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Black Friday 2010: Holiday Shopping Season Kicks Off

by AP on November 26, 2010

After weeks of “Black Friday” sales pitches, the real thing is finally here. Retailers are ushering in the traditional kickoff of the U.S. holiday shopping season on Friday with expanded hours, deep discounts and online deals to draw bargain-hungry shoppers. In a bid to grab shoppers earlier, a number of stores including Old Navy, Toys R Us and Sears opened on Thanksgiving Day. Toys R Us was counting on getting an extra boost by opening 24 hours straight, starting at 10 p.m. on Thanksgiving. The crescendo follows a weeks-long push to woo shoppers. Many stores had trotted out the “Black Friday” label on sales as far back as October. The shopping strip in Nanuet, N.Y., was quiet on Thanksgiving night until you approached Toys R Us. The parking lot was full, as were the neighboring lots, and thousands of customers waited in the frigid rain to get in the store. Alexander Sallahian, 20, of Nanuet, came to get an iPod 32G for $300. It would come with a $50 gift card, which he planned to use for gifts for Christmas. “I like the idea of getting more bang for the buck,” he said. Sheena Spaugh, a 26-year-old academic adviser from Cockeysville, Md., was picking up items for herself at the Old Navy in Lutherville, Md., on Thursday because Friday is her birthday. But she plans to head to Target on Friday to pick up $3 DVDs. Not in her plan: firing up the computer to look online. “I like the hustle and bustle of shopping,” she said. Retailers are hoping to capture others’ dollars online. Wal-Mart and Target were among a gaggle of retailers that dramatically stepped up deals on their websites Thursday, hoping to lure online shoppers stuffed with turkey. The fierce battle for shoppers’ wallets promises savings for those willing and able to buy amid an economy that’s still worrying many. The good news is that retailers are heading into the season with some momentum after a solid start to November. Shoppers who can afford it are buying more nonessentials, like jewelry and luxury goods. That’s helping to lift their spirits about the holiday season, which is expected to generate revenue gains modestly higher than a year ago. “It’s a dogfight between retail companies,” said Chris Donnelly, a senior executive in consulting group Accenture’s retail practice. “This year is the first time that there’s a little more money in the marketplace so they’re being more aggressive about getting the last dollar. At the end of the day, they’re going to outweigh people who are pulling back.” Still, nearly 15 million are unemployed, and concerns about job security still cloud consumer confidence. Spending may be picking up but has not returned to pre-recession levels. So, retailers are pushing deals on basics as well as offering discounts on more deluxe items, from bigger flat-panel TVS to more elaborate play sets. Kohl’s, which planned to open at 3 a.m. Friday, one hour earlier than a year ago, is promoting diamond bracelets and diamonds heart pendants for $99 each, down from $500 or $575. The store is also offering 50 percent off all toys. Thanksgiving weekend is huge for retailers. In recent years, Black Friday has been the busiest shopping day of the year, according to data from research firm ShopperTrak. But it doesn’t necessarily provide a complete forecast of holiday sales. In fact, shoppers seem to be procrastinating more every year, so the fate of the holiday season is increasingly down to the last few days. Retailers do study buying patterns for the weekend to discern shoppers’ mindset. This year, that means taking the measure on their willingness to spend just a little bit more. Last year, the Thanksgiving shopping weekend accounted for 12.3 percent of overall holiday revenue, according to ShopperTrak. Black Friday made up about half of that. ___ AP Business Writer Rachel Beck in Nanuet, N.Y., and AP Writer Sarah Brumfield in Lutherville, Md., contributed to this report.

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Jeff Sweat: Is Twitter Social?

by on November 19, 2010

I’m supposed to like Twitter. I tweet for Yahoo! and myself, but Twitter mostly leaves me cold. I’ve been wondering why — I mean, I’m a social media guy, after all — and it struck me: Maybe it’s because Twitter isn’t really social. That’s pretty rich coming from a guy whose company is sponsoring a Twitter conference this week, I know. Twitter has a lot of value for marketers, and that’s why we invest in it. It’s just that as a social network, as a platform, Twitter doesn’t do a lot of the things that marketers need from social media. It helps us broadcast and gather information, but it doesn’t necessarily help us get closer to our customers, or help us to build community. And if that’s your definition of social — and it happens to be mine — then no, it’s not quite social. Get it out there “Twitter’s strengths and limitations are both based in its structure, “says Edelman SVP and Director of Insights Steve Rubel, a long-time Twitter user. I couldn’t agree more. So let’s start with what Twitter does really well: spreading information and building thought leadership. With Twitter, we can get our message out to a whole universe of readers, not just the ones at our blog or on our email lists, at no additional cost. And because millions of people are out there tweeting, unfiltered, we can spot patterns in the tweets for trends that we should be watching. Twitter’s good at getting to the people who might be your customers one day. And that’s the difference between a fan and a follower. Our Yahoo! Advertising Facebook fans — er, likers — tend to be people who already know that they like us. Our Twitter followers are usually people who didn’t know they liked us until they saw what we tweeted. But here’s the thing: Most of the activity I see on Twitter is really broadcasting. With the exception of a few dozen of our followers, we’re not talking with each other. We’re all talking at each other. If a Tweet falls in the woods… Twitter small talk is its own kind of conversation, little trivial interactions that deepen social bonds, says Laura Fitton, social media consultant and founder of oneforty.com . “Like when you walk around town,” she adds. “You don’t stop and have a deep conversation, you just chat.” But the biggest problem with Twitter is all that chatter, and the impossibility of making sense of the 100 million Tweets each day. “Content on Twitter decays instantaneously,” Rubel says. “Tweets are falling in the forest, and nobody’s hearing them.” I have a different analogy: It’s as if you’re trying to feed someone by shooting pieces of a sandwich — bread, tomatoes, meat — past their head at 90 miles an hour. And half of the things flying by them aren’t even food, they’re garbage. Or toasters. The odds of someone eating your sandwich are pretty slim. If you’re a marketer with a message, you have to hope that your followers are looking at their Tweet stream at that very second. In a place like Facebook, or even Yahoo!’s new social integration, things from people you care about have a way of sticking around. There’s one obvious thing you can do to make sure that followers click on your content: “Make sure you matter. Make sure you have something at your core that they need,” Fitton says. But they have to be watching you in the first place. Hashtags, lists, and social media tools can help people pay better attention to you, but you can’t control who’s using them. Function follows form Twitter’s received a lot of deserved attention for customer service — for helping businesses monitor what customers are saying, and then responding. But what we really need on Twitter is to go beyond these sorts of reactionary encounters to deeper, extended interactions. That requires things like threaded conversations and the ability to easily create more intimate groups where not everyone in the world can hear what you have to say. Fitton points out that ” social CRM ” tools, categorized on oneforty.com, help bring order to Twitter relationships. Twitter’s open platform makes all of those tools possible. But because it doesn’t yet build that type of order into its platform, it also means that those tools are necessities. And finally, for the sacred cow: Tweets are just Too. Damn. Short. Maybe not for everybody, but when you’re trying to talk to a customer who does thousands or millions of dollars worth of business with you, you need a little room to expand. For example, we tried to compress complicated responses to Twitter questions during our transition to Microsoft search, sometimes to comical results. As long as you’re limited to 140 characters, there are limits to what you can say to someone. The Tweet has passionate defenders, of course. “It makes people make a point in a very crisp way. “In an attention-starved world, it benefits the users,” Rubel says. I like Tweets, too — they appeal to the writer in me. But then, I also like haikus: Twitter seems a good Way to get close to people. Not quite ready yet. For more from Jeff, visit the Yahoo! Advertising Blog or follow @YahooAdBuzz .

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Mastin Kipp: ‘The Social Network’: 13 Lessons Entrepreneurs Can Take Away

October 15, 2010

I’ve seen “The Social Network” twice and plan on seeing it again at least two more times. I am taken by this movie. It took me about a week to understand consciously why. There is so much jammed into this film that it’s hard to take it all in in one sitting. Ever since I walked out of the movie on opening night, I have been more inspired than ever to continue my entrepreneurial path in technology, media and textiles. As an entrepreneur watching this film, here are the lessons I see from watching “The Social Network”: 1. Sometimes there are more important things in life than school. As a college dropout myself (I dropped out during my junior year at USC), there has always been a little voice telling me I did the wrong thing. I’m not bashing education; I’m just saying that the system as is isn’t for everyone. Bill Gates and Mark Zuckerberg both left college to pursue their dreams and went on to establish Microsoft and Facebook, respectively. Here are some other surprising billionaire college dropouts: Steve Jobs (Apple), Paul Allen (Microsoft), Ralph Lauren (designer), Michael Dell (Dell Computers), Kirk Kerkorian (Vegas entrepreneur), Barry Diller (IAC) and many more. People like Richard Branson (Virgin), Walt Disney, Milton Hershey (Hershey Chocolate), Coco Chanel and Henry Ford didn’t even go to college. The lesson here is that being pulled by the inspiration of a big idea within you is more important than doing what the “system” tells you to do. My advice is to follow your dreams, and as you go along, surround yourself with the smartest and most talented people you can find. I personally chose my education to be the act of having a business instead of learning about it in school and then having no real-life experience at graduation. I wanted a head start at the experience of having a business instead of just knowledge about business. Obviously this isn’t true for all professions. If you want to be a doctor, for example, school is a must, but for budding entrepreneurs with big ideas, school can be a dead-end choice. Dropping out of school is a big risk. You have to to have a major belief in yourself and the determination and persistence of a warrior. It’s not an easy path, but for people like me, it’s the only path. You can always go back to college later in life after having gained so much from your life experience in the real world. 2. It’s not about who has an idea but who can execute it. There’s a phrase that says, “There are no original ideas.” Also, a lot of mystics, saints and sages believe that all human beings are tapped into the “Universal Mind” and that we all have access to the same ideas and inspiration. It’s all about who is listening and who has the chops to pull it off. Aaron Sorkin, the writer of “The Social Network,” has said that no one knows the exact truth of what happened between Zuckerberg, the Winklevai and Saverin. But the truth is in the outcome. Facebook happened because Mark Zuckerberg had the chops, the confidence, the vision and the discipline to make it happen. So if you have a big idea, you should know that you probably aren’t the only one. Your job is to get busy making it happen. Look how fast Zuckerberg created and put Facebook online. It wasn’t years of slaving away; it was weeks of hard work to create the first version — the most important weeks of his life. 3. Change can happen fast. The phase “from idea to execution” doesn’t have to be forever. Zuckerberg is living proof that with enough vision, talent and hard work, you can change your life in the blink of an eye. If you have an idea, don’t wait on it. Throw yourself into it. Ideas, once executed, have a way of pulling you up out of your current circumstances and elevating you to a whole new level of living that you were never aware of before. Enough lollygagging; start now. Half of me understands why Eduardo Saverin’s stake in the company was reduced when others’ weren’t. The other half feels that Mark betrayed him as depicted in the film. That being said, the guy did move to New York and stay in school as Facebook was blowing up. Mark took action. He moved to Silicon Valley, dropped out and dove into his passion. If I were Mark, I’d feel like my partner had abandoned me and that although he had contributed to the beginnings, he wasn’t showing up when I needed him most. The lesson here is that in any relationship, business or personal, if you want it to blossom, show up. Your time, presence and attention are valuable commodities. 5. Figure out how to be of service. Facebook’s popularity and quick rise has nothing to do with Mark Zuckerberg’s programming chops. He could have easily programmed a million different sites. But the site he chose to program provided so much value to the users that the product sold itself through the strongest way possible: word of mouth. Facebook unites us. Facebook allows us to express ourselves. It helps us keep in touch with the world and our loved ones. Sometimes, Facebook even helps us get laid. That’s being of service. If you want to rise in your business endeavor, figure out how your product can solve problems and be of service. This is the key to your success. Everything else is just details. 6. Content and community first, revenue second. I am totally inspired by Zuckerberg’s decision to not go for ads in the beginning. One of the best lessons in the movie is that if you have something cool, don’t sell out too quickly. Yes, we are all entrepreneurs and we want to make a buck, but Sean Parker’s analogy of having all the little fish versus the big fish is correct. Keep the bigger vision and shoot for the big fish. Keep your product cool. Put out the best content, build a large community of trusted consumers and users. If you focus on that, the numbers will organically grow. And then, as my partner Malcolm CasSelle says, “where traffic grows, revenues will follow.” Put content and community first. Revenue will come. 7. Visualize success as your final result. One of the great things about “The Social Network” is that from the beginning, you know that success is on the other end of Zuckerberg’s efforts. That gives a wonderful perspective for the viewer, because we know that no matter what struggles he went through, the end result was success. This is a great view to take on your life. No matter what struggles you have in your life, see it all working out and that success will be your end result. It might work on idea one or idea 10,000, but the important thing is to keep success in mind and know that is how your story will end if you choose it to be. 8. When you have a great product, money finds you. When you’ve created a great product that gives great value and is of service to your consumers, they will tell their friends. If you keep delivering the same high level of value and also constantly improve the value you are giving, money will find you. Money will find you from your consumers as well as your investors. Investors want to invest in companies with momentum and a story. Because of the Internet and relatively low costs and barriers to enter into many businesses these days, investors want more than an idea. Consumers can’t buy an idea; they can only buy hard goods and services. Focus on making the product as amazing as possible and it will begin to sell itself. Let money chase you; don’t chase the money. 9. Sex is fun but can hold you back. In ” Think and Grow Rich ,” one of Napoleon Hill’s main reasons why men are successful later in life is because they spend their early years chasing tail. Your creative energy can be used up with too much sex and dating. Entrepreneurs should cherish their creative energy the same way they would cherish an angel investment. Focus on your business and love will follow. 10. Not getting what you want can be a blessing. Along the same lines as number nine above, sometimes we are meant for greater things. Imagine what would have happened that fateful night if Mark Zuckerberg had gotten the girl. It’s quite possible that Facebook wouldn’t exist. Many times, creativity is born in the anger of rejection. See the events of your life as playing out perfectly, and if you aren’t getting what you want, try to detach and see the bigger picture. From now on, see not getting what you want as a gift from the universe that leaves room for something much greater to enter. And don’t sit around and mope; get creative! Make something happen. Use that “poor me” energy and dive into your creative mind. Who knows, that one person rejecting you could be the start to your own multi-billion-dollar, world-revolutionizing venture. 11. Focus, young Jedi. I love how after getting an inspiration for Facebook, Zuckerberg totally dove into the creation of it. He was so focused and dedicated that he changed his life forever in less than a month. How many of us can say that? If you have a great idea that lights you up, don’t fear what will happen if you focus all your energy on that. What we think about expands; what we focus upon expands — focus on your idea! Give yourself over to it and let the journey of following your idea take you into a wonderful and brand new land. You can be sure that on the other side you will be a stronger and wiser person. Don’t take your ideas lightly. Cultivate a burning desire to make it happen, yesterday. Time waits for no one. Get busy getting busy. The universe respects focused and bold action. You’ll be surprised how much progress you can make when you focus on one thing at a time. 12. Not everyone is going to be happy with you. You are going to ruffle some feathers if you want to fly. Since no one knows what really went down, it’s hard to draw a real conclusion about the morals of everyone involved. But the fact remains that to be successful, you need to develop an energy shield that reflects the negativity that you will certainly encounter as you rise. When you stand up and begin to shine, you become a target. Shine on anyways. Who gives a damn about the negative opinion of others. Get used to critics and haters. Sometimes they have really good things to say and can help you grow. Remember that your haters are still watching you and are most likely your number-one fan. I heard a statistic that over 50 percent of Howard Stern’s audience back in the day hated him but tuned in to hear what he would say next. They might hate him, but who’s laughing all the way to the bank? 13. Don’t screw over your friends. Money changes people. Don’t be that person. Make your friendships way more important than money. Money comes and goes but friendships are priceless. You don’t want to be the person who is sitting on top of the money pile all alone. Put the top value on building strong relationships and less value on money. Amazing people and love are priceless. Don’t take these very precious resources for granted. They make life worth living.

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Charlotte Dennett: "Let Them Eat Fish:" Reflections on Deceptive Advertising by Entergy and BP

September 1, 2010

As campaign season heats up in my home state of Vermont, environmentally conscious voters have been remarking on the similarity between media ads on local TV by Entergy, owner of the radiation-leaking Vermont Yankee nuclear plant, and BP, responsible for the worst environmental catastrophe in American history. Both Louisiana-based giants are trying to assure the public that the worst is past, that they are responsible corporate citizens cleaning up their respective messes, and the public has nothing to fear. But like the proverbial Pinocchio whose nose gets longer every lie, their respective PR teams have made their mutual cover-ups even more obvious. Consider the homey testimonial of a Vermont Yankee manager telling Vermonters how much he loves living near the Connecticut River, which runs adjacent to the aging plant where elevated levels of radioactive tritium and strontium 90 have been found in monitoring wells, in the groundwater and now, in the river itself. “The river is my home,” says site manager Russ Rusinki on camera. “I like to fish on it. I like to eat fish out of this. I like watching my daughter follow in my footsteps on this river. I have absolutely no concerns about my family living near Vermont Yankee. It’s a healthy environment. It’s a safe environment.” I’ve been sampling responses from Vermonters. They aren’t buying it. Remarks Mary Gagnon, a video store owner in Hardwick, Vermont: “It is one thing to say ‘I LIKE to eat fish out of this.’ It is another to actually eat the fish. Let’s see him eating the fish on a regular basis. Then we can talk.” Even if the fish were safe to eat, Vermonters cannot feel encouraged by the news released in May by radiochemists at the University of Waterloo in Canada that baby teeth of children living near the plant show Strontium-90 concentrations 62% greater than those in the general populations of Vermont and New Hampshire children. And this comes from samples taken during the last decade, before the reports in January 2010 of known radiation leaks. You know the saying, “Fool me once, shame on you; fool me twice, shame on me.” Most Vermonters are no longer fooled. They know that Entergy officials were caught lying to state officials, denying that Vermont Yankee had underground pipes leaking radionuclides when, in fact, the pipes were discovered in 2010 to be the source of not only the most recent leaks, but leaks going back to1998. Perhaps this explains why, according to The Center for Disease Control, Vermont has the highest cancer incidence rate among the young of any US state from 1999-2004. Windham County, where Vermont Yankee is located, has the highest death rate from cancer between 1999 and 2005 of any Vermont county (741 deaths). Equally significant, from 1996-2005 there was a fivefold increase in thyroid cancer in Vermont women. The Vermont Department of Health acknowledged this particularly finding as being statistically significant” given that thyroid cancers are linked to “excess radiation exposure.” News of the radiation leaks and Entergy’s lies dominated headlines in Vermont last February and convinced the Vermont Senate to vote against re-licensing the plant last spring. But the battle isn’t over yet. Entergy, mindful that the future of nuclear energy (like that of offshore oil drilling) hangs in the balance, will do everything possible to win back Vermonters’ trust. After all, it’s been 35 years since the Three Mile Island meltdown. The much vaunted “nuclear renaissance” under the Obama administration seems to be on hold until the Vermont Yankee issue is resolved. No wonder Entergy officials have vowed after losing the Senate vote that they would remain “determined to prove our case to the legislature, state officials and the Vermont public” that the plant is a “vital, safe and reliable source of clean power.” BP, meanwhile, has its own shareholders worrying about rising legal costs and evidence of liability. Ever since it was able to cap the breach of its Deepwater Horizon rig, it has been putting out “all is well” signals through the media, with the federal government often acting as a willing partner. Thus, on August 9, the New York Times quoted government sources as saying “Three quarters of the oil from the Deepwater Horizon leak has already evaporated, dispersed, been captured or otherwise eliminated – and that much of the rest is so diluted that it does not seem to pose much additional risk of harm.” But local fishermen and independent journalists disagreed. They reported that the 1.8 million gallons of highly toxic dispersant that made oil disappear is profoundly affecting the health of their fellow workers and families, turned the entire Gulf into an eery green color, and killed off far more wildlife than was being reported. On August 23, even the Times had to reverse itself, challenging the government’s “rosy narrative” by citing a study by the University of Georgia saying the rate of evaporation and biological breakdown “had been greatly exaggerated.” The editorial also cited a report in Science magazine that a team of scientists had found an underground oil plume the size of Manhattan. The government, the Times went on, “finds itself challenged” on another front, by its insistence on the safety of fish caught in the water. “Senior government officials announced flatly …that it is safe to eat fish and shrimp caught in the 78 percent of federal waters in the Gulf that are open to fishing – an assertion reinforced by photo-ops of President Obama eating seafood during a visit to the Gulf.” Should we be reassured? The Times , having been hoodwinked previously, reserved some skepticism, noting that oil spill critic Rep. Ed Markey of Massachusetts thought that “seafood now available is risk free” but that the government had not been testing enough in “off limits areas where oil still exists.” Above all, the editorial concluded, the Obama administration’s “larger problem is one of credibility, which can only be fixed with much clearer answers about the spill.” Meanwhile, clearer answers continue to pour in from around the Gulf, where local fishermen report finding shrimp coated with oil, and seeing crabs, stingrays, and dolphins desperately trying to escape the water, whose oxygen has been depleted by the use of chemical dispersants. This brings me to the role of whistleblowers in defying the PR spin of both corporations. Thanks to EPA whistleblower Hugh Kaufman, we learn that “The sole purpose…for dispersants is to keep a cover up going for BP to try to hide the volumes of oil that has been released and save them hundreds of millions, if not billions, of dollars of fines.” In Vermont, the heroes of the day are Arnie and Maggie Gunderson, whose Fairewinds consultancy firm succeeded in providing enough sound evidence of Vermont Yankee’s problems to break through industry lies and help convince the Vermont Senate to vote against re-licensing Vermont Yankee. Now the Gundersons are questioning the “credibility of the whole nuclear regulatory process in the state of Vermont,” providing evidence in a recent report to the legislature that the Department of Health and the Department of Public Service had been “actively communicating with Entergy in an attempt to discredit” the efforts of Fairewinds to analyze the plant. The Gundersons have an important ally in this ongoing battle: Vermont Senate ProTem President Peter Shumlin, who helped shepherd the anti-relicensing vote in the Vermont Senate last spring and on August 24th emerged as the winner in a highly contested, five-way race in the Democratic Party primary for governor. Pending a recount requested by runner-up Doug Racine, who is also opposed to extending Vermont Yankee’s license beyond 2012, Shumlin will be facing down Republican gubernatorial candidate Mark Dubie, who supports Vermont Yankee. As the battle lines are tightly drawn, Vermonters will be hearing from another candidate as well: this writer, who is running on the Progressive Party ticket for attorney general. I’ll be challenging the incumbent on his failure to deal with consumer fraud in Entergy’s advertising, and will strive for whistleblower protection in Vermont, which has the worst record in the country. It should be an interesting campaign with national ramifications. Stay tuned. You can find out more about Charlotte’s campaign for Vermont attorney general at www.chardennett.org . Journalist and attorney Charlotte Dennett is the author of The People v. Bush: One Lawyer’s Campaign to Bring the President to Justice and the National Grassroots Movement She Encounters Along the Way , published by Chelsea Green.

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Gulf Oil Spill Cleanup Creating An Economic Boom In Some Communities

August 27, 2010

The Gulf oil spill is a bonanza for some and a bust for others. The worst offshore oil spill in U.S. history has spurred something of an economic boom in some communities where cleanup operations are based, an Associated Press analysis has shown. But BP’s oil spill has delivered a double whammy to areas too far away from the cleanup to serve as a staging ground for masses of workers, but close enough to experience severe losses in tourism, fishing and drilling. But BP’s oil spill has delivered a double whammy to areas too far away from the cleanup to serve as a staging ground for masses of workers, but close enough to experience severe losses in tourism, fishing and drilling. Sales tax revenue in Gulf states showed a stark difference. In Louisiana’s Plaquemines Parish alone, a fishing and oil-and-gas mecca that saw an influx of about 5,000 cleanup workers, state sales tax revenue shot up 80 percent in June over the same month of 2009. By contrast, Vermilion Parish in the Cajun country of western Louisiana, close enough to the spill to turn off tourists but too far to play a significant role in the cleanup, suffered a 45 percent decrease for the same period. The two areas share a common thread: Both have been affected by the closing of Gulf fishing grounds and the threat to oil field jobs posed by a federal moratorium on deepwater drilling. But if there is good news to be found in the oil spill, it is in front-line places like Plaquemines, where thousands of spill workers and companies that serve their needs, such as caterers, have snapped up lodges and rental housing and have spent their pay in local honky-tonks and restaurants. “The cleanup is a whole industry,” said Brooke Andry, whose 20 or so rental properties in Plaquemines are booked up with cleanup workers and BP officials instead of the customary recreational fishermen. The AP analysis showed that, taken together, the 39 Gulf Coast counties and parishes in Louisiana, Mississippi, Alabama and Florida actually saw a modest increase in year-over-year sales tax revenue following the spill. However, this is a tale of booms canceling out busts, of selective prosperity, and of temporary relief that has done little to assuage anxiety about the future. Using year-to-year changes in the amount of taxes collected by retailers or service providers whenever they do business is an imperfect method of calculating the impact of the oil spill since other factors also play a role. Yet the data offers a glimpse into some of the unexpected economic distortions caused by the BP disaster – and the lives and livelihoods it overturned. In Vermilion and other areas on the fringe, tourists have stayed away under the false impression that the whole coast is lathered in oil. And a federal drilling moratorium has cast a shadow on the future of the oil business, a linchpin of the local economy. “People don’t want to be in an area that has problems like this,” said Betty Bernard, owner of Betty’s RV Park in the Vermilion community of Abbeville, which has lost half its business this summer from last year. “The news media has it that we have oil in our backyards, and we don’t.” The economic impact of the April 20 rig explosion that killed 11 workers and sent more than 200 million gallons of crude gushing into the Gulf of Mexico hasn’t yet been fully calculated. BP already has paid out $399 million in claims to residents and businesses who say they were affected by the spill, and the $20 billion set aside by BP at the behest of the Obama administration to compensate spill victims will certainly help ameliorate suffering. Yet the feeling along much of Gulf Coast is high anxiety. “A lot of the revenues come from oil-producing companies, so if they’re not producing, we’re not getting any revenue,” said Ray Dugal, president of the Greater Abbeville-Vermilion Chamber of Commerce. As for tourism, “one of the perceptions … is that we’re in 6 feet of oil,” he said. Given the uncertainty, workers and residents just don’t want to spend money, Dugal said. In nearby St. Mary’s Parish, state sales tax revenue dropped 9.9 percent in May and 3.2 percent in June. At St. Mary Seafood & Marina, sales of fish, crabs and crawfish dropped by a third as out-of-state buyers grew worried about whether Gulf seafood was safe to eat. “Whenever all of the pictures of the birds in oil came out, that is when the sales started to drop,” said owner Daniel Edgar. Of all the Gulf parishes and counties, the biggest boom has been in Plaquemines, where oil from the well about 50 miles offshore first touched the U.S. mainland April 29. Other oil-affected Louisiana parishes saw a sales tax boost in June, too: St. Bernard (15 percent), St. Tammany (14 percent) and LaFourche (9.6 percent), according to the AP analysis. Sharon Couture, 60, runs a convenience store in Yscloskey, a tiny fishing village in eastern St. Bernard. “They come in all the time,” she said of cleanup workers. “They buy beer, energy drinks, cigarettes, that sort of thing. “I’d say I’m about breaking even because of them. The fishermen used to come in and spend $40, $50. These guys come in and spend $5, $10. There’s just more of them.” But she doesn’t know how quickly the fishermen will return, and she is fearful. “I told my husband if BP pulls out, we’ll just close up and leave. We won’t make enough to live on then,” she said. Plaquemines President Billy Nungesser – a frequent and vocal critic of the spill response – said the windfall his parish collected will be banked to offset projected declines in early 2011 as the cleanup effort winds down. He said he expects revenue from marinas to fall by 70 percent and at hotels by 80 percent. “As we go into the winter and next year … we’ll need it to make up the shortcomings in those months after BP is gone,” Nungesser said. The exception to the southeast Louisiana mini-boom is New Orleans, where state sales tax dropped 5 percent in May and 10.5 percent in June from a year ago. The numbers may be less a reflection of the spill than the completion in the past year of several post-Hurricane Katrina construction projects, said economist Loren Scott. Outside Louisiana, which has taken the brunt of oil, changes in sales tax revenue for other Gulf counties were small. In Florida, coastal counties outside the Panhandle, where not a drop of oil washed ashore, revenue grew over last year for the most part. In the Panhandle, revenue rose in every coastal county except one in May. In June, it rose slightly in half the counties and dipped slightly in the rest. Baldwin County, Ala., saw a tiny decrease in state sales tax revenue this summer. Harrison and Jackson counties in Mississippi had slight decreases in May but solid increases in June, helped by the influx of cleanup workers. Hancock County, Miss., which hasn’t had as many cleanup workers, had decreases of 9.6 percent in May and 6.7 percent in June. In other places, it seemed clear that fluctuations had less to do with the oil than other factors. The reopening of a Wal-Mart Super Center in St. Bernard Parish, La., contributed to the 15 percent jump in year-over-year state sales tax revenue in June, said Councilman Frank Auderer. But, he added, the influx of cleanup workers can’t be discounted in the working-class parish just east of New Orleans. Residents of the boom areas, meanwhile, don’t expect their windfall to last long. “Everyone who is local is trying to make good out of a bad situation while they can,” said Andry, the lodge owner. “We’re all riding a wave, but once the spill is cleaned up, or allegedly cleaned up, will there be any fishing? Will the phone be ringing?” ___ AP Writer Mary Foster contributed from Yscloskey, La.

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Gulf Oil Spill Cleanup Winners And Losers

August 26, 2010

The Gulf oil spill is a bonanza for some and a bust for others. The worst offshore oil spill in U.S. history has spurred something of an economic boom in some communities where cleanup operations are based, an Associated Press analysis has shown. But BP’s oil spill has delivered a double whammy to areas too far away from the cleanup to serve as a staging ground for masses of workers, but close enough to experience severe losses in tourism, fishing and drilling. Sales tax revenue in Gulf states showed a stark difference. In Louisiana’s Plaquemines Parish alone, a fishing and oil-and-gas mecca that saw an influx of about 5,000 cleanup workers, state sales tax revenue shot up 80 percent in June over the same month of 2009. By contrast, Vermilion Parish in the Cajun country of western Louisiana, close enough to the spill to turn off tourists but too far to play a significant role in the cleanup, suffered a 45 percent decrease for the same period. The two areas share a common thread: Both have been affected by the closing of Gulf fishing grounds and the threat to oil field jobs posed by a federal moratorium on deepwater drilling. But if there is good news to be found in the oil spill, it is in front-line places like Plaquemines, where thousands of spill workers and companies that serve their needs, such as caterers, have snapped up lodges and rental housing and have spent their pay in local honky-tonks and restaurants. “The cleanup is a whole industry,” said Brooke Andry, whose 20 or so rental properties in Plaquemines are booked up with cleanup workers and BP officials instead of the customary recreational fishermen. The AP analysis showed that, taken together, the 39 Gulf Coast counties and parishes in Louisiana, Mississippi, Alabama and Florida actually saw a modest increase in year-over-year sales tax revenue following the spill. However, this is a tale of booms canceling out busts, of selective prosperity, and of temporary relief that has done little to assuage anxiety about the future. Using year-to-year changes in the amount of taxes collected by retailers or service providers whenever they do business is an imperfect method of calculating the impact of the oil spill since other factors also play a role. Yet the data offers a glimpse into some of the unexpected economic distortions caused by the BP disaster – and the lives and livelihoods it overturned. In Vermilion and other areas on the fringe, tourists have stayed away under the false impression that the whole coast is lathered in oil. And a federal drilling moratorium has cast a shadow on the future of the oil business, a linchpin of the local economy. “People don’t want to be in an area that has problems like this,” said Betty Bernard, owner of Betty’s RV Park in the Vermilion community of Abbeville, which has lost half its business this summer from last year. “The news media has it that we have oil in our backyards, and we don’t.” The economic impact of the April 20 rig explosion that killed 11 workers and sent more than 200 million gallons of crude gushing into the Gulf of Mexico hasn’t yet been fully calculated. BP already has paid out $399 million in claims to residents and businesses who say they were affected by the spill, and the $20 billion set aside by BP at the behest of the Obama administration to compensate spill victims will certainly help ameliorate suffering. Yet the feeling along much of Gulf Coast is high anxiety. “A lot of the revenues come from oil-producing companies, so if they’re not producing, we’re not getting any revenue,” said Ray Dugal, president of the Greater Abbeville-Vermilion Chamber of Commerce. As for tourism, “one of the perceptions … is that we’re in 6 feet of oil,” he said. Given the uncertainty, workers and residents just don’t want to spend money, Dugal said. In nearby St. Mary’s Parish, state sales tax revenue dropped 9.9 percent in May and 3.2 percent in June. At St. Mary Seafood & Marina, sales of fish, crabs and crawfish dropped by a third as out-of-state buyers grew worried about whether Gulf seafood was safe to eat. “Whenever all of the pictures of the birds in oil came out, that is when the sales started to drop,” said owner Daniel Edgar. Of all the Gulf parishes and counties, the biggest boom has been in Plaquemines, where oil from the well about 50 miles offshore first touched the U.S. mainland April 29. Other oil-affected Louisiana parishes saw a sales tax boost in June, too: St. Bernard (15 percent), St. Tammany (14 percent) and LaFourche (9.6 percent), according to the AP analysis. Sharon Couture, 60, runs a convenience store in Yscloskey, a tiny fishing village in eastern St. Bernard. “They come in all the time,” she said of cleanup workers. “They buy beer, energy drinks, cigarettes, that sort of thing. “I’d say I’m about breaking even because of them. The fishermen used to come in and spend $40, $50. These guys come in and spend $5, $10. There’s just more of them.” But she doesn’t know how quickly the fishermen will return, and she is fearful. “I told my husband if BP pulls out, we’ll just close up and leave. We won’t make enough to live on then,” she said. Plaquemines President Billy Nungesser – a frequent and vocal critic of the spill response – said the windfall his parish collected will be banked to offset projected declines in early 2011 as the cleanup effort winds down. He said he expects revenue from marinas to fall by 70 percent and at hotels by 80 percent. “As we go into the winter and next year … we’ll need it to make up the shortcomings in those months after BP is gone,” Nungesser said. The exception to the southeast Louisiana mini-boom is New Orleans, where state sales tax dropped 5 percent in May and 10.5 percent in June from a year ago. The numbers may be less a reflection of the spill than the completion in the past year of several post-Hurricane Katrina construction projects, said economist Loren Scott. Outside Louisiana, which has taken the brunt of oil, changes in sales tax revenue for other Gulf counties were small. In Florida, coastal counties outside the Panhandle, where not a drop of oil washed ashore, revenue grew over last year for the most part. In the Panhandle, revenue rose in every coastal county except one in May. In June, it rose slightly in half the counties and dipped slightly in the rest. Baldwin County, Ala., saw a tiny decrease in state sales tax revenue this summer. Harrison and Jackson counties in Mississippi had slight decreases in May but solid increases in June, helped by the influx of cleanup workers. Hancock County, Miss., which hasn’t had as many cleanup workers, had decreases of 9.6 percent in May and 6.7 percent in June. In other places, it seemed clear that fluctuations had less to do with the oil than other factors. The reopening of a Wal-Mart Super Center in St. Bernard Parish, La., contributed to the 15 percent jump in year-over-year state sales tax revenue in June, said Councilman Frank Auderer. But, he added, the influx of cleanup workers can’t be discounted in the working-class parish just east of New Orleans. Residents of the boom areas, meanwhile, don’t expect their windfall to last long. “Everyone who is local is trying to make good out of a bad situation while they can,” said Andry, the lodge owner. “We’re all riding a wave, but once the spill is cleaned up, or allegedly cleaned up, will there be any fishing? Will the phone be ringing?” ___ AP Writer Mary Foster contributed from Yscloskey, La.

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Grand Cherokee Gas Tank Fires Under Federal Investigation

August 24, 2010

WASHINGTON — U.S. safety officials are investigating whether gas tanks on Jeep Grand Cherokees can cause fires in rear end crashes or rollovers. The preliminary investigation, begun Monday by the National Highway Safety Traffic Administration, is the first step in determining whether a recall of the popular Chrysler SUV is necessary. The investigation covers three million Grand Cherokees from model years 1993 to 2004. Advocacy group Center for Auto Safety has asked NHTSA to review whether the gas tank’s position below the rear bumper and behind the rear axle could cause fuel to spill if the SUV were struck from behind. In rollovers, a lack of proper shielding for the plastic tank could cause it to puncture, the group said. The neck of the fuel tank could also tear off. “This is a terrible design,” said Clarence Ditlow, head of the Center for Auto Safety. Ditlow said he planned to ask Chrysler to issue a voluntary recall of the Grand Cherokee. While the agency has not reached any conclusions, an initial review of crash data submitted by auto manufacturers showed that the Grand Cherokee did not have significantly more fires after crashes than other vehicles, NHTSA said. Chrysler spokesman Michael Palese said the company is cooperating with the government investigation and that the Grand Cherokee has an excellent safety record. The automaker moved the tank’s position after the 2004 model. Chrysler has sold just under 3.6 million Grand Cherokees since the midsize SUV was introduced in 1992, according to Ward’s AutoInfoBank. The company started selling a redesigned 2011 model recently. NHTSA has found 44 Grand Cherokee crashes and 55 deaths since 1992 where fire was listed as the most harmful factor. Of those figures, 10 crashes and 13 deaths were most likely associated with rear end crashes, the federal safety agency reported. __ AP Auto Writer Tom Krisher in Detroit contributed to this report.

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Grand Cherokee Gas Tank Fires Under Federal Investigation

August 24, 2010

WASHINGTON — U.S. safety officials are investigating whether gas tanks on Jeep Grand Cherokees can cause fires in rear end crashes or rollovers. The preliminary investigation, begun Monday by the National Highway Safety Traffic Administration, is the first step in determining whether a recall of the popular Chrysler SUV is necessary. The investigation covers three million Grand Cherokees from model years 1993 to 2004. Advocacy group Center for Auto Safety has asked NHTSA to review whether the gas tank’s position below the rear bumper and behind the rear axle could cause fuel to spill if the SUV were struck from behind. In rollovers, a lack of proper shielding for the plastic tank could cause it to puncture, the group said. The neck of the fuel tank could also tear off. “This is a terrible design,” said Clarence Ditlow, head of the Center for Auto Safety. Ditlow said he planned to ask Chrysler to issue a voluntary recall of the Grand Cherokee. While the agency has not reached any conclusions, an initial review of crash data submitted by auto manufacturers showed that the Grand Cherokee did not have significantly more fires after crashes than other vehicles, NHTSA said. Chrysler spokesman Michael Palese said the company is cooperating with the government investigation and that the Grand Cherokee has an excellent safety record. The automaker moved the tank’s position after the 2004 model. Chrysler has sold just under 3.6 million Grand Cherokees since the midsize SUV was introduced in 1992, according to Ward’s AutoInfoBank. The company started selling a redesigned 2011 model recently. NHTSA has found 44 Grand Cherokee crashes and 55 deaths since 1992 where fire was listed as the most harmful factor. Of those figures, 10 crashes and 13 deaths were most likely associated with rear end crashes, the federal safety agency reported. __ AP Auto Writer Tom Krisher in Detroit contributed to this report.

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Samuel H. Williamson: The Macro Economics Social Security – Part Two

August 22, 2010

How someone views Social Security is often based on what they think it is. How many times have you seen the quote “social security was never intended to be…”? And then the writer puts in what they do not like about it today. I am not sure that it matters what it was intended to be, but it does matter what its impact has been on individuals and the economy for the last 75 years and how that impact has affected us today. Most individuals consider Social Security as a saving program or as a “welfare program for seniors and the disabled. Either choice gives them a reason to criticize as discussed in the next two sections. I will offer an alternative view in the following section. Is it a Saving Program? If Social Security is a saving program then we think that we are paying in contributions while working and then received benefits when we retire. We have paid for our benefits. A problem with this at the individual level is that it has not been equitable. For example, the generations who retired 40 to 50 years ago put little in and received benefits in far greater than the amounts they contributed. Also those who live long lives do better than those who die at age 62. By contrast, today’s workers will probably receive a small return on their contributions to the program and lots of them do not even believe it will be there when they retire. They think that if they could opt out, they could do better on their own. Economists such as Martin Feldstein have another criticism of Social Security as a saving program. They say that Social Security created less private saving and thus the economy grew slower than it would have without Social Security. Without making contributions to Social Security, they feel that the workers would have invested this money in the private sector. I think they are wrong as I explain below. Is it a “Welfare” Program? If Social Security is a welfare program then we think it is designed to help the elderly and disabled. This is particularly true for the depression of the 1930s when this program began since the highest level of poverty was among the elderly. I do not imagine anyone wants to return to seeing masses of senior citizens begging on the streets or living in almshouses. Whatever the intent was at that time, the program is no longer well designed for this purpose either. The benefits are paid even if the recipient is wealthy and not in need. If this program were truly aimed at helping lower income participants, it would not be financed by a payroll tax that is regressive to workers and a burden for employers to pay. It would make more sense to finance the program with an income tax. It is an intergenerational “Insurance” Program The best way to see Social Security is not as a saving or welfare program, but as an intergenerational insurance program. Social Security is actually called “old age and survivors insurance.” But the insurance should be thought of as for the children against their parents living too long. Social Security is a way for the working population to pay into a fund that relieves them the burden of using their own money to pay for their parent’s (and even grandparent’s) needs if those parents became old and dependent. Whether the worker’s parents live until they are 63 or 93, their benefits will be covered by this insurance. Instead of having to house their parents in the spare room and buy groceries for them, workers pay part of their own wage to a fund that gives their parents enough to do these things on their own. Under this interpretation, Social Security did not crowd out private saving; it was a public substitute for interfamily transfers. It is not a saving plan that gives you a return, but an insurance plan that pays off well if your parents are survivors. When you retire, your (or at least someone’s) children will pay for this insurance on you. This has been going on for three generations, so the current workers are providing benefits for their parents who in turn had provided benefits for their parents. Workers cannot opt out of the program, because they are (collectively) obligated to pay for their parent’s benefits now and in the future. Under this interpretation, it also makes more sense that benefits are the same for all retirees regardless of their income. We do not say that when we have a car accident that the amount get from the insurance company will be dependent on our income. We get what we insured it for. Conclusion Once we view Social Security as an intergenerational insurance program, we can see why many of the current criticisms are no longer valid. Workers should stop thinking that they should be able to opt out because they incorrectly think it is only about them. Critics of the way benefits are determined should not complain either. Since they are taxable, it is not necessary to means test these benefits when they are received. We can change the income tax rates if we choose if you want to reduce net benefits. Finally, since all workers had parents, but many workers do not pay income taxes, the payroll tax is a more inclusive way to collect the “insurance” premiums. Under this interpretation, the system first put in place for our parents and grandparents 75 years ago was a contract that has been passed on to the current generations whether we like it or not. It is a small price to support these previous generations given all they have done for us by first winning WWI and then building the schools and universities that we attended and which enabled us to earn the incomes we have.

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GM IPO: Will You Buy Shares In The New General Motors? (POLL)

August 19, 2010

DETROIT (AP) – Thirteen months ago, General Motors was fighting for its life in bankruptcy court. Now, the automaker is laying the groundwork to sell stock to the public once again with the eventual goal of ridding itself of government ownership. General Motors Co. filed the first batch of paperwork required to hold an initial public offering of stock late Wednesday. The 700-page document submitted to regulators laid out reasons, and risks, to investors considering buying GM stock. The filing, called an S-1, was short on specifics. GM didn’t say how many shares would be sold or when, although experts say the IPO could come as early as October. It also didn’t say how many shares GM’s majority owner, the U.S. government, plans to unload. Such a sale would eventually lead to the government shrinking its big stake in the automaker, something GM is eager to see. The company’s outgoing CEO, Ed Whitacre, has said government ownership has hurt GM’s public image and sales. However, GM warned in its filing that the U.S. Treasury would continue to own a “substantial interest” in the automaker following the IPO. More details about the offering is likely to emerge with additional filings in the coming weeks and months. GM did say its stakeholders initially will sell common stock, while the company itself will sell preferred shares, which are like bonds and include dividend payments. GM said it will use proceeds from the preferred stock sale for general business expenses. The filing means GM and its current owners are likely to sell part of their stakes in several offerings that will take months to finish, said Scott Sweet, owner of IPO research firm IPO Boutique. Analysts have speculated that the initial sale could be worth up to $20 billion, but the filing gave no number. GM would have to bring in $70 billion just to pay back all the automaker’s stakeholders. That could come in several sales over months. The U.S. government now owns about 61 percent of GM, which it got in exchange for giving the company $50 billion in survival aid last year. GM has repaid $6.7 billion, and the remaining $43.3 billion was converted to the ownership stake. Other stakeholders include a United Auto Workers health-care trust and the Canadian government. Demand for GM’s new shares isn’t known. In the coming weeks, the company will pitch itself to big investors such as pension, mutual and hedge funds. Many of the shares will go to those larger players, but small investors will also get a chance to buy in. There are risks. The IPO market is weak. And GM, which lost about $100 billion in the five years leading up to last year’s bankruptcy, is hardly a sure bet. Still, a quick run through bankruptcy court cleansed GM of burdensome debt. It closed 12 factories and its labor costs were cut dramatically through deals with the United Auto Workers union. Helped by those cost cuts, GM earned a healthy $2.2 billion in the first half of this year despite depressed U.S. auto sales. It’s set up to do better if sales rebound, especially in fast-growing countries like Brazil and China, where GM plans to launch nearly 20 vehicles in the next two years. The company gave investors a lengthy list of risks on Wednesday, including restructuring costs and concerns about the competitiveness of its vehicles. For example, the Chevrolet Volt, its highly anticipated electric car due for release this year, requires battery technology “that has not yet proven to be commercially viable. There can be no assurances that these advances will occur in a timely or feasible way.” Even new executives were listed as risk factors. GM acknowledged that incoming CEO Daniel Akerson and Chief Financial Officer Chris Liddell have “no outside automotive industry experience” and said it was important for the management team to “quickly adapt and excel” in their new roles. Both, however, have extensive experience with successful companies. Akerson held top posts for telecommunications firms and Liddell served as CFO of Microsoft Corp. GM said the company was dependent upon global car and truck sales and said “there is no assurance that the global automobile market will recover in the near future or that it will not suffer a significant further downturn.” The company said it had no plans to pay dividends on its common stock and future dividends would be determined by its board of directors. The company said it will trade on the New York Stock Exchange under the ticker “GM,” the symbol under which it traded before it entered bankruptcy. Shares will also trade in Canada on the Toronto Stock Exchange, but the ticker symbol hasn’t been determined. Francis Gaskins, president of IPOdesktop.com, said GM’s decision to sell preferred shares rather than common stock is a sign that it is having trouble attracting interest from investors and felt the need to sweeten the offering with the preferred dividends. “Only a company that’s not strong would do that,” he said. “It’s a tip-off that the investment community needs something special.” The new preferred shares will be converted to an unknown number of common stock sometime in 2013, the filing said. GM also said in the filing that said outgoing CEO Ed Whitacre, who leaves Sept. 1, will get a compensation package worth around $9 million. He gets a $1.7 million annual salary and the rest in stock. ___ AP Auto Writer Dan Strumpf contributed to this story from New York.

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Danny Wong: Being On Both Sides of the Coin: How Being a Blogger Makes You a Better PR Pro

August 6, 2010

Danny Wong is a contributor to several big media outlets and is the Media Relations Guru of Blank Label , an ecommerce startup specializing in co-created custom dress shirts . As a contributor to different media outlets, you easily learn a lot about good Public Relations. If you’ve ever actually been on the other side of a bad pitch and a good pitch, you can pick out the good qualities and the god awful qualities. Actually having the perspective of the writer gives you better insights on what makes for an effective pitch and what doesn’t, and you gain a lot of other insights you wouldn’t have just as a PR Pro. You appreciate a good pitch vs. a bad pitch When you have received hundreds of pitches yourself, you quickly realize what makes for a good pitch and what makes for a bad pitch and you start appreciating easily digestible content too. You see 50+ emails in your inbox and you certainly don’t want to read all of them. You skim them for the high points, and are more likely to read a pitch if it has bullets and is broken up into short and sweet paragraphs. You cower away from the endless pitches that are more than a few hundred words and quickly hit delete or mark it as unread to return to at a later time. You become a little more critical of your own communications skills You start reevaluating how you write pitches and what messages you convey because you now have perspective on what makes for an effective pitch and a compelling story. Your general pitch or basic story isn’t going to be interesting to anyone unless it has a really interesting and unique angle. This heightened self-criticism makes you more careful when building out your messages and targeting the right reporters too. You appreciate media targeting much more When you get an irrelevant pitch you just cringe at how little research some PR representatives do. You take a bit more time to do your due diligence to figure out exactly what the reporters you are targeting are interested in and make sure you don’t pitch your new SaaS startup to a hardware writer on CNET. You will actually spend some more time reading the reporter’s past articles before shooting them an email or giving them a call too. You appreciate timeliness and newsworthiness Some stories are only good if they are still fresh. Stories get stale really quickly, but if you have interesting content for a follow-up to recent news, that always makes for a good story. So if sources pitch you in a timely manner with relevant news that hasn’t been published already, you’ve got great content for a second story. Let’s say we went back to the days right when the iPad released, you’d want to immediately pitch reporters on how your iPad exploded after two hours of use (this is clearly a hypothetical example). You appreciate honesty and integrity Let’s face it; a lot of PR professionals are spin-masters. They stretch the truth and sometimes tell white lies. But when you’re at the receiving end of a lie and end up publishing information that isn’t 100% accurate, you look like the fool and you know that source has burned a valuable bridge with you. So when this happens, you reconsider how much you spin stories and the repercussions of stretching the truth too much. Being on the other side of the coin is an invaluable experience for PR professionals looking to be better at media and blogger relations . You learn how to masterfully craft pitches because you’ve seen the good, the bad and the ugly, and you are more careful in how you communicate your messages. You also do better work when targeting and finding media leads , and ensure you pitch your story in a timely manner. You also make a big effort to ensure that your pitches are newsworthy . Lastly, you make sure that you maintain honesty and integrity when communicating with journalists and media because if you get caught in a lie, you can get into a lot of trouble as well as end a lot of valuable relationships.

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Danny Wong: Being On Both Sides of the Coin: How Being a Blogger Makes You a Better PR Pro

August 6, 2010

Danny Wong is a contributor to several big media outlets and is the Media Relations Guru of Blank Label , an ecommerce startup specializing in co-created custom dress shirts . As a contributor to different media outlets, you easily learn a lot about good Public Relations. If you’ve ever actually been on the other side of a bad pitch and a good pitch, you can pick out the good qualities and the god awful qualities. Actually having the perspective of the writer gives you better insights on what makes for an effective pitch and what doesn’t, and you gain a lot of other insights you wouldn’t have just as a PR Pro. You appreciate a good pitch vs. a bad pitch When you have received hundreds of pitches yourself, you quickly realize what makes for a good pitch and what makes for a bad pitch and you start appreciating easily digestible content too. You see 50+ emails in your inbox and you certainly don’t want to read all of them. You skim them for the high points, and are more likely to read a pitch if it has bullets and is broken up into short and sweet paragraphs. You cower away from the endless pitches that are more than a few hundred words and quickly hit delete or mark it as unread to return to at a later time. You become a little more critical of your own communications skills You start reevaluating how you write pitches and what messages you convey because you now have perspective on what makes for an effective pitch and a compelling story. Your general pitch or basic story isn’t going to be interesting to anyone unless it has a really interesting and unique angle. This heightened self-criticism makes you more careful when building out your messages and targeting the right reporters too. You appreciate media targeting much more When you get an irrelevant pitch you just cringe at how little research some PR representatives do. You take a bit more time to do your due diligence to figure out exactly what the reporters you are targeting are interested in and make sure you don’t pitch your new SaaS startup to a hardware writer on CNET. You will actually spend some more time reading the reporter’s past articles before shooting them an email or giving them a call too. You appreciate timeliness and newsworthiness Some stories are only good if they are still fresh. Stories get stale really quickly, but if you have interesting content for a follow-up to recent news, that always makes for a good story. So if sources pitch you in a timely manner with relevant news that hasn’t been published already, you’ve got great content for a second story. Let’s say we went back to the days right when the iPad released, you’d want to immediately pitch reporters on how your iPad exploded after two hours of use (this is clearly a hypothetical example). You appreciate honesty and integrity Let’s face it; a lot of PR professionals are spin-masters. They stretch the truth and sometimes tell white lies. But when you’re at the receiving end of a lie and end up publishing information that isn’t 100% accurate, you look like the fool and you know that source has burned a valuable bridge with you. So when this happens, you reconsider how much you spin stories and the repercussions of stretching the truth too much. Being on the other side of the coin is an invaluable experience for PR professionals looking to be better at media and blogger relations . You learn how to masterfully craft pitches because you’ve seen the good, the bad and the ugly, and you are more careful in how you communicate your messages. You also do better work when targeting and finding media leads , and ensure you pitch your story in a timely manner. You also make a big effort to ensure that your pitches are newsworthy . Lastly, you make sure that you maintain honesty and integrity when communicating with journalists and media because if you get caught in a lie, you can get into a lot of trouble as well as end a lot of valuable relationships.

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GM To Buy AmeriCredit Corp. For $3.5 Billion To Expand Subprime Lending

July 22, 2010

DETROIT — General Motors Co. will buy AmeriCredit Corp. for $3.5 billion, a deal that allows the automaker to expand loans to customers with poor credit and offer more leases, key areas where GM must grow to accelerate its car sales. But the acquisition of the independent auto financing company also means that GM, which is 61 percent owned by the U.S. government, is getting back into the business of making risky loans. GM said it advised the U.S. Treasury Department of the acquisition, although government approval was not required. GM executives have said for months that they were missing sales opportunities due to lack of credit for lease deals and financing for subprime buyers, those with credit scores below 620 on a 300-to-850-point scale. About 40 percent of U.S. customers have below prime credit scores, said Chris Liddell, GM’s chief financial officer. “Clearly there’s an opportunity to bring more people into our showrooms and help them with finance,” he said after the deal was announced on Thursday. Customers should now expect more lease deals from GM, which gets just 7 percent of its sales from leases, compared with 21 percent for the industry, he said. Only 4 percent of GM’s sales come from subprime buyers, which the company hopes to expand with the acquisition. Liddell said even a modest increase in subprime buyers from 4 percent to 5 percent would be significant. GM sold just over 1 million vehicles in the U.S. during the first half of the year. Mike Jackson, CEO of AutoNation Inc., the largest auto dealership chain in the U.S., said he was thrilled with the acquisition because it will help his dealers increase sales. “This is a big, strategic deal for General Motors. They absolutely needed to add this segment of the market to meet the needs of the customers coming into our dealerships,” he said. The deal allows AmeriCredit to expand into more GM dealerships, while continuing to offer financing to the more than 11,000 dealerships it has relationships with across the U.S. The two companies have had a financial relationship for years. AmeriCredit, which already works with about 4,000 GM dealers, now gets about one-third of its business from financing new and used GM vehicles, GM said. Overall, the auto financing company has about 800,000 customers and $9 billion worth of auto loans on its books. Under the $3.5 billion deal, GM will pay $24.50 in cash for each share of AmeriCredit. That’s a 24 percent premium over the company’s closing price on Wednesday. Investors were happy with the news, pushing up shares of AmeriCredit by $4.32, or 22 percent, to $24.02 in midday trading Thursday. AmeriCredit, based in Fort Worth, Texas, has been posting healthy earnings of late after suffering losses at the start of the recession and credit crisis. It reported net income of $63 million, or 45 cents per share, in its fiscal third quarter, which ended March 31. GM expects the deal to close in the fourth quarter. The automaker says that its partner, Ally Financial – formerly known as GMAC Financial Services Inc. – will continue to finance GM’s dealer inventory and make loans to buyers with good credit. GM says it is not considering a purchase of Ally’s auto financing unit. GM sold controlling interest in GMAC in 2006. The company eventually had to be bailed out by the U.S. government because of problems with its home mortgage loan unit. Liddell said the AmeriCredit acquisition is helpful, but not essential for GM’s planned public stock offering, which may take place in the fourth quarter. The sale would help the government get rid of at least part of its ownership stake in the company. “I’ll describe it as another useful building block in the foundation for the IPO,” Liddell said. ___ AP Auto Writer Dan Strumpf in New York contributed to this report.

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Stocks That Rise as Market Tanks May Tempt You Commentary by John Dorfman

June 14, 2010

Commentary by John Dorfman June 14 (Bloomberg) — The stock market decline that began April 23 lasted six weeks — if June 7 was the bottom, which we don’t know for sure yet, of course. It felt more like six years. Holders of some stocks, though, have reason to smile. Surprisingly, about 30 percent of U.S. stocks have gained 10 percent or more for the year to date. That’s true even though the total return on the Standard & Poor’s 500 Index, perhaps the best gauge of the overall U.S. stock market, is negative 1.2 percent for the year. About 800 stocks with a market value of $250 million or more have scored gains of 10 percent or more for the year. Prominent in the winner’s circle is SPDR Gold Trust , better known by its stock symbol GLD. It is an exchange-traded fund that owns gold bullion and intends to track the price performance of gold, minus fund expenses. State Street Corp. created GLD in late 2004. Since then, it has posted gains every year, ranging from 5 percent in 2008 to 30 percent in 2007. So far this year GLD is up about 12 percent. No wonder I got an e-mail last week that said, “Forget about your (expletive deleted) stocks! Just buy gold.” I rarely dabble in gold or gold stocks, because one can’t calculate a price-earnings or price-revenue ratio on gold bullion, and those ratios are usually high on gold mining stocks. Yet I must agree there is a fair chance that gold will do well the next several years. Gold Strategy Many investors are seeing their faith in paper currencies weakened as governments around the world run up big deficits. In my opinion, GLD is not a bad way to own gold because it is simple, direct, and doesn’t involve large costs for storage and insurance. Speaking of gold, Newmont Mining Corp. , the largest U.S. gold producer, is up about 19 percent year to date. Newmont, based in Greenwood Village, Colorado, doesn’t meet my valuation criteria. However, its ratios are more attractive than most gold-mining stocks. Another big company in this favored group is DirecTV of El Segundo, California, the largest U.S. provider of satellite TV services. On May 6 it posted 59 cents a share in earnings, beating analysts’ average estimate of 46 cents, with good results in both the U.S. and Latin America. The shares are up about 15 percent this year. I wouldn’t buy DirecTV stock. Debt is about 300 percent of equity, which raises the risk level. And DirecTV shares seem high-priced to me at 21 times earnings and 12 times book value. No ‘Winner’s Curse’ Hershey Co. of Hershey, Pennsylvania, has risen about 42 percent this year. I believe that investors breathed a sigh of relief when Hershey let Kraft Foods Inc. of Northfield, Illinois, win the hand of Cadbury Plc. Investors had feared a bidding war, in which Hershey might overpay and suffer what’s known as the “winner’s curse.” In addition, Hershey posted first-quarter earnings almost double last year’s, surprising analysts. It pushed through a price increase on about a third of its product line, and sold more candy bars nevertheless. Would I bite? Not at 21 times earnings. Also, I don’t relish the company’s debt level, at more than 200 percent of equity. More to my taste is Impax Laboratories Inc. of Hayward, California, which trades at only seven times earnings. Impax manufactures both proprietary and generic drugs. Public since 1995, the company posted a series of losses, then broke into the black in 2007. The stock is up about 53 percent this year. Drugs, Satellites Its earnings bounce around. Last year Impax earned 82 cents a share. This year it is headed for $3.13, analysts estimate. Their early guesses for 2011 call for $1.46 a share. This month the company settled a patent dispute with Endo Pharmaceuticals Holdings Inc. and Penwest Pharmaceuticals Co. over a generic version of a medicine for Parkinson’s disease. I also like GeoEye Inc. of Dulles, Virginia. It operates a satellite imaging service, taking pictures of earth from space. Google Inc. uses the company’s satellite images for its Google Maps and Google Earth services. GeoEye shares are up about 14 percent this year and trade at 11 times earnings. The company posted record revenue in the first quarter. Consider this recommendation speculative, as the company’s debt is higher than I usually prefer. SanDisk Corp. , located in Milpitas, California, appears to be coming out of the recession nicely. In the first fiscal quarter, it posted revenue of about $1 billion, up from $659 million a year earlier. Earnings were 99 cents a share, one of SanDisk’s best quarters. Shares are up about 54 percent this year. Disclosure note: Personally and for clients, I own shares in Endo Pharmaceuticals. I have no long or short positions in any of the other stocks mentioned in this week’s column. ( John Dorfman , chairman of Thunderstorm Capital in Boston, is a columnist for Bloomberg News. The opinions expressed are his own. His firm or clients may own or trade securities discussed in this column.) To contact the writer of this column: John Dorfman at jdorfman@thunderstormcapital.com .

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Scarlett Johansson, `Memphis,’ Green Day Rock Opera Win Early Tony Awards

June 13, 2010

By Philip Boroff June 13 (Bloomberg) — Scarlett Johansson won a Tony Award for best supporting actress in a play, for the hit $2.3 million revival of Arthur Miller’s “A View From the Bridge,” tonight in New York. “Ever since I was a little girl I wanted to be on Broadway,” she said. “And here I am.” She thanked the late playwright Miller, and her costar Liev Schreiber , “for teaching me never to anticipate anything, and through that finding magic in the unexpected.” “ Memphis ,” a crowd-pleasing, roughly $12 million show about a white disc jockey in the 1950s and a black female R&B singer he champions, won three awards early in the show. It took Tonys for original score (Joe DiPietro and Bon Jovi keyboardist David Bryan), book (DiPietro) and orchestration (Bryan and Daryl Waters). “American Idiot,” the rock opera by the band Green Day, won for lighting and set design and “Fela!” won for sound design. John Logan’s drama about the painter Mark Rothko , “ Red ,” won for lighting and sound design and for supporting actor Eddie Redmayne. Michael Grandage also won for best direction of “Red.” Green Day Performs The show at Radio City Music Hall opened with “Blue Suede Shoes,” performed by the cast of “Million Dollar Quartet,” a best-musical nominee, accompanied on piano by Tony host Sean Hayes . That led to musical selections from a half-dozen nominated musicals and two songs from Green Day itself, replete with explosions. Katie Finneran won for featured actress in a musical for “Promises, Promises.” The Tonys exclude off-Broadway, home to some of the city’s best drama. On Broadway, 39 shows opened last season, from May 2009 to May 2010. They collectively grossed $1 billion, about the same as the year earlier. The average ticket sold for $85.78, up from $67 five years ago, thanks to “premium seats” that retail for as much as $350. CBS television is broadcasting three hours of the four-hour show. The first hour on cable channel NY1 dispensed with the “creative arts” categories: book, original score, orchestrations and costumes, sound, lighting and scenic design. The Tonys are a product of the trade association Broadway League and nonprofit American Theatre Wing . They’re selected by 769 voters. In July 2009, the Tony Awards Management Committee dropped about 100 journalists and critics from voting, citing the “possible conflicts of interest” of critics voting for shows they champion. After an outcry from journalists, who said they were more independent than producers who have financial interests in shows, the Tonys restored about two dozen critics as voters, beginning next season. To contact the writer on this story: Philip Boroff in New York at pboroff@bloomberg.net .

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Chrysler ADDS More Than 1,000 Jobs In Detroit

May 21, 2010

DETROIT — Chrysler Group LLC gave a big boost to the battered Michigan economy Friday when it announced plans to add about 1,100 workers to help build the new Jeep Grand Cherokee. The company made the announcement at a Detroit factory as it celebrated the start of Grand Cherokee production. Chrysler said it expects strong sales of the new sport utility vehicle, which is due in showrooms next month. Almost all the workers will be new hires, which Chrysler can pay about $14 per hour, about half the hourly rate received by current workers represented by the United Auto Workers union. The workers will staff a second shift at the factory, called the Jefferson North Assembly Plant, starting July 19. The announcement is good news for Michigan, which has the highest unemployment rate in the nation at 14 percent and has struggled for years with the decline of Detroit’s automakers. CEO Sergio Marchionne joined 1,400 current plant workers and a number of federal, state and local officials to celebrate the start of Grand Cherokee production. The new vehicle is more efficient and car-like than the current model, Chrysler said. Marchionne said the additional jobs show how confident he and other company executives are about the success of the Grand Cherokee. When asked whether the hirings are a gamble based on the state of the economy, Marchionne smiled and said: “Don’t be so skeptical. It’s a good day. Enjoy it.” Chrysler has only about 100 laid-off workers in the Detroit area who haven’t been recalled, so the company can take advantage of a provision in its contract with the UAW that gives newly hired workers much lower wages and benefits. Thousands of factory workers took buyout and early retirement offers when Chrysler ran into financial difficulties in 2008 and last year. The company eventually went through bankruptcy protection, cleansing it of burdensome debt. “This day will go down in history that Chrysler is indeed the comeback kid,” United Auto Workers Vice President General Holiefield said. At the celebration, Marchionne, who also heads Italy’s Fiat Group SpA, drove one of the new sport utility vehicles through the plant and to a stop in front of the stage. He and front-seat passenger Michigan Gov. Jennifer Granholm emerged from the SUV to applause from the workers. “We’re here to declare that Chrysler is back!” Granholm shouted. Chrysler Group LLC began making the Grand Cherokees in recent weeks, and Friday’s event served as the official launch. The start of production was eagerly awaited by Chrysler dealers, who have been without a totally new product since the Ram pickup came out late in 2008. Mike Andretta, owner of a Chrysler dealership in Beaver Springs, Pa., says he’s hoping the new vehicle will be a boost to his bottom line. “We’re surviving month-to-month. We need new product – quickly,” he said. “The old Grand Cherokee’s been kind of dead for the last two years now, so that market we don’t really get a lot of business in any more.” “Once the word gets out, I think it’s going to be a success,” Andretta said. “I don’t think any dealership will survive solely on the new Jeep Grand Cherokee, but it’ll help, and we need new stuff.” The jobs and new product celebration capped a busy week for Chrysler. On Thursday Marchionne said the company is considering a public stock offering sometime next year. Marchionne said there is enough demand in the marketplace to support initial public offerings for Chrysler and General Motors Co., both of which were restructured in government-funded bankruptcy protection cases last year. He also said Chrysler struggled through a painful restructuring last year, and he never wants to see the company lose money again, predicting that U.S. vehicle sales will top 11 million this year and 12 million in 2011. Sales slumped to 10.4 million last year, the worst in more than a quarter century. Chrysler would have been sold off in pieces in late 2008 or early 2009 if the U.S. government had not stepped in with billions in aid. The government put Marchionne in charge of turning around the Auburn Hills automaker and gave Fiat a 20 percent stake in the company. But on Friday, Marchionne was all smiles, talking about the “milestone launch” of the Jeep Grand Cherokee, a totally new version of the venerable SUV. The new model is more efficient than the old one, behaving more like a car than a truck on suburban highways. Yet it still has off-road capability, the company said. Governor Granholm was just happy to see jobs added in Michigan rather than southern states, where Asian and European automakers have set up factories. “It’s not made in some Southern cornfield plant,” she said. “It’s made right here.” ___ AP Auto Writer Tom Krisher in Detroit contributed to this report.

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Bill Gates’s Dad Says `Rich People Aren’t Paying Enough’ State Income Tax

May 20, 2010

By Peter Robison May 20 (Bloomberg) — Bill Gates ’s father wants the Microsoft Corp . co-founder to pay more in income taxes. Bill Gates Sr ., a retired Washington state lawyer, supports a proposed ballot initiative that would require the state’s highest earners including himself and his son to pay an income tax. Washington now collects no personal income taxes. “Poor people and middle-income people are paying too much to support the state and rich people aren’t paying enough,” Gates Sr. said in an interview yesterday in Seattle. “That’s the starting point for me.” The proposed tax on individuals earning more than $200,000 a year and couples earning more than $400,000 would raise $1 billion a year to fund education and health care. While targeting the highest earners, the measure would ease the burden on homeowners with a 20 percent reduction in state property taxes and eliminate the business-and-occupation tax for 80 percent of enterprises in the state, backers say. Proponents begin collecting signatures today to put proposed Initiative 1098 on the state’s November ballot, amid opposition from critics who say a new tax will discourage spending and investment. “The last thing our state needs is more job-killing taxes in the middle of a recession,” said Luke Esser , chairman of the state Republican Party. Flat-Rate Proposal Gates Sr., 84, turned to philanthropy and social causes after retiring from the Seattle law firm Preston Gates & Ellis LLP in 1998. He chaired a state panel that recommended introducing a flat-rate personal income tax in 2002 to reduce the state sales tax and eliminate property taxes, and advocated estate taxes in a book he co-authored, “Wealth and Our Commonwealth: Why America Should Tax Accumulated Fortunes” (Beacon Press, 2003). People in the bottom fifth of the state’s tax brackets pay 16 percent of their income toward state and local taxes, while those in the top 1 percent pay only 2.5 percent, he said. “It’s just not fair,” he said. Education in the state is languishing, with spending per pupil ranking No. 46 in the country, Gates Sr. said. Money raised in the initiative would go into a trust fund to increase teacher salaries, pay for new buildings, support early learning and reverse cuts to state universities, Gates Sr. said. The proceeds also would fund public health and long-term care for seniors. Furniture Store Gates Sr.’s own father owned a furniture store in Bremerton, Washington, an hour’s ferry ride from Seattle. While his father was comfortable, “he was not making a lot of money and I think the credits we’ve provided in this initiative would have probably taken him out from under paying anything,” Gates Sr. said. His son, William H. Gates III, whose net worth was estimated at $53 billion by Forbes magazine in March, ranking him as the world’s second-richest person, hasn’t decided whether to support the initiative, the elder Gates said. “We’ve talked about it; he goes to the left and he goes to the right and I’m not too sure where he comes out,” Gates Sr. said. “He is the face and voice on quite a number of causes and has no anxiety to add another controversial cause to his list.” Individuals would pay a 5 percent tax on income over $200,000 and 9 percent over $500,000. Couples would pay 5 percent over $400,000 and 9 percent over $1 million. Expansion Concerns It’s only a matter of time before the income tax is expanded to other income brackets, the Seattle Times said in an April 24 editorial. It called the measure “the seed of a big, big thing” and advised: “Think twice before planting it in Washington.” The measure includes a provision that says the taxes can’t be changed without another vote, Gates Sr. said. Initiative 1098 was co-authored by the Economic Opportunity Institute , a non-profit group in Seattle, and has drawn funding from the Service Employees International Union, said Sandeep Kaushik, a spokesman for the I-1098 campaign. Gates Sr. agreed to serve as the public face, visiting business groups and unions to solicit support. “Anywhere there are more than three people who will sit and listen to me,” Gates Sr. said. To contact the writer on this story: Peter Robison in Seattle at robison@bloomberg.net .

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Lance McKee Joins OGC as Senior Staff Writer

May 6, 2010

WAYLAND, MA–(Marketwire – May 6, 2010) –  The Open Geospatial Consortium (OGC) announced that Lance McKee has been appointed as a Senior Staff Writer for the Consortium. 

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Bank Profit Imbalances That Fueled Crisis `Are Re-Occurring’: Chart of Day

April 13, 2010

By Mark Gilbert April 13 (Bloomberg) — Record low U.S. interest rates are boosting the profitability of financial companies, creating the same kind of imbalances that fueled the credit crisis, according to Jim Reid, a Deutsche Bank AG strategist in London. The CHART OF THE DAY tracks finance industry profit in billions of dollars, measured by the yellow line, against earnings for non-finance companies in green and nominal U.S. gross domestic product, shown by the red dotted line. “It seems incredible that financials are now scaling their 2006/2007 heights again,” Reid wrote in a research note published yesterday. “The dramatic imbalances are re- occurring.” In July 2008, Reid said that U.S. banks had made “excess profits” of about $1.2 trillion in the previous decade, compared with how much they should have made based on economic growth, and that those excesses would be wiped out. Since then, U.S. financial firms have written down the value of their assets by about $1.15 trillion, according to Bloomberg data. “We are now all well aware that rather than overhaul a financial system that arguably contributed to the problems of the last two to three years, the authorities have created the conditions for the industry to thrive,” Reid wrote this week. “Only time will tell how the regulators and politicians will decide to address these imbalances.” (To save a copy of the chart, click here.) To contact the writer of this story: Mark Gilbert in London at magilbert@bloomberg.net

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Nissan Leaf: New Electric Car Will Cost Less Than $32K In The U.S.

March 30, 2010

NEW YORK — Nissan Motor Co. said Tuesday its new electric car will cost just over $25,000 in the U.S., a move that could force rivals to lower prices on similar vehicles. The Leaf, a four-door hatchback due in showrooms late this year, will have a base price of $32,780, but buyers can get a $7,500 electric vehicle tax credit, Nissan said. The price tag puts the Leaf, which can go up to 100 miles on a single charge from a home outlet, within reach of mainstream car buyers, and it also will force competitors to respond when they introduce their cars. General Motors Co., which also will begin selling its Chevrolet Volt rechargeable electric car later this year, said that it will look at Nissan’s pricing before announcing the Volt’s price closer to its December sales date. “I think it’s fair to say their pricing, it won’t overwhelm, but it will have some influence on our pricing decision,” said GM spokesman Rob Peterson. GM was looking to price the Volt, which can go 40 miles on full electricity before a small gas engine kicks in to provide power, around $35,000. It would cost $27,500 with the tax credit. But GM executives have said they are trying to lower the price as they begin building models at a Detroit factory. Other competitors, such as Ford Motor Co. and Chrysler Group LLC, also plan to sell fully electric cars, but those will come out after the Volt and Leaf hit showrooms in December. Nissan says the Leaf will cost 3.76 million yen ($40,000) in Japan. It will price the car lower in the U.S. because it wants to sell more of them in that market. The automaker says it is confident it can still make money at that price. Orders in the U.S. start April 20 and Nissan is aiming for 25,000 orders by December. ___ Foster reported from Yokohama, Japan. AP Auto Writer Tom Krisher in Detroit contributed to this report.

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`Berkeley Mafia’ Now Has $514 Billion at Stake: William Pesek

March 7, 2010

Commentary by William Pesek March 8 (Bloomberg) — It’s quite troubling that Sri Mulyani Indrawati has been roped into a corruption scandal. Indonesia’s finance minister isn’t necessarily shady. If she were, my confidence in Southeast Asia’s biggest economy would be shaken. Many are wisely giving Sri Mulyani the benefit of the doubt after parliament voted for a criminal probe of a bank bailout that she helped engineer. This is probably dodgy politics aimed at robbing President Susilo Bambang Yudhoyono of his most competent staffers, including Vice President Boediono . What is clear is that politics have taken an erratic turn that will distract policy makers from the economy and that’s bad news for investors. Those looking to score political points are missing the big picture: Indonesia’s $514 billion economy hangs in the balance. There is much riding on how Yudhoyono handles a crisis that threatens one of the world’s most promising nations. Handle it well, and investors’ esteem for Indonesia will increase. Bungle the crisis and skepticism will grow. The common view that Indonesia is an obvious buy must now be in question. Indonesia’s economy is famously corrupt. Transparency International ranks it behind Egypt, Djibouti and Algeria in its latest Corruption Perceptions Index . It’s moving in the right direction, though, and investors are noticing. The Jakarta Composite Index surged 87 percent in 2009. The rupiah gained 16 percent against the dollar. Sri Mulyani deserves considerable credit for the macroeconomic stability that is impressing markets. A decade ago, the economy was dusting itself off from the Asian crisis and 32 years of corrupt leadership under dictator Suharto . Back then, Indonesia risked going the way of the Soviet Union. Today, it’s among the most stable economies in Asia. ‘Berkeley Mafia’ The “Berkeley Mafia” is having the last laugh. That’s the colorful band of economists sent to study at the California university in the mid-1960s. They returned home championing low inflation, balanced budgets and deregulation. They had much to do. The economy Suharto inherited was a mess, with four-digit inflation and a mountain of debt. His predecessor, Sukarno, spent 20 years lavishing money on expensive monuments, nationalizing industry and funding budget deficits with excessive borrowings from abroad. The Berkeley Mafia helped turn things around. Growth averaged 6.5 percent a year from 1965 to 1997, when Southeast Asia crashed. Over time, though, Suharto did his part to foul things up anew. Suharto’s rule was dominated by family, friends and a military of unchecked influence. In 2007, a few months before Suharto’s death, the United Nations Office on Drugs and Crime alleged he stole as much as $35 billion, 1.3 percent a year on average of gross domestic product. Suharto’s lawyer dismissed the claim as fiction. Suharto Inc. Indonesia is still trying to dismantle Suharto Inc. Many of the policies Yudhoyono has used since 2004 to do that are Berkeley Mafia-esque. That success helps explain why the president is standing by his finance minister and not showing her the door. At least not yet. Sri Mulyani is part of the new, improved Indonesian mystique. Asia’s most high-profile female economic official is also one of the most respected. Sri Mulyani has been a competent, calming presence, one of the adults in the room as her young democracy prepares itself to join the ranks of the “BRIC” economies — Brazil, Russia, India and China. When Sri Mulyani travels to Davos, Switzerland, for the annual meeting of the World Economic Forum or visits Tokyo, New York and London, people listen. When she explains what’s afoot in Jakarta in her matter-of-fact way, she instills trust and reflects well on her boss, Yudhoyono. Dangerous Game So, if you are an ambitious politician who wants to wound the president, who better to go after than his star finance minister? Let’s go one better and go after Yudhoyono’s right hand, Boediono. What makes sense politically is a dangerous game to play with the nation’s 235 million people. The investigation that parliament approved involves the 6.7 trillion rupiah ($721 million) rescue of PT Bank Century in 2008. While everyone agrees there were abuses during the process, lawmakers are split on whether Boediono, who was central-bank governor at the time, and Sri Mulyani should be legally responsible. Boediono and Sri Mulyani argue that the bailout helped the country weather the global credit crisis. It occurred amid the market chaos that followed the collapse of Lehman Brothers Holdings Inc. Just as many Americans cringed at their government propping up Wall Street, many Indonesians looked askance at saving PT Bank Century. Systemic Failure Here is how Yudhoyono put it in a March 4 speech: “Why should we save a bank that has been clumsily managed and led by people who ran away with their customers’ money? No matter how disturbed we were with that, the government had to rescue the Indonesian economy from a systemic failure.” Legitimate questions should be raised, yet it’s hard not to conclude the campaign against Sri Mulyani is personal. Some well-heeled politicians saw their net worth dwindle when Sri Mulyani opposed closing the bourse as shares plunged in 2008. Corruption and bad infrastructure slow the process of spreading the benefits of growth and reducing poverty. Risks of terrorism in the nation with the largest Muslim population make it harder to attract the investment needed to maintain last year’s 4.5 percent growth rate. This is as big a test as Yudhoyono will ever face. ( William Pesek is a Bloomberg News columnist. The opinions expressed are his own.) Click on “Send Comment” in the sidebar display to send a letter to the editor. To contact the writer of this column: William Pesek in Tokyo at wpesek@bloomberg.net

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Crown Prince of White-Collar Convicts May Go Free: Ann Woolner

March 4, 2010

Commentary by Ann Woolner March 5 (Bloomberg) — In the rash of white-collar prosecutions that followed the rash of accounting scandals in 2001 and 2002, no conviction was as welcome as those of Enron Corp.’s top two executives. Before Bernard Madoff jumped to the top of America’s most- hated fraudster list, Kenneth Lay and Jeffrey Skilling shared the spot. The two were accused of lying about Enron’s financial health while growing rich from inflated high share prices. Of all the frauds in the early aughts, none galled as much as the one that broke the world’s largest energy trader. While lesser crooks were hauled into courthouses and tossed in jail, impatience grew for the hides of Lay and Skilling. A special government task force spent years building a case, winning an indictment and maneuvering through pretrial skirmishes. Finally, in 2006, after 16 weeks of trial and five days of deliberation, a federal jury in Houston declared them guilty of multiple counts of fraud. Now there is a chance all of that will come to naught. Lay died in 2006 before sentencing and appeal, so a judge nullified his conviction as the law required. However reviled, he died an innocent man in the eyes of the law. Now Skilling just might come out from under his conviction by less dramatic means. Partial Reversal As his appeal awaits a decision from the U.S. Supreme Court , look for a partial reversal at least. Several justices have expressed distaste for one of the laws that prosecutors used in this indictment, as in other white-collar cases. The vague “honest services” fraud statute could well doom those counts that are based on it. If the court alters or strikes down the law, it could reverse anywhere from one to 14 of the 19 counts of Skilling’s conviction. But there are five counts, for insider trading and lying to auditors, that have nothing to do with honest services fraud. Those counts would keep Skilling in prison for years to come. He would stay put unless the court decides the entire trial was too unfair to trust any part of the guilty verdict. This week, several justices gave him reason to hope for an all-out reversal, on every single count. Skilling was handed that possibility because of his trial judge’s devotion to efficiency. U.S. District Judge Simeon Lake III in Houston was more focused on keeping his own tight schedule for jury selection than he was on weeding out biased jurors. Trial in Houston The first problem was that Lake let the trial take place in Houston, the one city in the world where anti-Enron passions ran hottest, deepest and broadest. Even if jurors entered the courtroom with no such feelings themselves, would they have the backbone to declare these men not guilty when everyone around them wants their hides? Lake blew off defense evidence of widespread bias without so much as a hearing. That might have been OK had he then thoroughly questioned potential jurors and sent home those too biased to be fair, or those with a conflict of interest. He didn’t. One potential juror said she had lost $50,000 to $60,000 in the Enron debacle, yet Lake declined to excuse her for cause. “How can we be satisfied that there was a fair and impartial jury picked when the judge doesn’t follow up on a witness who says, ‘I’m a victim of this fraud?’” asked Justice Sonia Sotomayor . Discretionary Dismissal True, that juror was dismissed on a discretionary strike by the defense, as were others who expressed bias. But the number of those so-called peremptory challenges is limited. Lake’s refusal to excuse some seemingly biased jurors for cause forced the defense to use strikes they might have otherwise saved for jurors who provoked subtler concerns for them. Limited in number, peremptory challenges are designed for that. During Supreme Court arguments, Justice Stephen Brayer said he counted at least three and as many as six potential jurors who Lake refused to dismiss in spite of clear indications of bias. “I am worried about a fair trial,” Brayer said. “I am genuinely worried.” Whether the court will decide for Skilling based on that concern is another question. Brayer also fretted about how far the Supreme Court should go in micromanaging jury selection and telling an experienced, respected judge such as Lake how to do his job. Solid Reputation And yet, part of Lake’s solid reputation stems from his ability to keep trials running smoothly and quickly without bullying lawyers. Great. But surely fairness should come first. A 14-page pretrial questionnaire culled the most deeply prejudiced of the potential jurors. Of those who were left, Lake spent a mere five hours questioning 48 of them to see whether any expressions of bias in their written answers made them unable to fairly judge the evidence. Five hours was nothing, considering a widespread sense in Houston that the once-beloved Lay had betrayed the city’s trust, a belief that Lay and Skilling should be made to pay for their crimes and the pervasive publicity about Enron’s collapse and the trial itself. It took five days to sort through Martha Stewart’s jury pool in New York. But Lake had promised to conclude jury selection in a day, and this he did. If Skilling wins on that claim, his conviction on all 19 counts would be thrown out. The government would have to decide whether to seek re-indictment, which would be far more difficult now than it was before, when the evidence was less than a decade old. And this time Lay wouldn’t be there as his co-defendant to give the allegations more heft. The whole previous effort would have been wasted. How is that for efficiency? ( Ann Woolner is a Bloomberg News columnist. The opinions expressed are her own.) Click on “Send Comment” in sidebar display to send a letter to the editor. To contact the writer of this column: Ann Woolner in Atlanta at awoolner@bloomberg.net .

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Darroze Loses Michelin Star; Languedoc Eatery Gains Third in France Guide

March 1, 2010

By Richard Vines March 1 (Bloomberg) — Helene Darroze loses the second star for her Paris restaurant and an establishment in the Languedoc region gains its third star in the Michelin Guide to France 2010, which will be published this week. Michelin awards single stars to 455 venues, including 47 gaining their first; 77 win two stars, 10 newly promoted; and the total of three-star restaurants rises to 26 with the advance of Auberge du Vieux Puits , in Fontjoncouse. Michelin released the results today in an e-mailed statement. Darroze, 43, loses a star for her restaurant in the sixth arrondissement of Paris less than two years after opening an establishment in London, Helene Darroze at the Connaught, for which she holds a star. She won her first Michelin accolade in 2001 and the second in 2003. The new two-stars are Du Castellet, in Le Castellet; Les Airelles, Courchevel; Cheval Blanc, Courchevel; Sa. Qua. Na, Honfleur; Bigarrade, Paris; Anne de Bretagne, La Plaine-sur- Mer; Auberge des Glazicks, Plomodiern; Residence de la Pinede, Saint-Tropez; L’Oxalys, Val-Thorens; Chateau St-Martin & Spa, Vence. The two stars for Les Ambassadeurs, at the Hotel Crillon in Paris, are deleted following the departure of chef Jean- Francois Piege. There are single stars for two small new eateries in the capital: Yam’Tcha, under chef Adeline Grattard, and Passage 53, whose chef is Shinichi Sato. Darroze is a protegee of Alain Ducasse . Her cuisine is influenced by Darroze’s home region of Landes. Two other venues drop to one star: La Villa, Calvi; and Au Crocodile, Strasbourg. Gerard Besson and Bath’s, both in Paris, lose their single stars. Versailles Ramsay The British chef Gordon Ramsay holds onto his second star for his establishment at Versailles, near Paris. Three stars mean “Exceptional cuisine, worth a special journey;” two, “Excellent cooking, worth a detour;” one, “Very good cooking in its category.” Clermont-Ferrand, France-based Michelin is the world’s biggest tire maker. The company produced its first “Red Guide” at the turn of the 20th century to encourage motoring. “Michelin Guide France 2010” is published on March 4, at 24 euros ($32.80). A boxed set of six regional guides costs 34.50 euros. (Richard Vines is the chief food critic for Bloomberg News. Opinions expressed are his own.) To contact the writer on the story: Richard Vines in London at rvines@bloomberg.net .

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Harvard’s Rogoff Gives Legs to China Crash Talk: William Pesek

March 1, 2010

Commentary by William Pesek March 1 (Bloomberg) — The tale had Tom Clancy written all over it, with the CIA investigating a far-off economy out of concern that its collapse might pose problems for America. That reportedly happened in 2002 as Japanese deflation threatened to spread around the globe. If I were a Central Intelligence Agency bigwig, I would now be setting up task forces on risks coming from China. Let’s not stop there. Add the U.S. into the mix and study what a crackup within the so-called Group of Two would mean for the world economy. It wouldn’t be pretty. Pessimistic stuff, yes. Yet when the U.S. secretary of state says the record U.S. budget deficit and debt are stoking national-security concerns, you know the world is off kilter. Meanwhile, short-seller Jim Chanos is finding more and more company as he bets on a Chinese crash. It’s time to consider the systemic fallout from a Chinese crisis. It could cause recessions around the world. As 2010 unfolds, such views are developing legs. It’s one thing when Chanos, of New York-based Kynikos Associates Ltd., speaks of a bust. Ditto for Marc Faber , publisher of the Gloom, Boom & Doom in Hong Kong. It’s quite another when the likes of Harvard University’s Kenneth Rogoff warn of a collapse of China’s debt-fueled bubble within 10 years. China Is Due The former chief economist at the International Monetary Fund can’t be dismissed as talking his investment position. What’s more, Rogoff offers perhaps the simplest reason why China may falter: It’s due. Remember that five of the most frightening words in economics are: “This time things are different.” Well, can you see where this story is going? “If there’s a this-time-is-different story in the world right now, it’s China,” Rogoff said at a conference in Tokyo last week. People, he added, say China “won’t have a financial crisis because there’s central planning, because there’s a high savings rate, because there’s a large pool of labor. I say, of course China will have a financial crisis one day.” It’s a point that few China bulls allow. For all the merits of China’s model — massive public spending, export-driven growth, cheap labor costs — it’s doubtful it can beat the system, so to speak. No emerging nation has avoided a crisis that sent growth reeling and markets plunging. Not one. Not Unexpected If a Chinese crisis occurs, it won’t be an entirely unexpected event. Vitaliy Katsenelson of Investment Management Associates Inc. in Denver, for example, raised eyebrows with a Feb. 12 report titled “China: The Mother of All Black Swans.” Could China be the first emerging economy to escape trouble? It’s comforting to think so, and officials in Beijing have had a great year. Stimulus efforts are producing growth of about 10 percent. And investors haven’t made loads of money betting against China. China will need to spend even more to maintain rapid growth. Japan is mired in deflation, Europe is struggling to keep Greece afloat and U.S. unemployment is worsening. Stimulus efforts were always about holding Asia over until U.S. consumers recovered. The worst recession since the 1930s is still filtering through the biggest economy. So, China is largely on its own in a hostile global environment. Trouble there is worth exploring before it’s too late. Rising Influence “We would learn just how important China is when that happens,” Rogoff said in an interview last week. Nomura Holdings Inc. says China may provide more than a third of world growth this year as it surpasses Japan’s economy. So we’re not talking about Thailand crashing. We’re talking about what will soon be the second-biggest economy, one on which the world is increasingly relying. China’s influence explains why Hillary Clinton has U.S. Treasuries on her mind. We first saw that preoccupation in February 2009, when Clinton made her maiden trip to Beijing as secretary of state. She shelved human-rights issues in favor of talking up debt. The White House projects a $1.6 trillion budget deficit for the 2010 fiscal year, following $1.4 trillion in 2009. It leaves Clinton and Treasury Secretary Timothy Geithner with quite a bond-sales job. Only, China might not be a reliable buyer of U.S. debt if it needs that money at home to boost growth. Victor Shih of Northwestern University in Evanston, Illinois, is focusing on another $1.6 trillion figure. That’s how much debt he estimates China’s local governments are sitting on. If the argument Shih fleshed out in a Feb. 8 piece in the Wall Street Journal is correct, local debt alone is one-third of China’s 2009 gross domestic product and 70 percent of foreign- exchange reserves. Between the U.S. and China, we’re talking lots and lots of debt. Any unraveling on either side of the Pacific would devastate the global economy. It’s becoming less of a Black Swan scenario, and more a crisis unfolding in slow motion. G-2 risks should be of growing concern to investors , the CIA and perhaps even thriller writers. ( William Pesek is a Bloomberg News columnist. The opinions expressed are his own.) Click on “Send Comment” in the sidebar display to send a letter to the editor. To contact the writer of this column: William Pesek in Tokyo at wpesek@bloomberg.net

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Facts Trounce Vapors in Health-Care Olympics: Margaret Carlson

February 26, 2010

Commentary by Margaret Carlson Feb. 26 (Bloomberg) — It “could be pure theater,” Vice President Joe Biden said the day before the health-care summit at the White House debuted. Thanks, Joe, for repeating a Republican talking point like a lovable but irascible child who tells the neighbors precisely what mommy and daddy warned him not to say to anyone. At the opening of the bipartisan confab yesterday, President Barack Obama respectfully disagreed, saying he was looking for ways to proceed together and not engage in “political theater.” It was the Washington version of the Olympics, a performance with a difficulty of 10, a ticking clock and a chance of salvaging the bronze in a race in which the gold was lost in the opening trials long before. The president started strong. Basic courtesy demanded that Republicans rise when he entered. Around the room he went looking magnanimous, a word here and there, a man-hug to Senator (and doctor) Tom Coburn of Oklahoma, one of the Republicans he’s bonded with. As hard as Republicans worked to reduce the home-court advantage, they couldn’t. Obama’s the president and they’re not. He called them Eric, John and Mitch. They called him Mr. President. House Republican Leader John Boehner of Ohio tried to level things by dictating the shape of the table as if the forum were the 1973 Paris Peace Accords, the Democrats the Viet Cong and whoever sat at the head of it were in charge. Shape of Table Exactly what shape would the table have to be to make people think Boehner was president? Republicans complained about being in Blair House instead of the White House, about the room being too small, about Obama’s new proposal being too short, the old bill too long (Virginia Representative Eric Cantor stacked it in front of him to make that point). Then there was the rank injustice that, counting the president’s opening statement, Democrats got more talking time. All this grumbling before any real differences were discussed. There was a repeated exchange over whether premiums would rise or fall under Obama’s plan. Using facts, Obama said they wouldn’t rise. Using vapors, Republicans insisted they would. They wouldn’t answer the question of whether this meant they were rejecting the nonpartisan Congressional Budget Office analysis they cite when it buttresses their position. Lexus or Honda The CBO reported that premiums would stay about the same, or slightly decrease. To say some people might upgrade their policy and pay more is to confuse a consumer durable with insurance. I might buy a Lexus instead of a Honda if I get a better job, or the cost of a Lexus came down, but that doesn’t mean someone raised my auto costs. When Obama turned the floor over to Senate Minority Leader Mitch McConnell of Kentucky, he wisely turned the microphone over to the more congenial Senator Lamar Alexander of Tennessee. When he ran for president, the placid Alexander’s trademark was an exclamation point after his name to connote the excitement he lacked. Since becoming chairman of the chamber’s Republican Conference, Alexander has taken on a much sharper edge. Renounce, he told Democrats, any idea “of jamming” a health- care bill “through in a partisan way.” By that, he means the use of reconciliation, a process allowing legislation to pass with 51 votes rather than a supermajority of 60, which Republicans have demanded for almost every bill since Obama was elected. Reconciliation Reversal Republicans have used reconciliation more than 20 times in recent years, including to push through legislation such as President George W. Bush’s tax cuts. Now they say it’s tantamount to fascism. Alexander also warned the president to lower his expectations. “If you are waiting for Mitch McConnell to roll in a wheelbarrow in here with a 2,700-page Republican comprehensive bill, it’s not going to happen,” he said. This goes to the Republican demand that the president start over on health care with a blank page, perhaps to decrease the disadvantage of having nearly a blank one themselves. Starting over is code for quitting. Fixing the massive dysfunction in an industry that accounts for 17 percent of the U.S. economy requires specificity and legislative language. A several- thousand-page bill isn’t a bad thing. Only once did the president show frustration. Citing a variety of “special deals” and “special interests” that he said were catered to in the Democrats’ health-care legislation, Senator John McCain of Arizona, Obama’s opponent in the 2008 presidential election, said, “What we got is a process that you and I both said we would change in Washington.” ‘Election Is Over’ Obama might have been hungry (it was close to lunchtime). Maybe there came a limit to his professorial tolerance. The president dropped his polite pose. “We are not campaigning anymore,” he said. “The election is over.” McCain shot back with his trademark nervous laugh, “I am reminded of that every day.” There was no “you lie” moment yesterday, but plenty of rudeness. As the meeting ground on, the president was stuck listening to speakers who treated facts as malleable. If they think premiums will go up, they will. If they deny an essential fact of insurance as Democratic whimsy — that the bigger the pool, the wider the risk is spread, the lower premiums will go – — it must be so. Not that nothing was accomplished. The viewing audience learned that Republicans must say no to Obama because they want to say yes to the insurance giants, to let them merrily roll along without meaningful federal regulation, you know, like Wall Street has for the past ten years. What could possibly go wrong with that? ( Margaret Carlson , author of “Anyone Can Grow Up: How George Bush and I Made It to the White House” and former White House correspondent for Time magazine, is a Bloomberg News columnist. The opinions expressed are her own.) Click on “Send Comment” in the sidebar display to send a letter to the editor. To contact the writer of this column: Margaret Carlson in Washington at mcarlson3@bloomberg.net

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Slamming Bank of America With Fine Slams Victims: Ann Woolner

February 24, 2010

Commentary by Ann Woolner Feb. 24 (Bloomberg) — U.S. District Court Judge Jed S. Rakoff really, really, really wanted to toss out a $150 million settlement between Bank of America Corp. and federal regulators this week. He called the agreement “half-baked justice,” “inadequate and misguided” even as he approved it, fingers firmly grasping nose. Rakoff had already nixed an earlier, $33 million agreement between the bank and the Securities and Exchange Commission as a sweetheart deal. He ordered both sides to tell him more, much more, about how and why Bank of America shareholders were denied material information at a critical time. The bank was buying Merrill Lynch, which was losing money, far more money and much faster than bank managers were telling shareholders. It’s the sort of thing shareholders would have wanted to know before voting on the merger, to know what they were getting into and whether they wanted to go there. When the bank and the SEC gave their version of events, the judge remained unconvinced that either side was giving him the full picture. The SEC seemed to lack that adversarial edge that digs for the truth. So Rakoff sought out one of the bank’s most adversarial foes, New York Attorney General Andrew Cuomo , for the evidence his investigators had marshaled in a separate, state case he filed against the bank and two former executives. But that didn’t resolve Rakoff’s underlying dilemma. Nothing short of rejecting the money part of the deal could have. He wrote as if he should and would in this week’s ruling. The settlement’s $150 million fine “penalizes the shareholders for what was,” he wrote, “a fraud by management on the shareholders,” intentional or otherwise. The victims pay. The managers don’t. So, why impose a fine at all? Shareholders Deceived If the point is to deter wrongdoing, it should be assessed against the people responsible, not some corporate entity, Rakoff wrote. But the SEC sued only the bank, which Rakoff concluded misled investors about mammoth Merrill losses and about Merrill’s bonuses. At least he pushed for the fine to be tailored so that only former Merrill shareholders would pay it and the bank’s shareholders would receive it, except for directors and officers. That doesn’t solve the fundamental problem. Merrill shareholders didn’t cause the misrepresentations, though they benefited from them by getting more than their shares were worth. Yet Rakoff can’t fine the specific culprits because the SEC didn’t sue any people. Cuomo Names Names Cuomo did. The state’s lawsuit specifically blames former bank President Kenneth Lewis and ex-Chief Financial Officer Joseph Price . Because the SEC didn’t, they weren’t part of the settlement and weren’t standing before Rakoff for judgment in federal court. The real culprit in Rakoff’s order is the SEC, for its habit of going after corporations instead of taking on the tougher task of naming individual managers, says John C. Coffee Jr. , securities law professor at Columbia University. He hopes the SEC realizes that punishing shareholders only tarnishes its reputation as an enforcer. How much stronger the message if Rakoff had rejected any and all monetary penalties against the bank. Think of the headlines that would have produced, the people forced to ponder whether it makes sense to slam corporations and shareholders but not the individual deciders. That is what James Cox , securities law professor at Duke University, says should have happened to spare investors a double whammy. Managers Get Off “Why should they have to pay for the ineptitude of their managers, when they are the victims?” he asks, adding that he doesn’t necessarily believe ineptitude explains what happened. Cuomo calls it fraud, albeit civil fraud not criminal. His suit blames it on “self-interest, greed, hubris and a palpable sense that the normal rules of fair play don’t apply.” The funny thing is that Rakoff’s ruling could signal that Cuomo’s claims lack substance. The judge sifted through mounds of Cuomo’s investigative documents to see whether the SEC had ignored evidence of intentional fraud. He also hoped to explain the vastly different versions of events offered by Cuomo, the bank and the SEC. After doing all that, Rakoff determined that the SEC had acted reasonably. He found “substantial evidence” that the bank’s misleading statements resulted from mere negligence, not intentional lying. Taking No Sides And even though Rakoff made it clear he wasn’t deciding which version was true, or whether one side had more evidence than the other, surely Lewis and Price took some solace. This is a judge who wanted names to be named, but he stepped back from the chance. Rakoff gave a credible explanation for keeping his thumb off the scales. It isn’t his job to rule on Cuomo’s case. And yet, I can’t help but notice that Rakoff’s seemingly neutral finding said there is solid ground on which the defense can stand. If the SEC had named individuals, even if only for negligence, Rakoff wouldn’t have had to go through such contortions. On page 14 of his 15-page ruling, Rakoff says judicial restraint prevents him from slapping down the settlement, as unsatisfying as it is. And yet, what a grand way to get the message heard. Keep the corporate governance measures, strengthen them if you can and kick out the fine. The way to punish corporate wrongdoers is to punish the wrongdoers, not the shareholders who are the corporation. ( Ann Woolner is a Bloomberg News columnist. The opinions expressed are her own.) Click on “Send Comment” in sidebar display to send a letter to the editor. To contact the writer of this column: Ann Woolner in Atlanta at awoolner@bloomberg.net .

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Masa’s $68 Tuna, Mina’s Turbot Make Vegas Casual Dining Fancy: Ryan Sutton

February 24, 2010

Review by Ryan Sutton Feb. 24 (Bloomberg) — Vegas needs fewer high-end dining venues with tasting menus and white tablecloths, and more New York-style neighborhood spots like Fatty Crab or Momofuku. Ambitious fare in casual settings with reasonable prices. While I have no qualms about my excellent $300 plus solo meals at fancy French joints like Savoy and Joel Robuchon, I wish I’d spent more time at more affordable joints like Michael Mina’s American Fish. I look at the menu and think: Why didn’t I try Mina’s $26 abalone and Kobe hot pot? Instead, I went for the $500 tasting at Shaboo downstairs. Regrets indeed. American Fish is hidden within the depths of the sprawling Aria Resort & Casino , part of the $8.5 billion CityCenter complex. The restaurant is as loud as an Irish bar and as dark as a nightclub. Its decor is as drab as a shopping mall’s — some of the seats overlook a brightly lit section of Aria. But it serves a piscine dish that wouldn’t be out of place at say, Alain Ducasse ’s Louis XV in Monaco. The turbot was poached in ocean water, barely cooked through. It sat in a bowl of clear, saffron-flavored broth that tasted like a pristine bouillabaisse. Even came with a rouille- topped cracker for dipping. Bottled Ocean One tiny issue: There’s no ocean in Vegas. Mina ships the aqua in from Hawaii. This has prompted some criticism about sustainability and jet-fuel usage. If that’s how you feel, don’t bother coming to Vegas, because not much is local in this desert town. If you’ve ever tried the horrific tap water here, you’ll know why people drink bottled water. So yes, Mina should stick with the Hawaiian water, especially for a dish this good. It’s not cheap at $42, but it’s enough meat to feed two. Mina is probably the most famous U.S. chef New Yorkers have never heard of. He has 17 restaurants from California to New Jersey, but none in New York. My companion, a Vegas local who’s sampled most of Mina’s West Coast venues said American Fish ranks with his best. Mustard-marinated cod ($43 — also enough for two) was as good as the miso version at Nobu. Raw sweet shrimp was spiced with horseradish panna cotta; don’t use too much of the cream, which can overwhelm. Scallops and foie gras? We’ve seen this pairing at Aureole (also in Vegas). Except here it actually worked — rare, delicate shellfish beneath rare, jiggly liver. Mina says, somewhat pompously, that American Fish has one of the best cocktail programs in Vegas. And I think he might be right. So finish off with a Knickerbocker ($11), a sweet-sour mix of Curacao, rum, lemon juice and raspberry syrup. The lost libation might have been the ancestor of modern Tiki drinks. Forget tablecloths; that’s the type of old-school charm Vegas needs. Bar Masa My second regret about Vegas is that I didn’t bring Bar Masa’s Kobe skewers to snack on my flight home. (My JetBlue flight didn’t have meal service.) Aria hosts the second location of Masa Takayama ’s eponymous sushi bar, which, like the original, oddly lacks a proper sushi bar. In fact, it’s not really a bar either. It’s a gorgeous, high-ceilinged restaurant that evokes an ultra-modern, silent nighttime garden in Tokyo. The Michelin three-starred chef gravitates toward shopping malls (his $400 per person raw fish temple is at New York’s Time Warner Center) and now casinos. Sit at the front counter and shell out $35 for the Kobe skewers. The addictive little sticks ooze beefy fat that yield to a stinging, salty yuzu spice. Tuna belly rolls ($68) are so wonderfully rich you wonder if these tuna died from high cholesterol. Order more. Kabayaki barbecue sauce coats about a foot’s worth of eel. Order three different mackerel sushi for a clever study in oil. But if Masa wants to preserve his ultra- luxury brand, he might want to consider adding a sushi chef to prepare them piece by piece and brush them with sauce in front of you. Otherwise, Bar Masa is just a better version of the more industrial Blue Ribbon chain. The Bloomberg Questions Cost? Plates in the teens to over $100 at both. Sound level? 80 decibels at American Fish, as loud as a baseball game; quiet as a library at Bar Masa. Date place? Yes to both. Inside tip? Stellar cocktail program at American Fish. Special feature? Try Shaboo next door to Bar Masa for $500. Will I be back? To American Fish. There’s a Bar Masa here in New York. American Fish and Bar Masa are at the Aria Resort & Casino in the CityCenter complex, 3730 Las Vegas Blvd., Las Vegas. Information: +1-866-359-7111; http://www.arialasvegas.com Sound-Level Chart (in decibels): 51 to 55: A church on a weekday. 56 to 60: The vegetable aisle at the Food Emporium. 61 to 65: Keyboards clacking at the office. 66 to 70: My alarm clock when it goes off inches from my ear. 71 to 75: Corner deli at lunchtime. 76 to 80: Back of a taxi with announcements at full volume. 81 to 85: Loud crowded subway with announcements. ( Ryan Sutton writes about restaurants for Bloomberg News. The opinions expressed are his own.) To contact the writer of this column: Ryan Sutton in New York at rsutton1@bloomberg.net .

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Morgan Stanley’s Mack, Clooney Help Resourceful Charities Beat Recession

February 24, 2010

By Patrick Cole Feb. 24 (Bloomberg) — George Clooney worked the phones day and night to produce a telethon last month that raised $66 million for Haitian earthquake victims. Actor Alyssa Milano asked for donations instead of presents for her birthday party and raised $92,000 for charity: water , a New York nonprofit that builds wells in developing countries. Morgan Stanley Chairman John Mack and Chief Executive Officers Leslie Moonves of CBS Corp. and Frank Bennack of Hearst Corp. helped Partnership for a Drug Free America raise $2 million at its December gala, topping the organization’s goal by $500,000. With the U.S. in a severe economic slump, nonprofit groups must work harder to raise money and find new ways to reach patrons. While some are focusing on wealthy executives and celebrities, others are utilizing social network sites such as Facebook to reach a younger audience. “The nonprofits that ask more people for donations are the ones that are succeeding,” Stacy Palmer , editor of the Washington-based Chronicle of Philanthropy, said in a phone interview. “They just have to work harder at it.” Declining Donations Charitable donations by U.S. corporations may decline by up to 10 percent in 2009, according to Melissa Berman , chief executive officer of Rockefeller Philanthropy Advisors in New York. In 2008, those companies gave away $14 billion. “The organizations that come to us are run like a business, and they have to show that they can have an impact,” said Shannon Schuyler, corporate responsibility leader for the Americas at PricewaterhouseCoopers LLP in Chicago. “They didn’t come to us saying, ‘We’re having hard times, write us a check.’” Dozens of cultural organizations have shut down over the past two years, including the Fresno Metropolitan Museum in California, the Milwaukee Shakespeare Co. and the Las Vegas Art Museum. However, the economic downturn didn’t stop charity: water from boosting donations to $9 million in 2009, a 30 percent increase over the previous year. Facebook and Twitter have helped the 4-year-old nonprofit build a list of 80,000 donors, President Scott Harrison said in a phone interview. “A number of charities make the mistake of not continuing an aggressive fundraising approach,” said William Woodson, managing director and head of family wealth management for Credit Suisse Private Banking USA in Chicago. “We found that those that retained a rigorous approach were exceedingly effective.” Bigger Pledge Persistence paid off for the Lupus Research Institute in New York. After a regular donor pledged $50,000 instead of the $100,000 that was requested, director of major gifts Dorey Neilinger called him and managed to increase the donation to $75,000. Then Margaret Dowd , the institute’s chief executive, followed up with another call that resulted in the full $100,000 pledge. “It’s the cause and the mission that makes these gifts possible, and we never give up,” Dowd said in a phone interview. Showing donors that their money will be used for an important cause is essential in a recession, said Joel Simon , executive director of the New York-based Committee to Protect Journalists . Explaining how his nonprofit aids imprisoned and tortured journalists helped convince Microsoft Corp . to buy a $25,000 table at the organization’s November gala, Simon said. Santa Barbara The Santa Barbara Bowl Foundation, which raises money to renovate the California city’s 74-year-old outdoor amphitheater , received a $250,000 gift from a donor in November after board chairman Paul Dore made a personal pitch. Dore, a managing director at Santa Barbara Asset Management and a former Credit Suisse wealth manager, showed the patron the architect’s blueprint for renovating the facility. “Donors said, ‘I see what you’re doing, and we’re on board,’” Dore said. “We lead horses to water and hope they drink.” To contact the writer on this story: Patrick Cole in New York at pcole3@bloomberg.net .

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Nine Irons Breaking Windows Beats Party of No: Margaret Carlson

February 23, 2010

Commentary by Margaret Carlson Feb. 23 (Bloomberg) — In living color and surround sound, straight from the ballroom of the Marriott in Washington, a production that portends either the coming world domination of the Republican Party or its crack-up. At the largest Conservative Political Action Conference ever this past weekend, where attendance was up 20 percent (more than half were young people paying $25 instead of the standard $175 registration fee), you could see the pragmatists and purists in full flower. There’s a guy wearing a plastic sheet with an AK-47 (or Uzi, I can’t tell the difference) on the back and too many “Don’t Tread on Me” hats and T-shirts to count. Paraphernalia aplenty for whatever your beef against government might be. You have folks in the exhibition hall pushing guns, abstinence, secession, tax protests and militias. The John Birchers, who labeled Dwight Eisenhower a communist, had a big booth. On the agenda are all the stars of the political right — Dick Armey , Newt Gingrich , Ann Coulter and Glenn Beck , joined by conservatives from Congress, like Representative Michele Bachmann . Most of the Republican presidential hopefuls for 2012 also were there. They need the energy of the whooping crowd, but they also want to win. For Republicans, the path back to power requires that the coalition be enlarged. They may be the Party of No but they aren’t nihilists. Elections are won by putting the poles of your tent as far out as possible, even if it sags in the middle. But for the CPAC crowd, ideological purity is the road to recovery. They’d like to limit membership to those willing to submit a strand of hair to prove their DNA is 100 percent conservative. Rubio’s Star Inside the hall, a candidate for the Senate like Marco Rubio got a rousing but at times muted reception when he talked policy. A rising star, he appeals to insiders as a former speaker of the Florida House. Yet he also attracts outsiders who like his anti-government rhetoric and up-from-the-bootstraps origins as a Cuban-American. He made his moderate opponent, former Governor Charlie Crist , a laughing stock for man-hugging Barack Obama when the president came to Fort Myers to push the stimulus bill. He also — unlike Massachusetts Senator Scott Brown — warmly and publicly embraced the tea partiers. When Rubio was throwing red meat, the crowd went wild. When he wasn’t and touched on governing, the room grew quiet and restive. The crowd wanted tax cuts and nothing but tax cuts. He’s still leading in the primary against Crist but the ardor cooled when he said in a recent interview that he would have taken the stimulus money for his struggling state. Strange Bedfellows Looking at the agenda, you have to wonder what prime-time speakers like Fox News star Beck and presidential aspirant Mitt Romney have in common. The latter’s hair never moves, the former’s mouth never stops. Beck refrained from barking during his speech, the most popular of the event. His trademark chalkboard got a standing ovation. He did make chomping sounds as he attacked the very thought of letting infidels into the fold. Beck’s idea, the prevailing one at the gathering, brooks no compromise or fair-weather friends like Romney, who tries to pass himself off as one of them by disavowing the beliefs he held as governor of Massachusetts. To that point, Romney, considered by many pundits to be the leading contender in 2012, lost the convention’s straw poll. It doesn’t mean much as Romney, who won it last year, can tell you. This year, Texas Republican Representative Ron Paul , who ran in 2008 and is a hero of campus conservatives, won with 31 percent. If the movement could put together a candidate limb by limb, Paul would be it all the way down to abolishing the Federal Reserve. Romney did come in second with 22 percent, while Sarah Palin was a distant third with 7 percent. Take the Money That paltry showing has to be a case of be-there-or-be- square for the reigning queen of the conservative movement. Palin turned down the invitation of CPAC, which doesn’t pay its speakers, in favor of the National Tea Party Convention, which did. Minnesota Governor Tim Pawlenty , one of the more viable hopefuls for 2012, embodied the dilemma of trying to govern and be angry enough to appeal to the base of the party. The diminutive Pawlenty urged his audience to emulate Tiger Woods ’s wife: “We should take a page out of her playbook and take a nine iron and smash the window out of big government in this country.” ‘We’re in Trouble’ The comment came up later on “Meet the Press.” “With that kind of rallying cry,” host David Gregory asked, “do you really expect people to take you seriously?” Pawlenty deflected his out-of-character moment, saying, “If we’ve gotten to the point where you can’t make a joke, I think we’re in trouble.” Beck whose hour-long speech ended the conference demonstrated the difference between this year and last when headliner Rush Limbaugh , in Johnny Cash garb, bounced his way through a speech devoted to jibes at the common enemy, Obama. The common attack against Obama this year was about his teleprompter usage — by speakers using teleprompters. In his speech, Beck’s enemy wasn’t Obama but the GOP, which he likened to a newbie at Alcoholics Anonymous taking the first of the 12 steps. “Hello, my name is the Republican Party, and I got a problem. I’m addicted to spending and big government.” We know what happened in 2000 when Green Party candidate Ralph Nader , at heart a Democrat, saw no differences where there were many. Purity tests are for losers. ( Margaret Carlson , author of “Anyone Can Grow Up: How George Bush and I Made It to the White House” and former White House correspondent for Time magazine, is a Bloomberg News columnist. The opinions expressed are her own.) Click on “Send Comment” in the sidebar display to send a letter to the editor. To contact the writer of this column: Margaret Carlson in Washington at mcarlson3@bloomberg.net

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Live Terrorists Are Worth More Than Dead Ones: Celestine Bohlen

February 22, 2010

Commentary by Celestine Bohlen Feb. 23 (Bloomberg) — The good news last week was that the Americans, with the help of the Pakistanis, didn’t kill a top Taliban commander. They captured him instead. Alive, Mullah Abdul Ghani Baradar might reveal some valuable information. Dead, he would be just one of some 20 al- Qaeda or Taliban fighters who have been picked off by Predator drones armed with Hellfire missiles launched by the U.S. military or the Central Intelligence Agency. The Taliban isn’t listed as a terrorist group yet, though it has harbored al-Qaeda members for years. The Obama administration has stepped up these kinds of remote-control bombardments, launching at least 64 drone strikes within Pakistan in its first 13 months; in its last three years, the Bush administration unleashed 41, according to an analysis by the New America Foundation. The U.S. doesn’t like to think of itself as being in the assassination business, which is why the preferred term is “targeted killings.” Either way, this growing practice involves large legal and moral questions that should loom large, but don’t — not compared with the outcry over coercive interrogation or extraordinary renditions. How many terrorists have been killed? How many innocent civilians? The CIA program is shrouded in secrecy, and therefore virtually unaccountable. Information about the strikes is often second-hand; mistakes aren’t always reported. One study , published last May, cited Pakistani sources who claim more than 700 civilians have been killed by drones, or 50 civilians for every terrorist — a shocking ratio that explains why public opinion in Pakistan is so outraged. Death-by-Drone Yet, targeted killings have barely penetrated U.S. consciousness, let alone its conscience. You didn’t hear human- rights groups or congressmen raise their voices over last month’s death-by-drone of Hakimullah Mehsud, a 28-year-old Taliban leader from Pakistan’s province of Waziristan accused of orchestrating the Dec. 30 suicide attack that killed seven CIA operatives. There are reasons to support targeted killings, up to a point. It’s sometimes the only viable way to nab top terrorists, known killers like Mehsud, particularly those who have found refuge in chaotic regions such as Yemen, Somalia or Waziristan, where local governments are powerless to carry out arrests. That said, it is still a second-best policy. Dead men don’t talk; they make good martyrs; they are easily replaceable in decentralized organizations like al-Qaeda or the Taliban — just a few reasons why capturing enemies such as Baradar is always better than killing them. 1976 Ban The U.S. still has a ban on political assassinations, adopted in 1976 after the CIA’s botched attempts at political murder. That ban has been eroded by the war on terrorism, but there’s no question that the quickening shift to targeted killings makes it hard for the U.S. government to take the high ground when other countries — say, Russia or Israel — send hit squads after their political enemies. While Americans may know nothing about the innocent civilians who have died in drone attacks in remote Pakistani villages, the families, neighbors and countrymen of the victims have no doubt about who was behind the unmanned killers. In the long run, their anger is more likely to be a boon for the terrorists, than any help to U.S. counterterrorism efforts. Hellfire Missiles Robotics already changed the way we fight wars, just as gunpowder, fighter bombers and nuclear weapons did in the past. This time, the change is set to fast forward. When the U.S. invaded Iraq in 2003, it had only a handful of unmanned systems in the air, none of them armed. Today, the U.S. has more than 7,000 such systems, ranging from 48-foot-long Predators packed with Hellfire missiles to micro-aerial vehicles that fit in a soldier’s backpack. According to P.W. Singer, author of “Wired for War: The Robotics Revolution and Conflict in the 21st Century,” robotics is one of the fastest-growing sectors in the aerospace industry, now in development in 44 countries. Innovations like the Reaper, a smarter more heavily armed version of the Predator, have already made our old definitions of war outdated. “We have the equivalent of a war being conducted in Pakistan, and yet no one views it as a war,” Singer said. “This technology can be very seductive, because it is seen as ‘costless,’ but there are long-term costs, and no one is weighing them.” In a 2006 study of Israel’s history of aggressively pursuing and killing its enemies, Dan Byman , director of Georgetown University’s Center for Peace and Security Studies, found that the Israelis, who faced a constant threat of terrorism, decided that the benefits of their policy outweighed the costs, which included heavy international condemnation. His advice then was that it would be “a mistake for the United States to rush too far down Israel’s path” without careful scrutiny, and public debate. Since then, the U.S. has stepped up its “targeted killings” but so fаr, no one has opened the debate. ( Celestine Bohlen is a Bloomberg News columnist. The opinions expressed are her own.) Click on “Send Comment” in the sidebar display to send a letter to the editor. To contact the writer of this column: Celestine Bohlen in Paris at cbohlen1@bloomberg.net

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Stimulus Tab of $41,800 Waits for Wall Streeters: Kevin Hassett

February 22, 2010

Commentary by Kevin Hassett Feb. 22 (Bloomberg) — While President Barack Obama goes on about the success of his economic stimulus, the latest policy developments suggest Democrats are finally backing away from his radical Keynesianism. Even Democrats, it seems, have concluded that the stimulus of 2009 was a big waste of money, and that better approaches exist that can do more and cost less. The truth is, economic stimulus is like a very expensive box of chocolates. You get a sugar high, and a caffeine rush, but when the chocolates are gone, you have nothing but fat to show for it. You are worse off than you were before and still need to find real nutrition. According to the latest estimate by the Congressional Budget Office, the U.S. stimulus sugar high will cost $862 billion by 2019. The excessively optimistic administration estimate is that the stimulus created 2 million jobs last year. If we take that high number at face value — there are plenty of reasons not to — and given that roughly one-quarter of the stimulus funds have been exhausted, then each job has cost about $100,000. To put that in perspective, if instead the government had used the stimulus to hire individuals at the going median wage of $37,115, it could have created more than 23 million new jobs. So much for the supposed Keynesian multiplier effect. From now on, it should be called the Keynesian divisor. Paying the Bill Ultimately, American taxpayers are going to have to pay the bill for the stimulus, and it is a steep one. For the average taxpayer, the bill is $7,798. Of course, the final bill will not be spread evenly across taxpayers, because the rich pay a disproportionate share. Assume the burden is distributed the same as the current income tax. If your income is between $40,000 and $50,000, you will pay about $2,600 for the stimulus. If your income is between $75,000 and $100,000, you will pay $6,500. If you are lucky enough to have an income of between $200,000 and $500,000, your bill will be $41,800. Small wonder that Democrats are so unpopular right now, and that they are looking for a better way. A New York Times/CBS News Poll this month found that only 6 percent of Americans believe that the year-old stimulus package has created any jobs. (A remarkably patient 41 percent said it hasn’t created jobs, but still will.) Meantime, policy makers are still looking at a catastrophically bad labor market that needs all the help it can get. Brown’s Message The message of Republican Senator Scott Brown’s victory in Massachusetts is clear: Voters don’t want to waste our last pennies on another expensive sugar high. They are crying out for bipartisan support for fixes that work, at a reasonable price. The good news is that even Democrats now recognize this. There has been progress behind the scenes looking for sensible alternatives to expense-account Keynesianism. A middle-of-the- road consensus is beginning to form around pragmatic approaches to the jobs crisis that cost a lot less and carry a big bang for the buck. My favorite example is a little-known program folded into last year’s stimulus package that is targeted for a big expansion because it actually has worked. It is based on the observation that it is cheaper to create jobs directly. The Emergency Contingency Fund , amended to the federal program called Temporary Assistance for Needy Families, provides funding for states to temporarily cover a portion of workers’ wages in both public and private jobs. The federal program reimburses states 80 cents for each additional dollar they spend getting a person back to work. Over time, as the worker’s reattachment to the labor force becomes stronger, the federal money is taken away. Private Is Best As many as 29 states have or are developing employment programs funded through this program, and some estimates show as many as 120,000 subsidized jobs could be created, at a cost of only $10,000 to $20,000 each. At that rate, the government could create 2 million jobs — the amount Obama asserts were created by the stimulus — for somewhere in the range of $30 billion. And the best part is that many of these jobs will likely be in the private sector. A strong sign of how much things have changed for the better is the focus of House Democrats on this limited but powerful measure. A bill sponsored by representatives Jim McDermott of Washington and Judy Chu of California would make funds available for an additional year. Given the state of the labor market, it is hard to imagine how any sensible person could oppose such a move. It is a shame that such common sense was absent last year. If they are to be more than the party of no, Republicans need to rally around the Democrats who have shown such reserved pragmatism. While they do, Obama can continue to crow about his amazing stimulus, but fewer and fewer people will notice. ( Kevin Hassett , director of economic-policy studies at the American Enterprise Institute, is a Bloomberg News columnist. The opinions expressed are his own.) Click on “Send Comment” in the sidebar display to send a letter to the editor. To contact the writer of this column: Kevin Hassett at khassett@bloomberg.net

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`Next Greece’ Search Is on as Hedge Funds Circle: William Pesek

February 22, 2010

Commentary by William Pesek Feb. 22 (Bloomberg) — The search for the next Greece is finding its way to an unlikely place: Japan . Few here gave much weight to warnings by analysts like Makoto Noji of Mizuho Securities Co. about the second-biggest economy facing “next-Greece” speculation. That was until Japan’s central bank chief hinted at a similar risk. Governor Masaaki Shirakawa last week called on Prime Minister Yukio Hatoyama to contain the world’s largest debt with a warning that investor trust won’t be assured in the aftermath of Greece’s budget woes. It was an extraordinary comment. Politicians routinely slap the Bank of Japan around; it’s jaw- dropping to see the BOJ return the favor. The BOJ head is right to put a spotlight on the fiscal train wreck that could be Japan’s $4.9 trillion economy. That’s especially so now that the Federal Reserve is on the move. Its discount-rate increase last week telegraphed what Japan has been dreading: rising global bond yields that exponentially boost debt-servicing costs. Unlike Greece, Japan prints its own currency, controls its own monetary policy, has a current-account surplus and roughly $15 trillion of household savings it can tap when things get dicey. More than 90 percent of government bonds are held domestically, eliminating capital-flight risks. Worrisome Trifecta Yet Japan faces a worrisome trifecta of challenges in the years ahead: Deflation, lopsided demographics, and ratings companies casting a wary eye its way. Deflation is worsening, as evidenced by the 3 percent drop in the gross domestic product deflator in the fourth quarter. It was the biggest drop since records began in 1955, and showed the extent to which 2010 will be a bumpy year. The steady drumbeat of damaging news about Toyota Motor Corp. and Japan Airlines Corp. is already wreaking havoc with the Japanese psyche. Now, headlines about deepening deflation are likely to further depress household spending. While Japan’s rapidly aging population is a concern in the long run, credit raters are paying ever more attention to the dynamic. Last month, Standard and Poor’s warned that it may cut the nation’s AA rating. An actual downgrade can’t be far off. Hatoyama has yet to outline any plans to repair Japan’s finances. The risk is that closer scrutiny of Europe’s debt woes increasingly shifts attention to Japan. The government , after all, is preparing to sell a record amount of bonds to fund its largest budget ever for the year starting April 1. Market Collapse Japanese officials may be tempted to seek Goldman Sachs Group Inc.’s help in hiding debt off the balance sheet, as did the Greeks. Yet the news is out on that Enron-like tactic. There’s little time to waste in figuring out how to maintain a high level of borrowing without spooking markets. As officials in Tokyo weigh their options, hedge-fund managers like David Einhorn of Greenlight Capital Inc. are betting on a Japanese bond-market collapse. Some rise in Japanese yields is a given. Ten-year bonds yield all of 1.32 percent, compared with 3.77 percent in the U.S. and 4.17 in the U.K. Yet when your outstanding debt load is double the size of your economy, even a modest spike in rates will hurt. The yen is a wild card here. Will waning confidence in Japan’s finances lead to a plunging yen? Manufacturers would love a weaker exchange rate, yet a run on the currency could destabilize Japan as it would any economy. Deflation Risks “Japan has essentially said deflation will be a feature of the economy for at least a couple more years,” says Glenn Maguire , chief Asia-Pacific economist at Societe Generale SA in Hong Kong. “That means rates aren’t going higher and the yen will be weaker. The only question is how weak.” The Fed’s move to raise the rate charged to banks for direct loans by a quarter-point to 0.75 percent boosted the dollar. As the Fed and BOJ move in opposite directions — the Fed removing liquidity, the BOJ adding it — then yen will slide. The key is to keep the trend orderly and manageable. The yen could also take some hits as tensions rise between the BOJ and the government. Last week, Finance Minister Naoto Kan turned up the heat, urging the central bank to adopt an inflation target to stabilize falling prices. Shirakawa shot back with his call for fiscal responsibility. It would be better, of course, to fight things out behind closed doors. More likely, this tit-for-tat match between fiscal and monetary policy makers will intensify as the year unfolds. And that’s a very telling state of affairs. Grim News Truth is, Japan still has no strategy for growing without the help of massive borrowing and near-zero rates. Hopes that Hatoyama’s election win in August would bring new thinking to old problems have been dashed. The upshot is more of the same — debt sales and a return to the quantitative easing policies the BOJ scrapped in 2006. All the while, reforms needed to raise Japan’s competitiveness amid China’s rise are being put off. Expect ever more debt, higher yields and less growth. Even if Japan isn’t the next Greece, its debt trajectory is anything but pretty. That’s grim news for investors. ( William Pesek is a Bloomberg News columnist. The opinions expressed are his own.) Click on “Send Comment” in the sidebar display to send a letter to the editor. To contact the writer of this column: William Pesek in Tokyo at wpesek@bloomberg.net

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`Next Greece’ Search Is on as Hedge Funds Circle: William Pesek

February 22, 2010

Commentary by William Pesek Feb. 22 (Bloomberg) — The search for the next Greece is finding its way to an unlikely place: Japan . Few here gave much weight to warnings by analysts like Makoto Noji of Mizuho Securities Co. about the second-biggest economy facing “next-Greece” speculation. That was until Japan’s central bank chief hinted at a similar risk. Governor Masaaki Shirakawa last week called on Prime Minister Yukio Hatoyama to contain the world’s largest debt with a warning that investor trust won’t be assured in the aftermath of Greece’s budget woes. It was an extraordinary comment. Politicians routinely slap the Bank of Japan around; it’s jaw- dropping to see the BOJ return the favor. The BOJ head is right to put a spotlight on the fiscal train wreck that could be Japan’s $4.9 trillion economy. That’s especially so now that the Federal Reserve is on the move. Its discount-rate increase last week telegraphed what Japan has been dreading: rising global bond yields that exponentially boost debt-servicing costs. Unlike Greece, Japan prints its own currency, controls its own monetary policy, has a current-account surplus and roughly $15 trillion of household savings it can tap when things get dicey. More than 90 percent of government bonds are held domestically, eliminating capital-flight risks. Worrisome Trifecta Yet Japan faces a worrisome trifecta of challenges in the years ahead: Deflation, lopsided demographics, and ratings companies casting a wary eye its way. Deflation is worsening, as evidenced by the 3 percent drop in the gross domestic product deflator in the fourth quarter. It was the biggest drop since records began in 1955, and showed the extent to which 2010 will be a bumpy year. The steady drumbeat of damaging news about Toyota Motor Corp. and Japan Airlines Corp. is already wreaking havoc with the Japanese psyche. Now, headlines about deepening deflation are likely to further depress household spending. While Japan’s rapidly aging population is a concern in the long run, credit raters are paying ever more attention to the dynamic. Last month, Standard and Poor’s warned that it may cut the nation’s AA rating. An actual downgrade can’t be far off. Hatoyama has yet to outline any plans to repair Japan’s finances. The risk is that closer scrutiny of Europe’s debt woes increasingly shifts attention to Japan. The government , after all, is preparing to sell a record amount of bonds to fund its largest budget ever for the year starting April 1. Market Collapse Japanese officials may be tempted to seek Goldman Sachs Group Inc.’s help in hiding debt off the balance sheet, as did the Greeks. Yet the news is out on that Enron-like tactic. There’s little time to waste in figuring out how to maintain a high level of borrowing without spooking markets. As officials in Tokyo weigh their options, hedge-fund managers like David Einhorn of Greenlight Capital Inc. are betting on a Japanese bond-market collapse. Some rise in Japanese yields is a given. Ten-year bonds yield all of 1.32 percent, compared with 3.77 percent in the U.S. and 4.17 in the U.K. Yet when your outstanding debt load is double the size of your economy, even a modest spike in rates will hurt. The yen is a wild card here. Will waning confidence in Japan’s finances lead to a plunging yen? Manufacturers would love a weaker exchange rate, yet a run on the currency could destabilize Japan as it would any economy. Deflation Risks “Japan has essentially said deflation will be a feature of the economy for at least a couple more years,” says Glenn Maguire , chief Asia-Pacific economist at Societe Generale SA in Hong Kong. “That means rates aren’t going higher and the yen will be weaker. The only question is how weak.” The Fed’s move to raise the rate charged to banks for direct loans by a quarter-point to 0.75 percent boosted the dollar. As the Fed and BOJ move in opposite directions — the Fed removing liquidity, the BOJ adding it — then yen will slide. The key is to keep the trend orderly and manageable. The yen could also take some hits as tensions rise between the BOJ and the government. Last week, Finance Minister Naoto Kan turned up the heat, urging the central bank to adopt an inflation target to stabilize falling prices. Shirakawa shot back with his call for fiscal responsibility. It would be better, of course, to fight things out behind closed doors. More likely, this tit-for-tat match between fiscal and monetary policy makers will intensify as the year unfolds. And that’s a very telling state of affairs. Grim News Truth is, Japan still has no strategy for growing without the help of massive borrowing and near-zero rates. Hopes that Hatoyama’s election win in August would bring new thinking to old problems have been dashed. The upshot is more of the same — debt sales and a return to the quantitative easing policies the BOJ scrapped in 2006. All the while, reforms needed to raise Japan’s competitiveness amid China’s rise are being put off. Expect ever more debt, higher yields and less growth. Even if Japan isn’t the next Greece, its debt trajectory is anything but pretty. That’s grim news for investors. ( William Pesek is a Bloomberg News columnist. The opinions expressed are his own.) Click on “Send Comment” in the sidebar display to send a letter to the editor. To contact the writer of this column: William Pesek in Tokyo at wpesek@bloomberg.net

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Swaps Sleuths Are the Fix for Too Tangled to Fail: David Reilly

February 18, 2010

Commentary by David Reilly Feb. 19 (Bloomberg) — For all the hand-wringing over too- big-to-fail banks, there is at least one simple solution: shrink them. A more vexing question is how to deal with links between firms, and markets, that can pose even bigger threats. While “too big” can be defined by, say, assets, or deposits, it is hard, if not impossible, to spot connections that will spawn financial havoc. The government didn’t expect Lehman Brothers Holdings Inc. ’s collapse to cause a run on money market funds, and no one foresaw that American International Group Inc. could endanger the likes of Goldman Sachs Group Inc. or Societe Generale due to credit default swaps. That is why legislation introduced in the Senate earlier this month to create an agency to map ties among firms while also assessing threats is a good first step toward dealing with too-tangled-to-fail banks. The plan becomes even more important given a possible agreement between senators and the Obama administration to create a council of regulators to oversee the financial system, as the New York Times reported Wednesday. That council — likely to include regulators such as the Federal Reserve, Federal Deposit Insurance Corp., Office of the Comptroller of the Currency and the Treasury Department — will need unbiased, wide-ranging data and analysis that goes well beyond what regulators have today. This is why legislation to create a data-gathering agency — introduced by Rhode Island Democratic Senator Jack Reed — would prove vital in making any new regulatory set-up work. Who Gets Hit Although regulators now get all sorts of data from financial firms, it’s not in a form that can be easily shared. Nor does it, in most cases, dig down to the level of individual loans and transactions. Data also isn’t standardized. So regulators can’t quickly pull together information from across Wall Street to, say, assess who would get hit if a particular company, financial product or market blew up. Firms’ interconnectedness, and our lack of knowledge about it, was repeatedly raised as a deep-seated danger during a Senate Banking Committee hearing earlier this month. “It isn’t the balance sheet of the bank that’s a problem,” testified former Citigroup Inc. Chief Executive John Reed . “It’s the interconnectedness of one financial institution with virtually all other financial institutions.” After all, hedge fund Long-Term Capital Management, which blew up in 1998, required a bailout overseen by the Fed not because of its size, but because its trades linked it to almost every firm on Wall Street. The huge growth in financial derivatives, especially credit-default swaps and interest-rate swaps, has only made this issue more acute. Mapping the Universe Reed’s bill wouldn’t look to end connections among firms. It would instead try to map them by giving the new agency the power to require standardization of transaction data, which financial firms would then have to turn over to the new agency. This would help the firms and regulators get a better picture of who may lose if someone goes under. Then the plan is that the new agency would analyze the across-the-Street data it collects to map markets and identify potential hot spots. The proposal is the brainchild of a group of academics, economists and regulators who formed a volunteer committee to push what they dubbed the National Institute of Finance. Ideally, such an agency would gather quants, numbers geeks, data hounds and just plain old, outside-the-box thinkers who, instead of creating the kind of financial models that lead to bubbles, would spot disaster before it strikes. Weather Forecasts Two of the main backers of such an institute — John Liechty , an associate professor of business at Penn State University, and Allan Mendelowitz , a former director of the Federal Housing Finance Board — have compared it to the National Oceanic and Atmospheric Administration , which houses agencies such as the National Weather Service. “Our financial markets are at least as important and as complicated as the weather,” Liechty testified last week before a Senate Banking subcommittee hearing on such an agency. “If that’s the case why don’t we have the equivalent of NOAA for the financial markets?” Any new agency will only work, though, if it is independent. That is why it needs to be housed outside existing regulators such as the Fed, which have their own biases and often-times parochial views. ‘Speak the Truth’ As Liechty testified, “You need to have somebody who has the ability to speak the truth in the middle of a crisis or in the buildup to a crisis.” Independence is one potential short-coming of Reed’s bill, though. While it calls for the agency’s director to serve a 15- year term, it also creates a board that includes the Treasury Secretary and heads of regulatory agencies. That opens the door to political interference. There will also be complaints about costs. Yet by mandating standardized data terms, such an agency may help banks and other financial firms cut back-office and information-technology costs. Of course, even if the new agency works perfectly, there’s no guarantee it would prevent future crises. For starters, regulators have to be willing to act on warnings. It’s also dangerous to put much faith in the ability of complex financial models to predict risk. Plus, secretive regulators, like the Fed, will likely push to keep much of the information this new agency would generate under wraps. That would be a mistake. If investors, along with regulators, have a better grip on the connections between firms they will be better able to price risks, or steer clear of them altogether. That is the real goal. Because ultimately we can’t eliminate linkages among firms that form the basis of markets. We can, though, try to manage them. To do that, we first need someone to independently measure them. Otherwise, any new council of regulators will be flying blind. ( David Reilly is a Bloomberg News columnist. The opinions expressed are his own.) Click on “Send Comment” in the sidebar display to send a letter to the editor. To contact the writer of this column: David Reilly at dreilly14@bloomberg.net

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Google’s Microsoft Takedown Helped by Rivals: Rich Jaroslovsky

February 18, 2010

Commentary by Rich Jaroslovsky Feb. 19 (Bloomberg) — The browser wars are back in full flower, for which we have Google Inc. and the European Union to thank. Google’s big plans for its Chrome browser seem to have shaken Microsoft Corp. out of its competitive torpor and forced the software giant to pay fresh attention to its own browser, Internet Explorer. Meanwhile, starting next month, the EU will require customers who buy new computers in Europe to be presented with a screen at startup listing a dozen browsers in random order, and given a choice of which and how many they want to install. It’s all part of an antitrust settlement with Microsoft. The result should be a boon to consumers and to online innovation. But you don’t have to be European, or even own a new PC, to download these free programs and start exploring. Non-Microsoft software makers are apt to say the biggest thing that keeps users from switching browsers is ignorance. A surprising number of people, they say, don’t understand what a browser is or does. To them, that big “e” on the computer desktop simply means “the Internet,” and they aren’t aware of the multitude of alternatives for accessing the Web. In the interest of education, Google has created a Web site at whatbrowser.org. It includes links to five browsers — including Microsoft’s as well as Google’s — along with an informational video, benchmark tests and other resources. Google’s Strategy Chrome, which is available in versions for Windows, Mac and Linux, is a key part of Google’s strategy to get computer users comfortable with so-called cloud computing. The idea is for everyone to spend less money and time on programs they buy from software companies (Microsoft, say), and rely more on data and services such as Google Docs , which reside on servers and storage systems on the ‘net. Described this way, Chrome sounds like a Trojan horse to make us all dependent on Google’s own services. And so it is. But for Google’s plans to work, Chrome has to be good. And so it is. The program is fast, flexible and rests lightly atop your computer’s operating system — a fine thing from a security standpoint, because it makes it harder than Internet Explorer for hackers to use as an entrée into your computer’s innards. Best for Macs Mac users probably have it easiest: The best browser comes built right into every computer. It’s Safari, Apple Inc. ’s own program. Apple has managed to avoid the controversy stirred by Microsoft’s similar bundling of Internet Explorer with the operating system primarily because it has only a fraction of Windows’ market share. Safari is also available in a Windows version that I’m less enamored of; I’m more likely to run into Web sites that don’t display properly or work quite right than happens with other Windows browsers. The blame for that probably rests more with those site developers than with Apple; still, with so many good alternatives, it’s seldom worth the effort to figure out just what’s wrong. Personally, I prefer Mozilla Firefox , a descendant of the Netscape browser that Microsoft vanquished in Browser War I. Maintained by an open-source community, Firefox is available for PCs, Macs and Linux computers, and is the second-most-used browser after Internet Explorer. The program benefits from a well-developed ecosystem that includes thousands of add-ons for everything from speeding up YouTube downloads to StumbleUpon , which adds a button that helps you discover and share Web sites that match your interests. Off to the Opera Opera , from the Norwegian company Opera Software ASA , is another good choice. Opera, which has been around since the earliest days of the Web, is available in Mac, Linux and PC versions. And of course, there’s Internet Explorer itself. The current version, IE 8 , was released last year with a slew of enhancements. Microsoft has promised that the next version, will be faster and harder for bad guys to hack into. Each browser has legions of fans, and I’m not quite dumb enough to try to tell you which one is best: I wouldn’t have time enough to answer the hate mail from devotees of all the others. What I can say is that this is the perfect time to break the shackles of habit and try something different. Better still, try them all. ( Rich Jaroslovsky is a Bloomberg News columnist. The opinions expressed are his own.) Click on “Send Comment” in the sidebar display to send a letter to the editor. To contact the writer of this column: Rich Jaroslovsky in New York at rjaroslovsky@bloomberg.net .

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Bill Gross Clone Might Tame China’s Inflation: William Pesek

February 18, 2010

Commentary by William Pesek Feb. 18 (Bloomberg) — Jim O’Neill is on the lookout for the great Chinese revaluation of 2010, and he’s not alone. “Something’s brewing,” Goldman Sachs Group Inc. ’s London- based chief economist told Bloomberg News. “It could happen anytime.” China’s first major increase in the value of the yuan in almost five years would cool price pressures in an economy some think will grow more than 11 percent this year. Overheating risks abound and efforts to restrain credit growth aren’t working. As this inflation fight accelerates, China is finding that it could use its own Bill Gross . China will soon be the second-biggest economy, yet its lack of a large and developed bond market is a big liability. As Beijing tries to tighten credit, it’s doing so without a primetime infrastructure of investors and dealers to help transmit policy moves to the broader economy. That’s where the absence of Gross, who runs the world’s biggest bond fund at Pacific Investment Management Co ., and his ilk hurts the most. When China’s central bank raises interest rates, the lack of a sophisticated secondary market dampens the effect. In a sense, the People’s Bank of China lacks the people to influence monetary conditions. Federal Reserve Chairman Ben S. Bernanke altering rates in Washington means little unless bond dealers in New York, London and Tokyo act accordingly in the secondary market. It’s that multiplier effect that makes monetary policy so powerful, and China doesn’t have it. Market Development Granted, China has made progress. In April 2008 the government made it easier for companies to sell debt maturing in three to five years. It reduced an over-reliance on bank loans, cutting risks in the financial system. To strategists like Frances Cheung of Standard Chartered Plc in Hong Kong, the step was a “milestone.” Corporate-debt issuance has increased steadily. The government is working to create a yield curve, even issuing debt at times when it’s not pressed for cash to support the market. Bond sales could rise to 9 trillion yuan ($1.3 trillion) this year, from 4.9 trillion yuan in 2009. Auctions conform to international standards. And on Jan. 6 the central bank reaffirmed that it will allow foreign financial institutions to sell bonds in the domestic market , while it encouraged domestic companies to sell yuan-denominated bonds in Hong Kong. Hamstrung Central Bank The internationalization of China’s capital markets got a boost last month. The government approved stock index futures, margin trading and short selling. Good stuff all around. Yet China’s central bank remains hamstrung by the depth of the secondary market. A more liquid market would be a vital shock-absorber in times of crisis and offer investors clues about China’s outlook. Now that vast amounts of capital can be moved across the world with just a keystroke, functioning bond markets are more important than ever. So is having a group of influential, globally known bond buyers who can help remind the government its policies are wrong, either by dumping its debt or speaking out. Vital Information If traders felt, for example, that China’s stimulus efforts were too aggressive and inflation loomed, they could push yields higher. Or if they sensed deflation was afoot, they might buy debt. Either way, market rates would offer vital information for government officials and investors. The trouble is, China’s financial system is still more about transferring funds from one part of the economy to another rather than the pricing of risk, said Marshall Mays , director of Emerging Alpha Asset Management Ltd. in Hong Kong. “As such, the levels of interest have never mattered that much,” he said. That’s fine for Indonesia or the Philippines, less so for an economy as important as China’s. When it comes to the bond market, we can no longer give China a pass because of its status as a developing country. Financial strength in 2010 involves more than having $2.4 trillion of currency reserves. It comes from being able to borrow in the yuan and allow foreign companies to sell locally- denominated debt. Only then will China be able to let the yuan trade freely and take a crack at replacing the dollar as the reserve currency. Taming Hot Money A stronger currency might take the pressure off China as it raises its bond-market game. Not only would it clamp down on inflation, but it would reduce frantic speculation in markets. Bets on such a move are manifesting themselves in increased hot-money inflows that are wreaking havoc with the money supply. China could reverse the dynamic by announcing a revaluation with language that makes it clear it won’t act again for a while. China needs a multifaceted approach to slowing the economy and deflating asset bubbles . Administrative decrees to reduce credit creation aren’t enough in the long run. Building a bond market with a cadre of Gross-like players in the game is more important. ( William Pesek is a Bloomberg News columnist. The opinions expressed are his own.) Click on “Send Comment” in the sidebar display to send a letter to the editor. To contact the writer of this column: William Pesek in Tokyo at wpesek@bloomberg.net

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Higher Inflation Is a Lousy Cure for Meltdowns: Caroline Baum

February 17, 2010

Commentary by Caroline Baum Feb. 17 (Bloomberg) — Policy makers are looking for measures to avert the next financial crisis. Most of the proposed solutions involve enhanced regulation. Economists at the International Monetary Fund have a better idea: higher inflation. Yes, that’s right. After a multidecade effort to become credible and anchor inflation expectations , central banks are now supposed to throw it all away in order to have more room to maneuver in financial crises. Start with the inflation target, or ceiling, most central banks have adopted of 2 percent, multiply by five, add six, divide by four, and bingo! That’s the new, improved inflation target of 4 percent, according to IMF economists Olivier Blanchard , Giovanni Dell’Ariccia and Paolo Mauro , authors of a new paper , “Rethinking Macroeconomic Policy.” Explicit inflation targeting has always been controversial for central banks with a dual mandate. The Federal Reserve, for example, is required to deliver stable prices and maximum sustainable employment . Some Fed officials eschew an explicit inflation target, preferring to retain the flexibility to respond to economic crises with lower interest rates even if inflation is above a target. Just yesterday, Bank of England Governor Mervyn King had to inform Chancellor of the Exchequer Alistair Darling about his plan to rein in the 3.5 percent year-over-year increase in U.K. consumer prices in January, something he’s required to provide when inflation exceeds the bank’s 2 percent target by more than 1 percentage point. King attributed the outsized gain to “short-run factors,” not a deterioration in the medium-term inflation outlook. In New Zealand, the central bank governor can be dismissed for failure to hit the policy target. Happy Bedfellows Stable prices and full employment used to be thought of as polar opposites. Experience taught us they’re mutually exclusive. It turns out price stability is both an end in itself and a means to another end: achieving maximum long-run employment. So what are we to make of the academic argument for a higher inflation target? Many central banks lowered their benchmark policy rates to near zero in response to the financial crisis. The “zero bound,” as it’s known, circumscribes the path for nominal rates and may produce high real rates in the case of “deflationary recessions,” the economists point out. It doesn’t inhibit a central bank’s ability to increase bank reserves by buying assets or making loans. Good, Better, Best Still, the zero bound has proven “costly,” the economists write. “Higher average inflation, and thus higher nominal interest rates to start with, would have made it possible to cut interest rates more, thereby probably reduce the drop in output and the deterioration of fiscal positions,” they say. In other words, inflation needs to be higher so the Fed can push rates lower. That makes sense. By that reasoning, if 4 percent is good, 8 percent should be better and 10 percent better yet! It’s not just monetary policy where the IMF economists think the authorities need room. Fiscal policy needs space, too. “Some advanced economies that entered the crisis with high levels of debt and large unfunded liabilities have had limited ability to use fiscal policy,” they say. They must be referring to the U.S., with its $56.5 trillion in unfunded liabilities , which clearly did nothing to discourage trillions of dollars of expenditures on controversial bailouts and stimulus programs. Earth to Academia What planet do these academics live on? Last May Harvard University economists Ken Rogoff and Greg Mankiw joined a chorus advocating higher inflation. Rogoff lobbied “for at least 6 percent for a couple of years” to help the deleveraging process while Mankiw saw inflation as a better alternative to more stimulus packages and higher national debt. “I don’t understand how anyone who lived through the 1970s can say that,” says Bill Poole , a senior fellow at Washington’s Cato Institute and former president of the St. Louis Fed. Poole says it’s very unlikely inflation expectations could be stabilized at 4 percent or that the fiscal system could be indexed for inflation on a timely basis. Long-term interest rates would rise, delivering capital losses to bondholders. Higher inflation would punish savers — something the nation could use more of. It would lead to inefficient allocation of capital. And it would sacrifice hard-won central bank credibility — for what? Breathing room in case of another hundred-year flood? Punchbowl’s Punch Prevention still seems like the best cure for financial crises. And like many Fed policy makers, Blanchard et al claim the fed funds rate is a “poor tool” for curbing financial excesses. It may be. But when it comes to driving those excesses, nothing beats negative real rates. Government can require more capital, end the tax subsidy on leverage, as Poole suggests, and hope that regulators do what they’re supposed to do. In the end, they’ll be swimming upstream unless someone pulls the proverbial punchbowl. ( Caroline Baum , author of “Just What I Said,” is a Bloomberg News columnist. The opinions expressed are her own.) Click on “Send Comment” in sidebar display to send a letter to the editor. To contact the writer of this column: Caroline Baum in New York at cabaum@bloomberg.net .

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Guggenheim’s $68 Menu, MAD Pasta Make Me Hanker for Pretzels: Ryan Sutton

February 17, 2010

Review by Ryan Sutton Feb. 17 (Bloomberg) — Soft pretzels and hot fries. That’s one of the happy memories I have of dining at a New York museum. We crammed the snacks into our pockets and took furtive bites while checking out dinosaur fossils at the American Museum of Natural History . This was back when many such institutions merely had cafeterias. Now they have restaurants. I reminisced about such benign hooliganism while searching for my waiter at Robert, the fine-dining venue atop the Museum of Arts & Design , and while pretending to eat my ghastly porchetta at the Wright, the Guggenheim commissary where a tasting menu costs $68. It’s harder to fit a tasting menu into your pocket. Such are the ignominies one encounters amid the gourmandization of America. It seems that movie theaters are the last bastions of processed cheese sauce, now that Danny Meyer is filling Citi Field with superior tacos and the Museum of Modern Art, with braised tripe. My nostalgia for junk food aside, those are great tacos, and the Modern at MoMA is an example of how high-end art and high-end dining really can co-exist. Patrons enjoy the Michelin- starred Alsatian fare of Gabriel Kreuther while overlooking the museum’s sculpture garden. So I’m excited about Meyer’s pop-up cafe at the Whitney, set to open on Feb. 25, in time for the biennial. “Sandwiched” will serve snacks by Eleven Madison Park’s Daniel Humm, Gramercy Tavern’s Michael Anthony and other Meyer chefs. No tasting menus. Yawn I’m less excited about Robert and the Wright. Their food and design do not complement the great museums they reside in. Robert overlooks Columbus Circle. That’s the best part. Its Mediterranean fare isn’t bad, but it’s within a two-minute walk of some of New York’s best restaurants, which prepare similar dishes, at reasonable enough prices. In other words, there’s no real reason to dine at Robert. Sure there’s a great view of Central Park, if you manage to get a seat next to the window. We were led to a banquette with no view. We sank deep into the cushions, which made the table too high for eating. Shouldn’t a museum of design have figured out the design issues? Bland Sturgeon Foie gras was smooth, creamy, and at $18, about half the price and half as good as the a la carte version at Per Se across the street. Raw hamachi ($16), served at room temperature, was fine with pink grapefruit and avocado, but why not get the spicy tuna ribbons with avocado next door at Jean Georges? (Just $14.50 at lunch). Sturgeon ($26), typically rich and oily, became bland and mediocre over an awful mat of broccoli rabe; it looked like artificial turf. Better get your seafood fix a stone’s throw away at Marea. Gluey, microwave- quality tagliatelle with corn and tomatoes was an aseasonal anachronism in the dead of winter. Try A Voce for better pastas. If you must dine here, stick with richer preparations: a strip steak covered with disks of bone marrow; a special of rare veal loin flanked by crispy, fatty cheeks; and lamb loin atop musky shredded shoulder meat. Sweet Nothings Frank Lloyd Wright must be turning over in his grave. A restaurant has been crammed into what feels like the service entrance at his Guggenheim. White walls and bright lights are great for art, poor for eating. The Wright’s lunch-hall luminescence flatters no one. No tablecloths or carpets; the hard surfaces make it tough to hear your companions. Unlike Robert, the Wright lies on a quiet stretch of the Upper East Side with virtually no nighttime foot traffic. That won’t change as the Guggenheim’s restaurant is only open for dinner Thursdays to Saturdays (though it’s open for lunch most other days of the week). Too bad. The kitchen needs practice. Chef Rodolfo Contreras cooks indistinct modern American fare with no sense of acid balance. Everything tastes like candy. Parsnip soup? Cloying. Sirloin is paired with a sugary marrow marmalade; lobster, by a clementine sauce that’s as sweet as cake frosting. Butternut squash risotto tastes like a dessert rice pudding, and there’s nothing to offset the sweet paprika sauce on the crispy striped bass. Avoid the dry, tough porchetta at all cost. Fries and pretzels, please. The Bloomberg Questions Cost? Starters in the teens, many mains in the 20s at both. Sound level? Nearly 80 decibels at the Wright, about as loud as a subway station at rush hour. Much quieter at Robert. Date place? My date ditched me after the Wright. Inside tip? Cold, creamy oysters, steak tartare and a glass of champagne is the ideal meal at the Wright. Special feature? Spicy Dark & Stormy cocktails at Robert. Will I be back? Probably not to either on my own dime. Robert lost its chef last week; perhaps it will be worth another visit if the fare improves. Robert is at the Museum of Arts and Design at 2 Columbus Circle. Information: +1-212-299-7730; http://www.robertnyc.com . The Wright is at the Solomon R. Guggenheim Museum at 1071 Fifth Ave. at 88th Street. Information: +1-212-427-5690; http://www.thewrightrestaurant.com . Sound-Level Chart (in decibels): 51 to 55: A church on a weekday. 56 to 60: The vegetable aisle at the Food Emporium. 61 to 65: Keyboards clacking at the office. 66 to 70: My alarm clock when it goes off inches from my ear. 71 to 75: Corner deli at lunchtime. 76 to 80: Back of a taxi with announcements at full volume. 81 to 85: Loud crowded subway with announcements. ( Ryan Sutton writes about New York City restaurants for Bloomberg News. The opinions expressed are his own.) To contact the writer of this column: Ryan Sutton in New York at rsutton1@bloomberg.net .

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Drinkers, Smokers Produce Mixed Bag for Investors: David Pauly

February 17, 2010

Commentary by David Pauly Feb. 17 (Bloomberg) — Beer sales were supposed to be recession-proof, with prices always low enough to survive consumers’ budget cuts. It hasn’t worked that way this time at MillerCoors LLC, the U.S. venture of London’s SABMiller Plc and Denver’s Molson Coors Brewing Co. Or at Anheuser-Busch InBev NV , the world’s largest brewer, which is based in Leuven, Belgium. MillerCoors last week reported its fourth-quarter shipments to wholesalers had dropped 4.2 percent, shipments to retailers 3.6 percent. Anheuser-Busch InBev earlier had said third-quarter shipments declined 3.3 percent. In the U.S., shipments of the company’s Budweiser brands fell 5.1 percent. The brewer said its fourth-quarter numbers would be better but hasn’t reported them yet. Still, investors who count on sin stocks to get them through tough markets need not despair: Cigarette companies are doing as well as ever. Philip Morris International Inc., spun off from Altria Group Inc. in 2008, said its fourth-quarter sales rose 12 percent. The New York-based company predicted profit for the year of as much as $3.85 a share, up from $3.24 a share in 2009. Altria, which kept the U.S. cigarette business, previously had reported that its fourth-quarter shipments fell 11 percent. Profit was up 6.8 percent, though, on higher prices — smokers who can’t quit will pay anything — and the acquisition of snuff-maker UST Inc. Temperance Movement Beer-company results may not match those of cigarette makers because while most people can drink without becoming hooked, most smokers can’t. Tobacco companies have survived an era of high taxes and payments to governments in retribution for the diseases they cause. Philip Morris International, turned loose because cigarette sales grow faster overseas than in U.S., is making so much money it plans to buy back $12 billion of its stock over three years starting in May. Too bad the buybacks aren’t a step toward liquidation. Brewers will survive, if not as well. Anheuser-Busch InBev shares have jumped 93 percent from their low of the past 12 months. Hard liquor has a future too. Shares of Diageo Plc , the largest such company, are up 42 percent from their 12-month low. The London-based distiller last week raised its dividend for the half ended in December by 5 percent. Bad Start The maker of Johnnie Walker scotch and Smirnoff vodka said net sales fell 4 percent in North America and 2 percent in Europe. Drink makers perhaps wish they sold something softer. Coca-Cola Co. and PepsiCo Inc., which sell soda pop, sports drinks and bottled water, both reported fourth-quarter growth in dollar sales of about 5 percent and outsized gains in profit. PepsiCo, which also makes salted snacks such as Lay’s potato chips and Fritos, last week joined a move by other soft- drink companies, saying it would put calorie counts on the front of its products by the end of 2012. Jumping on a health trend is a nice marketing ploy — one denied to sin stocks. ( David Pauly is a columnist for Bloomberg News. The opinions expressed are his own.) Click on “Send Comment” in the sidebar display to send a letter to the editor. To contact the writer of this column: David Pauly in Fort Myers, Florida at dpauly@bloomberg.net

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Man Up, Obama, or Make Way for President Palin: David Reilly

February 12, 2010

Commentary by David Reilly Feb. 12 (Bloomberg) — President Barack Obama is starting to look like the second coming of Jimmy Carter . If he’s going to avoid that fate, the president had better take radical action — and fast. That means doing more than offering belated talk about jobs , or waging ineffectual on-again, off-again bank warfare. What, after all, is the point of bashing Wall Street only to then blow bonus kisses to JPMorgan Chase & Co. chief Jamie Dimon and Goldman Sachs Group Inc. head Lloyd Blankfein ? Obama needs to ditch his professorial, community-organizer mien and start cracking some heads. Unless, that is, he is intent on paving the way for a Palin presidency in 2013. Supporters are crying out for Obama to pull out of his tailspin. In an article in Politico, Douglas Wilder , the nation’s first African-American governor and an early Obama supporter, urged the president to get his act together. “The need is becoming more obvious by the day,” Wilder wrote. “Getting elected and getting things done for the people are two different jobs.” Obama’s lack of resolve even makes comparisons to Carter seem charitable. Financial blogger Eric Salzman argued that we haven’t seen such a lack of leadership “in the White House since our 15th president, James Buchanan , stood by and let the country dissolve into Civil War while trying to appease everyone.” What’s to be done? Here are three ways for Obama to man up, chart a new course and avert the kind of debacle that tarnished his party in the eyes of a generation of voters. Learn From Clinton — Bring congressional Democrats to heel with a Sister Souljah moment. Such an action is named for former President Bill Clinton’s putdown of hate speech by a rapper — and, by extension, the far-left wing of the Democratic Party. Clinton’s move was designed to appeal to centrist voters. For his Sister Souljah moment, Obama needs to pick a particularly egregious action by his erstwhile allies on Capitol Hill and then use a veto, or the threat of one, to show congressional Democrats he is in charge, not them. Sadly, Obama has already passed on two perfect opportunities. The first came with last year’s pork-stuffed economic stimulus bill. Obama should have threatened a veto unless Congress focused the legislation on unemployment, not pet congressional projects. Don’t Be Afraid The second opportunity involved the health-care bill initially approved by Senate Democrats. Obama should have made it clear to Majority Leader Harry Reid that he wasn’t about to countenance $100 million bribes to get the likes of Democratic Nebraska Senator Ben Nelson on board. — Don’t be afraid of the big, bad banks. Obama can get financial reform if he wants it. He just has to realize that he’s, well, the president. And presidents don’t haggle with banks that are alive only thanks to $8.2 trillion in government lending, spending and support. Nor do they let armies of bank lobbyists tie them down on Capitol Hill. And they certainly don’t countenance bank chiefs who fail to show for White House meetings. Trying that with Nixon would have meant quick inclusion on the “enemies list”; George W. Bush’s folks would have issued an immediate invitation to go hunting with Vice President Dick Cheney . Obama, on the other hand, talks tough, then worries about upsetting Wall Street. That’s insane. Wall Street respects only one thing — strength. If it smells weakness, the Street will try to leave the other guy with nothing but his socks and a smile. Offer a Reminder So don’t ask, tell. Remind the banks, none too subtly, that Obama can make their lives miserable. The government, after all, controls bank regulation. Maybe, for instance, capital requirements at too-big-to-fail institutions like Goldman or JPMorgan should shoot up to 25 percent. Perhaps the amount of borrowed money financial behemoths can use needs to be capped at five times equity. And since banks are so opposed to a Consumer Financial Protection Agency, Obama will have to find a new job for Elizabeth Warren , the driving force behind that proposal. Heading up the Office of the Comptroller of the Currency , which regulates all the big, national banks, might be a perfect fit for her. Or the banks can quickly agree to take some lumps and get on board with financial reform. That’s the kind of deal-making Wall Street responds to. Use the Broom — Clean house. Treasury Secretary Timothy Geithner has to go. So too does White House economic adviser Lawrence Summers . And while he’s at it, the president should jettison Chief of Staff Rahm Emanuel . All are too stuck in the pre-crisis, let’s-not-risk- curbing-financial-innovation mentality that helped get us into this mess. They also tie Obama directly to the crisis, negating claims that it was someone else’s doing. Geithner was head of the New York Fed and a lead singer in the bailout choir. Summers, back during the Clinton administration, helped knock down the separation of commercial and investment banking while making sure derivatives markets wouldn’t be regulated. And Emanuel was a director of mortgage giant Freddie Mac , now a ward of the state. Not to mention that Geithner, with plenty on Capitol Hill calling for his scalp, no longer is a credible salesman for the administration’s policies. Emanuel, meanwhile, is so driven by the goal of striking a deal, any deal, that he ends up letting Congress call the shots. In their place, Obama needs people who understand but aren’t beholden to Wall Street. And he needs folks who are willing to stand up to Congress. Obama needs to get tough. If he doesn’t, voters will. ( David Reilly is a Bloomberg News columnist. The opinions expressed are his own.) Click on “Send Comment” in the sidebar display to send a letter to the editor. To contact the writer of this column: David Reilly at dreilly14@bloomberg.net

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Palm’s Pre Plus Makes Your Pocket a Hot Spot: Rich Jaroslovsky

February 11, 2010

Commentary by Rich Jaroslovsky Feb. 12 (Bloomberg) — No two ways about it: I am one hot guy. Not that way, though don’t I wish. It’s because I’m carrying Palm Inc. ’s new Pre Plus smartphone, which turns me into a walking, talking Wi-Fi hot spot, empowered to allow lesser mortals to bask in my geeky aura. Or at least, to share my phone’s Internet connection. The original Pre, which debuted last year on Sprint Nextel Corp. ’s network in the U.S., featured a striking “smooth stone” design, an elegant new operating system called webOS and — unlike, say, Google Inc.’s more recent Nexus One — didn’t scream “iPhone wannabe.” Its big drawback was the small number of applications available for it. The new Pre Plus, now available on the much larger Verizon Wireless network, doesn’t solve the app problem, and at $150 on a two-year contract, after rebate, it isn’t cheap. But the new Mobile HotSpot application almost makes up for these drawbacks. The Pre is more compact, but chunkier than, say, Apple Inc. ’s iPhone or the Nexus One, which is manufactured by Taoyuan, Taiwan-based HTC Corp. In repose, the screen is all shiny blackness — even more so than the original Pre, whose function button has been replaced by a horizontal stripe across the bottom that is only visible when the screen is in use. Fingernail Typing Sliding the screen up reveals a tiny physical keyboard. On the first Pre, I had a lot of trouble typing; the keys were so small I would constantly hit the wrong one. Things got better, but only a little, when I figured out one secret for thick- fingered typists like myself: Use the edge of your fingernail, rather than your finger itself. Palm has made some minimal changes in the keys, but my earlier advice still holds. Things have gotten a little better on the app front as well. The number of programs available for the Pre and Pixi Plus, its lower-cost, lightweight sibling, has inched up to about 1,000. That’s still much less than the 140,000 available for Apple’s iPhone or even the 20,000 for Google’s Android operating system, which drives the Nexus One and Motorola Inc.’s Droid. But there are apps for key social networks such as Facebook and Twitter, plus games including “Need for Speed Undercover” and “The Sims 3” from Electronic Arts Inc. But the coolest app by far is Mobile HotSpot, which lets as many as five Wi-Fi-capable devices share the phone’s Internet connection. Once you install it and establish a password, the phone becomes visible on any nearby Wi-Fi computer, phone or other device as a “webOS network.” Anyone entering your password is then able to make use of the phone’s 3G connection. Your Own Thing You can imagine the uses. In a carpool or on a family trip, everyone can do their own thing. You’re no longer tethered to Starbucks or other commercial Wi-Fi locations; any public space where you can get a 3G signal from Verizon becomes a hotspot. The range is impressive, too. Placing the Pre Plus on a colleague’s desk, I was still able to surf the Web on a laptop computer about 200 feet (61 meters) away. Speed was variable but more than acceptable, even with multiple devices attached. Drawbacks? Price is one. Verizon charges $40 a month for the hotspot service for as much as 5 gigabytes of data. That’s less than what it charges to use Novatel Wireless Inc. ’s MiFi, a standalone device that provides the same ability. But it’s still a hefty chunk of extra change on top of the $30 you’re already paying for a data plan. Then there’s the impact on your battery: The Mobile HotSpot app sucks power like a straw in a Coke on a hot summer’s day. With two devices connected in addition to the phone itself, I used most of a full charge in about three hours. If you’re using the feature for more than a quick Internet session, the best advice is to plug the phone into a wall outlet or your car’s cigarette lighter. Offsetting those is the sense of power you get from controlling other people’s online access. If I like you, it’s my world and welcome to it. If I don’t, it’s hey, you — get off my cloud. Did I say I was hot? I’m smokin’. ( Rich Jaroslovsky is a Bloomberg News columnist. The opinions expressed are his own.) Click on “Send Comment” in the sidebar display to send a letter to the editor. To contact the writer of this column: Rich Jaroslovsky in New York at rjaroslovsky@bloomberg.net .

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Goldman’s Contagion Warning Is Greek to Markets: William Pesek

February 11, 2010

Commentary by William Pesek Feb. 12 (Bloomberg) — If anyone could use a few days in the Sydney summer sun, it’s Jean-Claude Trichet . It was not to be. Pressing business this week yanked the European Central Bank governor back to the Brussels winter. Few in Sydney begrudge Trichet for bolting from a Reserve Bank of Australia symposium. Not with Greece on the brink and the creditworthiness of Portugal and Spain in question. Trichet’s early departure highlighted the contrast between the plight of Western economies and the enviable state of Asian ones. It’s also a reminder that Asia can’t be complacent as a new phase of the global financial crisis looms. Remember how a minuscule economy like Iceland’s sent shock waves through the region in 2008. Or how Dubai, but a piece of a national economy comparable in size to the Philippines, upset Asia’s 2009. Greece is, well, a real economy that is part of one of the world’s three main currencies. Turmoil there won’t be a non-issue for Asia. Consider, too, that Greece is merely the most fragile of the “PIGS” economies: Portugal, Ireland, Greece and Spain. And that Europe’s problems may deepen as the year unfolds, regardless of how policy makers act today. Even if Asia is the least ugly economic region these days, financial chaos in the euro area will hurt. Trichet’s return to Europe eased nerves. It suggested the region’s leaders understand the magnitude of its debt crisis and will act accordingly. It doesn’t change one thing: The post- Lehman Brothers Holdings Inc. world remains a dangerous one and Asia’s economies are largely in the developing-nation camp. Contagion Risks So, when analysts such as Thomas Stolper of Goldman Sachs Group Inc. in London warn about “risks of contagion through the financial sector and broader risk premia,” Asia must brace for the fallout. Asia’s process of exiting from the fiscal and monetary largess of the last year may be delayed. What’s more, Asia will be on its own longer than thought, lacking the traditional growth engines of the U.S. and Europe. Say what you want about Asia decoupling from the West, but this region is in a rough place when $27.8 trillion worth of world gross domestic product is underperforming. Make that $32.7 trillion if you add in deflationary Japan. While Asia performed impressively in 2009, this year will be more difficult if at least modest world growth doesn’t return soon. That may explain why central banks have been timid. With the exception of Vietnam and China , Asia’s central banks have been slower to pull liquidity out of economies than analysts expected at the start of the year. RBA Governor Glenn Stevens surprised markets this month by not raising interest rates. Higher Rates The RBA, the world’s first major central bank to tighten last year, is likely to resume its rate-increase campaign following the latest jobs data. In January, Australian employers added the most workers — 52,700 — in more than three years. U.S. President Barack Obama can only dream of such gains. The PIGS crisis complicates things for Asia-Pacific policy makers. In China, for example, the central bank must drain yuan from the financial system to contain asset bubbles. While doing that, it also must consider how such steps will affect growth and how Europe’s debt troubles could worsen. If sovereign debt is the new subprime, the next 12 months will be rocky. Credit risks abound. Earlier this month, Moody’s Investors Service said America’s AAA debt rating will come under pressure unless something is done about expanding deficits. Economy Killer The U.S. won’t be downgraded anytime soon, of course. Not because it shouldn’t be, but because the financial Armageddon it would unleash in markets could mean Moody’s no longer has many paying customers on which to bestow ratings. It’s the same reason the Bank of Japan almost never raises interest rates: It can’t because it would kill the economy. The fiscal squishiness pervading the globe is a clear and present danger to developing nations. Say Greece went the way of Iceland. Who would rush into the euro for safety? Or into the yen? Most likely, the dollar would be the haven of choice, strange given the U.S.’s fiscal trajectory. In such an environment, Indonesia , Thailand and Malaysia can’t expect much capital to come their way. Good chunks of the money sitting in their markets today might leave and go into U.S. Treasuries. Even more developed economies such as South Korea’s would be hard-pressed to remain a big blip on investors’ radar screens. Sadly, policy makers are still talking more about reining in risks than acting. That was painfully apparent in Sydney this week. Gathered were People’s Bank of China Governor Zhou Xiaochuan , Federal Reserve Bank of San Francisco President Janet Yellen , Bank for International Settlements General Manager Jaime Caruana and, briefly, Trichet. All we got were highfalutin’ comments about risk and working together. You would think that with the PIGS crisis casting a stink around the global, policy makers would emerge with more than same-old-same-old. In leaving early, Trichet may have been on to something. ( William Pesek is a Bloomberg News columnist. The opinions expressed are his own.) Click on “Send Comment” in the sidebar display to send a letter to the editor. To contact the writer of this column: William Pesek in Sydney at wpesek@bloomberg.net

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`PIGS’ in Rescue Lipstick Are Uglier Than Default: Mark Gilbert

February 11, 2010

Commentary by Mark Gilbert Feb. 11 (Bloomberg) — “The worst possible signal which we could send out is one calling for outside help,” Greek Finance Minister George Papaconstantinou told Bloomberg Television this week. He may be the only policy maker in the European Union who understands how disastrous a bailout would be. A rescue would scream to the world that Greece’s financial hole is too deep for it to get out unaided — just as the Federal Reserve’s decision to supply $29 billion of guarantees so that Bear Stearns Cos. could survive by selling itself to JPMorgan Chase & Co. was a red flag about the cannibalism erupting in the credit-crunched banking industry. Let Greece go bust if it can’t pay its own way. Sure, it will be messy and scary. A lot of banks will realize they still don’t focus enough on the credit quality of the firms they do business with. The euro project will suffer a crisis of confidence. The lesson from the credit crisis, though, is that the alternative of helping Greece off a hook of its own making is far, far worse. All of the “PIGS” — Portugal, Ireland, Greece and Spain (and maybe Italy, if you’re feeling particularly uncharitable or skeptical) — have been living beyond their means, much like the investment banks did in the credit boom. A bailout of one will produce the same outcome as the rescue of Bear Stearns did; moral hazard will kick in, and instead of allowing economic Darwinism to cleanse the gene pool, the weaker nations will lose any incentive to cut spending and trim their swollen deficits. Risk Drifts Welcome to “Credit Crunch II.” By stuffing billions of dollars of taxpayers’ money into the balance-sheet holes of the banking industry, governments have transmogrified private risk into public liabilities. The “too-big-to-fail” label just reattaches itself to governments from financial companies. The sequel, if the European Union or its members are suckered into some kind of Greek rescue package by buying, guaranteeing or even repaying its bonds, could end up featuring Portugal as Lehman Brothers Holdings Inc. and Spain as American International Group Inc. As Dennis Gartman , economist and publisher of the Gartman Letter research report, has repeatedly pointed out in recent years, there is never only one cockroach. Debt Rollercoaster European debt markets have been on a rollercoaster as they try to parse the EU smoke signals to judge whether Greece will win financial backing from its neighbors, or just verbal support. So far this month, the 10-year Greek yield has swung between 6.05 percent and about 6.8 percent as hopes for help waxed and waned. The euro, however, didn’t exactly jump for joy at the prospect of an aid package, which tells you that a salvage operation for Greece is no panacea for what ails the common currency’s economies. Whenever the subject of the euro’s conception comes up, European Central Bank President Jean-Claude Trichet can’t hide a glimmer of paternal pride as he explains that one of the project’s finest achievements was yield convergence — the elimination of gaps between the borrowing costs of member nations — at lower, rather than higher, levels. In the absence of a euro-wide fiscal policy that makes spending and revenue decisions, though, there’s really no reason for investors to accept the same return for lending to such economically disparate countries as Germany and Portugal, for example. You are effectively buying a foreign-currency bond because Portugal doesn’t have the individual right to print currency to make its debt payments, and it can’t devalue its way to prosperity. Ceding Sovereignty All of this was recognized and much discussed at the euro’s introduction a decade ago. Yield convergence was driven by the expectation that the rules of the euro club would impose economic discipline on its members. One possible outcome of the current crisis is for common-currency participants to cede more of their fiscal sovereignty; self-regulation hasn’t worked any better in the euro area than it did in investment banking. Some people are talking as if there’s a simple choice facing European policy makers. Abandon Greece to its fate, the story goes, and unleash contagion trashing the creditworthiness of other, financially challenged euro participants. Throw a financial safety net beneath Hellenic debt, on the other hand, and you can eliminate the contagion threat. In reality, if Greece can’t solve its problems alone, the choice is between two different kinds of contagion. Why would an Irish policewoman swallow a pay cut that helps her government curb its spending if an EU handout eases the strictures demanded of Greek public-sector workers? If economic failure goes unpunished, then behavior doesn’t change — another lesson that the finance world should have learned from the credit crisis. Daubing a layer of financial lipstick on the “PIGS” makes them less, not more, attractive. ( Mark Gilbert , author of “Complicit: How Greed and Collusion Made the Credit Crisis Unstoppable,” is the London bureau chief and a columnist for Bloomberg News. The opinions expressed are his own.) Click on “Send Comment” in the sidebar display to send a letter to the editor. To contact the writer of this column: Mark Gilbert in London at magilbert@bloomberg.net

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Toyota, Foot Firmly on Brakes, Shows $375,000 Lexus Coupe: Jason H. Harper

February 11, 2010

Review by Jason H. Harper Feb. 11 (Bloomberg) — “My husband just bought me the top- of-the-line Lexus,” a woman told me the other day. “But who wants a tarted-up Toyota with pedal problems?” How quickly the consumer world shifts. Toyota Motor Corp . and its upscale brother Lexus have been playing the sensible, smart foils to blunder-prone American carmakers for so long that it is almost cliche. So while Toyota’s problem with sticking gas-pedals is certainly serious, one feels there’s a certain media glee to the upending. The too-perfect heroes take a tumble. Last year Lexus celebrated its 20th anniversary in the U.S. Along with several new convertibles, it recently released two new versions of its best-selling SUVs, plus an uncharacteristic $375,000 supercar. So this seems like a good time to check in. First, those pedal worries: “Gas-pedal assemblies in Lexus models are from a different supplier than the ones that are the focus of the recall and are thus unaffected,” said Wade Hoyt , a company spokesman. Still, some Lexus ES 350 and IS models were subject to a separate recall last year to fix floor mats. And this week Toyota recalled 437,000 hybrids, including the new Lexus HS 250h sedan, to repair faulty braking systems. Oddball Supercar To get a handle for quality and feel, I tested the latest RX and GX SUVs and got a first look at the oddball LFA supercar . This is the third-generation of the RX people mover, which debuted in the late 1990s. The hybrid RX 450h starts at $43,500 versus the regular $38,500 RX 350. Both come in front- or all- wheel-drive (AWD). For an SUV, the RX seems gentle and a bit pedestrian. In truth it’s a minivan in disguise and therefore brilliant indeed. (I’m in favor of doing away with minivans forever.) While it doesn’t have a sliding door or dozens of sippy-cup holders, the RX is aimed at families who wouldn’t be caught dead in a Dodge Grand Caravan . Seating five, it has up to 80.3 cubic feet of storage. I tested an AWD hybrid. In typical Toyota fashion, the hybrid system is so seamless that I barely noticed. The company has so clearly won the hybrid wars that it was basically a Velvet Revolution. The AWD model delivers decent pep around town, where you’ll enjoy 30 miles per gallon. While it’s no highway blaster, power always feels adequate and you still get 28 mpg. The all-petrol AWD 350, by comparison, gets 18 mpg and 24 mpg. No Fun The RX rides smoothly and is very quiet, but is not a heck of a lot of fun to drive. The exterior is pert and generally inoffensive except for a strange reverse indentation on the rear doors’ lower panel. I briefly thought it was a nasty dent when I returned to a crowded parking lot. The interior has nice wood inserts and the dash is formed into elegant, organic folds, kind of like a plastic Zen garden. Doors close with a satisfying, vacuum-like seal. It’s no wonder the RX rocks the segment. Mercedes’s dreadful R-Class thing-a-bob looks like the ugly baby of an SUV and minivan. By comparison, the second-generation, seven-passenger GX, which starts at about $53,000, is not sure what it wants to be. The new three-row GX 460 replaces the GX 470, bringing a slightly smaller engine and additional power. Fording Rivers You’d figure that since it is all-new, Lexus would have jettisoned the decade-old idea that consumers want an SUV that can do it all — namely go to Sam’s Club and ford rivers. My $58,000 tester had big 18-inch mud-and-snow tires, a limited-slip center differential and low-gear four-wheel-drive settings, all meant for off-roading. It still uses body-on-frame construction, like a pickup truck, rather than the modern and carlike unibody method. So forget about that patented Lexus glide. The heavy GX tumbles you around like a lumber truck, and seems ill-suited for highway off-ramps and around-town jaunts. Bummer. This ethos extends to the interior. Among the pretty wood and soft-grain leather you’ll find oversize panic handles on the inside of the sills — for hanging on while descending 35-degree mountain screes, I suppose. Legroom goes from okay up front to so-so in the middle and downright scant in back. Still, I can see the appeal of such a big vehicle. It offers a command driving position. The many windows mean there are no blind spots, and you sit so high you can see everything on the road. Supercar For those who aren’t looking to move families around, Lexus offers its unlikeliest vehicle: the very expensive, very powerful LFA supercar. I haven’t yet had a chance to drive this $375,000 javelin, but did get a walk-around. Lexus has never been known for its sports cars, so the rear-wheel-drive LFA, with a 552-horsepower, 4.8-liter V-10 is a true departure. It’s brutal-looking up close, with a blunt snout, big rear wing and many air intakes. Top speed is more than 200 mph. Production starts later this year, with only 150 coming to the U.S. Oddly, would-be American collectors can only lease them for two years. So, the state of Lexus? It’s a mixed bag. Stalwarts such as the RX look as strong as ever and there are surprises like the LFA. But it’s the safety questions that are likely to weigh on buyers’ minds for some time to come. After all, if you’re doing 200 mph, you want to be sure the brakes work. The 2010 Lexus RX 450h and GX 460 at a Glance Engines: 3.5-liter 6-cylinder and two electric-drive motors for a combined 295 horsepower; 4.6-liter V-8 with 301 hp. Transmissions: Continuously variable; six-speed automatic. Speed: 0 to 60 mph in 7.4 seconds; 7.8 seconds. Gas mileage per gallon: 30 city, 28 highway; 15, 20. Price as tested: $52,303; $58,039. Best features: Overall practicality with hybrid gas mileage; command driving position. Worst features: Rather bland to drive; heavy and unwieldy. Target buyers: The family who hates minivans; the would-be luxury mountain climber. ( Jason H. Harper writes about autos for Bloomberg News. The opinions expressed are his own.) To contact the writer of this column: Jason H. Harper at Jason@JasonHharper.com .

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Toyota, Foot Firmly on Brakes, Shows $375,000 Lexus Coupe: Jason H. Harper

February 11, 2010

Review by Jason H. Harper Feb. 11 (Bloomberg) — “My husband just bought me the top- of-the-line Lexus,” a woman told me the other day. “But who wants a tarted-up Toyota with pedal problems?” How quickly the consumer world shifts. Toyota Motor Corp . and its upscale brother Lexus have been playing the sensible, smart foils to blunder-prone American carmakers for so long that it is almost cliche. So while Toyota’s problem with sticking gas-pedals is certainly serious, one feels there’s a certain media glee to the upending. The too-perfect heroes take a tumble. Last year Lexus celebrated its 20th anniversary in the U.S. Along with several new convertibles, it recently released two new versions of its best-selling SUVs, plus an uncharacteristic $375,000 supercar. So this seems like a good time to check in. First, those pedal worries: “Gas-pedal assemblies in Lexus models are from a different supplier than the ones that are the focus of the recall and are thus unaffected,” said Wade Hoyt , a company spokesman. Still, some Lexus ES 350 and IS models were subject to a separate recall last year to fix floor mats. And this week Toyota recalled 437,000 hybrids, including the new Lexus HS 250h sedan, to repair faulty braking systems. Oddball Supercar To get a handle for quality and feel, I tested the latest RX and GX SUVs and got a first look at the oddball LFA supercar . This is the third-generation of the RX people mover, which debuted in the late 1990s. The hybrid RX 450h starts at $43,500 versus the regular $38,500 RX 350. Both come in front- or all- wheel-drive (AWD). For an SUV, the RX seems gentle and a bit pedestrian. In truth it’s a minivan in disguise and therefore brilliant indeed. (I’m in favor of doing away with minivans forever.) While it doesn’t have a sliding door or dozens of sippy-cup holders, the RX is aimed at families who wouldn’t be caught dead in a Dodge Grand Caravan . Seating five, it has up to 80.3 cubic feet of storage. I tested an AWD hybrid. In typical Toyota fashion, the hybrid system is so seamless that I barely noticed. The company has so clearly won the hybrid wars that it was basically a Velvet Revolution. The AWD model delivers decent pep around town, where you’ll enjoy 30 miles per gallon. While it’s no highway blaster, power always feels adequate and you still get 28 mpg. The all-petrol AWD 350, by comparison, gets 18 mpg and 24 mpg. No Fun The RX rides smoothly and is very quiet, but is not a heck of a lot of fun to drive. The exterior is pert and generally inoffensive except for a strange reverse indentation on the rear doors’ lower panel. I briefly thought it was a nasty dent when I returned to a crowded parking lot. The interior has nice wood inserts and the dash is formed into elegant, organic folds, kind of like a plastic Zen garden. Doors close with a satisfying, vacuum-like seal. It’s no wonder the RX rocks the segment. Mercedes’s dreadful R-Class thing-a-bob looks like the ugly baby of an SUV and minivan. By comparison, the second-generation, seven-passenger GX, which starts at about $53,000, is not sure what it wants to be. The new three-row GX 460 replaces the GX 470, bringing a slightly smaller engine and additional power. Fording Rivers You’d figure that since it is all-new, Lexus would have jettisoned the decade-old idea that consumers want an SUV that can do it all — namely go to Sam’s Club and ford rivers. My $58,000 tester had big 18-inch mud-and-snow tires, a limited-slip center differential and low-gear four-wheel-drive settings, all meant for off-roading. It still uses body-on-frame construction, like a pickup truck, rather than the modern and carlike unibody method. So forget about that patented Lexus glide. The heavy GX tumbles you around like a lumber truck, and seems ill-suited for highway off-ramps and around-town jaunts. Bummer. This ethos extends to the interior. Among the pretty wood and soft-grain leather you’ll find oversize panic handles on the inside of the sills — for hanging on while descending 35-degree mountain screes, I suppose. Legroom goes from okay up front to so-so in the middle and downright scant in back. Still, I can see the appeal of such a big vehicle. It offers a command driving position. The many windows mean there are no blind spots, and you sit so high you can see everything on the road. Supercar For those who aren’t looking to move families around, Lexus offers its unlikeliest vehicle: the very expensive, very powerful LFA supercar. I haven’t yet had a chance to drive this $375,000 javelin, but did get a walk-around. Lexus has never been known for its sports cars, so the rear-wheel-drive LFA, with a 552-horsepower, 4.8-liter V-10 is a true departure. It’s brutal-looking up close, with a blunt snout, big rear wing and many air intakes. Top speed is more than 200 mph. Production starts later this year, with only 150 coming to the U.S. Oddly, would-be American collectors can only lease them for two years. So, the state of Lexus? It’s a mixed bag. Stalwarts such as the RX look as strong as ever and there are surprises like the LFA. But it’s the safety questions that are likely to weigh on buyers’ minds for some time to come. After all, if you’re doing 200 mph, you want to be sure the brakes work. The 2010 Lexus RX 450h and GX 460 at a Glance Engines: 3.5-liter 6-cylinder and two electric-drive motors for a combined 295 horsepower; 4.6-liter V-8 with 301 hp. Transmissions: Continuously variable; six-speed automatic. Speed: 0 to 60 mph in 7.4 seconds; 7.8 seconds. Gas mileage per gallon: 30 city, 28 highway; 15, 20. Price as tested: $52,303; $58,039. Best features: Overall practicality with hybrid gas mileage; command driving position. Worst features: Rather bland to drive; heavy and unwieldy. Target buyers: The family who hates minivans; the would-be luxury mountain climber. ( Jason H. Harper writes about autos for Bloomberg News. The opinions expressed are his own.) To contact the writer of this column: Jason H. Harper at Jason@JasonHharper.com .

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Bankers’ Stew Disguising CDO Scraps as Tasty Morsels: Book Excerpt

February 9, 2010

By Mark Gilbert Feb. 9 (Bloomberg) — Since its inception, the derivatives market has echoed the fairground hawkers’ call to “scream if you want to go faster.” Among the new derivatives, collateralized-debt obligations (CDOs) were particularly hot. To make a CDO, bankers bundle together a package of other kinds of securities, such as corporate bonds, asset-backed securities (ABSs) or credit-default swaps (CDSs) that are tied to company creditworthiness or mortgage performance. By carving the resulting collections into slices of differing quality, the creators can make the riskiest portions absorb any losses on the underlying assets first, thereby cushioning the higher-rated slices. No Clear Idea As with almost every other investment vehicle, CDOs were designed to reward investors according to the amount of risk they took. Those who bought lower-risk securities typically earned a smaller rate of return from successful investments than did those who took bigger risks, who received either a larger payoff if the investment performed well or nothing at all if the investment failed. Trouble was, no one had a clear idea of just how risky any given slice was or any sense of how to quantify and value that risk. In the same way that Liverpudlians disguise overripe meat and vegetables by cooking them to mush in a stew called scouse, investment banks, rating companies and plain old market peer pressure turned the investments inside most CDOs from inedible chunks of the financial markets into bite-size morsels palatable to pension fund trustees. No pension fund — and only a few other investors — would buy a structured transaction whose worth depends on what happens to the stock market and company creditworthiness, which way commodity prices go and whether the wind blows on a Sunday. They did, however, happily purchase CDOs that offered strong credit ratings and the promise of top-flight returns. Risk Appetite For the game to work, everyone involved had to turn a blind eye to the less-than-stellar track record assembled by the rating companies that assessed CDOs. And they did — until CDOs’ poor performance became impossible to ignore. Of the CDOs that started with AAA ratings in January 2002, 16 percent had lost that top grade by November 2004. Almost 14 percent of second-tier (AA-rated) securities were cut, and nearly 17 percent of CDOs with third-tier (A- rated) grades were cut. Those early CDOs, which typically contained vanilla corporate bonds, were hurt by a swift deterioration in average creditworthiness, combined with some hefty one-off defaults, including those of Enron Corp. and WorldCom Inc. Demand Soars Memories, though, proved short, and demand for CDOs soared as credit-rating cuts on corporate debt became rarer. (The economy was growing, and most companies had enough cash to cover their debts.) In 2004 in Europe alone, Moody’s rated $56 billion in European collateralized debt backed by default swaps. That was a 20 percent gain over the previous year, according to figures provided by the company at the start of 2005. By 2006, the derivatives printing presses were stamping out $503 billion of collateralized debt for the rating companies to grade, up from $274 billion in the previous year and $144 billion in 2004. In April 2007, Moody’s announced a fourth-quarter profit increase of 20 percent, as revenue from rating structured- finance transactions leaped to $251.5 million, a 44 percent gain over the same period in 2006. Almost half of Moody’s total 2007 sales of $583 million came from its structured-notes business, dwarfing the $115 million it made by analyzing company creditworthiness. Fatally Flawed Risk appetites increased, and CDOs became even more exotic and complicated. Structured-product specialists worked to broaden their appeal by tying CDO values to a broader range of underlying markets, some even creating theoretical bets that were tied to abstract prices. To grade these new financial instruments, rating companies used methodology that was fatally flawed from the start. It was based on induction, the process of inferring a general law or principle from the observation of particular instances. But the particular instances the rating companies chose did not incorporate the lessons of previous housing booms, nor the nonexistent histories of some new, theoretical bets. Instead, rating companies used the brief price history of the derivatives market as a benchmark to assess its likely future price performance. Indigestion The most egregious example of derivative market excess came with the invention of the constant-proportion debt obligation, known as a CPDO. In June 2006, Dutch bank ABN Amro Holding NV issued a 38-page marketing brochure describing a security called Surf: “the first CPDO; a breakthrough in credit investments.” CPDOs were the credit derivatives market’s hottest alchemical method for transforming plumbous yield premiums into the gold of market-beating returns. The marketing literature and associated research reports suggested that the newfangled securities were the holy grail of investing — heads, you win; tails, you don’t lose. CPDOs were an abstract bet on the likelihood of defaults in the corporate bond market. With their values tied to credit- default-swap indexes, the securities promised to deliver as much as 2 percentage points more than money market rates during their 10-year life spans. That was worth about 5.6 percent at the three-month money market rates that prevailed when CPDOs began attracting attention in November 2006. Alphabet Soup At the time, German government debt, deemed the safest fixed-income investments in the European markets, yielded just 3.7 percent annually. No wonder CPDOs looked irresistible. Those remarkable rates of return were made possible by the magic of derivatives, which leveraged the initial bet by a multiplier of 15. The leverage turned average punters into high rollers with the potential for fantastic gains — and losses. When times were good and a CPDO looked set to meet its payment obligations, sponsoring investment banks could reduce their market bets. When times got tougher, banks increased those wagers to boost the security’s net asset value. Credit-rating companies issued CPDOs top ratings for both interest and principal payments. The alphabet soup cooked up by the derivatives chefs — boil some CDOs, toss in a dash of ABSs and a soupcon of CDSs, season with CPDOs and serve with a garnish of overly optimistic ratings — was sufficiently toxic to poison the entire financial system. Just Deserts Capitalism itself ended up looking sickly and anemic. Belatedly, investors discovered the truth of one of billionaire investor Warren Buffett’s aphorisms: Unraveling a derivatives trade, the so-called Oracle of Omaha had said, was like trying to carry “a cat home by its tail.” Wall Street had invented a machine that could recycle just about anything that generated a cash flow. It had a growing, reliable source of supply from the housing market, sufficient to keep the merry-go-round spinning. And shifts in both the investment banking culture and the investing landscape created a willing coalition of buyers and sellers. To contact the writer: Mark Gilbert in London at magilbert@bloomberg.net

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Buy Stock Now to Ride Second Stage of Bull Market: John Dorfman

February 8, 2010

Commentary by John Dorfman Feb. 8 (Bloomberg) — From Jan. 19 through Feb. 4, the Standard & Poor’s 500 Index , a decent gauge of the overall U.S. stock market, dropped about 8 percent. Among the reasons sparking the decline were President Barack Obama’s proposed tax on banks and a congressional deadlock on health-care legislation. Some stock-market pundits take the drop as a sign that the stock surge that began March 9, 2009, is over, or almost over. I believe the rally will continue. The recent slump, in my view, was normal. The U.S. stock market historically has averaged at least three declines a year of 5 percent or more, and one fall of 10 percent or more, according to Ned Davis Research Inc. I think the rally will resume and run — with unpleasant interruptions, to be sure — through most of 2010, and possibly longer. Ned Davis , head of NDR, is one of my favorite analysts. His firm predicts a decline, perhaps even a “mini bear market,” during the second and third quarters. It expects the market to advance again after that. The Ned Davis team recommends that investors go “defensive” during that six-month stretch by buying the kinds of stocks that usually hold up better in declining markets: consumer staples, health care, utilities and telecommunications stocks. The Davis folks have given those four groups the acronym SHUT (staples, health, utilities, telecom). When the SHUT stocks break above their 200-day moving average, they say, investors should climb onboard. Saw-Tooth Advance Although I respect Davis, I’m not about to play defense. I don’t think the year will divide, like a concerto, into three distinct movements: up, down, up. Rather, I think the market will move in saw-tooth fashion, up and down all year, but with more ups than downs. Accordingly, I am staying with my “offensive” stocks: materials, energy, and industrial companies. In the materials field, for example, I recently purchased shares of Innophos Holdings Inc. , a small chemical company located in Cranbury, New Jersey. Innophos makes phosphate salts and other chemicals used for water treatment, as flavor enhancers, in pharmaceuticals, and for other applications. Chemical companies, like producers of steel and other metals, tend to rise and fall with the tides of the economy. Right now, in my view, the tides are rising. Evidence of Recovery Look at the fourth-quarter tally of the gross domestic product. It rose at a 5.7 percent annualized pace, the strongest reading since the third quarter of 2003. Or consider the Conference Board’s index of leading economic indicators. It has risen nine months in a row, from April through December. Auto sales are gaining, home prices have firmed in many cities, and technology orders are improving. All in all, the evidence points to an enduring recovery, in my view. If the economy is indeed recovering, it would be shocking for the stock market’s advance to stop abruptly. There has been a historical pattern, and the market seems to be following it. A terrible event such as a major terrorist act could, of course, cause markets to abruptly change direction. Second-Stage Bull During most bull markets, the first 40 percent or so of stock market gains occur in a spurt before an economic recovery begins. This time, that would be the period from March through, say, September. The remaining 60 percent of the gains usually occur more gradually and haltingly during the next year or two, as the economic recovery unfolds. Energy stocks usually do pretty well during the second stage of bull-market advances. Today, there are lots of energy companies I like. One is Atwood Oceanics Inc. , an oil and gas drilling contractor. Though the company is based in Houston, less than 5 percent of its revenue comes from the U.S. The bulk of its sales are from drilling in the Mediterranean and Black Seas as well as offshore sites in Asia and Australia. Atwood increased its fiscal year revenue to $587 million in 2009 from $161 million in 2004, and did it in the teeth of an economic slowdown. With that record of growth, I think the company should sell for more than the current multiple of nine times earnings. Twin Disc Undervalued Plenty of industrial stocks look good to me now. One is Twin Disc Inc. of Racine, Wisconsin, which makes heavy-duty transmissions used in off-highway vehicles, yachts and other large boats. In the nightmare year of 2008, Twin Disc shares dropped to about $7 from about $35. They have recovered only modestly since, and now trade for a bit less than $10. At that price, the shares are trading right around book value, a sign of a possible bargain. The price-earnings multiple looks bad, at near 30, but that is because earnings are evaporating– temporarily, I believe. After a profit of $1.03 a share in fiscal 2009, analysts look for earnings to fall to about 18 cents a share in fiscal 2010, which ends in June, and recover to 94 cents the following year. Twin Disc is well managed and happens to be economically sensitive. It has endured some pain, and now I think it will reap some gain. Disclosure note: I own shares of Innophos and Twin Disc personally and for clients. I have no long or short positions in Atwood Oceanics at this time. ( John Dorfman , chairman of Thunderstorm Capital in Boston, is a columnist for Bloomberg News. The opinions expressed are his own. His firm or clients may own or trade securities discussed in this column.) Click on “Send Comment” in the sidebar display to send a letter to the editor. To contact the writer of this column: John Dorfman at jdorfman@thunderstormcapital.com .

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Kill Your Favorite Subsidy to Win the Deficit War: David Pauly

February 4, 2010

Commentary by David Pauly Feb. 4 (Bloomberg) — The Deficit. The Debt . Americans are strangling themselves economically. So: 1) Restore all income taxes to the pre-President George W. Bush level, not just those for people earning $250,000 or more. 2) Tax the banks $90 billion as proposed by President Barack Obama to pay for their bailout. Then break them up — making them small enough to fail and eliminating the need for more trillion-dollar rescues. You will find these measures repellant, of course, if you’re happy with the estimated $1.6 trillion U.S. budget deficit for the year ending Sept. 30. Since excessive government encouragement of home ownership contributed to the subprime mortgage crisis: 3) Eliminate income-tax deductions for property taxes and mortgage interest. Phase it in over five years so it hurts less. 4) Break Fannie Mae and Freddie Mac into four mortgage- buying companies and get them off the federal dole. You’ll be against these moves, naturally, if you think we can easily afford a budget deficit of $1.3 trillion in fiscal 2011. Because we need curbs now on out-of-control entitlements: 5) Raise the retirement age for collecting full Social Security benefits to 72. Cut cost-of-living increases for beneficiaries to half the inflation rate for 10 years. The president said the other night that fixing Social Security was easy. Let’s prove it. Work Longer 6) Raise the age for Medicare eligibility to 68. Try the Obama health-care changes. What’s there to lose? Extended coverage might lead to more preventive medicine that saves money in the long run. You won’t want to do any of this, certainly, if you’re delighted that the national debt now stands at $12.3 trillion, compared with $900 billion 30 years ago. There’s money to be saved on diverse fronts: 7) End the wars in Iraq and Afghanistan on the current schedules. Not levying a war tax to pay for these conflicts — which Americans initially would have supported — was a blunder. 8) Kill farm subsidies. It’s true that nature can damage farmers. It’s also true that in another industry, a rival’s new product can ruin a company. There are other possibilities. We could start a national sales tax — with rebates for those with low incomes. We can tax excessive health-insurance benefits. Personally, I would like a special income tax on college presidents who make more than half a million and college teachers who don’t teach. Ten-Year Outlook New taxes won’t appeal to you if you’re looking forward to annual budget deficits of $700 billion to $1 trillion for the next 10 years. Finally: 9) Reduce government. Without denigrating what these folks do, can we ask if the president really needs both a Council of Economic Advisers and a National Economic Council? Government housing officials will have less to do if we cut Fannie and Freddie loose. Whole agencies might be suspect. We, for instance, have a Selective Service System but no draft. The government has both the U.S. Postal Service and the Postal Regulatory Commission. Doesn’t competition from e-mail and FedEx Corp. keep postal rates in line? Did you know that we also have a Merit Systems Protection Board? Its Web site says one of its jobs is to make sure government workers are qualified. Of course, you will have no problem with these government entities if you’re not worried about the national debt increasing to an estimated $18.5 trillion by 2020. But the noose is getting tighter. ( David Pauly is a Bloomberg News columnist. The opinions expressed are his own.) Click on “Send Comment” in the sidebar display to send a letter to the editor. To contact the writer of this column: David Pauly in Fort Myers, Florida dpauly@bloomberg.net

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Kill Your Favorite Subsidy to Win the Deficit War: David Pauly

February 4, 2010

Commentary by David Pauly Feb. 4 (Bloomberg) — The Deficit. The Debt . Americans are strangling themselves economically. So: 1) Restore all income taxes to the pre-President George W. Bush level, not just those for people earning $250,000 or more. 2) Tax the banks $90 billion as proposed by President Barack Obama to pay for their bailout. Then break them up — making them small enough to fail and eliminating the need for more trillion-dollar rescues. You will find these measures repellant, of course, if you’re happy with the estimated $1.6 trillion U.S. budget deficit for the year ending Sept. 30. Since excessive government encouragement of home ownership contributed to the subprime mortgage crisis: 3) Eliminate income-tax deductions for property taxes and mortgage interest. Phase it in over five years so it hurts less. 4) Break Fannie Mae and Freddie Mac into four mortgage- buying companies and get them off the federal dole. You’ll be against these moves, naturally, if you think we can easily afford a budget deficit of $1.3 trillion in fiscal 2011. Because we need curbs now on out-of-control entitlements: 5) Raise the retirement age for collecting full Social Security benefits to 72. Cut cost-of-living increases for beneficiaries to half the inflation rate for 10 years. The president said the other night that fixing Social Security was easy. Let’s prove it. Work Longer 6) Raise the age for Medicare eligibility to 68. Try the Obama health-care changes. What’s there to lose? Extended coverage might lead to more preventive medicine that saves money in the long run. You won’t want to do any of this, certainly, if you’re delighted that the national debt now stands at $12.3 trillion, compared with $900 billion 30 years ago. There’s money to be saved on diverse fronts: 7) End the wars in Iraq and Afghanistan on the current schedules. Not levying a war tax to pay for these conflicts — which Americans initially would have supported — was a blunder. 8) Kill farm subsidies. It’s true that nature can damage farmers. It’s also true that in another industry, a rival’s new product can ruin a company. There are other possibilities. We could start a national sales tax — with rebates for those with low incomes. We can tax excessive health-insurance benefits. Personally, I would like a special income tax on college presidents who make more than half a million and college teachers who don’t teach. Ten-Year Outlook New taxes won’t appeal to you if you’re looking forward to annual budget deficits of $700 billion to $1 trillion for the next 10 years. Finally: 9) Reduce government. Without denigrating what these folks do, can we ask if the president really needs both a Council of Economic Advisers and a National Economic Council? Government housing officials will have less to do if we cut Fannie and Freddie loose. Whole agencies might be suspect. We, for instance, have a Selective Service System but no draft. The government has both the U.S. Postal Service and the Postal Regulatory Commission. Doesn’t competition from e-mail and FedEx Corp. keep postal rates in line? Did you know that we also have a Merit Systems Protection Board? Its Web site says one of its jobs is to make sure government workers are qualified. Of course, you will have no problem with these government entities if you’re not worried about the national debt increasing to an estimated $18.5 trillion by 2020. But the noose is getting tighter. ( David Pauly is a Bloomberg News columnist. The opinions expressed are his own.) Click on “Send Comment” in the sidebar display to send a letter to the editor. To contact the writer of this column: David Pauly in Fort Myers, Florida dpauly@bloomberg.net

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Obama’s Pyramid Schemes Would Make Keynes Happy: Caroline Baum

February 2, 2010

Commentary by Caroline Baum Feb. 3 (Bloomberg) — Jobs, jobs, jobs. Meet the new mantra, same as the old mantra. No longer will President Barack Obama be content to cite specious numbers about “jobs saved or created” as a result of last year’s $787 billion fiscal stimulus. Now he’s proposing $100 billion of new spending to “jumpstart job creation,” according to White House Budget Director Peter Orszag . It’s part of a $3.8 trillion budget for fiscal 2011, unveiled Monday, that projects a $1.3 trillion deficit next year, following a $1.6 trillion deficit this year. Spend money to save money. Spending dressed up as a jump- starter is still spending by another name. The only thing missing from the energy-cleansing, rural- community-assisting, climate-change-mitigating, health-food- promoting blueprint is money for pyramid building. In Chapter 10, Section VI of “The General Theory of Employment, Interest, and Money,” John Maynard Keynes advocated building pyramids as a cure for unemployment . In fact, “Two pyramids, two masses for the dead, are twice as good as one,” he wrote in his 1936 treatise. There are no masses for the dead in the president’s 2011 budget, only a few dead programs in the discretionary budget. It’s the part of the budget on automatic pilot — entitlement spending on Medicare and Social Security and interest on the public debt — that has to be addressed if restoring fiscal discipline is the goal. Incentive to Cheat The budget’s job-creation initiatives include funds for infrastructure investment; loan guarantees and tax credits for small businesses to spur hiring; cash assistance to states; and an extension in unemployment benefits, which is a disincentive for job seekers . While the nation can always use better roads and bridges, a tax cut for new hires, which is popular with both parties, is more problematic and hard to implement, according to Greg Mankiw , professor of economics at Harvard University and former economic adviser to President George W. Bush . How do you differentiate between employment churning — firing Peter to hire Paul — and a new hire? How do you treat new firms? In an October blog post, Mankiw proposed a cut in the payroll tax, something simple and universal rather than complex and targeted. Any attempt to apply more favorable tax treatment to marginal jobs than existing ones “creates a range of unintended consequences,” he said, not to mention an incentive to game the system. Tax Treatment The budget increases taxes on the rich, living and dead, by allowing the Bush tax cuts to expire at the end of the year. It eliminates capital gains taxes for investments in small firms and raises income, dividend and capital gains tax rates for individuals earning more than $200,000 a year, $250,000 for households. It imposes fees on big banks. (For some reason, the Treasury Department listed the tax cuts as bullet points under job creation and stashed tax increases under fiscal discipline and responsibility.) In bad times, presidents let themselves be seduced by the Keynesian notion that government can tax or borrow from the public and use that money to pay people to perform work of its choosing without sacrificing something. (See Friedman, Milton: “There is no free lunch.”) The sacrifice is private-sector investment in human and physical capital. If you accept the premise that the profit- driven private sector is better than bureaucrats at delivering the goods and services people want at the prices they’re willing to pay, then the trade-off isn’t worth it. Flawed Metrics How well do government stimulus programs work? Outside of some econometric model prediction, we don’t know. It’s impossible to run a real-world control experiment. We do know that on Feb. 13, 2009, Congress passed the American Recovery and Reinvestment Act. While the Obama administration insists it was not a jobs bill, the first goal , according to the Recovery.gov Web site, was to “create new jobs as well as save existing ones.” Thus began the “jobs created or saved” imbroglio, an attempt to quantify something unquantifiable. On Oct. 30, the Obama administration reported that 640,329 jobs had been created or saved from Feb. 17 to Sept. 30. (The Web site has since added 20 jobs to that total.) Watchdog groups smelled a rat, sifted through the data and found jobs that weren’t created in districts that didn’t exist. Shamed by revelations of bureaucratic ineptitude, the government redefined its metric. Going forward, it would tally all jobs funded by ARRA, even if they already existed. Pay Without Performance On Jan. 30, Recovery.gov posted a second report claiming 599,108 jobs were funded in the fourth quarter of last year. While the numbers from the two reporting periods aren’t comparable, the measures are so flawed and the job count so farfetched as to render them close enough for government work, and our purposes as well. Between Feb. 17 and Dec. 31, the government doled out $57,864,901,449 in federal contract, grant and loan awards yielding 1,239,457 jobs (no inexact rounding for this administration!). That computes to $46,686 per job created, saved, funded or fabricated. Why not simply write a check in that amount to each new job holder? It would be a lot easier and cheaper than funding a bureaucracy to orchestrate the effort. OK, I hear you. A job is more than the money it yields. It gives us a sense of purpose, improves our self-esteem and provides a reason to get up in the morning. The point is, government can always put people to work. It can hire teams of men with shovels to labor for weeks doing the work one earth-moving machine and operator can accomplish in one day. The goal is to create permanent jobs, increase productivity and contribute to the wealth of the nation. Pyramids don’t cut it. But they’re a good place to bury dead theories. ( Caroline Baum , author of “Just What I Said,” is a Bloomberg News columnist. The opinions expressed are her own.) Click on “Send Comment” in sidebar display to send a letter to the editor. To contact the writer of this column: Caroline Baum in New York at cabaum@bloomberg.net .

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