Gallimaufry

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http://noir.bloomberg.com/apps/news?pid=20601087&sid=a4U0nJ6_ueeA&pos=6


SEC Recommends Common Standard for Brokers, Advisers
By Jesse Hamilton and Alexis Leondis

Jan. 22 (Bloomberg) -- The U.S. Securities and Exchange Commission is recommending a common fiduciary standard for brokers and registered investment advisers who provide personalized investment advice.

The SEC said there’s a need for a uniform fiduciary standard “no less stringent than currently applied to investment advisers,” according to the staff report delivered to Congress yesterday. The common standard is needed because many retail investors don’t understand and are confused by the roles played by investment advisers and broker-dealers, the study said.

The agency was asked by Congress to look at the effectiveness of existing rules as part of the Dodd-Frank financial services overhaul law enacted on July 21. Broker- dealers currently are held to a suitability standard that calls for advice that meets their clients’ needs when a product is sold, instead of the fiduciary duty followed by registered investment advisers to put their clients’ best interests first.

“For decades, the SEC has stood by and allowed brokers to market themselves to investors as trusted advisers without requiring them to meet the most basic standard appropriate to that role -- a fiduciary duty to act in their customers’ best interests,” Barbara Roper, director of investor protection for the Consumer Federation of America, said in an e-mail. “We are encouraged by reports that suggest the commission has taken the first essential step toward correcting this anti-investor policy,” said Roper, who hasn’t fully reviewed the report.

Investor Sophistication
Retail customers “may not necessarily have the sophistication, information, or access needed to represent themselves effectively in today‘s market and to pursue their financial goals,” the study said.

Republican commissioners Troy Paredes and Kathleen Casey issued a joint statement opposing the study as written. The report “does not adequately recognize the risk that its recommendations could adversely impact investors,” according to the statement.

They also argued against any immediate use of the report to justify SEC rulemaking. “Given the lack of concrete data provided in the study and the need for additional research and analysis, we believe that any rulemaking without such consideration would be ill-conceived at best and harmful at worst,” the statement said. There’s no statutory deadline for adopting any rules to implement the standard, they said in the statement.

Uniform Standard
Seventy-six percent of about 1,300 investors surveyed said they thought financial advisers, a term used by major brokerage firms such as Bank of America Corp.’s Merrill Lynch to describe their salespeople, must uphold a fiduciary duty to their customers, according to a study released in September by groups including the Consumer Federation of America and the North American Securities Administrators Association, both based in Washington.

The Securities Industry and Financial Markets Association, the lobbying group for banks and brokerages, had said it supported a “uniform federal fiduciary standard” for those brokers dealing with retail clients. It had also said the existing standard should be revised since having brokers follow the same fiduciary standard as registered investment advisers, which is based on the Investment Advisers Act of 1940, is incompatible with the broker business model.

The study acknowledged the “historically different functions and activities of investment advisers and broker- dealers” and said the proposed fiduciary standard “would be an overlay on top of the existing investment adviser and broker- dealer regimes and would supplement them, and not supplant them.”

‘More Difficult’
“It’s possible to be a fiduciary in different business models, but some models are more difficult than others,” said Knut Rostad, chairman of the Committee for the Fiduciary Standard, a group of investment industry leaders and practitioners, according to its website, in an interview today. “If brokers just have to disclose and not mitigate conflicts then you’re eliminating the fiduciary standard as it currently exists,” said Rostad, who’s based in Falls Church, Virginia.

The study appears to preserve the ability of consumers to have access to various fee and account structures when investing, Ira Hammerman, general counsel for Sifma in Washington, said in a telephone interview yesterday. “I don’t see any major impediment to the continuation of the robust broker-dealer model, but that is something we will continue to be concerned about.”

The report also recognized the need for written guidance to broker-dealers and investment advisers on how the uniform standard would be applied, which is important as the SEC moves into the rulemaking phase, he said.

‘New Tool’
There will be more litigation brought by the SEC under the uniform fiduciary standard because it will serve as a “new tool” to bring proceedings against brokerage firms and individual brokers, said Arthur Greenspan, an attorney specializing in SEC enforcement and securities litigation at Richards Kibbe & Orbe LLP in New York, before the report was delivered.

The SEC and the Financial Industry Regulatory Authority oversee about 5,100 broker-dealers, according to the SEC. In 2009, those registered with Finra held more than 109 million retail and institutional accounts, with about 18 percent of those brokers also registered as investment advisers with a state or the SEC.

Rules and Studies
Total assets managed by brokers registered with Finra and registered investment advisers were $10.37 trillion at the end of 2009, according to Boston-based consultant Cerulli Associates.

The SEC is creating more than 100 rules and completing 20 studies required by Dodd-Frank, SEC Chairman Mary Schapiro said in Sept. 30 testimony before the Senate Banking Committee. The fiduciary study was among the first, and follows a Jan. 19 report that recommended three options for Congress to improve oversight of registered investment advisers, including having Finra oversee dually registered advisers. The agency also approved rules this week requiring more disclosure for investors who trade asset-backed securities.

 

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http://noir.bloomberg.com/apps/news?pid=20601208&sid=aJCjJ1mtRK0U


Never forget that the financial media is not subject to any rules or regulation. Opinions and "facts" are given by people who— it should be assumed— haven't got any idea what they're talking about.


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Bank Valuations Stuck at 2009 Lows Shows No Recovery
By Lynn Thomasson and Inyoung Hwang

Jan. 24 (Bloomberg) -- Valuations for U.S. financial stocks have fallen so far, it’s like the rebound from the worst crisis since the 1930s never happened.

Banks, insurers and asset managers in the Standard & Poor’s 500 Index trade at 12.3 times estimated earnings, close to the lowest level since the bull market began in March 2009, according to data compiled by Bloomberg. The group is the second-cheapest among 10 industries in the gauge even as analysts say profits will rise 18 percent this year, exceeding the S&P 500, data compiled by Bloomberg show.

While the biggest equity rally in more than five decades has lifted the S&P 500 above its level when Lehman Brothers Holdings Inc. collapsed in September 2008, the failure of price-earnings ratios to widen is a sign that gains in banks may end when government stimulus ends...

...The last time the industry was this cheap, in March 2009, the economy had been in a recession for about 14 months, the S&P 500 was at a 12-year low and regulators were conducting stress tests to determine how much capital lenders needed to cover losses.

Earnings for S&P 500 companies rose 30 percent in 2010, the fastest growth since 1995, according to analyst estimates. Profits for financial companies almost doubled, aided by the Federal Reserve’s decision to keep benchmark interest rates near zero...

...Goldman Sachs, JPMorgan Chase & Co. and Bank of America trade for less than 10 times estimated 2011 profit, making them among the 50 cheapest companies in the S&P 500, data compiled by Bloomberg show. Valuations have held steady even as the S&P 500 Financials Index gained 165 percent since March 9, 2009, leading the broader gauge’s 90 percent advance.

Financial institutions in the benchmark measure of U.S. equities are cheaper using estimated income than utilities, whose earnings are forecast to drop 0.9 percent in 2011 and 1.2 percent in 2012...

...Banks and brokerages trade at 1.2 times book value, or assets minus liabilities, compared with the 18-year average multiple of 2. Still, that marks a recovery from right after Lehman Brothers collapsed in September 2008. Two months later, Goldman Sachs was valued as low as 0.5 times book, while Citigroup’s fell to 0.1 in March 2009 and the bank required a $45 billion taxpayer-funded bailout. The companies are now valued at multiples of 1.3 and 0.9...

...Even after the Fed took steps to reduce soured credit, financial companies in the U.S. have $378 billion in loans and leases that are 90 days or more past due, data from the Federal Deposit Insurance Corp. show. The ratio of so-called noncurrent assets [ i.e., loans ] and other foreclosed properties to total assets was 3.25 percent at the end of the third quarter, compared with 0.7 percent three years ago...

...The top five U.S. commercial banks generated an estimated $28 billion in revenue from privately negotiated swaps in 2009, according to company reports collected by the Fed and people familiar with banks’ income sources...

...JPMorgan will quadruple its quarterly dividend to 20 cents a share in March, according to Bloomberg estimates that factor in criteria such as earnings and options prices. The New York-based bank, Wells Fargo & Co., Bank of America and Morgan Stanley are among at least 10 financial stocks in the S&P 500 likely to increase payouts by twofold or more this year, the data show.

The 19 biggest U.S. banks must show regulators they can withstand losses before boosting dividends or buying back shares, the Fed said in a Nov. 17 report...

...JPMorgan’s net interest margin... dropped to 2.88 percent from 3.01 percent in the third quarter. Citigroup’s fell to 2.97 percent from 3.09 percent, and San Francisco-based Wells Fargo’s narrowed to 4.16 percent from 4.25 percent.

 

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http://chart.finance.yahoo.com/z?s=BEN&t=5y&q=l&l=off&z=l&c=%5EGSPC&p=s&a=v&p=s&lang=en-US&region=US

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http://chart.finance.yahoo.com/z?s=MMM&t=5y&q=l&l=off&z=l&c=%5EGSPC&p=s&a=v&p=s&lang=en-US&region=US

http://chart.finance.yahoo.com/z?s=PEP&t=5y&q=l&l=off&z=l&c=%5EGSPC&p=s&a=v&p=s&lang=en-US&region=US

http://chart.finance.yahoo.com/z?s=GIS&t=5y&q=l&l=off&z=l&c=%5EGSPC&p=s&a=v&p=s&lang=en-US&region=US

http://chart.finance.yahoo.com/z?s=CLX&t=5y&q=l&l=off&z=l&c=%5EGSPC&p=s&a=v&p=s&lang=en-US&region=US


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wishlist

 

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http://chart.finance.yahoo.com/z?s=BEN&t=my&q=l&l=off&z=l&c=%5EGSPC&p=s&a=v&p=s&lang=en-US&region=US

http://chart.finance.yahoo.com/z?s=BLK&t=my&q=l&l=off&z=l&c=%5EGSPC&p=s&a=v&p=s&lang=en-US&region=US

http://chart.finance.yahoo.com/z?s=PG&t=my&q=l&l=off&z=l&c=%5EGSPC&p=s&a=v&p=s&lang=en-US&region=US

http://chart.finance.yahoo.com/z?s=CL&t=my&q=l&l=off&z=l&c=%5EGSPC&p=s&a=v&p=s&lang=en-US&region=US

http://chart.finance.yahoo.com/z?s=HP&t=my&q=l&l=off&z=l&c=%5EGSPC&p=s&a=v&p=s&lang=en-US&region=US

http://chart.finance.yahoo.com/z?s=K&t=my&q=l&l=off&z=l&c=%5EGSPC&p=s&a=v&p=s&lang=en-US&region=US

http://chart.finance.yahoo.com/z?s=MMM&t=my&q=l&l=off&z=l&c=%5EGSPC&p=s&a=v&p=s&lang=en-US&region=US

http://chart.finance.yahoo.com/z?s=PEP&t=my&q=l&l=off&z=l&c=%5EGSPC&p=s&a=v&p=s&lang=en-US&region=US

http://chart.finance.yahoo.com/z?s=GIS&t=my&q=l&l=off&z=l&c=%5EGSPC&p=s&a=v&p=s&lang=en-US&region=US

http://chart.finance.yahoo.com/z?s=CLX&t=my&q=l&l=off&z=l&c=%5EGSPC&p=s&a=v&p=s&lang=en-US&region=US

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wishlist

 

[trysail]

The only thing that amazes me is that it took this long for Jim Clark to figure out that Goldman is probably not the most honest people in town and doesn't know how to invest. They're good at investment banking ( a/k/a lying, cheating and stealing ) but managing money is an entirely different proposition. Having said that, I know that I wouldn't want Jim Clark for a client because I'm fairly sure he's very impatient, doesn't understand managing money, is probably a bit of a nutjob, and may be irrational. He probably isn't going to do any better at MS.


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http://noir.bloomberg.com/apps/news?pid=20603037&sid=aHOLk_ndVa.Q


Blankfein Flunks Asset Management as Clark Vows No More Goldman
By Richard Teitelbaum

Jan. 25 (Bloomberg) -- On Jan. 2, Jim Clark, a founder of such technology icons as Netscape Communications Corp. and Silicon Graphics Inc., was at home in Palm Beach, Florida, when he got an e-mail from an executive at Goldman Sachs Group Inc.’s private wealth management division. Goldman was offering Clark a chance to invest in the closely held social-networking company Facebook Inc. The deal -- through a fund overseen by Goldman Sachs Asset Management -- was being offered to other Goldman investors at the same time, Bloomberg Markets magazine reports in its March issue.

The firm would levy a 4 percent placement fee on clients, plus a half percent “expense reserve” fee. It would also require investors to surrender 5 percent of any profits, known as “carried interest,” according to a Goldman Sachs document.

Clark, 66, turned Goldman down. In June, 2009, he had yanked most of the roughly $400 million he had invested with the firm due to what he considered bad advice and poor performance, including a big hit from GSAM’s Global Alpha hedge fund. This offer, he says, just irked him further. A few months earlier, he had purchased a stake in Facebook through another firm for a lower price, he says, and without the onerous carried interest.

“I don’t think it’s reasonable,” Clark says. “It’s just another way for them to make money from their clients.”

$840 Billion
Clark isn’t the only investor unhappy with Goldman Sachs Asset Management. GSAM (often pronounced gee-sam) managed most of the $840 billion in assets Goldman oversaw in December, a figure that dwarfs the money managed by brand-name firms such as Legg Mason Inc. and Franklin Resources Inc. Yet the evidence shows that the behemoth inside the 141-year-old investment bank is generating subpar returns for investors and is a persistent headache for Chairman and Chief Executive Officer Lloyd Blankfein.

The CEO has dispatched a series of lieutenants on missions to fix the listless asset manager, which last year saw pension funds in California and Nevada withdraw a total of more than $900 million because they were unhappy with its performance and concerned about turnover in the investment management division’s ranks.

At the same time, GSAM has become increasingly important to Goldman, as the firm’s trading powerhouse has idled. Revenue from Goldman’s Fixed Income, Currency and Commodities (FICC) trading division dropped 37 percent in 2010 from a year earlier, and the firm’s investing for its own accounts could further suffer when new rules, including strict limits on proprietary trading by banks, kick in.

Turnover at the Top
Goldman declined to make Blankfein or any other executives available for comment on this story.

In March 2008, Peter Kraus, co-head of the investment division that oversaw GSAM, resigned after incentive fees -- the 20 percent that hedge and other funds slice off profits -- plunged 81 percent in fiscal 2007 and Global Alpha lost 40 percent, according to investors.

Co-head Ed Forst took over. He was one of a cadre of Blankfein confidantes known as Lloyd’s Boys, according to former employees. Forst, now 50, left after three months to take a job at Harvard University, and investment management became the job of Marc Spilker, a former co-head of U.S. equities, and Timothy O’Neill, a former senior strategist.

They were the seventh and eighth Goldman investment heads in eight years.

Separate Accounts Lag
O’Neill, now 58, and Spilker, now 46, didn’t do much better than Kraus, now 58. The division’s 2009 net revenue of $3.97 billion accounted for about 8.8 percent of Goldman’s total revenue and was down 12.8 percent from fiscal 2008 as both management and incentive fees declined.

A big chunk of GSAM’s assets are its separate accounts -- pools of money invested for institutions and wealthy individuals. EVestment Alliance LLC, an Atlanta-based research firm, tracks about $300 billion held in the accounts and finds that Goldman trailed its peers in 73.8 percent of the categories EVestment looked at during the five years ended on Sept. 30.

Chicago-based financial publisher Morningstar Inc. tracks Goldman mutual funds and found that the 338 fund share classes it looks at trailed the average return of their respective peers in every broad category, including U.S. diversified equity, non- U.S. stock and taxable bonds, over the 3-, 5- and 10-year periods ended on Dec. 31.

Yet investors have not only stuck with GSAM; they’ve added tens of billions of dollars to its assets since 2000.

‘Marketing Muscle’
“Given the golden reputation of Goldman, it’s amazing,” says Anton Schutz, founder of Rochester, New York-based Mendon Capital Advisors Corp., an asset management firm that specializes in financial stocks and doesn’t own Goldman Sachs shares. “What we thought was investing acumen has turned out to be a tribute to the firm’s marketing muscle.”

The sales prowess of the Goldman franchise lost some of its luster in the deal for Facebook, run by 26-year-old Mark Zuckerberg. Goldman had planned to sell as much as $1.5 billion of the Palo Alto-based company’s stock to clients through a GSAM-affiliated fund known as a special-purpose vehicle.

Instead, Goldman on Jan. 17 halted its offering to U.S. investors due to the copious press the deal garnered.

“Goldman Sachs concluded that the level of media attention might not be consistent with the proper completion of a U.S. private placement under U.S. law,” the firm said. Securities laws forbid investment firms from advertising such offerings to the general public.

2012 Facebook IPO
Analyst Josh Bernoff of Forrester Research Inc. in Cambridge, Massachusetts, expects a Facebook initial public offering in 2012.

Bundling Facebook shares into a GSAM special-purpose vehicle might have helped Facebook avoid a U.S. Securities and Exchange Commission requirement that any company with more than 499 investors meet SEC financial reporting requirements. Such moves are a common practice in the venture capital industry.

Goldman and the funds it manages, including GSAM hedge fund Goldman Sachs Investment Partners, invested $450 million in Facebook before the bank began recruiting investors. Digital Sky Technologies, a Russian investment firm, bought $50 million.

On Jan. 21, Facebook announced that Goldman had completed an over-subscribed offering to its non-U.S. clients for a fund that invested $1 billion in Facebook Class A shares.

Goldman is still dealing with the fallout from its last run-in with the SEC. In April 2010, the commission filed a civil suit accusing Goldman of fraud for selling a mortgage-related security called Abacus 2007-AC1 to clients without disclosing that bearish hedge fund Paulson & Co. helped pick some of the securities linked to it -- with the intention of selling the security short.

Abacus Settlement
Goldman settled the suit in July, agreeing to pay $550 million, a record for a Wall Street firm, without admitting or denying wrongdoing.

And Blankfein, 56, still hasn’t put behind him the criticism of Goldman’s controversial role in the collapse of American International Group Inc. in 2008 -- particularly its aggressive collateral calls on the credit-default swaps it had bought from AIG on subprime-packed mortgage securities, many of which it underwrote.

In April, the Senate Permanent Subcommittee on Investigations held an 11-hour hearing on Goldman Sachs’s role in the financial crisis, grilling Blankfein, Chief Financial Officer David Viniar and others about Goldman’s business practices.

“Goldman repeatedly put its own interests and profits ahead of the interests of its clients and our communities,” said Senator Carl Levin, the Michigan Democrat who chaired the subcommittee.

Market Maker
Blankfein told the Levin hearing that as a market maker Goldman had no obligation to tell clients about Goldman’s own positions in the securities it was selling.

Clients “are buying an exposure,” Blankfein told the committee. “The thing we are selling to them is supposed to give them the risk they want.”

Clark was particularly irked by the disclosures surrounding Abacus. He had met with Paulson & Co. founder John Paulson in August, 2006 and been impressed by the hedge fund manager’s plans to bet against the subprime-mortgage market. His Goldman brokers talked him out of investing with Paulson, describing him as a bit player, Clark says.

Paulson generated a 590 percent return in his flagship credit fund in 2007.

‘These Jerks’
“When it came out that Paulson had the biggest payday in history, I got angry,” Clark says. The fact that Goldman Sachs had such a close relationship with Paulson incensed Clark further.

“They just butter their own bread and charge huge fees, these jerks,” Clark says.

Goldman spokeswoman Andrea Raphael says the firm has no comment on Clark’s complaint.

The conflict between what Goldman does for itself versus what it does for its customers was addressed by Blankfein & Co. in a 63-page internal document released in mid-January. The Report of the Business Standards Committee probed a raft of issues, including conflicts of interest, transparency and disclosure, as well as the firm’s responsibilities to its clients.

The report recommended the creation of a simplified balance sheet that would make transparent the division between the deals it does for its own profit and those it carries out for its customers. As the report recommended, the firm’s operations are now divided into four reporting segments: investment banking, investing and lending, investment management and institutional client services.

A Matter of Reputation
“It is important to articulate clearly both to our people and to clients the specific roles we assume in each case,” Goldman said in the report.

Protecting the firm’s image was a high priority of the 21- member committee, led by managing director E. Gerald Corrigan and Goldman Sachs Asia Chairman J. Michael Evans.

“Goldman Sachs has one reputation,” the report says. “It can be affected by any number of decisions and activities across the firm.”

GSAM’s performance puts the firm’s reputation as a savvy investor under pressure.

“The results are, No. 1, surprising and, No. 2, disappointing,” says Richard Bove, an analyst at Stamford, Connecticut-based Rochdale Securities LLC. “First, Goldman has sold this business as one they can grow and grow very strongly. Second, they pride themselves on being able to deliver results for high-net-worth people.”

Sickly Mutual Funds
The numbers tell the tale.

According to Morningstar, just 44.9 percent of Goldman’s U.S. diversified stock funds managed to beat their peer average over the three years ended on Dec. 31. Just 34.7 percent of such funds beat their peer average over 5 years and 28.3 percent over 10 years.

Only 11.5 percent of Goldman’s foreign stock funds beat their peer average over 3 years, 6.7 percent over 5 years and zero percent over 10 years. Similar stories play out in both the taxable and municipal bond categories.

Morningstar’s calculations were done on funds holding a total of $59 billion in assets and exclude money markets. The funds are sold by brokerages, including Merrill Lynch and Edward Jones, and by regional banks.

“With just a few exceptions, these funds are chronic underperformers,” Morningstar mutual fund analyst Karin Anderson says.

Fund Missteps
Spokeswoman Raphael says the firm’s own research using Morningstar data shows Goldman mutual funds performing substantially better in certain categories, though still trailing their peers.

As for Goldman separate accounts, EVestment looked at narrower categories -- such as U.S. core high-quality fixed income and Japan small-cap equity -- and found Goldman Sachs trailing more than two-thirds of its rivals over the 3-, 5- and 10-year periods.

Missteps large and small have contributed to the poor performance. The Class A shares of Goldman Sachs Concentrated International Equity Fund, for example, were dragged down by a position in Renault SA during the three years ended on Dec. 31, according to a Morningstar performance analysis.

The stock lost more than half its value, and the fund trailed its category average by more than two percentage points for the period.

Bad Health Care Bet
The international fund’s U.S. sibling, the Goldman Sachs Concentrated Growth Fund, was hurt by its overweighting in health-care stocks, a Morningstar analysis concluded. Such shares fell because of concern over the Obama administration’s health-care law.

Another possible culprit in GSAM’s underperformance is expenses. Goldman’s diversified U.S. equity funds sport an asset-weighted average expense ratio of 1.02 percent versus an average of 0.79 percent for the U.S. diversified mutual fund universe as a whole.

Bove says GSAM may also be putting an undue emphasis on marketing.

“It could be that the focus of an asset manager within a brokerage is more sales oriented than performance oriented,” he says.

So why do investors keep their accounts at the New York firm? The prestige of the Goldman Sachs name is a big factor.

The Power of a Name
“A lot of wealthy clients like to say, ‘I have my account at Goldman, blah, blah, blah,’” says Michelle Clayman, founder of New Amsterdam Partners LLC, an investment manager that owned 267,235 Goldman shares as of Sept. 30.

Even GSAM’s once-vaunted hedge funds have lost their sizzle. Hedge-fund assets totaled $19.5 billion as of September, making Goldman the 16th-largest hedge-fund firm, according to Bloomberg Markets’ annual ranking of hedge funds. That amount was down 34 percent from Goldman’s year-end peak of $29.5 billion in 2006, when GSAM was the world’s largest hedge-fund manager.

Goldman’s incentive fees -- the 20 percent of profits that hedge funds and some other investment vehicles generate -- totaled just $65 million for the first nine months of 2010. That’s down from a peak of $962 million for fiscal 2006.

In reporting its financial results for year-end 2010, Goldman added performance payments from funds run by its merchant banking business, which had been included in trading division results, to its incentive fee totals. With such payments included, total incentive fees rose to $527 million for 2010 from $180 million in 2009.

Hedge Fund Flagship
GSAM’s flagship hedge fund today is Goldman Sachs Investment Partners, or GSIP, an $8.5 billion fund that uses fundamental research to buy and bet against stocks. It’s co- headed by Raanan Agus and Kenneth Eberts, who both moved to GSAM in 2007 from the firm’s proprietary trading desk.

GSIP’s performance has been competitive. The offshore version lost 18.9 percent in 2008 and gained 24 percent in 2009 net of fees. That compares with a 19 percent loss for the HFR Composite Index in 2008 and a 20 percent gain in 2009.

Through October, the GSIP fund returned 4.6 percent, according to Bloomberg data, a return too low to make Bloomberg Markets ranking of the world’s top 100 large funds. That compares with a 6.8 percent gain in the HFR index.

As for Global Alpha, it now manages less than $2 billion, according to an investor, down from a peak of $11 billion in 2007. The fund, which uses trading algorithms and computerized models to buy and sell everything from Polish zlotys to wheat futures, returned 3 percent in 2008, 30 percent in 2009 and was basically flat in 2010.

Quant Mayhem
In 2007, many quant hedge funds suffered because their computer models told all of them to buy, or bet against, the same instruments. As many quant funds tried to unwind their positions at once, mayhem ensued, and Global Alpha lost 40 percent.

It’s the strength of Goldman’s larger franchise that helps it hold on to investors’ money despite GSAM’s performance. On Jan. 19, Goldman reported $8.35 billion in earnings for 2010, down 38 percent from 2009 on net revenues of $39.16 billion, which were down 13 percent.

The culprit was a steep fall in client trading, with FICC trading revenue down 37 percent to $13.71 billion. Investment management revenues rose 9 percent to $5.01 billion.

Since 2000, Goldman’s assets under management have risen at an annualized rate of 11.8 percent -- with three years of decline, in the bear market years of 2002 and 2008 and in 2010.

The Goldman Brand
“Goldman is a brand,” Bank of America Merrill Lynch analyst Guy Moszkowski says. “Brands tend to be able to retain customers in situations where performance suggests they shouldn’t.”

GSAM clients benefit from Goldman Sachs’s extensive network of business relations and its dealmaking, with the Facebook investment just the latest example. Mendon Capital’s Schutz says that if investors get early access to the latest hot investment, it makes it easier to stomach poor returns elsewhere in their portfolios.

“If you get in on the next Google IPO, you’re not going to be whining too much,” he says.

Still, as the Goldman image has suffered in Congress and the popular press, its star power may be dimming. In July, CFO Viniar, responding to a question on a conference call, said that the 2010 SEC suit had had some impact on GSAM’s ability to raise money. In 2010, assets under management fell 3.6 percent as investors pulled cash from low-yielding money market and equity accounts.

$71 Billion in Outflows
All told, flows out of asset management totaled $71 billion in 2010.

In March, the $22.7 billion Nevada Public Employees’ Retirement System fired GSAM because the $600 million it had invested with the firm was trailing the Morgan Stanley EAFE index it was supposed to track by an annualized one percentage point.

“We have to take action on performance,” Investment Officer Ken Lambert said at the time. “That’s what my members are expecting.” He also cited Goldman asset management personnel changes.

In June, California’s $2.8 billion Kern County Employees’ Retirement Association pulled $347 million from two GSAM accounts. Executive director Anne Holdren cited both performance and turnover at Goldman as reasons.

Goldman has been working to get money management right for 80 years. The firm’s first foray into the field was in 1928, when it started up a partnership called Goldman Sachs Trading Corp., which invested in the then-booming stocks of banks, insurers, utilities and industrial companies.

Eddie Cantor Blues
The trust collapsed in the 1929 stock market crash, eventually losing more than 98 percent of its value.

One big loser was comedian Eddie Cantor, who spent years afterward skewering Goldman Sachs in his vaudeville act.

“They told me to buy the stock for my old age, and it worked perfectly,” Cantor quipped, according to “The Partnership” by Charles Ellis (Penguin Press, 2008). “Within six months, I felt like a very old man.”

Cantor sued Goldman Sachs for $100 million and, according to the New York Times, settled for an undisclosed sum in 1936.

Leon Cooperman, Goldman’s longtime research chief, lobbied for years to expand Goldman’s money management efforts. When GSAM was created in 1988, he served as its first CEO, leaving Goldman in 1991 to found hedge fund Omega Advisors Inc.

The Gang at Old Slip
Asset management remained a small part of Goldman until the mid-1990s, when Chairman Jon Corzine and President Henry Paulson decided to build it out after taking note of the profits being generated in asset management by rival Wall Street firms.

GSAM set up offices at 32 Old Slip, several blocks away from the parent firm’s 85 Broad St. headquarters, and formed a separate culture -- academic, collegial, less cutthroat, according to former employees. In 1994, Corzine and Paulson tapped David Ford to run GSAM, and in 1996 he was joined as co- head by John McNulty, a visionary broker in the wealth management department.

It was McNulty’s idea to organize the firm into 10 boutiques, each with a different investment strategy, independent of each other and of the front office.

The bankers and traders at 85 Broad and 1 New York Plaza looked down on the money managers, say former GSAM employees.

“GSAM has always been the stepchild at Goldman Sachs,” says author William Cohan, who’s writing a book about Goldman, scheduled to be published later this year. “It’s never been as sexy as investment banking, trading and private equity.”

Bulking Up
The firm had just $52 billion in assets under management in 1995. The next year, Goldman bought CIN Management, the pension plan of British Coal Corp., for an undisclosed amount, to gather assets and increase its visibility in Europe.

A year later, it purchased Liberty Investment Management, a growth-oriented mutual fund firm in Tampa, Florida.

Then it snapped up Commodities Corp., the Princeton, New Jersey-based firm co-founded by Paul Samuelson, a Nobel Prize winner and author of the best-selling college textbook on economics. Commodities Corp. had been a launching pad for such hedge-fund stars as Tudor Investment Corp.’s Paul Tudor Jones and Moore Capital Management LLC’s Louis Moore Bacon. It became the base for what is now the firm’s fund of funds business.

In 1994, a University of Chicago Ph.D. named Clifford Asness joined Goldman Sachs to build a quantitative research department. Asness soon began managing money and started Global Alpha in 1995.

Global Alpha Soars
In 1996, the fund scored a 111 percent return, and in 1997, a 42 percent gain. Investors clamored to give Global Alpha their money. In 1998, Asness and three colleagues went on to found AQR Capital Management LLC.

McNulty retired from Goldman Sachs in 2001, the year the firm’s assets under management hit $351 billion. Since 2007, Goldman has played musical chairs with the division’s management.

In September of that year, Forst, who had been Goldman’s chief administrative officer, was named co-head of investment management with Kraus, who had run the business, with other co- heads, since 2001. Forst, now 50, took over as sole head when Kraus left in March 2008.

Forst resigned from Goldman just three months after Kraus’s departure, taking a newly created administrative position at Harvard University reporting to President Drew Faust. In the fall of 2008, he briefly worked with Neel Kashkari at the Treasury Department in creating the new Office of Financial Stability.

To Harvard and Back
In May 2009, Forst abruptly resigned from Harvard, returning to Goldman in September, first as head of strategy and then, once more, as co-head of the investment management division, which oversees both GSAM and private wealth management. In that capacity, he replaced Spilker, a 20-year Goldman veteran who had been tapped for the post in June 2008, only to resign after a run of less than two years. He’s now president of private-equity firm Apollo Global Management LLC.

Forst’s co-head today is Tim O’Neill, another former head of strategy. One recurring element in the constant turnover: none of the new investment heads had spent their careers in asset management.

“It was demotivating,” says a former GSAM employee.

Last year, Goldman named Jim O’Neill (no relation to Tim), who was head of global economics, as chairman of GSAM. He works out of London and reports to Forst and O’Neill. One of his assignments is to keep a watch on the so-called BRIC countries -- an acronym for Brazil, Russia, India and China that O’Neill himself coined.

Reining in GSAM
The executive shake-ups are a reflection of Blankfein’s determination to crush any independent tendencies at GSAM that might be left over from the days of McNulty and Kraus, former Goldman employees say. Blankfein and his charges have pushed efforts to “Goldmanize” GSAM, according to a former GSAM executive. Among other things, that means assessing performance on short-term, rather than long-term, results.

Senior level turnover generates tensions, Merrill Lynch’s Moszkowski says, especially in investment management, where clients yank accounts with little cause.

“Investment management organizations are delicate organisms; it’s all about human capital and intellectual property,” he says.

Management continuity should be priority No. 1, money manager Schutz says.

A People Business
“The key at any asset manager is to avoid the kind of turnover GSAM has seen,” he says. “You need a history of keeping people in the same positions.”

Blankfein & Co. periodically remind investors of the firm’s commitment to expanding GSAM. In a February 2010 letter to shareholders, Blankfein and President Gary Cohn said the firm would be looking for money management clients at home and in developing markets, including Brazil, China and the Middle East. In a January investor call, Viniar said GSAM was primed for new hiring.

“There is more focus on the investment management business than on other areas,” he said.

Less publicly, Blankfein and Cohn have been overhauling GSAM in moves designed to tether it more closely to its parent, former employees say. GSAM has moved into Goldman’s new offices at 200 West St. And the head office has consolidated McNulty’s 10 investment boutiques into four broad groups: quantitative, fundamental equity, fixed income and alternative.

Compensation Overhaul
Compensation of GSAM investment professionals, which under Kraus was tied directly to performance and revenues, is now largely determined subjectively at the discretion of management, according to two former GSAM portfolio managers.

A risk manager from Goldman can demand that portfolio managers cut holdings or reduce leverage, something that didn’t happen under McNulty and Kraus. At one point, two former employees say, Goldman’s top management was demanding hourly profit and loss statements from certain teams, reflecting their short-term, trading mind-set.

Their independence gone, a parade of portfolio managers have left for rival firms or to start their own. Many newcomers come from the banking or trading side of Goldman.

None of the changes Blankfein has ushered in will matter much if the lifeblood of any asset manager -- performance -- doesn’t rebound soon.

Investors can be an impatient lot. Jim Clark, for one, didn’t wait.

“I concluded that I don’t need these hedge funds and I don’t want these Goldman Sachs managers,” he says.

In 2009, Clark moved almost all of his money to Morgan Stanley.

 

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http://noir.bloomberg.com/apps/news?pid=20601110&sid=aKAHsvPy_wvM


Moody’s Says Time to U.S. Outlook Change Shortens
By Christine Richard

Jan. 27 (Bloomberg) -- Moody’s Investors Service said its time frame for possibly placing a negative outlook on the Aaa rating of U.S. Treasury bonds is shortening as the country’s deficit widens.

The outcome of the November elections, the extension of tax cuts and the chance that Congress will not address deficit reduction have increased Moody’s uncertainty over the willingness and ability of the U.S. to reduce its debt, the credit-ratings company said today in a report.

“Although no rating action is contemplated at this time, the time frame for possible future actions appears to be shortening, and the probability of assigning a negative outlook in the coming two years is rising,” wrote Steven Hess, a senior credit officer in New York and the author of the report. The rating remains stable, according to the report.

“Because of the financial crisis and events following the financial crisis, the trajectory is worse than it was before,” Hess said in a telephone interview.

Moody’s said it expected there would be “constructive efforts” to reduce the budget deficit and control entitlement spending. It predicted long-term Treasury yields would rise toward 5 percent without surpassing that level.

The amount of marketable U.S. debt outstanding increased by 22 percent to $8.86 trillion in 2010.

Highest Debt Ratio
Spending to address the financial crisis and its fallout, including assistance to financial institutions, caused a sharp increase in the U.S. deficit and “shortened the horizon for possible rating change,” Moody’s said. U.S. debt ratios are high, compared with other top-rated nations, Moody’s said.

“In addition, the other large Aaa countries have plans to reduce deficits substantially over the coming few years, indicating that this trend may continue,” Hess said.

The U.S. has the highest ratio of government debt to revenue of any Aaa rated country, Moody’s said. The ratio, at 426 percent, is more than double that of Germany, France and the U.K. and more than four times higher than Australia, Sweden and Denmark, according to Moody’s.

Earlier today, Standard & Poor’s cut Japan’s credit rating for the first time in nine years, lowering it to AA- from AA. The company said persistent deflation and political gridlock were undermining efforts to reduce a 943 trillion yen ($11 trillion) debt burden.

The ratings firms also have reduced Europe’s so-called peripheral countries on rising deficits and slumping growth.

Greece, Portugal, Spain
Fitch Ratings cut Greece to BB+ on Jan. 14, following S&P and Moody’s in lowering the country to junk status. Moody’s began reviewing Portugal and Spain in December.

Credit-default swaps on U.S. Treasuries climbed for a fourth consecutive day, rising 1.5 basis points to 51.57 basis points, according to data provider CMA. That means it would cost the equivalent of $51,570 a year to protect $10 million of debt against default for five years.

That compares with 59.8 basis points for debt issued by Germany, 83.1 for Japan, and 897.3 for Greek bonds, the data show.

The U.S. Treasury Department said today it will reduce its borrowing on behalf of the Federal Reserve to $5 billion from $200 billion because of concerns about the federal debt limit. The administration of President Barack Obama and Congress are debating whether to raise the limit as the government approaches the current ceiling of $14.29 trillion, which the Treasury estimates will be reached between March 31 and May 16.

Focus on the debt ceiling, which was increased a year ago, has risen since Republicans won control of the House of Representatives in November with pledges to challenge the Obama administration on spending. GOP lawmakers have told the president and Democratic legislators that they will insist on specific cuts as a condition of raising the U.S. debt limit.

 

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http://noir.bloomberg.com/apps/news?pid=20601109&sid=aIjQYtEhz.is


Nespresso Will Survive ‘Plethora’ of Knock-Offs, Inventor Says
By Tom Mulier

Jan. 31 (Bloomberg) -- Nestle SA will maintain its leadership as the biggest maker of coffee capsules because of the strength of the Nespresso brand as patents on the product expire, the technology’s inventor said.

“A plethora of rival capsules will come out,” said Eric Favre, who created the first version of Nespresso in 1976 and has since left Nestle to set up a competitor. “The Nespresso brand is more important than the patents,” Favre said in an interview at the Saint-Barthelemy, Switzerland, headquarters of Monodor, his coffee-supply company.

Sara Lee Corp. and Ethical Coffee Co. became the first Nestle competitors last year to make pre-filled capsules that are compatible with Nespresso coffee-making machines. Vevey, Switzerland-based Nestle has challenged the rival products through courts and intellectual-property regulators.

Nespresso sales probably almost tripled to 3 billion Swiss francs ($3.2 billion) in 2010 from 1.2 billion francs in 2006, according to Jon Cox, an analyst at Kepler Capital Markets in Zurich.

As many as 20 rivals may eventually offer coffee that can be made with Nespresso machines, Favre said. The inventor, 63, stopped working at Nestle in 1990 and later founded Monodor, which developed a capsule that’s not compatible with Nespresso. Monodor’s system is produced by Italian coffee company Luigi Lavazza SpA outside Switzerland.

Nestle, the world’s largest food company, said in June that it had sued Downers Grove, Illinois-based Sara Lee in France for alleged patent infringement. Nestle has also sued Ethical Coffee in a Paris court, Hans-Joachim Richter, a spokesman for Nespresso, said by phone on Jan. 28.

Expiration Dates
A patent on the Nespresso system is due to expire at the end of 2012, according to Jean-Paul Gaillard, who ran Nespresso from 1988 to 1997. Gaillard has since established Ethical Coffee. Another patent on the capsules expires in 2024, he said in a phone interview Jan. 28. Ethical Coffee doesn’t infringe on any Nespresso patents, and Gaillard is “serene” about Nestle’s court case, he said.

Sara Lee is “confident our product complies with all applicable legal and regulatory requirements,” said Ernesto Duran, a spokesman, reiterating comments made in June. The company has sold more than 100 million Nespresso-compatible capsules so far, he said.

1,700 Patents
Nestle has more than 1,700 patents on the Nespresso capsule and machinery, Richter said.

“There are no patent expiries in the foreseeable future that would lessen the current protection of the intellectual property of our current capsules or product range,” the spokesman said.

Competition on coffee supplies for the Nespresso system shouldn’t be a concern to Nestle, Favre said in the interview Jan. 27.

“After 20 years, you can’t prevent the opening of the market,” Favre said. “Nestle has the know-how from the start to the finish and because of this will be able to keep its leadership position.” The executive said Monodor won’t seek to produce Nespresso-compatible capsules, which at 5.7 grams (0.2 ounce) of coffee are smaller than its units of 6.5 grams to 11 grams.

Nespresso coffee is sold only through Nestle-controlled shops and concessions. The product costs as much as 10 times the price of un-ground espresso beans, based on weight, at Swiss supermarkets. Nespresso’s earnings before interest, taxes and amortization probably total about 25 percent of sales, Jeff Stent, an analyst at Exane BNP Paribas, estimated in a May 25 report. Nestle doesn’t break out earnings by brand.

Group Margin
Nestle’s group margin on earning before interest, taxes and the costs of reorganization and impairments amounted to 15 percent of revenue in the first half of 2010. Sales growth of Nespresso exceeded 40 percent in 2007 and has slowed since. The brand’s revenue in the first nine months of 2010 increased by more than 20 percent, Nestle said on Oct. 22.

The coffee-capsule market may grow 10-fold, and eventually one-fifth of coffee may be made via capsules, Favre said. Of the drink’s worldwide yearly consumption of 800 billion cups, only 12 billion are made with capsule-based systems, he said.

Nespresso’s factory in Orbe, Switzerland, can make 4.1 billion capsules a year, and the company is expanding a plant in the Swiss town of Avenches to double capacity there to 8.8 billion capsules by 2012, according to a presentation on the company’s website.

Favre’s latest venture is a start-up called Tpresso that’s introducing machines to make tea for 5,000 yuan ($760) in China. The machines come with a crystal decanter and cups.

Tpresso, which employs 15 people and contracts out its manufacturing, is focusing on the luxury tea segment and may enter other markets next year such as Hong Kong, Taiwan, Korea and Japan, Favre said. The company is seeking partners for other countries, such as the U.S. and Germany, he added.

 

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You probably haven't heard of him but he was one of the last pioneers of rotary aviation. He was a classic American inventor and tinkerer; unfortunately, they don't make them anymore.

Kaman Corporation was a large supplier of helos to the Armed Services until a fellow by the name of Lyndon Johnson came along. Lyndon had a Texas company named Bell Helicopter as a constituent; all of a sudden— for some strange reason— Kaman didn't win new contracts.


____________________

http://www.nytimes.com/2011/02/03/business/03kaman.html?


Charles H. Kaman, Helicopter Innovator, Dies at 91
By MOTOKO RICH

Charles H. Kaman, an innovator in the development and manufacture of helicopter technology and, following a wholly different passion, the inventor of one of the first electrically amplified acoustic guitars, died on Monday in Bloomfield, Conn. He was 91.

Mr. Kaman, who had suffered several strokes over the last decade, died of complications of pneumonia, his daughter, Cathleen Kaman, said. He lived in Bloomfield.

Mr. Kaman (pronounced ka-MAN) was a 26-year-old aeronautical engineer when he founded the Kaman Aircraft Company in 1945 in the garage of his mother’s home in West Hartford, Conn. By the time he retired as chairman in 2001, he had built the Kaman Corporation into a billion-dollar concern that distributes motors, pumps, bearings and other products as well as making helicopters and their parts.

Within the aerospace industry, Mr. Kaman is best known for inventing dual intermeshing helicopter rotors, which move in opposite directions, and for introducing the gas turbine jet engine to helicopters. The company’s HH-43 Huskie was a workhorse in rescue missions in the Vietnam War.

Mr. Kaman, a guitar enthusiast, also invented the Ovation guitar, effectively reversing the vibration-reducing technology of helicopters to create a generously vibrating instrument that incorporated aerospace materials into its rounded back. In the mid-1960s he created Ovation Instruments, a division of his company, to manufacture it.

The Ovation allows musicians to amplify their sound without generating the feedback that often comes from using microphones. It was popularized in the late 1960s by the pop and country star Glen Campbell, who played it on his television show, “The Glen Campbell Good Time Hour,” and who appeared in advertisements for the company. A long roster of rock and folk music guitarists began using it as well.

With his second wife, Roberta Hallock Kaman, Mr. Kaman founded the Fidelco Guide Dog Foundation, which trains German shepherds as guide dogs for the blind and the police. Since 1981, Fidelco has placed 1,300 guide dogs in 35 states and four Canadian provinces, said Eliot D. Russman, the foundation’s executive director.

“It came down to the helicopters, guitars and dogs,” Mr. Kaman’s eldest son, C. William Kaman II, said in a telephone interview.

In addition to his daughter, Cathleen, an artist who is known professionally as Beanie Kaman, and his son William, Mr. Kaman is survived by another son, Steven; four grandchildren; and two great-grandchildren.

Born on June 15, 1919, in Washington, Charles Huron Kaman was the only child of Charles William Kaman and Mabel Davis Kaman. As a teenager, he loved building model airplanes from balsa wood and tissue paper and flying them in indoor competitions. He had once hoped to be a professional pilot but abandoned that ambition because he was deaf in his right ear.

He received his bachelor’s degree in aeronautical engineering from the Catholic University of America in 1940. After graduating, he went to work at Hamilton Standard Propeller Corporation, a unit of United Aircraft. He soon met Igor Sikorsky, another pioneer in helicopter design, who ran United’s helicopter division and who inspired Mr. Kaman to begin developing his own parts.

One of his first inventions was the “servo-flap,” which could be added to the edges of a rotor blade to help stabilize a helicopter. But one of his greatest contributions was to introduce jet engines to helicopters.

“It gave them more power,” said Walter J. Boyne, chairman of the National Aeronautic Association and the author of numerous books on aviation. “Helicopters really moved into their own.”

Terry Fogarty, who worked closely with Mr. Kaman for nearly a decade developing the K-MAX “aerial truck,” said Mr. Kaman, who developed the first remote-control helicopter in 1957, envisioned an unmanned cargo helicopter that would take over the “dull, dirty and dangerous missions.”

The company is developing such a helicopter, based on the K-MAX, and has a contract to deploy it to the Marine Corps for use in Afghanistan.

Mr. Kaman married Helen Sylvander in 1945; they divorced in 1971. Later that year he married Roberta Hallock, who died last year.

Ms. Kaman recalled her father strumming different versions of the Ovation in a studio at home, trying to figure out how deep or shallow to make the rounded back to produce the best sound.

“That was his big gift to the three of us,” she said. “When he would come home, he would play guitar.”

 

[thør]

You probably haven't heard of him but he was one of the last pioneers of rotary aviation. He was a classic American inventor and tinkerer; unfortunately, they don't make them anymore.

Kaman Corporation was a large supplier of helos to the Armed Services until a fellow by the name of Lyndon Johnson came along. Lyndon had a Texas company named Bell Helicopter as a constituent; all of a sudden— for some strange reason— Kaman didn't win new contracts.


____________________

http://www.nytimes.com/2011/02/03/business/03kaman.html?


Charles H. Kaman, Helicopter Innovator, Dies at 91
By MOTOKO RICH

Mr. Kaman could easily be defined as a “Renaissance Man.”

 

[trysail]

There is but one word for this: deranged.





Belgian Runner Completes Record 365th Marathon in Year, BBC Says
By James Cone

http://noir.bloomberg.com/apps/news?pid=20601110&sid=aszCQJ03134A

Feb. 6 (Bloomberg) -- A 49-year-old Belgian has set a record by running 365 marathon races in a year, the British Broadcasting Corp. reported.

Stefaan Engels, who started his challenge a year ago, has run a marathon every day, across seven countries, totaling about 15,000 kilometers (9,300 miles), the BBC said. His average time for each marathon was four hours, according the BBC.

Akinori Kusuda of Japan held the previous record for consecutive marathons, running 52 races in a row in 2009, the BBC reported.

Belgian Stefaan Engels completes record 365th marathon
http://www.bbc.co.uk/news/world-europe-12375646

Engels averaged about four hours to complete his marathons A Belgian runner has set a new world record by completing 365 marathon races in a year.

Stefaan Engels, dubbed "Marathon Man", began his challenge in Belgium a year ago and has since run a marathon every day across seven countries.

He crossed the finish line in the Spanish city of Barcelona after running 15,000km (9,569 miles) in a year.

"I don't regard my marathon year as torture. It is more like a regular job," the 49-year-old said.

He averaged about four hours to complete a marathon. He said his best time was 2 hours and 56 minutes.

Engels suffered from asthma as a child and had been told by doctors to avoid sport.

 

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The damn things are addictive!

http://www.modeltrainstuff.com/v/vspfiles/photos/IMR-49705-01-2.jpg

http://www.firsthobby.com/images3/ATL10000750.jpg

http://www.caboosehobbies.com/catalog/images/catalog/0085/008549724.jpg
​

 

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The staff of the database department at the Egyptian Museum, Cairo have given me their report on the inventory of objects at the museum following the break in. Sadly, they have discovered objects are missing from the museum. The objects missing are as follows:

1. Gilded wood statue of Tutankhamun being carried by a goddess

2. Gilded wood statue of Tutankhamun harpooning. Only the torso and upper limbs of the king are missing

3. Limestone statue of Akhenaten holding an offering table

4. Statue of Nefertiti making offerings

5. Sandstone head of an Amarna princess

6. Stone statuette of a scribe from Amarna

7. Wooden shabti statuettes from Yuya (11 pieces)

8. Heart Scarab of Yuya

An investigation has begun to search for the people who have taken these objects, and the police and army plan to follow up with the criminals already in custody. I have said if the Egyptian Museum is safe, than Egypt is safe. However, I am now concerned Egypt is not safe.

-Zahi Hawass, Ph.D.
http://www.drhawass.com/blog/sad-news

http://www.drhawass.com/sites/drhawass.com/files/u8403/Tut_Goddess_2011_02_12.jpghttp://www.drhawass.com/sites/drhawass.com/files/u8403/Tut%20Harpooning_2011_02_12.jpg​

 

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http://noir.bloomberg.com/apps/news?pid=20601103&sid=aZEV5iOQjv7g


Geithner Tells Obama Debt Expense to Rise to Record
By Daniel Kruger and Liz Capo McCormick

Feb. 14 (Bloomberg) -- Barack Obama may lose the advantage of low borrowing costs as the U.S. Treasury Department says what it pays to service the national debt is poised to triple amid record budget deficits.

Interest expense will rise to 3.1 percent of gross domestic product by 2016, from 1.3 percent in 2010 with the government forecast to run cumulative deficits of more than $4 trillion through the end of 2015, according to page 23 of a 24-page presentation made to a 13-member committee of bond dealers and investors that meet quarterly with Treasury officials.

While some of the lowest borrowing costs on record have helped the economy recover from its worst financial crisis since the Great Depression, bond yields are now rising as growth resumes. Net interest expense will triple to an all-time high of $554 billion in 2015 from $185 billion in 2010, according to the Obama administration’s adjusted 2011 budget.

“It’s a slow train wreck coming and we all know it’s going to happen,” said Bret Barker, an interest-rate analyst at Los Angeles-based TCW Group Inc., which manages about $115 billion in assets. “It’s just a question of whether we want to deal with it. There are huge structural changes that have to go on with this economy.”

The amount of marketable U.S. government debt outstanding has risen to $8.96 trillion from $5.8 trillion at the end of 2008, according to the Treasury Department. Debt-service costs will climb to 82 percent of the $757 billion shortfall projected for 2016 from about 12 percent in last year’s deficit, according to the budget projections.

Budget Proposal
That compares with 69 percent for Portugal, whose bonds have plummeted on speculation it may need to be bailed out by the European Union and International Monetary Fund.

Forecasts of higher interest expenses raises the pressure on Obama to plan for trimming the deficit. The President, who has called for a five-year freeze on discretionary spending other than national security, is scheduled to release his proposed fiscal 2012 budget today as his administration and Congress negotiate boosting the $14.3 trillion debt ceiling.

“If government debt and deficits were actually to grow at the pace envisioned, the economic and financial effects would be severe,” Federal Reserve Chairman Ben S. Bernanke told the House Budget Committee Feb. 9. “Sustained high rates of government borrowing would both drain funds away from private investment and increase our debt to foreigners, with adverse long-run effects on U.S. output, incomes, and standards of living.”

Yield Forecasts
Treasuries lost 2.67 percent last quarter, even after reinvested interest, and are down 1.54 percent this year, Bank of America Merrill Lynch index data show. Yields rose last week to an average of 2.19 percent for all maturities from 2010’s low of 1.30 percent on Nov. 4.

The yield on benchmark 10-year Treasury note will climb to 4.25 by the end of the second quarter of 2012, from 3.63 percent last week, according to the median estimate of 51 economists and strategists surveyed by Bloomberg News. The rate was 3.64 percent at 7:50 a.m. today in New York. The economy will grow 3.2 percent in 2011, the fastest pace since 2004, according to another poll.

“People are starting to come to the conclusion that you’ve got a self-sustaining recovery going on here,” said Thomas Girard who helps manage $133 billion in fixed income at New York Life Investment Management in New York. “When interest rates start to go back up because of the normal business cycle, debt service costs have the potential to just skyrocket. Every day that we don’t address this in a meaningful way it gets more and more dangerous.”

‘Kind of Disruption’
While yields on the benchmark 10-year note are up, they remain below the average of 4.14 percent over the past decade as Europe’s debt crisis bolsters investor demand for safer assets, Bank of America Merrill Lynch index data show.

“The market is still giving the U.S. government the benefit of the doubt,” said Eric Pellicciaro, New York-based head of global rates investments at BlackRock Inc., which manages about $3.56 trillion in assets. “What we’re concerned with is whether the budget will only be corrected after the market has tested them. Will we need some kind of disruption within the bond market before they’ll actually do anything.”

Still, U.S. spending on debt service accounts for 1.7 percent of its GDP compared with 2.5 percent for Germany, 2.6 percent for the United Kingdom and a median of 1.2 percent for AAA rated sovereign issuers, according to a study by Standard & Poor’s published Dec. 24. Among AA rated nations, China’s ratio is 0.4 percent, while Japan’s is 2.9 percent, and for BBB rated countries, Mexico devotes 1.7 percent of its output to debt service and Brazil 5.2 percent, the report shows.

Auction Demand
Demand for Treasuries remains close to record levels at government debt auctions. Investors bid $3.04 for each dollar of bonds sold in the government’s $178 billion of auctions last month, the most since September, according to data compiled by Bloomberg. Indirect bidders, a group that includes foreign central banks, bought a record 71 percent, or $17 billion of the $24 billion in 10-year notes offered on Feb. 9.

Foreign holdings of Treasuries have increased 18 percent to $4.35 trillion through November. China, the largest overseas holder, has increased its stake by 0.1 percent to $895.6 billion, and Japan, the second largest, boosted its by 14.6 percent to $877.2 billion.

‘Killing Itself’
“China cannot dump Treasuries without killing itself,” said Michael Cheah, who oversees $2 billion in bonds at SunAmerica Asset Management in Jersey City, New Jersey. “They’re holding Treasuries as a means to an end,” said Cheah, who worked at the Singapore Monetary Authority from 1982 through 1999, and now teaches finance classes at New York University and at Chinese universities. “It’s part of what’s needed to promote exports.”

At least some of the increase in interest expense is related to an effort by the Treasury to extend the average maturity of its debt when rates are relatively low by selling more long-term bonds, which have higher yields than short-term notes. The average life of the U.S. debt is 59 months, up from 49.4 months in March 2009. That was the lowest since 1984.

The U.S. produced four budget surpluses from 1998 through 2001, the first since 1969, as the expanding economy, declining rates and a boom in stock prices combined to swell tax receipts.

Tax cuts in 2001 and 2003, the strain of the Sept. 11 terror attacks, the cost of funding wars in Afghanistan and Iraq, the collapse in home prices and the subsequent recession and financial crisis has led to the three largest deficits in dollar terms on record, totaling $3.17 trillion the past three years.

‘Demonstrates Confidence’
The U.S. needs to manage its spending decisions “in a way that demonstrates confidence to investors so we can bring down our long-term fiscal deficits, because if we don’t do that, it’s going to hurt future growth,” Treasury Secretary Timothy F. Geithner said in Washington on Feb. 9.

The Treasury Borrowing Advisory Committee, which includes representatives from firms ranging from Goldman Sachs Group Inc. to Soros Fund Management LLC, expressed concern in the Feb. 1 report that the U.S. is exposing itself to the risk that demand erodes unless it cultivates more domestic demand.

“A more diversified debt holder base would prepare the Treasury for a potential decline in foreign participation,” the report said.

Foreign investors held 49.7 percent of the $8.75 trillion of public Treasury debt outstanding as of November, down from as high as 55.7 percent in April 2008 after the collapse of Bear Stearns Cos., according to Treasury data.

Potential Demand
The committee projects there may be $2.4 trillion in latent demand for Treasuries from banks, insurance companies and pension funds as well as individual investors. New securities with maturities as long as 100 years, as well as callable Treasuries or bonds whose principal is linked to the growth of the economy might entice potential lenders, the report said.

“They are opening up a can of worms with the idea of all these other instruments,” said Tom di Galoma, head of U.S. rates trading at Guggenheim Partners LLC, a New York-based brokerage for institutional investors. “They should try to keep the Treasury issuance as simple as possible. The more issuance you have in particular issue, the more people will trade them -- whether it be domestic or foreign investors.”

White House Budget Director Jacob Lew said the Obama administration’s 2012 budget would save $1.1 trillion over the next 10 years by cutting programs to rein in a deficit that may reach a record $1.5 trillion this year.

‘Roll-Over Risk’
“We have to start living within our means,” Lew said yesterday on CNN’s “State of the Union” program.

Still, about $4.5 trillion, or 63 percent of the $7.2 trillion in public Treasury coupon debt, needs to be refinanced by 2016. That gives the government a narrowing window as growing interest expense will curtail its ability to spend.

“There is roll-over risk,” said James Caron, head of U.S. interest-rate strategy at Morgan Stanley in New York, one of 20 primary dealers that trade with the Fed. “It’s a vicious cycle.”

 

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^DJI ^GSPC ^TYX ACV BMY LKODN.IL BEN BOH BP BTI COP CAG FCNCA TDW DF FO WFC APC STO BIV KAMN HSY KEY ABD MRK MAN KFT MO PNC FINN.PK BRK-B NSC LM NSRGY.PK HBI PFE PXD RDS-A RO.S RAI RDS-B SCHW CVX CLX PM PBR SUN TOT TROW UL FITBP UVV VBIIX VWEHX VTSAX STI $$OTHER $$CASH ^TNX ^FVX CSX GSK SHLM HP DOV BAX EMR EMN ^IRX AYI RDSA.L FP.PA BP.L ULVR.L RDSB.L BATS.L ABKFQ.PK MRK.F EP FCBN.OB AYE FP.PA EP-PC MON HRB GSK.L PTR 0857.HK LUKOY.PK ECVTF.PK EVT.TO USDCAD=X USDCHF=X USDGBP=X USDRUB=X EURUSD=X USDCNY=X USDHKD=X ROG.VX NESN.VX ZURN.VX RHHBY.PK NOVN.VX ZFSVF.PK BRKA XOM GE IBM DOW TATE.L TATYY.PK TATYF.PK PBRA USDBRL=X PETR4.SA MKGAF.PK RF ATAD.L BTAFF.PK THS ECA BND



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Utah
Carpetmuncher Carpetmunchers
http://forum.literotica.com/showpost.php?p=36785920&postcount=6156

http://forum.literotica.com/showpost.php?p=36785920&postcount=6118

http://forum.literotica.com/showpost.php?p=37136799&postcount=6334


http://forum.literotica.com/showpost.php?p=40157219&postcount=7762

CFNM
http://forum.literotica.com/showpost.php?p=46748246&postcount=9449


http://forum.literotica.com/showpost.php?p=46500926&postcount=9438


http://forum.literotica.com/showthread.php?p=46500926#post46500926

AmberRayne

http://forum.literotica.com/showpost.php?p=91404441&postcount=2209

http://forum.literotica.com/showthread.php?t=1480324&page=89

 

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http://noir.bloomberg.com/apps/news?pid=20601110&sid=aYXKRhOYp738


When Pretending Fails to Hide Bankruptcy
by Laurence Kotlikoff

Feb. 23 (Bloomberg) -- Our country is bankrupt. It’s not bankrupt in 30 years or five years. It’s bankrupt today.

Want proof? Look at President Barack Obama’s 2010 budget ( http://www.gpoaccess.gov/usbudget/ ). It showed a massive fiscal gap over the next 75 years, the closure of which requires immediate tax increases, spending cuts, or some combination totaling 8 percent of gross domestic product. To put 8 percent of GDP in perspective, this year’s employee and employer payroll taxes for Social Security and Medicare will amount to just 5 percent of GDP.

Actually, the picture is much worse. Nothing in economics says we should look out just 75 years when considering the present-value difference between future spending and future taxes. Over the full long-term, we need an extra 12 percent, not 8 percent, of GDP annually.

Seventy-five years seems like a long enough time to plan. It’s not. Had the Greenspan Commission, which “fixed” Social Security back in 1983, focused on the true long term we wouldn’t be sitting here now with Social Security 26 percent underfunded. The Social Security trustees, at least, have learned a lesson. The 26 percent figure is based on their infinite horizon fiscal- gap calculation.

But the real reason we can’t look out just 75 years is that the government’s cash flows (the difference between its annual taxes and non-interest spending) over any period of time, including the next 75 years, aren’t well defined. This reflects economics’ labeling problem. If you use different words to describe the receipts taken in and paid out each year by the government, you produce entirely different cash flows and an entirely different fiscal gap measured over any finite horizon.

Matter of Language
It’s only the value of the infinite horizon fiscal gap ( http://www.cbo.gov/doc.cfm?index=11579 ) that is unaffected by the choice of labels of language. Take this year’s payroll tax contributions. Let’s call these transfers from workers to Uncle Sam “borrowing” by the government, rather than “payroll taxes,” since the money will be paid back as future benefits. If the future payback isn’t in full (equal to principal plus interest), we can call the difference a “retirement tax.” Presto! With this change of words, our 2011 deficit of about 10 percent of GDP is boosted another five points to 15 percent.

With one set of words, taxes are higher now and lower latter. With the other set of words, the opposite is true. But neither set of labels makes more economic sense than the other or changes what the government takes, on balance, from any person or business in any given year.

This is no surprise. The math of economics rules out an absolute measure of the deficit, just like the math of physics rules out an absolute measure of time.

Bottom Line
The bottom line, then, is that we need to look at the infinite-horizon fiscal gap not just for Social Security, but for the entire federal government. That analysis, based on the Congressional Budget Office’s long-term alternative fiscal scenario, shows an unfathomable fiscal gap of $202 trillion. And covering this gap requires coming up with the aforementioned 12 percent of GDP, forever.

If this gives you the willies, there’s a ready narcotic -- the president’s 2012 budget ( http://www.whitehouse.gov/omb/budget/Overview/ ), which shows that most of our long- term fiscal problem has miraculously disappeared; the fiscal gap isn’t 12 percent of annual GDP. Nor is it 8 percent. It’s now 1.8 percent.

This fantastic improvement in our finances is due, we’re told, primarily to the Independent Payment Advisory Board. This board, to be established in 2014 (after the next election, of course) is charged with recommending cuts to Medicare and Medicaid providers when their costs grow too fast.

Repealing Cuts
We’ve had laws mandating such cuts for years, and they are routinely repealed. Indeed, President Obama signed the latest such repeal last June. But rather than laugh out loud at this cost-control mechanism, the Medicare trustees, three-quarters of whom were appointed by the president, assume in their 2010 report ( https://www.cms.gov/ReportsTrustFunds/downloads/tr2010.pdf ) that these cuts will be made -- to the dollar. And the 2012 budget cites the report’s fictional forecast as its authoritative source.

No one takes the 2010 Medicare trustee report’s long-run projections seriously, least of all Richard Foster, Medicare’s chief actuary. Foster added this statement to the end of the report: “The financial projections shown in this report for Medicare do not represent a reasonable expectation…in either the short range…or the long range.”

This isn’t the first administration to conceal our long- term fiscal problem. Back in 1993, Alice Rivlin, then deputy director of the Office of Management and Budget, asked me and economists Alan Auerbach and Jagadeesh Gokhale to prepare a long-term fiscal gap/generational accounting for inclusion in President Bill Clinton’s 1994 budget.

Politics Triumphs
We worked for months on the analysis, but two days before the budget’s release, the study was excised from the budget. We were shocked, but, in retrospect, the politics are clear. The Clinton administration wanted to claim it was fiscally prudent and the study, which showed unofficial debt growing at enormous rates, showed the opposite.

The fiscal gap’s next near appearance in a president’s budget was in 2003. Treasury Secretary Paul O’Neill commissioned Gokhale and Kent Smetters to do the study. It showed a massive $45 trillion fiscal gap -- not a great basis for pushing tax cuts or introducing the prescription-drug benefit for seniors, known as Medicare Part D. O’Neill was ousted on Dec. 6, 2002, and a couple of days later the fiscal-gap study was discarded.

I’m not sure whether censoring the fiscal gap is more dishonorable than fudging it. What I do know is that we can’t assume our problems away and that I expected far better of this president when I voted for him.

 

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The underlying long-term expected annual return assumptions (without fees) are 10% for stocks; 6.5% for bonds; and 4.75% for short-term bonds.

Source: T. Rowe Price Associates, Inc.

https://www3.troweprice.com/ric/ricweb/public/ricResults.do




Net-of-fee expected returns use these expense ratio: 1.211% for stock, 0.762% for bonds, and 0.648% for short-term bonds. The portfolio is either determined by the user or based on pre-constructed allocations that consider the user's current age and shift throughout the retirement horizon (as displayed in the graphic "Why should I consider this?" in the Asset Allocation section). The initial withdrawal amount is the percentage of the initial value of the investments withdrawn on the first day of the first year. In subsequent years, the amount withdrawn grows by a 3% annual rate of inflation. Success rates are based on simulating 1,000 market scenarios and various asset-allocation strategies.

IMPORTANT: The projections or other information generated by the T. Rowe Price Retirement Income Calculator regarding the likelihood of various investment outcomes are hypothetical in nature, do not reflect actual investment results, and are not guarantees of future results. The simulations are based on assumptions. There can be no assurance that the projected or simulated results will be achieved or sustained. The charts present only a range of possible outcomes. Actual results will vary with each use and over time, and such results may be better or worse than the simulated scenarios. Clients should be aware that the potential for loss (or gain) may be greater than demonstrated in the simulations.

The Retirement Income Calculator won the 2009 Mutual Fund Education Alliance Star Award for Best Retail Online Innovation.

The results are not predictions, but they should be viewed as reasonable estimates. Source: T. Rowe Price Associates, Inc.

____________________


https://personal.vanguard.com/us/insights/retirement/living/retirement-income-withdrawal-strategy

Setting a 4% annual withdrawal rate from a portfolio is reasonable for many retirees. That may seem conservative, but remember you may be retired for 30 years or more.

© 1995–2011 The Vanguard Group, Inc.


https://personal.vanguard.com/us/insights/retirement/withdrawal-in-retirement-tool



Spending and inflation. The tool assumes you will increase the dollar amount of withdrawals you make over time to match the rate of inflation. In other words, rather than assuming you will simply withdraw a constant dollar amount in all years, the tool assumes you will keep your total purchasing power constant over time by increasing your dollar amount of spending each year at the rate of consumer price inflation.

Asset allocation. The tool assumes you will maintain a constant asset allocation over your entire planning horizon by rebalancing your portfolio at the end of each year. (The tool does not, however, model the tax consequences or other costs of rebalancing the portfolio.) The terms conservative, moderate, and aggressive refer to a portfolio's asset allocation—that is, its mix of different asset types. For the purposes of the illustration, a conservative portfolio is one in which stocks make up no more than 35% of the mix, a moderate portfolio is 35% to 65% stocks, and an aggressive portfolio is at least 65% percent stocks.

Historical return period. The tool uses the period from 1926 through 2008 as the basis for both the historical rate of return and inflation assumptions because it encompasses a variety of different economic and investment environments: periods of sharply rising inflation and interest rates, of relatively low inflation and falling interest rates, and of stable inflation. Returns of the indexes do not reflect expenses or fees.

 

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The Complaint:
http://online.wsj.com/public/resources/documents/022811bigshort.pdf

_____________________

http://blogs.wsj.com/deals/2011/02/28/big-short-author-michael-lewis-sued-for-defamation

February 28, 2011
‘Big Short’ Author Michael Lewis Sued for Defamation
By Stephen Grocer

Author Michael Lewis and hedge fund manager Steven Eisman have been sued by a New Jersey asset manager for defamation over Lewis’s bestseller on the mortgage meltdown, Deal Journal colleague Chad Bray reports over at the Law Blog.

Wing Chau, who runs New Jersey asset management firm Harding Advisory LLC, claims “The Big Short: Inside The Doomsday Machine” falsely depicts him as one of the “villains” behind the U.S. financial crisis.

“The entire passage depicts Mr. Chau as someone who ignored his professional responsibilities, made misrepresentations to investors, charged money for work that was not performed, had no stake in the CDOs he managed, was incompetent or reckless in carrying out his responsibilities, and violated his fiduciary duties by putting the interests of ‘Wall Street bond trading desks’ above those of his investors,” the lawsuit said.

___________________

http://blogs.wsj.com/law/2011/02/28/the-big-suit-michael-lewis-sued-over-mortgage-meltdown-book/


February 28, 2011
The Big Suit? Michael Lewis Sued Over Mortgage Meltdown Book
By Chad Bray

Author Michael Lewis and hedge fund manager Steven Eisman have been sued by a New Jersey asset manager for defamation over Lewis’s bestseller on the mortgage meltdown.

Wing Chau, who runs New Jersey asset management firm Harding Advisory LLC, claims “The Big Short: Inside The Doomsday Machine” falsely depicts him as one of the “villains” behind the U.S. financial crisis. A link to a copy of the complaint: http://online.wsj.com/public/resources/documents/022811bigshort.pdf

Lewis is the author of “Liar’s Poker,” about his experience on Wall Street, “Moneyball” The Art of Winning an Unfair Game,” about the Oakland A’s strategy of using statistical analysis in acquiring and paying talent, and “The Blind Side” about football’s left tackles.

The lawsuit, filed in federal court in Manhattan late Friday, focuses on a passage of the book that purports to recount a conversation between Chau and Eisman, who made a successful bet in 2007 that the housing bubble was about to burst.

“The entire passage depicts Mr. Chau as someone who ignored his professional responsibilities, made misrepresentations to investors, charged money for work that was not performed, had no stake in the CDOs he managed, was incompetent or reckless in carrying out his responsibilities, and violated his fiduciary duties by putting the interests of ‘Wall Street bond trading desks’ above those of his investors,” the lawsuit said.

The accusations about Chau, purportedly based on statements or recollections of Eisman, are false, according to the lawsuit.

Eisman and a spokeswoman for Lewis’s publisher, W.W. Norton & Co., didn’t immediately respond to requests for comment Monday.

 

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http://noir.bloomberg.com/apps/news?pid=20601110&sid=aED7y3HGKETw


Study This to See Whether Harvard Pays Off
by Laurence Kotlikoff

March 9 (Bloomberg) -- The notion that education pays and that better education pays better is taken for granted by almost everyone. For college professors like me, this is a very convenient idea, providing a high and growing demand for our services.

Unfortunately, the facts seem to disagree. A recent study by economists Stacy Dale and Alan Krueger showed that going to more selective colleges and universities makes little difference to future income once one accounts for the underlying ability of the student. Their work confirms other studies that find no financial benefit to attending top-tier schools.

It’s good to know that Harvard applicants can safely attend Boston University (my employer), and that better higher education doesn’t pay better. But does higher education pay in the first place?

The answer seems obvious. On average, doctorate holders earn more than those with master degrees, who earn more than those with bachelor degrees, who earn more than high school graduates. How can education not pay?

The answer is that education isn’t free. Top undergraduate programs are now charging students $50,000 a year to eat, sleep and, hopefully, attend class. But that’s just the direct cost. Education’s hidden cost is the time spent learning rather than earning.

Making School Pay
For education to pay it has to cover all its costs. It also has to make up for the progressive income tax, which taxes annual earnings, not lifetime earnings. If person A earns the same amount over her lifetime as person B, but does so in fewer years, A’s annual earnings, in the years she works, will be higher than B’s. This compressing of lifetime earnings into fewer years can potentially land person A in higher tax brackets during her working years.

Social Security’s payroll tax cuts the other way. It’s regressive, thanks to its ceiling on taxable income. Earnings bunching can lower lifetime payroll taxes provided the bunching pushes annual earnings above the ceiling, now at $106,800.

Social Security’s benefits formula provides no reward for paying taxes early. This too helps those who stay in school and start their careers late. On the other hand, the formula doesn’t credit earnings above the ceiling, which can penalize the better educated.

But what’s the bottom line? Does education pay?

Not necessarily. Consider four equally talented 18 year- olds -- Joe, Jill, Sue, and Matt. Joe takes a pass on attending college. Instead, he decides to become a plumber.

Jill chooses medicine. She goes to an expensive private college for four years, an expensive medical school for four years, does a low-paying internship for two years followed by a low-paying residency for one year, and finally, 11 years after high school, gets a real job, as a general practitioner.

Teaching Education
Sue and Matt both get bachelor’s degrees in education at the same expensive college Jill attends, but Matt spends an extra two years after college getting his masters.

All four of these hypothetical kids settle down in Ohio, remain single, and retire at 62. At age 50, the peak earnings year for all four, Joe, the plumber, makes $71,685 (in today’s dollars). Sue, the teacher, makes $89,584. Matt, the teacher with the master degree, makes $103,250. And Jill, the doctor, makes $185,895. All figures and others used in this analysis are based on earnings data by age, state and occupation.

Earning Power
Who ends up with the higher lifetime spending power assuming Sue, Matt, and Jill had to borrow, at high prevailing interest rates, to pay tuition and cover living expenses while in school?

To answer this question, I used ESPlanner, my company’s financial planning software. The program figures out, in two seconds, each kid’s sustainable spending, taking account of educational costs, foregone earnings, annual federal and state income taxes, annual payroll taxes, Social Security benefits, and Medicare Part B premiums.

Jill, the doctor, has the highest living standard. She gets to spend $33,666 year in and year out from age 19 through 100 This is after paying all her taxes and Medicare Part B premiums. Age 100 is the maximum age to which the kids might live and, thus, must plan.

Come again? Only $33,666? That’s a far cry from Jill’s peak earnings of $185,895. Yes, but remember, Jill has only about 31 years of significant earnings to cover some 81 years of living. And when Jill works, she gets nailed by the taxman. At age 50, for example, Jill pays 36 percent of her earnings in federal and state income taxes and payroll taxes.

Finally, Jill has a bucket load of student loans to repay at an assumed 5 percent real interest rate, which exceeds the assumed 3 percent real return she can safely earn on her savings.

Plumber’s Pay
To add insult to Jill’s injury, Joe the plumber’s sustainable spending is almost as high -- $33,243. All those grueling years of study, exams, late-night emergency calls, and Jill gets to spend a measly $423 more per year than a plumber.

What about Sue, the teacher? Sue has less spending power -- $27,608 -- than Joe.

And Matt, with his masters? His spending power is even lower than Sue’s, at $26,503. Too bad he didn’t run the numbers before sending in his graduate-school application.

These examples are a far cry from an exhaustive study of the returns on investing in higher education. And they treat higher education as purely a financial investment and ignore its tremendous personal and social non-pecuniary rewards. Still, the examples present a big red flag for those who pursue higher education solely for the money. And they raise a major question about government policy that promotes higher education as the sure path to economic success.

(Laurence Kotlikoff is professor of economics at Boston University, president of Economic Security Planning Inc. and author of “Jimmy Stewart Is Dead.” The opinions expressed are his own.)

 

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http://noir.bloomberg.com/apps/news?pid=conewsstory&tkr=HGSI:US&sid=aQwe3yG.0.rU




FDA Approves Benlysta to Treat Lupus

PR Newswire

SILVER SPRING, Md., March 9, 2011

First new lupus drug approved in 56 years

SILVER SPRING, Md., March 9, 2011 /PRNewswire-USNewswire/ -- The U.S. Food and
Drug Administration today approved Benlysta (belimumab) to treat patients with
active, autoantibody-positive lupus (systemic lupus erythematosus) who are
receiving standard therapy, including corticosteroids, antimalarials,
immunosuppressives, and nonsteroidal anti-inflammatory drugs.

(Logo: http://photos.prnewswire.com/prnh/20090824/FDALOGO )

Benlysta is delivered directly into a vein (intravenous infusion) and is the
first inhibitor designed to target B-lymphocyte stimulator (BLyS) protein,
which may reduce the number of abnormal B cells thought to be a problem in
lupus.

Prior to Benlysta, FDA last approved drugs to treat lupus, Plaquenil
(hydroxychloroquine) and corticosteroids, in 1955. Aspirin was approved to
treat lupus in 1948.

Lupus is a serious, potentially fatal, autoimmune disease that attacks healthy
tissues. It disproportionately affects women, and usually develops between
ages 15 and 44. The disease affects many parts of the body including the
joints, the skin, kidneys, lungs, heart, and the brain. When common lupus
symptoms appear (flare) they can present as swelling in the joints or joint
pain, light sensitivity, fever, chest pain, hair loss, and fatigue.

Estimates vary on the number of lupus sufferers in the United States ranging
from approximately 300,000 to 1.5 million people. People of all races can have
the disease; however, African American women have a 3 times higher incidence
(number of new cases) than Caucasian women.

"Benlysta, when used with existing therapies, may be an important new
treatment approach for health care professionals and patients looking to help
manage symptoms associated with this disease," said Curtis Rosebraugh, M.D.,
M.P.H., director of the Office of Drug Evaluation II in the FDA's Center for
Drug Evaluation and Research.

Two clinical studies involving 1,684 patients with lupus demonstrated the
safety and effectiveness of Benlysta. The studies diagnosed patients with
active lupus and randomized them to receive Benlysta plus standard therapy, or
an inactive infused solution (placebo) plus standard therapy. The studies
excluded patients who had received prior B-cell targeted therapy or
intravenous cyclophosphamide, and those who had active lupus involving the
kidneys or central nervous system.

Patients treated with Benlysta and standard therapies experienced less disease
activity than those who received a placebo and standard of care medicines.
Results suggested, but did not definitively establish, that some patients had
a reduced likelihood of severe flares, and some reduced their steroid doses.

African American patients and patients of African heritage participating in
the two studies did not appear to respond to treatment with Benlysta. The
studies lacked sufficient numbers to establish a definite conclusion. To
address this concern, the sponsor has agreed to conduct an additional study of
people with those backgrounds to further evaluate the safety and effectiveness
of Benlysta for this subgroup of lupus patients.

Those receiving Benlysta during clinical studies reported more deaths and
serious infections compared with placebo. The drug should not be administered
with live vaccines. The manufacturer is required to provide a Medication Guide
to inform patients of the risks associated with Benlysta.

The most common side effects in the studies included nausea, diarrhea, and
fever (pyrexia). Patients also commonly experienced infusion reactions, so
pre-treatment with an antihistamine should be considered.

Human Genome Sciences Inc., based in Rockville, Md., developed Benlysta and
will co-market the drug in the United States with GlaxoSmithKline of
Philadelphia.

For more information:

NIH: Lupus Fact Sheet

http://report.nih.gov/NIHfactsheets/ViewFactSheet.aspx?csid=47

NIAMS: What is lupus?

http://www.niams.nih.gov/Health_Info/Lupus/lupus_ff.asp

Consumer Inquiries: 888-INFO-FDA

SOURCE U.S. Food and Drug Administration

Website: http://www.fda.gov/



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http://blogs.wsj.com/source/2011/03/10/benlysta-an-historic-decision-for-healthcare/


Benlysta: An Historic Decision for Health Care
By Sten Stovall

The FDA’s approval of Benlysta is historic in two ways –- it’s the first new drug for treating the autoimmune disease lupus in more than 50 years. It’s also a milestone in science, as it’s the first approved drug derived from genomics, the study of genes and their functions.

The drug is being developed by U.S.-based Human Genome Sciences Inc and Britain’s GlaxoSmithKline and is important to both companies: It’s one of the most signifcant new assets in Glaxo’s pipeline, while HGSI, an early pioneer in the field of DNA analysis, has no products on the market yet.

When founded nearly 20 years ago, HGSI promised to find flaws in the genetic code and then develop tailor-made medicines with few side-effects. It has spent more than $1 billion in that effort and today has a pipeline containing clinical-stage drug candidates for diseases ranging from lupus, diabetes, cancer and inhalation anthrax. The FDA approval of Benlysta, HGSI’s most advanced medicine, will be seen as validating the U.S.-based company’s approach.

HGSI discovered the drug under its founder William Haseltine using a method that mined a library of human DNA and rapidly decoded genes. A $125 million investment from Glaxo’s predecessor company, SmithKline Beecham, for a gene database backed its effort and allowed HGSI to go public in 1993.

Benlysta’s success in two large studies, called Bliss, has generated speculation that Glaxo or another large drug maker will try to buy HGSI. Thursday’s marketing approval for the key U.S. market will fuel that thinking. It’s attraction is underscored by the fact all top drug companies have either cooperated with genomics companies and integrated genomic technologies into their in-house drug discovery efforts, or established stand-alone research entities, such as the Genomics Institute of the Novartis Research Foundation and the Merck Genome Research Institute.

Benlysta’s marketing approval coincides with the 20th anniversary of the start of sequencing of the human genome, a herculean effort that entailed sifting through enormous numbers of genes and validating them for eventual drug development programs, a journey that’s taken much more time than the world expected at the outset.

The approval, which came late Wednesday, validates all the efforts that went into the human genome project. And it takes life sciences into a new frontier of health provision, using genomics in medicine to develop targeted cures.

 

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The breakeven rate for 10-year Treasury Inflation Protected Securities, the yield difference between this debt and comparable maturity Treasuries, rose to 2.57 percentage points on March 8, the highest since July 2008 and up from 1.63 percentage points on Aug. 27, the day Bernanke said additional securities purchases might be warranted. The rate is a measure of the outlook for consumer prices during the life of the securities.

http://www.bloomberg.com/apps/chart?h=200&w=280&range=1y&type=gp_line&cfg=BQuoteComp_10.xml&ticks=USGGBE10%3AIND&img=png
http://noir.bloomberg.com/apps/chart?h=152&w=240&range=1y&type=gp_line&cfg=BQuote.xml&ticks=USGGBE10%3AIND​

USGGBE10:IND
http://noir.bloomberg.com/apps/cbuilder?ticker1=USGGBE10:IND
http://noir.bloomberg.com/apps/quote?ticker=USGGBE10:IND

Yields are yield to maturity and pre-tax. Indices have increased in precision as of 5/20/2008 to 4 decimal places. The rates are United States breakeven inflation rates. They are calculated by subtracting the real yield of the inflation linked maturity curve from the yield of the closest nominal Treasury maturity. The result is the implied inflation rate for the term of the stated maturity. Please see {YCGT0169 Index DES<GO>} 2<GO> for "Members" of the US Treasury Inflation Linked curve. You can locate the rates under {ILBE<GO>}.

___________________

The five-year rate is signaling inflation will remain benign over the long-term even as the gap between Treasury yields and five-year U.S. government debt tied to the consumer price index reaches the widest in almost two years.

The difference, known as the break-even rate, climbed to 2.31 percent on March 8, a day after oil reached a 29-month high of $106.95 a barrel on concern uprisings in North Africa and the Middle East will disrupt supply. The rate dropped to 2.20 percent on March 11 as crude fell after Japan’s strongest earthquake on record shut refineries in the world’s third- largest oil-consuming country.
http://noir.bloomberg.com/apps/news?pid=20601103&sid=av.k7Z0uDxKQ

USGGBE05:IND

http://www.bloomberg.com/apps/chart?h=200&w=280&range=1y&type=gp_line&cfg=BQuoteComp_10.xml&ticks=USGGBE05%3AIND&img=png
http://noir.bloomberg.com/apps/chart?h=152&w=240&range=1y&type=gp_line&cfg=BQuote.xml&ticks=USGGBE05%3AIND​

http://noir.bloomberg.com/apps/quote?ticker=USGGBE05:IND
http://noir.bloomberg.com/apps/cbuilder?ticker1=USGGBE05:IND

...Fed policies are fueling asset bubbles in the stock and bond markets. Habeeb says he “doesn’t buy it at all” that the central bank will pull its stimulus in time, so he is being cautious about taking on what he regards as too much interest- rate or credit risk in his funds.

Extra Yield
...The extra yield, or spread, investors demand to own high-yield, high-risk securities instead of Treasuries has narrowed to 4.71 percentage points from 6.81 percentage points in [ August 2010 ]...

“There’s this bubble that’s growing that they helped create, and they themselves say ‘We can’t spot them’ so they’re not going to do anything” in time...

more...
http://noir.bloomberg.com/apps/news?pid=20601087&sid=aoven5VFPtYw&pos=4

TIPS

 

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http://noir.bloomberg.com/apps/news?pid=20601110&sid=aCLbMk90nnac


More U.S. Citizens Toss Passports as IRS Seeks Hidden Assets
By Richard Rubin and Steven Sloan

March 10 (Bloomberg) -- The number of U.S. taxpayers renouncing their citizenship more than doubled from 742 in 2009 to 1,534 in 2010, according to the Internal Revenue Service.

The U.S. government’s growing efforts to find and tax hidden assets around the world have prompted people who were thinking about giving up their citizenship to make the move, attorneys said, to escape the IRS’s reach.

“There’s going to be more expatriation,” said Peter Connors, a partner at Orrick, Herrington & Sutcliffe LLP in New York. “It’s a general issue of the power of the U.S. and people concluding they can get what they need by living outside the U.S.”

More taxpayers renounced their U.S. citizenship in 2010 than in the previous three years combined, according to data compiled by Andrew Mitchel, an international tax attorney in Essex, Connecticut.

Every quarter, the IRS publishes a list in the Federal Register of U.S. citizens who expatriate. People who want to give up their citizenship must appear in person before a U.S. consular or diplomatic officer in another country and sign an oath of renunciation, according to the U.S. State Department.

U.S. citizens with a net worth of more than $2 million or with average annual income exceeding $147,000 must pay income taxes on the value of their assets as if they were sold the day before the expatriation, according to the IRS. They can benefit from an exclusion of $636,000 in 2011.

Tax Returns
Mitchel said changes in the law in 2008 eliminated requirements that some expatriates file tax returns for 10 years after leaving the U.S. The law now allows noncitizens to spend more time in the U.S. without being taxed as residents.

In recent years, Congress and the IRS have been increasing their scrutiny of the offshore financial assets of U.S. citizens. The IRS recently announced the second round of a voluntary disclosure program that allows U.S. taxpayers with undisclosed assets in other countries to pay a penalty and likely avoid prosecution.

“The U.S. tax rules for U.S. citizens living overseas can be quite complex,” Mitchel wrote in an e-mail. “The increase in awareness of the penalties has caused many individuals with dual citizenship to conclude that their U.S. citizenship is not worth the stress and hassle of the U.S. tax-filing rules.”

Additionally, starting in 2013, overseas banks will face a 30 percent withholding tax on income from U.S. assets if they fail to share information about U.S. account holders.

 

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http://noir.bloomberg.com/apps/news?pid=20601110&sid=aALBBIn16vEg


Oil at $100 Kills Brain Cells, Impairs Thinking
by Caroline Baum

March 11 (Bloomberg) -- It must be the noxious fumes or the stratospheric prices because crude oil crossing the $100 threshold makes normally thoughtful individuals funny in the head.

The early symptoms of high oil price syndrome, or HOPS, can easily be masked or confused with a more generalized form of lazy economic thinking.

For example, those afflicted with HOPS start making assertions that higher oil prices are inflationary, as if relative price changes can morph into an economy-wide rise in prices without help from the central bank.

HOPS sufferers aren’t beyond doing a quick 180, pronouncing higher oil prices to be deflationary because they sap consumer demand.

Which is it?
When oil prices aren’t standing in for the central bank, the ultimate arbiter of all things monetary, they’re doubling as the tax man. HOPS sufferers claim oil prices are a tax on the consumer, even though the effect is nothing like a tax, which drives a wedge between consumers and producers.

Finally, higher oil prices devastate the economy and destroy jobs. What happens to producers’ profits?

I find myself getting light in the head from all this nonsense. For my own peace of mind, I need to set the record straight. Here goes.

No. 1. Sometimes a cigar is just a cigar
For folks who use the term “inflation” interchangeably with higher prices -- as in wage inflation or commodity inflation --they are not the same thing. A higher price for oil and/or other commodities is a higher relative price until ratified by the central bank.

What does the central bank have to do with it?
Inflation is a monetary phenomenon: too much money chasing too few goods and services.

Where does the money come from?
In the U.S., it comes from Ben Bernanke, chairman of the Federal Reserve, and his trusted band of governors and district bank presidents.

To be more accurate, it comes from the New York Fed’s Open Market Desk, which buys Treasury securities (generally) from a group of primary dealers at the direction of the Fed’s policy committee.

Higher oil prices don’t cause inflation. They aren’t synonymous with inflation. Higher oil prices represent a relative price increase until proven differently.

No. 2. Zero Sum Game
Higher oil prices are always viewed as a negative because they crimp consumer purchasing power.

It’s not a one way street. Wealth is transferred from consumers to producers and recycled.

Higher prices act as an incentive for oil exploration. Exxon Mobil Corp. buys new drilling equipment and hires more workers. Those dollars go back into the economy, they don’t suck life out of it.

Because the U.S. imports about half of its crude oil, according to the U.S. Department of Energy, some of those profits end up in the pockets of the Saudi royal family and other Middle East potentates.

What do they do with them? They spend them on U.S. goods and services. They buy U.S. stocks, bonds, trophy real estate and F-16 fighter jets.

This doesn’t happen simultaneously, of course. But to portray every dollar of oil profit as a net drain on the economy is inaccurate.

When oil prices rise, consumers have to allocate more of their household budget to filling the tank and heating the house, leaving less for discretionary purchases. The composition of their spending may change, but nominal spending shouldn’t be affected. There will be some effect on real GDP, but that depends on the Fed.

No. 3. Taxing Thought
The claim that oil is a tax on the consumer is one of the most common talking points during every oil-price spike. It also happens to be dead wrong.

An excise tax raises the price to the consumer, who will demand less, and lowers the price received by the producer, who will supply less. The result is deadweight loss.

The recent increase in oil prices qualifies as a supply shock -- a decline in Libyan oil production and expectations of further disruptions in Middle East supply -- on top of what was already a demand-driven rise as the world economy recovered. Crude oil had already breached the $90 a barrel mark at the end of last year, well before Egyptians took to Tahrir Square in January to demand that President Hosni Mubarak step down.

A supply shock results in higher prices and a lower quantity demanded. It’s only taxing if you think about it incorrectly.

No. 4. Mo’ Money
The Fed needs to respond to higher oil prices, HOPS victims say.

Bad idea, especially if “respond” means print more money. That was the medicine applied in the 1970s. The result was higher inflation and slower growth, which created a problem for those who thought there was a trade-off between the two.

“Respond” could have another meaning for those who think higher oil prices are inflationary (see No. 1 above) -- tighten policy. HOPS victims will have to sort that one out before they decide on a recommended course of action.

 

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As far as I'm concerned, this kind of deliberate misrepresentation ( see below ) is fraud and somebody ought to go to jail for it. I understand desperation occasioned by financial distress and the idea of doing almost anything to keep a firm alive to fight another day but the actions described below cross the line.


I'm not the least bit surprised that that this kind of behavior wouldn't be prevented by Dodd-Frank. You can write regulations and give lip service to Codes of Ethics 'til the cows come home but it is impossible to codify or legislate honesty and integrity. You're either dealing with honest people or you're not and a bunch of fine print ain't gonna affect behavior or the outcome.


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http://noir.bloomberg.com/apps/news?pid=20601087&sid=a8_JWPw5d1sA&pos=7


Lehman Failed Lending to Itself in Alchemy Eluding Dodd-Frank
By Christine Richard and Bob Ivry

March 11 (Bloomberg) -- By the time Lehman Brothers Holdings Inc. became the biggest bankruptcy in U.S. history, plunging the economy into the worst financial crisis since the 1930s, the firm had made $3 billion in loans to itself in transactions that even today would elude the Dodd-Frank law designed to prevent such financial alchemy.

Lehman turned souring real estate investments into top- rated securities that the bank’s insiders dubbed “goat poo,” according to court records. The securities, called Fenway commercial paper, helped keep Lehman afloat over the summer of 2008, until a trading partner determined they were “worth practically nothing.” That precipitated Lehman’s demise on Sept. 15, 2008, bankruptcy documents and a May 2010 Lehman lawsuit show.

“It wasn’t a mistake to let Lehman fail, it was a mistake to let it live so long,” said Ann Rutledge, a principal with New York-based R&R Consulting and the co-author of two books on structured finance.

Nothing in the 800-plus pages of the Dodd-Frank regulatory overhaul enacted last year would prevent a bank from using similar techniques to try to make regulators, credit-rating companies and lenders believe it was healthier than it was, said David Skeel, a professor at the University of Pennsylvania Law School in Philadelphia.

“These kinds of transactions had a lot to do with the financial crisis and Dodd-Frank doesn’t target them in any direct way,” he said.

Kimberly Macleod, a spokeswoman for Lehman, declined to comment for this story.

Pledged as Collateral
Lehman pledged Fenway notes as collateral to JPMorgan Chase & Co. in June 2008, according to a report by Lehman’s bankruptcy examiner, Anton R. Valukas. By Sept. 11, 2008, JPMorgan concluded the notes -- which Lehman valued at $3 billion -- were “worth practically nothing as collateral,” the report says.

JPMorgan demanded $5 billion in cash to replace the notes and other collateral on Sept. 12, 2008, according to the Valukas report. Supplying those funds tapped Lehman out and accelerated the bankruptcy, Lehman claimed in a May lawsuit. Jennifer Zuccarelli, a JPMorgan spokeswoman, declined to comment.

In its Fenway transactions, Lehman transferred dozens of loans and equity positions in commercial real estate to a conduit called Fenway Capital LLC, a unit of a finance firm called Hudson Castle Group Inc. Lehman owned a minority stake in Hudson Castle for years, the New York Times reported last year.

Lending to Itself
Hudson Castle had no financial stake in the Fenway notes or the underlying assets, nor did it have a relationship with Lehman that influenced the transaction, said Martin J. Bienenstock, a partner with Dewey & LeBoeuf LLP in New York who represents Hudson Castle.

Lehman sold its real estate assets under a repurchase contract, or “repo” -- meaning the bank was agreeing to buy them back later at a higher price. Then Fenway Funding LLC, a Fenway Capital subsidiary, issued short-term notes backed by the assets -- and Lehman bought the notes, said Irena M. Goldstein, a lawyer who represents the Fenway entities, in a July 2009 deposition.

“It was basically, at the end of the day, one Lehman entity owing money to another Lehman entity through Fenway as a conduit,” Goldstein, a Dewey & LeBoeuf partner, said in her deposition. It was given in a lawsuit brought against Lehman by SunCal Cos., an Irvine, California-based developer. The suit, which seeks to put Lehman’s interests in 22 bankrupt projects behind other creditors’, is awaiting a decision from the 9th U.S. Circuit Court of Appeals.

‘Red Flags’
“Repo conduits” like Fenway allow banks to finance longer-term assets such as real estate loans by borrowing short- term from investors such as money-market funds. For Lehman itself to buy the Fenway commercial paper was a sign of trouble, Rutledge said.

“The fact that Lehman bought the Fenway notes after creating them not only raises red flags, it shows that Lehman was trying to sustain the illusion of financial health,” she said.

It’s unclear which assets were backstopping the Fenway notes when Lehman first pledged them to JPMorgan on June 19, 2008; Lehman was allowed to substitute them over time. A document dated Aug. 14, 2008, and sent to potential buyers of the notes makes clear that Lehman will cover interest and principal payments on them “without regard to the market value or credit quality of” the assets.

Records subpoenaed from JPMorgan Chase and dated Sept. 12, 2008, show that by that date, seven loans to SunCal were part of the package. Lehman assigned those loans, which had a total face value of $1.2 billion, a combined market value of $795 million, according to the documents, which were made exhibits to SunCal’s lawsuit against Lehman.

Desert Development
One of the loans was on 10,000 acres (4,046 hectares) of land in California’s Mojave Desert, about 60 miles (97 kilometers) north of Los Angeles, for a project called Ritter Ranch. None of the 7,200 homes planned there has been built, said David Soyka, a SunCal spokesman.

“The California real estate market was a bloody disaster in 2008,” said John Burns, president of John Burns Real Estate Consulting Inc. in Irvine, California.

While other buyers held at least some of the Fenway paper through most of 2008, Lehman was the only buyer of its final issuance, which defaulted in late September that year, according to documents filed in the SunCal litigation and a report by Deutsche Bank AG, the trustee for the commercial paper.

Unaware of Pledge
Lehman reimbursed Hudson Castle $1.6 million in April 2010 for Fenway-related fees and expenses, including legal costs, through the end of February 2010, according to a settlement agreement entered in the bankruptcy case. Hudson Castle didn’t know Lehman pledged the Fenway notes as collateral to JPMorgan until after the bankruptcy, said Bienenstock, Hudson Castle’s lawyer.

“If Lehman did take advantage of JPMorgan by not being candid that the paper was a Lehman credit, Hudson Castle is as outraged and offended as JPMorgan,” he said.

Lehman’s use of certain repo transactions -- those known as Repo 105 deals -- drew criticism in the Valukas report. The bank used such transactions to move as much as $50 billion of assets off its balance sheet just before reporting results -- and did not disclose its obligations to buy the assets back, Valukas found.

The New York Attorney General’s office sued Lehman’s auditors, Ernst & Young LLP, on Dec. 21 for signing off on the Repo 105 deals.

‘Fight Another Day’
Unlike those transactions, the repos Lehman did with Fenway didn’t make assets disappear. Instead, they turned illiquid assets into highly rated securities that the bank used to satisfy JPMorgan’s demand for collateral.

“Lehman was trying to live to fight another day,” said Peter J. Henning, a professor at Wayne State University in Detroit.

In April 2008, hedge fund manager David Einhorn, the president of New York-based Greenlight Capital Inc., told attendees at an investment conference that he was betting against Lehman’s stock because he believed the company was not fairly valuing some real estate assets.

“I suspect that greater transparency on the valuations would not inspire market confidence,” he said.

He also told the group he believed Lehman wanted “to shift the debate to where it is on stronger ground. It wants the market to focus on its liquidity.”

Lehman’s then-Chief Executive Officer Richard S. Fuld Jr. told analysts in June 2008 that the bank’s liquidity -- that is, its immediate access to funds -- was robust.

‘Never Been Stronger’
Lehman’s “liquidity positions have never been stronger,” Fuld said on June 16, 2008. Patricia Hynes, an attorney for Fuld, did not respond to calls and an e-mail seeking comment.

In addition to posting the Fenway notes to JPMorgan as collateral, Lehman improperly included them and other pledged securities in its liquidity pool, the fund meant to be accessible in case of emergency, the Valukas report said. Lehman reported that the pool held $45 billion at the end of May 2008.

While there are no required minimums for such pools, “if you tell the public something you can’t lie about it,” said Bob Byman, a partner with Jenner & Block LLP in Chicago and an editor of the examiner’s report. “The truth was that Fenway wasn’t liquid -- you couldn’t turn it into cash by calling a broker and saying, ‘Sell it.’ But it was also pledged.”

Seeking Protection
After the near-collapse of Bear Stearns Cos. in March 2008, JPMorgan and other Lehman trading partners, including Citigroup Inc., Bank of America Corp. and HSBC Holdings Plc, began asking for additional cash and securities to protect their positions, according to the Valukas report.

As Lehman’s clearing bank, JPMorgan settled its daily trades and put up money to cover them. By August, Lehman had posted about $8 billion in collateral, including Fenway paper, to JPMorgan, the report said.

Lehman’s guarantee that Fenway would be repaid under its repo won top grades for the commercial paper from Moody’s Corp., which gave the notes the highest of three short-term investment- grade ratings, and from Standard & Poor’s, which gave them its second highest rating. Both companies maintained high ratings for Lehman until its bankruptcy. Edward Sweeney, an S&P spokesman, and Michael Adler, a spokesman for Moody’s, declined to comment.

The guarantee that impressed the credit raters essentially meant that JPMorgan, which was seeking collateral to protect itself against a Lehman default, was “being given more Lehman risk,” said Viral V. Acharya, a finance professor at New York University’s Stern School of Business.

‘Layers of Complexity’
“The purpose of the Fenway transaction seemed to be to create layers of complexity so that JPMorgan would not realize, or not immediately realize, what they were being given,” Acharya said.

It wasn’t until Sept. 11 that JPMorgan executives questioned the value of the commercial paper and other collateral, the Valukas report says. The next day, Craig M. Delany, a managing director at JPMorgan’s investment bank, wrote to a colleague that he considered the Fenway notes “dicey,” according to an e-mail in the report.

Delany and other JPMorgan executives determined that various Lehman collateral, including the Fenway paper, “could not be relied upon to be worth anything near” face value on the open market, the Valukas report says. Delany “assigned no value to Fenway,” it says.

‘A Financial Gun’
As a result, JPMorgan officials requested $5 billion more in cash collateral as a condition of extending credit to Lehman, the report says. Lehman executives, who considered the demand “a financial gun” to their head, posted the money on Sept. 12, a Friday, according to a lawsuit Lehman filed against JPMorgan in May.

It was “essentially its last available $5 billion of cash,” Lehman said in the lawsuit. The following Monday, Lehman declared bankruptcy.

Lehman is suing JPMorgan for allegedly calling for unreasonable amounts of collateral, accelerating its failure. JPMorgan is countersuing, saying it was misled over a portfolio of securities it was left with after Barclays Plc acquired Lehman’s broker-dealer unit.

One such security was Restructured Assets with Enhanced Returns, or RACERS. Like Fenway, it was created through a series of transactions, including repos and guarantees, in which Lehman entities were on both sides of a contract, according to a monthly operating report Lehman filed with the U.S. Securities and Exchange Commission on Jan. 21.

‘Toxic’ RACERS
The Lehman employees who called the Fenway notes “goat poo” used the same term for RACERS, according to JPMorgan’s countersuit. In April 2008, one of them called RACERS “toxic,” according to the claim. Mark Lane, a Barclays spokesman, declined to comment.

In the 30 months since Lehman declared bankruptcy, government officials haven’t done enough to require adequate disclosure from financial firms about how they fund themselves, said Acharya, the NYU professor. Regulators should see their day-to-day liability structures -- and then make the data available to markets after a delay, he said.

“The issue of frequency of public and regulatory reporting is worth revisiting,” Acharya said.

While the Dodd-Frank legislation permits the Federal Reserve to limit banks’ short-term debt, “including off-balance sheet exposures,” the Fed has not proposed such a rule yet. It will by January 2012, after seeking public comments, said Barbara Hagenbaugh, a spokeswoman for the U.S. central bank.

Desperate Measures
Lehman’s use of the Fenway notes reflects the bank’s desperation in the spring and summer of 2008, said William K. Black, a professor of law and economics at the University of Missouri-Kansas City who testified to Congress about the bankruptcy.

“When you’re insolvent, then it’s rats in a maze, a maze with no exit,” Black said. “They scurry and bang against the wall and then go in another direction and bang into the wall again. It doesn’t work at the end of the day.”

 

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U.S. Food Price Inflation
CPRFTOT:IND

Base year 1997=100

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Monthly Milk Cows All States
COWSHEAT:IND

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On Feed for 7 States
CATTLE7:IND

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http://noir.bloomberg.com/apps/cbuilder?ticker1=CATTLE7:IND



Milk Sliding 14% on Output Boost, Cheese Jump to 1984 High
By Whitney McFerron, Elizabeth Campbell and Jeff Wilson

March 14 (Bloomberg) -- The milk rally that sent prices up 48 percent this year, more than any agricultural commodity, may be ending as farmers respond with record production and the costliest cheese in a quarter century curbs demand.

Output in the U.S., the world’s second-largest producer, may rise 1.7 percent to 196 billion pounds in 2011, enough to fill about 34,500 Olympic-sized pools, the Department of Agriculture estimates. Demand will weaken as restaurants cut promotions and grocers raise prices, said INTL FCStone Inc., a New York-based broker. Futures may drop 14 percent to $16.86 per 100 pounds by Dec. 31, a Bloomberg survey of 10 analysts showed.

Dairies are missing out on profits from milk’s biggest rally since at least 1996 as the surge in grain that drove world food prices to a record, contributing to protests in northern Africa and the Middle East, also boosted the cost of feeding cows. While income for grain and cotton growers will rise more than 20 percent this year, earnings at dairies may drop 13 percent, the government estimates.

“Grain farmers are having some of the best years they’ve had in a long time profit-wise, but you couldn’t say that for dairy,” said Bob Cropp, an economist at the University of Wisconsin in Madison who has been studying the industry since 1966. “Dairy facilities are running at the maximum. With a little softening in demand, prices are going to come down.”

Milk futures on the Chicago Mercantile Exchange closed on March 11 at $19.65, a 32-month high. Prices fell 0.1 percent to $19.63 in electronic trading today. Prices are up 55 percent from a year earlier as importers from Mexico to China increased buying and the rebounding U.S. economy bolstered domestic demand.

Commodities Rally
Milk’s 2011 rally has exceeded those of all agricultural futures traded in New York and Chicago including cotton, which surged 42 percent and reached a record last week. The Standard & Poor’s GSCI Index of 24 commodities advanced 11 percent, and the S&P 500 Index of stocks rose 3.7 percent. As of March 10, Treasuries gained 0.1 percent this year, a Bank of America Merrill Lynch index shows.

Traders are already anticipating a drop, with the December contract at a 15 percent discount to the one that expires this month. Shawn Hackett, the president of Hackett Financial Advisers, who correctly projected in October that milk would surge, now says prices may fall as low as $15 amid higher output in Australia and New Zealand, the largest exporter.

Riots have erupted from Bahrain to Morocco, in part fueled by food costs the United Nations says reached a record last month. Protests already toppled leaders in Egypt and Tunisia. The projected drop in milk prices will do little to relieve the surge in food inflation that the World Bank says helped drive 44 million more people into extreme poverty since June.

Food Market
Milk’s rally may continue for several more months because exports will support prices, said Jerry Dryer, the Delray Beach, Florida-based publisher of the Dairy & Food Market Analyst, who has been following the industry for three decades.

Shipments surged 63 percent to $3.7 billion last year, nearing the 2008 record of $3.8 billion, U.S. Dairy Export Council data show. Cheese exports rose to an all-time high, and milk-powder sales climbed 61 percent, the Arlington, Virginia- based trade group said.

U.S. exports rose as New Zealand boosted sales to China, said James Dunn, an economist at Pennsylvania State University in University Park. China bought about 353 million kilograms (778 million pounds) last year, compared with 69 million kilograms in 2008, according to New Zealand government data.

Last Rally
Milk’s last advance of this magnitude ran for 15 months through June 2007, when it more than doubled to a record $22.45. Prices would have to advance 14 percent more to match that peak.

“This rally will last at least a full year before rising production catches up with demand,” said Dryer of Dairy & Food Market Analyst.

Consumption may not support the gains much longer, said Mary Ledman, a former economist with Kraft Foods Inc. U.S. milk production this year may begin rising in April and May, just as retailers start increasing prices to shoppers, she said.

Safeway Inc., the fourth-largest U.S. supermarket chain by sales, said Feb. 24 that it began to pass higher costs to consumers during the fourth quarter, including for milk.

“Retailers’ margins in the dairy case, and particularly on fluid milk, have been squeezed since 2010,” said Ledman, who owns the Libertyville, Illinois-based consultant Keough Ledman Associates. “I don’t think they have any choice but to raise retail-milk prices in 2011.”

Ice Cream
Whitey’s Ice Cream, which has 11 stores in Illinois and Iowa and sells to about 100 retail outlets including Wal-Mart Stores Inc., may boost prices in coming months because costs for milk, cream and sugar have jumped about 50 percent from a year ago, said Jeff Tunberg, who owns the Moline, Illinois-based business with his brother.

“Ice cream has been recession-resistant, but not recession-proof,” Tunberg said. “We’ve been in business for 78 years, and we’ve always had a model that we will raise our price before we will change our quality.”

Cheddar cheese in supermarkets averaged $5.143 a pound in January, the highest since at least 1984, while a half gallon of ice cream sold for $4.74, the most since 1980, according to data collected from about 26,000 retailers by the Bureau of Labor Statistics. Retail whole milk averaged $3.301 a gallon, 2 percent more than a year earlier.

U.S. food inflation accelerated 0.9 percent in January, the fastest monthly pace since June 2008, when prices were headed for their biggest annual gain in 28 years. Costs will rise as much as 4 percent this year, more than the 2 percent to 3 percent estimated in January, the USDA said last month.

Dairy Farmers
Higher prices don’t mean improved earnings for dairy farmers because corn, the main feed ingredient, is 82 percent costlier than a year ago. In California, the biggest milk producer, feed costs made up about 84 percent of the price farmers received for milk in December, according to USDA data.

The average net-cash income, or earnings used to pay most expenses and debt, for American dairies will decline to $184,000 this year from $212,100 in 2010, a bigger drop than for producers of beef cattle, hogs and poultry, the USDA estimates.

Higher milk prices still allowed dairies to earn $1.18 per 100 pounds of milk at the end of February, compared with 21 cents at the same time last year, said Chip Whalen, a senior risk manager at Commodity & Ingredient Hedging LLC in Chicago.

The herd will rise 0.4 percent to 9.154 million cows on average this year, the first annual increase since 2008, the USDA estimates.

Cows produced on average 21,149 pounds (9.59 metric tons) last year, more than double the amount in 1970, according to the USDA. Changes to breeding methods mean more females are being born. Farmers also maintain younger herds by slaughtering older cows when their milk output slows.

Seasonal Peak
Productivity probably will increase in the next few months to a seasonal peak that will exceed the monthly record of 1,893 pounds reached in May, said Joel Karlin, the commodity sales coordinator for Western Milling in Goshen, California, which makes feed for dairy farms.

At the same time, higher prices will curb demand from consumers, erasing profit for producers that don’t grow their own feed or hedge their grain costs, said Robert Chesler, a Chicago-based vice president of food service for INTL FCStone.

“Daily buying has been led by promotions and specials, two-for-$10-pizza deals, things like that,” Chesler said. “That’s going to be a difficult thing to continue in 2011, because of the price increases in commodities, so demand domestically could certainly take a little bit of a pullback.”

Milk Bottles
Oberweis Dairy Inc., a processor based in North Aurora, Illinois, that buys milk from farmers, increased the retail price of half-gallon, glass-bottle milk products by almost 7 percent as of March 1, Chief Executive Officer Joe Oberweis said. The 84-year-old company’s milk cost has doubled since 2009, he said.

Farmers are “a little bit more optimistic at this point, but, still, nobody’s jumping up in the air and kicking their heels,” said Joyce Bupp, a 65-year-old farmer who owns a 170-cow dairy in Seven Valleys, Pennsylvania.

U.S. milk production may continue to rise, said Michael Swanson, a Minneapolis-based economist at Wells Fargo & Co., the largest U.S. agricultural lender. Producers “expand when prices are good and expand when prices are bad,” he said.

Coming soon..., to a store near you!

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SPGSAG:IND S&P GSCI Agric Indx Spot
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FAOFOODI:IND FAO Food Price Index
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FAO Food Price Index are constant trade weighted average of 55 agricultural commodity prices quoted internationally, obtained from secondary sources. Laspeyres Price 2002-2004=100

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http://noir.bloomberg.com/apps/news?pid=20601110&sid=aeDp9DjABJQM


Corn, Soybean, Wheat Prices Surge as U.S. Cuts Supply Outlook
By Jeff Wilson and Whitney McFerron

Jan. 12 (Bloomberg) -- Corn and soybeans jumped to the highest prices since July 2008 and wheat surged after the government cut its forecasts of U.S. inventories, signaling tighter food supplies as demand increases and adverse weather reduces harvests.

Production of corn in the U.S., the world’s largest grain exporter, dropped 4.9 percent last year and will leave supply before the 2011 harvest at the lowest in 15 years, the U.S. Department of Agriculture said. The USDA also cut its estimate of the soybean crop by 1.4 percent and said domestic wheat inventories will be 16 percent less than a year earlier.

Corn, used mostly as livestock feed, has surged more than 60 percent in the past year, while soybeans and wheat advanced 45 percent. Wholesale world food prices tracked by the United Nations surged 25 percent last year to a record, fueled partly by rallies in grains and oilseeds. Exports of U.S. crops are headed to the highest ever, boosting farm income and profit for agriculture companies including Cargill Inc. and Deere & Co.

“There’s no room for error anymore” on farms around the world, said Dan Basse, the president of AgResouce Co., a commodity consultant in Chicago. “With any weather issues, we’re going to make new all-time highs in corn and soybeans, and to a lesser degree, wheat futures.”

Drought ruined wheat fields in Russia last year and too much rain diminished supplies of the grain from Canada. Adverse weather led to a drop in 2010 corn production in the U.S. and a smaller harvest of soybeans than expected, government data show.

Planting Pressure
“The pressure is acute, in terms of planting fence row to fence row, and really getting the message out to farmers that they need to be planting up their front yards,” Basse said today during a conference call with reporters and analysts.

Rising prices will increase global demand for fertilizer from Mosaic Co. and seeds from Monsanto Co. Reduced supplies of corn will increase expenses for meat companies and squeeze profit margins for makers of ethanol including Valero Energy Corp.

Corn futures for March delivery rose 23.5 cents, or 3.9 percent, to $6.305 a bushel at 10:14 a.m. on the Chicago Board of Trade. The price advanced as much as the exchange limit of 30 cents to $6.37, the highest since July 2008.

Soybean futures for March delivery soared 60 cents, or 4.4 percent, to $14.17 a bushel in Chicago, after rising by the exchange limit of 70 cents to $14.27, a 29-month high.

Wheat futures for March delivery jumped 19 cents, or 2.5 percent, to $7.785 a bushel, after earlier gaining 4.1 percent.

more...

Inflationary pressures are building. Between running the printing press and debasing the USD ( thereby importing inflation ), Bernanke and the Fed's irresponsibility are sowing the seeds of the whirlwind.

As of 11/7/10:

http://www.npr.org/news/graphics/2010/10/gr-grain_prices-300.gif​

Hogs Extend Rally to 24-Year High on Pork Demand; Cattle Gain
By Elizabeth Campbell

Jan. 28 (Bloomberg) -- Hog futures extended a rally to the highest in at least 24 years...

...Hog futures for April settlement rose 1.6 cents, or 1.8 percent, to settle at 91.625 cents a pound at 1:06 p.m. on the Chicago Mercantile Exchange. Earlier, the commodity reached 92.3 cents, the highest for a most-active contract since at least 1986...

...The U.S. cattle herd shrank to the smallest size in 53 years as feed costs climbed and beef producers slaughtered more animals to take advantage of higher prices...

more...

http://noir.bloomberg.com/apps/news?pid=20601012&sid=aJsXTHWWC4io

________________


U.S. Cattle Herd Shrinks to Smallest in 53 Years
By Elizabeth Campbell

Jan. 28 (Bloomberg) -- The U.S. cattle herd shrank to the smallest size in 53 years as of Jan. 1, as feed costs climbed and beef producers slaughtered more animals to take advantage of higher prices...


...Cattle futures climbed 26 percent in the past year, reaching a record $1.166 a pound on Jan. 18. Still, surging prices for corn, the main ingredient in livestock feed, discouraged expansion. The grain has jumped 78 percent in the past year.

“One of our biggest concerns as we look ahead are these increasing costs and how that potentially influences the size of the U.S. livestock industry,” Robb said before the report. “The largest cost input across the livestock industry is the feedstuffs.”

The number of young, female beef cattle held for breeding fell to 5.158 million, down 5.4 percent from 5.451 million a year earlier, the USDA said...

...Steers for immediate delivery averaged $1.0431 a pound in the first four days of this week, up 25 percent from the same period a year ago, according to USDA data. Before today, wholesale beef prices rose 23 percent in the past 12 months.

“There’s just very little incentive to hold back heifers and begin to build herds,” John Nalivka, the president of meat-consultant Sterling Marketing Inc. in Vale, Oregon, said before the report. “Prices are high, and that caused a lot of beef cows to go to slaughter.”

The inventory of heifers for milk-cow replacement totaled 4.557 million on Jan. 1, up 0.7 percent from 4.526 million a year earlier, the USDA said. The average analyst estimate was for a 0.6 percent decline.

The number of calves born during 2010 was estimated at 35.685 million, down 0.7 percent from a year earlier and the fewest since 1950, according to the USDA.

more...
http://noir.bloomberg.com/apps/news?pid=20601012&sid=a2r9hrr8RmU4

http://www.bloomberg.com/apps/chart?h=200&w=280&range=1y&type=gp_line&cfg=BQuoteComp_10.xml&ticks=SPGSAG%3AIND&img=pnghttp://www.bloomberg.com/apps/chart?h=200&w=280&range=1y&type=gp_line&cfg=BQuoteComp_10.xml&ticks=FAOFOODI%3AIND&img=png
​

SPGSAG:IND S&P GSCI Agric Indx Spot
http://noir.bloomberg.com/apps/quote?ticker=SPGSAG:IND

FAOFOODI:IND FAO Food Price Index
http://noir.bloomberg.com/apps/quote?ticker=FAOFOODI:IND

FAO Food Price Index are constant trade weighted average of 55 agricultural commodity prices quoted internationally, obtained from secondary sources. Laspeyres Price 2002-2004=100

FAO Food Price Index, 2006-2010
Compared to average food prices between 2002 and 2004 (valued below at
100), the global price of food has been rising in the years since
http://www.npr.org/news/graphics/2011/01/gr-foodpriceindex-300.gif
Source: Food and Agriculture Organization of the United Nations
Credit: Nelson Hsu/NPR

​

Rising Food Prices...
http://www.npr.org/2011/01/30/133331809/rising-food-prices-can-topple-governments-too
by Marilyn Geewax

...In large part, the food-price crisis reflects the simple law of supply and demand. The supply of food has been diminished by bad weather in many crucial crop-growing areas of the world. Russia, Ukraine and Argentina have had severe droughts, while Pakistan and Australia have had massive flooding.

At the same time, demand for food has been rising as people in fast-developing countries, such as India and China, have been buying more groceries.

In addition, production and transportation costs have been driven up by the rising price of oil. Other factors involve currency fluctuations, food trade policies and financial speculation in commodities markets. Energy policy also plays a role, because ethanol makers are using more corn to produce fuel...

...U.S. food companies often lock in lower prices by using futures contracts, so the price of ingredients they are using today may have been set a year ago, before bad weather drove up crop prices, he says.

Still, the impact of higher grain, dairy and meat prices eventually will filter down to U.S. consumers...

more...
http://www.npr.org/2011/01/30/133331809/rising-food-prices-can-topple-governments-too

__________________


.W-CSPRD:IND wheat-corn spread

http://www.bloomberg.com/apps/chart?h=200&w=280&range=1y&type=gp_line&cfg=BQuoteComp_10.xml&ticks=.W-CSPRD%3AIND&img=png​

http://noir.bloomberg.com/apps/quote?ticker=.W-CSPRD:IND
http://noir.bloomberg.com/apps/cbuilder?ticker1=.W-CSPRD:IND

April 25, 2011 (Bloomberg) -- Corn may become costlier than wheat for the first time since 1984 as demand for livestock feed and ethanol grows, increasing expenses for Tyson Foods Inc. and boosting sales at Syngenta AG.

Futures will average a record $8 a bushel in the three months ending Sept. 30, more than the $7.70 a bushel estimated for wheat, said Abah Ofon, an agricultural commodity analyst at Standard Chartered Plc in Singapore. Corn will be 11 percent more expensive than wheat in three months, according to Goldman Sachs Group Inc. Corn in Chicago traded at $7.60...

Surging costs of corn, an ingredient in livestock and poultry feed, may spur global food prices to rebound to a record, prompting central banks from Beijing to Brasilia to increase interest rates. While the gains may raise feed costs for Tyson, the largest U.S. meat processor, they would benefit Syngenta, the world’s biggest agricultural-chemical maker, as farmers seek to protect their crops from pests and diseases.

“There’s only a limited amount of wheat that you can switch into feed at any given time,” according to Ofon, who correctly predicted in January that wheat would trail corn. That will limit wheat’s capacity to benefit from surging corn prices, he said. Wheat was 49 percent costlier than corn on average in the past five years, and last traded at $8.545.

Wheat will decline to $7.75 a bushel in three months while corn may advance to $8.60 a bushel...

http://noir.bloomberg.com/apps/news?pid=20601080&sid=aeoo.SkEuRPM

Food Inflation

 

[trysail]

Those of us who knew and followed Bear ( from afar ) knew perfectly well what the "D" in Alan Greenberg's "PSD" stood for ( see highlighted text below ). The "D" didn't stand for "desperate" or "deep desire;" it stood for "dishonest."


__________________

http://noir.bloomberg.com/apps/news?pid=20601109&sid=a3YzrhLxaA_k&pos=11


Bear Stearns Thrives in Diaspora Giving to Sheryl Crow Tune
By Jody Shenn

March 16 (Bloomberg) -- Three years after the collapse of Bear Stearns Cos., which helped fuel the worst financial crisis since the Great Depression, former bond executives of the firm are running businesses at one-time rivals, including Bank of America Corp. and Goldman Sachs Group Inc.

Alumni of Bear Stearns, which has been accused in lawsuits of building faulty mortgage securitizations, have contributed to a Wall Street rebound. Profits at broker-dealers totaled $89 billion in 2009 and 2010, the best two years on record, according to New York state’s comptroller.

“That’s Wall Street,” said Jeanne Branthover, a managing director at Boyden Global Executive Search Ltd. in New York. “Maybe the rest of the world looks at it negatively, to have been associated with Bear Stearns, but if we didn’t have these types of survivors and Wall Street couldn’t reinvent itself, we as a country wouldn’t survive.”

Others see things differently. Even if former Bear Stearns employees operated within the rules of the period and lost money when the company’s shares tumbled 94 percent, their subsequent good fortune may be resented on Main Street, said Simon Johnson, a professor at the Massachusetts Institute of Technology’s Sloan School of Management and a Bloomberg News columnist.

“Bear Stearns was an integral part of how the system became dangerous,” said Johnson, a former International Monetary Fund chief economist and author of “13 Bankers: The Wall Street Takeover and the Next Financial Meltdown.” “I have no idea whether these individuals did anything wrong, but they were reemployed quickly, unlike the rest of the real economy, or the teachers now losing their jobs because of the damage done. There’s an asymmetry of outcomes here that’s unfair and feeds into the broader resentment.”

Nierenberg, Verschleiser
Among the most highly placed members of the Bear Stearns diaspora are Michael B. Nierenberg, 48, who’s now in charge of Bank of America’s global mortgage and securitized-products business; Jeffrey L. Verschleiser, 41, who runs mortgage operations at Goldman Sachs; and Scott Eichel, 36, now Royal Bank of Scotland Plc’s global head of securitized products and U.S. credit trading.

The three men, none defendants in mortgage-related lawsuits, were among a group of former Bear Stearns employees at a fund-raising event for the Samuel Waxman Cancer Research Foundation in New York in November, where singer Sheryl Crow performed, according to a person who was there. The party raised about $3.4 million, a record for the group, whose board Nierenberg chairs, according to the foundation’s website.

Repackaged Slices
The paths of former Bear Stearns employees often cross at such gatherings, a legacy of the firm’s requirement that executives donate 4 percent of pay to charity, said Scott Buchta, a former senior managing director at Bear Stearns who’s now head of investment strategy at broker Braver Stern Securities LLC in Chicago and wasn’t at the dinner.

“Quite often these events become a mini-reunion of sorts,” Buchta said.

Under Nierenberg, whose family ran a meat company, Charlotte, North Carolina-based Bank of America last year was the largest underwriter of repackaged slices of U.S. government- backed mortgage bonds, a business that has thrived as investors look to protect against potential increases in interest rates from record lows.

Eichel, who joined Bear Stearns after graduating from Duke University in Durham, North Carolina, in 1997, has turned Edinburgh-based RBS into the second-largest manager of worldwide sales for securitizations without government backing, a reviving business. In December, Verschleiser’s group at New York-based Goldman Sachs snapped up $6 billion of home-loan bonds that State Street Corp. was selling.

Second Acts
Nierenberg, who oversaw adjustable-rate debt at Bear Stearns, and Verschleiser, whose purview included subprime loans, were co-heads of the New York-based firm’s U.S. mortgage business until they were promoted in late 2007, when Eichel and another trader took the posts.

Their second acts echo those of former executives at Drexel Burnham Lambert Inc., which during the 1980s helped create an explosion in high-yield company bonds that later soured, helping fuel the savings-and-loan crisis of that era. After Drexel’s 1990 collapse, Leon Black, its chief of mergers, founded buyout giant Apollo Management LP, and Stephen Feinberg, one of the firm’s traders, went on to start private-equity firm Cerberus Capital Management LP.

Ally, Macquarie
Other Bear Stearns bond executives landing at rival banks include its last co-heads of global fixed income, Jeffrey Mayer and Craig Overlander, both 51. Mayer now runs the North America region for the securities unit of Frankfurt-based Deutsche Bank AG, whose sales and trading revenue rose 30 percent last quarter while five big rivals posted an average 8 percent decline. Overlander is deputy chief executive officer of Societe Generale’s investment-bank division for the Americas.

Thomas Marano, 49, global head of mortgages, rates and foreign exchange at Bear Stearns, is now CEO of the mortgage unit of Ally Financial Inc., the auto and home lender rescued by the U.S. government. Randy Reiff, 40, Bear Stearns’s head of commercial-mortgage finance and commercial-mortgage securities, now holds a similar role at Australia’s Macquarie Group. Japan’s Mitsubishi UFJ Securities USA is relying on Bear Stearns alumni in corporate bonds, including James Gorman, its managing director of high-yield capital markets.

The former Bear Stearns executives all declined to comment directly or through spokesmen for the firms where they now work.

‘On Their Feet’
“Most of them landed on their feet,” said Alan “Ace” Greenberg, 83, the firm’s CEO until 1993. “No question about it -- they were talented.”

Greenberg came into the office until the end and became a vice chairman emeritus at JPMorgan Chase & Co. after the bank agreed to buy Bear Stearns with Federal Reserve assistance on March 16, 2008. He coined the term “PSD” in a 1981 memo to employees describing Bear Stearns’s preference for scrappy recruits who were “poor, smart and had a deep desire to become rich,” according to a book he wrote last year.

Lehman Brothers Holdings Inc. bond executives have had a different experience, according to Branthover. Instead of dispersing widely to banks, many remained with Barclays Plc, which bought the firm’s U.S. investment bank after its September 2008 bankruptcy, or joined Nomura Holdings Inc. Bear Stearns’s early collapse may have been good luck for its employees, allowing them to land before others began looking, she said.

Bear’s Share
Before the mortgage-securitization market imploded, fueling $2 trillion of losses at the world’s largest financial companies, it accounted for the biggest share of business at Bear Stearns’s most-profitable division, its fixed-income unit, which generated 45 percent of total revenue, according to the final report of the Financial Crisis Inquiry Commission.

Bear Stearns underwrote 10 percent, or $298 billion, of U.S. home-loan bonds without government backing sold from 2005 through 2007, second to top-ranked Lehman, according to data from newsletter Inside MBS & ABS. The company issued $167 billion of such debt, which was blamed by the FCIC for fueling the housing bubble.

Allegations unsealed in January in a 2008 lawsuit by bond insurer Ambac Assurance Corp. suggested practices at Bear Stearns that were “dirty beyond my skeptical imagination,” said Howard Hill, a former Babson Capital Management LLC money manager who helped start securitized-debt departments at four firms. Ambac was partly seized by its regulator after housing- debt losses depleted the company’s capital.

Ambac Complaint
The bank ignored information from employees and mortgage- review companies showing loans were shoddy, the insurer alleged in the lawsuit, filed in federal court in Manhattan. It also went back to originators of mortgages it had packaged into bonds and sold as securities and demanded refunds when loans quickly defaulted, according to an amended complaint based on evidence obtained in discovery. Cash raised from those settlements wasn’t shared with investors who bought the securities, Ambac said.

In one e-mail to colleagues from March 2007, Verschleiser, referring to $73 million of new mortgages still in its inventory, said he “did not understand why they were dropped from deals and not securitized before,” when the bank could have demanded refunds from lenders after a single missed payment, according to the complaint.

Marano, in an October 2007 e-mail to co-workers, vowed to retaliate against Moody’s Investors Service and Standard & Poor’s after the credit-rating companies relied on by investors downgraded some Bear Stearns securities, the complaint said.

“We are going to demand a waiver of fees,” Marano wrote, according to the complaint. “In the interim, do not pay a single fee to either rating agency. Hold every fee up.”

A judge last month denied Ambac’s bid to add 10 individuals, including Verschleiser and Marano, to its suit. Spokesmen at the firms where Verschleiser and Marano now work declined to comment.

Allstate, Syncora
Buyers and bond insurers suing over mortgage securities created or sold by Bear Stearns also include Allstate Corp., the Federal Home Loan Banks of Pittsburgh and Seattle, Syncora Guarantee Inc., CIFG Assurance North America Inc. and MBIA Insurance Corp. As a trustee, Wells Fargo & Co. this year sued a Bear Stearns unit now owned by JPMorgan to force it to turn over loan files.

Allstate said in a suit filed this year that, based on credit and tax records, 80.6 percent of borrowers underlying one 2006 securitization planned to live in the properties they bought instead of the 92.5 percent Bear Stearns claimed. That was important, the insurer said in its complaint, “because borrowers are less likely to ‘walk away’ from properties they live in, as compared to properties being used as a vacation home or investment.”

‘Deficient Loans’
Ambac and Allstate are “large, sophisticated insurance companies that are trying to blame others for risks they knowingly took and were paid for taking,” said Jennifer Zuccarelli, a spokeswoman for JPMorgan in New York. “We do not believe their claims are meritorious and intend to defend Bear vigorously.”

Allstate, a Northbrook, Illinois-based insurer, has sued at least four other firms over similar mortgage problems. So-called put-backs, in which a lender or bond issuer repurchases loans that didn’t comply with contract terms, may cost companies as much as $90 billion, JPMorgan analysts said in an October report.

“Bear Stearns is just the tip of the iceberg,” said Isaac Gradman, a San Francisco-based consultant and formerly a lawyer at Howard Rice Nemerovski Canady Falk & Rabkin, where he represented mortgage insurer PMI Group Inc. Firms in the industry “all knew they were putting together securitizations with highly deficient loans.”

Cioffi, Tannin
A Securities and Exchange Commission examination report from November 2005 released by the FCIC reveals regulators were concerned about Bear Stearns controls. The SEC questioned the extent to which, in response to agency critiques, “the firm will establish, document, and maintain a system of internal risk management controls to assist it in managing the legal risks associated with its business activities as is required.”

Aside from two former hedge-fund managers, who worked in Bear Stearns’s asset-management unit, U.S. officials haven’t sued any of the firm’s employees or executives for wrongdoing in relation to the mortgage crisis.

Ralph Cioffi and Matthew Tannin, who lost $1.6 billion of investors’ money, were acquitted in a criminal case in 2009. One juror said she would invest with them if she had the money. A civil case in which the SEC also alleges that the two lied to investors is still pending. They deny wrongdoing.

Bear Stearns wasn’t among the top five underwriters of collateralized debt obligations that repackaged mortgage bonds and related derivatives. CDOs fueled some of the biggest losses at rivals and remain a focus of agency investigations, according to disclosures by banks.

‘Good Judgment’
Eichel refused to help hedge fund Paulson & Co. create mortgage CDOs to bet against, as Goldman Sachs and Deutsche Bank did. He told author Greg Zuckerman for his book “The Greatest Trade Ever” that the idea “didn’t pass our moral compass.” Goldman Sachs later paid a record fine to settle SEC charges about a CDO it created for Paulson.

Bear Stearns also avoided the market for structured- investment vehicles, or SIVs, the $400 billion of funds that relied on short-term paper and whose collapse roiled bond and money markets, forcing banks to suffer losses on debt kept off their balance sheets, according to Henry Tabe, co-founder of Sequoia Investment Management Co. in London and author of a 2010 book on SIVs.

“Bear Stearns may have played an important role in the crisis, but the bank also showed good judgment in some instances,” said Tabe, a former Moody’s analyst.

Maiden Lane
While Marano was criticized internally for not offloading $13 billion of adjustable-rate mortgages when markets were first roiled in the summer of 2007, according to the FCIC report, the company’s assets are proving less toxic than expected.

The Fed extended a $29 billion loan to a vehicle called Maiden Lane LLC that bought $30 billion of Bear Stearns assets to facilitate the company’s sale. JPMorgan offered an additional $1 billion. As of March 9, the assets of Maiden Lane were valued at $26.1 billion, with the central bank’s loan paid down to $24 billion, according to Fed data.

The rise of former Bear Stearns bond executives shows that other banks agree with Greenberg’s assessment that only “some people at the top made some bad mistakes.” Greenberg, in his 2010 book “The Rise and Fall of Bear Stearns,” blamed Bear Stearns Chairman and CEO James Cayne for his decision to let the firm employ too much leverage.

Cayne, 77, in testimony to the FCIC last year, blamed “the market’s loss of confidence” in the company, “even though it was unjustified and irrational.” Cayne didn’t return messages left at his home seeking comment.

‘Rough and Tumble’
Many top Bear Stearns executives left shortly after the firm’s purchase by JPMorgan, which attempted to keep at least some of them. It named Mayer and Overlander as vice chairmen of its investment bank before the merger was finished. They left a month later, even after Mayer reached a verbal agreement to be paid about $27 million in cash and restricted stock if he had joined the bank, according to a regulatory filing.

Some may have been turned off by their new employer’s culture, which was more “big, corporate and soulless” compared with what had been an “obviously rough and tumble” environment, said William Cohan, author of “House of Cards,” a 2009 account of Bear Stearns’s collapse.

“It couldn’t be more different than Bear,” said Cohan, who also worked as a banker at JPMorgan and is a Bloomberg Television contributing editor.

Cerberus, Credit Suisse
Some former Bear Stearns employees joined Eichel at RBS and Nierenberg at Bank of America. Others landed at smaller firms seeking to challenge Wall Street’s largest banks. Dan Hoffman, who spent 22 years at the company, including a stint as head of mortgage and rate sales, last year joined broker Amherst Securities Group LP in New York as head of sales. David Connelly, who ran fixed-income sales in Chicago for 17 years, last year opened an office in the area for broker Braver Stern.

Investment firms have also hired Bear Stearns alumni. Josh Weintraub, 38, co-head of mortgage- and asset-backed bond trading with Eichel, now runs that business at Cerberus. Gyan Sinha, 46, who ran Bear Stearns’s research for asset-backed securities and CDOs, is a portfolio manager at New York-based hedge fund KLS Diversified Asset Management LP.

Other senior Bear Stearns mortgage analysts have ended up at banks. Credit Suisse Group AG this year hired Dale Westhoff as global head of structured-products research, and Deutsche Bank last year hired Steve Abrahams as head of securitization and mortgage-bond research.

‘They’re Everywhere’
“They’re everywhere,” said Paul Norris, a senior portfolio manager at Dwight Asset Management Co. in Burlington, Vermont, who said it would be “unfair” to overstate Bear Stearns’s role in the crisis. “The bond-trading guys that I knew were very talented and very good at their markets, so it’s not surprising that they’ve filtered around.”

Ruhi Maker, a lawyer at the Empire Justice Center in Rochester, New York, who told Fed officials at a 2004 hearing that investment banks were producing such bad mortgages their survival might be challenged, has a different perspective.

“At a karmic level, I don’t begrudge the folks at Bear Stearns jobs,” because others in the industry who engaged in at least “a suspension of disbelief” remain employed too, she said. “I’m sure they’re smart people and there’s money to be made. But I worry that until there is a real price to pay for costing the economy trillions of dollars, and jobs and homes, people are going to keep doing it.”