vulnerability

MoneyWatch: How To Avoid Getting Laid Off

by on August 18, 2011

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The first thing you need to do is assess your vulnerability to these cuts on several levels. The first one would be based on your own personal performance — how does it compare to that of your peers, how well does your boss regard you, and what kind of support do you have beyond him or her? Because if you only have your boss’s support, you’re vulnerable since his or her job may be at risk as well. So you want to seek out and build as wide support for yourself at your company as possible.

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MoneyWatch: How To Avoid Getting Laid Off

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Tax Breaks For Rich Exceed Value Of Budget Cuts

by on April 18, 2011

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NEW YORK — Today, as Americans submit their tax returns, the wealthiest earners will each reap hundreds of thousands of dollars in tax savings. As part of a law passed late last year, the Bush-era tax cuts for the richest Americans were extended for two years. The estimated cost to the government of that portion of the tax deal, $42 billion this fiscal year, exceeds the stated $38 billion value of the savings from the federal budget cuts lawmakers approved last week. Those budget cuts, which will affect many services for poor Americans, add more strain to a still weak economy , leading some economists to lament that this allocation of federal resources is not the most efficient way to promote economic growth. “I don’t think it’s a good time to be trimming federal outlays if you’re interested in the vulnerability of the economy,” said economist Gary Burtless, formerly with the Labor Department and now at the Brookings Institution. “I’m not quite sure where the theories come from that this is going to strengthen economic growth over the next 12 to 18 months. It’s going to have the reverse effect. It’s going to slow it down.” In the wake of the worst economic downturn since the Great Depression, the economic recovery has been uneven. The financial sector , which employs some of the country’s wealthiest citizens as its executives, has seen profits rebound. Pay at top financial firms has multiplied, while wages for most Americans have stagnated. Between January 2008 and January 2010, the private sector lost nearly 8 million jobs. Last year, payrolls began to expand, but the pace of the recovery has been slow. With companies reluctant to spend their reserve cash on hiring, the unemployment rate remains high. Last month, 8.8 percent of the workforce was unemployed, a figure that would be significantly greater if it included the millions of jobless Americans who have entirely given up looking for work. Thanks to the tax cut extension passed last year, struggling Americans will get to keep a few thousand dollars that otherwise would have gone to the government. A family making between $50,000 and $75,000, for instance, saves just over $2,000 on average, according to the non-partisan Tax Policy Center . From a broad economic perspective, that’s money Americans can spend on themselves, theoretically boosting demand, stimulating business activity and generally helping promote a recovery. But the extension of the tax breaks for the wealthy have proven more controversial, especially as job-creation has remained slow. Under the extension, a family that earns between $500,000 and $1 million gets an average $25,000 tax break, according to the Tax Policy Center. A household earning more than $1 million gets more than $130,000. Over two years, tax cuts for the wealthy will cost the government about $120 billion and will create or save about 290,000 jobs, according to analysis by the White House-aligned research group Center for American Progress . That’s a cost of about $400,000 per job, many of which will likely yield salaries far below that value. The tax extension seems especially hard for critics to swallow in light of last week’s federal budget deal, which calls for spending cuts of about $38 billion. In comparison, tax breaks for the wealthy will cost the government $42 billion during this fiscal year, according to Michael Linden, director for tax and budget policy at the Center for American Progress. The cuts come at a period of economic weakness, when those who most rely on government services struggle to put food on the table. This week, the International Monetary Fund cut its forecast for U.S. economic growth — by the same degree as it cut its forecast for Japan , whose economy faces a major strain as the country attempts to rebuild after a devastating earthquake and tsunami. But some fiscal restraint is necessary for supporting long-term economic growth, said Mark Zandi, chief economist of Moody’s Analytics. In theory, government spending cuts encourage private businesses to boost their own spending, thereby helping stimulate economic activity. A reduction of public spending might also help stem inflationary pressures and boost investors’ confidence. While these proposed cuts represent only a small percentage of the year’s budget, they are an important first step, said Zandi, who has advised lawmakers from both parties. “I think it’s entirely appropriate to focus on discretionary spending, and how we can reduce it going forward,” Zandi said. “My druthers would not have been to cut as deeply right now, until the economy is off and running.” The deficit-reduction plan put forth by President Barack Obama in a speech on Wednesday includes a combination of cutting spending and ending tax breaks for the wealthy when those naturally expire. He laid out a strategy for reducing the deficit by $4 trillion over 12 years, calling for additional cuts across the board. “If they make serious cuts over time, that’s actually going to be quite good for the economy,” said Andrew Lo, professor of finance at the MIT Sloan School of Management. “It’s bitter medicine, but we’ve got to take it.”

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Tax Breaks For Rich Exceed Value Of Budget Cuts

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Blame Fuel: Major World Conflicts Link To Energy Challenges

April 5, 2011

WASHINGTON — Quick: What do these things have in common? Libyan leader Moammar Gadhafi. The Japanese earthquake and tsunami. Wall Street volatility. A cranky, even angry American populace. Answer: They all have something to do with gasoline. No matter what happens in the world today, just about everything points back to fuel and the tricky politics that emerge when prices spike. Is it any wonder, then, that a recent Associated Press-GfK poll shows a correlation between the country’s more pessimistic outlook and rising gas prices. The issue also has taken on greater importance to Americans. They rank it above subjects including Iraq, Afghanistan, immigration, terrorism and taxes. Last fall, 54 percent called gas prices a highly important issue to them personally, but 77 percent said that in the latest poll. Many don’t expect relief from soaring gas costs anytime soon: Two-thirds say they expect the higher prices will cause financial hardship for them or their families in the next six months. That group includes more than a third who say gas cost spikes will cause serious financial hardship. And that is on top of a still-poor economy. Most are changing the way they live. Three-fourths are cutting back on other expenses, two-thirds are driving less, half plan to vacation closer to home, and almost as many have thought seriously about buying a more fuel-efficient vehicle. Most also are bypassing the most convenient gas station to bargain shop for the lowest prices. GfK Roper Public Affairs and Corporate Communications conducted the poll from March 24-28. It involved landline and cell phone interviews with 1,001 adults nationwide and had a margin of sampling error of plus or minus 4.2 percentage points. The underlying links between current events aren’t lost on President Barack Obama, and for good reason. Like death and taxes, this cycle is a certainty: Prices at the pump rise, the public’s mood falls and the president gets punished. Listen to him when he pressed recently for reducing the nation’s oil imports by one-third by 2025. “Obviously, the situation in the Middle East implicates our energy security. The situation in Japan leads us to ask questions about our energy sources. In an economy that relies so heavily on oil, rising prices at the pump affect everybody,” Obama said. “Businesses see rising prices at the pump hurt their bottom line. Families feel the pinch when they fill up their tank. And for Americans that are already struggling to get by, a hike in gas prices really makes their lives that much harder. It hurts.” Sure, that’s true. But there’s also much more to it. In an era in which globalization is a given, gas prices are the most obvious, most closely felt connection between the daily lives of Americans and the larger world. “Whenever gasoline prices spike, there is enormous political consternation because it’s a highly invasive issue,” said Pietro Nivola, a senior fellow at the Brookings Institution who studies energy policy and American politics. Has there been a time in modern history when that’s been more apparent than the past few weeks? Look at what’s happened. _Populist uprisings swept across oil-rich North Africa, from Tunisia to Egypt and now to Libya, where rebels are in a standoff with Gadhafi that has shut down much of the country’s 1.5 million barrels a day of crude exports. Energy traders fear unrest will spread further across the region and disrupt shipments from bigger producers like Saudi Arabia and Iran. That could limit supply when demand is high, boosting costs. _An earthquake and tsunami in Japan last month triggered a nuclear emergency, with the Fukushima Dai-ichi nuclear plant leaking radiation. The reactor’s near meltdown has renewed debate in the United States over nuclear fuel and raised questions about the vulnerability of some U.S. plants. _Oil surged to a 30-month high – more than $100 a barrel – as investors worried that the unrest in Libya and elsewhere would keep crude exports from oil-producing nations off the market longer than expected. On Wall Street, key indexes fluctuated as oil prices soared. _Consumer confidence dropped at a troublesome time, just as the post-recession economy was struggling to recover. Gas costs were the reason. Experts say if people are forced to pay more for gasoline, they’re likely not to spend elsewhere and that could further slow already sluggish economic growth. And none of that even takes into account last year’s Gulf Coast oil spill. Even if there’s no proven cause and effect between the latest turn of events, there’s a commonality that’s not lost on experts and consumers alike. “It’s a combination of trends and luck that have put energy repeatedly at the forefront,” said Michael Levi, director of the program on energy security and climate change at the Council on Foreign Relations. “We always are going to be dealing with energy in some form or another because it’s the lifeblood of society.” The poll also indicated a disconnect between expectations and reality. Consumers on average said $2.36 per gallon was a fair price for gas, but the national average was $3.65 during the week the survey was taken. Albert Mercado, a restaurant employee from Wallingford, Pa., is among those feeling more than just a pinch. “When I swipe my card at the gas pump, it stops at $75 and I’m nowhere near full,” says the owner of a 2004 Ford Explorer, who lives outside Philadelphia. He adds: “I have not been driving as much.” He now limits his travels to and from work, his son’s day care and their home. He saves rather than spends. He hasn’t visited his parents, who live a three-hour drive away in New York, for a long time. And Mercado, 44, has little hope that costs will fall anytime soon. After all, he says, he once worked at a gas station and knows how the price game is played. “Something’s got to change. I doubt it will,” he said. So far, Obama’s overall political standing isn’t suffering; it’s held steady for months at about 50 percent. Even so, his job performance rating on handling the issue of gas prices is at just 36 percent, his lowest rating on any issue tracked in the poll. “What’s different this time is the U.S. economy is still fragile,” Nivola said. “If we had a sustained gasoline hike, it would be like imposing a substantial tax on the economy at a very inopportune moment.” Eventually, consumers will look for someone to fault if gas prices remain high. Obama’s the likely target, and Republicans are trying to hasten the blame game. “His war on domestic oil and gas exploration and production has caused us pain at the pump, endangered our already sluggish economic recovery, and threatened our national security,” said Sarah Palin, the former Alaska governor and 2008 vice presidential candidate who is considering a White House run of her own. “The good news is there is nothing wrong with America’s energy policy that another good old-fashioned election can’t solve. 2012 is just around the corner.” History, however, offers no certainty that a different president would dramatically change how Americans deal with energy. For decades, a national energy policy has proven elusive because Republicans and Democrats sharply differ over how to make America closer to energy independent. Progress has been impeded by not-in-my-backyard fights over nuclear plants and wind farms, battles over drilling in the Arctic National Wildlife Refuge and nuclear waste disposal at Yucca Mountain, and election-year sloganeering. The same cycle has persisted. Gas prices rise, Americans complain and politicians raise alarms. Consider the words that came out of one president’s mouth: “This country needs to regain its independence from foreign sources of energy, and the sooner the better.” That was Republican Gerald Ford – in 1975. Nearly four decades later, Obama said: “As long as our economy depends on foreign oil, we’ll always be subject to price spikes.” He’s probably not the last president who will give voice to that notion, given the complexities of the issue. As Levi puts it: “The nature of energy is that it matters because it gets entangled with so many other things. But those other entanglements are what make it precisely so difficult to deal with.” ___ EDITOR’S NOTE – Liz Sidoti has covered national politics for The Associated Press since 2003. Online: Array

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Peggy McColl: Success or Failure: Which Fear Is Really Holding You Back?

March 29, 2011

You are months, or even weeks away from launching your product or services online and you are ready to abolish the entire idea. Yikes! You might be surprised at how many other internet marketers, authors and solo-preneurs share your same doubts and fears. Many of my clients and I have experienced these negative issues associated with putting ourselves out there in the marketplace and wondering what will happen if…. if we fail, and if we succeed. Do these thoughts sound familiar? It’s not going to work I’ve spent all of this time and money building it and what if no one wants it? Why would anyone want to buy anything from me? My content is on X and I am not a perfect example of X Once I launch and it’s successful, the microscope will be on me to walk the talk and I may not be able to keep up with demand. One of my clients candidly confessed, “I don’t know if I am afraid of failure or afraid of success.” This is natural. There is a fear to fail because you’ve put so much into it, including your name, your brand and your reputation. The other side of the coin is what if it is a big success? Is it going to take her away from her family more than she’d like? If she’s feeling overwhelmed now, even before it launches, what will her life look like if it does take off? This coaching call reminded me of similar experiences I’ve had with feeling overwhelmed. In my earlier days of releasing some of my first books I felt like pulling the plug on the entire concept because I questioned who cares what I have to say. It brought back memories of my own fears. I wasn’t as concerned about failing as I was about succeeding and what that meant because then I’d have to step up, follow through and consistently deliver. That was a lot of pressure and I didn’t know if I wanted to set myself up for it. Is the fear of success better or easier to overcome than the fear of failure? Not really. Fear of any kind can be an immobilizer and you have to be able to stare it in the face and go for it anywhere. Here are the recommendations I made to my client and the strategy that can work for you: Understand your fears are natural so don’t be upset with yourself because these thoughts come up – it’s okay to feel it. Some of the most successful people in the world had that experience. Come from your heart, remember why you are doing it and reconnect to the passion that started the whole process in the first place. Continue to give the best of who you are Don’t worry that you are not perfect at what you are teaching others -you are human and that will resonate with your customers. Think about when a high-profile golfer has a tough match and when he is interviewed, he admits to not playing his best. We don’t fault him for that, we know how difficult it is to be on top of your game at all times. Don’t be afraid of sharing your own challenges – people will connect and respect your vulnerability. Let them see the real you. Make a conscious choice to put the fun back in to the process. There is tremendous value in asking yourself great questions such as: What do I like or enjoy about this? How will I make this more enjoyable? What am I grateful for in this experience? What am I most grateful for in my life right now? (This is a Biggie!) Put a reminder in front of you to stay connected to what you are enjoying most about this experience What am I learning? How am I growing? There will always be the one moment in time when you want to throw up your hands and give up. Remember it is just a moment, a day or a week and it is a temporary feeling. Take a break and do something else for a while until the feeling passes. I remember when I sent my first manuscript to my editor and when she said it was a great book my response was, “Really???” She laughed and said, “Oh you authors are so insecure.” We are all very similar when it comes to taking a risk and putting ourselves out there. Two decades ago Susan Jeffers published her book, Feel the Fear and Do it Anyway . It is still true to this day!

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Franz-Stefan Gady: Undersea Cables: The Achilles Heel of our Economies

December 21, 2010

In December 2008 within milliseconds, Egypt lost 70 percent of its connection to the outside Internet. In far away India, 50 to 60 percent of online connectivity similarly was lost. In Pakistan, 12 million people were knocked offline suddenly, and in Saudi Arabia, 4.7 million were unable to connect to the Internet. The economic costs of this 24-hour outage: approximately 64 million dollars. The recent revelations by WikiLeaks of U.S. national security interests in critical infrastructure vulnerabilities mention the often neglected underpinning of the current connectivity revolution sweeping the planet–undersea cables. In December 2008, four undersea cables were cut simultaneously, affecting Internet users all over the world. While cable cuts happen from time to time nothing, the scope of the cuts illustrate the exposure of our economies to disruption once we lose connectivity. Hardly any people know that our global digital connectivity rests upon a relatively few fiber optic cables lying at the bottom of the Atlantic, Pacific, and Indian Oceans. They wrongly believe that their international communications are carried via satellite links. The truth is that 99 percent of transcontinental Internet traffic travels through these connecting cables; these are the lifelines of our economies. For proof, simply take a quick look at the financial services sector. In 2004 alone, nine million messages and approximately $7.4 trillion a day were traded via undersea cables worldwide. The Society for Worldwide Interbank Financial Telecommunication (SWIFT), a provider of financial messaging, sends about 15 million messages a day over cables. 1 million of these are financial transactions, amounting to over $4.7 trillion dollars a day commuting via the same undersea cables. The finance hub Hong Kong doubles its dependency, i.e. the volume of messages going through these cables, every 18 months. Most of the cable cuts occur because of ship anchors, natural disasters such as earthquakes or fishing nets. While the technical reliability of these cables is very high, international politics have created three particular problem zones in the world — three cable chokepoints where undersea cables converge and where if cut, outages could have severe consequences. The first is in the Luzon Strait, the second in the Suez Canal-Red Sea-Mandab Strait passage, and the third is in the Strait of Malacca. Let’s take a closer look at the Luzon Strait. The reason why cables go through the Luzon Strait rather than taking an alternative route through the Taiwan Strait to avoid this single point of failure is because of the ongoing political tensions between Taiwan and China. The result is that Hong Kong, a major financial hub, is one of the most vulnerable spots to outages in the world. The Hengchun earthquake in 2006 severed the Luzon Strait cables, which, according to Chinese newspapers, “catastrophically affected financial transactions, particularly in the foreign exchange market.” Simultaneous cuts in the Luzon Strait or the Suez Canal-Red Sea-Mandab Strait chokepoints — again largely the result of the political unwillingness of the countries on the Arabian Peninsula to cooperate with regard to overland cables through their territories — could cut Hong Kong off from New York or London, as terrestrial routes would have insufficient capacity to carry the undersea cable load. Payments suddenly could not be made, orders not processed, and bond trading halting on the stock exchange. Given our volatile economic climate, an incident where a number of these cables are cut could have devastating consequences. When cables are cut at one chokepoint, the loss of connectivity might last from a few days to a few weeks depending on how well the cable system owner, the operator of the repair vessel, and the national government involved coordinate their efforts. A few countries are notorious for delaying repair permits if the cuts appear in their territorial waters. The good news is that there is the chance for “undersea cable diplomacy” to bring countries together. The IEEE Reliability of Global Undersea Communications Cable Infrastructure (ROGUCCI) Report, released earlier this year, provides a thorough analysis of these and other concerns, and, most importantly, provides bold, actionable recommendations for addressing each of these problems in order to strengthen the resilience of the global undersea communications cable Infrastructure (GUCCI). The international, non-profit “think and do tank” EastWest Institute has been recruited to champion international policy aspects of the recommendations and is making encouraging progress. There is hope that China and Taiwan could reduce tensions and build trust by allowing the installation of undersea cables in the Strait of Taiwan. It would be a win-win situation for both sides and the world since it decreases the vulnerability of the global economy to communication outages. The same is true for other chokepoints. Undersea cables might serve as the initial building block in inter-country collaboration in some of the most contested regions of the world. This was a notion already recognized by Queen Victoria in her first cable across the Atlantic in 1858 when she expressed hope that undersea cables would prove “an additional link between the nations whose friendship is founded on their common interest and reciprocal esteem.” Franz-Stefan Gady is a foreign policy analyst at the EastWest Institute.

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David Isenberg: Sergio Leone on PMC

October 26, 2010

Earlier this month I mentioned past congressional testimony by Colonel T. X. Hammes (USMC – Ret.), Senior Research Fellow, Institute for National Strategic Studies (INSS) , National Defense University. He also gave a presentation on private security contractors at the Middle East Institute. Now the INSS has published a paper he wrote in which he explores the question “Does using contractors in a conflict zone make strategic sense?” I’ll simply say that if you are going anything to read anything on private military contractors read this. It will easily be the best 15 pages written on the subject this year. Be warned; because it is so cogent and incisive I am going to quote from it a lot. The paper is titled Private Contractors in Conflict Zones: The Good, the Bad, and the Strategic Impact . I’m guessing the colonel is a fan of Sergio Leone films. Note to Clint Eastwood: there is a PSC film waiting to be made that has your name in a starring role written all over it. Give Col. Hammes credit dealing with a topic that is relatively unexplored. Most writing on private military and security contractors deals with operational and normative issues but putting PMC in the context of national military strategy or grand strategy generally gets short thrift. Also give him credit for getting right to the point. His key points are: the United States has hired record numbers of contractors to serve in the conflict zones of Iraq and Afghanistan but has not seriously examined their strategic impact. there are clearly advantages to using contractors in conflict zones, but they have three inherent characteristics that have serious negative effects during counterinsurgency operations. We cannot effectively control the quality of the contractors or control their actions, but the population holds us responsible for everything the contractors do, or fail to do. contractors compete with the host government for a limited pool of qualified personnel and dramatically change local power structures. contractors reduce the political capital necessary to commit U.S. forces to war, impact the legitimacy of a counterinsurgency effort, and reduce its the perceived morality. These factors attack our nation’s critical vulnerability in an irregular war–the political will of the American people. Hammes notes, as PMC supporters often assert, that use of contractors does have its advantages, such as speed of deployment, continuity, reduction of troop requirements, reduction of military casualties, economic inputs to local economies, and, in some cases, executing tasks the military and civilian workforce simply cannot. Col. Hammes also has some interesting estimates on the level of combat firepower private contractors represented. While the vast majority of contractor personnel were involved in noncombatant logistics tasks, DOD estimated there were over 20,000 armed contractors in Iraq during 2007. Other organizations have much higher estimates. Even using the Pentagon’s lower estimate, contractors provided three times more armed troops than the British. It should also be noted that in Iraq and Afghanistan, many unarmed, logistic support personnel functioned in what the military would define as a combat role. Te drivers were subjected to both improvised explosive devices and direct fire attacks. This combination of drivers willing to run the gauntlet of ambushes and armed contractors replaced at least two full combat divisions. Given the very low support-to-operator ratio that contractors maintain, it is not unreasonable to estimate they actually replaced three divisions. And, in regard to contractor casualties, a vastly underreported and underappreciated subject, he notes: The contractors not only provided relief in terms of personnel tempo but also reduced military casualties. Contractors absorbed over 25 percent of the killed in action in Iraq, which reduced the political resources required to maintain support for the conflict. By the end of 2009, contractors reported almost 1,800 dead and 40,000 wounded in Iraq and Afghanistan. As the fighting in Afghanistan gets worse, contractors are now suffering more deaths than U.S. forces: “In the first two quarters of 2010 alone, contractor deaths represented more than half–53 percent–of all fatalities. This point bears emphasis: since January 2010, more contractors have died in Iraq and Afghanistan than U.S. military soldiers.” For practical purposes, these casualties were “of the books” in that they had no real impact on the political discussions about the war. What this means in terms of enabling continued war is obvious. Replacing these contractors, both armed and unarmed, would have required additional major mobilizations of Reserves or a dramatic increase in Army and Marine Corps end-strength. In effect, the mobilization of civilian contractors allowed the United States to engage in a protracted conflict in Iraq without convincing the U.S. public of the need for additional major mobilizations or major increases in the Active Armed Forces. An in regard to the never ending argument of contractor cost-effectiveness Hammes writes: Determining actual costs is extremely difficult due to the large number of variables involved–some of them currently impossible to document. For instance, with over 40,000 U.S. contractors wounded to date, we are unable to estimate potential long-term care costs to the U.S. Government. While contractors may claim their insurance covers those costs, the government, in fact, paid for that insurance through the contract, and if the coverage proves insufficient, the government may well end up paying for the continued care through various governmental medical programs. In short, long-term costs associated with employing contractors in a conflict environment are essentially unknowable. Now, believe it or no, all the above came from the section on contractor’s good points. Now let’s see some of his points regarding their bad side. To start, three inherent characteristics of contractors create problems for the government. First, the government does not control the quality of the personnel that the contractor hires. Second, unless it provides a government officer or noncommissioned officer for each construction project, convoy, personal security detail, or facilities-protection unit, the government does not control, or even know about, their daily interactions with the local population. Finally, the population holds the government responsible for everything that the contractors do or fail to do. Since insurgency is essentially a competition for legitimacy between the government and insurgents, this factor elevates the issue of quality and tactical control to the strategic level. On the issue of quality control Hammes tells this story: When suicide bombers began striking Iraqi armed forces recruiting stations, the contractor responsible for recruiting the Iraqi forces subcontracted for a security force. The contractor was promised former Gurkhas. What showed up in Iraq a couple of weeks later were untrained, underequipped Nepalese villagers. Not only did these contractors provide inadequate security, the United States armed them and authorized them to use deadly force in its name. This is more than a shake your head anecdote however, as it goes to the heart of one of the arguments contractors supporters frequently make, i.e., that most private contractors in war zones are former military and bring the same qualities of discipline and professionalism they presumably had while on active duty. Hammes’s response to that is: Since the government neither recruits nor trains individual armed contractors, it essentially has to trust the contractor to provide quality personnel. In this case, the subcontractor took shortcuts despite the obvious risk to the personnel manning the recruiting stations. Even if the government hires enough contracting officers, how can it determine the combat qualifications of individuals and teams of armed personnel? The U.S. military dedicates large facilities, major exercises, expensive simulations, and combat-experienced staffs to determine if U.S. units are properly trained. Contractors do not. We need to acknowledge that contracting officers have no truly effective control over the quality of the personnel the contractors hire. Te quality control problems are greatly exacerbated when the contractor uses subcontractors to provide services. These personnel are at least one layer removed from the contracting officer and thus subject to even less scrutiny. In Hammes’s view the use of PMC also represents a military vulnerability. In the uprising in Iraq during the spring of 2004, both Sunni and Shia factions conducted major operations against coalition forces. The insurgents effectively cut Allied supply lines from Kuwait. U.S. forces faced significant logistics risks as a result. Despite the crisis, U.S. officials could not morally order unarmed logistics contractors to fight the opposition. The contractors lacked the training, equipment, and legal status to do so. Had the supply line been run by military forces, it would have been both moral and possible to order them to fight through. Despite this demonstrated operational vulnerability, the fact that unarmed contractors are specifically not obligated to fight has not been discussed as a significant risk in employing contractors rather than military logistics organizations. Furthermore, while military logistics units can provide their own security in low threat environments, unarmed contractors cannot. Te government must either assign military forces or hire additional armed contractors to provide that security. The substitution of unarmed contractors for Soldiers and Marines creates yet another vulnerability: lack of an emergency reserve. In the past, support troops have been repeatedly employed in critical situations to provide reinforcements for overwhelmed combat troops. Contractors are simply unable to fulfill this emergency role. This limitation, as well as the unarmed contractor’s inability to fight, is even more significant in conventional conflicts than in irregular war. Here is the strategic question Hammes puts that we should all ponder. What is the impact of contractors on the initial decision to go to war as well as the will to sustain the conflict? Contractors provide the ability to initiate and sustain long-term conflicts without the political effort necessary to convince the American people a war is worth fighting. Thus, the United States can enter a war with less effort to build popular consensus. Most wars will not require full-scale national mobilization, but rather selective mobilization of both military and civilian assets. Both proponents and opponents admit that without contractors, the United States would have required much greater mobilization efforts to generate and support a force of 320,000 in Iraq (the combined troop and contractor count) or a force of over 210,000 in Afghanistan. The use of contractors allowed us to conduct both wars with much less domestic political debate. But is this good? Should we seek methods that make it easier to take the Nation to war? That appears to be a bad idea when entering a protracted conflict. Insurgents understand that political will is the critical vulnerability of the United States in irregular warfare. They have discussed this factor openly in their online strategic forums for almost a decade. Ensuring that the American public understands the difficulty of the impending conflict and is firmly behind the effort should be an essential element in committing forces to the 10 or more years that modern counterinsurgencies require for success. Thus, while the use of contractors lessens the extent of political mobilization needed, it may well hurt the effort in the long term.

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BP Gulf Leak May Thwart Oil Industry’s Push Near Norway’s Lofoten Islands

May 11, 2010

By Marianne Stigset May 11 (Bloomberg) — BP Plc’s oil spill off the Louisiana coast may stall a push by the industry to open up areas near Norway’s Lofoten and Vesteraalen islands, home to Arctic cod spawning grounds and sperm whales. Norway’s three-party ruling coalition is debating whether to start a process this year that may eventually open the areas in the Norwegian Sea, which hold an estimated 1.3 billion barrels in crude and natural gas. The leading Labor Party is split over the issue, while the Center Party and Socialist Left are officially against opening the territories. “In Louisiana you find some of the most vulnerable coastal areas in the U.S. and the same goes for Lofoten and Vesteraalen in Norway,” said Snorre Valen, spokesman on energy and the environment for the Socialist Left. “It has been a dramatic wake-up call.” Producers including state-controlled Statoil ASA , whose chief executive canceled a visit to Vesteraalen this week, and unions have urged the government to allow exploration in the areas to stem a decline in output. The world’s second-largest gas exporter and sixth-largest oil exporter will produce 6 percent less oil this year, the 10th annual decline, the Norwegian Petroleum Directorate forecasts. Too Sensitive Environment groups including the WWF say the areas off Lofoten are too sensitive for oil and gas production. The archipelago harbors reefs, killer and sperm whales and 28 different species of seabirds. It’s also the spawning ground for the Northeast Arctic cod, the largest remaining stock in the world, according to the WWF. A BP well in the Gulf of Mexico is leaking about 5,000 barrels a day after a rig exploded on April 20, killing 11 people. BP operates four fields in Norway, Ula, Tambar, Valhall and Hod. It’s working on developing the Skarv field in the Norwegian Sea, the largest current development off Norway. “I wouldn’t automatically link these two issues — first it’s important to determine what happened in the Gulf of Mexico,” Statoil’s Chief Executive Officer Helge Lund said at a press conference on May 5. “Studies have shown there isn’t a higher risk for oil spills in the northern areas” than further south offshore Norway, he said. Visit Canceled Lund’s canceled visit to Vesteraalen this week was scheduled to include a talk about the industrial development that would come with exploration. A report by consultant Econ Poyry AS, commissioned by the Lederne Union, estimated opening the areas may attract 300 billion kroner ($49 billion) in investments over a 20- to 30-year period starting next decade. “Given the situation in the Gulf of Mexico, it’s difficult to achieve a visit that would enable us to highlight the opportunities for oil exploration and the positive effects that would have,” Statoil spokesman Jannik Lindbaek said last week. Norway’s biggest spill came from a blowout at the North Sea Ekofisk Bravo field in 1977, when about 80,000 barrels leaked over eight days. Tragedy also hit Norway in 1980, when a storm toppled the Alexander L. Kielland accommodation platform at Ekofisk in 1980, killing 123 out of 212 workers. Influencing Opinion “What is happening in the Mexican Gulf, the oil disaster, is influencing opinion on Lofoten,” Bernt Aardal, senior researcher at the Institute for Social Research in Oslo said on May 6. “It’s demonstrating the vulnerability of the offshore drilling near areas where you have fishing as a major industry.” Norway’s Petroleum Safety Authority said the incident may result in tighter regulations for companies, according to spokeswoman Inger Anda . “There’s already work going on internally in Norway looking into possible causes,” Anda said. “As soon as we know more we’ll assess whether it will have consequences for the Norwegian regulatory framework and we expect that oil companies operating in Norway will apply the lessons learned.” To contact the reporter on this story: Marianne Stigset in Oslo at mstigset@bloomberg.net

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Portugal Suffering Greek Debt Contagion Puts Pressure on EU’s Bond Markets

April 26, 2010

By Emma Ross-Thomas and Jim Silver April 27 (Bloomberg) — Portugal risks becoming the new Greece. With a higher debt burden and a slower 10-year growth rate than Greece, Western Europe’s poorest country is being punished by investors as the sovereign debt crisis spreads. The risk premium on Portuguese bonds rose to more than double the past year’s average this month. Portugal’s credit default swaps show investors rank its debt as the world’s eighth-riskiest, worse than for Lebanon and Guatemala. “We do not ignore that Greece’s particular situation has contagion risks, and we are feeling it,” Finance Minister Fernando Teixeira dos Santos told reporters in Lisbon on April 22. “The performance of spreads in the market reveals that contagion risk.” Greek bonds tumbled yesterday, pushing yields to the highest since at least 1998, on speculation over the timing of the European Union bailout package for Greece. Portuguese spreads, the extra yield that investors demand to hold its debt rather than German equivalents, jumped to 218 basis points, the most since at least 1997. Portuguese Prime Minister Jose Socrates ’ push to convince investors his country will avoid Greece’s fate is being hobbled by an economy that’s expanded less than an annual average of 1 percent for a decade and is reliant on tourism and industries such as cork and pulp. While Portugal’s public debt of 77 percent of gross domestic product is on a par with that of France, the burden including corporate and household debt exceeds that of Greece and Italy, at 236 percent of GDP. The savings rate is the fourth-lowest among 27 members of the Organization of Economic Cooperation and Development , according to the Paris-based group’s data. No Growing “The reason we’re concerned about Portugal is not because its public sector debt ratios are excessively high, it’s more that the Portuguese economy doesn’t really grow,” said Kenneth Wattret , chief euro region economist at BNP Paribas SA in London. EU policy makers’ difficulty in containing the Greek crisis is stoking the threat of contagion, just as the near-collapse of Bear Stearns Cos. in 2008 undermined other U.S. banks, exacerbating the credit crisis. The risk for Portugal is that investors who are trying to protect their portfolios from a Greek-like rout will dump holdings of small euro countries, such as Portugal. Once that happens, surging bond yields could put Portugal in the same spiral that Greece is trying to escape. ‘Conspicuously Vulnerable’ Portugal is among countries that are “conspicuously vulnerable” and may need a bailout, said Kenneth Rogoff , a professor at Harvard University in Cambridge, Massachusetts, in a telephone interview. Credit default swaps on Portuguese debt, which insure against default, reached 308 basis points yesterday. A basis point on a credit-default swap contract protecting $10 million of debt from default for five years is equivalent to $1,000 a year. An increase in swaps signals deterioration in perceptions of credit quality. The International Monetary Fund in Washington said last week that Greece’s fiscal crisis may spread to other European countries. Investors are trying to avoid being caught by the “next Greece,” said Olaf Penninga , who helps manage 140 billion euros ($187 billion) at Robeco Group, an 80-year-old Rotterdam-based asset manager. Portugal plans to raise as much as 25 billion euros this year, equivalent to 15 percent of GDP. That compares with 21 billion euros last year, according to the national debt agency. Self-Fulfilling Prophecy “As spreads get higher the problems are getting bigger: it’s a self-fulfilling prophecy,” Penninga said in a telephone interview. “It will get more difficult now for Portugal to tap markets.” Robeco reduced exposure to Portuguese bonds last year and sold the last ones in March. Portuguese companies have responded to slow growth at home by expanding outside their borders. Lisbon-based Cimpor-Cimentos de Portugal SGPS SA , one of the world’s 10 biggest cement companies by market value, gets more than three-quarters of its revenue from outside Portugal, and Lisbon-based Jeronimo Martins SGPS SA , the biggest Portuguese retailer, gets most of its sales from Poland. Portugal’s PSI20 stock index climbed 14 percent in the past year, less than half as much as Germany’s DAX and the Stoxx Europe 600 Index . The country’s 236 percent debt burden last year compares with 205 percent in Italy and 195 percent in Greece. As Portugal’s private sector took on debt, the country’s savings rate fell to 10 percent in 2008 from twice that in 1995, while growing in Germany, according to OECD data. No Share Sales Mota-Engil SGPS SA , Portugal’s biggest construction company, increased its ratio of debt to operating profit to 7.5 in 2009 from less than half that four years earlier as it expanded into building and operating highways. Bank loans increased 24 percent last year, according to the annual report of the Oporto-based company, which hasn’t raised money by share sales since 1997. The lack of savings at home lies behind the Portuguese government’s dependence on foreign investors to fund the deficit, and the vulnerability of its bonds to shifts in sentiment. About 15 to 17 percent of outstanding public debt is held by Portuguese investors, the debt agency estimates. In Spain about 54 percent of bonds and bills are held domestically, the Spanish Treasury says. Overseas investors held 6.2 percent of Japan’s government bonds as of the end of December, according to the Bank of Japan’s quarterly flow of funds report. Two Haircuts Rising borrowing costs may force Portugal and Greece to restructure their debt, said Stuart Thomson , who helps oversee $100 billion at Ignis Asset Management in Glasgow, Scotland, and doesn’t hold Portuguese debt. He expects a “Greece haircut first; three months later a Portuguese haircut,” he said in an interview. “Debt devaluation is the new currency devaluation in the euro zone,” said Thomson, who used to holiday in Portugal before the euro-sterling exchange rate made it more expensive for U.K. tourists. Socrates has pledged to cut the deficit from 9.4 percent of GDP last year to 2.8 percent in 2013, below the EU’s 3 percent limit and sooner than Ireland’s target of 2014. Ireland, which had the largest deficit in Europe last year, cut public sector wages and raised taxes to rein in the shortfall. Irish yields, which were higher than Portuguese levels throughout last year, are now below those on Portuguese debt. Detailed Plan? “The Irish government has very clearly outlined a reform plan, a very detailed plan,” said Michiel de Bruin , head of European government bonds at the Dutch unit of F&C Asset Management Plc in Amsterdam. “The market seems confident that Ireland can implement all those things,” whereas there’s uncertainty as to “whether Portugal can reform its budget and its economy,” he said. Socrates, a Socialist, has been running a government without a parliamentary majority since being reelected in September, making it harder to push through unpopular legislation in this country of 10.6 million. The opposition Social Democrats have refused to support the government’s efforts so far, abstaining during the vote on this year’s budget bill and a four-year deficit-reduction program. Portugal needs to reduce regulation of labor and product markets and encourage households to save, the IMF said in a Nov. 29 report. Labor costs have risen 3.4 percent a year in the last decade, compared with 1.7 percent in Germany, and Portugal has the lowest productivity in the euro region, according to the EU’s statistics office. Pension Overhaul Still, Socrates, 52, has shown before that he can take unpopular measures. In 2006 he overhauled the pension system and in 2008 faced down some of the biggest demonstrations in decades to push through a plan to evaluate teachers. The year he was first elected in 2005 the deficit was 6.1 percent of GDP; he slashed it to 2.6 percent in 2007. Ricardo Reis , an economics professor at Columbia University in New York, said that Portugal’s underlying economic indicators are stronger than Greece’s. Even so, contagion would mean “a run on Portugal if Greece falls.” The IMF raised the prospect of contagion on April 21, saying “if unchecked, market concerns about sovereign liquidity and solvency in Greece could turn into a full-blown sovereign debt crisis, leading to some contagion.” If the EU fails to resolve the crisis in an “amicable and speedy way” then there may be “other dominoes to fall,” former Bank of England policy maker David Blanchflower said in a Bloomberg Television interview on April 23. Spain and Portugal may be “in some degree of trouble,” he said. To contact the reporters on this story: Emma Ross-Thomas in Madrid at erossthomas@bloomberg.net Jim Silver at jsilver@bloomberg.net

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GOP Warms To Breaking Up The Big Banks

April 15, 2010

With additional reporting by Sam Stein When it comes to opposing the Democratic Wall Street reform plan, Republican leadership has a logic problem: If the Democratic idea to wind down and liquidate banks that are currently deemed “too big to fail” is no good, then what’s the alternative? The obvious answer, of course, is to break the banks down in size so that failure doesn’t jeopardize the entire system. That might sound like an unusual position for the GOP to adopt but, slowly, Republican senators are beginning to embrace it. The GOP faces an uphill battle to defeat the plan — Senate Minority Leader Mitch McConnell (R-Ky.) does not have the votes to block Majority Leader Harry Reid (D-Nev.) from going to the floor with reform legislation next week, because Sen. Susan Collins (R-Maine) is refusing to sign a letter committing to block any bill Reid puts forward, reports The Hill . A senior Senate Democratic aide confirmed the report to the Huffington Post. A top-ranking party strategist, meanwhile, relayed plans by the White House to make McConnell’s position all the more untenable by launching a tough new attack accusing him of parroting talking points authored by noted GOP strategist Frank Luntz. “We’re not about to let them get away with planting the seeds of these bogus claims with the public the way they did for a time on health reform,” the source said. “McConnell’s arguments that the Democrat’s plan for Wall Street reform will perpetuate bailouts is pure fantasy cooked up by Frank Luntz in a right-wing focus group… If Mitch McConnell wants to look foolish and to look like the bag man for big banks that he and his colleagues are – we’re glad to help.” The first piece of “help” came Thursday evening when the Democratic National Committee put out a web ad titled “Luntz Led.” WATCH Even earlier in the day, however, an onslaught against McConnell was taking place on the Senate floor, where Banking Committee Chairman Chris Dodd (D-Conn.) ripped Republicans who sign the Minority Leader’s letter, saying they did so for purely political reasons without having read it. Last week, Sen. John Cornyn (R-Texas) and Minority Leader Mitch McConnell (R-Ky.) met with 25 top Wall Street executives in New York City to hear their concerns regarding reform. Both say they oppose the Democratic plan as a perpetual bailout. “By creating a fund, that’s an invitation to Congress to spend that money just as we have in the highway trust fund and the surplus in Social Security,” Cornyn said. HuffPost asked Cornyn what his alternative solution to the Democratic plan would be. “I think we need to look at the concentration of banking in just a handful of entities that threaten our economy if they go under,” Cornyn said. “They need to be smaller in order to avoid that problem and I would support efforts to move in that direction.” At a press conference Wednesday afternoon, McConnell described it as “a permanent taxpayer bailout of Wall Street banks,” “an endless taxpayer bailout of Wall Street banks” and “a perpetual taxpayer bailout of Wall Street banks.” Making those banks smaller, said Cornyn, would reduce the risk. “Sixty percent of all the banking assets are concentrated in ten banks in the country,” said Cornyn. HuffPost asked if he’d support what’s known as the Volcker Rule, an administration plan to split off risky trading done by banks for their own gain from standard commercial banking activities. “Yes,” he said, “I think that’s one approach.” Without prompting, he added: “Glass-Steagall, we need to look at that.” The repeal of Glass-Steagall in the late 1990s, which allowed banks to greatly expand in size and scope of operations, is often cited as a cause of the crisis, as banks used insured deposits for risky investments that went bad. “We all — I say we all, but almost all of us — made the mistake of repealing Glass-Steagall in 1999,” Sen. Johnny Isakson (R-Ga.) told HuffPost. “Some of the problems of the big banks were brought about by the blurring of the restrictions on where they could go. And they went into brokerage and they went into derivatives they went into lots of other things. Maybe we need to look back to that, but it’s hard to put the genie back in the bottle.” The suggestion to break up banks has been called “very radical,” but it’s embraced by mainstream economists, including three presidents of Federal Reserve regional banks. On Thursday, James Bullard, president and chief executive of the Federal Reserve Bank of St. Louis, joined Kansas City Fed President Thomas Hoenig and Dallas Fed President Richard Fisher in pressing for a break-up of big banks. The GOP, in pushing for tougher bank regulation, should be careful what they wish for, Sen. Charles Schumer (D-N.Y.) said on Thursday. “He wants to toughen up the provisions so the taxpayer isn’t on the hook? Good. We welcome it,” said Schumer of McConnell’s objections. Sen. Richard Shelby, the highest-ranking Republican on the Banking Committee, was asked to explain this week just how it is that the Democratic plan amounts to a perpetual bailout. He said that regardless of how the bill is written, if there is a perception that a big bank will be bailed out, then the “too big to fail” problem continues. “Well, I could sit down with you if we had a couple of hours and had the sheets spread out you know, a lot of pages, but I think any perception — not just reality, but the perception — that you’re creating a fund here to be used, could be used or misused for bailouts is a mistake,” said Shelby of Alabama. How do you eliminate that possibility as long as big banks exist, Shelby was asked. “I think as Dr. Volcker has said, if they’re too big to regulate properly, maybe they’re too big to exist. I know there’s a lot of talk on both sides of the Atlantic to deal with that. I never thought that being too big by itself was bad but I believe that being too big and believing that you’re going to be bailed out is horrible. And you’ve got to remember, the government never bails out the small and medium-sized banks or companies, it’s always the huge” banks, Shelby said. Sensing news in the water, reporters continued to circle: Should they be broken up? “That is an argument and I think they’re talking about it. Merv King has talked about it on the other side of the Atlantic,” he said. Is it an argument Shelby agrees with? Shelby smiled broadly. “You’re looking at somebody [who was] the only Republican who voted against the repeal of Glass-Steagall,” he said. Don Stewart, a spokesman for McConnell, said that McConnell objects specifically to the creation of a $50 billion fund that would be used to wind down big banks. “Rather than letting banks know that they’ll be bailed out no matter what, they need to be disincentivized from getting themselves in that position in the first place — part of that is taking away the potential of a bailout,” he said. Stewart cited testimony from Treasury Secretary Tim Geithner a few months ago: The third element of effective reform is making sure that taxpayers are not on the hook for any losses that might result from the failure and subsequent resolution of a large financial firm. The government should have the authority to recoup any such losses by assessing a fee on large financial firms. These assessments should be stretched out over time, as necessary, to avoid adding to the pressure induced by the crisis. Such an ex-post funding mechanism has several advantages over an ex-ante fund. Most notably, it would generate less moral hazard because a standing fund would create expectations that the government would step in to protect shareholders and creditors from losses. In essence, a standing fund would be viewed as a form of insurance for those stakeholders. Sen. Bob Corker (R-TN), who, with Sen. Mark Warner (D-Va.), negotiated the provision that McConnell calls a permanent bailout, told HuffPost Thursday that he would be okay with eliminating the $50 billion pre-fund. “Whether it’s a pre-fund or post-fund is not central to the resolution,” he said. “What I’ve said is, ‘Let’s do away with it. Let’s just post-fund everything if that’s a problem, if that’s what everybody thinks is problematic.” House Republicans, meanwhile, say their alternative to breaking up the banks is to make big institutions go through the bankruptcy code. “Republicans are proposing a new chapter to the bankruptcy code to make it more efficient and better suited for resolving large non-bank financial institutions,” said a spokeswoman for House Minority Leader John Boehner (R-Ohio.). “The proposed chapter will facilitate coordination between the regulators of these institutions and the bankruptcy system to allow regulators to provide technical assistance and specialized expertise about financial institutions. Bankruptcy judges would also have the power to stay claims by creditors and counterparties to prevent runs on troubled institutions.” While that may not be remarkably different than what Corker and Warner agreed to, it might not end the possibility of bailouts either. “In ordinary bankruptcy you can get debtor-in-possession money if companies have assets, and through a bankruptcy court or through a resolution court, they can do that,” Shelby noted. Senate Republicans will find a receptive audience in Sen. Blanche Lincoln (D-Ark.) for their proposal to break up banks. “Our hopes are that banks will be able to separate the risky aspects of what they do from the vulnerability [of the system],” Lincoln said Thursday, adding that she may have legislative language ready by Friday morning. Lincoln, chair of the Agriculture Committee, has jurisdiction over derivatives regulation. “I’m going to certainly make sure that people understand that when there’s risky business, there’s going to be regulation.” The White House is pushing hard. Chief of Staff Rahm Emanuel, leaving the Capitol on Thursday, told HuffPost he is happy to have Republican support for a tougher bill. “There’s a bipartisan bill to be had here. And the fact is it’s all about whether we’re going to be comprehensive, even with the derivatives section,” he said. “Warren Buffet spoke about it: ‘This is where, in fact, future crises can occur.’ And whether we’re going to have a tough, comprehensive, transparent… section on derivatives, is where, in fact, the whole issue is at.” This story has been updated

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James Jubak: The Greek Debt (and Euro) Crisis Will Drag On and On…

February 26, 2010

Calendars here! Get your calendars here! Can’t follow the Greek debt crisis without a calendar. Have to have one. This crisis will either blow over in the next two months or so or run until the end of 2010 and threaten to take down Greek and German banks (German banks look like the biggest holders of Greek government and bank debt) and the euro. It all depends on how the chronology plays out. Deadline #1. End of March. Standard & Poor’s said three days ago (February 23) that it may lower the credit rating on Greece’s sovereign debt again at the end of March if political opposition prevents the government from delivering on its plans to reduce a budget deficit now running at 12.7% of GDP (gross domestic product.). A downgrade would raise the interest rates that Greece has to pay on its debt and make it harder to sell new bonds to repay those that mature in May. Deadline #2: May. Greece needs to refinance about $27 billion in debt that matures in May, according to calculations by Bloomberg. Already investors are demanding a 3.48 percentage point premium over the benchmark German bonds before they’ll buy Greek 10-year debt. That premium is four times the average premium of the last five years. Deadline #3: June-July. If the bond sales go badly and if the Greek government’s plan for cutting the budget deficit looks dead in the water, Standard & Poor’s could cut the country’s credit rating again and Moody’s, which has kept its rating on Greece the same since December, could join in. That could take the credit rating on Greek bonds below investment grade. A junk-bond-like rating for Greece would send Greek interest rates higher yet and usher in a new stage in the crisis. Deadline #4: The end of 2010. The fourth quarter is crunch time. The European Central Bank has said it wants to remove the emergency measures that let banks use below investment grade debt as collateral for loans from the bank. If the bank, as it has indicated, removes that emergency measure at the same time as the credit ratings on Greek sovereign debt fall below investment grade, it will set off a crisis at Greek banks. Greek banks are big holders of Greek national debt, which they then use as collateral for loans at the European Central Bank. Those loans are essential to the ability of Greek banks to fund themselves. No loans and the Greek banks wind up sitting on a huge supply of Greek sovereign debt that they would have to sell into what would become a market rout in order to remain liquid. If this crisis gets to Deadline #4 without a resolution, it reaches a new level of seriousness because the operation of the entire Greek banking system comes into question. And if liquidity in the Greek banking sector freezes up, then so does the Greek economy. And that would set the dominoes falling as banks in other European countries, especially German banks with their relatively large holdings of Greek government and bank debt, would face rapidly declining prices for debt in their portfolios. It’s the vulnerability of German banks to a Greek crisis, oddly enough, that’s the best guarantee that the German government, whatever its current rhetoric, will intervene to prevent a Greek collapse. The Merkel government in Berlin knows that at some point the consequences of not acting will be felt in Frankfurt as much as in Athens. My calendar, unfortunately, isn’t a crystal ball. It can’t predict when “at some point” will be. Until then, expect the euro to continue its retreat. The euro was trading at a one-year low to the yen this morning and had fallen below $1.35.

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U.S. Stocks, Treasuries Gain as Dollar Declines on Bernanke’s Rate Remarks

February 24, 2010

By Michael P. Regan and Nikolaj Gammeltoft Feb. 24 (Bloomberg) — U.S. stocks rallied, halting a global retreat, and Treasuries gained after Federal Reserve Chairman Ben S. Bernanke said the central bank will keep interest rates low to ensure the economic recovery. The Standard & Poor’s 500 Index jumped 0.8 percent to 1,103.32 at 11:51 a.m. in New York. The MSCI World Index of stocks in 23 developed nations reversed a 0.5 percent retreat to gain 0.3 percent. The MSCI Emerging Markets Index fell 0.8 percent as political tension in Turkey and Greece rattled investors. The yield on the two-year Treasury note rose for the first time in four days, gaining 0.04 percentage point to 0.87 percent. The Dollar Index retreated from an eight-month high. Bernanke told Congress that while policy makers will need to tighten monetary policy at some point, the “nascent” economic rebound still requires low interest rates for an extended period. An unexpected drop in new U.S. home sales to a record low underscored the vulnerability of the recovery. Stocks extended gains as the Senate approved a $15 billion plan to give companies tax breaks for hiring the unemployed. “The market has been appeased by Bernanke’s comments, which broke no new ground,” said Michael Strauss , who helps oversee about $25 billion at Commonfund in Wilton, Connecticut. “The Fed is not ready to withdraw the extended-period phrase because they’re still worried about the fragile nature of the recovery.” The U.S. central bank has left the federal funds rate, the target for interest rates on overnight loans between banks, at a record low near zero for more than 14 months to bolster the economy. The Fed is wrestling with unwinding economic stimulus programs without worsening an unemployment rate that the Fed forecasts at 9.5 percent to 9.7 percent in the fourth quarter. Jobs Bill The jobs bill that passed 70-28 today in the Senate now goes to the House where Democratic leaders must decide whether to pass it without changes or to try to merge it with a $150 billion jobs plan the House approved in December. Nine of 10 industry groups in the S&P 500 advanced, led by a 1.5 percent rally in financial firms and a 1.2 percent gain in technology companies. JPMorgan Chase & Co. and Bank of America Corp. advanced more than 1.8 percent. Autodesk Inc., the biggest maker of engineering-design software, rallied 10 percent after results topped analyst estimates. Treasuries gained even as the U.S. is scheduled to sell $42 billion of five-year notes today. The Treasury plans to auction $32 billion of seven-year securities tomorrow, the last of four sales totaling an unprecedented $126 billion for a single week. Dollar Retreats The Dollar Index, which gauges the currency against six major U.S. trading partners, lost 0.3 percent to 80.617 after climbing to the highest level since June yesterday. Europe’s Dow Jones Stoxx 600 Index fluctuated. CSM, the world’s largest supplier of ingredients to bakeries, dropped 6.9 percent in Amsterdam after reporting earnings that missed analysts’ estimates. Bilfinger Berger AG lost 5.9 percent as Equinet AG cut its price forecast for the German construction company. Turkish stocks slumped the most in almost three weeks, with the ISE National 100 Index losing 3.4 percent to extend this week’s retreat to 6.9 percent. Turkey’s army, which has ousted four governments since 1960, called the detention of retired officers over an alleged coup plot a “serious situation” that deepened strains with Prime Minister Recep Tayyip Erdogan . Russia’s Micex Index dropped 1.4 percent, the most since Feb. 12, as trading resumed after a two-day holiday. Greek Bonds Greek bonds slumped, sending the premium investors demand to hold the nation’s 10-year debt instead of German government bonds to the widest level in two weeks. Greek two-year bond yields rose 22 basis points to 5.74 percent and the spread over German two-year debt increased 24 basis points to 476 basis points. The yield spread widened to an 11-year high of 564 basis points on Feb. 8. The 10-year spread climbed to 338 basis points. Greece’s unions are striking for a second day to protest measures designed to cut Europe’s biggest budget deficit. The cost of protecting against default on European government debt rose on concern Greece will have trouble financing its debt after the credit ratings of the nation’s biggest banks were downgraded by Fitch Ratings yesterday because of “weakening asset quality and profitability.” Credit-default swaps on Greece climbed 12 basis points to 382, according to CMA DataVision prices at 3:30 p.m. in London. Contracts on Portugal jumped 9 to 179, Spain increased 5.5 to 133.5 and Italy rose 4 to 130, CMA prices show. The MSCI Asia Pacific Index fell 1.1 percent. Nissan Motor Co., which gets 35 percent of revenue in North America, sank 3.4 percent in Tokyo. Hyundai Motor Co., South Korea’s biggest carmaker, declined 2.6 percent after announcing a recall. To contact the reporters on this story: Michael P. Regan in New York at mregan12@bloomberg.net ; Nikolaj Gammeltoft in New York at ngammeltoft@bloomberg.net .

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Anthony Tjan: What Tiger Woods Should Do Next

January 15, 2010

While I’ve tried hard to not be part of the peanut gallery throwing advice Tiger’s way, I like the guy too much not to take advantage of my pulpit to offer a few thoughts. On the golf course, Tiger has proven time and time again that one should not count him out when things look bleak. He’s curved shots around trees, hacked out of knee-high rough, and made more up-and-down saves than possibly any other golfer in history. But golf is a game in which you can control the moment, whereas what he’s gotten himself into on the personal side is not something that can be fixed in the moment. But I believe that there is a chance for him to reset and rebuild. It won’t happen overnight, but I bet it can happen faster than most think. Here’s a five-part plan for Tiger to consider: Come out of hiding. Tiger needs to lose the scripted media statements and come out and talk to the public directly. This might be a Barbara Walters interview, Oprah, or a media tour. He needs to do this immediately; too much time has already passed. Waiting just exacerbates the frustration and disapproval of fans and colleagues. Though this is a private matter, his public persona and the extraordinary sums of money he has been paid give him a responsibility to the game of golf itself. Demonstrate sincere remorse. I have no idea how Tiger is really feeling or what drove him to his infidelity, but he’s going to have to give an apology that people believe. If I were a defense lawyer and if he were on a trial, I’d coach him to reiterate his shame and apology to his family, which better come across as damn shameful without excuses. He has to show that he means it. Embrace vulnerability. What makes Tiger a great player is his unwavering mental toughness and concentration. While I have always admired this machine-like prowess, it has made him a less approachable person. The public has accepted this, understanding that it is what keeps him winning. But family values and integrity are basic assumptions, which is why many contracts with “personalities” have “moral turpitude” clauses. This is a time to show vulnerability, humanize himself and let his guard down, and dissipate the schadenfreude – the German expression popularized when Martha Stewart was convicted that means to take pleasure in someone else’s misfortune. There are two types of superstar personalities: those at high risk of schadenfreude and those at low risk of schadenfreude. Guess which one Tiger is. Play golf and play well. Tiger has to get back on the course and remind people why they loved him in the first place – for his extraordinary god-gifted golfing talents. As he hopefully wins again, he’ll have to do so in a different more quiet style, at least for the near term. Ironically, if he shows and admits his vulnerability, he may enjoy playing the game even more and whether winning or losing, he can start to rebuild a modicum of respect Expand or refocus non-profit and community service endeavors. Tiger needs to commit to the fact that change is possible. By committing to change he can also commit to helping others who are victims of related fates. For example, helping kids from broken families gain support and confidence. If I were in Tiger’s shoes, I’d make a public statement about committing to give some large amount of my future earnings towards this cause. Why might this work? Because we like our heroes and are willing to put aside their faults. I’ll take a contrarian stance and say that if he follows a plan focused on reconnecting to the public in a way neither he nor they are used to, he’ll make a comeback sooner than people will think. It’ll be tough for him to stomach the near-term humiliation, but the chance of a reset is a prize bigger than winning a Major right now. This article first appeared on Harvard Business Publishing on January 6, 2010.

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Dubai Surrenders Autonomy as Crisis Bolsters Oil-Rich Emirate of Abu Dhabi

November 24, 2009

By Henry Meyer and Zainab Fattah Nov. 24 (Bloomberg) — Until last month, a billboard at one of Dubai’s busiest roundabouts featured one photo, of Dubai ruler Sheikh Mohammed Bin Rashid Al Maktoum . The new billboard says “Long live our Emirates union” and also shows United Arab Emirates President Sheikh Khalifa Bin Zayed Al Nahyan . Dubai’s financial woes have tamed the once-independent emirate and forced it closer to Abu Dhabi, which holds 90 percent of the U.A.E.’s oil. Sheikh Mohammed last week demoted three business aides and fired one. All had been pivotal in the debt-fueled expansion of past years, requiring Dubai’s rescue with a $10-billion loan from the U.A.E. central bank. The global financial crisis that swept into Dubai last year not only put an end to a construction boom that saddled it with $80 billion of debt. It may also mark a turning point in the U.A.E.’s history toward a stronger central state, which investors say will make Dubai a more attractive destination by bolstering its creditworthiness. “Abu Dhabi is pumping 2.5 million barrels a day of oil, of course you want it and Dubai to be working together,” said Emad Mostaque , a London-based Middle East equity-fund manager for Pictet Asset Management Ltd., which oversees more than $100 billion globally. “They don’t need to compete against each other,” he said in a phone interview. Mostaque said he is positive on Arabtec Holding PJSC , Drake & Scull International PJSC and Depa Ltd. , all Dubai-based construction companies expanding into Abu Dhabi. Central Bank Sheikh Mohammed in February turned to Abu Dhabi, holder of the world’s sixth-largest crude reserves, for a $10 billion bailout. The central bank, which has its headquarters in the country’s capital of Abu Dhabi, bought the entire bond issue. Dubai is seeking an extra injection of $10 billion by the end of the year, Sheikh Ahmed bin Saeed Al-Maktoum, chairman of the emirate’s Supreme Fiscal Committee, said Nov. 16. The bond would get “majority government” participation, Mohammed Ali Alabbar , chairman of Emaar Properties PJSC and a member of the Dubai Executive Council, said Oct. 9. The renewed financial lifeline comes as Dubai and its state-owned companies have to repay $15.8 billion of bonds and loans maturing this year, $9.2 billion in 2010, $19.8 billion in 2011 and $17.3 billion the following year, according to a Deutsche Bank AG report in August. Islamic Bonds The sheikhdom raised $1.93 billion last month from the biggest sale of Islamic bonds in the Gulf Arab region this year. It was made possible by investors’ confidence that Abu Dhabi stands behind Dubai, said Tristan Cooper , a Dubai-based Middle East sovereign analyst at Moody’s Investors Service. “Assumed backing from Abu Dhabi and closer ties between the emirates bolsters investor confidence generally in Dubai and helps to attract foreign investment,” Cooper said by e-mail. Dubai’s $80 billion debts are equivalent to 100 percent of the city-state’s 2008 gross domestic product and nine times its 2008 revenue, according to Moody’s. The cost of protecting Dubai bonds from default traded at 313 basis points yesterday from a peak of 977 in February, five- year credit-default swap prices show. The contracts get cheaper as perceptions of credit quality improve. Since the start of the year, when Sheikh Mohammed launched a new Web site dedicated to his activities as prime minister of the U.A.E., he has been seen increasingly in public in that role. A front-page story on the Dubai-based Gulf News on Nov. 8 showed the Dubai ruler touring a new desert resort in Abu Dhabi’s Western Region with Sheikh Khalifa, who in addition to being president also leads Abu Dhabi. Separate Army The air show in Dubai this year was inaugurated by the Crown Prince of Abu Dhabi and Deputy Supreme Commander of the U.A.E. Armed Forces Sheikh Mohammed Bin Zayed Al Nahyan, brother of the president, alongside Sheikh Mohammed. Dubai split from Abu Dhabi in 1833. It kept its independence thanks to the U.K., which pursued a policy of divide-and-rule in the Gulf emirates, according to the 2008 book “Dubai: The Vulnerability of Success,” by historian Christopher Davidson . Though Dubai grudgingly integrated with Abu Dhabi in 1971 in a federation of seven emirates , it maintained a separate army until 1996, the book said. Sheikh Mohammed, 60, who became ruler of Dubai in 2006, accelerated his brother’s policy of diversifying the economy from dwindling oil supplies by transforming Dubai into a tourism and finance hub. Tower and Islands The emirate is building the world’s tallest tower and largest man-made islands in the shape of palm trees. This year it had to shelve plans to construct a new waterfront development the size of Hong Kong Island and “Dubailand,” a leisure park that would have been three times the size of Manhattan. Home prices are down more than 50 percent from their peak in the third quarter of 2008, Deutsche Bank AG said on Nov. 5. Prices may drop as much as 30 percent more, UBS AG said Nov. 18. “The whole strategy of diversification was a consequence of oil running out and wanting to keep their independence,” said Eckart Woertz , an economist at the Gulf Research Center in Dubai. “Now this diversification model is in dire straits and Abu Dhabi is the one that can help Dubai out.” Dubai oil production began in the 1960s, reached a peak of about 350,000 barrels a day in the late 1980s and has now declined to about 80,000 barrels a day, said Dalton Garis , a professor at the Petroleum Institute, Abu Dhabi. The U.A.E. government says Dubai oil reserves will run out within 20 years. ‘Shut Up’ On Nov. 9, Sheikh Mohammed said people who speculated about relations between Dubai and Abu Dhabi should “shut up,” at an investors’ conference in Dubai organized by Bank of America Merrill Lynch. The ruling lines of both emirates are “the same family, not only that but the same tribe, the Bani Yas tribe,” he said. They “ruled many many tribes in the Arabian Peninsula for hundreds and hundreds of years.” Eleven days later, the sheikh removed the governor of the Dubai International Financial Centre, Omar Bin Sulaiman, who had led efforts to transform Dubai into a Middle East finance hub. This came 24 hours after he dropped Mohammad al-Gergawi , Sultan Ahmed Bin Sulayem and Alabbar from the board of the Investment Corporation of Dubai, the emirate’s main holding company. The centralization of the U.A.E. “could be the price Dubai has to pay for the Abu Dhabi bailout,” said Woertz. “This might cause some bruised egos here and there.” To contact the reporters on this story: Henry Meyer in Dubai at hmeyer4@bloomberg.net ; Zainab Fattah in Dubai at zfattah@bloomberg.net

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Dubai Ruler Removes Aides in Effort to Court Investors Ahead of Bond Issue

November 23, 2009

By Henry Meyer Nov. 23 (Bloomberg) — Dubai ruler Sheikh Mohammed Bin Rashid Al Maktoum fired one senior aide and removed three others from the board of Dubai’s main holding company as the debt-laden emirate tries to secure a second $10 billion injection of funds. On Nov. 20, Sheikh Mohammed removed the governor of the Dubai International Financial Centre, Omar Bin Sulaiman, who had led efforts to transform Dubai into a Middle East finance hub. A day earlier, he dropped Mohammad al-Gergawi , Sultan Ahmed Bin Sulayem and Mohammed Ali Alabbar from the board of the Investment Corporation of Dubai. The three were at the forefront of a construction drive that began in 2002 and collapsed last year after the global financial crisis engulfed Dubai. Sheikh Mohammed’s moves were aimed at exerting more control over the web of competing, state-owned companies that he used to accelerate diversification away from oil and which amassed $80 billion of debts. Shares in Dubai fell to a two-month low yesterday following the reshuffle. “Dubai is trying to get the maximum investor subscription for this $10 billion bond issue,” said Christopher Davidson , a professor at Durham University in the U.K. and author of the 2008 book “Dubai: The Vulnerability of Success.” “Sheikh Mohammed needs to put new people in who are not tainted by the bubble economy of past years.” The Dubai Financial Market General Index yesterday lost 2.6 percent, falling to 2,073.66. Abu Dhabi’s measure slipped 2 percent to its lowest since Sept. 2. The sheikh’s sweeping changes introduced “a degree of uncertainty” which unsettled the markets, said Farouk Soussa , an analyst with Standard & Poors in Dubai. Bond Issue The Dubai government is in the final stages of preparing the second half of the bond issue, Alabbar said on Nov. 20. Investors will buy a “reasonable chunk” of the bond, he said. The bonds will be issued before the end of the year, Sheikh Ahmed bin Saeed Al-Maktoum, chairman of the emirate’s Supreme Fiscal Committee, said on Nov. 16. The remainder is likely to be bought by the federal government in Abu Dhabi, which has 90 percent of the oil in the U.A.E. and bailed out Dubai in February with a $10 billion bond issue subscribed entirely by the U.A.E. central bank. Dubai’s real-estate market was the worst affected by the global financial crisis. Home prices have tumbled about 50 percent from their peak, and may drop another 20 percent this year, Deutsche Bank AG said in June. Waterfront Development Bin Sulayem is chairman of Dubai World, a state-run holding company that has about $59 billion of debt and other liabilities. It controls property developer Nakheel PJSC, which has had to cancel plans for a new waterfront development the size of Hong Kong Island. Nakheel has to repay a $3.52 billion bond maturing in December. Al-Gergawi is chairman of Dubai Holding, which owns developers including Dubai Properties LLC, Sama Dubai LLC and Tatweer LLC. Tatweer has put on hold a project to build “Dubailand,” a Disneyland-style leisure park that would be three times the size of Manhattan. Alabbar is chairman of Emaar Properties PJSC , the largest developer in the U.A.E., which is building the world’s tallest tower. The cost of protecting Dubai bonds from default rose 3 percent to 313 basis points on Nov. 20, five-year credit-default swap prices show. The contracts, which get more expensive as perceptions of credit quality worsen, traded at 287 basis points on Oct. 20, the lowest in 12 months, Bloomberg data show. ‘More Carefully’ The emirate will study the viability of projects more closely in the future, Sheikh Mohammed said Sept. 9. “We’ll be more careful now,” he said. In June, Emaar said it was in talks to combine with Dubai Properties, Sama Dubai and Tatweer as it aims to control the supply of new buildings amid a glut of homes. The replacement of the DIFC governor is part of efforts to improve the efficiency of government institutions and companies, and “consolidate the emirate’s growing importance as an international center for finance, business, trade, tourism and all services,” Mohammed Ibrahim Al Shaibani , director-general of the ruler’s court, said in an e-mailed statement on Nov. 20. Ahmed Humaid al-Tayer , the new governor of the DIFC, which is home to regional offices of banks including Goldman Sachs Group Inc. and Deutsche Bank AG, said Nov. 21 he would pursue the same strategy as his predecessor. Al-Tayer is also chairman of Emirates NBD PJSC, the U.A.E.’s biggest bank by assets, and remains a member of the ICD board along with Al Shaibani, the head of the ruler’s court. The other four board members are Sheikh Mohammed, two of his sons and his uncle. The four sidelined Dubai powerbrokers have to some extent been made scapegoats, said Simon Henderson , an expert on the Gulf monarchies at the Washington Institute for Near East Policy . “They were given authority and access to capital and told to go out there and expand Dubai, they were given a license and latitude, and to that extent, they were obeying orders,” he said. To contact the reporter on this story: Henry Meyer in Dubai at hmeyer4@bloomberg.net .

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Dubai’s Sheikh Mohammed Tightens Control of Emirate, Downgrades Key Aides

November 22, 2009

By Henry Meyer Nov. 22 (Bloomberg) — Dubai ruler Sheikh Mohammed Bin Rashid Al Maktoum has consolidated his hold on the debt-laden emirate, downgrading powerful figures behind the city-state’s boom that turned to a bust. Sheikh Mohammed on Nov. 20 sacked the governor of the Dubai International Financial Centre, Omar Bin Sulaiman , who had led efforts to transform Dubai into a Middle East finance hub. A day earlier, he dropped Mohammad al-Gergawi , Sultan Ahmed Bin Sulayem and Mohammed Ali Alabbar from the board of Dubai’s main holding company, the Investment Corporation of Dubai. The three were at the forefront of a construction drive that began in 2002 and collapsed last year after the global financial turmoil engulfed Dubai. The moves herald greater consolidation of so-called Dubai Inc., the web of competing, state-owned companies that Sheikh Mohammed used to accelerate diversification of the second- largest member of the United Arab Emirates away from oil. Dubai is struggling under $80 billion of debt amassed in the process. The replacement of the DIFC governor is part of efforts to improve the efficiency of government institutions and companies, and “consolidate the emirate’s growing importance as an international center for finance, business, trade, tourism and all services,” Mohammed Ibrahim Al Shaibani , director-general of the ruler’s court, said in an e-mailed statement on Nov. 20. More Transparency This needs to be accompanied by much greater transparency and better coordination between the various state-run companies, said Tristan Cooper , a Dubai-based Middle East sovereign analyst at Moody’s Investors Service. “It’s difficult to read too much into the personnel changes at this stage, but it would be encouraging if it helped to improve coordination and information flow within Dubai’s large and disparate public sector,” Cooper said by e-mail. Bin Sulayem is chairman of Dubai World, a state-run holding company that has about $59 billion of debt and other liabilities. It controls property developer Nakheel PJSC, which has had to cancel plans for a new waterfront development the size of Hong Kong Island. Nakheel has to repay a $3.52 billion bond maturing in December. Al-Gergawi is chairman of Dubai Holding, which owns developers including Dubai Properties LLC, Sama Dubai LLC and Tatweer LLC. Tatweer has put on hold a project to build “Dubailand,” a Disneyland-style leisure park that would be three times the size of Manhattan. Alabbar is chairman of Emaar Properties PJSC , the largest developer in the U.A.E., which is building the world’s tallest tower. ‘More Careful’ The emirate will study the viability of projects more closely in the future, Sheikh Mohammed said Sept. 9. “We’ll be more careful now,” he said. Dubai’s real-estate market was the worst affected by the global financial crisis. Home prices have tumbled about 50 percent from their peak, and may drop another 20 percent this year, Deutsche Bank AG said in June. The actions of Dubai’s ruler may also be aimed at helping him shore up his position with regard to the wealthier neighboring emirate, Abu Dhabi, said Jean-Francois Seznec, a professor at Georgetown University’s Center for Contemporary Arab Studies in Washington. Abu Dhabi, which has 90 percent of oil in the U.A.E., holder of the world’s sixth-largest crude reserves, bailed out it’s fellow emirate in February with a $10 billion Dubai bond issue subscribed entirely by the U.A.E. central bank. Dubai is seeking to raise another $10 billion, a significant portion from the federal government in Abu Dhabi. Merging Assets Sheikh Mohammed is trying to salvage his business empire by merging assets, said Christopher Davidson , a professor at Durham University in the U.K. and author of the 2008 book “Dubai: The Vulnerability of Success.” “The ruler’s main government-backed companies are on the verge of bankruptcy and rapid centralization of these bits and pieces is needed to hold them above water,” he said by phone. In June, Emaar said it was in talks to combine with Dubai Properties, Sama Dubai and Tatweer as it aims to control the supply of new buildings amid a glut of homes. Alabbar shrugged off his removal from the board of the investment body. “As business goes on, all organizations restructure,” he said Nov. 20. Al-Gergawi didn’t pick up his mobile phone and Bin Sulaiman and Bin Sulayem didn’t respond to interview requests via their spokespeople. Al-Tayer, Al Shaibani Ahmed Humaid al-Tayer , the new governor of the DIFC, which is home to regional offices of banks including Goldman Sachs Group Inc. and Deutsche Bank AG, said yesterday he would pursue the same strategy as his predecessor. Al-Tayer is also chairman of Emirates NBD PJSC, the U.A.E.’s biggest bank by assets, and remains a member of the ICD board along with Al Shaibani, the head of the ruler’s court. The other four board members are Sheikh Mohammed, two of his sons and his uncle. The four sidelined Dubai powerbrokers have to some extent been made scapegoats, according to Simon Henderson , an expert on the Gulf monarchies at the Washington Institute for Near East Policy . “They were given authority and access to capital and told to go out there and expand Dubai, they were given a license and latitude, and to that extent, they were obeying orders,” he said. To contact the reporter on this story: Henry Meyer in Dubai at hmeyer4@bloomberg.net .

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Dubai’s Sheikh Mohammed Tightens Control of Investment Arm With New Board

November 21, 2009

By Henry Meyer Nov. 21 (Bloomberg) — Dubai ruler Sheikh Mohammed Bin Rashid Al-Maktoum tightened his family’s control of the emirate’s largest holding company, the Investment Corporation of Dubai. A decree posted Nov. 19 on Sheikh Mohammed’s Web site listed six members of a new board. It didn’t include Mohammad al-Gergawi , Sultan Ahmed Bin Sulayem or Mohammed Ali Alabbar , three key business aides of the Dubai ruler who are currently named as directors on the investment body’s Web site . Al-Gergawi, Bin Sulayem and Alabbar were at the forefront of a debt-driven building boom in Dubai that collapsed after the onset of the global financial crisis last year. Dubai, the second-biggest of seven states that make up the United Arab Emirates, and its government-owned companies borrowed $80 billion to finance the emirate’s transformation into a financial and tourist hub before credit markets froze. Sheikh Mohammed will continue to chair the board of the investment body. His son, Crown Prince Sheikh Hamdan bin Mohammed bin Rashid Al-Maktoum, is the deputy chairman. Other members of the board, which will serve for three years, include Sheikh Ahmed bin Saeed Al-Maktoum, Sheikh Mohammed’s uncle, who is chairman of Emirates Airline. ‘Monopolization of Power’ “We’re seeing a monopolization of power by the ruler’s court,” said Christopher Davidson , a Middle Eastern studies professor at Durham University in the U.K. and author of the 2008 book “Dubai: The Vulnerability of Success.” “Sheikh Mohammed entrusted a section of the Dubai economy to these powerful captains of industry and he feels they let him down.” Bin Sulayem is chairman of Dubai World, a state-run holding company that controls port operator DP World Ltd., property developer Nakheel PJSC and asset management firm Istithmar World PJSC. It has about $59 billion of debt and other liabilities. Al-Gergawi is chairman of Dubai Holding, which owns developers including Dubai Properties, Tatweer and Sama Dubai. Alabbar is chairman of Emaar Properties PJSC . The reshuffle of the investment holding company follows a move earlier this month by Sheikh Mohammed to take direct control of the emirate’s planning and supervisory agency, as the government tightens scrutiny of indebted state companies. The agency, known as the Executive Office, set up in 2006, will now operate under Sheikh Mohammed’s court, according to a Nov. 4 statement. The Investment Corporation of Dubai will take control of Dubai Duty Free under the Nov. 19 decree. It already controls assets including Emaar, the U.A.E.’s biggest developer, Emirates Airline, Emirates NBD bank and Dubai Aluminium Co., the largest smelter in the Middle East. To contact the reporter on this story: Henry Meyer in Dubai at hmeyer4@bloomberg.net .

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Suicide Bomber at World Food Program Office in Pakistan Capital Kills Five

October 5, 2009

By Khalid Qayum and James Rupert Oct. 5 (Bloomberg) — A suicide bomber in Pakistan killed five people in the UN World Food Program headquarters by dressing as a soldier and asking to use the toilet, officials said. The attacker’s disguise concealed about 7 kilograms (15 pounds) of explosives, police said, and circumvented a two-story defensive wall the UN had built against car bombs. The assault underscored the vulnerability of Islamabad’s best-protected areas, raising a column of smoke over the upscale neighborhood where President Asif Ali Zardari has his home a few blocks away. The attack was the deadliest in the Pakistani capital since April, and prompted a “temporary closure” of all United Nations offices in the country, WFP spokeswoman UN Ishrat Rizvi said. No decision has been made when to open them, she said. Five people — an Iraqi man and four Pakistanis, two of them women — died by early evening, said Wasim Khawaja, spokesman for the Pakistan Institute of Medical Sciences hospital. WFP said earlier that four of its staffers were dead. “This is a terrible tragedy for the UN and for the whole humanitarian community in Pakistan,” UN Secretary-General Ban KI-moon said in a statement released in New York. “This is a heinous crime committed against those who have been working tirelessly to assist the poor and the vulnerable on the frontlines of hunger and other human suffering in Pakistan,” he said. Foreign Targets The bombing was the third in 16 months against foreign institutions in the capital, after attacks that killed 53 at the Marriott Hotel in September of last year and six at the Danish Embassy in June. While no one claimed responsibility for the blast, Interior Minister Rehman Malik blamed Pakistan’s Taliban guerrilla movement, which has fought an escalated war this year against army troops in the country’s northwest. “Five days ago there was a meeting of Taliban and they decided to attack cities and towns with suicide bombers,” he said. “There may be a few more attacks in the near future, but I assure you we will finish the remaining terrorists.” The Taliban vowed to launch attacks to seek vengeance for the killing in August of its commander, Baitullah Mehsud , in a missile strike by U.S. unmanned aircraft. Pakistani troops are poised for a possible offensive against Mehsud’s fighters in South Waziristan, near the Afghan border. The bomb exploded without warning about noon, said Saadia Abbasi, a Pakistani lawyer and former senator who lives across the street. “There was a terrible blast, and everything shook and smoke started pouring out” of the compound, she said in a telephone interview. UN Food Aid “The UN staff have brought about four or five people out of there, bleeding and injured,” Abbasi said The UN agency has been providing food to many of the estimated 2 million Pakistanis uprooted by fighting in the Swat Valley and the Bajaur region of northwestern Pakistan this year. The attack was the deadliest since April 4, when a suicide bomber attacked a paramilitary police post about 1 kilometer (0.6 miles) from the site of today’s blast, killing eight officers. The attack will increase pressure on the UN and foreign embassies to move their offices in Islamabad out of the city’s elite residential neighborhoods to a fenced and guarded diplomatic enclave set up by the government. Rizvi said UN agencies are discussing such a move with Pakistani authorities and Malik said he has asked embassies to shift their facilities. Bomb Defenses Like many UN offices in Islamabad, the WFP headquarters is in a rented villa on a two-lane, residential street. After last year’s truck bomb attack that killed 53 people at the Marriott Hotel in the capital, WFP barricaded its office against vehicle bombs by building a two-story-high earth-filled barrier near the street. Neighbors protested to the Pakistani government that the UN office represented a danger to the neighborhood because it could be targeted in an attack, said Abbasi. “There are four other UN offices in the same street, all surrounded by residences,” she said. To contact the reporters on this story: Khalid Qayum in Islamabad at kqayum@bloomberg.net ; James Rupert in New Delhi at 2024 or jrupert3@bloomberg.net .

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Why Authorities Haven’t Been Able To Stop The Growth Of "Foreclosure Rescue" Scams

September 24, 2009

By Paul Kiel, ProPublica This story was produced by ProPublica under a Creative Commons license. During the go-go years of the real estate bubble, shady mortgage brokers [3] thrived, thanks to the sluggish response of regulators and law enforcement agencies. Amid the ruins of the crash, there’s a new boom attracting unscrupulous mortgage professionals: “Foreclosure rescue” companies promising — in exchange for a large up-front fee — to persuade lenders to modify desperate homeowners’ mortgages. And authorities are again finding themselves ill-equipped to deal with the deluge. In a giant game of whack-a-mole, law enforcement agencies at all levels across the country have filed suit against 150 such companies, but they continue to proliferate, and the number of consumer complaints continues to rise. “This is a very big scam,” says California Attorney General Jerry Brown. “They’re all over the place, and as soon as you get one, they migrate to somewhere else.” The case of one particularly aggressive firm, 21st Century Legal Services, shows just how ineffective authorities’ moves against the companies often are. Four states have sued 21st Century, and at least three more have open investigations. Over 150 consumers from more than 30 states have filed complaints against 21st Century with the Better Business Bureau. No active firm has more complaints. Yet the company forges on. Operating under a new name, Fidelity National Legal Services, it continues to solicit consumers nationwide, even in states where authorities have won court injunctions. Homeowners do not have to pay a company to negotiate on their behalf: they can always contact their mortgage servicer directly for a loan modification, at no cost. But consumers often find the process frustrating [4]. For those who want guidance, nonprofit housing counselors approved by the Department of Housing and Urban Development [5] will help for free. Consumers should especially be wary of companies charging up-front fees or touting guarantees. The Illinois attorney general says that her office has yet to see any such company operate within the boundaries of state law. Deception seems to be at the heart of the business model. Internal e-mails [6] from an Anaheim-based firm sued in July by the Federal Trade Commission alongside the states of California and Missouri reveal a boiler-room sales operation where management motivated its “counselors” with commissions and “Rolex races.” When the company’s operations manager wrote that the firm ought to inform clients that it couldn’t stop foreclosure, a sales manager, Feisal Cortez, replied [6]: “If we say ‘WE DO NOT STOP FORECLOSURE’ we are going to lose 75% of our business. If they implement this verbage (sic) in customer service … excuse my language but WE’RE FUCKED!” The ongoing suit charges that the company, US Foreclosure Relief, and eight associated firms deceived consumers. Steve Krongold, the lawyer for the firm’s owner, said there were “a couple errant rogue salespeople who lied in e-mails and on calls,” but that the company had been making progress in modifying its customers’ loans when a court order in the case this summer allowed authorities to take control of the company. Real estate professionals and mortgage brokers are the driving force behind the boom. Indeed, some of the same brokers who stoked the housing boom are now making their living off homeowners stuck in the sort of toxic loans they peddled. “The mortgage brokerage business dried up, and so the same loans that they went out and originated, they’re coming in to try and modify,” said Thomas McNamara, a former prosecutor appointed by the federal court to assess US Foreclosure Relief’s business. Take the case of the Southern California-based 21st Century Legal Services, and its president, Andrea Ramirez. In a lawsuit filed in federal court in California, former clients have accused Ramirez, then working as a mortgage broker, of fabricating documentation to support their application in 2006 for an adjustable-rate loan they couldn’t afford. Susan McClanahan and her husband say that it was only after they signed their loan documents that they discovered the application misstated their income and assets. They also found that Ramirez had included in their application a letter from a James C. Henry, who claimed to have prepared the couple’s income tax returns for the past 11 years. (Henry told us he hadn’t written the letter and said his only contact with Ramirez came when he prepared her returns a few years ago.) Ramirez did not respond to multiple requests for comment. Ramirez’s lawyer, Kathleen Moreno, responded only with a statement that she’d been “informed of hundreds of positive statements regarding [21st Century's] services.” Since no one from 21st Century or Fidelity National Legal Services would answer questions about the company, it’s impossible to verify such a claim. It does appear, however, that the company hasn’t even been able to prevent foreclosures for its own employees. Ruby Encina, a close business associate of Ramirez, was foreclosed on and declared bankruptcy in July. In her bankruptcy petition, she listed her occupation as “Customer Service,” 21st Century Legal Services. Encina could not be reached for comment. In nearly a dozen interviews, recent clients of 21st Century Legal Services told the same story over and over again. Loan mod firms pull in clients via TV, radio, direct mail, Web sites, e-mail, and phone calls. 21st Century has used all of these avenues, but it has been most persistent in directly calling struggling homeowners. One homeowner complained that the firm had been calling three or four times each day. 21st Century’s pitch is particularly alluring, because it goes even beyond a guarantee to provide the “proposed loan modification.” All of its potential clients get this letter [7], which goes so far as to detail what the new monthly payment (based on a rock-bottom interest rate ranging from 3.25 percent to 4.5 percent) will be and when it will start. Some think 21st Century is offering a refinancing. An undercover tape (MP3 [8], transcript [9]), made by the North Carolina attorney general’s office shows a 21st Century salesman in action [9]. Over the course of the 18-minute phone call, the rep, who refused to give his full name, threw everything he had at his mark, from “30-year fixed or whatever kind of fix you need” to criticizing all those misguided homeowners who’ve tried to modify their loans “for free.” Homeowners have paid the company anywhere between $1,200 and $6,700, depending on the size of their mortgage (or, sometimes, two mortgages). Many customers of 21st Century say they were told to stop mortgage payments. The company also instructs its clients not to contact their lenders about a modification, because “providing details regarding your modification to your lender may compromise the negotiation process,” as a “Disclaimer Notice” given to clients [10] puts it. It’s often months before homeowners learn that 21st Century made no attempt to negotiate on their behalf. Sometimes, that discovery comes via a foreclosure notice. When customers try to recoup their money, they’re given the runaround. One scammed homeowner in North Carolina said she’d called 21st Century 30 times trying to get a refund. After countless calls to 21st Century, Debbie Merritt of Collingswood, N.J., still hasn’t gotten her roughly $1,600 back. “Now when we get things in the mail that say ‘we can get you a modification,’ we just throw it away,” Merritt says. ProPublica’s numerous attempts to get someone from 21st Century to answer questions about the company were fruitless. We were told management was busy with clients or everyone was in an “important meeting,” or we were promised that someone would call in 10 minutes. No one ever did. The company has been similarly reluctant to answer questions from other news outlets – with the exception of NBC affiliate WCNC in North Carolina [11]. A reporter at the station spoke with a man who identified himself as Mike Nehmeh, a lawyer at 21st Century. Nehmeh denied that the company had told any of its customers to stop their mortgage payments and called those who’d demanded a refund “crybabies.” Nehmeh did not respond to our calls for comment. 21st Century has attracted plenty of attention from authorities, so how is it that despite all the letters, lawsuits and court injunctions, the company continues to operate? The fight against 21st Century and companies like it has been largely left to state law enforcement agencies, which have limited means and powers to stop them. Federal, state and local authorities have mainly attacked the problem through a combination of attempts to boost consumer awareness and through lawsuits, which typically seek to stop the company from operating in a single state. In April and again in September, the heads from HUD, the FTC, the Treasury and the Justice Department, along with state attorneys general, met and held press conferences about the “foreclosure rescue” boom. Collectively, the states have investigated at least 500 companies and filed at least 150 suits, according to statistics gathered by a working group of attorneys general. The FTC has filed suit against 22 companies since February 2008. By the end of July, court injunctions prevented 21st Century from operating in Arkansas, North Carolina, Ohio and Indiana. Yet it has largely ignored the injunctions. In three of the states – Arkansas, Indiana and Ohio — it has continued to operate, just under the new name Fidelity National Legal Services. Fidelity is registered at the same address as 21st Century. Its pitch letter to consumers [7] is identical to 21st Century’s. It even appears to share the same employees. The Arkansas Securities Department has filed three separate actions after court orders failed to stop solicitations in the state, the third filed against Fidelity National. Finally, this month, a judge permanently banned 21st Century from the state and ordered the company to pay $130,000 in fines. But it is difficult for Arkansas to pursue a California-based company, even to enforce a court-ordered fine. Currently, only about half of states have laws that impose constraints on “foreclosure rescue operations,” according to a July report from the National Consumer Law Center. These typically ban up-front payments. The FTC is currently considering proposing a rule that would ban up-front fees to “foreclosure rescue” companies nationwide. In a comment letter [12] to the FTC about the proposed rule, the National Association of Attorneys General said it would “provide a means to end piecemeal enforcement actions.” Deborah Hagan, the chief of the Illinois attorney general’s Consumer Protection Division, says such a rule would allow state law enforcement to obtain nationwide injunctions against firms like 21st Century in federal court, pool resources with other states, and make judgments easier to enforce. Many “foreclosure rescue” companies such as 21st Century also use a loophole that allows attorneys to collect up-front fees. “All that stuff on the news about fraudulent companies asking for money up-front is a bunch of garbage,” says the 21st Century salesman on the undercover tape [9]. “We ask for a percentage up-front because it’s a retainer fee for our attorney.” Many state laws, including California’s, have such an exemption. The National Association of Attorneys General has urged that all up-front fees should be barred without exception for lawyers or anyone else. Hagan said such a blanket ban would help send consumers a clear message that up-front fees are a red flag. An FTC spokesman said he couldn’t say when the FTC might issue its rule. Meanwhile, authorities say that the number of consumer complaints about these firms continue to rise. The boom dates to at least 2007, said Alison Southwick of the Better Business Bureau, when the BBB issued its first warning about “foreclosure rescue” companies. “At the time, there were a handful of companies that were producing hundreds of complaints across the country,” says Southwick, but since then, there’s been an explosion. “Now we’re seeing hundreds and hundreds of companies producing a handful of complaints each.” More than 730 foreclosure rescue firms have set up shop in Southern California alone, according to the BBB. Southwick and others attribute the success of the firms mainly to the increase in delinquencies and foreclosures. But consumer advocates also say the failure of mortgage servicers to deal with the volume of troubled homeowners has helped drive consumers to foreclosure rescue firms such as 21st Century. “For people who are desperate, who’ve tried and tried to contact their servicer, this type of scam can get some traction,” says O. Max Gardner III, a bankruptcy lawyer in North Carolina. “At least you’re talking to a real person.” “Because of the vulnerability of homeowners facing foreclosure, they’re easy pickings for those who would exploit the situation,” says Brown, the California attorney general. In August, his office unveiled a Loan Modification Fraud Web site [13], complete with consumer tips to avoid being scammed. It also demanded that 27 loan consultants, 21st Century among them, justify suspect marketing claims. Brown says 21st Century hasn’t responded to the order. Emily Witt contributed reporting to this story.

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