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Coast Guard: Tar balls found off Key West
Tuesday, 18 May 2010 7:20AM
Associated Press Reporting
The U.S. Coast Guard says 20 tar balls have been found off Key West, Florida, but the agency stopped short of saying whether they came from a massive oil spill in the Gulf of Mexico.
Some 5 million gallons of crude has spewed into the Gulf and tar balls have been washing ashore in several states along the coast.
Scientists are worried that oil is getting caught in a major ocean current that could carry it through the Florida Keys and up the East Coast.
The Coast Guard says the Florida Park Service found the tar balls on Monday during a shoreline survey. The balls were 3-to-8 inches in diameter.
Coast Guard Lt. Anna K. Dixon said no one at the station in Key West was qualified to determine where the tar balls originated. They have been sent to a lab for analysis.
Jindal calls on corps to approve protection plan
WWL.com / Associated Press Reporting
Gov. Bobby Jindal and leaders from several coastal parishes are pushing a $350 million barrier island repair plan as a way to protect Louisiana's coast from the Gulf of Mexico oil spill and reduce the ultimate cleanup and its costs.
Sand dredged from the gulf's floor would be built up in 86 miles of the gaps between islands, returning land eaten away by decades of storms and slower erosion.
"We presented this plan almost two weeks ago because we expected to need greater defenses than boom on the top of the water. We are very concerned about reports of oil submerged under the water. This 'sand booming' plan we are asking the Corps to approve will strengthen our barrier islands and help protect our coast and critical wildlife areas," the governor said.
Jindal said Monday that the project could start within days after the Army Corps of Engineers approves it. He is asking for quick approval, and says he has been told that a decision could come in days.
Jindal says the price tag is much less than it would cost to try to remove oil from marshlands.
Here is the news release from the governor's office:
Today, Governor Bobby Jindal and coastal parish leaders met with the U.S. Army Corps of Engineers to stress the importance of approving the dredging plan to restore Louisiana 's historic barrier islands and mitigate the impact of the oil spill on the coast. For the meeting and the press conference, Governor Jindal was joined by Plaquemines Parish President Billy Nungesser, St. Bernard Parish President Craig Taffaro, Terrebonne Parish President Michel Claudet, Grand Isle Mayor David Carmardelle, Jean Lafitte Mayor Tim Kerner, Jefferson Parish Councilmen Chris Roberts and Tom Capella and other local officials.
Before the press conference, Governor Jindal joined BP COO Doug Suttles for a flyover of the oil spill and the leak site. At the press conference, the Governor noted that BP's announcement about the tube insertion yesterday is a positive development, but said there's still much work to be done until this crisis is over for the state.
Governor Jindal said, "I want to start off touching on BP's announcement yesterday that they were able to insert a tube into the leak. This is a positive development, but I want to stress that we are nowhere close to the finish line. Oil continues to pour into the Gulf and has hit our shores. I want to be clear on this point: This disaster will not be over for Louisiana until our water and our shores are completely clean and our wildlife, our communities, and our coastal industries are one hundred percent restored.
"NOAA briefed us that Louisiana now has 29 miles of oiled shoreline - since the beginning of this incident. We had shoreline impact of oil specifically at Trinity Island , Whiskey Island , South Pass, Chandeleur Islands , Fourchon Beach , Raccoon Island and Grand Isle. Oil sheen was reported in Pass a Loutre. There are also new, unconfirmed reports of oil on Marsh Island - which is in Iberia Parish."
The Governor also said he remains concerned about reports regarding the possibility of a large volume of oil below the surface of the water and that he will continue to push aggressively for alternatives to boom that will protect the state's coast.
Governor Jindal said, "We continue to be very concerned that there may be a large volume of oil below the surface. That is why it is so important that we continue to lean forward and pursue aggressive solutions to protect our coasts.
"Booming is one option - but we know we cannot only count on boom to protect our coast, especially as the supply of boom continues to fall short of what is needed to protect many areas. We continue to push the Coast Guard and BP to get more boom to sensitive areas, but we are also aggressively pursuing alternatives to boom that would help protect the coast."
DREDGING PLAN
The Governor said the state continues to move forward on a dredge plan to build "sand booms" along the alignment of Louisiana's historic barrier islands in the Chandeleurs, Barataria Bay and Timbalier Bay .
Governor Jindal said, "CPRA filed for an emergency permit last week from the Army Corps of Engineers to move forward with this plan and we just met with the Col. Lee of the Army Corps of Engineers along with parish leaders to stress the importance of approving this plan quickly and granting our emergency permit to get the work started. NOAA's report that tar balls washed up on Marsh Island - which is over 200 miles from the Horizon well explosion site - further underscores the need for us to implement the dredge plan - or 'sand booming' strategy.
"We presented this plan almost two weeks ago because we expected to need greater defenses than boom on the top of the water. We are very concerned about reports of oil submerged under the water. This 'sand booming' plan we are asking the Corps to approve will strengthen our barrier islands and help protect our coast and critical wildlife areas.
"Once we get approval for dredging to begin, we could start to see land or 'sand booms' in place in around 10 days. We need to get this plan moving as quickly as possible."
Some other alternatives to boom include: Tiger Dams in Plaquemines Parish, filling in sand in Elmer's Island and sandbag drops in Fourchon. Below is an update on the projects:
Elmer's Island at Grand Isle: National Guard engineers continue to backfill gaps in the vicinity of Elmer's Island where they closed a 785-foot gap last week.
Port Fourchon Sandbag Drop Operations: About 30 engineers from the 928th Engineer Company are filling five total gaps in the vicinity of Thunder Bayou in Port Fourchon. Teams are currently working simultaneously in the vicinity of Thunder Bayou and also on the western side of Elmer's Island . Engineers are working from each end to the center to backfill five cuts on the island. Gap 1 on the east end is 30 percent complete and Gap 5 on the west end is about 15 percent complete. The National Guard already closed a large 150-foot gap there last week.
Tiger Dam Project at Southwest Pass : Around 42 engineers from the 528th Engineer Battalion are working to secure 7.1 miles in Southwest Pass with tiger dams. Engineer crews have obtained 18 additional pumps to accelerate construction efforts when operations resume. Yesterday, National Guardsmen also positioned 92 pallets of Tiger Dam to Grand Isle for future deployment - which is around 7 miles of dam material.
Sand-Fill: CPRA and the National Guard have also leaned forward and identified approximately 40 total locations where gaps in Louisiana 's barrier islands could be filled with sandbags or dump trucks of sand. This strategy would complement a more complete and extensive dredging/sand booming plan.
The National Guard has already dropped 85 sandbags to date on Pelican Island . National Guard engineers are moving ground operations to support this effort from Grand Isle to Buras Middle School today to prepare for full-scale operations tomorrow.
Hesco Baskets: The state also recently got approval to deploy Hesco baskets on the backside of Grand Isle and in Cameron Parish to protect the shorelines there.
Freshwater Diversions: The state is also already running a variety of freshwater diversions to push freshwater out to protect the shore.
CLEAN -UP
Ground teams are being deployed today to clean: Whiskey Island , Trinity Island Fourchon Beach - and also South Pass and the Chandeleur Islands , if weather permits.
‘There’s No Money Left,’ U.K. Minister Learns
May 17 (Bloomberg) -- Arriving for work at the U.K. Treasury last week, the incoming chief secretary, David Laws, found a note from his predecessor, Liam Byrne, offering advice on the job.
“Dear Chief Secretary, I’m afraid to tell you there’s no money left,” Laws cited it as saying.
“Which was honest,” Laws, whose position is the No. 2 in the Treasury after the chancellor of the exchequer, told a press conference in London today. “But slightly less than I was expecting.”
The note underscores the task facing Britain’s Conservative-Liberal Democrat coalition as it seeks to reconcile demand for improved health and education services with promises to reduce the largest budget deficit since World War II.
It was also in the tradition of Reginald Maudling, Conservative chancellor of the exchequer from 1962 to 1964. Leaving his residence after election defeat, he was reported byJames Callaghan, his successor, to have remarked, “Sorry, old cock, to leave it in this shape.”
Byrne didn’t respond to requests for comment. He was quoted by Sky News as saying the note was a joke. “I do hope David Laws’ sense of humour wasn’t another casualty of the coalition deal,” he said, according to Sky News.
According to the Treasury, the letter read as follows: “Dear Chief Secretary, I’m afraid there’s no money. Kind regards -- and good luck! Liam.”
China Stocks Plunge Most Since August on Property Curbs, Europe
May 17 (Bloomberg) -- China’s stocks plunged, driving the benchmark index to the biggest loss since August, on concern government steps to cool the property market and European austerity measures will hurt economic growth.
China Vanke Co. paced declines by developers after Premier Wen Jiabao said the government will “decisively” contain gains in home prices. Jiangxi Copper Co. lost 6.3 percent after commodity prices tumbled and the Ministry of Commerce said the euro’s decline is pressuring exporters. Guangzhou Shipyard International Co., which got more than half of last year’s sales from Europe, slumped 8.4 percent.
“Investors are increasingly fearful of policy miscalculation on China’s part,” said Daphne Roth, Singapore- based head of Asian equity research at ABN Amro Private Banking, which oversees about $21 billion in the region. “With the European crisis, the risk is that China over-tightens and the economy goes into a hard landing.”
The Shanghai Composite Index dropped 136.69, or 5.1 percent, to close at 2,559.93, the lowest since May 4, 2009. Today’s decline is the biggest since Aug. 31, when the gauge fell 6.7 percent on concern a slowdown in lending growth would slow economic growth. The CSI 300 Index retreated 153.31, or 5.4 percent, to 2,714.72.
The Shanghai index has lost 22 percent this year, the world’s fourth-worst performer among the 93 gauges tracked by Bloomberg, on concern the government will keep tightening monetary policy to contain inflation and avert asset bubbles. The measure on May 11 entered a bear market after falling 21 percent from its Nov. 23 high.
Economic Growth
Equity losses have dragged valuations on the Shanghai index to 19.1 times reported earnings, compared with the multiple of 37 times in July 2009, according to weekly data compiled by Bloomberg.
China International Capital Corp. on May 10 cut its estimate for China’s economic growth this year to 9.5 percent from 10.5 percent, citing property tightening measures and overseas “uncertainties.” The economy expanded 11.9 percent in the first quarter from a year earlier.
Vanke, the country’s largest listed developer, slid 5.3 percent to 6.92 yuan. Poly Real Estate Group Co. lost 7.3 percent to 10.10 yuan, capping a 41 percent loss this year. An index tracking 34 property stocks on the Shanghai Composite plunged 6.2 percent, set for its lowest close since March 2009.
Premier Wen said the government will “decisively” contain excessive increases in housing prices in some cities and curb growth of industries with overcapacity, the official Xinhua News Agency reported May 15. China should keep the strength of macroeconomic controls “reasonable” and boost policy coordination, Xinhua said, citing Wen.
Record Gains
Property prices jumped a record 12.8 percent in April from a year earlier and consumer prices rose 2.8 percent, the fastest pace in 18 months, even after the government raised bank reserve requirements three times this year and increased downpayments on homes to curb asset bubbles.
The National Development and Reform Commission is currently drafting “more stringent” rules for the property market, the 163.com website reported, citing unidentified people.
Prices of reinforcing steel bars used in construction fell 4.7 percent last week, the most in at least eight months, according to data compiled by Beijing Antaike Information Development Co.
China’s property market is “healthy” and not in a bubble because sales are driven by cash rather than debt, Andy Rothman, China Macro strategist for CLSA Asia-Pacific Markets, said at a forum in Shanghai today.
Europe Concerns
Jiangxi Copper slumped 6.3 percent to 28.73 yuan, the most since Nov. 27. PetroChina Co., the nation’s largest energy producer, retreated 3.8 percent to 10.73 yuan. Baoshan Iron, the biggest steelmaker, declined 5.8 percent to 6.23 yuan. Angang Steel Co. fell 6.9 percent to 7.92 yuan.
Crude oil fell for a fifth day, losing as much as 2.5 percent to $69.82 a barrel, copper, aluminum and zinc plunged as much as 4.9 percent, while gold increased 0.8 percent to $1,242.45 an ounce.
“Investors are worried that more property tightening is on the way even as Europe throws up more uncertainties about the global economy,” said Michelle Qi, a Shanghai-based portfolio manager at Bank of Communications Schroders Fund Management Co., which oversees about $6.5 billion.
European finance ministers return to Brussels today a week after agreeing to a $1 trillion financial lifeline for the euro region. Ministers are under pressure to show they can reduce deficits fast enough to satisfy investors and then police budgets effectively once targets are met.
Export Market
China is concerned that the debt crisis facing Europe may delay the global economic recovery, Ministry of Commerce spokesman Yao Jian told a regular briefing in Beijing today. Europe is China’s biggest export destination, making up 20 percent of its total overseas sales.
Among companies with sales in Europe, Guangzhou Shipyard fell 8.4 percent to 20.64 yuan, the most since Aug. 31.
The euro fell to the lowest level in more than four years against the dollar after European Central Bank President Jean- Claude Trichet called for a “quantum leap” in the way euro- area nations set their budgets.
China’s growth is “strong” and a leading economic indicator rose “sharply” in March, The Conference Board said today, publishing the data for the first time.
‘Front Loading’
Bill Adams, a Beijing-based economist for The Conference Board, said that the “front-loading” of real-estate projects ahead of government controls on the sector may have contributed to the gain. The economic expansion is “unlikely to accelerate further through the summer months,” he said.
China’s recent stock market declines shouldn’t be blamed on index futures, China Securities Journal cited Wang Lianzhou, former deputy director of National People’s Congress’ financial and economic committee, as saying.
Investor Mark Mobius said May 14 the start of derivatives trading in China may be adding pressure to the stock market. Futures, or agreements to buy or sell the CSI 300 Index at a preset value, began trading on the China Financial Futures Exchange in Shanghai on April 16, while margin trading and short selling was introduced March 31.
Blowout: The Deepwater Horizon Disaster
May 16, 2010
"60 Minutes" Video http://www.cbsnews.com/video/watch/?id=6490378n&tag=related;photovideo
The gusher unleashed in the Gulf of Mexico continues to spew crude oil. There are no reliable estimates of how much oil is pouring into the gulf. But it comes to many millions of gallons since the catastrophic blowout. Eleven men were killed in the explosions that sank one of the most sophisticated drilling rigs in the world, the "Deepwater Horizon."
This week Congress continues its investigation, but Capitol Hill has not heard from the man "60 Minutes" correspondent Scott Pelley met: Mike Williams, one of the last crewmembers to escape the inferno.
He says the destruction of the Deepwater Horizon had been building for weeks in a series of mishaps. The night of the disaster, he was in his workshop when he heard the rig's engines suddenly run wild. That was the moment that explosive gas was shooting across the decks, being sucked into the engines that powered the rig's generators.
"I hear the engines revving. The lights are glowing. I'm hearing the alarms. I mean, they're at a constant state now. It's just, 'Beep, beep, beep, beep, beep.' It doesn't stop. But even that's starting to get drowned out by the sound of the engine increasing in speed. And my lights get so incredibly bright that they physically explode. I'm pushing my way back from the desk when my computer monitor exploded," Williams told Pelley.
The rig was destroyed on the night of April 20. Ironically, the end was coming only months after the rig's greatest achievement.
Mike Williams was the chief electronics technician in charge of the rig's computers and electrical systems. And seven months before, he had helped the crew drill the deepest oil well in history, 35,000 feet.
"It was special. There's no way around it. Everyone was talking about it. The congratulations that were flowing around, it made you feel proud to work there," he remembered.
Williams worked for the owner, Transocean, the largest offshore drilling company. Like its sister rigs, the Deepwater Horizon cost $350 million, rose 378 feet from bottom to top. Both advanced and safe, none of her 126 crew had been seriously injured in seven years.
The safety record was remarkable, because offshore drilling today pushes technology with challenges matched only by the space program.
Deepwater Horizon was in 5,000 feet of water and would drill another 13,000 feet, a total of three miles. The oil and gas down there are under enormous pressure. And the key to keeping that pressure under control is this fluid that drillers call "mud."
"Mud" is a manmade drilling fluid that's pumped down the well and back up the sides in continuous circulation. The sheer weight of this fluid keeps the oil and gas down and the well under control.
The tension in every drilling operation is between doing things safely and doing them fast; time is money and this job was costing BP a million dollars a day. But Williams says there was trouble from the start - getting to the oil was taking too long.
Williams said they were told it would take 21 days; according to him, it actually took six weeks.
With the schedule slipping, Williams says a BP manager ordered a faster pace.
"And he requested to the driller, 'Hey, let's bump it up. Let's bump it up.' And what he was talking about there is he's bumping up the rate of penetration. How fast the drill bit is going down," Williams said.
Williams says going faster caused the bottom of the well to split open, swallowing tools and that drilling fluid called "mud."
"We actually got stuck. And we got stuck so bad we had to send tools down into the drill pipe and sever the pipe," Williams explained.
That well was abandoned and Deepwater Horizon had to drill a new route to the oil. It cost BP more than two weeks and millions of dollars.
"We were informed of this during one of the safety meetings, that somewhere in the neighborhood of $25 million was lost in bottom hole assembly and 'mud.' And you always kind of knew that in the back of your mind when they start throwing these big numbers around that there was gonna be a push coming, you know? A push to pick up production and pick up the pace," Williams said.
Asked if there was pressure on the crew after this happened, Williams told Pelley, "There's always pressure, but yes, the pressure was increased."
But the trouble was just beginning: when drilling resumed, Williams says there was an accident on the rig that has not been reported before. He says, four weeks before the explosion, the rig's most vital piece of safety equipment was damaged.
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THE DIFFERENCE BETWEEN WALL STREET AND SCHOOL TEACHERS....
http://www.washingtonmonthly.com/archives/individual/2010_05/023820.php
It's been a little under the radar this week, but a key policy dispute is unfolding over federal aid to prevent teacher layoffs.
As states and municipalities continue to struggle with budget shortfalls, schools are being forced to let teachers go. Last year's stimulus bill saved over 400,000 teaching jobs, but it's a new year, and it will take another effort to prevent a massive number of teacher layoffs.
Estimates vary, but my accounts, we're talking about 100,000 to 300,000 job losses in public schools nationwide.
Democratic policymakers hope to do just that. Sen. Tom Harkin (D-Iowa) and Rep. George Miller (D-Calif.) are, with the White House's enthusiastic support, pushing the Keep Our Educators Working Act, which calls for $23 billion in emergency support to preserve these education jobs.
Yesterday, House Minorty Leader John Boehner (R-Ohio) announced his position on the legislation. Care to guess what he thinks? Yep, he's pro-layoff.
"The American people recognize that Washington's out-of-control spending is hurting our economy and stifling job creation, and they're asking their elected leaders to make tough choices on fiscal responsibility. Unfortunately, the Administration's call for another $23 billion to pad the education bureaucracy will only make state governments more dependent on the federal government and more vulnerable when the federal funding explosion disappears. [...]
"Giving states another $23 billion in federal education money simply throws more money into taxpayer-funded bailouts when we should be discussing why we aren't seeing the results we need from the billions in federal dollars that are already being spent."
Whether Boehner actually believes his own press releases is a matter worthy of debate, but either way, his arguments seem oddly detached from reality. Spending is "hurting our economy and stifling job creation"? In Grown-Up Land, spending rescued the economy and generated the strongest job creation in years.
Just as importantly, what does Boehner think the economic impact will be if 300,000 school teachers are forced from their jobs nationwide?
Of course, notice Boehner's emphasis on this being a "bailout" -- a line Fox News is running with. As Republicans see it, emergency aid to prevent teacher layoffs must necessarily be connected in the public's mind with rescuing Wall Street with TARP.
Please.
Doug Thornell, a spokesperson for DCCC Chairman Chris Van Hollen (D-Md.), said in a statement, "Yesterday, job-killing House Republicans blocked a bipartisan plan that would help get more Americans back to work. Today, it appears John Boehner and House Republicans want to stand in the way of important funds that would help save teachers' jobs. It is unbelievable that John Boehner, who begged his Conference to support Bush's bailout of Wall Street banks, has the nerve to use teachers and children as pawns in his cynical game to regain the trust of the right wing of his party."
Well, perhaps "unbelievable" is the wrong word -- it's actually sadly predictable -- but the rest of Thornell's sentiment sounds about right.
—Steve Benen 11:25 AM
Rydex Cash Flows
by Carl Swenlin
The chart shows a massive outflow of funds from Rydex Bull and Sector funds immediately after the minute-crash on May 6. Whereas the outflow you highlighted in 2008 seems to be in anticipation of the decline that followed it, the current outflows seem to be in reaction to the crash.
A notable feature on the chart is that the current outflows have reached a level that has repeatedly proven to be an exhaustion of selling over most of the last three years. With the market in the process of a retest of recent lows, those exhaustion (oversold) levels could be exceeded, but there is a good chance that a successful retest will be completed soon, and that the bull market will resume.
Rydex activity is, after all, only a representation of what Rydex investors are doing. Nevertheless, it does at least give us a hint as to possible money flows in the broad market.
* * * * * * * * * * * * * * * * * * * * *
Technical analysis is a windsock, not a crystal ball.
"After a nearly $1 trillion rescue package meant to end Europe's debt crisis once and for all, financial markets took a second look Friday and began to worry about how the plan would actually work and the implications of the drastic austerity measures for the fragile European economies."
http://www.nytimes.com/2010/05/15/business/15markets.html?hp
How Are Things Going in Afghanistan?
A Pentagon report says: not well.
By Fred Kaplan
Posted Friday, May 14, 2010, at 4:17 PM ET
Hamid Karzai has gone back to Afghanistan, and so the denizens of the Pentagon's E Ring and Foggy Bottom's seventh floor can drop their strained smiles and resume biting away at their fingernails.
Things in that unhappy country are going badly—much worse, of course, than Team Obama had to pretend this week but quite a bit worse than even a sensible skeptic might think. And unless Karzai takes to heart the lectures he heard (someone must have given him a stern talking-to amid all the bonhomie), things are only going to get worse still.
The evidence for this comes from an unclassified, 150-page Defense Department document called "Report on Progress Toward Security and Stability in Afghanistan." Released in late April, it's the fifth in a series of semi-annual reports mandated by Congress. A few disheartening lines from its executive summary were duly recited by the media. But the full report is a hair-raiser. The news is almost all bad; and the few bits of good news turn out, on close inspection, to be extremely misleading.
Let's take a look at one of those bits of pseudo-good news. The executive summary proclaims, "Polls consistently illustrate that Afghans see security as improved from a year ago." The report, on Page 7, quantifies this claim as "a 50 % increase in the proportion of Afghans that saw security improve."
That sounds very positive. But wait: "a 50 percent increase" compared with what? The answer comes in a footnote on Page 27: When Afghans were asked in July 2009 how security had changed in their area in the previous six months, 22 percent said it had improved; in November, the figure rose to 33 percent. Yes, 33 percent represents "a 50 % increase" over 22 percent, but it's still a pretty paltry share of the population.
It gets worse. A footnote on Page 28 reveals that, in both surveys, 25 percent of Afghans said security had worsened in the previous six months. And, for some reason, the report does not reveal the findings of the most recent survey in April 2010.
Another set of polls, cited in the report, suggests the numbers got worse. In December 2009, and again in March 2010, Afghans in 121 "key" districts were asked to describe the state of local security. In December, a majority in 33 districts said the area was "secure" or marked only by "occasional threats"; in March, this number rose to 42.
Yet in the same polls, the number of those describing their districts as "frequently threatened," "dangerous," or "unsecure" rose from 58 to 72.
Here's how the report summarizes the situation in straight prose: "Some individual islands of security exist in the sea of instability or insecurity." The authors muster only two islands: the town of Mazur-i-Sharif in the north and "small contiguous areas" near the Ring Road in the south. The level of security, they add, is "significantly related to the presence of well-led and non-corrupt" units of Afghan soldiers or police.
The problem is that "well-led and non-corrupt" Afghan security forces are, as yet, rare commodities. The Afghan army and national police force are making "slow progress" toward its manpower targets because of "high attrition and low retention." Between 60 percent and 70 percent of uniformed police are "hired and deployed with no formal training." By this August, NATO troops will be mentoring Afghan police in 45 of the 80 most important districts. Yet the report notes that even well-trained police units "have regressed" after a mentoring team is reassigned elsewhere.
Meanwhile, the training of the Afghan security forces is going slowly as well. Of the 5,111 Western personnel authorized for NATO Training Mission Afghanistan, as the command is called, just 2,673—barely half—have been assigned to an Afghan security unit. The United States is contributing its share of trainers, but the NATO allies are falling short. And since some of those allies have announced they're pulling out of Afghanistan altogether, these "credibility gaps," (the report's words) in training will only widen. The U.S. armed forces have to fill the gap, and they're having a hard enough time meeting the schedule to deploy troops for combat.
By the way, the Afghan people aren't so thrilled with our armed forces, either. In a poll taken in March, 29 percent of Afghans said they have a "good" or "very good" impression of U.S. and NATO troops, while 38 percent have a "bad" or "very bad" impression—the worst score since polling began on this question in September 2008. (NATO is so sensitive on this matter—our strategy, after all, is to win over the hearts and minds of the Afghan people—that this survey is taken each quarter.)
The report's authors figure, reasonably, that the decline in popularity is due to the increased fighting—and, with it, the unavoidable rise in civilian casualties. They note that 80 percent of these casualties are still caused by the insurgents and that the number caused by U.S. and NATO troops has gone down "in relation to the size of the force and despite an increase in [operational tempo]." But nobody is likely to be assuaged by an argument that we're killing fewer civilians per Western soldier on the ground. That only suggests that as the ranks of these Westerners swells, civilian casualties will rise along with them.
And finally the big question: How's Karzai doing? As every U.S. military commander has emphasized, a counterinsurgency campaign can succeed only if the host government is regarded as legitimate. Outside military allies can kill insurgents and protect the civilian population, but the Afghan government has to follow through with basic services and good governance.
Basic services? Just 47 percent of Afghans polled are satisfied with the electricity in their area, 28 percent are satisfied with the level of clean water, and 27 percent are satisfied with the roads.
The report notes that U.S. forces achieved "some success" in clearing Helmand Province of insurgents. But, it adds, "progress in introducing governance and development" to that area "has been slow" because the "national infrastructure" is unable to "provide tangible benefits for the populace"—a weakness that "has been exploited by the insurgents."
For this reason, the report states, "The insurgents perceive 2009 as their most successful year."
Good governance? In the same poll, 83 percent of Afghans say corruption affects their daily lives, and 43 percent have confidence in their national government. This latter number represents a 6 percent increase since last September. And 59 percent of Afghans think the government is headed in the right direction—progress, but, still. The report boasts that 30 percent of Afghans see their government as less corrupt than it was six months ago; however, 24 percent see it as more corrupt.
But here is the most gulp-worthy sign of all. In how many of Afghanistan's 121 key districts do majorities of the people say they "support" the Afghan government? Zero! In only 29 districts do they express "sympathy with" the government. By contrast, eight districts support—and another 40 are sympathetic with—the insurgents. (In the other 44 districts, people see themselves as "neutral.")
This is why President Barack Obama and everyone around him is nervous about Karzai. Looking at figures like this, they must be asking themselves, "What have we gotten ourselves into?" And some must be wondering, more quietly, "How can we get out?"
The report notes some unequivocally hopeful signs. The insurgents are under growing pressure due to NATO's stepped-up offensives, the arrest and killing of key Taliban leaders in Pakistan, and the Pakistani military's growing involvement in the fight. More than 100,000 Pakistani troops have been moved from the Indian border in the east to the western areas where Taliban militants have concentrated—reflecting a belated realization of where the true threat lies.
It is worth noting that Obama's "surge" is still in an early phase. Fewer than half of the 30,000 extra troops he ordered into battle last December are now in place. It's also at least intriguing that, during his trip to Washington this week, Karzai was joined by a few dozen officials and deputies from his government's ministries—on agriculture, internal security, the treasury, and so forth—to hold talks with their American counterparts. If the idea is to cultivate relations with Afghanistan's emerging technocrats—so they can provide services, even if Karzai continues to falter—these sessions might bear fruit.
Still, the numbers are bad; the trends, even those tilting slightly upward, are worrisome. The next report is due in October. Two months after that, the U.S. military leaders will conduct their "assessment of progress toward meeting our strategic objectives." At that point, President Obama will decide whether to keep it up, escalate, or withdraw. If the numbers haven't markedly improved by then, he will be in a very tough spot.
Companies Dodge $60 Billion in Taxes
By Jesse Drucker
May 14 (Bloomberg) -- Tyler Hurst swiped his debit card at a Walgreens pharmacy in central Phoenix and kicked off an international odyssey of corporate tax avoidance.
Hurst went home with an amber bottle of Lexapro, the world’s third-best selling antidepressant. The profits from his $99 purchase began a 9,400-mile journey that would lead across the Atlantic Ocean and more than halfway back again, to a grassy industrial park in Dublin, a glass skyscraper in Amsterdam and a law office in Bermuda surrounded by palm trees.
While Forest Laboratories Inc., the medicine’s maker, sells Lexapro only in the U.S., the voyage ensures most of its profits aren’t taxed there -- and they face little tax anywhere else. Forest cut its U.S. tax bill by more than a third last year with a technique known as transfer pricing, a method that carves an estimated $60 billion a year from the U.S. Treasury as it combines tax planning and alchemy. (See an interactive graphic on Forest’s tax strategy here.)
Transfer pricing lets companies such as Forest, Oracle Corp., Eli Lilly & Co. and Pfizer Inc., legally avoid some income taxes by converting sales in one country to profits in another -- on paper only, and often in places where they have few employees or actual sales.
After an economic bailout in which the U.S. government lent, spent or guaranteed as much as $12.8 trillion, the Obama administration faces a projected budget deficit of $1.5 trillion this year. In February, the administration said it would target some of the techniques companies use to shift profits offshore -- part of a package intended to raise $12 billion a year over the coming decade.
Losing $60 Billion
That’s only about a fifth of the $60 billion in annual U.S. tax revenue lost to thousands of companies’ income shifting, according to a study published in December in the National Tax Journal by Kimberly A. Clausing, an economics professor at Reed College in Portland, Oregon.
The lost revenue could pay the federal government’s share of health coverage for more than 10 million uninsured Americans, such as Hurst -- more than a third of the people who will gain insurance under the health-care overhaul passed in March. The administration’s proposed tax on certain financial institutions would take almost seven years to generate $60 billion.
“Transfer pricing is the corporate equivalent of the secret offshore accounts of individual tax dodgers,” said Sen. Carl Levin, a Michigan Democrat and chairman of the Senate’s Permanent Subcommittee on Investigations, in a statement to Bloomberg News. Levin has overseen hearings on tax shelters including those sold to wealthy people by KPMG LLP. “Now that progress has been made in addressing offshore tax abuse by individuals, transfer pricing is an issue that deserves scrutiny.”
Tea Party Signs
The anti-tax activists of the national Tea Party movement haven’t put transfer pricing on signs in their demonstrations, yet it deserves attention, said Mark Skoda, chairman and founder of the Memphis Tea Party.
“I find the issue of corporations paying no tax or little tax in the United States, when the majority of their operations are here, problematic,” Skoda said in an interview. “The problem is that this is sort of the level of micro that people don’t look at.”
The trek taken by Forest’s profits on Hurst’s $99 purchase involves a corporate structure nicknamed “the Double Irish,” registered offices that occupy no real estate and a set of U.S. rules that one tax attorney calls “unenforceable.” It provides a case study in how U.S. companies use transfer pricing to avoid paying taxes.
‘Seems Ridiculous’
“The fact the profits aren’t reported in the U.S. seems ridiculous,” said Hurst, 30, a self-employed marketing consultant, after hearing about the journey his money was undertaking. He began using Lexapro to counteract years of mood swings, including depression and anxiety he started experiencing in college, he said.
On April 15, the deadline for Americans to file their personal tax returns, the Internal Revenue Service said it would add new agents, attorneys and economists to ensure companies are following the rules for transfer pricing. The United Nations set up a panel in October to devise guidelines for the practice in developing countries.
“If multinationals cannot be prevented from shifting profits to low-tax jurisdictions, then it becomes impossible to maintain the domestic corporate tax base,” said Reuven S. Avi- Yonah, director of the international tax program at the University of Michigan Law School in Ann Arbor. If that bleeding can’t be stanched, “we might as well abandon the income tax.”
$1 Trillion Offshore
U.S. companies amassed at least $1 trillion in foreign profits not taxed in the U.S. as of the end of last year, according to data compiled by Bloomberg. That cumulative total, based on filings by 135 companies, increased 70 percent over three years, from $590 billion in 2006.
While some of the offshore earnings reflect sales abroad, much of the growth results from expanding use of transfer pricing, said Martin Sullivan, a tax economist who formerly worked for the Treasury Department and Arthur Andersen LLP.
The system allows for creating paper transactions between subsidiaries of the same company to allocate expenses and profits to selected countries. For instance, when technology firms license their patents to offshore subsidiaries in low-tax countries, profits from sales overseas are booked to the foreign units, not the U.S. parents. The tax savings add to profits.
“A very significant part of this accumulation of profits offshore is the artificial shifting of profits using transfer pricing,” said Sullivan, now a contributing editor to the trade publication Tax Notes. “There’s been a significant increase in its aggressiveness over the past decade.”
Like Churchill Said
Criticisms of transfer pricing “remind me of what Churchill said about democracy: It’s the worst system -- except for all the others,” said Karl L. Kellar, a partner at Jones Day in Washington, who advises companies on their taxes and who formerly worked for the IRS and the U.S. Justice Department.
Companies try to extract as much tax benefit as possible from transfer pricing to protect shareholders’ interests, proponents say, particularly in the U.S., which imposes one of the world’s highest tax rates on corporate income, 35 percent.
Frank J. Murdolo, Forest’s vice president of investor relations, declined to comment on the company’s tax planning.
The Journey Begins
It’s about 2,100 miles from the Phoenix Walgreens, operated by Walgreen Co., to Forest’s corporate headquarters on Third Avenue in New York. There, Howard Solomon, the drugmaker’s chief executive officer, became interested in treating mood disorders as he watched his son, writer Andrew Solomon, struggle with depression in the 1990s.
He led Forest to Lexapro, whose sales last year ranked behind only Pfizer’s Effexor and Eli Lilly’s Cymbalta among antidepressants, according to IMS Health Inc., a health-care data provider in Norwalk, Connecticut. Since its 2002 debut, Lexapro has generated $13.8 billion in sales, according to Gary Nachman, an analyst for Leerink Swann LLC, in New York. The drug accounted for 58 percent of Forest’s sales for the fiscal year that ended March 31.
Forest declined to discuss how much it received from the $99 that Hurst paid for his Lexapro. For top-selling prescription drugs, the retailer would keep about $12, and $2 would go to a drug wholesaler, according to Helene Wolk, a health-care distribution analyst at Sanford C. Bernstein & Co. in New York. While the amounts differ for purchases covered by health insurance, the proportions are similar, Wolk said.
To Ireland
Of the $85 left for Forest, most doesn’t stay on Third Avenue for long. It heads first to Ireland, where workers in lab coats and goggles make and test the medicine in a low-slung, off-white factory near a soccer pitch on Dublin’s north side. A rock the size of a Smart car rests beside the parking lot, inscribed with one word in bright blue letters: “Forest.”
This subsidiary, called Forest Laboratories Ireland Ltd., sells Lexapro to its U.S. parent, according to Dan L. Goldwasser, a Forest board member and an attorney with Vedder Price PC in New York.
That transaction is at the heart of transfer pricing: With each tablet Forest buys from the Irish unit, it shifts profits to Ireland, where corporate income is taxed at rates between 10 percent and 12.5 percent, compared with 35 percent in the U.S.
“Part of the object is to generate some of the profit in Ireland,” Goldwasser said.
Undisclosed Price
The company won’t disclose what it pays the Irish subsidiary for Lexapro or other medications made there. Tax accounting analysts say they can’t calculate the pill’s precise price either.
Overall, Forest’s Irish operations, which employ about 5 percent of its 5,200 workers, reported $2.5 billion in sales during fiscal 2009, the most recent year for which figures are available. That equals about 70 percent of the parent company’s $3.6 billion in net sales. Lexapro alone generated $2.3 billion in revenue in 2009, according to company filings.
Scores of U.S. pharmaceutical and technology companies have set up similar operations in Ireland, lured by an educated workforce, political stability and access to European markets, as well as low taxes, said Alan Mahon, a spokesman for the Irish Department of Finance.
“Ireland’s 12.5 percent corporation tax rate has become an international ‘brand,’” he said.
Exporting Intellectual Property
U.S. tax laws have sought to regulate transfer pricing in various forms since 1921. Treasury Department regulations in 1968 created standards for pricing inter-company transactions. Thousands of pages of rules have followed, and the tax code was amended in 1986 because of concerns that companies were shifting profits from the U.S.
For U.S. regulators, the key questions in transfer pricing are whether the parent pays too much to its offshore subsidiary or whether the subsidiary pays too little to its U.S. parent. Treasury Department regulations require “arm’s length” prices, or the amounts that would be paid between unrelated parties.
Those rules are “based on a fiction,” said Michael C. Durst, special counsel at Steptoe & Johnson LLP, in Washington, who advised companies on transfer pricing for 15 years and has emerged as a leading critic of the system.
Many of the transfer pricing transactions between a U.S. parent and its offshore units would never take place between unrelated parties, Durst said. So it’s often impossible to compare the prices paid in those deals to prices in real-world transactions between separate companies, he said.
‘Unbelievable Scandal’
“As a result of resting on this basic fallacy, transfer pricing rules have for many years been unenforceable,” said Durst, who formerly worked for PricewaterhouseCoopers LLP and the IRS.
U.S. Sen. Byron Dorgan, a North Dakota Democrat, calls transfer pricing “an unbelievable scandal.” He favors scrapping the rules in favor of a system that allocates profits as most U.S. states with a corporate income tax do. That method is based on factors including sales, number of employees and property in a particular state. Enforcement of the current rules is “impossible to do,” he said.
“It’s the equivalent of asking the Internal Revenue Service to connect the ends of two different plates of spaghetti,” Dorgan said.
Forest derived the undisclosed price that it pays its Irish unit for Lexapro from a 2001 arrangement the parent company struck with Daiichi Sankyo Co., Japan’s third-largest drugmaker, according to Goldwasser, the board member. That deal was to co- promote the hypertension medication Benicar, he said.
‘That’s Life’
“You’re attributing to Forest Ireland more bargaining power than probably it actually had, but, you know, that’s life,” Goldwasser said.
A crucial step in calculating where a drugmaker’s profits belong under transfer pricing is determining who owns a drug’s patents for tax purposes, said Durst, the corporate tax attorney. While Forest’s Irish subsidiary controls Lexapro’s patents for the U.S. market, it didn’t come up with the formula. Forest licenses the use of those patents from H. Lundbeck A/S, a Danish pharmaceutical company. The Irish unit paid for the drug’s U.S. clinical trials, Goldwasser said.
The IRS claimed in 2007 that Forest didn’t adequately value its U.S. marketing operations, allocating too much in profit to its Irish subsidiary, according to a person familiar with the matter. That person asked not to be identified because he wasn’t authorized to discuss it publicly. The dispute involved profits from another antidepressant, Celexa, in 2002 and 2003, according to the person and filings by Forest.
Rival Economists
Such disagreements sometimes grow to involve hundreds of pages of studies by rival economists over comparatively small differences in costs that cumulatively add up to hundreds of millions of dollars. GlaxoSmithKline PLC, the U.K.’s largest drugmaker, settled a transfer pricing case with the U.S. in 2006 for $3.4 billion. Since December, the U.S. has lost two court cases with Silicon Valley companies: a $24.3 million dispute with Xilinx Inc., a programmable chipmaker, and a $545 million case with Symantec Corp., a software company.
In Forest’s case, the IRS sought an additional $206.7 million in tax, according to the company’s disclosures. Forest said in November it agreed to pay an undisclosed amount that “did not have a material impact” on its results.
Beginning in 2005, the company found a way to reduce its taxes even further by sending most of its Lexapro profits from Ireland to Bermuda.
‘The Double Irish’
On advice from Ernst & Young, Forest Laboratories Ireland reorganized that year, dropping the country from its name. The newly dubbed Forest Laboratories Holdings Ltd. established a registered office in Hamilton, Bermuda, declaring the island its tax residence. This unit took control of licensing the patents.
A second subsidiary in Ireland inherited the old name. It handled the manufacturing, sublicensing the rights to the patents, according to a corporate disclosure and an internal Forest flow chart tracing the arrangement that was reviewed by Bloomberg.
The change helped the Irish subsidiary cut its effective tax rate to 2.4 percent from 10.3 percent the year before the reorganization, according to its annual reports. It did so by deducting from its taxable income the fees that went to Bermuda, which has no corporate income tax. Charlie Perkins, a spokesman for Ernst & Young, one of the so-called Big Four accounting firms, declined to comment on its work for Forest.
International tax planners have a nickname for the type of structure the drugmaker adopted: the Double Irish.
“Double Irish More than Doubles the Tax Savings,” was the headline in a 2007 issue of the trade publication International Securitization & Finance Report over an article describing the model by a pair of U.S. tax attorneys, Joseph B. Darby III and Kelsey Lemaster.
Layover in Amsterdam
Ireland faces its own budget gap after real estate values collapsed. The deficit, pegged at 14.3 percent of gross domestic product last year, represented the biggest shortfall of any member of the 27-nation European Union, according to data released in April by Eurostat, the statistics office of the EU.
To avoid another Irish tax, Forest’s profits don’t fly direct to Bermuda. They have a layover in Amsterdam.
Fees paid to the Bermuda unit pass through yet another subsidiary, Forest Finance BV in the Netherlands, according to the internal Forest document, Dutch corporate records and a person familiar with the transaction.
That route bypasses a 20 percent Irish withholding tax on certain royalties for patents, according to Richard Murphy, a U.K. accountant who worked on similar transactions and is director of Tax Research LLP. The structure takes advantage of an exemption from the levy if payments go to a company in another EU member state, Murphy said.
Passing Through
Forest established its Dutch company in July 2005, two months before its Irish subsidiary got permission from Bermuda regulators to conduct business. The Amsterdam unit operates largely as a conduit, records show. In 2007, Forest Finance collected $1.19 billion in licensing income and paid out 99.6 percent of it in licensing expense, according to its annual report.
The Dutch company lists its office at an Amsterdam building used by Fortis Bank Nederland NV, the lender nationalized in 2008 by the Dutch government. Forest has no employees there, said a receptionist at Intertrust Group Holding SA, a business that manages financial records for companies. The receptionist wouldn’t give her name. Intertrust was sold in January by Fortis Bank to a private equity firm.
The Dutch Channel
The Netherlands has more than 13,000 such entities “established by foreign multinational corporations for the purpose of channeling financial assets from one country to another,” according to published research by the Dutch Central Bank. More than 12.3 trillion euros ($15.5 trillion) flowed in and out of them during 2008, the Dutch Central Bank said.
Forest’s income tax savings from international operations almost doubled after its Irish-Dutch-Bermudan reorganization took hold. In fiscal year 2007, the company’s effective tax rate dropped by 21.8 percentage points, or $155 million, because of the effect of foreign operations, according to U.S. securities filings. In 2009, the international tax benefit lopped 18.9 percentage points, or $183 million, off Forest’s income tax bill.
International tax benefits boosted Forest’s net income in 2009 by 31 percent, according to an analysis of its tax footnotes by Robert Willens, president of Robert Willens LLC, a consulting firm that advises investors on tax issues.
‘Place of Business’
Even though Forest described its Bermuda office as the Irish subsidiary’s “principal place of business” in a 2008 court filing, it has no employees on the island. The closest it comes to an actual presence is its registered office at Milner House, at 18 Parliament Street in Hamilton, a beige building nestled among the pastel structures of the island’s main commercial area.
There, Coson Corporate Services Limited, part of law firm Cox Hallett Wilkinson, provides “corporate administrative services” for Forest Laboratories Holdings, according to Jeannette Monk, who identified herself as the company’s corporate administrator. Asked whether Forest had any employees there, she said, “This is a law firm.”
It’s also the last port of call for about two-thirds of the profits Forest derived from sales of Lexapro and its other drugs in 2009. U.S. corporations can avoid taxes on such overseas profits indefinitely, until they decide to bring the earnings back home.
The Bottom Line
Unlike most deferred taxes, future levies on most foreign earnings don’t count against income in reports to shareholders, said Michelle Hanlon, an associate professor of accounting at the Massachusetts Institute of Technology’s Sloan School of Management.
So lower taxes from earnings kept overseas go straight to the bottom line, she said, and U.S. companies rarely repatriate significant portions of that income. They’re permitted to use it in overseas operations or certain investments, or to let it sit as cash in bank accounts, Hanlon said.
An exception came in 2004 when Congress enacted a one-time break allowing companies to bring back their earnings at an effective tax rate of 5.25 percent, less than one-sixth the top corporate rate. As a result, 843 corporations brought $362 billion to the U.S., with $312 billion qualifying for the tax break, according to the IRS. Forest returned $1.2 billion to the U.S. under the legislation.
While it remains offshore and shielded from federal income taxes, most of the $1 trillion in foreign profits for U.S. multinationals cannot be used in the U.S. That doesn’t make Tyler Hurst very happy about his Lexapro transaction.
“If I’m purchasing it from Walgreens two blocks away, that money isn’t going to anything local, or anything national,” he said. “I’m giving my money to Ireland.”
http://www.bloomberg.com/apps/news?pid=20601109&sid=a7td7E8_4EeI&pos=10#
U.S. Said to Allow Drilling Without Needed Permits
By IAN URBINA
WASHINGTON — The federal Minerals Management Service gave permission to BP and dozens of other oil companies to drill in the Gulf of Mexico without first getting required permits from another agency that assesses threats to endangered species — and despite strong warnings from that agency about the impact the drilling was likely to have on the gulf.
Those approvals, federal records show, include one for the well drilled by the Deepwater Horizon rig, which exploded on April 20, killing 11 workers and resulting in thousands of barrels of oil spilling into the gulf each day.
The Minerals Management Service, or M.M.S., also routinely overruled its staff biologists and engineers who raised concerns about the safety and the environmental impact of certain drilling proposals in the gulf and in Alaska, according to a half-dozen current and former agency scientists.
Those scientists said they were also regularly pressured by agency officials to change the findings of their internal studies if they predicted that an accident was likely to occur or if wildlife might be harmed.
Under the Endangered Species Act and the Marine Mammal Protection Act, the Minerals Management Service is required to get permits to allow drilling where it might harm endangered species or marine mammals.
The National Oceanic and Atmospheric Administration, or NOAA, is partly responsible for protecting endangered species and marine mammals. It has said on repeated occasions that drilling in the gulf affects these animals, but the minerals agency since January 2009 has approved at least three huge lease sales, 103 seismic blasting projects and 346 drilling plans. Agency records also show that permission for those projects and plans was granted without getting the permits required under federal law.
“M.M.S. has given up any pretense of regulating the offshore oil industry,” said Kierán Suckling, director of the Center for Biological Diversity, an environmental advocacy group in Tucson, which filed notice of intent to sue the agency over its noncompliance with federal law concerning endangered species. “The agency seems to think its mission is to help the oil industry evade environmental laws.”
Kendra Barkoff, a spokeswoman for the Minerals Management Service, said her agency had full consultations with NOAA about endangered species in the gulf. But she declined to respond to additional questions about whether her agency had obtained the relevant permits.
Federal records indicate that these consultations ended with NOAA instructing the minerals agency that continued drilling in the gulf was harming endangered marine mammals and that the agency needed to get permits to be in compliance with federal law.
Responding to the accusations that agency scientists were being silenced, Ms. Barkoff added, “Under the previous administration, there was a pattern of suppressing science in decisions, and we are working very hard to change the culture and empower scientists in the Department of the Interior.”
On Tuesday, Interior Secretary Ken Salazar announced plans to reorganize the minerals agency to improve its regulatory role by separating safety oversight from the division that collects royalties from oil and gas companies. But that reorganization is not likely to have any bearing on how and whether the agency seeks required permits from other agencies like NOAA.
Criticism of the minerals agency has grown in recent days as more information has emerged about how it handled drilling in the gulf.
In a letter from September 2009, obtained by The New York Times, NOAA accused the minerals agency of a pattern of understating the likelihood and potential consequences of a major spill in the gulf and understating the frequency of spills that have already occurred there.
The letter accuses the agency of highlighting the safety of offshore oil drilling operations while overlooking more recent evidence to the contrary. The data used by the agency to justify its approval of drilling operations in the gulf play down the fact that spills have been increasing and understate the “risks and impacts of accidental spills,” the letter states. NOAA declined several requests for comment.
The accusation that the minerals agency has ignored risks is also being levied by scientists working for the agency.
Managers at the agency have routinely overruled staff scientists whose findings highlight the environmental risks of drilling, according to a half-dozen current or former agency scientists.
The scientists, none of whom wanted to be quoted by name for fear of reprisals by the agency or by those in the industry, said they had repeatedly had their scientific findings changed to indicate no environmental impact or had their calculations of spill risks downgraded.
“You simply are not allowed to conclude that the drilling will have an impact,” said one scientist who has worked for the minerals agency for more than a decade. “If you find the risks of a spill are high or you conclude that a certain species will be affected, your report gets disappeared in a desk drawer and they find another scientist to redo it or they rewrite it for you.”
Another biologist who left the agency in 2005 after more than five years said that agency officials went out of their way to accommodate the oil and gas industry.
He said, for example, that seismic activity from drilling can have a devastating effect on mammals and fish, but that agency officials rarely enforced the regulations meant to limit those effects.
He also said the agency routinely ceded to the drilling companies the responsibility for monitoring species that live or spawn near the drilling projects.
“What I observed was M.M.S. was trying to undermine the monitoring and mitigation requirements that would be imposed on the industry,” he said.
Aside from allowing BP and other companies to drill in the gulf without getting the required permits from NOAA, the minerals agency has also given BP and other drilling companies in the gulf blanket exemptions from having to provide environmental impact statements.
Much as BP’s drilling plan asserted that there was no chance of an oil spill, the company also claimed in federal documents that its drilling would not have any adverse effect on endangered species.
The gulf is known for its biodiversity. Various endangered species are found in the area where the Deepwater Horizon was drilling, including sperm whales, blue whales and fin whales.
In some instances, the minerals agency has indeed sought and received permits in the gulf to harm certain endangered species like green and loggerhead sea turtles. But the agency has not received these permits for endangered species like the sperm and humpback whales, which are more common in the areas where drilling occurs and thus are more likely to be affected.
Tensions between scientists and managers at the agency erupted in one case last year involving a rig in the gulf called the BP Atlantis. An agency scientist complained to his bosses of catastrophic safety and environmental violations. The scientist said these complaints were ignored, so he took his concerns to higher officials at the Interior Department.
“The purpose of this letter is to restate in writing our concern that the BP Atlantis project presently poses a threat of serious, immediate, potentially irreparable and catastrophic harm to the waters of the Gulf of Mexico and its marine environment, and to summarize how BP’s conduct has violated federal law and regulations,” Kenneth Abbott, the agency scientist, wrote in a letter to officials at the Interior Department that was dated May 27.
The letter added: “From our conversation on the phone, we understand that M.M.S. is already aware that undersea manifolds have been leaking and that major flow lines must already be replaced. Failure of this critical undersea equipment has potentially catastrophic environmental consequences.”
Almost two months before the Deepwater Horizon exploded, Representative Raúl M. Grijalva, Democrat of Arizona, sent a letter to the agency raising concerns about the BP Atlantis and questioning its oversight of the rig.
After the disaster, Mr. Salazar said he would delay granting any new oil drilling permits.
But the minerals agency has issued at least five final approval permits to new drilling projects in the gulf since last week, records show.
Despite being shown records indicating otherwise, Ms. Barkoff said her agency had granted no new permits since Mr. Salazar made his announcement.
Other agencies besides NOAA have begun criticizing the minerals agency.
At a public hearing in Louisiana this week, a joint panel of Coast Guard and Minerals Management Service officials investigating the explosion grilled minerals agency officials for allowing the offshore drilling industry to be essentially “self-certified,” as Capt. Hung Nguyen of the Coast Guard, a co-chairman of the investigation, put it.
In addition to the minerals agency and the Coast Guard, the Deepwater Horizon was overseen by the Marshall Islands, the “flag of convenience” under which it was registered.
No one from the Marshall Islands ever inspected the rig. The nongovernmental organizations that did were paid by the rig’s operator, in this case Transocean.
Campbell Robertson contributed reporting from New Orleans, and Andy Lehren from New York.
A Perfect Quarter For Four Big Banks
http://www.npr.org/blogs/money/2010/05/a_perfect_quarter_for_four_big.html
Four of the nation's six biggest banks made a profit from trading on every single business day during the first quarter. Daily profit often clocked in at over $100 million per bank.
Goldman, Bank of America and JPMorgan Chase all reported the performance in their quarterly reports. Citigroup, which didn't break out these numbers, also had a perfect Q1, according to Bloomberg and the NYT.
It's rare (though not unheard of) for even one bank to have a perfect quarter like this -- let alone four. Banks usually make more money than they lose in their trading operations, but they typically have some down days mixed in with the up days.
It's not entirely clear why this happened last quarter, but here are a couple factors that may have played a role:
Ultralow interest rates set by the Fed
The near-zero short-term interest rate set by the Federal Reserve means that banks can borrow money essentially for free. When you can borrow for free, you can even lend money to the government and make a profit. Ten-year Treasury bonds paid an average interest rate of 3.7 percent last quarter, Bloomberg notes.
"The trading profits of the Street is just another way of measuring the subsidy the Fed is giving to the banks," a guy from the co-founder of a company called Institutional Risk Analytics told Bloomberg. "It's a transfer from savers to banks."
It's a good time to be a middle man.
Banks' trading business is not solely based on making bets with their own money; it's also acting as a market maker, buying from clients that want to sell, and selling to clients that want to buy. Banks profit from the gap between what buyers and sellers are willing to pay -- a difference known as the spread.
The fact that there are now fewer big banks -- Lehman's gone, Bear Stearns and Merrill Lynch were folded into JPMorgan and B of A -- means there's less competition for this business. And the banks said the flow of customer orders was particularly high during the quarter, the NYT says.
"This is not about hitting home runs," a risk management expert told the NYT. "This is just, as we call it, milking the market and your captive client base."
Emerging oil rig evidence shows lack of regulation
WASHINGTON — The first firm evidence of what likely caused the disastrous Gulf of Mexico oil blowout — a devastating sequence of equipment failures — drives home a central unsettling point about America's oil industry: key safety features at tens of thousands of U.S. offshore rigs are barely regulated.
Wednesday's hearings by congressional and administration panels — in Washington and in Louisiana — laid out a checklist of unseen breakdowns on largely unregulated aspects of well safety that appear to have contributed to the April 20 blowout: a leaky cement job, a loose hydraulic fitting, a dead battery.
The trail of problems highlights the reality that, even as the U.S. does more deepwater offshore drilling in a quest for domestic oil, some key safety components are left almost entirely to the discretion of the companies doing the work.
It remains unclear what, if anything, Congress or the Obama administration may do to address these regulatory deficiencies.
So far, Interior Secretary Ken Salazar has proposed splitting his department's Minerals Management Service in two to make safety enforcement independent of the agency's other main function — collecting billions in royalties from the drilling industry.
But the events that unfolded in the hours before the blowout on the Deepwater Horizon rig suggest that much more will ultimately need to be done on the regulatory front.
There also remains much to be done to stem the stubborn blowout that has spewed more than 4 million gallons of oil into the Gulf. On Thursday, BP was still weighing two short-term options: One was a pipe linked to the end of the gushing tubing. The other was a box to cover the leak and siphon the oil to a ship.
As the day of the catastrophe got under way on the drilling platform 48 miles off Louisiana, workers were stabilizing the mile-deep exploratory well to mothball until production.
Shortly after midnight, nearly 22 hours before the explosion, contractor Halliburton finished pumping cement into the well. Heavy cement is used to fill gaps around the drill piping and block any surge of natural gas or oil.
As part of the planned routine, the workers next capped the drill pipe with the first of multiple cement plugs. The plugs are meant to stop any upsurge of gas or oil inside the piping.
The cement and metal casing along well walls were then checked. Positive pressure tests indicated they were sound.
But there are no federal standards for the makeup of the crucial cement filler, MMS spokesman David Smith confirmed Wednesday. Government and industry have been working to publish new guidelines later this year, but they will be recommendations, not mandates.
The well's owner, global oil company BP PLC, said Thursday its costs for trying to stop the gusher, containing the spill and helping Gulf states foot the response tab totaled $450 million, up $100 million since its May 10 update to securities regulators. BP Chief Operating Officer Doug Suttles said Wednesday the bill increases by at least $10 million a day.
After visiting BP's offices in Houston, where engineers are working on ways to plug the gusher, Energy Secretary Steven Chu said Wednesday he felt more confident they would be able to combat the problem. "Progress is being made," Chu said.
Also Wednesday, a group of Louisiana crab fishermen claimed in a lawsuit that Halliburton — with permission from BP and rig owner Transocean — used a new quick-curing cement mix with nitrogen. It supposedly generates more heat than other recipes and could allow dangerous bursts of methane gas to escape up the well.
According to the testimony and other evidence that has emerged this week, the first sign of trouble came shortly before dawn. Workers pumped out heavy drilling fluid for a negative pressure test to make sure underground gas couldn't seep into the well. That test failed: it meant the well might be leaking. Another test was run. It too failed.
Workers debated what to do next. They eventually decided to resume work.
Further reducing protection from a blowout, heavy drilling fluid was pumped out of a pipe rising to the surface from the wellhead. It was replaced with lighter seawater in preparation for placing the last cement plug.
Federal rules say an operator must hold newly cemented well-wall casing under pressure for up to 12 hours before resuming drilling. Other than that, there are few rules about how long to let cement set.
Whatever the main cause — cement or something else — the last plug was still missing just before 10 p.m. on the 20th, when drilling fluid pushed by underground gas started kicking up uncontrollably through the well.
Desperate rig workers tried to activate a set of hydraulic cutoff valves known as a blowout preventer to squeeze off the surge. However, hydraulic fluid was leaking from a loose fitting in the preventer's emergency system, making it harder to activate powerful shear rams to cut the piping and cap the blowout. Also, a battery had gone dead in at least one of two control pods meant to automatically switch on the preventer in an emergency.
The preventer "was to be the fail-safe in case of an accident," Lamar McKay, the president of BP America, said at the House hearing.
Yet industry officials acknowledged a fistful of regulatory and operational gaps: There is no government standard for design or installation of blowout preventers. The federal government doesn't routinely inspect them before they are installed. Their emergency systems usually go untested once they are set on the seafloor at the mouth of the well. The federal government doesn't require a backup.
In one telling exchange Wednesday at a hearing of the Coast Guard and MMS in Kenner, La., Coast Guard Capt. Hung Nguyen asked a regional supervisor of the federal regulatory agency a question about blowout preventers: "It's my understanding that it's designed to industry standard and it's manufactured by the industry, installed by the industry, with no government witnessing or oversight of the construction or installation. Is that correct?"
"That is correct," replied Michael Saucier, the MMS field supervisor for the Gulf.
As gas pushed upward on the Deepwater Horizon, it suddenly ignited from an unknown source and turned the platform into an enormous fireball. Eleven people were killed.
In the following days, workers kept trying to force the blowout preventer to close — without success.
Maddeningly, they lost a day trying to close a ram without realizing it had been replaced by a useless test part.
The unrelenting gusher of oil is now threatening wetlands, wildlife, the fishing industry and tourism.
Sometimes finger pointing at each other, officials from several of the companies involved said at Wednesday's hearings that it's not yet clear what precisely triggered the accident.
Associated Press writers Michael Kunzelman in Kenner, La., Curt Anderson in Miami and Jeffrey Collins in Robert, La., contributed to this story. Donn reported from Boston; Weiss from Greenville, S.C.
Copyright © 2010 The Associated Press. All rights reserved.
BP Slick THE SOURCE 05.07.10.mov
http://www.youtube.com/user/hccreekkeeper
The FairTax: A Big Tax Increase?
12 May 2010 Posted by Bruce Bartlett
According to The Politico, the so-called FairTax is an issue in the special election to replace the late John Murtha in Pennsylvania. The Republican candidate Tim Burns apparently said some nice words about the idea before taking them back, and Democrat Mark Critz ran an ad saying that the FairTax would constitute a tax increase, a charge that the FairTax people have called a lie.
I was unable to find either the Critz or FairTax ads so I am not clear on the precise details of the charges. But it certainly is reasonable to say that the FairTax would constitute a substantial tax increase in the current environment. That is because the proposal has always had a 23 percent tax rate. Yet during the time this proposal has been kicking around federal revenues as a share of GDP have ranged from a high of 20.6 percent in 2000 to 14.8 percent in 2009. As Stan correctly pointed out yesterday, by every measure federal taxes are at their lowest level as a share of income or the economy in 60 years. And no matter how much the tea party people deny it and rant about overtaxation that is a fact.
If the FairTax people were honest about wanting to replace federal taxes in a revenue neutral manner, they should have reduced their proposed rate by at least five percentage points over the last 10 years. Since they haven't and because they said 23 percent was revenue neutral back in 2000, it's reasonable to assume that replacing all federal taxes with a 23 percent sales tax today would have to constitute a tax increase equal to almost six percent of GDP. This is simple math.
As I have explained on more occasions than I care to recall, the FairTax is a totally crackpot idea. The fact that its supporters always claim that the same rate will equal current federal revenues no matter what federal revenues are is actually among their lesser deceptions. For more details see here.
http://capitalgainsandgames.com/blog/bruce-bartlett/1719/fairtax-big-tax-increase
LA Lawmaker willing to go to court to stop use of certain dispersant
Wednesday, 12 May 2010 7:50AM
Controversy over the chemicals being used to break up the oil slick continues, and now a state lawmaker wants Louisiana to seek a court order forcing the response team to stop using one chemical in particular. State senator A.G. Crowe of Slidell says he's been hearing a lot of concerns about the chemical called Corexit. He says the British government won't allow it's use because of its toxicity to sea life and humans.
Leaders of the oil spill response team say it is the lesser of two evils, and the undissolved crude would be much more dangerous. Critics say the company that makes Corexit won't say exactly what's in it, citing trade secrets.
"Nobody knows anything about what this product is, what it does," said Crowe, who says there are alternatives.
"I've been getting calls from companies around the world that have solutions to the (dispersant) that are non-toxic," said Crowe. "There's no reason...for them to be polluting the water that could be concrete long-term damage to our state."
Crowe wants Louisiana Attorney General Buddy Caldwell to sue to stop the response team from using Corexit. The Attorney General's office has yet to respond to Crowe's request for a lawsuit.
LOWEST TAXES IN MORE THAN A HALF-CENTURY....
Confused far-right activists chose an odd time to launch a "Taxed Enough Already" revolt.
http://www.washingtonmonthly.com/archives/individual/2010_05/023743.php
Amid complaints about high taxes and calls for a smaller government, Americans paid their lowest level of taxes last year since Harry Truman's presidency, a USA TODAY analysis of federal data found.
Some conservative political movements such as the "Tea Party" have criticized federal spending as being out of control. While spending is up, taxes have fallen to exceptionally low levels.
Federal, state and local taxes -- including income, property, sales and other taxes -- consumed 9.2% of all personal income in 2009, the lowest rate since 1950, the Bureau of Economic Analysis reports. That rate is far below the historic average of 12% for the last half-century. The overall tax burden hit bottom in December at 8.8.% of income before rising slightly in the first three months of 2010.
"The idea that taxes are high right now is pretty much nuts," says Michael Ettlinger, head of economic policy at the liberal Center for American Progress.
Of course, one of the driving factors for these low tax rates was last year's stimulus bill -- which included one of the largest middle-class tax breaks in U.S. history, which Republicans staunchly opposed, and which apparently inspired throngs of misguided conservatives to complain bitterly that they're "taxed enough already."
Looking ahead, tax rates more in line with the recent norm -- say, tax rates of the 1990s, when the economy was strong and the budget was balanced -- would do wonders to reduce the deficit the right pretends to care about.
SANDERS' AUDIT-THE-FED MEASURE PASSES -- UNANIMOUSLY....
http://www.washingtonmonthly.com/archives/individual/2010_05/023750.php
As recently as last week, opposition to Sen. Bernie Sanders' (I-Vt.) measure to audit the Federal Reserve was still pretty strong. But on Thursday, there was a breakthrough -- Sanders tweaked his proposal and quickly garnered the support of the Democratic leadership and the White House.
In particular, Sanders agreed to limit the scope of the audit a bit, but still require the Government Accountability Office to scrutinize all the Fed's emergency lending dating back to December 2007.
In a result that was hard to predict, the Senate approved Sanders' proposal today -- unanimously.
The 96-0 vote came after Sen. Bernie Sanders (I-Vt.) modified an earlier version of the audit legislation that was strongly opposed by the White House and Federal Reserve. They argued the amendment would compromise the independence of U.S. monetary policy.
The Sanders amendment would require a new audit of the Fed's emergency lending during the financial crisis and a new audit of the central bank's governance.
It's just not common for a proposal that draws the ire of industry lobbyists to win on a unanimous vote. I guess opponents had trouble thinking of a rationale to vote against it.
The result is a proposal that's not quite as ambitious as originally planned, but which will still produce more Fed transparency, and a full accounting of the Fed's emergency lending, including loans to AIG and Bear Stearns.
The entire effort was considered something on the "fringe" for quite a while. Now it's poised to get a new label: law.
Maine Republicans Adopt Completely Insane Platform
http://www.mainepolitics.net/content/maine-republicans-adopt-tea-party-platform
An overwhelming majority of delegates to the Maine Republican convention tonight voted to scrap the the proposed party platform and replace it with a document created by a group of Tea Party activists.
The official platform for the Republican Party of Maine is now a mix of right-wing fringe policies, libertarian buzzwords and outright conspiracy theories.
The document calls for the elimination of the Department of Education and the Federal Reserve, demands an investigation of "collusion between government and industry in the global warming myth," suggests the adoption of "Austrian Economics," declares that "'Freedom of Religion' does not mean 'freedom from religion'" (which I guess makes atheism illegal), insists that "healthcare is not a right," calls for the abrogation of the "UN Treaty on Rights of the Child" and the "Law Of The Sea Treaty" and declares that we must resist "efforts to create a one world government."
It also contains favorable mentions of both the Tea Party and Ron Paul. You can read the whole thing here.
Dan Billings, who has served as an attorney for the Maine GOP, called the new platform "wack job pablum" and "nutcase stuff."
Despite the document's crazy content, Maine Republican Party Chair Charlie Webster insisted to the AP that all of the elements in the platform are things that Republicans support. He claimed to the Press Herald that these issues reflect the values of working-class Mainers.
As you can see in this video of the vote, the document certainly represents the opinion of the vast majority of GOP delegates:
Being Street Smart
Sy Harding
http://www.decisionpoint.com/tac/HARDING.html
Military Might Cannot Win the Economic Struggle! May 7.
Government budget deficits and the debt crisis they created in Greece, and concerns that Portugal, Spain, Ireland, and Italy may be nearing similar situations, have been dominating the news and roiling global stock, bond, and currency markets for several weeks.
Some analysts say it’s a forerunner of what is coming to the U.S. a few years down the road.
We all realize how federal budget surpluses of $200 billion in the late 1990’s turned into increasingly sizable annual deficits thereafter, the deficit expected to exceed $2 trillion this year.
It’s not possible to balance the budget with two recessions, two stock market collapses, and two expensive wars in ten years, to say nothing of the expense of the last two years of rescuing the financial system from its worst collapse since the Great Depression.
But when you look at how government spends money you have to wonder if they even try.
Most people aren’t old enough to remember Dwight Eisenhower, Supreme Commander of Allied Forces in World War II, and two-term President (1953-1961) after the war, who achieved federal budget surpluses in several of his years in office.
In his farewell speech he warned that the “greatest peril” facing the country in the future would be the “military-industrial complex”. He warned that the combined power and ability of the military and the major corporations that manufacture military equipment, to convince the nation of danger and therefore the need for huge military spending could allow them to take control of the federal budget and change the economic landscape.
I thought about that as I read the government’s release last week of the previously secret U.S. inventory of nuclear warheads.
And I thought about it again when I read the remarks this week of Defense Secretary Robert Gates regarding the size of the U.S. Navy.
Most people who bothered to read the report on nuclear warheads were probably shocked to learn that at their peak in 1967 the U.S. had 31,255 nuclear warheads. Enough to annihilate 31,255 cities?
Several nuclear arms proliferation agreements since have resulted in the dismantling and scrapping of most of them, (that expensive process also bringing large contracts to the military contractors that built them in the first place). Yet even now we still have 5,113 warheads, enough to annihilate 5,113 cities. (I realize that is an exaggeration since some of the later warheads are smaller, for tactical use on battlefields). But still the thought of being able to set off 5,000 nuclear warheads, just from our side, seems like more than enough to annihilate the world.
I know. I know. It’s not expected they will ever be used. They’re just a deterrent to those who would attack us. But still, an inventory of 31,255 nuclear warheads in 1967 was crazy, and the current perceived need for 5,113 not much more sane.
Could most of those hundreds of billions of dollars, perhaps $trillions, to make them in the first place, and maintain and control them for all these years, have made a difference in the annual federal budgets without affecting the safety of the country?
The number of needed nuclear warheads isn’t the only foolish decision that makes U.S. military expenses the largest segment of the Federal budget, and U.S. military spending 47% of total global military spending.
In Washington this week, in reference to the Navy’s insistence on maintaining and adding to its 300-ship navy, Defense Secretary Robert Gates asked why the U.S. Navy needs 11 full carrier strike groups when the next largest navy power has only one.
Such massive naval power is not only overkill, it doesn’t even meet the needs of modern warfare. It’s designed to prevail in battles carried out on the high seas between powerful naval forces – a form of ‘ancient’ warfare that is no longer possible, since there are no other naval powers to combat.
Has Congress and the military not noticed that the wars of the last 50 years have been fought in jungles and deserts and city streets? Nor can you win the war against small groups of terrorists from multiple countries with the threat of having 5,113 nuclear warheads, or a 300-ship navy, when the attacks are individual car bombs in crowded cities, or from high-jacked airplanes.
As Defense Secretary Gates said about modern-day threats on the high seas, “You don’t need a billion dollar guided-missile destroyer to chase down and deal with a bunch of pirates wielding AK-47 rifles.”
I think of this when I see the financial dangers facing other nations with high debt loads and their inability to cope with them, and then look at the way Congress is talking about fighting the massive U.S. budget deficits with proposals to cut back on the costs of education, social security, and the like.
I thought when the USSR turned to capitalism and broke up into smaller countries, ending the cold war, and China decided it would be easier to defeat the U.S. economically than militarily, that the U.S. military-industrial complex would be downsized to the new reality.
But as Eisenhower warned us, I underestimated the power of its lobbying efforts on Congress. There is hardly a congressional district that does not contain either a large military base, or a large manufacturer of military equipment.
China must be laughing at the way we have spent our resources so implausibly, in preparation to re-fight World War II and the cold war, at the expense of potentially losing the real global competition, which is economic.
Tax Cuts And 'Starving The Beast'
Bruce Bartlett, 05.07.10, 6:00 AM ET
http://www.forbes.com/2010/05/06/tax-cuts-republicans-starve-the-beast-columnists-bruce-bartlett_print.html
I believe that to a large extent our current budgetary problems stem from the widespread adoption of an idea by Republicans in the 1970s called "starve the beast." It says that the best, perhaps only, way of reducing government spending is by reducing taxes. While a plausible strategy at the time it was formulated, STB became a substitute for serious budget control efforts, reduced the political cost of deficits, encouraged fiscally irresponsible tax cutting and ultimately made both spending and deficits larger.
Once upon a time Republicans thought that budget deficits were bad, that it was immoral to live for the present and pass the debt onto our children. Until the 1970s they were consistent in opposing both expansions of spending and tax cuts that were not financed with tax increases or spending cuts. Republicans also thought that deficits had a cost over and above the spending that they financed and that it was possible for this cost to be so high that tax increases were justified if spending could not be cut.
Dwight Eisenhower kept in place the high Korean War tax rates throughout his presidency, which is partly why the national debt fell from 74.3% of gross domestic product to 56% on his watch. Most Republicans in the House of Representatives voted against the Kennedy tax cut in 1963. Richard Nixon supported extension of the Vietnam War surtax instituted by Lyndon Johnson, even though he campaigned against it. And Gerald Ford opposed a permanent tax cut in 1974 because he feared its long-term impact on the deficit.
By 1977, however, Jack Kemp, Dave Stockman and a few other House Republicans concluded that the economy was desperately in need of a permanent tax rate reduction. Kemp believed that such a tax cut would so expand the economy that the revenue loss would be minimal. He also thought that much spending was driven by slow economic growth--welfare, unemployment benefits and so on--that would fall automatically if growth increased.
But the Republican Party's economic gurus--Alan Greenspan and Herb Stein, in particular--were not comfortable supporting a tax cut without stronger assurances that the deficit would not increase too much. At a time when inflation was our biggest national problem their concerns were not unreasonable.
After enactment of California's Proposition 13--a big property tax cut with no offsetting spending cuts or tax increases--on June 6, 1978, there was an immediate change in attitude among Republican economists who were previously skeptical of a permanent cut in federal income tax rates. They could see that a tax revolt was in the making and that Republicans could very possibly ride it all the way back into the White House in 1980.
On July 14, 1978, a few weeks after the Prop. 13 vote, the Senate Finance Committee held a hearing on the Kemp-Roth tax bill, which would have cut all federal income tax rates by about one-third. A key witness was Greenspan, who had recently served as chairman of the Council of Economic Advisers and was undoubtedly the most respected business economist in the United States. He was the first Republican to articulate what came to be called "starve the beast" theory.
Said Greenspan to the committee, "Let us remember that the basic purpose of any tax cut program in today's environment is to reduce the momentum of expenditure growth by restraining the amount of revenue available and trust that there is a political limit to deficit spending."
Citing Greenspan's testimony, conservative columnist George Will endorsed Kemp-Roth and STB in a column on July 27, 1978. "The focus of the fight to restrain government has shifted from limiting government spending to limiting government receipts," he reported.
--------------------------------------------------------------------------------
On Aug. 7, 1978, economist Milton Friedman added his powerful voice to the discussion. Writing in Newsweek magazine, he said, "the only effective way to restrain government spending is by limiting government's explicit tax revenue--just as a limited income is the only effective restraint on any individual's or family's spending."
By 1981 STB was well-established Republican doctrine. In his first major address on the economy as president on Feb. 5, Ronald Reagan articulated the idea perfectly. As he told a nationwide audience that night, "Over the past decades we've talked of curtailing spending so that we can then lower the tax burden. ... But there were always those who told us that taxes couldn't be cut until spending was reduced. Well, you know, we can lecture our children about extravagance until we run out of voice and breath. Or we can cure their extravagance by simply reducing their allowance."
Unfortunately there is no evidence that the big 1981 tax cut enacted by Reagan did anything whatsoever to restrain spending. Federal outlays rose from 21.7% of GDP in 1980 to 23.5% in 1983, before falling back to 21.3% of GDP by the time he left office.
Rather than view this as refutation of starve the beast theory, however, Republicans concluded that Reagan's true mistake was acquiescing to tax increases almost every year from 1982 to 1988. By the end of his presidency, Reagan signed into law tax increases that took back half the 1981 tax cut. His hand-picked successor, George H.W. Bush, compounded the error, Republicans believe, by supporting a tax increase in 1990.
When Bill Clinton became president in 1993, one of his first acts in office was to push through Congress--with no Republican support--a big tax increase. Starve the beast theory predicted a big increase in spending as a consequence. But in fact, federal outlays fell from 22.1% of GDP in 1992 to 18.2% of GDP by the time Clinton left office.
Although all of evidence of the previous 20 years clearly refuted starve the beast theory, George W. Bush was an enthusiastic supporter, using it to justify liquidation of the budget surpluses he inherited from Clinton on massive tax cuts year after year. Bush called them "a fiscal straightjacket for Congress" that would prevent an increase in spending. Of course nothing of the kind occurred. Spending rose throughout his administration to 20.7% of GDP in 2008.
Nevertheless STB remains a critical part of Republican dogma. On April 8 Rep. Michele Bachmann, R-Minn., told right-wing talk show host Sean Hannity that the Republican response to health care reform would be to "starve the beast" by refusing to fund it. On April 14 Sarah Palin begged her followers in Boston to "please starve the beast" by resisting any tax increase, no matter how large the budget deficit.
Despite its continuing popularity among Republican politicians, at least a few conservative intellectuals are starting to have misgivings about STB. In 2005 free-market economist Arnold Kling admitted he had been wrong. "Cutting taxes did not help to reduce the size of government," he conceded.
For some years Bill Niskanen of the libertarian Cato Institute has argued that STB actually increased spending and made deficits worse. His argument is that the cost of spending is ultimately the taxes that will have to be raised to pay for it. Thus fear of future tax increases was the principal brake on spending until STB came along. By eliminating tax increases as a necessary consequence of deficits, it also reduced the implicit cost of spending. Thus, ironically, STB led to higher spending rather than lower spending as the theory posits.
--------------------------------------------------------------------------------
In the latest study of STB, political scientist Michael New of the University of Alabama confirms Niskanen's analysis. "Revenue reductions by themselves are not an effective mechanism for limiting expenditure growth," New concluded. "The evidence suggests that lower levels of federal revenue may actually lead to greater increases in spending."
In effect STB became a substitute for spending restraint among Republicans. They talked themselves into believing that cutting taxes was the only thing necessary to control the size of government. Thus, rather than being a means to an end--the end being lower spending--tax cuts became an end in themselves, completely disconnected from any meaningful effort to reduce spending or deficits.
Starve the beast was a theory that seemed plausible when it was first formulated. But more than 30 years later it must be pronounced a total failure. There is not one iota of empirical evidence that it works the way it was supposed to, and there is growing evidence that its impact has been perverse--raising spending and making deficits worse. In short, STB is a completely bankrupt notion that belongs in the museum of discredited ideas, along with things like alchemy.
Vietnamese fishermen in Louisiana do not have it easy after the oil spill
In East Asian Times, an article on one of many communities devastated by the oil spill: Vietnamese-American fishermen along the gulf coast in Mississippi and Louisiana. Many survived the war in Vietnam, KKK campaigns, and hurricanes. Now, this.
http://www.eastasiantimes.com/vietnamese-fishermen-fear-rougher-waters-ahead-after-spill.htm
VENICE, Louisiana (AFP) – The son of an American soldier and a Vietnamese woman, Minh Ly found freedom on the fishing boats of Louisiana where nobody judged him for his broken English or mixed heritage.
But with huge swaths of the Gulf of Mexico closed to fishing in the wake of a massive oil slick gushing out of the wreckage of an offshore rig, Ly is afraid of what the future will hold.
Like his friends who work out of the port town of Venice, Ly has signed up for cleanup work. He doesn’t know what he’ll do if he can’t get any.
“Maybe get some food stamps,” he said as he stared at the idled boats floating in the dock.
Many of the Vietnamese fishermen here are fearful they will be overlooked when the lucrative cleanup jobs are handed out, especially those who don’t speak much English.
Their worries stem from a history of tensions with white fishermen.
The influx of Vietnamese refugees in the late 1970’s and early 1980’s coincided with a period of poor shrimp seasons in the Gulf, and many fishermen felt their livelihoods were being threatened.
Complicating matters was that the Vietnamese spoke little English and did not understand all of the local rules or customs, like turning their boat lights on in certain waters.
Bumper stickers that read “Save Your Shrimp Industry – Get Rid of Vietnamese” started to appear on cars along the coast, according to Mississippi Folklore Register.
The Ku Klux Klan staged demonstrations calling for blood and American fishermen started carrying guns on their boats.
An undetonated bomb was found on a Vietnamese boat in Biloxi and many boats were sabotaged and nets were shot off. A Vietnamese man killed a Texas man in self-defense.
Those tensions eased as the shrimp stocks returned and the Vietnamese adjusted to local customs, even joining local associations.
Ly said he has had no trouble with white fishermen. Things were much worse for him in Vietnam.
“Guy who look like me can’t read because can’t go to school,” Ly said.
“I go to school, they beat me up… say go back to your country.”
Ly and his mother moved to the United States in 1985 when he was 15 years old. They lived in Arizona for a while, and then moved to coastal Louisiana to join the bustling Vietnamese community which now totals about 25,000 people.
His mother died in 1993. His captain and shipmates are his family now. They would spend two weeks at a time trolling for shrimp in the Gulf.
It’s hard work, but a good life, he said.
“You have fresh air. You’re working hard. You have power.” — AFP
BP oil spill conspiracy theories
http://www.boingboing.net/2010/05/06/bp-oil-spill-conspir.html
Arthur Goldwag at 10:17 AM May 6, 2010
I wasn't surprised when Rush Limbaugh noted the suspicious timing of the explosion at the Deepwater Horizon oil rig, occurring as it did on the eve of Earth Day and the impending Cap and Trade Bill announcement and just after Obama's reluctant OK of new drilling leases. Limbaugh suspects "environmental whackos" (click here) and who can blame him? I mean, it's clearly a small step from spiking trees to blowing up oil rigs. And to radical environmentalists, the destruction of the Gulf is a small price to pay to save the Gulf from destruction. Talk show host Mark Levin (click here), opines that Hugo Chavez-like, Obama dispatched SWAT teams to the Gulf as a "precursor" to the nationalization of the oil industry.
Though I'd heard her tell many official lies when she was G.W. Bush's spokesperson, I confess I was a little taken aback when Dana Perino (click here) joined the conspiratorial chorus ("I'm not trying to introduce a conspiracy theory....but was this deliberate?") -though this is a woman who's also said, for all the world to hear, that America experienced no terrorist attacks during the Bush administration.
Michael Brown, late of FEMA, ascribes the Obama administration's allegedly slow response to the catastrophe to naked political calculation. "We're seeing the Rahm Emanuel rule #1 taking effect, and that is to let no crisis go unused. So this is an opportunity for a President who wants to bankrupt the coal industry, and basically get rid of the oil and gas industry, to shut down offshore drilling." (Click here for more). Obviously, Brown is a man with a chip on his shoulder; I can't really blame him for going off half-cocked.
I would file all of the above under the category of "opportunistic political demagoguery" rather than Conspiracy Theory as such. But then this week, David Emery, About.com's Urban Legends editor, forwarded me a viral e mail that's the real thing. The headline reads "US Orders Blackout Over North Korean Torpedoing Of Gulf Of Mexico Oil Rig"; the article is dated April 30th, and it appears to have originated at the What Does it Mean? website, written by a woman with the Pynchonesque name of Sorcha Faal. Click here to read it for yourself.
The gist of the story is that the oil rig disaster is the work of a North Korean suicide sub, deployed from a "cargo ship" out of Cuba:
The North Korean "cargo vessel" Dai Hong Dan believed to be staffed by 17th Sniper Corps "suicide" troops left Cuba's Empresa Terminales Mambisas de La Habana (Port of Havana) on April 18th whereupon it "severely deviated" from its intended course for Venezuela's Puerto Cabello bringing it to within 209 kilometers (130 miles) of the Deepwater Horizon oil platform which was located 80 kilometers (50 miles) off the coast of the US State of Louisiana where it launched an SSC Sang-o Class Mini Submarine (Yugo class) estimated to have an operational range of 321 kilometers (200 miles).
On the night of April 20th the North Korean Mini Submarine manned by these "suicidal" 17th Sniper Corps soldiers attacked the Deepwater Horizon with what are believed to be 2 incendiary torpedoes causing a massive explosion and resulting in 11 workers on this giant oil rig being killed outright. Barely 48 hours later, on April 22nd , this North Korean Mini Submarine committed its final atrocity by exploding itself directly beneath the Deepwater Horizon causing this $1 Billion oil rig to sink beneath the seas and marking 2010's celebration of Earth Day with one of the largest environmental catastrophes our World has ever seen.
The source of this sensitive intelligence is Russia's Northern Fleet (which I seem to recall was also much cited for the HAARP theory for the Haiti Earthquake). The real motive for the attack, the article concludes, is to put Obama in an "impossible dilemma"-either he allows the leak to continue indefinitely, wreaking untold economic and ecological havoc, or he authorizes the "nuclear option." A drone mini-sub is standing by, which could easily deploy "a B83 (Mk-83) strategic thermonuclear bomb having a variable yield (Low Kiloton Range to 1,200 Kilotons) which with its 12 foot length and 18 inch diameter, and weighing just over 2,400 pounds" could instantly seal the leak, "the only known and proven means" to do so. But that "would leave the UN's nuclear conference in shambles with every Nation in the World having oil rigs off their coasts demanding an equal right to atomic weapons to protect their environment from catastrophes too, including Iran."
This is too silly to respond to in depth; I'll leave that to Randall Amster at the Huffington Post (click here). But more interestingly, who is Sorcha Faal? The What Does it Mean.com site provides answers here, but they're awfully defensive and hard to follow.
But if you follow a different set of links, you'll learn that Faal is "Sister Maria Theresa, the 73rd Sorcha Faal of the Sorcha Faal Order, Elected as Mother Superior 3 February 2007." She is currently based in Israel.
Born in Dublin, Ireland, the 73rd Sorcha Faal joined the Order in March, 1973 and holds various degrees with both European and United States Universities.
Sorcha Faal has traveled and lectured extensively throughout the World, with her primary focus being the systematic structure of languages serving as a link between thought and sound, and as developed by Ferdinand de Saussure. Sorcha Faal has further expanded her own research on 'Linguistic Ordering' with knowledge gained while a visiting researcher with Russian biophysicist and molecular biologist Pjotr Garjajev on the esoteric structure of DNA and its uses in explaining physic phenomena.
'In accepting this Conclave's nomination as the 73rd Sorcha Faal of our Order, I express the gratitude of all the Sisters in thanking Sister Lyuha for her guidance as our Sorcha Faal these past 7 years, especially her efforts these past 5 years in re-orienting all of us towards the Western World.
Our Order has always striven to provide to this World that Light needed to dispel the myths inherent in Darkness, but which without we could never see the truest balance between the two.'
There's more: The nuns of Sorcha Faal pre-date Christianity; their order was established in 588 BCE in Tara, County Meath, Ireland. They claim as their Founder the oldest daughter of King Zedekiah, Tamar Tephi (Tamar Tephi, the "Maid of Destiny" is a great heroine in British Israelitism; it is in her person that the line of the House of David comes to Great Britain). The name Sorcha Faal, the website says, comes from "the ancient Gaeilge branch of the Goidelic languages of Ireland" and has the meaning of: Sorcha: She Who Brings Light; Faal: the Dark and Barren Place. "The Order of Sorcha Faal comprises 18 Monasteries in Ireland, Russia, Egypt, Lebanon, and the United States."
That's what it says, anyway. If you're interested and have $25.95 to spend, you can order Sorcha Faal's book The True Knowledge of Three Minds, which "From the most ancient of texts, to the latest discoveries in quantum physics, and everything in-between....contains the truest knowledge of human beings available to the Western World today and provides the foundation upon which to live your life more powerfully than you could have ever imagined before."
Literally dozens of equally probable alarmist stories, often of an apocalyptic bent, have been dispatched under Sorcha Faal's name since 2004; they are archived here. For just a few examples, "All Private Guns Will Be Confiscated By September 2009, US Tells Russia" was issued in March of 2009; "Catastrophic Atmospheric Blast in Southern Hemisphere Continues Global Weather Chaos as North American Plate Instability Increases and US President Orders Massive Troop Withdrawal from New Madrid Fault Zone Region" in September 2005.
There has been frantic speculation in the world of conspiratorial websites over the years as to Sorcha Faal's real identity. Most suspect she is the creation of David Booth, a computer programmer, self-proclaimed psychic, and apocalyptic conspiracy theorist who is the author of Code Red: The Coming Destruction of America 2004. You can read the book here here if you like. But be advised that Jeff Rense's far right, anti-Semitic website exposed it as a cut-and-pasted tissue of plagiarisms (click here).
By the way, an update to the original oil spill article is now available: "US Goes To "COCKED PISTOL" Alert Status Over Korean War Fears." We may be on the brink of World War III! You can read it for yourself here.
GOP Chooses Non-Scientist Lord Monckton as Sole Expert Witness at Climate Change Hearing
Posted: May 5, 2010 05:25 PM
Rep. James Sensenbrenner, the Ranking Minority Member of the committee, chose Monckton as the Republican’s sole witness at the hearing.
Of all the people in the world the GOP could call to testify, they chose Christopher (not-really-a-Lord) Monckton, a non-scientist with a diploma in journalism studies and a knack for trampling Godwin’s Law of Nazi Analogies.
Monckton called American college students advocating for clean energy the “Hitler Youth” and “Nazis” during his crazed rampage at the Americans For Prosperity event at the Copenhagen climate summit. Monckton repeated the "Hitler Youth" comments directly to me in an interview the following day, and then took it way too far when he told Jewish student Ben Wessel, whose grandparents escaped the Holocaust, “I am not going to shake the hand of Hitler youth.” Despite extensive video evidence, Monckton went on to lie to the Associated Press, claiming that he never uttered those words.
At the Tax Day Tea Party in D.C. last month, Monckton opened his speech with a 'joke' suggesting that President Obama was born in Kenya. Monckton previously called President Obama a “monster” during his speech at a GOP fundraiser in Wisconsin, which followed another of his paid appearances for Americans for Prosperity.
In a 1987 article for the American Spectator titled the The Myth of Heterosexual AIDS, Monckton wrote that:
.... there is only one way to stop AIDS. That is to screen the entire population regularly and to quarantine all carriers of the disease for life. Every member of the population should be blood-tested every month ... all those found to be infected with the virus, even if only as carriers, should be isolated compulsorily, immediately, and permanently.
With such a long record of inflammatory and baseless statements, what could the GOP possibly see in Monckton that would warrant his appearance as an expert witness on a climate science panel otherwise made up of scientists?
Watch Peter Sinclair's excellent pieces picking apart the claims made by Lord Debunkton, especially this episode of Climate Denial Crock of the Week:
Tune in to the hearing tomorrow at 9:30 AM eastern to watch the hearing on the web at globalwarming.house.gov.
WHAT: Select Committee hearing, “The Foundation of Climate Science”
WHEN: Thursday, May 6, 2010, 9:30 AM
WHERE: 2237 Rayburn House Office Building, Washington, DC, and on the web at globalwarming.house.gov
WHO:
Dr. Lisa Graumlich, Director, School of Natural Resources and the Environment, University of Arizona, and member of the “Oxburgh Inquiry” panel
Dr. Chris Field, Director, Department of Global Ecology, Carnegie Institution of Washington, and co-chair of “Impacts, Adaptation and Vulnerability” portion of new IPCC report due in 2014
Dr. James McCarthy, Professor of Biological Oceanography, Harvard University, past President and Chair of the American Association for the Advancement of Science, co-chair of “Impacts, Adaptation and Vulnerability” portion of IPCC report published in 2001
Dr. James Hurrell, Senior Scientist, National Center for Atmospheric Research, contributor to IPCC reports
Lord Christopher Monckton, Chief Policy Adviser, Science and Public Policy Institute
http://www.huffingtonpost.com/brendan-demelle/gop-chooses-lord-hitler-y_b_565126.html
Climate change deniers accused of McCarthyism
http://www.telegraph.co.uk/earth/earthnews/7686079/Climate-change-deniers-accused-of-McCarthyism.html
Published: 6:00PM BST 06 May 2010
In a letter published in the journal Science, more than 250 members of the US National Academy of Sciences, including 11 Nobel Prize laureates, condemned the increase in "political assaults" on scientists who argue greenhouse gas emissions are warming the planet.
The 'climategate' scandal and mistakes by the Intergovernmental Panel on Climate Change (IPCC) have led to a surge in attacks on climate scientists around the world.
In the US politicians have called for a criminal investigation of climate scientists, while in the UK eminent professors have received hate mail and even death threats.
In a strongly worded letter, the group of scientists likened the situation to the 'McCarthy era' in the US where anyone suspected of communist links was threatened with persecution. The period in the 1950s was named after the anti-communist pursuits of Senator Joseph McCarthy.
"We call for an end to McCarthy-like threats of criminal prosecution against our colleagues based on innuendo and guilt by association, the harassment of scientists by politicians seeking distractions to avoid taking action, and the outright lies being spread about them," the letter read.
The defence of climate science comes after a number of scandals cast doubt on the theory of man-made global warming. Emails stolen from the University of East Anglia (UEA) appeared to show scientists were willing to exaggerate temperature change in a scandal known as 'climategate', although two separate inquiries have found no evidence of misconduct.
Meanwhile the United Nations science body, the IPCC, that advises world governments about climate change was forced to retract a statement that claimed the Himalayan glaciers could melt by 2035.
The scientists fear the scandals have led to a witch hunt against those involved.
James Inhofe, a US senator and long-standing climate sceptic, has called for a criminal investigation of climate scientists. Professor Phil Jones, the head of the Climatic Research Unit at the UEA, said he considered suicide after receiving hate mail and death threats.
Worst of all, they fear politicians and interest groups in industry are using doubt over climate science to prevent the world from acting to reduce the threat of global warming.
"Society has two choices: we can ignore the science and hide our heads in the sand and hope we are lucky, or we can act in the public interest to reduce the threat of global climate change quickly and substantively. The good news is that smart and effective actions are possible. But delay must not be an option."
The letter points out that there is uncertainty attached to theory of evolution and the Big Bang. But like these theories, climate change has been "overwhelmingly" accepted by scientists.
"There is compelling, comprehensive and consistent objective evidence that humans are changing the climate in ways that threaten our societies and the ecosystems on which we depend," they said.
"Many recent assaults on climate science and, more disturbingly, on climate scientists by climate change deniers, are typically driven by special interests or dogma, not by an honest effort to provide an alternative theory that credibly satisfies the evidence."
:: Governments must come up with a 10-year "bail-out" plan to stop wildlife disappearing across the planet, the International Union for Conservation of Nature (IUCN) has warned.
The group in charge on monitoring which animals are most in danger of extinction said countries were fuelling their economies at the expense of protecting the natural world.
But the planet would pay a much higher price in the long run than it could afford if it ignored the need for action to save the wildlife the world depended on, the organisation warned.
Speaking ahead of a meeting of the scientific advisory body for the Convention on Biological Diversity (CBD), the IUCN said governments had failed to meet targets to halt biodiversity loss by 2010.
Did A Stock Market Circut-Breaker Backfire?
May 7, 2010
http://www.npr.org/blogs/money/2010/05/three_letters_to_keep_in_mind.html
Almost 24 hours have passed since the stock market had its momentary freakout, and it's still unclear what happened to trigger the sell-off.
But the decline may have been accelerated by a New York Stock Exchange system that temporarily stops electronic trading in stocks that have fallen sharply.
In interviews this morning on CNBC, the heads of the New York Stock Exchange and the NASDAQ both talked about the system, which is based on something called the Liquidity Replenishment Point, or LRP.
The system kicked in yesterday for stocks including Procter & Gamble and 3M, both of which are part of the Dow. It halts electronic trading for roughly a minute, and allows human buyers and sellers to consider the situation.
But stocks that are traded on the NYSE are also traded on other, smaller stock exchanges that are purely electronic. And -- crucially -- the system does not halt trading on those other exchanges.
So here's what may have happened yesterday afternoon:
The LRP was triggered for P&G and 3M, among other stocks. This stopped electronic trading in those stocks, very briefly, on the NYSE. During this brief pause, electronic trade orders were sent to other, smaller exchanges.
Those other exchanges may have been swamped by the volume of orders, Bloomberg and Felix Salmon note.
That's when prices in P&G and 3M briefly fell through the floor. The declines in those two stocks alone accounted for a 400 point drop in the Dow, the head of the NYSE said.
When the human traders at the NYSE stepped in a few seconds later, the prices shot back up again.
What's the upshot?
The heads of both the NYSE and the NASDAQ both suggest that it may not make sense to stop electronic trading of a stock on the NYSE but allow it to continue on other exchanges.
So the outcome of yesterday's mess may be a marketwide halt on trading for individual stocks under certain circumstances.
When BB+ Is A Bad Grade
Planet Money
http://www.npr.org/blogs/money/2010/05/_after_the_downgrade_ap.html
May 7, 2010
On today's Planet Money:
First, an NYU finance professor talks about yesterday's wild market swings. Turns out, a sort of "circuit breaker" that's supposed to settle the market may have backfired.
Then, we go behind the scenes at Standard & Poor's to answer a question that's been on our mind lately: How do you rate a country?
Also answered in the podcast: Do agencies think twice before lowering a country's rating to junk?
Life after a downgrade. (AP Photo/Nikos Giakoumidis)
Sanders defends Fed deal
By: Meredith Shiner
May 7, 2010 04:06 PM EDT
Sen. Bernie Sanders (I-Vt.) vigorously defended a compromise struck Thursday altering his proposed amendment on auditing the Federal Reserve, calling the current language "unprecedented and historic" even in the face of critique that he had "sold out."
Speaking with reporters Friday afternoon, Sanders faced a series of questions on the last-minute changes to his provision, which came under intense pressure from the White House and top Democrats working on the pending financial regulatory reform bill. Late Thursday night, Rep. Ron Paul (R-Tex.) went so far to say that Sanders had "sold out" and that the new amendment "adds nothing" in terms of oversight.
"What I want is in this amendment, all right?" Sanders said with a hint of frustration. "Would I like to go further, sure? Would I like an ongoing investigation ordered of the Fed? Sure, I would. But 99 percent of the American people, they're interested in what's happened since the financial crisis—and that's in the amendment."
Sanders spoke on the phone Friday morning with both Paul and Rep. Alan Grayson (D-Fla.), who were the two champions of an 'Audit the Fed' provision in the House. The senator from Vermont said the focus of the talks was on the mutually acknowledged goal of getting the Senate language passed and then taking the strongest parts of the House and Senate legislation and incorporating those pieces into the final bill.
As for the charges leveled by Paul—as well as by the progressive blogosphere—that Sanders compromised too much, the senator expressed personal disappointment with Paul before dismissing the charges as misguided.
"I was disappointed, frankly, in what Ron said because I like Ron. He and I worked on a number of issues in the House in left-right coalitions," Sanders said. "I think sometimes you have people working on blogs who make very, very quick decisions without fully understanding what's in the amendment. I urge those folks who think we quote-unquote sold out to actually read what is in the amendment. I think they will find out that we did not sell out."
Thursday night, Sanders told POLITICO that the compromise included "very minor modifications" to the original language. The senator clarified what those changes were and conceded it was "a political judgment" he made in order to move forward with the legislation.
The primary changes include more explicit language on the purview of the one-time audit—setting a firm time window for the review, from Dec. 1, 2007 to the day the legislation is signed into law, if if passes. Additionally, the new amendment was narrowed in scope so that the GAO, which will conduct the audit, is not allowed to look into the discount window or interest rates.
This second change was perhaps the most crucial, as a chief concern of the White House, the Treasury and the Fed was that Congress under the original Sanders amendment would be able to meddle in monetary policy decisions—a view the senator contests but acknowledges played into the compromise.
"My original language in the amendment made clear that was not my intent—never wanted to do it," Sanders said. But there were some people—people kept coming up to me on the floor [saying], 'Oh we don't think Congress should be involved in monetary policy.' Yeah I agree with you, it should not. Some people wanted that to be a little bit more explicit, and we modified our amendment to do that."
Sanders declined to say whether he believed the compromise brings him the necessary vote to pass the amended audit provision. But he acknowledged the support of Banking Committee Chairman Chris Dodd (D-Conn.) as well as the impact the stricter GAO language will have on moderate senators who may have been on the fence with the original provision.
"I think the major concern that many of the moderates and the White House had was this issue of not wanting to see Congress involved in the day-to-day monetary policy of the Fed," Sanders said. "So I think that maybe the new amendment, revised amendment, maybe will comfort those people, and I think it has. I think it has."
The modified Sanders amendment, which is now co-sponsored by Dodd, is slated to come up for a vote Tuesday morning. But the battle over whether the new amendment is strong enough might not be over.
In the same statement in which he slammed Sanders, Paul said he is "sure" that Sen. Jim DeMint (R-S.C.)—another strong proponent of auditing the Fed and unlikely partner for the progressive Sanders—"is working on this and may come up with an alternative."
DeMint did not officially comment as to whether he would pursue his own version of the legislation, but a GOP aide said the South Carolina Republican "is not satisfied with the deal Sen. Sanders made with the White House and is considering an alternative."
"The Sanders amendment at least begins the process in letting us know what the Federal Reserve is doing," DeMint said on the floor Thursday before news of the compromise had been announced. "You cannot get more bipartisan than Jim DeMint and Bernie Sanders."
Yet, DeMint made clear he believed in a strict audit and also lamented that Fannie Mae and Freddie Mac were not addressed in any part of the underlying reform bill.
A decision on whether DeMint will introduce his own amendment, however, will not come until next week when Senate is back in session.
The likelihood of the Senate passing stricter legislation, though, is small, and the deal brokered Thursday night between Democrats is proof of that.
"You can make great speeches or whatever but if you only get 59 votes you haven't advanced what we want to advance," Sanders said.
© 2010 Capitol News Company, LLC
Falling Back On Waterloo
Written by Simon Johnson
May 7, 2010 at 9:56 am
The bank lobbyists have the champagne out – the Brown-Kaufman amendment, which would have capped the size and leverage of our largest banks – was defeated in the Senate last night, 33-61. Feeling ascendant, the big banks swarm forward to take on their next foe – the Kanjorski amendment (that would greatly strengthen the power of regulators to break up megabanks), which they plan to gut in the backrooms.
This is overconfidence – because the consensus against them is beginning to shift significantly. Partly this is the result of great efforts by Senator Ted Kaufman, Senator Sherrod Brown, and their colleagues over recent months and weeks. Partly this is due to all the people who came on board and pushed hard.
But, as in many such cases, it is also a question of luck – and timing.
The European sovereign debt crisis is deepening. And the picture that is worth many thousands of words is the NYT’s graph of interlocking debt within the eurozone.
As far as anyone can ascertain, this is almost all debt held by banks (often then “repo-ing”, or borrowing against it as collateral, at the European Central Bank.)
In other words, the European megabanks – lauded by Senators Dodd, Corker, Warner and others as a model for us to follow – are up to the eyeballs in bad debt. Their governance has completely failed. Their regulatory systems have been gutted – on their way to being turned into ash.
None of this would matter, of course, if the eurozone policy elite had its act together and could terminate its current position with minimal losses. But it cannot – the deer are in the headlights.
Ask everyone this question: Which are the huge global banks that Senator Dodd, Jamie Dimon, and Larry Summers think we should be emulating? Surely not the Chinese – their governance failures are profound and complete; this is state banking run amok. Surely not the British – after all Mervyn King and Adair Turner, the top authorities on those banks, are globally the most articulate officials on how good finance has gone so deeply wrong. Surely not the Canadians – those myths have been long exploded (and without dissent, in our conversations with the Bank of Canada).
And surely you are not proposing that the continental European banks are a model of anything other than ineptness, blind herding, and the transition from being “too big to fail” to “so big that even when you save them, you get an economic catastrophe”?
To the victors last night in the Senate: congratulations – your opponents have fallen back. Your generals are known to be invincible, your forces are the best, and your resources are without limit.
And so we wait for you again, on a gentle slope and behind a ridge – appropriately enough with our backs to Brussels. Welcome to Waterloo.
Iraq…It's an Iranian Alliance
05/06/2010
By Tariq Alhomayed
There is no other way to describe the electoral alliance that was announced on Tuesday between the State of Law Coalition and the Iraqi National Alliance except as an Iranian one. What’s considered a purely sectarian alliance made sectarianism prevail over the nation, with the aim of excluding half of the Iraqi society, and of course the consequences will be detrimental.
In amazement, a Western official told me “how America handed over Iraq to Iran.” The truth is that the first person to say this openly and in America was the Saudi Foreign Minister Prince Saud al Faisal when, in the presence of the then US Secretary of State Condoleezza Rice, he said that America had handed Iraq to Iran on a golden platter. A well-informed Saudi told me that the Americans, Rice in particular, were very angry that day, however today Prince Saud al Faisal’s words have been confirmed decisively.
It is not important to understand the reasons that prompted this Shia alliance and the coup over half of the Iraqi nation; it is more important to understand the harmful consequences that will result from the alliance. The alliance suggests that there is a long road ahead for Iraq and that the common denominator between the two coalitions is the sectarian dimension. This is what will result in instability in Iraq and a lack of trust between Iraq and its Arab surroundings. It is by no means an easy matter, and the Iraqis will remember that only when it is too late as some triumphs look like defeats and even stronger is the bitterness of defeat. Democracy is not based on the dominance of sectarianism and serving foreign agendas and that of Iran in particular. If every component of the Arab countries went in search of its sectarian depth then disaster would have struck in the region. Therefore, the national umbrella is the most effective and the safest; in fact it is the only request and the place of rational-minded people.
But what has happened in Iraq is contrary to that. Those being targeted here are not only the Sunnis, despite the fact that one week doesn’t pass without news of killings and assassinations (the most recent being the assassination of the deputy head of the Sunni Waqaf authority in west Baghdad yesterday) but there is also the targeting of the Christians in a systematic manner in order to intimidate them and force them out of Iraq in such a blatant manner whilst the Arab and international silence continues!
Now, after the announcement of the alliance between the two Shia coalitions in Iraq we should not be surprised at [what happens in] the upcoming days even if we do feel sad about the where the Iraqi situation is going. But what’s important is that the Iraqiya List, with its Sunnis and Shia, remains solid and rational and the same thing applies to the Kurds. This is for the simple reason that history is documented and time passes and the best example of that is the former regime of Saddam Hussein. Who would have thought that it would end in the way it did?
Therefore, it is not important who becomes Prime Minister in Iraq whether it is al Maliki or anyone else; what’s important is that it is clear to us today that Iraq is on the brink of unknown consequences; if it falls into the cycle of violence then it will harm us all and if it throws itself into the arms of Iran, then the catastrophe is even bigger, as Tehran will be looking over the Arabian Gulf from several points and though it will be up to its neck in oil fields, it will also be the carrier of firewood!
Has the picture become clear? I believe it is as clear as the sun!
http://aawsat.com/english/news.asp?section=2&id=20848
Safety fluid removed before rig exploded
Mud may have slowed gas from racing up to platform
Friday, May 07, 2010
The investigation into what went wrong when the Deepwater Horizon rig exploded April 20 and started spilling millions of gallons of oil into the Gulf of Mexico is sure to find several engineering failures, from cement seals that didn't hold back a powerful gas bubble to a 450-ton, 40-foot-tall blowout preventer, a stack of metal valves and pistons that each failed to close off the well.
There was, however, a simpler protection against the disaster: mud. An attorney for an eyewitness says oil giant BP and the owner of the drilling platform, Switzerland-based Transocean Ltd., started to remove a mud barrier before a final cement plug was installed, a move industry experts say weakens control of the well in an emergency.
When the explosion occurred, BP was trying to seal off an exploratory well. The company had succeeded in tapping into a reservoir of oil, and it was capping the well so it could leave and set up more permanent operations to extract its riches.
To cap a well properly, drillers rely on three lines of defense to protect themselves from an explosive blowout: a column of heavy mud in the well itself and in the drilling riser that runs up to the rig, at least two cement plugs that fit in the well with a column of mud between them, and a blowout preventer that is supposed to seal the well if the mud and plugs all fail.
In the case of the Deepwater Horizon, Scott Bickford, an attorney for a rig worker who survived the explosions, said the mud was being extracted from the riser before the top cement cap was in place, and a statement by cementing contractor Halliburton confirmed the top cap was not installed.
If all of the mud had been present, it would have helped push back against the gas burping up toward the rig, though it might not have held it back indefinitely.
When the gas got to the sea floor, the third defense -- the blowout preventer -- also failed, and it has continued to fail for weeks as unmanned submarines have tried to get it to engage.
BP declined to answer questions about exactly how far along they were in closing the well head 5,000 feet below the Deepwater Horizon rig when the explosion occurred.
But Halliburton said in a statement that it had completed pouring cement that lines the well 20 hours before the blowout. After that lining cement is done, the federal Minerals Management Service requires at least two pre-fabricated cement plugs to be placed at the bottom of the well and farther up, with mud packed in between. Halliburton's official statement shows there was still one more cement plug to be inserted.
"Well operations had not yet reached the point requiring the placement of the final cement plug which would enable the planned temporary abandonment of the well, consistent with normal oilfield practice," the Halliburton statement said.
Human error?
But Bickford's client, who was working immediately next to the drill floor at the time of the explosion, claims the rig operators had already started pumping mud out of the riser. Bickford said his client, whose identity he wants to conceal for now, will allege human error in the decision to start removing the mud barrier before the well was totally capped.
Bickford said his client is the survivor of the rig explosions who called into the April 29 "Mark Levin Show," a nationally syndicated talk show out of WABC in New York, and gave perhaps the most detailed eyewitness description available so far of what was taking place at the time. He used the assumed name "James" on the show.
"We had set the bottom cement plug," the caller said. "At that point the BOP stack, the blowout preventer, was tested. I don't know the results of that test. However, it must have passed because at that point they elected to displace the marine riser from the vessel to the sea floor. They displaced all the mud out to the riser preparing to unlatch from the well two days later. So they displaced it with sea water."
Bickford's client went on to say that the crew opened a valve on the well head, allowing a huge kick of gas to push the seawater out the top of the marine riser and all the way to the top of the rig tower, 240 feet in the air. The resulting explosion probably instantly killed his colleagues who were in the gas's path, "James" said.
Crew members were caught off-guard by a gas-bubble kick that spewed watered-down mud and an invisible plume of heavy gas onto the rig, igniting a fiery explosion that killed 11 crew members and doomed the rig.
Bickford said his client saw mud being pumped out of the riser and onto boats that normally collect the mud in tanks. Another lawyer, Stuart Smith, said he represents fishermen who witnessed the explosion and saw the mud being extracted beforehand.
BP spokesmen have declined to confirm or deny these descriptions of events, saying the details will come out as a result of the investigation.
'Not following procedure'
Other lawsuits by rig-workers paint a similar picture. Bill Johnson, a Transocean deck pusher with 35 years of experience on oil rigs, was injured in the explosion and has sued his employer, BP, Halliburton and others in Galveston County, Texas. Johnson's attorney, Kurt Arnold of Houston, said Johnson had a meeting with a BP supervisor about 10 hours before the explosion and was told "things were plugged in the well and good to go. He thinks in retrospect the company man was not following procedure."
Another one of Arnold's clients, roustabout Nick Watson, said mud came back up the hole so suddenly before the explosion that he was trying to wipe it away from his eyes on the deck when the power went out and the first explosion came, Arnold said.
If the final cement plug wasn't in place, removing the mud would be at odds with "good oilfield practice" outlined in 2003 by the federal Minerals Management Service. The MMS report, prepared by WEST Engineering Services, warns against single-point failures -- counting on one mode of protection -- by saying that "mud weight is the first round of defense against a kick, followed up by" the blowout preventer. Removing the mud left the blowout preventer as the only failsafe.
"To displace mud above the position of the upper plug with water before setting the upper plug means that you are relying on one barrier for the duration; this is not good," said a deepwater drilling expert who did not want to be identified because he does business with BP. The expert is not involved in the Deepwater Horizon project.
Cement, BOP failures
While the mud could have given workers more time to react to the blowout, the accident itself and the oil spill originated in the failure of the cement and the failure of the blowout protector.
Blowouts are not unprecedented, and often they are caused by cementing failures. An MMS study found that half of 39 blowouts on offshore rigs from 1992 to 2006 were related to cement problems.
Cement has two roles in oil exploration: It seals the pipe lining the well from the bedrock around it, and it is used to seal wells on the inside before abandoning them. It's not known which of the two cementing jobs was the culprit in the BP accident.
Even with the problems with cement seals and the weakening of the mud barrier, the blowout preventer, or BOP, a contraption built by Cameron International, still could have blocked the oil gusher. Unfortunately, those devices, too, have had documented troubles. Transocean chief executive officer Steve Newman reported "a handful of BOP problems" during a call with stock analysts last year, although he said "they were anomalies."
According to internal BP documents obtained by The Times-Picayune, the preventer on the Deepwater Horizon's well head had a series of six valves and "pipe rams" that are activated by hydraulic pistons and constrict around the drill pipe to close off the well. BP said those valves failed to close the well before the rig was abandoned. In addition, there's a last-ditch mechanism, called a shear ram, that is supposed to use high pressure to slice clear through the drill pipe and shut off the whole opening.
But shear rams have a weakness. They are not engineered to cut through tool joints, the knuckles where sections of the drill pipe are connected every 30 feet. That means that about 10 percent of a pipe is made up of tool joints that a shear ram isn't strong enough to penetrate, said Per Holand, a drilling expert from Norway who has advised the MMS.
"If they do not know the exact location of the tool joint, they would normally close a pipe ram and lower the drillpipe until it stops against the pipe ram to ensure that the shear blind ram does not hit a tool joint," Holand said. "This may of course be difficult if you have a crisis on the rig."
No acoustic backup system
The removal of the mud could have limited the amount of time the crew had to work through the process Holand described.
The shear ram is activated by a button on a control panel on the drill ship. An MMS safety alert in 2000 urged drill operators on the Outer Continental Shelf to have a backup method for activating the blowout preventer.
But the United States does not require the acoustic backup system that must be used in Norway, Canada and Brazil. Holand said such an acoustic system could have helped avert such a massive spill from the Deepwater Horizon well if the section of pipe inside the blowout preventer was normal-sized. But if there were tool joints inside the preventer, an acoustic trigger system "may not have worked" anyway, Holand said.
Robots on the seafloor have been unable to activate the shear ram using a manual switch.
Even if a tool joint wasn't in its way, the shear ram might not have been strong enough to cut through the pipe under the intense conditions at the bottom of the sea, where fluid inside the well bore might be as hot as 400 degrees and the water on the seabed outside can be just above freezing. The shear rams are rarely, if ever, put to the test in real-life emergencies.
Because the shear rams are the prevention method of last resort and would destroy any drill pipe if used -- costing oil companies a tremendous sum of money -- they are tested on location just to see whether they move, without any pipe getting cut. The standards for manufacturing them with enough force to actually cut a drill in two at the bottom of the sea are all based on formulas.
'Nothing to fall back on'
In a September 2004 study for the MMS, researchers from WEST Engineering found that BOP manufacturers were not using the best models for calculating the necessary force and were not adjusting the force according to different types of pipes.
With all of these potential Achilles' heels, it's amazing that oil companies and regulators haven't prepared for the possibility that all of the redundant protections could fail at once, said Mark Davis, director of the Institute on Water Resources Law and Policy at Tulane University Law School.
"It doesn't matter how many levels of sophistication there are in the blowout prevention device; if you have nothing to fall back on, that's when a spill becomes catastrophic," he said. "We in New Orleans know, this is almost like building levees, you can build them with the expectation that they will hold in every event, but we know there's risk of something unknown and unprepared for. The risk of harm is so great, that's why we need a backup system on the two-to-three-day horizon, not 60-to-90 days."
. . . . . . .
Wall Street Journal: Feds turned oversight of drilling over to oil drillers
By: Wall Street Journal's Russell Gold and Stephen Power
The small U.S. agency that oversees offshore drilling doesn't write or implement most safety regulations, having gradually shifted such responsibilities to the oil industry itself for more than a decade.
Instead, the Minerals Management Service—now caught up in the crisis of the Deepwater Horizon rig that for weeks has sent crude oil gushing into the Gulf of Mexico —sets broad performance goals for the industry. Oil producers and drilling companies are then free to decide for themselves how to meet those goals, industry executives and former regulators say.
A Wall Street Journal examination of the MMS's track record found several instances of the agency identifying potential safety problems and then either not requiring follow-up or relying on the industry to craft a solution. In some cases, the industry didn't do its part.
The Journal also found that the safety record of U.S. offshore drilling compares unfavorably, in terms of deaths and serious accidents, to other major oil-producing countries. Over the past five years, an offshore oil worker in the U.S. was more than four times as likely to be killed than a worker in European waters, and 23% more likely to sustain an injury, according to International Association of Drilling Contractors data, which is adjusted for man-hours worked.
Asked about The Journal's findings on its safety record and practices, MMS officials said in an interview Wednesday that the agency plans to toughen its oversight. Any new regulations emerging from the current crisis "will be a prescriptive regulation," said Lars Herbst, head of the MMS' Gulf of Mexico region. He said the agency is unlikely to give the industry much latitude to decide how to make changes. "After this accident investigation is done, I would bet there won't be any performance-based regulation that comes out to address any problem that we may uncover," he said.
Mr. Herbst questioned the data on deaths, saying the number of working hours could be underreported in the U.S. That would make the U.S. fatality rate look higher.
The agency points out it does conduct numerous inspections. It leases 14 helicopters to ferry inspectors, often unannounced, out to the 3,800 drilling rigs and platforms in the Gulf of Mexico that it oversees. But the number of rigs inspected has fallen significantly in recent years, according to agency data, from 1,292 in 2005 to 760 by 2009.
Defenders of the agency say enforcement isn't its primary responsibility. Stephen Allred, who as Assistant Secretary of the Interior oversaw MMS from 2006 to 2009, said the agency does conduct spot inspections of oil rigs, and checks operators' compliance with safety procedures. However, "Their role is not to baby-sit" the operators, he said. The agency's primary task during inspections is to verify how much oil is being pumped, which is key to another MMS duty, maximizing payments the government receives for oil and gas rights from energy producers.
In one instance late last year, an oil company complained about the inadequacy of the agency's safety investigations. In November, ATP Oil & Gas Corp. sued MMS alleging it was incomplete in investigating a fatal accident at an ATP rig. The lawsuit, filed in federal court in Washington , D.C. , alleged an MMS investigator misstated the accident's location, didn't interview the two eyewitnesses to the event, and told ATP to take corrective action within 14 days without identifying problems that needed to be fixed. The suit was settled in March, with ATP paying a $20,000 civil penalty, according to a company lawyer.
An MMS spokesman declined to comment. An MMS court filing gave denials of some ATP claims, including the matter of the accident's location.
Some former employees say that MMS, which was founded in 1982 and is part of the Interior Department, has a built-in conflict of interest: It is supposed to be a watchdog that halts drilling when it spots unsafe behavior. But it is also supposed to promote energy independence and to generate government revenue from drilling on government lands, including the outer continental shelf.
Of MMS's fiscal 2010 budget of $342 million, nearly half comes from the oil industry in the form of fees and rental receipts, known as "offsetting collections." That's one reason why collecting oil and gas royalties is emphasized at the agency, former and current officials say.
The U.K. —home to one of the largest offshore-drilling industries in the world—has taken a different regulatory approach. In 1998, after a fire aboard a North Sea platform killed 167 people, the U.K. separated its offshore safety-oversight agency from the revenue-gathering side.
After that change, the U.K. 's safety record improved. The improvements also came at a time of increased mechanization of rigs, which improved the safety of offshore drilling world-wide.
Told of The Journal's findings on MMS's track record, Sen. Bill Nelson (D., Fla.), a longtime opponent of drilling off his state's coast, castigated the agency. "If MMS wasn't asleep at the wheel, it sure was letting Big Oil do most of the driving," he said.
In the U.S. , the MMS has been criticized for giving oil companies too much sway in the royalty area, not just regulatory oversight. A 2008 Interior Department Inspector General report faulted MMS for modifying royalty payment contracts in ways that "appeared to inappropriately benefit the oil companies."
U.S. oil-industry executives and current and former regulators say the U.S. 's self-regulatory approach has worked for many years. "There has been a very good record in deep water, up until the point of this accident," said Mr. Herbst of the MMS.
They also argue that offshore operations have become so complicated that regulators ultimately must rely on the oil companies and drilling contractors to proceed safely. "The regulator sets the frameworks, sets the guidance, monitors and inspects," said Elmer P. Danenberger III, the longtime head of the MMS's offshore regulatory programs, who retired in December. "But the regulator isn't conducting the operation."
Many questions remain about last month's sinking of the Deepwater Horizon, including why the rig caught fire, why fail-safe devices didn't work and why the industry wasn't better prepared for a spill of this magnitude.
In recent years, oil wells in the U.S. were more likely to go out of control—as was the case with the Deepwater Horizon's blowout last month—than in other countries. According to data from the International Regulators' Forum, a group of offshore regulatory bodies, the U.S. reported five major "loss of well control" incidents in 2007 and 2008, the most recent years for which data are available.
The five other countries in the forum that reported the data ( U.K. , Norway , Australia , Canada and the Netherlands ) reported no such incidents. Last year, those five nations had roughly half as much drilling activity as the U.S.
Over the past decade, the number of MMS enforcement cases that resulted in penalties ranged from a high of 66 in 2000 to a low of 20 last year. A report by the agency's inspector general in 2000 found that it seldom referred safety or environmental violations to the Justice Department for criminal prosecution, even when it should have done so.
To explain its shift toward industry self-regulation, the MMS in a 2005 rule change pointed to a 1996 law that encouraged federal agencies to "benefit from the expertise of the private sector" by adopting industry standards. Mr. Herbst also pointed out that the MMS often has a seat on panels setting industry standards.
The Journal has identified instances in which MMS didn't follow through on potential safety problems that the agency had asked the industry to examine. In 2000, the agency asked the industry for advice on how to deal with problems with cement used to keep oil and natural gas from bubbling to the surface and exploding. A decade later, the industry is still working on its recommendations, according to the American Petroleum Institute. No regulations have been issued by the agency.
Another instance involves "blowout preventers," which are critical devices meant to shut down out-of-control wells. In 1998, the MMS solicited suggestions to improve the effectiveness of the devices but didn't heed them. It commissioned Per Holand, a Norwegian researcher, to study the reliability of the devices. In 2002, Mr. Holand recommended that blowout preventers should have two pipe-cutting devices designed to shut off a well, instead of just one, in case one didn't work.
His reasoning: The pipe cutters are designed to shear off and plug an out-of-control well pipe. But they don't always work if they strike one of the thicker joints, where two pieces of pipe fit together. Joints like these make up about 10% of the length of the drill pipe, meaning the cutters could fail as much as 10% of the time. A second cutter, however, could ensure that at least one of the two would be able to cut the pipe.
The MMS didn't act on Mr. Holand's recommendation. Mr. Holand said he wasn't surprised: Adding a second cutter costs money, and might make the device too heavy for some older rigs to carry.
In 2000, the MMS issued a safety alert saying it expects oil companies to have a backup system to activate blowout preventers if the main activation system fails. A spokesman for MMS says it relied on industry assurances that backup systems were in place, but did no formal survey. Last June, nine years after the safety alert, the MMS issued an almost identical safety notice, but to date has issued no rule requiring the back-up switches.
"I don't recall where that rule-making process ceased," Mr. Herbst said. "It is something that we're going to go back and look at. I don't know yet whether that played into this incident, but I can guarantee we will be looking at that again."
Industry consultants say there are drilling rigs now in the gulf that don't have an automatic "dead man switch," or a separate, remote-control on-off switch to activate the blowout preventer, because the MMS hadn't issued the rule requiring their use.
The Deepwater Horizon did have a "dead man switch," but it failed to activate the blowout preventer. The Deepwater Horizon lacked the separate, remote-control switch that's commonly used in Norway and Brazil .
In a decision that gave the industry greater control over regulatory oversight, MMS got out of the business of telling companies what training was necessary for workers involved in keeping wells from gushing out of control. About a decade ago, the agency turned this over to a trade group, the International Association of Drilling Contractors, according to Lee Hunt, president of the Houston-based organization. It represents offshore drillers such as Transocean Ltd., which owned and operated the Deepwater Horizon.
"There was a recognition that everyone has a vested interest in being as safe as possible," Mr. Hunt said.
The trade group now accredits training schools to teach rig workers how to avoid blowouts, he says. When MMS inspectors visit rigs, Mr. Hunt said, they give "oral examinations" to workers on oil-well control.
The MMS has received unwelcome attention for the behavior of employees assigned to a royalty-collection office in Denver , Colo. The Interior Department's inspector general concluded in 2008 that MMS employees there broke government rules and created a "culture of ethical failure" by accepting gifts from, and having sex with, industry representatives. Following the inspector general's report, the Interior Department took disciplinary action against more than a half dozen MMS workers, with punishments that ranged from a warning letter to termination.
Ethical problems also hit the offshore oil program. In 2009, Donald C. Howard, the former regional supervisor of the Gulf of Mexico region for MMS, pled guilty and was sentenced to a year's probation in federal court in New Orleans for lying about receiving gifts from an offshore drilling contractor. Mr. Howard declined to comment.
The industry has fought against attempts to return to more rigid rules. In a 2009 letter, the Offshore Operators Committee and the American Petroleum Institute, two trade groups, argued against proposed new, stricter rules governing safety and environmental compliance.
Mandated programs, it said, "quickly become paperwork exercises," not genuine improvements. The rules haven't been implemented. Mr. Herbst said the rules would supplement, not replace, existing rules.
—Ben Casselman, John R. Emshwiller and Guy Chazan contributed to this article.
http://www.wwl.com/Wall-Street-Journal--Feds-turned-oversight-of-dril/6989206
Boat crew couldn't stop oil disaster...Can they fix it?
Associated Press Reporting
HARRY R. WEBER and GERALD HERBERT
The burly, bearded man in overalls settled into the command chair of the Joe Griffin and admired the precious cargo firmly attached to the stern of the supply boat: a four-story box jutting from the deck that would soon be lowered into the Gulf of Mexico to contain an out-of-control oil gusher.
Sean "Slim" Weichel was on the same boat 16 days ago when he and his mates responded to the oil rig explosion, dousing the flames of the Deepwater Horizon in what proved to be a futile effort to keep it from sinking.
Their latest assignment: Return to the scene of the disaster with a giant concrete-and-metal box designed to cover the biggest leak and funnel the oil to a tanker on the surface.
"We are carrying a tool that could possibly end a lot of this ordeal," said Weichel, a bespectacled 35-year-old deckhand from Rocklin, Calif. "It is exhilarating to know we might be able to do some more good than we could before."
The Associated Press obtained exclusive access to the transport ship and the tricky oil containment endeavor that began Thursday evening.
Crew members strapped the containment device to the ship with heavy-duty chains and rumbled out to sea in their 280-foot vessel. As they got closer to the spill site, the crackling of radio transmissions and the pungent odor of oil filled the night air. Once there, the ship was surrounded by globs of oil as far as the eye could see.
The crew was eager to accomplish something positive just two weeks after they watched in horror as the inferno raged and the rig sank to the bottom of the Gulf of Mexico.
As they waited to lower the containment box, they watched the news in the ship's entertainment room. They ate chicken wings and pecan pie. They studied a bank of flat-screen monitors filled with navigational information. The captain, Demi Shaffer, drank another cup of coffee and looked out at the containment box through a pair of black sunglasses, his long brown hair touching his shoulders.
The workers had to wait several hours at the scene as the crew of another ship made final preparations to grab the device with a giant crane and put it in the water.
Men in red jumpsuits with white hard hats and life vests were lowered to the deck of the Joe Griffin from the other ship, a hulking semi-submersible drilling vessel called the Helix Q4000. They removed some sandbags from the Joe Griffin that will be used in the oil containment effort.
All the while, the big box loomed in the background, ready to be submerged in the Gulf.
The sides of the concrete-and-steel structure are marked with "N," "S," "E" and "W" to help ensure it is set down correctly. Several notches designate depth, almost like a supersized yard stick.
The mission was not assured of success. This method of containing the oil has been used before, but never in such deep water.
With little breeze and fumes rising from the sea, fears arose that a spark could ignite a new fire and complicate the lowering of the box. More time passed. The deckhands waited, with respirators on, while air-quality readings were taken.
Finally, after 10 p.m. CDT, the crane slowly lifted the containment box from the ship and into the dark Gulf, oil clinging to its outer casing as it began the hourslong journey to the muddy seabed a mile below. Once in place, they will install a pipe that will funnel the oil to the surface.
Douglas Peake, first mate of the Joe Griffin, was hoping this trip to the source of the spill would wash away the disappointment from the last one, when the crew watched the Deepwater Horizon sink into the gulf.
"It sounds kind of corny," he said, "but it was like we just lost a fight or something."
Chemicals Meant To Break Up BP Oil Spill Present New Environmental Concerns
by Abrahm Lustgarten, ProPublica - April 30, 2010
http://www.propublica.org/article/bp-gulf-oil-spill-dispersants-0430
The chemicals BP is now relying on to break up the steady flow of leaking oil from deep below the Gulf of Mexico could create a new set of environmental problems.
Even if the materials, called dispersants, are effective, BP has already bought up more than a third of the world’s supply. If the leak from 5,000 feet beneath the surface continues for weeks, or months, that stockpile could run out.
On Thursday BP began using the chemical compounds to dissolve the crude oil, both on the surface and deep below, deploying an estimated 100,000 gallons. Dispersing the oil is considered one of the best ways to protect birds and keep the slick from making landfall. But the dispersants contain harmful toxins of their own and can concentrate leftover oil toxins in the water, where they can kill fish and migrate great distances.
Are you a Gulf Coast resident? Do you have direct experience as a laborer, consultant, or contractor on offshore oil rigs? Or insight into how safety and emergency response decisions are made and implemented? Write reporter Abrahm Lustgarten (if needed, you can speak anonymously).
The exact makeup of the dispersants is kept secret under competitive trade laws, but a worker safety sheet for one product, called Corexit, says it includes 2-butoxyethanol, a compound associated with headaches, vomiting and reproductive problems at high doses.
“There is a chemical toxicity to the dispersant compound that in many ways is worse than oil,” said Richard Charter, a foremost expert on marine biology and oil spills who is a senior policy advisor for Marine Programs for Defenders of Wildlife and is chairman of the Gulf of the Farallones National Marine Sanctuary Advisory Council. “It’s a trade off – you’re damned if you do damned if you don’t -- of trying to minimize the damage coming to shore, but in so doing you may be more seriously damaging the ecosystem offshore.”
BP did not respond to requests for comment for this article.
Dispersants are mixtures of solvents, surfactants and other additives that break up the surface tension of an oil slick and make oil more soluble in water, according to a paper published by the National Academy of Sciences. They are spread over or in the water in very low concentration – a single gallon may cover several acres.
Once they are dispersed, the tiny droplets of oil are more likely to sink or remain suspended in deep water rather than floating to the surface and collecting in a continuous slick. Dispersed oil can spread quickly in three directions instead of two and is more easily dissipated by waves and turbulence that break it up further and help many of its most toxic hydrocarbons evaporate.
But the dispersed oil can also collect on the seabed, where it becomes food for microscopic organisms at the bottom of the food chain and eventually winds up in shellfish and other organisms. The evaporation process can also concentrate the toxic compounds left behind, particularly oil-derived compounds called polycyclic aromatic hydrocarbons, or PAHs.
According to a 2005 National Academy of Sciences report, the dispersants and the oil they leave behind can kill fish eggs. A study of oil dispersal in Coos Bay, Ore. found that PAH accumulated in mussels, the Academy’s paper noted. Another study examining fish health after the Exxon Valdez spill in Alaska in 1989 found that PAHs affected the developing hearts of Pacific herring and pink salmon embryos. The research suggests the dispersal of the oil that’s leaking in the Gulf could affect the seafood industry there.
“One of the most difficult decisions that oil spill responders and natural resource managers face during a spill is evaluating the trade-offs associated with dispersant use,” said the Academy report, titled Oil Spill Dispersants, Efficacy and Effects. “There is insufficient understanding of the fate of dispersed oil in aquatic ecosystems.”
A version of Corexit was widely used after the 1989 Exxon Valdez spill and, according to a literature review performed by the group the Alaska Community Action on Toxics, was later linked with health impacts in people including respiratory, nervous system, liver, kidney and blood disorders. But the Academy report makes clear that the dispersants used today are less toxic than those used a decade ago.
“There is a certain amount of toxicity,” said Robin Rorick, director of marine and security operations at the American Petroleum Institute. “We view dispersant use as a tool in a toolbox. It’s a function of conducting a net environmental benefit analysis and determining the best bang for your buck.”
Charter, the marine expert, cautioned the dispersants should be carefully considered for the right reasons.
“Right now there is a headlong rush to get this oil out of sight out of mind,” Charter said. “You can throw every resource we have at this spill. You can call out the Marine Corps and the National Guard. This is so big that it is unlikely that any amount of response is going to make much of a dent in the impacts. It’s going to be mostly watching it happen.”
Attention shoppers: The Gulf oil spill could affect you
Associated Press Reporting
The calamitous oil spill in the Gulf of Mexico isn't just a mess for the people who live or work on the coast. If you drink coffee, eat shrimp, like bananas or plan to buy a new set of tires, you could end up paying more because of the disaster.
The slick has forced the shutdown of the gulf's rich fishing grounds and could also spread to the busy shipping lanes at the mouth of the Mississippi River, tying up the cargo vessels that move millions of tons of fruit, rubber, grain, steel and other commodities and raw materials in and out of the nation's interior.
Though a total shutdown of the shipping lanes is unlikely, there could be long delays if vessels are forced to wait to have their oil-coated hulls power-washed to avoid contaminating the Mississippi.
Some cargo ships might choose to unload somewhere else in the U.S. That could drive up costs.
"Let's say it gets real bad. It gets blocked off and they don't let anything in. They lose time, and they are very concerned about that," said river pilot Michael Lorino. "It's going to be very costly if they have to unload that cargo in another port and ship it back here because it was destined for here."
When a tanker and a tugboat collided near New Orleans two years ago, oil cascaded down the river and some 200 ships stacked up, unable to move for several days while the Coast Guard had the vessels scrubbed. Millions of dollars were lost.
Several river boat pilots said the edge of the oil slick Monday was 15 to 20 miles off the Southwest Pass, where ships headed to New Orleans enter the Mississippi. The latest satellite image of the slick, taken Sunday night, indicates that it has actually shrunk since last week, but that only means some of the oil has gone underwater.
The new image found oil covering about 2,000 square miles, rather than the roughly 3,400 square miles observed last Thursday, said Hans Graber of the University of Miami.
The new image also shows that sizable patches have broken away and are moving to the north and east, Graber said. But it's not clear when any sizable amount of oil will reach land, because that depends on local currents and what the weather will do over the next few days.
Crews have been struggling to stop the more than 200,000 gallons a day spewing from the sea after an offshore drilling platform blew up and sank last month in a disaster that killed 11 workers. The accident is the worst U.S. oil spill since the tanker Exxon Valdez ran aground in Alaska, leaking nearly 11 million gallons of crude.
Chemical dispersants seemed to be helping to keep oil from floating to the surface, but crews haven't been able to activate a shutout valve underwater. And it could take another week before a 98-ton concrete-and-metal box is placed over one of the leaks to capture the oil.
More ominously, it could take three months to drill sideways into the well and plug it with mud and concrete.
BP PLC said Monday it would compensate people for "legitimate and objectively verifiable" claims from the explosion and spill, but President Barack Obama and others pressed the company to explain exactly what that means.
By all accounts, the disaster is certain to cost BP billions. But analysts said the company could handle it; BP is the world's third-largest oil company and made more than $6 billion in the first three months of this year. The oil spill has drained $32 billion from BP's stock market value.
Restaurants, hotels, casinos and other coastal businesses from Florida to Texas are bracing for their own pain, though they don't yet know where the oil will come ashore or just how much there will be. The rig is owned by Transocean Ltd.
Dana Powell expects at least some lost business at the Paradise Inn in Pensacola Beach, Fla., and could see a different type of guest altogether: Instead of families boating, parasailing and fishing, workers on cleanup crews will probably be renting her rooms.
"They won't be having as much fun," she said, "but they might be buying more liquor at the bar, because they'll be so depressed."
And what will she serve in her restaurant? Hamburgers and chicken fingers instead of crab claws. Federal officials have shut down fishing for at least 10 days from the Mississippi River to the Florida Panhandle.
In the Chandeleur Sound on Monday, about 40 miles northeast of Venice, La., thick, heavy oil formed long clumps that looked like raw sewage. Dying jellyfish could be seen in the water. A dolphin surfaced nearby but did not appear to be in distress.
In Alabama, scores of shrimp boats sat at dock in Bayou La Batre, their crews unable to work. Vietnamese immigrant Minh V. Le, who owns two trawlers, said: "I'm confused about how I'm going to survive, and how my crews are."
The Port of New Orleans handled 73 millions tons of cargo in 2008, including coffee from South America and steel from Japan, Russia, Brazil and Mexico. More than 245,000 tons of coffee came through the port in 2008, second only to the New York-New Jersey port. And last year, it imported nearly 260,000 tons of rubber from such countries as Indonesia and Malaysia, making it nation's No. 1 gateway for natural rubber.
Upriver is the Port of South Louisiana, the nation's busiest port with 224 million tons of cargo a year - mostly grain, other agricultural commodities and chemicals. Farther east lies Mississippi's Port of Gulfport, the nation's second-largest importer of green fruit. Central American bananas from Chiquita and Dole account for a big chunk of its cargo.
Some businesses were prepared because of their experience during Hurricane Katrina in 2005.
Folgers Coffee Co., which ships its coffee through the Port of New Orleans, has several weeks' worth of green coffee on hand and has made arrangements to use other ports in the event of a shutdown, spokeswoman Mary Beth Badertscher said.
"We've learned a lot of valuable lessons from Hurricane Katrina about supply logistics," she said.
About 60 percent of the grain exported from the U.S. goes through the Southwest Pass. If the spill delays barge traffic going down the Mississippi, prices for corn, soybeans and wheat could rise quickly on global markets, said Greg Wagner, a commodity analyst.
Grain prices within the U.S. could actually fall if shipments are unable to leave the U.S. and the grain begins piling up at silos in the U.S. But the price decreases would probably be small and wouldn't show up at the grocery store anytime soon, said Seth Meyer, an agricultural transportation analyst at the University of Missouri.
As for the petroleum industry, analyst Phil Flynn said he doesn't expect oil or gasoline prices at the pump to soar unless the shipping lanes are shut down for a long time. Gasoline inventories are at a 20-year high, he said, and oil supplies are probably much higher.
While a port shutdown would be devastating to the Gulf Coast region, many economists believe the overall damage to the $14.6 trillion U.S. economy could be small.
Cargo can be rerouted to other ports, and the income would be shifted but not lost. Even the lost income from tourism and fishing could be offset by more spending on cleanup.
"The U.S. economy is adaptable," said Martin Regalia, chief economist at the U.S. Chamber of Commerce. "When natural disasters strike, money may be lost in one area but can be made up by spending in other areas. It is more than a nuisance, but it is not a calamity in an economic sense."
PETER SCHIFF IS “FUNDAMENTALLY MISGUIDED”
3 May 2010
http://pragcap.com/peter-schiff-is-fundamentally-misguided
Peter Schiff spent much of a recent debate with James Galbraith by comparing the United States to Greece. As regular readers know, this is totally false and displays a gross lack of knowledge with regards to the monetary system. It’s nice to finally see someone starting to call out all these deficit terrorists for what they really are – misguided. The Peter Schiff’s of the world are nothing but fear mongerers who live in a non-convertible floating exchange rate world, but think we’re still in a gold standard world. Nothing could be farther from the truth.
Lloyd Blankfein on Charlie Rose
http://www.charlierose.com/view/interview/10989
WHAT’S ON TAP?
2 May 2010 by TPC
For the week of May 2nd (in conjunction with Econoday):
Earnings will be very heavy again, but much like last week the majority of the names reporting will not be market moving. Overall, it has been another excellent earnings season when compared to estimates. This has been largely factored into stocks, however, so economic data and exogenous events are front and center this week. Let’s take a look at what’s on tap:
http://pragcap.com/whats-on-tap-50
CNBC HITS AN ALL-TIME LOW
23 April 2010
http://pragcap.com/cnbc-hits-an-all-time-low
This has to be the most embarrassing thing I have ever seen from a CNBC reporter – and we all know we’ve seen a lot of them. In an interview with Tech Ticker today, Maria Bartiromo pretends to be some sort of market expert and opines on the boom bust economy:
“There’s nothing wrong with a boom bust economy. What’s wrong with a boom bust economy? Things are booming and then you get a bust and that opens the door for wealth creation.”
There are so many things wrong with these statements I don’t even know where to begin. First, Bartiromo is a lifelong reporter. She has ZERO market experience. Yeah, I know, she’s been around for a while. But you know what? I’ve watched a helluva a lot of war movies. Does that mean I am ready to pick up a rifle and start lecturing people about the ways of war? No. It’s simply absurd that her employer even allows her to opine on markets.
As for the actual boom/bust comments – it’s insane to say that the boom bust cycle is part of the American way or in any way healthy. As we’ve previously explained, the boom bust cycle is the direct result of severe economic imbalances and Keynesian fiscal and monetary policy that Alan Greenspan has admitted was a failure. We have slowly and methodically gutted the middle class in this country while the largest wealth redistribution in human history has taken place – in large part thanks to the ever increasing wealth of the banks and bankers. And this endless attempt to inject liquidity into a flailing economic model has only made matters worse by further indebting the middle class and further enriching the bankers. The results speak for themselves.
Why does CNBC insist on allowing their market reporters opine on the stock market? This network is slowly destroying itself by constantly allowing their reporters (who are professional reporters and not analysts) interject with their market opinions. With all due respect, no one on the planet cares what Maria Bartiromo thinks about the stock market. In fact, one of the reasons why I have always been a fan of hers is due to the fact that she tends not to opine on the markets and instead asks poignant and excellent questions while also reporting the news.
We all know that 80% of buy side and sell side opinions add little to no value to begin with. The idea that a journalist can add value to a debate as complex as the financial theories behind the business cycle is comedic at best. Comments such as Bartiromo’s above only verify this. This is the primary reason, in my opinion, why they are losing viewers. After 10 years of a sideways market and a financial crisis that nearly destroyed the US economy no one is interested in listening to cheerleading from a bunch of reporters that have never worked at a buy side or sell side firm.
I’m very sorry to rail against anyone in particular (ad hominem attacks are not my style), but this is the sort of propaganda from a very misguided commentator that does nothing to move our economic progress forward.
A Closer Look At Friday's GDP Report
5.02.2010
On Friday, the BEA released the first estimate of 1Q GDP, which printed at 3.2%.
Below is a detailed analysis of the number along with an explanation.
http://www.fivethirtyeight.com/2010/05/closer-look-at-fridays-gdp-report.html
.....
This is the third quarter of GDP growth. It demonstrates that growth is coming from a variety of economic sectors. The consumer is spending again, businesses are investing, and exports are increasing. The conclusion is clear: the economy is no longer in recession.
U.S. Stocks Cheapest Since 1990 on Analyst Estimates
April 26 (Bloomberg) -- Even after the biggest rally since the 1930s, U.S. stocks remain the cheapest in two decades as the economy improves.
Profit estimates for Standard & Poor’s 500 Index companies from Apple Inc. to Intel Corp. and CSX Corp. have climbed 9.3 percent on average in April, twice the gain in their prices and the largest monthly increase since at least 2006, data compiled by Bloomberg show. The benchmark gauge for American equities is trading at 14.1 times forecasts for its companies’ earnings, lower than any time since 1990, except for the months after Lehman Brothers Holdings Inc. collapsed.
Income is beating analysts’ estimates by 22 percent in the first quarter, making investors even more bullish that the rally will continue after the index climbed 79 percent since March 2009. While bears say the economy’s recovery is too weak for earnings to keep up the momentum, Fisher Investments and BlackRock Inc. are snapping up companies whose results are most tied to economic expansion.
“The stock market is incredibly inexpensive,” said Kevin Rendino, who manages $11 billion in Plainsboro, New Jersey, for BlackRock, the world’s largest asset manager. “I don’t know how the bears can argue against how well corporations are doing.”
S&P 500 companies may earn $85.96 a share in the next year, according to data from equity analysts compiled by Bloomberg. That compares with the index’s record combined profits of $89.93 a share from the prior 12 months in September 2007, when the S&P 500 was 20 percent higher than today.
Record Pace
The earnings upgrades come as income beats Wall Street estimates at the fastest rate ever for the third time in four quarters. More than 79.8 percent of the 184 companies in the S&P 500 that reported results have topped estimates, compared with 79.5 percent in the third quarter and 72.3 percent in the three- month period before that, Bloomberg data show.
The S&P 500 fell 0.4 percent to 1,212.05 today. The gauge increased 2.1 percent last week as new-home sales surged the most since 1963, recovering from the April 16 rout when the Securities and Exchange Commission said it was suing New York- based Goldman Sachs Group Inc. for fraud. The index is up 8.7 percent for 2010, the second-largest gain in the world’s 15 biggest equity markets, behind Japan, Bloomberg data show.
While analysts are raising estimates, they’re not boosting investment ratings. Companies ranked “buy” make up 30 percent of all U.S. equities, the data show. That compares with 45 percent in September 2007, a month before the S&P 500 reached its record high of 1,565.15 and began a 17-month plunge that erased $11 trillion from the value U.S. shares.
Easier to Adjust
“It’s been easier for analysts to adjust their earnings estimates than to aggressively put forth strong ‘buy’ recommendations,” said Keith Wirtz, who oversees $18 billion as chief investment officer at Fifth Third Asset Management Inc. in Cincinnati. “It may be a reflection of concern about the resilience of earnings in 2011 and beyond.”
Companies are losing the benefit of a weaker dollar after the currency appreciated 9.6 percent since November against a basket of six trading partners, according to the Dollar Index from Atlanta-based IntercontinentalExchange Inc. A rising currency cuts demand for American exports and reduces overseas revenue when converted back to dollars.
Abercrombie & Fitch Co., the New Albany, Ohio-based teen retailer, warned the rally may weaken its profitability, according to a March 10 conference call. Westport, Connecticut- based Terex Corp., the world’s third-biggest maker of construction equipment, said in an April 21 earnings release that currency swings may reduce revenue. Terex got 75 percent of 2009 sales outside the U.S., Bloomberg data show.
Alternate Valuation
David Rosenberg, chief economist of Gluskin Sheff & Associates Inc., says U.S. stocks are poised for losses because they’ve become too expensive. The S&P 500 is valued at 22 times annual earnings from the past 10 years, according to inflation- adjusted data since 1871 tracked by Yale University Professor Robert Shiller.
Economic growth will slow and stocks retreat as governments around the world reduce spending after supporting their economies through the worst recession since the 1930s, said Komal Sri-Kumar, who helps manage more than $100 billion as chief global strategist at TCW Group Inc. The U.S. budget shortfall may reach $1.6 trillion in the fiscal year ending Sept. 30, according to figures from the Washington-based Treasury Department.
“The correction is going to come,” Sri-Kumar said in an interview with Bloomberg Television in New York on April 21. “You now have a debt bubble growing in the sovereign side, and we’re slow to recognize how negative that could be.”
Deficit Spending
The European Union deficit tripled to 6.3 percent of gross domestic product last year, from 2 percent in 2008, the EU’s Luxembourg-based statistics office said on April 22. Moody’s Investors Service cut Greece’s credit rating the same day on concern its debt load will be higher and more costly than previously estimated, spurring a drop of 1.1 percent in the Stoxx Europe 600 Index.
The S&P 500 posted a 0.2 percent gain that day after initially falling 1.3 percent, helped by an advance in PNC Financial Services Group Inc. The fifth-largest U.S. bank by deposits said profit rose 28 percent on higher net interest income and less reserves for bad loans.
PNC, based in Pittsburgh, is one of 38 financial services companies in the S&P 500 reporting an average first-quarter earnings increase of 175 percent after banks and brokerages racked up $1.78 trillion of losses and writedowns linked to the collapse of the U.S. subprime mortgage market.
Mobile Devices
Intel, the world’s biggest semiconductor maker, spurred the S&P 500’s biggest rally in a month after reporting earnings on April 13 that topped Wall Street estimates and predicted data centers and the shift to mobile devices will drive growth. The results prompted at least 20 of the 31 firms covering the Santa Clara, California-based company to raise their 2010 forecasts.
Analysts lifted the average 2010 prediction by 10 percent to $1.88 a share, Bloomberg data show. Intel trades at 12.8 times projected annual income, about half the average using trailing profits since 1991. The shares are up 17 percent in 2010, the Dow Jones Industrial Average’s seventh-biggest gain.
Information-technology spending will climb 1.7 percent in 2010, after dropping 3.1 percent last year, according to Morgan Stanley. Personal-computer shipments rose 27 percent last quarter, according to Gartner Inc. The PC market bounced back from a year earlier, when the recession dragged down shipments almost 7 percent -- the worst performance since 2001, according to market research firm IDC.
Concerns Are Past
“We’re in a time period where the concerns we had in 2007 and 2008 have been taken care of or are past,” Kenneth Fisher, who oversees about $40 billion as chairman of Fisher Investments in Woodside, California, said in a April 20 Bloomberg Television interview. “If you’re waiting for a market pullback or individual stock pullbacks, you could be waiting a long time.”
CSX, the third-largest U.S. railroad, rallied the most in two months on April 14 after saying it hauled more goods and charged more for each carload. Analysts say the Jacksonville, Florida-based company will earn $3.48 a share in 2010, a 6.2 percent increase since the firm released quarterly results.
Profit estimates for energy producers and industrial companies have climbed more than 10 percent in the past month, the most among the 10 largest groups in the S&P 500, data compiled by Bloomberg show. Gross domestic product in the U.S. is forecast to increase 3 percent this year and 2.95 percent in 2011 after contracting 2.4 percent last year, according to the median estimates of 64 economists surveyed by Bloomberg.
Apple Earnings
Apple’s profit almost doubled last quarter as consumers snapped up iPhones and Macintosh personal computers, the Cupertino, California-based company said on April 20. The results sent its stock up 9.5 percent to an all-time high of $270.83 last week and boosted projections for annual income by 7.7 percent to $13 a share.
Apple, the third-biggest company in the U.S., with a market value of $245.2 billion, is 30 percent cheaper than the average of the past five years with a multiple of 20.7 times estimated 2010 profit, Bloomberg data show.
U.S. retail sales increased 1.6 percent in March, more than anticipated and the biggest gain in four months, according to figures from the Commerce Department issued April 14 in Washington. Consumer spending and manufacturing helped the economy expand across most of the U.S. in March, according to the Federal Reserve’s Beige Book of regional economic activity issued April 14.
Biggest Rally
The S&P 500 rallied 92 percent in the five years after reaching a valuation in November 1990 of 14.1 times profit, about the multiple indicated by earnings forecasts for next year, according to Bloomberg data. The index last traded that cheaply in June 2009, near the start of the biggest rally in seven decades and nine months after New York-based Lehman filed the world’s biggest bankruptcy.
“The earnings story is very supportive of the market even after the rally over the last year,” said Liz Ann Sonders, chief investment strategist at Charles Schwab Corp., which oversees $1.4 trillion in client assets from San Francisco. “The recovery is real, it’s V-shaped and it’s got legs.”
To contact the reporters on this story: Lynn Thomasson in New York at lthomasson@bloomberg.net; Whitney Kisling in New York at wkisling@bloomberg.net; Rita Nazareth in New York at rnazareth@bloomberg.net.
Last Updated: April 26, 2010 16:29 EDT
Weighing the Week Ahead: A Fresh Start
May 01, 2010
http://oldprof.typepad.com/a_dash_of_insight/2010/05/weighing-the-week-ahead-a-fresh-start.html
One of the biggest investment challenges is keeping focused on the future. We all know that we cannot change the past, but there is a powerful temptation to use current decisions to justify past mistakes.
The most common market sentiment right now is one of denial. Many sophisticated market observers have hated the rally. It is natural to want to seem smart in writing or on TV, so successful investors have been portrayed as "dumb money."
Here at "A Dash" we are focused on the future, not adjudicating who was smart and who was dumb. The only way to do this is to realize that every day is a new one. We really need to look at data -- real data -- and be willing to challenge our views.
Abnormal Returns, in another strong theme drawn from reading and synthesizing hundreds of blog posts, captures the essence of this problem. The article carefully explores the data surprises, the skepticism directed at those bullish on the economy, the "new normal" of expectations, and the resulting problems.
The answer?
So does a new, new normal mean happy times are here again? Not necessarily. Investors should still be on guard for the potential downsides. The economy could still turn tail and go back into some sort of debt-fueled dark age. However the past year is a stark lesson in how we set expectations and how generating some perspective can help investors combat our short-sighted tendencies.
I agree. Readers should check out the entire article and the links. I'll try to offer an additional trick or two in this week's conclusion.
But now -- let us review last week.
The Good
- The Fed decision was good, by which I mean market-friendly. (I'll let the pundits pontificate on the wisdom). There will eventually be an over-reaction as the Fed moves from accommodative to neutral, but that seems to be some time off.
- The GDP report was good. The gains relied less on inventory rebuilding and emphasized consumer and business spending. The bad weather was probably a drag. We all know there will be revisions, but the economic growth seems solidly in place.
- The Chicago PMI was very good at 63.8, beating expectations by a few points.
- Consumer confidence was good -- a concurrent indication of employment.
The Bad
- Weekly jobless claims are still elevated. This is an important part of the job picture. The rate of initial claims seems to have stalled at an unhealthy level.
- Europe. Political maneuvering about Greece and the downgrade of credit ratings (Greece, Portugal, Spain, and ??) had worldwide markets on edge.
- The oil "spill". We do not yet know the extent of the cost, since the spill continues. One cost will be the effect on energy prices as people re-evaluate this energy sources.
The Ugly
- The sideshow. Any time over the last two years that investors have seen Congressional hearings, it has been a market negative. Even the most sophisticated market participants seem lost when something happens in the political arena. They are completely unable to separate policy consequences from political theater.
- Market reactions. The market sentiment seemed to make a major shift. The marginal buyer and seller were reacting more to "headline risk" than to actual data. That is the reality of the moment. We must all deal with it. For traders it is a risk. For investors it is an opportunity.
The Week Ahead
I expect a rebound on Monday from the annual Buffett meeting (support for financial stocks and cyclicals), a plan for Greece, and a good ISM number. If there is no specific plan for Greece, the negative sentiment will continue.
Once we get past the Monday news, things could be quiet until the employment situation report on Friday. I will do my customary preview, probably on Wednesday.
Our Trading Forecast
Our own indicators remain bullish by a very slender margin, and that was our vote in the weekly Ticker Sense Blogger Sentiment Poll. Here is what we see:
87% (93% two weeks ago) of our ETF's have positive ratings. This is very strong.
The median strength is only +18 (down from +41 two weeks ago).
91% (about the same) of the sectors are in the "penalty box," showing a continued high level of uncertainty and risk.
Our Index Package now has a modest, positive rating, but only the Diamonds are out of the penalty box.
[For more on the penalty box see this article. For more on the system ratings, you can write to etf at newarc dot com for our free report package or to be added to the (free) weekly email list. You can also write personally to me with questions or comments, and I'll do my best to answer.]
Investment Implications
There is a real irony in the current rally. Many have been skeptical. For these people the slightest selling is a sign of the "next big one." I talk to many people who wish they had been buyers of many stocks at lower prices, but are now unwilling to step up. When stocks move higher, they think they are too late. When stocks move lower, even by a few percentage points, they become frightened. These people are not really investors, since nothing will convince them to buy.
This inconsistent behavior comes when you have no system -- fundamental or technical. If you are paying attention, you should have a long list of buy candidates. Many stocks were unduly trashed last week -- stocks that were not in the financial sideshow or the energy disaster realm. They are on sale, but few seem to see the opportunity.
For specific stocks, I am happy with my 2010 preview. Some of the themes are already working, and others (health care) can be played at a discount. I would buy any of the names right now. I also warned against energy, but would now be looking again.
As for techniques, you need to clear your mind of biases. One of the best traders I have ever known always had some long-term positions as well. These included many names where he had "fallen in love." Each year when he went on vacation he would sell these positions -- all of them. He needed a clean slate.
So do you.
May 01, 2010 in The Week Ahead
Speculative Intensity
http://www.decisionpoint.com/tac/NEWMAN.html
At this juncture, it is impossible to ignore sentiment, which has run to extremes at least as significant as the mid-January highs. Below, we illustrate a measurement of the intensity of speculation that is simply beyond the pale. A portion of the growing divergence between NYSE and Nasdaq volume is likely due to the NYSE losing business to other market makers, especially electronic, but there is no way to explain away the staggering divergence visible in the chart. Since January 1st, 21-day average NYSE volume is up 3.2%. By comparison, 21-day average Nasdaq volume is up 40.8%. Clearly, the action is taking place in the more speculative, higher P/E and lower dividends paying issues on Nasdaq, and that’s a bad sign for investors.
A support test for the Dow next week
By Arthur Hill
May 01, 2010
With the third long red candlestick in three weeks, the Dow Industrials is once again testing support in the 11000 area. The senior average first exceeded 11000 on April 14th and then moved into a trading range. While a support break would be short-term bearish, it would not be enough to affect the bigger uptrend. After a 1300 point advance in just 11 weeks, the Dow was overbought and ripe for a pullback or consolidation. Even the best athletes need to rest after long sprints. Should a correction unfold, we can turn to broken resistance and the Fibonacci Retracements Tool to estimate downside targets. Broken support and the 38% retracement converge around 10700 for the first target.
NASDAQ AND RUSSELL 2000 CONFIRM BEARISH SIGNS
By Tom Bowley
In my last article I suggested the financials were topping and that would make any further advance in the market difficult. Well this past week the action on the NASDAQ and Russell 2000, home of the high beta stocks, confirmed the bearish action. We've seen several warning signs develop over the last several weeks. These include extremely overbought conditions on both daily and weekly timeframes, negative divergences on the MACD on daily and weekly timeframes, outrageous relative complacency unlike anything we've seen since the CBOE began providing us equity only option data in 2003, and significant price resistance levels.
First, let's take a glance at the Russell 2000:
The 650-750 area appears to be the trading range for the Russell 2000 now. After weeks of steady movement higher, the bearish dark cloud cover candle from last week suggests the near-term is likely to be a bit more dicey. The 20 week EMA is at 662 and rising and that too has proven to be a solid support level over the past year. The Russell 2000 is being featured as our Chart of the Day for Monday, May 3, 2010 and can be viewed by CLICKING HERE.
The NASDAQ is a bit more bearish considering that it still has a long-term negative divergence present on its weekly chart. That has the potential of leading to a 50 week SMA test to "reset" this oscillator. Take a look:
http://blogs.stockcharts.com/chartwatchers/
Decision Point Earnings Summary Est Est Est Est
Carl Swenlin
http://www.decisionpoint.com/tac/SWENLIN.html
Friday 4/30/2010
2009 Q4 2010 Q1 2010 Q2 2010 Q3 2010 Q4
Undervalued (SPX if P/E = 10): 510 610 631 647 655
Fair Value (SPX if P/E = 15): 765 915 947 971 983
Overvalued (SPX if P/E = 20): 1019 1220 1263 1294 1311
BP suggested in a 2009 exploration plan and environmental impact analysis for the well that an accident leading to a giant crude oil spill — and serious damage to beaches, fish and mammals — was unlikely, or virtually impossible.
The plan for the Deepwater Horizon well, filed with the federal Minerals Management Service, said repeatedly that it was "unlikely that an accidental surface or subsurface oil spill would occur from the proposed activities."
The company conceded a spill would impact beaches, wildlife refuges and wilderness areas, but argued that "due to the distance to shore (48 miles) and the response capabilities that would be implemented, no significant adverse impacts are expected."
The spill — a slick more than 130 miles long and 70 miles wide — threatens hundreds of species of wildlife, including birds, dolphins, and the fish, shrimp, oysters and crabs that make the Gulf Coast one of the nation's most abundant sources of seafood.
Although the cause of the explosion was under investigation, many of the more than two dozen lawsuits filed in the wake of the explosion claim it was caused when workers for oil services contractor Halliburton Inc. improperly capped the well — a process known as cementing. Halliburton denied it. http://www.google.com/hostednews/ap/article/ALeqM5gIXWYBTpLtSayJtg41LKXpxSxVPAD9FE5OIO3
Calculating the exact flow of crude out of the bent Deepwater Horizon oil rig "riser" pipe on the bottom of the Gulf of Mexico is difficult. But it's now likely that the actual amount of the oil spill dwarfs the Coast Guard's figure of 5,000 barrels, or 210,000 gallons, a day.
Independent scientists estimate that the renegade wellhead at the bottom of the Gulf could be spewing up to 25,000 barrels a day. If chokeholds on the riser pipe break down further, up to 50,000 barrels a day could be released, according to a National Oceanic and Atmospheric Administration memo obtained by the Mobile, Ala., Press-Register. http://www.csmonitor.com/USA/2010/0501/C-mon-how-big-is-the-Gulf-of-Mexico-oil-spill-really
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