Posts Tagged ‘President Barack Obama’

Federal Reserve Asks for Comments Before Implementing the Volcker Rule

Monday, October 24th, 2011

Federal regulators have requested public comment on the Volcker Rule – the Dodd-Frank Act restrictions that would ban American banks from making short-term trades of financial instruments for their own accounts and prevent them from owning or sponsoring hedge funds and private-equity funds.  The Volcker rule, released by the Federal Reserve, the Federal Deposit Insurance Corporation (FDIC) and Office of the Comptroller of the Currency, is intended to head off the risk-taking that caused the 2008 financial crisis.  The rule, which is little changed from drafts that have been leaked recently, would ban banks from taking positions held for 60 days or less, exempt certain market-making activities, change the way traders involved in market-making are compensated and assure that senior bank executives are responsible for compliance.

Analysts say the proposed rule could slash revenue and cut market liquidity in the name of limiting risk.  Banks such as JPMorgan Chase & Co. and Goldman Sachs Group Inc., have already been winding down their proprietary trading desks in anticipation of the Volcker Rule kicking in.  Banks’ fixed-income desks could see their revenues decline as much as 25 percent under provisions included in a draft, brokerage analyst Brad Hintz said.  Moody’s Investors Service said the rule would be “credit negative” for bondholders of Bank of America Corporation, Citigroup, Inc., Goldman Sachs, JPMorgan and Morgan Stanley, “all of which have substantial market-making operations.”  The rule, named for former Federal Reserve Chairman Paul Volcker, was included in the 2010 Dodd-Frank Act with the intention of reining in risky trading by firms whose customer deposits are insured by the federal government.

John Walsh, a FDIC board member and head of the Office of the Comptroller of the Currency, said that he was “delighted” that regulators had reached an agreement on the proposed rule, “given the controversy that has surrounded this provision — how it addressed root causes of the financial crisis.”  “I expect the agencies will move in a careful and deliberative manner in the development of this important rule, and I look forward to the extensive public comments that I’m sure will follow,” Martin J. Gruenberg, the FDIC’s acting chairman, said.  The rule will be open for public comment until January.

Not surprisingly, Wall Street opposes the rule, saying it will cut profits and limit liquidity at a difficult time for the banking industry.  Moody’s echoed those concerns, saying the current version of the Volcker rule would “diminish the flexibility and profitability of banks’ valuable market-making operations and place them at a competitive disadvantage to firms not constrained by the rule.”  Some Democratic lawmakers and consumer advocates are pushing to close loopholes in the rules, especially the broad exemption for hedging.  Supporters of the Volcker rule take issue with a plan to excuse hedging tied to “anticipatory” risk, rather than clear-and-present problems.  “Unfortunately, this initial proposal does not deliver on the promise of the Volcker Rule or the requirements of the statute,” said Marcus Stanley, policy director of Americans for Financial Reform, an advocacy group.  Additionally, the Securities Industry and Financial Markets Association raised concerns about whether the exemption for trades intended to make markets for customers is too narrow.

According to Moody’s, the large financial firms all have “substantial market-making operations,” which the Volcker Rule will target.  The regulations also will recreate compensation guidelines so pay doesn’t encourage big risk-taking.  Derivatives lawyer Sherri Venokur said restrictions on compensation are “intended to create a sea change in the mindsets of those who create the culture of our banking institutions — to value ‘safety and soundness’ as well as profitability.”

Equity analysts at Bernstein say that the Volcker Rule — if implemented in its current form – will slash Wall Street brokers’ revenues by 25 percent, and cut pre-tax margin of their fixed income trading businesses by 33 percent.  According to Bernstein, the Volcker Rule’s potential limitations are a surprise because it appears to prohibit flow trading in “nonexempt portions” of the bond-trading business.  Bernstein says inventory levels – and, in all probability, risk taking – must be based on client demands and not on “expectation of future price appreciation.”

A Bloomberg.com editorial offers support to the Volcker Rule, while admitting it won’t be perfect.  According to the editorial, “This week, the first of several regulatory agencies will consider a measure aimed at ending the practice.  Known as the Volcker rule, after Paul Volcker, the former Federal Reserve chairman, the measure would curb federally insured banks’ ability to make speculative bets on securities, derivatives or other financial instruments for their own profit — the kind of ‘proprietary’ trading that can lead to catastrophic losses.  Whatever form it takes will be far from perfect.  It will also be better than the status quo.  The bank bailouts of 2008, and the public outrage over traders’ and executives’ bonuses, laid bare a fundamental problem in big institutions such as Bank of America Corporation, Citigroup Inc. and JPMorgan Chase & Co.

“They attempt to combine two very different kinds of financial professionals: those who process payments, collect peoples’ deposits and make loans, and those who specialize in making big, risky bets with other peoples’ money.  When these big banks run into trouble, government officials face a dilemma. They want — and in some ways are obligated — to save the part of the bank that does the processing and lending, because those elements are crucial to the normal functioning of the economy.  But in doing so, they also end up bailing out the gamblers, a necessity that erodes public support for bailouts and stirs enmity for banks.  Separating the bankers from the gamblers is no easy task. Commercial banks’ explicit federal backing — including deposit insurance and access to emergency funds from the Federal Reserve — is attractive to proprietary traders, who can use a commercial bank’s access to cheap money to boost profits.  Bank executives like to employ traders because they generate juicy returns in good times that drive up the share price and justify large bonuses. In effect, both traders and managers are reaping the benefits of a government subsidy on financial speculation.  The Volcker rule will not — and probably cannot — fully dissolve the union of bankers and gamblers.”

Visionary Apple CEO Steve Jobs Dies at Age 56

Monday, October 10th, 2011

Apple’s  iconic co-founder and CEO Steve Jobs, who altered the habits of millions by reinventing computing, music and mobile phones, has died at the age of 56.  With Jobs’ passing, Apple has lost a visionary leader who inspired personal computing and products such as the iPod, iPhone and iPad.  These innovations made Jobs one of his generation’s most significant industry leaders.  His death, following a long fight with a rare form of pancreatic cancer and a liver transplant, set off an outpouring of tributes as world leaders, business rivals and customers mourned his early death and celebrated his historic achievements.

“The world has lost a visionary.  And there may be no greater tribute to Steve’s success than the fact that much of the world learned of his passing on a device he invented,” said President Barack Obama.  Even Bill Gates, his rival at Microsoft, joined in the laments.  “For those of us lucky enough to get to work with him, it’s been an insanely great honor,” Gates said.

With a passion for minimalist design and a genius for marketing, Jobs laid the groundwork for Apple to flourish after his death, according to analysts and investors.  A college drop-out, Jobs altered technology in the late 1970s, when the Apple II became the first personal computer to gain a wide following.  He repeated his early success in 1984 with the Macintosh, which built on the breakthrough technologies developed partially at Xerox Parc to create the personal computing experience. 

“Steve’s brilliance, passion and energy were the source of countless innovations that enrich and improve all of our lives. The world is immeasurably better because of Steve,” Apple said.  “His greatest love was for his wife, Laurene, and his family.  Our hearts go out to them and to all who were touched by his extraordinary gifts.” 

According to Apple co-founder Steve Wozniak, “We’ve lost something we won’t get back,” he said.  “The way I see it, though, the way people love products he put so much into creating means he brought a lot of life to the world.”  Wozniak said that Jobs told him around the time he left Apple in 1985 that he had a feeling he would not live beyond the age of 40.  Because of that, “a lot of his life was focused on trying to get things done quickly,” Wozniak said.  “I think what made Apple products special was very much one person, but he left a legacy,” he said.  Wozniak hopes the company can continue to succeed despite Jobs’ death.

Computerworld raises the question “Where will that excitement come from now?”  When Jobs stepped down as CEO in August, industry analysts said that Apple, with a team of talented, creative employees, will be able to continue his tradition for ingenuity, if not all of his passion, perfectionism and energy.  “Steve’s excitement for technology will still come from Apple and from the team that Jobs carefully built that worked with him to give us the iPhone and iPad and many other successful products,” said Carolina Milanesi, a Gartner analyst.

“Jobs didn’t just change mobile phones — he reinvented them,” said Ken Dulaney, an analyst at Gartner.  “That was typical Steve.”  In another example, the iPad took user-centric values inherent in the touch-screen iPhone and larger-screen laptops, and found a useful compromise — a classic expression of Jobs’ ability to combine technological concepts, art and ideas and deliver a product that was termed “magical,” according to analysts.  “Apple, under Jobs’ leadership, focused on the user experience first and the technology second,” said Jack Gold, an analyst at J. Gold Associates.  “This focus was groundbreaking in that most tech companies were just the opposite.  Apple pioneered hiring many usability specialists, human factor engineers and designers before it was fashionable to do so.  Jobs’ vision of technology was to make a smooth intersection into our lives and our work, and that was what put Apple ahead of the pack.  He redirected engineering from technical engineering to engineering for usability.”

One question that has industry analysts abuzz is whether Apple will be able to maintain its dominant position now that Jobs is gone. Jobs’ passing and the industry’s mixed response to the recent iPhone 4S model create challenges for Apple in coming quarters,” said Neil Mawston, an analyst with Strategy Analytics.  “Industry eyes will inevitably turn to the iPad 3 launch next year to see whether Apple can continue the company’s impressive legacy of innovation created by Steve Jobs,” he said.  In a sign of deepening competition, Amazon.com recently unveiled its Kindle Fire tablet at an affordable $199 that could pose a serious threat to the iPad.  “Apple is facing a competitive firestorm from not just one company but a coalition of rivals that are trying to beat it, including some of the largest consumer electronics companies on the planet,” said Ben Wood, head of research at British mobile consultancy CCS Insight.

Writing in the Washington Post,  Melissa Bell believes that one of Jobs’ longest-standing legacy will be the recognition that his illness and death are bringing to pancreatic cancer.  According to Bell, “Steve Jobs knew the art of keeping your cards close to your chest.  Though  leaks did spring from the closely guarded Apple world, Jobs was a master at unveiling his secrets only when the time was right for him.  As with his business ventures, so it was with his cancer.  Jobs ‘kept his illness behind a firewall,’ the Associated Press reported.  Apple released no more of a statement than that they lost a ‘visionary and creative genius, and the world … lost an amazing human being.’  It was not known whether Jobs died from the rare form of pancreatic cancer that plagued him for seven years, or from complications from a liver transplant two years ago.  Despite the lack of details, Jobs’ role as the very public face of Apple put his illness on display along with his products.”

S&P Downgrade Costs Investors $1 Trillion

Wednesday, September 14th, 2011

Shareholders in American companies can blame Standard & Poor’s  for taking $1 trillion of their money after the rating firm downgraded Treasury securities for the first time in American history to AA+ from AAA.  Now, some of the most experienced investors say the stock market losses make no sense.  While the benchmark index for U.S. equities fell as much as 6.7 percent — or $1.03 trillion — since the downgrade, 10-year Treasuries rallied the most in more than two years and the government financed its quarterly debt obligations at the lowest interest rates ever.  Treasuries have returned two percent since the downgrade. 

“One of the most perverse things I’ve seen in 25 years of doing this is that S&P downgrades the United States government, and investors’ reaction is to run towards the securities that they downgrade, selling businesses without asking at what price,” said Kevin Rendino, a money manager at BlackRock Inc., which oversees $3.65 trillion.  “Equity prices have swung too far.” 

The downgrade, which diverged from Moody’s Investors Service and Fitch Ratings, turned investors’ focus from the 10th consecutive quarter in which S&P 500 companies topped analyst earnings forecasts.  Per-share profits had climbed 18 percent among companies in the index, with 76 percent topping the average analyst projection, according to data compiled by Bloomberg.  Sales grew by 13 percent. 

“It did a lot of damage to confidence, which had been shaky anyway,” Liz Ann Sonders, New York-based chief investment strategist at Charles Schwab, said.  “We had started to get a sense of a little bit of a lift for the economy in the second half of the year, and you just kind of wiped it out because of the lack of confidence in our political leaders. S&P reflected that with the downgrade, but what it ended up causing was a real confidence crisis, more than an economic crisis.” 

Additionally, the Chicago Board Options Exchange volatility index jumped 50 per cent to 48, the highest level in 29 months and the biggest jump in more than four years, the first trading day after the downgrade was announced. 

“We’re starting to see real disorderly selling, far more than what we’ve been seeing,” said Matthew Peron, head of active equities at the Chicago-based Northern Trust, which manages approximately $650 billion in assets.  At Jersey City-based Knight Capital, senior equity trader Joseph Mazzella said that “It’s scary.  It really is.  I hate it when the market closes below its low, as it sets the stocks up for a follow-through tomorrow.” 

President Barack Obama said that he blames political gridlock in Washington, D.C., for the downgrade.  He announced plans to offer recommendations on ways to cut the federal deficit.  Agreeing with the president is William Suplee, a financial manager with Structured Asset Management in Paoli, PA.  “Almost universally my clients are blaming this on ‘The Government’, this lack of confidence – and that is what it is.  This sell-off is uniformly blamed by my clients on the government’s inability to act rationally. 

According to Genna R. Miller, Ph.D., Visiting Instructor, Economics Department, Duke University, “In terms of the CPA profession, there may have been some fear that the negative outlook on U.S. sovereign debt, as well as possible increases in interest rates, may have caused a further downturn in the economy.  Such a downturn in the economy may have been expected to reduce the demand for accounting services, as clients’ incomes declined.  However, as there have only, at this point in time, been minimal impacts on the economy and the accounting profession, this does not appear to be the case.  It may be the case that the income elasticity of demand for accounting services may actually be quite inelastic.  The income elasticity of demand tells us the percentage change in quantity demanded for accounting services divided by the percentage change in clients’ incomes.  Thus, if there is a relatively inelastic income elasticity of demand, then clients who have had accounting services in the past may continue to do so, despite any declines in their own income.  On the flip side, some financial planners may have experienced an increase in business as some clients may have needed to re-assess portfolio values from a tax perspective or may have needed to comply with disclosure policies with respect to increased risk.”

Mark Vitner, Managing Director & Senior Economist, Wells Fargo Securities, LLC, offers this perspective.  “I think most firms understand that the downgrade does not affect many private businesses.  The downgrade and the problems with the federal budget deficit that precipitated it are primarily a problem for state and local governments and government contractors.  Businesses and governments that receive a large part of their funding from the federal government will be most impacted by the downgrade and renewed emphasis on deficit reduction.”

Rick Mattoon of the Fed believes the downgrade will affect mostly the secondary markets like municipals funds.  Listen to his podcast here.

Fitch Ratings Reaffirms U.S. Creditworthiness as AAA

Thursday, September 1st, 2011

Former Federal Reserve chairman Alan Greenspan says that Italy is the root of most of Europe’s economic problems, as well as our own.  In a recent appearance on “Meet the Press”, “It depends on Europe, not the United States,” Greenspan said. “The United States was actually doing relatively well, sluggish but going forward until Italy ran into trouble.”  According to Greenspan, 50 percent of American corporations have offices in Europe, and the continent “has been a very important driving force in the overall earnings of U.S. corporations.”  Greenspan also noted that S&P’s downgrade “hit a nerve”.  The ratings agency said it was reducing the AAA rating to AA+ not only because of the country’s debt load, but because it doesn’t believe that Congress can resolve the country’s debt problems.  Mark Zandi, chief economist at Moody’s Analytics, agrees, noting that “There’s a lot of fear and misunderstanding and confusion, and that all could come out in the stock and bond markets.  I don’t think it takes much to unnerve investors given the current environment.  I think anything could drive investors to sell given how fragile sentiment is.”

At the same time, Greenspan downplayed the risk of a double-dip recession in the United States, noting that the economy is in better shape than its European peers.  With all of this bickering going on, the economy is slowing down,” Greenspan said.  “You can see it in all the data.  I don’t see a double-dip, but I do see it slowing down.”  Europe, which purchases 25 percent of American exports and is home to the operations of many American companies, could determine the course of the U.S. economy’s recovery, according to Greenspan.  European leaders are working to control a sovereign-debt crisis, which has spread to Italy, the euro zone’s third-largest economy, and is causing chaos in global financial markets.

“When Italy first showed signs of weakness and started selling its bonds — the yield is now over six percent, which is an unsustainable level — it created a massive problem in Europe because Italy is a very large country, cannot be easily bailed out and indeed cannot be bailed out.  This is not an issue of credit rating. The United States can pay any debt it has because we can always print money to do that.  There is zero probability of default,” Greenspan said.

In the meantime, Fitch Ratings delivered some good news to the U.S. economy when it reaffirmed its AAA credit rating and said it did not anticipate downgrading the nation’s debt in the near future.  The firm said the outlook for the rating is stable because the recent deal to raise the debt ceiling and cut the budget deficit proved that the nation’s political leaders are willing to do what’s necessary to cut the nation’s growing debt.  The debt-ceiling deal “was a significant positive development that provided a substantive and necessary increase in the federal debt ceiling.  It also signaled that there is the political commitment to place U.S. public finances on a sustainable path consistent with the U.S. sovereign rating remaining ‘AAA’,” Fitch said.  Fitch’s outlook is the most positive on the U.S. of the primary credit rating agencies.  Standard & Poor’s downgraded long-term debt to AA+ after concluding that the planned $2.1 trillion to $2.4 trillion budget cuts over the next 10 years are not large enough to stabilize the nation’s rising debt.  Moody’s Investor Services also retained the nation’s AAA rating, but changed its outlook to negative.  This means that there’s a possibility of a downgrade.

“The key pillars of the U.S.’s exceptional creditworthiness remains intact: its pivotal role in the global financial system and the flexible, diversified and wealthy economy that provides its revenue base.  Monetary and exchange-rate flexibility further enhances the capacity of the economy to absorb and adjust to ‘shocks,’ Fitch said.

“I think they’re looking at a broader perspective than S&P in the global aspects,” Steve Goldman, Weeden & Company market strategist said of Fitch’s decision. “It’s giving a sigh of relief to investors here.”

One Solution to Rundown Foreclosed Houses? Bulldoze Them

Wednesday, August 17th, 2011

Several banks have found a new solution to the glut of foreclosed houses – many of them in poor condition.  It’s the bulldozer. Bank of America (BoA) owns a glut of abandoned houses that no one wants to purchase.  As a result, the nation’s largest mortgage servicer is bulldozing some of its most uninhabitable inventory.  Additionally, Wells Fargo, CitiCorp, JP Morgan Chase and Fannie Mae have been demolishing a few of their repossessed houses.  BoA is donating 100 foreclosed houses in the Cleveland area and in some cases will contribute to the cost of their demolition in partnership with a local agency that manages blighted property.  The bank has similar plans impacting houses in Detroit and Chicago, and more cities tare expected to be added.

“There is way too much supply,” said Gus Frangos, president of the Cleveland-based Cuyahoga County Land Reutilization Corporation, which works with lenders, government officials and homeowners to salvage abandoned homes.  “The best thing we can do to stabilize the market is to get the garbage off.”  Detroit mayor Dave Bing is in the process of ” right-sizing” the motor city by razing entire neighborhoods.

BoA plans to donate and bulldoze 100 houses in Cleveland, 100 in Detroit, and 150 in Chicago.  The lender will pay up to $7,500 for demolition or $3,500 in areas eligible to receive funds through the federal Neighborhood Stabilization Program.  Uses for the land include development, open space and urban farming.  “No one needs these homes, no one is going to buy them,” said Christopher Thornberg, founding partner at the Los Angeles office of Beacon Economics LLC.  “Bank of America is not going to be able to cover its losses, so it might as well give them away and get a little write-off and some nice public relations.”

Some foreclosed properties are so uninhabitable that the bank is willing pay to have them destroyed.  A bank spokesman said some in this category are worth less than $10,000.

Writing in The Atlantic, Daniel Indiviglio says that “The motivation here is pretty straightforward.  They get out of ongoing maintenance costs and taxes that they would have to pay as long as the property remains on the market.  But the even better news is that the banks can often write-off these properties as a result.  In some cases, banks can deduct as much as the homes’ fair market value from their income taxes.  From the real estate market’s standpoint this strategy is also positive.  With less supply, prices will stabilize more quickly.  Disposing of these foreclosures will make the market clear sooner.  And yet, the idea of bulldozing homes does seem rather unsavory, does it not?  Perhaps some of these homes are condemned and/or beyond repair.  In those cases, it might turn out to be more expensive to try to get them back up to code than it would be to knock them down and start over.  But does this really describe all of the cases?  This is reportedly happening to thousands of homes across the U.S.  My concern is that banks are using this as an easy out to minimize their loss with little concern about what’s best for the U.S. economy.  If some of these homes could be converted to perfectly adequate rental properties at minimal additional cost at some point in the future, for example, then this would make a lot more sense than knocking them down and building new homes from scratch.”

According to a Time magazine article,  “After multi-billion dollar legislative efforts in the form of the Stimulus, Dodd-Frank and stand-alone legislation, President Obama declared failure earlier this month and said he’s going back to the drawing board on a housing fix.  Negotiations between the 50 state attorneys general and the big mortgage lenders, rather than clearing the air for banks and borrowers, has become an enormous wet blanket as negotiations drag out and banks refuse to make any move without knowing how much of the reported $20 billion settlement will fall on them.  Economists argue that the failure to clear the housing market is a primary cause of the stunted recovery: continued household debt weighs on consumer spending, home ownership and excessive debt puts a drag on labor mobility, and banks fear the consequences of increased lending.”

President Obama Proposes Significant Increase in CAFE Standards

Tuesday, August 16th, 2011

President Barack Obama and the nation’s predominant automakers have agreed to increase new vehicles’ fuel mileage.  The major way to accomplish this is to reduce the size of vehicles.  By 2025, the Corporate Average Fuel Economy (CAFE) must be 55.4 mpg for cars.  That’s up from the 2009 Obama mandate of 35.5 mpg by 2016.  The CAFE standard for 2011 is 30.2 mpg, with light trucks having slightly less burdensome standards.

The Obama administration says the new standards will save drivers $8,200 in fuel over the life of a car.  Between now and 2015, Americans will save $1.7 trillion on fuel costs, eliminate six billion metric tons of carbon dioxide pollution and use 12 billion fewer barrels of oil.  Environmentalists applauded the new standards.  According to President Obama, “This agreement on fuel standards represents the single most important step we’ve ever taken as a nation to reduce our dependence on foreign oil.”  Joining the president at the announcement were executives of Detroit’s Big Three automakers: GM, Chrysler and Ford.  GM and Chrysler were bailed out of insolvency by the Obama administration with taxpayer money.  The government still owns 27 percent of GM; the United Auto Workers, an ally of the Obama administration and which supports the revised CAFE standards, owns 46.5 percent of Chrysler.

The tiered standards are expected to yield approximately $50 billion in net benefits over the life of model year 2014 to 2018 vehicles.  Additionally, it will result in significant long-terms savings for vehicle owners and operators.  President Obama, the U.S. Department of Transportation (DOT) and the Environmental Protection Agency (EPA) worked closely with truck and engine manufacturers, fleet owners, the State of California, and environmental groups – among them, Navistar, Volvo, Chrysler, and Con-way – to garner support for the new standards.  “While we were working to improve the efficiency of cars and light-duty trucks, something interesting happened,” said President Obama.  “We started getting letters asking that we do the same for medium and heavy-duty trucks.  They were from the people who build, buy, and drive these trucks.  And today, I’m proud to have the support of these companies as we announce the first-ever national policy to increase fuel efficiency and decrease greenhouse gas pollution from medium-and heavy-duty trucks.”

Waste Management CEO David Steiner said the rules will help his company meet a  goal of reducing emissions 15 percent by 2020.  The company will save 350 million gallons of fuel over the life of their vehicles.  FedEx CEO Fred Smith said that commercial vehicles account for 20 percent of all transportation emissions.  “Today’s progress is a win for the transportation industry, for the environment and for all Americans as we seek to decrease U.S. dependency on oil,” Smith said.

According to the White House,  the revised heavy-truck rules will cost owners as much as $8 billion in additional technology, but “will save American businesses that operate and own commercial vehicles approximately $50 billion in fuel costs over the life of the program.”  The majority of fleet operators, according to the EPA, are likely to recover their up-front costs within a year or two.  Under the new program, heavy-duty vehicles are divided into three major categories: combination tractors (semi-trucks), heavy-duty pickup trucks and vans, and what is referred to as “vocational” or special-purpose vehicles such as transit buses and garbage trucks.  More specific targets within each of these categories are based on each vehicle’s design and purpose.

American Trucking Association (ATA) president & CEO Bill Graves said the new regulations are “welcome news to us in the trucking industry.  Our members have been pushing for the setting of fuel efficiency standards for some time and today marks the culmination of those efforts.”  He said that in 2007, the ATA endorsed a six-point sustainability program that included a proposal to set “technologically feasible” efficiency standards.

The new rules do not mean that President Obama has given up on his backing of electric vehicles.  Writing on the Climate Spectator website, Jessie Giles says that “While there has been some suggestion that Barack Obama’s new measure to double fuel economy targets for cars in the U.S. might be bad news for electric cars, at Better Place our assessment is that this will in fact be important for increasing the adoption of zero-emission vehicles.  The agreement to increase the CAFE standards is good news, not just in terms of taking steps to stretch our limited oil resources further and helping to reduce our carbon emissions.  Critically, it will also help to increase the adoption of zero-emissions vehicles such as electric cars.  Now, the twist: manufacturers must meet the CAFE standards on a sales-weighted basis – that is, the average fuel economy of all the cars sold by that particular car company.  What’s the easiest way of achieving the new standards on a sales-weighted basis?  It’s by increasing the proportion of electric cars in the manufacturer’s sales mix. It’s far easier to increase this proportion of electric cars than it is to make improvements in the current fuel consumption of every single car in the rest of the portfolio, where years of product development have produced incremental, but relatively minor improvements.”

Blagojevich Verdict: Guilty on 17 of 20 Counts

Thursday, June 30th, 2011

Disgraced former Illinois governor Rod Blagojevich was found guilty of 17 of 20 corruption counts against him,  the majority for attempting to sell newly elected President Barack Obama’s Senate seat to the highest bidder.  After leaving the federal courthouse in downtown Chicago, Blagojevich said “Patti and I are obviously very disappointed.  I frankly am stunned.”  The verdict is a vindication for the office of U.S. Attorney Patrick Fitzgerald, who on the day of Blagojevich’s arrest in 2008 accused him of leading a “political corruption crime spree.”

Key to the convictions were FBI wiretaps of the former governor’s obscenity-laden phone conversations in which he attempted to horse trade to get the best possible quid pro quo for himself by appointing someone to the newly vacant Senate seat.  In January of 2009, he was impeached by the Illinois House of Representatives and convicted by the Illinois State Senate.  He was replaced by Lieutenant Governor Pat Quinn.  With the conviction, Blagojevich joins three former Illinois governors convicted of fraud and corruption felonies since 1973, most recently his immediate predecessor, George Ryan.  A status hearing on Blagojevich’s sentencing is scheduled to take place August 1.

Before the jury handed down the guilty verdicts, Blagojevich’s defense team laid the groundwork for a probable appeal.  They filed several motions for mistrial that accused U.S. District Judge James Zagel of being biased in favor of the prosecution.  Zagel denied all the motions.  The loquacious Blagojevich, who spent seven days on the witness stand, insisted that rather than trying to sell President Obama’s Senate seat, he was merely engaged in political gamesmanship.  Blagojevich told aides to ask the incoming Obama administration for either a Cabinet position, an ambassadorship or another high-paying position for him in exchange for naming Obama aide Valerie Jarrett to the Senate.  Rahm Emanuel, formerly White House Chief of Staff and now Mayor of Chicago, testified that the incoming Obama administration did not offer Blagojevich any of his requests.  Jarrett withdrew from consideration and Blagojevich appointed former Illinois Attorney General Roland Burris to fill the seat.  Republican Mark Kirk subsequently won the seat in last fall’s mid-term election.

Writing in the Chicago Tribune, columnist John Kass – never a fan of Blagojevich – says that “At least he’d finally stopped acting.  Dead Meat didn’t have to play a part anymore.  There was nobody to charm, nobody to convince.  All he had to do was sit there and take it.  And I wonder if Dead Meat had time then to consider the arc of his life as the perfect Chicago political cautionary tale:  The desperate kid who wanted to be liked, the boy who married the ward boss’s daughter, the kid who ingratiated his way into the 5th Congressional District, and who, with the help of patronage armies of knuckle draggers, was finally elected governor as a self-professed reformer.  It all began to fall apart for him around Christmas of 2004, when Blagojevich and his father-in-law, Chicago Alderman Richard Mell, 33rd, had a very public falling out over an in-law’s role in a Will County landfill.  It got ugly, then it got uglier, and when it became public, drawing the attention of the FBI, Blagojevich was becoming Dead Meat.”

James Warren on the Chicago News Cooperative website takes a somewhat different view. “Many were lured by Blagojevich’s charm, retail political skills and the nerve of someone whose life accomplishments were scant — as his premeditatedly self-deprecating testimony reminded the jury as subtly as a Times Square Jumbotron.  And why not?  He’d long exploited a self-portrayal of Imperfect Everyman, eschewing aides who told him to cut the talk of flunking the bar exam and other failures.  He thought it humanized him and it explains his reflexive turns to the jury nearly every time he’d cite another life’s comeuppance, with his humor, vanity, pettiness, lassitude and occasional stupidity all on view.  For sure, when his 2006 re-election campaign rolled around, there was an unsavory aroma and ample criticism, including from the editorial page of the Chicago Tribune.  But naysayers cried out with Don Quixote futility due to his prodigious fundraising and a feeble Republican Party’s hack of an opponent.  ‘Pay-to-play’ was the moniker for the culture he seemed to embody, with one key fundraiser indicted for alleged shakedowns and another soon to plead guilty.  But Blagojevich assured all that he was a victim and the Sun-Times, for one, chose ‘to give him the benefit of the doubt and endorse him.”

Jury members answered questions after the verdict was handed down. They said the trial’s most surprising moment was when prosecutor Reid Schar asked the former governor a confrontational first question.  “Mr. Blagojevich, you are a convicted liar, correct?  Schar asked”.  “That scared us all to death,” said Juror #103.  “We were so nervous after that.  The trial up until then had not been very dramatic.”  The forewoman, Juror #146, said the group knew “that there’s a lot of bargaining that goes on behind the scenes.  We do that in our everyday lives.  But I think in this instance, when it’s someone representing the people, it crosses the line.  I think it sends a message,” she said.

Several disgraced politicians say that Blagojevich is not ready to spend time in prison.  Betty Loren-Maltese, formerly Cicero village president who spent seven years in federal prison on a corruption conviction said “Most people have a fixed opinion of politicians.  A lot of prisoners feel (politicians) might even be responsible for them being in prison.  I don’t think it’ll be easy for him, but it’ll definitely change his attitude and make him realize he’s not the king.”

Scott Fawell, a former aide to Governor George Ryan (himself imprisoned on corruption charges) who spent 4 ½ years in a federal prison camp, had a different attitude.“Don’t complain, don’t be bitter,” he said.  “You’ll wake up and still be in the same place.”

As Global Oil Consumption – and Prices – Rise, OPEC Rejects Increased Production

Monday, June 20th, 2011

As gas prices seesaw up and down at the pump and Americans reluctantly pay more to fill their tanks as the economy slows, OPEC (the Organization of Petroleum Exporting States) could not agree on whether or not to increase production and provide some relief. The two key factors are Saudi Arabia and Iran. At an unusually contentious meeting, the 12-nation group could not reach agreement on new production targets.  That sets the stage for higher prices for oil and gas later this year as world demand for oil rises faster than supplies.  Saudi Arabia favored an increase in output, which likely would have translated to lower oil prices.  Other countries – such as Iran — resisted, arguing that oil supplies are adequate to meet demand and current prices are on target.  “We are unable to reach consensus,” OPEC Secretary General Abdullah Al-Badri said.  Saudi oil minister Ali Naimi called the meeting “one of the worst ever.”

Writing on the Salon website,Andrew Leonard points out that China is partially to blame for high prices at the gas pump.  According to Leonard, “If you want to know why gas prices are high, and why, in the long run, they will keep getting higher, all you need to do is peruse BP’s Statistical Review of World Energy 2011 report. Bottom line:  World oil consumption hit an all-time record high of 87.4 million barrels a day in 2010, driven by a surge in demand from emerging nations, but primarily led by China.  China has now overtaken the U.S. as the world’s largest energy consumer, with demand for all kinds of energy growing 11.2 percent in 2010.  In 2010, Chinese oil consumption grew by 860,000 barrels a day.  Since 2000, China’s oil consumption has grown an incredible 90 percent.  Supply, globally, is not keeping up with demand growth. And barring a major global economic meltdown, that dynamic is not going to change.  The rest of the world is going to continue to consume more oil, and finding and developing new sources of oil is going to continue to get more expensive.  And Obama can’t do a damn thing about it, except to put in place policies that encourage U.S. consumers to consume as little oil as possible.”

The Saudis and the Iranians frequently lock horns over pricing at OPEC meetings.  Typically, however, member nations follow Saudi Arabia’s lead, which produces most of the group’s oil.  This time the Saudi-Iranian rivalry resulted in a deadlock.  The International Energy Agency (IEA) had urged oil producers to put more crude on the market.  “Ongoing supply disruptions, as well as the fragile state of the global economy, call for a prompt increase in supply,” the agency said.  Iran, the second largest OPEC member after Saudi Arabia, is the leading price “hawk,” favoring expensive oil.  Saudi Arabia has consistently acted to moderate prices.

“Looking to the remainder of this year, the expected supply/demand balance indicates a tightening market,” OPEC’s report said. “As a result, global inventories could continue to decline as the market enters a period of high seasonal demand.”  OPEC’s member nations include Algeria, Angola, Ecuador, Iran, Iraq, Kuwait, Libya, Nigeria, Qatar, Saudi Arabia, the United Arab Emirates and Venezuela.

According to the IEA, demand for OPEC crude will average 29.95 million bpd (barrels per day)  in the 2nd half of 2011, or 1.2 million bpd more than April production of 28.75 million bpd.  Analysts said OPEC’s report had minimal impact on oil prices and a bigger focus would be the IEA’s latest forecasts.  “It’s absolutely market neutral,” said Olivier Jakob of Petromatrix.  “What’s going to matter more is the IEA report when we will be able to see if there are any more changes.”  OPEC’s May oil output rose by approximately 171,000 bpd to 28.97 million bpd as extra supplies from Saudi Arabia, Nigeria and Iraq offset declining production from Libya.  The report said Saudi output totaled 8.86 million bpd in May.  Saudi newspaper al-Hayat reported that Riyadh would boost supplies to 10 million bpd in July and oil traders said the kingdom was offering more to Asian customers, because they are driving the increase in global demand.  The world is expected to use 1.38 million bpd of oil more this year than in 2010, OPEC’s report said.

OPEC’s daily production is bound by quotas of 26.32 million bpd in May of 2011, according to the group’s monthly report.  That’s an increase from 26.17 million bpd in April, OPEC said.  Saudi Arabian output climbed to 8.86 million bpd in May, compared with 8.8 million in April.  OPEC’s total supply, including Iraq, was 28.97 million bpd May compared with 28.8 million the previous month.  Libyan supplies fell to 169,000 bpd in May as the conflict between forces loyal to Muammar Qaddafi and anti- government rebels halted output.  That compares with an average 1.56 million last year.  OPEC, which provides approximately 40 percent of the world’s crude oil, announced its biggest-ever supply cuts in late 2008 when the financial crisis caused a collapse in global demand.  The decision capped production at 24.845 million bpd for all members except Iraq, which is exempt from the quota system.

Now we are unhappy that we did not reach a decision but this is not the end of the world,” al-Badri said.”It was not political, it was really an economic situation.  Of course, for the past six years we have enjoyed a very relaxed atmosphere, now we have some tension.  I hope we will overcome it.”

Will Anyone Collect Osama bin Laden’s $50 Million Bounty?

Monday, May 23rd, 2011

Now that the nearly 10-year-long manhunt for Osama bin Laden has ended, the question remains of what to do with the $50 million reward on the Al Qaeda leader? New York Representatives Anthony Weiner and Jerry Nadler have introduced a bill in Congress that would direct the money to groups that have helped those affected move on with their lives.  “If the bounty isn’t paid, Osama bin Laden’s victims should get it,” Weiner said, noting that “families and groups who helped deal with survivors of 9/11″ should “benefit.”  Nadler added that the money “was allocated for 9/11 victims in effect, and this is simply saying to use it more effectively for the purpose that it was set up for in the first place.”

The State Department offered up a $25 million reward for bin Laden in 2001; in 2004, then-Senator Hillary Clinton of New York led the effort to pass a bill that would give the secretary of state the discretion to raise that total to $50 million.

The Obama administration appears to oppose Nadler’s and Weiner’s proposal.  White House spokesman Jay Carney said that no one took the necessary steps to make themselves eligible for the sum.  “As far as I’m aware, no one knowledgeably said, oh, Osama bin Laden’s over here in Abbottabad at 5703 Green Avenue,” Carney said.  “My sense is that the requirement for any kind of reward is to say that — not to accidentally, through intelligence gathering, provide information that leads to the whereabouts of somebody like that.”

Gary Faulkner, an American who went to Pakistan last year to hunt for bin Laden  — albeit unsuccessfully — thinks he deserves a share of the $50 million.  Several petitions and websites think the money should go directly to the Navy SEALs team that caught bin Laden, even though as government employees they are not entitled to reap the reward.  A third option would be for the government to keep the money, sparing the deficit another $25 million-$50 million dent.  In fact, there is no money set aside for the bin Laden reward.  But while the State Department maintains a broader fund that is used to pay for these kinds of rewards, there is no designated bin Laden reward money waiting to be collected.  Officials have said the information that pinpointed bin Laden’s location came from multiple sources and intelligence gathering efforts.  No single source was responsible for the intelligence that led to the end of the hunt for the terrorist leader.

John Feal, a Ground Zero construction veteran and advocate said 9/11 rescuers still bear the scars of that day, and could use the funds.  “If it was up to me it would be called the ‘No Responder Left Behind Act’ because my attitude now is we will not leave anybody behind who’s affected by 9/11,” Feal said.  His FealGood Foundation helped finance the funerals of five Ground Zero responders and workers in the past two months.

What Rock Band, U2, Can Teach You About Building a Corporate Culture

Monday, May 16th, 2011

The Grammy Award-winning Irish rock band U2 is an excellent case history in how to create a powerful culture of connection.  This is the opinion of Michael Lee Stallard and Jason Pankau, partners in E Pluribus Partners, the world’s leading experts on how rational and emotional connections can boost productivity, innovation and organizational performance in the workplace.

In a recent interview for the Alter NOW Podcasts, Stallard and Pankau trace U2′s  culture of connection back to the time when Bono’s mother died suddenly when he was just 14.   Because his father was so grief-stricken, he was unable to console his son, leaving Bono to grieve alone – a very difficult process for an adolescent.  When his friend and fellow band member Larry Mullen, Jr.’s mother died, Bono consoled his friend and created a lifetime bond with him.

That culture of connection has stayed with Bono throughout his adult life.  When Edge’s went through a divorce, the band members rallied around their friend to help him through a difficult time.  Later, Adam Clayton started abusing drugs and alcohol.  Instead of abandoning him, U2 decided that no one gets left behind, and the band supported his rehabilitation process.  A death threat was made against Bono because he planned to sing “Pride (In The Name Of Love)” – a song about Martin Luther King – in Arizona.  During the song, Clayton stood in front of his Bono to shield his friend.  Clayton literally was willing to take a bullet for Bono.

U2 is an extremely close band, powerfully crystallized in the fact that they and their long-time manager split all profits five equal ways, which is unusual and makes all members feel equally valued.

Stallard also talked about the connection culture that permeated the unit at Memorial Sloan Kettering Cancer Center where his wife underwent treatment several years ago.  Later – and at the Stallard’s recommendation – a friend went to Sloan Kettering but was treated in a different unit where the atmosphere was completely different.  The result was a far less pleasant experience and proof that culture emanates from the ground level.

To listen to Michael Lee Stallard’s and Jason Pankau’s full interview on how U2 represents a culture of connection, click here.  To sign up for Michael Lee Stallard’s and Jason Pankau’s newsletter and receive a free digital download of their book, click here.

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