The Big Money

Geithner's Disgrace

Eliot Spitzer — Mon, 23 Nov 2009 20:57:09 +0000

A recent government report suggests that the government's rescue of American International Group (AIG) was less than perfect. Eliot Spitzer thinks that Timothy Geithner should be embarrassed:

Perhaps most remarkable is that Geithner claims the "sanctity of contract" prevented renegotiating with the counterparties. But the government wasn't a party to these contracts! The government was stepping in with taxpayer money to save a broken company on terms to be set by the government. The counterparties had the contractual right to refuse the terms, throw AIG into bankruptcy, and suffer the consequences. In a workout context, the entity with cash—here, the government—can set the terms, and the other parties can either accept those terms or walk over to bankruptcy court. The government had absolutely no contractual obligation to do anything.

Big Turkey Goes Wild

Dan Mitchell — Mon, 23 Nov 2009 19:05:27 +0000

Slate has republished an interesting "Explainer" from last year detailing how producers of turkey deal with an unusual market: where nearly one-fifth of their product is sold to be consumed on just one day. Big Turkey, which includes Butterball, Cargill, Hormel (HRL), and Sara Lee (SLE), plans for the season by freezing birds (relatively easy) or, to meet the demand for fresh birds (not so easy), by planning more than a year in advance for Thanksgiving and buying eggs for breeder birds from the two top suppliers, Hybrid and Nicholas.

Obviously, a fair amount of guesswork is involved. This year, that guesswork might have been slightly off, as the industry is beset with a surplus. Northwest Arkansas Newspapers reports that turkey prices are down by 18 percent to 20 percent. This is true despite production cutbacks of about 9 percent.

Meanwhile, Reuters reports that the overall cost of a Thanksgiving dinner is down about 4 percent this year. Much of that is thanks to the ongoing plunge in dairy prices, with milk down from last year by 92 cents a gallon, to $2.86. Reuters puts the average price of a 16-pound turkey at $18.65, or 48 cents less than last year.

Reasons To Be Cheerful

Jonathan Weber — Mon, 23 Nov 2009 18:34:44 +0000

The holiday season, for many small businesses, is the best of times and the worst of times. Retailers enjoy what’s by far the biggest sales season of the year even as they scramble to keep up with the frenzy. Other types of businesses, including NewWest.Net, work to solidify contracts and financial plans for the year to come. Everyone steps up their business game a bit and weighs the perennial questions: A company holiday party? Year-end bonuses? Gifts and cards for clients? Office schedule?

Even though we’ve never had a big gift-giving tradition in my family and I’m mystified by the hype ginned up around things like “Black Friday,” I do enjoy the commercial bustle of November and December. And this year, even though the global economic news is pretty grim and the financial state of my company is as parlous as ever, I’m feeling optimistic.

The fall, in addition to being holiday-prep season, is also media-planning season, and I’ve been encouraged by what I have seen in our business so far. Everyone is cautious, but at the same time they’re spending money and hardly anyone is behaving like the sky is falling. Even in the real estate and development economy, which is especially important here in the Mountain West and is still a very long way from recovery, there’s activity in the low-end and the mid-market. Some of our long-standing real-estate advertising clients are doing just fine.

Our conference business was a little weaker this year than last year, but our major sponsors are all on board for 2010, and, in fact, we may have more people interested in doing conferences with us than we can handle. That in turn could bode well for the hotels, catering companies, printers, and others who service the event industry (though admittedly this is only a sample of one).

The late fall in this part of the country also marks the beginning of snow season, and equipment retailers and resort operators are cautiously optimistic. Bookings are up a bit over last year’s dismal season, and the weather so far has been cooperating. Real estate may not be selling at ski resorts, but if there is snow, the sale of gear and lift tickets has traditionally proven surprisingly resilient, especially at resorts that are close to population centers.

Snow-sports businesses will also get a boost this year from the Winter Olympics in Vancouver. The Olympics always drive excitement and interest, and the location this year could be a double-benefit for U.S. mountain towns: It’s close enough to draw a lot of attention, and some skiers who might have headed to Whistler will instead avoid the crowds and head for a U.S. resort. The weakening U.S. dollar may also attract more foreign visitors this winter.

Of course, none of this means that NewWest.Net has money pouring in the door today, and our holiday celebrations will be decidedly bare-bones. I’ll probably have the staff over to my house for dinner. Gifts and bonuses are pretty much off the table. And I’m offering everyone a week or two of unpaid vacation between now and the end of the year as a way to catch up a little on our cash-flow. Very generous of me, I know.

As the cliché says, though, it’s not the monetary value of what you do for people (or for clients) but rather the feeling that it represents. So I’m looking to be celebratory, appreciative, and cheap this holiday season. Our family will be kicking it off on Thanksgiving with a Heritage turkey from Prairie Heritage Farms—an organic farm in North-Central Montana that is truly a small business for the times (and is co-owned by my indefatigable colleague Courtney Lowery Cowgill). It’s more expensive than a supermarket bird, but for an extra $20, it makes for something very special.

I’ll be keeping my eye out for other ways we can do things that are a little bit special but aren’t expensive or too time-consuming. And come New Year’s, I’ll be toasting what I expect to be a much better business year in 2010.

The Great Anti-Google Conspiracy

Chris Thompson — Mon, 23 Nov 2009 18:25:47 +0000

Such is the state of the media industry that any hope of remuneration, no matter how remote, is greeted with giddy breathlessness. And so we have word over the weekend that Microsoft (MSFT) execs have been secretly conspiring with Rupert Murdoch's News Corp. (NWSA) to "de-index" Google (GOOG) from its Web pages, effectively depriving Google users from accessing news stores published by Fox et al, but allowing Bing users to keep reading the stories of the day via Microsoft.

The story first broke in the Financial Times, and it's as follows: Microsoft has been quietly approaching a variety of news outlets, offering cash to get them to block Google's search bots from scanning their pages and indexing important stories as part of its Google News function. Google, of course, has been notoriously coy about the subject of paying for the opportunity to do so, arguing that truly interesting stories will compel readers not just to scan the headline but to click to the story and possibly whatever advertising may accompany it. Now, it appears that News Corp. has bitten on the deal and will partner with Microsoft to offer them a more or less exclusive relationship; if you want stories from Fox News or any or Murdoch's media properties, Bing will be where you go to find them.

This has sent reporters into a tizzy, offering them a hope, however slim, that the free and universal access to information offered by the Internet won't necessarily destroy every job in the industry. "The biggest beneficiary of the tussle could be the newspaper industry, which has yet to construct a reliable online business model that adequately replaces declining print and advertising revenues," writes the FT team that broke the story.

And as Chadwick Matlin has written in these very pages, Murdoch's aggressiveness in charging people for content via Hulu could ultimately offer a lifeline for a media industry flabbergasted by a world in which readers and viewers get creative content for free. But will it work?

Wired writer Eliot Van Buskirk is at least a little skeptical. "In the short term, this could be disastrous to News Corp’s publications." he writes. "Google doesn’t need the news—or, to be more precise, it doesn’t need any specific news source. If bloggers have taught the world anything, it’s that one journalist’s facts can become the basis of another journalist’s story." In other words, information will leak out, no matter how strenuously you try to monopolize it. In addition, Googlewatcher Jeff Jarvis cites a study that tracks the number of eyeballs following a group of German publishers that have tried to assemble a similar Google-blocking coalition and notes that Wikipedia—which would almost immediately incorporate important news regarding any subject the German press would care to report—enjoys three times the appearances on the first page of Google search results as any of the German publishers do, for any given subject. So block Google News all you want, Jarvis claims, and users will just pop over to Wikipedia if they want the latest dirt on Britney or whomever. Imagining that even Murdoch can stop this phenomenon, he concludes, is "a swine flu of stupidity."

Derek Thompson over at the Atlantic begs to differ. It's not access to information that matters, he argues—it's the money. All the Web traffic in the world has done diddly-squat to boost revenues, and without that, you can't stay in business. So even if readers can go around Google to eventually find the latest news on whatever they're interested in, Murdoch's deal could still keep the journos in drinking money. "[Jarvis is] not engaging with the central problem, which is that today's online ad rates can't save journalism," Thompson writes. "So why blame Murdoch for looking for something that can?"

Why Do We Need GM to Pay Us Back?

Matthew DeBord — Mon, 23 Nov 2009 17:10:31 +0000

The New York Times has an op-ed today from Edward Niedermeyer, who edits The Truth About Cars, taking strenuous issue with the idea that General Motors will ever be able to pay back the taxpayers’ $50 billion-plus investment in the company. In other news, cats and dogs still don’t get along and day still gives way inevitably to night.

TTAC has been heralding the demise of GM for some time now, so it’s no surprise that Niedermeyer would be shocked—Shocked!—that the New General would dare suggest it can refund some of the money the Treasury has given to it. An IPO in 2010 is also preposterous. But the TTAC about doth protest waaaayyyy too much. How is that GM is even still around!?!? it asks itself. This is like being in a horror movie in which the bad guy/monster/zombie JUST KEEPS COMING BACK.

The hysterical concern that GM might not ever be able to pay back the American people misinterprets what the American people actually sought in bailing out GM. We’re not such a shortsighted nation that we could be convinced, contra-TTAC, that GM should go away, leaving us with another bankrupt automaker, Chrysler, and Ford (F) as the sum-total of our domestic auto industry. We weren’t investing for return, or to break even, but rather to avoid mega-unemployment and, perhaps more importantly, retain some of the admittedly fraught psychological engagement with carmaking culture that GM has always represented.

And of course, Niedermeyer ignores the most obvious aspect of the GM bailout, which is that the U.S. government can lose as much money as it wants, whenever it wants. In times of war and economic catastrophe, this is highly useful and expedient. It may not ultimately match one’s long-held views about the fortunes of industrial enterprises, but there it is. It may not even perfectly align with taxpayer interest, but then again, making the citizenry money isn’t really the government’s job. Exercising the ability to evade crisis is.

Shanghai Express

Daniel Gross — Mon, 23 Nov 2009 16:13:12 +0000

These are grim times for American executives. The public is angry, and consumers are holding on to every nickel. It's hard to escape the sense that the economic future may be less comfortable than the past. But not all American managers are gloomy. "Optimism is higher than it was last year," says Brenda Lei Foster, president of the American Chamber of Commerce in Shanghai. A survey of its 370 members found that more than 90 percent are optimistic about the next five years. The reason: Instead of simply shipping goods made in China back to the United States, "companies here [are] focusing on the Chinese domestic market."

Shanghai, where I landed on the same day as President Barack Obama, is no more representative of China than New York is of the United States. But this supercharged financial center offers a glimpse of China's consumer-oriented future. When Stephen Green, chief economist at Standard Chartered Bank, first came to Shanghai in 2000, the foreigners were rich. "Now the Shanghainese are rich, and the foreigners are poor by comparison," he says. The biggest change over the last several years: "More Porsches."

Shanghai's economy grew at a 12 percent clip between 1993 and 2008. And in the wake of the global financial meltdown, while exports fell, the economy continued to expand—largely because of local demand. Xinitiandi Street, home to the building where the first Communist Party Congress was held, has evolved into a place where the bourgeoisie come to spend their money. There are jewelry shops, a Starbucks (SBUX), and, around the corner, a Rolls-Royce dealership.

Companies that initially came to China to manufacture products for export are now focusing their attention on the rising domestic market as a large middle class takes shape. A sizable portion of the world's toys are made in China, but Toys "R" Us now has 15 stores—small ones, not big boxes—in the country, too. Best Buy (BBY), which has been importing electronics from the region for years, is deploying its Geek Squads to several stores in Shanghai. They came for the cheap labor, but they're staying for the spending power.

In addition to making anti-aging creams in China, Mary Kay, the all-American direct-sales cosmetics operation, is now selling them there. With 200,000 women hawking its wares, Mary Kay has seen its sales climb 20 percent so far this year. Like many other U.S. brands—KFC, McDonald's (MCD)—Mary Kay has shifted from being a down-market domestic brand to an aspirational foreign one. "We're a premium brand, like Häagen-Dazs or Starbucks," says Paul Mak, president of Mary Kay China.

While U.S. banks are reining in lines of credit, Bank of Communications—a large Shanghai-based lender in which British giant HSBC owns a large stake—is just now beginning to roll out credit cards. But the concept of buying stuff you can't pay for is still alien to many Chinese consumers; 80 percent of cardholders pay off their balance each month. That's changing, though. While older and poorer Chinese people still save up to one-third of their income, those who came of age during China's economic boom are becoming spenders. "Anyone born after 1980 behaves like an American," says Stephen Green.

The historical habit of saving and the rising propensity to spend are precisely why President Obama came to China. "We do not seek to contain China's rise," he said in a meeting with students in Shanghai—his first stop. And why would we want to? China now offers Americans two things we dearly need: a supply of cheap credit to fuel our deficits and recovery efforts and a growing market that is receptive to American goods and brands.

Obama isn't the only world leader taking a fast plane to China. At a hall promoting Expo 2010, the massive world's fair Shanghai is hosting next year, a stunning 3-D video shows the futuristic pavilions nations are planning to erect as part of the spectacle. (Luxembourg's seems larger than the country itself.) Shanghai is ready for the influx. Shanghai Pudong International Airport is a vast, hushed, cathedral-like space, since flying is still beyond the financial reach of many Chinese citizens. And the maglev train, the world's fastest, stands ready to whisk visitors to town. As the train reaches a maximum speed of 267 miles per hour, the carriage is so smooth and steady, you can stand. The 25-mile run is over in seven minutes. When it passes its outbound counterpart in a whoosh and a blur, you can catch a fleeting glimpse of the Pacific Century.

The Store That "Twilight" Saved

Ylan Q. Mui — Mon, 23 Nov 2009 15:59:41 +0000

As the second installment of "Twilight" hits theaters, the vampire craze continues its run. The film has spawned tons of merchandise, and may have actually been the saving grace for one store. Double X has more:

I had forgotten that Hot Topic existed. The last time I ventured into that dark and gloomy corner of the mall was to secretly purchase incense and Marilyn Manson CDs in high school, which already dates me. I had relinquished my velvet chokers and leather cuffs for the perky, bright lights of Forever 21. I threw away my plaid flannel shirts. And then I read Twilight and quickly became obsessed with the angsty vampire love story and the insanely good-looking actors who portray them on film. Reading about them wasn't enough. Watching them wasn't enough. I had to take my obsession to the next level. I had to shop.

BusinessWeek’s Mr. Outside

Marion Maneker — Mon, 23 Nov 2009 12:13:26 +0000

When a 37-year-old editor, no matter how preternaturally talented, gets a job running a major media outlet, it is a sign of a generational shift. The announcement last week that Josh Tyrangiel will be the new editor of BusinessWeek as the publication completes the transition in ownership from McGraw-Hill (MHP), the company that had operated it for 70 years, to Bloomberg, the financial-information juggernaut. His appointment represents the passing of financial media from the relatively comfortable stewardship of one generation to the complicated headache of another.

Indeed, Tyrangiel’s hiring is tantamount to having his elders hand him a knotty problem and saying, “You figure it out!” Consider: Earlier in this decade, there was a group of editors at the Wall Street Journal who were eager to grab the wheel. Norman Pearlstine and John Huey, both Journal vets who eventually rose to the top at Time Inc., exemplified the path other Journal stars hoped to emulate.

Around 2004, it became apparent that the career cycle of the Journal’s editor, Paul Steiger, would not offer any of the three editors in this group the hope of succeeding to the WSJ’s helm. (And the way things played out at the Journal, they’re all probably lucky that they did.) So each of the three editors—Lawrence Ingrassia, Joanne Lipman, and Stephen Adler—had to find other venues in order to make their marks.

Ingrassia, the oldest of the three, was the first to move on. He became the business editor of the New York Times. Joanne Lipman was the last to go, to edit Condé Nast Portfolio until it folded. In between, Stephen J. Adler was recruited by McGraw-Hill to become the editor of BusinessWeek.

Like Tyrangiel, Adler was meant to preside over a dramatic transformation in BusinessWeek’s business. At the time, the enterprise rested on two pillars: the magazine and a robust conference business. Part of Adler’s mission was to add a third: the Internet.

BusinessWeek had some strengths. More newsy than the long-form, CEO-obsessed Forbes and Fortune, and more thematic (it ran the famous “The Death of Equities” cover story in 1979) than daily journalism, BusinessWeek was the queen of the magazine business for decades. With a million-reader rate base multiplied by the frequency of a weekly, it was powerful and profitable, if often overlooked. With few other outlets, business-to-business advertising made BusinessWeek the ad-page leader among all American magazines from the 1970s on.

For 20-odd years before Adler arrived, BusinessWeek had been something of the CNBC of its day, a haven for middle managers looking for any information edge that might give them a career boost. That’s what made the conference business such a profit center. With great distribution and visibility, the magazine’s powerful and frequent covers could set the tone of the week with a strong cover line or clever illustration.

But while BusinessWeek.com grew on Adler’s watch, it never became a major player online, compared with the financial sections of the big portals and sites like CNN Money and Forbes.com. Part of the problem is endemic to weeklies; it’s hard to adapt the work force, workflow, and readers’ expectations to the 24/7 cycle necessary for a successful Web site. But the site also had a complacent streak, often settling for columnists who just filled a slot instead of writers who hewed a path through their field of expertise. BusinessWeek.com was acting like BusinessWeek of the 1970s.

Last year, Adler also launched Business Exchange, an ambitious $20 million social network. BX, as they call it, was meant to make the magazine all Web 2.0; participants are supposed to link to content, comment on one another’s posts, and, presumably, network online. But LinkedIn was already the dominant player in the space—and struggling itself. According to the publication’s own reporting, BX has not met its traffic and revenue goals, yet still accounted for 16 percent of BusinessWeek’s digital revenues in 2009 (which probably says something about how difficult it has been to get the other 84 percent).

As the news cycle compressed under pressure from the Internet, BW’s magazine became less relevant and more vulnerable to a severe recession. For all intents and purposes, BusinessWeek died in 2009. Its failure left the WSJ stars one for three.

The one standout success has been Ingrassia. Who would have guessed even two years ago that the newspaper guy would be the last one standing?

Handed the business story of a lifetime, the New York Times has been going at it hammer and tongs in print and on the Web. Flooding the zone, the paper reminds us again and again what value a deep bench of editorial talent provides. And even though the economics are still a work in progress, the daily newspaper’s adaptability to the Web is indisputable editorially. The Wall Street Journal, Financial Times, and New York Times—along with a number of other newspapers—have all increased their readerships through the Internet.

Which brings us back to Bloomberg and Tyrangiel. For years, Bloomberg has tried to repurpose its wire terminal content for its Web site and magazine. But the Bloomberg style doesn’t scale. If what Bloomberg wants in buying BusinessWeek is a larger megaphone beyond its market-obsessed core constituency, BusinessWeek was not an obvious choice.

In buying BW, Bloomberg has acquired the infrastructure of a magazine, but little in the way of editorial assets to exploit. In hiring Tyrangiel, it still hasn’t cracked the editorial conundrum. A fluid writer, a no-nonsense manager, and an editor with a broad range of interests, Tyrangiel’s greatest success at Time was his ability to coax the editorial staff onto the Web by using what Tyrangiel often calls “medium recognition.” That’s the awareness of what kind of content works best in print or on the Web—and having the ability to execute against that awareness. Medium recognition isn’t the whole solution to the editorial riddle, but it is a big start.

On the execution side lies Tyrangiel’s ease at dealing with difficult personalities. With a complex mix of editors—Pearlstine, Winkler, and former Time managing editor Jim Kelly—all floating around in the new BusinessWeek stew, Tyrangiel’s positive energy and lack of pretension may be one of his biggest assets.

Where BusinesWeek goes from here will be a litmus test for magazines and media. The Bloomberg team swears by the magazine and says they plan to invest in it heavily. The imperatives of the 21^st century surely mean they will take another run at figuring out BusinessWeek.com. And despite Tyrangiel’s lack of formal credentials as a business journalist, he had tremendous success in building Time.com’s Web traffic over a few years. (Of course, he had corporate access to the CNN.com juggernaut for help.)

Time’s great limitation was its cultural baggage as a weekly magazine. No matter how much Time.com changed the organization’s metabolism, it would always be thought of by readers as a weekly. BusinessWeek, on the other hand, gets a new lease on life if it can fuse Bloomberg’s reputation as an instant-information service with BusinessWeek’s reputation as a trend-watching guide.

To paraphrase the old candy bar commercial, they’re going to take two great tastes and make them taste great together—like peanut butter and chocolate.

Easier said than done. Much has been made of last week’s round of layoffs that hit a quarter of the staff. Some observers noticed they had cut many of the columnists, prompting speculation that the Bloomberg Borg is trying follow the path of the Economist—the supposed model for a number of magazines these days—and create a monotone editorial voice.

But doesn’t fit with the combined talents of the former Time team, among whom packaging, graphics, and fluid, timely writing have always been the foot forward. Magazines are better for graphics—charts and photo spreads and charticles—and writing that holds the reader's attention as it unfolds an A-to-B-to-C story or lays out a complex argument or analysis. The Web works better for trial balloons, opinions, and flat-out news.

And Tyrangiel doesn’t have to reinvent the wheel here. There’s at least one successful model out there that the Bloombergers can retool for business news: New York magazine. When you think about it, the model ports over very well. New York magazine has deep-pocketed ownership willing to invest in a great product. It takes a wise, witty, and knowing voice and applies that to some crucial constituencies. New York uses the Web to stay in constant contact with those subgroups and takes the most successful items from there and adapts them to print.

On top of that, New York has some signature franchises and commissions long-form stories to have the last word on who’s who and what’s what. Finally, it wraps that all up in a graphically innovative print package that subscribers feel gives them an inside edge on the place they want to be.

Having that sensibility—and Tyrangiel, who is equally comfortable talking pop music and politics, has it—is far more important to reviving BusinessWeek than having a specific background in business. Which may be another way of saying that medium recognition is the best hope of Tyrangiel’s generation.

Murdoch's War on Google

Bernhard Warner — Mon, 23 Nov 2009 08:20:45 +0000

Are Rupert Murdoch's News Corp. and Microsoft (MSFT) plotting to take down Google? That's the big question this morning as news emerged over the weekend that News Corp. and Microsoft are in early discussions to forge an exclusive online editorial partnership that would essentially pull all of Murdoch's globe-spanning news empire from the Google (GOOG) News index. According to Murdoch's Wall Street Journal, News Corp. content would continue to be featured on Microsoft's Web properties even if it eventually pulled its articles from Google News, giving Microsoft's Bing search engine exclusive access to a quality news source while giving Murdoch cash for his news.

The WSJ credits the Financial Times with the scoop, which calls the move a possible savior for troubled print media companies, "setting the scene for a search engine battle that could offer a ray of light to the newspaper industry." The logic that squeezing out Google would save newspapers has its doubters. The WSJ itself notes there is a huge trade-off. Would a check from Microsoft make up for the lost traffic delivered by Google's popular news index? it wonders. Or, more likely, is it just a way to derail Google's business model? "This is all about Microsoft hurting Google’s margins," an unnamed Web publisher familiar with the News Corp. plan told the FT.

The New York Times delivers an ominous report about our nation's staggering $12 trillion debt, warning that the Treasury "now face[s] a trifecta of headaches: a mountain of new debt, a balloon of short-term borrowings that come due in the months ahead, and interest rates that are sure to climb back to normal" from the "too good to be true" rates Uncle Sam is enjoying now. The Times reckons that Uncle Sam's debt situation is not unlike the "payment shock" that sunk "legions of overstretched homeowners" into mortgage defaults. The federal government now pays $202 billion annually to service its mountain of debt. That figure will soar to $700 billion annually (or the equivalent of a Wall Street bailout each year) by 2019.

The latest salvo in the chocolate wars was sounded this weekend, with the FT reporting that Cadbury, already under siege from a $16.7 billion hostile Kraft (KFT) bid that it vows to fight, would, however, be "sweet" on a rival offer from Hershey "if a bid comes at the right price." Why the double standard? It all comes down to shared values and a cultural fit. "These are people who know each other," a person close to Cadbury told the FT. "I don’t think anyone doubts the logic of it." It doesn't hurt that Hershey may outbid Kraft by $300 million. And still more suitors could be lining up at Cadbury's door, the NYT reports. Also in the Cadbury mix are Nestlé and Italy's Ferrero. Both firms "are pondering their options, according to people briefed on the discussions at the companies," the newspaper writes.

From chocolate now to that other black gold, oil. Italy's Eni is expected to announce, possibly as early as today, that it will buy two oil fields in Uganda for $1.3 billion, "underscor[ing] the intense interest the world's major oil companies are showing in Uganda, one of sub-Saharan Africa's most promising hydrocarbon provinces," the WSJ reports. There's yet more money sloshing around the energy industry this morning. According to Bloomberg, the owners of one the world’s largest oil-refining complex, Reliance Industries, will bid up to $12 billion for bankrupt chemicals and fuel maker LyondellBasell Industries AF, "in what may be the biggest acquisition by an Indian company in two years."

And finally, a trio of Harvard professors believe they have proof that Bear Sterns and Lehman Bros. executives profited handsomely in the collapse of their companies last year. According the NYT, the professors have published a study that concludes "it is an urban myth that executives at Bear and Lehman were wiped out along with their companies." The stock holdings of these executives may show a combined loss of $900 million, but when you add in other perquisites, Lehman's ex-chief Dick Fuld and his contemporaries came out well ahead, the study says.

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Mon, 23 Nov 2009 08:20:45 +0000

Tweeting for Dollars

Caitlin McDevitt — Sun, 22 Nov 2009 10:53:50 +0000

Advertising is infiltrating the Twitter community, the New York Times reports. People who have large followings on the site are increasingly considering sending out tweets endorsing certain products or services in exchange for payment. Various start-ups have cropped up around this very idea, and each is trying to figure out how best to make these ads unobtrusive and perhaps even relevant. The paper says, “It is perhaps the last frontier in advertising—getting regular people to send a sentence or two of text, on behalf of paying advertisers, to their friends and admirers. The idea, according to the entrepreneurs who are developing such services for Twitter and other Web networks, is that people trust recommendations from those they know and respect, while they increasingly ignore nearly ever other kind of ad message in print, on television and online.”

Big banks are finding new profits in “the mortgage mess,” the New York Times reports. The paper explains, “Investment funds are buying billions of dollars’ worth of home loans, discounted from the loans’ original value. Then, in what might seem an act of charity, the funds are helping homeowners by reducing the size of the loans. But as part of these deals, the mortgages are being refinanced through lenders that work with government agencies like the Federal Housing Administration. This enables the funds to pocket sizable profits by reselling new, government-insured loans to other federal agencies, which then bundle the mortgages into securities for sale to investors.” Here’s the catch: The situation is riskiest for the federal government and, at the end of the day, taxpayers.

So much for Black Friday. The Wall Street Journal has decided that this whole month should be called “Black November.” The paper explains, “The one-day Black Friday shopping event has given way to a month-long parade of promotions this year, as retailers are making a dash for early holiday cash.” At this point, consumers are used to getting good deals, so retailers have already been particularly generous with promotions. Still, this is not to say that you won’t get good prices the day after Thanksgiving. The day will be “as promotional as usual”—including doorbuster sales to lure the crowds.

The Washington Post reports that some employers who cancelled lavish holiday parties due to the recession last year have failed to reinstate them. Instead, they’re planning charitable events or fundraisers. The paper says, “At employers large and small, the holiday party has disappeared or become a shadow of its former self. In its place, bosses are planning help-the-hungry or cheer-the-children campaigns.” Not only do these events cost less money, but they can bolster a firm’s reputation as well. The paper reports that according an annual survey by an executive-search firm, “About 81 percent of companies surveyed said they plan a holiday celebration—the lowest level since the survey began 21 years ago. More than half said they'd canceled their party or reduced its scale.”

And finally, according to the AP via BusinessWeek, " ‘The Twilight Saga: New Moon’ took in $72.7 million in its first day to break the single day domestic box office record previously held by ‘The Dark Knight,’ which had a $67.2 million opening day last year.” The movie, which opened this weekend, is a follow-up to the tale of a young girl who falls in love with a vampire. The article continues, “If ‘New Moon’ maintains its pace, it might have a shot at the all-time best opening weekend record of $158.4 million, also held by "The Dark Knight.’ ”

Geithner Is Not Going Anywhere

Paul Smalera — Sat, 21 Nov 2009 09:49:08 +0000

Treasury Secretary Geithner “has been a lightning rod for the Obama administration even longer than he's formally held his position,” says the Washington Post. The story traces through Geithner’s history with Obama and the department and notes with some alarm the latest breakdown of comity in Washington: Geithner’s treatment at the hands of House Republicans this past week. Even some conservative Democrats have refused to support the secretary, but, because he has the full support of the administration, calling him ‘embattled’ seems completely incorrect. Geithner, as the article notes, was given credit for defending himself and the president, saying, in one case, that Republicans in the House "gave this president an economy falling off the cliff."

Ohio is going after the credit-ratings agencies in court, suing Moody’s, Standard & Poor’s, and Fitch, says the New York Times. Specifically, the state claims it lost $457 million from its pension and retirement funds thanks to the agencies being in cahoots with the issuers and banks behind much of the bad debt responsible for the losses. The case is not a slam-dunk—if the courts find issuing ratings to be protected free speech, things could get messy. The agencies have long claimed their work is more like journalism than consulting, despite the quasi-official status and importance that the grades have on Wall Street. The California pension fund Calpers is also suing, but the ratings agencies are famous for an almost completely unblemished court record dealing with these kinds of charges.

The massive but conservatively managed Hershey (HSY) is deciding whether it wants to let Kraft (KFT) have an uncontested shot at acquiring British chocolate maker Cadbury (CBY), as has been the case. “Kraft has so far emerged as the only suitor for Cadbury, and were it to succeed it would become an international food giant that could threaten Hershey’s expansion prospects,” says the paper. But it turns out that Cadbury execs don’t really fancy working for the food conglomerate, providing an opening for another interested company. Hershey, meanwhile, has little debt, making an acquisition possible, but little cash, making it harder. Complicating the issue is that Hershey is 79 percent owned by a trust that serves the town of Hershey, Penn., workers, a local school, and other charitable institutions. A previous decision by the trust to buy Wrigley completely fell apart and led to mass resignations by members, and criticism from elected and judicial officials. Hershey executives seem to be acutely afraid of making the same mistake again but still sense an opportunity to steal Cadbury from Kraft controlling shareholder Warren Buffett, whose $16.7 billion bid would have to be trumped by at least $300 million to be considered.

Speaking of $300 million, that’s how much a Florida jury has awarded to “a former smoker who says she needs a lung transplant.” An expert tells the paper that the ruling, against Philip Morris, “would be the nation’s largest award of damages to an individual suing a tobacco company and could encourage thousands of plaintiffs who have filed similar cases in Florida.” Her lawyer said, “She’ll get paid, I would hope, within a year or two. The question is will she live long enough.”

The Japanese “lost decade” meme is re-entering discussions, with the latest comparisons being made to Britain, reports the Times. In fact, analysts have thrown out American comparisons and say Britain, for a variety of reasons detailed in the article, represents the greater risk. It was Adam Posen, an American, who gave a speech at the Bank of England on the similarities, which are recounted at length. Although Posen stresses the views are his alone, the klaxon appears to have been sounded.

Finally, a recent survey says the stimulus was “a worthy step.” The Times interviews experts from the many fields the wide-ranging package dealt with, and the consensus seemed to be that even if the stimulus wasn’t perfect, things are still far better because of it. Most conservatives, meanwhile, remained skeptical.

GM Customers Give Back

Matthew DeBord — Fri, 20 Nov 2009 23:23:35 +0000

Their cars, that is. General Motors is updating the world on how many buyers have returned their vehicles under the company’s “May the Best Car Win” 60-day satisfaction guarantee. And the number is [drumroll]...193. Out of 220,000 cars sold so far, in the month since the program debuted. Doesn’t sound like a lot, does it? Autoblog’s Chris Shunk takes a closer look:

“[W]while 193 appears to be fairly insignificant when compared to overall sales, it also represents 30 percent of the 653 people who actually opted for the 60-day option in lieu of a $500 discount. While some would say that the 30% number is very bad for GM, we'd say that it isn't much of a surprise given the fact that those 653 customers obviously weren't very sure about their purchase decision to begin with.”

In other words, those customers wanted a safety net and used it, while the vast majority of other purchasers were confident enough going in to their deals to see that a $500 discount made more sense.

This is more good news for GM, on balance. The company’s confidence is growing, even as odd things are happening in its boardroom and executive offices. Its market share is expected to slightly increase this month, and it’s edging closer to making money in the U.S. On the downside, discounted inventory season is coming, so that dealer lots can be cleared for 2010 models. And an important number looms: the size of the North American market next year. Will it be 10.5 million new vehicles? 11.5 million? 12.5 million? GM is supposed to be able to make money in a 10-million market. That would be squeaky, however. 12 million or more could enable GM to get its market share above 20 percent and hold it there, making a good case for an IPO before next fall.

Ron Paul Wins Lifelong Fight, Now May Be Forced To Vote Against Everything He Believes

Chadwick Matlin — Fri, 20 Nov 2009 22:12:39 +0000

Ron Paul has finally won. Buoyed by a crappy economy, a distrustful public, and a nervous legislature, he has convinced his colleagues to audit the Federal Reserve. His bill calling for more transparency at the Fed has, for all intents and purposes, cleared the financial services committee. And from here on it’s in good shape. The bill has massive support in the House—the majority of the chamber has signed on as co-sponsors—and 30 co-sponsors in the Senate. It’s an epochal development in the relationship between the government and the country’s quasi-governmental central bank. A man who wants to kill the Fed altogether may have convinced Congress to hasten its demise.

When I wrote about Paul’s bill back in July, I wondered whether it was the biggest threat to Obama’s regulatory overhaul. Obama wanted to invest the Fed with more powers while Paul and the House wanted to monitor the ones it already had more closely. But the regulatory debate has taken different turns in Washington, with Chris Dodd and Barney Frank moving away from Obama’s vision. Perhaps the support of Paul’s bill furthered the divide.

But Ron Paul’s principles are about to get conflicted. The bill will likely be mashed-up with the broader regulatory overhaul that Barney Frank is preparing. But a libertarian like Ron Paul believes in free markets no matter what, which would make him opposed to regulatory overhaul. But he supports his own legislation to audit the Fed! He’s stuck between a free market and a transparent one.

Liberty Maven suggests he’ll vote for the bill since regulatory reform will likely pass even if he votes no. It’s a rare compromise for Paul. This time, he’s determined to secure a win, even if it means taking a philosophical loss.

Wonk Watch 11.20.09

Matthew McKnight — Fri, 20 Nov 2009 21:59:21 +0000

Paul Krugman attacks the "deficit squeamishness" of the Obama administration again. The issue, as he understands it, is that government officials "don’t trust the demand for long-term government debt, because they see it as driven by a 'carry trade,' " which, as TBM explained this week, is when players borrow cheaply in the short-term and use that money to buy long-term bonds. The fear is that long-term interest rates may rise, resulting in losses for those doing the carry trade, forcing them out and crashing the Treasury market. But as Krugman says, "The whole problem right now is that the private sector is hurting, it’s spooked, and it’s looking for safety...[m]eanwhile, the public sector is sustaining demand with deficit spending... ." Further, he asserts that the relationship between public and private borrowing isn’t dangerous because we are facing a prolonged period of near-zero short-term interest rates. In fact, he says, it is the thing that will help the nation climb out of unemployment.

Brad DeLong turns his sights to the interest rates as well and applauds Paul Krugman on a thorough analysis. But he doesn't really agree with Krugman. DeLong narrows in on Krugman's assertion that the underlying problem is a "a technical matter of maturity mismatch." DeLong points out that our read on the market may not be so straightforward. He says, "The long Treasury market is thinner than many people think: it is not completely implausible to argue that it is giving us the wrong read on what market expectations really are." All in all, DeLong is just more hesitant than Krugman. DeLong says, "[t]his is something to think really hard about."

Felix Salmon wags his finger at the SEC today. He cites a report put out by oil consultant Alan von Altendorf that lays out the commission's plan to allow oil companies to "to use internal, proprietary computer models to essentially pull their 'proven reserve' numbers out of thin air." Salmon asserts that this is just another failure in accountability and regulation, by the institution whose job it is to ensure just those things. He says, "Frankly, it’s not thinking at all: this is just another case of regulatory capture. And a sign that, so far at least, nothing has changed at the unsalvageable and dysfunctional institution."

Barry Ritholtz doesn't say too much today. Instead, he makes two recommendations: one book (The Greatest Trade) and one Web site (Innumeracy.com).

Word of the Week

Caitlin McDevitt — Fri, 20 Nov 2009 21:29:46 +0000

A government report released this week said that the New York Fed mishandled last year’s bailout of American International Group (AIG). According to the report, the Fed “refused to use its considerable leverage” in negotiations over how to handle the beleaguered insurer’s obligations to various trading partners. Neil Barofsky, the special inspector general for the TARP, accused the Fed of giving a “backdoor bailout” by allowing these partners to get paid in full. What’s a backdoor bailout? Well, a lot of the money that the government handed over to save AIG ended up going straight to other too-big-to-fail banks to which AIG owed money. Instead of getting an infusion of taxpayer funds the old-fashioned way, some of these big firms didn’t even have to ask.

Why Restaurant Owners Are Exploding

Dan Mitchell — Fri, 20 Nov 2009 19:19:29 +0000

Restaurateurs are going through hard times. So hard that some of them are starting to lash out, either at their customers or at their own employees.

In Bethlehem, Pa., two college students received what they said was terrible service at the Lehigh Pub. That establishment, like many others, tacks on an 18 percent "gratuity" to every bill for large parties—in this case, six or more. The two students, who were with four friends, refused to pay the tip, and were arrested.

As Larry David hilariously pointed out in a recent episode of Curb Your Enthusiasm, such gratuities are gratuitous. They shouldn't exist, and waiters should be tipped according to the level of service they provide, no matter how large the party. That, after all, is the operant idea behind tipping.

From what the college students—Leslie Pope and John Wagner—said about their experience at the Lehigh Pub, the waiter deserved nothing. They had to fetch their own silverware and napkins while their waiter was out smoking. They had to ask the bartender for soda refills. They waited more than an hour for their meals.

The bill, sans the "tip" of $16.35, came to $73.87. The Lehigh Pub took the money but then called the cops, who arrested the two for theft of service.

"Gratuity is thanking you for your service," Pope told the Lehigh Valley Express-Times. "You can’t give us terrible, terrible service and expect a tip."

According to the NBC affiliate in Pennsylvania, the restaurant offered to comp the meal itself, but the couple refused, apparently on principle. Dan Jaffe of the DUI Attorney blog wrote: "On what planet does the logic of offering a $73 dollar comp, which was declined, justify going after the couple for paying the $73, but then refusing to pay the 'required' $16 tip?"

Since news of the arrest broke a few days ago, people poured onto the Lehigh Pub's Yelp page to give bad reviews. As of this writing, there are 381 reviews with an aggregate rating of one star. The overwhelming majority of those came since the arrest, but earlier ones, written by people who had actually dined there, rated the place anywhere between terrible and mediocre.

The couple have pending court dates.

In terms of sheer rage, however, no restaurateur beats Vadim Ponorvsky, owner of Paradou in New York's meatpacking district.

Gawker got ahold of an e-mail Ponorvsky sent to his employees, berating them with abusive language and threats for not collecting enough e-mail addresses from diners. Presumably, he wants to spam his clientele, which just makes the whole thing that much more insane. (Who wants their waiter asking for their e-mail address?)

The language in Ponorovsky's lunatic rant is probably too blue for my editors to accept, or else I would paste in some of the e-mail here. But check out the Gawker post and feel the rage. It's really quite something.

Google Chrome OS: The Prologue

Chris Thompson — Fri, 20 Nov 2009 18:03:56 +0000

Yesterday, the engineers at Google (GOOG) announced more details for the company's new operating system, dubbed Google Chrome OS. It's like Android, except it's for the personal computer and it's not out yet. But, as Googlers emphasized yesterday, it promises to be "blazingly fast."

In fact, as Wired reported yesterday, the new operating system is designed to load within seven seconds and "boot up like a TV," said vice president of product management Sudar Pichai. Unfortunately, you won't be able to download it off the Intertubes and load it onto your own computer. If you want the chance to test-drive the Chrome OS, you'll have to buy a new computer—typically a cheap netbook—and you won't get the chance to do that until late 2010, when the first generation of Chrome-powered netbooks are released by Google's partners.

Again, this is part of Google's effort to remake the world of information toward a cloud-based orientation. Microsoft (MSFT) has long dominated the present tech world, with software directly installed into the hard drive of your computer, servers to support said software, and periodic updates you must restart your computer to install. But as Inforworld blogger Neil McAllister points out, Chrome's Web-based platform frees up netbooks from having installed hard drives to run so much software. All they need, he says, is a screen, a keypad, and a Web browser. Google will do the rest.

It's an utterly fascinating idea; from now on, hardware will be cheap, and you won't have to contemplate a $2,000 bill when your Web machine finally gives up the ghost. But again, you get what you pay for. If Google is partnering with cheap knockoffs that offer low quality for low prices, consumers may well get irritated at the general shoddiness of the physical product. And they may well transfer that irritation to Google's grand Chrome scheme. We'll just have to wait a year and see what kind of hardware partners Google has chosen to hitch its wagon to.

Who Will Charge America?

Matthew DeBord — Fri, 20 Nov 2009 16:50:18 +0000

When electric cars and plug-in hybrids begin hitting the U.S. market in bigger numbers next year, a significant barrier to entry for consumers who don’t live in places where people have garages with electrical outlets will be where to obtain juice. True, you could run an extension cord out of the apartment window—although if you live in a 40-story high rise, that will need to be a pretty long cord.

Obviously, this means a market for charging stations, which will also help alleviate “range anxiety” issues by supplying plenty of locations to juice up. These stations have an advantage over your basic household outlet in the sense that they can deliver higher voltage and charge an electric car or plug-in hybrid faster. Some manufacturers are saying that owners will be able to get an 80 percent recharge in 15 minutes. This has led to speculation that charging stations should be located in the parking lots of Starbucks (SBUX) and Wal-Marts (WMT) (as well as in parking structures). In denser urban areas, streetside stations are an option. But who will provide the technology?

In England, a company called Elektromotive has begun to define the space, with its Elektrobay product, described as “an exquisite, sophisticated piece of design engineering offering a safe and user friendly means of charging electric and plug-in hybrid vehicles. We are sure you will agree.” It’s essentially a pole, hooked into the grid, that users can access wirelessly. Users can be billed by having charges applied to their power bills or through prepaid services. As of now, it doesn’t seem that a credit-card option is available.

But that will have to be added in if the system comes to the USA, where drivers are accustomed to dipping and swiping cards at gas stations. Drivers also have to tote around a charging cable, as the Elektrobays don’t have one that extends from the unit. Elektrobays were debuted in London and have now spread to the rest of the United Kingdom. It would be nice, obviously, if a U.S. company could offer a similar product, but Elektromotive seems to have the best technology, so an export deal with U.S. cities and power utilities looks more likely. So there you have it. In our electric car future, we’ll be dependent on Asian batteries and British charging stations. Oh, the humility.

Presented By:

Fri, 20 Nov 2009 16:50:18 +0000

How To Save a Car Company

Win Rosenfeld — Fri, 20 Nov 2009 14:42:35 +0000

Microsoft Office's Last Stand

Farhad Manjoo — Fri, 20 Nov 2009 14:40:39 +0000

Microsoft Office is already pretty useful, as evidenced by the fact that almost everyone who works in an office uses it in some way. But its competition is growing. That put extra pressure on Microsoft (MSFT) to make the latest version of Office particularly good:

Office 2010 offers lots of new features and several user-interface improvements over previous versions. One nice addition allows you to preview how text or images you're copying will look before you paste them. (Watch this video for a better idea of how this works.) Microsoft has also expanded the "ribbon" interface first seen in Office 2007—the tab bar across the top of the screen that replaces the cumbersome drop-down menu commands found in old versions of Office. The ribbon takes a bit of time to learn, but once you get the hang of it, it speeds up a lot of what you do in Office. Perhaps most importantly, Microsoft has built several collaborative features into the new Office. Co-workers can now simultaneously edit Word and Excel documents—something that many people now turn to Google Docs to do.