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Asian Stocks, Euro Fall as Greece Debt, Chinese Curbs Dent Risk Appetite

February 14, 2010

By Rocky Swift and Yoshiaki Nohara Feb. 15 (Bloomberg) — The euro fell for a fourth day against the dollar and Asian stocks dropped as credit concerns in Greece and Dubai curbed demand for higher-yielding assets. The 16-nation euro traded near an eight-month low ahead of a meeting of European finance chiefs that may provide details of a Greece bailout. The MSCI Asia Pacific Index lost 0.4 percent to 115.94 at 12:12 p.m. in Tokyo as BlueScope Steel Ltd. posted a loss and China bolstered steps to ease inflation. EU finance ministers meeting in Brussels today may add details to a plan unveiled last week that called for closer monitoring of the Greek economy. Dubai shares tumbled on Feb. 14 amid concern state-owned Dubai World, which roiled markets last year when it sought to restructure loans, may fail to present a plan to creditors. China last week ordered banks to set aside more deposits as reserves for the second time in a month. “Greece is in a tough situation,” said Hiroshi Watanabe , an economist at the Daiwa Institute of Research in Tokyo. “The nation’s finances are susceptible to failure, as investors may not be able to digest its bond issuance. The issue will weigh on markets.” Japan’s Nikkei 225 Stock Average lost 0.4 percent, even as a government report showed the nation’s economic growth accelerated last quarter. Australia’s S&P/ASX 200 Index slumped 0.4 percent. Markets in China, Taiwan, Hong Kong, Singapore and Malaysia are closed today for the Lunar New Year holiday. U.S. markets are shut today for Presidents’ Day. BlueScope Loss BlueScope, Australia’s largest steelmaker, slumped 2.7 percent to A$2.49. The company swung to a loss in the first half because of declining prices and a strengthening local currency. The loss was A$28.5 million ($25 million) in the six months ended Dec. 31, compared with profit of A$407 million a year earlier, the Melbourne-based company said today. Material producers accounted for 14 percent of the MSCI Asia Pacific Index’s drop today. Copper futures in New York sank 1.6 percent on Feb. 12 after China, the world’s largest consumer of the metal, ordered banks to set aside more deposits as loan growth quickened and property prices surged. Mitsubishi Corp., Japan’s biggest commodities trader, declined 1.6 percent to 2,189 yen. Rio Tinto Group , the world’s No. 3 mining company, decreased 1.9 percent to A$70.58 in Sydney. Komatsu Ltd. , a Japanese machinery maker that counts China as its fastest-growing market, lost 1.6 percent to 1,789 yen. Shinsei, Aozora Shinsei Bank Ltd. fell 5.8 percent to 98 yen after the Nikkei newspaper said merger talks with Aozora Bank Ltd. collapsed after the two companies failed to agree on a business strategy. Aozora Bank lost 3.4 percent to 105 yen. Japan’s gross domestic product grew an annualized 4.6 percent in the three months ended Dec. 31, more than economists had estimated, according to a government report. Consumer spending rose 0.7 percent, while capital spending increased 1 percent, the report showed. “The mood is still very gloomy,” said Curtis Freeze , president of Honolulu-based Prospect Asset Management, which oversees $1 billion. “People don’t trust the numbers very much.” Greece is expected to resist pressure from the European Central Bank and Germany for an immediate tightening of its budget deficit, the Financial Times reported, citing a senior Greek official it didn’t identify. The Greek government is fighting to postpone a decision on proposed increases in taxes until mid-March, the FT said. Rescue Plan “Concerns over the debt situation in Greece will keep a lid on the euro,” said Toshiya Yamauchi , manager of foreign- exchange margin trading at Ueda Harlow in Tokyo. “People are monitoring closely if EU finance ministers can hammer out a decisive rescue plan.” The euro fell to $1.3615 versus the dollar in Tokyo from $1.3632 in New York on Feb. 12 when it reached $1.3532, the lowest since May 19. The dollar traded at 90.15 yen from 89.96 yen on Feb. 12. Greece, representing 2.7 percent of the trading bloc’s $13 trillion economy, posted a budget deficit of 12.7 percent of gross domestic product in 2009, more than four times the EU’s 3 percent limit. Dubai and Dubai World haven’t yet made an offer to creditors on the state-owned holding company’s debt restructuring plan, a spokeswoman for the emirate’s Department of Finance said yesterday. Zawya Dow Jones said yesterday Dubai World, which is seeking to restructure $22 billion of debt, may offer creditors 60 cents on the dollar after seven years. Oil Falls The cost of protecting Japanese and Australian corporate bonds from default rose the most in more than a week, according to traders of credit-default swaps. The Markit iTraxx Australia index climbed 4.5 basis points to 103 basis points, according to Deutsche Bank AG. The Markit iTraxx Japan index rose 4 basis points to 150 basis points, prices from the Frankfurt-based bank show. Both indexes recorded their biggest increases since Feb. 5, according to prices from CMA DataVision in New York. Oil traded near $74 a barrel after declining as a Department of Energy report showed a bigger-than-forecast increase in U.S. crude inventories and as China sought to cool its economic expansion. Oil dropped 1.5 percent Feb. 12 as China ordered banks to set aside more deposits as reserves for the second time in a month. “Further steps taken by the Chinese to tighten their bank lending and slightly weaker-than-expected European growth data were a negative for sentiment,” said Toby Hassall , commodity analyst at CWA Global Markets Pty in Sydney. “The DOE data wasn’t supportive of higher prices. The crude number was a bit higher than expected.” Crude oil for March delivery traded at $74.15 a barrel, up 3 cents, in electronic trading on the New York Mercantile Exchange. Gold for immediate delivery rose 0.1 percent to $1,094.40 an ounce on speculation investors may seek a haven on concern that budget deficits in Greece, Spain and Portugal may weaken the economic outlook in Europe. Copper on the London Metal Exchange gained 0.7 percent to $6,860 a metric ton, after slumping 1.9 percent on Feb. 12. To contact the reporters on this story: Yoshiaki Nohara in Tokyo at ynohara1@bloomberg.net . Rocky Swift in Tokyo at rswift5@bloomberg.net .

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U.S. Senate to Take Up Scaled-Back Job-Stimulus Legislation After Dispute

February 12, 2010

By Brian Faler and James Rowley Feb. 12 (Bloomberg) — The U.S. Senate will take up a scaled-back job-stimulus plan offering companies a tax break for hiring unemployed workers after Democrats scuttled a more sweeping proposal. Senate Majority Leader Harry Reid announced yesterday he was dropping scores of provisions from a $85 billion compromise jobs plan unveiled only hours earlier by Senate Finance Committee Chairman Max Baucus , a Montana Democrat and the panel’s ranking Republican member, Senator Charles Grassley of Iowa. Reid said their proposal had been “watered down” with extraneous provisions, and that he would instead proceed with a bill that had just four items: the hiring tax break, an increase in highway spending, an extension of the Build America Bonds program and tax breaks for small businesses. “This is a simplified, focused bill that addresses our core priority: putting millions of Americans back to work,” said Reid, a Nevada Democrat. “I look forward to swift action on this measure that will create and save dependable jobs.” The revised plan would cost about $15 billion, said Reid spokesman Jim Manley . The Senate is slated to begin formally debating the measure later this month, after Congress returns from its weeklong Presidents’ Day break. Reid’s announcement surprised Republicans who accused him of abruptly throwing out weeks of efforts to craft a bipartisan bill. ‘Go Partisan’ “The Majority Leader pulled the rug out from work to build broad-based support for tax relief and other efforts to help the private sector recover from the economic crisis,” said Grassley spokeswoman Jill Kozeny . “Senator Reid’s announcement sends a message that he wants to go partisan and blame Republicans when Senator Grassley and others were trying to find common ground.” The dispute comes amid concern among Democrats the nation’s 9.7 percent unemployment rate last month will translate into significant losses in November’s elections. The share of people out of work for at least six months reached 41 percent, the most since the government began keeping track in 1948, according to the Bureau of Labor Statistics. Reid said the bill he detailed would be the first in a series of efforts to combat joblessness. “We don’t have a jobs bill — we have a jobs agenda,” he said. He said lawmakers would take up other elements of the measure Baucus and Grassley had offered, estimated to cost $85 billion, in subsequent legislation. Those elements include extensions of unemployment benefits, provisions preventing scheduled cuts in Medicare reimbursements to doctors, a group of routine tax cuts and expiring parts of the USA Patriot Act, the anti-terrorism bill enacted after the Sept. 11 attacks. Make a Choice Asked whether Republicans would support the scaled-back package, Reid said: “Republicans are going to have to make a choice” and “I don’t know in logic what they could say to oppose this.” His announcement came after Democratic senators met behind closed doors to discuss the agreement worked out by Baucus and Grassley. Senator Byron Dorgan , a North Dakota Democrat, criticized the proposal, saying it had “morphed into something different from just a pure jobs bill.” The new plan would have to be reconciled with House legislation approved by that chamber in December that costs more than $150 billion. “They, of course, would rather do a big one — it’s easier for them to do a big one than us,” said Reid. New Hiring The House plan not only dwarfs the size of the Senate package, it omits the centerpiece of the Senate bill: the tax break for new hiring. That provision is designed to reduce the cost of adding workers by excusing employers from paying a 6.2 percent Social Security payroll tax for new hires who have been out of work for at least 60 days. In an attempt to keep those new workers on the rolls, the plan would offer businesses a $1,000 tax credit next year for every employer retained for at least 12 months. It would cost $13 billion. The payroll tax break would be among policy moves most likely to boost employment this year, according to the Congressional Budget Office. Even so, it would likely have a modest impact on the overall number of jobless Americans, according to the nonpartisan agency’s estimates. It said the plan would generate at most about 240,000 jobs this year; since the recession began in December 2007, more than 8 million Americans have lost their jobs. The Build America Bonds program subsidizes infrastructure projects by paying 35 percent of the interest costs from taxable bonds issued by local governments. Obama has called for making the program permanent and reducing the subsidy to 28 percent. To contact the reporter on this story: James Rowley in Washington at jarowley@bloomberg.net

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U.S. Bailouts, Stimulus Were `Essential’ to Avert Meltdown, Axelrod Says

January 24, 2010

By Angela Greiling Keane and Gopal Ratnam Jan. 24 (Bloomberg) — Bailouts of the U.S. banking and auto industries and the $787 billion economic stimulus were needed to skirt an economic meltdown even as polls suggest the policies are unpopular, said David Axelrod , a senior White House adviser. “Some of those policies were ones that nobody wanted to undertake but were essential,” Axelrod said today on ABC’s “This Week” program. “But our responsibility was to make sure the economy didn’t tip into a second Great Depression. I have no regrets about that.” The Obama administration is spotlighting efforts to spur jobs and overhaul financial regulation amid voter anger over the economy and criticism of Federal Reserve Chairman Ben S. Bernanke . Axelrod’s remarks come after the Democratic Party lost a Senate seat in Massachusetts last week, adding to pressure on those legislators facing re-election. A global quarterly poll of investors and analysts who are Bloomberg subscribers found four-out-of-five are only somewhat confident or not confident of President Barack Obama ’s ability to handle a financial emergency. Obama’s approval rating is near 50 percent, down from near 70 percent one year ago, according to polls by Gallup. He joins former Presidents Ronald Reagan and Bill Clinton with an average approval rating of 51 percent during their fourth quarter in office, according to Gallup polls. “A year ago I told the president that a year from now your numbers will be much different than they are right now because of the economic forecast we were hearing,” Axelrod said on CNN’s “State of the Union” program today. “We knew that even as the economy started growing it would take time for the jobs to follow. That’s the nature of the economy.” GDP Forecast There are signs that the U.S. economy is starting to shake off its doldrums. The economy probably grew in the closing months of 2009 at the fastest pace in almost four years as factories stepped up production and companies purchased new equipment, economists said before reports this week. Gross domestic product expanded at a 4.6 percent pace from October through December, more than double the prior quarter’s growth rate and the strongest since the first three months of 2006, based on the median estimate of economists surveyed by Bloomberg News. Axelrod told CNN that Obama will discuss additional steps to help spur hiring in his State of the Union address this week. There is a “fighting chance” that Obama will propose a freeze in most discretionary spending by the federal government in his State of the Union speech, Senator Evan Bayh , an Indiana Democrat, said in an interview on Bloomberg Television’s “Political Capital with Al Hunt .” Health-Care Effort Axelrod also told ABC that “part of bringing economic security to the American people” is an overhaul of the health- care system. Bayh said that after the Jan. 19 Republican upset in the Senate election in Massachusetts, Democrats who control Congress should pursue a more limited health-care overhaul measure that could achieve bipartisan consensus. “The Republicans’ whole strategy is about having this president fail,” Senator Bob Menendez of New Jersey, chairman of the Democratic Senate Campaign Committee, said today on ABC’s “This Week” program. “Health care is an economic issue as well. If you’re a family without health insurance and you get sick, you can be in bankruptcy.” Republican Senator Jim DeMint of South Carolina said on the same program that there won’t be bipartisanship in Congress “as long as the Democrats are leaning toward more spending and more debt,” DeMint said. “The Republicans want to work with Democrats on improving health care, creating jobs. People are sick of politics, they’re sick of both parties in a lot of ways,” he said. To contact the reporter on this story:

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Bailouts, Stimulus Were `Essential’ to Avert U.S. Meltdown, Axelrod Says

January 24, 2010

By Angela Greiling Keane and Gopal Ratnam Jan. 24 (Bloomberg) — Bailouts of the U.S. banking and auto industries and the $787 billion economic stimulus were needed to skirt an economic meltdown even as polls suggest the policies are unpopular, said David Axelrod , a senior White House adviser. “Some of those policies were ones that nobody wanted to undertake but were essential,” Axelrod said today on ABC’s “This Week” program. “But our responsibility was to make sure the economy didn’t tip into a second Great Depression. I have no regrets about that.” The Obama administration is spotlighting efforts to spur jobs and overhaul financial regulation amid voter anger over the economy and criticism of Federal Reserve Chairman Ben S. Bernanke . Axelrod’s remarks come after the Democratic Party lost a Senate seat in Massachusetts last week, adding to pressure on those legislators facing re-election. A global quarterly poll of investors and analysts who are Bloomberg subscribers found four-out-of-five are only somewhat confident or not confident of President Barack Obama ’s ability to handle a financial emergency. Obama’s approval rating is near 50 percent, down from near 70 percent one year ago, according to polls by Gallup. He joins former Presidents Ronald Reagan and Bill Clinton with an average approval rating of 51 percent during their fourth quarter in office, according to Gallup polls. “A year ago I told the president that a year from now your numbers will be much different than they are right now because of the economic forecast we were hearing,” Axelrod said on CNN’s “State of the Union” program today. “We knew that even as the economy started growing it would take time for the jobs to follow. That’s the nature of the economy.” GDP Forecast There are signs that the U.S. economy is starting to shake off its doldrums. The economy probably grew in the closing months of 2009 at the fastest pace in almost four years as factories stepped up production and companies purchased new equipment, economists said before reports this week. Gross domestic product expanded at a 4.6 percent pace from October through December, more than double the prior quarter’s growth rate and the strongest since the first three months of 2006, based on the median estimate of economists surveyed by Bloomberg News. Axelrod told CNN that Obama will discuss additional steps to help spur hiring in his State of the Union address this week. There is a “fighting chance” that Obama will propose a freeze in most discretionary spending by the federal government in his State of the Union speech, Senator Evan Bayh , an Indiana Democrat, said in an interview on Bloomberg Television’s “Political Capital with Al Hunt .” Health-Care Effort Axelrod also told ABC that “part of bringing economic security to the American people” is an overhaul of the health- care system. Bayh said that after the Jan. 19 Republican upset in the Senate election in Massachusetts, Democrats who control Congress should pursue a more limited health-care overhaul measure that could achieve bipartisan consensus. “The Republicans’ whole strategy is about having this president fail,” Senator Bob Menendez of New Jersey, chairman of the Democratic Senate Campaign Committee, said today on ABC’s “This Week” program. “Health care is an economic issue as well. If you’re a family without health insurance and you get sick, you can be in bankruptcy.” Republican Senator Jim DeMint of South Carolina said on the same program that there won’t be bipartisanship in Congress “as long as the Democrats are leaning toward more spending and more debt,” DeMint said. “The Republicans want to work with Democrats on improving health care, creating jobs. People are sick of politics, they’re sick of both parties in a lot of ways,” he said. To contact the reporter on this story:

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Morgan Stanley CEO Gorman Gets $8.6 Million Deferred Stock Bonus for 2009

January 22, 2010

By Christine Harper Jan. 22 (Bloomberg) — James Gorman , who became Morgan Stanley ’s chief executive officer at the start of this year, was awarded deferred stock grants valued at about $8.6 million for his performance last year, when the shares rose 85 percent even as profit lagged peers. Gorman, 51, will get 194,590 restricted shares, valued at $5.7 million at yesterday’s closing price of $29.34, plus the right to at least 97,295 more shares if certain company goals are met that would be granted in 2013, according to two filings today with the U.S. Securities and Exchange Commission. Gorman has already said he wouldn’t take a cash bonus for 2009. Morgan Stanley, the second-biggest U.S. securities firm after Goldman Sachs Group Inc. before both converted to banks in 2008, said last month that compensation and benefits expenses rose 31 percent to $14.4 billion in 2009, or 62 percent of revenue. The company said members of the operating committee will receive about 75 percent of their year-end pay in deferred compensation, to link bonuses with long-term performance. Chairman John Mack , 65, who also held the CEO title in 2009, said last month that he declined a bonus for a third straight year. Mack got a salary of $800,000 and Gorman’s salary was raised to $800,000 during the year. Chammah, Kelleher Walid Chammah , co-president with Gorman before giving up that role at the start of this year, was awarded 128,335 restricted shares valued at $3.8 million, plus 96,861 “at-risk performance stock units” valued at $2.8 million at yesterday’s closing price, for a total of $6.6 million. Cash bonuses weren’t disclosed in today’s filings . Chammah, who remains at the firm as chairman of Morgan Stanley International in London, had his base salary lifted to $800,000 on May 1 from about $323,000 in 2008. Morgan Stanley didn’t award any bonuses to Mack and to Co- Presidents Gorman and Chammah in 2008, when the financial crisis caused the company to lose $2.3 billion in the fourth quarter and the stock slid 70 percent. While Morgan Stanley’s trading revenue lagged larger rival Goldman Sachs this year, Gorman helped engineer a joint venture with Citigroup Inc. ’s Smith Barney that created the largest brokerage force. Goldman Sachs said last month that it would pay its top 30 executives in stock that they can’t sell for five years. Colm Kelleher , who served as Morgan Stanley’s chief financial officer from 2007 through last year, received 80,520 of the performance units valued at $2.4 million plus 103,824 restricted shares valued at $3.1 million, for a total of $5.4 million. Kelleher was named co-president of institutional securities with Paul Taubman at the start of this year. Kelleher’s base salary was raised to $750,000 on May 1 from about $323,000 in 2008. To contact the reporter on this story: Christine Harper in New York at charper@bloomberg.net .

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Former Presidents Bush, Clinton Join Obama in Haiti Relief, Urge Donations

January 16, 2010

By Roger Runningen Jan. 16 (Bloomberg) — President Barack Obama said former Presidents Bill Clinton and George W. Bush will lead a relief effort for Haiti’s earthquake victims that will reach beyond government efforts and tap the generosity of Americans. At times of great challenge around the world “Americans have always come together,” Obama said in the Rose Garden, with Bush and Clinton at his side. “Responding to disaster must be the work of all of us.” The two former presidents announced the Clinton Bush Haiti Fund to help raise money for Haitians suffering from the devastating earthquake that struck Jan. 12. A Web site to collect donations is at www.clintonbushhaitifund.org To contact the reporter on this story: Roger Runningen in Washington at rrunningen@bloomberg.net

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Obama Writes Letter to North Korea’s Kim as U.S. Seeks Resumption of Talks

December 16, 2009

By Julianna Goldman Dec. 16 (Bloomberg) — President Barack Obama wrote a letter to North Korean leader Kim Jong-Il as the U.S. is seeking to reopen negotiations on North Korea’s nuclear program, an administration official said. Obama’s special envoy, Stephen Bosworth , delivered the letter during a three-day visit to North Korea’s capital last week, said the official, who spoke on condition of anonymity. The official wouldn’t divulge the contents. Bosworth’s trip marked the first official contact between the two governments since Obama took office in January signaling a willingness to engage with the communist regime. The letter and its delivery were closely held by the administration, according to the Washington Post, which first reported the existence of the message. Since the last round of six-party talks in December 2008 on North Korea’s nuclear program, Kim Jong-Il’s government has pulled out of the process, tested a second nuclear device and declared it has almost succeeded in highly enriching uranium. Along with the U.S., the other nations involved in the talks are China, Japan, Russia and South Korea, Bosworth’s trip was part of an effort to break a 12-month impasse in the dialogue. Kim said in October his country was willing to return to the forum provided progress was made in bilateral talks with the U.S. The special envoy failed to make a breakthrough and called his discussions exploratory. Bosworth said Dec. 10 in Seoul he’d reached a “common understanding” with North Korea that it needs to reaffirm its 2005 commitment to abandon its nuclear arsenal in return for economic aid. Obama’s two predecessors, former Presidents George W. Bush and Bill Clinton , also wrote letters to Kim in an attempt to prod along negotiations, the Post reported. To contact the reporter on this story: Julianna Goldman in Washington at jgoldman6@bloomberg.net .

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President Joins Lyndon Johnson in Escalating an Unpopular War He Inherited

December 2, 2009

By Michael Tackett Dec. 2 (Bloomberg) — President Barack Obama’s announcement that he’ll send 30,000 more U.S. troops to fight in Afghanistan had echoes of many of his predecessors whose ranks he has joined — war presidents. It is a collection of leaders with mixed political fates. History suggests failure is at least as likely as success, with early assurances collapsing under the weight of events the presidents couldn’t contain. “More often than not, presidents misjudge what they achieve through these conflicts and then they are unable to control the domestic agenda when they become distracted by war,” said Robert Dallek , a presidential historian. “This idea of guns and butter that Johnson talked about is false,” he said, referring to former President Lyndon Johnson , who escalated U.S. involvement in Vietnam at the same time he expanded social-welfare programs at home. Obama’s challenge is greater in many ways because he’s also pressing to remake health care, which represents about 18 percent of the nation’s economy, reverse an unemployment rate of 10.2 percent and deal with a record $1.4 trillion deficit . And the war itself, polls show, is increasingly unpopular. The White House estimates the cost of the additional troops will be $30 billion next year. Versions of health-care legislation are estimated to cost between $848 billion and more than $1 trillion over 10 years. Some Democrats are pushing the president to propose a second economic-stimulus package on top of the $787 billion plan, and Obama has said he wants climate- change legislation, which may also prove costly. Like Iraq Surge On Afghanistan, the president decided the infusion of troops might have the same effect as the 2007 surge of American forces in Iraq, namely to produce a more stable country on the road to lasting progress, a senior White House official said. Unlike President George W. Bush , who said that setting a date certain for troop withdrawal would embolden the enemy, Obama has calculated that announcing an exit timetable would prompt Afghans to move faster to take control of their country, the official said. Obama’s message that the Afghan people “will ultimately be responsible for their own country” recalled the words of John F. Kennedy about Vietnam when he said in September 1963: “In the final analysis, it is their war. They are the ones who have to win it or lose it.” Recalling Johnson Acceding to his generals’ calls for more troops was reminiscent of Johnson as he stepped up the conflict in Southeast Asia. “If you’re going to put one soldier in, make damned sure you have enough,” he said, according to an oral history by McGeorge Bundy , Johnson’s national security adviser. Public anger about the Vietnam War prompted a challenge to Johnson in the Democratic primaries in 1968 and ultimately his decision not to run for a second full term. Harry Truman , facing a public restive about the war in Korea, also decided against seeking a second full term in 1952. He announced his decision about a month after a Gallup Poll showed him with a 22 percent approval rating, the lowest of any American president since Gallup’s first survey in 1935. Dwight Eisenhower , the retired general who led the Allied forces to victory in World War II, won as a peace candidate. An estimated 28,500 U.S. forces are still in South Korea. “We have done very poorly in our history exiting wars,” said Ken Warren , a professor of political science at St. Louis University. “We don’t know how to.” Mindful of Vietnam Obama was mindful of the Vietnam analogy, and said the comparison was inaccurate because the U.S. is “joined by a broad coalition of 43 nations” in Afghanistan and that troops weren’t facing a “popular insurgency” there. “Most importantly,” he said, “unlike Vietnam, the American people were viciously attacked from Afghanistan and remain a target for those same extremists who are plotting along its border.” Obama is also caught between Democrats who have opposed the war and Republicans who support the conflict yet not new taxes to pay for it. “He’ll be placed in a vice grip of deficits and following a conservative’s policy,” said George Edwards , a presidential scholar at Texas A&M University in College Station, Texas. “It’s irritating the left and it’s irritating the right. It can define his presidency.” Lack of consensus about Afghanistan and Americans’ concerns about the direction of the economy have left Obama with approval ratings that are near the lowest of his presidency. A Gallup tracking poll had him with a 51 percent rating yesterday. No Guarantees At the same time, successful conflicts haven’t ensured popularity. George H.W. Bush had an approval rating of 89 percent during the Gulf War in February 1991 only to lose his re-election bid to Bill Clinton in 1992. George W. Bush , who referred to himself as a “war president,” saw his ratings climb to 90 percent after the Sept. 11 attacks. Americans initially supported his war efforts in Afghanistan and Iraq and he won re-election, only to see his ratings plunge to 27 percent by September 2008. Even Franklin Roosevelt , elected to a fourth term in 1944, faced opposition to his domestic programs as victory in World War II was becoming more likely. As David Greenberg , a history professor at Rutgers University in New Jersey says, Roosevelt proposed an “economic bill of rights” that promised 60 million jobs, among other items. He won with his lowest Electoral College vote total. “It’s Johnson’s war, it’s Nixon’s war, it’s Bush’s war, now it’s Obama’s war,” said Warren. “He will be defined as a war president.” To contact the reporters on this story: Michael Tackett in Washington at mtackett@bloomberg.net ; Edwin Chen in Washington at echen32@bloomberg.net

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Woods-Led U.S. Team Looks to Extend Win Streak at Presidents Cup Tourney

October 8, 2009

By Michael Buteau Oct. 8 (Bloomberg) — Tiger Woods and the rest of the U.S. Presidents Cup team look to continue their dominance in the team golf competition when six first-day matches begin this afternoon in San Francisco. The U.S., led by Woods, has won five of the previous seven editions of the competition, which pits a team of 12 Americans against 12 non-European players on an International squad. Woods has played in six Presidents Cups, with a 13-11-1 record. He will be paired with Steve Stricker in today’s opening alternate-shot matches against Australia’s Geoff Ogilvy and Japanese teenager Ryo Ishikawa . “He’s definitely pumped up,” U.S. Captain Fred Couples said of Woods. “He is ready to go.” Today’s play begins at Harding Park Golf Course with the International pair of Mike Weir and Tim Clark facing Anthony Kim and Phil Mickelson . Mickelson, who has been bothered by minor back pain since winning the U.S. PGA Tour’s season-ending Tour Championship, said he’s looking forward to playing with Kim. The two share an aggressive playing style, Mickelson said. “There’s not a shot that he fears,” the left-handed Mickelson said of Kim. “He likes getting closer to the hole and he feels like he can hit any shot necessary around the green. We fit very well together.” Match Pairings Other matches, with the International pairs first, have Adam Scott and Ernie Els facing Hunter Mahan and Sean O’Hair ; Vijay Singh and Robert Allenby playing U.S. Open champ Lucas Glover and British Open winner Stewart Cink ; and Masters Tournament winner Angel Cabrera and Camilla Villegas taking on Kenny Perry and Zach Johnson . The day’s final match features Retie Goose and PGA Championship winner Y.E. Yang against Americans Justin Leonard and Jim Fury . The biennial competition was created by the U.S. PGA Tour in 1994 to give foreign players not eligible for the PGA of America-hosted Ryder Cup a chance to compete against the U.S. The Presidents Cup is made up of 34 matches. Today’s play will feature an alternate-shot format, in which two players for each team play alternating shots with the same ball. The lowest score wins the hole, and the match goes to the pair with the most holes won. Tomorrow will have foursomes, where two players on each team compete against two opposing players, each hitting his own ball. The lowest score of the four players wins the hole. Third-round play on Oct. 10 will have six alternate-shot matches in the morning and six foursome matches in the afternoon. The event will close on Oct. 11 with 12 singles matches. American Lead The Americans lead the series 5-1-1. The U.S. defeated the International team 18 1/2-15 1/2 in Montreal in 2007. Greg Norman , captain of the International team, said his squad needs to get off to a strong start to have a chance against the Americans, who won five of the first six matches two years ago. “When you look back over the history of the Presidents Cup, where we as a team have got beaten is in the first day,” Norman said. “America has been very, very dominating in that department. So when we get behind the 8-ball, it’s very hard.” The U.S. team has five players who won a total of 16 Tour events this season, with 20 wins for squad members overall. Only Ogilvy and Yang won more than one event on the U.S. Tour this year. To contact the reporter on this story: Michael Buteau in Atlanta at mbuteau@bloomberg.net

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George Mitrovich: The Truth They Dare Not Speak

October 2, 2009

Since the Clinton administration I have repeatedly warned about the triumph of Wall Street and the defeat of Main Street, the destruction of the Middle Class and the dismemberment of the poor; acts of economic terrorism that undermine the very foundations of our democracy – for no democracy can long stand when the ratio of executive to workers pay is 344-1 (source, 15th annual Labor Day study issued by United for a Fair Economy). Five days before last November’s election I predicted Barack Obama would be elected president — and it wouldn’t be close. He was and it wasn’t. He came to the presidency on a rising tide of hope. For many Americans, but especially those of a certain generation, he brought an excitement unknown since John F. Kennedy. For young Americans, voting for the first time, he awoke a critical interest in the affairs of state. Fair-minded Americans knew following eight-years of George W. Bush Senator Obama would face some of the most intractable problems to ever confront a new president. From a shattered economy and a demoralized work force, from wars in Iraq and Afghanistan, from 50 million Americans without health care and failing schools, in these unprecedented circumstances, only those stunted in soul and shriveled in spirit would deny Mr. Obama their best wishes, prayers and support. Having greatly desired Mr. Obama and Mr. Biden’s victory over Mr. McCain and Ms. Palin, believing the very fate of our republic was at risk, I have no desire to unjustly criticize the president — especially given the daunting challenges he faces. Moreover, amid all these consuming difficulties, President Obama has demonstrated a rare intelligence and grace, a spirit of forgiveness and acceptance toward his political opponents that is simply striking (whether, in a Machiavellian world, it’s working is another matter). Historians tell us it’s difficult to judge a president in eight years, much less eight months. That’s a given, but there is one area where it is possible to make a preliminary judgment; indeed, where it is imperative that judgment be made — Mr. Obama’s glaring failure to break decisively with the economic policies of his predecessors. Those failed policies, arising from misguided faith in free markets, a faith attributable largely to Milton Friedman and his disciple, Ronald Reagan, and thereafter embraced by Presidents Bush 41 and 43, and shamefully by Bill Clinton and his allies at the Democratic Leadership Council (DLC), led directly last fall to the near catastrophe collapse of the world’s financial markets. There is wicked irony that those who championed “free markets,” who prostrated themselves before the God of Capitalism, who proclaimed a new gospel that “greed is good,” who prevailed upon a gullible public that Wall Street was infallible, while decrying Government interventionism as oppressive, that in the end, when the world stood on the abyss of financial ruin, the causation for which they bore direct responsibility, that in that moment of ultimate peril, they should turn to government as the means of their salvation — and find it in a $1.7 trillion bailout! (To invoke “hypocrisy” in such a context only exposes the inadequacy of words to damn.) At the outset of his presidency, when he named Timothy Geithner as secretary of the Treasury and Larry Summers as his director of National Economic Policy, there was fear Mr. Obama would not take the drastic steps necessary to change market dynamics to reflect a new world of economic reality. That fear was well founded, for both Mr. Geithner and Mr. Summers, during Mr. Clinton’s presidency, were at the very center of the policies that would evolve into the world’s gravest economic threat since the Great Depression. There is nothing in either Mr. Geithner’s or Mr. Summer’s portfolios that would lead one to believe they understand the collapse of Main Street or the crumbling of Middle Class America. They are creatures of Wall Street, which is to say that they believe in its ability to make whole the economic ills of our society. In that belief they are mistaken — and by that by belief this nation’s future is now in danger, in ways not even approximated by the Great Depression. (Mr. Summers is famous for his two bottles of catsup theory of economics, which says that two bottles of catsup cost twice as much as one. Really? Wow.) But I worry no less about Ben Bernanke as head of the Federal Reserve. Yes, he’s an improvement over Alan Greenspan, the follower of that terrible woman, Ayn Rand — how could he not be better than Mr. Greenspan? — but despite his impressive academic background at Princeton, he appears too dazzled by Wall Street to prove an effective counter; that he too, not unlike others, is victimized by a belief that in immense wealth are found individuals of superior intelligence and knowledge. But the test isn’t their intelligence or wisdom, it is their moral centers — and at their moral centers they have revealed a corruption so vast that even Christian charity is constrained to forgive. Recently at a conference of the Federal Reserve in Jackson Hole, Wyoming, Mr. Bernanke said the U.S. economy is on the “cusp of recovery.” He added that economic activity both there and around the world “seems to be leveling out, and the economy is likely to start growing again.” Based upon his summary view Wall Street rallied – and summery was the spirit of Americans that day. (Probably not.) Mr. Bernanke notwithstanding, the economy isn’t coming back. This economy cannot come back, until such time as jobs are found for the millions of Americans out of work — and I do not mean jobs at Wal-Mart or McDonald’s. I mean jobs adequate to the income needs of the Middle Class; jobs that include money for mortgages and health care; money for clothes and college tuitions; money periodically for vacations and maybe a new car; money sufficient for contributions to church and charities — and jobs that give the poor among us hope for a brighter future. Can anyone be found, anyone, inside the Obama administration or outside in the private sector, who’s talking about jobs adequate to meet these needs? No one is talking about such jobs, because no one knows whether such jobs will ever again be available to the great bulk of our citizens. It is the truth they dare not speak. But this crisis is about more than jobs, for at its core is the vast income disparity that began under Mr. Reagan and has gown exponentially since. There is no moral justification for some people making millions while others labor in economic purgatory. Amid all of this the working class, men and women of quite courage and unsung heroism, the very foundation upon which America stands, the people who fought our wars, built our cities, educated our children, healed our sick, cared for our elderly, gave generously to people in need, that working class, saw real income decline and futures imperiled. And while they were losing real income they witnessed the wealthy and the privileged, those driven by insatiable greed and moral turpitude, driven to buy bigger houses, faster automobiles, sleeker private jets, not one or two but three or four vacation homes, designer clothes, cosmetic surgery and personal trainers, becoming in the process, the adoring objects of too many politicians of both major parties; a political class blinded by the glitz and glamour of those who bankrolled their campaigns; politicians who stupidly embraced the folly of equating wealth with wisdom, big bank accounts with ethical and moral values, and who, amid the stupor of their adoration, made the fatal mistake of allowing unregulated markets. If you have a shred of decency you cannot argue it is acceptable for executives to make 344 times that of the average American worker. You cannot argue it is acceptable that in 2007 50 hedge fund managers made 19,000 times more money than the rest of us. You cannot argue it is acceptable that two Bear Sterns executives were paid $45 and $25 million in bonuses, which otherwise divided among the firms 4,000 employees would have resulted in Christmas bonuses of $90,000. You cannot argue it is acceptable the fired chairman of failed Washington Mutual made $14 million, while his successor sells out to J.P. Morgan and receives $19 million in salary and severance pay for three weeks of work — which Senator Bryon Dorgan of North Dakota says would take the average American worker at $50,000 a year 382 years to equal! Which the senator, in justifiable anger went on to say on the floor of the U.S. Senate, “Unbelievable. Absolutely unbelievable. But it is a hood ornament on a carnival of greed that has existed now for some while, unabated, in which people at the top have made massive quantities of money. Then the whole thing comes crashing down because they began creating exotic securities that were supported, in some cases, by worthless mortgages, placed by bad brokers and, in some cases, bad mortgage companies; sold up the chain to hedge funds and investments banks, all of them making massive quantities of money, and then it goes belly up and everybody wonders why.” It matters not your politics or economic philosophy; whether you worship Adam Smith or John Maynard Keynes; whether you voted for Barack Obama or John McCain, the issue of income disparity threatens our democracy — and it cannot be defended. And, if you are reading this and are a person of wealth and assume this isn’t about you, it most assuredly is about you, because in the end this is about all of us – and the America we say we love. How do we fix the problem of income disparity? How do we bridge the economic divide? Do we take from the wealthy and give to the poor? That may have worked in Sherwood Forest and the mythical world of Robin Hood, but this is the real world and that can’t happen — nor should it. No, only a wise and vigilant government, one that understands the inherent danger of uncontrolled markets and man’s insatiable greed, that commits itself to policies that strives for some form of income parity, only that form of government can effectively rescue us from the financial black hole into which we have fallen. The president, at whose desk the buck stops, has not yet made that commitment. Finally, in the September 21st issue of The New Yorker , James B. Stewart wrote about the battle to save America from the economic Armageddon that loomed. In was inside reporting at its best (even if one is left wondering who were his sources, if not the very people he quoted?). Following a meeting at the height of the economic meltdown, Mr. Stewart quotes President George W. Bush, as asking Treasury Secretary Henry Paulson and Fed chairman Ben Bernanke. “How have we come to this point where we can’t let an institution fail (AIG) without affecting the whole economy?” The Treasury secretary and the Federal Reserve chairman sought to explain to the president the market’s massive failure. Then the president said: “Someday you guys are going to need to explain to me how we end up with a system like that. I know this is not the time to test them and put them through failure, but we’re not doing something right if we’re stuck with these miserable choices.” You think? George Mitrovich is a San Diego civic leader. He can be reached at gmitro35@gmail.com .

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Stiglitz Deflation Threat Pushes Bernanke to Keep Rates at Zero Next Year

October 2, 2009

By Michael McKee Oct. 2 (Bloomberg) — The U.S. faces the possibility of deflation for the first time since the Eisenhower administration, a threat that may prompt the Federal Reserve to keep interest rates near zero through next year. Executives at Kroger Co., the largest U.S. supermarket chain, blamed deflation for a 7 percent drop in earnings in the second quarter, while falling prices for food, gasoline, and electronics left August sales unchanged at Costco Wholesale Corp. A sustained price drop might set off a chain reaction in which lower profits force employers to pare wages and payrolls. That would erode consumer demand, exacerbating wage cuts and firings. Such a spiral led to Japan’s “lost decade” of slow economic growth in the 1990s. A more vicious version in the U.S. helped create the Great Depression six decades earlier. Bond investors are forecasting retreating consumer prices, as shown by the yield they demand to hold a one-year bond versus a similar inflation-protected bond. “Deflation is definitely a threat right now,” Nobel laureate Joseph Stiglitz , 66, a professor at Columbia University in New York, said in a Sept. 22 interview. “The combination of the deflation threat and the sluggish recovery should keep the Fed on hold for quite a while.” Consumer prices are experiencing deflation, with the consumer price index sliding for six straight months from year- earlier levels, the longest stretch of declines since a 12-month drop from September 1954 to August 1955, according to the Labor Department. So far, the core consumer-price index , which excludes food and energy, is facing disinflation, a slowing in the pace of increase. The core index rose 1.4 percent in August from a year earlier, down from 2.5 percent in September 2008. Fed Trio Regional Federal Reserve Bank Presidents Janet Yellen , of San Francisco, James Bullard , of St. Louis, Richard Fisher , of Dallas, and Charles Evans , of Chicago, have expressed concern in past weeks about the possibility of declining prices. “Disinflationary winds are blowing with gale-force effect,” Evans, 51, said in a Sept. 9 speech in New York. While the economy contracted 2.7 percent during the 1953 recession, it shrank 3.8 percent in the current recession, the most since the 1930s. Economists at New York-based JPMorgan Chase & Co. and Goldman Sachs Group Inc., the second- and fifth- biggest U.S. banks by assets, say there’s so much deflationary excess labor and plant capacity in the economy that the Fed won’t raise interest rates until at least 2011. Gross Pessimism “The potential for a deflationary downdraft continues for several years” if economic growth doesn’t accelerate, Bill Gross , who runs the world’s biggest bond fund at Pacific Investment Management Co. in Newport Beach, California, said in a Sept. 29 interview with Bloomberg Radio. At their most recent meeting on Sept. 23, Fed policy makers agreed to leave the benchmark interest rate in a range of zero to 0.25 percent, where it’s been since December 2008. Only 69.6 percent of the country’s factories, utilities and mines were in use during August, close to the record low of 68.3 percent reached in June. Former Fed Chairman Alan Greenspan said the economic rebound won’t prevent a further slowing of the pace of price increases. “We are still, by any measure, in a disinflationary environment,” Greenspan, 83, said in a Sept. 30 Bloomberg Television interview in Washington. At the same time, recent reports on manufacturing, housing, and consumer spending suggest that any investor concerns about the danger of deflation are overblown, said Dean Maki , chief U.S. economist at Barclays Capital Inc. in New York. Growth Outlook The median projection of economists surveyed by Bloomberg News is for first quarter growth of just 2.4 percent, compared with a decline of 6.4 percent in the first quarter of 2009. Maki sees a 5 percent expansion in the first quarter of 2010. That would translate into higher prices. “Inflation is driven more by the level of demand and pace of growth than by the size of the output gap,” said Stephen Stanley , chief economist at RBS Securities Inc. in Stamford, Connecticut. “As the economy returns to solid growth in 2010, we are quite confident that, in sharp contrast to the consensus Fed view, core inflation will be creeping higher.” Fed officials are already planning for that, and publicly discussing an exit strategy once the economy does pick up. At that point, the Fed may have to move with “greater force” than some anticipate to keep inflation from accelerating too rapidly, Fed Governor Kevin Warsh , 39, said in a Sept. 25 speech in Chicago. Fed Purchases That day is far off for bond investors. Inflation fears, raised by the more than $1 trillion the Fed has pumped into the economy by lowering rates and buying Treasuries and mortgage- backed securities , are fading. “There’s been a significant flattening on the long end of the curve,” reflecting concern about deflation, said Pacific Investment’s Gross, 65, who is buying longer-maturity Treasuries in response. The yield on the 10-year note, which was 3.95 percent on June 10, was 3.18 percent at the close of New York trading yesterday. The difference in yield between nominal and inflation-protected Treasury securities maturing in one year is negative 0.4 percent, suggesting investors expect deflation during the next 12 months. Over five years, that inflation premium is now 1.21 percent, down from 1.86 percent on June 10. The Fed needs to “keep inflation expectations from slipping to undesirably low levels in order to prevent unwanted disinflation,” Vice Chairman Donald Kohn , 66, said Sept. 10 in Washington during a speech at the Brookings Institution. Oil Role Falling consumer prices are partly a reflection of a 52 percent decline in oil prices to about $70 a barrel yesterday from $145.45 a barrel on July 3, 2008. The slowing in core prices is more of a concern, said Michael Feroli , an economist at JPMorgan. The core rate fell following three prior recessions in which unemployment rose above 7 percent. That “suggests that core inflation could well be below zero within two years,” Feroli said in an interview. Core CPI fell 5.3 percent following the recession of 1973- 1975, 10.7 percent following the recession of 1981-1982 and 3 percent following the recession of 1990-1991. Unemployment was 9.7 percent in August, and it will likely climb to 10 percent in the fourth quarter, according to the Bloomberg survey of economists. The jobless rate was estimated to average 8.8 percent in 2011. With unemployment elevated, companies may not need to raise pay to attract workers, even when the economy picks up. ‘Enormous Slack’ “My personal belief is that the more significant threat to price stability over the next several years stems from the disinflationary forces unleashed by the enormous slack in the economy,” Yellen, 63, said Sept. 14 in San Francisco. Wages for U.S. workers fell for eight months in a row, dropping 5.6 percent from October 2008 to June 2009, according to Commerce Department figures. In contrast, wages continued to grow in the 1954-1955 deflation period. Stagnating wages and fading job prospects are sapping demand. Consumer spending may increase in the fourth quarter by just 1 percent and in 2010 by an average of only 1.6 percent, according to the median estimate in the Bloomberg survey of economists. Consumption rose by an average 5.7 percent a quarter in the five years before the recession began in December 2007. “A weak labor market in a competitive environment puts downward pressure on wages,” said Stiglitz, who won the Nobel prize for economics in 2001. “So, the possibility of another actual decline in wages cannot be ruled out.” Declining Incomes The deflation danger is compounded by household debt , said Paul Ashworth , senior U.S. economist at the consulting firm Capital Economics in Toronto. U.S. homeowners owed $13.9 trillion in the third quarter of 2008, compared with an average of $8.5 trillion in the 57 years the Fed has kept records. “As incomes start to fall, that debt gets bigger in real terms: You have a smaller income to pay off that debt,” Ashworth said. “Deflation combined with high indebtedness can be very problematic.” Inflation happens when too much money chases too few goods. Gary Shilling , president of the investment research firm A. Gary Shilling & Co. of Springfield, New Jersey, said that even as the Fed continues to pump money into the economy, the money supply, as measured by the central bank’s M2 index, has dropped one percent since mid-June. “Look what is happening to money supply, it is actually contracting now when supposedly the economy is picking up,” Shilling said in an interview on Bloomberg Television Sept. 21. The economy is facing deflation “because you’ve got basically an excess-supply world,” he said. Profits Dwindling Profits have evaporated as companies lose pricing power. The 419 non-financial firms in the S&P 500 reported earnings down 28 percent in the quarter ending June 30. Analysts surveyed by Bloomberg anticipate a 30 percent decline for the third quarter, which ended this week. “Businesses trying to sell products and services feel they are pushing on a string and are adjusting their behavior accordingly,” Fisher, 60, the Dallas Fed president, said in a Sept. 3 speech at the University of California in Santa Barbara. “They are cutting prices.” Rodney McMullen , president of Cincinnati-based Kroger, blamed price reductions for second-quarter earnings that fell 10.5 percent short of analysts’ estimates . “We certainly sold more units. But lower retail prices and profit per unit pressured” results, McMullen told analysts in a Sept. 15 conference call. “We began to see deflation.” The average amount spent per transaction in August at Issaquah, Washington-based Costco was about 7 percent below last year, Bob Nelson , vice president for financial planning, said on a Sept. 3 conference call with investors. At Wal-Mart Stores Inc., the world’s largest retailer, “headwinds” from deflation were in part responsible for a 1.4 percent drop in second-quarter revenue to $100.9 billion, chief financial officer Thomas Schoewe told analysts Aug. 13. To contact the reporter on this story: Michael McKee in New York at mmckee@bloomberg.net .

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Granddad, Investment Banking Is Dirty, Dangerous: Mark Gilbert

September 23, 2009

Commentary by Mark Gilbert Sept. 24 (Bloomberg) — “Granddad Benny, this investment- banking museum isn’t anywhere near as scary as the gold mine tour we went on last week during our California trip.” Granddad looked up from the hologram showing a trading-room tableau in a virtual room the size of a football pitch. The display showed legions of angry men dressed identically in chinos and Ralph Lauren button-collared shirts, staring at racks of computer screens from their Herman Miller Aeron chairs. “Well, Joel, for chunks of human history, mining for commodities such as gold, silver and coal played a central role in the development of particular cities and countries. Miners were regarded as stalwarts of their local communities; they faced terrible risks every day when they went underground, but their work was regarded as valuable and vital to the economic wellbeing of the world. “Bankers and traders also endured terrible personal risks. They suffered high blood pressure caused by the stress of their jobs, they worked long days under fluorescent lights and were bullied by their managers, and many of them became sociopaths who knew the price of everything and the value of nothing. And, in the end, their industry turned out to be a lot more dangerous than mining ever was. Which is why it was eventually outlawed.” Joel stood next to his grandfather and swiped a finger across the interactive hologram screen, which made the hands of the traders peck at keyboards and their faces contort and twist in agony or ecstasy. “The man on the mining tour told us about something called the gold rush, and said that when the gold price collapsed, the mine had to shut. Was that what happened to the banks, Granddad?” Dead Presidents Granddad walked over to a second hologram, which showed a rectangle of green paper rippling like a flag in a breeze, with a No. 1 in each corner and a picture of a guy wearing a wig in the middle above the words “ONE DOLLAR.” “In a way, that’s exactly what happened,” Granddad said. “There was a decade-long boom in the kinds of commodities that the banks traded in, very similar to a gold rush. A lot of people got very rich, very quickly. “There was one big difference, though. When a gold rush ended, the mines shut down and the miners went back to where they came from and resumed farming, or carpentry, or whatever it was they did for a living before they started digging for treasure. When the investment-banking boom collapsed, the traders didn’t have any skills that were useful to society. Life Support “Instead of closing down, the banks were able to scare governments into giving them billions of dollars to pay their employees. Most of them didn’t even have to take a pay cut. And instead of finding new things for their staff to do, the banks carried on taking huge risks with other people’s money.” “The men in the hologram don’t look too dangerous, though they sure don’t look very happy,” said Joel, rubbing his finger back and forth on the screen and making one trader repeatedly throw piles of collateralized-debt obligation documents into the air, only for them to fall back into a neat pile as the clip looped back and forth. “Why was banking so dangerous?” “Do you remember the part of the mine tour where we came up against a pile of stones that it was impossible to get around?” Granddad said. “Yes, the guide said it was called a rockfall, and that miners used to get buried and couldn’t get out,” Joel said. Giglobubu Time “Well, investment banking didn’t pay enough attention to health and safety issues. Instead of the bankers getting crushed, though, it was their customers who suffered when the financial markets collapsed in the Gigantic Global Bubble Burst in the first decade of the century. When people realized that even the Giglobubu hadn’t persuaded the banks to curb their behavior, there was an uproar. Governments had to intervene and change the law to keep people safe from the traders — and the traders safe from the angry people. This New York museum is about all that is left of the investment banks.” Joel started playing with another holographic display, making a brick-sized gold ingot spin on its corner. “The man on the mine tour said that gold became important again when fake currencies were made illegal. What did he mean, Granddad?” “I think he said fiat currencies, Joel, not fake. When China took control of all global financial activities, the world decided to go back to something called the gold standard, which meant paper money, like the dollar bill in that hologram, became a true store of value, rather than a confidence trick.” Granddad glanced at his watch. “Time to go, Master Joel. My shift at the T-shirt factory starts soon.” ( Mark Gilbert is the London bureau chief and a columnist for Bloomberg News. The opinions expressed are his own.) To contact the writer of this column: Mark Gilbert in London at magilbert@bloomberg.net

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Robert Kuttner: Hard Labor

September 6, 2009

On this Labor Day, about the best the Obama Administration can say (over and over again) is that the unemployment picture would be a lot worse without the Recovery Act. Sorry, that’s not good enough. It won’t be good enough for the Democrats to hold onto swing seats in next year’s midterm election, or for President Obama to persuade increasingly skeptical voters that he represents a solution to economic woes. In August, the unemployment rate rose to 9.7 percent, and most forecasters think it will be in double digits before year end. In an ordinary recession, employment rebounds last because firms are reluctant to make new hires until they see a substantial pickup in demand — and this recession is far from ordinary. The depth of the true unemployment picture has been disguised by large numbers of workers who are on part-time furlough, who have taken pay or benefit cuts, or who are working full-time for part-time pay. The number of workers who had been working for six months or more rose to one unemployed worker in three, the Economic Policy Institute reports. So the economy is stuck in a vicious circle where weak consumer demand is inadequate to power a recovery, and government stimulus spending is not sufficient to make up the difference. There are three parts to the woes of American workers — falling wages, rising unemployment, and insecurity about the future. More robust policies could improve all three. For starters, we need a second stimulus bill. It could begin with emergency federal aid to state and local governments that are laying off workers and cutting services in a recession. We also need policies to create more jobs and raise wages for the long term. Twenty five years ago, I was part of a debate on industrial policy, and I was on the losing side. Neither Democratic presidents nor Republican ones accepted the idea that it mattered whether the United States had world-class industries. After all, we were becoming a service economy, and services were just as good as products. Most economists ridiculed industrial policy on the ground that government was not competent to pick winners and that free markets would make the appropriate investment. Well, a quarter century later, most of those services turned out to be financial services, and a lot of that sector turned out to be a bubble. The free market made one blunder after another. And ever since the financial collapse that began in the spring of 2007, government has been picking winners with taxpayer money, except that most of them are failing banks. A reading of American history reveals that the U.S. has had industrial policies all along, beginning with Alexander Hamilton’s “Report on Manufactures.” World War II, the Cold War, and government investment in biotech were one big industrial policy. Go back and read books from the debate of the 1980s, like Barry Bluestone and Bennett Harrison’s The Deindustrialization of America , or Steve Cohen and John Zysman’s Manufacturing Matters , and they look prophetic. They lost the political argument, but they were right all along. Now, with the economy facing a prolonged stagnation, a second stimulus should not just be a shot in the arm to restore flagging demand in 2010. It should be a down-payment on serious investment in American manufacturing for a generation. One piece of good news is that Ron Bloom, the longtime trade unionist and union-friendly investment banker who brought the rescue of GM and Chrysler to a speedy resolution, has been promoted by the Obama Administration to be a kind of manufacturing policy czar. Bloom will have his work cut out for him. For starters, he will be up against an iron consensus favoring “free trade,” and an article of faith of the free-trade crowd is that there should be no efforts to promote domestic manufacturing, never mind that every modern industrial power from Brazil to Korea, Japan, and China does precisely that. Good domestic manufacturing jobs would pay decent wages, but there is a lot more that the government needs to do, since most jobs will still be service sector jobs. As I write in a forthcoming special report of The American Prospect , government has immense unused leverage to hold government contractors to high labor standards. During World War II, the War Labor Board made sure that no employer got a war production contract unless it treated its workers decently. Henry Ford managed to hold out against unions throughout the labor organizing of the 1930s. It was the War Labor board that finally compelled him to settle with the United Auto Workers. Ford was the Wal-Mart of his day. Later, in the 1960s, before there were the votes in Congress to pass the landmark civil rights acts, Presidents Kennedy and Johnson used the power of federal contracting to demand that any company bidding on a government contract have an affirmative plan to overcome the effects of past racial discrimination in hiring and promotion. This policy was the origin of affirmative action. If government can use its contracting power to promote equal employment for minority workers, then government can surely use that power to insist on decent wages for all workers. Vice President Biden has made a good start with his Task Force on Middle Class Working Families. President Obama has issued some promising executive orders promoting project labor agreements and making it a bit harder for contractors to bust unions. But the task force is understaffed and does not represent a major administration initiative. To be serious, it needs to be a priority of the President, not just a project of the Vice President. The Obama administration is on the defensive on health care in part because it is promoting an ambiguous and ultimately feeble health reform bill, but partly because health insurance has become a lightening rod for larger economic fears. Voters are not yet convinced that this president is on their side in the battle for economic security. Major steps to improve job opportunities and wages would be a good place to redeem the popular good wishes that accompanied President Obama as he took office. Robert Kuttner is co-editor of The American Prospect, www.prospect.org, and a senior fellow at Demos, www.demos.org . His recent book is Obama’s Challenge, www.obamaschallenge.com .

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Obama Open to Bank Fees for Risks, Surtax on Wealthy for Health-Care Plan

July 23, 2009

By Catherine Dodge and Edwin Chen July 23 (Bloomberg) — President Barack Obama signaled support for a proposal to impose fees on some of the nation’s largest financial firms to cover losses from risky transactions and avert another market meltdown. Obama, at a White House news conference last night, said the U.S. may need a mechanism similar to the Federal Deposit Insurance Corp.

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