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Jesse Strauss: Will 2010 Be the Year We Revive Corporate Democracy?

January 22, 2010

While a lot of attention has been paid to government’s efforts to reign in systematic risk in the financial system and increase oversight, very little has been written about the mechanisms by which our corporate economy will “self correct” after the failures of the past few years. That’s unfortunate because reforming the way corporations govern themselves is key to avoiding another crisis. Although slightly under the radar, in 2010, the Securities and Exchange Commission is set to unveil new rules that will recalibrate the balance of power between corporate management and shareholders by, hopefully, requiring corporations to adopt “proxy access” rules. Proxy access refers to the ability for shareholders who meet certain thresholds (amount of shares owned and the length of continuous ownership are two of the most prominent) to use management’s proxy to nominate their own directors and, in some cases, recommend changes to the corporation’s by-laws for the purpose of changing the way directors are nominated. In the corporate governance universe, proxy access is one of the few ways shareholders, as opposed to management, can actively govern a corporation. The contours of the debate are stark but are little known out side the insular world of corporate boards, activist shareholders and the lawyers and consultants who love (and loath) both. You see, for a long time the Securities and Exchange Commission (and the federal government as a whole) has supported a proxy access regime that, essentially, disenfranchised shareholders and empowered management. The prevailing idea was what is called “private ordering:” every corporation was free to determine its own proxy access rules without any “public” interference. Most corporations simply decided that the best proxy access was no proxy access. Shareholders could always try to take matters into their own hands and force the corporation to adopt fair proxy access rules but that rarely happens because of the myriad ways that corporations can prevent changes to their by laws by shareholders. For good measure, SEC Rule 14a-8 requires corporations to have some semblance of proxy access. But Rule 14a-8 is so loophole ridden that its almost a farce. For example, under the current rule corporations are allowed to exclude shareholder proposals that relate to elections (so no insurgent director nominees needed to be included on management’s proxy) and corporations are permitted to exclude proposals that “are improper under State law.” That last one is a doozy: turns out that the Model Business Corporation Act, the template for most States’ Corporations Law, says that by-law amendments requiring mandatory proxy access are prohibited. (There is some change afoot because Delaware, where many large corporations are incorporated, recently changed its law. However, the fact that the law can vary from State-to-State is itself problematic since those differences create large transaction costs for diversified investors. That is a topic for another post). I like government and believe in democratic law making, but things like that make me wonder: who writes this stuff? The proposed rule changes would create a “public ordering” of proxy access rules. Public ordering means that every company would be required to have some form of proxy access so shareholders could nominate their own directors using management’s proxy (basically, the names of shareholder nominated directors would appear next to the slate of management/board nominated directors). Companies would be able to “opt-out” of the rule (the default rule would allow for proxy access) but only by a vote of their shareholders where the benefits of proxy access are full disclosed. An alternate proposal would amend SEC Rule 14a-8 to that it no longer allows corporations to exclude shareholder proposals for proxy access from management’s proxy. The latter (permitting access to management’s proxy for the purposes of proposing proxy access) is sort of a modified “public ordering:” it would, essentially, require companies to ask shareholders whether they want proxy access (to “opt-in”), although the default rule would be no access. Modified public ordering might do the trick but its fraught with risk. If the SEC adopts a rule that requires shareholders to place proxy access proposals on their proxies (an “opt-in regime”) you can be sure that corporations will attempt to short circuit the process by proposing their own “watered down” proxy access rules. This is not some hypothetical threat: in fact, some of the “great minds” of corporate governance are proposing, in part, just that. Examples of “watered down” proxy access proposals include those are merely precatory (fancy legal word for “optional”) and those with prohibitively high ownership and length-of-holding-requirements). I believe that the proxy access rules yeilded by an opt-in system with a default no access rule would yield would be a little short of worthless to shareholders. The SEC needs to adopt a uniform proxy access rule (“public ordering”) that every company must adopt – a default access rule with the ability to “opt-out” if shareholders so desire. Of course, my opinion is not shared by most of the lawyers and consultants who advise corporations on governance issues: they oppose public ordering and tend to support various opt-in proposals. I regard their opposition as somewhat suspect because most of these lawyers and consultants do a lucrative business in custom tailoring corporate by-laws to be resistant to shareholder demands. Its possible that some genuinely fear that some malignant force will infiltrate corporate boards and will, somehow, do a worse job running American corporations than the current crop of directors. As with most conspiracy theories, the hard evidence for that threat is lacking. For one, many large investors are “buy-and-hold” pension funds looking for a sound investment and a steady return for the pensioners whose retirement funds they have a fiduciary obligation to maintain (and U.S. equities are probably one of the less risky investments these funds are in). Whatever their motives, the anti-public ordering gang’s reasoning doesn’t stand up well under scrutiny. On the first spin of the anti-public ordering “Wheel-Oh-Excuses” we land on the idea that a company should not be required to adopt a “one size fits all approach” but rather should be permitted to “opt-in” to the rule if its right for them, or design their own. That would make proxy access the only SEC rule that is, essentially, “voluntary.” A voluntary rule is unworkable and the idea that companies can decide whether to adopt or reject a financial regulation designed to protect investors requires a degree of intellectual contortion that I find unbecoming. There is nothing stopping boards from adopting proxy access now but, by one count, only three companies (out of the thousands registered) have actually put in place a workable proxy access rule. Besides which, if a company believes that the SEC uniform rule is inappropriate for them it can always design its own proxy access rule that conforms to whatever minimal protections are provided by the publicly ordered proxy access regime. In other words, the SEC’s “one-size-fits-all” suit is made with a lot of elastic. A second objection is, perhaps, more interesting and more intellectually honest: under principles of federalism, corporate governance should be left to the States. Its an old argument that has a simple retort: State control of corporate governance has lead to a “race to the bottom” where management has been able to pick and chose where to incorporate based on the States with the weakest protections for shareholders. While apologists for corporate America celebrate this system, I think it’s a boon for hucksters. Professor Bainbridge of UCLA, an expert in these matters, gives a spirited defense to the idea of State control of corporate governance matters . Unfortunately, if you read his posting as a whole, it has a glaring inconsistency: the first part of the post talks glowingly about the benefits of a strong board insulated from outside pressures (even going so far as to deride the generally non-controversial idea of cumulative board voting because it, allegedly, exacerbates majority-minority splits and leads to board dysfunction) while the second part seems to indicate that shareholders are willing to pay a premium for corporate governance structures that have generous shareholder protections. At the risk of starting an argument with someone far smarter than me, I don’t think it really adds up. There is also a three-card-monte element to the argument since Professor Bainbridge should be well aware that the ability for shareholders to nominate directors in the first place is an issue of State law (a few States actually prohibit it, a silly prohibition that rests with those retrograde State legislatures to address). However, the proposed proxy access rules address disclosure of the nominees on management’s proxy. That distinction is critical because disclosure issues have been governed by the Feds since at least the 1930s. Perhaps the most insidious of the arguments against a uniform rule is what I will call the “love you to death” argument: corporate democracy is about choice, so shareholders should have a choice to adopt their own rules even if that means that shareholders can disenfranchise themselves. (Pause for a head scratch). While that’s all well-and-good, there are so many ways that management stymies shareholder control that requiring shareholders to select their own proxy access regime (“opt-in”) without a default access rule means that there probably won’t be one. Finally, I would be remiss if I did not mention that some observers think that a uniform proxy access rule violates something called the Administrative Procedure Act. While this may or may not be true, I’ve been practicing law long enough to know that every legal opinion has a counter-opinion and, in any event, the APA, being a creature of Congress, can certainly be amended if it’s the only true legal obstacle to corporate democracy. How to sum this up? Well, let me try it this way: Proxy access relates to the most fundamental aspects of corporate governance which is the ability of shareholders to run the corporations that they own. If the economy was humming along and American corporations were still the strongest and best run in the world you’d probably be entitled to relegate proxy access to “that’s interesting” category or, for that matter, the “that’s really boring” category. However, when American corporations are losing their global competitiveness at an alarming rate or just plain failing (General Motors, Chrysler, AIG, Lehman Brothers, Bear Stearns… and the list goes on, sadly) compliancy is not an option. Pay attention as the debate heats up in the coming months.

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California Loses Most Jobs as Ranks of States With 10% Unemployment Swell

January 22, 2010

By Courtney Schlisserman Jan. 22 (Bloomberg) — Employment dropped in 39 U.S. states in December, seven more than in the prior month, indicating job losses were widespread. Payrolls in California showed the biggest decline, falling by 38,800 last month, according to figures issued today by the Labor Department in Washington. Texas followed with a 23,900 decline and Ohio was next with a 16,700 drop. With the national unemployment rate projected to average 10 percent this year, state budgets may continue to be strained by limited tax revenue and jobless insurance payments. While the pace of firings has eased over the last year, the time it is taking to find a job rose to a record 29.1 weeks in December. Employment is “still very weak, which is why we think the unemployment rate is going to continue to rise,” Marisa Di Natale , a director at Moody’s Economy.com in West Chester, Pennsylvania, said before the report. “There are some states that are in pretty big trouble, fiscally speaking. 2010 is not going to be a good year.” The jobless rate in the U.S. held at 10 percent in December, the Labor Department said on Jan. 8. A jump in the number of discouraged workers leaving the labor market kept the rate from rising. Payrolls fell by 85,000 last month and followed a gain in 4,000 in November that was the first increase in almost two years. The U.S. has lost 7.2 million since the start of the recession in December 2007, the most of any slowdown in the post-World War II era. Exceeding 10 Percent The number of states with at least 10 percent unemployment climbed to 16 last month, two more than in November, today’s report showed. Mississippi, with a jobless rate of 10.6 percent, and New Jersey, at 10.1 percent, joined the list. New Jersey’s rate was the highest in 32 years. New York City’s unemployment rate rose to 10.6 percent last month, the highest since March 1993, the state’s Labor Department reported yesterday. The state’s jobless level climbed to 9 percent from 8.6 percent. Michigan remained the state with the highest level of unemployment at 14.6 percent. Nevada followed at 13 percent and Rhode Island was next at 12.9 percent. Joblessness in South Carolina, Delaware, Florida, North Carolina and the District of Columbia in December reached the highest level in monthly records going back to 1976. Nothing Working “I try to make the connections, I meet people and give them follow-up e-mails, nothing right now seems to work,” said Kyra DeBlaker-Gebhard, who lives in the nation’s capital. “I’m concerned the longer I’m not working the less desirable I look.” DeBlaker-Gebhard, 32, lost her job with the AARP in Washington, the advocacy group for the elderly, in March. She worked as a contractor for the government from July through October and has since resumed collecting unemployment benefits while sending out resumes. She has had two interviews in the last year. “I don’t feel confident,” DeBlaker-Gebhard said. “Even part-time jobs are hard to come by.” Employment in all 50 states dropped in 2009, with Wyoming, Nevada, Michigan and Arizona showing the biggest percentage decreases. The District of Columbia gained jobs, adding 6,200 in the 12 months to December. Nevada and West Virginia had the biggest increase in joblessness among states last year, each climbing 4.6 percentage points. Alabama was next with a 4.5-point gain, followed by Michigan’s 4.4-point increase. To contact the reporter on this story: Courtney Schlisserman in Washington at cschlisserma@bloomberg.net

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James Jubak: Countries That Have Their Financial Acts Together

January 22, 2010

As far as I know, there’s no financial-markets law saying that if some countries get a credit-rating downgrade, then others must get a credit-rating upgrade to keep the system in balance. But right now it seems to be working that way. The past year has brought credit-rating downgrades to Portugal, Spain, Ireland and Greece, and credit-watch warnings to the United Kingdom and Mexico. And it has brought credit-rating upgrades to Brazil, Peru, Turkey and Indonesia, and credit-outlook improvements to Russia and India. See a pattern here? Some of the world’s developed economies are getting downgrades. If you included the U.K. and Mexico, I’d change my language slightly to say that many of the financial markets that U.S. investors know best are in trouble with the credit-rating agencies. (Read more on the chances that the United Kingdom will get a credit-rating downgrade here . For a look at Japan’s financial problems, see my post “Is Japan Betting it’s Future on a New Weak Yen Policy? ) Meanwhile, countries that have been off the radar screen for decades are getting upgrades. When Brazil got its upgrade from Moody’s in September, it marked the first time that the country had an investment-grade rating from all three of the big U.S. credit rating companies. Frankly, I don’t know what’s more shocking: the prospect that the United Kingdom could lose its AAA rating in 2010 or that Peru earned an investment-grade rating in December. You might scoff at the source of these ratings. These are the same companies — Moody’s, Standard & Poor’s , and Fitch Ratings — that missed the deterioration in credit quality in the run-up to the U.S. mortgage-backed-securities bust. You certainly should question whether bond investors have let some of these ratings go straight to their heads, resulting in some questionable pricing based on turning current events into long-term trends. For example, the five-year credit default swaps that are a way to insure against a default by Indonesia are priced just 0.01 percentage point above those for Greece, even though Greece has a current credit rating four notches higher than Indonesia’s. And credit-rating companies do tend to grade on a scale. If the United States and the United Kingdom are still AAA-rated risks these days, how can Brazil’s investment-grade status even be a question? But there’s enough reality to these upgrades and downgrades that I think we’re looking at a long-term trend. It may not be the world turned upside down, but it’s close enough that investors need to re-engineer their portfolios to take it into account. After I expend a few words in an attempt to convince you that there’s more here than Wall Street hyping another investment strategy, I’ll give you some suggestions on how to incorporate this new world into your portfolio. Peru is a great example — and probably a story that you don’t yet know by heart — of the reality that lies behind these changes in credit ratings. On Dec. 15, Moody’s became the last of the big three credit-rating companies to raise Peru’s sovereign debt to investment-grade. Luis Carranza, Peru’s finance minister, announced the upgrade at a news conference that essentially boiled down to “What took you so long, Moody’s?” Fitch Ratings and Standard & Poor’s had upgraded Peru in 2008. Certainly Moody’s had plenty of evidence to work with, Carranza noted. At the start of the decade, Peru’s national debt equaled 50% of the country’s gross domestic product. It now stands at just 25%. (The United States is on track to finish fiscal 2011, ending Sept. 30, 2011, with a debt equal to 98% of GDP, according to the International Monetary Fund. About 40% of Peru’s debt is denominated in the national currency, the nuevo sol . A decade ago, almost all of the country’s debt was denominated in dollars. With debt denominated in its own currency, Peru is a lot less susceptible to a financial crisis caused by U.S. dollars fleeing the country. Economic growth, which had dropped to 1% in 2009 from 10% in 2008, will climb to 5% in 2010, Goldman Sachs projects. Inflation, which ran at 0.25% in 2009, should pick up modestly this year. Certainly Moody’s had plenty of evidence to work with, Carranza noted. At the start of the decade, Peru’s national debt equaled 50% of the country’s gross domestic product. It now stands at just 25%. (The United States is on track to finish fiscal 2011, ending Sept. 30, 2011, with a debt equal to 98% of GDP, according to the International Monetary Fund. About 40% of Peru’s debt is denominated in the national currency, the nuevo sol. A decade ago, almost all of the country’s debt was denominated in dollars. With debt denominated in its own currency, Peru is a lot less susceptible to a financial crisis caused by U.S. dollars fleeing the country. Economic growth, which had dropped to 1% in 2009 from 10% in 2008, will climb to 5% in 2010, Goldman Sachs projects. Inflation, which ran at 0.25% in 2009, should pick up modestly this year. Not that Peru’s perfect now. The economy is still heavily concentrated in mining, timber and oil and gas production, industries known for their boom-and-bust cycles. Development is highly uneven; the bulk of the wealth is going to the coastal region at the expense of the much poorer interior. The poverty rate has plunged from 50% in 2003 but still stands near 35%. Conflicts between indigenous groups — half the people in Peru identify themselves as members of an indigenous group — and the central government over control of development in the interior, and resulting profits, haven’t gone away. (Peru, I want to note, is the only country in Latin America to sign on to the Blair. The goal of the project is to make it easier to monitor cash flows from energy and mining companies to local and national governments.) Like Indonesia and Brazil, Peru is a country that didn’t appear on the global financial map for decades. And now it does. What does this mean to you, if you’re an investor in the United States or one of the other developed economies of the world? Three things: You need to expand your world map. Peru didn’t used to count. Its economy couldn’t put two good years together. Its debt wasn’t anything you wanted to own. It didn’t matter if you couldn’t name a single Peruvian company. Your portfolio wasn’t missing anything. And that was true of countries such as Brazil and Indonesia that have much bigger populations and take up an even bigger chunk of global real estate than Peru does. You could afford to ignore them. I don’t think that’s true any longer. You need to put a dollop — a modest spoonful to start — of emerging-market debt into your portfolio. Include it as part of whatever you allocate to bonds and fixed income assets now. Emerging-market bonds pay higher yields than developed-country bonds, and these countries are earning credit-quality upgrades instead of facing capital-destroying downgrades. Don’t go overboard, and don’t go crazy trying to analyze this paper for yourself. Use a mutual fund or an exchange-traded fund. Two funds to consider are Fidelity New Markets Income (FNMIX)) and Pimco Emerging Markets Bond D (PEMDX). For an ETF, take a look at iShares JPMorgan USD Emerging Markets Bond (EMB ). Think about the effect of a rising credit rating on not just a country’s bonds but on its stock market, too. A higher credit rating means lower interest rates — by and large positive for a national stock market. It means easier access to capital and lower capital costs for a country’s companies — which makes expansion easier and, by cutting interest payments, increases earnings. And an improved credit rating is shorthand for a government budget that’s under control and doesn’t require tax increases and/or rising interest rates that damp economic growth. An improving credit rating should put a country’s equities, as well as its bonds, on your investing radar screen. Again, I think a good first step, if you’re new to emerging-market investing, is an ETF such as the iShares MSCI Emerging Markets Index (EEM). But an emerging-market equity index has some drawbacks that you should consider as you gain experience in this part of the global equity market. Because the index is weighted by market capitalization, a buyer gets a very heavy dose of the biggest names in each emerging market. And because those big-cap stocks tend to be concentrated in a few industries — mining and telecommunications services, for example — buying the index gives you more concentration in a few industries than you might like, or more than your portfolio will appreciate if the cycle turns against a heavily cyclical industry such as mining. You’ll also wind up light on smaller and more-innovative companies in these emerging economies. I’ll be writing about some of those smaller, harder-to-find — and often less expensive — companies in the weeks to come.

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Iranian Who Quit as Envoy to Norway Calls for Foreign Minister to Resign

January 18, 2010

By Ali Sheikholeslami Jan. 18 (Bloomberg) — Mohammad-Reza Heydari, who said he quit his job as Iranian consul in Norway to protest his government’s crackdown on protesters, called for Foreign Minister Manouchehr Mottaki to join him in resigning. “We should be the protectors of the interests of the Iranian people,” Heydari said today in a telephone interview from Norway. “We should be with them, not against them.” The government in Iran hasn’t accepted his Dec. 24 resignation from the post at the country’s embassy in Oslo, Heydari said. He said he hoped Mottaki and other members of Iran’s diplomatic corps will also resign to show solidarity with the people. Iran has detained about 1,000 people since clashes last month that left at least eight people dead, the toughest crackdown yet on opposition supporters who allege President Mahmoud Ahmadinejad ’s re-election was rigged. He denies the allegation. The government accuses Western countries of inciting the demonstrations in Tehran and other cities, and says it has arrested an unspecified number of foreigners. To contact the reporter on this story: Ali Sheikholeslami in London at alis2@bloomberg.net .

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Adam Hanft: The Haiti Tragedy: Why Is There Digital Silence?

January 18, 2010

Tragedies are capitalist conundrums. Whenever the world is gripped by an unfolding disaster, American corporations wrestle with their response strategies. Ignore it and you risk looking detached, or worse, callous. Particularly in an era when consumers expect big companies to make big gestures. But splash it over your website and you run another risk — coming across as grubby and opportunistic. Public skepticism isn’t what it used to be, though. Walmart’s heroic response to Katrina, in comparison to FEMA’s ineptitude, sparked excited commentary like this in the Washington Post : “…an unrivaled $20 million in cash donations, 1,500 truckloads of free merchandise, food for 100,000 meals and the promise of a job for every one of its displaced workers — has turned the chain into an unexpected lifeline for much of the Southeast and earned it near-universal praise at a time when the company is struggling to burnish its image.” So what has been the corporate response to the wrenching scenes out of Haiti? A quick scan of the websites of some of our most well-known brands indicates a surprising – if not shocking – minimalism It’s nothing even close to the post-Katrina period, when website after website devoted their home pages to messages of shared sorrow and invitations to contribute to the relief programs. The reason this is important to assess is that a company’s website is a wide-open front door into its heart and soul. Visibility is strategy. Responsiveness is diagnostic. What’s featured and what isn’t featured – and what the relative emphasis is – speaks volumes. And in our world of instant digital communication, in which websites can change in seconds, when a major American institution chooses to ignore a global catastrophe, without even a pro forma “Our hearts are with the people of Haiti” message, it makes you wonder about them. • Let’s start with our eleemosynary friends at Goldman Sachs , Bank of America , JP Morgan Chase and Morgan Stanley , whose CEOs testified before a bi-partisan Congressional Committee on the financial crisis last week. I don’t know what their response was during Katrina. But today, when they should be scrambling for any shred of goodwill, their websites are completely silent about the devastation, not even an insey weensey “Contribute to Haiti” button. You’d think (hope?) one of their PR flaks would have said “Hey guys, let’s burnish our brands a little while we’re in the withering glare.” But nothing. And the silence is devastating; they don’t even care enough pretend. • Wal-Mart hasn’t given its Haiti efforts any dramatic home-page placement. There’s just some small real estate below the fold that features a Red Cross logo and an invitation to “Join Walmart’s efforts to support those in need.” Click on the link, though, and you come to a page dedicated to the company’s efforts in Haiti. While not on a Katrina-like scale, they include a $400,000 monetary donation. Target goes bigger than its rival Walmart on their home page – with a big horizontal banner that sits right under their logo and top navigation. Click on it and you come to a page that details “How Target is Helping” and “How You Can Help.” • Media companies are obviously following the story intently, and their websites show it. But while their newscasts continually direct viewers to organizations who are accepting donations, it’s curious that their websites generally offer no opportunities for readers to contribute. Nor do they boast of their own philanthropic efforts; that’s probably to be expected, given that media companies are experiencing their own metaphorical earthquakes. NPR asks for donations, but PBS , the New York Times , the Wall Street Journal and USA Today don’t. CNN is running a paid ad unit from a non-profit World Vision, asking for contributions. (Yikes, does that mean they are profiting from the earthquake?) • Big consumer brands, usually quick to associate themselves with so-called CSR – Corporate Social Responsibility – efforts, are conspicuously mute. Surprisingly, that includes Starbucks and Nike , two brands that usually chase down socially conscious opportunities wherever they find them. Their websites are acknowledgement-free zones. The cone of silence extends to Coca-Cola , which is a fascinating case because their foundation donated a million bucks. But their website doesn’t hint at that; it remains plushly dedicated to their “Open Happiness” message. Clearly, they’ve resolved to keep their philanthropic and marketing efforts separate, perhaps deciding that the grim news out of Haiti would be inappropriate in juxtaposition to the bubbly promise of “Open Happiness”. A perfect example of the Capitalist Conundrum. As for Amazon, they yield some room above the fold, in the upper right portion of its homepage, asking for donations to “Mercy Corps to help victims of the Haiti earthquake.” • Most technology companies and telecom are too busy. IBM , HP, Verizon and Sony keep their mouths closed. Microsoft is an exception, with a message on the home page that links to an impressive page that notes the company has made an initial commitment of $1.25 million and that it has: “… activated its Disaster Response Team. Through Microsoft’s support, nonprofit partner NetHope has been able to set up an immediate response, with specific focus on establishing temporary telecommunications infrastructure to allow humanitarian agencies to communicate and provide relief to the affected victims.” • Google’s and Apple , as you might expect, are also exceptions. Google’s home page features a big link that reads “Information, resources, and ways you can help survivors of the Haiti earthquake.” The link takes you to a page that references Google’s $1 million contribution, but is largely devoted to a range of contribution options, including Unicef and CARE, as well as organizations that only accept SMS donations. Apple has a small message on their homepage, which takes to the iTunes store. There, the usual storefront is replaced an interruptive page which asks for donations to the Red Cross in amounts from $5 to $200, with all transactions processed through iTunes. Lastly, the site for the Vatican makes no reference to the earthquake. (Note to Holy See webmaster: Time to take down “Christmas 2009″ from your site messaging.) Bottom line: compared to Katrina or the 2004 tsunami – when the Internet was far less developed – most of corporate America has chosen to leave Haiti unacknowledged on their websites. They’ve chosen not to leverage their digital presences; which means no opportunities to contribute, and certainly no efforts to use their databases or social media to rally support. I don’t know if it’s disaster fatigue, or if the recession has downsized their digital departments, but our biggest companies have failed to rise even to the level of meretricious opportunism.

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Hedi Annabi, Head of UN Mission in Haiti, Confirmed Killed in Earthquake

January 16, 2010

By Bill Varner Jan. 16 (Bloomberg) — Hedi Annabi of Tunisia, the head of the United Nations peacekeeping mission in Haiti, was killed in the collapse of the mission’s headquarters during the earthquake that struck the capital Port-au-Prince on Jan. 12, the UN said. He was 66. The UN also confirmed the death of Luiz Carlos da Costa of Brazil, the deputy head of the mission, and acting police commissioner Doug Coates of the Royal Canadian Mounted Police. “In every sense of the word, they gave their lives for peace,” UN Secretary General Ban Ki-moon said in a statement. “The United Nations was his life and he ranked amongst its most dedicated and committed sons,” Ban said of Annabi. “He was passionate about its mission and its people. He gave of himself fully — with energy, discipline and great bravery.” Annabi worked with the UN since 1981, most recently as assistant secretary-general for peacekeeping from 1997 until his appointment to the post in Haiti in 2007 by Ban. He led UN efforts from 1982 to 1991 to achieve political reconciliation in Cambodia and from 1993 to 1996 was head of the peacekeeping department’s Africa Division. Annabi was a top adviser to Tunisia’s prime minister before joining the UN. The UN said 40 members of the peacekeeping mission are confirmed dead and that another 188 are unaccounted for in the rubble of its buildings, which collapsed during the earthquake. To contact the reporter on this story: Bill Varner at the United Nations at wvarner@bloomberg.net

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Paulson Asked to Testify on AIG Bailout Before House Oversight Committee

January 15, 2010

By Hugh Son Jan. 15 (Bloomberg) — Former Treasury Secretary Henry Paulson has been asked to join his successor Timothy Geithner in testifying before a House panel investigating bailout payments to American International Group Inc. ’s trading partners. Paulson was invited to a Jan. 27 hearing set by Edolphus Towns , chairman of the House Oversight and Government Reform Committee, about the decision to fully reimburse AIG’s bank counterparties for $62.1 billion in derivatives. Stephen Friedman , the former Federal Reserve Bank of New York chairman who serves on the board of Goldman Sachs Group Inc., has also been asked to appear, Towns said in a statement today. “Chairman Towns is well aware of the fact that President Bush’s Treasury secretary orchestrated this bailout,” Jenny Rosenberg , a spokeswoman for the New York Democrat, said in an e-mail explaining why Paulson was invited. The request widens the probe into what lawmakers have called a “backdoor bailout” of banks that benefited from the $182.3 billion U.S. rescue of AIG. Geithner, who ran the New York Fed when AIG was saved in 2008, agreed to testify before the committee after Darrell Issa , a California Republican, released e-mails last week showing that the New York Fed asked AIG to withhold data about bank payments from filings. The Federal Reserve and Treasury should be subpoenaed for documents tied to the rescue and attempts at limiting disclosure, Issa said today in a letter to Towns. Towns subpoenaed the New York Fed this week for Geithner’s AIG-related e-mails and phone logs after Issa, the ranking Republican on the oversight committee, called for the documents. Bernanke, Paulson “This committee’s investigation will not be complete until we gain the perspective of all the most senior government officials responsible for the AIG bailout,” Issa said in the letter, in which he called for Federal Reserve Chairman Ben S. Bernanke and Paulson to answer questions about the bailout. Geithner became President Barack Obama ’s Treasury secretary last year, replacing Paulson, who held the post under President George Bush . New York Fed officials have said that Geithner wasn’t involved in limiting public disclosure about the payments to banks including Goldman Sachs and Societe Generale SA. “You know I haven’t looked at those memos actually. I wasn’t involved in that decision,” Geithner said yesterday on the CNBC television network. “I do think the Fed did disclose all of that information subsequently. It’s important that the American people see all of this information.” Bernanke and Paulson should answer, in affidavits, if they were consulted on the decision to pay banks 100 cents on the dollar for protection tied to subprime mortgages and if they knew about efforts to ask AIG to withhold information from filings with the Securities and Exchange commission, Issa said. ‘No Role Whatsoever’ Paulson, a former Goldman Sachs chief executive officer, testified in July that he had “no role whatsoever” in the decision to fully reimburse the banks. Michele Davis, a spokeswoman for Paulson, declined to comment. Friedman didn’t immediately return a request for comment left with his assistant Ginny Cser . Geithner decided to pay AIG’s counterparties for the full value of the underlying assets tied to credit-default swaps even though the bonds had declined in value, according to a November report by Neil Barofsky , the special inspector of the U.S. Troubled Asset Relief Program. The insurer’s rescue “provided AIG’s counterparties with tens of billions of dollars they likely would have not otherwise received,” Barofsky wrote. The hearing will also include testimony from Barofsky, New York Fed General Counsel Thomas Baxter and Elias Habayeb , the former chief financial officer of AIG’s financial services division, Towns said today. AIG said in a draft of a filing in December 2008 that it paid banks “100 percent of the par value” for securities tied to the swaps. The New York Fed crossed out the reference to the full payments in the draft, according to the e-mails released by Issa, and AIG excluded the language when the filing was made public Dec. 24, 2008. To contact the reporter on this story: Hugh Son in New York at hson1@bloomberg.net

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Dan Dorfman: A Dozen Stocks To Shun In 2010

January 14, 2010

With the stock market off to a rousing start this year, many investors who swore off equities forever during the 2008 debacle are starting to come back big time. If you believe the bullish economic case, that’s fine. But given all the unknowns and uncertainties, you’ve got to be deaf, dumb or blind to own the stock of a risky, problem-ridden company–which many investors appear to be doing–that could bloody you. It’s almost equivalent to having sex with someone who is diseased. In this respect, meet Wall Street’s dirty dozen, 12 companies, mostly household names and primarily components of the S&P 500 Index, that one research outfit says you should absolutely shun in the year ahead. That’s the conclusion of a team of analysts at Casey Research in Stowe, Vt., a subscription-oriented investment and economic consulting service, based on a recently completed analysis. The rationale for their bleak outlook on the stocks on which they’re flashing an S.O.S. for the year ahead chiefly centers on the following: Many are saddled with questionable, fundamentally weak businesses and significant debt, in some cases more debt than they can pay off. The shares of the companies are sporting ludicrous valuations based on dubious assumptions of their growth. A number of the dirty dozen could well go bankrupt over the next one to three years. As a group, these stocks, Casey reckons, should be highly volatile, underperform the market and are ripe for significant declines. Interestingly, most of these stocks are up 100% to 300% in the past 12 months, and some close to 400%. “While many of the dirty dozen will survive, they will not thrive,” says Alex Daley, a participant in the analysis and senior editor of the firm’s technology division. The dozen are Carnival Cruise Lines; MGM Grand; Abercrombie & Fitch; Blockbuster; Salesforce.com; Palm; Comcast, which is acquiring control of NBC; Ford; Genworth Financial; Range Resources; RedHat, and Tenet Healthcare. Zeroing in on the three whose shares he rates the riskiest, Daley kicks off with Carnival Cruise Lines, whose passenger counts fell 10.9% in its most recent fiscal year, with total revenues sliding more than $1.5 billion from $14.6 billion to $13.1 billion and passenger revenues falling more than $1 billion. Despite the weak demand, the company is launching six new cruise ships this year, most bound for Europe, one of the weakest economic regions around. On top of this, another 13 ships are due by May of 2012 (up from the current 93 ships), but with falling sales, there’s a question as to whether the demand will be there to fill them up. Meanwhile, balance sheet worries abound. The company has burned through $1.05 billion of cash over the last 12 months and has less than a third of the current assets it needs to pay off long-term debt. Las Vegas’ biggest casino operator, MGM Grand, which lost $6.06 a share over the last 12 months and has been behind in its debt over the last four quarters, is another one of Casey’s riskiest stocks. Add to that, observes Daley, a 9% increase in available rooms across the city last year despite at least a 10% drop in visitors, and you can see why the company had to lower its room rates some 22% to keep people coming. Adding to MGM Grand’s woes, its 4,500-room joint venture with Dubai World, shows all signs of crumbling (a $200 million writeoff from the project has already been taken). Video store king Blockbuster rounds out Daley’s third member of his worst trio. Technology is stacked against them and Blockbuster’s market is disappearing, Daley says. Rivals like Netflix, iTunes and Cable on Demand, he points out, are stealing Blockbuster’s business, while its expensive retail stores are being destroyed by the Post office (through which you can get DVDs delivered by the mail). In addition, the company’s revenues over the past 12 months are down 17.5%, while, on an earnings per-share basis, it lost money from 2004 through 2008, and almost certainly did so again in 2009. With the shares of Ford surging 392% last year, the view of a number of market pros is that the troubled automaker is largely out of the woods. To the company’s credit, it has been diligent about cutting costs. Further, over the last quarter, it has generated more than $1.75 billion in free cash flow. Likewise, it has managed to push out most of its debt through restructuring, which allowed them to remain solvent in 2009 and probably 2010, as well. On the other hand, notes Daley, stricter fuel economy standards are pushing up production costs, foreign competitors do not have the same union obligations and the auto business is highly cyclical–all of which could, he says, could spell a tough couple of years ahead for Ford and make it hard to get behind a stock that is already up nearly 400% in the past year. Owning control of NBC–a proposed $30 billion transaction by Comcast–may impress some investors. But Casey takes a dim view of the deal, calling it a desperate move by Comcast to control more content and use it to make their video service still viable for the next few years–practices which may run afoul of government objection. Daley argues they’re overpaying for a business that has limited growth prospects. He also notes that Vertizon’s FIOS is snapping up huge chunks of Comcast’s most profitable customers wherever they compete. Summing up his view of Comcast, Daley cites a sorry blending of cost pressures, limited grkwth and declining margins, alh of which add up to bad news for investors. Daley notes some of the dirty dozen are doing well, but are highly vulnerable because of astronomical stock valuations. In particular, he points to RedHat, which as trading at more than 70 times earnings, and Salesforce.com at 117 times earnings. In Hollywood’s successful 1967 war film, The Dirty Dozen, a group of jailed American GIs was formed to kill top Nazi officials. The plan succeeded, but in the process, a number of the GIs died. Alas, Casey is suggesting a similar fate may befall Wall Street’s dirty dozen. What do you think? E-mail me at Dandordan@aol.com

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Rob Johnson: FCIC Hearings Must Shatter the ‘Sociopathic Nature’ of Wall Street

January 13, 2010

The Hearings of the Financial Crisis Inquiry Commission began belatedly this morning. Carrying a structure of decision making that appears to be designed to make it hard to get things done, Chairman Phil Angelides has a gargantuan task before him. The first session, which is a beginning, did have moments of import. Angelides acquitted himself well when he reminded Goldman Sachs CEO Lloyd Blankfein of the fact that there were people on the other side of the losses, particularly police pension funds, when Goldman appears to have sold the “sophisticated investors” representing them some toxic mortgage paper. What I find important about that moment is that Angelides’ questions serve to restore some humanity to this process that hides behind complexity, mathematics and screens while denying of human consequences. The sociopathic nature of Wall Street-a culture in which people see their actions as disassociated from the rest of the economy and society — has to be shattered. These financial professionals have failed as experts and custodians of the well being and future of the nation. Another noteworthy element of the theatre was the relative absence of Jamie Dimon. He was hardly questioned or pressed. Lloyd Blankfein has been cast as the feisty defender of Wall Street practice. The example of Goldman Sachs’s conflict of interest between the proprietary account of the firm and well being of customers is certainly not unique to the firm. It would serve us all if the FCIC were to dig deeper into how that conflict operates. The other highlight was Blankfein’s declaration that he was never asked to take less than 100 cents on the dollar on AIG settlements. Most assuredly, future hearings will delve into the interface between private firms and the government authorities at the Federal Reserve and the Treasury Department. One only hopes that the FCIC can get to the bottom of this relationship before we pass financial reform legislation in the Congress in the coming year. This post originally appeared on New Deal 2.0

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Jeff Madrick: To Bankers and Regulators: Why the Risky Business?

January 13, 2010

The Angelides Commission should focus on why the financial institutions represented took excessive risk. The questions should be designed to enable Americans to understand how this occurred. Here is what we should know. To the bankers and regulators: Many of your commercial and investment banks had their own mortgage-originating subsidiaries — their own Countrywides and New Centurys, in other words. Citigroup, for example, was almost as active as Countrywide in writing subprime mortgages through its subsidiaries. Merrill bought a big originator as late as 2007. Did you and your executives know that your mortgage origination subsidiaries were writing adjustable rate mortgages that depended on an ever rising housing market to be sustainable? Many home owners had to refinance at the higher equity in order to fund the reset rate on the ARM. Did you simply believe that home prices would rise indefinitely, even given the unprecedentedly rapid rise in the early 2000s? Did you realize your subsidiaries were engaging in predatory lending by writing mortgages for those who could not afford future payments or denying them refinancing options? If your company’s subsidiaries did not originate such subprime mortgages, did you know that your mortgage trading desk and hedge funds were buying or packaging them as parts of mortgage-backed securities? Did you know that by securitizing these mortgages, you were encouraging predatory lending? Defaults on these mortgages started rising in 2006. Did you understand the defaults would inevitably reduce the value of the mortgage-backed assets you had on your books or were selling to clients like pension funds? When did you come to understand that? If you or a responsible executive did not understand this, do you think it was a violation of your legal obligation to shareholders? Did you understand that your collateralized debt obligations were often largely backed by subprime mortgages? Did you keep selling them to investment clients anyway? In the second half of 2007, there was basically a run on SIVs and bank conduits that invested in mortgage-baked securities. The asset-backed commercial paper market essentially revolted. Did you begin to reduce your exposure? If you did not, do you think it was a violation of your legal obligation to shareholders? Did you keep selling mortgage backed securities to clients? If you did, do you think it was a violation of your legal obligation to clients? Do you believe trading houses like your own have an inherent advantage in making money because of access to information about trading flows? Do you believe trading houses like your own can bluff and persuade traders at other firms to take positions and then sell against them? Has this ever happened to your knowledge? Does it happen regularly? Should traders be paid enormous bonuses if that is how they make their money? Did anyone warn you about the excessive risks of mortgage backed securities or leverage in your firm? When did they do so? Was his or her advice heeded? Once banks and investment firms went public in the 1980s and 1990s, traders and bank executives were not longer liable for losses? In fact, bonuses were paid out paper profits-markets to market. It was a system of heads I win, tails you lose. Didn’t this encourage excessive risk-taking? Should this be reformed? How? For regulators at the Fed and the New York Fed, why was it not clear in early 2007 that high defaults in subprime mortgages would affect the entire credit system? There were publications, even by Fitch, the rating services, suggesting the close link between subprime mortgages and the value of mortgage backed securities (MBS) and collateralized debt obligations (CDOs). For regulators, were you ever disturbed that private credit ratings agencies rated MBSs and CDOs without access to the loan files-to the actual mortgages that comprised the securities? For regulators, were you ever aware that there was so little public information about the composition of CDOs or the market value of credit default swaps? When did you start to seek more information about them? Do you think it would help to standardize both CDOs and CDSs and have them listed or traded through a clearing house? Why should we trust the Fed to be vigilant in the future, when conditions change unpredictably? Why did it fail to be vigilant in the past? This post originally appeared on New Deal 2.0

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Fortune’s Stanley Bing: The Grammar Police Strikes Again!

January 13, 2010

I must be out of my mind to care about this spelling, punctuation and grammar nonsense. Nobody else seems to. People go around, in meetings, in casual conversation, in e-mails, “Your right,” an otherwise quite brilliant colleague will message me. Or, “Its something I want to do.” “Their you go,” another will reply. And I look at it and think, “Boys go to Jupiter to get more stupider.” In conversation, I have peeves. I mourn the disappearance of “You’re welcome.” I had a business junket last week, for instance, at the Langham Hotel in San Marino, California, which is a little corner of Pasadena noted for its (not it’s!) elegance, style, wealth and general panache. It used to be a Ritz Carlton, but changed ownership a few years ago and the new operators are terrific. The place shines. Everybody is very nice. Everything went very smoothly at the front desk. “Thank you,” I said to the nice woman there. “No problem,” she replied. “Thank you,” I said to the guy who brought me my first martini. “No problem,” he replied. “Thank you,” I said to the bellhop who fetched my car from the garage when I left. “No problem,” he replied. I’m not sure why that one bothers me so much, but it doesn’t really matter. That ship has sailed. “You’re welcome” is kaput. For anybody who does care about this kind of idiocy, I have a terrific website to recommend to you. It’s from a person who calls himself The Oatmeal. In this post , he goes through the top mistakes people make, including the There, They’re, Their situation, Its and It’s, and many others. The guy (non-gender usage applies) also illustrates his own stuff, and it’s very entertaining. You can go there and enjoy all the distinctions that only fussy fuddy duddies and out-of-the-demo geezers seem to notice these days. Fortunately, we’re still in power for a while. Until then, you’re welcome.

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Mike Konczal: Financial Crisis Inquiry Commission: A User’s Guide

January 12, 2010

This week begins the long-awaited first hearings of the Financial Crisis Inquiry Commission (FCIC). This is a bi-partisan 10-member commission created by Congress to investigate the causes of the financial collapse. It is mandated to create a special report by December 15th, 2010, and will be holding hearings year round. The Commission is expected to have their webpage — fcic.gov — go live today. I’ll be blogging the FCIC live from the hearings through Thursday right here. First, an overview. The FCIC is modeled in part on the Iraq Study group, and in part on the New Deal’s Pecora Investigation. Pecora, in the testimony he found, uncovered a variety of abuses that mobilized the public to pass the banking regulation that provided the financial sector for the postwar boom in the real economy: Glass-Steagall, the Securities Act, and the Securities Exchange Act. Several members of the FCIC are hoping to have policy recommendations available for Congress in their final report. As for the committee itself, there are a lot of hopeful signs. Brooksley Born, who was pushed out of her job in the late 1990s by Larry Summers, Robert Rubin and Alan Greenspan for trying to bring Credit Default Swaps (CDS contracts) under the regulatory umbrella, a story well told in the Frontline documentary “The Warning” is on the commission. Keith Hennessey, who in addition to being a blogger was Director of the National Economic Council for President Bush in 2008 (may want to use subpoena power to learn more about what was being hidden from him by Paulson, Geithner and Bernanke during the crisis), is also on the committee. Phil Angelides has secured the ability to grant whistleblower status to witnesses, a move that may get some surprise testimony. What will the commission bring? Wednesday There are five panels over the two days, three on Wednesday and two on Thursday. The first panel, “Financial Institution Representatives,” has the CEO/Chairman of each of the major four banks: Lloyd Blankfein of Goldman Sach, James Dimon of JPMorgan Chase, John Mack of Morgan Stanley, and Brian Moynihan of Bank of America. If there are going to be headline grabbing revelations at this commission, it will be from this panel. There are any number of questions to ask these four CEOs, and it is just a matter of having enough time to get through the most important ones. The next panel, “Financial Market Participants,” will have members of the investment community: Michael Mayo, a director of Calyon Securities, Kyle Bass of Hayman Advisors, and Peter Solomon of Petere J. Solomon Company. The presumption is that they’ll give an investor perspective on what was going on in the financial markets over the past decade, and their interactions with both the collateralized markets and the largest banks. The last panel of Wednesday will be “Financial Crisis on the Economy,” which will give a much needed perspective on the crisis from the point of the real economy and regular people. There will be C.R. Cloutier, a past chairman of the Independent Community Bankers Assocation, who will likely talk about pressures community banks felt from larger banks their unregulated subprime lending arms. There will be Dr. Rosen of Berkeley and Dr. Zandi of Moody’s Economy.com to talk about the impact on the real economy and the real estate market. And in a heartening sign, Julia Gordon of the Center for Responsible Lending, who will certainly give perspectives from the point of view of individuals who have been run over by the past decade. Thursday The two panels on Thursday will interview government officials, at the federal level for the fourth panel and at the state level for the last one. The questioning of Attorney General Eric Holder will be interesting to see how much the committee wants to push him. State Attorney Generals, including Lisa Madigan of Illinois and John Suthers of Colorado will be testifying. Who I think will be most interesting to hear from on Thursday is Sheila Bair, Chairman of the FDIC and a hero of financial reform. After a long year of surviving Treasury Secretary Geithner’s efforts to remove her from her office, and preventing the grossest subsidies from taxpayers to banks hidden in the Geithner “PPIP” Plan from going through, she’ll probably have a lot of interesting things to say. This post originally appeared on New Deal 2.0

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Telefonica Profit May Trail as Devaluation Heightens Latin American Risks

January 12, 2010

By Paul Tobin Jan. 12 (Bloomberg) — Telefonica SA , Europe’s second- largest phone company, may fall short of profit targets as Venezuela’s currency devaluation highlights risks in Latin America, its fastest-growing market, some analysts said. Venezuela’s decision to devalue the bolivar by 50 percent may halve the more than $2 billion Telefonica had expected to repatriate from the country, its second-largest Latin American revenue generator after Brazil. The Madrid-based company is unlikely to meet its 2010 earnings-per-share goal of 2.1 euros ($3.05), said Georgios Ierodiaconou , an ING Groep NV. analyst. “Going into 2010, it’s going to be very difficult for Telefonica to deliver real growth in operating earnings from Latin America,” said London-based Ierodiaconou, who has a “sell” rating on the stock. “I see a 15 percent downside risk to the 2010 EPS guidance.” Telefonica has invested more than $50 billion in acquisitions in Latin America since the 1990s. Venezuela isn’t the only trouble spot for the company in the region. In Argentina, economic insecurity looms with the nation’s president and chief of the central bank pitted against each other over the use of national reserves to pay debt. Inflation is quickening both in Venezuela and Argentina. In Brazil, competition may intensify after France’s Vivendi SA defeated Telefonica in a takeover battle for phone company GVT (Holding) SA . Negative News Telefonica got 40 percent of revenue in the first nine months last year from Latin America, with the region the only one to post growth for the company. Telefonica’s operations in Latin America span from Mexico to Chile, with 163.7 million clients at the end of the third quarter, or 61 percent of the group’s customer base. Telefonica tumbled 3.2 percent to 18.50 euros in Madrid trading yesterday, the biggest decline in one year, and compared with a 0.6 percent drop in the Bloomberg Europe Telecommunication Services Index . Last year, Telefonica added 23 percent, more than double the 11 percent gain in the index. “Venezuela is not the only threat for Telefonica,” said Luis Benguerel , a Barcelona-based trader who helps manage $140 million at Interbrokers Espanola SA. “The news flow is turning negative from Latin America.” In the first nine months of the year, operating income before depreciation and amortization slipped 2.2 percent to 16.65 billion euros, with Latin America accounting for 40 percent of the total. Annual Inflation Telefonica maintains its short and mid-term goals and its dividend objectives through 2012, spokesman Miguel Angel Garzon said yesterday. The company has pledged to pay a 2010 dividend of 1.40 euros and it aims for a 2012 dividend of at least 1.75 euros. The reiteration came after Venezuela President Hugo Chavez on Jan. 8 devalued the 2.15-per dollar exchange rate for the bolivar to 4.3 and set a rate of 2.6 for imports of items such as food and medicine. Other global companies are also counting the cost of the devaluation. Procter & Gamble Co., the world’s largest consumer- goods company, yesterday said it is reviewing the impact of Venezuela’s devaluation. As of May 2009, Telefonica was seeking permission to repatriate the equivalent of $2 billion from its unit in Venezuela, Chief Financial Officer Santiago Fernandez Valbuena said on a conference call then. The devaluation could erode 2010 net income by 330 million euros, David A. Wright , a London-based analyst at Deutsche Bank, said in a note to investors. Should Telefonica use inflation accounting for Venezuela, the 2010 profit goal could be at risk, he said in the note. Argentina, Brazil Telefonica had 11.9 million clients in Venezuela in September, and generated 6.3 percent of nine-month group sales and 8 percent of Oibda from the country. The devaluation in Venezuela will add to an annual inflation of 27 percent, the highest among the 78 economies tracked by Bloomberg. In Argentina, consumer prices rose 0.8 percent in November from the previous month. Annual inflation quickened to 7.1 percent. Private economists and politicians such as Vice President Julio Cobos have questioned whether the country’s inflation is higher than reported. Argentine President Cristina Fernandez de Kirchner on Jan 7. ousted central bank chief Martin Redrado for refusing to support her plan to tap $6.6 billion in reserves to pay debt this year. A day later he returned to his post after a judge blocked a decree signed by Fernandez and her entire Cabinet dismissing him. Argentine bonds slumped to a one-month low last week amid the dispute. In Brazil, Vivendi gained control of GVT in November with an offer worth 7.2 billion reais ($4.2 billion), or 56 Brazilian reais a share, bringing increased competition for Telefonica. The Spanish company had offered to pay 50.50 reais per share, 20 percent more than an initial 42-reais offer that Vivendi disclosed in September. To contact the reporter on this story: Paul Tobin in Madrid at ptobin@bloomberg.net

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U.S. Payrolls May Have Stopped Falling in December as Economy Strengthened

January 7, 2010

By Bob Willis Jan. 8 (Bloomberg) — The economy in the U.S. probably stopped losing jobs in December for the first time in almost two years, a sign the recovery strengthened heading into 2010, economists said before a report today. Payrolls were probably unchanged after falling every month starting in January 2008, according to the median of 76 economists surveyed by Bloomberg News. The unemployment rate may have held at 10 percent, near the 26-year high of 10.2 percent reached in October. Rising global sales mean American companies including Caterpillar Inc. may start hiring again this year after carrying out the biggest job cuts in the post-World War II era. The Federal Reserve has pledged to keep interest rates low and the Obama administration has announced measures to boost employment at small businesses as the jobless rate is forecast to exceed 10 percent through the first half of the year. “It does look like the labor market is turning a corner,” said Julia Coronado , a senior economist at BNP Paribas in New York. “We expect a very, very modest rise in hiring that won’t be enough to stop the unemployment rate from going higher.” The Labor Department’s report is due at 8:30 a.m. in Washington. Economists’ payroll forecasts ranged from a decline of 100,000 to an 85,000 gain. Record Jump A 10 percent reading in December would put the average jobless rate last year at 9.3 percent. The increase from 5.8 percent in 2008 would mark the biggest annual surge in records going back to 1940. The 7.2 million drop in payrolls over the past two years has been the biggest as a percentage of all jobs since World War II was ending in 1944-45. Monthly payroll losses accelerated after the collapse of Lehman Brothers Holdings Inc. in September 2008 and peaked at 741,000 in January 2009. The economy lost 11,000 jobs in November. President Barack Obama on Dec. 8 proposed additional spending on the nation’s transportation system, tax credits to spur hiring by small businesses and incentives to make homes more energy efficient in a second round of efforts to cut the jobless rate. In early 2009, the administration’s economic advisers forecast the $797 million stimulus plan would keep unemployment below 8 percent. Census Jobs In another government boost to hiring, the Census Bureau will hire 1.15 million temporary workers in the first half of the year to conduct the population count that takes place every 10 years. The boost to payrolls may peak at about 700,000 in May before workers begin getting dismissed, according to a forecast by economist Lori Helwing at BofA Merrill Lynch Global Research in New York. “They’re going to hire an army of people,” said Coronado. “In some sense, this acts as a stimulus package and is a timely coincidence, coming so early in the recovery.” The economy grew at a 2.2 percent annual rate in the third quarter, the first gain in more than a year. Economists at JPMorgan Chase & Co. and Credit Suisse are forecasting fourth- quarter growth of more than 4 percent. Staffing at temporary employment agencies jumped the most in five years in November, which some economists and executives view as a sign total payroll growth is imminent. Temporary Help Increases in temporary hiring are “a classic part of the recovery,” Manpower Inc. Chief Executive Officer Jeffrey Joerres said in a Bloomberg Television interview Dec. 31. The firm is seeing “slow but steady increases in people who are out on assignment,” he said. Manufacturing, which accounts for about 12 percent of the economy, has been a driver of the recovery and is projected to continue to expand. The strength has yet to translate into more factory jobs. Manufacturing payrolls may drop by 35,000 after a decline of 41,000 in November, according to economists surveyed by Bloomberg, as companies increase productivity to cut costs. Colder and wetter weather than average during the Dec. 12 survey week probably restrained the payroll numbers last month, compared with the unseasonably mild early November, Raymond Stone , managing director of Stone & McCarthy Research Associates in Skillman, New Jersey, said in a note to clients. “Weather sensitive” industries such as construction and travel may see “weaker” payroll numbers, he said. Five-Year Revisions With today’s report, the Labor Department will also revise figures from its household survey used in calculating the unemployment rate going back five years. Benchmark revisions to the payroll data will be announced in February. U.S. stocks rallied in the second half of 2009 as evidence of an economic recovery mounted. The Standard & Poor’s 500 Index climbed 65 percent since sinking to a 12-year low on March 9, ending 2009 at 1,115.1. Among companies resuming hiring, Caterpillar, the world’s largest maker of bulldozers, aims to bring back some laid-off workers this year, Chief Executive Officer Jim Owens said last month. “We’ll gradually begin to call people back and to rebuild our overall sales and ability to ship product,” Owens said in a Dec. 11 interview with Bloomberg Television. “It will gradually begin to pick up as 2010 unfolds.” To contact the reporter on this story: Bob Willis in Washington bwillis@bloomberg.net

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Hatoyama’s Credibility May Be Hurt by Reversal on Finance Minister’s Exit

January 7, 2010

By John Brinsley Jan. 8 (Bloomberg) — Japanese Prime Minister Yukio Hatoyama , already damaged by voter anger over abandoned campaign pledges, may face new credibility questions after reversing course on allowing his ailing finance minister to step down. Hatoyama delayed accepting Hirohisa Fujii’s resignation even after the 77-year-old minister indicated he might leave on doctors’ advice. The prime minister said on Jan. 5 he wanted Fujii to “do his best” to stay. He named deputy premier Naoto Kan to the post the next day. The premier’s wavering over who will oversee efforts to revive a recession-mired economy and keep the world’s largest government debt from further expansion comes amid plummeting popularity. Hatoyama has scaled back campaign pledges to increase spending and cut taxes, and postponed resolving a dispute with the U.S. about where to relocate an American military base in Okinawa. “Once again Hatoyama appears to be lacking in judgment by taking so long to reach a decision,” said Koichi Nakano , a political science professor at Sophia University in Tokyo. “He certainly could have handled the Fujii situation better.” Stocks have fallen since the Democratic Party of Japan’s Aug. 30 landslide victory, with the benchmark Nikkei 225 Index down 17 percent. By contrast, the MSCI Asia Pacific Index is up 9.4 percent during the same period. The approval rating for Hatoyama’s cabinet dropped to 50 percent in a Dec. 25-27 poll by Nikkei Inc. and TV Tokyo Corp., from 75 percent backing in mid-September. The survey canvassed 1,597 households and gave no margin of error. Back Taxes The prime minister’s reputation was tarnished after two former aides were charged on Dec. 24 with falsifying his campaign finances. The same day he said he would pay about 600 million yen ($6.5 million) in gift taxes dating back to 2002. Hatoyama last week said in his New Year’s statement that the government’s “honeymoon period is over,” and that he welcomed “severe criticism” of his policies. “How can I assess Hatoyama’s polices when he hasn’t introduced any?” Takeshi Niinami , president of Tokyo-based Lawson Inc., Japan’s second-largest convenience store operator, said in a Jan. 5 interview. “The government must come up with more detailed measures, and soon.” Fujii was hospitalized on Dec. 28 for high blood pressure and exhaustion. He was one of the few members of the DPJ, which has never governed, with cabinet experience: He headed the Finance Ministry in 1993. Kan served as health minister in 1996 and won public praise for exposing the ministry’s role in allowing as many as 5,000 Japanese to contract HIV through contaminated blood products. Currency Move Kan told a press conference yesterday that he would like the yen to fall “a bit more,” sending the currency down against the dollar and the euro. It was trading at 93.17 per dollar yesterday from 92.32 the day before. Fujii had said he didn’t support a weak yen. Hatoyama is struggling to reverse the trends of an aging, shrinking population and address 13 years of price declines since 1994. Japan’s 5.2 percent unemployment rate is near a record high, and price cuts by companies such as supermarket operator Seiyu Ltd., owned by Bentonville, Arkansas-based Wal- Mart Stores Inc., threaten to squeeze profits. While Hatoyama unveiled a 7.2 trillion yen stimulus package in December, the Bank of Japan’s quarterly survey of business sentiment the same month indicated the economy’s rebound from its worst postwar recession is faltering. Large companies said they plan on cutting capital spending by 13.8 percent this fiscal year, the second-worst projection on record. Record Budget Before Fujii left, he oversaw the formation of a record 92.3 trillion yen budget for the fiscal year starting April 1. He was a strong proponent of keeping government bond issuances at about 44 trillion yen, the same as the current fiscal year, to rein in a public debt approaching 200 percent of gross domestic product. Fujii “was the veteran safe hand on the economy,” said Jeff Kingston, director of Asian Studies at Temple University in Tokyo. “Now he’s gone and they don’t have a huge depth chart in the finance ministry.” Faced with record spending, the administration has backed off pledges to end abolish gasoline surtaxes and ease the burden on local governments and businesses by paying some child-care costs. Hatoyama has also vacillated on whether to keep a DPJ pledge to remove the Marine Corps Futenma Air Base on Okinawa, abrogating a 2006 U.S.-Japan agreement. Residents want it moved off the island, while the administration of President Barack Obama is pushing to relocate it elsewhere on Okinawa. Last month Hatoyama postponed any decision until May. Foreign Minister Katsuya Okada and U.S. Secretary of State Hillary Clinton will meet to discuss the issue in Hawaii on Jan. 12, Philip Crowley , assistant secretary of state for public affairs, said yesterday. Hatoyama and Kan “must reassure markets that the DPJ is up to the task,” Temple University’s Kingston said. “Futenma is a bilateral issue, but the finance minister of the world’s second- largest economy is of global importance.” To contact the reporter on this story: John Brinsley in Tokyo at jbrinsley@bloomberg.net

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Diamond Castle’s Schloss Said to Be in Talks to Join New York Pension Fund

January 7, 2010

By Cristina Alesci Jan. 7 (Bloomberg) — Lawrence Schloss , the chairman of Diamond Castle Holdings LLC, is in talks to take a job advising New York City’s $96.4 billion pension funds and leave the buyout firm he founded in 2004, according to two people familiar with the matter. In his new role, Schloss would work with the five boards that make investment decisions for funds covering civil service employees, teachers, firefighters, police officers and school administrators, said the people, who declined to be identified because the information hasn’t been disclosed. John Liu , a Democrat, was sworn into the Office of the New York City Comptroller this month, replacing William Thompson , who held the post since 2002. Liu, 42, vowed to avoid “aggressive esoteric financial instruments,” cut waste from the city’s budget and examine millions in no-bid contracts. Schloss, 55, didn’t return calls seeking comment. Sharon Lee, a spokeswoman for Liu, declined to comment. The city had about 42 percent of its retirement fund assets in U.S. stocks, 30 percent in bonds, and 8 percent in private equity and real estate as of Sept. 30, according to its Web site. Schloss will help manage a retirement system whose organizational structure is different from other public pension funds. Unlike the California Public Employees’ Retirement System or the New York State’s Common Fund, the city comptroller’s Bureau of Asset Management serves as investment adviser to five boards, each with its own investment philosophies. The boards are comprised of elected and appointed officials and union representatives. Schloss was the global head of CSFB Private Equity, a $32 billion alternative asset investment business, prior to founding Diamond Castle in 2004, according to the Diamond Castle Web site . Prior to the acquisition of DLJ by CSFB, he was chairman of DLJ Merchant Banking Partners from 1995, the Web site said. Schloss’s move was reported earlier by peHub, a private- equity Web site. To contact the reporter on this story: Cristina Alesci in New York at Calesci2@bloomberg.net ;

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Gilbert Arenas Will Seek Talks With Stern About Reinstatement to NBA

January 6, 2010

By Mason Levinson Jan. 7 (Bloomberg) — Washington Wizards guard Gilbert Arenas said he’ll seek reinstatement talks with National Basketball Association Commissioner David Stern . Stern yesterday banned Arenas without pay, on his 28th birthday, a day after he was photographed making gun gestures with his index fingers on the court at the Philadelphia 76ers. The player is under investigation for keeping unloaded guns in his locker at the Verizon Center in Washington. “I never intended any harm or disrespect to the NBA or anyone else,” Arenas said in an e-mailed statement issued by his attorney. “I look forward to the day I can return to basketball.” Stern wanted to refrain from sanctioning Arenas until after a criminal investigation by the U.S. Attorney’s Office, local police and a Washington grand jury were completed. He reconsidered after Arenas met with police and two days ago apologized for his actions and a “misguided” attempt to play a joke on a teammate with the guns. “His ongoing conduct has led me to conclude that he is not currently fit to take the court in an NBA game,” Stern said in the statement announcing the suspension. “The actions of Mr. Arenas will ultimately result in a substantial suspension, and perhaps worse.” The Wizards also condemned the behavior of Arenas and his teammates before the 104-97 win over the 76ers. “We fully endorse the decision of the NBA to indefinitely suspend Gilbert Arenas,” Washington said in statement. Union Position National Basketball Players Association Executive Director G. William Hunter said in an e-mailed statement that the union won’t become involved until criminal and league probes end. Arenas told police Jan. 4 he misinterpreted a change in local gun laws when he moved four firearms to his locker from his home in Virginia to keep them away from his children. The three-time All-Star told police he took the guns to the Verizon Center because he mistakenly believed the law change allowed people to store unloaded guns in the District of Columbia. Arenas and teammate Javaris Crittenton argued after the latter lost money in a card game on a Dec. 19 flight from Phoenix, the Washington Post reported, citing multiple unidentified sources. After being mocked by Arenas, Crittenton joked during the flight about shooting his teammate in the left knee, the newspaper said. Arenas, who’s in the second year of a six-year contract worth $111 million, missed most of the past two seasons because of a left knee injury. When the Wizards had practiced on Dec. 21, Arenas put three guns on a chair next to Crittenton with a note that read, “Pick one,” the Post said. Crittenton got angry and threw one of the weapons across the room, the paper said. Arenas had averaged a team-high 22.6 points and 7.2 assists per game this season, his ninth in the NBA. He was drafted with the 30th overall pick in 2001 after two years at the University of Arizona, and became an All-Star in 2005-2007. To contact the reporter on this story: Mason Levinson in New York at mlevinson@bloomberg.net .

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Diamond Castle’s Schloss Said in Talks to Join New York City Pension Funds

January 6, 2010

By Cristina Alesci Jan. 7 (Bloomberg) — Lawrence Schloss , the chairman of Diamond Castle Holdings LLC, is in talks to take a job advising New York City’s $96.4 billion pension funds and leave the buyout firm he founded in 2004, according to two people familiar with the matter. In his new role, Schloss would work with the five boards that make investment decisions for funds covering civil service employees, teachers, firefighters, police officers and school administrators, said the people, who declined to be identified because the information hasn’t been disclosed. John Liu , a Democrat, was sworn into the Office of the New York City Comptroller this month, replacing William Thompson , who held the post since 2002. Liu, 42, vowed to avoid “aggressive esoteric financial instruments,” cut waste from the city’s budget and examine millions in no-bid contracts. Schloss didn’t return calls seeking comment. Sharon Lee, a spokeswoman for Liu, declined to comment. The city had about 42 percent of its retirement fund assets in U.S. stocks, 30 percent in bonds, and 8 percent in private equity and real estate as of Sept. 30, according to its Web site. Schloss will help manage a retirement system whose organizational structure is different from other public pension funds. Unlike the California Public Employees’ Retirement System or the New York State’s Common Fund, the city comptroller’s Bureau of Asset Management serves as investment adviser to five boards, each with its own investment philosophies. The boards are comprised of elected and appointed officials and union representatives. Schloss’s move was reported earlier by peHub, a private- equity web site. To contact the reporter on this story: Cristina Alesci in New York at Calesci2@bloomberg.net ;

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Argentine Central Bank Chief Redrado Fired on $6.6 Billion Reserve Dispute

January 6, 2010

By Bill Faries and Drew Benson Jan. 6 (Bloomberg) — Argentina’s President Cristina Fernandez de Kirchner fired the central bank president after he failed to back the government’s economic policies, including a plan to borrow $6.6 billion in reserves to pay debt. Former central bank president Mario Blejer will replace Martin Redrado at the bank, Cabinet Chief Anibal Fernandez said on C5N television channel. The Harvard University-trained Redrado, who almost tripled Argentina’s reserve levels since taking office in September 2004, was fired because he “didn’t support the government’s economic policies,” the official said. Argentine bonds declined, with the yield on the benchmark inflation-linked peso bonds due in 2033 climbing 20 basis points, the most since Nov. 30, to 10.9 percent, according to Citigroup Inc.’s local unit. Argentina’s peso slid the most in a week, falling 0.2 percent to 3.8063 per dollar. The Merval stock index fell 1.57 percent to 2364.09 at 9:25 a.m. New York time. Douglas Smith, chief economist for the Americas at Standard Chartered Plc in New York, said Redrado had gone along with the government economic policies until now. Even before his departure, the government had a “huge challenge” in trying to return to international capital markets, he said. ‘A Lot of Risk’ “This proposal to use the reserves might be pushing it a bit too far,” he said in a phone interview. “There is still a lot of risk in Argentina. The change at the central bank reminds us that things are really not perfect down there.” An assistant to Redrado, who declined to be identified, told Bloomberg News he will not step down and remain at the post until his mandate ends in September 2010. Blejer’s wife, Susana, said that her husband is traveling in Europe and isn’t available for comment. Cabinet chief Fernandez said he was in France. Redrado, who studied economics at the University of Buenos Aires and public administration at Harvard, was president of Argentina’s Securities and Exchange Commission from 1991 to 1994. Blejer resigned as the central bank president amid Argentina’s financial crisis in June 2002 because of what he considered government interference in the bank’s independence. Cabinet chief Fernandez today defended a decision to issue a decree tapping central bank reserves to pay debt coming due this year after opposition leaders planned a meeting with the Redrado to protest the move. “This is a decision of the president, who is the one in charge of evaluating the pace of economic activity and determining economic policies based on that,” he said during an earlier interview on Buenos Aires-based Radio 10. “I don’t want to minimize the fact that there can be a political debate, but these policies aren’t discussed at the central bank because it’s the president who makes decisions.” Opposition Challenge Argentina’s Supreme Court is reviewing a legal challenge by opposition-controlled San Luis province to the government’s plan to borrow $6.6 billion in reserves from the central bank. Opposition lawmakers including former central bank president Alfonso Prat Gay are also seeking to block the plan after gaining control of the lower house last month, saying the move would usurp congressional authority over the bank. Central bank reserves rose to $48 billion on Jan. 5 from as little as $8.2 billion in January 2003, the central bank said in an e-mailed statement yesterday. South America’s second-biggest economy used $10 billion in reserves to pay off the International Monetary Fund in early 2006, a move that Fernandez de Kirchner’s husband and predecessor Nestor Kirchner called a “sign of sovereignty.” To contact the reporters on this story: Bill Faries in Buenos Aires at wfaries@bloomberg.net Drew Benson in Buenos Aires at abenson9@bloomberg.net

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Hatoyama Hopeful Japan Finance Minister Fujii Won’t Quit on Health Grounds

January 6, 2010

By Keiko Ujikane and Takashi Hirokawa Jan. 6 (Bloomberg) — Japanese Prime Minister Yukio Hatoyama urged ailing Finance Minister Hirohisa Fujii to stay in his post, declining to confirm reports Fujii will step down because of deteriorating health. “He fathered the budget so I would strongly like him to raise his child,” Hatoyama told reporters in Tokyo today. The government has accepted Fujii’s resignation, Kyodo News reported earlier, citing an unnamed ruling party lawmaker. Fujii, 77, deferred retirement at Hatoyama’s request to oversee a record 92.3 trillion yen ($1 trillion) budget that aims to arrest economic stagnation without swelling the world’s largest public debt . His exit would expose the inexperience of a party that took power for the first time last year. “Hatoyama needs someone who is heavyweight and has expertise” and his Democratic Party of Japan “lacks experienced personnel,” said Susumu Kato chief economist for Japan at Calyon Securities. “Fujii gave a sense of security in a relatively young Cabinet as he’s a veteran politician who has already been finance minister.” Investors would examine any successor’s credentials on fiscal discipline after Fujii championed avoiding an increase in new bond sales, Tokyo-based Kato said. Fujii’s potential loss increases focus on two vice-finance chiefs, Yoshihiko Noda and Naoki Minezaki , and Deputy Prime Minister Naoto Kan , who heads economic policy. Yoshito Sengoku , minister for administrative reform, ruled out that he might take the position, Kyodo News reported him saying in a speech. Retirement Postponed Hatoyama asked Fujii last year to postpone retirement and run in the election that brought the DPJ to power, ending almost five decades of unbroken rule by the Liberal Democratic Party. Fujii, who is being treated for high blood pressure and exhaustion, previously headed the Finance Ministry in 1993. He is also a former budget examiner at the agency, giving him the most experience of any lawmakers in the party. Investors have signaled little immediate concern that Fujii’s departure would heighten risk. The Nikkei 225 Stock Average rose 0.7 percent as of 2:02 p.m. in Tokyo, the highest level since October 2008. Yields on benchmark 10-year notes climbed one basis point to 1.335 percent after an auction of the debt. The yen traded at 92.05 per dollar from 91.71 yen in New York yesterday. Limited Impact “The impact of his resignation on the market will be limited” because the budget has already been compiled, said Masaru Hamasaki , chief strategist at Tokyo-based Toyota Asset Management Co., which oversees the equivalent of $14 billion. “A negative effect may be that his broad experience can’t be fully applied anymore.” Japan’s Diet is scheduled to convene later this month, when the finance minister would typically face lawmakers’ questions over the proposed budget . While the DPJ-led coalition’s majority in the Diet means Hatoyama’s 2010 budget is likely to be little affected by a Fujii departure, it could complicate any effort to compile an additional fiscal stimulus, said Hiroaki Muto , a senior economist at Sumitomo Mitsui Asset Management Co. in Tokyo. “There’s a chance that the government may have an additional stimulus” package to submit before elections for the upper house of the Diet in July, Muto said. “If that happens, the government will be in trouble unless it chooses a person who has strong political leadership.” Recession Warning The latest warning on the durability of Japan’s recovery from its deepest postwar recession came yesterday from Sony Corp. Vice Chairman Ryoji Chubachi . He said “there’s a risk of a double-dip recession,” citing the damage of deflation to companies’ earnings. Chubachi spoke at a New Year’s party attended by government officials and business leaders in Tokyo. In the course of compiling the 2010 budget, Fujii said the government must keep its promise of holding bond sales around 44 trillion yen, even after Hatoyama indicated he wouldn’t strictly adhere to the cap should more spending be necessary. “There’s no finance-ministry type other than Fujii” within the DPJ, said Takahide Kiuchi , chief economist at Nomura Securities Co. in Tokyo. “If Fujii steps down, fiscal discipline may loosen regardless of who takes over the post.” Fujii, Japan’s fifth finance minister since August 2008, was admitted to hospital on Dec. 28 for high blood pressure and exhaustion, three days after the budget release. “My examination is continuing, and I’ll respect my doctor’s judgment,” he said. He canceled his regular Wednesday press briefing for today. Tumbling Support For Hatoyama, losing his finance chief would come as his public support tumbles. The Cabinet had an approval rating of 50 percent in a Dec. 25-27 poll by Nikkei Inc. and TV Tokyo Corp., down from 75 percent backing in mid-September. Some analysts said Fujii wouldn’t necessarily be missed by investors after he indicated he supported a stronger yen, only to later say that the government is prepared to step into the currency market to stem its gains. As finance minister, Fujii is responsible for overseeing Japan’s exchange-rate policy. The yen climbed to a 14-year high of 84.83 per dollar on Nov. 27, hurting exporters by eroding their profits earned abroad. The currency has since retreated about 8 percent. “Investor estimation of Fujii’s steadiness isn’t that high because of his currency gaffes,” Hirokata Kusaba , a senior economist at Mizuho Research Institute in Tokyo. “The budget has been already drafted and the government bill will pass because the ruling coalition controls both chambers,” meaning the impact of his departure “will be limited.” To contact the reporters on this story: Takashi Hirokawa in Tokyo at thirokawa@bloomberg.net ; Keiko Ujikane in Tokyo at kujikane@bloomberg.net ;

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Hatoyama Hopeful Japan Finance Minister Fujii Won’t Quit on Health Grounds

January 6, 2010

By Keiko Ujikane and Takashi Hirokawa Jan. 6 (Bloomberg) — Japanese Prime Minister Yukio Hatoyama urged ailing Finance Minister Hirohisa Fujii to stay in his post, declining to confirm reports Fujii will step down because of deteriorating health. “He fathered the budget so I would strongly like him to raise his child,” Hatoyama told reporters in Tokyo today. The government has accepted Fujii’s resignation, Kyodo News reported earlier, citing an unnamed ruling party lawmaker. Fujii, 77, deferred retirement at Hatoyama’s request to oversee a record 92.3 trillion yen ($1 trillion) budget that aims to arrest economic stagnation without swelling the world’s largest public debt . His exit would expose the inexperience of a party that took power for the first time last year. “Hatoyama needs someone who is heavyweight and has expertise” and his Democratic Party of Japan “lacks experienced personnel,” said Susumu Kato chief economist for Japan at Calyon Securities. “Fujii gave a sense of security in a relatively young Cabinet as he’s a veteran politician who has already been finance minister.” Investors would examine any successor’s credentials on fiscal discipline after Fujii championed avoiding an increase in new bond sales, Tokyo-based Kato said. Fujii’s potential loss increases focus on two vice-finance chiefs, Yoshihiko Noda and Naoki Minezaki , and Deputy Prime Minister Naoto Kan , who heads economic policy. Yoshito Sengoku , minister for administrative reform, ruled out that he might take the position, Kyodo News reported him saying in a speech. Retirement Postponed Hatoyama asked Fujii last year to postpone retirement and run in the election that brought the DPJ to power, ending almost five decades of unbroken rule by the Liberal Democratic Party. Fujii, who is being treated for high blood pressure and exhaustion, previously headed the Finance Ministry in 1993. He is also a former budget examiner at the agency, giving him the most experience of any lawmakers in the party. Investors have signaled little immediate concern that Fujii’s departure would heighten risk. The Nikkei 225 Stock Average rose 0.7 percent as of 2:02 p.m. in Tokyo, the highest level since October 2008. Yields on benchmark 10-year notes climbed one basis point to 1.335 percent after an auction of the debt. The yen traded at 92.05 per dollar from 91.71 yen in New York yesterday. Limited Impact “The impact of his resignation on the market will be limited” because the budget has already been compiled, said Masaru Hamasaki , chief strategist at Tokyo-based Toyota Asset Management Co., which oversees the equivalent of $14 billion. “A negative effect may be that his broad experience can’t be fully applied anymore.” Japan’s Diet is scheduled to convene later this month, when the finance minister would typically face lawmakers’ questions over the proposed budget . While the DPJ-led coalition’s majority in the Diet means Hatoyama’s 2010 budget is likely to be little affected by a Fujii departure, it could complicate any effort to compile an additional fiscal stimulus, said Hiroaki Muto , a senior economist at Sumitomo Mitsui Asset Management Co. in Tokyo. “There’s a chance that the government may have an additional stimulus” package to submit before elections for the upper house of the Diet in July, Muto said. “If that happens, the government will be in trouble unless it chooses a person who has strong political leadership.” Recession Warning The latest warning on the durability of Japan’s recovery from its deepest postwar recession came yesterday from Sony Corp. Vice Chairman Ryoji Chubachi . He said “there’s a risk of a double-dip recession,” citing the damage of deflation to companies’ earnings. Chubachi spoke at a New Year’s party attended by government officials and business leaders in Tokyo. In the course of compiling the 2010 budget, Fujii said the government must keep its promise of holding bond sales around 44 trillion yen, even after Hatoyama indicated he wouldn’t strictly adhere to the cap should more spending be necessary. “There’s no finance-ministry type other than Fujii” within the DPJ, said Takahide Kiuchi , chief economist at Nomura Securities Co. in Tokyo. “If Fujii steps down, fiscal discipline may loosen regardless of who takes over the post.” Fujii, Japan’s fifth finance minister since August 2008, was admitted to hospital on Dec. 28 for high blood pressure and exhaustion, three days after the budget release. “My examination is continuing, and I’ll respect my doctor’s judgment,” he said. He canceled his regular Wednesday press briefing for today. Tumbling Support For Hatoyama, losing his finance chief would come as his public support tumbles. The Cabinet had an approval rating of 50 percent in a Dec. 25-27 poll by Nikkei Inc. and TV Tokyo Corp., down from 75 percent backing in mid-September. Some analysts said Fujii wouldn’t necessarily be missed by investors after he indicated he supported a stronger yen, only to later say that the government is prepared to step into the currency market to stem its gains. As finance minister, Fujii is responsible for overseeing Japan’s exchange-rate policy. The yen climbed to a 14-year high of 84.83 per dollar on Nov. 27, hurting exporters by eroding their profits earned abroad. The currency has since retreated about 8 percent. “Investor estimation of Fujii’s steadiness isn’t that high because of his currency gaffes,” Hirokata Kusaba , a senior economist at Mizuho Research Institute in Tokyo. “The budget has been already drafted and the government bill will pass because the ruling coalition controls both chambers,” meaning the impact of his departure “will be limited.” To contact the reporters on this story: Takashi Hirokawa in Tokyo at thirokawa@bloomberg.net ; Keiko Ujikane in Tokyo at kujikane@bloomberg.net ;

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Mike Shanahan Agrees to Coach Washington Redskins, Denver Post Reports

January 5, 2010

By Erik Matuszewski Jan. 5 (Bloomberg) — Mike Shanahan , who won two Super Bowl titles during 14 seasons with the Denver Broncos, reached an agreement in principle to become the coach of the Washington Redskins, the Denver Post reported . Shanahan will receive a five-year contract worth about $7 million a year, the Post said, and may be presented as the new coach tomorrow. He’ll be the seventh coach during Daniel Snyder’s 11-year tenure. Jim Zorn was fired after Washington finished with a 4-12 record this season. Washington spokesman Zach Bolno declined to comment in an e-mail, saying only that a press conference is scheduled for 2 p.m. local time tomorrow. The 57-year-old Shanahan had a 146-98 record in Denver and won National Football League championships after the 1997 and 1998 seasons. He’ll take over a team that has three winning seasons and two playoff victories in the past decade. Shanahan was fired after the 2008 season, when the Broncos lost their final three games to finish 8-8 and miss the playoffs for the third straight year. His appointment will save the Broncos about $7 million, the Post said. Denver will pay about half Shanahan’s salary this year and next, the report said. Shanahan had a losing record twice during his tenure with the Broncos and went to the playoffs seven times. To contact the reporter on this story: Erik Matuszewski in New York at matuszewski@bloomberg.net

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Hatoyama to Accept Resignation of Japan Finance Minister Fujii, Kyodo Says

January 5, 2010

By Sandrine Rastello and Keiko Ujikane Jan. 6 (Bloomberg) — The Japanese government has decided to accept the resignation of Finance Minister Hirohisa Fujii because of poor health, Kyodo News reported, citing an unnamed ruling party lawmaker. Fujii, 77, told Prime Minister Yukio Hatoyama he wanted to step down, Kyodo said today. While Hatoyama earlier asked him to stay, the government eventually decided to accept the finance minister’s request because Fujii was adamant, Kyodo cited the lawmaker as saying. Fujii’s resignation would come after he was treated last week for high blood pressure and exhaustion. His departure would increase focus on two vice-finance chiefs, Yoshihiko Noda and Naoki Minezaki , as well as Deputy Prime Minister Naoto Kan , who heads economic policy, and Yoshito Sengoku , minister for administrative reform. Investors would examine any successor’s credentials on fiscal matters after Fujii championed avoiding an increase in new bond sales, said Susumu Kato at Calyon Securities in Tokyo “Hatoyama needs someone who is heavyweight and has expertise” and his Democratic Party of Japan “lacks experienced personnel,” said Kato, Calyon’s chief economist for Japan. “Fujii gave a sense of security in a relatively young Cabinet as he’s veteran politician who has already been finance minister.” Retirement Postponed Hatoyama asked Fujii last year to postpone retirement and run in the August election that brought the DPJ to power for the first time. Fujii previously headed the Finance Ministry in 1993, and is a former budget examiner at the agency, giving him a deeper background in the area than other lawmakers in the party. Financial markets indicated little immediate concern over doubts about Fujii’s future, with Japanese government bonds little changed and the Nikkei 225 Stock Average closing at the highest level since October 2008. Yields on benchmark 10-year notes were at 1.325 percent. The yen rose 0.9 percent to 91.71 per dollar as of 4:47 p.m. on Jan. 5 in New York. The Diet is scheduled to convene later this month, when the finance minister would typically face lawmakers’ questions over the proposed record 92.3 trillion yen ($1 trillion) budget . While the DPJ-led coalition’s majority in the Diet means Hatoyama’s 2010 budget is likely to be little affected by a Fujii departure, it could complicate any effort to compile an additional fiscal stimulus, said Hiroaki Muto , a senior economist at Sumitomo Mitsui Asset Management Co. in Tokyo. Stimulus Weighed “There’s a chance that the government may have an additional stimulus” package to submit before elections for the upper house of the Diet in July, Muto said. “If that happens, the government will be in trouble unless it chooses a person who has strong political leadership as a next finance minister.” The latest warning on the durability of Japan’s recovery from its deepest postwar recession came yesterday from Sony Corp. Vice Chairman Ryoji Chubachi . He said “there’s a risk of a double-dip recession,” citing the damage of deflation to companies’ earnings. Chubachi spoke at a New Year’s party attended by government officials and business leaders in Tokyo. Kato at Calyon Securities said a Fujii departure may have an impact on debt markets, depending on the dedication of any successor to avoiding an increase in government bond issuance. Spending Restraint In the course of compiling the 2010 budget, Fujii urged ministers to restrain outlays after their requests amounted to an unprecedented 95 trillion yen. He said the government must keep its promise of holding bond sales around 44 trillion yen to contain the world’s largest public debt burden — even after Hatoyama indicated he wouldn’t strictly adhere to the cap should more spending be necessary. “There’s no finance-ministry type other than Fujii” within the DPJ, said Takahide Kiuchi , chief economist at Nomura Securities Co. in Tokyo. “If Fujii steps down, fiscal discipline may loosen regardless of who takes over the post.” Fujii, Japan’s fifth finance minister since August 2008, was admitted to hospital on Dec. 28 for high blood pressure and exhaustion, three days after the budget release. “My examination is continuing, and I’ll respect my doctor’s judgment,” he said. He canceled his regular Wednesday press briefing for today. For Hatoyama, losing his finance chief would come as his public support tumbles. The Cabinet had an approval rating of 50 percent in a Dec. 25-27 poll by Nikkei Inc. and TV Tokyo Corp., down from 75 percent backing in mid-September. Yen Policy Some analysts said Fujii wouldn’t necessarily be missed by investors after he indicated he supported a stronger yen, only to later say that the government is prepared to step into the currency market to stem its gains. As finance minister, Fujii is responsible for overseeing Japan’s exchange-rate policy. The yen climbed to a 14-year high of 84.83 per dollar on Nov. 27, hurting exporters by eroding their profits earned abroad. The currency has since retreated about 8 percent. “Investor estimation of Fujii’s steadiness isn’t that high because of his currency gaffes,” Hirokata Kusaba , a senior economist at Mizuho Research Institute in Tokyo. “The budget has been already drafted and the government bill will pass because the ruling coalition controls both chambers,” meaning the impact of his departure “will be limited.” Kusaba said Sengoku or Noda would be the most likely candidates to replace Fujii. Kiuchi at Nomura said the yen may weaken no matter who succeeds Fujii because he “is labeled as tolerating a stronger yen and opposing intervention.” To contact the reporters on this story: Sandrine Rastello in Washington at srastello@bloomberg.net Keiko Ujikane in Tokyo at kujikane@bloomberg.net ;

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Rich Nadworny: It’s Time for Online Retailers to Support Local Communities

January 5, 2010

Online retail continues to grow while local communities struggle with deep economic problems. Do these two economic trajectories have anything to do with one other? While there may not be a causal link between the two trends, it’s time for online-only retailers to do the right thing: Charge and pay local sales tax. Put very simply, the convoluted online tax system works like this: If a retailer maintains physical commercial space in a state, people who buy from its online domain are required to pay sales tax on their purchases. This is why individuals pay sales tax when shopping online from websites like Walmart or Costco. If an online retailer does not maintain a physical presence, it does not charge and don’t pay sales tax. This is why individuals don’t pay sales tax when you purchasing on websites like Amazon or MacMall. In the current system, local communities subsidize online-only retailers at the expense of bricks and mortar stores – you know, the retailers that provide jobs to the people in your community. Even more distressing, these subsidies come from local tax coffers. It’s time to change the system: All online retailers must be made to pay and charge a sales tax to help local communities. The choice is ours, really, as consumers. What do we support more? Roads, schools and police in our cities and towns? Or 4-6% off our consumer purchases? We may think that we’re saving by embracing the rapidly growing realm of e-commerce, but in reality, we end up paying in an unacknowledged capacity – either through property taxes or increased sales tax, which hits our local retailers even harder. Here are a few things to think about: According to Mercent, Black Friday online sales for 2009 grew by 41% since 2008. That does not even include so-called Black Monday. Washington Post ‘s David Ignatius perceives the Californiazation of America , where local government don’t have the will to balance spending with tax revenue, as inviting another looming financial meltdown. Seth Godin shows succinctly how online retailers have already changed the nature of the record and bookstores. Online commerce has won here and is winning in other areas as well. Online retailers don’t need our help and don’t need to be subsidized. They already offer more choice, greater convenience and more competitive pricing than brick and mortar stores. Our communities need our help. The question is whether lawmakers have the guts to legislate this much-needed change. I doubt they do. Maybe concerned local citizens should band together and publicly target and shame the sites that don’t support their communities through local sales tax. The difference between one online retailer and another is pretty slim. If the choice is between supporting my local police force and supporting some unknown corporate wonk, the choice is easy, if somewhat blunt. And if you really don’t want to pay sales tax, there’s always New Hampshire, where you can basically live free or die. Come on, online retailers. It’s time to do the right thing. Pay up.

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Susanna Speier: New Year’s Neuroeconomics Politiku

January 5, 2010

In 2010, the frequency of Politiku I post will be determined exclusively by the success and/or failure of my New Year’s resolution to balance the number of unpaid writing projects with the number of paid writing project I take on. The rush I get by hitting the “submit” button that forwards my post on to the Huffington Post ‘s round the clock editorial staff is addictive. This is, in part, because the rush doesn’t end with, submit . I go to sleep only to wake to discover that the round the clock editorial elves have transmitted by post around the globe and back. A post, lovingly syndicated by the New York Times , the Wall Street Journal and Business Week sustains my buzz. The re-tweets, follow up comments and spikes in my own blog traffic, only further sustain me. I’m not saying that blogging for HuffPost isn’t a worthy passion project, in and of itself. Nor am I saying that I don’t genuinely benefit from the distinguished community to which the website connects me. I am simply saying that the disproportionately exhaustive process of pitching to editors, querying potential clients and calling to follow up on the status of unreceived paychecks, is far too undesirable by contrast. In effort to avoid agonizing the pain caused by job scarcity, combined with the pain of MFA loans with metrics, I am resolving to only allow myself to indulge in the pleasurable Politiku process after successfully securing and completing a writing project or assignment that pays market rates. Neuroeconomics, the study of how irrational financial decisions are made, tracks the neuropathways of consumers, investors and gamblers. As far as I know, it has not yet been discussed in conjunction with the neuropathways that light up during the blogging process. Thanks to the behavioral specialists who generously contributed to my Neuroeconomics Politiku shout-out, we do now! Joseph Weiner Politiku Empty wallet. So? “Life is short,” wise people say. Don’t waste minutes, spend. Joesph Weiner is Chief of Consultation Psychiatry at North Shore University Hospital in Manhasset, NY and Associate Professor of Clinical Psychiatry and Medicine at Albert Einstein College of Medicine. Barbara J. Rubin Politiku There’s more than enough. Recession? Conspiracy. Bacchanalia. Barbara J. Rubin, PsyD, is an Atlanta-based Licensed Psychologist and Member, American College of Forensic Examiners. Alan Hall Politiku MRI’s don’t lie Tyrannical consumption Now clouds my cortex Alan Hall is a socionomist, researcher, writer and forecaster for The Socionomics Institute, founded by Robert Prechter. The Institute studies how waves of social mood produce patterns in financial and social behavior. Mollie M. Marti Politiku Simple pleasures free Deals hidden in crowded malls Back to the basics Mollie Marti, PhD is the Founder of Best Life Design and Adjunct Professor of Psychology, The University of Iowa. Georgia Witkin Politiku Shorter lines, more help, Early discounts, later hours, Recession? Not bad! Georgia Witkin, Ph.D., is an acclaimed professor of psychiatry at The Mount Sinai Medical Center in New York City. An expert on family relationships and stress management, national health correspondent, author of ten books, and a TV personality. Physko Politiku It amazes me Neuroeconomics claims What Cro-Magnon knew Trulyfool Politiku High priests will tell us – Econ gurus know it all – Impulse is cold cash Susanna Speier Politiku Earn more and blog less: My New Year’s Resolution moderates the buzz

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Northrop Planning Move to Washington to Get Closer to Government Customers

January 4, 2010

By Gopal Ratnam Jan. 4 (Bloomberg) — Northrop Grumman Corp. will move its headquarters to Washington from Los Angeles by mid-2011, as new Chief Executive Officer Wesley Bush puts his stamp on the third- largest U.S. defense company. “As a global security company with a large customer base in the Washington, D.C., region, this move will enable us to better serve our nation and customers,” Bush said in a statement. He took over as CEO on Jan. 1 after his predecessor, Ronald D. Sugar , stepped down from the post prior to his retirement in June. Northrop plans to maintain research, development and other operations in California, where it employs about 30,000. The company has yet to select a specific headquarters site and will consider locations in surrounding Maryland and Virginia as well as the district itself. The corporate offices will have a staff of about 300, according to the statement. To contact the reporter on this story: Gopal Ratnam in Washington at gratnam1@bloomberg.net .

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Feldstein Sees `Serious Cloud’ Over Growth as Stiglitz Warns on Recovery

January 3, 2010

By Steve Matthews and Timothy R. Homan Jan. 3 (Bloomberg) — Harvard University economics professor Martin Feldstein said U.S. economic growth may falter this year because of a waning stimulus from federal spending and tax incentives for purchases of homes and autos. “These forms of stimulus will be missing in 2010, creating a serious cloud over the near-term economic outlook,” Feldstein said today during a panel discussion in Atlanta sponsored by the Allied Social Science Associations. His comments were echoed by Joseph Stiglitz , the Nobel Prize-winning economist, who said on the same panel that “robust” growth is unlikely soon. The warnings come days before a Labor Department report that’s forecast to show the worst slump in employment since the post-World War II era almost ended last month. Payrolls likely fell by 1,000 last month, according to the median of 58 economists surveyed by Bloomberg News before the Jan. 8 release. “It will be difficult to have a robust recovery as long as the residential and commercial real-estate markets are depressed and local banks around the country restrict their lending” because of default risk, Feldstein said. Stiglitz, a professor at Columbia University in New York and a former White House economic adviser under President Bill Clinton , said “it is not likely we will have robust growth anytime soon.” While the real-estate and finance industries created jobs during the housing boom, “what will really replace the sources of demand?” he said. Homeowners with negative equity in their properties are reluctant to move and take newly created jobs in other regions, Stiglitz said. ‘Enormous’ Deficits Feldstein, a former president of the National Bureau of Economic Research, said “enormous fiscal deficits” could also weigh on the expansion. “The economy’s growth in the second half of last year was driven by a strong fiscal stimulus, including not only federal spending and transfers but also special subsidies to car buyers and to first-time home buyers,” Feldstein said. “Home buying was also stimulated by a sharp drop in mortgage rates.” Banks’ reluctance to ramp up lending will restrain the recovery, Federal Reserve Vice Chairman Donald Kohn said in a speech to the American Economic Association’s annual meeting in Atlanta Jan. 3. “Credit constraints are a key reason why I expect the strengthening in economic activity to be gradual and the drop in the unemployment rate to be slow,” he said. ‘Very Weak’ “We still have a very weak financial system,” said Harvard University economist Kenneth Rogoff , on the same panel as Feldstein. “Commercial real estate is clearly a problem.” Consumers are “overleveraged” and debt is “another headwind” to growth, Rogoff said. The loss of 7.2 million jobs since the recession started in December 2007 and takeovers of failing banks have strained federal finances. The U.S. registered a record 14th consecutive monthly budget deficit in November, and the excess of spending over revenue may exceed $1 trillion for the second straight fiscal year after reaching a record $1.4 trillion in 2009. The U.S. deficit could spur “substantial” pressure for higher taxes, Feldstein said during an earlier panel. “The thing that I worry about is a value-added tax” which “would be passed through in the form of higher prices,” he said. Feldstein is a member of the NBER’s Business Cycle Dating Committee, the panel charged with determining when U.S. recessions begin and end. He served as chairman of the White House Council of Economic Advisers during the Reagan administration. To contact the reporter on this story: Timothy R. Homan in Washington at thoman1@bloomberg.net Steve Matthews in Atlanta at smatthews@bloomberg.net

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Job Losses in U.S. May Have Almost Ended in December as Economy Picked Up

January 3, 2010

By Courtney Schlisserman Jan. 3 (Bloomberg) — The worst U.S. employment slump in the post-World War II era may have almost ended in December, signaling the recovery will not be jobless much longer, economists said before reports this week. Payrolls probably fell by 1,000 workers last month, the smallest drop since the recession began two years ago, according to the median of 58 economists surveyed by Bloomberg News ahead of a Jan. 8 Labor Department report. The unemployment rate may have climbed to 10.1 percent from 10 percent. Stimulus-driven gains in global demand mean American companies may need to start boosting payrolls in 2010 after eliminating 7.2 million jobs since the recession began in December 2007. Manufacturers are leading the rebound in growth as a pickup in orders and rising exports, combined with a record reduction in inventories, spurs production. “Businesses are starting to come out of their shells,” said Zach Pandl , an economist at Nomura Securities International Inc. in New York. “We have turned the corner convincingly and have started on a path toward growth.” The declines in payrolls the last two years have been the biggest as a percentage of all jobs since 1944-45. A 10.1 percent reading in December would put the average jobless rate last year at 9.3 percent. The increase from 5.8 percent in 2008 would mark the biggest annual surge in records going back to 1940. Economists anticipate the jobless rate will exceed 10 percent through the first half of this year, according to the median forecast of economists surveyed last month. Government Measures President Barack Obama last month proposed additional spending on the nation’s transportation system, tax credits to spur hiring by small businesses and incentives to make homes more energy efficient in a second round of efforts to cut the jobless rate. Lawrence Summers , the White House chief economic adviser, said in a Bloomberg Radio interview on Dec. 15 that the prospect of a return to job growth is “an important achievement.” The economy grew at a 2.2 percent annual rate in the third quarter, the first gain in more than a year. The median projection of economists surveyed in December anticipated growth of 3 percent in the last three months of 2009. Since the survey, economists at JPMorgan Chase & Co. and Credit Suisse have revised estimates to more than 4 percent. Staffing at temporary employment agencies jumped the most in five years in November, which some economists and executives view as a sign total payroll growth is imminent. Temporary Help Increases in temporary hiring are “a classic part of the recovery,” Manpower Inc. Chief Executive Officer Jeffrey Joerres said in a Bloomberg Television interview Dec. 31. The firm is seeing “slow but steady increases in people who are out on assignment. It’s a little bit in every office, which is a good sign because it’s broad-based.” Manufacturing, which accounts for about 12 percent of the economy, has been a driver of the recovery and is projected to continue to expand. The Institute for Supply Management may report tomorrow its factory index rose last month to 54, according to the survey median. The gauge has surpassed the breakeven level of 50 since August. A separate report from the Commerce Department on Jan. 5 may show factory bookings increased 0.5 percent in November after rising 0.6 percent the previous month, according to economists surveyed. Another report from the supply managers may show the broader economy returned to expansion in December. The group’s gauge covering non-manufacturing firms , due Jan. 6, probably rose to 50.5, according to the survey median. Stocks in Second Half U.S. stocks rallied in the second half of the year as evidence of an economic recovery mounted. The Standard & Poor’s 500 Index climbed 65 percent since sinking to a 12-year low on March 9, ending 2009 at 1,115.1. Reports on housing this week may show the market slowing after a government tax credit spurred sales earlier in the year. The National Association of Realtors on Jan. 5 may report that pending sales of existing homes fell 3 percent in November after rising 3.7 percent the prior month, according to the survey median. Spending on construction projects, due from the Commerce Department tomorrow, may have dropped 0.5 percent in November after no change the month before, the survey showed. To contact the reporter on this story: Courtney Schlisserman in Washington at cschlisserma@bloomberg.net

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Job Losses in U.S. May Have Almost Ended in December as Economy Picked Up

January 3, 2010

By Courtney Schlisserman Jan. 3 (Bloomberg) — The worst U.S. employment slump in the post-World War II era may have almost ended in December, signaling the recovery will not be jobless much longer, economists said before reports this week. Payrolls probably fell by 1,000 workers last month, the smallest drop since the recession began two years ago, according to the median of 58 economists surveyed by Bloomberg News ahead of a Jan. 8 Labor Department report. The unemployment rate may have climbed to 10.1 percent from 10 percent. Stimulus-driven gains in global demand mean American companies may need to start boosting payrolls in 2010 after eliminating 7.2 million jobs since the recession began in December 2007. Manufacturers are leading the rebound in growth as a pickup in orders and rising exports, combined with a record reduction in inventories, spurs production. “Businesses are starting to come out of their shells,” said Zach Pandl , an economist at Nomura Securities International Inc. in New York. “We have turned the corner convincingly and have started on a path toward growth.” The declines in payrolls the last two years have been the biggest as a percentage of all jobs since 1944-45. A 10.1 percent reading in December would put the average jobless rate last year at 9.3 percent. The increase from 5.8 percent in 2008 would mark the biggest annual surge in records going back to 1940. Economists anticipate the jobless rate will exceed 10 percent through the first half of this year, according to the median forecast of economists surveyed last month. Government Measures President Barack Obama last month proposed additional spending on the nation’s transportation system, tax credits to spur hiring by small businesses and incentives to make homes more energy efficient in a second round of efforts to cut the jobless rate. Lawrence Summers , the White House chief economic adviser, said in a Bloomberg Radio interview on Dec. 15 that the prospect of a return to job growth is “an important achievement.” The economy grew at a 2.2 percent annual rate in the third quarter, the first gain in more than a year. The median projection of economists surveyed in December anticipated growth of 3 percent in the last three months of 2009. Since the survey, economists at JPMorgan Chase & Co. and Credit Suisse have revised estimates to more than 4 percent. Staffing at temporary employment agencies jumped the most in five years in November, which some economists and executives view as a sign total payroll growth is imminent. Temporary Help Increases in temporary hiring are “a classic part of the recovery,” Manpower Inc. Chief Executive Officer Jeffrey Joerres said in a Bloomberg Television interview Dec. 31. The firm is seeing “slow but steady increases in people who are out on assignment. It’s a little bit in every office, which is a good sign because it’s broad-based.” Manufacturing, which accounts for about 12 percent of the economy, has been a driver of the recovery and is projected to continue to expand. The Institute for Supply Management may report tomorrow its factory index rose last month to 54, according to the survey median. The gauge has surpassed the breakeven level of 50 since August. A separate report from the Commerce Department on Jan. 5 may show factory bookings increased 0.5 percent in November after rising 0.6 percent the previous month, according to economists surveyed. Another report from the supply managers may show the broader economy returned to expansion in December. The group’s gauge covering non-manufacturing firms , due Jan. 6, probably rose to 50.5, according to the survey median. Stocks in Second Half U.S. stocks rallied in the second half of the year as evidence of an economic recovery mounted. The Standard & Poor’s 500 Index climbed 65 percent since sinking to a 12-year low on March 9, ending 2009 at 1,115.1. Reports on housing this week may show the market slowing after a government tax credit spurred sales earlier in the year. The National Association of Realtors on Jan. 5 may report that pending sales of existing homes fell 3 percent in November after rising 3.7 percent the prior month, according to the survey median. Spending on construction projects, due from the Commerce Department tomorrow, may have dropped 0.5 percent in November after no change the month before, the survey showed. To contact the reporter on this story: Courtney Schlisserman in Washington at cschlisserma@bloomberg.net

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Advanced Distressed Debt Lesson #2

December 31, 2009

By Hunter. In our first edition of Advanced Distressed Debt learning / knowledge base, we discussed negative pledges. In this post, we will discuss the issue of exclusivity. Read more » »

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Joe Costello: Feminomics: Top Five Heroes of Financial Reform

December 30, 2009

From an economic standpoint, will 2010 be the year of the woman? As part of the Roosevelt Institute’s ongoing ‘Feminomics’ series, running on the New Deal 2.0 blog , I was asked to reflect on women’s changing roles in the economy. Here’s my take on how the New Deal advanced the cause of women’s equality. In case you haven’t heard, women are leading the charge on financial reform. In the spirit of celebrating their contributions, I’ve put together a list of the top five heroes of 2009, in the hopes that their work will inspire us in the coming year. So, channeling my best Wayne Newton (and I could pull this off if I shaved my goatee and took off the top 3/4 of my mustache), “This one’s for the ladies: ” 1) First, I’ll start with Yves Smith, who I came across end of last summer. She has 25 years in financial services, worked for, amongst others, Goldman, McKinsey, and Sumitomo, and is also a graduate of Harvard and Harvard Business School. Her must-read blog is Naked Capitalism . She has shown great knowledge and greater courage — and from my experience, these two traits are too rare together. Her writing is exceptional, and if you want a good overview of the financial mess and what’s gone on over the past year and half, I highly recommend paging through her blog’s archive. The president should replace Geithner with her. Time we had our first woman Treasury Secretary. 2) Next, Elizabeth Warren. Either mistakenly, which I believe is the case, or purposefully, in which case I’d have to reevaluate my opinion of Harry Reid, Warren was appointed by Reid to head the Congressional Oversight Panel for all the money being handed to the banks. Warren is Professor of Law at Harvard and wrote the excellent book The Two-Income Trap: Why Middle-Class Mothers and Fathers Are Going Broke . So, she documented the great underbelly of Wall Street’s debt bubble — particularly its destruction of a big chunk of working America. I don’t know if Reid thought he was getting some doddering academic when he appointed her, but instead he got a strong and energetic public advocate. There’s been a pretty hard effort to discredit Ms. Warren, and Yves Smith takes a look at the hatchet job done by NPR here . I’ve been nothing but impressed when I’ve heard her talk, and strongly second the motion by William Greider to give her subpoena powers. 3) In October 2007, working for Oppenheimer, Meredith Whitney wrote a report calling Citi the pile junk it is. Amazingly, she was pretty much the only one in the whole industry to do so. Since then, Whitney has been straight at the big banks, holding nothing back on what bad shape they’re in. She’s the Anti-Geithner. In the middle of latest pop in the stock market, which has gotten the banks $50 billion in new capital over the past couple months, Whitney appeared on CNBC and called the banks’ profits “manufactured” by the government, and stated things would begin heading south again. She’s an eagle above the weasels scurrying below on Wall Street. 4) Gretchen Morgenson writes for the NYT business section. In the last year and half, she has written far and away some of the best coverage of the financial crisis in the mainstream media. Most importantly, she put Mr. Blankfein at the meeting with Mr. Paulson and Mr. Bernanke when the bailout of AIG was decided to the advantage of Goldman for at least 14 billion. Again, if you want to read some good things on the last year and half, scroll through her articles in the Times’ archive ( The Nation did an ok piece on her, but unfortunately, it suffers from the author’s “objective journalism” disease). 5) Finally, I’d throw in Sheila Bair, who was appointed head of the FDIC by none other than George W. Bush. Ms. Bair has frequently tangled with the boys in the government, taking on Paulson, Bernanke, Geithner, and Summers. She’s stated repeatedly the banking crisis is not over , tried to slow the foreclosure tsunami, and most recently stated again Citi is a pile of crap and needs to be placed into receivership. These women are inspiring! Citizens all, helping to breathe life into this old republic. This post originally appeared on New Deal 2.0 .

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Zdravka Todorova: Feminomics: Why Gender Matters in Macroeconomics, as in Real Life

December 29, 2009

From an economic standpoint, will 2010 be the year of the woman? As part of the Roosevelt Institute’s ongoing ‘Feminomics’ series, running on the New Deal 2.0 blog , I was asked to reflect on women’s changing roles in the economy. Here’s my take on why macroeconomists must consider the role of gender in policy-making. When most economists talk abut “economic agents,” they are conjuring up bodiless, genderless automatons who naturally have no biological predecessors, do not carry babies, do not give birth, and do not face questions of physical survival and human development. So it is easy for them to look at double-digit unemployment rates and deflationary pressures on wages and benefits simply as market phenomena while ignoring that such things actually threaten the physical survival of families. It is not surprising that in crises like ours, macroeconomic policies stemming from such dehumanized conceptions of the economy do not address the majority of people’s hardships — and end up being inhumane indeed. That is why the objective of macroeconomic policies should be maintaining social provisioning (serving the needs of the community), as opposed to temporary fine-tuning the economy or arbitrary indicators such as government debt to GDP ratios. However, real-life concepts like social provisioning, care, and parental bent (concern about the survival of those unable to function on their own) are irrelevant in a genderless and thus lifeless world of economic avatars. So naturally these do not come up too often when experts are analyzing the macro-economy. Yet, we hear constantly about “the future of our children” being jeopardized by growing federal deficits and “unsustainable” government debt. The various errors in the notion that the US government is on the road of bankruptcy have been discussed well elsewhere . When those who worry in the abstract about the debt “burden” of federal expenditures on our children, they forget that our youth’s and children’s present is jeopardized by the burden of private debt born by US households. Unlike the sovereign US government, US households (even if they really put their minds to it), cannot sustain indefinite indebtedness. For one, they are not the sovereign issuer of the currency, and second, they are not inorganic entities without a life-span. It is often forgotten that just the opposite is valid for the State, let alone that the government debt is necessarily the private sector wealth. I will point out what is obvious to everybody, and yet is left out of economic analysis and public discussions — today’s households’ finances affect their ability to sustain their lives and reproduction. Truly, money is not everything, and households always engage in non-market, unpaid activities such as childcare and care for the ill and sick. This is even more true during economic downturns when incomes evaporate. Yet, there is a biological and social limitation to the seemingly bottomless labor of love. When larger numbers of households find themselves in financial dire straits, we cannot rely on “helping each other” as a solution for making ends meet while being hysterical about reducing the government deficits. As pointed out by feminist economists, this way of thinking has been traditionally grounded in the assumption that women will always be there to bail us out, so to speak, with their unpaid labor and care — out of duty and/or out of love. And even though more men than women are losing jobs in today’s crisis — and may indeed take on domestic chores and care giving — the question still remains. Do the proponents of private markets, and government deficit worriers understand that they assume there always must be somebody performing the unpaid and humane labor of love to secure the livelihoods of households in crisis? More interestingly do they understand that especially in crisis these people must be super-moms/dads/grandparents? We should think over the ideal of super-families, who even with evaporating jobs, incomes, health insurance, and savings can still somehow be the savior of last resort and take care of loved ones, as well as to preserve communities. Genderless macroeconomic thinking embraces this popular self-deception, and is not appropriate for real-life. Thus, knowingly (to economists) or unknowingly (to casual commentators), these families indeed are supposed to resemble the non-biological beings inhabiting the lifeless macroeconomic models. What are the consequences of moving on? For one, it is time to stop and to question the seriousness of the idea that we can get out of this crisis of social provisioning without growing government deficits. These deficits, however, need to directly address the reasons for financial hardships of living and breathing people. The most crucial step is permanent government job guarantee at a minimum wage. This is really a minimal institutional change to the current system that could reduce the burden to real-world households — most of which, it is safe to assume, do not live in a virtual world and do not have super powers. This post originally appeared on New Deal 2.0 .

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Tiger Woods Scandal: $12 BILLION Fallout?

December 28, 2009

Tiger Woods has destroyed $12 billion in stock value since his post-Thanksgiving car accident, according to a new study from two University of California, Davis economics professors. The study estimates that Gatorade, Nike and Electronic Arts have suffered the most, while Accenture “experienced no ill effects following the accident.” Woods’ sponsors have engaged in a flurry of activity over the past month as his list of alleged mistresses continued to grow. Gatorade announced it was discontinuing its Tiger Focus beverage , although it claimed the decision was already in the works before the scandal broke. Gillette said it would “limit [Woods'] role in our marketing programs” earlier in the month, and Accenture dropped Woods as the scandal widened. Watchmaker Tag Heuer initially indicated that it would ” downscale ” Woods’ role in the company’s advertising, but has since prominently displayed him on its web site, along with the text “TAG HEUER stands with TIGER WOODS.”

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Maya Wiley: Feminomics: Race, Gender, and Poverty in Economic Recovery

December 28, 2009

From an economic standpoint, will 2010 be the year of the woman? As part of the Roosevelt Institute’s ongoing ‘Feminomics’ series, running on the New Deal 2.0 blog, I was asked to reflect on women’s changing roles in the economy. Here’s my take on focusing on the needs of women of color as a bellwether for the overall economy. We all need jobs: men and women, people of all races, ages and physical abilities. So it’s welcome news that recent jobs numbers from the Bureau of Labor Statistics show that we only lost 11,000 jobs — not the 135,000 we thought we’d lose. And these numbers also tell us that we have a lot more to do to ensure that all who should work can work. To do that, we must make sure that we add the jobs to the economy that we all need. So why talk about women and why talk about women and race? Talking about women and race will help focus us on where our economy is very broken. Men have lost jobs faster than women. Men need jobs. But most job creation has been in male-dominated industries like construction. Women of all races, and black men too, are grossly under-represented in construction jobs. According to 2008 Department of Labor data, women are almost 60 percent of the US labor force — working or looking for work. But women also earn only about 80% of what men earn. And women of color are faring worse than white women. When we at the Center for Social Inclusion crunched the numbers, we found that unemployment has also risen faster for young women of color than for white women in the same age range. Unemployment among young black women has increased by 8.6% to 20.4%. Today, 14.6% of Latina women in that age category are unemployed — an increase of 7.2% since the start of the recession. Age matters, too. Young, white women are doing as poorly as their young male counterparts — unemployment has risen 6.2% to 11%. Another reason to pay attention to women’s needs in this recession? In a word: poverty . The poverty rate for black women is 26.2%, and it’s 25.5% for Latina women — more than 4 times higher than the white male poverty rate. And it is not surprising that children are the collateral damage when we fail address the unemployment and poor pay that is behind these numbers. Even in a recession, it is shocking that 30.6% of Latino children, 33.9% of Black children, 15.8% of white children, and 13.3% of Asian children live in poverty. A democracy needs a democratic economy. That means that we invest our public dollars in our people so that we all can participate in the economy. Our economy is a set of relationships — childcare, health care, transportation, education and networks. Investing in childcare, access to education — particularly higher education — and in critical infrastructure like broadband and public transit that connects excluded communities to job opportunities and job centers, can ensure that our economy and our nation work. The White House is on the right track when it looks to reform health care, invest in infrastructure and fix financial institutions. But neutral decisions will mean that women, particularly women of color, will probably not have the same opportunities. Collecting data by race and gender, understanding where investments are low and unemployment is high, and removing the barriers the excluded face will produce a stronger nation. This post originally appeared on New Deal 2.0 .

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Anat Shenker-Osorio: Feminomics: On Botox, Motherhood, and Unemployment

December 23, 2009

From an economic standpoint, will 2010 be the year of the woman? As part of the Roosevelt Institute’s ongoing ‘ Feminomics ‘ series, running on the New Deal 2.0 blog, I was asked to reflect on women’s changing roles in the economy. Here’s my take on why fairness for working women means considering their reproductive roles. The National Organization for Women has landed some brand-new bedfellows, namely anti-tax neocons and defenders of the status quo whose status is decidedly not quotidian. NOW President Terry O’Neill has come out swinging against a proposed 5% tax on elective cosmetic surgery saying “[middle-aged women] are going for Botox or going for eye work, because the fact is we live in a society that punishes women for getting older.” This, she goes on to say, is especially troubling in these tough economic times where older women are facing fiercer competition for jobs than ever. So I guess we’ve accepted that inflatable bosoms is an acceptable prerequisite for landing a job? No need to fight to have women evaluated for the range of their abilities rather than for the shape of their asses. No sense challenging the dominant paradigm of beauty that would have women starve, barf, cut, inject and mold themselves in Barbie’s image. We’ll just oppose any attempt to make it cost more to do so. Enter reality, if only for the time it takes to read this post. The American Society of Plastic Surgeons declares that according to their own poll, roughly 60% of patients earn below $90,000. Check out the median wage in most of this country — $90K even for a family looks like a fortune. And did I mention it’s elective surgery? These plastic surgeons, fighting doggedly for the right of every American to nip and tuck no matter their tax bracket, are worried people will take their self-enhancement overseas. Indeed, customers — I mean patients — already are. But basic economics (which, I realize hasn’t proven itself especially useful of late) tells us that if this tax drives buyers out of the market, suppliers will lower their prices until demand rebounds. I can see it now: home-improvement store-style sales pitches that promise, “you’ll lose the wrinkles, we’ll pay the tax!” But what if these surgeons are right? What if people suddenly stop having plastic surgery in huge numbers? Well, it’ll be a shame to lose this tax source but — yippee, that sounds wonderful to me. Lower and middle class women do not have elective surgery. Often, they don’t have medical care at all. If Botox injections become the new college degree, a barrier to entry for decent jobs, it becomes even more impossible for poor women to keep up, never mind get ahead. Add to this a wage gap between women and men that is bad and looks to get worse. This doesn’t even factor in the wealth gap , which is staggering. (The racial disparities are even more shameful but that’s another article or fifty.) In this time of economic tailspin, we can sometimes hear the cry for equalizing the distribution of our nation’s bounty. It is a mere whisper below the drumbeat demanding that we deal with the deficit or allow the super wealthy to create jobs for us (apparently, they excel at this but they just need some more money to do it). It was women’s entry into the workforce that prolonged our current economic reckoning. As Robert Reich has noted , what we failed to get in wage increases for the last 30 to 40 years, we made up for in work increases. And then some. Women entered the workforce largely to boost lagging household income. More recently, when there were simply no more hours to work, debt became the new revenue source for our double-income-no-money generation. Perhaps kicking women out of the workforce will be the proposed solution for curbing unemployment. It will sound better than this, of course. It will be about America, for the children, focusing on the family. This may sound paranoid, but spend a couple minutes learning about Mr. Bart Stupak (D-MI) and his C Street Family , and you may find yourself with me in this dark place. If men are to have dominion over women as he and his Congressional cronies desire, it helps a lot for men to have all the money. And it doesn’t hurt if women can’t decide whether and when they want to become mothers — amazing what barefoot and pregnant can do for docility. Women are different from men, if only in the roles they play in reproduction. For those of you who came of age in the abstinence-only era, here’s a crash course: (most) women can get pregnant, give birth and produce milk; men can’t. This means that for the gestational period and very often long after, women are the primary caretakers for our offspring. Without paid maternity leave and affordable childcare, women most often bear more of the load our dysfunctional economy dumps on its citizens. And we get paid less or nothing to do it. My mother is fond of saying “if women fight for equality, they’re giving up a lot.” Misogyny-humor aside, I don’t think we should seek to become equal to men. This very construct — women are equal to men — presupposes men are the standard to which we aspire. Achieving equal pay for equal work would be a Pyrrhic victory. Until there is some real attention paid to the work of having and raising children, women’s work will never be equal to that of men. It will continue to far exceed it. The Second Shift , Arlie Hochschild’s brilliant description of the work women do once “work” is over, doesn’t pay a dime. In this time of great economic upheaval, let’s upheave our thinking about what is work, what has value and what role women have and will continue to play in our economy and society. Equal pay without maternity leave, health care coverage for dependents and accessible child care is not equal at all. Honestly, “working mother” is just plain redundant. Instead, let’s embrace the fact that there are too many people, male and female, wanting too many hours of work relative to current supply. Let’s champion what several economists have advised and shorten our work hours across the board while also recognizing that child rearing is definitely work. Perhaps the most valuable of all. This post originally appeared on New Deal 2.0 .

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Consumer Spending in U.S. Rises on Discounts; Incomes Climb Most Since May

December 23, 2009

By Timothy R. Homan Dec. 23 (Bloomberg) — Spending by U.S. consumers increased in November less than anticipated as Americans cut back on services after buying more autos and electronics. The 0.5 percent increase in purchases was the sixth gain in the past seven months and followed a 0.6 percent increase in October, Commerce Department figures showed today in Washington. The report also showed incomes climbed 0.4 percent, the biggest increase since May, and inflation cooled. Retailers such as Best Buy Co. are cutting prices on some items to help households overcome the worst employment slump in the post-World War II era and mounting foreclosures. Shortfalls in spending, which accounts for 70 percent of the economy, indicate the recovery will take time to gain speed. “Consumer panic ended in December of last year,” said Michael Englund, chief economist at Action Economics LLC in Boulder, Colorado, who accurately forecast the increase in purchases. “Consumers will have little influence on growth from here.” Stock-index futures trimmed earlier gains following the smaller-than-forecast increase in spending, while Treasury securities rose on the smaller than anticipated inflation readings. The contract on the Standard & Poor’s 500 Index climbed 0.3 percent to 1,116.5 at 9:09 a.m. in New York. The yield on the benchmark 10-year note fell to 3.72 percent from 3.76 percent late yesterday. Less Than Forecast The median estimate of 72 economists surveyed called for a 0.7 percent increase in spending, matching an originally reported gain of 0.7 percent the prior month. Projections ranged from gains 0.4 percent to 0.9 percent. The gain in incomes followed a 0.3 percent increase in October. Wages and salaries grew 0.3 last month, the biggest gain since April. Today’s report showed prices were stabilizing, reflecting discounting by retailers. The Federal Reserve’s preferred price measure, which is tied to spending patterns and excludes food and fuel, was unchanged in November from the previous month, the first time it didn’t increase this year. The gauge was up 1.4 percent from a year earlier, the same as in October. Prices overall climbed 0.2 percent after increasing 0.3 percent in October. Adjusted for inflation, spending climbed 0.2 percent following a 0.4 percent rise the prior month, restrained by a decline in purchases of services. Savings Rate The increases in spending and incomes left the savings rate at 4.7 percent in November, unchanged from the prior month. Inflation-adjusted spending on durable goods, such as autos, furniture, and other long-lasting items, climbed 1.2 percent last month. Purchases of non-durable goods increased 0.6 percent, and spending on services, which account for almost 60 percent of all outlays, fell 0.1 percent. Best Buy, the largest U.S. electronics retailer, is promoting notebook computers and $299 flat-screen televisions to lure consumers. As a result, the Richfield, Minnesota-based company will see its gross margin decline by as much as 1 percentage point in the fourth quarter, Chief Executive Officer Brian Dunn said on a Dec. 15 conference call with analysts. The labor markets and tight credit remain a hurdles. The jobless rate is projected to exceed 10 percent through the first half of next year. Payrolls fell by 11,000 last month, bringing total job losses to 7.2 million since the recession began in December 2007, the most of any contraction since the Great Depression. Retailers may lose almost $9 billion in holiday sales as banks rein in lending to cash-strapped consumers before a new credit-card law takes effect, according to Britt Beemer, chairman of consumer polling firm America’s Research Group. Sales in November and December may fall 1.2 percent to from the same period in 2008, said Beemer in a Dec. 21 interview. If lenders weren’t cutting customer spending limits and rejecting more credit-card applicants, sales would gain about 0.8 percent to $445.5 billion, he said. To contact the reporter on this story: Timothy R. Homan in Washington at thoman1@bloomberg.net

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Ben Arnon: Do American Taxpayers Receive Dividends on Repaid TARP Funds?

December 21, 2009

In no way do I profess to be an expert on the topic of TARP and government bailouts. For that matter, I don’t think many people in the entire country, even leading economists and political scientists, can make that claim. I offer this post merely as an observation about a question I recently had. I diligently followed the TARP debate and happenings early on. However, at this point there have been so many versions, revisions, and debates about the TARP program that I have lost track. I do know that recently banks have begun repaying TARP funds to the federal government. My limited understanding of the TARP program is that the funds used to purchase troubled assets from the banks is money borrowed from the American taxpayers. I believe there is a recoupment clause written into the TARP program legislation. How exactly does TARP recoupment work? Does it only get repaid to taxpayers once all TARP funds have been repaid to the federal government? A claim on Wikipedia states that TARP funds will be repaid after 5 years . I often hear people – particularly Republicans – talk angrily about how much money the government is spending on the bailout programs. However, I rarely hear people describe these spending programs as loans made to banks by the American taxpayers. Viewed through this lens, the question people should be debating is what interest rate they will see on their return once TARP funds are repaid by the banks, and when exactly they will receive their dividends. As for who pays the interest on the TARP bailout loans, it should be the banks. It is clear from observing the healthcare debate that the federal government is currently catching a lot of heat about perceived overspending — not just from Republicans but also from independents and conservative Democrats. Why doesn’t the government re-structure the TARP recoupment clause so that American taxpayers receive repayments sooner than 5+ years down the road? This would help more people understand the difference between spending and loaning. USAA insurance company has an interesting model that seems like it would make sense for the repayment of TARP monies to taxpayers. Every year, if USAA’s total capital exceeds its current and projected requirements, the Board of Directors authorizes a Subscriber’s Account distribution. This year, USAA returned $490 million in distributions and dividends to its membership . Why not use this model for TARP recoupment so that all monies repaid in 2009 are repaid to American taxpayers in the form of dividend checks in 2010? And onward for 2011, 2012, etc. until all TARP funds have been repaid to the American taxpayers with interest paid by the banks. Please share your thoughts about this topic by writing a comment to this blog post below.

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Ben Arnon: Do American Taxpayers Receive Dividends on Repaid TARP Funds?

December 21, 2009

In no way do I profess to be an expert on the topic of TARP and government bailouts. For that matter, I don’t think many people in the entire country, even leading economists and political scientists, can make that claim. I offer this post merely as an observation about a question I recently had. I diligently followed the TARP debate and happenings early on. However, at this point there have been so many versions, revisions, and debates about the TARP program that I have lost track. I do know that recently banks have begun repaying TARP funds to the federal government. My limited understanding of the TARP program is that the funds used to purchase troubled assets from the banks is money borrowed from the American taxpayers. I believe there is a recoupment clause written into the TARP program legislation. How exactly does TARP recoupment work? Does it only get repaid to taxpayers once all TARP funds have been repaid to the federal government? A claim on Wikipedia states that TARP funds will be repaid after 5 years . I often hear people – particularly Republicans – talk angrily about how much money the government is spending on the bailout programs. However, I rarely hear people describe these spending programs as loans made to banks by the American taxpayers. Viewed through this lens, the question people should be debating is what interest rate they will see on their return once TARP funds are repaid by the banks, and when exactly they will receive their dividends. As for who pays the interest on the TARP bailout loans, it should be the banks. It is clear from observing the healthcare debate that the federal government is currently catching a lot of heat about perceived overspending — not just from Republicans but also from independents and conservative Democrats. Why doesn’t the government re-structure the TARP recoupment clause so that American taxpayers receive repayments sooner than 5+ years down the road? This would help more people understand the difference between spending and loaning. USAA insurance company has an interesting model that seems like it would make sense for the repayment of TARP monies to taxpayers. Every year, if USAA’s total capital exceeds its current and projected requirements, the Board of Directors authorizes a Subscriber’s Account distribution. This year, USAA returned $490 million in distributions and dividends to its membership . Why not use this model for TARP recoupment so that all monies repaid in 2009 are repaid to American taxpayers in the form of dividend checks in 2010? And onward for 2011, 2012, etc. until all TARP funds have been repaid to the American taxpayers with interest paid by the banks. Please share your thoughts about this topic by writing a comment to this blog post below.

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GM Names Microsoft’s Liddell CFO to Shake Up `Inbred’ Finance Department

December 21, 2009

By David Welch Dec. 21 (Bloomberg) — General Motors Co. , reaching outside the auto industry for a new chief financial officer, hired Microsoft Corp. ’s Chris Liddell as vice chairman and CFO. Liddell, 51, takes his new post effective Jan. 1, GM said in a statement today. Liddell, whose plan to leave Microsoft was announced Nov. 24, succeeds CFO Ray Young , who becomes GM’s vice president of international operations on Feb. 1. The move helps Chairman and Chief Executive Officer Ed Whitacre shore up a financial operation criticized by the Treasury’s auto task force. Hiring a CFO new to Detroit-based GM also extends Whitacre’s imprint on management since becoming CEO on Dec. 1 when the board ousted Fritz Henderson . “It had to be an outsider,” said Maryann N. Keller , a senior adviser at consultant Casesa Shapiro Group LLC in New York. “GM’s finance department was too inbred.” Liddell, a New Zealand native, joined Microsoft in 2005 and was the first outsider to be named finance chief in more than two decades. He oversaw $3 billion of expense reductions in the past fiscal year, including Microsoft’s first companywide job cuts, and its first bond offering. Liddell was previously CFO at International Paper Co. , the largest U.S. maker of cardboard shipping boxes, and was CEO at Carter Holt Harvey Ltd., then New Zealand’s second-largest public company. ‘Depth and Experience’ “Chris brings a depth and experience to this job that were unmatched,” Whitacre said in the statement. “Chris will lead our financial and accounting operations on a global basis and will report directly to me.” Like Whitacre, the former AT&T Inc. chairman and CEO who was named in June to lead a revamped GM board, Liddell comes to Detroit without a background in the auto industry. He will have to rebuild a finance group thinned by cost cuts and voluntary departures as staff members jumped to other jobs during GM’s slide toward a June 1 bankruptcy filing. While at Microsoft, Liddell played a crucial role in the Redmond, Washington-based company’s failed bid to acquire Yahoo! Inc. last year. He worked earlier in his career as an investment banker as managing director and joint CEO for CS First Boston NZ Ltd. GM’s new board includes three directors with private-equity experience. Microsoft didn’t disclose Liddell’s plans when saying last month that he would leave on Dec. 31. The week before that announcement, people familiar with GM’s CFO recruiting said the field had been narrowed to two finalists. Whitacre’s Imprint Henderson’s exit meant that the hiring was completed by Whitacre, who has been reshaping the team put in place by his predecessor when GM left Chapter 11 in July. On Dec. 4, Whitacre picked new North American and European presidents and moved Vice Chairman Bob Lutz to be an adviser for design and product development. Whitacre gave some of Lutz’s marketing duties to Susan Docherty , who was promoted to vice president of sales, service and marketing from U.S. sales chief. Two of Docherty’s three general managers for GM brands also were replaced this month. The new assignment for Young, 47, was announced Dec. 14. Stronger financial controls will be pivotal as GM works to end losses of at least $88 billion from 2004 until its June 1 bankruptcy filing. GM said Nov. 16 that it generated $3.3 billion in cash in the third quarter while losing $1.15 billion. ‘Weakest Finance Operation’ The automaker may have had the “weakest finance operation any of us had ever seen in a major company,” Steven Rattner , the former chief adviser to the task force that reorganized GM in a 40-day bankruptcy, said in an article in Fortune magazine in October. GM reorganized its accounting department in 2006 by consolidating the controller and chief accounting officer jobs under Nicholas Cyprus . The changes came after GM that year restated results back to 2000 and earlier said it found flaws in annual regulatory reports for 2006, 2005 and a revised 2004 filing. “This is not the company that Alfred Sloan and Donaldson Brown invented,” said consultant Keller, referring to the former GM chairman and vice chairman who established modern financial practices for large corporations. Financial History GM’s missteps in recent decades included “decisions like getting into the mortgage business or buying into Fiat or buying Saab,” Keller said. “They stifled investment in North America. They borrowed money to pay a dividend . The pure financial management of this company has been bumbling and incompetent.” Young became CFO in March 2008, succeeding Henderson, after four months as group vice president for finance. People familiar with the matter said in September that Young was likely to leave his post, and a month later he was said to probably be bound for international operations. He joined GM in 1986. Early repayments of $7.84 billion in U.S. and Canadian government loans and preparing for an initial public offering add to Liddell’s challenges as CFO. GM said Dec. 18 that it returned $1 billion to the U.S. Treasury, the first installment on $6.7 billion in federal borrowing due in July 2015, and $192 million to Export Development Canada. Those moves came three days after Whitacre set a target of completing the payments by the end of June. An IPO may be held in next year’s second half, according to GM, which is 61 percent owned by the U.S. government. The other stakes are held by a United Auto Workers retiree trust; the governments of Canada and Ontario; and the remnants of GM’s bankrupt predecessor, now known as Motors Liquidation Co. To contact the reporter on this story: David Welch in Southfield, Michigan, at david_welch@businessweek.com

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Wendy Block: My Blue Shield Experience Embodies Our Stupid and Wasteful Health Insurance System

December 18, 2009

Dah DEE dah DAH dee dah Dah dah dah dee DAY Dah DEE dah DAH dee dah Dah dee DEE dah day… Recognize this melody? If you’re a Blue Shield of California member, you hear it pretty much every time you call and end up holding till an actual person answers. A few days ago I heard it for half an hour, interrupted only by a man’s recorded voice telling me how Blue Shield is giving me better, more affordable access to healthcare. Everybody has had a version of this experience, so why am I asking you to read about mine? Because it embodies our stupid, wasteful health insurance system, and underscores the need for single payer health care. After my divorce two years ago I was COBRA-ed. COBRA, I’m pretty sure, is the administrator of my Blue Shield policy. I lucked into meeting Janet — a smart, efficient, nice insurance broker from an independent brokerage — who helped me survive the jurisdictional mess that accompanied — at no extra charge — the COBRA conversion. She’s kept in touch, most recently to confirm I’d received an important packet she’d emailed me just before Thanksgiving. I’d been so focused on the holidays I had ignored Office Outlook. Janet told me that the non-profit through which I’m insured was switching dental plans, and that I had to enroll soon if I wanted to keep coverage. She urged me to sign and send her the forms asap and offered to expedite my enrollment to beat the deadline. I did, and she did. Thanks again, Janet! To guarantee that my overall insurance would continue, I needed to choose specific levels of coverage and mail the paperwork by December 15. On the 14th (hey, 24 hours ahead) I studied the choices and called the recommended 800- number with a few questions. That number turned out to be COBRA’s, but the rep couldn’t answer my questions. Asking her what questions she could answer didn’t yield much, so I tried a few subjects until it became clear that COBRA knew only about administering insurance plans, not about the plans themselves. She did know Blue Shield’s number which she gave me, and I called. After the de rigeur two minute holding period to reach a human, during which my relationship with Dah DEE dah, DAH dee dah… began, a chirpy young woman named Sophie asked if she could help me. But first she needed my ID number etc. Once she heard I was on COBRA, she asked whether it was state or national COBRA, and whatever I replied triggered her bureaucratic reflex. Zombie-like, she kept repeating, “Call COBRA,” “Call COBRA.” I asked for her supervisor, which gave me more time with Dah DEE dah … When Sophie returned she said her supervisor was on another call. Did I want COBRA’s number? I’d been polite, but no more. “You’re saying you work for Blue Shield, but you can’t tell me the difference among Blue Shield plans?” I asked, incredulous and pissed. “No,” she said, “COBRA…” I don’t remember exactly how I responded — though I used no curse words; my response inspired her to ask if I wanted to wait for her supervisor. “Yes,” I replied, mercifully releasing us from this exchange. It was during the next wait that I started humming along with and scatting the Blue Shield on-hold tune. A few minutes later I began singing harmony. I considered writing lyrics, but time was a-wasting and now I’d have to scramble to arrive at a scheduled appointment. Just when I was about to hang up — 30 minutes after this hold-fest began — Sophie’s supervisor Tom picked up. He started yapping about COBRA when I interrupted, saying that after waiting half an hour I had to run; just please distinguish between HMO 250 and HMO 400 and POS plus and so on. He did! And I got it! I wanted to stick around for the post-call survey another robotic Blue Shield voice sometimes asks me to take — I had definitive responses. But, tickety tock. Altogether, I’d called six people from five companies. (I’ve spared you two other unhelpful conversations.) Janet the broker was the lone hero. With a single payer system, one entity would coordinate everything. Eliminating the majority of paper-pushing companies and employees with their cubicle-bred mindsets (forget expertise!) could lead the way for Janet and other competent people to run things. Plus, single payer health care would save California nearly $350 billion in health costs over 10 years, according to– ready?–the Lewin Group! http://www.lewin.com/content/publications/1626.pdf (p 42) There’d be more funds for doctors and for healthcare itself, from which everyone — finally — could benefit. Yeah, reality is messy. But a simple, lean structure makes it easier for anyone to work efficiently. Customer reps would likely know their straightforward universe; they wouldn’t need to put callers on hold for half an hour. And I could spend the rest of my day without whistling that damn Dah DEE dah, DAH dee dah…

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Bank of America Names Brian Moynihan to Replace Lewis as Chief Executive

December 17, 2009

By David Mildenberg Dec. 17 (Bloomberg) — Bank of America Corp., the biggest U.S. lender, promoted Brian T. Moynihan to chief executive officer, opting for an insider to repair the company after the tumultuous takeover of Merrill Lynch & Co. prodded Kenneth D. Lewis into early retirement. Moynihan, the 50-year-old head of the consumer banking unit, takes over at year’s end, the Charlotte, North Carolina- based bank said yesterday in a statement. Lewis, 62, said in September he’d step down Dec. 31. “Our core businesses are the right ones, we just have to execute,” Moynihan said in an interview after the board gave him the title of president and CEO. “As the recovery takes hold, we need to do a better job with risk management.” Bank of America’s new boss must stanch defaults on consumer loans tied to the recession, which led to two losses in the past four quarters. He must also integrate Merrill Lynch and smooth relations with regulators after they clashed with Lewis over the purchase. The bank paid back $45 billion to the U.S. Troubled Asset Relief Program on Dec. 9. Moynihan takes charge of the biggest U.S. lender by assets and deposits, the No. 1 home lender and the largest issuer of debit cards. He’ll also oversee underwriting, trading and retail brokerage operations of New York-based Merrill Lynch. The bank counts 53 million consumer and small-business customers in 150 countries at 6,000 offices, and the company’s stock is a component of the Dow Jones Industrial Average . Internal Candidates “The good news is that he knows the company and isn’t coming from the outside,” said Mike Holland , chairman of Holland & Co. LLC, which manages more than $4 billion. “The fact that he has a background in wealth management and corporate banking is a very good order for what they need.” Holland doesn’t own any shares and said the appointment may turn him into a buyer. The board’s six-member search committee, led by Chairman Walter Massey , chose Moynihan during an early afternoon meeting in Charlotte yesterday. The full board assembled at 6 p.m. New York time and after presentations from lawyers, its executive search consultants and Massey, voted unanimously for Moynihan, according to spokesman Robert Stickler . Moynihan, who had been working with Lewis earlier in the day, said he left his 58th floor office at about 7:30 p.m. after being called into the meeting and was greeted with applause by Lewis and the 13 other directors who were attending; one undisclosed member was connected by phone. “I was pleased,” Moynihan said when asked about how he responded. The 10-week selection process was worthwhile, he said, “as long as it had a good outcome.” Internal and External Bank of America sorted through half a dozen internal candidates including Gregory Curl , 61, the bank’s chief risk officer, who was initially favored by Lewis because of his lengthy experience, a person familiar with the matter has said. Lewis strongly endorsed Moynihan at the meeting, the person said, and repeated it in the company’s statement. Robert Kelly , 55, CEO at Bank of New York Mellon Corp. and the leading outside candidate, dropped out on Dec. 14 after the board offered a $20 million compensation package, the person said. Kelly was among at least five industry executives who rebuffed the board’s overtures. An internal candidate usually is the best choice because “the transition is easier and you usually have to pay the new CEO much less than if you have to go outside,” said Mike McCauley , senior corporate governance officer at the Florida State Board of Administration, which owns 25.4 million Bank of America shares. Compensation Moynihan wasn’t among the bank’s five highest-paid executives in 2008, so his compensation wasn’t disclosed at the time and the statement yesterday didn’t discuss the matter. Moynihan joined Bank of America through its 2004 purchase of FleetBoston Financial Corp., where he led the brokerage and wealth management unit and directed strategic development for six years. At Bank of America, he has been president of the global wealth and investment management unit, spent a month in 2008 as general counsel, then replaced former Merrill Lynch CEO John Thain in January to head the investment bank and wealth management units. In August, he was assigned to head the retail bank, including oversight of credit card operations. Since Lewis’s resignation announcement, analysts including Richard Bove of Rochdale Securities LLC had cited Moynihan as a favorite for the CEO post because of his ties to search committee directors Charles “Chad” Gifford , Thomas May and Thomas Ryan , three Bostonians who had been on the Fleet board. Diverse Mix “The fact that regulators would accept this is a complete indictment of the Fed and Office of the Comptroller of the Currency,” said Chris Whalen , managing director of Institutional Risk Analytics, a Torrance, California-based research firm. “Ken Lewis’s cronies were allowed to pick his son.” Moynihan must show investors that Bank of America’s diverse businesses can be effectively managed rather than broken into smaller pieces, said David Kotok , chairman of Vineland, New Jersey-based Cumberland Advisors, which oversees $1.2 billion. “There is a question whether this model even works in the post- crisis world,” Kotok said. “He has a task ahead of him.” Bank of America posted losses in last year’s fourth quarter and the third quarter of 2009. Still, the bank posted a cumulative profit of $6.5 billion for the first nine months of this year, aided by gains at Merrill Lynch from trading stocks, bonds and currencies. Government Rescue The U.S. injected $45 billion into Bank of America through the purchase of preferred shares, including $20 billion approved in January after the Merrill Lynch takeover to keep the deal from collapsing. The bank redeemed the shares earlier this month after raising $19 billion through a stock sale. Documents released during a congressional investigation of the Merrill purchase show Moynihan as general counsel played a role in conducting the transaction and advising Lewis. The CEO was later criticized by investors and regulators for not telling shareholders about Merrill’s $3.6 billion in employee bonuses and mounting losses. Moynihan’s relations frayed with Representative Edolphus Towns , a New York Democrat who leads the House Oversight Committee. After Moynihan testified on his role in the Merrill takeover at a Nov. 17 hearing, Towns said he didn’t believe some of the banker’s answers and that Moynihan “didn’t show the kind of leadership a company would seem to need.” Credit Cards “I hope Mr. Moynihan appreciates the debt Bank of America owes to U.S. taxpayers,” Towns said in a statement yesterday. Bank of America is addressing consumer and political concerns by providing more clarity to customers in credit cards, home loans and other retail businesses, Moynihan said. His own success as CEO will be measured by whether customers, investors and employees “say we are doing a better job,” he said. Moynihan is an Ohio native, a graduate of Brown University and the University of Notre Dame School of Law. The CEO and Bank of America will be based in Charlotte, and there are no plans to move the headquarters, Stickler said. Moynihan praised Tom Montag , who heads the bank’s capital markets unit, for helping retain senior bankers and noted that Bank of America has ranked second in investment banking fees for three straight quarters. “To perform that way in these tough economic times is a real testament to that business,” he said. The bank needs brokerage and investment-banking fees to overcome higher losses in its credit-card and home-loan businesses, which make up about 36 percent of revenue this year. The U.S. unemployment rate stood at 10 percent in November, and Lewis told employees in September when he announced his departure that “a near double-digit unemployment rate is bad medicine for a bank that serves consumers.” He predicted that “the next two quarters will be difficult.” To contact the reporter on this story: David Mildenberg in Charlotte at dmildenberg@bloomberg.net .

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Homebuilder Confidence in U.S. Unexpectedly Declines on Concern Over Jobs

December 15, 2009

By Shobhana Chandra Dec. 15 (Bloomberg) — Confidence among U.S. homebuilders unexpectedly fell in December on concern the lack of jobs and tight credit will limit a recovery. The National Association of Home Builders/Wells Fargo index of builder confidence decreased to 16, the lowest level since June, from 17 in a November, the Washington-based group said today. Readings below 50 mean most respondents view conditions as poor. Mounting foreclosures and an unemployment rate forecast to average 10 percent next year indicate housing will take time to rebound from the worst slump in the post-World War II era. Cheaper homes, lower borrowing costs and an extension of a buyer tax credit are laying the groundwork for companies including Toll Brothers Inc. to revive construction projects. “This is shaping up to be a bumpy recovery period for the housing market,” David Crowe , the NAHB’s chief economist, said in a statement. “Tight lending conditions for both consumers and home builders continue to pose considerable obstacles on the road to a sustained housing and economic recovery.” The builder confidence index was forecast to increase to 18 this month, according to the median forecast of 47 economists surveyed by Bloomberg News. Projections ranged from 17 to 20. The index, first published in January 1985, averaged 16 last year. The confidence survey asks builders to characterize current sales as “good,” “fair” or “poor” and to gauge prospective buyers’ traffic. It also asks participants to gauge the outlook for the next six months. The builders group’s index of current single-family home sales fell to 16 in December from 17 the prior month. The gauge of buyer traffic was unchanged at 13 for a third straight month. A measure of sales expectations for the next six months dropped to 26 from 28. Drop in Midwest The drop in confidence was concentrated in the Midwest, where the index fell to 12 in December from 14. Two of the four regions showed increases, led by the Northeast, which rose to 23 from 20. In the West, the gauge climbed to 19 from 18. Confidence was unchanged in the South at 17. President Barack Obama in November extended until April 30 a tax credit of as much as $8,000 for first-time homebuyers and expanded it to include a smaller incentive for some current owners. Housing has bottomed, distressed property sales and foreclosures have abated, and inventories are trimmer, Robert Toll , chief executive officer of Horsham, Pennsylvania-based Toll, the largest U.S. luxury homebuilder, said last week. “We don’t know how fast we’re coming back, but we do know we’re coming back,” Toll said in a Bloomberg Television interview on Dec. 11. “There’s a pretty good reservoir of pent-up demand.” The labor market remains weak. The jobless rate may stay above 10 percent through the first half of 2010, according to a Bloomberg survey this month. Foreclosure filings will reach a record for the second straight year with 3.9 million notices sent to homeowners in default, RealtyTrac Inc. said last week. To contact the reporter on this story: Shobhana Chandra in Washington schandra1@bloomberg.net

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U.S. Industrial Production Climbs More Than Forecast, Producer Costs Rise

December 15, 2009

By Bob Willis Dec. 15 (Bloomberg) — Industries in the U.S. boosted production in November by the most in three months, showing the world’s largest economy is gaining speed heading into 2010. Output at factories, mines and utilities climbed 0.8 percent, after no change in October, the Federal Reserve said today in Washington. Manufacturing and mining rose, while warmer weather restrained utility demand. Capacity utilization, which measures the proportion of plants in use, increased. Improving global sales and leaner inventories are prompting companies such as Ford Motor Co. to rev up assembly lines, giving the expansion a lift. The pickup has yet to boost hiring, one reason why Fed policy makers tomorrow may reiterate a pledge to keep lending rates near zero for “an extended period.” “We’ll continue to see growth in manufacturing output, given strong exports and that consumers are spending,” said Michael Feroli , an economist at JPMorgan Chase & Co. in New York, who forecast a production gain of 0.9 percent. “You’re seeing a decent amount of breadth in terms of the increases.” Stock futures were lower after the report and separate releases that showed higher producer prices and slower growth at New York-area factories. The contract on the Standard & Poor’s 500 Index was down 0.4 percent to 1,104 at 9:24 a.m. in New York. A report from the Labor Department earlier today showed prices paid to producers rose 1.8 percent last month. Excluding fuel and food, prices increased 0.5 percent. New York Manufacturing Factories in the New York region expanded less than anticipated this month, figures from the Fed Bank of New York also showed. The bank’s general economic gauge, known as the Empire State Index , fell to a five-month low of 2.6 from 23.5 in November. Readings greater than zero signal expansion. Industrial production was forecast to increase 0.5 percent after a previously reported 0.1 percent gain in October, according to the median estimate of 78 economists surveyed by Bloomberg News. Projections ranged from no change to a gain of 0.9 percent. Capacity use rose to 71.3 percent last month from 70.6 percent in October. It was forecast to rise to 71.2 percent, according to the Bloomberg survey median. The rate averaged 80 percent over the past two decades. Excess capacity is one reason economists anticipate inflation will remain low. The Fed’s report showed production at manufacturers increased 1.1 percent in November, the most in three months, after a 0.2 percent decline in October. Production of business equipment rose 0.4 percent, while output of computers and electronics also increased 0.4 percent. Warmer Weather Utility production declined 1.8 percent after a 1.7 percent rise. Last month was the third-warmest November in 115 years in the U.S., according to the National Climatic Data Center. Mining output, which includes oil drilling, increased 2.1 percent. Motor vehicle and parts production rose 1.8 percent following a 1.8 percent decrease the prior month. Automobile production is moderating after surging in the three months through September as “cash-for-clunkers” incentives to purchase cars expired in late August. Auto sales are climbing again after plunging in September. General Motors Co., Toyota Motor Corp., Ford and Chrysler Group LLC all posted November sales that beat analysts’ estimates. The seasonally adjusted annual sales rate was 10.9 million vehicles, up from 10.45 million in October, according to industry figures released this month. Ford, the only major U.S. automaker to avoid bankruptcy, plans to boost first-quarter North American production by 58 percent from a year earlier to 550,000 vehicles. Excluding Auto Production Excluding automobiles, manufacturing output increased 1.1 percent, the most in three months. Consumer durable goods output, which includes automobiles, furniture and electronics, rose 1.5 percent. Production of industrial materials rose 1.3 percent in November, the most in three months. Deere & Co., the world’s largest maker of farm equipment, last week said early-order combine sales in North America, those for equipment that won’t be used until the middle of next year, topped its estimates and November demand was better than anticipated. “Bottom line — business has strengthened a bit from what we were expecting,” Marie Ziegler , vice president of investor relations, said at a presentation Dec. 10. Global Growth Manufacturers are benefiting from rising demand overseas as the global economy recovers from the worst slump since World War II. A 12 percent drop in the value of the dollar from a four- year high on March 3 against its major trading partners is making American goods more competitive. Exports have risen for six consecutive months since reaching a three-year low in April. Even so, the economy has lost 7.2 million jobs since the recession began two years ago, the worst employment slump in the post-war era. The jobless rate reached a 26-year high of 10.2 percent in October before falling to 10 percent last month. Fed Chairman Ben S. Bernanke last week said the economy faces “formidable headwinds,” signaling policy makers tomorrow will keep the benchmark interest rate near zero following their last meeting of the year. In comments Dec. 7 at the Economic Club of Washington, he cited a weak labor market and tight credit as ongoing drags “likely to keep the pace of expansion moderate.” After shrinking an estimated 2.5 percent this year, the economy is set to grow 2.6 percent pace next year, according to economists surveyed by Bloomberg early this month. The year after the 1981-82 recession, the last time unemployment was this high, the economy grew 4.5 percent. To contact the reporter on this story: Bob Willis in Washington bwillis@bloomberg.net .

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U.S. Industrial Production Climbs More Than Forecast, Producer Costs Rise

December 15, 2009

By Bob Willis Dec. 15 (Bloomberg) — Industries in the U.S. boosted production in November by the most in three months, showing the world’s largest economy is gaining speed heading into 2010. Output at factories, mines and utilities climbed 0.8 percent, after no change in October, the Federal Reserve said today in Washington. Manufacturing and mining rose, while warmer weather restrained utility demand. Capacity utilization, which measures the proportion of plants in use, increased. Improving global sales and leaner inventories are prompting companies such as Ford Motor Co. to rev up assembly lines, giving the expansion a lift. The pickup has yet to boost hiring, one reason why Fed policy makers tomorrow may reiterate a pledge to keep lending rates near zero for “an extended period.” “We’ll continue to see growth in manufacturing output, given strong exports and that consumers are spending,” said Michael Feroli , an economist at JPMorgan Chase & Co. in New York, who forecast a production gain of 0.9 percent. “You’re seeing a decent amount of breadth in terms of the increases.” Stock futures were lower after the report and separate releases that showed higher producer prices and slower growth at New York-area factories. The contract on the Standard & Poor’s 500 Index was down 0.4 percent to 1,104 at 9:24 a.m. in New York. A report from the Labor Department earlier today showed prices paid to producers rose 1.8 percent last month. Excluding fuel and food, prices increased 0.5 percent. New York Manufacturing Factories in the New York region expanded less than anticipated this month, figures from the Fed Bank of New York also showed. The bank’s general economic gauge, known as the Empire State Index , fell to a five-month low of 2.6 from 23.5 in November. Readings greater than zero signal expansion. Industrial production was forecast to increase 0.5 percent after a previously reported 0.1 percent gain in October, according to the median estimate of 78 economists surveyed by Bloomberg News. Projections ranged from no change to a gain of 0.9 percent. Capacity use rose to 71.3 percent last month from 70.6 percent in October. It was forecast to rise to 71.2 percent, according to the Bloomberg survey median. The rate averaged 80 percent over the past two decades. Excess capacity is one reason economists anticipate inflation will remain low. The Fed’s report showed production at manufacturers increased 1.1 percent in November, the most in three months, after a 0.2 percent decline in October. Production of business equipment rose 0.4 percent, while output of computers and electronics also increased 0.4 percent. Warmer Weather Utility production declined 1.8 percent after a 1.7 percent rise. Last month was the third-warmest November in 115 years in the U.S., according to the National Climatic Data Center. Mining output, which includes oil drilling, increased 2.1 percent. Motor vehicle and parts production rose 1.8 percent following a 1.8 percent decrease the prior month. Automobile production is moderating after surging in the three months through September as “cash-for-clunkers” incentives to purchase cars expired in late August. Auto sales are climbing again after plunging in September. General Motors Co., Toyota Motor Corp., Ford and Chrysler Group LLC all posted November sales that beat analysts’ estimates. The seasonally adjusted annual sales rate was 10.9 million vehicles, up from 10.45 million in October, according to industry figures released this month. Ford, the only major U.S. automaker to avoid bankruptcy, plans to boost first-quarter North American production by 58 percent from a year earlier to 550,000 vehicles. Excluding Auto Production Excluding automobiles, manufacturing output increased 1.1 percent, the most in three months. Consumer durable goods output, which includes automobiles, furniture and electronics, rose 1.5 percent. Production of industrial materials rose 1.3 percent in November, the most in three months. Deere & Co., the world’s largest maker of farm equipment, last week said early-order combine sales in North America, those for equipment that won’t be used until the middle of next year, topped its estimates and November demand was better than anticipated. “Bottom line — business has strengthened a bit from what we were expecting,” Marie Ziegler , vice president of investor relations, said at a presentation Dec. 10. Global Growth Manufacturers are benefiting from rising demand overseas as the global economy recovers from the worst slump since World War II. A 12 percent drop in the value of the dollar from a four- year high on March 3 against its major trading partners is making American goods more competitive. Exports have risen for six consecutive months since reaching a three-year low in April. Even so, the economy has lost 7.2 million jobs since the recession began two years ago, the worst employment slump in the post-war era. The jobless rate reached a 26-year high of 10.2 percent in October before falling to 10 percent last month. Fed Chairman Ben S. Bernanke last week said the economy faces “formidable headwinds,” signaling policy makers tomorrow will keep the benchmark interest rate near zero following their last meeting of the year. In comments Dec. 7 at the Economic Club of Washington, he cited a weak labor market and tight credit as ongoing drags “likely to keep the pace of expansion moderate.” After shrinking an estimated 2.5 percent this year, the economy is set to grow 2.6 percent pace next year, according to economists surveyed by Bloomberg early this month. The year after the 1981-82 recession, the last time unemployment was this high, the economy grew 4.5 percent. To contact the reporter on this story: Bob Willis in Washington bwillis@bloomberg.net .

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Industrial Production in U.S. Rose 0.8% in November, Most in Three Months

December 15, 2009

By Bob Willis Dec. 15 (Bloomberg) — Industries in the U.S. boosted production in November by the most in three months, showing the world’s largest economy is gaining speed heading into 2010. Output at factories, mines and utilities climbed 0.8 percent, after no change in October, the Federal Reserve said today in Washington. Manufacturing and mining rose, while warmer weather restrained utility demand. Capacity utilization, which measures the proportion of plants in use, increased. Improving global sales and leaner inventories are prompting companies such as Ford Motor Co. to rev up assembly lines, giving the expansion a lift. The pickup has yet to boost hiring, one reason why Fed policy makers tomorrow may reiterate a pledge to keep lending rates near zero for “an extended period.” “We’re seeing rising production to meet consumer demand and increased business spending,” said John Herrmann , chief economist at Herrmann Forecasting in Summit, New Jersey. “Businesses are beginning to incrementally increase their inventories, and that means ramping up production.” A report from the Labor Department earlier today showed prices paid to producers rose 1.8 percent last month. Excluding fuel and food, prices increased 0.5 percent. Industrial production was forecast to increase 0.5 percent after a previously reported 0.1 percent gain in October, according to the median estimate of 78 economists surveyed by Bloomberg News. Projections ranged from no change to a gain of 0.9 percent. Capacity use rose to 71.3 percent last month from 70.6 percent in October. It was forecast to rise to 71.2 percent, according to the Bloomberg survey median. The rate averaged 80 percent over the past two decades. Excess capacity is one reason economists anticipate inflation will remain low. Manufacturing Up 1.1% The Fed’s report showed production at manufacturers increased 1.1 percent in November, the most in three months, after a 0.2 percent decline in October. Production of business equipment rose 0.4 percent, while output of computers and electronics also increased 0.4 percent. Utility production declined 1.8 percent after a 1.7 percent rise. Last month was the third-warmest November in 115 years in the U.S., according to the National Climatic Data Center. Mining output, which includes oil drilling, increased 2.1 percent. Motor vehicle and parts production rose 1.8 percent following a 1.8 percent decrease the prior month. Automobile production is moderating after surging in the three months through September as “cash-for-clunkers” incentives to purchase cars expired in late August. Automobile Sales Auto sales are climbing again after plunging in September. General Motors Co., Toyota Motor Corp., Ford and Chrysler Group LLC all posted November sales that beat analysts’ estimates. The seasonally adjusted annual sales rate was 10.9 million vehicles, up from 10.45 million in October, according to industry figures released this month. Ford, the only major U.S. automaker to avoid bankruptcy, plans to boost first-quarter North American production by 58 percent from a year earlier to 550,000 vehicles. Excluding automobiles, manufacturing output increased 1.1 percent, the most in three months. Consumer durable goods output, which includes automobiles, furniture and electronics, rose 1.5 percent. Production of industrial materials rose 1.3 percent in November, the most in three months. Deere & Co., the world’s largest maker of farm equipment, last week said early-order combine sales in North America, those for equipment that won’t be used until the middle of next year, topped its estimates and November demand was better than anticipated. ‘Business Has Strengthened’ “Bottom line — business has strengthened a bit from what we were expecting,” Marie Ziegler , vice president of investor relations, said at a presentation Dec. 10. Manufacturers are benefiting from rising demand overseas as the global economy recovers from the worst slump since World War II. A 12 percent drop in the value of the dollar from a four- year high on March 3 against its major trading partners is making American goods more competitive. Exports have risen for six consecutive months since reaching a three-year low in April. Even so, the economy has lost 7.2 million jobs since the recession began two years ago, the worst employment slump in the post-war era. The jobless rate reached a 26-year high of 10.2 percent in October before falling to 10 percent last month. Fed Meeting Fed Chairman Ben S. Bernanke last week said the economy faces “formidable headwinds,” signaling policy makers tomorrow will keep the benchmark interest rate near zero following their last meeting of the year. In comments Dec. 7 at the Economic Club of Washington, he cited a weak labor market and tight credit as ongoing drags “likely to keep the pace of expansion moderate.” After shrinking an estimated 2.5 percent this year, the economy is set to grow 2.6 percent pace next year, according to economists surveyed by Bloomberg early this month. The year after the 1981-82 recession, the last time unemployment was this high, the economy grew 4.5 percent. To contact the reporter on this story: Bob Willis in Washington bwillis@bloomberg.net .

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Keith Ferrazzi: Don’t Be a Twitter Idiot – 5 Tips for Better Tweeting

December 15, 2009

When I started tweeting, I was a Twitter idiot! I made tons of mistakes. Here are the top five ( VIDEO after the jump ): Quick hits on the 5 tips: 1. Be generous first. Think about what’s in it for your readers. 2. … See the rest of Keith’s Twitter Tips and a VIDEO of Keith explaining them by checking out this post on Keith’s Blog .

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U.K. House Price Pickup Will Stall in 2010 on Forced Sales, Rightmove Says

December 14, 2009

By Jennifer Ryan Dec. 14 (Bloomberg) — The U.K. housing market recovery will peter out in 2010 as the supply of homes increases because of forced sales, Rightmove Plc said. Average asking prices will stagnate next year after rising about 2 percent in 2009, the operator of the U.K.’s biggest property Web site said in a statement today. Prices fell 2.2 percent this month to an average of 221,463 pounds ($361,405), and may drop again next month, the group said. Banks may show “less forbearance” to consumers who are late on mortgage payments after the general election, which Prime Minister Gordon Brown must call by June 2010, Rightmove said. A shortage of properties available helped stoke prices this year and erased some losses in values caused during the slump. “2009 turned out to be a good time to trade up,” Miles Shipside , commercial director of Rightmove, said in the statement. “We forecast the positive mood will continue into 2010 until the post-election hang-over kicks in.” The pound was fell 0.1 percent against the dollar today to $1.6223 as of 9:13 a.m. in London. The two-year gilt was 2 basis points lower at 1.19 percent. Asking prices fell 5.8 percent from November in the North of England, making it the worst-performing of 10 regions tracked by Rightmove. East Anglia, where prices rose 0.5 percent on the month, was the only area to show a monthly increase. Rightmove measured asking prices from listings on its site from Nov. 8 to Dec. 5. 100,000-Pound Drop Prices in London fell 1.2 percent, led by a 6.2 percent drop in Hounslow. The next-biggest drop was in Kensington and Chelsea, the capital’s most expensive district, where prices declined 5 percent, or almost 100,000 pounds in a month. The average number of properties available for sale per real estate agent fell to 67, the lowest since February 2008, from 69 the previous month, Rightmove said. The Council of Mortgage Lenders cut its forecast for U.K. mortgage repossessions this year after low interest rates helped Britons manage their payments. The CML last month forecast 48,000 repossessions, down from an earlier prediction of 75,000. Repossessions may increase from the second half of 2010 because banks may become less patient with as many as 240,000 homeowners who have been late on mortgage payments and if interest rates increase, Rightmove said. Record-low interest rates have made borrowing more affordable and helped more U.K. households meet debt payments, the Bank of England said today, citing a survey it conducted with NMG Financial Services Consulting from September to October. Still, Shipside said a jump in mortgage lending next year isn’t likely. “We have seen recovery to a degree in mortgage lending, which is fairly a snail’s pace, and they are being particularly choosy,” Shipside said in an interview on Bloomberg Television. “I can’t see that changing particularly next year, it may even tighten up after the election.” To contact the reporter on this story: Jennifer Ryan in London at Jryan13@bloomberg.net

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U.K. House Price Pickup Will Stall in 2010 on Forced Sales, Rightmove Says

December 14, 2009

By Jennifer Ryan Dec. 14 (Bloomberg) — The U.K. housing market recovery will peter out in 2010 as the supply of homes increases because of forced sales, Rightmove Plc said. Average asking prices will stagnate next year after rising about 2 percent in 2009, the operator of the U.K.’s biggest property Web site said in a statement today. Prices fell 2.2 percent this month to an average of 221,463 pounds ($361,405), and may drop again next month, the group said. Banks may show “less forbearance” to consumers who are late on mortgage payments after the general election, which Prime Minister Gordon Brown must call by June 2010, Rightmove said. A shortage of properties available helped stoke prices this year and erased some losses in values caused during the slump. “2009 turned out to be a good time to trade up,” Miles Shipside , commercial director of Rightmove, said in the statement. “We forecast the positive mood will continue into 2010 until the post-election hang-over kicks in.” The pound was fell 0.1 percent against the dollar today to $1.6223 as of 9:13 a.m. in London. The two-year gilt was 2 basis points lower at 1.19 percent. Asking prices fell 5.8 percent from November in the North of England, making it the worst-performing of 10 regions tracked by Rightmove. East Anglia, where prices rose 0.5 percent on the month, was the only area to show a monthly increase. Rightmove measured asking prices from listings on its site from Nov. 8 to Dec. 5. 100,000-Pound Drop Prices in London fell 1.2 percent, led by a 6.2 percent drop in Hounslow. The next-biggest drop was in Kensington and Chelsea, the capital’s most expensive district, where prices declined 5 percent, or almost 100,000 pounds in a month. The average number of properties available for sale per real estate agent fell to 67, the lowest since February 2008, from 69 the previous month, Rightmove said. The Council of Mortgage Lenders cut its forecast for U.K. mortgage repossessions this year after low interest rates helped Britons manage their payments. The CML last month forecast 48,000 repossessions, down from an earlier prediction of 75,000. Repossessions may increase from the second half of 2010 because banks may become less patient with as many as 240,000 homeowners who have been late on mortgage payments and if interest rates increase, Rightmove said. Record-low interest rates have made borrowing more affordable and helped more U.K. households meet debt payments, the Bank of England said today, citing a survey it conducted with NMG Financial Services Consulting from September to October. Still, Shipside said a jump in mortgage lending next year isn’t likely. “We have seen recovery to a degree in mortgage lending, which is fairly a snail’s pace, and they are being particularly choosy,” Shipside said in an interview on Bloomberg Television. “I can’t see that changing particularly next year, it may even tighten up after the election.” To contact the reporter on this story: Jennifer Ryan in London at Jryan13@bloomberg.net

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Paul Samuelson, Nobel Prize-Winning Economist, Dies At 94

December 13, 2009

NEW YORK — Economist Paul Samuelson, who won a Nobel prize for his effort to bring mathematical analysis into economics, helped shape tax policy in the Kennedy administration and wrote a textbook read by millions of college students, died Sunday. He was 94. Samuelson, who taught for decades at Massachusetts Institute of Technology, died at his home in Belmont, Mass., the school said in a statement announcing his death. President Barack Obama’s chief economic adviser, Lawrence Summers, is his nephew. In 1970, Samuelson became just the second person, and first American, to win the Nobel Memorial Prize in Economic Sciences, created in 1968 by the Central Bank of Sweden. The other Nobels have been awarded since 1901. The award citation said Samuelson “has done more than any other contemporary economist to raise the level of scientific analysis in economic theory.” A 1970 New York Times profile said his mind “possesses the agility of a Nijinsky and the endurance of a cross-country runner.” When he won the Nobel, he said it was “nice to be recognized for hard work.” Samuelson was a liberal, and like many of his generation a follower of British economist John Maynard Keynes, who proposed that a nation needs an activist government that could foster low unemployment by steering tax and monetary policies, even if it meant deficit spending at times. “In the old-fashioned laissez-faire economy, prosperity was indeed a fragile blossom,” he wrote in a 1970 article for The New York Times. “But for a modern ‘mixed economy’ in the post-Keyensian era, fiscal and monetary policies can definitely prevent chronic slumps, can offset automation or under-consumption, can insure that resources find paying work opportunities.” He was among a circle of JFK advisers, who also included John Kenneth Galbraith and Walter Heller, who led Kennedy to recommend the historic income tax cut that Congress eventually passed in early 1964, three months after the president was assassinated. “A temporary reduction in tax rates on individual incomes can be a powerful weapon against recession,” Samuelson had written in a report to Kennedy in early 1961. The cut was widely credited with helping foster the 1960s economic boom. When Heller died in 1987, Samuelson said, “In Kennedy’s Camelot, he was chairman of the greatest team ever assembled. He was a great policy economist and a witty, phrase-making economist.” It was Samuelson’s work as an educator, both in the classroom and as a textbook author, that may have been his most influential role. College students have been reading “Economics” since the late 1940s. It had its roots in a short text that Samuelson put together to use in his MIT classes. It is now in its 19th edition; the more recent editions were co-written by William D. Nordhaus of Yale. The book has sold more than 4 million copies in more than 40 languages. “I knew it was a good book, but what I didn’t realize would be its lasting power,” Samuelson said in a 1998 Associated Press interview. He said his aim was to make economics “understandable and enjoyable. … I think economics – and this is what I’ve tried to impart – has a tremendous amount of human interest in it.” The late Robert Heilbroner, himself a notable author on economics (“The Worldly Philosophers”), wrote in The Nation in 1997 that Samuelson’s text “became almost immediately `the’ college textbook. … His text changed our vision of economics from the dismal science to a study of social possibilities.” Publisher McGraw-Hill paid an unusual tribute in 1997 by reissuing the original 1948 edition, reproducing not just the original text but the illustrations and layout. That same year, in a column by Mark Skousen entitled “Welcome back, Professor,” Forbes magazine praised Samuelson for gradually turning away in his textbook from pure Keynesianism toward more traditional economic theory. Asked about the effort he put into double-checking and updating each edition, Samuelson told The New York Times he did so “because it’s my baby.” For the more casual reader, Samuelson wrote a column for Newsweek magazine from 1966 to 1981. Conservative economist Milton Friedman, a fellow Nobel-winner, also wrote for Newsweek during that period. Born in Gary, Ind., in 1915, Samuelson graduated from the University of Chicago in 1935 and received master’s and doctoral degrees from Harvard. He joined the MIT faculty in 1940. He gained wide notice in the field in 1947 for his book “Foundations of Economic Analysis” and the same year was awarded the American Economic Association’s John Bates Clark Medal for distinguished contributions from an economist under the age of 40. He married Marion Crawford, a fellow economist, in 1938, and he credited her with helping in his early research. They had six children: Jane, Margaret, William, John, Paul and Robert. (The Robert Samuelson who writes a business column for Newsweek is no relation to the Nobel winner.) Marion Crawford Samuelson died of cancer in 1978 at age 62. In 1981, Samuelson married Risha Eckaus. “Paul Samuelson transformed everything he touched: the theoretical foundations of his field, the way economics was taught around the world, the ethos and stature of his department, the investment practices of MIT, and the lives of his colleagues and students,” said Susan Hockfield, MIT’s president, in a statement. Sameulson is survived by his wife, six children and 15 grandchildren. Funeral arrangements will be private, but MIT said it plans to hold a public memorial service. ___ Associated Press Writer Pat Eaton-Robb in Hartford, Conn., contributed to this report.

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John Hope Bryant: When Leaders Screw Up

December 11, 2009

When leaders screw up, more often than not, their immediate response is so often what I would call a classic fear-based model; huddle up, hunker down, ride it out.

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