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Matt Cohen: Harry Potter and the Entrepreneurs: 7 Marketing Tips

by on February 4, 2011

In the opening chapters of Harry Potter and the Half-Blood Prince, J.K. Rowling creates a picture of a floundering wizard economy. Businesses are shutting down – either because their owners have been killed or because customers are afraid to shop anymore. The only retailer that seems to be thriving in the down economy is Weasleys’ Wizarding Wheezes, a joke shop that opened only a few months earlier by two Hogwarts drop outs. How come their store is packed with excited consumers while neighboring stores are boarding up their windows? Based on Fred and George Weasley’s successful strategy, here are seven tips for other start-up B2W (Business to Wizard) companies. Find more business insights from unlikely places at Unexpected Experts.

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Matt Cohen: Harry Potter and the Entrepreneurs: 7 Marketing Tips

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BP Survives? Oil Spill Won’t Impact ‘Ability To Do Business’

by AP on December 29, 2010

NEW YORK — As the Gulf oil spill gushed out of control, BP’s financial liabilities seemed big enough to sink the company. No more. Cleanup, government fines, lawsuits, legal fees and damage claims will likely exceed the $40 billion that BP has publicly estimated, according to an Associated Press analysis. But they’ll be far below the highest estimates made over the summer by legal experts and prominent Wall Street banks, such as Goldman Sachs, which said costs could near $200 billion. BP will survive the worst oil spill in U.S. history for several key reasons: it has little debt; its global businesses are forecast to generate $26 billion next year in cash flow from operations; the environmental impact of the spill isn’t as bad as feared; and the government seems unlikely to ban BP from Gulf drilling. To bolster its finances, BP has cut its dividend, issued debt and sold more than $21 billion in assets. “It could have been a lot worse,” says Tyler Priest, a University of Houston petroleum historian who serves on President Obama’s oil spill investigation committee. “BP is going to come back from this.” Many influential investors appear to agree. According to Thomson Reuters, 23 firms with $1 billion or more invested in the stock market, including BlackRock Investment Management, Managed Account Advisors and Rydex Security Global Investors, more than doubled their holdings of BP stock from July through September. At $44.11, BP’s stock price has risen 63 percent from its low of $27.02 on June 25. It’s still down 27 percent from its close of $60.48 on April 20, the day of the spill. The well was capped on July 15. The AP analysis shows the company is likely to face $38 billion to $60 billion in spill-related costs. A settlement with the federal government could reduce that amount, while a successful class-action lawsuit could add billions more. The analysis includes: _The $10.7 billion that BP already has paid to plug its well, clean up the spilled oil and pay damage claims and other costs. _A $20 billion fund that BP set up in August for individuals and private businesses that were affected by the spill. The fund, known as the Gulf Coast Claims Facility, pays for environmental damage, personal injury, cleanup and lost earnings. The fund so far has paid $2.7 billion to address nearly 168,000 claims. Nearly half a million individuals and businesses have filed claims, and those that settle with the fund give up their right to sue the company. If any of the $20 billion is left over, it goes back to BP. _Fines: The Justice Department is suing BP for violating the Clean Water Act. Fines are based on how much oil was spilled. The government’s estimate of 4.9 million barrels means BP faces between $5.4 billion and $21.1 billion in fines. The upper limit applies if investigators conclude BP acted with gross negligence. The government has a history of settling with companies for as little as 50 cents on the dollar in order to avoid lengthy disputes, says Eric Schaeffer, former head of the Environmental Protection Agency’s enforcement division. _Legal fees: BP has hired lawyers, engineers and geologists to defend the company. These experts could cost as much as $2 billion, according to Mitratech Inc., a consulting firm that handles legal and trial logistics for Fortune 500 companies. _Lawsuits: The toughest costs to estimate are future settlements and judgments from the hundreds of lawsuits filed against BP, including any class actions. Shrimpers, oystermen, charter-boat operators, restaurant workers and real-estate developers are suing BP for lost business. Oil rig workers and cleanup crews are making personal injury claims. And Gulf states and local governments are expected to sue for lost tax revenue and environmental damages. Alabama is seeking an initial $148 million from BP. Analysts at Citigroup say settlements, judgments and punitive damages from these suits will total as much as $6 billion. Legal experts caution that the unpredictability of juries makes it difficult to estimate the cost of losing a class-action lawsuit. A successful class-action could easily double the Citigroup estimate for total legal liabilities, says Alexandra Lahav, a University of Connecticut professor who studies such lawsuits. BP may be able to spread the spill’s costs around. Minority partners Anadarko Petroleum Corp. and MOEX 2007 LLC own 35 percent of the operation, and rig owner Transocean Ltd. also may be asked to pay. “Companies have the incentive to settle with BP to put the matter behind them,” FBR analyst Robert MacKenzie says. He expects BP to get as much as $2 billion from Transocean and as much as $4 billion from Anadarko. “We’ve set aside what we think is the right amount to pay for the relevant costs” from the spill, BP spokeswoman Sheila Williams says. Since the spill, BP has moved aggressively to shore up its finances. The company suspended its quarterly dividend of 84 cents a share, which cost it $10.5 billion last year. It also raised $21 billion in asset sales that include: $7 billion for its stake in Pan American Energy; $7 billion for oil fields in the U.S., Canada and Egypt; $1.9 billion for its Colombian exploration business; and $1.8 billion for assets in Vietnam and Venezuela. BP also raised $3.5 billion in an Oct. 1. bond sale. From April through June, when BP’s stock was tanking, Fred Fromm, who manages a natural resources fund for Franklin Templeton Investments, scooped up 170,000 shares. Their value climbed by more than $2 million in the third quarter. A few weeks after the Deepwater Horizon rig exploded and sank, scientists worried the oil slick would reach the Gulf’s Loop Current, which sweeps around Florida and up the East Coast. Beaches would be damaged along the way. But BP got lucky. Gulf winds kept shifting, which kept the oil concentrated in the waters south of Louisiana, said David Hollander, a University of South Florida chemical oceanographer. And hurricanes mostly avoided the region. Scientists disagree about how much oil remains in the Gulf, but already the streaky sheens of oil on the surface are mostly gone. The more oil that remains, the greater the potential for environmental lawsuits. Whatever remains, “it won’t impact their long-term ability to do business,” says Citigroup oil analyst Mark Fletcher. Exxon dealt with lawsuits for decades after its Valdez supertanker ran aground and spilled 11 million gallons of crude into Alaska’s Prince William Sound in 1989. The spill cost Exxon $4.5 billion – nearly half of which went to clean up the oil. The rest was spent on payments to residents and businesses, punitive damages and settlements with the government. Exxon never lost its perch among industry leaders, and BP won’t either, says Citigroup’s Fletcher. BP remains among the top oil drillers in a world that runs on petroleum, and that may be the best way to judge the company’s lasting power. “Did (Valdez) stop anyone from buying Exxon gasoline? No. Exxon’s results are better than anyone’s on a multiyear basis,” Fletcher said.

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Former Blackwater, Xe, Bought By Investment Group

December 18, 2010

RALEIGH, N.C. — An investment group with ties to the founder of the company formerly known as Blackwater announced Friday that it has bought the security firm, which was heavily criticized for its contractors’ actions in Iraq. USTC Holdings said in a statement that the acquisition of the company now called Xe Services includes its training facility in North Carolina. Terms of the deal were not disclosed. But the statement said owner and founder Erik Prince will no longer have an equity stake and no longer be involved in Xe’s management or operations. The company will be managed by a board appointed by the equity holders and will include independent, unaffiliated directors, the statement said. Prince founded the company in 1997 along with former colleagues from the Navy SEALs. The ownership group is led by two private equity firms, including New York-based Forte Capital Advisors. Forte managing partner Jason DeYonker has been a longtime financial adviser to Prince, helping him expand the Moyock, N.C., training grounds and negotiating Blackwater’s first training contracts with the U.S. government. “The future of this industry belongs to those companies with the highest standards of governance, transparency, and performance,” DeYonker said. Xe announced in June that it was seeking a buyer. At the time, Prince said selling the company was a difficult decision, but constant criticism of Xe helped him make up his mind. “Performance doesn’t matter in Washington, just politics,” he said. In August, Prince moved to Abu Dhabi. The private company became famous as Blackwater, which provided guards and services to the U.S. government in Iraq, Afghanistan and elsewhere. It became one of the most respected defense contractors in the world, but also attracted sharp criticism over its role in those missions. It has been trying to rehabilitate its image since a 2007 shooting in Baghdad that killed 17 people, outraged the Iraqi government and led to federal charges against several Blackwater guards. The accusations later were thrown out of court after a judge found prosecutors mishandled evidence. In March, Senate Armed Services Committee Chairman Carl Levin suggested the Pentagon should consider banning Xe from a $1 billion deal to train Afghan police. The Michigan Democrat said he thought the company’s involvement was hindering the U.S. mission in Afghanistan. Earlier this year, Xe sold its aviation division for $200 million to Wood Dale, Ill.-based AAR Corp. Also, five former executives, including Gary Jackson, the company’s ex-president, were indicted on charges of conspiring to violate federal firearms laws. Jackson was among the top officials who left the company last year in a management shake-up.

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David Isenberg: A Rose by any Other Name Would Smell Like a "New Humanitarian"

November 29, 2010

Remember when in February 2009 Blackwater changed its name to Xe Services? Didn’t do much good, did it? Almost everyone still thinks of it as Blackwater, or shades of the other Prince, the PSC formerly known as Blackwater. It just goes to show you that not every attempt at rebranding works well. Sometimes, in fact, they are major disasters. For example, if the SciFi Channel had done more due diligence before it rolled out its new name it would have discovered that, in most parts of the world, “syfy” is a slang term for syphilis. And being associated with a sexually transmitted disease is never a good marketing tactic. Of course, rebranding is par for the course for private military and security contractors. The public debate is frequently shallow and sensationalist, and often outright demagogic, so it is hardly surprising that PMSC seek to change the terms of the debate, considering that its critics often seek to influence it by using inaccurate terminology like “mercenary, “dogs of war,” or “guns for hire.” Remember that the PMSC trade group, the International Peace Operations Association, which then changed its name to simply IPOA, recently renamed itself the International Stability Operations Association. I see the change as an attempt to broaden their market appeal. Offering an organization that is of use to companies that can lay claim to helping establish stability will, at least potentially, cast a far wider net, that just those involved in peace operations. As both a marketing move and an attempt to attract future member companies it is a smart move. The sad thing is that for many years PMSC have been notably bad at doing public relations, or, if you want to use military terminology, information operations. Partly it was because in their early years PMSC were, and to some degree, still are headed by former military officers whose initial reaction to the idea of talking with the media is to echo the famous comment, “Off with their heads!” from the Queen of Hearts in Alice in Wonderland. Another reason is that they were simply too cheap to pay for a fulltime public relations person or office. And when you are something on the order of DynCorp or KBR you definitely need a whole office. Or to paraphrase the old sports quote, image isn’t everything; it’s the only thing. Given that PMSC trade association have lobbied Congress to consider “best value” when awarding contracts, which involves weighing a company’s reputation among other factors, and not just its bid price, you can see why this is important. So, how’s that whole identity politics thing working out? This brings us to another paper presented at the presented at the SGIR 7th Pan-European International Relations Conference, in Stockholm, Sweden, September 9-11, 2010. This is ” New Humanitarians? Private Military and Security Companies ” by Jutta Joachim & Andrea Schneiker of the Institute of Political Science at Leibniz University Hannover, Germany. They start with the obvious, “Although Private Military and Security Companies (PMSCs) are gaining increasingly in importance, they still suffer from an image problem… Companies are therefore interested in presenting themselves as legitimate and acceptable contract parties.” And what do they find? Based on a discourse analysis of the homepages of select PMSCs and the industry association International Peace Operations Association (IPOA), we examine the ways in which they respond to negative labels. Drawing on the framing literature, we find that PMSCs present themselves as “new humanitarians.” Not only do they provide increasingly logistics or security for the staff of humanitarian organizations which are confronted with complex emergencies and ever-more dangerous missions, but the respective companies also appropriate the discourses of these organizations. The growing involvement of actors interested exclusively in profit is not without problems. Not only does it challenge the monopoly thus far enjoyed by non-profit organizations with respect to humanitarian assistance and the principles which guide their actions, but it contributes further to the normalization of privatized security. “Armed humanitarians” is also the title of Nathan Hodge’s book which I wrote about previously . Of course, such a rebranding has impact beyond that of image. It goes to furthering the legitimacy and staying power of the PMC industry. After all, who could possibly be against a humanitarian?. It would be like being against the Red Cross or Amnesty International. For PMSCs to present themselves as humanitarians has implications that go far beyond the humanitarian sector. It contributes to the normalization and power of PMSCs. By presenting themselves as do-gooders and others, including state militaries, international organizations, such as the United Nations, and even NGOs as incapable and less caring for the well-being of others, PMSCs enhance their legitimacy. Outsourcing of military and security-related tasks may, in turn, be more acceptable, easier to justify, and more difficult to resist, if not to say a moral obligation. In the view of the authors defining oneself as a humanitarian, which is generally considered to be an ethic of kindness, benevolence and sympathy extended universally and impartially to all human beings, is also smart business: In the case of PMSCs, presenting themselves as humanitarians may enhance their common acceptance and increase their pool of clients, such as NGOs, who might be less apprehensive in relying on their services, as the Chairman of the Board of Directors of RA International, a member company of the IPOA, explains: One should never underestimate the power of private companies who offer aid. Companies are almost always focused on efficiency, good negotiation, building their reputation (their brand) and getting things done on time and on budget. The basic rules of capitalism that work for the good of the communities they aid can in turn aid them in business and ultimately help post-conflict societies to recover and progress. So, in this view, someone like Adam Smith is really Mother Theresa in drag. And, as it turns out, for one of the few times in their history, PMSC are becoming rather deft and adroit in their public relations. PMSCs increasingly refer to themselves as “the New Humanitarian Agent[s]” emphasizing, like AECOM, that they “are committed … to make the world a better place”. Their humanitarian identity has evolved over time in response to scandals and crisis in the industry and is reflective of the post-Cold War kind in terms of the professed ambitions. Most indicative of a change in the industry is the way in which the IPOA more recently refers to it. PMSCs, according to the association, belong to the “Peace and Stability Operations Industry” of which the private security industry is only a “subset.” … The Journal of International Peace Operations of the IPOA is quite telling in this respect. Ads of companies quite frequently show sad looking girls (EODT), babies being fed (Blackwater), boys laughing and waving at one (IPOA), soldiers rescuing little kids (IPOA), or a globe (Blackwater, IPOA). Everyone is entitled to their own spin and it is true that in many cases PMSC are just as capable, if not more so that their traditional NGO counterparts such as Oxfam, Doctors Without Borders or the Red Cross. So, should we care whether IPOA et al is putting itself in the ranks of Nobel Peace prize winners? Well, the authors note a few problems. First, there is what we might politely call the hypocrisy factor: Analyzing the homepages of PMSCs and one of their associations–the IPOA–provides evidence that companies present themselves increasingly as “new humanitarians” interested in addressing the root causes of conflicts. On the one hand, they employ naming strategies, emphasizing their commitment to humanitarian aims and ethics. On the other hand, however, they paradoxically blame while at the same time align themselves with other humanitarian actors. As much as they consider the reluctance of Western states, international organizations, and NGOs to intervene in ongoing crisis as a problem, PMSCs also seek to benefit from and rent their legitimacy. Second, is the conflict of interest issue: First, PMSCs specialize in intelligence and risk assessments. In terms of effectiveness and efficiency, this may be an asset in situations of violent conflicts or humanitarian disasters and a comparative advantage vis-à-vis NGOs or international organizations. Given the kinds of information PMSCs can produce and have available, they may be in a better position to determine where help is most needed, coordinate the assistance and the logistics, or to estimate the effort or the danger involved. From a moral point of view, however, this capability can be problematic. Through their advice, PMSCs may shape and influence our understanding as to what constitutes a humanitarian crisis, who are the victims and who may deserve aid, and who is qualified to assist. Instead of political or humanitarian motives per se, the information companies provide is based on economic reasoning. Whether to intervene or not and offer assistance is, hence, no longer a question of duty or a certain ethics, but one of whether a crisis promises to be a lucrative market. Third, is the commitment issue: Similar to NGOs, most PMSCs operate transnationally and conceive of themselves as apolitical, neutral actors. Again, based on the criteria of efficiency and effectiveness, this makes their involvement appealing. Companies can be at site in a relatively short amount of time, are not be held back by cumbersome political debates, and may enjoy greater acceptance because they are not directly associated with the UN or any particular state. Judged in moral terms, however, their constitution may again be a problem. Compared to states, UN agencies or even NGOs which often have ties to countries other than those established during violent conflicts or natural disasters, companies do not have these kinds of relations. Consequently, they may feel less of a commitment beyond their assignment and ignore the long-term implications of their engagement or even the short-term consequences for ongoing conflicts. If problems arise, they may simply leave and set up shop elsewhere. While some might argue that the exit option is also available to NGOs, the implications are different for them than for PMSCs. Contrary to the former, which are forced to reflect whether their behaviour is in line with their ethics and are held accountable by their members and donors, companies, in comparison, evaluate their actions based on profits and the potential responses of their share-holders. And last, but hardly least: Finally, apart from moral concerns or those related to efficiency and effectiveness, there seems to be a further implication that has to be considered when PMSCs acquire a humanitarian identity. It contributes to their normalization and may, in the long-run, undermine the role of more traditional actors in the field. With PMSCs gaining in acceptance and legitimacy, international organizations and NGOs may either be increasingly be perceived as lacking the ability to take care of those in most need or may even feel less compelled to intervene.

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David Isenberg: Private Military Companies as Quasi-States

November 18, 2010

Our latest entry in law journal articles on private military contractors is “Why Private Mercenary Companies Should Be Legitimized and Allowed to Enter the World Stage.” This was published in the spring 2009 issue of the New England Law Review . The author is Edieth Y. Wu , who is Professor of Law at the Thurgood Marshall School of Law at Texas Southern University. In a mere 16018 words, which is positively svelte by law journal standards, she makes the argument “Like the multinational, PMCs have the potential to impact domestic and international politics and “spread wealth, work, technologies that raise living standards and better” the lives of millions, which gives them an opportunity to participate in the global economy.” That’s a fairly bold assertion. Even PMC trade associations don’t normally make such a claim, as it puts PMCs right up there with Apple, Google, and Microsoft. And not even Eric Prince, back when Blackwater was at the top of the PMC heap, would go that far. Still, once you get past the fact that Professor You is calling PMC a “mercenary” company – you would think a law professor of all people, trained to used word with exactitude, would know better – she has some intriguing things to say regarding PMC regulation. In particular, she calls for the United Nations Security Council, to support a resolution to legitimize properly registered PMCs. She writes, “The U.N. is in the best position and can “bring[] essential assets to bear on any effort to deal with pressing problems” of PMCs. The U.N. has legitimacy because it represents the world and can call on nations to assist in situations that affect humanity as a whole. The U.N. should pass an “Emergency Private Mercenary Company Resolution” (Emergency PMC Resolution) similar to the resolutions that address measures to prevent international terrorism.” She notes there is precedent. After the September 11, 2001 attack on the United States, the U.N.’s response was decisively unprecedented and swift. Resolution 1368 was unanimously adopted by the Security Council within twenty-four hours of the attack. The Resolution called for all States to work to bring the perpetrators to justice, and it called for the “international community to redouble their efforts to prevent and suppress terrorist acts.” The same swiftness and assurance of support should accompany the Emergency PMC Resolution. The Emergency PMC Resolution would legitimize reputable companies that are willing to comply with the Emergency PMC Resolution and the augmented three-tiered process. The Emergency PMC Resolution should be drafted under Chapter VII of the Charter because it addresses threats, breaches, and aggression against the peace of the international community. The Resolution would require all member nations to pass and enforce national legislation making it compulsory for all PMCs to register with the U.N. under their home country’s membership. After the company registers, all of its employees would then be designated as having dual nationality. That is, nationals of their home state and nationals of their company’s state, analogous to the situation in the Merge case. The individual’s dominant nationality would be the nationality of his contracted employer, the PMC, based on the dominant nationality principal. A mercenary would also be subject to the municipal court system of his or her employer’s home country because of the voluntary contacts and participation in said activity. Of course, trying to define “reputable companies” is akin to determining how many angels can fit on the head of a pin. Maybe we can outsource that task to Jesuits, as they have a reputation for arguing over the obscure. But what is really breathtaking is this: First, mercenary companies should not be placed under regulations that control state-run militaries; instead, mercenary companies should be designated through a U.N. Resolution as a “Quasi-State,” a cross between a multinational corporation and a non-governmental organization. Because the designation would flow through the U.N. and its members, the necessity for global harmonization and legitimacy would be unquestioned. The “quasi-state” status would be viewed as global entities who are allowed to operate as a result of a decision by the community of nations. These Quasi-State companies would be given semi-international legal personality so that they would be subject to the International Court of Justice’s jurisdiction as well as the ICC’s, which already has the power to adjudicate individual defendants. Large PMCs are “no longer ordinary players on the international scene, [these] corporations have achieved effective global governance by virtue of their control of economic” and military expertise. Additionally, they have “rights or duties,” in the global community and should be evaluated based on the “extent to which other legal persons resemble states in their ability to bring [and have] international claims” brought against them. Corporations have been branded as “corporate states”; this is not a U.N. or state designation. To date, “states are unwilling, also, to elevate corporations to the status of a nation.” They “may be a party to a contract recognized by international law and possibly become a subject … but this does not invoke legal capacity to act like a nation.” The opportunity to bestow the quasi-state designation allows world leaders to not only place controls over a growing and specialized corporation but also allows them to protect global citizens at the same time. The insecurity concerning PMCs has created an avenue “to re-establish democratic control” n198 and enhance oversight over this growing multinational corporate segment. A clear message would be articulated that corporations “are legally not more significant than a single human being or a non-governmental organization … . False [they] are just nationals like other nationals in international law,” except they would now be subject to stricter scrutiny for acts committed as a result of their business activity, enhanced prosecutorial reach extended to the ICJ, ICC, and national courts. In one way this actually makes sense, sort of. After all Vatican City is a sovereign city-state with an area of approximately 110 acres and a population of just over 800. As the capital of the Catholic Church, it is the headquarters of a global corporation, albeit of the theological variety. By contrast Xe Services, formerly Blackwater, another multinational, has a headquarters of 7,500 acres and its firepower far outstrips that of the Swiss Guard who protects the Vatican. If they go to war someday I know who I’m putting my money on. And if a PMC decided not to play ball with this arrangement? Prof. Yu writes: PMCs that refuse to cooperate would be classified as “Rogue Companies” and could be prosecuted by another state under the principles of preemptory norm (jus cogens) ( http://definitions.uslegal.com/j/jus-cogens), if the home state refused or was unable to prosecute. Similar to the difference between pirates and legitimate privateers, unregistered companies would be treated like pirates – illegals – and would thus suffer strict and swift punishment. Illegal or unregistered companies would be subject to the U.N.’s declaration that they “violate the purposes and principles enshrined in the Charter.” As a result, states would be mandated to “take the necessary steps and to exercise the utmost vigilance against the menace posed by the activities … and to bring to trial those found responsible, or to consider their extradition, if so requested, in accordance with domestic law and applicable bilateral or international treaties.” So, if you are willing to accept the initial premise we could, theoretically, have states issue contracts to PMC to apprehend and bring to justice the perp, oops, I mean the disreputable PMC. It’s rather like the concept of issuing letters of marquee to fight pirates, which, after all, is in Article 1 of the U.S. Constitution. Hmmm, PMC as pirates? I’ll go out on a limb and say PMC probably want to avoid something that could put them in an equivalent status. After all, piracy is considered a breach of jus cogens, an international norm that states must uphold. Pirates are considered by sovereign states to be hostis humani generis (enemies of humanity). Still, I hope PMCs do get quasi-state status, if only so we can see PMC representatives pontificate like all the others at the U.N. General Assembly and the Security Council. Perhaps Eric Prince can come out of retirement and be designated Xe Services’ UN ambassador.

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Nation’s Largest Financial Technology Management Provider Hires Well Known Industry Thought Leader to Take Company to Next Level

October 25, 2010

SANTA ANA, CA–(Marketwire – October 25, 2010) –  Mr. Kevin Prince joins Compushare, Inc. as the Chief Technology Officer to oversee all product research and development efforts as well as the execution of new offerings and solution enhancements. Compushare is the leading national Financial Technology Management solutions provider for the financial services industry.

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David Isenberg: Putting the Lawyers in Lawyers, Guns and Money

September 28, 2010

Doubtlessly, Warren Zevon and writer of the legendary song, Lawyers, Guns and Money, would appreciate this, if he were still alive. By now you may have noted that I like writing about law journal articles on private military and security contractors. Perhaps it is just because reading them put me to sleep quicker than taking Sominex. Nevertheless once you get past the deadly eye glazing prose, at least to those of who aren’t lawyers, they do have interesting things to say. The latest to attract my attention is Military Lawyers, Private Contractors, and the Problem of International Law Compliance by Laura A. Dickinson , published earlier this year in the New York University Journal of International Law and Politics. Dickinson is Professor of Law, Sandra Day O’Connor College of Law at Arizona State University and author of the forthcoming book, ” Outsourcing War and Peace: Preserving Public Values in a World of Privatized Foreign Affairs . She accepts that private contractors are likely to become a permanent part of the military landscape. Her concern is how can we make it more likely that contractors will respect core human rights norms? She writes it will not be sufficient merely to focus on the degree to which these contractors are formally governed by international and domestic law. In her view, “the problem is much less about the formal legal framework and much more about the subtle ways in which norm compliance actually operates on the ground. After all, legal rules are often followed not because of the formal existence of a norm, but because of more inchoate processes involving how much the legal norm is internalized by relevant actors.” Specifically she seeks to understand how international legal norms are currently inculcated within the uniformed military, and then see whether those institutional structures are less present (or indeed are undermined entirely) in the private military context. To do so she summarizes conclusions drawn from a series of interviews she conducted with U.S. military lawyers in the Judge Advocate General (JAG) Corps. She says these lawyers, embedded with troops in combat and consulting daily with commanders, have, to a large degree, internalized the core values inscribed in international law–respect for human rights and the imposition of limits on the use of force–and seek to operationalize those values. In her view their stories strongly indicate that the presence of lawyers on the battlefield can help produce military decisions that are more likely to comply with international legal norms. Dickinson believes that: Differences in organizational structure and institutional culture (and not just differences in the applicable legal regime) may be principal reasons that the rise of private military firms threatens core rule of law values. In particular, the use of contractors may jeopardize certain aspects of military culture, both because the intermingling of contractors and uniformed troops on the battlefield may weaken public values within the military, and because contractors operating outside the military chain of command may themselves develop a different organizational culture and set of values that come to predominate in conflict and post-conflict situations as contractors assume ever-greater responsibilities. Thus, if we are to address how to maintain public law values in an era of privatization, we must take seriously the question of organizational structure and culture, its importance, and the ways it might be shaped. Organizational theory have long recognized that group norms and internal organizational structures can further (or hinder) an organization’s goals, as well as the goals of individuals within organizations. The central question is how best to ensure that compliance agents within an organization–such as lawyers– can most effectively bring about compliance with central rules and values of the firm as well as various public norms. Theory suggests such agents will tend to be most effective under the right conditions: (1) the accountability agents must be integrated with other, operational employees; (2) the agents must have a strong understanding of, and sense of commitment to, the rules and values being enforced; (3) they must be operating within an independent hierarchy; and (4) they must be able to confer benefits or impose penalties on employees based on compliance. Uniformed military lawyers–the career judge advocates–are essentially the compliance unit within the military. These lawyers work to ensure that commanders and troops obey the rules of engagement, which are the rules that operationalize the law of armed conflict in a particular war or occupation. Dickinson spends several pages describing in exacting detail how JAGs do this so I will spare you the details. But, and I’m sure you see this coming, in contrast, her interviews reveal that contractors largely fall outside this organizational accountability framework. While they may receive some training in the rules regarding the use of force, that training does not typically include updated advice on the battlefield about how the rules apply in specific scenarios likely to arise on that battlefield. Contractors also do not receive ongoing situational advice from military lawyers or even from private lawyers employed by the firm itself. Indeed, although the contract firms do employ lawyers, these lawyers do not typically spend time on the battlefield and do not have the same independent chain of command that is available to uniformed military lawyers. Finally, the accountability system that has applied to troops has not, at least until recently, been extended to contractors. Thus, the interviews suggest that many crucial, though subtle, mechanisms of compliance with public values are significantly weakened in the privatization process. I should take a moment here to note that many PMC advocates often argue that the discipline and accountability that former military personnel experienced on active duty somehow carries over automatically when they work as private security contractors. It’s as if a Good PSC Fairy waves her wand and these qualities are transferred over by some sort of magical osmosis. Of course, only those who have never served on active military duty could say this with a straight face. Anyone who has ever been in the military understands that due to the stakes the military invests enormous resources into processes like chain of command, command responsibility, and individual accountability. In terms of its scope and breadth the private sector simply has no equivalent. To understand why this is a real problem, consider the following excerpts from the JAG interviews: Judge advocates described a somewhat uneasy relationship between contractors and troops, and in particular, between security contractors and troops. Although they respected the willingness of these contractors to put themselves in danger, the judge advocates interviewed perceive security contractors to be more willing to shoot than troops and therefore worry about the impact of these contractors on the overall missions in Iraq and Afghanistan. … Judge advocates also reported that the attitude of the contractors seemed to have a negative impact on the troops, in part because the contractors did not need to follow the same military discipline. As one judge advocate observed, “Blackwater gave the impression, ‘We’re going to do what we want and we don’t have to follow the rules. We’re not in America.’” Such an attitude: was bad for us because the soldiers saw it. I would talk to company commanders, with 6-9 years military experience, supervising young soldiers putting boots on ground, on the receiving end of insurgents. They could see the Blackwater guy drinking, on steroids, not following rules. It fostered discipline problems. … A number of judge advocates reported that individuals who had left the military because of discipline problems but were later hired by private firms to work as contractors. As one judge advocate observed, “There were plenty of stories that a guy working as a contractor got court-martialed when he was a platoon member, and now he’s back making $100 grand [per year],” as compared to uniformed military specialists who only earn $20,000. As another judge advocate noted, “I used to hear that some of the contractor guys, security contractors and others, had been kicked out of uniform, not for serious disciplinary issues, but rather because they got administratively separated. Now they were making $80,000 riding desk at [the Coalition Provisional Authority].” Yet another judge advocate reported, “There are stories that circulate among the JAGs that a soldier who’s been kicked out of the army with a bad conduct discharge can turn around and earn twice as much working for a contractor. “While, as the judge advocates acknowledge, these stories may be apocryphal, they reflect the unease that the judge advocates feel about the ability of contractors to flout military rules without suffering employment consequences. … Finally, the judge advocates generally reported that the training of the private security contractors was not as extensive as for troops. As one judge advocate recounted, “We were told they received training in their own rules on the use of force. We were told that they received certification from their super visors, and there was a form.” But, as this judge advocate observed, “There was no looking behind the forms.” Under federal law, contractor employees must be certified as having no prior convictions for domestic violence, but judge advocates report that the certification process was “completely ineffective” because “while violence against women is a serious offense,” it is not the best indicator of whether someone will use a weapon properly in Iraq. And as for whether third-country nationals had a criminal record or had even been convicted of war crimes, “no one was looking behind the veil on this.” Of course, at this point PMC advocates would argue that new laws passed in recent years, mainly modifications to the Military Extraterritorial Jurisdiction Act and the Uniform Code of Military Justice, helps solve these problems. Uh right; here is what Dickinson says in regard to that: First, it appears that few of the security contractor firms have accountability agents or ombudspersons who are charged with monitoring abuses and who are actually integrated in the field with operational employees, as the judge advocates are. While the firms typically rely on their general counsel for legal advice, the lawyers in these offices appear to remain primarily at headquarters rather than deploying in the field. … Second, the employees of these companies seem to lack a strong sense of even what the applicable laws and norms are, let alone have any great commitment to them. For example, in congressional testimony, Blackwater CEO Erik Prince appeared to have at best a murky understanding of the precise legal rules and regulations that governed his employees’ use of force and available accountability mechanisms for the misuse of that force. Thus, he asserted that his employees were subject to punishment in military courts under the Uniform Code of Military Justice, even though the military had not yet implemented recently enacted legislation extending military jurisdiction to contractors, and even though UCMJ jurisdiction over State Department–as opposed to Defense Department–contractors had still not been clearly established. … Third, contract employees seem to receive insufficient training in applicable laws and rules, particularly those that govern the use of force. While such contracts often now require training, government reports and other investigations have suggested in numerous instances that this training has not been adequate. … Fourth, the fact that many companies use foreign labor complicates training and accountability efforts, as well as the broader effort to instill public law values. So what is to be done? While there have been a few baby steps taken, such as giving JAGs the authority to investigate and prosecute cases of contractor misconduct or allowing security contractors to receive training from judge advocates Dickinson aims bigger: A more ambitious approach would be to try to recreate the full panoply of organizational features for contractors that the military created post-Vietnam for its own personnel. Such features could be mandated either through terms in the contracts with private firms or through direct regulation. And though it is debatable how best to implement these institutional features outside the uniformed military context, it is clear that this is an area that should be considered seriously in any effort to reform the contracting process. Rather than seeking more commingling of government accountability agents with contractor employees, another possible reform approach would seek to encourage or compel contractors themselves to institute processes that would help establish the organizational or professional culture necessary to protect public values. Thus, through governmental regulation or independent industry efforts, contract firms might create internal organizational structures to enhance compliance with the public law norms and values this article has discussed. Such efforts would involve firms adopting the kinds of reforms that the military adopted post-Vietnam with regard to its judge advocates. These efforts include requiring contractors to establish compliance units or hire ombudspeople who would accompany operational employees in theater, advise commanders, report through an independent chain of command, and have authority to confer benefits and impose punishments. In short, the idea would be to create within firms themselves a cadre of lawyers who would be analogous to the judge advocates within the military.

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Video: Dubai Ruler Says ‘We Are Back’ After Debt Accord: Video

September 27, 2010

Sept. 27 (Bloomberg) — Dubai ruler Sheikh Mohammed Bin Rashid Al Maktoum discusses the emirate’s recovery from a debt crisis involving state-controlled holding company Dubai World. He spoke with Bloomberg’s Margaret Brennan at the FEI World Equestrian Games in Lexington, Kentucky, yesterday. Crown Prince Sheikh Hamdan bin Mohammed bin Rashid Al Maktoum also speaks. (Source: Bloomberg)

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David Isenberg: The State Department Takes Charge: Be Afraid, Be Very Afraid

September 24, 2010

Yesterday the House Committee on Oversight and Government Reform held an important and under covered hearing entitled “” Transition in Iraq: Is the State Department Prepared to Take the Lead? ” The question is simply whether the State Department is up to the job as duties formerly performed by the U.S. military are transferred to the State Department. As Committee Chairman Edolphus Towns asked in his opening statement . The State Department will take over many functions that are inherently military and for which State has little or no expertise. This raises important, practical questions. Who will provide security for State Department employees? Who will recover personnel who are wounded or killed? Who will provide convoy security? Who will provide counter-fire in rocket, artillery, and mortar attacks? Who will recover damaged vehicles and downed aircraft? Who will provide explosives disposal? Indeed, Iraq has not stopped being a dangerous place. IED are still going off. Firefights still happen. Just this past Sunday six car bombings in Baghdad and a suicide bombing in Fallujah killed 37 people and wounded more than 100 others. Is there reason to be concerned ? Yes, according to the witnesses. Consider what Michael Thibault, Co-Chairman and Grant Green, Commissioner, of the Commission on Wartime Contracting in Iraq and Afghanistan, said in their statement: Commissioner Green’s concern for the Defense-to-State transition in Iraq was validated by our June 21, 2010, Capitol Hill hearing, “Private Security Contractors in Iraq: Where are we going?” Among the troubling testimony we heard that day were these data points: (1) The Department of State estimated that, without U.S. military support, it would need to raise its private-security contractor force in Iraq from 2,700 to between 6,000 and 7,000 people; (2) Under Secretary of State Patrick Kennedy had written to the Department of Defense on April 7, 2010, to request a substantial amount of military equipment, plus continued access to the Army’s LOGCAP logistics contract and continued food-and-fuel supply through the Defense Logistics Agency; and (3) DoD’s Joint Staff had not yet forwarded that request with a recommendation to the Office of the Secretary of Defense. These facts troubled us for several reasons. First, even if State could obtain the funds for more than doubling its private-security force, it is not clear that it has the trained personnel to manage and oversee contract performance of a kind that has already shown the potential for creating tragic incidents and frayed relations with host countries. Second, Ambassador Kennedy’s request highlighted the enormous reliance that State was obliged to place on the U.S. military in a wartime setting–14 critical security-related functions, logistical support, food and fuel, and about 1,000 other detailed tasks. Third, any DoD delay in processing State’s request could prolong uncertainties, promote reliance on contractors for work previously performed by the U.S. military and DoD, and potentially create unacceptable safety risks to American government and contractor personnel as military capabilities disappear in the drawdown process. As we reviewed the results of our hearing and the supplemental information that flowed in afterwards, our concerns rose. On July 12, 2010, the Commission released a unanimous, bipartisan Special Report #3, “Better planning for Defense-to-State transition in Iraq needed to avoid mistakes and waste.” We submitted the report to Congress, distributed it widely to interested parties within and outside of government, discussed its findings with print and broadcast media, and posted it on the Commission’s Internet site, www.wartimecontracting.gov. We have included a copy of the report with this statement, and we respectfully request that it be made part of the record of today’s hearing. Unfortunately, the advent of autumn has not eased the concerns we reported in the summer. We appreciate that the transition issues in Iraq are vast, complicated, and not amenable to quick and easy fixes. We are aware of and assured that working groups have been busy here and in theater discussing these issues. Lieutenant General Kathleen Gainey, the Director for Logistics, J4 of the Joint Staff, tells us that a decision package has been forwarded to the Office of the Secretary of Defense through the Under Secretary for Policy. Nonetheless, it is now nearly six months since Ambassador Kennedy’s formal request for assistance to the Department of Defense. When we checked earlier this week, no decision had yet been communicated. Specifically, State Department leadership informed us two days ago that their request for DoD support remained outstanding and that they have been compelled to pursue two separate contracting strategies simultaneously–one that assumes the requested DoD support, while the other develops a separate and greatly expanded contractor workforce to replace functions previously performed by DoD. The need to develop two separate plans is simply the result of the Department of Defense’s reluctance to articulate where and how they can best support the Defense-to-State transition in Iraq. What are the implications for private military and security contractors? This transition limbo has other deep implications. It raises the serious risk that State will be required to undertake a very large, hurried, expensive, and unprecedented exercise in contracting unless some change is negotiated in the Security Agreement or unless the Government of Iraq demonstrates serious capability and intent to provide the normal array of host-nation security and commercial services. Further, even if State meets the resource and funding challenge of greatly enlarging its security contractor forces, it still risks the policy and political consequences of having private companies performing potentially inherently governmental functions that have been previously performed by the U.S. military. Another significant implication is that the great, lingering uncertainty about the Defense-to-State transition indicates a failure to take a “whole-of-government approach” to contingency operations. Activities in Iraq and Afghanistan involve hundreds of thousands of U.S. military and federal civilian employees from Defense, State, the Agency for International Development, Treasury, Justice, Agriculture, and other departments; American, host-country, and third-country contractors; and a variety of non-governmental and international organizations. But as we and other organizations have observed, a lack of transparency, visibility, and basic data–not to mention the lack of a lead coordinating agency for contingency operations–has caused or contributed to duplication, gaps, and cross-purposes, and has permitted unnecessary incidents of waste, fraud, and abuse. Perhaps the other witness had a more optimistic view? Alas, only in our dreams. Here is an excerpt from the testimony of Stuart W. Bowen, Jr., Inspector General, Office of the Special Inspector General for Iraq Reconstruction My office’s previous reporting on State’s management practices in large Iraq programs raises concerns about whether State will be able to effectively manage both the very significant life support and security tasks (many of which have been provided by the Department of Defense (Defense)) and the diverse ongoing assistance programs, without risking the loss of taxpayer dollars to waste. I do not have in mind simply the potential losses that could arise from weak program, contract, or grant management, which SIGIR audits previously uncovered. It may prove wasteful to keep civilian employees in Iraq and fund assistance programs simply because, if security conditions prevent civilian travel, then oversight of assistance programs could become impossible. We recognize that State is relatively new to large-scale program, contract, and grant management. The projects it has undertaken in Iraq – and the projects it will inherit from other agencies, as they leave – are many times greater than those it has traditionally managed. It takes time to nurture an organizational culture that respects the need for planning and to develop a workforce with appropriate skills. State needs to promptly address this issue. It does seem clear that a relatively modest adjustment of State’s budget priorities could make an enormous difference in the quality of State’s project, contract, and grant administration. That is, spend more on oversight. … As discussed by the Commission [on Wartime Contracting} in its report, the U.S. Embassy in Iraq has been relying on the Defense Logistics Civil Augmentation Program (LOGCAP) contract to provide its employees necessary life support. The contract is a U.S. Department of the Army (Army) program that preplans for the use of private resources in support of worldwide contingency operations. In the event that U.S. forces deploy, contractor support is available to commanders on a cost-plus-award-fee basis. As SIGIR reported in October 2007, LOGCAP is a contingency contract and thus is considered “a contract of last resort” for customers (because of the potential additional costs arising from its noncompetitive aspects). We noted that contingency contracts are primarily designed for areas where emerging requirements are the norm, rapid response is required, and/or conditions are such that normal sustainment contracts are not competitively available. We noted that, once conditions stabilize and a reasonable determination can be made as to the quantity and type of contract work that will be required to support a mission, customers should transition from contingency contracts to a more normal, cost-effective contract. We recommended that, when security conditions in Iraq allow, the Department should consider transitioning from the Army’s LOGCAP contract for life support of the U.S. Embassy-Iraq mission to a State-managed life support contract. Such a change would allow for more competitive contracting in the longer term and may be desirable from the standpoint of cost effectiveness. We believe that when security conditions permit, State should take the step we recommended. However, at this time, for the reasons that the Commission recommends, State and Defense should continue to employ the LOGCAP contract to support State in Iraq; if Congressional action is needed to facilitate this eventuality, it should be taken. We have not analyzed the question of how State would acquire the range of security services the Commission believes may be necessary for Iraq, but our review of other aspects of State’s business practices raises concerns about capacity. In broad terms, State’s contract administration and enforcement efforts need strengthening. State should plan to expand its efforts by employing the most qualified contracting professionals in government for help on these acquisition projects, at least in the near term. We may be waiting a long time before security conditions allow what Mr. Bowen recommends. At my request I asked Robert Young Pelton, author of Licensed To Kill , one of the better books on security contracting in Iraq, his thoughts. He emailed me back that: The chatter behind the scenes is that Baghdad is not the place you want to be posted to next year. Triple Canopy is allegedly 30 percent undermanned and DynCorp according to scuttlebutt has yet to get anything in the air. The current push to double hired guns also comes after Blackwater was dropped and others were asked to fill the gap. The turmoil in protection services began not because Blackwater gunned down 17 Iraqis, but because the State Dept was frozen by the Iraqi government. Condi thought it would be cute to flush BW down the drain but was wise enough to keep them in place under different names. But Hillary nuked them ten days after the inauguration. The irony in all this is that HIllary Clinton who once sponsored legislation to ban PMC’s and specifically Blackwater finds herself at the head of the largest mercenary army in America’s history. We have yet to actually see if the U.S. government can operate in Baghdad without Erik Prince and Blackwater. Triple Canopy tried and failed before, resulting in a massive influx of BW in April of 2005 until 2009. We know from Leon Panetta the CIA can’t operate without Blackwater, I doubt the State Department is going to magically double their protection overnight without some serious teething problems. Now that Erik has packed up and taken his toys with him. My advice to HIllary….don’t go to Baghdad.

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David Isenberg: PSCs on Drugs

September 23, 2010

Over the years all sorts of things have been said and written about Erik Prince , founder, owner, and former head of Xe Services (formerly Blackwater Worldwide). Most of it has been critical. I’ve written before that while some of it, perhaps even lots of it, has been deserved, much of it has not. But thanks to pop culture, some lazy reporters, lots of ignorant online commentary, and people’s inclination to fit people into simplistic frameworks of good and bad, and ignore underlying structural reasons as to why we have private security contractors in the first place, Prince has been subjected to all sorts of unwarranted rhetorical abuse. So one might be inclined to forgive him when he pops off and says something rash. On the other hand, there is a saying that when you find yourself in a hole the first thing you do is stop digging. Remember the proverb; silence is golden. As in Erik should know by know that there are times when he should just keep his mouth shut. The reason he should button it is that you may recall that last month Prince was questioned in Abu Dhabi in connection with a fraud lawsuit filed by former employees that seeks millions of dollars in damages. He was questioned by Susan Burke, the lawyer who represents two former Blackwater employees, Brad and Melan Davis, who filed the lawsuit in a US district court in Virginia in December 2008, alleging that Prince and companies he controlled defrauded the US government. For background see my past Feb. 13, 2010 post “Blackwater Uses the F(raud) Word.” Now it turns out that the defendant Prince is seeking a protective order to seal the court file and to gag extrajudicial statements in the “Davis v. Prince” litigation. As one would expect Ms. Burke s arguing that the plaintiffs would be severely prejudiced “if the Court adopted Defendants‟ proposed Protective Order sealing everything and Defendants‟ proposed Gag Order prohibiting any contact with the media. Relators’ investigative efforts would be severely circumscribed by either Order.” A hearing on this issue will be held tomorrow morning at the federal court in Alexandria, Virginia. Yesterday Burke and her co-counsel filed a motion with new allegations. Note: if you are someone with a subscription to PACER (Public Access to Court Electronic Records) you can download the motion (1:08-cv-01244-TSE -TRJ) Reading it one understands why Prince wants it suppressed. To start with: On August 23, 2010, Relators‟ counsel deposed Defendant Erik Prince. After his deposition concluded, Mr. Prince threatened to “come after” Ms. Burke, as is explained in the appended Burke Decl. Evidently keeping cool under fire is not one of his strong points. True, the appended declaration is still under seal so the precise words exchanged and their context is unknown. Still, the Eastern District Court of Virginia is not Fallujah; there is no need for lock and load rhetoric. As Dr. Evil said to his son, zip it. Moving on, a more provocative point would be this: Media reports regarding the lawsuits prompted a third party named Howard Boardman Lowry to contact Relators‟ Counsel. Mr. Lowry’s sworn testimony is attached in its entirety as Exhibit B. Mr. Lowry testified he purchased steroids, human growth hormones, and testosterone for Blackwater employees and his observation of rampant drug use among Blackwater employees. Initially, Blackwater paid for the steroids from company funds. Later, Blackwater management steered Blackwater personnel to Mr. Lowry. He also testified that Blackwater employees would often shoot at Iraqi pedestrians for no reason and would regularly shoot into adjacent buildings housing Iraqi civilians among other acts of unwarranted violence. In short, Mr. Lowry provides critical and corroborating evidence. See Exhibit B. Critical and corroborating evidence indeed! That doesn’t begin to do justice to Mr. Lowry’s assertions. Consider this excerpt from his videotaped declaration. There were numerous individuals that would come to my hotel room and – and give me money to purchase usually steroids or testosterone, and once I came back to my room, on several occasions. Mr. Chris Fuller, Mr. Madison Webb, and a gentlemen by the name – he was a New Zealand special, SAS, special forces, who went by the name of “Baaz.” It is the only name that I knew him by. He was known companywide by that name. And the three of them on numerous occasions injected themselves with testosterone and steroids in my presence. There were other individuals after. There was a – a gentleman in the room next to me that I had gotten a room for, actually two floors in the Mosafer Hotel for Blackwater at the behest of Mr. Berry at that point because the company was expanding very rapidly, and Jerry was one of the gentlemen who ended up being killed in Fallujah. [This would be Jerry Zovko who was one of four Blackwater contractors ambushed and killed by insurgents in Fallujah, Iraq on March 31, 2004]. Jerry was a good friend of mine and gave – provided me tremendous insight into the company and confirmed that the use of steroids and human growth hormone, testosterone, were pretty much endemic to them and almost companywide. It was – it was a wide-ranging problem, and this included individuals that were on Bremer’s personal detail. I cannot say for the record that I personally witnessed them taking it.; however, on numerous occasions, individuals that did provide me money to make the purchases of the steroids and testosterone did convey that these were going directly to members of Blackwater personnel and Bremer’s – Ambassador Bremer’s personal detail. Why do plaintiffs oppose Prince’s ‟ motion to seal all evidence in this lawsuit and to impose a “gag order” on the plaintiffs and their counsel? First, note that they do not oppose to entry of an appropriate protective order. They had been collaborating with defense counsel and the State Department to prepare such an order. But Burke argues that the defendants have not demonstrated good cause for their proposed protective order. “Plaintiffs and the public would be substantially prejudiced by entry of Defendants‟ overbroad protective order, which seeks to seal everything disclosed in pretrial discovery.” Second, “Defendants repeatedly assert that Relators‟ counsel intends to publicize materials merely to annoy, embarrass, and oppress Defendants. This is false. Relators‟ counsel wants the media to cover the pre-trial proceedings in this action because that media coverage results in fact witnesses such as Mr. Howard Lowry contacting them. These witnesses are going to be helpful in showing the jury that Relators‟ claims of widespread fraud and misconduct have merit.” Third, and this says much about Prince’s inability to do effective public relations: It is absurd to suggest that media attention surrounding Defendant Prince and Blackwater is somehow caused by Relators and their Counsel. Although Relators‟ counsel often shares non-sealed materials with the media to further the Relators‟ interests in finding additional corroborating witnesses, Defendant Prince and his companies create the media stir by their own actions. Indeed, their misconduct has led to a series of indictments (Exhibit D), charging letters from the State Department (Exhibit E), and criminal trials (Exhibit F). Indeed, Defendant Prince seeks publicity that serves his own ends. He voluntarily participated in a Vanity Fair interview, pressing his view that anyone who criticizes his misconduct must have a “political agenda.” Exhibit G. Defendant Prince voluntarily cooperated with a book about his life, called Master of War. Exhibit H. In the book, he voluntarily revealed, among other things, that he fathered a child out of wedlock and cheated on his wife who was dying of cancer.

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David Isenberg: Taking the Private out of PMC

August 29, 2010

The most important word in the phrase private security contractors is “private.” If and when someone working for a PSC does something wrong the company, depending on the offense, may very well fine him, ship him home, and fire him. But they will do nothing more. They can’t, as they rightfully point out, because they are, after all, a private company and processes like arrests, prosecutions, convictions and incarceration are something the state reserves to itself. Well, okay, not necessarily incarcerations, as anyone familiar with the Corrections Corporation of America will know, and I’ll skip over the obvious old joke about the best legal defense money can buy, but that is another story. A classic example of this happened back in December 2006 when an off-duty Blackwater employee, Andrew J. Moonen, who had been drinking heavily, tried to make his way into the “Little Venice” section of the Green Zone, which houses many senior members of the Iraqi government. He was stopped by Iraqi bodyguards for Adil Abdul-Mahdi,the country’s Shi’ite vice president, and shot one of the Iraqis. Officials say the bodyguard died at the scene. Although Mahdi wanted the man turned over to the Iraqi government, that did not happen. Blackwater fired the contractor and fined him $14,697–the total of his back pay, a scheduled bonus, and the cost of his plane ticket home. However, less than two months later he was hired by another private contractor, Combat Support Associates (CSA),to work in Kuwait, where he worked from February to August of 2007. Because the State Department and Blackwater kept the incident quiet and out of Moonen’s personnel records, CSA was unaware of the December incident when it hired Moonen. Blackwater subsequently acknowledged that the guard had done wrong but said there was little Blackwater could do about it. As Erik Prince of Blackwater said in a congressional hearing: PRINCE:(From tape) Look, I’m not going to make any apologies for what he did. He clearly violated our policies . . . we fired him, we fined him, but we as a private organization can’t do any more. We can’t flog him, we can’t incarcerate him. That’s up to the Justice Department. We are not empowered to enforce U.S. law. Nine months later a congressional report revealed that the guard was so drunk after fleeing the shooting that another group of guards took away the loaded pistol he was fumbling with. Furthermore, the acting ambassador at the United States Embassy in Baghdad suggested that Blackwater apologize for the shooting and pay the dead Iraqi man’s family $250,000, lest the Iraqi government bar Blackwater from working there. According to the report, Blackwater eventually paid the family $15,000 after an embassy diplomatic security official complained that the “crazy sums” proposed by the ambassador could encourage Iraqis to try to “get killed by our guys to financially guarantee their family’s future. Now it is true that PSC and private military contractors have to act, at least theoretically, in accordance with all sorts of laws both nationally and internationally, as well as regulations and directives from government departments (State and Defense in the case of the United States) as well as lots of contract language spelled out in the Federal Acquisition Regulations (FAR) and Defense Federal Acquisition Regulations (DFAR) Still, without the political will of the United States to act there can be no individual criminal accountability. This, as it happens is the point made in a law journal article published earlier this year. Specifically, the article by Amanda Tarzwell, published in the Spring 2009 issue of the Oregon Review of International Law . Note: Hurray for the U of O; now I feel better about having obtained my B.A. there. In her article ” In Search of Accountability: Attributing the Conduct of Private Security Contractors to the United States Under the Doctrine of State Responsibility ” Ms. Tarzwell offers an alternative means of analyzing the unlawful conduct of PSCs: the doctrine of state responsibility. As opposed to individual criminal responsibility, the doctrine of state responsibility holds a state accountable to another state. The doctrine dictates that “[e]very internationally wrongful act [IWA] of a State entails the international responsibility of that State.” In 2001, the International Law Commission (ILC) adopted the Articles on the Responsibility of States for Internationally Wrongful Acts (Articles), representing the culmination of more than forty years of work on the issue. Although the Articles were never formally adopted in treaty form, they are largely a codification of customary international law regarding state responsibility. There are potentially two legal tests for measuring attribution of a private individual or group: the overall control test applied in Military and Paramilitary Activities in and Against Nicaragua, and the effective control test set forth in Prosecutor v. Tadić. Research suggests that the overall control test offers the only viable means of attaching liability to the United States for the unlawful conduct of PSCs. By applying the overall control test, the unlawful conduct of PSCs in Iraq is attributable to the United States, and thereby invokes U.S. responsibility to Iraq. It doesn’t take a rocket scientist to see why this is very important. If a state was faced with the prospect that all of a sudden the rest of the world was going to find it responsible and culpable for wrongdoings by PSC headquartered in its country one can bet that the current woeful state of government oversight of PSC would magically improve at warp speed. The alternative in her view, is: Without a strong legal basis for attributing such conduct to the state, countries will continue to outsource their dirty work with impunity. However, if a state can be held legally responsible for the unlawful conduct of PSCs, any incentive to use PSCs for illegal purposes is effectively eliminated. In the same way that the doctrine of respondeat superior provides a powerful financial incentive for corporations to behave, the doctrine of state responsibility can serve a similar function on the international level. Although Tarzwell is writing about PSC in Iraq her analysis is relevant to any situation in which states employ private actors to operate outside the law. She notes the overall control test requires that the state wield “overall control over the group, not only by equipping and financing the group, but also by coordinating or helping in the general planning of its military activity.” In terms of equipping PSCs, Army Field Manual 3-100.21 makes reference to providing assistance in a number of areas including: uniforms, equipment, transportation, medical treatment, religious practice, and mortuary affairs. As for financing, the state is wholly financing these PSCs by contracting with them directly. One could further argue that the state finances PSCs by having provided the training and evaluation to its personnel while they were soldiers within the national military. That last point, by the way, can only be considered ironic as PSC advocates always argue that the fact that most of their personnel are experienced ex-military personnel is indicative of their high quality and reliability. She also notes: The overall control test also requires evidence that the state provided help in organizing, coordinating, or planning the group’s military activities. The most obvious proof of this is the contract between the United States and the PSC. As discussed earlier, the entire purpose of the contract is to provide support to a requesting military unit. Thus, the terms and conditions of the contract, which reflect the needs of the military, dictate the PSC’s activities. By performing the contract, the PSC has allowed the state to help organize, coordinate, and plan its military activities. Consequently it is not the military commanders per se who exercise control over PSC personnel, but the government officials writing and enforcing these contracts. Accordingly, applying the overall control test, the violations of the principle of distinction by PSC personnel in Iraq are attributable to the U.S. government and therefore engage the state’s responsibility.

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Janet Ranganathan: Minding the Sustainability GAAP

August 27, 2010

Limited transparency around corporate sustainability risks can lead to investments that are bad for the environment, and investors’ bottom lines. Yesterday BP abandoned its hope of bidding on a potentially lucrative exploration license in Greenland. The implication is that its tarnished reputation is undermining its ability to compete for projects. Across the Atlantic, the Tennessee Valley Authority has lost nearly $50 million in power generation during this summer’s heatwave, because the Tennessee river is too hot for the nuclear plants’ cooling towers to function. What do these two stories have in common? They are both examples of how environmental degradation can hit home for companies. The global environmental crisis, including climate change, water scarcity and ecosystem degradation, isn’t just a problem for “greens.” It also creates significant financial risks for companies and their investors. Environmental Risks Alter Balance Sheets Such risks vary from sector to sector but include: potential liability for environmental accidents; the physical impacts of climate change on supply chains; and growing water scarcity in many parts of the world. BP’s recent crisis generated by the mammoth Gulf of Mexico oil spill is an extreme example of environmental risk. It turned the company’s anticipated net income of $5.6 billion for the second quarter of 2010 into a record $17.1 billion loss. But in a resource-constrained and warming world, there are many other risks that may significantly alter the balance sheet. For example, research suggests that consumer goods companies could face a loss of earnings if they do not respond to environmental pressures in their supply chains, including physical climate change impacts and public policy responses to them. Specifically, the World Resources Institute (WRI) report Rattling the Supply Chains indicates that such businesses could face a 13-31 percent reduction in earnings before interest and taxes as soon as 2013, rising to 19-47 percent in 2018. Certain sectors will be heavily impacted by specific risks in vulnerable countries or regions. For example, 79% of planned new power plant capacity in India will be built in water scarce or stressed areas. Since thermal and hydroelectric power plants depend heavily on water for cooling and energy generation, uncertain water supply creates significant risks for domestic power companies. A Gap in Financial Accounting Standards Worldwide, current financial accounting standards and generally accepted accounting principles (known as GAAP) fail explicitly to address such risks, which often derive from unsustainable business strategies. They can also miss the opportunities that such challenges create. Superior environmental performance by corporations can translate into lower costs from improved energy and resource efficiency and higher revenues from product innovation and enhanced brand recognition. General Electric’s Ecomagination™ product line is one compelling case in point. Current financial accounting standards and generally accepted accounting principles fail explicitly to address environmental risks, which often derive from unsustainable business strategies. Corporate sustainability reports can help fill information gaps on some risks. But sustainability reporting standards, such as the Global Reporting Initiative , remain largely voluntary, and as a result, their uptake is limited. Another recent WRI report Undisclosed Risk , for example, found that developing markets have particularly lagged behind in producing corporate sustainability reports. What’s more, stand alone reports all but guarantee that sustainability remains at the periphery rather than the mainstream of financial and investment decisions. A 2008 KPMG International Survey of Corporate Social Responsibility , for example, found that only three percent of annual financial reports had corporate responsibility information fully integrated into them. The failure to integrate sustainability as a strategic business issue in annual financial reports means that businesses and investors continue to make investments that are bad for the environment, society and ultimately their own bottom line. As a result, environmental trends continue on a downward trajectory, creating even greater risks for companies, especially those that have not embraced sustainable business strategies. Towards Integrated Reporting A solution may finally be on its way. A coalition of businesses, regulators, accountants, securities exchanges and not-for-profit groups recently launched an International Integrated Reporting Committee initiative to “create a globally accepted framework for accounting for sustainability.” Jointly convened by HRH Prince Charles’s UK-based Accounting for Sustainability Project and the Global Reporting Initiative, the committee includes participants from the International Accounting Standards Board, U.S. Financial Accounting Standards Board, International Organisation of Securities Commissions, the Big Four auditors – Price Waterhouse Coopers, Deloitte, Ernst & Young and KPMG – and NGOs including the World Resources Institute. The committee intends to present a framework, which brings together financial, environmental, social and governance information in a single “integrated” reporting format, at the G20 intergovernmental summit in France in 2011. The G20 already backs the formation of a single set of reporting standards, and G20 support for broader rules will be crucial to their introduction. Moving sustainability from the periphery to mainstream investment is an essential next step in preparing the corporate sector to deal with environmental risks. The move won’t be easy. But given worsening environmental trends and the fact that today’s investment decisions will either sustain or degrade the earth’s environment, integrated reporting is both sorely needed and long overdue.

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America Fights Foreclosure: Lifelines For People Fighting To Keep Their Homes

August 21, 2010

The great American Dream of owning a home has never looked so impossible to achieve: roughly 1.65 million homes are in the foreclosure pipeline, housing prices are at an all-time low , and nearly 7% of mortgage holders are more than 60 days late on their payments. Despite the dreary picture, there are an ever-increasing number of lifelines for people trying to avoid foreclosure: One of the biggest national hotlines for free home counseling is 888-995-HOPE , run by the Congress-funded Home Preservation Foundation. To date, the HOPE hotline has counseled four million homeowners since 2008, and helped 70% avoid foreclosure within a year. HOPE is the number to call before you seek a loan modification or expensive legal representation: a counselor will listen to your housing and financial concerns and, if necessary, facilitate a three-way conversation with a third party for additional help. With 550 employees stationed in 8 centers around the country, Diane Zyats, VP of Communications at the Homeownership Preservation Foundation, says there is rarely a backlog of homeowners waiting to receive advice. This, Zyats stresses, is key to preventing a distressed homeowner from falling for one of the many foreclosure scams out there. The HOPE website also offers this helpful list of warning signs of a scam. Foremost? “No one should charge,” she says. “There are so many sources for not charging that there is no reason to charge.” Click here to see more. NeighborWorks America is another Congressionally-funded program that provides financial and technical support to community-based foreclosure prevention efforts, such as the National Foreclosure Mitigation Counseling Program (NFMC), which boasts a 60% success rate . It also manages this exhaustive database of certified, HUD-approved foreclosure counselors by state. At a local level, many communities are showing an incredible display of humanity and compassion for their neighbors facing foreclosure. For example, the non-profit Brooklyn Volunteer Lawyers Project is a coalition of 80 Brooklyn-based lawyers serving low-income Brooklynites on a pro bono basis. Although volunteers receive credited continuing legal education (CLE) training, taking on a case can take up a huge chunk of time. For example, foreclosure cases take anywhere from three months to years and usually require multiple court appearances and ongoing counsel. But Jamie Lathrop , director of foreclosure intervention, sees it as a simple matter of civic duty, “Why help? These people are our neighbors. They keep our neighborhoods clean, watch our kids on the street, return our mail to us. They let us know when someones scratched our car,” he says. “It’s part of being in a community.” Currently the BVLP handles over 160 active foreclosure cases, and has successfully prevented 45 from final foreclosure through mediation. Brooklyn is one of an increasing number of areas around the country where mediation has become mandatory before a home can be foreclosed on. Although victims don’t need legal representation at these settlements, it can provide an immense amount of reassurance. Over in Philadelphia, the Residential Mortgage Foreclosure Diversion Program is often touted as the first successful city-sponsored foreclosure prevention plan. Under the compassionate eye of Judge Annette Rizzo, recipient of the 2009 Louis J. Goffman Award, this two-year-old program makes it mandatory for borrower and lender to meet face-to-face, and discuss every possible option before the home can be foreclosed on. These options include forbearance, settlement, stay of sale, loan modification or reinstatement, and as a last resort, a “graceful” exit. Each homeowner is also assigned a housing counselor to accompany them to court and guide them through the process, and it’s effective: the program has delayed foreclosures in 75-80% of the cases that have made it to mediation. Thanks to the program’s success, it has become a model for many other city-sponsored programs, such as in Boston, Pittsburgh, Miami, Cook County, Prince George’s County, Louisville, and the state of New Jersey. At best, even the combination of all these programs will make a mere dent in America’s astronomical foreclosure levels. But like with any overwhelming problem, every little bit helps. Have you avoided foreclosure recently? Are there other groups we should have added? Let us know in the comments section below!

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Jeffrey Rubin: Without Higher Prices, Tar Sands Not Even Economically Sustainable

July 13, 2010

It’s not its carbon trail that stands in the way of the Alberta tar sands’ picking up the supply ball dropped by deep-water drilling in the Gulf of Mexico. After all, tar sands fuel is no dirtier than coal, and Americans haven’t let that fossil fuel’s carbon trail stand in the way of its generating almost half of their electrical power. If America is going to ban tar sands fuel, why doesn’t it ban coal as well? Double standards aside, though, Congressman Waxman and Governor Schwarzenegger needn’t worry about growing American dependence on dirty tar sands fuel. TransCanada Corp.’s proposed Keystone X L pipeline, connecting as much as 900,000 barrels a day of oil from the tar sands to Texas refineries, isn’t going to have much flowing in it if oil prices stay where they are today. Even without a cost for carbon emissions or water pollution, the economics of the requisite production increases just won’t fly. Not when the cost curve lying between today’s production of a little over one and a quarter million barrels a day and tomorrow’s target of three million barrels a day is steeply ascending, driven by the need to pursue ever-deeper bitumen deposits even further away from available water sources like the already heavily tapped Athabasca River. As energy guru Matthew Simmons once wryly observed, “In oil exploration, you don’t leave the easiest for the last.” It’s not a coincidence that two of the largest and oldest producers, Syncrude and Suncor, are located almost kitty-corner from each other across the banks of the Athabasca. The Alberta tar sands are not a new discovery. As early as 1920, there was a pilot plant that first extracted oil from the bitumen. The only thing new about the tar sands is that they are now considered a commercially viable source of oil supply. Until the oil prices of the last several years, they most definitely weren’t. And they still won’t be if prices retreat to where American motorists would like them. If you doubt that, just look at what happened in Alberta’s tar patch during the last recession, when oil prices plunged to $40 per barrel. Some $50 billion of capital spending was canceled overnight. The stampede to the exit doors was as frantic as the earlier rush in, when oil rose to almost $150 per barrel. America isn’t the only customer for the fuel, either. Sinopec and the China National Offshore Oil Company (CNOOC) have made substantial investments in the tar sands recently. And Enbridge wants to circumvent American carbon opposition and build a pipeline to get things flowing to the Pacific coast at Prince Rupert for transoceanic shipment to China. Many have questioned whether the expansion plans for Alberta’s tar sands are environmentally sustainable. But what potential American or Chinese customers must realize is this: without their paying ever-rising prices for that fuel, the tar sands may not even be economically sustainable.

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David Isenberg: Shaping Up Blackwater’s Act

June 29, 2010

There has been much talk and ritualistic hand wringing, gnashing of teeth, and tearing of hair since the news broke that the CIA awarded Xe Services, formerly Blackwater, a contract to guard some of its forward bases in war zones. CIA director Leon Panetta said on ABC’s This Week this past weekend that: State Department relies on them. We rely on them to a certain extent. So, we’ve bid out some of those contracts. They provided a bid that underbid everyone else by about $26 million and a panel that we had said that they can do the job, that they’ve shaped up their act, he said. There was really not much choice but to accept that contract,” said Panetta. I don’t know if Panetta was entirely truthful when he said they did not have much choice. After all, Blackwater may be among the biggest but it not the only firm capable of providing security for forward bases. What about DynCorp or Triple Canopy, for example? But Panetta was closer to the mark when he said that Xe Services has cleaned up its act. Let’s be honest here. I don’t know whether Xe will ever overcome the legacy of its days as Blackwater. Its genuine mistakes, as well as the years of, frequent, and often, grossly unfair characterizations of it took a toll in terms of public image. Obviously its rebranding effort has not worked, because people still think of it as Blackwater. But we need to be fair about this. It is not the same Blackwater. A lot has happened in the fifteen months since Eric Prince stepped down as President and CEO of Blackwater. Since March 2009 Xe has been led by Joseph Yorio. More important than his past Army service, at least to my way of thinking, is that he has lots of business experience running things, something Prince didn’t have prior to starting Blackwater. Yorio has worked 18 years in senior leadership roles in multinational corporations like Unisource Worldwide, Corporate Express, and DHL. According to a company overview Xe has been circulating during the past year it recognizes “that the company must work to address past, and to prevent future, errors in order to move forward,” To do so it restructured Xe’s legal department, first by retaining a partner from Crowell & Moring , a law firm with a top-tier Government Contracts practice, as its Acting General Counsel, and then by recruiting and hiring a new General Counsel, Christian Bonat, who most recently served as Senior Counsel to the General Counsel of the Department of Defense during the Obama Administration and previously as the Deputy General Counsel (Legal Counsel) of DoD in the Bush Administration. Bonat also leads the company’s anti-corruption efforts. The company has adopted a new anti-corruption policy, and is in the process of developing and implementing comprehensive compliance procedures and training, to help to ensure that all personnel are responsive to the requirements of U.S. law. While I think it would be better to not have the same person do both roles – after all, Xe can afford to pay the salary — it is a start. The company has also strengthened its commitment to accountability by hiring Karen Jones as Vice President for Export Compliance. In an innocuous, but telling sentence, the overview states, “In previous years, the company export compliance program was inadequate to address the regulatory requirements for exports of equipment in support of U.S. Government missions.” Finally, the company has instituted an Ethical Advocate Hotline managed by an independent vendor to field and respond to whistle-blower disclosures related to the company’s conduct worldwide. Once the vendor determines that a report does not implicate senior management personally, it is forwarded to the General Counsel and the COO for action. In addition to the current language and dialects offered on The Ethical Advocate website it will soon be available in a number of Afghan dialects. Of course, I wonder what happens if a report does implicate a member of senior management. I’m really not trying to be flippant here, but a hotline is only credible if a potential whistleblower thinks all disclosures are taken seriously. Perhaps Xe thinks that no member of senior management will ever do anything that merits blowing the whistle. Let’s hope that is so. So even these steps are not perfect they are significant improvements over what went before. In short, to paraphrase the old Virginia Slims cigarette commercial Blackwater has come a significant, if not a long, way, baby.

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Leo W. Gerard: American Wind Turbines Sound Like Freedom

June 18, 2010

The sound that American wind turbines produce as their giant, breeze-propelled blades whip around is a distinctive: Neh-neh-neh-neh-neh-neh . The anticipation is that those energy-generating, whirling arms would create a whooshing sound. And maybe they do in some countries. But here, in America, they echo the almost melodic taunt of a schoolyard victor — Neh-neh-neh-neh-neh-neh: You can’t get me . That’s because American wind turbines are the manifestation of freedom from foreign oil. The more American wind turbines, the fewer barrels of oil America must import to meet its energy needs. And American-built wind turbines help propel the nation out of the worst economic crisis since the Great Depression by generating good-paying American jobs. President Obama talked about the ugly results of the nation’s refusal to solve its dependency problem – its guzzling of 20 percent of the world’s oil while controlling less than two percent of the world’s reserves. America’s combination of oil addiction and lack of adequate oil resources enslaves the nation to foreign sources, often foreign sources hostile to America. A generation ago, former President Jimmy Carter warned of the consequences of this abusive relationship as Iran held 52 Americans hostages and long lines formed at gasoline stations during a season of shortages. Carter installed on the White House roof a symbol of the solution — solar panels. His successor there, Ronald Reagan, pulled them down. And the nation went on its merry way forgetting the once-empty gasoline stations and ignoring its ever-increasing foreign dependency – even as the Exxon Valdez mucked Prince William Sound two months after Reagan left office. Here’s what Obama said about that wasted opportunity: “And for decades, we have failed to act with the sense of urgency that this challenge requires. Time and again, the path forward has been blocked – not only by oil industry lobbyists, but also by a lack of political courage and candor. The consequences of our inaction are now in plain sight. Countries like China are investing in clean energy jobs and industries that should be right here in America. Each day, we send nearly $1 billion of our wealth to foreign countries for their oil. And today, as we look to the Gulf, we see an entire way of life being threatened by a menacing cloud of black crude.” The explosion of the Deep Water Horizon oil rig in the Gulf of Mexico, the deaths of 11 workers, the uncontrolled gushing of more than 50,000 barrels of oil a day into the sea, and the mucking of brown pelicans and four states’ coastlines have given Obama the ability to take up Carter’s righteous clean energy campaign. And Obama accepted the challenge: “The tragedy unfolding on our coast is the most painful and powerful reminder yet that the time to embrace a clean energy future is now. Now is the moment for this generation to embark on a national mission to unleash America’s innovation and seize control of our own destiny.” The president noted that wind turbines are being built in retrofitted factories that were once abandoned right here in America. That happened in Pennsylvania. The wind turbine manufacturer Gamesa converted defunct mills into centers for wind turbine construction. And it cooperated with the United Steelworkers (USW) to provide good-paying union jobs. That is the potential President Obama sees – independence from foreign sources and resurgence of America’s economy. It is the potential that the USW and the American Wind Energy Association (AWEA) pictured when they agreed earlier this month to work together to accelerate development and deployment of wind energy production in the U.S. Like the Steelworkers, the national trade association of America’s wind industry believes the U.S. must move toward renewable energy sources and must construct them itself. U.S. Sen. Sherrod Brown of Ohio explained it simply when the USW and AWEA announced their partnership: “We can’t replace our dependence on foreign oil with a dependence on Chinese-made wind turbines. It’s critical that American manufacturers have the resources to develop and deploy wind energy components. Clean energy will help America regain its leadership in manufacturing. We need to ensure American workers and manufacturers are building the clean energy components that will be used around the world.” Obama called on Americans to “seriously tackle our addiction to fossil fuels.” But like any rehab program, success won’t come easily. Oil companies will continue to lobby against it. Swayed by their money, some politicians will oppose the legislation essential to encourage it. But symbolic solar panels must remain on the White House roof this time. Renewable energy, as Obama said, enables America to shape its own destiny The President urged the nation to free itself from its oil dependency now: “As we recover from this recession, the transition to clean energy has the potential to grow our economy and create millions of jobs – but only if we accelerate that transition. Only if we seize the moment.” This is the time for wind turbines. For solar. For hydro. This is the moment to hear increasing numbers of rotor blades whipping up the sound of independence. Carpe diem.

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Exxon, Chevron Seek Reprieve From `Crucifixion’ Over BP’s Gulf Oil Spill

June 14, 2010

By Joe Carroll June 14 (Bloomberg) — Exxon Mobil Corp., Chevron Corp. and ConocoPhillips, the largest U.S. oil companies, will ask lawmakers not to punish them for the human and environmental damage inflicted by BP Plc’s oil spill in the Gulf of Mexico. Exxon Chief Executive Officer Rex Tillerson , Chevron CEO John Watson and James Mulva , CEO of ConocoPhillips , are scheduled to appear tomorrow before a House Energy and Commerce Committee panel examining offshore drilling safety and U.S. energy policy. The hearing presents the U.S. oil CEOs with an opportunity to distance their companies from BP, said Anthony Sabino , who teaches oil and natural-gas law at St. John’s University in New York. BP has lost 43 percent of its market value since the disaster and has been excoriated by President Barack Obama for repeated failures to cap the leaking well. “A crucifixion of the whole oil industry for the sins of BP in the form of a ban on deep-water drilling isn’t a good idea because look at all the people it’s going to put out of work,” Sabino said. “ Exxon and ConocoPhillips will stress their own safety records to make that case.” Since an April 20 explosion aboard the Deepwater Horizon drilling rig that killed 11 workers, more than 50 million gallons of crude have poured into the Gulf from a BP-owned well, based on calculations from a government panel. Obama Meeting The U.S. government has intensified pressure on BP to stop the spill and pay for damages. Obama has asked to meet June 16 with BP’s chairman, Carl-Henric Svanberg , and other company officials. BP Chief Executive Officer Tony Hayward will appear before the House Energy and Commerce oversight committee the following day. The oil company CEOs have been asked to testify tomorrow about the spill’s effect on U.S. energy policy, Eben Burnham- Snyder, a spokesman for Representative Edward Markey , said June 9. Markey is a Massachusetts Democrat and chairman of the subcommittee holding the hearing. Tillerson, Watson and Mulva probably will press lawmakers to avoid changes in offshore drilling rules that could discourage exploration in U.S. territorial waters without making meaningful contributions to safety, said Gianna Bern , president of Brookshire Advisory & Research Inc. in Flossmoor, Illinois, which advises oil companies on strategy and risk management. Tillerson will urge lawmakers to wait until an investigation has determined the cause of the catastrophe before deciding on changes to offshore drilling rules, Alan Jeffers , a spokesman for the Irving, Texas-based company, said in a telephone interview. Nancy Turner , a spokeswoman for ConocoPhillips, didn’t return phone messages left after regular business hours. Chevron’s media department also didn’t respond to after-hour requests for comment. Valdez Comparison The April 20 pressure surge, or blowout, at BP’s Macondo well about 40 miles (64 kilometers) from the Louisiana coast triggered an oil spill that dwarfs Exxon’s 1989 Valdez tanker disaster in Alaska’s Prince William Sound. Fisherman, oyster farmers and shrimpers have filed lawsuits and claims for lost profits as blobs of crude threaten shorelines from Louisiana to the Florida Panhandle. More than 30 deep-water rigs have been ordered to cease drilling off the coasts of Louisiana and Texas for at least six months while federal officials conduct a review of offshore safety practices. The Gulf accounts for 30 percent of U.S. oil production, according to the Energy Information Administration. The drilling halt may cut oil production in the Gulf by as much as 11 percent next year, said Paul Cheng , a Barclays Capital analyst. ‘Wreak Havoc’ “These executives need to explain to the politicians that if you permanently shut us down in the deep water it’s going to wreak havoc with energy production and put the United States even more at the mercy of foreign oil producers,” Sabino said. Also scheduled to appear before tomorrow’s panel are Lamar McKay and Marvin Odum , the presidents of the U.S. units of BP and Royal Dutch Shell Plc, respectively. Lawmakers may ask Exxon, Chevron, ConocoPhillips and Shell to describe safety measures they have used offshore to avoid the sort of disaster BP faced, said Bern, a former BP crude trader. Exxon, which pumps more crude than every member of OPEC except Saudi Arabia, Iran and Iraq, abandoned an exploration project known as Blackbeard in the Gulf of Mexico in 2007 rather than risk a blowout. The company quit the project, which sought to drill more than six miles beneath the sea floor, after repeated pressure surges indicated the well was unstable. Controlling Macondo BP engineers alerted federal regulators at the Minerals Management Service that they were having difficulty controlling the Macondo well six weeks before the disaster, according to e- mails released by the Energy and Commerce Committee. “I don’t think this would have happened on Exxon’s watch,” Tom Bower , author of “The Squeeze: Oil, Money and Greed in the 21st Century,” said in a June 11 Bloomberg Television interview. “They’d be much more careful and much more conscious of the need to supervise subcontractors.” To contact the reporter on this story: Joe Carroll in Washington at jcarroll8@bloomberg.net .

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Blackwater Looking For New Owner

June 7, 2010

RALEIGH, N.C. — The security firm formerly known as Blackwater is looking for new ownership, announcing Monday it is pursuing a sale of the company that became renowned and reviled for its involvement with the U.S. government in Iraq and elsewhere. The Moyock, N.C.-based company now called Xe Services announced its decision in a brief statement that gave few details. “Xe’s new management team has made significant changes and improvements to the company over the last 15 months, which have enabled the company to better serve the U.S. government and other customers, and will deliver additional value to a purchaser,” the statement said. Owner and founder Erik Prince said selling the company is a difficult decision, but constant criticsm of Xe helped him make up his mind. “Performance doesn’t matter in Washington, just politics,” Prince said in a further statement. The private company became famous as Blackwater, which provided guards and services to the U.S. government in Iraq, Afghanistan and elsewhere. It became one of the most respected defense contractors in the world, but also attracted sharp criticism over its role in those missions. It has been trying to rehabilitate its image since a 2007 shooting in Baghdad that killed 17 people, outraged the Iraqi government and led to federal charges against several Blackwater guards. The accusations later were thrown out of court after a judge found prosecutors mishandled evidence. In March, Senate Armed Services Committee Chairman Carl Levin suggested the Pentagon should consider banning Xe from a $1 billion deal to train Afghan police. The Michigan Democrat said he thought the company’s involvement was hindering the U.S. mission in Afghanistan. Prince, who founded the company in 1997 along with former colleagues from the Navy SEALs, said he does not anticipate having any role in Xe after the sale. The process of finding a buyer and completing the deal is expected to take several months, according to spokeswoman Stacy DeLuke. The announcement comes less than three months after Xe sold its aviation division for $200 million to Wood Dale, Ill.-based AAR Corp in a bid to strengthen Xe’s balance sheet. More recently, five former executives, including Gary Jackson, the company’s ex-president, were indicted on charges of conspiring to violate federal firearms laws. Jackson was among the top officials who left the company last year in a management shakeup. ___ Associated Press Writer Mike Baker contributed to this report.

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Blackwater Looking For New Owner

June 7, 2010

RALEIGH, N.C. — The security firm formerly known as Blackwater is looking for new ownership, announcing Monday it is pursuing a sale of the company that became renowned and reviled for its involvement with the U.S. government in Iraq and elsewhere. The Moyock, N.C.-based company now called Xe Services announced its decision in a brief statement that gave few details. “Xe’s new management team has made significant changes and improvements to the company over the last 15 months, which have enabled the company to better serve the U.S. government and other customers, and will deliver additional value to a purchaser,” the statement said. Owner and founder Erik Prince said selling the company is a difficult decision, but constant criticsm of Xe helped him make up his mind. “Performance doesn’t matter in Washington, just politics,” Prince said in a further statement. The private company became famous as Blackwater, which provided guards and services to the U.S. government in Iraq, Afghanistan and elsewhere. It became one of the most respected defense contractors in the world, but also attracted sharp criticism over its role in those missions. It has been trying to rehabilitate its image since a 2007 shooting in Baghdad that killed 17 people, outraged the Iraqi government and led to federal charges against several Blackwater guards. The accusations later were thrown out of court after a judge found prosecutors mishandled evidence. In March, Senate Armed Services Committee Chairman Carl Levin suggested the Pentagon should consider banning Xe from a $1 billion deal to train Afghan police. The Michigan Democrat said he thought the company’s involvement was hindering the U.S. mission in Afghanistan. Prince, who founded the company in 1997 along with former colleagues from the Navy SEALs, said he does not anticipate having any role in Xe after the sale. The process of finding a buyer and completing the deal is expected to take several months, according to spokeswoman Stacy DeLuke. The announcement comes less than three months after Xe sold its aviation division for $200 million to Wood Dale, Ill.-based AAR Corp in a bid to strengthen Xe’s balance sheet. More recently, five former executives, including Gary Jackson, the company’s ex-president, were indicted on charges of conspiring to violate federal firearms laws. Jackson was among the top officials who left the company last year in a management shakeup. ___ Associated Press Writer Mike Baker contributed to this report.

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Blackwater Looking For New Owner

June 7, 2010

RALEIGH, N.C. — The security firm formerly known as Blackwater is looking for new ownership, announcing Monday it is pursuing a sale of the company that became renowned and reviled for its involvement with the U.S. government in Iraq and elsewhere. The Moyock, N.C.-based company now called Xe Services announced its decision in a brief statement that gave few details. “Xe’s new management team has made significant changes and improvements to the company over the last 15 months, which have enabled the company to better serve the U.S. government and other customers, and will deliver additional value to a purchaser,” the statement said. Owner and founder Erik Prince said selling the company is a difficult decision, but constant criticsm of Xe helped him make up his mind. “Performance doesn’t matter in Washington, just politics,” Prince said in a further statement. The private company became famous as Blackwater, which provided guards and services to the U.S. government in Iraq, Afghanistan and elsewhere. It became one of the most respected defense contractors in the world, but also attracted sharp criticism over its role in those missions. It has been trying to rehabilitate its image since a 2007 shooting in Baghdad that killed 17 people, outraged the Iraqi government and led to federal charges against several Blackwater guards. The accusations later were thrown out of court after a judge found prosecutors mishandled evidence. In March, Senate Armed Services Committee Chairman Carl Levin suggested the Pentagon should consider banning Xe from a $1 billion deal to train Afghan police. The Michigan Democrat said he thought the company’s involvement was hindering the U.S. mission in Afghanistan. Prince, who founded the company in 1997 along with former colleagues from the Navy SEALs, said he does not anticipate having any role in Xe after the sale. The process of finding a buyer and completing the deal is expected to take several months, according to spokeswoman Stacy DeLuke. The announcement comes less than three months after Xe sold its aviation division for $200 million to Wood Dale, Ill.-based AAR Corp in a bid to strengthen Xe’s balance sheet. More recently, five former executives, including Gary Jackson, the company’s ex-president, were indicted on charges of conspiring to violate federal firearms laws. Jackson was among the top officials who left the company last year in a management shakeup. ___ Associated Press Writer Mike Baker contributed to this report.

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AlaskaDispatch.com: BP Shareholders, Give Tony Hayward His Life Back. Fire Him

June 6, 2010

BP Chief Executive Tony Hayward told shareholders last week that the well technology that should have prevented the Gulf oil spill wasn’t failsafe. Yet, industry knew this for years. And Hayward let his company continue to drill. Bad PR is not the reason BP Chief Executive Tony Hayward should be in trouble today; corporate integrity is. Forget Hayward’s snafu last week, the one the idiot press made much about, when the man in charge of the company smearing the Gulf of Mexico with crude oil said, “There’s no one who wants this over more than I do. You know, I’d like my life back.” Hayward was just being honest then and stating what a lot of people in the Gulf of Mexico are thinking as BP’s undersea volcano continues to gush oil. With the amount in the water now up past twice that of the Exxon Valdez spill in Prince William Sound, who wouldn’t want the disaster to be over with? No, honesty about feelings is not Hayward’s problem. This is: His statement to investors in a conference call Friday when he said the oil industry needs a “paradigm shift.” “We need better safety technology,” he said. “For example, the blowout preventer which this incident has shown is not failsafe.” There are two things wrong with this statement. The first is that the oil industry has known for years that the failsafe devices in blowout preventers — the rams designed to shear the drill pipe and seal a well in the event of a catastrophic blowout — were inadequate. The U.S. Minerals Management Service warned of this years ago. It has been discussed at oil drilling conferences around the globe for at least a of couple years. And a truly failsafe blowout preventer has been in the design stage for at least five years, first with Devon Energy and Cameron, and now with Chevron and Cameron. Houston-based Cameron is one of the major, global producers of blowout preventers, or BOPs, as they’re commonly called in the industry. Cameron and Chevron are supposed to be at this moment testing what Chevron has called an alternative well kill system, or AKWS, which is another way of saying “a BOP that is indeed failsafe.” It didn’t take an enterprising reporter more than a few days to learn about this, or discover from talking to oil-drill rig operators that they’ve long known that existing BOPs won’t shear joints where drill pipe is welded together, won’t shear the pipe if there are tools in it (which now appears might have been the case deep below BP’s sunken Deepwater Horizon rig in the Gulf), and might not shear new, high-tensile-steel pipe, especially at extreme depths. The Deepwater Horizon, it is worth noting, was drilling 5,000 feet beneath the surface of the ocean. All of which brings us to the second and most important problem with Hayward’s statement during that conference call with investors: Either he didn’t know when he took the job as BP chief executive that the BOPs the company was using beneath its drill rigs weren’t failsafe, or he is now trying to pretend — “for example … this incident has shown (it) is not failsafe” — that he didn’t know. It’s hard to say which is worse. Tony Hayward gets paid $4.6 million a year to run BP. He should be expected to know more about the huge risks to his company posed by an oil leak than some poorly paid reporter in Podunk, Alaska. If that reporter can find out in a matter of days that everyone actively involved in oil drilling knows BOPs aren’t failsafe, shouldn’t Hayward have figured this out from about day two on the job? Wouldn’t he think to ask someone, “Hey, what’s the greatest risk facing our company at this time?” At this point, there is little doubt what his engineers would have told him: A deepwater blowout. Everyone in the drilling business — EVERYONE — knew they were pushing into a new frontier in the Gulf of Mexico. Drilling deepwater isn’t quite as difficult as venturing into space, but it’s close. People were working at the limits of technology where things can be expected to go wrong, and they did. Everyone in the drilling business — EVERYONE — also knew that there were and are flaws in existing BOPs. Highly experienced drillers have tried to explain this away by noting that if they do everything right they’ll never need to use the “failsafe” shear-ram in the BOP to shear and seal a well. Read more of this story at AlaskaDispatch.com.

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BP May Sell Prudhoe Bay Stake as Spill Costs Mount

June 3, 2010

By Joe Carroll June 3 (Bloomberg) — BP Plc may have to sell some of its most-valued assets, including a stake in the biggest U.S. oil field, to pay cleanup costs, fines and legal damages from the largest offshore spill in U.S. history. The 26 percent stake in Prudhoe Bay on Alaska’s North Slope and other BP assets could attract suitors such as China National Petroleum Corp., Occidental Petroleum Corp. and Hess Corp., said Douglas Ober , chief executive officer at Petroleum & Resources Corp. in Baltimore, the oldest U.S. oil fund. “BP is going to have to look to other assets to pay for this mess they’re creating,” said Ober, who oversees a combined $1.6 billion at the fund and Adams Express Co. “They won’t be able to use any of that cash flow to expand production or add to reserves, and that’s really going to put them in a bind.” BP lost 31 percent of its market value since an April 20 fire in the Gulf of Mexico killed 11 workers, sank a $365 million rig and triggered subsea leaks that have spewed millions of gallons of crude into the Gulf. The company has spent more than $1 billion trying to stanch the leaks and remove oil from the ocean. Ober sold all of his BP stock after 15 refinery workers perished in a 2005 explosion at the company’s Texas City, Texas, plant. Asset sales by BP are more likely than a takeover of the company because it’s too soon to estimate how much the spill and its aftermath will end up costing, said Gianna Bern , founder of Brookshire Advisory & Research Inc. in Flossmoor, Illinois, and a former BP crude trader. ‘Think Twice’ “A potential investor would think twice because this is unprecedented and it would take a decade to sort out liability and any potential litigation,” Bern said. BP, the largest oil and natural-gas producer in the U.S. region of the Gulf of Mexico, is facing criminal and regulatory probes into the causes of the disaster at its deep-sea Macondo well drilled with Transocean Ltd.’s Deepwater Horizon rig. U.S. senators Ron Wyden of Oregon and Charles Schumer of New York said the company should suspend dividend payments until cleanup and liability costs are determined. A payout would be “unfathomable” until the obligations are tallied, they said. The company paid $10.5 billion in dividends last year, according to its annual report. BP’s latest attempt to contain the leaks stalled yesterday when a saw blade attached to a subsea robot snagged while cutting the pipe from the well. BP wants to sever the pipe to install a device that will divert the crude to a ship on the surface. The plunge in BP shares since the disaster wiped out 42.2 billion pounds ($61.8 billion) in market value, or more than the economic output of Nigeria, Vietnam or the Czech Republic. The stock climbed as much as 20.3 pence, or 4.7 percent, to 450.05 pence, and traded at 444.05 pence at 10:34 a.m. in London. The company’s long-term issuer default rating and senior unsecured rating was cut to AA from AA+ at Fitch Ratings today, with a ratings watch negative. The downgrade reflects “concern that BP is still facing substantial additional risks in relation to the oil spill,” the ratings agency said in a statement. Biggest Crude Source Prudhoe Bay and other Alaskan fields were BP’s largest source of crude in the Western Hemisphere in 2009 after the Gulf of Mexico, according to a public filing. Alaskan fields provided one in every 14 barrels of oil BP pumped worldwide last year. BP operates or own stakes in 20 other fields on the North Slope, as well as four pipelines. In addition to Prudhoe Bay, rival companies may target the company’s holdings in oil-rich nations such as Azerbaijan and Angola, analysts said. China National’s PetroChina Co. and other Chinese state oil companies, backed by $2.4 trillion of foreign currency reserves, have embarked on a string of overseas purchases to feed oil to the world’s fastest-growing major economy. State-run Chinese companies spent a record $32 billion last year acquiring energy and resources assets overseas. China’s appetite for crude this year is expected to grow at 15 times the rate of demand in the U.S., the world’s largest energy market, the International Energy Agency in Paris said in a May 12 report. For the first time, China is expected to burn one in every nine barrels of oil produced in the world this year, IEA figures showed. China’s Financial Strength “China is always sniffing around for reserves,” said Ober, whose biggest holdings in the petroleum fund are Chevron Corp., Exxon Mobil Corp. and Occidental. “It wouldn’t necessarily have to be one of the western supermajors because there are other companies who could muster the financial strength to make a deal for these assets.” Richard Kline , a spokesman for Los Angeles-based Occidental, said neither Chief Executive Officer Ray Irani nor President and Chief Financial Officer Stephen I. Chazen were available to comment. Jon Pepper , a spokesman for New York-based Hess, declined to comment. BP spokesman Mark Salt said Chief Executive Officer Tony Hayward will hold a call with investors tomorrow to address concerns about the dividend and the plunging share price. Credit Suisse analysts yesterday said cleanup costs and legal settlements and claims ultimately may reach $37 billion, or almost nine times the costs incurred by Exxon when its Valdez tanker ran aground in Alaska’s Prince William Sound in 1989. Ober said he has steered clear of BP shares for the last five years because of concern the safety lapses that led to the Texas City refinery disaster remained unresolved. “That was a pretty nasty thing that happened and it demonstrated that they needed to get their safety record in order,” Ober said. “Clearly, they still have some work to do on that front.” To contact the reporter on this story: Joe Carroll in Chicago at jcarroll8@bloomberg.net .

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BP’s Alaskan Crown Jewel May Be Sold to Finance Cleanup of Gulf Oil Spill

June 3, 2010

By Joe Carroll June 3 (Bloomberg) — BP Plc may have to sell some of its most-valued assets, including a stake in the biggest U.S. oil field, to pay cleanup costs, fines and legal damages from the largest offshore spill in U.S. history. The 26 percent stake in Prudhoe Bay on Alaska’s North Slope and other BP assets could attract suitors such as China National Petroleum Corp., Occidental Petroleum Corp. and Hess Corp., said Douglas Ober , chief executive officer at Petroleum & Resources Corp. in Baltimore, the oldest U.S. oil fund. “BP is going to have to look to other assets to pay for this mess they’re creating,” said Ober, who oversees a combined $1.6 billion at the fund and Adams Express Co. “They won’t be able to use any of that cash flow to expand production or add to reserves, and that’s really going to put them in a bind.” BP lost 34 percent of its market value since an April 20 fire in the Gulf of Mexico killed 11 workers, sank a $365 million rig and triggered subsea leaks that have spewed millions of gallons of crude into the Gulf. The company has spent more than $1 billion trying to stanch the leaks and remove oil from the ocean. Ober sold all of his BP stock after 15 refinery workers perished in a 2005 explosion at the company’s Texas City, Texas, plant. Asset sales by BP are more likely than a takeover of the company because it’s too soon to estimate how much the spill and its aftermath will end up costing, said Gianna Bern , founder of Brookshire Advisory & Research Inc. in Flossmoor, Illinois, and a former BP crude trader. ‘Think Twice’ “A potential investor would think twice because this is unprecedented and it would take a decade to sort out liability and any potential litigation,” Bern said. BP, the largest oil and natural-gas producer in the U.S. region of the Gulf of Mexico, is facing criminal and regulatory probes into the causes of the disaster at its deep-sea Macondo well drilled with Transocean Ltd.’s Deepwater Horizon rig. BP’s latest attempt to contain the leaks stalled yesterday when a saw blade attached to a subsea robot snagged while cutting the pipe leading from the well. BP wants to sever the pipe to install a device that will divert the crude to a ship on the surface. The plunge in BP shares since the disaster wiped out 42.2 billion pounds ($61.8 billion) in market value, or more than the economic output of Nigeria, Vietnam or the Czech Republic. Biggest Crude Source Prudhoe Bay and other Alaskan fields were BP’s largest source of crude in the Western Hemisphere in 2009 after the Gulf of Mexico, according to a public filing. Alaskan fields provided one in every 14 barrels of oil BP pumped worldwide last year. BP operates or own stakes in 20 other fields on the North Slope, as well as four pipelines. In addition to Prudhoe Bay, rival companies may target the company’s holdings in oil-rich nations such as Azerbaijan and Angola, analysts said. China National’s PetroChina Co. and other Chinese state oil companies, backed by $2.4 trillion of foreign currency reserves, have embarked on a string of overseas purchases to feed oil to the world’s fastest-growing major economy. State-run Chinese companies spent a record $32 billion last year acquiring energy and resources assets overseas. China’s appetite for crude this year is expected to grow at 15 times the rate of demand in the U.S., the world’s largest energy market, the International Energy Agency in Paris said in a May 12 report. For the first time, China is expected to burn one in every nine barrels of oil produced in the world this year, IEA figures showed. China’s Financial Strength “China is always sniffing around for reserves,” said Ober, whose biggest holdings in the petroleum fund are Chevron Corp., Exxon Mobil Corp. and Occidental. “It wouldn’t necessarily have to be one of the western supermajors because there are other companies who could muster the financial strength to make a deal for these assets.” Richard Kline , a spokesman for Los Angeles-based Occidental, said neither Chief Executive Officer Ray Irani nor President and Chief Financial Officer Stephen I. Chazen were available to comment. Jon Pepper , a spokesman for New York-based Hess, declined to comment. BP spokeswoman Sheila Williams declined to comment for this story. Credit Suisse analysts yesterday said cleanup costs and legal settlements and claims ultimately may reach $37 billion, or almost nine times the costs incurred by Exxon when its Valdez tanker ran aground in Alaska’s Prince William Sound in 1989. Ober said he has steered clear of BP shares for the last five years because of concern the safety lapses that led to the Texas City refinery disaster remained unresolved. “That was a pretty nasty thing that happened and it demonstrated that they needed to get their safety record in order,” Ober said. “Clearly, they still have some work to do on that front.” To contact the reporter on this story: Joe Carroll in Chicago at jcarroll8@bloomberg.net .

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Healthscope Gets Two $1.5 Billion Bids, Topping Offer From Blackstone, TPG

May 30, 2010

By Simeon Bennett May 31 (Bloomberg) — Healthscope Ltd. received two additional takeover offers that value Australia’s second-biggest hospital owner at A$1.84 billion ($1.6 billion) and top a bid by Blackstone Group LP and its partners. The new proposals, both of A$5.80 a share, are 11 percent above Healthscope’s May 28 closing price. The board considers the offers to be at least equal to an earlier A$5.75-a-share bid, the Melbourne-based company said in a statement today. Last week, Blackstone joined TPG Capital and Carlyle Group in bidding for Healthscope, according to a person familiar with the matter. Healthscope, whose profit has grown an average of 36 percent over the past nine years, said it’s allowing the new bidders to review its financial accounts. Selling the pathology business and putting its hospitals in a real estate fund could value the shares at as much as A$7 each, UBS AG said. “A breakup makes most sense,” said Andrew Goodsall , a health-care analyst at UBS in Sydney, in a telephone interview. Healthscope’s managers “are solid operators,” he said. “If there’s earnings upside to be had, they would have had it.” Healthscope shares advanced 5 percent to A$5.49 as of 12:34 p.m. local time, headed for a two-year high. The S&P/ASX 200 Index slipped 0.3 percent. KKR Bid The stock has climbed 22 percent on the Australian stock exchange since first announcing a takeover approach on May 14. Concern among investors that the deal may not proceed is preventing the shares rising further, said John Hester , a health-care analyst at Linwar Securities Ltd. in Sydney. “These are non-binding offers,” Hester said in a telephone interview. “There’s potential for these bids to all fall over. If I was a significant holder, I’d certainly be looking to reduce my position.” Hester rates the stock “market perform.” Kohlberg Kravis Roberts & Co. may make a bid for Healthscope tomorrow, the Australian Financial Review reported today, without saying where it got the information. KKR may bid with another firm and offer about A$6 a share, the report said. Healthscope, which is being advised by Goldman Sachs JBWere Pty and Lazard Ltd., hasn’t given the names of any of its bidders. One may be a U.S.-based private hospital operator being advised by Citigroup Inc., the Australian Financial Review said in a separate report today, without identifying the company or saying where it got the information. Private hospital groups in Australia, including Healthscope’s larger rival Ramsay Health Care Ltd. , are benefiting from increasing demand from an aging population and government measures aimed at boosting private coverage. Uptake of health insurance reached a 27-year high in March and one in two Australians have hospital policies, Health Minister Nicola Roxon said this month. Healthscope owns or operates 43 hospitals in Australia, including the Prince of Wales Private Hospital in Sydney’s eastern suburbs and Melbourne Private Hospital on the fringe of the city’s central business district. It also runs the Gribbles pathology chain in Australia, New Zealand, Malaysia, Singapore and Mauritius. To contact the reporter on this story: Simeon Bennett in Singapore at sbennett9@bloomberg.net

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Craig Medred: Gulf Oil Spill: The Technology Oil Executives Don’t Want to Talk About

May 29, 2010

Long before the Deepwater Horizon oil rig exploded in the Gulf of Mexico, caught fire, sank and loosed a gusher of oil that would flow into the biggest environmental disaster in U.S. history, the oil industry knew that — in the now famous words of the Apollo 13 astronauts — “Houston, we have a problem.” As oil drilling in the new millennium moved increasingly into deep waters off the North American and European coasts, oilfield workers recognized they were operating with less and less of a safety net. Shear ram technology needed to make blowout preventers into failsafe devices capable of preventing catastrophic blowouts was, they knew, lagging behind the rest of oilfield technology. A U.S. Minerals Management Service study had demonstrated as much in 2002. A more thorough study in 2004 had only served to underline the weaknesses. By 2005, Oklahoma City-based Devon Energy Corp. , then a force in offshore drilling, had begun working with Houston-based Cameron , the major producer of blowout preventers, to develop new and better shear and seal technology for wells. Why the technology never made it into the oil patch is unclear. Nobody in the industry wants to talk about it at this juncture, though development reportedly is continuing. What would come to be called the alternative well kill system — or AWKS — is now being spearheaded by Chevron in partnership with Cameron. Devon began phasing out of offshore drilling earlier this year. Ironically, it signed a $7 billion deal in March to sell its offshore assets in Brazil, Azerbaijan and the Gulf of Mexico to BP. Only about a month later BP was in charge of the Deepwater Horizon rig that blew up in the Gulf. London-based BP, the major player in the Alaska oil business, has ever since been battling to shut off an undersea volcano spewing beneath the sunken rig and deal with an oil slick that has grown to more than two times the size of the Exxon Valdez spill in Prince William Sound. Cleanup and containment costs, at last report from BP, were approaching $1 billion and are expected to grow to orders of magnitude beyond that. This might all have been avoided if there had been a working, failsafe blowout preventer a mile deep on the ocean beneath the Horizon. There was a blowout preventer. Why it didn’t work hasn’t been fully determined, but the reasons why it might not work were known well before the Horizon accident. Chevron noted in a presentation to the Norway Arctic Workshop in Tromso in January 2009 that existing BOPs have weaknesses. The company said in a PowerPoint presentation that it was working with Cameron on the AWKS to develop “simultaneous shear and seal capability on a broad range of tubulars — unlike current shear rams.” Everyone in attendance at the meeting knew what that last phrase meant. A mini-study done for the MMS in 2002 and a lengthy “Shear Ram Capabilities Study” completed two years later had concluded that some of the new higher-grade steel being used in drill pipe couldn’t be cut and sealed by existing rams . The study also noted the inability of existing rams to cut and seal pipe if there were tools inside, or slice through welded joints where sections of pipe were joined. These inherent weaknesses in existing BOPs were the reason many Arctic nations — although not the U.S. — required oil companies to keep a second drill rig on location when drilling in case a relief well was needed to seal a blowout. BP, it should be noted, did not have a second rig on site in the Gulf of Mexico. BP has one there now, drilling a relief well. Everyone involved with the Gulf spill says a relief well is the only sure way to cap BP’s undersea gusher. The relief well is expected to be completed in August. There is no telling how much crude could be washing around in the Gulf of Mexico by then — or making its way into the Gulf Stream with potential oil spill consequences for Florida and the entire U.S. East Coast. The reason BP failed to have a second drill rig standing by in the Gulf when the Deepwater Horizon was drilling is simple — money. A drill rig costs about a half million dollars per day, according to oil industry officials. These costs are the reason that, although Shell planned to drill in the Chukchi and Beaufort seas off Alaska this summer, none of the oil companies holding leases off the Arctic coast of Canada planned any drilling. Read more at Alaska Dispatch.

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Secret Blackwater Tape Exposed

May 3, 2010

Erik Prince, the reclusive owner of the Blackwater empire, rarely gives public speeches and when he does he attempts to ban journalists from attending and forbids recording or videotaping of his remarks. … Despite Prince’s attempts to shield his speeches from public scrutiny, The Nation magazine has obtained an audio recording of a recent, private speech delivered by Prince to a friendly audience.

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Citigroup’s Stuckey Will Retire as Bank Whittles Down Unwanted Asset Pool

April 30, 2010

By Bradley Keoun April 30 (Bloomberg) — Citigroup Inc. said Richard “Rick” Stuckey , named in January 2009 to oversee $241 billion of the bank’s most toxic mortgages and bonds, will retire later this year after cutting the pool by half. Stuckey, 54, stepped down as head of the Special Asset Pool unit on April 26, the New York-based bank said in an internal memo confirmed by spokeswoman Shannon Bell . He will remain an adviser during a transition before retiring “in the latter part of the year,” the memo said. Stuckey was succeeded by Aloysius T. “Ish” McLaughlin , who oversaw sales of newly issued investment-grade bonds, according to the memo. Chief Executive Officer Vikram Pandit formed the Special Asset Pool to dispose of unwanted loans and securities as regulators pressured the bank to shrink following its $45 billion bailout in late 2008. Stuckey, who helped unwind bad bets by Long-Term Capital Management LP following the hedge fund’s collapse in 1998, cut the pool to $126 billion as of March 31. “Rick has made incredible progress in managing down the assets in the pool,” Michael Corbat , 49, head of the bank’s Citi Holdings division, said in the memo. The Special Asset Pool is a part of the $503 billion-asset Citi Holdings, which also includes CitiFinancial, auto-lending, student-lending and other businesses tagged for eventual sale or closure. Salomon Start McLaughlin, 44, began his Wall Street career in 1995 as a trainee at Salomon Inc., which was bought in 1997 by Citigroup predecessor Travelers Group Inc. He led sales of newly issued asset-backed securities from 2000 to 2005 and added responsibility for investment-grade corporate bonds in 2005. Since the bailout, McLaughlin also has helped coordinate Citigroup’s use of the federal Term Asset Backed Securities Loan Facility, according to the memo. The program, known as TALF, was set up last year to help restart the market for packaging auto- loans, credit-card debt and commercial mortgages into securities. Stuckey has been with Citigroup or its predecessors for 28 years, according to the memo. Like McLaughlin, he came from Salomon, according to his Financial Industry Regulatory Authority record. Asset Pool Many of the loans and securities in the Special Asset Pool were covered by the $301 billion of government guarantees that Citigroup got along with cash infusions in late 2008. To escape the most onerous restrictions that came with the bailout, Citigroup repaid $20 billion of the money in December and terminated the guarantees. After that, Citigroup decided to transfer $61 billion of assets from Citi Holdings to the Citicorp division, which encompasses branch banking, investment banking, trading, corporate cash management and other “core” businesses that Pandit plans to keep. The transferred assets included $18 billion from the Special Asset Pool, according to a presentation on the company’s website. In the first quarter, the bank also sold $6 billion of loans and securities from the Special Asset Pool, Chief Financial Officer John Gerspach said in an April 19 conference call. Sandler O’Neill & Partners analyst Jeff Harte wrote in an April 27 report that the Special Asset Pool is “expected to run off much more rapidly” than other businesses in Citi Holdings as “loans are repaid and securities sold.” Myron Scholes From 1991 to 1993, Stuckey was co-head of Salomon’s derivatives unit with Myron Scholes , the Nobel Prize-winning Stanford University professor who was a partner in Long-Term Capital. In 1998, he was assigned to a team created by 14 Wall Street firms to manage the unwinding of Long-Term Capital’s assets after the hedge fund suffered $4.6 billion of losses. In November 2007, after the ouster of former CEO Charles O. “Chuck” Prince, Citigroup created a Sub-Prime Portfolio Group to manage most of the bank’s $43 billion of subprime mortgage assets, and Stuckey was assigned to run it. In August 2008, he was transferred by trading chief James Forese to head government risk Treasury, before being reassigned five months later to the Special Asset Pool. To contact the reporter on this story: Bradley Keoun in New York at bkeoun@bloomberg.net .

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Citigroup’s Stuckey Will Retire as Bank Whittles Down Unwanted Asset Pool

April 30, 2010

By Bradley Keoun April 30 (Bloomberg) — Citigroup Inc. said Richard “Rick” Stuckey , named in January 2009 to oversee $241 billion of the bank’s most toxic mortgages and bonds, will retire later this year after cutting the pool by half. Stuckey, 54, stepped down as head of the Special Asset Pool unit on April 26, the New York-based bank said in an internal memo confirmed by spokeswoman Shannon Bell . He will remain an adviser during a transition before retiring “in the latter part of the year,” the memo said. Stuckey was succeeded by Aloysius T. “Ish” McLaughlin , who oversaw sales of newly issued investment-grade bonds, according to the memo. Chief Executive Officer Vikram Pandit formed the Special Asset Pool to dispose of unwanted loans and securities as regulators pressured the bank to shrink following its $45 billion bailout in late 2008. Stuckey, who helped unwind bad bets by Long-Term Capital Management LP following the hedge fund’s collapse in 1998, cut the pool to $126 billion as of March 31. “Rick has made incredible progress in managing down the assets in the pool,” Michael Corbat , 49, head of the bank’s Citi Holdings division, said in the memo. The Special Asset Pool is a part of the $503 billion-asset Citi Holdings, which also includes CitiFinancial, auto-lending, student-lending and other businesses tagged for eventual sale or closure. Salomon Start McLaughlin, 44, began his Wall Street career in 1995 as a trainee at Salomon Inc., which was bought in 1997 by Citigroup predecessor Travelers Group Inc. He led sales of newly issued asset-backed securities from 2000 to 2005 and added responsibility for investment-grade corporate bonds in 2005. Since the bailout, McLaughlin also has helped coordinate Citigroup’s use of the federal Term Asset Backed Securities Loan Facility, according to the memo. The program, known as TALF, was set up last year to help restart the market for packaging auto- loans, credit-card debt and commercial mortgages into securities. Stuckey has been with Citigroup or its predecessors for 28 years, according to the memo. Like McLaughlin, he came from Salomon, according to his Financial Industry Regulatory Authority record. Asset Pool Many of the loans and securities in the Special Asset Pool were covered by the $301 billion of government guarantees that Citigroup got along with cash infusions in late 2008. To escape the most onerous restrictions that came with the bailout, Citigroup repaid $20 billion of the money in December and terminated the guarantees. After that, Citigroup decided to transfer $61 billion of assets from Citi Holdings to the Citicorp division, which encompasses branch banking, investment banking, trading, corporate cash management and other “core” businesses that Pandit plans to keep. The transferred assets included $18 billion from the Special Asset Pool, according to a presentation on the company’s website. In the first quarter, the bank also sold $6 billion of loans and securities from the Special Asset Pool, Chief Financial Officer John Gerspach said in an April 19 conference call. Sandler O’Neill & Partners analyst Jeff Harte wrote in an April 27 report that the Special Asset Pool is “expected to run off much more rapidly” than other businesses in Citi Holdings as “loans are repaid and securities sold.” Myron Scholes From 1991 to 1993, Stuckey was co-head of Salomon’s derivatives unit with Myron Scholes , the Nobel Prize-winning Stanford University professor who was a partner in Long-Term Capital. In 1998, he was assigned to a team created by 14 Wall Street firms to manage the unwinding of Long-Term Capital’s assets after the hedge fund suffered $4.6 billion of losses. In November 2007, after the ouster of former CEO Charles O. “Chuck” Prince, Citigroup created a Sub-Prime Portfolio Group to manage most of the bank’s $43 billion of subprime mortgage assets, and Stuckey was assigned to run it. In August 2008, he was transferred by trading chief James Forese to head government risk Treasury, before being reassigned five months later to the Special Asset Pool. To contact the reporter on this story: Bradley Keoun in New York at bkeoun@bloomberg.net .

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U.S. Gulf States Mobilize for BP Oil Spill Reminiscent of Valdez Accident

April 30, 2010

By Jessica Resnick-Ault and Jim Polson April 30 (Bloomberg) — U.S. Interior Department inspectors began boarding deep-water platforms in the Gulf of Mexico, and Louisiana asked for help from the National Guard as an oil sheen reportedly washed ashore in the worst rig spill in four decades. The U.S. will “use every single available resource at our disposal,” in response to the spill, President Barack Obama said yesterday. BP Plc , which owns the leaking well, is “ultimately responsible” for paying for the cleanup, the president said. A faint sheen washed ashore on the Louisiana coastline last night, the Associated Press reported. Oil may hit Mississippi tomorrow, Alabama in two days and Florida in three, according to a government forecast . Oil is escaping from the well at a rate of about 5,000 barrels a day, five times faster than previously estimated, according to the U.S. Coast Guard. At that rate, the volume of the leak will exceed Alaska’s 1989 Exxon Valdez accident by the third week of June, making it the worst U.S. oil spill. “This has a danger of becoming an utter ecological disaster,” said Ken Medlock , a fellow in energy and resource economics at Rice University’s Baker Institute for Public Policy in Houston. “This is going to result in remediation costs, and is going to be burdensome, to say the least.” Louisiana Governor Bobby Jindal declared a state of emergency and demanded extra oil barriers from BP and the U.S. Coast Guard to protect wildlife preserves that nurture a $1.8 billion seafood industry, the richest in the U.S. behind Alaska. National Guard Jindal also requested federal funding for 90 days of military duty for as many as 6,000 National Guard troops. Shrimpers and fishermen filed suit in federal court on April 28 against BP and Transocean Ltd., owner of the sunken rig. The lawsuits say Louisiana supplies 25 percent of the seafood for the continental U.S. Families of some of the 11 workers killed when the rig exploded and sank have also filed suit. Louisiana is training crews to remove oil from marshes and plans to use prisoners, adding hands to the cleanup effort, Jindal said at a press conference. BP, unable to staunch the leak that began when a drilling rig burned and sank a week ago, yesterday proposed injecting detergent 5,000 feet below the surface in an effort to disperse oil before it can form a slick. U.S. Coast Guard Rear Admiral Mary Landry said she was considering the “novel” request. Permanent Solution BP has a rig on site to drill to the base of the damaged well and plug the leak, the only permanent solution, according to the company and federal officials. Drilling may start within 48 hours, Doug Suttles , chief operating officer of exploration and production, said yesterday at a press conference in Robert, Louisiana. The work may take three months, he said. “It’s the biggest U.S. offshore platform incident in 40 years,” Dagmar Schimdt Etkin , a Cortland, New York-based oil spill consultant who has worked for BP, the Coast Guard and the National Oceanic and Atmospheric Administration, said yesterday. “Well blowouts are extremely rare events and usually when they occur it’s only a few barrels.” Oil from the leaking well is lighter than the Alaskan crude spilled by the Exxon Valdez, Etkin said. “There are going to be more toxic impacts than the heavy black oil you saw with the Exxon Valdez.” Florida, Alabama and Mississippi dispatched all their marine research vessels to begin sampling water for oil and fish for taint, Robert L. Shipp, chairman of the department of marine sciences at the University of South Alabama in Mobile, said yesterday. Shares Plunge BP summoned offshore experts from Exxon Mobil Corp., Chevron Corp. and Royal Dutch Shell Plc to devise other ways to halt the leak, Suttles said. BP also called in Anadarko Petroleum Corp., its partner in the Macondo field where the rig was drilling. BP’s shares fell for a second day, dropping 12.5 pence, or 2.1 percent, to 571.7 pence at 8:15 a.m. in London. The shares have declined 12 percent since the April 20 explosion, valuing the company at 107.9 billion pounds ($165.8 billion). Transocean Ltd. fell 7.5 percent to $78.51 in composite trading on the New York Stock Exchange yesterday, the biggest drop in more than a year. BP’s costs, now $6 million a day, will rise as it adds people and equipment, Neil Chapman , company spokesman, said in an interview in Robert. The company would welcome additional assistance, including from the U.S. Defense Department and from volunteers, he said. Interior, Homeland Security The secretaries of the Interior and Homeland Security departments will join the head of the Environmental Protection Agency to visit the site today, Obama said. The president has contacted governors of states that may be affected, he said. Sixteen federal agencies are responding to the spill. Minerals Management Service inspectors will immediately check testing records of blowout preventers at all deep-water rigs, moving to safety inspections of all deep-water oil and gas producing platforms, Mike Saucier, an agency spokesman, said at the press conference in Robert. Blowout preventers are stacks of valves intended to cut off any unexpected pressure surge from a well. BP doesn’t know why the blowout preventer failed to avert last week’s explosion and fire that destroyed the rig, Suttles said. Crew aboard the Deepwater Horizon activated controls that should have triggered it, he said yesterday. The spill may cost the insurance industry as much as $1.5 billion in claims, according to Transatlantic Holdings Inc. Oil Executives Summoned Chief executive officers of BP, Exxon Mobil, ConocoPhillips, Royal Dutch Shell and Chevron have been summoned to testify on the spill before the Select Committee on Energy Independence and Global Warming, according to an e-mailed statement from the chairman, Representative Edward Markey , a Massachusetts Democrat. Representative Henry Waxman , chairman of the House Energy and Commerce Committee, sent letters to the heads of BP and Transocean seeking inspection reports for the Deepwater Horizon. There are 90 rigs searching for oil and natural gas in the U.S. Gulf of Mexico, according to the Minerals Management Service, which oversees drilling in federal waters as part of the Interior Department. The Exxon Valdez caused the worst oil spill in U.S. history. The tanker dumped about 260,000 barrels of crude into the Prince William Sound, for which Exxon Mobil paid $900 million in fines. To contact the reporters on this story: Jessica Resnick-Ault in New York at jresnickault@bloomberg.net ; Jim Polson in New York at jpolson@bloomberg.net .

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Citigroup’s Return to Saudi Arabia May Need More Than Help From Alwaleed

April 29, 2010

By Camilla Hall April 29 (Bloomberg) — Citigroup Inc . is aiming to open for business in Saudi Arabia six years after selling its stake in a bank there. Returning might not be as easy as departing. Since leaving the country in 2004, the company has said it would like to regain a foothold. Saudi officials, though, are protecting banks from new competition, according to Jean- Francois Seznec , visiting associate professor at Georgetown University’s Center for Contemporary Arab Studies. “They’re not as in love with U.S. banks as they used to be,” Seznec said by telephone from Riyadh, the Saudi capital. “The competitive environment is really key to this. Citibank was very successful here in the past.” Billionaire shareholder Prince Alwaleed Bin Talal , Saudi Arabia’s richest businessman, said on April 27 in an interview with Bloomberg Television that the country “welcomes the presence of a Citibank office.” He said in an interview last month he’s helping New York-based Citigroup and its chief executive officer, Vikram Pandit , set up in Saudi Arabia. The U.S. company, in which filings show Alwaleed held 218 million shares as of November 2008, first started a business in Saudi Arabia in 1955. Citigroup sold its 20 percent holding in Saudi American Bank, now known as Samba Financial Group , to a state investment group in 2004, netting $760 million. The previous year, it had ended its management contract with the bank after first selling a 2.83 percent stake. A fifth of Samba’s market value today equates to about $2.9 billion, according to Bloomberg data. Under Control The company, then the largest financial services company in the world, said its strategy was to invest in countries where it could have majority control of the banks it ran. Citigroup currently is the fourth-largest bank in the U.S. “The franchise that Citibank led in Saudi Arabia was very robust and prosperous for many years and they decided at that point to exit,” said John Sfakianakis , chief economist at Riyadh-based Banque Saudi Fransi. The Saudi Arabian Monetary Agency, the central bank, “has temporarily halted the issuance of new bank licenses in order to evaluate the many licenses issued so far,” he said. The central bank, known as SAMA, did not respond to questions sent by Bloomberg News, and neither did the Capital Markets Authority, the country’s regulator. Citigroup’s Dubai- based spokesman, Karim Seifeddine , declined to comment. William Rhodes , the Citigroup senior vice-chairman stepping down this month, said in 2006 that the bank was interested in returning to Saudi Arabia. Charles Prince , then chief executive officer, met in April that year with government officials in Riyadh at an event hosted by Alwaleed, the Saudi investor’s Kingdom Holding Company said in a statement at the time. ‘Mistake’ A year later, Mohammed al-Shroogi , the Middle East managing director, called the exit a “mistake” and said the bank was reapplying for a license to operate. Competitors such as Tokyo-based Nomura Holdings Inc., New York’s Goldman Sachs Group Inc. and Deutsche Bank AG meanwhile have expanded in the Arab world’s largest economy. Frankfurt-based Deutsche Bank announced April 12 the formation of Deutsche Gulf Finance, a joint Shariah-compliant home financing company owned 40 percent by the bank’s Riyadh branch and 60 percent by Saudi investors. The government forecast the Saudi Arabian economy to grow more than 4 percent this year, after 0.2 percent last year. The world’s largest oil exporter is spending $400 billion on infrastructure to stimulate the economy. Lending Slowdown Bank lending to private companies rose 1.6 percent in February. That growth averaged 27 percent between 2004 and 2008, according to Riyadh-based Jadwa Investment Co. Twenty banks have full banking licenses and branches operating in the kingdom, according to the central bank’s February monthly statistics bulletin. More than 100 investment companies have licenses to conduct securities business, according to the Capital Markets Authority Web site. Previously, in the 1970s, the Saudi government forced foreign banks such as Citigroup, HSBC Holdings Plc and ABN Amro Holdings NV to sell majority stakes in their local operations to Saudi nationals. A law in 2003 opened the door for foreign banks to apply for licenses. To contact the reporters on this story: Camilla Hall in Abu Dhabi at chall24@bloomberg.net

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Timothy Geithner: Using Education to Cope With a Complex Economy

April 27, 2010

While Americans from Wall Street to Main Street focus on much-needed financial reforms that will set and enforce clear rules across the financial marketplace, we also need to recognize that most Americans don’t have the knowledge and skills they need to make the right financial decisions for themselves and their families. Last year, the FINRA Investor Education Foundation’s National Financial Capability Study , conducted in consultation with the Department of the Treasury, found that too many Americans are giving away their hard-earned dollars to bank and credit card fees. Most don’t maintain a rainy-day fund for emergencies. Few are able to perform basic interest calculations necessary to compare the cost of a loan or to figure out how much to try to save. On just about all measures, the study found young adults are the least money-savvy. In December, the administration announced the National Financial Capability Challenge, a partnership between the Departments of Treasury and Education focused on promoting financial education among high school students and assessing their knowledge of personal finance. The results are in. More than 2,500 teachers and 76,000 students in all 50 states participated in the voluntary exam, which shows interest is strong. But the scores were disappointing. The average student is just squeaking by with 70% correct. Students failed to answer basic questions about credit cards, car insurance, and compound interest. This shows we have a lot of work to do. Luckily we have important models to follow. For example, at Stonewall Jackson High School in Manassas, VA, teacher Terri Carson helps students manage the student-run credit union and includes a financial literacy boot camp in all her classes. She had over 100 students take the Challenge. Over half of them scored in the top 20% nationally; 17 had perfect scores. Those results are commendable, and Carson is working to replicate them. She is hoping to work with her school and the Prince William County School District to make sure that all students demonstrate a basic understanding of personal finance in order to graduate. Today we are recognizing Carson and many teachers and students who participated in the National Financial Capability Challenge, for their commitment to financial education. We hope to see more locally driven efforts to make youth financial education a priority in schools across the country. At the same time, we’ll be doing our part at the federal level. In our schools, we will promote a well-rounded education that includes financial literacy. We will give consumers the information and education they need to make smart financial choices. And we will work to provide all American families with access to the bank accounts they need to manage their daily finances. The agenda is clear. Let’s pass serious financial reform. Let’s promote financial access. And at the same time, let’s make sure that we are providing all Americans — especially our youth — with the financial education they need to succeed in this increasingly complex, fast-moving economy. Their futures — and ours — depend on it. Timothy Geithner is the current U.S. Secretary of the Treasury. Arne Duncan is the current Secretary of Education. And Valerie Jarrett is an Obama White House Senior Advisor.

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Alwaleed Holds Wallet With Warren Buffett as Princely Riches Incur Setback

April 26, 2010

By Vernon Silver April 27 (Bloomberg) — Prince Alwaleed Bin Talal sits under an almost full moon near a campfire at his rustic retreat in Riyadh, Saudi Arabia. He’s surrounded by a zoo with zebras and giraffes, an artificial lake and a lodge that has an indoor pool, saunas and steam rooms. Three hooded falcons are perched on stands in front of him. Five young women, dressed in black miniskirts and jackets and orange knee-high boots that match their nail polish, serve clove-and-cardamom tea to Alwaleed and his entourage, which includes his personal physician. On this evening in late March, the prince perks up in his easy chair as a newscast on a large-screen television behind the campfire reports on a rally in global hotel stocks — a sign of hope for the billionaire investor who’s trying to revive his slumping fortune, Bloomberg Markets magazine reports in its June issue. “Hotels are on the way up; they’re taking off,” says Alwaleed, before he rises to lead about 15 courtiers and retainers down a hill for a feast of Saudi, Lebanese and Italian food. Alwaleed, 55, one of the world’s richest men, saw his net worth climb to $21.1 billion in May 2000, according to his tally of investments and personal wealth. He achieved that mostly by investing in big-name companies such as Apple Inc. and News Corp. Since then, many stocks have turned against him, especially those of Citigroup Inc. and Time Warner Inc. The Saudi royal’s fortune has been trimmed to $16.6 billion, based on the value of his Kingdom Holding Co. stake on March 31 and his personal assets as of Feb. 10. ‘Buffett of Arabia’ Alwaleed often refers to himself as the “Buffett of Arabia,” although the comparison to Warren Buffett , chairman of Berkshire Hathaway Inc., doesn’t hold up. Berkshire Hathaway’s Class A shares more than doubled in the same span of almost ten years, swelling Buffett’s stake to $48.7 billion. Alwaleed, who’s a nephew of Saudi King Abdullah , is plotting a rebound. The prince’s Riyadh-based Kingdom Holding, which invests most of his wealth, has been retreating from U.S. equities and pouring billions into luxury hotels and large-scale housing and commercial developments in Saudi Arabia and around the world. Kingdom Holding, where Alwaleed serves as chairman, has boosted its property-related assets, such as Four Seasons Hotels Inc., to 75 percent of its holdings , according to his company’s 2009 annual report. Publicly traded stock, which made up at least 79 percent of Alwaleed’s assets in 2000, now constitutes only about 23 percent of his wealth. 371-Room Palace Alwaleed’s most ambitious undertaking is the 1-kilometer- tall (0.62-mile-tall) Kingdom Tower in Jeddah. When completed, the skyscraper will be the world’s tallest, surpassing the current record holder — Dubai’s Burj Khalifa — by 21 percent. The prince says his shift in strategy at Kingdom Holding, which he controls with a 95 percent stake, may put him on a path to surpass the riches of the 79-year-old Buffett. “When he was my age, he was not as big as me,” Alwaleed says. “I still have 20 years.” Alwaleed’s preoccupation with his status and wealth, which includes four jets, a 281-foot (86-meter) yacht and a 371-room palace, is also on display at Kingdom Holding’s headquarters. The glass tower that he built has an oval-shaped hole in the top that resembles the eye of a sewing needle. In his 66th- floor office, models of his airplanes decorate his desk. Bookshelves display reprints of magazine articles about his ranking on billionaire lists. Bill Gates The prince keeps meticulous track of the ups and downs of his fortune, Kingdom Holding Chief Financial Officer Shadi Sanbar says. Alwaleed hires appraisers to value his private assets — such as a jewelry collection worth more than $700 million — and makes those figures available to publishers of rich lists, Sanbar says. After a ranking is published, the prince sometimes issues a press release touting his position. “He wants to be the best, the wealthiest; that by itself is what motivates him,” says Saleh Al Fadl , who worked for Alwaleed from 1989 to 1993 at United Saudi Commercial Bank, one of the prince’s earliest investments, and now helps run retail banking at Riyadh-based Saudi Hollandi Bank. In addition to chasing Buffett, Alwaleed has also been preoccupied with Bill Gates , the Microsoft Corp. founder who has often topped the billionaire rankings, Al Fadl says. “He was always referring to Bill Gates,” he says. Buffett Letters Alwaleed is particularly fond of his correspondence with Buffett by mail and fax over a span of at least nine years. Buffett started the exchange, writing Alwaleed after a 12- day stay at New York’s Plaza Hotel. In the May 1999 letter, Buffett called the Plaza his “home” when in New York and praised the prince, who then owned a 42 percent stake in the hotel, for the extraordinary service. “You have restored The Plaza to its former luster — indeed your managers have enabled it to surpass its previous heights — and I congratulate you,” Buffett wrote in the first of a series of letters that Alwaleed gave to Bloomberg News. The prince responded a month later, saying he was elated to have an individual of such discriminating tastes attest to the Plaza’s high standards. Alwaleed then got down to business. “Needless to say, I should be pleased to consider participating in any of your future investments that you may deem pertinent,” the prince wrote. A Laggard Buffett, who grew rich by investing in consumer brands such as American Express Co. and Coca-Cola Co., wrote back three days later. He said he would be delighted to team up with the prince. He also piled on the praise. “In Omaha, I’m known as the ‘Alwaleed of America’ — which is quite a compliment,” Buffett wrote. In December 1999, Alwaleed told Buffett in a letter that he found news coverage of a slump in Berkshire’s stock “highly objectionable” and had written to editors to defend him. “Dear Prince Alwaleed,” Buffett responded the next day. “You’re terrific!” A decade later, it’s the prince’s investments that need a boost. As of March 31, Alwaleed’s net worth had dropped 21 percent from May 2000, the tally shows. Citigroup shares, which fell 90 percent during the period, did the most damage to his fortune. The prince even fell behind the Dow Jones Industrial Average, which returned 27 percent, including reinvested dividends . “He’s become a laggard,” says Laszlo Birinyi , founder of equity research firm Birinyi Associates Inc. in Westport, Connecticut. “As an investor, his record is not worth following.” Unrealized Losses Sitting at his gray-marble desk in his office, Alwaleed defends his stock picking, saying most of his losses came in 2008 as a wave of subprime-mortgage defaults convulsed the financial world. He grabs a copy of Richard J. Connors’s book “Warren Buffett on Business” (Wiley, 2009) and flips it open to a passage he has highlighted with a green marker. It describes Berkshire Hathaway’s assets declining in 2008, reducing the book value of the company’s shares by 9.6 percent. “Just read this,” he says. “Look what it says. In 2008, everyone had a hiccup. He went down also.” Buffett declined to comment for this story. Alwaleed’s decline may be worse than his accounting shows. In its 2008 annual report, Kingdom Holding classified more than $4 billion of its $7.45 billion of stock market losses as temporary — and therefore didn’t subtract them from its earnings. Ernst & Young Note Kingdom Holding’s auditor in Riyadh, Ernst & Young, qualified its approval of the accounts, saying it couldn’t determine whether the company took a big enough deduction for the market losses, according to its notes on the company’s statements . Ernst & Young didn’t say the company had violated accounting standards generally accepted in Saudi Arabia. A year later, as the unrealized loss shrank to $3.53 billion, Ernst & Young didn’t attach any qualification to its audit of Kingdom Holding. Even though the unrealized loss has come down, the auditor’s notes suggest that the value of Kingdom Holding may be less than its market capitalization of $9.49 billion as of April 26, says Steven Bankler , a San Antonio-based forensic accountant who examined the company’s financial statements at the request of Bloomberg News. Kingdom Holding’s Sanbar says the company correctly judged the size of its unrealized loss and that it expects its stock investments to bounce back. Kingdom Oasis Alwaleed also hopes to boost his fortune in the desert of Saudi Arabia. Northeast of Riyadh, the prince’s armored GMC Suburban bumps over rocks as he prepares to inspect his latest project: Kingdom Oasis, a development that includes an equestrian resort, a banquet facility and villas. Oasis is part of the 16.8-square-kilometer (6.5-square-mile) Kingdom City Riyadh planned community. His driver, who has a black pistol holstered under his arm, turns past what will be a safari park and lake and stops in front of a clubhouse next to horse stables. Alwaleed ducks inside the clubhouse and spots a flaw: Two Ping-Pong tables in the recreation room instead of one. He thrusts his wooden walking stick at one of the tables. “This should be removed,” he barks at his project managers. “And put in billiards.” When he’s not inspecting his investments, Alwaleed sometimes meets with foreign officials and heads of state as part of his role as a Saudi royal. Saudi King “I’m a businessman, but that’s only a platform,” he says. When asked if he wants to be king, he said he would serve his nation in any capacity if asked. In a country with thousands of princes and an autocratic regime with no firm order of succession, Alwaleed doesn’t have a clear path to the throne. Unlike his cousins from other lines of the Saud family, he lacks a formal role in government. Alwaleed’s father, Talal Bin Abdulaziz , does sit on the kingdom’s commission for succession, which helps pick the crown prince after the death of a king. Talal became a black sheep of the royal clan after pressing unsuccessfully in the 1950s for more democracy in Saudi Arabia. He later founded the Arab Gulf Program for United Nations Development Organizations in 1980 and currently serves as its president. The group raises money to support reproductive health education in Mauritania and women’s entrepreneurship in the Gaza Strip. Princess Ameerah Altaweel Alwaleed has followed his father’s example by advocating for greater freedom for Saudi women, who must wear neck-to-toe robes to mask their figures in public. The prince has hired a mostly female staff at his offices, creating workplaces rarely seen in Saudi Arabia. The women he employs dress in Western clothing and hold jobs managing his construction projects, piloting his jets and directing catering at his palace. Three times divorced, the prince has a son, 32, and a daughter, 27. Alwaleed is now married to Princess Ameerah Altaweel, 27, who speaks fluent English with an American accent she picked up from watching the television show “Friends.” The princess, who’s vice chairman of the Alwaleed Bin Talal Foundations for Charity and Philanthropy, says she wants to be the first Saudi woman to drive on public roads — if it becomes legal. “She’s the vanguard,” Alwaleed says. Starting with $30,000 The prince says his liberal views were nurtured in the U.S., where in 1979 he received an undergraduate degree in business administration from Menlo College in Atherton, California. After Alwaleed returned to Riyadh, his father jump-started the prince’s investment career by giving him a $30,000 loan and a house, which he mortgaged. As the prince started to build his fortune, he earned a master’s degree in social science from Syracuse University in Syracuse, New York, in 1985. Alwaleed says he made his first billion by 1989 from investments in Saudi real estate and banking as well as commissions he earned as a local agent for foreign construction companies. In the next two years, the prince began investing in Citicorp, which was then drowning in bad real estate loans. After Citicorp Chief Executive Officer John Reed asked Alwaleed for a cash infusion, the prince in 1991 added $590 million to his stake. That brought his total investment to $797 million, making him the bank’s biggest individual shareholder — a position the prince says he still holds today. Technology Splurge Seven years later, the bank merged with Travelers Group Inc. to form Citigroup, and by 2000, Alwaleed’s shares were worth $8.6 billion, even after he’d sold off some of his original holding . “He took a big risk and it paid off,” says David Webb , head of the finance department at the London School of Economics. “Big fund managers didn’t buy the stock, and then some guy from the Middle East puts all his eggs in one basket. We all could have been rich, looking backwards.” The billionaire used his new riches to splurge on U.S. technology shares in the first half of 2000. Just as stock markets were beginning to plunge that year, with the Nasdaq Composite Index falling 78 percent through October 2002, Alwaleed bought $400 million of Compaq Computer Corp. shares and $200 million of WorldCom Inc. He also purchased shares of Amazon.com Inc. and DoubleClick Inc. as well as household names such as AT&T Corp., McDonald’s Corp. and Coca-Cola. The prince told Bloomberg News at the time that he was buying all of these stocks on the cheap. Praise from Murdoch As he spread his money around corporate America, Alwaleed won many friends. News Corp. Chairman Rupert Murdoch was among the 355 guests who gathered at the Plaza Hotel to honor the prince in November 2000 at an awards dinner thrown by the Arab Bankers Association of North America. After the guests took their seats in the Grand Ballroom, Alwaleed entered the room with his retinue and walked to the head table, drawing applause. He sat next to Murdoch, and the two men chatted over a dinner of lobster tails and rack of lamb. Then the media mogul took the podium to praise the Saudi royal for his investment in News Corp., at the time an Australian company that had U.S.-traded shares. From his initial News Corp. investments of a combined $600 million in 1997 and 1999 through that evening in 2000, Alwaleed had almost doubled his money. “Very proud, we are, that Prince Alwaleed is one of News Corp.’s largest shareholders ,” Murdoch said. Selling Apple After six tribute speeches, Alwaleed returned to the hotel’s Suite 537, decorated with gilded furniture, where journalists quizzed him about ill-timed investments he had announced about six months earlier. “We don’t see any further investments in the Internet,” Alwaleed said. “Many companies are going to go bankrupt.” In 2002, the same year in which WorldCom went belly up, the prince deployed another $1 billion in three companies whose stock he already owned: AOL Time Warner Inc., Priceline.com Inc. and Citigroup. Priceline.com was the only winner: The shares he’s held on to have jumped fourfold to about $175 million, based on data in Kingdom Holding documents. The investor would be worth several billion dollars more today had he not chucked the bulk of his stake in Apple in 2005. He had poured $115 million into the computer maker in 1997. Under founder and CEO Steve Jobs , the company introduced the iPod four years later. Returning to Saudi At Alwaleed’s Hotel George V in Paris in November 2005, the prince told Bloomberg News his motive for selling his Apple stake. “The benefit of iTunes and all the good moves that Steve Jobs has done have already been put in the price,” Alwaleed said. He was wrong. The rapidly selling iPod was followed in 2007 by the iPhone, which transformed mobile devices, and the iPad in 2010. The prince missed a sevenfold rally starting from the middle of 2005. His holding would have been worth about $6.75 billion as of today. As Alwaleed was selling his Apple shares, he began moving money from the U.S. into Saudi Arabia, which itself was in transition. In 2005, King Fahd , who had ruled for 23 years, died at age 82, propelling Alwaleed’s uncle — Crown Prince Abdullah — to the throne. “The prince made a commitment to the king,” Sanbar, 62, says. “He said, ‘Instead of having 80 percent of my wealth outside, I’m going to bring it here.’” Kingdom IPO In 2007, Alwaleed put together an initial public offering for Kingdom Holding on the Saudi stock exchange. The 240-page prospectus, which appeared on Kingdom Holding’s Web site only in Arabic, said the company’s listed assets had achieved lifetime annual returns of 19.9 percent through March 30, 2007. The figure included only shares held at the time, omitting money losers such as WorldCom that Alwaleed had already sold. “These historical results do not represent all of the investments that Management has made during the relevant historical periods,” the prospectus said. The prospectus contained one number that concerned potential shareholders, Sanbar says. Some 40 percent of its assets were in Citigroup stock, which was just starting to slip from its record high of $56.41 in December 2006. Kingdom Holding assured investors it would pare back the Citigroup stake. “The answer was, we were going to start selling and shift to regional and Gulf investments,” Sanbar says. Citigroup Crashes Kingdom Holding’s stock jumped 20 percent on its first day of trading on July 29, 2007, giving the company a market value of about $20 billion. But Kingdom never sold its Citigroup shares as planned. From the IPO to the end of 2007, as credit markets tightened, the bank’s stock plunged by more than a third. “Buy-and-forget can be deadly to a portfolio,” says Frederic Dickson , who manages $25 billion, including Citigroup shares, as chief market strategist at D.A. Davidson & Co. in Lake Oswego, Oregon. As the deepening credit crisis sent Citigroup shares tumbling 77 percent in 2008, Alwaleed had one reason to cheer. At Microsoft’s annual CEO summit in May in Redmond, Washington, the prince finally got to meet his pen pal, Buffett. During the event, a beaming Alwaleed posed with Buffett for a photo taken by the prince’s personal photographer. Buffett hammed it up for the camera, handing his black wallet to the prince as the flash went off. Photo With Buffett After the conference, Alwaleed sent Buffett a copy of the photo, and Buffett wrote back to thank the prince. In signing off, he continued their banter about collaborating. “I hope we can come up with something in which we can work together,” Buffett said in the June 2008 letter. Alwaleed could use some help from the Oracle of Omaha. In 2008, Kingdom Holding reported a net loss of $7.98 billion. That year, as the U.S. government injected $45 billion into Citigroup to save it, the prince began to buy more of the bank’s shares. “At $3, you have to buy,” Alwaleed says. His purchases from 2008 and 2009 turned a profit as Citigroup shares rose to $4.61 on April 26. While Kingdom Holding rebounded to a profit of $107 million for 2009, it also reported the unrealized loss of $3.53 billion that carried over from 2008’s rout . Bankler, the forensic accountant, says the profit could vanish, slashing the company’s market value and Alwaleed’s net worth, if even a small portion of those unrealized losses became permanent. Fairmont, Four Seasons “One of the factors of market value is earnings per share, and they didn’t take that hit,” Bankler says. Alwaleed’s fortunes are improving this year. On April 19, Citigroup posted a first-quarter profit after two years of losses, and the next day, Kingdom Holding also reported a gain . But the company’s shares remain in the doldrums. Since its first trading day in 2007, Kingdom Holding’s stock has fallen 54 percent to 9.6 Saudi riyals on April 26. “Alwaleed is a major player, always will be,” says Four Seasons CEO Isadore Sharp , who became fast friends with the prince after they met on Alwaleed’s yacht in 1994. “The markets are turning. Things are getting back on track.” Alwaleed says he plans to take his hotel businesses public in the next few years. He bought his first stakes in Toronto- based Fairmont Raffles Holdings International and Four Seasons in 1994. Fairmont also runs the Plaza Hotel, which is jointly owned by Kingdom Holding and Israeli billionaire Isaac Tshuva ’s Elad Properties. Hotels made up 63 percent of the assets in the prince’s company in 2009, according to its year-end report. ‘He’s a Hotelier’ “He’s a hotelier,” Bankler says. “This is a hotel company.” Alwaleed’s partners in Fairmont, which runs more than 90 hotels worldwide, include Qatar’s sovereign wealth fund and Colony Capital LLC, the Los Angeles-based buyout firm founded by billionaire Thomas J. Barrack. The prince is in business with Gates at Four Seasons, which operates 83 hotels globally. Kingdom Holding and Gates’s investment company, Cascade Investment LLC, each hold 47.5 percent of the hotel management company. Sharp, who founded Four Seasons, retains a 5 percent stake. Fairmont and Four Seasons may be ripe for an IPO as the recession eases and companies stop trimming travel expenses, says Smedes Rose , an analyst who covers hotels at Keefe, Bruyette & Woods Inc. in New York. Kingdom Tower “Trends are turning much better for them, and you’d want to go public into the momentum of a recovering market,” he says. “Four Seasons has a lot of legs.” Alwaleed says that within two years he also plans to hold an IPO for his Riyadh-based media company, Rotana Holding, which includes Arabic movie and music channels and a record label. In February, Murdoch’s News Corp. agreed to buy 9.1 percent of Rotana for $70 million. The prince’s Kingdom Tower project in Jeddah, Saudi’s commercial hub on the Red Sea, faces several obstacles. The spike-shaped skyscraper anchors a project that includes shopping malls, a marina, hotels, villas and parks. Alwaleed, who says the tower will be completed in four to five years, plans to raise some of the $20 billion that the complex will cost from equity investors and the sale of Islamic bonds. And he has hired Emaar Properties PJSC — the Dubai-based contractor that erected Burj Khalifa — to manage the project. “The beef is in Saudi Arabia,” Alwaleed says. “In 2010, we’re seeing ourselves coming out of it.” Burj Khalifa opened in January, just after the Arab emirate went from being the world’s best-performing real estate market to the worst. Prices for apartments in the tower have dropped to less than half of their 2008 peak during the credit crackup. $32.1 Billion Difference Alwaleed may have an even tougher time filling his skyscraper in Saudi Arabia, says Saud Masud , head of Middle East research at UBS AG in Dubai. Masud says Saudi laws and customs, including restrictions on travel, women’s attire and the purchase of local securities by foreigners, deter visitors and businesses from entering the nation. “It’s not going to be a straightforward build-it-and-they- will-come,” Masud says. “What the market needs now is affordable housing and not kilometer towers.” As the prince rides in his GMC truck around the site of his Kingdom City residential development, he once again draws comparisons between himself and Buffett: The prince says they both buy undervalued assets. The offices of Kingdom Holding and Berkshire Hathaway have roughly the same square footage, and both companies have small staffs at their headquarters. Pepsi Versus Coke “I drink Pepsi; he drinks Coke,” Alwaleed says, with a laugh. The biggest difference between the two men: The investor from Omaha is worth about $32.1 billion more than the Saudi prince. Alwaleed’s sluggish performance over the past decade hasn’t crimped his style, though. In 2012, he’ll take delivery of a custom-fitted double- decker Airbus A380, becoming the first private buyer of the world’s biggest airliner. While he may not be the world’s richest man, he knows how to act like he is. To contact the reporter on this story: Vernon Silver in Rome at vtsilver@bloomberg.net

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Robot Submarines Working To Stop Gulf Coast Oil Leak

April 25, 2010

NEW ORLEANS — It could take hours or it could take months to stop a 42,000-gallon-a-day oil leak polluting the Gulf of Mexico at the site of a wrecked drilling platform. Whether the environmental threat grows many times bigger depends on whether the oil company can turn the well completely off. Crews are using robot submarines to activate valves at the well head in hopes of cutting off the leak, which threatens the Gulf Coast’s fragile ecosystem of shrimp, fish, birds and coral. If the effort fails, they’ll have to start drilling again. The submarine work will take 24 to 36 hours, Doug Suttles, chief operating officer for BP Exploration and Production, said Sunday afternoon. “I should emphasize this is a highly complex operation being performed at 5,000 feet below the surface and it may not be successful,” he said. Oil continued to leak nearly a mile underwater Sunday at the site where the Deepwater Horizon rig exploded on Tuesday. Eleven workers are missing and presumed dead. For the second consecutive day, high waves prevented boats and equipment from going out to clean the spill. Airplanes sprayed chemicals to break up the oil. The spill initially appeared to be easily manageable after the oil rig sank Thursday about 50 miles off the Louisiana coast, but it has turned into a more serious environmental problem. Officials on Saturday discovered the leak, which is spewing as much as 1,000 barrels – or 42,000 gallons – of oil each day. The oil spill has been growing – officials said the oily sheen on the surface of the gulf covered about 600 square miles Sunday. The environmental damage would be especially serious if it reaches land. The spill was still about 70 miles from the mainland, but only about 30 miles from an important chain of barrier islands known as the Chandeleurs. The islands, part of a national wildlife refuge, are an important nesting ground for pelicans and other sea birds. They have been under serious threat since Hurricane Katrina washed out much of the sand there. “Katrina did kick it pretty good, but they have been growing back,” said Greg Thornton, the 52-year-old owner of Horn Island and Due South Charters in Biloxi. He takes fishing parties out to the islands. Looking at wind patterns on his computer, which showed favorable conditions until Thursday, Thornton held out hope that the oil could be contained. “We might have some trouble if they don’t get the boom around it and stop it from spreading,” he said. The spill so far appears to be small relative to some major oil accidents. The Exxon Valdez spilled 11 million gallons in Alaska’s Prince William Sound in 1989 – the worst oil spill in U.S. history. “It has the potential to be pretty serious, but at 1,000 barrels a day, if it comes to the surface they’ll probably be able to contain it and vacuum it up,” said James Cowan, an oceanography and coastal sciences professor at Louisiana State University in Baton Rouge. The company is planning to collect leaking oil on the ocean bottom by lowering a large dome to capture the oil and using pipes and hoses to pump it into a vessel on the surface, said Suttles, the BP executive. “That system has been deployed in shallower water,” he said, “but it has never been deployed at 5,000 feet of water, so we have to be careful.” The robot submarines are attempting to close off the flow of oil by activating a shutoff device at the well head known as a blowout preventer. In case that doesn’t work, BP PLC, which leased the Deepwater, moved another deepwater rig, the DD3, toward the explosion site. If necessary, the new rig would drill relief wells into the damaged well underneath the ocean floor. That could take several months. Benton F. Baugh, who holds patents for blowout preventer parts, said the subs should be able to do the job. “If they can’t get it closed off, something really unusual happened,” said Baugh, president of Radoil Inc. in Houston and a National Academy of Engineering member. Kenneth E. Arnold, an offshore production facility expert and another member of the engineering academy, said drilling a relief well is not an easy task. “You have to intersect the well,” he said. “Sometimes you have to drill through the steel, and that’s what happened in Australia. It took them three times before they were successful.” He was referring to a blowout on the West Atlas rig in the Timor Sea last August. It wasn’t until November that mud could be pumped through a relief well to shut off the deepwater spigot. The oil spill has resulted in major environmental damage along the coast of East Timor and Indonesia. Coast Guard officials said weather conditions for the next three days would help keep the Gulf spill away from the coast. Mark Schexnayder, a regional coastal adviser at the Louisiana Sea Grant, said the oil spill had the potential to do long-term damage to the coastal environment. The location of the spill is crisscrossed by marine species, including sperm whales, whale sharks, sea turtles, grouper and porpoises, he said. “We’re a month away from opening up the inshore shrimp season, crab season is just getting underway,” he said. “It could close oyster beds.” BP said it has activated an extensive oil spill response, including the robot submarines, 700 workers, four planes and 32 vessels to mop up the spill and spray chemicals that will disperse the oil. The Marine Spill Response Corp., an energy industry cleanup consortium, also brought in equipment. So far, crews have retrieved about 1,143 barrels of oily water. Complicating efforts to stop the leak is the well head’s depth at 5,000 feet underwater, said Lars Herbst, the regional director for the U.S. Minerals Management Service, which regulates oil rigs. Leaks have been fixed at similar depths before, but the process is difficult, he said. The explosion appeared to be a blowout, in which natural gas or oil forces its way up a well pipe and smashes the equipment. But precisely what went wrong is under investigation.

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Oil Rig, Deepwater Horizon, Leaking Into Gulf Of Mexico

April 24, 2010

NEW ORLEANS — The Coast Guard discovered Saturday that oil is leaking from the damaged well that fed a massive rig that exploded this week off Louisiana’s coast, while bad weather halted efforts to clean up the mess that threatens the area’s fragile marine ecosystem. For days, the Coast Guard has said no oil appeared to be escaping from the well head on the ocean floor. Rear Adm. Mary Landry said the leak was a new discovery but could have begun when the rig sank on Thursday, two days after the initial explosion. “We thought what we were dealing with as of yesterday was a surface residual (oil) from the mobile offshore drilling unit,” Landry said. “In addition to that is oil emanating from the well. It is a big change from yesterday … This is a very serious spill, absolutely.” Coast Guard and company officials estimate that as much as 1,000 barrels – or 42,000 gallons – of oil is leaking each day after studying information from remotely operated vehicles and the size of the oil slick surrounding the blast site. The rainbow-colored sheen of oil stretched 20 miles by 20 miles on Saturday – about 25 times larger than it appeared to be a day earlier, Landry said. By comparison, Exxon Valdez spilled 11 million gallons in Alaska’s Prince William Sound in 1989 – the worst oil spill in U.S. history. BP PLC, which leased the rig and is taking the lead in the cleanup, and the government have been using the remotely operated vehicles to try to stop the leak by closing valves on the well deep underwater. If that doesn’t work, the company could drill what’s called an intervention well to control the oil flow. But the intervention drilling could take months. “Over the next several days, we should determine which method is the best one to follow,” said Doug Suttles, chief operating officer for BP Exploration and Production. “A huge number of engineers from ourselves, working with (the government) and across the industry are putting together the best technology and know-how to solve this problem.” Complicating efforts to stop the leak is well head’s depth at 5,000 feet underwater, said Lars Herbst, the regional director for the Minerals Management Service. Leaks have been fixed at similar depths before, but the process is difficult, he said. The bad weather rolled in Friday, bringing with it strong wind, clouds and rain that interrupted efforts to contain the oil spill. Coast Guard Petty Officer John Edwards said he was uncertain when weather conditions would improve enough for the cleanup to resume. So far, crews have retrieved about 1,052 barrels of oily water, he said. The sunken rig may have as much as 700,000 gallons of diesel on board, and an undetermined amount of oil has spilled from the rig itself. Suttles said the rig was “intact and secure” on the seabed about 1,300 feet from the well site. BP said it has activated an extensive oil spill response, including the remotely operated vehicles, 700 workers, four airplanes and 32 vessels to mop up the spill. The Marine Spill Response Corp., an energy industry cleanup consortium, also brought equipment. The 11 missing workers came from Texas, Louisiana and Mississippi. Neither the Coast Guard nor their employers have released their names, though several of their families have come forward. Karl Kleppinger Sr., whose 38-year-old son, Karl, was one of the missing workers, said he doesn’t blame the Coast Guard for calling off the search. “Given the magnitude of the explosion and the fire, I don’t see where you would be able to find anything,” said Kleppinger, of Zachary, La. The other 115 crew members made it off the platform; several were hurt but only one remained hospitalized. The most seriously injured worker was expected to be released within about 10 days. Federal officials had already been working on new safety rules for offshore drilling before Tuesday’s blast. The U.S. Minerals and Management Service is developing regulations aimed at preventing human error, which it identified as a factor in many of the more than 1,400 offshore oil drilling accidents between 2001 and 2007. An MMS review published last year found 41 deaths and 302 injuries during that period. The cause of Tuesday’s blast hasn’t been determined. The Deepwater Horizon was the site of a 2005 fire found to have been caused by human error. An MMS investigation determined that a crane operator on the rig had become distracted while refueling the crane, allowing diesel fuel to overflow. Records show the fire was quickly contained, but caused $60,000 in damage to the crane. Environmentalists said the rig explosion and oil spill should push the nation to develop new energy sources. “This should be a wake-up call,” said David Helvarg, the president of the Blue Frontier Campaign, a marine conservation group, and author of “Rescue Warriors: The U.S. Coast Guard, America’s Forgotten Heroes.” “I would rather risk a ‘wind spill’ than an oil spill offshore,” he said, ruefully pointing out that the source of wind-powered energy can’t sully the environment. ___ Associated Press Writer Noaki Schwartz reported from Los Angeles. Associated Press Writers Jason Dearen in San Francisco, Mike Kunzelman, Kevin McGill and Alan Sayre in Louisiana contributed to this report.

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Video: Angelides Says FCIC Plans to `Call People at All Levels’: Video

April 1, 2010

April 1 (Bloomberg) — Philip Angelides, chairman of the Financial Crisis Inquiry Commission, and Bill Thomas, vice chairman, talk with Bloomberg’s Erik Schatzker about the panel’s investigation into cause of the 2008 financial crisis. The commission said former Federal Reserve Chairman Alan Greenspan and former Citigroup Inc. executives Charles O. “Chuck” Prince and Robert Rubin will testify at hearings next week. The hearings on April 7 and 8 will focus on subprime lending and securitization and government-sponsored enterprises. (Source: Bloomberg)

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Gates Sees Saudi Help, International Support for Tougher Sanctions on Iran

March 11, 2010

By Viola Gienger March 12 (Bloomberg) — Defense Secretary Robert Gates said yesterday the U.S. has enough backing from other nations to make tougher sanctions work against Iran and signaled that Saudi Arabia may try to persuade China, its biggest oil customer, to go along. The Saudis should draw on their economic clout “to say it’s important to the kingdom of Saudi Arabia” that China support a fourth round of United Nations penalties against Iran for its nuclear work, Gates told reporters traveling with him in the Persian Gulf region. “I have the sense that there is a willingness to do that,” he said in Abu Dhabi, the capital of the United Arab Emirates, where he met with Crown Prince Sheikh Mohammad Bin Zayyed al-Nahyan of Abu Dhabi, the deputy supreme commander of the U.A.E. Armed Forces. The proposed sanctions are intended to intensify pressure on Iran to back off any nuclear-arms development and engage in international talks on the issue. Gates traveled to the Persian Gulf from Afghanistan three days ago as the U.S. seeks support at the UN Security Council for tougher measures against Iran that may target shipping, banking and insurance. The Iranian government says its nuclear work has commercial rather than military aims. Revolutionary Guard Saudi Arabia and the U.A.E. welcomed the Obama administration’s emphasis on measures aimed at pressuring the Iranian regime and its Revolutionary Guard Corps rather than penalties that would hurt ordinary residents, Gates said. The aim is to focus “on the people that we think are making the decisions,” he said. The U.A.E. lies across the oil-transit chokepoint of the Strait of Hormuz from Iran, and has become one of the top buyers of U.S. weapons. The U.S. and the U.A.E., which pumps more crude oil than Venezuela, last year signed an agreement to develop a civilian atomic power program in the Emirates. Gates shed his shoes to tour the Sheikh Zayed Mosque, one of the largest in the world, with 80 white marble domes and an interior decorated with floral inlays. The mosque is named after the late president regarded as the founder of the grouping of eight emirates. “It is a beautiful site and a fitting tribute to the father of this nation, a man of great vision, tolerance, and judgment,” Gates said after his visit. In the Saudi capital Riyadh on March 10, Gates had dinner with King Abdullah and other meetings with officials including Crown Prince Sultan bin Abdelaziz al-Saud. “I felt really good about both stops,” Gates said. CIA Studies Gates said he disagreed with skeptics of sanctions on Iran, and cited Central Intelligence Agency studies on the effectiveness of such measures in cases such as Rhodesia, now Zimbabwe, and South Africa. The main factor was backing from a wide range of players and a goal they could embrace, said Gates, a former CIA director. “I think we have that kind of broad, international support,” he said. “I think the prospects of success are certainly better than a lot of other situations where sanctions have been applied.” The purpose of such measures would be “trying to persuade the Iranian government of what their own best interest is, as opposed to regime change or something like that,” Gates said. In Saudi Arabia, the Pentagon chief asked King Abdullah to urge China to sign onto sanctions. U.S. officials including Secretary of State Hillary Clinton have said a secure Persian Gulf and a stable energy supply is in China’s interests. China, Sanctions While China, the fastest-growing major economy, has balked at sanctions, it came around to support each of the last three Security Council resolutions that laid out penalties against Iran. Obama’s efforts at diplomacy with Iran and the Iranian rejection of an offer that largely mirrored its own suggestion of a solution contributed to expanding support for moving to the next step of imposing sanctions, Gates said. U.S. allies in the Persian Gulf have been moved to action because of “rising interference and covert activities throughout the region, in addition to their missile and nuclear programs,” Gates said of Iran. The U.S. has accused Iran of supporting groups such as Hamas in the Gaza Strip and Hezbollah in Lebanon. Conduit for Products Gates urged the U.A.E. to do more to cut off shipments of American products through its territory to Iran that can’t be sold directly. The U.A.E. also has cracked down on Iranian front companies seeking nuclear and weapons technology. “There has been a significant improvement,” Gates said. “I talked about the desirability of continuing to improve our cooperation in that area.” Gates pressed both Gulf nations he visited to accelerate regional cooperation on air and missile defenses and maritime surveillance in the face of Iran’s weapons development. The U.S. Air Force and the Pentagon’s regional military command for the Middle East and Central Asia have worked to accomplish coordination among the countries in recent years, Gates said. “I would describe this as a gradual process of the growing ties in the security arena,” particularly in defensive systems, Gates said. To contact the reporter on this story: Viola Gienger in Abu Dhabi at vgienger@bloomberg.net

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David Isenberg: The Get Out of Jail and Stay on Contract Free Card

March 2, 2010

My mother was right. I should have gone to law school. Perhaps then I would be able to understand one ignored aspect of the Feb. 24 Senate Armed Services Committee hearing ” Contracting in a Counterinsurgency: An Examination of the Blackwater Paravant Contract and the Need for Oversight ” which has received much publicity in the past week. The relevant background is this. In the fall of 2008, a company called Paravant entered into a subcontract with Raytheon Technical Services Company to perform weapons training for the Afghan National Army. Paravant was created in 2008 by Erik Prince Investments (the company which is now named Xe). On May 5, 2009, Justin Cannon and Christopher Drotleff, two men working for Paravant in Afghanistan, fired their weapons, killing two Afghan civilians and injuring a third. In reviewing the Army’s investigation of the incident, then-CSTC-A Commanding General Richard Formica said that it appeared that the contractor personnel involved had “violated alcohol consumption policies, were not authorized to possess weapons, violated use of force rules, and violated movement control policies.” According to the Department of Justice prosecutors, the shooting “caused diplomatic difficulties for United States State Department representatives in Afghanistan” and impacted “the national security interests of the United States.” which had “no regard for policies, rules or adherence to regulations in country.” Now, go look at the hearing documents posted online by Sen. Levin. Scroll down to Document 20, “June 9, 2009 Show Cause Notice from Raytheon to Paravant’.” Raytheon Technical Services Company LLC (“RTSC”) hereby gives notice to Paravant LLC of Paravant’s failure to perform the Task Order, issued under the Subcontract, in accordance with its terms and conditions. Accordingly, RTSC directs Paravant to show cause in writing, by 12:00 p.m. Eastern Time on Monday, June 15, 2009, why RTSC should not terminate the Subcontract for default under Article 5 (Termination for Default) of Section 0.01 of the Subcontract. Nothing in this letter is intended to waive, or should be construed as waiving, any of RTSC’s rights under the Subcontract or the Task Order. Reference is made to the Paravant shooting incident that occurred around 9 p.m. local time in Kabul on May 5, 2009. The available evidence concerning the incident shows the following: (J) that after consuming alcoholic beverages at a going-away party at the Kabul Military Training Center (“KMTC”), four Paravant personnel checked out two Paravant SUVs and several weapons, including at least one AK-47 assault rifle, and drove off the training center, all without authorization; (2) that one of the SUVs, while speeding and trying to swerve around a slow or stopped truck on Jalalabad Road, rolled over and left the road; and (3) that the two Paravant personnel in the second SUV fired their weapons, including the AK-47, at a car being driven by an innocent Afghan local national, causing the death of a passenger in the car and serious injuries to the driver of the car and to a bystander who is in a coma and not expected to live. Okay, it’s not hard to understand. Raytheon is informing Paravant that its people screwed up and as a result Raytheon no longer wants to use Paravant. But this is where it starts to get interesting. The next document (No. 21) is a ten-page response from Paravant to Raytheon. Essentially it says that Paravant is not in default of its contract with Raytheon because, wait for it: It is hornbook law that an entity is not liable for misconduct of one of its employees or that occurs beyond the scope of that individual’s employment. An entity is likewise not liable for actions of an independent contractor involving conduct beyond the scope of the contractor’s engagement. Accordingly, such conduct provides no basis for RTSC claiming the right to terminate the Subcontract by default.” … That the Subcontract provisions cited in the Show Cause Notice do not cover individual conduct unrelated to the performance of the contract is of no surprise. A company is not liable for the acts of its independent contractors that cause harm to others except in limited circumstances that are inapplicable here. To my layman’s eyes Paravant seems to be arguing that it enjoys a sort of contractual immunity for any illegal actions committed by its “independent contractors” as long as they occur off the clock. We might call it a ‘Get out of jail and stay on contract free card.’ This is, to say the least, a novel development. A few years ago not even Blackwater would make this argument. In December 2006 an off-duty Blackwater employee, Andrew J. Moonen, who had been drinking heavily, tried to make his way into the “Little Venice” section of the Green Zone, which houses many senior members of the Iraqi government. He was stopped by Iraqi bodyguards for Adil Abdul-Mahdi, the country’s Shi’ite vice president, and shot one of the Iraqis. Officials say the bodyguard died at the scene. Blackwater did not argue that Moonen was off duty and thus it was not their problem. Instead Blackwater fired him and fined him $14,697–the total of his back pay, a scheduled bonus, and the cost of his plane ticket home. Maybe, if the State Department had threatened to terminate Blackwater’s contract back then it would have argued it had no responsibility. We’ll have to let the lawyers figure that out. Actually, Paravant makes an at least reasonable case that Raytheon is far from an innocent party. In its response it said: Paravant’s ability to monitor and enforce its own no-alcohol policy has been undermined by the actions of RTSC’s management personnel in Afghanistan. For example, Paravant and USTC personnel have been informed that RTSC’s management personnel consumed alcohol in Kabul with Paravant’s then-In Country Manager during the evening of 22 April, 2009 at Becochios Restaurant in Kabul. Paravant subsequently terminated the contract with that In-Country Manager for violation of Paravant’s alcohol policy and other reasons, only to be instructed by RTSC Country Manager that Paravant must continue contracting for the services of this individual for 30 days, even “if you make him a bus driver.” Paravant did not follow this instruction. Similarly, RTSC’s Country Manager told a USTC Vice President in a telephone conversation occurring at approximately between 1000 and 1100 hours (EDT) on 29 April 2009, that he had a “case of Corona” beer in his room and looked forward to a toast to “Flashman” (a character in a loaned book from the USTC Vice President). Even assuming the Subcontract obligated Paravant to supervise and monitor all off-duty conduct of an independent contractor, the conduct of RTSC’s own management regarding the use of alcohol sends the wrong message and has materially interfered with Paravant’s ability to monitor and enforce its no-alcohol policy. Still, Raytheon’s July 2, 2009 reply seems to nicely eviscerate Paravant’s argument that it can’t be fired because its contractors killed and wounded the Afghan civilian while off duty. Especially troubling is Paravant’s legal position regarding the limits of its contractual responsibility for its trainers, grounded on the assertion that they are “independent contractors.” Even if that assertion were correct (and Paravant never sought the contractually required consent to subcontract any of the work, let alone all of it), Subsection 7.9.1 of Section A of the Subcontract states that Paravant “shall be responsible for and have control over the acts, errors and omissions of its lower tier subcontractors and any other persons performing any of Subcontractor’s obligations under this Subcontract.” The terms of this obligation are clear and unqualified. Accordingly, RTSC rejects Paravant’s attempt to disclaim its contractual responsibility for its trainers and to deny its clear breaches of the Subcontract based on their asserted status as independent contractors. Equally troubling is Paravant’s assertion that bears no contractual responsibility for the actions of its trainers at any time other than during the performance of training activities. To the contrary, reflecting the obvious fact that the Paravant trainers are operating alongside the U.S. Army in “24/7″ war zone, Subsections B(i), (iv), and (v) of Section K of the Subcontract state in relevant part that “Subcontractor will ensure that its personnel, representatives, and agents behave at all times in accordance with the highest professional and ethical standards” and that “Subcontractor will comply with, and shall cause all o/its personnel, representatives, and agents to comply with, all applicable laws, regulations, treaties, and directives in the predominance of this Subcontract.” (Emphasis added.) Given this unambiguous language and its obvious intent to avoid bringing discredit onto the U.S. Army, Paravant’s responsibilities cannot and do not end when its trainers clock out. Thus, on May 5, Paravant violated its responsibilities when it permitted four of its trainers to retain or reacquire their Paravant-issucd weapons after the training day ended, and when it allowed them to drive Paravant owned vehicles out of the Kabul Military Training Center and onto a public highway while under the influence of alcohol, with tragic consequences. As I said, I’m not a lawyer and it will be very interesting to see how this ends up. But one thing does pique my interest. Private military industry supporters often say that the contractors can be particularly relied on because they are mostly ex-military and as such retain the high degree of professionalism they showed while on active duty. Putting aside the fact that there is an enormous administrative and legal apparatus to maintain that professionalism for active duty servicemen and women, which private industry does not have, I remember from my days in the Navy that there really wasn’t such a thing as being off the clock. Yes, one could go on liberty or leave but one was always expected to conduct oneself properly and responsibly. Yes, I know that private security contractors aren’t on active duty any more but they are still expected, as Raytheon notes, to act “in accordance with the highest professional and ethical standards.” It would be nice if industry supporters make up their mind. Either contractors are in accordance with the highest standards–in which case they are never off the clock and thus their employers are subject to termination for default of contract–or they are not, and their responsibility ends with their shift. In the latter case, the employer gets legal cover, but then they can’t claim to have the same degree of professionalism as those on active duty.

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Pandit Deserved a Bonus for Citigroup’s `Progress’ Last Year, Board Says

March 1, 2010

By Bradley Keoun March 1 (Bloomberg) — Citigroup Inc. said Chief Executive Officer Vikram Pandit deserved a bonus last year for the money- losing bank’s success in raising capital, selling assets and repaying $20 billion of taxpayer bailout money. Pandit declined the award because of his pledge in February 2009 to take $1 a year until the bank turned profitable, the board’s compensation committee said in a Feb. 22 report. The bank didn’t say how large the award would have been. Pandit got $125,001 for the year, reflecting paychecks he collected in the weeks before his pledge, according to the report, contained in a regulatory filing last week. “Mr. Pandit’s performance in 2009 merited an incentive award, but the committee respected Mr. Pandit’s commitment,” compensation committee members led by Alain Belda , the chairman of Alcoa Inc., said in the letter. “The committee took into account the substantial progress made against Citi’s strategic priorities.” Citigroup lost $1.6 billion in 2009, compared with the record $27.7 billion net loss in the previous year. The bank is 27 percent owned by the U.S. government following a $45 billion bailout in late 2008, and the stock price is down more than 90 percent from its level at the end of 2006. At a February congressional hearing, Pandit, 53, promised lawmakers that taxpayers would get a return on their investment in the bank. The Treasury Department owns 7.7 billion shares in Citigroup, which it got by converting $25 billion of the bailout funds into common stock. At the closing price of $3.40 on Feb. 26, the government’s 7.7 billion shares are worth $26.2 billion, for a paper profit of $1.2 billion. Treasury, FDIC The Treasury and Federal Deposit Insurance Corp. also own $5.3 billion of the bank’s junior debt. Pandit’s 2009 pay compares with JPMorgan Chase & Co. CEO Jamie Dimon’s $17 million bonus and Goldman Sachs Group Inc. CEO Lloyd Blankfein’s $9 million. The two New York-based companies haven’t filed regulatory reports on salaries for 2009. Pandit was hired in December 2007 following the ouster of Charles “Chuck” Prince . He got $38 million in 2008. Citigroup’s compensation committee, which also includes company Chairman Richard Parsons and Xerox Corp. Chairman Anne Mulcahy , awarded multimillion-dollar bonuses to five of Pandit’s senior deputies, according to the filing. John Havens , who oversees trading and investment banking, got $9.5 million in salary, bonus and other pay, according to the filing. Vice Chairman Edward “Ned” Kelly , who served as the bank’s chief financial officer from March to July and negotiated most of its deals with the government, got $8 million. Gerspach, Verme Latin America regional chief Manuel Medina-Mora got $9 million for 2009. Chief Financial Officer John Gerspach got $5 million. Alberto Verme , Citigroup’s top executive for Central and Eastern Europe, got $7.43 million. Pandit’s 2008 pay included $26.3 million in shares and $8.43 million of options awarded in connection with his promotion to CEO in December 2007, according to the filing. Because the company’s shares have plunged to less than $4 from about $30 in late 2007, those shares are now worth about $3.3 million, and the options have “no intrinsic value,” according to the filing. Not included in the pay figures for Pandit or Havens are proceeds they still stand to receive from Citigroup’s purchase in 2007 of their hedge fund, Old Lane Partners LP. The fund has since been closed, and Citigroup Vice Chairman Lewis Kaden said in an April 2008 interview with Fortune magazine that the purchase was really a way to recruit Pandit and his Old Lane colleagues. Pandit and Havens each got $80 million of their after-tax proceeds from the sale in a Citi Private Bank account, and the money is locked up until July 2011, according to the filing. The funds will be released if Citigroup terminates the executives without “good reason,” and may be forfeited if they’re fired for cause, according to the filing. To contact the reporter on this story: Bradley Keoun in New York at bkeoun@bloomberg.net

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David Harris: America Over a Barrel

February 28, 2010

There are some things I just don’t get. One of them is America’s chronic inability to address our energy dependence on countries hostile to our core values. Though grave damage is being done to our national security and economy, as a nation, we just can’t summon the will to solve a problem which does have a solution. Thirty-seven years ago, a shot was fired across our bow. OPEC, the oil cartel, decided to mix politics and economics by declaring a boycott of the U.S. Then came the quadrupling of oil prices, sending our economy into a tailspin. Our political leaders all promised dramatic action to wean us from our addiction. Initially, some progress was made in raising fuel economy standards and improving overall energy efficiency. But, in the end, their promises fell short. The price of oil stabilized as output kept pace with demand, and we were quickly lulled right back into collective national complacency. We felt that it was no one’s business to tell us what to drive, how to drive, or what to do in our oil-heated homes. This was America, after all, not some nanny state. So when President Jimmy Carter turned down the thermostat in the White House one winter, donned a sweater, and asked us to do the same, we scoffed at our leader. Didn’t he know that, as Americans, we were entitled to be the world’s biggest energy consumers? How dare he ask us to sacrifice? Then Congress made matters worse. Even as fuel economy standards were being raised for cars, Capitol Hill exempted light trucks and vans from the rules. Lo and behold, as Americans bought more and more of these gas-guzzlers — eventually more than half of all vehicles sold in any given year — our oil needs only grew. In more recent years, we again became aware of the danger of our oil dependence. The 9/11 attacks were a sobering reminder. We learned that Saudi Arabia, with the world’s largest oil reserves, was spending tens of billions of dollars in oil revenue to support the extremist Wahhabi version of Islam around the world. Mosques and madrassas were purveying a message of intolerance and conflict, even as Saudi Arabia was taking out slick ads in the American media promoting our two countries’ “shared values.” We watched as Venezuela, the fifth largest exporter of oil to the U.S. and owner of CITGO, used its petrodollars to undermine American interests in Latin America and to forge ties with Iran. And more broadly, we witnessed energy security issues penetrate just about every nook and cranny in international relations. America tried to bring the horrors of Darfur to an end, but China’s interest in Sudan’s oil made it difficult to get concerted international action — and China isn’t alone. We’ve tried to forge consensus against Iran’s nuclear program, but China’s interest in Iran’s oil complicates that, too — and, again, China isn’t alone. Meanwhile, European countries, most of which are heavily dependent on imported oil, are forced to tiptoe politically around the likes of Libya, a nation with the eighth largest proven reserves in the world. And do we Americans need reminders about the costly consequences for our own foreign policy of our reliance on Middle Eastern oil? What can be done about this? For starters: First, focus on the prize — a world where the value of oil has dropped dramatically. Imagine what that could mean for the distribution of global power. And think about the impact on our economy if we could keep hundreds of billions of dollars per year right here rather than sending them overseas to Venezuela to buy weapons from Moscow or to Saudi Arabia to fund madrassas in Pakistan. Second, it’s time we demand — yes, demand — concerted action by all our elected officials. Words won’t suffice. We’ve had too many of them. Excuses for inaction won’t wash. The very future of our nation is at stake, and it’s high time to put this issue at the top of our agenda and keep it there. Third, let’s drop the partisanship. This is about America, not about political parties. Both parties should have an identical interest in moving the country toward real energy security. However naive it may sound, what a sight it would be to see Democrats and Republicans standing shoulder-to-shoulder and pledging united action to deal with our energy dependence head-on until we reach the goal. Fourth, think bold. Brazil did in the 1970s. It was even more dependent than we on imported oil. No longer. The country today is energy independent, through a combination of national planning, technological innovation, and exploration. And now China is on the way. Beijing has already announced that it seeks to be the global leader in post-oil technologies. Are we going to be content one day to replace our dependence on Middle Eastern oil with dependence on Chinese alternative energy technologies? Fifth, look in the mirror. How many of us have been part of the problem — by our buying and driving patterns, by our lifestyles, by a sense of entitlement, and by a belief that some are exempted from the rules that should govern others? With modest changes in our own behavior, we can have a dramatic impact. And sixth, look to Europe. Not a single one of the most fuel-efficient cars in the U.S. would make the comparable list in Europe, where the base line for the top ten models is 64 miles per gallon. Are Europeans any less interested in safety, emissions controls, or comfort than we are? Europe has also gone much further than the U.S. in developing public transportation. So, too, has Japan. Now China is leaping ahead. This is especially striking in the realm of high-speed trains. We waited decades for the Acela, but compared to what’s available elsewhere, including the Maglev in Shanghai and the TGV in France, forgive me, it’s practically ancient. This is true in metropolitan areas as well. Outside a handful of American cities, public transportation options are few and far between, compelling residents to rely on private vehicles for everything from work to shopping. And even in New York, with its extensive network, a project like the Second Avenue Subway has been in the works, according to author Robert Caro, since “shortly after World War I,” yet we’re still not there. Saddest of all is the knowledge that it’s well within our grasp to break the stranglehold. We can dramatically reduce our dependence on imported oil from hostile countries, while boosting our national security and enhancing our domestic economy — not to mention the benefits that measures reducing greenhouse-gas emissions will provide in terms of climate change and the environment. We have the scientific and entrepreneurial know-how to develop new technologies, and, save oil, abundant natural resources. There’s no one silver bullet for our problem, but there are several promising possibilities. All should be pursued, consistent, of course, with strict environmental safeguards. President Obama, speaking last year of “our journey toward energy independence,” said that “America’s dependence on oil is one of the most serious threats that our nation faces. It bankrolls dictators, pays for nuclear proliferation, and funds both sides of our struggle against terrorism.” By contrast, the former director of Saudi intelligence, Prince Turki al-Faisal, replied that “Like it or not, the fates of the United States and Saudi Arabia are connected and will remain so for decades to come” because of the oil link. Which will it be? President Obama’s vision or Prince Turki al-Faisal’s? The answer should be obvious. The ways to reach it are clear. The bottom-line question is whether there’s the national will.

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Shinsei, Aozora Banks Call Off Merger on Strategy Differences, Nikkei Says

February 12, 2010

By Michael J. Moore and Finbarr Flynn Feb. 13 (Bloomberg) — Shinsei Bank Ltd. , the Japanese lender partly owned by U.S. investor Christopher Flowers , and Aozora Bank Ltd. have called off their merger after failing to agree on a business strategy, Nikkei English News reported. The deal, which the two Tokyo-based banks valued at $5.9 billion last July, will either be abandoned or postponed indefinitely, Nikkei reported, without saying how it got the information. Shinsei will work on a capital-raising plan while Aozora will seek alliances with local banks, Nikkei said. The banks agreed in July to merge after they posted a combined annual loss of $4.2 billion on soured investments in overseas bonds, hedge funds and U.S. mortgage assets. Aozora Chief Executive Officer Brian Prince said in a Jan. 15 interview that “areas of disagreement” had arisen in the talks. A Credit Suisse Group AG analyst said in a report this week that the merger planned for October may be called off. Combining Shinsei and Aozora , controlled by New York-based Cerberus Capital Management LP, would have created Japan’s sixth-largest listed lender with about 190 billion yen ($2.1 billion) in assets. Shinsei, which has fallen 34 percent on the Tokyo Stock Exchange since the deal was announced on July 1, declined 1.9 percent to 104 yen yesterday. Aozora, down 28 percent since July 1, was unchanged yesterday at 109 yen. Shinsei Chief Executive Officer Masamoto Yashiro , who returned to lead the bank in November 2008, told investors on Feb. 4 he aimed to “clean up” unprofitable investments on its books. Shinsei’s Forecast Shinsei posted profit of 22.3 billion yen for the nine months ended Dec. 31. The bank reiterated its full-year net income forecast of 10 billion yen, citing the potential for impairments and charges on real estate, consumer lending and other assets. Aozora last month raised its full-year profit forecast to 7 billion yen on higher fees and fewer costs for bad loans. The bank posted net income of 7.3 billion yen in the nine months ended Dec. 31, compared with a loss of 109.4 billion yen a year earlier. The two companies were created from failed long-term credit banks that were nationalized in 1998 after becoming insolvent. Flowers first invested in Shinsei’s forerunner in 2000. Cerberus took a controlling stake in Aozora in 2003. Flowers had “strongly requested” the merger, Yashiro said in July. Flowers didn’t return a call for comment. To contact the reporters on this story: Michael J. Moore in New York at mmoore55@bloomberg.net ; Finbarr Flynn in Tokyo at fflynn3@bloomberg.net .

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Aozora’s Prince Says Fixing Shinsei Merger `Disagreements’ Trumps Deadline

January 17, 2010

By Finbarr Flynn and Takako Taniguchi Jan. 18 (Bloomberg) — Aozora Bank Ltd. Chief Executive Officer Brian Prince said “areas of disagreement” have arisen in merger talks with Shinsei Bank Ltd. and getting the right deal trumps an October deadline for completing the transaction. “There are a number of issues we need to work through,” he said in an interview at the bank’s Tokyo headquarters on Jan. 15. “It is an important opportunity, and six months doesn’t make a difference. We’ve got to make it right.” Prince, 45, agreed to merge with Shinsei in July after the banks posted a combined loss of $4.2 billion last fiscal year on soured investments in overseas bonds, hedge funds, and U.S. mortgage assets. Combining Aozora, controlled by Cerberus Capital Management LP, and Shinsei will create Japan’s sixth- largest listed lender with more than $190 billion in assets. Aozora , which had less than half the assets of Shinsei at the end of September, has risen 49 percent in the past year, making it the biggest gainer among 84 publicly traded Japanese banks. The difference between the two banks’ share prices narrowed to 1 yen as of Jan. 15 from a high of 24 yen in August, according to Bloomberg data, indicating investors expect the deal to be completed. Each bank’s shareholders will own 50 percent of the combined lender after agreeing to a 1-for-1 common equity exchange ratio. “Neither of them are winners in the game so they need help and are getting together, cutting costs and scaling down,” said Yuichi Chiguchi , who helps manage about 250 billion yen at Diam Co. in Tokyo. Norito Ikeda , a former president of Japanese regional bank Ashikaga Bank Ltd., will become chief executive officer once the two banks merge. Prince’s Future “It is our intention to make the merger happen because we signed the agreement,” Prince said. “If it doesn’t happen we’ll deal with it.” Prince, the fourth CEO to lead Aozora since 2007, was previously an executive with Shinsei and Lehman Brothers Holdings Inc. in Tokyo. He said no decision has been made on any role he may play after the merger. At Shinsei, Prince led a drive to cut bad loans after the bank became the first Japanese lender to be acquired by foreign investors, including Ripplewood Holdings Inc., in 2000. Aozora is the second-largest lender to Aiful Corp., the Japanese consumer lender that staved off bankruptcy last month after 65 creditors agreed to a delay in loan repayments. The bank had 37.9 billion yen in loans to Aiful, and 17.4 billion yen in loans to its Life Co. credit card unit, according to a financial presentation by Aozora in November. Aozora is “overhedged” on the loans to Aiful , holding credit default swaps with a notional value in excess of about 37.9 billion yen, according to Chief Financial Officer Masaki Tanabe . Credit-Default Swaps Aiful’s agreement with lenders to postpone repayments triggered a settlement auction of credit-default swaps. Aozora wants to collect “as much as possible without creating too much friction” on the derivatives, Prince said. Aozora posted net income of 6.5 billion yen in the first half ended Sept. 30, compared with a loss of 28 billion yen a year earlier. Prince said he is sticking to the bank’s full-year profit forecast of 5 billion yen as the lender wants the opportunity to make sure its balance sheet is “clean.” To contact the reporters on this story: Finbarr Flynn in Tokyo at fflynn3@bloomberg.net ; Takako Taniguchi in Tokyo at ttaniguchi4@bloomberg.net

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Haiti Struck by 7.0 Magnitude Earthquake, Hospital Collapses Near Capital

January 12, 2010

By Thomas Black Jan. 12 (Bloomberg) — A 7.0-magnitude earthquake struck near the capital city of Haiti, one of the poorest countries in Latin America, causing damage to buildings including a hospital. The earthquake hit 10 miles (about 15 kilometers) southwest of Port-Au-Prince, a city of about 2 million inhabitants, at 4:53 p.m. New York time, the U.S. Geological Survey said on its Web site. Two aftershocks of 5.9 and 5.5 struck within the next 20 minutes, according to USGS. A hospital collapsed in Petionville, near the capital city, and people were screaming for help, the Associated Press reported. Raymond Joseph, the country’s ambassador to the U.S., told CNN that the quake had caused a catastrophe of major proportions. An employee of the U.S. Embassy in Port-Au-Prince, who spoke on the condition of anonymity, said workers were trying to access the damaged areas. CNN, citing Haiti’s first lady, reported that the presidential palace had partially collapsed, though President Rene Preval is safe. U.S. President Barack Obama asked his staff to make sure embassy personnel are safe and to begin preparations in case humanitarian assistance is needed, according to a White House statement. “My thoughts and prayers go out to those who have been affected by this earthquake,” Obama said in the statement. “We are closely monitoring the situation and we stand ready to assist the people of Haiti.” ‘Very Strong’ Rafael Nunez, a presidential spokesman for neighboring Dominican Republic, said the earthquake felt “very strong” in the Dominican Republic. No damages had been reported so far, Nunez said in an interview with CNN en Espanol. A tsunami warning for countries bordering the Caribbean sea was issued by the Pacific Tsunami Warning Center. Amerijet International Inc. , which flies cargo airplanes between Miami and Haiti, lost contact with its office in Port Au Prince, said a traffic manager for the company at Miami International Airport. “We’ve heard that half of our office at the airport collapsed,” the employee, who would identify himself only as Alberto, said in telephone interview. He said he had “no idea” if the company’s flight that left Miami at 3:30 p.m. had arrived in Haiti on schedule at 6:05 p.m. local time. The United Nations mission in Haiti, which supervises a peacekeeping force of 7,000 soldiers and 2,000 police there, couldn’t be reached by telephone. The U.S military’s Southern Command in Miami is preparing to assist Haiti’s government with disaster relief as soon as it receives a request from the U.S. State Department, said Ray Sarracino, a civilian spokesman for the unit. The only U.S. troops in Haiti now are a number of liaison officers working with Haitian forces and some service members deployed to the UN Stabilization Mission in Haiti, Sarracino said. To contact the reporter on this story: Thomas Black in Monterrey at tblack@bloomberg.net

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Northwest Christmas Plane Attack Highlights Yemen Al-Qaeda Threat to U.S.

December 29, 2009

By Henry Meyer Dec. 29 (Bloomberg) — Yemen may be turning into an al- Qaeda base for attacks on U.S. and other Western targets as the group exploits the disintegration of government control sparked by rebellions in the north and south of the country. Al-Qaeda’s Yemen-based branch claimed responsibility yesterday for the attempt by a Nigerian man to blow up a Detroit-bound transatlantic flight on Dec. 25. On Christmas Eve, Yemeni warplanes, acting on U.S. intelligence, struck a meeting of al-Qaeda leaders in a remote southeastern mountain valley. A link between the Northwest Airlines plane attack and Yemen is “extremely significant,” said Rohan Gunaratna , head of the Singapore-based International Center for Political Violence and Terrorism Research. “This demonstrates that Yemen could be used as a forward operating base to strike al-Qaeda’s most important enemy, the U.S.” Yemen is struggling to subdue an insurgency by northern Shiite rebels that has drawn in its neighbor Saudi Arabia, a key U.S. ally, as well as a secessionist threat in the south where the government has little control outside major cities. U.S. National Security Adviser James Jones told CNN on Dec. 5 that al-Qaeda is relocating to Yemen and Somalia in the face of pressure from U.S. and Pakistani forces on the Pakistan-Afghan border, posing “a threat to our national security.” “Yemen is second only to Afghanistan and Pakistan in counterterrorism importance,” said Christopher Boucek , a Yemen expert at the Washington-based Carnegie Endowment for International Peace . “Potentially we are talking about a failed state right on the border of the world’s largest oil exporter.” Like Somalia Located at the tip of the Arabian peninsula, Yemen has mountainous landscape similar to the frontier between Afghanistan and Pakistan, where al-Qaeda leader Osama bin Laden is believed to be hiding. It’s instability and the fact it is the poorest Arab nation — the government expects oil reserves which fund 70 percent of the budget to run out over the next decade — provide fertile ground for insurgents. “Al-Qaeda always exploits such situations, you can see it in Somalia, you can see it in Afghanistan,” Yemeni Foreign Minister Abu Bakr al-Qirbi said in a Dec. 7 interview in the Yemeni capital Sana’a. Yemen’s importance for al-Qaeda has grown as other countries step up pressure on the group. Its presence there dates back to the early 1990s. In October 2000, a suicide bombing of the USS Cole off the southern Yemeni port of Aden killed 17 U.S. sailors. An American drone attack in Yemen in November 2002 killed six suspected al-Qaeda militants, including a top figure wanted in the USS Cole bombing. Assassination Attempt Al-Qaeda strengthened its networks in Yemen when a crackdown in neighboring Saudi Arabia that began in 2004 forced many to flee there. The group in August tried to assassinate the top Saudi anti-terrorist official, Prince Muhammad bin Nayef bin Abdel Aziz, in an attack mounted from Yemen. In recent months, al-Qaeda has moved some “significant operators” to Yemen from Afghanistan and Pakistan, Gunaratna said. Al-Qaeda’s Yemen branch published an article on Oct. 28 in its official magazine encouraging militants to make their own bombs to target planes, trains and airports in the West, according to IntelCenter, an Alexandria, Virginia-based group that monitors terror groups. U.S. authorities are investigating possible links between al-Qaeda and Umar Farouk Abdulmutallab , the 23-year-old Nigerian arrested for the attempted plane bombing, Homeland Security Secretary Janet Napolitano said Dec. 27. Abdulmutallab spent three months in Yemen this year studying Arabic and left the country earlier this month, the Yemeni Foreign Ministry said yesterday. The suspect told U.S. investigators that the explosive device he tried to detonate was acquired in Yemen along with instructions on when it was to be used, CNN reported, citing a federal security bulletin. Fort Hood Killings U.S. lawmakers say Abdulmutallab is suspected of ties to Anwar al-Awlaki , an American-born Yemeni imam who had contacts with a U.S. army officer accused of killing 13 people at the Fort Hood army base in Texas last month. Al-Awlaki may have been killed in the Dec. 24 air strike on al-Qaeda leaders, Yemen’s government said. It said about 65 al- Qaeda militants, possibly including senior figures, were killed in that attack and another raid a week earlier that targeted a training camp near the capital Sana’a where the Yemen Defense Ministry said the group was planning a suicide attack on the U.K. Embassy. Al-Qaeda’s Yemen branch released a statement on Dec. 27 threatening to retaliate for the Dec. 17 attack, which it said was conducted by U.S. jets, IntelCenter said. Yemeni Deputy Prime Minister Rashid al-Alimi told parliament on Dec. 24 that the strikes were carried out using intelligence provided by the U.S. and Saudi Arabia. The U.S. government allocated $70 million in military and counterterrorism aid to Yemen in the 2009 fiscal year, as well as more than $30 million in civilian aid. In the 2008 fiscal year, Pakistan received about $1.8 billion in U.S. aid, according to Carnegie. The U.S. needs to focus more on building up the Yemeni government, said Boucek. “The degree of al-Qaeda control and Jihadist groups in Yemen will increase significantly unless the Yemeni government is assisted,” he said. To contact the reporter on this story: Henry Meyer in Dubai at hmeyer4@bloomberg.net

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Gulf States to Compete More for Money as Banks Balk After Dubai Debt Delay

December 13, 2009

By Camilla Hall Dec. 13 (Bloomberg) — The emirs, presidents and sheikhs of the six members of the Gulf Cooperation Council meet in Kuwait this week with the days of easy credit over following a year of debt defaults and deferred payments. Dubai World said Dec. 1 it was seeking to restructure $26 billion of borrowing, and the race to build financial centers and skyscrapers is now turning into a competition to convince banks simply to keep lending to the region, investors and economists said. The GCC annual summit starts today. “Financing will be harder to attract for all companies in and related to the Gulf in the next few quarters as international banks will be loath to have any association with regional corporates and governments, regardless of their stability,” said Emad Mostaque , who helps manage $100 billion at Pictet Asset Management Ltd. in London. While the global financial crisis forced bank bailouts across the western world, in the Gulf it has jeopardized plans to develop markets and forge closer economic ties. At the GCC’s meeting in Muscat on Dec. 30 last year, leaders approved a monetary union agreement, a step toward forming a Gulf single currency. Kuwait said last week that the project may take 10 more years to come to fruition. ‘Moral Hazard’ When the two Saudi family holding companies, Ahmad Hamad Algosaibi & Brothers Co. and Saad Group, defaulted on their Bahrain-based banking units earlier this year, the U.A.E. complained that there was no communication within the GCC. The perception that “the money was there and it would just be splashed around regardless of moral hazard or business viability has not been the case,” said Jane Kinninmont , an economist at the Economist Intelligence Unit in London. “If there’s less money to go around, there will be more competition between the Gulf states.” Qatar is building a $14 billion luxury residential project called the Pearl similar to Dubai’s palm-shaped islands. Saudi Arabia is trying to develop its own financial center in Riyadh that will challenge Dubai’s complex of banks including Deutsche Bank AG and Goldman Sachs Group Inc. “It’s healthy to develop competition,” Sheikh Hamad Bin Jabor Bin Jassim al-Thani , director general of Qatar’s General Secretariat for Development Planning said last week in Dubai. “We need to embrace where our strengths are and ensure that we focus around them at the initial stage.” Tallest Tower Saudi Arabia’s Kingdom Holding Co., whose chairman is Prince Alwaleed Bin Talal , started a $26.6 billion real estate project that will include the world’s highest tower, overtaking the U.A.E.’s Burj Dubai set to open Jan. 4. “Everyone’s been trying to build the biggest airport, the best tourist infrastructure,” said Kinninmont. “Everyone is trying to compete for the same territory.” Investor confidence has deteriorated as Kuwaiti investment firms Global Investment House KSCC and Investment Dar along with the two Saudi family holding companies defaulted. Global said Dec. 10 it signed an accord to restructure $1.73 billion. Dubai World, whose property unit is building the landmark palm-shaped islands, sought a “standstill” agreement with creditors. Dubai’s benchmark share index is down 22 percent since Nov. 25, while bond prices tumbled and the credit ratings for several Dubai companies were cut. ‘Top Pick’ Saudi Arabia, the Arab world’s biggest economy, is Mostaque’s “top pick” to emerge strongest. The kingdom’s central bank governor, Muhammad al-Jasser , has said that the economy is in recovery and it may avoid a contraction this year as oil prices rebound to what the world’s largest oil exporter deems a “fair price” of $75. Then there’s Qatar. The world’s largest exporter of liquefied natural gas “is a strong story,” according to Marios Maratheftis , a Dubai-based economist at Standard Chartered Plc. The Gulf state is forecasting economic growth of 9 percent this year and 16 percent next year. “The economies that have better balance sheet structures will recover a lot quicker,” said Ahmet Akarli , a London-based economist at Goldman Sachs. “Saudi Arabia has a healthier balance sheet, so does Qatar, even Abu Dhabi is in a good position but Dubai will drag the U.A.E. down.” To contact the reporter on this story: Camilla Hall in Dubai at chall24@bloomberg.net

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Dubai’s Fallout Makes Financing Tougher as Gulf States Compete for Money

December 11, 2009

By Camilla Hall Dec. 11 (Bloomberg) — The race between Gulf states to build the biggest airport, tallest skyscraper or glitziest hotel is turning into a competition simply to convince banks to keep lending to the oil-rich region. Emirs, presidents and sheikhs of the six members of the Gulf Cooperation Council meet in Kuwait next week with the days of easy credit over following a year of debt defaults and deferred payments. State holding company Dubai World said Dec. 1 it was seeking to restructure $26 billion of borrowing. “Financing will be harder to attract for all companies in and related to the Gulf in the next few quarters as international banks will be loath to have any association with regional corporates and governments, regardless of their stability,” said Emad Mostaque , who helps manage $100 billion at Pictet Asset Management Ltd. in London. While the global financial crisis forced bank bailouts across the western world, in the Gulf it has jeopardized plans to develop securities markets, create flourishing banking centers and forge closer economic ties. At the GCC’s annual meeting in Muscat on Dec. 30 last year, leaders approved a monetary union agreement, a step toward forming a Gulf single currency. Kuwait said this week that the project may take 10 more years to come to fruition. ‘Moral Hazard’ When the two Saudi family holding companies, Ahmad Hamad Algosaibi & Brothers Co. and Saad Group, defaulted on their Bahrain-based banking units earlier this year, the U.A.E. complained that there was no communication within the GCC. The perception that “the money was there and it would just be splashed around regardless of moral hazard or business viability has not been the case,” said Jane Kinninmont , an economist at the Economist Intelligence Unit in London. “If there’s less money to go around, there will be more competition between the Gulf states.” Qatar is building a $14 billion luxury residential project called the Pearl similar to Dubai’s palm-shaped islands. Saudi Arabia is trying to develop its own financial center in Riyadh that will challenge Dubai’s complex of banks including Deutsche Bank AG and Goldman Sachs Group Inc. “It’s healthy to develop competition,” Sheikh Hamad Bin Jabor Bin Jassim al-Thani , director general of Qatar’s General Secretariat for Development Planning said yesterday in Dubai. “We need to embrace where our strengths are and ensure that we focus around them at the initial stage.” Tallest Tower Saudi Arabia’s Kingdom Holding Co., whose chairman is Prince Alwaleed Bin Talal , started a $26.6 billion real estate project that will include the world’s highest tower, overtaking the U.A.E.’s Burj Dubai set to open Jan. 4. “Everyone’s been trying to build the biggest airport, the best tourist infrastructure,” said Kinninmont. “Everyone is trying to compete for the same territory.” Investor confidence has deteriorated as Kuwaiti investment firms Global Investment House KSCC and Investment Dar along with the two Saudi family holding companies defaulted on debt. Global said Dec. 10 it signed an accord to restructure $1.73 billion. Dubai World, whose property unit is building the landmark palm-shaped islands, sought a “standstill” agreement with creditors. Dubai’s benchmark share index is down 22 percent since Nov. 25, while bond prices tumbled and the credit ratings for several Dubai companies were cut. ‘Top Pick’ Saudi Arabia, the Arab world’s biggest economy, is Mostaque’s “top pick” to emerge strongest. The kingdom’s central bank governor, Muhammad al-Jasser , has said that the economy is in recovery and it may avoid a contraction this year as oil prices rebound to what the world’s largest oil exporter deems a “fair price” of $75. Then there’s Qatar. The world’s largest exporter of liquefied natural gas “is a strong story,” according to Marios Maratheftis , a Dubai-based economist at Standard Chartered Plc. The Gulf state is forecasting economic growth of 9 percent this year and 16 percent next year. “The economies that have better balance sheet structures will recover a lot quicker,” said Ahmet Akarli , a London-based economist at Goldman Sachs. “Saudi Arabia has a healthier balance sheet, so does Qatar, even Abu Dhabi is in a good position but Dubai will drag the U.A.E. down.” To contact the reporter on this story: Camilla Hall in Dubai at chall24@bloomberg.net

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Mixed-Sex Saudi University Championed by Abdullah Hits Clerical Opposition

November 25, 2009

By Henry Meyer and Glen Carey Nov. 25 (Bloomberg) — Saudi Arabia, the only country in the world that forbids women from driving, isn’t ready to alter that, said Ali Suwaiyel, a 28-year-old Saudi banker. “What’s the hurry?” he asked as he sipped a coffee in a Starbucks in Riyadh, wearing a traditional white Arabic robe and sunglasses. “What are the benefits?” King Abdullah , 86, sees the need for speed in changing his country. He is creating secular universities, including a coeducational graduate school, and pushing for more science and technology in education. The king needs a well-trained workforce to diversify the world’s largest oil exporter from energy and create jobs for Saudi Arabia’s youth, more than 25 percent of whom are unemployed. Failing to raise the fortunes of the almost 40 percent of the population under 15 would make the Islamic state even more susceptible to extremism, said Simon Henderson , an expert on the Gulf monarchies at the Washington Institute for Near East Policy. Stability of world oil supplies depends on Saudi Arabia, a key U.S. ally. A backlash by clerics, led in public by Sheikh Saad Bin Naser al-Shatri, is slowing those efforts, though the king dismissed al-Shatri from the country’s top religious body last month. “We’re missing a lot of opportunities because of religious opposition,” said Jamal Khashoggi , editor of al-Watan newspaper in Jeddah. It is owned by Prince Khaled al-Faisal, governor of that province. “The conservatives are fighting back.” No Film Festival Al-Shatri publicly criticized the country’s first co- educational university in September. This followed the last- minute cancellation in July of a Jeddah film festival that had run annually since 2006. The Arab News said a cancellation order was issued by local authorities, citing festival organizers. Under a pact between the ruling al-Saud family and the Sunni Muslim hierarchy dating back to 1744, Saudi Arabia maintains an austere brand of Islam in return for clerics’ acceptance of the crown, according to official history . The Wahhabi religious establishment controls the courts and dominates the education system. Prince Turki al-Faisal , whose father, King Faisal, introduced female education in the early 1960s and deployed soldiers to protect girls attending school, said there is similar opposition now. “Any reform agenda will face resistance but that has not disrupted King Abdullah,” said Turki, 64, a former ambassador to the U.S. and U.K. and intelligence chief from 1977 to 2001. Women Driving To lure foreign academics and international students to his King Abdullah University of Science and Technology , known as KAUST, the Saudi monarch relaxed the rules. Women don’t have to wear the abaya, a black robe that covers all but the face, and are allowed to drive in the fenced- off campus 80 kilometers (50 miles) north of Jeddah. “This is something I never expected to see in my lifetime in Saudi Arabia,” Hommood al Rowais, 23, a student in a black baseball cap, blue shorts and a T-shirt who is the son of a Saudi diplomat in Washington, said in an Oct. 14 interview on the newly built campus. Abdullah also is building four industrial cities, including the King Abdullah Economic City near KAUST. The government says they will create 1 million new jobs by 2020 in a country whose population is now 28 million. The aim is to build energy-related industries such as plastics, petrochemicals, aluminum and steel. Saudi Arabia depends on oil exports for 90 percent of its revenue. More Manufacturing Saudi Arabia could increase manufacturing’s share of the economy from 11 percent to 16 percent within the next decade, according to John Sfakianakis , chief economist at Banque Saudi Fransi in Riyadh, the capital. Elementary schools devote 31 percent of their time to religion and 20 percent to math and science, according to a report last year by Booz Allen Hamilton , a McLean, Virginia- based consulting firm. The king faces difficulties too as he tries to modernize the religious-run judiciary to create a favorable environment for business and foreign investment. In 2007, Abdullah said Saudi Arabia would reform the legal system by establishing a supreme court and commercial and labor courts. The future judges who can bring the system more in line with international norms are “now studying in school,” Bandar bin Mohammed al-Aiban, president of the government-run Saudi Human Rights Commission, said in an interview in Riyadh. “This will take a long time.” Interior Minister Prince Nayef bin Abdulaziz became first deputy prime minister, the third most powerful position in the country, in March. He is more wary of provoking clerical opposition than Abdullah, said Khashoggi. Religious Police The head of the religious police, Abdelaziz al-Humayyin, ordered stepped-up patrols in July. The police enforce separation of unmarried males and females and a ban on alcohol, and require Muslims to respect prayer times. Just days after the Saudi monarch presided over a Sept. 23 inauguration ceremony for KAUST in which he called it a “beacon of tolerance,” al-Shatri said in a television interview that mixed-gender classes were “evil.” Suwaiyel, the banker, said he thinks women will drive someday in Saudi Arabia, though not for 10 or 15 years. Granting them the right earlier “would cause a lot of friction,” he said. “I believe Saudi Arabia is going to change but at its own pace,” he said. “The conservatives are resistant to change and they don’t want it right now.” To contact the reporters on this story: Henry Meyer in Riyadh at hmeyer4@bloomberg.net . Glen Carey in Riyadh at gcarey8@bloomberg.net

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GMAC Says de Molina Quit as CEO, Delays Third Infusion of Taxpayer Money

November 16, 2009

By Dakin Campbell and David Mildenberg Nov. 16 (Bloomberg) — GMAC Inc., the auto and home lender bailed out twice by the U.S., said Alvaro de Molina resigned as chief executive officer, and the firm asked the Treasury Department to postpone a third infusion of taxpayer money. Michael A. Carpenter , 62, was named CEO, according to a statement today from the Detroit-based lender. Carpenter held CEO roles at Citigroup Inc.’s Global Corporate & Investment Bank, Salomon Smith Barney, Travelers Life & Annuity and Kidder Peabody & Co., and is resigning from the board of CIT Group Inc., the bankrupt commercial lender, the statement said. “I came to GMAC thinking that it was a short-term assignment working through a liquidity crisis,” said de Molina, 52, in the statement. “That crisis lasted two years. With the help of government support and the incredible efforts of our team, we are now on stable footing, positioned for profitability in 2010 and beyond. It is a good time for me to move on.” GMAC benefited from $13.5 billion in government aid after the U.S. decided the lender was crucial to the survival of the U.S. auto industry . The firm said today it asked the Treasury to delay a new injection from the Troubled Asset Relief Program that was being negotiated until Carpenter assesses GMAC’s needs. The company was seeking as much as $5.6 billion. Chairman Franklin W. Hobbs asked de Molina to leave at midday meeting, the Wall Street Journal reported , citing people familiar with the matter. The board was concerned about his leadership and vision for the company, the Journal said. Cerberus Role “That decision was 100 percent a decision by the board of directors,” said Andrew Williams , a Treasury spokesman. The U.S. has a 35.4 percent stake in the firm. De Molina clashed with Cerberus Capital Management head Stephen Feinberg , who holds a seat on GMAC’s board, the Journal reported. His investment firm owned a controlling stake in GMAC before the U.S. bailout, and now holds a minority stake. Automaker General Motors Co., GMAC’s former parent, also retains a stake. De Molina had joined Cerberus in June, 2007 following a career at Bank of America Corp. He was named GMAC’s chief operating officer in August 2007 and became CEO in April 2008. The lender cited de Molina for his help in converting GMAC into a bank holding company, a change that helped make it eligible for U.S. aid, and the establishment of Ally, its online consumer bank. Ally lured deposits with above-market interest rates and an advertising campaign that satirized deceptive practices in the banking industry. Losing Money De Molina’s name surfaced in speculation about who will succeed Kenneth D. Lewis , 62, as CEO at Bank of America , the biggest U.S. lender, where de Molina was once the chief financial officer. The bank isn’t planning to offer him the job, according to a person familiar with the selection process. De Molina recruited more than four dozen former Bank of America executives to GMAC, including Chief Risk Officer Sam Ramsey , Treasurer Jeff Brown and Chief Marketing Officer Sanjay Gupta . De Molina declined to comment via e-mail. Carpenter, a Harvard Business School graduate, takes over a company that reported losses in eight of the past nine quarters, driven in part by defaults on home loans. The firm’s Residential Capital LLC unit has ranked among the biggest U.S. mortgage lenders and once was among the largest sellers of subprime mortgages, which helped trigger the credit crunch. Analysts and bond investors have urged GMAC to sever ties with ResCap, raising speculation about bankruptcy for the unit. GMAC doesn’t have any publicly traded stock. Carpenter’s Career Carpenter was named to the board in May as part of its agreement with the government to become a bank holding company. At the time he was chairman at Southgate Alternative Investments, a firm he founded in 2007. He joined Travelers in 1994 to run its life insurance division after leaving Kidder, Peabody & Co. He became co-head of Salomon in 1998 with Victor Menezes , and sole head of the investment bank in 2000. In September 2002, he was replaced by Charles “Chuck” Prince and went on to oversee Citigroup Alternative Investments, the company said. “We have a special obligation to the public to do everything we can to ensure GMAC succeeds,” Carpenter said in the statement. He said that resolving the mortgage unit’s problems and repaying the U.S. are among his priorities. To contact the reporter on this story: Dakin Campbell in San Francisco at dcampbell27@bloomberg.net

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Dan Collins: The Smartest Guy in the Room

October 27, 2009

If New York was mother to many of the evildoers in the financial disaster that sent the economy into a tailspin, it’s also home to an avenging angel for the millions of ordinary Americans who lost billions of dollars in the meltdown. The guy with the wings and the sword also wears robes: He’s federal Judge Jed Rakoff. The shock waves from Rakoff’s scathing denunciation last month of a proposed settlement between the Securities and Exchange Commission and the Bank of America are still rippling through Wall Street and Washington. Bank of America CEO Ken Lewis is on his way out, and New York Attorney General Andrew Cuomo is pressing an investigation into the deal in which the bank purchased ailing Merrill Lynch last December without telling its shareholders that executives of the tottering brokerage were paid $3.6 billion in bonuses shortly before the takeover was announced. A congressional panel is also probing the deal. The common-sense wisdom of Rakoff’s ruling resonated with a public infuriated with billion-dollar bonuses and bailouts. The SEC signed off on an agreement in which the bank agreed to pay $33 million (in shareholder money) for concealing the bonus payments from the shareholders. In effect, the victims were being punished, a topsy-turvy outcome fairly typical of the SEC’s handling of wrongdoing by large corporations in cases like these. “Oscar Wilde once famously said that a cynic is someone ‘who knows the price of everything and the value of nothing,’” Rakoff wrote. The proposed consent judgment in this case suggests a rather cynical relationship between the parties: the S.E.C. gets to claim that it is exposing wrongdoing on the part of the Bank of America in a high-profile merger; the Bank’s management gets to claim that they have been coerced into an onerous settlement by overzealous regulators. And all this is done at the expense, not only of the shareholders, but also of the truth. Rakoff’s ruling may well mark the dawn of a new era in corporate accountability, since the judge has pressed for the names of the bank executives responsible for hiding the bonus payments. “I think Judge Rakoff resented the degree to which a government agency was seeking to pull the wool over his eyes, and just blandly stating it was his duty to rubber-stamp their settlement,” said Columbia Law School professor John Coffee, who teaches a seminar on white-collar crime at Columbia with Rakoff. The federal jurist who overturned the Wall Street applecart is a 66-year-old workaholic who neither smokes nor drinks, according to friends and colleagues. In keeping with that New York theme, Rakoff enjoys Broadway show tunes and once dreamed of becoming a lyricist. The judge and his wife of 35 years, Ann, have three daughters. The couple enjoys ballroom dancing. He admires the writing of Kafka and Arthur Miller, and is himself admired for legal opinions filled with sharp writing and laced with wit. His legal hero is Benjamin Cardozo, the Supreme Court justice from New York whose lofty reputation rests partly on his writing skill. Lawyers who know Rakoff mention three qualities that mark his style as a jurist: intelligence, independence and a thoroughness that can turn the resolution of an apparently routine legal question into a day-long hearing. “He is one of the best federal judges that I have ever seen,” said criminal defense lawyer Gerald Shargel, “because he’s the smartest guy in the room, he’s painstakingly fair, and he never kowtows to the government.” Last summer, Rakoff imposed a 20-year-sentence on Shargel’s client, Marc Dreier. (Dreier, a prominent Manhattan lawyer, financed a Gilded Age lifestyle for himself by selling fake promissory notes to hedge funds and other investors. He stole about $400 million before he was caught impersonating a lawyer for a Canadian retirement fund he hoped to loot.) Given the temper of the times, and the irritability of the public, Shargel found himself treated like a winner by other lawyers after the sentence was announced. Bernard Madoff had gotten 150 years for his $50 billion fraud and the government had urged Judge Rakoff to send Dreier to prison for 145 years, apparently calculating that the shady barrister was only slightly less evil that the Prince of Financial Darkness himself. But Rakoff refused, “Mr. Dreier’s crimes, despicable though they may be, pale in comparison to Mr. Madoff’s,” he said. “What I said to the lawyers who contacted me was that we’ve come to a very strange place if I’m getting congratulated for ‘winning’ a 20-year sentence for a 59-year-old white collar offender,” Shargel recalled. Since he was named to the federal bench by President Clinton in 1995, Rakoff has built a judicial resume that includes overturning the federal death penalty (reversed on appeal), thumbing his judicial nose at federal sentencing guidelines and forcing the Pentagon to reveal the names and nationalities of hundreds of detainees held at Guantánamo Bay. Some of Rakoff’s more interesting opinions have come in cases that are less than earth-shattering. In 2005, for example, New York City put the kibosh on a block party in Chelsea because the organizer planned to let artists spray graffiti on mock-ups of subway cars. Mayor Michael Bloomberg argued that such activity would encourage vandals to deface real subway cars with graffiti. Judge Rakoff disagreed. “By the same token, presumably, a street performance of ‘Hamlet’ would be tantamount to encouraging revenge murder,” Rakoff wrote. “As for a street performance of ‘Oedipus Rex,’ don’t even think about it.” “He has an extremely droll sense of humor. One might almost call it puckish,” said Ron Kuby, the lawyer ( and HuffPost blogger ) who represented the party-thrower. Rakoff’s strong suit is securities law. He was born in Philadelphia and, after graduating from Swarthmore in 1964, attended Oxford and Harvard Law School. According to friends and colleagues, he arrived in New York City in 1970 with a dual dream: He would work as a lawyer by day and by night write the book for a musical that would take Broadway by storm. Despite Rakoff’s love of lyrics, the law won out. He soon joined the prestigious U.S. Attorney’s office in Manhattan, where he worked as a prosecutor for seven years, including two as chief of the securities fraud unit. That paved the way for a career in private practice that made him one of the top securities lawyers in the U.S. (He has written a number of books and more than 100 articles). “He was a great, great securities litigator. He’s forgotten more about securities law than some of the top lawyers in the country have ever known,” said Anthony Sabino, a professor of law and business at St. John’s University. “His knowledge of securities law is such that if he asks you a question, you’d better have the answer. The SEC and the Bank of America didn’t have the answers, and that’s why they’re in the pickle that they’re in.” The bank and the government agency are scheduled to go to trial in Judge Rakoff’s courtroom in March. Not surprisingly, given Rakoff’s harsh criticism of the $33 million deal, both sides have opted for a jury trial.

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Saudi Basic Industries Quarterly Net Declines 50%; Beats Analyst Estimates

October 18, 2009

By Glen Carey Oct. 18 (Bloomberg) — Saudi Basic Industries Corp. , the world’s largest petrochemicals maker, said third-quarter profit dropped 50 percent as the global recession hurt prices and weakened demand for plastics and fertilizers. Net income declined to 3.6 billion riyals ($960 million) from 7.24 billion riyals a year earlier, Riyadh-based Sabic said today in a statement on the Saudi bourse Web site. The average estimate of five analysts surveyed by Bloomberg was for a 2.31 billion-riyal profit. “The improvement in third-quarter prices wasn’t as strong as it was in the second quarter,” Laurent-Patrick Gally, vice president of research at Shuaa Capital PSC, said in a phone interview from Dubai before the results were released. “Beyond the pricing, any growth in revenue would have had to come from increased volumes.” Sabic, 70 percent owned by the Saudi government, cut jobs and reduced production as the worst global recession since World War II decreased sales of plastics used for everything from packaging to car bumpers. The company reported a first-quarter loss of 974 million riyals, its first since 2001, after booking 1.18 billion riyals in goodwill writedowns attributed to Sabic Innovative Plastics in the U.S. Sabic shares fell 0.3 percent to 79 riyals in Riyadh before the earnings were released. The stock has advanced 53 percent this year, giving the company a market value of 237 billion riyals. BASF SE , the world’s largest chemical provider, has gained 43 percent this year. Falling Exports BASF, Dow Chemical Co. and other chemical makers have closed plants and revamped units to cope with falling orders brought on by the global credit crisis. Dow Chemical said on Sept. 10 that it will close styrene monomer and ethylbenzene production units in Freeport, Texas, by the end of the year. Other Saudi petrochemical companies have reported a drop in quarterly earnings as demand fell for products made by companies in the Arab world’s largest economy. Saudi non-oil exports in the second quarter fell 24 percent from a year earlier to 24.05 billion riyals, the state-run Saudi Press Agency said on its Web site, citing the kingdom’s statistics office. Saudi Arabian Fertilizer Co. , Sabic’s agriculture unit, posted a 75 percent profit decline in the third quarter to 464 million riyals. Urea and ammonia prices plunged as much as 70 percent in the period, Shuaa’s Gally said on Oct. 10. Advanced Polypropylene Co. , a Saudi petrochemicals maker, posted a 90 percent decline in profit. New Production, Demand Sabic plans to boost petrochemical production by 12 million tons in the next two years by expanding foreign ventures and domestic plants as the global economy improves. Chairman Prince Saud Bin Thunayan Al-Saud said in July that the increase will mainly come from a joint venture with China Petroleum & Chemical Corp., or Sinopec, and from units in Saudi Arabia. “We expect a strengthening of the global economic recovery to continue in the fourth quarter and in 2010,” Gally said. “This will translate to better a volume environment and sustained pricing. We also expect to see a contribution from new projects.” Sabic and Mitsubishi Rayon Co. agreed in August to set up a $1 billion joint venture making materials used for cars in a bid to compete with U.S. and European rivals including BASF. The company’s access to discounted feedstock gives it a competitive advantage over rivals that are also suffering from slumps in the automotive, construction and consumer industries. Eastern Petrochemical Co., the Sabic affiliate known as Sharq, will start an ethylene cracker by the end of the year, Anas Kentab, Sabic’s general manager of operations, said Oct. 7. Sabic’s affiliate Yanbu National Petrochemical Co. , or Yansab, announced the first shipment of ethylene glycol from its plant in Yanbu Industrial City in September. To contact the reporter on this story: Glen Carey in Riyadh at gcarey8@bloomberg.net .

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JPMorgan’s Dimon Morphs From Dealmaker to Visionary in McDonald Bio: Books

October 5, 2009

Review by Norman Pearlstine Oct. 6 (Bloomberg) — Business heroes are in short supply. Finding a business-banker hero quickly takes us to “camel through the eye of a needle” territory. During the past two years, disastrous losses, bad deals or bad behavior claimed the scalps of Stanley O’Neal and John Thain of Merrill Lynch & Co., Charles “Chuck” Prince of Citigroup Inc., James “Jimmy” Cayne of Bear Stearns Cos., Lehman Brothers Holdings Inc.’s Richard S. Fuld Jr. , and, last week, Bank of America Corp.’s Kenneth D. Lewis . Morgan Stanley’s John Mack (who plans to step down as chief executive officer on Jan. 1) and Lloyd Blankfein of Goldman Sachs Group Inc. were both humbled when they were forced last year to turn their investment banks into bank holding companies. Duff McDonald’s new biography, “Last Man Standing: The Ascent of Jamie Dimon and JPMorgan Chase,” identifies one of the few executives with a positive story worth telling. Dimon, 53, has emerged from the recent financial crises with his reputation intact. He is banking and finance’s most successful, most trusted and most important leader. JPMorgan Chase & Co. , America’s second-largest bank by assets, has posted a profit every quarter since he became CEO in December 2005. His lifelong insistence on strong balance sheets enabled him to acquire Bear Stearns with government assistance in March 2008 and the assets of Washington Mutual Inc. following a federal takeover and subsequent auction six months later. Two Stories The book tells two stories. The first chronicles Dimon’s 16-year apprenticeship with Sandy Weill , whom he joined in 1982 at American Express Co. after rejecting more prestigious offers from Goldman Sachs, Lehman Brothers and Morgan Stanley. Weill, a friend of Dimon’s parents, had recently sold his Shearson Loeb Rhoades brokerage firm to American Express and had become chairman of Amex’s executive committee. Weill quit American Express three years later. After more than a year of searching for deals together, Weill and Dimon bought Commercial Credit Co., a mundane, Baltimore-based consumer-finance company, from Control Data Systems Inc. That purchase was followed by bold acquisitions including Primerica, Shearson Lehman, Travelers Corp. and Salomon Inc. Then, in 1998, Weill gained control of Citicorp after merging it with his financial conglomerate, then called Travelers Group Inc. Deal-Making Skills Dimon perfected his deal-making skills and became a voracious consumer of financial details in those years. He saw himself as Weill’s heir apparent and assumed he would become president of Citigroup Inc., the company formed by the Citicorp- Travelers merger. Instead, Weill fired Dimon, shocking him and the business world. The second section of the book begins with Dimon’s years in Chicago, where he rescued Bank One Corp. after becoming its CEO in 2000, followed by his return to New York four years later as president of J.P. Morgan Chase, after it acquired Bank One. He became CEO the following year. It was during his time in Chicago that Dimon first met many of the civic leaders who now populate the administration of President Barack Obama . The latter part of the book deals extensively with the takeover of Bear Stearns and with Dimon’s calm under pressure last autumn when Lehman collapsed, almost bringing down the rest of Wall Street with it. It is during this period that Dimon fully morphs from dealmaker to visionary and industry spokesman. Passion for Business McDonald captures Dimon’s passion for business — his intensity, his mastery of detail, his competitiveness and his appealing preference for stream-of-consciousness explications. Unlike Weill, the quintessential one-man band, McDonald’s Dimon is a team player, able to meld JPMorgan’s extraordinary cast of all-stars from longtime associates, executives he inherited, and best-of-breed outsiders whom he lured to the bank. He can and does take responsibility for tough decisions, as he showed last week, when he fired a protege, London-based William Winters . “ Last Man Standing ” is an easy, compelling read. McDonald’s fluid style masks a careful attention to detail that rivals that of his subject. The book benefits from his extensive interviews with Dimon, his family and friends — interviews that help explain how Dimon’s rational and emotional sides coexist. If the book has a problem, it’s one of timing, perhaps appearing too late and too early. Many of the book’s best stories have already appeared elsewhere. Emotional Battles Monica Langley’s riveting biography of Weill, “Tearing Down the Walls,” captures the early years of deal-making and the emotional battles between Weill and Dimon. William D. Cohan’s “House of Cards” covered JPMorgan’s takeover of Bear Stearns with such precision that McDonald has trouble finding a detail or anecdote that hasn’t already appeared in print. For all his accomplishments, Dimon hasn’t run JPMorgan long enough to prove that his operating skills are as good as his deal-making prowess. He was smart enough to avoid the worst excesses that felled other financial institutions, and McDonald notes that Dimon got out of the subprime lending business before many of his rivals. Even so, Dimon didn’t fully appreciate how the subprime mess would spread to the rest of the home-loan market, McDonald says. As a result, JPMorgan took big writedowns for poor housing loans and for leveraged corporate loans. JPMorgan could still hit serious speed bumps as the economy continues to struggle. Dimon has given no indication that he plans to leave JPMorgan any time soon. A Democrat and Obama supporter, he is mentioned frequently as a possible successor to Treasury Secretary Timothy Geithner or as a candidate for other Cabinet positions should they become open. McDonald suggests other possibilities, including teaching, investing, or, according to Dimon’s wife, opening his own restaurant and turning himself into Sam Malone of “Cheers.” Dimon is young enough that “Last Man Standing” will certainly need updates. One can only hope that McDonald will want to write them. “Last Man Standing” is published by Simon & Schuster in the U.S. (340 pages, $28). To buy this book in North America, click here . ( Norman Pearlstine is the chief content officer for Bloomberg News. The opinions expressed are his own.) To contact the writer of this review: Norman Pearlstine in New York at npearlstine@bloomberg.net .

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