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Announces: Plans for 2013 Drag Racing Team

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Viper Powersports Announces: Colbert Seagraves Joins Viper Motorcycle Company as VP Racing Operations

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Dan Solin: Your 401(k) Plan Could Be Illegal

by Dan Solin on May 18, 2011

Huffington Post…

401(k) plans are a great deal for employers. Their cost is subsidized by brokers and advisers, at the expense of the plan participants (employees), who are supposed to be the primary beneficiaries. Let me give you a little primer on 401(k) plans. The plan sponsor (typically the employer) is a “fiduciary” to plan participants This means it is supposed to act in the best interest of those participants. Nice theory. The reality is quite different. It is in the best interest of plan participants to have investment options in their plan that will generate the highest rates of return at the lowest cost. Based on reams of academic data, only index funds (including ETFs) meet this criteria. They are much lower cost than actively managed funds (where the fund manager attempts to beat the returns of a designated benchmark). The majority of actively managed funds underperform their benchmark index over the long term. It is impossible to discern which of the outperforming actively managed funds will repeat their outperformance in the future. In fact, outperformance over most five year periods seems to be a positive indicator of underperformance in the ensuing period. A 401(k) plan consisting only of a broad range of low management fee stock and bond index funds is in the best interest of plan participants. An even better option would be for the plan to offer broadly diversified portfolios of these funds for varying risk levels (from conservative to aggressive). Few employees have the ability to put together a risk adjusted portfolio in an appropriate asset allocation (the division of their portfolio between stocks bond and cash) on their own. Few 401(k) plans offer these options. Indeed, as Ron Lieber discussed in a recent article in The New York Times , most 401(k) plans don’t even offer a decent array of index funds. He notes that only 37 percent of plans offer index funds covering a broad domestic stock index, a broad international stock index and a broad domestic bond index. As I recommended in The Smartest Investment Book You’ll Ever Read , with just these three funds, investors can put together a portfolio that has historically outperformed the returns of 95 percent of professionally managed money. The reason for excluding index funds is simple. Index funds don’t pay brokers, advisers or insurance companies a kickback (known as “revenue sharing payments”) which are the price of admission to the plan’s lineup of investment options. Lieber raises the issue of whether the absence of an array of index funds in 401(k) plans might violate the fiduciary duty of the plan sponsor. He concludes that no Court has directly addressed this issue, but encourages plan sponsors to take prompt remedial action before it is too late. Lieber correctly notes that a Court is unlikely to conclude the absence of index funds is illegal. A combination of world class lawyers retained by the securities industry and recalcitrant judges, reluctant to roil a huge retirement plan system, is the perfect storm for plan participants. Legalities aside, what about the moral and ethical issues? The present system subsidizes the cost for employers and eviscerates the savings of plan participants. Many forward thinking employers believe this is simply wrong. They are changing their plans and retaining advisers who fully disclose their fees, take no compensation from mutual fund families, and populate their plans with investment options that are really in the best interest of plan participants. As Lieber notes, you are not powerless. Approach your plan administrator and insist your plan include a broad array of index funds. Even better, lobby for an all-indexed plan. When you approach retirement, you will reap the fruit of your efforts. The views set forth in this blog are the opinions of the author alone and may not represent the views of any firm or entity with whom he is affiliated. The data, information, and content on this blog are for information, education, and non-commercial purposes only. Returns from index funds do not represent the performance of any investment advisory firm. The information on this blog does not involve the rendering of personalized investment advice and is limited to the dissemination of opinions on investing. No reader should construe these opinions as an offer of advisory services. Readers who require investment advice should retain the services of a competent investment professional. The information on this blog is not an offer to buy or sell, or a solicitation of any offer to buy or sell any securities or class of securities mentioned herein. Furthermore, the information on this blog should not be construed as an offer of advisory services. Please note that the author does not recommend specific securities nor is he responsible for comments made by persons posting on this blog.

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Dan Solin: Your 401(k) Plan Could Be Illegal

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Lease Up: Amy’s Kitchen Selects Greenville, SC, for $63 Mil. Investment

May 16, 2011

Amy’s Kitchen, a leading maker of natural and organic convenience foods, will establish a new production facility in Greenville, SC. The $63 million investment is expected to generate more than 700 new jobs over the next six years. “We are pleased to move forward with our plans to locate a new facility in South Carolina, allowing us to expand production capacity and more easily and efficiently reach customers and markets all along the East Coast…

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China Overseas Land Plans USD500m real estate fund

March 7, 2011

China Overseas Land Plans USD500m real estate fund

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Perla Group International Expands Its Reach & Names Three New Senior Managers

February 1, 2011

Opening of Offices in Brazil, Nigeria and Australia — Industry Veterans Join Perla Group International Team to Support Aggressive Company Growth Plans

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David Isenberg: PD-62 and PSC

December 28, 2010

Ever hear of the JFC Civil-Military Fusion Center ? Yes, neither had I, until an acquaintance emailed me the other day about it. It is a shop set up under the Joint Forces Command which is headquartered at Norfolk, VA. Reportedly it does excellent unclassified work. Earlier this month it released its monthly Afghanistan report titled, ” The Private Security Companies (PSCs) Dilemma in Afghanistan .” The report examines the impact of Afghanistan Presidential Decree No. 62 and the disbandment of PSCs. As this is a topic that has been much in the news of late, even though the Afghan government has somewhat rolled back its previously issued ban, it is worth looking at. A point that should surprise no one is that private security contractors are still heavily needed in Afghanistan. Nevertheless, private companies carrying out development projects in Afghanistan are still heavily reliant on PSCs. ISAF forces and the US also make great use of PSCs. According to the US Department of State, the US Department of Defense (DoD) was responsible for hiring 16,733 private guards to support the military efforts on the ground during Fiscal Year 2010. Of course, that is not all the PSC. The Afghan government estimates that there are in fact around 40,000 armed security contractors active in Afghanistan. The background to PD 62 was that it was issued at a tense time for security in Afghanistan, as the Afghan National Police (ANP) still lacked the capacity to assume full responsibility for providing security in the country. The decision to disband private security firms was made one week after it was agreed that control over security in Afghanistan would be transferred to the Afghan authorities by 2014. PD 62 mandated that all current PSCs should leave the country within four months of the decree’s approval, which would have made the deadline December 17. But given that private companies doing reconstruction work did not trust the ANP and that just two months after the president’s decision, in October, firms had already begun to cancel assistance programs and aid Karzai softened his position on the ban. On October 27, Karzai issued a press release on the formation of a committee led by the Ministry of Interior along with participating representatives from the International Security Assistance Force and major international donors. The committee was mandated to develop a plan for the disbandment of PSCs responsible for guarding development projects. However, on December 6, Karzai had abandoned his plans “to scrap private security firms in the country by mid-December. But there are still challenges ahead. Despite the decision to allow PSCs to continue operating in Afghanistan, the Afghan government left important details regarding security companies in doubt. Under the modified policy, security firms working for development companies, NATO, foreign embassies and the United Nations would be allowed to work in Afghanistan until their contracts ended, but it was unclear what would happen after the expiration date. Other new developments include private guards being required to wear uniforms and not being allowed to stop vehicles or set up roadblocks. It also indicated that a new independent public security force would be created to replace the PSCs already shut down and secure the development projects under their responsibility. However, convoy security would continue to be provided by private security firms, but the Afghan police would accompany the convoys to ensure that security firm employees were not misbehaving. So currently we have a situation where many observers: agree that the disbandment of PSCs is necessary to institutionalize the Afghan security sector and to contribute to strengthening institutionalization within the Afghan government. Nevertheless, how PSCs will work from now on remains unclear and further discussions ought to take place.

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Financial Crisis Panel In Turmoil As Republicans Defect; Plan To Blame Government For Crisis

December 15, 2010

The four Republicans appointed to the commission investigating the root causes of the financial crisis plan to bypass the bipartisan panel and release their own report Wednesday, according to people familiar with the commission’s work. The Republicans, led by the commission’s vice chairman, former congressman and chair of the House Ways and Means Committee Bill Thomas, will likely focus their report on the explosive growth of subprime mortgages and the heavy role played by the federal government in pushing mortgage giants Fannie Mae and Freddie Mac to purchase and insure them. They’ll also likely focus on the Community Reinvestment Act, a 1977 law that encourages banks to lend to underserved communities, these people said. The Republicans’ report is expected to conclude that government policy helped inflate the housing bubble and that prices weren’t expected to crash because the government pushed homeownership so aggressively. They say that the report will note that once the bubble burst, a financial panic followed because firms weren’t adequately prepared. Frustrated in part by the Financial Crisis Inquiry Commission’s chairman, Phil Angelides, and the tenor of the panel’s preliminary findings, the Republicans are choosing to ignore the five Democrats and lone independent and issue their document ahead of the commission’s Jan. 15 release. Angelides is described as a demanding boss who’s said to be difficult to work for. Both Thomas and Angelides pledged in January that they’d strive to reach bipartisan consensus. The Republicans’ move indicates that the highly-partisan nature of Washington has infiltrated the commission’s work and threatens to derail it. With four commissioners now essentially going around the panel to describe their thoughts on the roots of the financial crisis, the public may not get the full picture when it comes to understanding how the actions of a few led to the worst economic downturn since the Great Depression. Instead, the public will receive a report that could be discredited as being partisan, and another that is expected to largely conform with a Wall Street-friendly view that blames government for the crisis. During a private commission meeting last week, all four Republicans voted in favor of banning the phrases “Wall Street” and “shadow banking” and the words “interconnection” and “deregulation” from the panel’s final report, according to a person familiar with the matter and confirmed by Brooksley E. Born, one of the six commissioners who voted against the proposal. “I think a number of us had really pulled for” bipartisan consensus, said Born, a Democratic commissioner who famously tried to regulate certain derivatives as head of the Commodity Futures Trading Commission. “But this action by the Republicans indicates they have decided to go their own way.” Born said the Republicans had not informed the commission of their plans, nor had they shared their report. She said she was “disappointed” because the views of her Republican colleagues would have been “useful.” The other Republicans on the panel are Peter Wallison, a fellow at the American Enterprise Institute, a conservative Washington research organization, who once served as general counsel at the Treasury Department; Keith Hennessey, who formerly served as George W. Bush’s senior economic adviser while heading the National Economic Council and now works as a fellow at the Hoover Institution, another conservative research organization; and Douglas Holtz-Eakin, who formerly led the Congressional Budget Office and now heads the American Action Forum, a policy institute in Washington. The shadow banking system refers to the part of the financial system in which investors and other nonbanks like hedge funds and investment firms provide credit to borrowers, as opposed to more traditional banks. Interconnection refers to the links that bind financial institutions to one another, like derivatives, borrowings, and investments. “I certainly felt, and I think the majority of the commission felt, that deleting those phrases would impair the commissioners’ ability to give a full and fair and understandable report to the American people about the causes of the financial crisis,” Born said. “Certainly, it’s hard to imagine Wall Street wasn’t involved,” she added. Born said that the Republicans wanted to ban two other phrases “of the same ilk,” but she said she couldn’t remember what they were. Thomas and Wallison didn’t immediately respond to e-mails sent after regular business hours. Hennessey and Holtz-Eakin declined to comment. The Republicans’ move puzzled some observers. Thomas displayed populist outrage during public forums at the excessive compensation paid to top bankers. Holtz-Eakin is a respected economist who asked probing questions during the commission’s hearings. Born said that the commission only recently experienced such partisanship. “There was a lot of consensus on the nature of the investigation,” Born said. “All 10 [commissioners] participated in discussions about subjects we should investigate, what our hearings should be about. They all were involved in planning the hearings.” Wallison, though, was expected to dissent. He exhibited sympathy for Wall Street during the panel’s public hearings, declining to grill some executives, an activity some commissioners appeared to relish, and focused instead on the role played by Fannie Mae and Freddie Mac. According to Wallison, as many as half of all home mortgages were given to borrowers with poor credit or who didn’t provide proper documentation, like tax forms and income statements, he said during an April 7 hearing. He attributes this to Fannie and Freddie’s insatiable demand for subprime mortgages, something he blames on the federal government and its desire to stimulate lending to the poor. Experts agree that while Fannie and Freddie and the federal government’s push to encourage homeownership played a significant role in causing the crisis, actions by Wall Street magnified the fallout and caused a crisis that led to the Great Recession. Economists from the Federal Reserve, as well as bank regulators first appointed by Republicans, agree that the Community Reinvestment Act played virtually no role in causing the financial crisis. But the Republicans’ report will largely focus on the role played by the federal government. It will note that a crisis was averted after the government bailed out Bear Stearns and facilitated its absorption by JPMorgan Chase, according to people familiar with the matter. The crisis roared back after the government allowed Lehman Brothers to fail, scaring nervous investors. A bigger and more protracted downturn was avoided when policy makers essentially bailed out the entire financial system. Yet while the commissioners knew of Wallison’s views, the final report would have benefitted from input by the Republicans, Born said. Other than Thomas, the Republicans slowly began limiting their participation in the panel’s activities starting in early August. Hennessey and Holtz-Eakin, for example, have missed about half of the commission’s meetings since then, according to a person familiar with the panel’s activities. And other than Thomas, the Republicans have provided only limited feedback on drafts of the final report’s sections that have been circulated by the panel’s staff, this person said. “All of the commissioners have had the opportunity to review and provide feedback,” said Tucker Warren, the crisis panel’s spokesman. He said he wasn’t aware of any commissioners complaining about a lack of opportunity to address draft findings. The Republicans are expected to complain that the Democrats on the panel are not giving them sufficient options to air their views. Each commissioner is allotted nine pages in the book version to express alternative or dissenting views, should there be any, Warren said. That’s part of the reason why the Republicans are angry, according to people familiar with the matter. However, commissioners will have unlimited space on the panel’s Web site and in the government-printed version of the report that will be delivered to Congress and President Barack Obama, said Warren. Thomas is expected to hold a news conference tomorrow. ************************* Shahien Nasiripour is a business reporter for The Huffington Post. You can send him an e-mail ; bookmark his page ; subscribe to his RSS feed ; follow him on Twitter ; friend him on Facebook ; become a fan ; and/or get e-mail alerts when he reports the latest news. He can be reached at 646-274-2455.

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Financial Crisis Panel In Turmoil As Republicans Defect; Plan To Blame Government For Crisis

December 15, 2010

The four Republicans appointed to the commission investigating the root causes of the financial crisis plan to bypass the bipartisan panel and release their own report Wednesday, according to people familiar with the commission’s work. The Republicans, led by the commission’s vice chairman, former congressman and chair of the House Ways and Means Committee Bill Thomas, will likely focus their report on the explosive growth of subprime mortgages and the heavy role played by the federal government in pushing mortgage giants Fannie Mae and Freddie Mac to purchase and insure them. They’ll also likely focus on the Community Reinvestment Act, a 1977 law that encourages banks to lend to underserved communities, these people said. The Republicans’ report is expected to conclude that government policy helped inflate the housing bubble and that prices weren’t expected to crash because the government pushed homeownership so aggressively. They say that the report will note that once the bubble burst, a financial panic followed because firms weren’t adequately prepared. Frustrated in part by the Financial Crisis Inquiry Commission’s chairman, Phil Angelides, and the tenor of the panel’s preliminary findings, the Republicans are choosing to ignore the five Democrats and lone independent and issue their document ahead of the commission’s Jan. 15 release. Angelides is described as a demanding boss who’s said to be difficult to work for. Both Thomas and Angelides pledged in January that they’d strive to reach bipartisan consensus. The Republicans’ move indicates that the highly-partisan nature of Washington has infiltrated the commission’s work and threatens to derail it. With four commissioners now essentially going around the panel to describe their thoughts on the roots of the financial crisis, the public may not get the full picture when it comes to understanding how the actions of a few led to the worst economic downturn since the Great Depression. Instead, the public will receive a report that could be discredited as being partisan, and another that is expected to largely conform with a Wall Street-friendly view that blames government for the crisis. During a private commission meeting last week, all four Republicans voted in favor of banning the phrases “Wall Street” and “shadow banking” and the words “interconnection” and “deregulation” from the panel’s final report, according to a person familiar with the matter and confirmed by Brooksley E. Born, one of the six commissioners who voted against the proposal. “I think a number of us had really pulled for” bipartisan consensus, said Born, a Democratic commissioner who famously tried to regulate certain derivatives as head of the Commodity Futures Trading Commission. “But this action by the Republicans indicates they have decided to go their own way.” Born said the Republicans had not informed the commission of their plans, nor had they shared their report. She said she was “disappointed” because the views of her Republican colleagues would have been “useful.” The other Republicans on the panel are Peter Wallison, a fellow at the American Enterprise Institute, a conservative Washington research organization, who once served as general counsel at the Treasury Department; Keith Hennessey, who formerly served as George W. Bush’s senior economic adviser while heading the National Economic Council and now works as a fellow at the Hoover Institution, another conservative research organization; and Douglas Holtz-Eakin, who formerly led the Congressional Budget Office and now heads the American Action Forum, a policy institute in Washington. The shadow banking system refers to the part of the financial system in which investors and other nonbanks like hedge funds and investment firms provide credit to borrowers, as opposed to more traditional banks. Interconnection refers to the links that bind financial institutions to one another, like derivatives, borrowings, and investments. “I certainly felt, and I think the majority of the commission felt, that deleting those phrases would impair the commissioners’ ability to give a full and fair and understandable report to the American people about the causes of the financial crisis,” Born said. “Certainly, it’s hard to imagine Wall Street wasn’t involved,” she added. Born said that the Republicans wanted to ban two other phrases “of the same ilk,” but she said she couldn’t remember what they were. Thomas and Wallison didn’t immediately respond to e-mails sent after regular business hours. Hennessey and Holtz-Eakin declined to comment. The Republicans’ move puzzled some observers. Thomas displayed populist outrage during public forums at the excessive compensation paid to top bankers. Holtz-Eakin is a respected economist who asked probing questions during the commission’s hearings. Born said that the commission only recently experienced such partisanship. “There was a lot of consensus on the nature of the investigation,” Born said. “All 10 [commissioners] participated in discussions about subjects we should investigate, what our hearings should be about. They all were involved in planning the hearings.” Wallison, though, was expected to dissent. He exhibited sympathy for Wall Street during the panel’s public hearings, declining to grill some executives, an activity some commissioners appeared to relish, and focused instead on the role played by Fannie Mae and Freddie Mac. According to Wallison, as many as half of all home mortgages were given to borrowers with poor credit or who didn’t provide proper documentation, like tax forms and income statements, he said during an April 7 hearing. He attributes this to Fannie and Freddie’s insatiable demand for subprime mortgages, something he blames on the federal government and its desire to stimulate lending to the poor. Experts agree that while Fannie and Freddie and the federal government’s push to encourage homeownership played a significant role in causing the crisis, actions by Wall Street magnified the fallout and caused a crisis that led to the Great Recession. Economists from the Federal Reserve, as well as bank regulators first appointed by Republicans, agree that the Community Reinvestment Act played virtually no role in causing the financial crisis. But the Republicans’ report will largely focus on the role played by the federal government. It will note that a crisis was averted after the government bailed out Bear Stearns and facilitated its absorption by JPMorgan Chase, according to people familiar with the matter. The crisis roared back after the government allowed Lehman Brothers to fail, scaring nervous investors. A bigger and more protracted downturn was avoided when policy makers essentially bailed out the entire financial system. Yet while the commissioners knew of Wallison’s views, the final report would have benefitted from input by the Republicans, Born said. Other than Thomas, the Republicans slowly began limiting their participation in the panel’s activities starting in early August. Hennessey and Holtz-Eakin, for example, have missed about half of the commission’s meetings since then, according to a person familiar with the panel’s activities. And other than Thomas, the Republicans have provided only limited feedback on drafts of the final report’s sections that have been circulated by the panel’s staff, this person said. “All of the commissioners have had the opportunity to review and provide feedback,” said Tucker Warren, the crisis panel’s spokesman. He said he wasn’t aware of any commissioners complaining about a lack of opportunity to address draft findings. The Republicans are expected to complain that the Democrats on the panel are not giving them sufficient options to air their views. Each commissioner is allotted nine pages in the book version to express alternative or dissenting views, should there be any, Warren said. That’s part of the reason why the Republicans are angry, according to people familiar with the matter. However, commissioners will have unlimited space on the panel’s Web site and in the government-printed version of the report that will be delivered to Congress and President Barack Obama, said Warren. Thomas is expected to hold a news conference tomorrow. ************************* Shahien Nasiripour is a business reporter for The Huffington Post. You can send him an e-mail ; bookmark his page ; subscribe to his RSS feed ; follow him on Twitter ; friend him on Facebook ; become a fan ; and/or get e-mail alerts when he reports the latest news. He can be reached at 646-274-2455.

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Angela Haines: The Next Best Thing

December 14, 2010

Early dreams for a new business took root during the agonizing ten months Army Captain Dawn Halfaker spent recovering from over 20 operations she endured when she was severely injured in Iraq. She had spent five months in Baquba, in the volatile province of Diyalah as a Platoon Leader, charged with training an Iraqi police force. Shortly after midnight in June, 2004, Dawn rolled out in a convoy of 4 humvees on a reconnaissance patrol when her vehicle was hit by a barrage of small arms fire and rocket-propelled grenades. One grenade pierced the engine of Dawn’s vehicle before it burst immediately next to her, leaving her right arm hanging by a piece of skin and a few tendons. Dazed and covered with blood, Dawn still managed to order the driver to flee before lapsing into a coma that lasted twelve days. She awoke as a patient in Walter Reed Army Medical Center in terrible shape: besides burns and lacerations, Dawn suffered 5 broken ribs, a shattered shoulder blade and a deadly infection that almost took her life, and eventually led to the amputation of her right arm. For her heroism, she was awarded a Purple Heart and a Bronze Star. During her recovery, as Dawn began to realize the military career she had desperately wanted since the first day she entered the United States Military Academy at West Point was over, she worried about “losing a sense of purpose.”: I really loved what I was doing. To me the military was a dream job with so much of my life and my identity wrapped up in it. So I was fiercely determined to stay connected to the fellow soldiers I had left behind on the battlefield. Like a good soldier, she switched into survival mode and began to plan the outlines of a consulting business to help the military to seek out new technologies that could save lives or at least lessen injuries, a career path she calls “the next best thing.” After working out of her basement for a year, Dawn landed a contract with the Department of Defense, specifically the Defense Advanced Projects Research Agency, where she led projects researching various technologies ranging from nanotechnology that could make lighter weight body armor to advanced medical devices, such as creating miniature ventilators for use directly in the battlefield to help prevent brain damage from serious injuries. When she began to see the growth potential for her consulting business, Dawn headed back to school to acquire an M.A. in Security Studies from Georgetown University. Her company, Halfaker and Associates, was officially launched in 2006. Located in Arlington, Va, the company provides help with security policy, physical security management services for military bases, administrative and technical support and training. Currently Halfaker and Associates has over 120 employees. For 2010, it expects to post revenues of more than $15 million from services provided to over 20 major clients, mostly governmental agencies. Her biggest client remains the Department of Defense for which her team is currently analyzing how the intelligence data gathered from a variety of sources affects the army and its decision makers as they develop policies and strategies. Another major client is the Department of Homeland Security for which the Halfaker and Associates team offers solutions in the areas of force protection, antiterrorism, emergency management and chemical, biological, radiological, nuclear, and high yield explosive (CBRN) defense. Soon after Dawn launched her business, the economy began to slide. One consequence was that “we got a whole new slew of competitors who began to chase lucrative government contracts for the first time since their former clients were slashing budgets because of the recession.” Her solution was “to continue to seek out exceptional talent so we can offer our clients the best services possible.” As part of her plans for long term growth, 31-year old Dawn Halfaker plans to adopt her company services to the needs of commercial clients for whom she sees rising demand in all areas of security; she also offers in depth capabilities in information technology solutions to help clients with a variety of business problems from website designs to software integration to data management. Currently she spends most of her time on strategic planning and maintaining essential relationships by planning quarterly visits to the sites of her twenty most active programs. She also attends industry events because “you can’t get new business if you don’t put yourself out there.” Recently, Dawn was selected as one of the winners in the 2010 Winning Women program, sponsored by Ernst and Young . Her reward was participation in a 5-day strategic growth forum that brought together 1700 business leaders in Palm Spring in early November. The experience, she said, “made me realized I was pigeon-holed; the blinders were removed as I began to see that there are opportunities everywhere. I developed a much better understanding of how to access the resources I need; it also gave me the ability to understand how to navigate the obstacles we face as I look at my strategic plan for growth.” She also loved the networking with the other winning women which “became the kind of sorority I never had at West Point.” Since the growth forum coincided with Veteran’s Day, Dawn was unexpectedly invited to the stage by the forum leaders to share her combat story. The audience responded with a standing ovation in honor of her courage and determination to accomplish her “next best thing”: running a successful company.

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FOMC Maintains Easy Monetary Stance, Plans to Complete $600 Billion Asset Purchase Program

December 14, 2010

FOMC Maintains Easy Monetary Stance, Plans to Complete $600 Billion Asset Purchase Program

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Merton and Joan Bernstein: Washington Post Budget Hocus Pocus

November 28, 2010

Possibly the most amazing aspect of the Commission on Fiscal Responsibity’s drive to reduce the federal “deficit” are proposals by its chairs and others to cut benefits payable by Social Security, although the program pays its own way and has generated robust annual surpluses, now totaling $2.4 trillion and projected to reach $4.2 trillion. Those assets will enable Social Security to pay its promised benefits in full until 2037 and about 75% thereafter. Two measures that draw strong support in polls — extending the payroll tax to higher pay and slowly increasing the payroll tax rate (1/20th of 1 percent per year for 20 years is one version) — would fully fund the program for 75 years. The program’s own modest shortfall — about 27 years away — is easily fixed with these proposals that the public supports. Moreover, Social Security does not and, indeed, cannot add to the federal deficit: It is permitted to pay benefits only to the extent it has funds on hand and is prohibited from borrowing. Nonetheless, the November 24 Washington Post presented summaries of three “bi-partisan plans to reduce the deficit” which propose multiple Social Security benefit reductions. The commission co-chairs propose to cut benefits for the top 50% of earners (which hits many with quite modest incomes) and to raise retirement age (another benefit cut); both benefit cuts and raising retirement age poll badly. And, despite assurances by reduction advocates that those already retired and nearing retirement would be spared, all three plans would soon trim the annual cost-of-living adjustment (COLA) formula. Advocates claim that a new “chained” COLA would more accurately reflect price increases by taking account of consumer substitution of less costly items in the “basket” used to measure price changes; a favorite illustration is switching from meat to chicken. Decades ago, a book entitled The Poor Pay More demonstrated that consumers in low-income areas have limited choices. Hence substitutions may occur more readily in some economists’ position papers than in local markets, often high-priced “convenience” stores. Moreover, the chained version does not take adequate account of the typically higher medical care costs of older people. Further, the COLA measures the percentage difference in prices between two years ago and last year; the resulting percentage usually lags behind the current year’s typically rising prices. The usual “reform” analysis address costs but seldom considers what benefit reductions mean to retirees, their families and the economy. Deficit hawks seem oblivious to the fact that Social Security provides the largest portion of senior income. And, as people age, their work income, if any, gets progressively smaller and Social Security’s importance becomes commensurately larger. And with advancing age, older people do less for themselves and either pay for services they formerly performed or go without. After the meltdown of value in 401(k)s and IRAs, Social Security has become even more vital than in the past. Meanwhile, the implementation of already enacted higher retirement age means lowered benefits for each new group of retirees. Despite all this, the Bowles-Simpson and bi-partisan formula is “cut, cut, cut.” They seem not to notice that curtailing Social Security recipient income translates into lost purchasing power that further translates into lost sales, that further translates into employee layoffs, that further translates into less purchasing power, snowballing into more and more lost sales revenues and jobs. Another “bi-partisan” proposal would establish a Social Security/Medicare payroll tax holiday in 2011. That would increase the Social Security funding shortfall — a curious thing to do when the claimed justification for surgery on Social Security is to reduce the federal deficit, lower burdens on future taxpayers or to enable Social Security to meet its long-term obligations. Mark that for the “you-gotta-be-kidding” file. To demonstrate willingness to impose “pain” broadly, Bowles-Simpson (some now call it the B-S plan) would eliminate the recipients of ALL “tax expenditures” (that is, tax breaks) with the home owners’ mortgage tax deduction at the head of their list. By focusing on that popular tax break, they practically insure that tax expenditures won’t be touched. File in the “you-can’t-be-serious” category. Most informed observers agree that the budget-killer biggie is galloping health care cost increases besetting public programs, such as Medicare, Medicaid and CHIP (Child Health Insurance Plans), and private medical care insurance. B-S proposes a non-mandatory cap on total Medicare outlays. If that doesn’t work, B-S proposes studying the matter. Where do they find the courage for such bold initiatives? File in the “this-goes-beyond-kidding” folder. One of the “bi-partisan” proposals for Medicare would no longer reimburse patient outlays but would provide prospective patients with “vouchers” but without limiting what providers could charge. File with “solutions-that make things worse.” One would not know from the Washington Post presentation that Democratic Representative Jan Schakowsky, a commission member, offered a comprehensive proposal that did not include benefit reductions, but would curb deficits by imposing limits on defense expenditures (a feature it shares with other plans) and initiate improvements in Social Security revenues that enjoy popular support. The Post presentation notes only that “More partisan efforts approach the problem differently.” Slip this into in the “very informative” folder. In sum, major portions of the Washington Post’s “bi-partisan” proposals carry a fictitious label (that Social Security contributes to deficits) damaging, unnecessary and/or fruitless remedies and offer savings on tax expenditures that are so politically unpalatable as to practically insure rejection. While unlikely, the commission might cobble together the votes for a plan of sorts. But, the slanted, incomplete Washington Post presentation does not hold much promise of realistically addressing the nation’s actual needs to cut flab rather than essentials.

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Technology Credit Union Reinvents Its Commercial and Business Banking Group to Better Serve the High Tech Community

November 16, 2010

The Silicon Valley Credit Union Plans to “Connect” Startups and Young Businesses to Its Ecosystem of Member Companies and Partners

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Charles Harris Joins Access Plans, Inc. as President of America’s Health Care/Rx Plan Agency, Inc.

October 13, 2010

NORMAN, OK–(Marketwire – October 13, 2010) –  Access Plans, Inc. ( OTCBB : APNC ), a leading membership benefits marketing company, today announced the appointment of Charles Harris as President of America’s Health Care/Rx Plan Agency, Inc. (“AHCP”), the Company’s insurance marketing division and subsidiary. 

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Chicago Spire Foreclosure: Lawsuit Filed Against Developer Of Proposed Tallest Tower In U.S.

October 11, 2010

CHICAGO — Plans to build the tallest tower in the nation are in the balance after a lender filed a foreclosure lawsuit against the Chicago Spire’s developer. Crain’s Chicago Business is reporting that Anglo Irish Bank Corp. filed the $77 million lawsuit against Irish real estate developer Garrett Kelleher this month. The lawsuit alleges that Kelleher’s Shelbourne Development Ltd. has defaulted on loans that matured a year ago. Anglo Irish is expected to take possession of the 2.2-acre site overlooking Lake Michigan. The Irish government took over the bank last year. A call seeking comment from Shelbourne Development was not immediately returned Monday. Ground was broken in 2007 for the 2,000-foot Chicago Spire designed by Santiago Calatrava. The site has been dormant since 2008. ___ Information from: Crain’s Chicago Business.

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

October 8, 2010

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

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EPA Fines BP $15 Million For Clean Air Violations

September 30, 2010

HOUSTON — The U.S. Environmental Protection Agency and the Department of Justice fined BP PLC $15 million on Thursday for Clean Air Act violations at its Texas City refinery, adding to the oil company’s troubles as it struggles to clean up the damage caused by its massive Gulf of Mexico oil spill. The fine, the largest civil Clean Air Act penalty given to a U.S. facility, resulted from a settlement between the EPA and BP and is subject to court approval. BP’s Texas City refinery, the company’s largest in the United States, was also fined $87 million by the U.S. Occupational Safety and Health Administration for problems found there after a March 2005 explosion killed 15 people and injured about 170 others. More recently, the Texas attorney general and the EPA launched an investigation into a 40-day benzene leak at the facility. The latest violations resulted from three incidents in 2004 and 2005 that forced Texas City residents to remain indoors while thousands of pounds of flammable and toxic pollutants were released into the air. The settlement also deals with allegations that BP had failed to identify all the regulated air pollutants used at the facility in the plans it submitted to the EPA. BP said in a statement that no injuries or serious illnesses resulted from the leak and two fires mentioned in the settlement. The deal helps BP reduce risks should similar events occur in the future, the statement said. The company also said it has incorporated lessons learned from these events into its training and has expanded its reporting to the EPA. “These are key elements of process safety management and have significantly improved at Texas City over the past several years,” the company said in its statement. Cynthia Giles, an EPA official, said BP has a three-year deadline to make significant changes at the facility and will be required to continually report to the EPA about what is going on there because the agency is “continuing to closely scrutinize this facility.” While the refinery is old and complex, it is not in worse condition than any other. No new refinery has been built in the United States for at least 30 years. Yet the Texas City facility has had more problems than most others, with federal agencies recovering more than $130 million in fines from BP for problems at the plant. In addition, BP pleaded guilty to a criminal violation at the plant related to the 2005 explosion, which “tells you how serious problems are at this facility,” Giles added. “The settlement requires BP to change the way they do business at their Texas City facility,” she said. Ignacia Moreno, an assistant attorney general in the Justice Department’s Environment and Natural Resources division, said the Clean Air Act was designed to prevent fatal accidents and to “penalize companies with poor practices that cause harmful air pollution.” “This settlement reflects the serious nature of the fires and releases of hazardous air pollutants that occurred at BP’s Texas City refinery,” Moreno said.

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Video: Carlyle May Buy Hedge Fund Stake, Push for Liquid Assets: Video

September 17, 2010

Sept. 17 (Bloomberg) — Bloomberg’s Christina Alesci talks about possible plans by Carlyle Group to buy a stake in a hedge-fund manager. The world’s second-largest private-equity firm is negotiating with several firms as it seeks to add more liquid investments, according to three people briefed on the plans. Alesci speaks with Betty Liu, Jon Erlichman and Sheila Dharmarajan on Bloomberg Television’s “In the Loop.” (Source: Bloomberg)

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Gates Starts Detailing Proposed Defense Cuts

September 14, 2010

Defense Secretary Robert M. Gates on Tuesday started laying out some details of his plans to save $100 billion over the next five years as he tries to run the Pentagon more efficiently. Over the past decade, the Pentagon’s spending has averaged a growth rate of 7 percent a year, adjusted for inflation, including the costs of the wars in Iraq and Afghanistan. But that rate is expected to slow to 1 percent as the wars wind down. Money saved in cutting overhead and other inefficient costs on weapons programs will go toward modernizing and recapitalizing military equipment and sustaining troops, Pentagon officials said.

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Bluespring Software Expands Management Team

September 9, 2010

Rich Kurz and Greg Philippe Add Significant Industry Experience to Support Growth Plans

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Ellen Galinsky: We Need Play-cations, Not Just Vacations

September 6, 2010

It’s Labor Day Weekend–the last weekend of summer before we plunge into fall. Hurricane Earl swept up the East Coast, missing us, but bringing cold biting winds that, even amid the bright sunlight, seemed a signal that summer–vacation season–is ebbing and it is back to work we go. That is, if we ever left work. Work, as we all know, can be all-the-time, every-place. A special study on overwork by the Families and Work Institute (FWI) reveals that that one in three of all U.S. employees can be considered chronically overworked. I know the facts about vacations from the FWI’s nationally representative study, the 2008 National Study of the Changing Workforce, and they tell an interesting story. Fact 1: Not all us have access to a paid vacation: 79% of American employees receive paid vacation time from their employers. Fact 2: On average, we are entitled to a little more than two weeks off (16 paid days). Half of the U.S. workforce receives fewer than 15 days. Fact 3: Even when we are entitled to vacations, not everyone takes all of the days he or she has: 39% of us don’t use our full vacations. Americans use an average of 13.5 days of vacation per year. Fact 4: The longest amount of time we take off at one time averages nine days. One in four of us (24%) takes five days or fewer for his or her longest vacation, while 23% take more than 13 days. Fact 5: Taking a longer vacation (13 consecutive days or more, including weekends or holidays) bodes well for our health. Those employees who take longer vacations are less likely to have minor health problems on a regular basis, depression, sleep problems or to feel stressed. These are the facts, but they don’t tell us much about what happens during vacations. Many of us work while on vacations. It seemed almost standard practice this summer to receive a bounce-message to an email I had sent that read: “I am on vacation and don’t have access to email and voice mail,” only to receive a response from that person within a few hours. Still others of us take work on vacations or plan vacations that can be viewed as an extension of our work. So over this past weekend–a busman’s holiday for me for sure–I asked a number of people: “what makes a vacation renew and re-energize you?” Here are some of their responses: They take us away from our usual lives. I know from my research on children for my book, Mind in the Making, how energizing having new experiences can be for children and adults–they heighten our senses; they stimulate our curiosity; and they make us want to explore. Even when that new place is a familiar place, being away from our daily routines is refreshing. For one woman I spoke with, it was not having to cook, do the dishes, go to work, and go to the gym: “it was permission to have fun.” They give us time to think and see things in new ways. A man took a vacation that was a workshop related to his work, but found that he had the time to learn new things so it felt differently than a similar workshop might have felt during the year. We have freedom to go with the flow: A woman who planned her vacation carefully for her husband and children loved the opportunity to change plans at the last minute and to follow their interests. They are pressure-free or at least pressure-different. Obviously, vacations can have their own pressures–the kids who say “Are we there yet;” the plans to go camping or to the beach that are thwarted by a storm; the schedule of activities that can seem rigid; or the car that breaks down and has to be towed. I have had all of these experiences, but it is a different kind of pressure than the daily pressures we face. One man talked about working very hard on his vacation, but still he felt free of the expectations he usually puts on himself or that others put on him. When my children were little, they always called vacations, “play-cations.” As I was listening to the people talk about what makes vacations renew them, I flashed back to my children’s word. Yes, the best vacations are like the best play of children–they give us an opportunity to explore, to have fun, to learn, to go with the flow, and to be in moment. So we need play-cations, not just vacations! An addendum: As I was writing this, I got an email from a friend. She was in an airport en route home from her vacation, which she said was beautiful. Then she wrote, “I really dread re-entering my life.” Her challenge is the challenge of so many of us. We need to find ways of bringing play-cations back from our vacations and keeping them–to whatever extent we can–in our regular lives at work and at home.

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(WSGF) World Series of Golf, Inc. Announces Letter of Intent to Acquire Gaming Entertainment Media

September 2, 2010

LAS VEGAS, NV–(Marketwire – September 2, 2010) –  World Series of Golf®, Inc. ( PINKSHEETS : WSGF ) ( OTCQB : WSGF ) has announced a Letter of Intent (LOI) to acquire Rounder Magazine, a gaming lifestyle magazine distributed to casinos throughout the United States. Last week, World Series of Golf released a Webcast presentation hosted by new CEO Patrick Brown highlighting the Company’s recently filed second quarter results, newly updated business plan and upcoming planned events such as a World Series of Golf revival tournament in Las Vegas this November as well as the plans to acquire Rounder Magazine. The Webcast further discusses the Company’s intellectual property and patent application and is available now for on-demand review at www.worldseriesofgolf.com .

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Ron Ashkenas: Is Your Culture Too Nice?

August 24, 2010

Cross-posted from Harvard Business Online Do you avoid conflict? If you do, you’re not alone. Conflict avoidance is one of the most common characteristics of corporate cultures. At the same time it is one of the most pernicious and dangerous sources of unintentional complexity in organizational life. The tendency to avoid conflict — albeit inconvenient — is very human. Most people want to be liked and unconsciously fear that arguments, disagreements, or negative messages will create tension with people they interact with on a day-to-day basis. Compounded with the environmental pressure to respect authority and the organizational stress on teamwork, this creates a great deal of anxiety around stirring up trouble. Given these psychological and cultural forces, it’s no wonder that so many managers — from CEOs to shift supervisors — avoid conflict. Unfortunately this avoidance creates disconnects between business units, unnecessary revisions in project plans, and lower standards of performance — all of which complicate organizational life. Not long ago I worked with a well-known company that was struggling to grow in a difficult market. In talking with the executive team it was clear that each of the product divisions had put a lot of time into their growth plans — but they had spent little time aligning the plans with each other. As a result, R&D was uncertain about how to prioritize its projects, and centralized marketing dollars were spread around like peanut butter. There also were too many IT projects, most of which were under-resourced, and the sales force lacked focus. When I asked why the plans had not been better integrated, the excuse was that separate functions were expected to work it out amongst themselves. But in these “nice” cultures where people don’t regularly ask the tough questions, “working it out” never happens. This kind of conflict avoidance is not only prevalent in large-scale strategic discussions, but in day-to-day office interactions. We’ve all made decisions in meetings only to be undone later when a silent dissenter is found to disagree. And how many times have we heard about an employee jarred by a poor performance rating, simply because her boss had never given her honest feedback? One such conflict-avoiding company even asks project teams to run stakeholder “acceptance analyses” throughout the course of a project, in the hope that eventually everyone will get on board and the senior manager won’t have to directly tell anyone to cooperate. There is no easy formula for learning how to engage more effectively in constructive conflict. But here are three suggestions that may help you move in that direction: 1. Reflect. Look at yourself in the mirror and give yourself an honest appraisal of your readiness to challenge, give bad news, or otherwise create a degree of conflict. Can you think of situations where you should have spoken up but didn’t, or where you tempered your words too much? Are there any particular types of conflict you avoid more than others, such as pushing back on authority? 2. Get feedback. Talk to friends, family, or colleagues. What is their perception of your willingness to engage in conflict, and your ability to do it constructively? Ask them about specific situations or patterns that they might see but are not obvious to you. 3. Correct the problem — gradually. Do some experimenting, particularly in the areas that are habitually difficult for you. Try pushing back on a request from your boss that doesn’t make sense. Speak up in a project meeting when you don’t agree. Give someone feedback that you’ve been withholding. No matter what you do, start the conversation by saying that you are trying to get better at dealing with conflict situations, and that you hope this comes across constructively. This way, you will position yourself as speaking honestly and trying to learn — and not just picking a fight. Hopefully this will reduce your anxiety (and that of your audience), which will allow both of you to make the conflict more constructive. What’s your experience with avoiding conflict?

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Fannie, Freddie Reform: Treasury Department Holds All-Star Conference To Discuss Ailing Lenders

August 17, 2010

WASHINGTON — Talk of shrinking the government’s involvement in the mortgage market is growing. Just don’t expect action any time soon. A conference Tuesday at the Treasury Department is the first of many steps toward restructuring the nearly $11 trillion mortgage market. So far, rescuing mortgage giants Fannie Mae and Freddie Mac has cost the government more than $148 billion. That number is expected to grow. Treasury Secretary Timothy Geithner will address the conference but is not expected to offer an exit strategy Tuesday. The administration has said it won’t offer its plan until next year. Officials are pledging dramatic changes to the structure of Fannie and Freddie, which profited tremendously during good times but burdened taxpayers with losses when the housing market went bust. “We will not support a return to the system where private gains are subsidized by taxpayer losses,” Geithner said in remarks prepared for the conference. With Republicans likely to pick up seats in Congress in November, however, the Obama administration will need support from both political parties for the changes it proposes. Reflecting this reality, Geithner will say Tuesday that “the failures that produced the system we have today were bipartisan. The solution must be as well.” Executives and mortgage experts are prepared to tell Obama officials that that the government must stay in the business of backing U.S. mortgages even if Fannie and Freddie disappear someday. “At the end of the day, the government will still have a very large role to play,” said Mark Zandi, chief economist at Moody’s Analytics and a panelist at the event. Others include mortgage executives from Bank of America Corp. and Wells Fargo & Co, plus Bill Gross, managing director of bond giant Pimco and Lewis Ranieri, one of the creators of mortgage bonds. The Obama administration’s management of Fannie and Freddie has been under fire for months from Republicans on Capitol Hill. In December, the Treasury Department eliminated a $400 billion cap on how much money it would give the mortgage giants to keep them from failing. Sen. John McCain, R.-Ariz., has called that a “taxpayer-backed slush fund” and called for the support to be wound down. Many in the mortgage industry say that’s not realistic. “There has to be a game plan,” said Paul Leonard, vice president of government affairs at the Housing Policy Council, a mortgage industry group. “You can’t just pull the plug on them.” Fannie and Freddie buy mortgages and package them into securities with a guarantee against default. They have ensured that millions of Americans can get home loans – even after the housing market collapsed. The two mortgage giants, the Federal Housing Administration and the Veterans Administration together backed about 90 percent of loans made in the first half of the year, according to trade publication Inside Mortgage Finance. At some point the government will have to scale back the level of support it provided the housing and mortgage markets during the recession and financial crisis. “The government’s footprint in the housing market needs to be smaller than it is today,” Shaun Donovan, President Barack Obama’s housing secretary, said in prepared remarks. Most of the plans being circulated to reshape the mortgage market call for the government to guarantee that investors who buy mortgage-backed securities receive their money even if borrowers default. Under this system, Fannie and Freddie could either be returned to private ownership or phased out completely. Fannie and Freddie, or their replacements, would pay the government to insure the loans. That money could be tapped if the housing market collapses. “A government guarantee is both a desirable and necessary component of the country’s housing finance system,” wrote John Gibbons, a Wells Fargo & Co. executive vice president, in a letter last month to the Treasury Department.

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Cypher Media, a Leader in Online Marketing, Hires Bob Lee as Chief Technology Officer

August 9, 2010

Company’s Doubling of Gross Revenue Year Over Year Since Founding and Plans for Additional Offerings Necessitate Bringing in IT Expert

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Christina Romer, Top Obama Economic Adviser, To QUIT White House Job: REPORT

August 5, 2010

Christina Romer, chairwoman of Pres. Obama’s Council of Economic Advisers, has decided to resign, according to a source familiar with her plans. Romer, an economics professor at the University of California (Berkeley) before taking the key admin post, did not respond to repeated calls to her office.

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Peter C. Brown Nominated to Cinedigm Digital Cinema Corp. Board of Directors

July 29, 2010

Former Chairman and CEO of AMC Entertainment to Stand for Election at September 2010 Annual Meeting; Plans to Make Significant Investment in Company

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Brandon Roberts: Since When Do Education and Training Create Jobs?

July 20, 2010

Since When Do Education and Training Create Jobs? This article was co-written by Brandon Roberts and David Altstadt on behalf of the Working Poor Families Project . Stops the presses! College students, drop out now. Working adults — don’t even think about returning to the classroom. Your aspirations for increasing your education and occupational skills are futile. You are doomed to graduate jobless and mired in debt, faced with no other choice but compete with the countless unemployed for entry-level, low-wage jobs at Wal-Mart. At least that is what The New York Times seemingly wants you to believe in the July 18 piece, ” After Training, Still Scrambling for Employment .” The NY Times supports its claims with a few anecdotes about newly trained and college-educated Americans who remain out of work, along with a smattering of damning statistics on the poor job placement rates of federally financed training programs. Interestingly, a previous NY Times article documenting the employment woes of recent college graduates did not blame the education institutions for their joblessness. The chilling effect is palpable. Several readers commenting on the Times article appear ready to abandon their plans to enroll in college or job training. Let’s get a few things straight. For starters, not all postsecondary education and job training programs are created equal. For every poor performing program identified, several others excel at preparing and placing participants in good-paying jobs. In an earlier post , we noted that some states have achieved better results than others in retraining and reemploying laid-off workers. Second, education and job training do not create jobs. However, the U.S. economy will not rebound unless we invest in the education and skills of the workforce. Think of workforce development as a form of photosynthesis for the U.S. economy–the labor market cannot grow unless we feed it highly educated and skilled workers. Consider research recently released by Georgetown University : • The U.S. economy will create 46.8 million job openings by 2018, including 13.8 newly created jobs and 33 million “replacement” positions produced when workers retire. • Nearly two-thirds of these jobs will demand postsecondary education and training. In fact, the fastest growing occupations all require that workers have college-level education and training. These include (1) managerial and professional office, (2) education, (3) healthcare professional and technical, (4) scientific, technical, engineering, mathematic, and social sciences (STEM), and (5) community services and arts. Given the current paucity of new jobs, what better time for students and working adults to enhance their education and skill levels? Surely there is no doubt that the future global competitiveness of the U.S. economy is tied an educated and skilled workforce. Even amid the current economic troubles, employers are having a hard time finding qualified workers. According to another recent NY Times article , skill shortages can be found even in declining industries, such as manufacturing. Instead of dismissing the value of retraining laid-off workers, we should focus on how to make publicly financed education and training programs more adept at matching supply with demand. That is, training workers for the jobs and skills that employers need now and in the near future. According to a recent evaluation of training programs, Public-Private Ventures has found that training providers that work with employers to determine skill requirements for available jobs are most successful at placing jobseekers in steadier, higher-paid positions. And, notably, through the American Recovery and Reinvestment Act, the Obama Administration is targeting training resources to high-growth industry sectors such as healthcare . Why turn our backs on a postsecondary education and training system that is clearly the ticket to good-paying middle class jobs and economic security, in addition to being the envy of much of the world? Instead, perhaps we should turn our attention to analyzing and writing about why private-sector employers are failing to create jobs in this country. Brandon Roberts manages the Working Poor Families Project (WPFP), and David Altstadt conducts research on the education, skill development, and employment needs of low-skilled adults.

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Dan Solin: The 401(k) Gravy Train Has Sprung a Leak

July 20, 2010

The perversion of 401(k) plans into an $80 billion annual trough from which brokers, insurance companies and mutual funds shamelessly feed, is disturbing to anyone who understands how this system works. There’s so much blame to go around it’s hard to know where to start. Employers are either ignorant of how their employees are being ripped off by excessive fees and poor performing investment choices, or they just don’t care as long as their plan costs them “nothing.” Brokers and insurance companies know exactly what they are doing: maximizing fees (and penalizing returns) through “revenue sharing payments” extracted from mutual funds who are pandering to be included as investment options in the plan. Mutual funds populate the plans with high expense ratio funds and earn obscene profits from having a captive audience of mostly unsophisticated plan participants. Two recent developments may foretell a crack in this sleazy, ethically bankrupt system. The Center for Retirement Research at Boston College issued a report which looked at the costs of the typical 401(k) plan. The report questioned the common practice of including actively managed funds (where the fund manager attempts to beat a given benchmark) as investment options in 401(k) plans. The authors concluded the inclusion of these funds exposed plan participants to a “substantial amount of additional risk” because only a small percent of these funds were able to beat their benchmark by the amount necessary to cover their high transaction costs. The solution to the crap shoot of trying to pick the tiny percentage of out-performing actively managed funds is to eliminate them from 401(k) plans altogether. Instead, the report recommends the use of Exchange Traded Funds and commingled trusts which could “boost the net returns on participants’ balances by 0.7 percent of assets or more.” An even better solution would be to offer participants only pre-allocated portfolios of globally diversified, low cost stock and bond index funds. The reason why costs are so high in most 401(k) plans is that it suits the interest of brokers and mutual funds to keep them high, which increases their profits. However, a recent federal court decision may provide a meaningful disincentive for this conduct. In Tibble v. Edison International (CV 07-5359), Judge Stephen V. Wilson ruled on a class action brought by participants in Edison’s 401(k) plan. The case was brought in the United States District Court for the Central District of California. In a ground-breaking decision which could change the landscape of 401(k) plans, Judge Wilson ruled Edison violated ERISA by including the retail shares of three mutual funds in its 401(k) plan when less expensive institutional share classes of the same funds were available. Judge Wilson held “a prudent fiduciary acting in a like capacity would have invested in the institutional share classes”, since the only difference was the cost of the two shares. The potential damages for the plan participants could be substantial. The Court set forth a methodology which involves computing the difference in cost between the two share classes over the relevant time period and also calculating the loss of additional investment opportunity caused by the reduction in returns to the plan participants. Over the years, I have reviewed many 401(k) plans. Over 90% of them use retail shares even though lower cost institutional shares were available. The cost to plan participants (and the benefit to brokers and mutual funds) is in the billions of dollars. While these developments are most welcome, there is a long way to go. As indicated in the study by The Center for Retirement Research, and in hundreds of other academic studies, no prudent investor should invest in actively managed funds which are unlikely to equal benchmark returns, when index funds will always track the index, less low transaction costs. Most index funds have only one class and their cost is typically significantly less than the cost of both the retail and the institutional shares of actively managed funds. Plan participants who wish to gamble with their retirement funds could be offered a self-directed brokerage option. Hopefully, the next litigation development will hold fiduciaries responsible for the inclusion of actively managed funds, and for their failure to include pre-allocated portfolios of low cost index funds, Exchange Traded Funds or passively managed funds, as investment options in 401(k) plans. When this decision is handed down, the leak in the 401(k) gravy train will become a flood. The views set forth in this blog are the opinions of the author alone and may not represent the views of any firm or entity with whom he is affiliated. The data, information, and content on this blog are for information, education, and non-commercial purposes only. Returns from index funds do not represent the performance of any investment advisory firm. The information on this blog does not involve the rendering of personalized investment advice and is limited to the dissemination of opinions on investing. No reader should construe these opinions as an offer of advisory services. Readers who require investment advice should retain the services of a competent investment professional. The information on this blog is not an offer to buy or sell, or a solicitation of any offer to buy or sell any securities or class of securities mentioned herein. Furthermore, the information on this blog should not be construed as an offer of advisory services. Please note that the author does not recommend specific securities nor is he responsible for comments made by persons posting on this blog.

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Srinivasan Pillay: 7 Brain-Based Ways to Relieve Market Anxiety

July 20, 2010

If you are one of those people whose peace of mind is tied to the degree of fluctuation in financial markets, it is important to recognize that the fears that underlie your mind’s volatility can wreak havoc on your life. To that extent, it is important for us to be aware that if your money is tied to ups and downs in the market, that this will likely cause significant internal perturbation and discomfort. Apart from holding on tight and just dealing with the volatility as it arises, what are some concrete steps that you can take to overcome the fears associated with market volatility? 1. Make “perspective change” a habit : Whenever you are feeling acutely threatened by disasters in the financial markets, recognize that your mind has been captured by the short-term and that your brain is effectively in panic mode. To take your brain out of panic mode, methodically ask yourself what each of your major investments would likely do in the longer-term. People are often frozen in short-term panic when their investments are volatile, but training your brain to move in between short and long-term perspectives can be very helpful. 2. Recognize that waiting is an action : When people are panicked by recent market volatility, they sometimes find themselves in a frenzy of action. While this may be necessary at times, it is good to check in with one’s self and ask the question: Is waiting better than acting? While waiting can be nerve-wracking, it is important to recognize that it is sometimes good to take shelter in the middle of a storm. Action may be compromised in the midst of anxiety. It may be premature or just frenzied rather than well thought out. The brain can execute multiple actions but to be effective, those actions need to be informed by emotions other than anxiety as well. 3. Make a point of focusing on what is working out : When markets are volatile, the brain tends to focus on what is going wrong. In fact, it may over-focus on this. For that reason, it may require your consciously taking a look at the things that are going well. It places your brain in a more balanced state and takes away some of the anxiety. 4. Giving in is not always giving up : When it comes to market volatility, there are times when the forces that govern what is happening are completely out of control. You feel as though you have to do so something rather than recognizing that you are not in control. While being in control is optimal, knowing when you are not in control is equally helpful. This allows the brain to make other plans rather than using its energy to try to be in control. 5. Re-charge your mind : All those ups and downs can be tiring. It is akin to being on a roller coaster all day. When you feel as though you’ve had enough, take some time off. While this can be anxiety provoking, it can also be a welcome rest for your brain to re-charge and come up with new ideas. Also, taking time off gives your unconscious brain some time to come up with strategies too. 6. Thinking small can sometimes help : When you feel as though you are falling over on a rocking boat, making small changes may be the one counter-intuitive thing you can do. Due to volatility, large swings sometimes make people feel as though they have to institute large changes. However, making small buys and sells may be all that you need to steady things. Don’t be afraid to ask: Is this a time when I should make small changes? Your brain may welcome this conscious input to take it out of “large swings mean large change” mode? 7. Focus on the process rather than the outcome : “Doing the work” is what will inform you about a particular stock. When the stock market has you in a panic, your brain will have a tendency to focus on outcomes. In fact, it may over-focus on outcomes. As a result, you may lose your focus on the moment, and make bets based on an unknown future. When things are rocky, all you know is the rocky present. And there is always information in the rocky present. So, putting your mind in process mode will take the panic edge off, and it will also enhance the quality of the work you need to do now to ensure better outcomes in the future. Taking your brain out of panic-mode gives it a chance to make decisions from its depth. While there is little that will make you entirely comfortable during volatile times, these simple check-ins may be helpful to you at when things are volatile in the financial markets. Keep them by your side whenever you think that things are a little too turbulent to remind yourself that “volatile markets” do not equal “volatile minds.”

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Pakistan-Afghanistan Trade Deal: Clinton Seeks More Cooperation

July 19, 2010

ISLAMABAD (Associated Press) – Pakistan and Afghanistan sealed a landmark trade deal Sunday as U.S. Secretary of State Hillary Rodham Clinton pushed the two neighbors to step up civilian cooperation and work together against al-Qaida and the Taliban. Shortly after kicking off a South Asia trip aimed at refining the goals of the increasingly unpopular war in Afghanistan, Clinton looked on as the Afghan and Pakistani commerce ministers signed the trade agreement. It was reached only after years of negotiation with recent and very active U.S. encouragement. The pact, which eases restrictions on cross-border transportation, must be ratified by the Afghan parliament and Pakistani Cabinet. U.S. officials said they believe it will significantly enhance ties between the two countries, boost development and incomes on both sides of the border and contribute to the fight against extremists. “Bringing Islamabad and Kabul together has been a goal of this administration from the beginning,” said Richard Holbrooke, the U.S. special representative for Afghanistan and Pakistan. “This is a vivid demonstration of the two countries coming closer together.” Despite the agreement, Clinton faces challenges in appealing for greater cooperation between the neighboring nations on the nearly 9-year-old war, pressing Pakistan for more help in taking on militants accused of plotting attacks on the U.S., including the failed Times Square bombing, and stepping up action against extremists along the Afghan border. Although Pakistan has relented on issuing long-delayed visas for some 450 U.S. officials and Clinton is bringing new U.S. development aid for Pakistan, anti-American sentiment remains high. In addition, U.S. officials have also expressed concerns about Pakistan’s plans for a deal with China that would give energy-starved Pakistan two new nuclear power plants. Critics said transferring the reactors would violate international nonproliferation agreements. In talks with President Asif Ali Zardari and Prime Minister Yusuf Raza Gilani, ahead of Monday meetings with military and civilian officials, Clinton was conveying the message that the U.S. is committed to the country’s long-term development needs, not just short-term security gains. Clinton is offering a package of about $500 million in development programs, funded by legislation approved by Congress to triple nonmilitary aid to $1.5 billion a year over five years. The aid will focus on water, energy, agriculture and health. The initiatives mark the second phase of projects begun under a new and enhanced strategic partnership. Holbrooke noted that when Clinton visited Pakistan last October she had “waded into continually hostile and skeptical crowds.” But he maintained that the new U.S. focus is “producing a change in Pakistani attitudes, first within the government and gradually, more slowly, within the public.” Still, he and other officials acknowledge, mistrust of America runs deep in Pakistan, particularly over unmanned drone strikes. They’re aimed at militants but often kill or injury civilians; to many Pakistanis, they represent an unacceptable violation of sovereignty. Vali Nasr, a Holbrooke deputy, said overcoming the suspicion remains a work in progress. “We’re not going to be able to get them aligned over a one-year time period on every single issue and change 30 years of foreign policy of Pakistan on a dime,” he said. Underscoring Pakistan’s fragility, only hours after Clinton’s arrival a suicide bomber ran past guards at a minority Shiite mosque in eastern Pakistan then blew himself up, wounding several worshippers. The attack, hundreds of miles away from Islamabad, appeared to be the latest in a string by Sunni extremists against other Muslims they consider infidels. After her stop in Pakistan, Clinton is set to attend an international conference on Afghanistan on Tuesday in Kabul, where Afghan officials will present details on their plans to reintegrate militants into society and outline how they intend to implement reform and anti-corruption pledges made earlier this year. Security was tightened in the Afghan capital ahead the conference which will assemble diplomats from 60 nations as well as the heads of NATO and the United Nations. Nonetheless, a suicide bomber killed three civilians near a busy market. American lawmakers and voters are increasingly questioning the course of the drawn-out war with rising death tolls among U.S. and international troops and growing questions about corruption. Last month was the deadliest of the war for international forces: 103 coalition troops were killed, despite the addition of tens of thousands more U.S. troops.

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eEye Digital Security Expands Leadership Team, Welcomes Back Technology Visionary Marc Maiffret to Tackle New Era of Security Vulnerabilities and Compliance Challenges

July 13, 2010

Company Plans to Triple in Size to Extend Lead in Eliminating Real-Time Security Threats

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Chris Forbes: Reengineering America’s Future

July 12, 2010

I’ve had the opportunity to meet with many engineering leaders over the past decade. I’ve observed how they work, and talked about their challenges and successes. Our ( Knovel ) customers represent more than 600 organizations worldwide including 70 Fortune 500 companies and 80 percent of the top engineering schools in the United States. In this context, it’s no surprise that I pay attention to statistics related to the next generation of engineers. In the June 14th issue of Fortune, David Kaplan highlights worrisome statistics in his article, “The STEM Challenge”: Out of 4 million students who entered high school in 2001, fewer that 200,000 will graduate with a science, technology, engineering or math (STEM) degree. For every new Ph.D. in physical sciences, the US graduates 50 new MBA’s, and 18 lawyers. Adding to this, the current population of experienced, baby-boomer engineers is aging, and many will soon retire. Replacing these experienced engineers is, and will continue to be, difficult. A recent Boston Globe article highlighted this challenge as it relates to Raytheon Co. and their plans to hire 4,500 engineers this year. According to chief executive William Swanson, they’re encountering difficulties in finding good candidates. So why should we care? Simply put, jobs and economic security are at stake. China and India have increased their influence significantly with successes resulting from developing a workforce that increasingly has relevant technical skills and a STEM education. According to an article by Keith Richburg in the Washington Post , China surpassed the United States as the world’s largest automaker last year and is now leading the world in high-speed rail. These facts are a strong indicator of fierce global competition. A market leader today may be out of the game tomorrow. Facing an acute problem with long term effects, government, business and education have responded with a variety of programs, including President Obama’s Educate to Innovate and the inaugural USA Science & Engineering Festival , that aim to encourage more students to pursue STEM degrees and to help educators teach math and science in a way that is interesting, relevant and engaging. Moreover, an article in The New York Times recently featured a variety of programs that introduce engineering concepts to elementary school students. Still, it will take years to determine the success of these efforts. In the meantime, science information doubles every 15-20 years and 83 percent of an engineer’s required knowledge is acquired post-graduation*. As many companies tap the raw talent of the next generation, it’s crucial to consider how we can help this up-and-coming group to hit the ground running. When it comes to STEM, we need to have a long term outlook and consider the tools and education that engineers need now and throughout their careers. Knovel provides one of these tools by supplying engineers and engineering students with reliable online technical references and interactive data they can easily incorporate into their workflow. Engineers tap Knovel to find answers to technical questions, particularly during the product development and design stages. During this period of innovation, engineers need top-notch tools that help them to learn faster, increase productivity and avoid costly mistakes. In many ways, we are in business to help engineers be the best they can be. When I think of some of the conversations I’ve had with engineering leaders, I am struck by evidence of both a digital and generational divide. A vice president of engineering in a large engineering design firm recently told me that his engineers still go to physical libraries, wait for a reference book to be mailed to them if it’s not immediately available, search though a book for the information they need, physically copy an equation into their notebooks and then use their calculators to solve it. Contrast this experienced engineer with a recent graduate whom has grown up in the digital age and turns to the Internet and online tools for research. The next generation of engineers must be both tech savvy and well educated. As a company focused solely on the engineering community and providing that community with the information and tools they need to be more innovative, we have a unique seat from which to watch how the STEM efforts shake out. And now, more than ever, it’s clear that finding ways to arm burgeoning and established engineering students with the insight, experience and tools required for success is part of a larger global story. As we look to the future, we envision one where the engineer is placed alongside the athletes and actors of today’s world. To get there, we must remain committed to the intrinsic value and role science, technology, engineering and math play in our economy. The future of engineering is closely tied to the future of America. As we work to re-engineer America, let’s not lose sight of the importance of two things: 1) investing in our current workforce by providing them with cutting-edge tools and resources to facilitate innovation, and 2) ensuring our children are exposed to STEM from day one. *Communication Patterns of Engineers, Tenopir, et al, IEEE 2004

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David Isenberg: The Three Imperative C’s: Comprehending Contracting Culture

June 29, 2010

Remember the Human Terrain System Program? That’s the U S. Army program which embeds social scientists with combat brigades in countries like Iraq and Afghanistan to help tacticians in the field understand local cultures. Perhaps we need to bring a HTS team home to decipher and understand the military contracting culture. That, at least, is the conclusion of a written GAO testimony, released today at a congressional hearing. It suggests that what we need for better contracting is cultural change. Titled ” Cultural Change Needed to Improve How DOD Plans for and Manages Operational Contract Support ” the statement by William Solis, GAO Director, Defense Capabilities and Management, given today at a hearing of the House Subcommittee on National Security and Foreign Affairs, Committee on Oversight and Government Reform, finds that: DOD still faces challenges that stem from the department’s failure to fully integrate operational contract support within DOD, including planning for the use of contractors, training military personnel on the use of contractor support, accurately tracking contractor use, and establishing measures to ensure that contractors are accountable. A cultural change in DOD that emphasizes an awareness of operational contract support throughout all aspects of the department, including planning, training, and personnel requirements, would help the department address these challenges in ongoing and future operations. Among other things Solis’s testimony updates contractor numbers in Iraq and Afghanistan. In Iraq and Afghanistan contractor personnel now outnumber deployed troops. For example, according to DOD, as of March 2010, there were more than 95,000 DOD contractor personnel operating in Iraq and more than 112,000 DOD contractor personnel operating in Afghanistan. While the number of troops fluctuates based on the drawdown in Iraq and the troop increase in Afghanistan, as of June 2010 there were approximately 88,000 troops in Iraq and DOD estimates that the number of troops in Afghanistan will increase to 98,000 by the end of fiscal year 2010. DOD anticipates that the number of contractor personnel will grow in Afghanistan as the department increases its troop presence in that country. However, these numbers do not reflect the thousands of contractor personnel located in Kuwait and elsewhere who support operations in Iraq and Afghanistan. By way of contrast, an estimated 9,200 contractor personnel supported military operations in the 1991 Gulf War. Solis’s concludes thusly: Looking toward the future, the challenges we have discussed demonstrate the need for DOD to consider how it currently uses contractors in contingency operations, how it will use contractors to support future operations, and the impact that providing management and oversight of these contractors has on the operational effectiveness of deployed units. These considerations would also help shift the department’s culture as it relates to operational contract support. As DOD doctrine recognizes, operational contract support is more than just logistical support. Therefore, it is important that a significant culture change occur, one that emphasizes operational contract support throughout all aspects of the department, including planning, training, and personnel requirements. It is especially important that these concepts be institutionalized among those serving in leadership positions, including officers, noncommissioned officers, and civilians. Only when DOD has established its future vision for the use and role of contractors supporting deployed forces and fully institutionalizes the concepts of operational contract support can it effectively address its long-term capability to oversee and manage those contractors.

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Video: VTB’s Kostin Says Moscow Can Become a Financial Center

June 25, 2010

June 25 (Bloomberg) — Andrei Kostin, chief executive officer of Russia’s VTB Group, talks about his plans for Russia’s second-biggest lender. He speaks with Andrea Catherwood on Bloomberg Television’s “The Pulse.”

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BP Based Spill Plans On Outdated Government Models

June 23, 2010

BP PLC and other big oil companies based their plans for responding to a big oil spill in the Gulf of Mexico on U.S. government projections that gave very low odds of oil hitting shore, even in the case of a spill much larger than the current one. The government models, which have not been updated since 2004, assumed that most of the oil would rapidly evaporate or get broken up by waves or weather. In the weeks since the Deepwater Horizon caught fire and sank, real life has proven these models wrong.

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BP Based Spill Plans On Outdated Government Models

June 23, 2010

BP PLC and other big oil companies based their plans for responding to a big oil spill in the Gulf of Mexico on U.S. government projections that gave very low odds of oil hitting shore, even in the case of a spill much larger than the current one. The government models, which have not been updated since 2004, assumed that most of the oil would rapidly evaporate or get broken up by waves or weather. In the weeks since the Deepwater Horizon caught fire and sank, real life has proven these models wrong.

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Osborne Said to Plan Bank Tax in U.K. Budget That May Hurt Economic Growth

June 19, 2010

By Gonzalo Vina June 19 (Bloomberg) — U.K. Chancellor of the Exchequer George Osborne is pushing ahead with plans to tax banks in his first budget, according to three people with knowledge of the plans, an announcement to go along with spending cuts that may prompt forecasters to lower economic-growth estimates. The tax, which may be imposed on assets or liabilities, could raise at least 2 billion pounds ($3 billion), one of the people said. Osborne has said the June 22 budget statement would set the stage for the deepest spending reductions since the 1980s. The bank-tax announcement would come days before Osborne and Prime Minister David Cameron travel to Toronto to meet Group of 20 leaders. G-20 finance ministers this month declined to endorse a global bank tax, while the U.S. and European governments said they would introduce some levy on lenders. “This is something we have said we would like international agreement on but will go ahead in any event with our bank levy,” Cameron told reporters in Brussels on June 17. The Treasury has already reaped benefits from taxing banks, as a one-off tax on bank bonuses introduced last year by Osborne’s predecessor, Alistair Darling , raised 2.5 billion pounds. Osborne’s budget, which he’ll deliver to the House of Commons, will have as its main focus implementing the deficit- reduction program that the coalition’s policy agreement described as “the most urgent issue facing Britain.” “The decisions we make will affect every single person in our country,” Cameron said June 7, discussing the looming cuts. “The effects of those decisions will stay with us for years, perhaps decades to come.” Growth Forecast His policies may lead the Treasury’s forecasting watchdog to trim its growth outlook for the British economy. The Office for Budget Responsibility estimated June 14 the economy would expand by 1.3 percent this year and by 2.6 percent in 2011, assuming previous plans to squeeze the budget by 40 billion pounds by 2015. Osborne says he wants faster and deeper cuts to balance the books. The deficit will narrow from 155 billion pounds in this fiscal year to 71 billion pounds by April 2015, or 3.9 percent of gross domestic product, the budget office said, without taking into account new measures. Net debt will increase to 74.4 percent of GDP, the OBR also forecast. To contact the reporter on this story: Gonzalo Vina in London at gvina@bloomberg.net

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Citigroup Seeks $3 Billion for Hedge Fund, Buyouts as Volcker’s Ban Looms

June 18, 2010

By Bradley Keoun June 18 (Bloomberg) — Citigroup Inc. plans to raise more than $3 billion for its private-equity and hedge funds, even as U.S. lawmakers consider banning banks from owning and investing in so-called alternative funds, people with direct knowledge of the plan said. Citi Capital Advisors , which oversees about $14 billion, may seek $1.5 billion for private equity this year and $750 million for hedge funds, said the people, who declined to be identified because the plans aren’t public. An additional $1 billion is targeted next year for hedge funds, the people said. “Citi must be comfortable enough that whatever happens, even in the extreme version, they’ll be able to move ahead with these businesses,” said Steven Kaplan , a professor at the University of Chicago Booth School of Business who studies the private-equity industry. “I don’t think any of these bills envisioned not being able to manage someone else’s money. It’s the bank capital that’s still an open question.” The Volcker rule, named for former Federal Reserve Chairman Paul Volcker , seeks to avoid future bailouts by curbing risk-taking. The Securities Industry and Financial Markets Association , Wall Street’s biggest lobbying group, and the Financial Services Roundtable , a Washington-based trade group, have expressed concerns that the measure restricts banks from businesses that didn’t cause the financial crisis. Lawmakers are reconciling House and Senate bills this month to overhaul regulation of Wall Street. Citigroup’s rivals aren’t waiting for final legislation to move forward with growth plans for their in-house money-management funds. ‘Regardless’ of Reform Last week, Morgan Stanley announced it had raised $4.7 billion for a new global real estate fund, including $400 million of the New York-based securities firm’s own money. Citigroup has about $5 billion of its own money in Citi Capital Advisors funds. “Regardless of the ultimate outcome of financial reform, our priority will always be protecting the interests of our clients, who have selected us to be the fiduciary manager of their assets, and ensuring the soundness of the CCA platform moving forward,” spokeswoman Danielle Romero-Apsilos said. The proposed legislation would restrict banks’ ability to trade financial instruments such as stocks, bonds and commodities on their own account, and bar them from owning or sponsoring hedge funds or private-equity firms. Federal banking agencies would have the power to exempt institutions who do such trading on behalf of a customer or to hedge risk. Seeding New Funds Even if the Volcker rule becomes law, full implementation may take as many as six years. Under the Senate bill , a study would have to be completed within six months of passage. Then, a council of regulators would then have to issue recommendations within nine months. That would be followed by a two-year phase- in periods and three potential one-year extensions on a firm-by- firm basis. Citigroup’s primary reason for investing in the funds is to “seed” new ones, essentially floating them long enough to build a track record that can then be marketed to investors, the people said. Putting in its own money also helps attract investors by signaling the bank has confidence in the management teams , they said. Chief Executive Officer Vikram Pandit , 53, told a Congressional panel in March that the bank is taking steps to scale back its funds business. This year he sold off a $12.5 billion real-estate fund and a $4.2 billion fund of hedge funds. Still, he considers Citi Capital Advisors to be a “core” operation alongside trading, investment-banking, corporate cash- management and branch banking. ‘New Thrust’ Citi Capital Advisors is the former Citi Alternative Investments unit, renamed last year after more than a dozen of its funds with almost $80 billion of assets were shuttered or frozen amid the global financial crisis, causing more than $3 billion of losses for Citigroup. In April 2009, John Havens , 53, head of Citigroup’s trading and investment-banking division, tapped a pair of former Morgan Stanley colleagues, James O’Brien , 50, and Jonathan Dorfman , 48, to rebuild the alternative-investing unit. Of the 16 funds listed in a March 2008 Citi Alternative Investments brochure, 11 have been closed, sold, renamed or merged into other funds. “They basically are presenting a new thrust to the market since the challenges of ‘07 and ‘08,” said Colin Blaydon , director of the Center for Private Equity and Entrepreneurship at Dartmouth College’s Tuck School of Business in Hanover, New Hampshire. “Gathering capital at this point is something they want to do.” Funds Marketed Among six funds now being marketed is the $700 million Emerging Markets Special Opportunities Fund . It was started in 2000 and is led by former Salomon Smith Barney emerging-markets co-head Mark Franklin, returning an average 12 percent a year over the past decade, according to a Citi Capital Advisors marketing brochure dated April. Another fund is the Mortgage/Credit Opportunity Fund , led by Rajesh Kumar. Citigroup lured Kumar and his team from hedge fund Halcyon Asset Management LLC in 2008 and agreed to seed them with $200 million of the bank’s capital, people with direct knowledge of the move said. The fund has gained 24 percent annualized since its May 2008 debut, according to the April brochure. It now stands at about $300 million, the people said. To contact the reporter on this story: Bradley Keoun in New York at bkeoun@bloomberg.net .

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Citigroup Looking Past Volcker Seeks $3 Billion for Hedge Fund, LBO Unit

June 18, 2010

By Bradley Keoun June 18 (Bloomberg) — Citigroup Inc. plans to raise more than $3 billion for its private-equity and hedge funds, even as U.S. lawmakers consider banning banks from owning and investing in so-called alternative funds, people with direct knowledge of the plan said. Citi Capital Advisors , which oversees about $14 billion, may seek $1.5 billion for private equity this year and $750 million for hedge funds, said the people, who declined to be identified because the plans aren’t public. An additional $1 billion is targeted next year for hedge funds, the people said. “Citi must be comfortable enough that whatever happens, even in the extreme version, they’ll be able to move ahead with these businesses,” said Steven Kaplan , a professor at the University of Chicago Booth School of Business who studies the private-equity industry. “I don’t think any of these bills envisioned not being able to manage someone else’s money. It’s the bank capital that’s still an open question.” The Volcker rule, named for former Federal Reserve Chairman Paul Volcker , seeks to avoid future bailouts by curbing risk-taking. The Securities Industry and Financial Markets Association , Wall Street’s biggest lobbying group, and the Financial Services Roundtable , a Washington-based trade group, have expressed concerns that the measure restricts banks from businesses that didn’t cause the financial crisis. Lawmakers are reconciling House and Senate bills this month to overhaul regulation of Wall Street. Citigroup’s rivals aren’t waiting for final legislation to move forward with growth plans for their in-house money-management funds. ‘Regardless’ of Reform Last week, Morgan Stanley announced it had raised $4.7 billion for a new global real estate fund, including $400 million of the New York-based securities firm’s own money. Citigroup has about $5 billion of its own money in Citi Capital Advisors funds. “Regardless of the ultimate outcome of financial reform, our priority will always be protecting the interests of our clients, who have selected us to be the fiduciary manager of their assets, and ensuring the soundness of the CCA platform moving forward,” spokeswoman Danielle Romero-Apsilos said. The proposed legislation would restrict banks’ ability to trade financial instruments such as stocks, bonds and commodities on their own account, and bar them from owning or sponsoring hedge funds or private-equity firms. Federal banking agencies would have the power to exempt institutions who do such trading on behalf of a customer or to hedge risk. Seeding New Funds Even if the Volcker rule becomes law, full implementation may take as many as six years. Under the Senate bill , a study would have to be completed within six months of passage. Then, a council of regulators would then have to issue recommendations within nine months. That would be followed by a two-year phase- in periods and three potential one-year extensions on a firm-by- firm basis. Citigroup’s primary reason for investing in the funds is to “seed” new ones, essentially floating them long enough to build a track record that can then be marketed to investors, the people said. Putting in its own money also helps attract investors by signaling the bank has confidence in the management teams , they said. Chief Executive Officer Vikram Pandit , 53, told a Congressional panel in March that the bank is taking steps to scale back its funds business. This year he sold off a $12.5 billion real-estate fund and a $4.2 billion fund of hedge funds. Still, he considers Citi Capital Advisors to be a “core” operation alongside trading, investment-banking, corporate cash- management and branch banking. ‘New Thrust’ Citi Capital Advisors is the former Citi Alternative Investments unit, renamed last year after more than a dozen of its funds with almost $80 billion of assets were shuttered or frozen amid the global financial crisis, causing more than $3 billion of losses for Citigroup. In April 2009, John Havens , 53, head of Citigroup’s trading and investment-banking division, tapped a pair of former Morgan Stanley colleagues, James O’Brien , 50, and Jonathan Dorfman , 48, to rebuild the alternative-investing unit. Of the 16 funds listed in a March 2008 Citi Alternative Investments brochure, 11 have been closed, sold, renamed or merged into other funds. “They basically are presenting a new thrust to the market since the challenges of ‘07 and ‘08,” said Colin Blaydon , director of the Center for Private Equity and Entrepreneurship at Dartmouth College’s Tuck School of Business in Hanover, New Hampshire. “Gathering capital at this point is something they want to do.” Funds Marketed Among six funds now being marketed is the $700 million Emerging Markets Special Opportunities Fund . It was started in 2000 and is led by former Salomon Smith Barney emerging-markets co-head Mark Franklin, returning an average 12 percent a year over the past decade, according to a Citi Capital Advisors marketing brochure dated April. Another fund is the Mortgage/Credit Opportunity Fund , led by Rajesh Kumar. Citigroup lured Kumar and his team from hedge fund Halcyon Asset Management LLC in 2008 and agreed to seed them with $200 million of the bank’s capital, people with direct knowledge of the move said. The fund has gained 24 percent annualized since its May 2008 debut, according to the April brochure. It now stands at about $300 million, the people said. To contact the reporter on this story: Bradley Keoun in New York at bkeoun@bloomberg.net .

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Immigration Detention Facilities To Become Less Like Prisons, Officials Say

June 16, 2010

SAN ANTONIO — In an agreement U.S. immigration officials hope will begin to reshape the entire 30,000-bed detention system, some asylum-seekers and immigrants awaiting deportation proceedings could soon be held in facilities where they can wear their own clothes, participate in movie and bingo nights, eat continental breakfasts and celebrate holidays with visiting family members. It could end confinement in prison-like facilities – complete with razor wire, jail-style uniforms, armed guards and partitions that prevent physical contact with loved ones – for those who have never been convicted of a crime and are not considered a threat. Corrections Corporation of America, the largest contractor for U.S. Immigration and Customs Enforcement, has reached a preliminary agreement to soften confinement, free of charge, at nine immigrant facilities covering more than 7,100 beds – a deal that ICE officials see as a precursor to changes elsewhere. Overall, the facilities are expected to be less prison-like, offering freer movement for detainees, fewer pat downs and better access to legal resources. The agreement calls for fresh vegetables and access to self-serve beverages along with cooking and exercise classes, according to a list released by ICE. CCA will soften “the look for the facility with hanging plants, flower baskets, new paint colors, different bedding and furniture” and allow lengthy visits from friends and family who can provide outside packages or food for special celebrations under changes to be made over the next six months. ICE Director John Morton announced last year that the agency would make detention facilities less prison-like because immigrant detainees are being held on civil immigration charges, not criminal offenses, though it was unclear at the time what changes would be made. The agency has long maintained that detention is not a punishment and that it ensures the immigrants show up for hearings. Nonetheless, it has relied heavily on contract facilities built to house criminals. Negotiations continue with the remainder of the nearly 300 facilities under contract with ICE, mostly facilities owned by state and local governments, but “it’s our goal to provide these types of reforms with all the facilities that ICE contracts with,” said ICE spokesman Brian Hale. ICE wants to create a less restrictive environment for those who are low-risk and not criminals, but those with criminal histories or who are otherwise a danger will remain in prison-like settings, he said. New systemwide detention standards are still being drafted, but the agreement with CCA signals the less-restrictive modifications the agency wants for many detainees. Union leaders representing guards object to the new plans, saying they’re dangerous. “It’s absolutely insane, the changes they’re making,” said Chris Crane, president of AFGE Council 118/ICE, the union that represents 7,000 ICE officers but not the contractors. “It just makes for an absolutely unsafe environment, not only for the detainees, but for the officers.” He contends that many detainees could be drug dealers or gang members – even if they haven’t been convicted. A 2009 review by The Associated Press of everyone in custody nationwide on a single night found that nearly three-fifths of detainees had no criminal convictions, even for minor offenses such as trespassing. Many are held only a few nights before being deported, while others – particularly those seeking asylum from persecution in their home countries – can stay in custody for months or years while their cases are decided by an overburdened immigration court system. Nearly 10,200 foreigners were granted asylum after going through immigration courts in fiscal year 2009. But Crane said that doesn’t mean detainees aren’t criminals or gang members since local prosecutors, lacking resources, sometimes just dump “criminal aliens” into ICE custody. “Does that mean you can’t treat people humanely? Absolutely not,” he said. “But we need to talk about the circumstances that these detainees were put in custody.” Ira Mehlman, spokesman for the Federation for American Immigration Reform, which advocates tougher immigration enforcement, said plans to soften the look of facilities, particularly those that house families, are appropriate. But he’s concerned the changes, like cooking and exercise classes, go too far. “From this memo, it sounds like they’re turning them into Club Med,” Mehlman said. Sen. Chuck Grassley, R-Iowa, raised similar concerns in a letter to ICE officials last week, saying softening the facilities – even for low-risk detainees – creates a “moral hazard.” Immigrant advocates object to the plans, too, but for another reason: they don’t go far enough. “They’re really coming up with very minimal changes,” said Andrea Black of the Detention Watch Network. Most of the low-risk detainees who might get softened facilities shouldn’t be detained at all, especially when less expensive electronic monitoring is available, she said. “We’re still talking about people being in detention for years on end,” said Black. “This is their response? To offer fresh carrots and bingo nights?” ___ Associated Press Writer Suzanne Gamboa in Washington contributed to this report.

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Britain’s Buyout Dealmakers Resigned to Losing Carried-Interest Tax Fight

June 16, 2010

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

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British Buyout Dealmakers Resigned to Losing Carried Interest Tax Fight

June 15, 2010

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

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Exxon, Oil Companies Slammed by Lawmakers for `Carbon-Copy’ Disaster Plans

June 15, 2010

By Jim Efstathiou Jr. and Joe Carroll June 15 (Bloomberg) — Exxon Mobil Corp. , ConocoPhillips, Chevron Corp. and Royal Dutch Shell Plc are as ill-prepared as BP Plc to halt and clean up an offshore oil spill because they all use “carbon copy” disaster plans, lawmakers said. Eight weeks after a drilling rig leased by BP exploded in the Gulf of Mexico, killing 11 workers and triggering the worst spill in U.S. history, executives from the companies at a House Energy Committee hearing sought to distance themselves from BP’s practices that lawmakers said put profits before safety. Lawmakers faulted the four executives for disaster-response plans that would halt oil leaks at the sea floor using the same techniques that failed for BP in the past 56 days. The same firm wrote the plans and included references to making sure crude doesn’t injure walruses, which don’t live in the Gulf of Mexico. “The oil company response plans are great for public relations but these plans are virtually worthless in the event of a spill,” said Representative Bart T. Stupak , a Michigan Democrat. “It could be said that BP is the one bad apple in the bunch, but unfortunately, they appear to have plenty of company.” Energy companies, rig operators and lawmakers in oil- producing states have urged the Obama administration to lift or shorten a six-month moratorium on deepwater exploration that has idled more than two dozen drilling vessels and threatens thousands of jobs. Lawmakers said today they’re not convinced the industry takes safety seriously. ‘Magic Button’ “You can’t have a contingency plan that says cross your fingers and hope the blowout preventer works,” said Representative Joe Barton , the ranking a Texas Republican. “They pushed the magic button on the BP rig and it didn’t work.” Exxon CEO Rex Tillerson said investigators must determine if BP took risks “beyond industry norms” that led to the April 20 catastrophe, which he said “represents a dramatic departure” from the track record of deep-water oil explorers. The CEOs testified a day after the committee released internal BP documents that lawmakers said showed the company put cost concerns ahead of safety in the days leading up to April 20. BP Chief Executive Officer Tony Hayward is to appear before a subcommittee June 17, his first congressional testimony since the well exploded. “Our internal review confirmed what our regular audits have told us,” Chevron Chief Executive Officer John Watson told the committee. “Chevron’s drilling and control practices for deepwater wells are safe and environmentally sound.” He added, “We must act to quickly implement new standards and safeguards so that we can reinstate drilling in the deepwater Gulf of Mexico.” Obama Speech President Barack Obama plans to speak to the nation tonight on the spill, and the administration is demanding that BP set up an escrow account for damage claims. BP Chairman Carl-Henric Svanberg has been called to the White House tomorrow. Industry groups oppose the six-month ban, which Obama put in place to give a presidential commission time to probe the spill. Pressed by Louisiana Democratic Senator Mary Landrieu , who said her state could lose 330,000 jobs from the moratorium, Interior Secretary Ken Salazar last week said the ban may be shortened. “We acknowledge the reasons for the president’s decision to pause deepwater drilling,” Shell President Marvin Odum said in his prepared remarks. “But it is not without consequence: thousands of lost jobs, and billions in lost wages and spending. And not only on the Gulf Coast, but also in places like Alaska.” Ban Concerns Seventeen House members from Gulf coast states including Barton and Representative Ted Poe , a Texas Republican, today called on Obama to end the drilling ban. The group will meet Salazar tomorrow to discuss the impact of the moratorium. “Many offshore drilling companies and suppliers will not be able to survive this six-month period and will either go out of business or move their employees and assets abroad,” the group said in a statement. An extended suspension may cost more than 20,000 jobs in Gulf region, according to a statement. Shell adheres to well-drilling safety standards that lawmakers have said were sidestepped by BP, Odum wrote in a May 14 letter to Elizabeth Birnbaum , former director of the Minerals Management Service, which oversees offshore drilling. Shell’s plans to explore for oil and natural gas off Alaska’s coast face increased scrutiny following the Gulf spill. BP, the biggest Gulf of Mexico oil producer, made five “questionable decisions” aimed at cutting costs and speeding completion of an overdue project before the disaster, Democratic Representatives Henry Waxman of California and Stupak wrote in a letter to Hayward released yesterday. Industry Norms Exxon, based in Irving, Texas, has drilled 262 deep-water wells in the past decade, 35 of which were in the Gulf, Tillerson said. Proper well design, workforce training, redundant safety systems and regular maintenance help mitigate risks involved in drilling wells miles below the surface, he said. When the moratorium is lifted and federal regulators allow deepwater drilling to resume, there may be few rigs available for the work, said Gianna Bern , president of Brookshire Advisory & Research Inc. in Flossmoor, Illinois, which advises oil companies on strategy and risk management. South China, Indonesia Drilling vessels are steaming out of the Gulf for assignments in the South China Sea and off the Indonesia coast, said Bern, a former BP crude trader. Those vessels won’t be able to return to U.S. waters for a year or longer, she said. “The moratorium will likely draw drilling rigs away from the Gulf of Mexico to overseas basins, further delaying development and negatively affecting crucial U.S. jobs that support these operations,” Watson said. “Any extension of the moratorium will only exacerbate the economic consequences.” BP America Inc. Chairman Lamar McKay said in prepared testimony that a “failure of processes, systems and/or equipment must be and can be addressed to restore America’s confidence in the industry’s ability to continue providing the resources consumers need.” To contact the reporters on this story: Jim Efstathiou Jr . in Washington at jefstathiou@bloomberg.net ; Joe Carroll in Washington at jcarroll8@bloomberg.net .

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UBS May Sidestep Swiss `Game of Chicken’ as Lawmakers Vote on U.S. Treaty

June 15, 2010

By Klaus Wille June 15 (Bloomberg) — UBS AG may escape a “game of chicken” played by Swiss lawmakers as the price of failure to back a tax treaty with the U.S. would be too high: the bank’s American operations and the country’s export industry. Deputies in Switzerland’s lower house may support the treaty in a second vote today after last week rejecting the handover of details of as many as 4,450 suspected tax dodgers to U.S. authorities, according to academics and analysts, including Georg Lutz of the University of Lausanne. The dispute stems from a U.S. crackdown on offshore tax evasion that led Switzerland to agree last August to give up account data. The parliament has to approve the accord, and the U.S. may opt to reopen a civil lawsuit and criminal prosecution unless the government honors the agreement. “What we’re seeing at the moment is a high-stakes game of chicken,” said Evan Stewart, a lawyer at Zuckerman Spaeder LLP in New York, in an interview. Further legal proceedings “would seriously jeopardize UBS’s business in the U.S.,” he said. The nationalist Swiss People’s Party, which voted against the deal last week in protest against a proposal to boost corporate taxes on bonuses, may back the accord today to avoid a clash with U.S. authorities. “The People’s Party will eventually recognize the importance of the question and support the treaty,” said Martin Naville , the chief executive of the Swiss-American Chamber of Commerce, a lobbying group for Swiss and American businesses. Georg Lutz, a political scientist at the University of Lausanne, said the party “will give in” eventually. UBS Chief Executive Officer Oswald Gruebel last week said he’s “confident” that parliament will approve the accord. Like Adolescents “Too much is at stake with this treaty,” This Jenny , a deputy in the upper house of parliament for the People’s Party, said June 9. “We can’t afford this posturing, and this going back and forth like adolescents. We should try to build bridges.” UBS, Switzerland’s biggest bank, avoided U.S. prosecution in February 2009 by paying $780 million, admitting it helped wealthy Americans evade U.S. taxes from 2000 to 2007, and handing over account data on more than 250 U.S. clients. The next day, the U.S. sued Zurich-based UBS, seeking data on 52,000 Swiss accounts. UBS settled that case in August, agreeing to hand over as many as 4,450 names to the Swiss government to review before passing them on to the Internal Revenue Service. Unless the Swiss disclose the names, the U.S. may extend the deferred- prosecution agreement beyond its term of 18 months and may reopen the lawsuit that sought 52,000 names. The People’s Party and the Swiss Social Democratic Party voted against the accord in the lower house after they tied their approval to conditions. In the upper house, where the two parties’ support wasn’t needed, the accord was rubberstamped. Parliamentary Deadline The Swiss legislature has until June 18, the last day of the current parliamentary session, to approve the treaty and circumvent a January court ruling that said the deal isn’t enforceable under current Swiss legal provisions. If the lower house votes down the treaty, there won’t be another ballot, while the two houses will negotiate again if the lower house supports the treaty but asks for a referendum. The People’s Party has said it will support the deal with the condition that lawmakers reject proposals to increase corporate taxes on bonuses. The Social Democrats are linking their support to a tax on bankers’ bonuses. The People’s Party is the biggest party in the lower house with 58 deputies, potentially tipping the balance after the treaty was rejected with 104 votes to 76 last week. UBS Plans John Cryan , UBS’s chief financial officer, said the bank would find it easier to recruit private bankers if the country backs the treaty, according to an analyst note from Helvea SA. The accord also would help boost the morale of clients and staff in the U.S., who seem to have been “particularly spooked” by last week’s vote, said Peter Thorne , an analyst at Helvea, after attending a meeting with Cryan in London. One face-saving option for the People’s Party is to accept the requests by all other parties to discourage “excessive” bonuses through higher taxation at the company level. Christoph Blocher, the party’s vice-president and a former member of the government, was quoted by Tages-Anzeiger on June 9 as saying politicians may be able to “find a way out.” Prosecution in the U.S. would put UBS “out of business the next day,” Robert Fink , a tax attorney at Kostelanetz & Fink LLP in New York, told Bloomberg News by telephone. “Financially, it could be catastrophic.” U.S. Business “They could shut down UBS in the U.S.,” said George M. Clarke III, a tax attorney of Miller & Chevalier in Washington. “They could forbid the bank from accessing the Federal Reserve system. It could get ugly.” Almost 37 percent of UBS’s 65,233 employees worked in the Americas at the end of 2009. UBS’s Wealth Management Americas unit managed 690 billion Swiss francs ($604 billion) at the end of the year. A rejection would have a “massive negative effect on the entire Swiss economy,” the Swiss-American Chamber of Commerce wrote in a May briefing note, and Justice Minister Eveline Widmer-Schlumpf has said the agreement had removed “an existential threat” from UBS. “Large and small Swiss companies with international business face uncertain times” regarding taxation, a potential tax haven status and possible discrimination in the U.S., the lobbying group said. “Overall, the potentially affected companies represent 35 percent of the Swiss economy with approximately 1 million jobs,” the chamber said. Plan B Should lawmakers fail to approve the accord, the government may seek renewed negotiations with the U.S. authorities. “I think Switzerland and UBS have a Plan B up their sleeves,” said Rainer Schweizer , a law professor at the University of St. Gallen. “I’m sure the government has examined some alternatives.” Lawmakers are aware of the consequences. “The Americans might not ask us whether they should implement retaliation measures,” Pirmin Bischof , a member of the lower house for the Christian Democrat People’s Party, said on June 7. “As a superpower, they will simply enact them, and we can gnash our teeth.” To contact the reporter on this story: Klaus Wille in Zurich at kwille@bloomberg.net

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