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NY/US: Economic Recovery and the Tax-Fueled Exodus
by: Wall Street Strategies February 04, 2010 | about: DEO / RIG / WFT / TYC / FWLT / YHOO / KFT / MCD / CSCO / YUM / V / NE / SPY / DIA / QQQQ
As investors fretted over the myriad of economic data yesterday and watched paint dry in the form of an indecisive market, I think that the best story of the day was overlooked. Apparently, the canton of Zug Switzerland offered Diageo (DEO) a seductive deal to move its corporate headquarters out of the UK. The deal would have exempted the top 200 executives at the company from paying income taxes, and given the company a sweet corporate tax rate. Maybe the guys and gals running the show at Diageo were sipping their own products -- which include Captain Morgan, Johnnie Walker, Smirnoff vodka and Guinness among others -- because the offer was turned down. Granted, when you have 25,000 employees around the world it doesn't help the esprit de corps if the guys at the top aren't paying any taxes. However, the deal underscores one thing leaders in the West are missing: the idea of taxing a nation to health is preposterous. Yet it's the game plan of choice in the United States, U.K., France and, to a lesser extent, other nations of the West.
These nations have been slipping for a long time as arrogance and cozy afternoons sipping cappuccino have left their flanks wide open. Centuries of dominance, first by the British Empire then by the United States, have left the impression that the rest of the world would never catch up. Now, it is scramble time on both sides of the Atlantic; but it's also panic time. The knee-jerk reaction to current economic woes is to blame the system and punish the most successful individuals. In others words, blame the player and the game. Oh well, it's going to backfire immensely -- it always does, and always will -- which is why it's such a head scratcher. You know, last week after the results of Oregon's vote to hike taxes on individuals and corporations were passed (individuals at $125,000 will see hikes up to 11% and corporations with sales above $250,000 will be taxed at higher rates as well) Chicago's mayor, Richard Daley, made no secret of his goal of taking advantage.
When asked about the vote the Mayor replied: "It will help our economic development immediately. You'd better believe it. We'll be out in Oregon enticing corporations to relocate to Chicago." Then he further added: "Businesses can go to Wisconsin. They can go Indiana. They can go to India. They can go to China. So if you want to beat up businesses, go beat them up and when they leave, just wave to them, and they're going to wave back to you."
It is amazing that a Democratic politician from the President's home state would utter such words, even though what he said is obvious. Still, it's the reaction and game plan of choice. Some think that it's only right and fair, and some kind of way of righting wrongs. Some see it as punitive, and really believe that as they punish their most important businesses there will be no lingering consequences. That is the sad irony of it all. When the rich catch a cold the general populace catches pneumonia, and when rich individuals and successful businesses catch punitive punishment the general populace catches hell.
High taxes are already taking a toll on New York:
Migration patterns in New York State show households moving out have average incomes 13% higher than those people moving into the state. From 2006 to 2007, migration flows resulted in $4.3 billion drained out of the state in the form of less taxpayer income. In fact, from 2000 to 2008 1.5 million more Americans left New York than moved to the state. There has been a massive exodus out of California, Michigan and New Jersey as people move to low/no tax states like Florida and Texas.
According to a research report by Art Laffer and Stephen Moore, from 1997 to 2007 1,100 people moved every day from nine states with the highest taxes. States with serious unemployment levels also sport really high tax obligations. Consider what has happened in California. The state, whose name is synonymous with wealth, glamour, and success, has become a revolving door with rich folks rushing to get out while much poorer immigrants rush to get in. California has a 10.55% income tax. Texas has no earned income tax and saw more than 700,000 people move into the state.
Back to Switzerland and its offer to Diageo. In Switzerland, each canton can set its own tax rate. Zug has been very aggressive, with rates starting at 16% but moving as low as 9.5% for businesses operating outside the country. Last year more than 1,200 companies moved their headquarters to Switzerland, including Noble Corp (NE), Transocean (RIG), Weatherford (WFT), Tyco International (TYC), and Foster Wheeler (FWLT). U.S. companies including Yahoo (YHOO), Kraft (KFT), and McDonalds (MCD) operating in Europe have been bolting the U.K. for Switzerland.
Still, the White House is going after multinationals to help pay for its runaway budget. I think that it would work best the other way around. I don't see this latest plan sparking people to spend or businesses to hire. It's doomed to backfire, and will put up a roadblock to a recovery that is in the cards as part of this odd thing we call the business cycle. If we let the nation be itself rather than hijacking the moment to move away from capitalism there will be much less pain. (Click to enlarge)
The Market
The market marked time this week but fended off a few big pullback attempts, peaking into the plus column a couple of times. This morning could be about corporate earnings, which for the most part continue to impress.
Cisco (CSCO) traded 79.9 million shares versus the daily average of 41.6 million in anticipation of a strong number, which was posted. Earnings were up 23% to $1.85 billion or $0.40 per share, beating the Street by a nickel. CEO John Chambers made several positive comments, including "entering second phase of economic recovery" and "saw dramatic across the board acceleration and sequential improvements in almost all areas of business." The $9.8 billion in revenue beat the company's expectations, and the consensus of $9.4 billion.
Yum Brands (YUM) posted earnings of $0.50 per share against estimates of $0.48 per share, but the stock moved lower on same-store sales results. International same-store sales were -2%, China -3%, and the U.S. -8% (where individual franchises saw same-store sales down). Taco Bell was -5%, KFC -8%, and Pizza Hut -12%. The company opened 509 stores in China and 898 internationally outside China.
Visa (V) traded 8.0 million shares against the average daily volume of 6.0 million before posting earnings of $1.02 per share on revenue of $1.96 billion after the closing bell. The Street was looking for $0.91 per share and $1.74 billion in revenue. The difference was debit cards, where payment volume surged 8% to $268.0 billion.
Economic Data
Initial Claims
For the fourth time in the past five weeks, initial jobless claims increased despite all the talk of improving economic trends. For the week, 8,000 more people filed jobless benefits, while the Street was expecting a 10,000 person decline. The average jobless claim for the month of January of 468.8K was much higher than the 455K average for the month of December. This does not bode well for the jobs report tomorrow.
What do we Make of Little Ole January?
Should we become excited by all the positive January comps? Or how about the swath of raised EPS outlooks for the now completed 4Q; are they worth breaking out the pom poms? With the book officially closed on the 2009 holiday season, it's safe to say that the retail sector got back to basics, managing inventory and margins, and basking in the slight ray of hope that was the reemergence of the U.S. consumer to the malls, outlets, and discount centers. Sector inventory levels entering the new fiscal year are rather lean as January clearance events, and a little extra money in the wallets of consumers that temped some to buy non-essentials, did the trick.
Disclosure: None
http://seekingalpha.com/article/186756-economic-recovery-and-the-tax-fueled-exodus
Register or Login to rate comments » 2Contrarian
This article states the facts ......... too bad peoples perceptions and politics ignore the facts and react on emotions. Feb 04 05:40 PM !
(242) Wildebeest 75
Wildebeest is a PhD MBA investor primarily in resource stocks such as base metals, iron ore and coal-- which is the primary focus of his writing at http://www.wildebeests.net. Wildebeest is also an experienced Mathematica programmer and contributes code fragments on his blog showing how data can...
Wildebeests Isn't Sweden a high taxing country? Don't we often taunt it as a socialistic high taxing country? It is ranked third on your list of the Fortune 500 companies headquarters (just after Switzerland which you spoke about) which is the opposite of your thesis.
The fact that BOTH a low taxer (Switzerland) and a high taxer (Sweden) are both well above the USA negates your theory. Other factors are clearly in play here. Feb 04 06:21 PM !
KevinMMcAleer@gmail.com Comments (8)
KevinMMcAleer@gmail.com has yet to provide a bio. Sweden taxes are close to Switzerland. Check your facts.
www.taxfoundation.org/...
Feb 04 10:43 PM ! Report abuseReply 00 Wildebeest Comments (242) Wildebeest 75
Wildebeest is a PhD MBA investor primarily in resource stocks such as base metals, iron ore and coal-- which is the primary focus of his writing at http://www.wildebeests.net. Wildebeest is also an experienced Mathematica programmer and contributes code fragments on his blog showing how data can...
Wildebeests The article discusses both income taxes and corporate taxes. For example move to switzerland and have low corporate and low income taxes (or no income taxes in the case of the offer to Diageo). The tax burden in sweden in much higher than the USA.
www.oecd.org/document/...
Feb 05 09:17 AM ! Report abuse
KevinMMcAleer@gmail.com 0
Good point. I forgot about individual income tax. I apologize for my parochial response.
Feb 05 11:15 AM !
Wildebeests thats ok :) Feb 05 11:32 AM !
The Geoffster Comments (1297)
The Geoffster 71
Watch for developing countries to entice American citizens/ companies with tax free citizenship offers.
Feb 04 07:59 PM
Scott Croly
That's nice; but in the end, aren't you just a little concerned about event risk? Or sufficient market demand, as in, closed market to offshor'd subversive corps, esp overpaid extractors? Who needs your alcoholic/drug dystopia anyway? If you move to possibly/potentially unstable locale, with initial positives, and hyper-equity/earnings divergence ensues with commensurate destabilization, in the end, who you gonna call, ghostbustahs? Oh, I almost forgot, that's already happening. Also, productive, loyal, dedicated citizenry emigrates, too (see recent stats). True about the entitlement crowd; still, go figure -- in your extractive, subversive, redistribution-micro-c... positional stasis, you are no better, as in "two sides of the same coin" -- play both ends against the middle. Do some real service, you nominals; don't forget: don't come callin', don't come callin'. Pay for, serve in, and build your own DoD; right now, see Soldier of Fortune Magazine, average, so far as I know, app. $100,000/per annum for the equivalent of Pfc -- they're good, really -- pay your way, after all, "free" market -- yeah, free 4/u, you subversives, esp. dievestment [sic] "bank[ers]" is a 4 letter word subversion. Rome 440, Russia '17, Weimar, anyone?
Feb 04 10:26 PM
keynes52
Another tax cut fanatic attributing trends to actions that may or may not be the cause. High taxes are not the only reason to leave New York or California. To assume the high tax rate is the cause of this migration is absurd. California has been a leader in high taxes as long as anyone can remember and only since the recent real estate boom has it seen such a large number of people leave. Many of those left because they could sell their house for 500k when they bought it for 100k, allowing them to retire. And let's face it, it's not hard to find a reason to leave New York.
Feb 04 10:49 PM
biomedlives 3
In my view, executives who move a company's headquarters to avoid taxes on their own incomes have a clear conflict of interest, though I recognize that circumstance would not bother many executives these days.
- Who should pay the taxes to fund infrastructure repairs, medical research, and the wars in Afghanistan and Iraq?
Feb 05 09:59 AM
My life changed on 14 Nov 2007. I underwent a quadruple bypass. "Teamwork" is invisible to me. I'm not a cooperative or flexible person. Thus, I was unprepared for the pain after surgery, the requirement that I do things that made the pain worse, etc. I spent 3 weeks in the ICU and... More Wall Street Strategies takes the easy road. What does he/she/they suggest states like CA & NY do? Tax the poor? This has been Republican strategy as long as I can remember. It works for a while.
However, when GWB added wars on Afghanistan and Iraq to the previous wars on drugs and Andean Indians, then also lowered taxes on the wealthy, something had to give. It was the budget deficit.
Feb 05 04:55 PM
Vietnam vet, retired, MIT graduate degree, 40 years in real estate development, asset management.
The states with the highest taxes on those with over 200K family income are CA,MD,NY & NJ. These states also are the most progressive in ideology, never seeing an entitlement that they didn't automatically inculcate into their ever expanding budgets. A funny thing has happened though. Their tax revenues are down quite substantially in the last few years PRIMARILY from those in the 200K and higher income brackets. So there is an obvious exodus from high tax states.
Feb 05 11:41 PM !
a fat panda
Brenton Smith is a private money manager, specializing in capital preservation. He has worked in financial services for more than 20 years. Blog: Joe The Economist "California has a 10.55% income tax. Texas has no earned income tax and saw more than 700,000 people move into the state."
When I lived in Texas, it had no income tax. It did however have a lethal combination of higher property taxes and higher sales taxes to make up for it. Comparing states without factoring in other taxes and how their services stack up is apples and oranges.
Feb 06 11:52 PM
>>NYC 8th Wonder of Tax World at 12.62%: A paradigm shift in economics and education
...What brought all this to mind was a piece I read about a young man with a good job who moved from California to Colorado, saying that whatever is left of the California dream is for Hollywood actors — not for "us." Taxes are confiscatory in California with no solution in sight (10.55 percent.) California has been losing its high-tech edge to other states, as well as bleeding good manufacturing jobs.
I then read about a mega-wealthy businessman fleeing from New York to Florida to avoid paying $13,000 a day in state income taxes! (New York hiked the state tax rate on the wealthy from 6.85 percent to 8.97 percent.) New York City is now one of the seven wonders of the tax universe at 12.62 percent.
>>New $122 BN Taxes Could Send US Companies to Switzerland:
The Ultimate Hidden Fee: U.S. Based Multinational Companies Face $122 Billion Tax Burden Under Proposed Bill
Posted on February 4, 2010 by Santiago Cueto
And Why Relocating to Switzerland May be the Best Corporate Strategy
There’s nothing more annoying than finding hidden fees buried deep inside obtuse and mangled contract language. The only thing worse than finding hidden fees is learning about these punishing provisions from someone else—after you’ve signed the agreement.
If you thought hidden fees provisions were the exclusive craft of credit card and cable companies, I’ve got bad news. The biggest offender just might be the drafters of the proposed federal budget making its way through Congress.
International Tax Increase Buried in Proposed Bill
Thanks to the keen eyes of the Wall Street Journal’s Matthew Slaughter, U.S. based Multinationals have a chance to lobby against what may be the largest hidden fee--an obscure tax provision--ever levied against them. Matthew writes in the article “How to Destroy American Jobs:”
Deep in the president's budget released Monday—in Table S-8 on page 161—appear a set of proposals headed "Reform U.S. International Tax System." If these proposals are enacted, U.S.-based multinational firms will face $122.2 billion in tax increases over the next decade. This is a natural follow-up to President Obama's sweeping plan announced last May entitled "Leveling the Playing Field: Curbing Tax Havens and Removing Tax Incentives for Shifting Jobs Overseas."
A proposed $122 Billion international tax burden? Placed on pg. 161? On a chart? Apart from the obvious lesson to carefully scrutinize the details of everything, and I do mean e.v.e.r.y.t.h.i.n.g., that comes across your desk, the substantive point of the article is absolutely correct—the proposed tax hike on U.S. based MNCs will bankrupt those that earn a significant amount of their revenue overseas.
Proposed Tax Will Force US-based MNCs to Relocate Overseas
As one commenter noted, it is the fiduciary responsibility of the board of a company to protect the investors in that company, and to provide them with the maximum safe return on their investment. In the new tax and regulatory environment the U.S. is in the process of imposing, any company that earns a large percentage of their revenues outside of the US simply cannot remain U.S. based.
Under the proposed tax hike on U.S. based MNCs, what incentive is there for Coca-Cola to remain a US based multinational? Why not move the corporation to Switzerland, where the favorable corporate tax structure has long been lured the operations of large MNCs such as Johnson & Johnson and Burger King Holdings Inc.
Switzerland Offers Optimal Tax Environment for MNCs
The timing could not be better for companies looking to relocate their operations overseas-- and to Switzerland in particular. The Wall Street Journal recently reported on an emerging trend among Swiss cantons to compete for the business of MNCs by lowering their corporate tax rates. In the article Switzerland’s States Compete on Tax Cuts, the cantons of Zug, Schaffhausen (just north of Zurich) and Lucerne have all cut their tax rates in a heated battle to lure more MNCs.
For U.S.-based MNC’s looking to dodge the proposed international tax bullet, Switzerland provides the most favorable corporate tax environment in which to relocate U.S. based operations.
Conclusion
According to KPMG’s Corporate and Indirect Tax Survey 2009, the current effective U.S. Corporate tax rate is 40%, while in Switzerland the effective tax rate is 21.2%--and considerably less in some cantons. Under the proposed bill, the tax gulf will only grow wider.
It will be interesting to see what happens with the proposed tax. Until then, MNCs should take a look at Switzerland.
Trend to Watch: If the Proposed International Tax is Enacted Look for an Exodus of U.S.-based MNCs to Switzerland and to Other Favorable Tax Climates.
--Santiago
http://www.internationalbusinesslawadvisor.com/
NYT: Small Business Incentives Face a Hard Road in Congress
By ROBB MANDELBAUM
February 12, 2010, 6:39 pm
New York Times
President Obama’s incentives for small business to create jobs appear to be foundering at the other end of Pennsylvania Avenue. Those proposals — tax credits for hiring and investment and initiatives to spur lending to small firms — all face strong resistance, and not all of it comes from the Senate. Each chamber has embraced separate elements of the administration’s agenda, and, for the moment, none of those elements overlap.
In the Senate, a jobs bill drafted by the top Democrat and Republican of the Finance Committee that included some — though hardly all — of what the Obama administration wanted has been drastically pared back by Harry Reid, the majority leader. Reid’s runt jobs bill does include a hiring tax credit, proposed by Democrat Charles Schumer and Republican Orrin Hatch, though it is neither aimed at small business like the administration’s nor otherwise as tidy.* It also would extend the 2009 stimulus’s more generous expensing limits under Section 179, of the tax code, which allows a small business to immediately deduct certain kinds of property that would otherwise be depreciated over several years.
It does not, however, extend the stimulus provisions that sweetened Small Business Administration loan programs with lower fees and higher guaranties for banks. Those provisions, endorsed by the Finance committee bill, expire at the end of February and are widely credited with prodding banks to restart S.B.A. lending after 2008’s credit freeze.
“Senator Reid wanted to simplify the process to fully paid measures that would create jobs this year and have bipartisan support,” said a spokeswoman, Regan LaChapelle. “There were several provisions that were important, including unemployment insurance, Cobra, and tax extenders, and we still intend to address those issues. This is just the first bill of what will be many bills.”
Ms. LaChapelle would not say whether Mr. Reid thought the S.B.A. measures lacked Republican support. But the proposal is striking for its absence, since one of its chief backers is Senator Olympia Snowe of Maine, ranking Republican on the Small Business Committee. As one of the last moderates in her caucus, she is perhaps the most likely to vote for a Democratic bill. Ms. Snowe’s office did not respond to requests for comment.
But the upper chamber, wouldn’t you know, is only half the problem for the administration. Before adjourning in December, the House passed a $155 billion jobs bill that extended the S.B.A. loan provisions through the end of September but included none of the administration’s other small-business measures.
Leading House Democrats appear to be in no mood to revisit those measures. In a Tuesday meeting at the White House with the president and top Congressional leaders from both parties, House Speaker Nancy Pelosi shot down the idea of a tax credit for job creation altogether, saying, as Politico put it, “no one she’s consulted believes that the plan will actually lead to the creation of new jobs.” To judge by the comments received in this space, many Agenda readers would agree.
Then, last week, after President Obama announced his latest S.B.A. initiatives — temporary measures to raise the cap on S.B.A. Express loans to $1 million, from $250,000, and separately allow conventional real estate mortgages to be financed under the 504 program — he faced unusually strong criticism from the Democratic chair of the House Small Business Committee. “S.B.A. Express has acted as nothing more than a giveaway to big banks and expanding it will neither further economic recovery, nor create new jobs,” said Rep. Nydia Velázquez of New York. As for the mortgage proposal, Ms. Velázquez said, “The refinancing of commercial real estate debt does not create jobs and, in fact, may dilute the program, drawing resources away from projects that do have job creation potential.”
The Agenda is sympathetic to Ms. Velázquez’s view of the Express loan. The program allows banks to make and approve loans with their own application forms and less documentation than the S.B.A. normally requires in exchange for a lower guarantee, and while Express has brought new banks into the S.B.A. fold, it has never been clear that the borrowers are unable to get loans otherwise — what is known as the S.B.A.’s “credit elsewhere” test. And, as Ms. Velázquez points out, the sketchy documentation and immediate self-approvals have led to the highest default rate of any S.B.A. program. (An S.B.A. spokeswoman, Hayley Matz, said that, in recent years at least, it is only the smaller Express loans that perform so poorly. Express loans over $100,000, she said, outperformed regular 7(a) loans.)
However, there is a case to be made for Obama’s plan to adjust the 504 program, which offers small businesses long-term mortgages for real estate and equipment. As commercial real estate mortgages mature, most small-business borrowers face a potentially crippling balloon payment, according to Steven Roth, an executive vice president of Grubb & Ellis, the commercial real estate brokerage. Normally these would simply be refinanced, said Mr. Roth, but now “banks’ ability to provide lending to the marketplace is very constricted. Anything that provides liquidity in the banking sector, especially in today’s environment, is a positive thing.” At the very least then, allowing the 504 program to refinance commercial mortgages could preserve jobs. Moreover, the administration’s proposal would have its own separate funding, so it would not siphon off money from other borrowers.
Neither chamber has so far contemplated raising other S.B.A. loan limits, as the administration has proposed, or taken up calls to increase lending by community banks.
The Senate is in recess all next week, so the earliest the Senate will consider the jobs bill is Monday, Feb. 22, when Mr. Reid has scheduled a preliminary vote that could pave the way for final passage. But even if the Senate passes the bill, it would still have to clear the House. Immediate relief for small businesses remains a long way off, if it ever comes at all.
The Obama proposal limits the total credit any one business can take to $500,000, which means that most of $30 billion allocated to the credit would go to smaller firms. Nor does the Senate version appear to include many of the measures the White House wanted to prevent companies from using sleights of hand to take advantage of the credit without actually hiring any new people.
http://boss.blogs.nytimes.com/2010/02/12/small-business-incentives-face-a-hard-road-in-congress/
BW: A Caribbean Tax Holiday for U.S. Businesses
The IRS is investigating how $100 billion a year in credit-card receipts are escaping U.S. sales and income taxes in locales like Aruba and St. Kitts
By Jessica Silver-Greenberg
February 11, 2010, 5:00PM EST
(This story has been updated to correct the location of payment-processing company, First Data.)
Greg Hennessy designs software in New York, where his $2 million-a-year company, SWAT, is based. His customer credit-card payments go to a bank in Panama, where his business is incorporated. As a result, he pays taxes at Panama's bargain-basement rates, far lower than what he'd owe in the U.S. "So far," he says, "it's been excellent."
Red Ball, a company in Phoenix, runs Web sites selling collectibles, software, and assorted other goods. It routes its nearly $15 million in card revenue to the tropical island of Nevis, where Red Ball is incorporated. Gregg Larry, who heads the company, says: "Sure, we get to pay less income tax, but it's not about tax evasion."
These two tiny companies illustrate a growing trend. At a time when the Obama Administration is preparing for a bitter battle with big multinationals over closing arcane tax loopholes, legions of mostly small retailers and service providers are minimizing their U.S. tax bills by sending credit-card receipts to Panama, Nevis, Aruba, the Cayman Islands, and other business-friendly havens. The IRS estimates that $100 billion a year in revenue is escaping U.S. sales and income taxes in this manner.
For several years the tax agency has been formally investigating whether the spreading credit-card practice amounts to illegal behavior. Daniel Reeves, the IRS special agent leading the probe, said in April in an affidavit filed in federal court in Denver that "a number of U.S. taxpayers may be under-reporting income, evading taxes, and breaking the law" by sending card receipts offshore. Reeves declined to talk to Bloomberg BusinessWeek, and the IRS won't provide specifics about the continuing probe.
Companies that route card revenue offshore say what they do is entirely lawful and appropriate. They typically note that they do not have to charge their customers any American sales tax because they have incorporated overseas. The companies say that they notify the IRS of this arrangement. They also maintain that eventually they pay income tax on any money they bring back to the U.S. Tax experts say that if businesses take all of these steps, they are indeed operating within the law.
The IRS suspects that a lot of the offshore credit-card activity isn't, in fact, reported and that repatriated funds frequently escape income taxation. Some executives in the business of processing card payments in the U.S. agree. "You can report a foreign bank account all day long, and that doesn't mean that you are accurately reporting the amount of money stashed there," says Todd Fuller, senior vice-president of Jetpay Merchant Services, a domestic U.S. card processor that competes against companies that arrange for offshore deposits.
Many Caribbean locales levy little or no sales tax, compared with state tax rates of up to 10% in the U.S. Similarly, many Caribbean jurisdictions impose corporate income tax rates far below the standard U.S. rate of 35%.
Hennessy, the software designer, says that while he benefits from this discrepancy, he nevertheless follows the rules. "I comply with all tax laws," he says. "I prefer to have my bank account in Panama, where it's safer than in the U.S., at least from frivolous lawsuits." Red Ball's Larry said he got fed up with paying high processing fees at home: "I just got sick of it." It's cheaper to send receipts to Nevis, he adds.
The credit-card investigation is unfolding as the Obama Administration cracks down on a variety of corporate and individual tax-minimization strategies. In the best known case, the U.S. government has pressured the Swiss banking giant UBS (UBS) to turn over the names of 4,450 American clients who the IRS suspects are using offshore bank accounts to shield personal wealth from income tax. UBS avoided criminal prosecution in the U.S. by agreeing to pay a settlement of $780 million and admitting it helped foster tax evasion.
In the offshore credit-card probe, the IRS is looking into international payment processors that help U.S.-based businesses export their card receipts, according to people familiar with the investigation. The largest such processor is First Data, which operates from offices in Sandy Springs, Ga. The private equity firm Kohlberg Kravis Roberts (KFN) purchased First Data for $26.4 billion in 2007 and installed as CEO Michael Capellas, the former chief executive of the computer company Compaq. Capellas declined to be interviewed.
Last April the IRS issued a subpoena to First Data, demanding the names of all U.S. merchants that have retained the company to help them deposit credit-card receipts in foreign banks. The IRS has not accused First Data of any wrongdoing.
First Data, which employs 25,000 people worldwide, says it has complied with the IRS subpoena. The company rejects any suggestion that it facilitates tax evasion. "First Data does not support or approve any practice that violates United States tax law, including the transfer of credit card proceeds by United States businesses to offshore accounts for the purpose of unlawful tax avoidance," it said in a written statement circulated last year in response to the IRS subpoena. Spokeswoman Elizabeth Grice said in an e-mail response to questions from Bloomberg BusinessWeek that the company's international services are intended only for corporate customers based outside the U.S. None of First Data's customers has been accused of impropriety in their dealings with the processor.
In contrast to First Data's current statements, some past online advertisements circulated by company subsidiaries and affiliates seemed to invite U.S.-based retailers to transmit card payments offshore. A wholly owned First Data unit, CardService International, has promoted a service called "split-jurisdictional settlement." That term refers to the practice of depositing a portion of credit-card receipts in U.S. bank accounts and another portion in non-U.S. accounts. In a 2001 press release, First Data itself said it helped "U.S. merchants to settle domestic credit card transactions in the United States, but have payments with universally accepted cards, such as MasterCard (MA) and Visa (V), settled to international jurisdictions."
More recent First Data promotions don't address helping American businesses process payments abroad. "The people involved with those specific [earlier] promotions are no longer with the company," says First Data's in-house managing attorney, Ralph Shalom.
Filings in two court cases suggest that First Data has helped route receipts from U.S.-based businesses to overseas tax havens. A 2006 lawsuit filed in U.S. District Court in Miami concerned a contract dispute between Republic Bank Ltd., a Trinidadian institution, and Optimal Payments, a Canadian card processor. Optimal stated in court papers that First Data helped transfer credit-card receipts for some of Optimal's business clients to the bank in Trinidad. A separate 2003 suit in U.S. District Court in San Francisco involved a contract dispute between two American companies: Payment Resources International and Paycom. In that case, Paycom said First Data deposited credit-card receipts from U.S. businesses associated with Paycom into Banco Uno, a Panamanian bank. Both suits have been dismissed.
Asked about these court filings, First Data's senior vice-president for communications, Chip Swearngan, says the company conducted itself lawfully and ethically. "We can assert from looking at these cases that First Data did not settle accounts for U.S. merchants offshore," he adds.
The IRS offshore card investigation evolved from narrower probes of the tax-haven activities of online pornography and gambling businesses, according to people familiar with the situation. One of the initial targets, Internet gaming company Bet on Sports, shut down in 2006 after the IRS alleged it illegally solicited bets from American citizens and routed payments to offshore bank accounts.
FriendFinder Networks, based in Boca Raton, Fla., runs dating Web sites, including some that appear to promote casual sex. Assembled from components of the adult entertainment company Penthouse Media Group, FriendFinder reported $224 million in revenue for the first nine months of 2009. The company processes the bulk of its credit-card revenue through a subsidiary in tropical St. Kitts, a low-tax jurisdiction, according to filings with the Securities & Exchange Commission. FriendFinder CEO Marc H. Bell declined to comment.
Now, more mainstream businesses are exploring sending card receipts abroad, according to card-processing experts. Charles Carillo says he spends 70% of his workday as a manager at the processor Offshore Merchants arranging IRS-compliant foreign accounts for U.S.-based businesses. These range from travel agents to loan modification companies to online vitamin marketers. He won't name his clients. "On average, we set up about 20 accounts a day for U.S. businesses," Carillo says.
Some American businesses say that because domestic banks view them as too risky, their only feasible option is to process card receipts abroad. "A lot of businesses—like ticket sales, or gym membership providers—can't get a U.S. merchant account," says Peter McFarlane, who writes a financial newsletter called The Q Wealth Report. "Regardless of their individual financials, they are deemed way too prone to charge-backs," meaning customers who cancel orders. Banks generally don't like doing business with smaller companies that have high rates of cancellation.
Others familiar with card processing say taxes almost always figure into the decision to go offshore. Robert Bauman, a former Republican member of the U.S. House of Representatives from Maryland, works with Sovereign Society, an asset protection company in Delray Beach, Fla. Apart from avoiding the attention of the IRS, he says, "There is simply no reason that a U.S. business needs to have card proceeds deposited in a low-tax locale."
The Daily Telegraph offered a different perspective on offshore tax havens in a Feb. 10 dispatch. The British paper suggested that retirees "may like to look further afield from the usual countries to get the best tax breaks and income tax rates." Monaco and Andorra, for example, offer a sense of romance, and neither country has taxes on income, inheritance, or wealth, the newspaper noted.
To read the full article from the Telegraph, go to http://bx.businessweek.com/tax-reduction/reference/
Silver-Greenberg is a reporter for BusinessWeek.com.
http://www.businessweek.com/magazine/content/10_08/b4167046022885.htm
>>P&G girds for Europe fines
Consumer goods firm faces price-fixing questions
Business Courier of Cincinnati - by Jon Newberry Staff Reporter
Friday, February 12, 2010 | Modified: Monday, February 15, 2010, 3:33am EST
Despite setting aside a quarter billion dollars in reserves last quarter for potential fines related to two European price-fixing probes, officials at Procter & Gamble Co. think even more fines are likely as a result of probes still under way across Europe.
The size of those reserves – $267 million – and the extent of the investigations suggest the Cincinnati-based consumer products giant played a major role in what authorities view as a widespread industry scheme to restrict competition in Europe, according to antitrust experts.
“This isn’t very technical, but yeah, they’re in a heap of trouble,” said Spencer Waller, a professor at Loyola University Chicago School of Law and director of its Institute for Consumer Antitrust Studies. P&G’s reserves indicate hefty fines are being contemplated, of the kind that are typically assessed against “ringleaders and big participants,” he said.
The European investigations are looking into the activities of manufacturers of consumer products, including large global players such as Unilever, Colgate-Palmolive, Sara Lee Corp. and Henkel. In response to questions about the investigations, P&G officials said the matters are not new and date back “many years,” but they have not disclosed further details about the time frame or the nature of the activities being probed.
P&G: No fines to date
Investigators are looking at many product categories, including detergent, cosmetics and personal care products.
Paul Fox, P&G’s global operations spokesman, said the company has not been assessed any fines to date. In addition to notices of violations issued by France and Italy in December, the company previously received a formal complaint from Germany related to one of its subsidiaries in that country. That case is still pending, he said.
Robert McLeod, CEO of Brussels-based Mlex, a European business intelligence service, said a lot more investigations should be expected. Once competition authorities find a pattern of behavior in one market, they assume they’ll find similar behavior in others, he said. Those multiple investigations pose an additional risk. Once a company establishes a record of violations, authorities tend to levy stiffer fines based on their reputation, he said.
The charges for those potential fines are not tax-deductible, so the bottom-line impact of P&G’s $267 million of charges was equivalent to a tax-deductible expense of about $380 million.
An internal investigation
Investigations have been undertaken by the European Commission, which has jurisdiction over matters involving members of the European Union, and by competition authorities in individual countries, including France, Britain, Germany, Italy, Spain, Greece, Switzerland and others.
P&G disclosed the $267 million in charges last month when it released its financial results for its October-December quarter. The charges reduced its earnings per share by 9 cents. It has not disclosed how much it has put aside in total since the industry probes began four or five years ago.
P&G took a small reserve in 2008 related to the German complaint but has not taken reserve charges related to any of the other probes, Fox said.
Germany fined Sara Lee, Unilever and Henkel a total of 37 million euros (or $55 million) in February 2008 after determining that they and Colgate-Palmolive colluded to push through price increases for dishwashing detergents, shower gels and toothpaste. Colgate was not fined because it told German authorities about the scheme. P&G was not directly implicated.
P&G said in its latest financial report that it has completed its own internal investigation of the situation, which turned up violations “in certain European countries” and has taken what it deems “appropriate action.” But it did not elaborate. Nor has it said how far up the chain of management the violations went.
“We respect the privacy of our employees and will not comment on individual situations,” Fox said.
The company conducted an extensive inquiry using outside counsel, and it and its board have “complete confidence in our senior management team,” he said. All employees understand that failing to comply with the company’s business conduct standards will result in the appropriate discipline, “up to and including terminations,” he said.
“It has and always will be our policy to comply with the letter and spirit of the law everywhere we do business,” Fox said.
Other big firms questioned
P&G’s charges of $267 million are much larger than related amounts publicly disclosed by other companies to date, but it’s not clear if that is a reflection of the companies’ differing sizes or culpabilities, different disclosure requirements in Europe, or if there are other reasons. It could be that P&G is simply being more transparent.
According to recent filings with the Securities and Exchange Commission:
• In January 2010, Sara Lee was fined 3.7 million euros ($5 million) by Spanish authorities for activities related to shower gels.
• Unilever said it also received notices of violations from authorities in France and Italy in December, but like P&G it did not disclose any details about which product categories were cited.
• Colgate said it has received statements of objection in Switzerland, Greece and Spain, in addition to the German violations for-which it was not fined. None of the companies has disclosed the size of any reserves it has taken.
It’s not clear how much P&G could face in additional potential fines. According to its latest filing: “The remaining matters are in various stages of the investigatory process. It is still too early for us to reasonably estimate the total amount of fines to which the company will be subject as a result of these various competition law issues. However, the ultimate resolution of these matters will likely result in fines or other costs in excess of amounts accrued to date.”
McLeod said the probes can drag on before any formal actions are taken.
“No one knows how soon. These things can last six months or six years,” he said.
The whole idea behind the European Union was to create a single market for trade and commerce, and that’s mostly been achieved for the kinds of products that P&G sells, Loyola’s Waller said.
Price-fixing is illegal in Europe basically the same way it is in the United States, but enforcement differs. In Europe, while some countries can impose criminal penalties for violating competition laws, the European Commission only brings civil charges and class-action lawsuits are in their infancy.
jnewberry@bizjournals.com | (513) 337-9433
http://cincinnati.bizjournals.com/cincinnati/stories/2010/02/15/story1.html?b=1266210000%5E2871791&t=printable
FT: Traders focus on Europe’s fiscal problems
By Jamie Chisholm, Global markets Commentator
Published: February 15 2010 08:39 | Last updated: February 15 2010 21:34
21:30 GMT. Holidays in Asia and the US served to sharpen the focus on Europe’s fiscal problems on Monday, keeping the single currency under pressure.
News of accelerating economic growth in Japan could not prevent the Tokyo market closing with losses as those bourses open in the region got their first opportunity to react to China’s surprise monetary tightening late last Friday.
The FTSE World equity index rose 0.1 per cent. Trading across the world is likely to be pretty thin as players prove reluctant to take aggressive positions with New York shut for Presidents’ Day and China, Hong Kong, Taiwan, Singapore and Malaysia all closed for the lunar new year holiday. Brazil and other parts of South America are enjoying Carnival.
Investors from London to Paris and Frankfurt can look forward to reaction to late news on Monday that EU leaders are looking for more stringent austerity measures than Greece’s government may be currently willing to undertake, at least not without concrete promise of a bail-out. Greek 10-year sovereign debt took a hit as the disappointing news emerged, rising 10 basis points by the end of the day.
The euro followed suit, going from unchanged at midday to flirting with nine-month lows just below $1.36. It was down 0.2 per cent at the end of the day. Data from the Chicago Mercantile Exchange showed record levels in short positions, or bets against the single currency, for the second time in the past two weeks.
Investors have been fearful that the concerns about Greece could spread to other so-called “peripheral” European economies such as Portugal and Spain, pushing up their bond yields and making it even more difficult for them to service their debts. The reasoning is that austerity measures required to show fiscal discipline could fracture the fragile economic recovery.
“Greece is obviously still at the front of most traders’ minds....and it seems to me that unity is one thing missing here and clarity over how best to deal with this is far from there,” said Maurice Pomeroy at Strategic Alpha.
Meanwhile, markets were reminded that debt woes are not exclusive to Europe. Traders are also keeping an eye on developments in Dubai, where Dubai World remained in discussions with creditors over its $22bn debt. Talk that investors would have to take a 40 per cent “haircut” on their DW debt have been denied but have heightened concerns that problems in the emirate are not near conclusion.
? European bourses managed decent gains as traders noted a late rebound on Wall Street on Friday. The S&P 500 closed with a loss of 0.3 per cent, but it had been lower by 1.4 per cent during European hours. The FTSE Eurofirst 300 rose 0.4 per cent and the FTSE 100 in London climbed 0.5 per cent, with miners and insurers strong.
The Athens stock market was closed for the Ash Monday holiday.
In Asia, the Nikkei 225 fell 0.8 per cent. Better nominal GDP growth than expected was not as perky as first thought when deflation was taken into account, while Beijing’s move to crimp lending raised concerns that Japan’s export markets might see less demand. The FTSE Asia-Pacific index fell 0.4 per cent.
? Trading in the forex markets was very quiet, though the euro continued to find few friends. The single currency spent much of European trading hours twitching within a tight 40 pip range at close to eight-month lows versus the dollar. It was later down 0.2 per cent at $1.3605.
Sverre Holbeck, senior analyst at Danske Markets, noted that the latest data on futures contracts at the Chicago Mercantile Exchange showed speculative investors increased negative bets on the euro in the week ending February 9.
“As a share of open interest, short positions have reached close to 30 per cent which does point to an increasingly crowded trade. In turn, this could spell upside risk for euro/US dollar if the positions were to be unwound,” he said in a report.
The dollar rose less than 1 per cent against a basket of its peers.
? With US Treasury markets closed, the Bund took up the mantle of benchmark and its yield rose 1 basis point to 3.20 per cent.
Greek bonds came under pressure as the EU Commission said it had asked Athens to explain reports it had used derivatives to obscure its debt levels. The Greek 10-year bond yield rose 10bp to 6.23 per cent, pushing the spread with Bunds to 304 basis points. Spanish sovereigns saw their yields rise by about 4bp.
The credit default swaps of Dubai - a product that is intended to track the cost of insuring against default - surged as traders expressed concern about the ongoing negotiations to restructure the debt of state-owned Dubai World. Reuters reported that it cost $651,000 a year for five years to insure $10m of Dubai debt, the highest since March last year.
? Gold bucked a slightly firmer dollar to gain 0.7 per cent to $1,101, while oil fell after a bearish forecast from a top Saudi official, who talked of US and Saudi efforts to reduce their consumption and transition to renewable and nuclear power. The crude benchmark was down 0.2 per cent to $74.00.
Additional reporting by Telis Demos in New York
http://www.ft.com/cms/s/0/6585d208-19fe-11df-b4ee-00144feab49a.html
FT: Greece turns on EU critics
By Kerin Hope in Athens, Quentin Peel in Berlin and Tony Barber in Brussels
Published: February 12 2010 20:32 | Last updated: February 12 2010 20:50
Greece on Friday unleashed a fierce attack on its European Union partners, accusing them of creating a “psychology of looming collapse” a day after they pledged support for the country’s crisis-hit government.
George Papandreou, Greek prime minister, said that, in the eurozone’s first big test, Greece had become “a laboratory animal in the battle between Europe and the markets”.
In a televised address to his cabinet, he criticised EU members for sending “mixed messages about our country?.?.?.?that have created a psychology of looming collapse which could be self-fulfilling”.
Mr Papandreou blamed the European Commission for failing to crack down on the previous conservative government’s “criminal record” in falsifying statistics. “This has undermined the responsibility of the European institutions with international markets,” he said.
His outburst is likely to infuriate the very leaders whose help Mr Papandreou needs. It came as it emerged there would be no more talk of financial assistance until Athens had persuaded the EU that it had a sustainable austerity programme in place.
Germany is insisting Athens bears initial responsibility for restoring confidence in Greece. Angela Merkel, German chancellor, resisted French efforts to come up with an explicit bail-out package at Thursday’s summit of EU leaders in Brussels.
Officials in Paris said Ms Merkel’s insistence on additional efforts by Greece to cut its budget deficit came close to thwarting agreement at the summit. According to sources in Athens, she called for a rise in Greek value-added tax of 1 per cent, in addition to extra spending cuts. Herman Van Rompuy, EU president, drafted a compromise before the summit started.
Ms Merkel’s tough stance has overwhelming political and popular support in Germany.
Government officials say they are also constrained by constitutional court rulings, which insist on strict adherence to fiscal and monetary stability criteria in the eurozone.
Members of both government and opposition parties in the Bundestag said there would be no parliamentary support for any financial rescue package for Greece without clear evidence of drastic cuts in state spending. Eurozone finance ministers are due to meet on Monday, but no detailed rescue plan will be on their agenda.
Additional reporting by Ben Hall in Paris
http://www.ft.com/cms/s/0/3cfeab9e-1813-11df-91d2-00144feab49a.html
UKE: 600 UK Gas Stations To Close From Taxes
PETROL STATIONS FACE CLOSURE IN TAX NIGHTMARE
Monday February 15,2010
Daily Express.uk
By Louise Barnett Have your say(8)
HUNDREDS of petrol stations will be forced to close, put out of business by Government tax changes, it was claimed yesterday.
Around 600 independent filling stations, especially in rural areas, could shut for good by the end of next year because of an average 56 per cent surge in their rateable value taking effect from April.
RMI Petrol, which represents two thirds of the UK’s 9,000 petrol stations, warned that motorists would suffer even longer trips to find fuel.
Chairman Brian Madderson said: “We are looking at 600 sites closing, including Wales, Scotland and England. The cost of driving to fill up will increase and for tourism in rural areas it will be a significant disruption.
“Drivers are going to have to plan their routes and I think it will increase the risk of running out as well as increase the mileage to find fuel because people are going to have to make detours.”
The number of UK filling stations has already plunged from 20,000 two decades ago to just 9,000 today. Hundreds have diversified into selling bread, milk and other basic groceries and snacks to help them stay afloat.
But the Government’s Valuation Office Agency has ramped up the rateable value of garage convenience stores which will send costs through the roof.
Philip Dunne, Conservative MP for Ludlow, who is campaigning against the change, said some forecourts faced a 250 per cent surge in their rateable value.
“Government has adopted a new methodology without adequate justification which is bringing mammoth and unexpected increases in rateable value. This is particularly threatening independent retailers serving rural communities,” he explained.
“Clobbering businesses as they are struggling to recover from recession with tax hikes is not the right way to get Britain working.”
His warning comes as half of Britain’s top 30 firms admit they have considered quitting the UK because of high tax rates.
Consumer goods giant Unilever, whose brands include Marmite, Flora and PG Tips, said last week that it might move abroad if taxes go up.
RMI Petrol said the new tax rules meant many filling stations would be better off closing their pumps and turning into convenience stores to reduce their business rates.
AA spokesman Luke Bosdet pointed out that petrol stations were often the only local amenity in rural areas where pubs, shops and post offices had already closed down, adding: “If the reward for beating all the odds and staying open to serve people in the country is to be taxed out of business, that will be a sad day.”
The Countryside Alliance’s Jill Grieve said: “This will be death by a thousand cuts for the countryside and this is yet another body blow for those who are trying to earn a decent living.”
The Valuation Office Agency insisted it was working closely with petrol retailers to reach an agreement on its new rates.
“In recent years, the rental value of petrol filling stations has grown considerably and it is only fair to all ratepayers that this is reflected in the rateable value,” a spokeswoman said.
She added that there was no evidence that petrol stations would have to close because of changes in rateable value
http://www.express.co.uk/posts/view/158208/Petrol-stations-600-face-closure-in-tax-nightmare
DON'T YOU THINK....
15.02.10, 4:44pm
...that this is another way of controlling the price of petrol. The less Patrol stations there are, motorists will will have to pay more at the ones that are left! thus any profits made will go straight to the Government.. Never mind how inconvenient it is to the customer
• Posted by: Disgruntled • Report Comment
IT'S NOT ONLY THE COUNTRY PETROL OUTLETS
15.02.10, 4:08pm
That are closing, this city has lost nine in the last two years along with a dozen or more Post offices,
numerous Pubs, and lots of shops in our centre, the corner shop has been taken over by the large immigrant population, non English speaking some of them, though they seem to have no problem with British currency. I admit to racialism ,brought on over the last 13 years by a Government encouraged policy, bring them in house them, feed them and give them top welfare benefit rates, so one day they will vote in gratitude for the dodgy lot.
I want Britain free from Europe, I want my rights to equal that of Blair and Brown's visitors. I want to walk the street and not be confronted by an ever increasing army of Muslims peering at me through slits in their Balaclavas, not knowing what they are pointing my way under their spice enthused wrap rounds. I want my Estate to be passed in it's entirety to my family on my death
and not nibbled at by unfair taxes that the scroungers and foreigners will never have to pay. Any Party that will give us back our Country is worth voting for but we have to do it,
the Welfare scroungers have votes too, be very aware of this fact and turn out to vote, and don't be talked into spoiling your paper, Britain needs that vote, YOU KNOW IT MAKES SENSE
• Posted by: dunnit • Report Comment
PETROL STATIONS: 600 FACE CLOSURE IN TAX NIGHTMARE
15.02.10, 3:06pm
Well I suppose that SOMEONE has to pay for MP's Expenses and Platinum Plated Town Hall Pensions in one way or another.
• Posted by: EmperorMing • Report Comment
600 PETROL STATIONS FACE CLOSURE...
15.02.10, 3:05pm
Is there a day that doesn't goes by when this government tries to find another way to ruin this country? Massive increase in duty on alcohol and fuel and now a further proposed "death tax" on top of inheritance tax. Businesses having to close due to massive hikes in tax on rateable value. My nearest petrol station is only a mile and a half away, but if this closes due to the increase in rv,it is possible that I may have to make a forty mile round trip just for fuel. In the 1970's there were three filling stations within a one mile radius, soon there may be none.I live in an area which relies on the tourist industry for its survival, and forecourt closures will devastate the area. It's about time that MP's took a walk down their local high streets and visited their local villages just to see the devastation they have created in recent years. Ghost towns are popping up all over the country. In my own village the local shop closed some time ago, the Post Office is open part-time and hanging on by its teeth (two others in the locality closed last year), it's too expensive to socialise in the local pub. No one likes paying taxes, but even the local tax office is being closed down! With Government ministers taking every penny they can to line their own pockets, and selling every industry to any foreign investor that turns up, and giving more and more of our rights to be dictated to by Europe it seems a policy of "I'm alright Jack stuff the rest of you."
• Posted by: calliecollie • Report Comment
TIME LIMIT
15.02.10, 2:20pm
they are doing their best to f//////// every thing up before the have to find alternative employment,may be they would like to see wooden shacks and one pump dispencing petrol,or are they trying to ruin the tourist industry,could it be they want you to travel less,if so that will see the death nell of the west countries econnomy,,,I, smell a RAT at work,,
• Posted by: wigwam • Report Comment
PETROL STATIONS: 600 FACE CLOSURE IN TAX NIGHTMARE
15.02.10, 8:49am
This is bad - where I live there used to petrol stations all over the place and now there are only 3, and one was attacked last week and closed leaving just 2 and I have to be careful not to let my tank get too low in case I can't reach either! Ridiculous...
• Posted by: skyguy • Report Comment
UKT: Half UK's Blue chips threaten tax exodus
Half of FTSE’s top 30 firms have studied shifting their tax base offshore, with a some saying they are actively considering a move
From The Sunday Times
February 14, 2010
Dominic O’Connell 37 Comments
Recommend? (8) HALF of Britain’s 30 largest companies have studied shifting their tax base offshore, with a handful saying they are actively considering a move, a survey by The Sunday Times has found.
The findings underline the threat of an exodus that could cost the state billions of pounds. They come a week before a crucial meeting at the Treasury where reforms to the taxation of foreign profits — a bone of contention for multinationals based here — will be thrashed out.
Of the top 30 companies in the FTSE 100 index, 15 said they were keeping their tax domicile status under review. Three — speaking on condition of anonymity — said they were actively considering a move. Some, such as Xstrata, the mining group, are already offshore, while others, like BAE Systems, the defence contractor, are unlikely to move because of their involvement in large government contracts.
London-listed groups have already started to move, with WPP, the advertising group, Shire, a pharmaceuticals company, and United Business Media, a publisher and events organiser, all shifting their tax base to Dublin. Last week Unilever and Diageo, two of the largest consumer-products groups said they could move if tax and red tape were not cut.
“It is a fact of life that companies are regularly evaluating where they are headquartered,” said Chris Sanger at Ernst & Young, the accountancy firm. “They are asking why are we where we are, and balancing the risks and costs of moving with the savings to be made.”
Last year’s departures were sparked by a row over HM Revenue & Customs’ plans to extend the tax net to catch more income earned overseas. The new rules would have caught income earned from intellectual property — brands, designs or patents — held offshore, a crucial issue for multinationals in Britain.
Late last month, however, the government proposed a new set of changes, which experts say could address many of the concerns. “It is definitely a helpful step, but we need to know much more about the detail,” said Andrew Roycroft at Norton Rose, the City law firm.
Revenue officials will meet lawyers, accountants and company representatives on February 23. “You can view the changes as a glass half empty or half full. If the good parts are developed, it may well attract companies to the UK,” said Sanger.
Some fear, however, that the exodus could continue regardless. Executives spoken to by The Sunday Times said high rates of personal taxation — in particular the 50% top tax rate that takes effect from April, the £30,000 levy on non-domiciled individuals and the reduction in pension tax relief for those earning more than £150,000 — were pushing people and companies to go.
“The rate of income tax on a company’s most senior employees is now higher in Britain than in most other countries,” said Paul Smith at Grant Thornton, the accountancy firm.
http://business.timesonline.co.uk/tol/business/industry_sectors/technology/article7026265.ece
37 Comments
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j al wrote:
As much as i hate to say it i think we are barking up the wrong tree.Why is the 50% tax rate so hotly contested is it they are greedy or perhaps just maybe the destruction of patriotism is partly to blame.we must also look where the money goes the work shy government pet projects which serve no purpose our waste is out of control.It is destroying our country we need to start pointing our finger in the right direction and we could start with those clowns brown cameron and clegg.Britain needs to be saved not left to this greedy camera happy bunch whos next to cry on TV?.
February 14, 2010 11:16 PM GMT on community.timesonline.co.uk Recommend? Report Abuse
Permalink
Des Pollock wrote:
Why should these companies that earn £billions be expected to make a contributon to the economy of the country they call home? Doesn't the government realise the rules for the rich are not the same as those for everyone else? Greed is good....
February 14, 2010 9:02 PM GMT on community.timesonline.co.uk Recommend? (1) Report Abuse
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Jon Leigh wrote:
Yet more proof that the Politics of jealousy (i.e. Socialism) doesn't work in the real world.
February 14, 2010 7:56 PM GMT on community.timesonline.co.uk Recommend? (5) Report Abuse
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Y C wrote:
I'm no fan of labour's policies but to all that think the grass is greener somewhere else and all you have to do is emigrate to improve your life, the reality is not always that simple. Many people who have gone down that route have regretted it after finding out that foreign governments can actually be worse than Labour.
Back in the days of Empire, emigrating was usually a good move (if you didn’t die prematurely of local diseases) as the cards were stacked in our favour. However, these days’ émigrés find that they are at best on a par with the locals but more probably below par as factors such as discrimination and poor local knowledge effect their status.
February 14, 2010 6:16 PM GMT on community.timesonline.co.uk Recommend? (5) Report Abuse
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Kia Fosdter wrote:
Lookj I have got to point this out ,if only to show how utterley incompetent Labour are. Would you believe that Labour did not know that ALL of the Trademarks they hold for their name "Labour" "Labour Party" etc etc are ALL invalid. They only realised in November 2009 when they were told !!. They were granted one of the replacements 2 days ago and rest are still only applications. As I say, all the old ones are invalid because LABOUR did not know ,or care ?, that Unincorporated Associations cannot own any property including trademarks in the name of the Association. What incompetents Labour are.
February 14, 2010 5:15 PM GMT on community.timesonline.co.uk Recommend? (4) Report Abuse
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Hormaz Dhondy wrote:
Thank you, J Gould, for your well articulated thoughts. I couldn't have put it any better.
February 14, 2010 4:26 PM GMT on community.timesonline.co.uk Recommend? (6) Report Abuse
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A Slumlord wrote:
Why should they stay and contribute towards Labour's £500bn client state?
There is little left in Britain to attract these companies, e.g.
1.High corporate taxation.
2.Little long term government investment.
3.Wage demands are high due to stealth taxation, overpaid and underemployed public sector, and of course high house prices.
4.Crumbling and insufficient infrastructure
5.Unstable currency.
6.Unprecedented levels of UK and EU red tape
7.Fear of getting clobbered by 'political correctness gone mad'.
8.Taxation of pension funds.
February 14, 2010 4:10 PM GMT on community.timesonline.co.uk Recommend? (18) Report Abuse
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james smith wrote:
if the non-working group was encouraged to help the comunity in some way, cleaning grafiti or public loos litter picking for £5 per day would that help them join the majority?
February 14, 2010 4:07 PM GMT on community.timesonline.co.uk Recommend? (3) Report Abuse
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R D wrote:
Blame the British Public! They voted 3 times for Labour and now they can suffer their anti-business policies!
February 14, 2010 3:25 PM GMT on community.timesonline.co.uk Recommend? (19) Report Abuse
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Danny Black wrote:
Arthur Stephenson, thx enjoyed the laugh...:
"The "non-working community" is just as important as any other
" - genius satire
February 14, 2010 3:23 PM GMT on community.timesonline.co.uk Recommend? (6)
5/09: Hands and Odey to quit UK over tax
The UK economy faces further defections due to the introduction of the higher tax rates in the Budget as private equity boss Guy Hands and hedge fund chief Crispin Odey became the latest financiers to be linked with moves offshore
By Jonathan Russell
Published: 7:56PM BST 10 May 2009
UK Telegraph
Reports this weekend suggested that Mr Hands, whose group Terra Firma owns music company EMI, had already moved to Guernsey, while Mr Odey of Odey Asset Management was considering abandoning Britain. Both object to the increase in the top rate of income tax to 50pc. Mr Hands' move makes him the most high-profile City executive to leave.
Last month it emerged that Hugh Osmond, the entrepreneur, and Peter Hargreaves, founder of Hargreaves Lansdowne, were considering leaving. Many City professionals are as concerned about changes to European law affecting hedge funds and private equity firms as about tax changes.
Although many leading City figures have threatened to go offshore, Mr Hands, who is thought to have moved a few weeks ago, is among the first actually to make the move.
http://www.telegraph.co.uk/finance/financetopics/budget/5304832/Hands-and-Odey-to-quit-UK-over-tax.html
SKY: Guinness Owner Fires Warning Shot On UK Tax
5:02pm UK, Thursday February 11, 2010
Ed Merrison, Sky News Online
The boss of Diageo has told Sky News the drinks giant will consider walking away from Britain if future tax rises make it a less attractive base for its business.
Chief executive Paul Walsh said the company, which owns brands such as Guinness and Smirnoff, said it would be forced to reassess its options if the system became any less favourable from an individual or corporate viewpoint.
"We enjoy operating out of London; it's got many advantages," Mr Walsh told Sky.
"However, if the UK, either from a corporate perspective or a personal tax perspective, becomes uncompetitive, we will be forced to look at alternatives.
"We are a global business, we operate in 180 countries around the world - our location here in London should not be taken for granted."
Sky News City editor Mark Kleinman recently revealed that Diageo had resisted Switzerland's aggressive attempt to lure it away from London by offering exceptionally low tax rates for the company and its top executives.
Mr Walsh's latest comments came after Unilever boss Paul Polson told a newspaper that it would be "unfortunate for the UK" if additional tax or regulation were to further hamper the consumer goods giant's business.
"We do have choices where we put research laboratories, choices for manufacturing facilities and choices where we put our senior management," Mr Polson told the Daily Mail.
"Right now we're happy with the choices we've made, but any responsible businessman needs to continue to assess that within an ever-changing global environment."
Mr Walsh's warning to UK authorities came as the firm posted its half-year results, unveiling a 10% fall in post-tax profits.
_______________________________________________________
"We are a global business, we operate in 180 countries around the world - our location here in London should not be taken for granted."
Paul Walsh, Diageo chief executive
UKT: Unilever threatens to quit UK over tax burden
The chief executive of Unilever has warned that the company may move its operations offshore if the Government increases the tax and regulatory burden.
Published: 6:05AM GMT 11 Feb 2010
Paul Polman, chief executive, said the company was already facing a tougher economic environment because consumers have less money to spend.
“If on top of that we would get an additional regulatory or tax environment that would make us non-competitive that would be unfortunate for the UK," he told the Daily Mail.
He added:"We do have choices where we put research laboratories, choices for manufacturing facilities, and choices where we put our senior management.
"Any responsible businessman needs to continue to assess that within an ever-changng global environment."
If it left the UK, Unilever would be the biggest company to quit the country over the growing tax burden.
Others to have left Britain recently include publishing groups Informa and United Business Media, pharmaceutical group Shire and Experian, the credit reference agency. Unilever, which makes PG Tips, Dove soap and Hellman’s mayonnaise, can trace its history in the UK back to the 1980s. The company has expanded into 100 countries and employs 174,000 staff, including 9,000 in the UK. It has a market capitalisation of £25bn.
Mr Polman joins a growing number of business leaders in expressing anger at the rapidly changing tax regimes and growing regulatory burden. Several have raised fears that the Government's 50pc new tax on high earners, set to be levied from April, could cause an exodus from the City.
Mr Polman raised concerns about rising corporation tax, which currently stands at 28pc. “We have to be sure when changes are contemplated [by the Government] that it takes into account what other countries do as well in Europe, or outside of Europe, to provide competitive corporate tax rates," he said.
http://www.telegraph.co.uk/finance/newsbysector/retailandconsumer/7209715/Unilever-threatens-to-quit-UK-over-tax-burden.html
UKG: Diageo threatens to quit UK over tax
By James Thompson
Friday, 12 February 2010
The Guardian.uk
The drinks giant Diageo yesterday became the latest large British company to say it is considering leaving the UK for tax purposes.
Paul Walsh, the chief executive of Diageo, said the maker of Guinness and Baileys Irish Cream had no current plans to relocate its global headquarters away from London but warned it would have to reassess its options if the system became less favourable at a corporate or individual level.
"We are a global company. We enjoy being headquartered in London, but if the tax regime here in the UK became so egregious, either for corporates or individuals, we would have no option but to look at other alternatives," he said in an interview on BBC World Service.
His comments follow a similar warning from Paul Polman, the chief executive of Unilever, yesterday. He argued that multinational firms have choices about where to locate research and manufacturing facilities, as well as where to base senior management, and warned that new regulation and tax burdens would be "unfortunate" for the UK.
Over the past two years, the pharmaceuticals specialist Shire, the media firm United Business Media, the advertising company WPP and the temporary office supplier Regus have either moved, or announced plans to shift, their corporate headquarters to the Republic of Ireland for tax reasons.
This week, the investment broker Hargreaves Lansdown said it was more than tripling its interim dividend before the end of the tax year to give a fillip to its shareholders who face a 10 per cent rise in the top rate of income tax to 50 per cent from April.
Yesterday, Diageo declined to say how many of its UK employees earn more than £150,000, which is the level at which the tax comes in. It employs 6,000 people in its headquarters in London.
Mr Walsh called for the level of corporation tax to be trimmed and demanded a more simplified and a less frequently changing tax regime in the UK.
But a Treasury spokesman said: "The UK is one of the most attractive places to do business and continues to have the lowest corporation tax rate of the major G7 economies, this is alongside an internationally competitive Small Companies Rate of 21 per cent."
Mr Walsh's comments came as Diageo posted a 1 per cent fall in pre-tax profits to £1.39bn for the six months to 31 December.
Francesca Lagerberg, the head of tax at Grant Thornton, said: "Today's news that Diageo might leave the UK is a massive blow to UK plc and to the Treasury's coffers."
A number of wealthy business leaders, bankers and hedge funds have recently relocated away from the UK to Switzerland and the Channel Islands because of the tax burden.
Guys Hands, whose private equity firm Terra Firma controls the music group EMI, moved to Guernsey in the spring of 2009 in protest at higher income and capital gains taxes.
http://www.independent.co.uk/news/business/news/diageo-threatens-to-quit-uk-over-tax-1897109.html
>>Anyone Who Isn’t Really Confused Doesn’t Understand The Situation
February 2, 2010|
Posted By Adam Sharp
Guest Post: Grey Owl Capital Management’s Q4 2009 investment letter. A good read, especially the sections on market valuations.
“Anyone who isn’t really confused doesn’t understand the situation”
-Edward R. Morrow
Reports concerning unemployment and housing show economic conditions continued to worsen in the fourth quarter. While corporate profits (as measured by the S&P 500) have improved from the significant losses of -$23.25/share reported in the fourth quarter of 2008, they are nowhere near their peak annual rate of $85/share experienced between the third quarter of 2006 and the second quarter of 2007. Importantly, much of this improvement can be attributed to financial firms which, while repaying TARP funds, are at the same time receiving another (lightly-disguised) subsidy as they borrow from the government at a Fed Funds rate under 25bps and lend that money right back to the government at close to 4%. Yet, “the market” (the S&P 500 is at 1140 as we write) is up over 70% from its 666 March low.
The cover of last week’s Economist read “Bubble warning” and we could not agree more. By our estimation, the S&P 500 is now 20-30% overvalued. However, with a no-end-in-sight loose monetary policy this rally could continue for quite some time. We will spend the rest of this letter discussing our process for investing in this climate. First, a review of our performance compared to investable options for the major market indices:
Our overall investment process is quite simple . We spend most of our time looking at individual investment ideas trying to find five to seven ideas each year that meet very specific criteria. For us to invest your capital (and ours), we need to believe that the idea has a very low probability of losing money and multiple ways (depending on how the uncertain future evolves) of providing a better-than-market return over a several-year time period. Given our generalist approach (we do not focus on a single sector or market cap), we are able to be very meticulous and look at lots and lots of ideas before committing to one. In other words, we can wait for the “fat pitch” Warren Buffet so frequently discusses. We then try to build a portfolio that diversifies factor risks. That is, we try to build a portfolio that diversifies exposure to changes in inflation or consumer behavior or global trade, etc.
In a “normal” environment, our approach works fine. Today, there are two (somewhat related) forces, exogenous to the above process, that create complications. The first concerns the structure of the overall economy. It is unclear how the significant national debt, increased government involvement in the economy, and unorthodox monetary policy will broadly affect corporate profits and real (after subtracting inflation) returns. Second, most valuation approaches conclude that equities are overvalued. Additionally, we have yet to experience a real “revulsion” bottom in the current market cycle – investors have yet to “give up” on equities, a behavior that typically marks market troughs. Therefore, we are concerned that even if we make investments that we believe are undervalued, they may be subject to a broad re-pricing lower along with the rest of the market. While their intrinsic value may remain sound (or even grow), these investments could get cheaper during a broad market correction. Our last two letters addressed point one – the economic issues – in depth. Please refer to these letters for more on that topic . In this letter, we will briefly touch on valuation and then describe a thought exercise that helps us frame the key issue we now face: how much capital do we invest in opportunities we believe are cheap today and how much dry powder do we keep available for potentially cheaper opportunities that the market may afford us in the future?
Current Market Valuation
Valuing a broad market index like the S&P 500 is actually straightforward. One way to approach the process is to work backwards from the return investors expect. The return from owning equities can only come from three places: 1) earnings growth, 2) dividends, and 3) re-pricing (i.e. a change in the earnings multiple – price-to-earnings or PE ratio) .
Since 1900, earnings growth has averaged 6% nominal (i.e. including inflation). If we expect a return greater than 6%, we will need either a dividend yield that makes up the difference or a re-pricing higher. Over this same period from 1900, the forward PE ratio on the S&P 500 has averaged 14. With a 50% dividend payout , this has allowed for the close-to-10% average returns most investors equate with equities. The return from 1982 through the end of 2009 was higher than 10% because the market started from a PE ratio of 86. The return since 1999 was well worse than 10% (actually negative) because the market started from a PE ratio of 30.5 .
As of this writing, Standard & Poor’s lists expected “as reported” (i.e. GAAP) earnings for 2010 at $58.71. This equates to a forward PE ratio of 19.4. The dividend yield on the S&P 500 is currently just under 2%. We believe “fair value” is closer to the historic average PE ratio of 14 and a dividend yield closer to 4% as this is the only way a broad market index can provide investors with the return they have consistently required for holding risky equities.
There are only two strong arguments for higher valuations. The first argument is that we are experiencing an economic shift to sustainably higher corporate profit margins and/or profit growth. Profit margins have been mean reverting over long periods. Basic economics provides the rationale. Excessively high profit margins engender competition, which eventually drives profit margins down. The second argument for higher valuations is that investors have permanently changed their expected return for holding risky equities. Like the mean reverting profit margins, the mean reverting earnings multiple over very long periods tells us this is unlikely. Those two arguments notwithstanding, we believe the stock market is 20-30% overvalued.
Three well-regarded investors, who (like us) warned of pending doom well before the recent credit crisis and market correction, agree with us again. John Hussman of the Hussman Funds says the S&P 500 is currently priced to deliver total returns averaging just 6.1% over the coming decade. Jeremy Grantham of GMO believes fair value on the S&P 500 is 860. David Rosenberg of Gluskin Sheff says the market is 25% overvalued. So what is a value investor to do?
Buy 80-cent dollars or wait for 50-cent dollars?
In investor parlance, we refer to a security that we believe trades at 80% of fair value as an “80-cent dollar.” Likewise, an investment that trades at 50% of fair value is a “50-cent dollar.” With the market 20-30% overvalued, through our research process we are able to identify a sufficient number of 80-cent dollars but few 50-cent dollars. This leads us to the question: do we buy the 80-cent dollars or wait for 50-cent dollars?
If we assume that an 80-cent dollar will accrete to fair value over a three-year period, we can expect an 80-cent dollar to provide us with a 7.7% annualized return . A 50-cent dollar that accretes to fair value over a three-year period would provide a 26% annualized return. The question then becomes, how long can we wait for the 50-cent dollar so that our average return over a longer period improves from waiting. It turns out that in this simple construct, we can wait six years making no investments, then buy 50-cent dollars that take three years to accrete to fair value and still achieve an annualized return over the full nine-year period of 8%. This modestly beats the alternative, which is three consecutive rounds of buying 80-cent dollars and allowing them to accrete to fair value over three years.
Unfortunately, the real world is more complicated than the above scenario. If we remove the simplifying assumption and include increases in intrinsic value, the 80-cent dollars look a lot better. After all, not only do we have two extra rounds of 80-cent dollars accreting to fair value, we also have six extra years of increases in intrinsic value. Additionally, we have no way to gauge if or when the overall market will correct and present us with 50-cent dollars.
Fortunately, we can again look to history for guidance.
Range-bound Markets
Two hundred years of US stock market history paints a remarkably consistent picture of (approximately) twenty-year bull markets followed by (approximately) twenty-year sideways or “range-bound” markets. We would contend that we are ten years into a sideways market.
Investment manager and author, Viataliy Katsenelson, describes range-bound markets this way, “range-bound markets are the bear markets of price-earnings (P/E) ratios (they decline), whereas bear markets are the bear markets of P/Es and earnings (they both decline). Range-bound markets are so-called payback markets – investors are paying back in declining P/Es for the excess returns of the preceding bull market.” Importantly for our above analysis, he demonstrates that range-bound markets have shown significant volatility and approximately as much downside volatility as upside volatility.
Thus, if history were any guide, we would expect the next several years to provide sufficient (downside) market volatility, which will allow us to increase our exposure to equities when more 50-cent dollars are available. As these securities recover to fair value, we will again tune our equity exposure based on the overall market’s level and the availability of new 50-cent dollars. Ideally, we will repeat this process until PEs decrease to well below their historic average of 14.
There is one caveat to the range-bound market theory. In past letters, we have discussed the potential for inflation (or at least a very unstable monetary unit of account) given the dramatic recent Federal Reserve actions, as well as the significant (and ongoing) increase(s) in the federal debt. We also described the historic correlation between inflation (documented by Crestmont Research) and inflation volatility (documented by William Hester of Hussman Funds) and shrinking earnings multiples (PEs). They show that multiples have expanded during periods of low and stable inflation and multiples have contracted during periods of high and volatile inflation. If inflation and/or inflation volatility is a necessary requirement for multiple contraction, we must consider the possibility that the Federal Reserve will be able to keep the value of the dollar stable, thus managing inflation and allowing the stock market to keep its elevated multiple for another cycle.
Katsenelson’s analysis makes a broader argument for multiple contraction based on human psychology: “They [range-bound markets] follow [bull markets] because excess optimism feeds on itself and drives stock market valuation to one extreme, and then unmet expectations turn into disappointment, driving stock valuations to the opposite extreme. Long excesses require lengthy corrections.” There just are not enough data points to provide us conviction that Katsenelson’s broader explanation is sufficient nor to show that inflation is necessary to create a range-bound market. Both explanations are possible.
Therefore, we choose to make decisions based on a range of outcomes. In other words, in today’s market we will buy some 80-cent dollars, but also leave some dry powder for the 50-cent dollars we expect (but are not certain) will appear. This will allow us to protect capital and provide the opportunity for satisfactory gains if we (and history) are wrong. It will also provide the opportunity for substantial gains if we (and history) are right. As the opening quote from Edward R. Murrow warns, there are no clear paths, only probabilities and ranges of outcomes. We aim to be prepared whatever future unfolds.
As always, if you have any thoughts regarding the above ideas or your specific portfolio that you would like to discuss, please feel free to call us at 1-888-GREY-OWL.
Visit Grey Owl Capital for more. Republished with permission. You can find their disclosure statement here.
http://www.bearishnews.com/post/3072
Simon Johnson: Goldman Faces Special Audit and Possible Ban in Europe
February 14, 2010
"The crash has laid bare many unpleasant truths about the United States. One of the most alarming, says a chief economist of the International Monetary Fund, is that the finance industry has effectively captured our government - a state of affairs that more typically describes emerging markets, and is at the center of many emerging-market crises. If the IMF's staff could speak freely about the U.S., it would tell us what it tells all countries in this situation; recovery will fail unless we break the financial oligarchy that is blocking essential reform." ~ The Atlantic Monthly, May 2009, by Simon Johnson
Regular readers will be aware of our thesis that the American Wall Street banks have become dominated by a culture of compulsive sociopaths who are incapable of reforming or restraining their greed. Like all addicts, they push the envelope looking for a new high, emboldened by each successful scam, the weakness of regulators, and the craven support of politicians, going further and further until at long last they go one step too far, with spectacularly destructive results.
Goldman Sachs may have reached that point. And as also suggested here, the rebuke may be coming from European and Asian nations who become weary of the extra-legal antics of the rogue American banks.
In the interests of harmony, the Europeans may once again bow to US pressure and continue to permit the Money Center privateers to roam through the interational financial system wreaking havoc, as they have been doing through the domestic US economy. It will be too bad if they do.
This is in no way an excuse for the Greek government. But what Simon Johnson is saying in this essay below is that Goldman is not only not blameless, but is enabling, complicit and perhaps even presenting the opportunity for market manipulation and fraud to other parties. Typically they like to 'package' these scams and take them from one customer to another, so that greed meets need, as a corrupting influence. It is no different than a bank engaging in money laundering in support of the criminal activity of another organization.
Is he right? I think he may very well be. It is one thing to take on pension funds and speculators, and to run raids on companies. It is another thing to start taking on countries, and especially those not so alone and weak as Iceland.
And even more than that. If it ever comes to the light of day, the complicity of a few central banks and governments in the actions of one or two of the money center banks in manipulating several global commodity and asset markets may ignite a firestorm of a political scandal of epic proportions.
At the very least, it remains a practical imperative that the banks be restrained, the financial system reformed, and the economy brought back into balance, before there can be any sustainable recovery and stability.
And it is now apparent that Obama and the US Congress, for whatever reasons, are incapable of doing this. And yet, hope remains.
"It is said an Eastern monarch once charged his wise men to invent him a sentence to be ever in view, and which should be true and appropriate in all times and situations. They presented him the words: And this, too, shall pass away. How much it expresses. How chastening in the hour of pride. How consoling in the depths of affliction." Abraham Lincoln
__________________________________________________________________
Goldman Goes Rogue - Special European Audit to Follow
By Simon Johnson
Baseline Scenario
"...We now learn – from Der Spiegel last week and today’s NYT – that Goldman Sachs has not only helped or encouraged some European governments to hide a large part of their debts, but it also endeavored to do so for Greece as recently as last November. These actions are fundamentally destabilizing to the global financial system, as they undermine: the eurozone area; all attempts to bring greater transparency to government accounting; and the most basic principles that underlie well-functioning markets. When the data are all lies, the outcomes are all bad – see the subprime mortgage crisis for further detail.
A single rogue trader can bring down a bank – remember the case of Barings. But a single rogue bank can bring down the world’s financial system.
Goldman will dismiss this as “business as usual” and, to be sure, a few phone calls around Washington will help ensure that Goldman’s primary supervisor – now the Fed – looks the other way.
But the affair is now out of Ben Bernanke’s hands, and quite far from people who are easily swayed by the White House. It goes immediately to the European Commission, which has jurisdiction over eurozone budget issues. Faced with enormous pressure from those eurozone countries now on the hook for saving Greece, the Commission will surely launch a special audit of Goldman and all its European clients...
...Goldman will probably be blacklisted from working with eurozone governments for the foreseeable future; as was the case with Salomon Brothers 20 years ago, Goldman may be on its way to be banned from some government securities markets altogether. If it is to be allowed back into this arena, it will have to address the inherent conflicts of interest between advising a government on how to put (deceptive levels of) lipstick on a pig and cajoling investors into buying livestock at inflated prices.
And the US government, at the highest levels, has to ask a fundamental question: For how long does it wish to be intimately associated with Goldman Sachs and this kind of destabilizing action? What is the priority here - a sustainable recovery and a viable financial system, or one particular set of investment bankers?
To preserve Goldman, on incredibly generous terms, in the name of saving the financial system was and is hard to defend – but that is where we are. To allow the current government-backed (massive) Goldman to behave recklessly and with complete disregard to the basic tenets of international financial stability is utterly indefensible. (There is a case to be made that the money center banks, in particular Goldman and JPM, are sometimes acting as instruments of US foreign policy - Jesse)
The credibility of the Federal Reserve, already at an all-time low, has just suffered another crippling blow; the ECB is also now in the line of fire. Goldman Sachs has a lot to answer for."
Read the entire essay from Simon Johnson here:
http://baselinescenario.com/2010/02/14/goldman-goes-rogue-%e2%80%93-special-european-audit-to-follow/
http://jessescrossroadscafe.blogspot.com/2010/02/simon-johnson-goldman-faces-special.html
ABN: Goldman Sachs May Sell Off US Banking Business as Obama Continues War on Wall Street
January 26th, 2010
(NYSE:GS)
Filed Under: Opinion
Tags: Goldman Sachs
American Banking News
Rumor has it that Goldman Sachs (NYSE:GS) may be thinking of taking steps to sell or spin off it banking business in the United States as Obama continues to cater to populist feelings and ravage the banking industry, as little else he has attempted to do has brought favor from the public.
The banking division has deposits worth about $36 billion at this time, which Goldman would be hesitant to get rid of, but would in order to get Obama off their backs if that’s what it comes down to.
This of course would be spun as a win for Obama either way, as it would make it look like he was battling for the little guy against the big bad bankers, but there is risk in the move as well, as the economy is seemingly recovering a little bit, people will move their focus and interests to other matters, leaving it largely a mute point at that time. More than likely this is why Obama and his administration is attempting to move things quickly again (as they always do), in order to take advantage of this short window of opportunity.
Some people who feel things are improving economically are already putting their attention on other things, and if they believe things are better for them, they really aren’t going to care about what bankers make and if companies like Goldman Sachs are a multifaceted financial institution.
There is no doubt much of this is an attempt to get people to think of big banking again in this news cycle, as Obama and the Democrats have been taking a beating, and they’re in a panic as they face elections that may reach historical proportions from the dissatisfaction and resistance normal and average Americans have toward the controversial Obama and his policies.
When announcing his latest regulatory ideas, Obama continues to show how clueless he is and how he misunderstands the underlying problems. For example, he reiterates the idea that banks should never be allowed to become “too big to fail.” Obama doesn’t get that they never were too big to fail, and that the government should never have stepped in in the first place and force them to take taxpayer money through the TARP fund.
The idea of whether the banks were too big to fail or not will never be proven, and can’t be proven because the government interfered with the markets and took out the one effective mechanism that is the deciding factor on whether a business will fail or not: the markets themselves.
To make up stories afterwards that they saved the system is disingenuous and outright dishonest. Even Warren Buffett has finally admitted that many, if not most of the banks, never needed the TARP funds to survive.
Right now there will be a lot of companies positioning themselves and making comments like Goldman Sachs, and others that would be affected by the latest regulations (if they’re ever implemented), and so everyone is throwing out trial balloons to see what the response to them will be.
When taking into account the government creating regulations to cut back on banking fees in a number of retail banking areas, along with pushing to eliminate much of the risk associated with investment banking and other areas, it remains to be seen what will be left over when the smoke clears for the banks to hold on to as a reason for existing.
Like I mentioned, much of this is an attempt by Obama and the Democrats to get the focus of their numerous failures and rejection of policies, which have been a disaster for them.
Even so, there is a real possibility some of this will go through, and if that happens, American banking will take on a completely different look. There are a lot of details to be worked out if this were ever to be brought into law, and there are so many regulations being put forth by Obama that it’ll take some time before we really see what emerges from all of this, if anything.
One thing is for sure, the global markets and banking industry haven’t liked where they see Obama going with this, and increasing pressure to crush it before it gets any legs seems to be mounting. The problem for Obama and the Democrats is this: if they can’t even win this issue in this economic climate, they have been largely dismissed by the American public who is already thinking of removing them from office in a major way later in the year.
http://www.americanbankingnews.com/2010/01/26/goldman-sachs-nysegs-may-sell-off-us-banking-business-as-obama-continues-war-on-wall-street/
BL: UBS Hires Eichler From RBS for Join Emerging-Market Sales Group
February 04, 2010, 02:23 PM EST
By Veronica Navarro Espinosa
Feb. 4 (Bloomberg) -- UBS AG, Switzerland’s largest bank by assets, hired Rod Eichler to join its emerging-markets debt, currency and derivatives sales group.
Eichler, who previously worked at RBS Securities Inc., will join UBS in April, UBS spokesman Doug Morris said. UBS also hired Jeff Barker from Cambridge International Securities Inc. to join the group, Morris said. Barker, who will begin working at UBS next week, and Eichler will be based in Stamford, Connecticut and report to David Cannon.
Cannon became the head of UBS’s emerging-market sales group in the Americas last month after working at Citigroup Inc. for 14 years, Morris said. The group sells UBS’s emerging-market fixed-income, currency and derivatives products.
Cannon’s “arrival underscores the investment bank’s commitment to Emerging Markets at a time of great opportunity,” Ed Hulina, head of fixed-income, commodities and currencies distribution for the Americas at UBS, wrote in an internal memo dated Jan. 5.
--Editors: Lester Pimentel, David Papadopoulos
To contact the reporter on this story: Veronica Navarro Espinosa in New York at +1-212-617-5514 or vespinosa@bloomberg.net
To contact the editor responsible for this story: David Papadopoulos at +1-212-617-5105 or papadopoulos@bloomberg.net
BL: RBS Wealth Chief Executive Officer Baines Resigns (Update1)
February 05, 2010, 10:29 AM
By Richard Tomlinson and Jon Menon
Feb. 5 (Bloomberg) -- John Baines, chief executive officer of Royal Bank of Scotland Group Plc’s wealth management unit, has resigned, according to a company spokesman.
In August, Hanspeter Brunner, the head of Coutts’s Asia private banking division, left for BSI Bank, along with about 70 Singapore-based Coutts employees. RBS CEO Stephen Hester in December said the bank was walking a “tightrope” when seeking to recruit and retain top bankers while under government ownership.
Baines declined to comment when contacted on his mobile telephone.
--Editors: Francis Harris, Ben Vickers
To contact the reporters on this story: Richard Tomlinson in London at +44-20-7673-2269 or rtomlinson1@bloomberg.net Jon Menon in London at +44-20-7073-3602 or Jmenon1@bloomberg.net
To contact the editor responsible for this story: Willy Morris at +44-20-7673-2254 or wmorris@bloomberg.net
UKT: Germany growls as Greece balks at immolation
By Ambrose Evans-Pritchard
Published: 7:49PM GMT 14 Feb 2010
Comments 126 | Comment on this article
The EU has issued a political pledge to rescue Greece – and by precedent, all Club Med – without first securing a mandate from the parliaments of creditor nations.
Holland's Tweede Kamer has passed a motion backed by all parties prohibiting the use of Dutch taxpayer money to bail out Greece, either through bilateral aid or EU bodies. "Not one cent for Greece," was the headline in Trouw. The right-wing PVV proposed "chucking Greece out of EU altogether".
Germany's Bundestag has drafted an opinion deeming aid to Greece illegal. State bodies may not purchase the debt of another state, in whatever guise.
The EU is entering turbulent waters by defying these irascible and sovereign bodies. It had no choice, of course. Europe's banking system was – and is – at imminent risk as Greek contagion spreads across Club Med. The danger of a "sovereign Lehman" setting off a chain reaction is very real, with Britain too in the firing line. I find myself in the odd position of backing drastic EU action, for fear of worse. We all go down together if this escalates.
The last two weeks have cruelly exposed the Original Sin of monetary union: that EMU was launched without an EU treasury or debt union. This will be tested again and again by bond vigilantes until such a mechanism is created. Europe's hope of fending off markets with "constructive ambiguity" must fail, as will become obvious this week if EU finance ministers fail to flesh out rescue details.
German Chancellor Angela Merkel did not look happy as reporters reminded her of the Bundestag's injunction when she announced that Greece would be saved from the wolves.
The Frankfurter Allgemeine summed up German feelings when it asked why taxpayers should bail out a country that thinks it an outrage to raise the retirement age to 63. "Should Germans have to work in the future until 69 instead of 67 so that Greeks can enjoy early retirement?"
No wonder Mrs Merkel refused to discuss details of a rescue in Brussels, let alone offer hostages to fortune. Yet if she blocks Europe's leap to fiscal union at this fateful moment, she dooms monetary union to failure. Such is the Hobson's Choice that has awaited Berlin ever since Maastricht.
Global bond markets are watching in fascination. They spotted the contradiction in last week's message: that Greece will not be left to default; yet aid is conditional on full Greek compliance. So what if Greece does not – or cannot – comply?
It is a fair bet that China's reserve fund (SAFE) will not invest a single yuan of its $2.4 trillion stash on Greek or Club Med bonds until this ambiguity is replaced by a clear guarantee. We can deduce this from events last year when SAFE liquidated holdings of Fannie Mae and other US agency bonds because they lacked explicit backing from Washington. It switched to US Treasuries. Russia did likewise, though at a more delicate moment in the crisis, and with hostile intent, according to Hank Paulson's memoirs.
The US Federal Reserve averted a mortgage bloodbath by purchasing $1.5 trillion of housing debt. Who will do this for the Greek state, or for Italy? The European Central Bank is banned by the Treaties from buying EMU sovereign debt.
Europe's leaders still refuse to face the awful truth: that monetary union is unworkable as constructed. That different labour markets, different sensitivities to interest rates, different economic structures, have caused the gap between North and South to grow ever wider; that a chunk of Europe is priced out of EMU by 30pc, has swung from boom to bust, and is on the cusp of a debt-deflation spiral. Spanish unions have accepted a 1pc pay deal this year, only to be undercut by reports that Germany's IG Metall may accept zero. Must Spain slash wages to close the gap? What would that do to a country with 19pc unemployment and total debt near 300pc of GDP?
It is easier to restrict talk to Greece, to insist that Athens cuts it deficit by 4pc of GDP this year even as the slump grinds deeper – an 'IMF-style' austerity package, without the IMF cure of devaluation. Can such a policy can work with public debt nearing 125pc of GDP this year? It may tip Greece into a debt-compound trap and prove self-defeating. But there is a broader point. If every Club Med state – plus Britain soon, and France – squeeze fiscal policy at the same time they may bring about Phase II of our depression.
Greek premier George Papandreou is already chafing in any case. His country has become a "guinea pig". Rival EU factions are "playing doctor" and pursuing their own agendas. Brussels was complicit from the start in Greece's tragedy, he told his cabinet, and has since "created a psychology of looming collapse, that risked becoming self-fulfilling".
Does this sound like a man ready to immolate his country to please Germany.
http://www.telegraph.co.uk/finance/comment/ambroseevans_pritchard/7236019/Germany-growls-as-Greece-balks-at-immolation.html
UKT: RBS bankers resign over forced bonus cuts
Two of Royal Bank of Scotland's most senior bankers have resigned amid frustration over the state-backed lender's bonus policy, raising fears about the Government's chances of selling off its stake at a profit.
By Jonathan Sibun, Assistant City Editor
Published: 12:01AM GMT 15 Feb 2010
Steve Ashley, who heads up RBS's lucrative rates trading division, and Chris Fleming, a senior salesman, quit the bank on Friday last week in a move that shocked RBS investment banking staff. The trading business is believed to have been one of RBS's most profitable divisions in 2009.
Mr Ashley and Mr Fleming are thought to have been offered jobs elsewhere but their decision to leave is believed to stem, at least in part, from dissatisfaction that RBS is being forced to scale back bonuses in the wake of the taxpayer-funded bailout of the bank.
One trader at RBS said: "This is a disaster. The Government has got to make a decision – either it ignores the noise around bonuses, lets the bank pay up and ultimately generates a return for the taxpayer or it stamps down, our best people leave and the taxpayer loses out."
Stephen Hester, RBS's chief executive, has warned of an exodus of talent if RBS is forced to scale back bonuses too aggressively. Last month he told the Treasury Select Committee that RBS is a "prisoner of the market" as he described the bank's policy as paying "the minimum we can get away with".
"Shareholders have raised concerns about our ability to keep and motivate good people," he said, calling staffing his "single greatest problem".
His comments echo those of John Kingman, the outgoing chief executive of UKFI, who told the committee in November that the Government was "walking a tightrope" on bank bonuses.
Mr Kingman warned: "We cannot afford to be in a position where the banks lose so many people that we start to lose serious value."
RBS is still finalising the size of its bonus pool, likely to be around £1.5bn, but Mr Ashley would have a good idea of its likely size. Bonuses will be announced later this month.
One source said: "By the time bonuses are paid it will be 27 months since bankers last received a payout. Cash bonuses were paid in March 2008 and they were only paid in subordinated debt last year. That's a long time to wait."
RBS's bonuses this year will be paid two-thirds in deferred shares. Mr Ashley and Mr Fleming are likely to have been offered guaranteed bonuses and a buyout of their RBS compensation schemes to move. An RBS spokesman confirmed the resignations.
Gordon Brown, the prime minister, pledged yesterday that "every last penny of taxpayer support to British banks is paid back". The Government owns more than 80pc of RBS.
"I'm sure you share my anger with some of the banks," Brown said. "It is only fair that those who have contributed to the recession and have now benefited from taxpayers' support give something to society in return."
News of the departures comes as Lloyds Banking Group has played down reports that chief executive Eric Daniels is in line for a bonus of £10m. "No decisions have been taken," a spokesman said. Mr Daniels' potential maximum compensation for 2009 is just over £6m.
http://www.telegraph.co.uk/finance/newsbysector/banksandfinance/7237971/RBS-bankers-resign-over-forced-bonus-cuts.html
COMMENTS:
Tumby
on February 15, 2010
at 11:11 PM
As Wheaty and David have already mentioned Steve Ashley is a highly successful trader who has run a trading business that has consistently made substantial profits for RBS. He has only delivered exceptional results through all market conditions so why so much vitriol? For those who say his talent is easily replaceable i suspect they have no idea what is involved, they think its just gambling with someone elses money, how hard can that be? Well there are thousands of exceptionally clever people all over the globe trying to find a way to make money from the markets. If you ask those professional traders how easy it is you will get a clear message, its a tough never ending battle. Thats just the pure trading aspect of the job. Someone like Steve Ashley ran a big business, his role is as much about developing the business, providing liquidity to RBS's clients, hiring talent and training/nurturing that talent. These are not easy things to do and the few who make it to the top are genuine stars.
Without people like this RBS is only worth whats on its balance sheet, and thats not a lot. Its a people business something the public and the government dont understand.
______________________________________
John Stobart
on February 15, 2010
at 09:05 PM
Oh diddums. Toys out of the pram time, is it? Never you mind little diddums. Just go now please and close the door after you.
______________________________________
victorireland
on February 15, 2010
at 09:01 PM
Is this company so stupid as to believe it will suffer adversely by these resignations. Only egos swelled as this business got too big and planned obfuscation the soporific delusion of choice. Goodbye guys and, Oh! ..... leave your ill gotten "benefits"on the way out!
______________________________________
Clair
on February 15, 2010
at 07:43 PM
Good let them walk. Nobody is irreplaceable. Their 'expertise' is risible anyway. Hopefully it's the first of many. There is plenty of young blood eager to move up the ranks - let them have their turn. They can't do a worse job than the last lot. Good riddance.
______________________________________
Captain R.E. Jones (retd.)
on February 15, 2010
at 06:33 PM
What's the problem? You've got to pay for talent whether in art, literature, law, banking or whatever. We need these rates trading and sales guys to continue their magic and roll in the big bucks for us, the taxpayers who are the new shareholders in RBS.
Has anyone considered: the talent we've just lost may be in fact irreplaceable?
We must stop all these tantrums about banking losses: they achieve nothing. Pay these guys what they want, and let them get on with it. These human assets are more valuable than the junk you'll find on the RBS balance sheet.
Smell the coffee: these talented chaps may be our last hope
______________________________________
The Watcher of Bath
on February 15, 2010
at 05:16 PM
Sounds just like the Coliseum in the days of my youth. All the sweaty proles, up in the gods, throwing their stinking nightcaps in the air and baying for yet more blood.
Can we have a little bit of balance, please.
These two guys are, apparently, at the top of that part of RBS that is, hopefully, going to generate the profit that will pay back the "loan" from the private sector tax payer.
If RBS doesn't make a profit the private sector tax payers aren't going to see their contribution repaid to the government (for the government to squander on the Public Sector). All the private sector tax payers are going to see is their bail out money vanish without trace. Public Sector tax payers obviously contributed nothing, therefore lose nothing, other than the Public Sector jobs that are paid for by the taxes on bank profits. I think Gordon is a moron but I have to admit that he can wind you lot up wonderfully and quickly divert any blame from himself for our present mess. One of the best scape goat hunters around, our Gordon.
______________________________________
Big Dog
on February 15, 2010
at 04:27 PM
You idiots claiming banks create nothing and expect everything. I'm not even a banker, my qualification for this post is merely that I am not retarded.
Jump on the "bankers have ruined my (useless) life" bandwagon all you like but you can't even begin to imagine the complexities of keeping 6 billion people's finances organised whilst generating a useful return and satisfying the "want now, pay later" culture that has become prevalent in the West.
There is an argument that dictates those below average intelligence should not be allowed to vote. I agree with that, it should extend to posting on the internet as well.
______________________________________
Beefbeefbeef
on February 15, 2010
at 04:26 PM
There seems be a belief that anyone could do their job. If that was the case, the laws of supply and demand would mean everyone would apply to get into banking, driving down their remuneration towards the minimum wage over a period of years. That hasn't happened. I suspect that is because these people are pretty capable.
Pay them the going rate. It's the only way we'll get our money back.
______________________________________
tony adair
on February 15, 2010
at 04:20 PM
So don't cut bonuses- TAX them punitively across the board; that way the greedy fat cats will have nowhere to run.
______________________________________
Stuart
on February 15, 2010
at 04:14 PM
I whole heartedly agree with Rod (Rod on February 15, 2010 at 12:18 PM)
I worked for the RBS Group for 20-years lent money in a measured and prudent fashion as did most of colleagues.
As memory serves, the Blair/Brown Partnership extolled the virtues of the Banks only a few months ago when they were benefiting for the millions of pounds of Corporation tax that these institutions generated. Now it’s easy to blame Banks for the dismal state of the UK – just remind me, who was the Chancellor and Prime Minster during this farce??
I totally agree with Gordon Browns comments ………"It is only fair that those who have contributed to the recession and have now benefited from taxpayers' support give something to society in return.".
I also agreed with Gordon when at the height of the Fred Goodwin pension debate, he stated something along the lines that no one should benefit from a pension when they have overseen the company collapse.
No doubt his letter of resignation will be forthcoming along with his agreement not to draw his tax payers funded pension.
My ex-colleagues at RBS are being made to jump through politically motivated hoops which look good for the ‘media’ yet generate little revenue and waste the talents of those involved.
I fully acknowledge that without the Government bailout the RBS and other Banks would cease to exist, yet Government has shown it’s inability to run the countries finances, therefore how can we believe that they can run a commercial enterprise.
______________________________________
BDI: Shipping Adds 31% as Boats Await Coal From Newcastle (Update2)
By Alaric Nightingale and Alistair Holloway
Feb. 15 (Bloomberg) -- The fastest expansion in world trade in three years is clogging up ports from Australia to Brazil, driving a 31 percent jump in charter rates by December.
The rate for leasing capesizes, boats three times the size of the Statue of Liberty, will average $39,000 a day in the fourth quarter, from $29,784 now, according to the median in a Bloomberg survey of 11 analysts. Higher costs for the ships, the biggest part of the commodity fleet, will bolster returns for Mitsui O.S.K. Lines Ltd., Nippon Yusen K.K. and China Cosco Holdings Co., analyst forecasts compiled by Bloomberg show.
While the 14 percent decline in world trade last year caused prices to plunge as much as 76 percent from their peak in June, increasing demand for coal now means 55 ships are waiting to load at Newcastle in Australia, up from 17 a year ago. Lengthening lines at the iron-ore ports of Tubarao in Brazil and Qingdao in China also reflect a recovering global economy and accelerating demand for raw materials.
“Once congestion is really taking a grip, you can have 12 percent of the fleet stuck in ports,” said Philippe van den Abeele, London-based managing director of Castalia Fund Management (U.K.) Ltd., which trades freight derivatives. Charter rates “will improve irrespective of the number of ships out there,” he said.
More Ships
Shipping costs that quadrupled last year on signs the global economy was recovering have retreated 20 percent in 2010 on concern that a record fleet expansion will overwhelm any rebound in demand. Laid end-to-end, the new ships would stretch about 60 miles, according to data compiled by Bloomberg and Clarkson Research Services Ltd.
Forward freight agreements traded by brokers and used to bet on or hedge against future dry bulk rates anticipate a fourth-quarter average of $29,825, according to data from Imarex ASA in Oslo. That’s 0.1 percent more than current costs and 24 percent below the median in the Bloomberg survey.
Golden Ocean Group Ltd., the commodities shipping line led by Norwegian billionaire John Fredriksen, said profit fell 33 percent last year to $238.9 million. Cie. Maritime Belge SA, owner of shipping line Bocimar International NV, said earnings slumped 44 percent to 118.9 million euros ($162.1 million).
Profit Forecast
Now, the Washington-based World Bank predicts a 4.3 percent gain in trade volumes this year and 6.2 percent in 2011. Ships carry about 90 percent of world trade, the Round Table of International Shipping Associations estimates.
Mitsui O.S.K., based in Tokyo, more than doubled its full- year profit estimate on Jan. 29 and Nippon Yusen posted third- quarter earnings on the same day, its first in a year. China Cosco President Zhang Liang forecast on Jan. 19 that the Baltic Dry Index will rise 54 percent this year. The gauge, a measure of commodity shipping costs, today fell 5 points, or 0.2 percent, to 2,566 points. That’s a fifth straight drop and the lowest since Oct. 7.
The 12-member Bloomberg Dry Ships Index, led by Seoul-based STX Pan Ocean Co. and Pacific Basin Shipping Ltd. of Hong Kong, hasn’t reflected those gains. The gauge is little changed from where it was at the end of May and trades at an average multiple to earnings of 8.3 times, compared with 18.4 times for the Standard & Poor’s 500 Index. It fell 0.5 percent to 1,827 points as of 1:25 p.m. in London today.
Investors are growing concerned that central banks will withdraw stimulus measures before the economic recovery takes hold. The Federal Reserve may raise the discount rate “before long,” Chairman Ben S. Bernanke said Feb. 10.
China ‘Bubble’
The 93-member Bloomberg World Mining Index fell as much as 1.7 percent on Feb. 12 as the People’s Bank of China ordered banks to set aside more deposits as reserves for the second time in a month to cool the fastest-growing economy. China’s “bubble” may burst by 2011, Zug, Switzerland-based Tiberius Asset Management AG, which manages about $1.8 billion in assets including commodities, said in a report last week.
China’s iron-ore imports fell 25 percent in January, from the previous month, according to customs data on Feb. 10.
Shipping “is highly dependent on a continued growth in Chinese iron-ore imports to absorb the dry-bulk fleet,” said Martin Sommerseth Jaer, an analyst with Arctic Securities ASA in Oslo with a “sell” rating on commodity shipping lines.
Van den Abeele of Castalia Fund Management also expects rates to keep dropping, to as low as $15,000 a day, in coming months as Chinese growth slows and the fleet expands. Rates will then rebound as owners mothball ships and congestion worsens, he said.
Shipyard Delays
Estimates by analysts for daily leasing costs in the survey ranged from $22,000 to $50,000. A Bloomberg survey of shipping analysts and fund managers in August indicated capesize rates would drop about 50 percent to $18,000 before the end of 2009. Rates fell as much as 42 percent to $22,109 in the next three weeks and then rebounded.
The capesize fleet will expand by 20 percent this year, outstripping the 8 percent gain in demand, this month’s survey showed. Delays at shipyards may narrow the gap. The construction of one in six merchant ships was postponed in the three months to November, according to a December estimate from Bimco, a Bagsvaerd, Denmark-based shipping association. The average delay for dry bulk carriers was eight months.
Shipyards may seek to spread out deliveries because “if they only deliver in terms of the existing order book, which will be a heavy output over the next two years, they will be underutilized in the years following,” said Henriette van Niekerk, a London-based divisional director at Clarkson Plc, the world’s biggest shipbroker.
Iron Ore
Even with rates where they are now, ship owners are still making more than operating costs. Daily overheads on a capesize are about $7,555, Drewry Shipping Consultants Ltd. estimates.
China’s economy, the world’s biggest consumer of coal and iron ore, will expand 9.5 percent this year, according to the median estimate of 41 economists surveyed by Bloomberg.
Global seaborne trade in iron ore, the biggest cargo for dry bulk carriers, will expand 11 percent to exceed 1 billion metric tons this year, according to Clarkson. Exports of coal, the second-biggest dry bulk commodity, will gain 4 percent to 668 million tons this year, Barclays Capital estimates.
There are 142 capesizes tied up at ports in Brazil, China and east and west Australia, compared with a record 154 in June 2009, according to shipbroker Simpson, Spence & Young Ltd.
“There’s always the possibility that something will go wrong with one of the ports,” said Simon Francis, managing director of Global Ports, which tracks the shipping lines. Some coal and iron ore loading ports “haven’t got themselves in order quite yet,” he said.
To contact the reporters on this story: Alaric Nightingale in London at anightingal1@bloomberg.net; Alistair Holloway in London at aholloway1@bloomberg.net
Last Updated: February 15, 2010 09:06 EST
BL: European Union Finance Chiefs to Resist Obama's Plans for Banking Overhaul
By Meera Louis and Jurjen van de Pol
Feb. 15 (Bloomberg) -- European Union finance ministers are uniting to oppose President Barack Obama’s proposal to limit banks’ size and risk-taking, saying his plan may run counter to EU policy, according to a draft document.
Their position, which they will ratify at a two-day meeting starting today, comes after Obama last month urged the adoption of the so-called “Volcker rule,” named for former Federal Reserve Chairman Paul Volcker. The plan would bar commercial banks from owning hedge funds and limit how much they can trade for their own account.
The finance officials gathering in Brussels will express “their concern that the application of the ‘Volcker’ rule in the EU may not be consistent with the current principles of the internal market and universal banking,” the document obtained by Bloomberg News said. “Any policy choice should avoid pushing risks to other parts of the financial system.”
The resistance underscores political divisions over how to overhaul banking regulations to prevent a repeat of the crisis that forced taxpayers to prop up the financial system. While leaders have called for a Group of 20 initiative, the U.S., Britain, and France are forging their own policies to limit compensation and risks.
At a meeting this month in Canada, Group of Seven finance ministers signaled they are rallying around a plan to introduce a levy on banks if it can be applied worldwide.
The Feb. 10 draft, entitled “Issues note on the most recent proposals of the U.S. administration in respect of Systemically Important Financial Institutions and the introduction of a financial crisis responsibility fee,” was prepared by a committee of officials from finance ministries, the European Central Bank and the European Commission.
EU Proposals
The three-page memo also considered proposals including levying a stability fee on banks and creating national or pan- European funds for future bailouts.
Swedish Finance Minister Anders Borg last month presented a plan to create a fund for future banking crises. In contrast, the Netherlands’ Wouter Bos last month wrote a letter to his counterparts welcoming Obama’s proposals and calling for a “serious debate” on the U.S. plan at the meeting in Brussels.
Jean-Claude Juncker, who heads the group of euro-area finance ministers, last month voiced concern about a common approach on bank levies given that taxes are a matter dealt with at the national level of the 27-member bloc.
To contact the reporters on this story: Meera Louis in Brussels at mlouis1@bloomberg.net; Jurjen van de Pol in Amsterdam at jvandepol@bloomberg.net
Last Updated: February 14, 2010 18:00 EST
HP: Could Bankers Turn the Tables on Obama in 2012?
Charles Gasparino.Author, The Sellout
Posted: February 15, 2010 10:54 AM
President Obama last week took a break from his phony fat-cat-calling of Wall Street executives, to say what he really means. In an interview with BusinessWeek, he referred to JP Morgan Chase CEO Jamie Dimon and Goldman Sachs CEO Lloyd Blankfein as "savvy businessmen." He went on to defend both men's salaries, comparing them to high-paid baseball players, some of whom have lousy years but still earn millions of dollars in salary. In other words, what's the big deal about a couple of savvy fat cats getting even fatter?
Forget the absurdity of the baseball player comparison (for all their faults, professional athletes didn't destroy the financial system in 2008). The comment's real measure, I am told, is in what it reveals about the panic setting in among people at the highest levels of Obama's political apparatus about their ability to raise money from Wall Street leading up to 2012.
For all the talk about Obama's grassroots fundraising prowess, a recent New York Times article pointed out just how big of a role Wall Street money had played in the Obama presidential money machine.
It was always an odd match: The community organizer who wants to be president and the Wall Street heavy-hitters who probably never heard the word ACORN before Obama burst on the scene. But the marriage seemed to work out well. Many top Wall Street executives were impressed with Obama's poise during the financial crisis -- after all he didn't suspend his campaign as did his Republican challenger John McCain when the financial system was on the verge of collapse in the Fall of 2008.
And it paid off: Wall Street money came flooding into Obama's coffers with the blue chip investment bank Goldman Sachs (the same firm that produced President Bush's treasury secretary Hank Paulson) leading the way. Goldman executives funneled nearly $1 million during the 2008 presidential election cycle -- then candidate Obama's second largest source of campaign money at a time; ironically, that the firm, along with the rest of Wall Street, was imploding.
But there are growing signs Wall Street is now balking at helping Obama and according to both people who raise money for the president and the former Obama backers in the financial business, the situation is far worse than Wall Street throwing a few bucks to Congressional Republicans as the president approval rating starts to dip, as the raw numbers in the Times story pointed out.
Jamie Dimon apparently still likes Obama -- he's an unofficial adviser on finance related measures that has been widely reported, but associates tell me the "relationship" is wearing thin, particularly after the president -- sensing falling poll numbers and a public outraged by Wall Street bonuses just a year after being bailed out by the government -- endorsed a bank tax and then some reform measures advocated by his economic adviser, Paul Volcker, designed to prevent big banks like Dimon's from engaging in risky bond trades.
People who know Lloyd Blankfein now go to great lengths to point out that Blankfein was never really that infatuated with Obama -- he supported Hillary Clinton for president -- and that it was his No. 2, Goldman president Gary Cohn, who helped raise all that money for Obama. Yet, most telling is the story I received from a senior banking executive who was one of the first people on Wall Street to back Obama over Hillary Clinton back in 2007. He told me he's so tired of Obama's policies that demonize the rich that he even urged friends to give money to Republican Scott Brown, who won Teddy Kennedy's seat and has become the margin of victory in the Republican attempts to defeat health care legislation.
Much of this, of course, is anecdotal, though if it doesn't change soon, it could spell real trouble, according one Democratic fundraiser who said he is well aware of these problems.
"We'll always have the Hollywood Fat Cats," this person said. But he added, "the lefties aren't as enthused about the president as they once were," meaning that a good chunk of those small contributions that added up big in 2007 and 2008 from energized individuals may be lost forever.
"Combine that with the Wall Street fat cats showing reluctance and we have a big problem," he added.
Wall Street power brokers, whether they're Republicans or Democrats are of course the fairest of the fair-weather friends, and they usually shift their money to the party in power, so amid high unemployment, the president's falling approval ratings and big Democratic losses in New Jersey, Virginia and recently in Massachusetts, it's not surprising that the bankers are hedging their bets. I can remember the time that John Mack, the current Chairman of Morgan Stanley, who had been a prominent fundraiser for President Bush (he was even considered for a job inside the administration as chairman of the Securities and Exchange Commission) made huge headlines when he switched sides and announced his endorsement of Hillary Clinton for president in 2007, when it became clear the Republicans were on the ropes.
Mack told me he was doing so purely on the merits -- and I believe him. Mack became a supporter of a health care reform (he and his wife run a foundation dedicate to health issues) of the sort that Clinton has long advocated. But one of Mack's closest advisers is Tom Nides, who has strong ties to the Democratic Party, and Nides no doubt advised Mack to back what he believed would be the winning team.
It didn't quite work out the way Nides or Mack envisioned as Obama stole the show, thanks in large measure to Dimon, the good people at Goldman Sachs, and assorted other top banking players from Larry Fink at Blackrock, to Greg Fleming who now works for Mack at Morgan Stanley as one of the top executives there.
And thanks to many of the president's policies, the fat cats got even fatter once he took office even as Main Street businessmen were promised sky-high tax increases to pay for all the hope and change Obama planned during the campaign, from cap-and-trade energy policies to universal health care. Despite growing bank profits, the bailout mechanisms put in place by the Bush administration remain in place to this day; indeed some of the measures have been enhanced by the president's Treasury Department, run by Tim Geithner, a long time bureaucrat who is as close with the Wall Street in-crowd as anyone in government. Goldman Sach's now infamous $20 billion bonus pool just one year after it accepted federal bailout money is the direct result of its ability to feast off these giveaways; it can borrow cheaply thanks to near zero interest rates produced by the Fed but supported by the president, and Geithner & Co's designation of Goldman as a systemically important bank that's "Too Big To Fail."
All of which makes you wonder why any politician wants to get in bed with people who after you give them so much, will screw you the minute the political wind changes direction. But maybe that's what the president meant when he called Dimon and Blankfein "savvy businessmen"?
Books & More From Charles Gasparino
http://www.huffingtonpost.com/charles-gasparino/could-bankers-turn-the-ta_b_462594.html?view=print
AP: Debt woes in Europe could infect U.S.recovery
By TOM RAUM
ASSOCIATED PRESS WRITER
February 14, 2010 12:00 AM
WASHINGTON — The United States, which led the world into recession, may now see its fragile recovery stifled by events across the globe.
Dangerously high debt levels in Greece and some other European countries could trigger a wave of national defaults, undermining revival in Europe and probably in the U.S. as well.
And China's recent steps to cool its economy also complicate President Barack Obama's plan to attack high unemployment here by increasing U.S. exports. Financial markets have been whipsawed over concerns that debt problems in Greece — and perhaps also in high-debt Spain, Portugal, Ireland and even Italy — might infect stronger European neighbors.
A strike by civil servants to protest wage cuts shut schools and grounded flights across Greece on Wednesday. European Union leaders plan to discuss the crisis — and the feasibility of rescue attempts — during a summit Thursday in Brussels, Belgium.
Euro zone countries are key U.S. trading partners, and the United States can't meet Obama's goal of doubling exports in five years — or reap the benefits in new jobs — if debt default contagion spreads throughout Europe.
Likewise, China is deemed an important growing export market for American goods. But Beijing's recent steps to curtail bank lending and its economic saber-rattling at the United States have increased trade tensions between the world's largest economy and a country poised to soon surpass Japan for second place.
The U.S. recession began in December 2007 amid a meltdown in housing and credit markets. The crisis spread quickly to Europe and other major economies.
Unlike Western economies, China never dipped into a full-fledged recession. Thanks to enormous government spending and government-orchestrated bank lending, China rebounded quickly to a strong growth path.
Economists believe the U.S. recession ended sometime last summer. But recovery since then has been tentative and spotty, with unemployment still hovering close to 10 percent.
The Obama administration says it wants to move away from an economy fueled by heavy consumer spending and reliance on imports toward what economic adviser Lawrence Summers calls "an economy that's based on investment, that's based on exports, that's based on saving."
Unfortunately, all the other major economies are also counting on digging themselves out, at least in part, through expanded exports. For every nation to be able to meet such a goal, of course, is a mathematical challenge.
Fears of possible sovereign defaults in Europe have also focused new attention on the bloated U.S. budget deficit.
The government deficit in Greece stands at 12.7 percent of the nation's annual economic output as measured by gross domestic product. That's more than four times the limit allowed by the European Union, but it's not that much greater, proportionally, than the 10.6 percent deficit-to-GDP ratio in the United States.
Barack Obama's new budget projects a record deficit for this year of $1.6 trillion, to be followed by $1.3 trillion in 2011. Years of accumulated deficits have resulted in a national debt of $12.3 trillion. Congress recently upped the statutory cap to over $14 trillion to accommodate even more borrowing.
The financial turmoil in Europe does have one possible silver lining for the U.S.: The uncertainty has raised the value of the dollar as measured against the currencies of 15 of the nation's 16 biggest trading partners.
But there's a downside to that, too. A stronger dollar makes made-in-America goods more expensive in overseas markets, dealing yet another blow to struggling U.S. manufacturers and exporters.
Even short of actual sovereign defaults, huge budget deficits in Europe could lead to further cuts in those countries' credit ratings.
And the United States isn't immune — despite protests by Treasury Secretary Timothy Geithner that the U.S. "will never" lose its sterling credit rating.
Moody's Investors Service recently warned that the U.S. government's credit rating could eventually be in jeopardy if the nation's finances don't improve. The cost of borrowing for the government would soar under a downgrade of the creditworthiness of U.S. Treasury bonds and bills.
Simon Johnson, a former chief economist at the International Monetary Fund and now a management professor at the Massachusetts Institute of Technology, said recent troubles in the euro zone might actually give the U.S. some breathing room — but only if the U.S. also takes serious steps to get its own financial house in order.
"The euro is seriously under pressure," reinforcing the dollar's role as the world's pre-eminent, or "reserve," currency, he said. Despite lots of fears, he added, there has been little evidence that China or other major holders of U.S. debt are on the verge of fleeing the greenback, especially for the euro.
"It means we will be able to run up more debt, markets will let us do that at lower interest rates, than they would have otherwise," Johnson said. "This buys us time to tackle the medium-term issues — around health care spending, around Social Security and around a sustainable tax base."
Johnson warned that foreign patience could hinge on creation of a bipartisan U.S. commission that could force Congress to vote on deficit-lowering recommendations, such as higher taxes or cuts in Social Security and Medicare.
The Senate rejected such a commission last month. Obama has said he will create a similar panel, even though his would not have the power to force Congress to either accept or reject its recommendations.
http://www.southcoasttoday.com/apps/pbcs.dll/article?AID=/20100214/NEWS/2140321/-1/NEWSMAP
AsiaOne: Obama is sending a wrong message
Sun, Feb 14, 2010
China Daily/Asia News Network
By Zhu Yuan
What would the US government feel and react if Chinese leaders meet someone who has been carrying out activities for the independence of one of its state, say Alaska?
Putting oneself in other people's shoes is what we Chinese always do when having the impulse to point our fingers at others or do something that will get on other people's nerves.
If Obama put himself in Chinese people's shoes, he would not meet Dalai Lama. He insisted on meeting Dalai Lama despite China's strong opposition because he gauges the question of Tibet and the Dalai Lama with a different yardstick.
With the Cold War mentality in his sub-conscientiousness, he can hardly shake off the obsession that China is a Communist state and is an enemy of the United States when it comes to ideology. As a result, he has turned a blind eye to the fact that Tibet has been part of China for hundreds of years and the history of Tibet as part of China is much longer than the history of the United States.
If Dalai Lama has any reason to claim sovereignty for Tibet as an independent country, the Indian tribes have far more reasons to drive most of the Americans out of the United States.
Obama has also turned a blind eye to the fact that peace and religion are a cover Dalai Lama uses for covert activities for his attempt to split Tibet from China. The Chinese government has said, for many times, that the door for negotiation is always open to Dalai Lama as long as he gives up his attempt to split Tibet from the motherland.
By meeting Dalai Lama, Obama is sending a message to those separatists that they have the support of the world's only superpower for their illegal activities.
By meeting this man who does not mean what he says, Obama is doing something detrimental to the Sino-US relations and has showed disrespect for the Chinese people.
By doing so, he is portraying himself as a man of double standards and of no principle in Chinese people's eyes.
By doing so, he is giving the impression that he told lies or at least did not speak from the bottom of his heart when promising to promote Sino-US relations.
http://news.asiaone.com/News/AsiaOne%2BNews/World/Story/A1Story20100214-198599.html
BL: China's real estate bubble causing growing concern
By Michael Forsythe and Kevin Hamlin
BLOOMBERG NEWS
Published: 7:57 p.m. Saturday, Feb. 13, 2010
Jack Rodman, who has made a career of selling soured property loans from Los Angeles to Tokyo, sees a crash looming in China. He keeps a slide show on his computer of empty office buildings in Beijing. The tally: 55, with another dozen candidates.
"I took these pictures to try to impress upon these people the massive amount of oversupply," said Rodman, president of Global Distressed Solutions, which advises private equity and hedge funds on Chinese property and banking. Rodman estimates about half of the city's commercial space is vacant.
Beijing's office vacancy rate of 22.4 percent in the third quarter of last year was the ninth-highest of 103 markets tracked by CB Richard Ellis Group Inc. Those figures don't include several buildings about to open, such as the city's tallest, the 74-story China World Tower 3.
Empty buildings are sprouting across China as companies with access to last year's $1.4 trillion in new loans build skyscrapers. Former Morgan Stanley chief Asia economist Andy Xie and hedge fund manager James Chanos say the country's property market is in a bubble.
"There's a monumental property bubble and fixed-asset investment bubble that China has under way right now," Chanos said. "Deflating that gently will be difficult, at best."
Investor concerns have spread beyond real estate. Among 15 major Asian markets, the benchmark Shanghai Composite Index is valued third highest relative to estimates for this year's earnings, after Japan and India.
Subhed
A glut of factories in China is "wreaking far-reaching damage on the global economy," stoking trade tensions and raising the risk of bad loans, the European Union Chamber of Commerce in China said in November.
Digesting the debt from a popped property bubble could slash bank lending and drag growth lower for years in an economy that will account for more than a third of world growth in 2010, according to Tokyo-based research and analysis firm Nomura Holdings Inc.
The risks are so great that a decade of little or no growth — as Japan experienced in the 1990s — can't be dismissed, said Patrick Chovanec, an associate professor in the School of Economics and Management at Beijing's Tsinghua University.
"You have state-owned enterprises using borrowed funds from the stimulus bidding up the price of land — not even desirable plots of land — in Beijing to astronomical rates," Chovanec said. "At the same time, you have 30 percent-plus vacancy rates and slumping rents in commercial property, so it's just a case of when you recognize the losses — or don't."
Policymakers are starting to rein in the loans that helped fuel the property boom. Banks should "strictly" follow real estate lending policies, the China Banking Regulatory Commission said last month. It called for banks to "reasonably control" lending growth.
The People's Bank of China last week ordered banks to set aside more deposits as reserves for the second time in a month to help cool expansion in lending.
A drop in the property market might be accompanied by a surge in nonperforming loans. The Shanghai office of the banking regulatory commission said this month that a 10 percent fall in property values would triple the ratio of delinquent mortgages there.
This year, shares of Hong Kong-listed Industrial & Commercial Bank of China have dropped 13 percent, China Construction Bank Corp. is down 11 percent, and Hong Kong's benchmark Hang Seng index has declined 7.3 percent.
Subhed
However, China has considerable firepower at its disposal to deal with a crisis.
The nation has the world's largest foreign exchange reserves, at $2.4 trillion, and government debt equaled a mere 20 percent of the country's gross domestic product last year, according to the International Monetary Fund. That compares with 85 percent in India and the U.S. and 219 percent in Japan.
CB Richard Ellis doesn't count empty office buildings bought by banks and insurance firms when calculating vacancy rates because some of the space is for the owners' use. The company said that vacancy rates are starting to fall and rents to rise for the best office buildings as China's economic growth lifts demand.
The country's GDP expanded 10.7 percent in the fourth quarter from a year before, a two-year high, after China's government introduced a $586 billion stimulus package.
"In many cases, when you look at these buildings and say, 'That's never going to be fully occupied,' somehow, 12 to 18 months later, the building is full," said Chris Brooke, CB Richard Ellis's Beijing-based president and CEO for Asia.
Subhed
Looking south from the building that houses the Beijing headquarters of Goldman Sachs Group Inc., UBS AG and JPMorgan Chase & Co., one of the structures in the foreground is a 17-story office tower at No. 9 Financial Street.
Empty.
Farther afield are the two 18-story towers of the Bank of Communications Co. complex. Dirt is gathering at the doors, and the lobby is now a bicycle parking lot.
The supply of office buildings is poised to grow further. Jones Lang LaSalle Inc., a Chicago-based real estate company, estimates that about 12.9 million square feet of office space in Beijing will come online this year, adding to the total stock of about 100 million square feet.
The city government is driving growth regardless of the market. Financial Street Holding Co., whose biggest shareholder is the local municipal district, plans to build nearly 11 million square feet of office space starting this year, said investor relations chief Lydia Wang.
Across town, the district government is seeking to double the size of the city's central business district, which currently has a vacancy rate of 35 percent.
For its part, Beijing-based Financial Street Holdings has 100 percent of its properties rented out, Wang said. The empty buildings along Finance Street don't belong to the company, in which the district government owns a 26.6 percent stake.
Zhong Rongming, deputy general manager of the China World Trade Center Co., which built China World Tower 3, said the company is "optimistic about 2010 prospects" given China's accelerating growth.
One new addition to Finance Street may give real estate boosters cause for concern. No. 8 Finance Street will be the headquarters for China Huarong Asset Management Corp.
The company's mission: selling bad debt from banks.
Find this article at:
http://www.statesman.com/business/china-s-real-estate-bubble-causing-growing-concern-236655.html
TisM.uk: Chickens are coming home to roost for the euro's deluded cheerleaders
Andrew Alexander, Former City Editor of the Daily Mail
10 February 2010, 9:16am
Reader comments (1)
This Is Money.uk
From the word go, the Mail's distinguished ex-City Editor has argued the euro would self-destruct. Is he finally being vindicated
Will the Eurozone still be around in five years' time? With Greece, Italy, Portugal and Spain now suffering a severe financial crisis and with the euro seriously weakening, I think the prospect that it survives in its present form is most unlikely.
Indeed, the single currency looks like weakening further as a result of record levels of short-selling - the controversial system in which traders make a killing by 'selling' euros they don't actually own and buying them back at a later date more cheaply.
The crisis has echoes of 1992, when the financier George Soros made $1bn by selling sterling and drove the pound out of the ERM.
These four so-called 'Club Med' countries have been finding it desperately hard to borrow. Their effective credit ratings are dire.
Of course, there's nothing novel about the causes. The countries' governments have spent too much and borrowed too heavily. This sort of policy, which Gordon Brown characterises so cheekily as providing economic 'support', can only end in disaster.
Germany and France (the core countries in the 16-member Eurozone) are suitably alarmed. In response to their stern demands, the Greek government has instituted tough plans for a freeze of public pay and a reform of taxes. These proposals have not convinced everyone.
Other Club Med governments hope - and, indeed, believe - that the rich and powerful Germany will somehow foot the bill. However, Berlin yesterday refused to countenance a bailout, albeit for the moment.
How this crisis is managed over the next few days is vitally important. Here we have the world's second largest currency in real trouble. A double dip in the recovery from the credit crunch has always been probable, certainly for Britain.
But if a currency the size of the euro is no longer trusted, international markets are likely to prove more unstable. A consequent desire to play safe would then prolong the recession.
For some of us writing at the time of the Eurozone's formation just over a decade ago, the current crisis has been all too predictable. Other currency unions, we pointed out, had been tried in history and always fallen apart.
A particular flaw in having a 'one-size-fits-all' currency covering the rich and the poor, the cautious and the feckless, is that no member nation has its own currency which it can devalue or revalue in an attempt to extricate themselves from this crisis.
At least devaluation would, among other things, provide a breathing space while better financial management was gradually put together.
However, the only way a country could devalue would be if it left the Eurozone. This may sound dramatic, but such a move would be no more drastic in administrative terms than joining in the first place.
But if the four Club Med countries were to break free, or even do no more than just threaten to leave, all sorts of questions would be raised about other fringe members of the Eurozone or those expecting to join.
In other words, the whole United Europe project, aiming at one currency, one financial authority, one set of employment polices and one foreign policy would come under threat.
There are other countries which are hovering on the fringe of the Eurozone and for whom the current crisis offers a sudden reality check.
For example, the Danes (who are more sensible than their government) have no enthusiasm for the single currency, but their leaders seem intent to try to end the country's opt-out and launch a new bid join the Eurozone.
Meanwhile, the influence of the Eurozone spreads further, with Montenegro using the currency - even though it is not a member. Estonia, Latvia and Lithuania are supposed to join soon. Poland has expressed an interest.
All these countries will be having second thoughts about becoming members of a system which is now fraying at the edges. Once, it seemed so attractive to countries' leaders to wrap the strength of a world currency around their nation. But not so now.
Victims of hubris, the Eurozone's original cheerleaders deserve this current crisis. When they began to recruit member countries for the single currency, they laid down a set of basic rules about the soundness of national budgets before they could qualify to join. These were sensible enough.
But in their eagerness for enlargement (as part of their pursuit of a United Europe in which they would be the main voices), the founder members allowed these rules to be broken.
The problems were visible from the outset. For example, neither Greece nor Italy's national finances were in a good enough condition to merit joining. But the greater ideal of a Eurozone prevailed over financial common sense. Economics gave way to politics, as it so often does. Proof, also, that creative accounting is not confined to dodgy public companies.
With the euro now under siege and the financial markets betting heavily that Greece's crushing debt could drag down the existing single currency system, it is possible that the world would actually be a better place without the Eurozone.
Just imagine: the main national currencies would still have their independence and command respect.
Admittedly, Italy and Greece would be suffering financial problems - which would have old sages sighing and saying they never much liked the lira or the drachma anyway, nor perhaps the Spanish peseta. But the rest of the world would get on as best it could.
But by having signed up a basket of dubious currencies, the Eurozone provided a classic example of how the weakness of one nation's finances can spread to another.
Of course, all this makes one wonder what sort of position Britain would be in now had we joined the Eurozone, as almost came to pass.
Tony Blair was keen, but Gordon Brown, warned off by some Treasury studies, argued it was a step too far. Had we become members, we would have lost our financial independence and would now be under the supervision of the European Central Bank.
If the Eurozone is wilting under its first real test, what does it say about the EU in general? No country has ever left, because politicians believe it gives them a much valued seat at the top table.
This explains why the euro has always been popular with politicians. But EU power has always been in proportion to its apparent economic strength. With that now waning as Europe frantically seeks a way out of its debt crisis, the EU will command less unity and less power.
Countries will divide between those who think that any sacrifice - especially a bail-out from Germany rather than their own drastic belt-tightening - is worthwhile to preserve the system and the great European plan.
Meanwhile, for Britain, membership of the EU has done nothing much more than spawn countless regulations which are part of a grand design to have the same laws, however futile, operating throughout all member countries.
I am convinced that no trade or other agreements have been achieved through EU membership which would not have been achieved through normal inter-government agreements.
By contrast, the costs of our EU membership remain both financially and politically high.
The costs would, of course, be even higher had we joined the Eurozone, as the EU enthusiasts wanted, and which would have meant that we, too, would be now involved in rescuing the Club Med and dreading the markets' harsh verdict on the euro.
Read more: http://www.thisismoney.co.uk/news/article.html?in_article_id=499338#ixzz0fUBSorlU
NYDN: NYC on the brink of an apartment foreclosure crisis
New York's neighborhoods on the brink -- again: How to stop an apartment building foreclosure crisis
By Emily Youssouf
Special to NYDailyNews.com
Friday, February 12th 2010, 10:08 AM
The foundation of New York City's housing system is cracking. The ownership arrangements supporting over 70,000 apartments citywide are on the verge of bankruptcy.
While the troubles of a few large complexes such as Starrett City and Riverton Houses have made the papers, they're just the tip of the iceberg: Hundreds of apartment buildings throughout the city are threatened by the prospect of foreclosure.
This could mean serious problems for ordinary New Yorkers. No, if you live in an apartment complex facing foreclosure, you won't get kicked out. But your maintenance complaints could start to go unaddressed. Your building will begin to deteriorate. Before you know it, you could be the resident of a wreck.
What's the cause of the problem? Subprime mortgages in the financial crisis. They didn't just infect single-family homes in Phoenix or luxury high-rises in Florida. Right here in New York, banks and real estate investors coveted apartment complexes that either had a significant number of rent-stabilized units or had recently exited the state's Mitchell-Lama program. Mortgages were negotiated and buildings were purchased based upon what we now know were unrealistic income projections.
Now the bad deals are coming home to roost. The properties aren't generating enough income to pay off the debts they owe to banks, and banks are reluctant to acknowledge these problems because of the potentially devastating impact of a write-down to their balance sheets.
To pull these deals back from the brink of bankruptcy, we need an aggressive program that encourages the banks behind the deals to tackle the problem now. If we don't, the consequence will be a chain reaction starting with deferred maintenance and ending in a 1970s-style neighborhood crisis, where blight could spread like a cancer.
We'd better get to work.
What's the solution? A group of New York City housing advocates has come up with a novel proposal that would use local, state and federal programs without adding to taxpayers' burdens. Here's how it would work. A bank with an inflated loan would split the loan into two pieces: A good loan, which the property's current income would support, and a bad loan, which would represent the excess loan the property's income could not support.
One of two federal programs created last year to deal with the financial crisis, TALF or PPIP, would purchase the good loan from the bank. To induce the purchase, the Federal Housing Administration, Fannie Mae, Freddie Mac or the state's or city's mortgage insurance companies could provide insurance.
The bad loan would only get paid off if there is excess cash available after paying debt service and all building expenses - so it wouldn't be a cinder block dragging down the entire apartment building as a whole. This would mean a write-down for the lending bank - but on an all-in basis less than if the loans were not broken into good and bad parts.
For this program to work, the city and state need federal cooperation to make the newly constituted "good loans" eligible for federal rescue money. Right now, those two federal programs only cover securitized loans, not whole loans of the sort we're discussing. Extending eligibility is a sensible step - and absolutely in the spirit of the law.
The benefits of the proposal are clear: it could be instituted quickly without new funding from taxpayers, it would soften the financial hit that banks will have to take and ultimately it would stop buildings from suffering a terrible blow. Policymakers should consider it - before New York City's neighborhoods become the next victim of the financial crisis.
Youssouf served as president of the New York City Housing Development Corp. from 2003 to 2007. She recently completed a consulting project for the Rockefeller Foundation and Partnership for New York City on this issue.
Read more: http://www.nydailynews.com/opinions/2010/02/12/2010-02-12_new_yorks_neighborhoods_on_the_brink__again.html#ixzz0fTnQreRb
eFinancial:Hedge funds could soon be mopping up prop trading talent
27 January 2010
Paul Clarke
eFinanancialCareers.uk
Assuming that bankers and politicians gathering in Davos this week don't manage to scupper the new Volcker Rule, hedge fund recruitment could be on the up in the near future.
If banks are no longer able to trade on their own account, or manage a hedge fund, there could be a rush of talent looking for new homes.
"While some will move to the larger hedge funds, because of the degree of experience and expertise these people have, many are already setting up their own businesses," says Jérôme de Lavenère Lussan, director of hedge fund consultancy Laven Partners. "These firms in turn will need to hire people – this is good news for hedge fund recruitment."
To some extent, Obama's crackdown could simply speed up the exodus of prop traders from investment banks. As Reuters reports, hedge funds have mopped up prop trading talent as banks shrink their activity in this area.
Assuming this flight continues, there could be some negative repercussions for pay, suggest David Durham, managing director of hedge fund search firm Durham Consultants.
"If the banks can no longer hold on to their prop traders, this talent would undoubtedly be queuing up to join hedge funds. In which case, the price of that talent would inevitably drop substantially," he says.
The UK's tougher regulatory stance is already driving investment bankers to other areas of the financial world. Headhunters Heidrick & Struggles have said they're being inundated with applications from bankers attempting to move to hedge funds and private equity firms.
Comments (2)
If talents leave to hedge funds, then sooner or later they will be regulated too. I think one day the financial industry will have to understand that there won't be any shelter and that the times when you could do whatever you want regardless of consequences as long as you get the bucks are over. This is good: performance don't need to put the whole system at risk to exist.
nickname 27 Jan 2010
RECOMMEND
@Nickname if hedgies and pirates start getting regulated they will just upsticks and move to a more tolerant, light regulation environment ( Switz, Dubai, Malta etc) There is no benefit in increasing regulation on P/E and HF's, How many hedgies and pirates got public money or bailed out??...0...It was the incompetent I-Bankers and retail bankers who were busy playing the markets that had to be saved.
ZLTE017 28 Jan 2010
http://news.efinancialcareers.co.uk/newsandviews_item/newsItemId-23430
BL: Goldman Sachs’s Spilker, Overseer of $871 Billion, Exits Firm
By Christine Harper and Bradley Keoun
Feb. 13 (Bloomberg) -- Goldman Sachs Group Inc. investment management co-head Marc Spilker is leaving the firm after two decades and will be replaced by a predecessor.
Spilker, 45, will turn over responsibilities at the end of February to Edward Forst, who rejoined the most profitable securities firm in Wall Street history in September from Harvard University, according to internal memorandums yesterday from Chief Executive Officer Lloyd Blankfein and President Gary Cohn.
The departing executive was on the firm’s management committee, whose members got year-end bonuses for 2009 in stock they can’t sell for five years instead of cash.
Spilker’s exit is the latest of a series of changes atop investment management, which accounts for less than 10 percent of the firm’s revenue. Spilker and Tim O’Neill were elevated to help run it in June 2008, when Forst, 49, left to oversee finances at Harvard, his alma mater, after less than a year at the division.
“There’s a history there of no one really running asset management for a long period of time,” said Henry Higdon, managing partner at recruitment firm Higdon Partners LLC in New York. “Have any of the leaders of the firm ever come from asset management? I don’t think so. They’re all from trading or investment banking.”
Winkelried’s Departure
Spilker’s departure comes less than six weeks after Goldman Sachs added Steven H. Strongin, global head of investment research, to the management committee. Including both Spilker and Strongin, there are 31 members of the committee. Goldman Sachs last lost a member of the committee on March 31, when Jon Winkelried, who had been co-president with Cohn, left after 27 years.
Investment management, which manages funds for institutions and wealthy individuals, is a smaller department at Goldman Sachs than investment banking and trading. The division’s 2009 revenue of $3.97 billion was about 8.8 percent of the firm’s revenue and was down 13 percent from 2008 as both management fees and incentive fees declined.
Three months before Forst left for Harvard, division co- head Peter Kraus departed after almost 22 years at the firm, later surfacing at Merrill Lynch & Co. to work with former Goldman Sachs colleague John Thain. Eric Schwartz, a previous co-head of the division, left Goldman Sachs in 2007 after 23 years.
Spilker, who earned an undergraduate degree from the University of Pennsylvania and a master’s degree in business from the university’s Wharton School, joined Goldman Sachs in 1990 and became a partner in 1996. Before joining the investment management division in 2006 as head of global alternative asset management, Spilker was responsible for U.S. equities trading and global equity derivatives. He previously ran fixed-income, currencies, and commodities in Japan and served as global head of foreign exchange options.
Hedgerow, Hedge Fund
Spilker will become a “senior director” of the firm, according to the memo. Senior directors serve in an advisory capacity and aren’t employees.
“Marc has made outstanding contributions throughout the firm and has mentored many colleagues who have developed into our important leaders,” Blankfein and Cohn said in the memo. Andrea Raphael, a spokeswoman, confirmed the memo’s contents.
Spilker made news in 2007 after a dispute with James Chanos, founder of New York-based hedge fund manager Kynikos Associates Ltd., over the location of a hedgerow on Chanos’s oceanfront estate in East Hampton. Spilker said the vegetation made a common path to the beach almost impassable and hired a contractor to move the shrubs. They stopped working after Chanos called the police.
Simmons
Separately, Goldman Sachs said yesterday that Ruth Simmons will leave the board of board of directors after 10 years because of “increasing time requirements” in her role as Brown University President.
Earlier this month, Brown University’s student newspaper, the Brown Daily Herald, published an interview with Simmons in which she discussed her role on Goldman Sachs’s board and the criticism the firm has received for paying billions of dollars in bonuses even after receiving taxpayer support in 2008. The firm’s $16.2 billion expense for compensation and benefits this year was enough to pay each employee $498,246. Simmons is on the firm’s compensation committee.
To contact the reporters on this story: Christine Harper in New York at charper@bloomberg.net; Bradley Keoun in New York at bkeoun@bloomberg.net.
Last Updated: February 13, 2010 00:00 EST
FT: UBS reels as private bank is hit by exodus
By Haig Simonian in Zurich
Published: February 10 2010 02:00 | Last updated: February 10 2010 02:00
UBS revealed yesterday it suffered a sharp acceleration of outflows from its once powerhouse private bank in the fourth-quarter, underlining the scale of the problems facing the Swiss banking group.
Net outflows from the private bank doubled to SFr33bn (£19.7bn) in the fourth quarter from the previous three months, bringing the total for 2009 to SFr90bn - an amount more than the size of most Swiss private banks.
Overshadowing a return to profitability by UBS, the withdrawals came after SFr107bn of outflows in 2008 and compared with invested assets at the end of December of SFr960bn. The outflows were swollen by the Italian tax amnesty and the sale of a Brazilian subsidiary, but UBS acknowledged staff defections and uncertainties about Swiss bank secrecy would hurt flows for some time.
Oswald Grübel, chief executive, said the tide would turn as clients and staff regained confidence in the bank because of restored profitability.
Net earnings amounted to SFr1.21bn in the fourth quarter, with profits boosted by a much lower accounting charge of SFr24m on the value of the bank's debt, and a SFr480m tax credit, as well as sharply lower costs. The fourth-quarter result compared with a SFr564m loss in the previous three months, and reduced the loss for 2009 to SFr2.74bn from SFr21.29bn the previous year. Group earnings were boosted by cost cuts and staff reductions. It paid out bonuses for group staff of SFr3bn in 2009. up from SFr1.7bn in 2008.
"The net new money was the most important figure in these results and at SFr33.2bn outflows it was far worse than expected," said Peter Thorne, analyst at Helvea, the Swiss broker.
The Italian tax amnesty alone triggered outflows of SFr22.8bn, although UBS retained SFr14.3bn within the group, vindicating its strategy of creating an "onshore" private banking network in neighbouring countries. However, net outflows from even core clients in Switzerland surged to SFr5.9bn compared with SFr3.9bn in the third quarter, although flows in Asia Pacific turned positive.
Pre-tax profits in private banking rose 40 per cent to SFr1.11bn, quarter on quarter, due to lower costs. Earnings before tax in investment banking were SFr297m, compared with a pre-tax loss of SFr1.37bn in the third quarter.
A shrinking balance sheet boosted UBS's tier one ratio - a key measure of capital strength - to 15.4 per cent at year end, compared with 15 per cent on September 30 and 11 per cent at the end of 2008. The core tier one ratio - excluding hybrid capital instruments - was 11.9 per cent. Total assets fell by 21 per cent year on year to SFr919bn, while total risk weighted assets fell by 32 per cent to SFr207bn.
See Lex www.ft.com/ubs
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http://www.ft.com/cms/s/0/fc7bd7a8-15e3-11df-b65b-00144feab49a.html
>>NY State looking to delay tax return payments
Posted: Feb 12, 2010 10:11 PM CST
Governor Paterson is considering a controversial plan to pay the state's bills, keeping your money a little longer.
His office is looking into the possibility of delaying tax refunds until June first in order to have more money on hand at the start of the next fiscal year, that adds up to about half-a-billion dollars.
The state does not have to pay interest on your money until 45-days after April 15th, so it is looking to keep it as long as possible. Assemblyman Tim Gordon says that is like an interest free loan to New York.
And he calls that simply wrong.
"I don't know if the governor is in touch with people across the state who go to the mail box hoping upon hope that the tax refund will be there so they can meet their committments, do grocery shopping, or many things for their families," Gordon said, "to find the check simply isn't there for no good reason."
The governor's office says this is just an option, and nothing is drawn up yet.
http://www.wten.com/Global/story.asp?S=11980190
UKT: African crops yield another catastrophe for the IPCC
One more alarming claim in the IPCC's 2007 report is disintegrating under closer examination, says Christopher Booker
By Christopher Booker
UK Telegraph
Published: 7:36PM GMT 13 Feb 2010
Comments 25 | Comment on this article
A farmer in the Maghreb in Morocco, where the IPCC claims that harvests could decline by half in the next decade Photo: ALAMY
Ever more question marks have been raised in recent weeks over the reputations of the UN's Intergovernmental Panel on Climate Change (IPCC) and of its chairman, Dr Rajendra Pachauri. But the latest example to emerge is arguably the most bizarre and scandalous of all. It centres on a very specific scare story which was included in the IPCC's 2007 report, although it was completely at odds with the scientific evidence – including that produced by the British expert in charge of the relevant section of the report. Even more tellingly, however, this particular claim has repeatedly been championed by Dr Pachauri himself.
Only last week Dr Pachauri was specifically denying that the appearance of this claim in two IPCC reports, including one of which he was the editor, was an error. Yet it has now come to light that the IPCC, ignoring the evidence of its own experts, deliberately published the claim for propaganda purposes.
One of the most widely quoted and most alarmist passages in the main 2007 report was a warning that, by 2020, global warming could reduce crop yields in some countries in Africa by 50 per cent. Dr Pachauri not only allowed this claim to be included in the short Synthesis Report, of which he was co-editor, but has publicly repeated it many times since.
The origin of this claim was a report written for a Canadian advocacy group by Ali Agoumi, a Moroccan academic who draws part of his current income from advising on how to make applications for "carbon credits". As his primary sources he cited reports for three North African governments. But none of these remotely supported what he wrote. The nearest any got to providing evidence for his claim was one for the Moroccan government, which said that in serious drought years, cereal yields might be reduced by 50 per cent. The report for the Algerian government, on the other hand, predicted that, on current projections, "agricultural production will more than double by 2020". Yet it was Agoumi's claim that climate change could cut yields by 50 per cent that was headlined in the IPCC's Working Group II report in 2007.
What made this even odder, however, was that the group's
co-chairman was a British agricultural expert, Dr Martin Parry, whose consultancy group, Martin Parry Associates, had been paid £75,000 by the Department for Environment, Food and Rural Affairs (Defra) for two reports which had come to totally different conclusions. Specifically designed to inform the IPCC's 2007 report, these predicted that by 2020 any changes were likely to be insignificant. The worst case they could come up with was that by 2080 climate change might decrease crop yields by "up to 30 per cent".
British taxpayers poured out money for the section of the IPCC report for which Dr Parry was responsible. Defra paid £2.5 million through the Met Office, plus £330,000 for Dr Parry's salary as co-chairman, and a further £75,000 to his consultancy for two more reports on the impact of global warming on world food supplies. Yet when it came to the impact on Africa, all this peer-reviewed work – including further expert reports by Britain's Dr Mike Hulme and Dutch and German teams – was ignored in favour of a prediction from one Moroccan activist at odds with his own cited sources.
However, the story then got worse when Dr Pachauri himself came to edit and co-author the IPCC's Synthesis Report (for which the IPCC paid his Delhi-based Teri institute, out of the £400,000 allocated for its production). Not only did Pachauri's version again give prominence to Agoumi's 50 per cent figure, but he himself has repeated the claim on numerous occasions since, in articles, interviews and speeches –such as the one he gave to a climate summit in Potsdam last September, where he boasted he was speaking "in the voice of the world's scientific community".
Only last week, in an interview available on YouTube, Dr Pachauri was asked about errors in the IPCC's 2007 report and his own Synthesis Report, with specific reference to the loss of North African crops. His reply was that – aside from the prediction that the IPCC has now had to disown, that Himalayan glaciers could vanish by 2035 – the reports contained "no errors". Passages such as those on African crops were "not errors and we are absolutely certain that what we have said over that can be substantiated".
In the wake of all the other recent scandals, "Africa-gate" may be the most damaging of all, because of the involvement of Dr Pachauri himself. Not only is the reputation of the IPCC in tatters, but that of its chairman appears irreperably damaged. Yet the world's politicians cannot afford to see him resign because, if he goes, the whole sham edifice they have sworn by would come tumbling down.
http://www.telegraph.co.uk/comment/columnists/christopherbooker/7231386/African-crops-yield-another-catastrophe-for-the-IPCC.html
TelegraphNews
Times London: World may not be warming, say scientists
Jonathan Leake
From The Sunday Times
Times of London
February 14, 2010
The United Nations climate panel faces a new challenge with scientists casting doubt on its claim that global temperatures are rising inexorably because of human pollution.
In its last assessment the Intergovernmental Panel on Climate Change (IPCC) said the evidence that the world was warming was “unequivocal”.
It warned that greenhouse gases had already heated the world by 0.7C and that there could be 5C-6C more warming by 2100, with devastating impacts on humanity and wildlife. However, new research, including work by British scientists, is casting doubt on such claims. Some even suggest the world may not be warming much at all.
“The temperature records cannot be relied on as indicators of global change,” said John Christy, professor of atmospheric science at the University of Alabama in Huntsville, a former lead author on the IPCC.
The doubts of Christy and a number of other researchers focus on the thousands of weather stations around the world, which have been used to collect temperature data over the past 150 years.
These stations, they believe, have been seriously compromised by factors such as urbanisation, changes in land use and, in many cases, being moved from site to site.
Christy has published research papers looking at these effects in three different regions: east Africa, and the American states of California and Alabama.
“The story is the same for each one,” he said. “The popular data sets show a lot of warming but the apparent temperature rise was actually caused by local factors affecting the weather stations, such as land development.”
The IPCC faces similar criticisms from Ross McKitrick, professor of economics at the University of Guelph, Canada, who was invited by the panel to review its last report.
The experience turned him into a strong critic and he has since published a research paper questioning its methods.
“We concluded, with overwhelming statistical significance, that the IPCC’s climate data are contaminated with surface effects from industrialisation and data quality problems. These add up to a large warming bias,” he said.
Such warnings are supported by a study of US weather stations co-written by Anthony Watts, an American meteorologist and climate change sceptic.
His study, which has not been peer reviewed, is illustrated with photographs of weather stations in locations where their readings are distorted by heat-generating equipment.
Some are next to air- conditioning units or are on waste treatment plants. One of the most infamous shows a weather station next to a waste incinerator.
Watts has also found examples overseas, such as the weather station at Rome airport, which catches the hot exhaust fumes emitted by taxiing jets.
In Britain, a weather station at Manchester airport was built when the surrounding land was mainly fields but is now surrounded by heat-generating buildings.
Terry Mills, professor of applied statistics and econometrics at Loughborough University, looked at the same data as the IPCC. He found that the warming trend it reported over the past 30 years or so was just as likely to be due to random fluctuations as to the impacts of greenhouse gases. Mills’s findings are to be published in Climatic Change, an environmental journal.
“The earth has gone through warming spells like these at least twice before in the last 1,000 years,” he said.
Kevin Trenberth, a lead author of the chapter of the IPCC report that deals with the observed temperature changes, said he accepted there were problems with the global thermometer record but these had been accounted for in the final report.
“It’s not just temperature rises that tell us the world is warming,” he said. “We also have physical changes like the fact that sea levels have risen around five inches since 1972, the Arctic icecap has declined by 40% and snow cover in the northern hemisphere has declined.”
The European Centre for Medium-Range Weather Forecasts has recently issued a new set of global temperature readings covering the past 30 years, with thermometer readings augmented by satellite data.
Dr Vicky Pope, head of climate change advice at the Met Office, said: “This new set of data confirms the trend towards rising global temperatures and suggest that, if anything, the world is warming even more quickly than we had thought.”
Surface temperature records: policy driven deception? - a report by Joseph D’Aleo and Anthony Watts
http://www.timesonline.co.uk/tol/news/environment/article7026317.ece
Guardian: Climate scientists admit fresh error over data on rising sea levels
Latest embarrassment comes as key sceptic Benny Peiser backs down in row over fabricated quote
Robin McKie, science editor
The Observer, Sunday 14 February 2010
Climate experts have been forced to admit another embarrassing error in their most recent report on the threat of climate change.
In a background note – released by the Intergovernmental Panel on Climate Change (IPCC) last night – the UN group said its 2007 report wrongly stated that 55% of the Netherlands lies below sea level. In fact, only 26% of the country does. The figure used by the IPCC included all areas in the country that are prone to flooding, including land along rivers above sea level. This accounts for 29% of the Dutch countryside.
"The sea-level statistic was used for background information only, and the updated information remains consistent with the overall conclusions," the IPCC note states. Nevertheless, the admission is likely to intensify claims by sceptics that the IPCC work is riddled with sloppiness.
The disclosure will intensify divisions between scientists and sceptics over the interpretation of statistics and the use of sources for writing climate change reports, disagreements that have led to apologies being made by both sides of the debate. Last week a key climate-change sceptic apologised for alleging that one of the world's leading meteorologists had deliberately exaggerated the dangers of global warming.
In an email debate in the Observer, Benny Peiser, head of the UK Global Warming Policy Foundation, quoted Sir John Houghton, the UK scientist who played a key role in establishing the IPCC, as saying that "unless we announce disasters, no one will listen".
But in a letter to the Observer, Houghton said: "The quote from me is without foundation. I have never said it or written it. Although it has spread on the internet like wild fire, I do not know its origin. In fact, I have frequently argued the opposite, namely that those who make such statements are not only wrong but counterproductive."
Houghton said he was incensed because he believed the quote attributed to him, and to the IPCC, an attitude of hype and exaggeration and demanded an apology from Peiser.
For his part, Peiser told the Observer that he welcomed the clarification. "For many years, the Houghton 'quote' has been published in numerous books and articles. I took Sir John's failure to challenge it hitherto as a tacit admission that the 'quote' was accurate and reflected his view on climate policy. Now that he has publicly disowned the statement, I will certainly refrain from using it."
Houghton's "quote" has become one of the most emblematic remarks supposed to have been made by a mainstream scientist about global warming, and appears on almost two million web pages concerned with climate change. The fact that it now turns out to be fabricated has delighted scientists.
"We do not over-egg the pudding when it comes to the evidence about global warming – and I hope people will now appreciate this point," said Alan Thorpe, head of the Natural Environment Research Council.
http://www.guardian.co.uk/environment/2010/feb/14/benny-peiser-houghton-ipcc-apology
>>Nevada Governor on Obama's Vegas Gaffe
Thursday , February 04, 2010
This is a rush transcript from "Your World With Neil Cavuto," February 3, 2010. This copy may not be in its final form and may be updated.
(BEGIN VIDEO CLIP)
PRESIDENT BARACK OBAMA: When times are tough, you tighten your belts. You don’t go buying a boat when you can barely pay your mortgage. You don’t blow a bunch of cash on Vegas when you’re trying to save for college. You prioritize. You make tough choices.
(END VIDEO CLIP)
NEIL CAVUTO, HOST: Whoops, he did it again. President Obama bashing Vegas again. He’s already apologized to Senate Majority Leader Harry Reid, who, of course, is from Nevada.
But he didn’t apologize to my next guest, who I think he hates. He is sending a letter to tell the president to cool it with the attacks on Sin City, as it’s known.
Nevada Governor Jim Gibbons joins me right now.
Governor, man, oh, man, if — if there were any doubt about what this guy thinks of you, I think he just proved it there. He didn’t even apologize to you.
GOV. JIM GIBBONS R-NEV.: He didn’t.
And, Neil, he needs to do more than just issue an apology. This is the second time he has dumped on Las Vegas. Every time this president’s words are spoken, people listen. We lost hundreds of millions of dollars, over 400 convention and business meetings, the first time.
I have lost my sense of humor about this. It is no longer funny. It is not acceptable. I notice that there are 48 states in this country that have some form of gaming or lottery or whatever. He did not dis on any of those cities, including Chicago, Illinois.
So, when it comes to Las Vegas, this is disgraceful. It’s tasteless, it’s thoughtless. Nevada has the second highest unemployment.
CAVUTO: But do you think, Governor, that he wasn’t personally trying to slight you or his buddy Harry Reid, who he presumably likes a lot more; he was just saying look, Vegas, many people — you know, I know, obviously, Vegas has many draws...
GIBBONS: Not in the least. I mean, this guy...
CAVUTO: ... but that he’s saying you don’t want to blow money you don’t have? That’s what he’s saying.
GIBBONS: Well, you know, the principle is OK. But don’t single out Las Vegas.
What — what bothers me is, is that, you know, this guy is a very, very articulate speaker. Maybe he needed a teleprompter or something for what he was saying. But he obviously insulted every Nevadan by what he said.
We have jobs, families. We live here. This is an economy that is struggling. We’re second highest in the nation in unemployment. Don’t put an added burden on top of all of that by what you say, telling people not to show up. That’s an insult. I’m not going to accept an apology.
CAVUTO: Now, did Harry Reid condemn him? Did Harry Reid say, you know, you did it again, Mr. President, or anything?
GIBBONS: Well, basically, that’s what a he said. He said, stop picking on Las Vegas.
And, believe me, stop picking on Las Vegas is innocent enough, but when — this is not the first time. If this were the first time, I could understand that. This is not. We made a big deal — and I made it on your show — about the last time this president picked on Las Vegas.
We have had it. We’re done. This is a state that is suffering dramatically. Families are hurting. Do not add to that burden.
CAVUTO: Are things picking up, though? Are you off the mat, so to speak? I mean, some of the numbers I see — and I get them from the various cities and all – they’re – they’re looking better than they were.
(CROSSTALK)
GIBBONS: Well, they are, but it — this is not enough to get us out of the slump that we have been in.
CAVUTO: Yes.
GIBBONS: My gosh, after — six months after the legislative session, we’re about $1 billion short, $900 million short, of making the revenue for state-needed expenditures. We are going to have to call a special session. We’re going to have to go in, cut the budget.
It does not help this state to denigrate the tourism industry. That’s our number-one industry.
CAVUTO: All right.
http://www.foxnews.com/story/0,2933,584815,00.html
CSM: Nevada politicians slam Obama's Vegas comment
Nevada politicians, including Democratic Sen. Harry Reid, took umbrage at President Obama's comments about Las Vegas at a town hall meeting this week.
By Michael B. Farrell Staff writer / February 3, 2010
San Francisco
When President Obama travels to Nevada later this month to stump for embattled Senate majority leader Harry Reid, he’s likely to get the cold shoulder in Las Vegas.
Obama rubbed quite a few Nevadans the wrong way Tuesday when he suggested rolling the dice on the Vegas Strip wasn’t the wisest move “when you’re trying to save for college. You prioritize. You make tough choices. It's time your government did the same."
Perhaps that’s not such bad advice. After all, who would suggest gambling with your college tuition?
But the comment didn’t sit well in a city that banks on tourists coming to “blow a bunch of cash,” as Obama put it at a New Hampshire town hall meeting. Nevada has the second highest unemployment rate in the country (13 percent) and the highest foreclosure rate. The gaming and convention industries have been hit hard, too.
Annual gaming revenues are down 11 percent overall, although the Las Vegas Review-Journal recently reported that casinos saw an increase in November for the first time since December 2007, with winnings totaling $873.2 million.
Senator Reid, who faces a tough reelection bid and sagging ratings, criticized the comment.
"The President needs to lay off Las Vegas and stop making it the poster child for where people shouldn't be spending their money," he said in a statement.
Obama was quick to offer this apology to Reid, one of his chief political allies in Congress.
"I hope you know that during my town hall today, I wasn't saying anything negative about Las Vegas. I was making the simple point that families use vacation dollars, not college tuition money, to have fun. There is no place better to have fun than Vegas, one of our country's great destinations,” he wrote in a letter to the senator.
Obama's comments are unlikely to help Reid, whose favorability rating sank to 31 percent in a recent Rasmussen poll.
This isn’t the first time that Obama has taken heat from Nevadans over a comment about Vegas. Last year he said bankers who take government bailouts “can't take a trip to Las Vegas or down to the Super Bowl on the taxpayers' dime.”
That time, Las Vegas Mayor Oscar Goodman asked for an apology and sent the president letter, saying his comments were “harmful to the meetings and convention industry as a whole and Las Vegas specifically."
This time, Mayor Goodman took the gloves off. "I want to assure you when he comes I will do everything I can to give him the boot back to Washington and to visit his failures back there,” he said at a press conference, according to the Las Vegas Review-Journal.
“Unfortunately, I think that [Obama] has failed to grasp the weight that his words carry,” said Sen. John Ensign (R) of Nevada, in a statement.
“As a result of his irresponsible comment just last year, countless companies and federal agencies canceled their conventions at Las Vegas hotels, costing these hotels and our city millions of dollars. Once again, he has threatened the struggling economy of Las Vegas.”
But Hugh Jackson, the progressive blogger behind the website Las Vegas Gleaner, questions the connection between Obama’s comments last year, which were about bankers taking tax payer-funded trips to Vegas, and the city’s economy.
“What has hurt the economy of Las Vegas has been the near collapse of key components of the American economy,” says Mr. Jackson. “Anyone to assign that particular weight [to Obama's comments] is just trying to score a cheap political point.”
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http://www.csmonitor.com/USA/Politics/2010/0203/Nevada-politicians-slam-Obama-s-Vegas-comment
GAMING RECESSION: Gaming revenues fall by biggest percentage ever
Figures add up to biggest two-year percentage drop ever
GAMING TAXES DECLINE
Nevada collected $35.5 million in gaming taxes based on December's casino revenues, the Gaming Control Board reported Thursday.
The figure was a 6.7 percent decline compared with $35.8 million in gaming taxes collected in the same month of 2008.
For the first seven reporting months of the fiscal year, gaming tax collections are $346.6 million, a 5.25 percent decline from the previous fiscal year.
LAS VEGAS REVIEW-JOURNAL
OMFG! It's taking me forever to open any post, but I had to read this one
HAHAHAH
thanks for the laugh