Gallimaufry

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Air France Crash Analysis Reaches Lab as Black Boxes Return Home
By Laurence Frost and Andrea Rothman

May 11 (Bloomberg) -- Investigators who recovered the Airbus flight recorders two years after the Air France crash that killed all 228 people on board are seeking to beat the odds again and reconstruct the final moments of flight 447.

The recorders, one storing flight data and the other cockpit voices and sounds, house several dozen memory chips that may provide clues to modern aviation’s biggest unsolved mystery. The challenge will be to render the material readable after the boxes spent two years at the bottom of the Atlantic Ocean, exposed to corrosive salt water and intense pressure.

“We have no experience in dealing with flight recorders that have been immersed at this kind of depth, so we just don’t know,” said Philippe Plantin de Hugues, a black-box expert with France’s BEA air-accident investigation bureau in Paris.

The boxes are set to arrive in the French capital tomorrow, almost two years after the Airbus A330 plunged into the sea four hours into a May 31, 2009, flight from Rio de Janeiro to Paris. According to the plane’s last automated radio transmissions, faulty airspeed readings caused the autopilot to shut down in bad weather, a situation the pilots were drilled to cope with.

The flight 447 crash investigation is reliant on the black boxes because the Air France plane went down in a so-called black hole beyond radio contact and radar coverage. Most accidents happen during takeoff or landing, witnessed by bystanders and overheard by the control tower. Even then, black boxes can prove crucial to unlocking an accident’s causes.

Recorder Clues
The 2008 crash-landing of a British AirwaysBoeing 777 at London’s Heathrow Airport, which all 152 passengers and crew survived, was caused by ice crystals that had clogged fuel lines, a chain of events established only with the help of the flight recorders.

The boxes from the Air France Airbus A330, made by Honeywell International Inc., appeared to be in good shape when they were hauled from the seabed last week. Following their discovery, the salvage team also pulled up some bodies from the wreckage and took tissue samples to help with identification.

Robert Galan, a former test pilot and author of a 2008 book that catalogs aircraft crashes and their causes, said modern technology has made reading of black boxes more reliable because the material is no longer stored on analog tapes.

“We’re lucky in that the information is digitized now, so it can’t be deformed and it can’t be erased,” he says. “Thirty years ago, we were working with analogue recordings, where you could get erroneous readings.”

Memory Boards
Seawater is likely to have penetrated the orange cylindrical casings and soaked the critical memory boards, Plantin de Hugues said. One unknown is whether the canisters have been spared from corrosion by the low levels of oxygen 3,900 meters (12,800 feet) below the waves.

After a rinse in de-ionized water to remove salt and other deposits that could cause a short circuit, the electronics are dried in a special oven and inspected under a microscope. If the circuit boards are damaged beyond repair, each memory chip can be detached and read individually, according to the BEA.

“They want to understand what the pilots saw when these problems with airspeed showed up, and how they interpreted that,” said David Learmount, a former U.K. Royal Air Force pilot and safety editor at Flight International. He predicted the investigation will focus on “what they said to each other and what they set about doing.”

Retrievable Data
The flight data and voice recordings should be retrievable, according to Paul Dujancourt, who works at data-recovery specialist Kroll Ontrack, which helped read information from a hard drive that had fallen 39 miles (63 kilometers) into a lake from the exploding Space Shuttle Columbia in 2003.

Once uploaded to the BEA’s computers, copies of the data are stored on secure drives and in the agency’s safe, while the original black-box media are removed to a police evidence room.

The raw cockpit data is transformed into hundreds of variables including flight parameters such as altitude, pitch, engine thrust, heading and computed airspeed, and double-checked in a procedure that can take days, Plantin de Hugues said.

While the flight data is still being prepared, the team will have uploaded the cockpit audio, a more straightforward process that often gives first clues to the pilot’s situation.

“We listen to the last few minutes without speaking, and it’s tough,” Plantin de Hugues said. “The atmosphere is subdued.”

Who Flew?
The voice recording alone, if successfully recovered, may answer two outstanding questions: why the pilots flew into a storm that other planes deliberately avoided, and who was at the controls? The BEA has said an autopsy on the flight captain’s body, recovered after the crash, couldn’t establish whether he had retired to his bunk, leaving the plane in the hands of his two junior pilots.

Information from the data recorder may also show whether the pilots tried to re-engage the autopilot before the airspeed readings had stabilized. Preliminary findings published by the BEA in December 2009 are based almost entirely on the so-called ACARS radio messages relayed automatically from the plane by satellite over a period of about four minutes.

They catalog a series of failures, beginning with the malfunction of the airspeed sensors, or Pitot tubes, and ending with a convergence of pressure measurements inside and outside the cabin that suggests a rapid plunge in altitude.

The BEA will prepare a full transcript of the voice recordings that synchronizes every pilot’s comment or cockpit sound with the flight data, plotted separately as dozens of distinct graphs on a common time axis. Reading them is akin to following an orchestral score.

For the BEA’s Plantin de Hugues, who has spent 17 years decoding the behavior of man and machine as their cooperation breaks down, unlocking the final moments still inspires a sense of respect.

“The pilots never stop trying to save the situation,” he said. “They maintain a professional attitude right up until the end.”

 

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Bin Laden’s Death Won’t End His Toll on American Taxpayers
By David J. Lynch

May 12 (Bloomberg) -- Even in death, Osama bin Laden will be taking revenge on American taxpayers for years to come.

The U.S. government spent $2 trillion combating bin Laden over the past decade, more than 20 percent of the nation’s $9.68 trillion public debt. That money paid for wars in Afghanistan and Iraq, as well as additional military, intelligence and homeland security spending above pre-Sept. 11 trends, according to a Bloomberg analysis.

This year alone, taxpayers are spending more than $45 billion in interest on the money borrowed to battle al-Qaeda, the analysis shows.

The financial bleeding won’t stop with bin Laden’s demise. One of every four dollars in red ink the U.S. expects to incur in the fiscal year beginning Oct. 1 will result from $285 billion in annual spending triggered by the terrorist scion of a wealthy Saudi family.

Without bin Laden, “we would have accumulated less debt, be spending less on interest and we would be on a lower spending path going forward,” said Dean Baker, co-director of the Center for Economic and Policy Research, a research organization in Washington.

Along with the dollars-and-cents toll, bin Laden has left behind a less quantifiable imprint on American life. Thousands of families have suffered grievous loss from the Sept. 11 attacks and the two wars. U.S. government buildings in Washington and around the world have grown to resemble fortified bunkers. And the line between government power and individual liberty was redrawn as agencies gained new powers to combat a novel threat.

Costs ‘Ad Infinitum’
The complete figure may be higher than the Bloomberg analysis. Mark Zandi, chief economist of Moody’s Analytics Inc., said bin Laden cost the U.S. government and businesses $2.5 trillion, or $250 billion each year. “I think a prudent planner would anticipate these costs continuing ad infinitum into the future,” he said in an e-mail.

Indeed, the meter didn’t stop running May 2 when bin Laden’s corpse slipped into the Arabian Sea. Next year alone, the U.S. plans to spend an additional $118 billion on military operations in Afghanistan and Iraq. Additional fiscal 2012 spending that can be attributed to bin Laden includes an extra $14 billion for homeland security, about $125 billion for the Pentagon excluding the two wars, expanded intelligence spending and increased aid to Pakistan, according to the Bloomberg analysis.

“There are a lot of legacy costs,” said Jon Meacham, editor of “Beyond Bin Laden,” an instant book from Random House.

Pentagon Budget
As the U.S. celebrates the demise of the number-one figure on the FBI’s “Most Wanted Terrorists” list, the future spending that can be attributed to bin Laden far exceeds direct war costs. Gordon Adams, who oversaw national security budgeting at the Office of Management and Budget during the Clinton administration, said roughly $125 billion of the Pentagon’s $553 billion fiscal 2012 budget request represents unnecessary spending justified by claims of war-time need.

“That’s a tax which would not have happened without Osama bin Laden,” Adams, a professor at American University’s School of International Service, said in a telephone interview.

The bin Laden tax has been levied every year for the past decade. Pentagon spending -- excluding the wars in Iraq and Afghanistan -- between fiscal 2002 and today was $742 billion higher than the Congressional Budget Office’s January 2001 baseline forecast.

Amid a wartime atmosphere, military spending requests faced less scrutiny both within the Pentagon and in Congress, Adams said. Programs launched with modest initial funding often live on, their costs ballooning with the years.

Nigeria Surveillance
A Pentagon counterterrorism training and equipment initiative known as the Section 1206 program, which has funneled aid to 53 countries, swelled from $100 million in fiscal 2006 to $500 million in the Obama administration’s request for fiscal year 2012, which starts Oct. 1.

Under the program, Nigeria got maritime surveillance gear to monitor traffic in the Gulf of Guinea and Lebanon obtained parts for UH-1H helicopters, which it used to quash an uprising in the Nahr al-Barid refugee camp. “It’s used for every purpose you can imagine,” Adams said.

The U.S. added 92,000 soldiers to its ground forces in the decade following the Sept. 11 attacks. Each 10,000 people added to the military’s ranks means an extra $1 billion in annual spending, according to Adams. So the ground force expansion inspired by bin Laden will impose an additional $9 billion annually, he said.

Intelligence Tripled
The military wasn’t alone in securing expanded financial resources because of bin Laden. The budget for U.S. intelligence agencies tripled over the past 12 years, representing an average annual increase of 9.6 percent.

While it is difficult to determine how much of the incremental increase in can be directly linked to bin Laden, the amount is undoubtedly sizable. In October 2010, the director of national intelligence, James Clapper, said the intelligence budget for fiscal 2009 was $80.1 billion, including $27 billion for military intelligence. Michael O’Hanlon, a Brookings Institution defense expert, estimated that $25 billion to $30 billion of annual intelligence spending can be laid at bin Laden’s feet.

“A large portion of that cost growth is from 9/11,” said O’Hanlon, a former national security analyst with the Congressional Budget Office.

Homeland Security
The government’s finances also will groan beneath the weight of the Department of Homeland Security, the 216,000- employee bureaucracy created to protect Americans from additional terrorist attacks. Over the past nine years, the department spent about $123 billion more than if the 22 component agencies’ pre-Sept. 11 spending trends had continued, according to data compiled by Bloomberg.

That is an extra $14 billion annually U.S. taxpayers can attribute to bin Laden -- or 24 percent of the $57 billion the department is seeking for the 2012 fiscal year.

Some enduring costs will amount to no more than inconvenience. Less than six months before the Sept. 11 attacks, a House committee held a hearing to consider reopening Pennsylvania Avenue in front of the White House. The street closure, instituted as a temporary measure after the 1995 Oklahoma City bombing, was made permanent after al-Qaeda’s attacks, and Washington drivers have adjusted.

Airport Lines
Likewise, though travelers fume in airport security lines while stripping off shoes and belts and fumbling with three- ounce cosmetics containers, the economic consequences are negligible, according to Nariman Behravesh, chief economist of IHS Insight, an economic and financial analysis and forecasting company. “This is a huge, diversified economy which can absorb this stuff without too much pain,” he said.

Bin Laden’s imprint on American society, however, extends beyond finances. Through May 2, 11,191 members of the U.S. military have been wounded in the war in Afghanistan, including 35 percent so severely as to preclude their return to combat.

In coming years, those who saw loved ones injured or killed in the Sept. 11 attacks, or in the wars that followed, will still bear daily pain.

Public buildings, which before the rise of al-Qaeda were designed as artistic statements, will continue to resemble bunkers. And small erosions of personal liberty, conceded in the interests of security, may yet deepen.

Duct Tape
Not since the early days of the Cold War, when the Soviet Union threatened, has an enemy so bedeviled Americans and their leaders. Where once children prepared for nuclear war with “duck and cover” drills, Americans after Sept. 11 stockpiled duct tape and canned food.

The post-Sept. 11 drive for security changed the look of the U.S. capital, transforming it into a garrison city bristling with metal barriers, stone bollards and closed-circuit cameras. To enter even the most unimportant office building, people grew accustomed to handing over photo identification and signing their names.

If these requirements seemed longer on ritual than reward, they nonetheless spread. Likewise, the government expanded its powers in response to the threat conjured by bin Laden.

In 2010, federal officials filed 1,579 requests with the Foreign Intelligence Surveillance Court -- or six requests each working day and 50 percent more than in 2001 -- for electronic surveillance or physical searches. The 11-judge federal court, established to adjudicate surveillance requests regarding suspected foreign agents, approved every one of the government’s requests, according to an April 29 Justice Department report to Congress.

‘Pre-Emptive’ Surveillance
Julian Sanchez, a research analyst at the Cato Institute, a libertarian-oriented policy center in Washington, said the proliferation of wiretap requests represented a break with practices in place before the Sept. 11 attacks. “We’ve seen a shift from the traditional American model of surveillance of particular individuals on the basis of individualized suspicion to a broader pre-emptive model,” he said.

Separately, the FBI issued so-called national security letters, which require businesses to provide federal investigators with an individual’s records, including telecommunications and financial data.

Investigators last year sought the records of 14,212 Americans, more than in the previous two years combined. Civil liberties advocates see the national security letters, which don’t require a judge’s approval, as a dangerously broad power. “We would be in pretty serious trouble if there were 14,000 terrorists in the United States,” said Sanchez.

For all bin Laden’s financial and human impact, however, the al-Qaeda leader failed in his ultimate goal of humbling the world’s lone superpower. Today’s $15 trillion U.S. economy, for example, is 18 percent larger than in 2001, after adjusting for inflation.

Economy Survives
Indeed, said Meacham, the genius of the American experiment lies in the country’s ability to withstand sharp blows without fracturing. He noted that President Barack Obama, who as a candidate criticized the national security policies of his predecessor, George W. Bush, largely embraced them once he took office.

That development, akin to President Dwight D. Eisenhower’s acceptance of the New Deal in the 1950s, has helped steady the country amid turbulent times.

“We’re on this new road that’s been created. We’ll veer a little left. We’ll veer a little right,” Meacham said. “But the road has been laid out.”

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FirstEnergy Rises as Utilities Agree to Pay More for Power
By Mark Chediak

May 16 (Bloomberg) -- FirstEnergy Corp., which completed a $4.7 billion takeover of Allegheny Energy Inc. in February, rose after utilities agreed to pay four times more than last year for access to power generation in seven states.

FirstEnergy, which earlier gained as much as 7.7 percent, climbed $1.95, or 4.6 percent, to $44.48 at 1:07 p.m. in New York Stock Exchange composite trading.

PJM Interconnection Interconnection LLC., which manages most of the electric grid from Washington D.C. to Chicago, announced capacity generation prices Friday, following an auction. The price for generating capacity in the western part of PJM Interconnection LLC, rose to $125.99 per megawatt day in the 2014 to 2015 period, the grid manager said in a statement on May 13. That compares with a price of $27.73 per megawatt day in the 2013 to 2014 period set in a 2010 auction.

FirstEnergy, which owns power plants in the western part of the PJM including Pennsylvania and Ohio, is the “biggest winner in this auction,” Michael Worms, a New York-based analyst for BMO Capital Markets, wrote today in a note to investors. The rates were twice as much as the $40 a megawatt to $60 a megawatt a day that analysts expected, according to the note.

Expenses to comply with the U.S. Environmental Protection Agency’s pollution regulations likely increased the bidding price for western generators, Worms wrote.

The PJM auction allows utilities to bid on power plant capacity, to secure enough capacity to serve their customers during the time period covered in the auction. The price of the electric power will be set later.

PJM and other wholesale markets devised the system as a way to compensate power generation companies for investments in their plants.


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Air France Black Boxes Show No Initial Issue With Airbus Jet
By Andrea Rothman and Laurence Frost

May 17 (Bloomberg) -- Air France Flight 447 crash investigators said it’s premature to blame human error for the fatal 2009 accident after a first sweep of the Airbus SAS A330’s “black boxes” found no new technical issues with the jet.

Examination of voice and flight-data recorders is “just beginning,” France’s BEA accident investigation bureau said as Airbus told airlines an initial analysis had found no faults requiring changes by A330 operators. Carriers were told soon after the crash to switch speed sensors on the model.

Investigators said yesterday they had uploaded a complete set of data from the black boxes, recovered from the Atlantic and shipped to Paris this month after two years’ immersion at a depth of 3,900 meters (12,800 feet). The wreck was found weeks before the second anniversary of the June 1, 2009, crash, which killed all 228 people on the flight from Brazil to Paris.

“The gathering of the entire cockpit audio and flight parameter data makes it almost certain that this accident will be fully explained,” the BEA said today. Airbus said separately in a BEA-approved telex sent to airlines yesterday that it has “no immediate recommendation” for A330 operators and promised further updates when “authorized to share more information.”

Paris-based Air France didn’t immediately respond to calls seeking comment.

Pitot Tubes
Flight 447’s last automated transmissions, minutes before the crash, had suggested that faulty speed readings from devices known as pitot tubes could have caused the autopilot to shut down in bad weather, a situation pilots are trained to handle.

On June 4, 2009 Airbus instructed airlines to remind pilots how to respond to inconsistent speed readings using the Quick Reference Handbook and Flight Crew Operating Manual kept in the cockpit. Two months later it advised A330 and A340 operators to switch from Thales SA pitot tubes to Goodrich Corp. versions.

Investigators have said that failed sensors couldn’t by themselves have caused the crash and that an improper response to the readings or other unrelated elements would be required. The absence of information on the flight’s final minutes has so far hindered the development of plausible scenarios.

Air France and Airbus have said they disagree with manslaughter charges laid against them over the accident, the worst in the carrier’s history.

Air France Chief Executive Officer Pierre-Henri Gourgeon says there’s no evidence that the crash was caused by pitot tubes. Records in Europe and the U.S. document dozens of incidents where the probes failed and pilots retained control.

Premature
The BEA today dismissed as premature an anonymously sourced report in French newspaper Le Figaro indicating that early findings suggest the crash resulted from a mistake by the crew.

“To give way to sensationalism and publish non-validated information when the data analysis is just beginning shows a lack of respect for the deceased passengers and crew,” the agency said. It gave no information on the initial findings.

The crash investigators have pledged to release an interim report in July or August, with a final report due in early 2012.


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Drug-Resistant Germs Lure Biotechs to Create New Antibiotics
By Rob Waters

May 17 (Bloomberg) -- Optimer Pharmaceuticals Inc.’s Dificid is on track to lead as many as five new antibiotics onto the market over the next three years as a surge in drug- resistant germs stokes the need for new medicines.

The biotechnology industry is starting to fill a critical public-health niche being mostly shunned by larger drugmakers. Since 2006, only three of 111 drugs cleared in the U.S. were antibiotics. Optimer, a San Diego company with no marketed products, may win U.S. approval by May 30 to sell Dificid, a drug that fights stomach infections, the company has said.

“Pharma abandoned the antibiotic space because they didn’t think there was enough of a revenue opportunity,” said Alan Carr, a New York-based analyst with Needham & Co. “A smaller, more manageable product with revenue under $1 billion is fine for a biotech company.”

Dificid may generate $500 million a year in sales, Carr said in a telephone interview. Other companies in final testing of drugs that may gain U.S. marketing approval by 2014 are: Trius Therapeutics Inc., based in San Diego; The Medicines Co., of Parsippany, New Jersey; Boston-based Paratek Pharmaceuticals Inc.; Cubist Pharmaceuticals Inc., of Lexington, Massachusetts; and closely held Durata Therapeutics of Morristown, New Jersey.

The first antibiotic-resistant germs appeared in the 1940s. Since then, at least 13 strains of bacteria impervious to some antibiotics have emerged ( see: http://www.cdc.gov/drugresistance/DiseasesConnectedAR.html ), with one called MRSA the most common, according to the U.S. Centers for Disease Control and Prevention, in Atlanta.

100,000 Killed Yearly
Germs resistant to one or more drugs kill 100,000 U.S. hospital patients a year and cost the health-care system more than $34 billion, according to the Infectious Disease Society of America, based in Arlington, Virginia.

“We desperately need drugs that can treat bugs that are resistant to everything, or almost everything, available,” said Brad Spellberg, an associate professor at the David Geffen School of Medicine at the University of California, Los Angeles, in a telephone interview.

Antibiotics have changed the world since 1928, when researchers learned by accident that penicillium mold had an antibacterial effect. By the 1940s, penicillin was treating soldiers wounded in World War II and saving the lives of people with pneumonia, syphilis and diphtheria. Bacterial meningitis no longer killed 90 percent of infected children.

From 1942 to the mid-1970s, drugmakers rolled out 10 new types of antibiotics, each with unique targets and modes of action, a report by the Federation of American Scientists found.

Two Drugmakers
Since then, most new antibiotics have been modifications of old ones and, today, only two of the top six drugmakers by market value are developing antibiotics, spokesmen said.

That’s because the drugs are used for only weeks at a time, compared with years for medicines that treat chronic diseases. U.S. sales of the top five antibiotics were a combined $6 billion in 2010, according to IMS Health Inc., a Norwalk, Connecticut-based research company. Pfizer Inc.’s cholesterol pill Lipitor, designed to cut the chances of a heart attack, generated $5.3 billion in U.S. sales on its own.

Additionally, doctors are advised to limit antibiotic treatment because of concerns that overuse can spur resistance, actions that have an unintended effect on sales, said Hank McKinnell, who retired as chief executive officer at New York- based Pfizer in 2006, and now serves on Optimer’s board.

“It takes the incentives away to do the research and get them approved to then not have them used,” McKinnell said in a telephone interview.

Open Field
This lack of interest has left the field open for biotech companies, such as Optimer.

The company’s Dificid, backed unanimously by an FDA advisory panel April 5, would be the first drug in 25 years approved to treat Clostridium difficile ( see: http://www.mayoclinic.com/health/c-difficile/DS00736 ), a bacterium linked to intestinal infections often caught in hospitals.

In trials, Dificid was as effective as existing medications at controlling infections, giving doctors a new option when resistance strikes. It was better at preventing recurrences.

Other biotechnology companies conducting late-stage testing on new antibiotics are likely to submit applications for approval about 2013, said Juan Sanchez, an analyst with Ladenburg Thalmann & Co. in New York.

Trius is studying its antibiotic torezolid to treat skin infections, said Chief Executive Officer Jeffrey Stein. It will compete with Pfizer’s Zyvox, an 11-year-old drug with $1.2 billion in 2010 sales, and may generate $600 million a year by 2020, said Sanchez, who sees approval in 2014.

More Potent
In early trials, torezolid was shown to be more potent and faster-acting than Zyvox, Stein said. While both are so-called oxazolidinones ( see: http://www.ncbi.nlm.nih.gov/pubmed/10718097 ), the Trius drug has a different chemical structure that leaves it unaffected by a mutation that can enable bacteria to resist Zyvox, Sanchez said.

Optimer gained 22 cents, or 1.6 percent, to $13.65 at 4 p.m. in Nasdaq Stock Market composite trading. Cubist gained 22 cents, less than 1 percent, to $34.39. Trius dropped 33 cents, or 4 percent, to $7.95.

A visit to the skin infections clinic at San Francisco General Hospital shows the need for new drugs.

On a recent morning, David Young, the clinic’s director, was involved in a case in which the patient had a red, swollen abscess on his cheek. The patient, whom Young couldn’t identify because of federal privacy laws, previously had infections on his chest, neck and face, Young said.

While the man’s infections respond to the clindamycin, an oral generic antibiotic, “the bacteria will grow back” after each treatment, Young said. It becomes infected with any break in the skin, from a spider bite to a shaving nick, he said.

“It is akin to pulling all the weeds out of a field,” he said. “When you stop weeding, the weeds will always return.”

20% Won’t Heal
Today, about 20 percent of patients won’t heal with clindamycin or Bactrim, another antibiotic, Young said. For them, the hospital faces a choice: a 10-day course of Pfizer’s Zyvox at a cost of about $1,000, or use of an intravenous drug, vancomycin, which requires a hospital stay.

Cubist expects to start final trials by year’s end for CXA- 201, which targets pneumonia, abdominal and urinary tract infections caused by gram-negative bacteria, said Steve Gilman, executive vice president for research and development.

Durata Therapeutics, a two-year-old closely held company, is testing dalbavancin, one of two so-called lipoglycopeptides in late-stage trials. The drugs are modified versions of an older class of antibiotic that breaks down the cell walls and membranes of bacteria.

Durata hopes to gain approval to market the drug in early 2014, CEO Paul Edick said in an e-mail.

Medicines Co. Treatment
The other similar treatment is oritavancin from Medicines Co., which plans to complete its trials in 2012 and file for approval in 2013, said Michael Mitchell, a company spokesman, in a telephone interview. Analysts expect it to have sales of as much as $300 million for skin infections, Mitchell said.

Paratek Pharmaceuticals Inc.’s omadacycline, licensed to Basel, Switzerland-based Novartis AG, is in late-stage trials for skin infections. The drug is an injectable derivative of tetracycline to be followed by pill forms. Further studies are planned in community-acquired pneumonia and drug-resistant forms of staph and strep bacteria.

 

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Ralcorp Said to Approach KKR, General Mills on Post Sale
By Jeffrey McCracken, Cristina Alesci and Matthew Boyle

May 19 (Bloomberg) -- Ralcorp Holdings Inc., the cereal maker that snubbed offers from ConAgra Foods Inc., has explored the sale of the Post cereals division in an attempt to fend off its suitor, said people with knowledge of the matter.

Ralcorp has gone to General Mills Inc., PepsiCo Inc., Kellogg Co. and B&G Foods Inc. in recent weeks, seeking almost $2 billion for the unit, said the people, who declined to be identified because the negotiations are private. The St. Louis- based company also talked with buyout firms Blackstone Group LP, KKR & Co. and Apollo Global Management LLC, the people said.

There has so far been little interest in Post, the people said. The unit generated about one-fourth of Ralcorp’s $4 billion in 2010 sales with brands like Grape-Nuts and Alpha- Bits. The goal of any sale would be to come up with cash that Ralcorp can return to shareholders, the people said.

“With the proceeds from Post, Ralcorp could maybe issue a special dividend,” Jack Russo, an analyst at Edward Jones & Co., said in an interview. “Maybe it would be enough to placate Ralcorp’s shareholders.” The St. Louis-based analyst recommends holding ConAgra shares and does not cover Ralcorp.

If no sale of Post occurs, Ralcorp is likely to rely on its poison pill, staggered board and takeover laws in Missouri to prevent an acquisition by ConAgra, said a person familiar with the matter. Ralcorp could also accelerate further cost-cutting efforts to persuade shareholders of improved profitability, the person said.

Shares Fell
Ralcorp fell 50 cents to $90.01 at 4 p.m. in New York Stock Exchange composite trading. The shares have gained 38 percent this year.

Jim Golden, a spokesman for Ralcorp, declined to comment, as did representatives at General Mills, PepsiCo, Kellogg, B&G, KKR, Blackstone and Apollo.

Ralcorp Chairman William Stiritz has already rebuffed two overtures from ConAgra, which has signaled it may pursue a hostile bid. Ralcorp’s base in Missouri may make an offer harder for ConAgra, since takeover rules are more stringent there than in other states. The terms of Ralcorp’s directors expire at different times, making it impossible for a potential buyer to replace the whole board in one go. The company also requires a buyer to get approval from at least 85 percent of shareholders.

Stumbling Block
One stumbling block to a sale of the Post unit may be that Ralcorp wants a transaction that would limit the tax implications of any deal, said the people. When Ralcorp bought Post from Kraft Foods Inc. in 2008, the division was spun off from Kraft and merged into its buyer. Ralcorp inherited a low tax basis for Post, meaning it would have a large tax liability if it got too much cash for the business, the people said. That tax basis is $500 million to $800 million, said a person familiar with the specifics of the Kraft-Ralcorp sale.

Any sale to Kellogg or General Mills, the two biggest U.S. cereal makers, could draw antitrust scrutiny, the people said.

Ralcorp has explored various options for Post since ConAgra’s approach, including mostly stock deals with other food companies and so-called sponsored spins to private equity, the people said. In a sponsored spin, Ralcorp would spin out Post to a buyout firm in return for a pre-arranged investment by the private-equity fund. The company has also looked at selling Post to a smaller food company in a Reverse Morris Trust, where Ralcorp shareholders would own a majority of the smaller company, the people said.

Second Snub
Ralcorp rejected a $4.9 billion takeover offer from ConAgra on May 4, its second snub of the Omaha, Nebraska-based foodmaker. ConAgra first contacted Ralcorp in late February and Ralcorp began exploring a potential sale of Post soon after, people familiar with the matter said. At the time Ralcorp shares traded around $64.

Last year the Post division was Ralcorp’s worst-performing, hurt by surging costs for ingredients like wheat and escalating competition for budget-minded shoppers. Post’s profit margins are the widest among Ralcorp’s businesses, according to the company. Still profit declined 12 percent to $221 million last year as Post discounted many of its cereals.

Ralcorp, also the biggest maker of store-brand foods in the U.S., said this month that ConAgra’s latest bid, of $86 a share in cash, wasn’t in the best interests of shareholders. The company adopted a so-called poison pill strategy to prevent its suitor, the maker of Chef Boyardee pasta and Healthy Choice frozen meals, from buying shares without paying a premium.

Courting
ConAgra Chief Executive Officer Gary Rodkin is courting Ralcorp to expand the company’s store-brand food business, which operates out of Naperville, Illinois, and has annual sales of about $850 million. ConAgra is the biggest supplier of store- brand cereal bars for retailers like Wal-Mart Stores Inc., a product that Ralcorp also makes.

Heather Jones, an analyst at BB&T Capital Markets, said in a May 17 note that a ConAgra-Ralcorp deal “makes strategic sense” because of generic product overlaps. ConAgra also has a grain-milling business that could help supply Ralcorp’s grain- based products, according to Eric Serotta, analyst at Wells Fargo Securities.

ConAgra’s pursuit of Ralcorp comes as retailers of all stripes are stocking more private-label products to appeal to cash-strapped consumers. Supervalu Inc., owner of the Sav-A-Lot discount chain, said this month it wants to boost the percentage of its sales from store brands by one percentage point in each of the next three years.

‘Shake Up’
Total sales of store-brand products increased 1.8 percent to $88.5 billion in 2010, according to the Private Label Manufacturers Association, a New York-based industry group. Sales of branded goods fell 1.1 percent to $419.2 billion. From 2006 to 2010, store-brand items increased their share of units sold in U.S. retailers from 20.2 percent to 21.8 percent.

“At least this deal, even if it does not work, shows that ConAgra is willing to shake things up a little bit and grow the company,” Russo, the Edward Jones analyst, said.

Centerview Partners LLP and Bank of America Corp. are advising ConAgra, which plans to fund a purchase with cash and debt. ConAgra also has hired proxy solicitor Innisfree, signaling that it may pursue a hostile bid. Credit Suisse Group AG is advising Ralcorp.

 

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The 5 Most Common Bicycle-Automobile Collisions

( If you've never had the "pleasure" of being passed by 4,000 pounds ( 2 tons) of steel traveling at 60 miles per hour 12 inches away, you'll never understand why bicyclists are scared to death of idiots driving automobiles. Some of you shouldn't have licenses. Please look out for us. )

http://www.bicycling.com/sites/default/files/images/ride_smart_1.jpg

http://www.bicycling.com/sites/default/files/images/ride_smart_2.jpg

http://www.bicycling.com/sites/default/files/images/ride_smart_3.jpg

http://www.bicycling.com/sites/default/files/images/ride_smart_4.jpg

http://www.bicycling.com/sites/default/files/images/ride_smart_5.jpg

​

 

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Goddamnit, which is it? The bloody sun's out.

A slight chance of showers, then a chance of showers and thunderstorms after 8am. Partly sunny, with a high near 83. West wind between 3 and 11 mph. Chance of precipitation is 30%. New rainfall amounts of less than a tenth of an inch, except higher amounts possible in thunderstorms.

http://forecast.weather.gov/images/wtf/scttsra50.jpg

http://forecast.weather.gov/images/wtf/hi_tsra30.jpg

http://forecast.weather.gov/images/wtf/scttsra30.jpg​

 

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I believe it. This is yet one more consequence of the vast horde of jobseekers and feeders-at-the-government trough descending on what was once a nice place to live. When they all the parasites descended on Cancer-On-The-Potomac ( a/k/a "The District of Confusion" ), they brought their bad manners and habits with them.


Would y'all consider moving the Nation's Capital to, say, Boise or Des Moines? I'd really appreciate it.




__________________

http://noir.bloomberg.com/apps/news?pid=20601110&sid=a7D9bHvDIwXU


Washington Motorists Replace New Yorkers as Most ‘Unfit’
By Noah Buhayar

May 26 (Bloomberg) -- Washington, D.C., drivers are the least knowledgeable in the U.S. about the rules of the road, a distinction held by New York state motorists in 2009 and 2010, according to a study by GMAC Insurance.

Drivers in the nation’s capital scored an average of 71.8 percent on tests, the insurer said. New Yorkers ranked 45th, scoring 75.3 percent. Kansans ranked No. 1 with 82.9 percent. The national average for the test was 77.9 percent, with below 70 considered failing, according to a statement today from GMAC Insurance, the carrier that American Capital Acquisition Corp. bought from GMAC Inc.

The national results show that almost one in five drivers, or 36.9 million U.S. motorists, “cannot meet the basic requirements” to get a license, according to the statement. The test of 20 questions from licensing exams was given to 5,130 drivers from all 50 states and the capital.

“Taking the test brings a little bit of attention to something that people don’t generally think about,” said Scott Eckman, GMAC Insurance’s chief marketing officer, in an interview. “If we can have people just think twice, it may make them think about rules and maybe pay attention.”

Eighty-five percent of drivers couldn’t identify the correct action to take when approaching a steady yellow traffic light. Correct answer: “Stop if it is safe to do so,” according to a version of the test on GMAC Insurance’s website.

‘Traffic Is Difficult’
Some of the test results may be explained by people learning to drive from family members, Jean Guenguem, co-owner of Dexterity Driving School in the capital, said in a phone interview. Drivers should brush up on the rules every two years, he said.

“The traffic is difficult” in Washington, Guenguem said. New York motorists follow the rules less than Washington drivers, he said.

The national average rose from 76.2 percent in 2010. Mississippi, Massachusetts, New Jersey, Maryland and Hawaii motorists ranked behind New York. The test was given online by the insurer through a research company to licensed drivers, ages 16 to 65.


more...
http://noir.bloomberg.com/apps/news?pid=20601110&sid=a7D9bHvDIwXU

 

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http://www.bloomberg.com/news/2011-...ressure-for-payroll-cuts-to-buoy-profits.html


Shrinking Valuations Drive Bank Payroll Cuts
By Michael J. Moore - Jun 8, 2011

Financial firms, shunned by investors to a degree seen only once in the last 20 years, are becoming a smaller part of the U.S. economy as they deal with a past that won’t go away and a future of lower revenue and fewer jobs.

Shares of financial companies have fallen for three straight months and now have their lowest ratio to the Standard & Poor’s 500 Index since 2009. Net revenue at the six largest U.S. lenders -- Bank of America Corp. (BAC), JPMorgan Chase & Co. (JPM), Citigroup Inc. (C), Wells Fargo & Co. (WFC), Goldman Sachs Group Inc. (GS) and Morgan Stanley -- will probably fall 3.7 percent in the second quarter, the fourth year-over-year decline in five quarters, according to 100 analyst estimates compiled by Bloomberg.

Persistent low interest rates and stagnant loan growth are shrinking interest income as new regulations curtail fee revenue from retail banking. Analysts, including Meredith Whitney and Nomura Holding Inc.’s Glenn Schorr, expect the slow growth to result in job cuts on Wall Street in the coming months.

“Without any change, the financial sector is definitely set to shrink,” said John Garvey, head of the financial industry advisory practice at PricewaterhouseCoopers LLP. “You don’t have to be a scientist to figure out that tighter regulation and more onerous capital rules without economic growth will shrink the industry. It has to.”

Appaloosa Stakes
Financial stocks have trailed the broader market for nine of the past 11 months. The ratio between the price of the 82- member S&P 500 Financials Index (S5FINL) and the S&P 500 Index (SPX) is less than 0.16, down from a peak of 0.36 in March 2004. The only other time in the past 20 years that the ratio dropped below 0.16 was a stretch from January to mid-April 2009, when some banks faced the prospect of nationalization after taking billions of dollars in rescue funds to survive a credit crisis.

David Tepper, founder of hedge fund Appaloosa Management LP, used his investments in the largest banks that year to drive a 132 percent return in 2009, making his fund the best performer among those with more than $1 billion in assets.

This time around, Tepper, 53, isn’t as bullish. Appaloosa cut its stakes in five banks -- Citigroup, Wells Fargo, Bank of America, Fifth Third Bancorp (FITB) and SunTrust Banks Inc. -- in the first quarter by an average of 43 percent.

“I wish it was 80 percent, because they’ve been absolute crap since we sold them,” said Tepper, whose fund is based in Short Hills, New Jersey. “So we were 40 percent right.”

15 ‘Overhangs’
Banks face at least 15 major “overhangs” to performance over the next few years, FBR Capital Markets analysts including Edward Mills wrote in a June 3 note to investors.

Drags on earnings include new regulations surrounding proprietary trading and debit-card interchange fees; state and federal investigations into mortgage practices; and stricter capital and liquidity requirements. New rules set by the Basel Committee on Banking Supervision, which begin to go into effect in 2013, may trim the return on equity of U.S. banks by 3 percentage points, according to estimates by McKinsey & Co. consultants. The requirements may be especially onerous at firms deemed systemically important.

“Those are pretty big clouds, there’s no arguing with that,” JPMorgan Chairman and Chief Executive Officer Jamie Dimon, 55, said last week at an investor conference in New York. “So, if you’re an investor, you’re going to look at it and say there is a lot of uncertainty.”

Legal Risks
As less revenue comes into banks, more money may be drained by mounting legal risks, according to FBR.

Bank of America, based in Charlotte, North Carolina, paid about $3 billion to resolve some mortgage repurchase demands from Fannie Mae and Freddie Mac in the fourth quarter, and it may face more claims as housing prices slide this year. The largest mortgage servicers, including Bank of America, Wells Fargo and New York-based JPMorgan, also may have to spend $5 billion to $17 billion to settle state probes into documentation lapses during home seizures, according to the FBR note.

Goldman Sachs, which paid $550 million to settle Securities and Exchange Commission charges related to its marketing of mortgage-related securities, now faces investigations by the Department of Justice and the Manhattan District Attorney’s office after U.S. Senate investigators focused on the bank in a probe of Wall Street’s role in the housing-market collapse.

“U.S. banking profitability will be considerably less in my view in the period ahead than it was in the early part of this century,” Berkshire Hathaway Inc. Chairman Warren Buffett, 80, told the company’s shareholders April 30 during their annual meeting in Omaha, Nebraska.

‘Bad Thing’
One key reason is that banks won’t be able to use as much leverage -- borrowing money to multiply their returns -- as regulators tighten capital rules, he said.

“That’s probably a good thing for society,” Buffett said. “That may be a bad thing for banks who can use leverage intelligently.”

Even U.S. banks’ core lending mission is under pressure. Average net interest margin, the difference between what banks charge for loans and pay on their own borrowings, rebounded from an all-time low at the end of 2008 as the Federal Reserve cut interest rates, climbing from 3.15 percent to 3.84 percent in March 2010, according to data from the Federal Reserve Bank of St. Louis.

Since then, net interest margin has fallen for four straight quarters to 3.57 percent, the data show. That has come as banks run out of room to cut deposit rates, and higher- yielding loans are paid off or default and are replaced by lower-rate loans. While loans made up 49 percent of interest- earning assets at the four biggest banks last year, the same percentage as in 2005, the rate earned on those loans was 6 percent, down from 7.2 percent five years earlier, according to data compiled by Bloomberg.

Fewer Loans
Loan growth stalled as consumers cut back debt and demand for mortgages waned. Average loans among 37 banks with the largest market values fell 4 percent in the first quarter from last year, according to a May 10 report by Melissa Roberts and Elissa Niemiera, analysts at KBW Inc.

The four largest U.S. banks were looking to unload $751 billion of loans as of Dec. 31 as they exit some lending businesses and try to cut their riskiest assets, Brian Foran and Schorr, analysts at Nomura in New York, wrote in a March 1 research note. That represents 26 percent of their total lending, presenting a high hurdle for loan growth as banks try to make up for the loss of runoff loans, they wrote.

Shrinking Workforce
The lack of growth and mortgage-related issues, combined with what he called “attacks” on the industry, helped Appaloosa’s Tepper reach his decision to cut bank holdings last quarter, he said. The strength of the U.S. economy will largely determine whether the industry shrinks, and regulatory changes are already reflected in the share prices, he said.

“If the economy is OK, these stocks are probably getting attractive again,” Tepper said. “They’re not uninteresting now, but I don’t know if they’re interesting.”

Financial companies accounted for 29.3 percent of U.S. corporate profits over the 12 months ended March 31, compared with 31.6 percent over the previous decade, according to data from the Bureau of Economic Analysis. That’s off the high of 41.7 percent in the 12 months ended Sept. 30, 2002.

The number of U.S. financial-industry jobs dropped for the fourth straight year to an average of 7.63 million in 2010, according to the Bureau of Labor Statistics. That’s 8.4 percent below the 2006 peak, and the figure fell to 7.61 million in May. New York City lost about 14,600 jobs in investment banking, securities dealing and brokerage in the year ended Nov. 30, according to the New York State Department of Labor.

Morgan Stanley (MS)
Four of the six largest banks reduced their staff in the first quarter, led by Wells Fargo’s 2,000 cuts, while Citigroup maintained its headcount and JPMorgan added about 3,000 workers.

Morgan Stanley, owner of the world’s largest brokerage, may eliminate more jobs at its wealth management unit, Chief Financial Officer Ruth Porat said at the Deutsche Bank Global Financial Services Conference in New York yesterday. The division, which had about 17,800 employees at the end of March, was previously aiming to reduce that figure to as little as 17,500, according to a spokesman for the bank.

“We may reduce our broker headcount below previously announced targets,” Porat said.

Barclays Plc, the British bank that acquired Lehman Brothers Holdings Inc.’s U.S. unit in 2008, cut as many as 50 jobs in its equities division worldwide, according to a person familiar with the matter. The reductions affected employees in sales, trading and research, said the person, who requested anonymity because the plan isn’t public. The move, part of a mid-year performance review, wasn’t made because of falling revenue, the person said.

‘Unsexy’ Housing Market
“I’ve looked for layoffs on Wall Street for the past six months,” Whitney said on Bloomberg Radio in May. “You have a clear issue: Wall Street’s revenues were driven by something as unsexy as the housing market.”

Falling bank stocks have discouraged executives from making acquisitions to drive revenue growth. Banks, thrifts and diversified financial firms have been acquirers in $40.2 billion of announced deals through May, an amount set to rival 2009 as the lowest year of acquisitions since 2002.

“Investors would like acquisitions to occur, but they have to be at a certain price point,” Stephen Steinour, CEO of Columbus, Ohio-based Huntington Bancshares Inc., the 17th- largest U.S. bank. “For us, at 1.5-times book, our stock is very cheap. Why would I want to give up that cheap stock to buy a problem?”

Bread and Butter
Instead, banks are shifting focus back to bread-and-butter businesses, such as retail banking, brokerage services and asset management, and dusting off past strategies, such as “cross- selling” additional products to existing customers.

Morgan Stanley, based in New York, has hired more than 170 private bankers to make loans and offer deposit products to its retail brokerage clients. Bank of America is looking to win banking business from the two-thirds of Merrill Lynch customers who have bank accounts with other lenders. Wells Fargo in San Francisco is building out its retail brokerage as it seeks to capture business from 5.2 million clients who hold $1.7 trillion in investment assets at other firms.

None of those strategies is likely to replace the mortgage securitization boom and leveraged bets that drove years of profits before the 2008 credit crisis, Whitney said.

“Nothing is compelling in terms of providing a great growth engine for the large banks,” Thomas Brown, CEO of Second Curve Capital LLC and a Bloomberg contributing editor, said on Bloomberg Television last month.

Looking Overseas
Banks will end up battling for market share in the U.S., said PricewaterhouseCoopers’ Garvey.

“Right now in the U.S., it’s much more about carving up the pie a different way rather than growing the pie,” he said.

That’s driving the country’s biggest banks to seek growth overseas, particularly in emerging markets. Citigroup CEO Vikram Pandit, 54, predicted in 2009 that his bank would become the “largest emerging-markets financial services company,” a goal he pursued last year by increasing assets in Latin America and Asia by 16 percent to more than $470 billion. The firm, based in New York, now gets more than half of its profit from emerging markets, Pandit said at a March 9 conference.

“We have a unique footprint that we believe will allow us to harness global growth trends and deliver value to our clients and shareholders over time,” said Shannon Bell, a Citigroup spokeswoman in New York.

Spokesmen for the other five banks declined to comment or didn’t return calls.

Moynihan, Cohn
Bank of America CEO Brian Moynihan, 51, said in February that his bank would look to produce revenue increases that outpaced the growth of the U.S. economy by 1 percentage point, driven by its international opportunities. Goldman Sachs Chief Operating Officer Gary Cohn, 50, said this month that his firm’s hiring efforts are concentrated on China, India and Brazil.

Looking for revenue in developing countries won’t be easy, as banks face strong local competition, lower fees than in the U.S. and political obstacles.

“We expect to continue to see ferocious competition in these markets,” analysts from Oliver Wyman and Morgan Stanley said in a March research paper on investment banking. “The importance of emerging markets looks set to intensify, but rising costs and falling yields will mean less of the top-line growth comes through to the bottom line.”

‘More Shrinkage’
The focus on emerging markets may also lead to more job cuts in the U.S., analysts said.

“You’ll have more banks going after the emerging markets business because it’s growing, and there’s probably less regulatory scrutiny,” said Keith Davis, an analyst at Farr, Miller & Washington LLC in Washington, which manages about $700 million. “I wouldn’t be surprised to see banks devote resources to the build out of their international network, especially in emerging markets, and more shrinkage in the U.S. as regulatory requirements get more onerous and returns fall.”

Morgan Stanley CEO James Gorman, 52, said at the firm’s annual shareholders meeting last month that financial companies are undervalued because investors are focused on worst-case scenarios and lack clarity about regulatory changes and new capital rules. Value investors may soon find the industry attractive as many firms are trading below book value, he said.

‘One-Way Bets’
The 10 largest U.S. banks by assets are trading at about 91 percent of their book value, ranging from 50 percent at Bank of America to 161 percent at Minneapolis-based US Bancorp. That means investors don’t believe the assets of some banks are worth as much as the companies say.

Financial firms, led by New York-based Citigroup, were the most sold-off sector by hedge funds in the first quarter, according to filings by 817 hedge funds compiled by Bloomberg. Hedge funds cut positions in financials by 1.3 percent in the quarter, more than three times the decline for any other sector.

“We’ve had so many value investors that have gone into them, been burned and come back out that it is a tough time to sell brokerage stocks or banks” to investors, Brad Hintz, a Sanford C. Bernstein analyst, said in a Bloomberg Radio interview last month. “They cannot trade below their liquidation value. At some point, they become one-way bets.”


http://www.bloomberg.com/news/2011-...ressure-for-payroll-cuts-to-buoy-profits.html

 

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http://www.bloomberg.com/news/2011-...ded-harbors-and-value-of-free-trade-view.html


Cheap Coats, Blockaded Harbors and Value of Free Trade

It’s a bad moment for free trade. Republicans in the Senate are blocking three free-trade treaties -- with Colombia, South Korea and Panama -- until they are stripped of extra assistance (such as retraining) for workers whose jobs are shipped abroad. The Obama administration isn’t all that excited about these treaties or free trade in general, anyway.

The AFL-CIO is even less enthusiastic and is threatening to punish pro-free-trade politicians in the next election cycle. But a bad moment for free trade is a good moment, once again, to make the case.

Free-trade zealots, a group to which we belong, can seem more like a religious cult than mere adherents of an economic theory. But this is misleading. It is the scientifically provable correctness of free-trade theory, combined with the frustrating difficulty of making people believe it, that drives true believers to despair. It may be the most scientific axiom in all of social science: Societies prosper when they allow citizens the freedom to buy from foreigners on the same terms as they trade among themselves. The few exceptions to this rule are misused by free-trade opponents more often than they are invoked correctly.

Furthermore, the benefits of free trade do not require reciprocity. Avoiding tariffs and quotas is good for us whether China, Japan or Europe follow suit. Protectionism can do great harm to your trading partners, if that’s your goal, but it cannot do any good for you.

Blockading Your Harbor
The famous citation on all this is from the 19th century American self-trained economist Henry George, who noted that blockading another nation’s harbor is considered an act of war, and protectionism is like blocking your own harbor. “What protection teaches us is to do to ourselves in time of peace what enemies seek to do to us in time of war,” he said.

All this is Economics 101. Politics is another story. Free trade creates tumult (“creative destruction,” as economist Joseph Schumpeter famously put it). Like its opposite, protectionism, free trade generates winners and losers. Two perennial problems make the free-trade gospel a hard sell.

First, free trade requires explanation. It’s complicated. When plants are closing and people are losing not just jobs but also entire careers, it’s not intuitively obvious why keeping foreign competition out of our markets is such a bad idea, although it is. Second, the costs of free trade are visible and concentrated, while its benefits are diffuse and hard to identify. When a company moves production overseas, the Americans who lose their jobs as a result are aware of it, and aware of the cause. The beneficiaries, by contrast, probably don’t even realize that the coat they bought today at Wal-Mart is a couple bucks cheaper thanks to the move.

Trade Beneficiaries
The salespeople who find work because retailers’ bargains draw more customers, the extra people who are employed because coat buyers have more money to spend, and so on, are all beneficiaries of free trade -- but don’t know it. What they can know is that it is mathematically certain that for the nation as a whole, these small and wide-ranging benefits outweigh the large and obvious loss. They can look at societies such as Singapore, which have prospered mightily in part because of radical free-trade policies.

Of course that is little comfort to the person who lost the job and career. The multiple answer for that is a vigorous economy that will generate new opportunities faster than the old ones disappear, an education system that prepares Americans to take advantage of these opportunities and a generous social welfare safety net for those who can’t. To deny ourselves the benefits of free trade because of a cost we could easily pay out of those benefits would be penny-wise and pound-foolish.

 

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http://www.bloomberg.com/news/2011-06-17/rare-earth-prices-double-on-china-industrial-minerals.html


Rare Earth Prices Double on China Controls
By Jason Scott - Jun 17, 2011

Prices of the rare earths used in lasers and plasma televisions more than doubled in the past two weeks as China tightens control of mining, production and exports, according to market researcher Industrial Minerals.

The cost of dysprosium oxide, used in magnets, lasers and nuclear reactors, has risen to about $1,470 a kilogram from $700 to $740 at the start of the month, Industrial Minerals said in an e-mailed statement. Europium oxide, used in plasma TVs and energy-saving light bulbs, has more than doubled.

China, supplier of 95 percent of the 17 elements known as rare earths, has clamped down on rare-earth mining and cut export quotas, boosting prices and sparking concern among overseas users such as Japan about access to supplies. The government may further reduce export quotas, pushing prices higher, Goldman Sachs & Partners Australia Pty said last month.

“China has long said it will consolidate the industry but it’s moving more rapidly than many observers anticipated,” said Dudley Kingsnorth, a former rare earths project manager and now chief executive officer of Perth-based advisory Industrial Minerals Co. of Australia. “There might be an element of speculation but I think the price rises have been driven by people who are desperate for the product.”

The world’s most populous nation will raise standards for exporters and won’t approve new project expansions in an effort to curb overcapacity, illegal mining and sales, the government said last month. The Ministry of Land and Resources said yesterday it wants to set aside some rare earth deposits.

Turbines, Missiles
Rare earths are used in wind turbines, hybrid cars and defense applications such as guided missiles. The market for the minerals may double to as much as $6 billion by the middle of the decade, according to an April 21 report by Ernst & Young LLP analyst Michel Nestour.

China’s Inner Mongolia Baotou region produces so-called light rare earths such as lanthanum, cerium and samarium. Heavy rare-earth production, concentrated in the south of China such as Ganzhou, includes the elements dysprosium, gadolinium and terbium.

TVs, Bulbs
The price of europium oxide, used for its phosphorescent properties found in plasma TVs and light bulbs, has risen to as much as $3,400 a kilogram from between $1,260 and $1,300, Industrial Minerals said.

Hitachi Metals Ltd., Japan’s largest rare-earth magnet- maker, said it will pass on the increases to its customers, which include makers of motors used in hybrid cars.

“We adopted a price system to pass on increased costs to buyers,” Toshinori Hata, a spokesman for Hitachi Metals, said in an interview. “Still, the pace of price increase is rapid, and we expect there will be a time-lag” to absorb the rising costs, he said.

China’s land ministry in February prohibited non-government entities from exploring or mining for rare earths in an area covering 11 mining zones near the southern city of Ganzhou in Jiangxi province.

Such restrictions may apply to other mining areas, and the ministry will select part of these areas as its strategic reserves, Wang Min, a deputy minister, said at a meeting in Beijing, according to the ministry’s own newspaper published on its website.

“One of the clear objectives of the consolidation is to get better co-ordination of price and marketing of rare earths, so it’s inevitable prices will go up,” said Kingsnorth, who managed Australia’s Mount Weld rare earths project for Ashton Mining of Canada Inc. for 10 years. “They are also clamping down on illegal mining with a lot of vigor. Chinese export quotas are less than world demand.”

Biggest Producer
Delays in rare earths projects coming on stream from the U.S. and Australia will ensure that China continues to be biggest producer until at least 2013, Sang Yongliang, a metals and mining analyst with Guotai Junan Securities Co., wrote in a June 3 report.

Companies such as Molycorp Inc. (MCP) and Lynas Corp. are rushing to restart mothballed projects to meet the gap in supply. Greenwood Village, Colorado-based Molycorp plans to bring its Californian mine into production in the second half of 2012 and double the mine’s annual capacity to 40,000 metric tons by the end of 2013.

Mount Weld
Sydney-based Lynas is building a $220 million refinery in Malaysia’s Pahang state that will process ores including neodymium and yttrium from Mount Weld, which it now owns.

“Until such time as Lynas and Molycorp are on-stream in the next two or three years, I don’t see much relief” from high prices, Kingsnorth said. “Chinese export quotas are less than world demand.”

A table on the website of Lynas shows the composite price of eight rare earths found at Mount Weld project has surged to $203.60 a kilogram on June 13, from $92.84 on March 31 and $11.59 in 2007.

“Demand for rare-earth elements is increasing in applications that are less esoteric than say, 20 years ago,” Watts said. “China, which is the world’s main commercially developed rare-earth elements source of supply, is reducing exports and increasing its consumption.”

 

[trysail]

On Printed Books


My hard copy is forever. No charging or batteries are or will ever be required. Notes, annotations and highlights are permanent. It is easily transportable and is completely insensitive to ambient environmental conditions. I always know exactly where On The Road can be found; it's on the shelf right next to Gerald Nicosia's acclaimed Memory Babe: A Critical Biography of Jack Kerouac. No additional payments will ever be necessary. No upgrades will be required; there will be no new file types. There will be no obsolescence. My copy is easily lent to trustworthy friends and will be passed on to my heirs.

 

[trysail]

http://www.bloomberg.com/news/2011-...-mortgages-opened-way-to-3-billion-fraud.html



How Fannie’s Silence Opened Way to $3B Fraud

By Tom Schoenberg
Jun 30, 2011

The first sign of what would ultimately become a $3 billion fraud surfaced Jan. 11, 2000, when Fannie Mae executive Samuel Smith discovered Taylor, Bean & Whitaker Mortgage Corp. sold him a loan owned by someone else.

Fannie Mae, the government-sponsored enterprise which issues almost half of all mortgage-backed securities, determined over the next two years that more than 200 loans acquired from Taylor Bean were bogus, non-performing or lacked critical components such as mortgage insurance.

That might have been the end of Taylor Bean and its chairman and principal owner, Lee Farkas. He was sentenced today in federal court in Alexandria, Virginia, to 30 years in prison for orchestrating what prosecutors call one of the “largest bank fraud schemes in this country’s history.”

Instead, it was just the beginning.

Fannie Mae officials never reported the fraud to law enforcement or anyone outside the company. Internal memos, court papers, and public testimony show it sought only to rid itself of liabilities and cut ties with a mortgage firm selling loans “that had no value,” as Smith, the former vice president of Fannie Mae’s single family operations, said in a 2008 deposition.

The trial of Farkas and his co-defendants resulted in the only major criminal conviction stemming from the financial crisis -- a crisis that followed the September 2008 collapse of Lehman Brothers Holdings Inc. and the U.S. government takeover of Fannie Mae and its rival Freddie Mac that same month.

‘Most Significant’
Neil Barofsky, former special inspector general for the Troubled Asset Relief Program, described the Farkas case in a Feb. 14 letter to President Barack Obama as “the most significant criminal prosecution to date” that arose from the financial crisis.

“If there had been a criminal referral, Farkas would have gone to jail in 2002,” William Black, who served as deputy director of the Federal Savings and Loan Insurance Corp. during the S&L crisis of the 1980s, said in an interview.

Seven more years passed before federal regulators shut down Ocala, Florida-based Taylor Bean and prosecutors charged Farkas with orchestrating the $3 billion scam. He had duped some of the country’s largest financial institutions, sought federal bank bailout funds and contributed to the failures of Montgomery, Alabama-based Colonial Bank and its parent, Colonial BancGroup, once among the nation’s 25 biggest depository banks.

‘Fraud Scheme’
Taylor Bean would have collapsed in 2002 “but for the fraud scheme,” according to prosecutors. It also survived because Freddie Mac began picking up the company’s business within a week of Fannie Mae’s cutoff, Jason Moore, Taylor Bean’s former chief operating officer, said in an interview.

Freddie Mac soon became Taylor Bean’s biggest customer, and the mortgage company grew to be one of its biggest revenue producers, accounting for about 2 percent of single-family home mortgages by volume in 2009, according to a company filing.

Once the 12th-largest U.S. mortgage lender, Taylor Bean’s business was originating, selling and servicing residential mortgage loans that came from a network of small mortgage brokers and banks.

It had about 2,400 employees and was servicing more than 500,000 mortgages, including $51 billion of Freddie Mac loans and $26 billion of Ginnie Mae loans, before it collapsed into bankruptcy in August 2009, according to court papers.

Loan Guarantees
Ginnie Mae, a government-owned insurer of mortgage-backed securities, primarily guarantees loans insured by the Federal Housing Administration or guaranteed by the Department of Veterans Affairs.

Fannie Mae and Freddie Mac, which own or guarantee more than half of all U.S. home loans, were created by the U.S. government to inject capital into the housing market. Fannie Mae was established in 1938, and Freddie Mac in 1970.

Beginning in 2006, the companies began making big investments in subprime loans, many of which eventually defaulted. In the face of their imminent collapse, the U.S. Treasury Department took the government-sponsored entities into conservatorship in September 2008, promising to make good on an implicit government guarantee of the companies’ bonds.

The deal gave the Treasury almost 80 percent of the companies in exchange for a line of credit. Since then, the entities have required more than $160 billion in taxpayer aid.

Freddie Mac, based in McLean, Virginia, filed a claim on Taylor Bean in U.S. bankruptcy court for $1.8 billion. Washington-based Fannie Mae had about $1.7 billion in loans serviced by Taylor Bean when their relationship ended in 2002.

Officials’ Decision
The decision to keep Farkas in business was made by top Fannie Mae officials such as Smith and Zach Oppenheimer, then senior vice president for single family mortgage business, according to Smith’s deposition and a Fannie Mae memorandum.

A confidential agreement between Fannie Mae and Taylor Bean’s Farkas unwinding their relationship was negotiated by lawyers from the general counsel’s office, overseen at the time by Thomas Donilon, now Obama’s national security adviser, according to the documents. Donilon’s spokesman, Tommy Vietor, declined to comment.

Fannie Mae officials feared that seizing the loan portfolio would signal poor loan quality to the mortgage industry, according to deposition testimony and an internal Fannie Mae memo. As a result, the value of the servicing rights to those loans would drop.

Fannie Mae officials were also concerned that an immediate termination of the relationship would have “a devastating effect on TBW’s ability to continue as a viable company,” according to an undated Fannie Mae memo filed as part of a related lawsuit.

Confidential Agreement
The confidential agreement allowed Farkas to seek a buyer for the servicing rights of his Fannie Mae loans. The reasons for the termination by Fannie Mae were to remain a secret, according to court filings.

“We hold people accountable in the judicial system when they don’t report a crime,” said Ken Donohue, former inspector general of the U.S. Department of Housing and Urban Development, who investigated another mortgage fraud matter involving First Beneficial Co. In that case, he said, Fannie Mae “literally knew about a crime” and didn’t report it.

“In my estimation, it happened again,” said Donohue, now a principal at the Reznick Group PC in Bethesda, Maryland.

Amy Bonitatibus, a spokeswoman for Fannie Mae, said in an e-mail that its current practice is to “take action and inform law enforcement” if it discovers “inappropriate activity.” Brad German, a spokesman for Freddie Mac, declined to comment.

Focus of Case
Franklin Raines, who was chairman and CEO at Fannie Mae from 1999 through 2004, said in an interview that he has “no memory” of the Taylor Bean matter.

Fannie Mae either picks up the documents or negotiates an agreement when a termination occurs, Raines said. Fannie Mae’s regional offices manage terminations to get the largest recovery, and such an event wouldn’t be publicly disclosed, he said.

Fannie Mae was owned at the time by its shareholders, and unless there’s a legal obligation to disclose, silence is typical in business arrangements, Raines said.

The termination alone should have been enough warning to Freddie Mac and others businesses to “move with caution,” Raines said.

The government’s case against Farkas and six convicted co- conspirators focused on conduct after Fannie Mae terminated their relationship. Those crimes began because Farkas needed cash to meet operating expenses, such as payroll and loan- servicing payments to Freddie Mac and Ginnie Mae, according to his indictment.

Fake Mortgages
From 2002 through August 2009, he directed the sale of more than $1.5 billion in fake mortgage assets to Colonial Bank and misappropriated more than $1.5 billion from Ocala Funding LLC, a financing vehicle used and controlled by Taylor Bean, prosecutors said in a sentencing document.

Farkas, 58, oversaw the “triple-selling” of $900 million worth of mortgage loans to Colonial, Ocala Funding and Freddie Mac, and led an effort to obtain $553 million from TARP, according to the filing.

At his trial in April, Farkas and three other witnesses were asked about the Fannie Mae termination. The relationship ended, each said, because Fannie Mae discovered that from six to eight delinquent loans it had bought from Taylor Bean were in Farkas’s name. Fannie Mae officials weren’t called to the stand by either the government or the defense.

GMAC Lawsuit
Documents filed in a 2006 countersuit against Taylor Bean by GMAC Mortgage Corp. showed the number of bogus or bad loans sold to Fannie Mae was much larger.

Fannie Mae, which had worked with Taylor Bean since 1995, first had concerns about possible fraud in January 2000 after the mortgage financier received a telephone call from Catherine Kissick, the manager of Taylor Bean’s accounts at Colonial Bank, according to documents filed in the GMAC litigation. Kissick was sentenced to eight years in prison on June 17 after pleading guilty to conspiracy in the Farkas case.

Kissick called to say the loan in question, which Fannie Mae had paid for, had in fact been sold a few months earlier to Freddie Mac, according to Smith’s deposition.

“The duplicate loan being sold to Fannie Mae could have been an indication of fraud, or it could have had an innocent explanation,” Smith said in the lawsuit deposition. “But, nevertheless, it’s an indication that if they are truly selling duplicate loans to us, they have either got really bad, weak controls, or they’re doing fraud.”

‘Especially Cautious’
Smith summarized the incident in an internal e-mail, urging colleagues “to be especially cautious in their dealings with” Taylor Bean and “to let me and others know ASAP if you find evidence of such problems.”

Smith, who left Fannie Mae at the end of 2006, declined to comment.

Fannie Mae continued buying loans from Taylor Bean and helped it build a website called Community Banks Online that allowed smaller banks to process mortgage loan applications faster through Taylor Bean. Taylor Bean would then sell those loans to Fannie Mae.

Moore, the former Taylor Bean chief operating officer, ran Community Banks Online. He said in an interview that Fannie Mae was involved in the project and there were plans to market it nationwide with Fannie’s blessing and funding.

‘Manipulate Data’
The program also afforded Taylor Bean “the ability to go in and manipulate data to a degree it had never been able to do before,” Moore said.

Fannie Mae continued to have concerns about a “lack of attention to underwriting and quality control” at Taylor Bean, and on March 6, 2002, Fannie Mae officials had a face-to-face meeting with Taylor Bean managers, according to an undated Fannie Mae chronology of the termination entitled “Summary of Events” that was filed as part of the lawsuit.

Fifteen days later, Fannie Mae’s loss mitigation team in Atlanta discovered several delinquent Fannie Mae-owned loans in the name of Farkas and other members of Taylor Bean’s senior management. A public records check revealed that the named borrowers didn’t hold title to the real estate and that the mortgages sold to Fannie Mae had never been recorded, according to the Fannie Mae document.

“Our conclusion was that fraud, if I can use that word, had been perpetrated on Fannie Mae, and we considered that to be a very, very serious matter,” Smith said in the 2008 deposition.

‘Fraudulent Loans’
On April 1, 2002, Fannie Mae management decided to terminate its contract with Taylor Bean because of “fraudulent loans” and “other serious concerns,” according to the summary document. In addition to the $1.7 billion servicing portfolio, Taylor Bean had an outstanding balance on Fannie Mae’s advance payment line of about $189 million, according to the document.

At that point, the chronology stated, Fannie Mae could have refused to buy any more loans from Taylor Bean, blocked the company’s access to its online loan processing programs, and seized the servicing rights, shifting those contracts to another company without compensating Taylor Bean.

It did none of those things. Fannie Mae wanted to preserve the value of the servicing portfolio, which would plummet if it reported that Taylor Bean was selling bogus loans, according to the summary document and Smith’s deposition.

Smith traveled to Ocala the next day to talk to Farkas about how to end the relationship, according to the deposition. Smith said that he was joined the following day by his boss, Oppenheimer, and Fannie Mae lawyers.

Third Party Move
The negotiation resulted in an agreement that Smith said outlined what Fannie Mae, Farkas and Taylor Bean would do “over the next month or two to get the servicing moved to a third party.” A telephone and e-mail message left for Oppenheimer was returned by Fannie Mae spokeswoman Bonitatibus, who declined to comment.

“Companies that have servicing pulled by Fannie Mae with cause generally do not survive,” said Barry Bier, former executive vice president and chief investment officer at GMAC Mortgage Corp., a unit of Detroit-based Ally Financial Inc., according to a transcript of deposition testimony. “In this case I think Taylor Bean was extremely -- was well benefited by motivated lenders who provided assurances to GMAC to allow them to go forward.”

GMAC bought the Fannie Mae servicing rights from Taylor Bean for $27.6 million on May 31, 2002. While GMAC was vetting the value of the servicing deal, Smith and Oppenheimer declined to say why Fannie Mae cut ties with Taylor Bean, Bier said.

No Specifics
“I tried to get whatever information I could,” he said in the deposition. “Each of those gentlemen would not provide any specifics with respect to the reason for the termination.”

Bier didn’t respond to an e-mail and telephone message seeking comment.

During the termination, Fannie Mae discovered that about 200 loans Taylor Bean sold as insured by the Federal Housing Administration didn’t have valid FHA coverage, according to the “Summary of Events” document.

“Evidence suggests that TBW management knew at the time of sale of these loans to Fannie Mae that the loans were not insured,” according to the document. The loans involved mortgages given to U.S. military veterans, Smith said in his deposition.

“These are high loan-to-value loans without any insurance sold to Fannie Mae as government insured when, in fact, they weren’t,” he said. Taylor Bean was forced to repurchase the loans. The document doesn’t say how much money the loans involved.

Delinquent Loans
GMAC also found that 16 loans in the servicing group it bought from Taylor Bean were delinquent at the time they were sold to Fannie Mae, according to the document. Taylor Bean management knew the loans were bad when they sold them and management falsified a date on the delivery schedule, according to the Fannie Mae document.

Taylor Bean was forced to repurchase those loans as well, according to the filing. By November 2002, all of Fannie Mae’s outstanding claims with Taylor Bean were settled.

The deal with Farkas resembled Fannie Mae’s reaction to an earlier fraud by one of its authorized lenders, said Chris Swecker, who investigated mortgage fraud as head of the Federal Bureau of Investigation’s office in Charlotte, North Carolina.

In 1998, an investigator from North Carolina’s State Banking Commission warned a Fannie Mae employee that Charlotte- based First Beneficial Co. was selling bad loans, according to congressional testimony by Donohue, then HUD’s inspector general. Fannie Mae found many of the First Beneficial loans to be “fictitious,” Donohue said.

Buy Backs
Fannie Mae allowed First Beneficial to buy back the fake loans, according to court records. To raise the money, First Beneficial sold some of the loans to Ginnie Mae, which lost about $38 million as a result, according to court documents.

Fannie Mae never notified law enforcement or regulators about the fraud, Swecker said, adding he “pushed hard to indict” Fannie Mae as a corporation for failing to do so. The Justice Department, declining to bring a criminal case, settled a lawsuit in which Fannie Mae agreed to pay the government $7.5 million and admit no wrongdoing, according to court records.

“We felt like we were on the front end of a big problem and the last thing we expected to see was a quasi-government agency sweeping it under the rug,” Swecker said in an interview. In 2004, in a plea for more resources, he testified to Congress that the U.S. was on the brink of a mortgage fraud epidemic.

No Fraud Policy
In a January 2005 letter to lawmakers about the First Beneficial incident, Fannie Mae’s interim CEO Daniel Mudd said the company had no formal policy on reporting possible fraud. Fannie Mae doesn’t usually issue public notice when it suspends or terminates a lender or loan servicer, he said in the letter.

Last year, Mudd, in an interview with the Financial Crisis Inquiry Commission, cited the termination of Taylor Bean as an example of Fannie Mae’s willingness to cut ties with problematic mortgage companies.

A House of Representatives subcommittee held a hearing on First Beneficial in March 2005. As a result, rules were put in place by Fannie Mae’s regulator, the Office of Federal Housing Enterprise Oversight, requiring Fannie Mae, Freddie Mac and other government-sponsored enterprises to report fraud to law enforcement and regulators.

The rule took effect in August 2005, three years after Fannie Mae terminated Taylor Bean.

Fraud Department
Fannie Mae’s fraud department looked at $1 billion in suspect loans in 2009 and found $650 million to be fraudulent, according to William H. Brewster, director of Fannie Mae’s mortgage fraud program. Brewster told the Financial Crisis Inquiry Commission that the loans were bought from lenders such as Bank of America Corp. (BAC), Countrywide Financial Corp., Citigroup Inc. and JPMorgan Chase & Co.

Brewster said his office now reports fraudulent loans to the Federal Housing Finance Agency, or FHFA, which replaced the Office of Federal Housing Enterprise Oversight, or OFHEO, as regulator of Fannie Mae and Freddie Mac in 2008.

A June 21 FHFA inspector general’s report found that FHFA and its predecessor agency ignored or mishandled complaints from consumers about fraud and botched foreclosures because it had no system for dealing with them.

The report said OFHEO failed to pursue a tip from a journalist in June 2008 alleging Taylor Bean was selling loans to Freddie Mac that the company hadn’t yet purchased. The unidentified investigative reporter, in an e-mail, claimed to be in contact with a former Taylor Bean employee who made the allegations, according to the report.

The inspector general found “no standard procedures were in place to assure prompt follow-up” and the matter was never referred to law enforcement for investigation, the report said.

Broke Off
As Fannie Mae broke off its relationship with Taylor Bean in April 2002, Farkas asked Raymond Bowman, then Taylor Bean’s vice president of secondary marketing, to call a friend at Freddie Mac, which at the time was buying from 5 percent to 10 percent of the loans generated by Taylor Bean, Moore said.

In less than a week, Freddie Mac had agreed to purchase any conventional loans originated by Taylor Bean, he said. Within weeks, Bowman was promoted to president.

At Freddie Mac, the decision to boost purchases from Taylor Bean was made by David H. Stevens, then a senior vice president of mortgage sourcing, Donald Bisenius, senior vice president for credit risk management, and Tracy Hagen Mooney, a regional vice president of sales, according to a former Freddie Mac official who spoke on condition of anonymity because he didn’t have permission from his current employer to speak to the media.

Ocala Audit
Auditors and underwriters were sent to Taylor Bean’s offices in Ocala to look over the loans about a month after the Fannie Mae termination, the ex-official said.

“Freddie Mac came down, we explained what happened, and they decided to keep us,” Bowman said during the Farkas trial.

Bowman, who pleaded guilty to the fraud conspiracy and lying to investigators, was sentenced to 2 1/2 years in prison on June 10.

Farkas told Freddie Mac officials that eight bogus loans sold to Fannie Mae were the result of a clerical mistake and that the company’s termination was due to a personality clash between Farkas and Fannie Mae’s Oppenheimer, the former official said. Farkas, while testifying in his own defense at trial, said the sale of the loans was accidental.

Freddie Mac assumed that because Fannie Mae allowed Taylor Bean to sell the servicing rights, Farkas’s explanation had merit, the former official said.

Doesn’t Remember
Bisenius said in an interview he doesn’t remember Freddie Mac’s specific actions regarding Taylor Bean after the Fannie Mae termination, although he said he doesn’t recall anyone alleging fraud within the company before its collapse.

“I don’t think anyone thought that was going on,” Bisenius said.

Bisenius resigned from his last Freddie Mac job, executive vice president for single-family credit guarantee, in April, two months after receiving a so-called Wells notice from the U.S. Securities and Exchange Commission noting he may be the subject of a civil enforcement case.

Hagen Mooney, now senior vice president of single-family servicing and real estate-owned at Freddie Mac, declined to comment.

Stevens, who left Freddie Mac in 2005 for Wells Fargo & Co. and Long & Foster Real Estate, said in an interview that antitrust concerns kept Freddie Mac from asking about the Fannie Mae termination. Their review of the loans showed Taylor Bean was selling “high quality stuff,” he said.

He was named FHA commissioner in 2009 and is now the president and CEO of the Mortgage Bankers Association in Washington.

After Taylor Bean was raided by the FBI, Stevens, in an FHA press release, accused the company of “irresponsible lending practices,” saying Taylor Bean “failed to provide FHA with financial records that help us to protect the integrity of our insurance fund and our ability to continue a 75-year track record of promoting, preserving and protecting the American Dream.”

The case is U.S. v. Farkas, 10-cr-00200, U.S. District Court for the Eastern District of Virginia (Alexandria).



http://www.bloomberg.com/news/2011-...-mortgages-opened-way-to-3-billion-fraud.html

 

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http://www.bloomberg.com/news/2011-...ton-fights-to-save-rolls-royce-education.html


Yale Man at Oxford Fights 78% Funding Cut to Save ‘Rolls Royce’ Education
By Oliver Staley
Jul 6, 2011

For almost 1,000 years, the leaders of the University of Oxford sought aid in medieval courts and cathedrals. In April, Andrew Hamilton, Oxford’s vice chancellor, found a new venue: the mansion of a Silicon Valley billionaire.

Over artichoke soup and halibut at the San Francisco home of Michael Moritz, an Oxford alumnus and venture capitalist who was an early investor in Google Inc., Hamilton made the case to about 50 technology entrepreneurs that the oldest university in the English-speaking world needs their support.

As Oxford faces an estimated 78 percent, or 47 million- pound ($75 million), cut in annual government funding for teaching, Hamilton is pleading for money around the world. The former provost of Yale University, Hamilton, 58, is importing American techniques for fundraising and heads a record-setting $1.25 billion-pound capital campaign. Among his priorities is introducing the culture of lifelong alumni loyalty akin to that at U.S. institutions.

“There are twice the number of alumni of Oxford than at Yale,” Hamilton said in an interview in his office. “Our undergraduate body is twice the size of Harvard’s, twice the size of Yale’s, twice the size of Stanford’s. The potential for Oxford is enormous.”

The British-born Hamilton is a Pittsburgh Steelers fan who also taught at Princeton University and the University of Pittsburgh. He’s bringing American energy and expertise across the Atlantic while managing through a U.K. financial climate marked by the first decline in real income since 1981 and government budget cuts that threaten more than 300,000 public- sector jobs by 2015.

Harvard Hires
Since joining Oxford in October 2009, Hamilton has increased financial aid for low-income students; hired the former director of alumni relations at Harvard Business School to head a similar office at Oxford; and recruited Peter Tufano, a professor at Harvard Business School, to run Oxford’s Said Business School.

Under Hamilton, Oxford set a fundraising record in 2009- 2010, when it hauled in 240 million pounds, more than doubling the previous year’s total.

“He conforms to the spirit of American optimism,” said Mark Damazer, the master of Oxford’s St. Peter’s College. “You want someone who doesn’t look as if, every time there’s an incoming piece of artillery, he’ll be knocked over by it.”

At Yale, where he worked for 11 years starting in 1997, Hamilton overhauled the tenure process and confronted sexist behavior at a fraternity. As provost -- the chief academic officer -- of the New Haven, Connecticut-based university, he headed the integration of Yale’s West Campus, a 136-acre research park purchased in 2007 from Bayer AG, and promoted the hiring of women and minority professors.

Government Cuts
Hamilton also had a role in fundraising, which is becoming his top priority at Oxford as the British government slashes subsidies to higher education by at least 2 billion pounds by 2015 to help reduce the national deficit, according to Universities UK, which represents higher-education institutions in the country. Oxford said it will lose about 4,700 pounds per student in government funds starting in 2012. To compensate, parliament is allowing colleges in England to raise their maximum tuition to 9,000 pounds a year from 3,375 pounds.

Oxford receives 280 million pounds a year from the government for research, a sum that isn’t expected to change, said Anthony Monaco, the pro vice chancellor for planning and resources. On Aug. 1, Monaco will take over as president of Tufts University in Medford, Massachusetts.

‘Completely Daft’
To attract charitable contributions, Hamilton must also overcome a culture that has regarded higher education as a free right. U.K. college students paid nothing for tuition until 1998, when they were charged 1,000 pounds and received grants and loans for living expenses. In 2006, tuition was raised to 3,000 pounds.

“For years and years people just became used to the idea that university was paid for by the state,” said Giles Henderson, the master of Oxford’s Pembroke College. “That was broadly the position, which was completely daft, and particularly daft at Oxford.”

An Oxford education, where students are tutored by faculty in groups of two, is the product of a “Rolls Royce teaching system,” and the graduates who benefit should be expected to give back, Henderson said.

In December, thousands of students from Oxford and other universities marched in central London to protest the tuition hikes, erupting in riots that swarmed the limousine of Prince Charles and Camilla, Duchess of Cornwall.

No Confidence
Oxford’s faculty voted 283 to 5 on June 7 to pass a no- confidence resolution in the policies of Britain’s higher- education minister, David Willetts. It was the first vote about political affairs since 1985, when the faculty voted to deny Prime Minister Margaret Thatcher an honorary degree.

While Oxford was built through philanthropy -- Balliol College, for example, was founded for poor students by John de Balliol in the 13th century -- it lacks a modern tradition of alumni giving, Hamilton said.

Only about 15 percent of Oxford graduates donate to the school, he said. That compares with 47 percent at Princeton University, 44 percent at Dartmouth College, and 19 percent for Harvard, according to 2010 data compiled by the Council for Aid to Education, a New York research group.

As Oxford becomes reliant on private sources of funding, it needs to look at U.S. institutions for lessons on raising and managing money, Hamilton said. The combined endowments of Oxford and its colleges of 3.33 billion pounds in 2010 were dwarfed by those of the richest U.S. schools, and Oxford needs to catch up, he said.

Billionaire Donations
“There is much we can learn from the leading universities in the United States,” Hamilton said.

The endowment of Harvard University, in Cambridge, Massachusetts, was $27.4 billion on June 30, 2010. Yale’s was $16.7 billion.

Hamilton is spearheading the Oxford Thinking fundraising campaign, which has collected more than 1 billion pounds since its official start in 2008 on its way to a goal of 1.25 billion pounds. That includes a 75 million-pound donation in September from U.S. billionaire Len Blavatnik, chairman of New York-based Access Industries LLC, to establish a school of government.

At Moritz’s San Francisco home overlooking the Golden Gate Bridge, Hamilton piqued the interest of wealthy Americans who had no connection to Oxford, said Moritz, a partner at Sequoia Capital, based in Menlo Park, California.

“Andy captivated them,” said Moritz, who, with his wife, donated $50 million to his college, Christ Church, in 2008. “He spoke from that place between the brain and the heart and touched people’s emotions and aroused their curiosity.”

Educating the Elite
Oxford is so old that no one knows when it was founded although the first teaching in the city was recorded at about 1096. Oxford, along with the University of Cambridge, has educated England’s elite for centuries. Its alumni include 26 prime ministers, 20 archbishops of Canterbury and 12 saints. Adam Smith, William Penn, Cecil Rhodes and Rupert Murdoch all attended Oxford.

Oxford consists of 38 colleges, many dating from the 15th and 16th centuries, surrounding gardens and grassy courtyards. On sunny June days, students sprawl on the lawns, studying among blooming roses beneath gothic spires.

The idyllic scene belies unease over the university’s future.

Disparities
“There has not been a period of such turbulence in the funding of higher education in the United Kingdom than that we are passing through now,” Hamilton said. “What is happening, whether we like it or not, is that we are being transitioned from a principally publicly funded university to a principally privately funded university.”

As U.K. universities become more like American institutions, they should be aware of the disparities in the U.S. system, said Howard Hotson, a history professor at Oxford. While the best U.S. schools are excellent, the quality falls off sharply and “the value for money isn’t very good,” he said.

“I’ve noticed an unthinking admiration and emulation of the U.S., especially on the right, which is not coupled with any sustained study of how the U.S. system works” said Hotson, who writes about education for the London Review of Books.

U.K. education leaders should also question the motives behind American philanthropy, Hotson said. In many cases, U.S. donors give to improve the odds of admission for their children, he said.

“You have to ask the question if benefactors are giving purely for altruistic purposes,” Hotson said. “An awful lot of this giving is to sustain your dynasty.”

Oxford University Press
To increase the endowment, Hamilton transferred almost 200 million pounds from the reserves of the Oxford University Press, the publishing company established in 1586. The funds will generate 7 million pounds a year, half of which will go to scholarships, said Monaco, the pro vice chancellor.

The son of two teachers, Hamilton was raised in Guildford, southwest of London, and studied at the University of Exeter. He earned a masters degree at the University of British Columbia in Vancouver, Canada, and his Ph.D. at the University of Cambridge.

He applied for teaching positions in the U.S. in 1981 when the recession meant there were no openings in the U.K., and found work first at Princeton, in Princeton, New Jersey, then at Pittsburgh. In 1997, he left for Yale.

‘Natural Collaborator’
In Hamilton’s Oxford office are photographs of himself with Yale President Richard Levin, and with two fellow former Yale provosts, Susan Hockfield, now president of Massachusetts Institute of Technology, and Alison Richard, the former vice chancellor of Cambridge.

Levin, Yale’s president for 18 years, said Hamilton managed through consensus during his time there. That ability makes him well suited for the top job at Oxford, where the colleges are financially independent entities and the vice chancellor must lead through persuasion, said Levin, who attended Oxford’s Merton College from 1968 to 1970.

“Andy is a natural collaborator and, as provost, was very much someone who tried to work with faculty to try and reach agreements, instead of imposing his views,” Levin said. “The Oxford job suits both his personality and the way he operated at Yale.”

Hamilton has won praise from Oxford faculty for steering the university’s response to the government’s cuts in funding and proposed tuition increases.

Consensus Builder
“He got us discussing it very early on and that gave us a big advantage,” said Susan Cooper, a professor of experimental physics. “He understood that he needs to work with the whole of the Oxford community and bring us to a consensus.”

Students question if Hamilton and other leaders of universities could have fought the budget cuts and tuition hikes. They are particularly critical of the tuition increase and the debt of as much as 27,000 pounds incurred after three years of study, said David Barclay, president of the Oxford University Student Union.

“It’s the very real sense around the kitchen table in communities up and down the country that taking on something like that is just not viable,” said Barclay, 22, from Glasgow. “It’s a very difficult conversation for a 16-year-old, when parents say ‘We earn less than this in a year, how can you take on this level of debt?’”

Hamilton remains an active researcher and manages a group in the chemistry department that investigates how synthetic molecules interact with molecules in living cells. Hamilton’s team published 11 papers last year, he said.

After two years at Oxford, Hamilton said he is now thoroughly “Oxonian” and chortles when discussing the university’s rowing triumph over Cambridge, his former school, in March. At official university functions, he wears the traditional black robe and mortarboard and is preceded into functions by a bearer carrying a ceremonial silver mace.

“People like him and gravitate to him,” said Moritz. “And he’s not shy about asking for money.”


http://www.bloomberg.com/news/2011-...ton-fights-to-save-rolls-royce-education.html

 

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http://www.bloomberg.com/news/2011-...hips-convert-waste-heat-into-electricity.html


Phononic Devices’s Chips Convert Waste Heat into Electricity
By Karen A. Frenkel
Jun 29, 2011

In 2008, the Rockefeller Family’s Silicon Valley venture capital firm, Venrock, tapped chemist-turned- venture-capitalist Anthony Atti to evaluate promising thermoelectric research conducted by Patrick McCann, a professor of engineering at the University of Oklahoma. McCann’s technology showed the potential to use semiconductors to capture waste heat and convert it into power, as well as to displace heat to cool everything from personal computers to tractor-trailer refrigeration units.

About 55 percent of all energy consumed in the U.S. returns to the environment as wasted heat, according to energy systems analyst A.J. Simon of the Energy Dept.’s Lawrence Livermore National Laboratory. Traditional thermoelectric devices used for cooling are quiet, compact, and reliable, but efficiency has been very low since they were first commercialized more than 25 years ago. McCann’s breakthrough could make them more efficient by using new materials.

In 2009, with $1 million from Venrock and Oak Investment Partners, Atti and McCann exclusively licensed the technology from the university, launching Phononic Devices in Raleigh, N.C., with Atti as chief executive officer. Today, the 16- employee company makes thermoelectric semiconductor chips that capture waste heat and convert it into usable electric power or -- depending on the source of heat -- provide refrigeration and cooling.

Phononic Devices has received a total of $12 million in venture capital from Venrock and Oak, plus $3 million from the Energy Dept.’s Advanced Research Projects Agency Energy program. Atti expects to start selling the devices to electronics cooling-and- refrigeration customers near the end of 2012. Phononic Devices is one of just seven thermoelectric device makers specializing in energy harvesting and cooling.

Atti, a 37-year-old organic chemistry PhD, spoke recently to Bloomberg.com contributor Karen A. Frenkel about where Phononic Devices fits in the $25 billion waste-heat-recovery industry. Edited excerpts of their conversations follow.

Karen A. Frenkel: What is the origin of your company’s name?

Anthony Atti: A ‘phonon’ is a particle of heat -- a thermal sound wave that vibrates through a material. An effective thermoelectric material insulates against heat by deflecting phonons (heat) and causing the phonon to lose its thermal energy. An ineffective thermoelectric material absorbs phonons and heats up itself.

Q: What was unique about what you saw in Professor McCann’s lab that made you recognize its promise?

A: For a thermoelectric material to effectively manage heat, it must do two things really well at the fundamental physics level: It has to be electronically conductive, yet thermally insulating. Those two processes have been very difficult to decouple. McCann presented experiments to do that with semiconductors that have not been explored for this purpose so far. The icing on the cake from the investment and economic perspective was that we could manufacture the material in a high-volume, low-cost manufacturing manner at the early stage in the company’s life.

Q: Why hasn’t the thermoelectric industry already tried these other semiconductors?

A: They’ve been hiding in plain sight. They’re used for other applications like optics [and] lasers, and other areas of the semiconductor world use them successfully -- but not for thermal management.

Q: What does the material do and how is it different or better from what’s out there?

A: We demonstrated that the material decouples electronic conductivity from thermal insulation. It manipulates the direction of electrons at the nanoscale.

Q: How does decoupling help harness waste heat?

A: Our fundamental advance allows us to deliver devices that can provide cooling for refrigeration or waste heat recovery and efficiently convert it into power. It can compete head-to-head against the incumbent technology, which uses the elements bismuth and telluride.

Q: How efficient is your chip?

A: Our materials and devices are expected to more than double thermal-electric efficiency -- compared to conventional thermoelectrics -- for the interval between room temperature, which is 73F, and 248F.

Q: How is your device different from what others in the semiconductor waste-heat and cooling area are doing?

A: There is definitely competition in the electronics cooling area and also in high-temperature waste-heat recovery for automotive or power plants. There is also competition in very low-temperature waste-heat recovery -- sensors, detectors, and wearable materials for the military. There are “pure plays” at the very low temperature range or at the high end. We believe that’s because operating within that low-grade temperature sector is really hard to do. But we have the three legs: performance (the fundamental ability to decouple thermal and electronic mechanisms), cost (efficiency with which we can manage heat), and manufacturability (using existing semiconductor processing in our path to market).

Q: What’s the size of the markets you’re going after?

A: The global electronics cooling market for applications between 70F and 250F is $4.5 billion, refrigeration is $6.5 billion, and harvesting low-grade waste heat is about $3 billion. The thermoelectric-specific market -- that is, of modules made from semiconductor materials engineered for thermoelectric behavior -- is $300 million in global sales annually.

Q: Explain your business model.

A: We’ve transitioned from proof of concept to proof of chip and are now moving into device fabrication. We are packaging the material into a high-efficiency-semiconductor thermoelectric device and will sell it to end users in cooling, refrigeration, and waste-heat recovery for power. That’s the business model today, based on the low-cost, high-volume tools available.

Q: What is the market opportunity?

A: Heat is a major problem that impacts almost every segment of the economy, but not all heat is created equal. Incumbent technologies can handle heat greater than 250F, which is the power generation market, pretty well. Converting waste heat to power is done typically with heat exchanges or industrial boilers. Some turn it into power, some use it elsewhere in the plant to heat up equipment, [and] some pump it out of a smoke stack. It gets better the hotter you go. But below 250F -- low- grade heat waste -- the incumbents don’t work that efficiently. Our technology works very well between 70F and 250F. That’s how Phononic is able to compete. Technologies that serve those markets now don’t do it very well because heat in that temperature range is notoriously difficult to deal with.

Q: Why?

A: Because there is not a lot of it. Whether a compressor, heat exchanger, or thermoelectric device, your efficacy is dictated by the temperature difference you can maintain from a hot to a cold side. You need to move from hot to cold to get rid of it, whether cooling or capturing heat for power. If that temperature gradient is small because you’re operating at low temperatures, efficiency is really challenging. Our data show we’re really good at that temperature range.



http://www.bloomberg.com/news/2011-...hips-convert-waste-heat-into-electricity.html

 

[trysail]

http://www.bloomberg.com/apps/data?pid=avimage&iid=iRUVgk95j_hg

​

 

[trysail]

http://www.bloomberg.com/news/2011-...as-mencken-commentary-by-alice-schroeder.html


Schroeder: America Will Miss Munger-As-Mencken


Illustration by Jason Polan
By Alice Schroeder
Jul 15, 2011

http://www.bloomberg.com/apps/data?pid=avimage&iid=i3x5oF.c5wZs​

Charles T. Munger, vice chairman of Berkshire Hathaway, has been Warren Buffett’s sidekick since 1959. While Buffett made a name for himself as a statesmanlike critic of inept auditors, see-no-evil regulators, fee-gouging money managers and greedy CEOs, Munger gradually emerged from Buffett’s shadow to tongue-lash those same targets mercilessly.

Munger, 87, delighted in ripping open the disappointing realities of economic life to reveal them as he saw them. No one but he would say, as he did recently, that if he ran the European Union he would never have let in Greece, a country full of people who “are raising hell about having an adult life” and who feel that “having a job ruins eight hours a day.”

A man who speaks this way is going to make enemies. Buffett, 80, has made his share, but Munger has a higher tolerance than Buffett for being disliked. He has come to play a role in the business world not unlike that once played by the critic H.L. Mencken, who stabbed the puffed-up preservers of the status quo with the sharp needle of searing, unforgettable prose.

I’ve heard Munger called hypocritical, heartless and pompous. Munger describes himself as imperious, irreverent and arrogant. It’s good to have somebody like that around. The business world is better off with a Munger to point out how far it has strayed. The people who control the world’s commerce need to hear it from one of their own.

Raisins and Turds
Besides, nobody else would say a lot of the entertaining things that have come out of Charlie Munger’s mouth, such as when, in 2000, he criticized bankers who foisted worthless Internet stocks on the public by saying, “If you mix raisins and turds, they’re still turds.”

Wall Street has long been a favorite target of Munger’s, and it holds a special enmity for him. He’s called bankers megalomaniacs, bucket-shop operators and evil. Whatever the latest Wall Street money-making scheme, up rose Munger to decry it. His latest volley was to say that it’s like letting “rats loose in the granary” to allow high frequency trading in stocks, which should be considered legalized front-running.

Munger is not only a critic and Buffett’s partner, but also a lawyer, real estate investor, CEO and philanthropist. He has used his sharp tongue in service of decisive action to avert intolerable risk. One episode in the late 1980s, when the savings and loan industry was using accounting tricks to create capital out of thin air, sticks out in my mind as perhaps his finest hour.

Bailout and Backlash
The S&Ls were careening toward a crisis of widespread bankruptcies that would destroy depositor savings, require a taxpayer bailout and result in a furious public backlash. Munger, who is chairman and chief executive officer of Berkshire’s savings and loan operation, Wesco Financial, foresaw that Wesco’s better behavior wouldn’t prevent it from being tainted by association.

He not only throttled back Wesco’s lending, but also took an extreme stand to distance Wesco from the other savings and loans by resigning from the U.S. League of Savings Institutions in a letter. In it, he likened the trade association to metastasizing cancer cells and called its lobbying practices “flawed, indeed disgraceful.”

Quixotic Move
It was a quixotic move, one that only a person who was willing to be detested by an entire industry would make. The move also paid off when the S&L crisis erupted and Wesco avoided being splattered with mud. It was Munger’s actions in the S&L crisis that started Berkshire on its road to being held up as the moral exemplar of corporate America. Its reputation was later cemented when Buffett assumed the role of interim chairman of Salomon Brothers Inc. to save the company, in which Berkshire had a major investment, from bankruptcy after Salomon was caught covering up an employee’s rigging of Treasury-bond auctions.

I’ve wondered what makes a man a Munger. He isn’t trying to be a hero. Perhaps a person who feels that something innate in him means he will be disliked finds that easier to tolerate if he provokes the disapproval himself. It’s ironic, or predictable -- maybe even both -- that a man who cultivates enemies with broadsides against the comfortably selfish has won a large audience of fans, and I mean fans in the fanatical sense of the word.

Nature of Suffering
On July 1, Munger held an informal meeting to replace the annual shareholder meeting of Wesco, which had been a publicly traded subsidiary of Berkshire until it acquired the rest of Wesco’s shares earlier this year. His audience of hundreds had traveled from across the U.S. on a holiday weekend to listen to their hero.

Among many other subjects, Munger talked about the nature of suffering. I believe he did this partly to clarify a statement made last year, when his mouth got him into trouble for saying that individuals who had been hurt by the financial crisis should “suck it up, buddy.” Munger was telling the one group of people who had not been bailed out to suck it up, and I was among the many who criticized him for having a “let them eat cake” attitude.

Munger thinks of adversity as an opportunity, and said that “you should assume life will be tough, and ask yourself if you can bear it, and if so, smile and go on.” Hence, suck it up. In his personal life, Munger has sucked it up a few times, after the loss of a young son to cancer, after being blinded in one eye, after the death of his wife last year.

Darwinian View
He also said he had not used his own wealth to “avoid all misery” and deliberately took on some projects in his career that were not financially enriching and that caused him various forms of grief. Even so, under Munger’s Darwinian view of the world, he is one of the survivors who’s prospered rather well, and I would still like it better if he showed more sympathy toward the weak. But then again, if he did, he wouldn’t be Charlie Munger.

On July 1, Munger said he was giving his swan song. Get a new cult hero, he told his audience of hard-core fans. Suck it up. It’ll be good for you. That’s probably true, but I hope this isn’t the last we hear from Charlie Munger. I, for one, am going to miss him. And so will the business world, which needs people like him.



http://www.bloomberg.com/news/2011-...as-mencken-commentary-by-alice-schroeder.html

 

[trysail]

Famous Last Words...

** It's fireproof.

** He's probably just hibernating.

** What does this button do?

** It's probably just a rash.

** Are you sure the power is off?

** The odds of that happening have to be a million to one!

** Pull the pin and count to what?

** Which wire was I supposed to cut?

** I wonder where the mother bear is.

** I've seen this done on TV.

** These are the good kind of mushrooms.

** I'll hold it and you light the fuse.

** Let it down slowly.

** It's strong enough for both of us.

** This doesn't taste right.

** I can make this light before it changes.

** Nice doggie.

** I can do that with my eyes closed.

** I've done this before.

** What duck?

** Well, we've made it this far.

** That's odd.

** Don't be so superstitious.

** Now watch this.


http://www.cartalk.com/content/read-on/2001/07.14-2.html

 

[trysail]

"Science," said the physicist Richard Feynman, "is the belief in the ignorance of experts."

http://media.npr.org/assets/img/2011/07/26/pg202_feynman-1_custom.jpg?t=1311704307&s=3


http://media.npr.org/assets/img/2011/07/26/pg202_feynman-3_custom.jpg?t=1311704603&s=3


http://media.npr.org/assets/img/2011/07/26/pg1_feynman-1.jpg?t=1311700447&s=3


http://media.npr.org/assets/img/2011/07/26/pg2_feynman-1_custom.jpg?t=1311700677&s=3


http://media.npr.org/assets/img/2011/07/26/pg3_feynman-1_custom.jpg?t=1311774023&s=3




​

http://www.npr.org/blogs/krulwich/2...mmentKey:6329b65a-31b6-413e-9003-e143bd237db4

"Science," said the physicist Richard Feynman, "is the belief in the ignorance of experts."

Feynman

 

[trysail]

http://www.bloomberg.com/news/2011-...s-wealthy-duck-estate-gift-taxes-forever.html


Dynasty Trusts Let Wealthy Families Duck U.S. Estate, Gift Taxes Forever
By Elizabeth Ody - Jul 28, 2011

Jeffrey Thomasson, 52, may pass on more than $100 million to heirs using an estate-planning strategy for avoiding gift and estate taxes.

Thomasson, who lives in Indianapolis, said he’s funding a so-called dynasty trust set up in Delaware with $8 million of equity from the expanding financial advisory business he owns, Oxford Financial Group. Putting the assets in a trust, which he figures could be worth more than $100 million by the time he dies, means the money should go to his heirs without triggering federal gift, estate or generation-skipping transfer taxes.

“Why would I want to pay estate taxes on some really, really big number 30 years from now, if the IRS is giving me this opportunity?” Thomasson said.

A dynasty trust is used to pass money on to multiple generations of descendants while paying as little in taxes as possible. The trusts have no expiration date and there are no required minimum distributions, meaning their assets may grow for an unlimited number of future generations. While the trusts can be set up in many states, Delaware offers extra breaks, including stronger protection from creditors and exclusion of assets in divorce proceedings.

“It’s an astoundingly powerful vehicle for generating long-term family wealth,” said Neal Howard, chief fiduciary counsel for Philadelphia-based Glenmede, which manages more than $20 billion on behalf of individuals and families with $3 million or more in assets.

Gift Limits
Interest in the trusts has risen because of the higher individual lifetime gift- and estate-tax exemptions of $5 million available this year and next, which means clients can put more tax-free money into the trusts, said Carol Kroch, head of wealth and financial planning for Wilmington Trust Co., a unit of Buffalo, New York-based M&T Bank Corp. (MTB)

That limit will drop in 2013 to $1 million and the top federal tax rate on gifts and estates will rise to 55 percent from 35 percent, unless Congress acts. Gifts that skip a generation, such as from a grandparent to a grandchild, follow similar rules.

Northern Trust Corp. (NTRS), based in Chicago, has set up several dozen Delaware dynasty trusts on behalf of clients in 2011, compared with almost none in 2010, said Daniel Lindley, president of the Northern Trust Company of Delaware, who declined to provide more specific figures.

Protection in Divorce
Delaware is one of several states, along with New Jersey and Pennsylvania, that allow so-called perpetuities, or trusts that may never expire, Lindley said. It’s also an appealing state because it’s easier to modify existing trusts there, said James Bertles, managing director of New York-based Tiedemann Wealth Management, which oversees more than $6 billion on behalf of families with $20 million or more. Delaware allows trusts greater flexibility to invest in certain assets, such as hedge funds and private equity, he said.

The state also offers stronger protections from creditors and civil litigation, including divorce proceedings, said Ted Cronin, chief executive officer of Manchester, Vermont-based Manchester Capital Management, which directs $1.9 billion and provides tax- and estate-planning services for families with $25 million or more in assets.

“In effect, it acts as a prenup,” Cronin said.

Most Delaware trusts set up by out-of-state residents don’t owe state income or capital-gains taxes on accumulations within the trust, and pay these taxes only when distributions are made, Bertles said. Some states do tax the undistributed gains and income of dynasty trusts set up by residents, including Pennsylvania and Illinois, according to Glenmede’s Howard. The trusts owe federal income and capital-gains taxes on distributed and undistributed investment gains and income.

$100 Million Gift
Dynasty trusts have gained popularity since 1986 when Congress overhauled the generation-skipping transfer tax and since then several states, including Delaware, have eliminated their rules against perpetuities. In New York, by comparison, trusts may last no longer than the lifetimes of people currently alive, plus 21 years, said Bertles, who’s based in Palm Beach, Florida. Connecticut allows for the greater of 90 years or current lives plus 21 years.

Thomasson said his Carmel, Indiana-based business, which provides investment-management and financial-planning services to families with $5 million or more, has been growing at a double-digit pace in recent years. Assuming that continues, and assuming he lives until 80, his trust could provide more than $100 million for heirs by the time he dies, when the shares would be redeemed.

“With the whimsical nature of the minds we have in Washington D.C., whenever you get an opportunity to do something from a tax standpoint, you really need to consider taking advantage of it,” Thomasson said.

Potential Growth
A dynasty trust funded with $10 million from a couple today could be worth as much as $184 million in 50 years, assuming no intergenerational transfer taxes and a 6 percent annual return, and before subtracting any federal income or capital-gains taxes paid on the trust’s investment returns. By comparison, assets not placed in a trust and taxed twice as an estate in that period could be worth $39 million at the end of 50 years, assuming a $1 million exemption and 55 percent top rate.

The Standard & Poor’s 500 Index returned 9.6 percent annually over the 50 years through December, with dividends reinvested. A $10 million investment in the index over that period could be worth about $975 million before taxes.

Costs to set up a dynasty trust may range from about $3,000 to more than $30,000, depending on the complexity and attorney’s fees, said Adam von Poblitz, head of estate planning at New York-based Citigroup Inc. (C)’s private bank.

Boosting Gifts
While there’s no minimum for setting up a dynasty trust, clients with about $20 million or more in assets have expressed the most interest in taking advantage of the full $5 million exemption, said Joan Crain, a family wealth strategist in Fort Lauderdale, Florida, for Bank of New York Mellon Corp. (BK)

Some clients increase their gift to the trusts by using the initial contribution to take out a loan, Bertles said. An individual can gift a trust $5 million, for example, then sell the trust $50 million in assets, using the initial $5 million as a down payment. The trust would issue a promissory note to the individual for the remaining $45 million.

The notes are treated as intra-family loans and must follow U.S. Internal Revenue Service rules on repayment and interest rates. As of July, the rates were 2 percent for loans of three to nine years. Any appreciation of the purchased assets above that interest rate pass on to the trust without triggering the gift tax, Bertles said.

Family Businesses
One client used this strategy to transfer partial ownership of the family’s growing winery business to his children, Lindley of Northern Trust said. The client funded a trust with $4 million, which it used to purchase a $40 million share of the business, he said.

The strategy is appealing for families with a closely held business because they may be able to sell a portion to the trust at a discount of as much as 40 percent, said Laura Zeigler, a Los Angeles-based senior vice president for Bessemer Trust Co., which provides investment-management and financial-planning services for families with $10 million or more in assets. That’s because the stakes might be difficult to sell on the open market.

The trusts are irrevocable, meaning the person starting the trust has minimal control over the assets once it’s set up, and generally may change the trust only by going to court or getting approval from all beneficiaries, said BNY Mellon’s Crain.

“The word ‘irrevocable’ doesn’t always resonate until they suddenly want the money,” she said.

Access to Funds
Individuals who feel hesitant to give such a large sum away permanently can choose to structure a dynasty trust as an asset- protection trust, in which case they can name themselves as beneficiaries in order to take withdrawals under certain circumstances at the trustee’s discretion, said Northern Trust’s Lindley.

“If it turns out they’re in dire need of financial resources they can turn to us and request a distribution,” Lindley said. If they never need it, the trust’s assets will pass on to heirs as planned.


http://www.bloomberg.com/news/2011-...s-wealthy-duck-estate-gift-taxes-forever.html

 

[trysail]

All that education, all that blood and sweat and tears and toil— and what is it that they want? They want me to be a screamer, a noisemaker, and a liar— just shut up and read the script.







I. HONOR
Never lie, steal or cheat and
do not tolerate those who
do. Set a good example and
encourage others to follow you. Do your
part to make this a community of
honor.

II. INTEGRITY
Be the same person at all
times and adhere to your
values regardless of the
situation. Always be someone of whom
you are proud.

III. RESPECT
Always be a gentleman and
treat others with kindness
and civility. Remember that
words can be uplifting and healing or
very hurtful. Act with empathy.

IV. HUMILITY
Never brag about or call
attention to your successes;
rather, make an effort to
point out the success of others.

V. EXCELLENCE
Strive for excellence in all
that you do - academics, arts,
athletics and character. Do
not settle for less than your best effort.




Schmick
Greyhound

http://www.npr.org/2012/06/04/154287476/honest-truth-about-why-we-lie-cheat-and-steal

 

[trysail]

http://www.bloomberg.com/news/2011-...-drive-away-tourists-from-french-beaches.html


Brittany’s ‘Green Tides’ Drive Away French Tourists After Wild Boar Deaths

By Gregory Viscusi
Aug 3, 2011

http://www.bloomberg.com/apps/data?pid=avimage&iid=i7sjnSp9QdVE
Damien Meyer/AFP/Getty Images

A dead wild boar lies in a cove in the bay of Saint-Brieuc in the Morieux commune.

​

The Chateau du Val hotel off France’s Brittany coast should be full this time of year. Instead, barely half of its 52 rooms and 28 rental properties are occupied.

Tourists are staying away after French newspapers and television stations splashed photos of the nearby beach covered in rotting seaweed, fumes from which are blamed for the deaths of 36 wild boars in July.

“This affair is going to cost us a fortune,” said Joseph Herve, the 79-year-old owner of the three-star property just outside Morieux, on Brittany’s northern coast. “The economy was already difficult enough and now we have this. Overnight, almost all my German clients canceled.”

Beaches covered in the green algae are becoming an annual occurrence in Brittany, France’s westernmost region. The issue pits the region’s 3.6 billion-euro ($5.1 billion) tourism industry against its 8.2 billion-euro farming sector, whose large quantities of animal waste and use of fertilizers are blamed by scientists for feeding the so-called green tides that form in Brittany’s shallow bays.

French President Nicolas Sarkozy visited the Finistere region of Brittany on July 7, and said “it would be absurd to solely blame farmers, who have made enormous efforts.” He called the accusations “environmental fundamentalism.”

The algae infestation became a national issue in 2009 when a horse died and its owner fell unconscious after breathing fumes at a beach about 80 kilometers (50 miles) west of Morieux. The wild boar deaths have once again drawn attention to the problem.

Media Blamed
The first tests on six wild boars found July 24 showed that five had hydrogen sulphide gas in their lungs. The sixth didn’t, preventing the testers from concluding they’d been killed from breathing fumes from rotting seaweed. Test results on the remaining boars haven’t been released yet.

The region’s farmers and tourism professionals are angered by what they say are media reports exaggerating the problem.

“It’s a complex issue, and to have televisions stations showing archive images and jumping to conclusions about what killed the boars has created a real mess,” said Jean-Pierre Briens, the mayor of Morieux, standing in front of a fence blocking access to the town’s beach. At low tide the beach was mostly clear of algae, partly because it’s cleared every day.

The Sun, England’s most-read newspaper, published an article on July 28 warning British travelers about the risks of Brittany’s beaches. Philippe Pignard, who owns a hotel with a panoramic view of the beach where the horse died, says he now chases television crews away.

Tourist Cancelations
Tourist cancelations have so far been limited to affected areas, said Michael Dodds, head of the Brittany Tourist Board.

“We have 541 beaches in Brittany and one is closed,” Dodds said. “We could have been facing a catastrophe, but so far we’ve seen few effects. Most of Brittany isn’t affected.”

One reason more beaches aren’t closed is that after the much-publicized 2009 death of the horse, local governments increased seaweed collection. At low tide, tractors scoop up the Ulva Armoricana, better known as sea lettuce, which is taken to an incinerator at Launay-Lantic where it’s turned into compost.

The amount of seaweed collected rose to 61,000 metric cubes in 2010, at a cost of 850,000 euros, from 27,000 cubic meters and 345,000 euros in 2007, according to a May report for the Brittany regional government. So far this year, 32,000 metric cubes have been collected.

Seaweed is safe, if unappealing to swimmers, when fresh. It’s after it rots in the sun that gases such as hydrogen sulphide and ammonia form under the crust.

Agricultural Model
The first green tides appeared in early 1970s, growing larger in the 1980s and 1990s.

Scientists are “in unanimous agreement on the role of nitrates as the only nutritive element controlling the proliferation of green algae in Brittany,” said the report from the regional government. “The nitrates present in Breton basins arrive mostly as runoff from agricultural land.”

Similar conclusions have been reached by scientists in other afflicted areas such as the Adriatic coast of northern Italy and Qingdao region in China.

Brittany produces half of France’s pigs, about 35 percent of its chickens, and about 20 percent of its milk. Its farm and food output, about 10 percent of its economy, puts Brittany at the top of France’s 22 regions, the local government says.

“The whole model of Breton agriculture is in question,” said Jean-Paul Guyomac’h, a former university professor and member of the regional council who works with environmental group Eau et Rivieres, or Water and Rivers. “There’s no way to manage all this excrement in one small region. There are too many animals for the ground to absorb.”

Lasting Solution
The tourism industry, meanwhile lures 9 million visitors, 700,000 of whom come from Britain, Dodds estimates.

“We are paying the price of 30 years of intensive agriculture,” Dodds said. “It’s hard to change something that was encouraged by the state, and that helped turn what was a poor region into an agricultural powerhouse.”

Danielle Even, a spokesman for the CAP Bretagne farmers’ association, said pig farmers are increasingly treating slurry on site, and grain growers are using cover crops to cut back on their use of fertilizer. Areas along rivers have been left fallow. The amount of nitrates flowing in Brittany’s seas fell to 70,000 tons in 2009 from 120,000 tons at the start of the decade, Brittany’s environmental watchdog says.

That’s still well above the amount needed for seaweed to flourish in Brittany’s shallow bays with France’s increasingly warm springs, says Guyomac’h, the environmentalist.

“We’ve been hearing for 10 years about the efforts being made by farmers, but their herds keep getting bigger,” said Rene Ropartz, the mayor of St. Michel-en-Greve. “I hope that for our children we’ll finally find a lasting solution to get us out of this nightmare.”


http://www.bloomberg.com/news/2011-...-drive-away-tourists-from-french-beaches.html

 

[trysail]

It is a goddamn miracle they found the five folks who were floating around in 15-foot swells. Color me amazed. These folks are extremely lucky to be alive.

I know a couple of fellows who were aboard various boats in the 1979 Fastnet Race.




Original article: http://www.bloomberg.com/news/2011-...ued-after-yacht-capsizes-in-fastnet-race.html

http://fastnet.rorc.org/downloads/images/2011-news/2011-rfr-rambler-100-capsized-near-fastnet-rock-cb.jpg​

Video: http://fastnet.rorc.org/news-2011/race-updates-2011/video-rambler-100-and-monohull-record.html

http://fastnet.rorc.org/



Ex-United Technologies Chairman David Rescued After Yacht Capsizes in Race
By Aaron Kuriloff
Aug 16, 2011

Former United Technologies Corp. (UTX) Chairman George David and 20 others were pulled from the Celtic Sea after the 100-foot, record-breaking yacht Rambler 100 lost its keel and capsized during the Fastnet Race.

A dive boat searching in 15-foot (5-meter) swells found David, 69, Rambler’s skipper, and four other members of the crew tethered together off the southwest tip of Ireland yesterday, according to Rachel Jaspersen, marketing director for the yachtmaker Gunboat, who was on the rescue boat.

Jaspersen said in a telephone interview that her boat went to the scene after Coast Guard officials asked local traffic to assist in searching for five people washed away from the yacht, which was racing from the Isle of Wight in England, around Fastnet Rock off the southwest Irish coast and back to Plymouth, England.

The other 16 members of the crew scaled the overturned hull and were rescued by a lifeboat from Baltimore, Ireland, race organizers said in a news release. David and four others spent 2 1/2 hours in the water, according to the release.

Jaspersen said her boat’s crew was taking photographs near Fastnet Rock when they heard the distress calls. She said the weather was “pouring rain, quite dark, very low visibility and a huge swell.”

Jaspersen and others on her boat found sailbags and other debris from Rambler as they searched for about 45 minutes before spotting the five looking “like one little red blob.”

“George insisted on coming onboard last,” she said.

Hypothermia Treated
One crewmember, Wendy Touton, was airlifted for treatment of hypothermia, according to the race website. The rest of the crew was reunited at Baltimore Harbor.

Rambler 100 capsized after rounding Fastnet Rock at 5:25 p.m. Dublin time yesterday, while leading the monohull fleet. Mick Harvey, project manager for the boat, said in the release that he was below with navigator Peter Isler, a two-time America’s Cup winner, when they heard the keel break off. The boat capsized immediately.

Rambler 100 was built by Alex Jackson, co-founder of the London hedge fund Polygon Investment Partners LLP. Last month, the boat set the record for fastest crossing of the Atlantic Ocean during a yacht race, covering 2,975 nautical miles between Newport, R.I. and Cornwall, England in 6 days, 22 hours, 8 minutes, 2 seconds.

Driving Train
David, in an interview last month, compared sailing Rambler to driving a train in terms of size and power. He said the crew had doubled the strength of the underwater daggerboards, which are foils near the keel, after breaking three during previous voyages.

“When the first daggerboard breaks someone says ‘you hit something,’” he said at the time. “After it was all said and done, we decided the daggerboards were under spec and so we built them again, same geometry, but with twice the material.”

David didn’t discuss the boat’s 18-foot keel, which helps it stay upright by canting as much as 45 degrees off center, in the interview.

The 600-mile Fastnet race has claimed lives and boats in the past. A Force 10 gale struck the fleet of about 300 yachts in 1979 with winds of 60 nautical miles an hour (70 miles an hour), causing 40-foot waves, according to John Rousmaniere’s history of the disaster, “Fastnet, Force 10.” Fifteen people died, five yachts sank and rescuers saved 136 sailors from the water. Only 85 boats finished.


http://www.bloomberg.com/news/2011-...ued-after-yacht-capsizes-in-fastnet-race.html

At midnight, Monday 15 August, Eddie Warden Owen, Chief Executive of the Royal Ocean Racing Club received a call from Mick Harvey, Project Manager of George David's Rambler 100 (USA). Harvey spoke about the harrowing incident when the 100' Maxi Rambler 100 capsized in the Celtic Sea during the Rolex Fastnet Race.

The incident happened just after Rambler 100 rounded the Fastnet Rock at 17:25 BST. At the time, Rambler 100 were leading the monohull fleet and vying for monohull line honours in the Rolex Fastnet Race which started on Sunday 14th.

Mick Harvey's account of the incident was charged with emotion. The tough Australian, who now lives in Newport, Rhode Island (USA), is a seasoned veteran, but he was understandably shaken by the incident:

"Soon after rounding the Fastnet Rock, the wind went southwest, right on the nose. We were beating into big seas, launching Rambler off the top of full size waves. I was down below with navigator, Peter Isler when we heard the sickening sound of the keel breaking off. It was instantaneous; there was no time to react. The boat turned turtle, just like a dinghy capsizing. Peter Isler issued a Mayday and we got out of there as quickly as we could."

The EPIRB had been activated and a number of crew climbed over the guardrails and onto the hull as the boat capsized and helped those swimming to safety. The Atlantic swell made it difficult for the crew to get out of the water however, working together, 16 of the crew managed to scale the upturned hull.

Five of the crew were swept away by the waves out of reach of the stricken Maxi and these included Skipper, George David and partner Wendy Touton who were in the water for two and a half hours. This group linked arms, forming a circle. Valencia Coastguard diverted a local fishing boat, Wave Chieftain to assist, which winched the crew on board. Earlier a helicopter had been scrambled from Shannon Airport helicopter, Wendy Touton was airlifted for medical attention due to the effects of hypothermia and the four remaining crew were taken to Baltimore Harbour where they were re-united with the 16 crew rescued by the Baltimore Lifeboat.

"It was a scary moment. One that I will never forget," admitted Mick Harvey. "I can't begin to tell you how relieved I am that all of the crew are safe. The town of Baltimore has given us a wonderful welcome. I can not thank our rescuers and the people of this lovely village enough. Wendy is in Kerry Hospital and doing fine, I am just so relieved that everybody is okay."