Gallimaufry

There’s one factor that, as much as anything else, determines how many medicines are invented, what diseases they treat, and, to an extent, what price patients must pay for them: the cost of inventing and developing a new drug, a cost driven by the uncomfortable fact than 95% of the experimental medicines that are studied in humans fail to be both effective and safe.

A new analysis conducted at Forbes puts grim numbers on these costs. A company hoping to get a single drug to market can expect to have spent $350 million before the medicine is available for sale. In part because so many drugs fail, large pharmaceutical companies that are working on dozens of drug projects at once spend $5 billion per new medicine.

“This is crazy. For sure it’s not sustainable,” says Susan Desmond-Hellmann, the chancellor at UCSF and former head of development at industry legend Genentech, where she led the testing of cancer drugs like Herceptin and Avastin. “Increasingly, while no one knows quite what to do instead, any businessperson would look at this and say, ‘You can’t make a business off this. This is not a good investment.’ I say that knowing that this has been the engine of wonderful things.”

A 2012 article in Nature Reviews Drug Discovery says the number of drugs invented per billion dollars of R&D invested has been cut in half every nine years for half a century. Reversing this merciless trend has caught the attention of the U.S. government. Francis Collins, the director of the National Institutes of Health, in 2011 started a new National Center for Advancing Translational Medicine to remove the roadblocks that keep new drugs from reaching patients.

“One point your numbers tell you is how horrendous the failure rate is and how that causes the cost of success to be so much higher,” says Collins. “We would love to contribute to making that failure rate lower, to identifying those bottlenecks and to trying to reengineer the pipeline so if failures happen, they happen very early and not in later stages where the costs are higher.”

The good news is that a close look at the data we collected provides some hints as to how to improve the industry’s hit rate – and how individual companies, without lowering the overall cost of developing a drug, can at least reduce their own expenses. Some companies – like Bristol-Myers Squibb, Regeneron Pharmaceuticals, and Aegerion – do far better than their peers.

Fighting The Law Of Averages
Where do my estimates come from? Using data from the Innothink Center for Research in Biomedical Innovation, I tabulated the number of brand new drugs launched by 98 publicly traded biotechnology and drug companies over the past decade. Then, using FactSet Systems, I tallied each company’s research and development spending over the ten years preceding their most recent drug approval. Then I divided the second number by the first. (Again, the whole list and methodology is here.)

Sixty-six of the 98 companies studied launched only one drug this decade. The costs borne by these companies can be taken as a rough estimate of what it takes to develop a single drug. The median cost per drug for these singletons was $350 million. But for companies that approve more drugs, the cost per drug goes up – way up – until it hits $5.5 billion for companies that have brought to market between eight and 13 medicines over a decade.





Number of drugs approved.... R&D cost per drug ($MIL) Median Mean
8 to 13 $5,459 $5,998
4 to 6 $5,151 $5,052
2 to 3 $1,803 $2,303
1 $351 $953
Sources: Innothink Center For Research In Biomedical Innovation; FactSet Systems.

Why? For every small company that succeeds, there are many more that fail. A big pharmaceutical company carries that weight of failure, with both its successes and its failures on the books.

Why Does Big Pharma Spend So Much?
Some caveats, though: drug companies have tax incentives to count costs in research and development, which could inflate the figure; they also are likely to spend extra money in order to get those medicines approved in other countries. Even more important is the fact that some R&D costs come from monitoring the safety of medicines after they become hits to monitor reports of side effects. “Our safety infrastructure is close to 1,000 people,” says Paul Stoffels, the co-chairman of pharmaceuticals at Johnson & Johnson, which had the most new drugs approved and spent $5.2 billion per drug. “That is a whole biotech company and it is also part of our R&D budgets.”

Also, a small company cannot spend enough to pay for a $1 billion-plus program for a heart drug, as Pfizer, Roche, and J&J have, or for an Alzheimer’s medicine. But if such a drug succeeds, the payoff can be enormous – see Pfizer’s Lipitor, which is now generic but which had annual sales of $11 billion. Bigger drugs can be more expensive to develop.





10 Year R&D Spending ($MIL)... R&D Spending Per Drug ($MIL)
Median/Mean
>$20,000 $6,348 $6,632
>$5,000 $2,883 $2,961
>$2,000 $1,917 $2,480
>$1,000 $1,459 $741
Sources: Innothink Center For Research In Biomedical Innovation; FactSet Systems

Size has a cost. The data support the idea that large companies may be spend more per drug than small ones. Companies that spent more than $20 billion in R&D over the decade spent $6.3 billion per new drug, compared to $2.8 billion for those that had budgets of between $5 billion and $10 billion. Some CEOs, notably Christopher Viehbacher at Sanofi, have faced low R&D productivity in part by cutting the budget. This may make sense in light of this data. But it is worth noting that the bigger firms brought twice as many drugs to market. It still could be that the difference between these two groups is due to smaller companies not bearing the full financial weight of the risk of failure.

Clear Winners
Among big pharmaceutical companies, there is a clear standout: Bristol-Myers, which under former research chief Elliott Sigal focused on understanding human genetics and using the immune system as a weapon against cancer. The result has been 9 drug approvals, including Yervoy for melanoma and Orencia for rheumatoid arthritis, at a per drug cost of just $3.4 billion, half that of Eli Lilly or Pfizer. “Look at what he accomplished,” says Desmond-Hellmann. “Holy cow.”

J&J, Novo-Nordisk, and Amgen also perform well, as do smaller companies like Regeneron, Gilead, and Biogen Idec.

One common mistake is allowing projects to linger on when the odds of success have become low, says Roger Perlmutter, who ran Amgen’s R&D and is now doing the same thing at Merck. Another problem, he argues, is CEOs believing they can order up another drug like their last big hit, instead of following the science.

“Great drugs build great franchises, but great franchises don’t necessarily build great drugs,” Perlmutter says. “If you are too prescriptive with your R&D, you can spend an awful lot of money and not be terribly productive because there may actually not be any new mechanisms that you can get to right now that will help you in a particular disease area.”

Another successful strategy is to focus on ultra-rare diseases; treatments for such ailments can cost $200,000 or more per patient per year, and be highly lucrative. But these drugs don’t seem to eat up much in the way of R&D money. Genzyme, bought by Sanofi for $20 billion in 2011, spent $963 million per new drug. Alexion, the biggest stand-alone orphan drug maker,spent $490 million in R&D in the decade before its drug was approved; BioMarin, another orphan drug maker, spent just $134 million per drug.

The Power Of ‘Who Pays?’
But reducing how much it costs to develop a new drug isn’t the only way to reduce a company’s cost. Another method: get somebody else to pay.

Many biotechnology companies benefit from deals in which a big pharma partner does some of the heavy lifting, for instance designing and running big clinical trials to prove a drug’s worth. But small companies have also benefited by adopting drugs that were abandoned by the companies that invented them. Cubist Pharmaceuticals spent $220 million in R&D before its antibiotic, hit the market. But the drug, Cubicin, was invented at Eli Lilly, which put significant resources into developing it before abandoning it. Aegerion last year launched a new heart drug for patients with a rare genetic disease that causes super-high cholesterol; it had originally been developed by Bristol for heart patients, but abandoned because of side effects. Aegerion’s R&D cost to get over the goal line? Just $74 million. The total cost spent on the medicine may have been triple that.

Philanthropies like the Michael J. Fox Foundation and the Multiple Myeloma Research Foundation now commonly use the strategy of bearing early research costs to get pharma interested. In the most visible example, the Cystic Fibrosis Foundation paid for the early development of a medication against that disease, a lethal lung ailment, at Vertex Pharmaceuticals. The result: a rare disease drug, Kalydeco, that is effective in patients whose CF is caused by a specific genetic mutation. Kalydeco costs $294,000 per patient per year.

The NIH is consciously imitating this approach. Collins, the NIH director, put former Merck scientist Christopher Austin in charge of his translational medicine institute and empowered him to fund further academic development of drugs that Big Pharma had abandoned, this time trying to find new uses for them. The idea is to improve the hit rate. Robert Beall, the CF Foundation’s chief executive, warned them to think hard about whether they would try to limit the price of any drugs that result. Collins says that’s impossible. “It’s a non-starter,” says Collins. “Attaching government influence on the ultimate pricing is a way to kill the whole field.”

A Political Minefield
There is a long history of political controversy around drug industry claims about the expense of developing new medicines. Pharmaceutical companies have defended the prices of their drugs by pointing to past estimates of the cost of developing a new medicine. Most of these estimates, which took a bottom-up approach of estimating each step in the drug development process, came in far below the numbers I’m using here.

But this argument always had a sense of ridiculousness to it; it only works up to a point. A diamond might get more valuable if the path of transporting it to its eventual buyer were fraught with danger, but a lump of coal would not. At some point, drugs have to justify their own value. The cost of inventing medicines has become not a defense but an albatross; if costs don’t come down, drug companies are in trouble.

Luckily, there are signs of hope. The Food and Drug Administration seems to be approving more drugs, even working with companies to help remove red tape and speed drugs for particularly serious diseases to market. And new technologies offer hope. Stem cells may allow for better safety testing of drugs, DNA sequencing for faster ways of figuring out what drugs to try to make. Collins, at the NIH, talks about developing organs in the lab that could be used for testing experimental medicines. Many companies are very consciously trying to remake and rejuvenate their R&D laboratories.

Then again, a lot of technologies have come and gone in the drug industry, often with the promise of lowering the cost of inventing a medicine. Yet the cost has gone up regardless.

“There are so many ways to fail that you always feel that you’re ascending the steep part of the learning curve,” says Perlmutter. “You keep finding more and more ways of making mistakes that ultimately result in having to spend a lot of money and not getting products out.”



http://www.forbes.com/sites/matthew...-new-drugs-is-shaping-the-future-of-medicine/

Click to expand...

• Tuesday 9/10/13...........................Three sets of doubles ( 4-6, 3-6, 2-3).....................165½ pounds
• Wednesday 9/11/13.......................Bicycle 39 miles in 3½ hours..................................(JTS) ~11.2 mph
  ...................................................Two sets of doubles ( 6-4, 6-0 ).............................97° 165 pounds
• Thursday 9/12/13..........................Three sets of doubles ( 6-3, 6-2, 6-3 )....................164½ pounds
• Saturday 9/14/13...........................Run 3.78 miles....................................................164½ pounds
• Tuesday 9/17/13...........................Three sets of doubles (1-6, 2-6, 4-6)
• Thursday 9/19/13..........................Three sets of doubles ( 6-4, 6-2, 4-0)
• Friday 9/20/13..............................Two sets of doubles ( 6-2, 4-6, 6-4 ).......................Rick & John v. LSM/__@ BCC
• Saturday 9/21/13...........................Run 3.85 miles in 34:41
• Sunday 9/22/13.............................Two sets of singles ( 5-7, 6-1 )...............................RC
• Monday 9/23/13.............................Bicycle 27.4 miles.................................................Monk to N.F.
• Tuesday 9/24/13............................One set of doubles (4-6), one set of singles (6-3)......LSM
• Thursday 9/26/13...........................Two sets of doubles ( 6-4, 4-6 )
• Friday 9/27/13...............................Three sets of doubles ( 7-1, 5-3, 2-6 )....................=14/3=5
• Sunday 9/29/13..............................Run 3.78 miles....................................................164 pounds
• Monday 9/30/13.............................Bicycle 66.6 miles................................................W.H. to Y. to Monk to W.H.
• Tuesday 10/1/13............................Two sets of doubles ( 1-6, 4-6), one set of singles (6-3)
• Wednesday 10/2/13........................Two sets of singles ( 6-1, 6-0)
  ...................................................Run 3.85 miles in 33:22.........................................163 pounds
• Thursday 10/3/13...........................Three sets of doubles ( 4-6, 6-2, 4-4 )
• Friday 10/4/13................................Three sets of doubles ( 3-5, 8-0, 6-2 )...................=17/3=6
  ...................................................Two sets of doubles ( 4-6, 4-6 )
• Sunday 10/6/13..............................Two sets of singles ( 6-1, 2-6 ).............................RC
• Monday 10/7/13..............................25 minutes@ Level 12..........................................3.30 miles ( full session— 9:42 for 2,000 meters, maximum pulse 151, 167 pounds, elapsed time 1:15 )
• Tuesday 10/8/13.............................Three sets of doubles ( 2-6, 3-6, 6-1 )..................166 pounds
• Friday 10/11/13...............................Three sets of doubles ( 6-2, 4-4, 5-3 )...................=15/3=5
  ....................................................1½ hours of singles ARU
• Sunday 10/13/13..............................20 minutes on the treadmill..................................1.80 miles
• Monday 10/14/13.............................Three sets of doubles (6-2, 6-2, 6-7 )....................RB, JP, LSM
• Tuesday 10/15/13............................Five games of singles and two sets of doubles ( 3-2, 6-4, 5-6)
• Wednesday 10/16/13........................Bicycle 66.6 miles...............................................(Monk-Y)
• Thursday 10/17/13...........................Two sets of doubles ( 6-3, 6-4 )
• Friday 10/18/13...............................Three sets of doubles ( 7-1, 6-2, 5-3 )...................=18/3=6
• Sunday 10/20/13..............................Run 3.78 miles (62°-long sleeves).........................( upper body session, 9:42 for 2,000 meters, 165½ pounds, elapsed time 0:50 )
• Tuesday 10/22/13............................Three sets of doubles ( 6-2, 5-7, 4-4 )
• Thursday 10/24/13...........................Three sets of doubles ( 6-2, 6-2, 5-4 )
• Friday 10/25/13...............................Three sets of doubles ( 7-1, 3-5, 7-1)....................=17/3=6
• Sunday 10/27/13..............................Run 6.8 miles (Paper Mill-Spks)..............................163½ pounds, 59° turtleneck
• Monday 10/28/13.............................Two sets of singles ( 2-6, 7-5 ).............................S.U. (I played well when I actually watched the damn ball )
• Tuesday 10/29/13............................Three sets of doubles ( 6-3, 6-3, 4-1 )
• Thursday 10/31/13...........................Three sets of doubles ( 6-4, 6-1, 6-1 )
• Friday 11/1/13.................................Three sets of doubles ( 6-2, 7-1, 6-2 )..................=19/3=6
• Monday 11/4/13...............................Two sets of singles ( 0-6, 5-7 )............................S.U. (typical pattern, I was up 5-2 and quit )
• Wednesday 11/6/13..........................Run 3.78 miles...................................................165 pounds, 65°
• Friday 11/8/13.................................Three sets of doubles ( 3-5, 7-1, 7-1 )..................=17/3=6
• Saturday 11/9/13.............................32:03 minutes on the treadmill..............................3.02 miles
• Monday 11/11/13.............................22:00 minutes on the treadmill..............................2.00 miles, 166 pounds
• Tuesday 11/12/13............................Three sets of doubles ( 1-6, 6-1, 3-3 )
• Sunday 11/17/13.............................32:03 minutes on the treadmill..............................2.80 miles
  ......................................................Run 3.78 miles....................................................6.6 mile total, 165 pounds
• Monday 11/18/13.............................Bicycle 39.1 miles...............................................Bent-Tunnel
• Tuesday 11/19/13............................Three sets of doubles ( 0-6, 6-4, 6-3 )
• Thursday 11/21/13...........................Three sets of doubles ( 7-5, 6-4, 6-4 )
• Friday 11/22/13................................Three sets of doubles ( 5-3, 4-4. 5-3 )..................=14/3=5
• Monday 11/25/13..............................1½ hours of singles-RC
• Tuesday 11/26/13.............................25 minutes@ Level 12..........................................3.28 miles ( full session— 9:50 for 2,000 meters, maximum pulse 145, 168 pounds, elapsed time 1:20 )
• Wednesday 11/27/13.........................33:08 minutes on the treadmill.............................3.09 miles, 167½ pounds
• Thursday 11/28/13............................Walk 3.78 miles
• Friday 11/29/13................................Three sets of doubles ( 3-5, 7-1, 6-2 )..................=16/3=5
• Saturday 11/30/13............................32:50 minutes on the treadmill.............................3.03 miles
• Tuesday 12/3/13...............................One set of doubles ( 10-8 )
• Wednesday 12/4/13...........................Three sets of singles ( 6-1, 6-0, 4-6 )....................BB
• Thursday 12/5/13..............................Three sets of doubles (4-6, 2-6, 6-2 )
• Friday 12/6/13..................................Three sets of doubles ( 4-4, 6-2, 5-3 )...................=15/3=5
• Sunday 12/8/13................................Three sets of singles ( 6-3, 6-2, 0-6 ).....................RV
• Monday 12/9/13................................32:55 minutes on the treadmill..............................3.06 miles, 166½ pounds
• Tuesday 12/10/13.............................Three sets of doubles ( 6-3, 4-6, 3-1 )
• Thursday 12/12/13............................Three sets of doubles ( 6-0, 6-4, 4-6 )
• Friday 12/13/13................................Three sets of doubles ( 3-5, 6-2, 6-2 )...................=15/3=5
• Monday 12/16/13..............................32:10 minutes on the treadmill.............................3.03 miles, 168½ pounds
• Tuesday 12/17/13.............................Two sets of doubles ( 6-2, 5-7 )............................9,330 steps=5.29 miles
• Wednesday 12/18/13.........................One set of singles ( 6-6 ).....................................with the grandson "Jeff" USN Mobile Bay of Frank Wms, damn kid is good but rusty
  .......................................................Two sets of doubles ( 2-6, 6-4 )............................Laurie Levi*etas, Virginia Va*hid, Key
• Thursday 12/19/13............................Three sets of doubles ( 6-4, 6-0, 3-6 )
• Friday 12/20/13................................Three sets of doubles ( 8-0, 8-0, 7-1 )...................=23/3=8 Dayum
• Saturday 12/21/13............................Run 3.78 miles...................................................167½ pounds, 71°
• Sunday 12/22/13..............................25 minutes@ Level 12.........................................3.31 miles ( full session— 9:48 for 2,000 meters, maximum pulse 151, 168 pounds, elapsed time 1:20 )
• Monday 12/23/13..............................Three sets of doubles ( 6-2, 6-4, 2-6 )..................Patrick/LSM v. RC/
• Tuesday 12/24/13.............................15:00 minutes on the treadmill............................1.30 miles, 168 pounds
• Wednesday 12/25/13.........................Walk 3.78 miles
• Thursday 12/26/13............................Two sets of doubles ( 5-7, 2-6 )...........................8,414 steps=4.77 miles (Peter French)
• Friday 12/27/13................................Three sets of doubles ( 5-3, 6-2, 7-1 )..................=18/3=6
• Saturday 12/28/13............................Run 3.78 miles...................................................167½ pounds, 59°
• Monday 12/30/13..............................25 minutes@ Level 12.........................................3.20 miles ( full session— 9:48 for 2,000 meters, maximum pulse 151, 169½ pounds, elapsed time 1:20 )
• Wednesday 1/1/14.............................Three sets of doubles ( 4-4, 5-3, 5-3 )
• Thursday 1/2/14................................Three sets of doubles ( 3-6, 6-3, 2-2 )
• Friday 1/3/14....................................Two sets of singles, one set of doubles ( 6-1, 6-2, 6-1 )
• Saturday 1/4/14................................33:00 minutes on the treadmill.............................3.09 miles, 167 pounds
• Tuesday 1/7/14.................................Three sets of doubles ( 6-3, 7-5, 4-1 )
• Wednesday 1/8/14.............................25 minutes@ Level 12.........................................3.36 miles ( full session— 9:41 for 2,000 meters, maximum pulse 141, 170 pounds, elapsed time 1:20 )
• Thursday 1/9/14................................Three sets of doubles ( 5-7, 2-6, 6-1 )
• Friday 1/10/14..................................Three sets of doubles ( 5-3, 7-1, 5-3 )...................=17/3=6 Winner of 1st Half- 90 Points
• Saturday 1/11/14..............................32:33 minutes on the treadmill.............................3.05 miles, 169 pounds
• Sunday 1/12/14................................25 minutes@ Level 12..........................................3.44 miles ( full session— 9:34 for 2,000 meters, maximum pulse 153, 167½ pounds, elapsed time 1:20 )
• Monday 1/13/14................................31:50 minutes on the treadmill.............................3.02 miles, 168½ pounds
• Wednesday 1/15/14...........................Three sets of singles ( 6-1, 6-3, 6-2 )....................BB
• Thursday 1/16/14..............................Three sets of doubles ( 9-7, 6-2, 3-1 )
• Friday 1/17/14..................................Three sets of doubles ( 6-2, 7-1, 5-3 )...................=18/3=6
• Saturday 1/18/14..............................18:45 minutes on the treadmill.............................1.86 miles
• Sunday 1/19/14.................................4 mile walk with JB
  ........................................................Three sets of doubles ( 3-6, 2-6, 6-2)
• Monday 1/20/14.................................Two sets of singles ( 3-6, 3-3 ).............................S.U., suspect stamina
• Tuesday 1/21/14................................Walk 3.78 miles in the blizzard
• Wednesday 1/22/14............................25 minutes@ Level 12.........................................3.22 miles ( full session— 9:47 for 2,000 meters, maximum pulse 144, 170 pounds, elapsed time 1:20 )
• Thursday 1/23/14..............................Three sets of doubles ( 1-6, 6-2, 6-1 )
• Friday 1/24/14..................................Three sets of doubles ( 7-1, 1-7, 3-5 )...................=11/3=4 I played like sh*t
• Saturday 1/25/14..............................33:10 minutes on the treadmill..............................3.10 miles, 169 pounds
• Monday 1/27/14................................Three sets of doubles ( 6-2, 6-2, 6-1)
• Tuesday 1/28/14................................Three sets of doubles ( 2-6, 6-3, 4-0 )
• Wednesday 1/29/14...........................25:00 minutes on the treadmill..............................2.22 miles, 172 pounds
• Thursday 1/30/14..............................Two sets of doubles ( 8-10, 5-2 )
• Friday 1/31/14..................................Three sets of doubles ( 5-3, 6-2, 6-2 )....................=17/3=6
• Saturday 2/1/14................................Walk 3½ miles
• Sunday 2/2/14..................................25:00 minutes on the treadmill..............................2.46 miles, 168 pounds
• Monday 2/3/14..................................Lesson (BG)
• Wednesday 2/5/14.............................Lesson (CR)
• Thursday 2/6/14................................Lesson (BG)
  .......................................................Three sets of doubles ( 3-5, 4-6, 2-6 )
• Friday 2/7/14....................................Three sets of doubles ( 4-4, 5-3, 6-2 )....................=15/3=5
• Saturday 2/8/14................................22:00 minutes on the treadmill..............................2.02 miles, 169 pounds
• Friday 2/14/14...................................Three sets of doubles ( 8-0, 3-5, 2-6 )....................=13/3=4
• Wednesday 2/19/14............................25 minutes@ Level 12.........................................3.33 miles ( full session— 9:33 for 2,000 meters, maximum pulse 150, 172 pounds, elapsed time 1:12 )
• Thursday 2/20/14...............................Four sets of doubles ( 6-1, 2-6, 6-1, 6-0 )
• Friday 2/21/14...................................Three sets of doubles ( 6-2, 5-3, 3-5 )....................=14/3=5
• Saturday 2/22/14...............................Three sets of doubles ( 6-3, 6-1, 6-0 ).....................5.11 miles (9,014 steps) according to the pedometer
• Sunday 2/23/14.................................25 minutes@ Level 12..........................................3.43 miles ( full session— 9:31 for 2,000 meters, maximum pulse 162, 169½ pounds, elapsed time 1:12 )
• Tuesday 2/25/14................................15:50 minutes@ Level 12.....................................2.25 miles (abbreviated session— 170 pounds)
• Wednesday 2/26/14............................Two+ sets of singles ( 6-3, 6-3, 2-1 ).....................J.S.
• Thursday 2/27/14...............................Two sets of doubles ( 7-5, 6-2 )
• Friday 2/28/14...................................Three sets of doubles ( 4-4, 7-1, 7-1 ))...................=18/3=6
• Sunday 3/2/14...................................17:30 minutes@ Level 12
• Tuesday 3/4/14..................................Three sets of doubles ( 6-0, 6-2, 7-5 ).....................4.20 miles (7,408 steps)
• Wednesday 3/5/14..............................Two+ sets of singles ( 6-1, 6-4 )............................J.S.
• Thursday 3/6/14.................................Two sets of doubles ( 1-6, 6-8 )
• Friday 3/7/14.....................................Three sets of doubles ( 4-4, 6-2, 6-2 )....................=16/3=5
• Sunday 3/9/14...................................25 minutes@ Level 12...........................................3.53 miles ( abbreviated session[Casella]—maximum pulse 151, 170 pounds )
• Wednesday 3/12/14............................Run 3 miles, walk 0.78 miles..................................68°, 170 pounds, first outdoor run of the new year
• Thursday 3/13/14...............................One monumental set of doubles ( 12-10 )
• Friday 3/14/14...................................Three sets of doubles ( 5-3, 6-2, 4-4 ).....................=15/3=5
• Saturday 3/15/14...............................Three sets of doubles ( 6-0, 6-1, 6-1 )
  ........................................................Run 3.78 miles......................................................65°, long sleeves, 167 pounds
• Sunday 3/16/14.................................25 minutes@ Level 12............................................3.48 miles+Fed v Djoker ( full session— except rowing machine broken, maximum pulse 153, 169½ pounds, elapsed time 1:05 )
• Tuesday 3/18/14................................Three+ sets of doubles ( 6-0, 6-0, 6-0, 2-2 )
• Wednesday 3/19/14............................Two sets of singles ( 6-3, 6-1 )...............................J.S.
• Thursday 3/20/14...............................Three sets of doubles ( 3-6, 6-1, 6-0 )
• Friday 3/21/14...................................Three sets of doubles ( 5-3, 4-4, 5-2 ).....................=14/3=5
• Saturday 3/22/14...............................Run 3.85 miles in 34:07.........................................169 pounds
• Sunday 3/23/14.................................25 minutes@ Level 12............................................3.38 miles ( full session— except rowing machine broken, maximum pulse 142, 169 pounds, elapsed time 1:05 )
• Tuesday 3/25/14................................One+ set of doubles ( 1-2, 10-10 )
• Thursday 3/27/14...............................Three sets of doubles ( 6-2, 6-4, 6-4 )
• Friday 3/28/14...................................Three sets of doubles ( 4-4, 7-1, 8-0 ).....................=19/3=6
• Sunday 3/30/14.................................25 minutes@ Level 12............................................3.46 miles ( full session— 9:46 for 2,000 meters, maximum pulse 151, 166½ pounds, elapsed time 1:16 )
• Monday 3/31/14.................................Run 3.78 miles......................................................64°, long sleeves, 166 pounds
• Tuesday 4/1/14..................................Two sets of doubles ( 4-6, 3-3 )
  ........................................................Three sets of doubles ( 2-6, 2-6, 4-5[2-5] )
• Wednesday 4/2/14..............................Run 3.85 miles in 33:51.........................................166½ pounds
• Thursday 4/3/14.................................Three sets of doubles ( 6-2, 3-6, 6-1 )
• Friday 4/4/14.....................................Three sets of doubles ( 5-3, 5-3, 7-1 ).....................=17/3=6
• Saturday 4/5/14.................................Bicycle 10 miles in 2½ hours...................................165½ pounds, first bicycle ride of the year
• Monday 4/7/14...................................An hour on the ball machine
• Tuesday 4/8/14..................................Two sets of doubles ( 4-6, 3-3 )
  ........................................................Run 3.78 miles.......................................................64°, 165+ pounds
• Wednesday 4/9/14..............................Two sets of singles ( 6-2, 5-7 ).................................J.S.
• Thursday 4/10/14...............................Three sets of doubles ( 6-4, 6-2, 4-6 )
• Friday 4/11/14...................................Three sets of doubles ( 7-1, 5-3, 5-3 ).....................=17/3=6
• Saturday 4/12/14...............................Run 6.8 miles (Paper Mill-Spks)...............................166 pounds, 59° turtleneck, 0730, 1:15
• Monday 4/14/14.................................Bicycle 47.0 miles.................................................(WH-Mile 14+)
• Tuesday 4/15/14................................Two sets of doubles ( 2-6, 2-6 )
• Thursday 4/17/14...............................Three sets of doubles ( 6-4, 6-4, 4-2 )
• Friday 4/18/14...................................Three sets of doubles ( 4-4, 7-1, 5-3 ).....................=16/3=5
• Saturday 4/19/14...............................Run 3.78 miles......................................................166 pounds, 64°, long sleeves
• Monday 4/20/14.................................Run 3.85 miles in 32:33.........................................166 pounds
• Tuesday 4/21/14................................Two sets of doubles ( 6-4, 6-4, 4-2 )
• Wednesday 4/23/14............................25 minutes@ Level 12............................................3.50 miles ( full session— 9:50 for 2,000 meters, maximum pulse 140, 167 pounds, elapsed time 1:16 )
• Thursday 4/24/14...............................Three sets of doubles ( 6-4, 3-6, 2-3 )......................9,572 steps ( 5.42 miles )
• Friday 4/25/14...................................Three sets of doubles ( 7-1, 4-4, 7-1 ).....................=18/3=6
• Sunday 4/27/14.................................Run 3.11 miles (5K) in 27:32.2................................165+ pounds, #67 out of 326 (#43 of male finishers)
• Monday 4/28/14................................Three sets of doubles ( 6-0, 6-4, 4-4)
• Thursday 5/1/14................................Two sets of doubles ( 4-6, 6-2, tiebreak 7-2 )
• Friday 5/2/14.....................................Three sets of doubles ( 5-3, 3-5, 6-2 ).....................=14/3=5
• Saturday 5/3/14.................................Run 3.78 miles......................................................166½ pounds, 62°, long sleeves
• Sunday 5/4/14...................................Two sets of singles ( 2-6, 6-3 )................................Greg ( it almost always takes me a set to warm up )
• Tuesday 5/6/14.................................Three sets of doubles ( 6-0, 6-4, 4-4)
• Thursday 5/8/14................................Three sets of doubles ( 6-3, 6-3, 6-2 )
• Friday 5/9/14.....................................Three sets of doubles ( 5-3, 7-1, 6-2 )
• Saturday 5/10/14...............................Two sets of doubles ( 3-6, 6-7 )...............................Scott Coury, Steve , Bill Levidies
• Sunday 5/11/14..................................Bicycle 2½ hours (Charleswood)
• Monday 5/12/14.................................Run 3.85 miles......................................................164+ pounds (yessssssss!), 84°
• Tuesday 5/13/14................................Three sets of singles ( 3-6, 6-1, 3-6).........................Awful, first outdoor tennis, R.V. I should never lose to him
• Wednesday 5/14/14............................Two sets of doubles ( 9-7, 6-6 )...............................At the kennels, 163½ pounds !!
• Thursday 5/15/14...............................19 minutes@ Level 12, 6 minutes@ Level 6...............3.30 miles ( abbreviated session— maximum pulse 151, 163½ pounds, elapsed time 0:50 )
• Monday 5/19/14.................................1½ hours of doubles drills.......................................At the kennels, run 3.78 miles, 162 pounds
• Thursday 5/22/14...............................Two sets of doubles ( 6-2, 2-6 )...............................After flu, 160 pounds, R.V.
• Sunday 5/25/14..................................Walk 3.0 miles.......................................................C.Valley
  ........................................................Two sets of doubles (Steve, Jack Quinn?, Billy Brown )
• Monday 5/26/14.................................Bicycle 5 miles.......................................................First swim of the year
• Wednesday 5/28/14............................Two sets of doubles ( 8-6, 6-4 )...............................159 pounds, PP-BM-NP
• Thursday 5/29/14...............................Two sets of doubles ( 6-2, 6-2 )...............................Elk v. TGCC interclub "Sheriff" M.D.
• Sunday 6/1/14...................................Run 3.78 miles (first run since the damn flu )
• Monday 6/2/14...................................Doubles w/Steve, Matt, Nick....................................I couldn't hit the broad side of a barn door, truly awful
• Tuesday 6/3/14..................................Three sets of doubles ( 6-2, 6-2, 4-6 )......................Geoff, John, Jim— 162 pounds
• Wednesday 6/4/14..............................Bicycle 52.0 miles in 6½ hours................................W.H. to Brillhart, 162 pounds
• Thursday 6/5/14.................................Three sets of doubles ( 6-2, 6-2, 6-2 )......................Elk v. Rolling R interclub A.Brooks.
• Friday 6/6/14......................................Run 3.85 miles in 35:33........................................New battery, time suspicious. Windshield.
• Saturday 6/7/14.................................Bicycle 19.0 miles in 2½ hours................................N.F. to H.J. chasing York #17, sprint the last 4.75 miles uphill
• Sunday 6/8/14....................................Run 2.78 miles, walk 1.00 miles dead legs, swim
• Monday 6/9/14...................................Swim ½ hour
• Thursday 6/12/14...............................31:59 minutes on the treadmill................................3.02 miles, Elk, 163 pounds,
• Sunday 6/15/14.................................Two sets of singles ( 4-6, 2-6)..................................Greg, awful, ahead 4-2 in the first set, ½ hour swim.
• Monday 6/16/14.................................Bicycle 39 miles......................................................½ hour swim
• Tuesday 6/17/14................................Run 2 miles, walk 1.78 miles, ½ hour swim
• Wednesday 6/18/14............................Two sets of singles ( 6-4, 6-2 ).................................R.V., bone tired shoulders, 94°
• Friday 6/20/14...................................Bicycle 50.8 miles in 5:38........................................Monk to 13#
• Saturday 6/21/14...............................25 minutes@ Level 13.............................................4.03 miles ( maximum pulse 128, 25 crunches ) Elk
• Monday 6/23/14.................................Run 3.6 miles, walk 1.2 miles
  .......................................................1½ hours of tennis drill
• Thursday 6/26/14...............................Two sets of doubles ( 6-4, 6-4 )................................Elk v. Hillendale interclub— Tom W
• Friday 6/27/14...................................Run 3.85 miles in 35:08...........................................½ hour swim
• Saturday 6/28/14...............................Three sets of singles ( 6-3, 6-2, 5-7 ).........................R.V. not too much work, ½ hour swim
• Sunday 6/29/14.................................Bicycle 18 miles.......................................................½ hour swim
• Monday 6/30/14.................................Three sets of doubles (2-6, 4-4, 6-2 )
  ........................................................Run 3.78 miles
• Wednesday 7/2/14..............................Two sets of singles ( 6-1, 6-2 )..................................McP, 88°+ 60% humidity, exhausting
  ........................................................Three sets of doubles ( 3-5, 4-4, 7-1 )
• Friday 7/4/14.....................................Bicycle 10 miles, walk National Wildlife Reservation
• Saturday 7/5/14.................................Run 7.0 miles in 1:20
• Sunday 7/6/14...................................Bicycle 12.0 miles
• Monday 7/7/14...................................Run 3.5 miles, walk 3.5 miles
• Tuesday 7/8/14..................................Bicycle 12.0 miles
• Thursday 7/10/14...............................On the surfboard
• Friday 7/11/14...................................Run 3.5 miles, walk 3.5 miles, bicycle 12.0 miles, swim ½ hour
• Sunday 7/13/14.................................Two sets of singles ( 6-1, 5-6 )...................................Ward, 91° +50% humidity
• Monday 7/14/14................................25 minutes@ Level 13................................................4.03 miles ( maximum pulse 128, 25 crunches ) Elk
• Tuesday 7/15/14...............................25 minutes@ Level 13................................................4.15 miles ( maximum pulse 136, 75 crunches ) Elk
• Wednesday 7/16/14...........................Run 1.85 miles, walk 1.85 miles..................................91°, 75%
• Saturday 7/19/14...............................Run 3.78 miles, ½ hour swim
• Sunday 7/20/14.................................45 minutes of backboard tennis, 2 hours of bicycling.....161¾ pounds
• Monday 7/21/14................................Run 3.78 miles
• Tuesday 7/22/14...............................Three sets of doubles ( 3-5, 4-4, 5-3 )..........................12+5=17
  
• Thursday 7/24/14..............................Run 3.85 miles in 33:17.............................................lift weights at Elk, ½ hour swim
• Friday 7/25/14..................................Three sets of singles ( 4-6, 6-8, 5-4 )...........................83°, 50% I did, eventually wear her down. I really should beat her. She's there to win; I'm there to have fun.
• Saturday 7/26/14...............................Bicycle 18 miles in 2:20
• Sunday 7/27/14.................................Two sets of doubles ( 7-5, 4-6 )
• Monday 7/28/14.................................Walk 3.78 miles
• Tuesday 7/29/14................................Three sets of doubles ( 3-5, 7-1, 3-5 )..........................13+5=18
• Wednesday 7/30/14............................Three sets of singles ( 6-1, 6-2, 2-6 )...........................Fairly easy, Tom W
• Thursday 7/31/14...............................Bicycle 42.6 miles......................................................Ashland-NF, ½ hour swim
• Friday 8/1/14.....................................Two sets of singles ( 3-6, 2-6 )....................................Greg
• Sunday 8/3/14...................................31:05 minutes on the treadmill...................................3.17 miles, maximum pulse 136, 50 crunches, Elk
• Monday 8/4/14...................................Two sets of singles ( 6-3, 6-0 )
• Tuesday 8/5/14..................................Three sets of doubles ( 6-2, 1-7, 7-1 )..........................14+5=19
• Wednesday 8/6/14..............................One set of singles ( 4-6 )............................................McP/Ankle aggravated
• Thursday 8/7/14................................Bicycle 27.4 miles......................................................Monkton-NF, ½ hour swim
• Friday 8/8/14.....................................Two sets of doubles ( 2-6, 3-6 )...................................Pere et fil
• Sunday 8/10/14.................................Three sets of singles ( 6-0, 6-1, 4-6 )...........................Tom W.
• Monday 8/11/14.................................Bicycle 50.8 miles......................................................Bentley-York
• Tuesday 8/12/13................................23 minutes@ Level 6, 2 minutes@ Level 2.....................3.16 miles ( full session— 9:53 for 2,000 meters, maximum pulse 150, 161½ pounds {1¼ during exercise}, elapsed time 1:20 )— I swear the elliptical was rusty.
• Wednesday 8/13/14............................Three sets of doubles ( 6-4, 6-2, 6-0 )
  ........................................................Run 3.78 miles
• Thursday 8/14/14...............................Two sets of singles ( 6-2, 6-4 ).....................................R.V., fairly easy
• Friday 8/15/14...................................Bicycle 35.6 miles.......................................................Bentley-Glatfelter 4½ hours
• Sunday 8/17/14.................................Run 6.21 miles (10K) in 58:31.....................................66th place
• Tuesday 8/19/14................................Three sets of doubles ( 5-3, 1-7, 5-3 )..........................11+5=16
• Wednesday 8/20/14............................Two sets of singles ( 3-6, 6-4 )....................................Rain abbreviated, Tom W.. ½ hour swim at Elk
• Thursday 8/21/14...............................25 minutes@ Level 13.................................................4.22 miles ( maximum pulse 132, 50 crunches ) Elk, 161½ pounds, ½ hour swim
• Friday 8/22/14...................................Two sets of doubles ( 6-1, 0-4 )....................................Rain abbreviated, BCC- RB, JP, JBP
• Sunday 8/24/14.................................Three sets of singles ( 6-2, 6-3, 6-4 )............................Tom W.
• Monday 8/25/14.................................Run 3.85 miles in 33:56..............................................brief swim
• Tuesday 8/26/14................................Four sets of doubles....................................................32 point format @Elk
• Wednesday 8/27/14............................Two sets of doubles ( 3-6, 4-6 )....................................PP & 3 Bucks
• Thursday 8/28/14...............................Three sets of singles ( 4-6, 6-0, 6-1 )............................R.V., focus!!
• Saturday 8/30/14................................Five sets of doubles ( 5-6, 4-6, 6-1, 6-0, 6-3 )...............Elk-APOTC
• Monday 9/1/14...................................Labor Day quadrathalon..............................................tennis, bicycling, 3.78 mile run, ½ hour of swimming
• Tuesday 9/2/14...................................Bicycle 35.6 miles......................................................Bentley-Glatfelter
• Wednesday 9/3/14..............................One set of doubles ( 8-10 ).........................................PP, CO, NP
• Thursday 9/4/14.................................Two sets of singles ( 4-6, 4-6 )....................................Greg (no-ad sleight of hand)
• Saturday 9/6/14.................................Run 3.78 miles..........................................................159½ pounds (the shoes weigh 1½ pounds !), 90°, 55% humidity
  
  

Steve Schwarzman said his decision 19 years ago to sell what would become the world’s largest money manager was a “heroic” mistake.

Schwarzman, who runs Blackstone Group LP, the largest manager of alternative investments such as private equity, in 1994 sold a mortgage-securities unit with $23 billion in assets to PNC Bank Corp. for $240 million. Schwarzman, Blackstone’s co-founder, had disagreed with the group’s leader, Laurence Fink, over methods of compensation, and the men parted ways. The unit, which traded mortgages and other fixed-income assets, changed its name from Blackstone Financial Management to BlackRock Financial Management.

“That was certainly a heroic mistake,” Schwarzman, chairman and chief executive officer of New York-based Blackstone, said in an interview with Arthur Levitt airing on Bloomberg Radio on Oct. 6. “We all stumble on and have some success. But it’s a humbling experience to see what you don’t do right.”

Today, BlackRock Inc., which Fink leads as chairman and CEO, is the world’s largest money manager, overseeing $3.86 trillion in assets, dwarfing Blackstone’s $230 billion. It has a market value of $46 billion, compared with Blackstone’s $28 billion.

Schwarzman, who is ranked 137th on the Bloomberg Billionaires Index with a net worth of $8.8 billion, personally had a stake of more than 9 percent in the business when it was sold, which would be worth more than $4 billion at the New York-based company’s current market capitalization.

‘Biggest Issue’
Levitt, who interviewed Schwarzman, 66, in two parts at Bloomberg’s headquarters in New York, is a director of Bloomberg LP, parent of Bloomberg News. He was the longest-serving chairman of the U.S. Securities and Exchange Commission, leading the SEC from 1993 to 2001.

Asked what worries him most in the current environment, Schwarzman said dysfunction in the U.S. government, such as disagreements between and within the White House and Congress regarding debt, health care and taxes, hinders all businesses.

“It’s now become almost structural uncertainty,” Schwarzman said in the first part of the interview, which aired yesterday. “The biggest issue that worries me is just overall effective functioning of the U.S. government. The periodic crises and dysfunction in Washington creates problems for all of us.”




http://www.bloomberg.com/news/2013-09-30/schwarzman-says-selling-blackrock-was-heroic-mistake.html

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The fate of the Dodd-Frank Act’s ban on banks trading for their own accounts -- one of the final pieces of the U.S. effort to prevent a repeat of the 2008 financial crisis -- may rest with a cluster of economists at the Securities and Exchange Commission.

The agency’s 50 economists are attempting to calculate the costs and benefits of the so-called Volcker rule, a linchpin of the financial overhaul that would curb the kind of high-stakes proprietary trading that could lead to crippling losses or bailouts at banks like JPMorgan Chase & Co. or Citigroup Inc.

Court challenges that overturned other Dodd-Frank regulations because of faulty cost-benefit analysis have increased pressure on the SEC economists, led by Craig M. Lewis, a veteran finance professor on leave from Vanderbilt University. Their work may determine whether the rule could withstand a similar lawsuit -- an option banks and trade groups say is under consideration.

The economists are racing the clock: Regulators are under pressure from President Barack Obama and Treasury Secretary Jacob J. Lew to finish the rule in the next three months. At a recent meeting, Lew gave the heads of the five agencies drafting the rule a series of deadlines designed to make sure the government meets the year-end target, according to a person briefed on the meeting who asked not to be identified because it wasn’t public.

“Hell or high water, we’re getting it done,” Comptroller of the Currency Thomas Curry said in an interview.

The agencies -- the Federal Reserve, Federal Deposit Insurance Corp., Office of the Comptroller of the Currency, Commodity Futures Trading Commission and SEC -- have reached agreement on key issues, including the definitions of activities like market-making and portfolio hedging, and are now working on the final text, according to three people familiar with the process who declined to provide details.

Avoiding Bailouts
The rule, named for former Federal Reserve chairman Paul Volcker, is one of the remaining pieces of the overhaul of U.S. financial regulation enshrined in Dodd-Frank, which was signed into law by Obama in 2010. It is aimed at preventing banks that hold federally insured customer deposits from engaging in the kind of speculative trading -- with their own capital -- that before Dodd-Frank would have led to a bank failure and government bailout.

Prior to the financial crisis, proprietary trading was a money-maker for banks, and during the crisis, it contributed to losses. The six largest banks’ standalone proprietary-trading desks reported losses in five quarters in 2007 and 2008, losing a combined $15.8 billion, according to a 2011 report from the Government Accountability Office.

Presidential Urgency
Profits are at stake in the final wording of the rule. Standard and Poor’s has estimated that Volcker could sap combined profits at the eight largest U.S. banks by between $2 billion and $10 billion a year, depending on details of the final provisions.

Obama called the regulators to the White House last month to “share his sense of urgency” that Dodd-Frank rules including Volcker be completed soon, according to deputy White House press secretary Josh Earnest.

The message was amplified by Lew on Sept. 10 when he convened a private meeting at the Treasury Department of the agency heads during which he laid out a timetable designed to ensure completion by the end of the year, according to the person briefed on the meeting.

‘Cracking Heads’
“Treasury wants this done” and is “cracking heads” to get there, said Karen Shaw Petrou, managing partner of Washington-based Federal Financial Analytics.

Wall Street banks face a July 21, 2014, deadline for complying with Volcker, which must be formally adopted by all five agencies before it takes effect. If regulators miss their 2013 goal, banks will have three weeks to file for individual extensions, a process expected to cause more delays.

In the two years since the first draft was released, the text may triple in size reach 1,000 pages, according to one person familiar with the draft. The initial proposal posed hundreds of questions to solicit input from affected banks, and more than 18,000 letters flooded in. Reviewing all those comments also slowed the rule-writing.

Emerging Risks
The economics unit -- officially known as the Division of Economic and Risk Analysis -- was established by former SEC Chairman Mary Schapiro in 2009 to help commissioners gauge the impact of new rules as well as spot the kind of emerging risks exposed in the credit crisis the year before. The office has doubled its staff as it’s taken on the task of analyzing dozens of proposed rules under Dodd-Frank. Lewis, an expert in equity analyst behavior and corporate finance policy, took over the helm in 2010.

Along with tallying a rule’s costs, the agency’s official guidance directs the economists to quantify its benefits including crisis-related goals such as reducing “excessive risk-taking or actions that are otherwise characterized by moral hazard.”

Part of the difficulty the agency faces, Petrou said, is pinning numbers on nebulous concepts.

“The key to effective cost-benefit analysis is assessing real costs -- i.e., to efficiency, profitability, liquidity -- not to focus on the easy ones like how many hours it will take to file all the requisite forms,” she said in an e-mail. “The benefits are similarly qualitative -- the reduced risk of systemic failure, market benefits of new competition, etc. That’s what makes these cost-benefit analyses so tricky -- there are few hard numbers anywhere and regulators have yet to develop a robust methodology for more qualitative cost-benefit assessments that will stand up in court.”

Flawed Analyses
Banks and financial firms that opposed elements of Dodd-Frank have successfully argued in court that some of the agency’s previous cost-benefit analyses were flawed. The first attack overturned the so-called proxy access provision in 2011, and another forced the SEC to announce earlier this month that it would re-write a Dodd-Frank disclosure rule.

The financial industry has signaled that the cost-benefit analysis accompanying the Volcker rule will get similar sharp scrutiny. Trade groups including the Securities Industry and Financial Markets Association, the Clearing House, the Financial Services Roundtable and the American Bankers Association sent a letter to regulators in February 2012 urging them to conduct a “rigorous” cost-benefit analysis of Volcker. The U.S. Chamber of Commerce, one of the litigants in the proxy-access case, wrote that errors “may lead to the promulgation of a flawed final rule that has severe, unintended consequences for capital formation.”

“It is incumbent on the regulators to get the final rule buttoned down correctly and implemented in a smart way to avoid litigation,” said Tom Quaadman, vice president of the Chamber’s Center for Capital Markets Competitiveness.

Legal Challenge
H. Rodgin Cohen, a lawyer at Sullivan & Cromwell LLP who represents large banks, said that whatever its final provisions, regulators should expect the Volcker rule to draw a legal challenge.

“Clearly there have been several cases recently where the regulatory agencies have been successfully sued,” Cohen said in an interview. “I do not put that totally beyond the realm here.”

At least one cost-benefit analysis was decided in favor of the regulator. In 2012, the CFTC, the main U.S. derivatives regulator, prevailed in a lawsuit over a Dodd-Frank rule, with the court finding its analysis sufficient.

While Volcker’s crosshairs are fixed on the very largest U.S. banks, it could affect operations at nearly all 7,000 U.S. depository banks. Even before the rule is done, a few of them, including New York-based Goldman Sachs Group Inc. and Morgan Stanley, ranked fifth and sixth respectively by assets, have shut down some proprietary trading operations and withdrawn investments that are likely to be outlawed under the rule.

‘Low-Hanging Fruit’
“The low-hanging fruit would be those firms that had units operating within them that were clearly proprietary-trading units,” said Julie Williams, the former top lawyer at OCC who now works for Washington consulting firm Promontory Financial Group LLC. “What you’ve seen over the course of the last several years is firms have shut those down or sold them.”

In addition to the ban on proprietary trading, the rule will ban banks from holding more than a 3 percent stake in hedge funds and private-equity funds, which are perceived as too high risk for depository banks. Some banks have already begun dumping investments “where there wouldn’t be a whole lot of debate of whether the fund was a hedge fund or private-equity fund,” Williams said.

Private-Equity Sales
For example, this month New York-based Citigroup, the third-largest U.S. lender, announced it will sell its $6 billion emerging-markets private-equity unit. In June, New York-based JPMorgan Chase, the largest U.S. bank by assets, announced plans to break off its private-equity unit One Equity. JPMorgan reported about $7.7 billion in total private-equity holdings in recent filings.

“Where the law is clear, which in key areas it is, they’ve begun to implement that,” Petrou said.

In Washington, lawmakers have pushed regulators to toughen parts of the original draft, particularly an exemption for hedging. The push gained momentum after JPMorgan acknowledged that it lost $6.2 billion from London-based derivatives trades last year. The bank argued that those trades were permitted under an exemption in Volcker for “portfolio hedges” -- trades designed to offset broad risks to the bank’s portfolio. The lawmakers who drafted the provision said they intended such trades to be banned.

‘Global Hedges’
“We cannot allow the argument of the banks that they can hedge their entire inventory somehow where we get global hedges,” Senator Carl Levin, a Michigan Democrat, told reporters at a news conference earlier this year. “If they are going to claim that trades are a hedge, they’ve got to be able to identify what is being hedged against, what are the assets being hedged and what is the proof that it is a hedge.”

Curry, 56, said the final rule will clarify “what is appropriately risk-mitigating hedging” and what constitutes proprietary trading. His agency and others fined JPMorgan $920 million earlier this month for bad internal controls and allegedly misleading regulators in the London Whale losses.

Making Markets
Another contested exemption from the Volcker ban is for trades considered “market-making” -- when banks take the other side of transactions for clients who want to buy and sell securities. Industry groups have argued it is difficult in practice for banks to draw a distinction between market-making and trading on their own account.

“It sets up a subjective trade-by-trade analysis spread out over five agencies that is unworkable,” Quaadman said.

Levin and Oregon Democrat Jeff Merkley, who co-authored the Senate provision that became the Volcker rule, have pushed regulators to remove the hedging and market-making exemptions, calling them “ill-advised loopholes.” Merkley has criticized the long delay on a rule that was, according to Dodd-Frank’s original deadline, supposed to be completed in 2011.

“It’s taking so long in part because multiple regulators have to agree, but it’s completely unacceptable,” Merkley said in an interview. “I encourage the regulators to re-immerse themselves and get this work done.”





http://www.bloomberg.com/news/2013-...tallied-as-u-s-regulators-press-deadline.html

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...Halliburton executives took it upon themselves to drink some of their latest fracking fluid to show just how harmless it is.


“It was absolutely the first time I drank fracking fluid — you can be sure of that,” said Michael Binnion, President of QOGA and CEO of Questerre Energy Corp. a couple of days after Monday’s event, noting that 20 to 25 executives drank the brew. “I feel fine. There was quite a build-up, but it was a bit of a let-down as it was less viscous than I thought it would be, but more viscous than water. And very stale-tasting.”


ht tp://business.financialpost.com/2013/10/31/haliburton-fracking-fluid/?__lsa=aeaf-b57f

http://business.financialpost.com/2013/10/31/haliburton-fracking-fluid/?__lsa=aeaf-b57f

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Boosters of Baltimore’s Oriole Park at Camden Yards, built at taxpayer cost of $210 million, promised the baseball stadium would lead an urban renaissance, revitalizing blighted neighborhoods and bringing jobs and tax revenue to the city’s struggling downtown.

More than two decades later, the pledge stands unfulfilled. Baltimore is burdened with 16,000 vacant properties and some of the highest taxes in Maryland. The neighborhoods around Camden Yards have fewer businesses than they did in 1998. And the ballpark and a National Football League stadium nearby will require state and local debt service of about $24 million in 2014.

Baltimore’s lesson is one that Atlanta Mayor Kasim Reed has taken to heart. He said Nov. 11 that Georgia’s capital city wouldn’t pay to build a new stadium for the Atlanta Braves -- regardless of the team’s promises to bring thousands of jobs and pump tens of millions of dollars into the local economy. So the franchise said it would relocate to suburban Cobb County, which agreed to pay $300 million of the facility’s $672 million cost.

“It’s wrong to take money from taxpayers and hand it to millionaires and billionaires,” said Arthur Rolnick, a senior fellow at the University of Minnesota who has studied the public cost of professional sports stadiums. “If you try to justify it on economic development, the arguments dissolve pretty fast. The public would be much better off if they invested in things that would improve the quality of life, like roads and bridges, education and lowering crime.”

$9.7 Billion
Building or renovating the 30 Major League Baseball parks cost taxpayers a total of $9.7 billion as of 2010, including construction, land acquisition, infrastructure, foregone taxes and other factors, according to Judith Grant Long, a professor of urban planning at Harvard University and author of the 2012 book “Public-Private Partnerships for Major League Sports Facilities.” According to Long’s data, that ranged from $681 million at Miller Park in Milwaukee, completed in 2001, to $33 million at Angel Stadium of Anaheim, where a 1996 renovation was mostly privately financed.

In major-league cities from Cincinnati and Glendale, Arizona, to minor-league towns such as Ramapo, New York, and spring-training facilities in places like Goodyear, Arizona, stadiums funded by taxpayers instead of their millionaire owners have failed to deliver on promises of economic development. Instead of showering communities with benefits, these arenas often end up saddling depressed municipalities with debt, expenses and other costs.

Emotional Grip
Professional sports teams exercise an emotional grip on their host cities, which becomes a powerful lever in negotiations. The departure of the NFL’s Colts from Baltimore in 1984 spurred campaigns to build new football and baseball stadiums there. The Cleveland Browns’ move to Baltimore to become the Ravens 12 years later prompted a similar push in Cleveland. In 2008, basketball’s Supersonics left Seattle for a new arena in Oklahoma City, prompting an ongoing effort to build a new arena in Seattle to lure another basketball team.

In Baltimore, the public financing of the Camden Yards baseball park helped then-Orioles owner Edward Bennett Williams sell the team in 1989 for $70 million, up from the $12 million he paid in 1979. The next owner, buyout specialist Eli Jacobs, sold the team four years later for $170 million. The current owner, labor lawyer Peter Angelos, has seen the value grow to $625 million, not including a regional television network launched after he bought the team, according to data compiled by Bloomberg.

Development Goals
Stadiums often fail to meet economic development goals because they stand empty except for a few hours on game days and during special events and consume available space nearby for parking, said Victor Matheson, a professor and sports economist with the College of the Holy Cross, in Worcester, Massachusetts. The jobs they create are often temporary, with relatively low wages, he said, and sports venues tend to divert spending on food and recreation from other businesses.

“Money is just shifted around,” Matheson said. “There isn’t much net gain. You’re often just cannibalizing other areas of the city.”

Baltimore might be in worse shape than it is today if the Orioles had left the city and a new football stadium hadn’t been built to lure the NFL’s Ravens, winner of this year’s Super Bowl, said Mark Wasserman, who worked as chief of staff for former Maryland Governor and Baltimore Mayor William Donald Schaefer, a principal advocate of the Camden Yards deal.

“Can you imagine what that part of town would be like if they hadn’t built the stadiums?” Wasserman said. “We needed to continue to be a major-league city.”

Braves Stadium
In Georgia, the Braves, owned by John Malone’s Liberty Media Corp., said their new baseball stadium, scheduled to open in 2017, would create more than 9,200 permanent and temporary jobs, producing almost $300 million in earnings, about $50 million of it in Cobb County.

The city of Atlanta ignored such promises because it couldn’t afford the huge cost to subsidize the ballpark, Reed said.

“There was simply no way the team was going to stay in downtown Atlanta without city taxpayers spending hundreds of millions of dollars,” Reed said. “Given the needs facing the city, that was something I and many others were unwilling to do.”

In Cincinnati, officials approved $540 million to build new football and baseball stadiums downtown that were supposed to lead to redevelopment of the city’s waterfront. Instead, the county has cut services and sold a public hospital to pay the stadium debt, as growth failed to meet projections.

Hockey Arena
Glendale, Arizona, built a $180 million hockey arena and a $200 million spring-training complex. Both failed to deliver on promised development nearby, and the city had to raise sales taxes and eliminate almost 50 government jobs and had its bond rating cut.

Development around Baltimore’s Camden Yards has disappointed, said state Senator Paul Pinsky, a Democrat from Prince George’s County who was in the legislature when lawmakers approved subsidies for the baseball and football stadium, starting in 1987.

“There were lots of guarantees that this would revitalize the city,” Pinsky said. “Everyone stood up and said it would help the city’s economic development. They promised the moon, but I don’t think it revitalized the city.”

Spending Money
The 2 million fans per year who attend Orioles games spend money in the city, producing revenue for hotels, restaurants and other local businesses, said Greg Bader, vice president of communications and marketing for the Baltimore Orioles.

“It does generate economic activity,” Bader said. “There’s a lot to say for what baseball has done for this city and state.”

The stadium has drawn hundreds of thousands of fans over the years from surrounding cities, attracting followers of such teams as the Boston Red Sox, the New York Yankees and the Philadelphia Phillies to Baltimore, where they spend money and contribute to the local economy, said David Raith, chief financial officer of the Maryland Stadium Authority.

Angelos, the Orioles owner, had no comment on how much he benefited from public financing of Camden Yards, Bader said. Jacobs, who sold the team to Angelos in 1993 during bankruptcy proceedings stemming from Jacobs’ other business interests, said in an interview that the team’s value increased after the new stadium opened. Williams is deceased.

$210 Million
The price to build Camden Yards totaled $210 million, including $110 million for stadium construction and $100 million for land acquisition and relocation, said Jan Hardesty, spokeswoman for the stadium authority.

The ballpark actually cost taxpayers a total of $282 million, including such items as foregone taxes and capital expenditures over time, according to Long’s data.

Long said sports venues such as Camden Yards routinely eclipse initial estimates of their public cost by tens of millions of dollars. Tax breaks, operating expenses, land and infrastructure costs for 121 public stadiums and arenas in operation in 2010 raised the average public cost to $259 million from initial estimates of $170 million, according to Long’s research.

The story of Camden Yards, built in the aftermath of the loss of a Baltimore icon, the NFL’s Colts, demonstrates the power teams wield over cities and public officials -- and the failure of expensive new sports facilities to spur promised benefits, said Raymond Burke, a Baltimore attorney who specializes in construction and real estate development.

‘Held Hostage’
“Citizens are held hostage to the situation because if they don’t pay for it they lose the team,” Burke said. “The teams always have the upper hand.”

Camden Yards also launched a trend of placing stadiums in the middle of cities in an attempt at redevelopment, as public officials nationwide mistook its appeal as a sports venue for success as a development catalyst, said Tim Chapin, chairman of the Department of Urban and Regional Planning at Florida State University. In fact, he said, the widespread belief that Camden Yards launched a rebirth in downtown Baltimore isn’t true.

“While it expanded the tourist bubble to the west, it didn’t wholesale save the downtown economy or prop up very poor neighborhoods not too far from downtown,” Chapin said.

In the late 1980s, when the Maryland legislature approved financing for Camden Yards, the Baltimore stadium area housed businesses including Parks Sausage Co., then one of the nation’s largest black-owned companies.

Paying Companies
The stadium authority paid companies to relocate out of the areas where the ballpark was to be built.

“Some of it was boarded-up buildings,” said Herbert Belgrad, who was chairman of the authority from 1986 to 1995. “Some were still operating businesses that wanted to keep operating, and we had to go to court to determine what was a market price.”

Camden Yards now borders neighborhoods where the number of employers is lower than in 1998, six years after it opened, according to the latest U.S. Census Bureau data. Unemployment is rising in these areas, as are their rankings against other neighborhoods for violent crime and the percentage of properties in foreclosure.

By 2011, the stadium area was home to fewer businesses than in 1998, according to census data. The zip codes around Baltimore’s stadiums saw a 7.8 percent drop in the number of businesses from 1998 to 2011. This decrease even holds true in the zip codes that encompass Baltimore’s celebrated Inner Harbor and Fells Point neighborhoods, where the number of businesses fell 6.3 percent over the same period.

‘Still Struggling’
“They’re still struggling in areas in the shadow of the stadiums,” said William Marker, a resident of the nearby neighborhood of Pigtown, who tried unsuccessfully to force a vote on public funding of Camden Yards.

Pigtown ranked fifth for the highest percentage of properties under mortgage foreclosure in 2000 out 53 communities, according to data collected by the Baltimore Neighborhood Indicators Alliance. In 2011, those same areas ranked second highest. Crime, as ranked against other Baltimore areas, remained third both in 2000 and 2011. The violent crime ranking rose to third place in 2011 from sixth in 2000. Unemployment rose from 10.8 percent in 2000 to 11.7 percent in 2011, according to the most recent data.

“Except on game days, the whole area is vacant,” said Julian Lapides, a former state legislator who opposed public funding. “It’s a big hole in the center of the city.”

Colts’ Departure
After the Colts left in March 1984, the Orioles demanded a new ballpark, and Schaefer, first the mayor of Baltimore and later the Maryland governor, pushed to build that stadium and another to lure a football team.

Schaefer settled on a former downtown rail yard and argued that it would drive development to the west from the city’s already revived Inner Harbor waterfront.

Studies back to the 1970s promoted the site, finding easy access to parking and transportation, as well as the room to build other stadiums.

“There are vast opportunities for more redevelopment or higher density development in the Camden Stadium area,” said a January 1986 memo from the city’s economic development staff.

One of tools Schaefer used to press for stadium financing was a report by the Maryland Department of Business and Economic Development that said the state’s economy would lose $104 million if the Orioles left.

At the time, Harvard’s Long said, many people in Baltimore were so determined to keep the Orioles they were willing to pay money out of their own pockets to do it.

‘Happily Paid’
“My husband lived in Baltimore during the period in which Camden Yards was built -- he was a teenager,” she said. “He says if it was $20 a head for every person in Baltimore to build Camden Yards, everybody in Baltimore would have happily paid that $20 because Camden Yards gave them something to brag about at a time when Baltimore had nothing to brag about.”

From the day it opened on April 6, 1992, with the Orioles beating the Cleveland Indians 2-0, the red-brick façade and the bleachers’ city views made it an architectural model. Playoff runs by the Orioles of the Cal Ripken Jr. era and popularity of the new facility among residents of both Baltimore, its suburbs and nearby Washington, D.C., raised attendance in its earliest years.

That helped Camden Yards become regarded as something more: a model of how a ballpark could remake the economy of an economically challenged city.

Blazing Trail
Former Maryland Governor Schaefer “blazed a trail for future redevelopment around the country” by pushing to build the stadiums in Camden Yards, said Wasserman, Schaefer’s former chief of staff, now senior vice president at the University of Maryland Medical System in Baltimore.

Camden Yards was used to promote stadiums in other cities, sometimes with disastrous results, such as in Cincinnati.

“There is a widely held perception that the Baltimore experience breaks the mold, and indeed holds out the possibility that if only other cities can replicate Camden Yards’ magic, they too can get rich from professional sports,” wrote the economists Bruce Hamilton and Peter Kahn in a 1996 study of the ballpark’s economics. “Even at Camden Yards, public expenditure on the baseball stadium cannot be justified on grounds of local economic development.”

Attendance at the Baltimore park also fell after its initial surge. Since 2006, attendance has just once reached the 2.3 million a year that was projected in a 1988 study for the authority.

Bottom Half
That places the team in the bottom half of the 30-team league. Attendance in 2012, a year the team made the playoffs, totaled 2.1 million people, up from 1.8 million in 2011. It rose to 2.3 million this year.

“We thought it would help hotels, bars and restaurants and strengthen that part of downtown,” Belgrad said. “At first we had sellouts and it lived up to the projections. But attendance dropped after that.”

In 1998, the authority opened what’s now M&T Bank Stadium at the site, after talking the NFL’s Browns into leaving Cleveland. The team, renamed the Ravens, won Super Bowls after the 2000 and 2012 seasons.

The authority often operates at a loss. It lost $12.3 million in 2012 and $5 million in 2011, even after state and local subsidies of $18.2 million and $22 million, respectively.

Other Expenses
Those losses are attributable to expenses at other facilities, such as the Baltimore City Convention Center and the Ocean City Convention Center, Raith said. From time to time, such as in the strong attendance years of 2012 and 2013, Camden Yards generates a surplus. In some lower attendance years, the authority has lost money on the ballpark, Raith said.

The state’s payment for debt service at Camden Yards will be $23 million in 2014, Raith said. The city pays $1 million a year.

The Orioles pay rent based on a percent of revenue and the Ravens pay all operating and maintenance expenses, according to a 2012 financial statement. Revenue from admission taxes totaled about $9.8 million in 2012.

The authority also pays for maintenance and upgrades, such as a renovated center field rooftop deck in 2012 to the baseball stadium.

Michael Frenz, executive director of the stadium authority, attributed the losses to depreciation of assets and said the baseball and football stadiums are collectively generating positive cash flow. Frenz acknowledged that the area west of the stadiums hasn’t developed as hoped. He blamed that on the slowdown in the national economy.

‘Strong Return’
Baltimore’s mayor, Stephanie Rawlings-Blake, said the stadiums are sources of civic pride that attract tourists and visitors.

“We have received a strong return on investment by the City and State,” she said in an e-mailed statement.

Business development in the areas around the stadium is reserved to bars and restaurants that are busy mainly on game days, Burke said. Those jobs don’t compensate for higher-paying manufacturing positions the city once featured in abundance, he said.

“It doesn’t solve the problems of the city and it doesn’t create the revenue the city needs,” said Burke, the Baltimore real estate attorney. “The neighborhoods that were strong are still strong; the ones that were poor are still poor. Having a team doesn’t change that.”




http://www.bloomberg.com/news/2013-...altimore-as-camden-reality-lags-promises.html

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Among the nation’s billionaires, one of the most sought-after pieces of real estate right now is a quiet storefront in Sioux Falls, South Dakota.

A branch of Chicago’s Pritzker family rents space here, down the hall from the Minnesota clan that controls the Radisson hotel chain, and other rooms held by Miami and Hong Kong money.

Don’t look for any heiresses in this former five-and-dime. Most days, the small offices that represent these families are shut. Even empty, they provide their owners with an important asset: a South Dakota address for their trust funds.

In the past four years, the amount of money administered by South Dakota trust companies like these has tripled to $121 billion, almost all of it from out of state. The families needn’t actually move to South Dakota, or deposit their money at a local bank, or even touch down in the private jet. Little more than renting an address in Sioux Falls is required to take advantage of South Dakota’s tax-friendly trust laws.

States like South Dakota are “creating laws that are conducive to a massive exploitation of a federal tax loophole,” said Edward McCaffery, a professor at the University of Southern California’s Gould School of Law. “We have a tax haven in our midst.”

South Dakota’s sudden popularity illustrates how, at a time of rising U.S. economic inequality, the wealthiest Americans are embracing ever more creative ways to reduce taxes legally. Executives at South Dakota Trust Co., one of the biggest in the state, estimate that one-quarter of their business comes from special vehicles known as “dynasty trusts,” which are designed to avoid the federal estate tax. Creation of such trusts has surged in recent years as changes in federal law enabled more money to be placed in them.

Dynastic Wealth

While the super-rich use various tools to escape the levy - - some have exotic names like the “Jackie O” trust and the “Walton GRAT” -- the advantage of dynasty trusts is that they shield a family’s wealth forever. That defies the spirit of the estate tax, enacted almost 100 years ago to discourage the perpetuation of dynastic wealth.

The dynasty trust isn’t South Dakota’s only lure. Another attraction, for customers in places like New York and Massachusetts, is the chance to shelter their investments from income taxes in their home states. In November, a government commission in New York recommended tightening trust laws to avoid income-tax leakage to states like South Dakota, estimating the change would raise an extra $150 million a year.

Prairie Bermuda

Still others are drawn to South Dakota’s iron-clad secrecy, and protections of trust assets from creditors and ex-wives. Many of these features emulate those available in Bermuda and other island havens. Some wealthy families are also attracted by South Dakota rules that enhance their control over investment decisions and make it easier for them to set up their own trust companies rather than rely on a bank trustee.

In South Dakota, a farm state that’s home to two of the 10 poorest counties in the U.S., lawmakers say they’re bolstering the trust industry to generate work for local law firms and bankers, and forge ties with prosperous families that may one day decide to build a factory or a warehouse here. The legislators are turning the Mount Rushmore State into the Bermuda of the prairie.

As much as anyone, Pierce H. McDowell III can take credit for this transformation. He works upstairs from the hall of empty offices, on the second floor of the old Kresge five-and-dime, where he’s president of South Dakota Trust Co.

American Siberia

At 56, McDowell has been promoting the state he affectionately calls “North America’s Siberia” for most of his career. In 1993, he published an article in a national estate-planning journal recommending that wealthy people across the country establish dynasty trusts in South Dakota.

Because the estate tax is imposed on large fortunes at death, McDowell wrote, wealth that’s big enough to last for generations will have to contend with multiple tax bills. A father pays the tax when he leaves his money to his children, who pay again when they pass it down. Each generation faces a toll. The current rate is 40 percent.

McDowell’s solution was for the father to establish a never-ending trust that pays each generation of heirs only what they spend, while the rest of the money grows. In 1993, when McDowell was writing, that wasn’t possible in 47 of the 50 states because of an ancient rule limiting the duration of trusts to the lifetime of a living heir, plus 21 years. The concept has been a part of Anglo-American jurisprudence since a case decided by England’s Lord Nottingham in 1681.

Fortune Shield

South Dakota repealed that rule in 1983, and unlike Idaho and Wisconsin -- the other two states without the provision -- it had no income tax. So, McDowell wrote, a trust set up here could shield a big fortune from taxes for centuries, escaping tax bills as it hands out cash to great-great-great-grandchildren and beyond.

Over dinner at a Sioux Falls restaurant this month, McDowell elaborates on the idea. He has curly gray hair and a quick laugh, and he’s wearing an open collar under a quilted winter vest. He’s known around town for making the one-mile trek to his office on a fat-tire bicycle, even in December.

“I like to equate it to the wine in this glass,” McDowell says, covering his Cabernet with his right hand. “Here you’ve filled it to the rim and push it downstream to the next generation. You can sip from it, you can have the equivalent of outright ownership, but you don’t own it under the law. Your children -- they too will have the opportunity to sip from it.” He cups his hands as if to cradle the precious liquid.

“In most states, the glass has to pour out completely in a generation or two. We did away with that in 1983.” He chops the air with his hand.

‘Trust Tsunami’

McDowell’s sales pitch got far more attractive in the past few years, when Congress gave the idea an inadvertent boost.

“I call it the trust tsunami of 2012,” McDowell said.

The reason most Americans don’t have to worry about the estate tax -- fewer than one in 700 pay it -- is because Congress applies the tax, and related taxes on other transfers to heirs, only when a fortune exceeds certain thresholds. For complicated reasons, the amount that most people can place in dynasty trusts is usually limited to one of these exemptions, which was set at about $1 million throughout the 1990s. It’s the size of the glass into which a wealthy family can pour the wine.

Throughout the 2000’s, this exemption rose, and by 2011, it reached a record $5 million per individual. The temporary law was scheduled to expire after 2012, at which point it would revert to $1.4 million. Congress didn’t act to make the higher amount permanent until Jan. 1, 2013.

Trust Rush

With the fate of the exemption uncertain, McDowell said his clients rushed to meet the deadline during the last few months of 2012, creating billions of dollars’ worth of new trusts. He had to turn away new customers, and hire retirees to handle the crush of paperwork. There were late nights and shortened Christmas vacations. By the end of the year, he said he’d added about 500 trusts to his rolls, more than twice the number in a typical year.

For the richest families, even a $5 million dynasty trust represents only a fraction of their fortunes, so lawyers have invented complicated strategies to squeeze bigger sums into the vehicles -- as much as $39 million, according to a presentation by McDowell’s firm published last year. Such aggressive maneuvers, once common, have become rare in recent years, McDowell said.

Office Space

McDowell’s firm now administers trusts worth $14 billion, according to its website, almost all of them originating in other states. An additional $75 billion is overseen by the offices downstairs, each of which is technically a separate trust company catering to just one family. The companies pay rent to McDowell for the office space, and fees for handling paperwork and administrative duties like filing tax returns; McDowell declined to comment on the price of these services. All of these are necessary steps if the families want to prove that the trusts are truly South Dakotan.

The tenants include companies like Carlson Family Trust Co., serving the Minnesota family behind Radisson and the TGI Friday’s restaurant chain, and JHN Trust Co., linked in state incorporation papers to the family of the late New York hedge fund pioneer Jack Nash. Other companies have ties to Thomas Peterffy, the Connecticut online-brokerage billionaire; the descendants of a namesake of the Dillon Read & Co. investment bank; and the heirs of a Peruvian sugar plantation, state filings show.

Italian Castle

Trusts overseen in the Kresge five-and-dime building hold all kinds of assets, from stakes in private companies to a castle in Italy. While their holdings aren’t public, securities filings sometimes offer a glimpse. In July, the two top executives at Monster Beverage Corp., the Corona, California-based energy drink maker, shifted $478 million of their stock to undisclosed “entities” controlled by a trust company based in the building.

In 2010, the Pritzker family, whose members include U.S. Commerce Secretary Penny Pritzker, revealed in a securities filing that one branch had moved $360 million of Hyatt Hotels Corp. (H) stock to trusts overseen by a native South Dakotan named Thomas J. Muenster. Muenster, whose sister married a Pritzker, maintains an office in the Kresge building.

The SEC disclosures don’t show whether any of these moves resulted in federal or state tax savings; the amounts exceed what one individual could put in a dynasty trust. Most state and federal tax filings are private, and McDowell declined to comment on specific clients. He said most families that set up private trust companies are attracted by South Dakota’s flexible trust management rules rather than tax avoidance.

‘Family Tradition’

The Monster executives declined to comment through a spokeswoman, as did the Carlson family. Jay Robert Pritzker, his sister Penny Pritzker, and his brother-in-law Muenster didn’t respond to messages seeking comment, nor did Peterffy or Joshua Nash of JHN.

“Our family tradition has been to keep things private,” said Mark Collins, a manager of Dillon Trust Co. “We prefer to keep it that way.”

In 2007, the Wrigley family, heirs to the candy fortune, transferred oversight of family trusts holding $1.9 billion of company stock to a private trust company in the Kresge building, according to an SEC filing.

The family picked South Dakota because of the state’s favorable laws governing the formation of private trust companies, the Chicago family said last week in a statement attributed to William Wrigley Jr. The family said the move didn’t involve any state or federal tax savings.

Disinterested Congress

President Barack Obama has called for closing the dynasty trust loophole in annual budget proposals, even though the change wouldn’t boost tax receipts under his administration. The impact of dynasty trusts on federal revenue is far in the future -- though potentially enormous, said Lawrence Waggoner, a retired professor at University of Michigan Law School.

“The federal government won’t lose out for maybe 90 years, and maybe that’s why Congress is not terribly interested in the subject,” Waggoner said. “The longer they procrastinate, you have larger and larger amounts in perpetually tax-exempt trusts.”

One clue to how much wealthy families might save comes in McDowell’s 1993 article. Just $1 million invested in a dynasty trust, and earning 12 percent a year, would swell to $1.9 billion in 85 years, he wrote -- compared with $488 million if the same trust was located in New York, subject to both state income taxes and the federal estate tax when it expired.

Beneficiaries must still pay personal income tax on distributions from these trusts, McDowell said. If a family runs out of heirs before a trust is exhausted, the leftovers are typically directed to a charity, he said.

Proven Tactic

Loosening local laws to attract out-of-state business is a proven tactic for South Dakota. In 1981, it lured Citicorp’s credit-card business -- and hundreds of jobs -- from New York by becoming the first state to repeal limits on interest rates. Other lenders followed. The credit-card industry, along with a boom in farm profits, help explain why Sioux Falls’ unemployment rate of 2.9 percent is less than half the national average. Pockets of poverty persist in American Indian reservations in the state’s midsection.

So far, the trust industry’s contributions to state coffers have been modest. Without an income tax, South Dakota doesn’t get revenue directly from the trusts. Companies like McDowell’s pay franchise taxes on their earnings, a levy that raised about $1.2 million last year, according to the state Department of Revenue, out of a state budget of about $4 billion.

‘Worth It’

Nor has the industry become a major employer. The state estimates that about 100 South Dakotans work for locally chartered trust companies. Then there are an unknown number of jobs in local trust units of national banks such as Wells Fargo & Co., and more work for local law firms and accountants. The trusts aren’t required to hire local money managers or invest in local businesses. By comparison, a typical Wal-Mart Supercenter, of which there are two in Sioux Falls, employs about 350 people.

“If you’ve got several hundred well-paying jobs, it’s worth it to us,” said Governor Dennis Daugaard, a Republican who used to travel to Minneapolis pitching tax-saving trusts when he worked at a bank in Sioux Falls. “It also gives us the opportunity to develop relationships with people who have the ability to encourage business here of other sorts. Now, I can’t point to a single case where that’s occurred yet, but I think it’s possible.”

Perpetual Trusts

When he’s away on state business in New York or Chicago, Daugaard said, he sometimes takes time to meet with wealthy clients of the South Dakota trust industry. He said he thanks them for doing business in his state.

McDowell’s 1993 article publicizing South Dakota’s advantages helped him land a job at Citicorp, setting up trusts for the bank’s clients. As the lender started promoting South Dakota’s advantages nationally, Delaware passed a similar law allowing perpetual trusts.

Alaska was next, after a fishing trip there inspired a New York estate planning lawyer named Jonathan Blattmachr to draft the legislation. A half dozen states, including Nevada and New Hampshire, now jostle for the business of the super-rich.

To try to maintain its edge, South Dakota assembled a permanent task force comprising industry players such as McDowell to monitor developments in other states and propose new legislation each year. In March, Governor Daugaard signed the group’s latest submission into law, making it harder for former spouses and their offspring to tap certain trust assets.

Eye Rolls

The bill was sponsored by the House’s Committee on State Affairs, whose chairman, David Lust, is also House majority leader and head of the trust task force. When the part-time legislature isn’t in session, Lust works at a Rapid City law firm where one of his partners is a leading trust lawyer.

Lust receives no “direct benefit” from the legislation, he said.

Bernie Hunhoff, a Democrat and the House minority leader, said some in his caucus roll their eyes when the task force’s annual proposals come up for a vote. They’re aware that the trust industry drains revenue from the U.S. Treasury, which supplies almost half the state’s budget each year, he said.

“There’s a bit of an irony there, if not hypocrisy,” said Hunhoff, editor and publisher of South Dakota Magazine. “Anything we can do to poke the federal government in the eye, or to help anybody, even wealthy strangers from 1,000 miles away, avoid taxes, that seems to be a popular thing out here.”

Still, Hunhoff said the proposals have bipartisan -- and virtually unanimous -- support.

“If we don’t provide for these kinds of trusts here, this will happen in some other state, so we might as well try to get the activity here,” he said. “If we can find opportunity for a few dozen young lawyers, I guess I’ll set my philosophical concerns aside.”





http://www.bloomberg.com/news/2013-...-dakota-addresses-to-dodge-taxes-forever.html

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Corn headed for the biggest annual drop since at least 1960 and wheat tumbled the most in five years as grain production climbs to records worldwide and outpaces demand for food, livestock feed and use in biofuels.

Corn plunged 39 percent in 2013, the worst performance among 24 commodities on the Standard & Poor’s GSCI gauge, as the U.S. harvest rose to a record, recovering from the prior season when crops were hurt by the worst drought since the 1930s. Farmers worldwide are producing record amounts of everything from soybeans to wheat, leaving food prices tracked by the United Nations 13 percent below an all-time high in 2011 and spurring banks including Goldman Sachs Group Inc. to predict further declines in crop prices in 2014.

“We’ve moved from a deficit environment to a surplus environment with big crops in the U.S.,” Chris Gadd, an analyst at Macquarie Group Ltd. in London, said by telephone today. “Rather than trying to ration demand, the function of price now is to try and find demand.”

Corn for March delivery, the most-active contract, was steady today at $4.235 a bushel as of 6:54 a.m. on the Chicago Board of Trade. Prices earlier touched $4.2225, the lowest since Dec. 17. The grain declined 0.9 percent yesterday as rain improved prospects for developing crops in South America, where conditions in some areas had been hot and dry. Futures are 50 percent below the record $8.49 a bushel achieved in August 2012 during the height of U.S. drought concerns last year.

Corn Harvest

The U.S. corn harvest, the world’s biggest, will total 355.3 million metric tons, rebounding 30 percent from the prior season, the U.S. Department of Agriculture estimates. That will push global output to a record 964.3 million tons, overtaking consumption of 932.4 million tons and spurring an increase in world inventories, the USDA says.

Soybeans fell 0.2 percent today to $13.0575 a bushel, heading for a 7.4 percent drop this year. Wheat, little changed today at $6.0075 a bushel, headed for a 23 percent decline in 2013, the biggest drop since 2008. Milling wheat traded in Paris was poised to fall 18 percent this year to 204.50 euros ($281.66) a ton on NYSE Liffe.

Annual declines in corn, soybeans and wheat were all larger than the 2 percent loss on the S&P’s GSCI commodity gauge. The MSCI All-Country World index of equities climbed 20 percent, while the Bloomberg Dollar Index, a gauge against 10 major trading partners, increased 3.4 percent. The Bloomberg U.S. Treasury Bond Index fell 3.2 percent.

Global grain production will reach 1.94 billion tons in 2013-2014, the most ever, the London-based International Grains Council estimates. Rising supplies of grain mean the world’s food-import bill may drop to $1.15 trillion in 2013, or 3.2 percent less than a year earlier, the UN estimates. Goldman Sachs said Dec. 5 that corn would drop to $3.75 a bushel and soybeans to $9.50 a bushel in 12 months.

World soybean production will rise to an all-time high of 284.9 million tons in the 2013-14 season as top-producer Brazil is expected to harvest the biggest crop ever, the USDA estimates. Wheat output will reach a record 711.4 million tons, up 8.4 percent from the prior year, according to the USDA.




http://www.bloomberg.com/news/2013-...-since-60-as-crop-prices-slump-on-output.html

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WARNING: This is not a climate or weather post. It is my quasi-annual rant on basic economics.

A conversation overheard many years ago…

Business Owner: Hey! Wanna buy this cool gadget? It allows you to make phone calls from just about anywhere. We call it a “self phone”.

Consumer: Hmm. Why would I want that? I can make calls from my office, or my home, or a gas station if I’m out and about.

Business Owner: Well, wouldn’t you like to be able to call from your car? Or not miss a call just because you are driving? What if your car breaks down and you are stuck on the highway? Or, you are at the grocery store and you forgot what your wife asked you to pick up? And what if I told you that long-distance calls on these things will eventually be free? AND…you will be able to send pictures you take with it to friends, instantly!

Consumer: Say, that does sound pretty good! What’s the catch?

Business Owner: No catch. It won’t cost much more than that Pong video game you just bought, and is way more useful. But…if the billions of dollars we are investing in this new technology pays off, some of us who have devoted our careers to developing it might get rich, since a few percent of the cost will be paid to us.

Consumer: Well, that’s ok with me! I’ll take a self phone!

Business Owner: Are you sure?

Consumer: SELF PHONE! SELF PHONE!

One of the great epiphanies of my life was finally understanding basic economics. It holds a fascination for me because so many people believe just the opposite of what is, in fact, true.

As I discuss in my book Fundanomics: The Free Market Simplified, prosperity is achieved though people having the freedom to provide as many goods and services to each other as are wanted and needed…and being rewarded for it when they succeed.

It’s really no more complicated than that.

After 30 years of studying and thinking about the continuing desire by about half of the population to achieve things like “income equality”, “wealth redistribution”, a “living wage”, etc., I’ve become convinced that the faulty thinking underlying these seemingly noble goals stems, more than anything else, from one basic misconception: that the stuff we all want and need will always get produced anyway.

If there was always the same amount of stuff being produced, no matter what tax policies and regulations we had, then redistribution of wealth would actually make some sense to me. But the modern economy requires efficiency, which in turn requires rewarding good ideas, punishing bad ideas, and inherently risky investments of large amounts of money in order to achieve economies of scale.

Even today’s poor now own cars, TVs, microwave ovens, cell phones, etc. These things do not happen by accident, and I am old enough to remember when most of the products we now take for granted were luxuries. These products only become affordable to the masses when people with the good ideas and money to invest have some hope of being rewarded if they succeed.

After all, most ideas for new products fail, and investors routinely lose large sums of money they have invested in trying to bring the new product to market. We usually only see the small fraction of people who are the winners. They have the fancy cars and the big houses. They are the ones who some are now so eager to see punished for their success.

But we usually don’t notice the far greater number of losers, those who tried to succeed with some new product, but who failed. Who is willing to step up and share in (redistribute) those failures to the rest of society, the way they want to redistribute the wealth of those who succeeded?

The only way the newest and most affordable products ever have a hope of reaching consumers is if those who develop them and risk their investment have some hope of being rewarded if they succeed.

We should celebrate the rich, not demonize them. They take the risks. They have the great ideas. They bring prosperity to the masses.

Which brings me to another truth which is not mentioned often enough: The prosperity which the rich have created for all of society in the form of better products at lower prices far exceeds the relatively small profit they get to keep as a reward for their success.

If we threaten to take those profits away from them, the energizing force that generates prosperity for all — including the poor’s cars, TVs, microwave ovens, and cell phones — will stop.

Some have called business-friendly policies “trickle-down economics”, a term which I really dislike. First, it’s not a “trickle”. The vast majority of prosperity generated by the success of business owners is literally in the hands of millions of consumers, in the form of goods which the consumers now own. The business owners and corporate executives get to keep only a tiny fraction of that wealth.

Secondly, the consumers are usually the first — not the last — to see the rewards of great new products. Businesses usually have to make sure their employees are taken care of before they can turn a profit. Furthermore, we consumers routinely get great deals on products from businesses that fail because the business spent more on developing, manufacturing, and bringing the product to market than they got in return from the sales price.

These are really simple, basic concepts. At the heart of economic prosperity is freedom. Freedom to pursue happiness, if you will. Concepts which have been understood and successfully put into practice for centuries in many countries.

Unfortunately, our government has been moving in the wrong direction, increasing the tax and regulatory burdens on businesses, killing the lifeblood of our economy.

Pandering politicians use vague and misleading arguments to claim that the economy is suffering because the rich are not sharing their wealth, or some such thing. This resonates with the low information voter. But money has no value without people actually doing things for each other. This is what a successful business enables.

You could take away all of the wealth of the rich tomorrow and put a few thousand dollars in everyone’s pockets. But then what will you do next year, when those business owners decide they will no longer risk staying in business, and all move to Coast Rica or Belize?

The truth is that the government is gradually encroaching on the freedoms businesses have traditionally enjoyed, reducing their ability to hire people and bring new, better, or less expensive products to market so that prosperity might be increased for all of society.

The government continues to prop up the stock market, giving the illusion that investors are “bullish” on American business. But they are only bullish on the government’s temporary meddling in the economy, which must eventually end as we continue to print money (which has the same effect as raising taxes) and borrow from future generations.

Unless those with the means to grow businesses are given some hope of being rewarded for risking their investments, they will not invest. That hurts everyone, in all economic classes.

It’s not rocket science, people. The government doesn’t create prosperity…it doesn’t make cell phones or cars or even pizzas. And when it has tried, it does so inefficiently because government is not punished for its failures, the way free and open competition punishes bad ideas and inefficiencies.

The main role of government in the economy should be to make sure people play fair…and then get out of the way.

Gotta go…my self phone is ringing.


http://www.drroyspencer.com/2014/01/of-self-phones-and-prosperity/

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The first known outbreak of the chikungunya virus in the Western Hemisphere has Caribbean governments working to prevent the disease from spreading and damaging the region’s tourism-dependent economies.

About 280 cases of chikungunya, which can cause severe joint pain, fever and headaches, have been reported since early December in Dutch and French Saint Martin, Saint Barthelemy, Martinique, Guadeloupe, the British Virgin Islands and French Guyana. Officials from Venezuela to the Cayman Islands have warned of the potential for the mosquito-borne virus, first identified from a patient in Tanzania in 1953, to spread. There is no treatment and the illness is rarely fatal.

“The worst case scenario would be that the impact would be significant and slow down the whole economy in the Caribbean,” James Hospedales, the executive director of the Caribbean Public Health Agency, said by telephone. “The Caribbean is the most tourism-dependent region in the world so if it spreads like wildfire you could scare away tourists.”

Caribbean economies suffered in the aftermath of the global financial crisis as tourism declined and destinations including Jamaica and Grenada struggled under debt loads that exceeded 100 percent of gross domestic product. With economies in North America and Europe rebounding, regional leaders are counting on increased tourism to boost growth.

Spreading the Word

Radisson Hotels International’s Blu resort and spa on the French side of Saint Martin, about 300 kilometers (190 miles) east of Puerto Rico, is offering complimentary mosquito repellent in every room due to the outbreak, concierge Claudette Davis said. The island’s tourism board is working with authorities on the Dutch side, known as Sint Maarten, to ensure visitors are aware of the outbreak and how to avoid it from the moment they arrive, said director Silviane John.

“We’re working closely with them to try to disseminate as much information as possible to airports, hotels and everyone over the radio, TV, newspapers and newsletters,” John said, adding that it is safe to travel to the island.

While chikungunya is a recent arrival to the region, the Caribbean and Central America have a bigger problem with dengue, which can be fatal and is transmitted by the same Aedes aegypti mosquito. About 79,000 cases of dengue were reported in the Caribbean last year, including 141 deaths, according to the World Health Organization. The Dominican Republic accounted for 111 of those fatalities. Approximately 400 million people worldwide suffer from dengue each year, the U.S. Centers for Disease Control and Prevention said.

Mosquito Control

“Governments in this region spend tens of millions of dollars every year to educate people and conduct mosquito control operations,” said Hospedales, adding that researchers may never know how chikungunya first arrived. “It’s important to strike a balance without causing alarm” in terms of warning people about the virus, he added.

Until its appearance in the Caribbean, the disease was more commonly seen in Africa, India and Southeast Asia.

If a person infected with chikungunya travels back from the Caribbean and is bitten by another mosquito, there’s a possibility the virus could spread further into new areas, said Roger Nasci, chief of the CDC’s arboviral diseases research branch.

“We’re confident that if the virus establishes itself and spreads in the Caribbean and adjacent countries, we will see the introduction of chikungunya through infected travelers,” Nasci said. “Whether it will set up local transmission, maybe eventually, but it’s hard to know the scale.”




http://www.bloomberg.com/news/2014-01-17/african-virus-outbreak-in-caribbean-prompts-warnings.html

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trysail said:

...While Poland strives above all for energy security, Merkel’s government is also seeking to lower prices for consumers. German private households pay the second-highest power prices in the EU behind Denmark, according to Eurostat data. Germans pay an average 0.29 euros a kilowatt-hour, almost double the 0.15 euros/kWh Polish households must pay...



http://www.bloomberg.com/news/2014-...ine-along-oder-neisse.html#comment-1284396967





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thør said:

I understand that individual consumers currently subsidize the industrial consumers of electricity in Germany right now. That just doesn't seem right.

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...From Russia’s perspective, the seeds of the Ukraine crisis were planted in the Cold War’s immediate aftermath. After the Soviet Union collapsed, the West essentially had two options: either make a serious attempt to assimilate Russia into the Western system or wrest away piece after piece of its former sphere of influence. Advocates of the first approach, including the U.S. diplomat George Kennan and Russian liberals, warned that an anti-Russian course would only provoke hostility from Moscow while accomplishing little, winning over a few small states that would end up siding with the West anyway.

It was only a matter of time before Russia finally reacted to its encirclement.

But such admonitions went unheeded, and U.S. Presidents Bill Clinton and George W. Bush chose the second path. Forgetting the promises made by Western leaders to Mikhail Gorbachev after the unification of Germany -- most notably that they would not expand NATO eastward -- the United States and its allies set out to achieve what Soviet resistance had prevented during the Cold War. They trumpeted NATO’s expansion, adding 12 new members, including former parts of the Soviet Union, while trying to convince Russia that the foreign forces newly stationed near its borders, in Estonia, Latvia, Lithuania, Poland, and Romania, would not threaten its security. The EU, meanwhile, expanded as well, adding 16 new members of its own during the same period...



http://www.foreignaffairs.com/articles/141538/alexander-lukin/what-the-kremlin-is-thinking

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