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Dean Baker: The Soft Bigotry of Incredibly Low Expectations: The Case of Economists

September 13, 2010

In a country with almost 15 million people out of work, it is amazing that any economists still have jobs. This one is their fault first and foremost. Economists are supposed to know about the economy and provide advice on how to avoid disasters before they happen and help us recover from the bad things happen in spite of good advice. The economics profession has not done well on this simple scorecard. Remarkably, rather than improve their game, economists are now busy dampening down expectations so that the public will not hold them responsible for the state of the economy. Towards this end, a group of Fed economists recently put out a new study claiming that it was impossible for economists to recognize the $8 trillion housing bubble before it wrecked the economy. In effect, they argued that economists should not be blamed for this failure because: “The state-of-the-art tools of economic science were not capable of predicting with any degree of certainty the collapse of U.S. house prices that started in 2006.” This raises the obvious question: if economists can’t see an $8 trillion housing bubble, what can they see? This is bit like the firehouse where everyone sits around calmly sipping their coffee as the school across the street burns down. Completely missing the largest financial bubble in the history of the world is pretty inexcusable, even if economists continue to make excuses. Having failed to prevent disaster, economists are now anxious to tell us that there is nothing that they can do to remedy the situation. The story they are pushing is the unemployment is structural, not cyclical. This means that people are not unemployed because of a lack of demand in the economy, but rather they are unemployed because there is a mismatch between the available jobs and the skills and location of the available workers. Before examining the argument here more closely, it is worth noting that arguments about rising structural unemployment come around during every recession. When the economy fails to produce jobs fast enough to bring down the unemployment rate economists quickly turn to blaming the workers. The problem is not that economists came up with bad policies; the problem is that workers don’t have the right skills or live in the right place. This happened after each of the last four recessions. The story the economists tell is that we have jobs available but the workers who are unemployed don’t have the skills to fill these jobs. The “structural unemployment” gang got a big boost last week when the Bureau of Labor Statistics reported an increase of 180,000 in the number of unfilled job openings for July. There are some logical implications of the structural unemployment story that are easy to test. For example, if there are sectors of the economy where they is a substantial unmet demand for labor then we should expect to see wages rising rapidly in these sectors. This is a simple supply and demand story. If demand exceeds supply then we should expect to see wages rising as firms compete for workers. There is no major sector in which wages are keeping pace with the overall rate of productivity growth. Wages have been rising pretty much at the rate of inflation in most sectors for the last year and a half. In fact, taken as a whole the wages of production/non-supervisory workers have been rising slightly more rapidly than the wages of all workers over the last year and a half. Since all of the less-skilled jobs fall in the production/non-supervisory group, this suggests that the premium for skills has actually fallen somewhat in the last year and a half, the direct opposite of the structural unemployment story. In the same vein, if employers can’t find enough skilled workers, then we would expect them to have their existing workforce put in more hours. So, there should be sectors of the economy where average weekly hours are increasing. The evidence refuses to cooperate here also. The biggest increase in average hours over the last year has been in mining and logging and manufacturing, industries that are not typically thought to be centers of new economy skills. On the whole, average weekly hours are far below their pre-recession level. Oh yeah, and what about that big jump in job openings in July? With the July jump there are just over 3 million job openings being reported which gives us a little more than 1 opening for every 5 unemployed workers. Furthermore, the current number of openings is down by roughly a third from its level in 2007, before the recession began. And, no one was talking about structural unemployment three years ago. In short, there really is no evidence for a problem of structural unemployment. The problem is that because of bad policy we don’t have enough demand in the economy. If there is a mismatch of jobs and skills it is between economist positions and the people who fill them.

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Dean Baker: Ben Bernanke’s Trifecta of Errors

September 9, 2010

Many have noted the resemblance between the Federal Reserve Board and the Catholic Church. Both have long traditions of secret convocations: meetings of the Open Market Committee and the College of Cardinals. Both have a revered leader: the Chair of the Board of Governors and the Pope. And both have claims to infallibility. OK, it is only the Pope who can explicitly claim infallibility. In the case of the Fed Chair, infallibility is bestowed by the business reporters and politicians who treat every word from the reigning Fed chair as a priceless pearl of wisdom. This aura of infallibility is especially painful in the current economic situation when error seems to be the new religion of the Fed. Just to remind everyone – since so much denial has dominated the debate – the only reason that we are facing near double-digit unemployment and the worst economic calamity in 70 years is that the Fed was out to lunch in combating the housing bubble. The Fed was apparently unable to recognize a massive and unexplained departure from a 100-year-long trend in the largest market in the world as a bubble. Even after they had just seen the stock bubble grow and implode they still could not conceive of a bubble in the housing market. Bernanke and other spokespeople for the Fed have also claimed that there was nothing that they could have done even if they did recognize the bubble. Call this colossal error number one. This is drunkenly driving the school bus into the lane of oncoming traffic killing all aboard. In most lines of work, you would be fired immediately and barred from ever working again. For the Fed chairman this is just a bad break. Having missed the largest financial bubble in the history of the world, Bernanke quickly moved to colossal error number two, failing to take adequate steps to counteract the downturn. While Bernanke deserves credit for being more aggressive than some of the quacks who would have just let the financial system melt down completely, his response to mass unemployment has been woefully inadequate. The Fed should be targeting a higher rate of inflation in the 3-4 percent range. This would reduce real interest rates and debt burdens. What is the downside in this picture; inflation accelerates too much and hits 5-6 percent? How does that compare to years of excessive unemployment with millions of people unemployed or underemployed needlessly? No reasonable calculation of costs and risks would justify Bernanke’s timidity in the current circumstances. Bernanke’s third colossal error is playing along with the deficit fervor being promoted by those seeking to gut Social Security, Medicare and other areas of social spending. The downturn has predictably led to an explosion of the deficit, as public spending had to fill the gap created by the collapse of private spending. However there is no reason whatsoever why this deficit should place any burden on the long-term federal budget. A responsible Fed chairman would announce his intention to simply buy and hold the government debt used to finance the deficit. This would prevent the debt from placing any future burden on the public budget since the interest payments on the debt would go to the Fed. The Fed would in turn refund the interest to the Treasury each year, leaving no net interest burden on the government. Japan’s central bank currently holds an amount of public debt that is almost equal to its GDP ($14.5 trillion in the case of the United States). As a result, Japan’s interest burden is less than that of the United States even though its ratio of debt to GDP is 220 percent, almost four times the ratio in the United States. If Bernanke were honestly doing his job he would be educating the public about why debt run up to counteract a downturn need not impose a burden on the budget. Instead, he is running around telling Congress to cut Social Security because “that’s where the money is.” The country is paying an enormous cost for Bernanke’s trifecta of errors. In any other line of work any one of these errors would be huge enough to have someone drummed out of the profession. But the Fed has more in common with the Catholic Church than it does with normal institutions. As a result, Pope Bernanke is really messing up big time, yet he is still being allowed to wear the mantle of infallibility and the rest of us are being forced to suffer the consequences. (from the Guardian)

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Money Buys Happiness — If You Make Under $75K A Year: Study

September 7, 2010

People say money doesn’t buy happiness. Except, according to a new study from Princeton University’s Woodrow Wilson School, it sort of does — up to about $75,000 a year. The lower a person’s annual income falls below that benchmark, the unhappier he or she feels. But no matter how much more than $75,000 people make, they don’t report any greater degree of happiness.

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Robert Kuttner: Not Just Jobs — Good Jobs

September 5, 2010

On Labor Day 2010, we are short at least 25 million jobs. And just as importantly, we don’t have enough jobs that pay decently. The press last week was full of stories that the jobs picture was not as dismal as feared. The economy is actually generating jobs again — just not enough to make a dent in the backlog of 15 million Americans officially out of work and another 8 million with part time jobs seeking full time ones, and millions more out of the labor force entirely. In the government’s most recent report, released Friday, officially measured unemployment actually increased to 9.6 percent, just one tenth of a point below its rate last Labor Day. The stock market rose on reports that we will avert a “double-dip” recession. Economic growth is still in positive territory. But the economy grew at a decent rate after the Great Depression bottomed out in 1933, as well. Nonetheless, unemployment remained stuck in double digits for the next seven years, until World War II. As in the middle and late 1930s, economic growth is positive — just not strong enough to create sufficient jobs. This, of course, is the lingering fallout from the financial collapse of 2008, just as persistent unemployment in the Depression was the legacy of the Crash of 1929. But there is a larger story here that predates the recent financial collapse. The economy not only has a scarcity of jobs, but a shortage of good jobs. And while Republicans would resist legislating a serious public jobs program, the administration should fight for one anyway. And there is plenty that government could do right now to improve jobs pay via executive powers. One of those powers is government’s role as a contractor. The other is to enforce laws already on the books that prohibit employers from stealing wages and that guarantee workers the right to join or organize unions. The Obama administration has made some heartening steps in both directions, but it could do a great deal more. Federal procurement, directly or indirectly, affects about one fourth of the jobs in the economy. In past administrations, government procurement was used as leverage to stop deeply entrenched patterns of racism in hiring and promotion. Before there were the votes in Congress to pass the great civil rights acts of the mid-1960s, Presidents Kennedy and Johnson used executive orders to require corporations bidding on federal contracts to end discriminatory practices. And during World War II, President Roosevelt’s War Labor Board required that companies with war production contracts have good labor relations — which meant acceptance of unions when workers voted for them. In the Obama administration, the Labor Department is getting an additional $25 million to better enforce wage and hour laws. And the Vice President’s Task Force on Middle Class Working Families is doing important work, though with a tiny staff. Obama, early in his term, issued four executive orders that mainly corrected for anti-labor orders by George W. Bush, but these do not take full advantage of the leverage that government has. Today, President Obama could issue orders requiring that companies bidding on government contracts behave as decent employers. This would be the game-changer. Unfortunately, companies that are flagrant union-busters, such as Fedex, still get billions in government work. Corporations that routinely disguise permanent workers as temps or independent contractors, in order to reduce their wages and rights, are still on the approved list. And contractors in agriculture that pay starvation wages and have appalling working conditions for farm workers still supply food products for the school lunch program and even for the Pentagon’s MREs — Meals Ready to Eat — for America’s service men and women. The American Prospect has just published a special report on all the things government could be doing — without new legislation — to turn bad jobs into decent ones. The high rate of joblessness has gotten nearly all the attention. But the declining quality and pay of most jobs is every bit as big a problem. Wages, adjusted for inflation, have barely risen in three decades, while productivity has doubled. Nearly all of the gains have gone to the very top. Very high unemployment only exacerbated that trend, because it puts job-seekers into competition with one another for the available work, and undermines any remaining leverage for raises, a word we don’t hear much lately. Even before the recession started, in the period from 2000 to 2007, only about three percent of the workforce managed to increase their earnings adjusted for inflation. The long term trend reflects an epic shift in the bargaining power of workers and managers. The causes are multiple. Unions have been weakened by relentless union-busting by industry, while government has largely failed to enforce worker rights to organize or join unions under the Wagner Act. Increased trade with countries that pursue predatory trade practices and that recognize no worker rights has undercut wages in the U.S. Companies that once had tacit social compacts with their stakeholders now feel free to outsource work if someone else will do it cheaper. Supposedly, education and training is the cure-all. But think about it. Back in the 1950s, when most Americans did not go to college and the average factory worker didn’t finish high school, our income distribution was far more equal and we had a blue-collar middle class. Today, tens of millions of college graduates are working at jobs that don’t require a college degree. Some professions that require extensive education have had fairly flat earnings over the past decade. Certainly we need a well educated workforce, but that by itself does not assure decent wages. In the 1940s, ’50s, and ’60s, median wages and the economy’s average productivity growth moved upwards in lockstep. The income distribution actually became more equal. That trend had little to do with the fact that workers were becoming better educated — and everything to do with the economy’s “equalizing institutions.” These included an effective labor movement, backed by government’s commitment to enforce worker rights and to expand opportunities. President Obama is in political trouble today because people are anxious about both their jobs and their paychecks. He could help himself and all working Americans by moving more boldly on both fronts. Robert Kuttner’s new book is A Presidency in Peril . He is co-editor of The American Prospect and a Senior Fellow at Demos.

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Video: Charles Calomiris Discusses U.S. Economy, Fed Policy: Video

August 27, 2010

Aug. 27 (Bloomberg) — Charles Calomiris, a professor at Columbia Business School, talks about the prospects for a double-dip recession in the U.S. and Federal Reserve monetary policy. Calomiris speaks with Deirdre Bolton and Pimm Fox on Bloomberg Television’s “InsideTrack.” (This is an excerpt of the full interview. Source: Bloomberg)

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Art Levine: Beyond Messaging: Obama’s Path to Jump Starting the Economy Without Congress

August 26, 2010

The rising jobless claims and skidding home sales make the Democrats’ selling job this November even tougher . But, cowed by deficit hawks, neither the Obama administration or Congress has shown an appetite for passing the sort of large-scale job creation packages that could make a difference in the ongoing jobless crisis . As the Washington Post observed this week, “A rapidly weakening economy threatens to undermine President Obama’s assertion that he has set the nation on a path to prosperity and, with barely two months until congressional midterm elections, Democrats find themselves with few options for reviving the faltering recovery. ” But the American Prospect and the progressive policy center Demos released a special report this week, to be featured in the magazine’s next issue, that could offer some short-term and long-term help by using the power of government agencies and contracts. These under-used strategies could be put into effect without needing to thread the needle of centrist Democrats and obstructionist Republicans in the Senate. As Robert Kuttner points out in the lead essay to this report, “The Case for Presidential Action,” that also features In These Times writer David Moberg, “The U.S. government spends half a trillion dollars a year to buy goods and services from the private sector. Federal procurement, directly or indirectly, influences about one job in four in the entire economy. And most most large national companies do business with the government,” including service and manufacturing companies that pay their workers relatively low wages, thwart unions and deny benefits. During a conference call this week on the report (hat tip to Campus Progress), experts pointed out: It seems Congress has given the administration the power to place conditions on those contracts–and the courts have backed them up. Ann O’Leary, a senior fellow at the Center for American Progress (CAP) senior fellow, notes that “This authority has been used by many presidents for many years.” If these aggressive enforcement and standards-raising actions were combined with effective messaging to scare the hell out of progressives and centrists over the prospect of a GOP and John Boehner take-over, it could conceivably make a difference — although time is running out before November. In his article, “Sweatshop Army: Why does the Pentagon use low-road companies to feed and clothe out troops?,” David Moberg points to the Wornick Company of Cleveland that pays its mostly immigrant work force less than $10 an hour, making it impossible for them to afford the company’s minimum health care plan. “Unfortunately,” Moberg says, “all too often the work on military contracts is ill-paid and abusive, just as it as at Wornick, and not an expression of government’s stated social policy, such as the 1935 Wagner Act’s commitment to encourage collective bargaining.” But more than just raising those contract workers could make a difference. As Demos summarized the authors and their key reform points: Harold Meyerson on the misclassification of regular workers as temporary or contract employees, and the potential impact of a high-profile and systematic enforcement effort targeted at the large companies that employee them. David Moberg on Pentagon contractors that are notorious low-wage employers, and why there is a national security case for government to set and enforce labor standards in defense contracting. This piece looks specifically at the principal contractors producing MREs and military uniforms. David Bensman, Professor of Labor Studies and Employment Relationships at Rutgers University, on federal reclassification of transportation workers and reforming US ports by modernizing safety systems and requiring trucker certification. Steve Franklin on how the Department of Agriculture, which spends upwards of800 million on produce for the school lunch program, can extend bargaining rights to farm workers and sponsor a bill of rights that includes access to sanitary facilities, clean water, and decent housing. Jan Breidenbach on making sure that government-sponsored green housing jobs, which includes the installation of solar panels and retrofitting homes, are high-wage jobs. And others on paying childcare workers a decent wage, insisting on high- quality manufacturing jobs, and the broad social and economic benefits of a high-wage workforce . As a St. Petersburg Times columnist observes: What can be done to undo the damage without legislative action, since Republicans will oppose anything proworker? Kuttner suggests that the most consequential immediate action Obama could take is to start using government’s buying power to reward good labor practices. It must be big-time, governmentwide, and high-profile. One in every four jobs in the economy is influenced by federal procurement, whether it’s foodstuffs for the military or Medicaid payments to nursing homes. Jobs in these industries could be transformed tomorrow if contracts were awarded only to employers who paid living wages, provided benefits, respected labor laws and didn’t interfere with unionizing. As Congress fights over tax breaks for millionaires, the administration could be changing the economic prospects of millions of low-skilled workers. Boosting pay and working conditions for, say, nursing home workers under new Medicaid rules could provide real hope to working poor parents. Yet in the political battles in the run up to the November, the upset victories of some Tea Party candidates in the GOP primaries are adding to the fears of some in the Democratic Party that a mobilized conservative base could trump Democratic arguments that the economy would be worse under the GOP. As Politico reports: Top Democrats are growing markedly more pessimistic about holding the House, privately conceding that the summertime economic and political recovery they were banking on will not likely materialize by Election Day. In conversations with more than two dozen party insiders, most of whom requested anonymity to speak candidly about the state of play, Democrats in and out of Washington say they are increasingly alarmed about the economic and polling data they have seen in recent weeks. They no longer believe the jobs and housing markets will recover — or that anything resembling the White House’s promise of a “recovery summer” is under way. They are even more concerned by indications that House Democrats once considered safe — such as Rep. Betty Sutton, who occupies an Ohio seat that President Barack Obama won with 57 percent of the vote in 2008 — are in real trouble. In two close races, endangered Democrats are even running ads touting how they oppose their leadership. “Democrats kept thinking: ‘We’re going to get better. We’re going to get well before the election,’” said one of Washington’s best-connected Democrats. “But as of this week, you now have people saying that Republicans are going to win the House. And now it’s starting to look like the Senate is going to be a lot closer than people thought.” But some progressives and Democrats are hoping that a more effective message — focusing on part on the consequences of Rep. John Boehner becoming Speaker of the House — might help mobilize voters to resist the upsurge in conservative-driven anger and keep enough Democrats in office. As Washington Post blogger Greg Sargent notes: There’s a reason the White House and Dems are throwing everything they have at John Boehner’s speech attacking Obama’s economic policies: Dems and White House advisers know they must not allow Boehner and the GOP to achieve a clean relaunch of their party and their ideas heading into the midterms. The big underlying fight right now is over whether Republicans will succeed in rebranding themselves, achieving separation from Bush and the party that ran Congress before the Dem takeover, or whether Dems will successfully convince the electorate that a vote for the GOP is a vote for the party that brought our economy to the edge of doom. So the White House is circulating a new set of talking points instructing Dems on the Hill and outside allies to reiterate these ideas: In a speech in Cleveland [this week], House Minority Leader John Boehner laid out Congressional Republicans’ economic dream. Their prescription for the future = the same policies that led to the worst recession since the Great Depression. They want more tax breaks for the rich, less oversight of Wall Street, and a tougher burden for middle-class families… Representative Boehner is ignoring his party’s own record, and he’s hoping that American families will, too. In the eight years before the Obama Administration took office, the Republican Leadership took the record surplus and turned it into a record $1.3 trillion deficit. Their irresponsible policies helped to create the worst economic downturn since the Great Depression, resulting in 22 months straight of job losses across America. Faced with these grim economic numbers, what can Democrats do now to save Congress? A progress writer at Daily Kos, writing under the name Meteor Blades, has some sound suggestions worth considering: To effectively put the Republicans on the defensive, the administration needs more than a message of the-economy-would-be-a-whole-lot-worse if-these-guys-had-been-in-power, even though that assessment is absolutely true. To this end, combined with a thorough thrashing of the GOP for its devil-take-the-hindmost policies, shortly after Labor Day, the administration should present basic elements of a new economic program for the next two years. It should be a program emphasizing our acute emergency, of course. But it should also lay the foundation for resolving some of the chronic problems that helped generate the emergency. That means, as so many critics have said, new approaches to trade, industrial policy, off-shoring, wage stagnation and arbitrage, and regulation. It should also look even deeper, how to deal with people’s needs for economic security in a world in which automation and other productivity-enhancing changes make the old job paradigm obsolete. No way, obviously, can reforms in all those areas be achieved in a mere two years, but a start can be made, a direction laid out. Such an economic program ought also to boast one big project, not just a flashy eye-catcher, but something practical, job-generating and an investment in the future. Replacing all our coal plants with clean-energy sources over a decade would be one possible choice with multiple benefits. But there are others. In the immediate future, these two messages could reinvigorate voters whose enthusiasm for keeping the Party of No out of office has waned during the past few months. Together, they would provide inspiring talking points to activists in the phone-bank and door-to-door trenches for their use in persuading Americans that staying at home, or choosing Republican candidates, will worsen the economic situation. But a far-sighted economic program must ultimately be about something far more important than merely winning an election. Yet given the cautionary tone and policies of the administration so far, even in the face of a continuing economic crisis and looming political disaster, it’s not at all clear such aggressive steps will be taken. UPDATE : There’s mounting evidence, according to the Congressional Budget Office, that President Obama’s stimulus package has had a positive impact on saving and creating millions of jobs. But it’s also transforming the economy, as a new Time magazine article highlights (hat tip to the Daily Beast )—but that reality hasn’t been translated into effective political salesmanship yet. ******************** This article originally appeared in the Working In These Times blog.

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For-Profit College Shares SINK After Corinthian Revelation

August 20, 2010

NEW YORK — Shares of for-profit schools slid Friday after Corinthian Colleges Inc. said its student loan repayment rates were deteriorating, putting it at risk of losing access to federal financial aid for some programs. The Department of Education can suspend a school’s access to federal financial aid if the default rate is 25 percent or greater for three years in a row. That aid makes up the bulk of for-profit education companies’ revenue. A DOE study released last Friday showed Corinthian students repay loans at one of the lowest rates among those who attend publicly traded companies’ schools. Corinthian offered a first-quarter forecast Friday that fell below analyst expectations and said it was unable to forecast its fiscal 2011 performance because of uncertainty about the impacts of regulatory changes and its decision to limit student enrollments to improve graduation and loan repayment rates. Its shares tumbled 86 cents, or 16 percent, to $4.54 in Friday afternoon trading. The stock, which has lost two-thirds of its value in2010, had not traded below $5 between August 2000 and this week. Corinthian’s bad news pulled down other stock in other for-profit education companies, many of which have made changes to accommodate new regulation and lawmakers’ concerns. For-profit education companies’ shares have fallen this year as regulators and lawmakers address soaring student loan defaults, aggressive recruiting by enrollment counselors and concerns about the quality of education the companies provide. Corinthian expects that the number of its schools with student loan default rates above 25 percent will be “substantially higher” for students beginning to pay in 2009 fiscal year than for the 2008 group. Up to three of the company’s schools could become ineligible with the 2009 data, joining 49 already ineligible, Corinthian said. The company also said it is stopping enrollment of students more likely to default on loans and drop out, who make up 15 percent of its student population. Corinthian expects this change to result in flat new student growth for the year, down substantially from the double-digit growth of the last few years. The company said Friday that it expects first-quarter net income between 38 cents and 41 cents a share. Analysts had predicted net income of 45 cents per share. Several companies have cut their outlooks when reporting quarterly results recently, saying regulatory changes and efforts to improve the school experience for students will slow enrollments. The sector’s biggest decliners were Education Management Corp. and Lincoln Educational Services, which both tumbled 5 percent. DeVry Inc., ITT Educational Services Inc. and Career Education Corp. slid about 4 percent. Bridgepoint Education Inc. fell 3 percent, while Strayer Education Inc., Capella Education Co. and Grand Canyon Education Inc. all shed about 1 percent. Apollo Group Inc., which owns the largest school chain in the country, the University of Phoenix, fell 18 cents to $40.41.

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Executive Pay: Wall Street Reform Bill Gives Regulators Power Over Compensation

August 19, 2010

That largely overlooked provision of the law gives federal agencies expanded powers to write regulations dictating pay at financial firms. How they choose to use these powers could have a major impact on whether banks pursue excessive risks. “The financial crisis made patently clear that the direct regulation of the choices that banks make is bound to be imperfect because regulators are often following behind,” said Lucian A. Bebchuk, a Harvard Law School professor who has advised the Obama administration on executive compensation issues.

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EducationDynamics Names Patricia Franz as Vice President of Enrollment Management

August 18, 2010

Industry Veteran to Help Expand Enrollment Services for Company’s Test Drive College and Test Drive Grad School Programs

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Video: Calomiris Sees Need for New Home Down Payment Rules: Video

August 17, 2010

Aug. 17 (Bloomberg) — Charles Calomiris, professor at Columbia Business School, talks about Fannie Mae and Freddie Mac and his proposals to fix the government-sponsored enterprises. Calomiris speaks with Margaret Brennan on Bloomberg Television’s “InBusiness.” (Source: Bloomberg)

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Wal-Mart Profit Rises But U.S. Sales Weak

August 17, 2010

NEW YORK — Wal-Mart Stores Inc. reported a 3.6 percent increase in second-quarter net income and raised its earnings guidance for the full year as it benefits from cost-cutting and robust global growth in China, Brazil and Mexico. But a closely watched measure of revenue fell more than expected, dragged down by its U.S. Walmart division, as its main customers have felt the biggest impact of the economy’s woes. The discounter said Tuesday it had net income of $3.59 billion, or 97 cents per share, for the period ended July 31. That compares with $3.47 billion, or 89 cents per share, a year ago. Revenue rose almost 3 percent to $103.7 billion. Revenue at stores open at least a year fell 1.4 percent, worse than the 0.26 percent expected by Thomson Reuters. At Wal-Mart’s namesake stores, that measure fell 1.8 percent while at Sam’s Clubs, the measure was up 1 percent. The 1.4 percent decline in revenue at stores open at least a year marked the fifth straght quarterly drop. The measure is a key indicator of a retailer’s health. Shares rose 39 cents to $50.80 in premarket trading. Analysts had expected earnings per share of 96 cents on revenue of $105.3 billion. “We continue to focus on our priorities of growth, leverage and return,” said Mike Duke, Wal-Mart Stores Inc.’s president and CEO, said in a statement. “The slow economic recovery will continue to affect our customers, and we expect they will remain cautious about spending.” As a testament to customers’ tepid spending, shoppers are buying back-to-school items closer to the school year’s start, officials said during a prerecorded conference call. Wal-Mart benefited during the recession as affluent shoppers traded down to cheaper stores. But it acknowledged in May that it’s losing some of those customers, who’ve started to trade back up. Meanwhile, stubbornly high unemployment and tight credit are still squeezing its main lower-income customers, who are having more trouble stretching their dollars to the next payday. Wal-Mart’s strategy to turn around business at its weak U.S. namesake stores remains in flux amid executive departures and reshuffling. Bill Simon, formerly chief operating officer, took over Eduardo Castro-Wright’s job as president and CEO of the company’s U.S. operations in June. Castro-Wright now leads the retailer’s e-commerce unit Global.com and its global sourcing division. He will remain vice chairman of the company. The company is also now seeking a replacement for chief merchant John Fleming, who left Aug. 1 and played a big role in shaping what was on store shelves. Duke said during the pre-recorded call that Wal-Mart’s top priority in its U.S business is to improve sales and traffic, and he expects assortments to be “more relevant” to customers in the coming months. At Walmart stores, discretionary items like clothing and home goods, dragged down by weak business in grills, lawnmowers and patio furniture, declined, according to Simon. And the company’s steep price rollbacks in May and June didn’t generate the sales that it expected. Wal-Mart has said its own strategies are partly to blame for its weak U.S. business. Wal-Mart has acknowledged in recent months that its campaign to declutter its stores went too far, leading shoppers to flee to rivals such as Target Copr. for favorite brands. It has been scrambling to restock some products over the past year. The company is also focusing on basics such as socks and underwear after pushing trendy fashions and home furnishings, a strategy that didn’t fare well. That includes returning merchandise displayed on pallets in the aisles as promotions, which it calls “action alley” merchandise, in the past six weeks. As part of its campaign to declutter stores, the company had eliminated the pallets. In a shift in strategy, Wal-Mart appears to have abandoned efforts to court more affluent shoppers, except for in electronics, David Schick, a retail analyst at Stifel Nicolaus, wrote in a recent note. But Wal-Mart’s profits remain robust, helped by its international business and its focus to cut costs. Wal-Mart’s international business, which accounts for about 25 percent of its revenue, rose almost 16 percent to $25.9 billion, while Walmart store revenue in the U.S. rose a meager 0.6 percent to $64.6 billion. Sam’s Club’s revenue was up 3.4 percent to $12.46 billion. Wal-Mart says it now expects it will earn between $3.95 and $4.05 per share for the year. That’s up from $3.90 to $4. Analysts surveyed by Thomson Reuters expect $3.99 per share. For the third quarter, Wal-Mart expects revenue at stores open at least a year to range from a declne of 2 percent to an increase of 1 percent. That compares wth a 0.5 percent decline in the same period last year.

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For-Profit Education Shares Dive On Loan Data

August 16, 2010

For-profit schools offer a wide range of programs and certificates, from associate’s degrees in the culinary arts at Career Education Corp.’s Le Cordon Bleu to MBA degrees from the Apollo Group Inc.’s University of Phoenix. The government released financial aid repayment data from more than 8,000 schools including for-profit, private and public colleges, as an example of how it will decide to grant access to government-backed financial aid. The Department of Education has been focusing on the schools, promising greater oversight and tougher rules. The industry has been the subject of a string of high-profile hearings in the Senate and a report by the Government Accountability Office that chronicled allegedly misleading and, in some cases, fraudulent recruiting tactics. But several companies say the government’s complicated formula misrepresents their students’ repayment rates. The repayment rate is a key component of a proposed “gainful employment rule” that would link student debt burdens and repayment rates to schools’ access to federal financial aid. “The validity of the (DOE)’s ‘data dump’ is suspect, in our view, given the shockingly low repayment rate for Strayer University,” said Jeffrey Silber, an analyst with BMO Capital Markets. Strayer Education Inc. has said in the past it believed its programs would pass the government’s test, and calculated its own student debt repayment rate at 55.4 percent, rather than the DOE’s finding of 25 percent. Under the proposed rules, schools would be ineligible to receive federal financial aid if fewer than 35 percent of former students aren’t paying the principal on their loans, and graduates are spending more than 12 percent of their income to pay down student debt. The Washington Post Co., which owns the Kaplan school chain; ITT Educational Services Inc.; Strayer Education Inc.; and Corinthian Colleges Inc. all had repayment rates below the key level of 35 percent. Washington Post shares tumbled $28.27, or 8.2 percent, to $315.21; ITT dropped $8.52, or 13 percent, to $55.81; Strayer fell $31.56, or 16 percent, to $168.45; and Corinthian slid $1.37, or 21 percent, to $5.29. Only four chains – Universal Technical Institute, Grand Canyon Education Inc., American Public Education Inc. and Bridgepoint Education Inc. – met or passed the government’s threshold of a 45 percent repayment rate, which would allow them continued unfettered access to government-backed student loans. UTI rose 10 percent, Grand Canyon added 1.7 percent, Bridgepoint rose 9 percent, and Apollo gained 7 percent. American Public Education Inc. fell less than 1 percent. Some of the schools said the government’s methodology was unfair. Strayer said its own analysis did not match the government data. Washington Post-owned Kaplan said that the DOE did not include interest-only payments and consolidated loans in its formula. Capella Education Co. CEO Kevin Gilligan said, in a statement, that the company’s own analysis found that more than 45 percent of former students are paying back their loans, rather than the government’s finding of 40 percent. Capella’s shares slid 13 percent. Other school shares also suffered. Shares of DeVry Inc., which said it planned to work with the DOE to clear up inconsistencies in the data, lost 9 percent. Education Management Corp. tumbled 18 percent and Career Education dropped 5 percent.

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Kaplan Could Be Hurt By For-Profit College Regs

August 16, 2010

NEW YORK — Shares of The Washington Post Co. fell Monday after government data showed its biggest and most profitable division could run up against proposed federal regulations governing for-profit colleges. The Post Co. warned earlier this month that changes in federal education policy could hurt results at its Kaplan Higher Education unit. Lawmakers have been scrutinizing the type of for-profit colleges that Kaplan runs, concerned that students are being loaded up with debt without being adequately prepared to find jobs. New rules could be a blow to the Post Co. because Kaplan has emerged over the past few years as the company’s main source of growth. It now accounts for roughly two-thirds of the Post Co.’s revenue and operating income, while the flagship newspaper has shrunk in the face of advertising declines. Since warning on the proposed rules, Post Co. shares have lost about a quarter of their value. That includes a decline of $38.83, or more than 11 percent, to $304.65 in midday trading Monday. Post Co. shares declined Monday along with those of other for-profit education companies likely to be hurt by the changes. After the market closed Friday, the government released specific benchmarks that for-profit colleges would have to meet. The rules call for at least 45 percent of graduates repaying the principal on their federal student loans, or graduates on average having a level of debt that is less than 20 percent of their discretionary income or 8 percent of their total income. Schools such as Kaplan University could be subject to restrictions on enrollment and government financial aid if they cannot meet either of those tests. Schools could lose federal funding altogether if they cannot meet at least one of the following: At least 35 percent of graduates are repaying their federal loans, or graduates have a debt load of less than 30 percent of discretionary income or 12 percent of total income. The Post Co. said government data that have been made available don’t provide a complete picture of how Kaplan would fare under the new standards. The company said Education Department figures show Kaplan University has only about 28 percent of its graduates repaying principal on their federal loans, short of the 35 percent threshold. But standards would apply to specific degree programs rather than the school as a whole, and those breakdowns weren’t provided. The company also said the government did not provide data on debt-to-income levels. In any case, if Kaplan programs do fall short, the new restrictions could have a “materially adverse effect” on Kaplan’s results, the company said.

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Laborers’ International Union Expected To Rejoin AFL-CIO

August 13, 2010

WASHINGTON — The Laborers’ International Union has agreed to rejoin the AFL-CIO, sparking hopes that a once-splintered labor movement is moving closer to reuniting under a single umbrella. “We are very excited that the labor movement is headed toward becoming more unified just as we need it the most,” said Richard Trumka, president of American Federation of Labor and Congress of Industrial Organizations, or AFL-CIO, on Friday in a statement issued to The Associated Press. Laborers spokesman David Miller declined to confirm the decision, but said leaders of the 800,000-member union representing construction workers would have more to say after a meeting on Sunday. Trumka told the AFL-CIO’s executive council last week that the move would become final in October. The Laborers and five other unions bolted from the federation in 2005 in a bitter dispute that damaged the AFL-CIO’s political heft and sapped millions in dues from its budget. Led by Service Employees International Union president Andy Stern, the breakaway unions formed the rival Change to Win federation amid complaints that the AFL-CIO wasn’t doing enough to organize new workers and halt the steady decline in union membership and influence. Trumka has made a major push for unity since he was named AFL-CIO president last September, rekindling closer relationships with SEIU, the Teamsters, the United Food & Commercial Workers and the United Farm Workers – the four remaining Change to Win members. The Laborers are the second union to come back to the AFL-CIO. Last year, the union of hotel, restaurant and clothing workers known as UNITE HERE also rejoined. While Change to Win has helped its unions become more sophisticated and aggressive in organizing drives, critics say it never became a viable challenger to the 55-year-old AFL-CIO as a new model for organized labor. “It’s an organization that never really got off the ground,” said Nelson Lichtenstein, a labor historian at the University of California, Santa Barbara. “Everything Change to Win did could have been done inside the AFL-CIO.” Stern retired as president of the SEIU earlier this year. This week, his top lieutenant, Anna Burger, left her posts as head of Change to Win and as secretary-treasurer of SEIU. Spokeswoman Amy Weiss said the point of Change to Win was not to create a mirror image of the AFL-CIO. “Change to Win has enabled its member unions to strategize and coordinate in new ways, and its critical early endorsement of Barack Obama helped set the stage for the general election,” Weiss said. Lichtenstein said Change to Win was mostly a vehicle for Stern, whose brash ideas clashed with leaders at the AFL-CIO. He predicted that “it’s only a matter of time” before the remaining breakaway unions fall back into the fold. But the four remaining unions in Change to Win have given no indication they are ready to make that move yet. SEIU’s new president, Mary Kay Henry, has steered clear of such talk, saying her union and others have shown they can coordinate on political campaigns and labor’s legislative agenda without being part of the same federation. “Whether they reaffiliate or not, everyone is trying to make peace and go forward and unite as a labor movement,” said Kate Bronfenbrenner, director of labor education research at Cornell University’s School of Industrial and Labor Relations. “We may see one federation at some point, but right now there’s an effort to be one labor movement.”

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Local Governments Held Hostage By Bank Deals

August 5, 2010

In the spring of 2008, the Denver public school system needed to plug a $400 million hole in its pension fund. Bankers at JPMorgan Chase offered what seemed to be a perfect solution. … Since it struck the deal, the school system has paid $115 million in interest and other fees, at least $25 million more than it originally anticipated. To avoid mounting expenses, the Denver schools are looking to renegotiate the deal. But to unwind it all, the schools would have to pay the banks $81 million in termination fees, or about 19 percent of its $420 million payroll.

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Video: Nohria Says MBA Grads Thinking More Broadly After Crisis: Video

August 1, 2010

Aug. 2 (Bloomberg) — Nitin Nohria, dean of Harvard Business School, talks in Hong Kong with Bloomberg’s Rishaad Salamat about issues facing business school students. Nohria is championing an MBA ethics pledge modeled on the Hippocratic Oath taken by doctors. The aim is to get graduates at Harvard and elsewhere to swear they won’t put personal ambitions before the interests of their employers or society. (Source: Bloomberg)

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Tax Holidays: States Gamble On Back-to-School Shopping Deals To Stimulate Consumer Spending

July 30, 2010

Today kicks off the first tax holiday for the back-to-school shopping season, but low consumer morale may end up causing a further drain on state governments instead of stimulating the retail industry. With the lure of 7-percent savings on clothing and footwear, Mississippians will head to the malls today and tomorrow to stock up on fall clothes and new shoes, but several municipalities opted out of the holiday this year due to economic concerns over lost sales tax revenue. According to Kathy Waterbury, spokesperson at the Mississippi Department of Revenue, the holiday is intended to “give a break to consumers” right before the start of the school year, but the waived tax may not be enough to rev up shopping. “I think consumers are still being very cautious,” said Lynn Franco, Director of Consumer Research Center at the Conference Board. “They will weigh those spending decisions very carefully.” The Conference Board’s Consumer Confidence Index had been increasing since a low in February, but confidence in the economy started to slip due to low job growth. The index dropped from 54.3 to 50.4 in July, which is only a slight improvement over last July’s level of consumer confidence. When asked whether the back-to-school tax break would spur shopping, Franco replied, “while it will definitely help sales, I don’t think, in of itself, it will be sufficient.” About a decade ago, states began to suspend taxes on school-related items at the end of the summer to help residents out with school expenses, and now more than ever consumers need all of the help that they can get. In fact, Maryland and Illinois have hopped on the bandwagon this year by designating tax-free days in August, and Florida is reviving their event after a two-year lapse. “Illinois has a high unemployment rate, and people have lost wages because their hours have been cut,” said Susan Hofer, Communications Manager for Governor Quinn. “We’ve seen retail stores throughout the summer really suffering with low traffic.” Governor Quinn coordinated with the Illinois Retail Merchants Association to encourage retailers to offer additional discounts during the tax break to incentivize consumers to spend even more during the holiday. Though offering discounts may lure reluctant shoppers to the mall, there is concern among state governments that the loss of tax revenue may hurt their ailing budgets. After several years of hosting a back-to-school tax break holiday, the Georgia legislature opted not to renew it. According to Bert Brantley, spokesperson for Governor Perdue, the state “loses” approximately $13 million in tax revenue during the holiday. “There is a decent argument to be made that people do all of their shopping in that one weekend,” said Brantly. “I don’t know that they really spend any more. People may even spend less to get the same.” Some analysts, however, are more optimistic about the back-to-school shopping season in the wake of last year’s massive spending cutback. The National Retail Federation’s annual Consumer Intentions and Actions Back to School survey predicts that each American household will spend on average $606.40 on back-to-school items, compared to the estimated $548.72 spent last year. “Most parents just ‘made do’ with the supplies that they had last year,” said Ellen Davis, Vice President and Spokesperson at the NRF. “Parents can’t make do with everything again this year. There is more of a pent-up demand situation.” Regardless of the level of success of the back-to-school shopping this coming month, even minimal increases in spending will be a positive sign of recovery and improvement in the retail industry; after all, “we are not looking to break any retail records this year,” added Davis.

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Al Eisele: A Very Good Week for a Small Town Newspaper Publisher

July 25, 2010

Nick Benton probably would be the first to admit that he’s not everybody’s cup of tea, especially in a conservative small town in Virginia whose citizens he’s been both informing and outraging in equal measure since March 28, 1991. As founder, owner and editor-in-chief of the Falls Church News-Press, Benton and some 150 of his friends and faithul readers, myself included, celebrated the publication of the 1,000th consecutive issue of his weekly newspaper by sharing pizza, liquid refreshments and memories of life in this suburban Washington community named after an 18th century Anglican church.. As usual, ever since the banner headline of his first issue proclaimed, “Rancorous Public Hearing on School Cuts, Tax Increase,” the latest issue of July 22, 2010 deals with the nitty-gritty of representative self-government at the local level, in this case whether the city of a little over 11,000 residents can continue funding a local bus system that can’t survive without a tax increase, and the newly elected mayor’s and city council’s efforts to overhaul ordinances governing commerical versus residential development. “F.C.’s Local Bus System GEORGE Once Again on the Chopping Block,” the paper’s 1000th issue announced to readers of its 30,500 press run, along with a story suggesting that the new mayor and aldermen may want some “minor tweaks” rather than a major overhaul of the city’s government operations. Both stories carried the byline of Nicholas F. Benton, which I suspect but don’t know, is typical of every one of the paper’s 1000 issues. Benton is a crusading editor in the finest tradition of American journalism, as he reminded readers in his editorial, titled “A Celebration of the First Amendment.” “Authored by none other than Virginia’s own George Mason [who with George Washington was a vestryman at the Falls Church], the First Amendment and its guarantee of free speech is the cornerstone of America’s great experiment in democracy,” he writes. “It’s the first thing to go when political repression arises or when control of the transmission means of its effective exercise wind up in the hands of the too few and the too powerful.” But, as I said, Benton isn’t everybody’s cup of tea. First of all, he’s an unabashed liberal who delights in bashing Republicans and boosting President Obama, as he did in his weekly editorial page column – he writes almost half of every issue – “A Very Bad Week for the GOP.” He also regularly runs the columns of New York Time’s columnists Paul Krugman, David Brooks and Maureen Dowd, as well as that of Hearst’s Helen Thomas, until her incendiary comments about Jewish-Palestinian relations cost her a front row seat at White House press conferences. Second, he’s not your average suburbanite. He’s openly gay – not that there’s anything wrong with that – and his paper features a regular gay columnist whose views on gay and lesbian issues appear alongside the local Democratic congressman’s column and that of a local County Board of Supervisors member’s “News of Greater Falls Church.” Benton got into a huge fight several years ago with the local Episcopal Church – where George Washington once worshipped – after the columnist described a local teenage student’s coming out. And third, he’s a former acolyte of bizarro economist and perennial fringe presidential candidate Lyndon LaRouche – he worked for the LaRouche organization from 1974 and well into the 1980′s, first as a political organizer and then Washington bureau chief and White House correspondent of LaRouche’s Executive Intelligence Review before severing his ties with LaRouche. He even ran for governor of California against Jerry Brown in 1978 as the candidate of the LaRouche-backed U.S. Labor Party. As he explained in a June 27, 2007 column, “Maybe it was always bad, but by the late 1970′s, LaRouche’s movement had turned decidely ugly, into something existing only for the purposes of LaRouche’s own aggrandizement and the twisted agendas of too many sinister forces that seemed to influence him.” A California native, Benton earned a degree in English from Westmont College in 1966, where he had an athletic scholarship, and a master of divinity degree in 1969 from the Pacific School of Religion in Berkeley, where he began a lifetime crusade as an antiwar, anti-poverty and gay and civil rights activist, motivated in part by the assassinations of Martin Luther King and Robert F. Kennedy. He became a contributor to the alternative Berkley Barb, helped found the Berkeley Gay Liberation Front and wrote the first editorial for the newspaper Gay Sunshine, which proclaimed that gay liberation would represent “those who understand themselves as oppressed — politically oppressed by an oppressor that not only is down on homosexuality, but equally down on all things that are not white, straight, middle class, pro-establishment… It should harken to a greater cause — the cause of human liberation, of which homosexual liberation is just one aspect — and on that level take its stand.” Benton, who has been divorced three times but has no children and lives with his cat Mimi, says his “dearest friend” is an ex-wife who lives in Falls Church. He describes himself on his MySpace page as a “relentless if imperfect warior against the ‘vast right wing conspiracy,’” whose mission as a journalist is “tirelessly warring against the religious right, promoting the confluence of interests between good development and community concerns, and playing a role in the cultural shift the the region, overall, toward more progressive and fair-minded virtues.” Benton displayed his penchant for non-conformist thinking in a column a week ago by suggesting that the current worldwide economic crisis may have vindicated the legacy of Marxism, a view that drew shocked responses from readers and probably explains why the new mayor declined to congratulate him on his journalistic milestone. But Benton is unapolgetic. When I asked him which of his 1,000 issues had the greatest impact, “other than the Marxist column,” he couldn’t cite any one example, but later wrote that the paper’s “best story” was its successful effort in the mid-1990′s wotking with the Chamber of Commerce, when he was its president, to end years a acrimony between Falls Church’s business and residential communities. “Through our editorial and other efforts, we caused a paradigm shift in Falls Church where each of these two components suddenly realized the value of each to the other,” he said. “It introduced an era that led to the most aggressive new development in the city’s history, which has helped bouy the city’s ability to maintain its excellent schools and services in tough economic times.” Benton, who employs a bevy of student journalists, also pointed with pride to his paper’s weekly publications of community and school news, from a crime blotter to local sports teams to reviews of local restaurants, as the secret to its success. “It is also the newspaper’s role to particularly stand up on behalf of the under-represented in society,” he added. As a journalist myself and longtime resident of Falls Church, it’s nice to know that my hometown newspaper is thriving at a time when almost every other newspaper is struggling to survive. And better yet to know that the newspaper’s owner believes, as H. L. Mencken put it, that a newspaper’s role in society is to “comfort the afflicted and afflict the comfortable.”

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Barney Frank: Elizabeth Warren Should Head CFPB, By Recess Appointment If Necessary

July 23, 2010

If President Obama fears Elizabeth Warren won’t be confirmed by the Senate to head the new Consumer Financial Protection Bureau, he should just appoint her while the Senate is on one of its many vacations, House Financial Services Chairman Barney Frank said Friday. Referring to her as “far and away the best candidate,” Frank said Warren, a noted consumer advocate and bailout watchdog who conceived the agency in a 2007 article, not only cares about protecting consumers but also has the political chops to get things done for them in Washington. “If [Warren] can’t be confirmed she should be a recess [appointment],” Frank, who helped shepherd the recently-enacted financial reform bill into law, told the Huffington Post on Friday. “Given the way [the Senate has] misused the filibuster… given it’s anti-Democratic, I think the President did exactly the right thing with Donald Berwick,” the 15-term Massachusetts Congressman added, referring to an earlier Obama recess appointment to head the Centers for Medicare & Medicare Services. Warren, a popular pick to lead the new consumer agency she envisioned, has seen her chances threatened by other candidates for the job. Treasury Secretary Timothy Geithner prefers Michael Barr, his assistant secretary for financial institutions and a veteran of the Clinton-era Treasury, according to people familiar with Geithner’s views. White House officials say the shortlist also includes Eugene Kimmelman, a former top official at consumer advocacy groups Consumers Union, the Consumer Federation of America and Public Citizen who now works in the Justice Department’s antitrust division. Warren’s critics cite as black marks her perceived lack of management experience, her distaste for Washington politics and, curiously, her vigorous advocacy on behalf of consumers. But Frank pushed back against those arguments, particularly on the question of Warren’s political savvy. “I think, frankly — and I’ve said this to [administration officials] — she’s the ‘advocate’, supposedly, and Michael Barr is the ‘inside guy’. But, frankly, Michael Barr’s initial proposal for the consumer agency had some problems in it politically that Elizabeth understood and helped us work around,” Frank said. “So I think she’s better even on the political side of it. She’s the better choice.” Warren is a noted defender of the middle class, widely respected for her research on debt-strapped Americans, bankruptcy and the working poor. White House senior adviser David Axelrod lauded her efforts last week during a conference call with reporters — though he stopped short of endorsing her for the CFPB, noting “there are other candidates.” “Elizabeth Warren is a great, great champion for consumers and middle-class families across the country,” Axelrod said. “She has helped inform this effort greatly and what has been done here in many ways reflects something she’s been advocating for years and years and years.” Earlier this week, Senate Banking Committee Chairman Christopher Dodd expressed reservations about Warren’s odds of being confirmed by the Senate. White House officials quickly shot back, assuring reporters that Warren is “confirmable.” Frank said he doesn’t really care. “There is some concern that she would be hard to confirm,” he allowed. “My answer is, in the first place, I’m not sure I’d want anybody who’s easy to confirm given the way the Senate is.” Frank resisted efforts to water down the financial reform bill’s consumer protection provisions. In fact, when asked what he thought of placing the consumer agency inside the Federal Reserve — a place it will soon occupy thanks to a series of compromises — Frank reportedly asked if it was a “joke.” “Secondly, I don’t think you give in to the threat of a filibuster,” Frank continued. “I think you make them do it. There would be such strong support for her that she would get confirmed. “I think she has a strong populist appeal,” he added. The New Republic reported Friday that Charles Fried , a former solicitor general under Ronald Reagan who supported the Supreme Court nominations of John Roberts and Samuel Alito, supported Warren for the consumer position. “I support capitalism, and I don’t like thieves. And the people who got us into this mess are thieves, or there are a lot of thieves among them,” Fried, one of Warren’s colleagues at Harvard Law School, told TNR. “She’s far and away the best candidate,” Frank said. “And… though there’s some concern, I guess, over whether she could be confirmed, that’s no reason not to go ahead and make the fight.” ************************* Shahien Nasiripour is the business reporter for the Huffington Post. You can send him an e-mail ; bookmark his page ; subscribe to his RSS feed ; follow him on Twitter ; friend him on Facebook ; become a fan ; and/or get e-mail alerts when he reports the latest news. He can be reached at 646-274-2455.

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SEIU, Labor Directly Lobby Geithner On Elizabeth Warren’s Behalf

July 20, 2010

The labor community is going to lend its considerable political clout to the effort to get Elizabeth Warren confirmed as the first head of the newly-created Consumer Protection Agency, going directly to the White House official who may stand in her way. On Tuesday, SEIU President Mary Kay Henry will “raise the point that Elizabeth Warren would be an excellent head of the newly created Consumer Protection Agency” in private talks with Treasury Secretary Timothy Geithner, according to a senior source with the union. The tete-a-tete adds an element of intrigue into the debate over who should head the new but important agency and could set up a now-familiar scenario in which the labor community finds itself butting heads with the White House’s economic team. Geithner has privately expressed skepticism with Warren’s candidacy for the post — despite the fact that she is considered the godmother of the very idea that consumers need a watchdog agency on their behalf. The Treasury Secretary is wary about the message that Warren’s appointment would send to the financial community and would prefer to appoint Michael Barr, a senior Treasury Department official who was instrumental in crafting financial regulatory reform. In public, the White House has insisted that it is open up to all candidacies, including Warren’s. But Geithner’s private musings have spurred an intense pushback. In addition to Kay Henry’s visit to Treasury, another major union, the AFL-CIO, has directly lobbied the White House on Warren’s behalf, according to a source with the union federation. Meanwhile, the Progressive Change Campaign Committee, a liberal activist group, has colleted roughly 140,000 signatures in a petition drive urging the White House to nominate Warren for the new post. Warren, it should be noted, could assume the post by executive appointment under the newly passed regulatory reform law. This would allow her to avoid a bitter confirmation fight in which she would need the support of 60 Senators in order to make it through the Senate. UPDATE : AFL-CIO President Richard Trumka released the following statement on Tuesday morning on regulatory reform and Warren’s candidacy: The AFL-CIO applauds the passage of the Wall Street Accountability Act and looks forward to the creation of the new Consumer Financial Protection Bureau – which has the potential to be a powerful and independent voice for consumers. In our view, there is only one candidate who is uniquely qualified and equipped to head this new agency. Harvard Law School Professor Elizabeth Warren originated the idea of the Consumer Financial Protection Bureau, and has proven as Chair of the Congressional Oversight Panel to be a strong and fearless advocate for the American public. We therefore strongly urge President Obama to appoint Professor Warren as Director of the new consumer protection bureau. Professor Warren’s appointment would make clear that under President Obama’s leadership, there truly will be accountability for Wall Street and fair treatment for the American public in the financial marketplace. FURTHER UPDATE : The SEIU has now put up a blog post on its website touting Warren for the post. Warren has spent her entire career fighting for the interests of working families and supporting policies to help rebuild our middle class. In fact, Warren even came up with the concept of a new consumer watchdog. As head of the new Consumer Financial Protection Bureau, she’ll work each and every day to stand up to Wall Street and demand commonsense financial products that will protect us from the next economic meltdown.

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Video: Portes Says Hypo Real Estate Test Report `Disgraceful’

July 20, 2010

July 20 (Bloomberg) — Richard Portes, professor at London Business School, talks about Hypo Real Estate Holding AG failing the stress test. Portes speaks with Andrea Catherwood on Bloomberg Television’s “The Pulse.”

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David Gray: What LeBron James’ Decision Means for the Midwest

July 19, 2010

A child of the Midwest grows up in Middle America, thrives, receives disproportionate attention and investment from the community, realizes his or her potential and then moves away to a “sunnier” state in his or her prime. That is what we saw as LeBron James chose to move to South Beach to play for the Miami Heat rather than staying in Cleveland and play for the Cavaliers. The same day, the nation’s top high school football player, Seantrel Henderson, chose to leave Minnesota and to move to Miami. This situation is not limited to superstar athletes. Over the past generation, there was been an exodus of young people from the Midwest, particularly Ohio. A 2006 study by the Dayton Daily News found that Ohio has lost more young people during the last 10 years than any other state except Pennsylvania. According to a June 2009 study by the Thomas B. Fordham Institute, “88 percent of native Ohio students say they are proud of Ohio, but 51 percent plan to leave after graduation,” and “89 percent say good jobs will be very important in deciding where to live after graduation, but just 11 percent say Ohio has excellent prospects.” This was before the Great Recession of 2008 when manufacturing jobs, critical to the Midwest, were decimated. Unemployment rates don’t mean everything. Ohio is not the only state to have an unemployment rate above the national average — so do sunshine states such as Florida, California and Nevada. However, much of their unemployment is likely cyclical, a reaction to build ups and bubbles, while the Midwest’s issue is more structural. Ohio will likely lose two congressional seats in the upcoming census-driven apportionment, while many of the sunshine states continue to gain population. Growing up in Ohio, I lived across the street on one side from a women who would run the Center for Medicare and Medicaid Services for part of the Bush Administration and on the other side across the street was the young man who would grow up to be the current Commissioner of the IRS, both in Washington, D.C. Last year, I hosted an event to discuss the book “Hollowing Out the Middle: Rural Brain Drain and What it Means for America” by sociologists Patrick J. Carr and Maria J. Kefalas. The book argues that communities throughout the Midwest need not only to invest in jobs and programs that keep their young people in town, but need to invest more in those likely to stay. They argue that there is a temptation for communities, particularly small ones, to invest a disproportionate amount of resources in the most gifted students, the “I knew her when” students. Those students are often the least likely to stay or return to the community. Instead, communities should invest more in those young people most likely to stay. Joel Kotkin has argued that there is a national imbalance anyway with too many people concentrated on the coasts, and that it would be good for America to create infrastructure, jobs and others incentives for people to move to the Midwest. This would disperse costs, talents, environmental impacts, prices and opportunities. Perhaps the most popular television show last year was Glee, a show about an Ohio based high school singing group. During the season finale, Olivia Newton-John is co-judging a competition with the school’s “celebrity” cheerleading coach. They argue and Newton-John makes the devastating point that “when this is over we fly back to (sunny) L.A. while you are stuck here in Ohio.” To watch LeBron James’ announcement, one could see from the pain in his face how the difficult decision to leave Cleveland was. Yet that first weekend he hosted a major party in his new city of Miami rather than saying goodbye. LeBron will always be “of Ohio” and his success, like that of many others, is a credit to his home state and region. But it would sure be nice it that success stayed at home.

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Christopher Weber: Why the GM and Chrysler Bankruptcies Foreshadow Big Problems for the Gulf Cleanup

July 16, 2010

After BP’s financial travails — falling stock, mounting claims — financial analysts everywhere are uttering the dreaded B word. Incredibly, it seems that an energy company recently valued at $200 billion could go bankrupt. As BP executives reiterate pledges to pick up the tab for stained beaches and soiled pelicans, another messy industrial cleanup is unfolding a thousand miles to the north, in the Midwest’s auto-manufacturing belt. General Motors and Chrysler are the chief culprits there. The automakers own hundreds of contaminated properties where they once made cars and car parts. Like so many oil-stained communities along the Gulf, former auto towns throughout the Midwest are waiting for a thorough going environmental cleanup. And like the Gulf communities, they hope that cleanup will help bring about a full economic recovery. Some have been waiting for years, even decades, for GM and Chrysler to finish the job. Will the communities of the Gulf Coast ultimately fall into a similar state of limbo? Right now, the daily stress and uncertainty demands their energy, but in the months ahead, many may learn a lesson that Midwesterners have known for a long time: The difficulty of making a big corporation pay for its mess increases exponentially once it declares bankruptcy. Herein lies a cautionary tale for Congress, environmentalists, and the people of the Gulf Coast. As much as they want BP to pay through the nose, they should beware a bankrupt BP, which could use bankruptcy laws to shed its responsibility to pay for environmental cleanup. “If GM doesn’t pay, there’s a real danger that the cleanup costs will fall back on the taxpayer.” That’s Kevin Smith speaking. He’s the former mayor of Anderson, Indiana, a city of 50,000 that made millions of starting motors, horns, and headlamps for GM. Smith worked closely with GM to clean up nearly a dozen former plants, but work stopped when GM went bankrupt. Now, the city is seeking $9.2 million from the automaker to finish the job. The court handling GM’s bankruptcy may award the funds; it may not. Either way, someone has to clean up the polluted 90-acre field where that headlamp plant once stood. A former auto plant does not look much like a white-sand beach, but the net effect is the same: An asset converted to a costly albatross. An oily albatross, if you want to mix metaphors. Unlikely Pairing: A bankrupt BP might delay or seek to avoid paying for environmental cleanup along the Gulf Coast (below, AP), just as General Motors has left this contaminated factory site in Anderson, Indiana, untouched (above). “When companies leave huge environmental pollution from their operations, local governments suffer the brunt of the problems,” says Matt Ward. He’s the policy director for the Mayors Automotive Coalition, a group of 50 municipalities that have banded together to rebuild communities devastated by plant closures. “Local communities have to deal with the contaminated property as well as lost jobs, lost tax revenue, increasing foreclosures, demands for social and poverty services, and the stigma that drives away future economic development.” When the companies responsible go bankrupt, cleanup efforts are often put on hold, prolonging the crisis. “When the company has no resources, it is bad news for communities,” Ward concludes. BP is plenty different than the American automakers, of course. For one thing, it has no problem making a profit. And unlike GM and Chrysler, it never owned the waters and beaches its crude has fouled. But when it comes to the all-important question of who pays, a bankrupt BP may quickly start to resemble GM and Chrysler, which have been widely criticized for insufficiently funding their cleanup obligations. “We’re still trying to calculate the environmental cleanup costs that GM and Chrysler have left to be borne by the public,” notes Jackie Gardina, an attorney, professor at Vermont Law School, and authority on the environmental consequences of bankruptcy. If BP declares bankruptcy, its oft-repeated promise to “pay all reasonable claims” goes out the window. “If BP were to file for bankruptcy, the government will be unable to hold the company fully accountable for the as-yet-unknown costs of this unprecedented environmental catastrophe,” Gardina says. “Bankruptcy courts struggle to find a balance between the ‘polluter pays’ principle of our environmental laws versus the bankruptcy.” Gardina says that only Congress, not the courts, can truly make corporate polluters accountable. It can arrange liens on BP’s assets or revise the bankruptcy code to provide less wiggle room for corporate polluters. Moreover, she notes that the Obama administration can request a “security interest” in BP’s property to guarantee the costs associated with the spill. Bottom line, Congress and President Obama must close the loophole that makes bankruptcy so useful for BP and other corporate polluters. Otherwise, we may one day speak of the Gulf Coast as the new Rust Belt — the Tar Belt, if you will.

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Clayton M. Christensen: Health Insurance Rate Wars – Are We Focused on the Right Fight?

July 16, 2010

By Darius Tahir and Clayton Christensen On opposite ends of the country, differing results in battles with health insurers lead us to the same conclusion: we need to attack rising costs of health care delivery which will not be fixed, as many had hoped, by the recent health care legislation or by periodic regulatory tweaks. Recently, Aetna became the second major California insurer to withdraw intended rate hikes after intense examination by state regulators. Anthem Blue Cross had earlier elicited national attention and reproach from the White House when it attempted to raise rates by as much as 39 percent for individual policies. When the company backed down, Secretary of Health and Human Services Kathleen Sebelius hailed the rate increase defeat by saying, “Finally, the power is shifting back to consumers.” Meanwhile, in Massachusetts, the story has turned out to have a different ending. In April, Massachusetts governor Deval Patrick and his insurance division rejected over 200 requested rate increases, ranging from 8 percent to 32 percent, which were proposed by the four largest insurance providers. But last week, the attorneys of the state’s Division of Insurance overturned the cap and pronounced the rate increases reasonable based on what the insurer pays hospitals and physicians. Rate increases are the last symptom of the disease afflicting the health care system. Whether the rate changes are allowed to go through or not, most Americans still won’t have the ability to choose their insurer or to comparison shop for treatments and tests such as MRIs, for which prices vary wildly in large part due to the opacity of health care’s pricing model. Capping insurance rates does little to address the underlying fact that health care needs a fundamentally new business model. In the current system, the patient’s insurer pays most doctors through a fee-for-service scheme wherein each activity and procedure is itemized and reimbursed. This method creates perverse incentives: doctors are encouraged to give too much care and may favor more expensive services, even when a less expensive–and often less invasive–service might be equally or more effective. That means that the fee-for-service model promotes more expensive health care and ultimately, less effective health care practices. Another problem with health care’s business model is that its services are generally housed together in a centralized setting. A hospital performs many services: it treats complicated and urgent cases, but it also has to handle simple treatments that are easy to diagnose and straightforward to cure. This is a critical distinction if health care costs are ever to come down: the former function indeed requires a lot of expertise and technology to manage, but the latter can be delivered elsewhere, in a lower-cost venue by lower-cost personnel. But all too often, the use of new business models and technologies in health care is incentivized along fee-for-service lines, so that prices don’t fall as they have in most other industries. In Massachusetts, for example, digital mammography is 45 percent more expensive than non-digital mammography, even though it ought to be cheaper on a per-unit basis: it’s faster, and it neither requires film nor physical storage. But there is little incentive for hospitals and physicians to disrupt existing business models by undercutting their own prices. Arguing over rate changes is only dealing with the end of a long chain of errors and problems. All that will likely be accomplished is more insurance vs. provider bickering over pricing, or worse yet, a reduction in services that leads to longer queues and less access to care–in essence, an intensification of the status quo. Instead, achieving cost savings and better care by changing the delivery model should be the goal, because those benefits will travel up the chain of care. The Patient Protection and Affordable Care Act makes some efforts, albeit incomplete, to consider this problem. It allocated money to promote electronic medical records, which, if properly deployed, can greatly increase continuity and efficacy of care. It created a group to evaluate comparative effectiveness–determining which treatments and drugs are most effective. It tasked pilot programs to experiment with alternative payment schemes like Accountable Care Organizations. But what happens when the pilot programs’ time is up and the results are in? These initiatives are worthy experiments, but they are each only a piece of re-building a new delivery model that could deliver more for less. Ensuring that we continue to progress down that road will require more attention, more effort, and more political passion. And it starts by redirecting our focus away from the old health care business model and the endless battles it produces. Darius Tahir is a health care researcher with Innosight Institute . Clayton Christensen is a professor at the Harvard Business School and co-founder of Innosight Institute.

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Financial Reform Bill Passes — And Regulators Left To Sort Out Bill’s Details

July 16, 2010

WASHINGTON — In the end, it’s only a beginning. The far-reaching new banking and consumer protection bill awaiting President Barack Obama’s signature now shifts from the politicians to the technocrats. The legislation gives regulators latitude and time to come up with new rules, requires scores of studies and, in some instances, depends on international agreements falling into place. For Wall Street, the next phase represents continuing uncertainty. It also offers banks and other financial institutions yet another opportunity to influence and shape the rules that govern their businesses. In hailing the bill’s passage in the Senate on Thursday, Treasury Secretary Timothy Geithner acknowledged that implementing the new law will take time. “But we are determined to move as quickly as we can to provide clarity and certainty,” he said. Sen. Richard Shelby of Alabama, the top Republican on the Senate Banking Committee, criticized the bill as not “real reform,” saying it doesn’t address the problems of mortgage giants Fannie Mae and Freddie Mac, whose questionable lending helped start a collapse in the housing market. Speaking on ABC’s “Good Morning America,” he also complained the bill creates a massive bureaucracy but doesn’t create jobs. Among the first impacts of the bill, which Obama is expected to sign as early as Wednesday, will be the immediate creation of a 10-member Financial Stability Oversight Council, a powerful assembly of regulators chaired by the treasury secretary to keep watch over the entire financial system. The Obama administration has one year to create a new Bureau of Consumer Financial Protection. Congress will keep its eye on that agency, eager to see whom Obama chooses as its director. The agency will have vast powers to enforce regulations covering mortgages, credit cards and other financial products. One of the candidates often mentioned for the top consumer spot is Elizabeth Warren, a Harvard Law School professor who was among the first to suggest the creation of an agency to safeguard consumers in their financial transactions. Warren heads the Congressional Oversight Panel, which has been a watchdog over the Treasury Department’s bank bailout fund. Others mentioned include Michael Barr, an assistant treasury secretary who has been one of the architects of the administration’s regulatory plan. But while the oversight council and the consumer bureau might bloom swiftly, other central provisions of the bill will take time, in some cases years, to take root. The consumer bureau, for instance, has as long as 30 months after it is created for its regulations on predatory lending to take effect. The legislation calls for a two-year study before regulators write rules on how risk-rating agencies should avoid any conflict of interest with the firms whose financial products they assess. The Fed has until April to derive standards to measure the fairness of fees charged by banks to merchants for customers who use debit cards. And regulators will have to fine tune the broad restrictions in the legislation for the complex derivatives market. Key will be determining what firms and corporations will face new restrictions. The U.S. Chamber of Commerce counts more than 350 rules that the legislation directs regulators to write. Senate Banking Committee Chairman Christopher Dodd, an author of the bill, says the legislation gives regulators a specific blueprint to follow. “This bill directs the regulators to do things,” he said in an interview. “We leave to the regulators how best to achieve the goals, but the goals are clear. Congress is not a regulator.” In many instances, regulators already have embarked on rule-writing. The SEC, for instance, has been working on rules that would impose the same professional standards on stockbrokers and dealers that are imposed on financial advisers. The legislation insists that the SEC conduct a study first. Hailing the bill Thursday, Fed Chairman Ben Bernanke said the central bank is also ahead of the game, “overhauling its supervision and regulation of banking organizations.” Regulators also will have to figure out how to implement new standards for how much capital banks should hold in reserve to protect against losses. The legislation requires rules in 18 months. But the U.S. is also part of international negotiations on what global capital standards should be, and those could move more slowly. “I am very confident with the strong hand that this (legislation) gives us, that we will be able to bring the world with us,” Geithner told reporters Thursday. ___ AP Economics Writer Martin Crutsinger contributed to this report.

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Anthony Tjan: Medical Entrepreneurship: A New Movement to Accelerate Cures

July 12, 2010

There is a new social entrepreneurial movement afoot, which seeks to find cures to some of the world’s most challenging diseases. Medical entrepreneurship is, in my view, the very best hope we have for accelerating the pace of finding medical cures. A good example and arguably the pioneer of this movement is Michael Milken’s Prostate Cancer Foundation. Milken has taken on a decidedly entrepreneurial approach to providing capital and human resources to accelerate the pace of research into cures for cancer, particularly that of the prostate. From 1999 to 2006 we have seen a 25% drop in the death rate for prostrate cancer. There is little doubt that Milken’s leadership has been one of the greatest catalysts in this improvement. Another leader in the movement is Henry McCance, who co-founded the not-for-profit Cure Alzheimer’s Fund, which I first wrote about last year. The Cure Alzheimer’s Fund is another example of a cure accelerator, an organization using a venture approach towards medical research. Out of full disclosure, I recently joined the Cure Alzheimer’s Fund’s advisory board. And while I care deeply about diseases such as Alzheimer’s, I am mostly fascinated and hopeful that a more maverick VC-like business model applied to the search for medical cures will be a better approach to solving some of the big medical challenges we have. The medical research model as we know it today is broken. Why? Three words: insufficient, inefficient, and ineffective. This is both the big problem and the big opportunity for medical entrepreneurship. Today’s model is insufficient because typically 1% or less of the amount spent each year on diseases goes towards cure research, with the balance going to caring for people with the disease. Alzheimer’s, for example, costs our country hundreds of millions of dollars each year, yet we spend just one cent out of every $4.00 available towards a cure. That is an astonishing 400x delta. The story is similar for diabetes and cystic fibrosis. While care is obviously critical, we need more dollars to go to finding the cure — or the country is at great risk of a healthcare-induced bankruptcy. Henry McCance and Professor Bill Sahlman of Harvard Business School recently gave an excellent overview of this at Venture Summit East and I draw on many elements of their talk in this blog post. The current research model is highly inefficient because researchers spend too much time writing grants. By our estimates at the Cure Alzheimer’s Fund, the very best researchers in the field spend up to 30% of their time writing grants, and should they win the grant they may have to wait months or even a year to get the funding. As well-intended and needed are organizations such as NIH (National Institute of Health), there is an embedded trade-off between the robustness of review and the approval of grants to new and innovative projects. Imagine any venture capitalist going to Netscape or Yahoo to validate funding to Google or expecting an entrepreneur to spend a third of his time writing a business plan and then waiting a year for funding. This is the frustration that many of the best researchers in our country feel. Finally, the medical research model is ineffective because it is, by design, risk averse with regard to the projects it pursues. Grant proposals that win funding are usually those that seek out small, incremental discoveries — it is the very nature and policy of the grant making bodies to look for ideas that slowly build on existing knowledge. Breakout ideas are not able to happen under an incrementalist research model. Even worse, as we’ve heard anecdotally from some researchers, some people write grants for questions whose answers are already known. Pioneers of the medical entrepreneurship movement are taking bigger risks on researchers, asking them to focus their energies on the initiatives that have the largest potential impact as opposed to those that would get traditional grant funding. They are also doing so faster. Milken’s Prostate Cancer Foundation, for example, makes awards based on applications that are limited to five pages and has a 90-day turn-around time. FasterCures has become a think tank and resource-sharing center for this new approach. Focus on the big ideas that can lead to the big goal of curing a disease, eliminate bureaucracy, and give smart people more capital, faster, and you have a formula for change. What proof exists that the change is positive? Thousands of lives have been saved by the advances in prostate cancer understanding by medical innovators in that field. The Cure Alzheimer’s Fund was recognized last year by Time Magazine for one of the top ten medical breakthroughs of the year for work that identified over 100 genes associated with the disease. A number of other dynamic organizations, including the Harvard Stem Cell Initiative and the Myelin Foundation are making significant contributions to cures. Across multiple diseases, researchers have been conditioned to make progress with bond-like returns. While some of this is necessary, it cannot be sufficient. As in any portfolio, we cannot maximize returns if we hold all our eggs in one big conservative basket. We need to invest more behind higher risk initiatives that can yield equity-like returns, and hopefully real cures. This article first appeared on Harvard Business Publishing on July 7, 2010.

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Max Bergmann: The Other Side of the World Cup

July 11, 2010

With today marking the end of the World Cup, assessing the legacy of the World Cup for South Africa can now begin. In other words, will this event attract more investment and usher in greater economic growth that can begin to make a dent in the huge levels of poverty. South Africa is a country of dualities. It is a country with a dark past, yet judging by the World Cup it has a bright future. It is a country that is the richest of sub-Saharan Africa, yet is plagued by poverty and an exorbitantly high rate of HIV/AIDs. It is country that struggles with crime, yet is one of the most friendly and warm countries I have experienced. While South African cities, like Port Elizabeth, where I stayed, have beautiful beach fronts and safe neighborhoods, on the outskirts sit black South African townships that mainly developed during apartheid. It is in these townships were the challenges confronting South Africa are clearly visible. Government neglect and denial of the AIDS crisis has led to a public health catastrophe, where in some townships 40 percent struggle with HIV/AIDs. Unemployment is also rampant and estimated to be as high as 80 percent in some areas. City services like electric, water, sewer are often absent, as are quality access to education. Government corruption, negligence, and incompetence are problems – as they are everywhere – but the scope and size of the challenge in arresting poverty is so huge and resources are so stretched that narrowing the two worlds of South Africa will be a long term process dependent on continued economic growth. Critics of hosting the World Cup have noted the absurdity in spending millions in constructing beautiful new stadiums – many of which will go unused after the World Cup – when so many live in poverty. Yet while the long term economic benefits remain unclear, it is certain that this tournament has done a tremendous amount in giving the world a different view of a more prosperous Africa. And in that is one of the keys to tackling poverty – creating a virtuous circle of growth that attracts significant foreign investment into the country. Large global companies have long been investing in South Africa – as it is Africa’s most vibrant economy – and while the jobs and training provide direct benefits many have also become important players in anti-poverty efforts. I was fortunate enough to have traveled to South Africa for the World Cup in a program through Volkswagen and was able to see the impact first hand. Volkswagen has a major auto factory outside Port Elizabeth – one of the World Cup hosts cities – where they employ about 7,000 people. As one of the largest companies in the region, Volkswagen invests millions annually in social investment projects of all types. The types of projects vary considerable. VW invest in local seamstresses from a nearby township, whose entrepruenerial spirit led them to pool their activities and produce reusable grocery bags for use at the South Africa’s largest grocery chain. They are building an education center for children in an impoverished township and contributing to the Ubuntu education fund , which seeks to provide an educational learning center for orphaned and disadvantaged kids after schools. Some projects come from the initiative of VW, on others VW invests in programs that are already up and running and are looking for capital. VW has also long been involved in soccer. They own a club in the German Bundesliga – Wolfsburg – which started from VW autoworkers, and they sponsor other clubs such as DC United and clubs in the South African league. VW also invests in soccer in South Africa through the “A Chance To Play” initiative . The South African government due to budget restrictions largely abandoned spending on arts and sports as part of their school curriculum. A ‘Chance To Play’ helps provide sports competition, but also ensures that anyone that participates in the program is also taught about HIV/AIDs. The program therefore is not just about sports, but about providing a safe alternative for children to spend their time while simultaneously important life lessons at the same time. Now VW, and companies like it, often claim, perhaps legitimately, that it is making such investments due to altruistic concerns. But there is also a cold hard capitalist logic to reinvesting in the communities in which they have such an out-sized presence. Henry Ford for instance, not one for altruism, greatly increased his employees wages so that they too could buy cars. For companies doing business in countries with strong democratic institutions, ensuring that the local community has a favorable view of the company is a clear strategic interest. There is a real interest in consumer based companies – ie companies that are dependent on people to buy things – to help make those people richer. And Volkswagen doesn’t just export its cars from the port at Port Elizabeth – it sells the most cars to the South African market and is looking to grow further. To do so, it is dependent on South Africans getting richer. But whatever the motivation, VW’s investments are creating positive social outcomes, that while not filling the gap by any means, are providing services and opportunities to many who would otherwise not get them. For instance, VW has emphasized worker training and health. In a country with such a high HIV/AIDS rate ensuring proper medical care and treatment is a must. VW has a clinic within its factory and requires employees to visit. This is also not altruism. Autoworkers have to be trained and the longer workers they are there the more valuable they become – it is bad business not to take care of the health of people you have spent money and years investing in. Volkswagen is also a among a number of other auto companies in South Africa and their presence, while in many ways due to cheaper labor than they would find in Germany and convenient shipping routes to markets in the east and west, is also due to the stability and strength of South Africa’s democracy. While labor might be cheaper in South Africa, it is by no means the cheapest source of labor on the continent and the country also has very robust labor unions. There has long been a fear that global companies would continue to search for countries with cheaper and cheaper labor and weaker and weaker regulations. While this is no doubt the case for some industries, for capital intensive industries that are dependent on a skilled work force, the key is stability. Car companies that build capital intensive factories are investing for the long haul and need to be assured of a level of political and economic stability. Therefore stable democratic countries that have relatively strong institutions are a must for many large multinationals. No one doubts that VW’s first focus is on making a profit for its shareholders. But what is in a company’s core interest can be interpreted broadly (or narrowly) and Volkswagen chooses the broader interpretation, as do most companies that believe they are going to be around for a while.

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Video: Dyson Says Apple Product Demand Spurred by Sleek Design: Video

July 9, 2010

July 9 (Bloomberg) — Esther Dyson, head of EDventure Holdings, and Scott Galloway of the New York University Stern School of Business, talk about the the design of Apple Inc.’s products.¶ They speak with Pimm Fox on Bloomberg Television’s “Taking Stock.” (Source: Bloomberg)

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Brian Kahin: The Expanding Twilight Zone of Abstract Uncertainty

July 6, 2010

Monday June 28 was the day the U.S. Supreme Court was to decide the patent case of the century, Bilski v. Kappos, and bring clarity to the debacle of the 1998 State Street Bank decision. In State Street, the Court of Appeals for the Federal Circuit (which hears all patent appeals) had upended centuries of tradition that assumed that patents were for technology and a hundred years of judge-made law that explicitly excluded “methods of doing business.” That decision also appeared to abolish all limits on software patents, fueling a land rush in patenting that helped create the backlog of 1,200,000 applications the Patent and Trademark Office faces today. State Street created an instant constituency for business method patents that wasn’t there before. Before State Street, everybody knew that business methods were not patentable. It was understood and accepted. It was rarely litigated. Under State Street, Bilski would have gotten his patent for a risk-hedging scheme for energy costs — no questions asked. But it has become clear that business method patents — which might have seemed like a great idea in those go-go years — are deeply problematic. They are hard to evaluate for novelty and inventiveness, often sweepingly broad in scope, difficult to interpret, and very controversial. (Would we really want just one airline offering frequent flyer miles?) By abolishing the well-established and uncontroversial business method exclusion, State Street radically extended jurisdiction of the patent system to cover not only business practices such one-click ordering and tax avoidance strategies, but an apparently limitless range of human activities, such as athletic moves and playing with cats. Perhaps the largest professional land grab in modern history. Ten years after State Street, the Patent and Trademark Office wisely denied Bilski’s application — not by attacking State Street head-on but by pointing to another test that the Supreme Court had used in earlier cases: The principle that a patent for a process must be tied to a particular machine or involve a transformation of matter. Without directly touching State Street, the Federal Circuit agreed, atoning for its reputation as an inveterate booster of patents. Then, to the surprise of many, the Supreme Court took the case — and now has muddied the waters further. Justice Kennedy’s decision rejected “the machine or transformation” test as determinative while nonetheless praising its probative value, but declined to reinstate the business method exclusion because some processes that could be described as “business methods” may be patentable. Joined by four justices, Kennedy embraced a more amorphous test, the exclusion of “abstract ideas,” citing language on algorithms in Benson, Flook, and Diehr, the Supreme Court’s last and only word on computer programs, dating back to the 1970s. Kennedy’s affirmation of Benson and Flook suggests that software patents remain problematic, but he adds nothing to the old language that he cites, leaving it to further litigation to determine what an “abstract idea” is in different contexts. Maybe it’s like obscenity: you know it when you see it. Only worse: How do you make concrete something characterized by its lack of concreteness? In Bilski, all the justices rejected the patent — five on the basis that it was an abstract idea; four would have done so on the basis that it was a business method. Justice Stevens’s long and eloquent concurrence shows that patents have historically been limited to technology, as eventually articulated in the business method exclusion. Stevens and three other justices would have reinstated the exclusion, explicitly overruling State Street. Congress to the Rescue There is irony to how this came about. State Street’s abolition of the business method exclusion was so sudden, unexpected, and retroactive, that it looked like financial firms could see their private inner workings patented out from under them. Congress was already embroiled in a drawn-out battle over patent reform (yes, another one; it seems to happen every decade). To fix this apparent inequity, Congress enacted “prior user rights” for “methods” with “method” limited to “a method of doing or conducting business.” But this referred to the traditional exclusion that State Street had just said did not exist. Members of Congress scrambled to read their own definitions into the Congressional Record, some of which included manufacturing processes. The beauty of the business method exclusion was that it was understood, accepted, and rarely litigated. Nobody was petitioning Congress for patents on business methods. But by suddenly handing out a new competitive weapon, State Street created a stampede. Fatigued by years of contentious and emotional debate over reform, Congress passed a greatly diminished reform package in 1999, but it included a stopgap for the upended expectations that State Street created, naturally without taking on the big question of where to draw the limits of patentability. This stopgap measure simply opened the door to complete confusion over what business methods were and whether Congress, by mentioning them in this fix, had intended to validate them, whatever they were. In this way, Congress’s stopgap measure, designed to remedy one particular risk created by State Street, seems to have breathed eternal life into the underlying problem. Deferring to Congress, Justice Kennedy declined to conclude that all business methods were unpatentable. What we end up with in Bilski is: All “business methods” are not necessarily unpatentable, the machine-or-transformation test is useful but not fully determinative, and no new guidance on abstract ideas. Instead, Kennedy’s opinion pulls back from the disciplined guidance that the Federal Circuit was trying to reinstate, regurgitates language from the 1970s, and says, in effect, “try again.” The Law of Abstraction In January of 2009, CCIA, Duke Law School, and the Brookings Institution co-sponsored a conference on “abstract patents.” Our notice began: “Abstract ideas are not patentable, but what are abstract ideas – and how can judges draw a line around them?” The question reverberates anew after this (non)decision in Bilski. The Supreme Court — offering “clues” but no guidance — has just handed this conundrum back to the Federal Circuit, inviting it to develop a concrete law of abstraction that the Supreme Court can then take another shot at. In their book, Patent Failure, law and economics experts Mike Meurer and Jim Bessen point to the problem of fuzzy boundaries and the attendant failure of disclosure function. Drawing from empirical research by themselves and others, they show that while patents work reasonably well for pharmaceuticals, chemicals, and possibly other very tangible inventions, they work poorly for abstract subject matter such as software and business methods. They attribute this to the nature of the patent claims, which are well-defined for molecules but subject to considerable interpretation else. This makes it risky and costly to define boundaries, whether in litigation or more generally in identifying, evaluating, and navigating patents. (In comparison, consider how easy and inexpensive it is to survey and get title insurance for real estate.) At the same time, software and business method patents do not require the large investment in research and validation that new drugs do. Justice Kennedy adopts a rhetorical framework that distinguishes the Industrial Age from the Information Age. Of course, it is not possible to separate one age from another. We still have an industrial sector and will continue to have one. Yes, the information sector has been radically expanded. So shouldn’t we perhaps investigate whether information sector needs or wants a system designed for industrial use? (And could we perhaps ask those who actually make the technology work, not just the patent lawyers?) The big problem is that the patent system remains one-size-fits all. We are stuck treating software the same as pharmaceuticals. Once business methods (or computer programs or diagnostic information) are inside the patent system, there is no escape. Middle managers are forced to live with high-priced patent lawyers at their side. Justice Kennedy zeros in on a core issue of patenting in the Information Age: “This Age puts the possibility of innovation in the hands of more people and raises new difficulties for the patent law. With ever more people trying to innovate and thus seeking patent protections for their inventions, the patent law faces a great challenge in striking the balance between protecting inventors and not granting monopolies over procedures that others would discover by independent, creative application of general principles.” He concludes the paragraph with the ultimate disclaimer: “Nothing in this opinion should be read to take a position on where that balance ought to be struck.” At least he acknowledges a balance. State Street did not. Its answer was not to describe a balance or draw a line, but to let it all in. So the Supreme Court has now charged the Federal Circuit with developing a law of abstraction, a body of law that divides the world between abstract ideas and non-abstract (and so patentable) ideas – based on Bilski and three examples from 1972, 1978, and 1981. Here is the fuzzy boundary challenge on a grand scale: A vast twilight zone of possibly patentable business methods, software, and diagnostic information. You would be crazy (or at least irresponsible to your shareholders) not to go for as many as you can get. A questionable patent, while not always as good as a solid patent, is a valuable weapon that can be used to threaten and bludgeon competitors, as well as anyone else willing to pay a licensing fee “reasonable” enough to avert the astronomical costs of litigation. The odds of the patent being contested on subject grounds are infinitesimal. Today we have a huge backlog of patent applications, because the U.S. Patent and Trademark Office devotes scarce resources to managing patents in areas where standards are difficult and costly to apply — and where patents are controversial and used frequently for ambush and ransom. The USPTO’s limited resources — and the resources of U.S. industry — should be focused on areas where patents are needed for innovation and the system works by consensus. They should not be used for regulating business practices — let alone tax avoidance, athletics, and the enjoyment of pets. Brian Kahin is Senior Fellow at the Computer & Communications Industry Association.

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Flying Car Slated For Sale Next Year

July 1, 2010

WASHINGTON — If cars had wings, they could fly – and that just might happen, beginning next year. The company Terrafugia, based in Woburn, Mass., says it plans to deliver its car-plane, the Transition, to customers by the end of 2011. It recently cleared a major hurdle when the Federal Aviation Administration granted a special weight limit exemption to the Transition. “It’s the next ‘wow’ vehicle,” said Terrafugia vice president Richard Gersh. “Anybody can buy a Ferrari, but as we say, Ferraris don’t fly.” The Transition is a long way from cartoon dad George Jetson’s flying car zooming above traffic, or even the magical Chitty Chitty Bang Bang. “There is no launch button on the (instrument) panel,” Gersh noted. Rather, the car-plane has wings that unfold for flying – a process the company says takes one minute – and fold back up for driving. A runway is still required to takeoff and land. The Transition is being marketed more as a plane that drives than a car that flies, although it is both. The company has been working with FAA to meet aircraft regulations, and with the National Highway Traffic Safety Administration to meet vehicle safety regulations The company is pitching the Transition to private pilots as a more convenient – and cheaper – way to fly. They say it eliminates the hassle trying to find another mode of transportation to get to and from airports: You drive the car to the airport and then you’re good to go. When you land, you fold up the wings and hit the road. There are no expensive hangar fees because you don’t have to store it at an airport – you park it in the garage at home. The plane is designed to fly primarily under 10,000 feet. It has a maximum takeoff weight of 1,430 pounds, including fuel and passengers. Gas mileage on the road is about 30 mpg. Terrafugia says the Transition reduces the potential for an accident by allowing pilots to drive under bad weather instead of flying into marginal conditions. The Transition’s price tag: $194,000. But there may be additional charges for options like a radio, transponder or GPS. Another option is a full-plane parachute. “If you get into a very dire situation, it’s the ultimate safety option,” Gersh said. So far, the company has more than 70 orders with deposits, he said. Terrafugia is Latin for “escape from the land.” The company was founded in 2006 by five Massachusetts Institute of Technology grad students who were also pilots. They received some seed money from the school. The concept of a car-plane has been around since at least the 1950s, but it’s possible that Terrafugia may become the first company to mass-produce one, FAA spokeswoman Laura Brown said. “We’re working very closely with them, but there are still some remaining steps,” Brown said. ___ On the Net: Terrafugia http://www.terrafugia.com/ Federal Aviation Administration http://www.faa.gov

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Goldman Sachs Is Said to Request More Time to Respond to SEC’s Fraud Suit

June 18, 2010

By Joshua Gallu and Christine Harper June 18 (Bloomberg) — Goldman Sachs Group Inc. asked for more time to respond to the U.S. Securities and Exchange Commission’s April 16 lawsuit accusing the firm of defrauding investors while selling mortgage-linked securities, said two people with direct knowledge of the matter. The company submitted the request today to the judge overseeing the case, asking for an extension until July 19, the people said. The original deadline was June 21, court documents show. The SEC consented to the New York-based firm’s proposed extension, according to one of the people. The SEC said New York-based Goldman Sachs and one of its employees, Fabrice Tourre , didn’t disclose to investors the role played by hedge fund Paulson & Co. in devising and betting against the securities. Tourre also has until July 19 to respond, according to court documents. Goldman Sachs, the most profitable firm in Wall Street history, has denied the SEC’s allegations and said it will fight the case. Company spokesman Lucas van Praag said he couldn’t comment today. “It’s no great surprise because it just gives them some more breathing room,” said Peter Henning , a former SEC enforcement attorney who teaches at Wayne State University Law School in Detroit. “It keeps them from having to deny the allegations and gives them more time to either negotiate a settlement or prepare their case.” To contact the reporters on this story: Joshua Gallu in Washington at jgallu@bloomberg.net ; Christine Harper in New York at charper@bloomberg.net .

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Video: Finkelstein Calls BP Chief’s Hearing Performance `Awful’: Video

June 18, 2010

June 18 (Bloomberg) — Sydney Finkelstein, a management professor at Dartmouth College’s Tuck School of Business, talks about BP Plc Chief Executive Officer Tony Hayward’s performance during congressional testimony yesterday. Finkelstein talks with Erik Schatzker on Bloomberg Television’s “InsideTrack.” (Source: Bloomberg)

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Wall Street Bonuses Should Be Tied to Securities, Harvard’s Bebchuk Says

June 16, 2010

By Christine Harper June 16 (Bloomberg) — Bonuses for Wall Street’s top executives should be tied to a basket of the firm’s securities, including bonds and stocks, to align managers with all stakeholders and discourage excess leverage and risk, Harvard Law School Professor Lucian Bebchuk said. Under current stock-based compensation arrangements, executives are “not exposed to the potential negative consequences that large losses could impose on other contributors to the capital structure, like preferred shareholders, bondholders and depositors,” Bebchuk said in a conference call with reporters yesterday. Wall Street chief executive officers including Goldman Sachs Group Inc. ’s Lloyd Blankfein and JPMorgan Chase & Co. ’s Jamie Dimon continue to receive pay awards that are made up of restricted stock. Because banks carry more debt than equity, a better compensation system would also link executives’ pay to the performance of bonds and preferred stock, Bebchuk said. “We could tie the payoffs to executives not just to the value of common shares but to the long-term value of a broader basket of securities,” Bebchuk said. “So, for example, instead of giving executives 3 percent of the value of the firm’s common shares, you could give them, say, 1 percent of the aggregate value of the common shares, preferred shares and bonds.” Goldman Sachs, which paid Blankfein a $9 million all-stock bonus for 2009, carried about $64 billion in common equity at the end of December compared with $230 billion in preferred stock and short- and long-term unsecured debt, according to a company filing. ‘Wages of Failure’ JPMorgan, which paid Dimon $17 million of restricted stock units and options for 2009, had $157 billion in common equity compared with $330 billion in preferred stock, long-term debt and other borrowed funds, a company filing showed. Bebchuk has been a vocal critic of Wall Street pay practices. His “Wages of Failure” paper last year showed that top officials at Lehman Brothers Holdings Inc. and Bear Stearns Cos cashed in $2.5 billion in the eight years before their firms collapsed in 2008. Bebchuk said the study helped counter the “standard narrative” that compensation didn’t contribute to the financial crisis because the executives’ finances were tied to their firms’ fortunes. He made his remarks yesterday on a call hosted by the Investor Responsibility Research Center Institute , a four-year- old New York-based not-for-profit organization that funds environmental, social and corporate governance research. He spoke about three papers he has helped write about executive compensation in the financial industry. European Proposals In March, the European Parliament’s top financial lawmaker made a similar recommendation when she advocated paying bankers’ bonuses in subordinated debt rather than shares or cash to limit the type of risk-taking that contributed to the financial crisis. Sharon Bowles , chairwoman of the assembly’s Economic and Monetary Affairs Committee, said bonuses would be held for five years in a pool that the bank could use as capital to absorb losses. Bankers’ bonuses should be capped at 50 percent of their pay, lawmakers on the EU committee said yesterday, as they voted on tougher capital and remuneration rules for banks. The plan will be voted on by the whole EU Parliament in July. To contact the reporter on this story: Christine Harper in New York at charper@bloomberg.net .

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Penn State Drilling Study Questioned Over Industry Tie

June 14, 2010

STATE COLLEGE, Pa. — A Penn State study that paints a rosy forecast on the economic potential of natural gas drilling has been greeted with skepticism from a citizens’ group and a think tank that favors a severance tax largely because the research was funded by an industry group. The Marcellus Shale Coalition will pay more than $50,000 for the study released last month co-authored in part by researchers at Penn State’s College of Earth and Mineral Sciences, the university said. The industry group, in a release on its website, has boasted that among key findings are that “safe and steady development of clean-burning natural gas” in Pennsylvania had the potential to create 212,000 new jobs over the next decade, along with thousands already created. The study also said gas drilling-related activities could create more than $1.8 billion in state and local tax revenues over the next 18 months. Skeptics are wary of results, especially at a time when lawmakers are weighing the merits of installing a severance tax on natural gas extracted from the rich reserve that lies deep underneath most of Pennsylvania. The study was an update of a report last summer from the same researchers, and the Marcellus Shale Coalition paid more than $43,000 for that work. The cover page of the study includes the Penn State name and logo. The second page notes the industry group paid for the study, and includes a disclaimer that opinions and conclusions “are those of the authors and not necessarily those of” the university or the coalition. “What they are doing is distorting the discussion in Pennsylvania,” Jon Bogle, a member of the Responsible Drilling Alliance, said in a phone interview, “because they’ve been able to use Penn State as an authority in what they say.” A separate study by the school in 2008 set off the current wave of public interest in the potential of natural gas drilling and burnished the school’s reputation as a go-to source for industry, lawmakers and citizens. Bogle, in a letter for his Williamsport-based citizens group, asked university president Graham Spanier to “publicly disavow” the recent research because of what he called “greatly exaggerated” results. The group’s letter also makes reference to questions about the research from the liberal-learning Pennsylvania Budget and Policy Center, which favors a natural gas severance tax to help fund drilling-related environmental and local costs, as well as education and health care. Michael Wood, research director for the Harrisburg-based center, said the issue is not so much with funding behind the study, as much as methods used by researchers. As an example, the center has noted that the U.S. Bureau of Labor Statistics estimated there were more than 10,000 people directly employed by the industry in Pennsylvania. A report last year from the Marcellus Shale Education & Training Center, at the Pennsylvania College of Technology in Williamsport – which is also affiliated with Penn State – estimated the number of full-time natural gas-related jobs in north-central Pennsylvania could more than double to between 3,200 and 5,400 positions by 2013, depending on the success of wells. A study earlier this year from the state’s Center for Workforce Information & Analysis estimated gas drilling jobs could grow 55 percent from 2006 to 2016 to more than 12,400 positions statewide. “This is great. … These are good paying jobs, but a lot different than the 200,000 jobs,” Wood said. State Rep. David Levdansky, D-Allegheny, who favors a severance tax and a moratorium on leasing public land for gas drilling, said he was disappointed his alma mater “has chosen to serve as a facade for an industry-sponsored project … It doesn’t meet the rigorous standards of good academic research as far as I’m concerned.” But it was not unusual for such technical or economic impact studies to be funded by industry, said one of the study’s authors, University of Wyoming energy economics professor Tim Considine, who taught at Penn State until 2008. Considine said while their work may serve as a lightning rod for a sensitive topic, “the methods we use are standard … our analysis can stand up to any sort of scrutiny.” The university has taken no position on the findings or recommendations. “At the end of the day our faculty try to stay out of the politics and just focus on the science,” Bill Mahon, vice president of university relations, said Monday. “Penn State is doing more than $765 million in annual research and the claim that we would jeopardize a stellar international research reputation over a small research project is a pretty big stretch,” he said.

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Ellen Sterling: It’s Been Happening Since Mickey Mouse Was Born: The Business of Licensing

June 12, 2010

Remember the first time you bought a t-shirt with a band’s logo emblazoned across the chest? Or the logo of your favorite soft drink? How about a pair of designer jeans with the designer’s name on the back pocket? A Spiderman lunchbox? Did you have a Star Wars figure in your collection? If you had any, or all of these or, in fact, any similar product that demonstrated your preference for a certain brand then — even if you don’t exactly know how the name or logo got on the object you bought — you are aware of licensing even if the process of getting licensing products to market is a mystery. Now, if you are like I (or like I was until a few days ago) you really don’t care. As long as you can buy that High School Musical lunchbox for a kid who loves the show, it doesn’t matter to you exactly how how the product was tied into the High School Musical brand. But, I learned that the world of licensing is a fiercely competitive one, with almost every brand you can think of involved in licensing as a method of increasing brand recognition. I learned this last week at the Licensing International Expo that was held at the Mandalay Bay Convention Center here in Las Vegas. Walking into the exhibition hall, everything you see is familiar: Disney is right at the entrance and, just behind them is Skechers (this year entering the new arena of TV production with a show on Nicktoons). You see the Cartoon Network, the BBC, all of the major movie studios and a range of movie and comic book characters (Marvel is a big presence). If you move away from the center of the exhibition hall, you’ll find a booth devoted to Elvis and Muhammed Ali. Look! There’s Buzz Aldrin and, over there, is Tony Curtis — both here in person. Aldrin, at 80, has a watch brand and a line of “Rocket Hero” products. Curtis, 85 on June 3, has licensed his art, cardboard figure of himself, a line of painted horse figurines. Those proceeds will go in part to the Shiloh Horse Rescue and Sanctuary, founded by Curtis and his wife Jill. How did all this get started? According to Steven Ekstract (left), group publisher of Advanstar Communications, the company that manages the expo and publishes the trade magazine Global Licensee! , “Licensing began in the 1930s when Walt Disney invented Mickey Mouse and, when he was approached to put the character’s likeness on products, he also invented licensing. In the 50s we had Howdy Doody and The Lone Ranger. “In the 1960s,” Ekstract added, “the fashion guys — Oleg Cassini, Bill Blass — began to license clothing and perfume. Andy Warhol licensed his art. Today, a lot of licensing is coming out of movies, especially from tentpoles (films that serve as the primary support of a studio) and sequels. Warners has the Green Lantern and Disney owns Marvel and all those characters.” Asked what the next big thing in licensing is, Ekstract is quick to answer. “Sports leagues. The NBA will be big because basketball is an international sport today. There are 12 professional teams in China. Baseball is very big in Latin America.” And, now, he says, that the burgeoning middle class in countries like India and China want what we have in the United States in sports, entertainment and fashion. Ekstract points out that, in sports, the US, the United Kingdom and France all have exportable brands. “Except football,” he says. “That is the one sport that doesn’t translate well to other countries.” In addition to brands wishing to be licensed, companies that market brands to be licensed were also at the expo. One with the most intriguing client list is Manhattan-based Brandgenuity. Adena Avery-Grossman, a company managing director and one of the four founding partners, says that “it takes five skill sets to successfully develop a strategy to market a brand.” First, there’s sales. Next you need good legal advice, people to develop products, the licensees and, finally, the retail expertise.” Brandgenuity’s client list includes the World Poker Tour, Atari, Food Network, Pabst, Harlequin Romances, Juilliard, MGM Studios, It’s Always Sunny In Philadelphia, Rodgers and Hammerstein and Really Useful Group, Andrew Lloyd Webber’s production company whose property includes the Phantom of the Opera. To get the most for a brand in the world of licensing, Avery-Grossman says, “We look at the brand from every angle. What is it about? What do people who like the brand expect from it? Where can it go? We study the brand and ask these questions to develop a strategy.” She and Michael George, the Really Useful Group head of merchandising and licensing, agree that musicals — in theater , movies and on TV — is experiencing a real revival of interest. “Look at the popularity of Glee and High School Musical,” she says. “And Broadway is doing so well. “Also,” she adds, “look at Lyric Culture, the fashion line featuring song lyrics. They’re huge.” That Phantom is, after more than a generation on stage, still hugely popular is evidenced in many ways. Not the least of these is the attendance at Phantom Fan Week last autumn at The Venetian in Las Vegas, where a new production of the show, 95 minutes long, opened in 2006. Fans attended the event from across the US and Canada, Europe and, even China. “Now,” Michael George says, ” Love Never Dies, the sequel to Phantom is playing in London and will open on Broadway in 2011. There are so many [licensing] possibilities.” What trademarks can we expect to see more of in the future? Well, LIMA , the industry licensing trade group, reports that, even at $5.2 billion in 2009, revenue is down 8.7 percent from 2009, so we can expect more characters from every entertainment segment. The licensing future is full of movie sequels and remakes ( Gunsmoke, The Thing, Star Trek, Kung Fu Panda and the thirtieth anniversary of Star Wars, among them. “Licensing,” as Steven Eckstract points out, “has limitless potential.”

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Lehman Probe Lesson Avoid `Big Trouble’ by Shunning `Stupid’ E-Mail Terms

June 11, 2010

By Linda Sandler June 11 (Bloomberg) — “Just between us,” it may be “stupid” to use certain words in e-mail to “discuss” the “big trouble” you might face if you’re ever investigated for financial wrongdoing or a subsequent cover-up. Those are some of the terms that examiner Anton R. Valukas searched for in 34 million pages of Lehman Brothers Holdings Inc. e-mails and reports, to find out who knew what about the risks that drove the fourth-largest securities firm into bankruptcy, according to his 2,200-page study on the collapse. Valukas concluded that former Chief Executive Officer Richard “Dick” Fuld certified misleading financial statements. Valukas also said former Lehman Chief Financial Officers Christopher O’Meara , Erin Callan and Ian Lowitt didn’t disclose a financing method called Repo 105 that hid as much as $50 billion of Lehman’s debt as its credit dried up. “What investigators are looking for is any turn of phrase that can give them insight into what people were thinking at that time,” said Peter Henning , a former Securities and Exchange Commission lawyer who teaches at Wayne State University Law School in Detroit. “That can be valuable because e-mails are real-time and often unfiltered and can help to establish intent.” At least three lawsuits using Valukas’s findings have been filed against Fuld, 64, and other Lehman executives, who asked a federal judge in Manhattan on June 4 to dismiss a class-action suit over Repo 105, saying balance sheet variations were disclosed. Search Terms Fuld’s lawyer, Patricia Hynes , has said he didn’t know about Repo 105. Robert Cleary , Callan’s lawyer, has said she served Lehman diligently. They didn’t respond to e-mails seeking further comment about Valukas’s searches. Kelly Hnatt , a lawyer for Lowitt, and Michael Chepiga , a lawyer who represents O’Meara, declined to comment immediately. Lehman CEO Bryan Marsal didn’t immediately respond to an e-mail seeking comment on the searches. The search terms came out of a session where 20 lawyers at Valukas’s firm, Chicago-based Jenner & Block LLP, were “told to sit down and be as imaginative as you can,” said Robert Byman , a partner at the firm who helped with work on Lehman. The terms were changed if searches produced too many hits, he said. E-mails searched by the examiner, a former federal prosecutor, show what life was like at New York-based Lehman as employees struggled to manage $613 billion of debt that eventually doomed the company in September 2008. Lehman has said it may spend another five years selling assets to pay unsecured creditors as little as 14.7 cents on the dollar. Rising Risks Valukas, 67, whose key terms included “risk,” “concern,” “breach,” “big trouble” and “too late,” said Fuld was warned about rising business risks in early 2007, yet encouraged risk-taking until the next year. A March 2007 e-mail Fuld got from Michael Gelband , Lehman’s former head of capital markets, cites forecasts of a slowing economy by top money managers Stanley F. Druckenmiller of Duquesne Capital Management LLC and Paul Tudor Jones of Tudor Investment Corp. “This is not the B-team,” Gelband wrote. “I heard your view at the risk meeting that odds are in your favor but risk/reward is not good here so I’m trying to get out of as much illiquid risk as possible.” “Thanks for the update — let’s talk tonite — I am out now,” Fuld replied. The CEO kept pushing for growth as Lehman neared its risk limits, said Valukas, citing an April 18, 2007, e-mail to Lowitt and others from Kentaro Umezaki, a former head of fixed income strategy for Lehman. Dick’s Presentation Discussing Fuld’s talk to the fixed-income division the night before, Umezaki wrote, “Basically they heard we don’t have a balance sheet problem: in fact we have excess capacity,” he said. “I continue to be somewhat confused as to what the real objectives of the firm are around managing financial and risk constraints vs. revenue growth.” “Of course I totally understand the ‘motivational’ aspects of Dick’s presentation,” he told Lowitt, who was co-chief administrative officer at the time. When Fuld was told in the tight credit markets of January 2008 that Lehman might get money from the Kuwait Investment Authority he wrote, “Let’s discuss” — a Valukas search term that turned up several urgent e-mail exchanges. Lehman shouldn’t show it needed equity, David Goldfarb , Lehman’s former chief strategy officer, wrote Fuld in two e- mails. “We would join the bad company of the many who had to raise equity,” he said. “Perception issue.” Terrific Message Fuld said Lehman could get around that by charging more for its stock. “I was thinking they buy a special issue at a premium,” he wrote. “It would send a terrific message.” The deal never happened. The search word “stupid” turned up in an e-mail by Roger Nagioff , Lehman’s head of fixed income from May 2007, whose job was partly to limit the investment bank’s leverage, according to Valukas. “I am probably 3 months too late in the job,” Nagioff wrote to Goldfarb on June 26, 2007. “A big deal got pulled today and others are being restructured down . . . we are probably going to get punished for our stupidity.” “Target,” another Valukas search term, turned up in e- mails about Repo 105 as bankruptcy drew nearer. “Is there an official target to how much Repo 105 we want to do this quarter?” Paul Mitrokostas , chief operating officer of the fixed income division, wrote to Clement Bernard, the unit’s chief financial officer, and others in April 2008, about five months before Lehman failed. “I have not heard of an official target other than we cannot do more than what we have done at the end of Q1,” Bernard replied, referring to the end of the first quarter, when repos had doubled in 15 months to $49 billion, according to the e-mails. The lawsuit is In re Lehman Brothers Equity/Debt Securities Litigation, 08-cv-05523, U.S. District Court, Southern District of New York (Manhattan). To contact the reporter on this story: Linda Sandler in New York at lsandler@bloomberg.net .

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Sarkozy, Merkel Urge Faster EU Curbs on Speculation

June 9, 2010

By Ben Moshinsky and Gregory Viscusi June 9 (Bloomberg) — France and Germany called on the European Union to speed up curbs on financial speculation, saying some bets against stocks and government bonds should be banned as markets suffer a resurgence of “strong volatility.” In a joint two-page letter, French President Nicolas Sarkozy and German Chancellor Angela Merkel sought proposals from European Commission President Jose Manuel Barroso on a ban on so-called naked short sales of “certain” stock and bonds, as well as on naked credit-default swaps on sovereign bonds. They call for proposals to be ready by the middle of next month rather than October as had been planned. The letter shapes a common position between the leaders of Europe’s two largest economies after Merkel last month caught other EU leaders off guard when she unilaterally banned naked sovereign credit-default-swaps within Germany. She argued the actions of “speculators” exacerbated the European debt crisis that has rattled markets and driven the euro to a four-year low. Proposals to regulate short selling and credit-default- swaps will be brought forward and come “during the summer,” Commission Spokeswoman Pia Ahrenkilde-Hansen told journalists in Brussels today. She didn’t specify whether they would be ready by July as requested by Merkel and Sarkozy in their letter. “The return of strong volatility in the markets makes it necessary to question certain financial methods and certain products such as naked short-selling and credit default swaps,” the leaders said in the letter, e-mailed by their respective offices in Paris and Berlin today. ‘Imperative’ to Regulate While Sarkozy made greater market regulation one of his main rallying cries since the start of the financial crisis, he has so far refused to follow Merkel’s lead and instead pushed for EU-wide measures. Stocks around the world dropped on May 19 when the temporary German ban was introduced. Merrill Lynch’s MOVE Index , an options-based gauge of expectations for price swings in Treasuries, rose to 97.2 from a low of 74.10 on March 17. Eddy Wymeersch , chairman of the Committee of European Securities Regulators , said May 26 there was no “unanimous move to follow the German route.” “The commission is doing a good job, just that the president and the chancellor want it speeded up,” French Finance Minister Christine Lagarde told reporters today after a meeting of Sarkozy’s Cabinet. “Regulating financial markets is imperative to restore confidence.” July Deadline The Commission, the executive arm of the EU, should have its proposals ready before a mid-July meeting of European finance ministers, the letter said. The Commission is drafting proposals on short selling and sovereign credit-default-swaps which had been due in October. Credit-default swaps are derivatives that pay the buyer face value if a borrower — a country or a company — defaults. In exchange, the swap seller gets the underlying securities or the cash equivalent. Traders in naked credit-default swaps buy insurance on bonds they don’t own. Naked short selling involves selling a security without ever being in possession of it. “I don’t see any reason why these proposals shouldn’t be accelerated,” Richard Portes , professor of economics at London Business School, said in a telephone interview today. “If the political will is there then capitalize on that.” The Commission should “consider the possibility of a ban at the European level of naked short sales on all or certain shares and bonds, and on certain naked CDSs on sovereign securities,” the letter said. EU Proposals “It would be very surprising if any proposals from the European Commission would be softer than what Germany has put in place,” Thomas Tindemanns , a financial regulatory lawyer at White & Case LLP in Brussels, said in a telephone interview. Merkel’s Cabinet on June 2 nevertheless backed a draft bill that bans naked short-selling of credit-default swaps on euro- area government bonds and stocks of German companies. The draft, which will be put to parliament before the summer recess begins on July 9, also gives Germany’s Finance Ministry and the BaFin regulator leeway to ban euro-related derivatives trades without seeking further endorsement by lawmakers, and obliges investors to inform BaFin of naked short positions on shares in German companies. Merkel and Sarkozy agreed in a phone conversation to work “closely together,” the German leader’s office said in a statement issued late yesterday. They said they will prepare jointly for a June 17 EU summit and the subsequent Group of 20 gathering in Canada. Government officials have said the sovereign debt crisis and weak euro will dominate both meetings. European governments must “deliver a strong and unified position” on financial services rules before the G-20 summit in Toronto, Barroso told journalists last week in Brussels. The commission considered the Merkel-Sarkozy letter “an expression of support” for its approach on short selling, Ahrenkilde-Hansen said. “We welcome the sense of urgency.” To contact the reporters on this story: Gregory Viscusi in Paris at gviscusi@bloomberg.net ; Ben Moshinsky in Brussels at bmoshinsky@bloomberg.net .

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Susan Gendron Named Senior Fellow for the International Center for Leadership in Education

June 7, 2010

ALBANY, NY–(Marketwire – June 7, 2010) –  The International Center for Leadership in Education today announced that Susan Gendron, former Commissioner of Education for the state of Maine since 2003 and former Board President of the Council of Chief State School Officers (CCSSO), is joining the International Center as a Senior Fellow effective May 1, 2010. In her role at ICLE, Sue will head a team of former state commissioners/superintendents at the International Center to provide coaching and executive training and support to state education leaders and their staffs. She will also lead the International Center’s consulting services to local districts and state education departments for development of comprehensive assessment systems and 21 st century-based technology plans.

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Chao Deng: Will China’s Cranes Keep Rising?

June 6, 2010

Many investors are betting heavily this will be the Chinese century. But before racing to invest in China, listen carefully to James Chanos, a New York-based hedge fund manager whose fame and fortune soared after being among the first to bet against Enron and other high-flying stocks that later collapsed. Since late last year, Mr. Chanos has stirred intense debate around the world with his repeated warnings that China’s hot property markets represent a dangerous “bubble.” During a recent conversation with students in a business journalism class at Columbia University’s Graduate School of Journalism, Mr. Chanos said China’s property markets, primarily high-rise buildings such as offices and condos, are “on a treadmill to hell.” He has made similar comments in interviews with Charlie Rose, The New York Times and other news organizations. Some respected commentators, including New York Times columnist Thomas Friedman, disagree with Mr. Chanos. They say Chinese officials are keenly aware of the potential threat and already have taken significant action to avert trouble. Whatever the case, Mr. Chanos’s thinking – and the views of his critics – are worth a closer look because of Mr. Chanos’s remarkable track record and because of China’s rapidly growing impact throughout the world. The Outlook Mr. Chanos, a Yale graduate and the founder of Kynikos Associates, has achieved international fame as a “short seller,” a technique that essentially involves betting that an investment’s price will sink. Mr. Chanos says he doesn’t know precisely when the bubble will burst but that short sellers can prosper with strategically-placed bets. How? He says commodity stocks, such as those of companies in the iron ore, copper, nickel and steel businesses that have prospered due to Chinese construction, probably will tumble when the Chinese building boom halts. He also is looking for opportunities in stocks of Australian and Brazilian companies that sell raw materials to China. He declined to name specific stocks. Patrick Chovanec, a professor at Tsinghua University’s School of Economics and Management in Beijing, has also kept a close check on China’s booming property markets. Prices of residential houses in some areas like Shanghai have dipped recently. But he says it’s “premature” to conclude the boom is over, given that in 2008, buyers regained confidence after a slight price drop off, and that housing prices in China subsequently recovered. While Chovanec does not characterize himself as “short on China,” he is skeptical that the Chinese government is taking enough steps to curb speculation. Even as China adopts new policies to try to steer clear of further inflation, the country is not immune, according to James Rickards, a Senior Managing Director at Omnis Inc. Rickards, who described China as “the greatest bubble in history” to Bloomberg, said in a phone interview that exogenous factors outside of China’s control may still cause a collapse in the country’s housing market or stocks. Some respected commentators have taken strong issue with Mr. Chanos’s comments. Writing in The New York Times, Tom Friedman said he is “wary of the argument that China’s economy today is just one big short-inviting bubble, à la Dubai.” “I am reluctant to sell China short, not because I think it has no problems or corruption or bubbles, but because I think it has all those problems in spades — and some will blow up along the way (the most dangerous being pollution),” Mr. Friedman wrote. “But it also has a political class focused on addressing its real problems, as well as a mountain of savings with which to do so (unlike us).” Experts who predict continued prosperity for China argue that the Chinese government already has taken influential steps to restrain surging prices. “The Chinese government is not being draconian yet,” said Jim Rogers, co-founder of the Quantum Fund, in a phone interview. “They’re taking gradual steps.” Rogers said China’s urban centers near the coast are indeed in a property bubble, but that the idea China’s stock market is in trouble is “embarrassing.” He said it is more likely that the U.S. is in a bubble than China, considering that China’s stock market is down 65 percent from its record high. While Mr. Rogers says there may still be investment opportunities in China’s real estate market, he said he isn’t buying property there. When asked whether commodity values could drop if China’s property market suffers, Rogers said maybe, but many more factors are at play in determining the commodity market. Daniel Rosen of Rodium Group, a New York-based firm that studies Chinese markets, said in an email that one shouldn’t underestimate the durability of broader demand for commodities–and that strategies like Chanos’ to short commodities related to the Chinese property market are not well-founded. The Chinese government can control the real estate bubble — and even with price corrections in the upper-end of the housing sector, there should be “a fairly soft landing” in the mass market, according to Rosen. Can China Do More? Some experts believe China could do more to discourage buyers from flipping real estate. The country still wants to retain its engine of growth, so it essentially has “one foot on the accelerator and one foot on the break,” said Patrick Chovanec. Among the ideas suggested by Chovanec: China should encourage its citizens to invest abroad by giving them a greater range of investment options in global markets. At present, Chinese people have few outlets to place their savings, which is why many have resorted to pouring money into domestic real estate. Whether Chinese leaders will have the wisdom to steer clear of a crisis and help China’s economy to remain competitive in the longer term remains to be seen. But this much is clear: Chanos’s highly charged views have touched off a debate that is likely to attract increased world-wide attention amid continued nervousness about the roller-coaster ride of world stock prices recently.

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Gary Rivlin: Portrait of a Subprime Lender: Allan Jones, Payday King

June 6, 2010

It was at the end of a long day, the first of two we would spend together, that Allan Jones, the pioneer of the $40-billion-a-year payday industry, shared with me his views on race. His town, Jones told me, has just enough blacks to put together a decent basketball team — but not so many the good people of Cleveland, Tennessee need to worry about crime. “That’s why I can leave my keys in the car with the door unlocked,” he explained while driving me around Cleveland. I started to muster a response but he cut me off. “You don’t like what I’m saying,” he said, “but I’m just telling you the way it is.” The next day we met as planned at the offices of Check Into Cash, a chain of 1,200 payday lending stores that earns Jones more than $20 million in after-tax profits each year. I was only sorry that I didn’t visit on a Thursday. That’s when a black man named Randy Jarrett, who does odd jobs for Jones’s various companies, shows up to shine the shoes of the company’s top people. “Everyone else acted as if it were completely normal for the male managers to take their shoes off every Thursday afternoon,” a former employee told me. Making the scene even more degrading was the offensive nickname some of the executives had given Jarrett. “They’d stand out in the hall while their ‘Little Chocolate Man’ shined their shoes.” I’m not sure of the importance of Jones’s benighted views on race. As the first to spot (in 1993) the huge fortune that could be made making high-priced, small-denomination loans to the working poor, he’s the closest thing the industry has to a founder. And there are those, including the people at the Center for Responsible Lending, who believe the payday lenders target black and Latino communities — a business version of racial profiling. But, me, I’m of the school that says that payday lenders are no different from a Great White Shark: they’ll feast on any shade of fish they can catch. How is it that there are as many payday stores in the country as there are McDonald’s and Burger Kings? Part of the answer is that they have become ubiquitous wherever there’s a concentration of people barely scraping by , whether they reside in an aging first-ring suburb or live in a rural community that has seen its economic base crumble. Similarly, hanging around inside Jones’s world even for a couple of days gave me a glimpse of his views on gender. More women than men use payday loans (all those single moms living on the economic edge, among other reasons) but how relevant is it that a sidekick of Jones’s, who everyone calls Doughball (friends since childhood, on the Jones payroll for nearly as long), hardly wins himself a Gloria Steinem Award for his solution to the small financial bath Jones was taking at the local barbershop he owned. Jones had tried giving the place the old time feel of Floyd’s on The Andy Griffith Show , his all-time favorite TV program, but it was at a post-work drinking session that Doughball diagnosed the problem for the big boss. “I said to him, ‘Forget all this theme-ing stuff, just hire female barbers with big titties.’” With a laugh, Doughball added that because Jones listened to him, “it’s made a nice little profit ever since.” If nothing else, the story reveals Jones to be a CEO willing to push ethical boundaries, at least if it means more money in his pocket. There’s no doubting the relevancy of Jones’s views on money. Prior to arriving in Cleveland, I wondered how this small-town debt collector who barely made it through high school had turned a clever idea into a small empire that has rewarded him with hundreds of millions of dollars in profits , I had my answer after listening to his constant bellyaching about his supposed money woes. It was over lunch on our second day that I asked Jones how much would be enough. He responded by telling me how much critics of payday have hurt his bottom line in recent years. Losing Ohio after a particularly bruising ballot initiative fight at the end of 2008 would cost him at least $1 million in profits, he complained — and that didn’t include the other store closures he had endured following recent political defeats in Oregon and New Hampshire. He then kicked himself for failing to move into Europe a few years back when he had his chance. “I could really use that money now,” Jones told me. His money was so tied up in jets and yachts and real estate and cars (a $300,000 Maybach, a vintage Rolls, a vintage Bentley ) and horses, he moaned in an oh-woe-is-me-voice that was growing all-too-familiar, that he still hadn’t finished the driveway to the giant home he had built for himself modeled on the Biltmore, the stunning French chateau that a prior robber baron, George Vanderbilt, had built for himself a century earlier. “People get the wrong idea of how much money we make in this industry,” Jones said. He was especially worried given hard economic times. “Defaults are definitely up,” he told me during those two days we spent together in early 2009 — and that would cost him more profits still. But Jones is not a man to stand idly by while there are revenue leaks sprouting all over his payday empire. He has added check cashing services at his stores and they are now also offering money-wiring services through Western Union. He even started offering what are called auto title loans, despite the moral misgivings he had expressed about these loans that use a person’s car as collateral. “The fact you’d take a man’s car if he can’t pay you back, that’s not right,” he told me back then. By the time Jones added the auto title loan to his money-making repertoire, at least in those states where it was legal, Jones was no longer returning my emails or phone calls. But in a way I already had his explanation in my notes. That he was now resorting to offering auto title loans was the fault of all those consumer advocates who were fighting to cap the rates payday lenders could charge. “What do you expect us to do,” he had asked in Cleveland, “when you take away a man’s right to make a living?”

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Four-Day School Weeks Gaining Popularity During Downturn

June 4, 2010

FORT VALLEY, Ga. — During the school year, Mondays in this rural Georgia community are for video games, trips to grandma’s house and hanging out at the neighborhood community center. Don’t bother showing up for school. The doors are locked and the lights are off. Peach County is one of more than 120 school districts across the country where students attend school just four days a week, a cost-saving tactic gaining popularity among cash-strapped districts struggling to make ends meet. The 4,000-student district started shaving a day off its weekly school calendar last year to help fill a $1 million budget shortfall. It was that or lay off 39 teachers the week before school started, said Superintendent Susan Clark. “We’re treading water,” Clark said as she stood outside the headquarters of her seven-school district. “There was nothing else for us to do.” The results? Test scores went up. So did attendance – for both students and teachers. The district is spending one-third of what it once did on substitute teachers, Clark said. And the graduation rate likely will be more than 80 percent for the first time in years, Clark said. The four days that students are in school are slightly longer and more crowded with classes and activities. After school, students can get tutoring in subjects where they’re struggling. On their off day, students who don’t have other options attend “Monday care” at area churches and the local Boys & Girls Club, where tutors are also available to help with homework. The programs generally cost a few dollars a day per student. Experts say research is scant on the effect of a four-day school week on student performance. In fact, there is mostly just anecdotal evidence in reports on the trend with little scientific data to back up what many districts say, said University of Southern Maine researcher Christine Donis-Keller. “The broadest conclusion you can draw is that it doesn’t hurt academics,” said Donis-Keller, who is with the university’s Center for Education Policy, Applied Research and Evaluation. Many districts that have the shortened schedule say they’ve seen students who are less tired and more focused, which has helped raise test scores and attendance. But others say that not only did they not save a substantial amount of money by being off an extra day, they also saw students struggle because they weren’t in class enough and didn’t have enough contact with teachers. The school district in Marlow, Okla., is switching back to a five-day week after administrators decided students were not being served well by attending school only four days. The 440-student district tried the shorter week the spring semester this year to save $25,000 in operation costs. “It was harder on the teachers. We were asking the kids to move at a quicker pace,” said district Superintendent Bennie Newton. “We’re hoping the four-day week won’t come into play next year.” The move by Peach County in Georgia gets mixed reviews. Parents like Heather Bradshaw worry that their children are getting shortchanged on time with teachers. “I don’t feel like they’re having the necessary time in the classroom,” said Bradshaw, a single mother with a fourth-grade son at one of the county’s three elementary schools. “The schedule has slowed him down.” Other parents prefer the shorter schedule and don’t mind the hassle of finding a babysitter one day a week. “It makes the children’s weekend a little better, so they get more rest,” said LaKeisha Johnson, who sends her fourth-grade daughter to the Boys & Girls Club on Mondays. The trend of four-day school weeks started in New Mexico during the oil crisis of the 1970s and has been popular in rural states where students have to commute a long way. Other districts have used it as a way to try to fix schools with a long history of poor student performance by shaking up the schedule and giving children more time to study outside of school. Georgia, Oklahoma and Maine have changed their laws in the last couple of years to allow districts to count their school year by hours rather than days, allowing for a four-day week if needed. Hawaii schools were off every other Friday this year for schools to save money, giving them the state with the shortest school year in the country. From California to Minnesota to New York, districts – mostly small, rural ones with less than 5,000 students – are following the trend, hoping to rescue their bleeding budgets. For Peach County, the four-day week was enough of a success that the school district is trying it again next year, Clark said. The move saves $400,000 annually and is popular among teachers and students because they get extra rest, she said “Teachers tell me they are much more focused because they’ve had time to prepare. They don’t have kids sleeping in class on Tuesday,” she said. “Everything has taken on a laser-light focus.” ___ Online: Peach County Schools: http://www.peachschools.org/

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Oklahoma City Marriott Hotel Brings in New General Manager

June 4, 2010

OKLAHOMA CITY, OK–(Marketwire – June 4, 2010) –  The Oklahoma City Marriott ( NYSE : MAR ) announces a new General Manager, Mr. Tom Russell. Tom has been in the hospitality business since High School in Las Vegas, Nevada. Tom’s vast experience includes various positions from entry level, Vice President of Operations, Vice President of Food & Beverage, to General Manager. In his former General Manager position, Tom simultaneously oversaw two of Columbia Sussex & Tropicana Entertainment’s largest venues in Nevada: Tropicana Laughlin and River Palm Casino & Resort with 2,500 Rooms, 14 Restaurants, 13 Bars, and more. Tom has served as Director of the Chamber of Commerce. “I am truly honored to be appointed to this position,” said Tom Russell. ”We have an amazing team here at our

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Morgan Stanley’s Asia Chairman Roach Will Move to New York From Hong Kong

June 4, 2010

By Bloomberg News June 4 (Bloomberg) — Morgan Stanley ’s Asia Chairman Stephen Roach will return to New York from Hong Kong, ending a three-year stay in the world’s fastest-growing region, to take up a teaching post at Yale University. Roach, formerly the firm’s chief economist, will remain with Morgan Stanley and assume the role of non-executive chairman for Asia from July 1, the New York-based brokerage said in a statement today. The 64-year-old economist, who has predicted China will overtake the U.S. as the dominant economy by 2025, relocated to Hong Kong in 2007 to lead a push to arrange more takeovers and stock sales in the region. Roach, who joined Morgan Stanley in 1982, said he wants to rejoin his family after three years “living out of a suitcase” in Asia and plans to use the teaching post to correct “misperceptions” of China. “I’m not walking away from Morgan Stanley,” Roach said in a telephone interview today. “I have a lot of our clients and will continue to spend as much time with them in the future as I have in the past.” Roach will travel regularly for Morgan Stanley and “stay connected to clients, governments and regulators in Asia and other parts of the world,” the firm said in today’s statement. He is also accepting a joint appointment at the Jackson Institute for Global Affairs and the School of Management, according to the statement. Yuan Advice Roach said last month that China’s policy of keeping its currency stable, which has been a point of contention for U.S. manufacturers and politicians, is “joined at the hip” to the asset allocation of its foreign reserve portfolio. He has criticized Paul Krugman ’s call for the U.S. to pressure China to allow a stronger currency, saying in a March interview with Bloomberg Television that it was “very bad advice.” Krugman, the Princeton University professor and Nobel laureate in economics, responded by saying he was “surprised” by Roach’s comments and his call for a stronger yuan was “based on pretty careful economic analysis.” “My views have not always been popular mainstream views,” Roach said in today’s interview. “I have very critical views on economies and markets from time to time. The firm has given me just a great platform to express my views.” Asian economies need to derive more from internal demand and not be overly reliant on exports to achieve a better structural balance, Roach added. ‘Intellectual Leader’ Before relocating to Asia in 2007, Roach had said the U.S. economy will stagnate because of an impending housing slump that would erode consumer spending. Before joining Morgan Stanley in 1982, Roach worked at Morgan Guaranty Trust Company and on the research staff of the Federal Reserve Board in Washington. Roach, who has a Ph.D. in economics from New York University, “is an intellectual leader on many global economic issues, including those related to China,” Morgan Stanley former CEO John Mack said in a statement announcing Roach’s appointment as Asia Chairman in 2007. At Yale University, he will teach upper level undergraduates and graduate students with a focus on Asia and macroeconomic policy. His first course will be on the Chinese economy this fall. “While Steve has made the decision to return to the U.S. and join the faculty at Yale, we are delighted he will also remain with the firm,” Chief Executive Officer James Gorman , said in the statement. Separately, Morgan Stanley plans to double its private bankers in Asia over the next three years as Gorman aims to boost profits from the global wealth management unit that he’d previously helmed. The company plans to hire almost 100 bankers in the region this year, Charles Mak , head of private wealth management for Asia, said in an interview. — Luo Jun and Kelvin Wong . Editors: Brett Miller , Malcolm Scott. To contact Bloomberg News staff of this story: Luo Jun in Shanghai at +8621-6104-7021 or jluo6@bloomberg.net

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Cohrs Set to Retire After Deutsche Bank Narrows M&ampA Gap With Goldman Sachs

June 3, 2010

By Jacqueline Simmons and Brett Foley June 4 (Bloomberg) — Michael Cohrs , co-head of investment banking at Deutsche Bank AG , is capping a 15-year career at the German lender just as it becomes a global leader in mergers and acquisitions. Deutsche Bank, which for years trailed Wall Street competitors in the mergers business, is the top takeover adviser in Europe, No. 3 in Asia, and fourth in the U.S., the biggest M&A market, according to data compiled by Bloomberg. Globally, the Frankfurt-based bank ranks fourth. “We’ve been working at this for a decade,” said Cohrs, 53, in an interview at the firm’s offices in London’s financial district. “It’s an ongoing build-up, but people are taking us seriously as someone they trust for advice, not just someone to turn to for loans, debt, equity or asset finance.” Cohrs, who joined Deutsche Bank from S.G. Warburg in 1995 and has run investment banking with Anshu Jain since 2004, is planning to retire in coming weeks, Bloomberg Businessweek reports in its June 7 issue, citing two people with knowledge of the situation. Jain, 47, head of sales and trading, the bank’s biggest moneymaker, is likely to assume his responsibilities, which also include equity offerings and loan products, said the people, who asked not to be identified because an announcement hasn’t been made. Cohrs declined to discuss his departure. Deutsche Bank this year advised Qwest Communications International Inc. on its $10 billion sale to CenturyTel Inc., and worked with MetLife Inc. on the insurer’s purchase of American International Group Inc.’s Alico unit for $15.5 billion. It helped SAP AG buy Sybase Inc. for $5.3 billion. ‘Bulge Bracket’ The bank has worked on 79 takeovers this year valued at about $122 billion, Bloomberg data show. Goldman Sachs Group Inc. is No. 1, with $156 billion of deals, followed by New York- based JPMorgan Chase & Co. and Zurich-based Credit Suisse Group AG. Morgan Stanley ranks fifth behind Deutsche Bank, according to the data. “Deutsche Bank has certainly joined the bulge bracket in terms of M&A,” said Scott Moeller , a professor at Cass Business School in London. “They will have to push hard to maintain their place and ensure the success is not just a flash in the pan. The established market leaders like Goldman Sachs and Morgan Stanley aren’t going away.” Even as Deutsche Bank rises in the deal rankings, its fees from M&A trail competitors. The bank generated $210 million in revenue for merger advice at the end of April, compared with $543 million for Goldman Sachs and $434 million for JPMorgan, according to data from Freeman & Co. , a New York-based research firm. That may reflect situations where the bank got league table credit but had a lesser advisory role, said Jeffrey Nassof, an associate at Freeman. M&A Conundrum M&A remains a fraction of Deutsche Bank’s revenue , accounting for less than 2 percent of the total 9 billion euros ($11 billion) in the first quarter. “One of the conundrums is that while M&A may not be the biggest or most profitable business, it is clearly at the heart and soul of an investment bank because it signals the strength of your relationships,” said Cohrs, a former equities banker who worked for Goldman in New York and London from 1981 to 1991. Cohrs had originally timed his departure to coincide with the retirement of Deutsche Bank Chief Executive Officer Josef Ackermann , 62, who was scheduled to step down in May, according to people with knowledge of Cohrs’s plan. Ackermann agreed last year to stay for another three years because the board couldn’t agree on his successor . Next Generation Cohrs, an American who has an MBA from Harvard University, has been preparing new leaders within his global banking group since the end of last year. He appointed Jacques Brand , 49, and Stephan Leithner , 44, co-heads of global coverage, overseeing the firm’s investment bankers, and made M&A co-head Brett Olsher , 49, chairman of the global clients executive committee, in charge of leading relationships and transactions with clients. The financial crisis turned out to be a boon for Deutsche Bank’s M&A business, led by Olsher, an American, and Norwegian Henrik Aslaksen , 46. The firm was ninth in M&A in 2007, a year before the collapse of Bear Stearns Cos. and Lehman Brothers Holdings Inc. ushered in a global credit crunch in which clients shied away from all but the safest financial companies. Unlike its biggest U.S. competitors, Deutsche Bank didn’t have to take a government bailout. It didn’t raise capital from shareholders as Barclays Plc and HSBC Holdings Plc did, or get investments from the sovereign wealth funds that Swiss rivals UBS AG and Credit Suisse turned to. “The crisis for us was quite good in some ways,” said Cohrs. “In the U.S., it meant that for the first time, we started to talk to people who hadn’t wanted to talk to us. People wanted to feel safe and secure.” Accelerating Hiring The crisis helped in another way: Deutsche Bank accelerated hiring as rivals went under or were acquired, luring 151 bankers for corporate finance since the end of 2007. Hires like William Curley and Anthony Viscardi , mortgage- finance specialists from Lehman Brothers, helped Deutsche Bank land roles with the Federal Deposit Insurance Corp. They advised Chairman Sheila Bair ’s team on the sale of IndyMac Bank to private investors last year and worked with the FDIC to find buyers for three Puerto Rican banks in April. Another recruit was Paul Stefanick , a former Merrill Lynch & Co. banker who joined in January 2009 after Merrill agreed to be sold to Bank of America Corp. Stefanick, who runs investment banking for industrial clients, landed a lead role advising Connecticut-based Stanley Works on its takeover last year of Black & Decker Corp. for $3.5 billion, a deal the companies had tried to pull off three times over about 27 years. ‘More Persistent’ Stefanick and his colleague Kirk Meighan sealed the deal when they convinced Stanley Works Chief Executive Officer John Lundgren and Chief Operating Officer Jim Loree that a decline in the companies’ combined market capitalization to $4 billion made the $2.4 billion of potential savings from a transaction all the more valuable, Loree said. “That was the moment the light bulb went on,” Loree said in an interview. Stefanick and Meighan, who advised Stanley Works alongside Goldman, “were just more persistent and very proactive in putting the opportunity in front of us,” said Loree. Deutsche Bank had no lending relationship with Stanley Works before the deal, underscoring its increasing ability to win M&A business because of relationships with CEOs instead of relying on its 1.67 trillion-euro balance sheet . About 30 percent of Deutsche Bank’s top 500 clients don’t have lending relationships with the bank, said Cohrs. Human Capital “They’ve made big investments in human capital and that’s paying dividends,” said Scott Simpson , co-head of Skadden, Arps, Slate, Meagher & Flom LLP’s global transactions group, which includes M&A. “They’ve had a balance sheet they can use, but they also recruited very good bankers.” The challenge will be retaining them as the market recovers and competition for talent intensifies, said Ingo Walter , a professor at New York University’s Stern School of Business . Recently, Deutsche Bank has lost senior bankers to firms including Nomura Holdings Inc., the Japanese brokerage investing 250 billion yen ($2.7 billion) to expand in the U.S. Michael Hill , Deutsche Bank’s former co-head of global natural resources, quit last week for Nomura, following Mark Epley , who had run the bank’s team advising private-equity firms. “Deutsche Bank has grown very fast and hired a lot of people from outside,” said New York University’s Walter. “If there are lots of external opportunities, there can be a ‘why stay’ mentality and you’ll see that kind of departure when the market is good.” To contact the reporters on this story: Jacqueline Simmons in Paris at jackiem@bloomberg.net Brett Foley in London at bfoley8@bloomberg.net ;

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