Gallimaufry

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http://www.npr.org/2010/11/26/131605741/three-teens-survive-50-days-adrift-in-the-pacific-ocean

The literature of the sea is full of incredible tales of survivors of long periods on rafts or wrecks or in small boats. Two of the better known accounts are:
Adrift by Steven Callahan and
Survive the Savage Sea by Dougall Robertson.

Everybody knows of Captain William Bligh and Fletcher Christian's mutiny aboard H.M.S. Bounty. Very few are aware of Bligh's superb seamanship in sailing and leading the small vessels in which he and his comrades were set adrift on a long voyage to safety.



Three Teens Survive 50 Days Adrift In The Pacific Ocean
by The Associated Press
November 26, 2010

Three teenage boys who spent 50 days adrift in a tiny boat in the South Pacific walked ashore on shaky legs Friday after their chance rescue - celebrated on their home island hundreds of miles away as a miracle that brought them back from the dead.

The trio - Samuel Pelesa and Filo Filo, both 15, and Edward Nasau, 14 - told rescuers they survived on rainwater they collected, a handful of coconuts, raw fish and a seagull that landed on their 12-foot-long aluminum boat.

The boys set off Oct. 5 from their home island to one nearby. It's not known how they went missing, but the outboard motor may have broken down at sea.

Worried family members reported them missing and the New Zealand air force launched a sea search. No sign of the tiny boat was found, and the village of 500 people held memorial services, expecting never to see the boys again.

They were picked up Wednesday by a fishing trawler, undernourished, severely dehydrated and badly sunburned, but otherwise well. The ship's first mate said the area they were in is way off any normal commercial shipping routes.

They drifted 800 miles from where they set out - Tokelau, a bucolic collection of coral atolls north of Samoa that is New Zealand's territory.

A Fiji navy patrol boat met the trawler Friday and escorted it into the harbor of its capital, Suva. The teens were met by New Zealand consular officials and taken directly to a hospital for medical checks. Looking thin, the three walked off the boat without speaking to reporters.

Tai Fredricsen, first mate aboard the tuna boat San Nikuna, said a crew member spotted a small vessel bobbing in the open sea northeast of Fiji on Wednesday. "We knew it was a little weird," he said.

As it edged closer to investigate, the crew saw three people aboard waving frantically and asked them if they needed help.

"All they could say was 'thank you very much for stopping,"' Fredricsen told New Zealand's National Radio. "In a physical sense, they look very physically depleted, but mentally - very high."

After the rescue, one of the boys managed to reach his grandmother by phone from the fishing boat. As news of their survival spread, the village erupted in joy.

"It's a miracle, it's a miracle," said Tanu Filo, the father of Filo Filo. "The whole village, they were so excited and cried and they sang songs and were hugging each other in the road. Everybody was yelling and shouting the good news," he told Radio New Zealand International.

Fredricsen said the boys reported having just two coconuts with them when they set out. During their ordeal, they drank rainwater that collected in the boat and ate fish they had caught. Once, they managed to grab a bird that landed on the boat and they devoured that, Fredricsen said.

The rescue came not a moment too soon: Fredricsen said they had begun to drink sea water because it hadn't rained in the past few nights.

He said the tuna boat's crew had given the boys small portions of fruit and fluids.

Cmdr. Francis Kean, Fiji's naval commander who was among those who met the teens, said they had been unable to keep down solid food. The boys would be fed fluids and carefully watched by doctors at a military hospital.

"They were surviving on rainwater, sea water, bird meat and flying fish, so that's kept them alive," Kean told reporters. "They suffered from severe dehydration, as you notice when they got off some of them were still weak on their legs."

Kean said the teens would not be available to speak to the media until they were healthier.

Fredricsen said the waters where the teenagers were spotted are isolated and commercial vessels rarely pass through. The San Nikuna was there trying to shorten its return journey to New Zealand.

The boys come from the atoll of Atafu, one of three that comprises the tiny Tokelau island group where 1,500 people live.

Atafu, Nukunonu and Fakaofo, picture-perfect South Pacific islets, lie 300 miles north of Samoa, surrounded by 128 mostly uninhabited coconut palm-covered islets. The territory has a total land area of just 4.7 square miles.

 

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The New York Times pegs the "Hypocrisy Meter." Does anyone really believe this paper isn't seriously bent?

http://wattsupwiththat.files.wordpress.com/2010/11/hypocrisy-meter.gif​

 

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http://noir.bloomberg.com/apps/news?pid=20601103&sid=abs7ECB42jVw

See also: Iridian Asset Management 11/17/10 email (Farr folder)

BofA Mortgage Morass Deepens After Employee Says Notes Not Sent
By Prashant Gopal and Jody Shenn

Nov. 30 (Bloomberg) -- Testimony by a Bank of America Corp. employee in a New Jersey personal bankruptcy case may give more ammunition to homeowners and investors in their legal battles over defaulted mortgages.

Linda DeMartini, a team leader in the company’s mortgage- litigation management division, said during a U.S. Bankruptcy Court hearing in Camden last year that it was routine for the lender to keep mortgage promissory notes even after loans were bundled by the thousands into bonds and sold to investors, according to a transcript. Contracts for such securitizations usually require the documents to be transferred to the trustee for mortgage bondholders.

In the case, U.S. Bankruptcy Judge Judith H. Wizmur on Nov. 16 rejected a claim on the home of John T. Kemp, ruling his mortgage company, now owned by Bank of America, had failed to deliver the note to the trustee. That could leave the trustee with no standing to take the property, and raises the question of whether other foreclosures could similarly be blocked.

Following the decision, the bank disavowed the statements by DeMartini, whom it had flown in from California to testify. It was the policy of Countrywide Financial Corp., acquired by Bank of America in July 2008, to deliver notes as called for in its securitization contracts, according to Larry Platt, an attorney at K&L Gates LLP in Washington designated by the bank to answer questions about the case.

“This particular employee was mistaken in what she said,” Platt said in a telephone interview.

Attorney Analysis
Wizmur’s ruling is being scrutinized by lawyers for borrowers seeking to stall repossessions as a way to press lenders to modify their debt. Attorneys for homeowners have already won cases by calling into doubt the legitimacy of affidavits used to take back properties.

“If this is correct, many, many, many foreclosures already occurred in which this plaintiff didn’t have the note,” said Bruce Levitt, the South Orange, New Jersey, attorney representing Kemp. “This could affect thousands or hundreds of thousands of loans.”

Companies that service loans, including Bank of America, temporarily halted home seizures in the wake of disclosures that they relied on employees to sign thousands of affidavits without reading them, a practice that has become known as robo-signing. The attorneys general of all 50 states are jointly investigating foreclosure practices of servicers.

Bank of America, based in Charlotte, North Carolina, is the largest U.S. mortgage servicer, overseeing $2.09 trillion of loans as of Sept. 30, according to industry newsletter Inside Mortgage Finance.

Investor Impact
The Kemp case is also being examined by lawyers for investors in mortgage-backed securities. Owners of the bonds have been cooperating in an effort to force sellers to take back loans, saying they were misled about their quality. The Wizmur ruling may give investors an additional opportunity to push for mortgage buybacks on grounds that the bonds weren’t created in keeping with securitization contracts.

“It may mean investors who think they bought mortgage- backed securities bought securities that aren’t backed by anything,” said Kurt Eggert, a professor at Chapman University School of Law in Orange, California.

The potential impact of DeMartini’s testimony may depend on the outcome of a broader dispute between homeowner and industry lawyers about whether missing or incomplete paperwork subsequently can be fixed, Eggert said.

‘Not Customary’
Wizmur, chief judge of the U.S. Bankruptcy Court for the District of New Jersey, said during hearings that the Countrywide securitization contract covering Kemp’s loan called for a trustee to take possession of the promissory notes, which represent the borrowers’ obligation to repay their loans.

The judge asked DeMartini whether the notes ever move to follow the transfer of ownership, according to the transcript of the August 2009 hearing.

“I can’t say that they’re never moved because, I mean, with this many millions of loans as we have I wouldn’t presume to say that, but it is not customary for them to move,” DeMartini said.

“This is something that would concern investors,” said Talcott Franklin, a Dallas-based lawyer whose firm is helping owners of more than $600 billion of mortgage bonds as they consider ways to limit their losses.

DeMartini held management and training positions since joining Countrywide Home Loans about a decade ago, according to her testimony. She said she has been involved in every aspect of servicing and “had to know about everything in order to do that.”

Beyond DeMartini’s Knowledge
Platt, the lawyer for Bank of America, said DeMartini was wrong, as was the bank’s local attorney in the case, who argued in court that notes weren’t moved in part because of the risk of losing them. The transfer of mortgage notes was outside the scope of DeMartini’s knowledge because she doesn’t deal with the sale of loans, Platt said.

DeMartini, who at one point said she wasn’t “comfortable” testifying about the extent to which notes were transferred before continuing to do so, couldn’t be reached for comment. Jerry Dubrowski, a spokesman for the bank, said that she remains an employee.

Banks including JPMorgan Chase & Co. and Washington Mutual Inc. said in prospectuses for some mortgage-bond deals that they would hold onto notes for the trusts. They were empowered to act in custodial roles on behalf of trustees, according to the pooling and servicing agreements that govern the transactions.

Countrywide Deals
The securitization contracts related to the Kemp loan, and at least two other Countrywide mortgage-bond transactions, didn’t assign the company the additional role of document custodian for the trust. Countrywide, as the servicer, can take back the notes from the trustee when needed to manage foreclosure actions and mortgage payoffs, according to the contracts.

One risk to investors when notes remain with sellers acting as custodian is that an acquirer or creditor of those companies could walk in and take the notes, the banks that disclosed the practice in mortgage-bond prospectuses warned. Typically, trustees or custodians also are charged with checking that either all the necessary documents get delivered or letting sellers know about missing paperwork.

“If Countrywide had a special agreement to act as a stand- in for the trustee, given the inherent conflicts involved, one would have thought that would have been material and disclosed to investors,” said Joshua Rosner, an analyst at New York-based Graham Fisher & Co.

He said that the possibility that Countrywide retained documents raises questions about whether Bank of New York Mellon Corp., which serves as the trustee for the securitization of the Kemp loan, fulfilled its obligation to review loan files.

Stress-Tested System
“We have an established, clearly defined document review process,” said Kevin Heine, a spokesman for New York-based BNY Mellon. “It is a controlled and well-documented system that has been stress-tested and audited. We are comfortable that it works well.”

Heine declined to comment on the Kemp case or Countrywide’s policies.

Mortgage-bond contracts require that loan sellers deliver certain files to trustees, or other companies acting on their behalf, typically within a few months. “Material” missing paperwork can require sellers to take back loans for their full face value, according to the agreements.

“If the notes weren’t properly transferred to the trusts, then investors have the mother of all put-back claims,” Adam J. Levitin, an associate professor at Georgetown University Law Center in Washington, wrote on a blog four days after citing the Wizmur ruling during a hearing by a House Financial Services subcommittee.

Trust Law
Giving notes to the trustees after the fact isn’t a solution because the rules governing trusts, enforced by New York trust law, require that assets are in place by a specified closing date, said O. Max Gardner III, a Shelby, North Carolina, bankruptcy litigator. The notes also can’t be transferred to the trust without first being conveyed through a chain of interim entities, he said.

“If they do an end run and directly deliver it to the trust, that would violate all the documents they filed with the SEC under oath as to what they did,” Gardner said.

Industry lawyers said trust law isn’t relevant in this instance. Based on other legal codes, loans have already been transferred into the mortgage-bond trusts, making a clean-up of paperwork permissible, they said.

Refuted Attack Strategies
“Those who seek to attack the integrity of securitizations have taken a number of approaches that have been refuted, so now they’re focusing on New York trust law,” said Karen B. Gelernt, a lawyer in New York at Cadwalader, Wickersham & Taft LLP who works for banks.

The part of the law they cite relates to “actions taken by the trustee after the trust is formed; it’s nonsensical to apply this provision to the creation of the trust,” she said. “There doesn’t appear to be any case law that supports their interpretation.”

Platt, the Bank of America lawyer, said that any bank that failed to initially deliver all the documents required in contracts may be required to refund investors only in cases in which foreclosures actually get blocked.

“The judges may decide it’s better for the system to allow everyone to” send missing paperwork to trustees, said Rosner, the Graham Fisher analyst. “It’s too early to really answer question about the implications” if the Bank of America testimony is true.

The case is In the Matter of John T. Kemp, Kemp v. Countrywide Home Loans Inc., 08-02448, U.S. bankruptcy Court for the District of New Jersey (Camden).

 

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http://noir.bloomberg.com/apps/news?pid=20601082&sid=aBPoAwxYb7y8


Uranium Miner Fights Floods, Skepticism as Stockpile Dwindles
By Christopher Donville

Dec. 1 (Bloomberg) -- Cameco Corp. plans to begin output at the world’s largest untapped uranium deposit in 2013, just in time to make up for a shortfall in global supplies. The project’s critics say it won’t happen.

The Canadian company, the world’s second-largest uranium producer, is developing the Cigar Lake mine in Saskatchewan beneath almost a half-kilometer (1,641 feet) of water-soaked sandstone. The mine, six years behind schedule because of floods, could meet 10 percent of current global needs.

Uranium use will exceed supply through at least 2015, according to the Royal Bank of Canada. China is building 25 nuclear reactors, almost double the number in operation, while Russia ends a program to extract uranium from atomic warheads.

“The world needs Cigar,” said Thomas L. Neff, a physicist at the Massachusetts Institute of Technology, who in the 1990s devised the so-called HEU, or highly enriched uranium, program to decommission the warheads.

Cameco said Nov. 8 it will proceed with an oil-industry technology to freeze the ground at the deposit to prevent more floods. Preventing further delay is crucial to Chief Executive Officer Jerry Grandey’s goal of doubling the Saskatoon, Saskatchewan-based company’s output to 40 million pounds by 2018.

“Since the HEU deal increasingly looks like it will come to a full stop by the end of 2013, it’s important from a global supply perspective that Cigar be there about the same time,” Grandey said in a Nov. 12 interview.

Uranium from the HEU program is responsible for almost 10 percent of U.S. electricity generation, Neff said.

Earlier Disappointment
Some analysts and investors who track Cameco say it will miss its deadline. Duncan McKeen, a Montreal-based analyst at Macquarie Capital Markets, expects Cigar Lake won’t begin output until 2014. John Redstone, a Montreal-based analyst at Desjardins Securities Inc. who visited the project in September, predicts a 2015 startup.

“When someone has disappointed in the past, you have to discount the guidance they give,” said John Wong, a portfolio manager at New City Investment Managers in London who helps manage $450 million, including 175,000 Cameco shares. “Startup could be six months to a year later than projected.”

Cameco has fallen 7.5 percent in New York trading since the first flood. BHP Billiton Ltd., the world’s largest mining company, has almost doubled in London in the same period. France’s Areva SA, the largest uranium producer, declined 41 percent in Paris.

Chinese Expansion
At the current uranium spot price of $59.90 a pound, the deposit’s 209 million pounds of the mineral are worth about $12.5 billion. The mine will cost C$2.04 billion ($2 billion), Cameco said in a technical report on its website.

Cameco owns 50 percent of the project, Areva 37 percent, Japan’s Idemitsu Kosan Co. 7.9 percent, and Tepco Resources, a unit of Tokyo Electric Power Co., 5 percent. Cameco said Nov. 23 it agreed to supply 29 million pounds of uranium through 2025 to China Guangdong Nuclear Power Holding Co., an operator of three nuclear power stations.

Cigar Lake was discovered in May 1981 and lies under northern jack-pine forests amid water-logged Athabasca sandstone and less-porous rock formations.

“Underground you’ve got like a big sponge filled with water with little walnuts, which are the mineral-bearing rock, and you’re navigating around there without having this water rushing in,” said John Stephenson, who helps manage C$2 billion at First Asset Investment Management Inc. in Toronto.

Investor Tour
Water flooded a shaft at the mine in April 2006 via a failed valve assembly. Following a second inundation in October 2006, blamed by investigators on a lack of pumping capacity, the price of uranium climbed, reaching a record $138 a pound in June 2007. A third flood in August 2008 occurred as Cameco sought to drain the facility.

A company-commissioned investigation in May 2007 found Cameco’s “deficient” development plans led to the second flood. During a December 2006 hearing before the Canadian Nuclear Safety Commission, then-member Christopher Barnes said he was concerned Cameco was building the mine “without adequate geologic, geotechnical, hydrogeologic knowledge.”

Cameco took analysts, fund managers and reporters on tours of Cigar Lake in September to show how the sources of the floods have been blocked and pumping capacity increased.

“There’s no question our reputation took a hit,” Grandey said in September. “I do think our performance over the last couple of years has gone a long way to restoring that.”

Higher Confidence
The mine visit helped convince Mark Iong, an analyst at Manning & Napier Advisors Inc., that production will start on schedule.

“There’s always concern during mine development that anything can go wrong,” Fairport, New York-based Iong said in an interview. “Our confidence level is higher.”

Cameco is also gaining the trust of regulators, said Kevin Scissons, Saskatoon-based director of the Canadian Nuclear Safety Commission’s uranium mills and mines division.

“The degree of risk mitigation that we’ve implemented, the design and planning, gives us confidence,” Grandey said. “Twenty-thirteen is still a good estimate.”

 

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A lot of men will suddenly be comparing the length of their index finger to their ring finger.



________________________________

http://noir.bloomberg.com/apps/news?pid=20601090&sid=adqVQFTaEILk


Long Index Finger Means Lower Prostate Cancer Risk, Study Finds
By Marthe Fourcade

Dec. 1 (Bloomberg) -- Men with long index fingers are at lower risk of prostate cancer, a study found.

Scientists in the U.K. who compared the hands of 1,500 prostate cancer patients and 3,000 healthy men found that those whose index was longer than their ring finger were 33 percent less likely to develop the potentially fatal disease.

“Relative finger length could be used as a simple test for prostate cancer risk,” said Ros Eeles, one of the study’s lead authors and a researcher who investigates links between genetic makeup and tumors at London’s Institute of Cancer Research, in a statement. The study was published in the British Journal of Cancer today.

Finger length is set before birth, influenced by the level of sex hormones babies are exposed to in the womb, researchers from the ICR and the University of Warwick in Coventry, England, said in the statement. A longer index finger points to less testosterone, which may protect against cancer later in life, they said.

“Our study indicates it is the hormone levels that babies are exposed to in the womb that can have an effect decades later,” Ken Muir of the University of Warwick, the study’s other lead author, said in the statement. “As our research continues, we will be able to look at a further range of factors that may be involved in the makeup of the disease.”

Scientists from Johns Hopkins University School of Medicine and the U.S. National Institute of Aging in 2004 found that men with high blood levels of testosterone were at increased risk of prostate cancer.

In the study published today, more than half of the men had an index shorter than the ring finger. Those whose two fingers were about equal had a similar prostate cancer risk, the researchers found.

Prostate Action and Cancer Research UK funded the study

 

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EBITDA

http://www.wikinvest.com/stock/T._Rowe_Price_Group_(TROW)/Data/EV:EBITDA




TROW

 

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If you want to know why you can't afford an automobile, here's an example of the reason ( it's called "government run amok" ):

___________________________________

U.S. Proposes Requiring Backup Cameras in All New Cars by 2014
By Angela Greiling Keane

Dec. 3 (Bloomberg) -- U.S. auto-safety regulators proposed requiring backup cameras on all new vehicles by 2014 to prevent drivers from backing over pedestrians, a rule that may cost as much as $2.7 billion.

The National Highway Traffic Safety Administration, which published the proposed rule today, said an average of 292 people die each year from back-over accidents, which primarily kill children and the elderly. To equip a new-vehicle fleet of 16.6 million produced in a year would cost from $1.9 billion to $2.7 billion, the agency said in the proposal. It called the cost “substantial,” but said the measure might reduce back-over deaths and injuries by almost half.

“There is no more tragic accident than for a parent or caregiver to back out of a garage or driveway and kill or injure an undetected child playing behind the vehicle,” Transportation Secretary Ray LaHood said in a statement. “The changes we are proposing today will help drivers see into those blind zones directly behind vehicles to make sure it is safe to back up.”

Gentex Corp., which makes camera-based automotive safety systems, may benefit from the rule, said Kevin Tynan, an automotive analyst for Bloomberg LP. Gentex rose $2.33, or 10 percent, to $25.16 at 12:35 p.m. New York time in Nasdaq Stock Market composite trading. The gain was the biggest since Oct. 21, 2009, for the Zeeland, Michigan-based company.

Audiovox Corp., which makes mobile video systems, gained 12 cents, or 1.69 percent, to $7.21 in Nasdaq trading, rising to its highest price since Sept. 20. Audiovox is based in Hauppauge, New York.

Ford Motor Co. said today it will have rear-view cameras available in almost all Ford and Lincoln models by the end of 2011.

The Alliance of Automobile Manufacturers and the Association of International Automobile Manufacturers, whose members include U.S. and non-U.S.-based carmakers, said they are reviewing the rule.

Industry Reaction
“Given that our top priority is keeping people, especially children, safe in and around autos, the Alliance looks forward to working with regulators to ensure that, in the end, we have enhancements that saves lives and improve safety,” Wade Newton, a spokesman for the Washington-based alliance, said in an e- mail.

“AIAM supports the establishment of performance-based requirements that provide maximum flexibility to manufacturers in selecting approaches to meet enhanced rear visibility requirements,” Annemarie Pender, a spokeswoman for the Washington-based international group, said in an e-mail. “Our members invest billions of dollars into saving lives by researching, creating and deploying advanced safety features on their vehicles.”

The proposal is a response to a 2007 law mandating regulations to enhance rear-view visibility for drivers. The law was named after Cameron Gulbransen, a 2-year-old from New York who died after his father accidentally backed over him. NHTSA Administrator David Strickland helped write the law when he worked for the Senate Commerce Committee.

Camera Cost
The regulator didn’t specify which kind of technology must be used, while saying in the proposed rule that “the most effective technology option” it evaluated is the rearview video system, which is also the most expensive.

In vehicles without a visual-display screen, rearview video systems cost consumers $159 to $203. For a car with a video screen, such as those used in navigation systems, adding a camera would cost $58 to $88, NHTSA said.

NHTSA estimated about 18,000 people a year are hurt in back-over accidents, with about 3,000 suffering “incapacitating” injuries. The agency said 44 percent of the incidents involve children under age 5.

NHTSA will accept comments on the proposed rule for 60 days. The agency said it plans to publish a final rule by Feb. 28.

http://noir.bloomberg.com/apps/news?pid=20601110&sid=aspVXeHb_x74

 

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http://noir.bloomberg.com/apps/news?pid=20601110&sid=a550NYDQkRoQ


Fed Loans Hatched in Bathroom Halted Money-Market Run
By Bob Ivry, Christine Richard and Christopher Condon

Dec. 3 (Bloomberg) -- Deborah A. Cunningham, the manager of $261 billion at Federated Investors Inc., was squeezed into the bathroom of her family’s recreational vehicle, trying to help save the $3.6 trillion money market industry.

Cunningham was on the phone with Federal Reserve officials in Boston, New York and Washington. Outside, in the Pennsylvania State University stadium parking lot in State College, football fans were preparing for a game against Temple University.

“It was the only place I could hear,” Cunningham said. “People were drinking beer. They kept knocking on the door, saying, ‘I have to go.’”

The solution Cunningham helped craft on Sept. 20, 2008, was a bailout for money market funds, which were created as safe investments that could be easily cashed out. The Fed put the facility into effect two days later. At its peak in October 2008, it provided $152 billion to stem a customer run sparked by the Sept. 15 bankruptcy of Lehman Brothers Holdings Inc.

This week’s disclosures of data from the Fed’s rescue efforts during the 2007-2008 financial crisis show how the central bank employed companies to help design or run programs they could use to their benefit. Federated tapped the money- market rescue for $8.89 billion, according to Fed data. Pacific Investment Management Co. and BlackRock Inc. weren’t only advisers to the Fed, they were also trading securities they helped value, the Fed data show.

No Choice
“That’s the way the system works,” said David Castillo, senior managing director at Further Lane Securities in San Francisco. “It’s problematic that they’re customers, but that shouldn’t limit their ability to participate in this process. Quite frankly, we don’t have a choice. They have the expertise.”

In compliance with the Dodd-Frank financial overhaul law, the Fed on Dec. 1 identified the institutions that used $3.3 trillion of improvised rescue programs. The 21,000 transactions in 11 initiatives included the money-market plan Cunningham helped devise, known as the AMLF, short for its 10-word formal name, the Asset-Backed Commercial Paper Money Market Mutual Fund Liquidity Facility.

In its scramble to keep the economy from collapsing, the Fed also created the Commercial Paper Funding Facility, or CPFF, which tried to ensure that banks and industrial companies had the short-term loans they needed to fund everyday operations. General Electric Co., then the biggest issuer of commercial paper, met with Treasury and Fed officials in the days before they created the CPFF.

‘Unintended Consequences’
Later, the Fed set up the Term Asset-Backed Securities Loan Facility, or TALF, to keep consumer credit flowing. It hired Pimco, manager of the world’s largest bond fund, and BlackRock, the world’s biggest money manager, to provide analytical help, according to a November 2010 report by the Fed’s Office of Inspector General.

“Any situation where the potential exists for a conflict of interest is concerning,” said Kurt Bardella, spokesman for Representative Darrell Issa, the California Republican who will become chairman of the House Oversight and Government Reform Committee next month. “This really brings into focus one of the unintended consequences of institutionalizing the federal government picking winners and losers while those entities are partaking directly and indirectly in what should be exclusive government functions.”

Breaking the Buck
Cunningham was making calls from her camper’s restroom after the Lehman Brothers bankruptcy filing panicked investors, who pulled $230 billion from money-market accounts. The $62.5 billion Reserve Primary Fund, which held $785 million of loans to Lehman Brothers, became the biggest money-market fund and the first in 14 years to “break the buck,” meaning the value of a share fell below $1 and investors faced losses.

Money funds were the main buyers of commercial paper. During the panic, they had to sell off assets to pay investors who demanded their money back. That meant they couldn’t buy the commercial paper that corporations needed to pay for things such as payroll and utility bills. In less than a day, the credit crunch had spread to industrial companies.

By Wednesday, Sept. 17, officials at the Fed and the Treasury Department were focused on finding a solution for money funds, says Phill Swagel, who was assistant Treasury secretary for economic policy.

Swagel testified to Congress that morning on the deteriorating housing market and returned to the Treasury building around midday, he said. After eating a tuna sandwich, he was on conference calls with Fed officials the rest of the afternoon and late into the night.

‘Not Normal Policy’
Two days later, on Sept. 19, the Treasury announced that for a fee it would insure money market funds against investor losses.

“It’s not normal policy to say this asset class is now guaranteed,” said Swagel, a professor at Georgetown University’s McDonough School of Business in Washington, in an interview. “When there’s a run on money market mutual funds, there’s no time to do anything else but say they’re all guaranteed, we’re done.”

While the Treasury measure slowed the pace of withdrawals, it didn’t help money-market funds turn assets into cash fast enough to pay investors who wanted out. Putnam Investments LLC closed its $12.3 billion Putnam Prime Money Market Fund on Sept. 17 after investors asked for about a third of the fund’s money. Managers of the Boston-based firm faced the prospect of selling assets in a distressed market, which would cause the fund to break the buck.

Federated’s Fund Takeover
Cunningham’s Federated, based in Pittsburgh, was prepared to take over the assets of the Putnam fund, issuing investors shares in its $22.1 billion Prime Obligations Fund, she said. To make the takeover work, Federated needed to pay off all the Putnam investors who’d demanded their money, she said. For that, she turned to the Fed.

“We had been working with them trying to figure out what might work to add liquidity to the marketplace,” Cunningham said in an interview.

The AMLF, the bailout that Cunningham helped design, provided cash for banks to buy asset-backed commercial paper from money market funds. This made it possible for the funds to avoid selling at a discount, and the Fed agreed to take the risk of defaults, guaranteeing a profit for the banks when the loans were repaid.

‘Single Most Successful’
Without the program, it would have been “very difficult” for Federated to absorb the $12.3 billion in assets of the Putnam fund on Sept. 24, 2008, according to spokeswoman Meghan McAndrew. About half the investors redeemed their shares within a week, she said. That meant the deal brought Federated, the third-biggest U.S. money market company, about $6 billion in assets at no cost.

Federated’s Prime Obligations Fund now holds $47 billion of assets, more than double the amount before the transaction. In a deal announced July 16, Federated will pay as much as $38.8 million over five years to acquire $17 billion in money fund assets from SunTrust Banks Inc.

“Even if the entire Putnam fund redeemed, we were still confident with this facility behind us that there was liquidity in the marketplace and the ability to withstand that,” Cunningham said. “Putnam investors were immensely aided by this program. It didn’t really help Federated except for some positive press.”

All AMLF loans have been repaid, and the facility generated $543 million in interest, according to a Fed report.

Commercial Paper
“The AMLF was the single most successful government intervention during the financial crisis,” said Peter Crane, president of Crane Data LLC, a money-fund research firm in Westborough, Massachusetts, in an interview. “In a crisis when you have esoteric corners of the market involved, you have no choice but to go to the experts, and the experts will be self- interested players.”

While the AMLF helped stabilize money funds, they didn’t start buying commercial paper again. That left issuers without their biggest group of customers and unable to roll over short- term debt as it matured. At 5:45 p.m. on Monday, Sept. 15, GE Chief Executive Officer Jeffrey R. Immelt met for half an hour with Treasury Secretary Henry M. Paulson Jr. in the secretary’s office, according to Paulson’s schedule.

An hour and 15 minutes later, Federal Reserve Bank of New York President Timothy F. Geithner convened a staff meeting to focus on “GE issues,” according to his schedule. He and Paulson conferred by phone afterward.

On Oct. 1, Geithner’s schedule noted a tentative conference call with Immelt, who was a board member of the New York Fed, a position he still has today. GE spokesman Gary Sheffer said the company doesn’t see a conflict with Immelt’s membership on the New York Fed’s board. He declined to comment on the content of Immelt’s conversations.

Reviving Securitization
Less than a month later, the Fed created a bailout of the commercial paper market. A special entity called CPFF LLC, funded by the Fed, bought commercial paper from companies. They included GE, which tapped the facility 12 times for $16.1 billion, the Fed disclosed this week.

Assistance to companies, which also included Toyota Motor Corp. ($4.6 billion), Harley-Davidson Inc. ($2.3 billion) and Verizon Communications Inc. ($1.5 billion), topped out at $348.2 billion on Jan. 21, 2009, according to the Fed. The program had no defaults and gained $6.1 billion in interest and fees, the central bank’s Inspector General said in its report.

Creation of TALF
In November 2008, the Fed set out to revive the market for bonds backed by consumer and small business loans. That market froze as an unprecedented number of defaults made assets backed by mortgages impossible to value. Wall Street had fueled lending by bundling mortgages into bonds using an innovation known as securitization.

“We were pretty confident that banks didn’t have the capacity to essentially replace the capacity that was lost in the securitization market,” said William C. Dudley, who headed the New York Fed’s Markets Group at the time and is now the bank’s president, in an interview. “We thought the best way forward would be to try and restart the securitization market, rather than just sit back and rely on the banking sector.”

On Nov. 25, 2008, the Fed created the Term Asset-Backed Securities Loan Facility, or TALF, which allowed investors to borrow from the Fed as much as 95 cents of every dollar invested in Fed-approved asset-backed securities. Investors also retained the option of turning the securities over to the Fed if they fell in value.

Pimco, BlackRock
The New York Fed hired Pimco, based in Newport Beach, California, to value collateral, monitor the credit risk of TALF participants and assess the securities market, according to the Inspector General’s report. BlackRock Solutions, a unit of New York-based BlackRock, said it was brought on to supply analytical help on the securities.

Without singling out any contractors, the Inspector General’s office said that farming out certain tasks creates the potential for conflicts of interest.

“If you knew the inner workings of the third-party reviewer, you’re mitigating an incredible risk,” said James Harrington, who oversaw TALF investing at his former employer, Ryan Labs Asset Management in New York. Investors were required to buy securities without knowing whether the Fed would accept them for the program. The value of bonds rejected by the Fed would often fall. “If you knew that what you were submitting had a better chance of getting accepted, you’d know where the boundaries of the playground were,” Harrington said.

Ford Deal
Pimco and BlackRock also participated in TALF as borrowers on behalf of clients, along with other financial companies. Pimco tapped TALF 96 times between April 2009 and March 2010 for a total of $7.26 billion, according to Fed data. Ten funds connected to BlackRock Financial Management Inc., another unit of BlackRock, borrowed a total of $2.8 billion for clients, the Fed disclosed.

On the first day of the program, Pimco put up $22 million and borrowed $292 million from the Fed to buy $314 million of bonds backed by Ford Motor Co. auto loans. The fund borrowed from the Fed at the London interbank offered rate plus 100 basis points, or 1 percentage point, and purchased securities yielding Libor plus 250 basis points, or 2.5 percentage points. The return was about 23 percent a year for investing in securities with the highest credit ratings and a Federal Reserve backstop.

The Pimco advisory team serving as a TALF collateral monitor for the New York Fed is subject to “strict physical, ethical and technological walls” and has no involvement in any investment strategies or decisions, said Mark Porterfield, a Pimco spokesman.

‘We Have Concerns’
BlackRock also participated in the initial Ford deal, purchasing $275 million of the same securities as Pimco, using $256 million borrowed through TALF, according to the Fed. Since February, when BlackRock Solutions was hired, BlackRock Financial Management borrowed $248 million to invest in a total of 13 commercial mortgage-backed securities deals.

There was no impropriety in BlackRock’s actions, said Bobbie Collins, a BlackRock spokeswoman. BlackRock Solutions was a collateral monitor providing analytical services for TALF, while BlackRock Financial Management tapped the program on behalf of clients, she said. The two units are separate businesses with strict information barriers in place, she said.

Firms helping to price hard-to-sell assets could overvalue them to raise the value of their own assets or those of their clients, said Michael Smallberg, an investigator with the Project on Government Oversight, an independent Washington watchdog group.

“We never found anyone maliciously trying to take advantage of taxpayers,” Smallberg said. “But we have concerns about how well those firewalls work.”

Conflict Review
The New York Fed “has carefully managed potential conflicts of interest” in TALF, including separating workers, approving staff, restricting personal investments and conducting on-site audits of the controls, said Deborah Kilroe, a bank spokeswoman.

The Inspector General’s report, five months after TALF closed to new investment, said “a third-party vendor” under contract with the New York Fed’s legal group was “performing a conflict-of-interest review and testing compliance with contract provisions.”

Neither Pimco nor BlackRock has been accused of wrongdoing. The firms didn’t establish policies or approve or reject collateral, according to the Fed.

“It seems clear that the biggest beneficiaries were the insiders,” said Dean Baker, co-director of the Center for Economic and Policy Research in Washington. “We have a huge pinata here. The question is whether we had insiders deciding who would get the candy or was everyone in the same boat? Think of the people who get upset about the government giving a homeowner some help. Now multiply the sums by about 100 million. We should care.”

 

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Aspirin Cuts Death Rates From Range of Cancers, Researchers Say
By Chris Kay

Dec. 7 (Bloomberg) -- Aspirin, a century-old medicine known to relieve pain and prevent blood clots, also reduces the risk of death from a variety of cancers, researchers said.

Taking 75 milligrams of aspirin a day for more than five years cut deaths from cancer by 20 percent, according to the study published in The Lancet medical journal today. The researchers found the pill was associated with a reduced risk of death from esophageal, colorectal, lung and prostate cancers.

The findings, based on data from eight trials involving 25,570 patients, expand on previous studies that found aspirin lowered the risk of colon cancer. More studies are needed before aspirin, which can increase the risk of internal bleeding, should be recommended for cancer prevention, said the researchers, led by Peter Rothwell, professor of clinical neurology at the John Radcliffe Hospital in Oxford, England.

“I have been taking aspirin for several years," Rothwell, who founded the Stroke Prevention Research Unit at the University of Oxford, told reporters in London yesterday. "I personally believe this."

The risk of death after 20 years was lowered in patients who took aspirin by 60 percent for esophageal cancer, 40 percent for colorectal cancer, 30 percent for lung cancer and about 10 percent for prostate cancer. Aspirin doses greater than 75 milligrams didn’t appear to increase the benefit. The data came from trials whose main purpose was to determine aspirin’s effect on cardiovascular risks such as heart attack and stroke.

Medical Guidelines
Healthy middle-aged men and women may benefit the most from taking aspirin over a long period, and medical guidelines ‘‘may be updated on the back of these results,” Rothwell, 46, said.

“The benefit is likely to be less at 75 to 80 because those cancers that will kill you will have already developed,” he said.

Aspirin blocks prostaglandins, which are involved in a range of functions such as the contraction of blood vessels and inflammation. The eight trials reviewed by Rothwell and his colleagues looked at the effects of aspirin on cardiovascular disease.

Taking aspirin almost doubles the risk of internal bleeding to one in every 2,000 to 3,000 people, Peter Elwood, an epidemiologist at Cardiff University who has published 300 research papers over 50 years, told reporters in London. That doesn’t increase the number of deaths, and the chance of cancer or stroke outweighs the risk from bleeding, he said.

“The man on the street knows betting odds,” said Elwood, 80, who has been taking aspirin since 1974 and wasn’t involved in the study. People should “evaluate the risks for themselves.”

Colon Cancer
A low daily dose of aspirin taken over an average of six years reduced colon cancer risk by 24 percent and the likelihood of dying from the disease by 35 percent, according to a separate study authored by Rothwell published in October by The Lancet. A trial published in the medical journal Gut in September found that 75 milligrams of aspirin taken daily lowered the risk of colon cancer by 22 percent after just one year.

The effects of the drug over a longer period are unknown, and further data on the risks of taking aspirin for tumors that affect women, such as breast cancer, is needed, Rothwell said.

“The problem is you can’t do a 30-year trial,” he said. “It’s tough to do a trial and keep patients compliant for more than a few years.”

The authors of the study plan to publish further research into the link between aspirin and cancer prevention next year, they said in an e-mailed statement.

The researchers funded the study through their own budgets. Rothwell and his four co-authors disclosed to the journal that they had individually received payments from drugmakers including AstraZeneca Plc, Bayer AG, Boehringer Ingelheim GmbH, Sanofi-Aventis SA, Bristol-Myers Squibb Co. and Servier Laboratories Ltd. that were unrelated to the study. Bayer, based in Leverkusen, Germany, is the inventor of aspirin.

“This study remains a very important new development in our understanding of how to prevent cancer in general,” Alastair Watson, a professor of translational medicine at the University of East Anglia who wasn’t involved in the study, said in an e-mailed statement.

 

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‘Birds of America’ Book Fetches Record $11.5 Million
By Scott Reyburn

Dec. 7 (Bloomberg) -- A copy of John James Audubon’s early- 19th-century illustrated “Birds of America” sold in London tonight for 7.3 million pounds ($11.5 million), a record for any printed work.

The book was estimated at 6 million pounds at Sotheby’s. Its price exceeded the $8.8 million paid in March 2000 by Sheikh Saud al-Thani of Qatar at Christie’s International for another copy.

The work was bought by London-based art dealer Michael Tollemache, who said, “I think it’s priceless, don’t you?”

Earlier, a copy of William Shakespeare’s 1623 First Folio had an estimate of as much as 1.5 million pounds at hammer prices and made 1.5 million pounds with fees, both by an unidentified U.S. dealer in the room.

 

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OPEC to Maintain Quotas as Crude Exceeds $90: Energy Markets
By Grant Smith and Mark Shenk

Dec. 8 (Bloomberg) -- Oil’s rally to a more-than-two-year high is unlikely to coax OPEC into raising production quotas at this week’s meeting in Ecuador, as member nations consider the global recovery strong enough to withstand price gains.

The Organization of Petroleum Exporting Countries, which accounts for 40 percent of global supply, will maintain the limits set in 2008 when representatives gather in Quito on Dec. 11, according to all but one of 39 analysts and traders in a Bloomberg News survey. Ministers from Angola, Venezuela and Libya say the group will probably repeat its 24.845 million- barrel-a-day target.

New York crude futures climbed above $90 a barrel for the first time in 26 months yesterday, exceeding the $70-to-$90 range described by Saudi Arabian Oil Minister Ali al-Naimi as “comfortable.” Iran, Venezuela and Libya said this month they would accept prices as high as $100, while OPEC Secretary- General Abdalla El-Badri said the group won’t necessarily boost production unless there’s a need for more oil.

“I don’t think there’s a magic number that causes them to take action,” said Mike Wittner, head of oil market research at Societe Generale SA in New York. “As long as the economy seems OK, as long oil demand seems healthy, what they consider to be an acceptable range will move upward as prices move up.”

Two-Year High
Crude futures on the New York Mercantile Exchange advanced 12 percent this year, settling at $88.69 a barrel yesterday, after trading at $90.76, the highest level since Oct. 8, 2008. Prices will return to $100 a barrel for the first time in two years during 2011, according to strategists at Goldman Sachs Group Inc., Morgan Stanley, JPMorgan Chase & Co. and Bank of America Merrill Lynch.

OPEC hasn’t altered quotas at any of its six meetings since December 2008, when the group announced record supply cuts that have left the 12-member organization with about 6 million barrels a day of spare capacity, almost three times the daily output of Nigeria alone.

While oil consumption in China, the world’s biggest energy user, will increase by 9.8 percent this year, demand in North America will rise 2.1 percent, according to the Paris-based International Energy Agency. It will decline 0.9 percent in Europe’s most advanced economies, the IEA said.

Falling Stockpiles
“Fundamentally there’s no reason for OPEC to release more barrels,” said Johannes Benigni, chief executive officer of JBC Energy GmbH, a Vienna-based research consultant. “Surplus inventories are declining, but it’s not the strength of the physical market that’s causing oil to move to $90. This is more a function of the state of the economy and the financial markets.”

U.S. crude stockpiles have fallen by about 8.5 million barrels, or 2.3 percent, to 359.69 million barrels in the past month, according to Energy Department data. They peaked this year at 368.156 million barrels on Oct. 29 and are still 10 percent above their norm for the time of year, the data show.

OPEC abandoned a formal price target centered around $25 a barrel in early 2005. Since late 2008, most members have publicly backed Saudi Arabian King Abdulla’s stance that $75 is a “fair price” for consumers and producers.

Al-Naimi said on Nov. 1 that crude between $70 and $90 a barrel was a “very comfortable zone,” raising the unofficial target from a previous range of $70 to $80 amid concern the weakening U.S. currency may hurt the value of members’ dollar- denominated oil revenue.

The Dollar Index, which tracks the currency against those of six major trading partners, dropped more than 7 percent from September through October. The U.S. Energy Department forecasts OPEC’s net oil export revenue at $748 billion this year.

Adhering to Quotas
Instead of changing quotas, OPEC is likely to focus on efforts to conform with production ceilings, according to Shokri Ghanem, chairman of Libya’s National Oil Corp. All 11 members that have limits still exceed them.

Adherence to quotas has faltered as oil demand recovered after the 2008 economic crisis, encouraging members to exceed their individual allocations. Compliance fell to 56 percent last month, from a peak of 89 percent in March 2009, according to monthly Bloomberg surveys of producers and analysts.

“The ministers could bring up the issue of cheating, but to what purpose?” said Peter Beutel, president of Cameron Hanover Inc., a trading-advisory company in New Canaan, Connecticut. “Why fix what clearly isn’t broken from their perspective? They are making good money and they see no genuine negative impact on consumption, although we know there is some.”

OPEC’s members are Algeria, Angola, Ecuador, Iran, Iraq, Kuwait, Libya, Nigeria, Qatar, Saudi Arabia, the United Arab Emirates and Venezuela. Iraq is exempt from the quota system.

 

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Senate Reaches Deal to Block 25% Cut in Doctors’ Pay
By Jeffrey Young

Dec. 7 (Bloomberg) -- U.S. physicians would get a one-year reprieve from a 25 percent cut in the fees they receive from Medicare under an agreement announced by senators.

Democratic and Republican leaders in the Senate agreed to a $19.2 billion bill that would replace next year’s scheduled reduction in Medicare payments by freezing the rates, Senate Majority Leader Harry Reid, a Nevada Democrat, and Senator Mitch McConnell, the Republican leader from Kentucky, said today in a statement.

Passage by the Senate and House before Congress adjourns for the Christmas holidays would give lawmakers a year to devise a permanent replacement for the formula that calculates how much doctors get paid by Medicare, the U.S. government health program for the elderly and disabled. Every year since 2002, physicians have faced cuts that were eventually stopped by Congress.

“We put together a longer-term solution to provide the certainty doctors need and the security patients deserve,” Senator Max Baucus, a Democrat of Montana and chairman of the Finance Committee, said in a statement. Reid, McConnell, Baucus and Senator Charles Grassley of Iowa, the senior Republican on the Finance Committee, jointly introduced the legislation.

The new spending required by the legislation would be paid for by making changes to the health overhaul President Barack Obama signed in March.

Tax Credits
The law establishes tax credits in 2014 for health insurance purchases by low and middle-income individuals and families. Under the statute, people are required to repay the federal government if they receive a larger credit than they should have, such as if their incomes rise during a year. The statute caps that amount at $250 for an individual and $400 for a family.

The legislation announced today would require people with higher incomes to give back more of what they received. A summary released by the senators didn’t specify how much the repayments would increase for individuals and families. The provision would raise $19 billion over 10 years and the rest of the money would come from savings in other areas of the Medicare program, according to a summary of the bill released by the Finance Committee.

Cost Controls
Medicare has cost-control formulas designed to reduce total spending on physician services from year to year by linking rates to overall economic growth. The scheduled fee cuts have climbed to the proposed 25 percent in 2011 from the original 4.8 percent reduction planned in 2002. Payments for physician and clinical services will account for 13 percent of the program’s $509 billion in expenditures this year, according to an analysis of U.S. government data by the nonprofit Kaiser Family Foundation, based in Menlo Park, California.

Medicare now covers about 46.6 million Americans, according to the foundation.

Obama supports postponing the physician fee cut until 2012 and enacting a new method of setting rates, Health and Human Services Secretary Kathleen Sebelius said last month.

The American Medical Association, the largest U.S. physicians’ organization, is among the groups that want Congress to create an alternative formula to replace the current system.

 

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Putin suggests Germans replace nuclear with firewood

01 December 2010
Russian prime minister Vladimir Putin has told German businessmen that they may have to rely on Russian firewood for heating if they do not want to construct new nuclear power plants or bring in Russian gas supplies. At a business conference organized in Berlin by the German newspaper Sueddeutsche Zeitung, Putin recognised that "the German public does not like the nuclear power industry for some reason." He continued: "But I cannot understand what fuel you will take for heating. You do not want gas, you do not develop the nuclear power industry, so you will heat with firewood?" Putin then noted, "You will have to go to Siberia to buy the firewood there," as Europeans "do not even have firewood."

 

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Household Worth in U.S. Increases by $1.2 Trillion
By Courtney Schlisserman

Dec. 9 (Bloomberg) -- Household wealth in the U.S. rose by $1.2 trillion in the third quarter as share prices jumped in response to an improving economy.

Net worth for households and non-profit groups increased to $54.9 trillion from $53.7 trillion in the previous three months, according to the Federal Reserve’s Flow of Funds report issued today in Washington. American families also cut debt for a 10th consecutive quarter.

Rising wealth and falling debt are putting consumers further down the road toward improving their personal finances following the worst recession since the 1930s, one reason why spending has picked up. The report also showed that a drop in home prices limited the gain in net worth, indicating residential real estate remains a risk to the outlook.

The increase in net wealth fell short of making up for the second quarter’s $1.4 trillion loss. The Standard & Poor’s 500 Index rose 11 percent during the three months ended Sept. 30, after dropping 12 percent from April through June.

The value of household holdings of corporate equities increased by $977.6 billion in the third quarter, todfay’s report showed. Real-estate holdings dropped by $747.4 billion, the biggest decline since the first three months of 2009, when the economy was still in a recession. The economic slump ended in June 2009.

Home values may keep falling in coming months as a jobless rate hovering near 10 percent causes foreclosures to mount. The S&P/Case-Shiller index of property values in 20 U.S. fell 0.8 percent in September from the prior month and 15 cities showed a year-over-year decline.

Owners’ equity as a share of their total real-estate holdings decreased to 38.8 percent last quarter from 40.8 percent in the second three months of the year. The measure reached a high of 59.7 percent at the height of the housing boom in 2005.

Americans have cut debt and increased savings as they cope with an unemployment rate that has stayed above 9 percent for almost two years. The jobless rate climbed to 9.8 percent in November, the Labor Department said last week. Companies added 50,000 positions to payrolls, the smallest increase in six months.

Consumer spending rose at a 2.8 percent annual rate in the third quarter, the fastest pace of growth in almost four years, according to Commerce Department data. Corporate profits have risen every quarter since the first three months of 2009 and were up 2.8 percent from July through September.

Today’s Fed report showed companies had $1.93 trillion in cash and other liquid assets at the end of the third quarter, a record. Companies spent more on plant and equipment in the third quarter. The so-called financing gap -- the amount of money used for capital spending less what companies raised internally -- was a $127.9 billion, the most in at least the past two years.

Consumer debt dropped at a 1.7 percent annual pace in the third quarter, the smallest decrease since the first three months of 2009, today’s report showed. Mortgage borrowing fell at a 2.5 percent pace, while other forms of consumer credit decreased 1.5 percent.

Total borrowing by consumers, businesses and government agencies excluding financial firms increased at an annual rate of 4.2 percent last quarter, led by a 16 percent gain for the federal government. Borrowing by businesses increased 1.7 percent.

 

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BG Rises to 2 1/2 Year High on Brazil Oil Reserves
By Eduard Gismatullin

Dec. 9 (Bloomberg) -- BG Group Plc, the U.K.’s third- largest energy producer, rose to a 2 1/2 year high after saying its share of the initial phase of Brazil’s Tupi and Guara fields will be about 600 million barrels of oil equivalent.

BG advanced 46 pence, or 3.6 percent, to close at 1,333.5 pence in London, the highest since May 22, 2008. Shares rose 24 percent in the last year.

The first two floating production, storage and offloading vessels, or FPSOs, at the Tupi field as well as another at Guara will have a combined daily capacity of about 340,000 barrels of oil and 531 million standard cubic feet of gas. The first unit at Tupi started in October, while the other two vessels are expected to come online in 2013, BG said today in a statement.

BG “can recover reserves of more than 750 million barrels of oil equivalent per FPSO, which is almost double the initial” estimate in February, Oswald Clint, a London-based analyst said in a report. This new estimate “highlights the exceptional quality of BG’s Santos Basin acreage -- and the speed with which these are being developed.”

BG in November increased estimates for gross energy resources at the Tupi, Iracema, and Guara fields in the Santos Basin by 34 percent to 10.8 billion barrels of oil equivalent. Last month, Reading, England-based BG and its partners signed a $3.5 billion contract to order hulls for eight more FPSOs for the full development of the Brazilian fields.

The three FPSOs will recover total gross reserves of around 2.2 billion barrels of oil equivalent, BG said.

BG said it anticipates “very low” unit technical costs for the initial phase given the “outstanding reservoir characteristics and high recovery per well.”

It forecast capital costs of $5 and operating costs of $9 a barrel of oil equivalent.

 

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Natural Gas Prices May Rise on Lower Production
By Moming Zhou and Christine Buurma

Dec. 10 (Bloomberg) -- Natural gas prices may rebound next year as producers cut output for the first time in six years amid record stockpiles and an expanding U.S. economy.

A 20 percent drop in prices this year will contribute to a decline in drilling for the fuel sold to factories, power plants and homeowners, the Energy Department said in its monthly Short- Term Energy Outlook on Dec. 7. Output will average 62.01 billion cubic feet a day in 2011, down from a record of 62.09 billion this year, the department estimated.

Chesapeake Energy Corp., the second-largest U.S. gas producer after Exxon Mobil Corp., said last month it will reduce gas drilling and focus on oil until gas prices rise. The fuel may average $5 per million British thermal units in 2011, up 13 percent from current prices, according to the median of 15 analyst estimates compiled by Bloomberg since September.

“Production will flatten out in the next several months and then potentially start to decline after that, probably in the second half of the year,” said Jonathan Wolff, a New York- based analyst at Credit Suisse Group AG, which is predicting an average price of $5.25 in 2011. “We don’t see it as being exciting to drill a gas well at these prices.”

Gas for January delivery fell 2 cents, or 0.5 percent, to $4.414 per million Btu in electronic trading on the New York Mercantile Exchange as of 12:30 a.m. London time.

Factory Fuel Use
Industrial demand for gas will rise as the U.S. economy recovers from the worst recession since the 1930s. Purchases by manufacturers, steel mills and chemical plants will gain 1.1 percent in 2011 to an estimated 18.09 billion cubic feet a day, according to Energy Department estimates.

A tax-cut package proposed by President Barack Obama may bring inflation-adjusted growth in the U.S. economy to a 4 percent annual rate in the fourth quarter of 2011, Deutsche Bank Securities economists said in a note to clients dated Dec. 7. Growth this quarter is an estimated 2.5 percent, according to a Bloomberg News survey of economists.

“Industrial demand is coming back already,” said Jason Schenker, president of Prestige Economics, an energy consulting company in Austin, Texas. “Storage withdrawals have been a bit larger than historical numbers even though new supplies are coming to market, which implies that demand is going up.”

Stockpiles of gas have climbed to records for two consecutive years, reaching 3.843 trillion cubic feet in the week ended Nov. 12, according to the Energy Department. Supplies decline during the cold-weather months, when demand exceeds production and imports.

Chesapeake’s Plans
Chesapeake, based in Oklahoma City, will cut the gas portion of its drilling program to a third by 2012, down from 90 percent last year, according to Chief Executive Officer Aubrey K. McClendon.

“If gas prices rebound and the country says we need more gas, we can absolutely respond to that very quickly,” McClendon said in a conference call on Nov. 4. “But right now the focus is on oil because it’s three or four times more profitable.”

Chesapeake projected that gas prices may average $4.50 in 2011 and $5.50 in 2012.

“Production will start to tail off in the latter part of next year,” said Scott Hanold, an energy analyst at RBC Capital Markets in Minneapolis, who forecasts a 2011 average price of $5. “More than half of the plays out there are probably not making the economic rate of return.”

Output from shale wells rose 71 percent in 2008 to 2.02 trillion cubic feet, accounting for 17 percent of U.S. supply. Gas output has been rising since 2005.

Shale Gas
Production from the Haynesville shale in Louisiana and East Texas, which produces “dry” natural gas without oil or liquids, may tumble as producers fulfill the terms of leases that required them to drill within a certain time frame, said Ray Deacon, an analyst at Pritchard Capital Markets in Warren, Rhode Island, who predicted gas will average $5 next year.

The Energy Department “expects drilling activity to decline in 2011 because of relatively lower natural gas prices,” the government said in the Dec. 7 outlook.

Bank of America Merrill Lynch and Societe Generale SA say prices will keep dropping.

Merrill analysts led by Francisco Blanch in New York cut their forecast to $4.60 per million Btu from $5 previously, citing a “well-saturated” market and higher-than-expected drilling rates.

“Rigs need to fall by at least 20 to 25 percent over the course of 2011 in order to significantly slow the pace of new supply and thus support prices,” the bank said in a report dated Dec. 3.

Onshore gas production will create a supply glut in places including the northern Rockies, Louisiana and Pennsylvania, Societe Generale said in a research note Dec. 8. The bank on Nov. 3 lowered its 2011 price forecast to $3.56 per million British thermal units from $3.75.

The number of U.S. gas drilling rigs rose eight to 961 in the week ended Dec. 3, up 28 percent from a year earlier, Baker Hughes Inc. data show.

 

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IEA Sees 18-Month New Field Delay in Gulf of Mexico on BP Spill
By Eduard Gismatullin

Dec. 10 (Bloomberg) -- The International Energy Agency forecast the development of new oil fields in the Gulf of Mexico will be delayed by 12 to 18 months, more than previously estimated, because of restrictions after the BP Plc spill.

The agency earlier this year said new projects would likely be delayed by six to 12 months after the U.S. imposed a moratorium on deepwater drilling. The IEA today reiterated that the Macondo field spill will curb Gulf output by 300,000 barrels a day in 2015.

“With even permits for shallow-water drilling (not covered by the moratorium) having been less than forthcoming in recent months, coupled with new, tighter, regulations in place, and the new regulator apparently struggling to cope with new demands made on its time, delays to drilling are now seen to be prolonged,” Paris-based IEA said today in its monthly report.

Drilling has languished for almost two months since President Barack Obama lifted the moratorium imposed after the Deepwater Horizon rig exploded on April 20, killing 11 people and unleashing the biggest U.S. oil spill. The Bureau of Ocean Energy Management, Regulation and Enforcement is drafting guidance for offshore drilling and won’t “cut corners” when approving permits, Director Michael Bromwich said Dec. 8.

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IEA Raises 2011 Oil Demand Forecast for Third Month
By Rachel Graham

Dec. 10 (Bloomberg) -- The International Energy Agency raised its 2011 global crude oil demand forecast for a third month on consumption gains in North America and China.

Crude use worldwide will average 88.8 million barrels a day next year, about 260,000 barrels more than its previous forecast, the Paris-based adviser said today in its monthly Oil Market Report. Increasing demand could put pressure on OPEC to boost supply early next year, the IEA said.

Oil traded at the highest level in more than two years this week amid evidence of global economic recovery. U.S. jobless claims fell a more-than-forecast 17,000 to 421,000 last week, the Labor Department said yesterday. China’s manufacturing grew at a faster pace for a fourth straight month in November. The Purchasing Managers’ Index rose to 55.2 from 54.7 in October, China’s logistics federation said on its website on Dec. 1.

“Against a backdrop of much stronger-than-expected global oil demand growth and oil prices above two-year highs, OPEC may come under pressure to increase supplies to the market in the new year,” IEA said in the report.

Demand for crude has been rising since the third quarter of 2009 led by developing economies, according to the IEA. Asian demand growth continues to “dwarf” all other regions, the IEA said, with China accounting for about half of the growth outside the Organization for Economic Cooperation and Development.

“Global demand grew by a giddy 3.3 million barrels a day year-on-year in the third quarter,” according to the report. Demand growth in North America has been “remarkably strong” in the past two quarters, the IEA said.

Chinese Strength
Chinese demand rose by 12.6 percent in October compared with the year-earlier period. “The strength of China’s oil demand is consistent with other indicators suggesting that the economy is in danger of overheating,” the agency said. OECD demand could fall by 300,000 barrels a day between now and 2015, according to the report.

The Organization of Petroleum Exporting Countries, which accounts for about 40 percent of global supply, will meet tomorrow in Quito, Ecuador, to review output quotas.

OPEC producers, which include Saudi Arabia and Iran, will need to produce 29.5 million barrels a day next year, the IEA said. That’s 260,000 barrels a day more than current levels and 100,000 barrels above the IEA’s last forecast, it said.

OPEC Capacity
The group’s production capacity will rise to 36.94 million barrels a day by 2015, 150,000 barrels more than previously forecast, as Nigeria and Iraq boost output, the IEA said. Iraq has the world’s fifth-largest oil reserves, excluding deposits in its semi-autonomous northern Kurdish territory, according to data from BP Plc.

OPEC’s compliance with record supply cuts was little changed last month at 54 percent of the agreed 4.2 million barrels a day, the IEA said.

Next year’s estimate for non-OPEC supply was unchanged at 53.4 million barrels a day. Russia, currently the world’s largest producer, isn’t a member of OPEC.

Looking further ahead, the IEA raised its forecast for global oil demand for 2015 to 93.4 million barrels a day. That compares with the 91.93 million barrel-a-day estimate released in June. Emerging markets will account for more than half of global crude demand as early as 2013, it said.

Oil rose 6.5 percent last week, the biggest weekly gain in a month, after reports showed manufacturing grew in Europe and China, prompting Goldman Sachs Group Inc. and Deutsche Bank AG to increase their oil price forecasts for 2011 and 2012.

Hedge Funds
Hedge funds increased bullish bets on oil by the most in eight weeks in the seven days ended Nov. 30, according to the Commodity Futures Trading Commission’s weekly Commitments of Traders report.

The “plausible foundation for price strength lies with now apparent third-quarter fundamentals,” the IEA said today. “Upward demand revisions have outstripped those for supply.”

Industry-held crude stockpiles in the world’s developed economies increased by 700,000 barrels a day to 2.745 billion barrels.

Crude oil for January delivery advanced 22 cents, or 0.3 percent, to $88.59 a barrel on the New York Mercantile Exchange as of 10:07 a.m. London time

 

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http://noir.bloomberg.com/apps/news?pid=conewsstory&tkr=LKOHS:RU&sid=aZVyoXNA9MF8


Lukoil Prices $1.5BN of Convertible Bonds Due in 2015
By Torrey Clark and Jason Corcoran

Dec. 9 (Bloomberg) -- OAO Lukoil, Russia’s second-biggest crude producer, priced a planned $1.5 billion of convertible bonds due June 2015 with a coupon of 2.625 percent, the company said today in a statement.

The unsecured bonds have a conversion price set at a premium of 30% per cent above the reference price of US$56.6990, according to the statement. The bonds will mature 4 1/2 years after the issue date on June 16, 2015.

Bondholders will have the right to convert their bonds into Lukoil’s American depositary receipts, the statement said. Upon exercising conversion rights, bondholders will receive either ADRs, a cash settlement, or a combination of both

The oil producer last offered convertible debt to investors in 2002 when it sold $350 million of 3.5 percent notes due in November 2007, Bloomberg data show.

Lukoil’s Moscow shares closed unchanged at 1,779.65. Its ADRs added 0.6 percent to $57.5 by the close in London.

 

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"Custer's Last Flag: The Culbertson Guidon from the Battle of The Little Big Horn." The flag was found by Sergeant F. A. Culbertson after the battle of the Little Big Horn, on June 25, 1876. Source: Sotheby's via Bloomberg

http://noir.bloomberg.com/apps/data?pid=avimage&iid=i6qG1Yc0h9o4​

Dec. 10 (Bloomberg) -- A tattered, stained silk flag from General George Armstrong Custer’s calamitous last stand...

The red-white-and-blue cavalry guidon, or swallow-tail flag, recovered three days after the 1876 Battle of the Little Bighorn, sold to an unidentified phone bidder for $2.2 million...


http://noir.bloomberg.com/apps/news?pid=20601110&sid=aXtu7MM2IXew

 

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Vendée Globe 2008
Great American III
Rich Wilson

There's "young and stupid." I understand that. Wilson has no excuse; he's old enough to know better.

http://vg.sitesalive.com/saturday-updates/videos/
http://vg.sitesalive.com/racing-great-american-iii/about-rich-wilson/

 

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http://www.cfa.harvard.edu/pao/skyreport/dec10.html


A Solstice Eclipse
http://www.cfa.harvard.edu/pao/skyreport/images/LunarEclipse2010-12-20.mov

Hollywood couldn't have timed it better. Just hours before the December solstice, the Full Moon slips into Earth's shadow. Weather permitting, the entire event will be visible to viewers in North America, beginning in the late hours of December 20 and continuing into the early hours of the 21st. For observers in the U.S., the Moon will be high overhead; in fact, the Full Moon at midnight will be the highest visible until 2020! As with all total lunar eclipses, this one begins with a penumbral phase, during which the Moon enters the outer edge of Earth's shadow cone. This phase is imperceptible to the naked eye at first, and the Moon dims only gradually. The next phase, partial eclipse, begins when the Moon begins to enter the umbra - the dark part of Earth's shadow cone. It appears as though something is taking a "bite" out of one side of the Moon's disk. This bite grows ever larger, until the entire disk of the Moon is in the umbral shadow - the period of totality.


And here is a rough schedule of events for this particular eclipse, with times given in both Eastern Standard Time and Universal Time (formerly known as Greenwich Mean Time). (All events occur on December 21 in these time zones; adjust the date and time accordingly for your location.)

Event EST UT
Partial eclipse begins 1:33 am 6:33 am
Total eclipse begins 2:41 am 7:41 am
Mid-eclipse 3:17 am 8:17 am
Total eclipse ends 3:53 am 8:53 am
Partial phase ends 5:01 am 10:01 am

Just how dark the Moon gets during totality varies with every eclipse. Some eclipses have produced a totally dark Moon; on other occasions the Moon will glow a dull red or coppery color - a result of sunlight being refracted around the edge of Earth by our planet's atmosphere. In effect, the red glow is the effect of every sunrise and sunset happening on Earth at that instant, and, as you can imagine, the effect is dependent upon the cloudiness of the atmosphere along Earth's terminator, but also - and even more importantly - upon the clarity and dust content of Earth's atmosphere along the day/night line. Volcanic eruptions, for one, can raise huge quantities of dust high into Earth's atmosphere, and this can be long-lived. Such dust will diminish the amount of light being refracted through Earth's atmosphere, resulting in a darker lunar eclipse. Even knowing the general state of Earth's atmosphere, however, is not sufficient to forecast accurately the appearance of a lunar eclipse. The best advice: go out and watch the event as it unfolds.

 

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The next time you run into anybody who claims, suggests or implies they have the ability to consistently and accurately predict the future of interest rates ( or the stock market or petroleum prices or earnings or damn near anything else ), RUN away ( do not walk ) as fast as your legs will carry you— you can be assured of one thing, you have met a charlatan and a fraud.


I can't tell you how many times I've seen this movie before:



___________________________


http://noir.bloomberg.com/apps/news?pid=20601110&sid=aa27g6kCNrGU


Philadelphia Schools to Spend More Exiting Swaps Than on Books
By Dunstan McNichol

Dec. 14 (Bloomberg) -- The School District of Philadelphia, the eighth-largest U.S. system, will cancel five interest-rate swaps next month for $63 million, about $14 million more than it spent on books and supplies last year, documents for a bond sale show.

The payments to Morgan Stanley Capital Services Inc., Goldman Sachs Capital Markets LP and Wells Fargo Bank N.A. were confirmed by the school district today. They come atop $26.6 million the district spent previously to end swaps, according to bond documents. The total outstrips the $77 million the district of 195,000 students, including 85,900 from families poor enough to qualify for free lunches, expects to spend on utilities this year, according to a budget summary in bond documents.

The district joins hundreds of municipal borrowers including Harvard University and the Delaware River Port Authority in Camden, New Jersey, that have paid banks at least $4 billion to escape swap agreements that soured when interest rates fell, according to data compiled by Bloomberg.

“The school district is terminating the swap agreements and paying termination payments in connection therewith in order to reduce the school district’s exposure to hedged debt,” according to the preliminary offering statement for the sale of $126 million of fixed-rate refunding bonds the week of Dec. 6.

District officials declined to discuss the bond issue after confirming the termination cost in an e-mail today, said a spokeswoman, Shana Kemp. The district’s financial adviser, Andre Allen of Philadelphia-based Phoenix Capital Partners LLC, declined to comment when reached by telephone Dec. 1. Allen didn’t return telephone messages seeking comment after the sale.

Debt Proceeds
The refunding bonds sold by the school district, rated Ba1 by Moody’s Investors Service, are designed to reduce debt payments in 2011 and pay for the swaps terminations, according to the bond documents.

The district entered the swaps involved in the refinancing in June 2004, as part of a strategy to manage long-term interest rates. That month, fixed-rate AAA rated 20-year bonds priced to yield about 4.9 percent, according to a Municipal Market Advisors Index. The district’s new bonds, maturing in 2024, priced to yield 4.75 percent, according to data compiled by Bloomberg.

In a swap transaction, two parties exchange payments, typically a floating one for a fixed, to artificially create a below-market fixed rate on variable-rate bonds.

Linked to Libor
In the swaps to be canceled, which were to run through 2030, Philadelphia schools paid the banks fixed rates of about 3.8 percent and received in return a variable rate equal to 58.5 percent of the one-month London interbank offered rate, plus 0.27 percent, bond documents show. At yesterday’s closing, that amounted to Philadelphia receiving 0.42 percent on the $350 million of debt related to the swaps.

Representatives of the banks receiving termination payments, Mark Lake of Morgan Stanley, Ferris Morrison of Wells Fargo and Michael DuVally of Goldman Sachs, declined to comment when reached by e-mail today.

Before the district began to cancel its derivatives last year, Philadelphia’s billion-dollar stake in swaps was the largest among 107 Pennsylvania districts that entered the transactions, state Auditor General Jack Wagnerreported last year.

Wagner has urged lawmakers in Pennsylvania, the sixth- largest U.S. state by population, to repeal 2003 legislation that allowed school districts and other local governments to trade in swaps. He called the deals “impenetrably complex transactions that, quite simply, amount to gambling with public money.”

 

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http://noir.bloomberg.com/apps/news?pid=20601109&sid=aARvoKrPDHeQ&pos=12


Vallejo’s Bankruptcy ‘Failure’ Scares Cities Into Cutting Costs
By Alison Vekshin and Martin Z. Braun

Dec. 14 (Bloomberg) -- When Vallejo, California, filed for bankruptcy in 2008 after failing to win union pay cuts, Councilwoman Stephanie Gomes said officials around the U.S. would have their eyes trained on the city of 120,000.

She was right. The lesson they’ve taken from the two-year- old case, which has cost Vallejo $9.5 million in legal fees and made it a nationwide symbol for distressed municipal finances, is that out-of-court negotiations yield better results.

“They spent a lot of money with very little outcome,” said Jay Goldstone, San Diego’s chief operating officer. Faced with an $82 million deficit in his city’s 2010 budget, Goldstone negotiated pay cuts and higher benefit contributions from unions in 2009 that will save as much as $40 million annually, he said.

Bankruptcy has become less attractive even as U.S. municipal borrowers coped with what the National League of Cities said was the biggest decline in general-fund revenue since 1986 last fiscal year. The mention of Vallejo, the biggest California city and second-largest local government after Orange County to file for bankruptcy, can spook investors and raise interest costs, said Bill Lockyer, the state’s treasurer.

“Declaring bankruptcy is a huge admission of failure on the part of elected officials and their local managers,” Lockyer said in a Dec. 3 telephone interview. Vallejo’s filing “sent a chill through the markets.” Vallejo, a one-time Navy town 32 miles (51 kilometers) north of San Francisco, entered Chapter 9 bankruptcy protection in May 2008. The filing, after employee unions refused to accept salary cuts and the recession eroded tax revenue, allows municipalities to reorganize debt rather than liquidate.

Exit Plan
A five-year budget blueprint approved by the City Council on Nov. 30 spells out how Vallejo will meet $195 million of unfunded pension obligations, its largest liability. It also delays payments to bondholders, trims employee benefits, creates a rainy-day fund and allocates $5 million for unsecured creditors. The city must submit a bankruptcy-exit plan that includes the blueprint to a Sacramento court by Jan. 18.

Vallejo shows that negotiated settlements of budget problems may be better than the distractions of court deadlines and paying millions in legal fees, said Paul Rosenstiel, California’s deputy treasurer from 2007 to 2009.

“A lot of cities looked at Vallejo and concluded that painful as it might be, there must be a better solution,” said Rosenstiel, a principal with municipal-bond underwriter De La Rosa & Co. in San Francisco.

Felt in Tracy
The Vallejo bankruptcy resonates in Tracy, a city of about 82,000 residents 60 miles east of San Francisco, said Zane Johnston, the finance director.

In the face of a $7.5 million budget gap, the police union agreed this year to cancel remaining raises and boost the retirement age to 55 from 50 for new hires even though its contract wasn’t up for renewal, Johnston said in a Dec. 6 telephone interview.

“At the bargaining table,” he said, “Vallejo is the example that everybody knows about that doesn’t have to be mentioned because it can scare the living daylights out of some people.”

The ability of U.S. cities to file bankruptcy is limited. They must be authorized by state law to file under Chapter 9 of the U.S. bankruptcy code. Twenty-five states lack such statutes.

While cities from Detroit to Harrisburg, Pennsylvania, have publicly raised the prospect, the number of filings has declined. Five municipal entities sought protection this year compared with 10 in 2009, according to data compiled by James Spiotto, head of the bankruptcy practice at Chapman & Cutler, a Chicago law firm. The biggest this year was a South Carolina toll road with more than $300 million in debt, he said.

Company Contrast
Since 1937, 619 local government bodies, mostly small utility or sewer districts, have filed for bankruptcy, according to Spiotto. In contrast, there were more than 11,000 Chapter 11 filings, used by companies to reorganize debt, in 2009 alone.

Local-government bankruptcies will “be minimal and isolated to mismanaged or weak credits,” BlackRock Inc., the world’s largest money manager, told clients on Dec. 7. States such as Pennsylvania and Rhode Island have become increasingly active in helping prevent them, it said.

When Harrisburg, the state capital, was weighing a Chapter 9 filing because it couldn’t make $282 million of payments on bonds it guaranteed for a trash incinerator, Governor Ed Rendell stepped in. Warning that a default by the city of 47,000 could raise borrowing costs elsewhere, Rendell advanced $3.3 million to Harrisburg for a general-obligation debt payment on Sept. 13.

“We couldn’t stand by and let the city default on these bonds,” Rendell said at the time.

State Program
Pennsylvania is considering Harrisburg’s application to the state’s distressed municipalities program, under which it would get help with a recovery plan that finds ways to raise revenue and streamline operations.

BlackRock cited new legislation in Rhode Island prohibiting Chapter 9 filings after the city of Central Falls suggested that path. The town of about 18,000 faced a fiscal 2010 deficit of $3 million, or 17 percent of revenue.

States “will quickly put procedures in place geared toward preventing Chapter 9 filings,” it said in its report.

State oversight boards were created for New York City in the mid-1970s and Philadelphia in 1991. They can bring cities back to an “adult state,” said Spiotto, by requiring balanced budgets, reviewing labor contracts and negotiating debt restructurings.

“We’ve had all sorts of municipalities with problems that were addressed outside of bankruptcy,” said Spiotto.

Bondholder Action
If states don’t act, bondholders will. In September, Bank of New York Mellon Corp. got a judge to appoint a receiver to manage the Jefferson County, Alabama, sewer system after a $3.2 billion debt refinancing collapsed and drove the municipality toward insolvency. Local officials, who are negotiating with bondholders, say a bankruptcy is still possible.

Vallejo made its filing as labor costs, its largest expense, were projected to be about $79.4 million in the 2008- 2009 fiscal year, outpacing estimated net general-fund revenue of about $77.9 million, according to court documents.

“Vallejo’s problem was that they could make no further cuts without breaking legal contracts,” Michael Coleman, a fiscal policy adviser at the League of California Cities, said in a telephone interview Dec. 6. “That’s unique to virtually any other city in California.”

Vallejo had no other options, Marc Levinson, a partner with the Sacramento-based law firm Orrick, Herrington & Sutcliffe LLP who is drafting Vallejo’s bankruptcy-exit plan, said in a Dec. 3 telephone interview.

Lack of Concessions
“Negotiations broke down and we couldn’t get the concessions from the unions and from the bondholders that would keep us out of bankruptcy,” Levinson said.

The city has reached agreements with administrative and police unions that yielded $6 million in savings through June 2010, its website says. The firefighters union agreed to a new contract that was approved by the council in March.

Vallejo still has to sort out more than 1,000 creditor claims as part of its exit plan. And funding of $5 million for unsecured creditors won’t be completed until the 2012-2013 fiscal year.

The bankruptcy process could take another six months, further distracting local officials, said Christopher Mier, chief strategist with Loop Capital Markets LLC in Chicago.

Meanwhile, city residents will have 159 fewer fire and police personnel than seven years ago, road maintenance at 10 percent of recommended levels and no grants for arts and cultural programs.

“Bankruptcy hasn’t been a panacea for the city or the unions,” said Ron Oliner, a partner at Duane Morris LLP in San Francisco who represents Vallejo’s police union.

Gomes, the council member, said the city learned a lesson.

“It’s best to negotiate your way out of the fiscal problem,” she said, “before you go into bankruptcy.”

The case is In re City of Vallejo, 08-26813, U.S. Bankruptcy Court, Eastern District of California (Sacramento).

 

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http://www.npr.org/2010/12/15/132072122/it-s-not-your-fault-your-dishes-are-still-dirty


Dishes Still Dirty? Blame Phosphate-Free Detergent
by Elizabeth Shogren

December 15, 2010

Is your dishwasher not working the way it used to? Earlier this year, with little fanfare, detergent makers reworked their formulas.

This was supposed to be good for waterways. But it turned a simple chore into a frustrating mystery for many people across the country.

A couple of months ago, Sandra Young from Vernon, Fla., started to notice that something was seriously amiss with her dishes.

"The pots and pans were gray, the aluminum was starting to turn black, the glasses had fingerprints and lip prints still on them, and they were starting to get this powdery look to them," Vernon says. "I'm like, oh, my goodness, my dishwasher must be dying, I better get a new dishwasher."

Young's not alone. Many people across the country are tearing out their hair over stained flatware, filmy glasses and ruined dishes.

Sue Wright from Austin, Texas, says for months her cups and glasses have been coming out of her year-old dishwasher covered with black specks. She called three repairmen to her kitchen, but her dishes were still dirty.

"I looked at a plumber's rear end for about two months this summer sticking out from under my sink," Wright says. "I was just totally frustrated. I couldn't figure out what was going wrong."

Finally, after months of aggravation and expense, Wright found out the real reason for her speckled cups. This summer, detergent makers took phosphates out of their detergents.

Seventeen states banned phosphates from dishwasher detergents because the chemical compounds also pollute lakes, bays and streams. They create algae blooms and starve fish of oxygen.

But dirty and damaged dishes are turning many people into skeptics, including Wright.

"I'm angry at the people who decided that phosphate was growing algae. I'm not sure that I believe that," Wright adds.

Sandra Young was so mad that she called Procter and Gamble, which makes Cascade, to complain. But when she did, a company representative told her to be more careful about what pans she puts into her dishwasher.

"He said, 'Well, if you're really having that hard of a problem, maybe you should wash your dishes by hand.' Which I thought was kind of strange for an automatic dish washing company."

Susan Baba from Procter and Gamble says the company had no choice. It just wasn't feasible to make detergent with phosphates for some states and without them for others.

"You know, this isn't really a huge environmental win," she says.

That's because phosphates are wonder ingredients. They not only strip food and grease from dishes but also prevent crud from getting reattached during the wash. So she says without phosphates, people have to wash or rinse their dishes before they put them in the dishwasher, which wastes water. Or they run their dishwasher twice, which wastes electricity.

Dennis Griesing of the American Cleaning Institute, a trade group, says it could take time, but phosphate-free detergents will improve. That's what happened with laundry detergents after phosphates were removed from them years ago. He says these inconveniences are part of a bigger trend.

"We're going though a very significant readjustment in our lives to accommodate our ecological needs," Griesing says.

But not everyone is willing to adjust. Sandra Young figured out a way to undo the phosphate ban — at least in her own kitchen.

She bought some trisodium phosphate at a hardware store and started mixing her own formula.

"It seems to be working pretty good," Young says.

Other people have given up on their machines altogether and are washing dishes by hand. But some are switching to other brands and making peace with phosphate-free detergents.

 

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The usual outcome when politicians and believers in free lunches attempt to repeal the laws of gravity by legislation is that gravity prevails.

The second story was the release of staff recommendations to the Federal Reserve Board regarding debit card interchange fees. The staff was reacting to a Congressional mandate contained in the recent Dodd-Frank bill requiring the Federal Reserve to either set debit card interchange fees or to set a standard for banks to set fair and reasonable rates themselves.

Let me explain what these fees are. When you use plastic to buy something, the merchant pays a fee to the card issuing bank or financial institution. The fee is intended to cover costs and, of course, allow for a profit to the bank. Visa and MasterCard are intermediaries. They get a piece of the action as a processing fee but don’t set the interchange rates per se. Retailers have moaned that the interchange fees on debit cards are too high because banks don’t assume credit risk as they do for credit cards. When Congress was considering financial reform, lobbying efforts convinced Senator Durbin of Illinois to insert a provision in the bill on their behalf to mandate that the Federal Reserve set rate standards for debit cards as part of their expanded oversight mandate. The Fed didn’t ask for this. Indeed, many if not most of its Board members are very uncomfortable with the obligation of setting consumer rates or prices. But they were required by law to do it and yesterday’s staff recommendations were a first step.

What the staff recommended was that banks set fees that would cover the incremental or variable costs associated with debit card transaction processing. Essentially, they said it was $0.12 per transaction, far below the $0.50-0.80 now charged today. Prepaid debit cards are exempt from this rule and the rule only applies to debit cards, not credit cards. On the surface, this looks like a great win for consumers and retailers. At least that is the intent. Retailers will pay banks less to process debit card transactions and the hope of Congress is that those savings will be passed along to individuals.

But we all know that in the real world, simplistic responses like that simply aren’t what happens. Banks are not in the business of providing debit cards for free and if they can only cover their variable costs (and not their fixed costs) via interchange fees, then they are going to have to get paid in some other manner. How that’s done will be left to the marketplace. We know that consumers love the convenience of debit cards and retailers like them as well. More convenience means more sales. So debit cards won’t disappear. But they might not be free any longer. Almost certainly perks attached to card use like miles or cash back will disappear. Banks will more clearly differentiate between debit and credit cards trying to steer users toward credit cards. Banks will also increase fees elsewhere. There will be higher ATM fees, higher checking fees, etc. As for retailers, some will bank the savings but I suspect most will invest the savings in greater promotions. The consumer will reap some benefit.

The bottom line is that those who buy at retail, whether they use debit cards, credit cards or cash, will get a slight benefit via lower prices. Perhaps retailers will make a few more basis points in profit as well. Bank customers will pay higher fees elsewhere to compensate for the loss earnings from debit cards. Consumers who don’t use bank services or take advantage of credit/debit card perks may come out a little better. Those that like the convenience of using plastic to transact business will find it a little more expensive.

The bottom line is that debit cards have become highly popular over the years, especially among younger Americans. They no longer need to carry much cash. Debit card use insures that they don’t spend beyond their means. While yesterday’s recommendations won’t halt the use of debit cards, it will halt bank innovation and, potentially, it will make debit cards more expensive for consumers if banks begin to charge annual fees for their use. Instead of letting natural market forces rule, Congress and the Fed are fixing prices and, as we all know and as I say repeatedly in regard to the setting of interest rates, price fixing always leads to unintended consequences.

There is one bottom line to yesterday’s set of recommendations. The public won’t win. Rate setting at any level will force banks and retailers to change their behavior in an artificial way. The natural forces of supply and demand shift markets in the directions consumers want. Rate setting always invokes the laws of unintended consequences. It will do so once again.