Treasury Secretary Tim Geithner had every reason to think he had seen all of AIG's dirty laundry. The government owned 80% of the company, and Geithner had just orchestrated AIG's most recent handout — its fourth, if you are keeping score, for $30 billion on March 2 — to prevent the teetering insurance giant from going over the cliff and taking the rest of the global financial system with it. AIG had already cost the taxpayers some $170 billion, mostly to repair the damage done by one of its units, AIG Financial Products (AIG FP), which last year alone piled up $40 billion in losses related to its dealings in complex mortgage bond derivatives.
Then Geithner's staff made the discovery that would infuriate nearly everyone in Washington. On March 10, the Secretary learned, 10 days after his staff first got wind of it, that AIG had paid out $165 million in retention bonuses to executives at the unit that compelled the U.S. to bail out the company in the first place. It took Geithner until 7:40 the next night to place what must have been a tense phone call to AIG's newish CEO, Ed Liddy. The bonuses were not tenable; they had to be canceled, he demanded. Liddy, a dollar-a-year man who took over the company after the bonuses had been promised, replied that AIG's lawyers had decided that the contracts could not be broken without even bigger costs to taxpayers. Geithner sent Treasury's lawyers searching for a way out, but they couldn't find one. (See 25 people to blame for the financial crisis.)
On the balance sheet of debacles caused by this economic crisis — the $700 billion Troubled Asset Relief Program (TARP), the stock-market swoon, the credit crunch and the ongoing global recession — $165 million is small change. But the revelations of the AIG bonuses, like nothing else, seemed to finally tip the mounting public furor over corporate malpractice into a full-scale rebellion. Yet Geithner, embarrassed for discovering the bonuses so late, plans to dock AIG that much out of the next $30 billion in bailout funding when it is delivered — which amounts to a mere 0.1% of the total AIG has received. Assorted Senators, from New York Democrat Chuck Schumer to Montana Democrat Max Baucus and Iowa Republican Chuck Grassley, have proposed a number of tax and legal schemes to snatch back the bonus bucks from AIG FP executives — 73 of whom got payouts of $1 million or more, according to New York State attorney general Andrew Cuomo. (Read "Treasury Learned of AIG Bonuses Earlier Than Claimed.")
With all the political theater and populist grandstanding, though, the bigger issue has been obscured. And that is, Just what is AIG doing with the $170 billion? Does the company's strategy, which is to wind down its exposure to toxic assets and sell some of its profitable insurance divisions to help pay off the government debt, stand a good chance of succeeding? And if it does, will the world avert financial Armageddon?
Those questions have taken on greater urgency, since it turns out that AIG has become the banking industry's ATM, essentially passing along $52 billion of TARP money to an array of U.S. and foreign financial institutions — from Goldman Sachs to Switzerland's UBS. Those firms were counterparties to the credit-default swaps (CDSs) that AIG FP sold at least through 2005, and the companies were collecting on the insurance-like derivatives. AIG paid out an additional $43.7 billion to many of the same banks, which were also customers of the securities-lending operation run out of AIG's insurance division. In this case, AIG managed to take a business specifically designed to be low risk, low return and amp it into another dicey venture — with taxpayers on the hook.
The outrage will pass, and when it does, we're going to have to focus on whether keeping AIG afloat is preventing a sharp recession from becoming a prolonged one. The reason AIG has cost taxpayers $170 billion — and the reason the Obama Administration seemed willing, at least at first, to hold its nose and accede to bonuses for the company's managers — is that it's too big to fail. It's an often heard phrase, but what does it really mean? (See the top 10 financial collapses of 2008.)
The idea is that in a global economy so tightly linked that problems in the U.S. real estate market can help bring down Icelandic banks and Asian manufacturers, AIG sits at some of the critical switch points. Its failure, so the fear goes, would set off chains of others, rattling around the globe in short order. Although some critics say the fear is overblown and the world economy could absorb the blow, no one seems particularly keen on testing that approach.
How We Got Here
AIG seems an unlikely candidate for the company that could bankrupt the planet. Founded 90 years ago in Shanghai, AIG moved its headquarters to New York City as the world headed toward war in 1939. After Maurice R. (Hank) Greenberg took over in 1967, AIG consolidated its global empire. By the time Greenberg was forced out in an accounting scandal 38 years later, AIG had become one of the world's biggest public companies, with sales of $113 billion in 2006 and 116,000 employees in 130 countries, from France to China.
AIG says it has written more than 81 million life-insurance policies, with a face value of $1.9 trillion. It covers roughly 180,000 small businesses and other corporate entities, which employ approximately 106 million people. That makes AIG America's largest life and health insurer; second largest in property and casualty. Through its aircraft-leasing subsidiary, AIG owns more than 950 airline jets. Just for good measure, AIG is a huge provider of insurance to U.S. municipalities, pension funds and other public and private bodies through guaranteed investment contracts and other products that protect participants in 401(k) plans. "We have no choice but to stabilize [it] or else risk enormous impact, not just in the financial system but on the whole U.S. economy," said Fed Chairman Ben Bernanke.
The risk is not in any one business but in the connections among them and in the industries in which they compete. As AIG has pointed out in its own analysis, "The extent and interconnectedness of AIG's business is far-reaching and encompasses customers across the globe ranging from governmental agencies, corporations and consumers to counterparties. A failure of AIG could create a chain reaction of enormous proportion." Among other effects, it could lead to mass redemptions of insurance policies, which would theoretically destabilize the industry; the withdrawal of $12 billion to $15 billion in U.S. consumer lending in a credit-short universe; and even damage airframe maker Boeing and jet-engine maker GE, since AIG's aircraft-leasing unit buys more jets than anyone else.
While AIG's holdings are diverse, nearly all its losses centered on AIG FP, which until March 2008 was led by its high-rolling president, Joseph Cassano, a tough-talking Brooklyn, N.Y., native who in the past eight years banked $280 million in cash compensation, or exactly $115 million more than the bonuses at the center of the current controversy. Cassano, who helped found the AIG FP unit in 1987, built his money machine not on anything fraudulent but on what's been described as regulatory arbitrage. As Bernanke explained recently, "AIG exploited a huge gap in the regulatory system. There was no oversight of the Financial Products division. This was a hedge fund, basically, that was attached to a large and stable insurance company."
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WASHINGTON (CNN) -- Some Democrats are increasingly concerned about President Obama's $787 billion financial fix for the ailing economy, and are demanding greater transparency on further spending.
With the White House seemingly comparing the nation's economy to a house on fire, some congressional Democrats are asking, where's the fire truck?
One New Hampshire congresswoman said as much to Treasury Secretary Tim Geithner on Capitol Hill recently.
"I said, hurry, please hurry, because people are waiting and they are hurting, and they need the help now," Rep. Carol Shea-Porter, D-New Hampshire, said.
She's one of a growing number of nervous Democrats on edge or at odds with some of the Obama's administration's plans on the economy. Some are taking aim at the president's budget proposals that would curb popular tax deductions for wealthier Americans.
"I don't think ultimately the criticism is surprising. That certainly happens and is all part of the process," said White House Press Secretary Robert Gibbs.
As a nod to moderate concerns, Obama took steps to make his budget more transparent. He included items former President George W. Bush passed separately in recent years to obscure the true operating cost of the government, such as the money for the wars in Iraq and Afghanistan, an annual multibillion-dollar fix of the fees Medicare pays physicians and Alternative Minimum Tax relief for the middle class.
Sen. Evan Bayh, D-Indiana, who along with Nebraska Democrat Ben Nelson and Connecticut Independent Joe Lieberman is one of the so-called Gang of 15 -- a coalition of moderate Democratic senators -- says it's all about the messaging.
"Like getting health care costs under control is important to the economy and getting the deficit down," he said. "Sustainable sources of energy at reasonable prices is also important to the economy. Dealing with the financial crisis is obviously important to the economy."
Bayh added: "So what needs to be done is, Obama's got to move on all these fronts but also integrate them back to the same theme of always strengthening the economy, getting people to work, growing businesses, improving our standard of living." Video Watch more of Obama's solutions for the economy »
Rep. John Tanner, D-Tennessee, is a member of the "Blue Dog" group of 47 fiscally conservative Democrats in the House -- six of whom voted against Obama's stimulus plan. He said Obama at least is being honest about the dire condition of the economy.
"At least the budget that the Obama administration presented, even though it's huge and it's a huge deficit -- and that enables the other team to beat up on it -- the truth is that it's honest and truthful," he said.
Democratic media consultant Steve Murphy, who represents several moderate Democrats, said that Blue Dogs are all "deficit hawks," so they're "nervous about spending."
"They're against giving more money to the banks without any accountability, they want to zero in on wasteful spending and they strongly believe the shrinking deficit and eventual balanced budget was the underpinning of our economic success in the '90's," he said.
Murphy added that these Democrats do, however, realize that more money is going to be needed.
"So I expect them to be about greater accountability and fairness for the taxpayer. They won't join [GOP House Minority Whip Eric] Cantor's 'Hell No' chorus."
And that is something resonating with House Speaker Nancy Pelosi who said top economists told her a second stimulus package may be necessary.
"You have to keep the door open to see how this goes," she said.
House Democrats, CNN has learned, heard that message in a meeting with top economists, who predicted the president's stimulus plan will fall short of saving or creating three to four million jobs, as he promised.
"Over the first two years about 2 1/2 million jobs saved and created," said economist Allen Sinai. "A little less than the administration and perhaps Speaker Pelosi has said ... the jobs created may be a little disappointing."
Sinai said that over time, the economy may produce the jobs president Obama promised, but that people should try to be patient.
But budget hawks in the party don't like the sound of that.
"I mean, if we were to take a vote this afternoon, the stimulus package would probably fail," said Rep. Earl Pomeroy, D-North Dakota. "If they want substantial, more public funds committed, they're going to have to go out there and explain precisely how this is going to work."
Shea-Porter said she's simply on the message she's getting at town meetings back home, a message that's also aimed at some in the media.
"It's terrifying people. Before, people were very optimistic and the leaders were optimistic. Then we hit a spell here where we're hearing a lot of media ... people who are frightening without necessarily giving both sides," she added.
For now, the White House says it has no plans for another stimulus, arguing its plan needs time to work.
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New York Times raises another $225M by selling headquarters, giving publisher bigger cushion
NEW YORK (AP) -- The New York Times Co. has sold most of its home office for $225 million, padding the newspaper publisher's financial cushion amid a sharp drop in revenue that has forced management to scrounge for more money.
The deal announced Monday covers 21 of the building's 52 floors. That space, about 750,000 square feet (69,676 sq. meters), became the Times' headquarters when the midtown Manhattan offices opened in 2007.
Under the terms of the sale to investment firm W.P. Carey & Co., the New York Times Co. will rent back the offices at a cost of $24 million this year, with subsequent increases spread through the 15-year lease. The company will have an option to buy back its interest in the space for $250 million in 10 years.
The office sale is the latest financial sacrifice that the Times company has made to ensure it has enough money to repay its debts. It also suspended its shareholder dividend to save about $133 million this year and secured a $250 million infusion from Mexican billionaire Carlos Slim by agreeing to pay an abnormally high interest rate of 14 percent in addition to giving him potentially valuable stock warrants.
Although management got the cash it wanted from the office sale, it probably was a difficult pill to swallow, said bond analyst Mike Simonton of Fitch Ratings.
"Forcing a real estate deal though at this inopportune time demonstrates management's resolve to get its balance sheet in order," Simonton said. "This improves their ability to control their own destiny."
The company will still own seven floors of the Manhattan building. Six of those floors already had been leased to another tenant.
Simonton and Gimme Credit analyst Dave Novosel believe the company should be able to repay about $300 million in debts coming due through 2010. The risk of default would have been much higher if the company hadn't raised more cash. Its total debt stood at $1.1 billion at the end of 2008.
Investors, though, remained skittish as the New York Times Co.'s shares fell 17 cents, or 4.2 percent, to $3.90. The company's stock has plunged by nearly 80 percent since 2007.
W.P. Carey shares rose 86 cents, 4.8 percent, to close at $18.88.
Like all newspaper publishers, the New York Times Co. has been staggered by an accelerating drop in ad revenue that began several years ago as more marketers shifted their spending from the print medium to the Internet, where the costs are lower and the audience is still growing as more readers get their news for free online. The 15-month-old recession has exacerbated the newspaper industry's misery.
The Times company and other publishers have been attracting more online readers as they pour more resources into their Web sites, but they aren't bringing in nearly enough revenue from the Internet to offset the erosion in their print product. Nearly $268 million in advertising revenue evaporated from the Times company last year, a 13 percent drop from 2007.
Still, the Times company remains in better shape than many of its rivals.
Several publishers, most notably Tribune Co., have sought bankruptcy protection in an attempt to restructure their debts. Others, like McClatchy Co., have laid off thousands of employees and slashed the wages of the workers still on the payroll. In the worst scenarios, some publishers are preparing to cease publication, following in the footsteps of the Rocky Mountain News in Denver.
"By raising more money like it has, The New York Times is able to say, `We are not in dire straits at this point,'" Novosel said.
To gain even more wiggle room, the Times company is still hoping to sell its 17.8 percent stake in a partnership that owns the Boston Red Sox. If that effort succeeds, the Times company could pocket another $150 million or so. But both Novosel and Simonton doubt a buyer will emerge soon because the recession is threatening to depress baseball's revenue, too.
If it needs even more cash, the Times company also could try to sell some of its other newspapers, which include The Boston Globe and 16 other daily publications. But newspaper buyers are scarce now.
By Yahoo
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After years of brushing off the notion, Microsoft said on Thursday that it will open up its own line of retail stores.
Without detailing the plans, Microsoft said it has hired David Porter, a 25-year Wal-Mart veteran, to lead the effort. Sources say that Porter's mission will be to develop the company's retail plans and that the effort is likely to start small with just a few locations.
Porter, who will start next week, will report to Microsoft COO Kevin Turner, also a Wal-Mart veteran. Most recently, Porter was at DreamWorks Animation, heading that company's product distribution effort.
Although Microsoft has generally relied on others to sell its wares, it's not Microsoft's first foray into retail.
Back in the dot-com days, Microsoft had one retail outlet, at the San Francisco Metreon mall. However, it never expanded the effort and closed that location in November 2001.
Last fall, Microsoft built its own concept retail environment at its Redmond campus (seen in the video below). At the time, the company said the effort was aimed at showing retailers how they could better market Microsoft products and was not an indication that it was going into the retail business itself.
"We're not planning to open stores, but we need to learn more about stores," Microsoft general manager of worldwide retail services told the Seattle Post-Intelligencer. "We need to take more of a leadership role."
The company has also made a variety of moves to sell its products directly to customers over the Internet, including a recently opened online Microsoft Store. Starting last holiday season, it also started placing Microsoft workers as "gurus" inside other retail stores.
"There are tremendous opportunities ahead for Microsoft to create a world-class shopping experience for our customers," Porter said in a statement. "I am excited about helping consumers make more informed decisions about their PC and software purchases, and we'll share learnings from our stores with our existing retail and OEM partners that are critical to our success."
Rumors of Microsoft's interest in retail have cropped up at various times over the years, including in 2005, when the company was said to be interested in a Times Square location.
Apple began its retail push in 2001 and now has more than 200 locations in several countries. Microsoft's entry comes as Apple has started to slow its retail store expansion.
Update 5:30 p.m. PT:
NPD Group analyst Stephen Baker, a computer industry retail veteran, thinks Microsoft's decision to open up its own retail stores is a relatively safe bet, but not without challenges.
"The real issue it that it's not as easy to pull off as Apple. Apple has more of an owned ecosystem than Microsoft has," Baker said, referring to the fact that Apple makes the finished products it sells, while Microsoft's software--particularly Windows--typically comes on hardware from dozens of companies. And the PC industry already has its own well-honed distribution channels to bring those products to market.
The upside for PC makers is that Microsoft-branded stores could display products that are hard to fit into the big-box retail shopping experience, like high-end Alienware PCs or HP's Home Server, Baker said.
"It doesn't have to be about sales. They are going to want to sell stuff, but it's going to be equal parts sales and branding," Baker said. For example, Apple's retail experience is as much about exposing you to the Apple brand and Apple family of products as it is moving widgets into and out of inventory. The same could be said for Sony's retail stores.
At the moment, Microsoft and its partners don't really have a one-stop shopping experience that can put all the pieces together the way Apple can in its stores, Baker said.
Baker said to expect Microsoft to start scouting locations in either hip downtown spots or newer "lifestyle center"-type retail environments.
[CNET]
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WASHINGTON – Keeping the economy front and center, President Barack Obama heads west this week to sign the $787 billion stimulus bill and tackle the home mortgage foreclosure crisis. The direct appeals for public support follow scant GOP backing in Congress for his agenda and increasing partisan bickering.
Passage of the stimulus measure — unprecedented in its cost — was a major triumph for Obama as he struggles lift the country from a financial nosedive unseen since the Great Depression of the 1930s.
Top aides said Sunday the skyrocketing unemployment rate would fall once the money begins to flow. But they also said the economy will continue its downward spiral in the short term.
"I think it's safe to say that things have not yet bottomed out," press secretary Robert Gibbs said. "They are probably going to get worse before they improve. But this is a big step forward toward making that improvement and putting people back to work."
The stimulus package, which passed with no GOP support in the House and three Republican votes in the Senate, aims to save or create as many as 3.5 million jobs through massive government investment while boosting consumer spending through modest tax cuts.
The president's determination to sign the stimulus bill into law in Denver on Tuesday suggests Obama will continue taking his economic message to the American people, who are giving him high marks for handling the crisis. The symbolism is obvious for Colorado, where a growing green-energy industry will draw major benefits from the stimulus.
"He is determined to keep in touch with the American people who sent him here to do this job," senior adviser David Axelrod said.
Gibbs said the president had taken "unprecedented" steps in a bipartisan effort to include Republicans in the legislative process. But Sen. John McCain was highly critical, declaring the stimulus would create what he called "generational theft" — huge federal deficits for years to come.
McCain, who lost the presidential race to Obama, said the Democrat had backtracked on promises of bipartisanship and was off to a bad start. "Let's start over now and sit down together," McCain said.
Sen. Lindsay Graham, R-S.C., put it more bluntly: "If this is going to be bipartisanship, the country's screwed."
With the stimulus victory in hand, Obama planned to shift to the housing crisis with an announcement Wednesday in Phoenix about reversing that sector's collapse.
Late last summer, Americans began feeling the pinch of the recession and left the housing market in huge numbers. That coincided with a sharp increase defaults on home mortgages, a devastating combination that triggered the financial crisis. Lending froze as banks and investment houses realized they were holding trillions of dollars in bad assets.
Under an emergency $700 billion bailout program passed late last year, the Bush administration used half to forestall a financial collapse. But the flow of credit did not ease and use of the money was criticized because it was poorly administered and overseen.
Obama is now working to leverage the second portion of the bailout money into a program that could result in $2 trillion in government and private sector cash infusions to help banks and investment houses clear away "toxic" holdings and thereby spur lending.
As part of the next steps on the bailout, Obama was expected to offer help homeowners on the brink of foreclosure. Details have not been disclosed, but the nature of the crisis suggested mortgage loans would have to be revalued downward along with interest rates.
"We obviously have a major problem: problems with foreclosure, problems with people living on the edge and problems with home values around the country just plummeting, which is affecting family, family finances everywhere," Axelrod said. "We want to do something that will address all of those things."
On another troubled front, Axelrod said any plan to shore up the auto industry will require sacrifice by all involved, from auto workers and industry executives to shareholders and creditors.
General Motors Corp. and Chrysler LLC are expected to submit plans to the government by Tuesday, the deadline for showing how they can repay billions in loans and become viable in spite of a drop in auto sales not seen for a generation.
"We need an auto industry in this country. There are millions of lives, livelihoods that depend on it," Axelrod said. "We have a real interest in seeing the auto industry survive, but it's going to require a major restructuring of the auto industry."
Also Sunday:
_Gibbs said the administration wants to revise restrictions on executive compensation in the stimulus package even after it becomes law. The administration would seek to "strike the right balance" on the compensation question by discussing changes with House and Senate members, the spokesman said. Already Treasury Secretary Timothy Geithner and White House economic aide Lawrence Summers failed to stop the chairman of the Senate Banking, Housing and Urban Affairs Committee, Sen. Chris Dodd, D-Conn., from adding stricter limits on bankers' bonuses.
_Obama soon will issue an executive order lifting a ban on federal funding for embryonic stem cell research, Axelrod said. Under President George W. Bush, federal money for research on human embryonic stems cells was limited to those stem cell lines that were created before Aug. 9, 2001. Stem cells can revitalize diseased or debilitated human tissue.
_Axelrod defended Geithner, heavily criticized for offering scant details last week in outlining the administration's financial rescue plan. His performance led to a big Dow Jones sell-off. "We want to do this in a thoughtful way. He announced a strategy. He will unveil the tactics to support that strategy in the coming weeks. And we believe that he has the right approach."
_Axelrod sought to play down the about-face by Sen. Judd Gregg, R-N.H., who abruptly withdrew as Obama's nominee to head the Commerce Department after saying the fit wasn't right with this Democratic president. "I don't think that that ultimately is a reflection on the administration. It's a reflection on Sen. Gregg's change of heart," he said.
Gibbs was on CBS' "Face the Nation" and CNN's "State of the Union." Axelrod appeared on NBC's "Meet the Press" and "Fox News Sunday." McCain was on CNN and Graham on ABC's "This Week."
[Yahoo]
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Features: News by nytimes
WASHINGTON — The Obama administration is expected to impose a cap of $500,000 for top executives at companies that receive large amounts of bailout money, according to people familiar with the plan.
Executives would also be prohibited from receiving any bonuses above their base pay, except for normal stock dividends.
President Obama and Treasury Secretary Timothy F. Geithner plan to announce the executive compensation plan on Wednesday morning at the White House.
The new rules would be far tougher than any restrictions imposed during the Bush administration, and they could force executives to accept deep reductions in their current pay. They come amid rising public fury about huge pay packages for executives at financial companies being propped up by federal tax dollars.
Executives at companies that have already received money from the Treasury Department would not have to make any changes. But analysts and administration officials are bracing for a huge wave of new losses, largely because of the deepening recession, and many companies that have already received federal money may well be coming back.
Crucial details remained unclear on Tuesday night, including whether the restrictions would apply to all companies that receive money under the so-called Troubled Asset Relief Program, or TARP, or whether they would apply only to the “exceptional” companies that were being rescued from collapse.
Under the Treasury’s $700 billion rescue program, most companies that have received money so far have been considered “healthy” rather than on the brink of collapse.
But five of the biggest companies to get help — Citigroup, Bank of America and the American International Group, General Motors and Chrysler — were all facing acute problems. And top executives at those companies made far more than $500,000 in recent years.
Kenneth D. Lewis, the chief executive of Bank of America, took home more than $20 million in 2007. Of that, $5.75 million was in salary and bonuses.
Vikram Pandit, who became chief executive of Citigroup in December of 2007 and previously held other senior positions at the bank, made $3.1 million.
Richard Wagoner, the chief executive of General Motors, made $14.4 million, much of it in stock, options and other non-cash benefits. He earned a $1.6 million salary.
“That is pretty draconian — $500,000 is not a lot of money, particularly if there is no bonus,” said James F. Reda, founder and managing director of James F. Reda & Associates, a compensation consulting firm. “And you know these companies that are in trouble are not going to pay much of an annual dividend.”
Mr. Reda said only a handful of big companies pay chief executives and other senior executives $500,000 or less in total compensation. He said such limits will make it hard for the companies to recruit and keep executives, most of whom could earn more money at other firms.
“It would be really tough to get people to staff” companies that are forced to impose these limits, he said. “I don’t think this will work.”
President Obama last week branded Wall Street bankers “shameful” for giving themselves nearly $20 billion in bonuses as the economy was deteriorating and the government was spending billions to bail out some of the nation’s most prominent financial institutions.
“If the taxpayers are helping you, then you have certain responsibilities to not be living high on the hog,” Mr. Obama said Tuesday, in an interview with “NBC Nightly News.”
Mr. Obama’s new rules are coming just as he is expected to ask for additional sums of money, beyond the $700 billion already authorized, to prop up the financial system, even as he pushes Congress to move quickly on a separate economic stimulus package that could cost taxpayers as much as $900 billion.
If the new pay limit applies to all companies that receive Treasury money, it would be almost as tough as a $400,000 limit proposed last week by Senator Claire McCaskill, Democrat of Missouri.
Senator McCaskill, reacting to reports of extravagant perks and bonuses at companies like Merrill Lynch and Citigroup, had blasted Wall Street executives as “a bunch of idiots” who were “kicking sand in the face of the American taxpayer.”
The banks that have received bailout funds already are subject to limits on compensation, but the Bush administration intentionally left them lax. The top five executives at banks that get an equity infusion from the government are restricted from offering golden parachutes, as rich severance packages are called, and any compensation above $500,000 is not tax deductible to the company.
Companies that received emergency money, like Citigroup, faced somewhat tougher restrictions, including a requirement to reduce the bonus pool for the top 50 executives by 40 percent. But even those restrictions come nowhere near the $500,000 cap.
In a letter to Congress last month, Lawrence H. Summers, director of Mr. Obama’s National Economic Council, suggested that the new pay restrictions would apply to all companies that get Federal help.
Without mentioning a particular dollar limit, Mr. Summers wrote that “executive compensation above a specified threshold amount be paid in restricted stock or similar form that cannot be liquidated or sold until the government has been repaid.”
Eric Dash contributed reporting.
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I have been moving around for a little while and just now I have found a good article which can somehow apply to our problem to day as it can deal with today Global Crisis.
Check it out down here:With the world currently experiencing a food shortage, the effects are starting to be felt across Australia. While we are fortunate enough to avoid famine, the implications of the global food crisis has other consequences for our agricultural industry, especially food exports.
Globally, food consumption has outstripped food production and, for the first time since the 1970s, the world is facing a food shortage. This is at the crux of what is described as the global food crisis.
For many Australians, a slight dent in the hip pocket at the supermarket checkout has been the most evidence we have seen of any food shortage. The shelves are still fully stocked and the choice of produce is extensive. Indeed, some economists are not calling it a crisis.
With Australia’s reputation for quality and efficient food production and the nation’s history of producing more food than we can consume, many may think this is a blip on the radar. But the reality is the world is facing unprecedented change and there are many challenges ahead for the world’s food producers to ensure ongoing food security for all.
While Australia, to date, has been relatively unscathed, the reaction around the globe to food shortages has been dramatic. In a July 2 statement, the World Bank acknowledged that more than 40 countries had lost between three and 10 percent of their GDP since January 2007 as a result of rising prices, and more than 30 countries had experienced food riots. “These numbers translate into broken lives and stunted potential,” World Bank president Robert Zoellick says.
The Bank predicts record oil and food prices are threatening to drive another 100 million people into extreme poverty. Andrew Stoeckel, the founding chairman of the Centre for International Economics, says when demand exceeds supply, prices increase—as we are seeing. On average Australians spend about 15 percent of their income on food compared with up to 80 percent for the world’s poorest. “It’s particularly severe for poor people and poor countries,” Stoeckel says.
But what does it all mean for Australia’s agribusiness and value-added food exporters? Is this an opportunity or a threat, and how should it be handled? The answer is complex and the possibilities varied.
While the recent price hike, which has mostly been associated with grains, has the potential to spur the world’s food producers into action, there are many other factors compounding the issue. Ultimately the world’s population is increasing, with estimates it will blow out from about 6.7 billion today to nine billion by 2050.
Terry Sheales, acting deputy executive director at the Australian Bureau of Agriculture and Resources Economics says the population growth is further compounded by higher incomes in the developing world. With more wealth, people are expanding their diets. “They’re demanding higher quality food with more animal products in their diets,” Sheales explains. “In order to produce those animal products, you have to feed [the animals] grain.”
With more mouths to feed, the pressure on supply is going to be exacerbated and so will prices. According to Stoeckel this is the natural way of things. Let demand push the prices up and suppliers will respond by growing more. He argues this will also cause a natural shift in the supply chain with consumers increasing their demand for more affordable alternatives and food producers will gravitate towards those products. Market forces, if left to their own devices, will sort the problem out.
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According to telegraph, the world biggest network, Facebook, is seeking more revenue from its 150 million user database for the world's largest market research databases, hoping to receive $15bn (£10.4bn) value.
The company, which has struggled to make money from advertising, has been demonstrating the benefits of its new instant polling tool to some of the most influential business leaders at the World Economic Forum in Davos.
In an interview with The Sunday Telegraph, Randi Zuckerberg, Facebook's global markets director and sister of founder Mark Zuckerberg, 24, said multinational companies had been bowled over by the ability to receive real-time feedback from the site's millions of users.
"I had tonnes of people saying 'this could be so incredible for our business'. It takes a very long time to do a focus group, and businesses often don't have the luxury of time. I think they liked the instant responses," she said.
At the conference, Facebook asked a range of questions to its users around the world, before feeding the answers back to delegates within minutes. It selectively-targeted users in Palestine and then Israel with the same question about global peace, before debating the results at a discussion forum. It also asked 120,000 US members whether US President Barack Obama's economic stimulus package would be enough to save the US economy. Almost 60pc said it would not.
"Davos is really a key place to launch an instant tool like this," Ms Zuckerberg said. "It's beneficial for everyone to see us as a global community of 150m users. The vast majority are not just college students in the US talking about things in their bedrooms. We are showing how we are a serious and insightful community."
Facebook's presence at the economic and business summit is a radical image change for the social network, which is stereotyped as a website used by students or schoolchildren. It now promotes Facebook users as "serious and insightful" adults in an attempt to advertise its members as a useful demographic for marketers.
Marketing experts have said the vast amount of personal information Facebook holds, together with the loyalty of its users, could be worth "untold millions" to companies engaged in market research.
The power of Facebook, and its members, in driving corporate decisions was illustrated last year, when a campaign on the site led to Cadbury reversing its decision to withdraw the popular Wispa chocolate bar. Cadbury has sold 70m Wispas since it reintroduced the bar in October after the Facebook campaign attracted 40,000 signatories.
Facebook has already sold the new polling system, called engagement ads, to CareerBuilder, a global graduate recruitment company, and AT&T, the US telecoms giant, is trialling the system. A Facebook spokesman said the company's advertising department is marketing the new service to thousands of companies worldwide and it hopes the polls will go live this spring.
All the company's previous attempts to monetise the site have failed after members railed against the site's invasion of their privacy. Mr Zuckerberg pulled Beacon, a service that notified users of their friends' purchases on external sites such as Amazon, after members launched a campaign in December 2007.
Mr Zuckerberg said the coming year will be "intense" for Facebook as advertising revenue dries up.
Facebook was valued at £10.4bn in 2007 when Microsoft paid £175m for a 1.6pc stake, but analysts have dismissed the valuation as "ridiculous" as the site has failed to find ways of exploiting its vast membership for commercial gain. Madan Sheina, at technology consultancy Ovum, said: "With the economy spiralling into a downturn, that figure might seem to be exaggerated right now."
The company has denied reports that it is so strapped for cash that it has been forced to approach Middle Eastern sovereign wealth funds for emergency funding. It has also cancelled plans to allow employees to sell off their shares early because of the economic climate.
Market research company eMarketer recently cut its estimate of advertising spending on the social networking sites, including Facebook, MySpace and Bebo, this year by £351m to £912m. It said US advertising spending on Facebook
will fall by 20pc to £147m.
Rival research company IDC said advertisers are turning their backs on social networking sites because they have a lower "click-through rate" than traditional online ads. Only 57pc of social network site users clicked on an advertisement and made a purchase last year, compared to 79pc on the internet at large.
Experts at Deloitte said Facebook is suffering from the double-whammy of collapsing advertising revenue and the soaring cost of electronic data storage. Deloitte estimates that the cost of storing photos and videos on sites like Facebook has increased by more than £70m a year.
"The book value of some social networks may be written down and some companies may fail altogether if funding dries up,'' said Paul Lee, Deloitte director of research for technology and telecommunications. "Average revenue per user for some of the largest new media sites is measured in just pennies per month, not pounds.
"This compares with a typical average revenue per user of tens of dollars for a cable subscriber, a regular newspaper reader or a movie fan.''
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Resulting Funding Gap Could Be "Final Stake in the Heart" Of U.S. Defined Benefit Pensions
Thursday, January 29, 2009 Stamford, CT USA — U.S. pension funds are projecting sharply reduced investment returns from major asset classes through 2013, according to new research from Greenwich Associates.
Every year, Greenwich Associates asks more than 1,000 U.S. institutions to disclose the annual rates of return they are expecting on individual asset classes for the next five years. Overall, corporate pension funds interviewed from July to October 2008 said they had reduced investment returns on plan assets to an annual 7.4% in 2008 from 8.2% in 2007 and public funds cut overall portfolio return expectations to 7.6% from 8.5%.
"U.S. pension funds are not expecting a quick recovery in investment markets," says Greenwich Associates consultant William Wechsler. "To the contrary, they are planning for a slow-growth environment for asset valuations that they expect to continue for the next five years."
Pension funds have dramatically reduced return expectations for U.S. equities, with projections for annual rates of return dropping to 7.8% in 2008 from 8.6% in 2007 among corporate plans and to 7.9% from 9.1% among public plans. Both groups also cut return expectations on fixed income, with public plans reducing annual expectations to 5.0% from 5.8% and corporate plans reducing expected returns to 5.2% from 5.6%. Pension funds also reported substantial reductions in expected returns on international equity, equity real estate, private equity and hedge funds.
Both groups expected private equity to generate the highest returns of any asset class over the next five years, with public funds projecting an annual 11.3% return from their private equity investments and corporate funds expecting 10.1%. "It is important to remember the extent to which markets have deteriorated since these interviews were completed in September," says Greenwich Associates consultant Dev Clifford. "If anything, these expectations for private equity and other asset classes might prove overly optimistic."
A Stake in the Heart of Corporate Defined Benefit Pensions?
Declines in investment returns have produced a gap between pension funds' actuarial earnings rate and their actual expectations for returns on plan assets. The average actuarial earnings rate reported by corporate pension plans increased modestly to 8.3% in 2008 from 8.2% in 2007 despite the decline in expected returns for all asset classes. The discrepancy results in an expected gap of 90 basis points. Although the average actuarial rate for public plans declined to 8.0% in 2008 from 8.2%, the bigger drop in expected investment returns has produced a gap of 40 basis points.
"These gaps can only be made up in one of two ways: through higher investment returns or new contributions," says Greenwich Associates consultant Chris McNickle. "At the present moment, neither option seems particularly likely. So we are facing a growing problem."
The results of the annual Greenwich Associates study suggest that institutions believe a low return environment will persist for some time to come. Meanwhile, companies, states, municipalities and other plan sponsors are facing severe resource constraints. Rather than being in a position to increase contributions, many plan sponsors are reducing or delaying contributions as part of actions that will save them money in the short term, but these actions could serve to increase pension funding shortfalls over the long term. Some will be at risk of violating regulatory requirements, and in the current environment may seek relief from the government.
"We might look back at this crisis as being the final stake in the heart of corporate defined benefit pension plans in the United States," says William Wechsler. "Recent volatility in pension asset valuations is bringing home the risks these plans can pose to the bottom line, and unfortunately closing plans to new employees is a relatively easy way for companies to reduce pension costs."
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