500 for a traded-in “clunker” (here’s a pertinent story we found: http://www.wkyc.com/news/news_article.aspx?storyid=120481 ). The parameters for these private programs will certainly be different from the federal program, so check carefully before getting involved in any deal you may not fully understand. These programs won’t be based on a 136-page law, as was CARS, but a much more casual way for buyers to feel better about their purchase. As of today (Thursday), no car-maker has yet jumped into the “private clunker” pool, but it won’t be a surprise when it happens (and we say it will). And any dealer or car-maker considering starting their own clunker operation must make their mind up to do so fast … the public has a way of forgetting what happened yesterday, much less last week, and jumping-in now will allow the dealer or manufacturer to take advantage of the great momentum the fed program has created. There’s no argument about this: CARS brought millions of people into dealerships who wouldn’t otherwise have been considering a new-car buy, and, consumer confidence has taken a jump in the past month, something analysts credit to the program putting a lot of us in the mood to buy. What these private programs really will be are enhanced rebate deals. There won’t be any rules about having to junk your old car, disable the engine, etc. The dealer (possibly with help from the car-maker) will just be tossing some more money on the hood of the old car you’re trading in. Let’s take a moment and quietly praise Lee Iacocca for his creation of the “buy a car, get a check” rebate … the industry’s first. He’d just been fired from his position as President of Ford Motor Company and quickly went cross-town to ailing Chrysler (for a salary of $1 a year), where a radical program like rebates turned out to be just what the doctor ordered. If you’re a car company or dealer exec, you might not feel so warm and fuzzy about Iacocca’s invention, which has become common in every retail industry worldwide. Consumers sure responded in a big way. And like rebate junkies, none of us expects to pay anything near the sticker price for a new car or truck anymore. Or just about anything else, for that matter. Which brings up one of the most closely-guarded secrets in all of industry and government: what it really costs to build a new car. For example, rumors said that once Ford had paid-off the development and tooling of the original Explorer SUV, which probably took between the initial two and three years of sales, the company was clearing something in the neighborhood of $15,000 on each unit sold. And at its height, Ford was selling more than 1,200 Explorers a day. Yep, a day. Even with my lousy math skills, I know that’s a hell of a lot of money coming into Ford’s coffers. As we’re located in southern California, it seems right to compare the car industry with the movie business with their arcane complications and methodologies of determining a product’s costs and profits (and losses and taxes and write-offs). Both businesses take years of “pre-production” and by the time a car makes it to the showroom or a film to your local screen, thousands of people and hundreds of companies may have been working full-time for years on it — and often after all that work and time and money the project either never gets off the ground or is a bomb. Keep in mind, also, that car dealers buy their cars and trucks from their respective factories; they have to get financing and pay back those loans just like we do. And dealers and car-makers have at least as many rebate and other money-saving deals and bonuses between them as dealers offer the public. Our point is that by the time the customer sees the Monroney sticker on the new car with the MSRP, the Manufacturer’s Suggested Retail Price, that number has little to do with the actual cost of the car or even what the dealer intends to sell it for. The all-important number is what the dealer will ultimately pay the factory for that vehicle. Even with the incredible amount of information about new and used car-buying and -selling on the Web, the actual cost of shepherding a car along from an idea to a concept and prototyping then to showroom floor and the garages of America remains a true mystery. Just be assured that even with all the clunker programs and rebates and 0% down and free regular maintenance and roadside service and all the other deals, a lot of people are still making a lot of money in the auto industry. With every new deal, every new “financial product,” every new price adjustment in the consumer’s favor and adding what were formerly expensive options as standard features, we might actually be paying closer than ever to the actual cost of the car. Some of you might think that how the price of cars has far out-stripped the cost of inflation is also something the industry needs to deal with, too. Let us know what you think about what dealers and car-makers should be doing “post-clunker” — we know for a fact that top industry people stop by here almost daily and my opinions pale in importance to what you, the sophisticated and educated car-buyer, has to say. So let them have it. How should we be buying cars in the 21st century? Should the car-makers be allowed to own their own dealerships? Should new cars and trucks be bought outright on the Web, delivered by flatbed truck to your home or office, using a system which means you never have to set-foot in a dealership? Should groups of dealers be allowed to band together and create “service supercenters” outside of town, a place where warranty and repair work is done, but a place which the customer never needs to see? Even with GM’s revolutionary use of eBay, allowing customers in California to bid online for various GM makes and models, that customer still has to take delivery of the car or truck at a brick-and-mortar dealership. In future posts, we’ll take a look at how Nissan, through their Infiniti luxury “channel,” and Mazda, with their proposed luxury division code-named Amati, both had great opportunities to change the landscape of auto dealing (and servicing) in the US, but choose instead to stick with the status quo. The auto industry is leaving its exuberant teenage years. Now it needs guidance from you, the adults.

Read the full article →