Subject: Big Apple by the Pound From: Emma To: All Date Posted: Fri, Jan 28, 2005 at 21:54:56 (EST) Email Address: Not Provided Message: http://www.nytimes.com/2005/01/28/nyregion/28tourism.html?8hpib=&pagewanted=all&position= Big Apple by the Pound By JENNIFER STEINHAUER Sheila Riley came for Macy's, evidenced by the pile of telltale red bags piled around her feet. Russell Whitehead and Robert Archibald made the trip for 'Wicked.' Jeff Taylor wanted to propose. Seb Sims's goals were admittedly more prosaic and yet they pleased him. 'I came to New York to go shopping and get drunk,' said Mr. Sims as he headed for a southbound No. 1 to 'Greenwich.' (No, not Connecticut, but why embarrass him?) Tourists from overseas - the most coveted of visitors thanks to their long stays and habit of shopping with abandon - are returning to New York for the first time since 2001, and no place is exporting more of them to the city than Britain, whose citizens are lured by the combination of a falling dollar, low air fares and an apparently insatiable lust for sneakers on the cheap. The British pound, which fetches almost $2 these days, goes farther in New York than in London in restaurants, theaters and stores, and rock-bottom package deals from the airlines make a quick weekend jaunt across the Atlantic all the more worthwhile. Then there is the shared language, coupled with that intangible something that is portrayed in film and television that shows the allure of a New York absent career worries, apartment valuations and the incalculable misery caused by the C train. 'We have all seen Woody Allen movies and 'Sex and the City' and 'NYPD Blue,' said Frances Tuke, a spokeswoman for Association of British Travel Agents in London, which found that airline travel to New York from London rose 127 percent in November from the same month in 2003. 'So you think it is an exciting place you have to go to. We don't hear that it is particularly dirty or unsafe. They know it is a big city and it is going to be loud and noisy and that is all O.K.' The city's tourism bureau estimates that 5.3 million foreign tourists came to New York last year, far fewer than the 6.8 million who flooded the city in 2000 but up 10 percent from 2003. Initial estimates show that the number of tourists from Britain rose 12 percent in 2004 from 2003, when the group led the return of international tourism to New York with 870,000 visitors. (Canadians came in second with 690,000 and Japanese tourists were a distant third, with 292,000 visitors in 2003.) Although most foreign visitors stay longer than domestic tourists, many visitors from Britain come for short stays, taking advantage of airline and hotel packages that land them in the city for long weekends into which they pack a whirlwind tour of the key Manhattan tourist destinations, peppered with quick stops at restaurants and bars culled from guidebooks. Anthony Thomas, a scaffold worker who flew over for a long weekend with his wife, Nadine, liked McSorley's Old Ale House. 'I liked that fact that it kept to its nature and that everyone who worked there was surly,' he said. Mr. Taylor, a sergeant in the British Army, saw an image of the city on television while home in Liverpool, and decided that it was the place to propose to Heather Stokoe, a sales associate from Newcastle. 'I thought that it seemed like quite a romantic place to propose,' he said. He planned a long weekend in the city with requisite stops at Planet Hollywood, Bloomingdale's and Macy's and a ride in a horse-drawn carriage in Central Park. 'It was there I asked her to marry me,' Mr. Taylor said. 'It was quite emotional, really.' His bride-to-be was thrilled. Some random facts about British visitors, gleamed from several days of observing them: ¶They have an almost alarming interest in shoes, particularly sneakers (or, as they call them, trainers). 'I got loads of Diesel trainers,' said Mr. Whitehead, an actor from London. 'They are a quarter of the price here. I bought three pairs for $25 each.' ¶They drink such concoctions as dry vermouth with Sprite (called a martini and lemonade) and Stella Artois beer with a shot of Rose's lime juice. 'They also get really tickled about fancy cocktails,' said Sara Najjar, a bartender at the Hotel Metro, which is a veritable outpost of tourists from England and Scotland. 'I guess because they can only get beers in their pubs over there. It's just crazy!' ¶They flock to Macy's as Americans might flock to Buckingham Palace, and at the department store they sate their appetite for hats, watches, handbags and coats. The store had more than 20,000 British shoppers last year, and company officials report they take advantage of the store's 11 percent discount for international visitors more than those of any other nationality. All international tourists have their quirks, and New York City loves all of them because they tend to stay longer, spend more money at museums and the like and are more enthusiastic about visiting the broader city than American tourists, said Cristyne L. Nicholas, president of NYC & Company, the city's tourism office. 'The Japanese and Germans love jazz,' she said. 'The new MOMA opening is great for the French.' The city has also run promotions in Japan featuring Japanese players for the Mets and the Yankees and has put together packages that feature games and tours of the stadiums. 'The Chinese are coming in leaps and bounds now that more of them are getting visas,' Ms. Nicholas said, 'but they won't come to New York because we don't have casino gambling. Las Vegas gets them.' British travelers typically like cultural attractions and shopping, Ms. Nicholas said. The number of visitors at Hotel Metro from England has soared about 30 percent over the last two years, said Linda Davis, director of sales for the hotel. On Tuesday afternoon, Gerald and Moira McGinty, who live outside Glasgow, waited nervously for their son David and his friend, Liam Hanlon, to join them in the lobby for their car trip to the airport, which was arriving in minutes. Seems some last-minute (shoe) shopping was occurring on Eighth Street. Among their bags was an electric guitar, bought for $1,400 rather than £2,000 in Scotland. They had their Tiffany key rings. They had their 'Chicago' programs. And, sorry Jean-Georges, they had their memories of TGI Friday's. Mr. Taylor and Ms. Stokoe feel they saw it all, too. Central Park, Macy's, Planet Hollywood, the bar of Hotel Metro. Ground zero was 'eerie, an emptiness,' he said. 'Someone tried to sell us photographs of the planes going into the buildings. We weren't interested. We grabbed a cab to Chinatown instead.'

Subject: Wages and Inflation From: Terri To: All Date Posted: Fri, Jan 28, 2005 at 20:12:40 (EST) Email Address: Not Provided Message: Recently nominal wages have been lagging inflation, but real wages have lagged productivity increases. If my memory is correct earnings as a sahre of GDP are at historic highs in America. Also, I thought I read this was true for western Europe as well. Please tell me if I am correct about Europe.

Subject: Paul Krugman's Column Note From: Emma To: All Date Posted: Fri, Jan 28, 2005 at 17:05:22 (EST) Email Address: Not Provided Message: http://www.j-bradford-delong.net/movable_type/2005-3_archives/000238.html#comments People: read this: http://www.cbpp.org/10-5-98socsec.htm It includes the SSA memo on Heritage. You'll see why I was justified in using life expectancy at 65 as shorthand; if I had 2500 words, and if I thought NYT readers had the patience, I would have laid out the full argument.

Subject: Chilean Stocks With Private Pensions From: Terri To: All Date Posted: Fri, Jan 28, 2005 at 15:32:39 (EST) Email Address: Not Provided Message: http://www.msci.com/equity/index2.html Morgan Stanley's Latin America and Chilean Stock Index data begins December 31, 1987. We have a 17 year view. The Chilean Index has trailed the Latin America Index since 1987. The Latin America Stock Index was at 100 on December 31, 1987 and was at 2,561.37 on December 31, 2004. So, 17 years to go from 100 to 2,561.37. This return is in dollars and includes all dividends. The Chilean Stock Index was at 100 on December 31, 1987 and was at 2,179.72 on December 31, 2004. So, 17 years to go from 100 to 2,179.72. This return is in dollars and includes all dividends.

Subject: Chilean Stocks With Private Pensions - 2 From: Terri To: Terri Date Posted: Fri, Jan 28, 2005 at 15:35:51 (EST) Email Address: Not Provided Message: http://www.msci.com/equity/index2.html Interestingly, Chile's stock market has the worst 10 year performance of the 6 major Latin American economies. A poorer performance than Argentina. Only Argentina lagged Chile in 5 year performance; this during the fierce Argentine crisis. This is interesting, and should be looked to. The 10 year Chilean Index return is 3.01% a year in dollar terms. Not promising, but I have no sense why. Surely pension fund investing in Chilean stocks did not buoy the market. Surely pension fund investing in Chilean stocks did not buoy the market these last 10 years. Interesting puzzle. The Chilean Stock Index was at 100 on December 31, 1987 and was at 2,179.72 on December 31, 2004. So, 17 years to go from 100 to 2,179.72. This return is in dollars and includes all dividends. The Chilean market went from 100 to 1,000 from December 31, 1987 to 1993, and stayed at about 1,000 till 2003. Then, a move from 1,000 to 2,180 by 2005.

Subject: China's Currency Value From: Terri To: All Date Posted: Fri, Jan 28, 2005 at 14:05:49 (EST) Email Address: Not Provided Message: Investing in China has meant technology or intellectual property transfer in addition. China does not wish to make the mistakes of other less low wage countries and allow investment that will add nothing to the country's intellectual capital. Technology transfer is most important to China in opening to international investment, so China is not going to readily revalue the Yuan and risk losing the flow of technology till China is sure she is prepared.

Subject: China's Technical Advance From: Terri To: Terri Date Posted: Fri, Jan 28, 2005 at 14:25:03 (EST) Email Address: Not Provided Message: China has just ordered 60 7E7 aircraft from Boeing. Part of the aircraft will be made in China, for in return for her business over the years Boeing has been asked to make selected aircraft parts in China. Boeing keeps much of its technical expertise in America, but China has gained expertise as well. China is does developing with foreign investment that is of no importance to the technical ability of her work force.

Subject: The Market Shall Set You Free From: Emma To: All Date Posted: Fri, Jan 28, 2005 at 11:42:50 (EST) Email Address: Not Provided Message: http://www.nytimes.com/2005/01/28/opinion/28wright.html?pagewanted=all&position= The Market Shall Set You Free By ROBERT WRIGHT Princeton, N.J. LAST week President Bush again laid out a faith-based view of the world and again took heat for it. Human history, the president said in his inaugural address, 'has a visible direction, set by liberty and the author of liberty.' Accordingly, America will pursue 'the ultimate goal of ending tyranny in our world' - and Mr. Bush has 'complete confidence' of success. Critics on the left and right warned against grounding foreign policy in such naïve optimism (a world without tyrants?) and such unbounded faith. But the problem with the speech is actually the opposite. Mr. Bush has too little hope, and too little faith. He underestimates the impetus behind freedom and so doesn't see how powerfully it imparts a 'visible direction' to history. This lack of faith helps explain some of his biggest foreign policy failures and suggests that there are more to come. Oddly, the underlying problem is that this Republican president doesn't appreciate free markets. Mr. Bush doesn't see how capitalism helps drive history toward freedom via an algorithm that for all we know is divinely designed and is in any event awesomely elegant. Namely: Capitalism's pre-eminence as a wealth generator means that every tyrant has to either embrace free markets or fall slowly into economic oblivion; but for markets to work, citizens need access to information technology and the freedom to use it - and that means having political power. This link between economic and political liberty has been extolled by conservative thinkers for centuries, but the microelectronic age has strengthened it. Even China's deftly capitalist-yet-authoritarian government - which embraces technology while blocking Web sites and censoring chat groups - is doomed to fail in the long run. China is increasingly porous to news and ideas, and its high-tech political ferment goes beyond online debates. Last year a government official treated a blue-collar worker high-handedly in a sidewalk encounter and set off a riot - after news of the incident spread by cell phones and text messaging. You won't hear much about such progress from neoconservatives, who prefer to stress how desperately the global fight for freedom needs American power behind it (and who last week raved about an inaugural speech that vowed to furnish this power). And, to be sure, neoconservatives can rightly point to lots of oppression and brutality in China and elsewhere - as can liberal human-rights activists. But anyone who talks as if Chinese freedom hasn't grown since China went capitalist is evincing a hazy historical memory and, however obliquely, is abetting war. Right-wing hawks thrive on depicting tyranny as a force of nature, when in fact nature is working toward its demise. The president said last week that military force isn't the principal lever he would use to punish tyrants. But that mainly leaves economic levers, like sanctions and exclusion from the World Trade Organization. Given that involvement in the larger capitalist world is time-release poison for tyranny, impeding this involvement is an odd way to aid history's march toward freedom. Four decades of economic isolation have transformed Fidel Castro from a young, fiery dictator into an old, fiery dictator. Economic exclusion is especially perverse in cases where inclusion could work as a carrot. Suppose, for example, that a malignant authoritarian regime was developing nuclear weapons and you might stop it by offering membership in the W.T.O. It's a twofer - you draw tyrants into a web of commerce that will ultimately spell their doom, and they pay for the privilege by disarming. What president could resist that? Correct! President Bush is sitting on the sidelines scowling as the European Union tries to strike that very bargain with Iran. It's possible that skepticism about the European initiative is justified - that Iran, in the end, would rather have the bomb than a seat in the W.T.O. But there's one way for the Bush administration to find out: Outline a highly intrusive arms inspection regime and say that the United States will support W.T.O. membership if the inspectors find no weapons program (or if Iran fesses up) and are allowed to set up long-term monitoring. There are various explanations for Mr. Bush's position. Maybe some in the administration fear losing a rationale for invading Iran. Maybe the administration is ideologically opposed to arms control agreements (a strange position, post-9/11). But part of the problem seems to be that Mr. Bush doesn't grasp the liberating power of capitalism, the lethal effect of luring authoritarian regimes into the modern world of free markets and free minds. That would help explain the amazing four-year paralysis of America's North Korea policy. Reluctant to invade, yet allergic to 'rewarding' tyrants with economic incentives and international engagement, the president sat by while North Korea's leader, Kim Jong Il, apparently built up a nuclear arsenal. Now, with Iran no more than a few years from having the bomb, we're watching this movie again. And it may be a double feature: the inertia we saw in North Korea followed by the war we've seen in Iraq. With Iraq and Iran in flames (live, on Al Jazeera!) and Mr. Kim coolly stockpiling nukes, President Bush will have hit the axis-of-evil trifecta. Pundits have mined Mr. Bush's inaugural address for literary antecedents - Kennedy here, Lincoln there, a trace of Truman. But some of it was pure Bill Clinton. Like Mr. Bush, Mr. Clinton said that history was on freedom's side and stressed that freedom abroad serves America's interests. But he also saw - and explicitly articulated - something absent from Mr. Bush's inaugural vision: the tight link between economic and political liberty in the information age, the essentially redeeming effect of globalization. That's one reason Mr. Clinton defied intraparty opposition to keep commerce with China and other nations strong. In the wake of John Kerry's defeat, Democrats have been searching for a new foreign policy vision. But Mr. Clinton laid down as solid a template for post-9/11 policy as you could expect from a pre-9/11 president. First, fight the spread of weapons of mass destruction, which means, among other things, making arms inspections innovatively intrusive, as in the landmark Chemical Weapons Convention that President Clinton signed (and that Dick Cheney, Donald Rumsfeld, et. al., opposed). Second, pursue terrorist networks overtly and covertly (something Mr. Clinton did more aggressively than the pre-9/11 Bush administration). Third, make America liked and respected abroad (as opposed to, say, loathed and reviled). Fourth, seek lasting peace in the Middle East (something Mr. Bush keeps putting off until after the next war). And finally, help the world mature into a comprehensive community of nations - bound by economic interdependence and a commitment to liberty, and cooperating in the global struggle against terrorism and in law enforcement generally. But in pursuing that last goal, respect and harness the forces in your favor. Give history some guidance, but resist the flattering delusion that you're its pilot. Don't take military and economic weapons off the table, but appreciate how sparingly you can use them when the architect of history is on your side. Have a little faith. Robert Wright, a fellow at Princeton University's Center for Human Values and at the New America Foundation, is the author of 'Nonzero: The Logic of Human Destiny.'

Subject: America's Promises to the Poor From: Emma To: All Date Posted: Fri, Jan 28, 2005 at 11:38:54 (EST) Email Address: Not Provided Message: http://www.nytimes.com/2005/01/28/opinion/28fri1.html America's Promises Three years ago, President Bush created the Millennium Challenge Account to give more money to poor countries that are committed to policies promoting development. Mr. Bush said his government would donate billions in incremental stages until the program got to a high of $5 billion a year starting in 2006. While $5 billion is just 0.04 percent of America's national income, President Bush touted the proposal as proof that he cares about poverty in Africa and elsewhere. 'I carry this commitment in my soul,' the president said. For the third straight year, Mr. Bush has committed a lot less than he promised. Michael Phillips of The Wall Street Journal reports that the White House has quietly informed the managers of the Millennium Challenge Account to expect about $3 billion in the next budget. This follows a sad pattern. Mr. Bush said he would ask Congress for $1.7 billion in 2004; he asked for $1.3 billion and got $1 billion. He said he would ask for $3.3 billion in 2005; he asked for $2.5 billion and got $1.5 billion. So if past is prologue, the Republican Congress will cut the diluted 2006 pledge even further. None of that appears to bother the Bush administration, which continues to send high-ranking officials into the world to promote the anemic Millennium Challenge Account to poor nations. The program - not the money, since the account has yet to pay out a single dollar - is high on the list of talking points for cabinet officials like the United States trade representative, Robert Zoellick, who visited Africa in December and cited the program every chance he got. Speaking to Latin American ambassadors in Washington this month, a Treasury under secretary, John Taylor, hailed it as a 'major way in which we are working with countries to meet the challenge of increasing productivity growth.' Officials at the Millennium Challenge Account are quick to list the countries that, through good governance, have qualified for the aid program. They are not as quick to list the countries that have received a dime: there aren't any. Still, Paul Applegarth, chief executive of the Millennium Challenge Corporation, assured us last week that President Bush's program is 'really moving at an extraordinarily quick pace.' Maybe the administration should tell that to the 300 million Africans who lack safe drinking water, or the 3,000 African children under the age of 5 who die every day from malaria, or the 1 in 16 African women who die in childbirth, or the 6,000 Africans who die each day of AIDS. But wait. Maybe the president is planning to deal with the African AIDS catastrophe through his 2003 proposal to increase AIDS funds by $10 billion over the following five years? Not unless he is planning to finish with a bang, because the White House is expected to ask Congress for only $1.6 billion more next year. When added to the amount that AIDS funds increased in 2004 and 2005, that would leave a whopping more than $6 billion to get out of Congress in the next two years to meet Mr. Bush's pledge. Congress and Mr. Bush will point to the ballooning deficit and say they don't have the money. But that was a matter of choice. They chose to spend billions on tax cuts for the wealthy and the war in Iraq. They can choose to spend it instead to keep America's promises.

Subject: From Ma Bell to Ma Bell From: Emma To: All Date Posted: Fri, Jan 28, 2005 at 11:02:50 (EST) Email Address: Not Provided Message: http://www.nytimes.com/2005/01/28/business/28phone.html?pagewanted=all&position= Dial M for Merger By KEN BELSON If SBC Communications succeeds in buying its former parent, AT&T, the reunion of two players in the old Bell system could set off another round of mergers in the rapidly consolidating phone industry. In other industries, a dwindling number of players typically means fewer choices and higher prices for consumers. Yet in the telecommunications industry, technology is turning that logic on its head. Cellphones, high-speed Internet connections and video - not plain old phone lines - now determine the winners and losers in today's market. Cable providers and a host of new businesses that barely existed a few years ago can easily provide those services just as well as old-line phone companies. According to executives close to the deal, AT&T and SBC, the second-largest regional phone company, could reach agreement as early as next week. But even if the talks stall, the industry reformation is likely to continue apace. For most consumers, the spread of these technologies has reduced prices on services and will continue to do so in the coming years, albeit more slowly. Per-minute rates for cellphone calls have fallen from 56 cents in 1996 to 11 cents last year, according to J. D. Power & Associates. The price of long-distance calls has dropped just as sharply. Competition between new technologies has made it possible for consumers to get more for their money with unlimited calling plans, video on computers and ever-faster Internet connections. 'Consumers have clearly won as real competition and the threat of future competition has developed,' said Jeffrey Halpern, a telecommunications industry analyst at Sanford C. Bernstein & Company. 'It took the development of Internet phones and wireless to even the playing field with the Bells.' Few people envisioned this technological free-for-all in 1996 when Congress last overhauled regulations on the telecommunications industry. Yet less than a decade after the federal law was enacted, consumers are seeing a convergence of services barely imagined then, as television moves onto cellphones and e-mail moves from computers to televisions. Cable companies now sell phone lines and the Bells are making plans to enter the television industry. Meanwhile, Vonage, an upstart from New Jersey, offers unlimited local and long-distance Internet-based phone calls for $25 a month. And millions now buy mobile phone service from resellers like Virgin Mobile, which do not even own radio spectrum. Technology is not just realigning the players on the chessboard, it is erasing some of the biggest and best-known companies altogether. Regardless of whether AT&T is bought in the near future, that the company that created phone service in America could be for sale suggests how fast the industry has changed. In the 1990's, phone lines into consumers' homes were still considered the industry's mainstay. Now, they are 'dumb pipes' that are conduits for broadband Internet access, video and other services. Wireless products are bypassing phone-line wall jacks altogether. 'Consumers want bundled packages of services from a company they know and trust,' said Edward Whitacre, SBC's chairman and chief executive, in an interview late last year. Still, there will be losers in the industry realignment. Consumers are increasingly being pushed to buy bundles of services that, while discounted, can still cost hundreds of dollars a month. And customers in search of just a local phone line may not enjoy big savings. Gene Kimmelman, a senior director of public policy at Consumers Union, which publishes Consumer Reports, for one, argues that the sale of AT&T would mark 'the end of the era of cutthroat long-distance competition and growing local competition.' Yet regulators are unlikely to block a deal between SBC and AT&T. In recent years, the Justice Department has approved several large mergers, signaling its intention to let the Bells, wireless carriers and cable companies get even larger. The logic appears to be that the cable industry and mobile phone carriers are a sufficient counterweight to the Bells. By swallowing its former parent, SBC would in some sense be reassembling a portion of the former Bell System, only this time it would stand among other oligopolies. For AT&T, a collapse of the merger talks would also mean the risk of continuing to die a slow death. The company is ensnarled in a seemingly endless price war as new Internet technology drives down the cost of phone and data services. It expects sales to fall a staggering 15 percent, or by $5 billion, next year. Few companies can survive for long with sales shrinking that rapidly. AT&T shares closed yesterday at $19.60, up $1.15; SBC closed at $23.67, down 91 cents. 'A Fortune 500 shrinking 15 percent a year is not natural,' said Scott Cleland, an analyst at the Precursor Group. 'The pressure here is coming from a once-in-a-hundred-years technology that makes it dramatically cheaper to offer voice and data.' Internet and wireless technology, in fact, make it likely that consumers will continue to win regardless of what happens to AT&T. For example, Verizon customers in New York who pay $163 a month receive unlimited local and long-distance calls, a broadband connection, a basic television satellite plan and a national cellphone service. Those products bought separately in 1995 would have cost $142, but would not have included an Internet connection, let alone a broadband line. In aggregate, consumers are spending more, but they are also receiving more. Since 2000, household spending on communications has jumped 33.8 percent, to $164.91 from $123.23, according to TNS Telecoms, a market research firm. Most of the increase has come because consumers are spending more on wireless phone and high-speed Internet services, each of which has doubled in the last four years. But consumers get far more for their higher bills. About a third of American homes now have broadband lines that offer unlimited access to the Internet. A typical broadband line is also 25 times faster than a dial-up connection. In a battle for customers, cable and phone companies are now doubling and tripling their speeds at no extra cost. The same is true for cellphone services. Wary of scaring off consumers, carriers are throwing more minutes at them. Cingular Wireless now lets consumers roll over their unused minutes to the next month, while T-Mobile offers 1,000 monthly minutes for a flat rate of $46. The discounts have made it cheaper to talk. Since 1997, the average number of minutes used by consumers has risen by 362 percent, according to the Cellular Telecommunications and Internet Association. Cellphone carriers are also discounting their handsets, which are lighter, smaller and capable of sending e-mail, snapping photos and playing music. Thanks to bigger networks, coverage has also improved. 'On the whole, consumers are saving money,' said Charles White, a vice president at TNS Telecoms. The danger, he said, is that some consumers who buy bundles of services may not use all of them. Even for consumers who only want a phone on the wall, prices continue to edge lower. Residential spending per month on fixed-line phones has dipped 16 percent since 2000, to $47.22. The price pressure has come from resellers of local phone services like AT&T, and from lower long-distance calls. And now that AT&T no longer markets its services to residential customers, cable companies like Cox and Comcast are stepping in to take its place. With all these new alternatives, consumers may not miss AT&T if it is acquired. The company's stature has steadily eroded since its break up in 1984. First, rivals like MCI and Sprint cut into AT&T's once-dominant share of the long-distance market. Since 1996, the Bell companies have entered that market, and growth in wireless and Internet-based phones have eroded its business further. Regulators and the courts have played a hand, too. Last year, the Bells won the right to raise the rates they charge AT&T and other resellers that want to use the Bells' networks to sell local phone service. As a result, AT&T said it would withdraw from that market. If AT&T is subsumed into SBC or another Bell company (Verizon Communications and BellSouth may bid for the company, too, analysts say), it is likely to live on as the business division of a bigger parent. In seeking shelter under the wing of an offspring, AT&T could continue focusing on big corporate clients. 'The AT&T brand still has significant value,' said Richard Nespola, the chief executive of the Management Network Group, an industry consultant. 'Ma Bell is just looking for a new home.'

Subject: P&G and Gillette From: Emma To: All Date Posted: Fri, Jan 28, 2005 at 11:01:22 (EST) Email Address: Not Provided Message: http://www.nytimes.com/2005/01/28/business/28cnd-procter.html?pagewanted=all&position= Procter Reaches $57 Billion Deal to Buy Gillette By ANDREW ROSS SORKIN and STEVE LOHR Procter & Gamble, the consumer products company, announced today that it had reached an agreement to acquire the Gillette Company, the shaving-products and battery maker, for about $57 billion in stock. In a statement on its Web site today, Procter & Gamble said the deal, which is subject to approval by regulators and shareholders, is expected to close next fall. 'This combination of two best-in-class consumer products companies, at a time when they are both operating from a position of strength, is a unique opportunity,' the chief executive of Procter & Gamble, A. G. Lafley, said in a statement. 'Gillette and P & G have similar cultures and complementary core strengths in branding, innovation, scale and go-to-market capabilities, making it a terrific fit,' he added. James M. Kilts, chief executive of Gillette, who will join Procter's board, said: 'This marks the realization of an historic next phase of great opportunity for Gillette and also for P & G. It brings together two companies that are complementary in their strengths, cultures and vision to create the potential for superior sustainable growth.' 'This merger is going to create the greatest consumer products company in the world,' Warren E. Bufffet, chief executive of Berkshire Hathaway Inc., Gillette's largest shareholder, said in a statement. 'It's a dream deal.' He said that he intended to increase his holdings to 100 million shares in the combined company. Berkshire Hathaway currently holds 96 million shares of Gillette, or 9.67 percent of the company. The merger will create a consumer-products powerhouse, combining some of the world's best-known brands like Procter's Tide, Crest and Pampers with Gillette's razors and blades, Right Guard deodorant and Duracell. The combined company would have sales of more than $60 billion a year. The agreement, which the boards of both companies approved late yesterday, will officially be announced today at a news conference in Midtown Manhattan. The friendly transaction reflects just how much the balance of power has shifted from consumer-products makers to giant discount retailers, mainly Wal-Mart, in recent years. The move is a bid by two venerable consumer-products giants to strengthen their bargaining position with the likes of Wal-Mart and Aldi in Europe, which can now squeeze even the largest suppliers for lower prices. In addition, both companies have faced growing pressure on profits from private labels as consumers have become more price-conscious and less brand-conscious. The combined company, analysts say, will also have more power in its negotiations with media companies - television, magazines, newspapers and billboards - to buy billions of dollars a year in advertising. Last year, Procter spent $5.5 billion on advertising. Both Gillette, based in Boston, and Procter, based in Cincinnati, have started down this road at least once before. Five years ago, when Procter's sales were temporarily stagnating as new products floundered, Durk Jager, then the chief executive, broached the possibility of a merger with Gillette executives and was rebuffed. In the current round of talks, the overture came from Gillette. In December, Mr. Kilts approached Procter, according to executives close to the negotiations. Mr. Lafley will continue as the chief executive of Procter. The Procter-Gillette merger would be the largest acquisition in the nation since J. P. Morgan Chase acquired Bank One for $60 billion last year and it is the latest in a raft of mergers in the last several months that have swept across corporate America as boardroom confidence has surged. Last month was the busiest December in history, with a total of $283.7 billion in mergers and acquisitions worldwide, outpacing the deal volume in December 1999, at the height of the stock market bubble and merger mania, according to Thomson Financial. Last month, Sprint agreed to buy Nextel Communications for $35 billion; Johnson & Johnson made a deal to acquire Guidant for $25 billion; Symantec agreed to buy Veritas for $13.5 billion; PeopleSoft finally capitulated to Oracle's $10.3 billion offer; and I.B.M. sold its personal computer business to Lenovo of China for $1.75 billion. And this week, SBC Communications is negotiating to buy AT&T, according to executives close to the deal. Regulators are expected to look closely at the Gillette-Procter merger and could force Procter to divest itself of some businesses that overlap with Gillette's. The greatest overlaps are in the deodorant and oral health care segments. In deodorants, Procter owns Old Spice and Gillette owns Right Guard; in oral health, Procter owns Crest toothpaste and Gillette owns Oral-B. The merger, management specialists say, combines two companies in similar markets requiring complementary skills. 'These are companies with storied brands that work the same distribution channels,' said Eric Greenberg, an independent management consultant in New York. 'This sounds like a very viable merger; they are sticking to their knitting.' Over the years, major investors have regarded Gillette as a company with an enviable stable of brands with the potential to become even more lucrative. In the late 1990's, the leveraged buyout firm Kohlberg Kravis Roberts & Company took a large holding in Gillette, but sold its shares after Gillette's profits slipped in 1999. Shares of Procter closed down 12 cents yesterday at $55.32; Gillette shares closed up 85 cents, at $45.85. Procter apparently also sees untapped potential in Gillette, as its products can now be pushed hard by Procter's renowned marketers, both in the United States and abroad. Procter, in particular, sees great opportunity abroad. In a conference call last month, Procter executives said the total market in developing countries for its lines of consumer goods would reach nearly $100 billion by 2010. 'For our top brands, there are still lots of markets where we don't compete,' Robert A. McDonald, vice chairman for global operations, said in the conference call. In talks leading up to the merger, Procter and Gillette executives say they have also identified more strategic advantages than merely the greater size, buying power and efficiencies from combining two similar enterprises. In many ways, they say, the companies have complementary skills. Procter's executives regard their company as a master at marketing to women, given its long history in household, hygiene and food products. Gillette, whose name is synonymous with shaving for millions of men, sees itself as an expert in the male market. In addition, Procter has established a strong sales network in fast-growing foreign markets like China and Russia, while Gillette has not. Tapping that distribution network, the executives say, should lift Gillette's worldwide sales at little added cost to the combined enterprise. Indeed, executives of the two companies have identified $14 billion to $16 billion in annual benefits from the merger, a total that includes the gains from a stronger bargaining position with retailers and media companies, cost-cutting and anticipated additional revenues. Combining the companies is expected to lead to about 6,000 job cuts, or about 4 percent of the work force. Procter has 110,000 employees and Gillette has 29,400 workers. Under the terms of the deal, Procter will pay 0.975 share, or about $54, for each share of Gillette. That is about an 18 percent premium over Gillette's shares. After the deal is completed, Procter intends to buy back $18 billion to $20 billion worth of stock from the combined company, the companies said in a joint statement. That would have the effect of making the acquisition a 60 percent stock and 40 percent cash deal. Procter & Gamble reported second-quarter earnings yesterday that rose 12 percent. Net income was $2.04 billion, compared with $1.82 billion a year earlier. Sales in the quarter, which ended Dec. 31, rose 9.3 percent, to $14.45 billion. In October, Gillette reported earnings of $475 million in the third quarter, compared with $416 million last year. Over all, Gillette's quarterly sales reached $2.69 billion, up from $2.4 billion the year before. Gillette was advised by UBS and Goldman Sachs and received legal counsel from Davis Polk & Wardwell. Procter was advised by Merrill Lynch and received legal counsel from Cadwalader, Wickersham & Taft.

Subject: Interest Rates From: Terri To: All Date Posted: Fri, Jan 28, 2005 at 10:49:57 (EST) Email Address: Not Provided Message: Notice that the report showing a slowing of our economic last quarter has sent the long term Treasury note to 4.15%. Make no mistake about it, long term interest rates have been most sensitive to domestic economic reports. Davos did not move long term interest rates. We are still in a bull market for bonds, much to my surprise.

Subject: America's Engagement From: Emma To: All Date Posted: Fri, Jan 28, 2005 at 10:43:25 (EST) Email Address: Not Provided Message: http://www.nytimes.com/2005/01/28/business/worldbusiness/28norris.html Watching America: Will It Listen to Foreigners, or Do as It Pleases? By FLOYD NORRIS DAVOS, Switzerland W HAT stresses me most,' the chief executive of Novartis, Daniel L. Vasella, said, 'is that we are getting new regulations from abroad without any consultation.' This has been the World Economic Forum that the United States government largely passed by. In a world that both respects and fears American power, there is worry that the United States does not care what others think. Or, as Tony Blair, the prime minister of Britain, put it in a speech to the forum, 'If America wants the rest of the world to be part of the agenda it has set, it must be part of their agenda, too.' He added, 'What people want is not for America to concede, but for America to engage.' It is a fair bet that Mr. Blair has given little thought to Section 404 of the Sarbanes-Oxley Act or to the way the Securities and Exchange Commission can adjust accounting rules, which is what concerns Mr. Vasella. Mr. Blair was more concerned with global warming and world poverty. The twin American deficits figured into concerns that the United States would do as it pleases regardless of the possible impact on the world economy. 'I don't see the budget deficit being dealt with,' said Jacob Frenkel, the former head of Israel's central bank and now a vice chairman of the American International Group, a large insurance company. 'I am concerned with the U.S. current-account deficit, not because it cannot be dealt with but because of the way it is not being dealt with.' The explanation for less American government participation than in past years - that this forum came at an awkward time just before the State of the Union address - makes some sense. And there were Americans here, like John A. Thain, the chief executive of the New York Stock Exchange, who gently suggested that the current-account deficit would decline if Europe grew faster. Some Americans are listening. William H. Donaldson, the chairman of the S.E.C., gave a speech in London this week that dealt with some of the concerns, indicating the commission may delay enforcing rules against foreign companies that trade in the United States and may make it easier for foreign companies already registered in the United States to withdraw. The rule that has both American and foreign companies complaining is Section 404, which requires extensive reviews of internal controls in companies to assure they are effective - and says outside auditors must certify the controls. 'It was an enormous, expensive exercise,' Mr. Vasella said in an interview. 'It raised the question, for my employees, 'Is the trust broken?' because you control everything.' Novartis has complied with the rule. The chief executive of PricewaterhouseCoopers, Samuel A. DiPiazza Jr., estimated that 10 percent of large American companies would fail to comply this year, either because they could not complete the work on time or because material problems were found. A survey of 1,324 chief executives by his firm found that bosses around the world were less confident they could comply with rules outside their home countries. Mr. Vasella said chief executives of several smaller European countries told him they might try to leave the American market. He said he asked them if they would do so because they had something to hide, or because of the expense. Mr. Donaldson is wise to try to assuage European concerns, but there is a risk that other parts of the American government are less sure of the need to take foreign views into account. That may prove to be unwise for a country that needs help in many areas, not the least of them being in borrowing money to finance the twin deficits.

Subject: PK's last column From: Yann To: All Date Posted: Fri, Jan 28, 2005 at 04:13:13 (EST) Email Address: Not Provided Message: As a Frenchman, because of my education, I am always surprised and dismayed to hear an American President (or a public person) using the “race card”, with self-interest or not. No politician could talk like this in France and I hope that it will never happen. What we call here “communautarisme” terrifies me...

Subject: Communautarisme From: Jennifer To: Yann Date Posted: Fri, Jan 28, 2005 at 11:14:49 (EST) Email Address: Not Provided Message: Communautarisme: Would communitarianism do, or community or social responsibility?

Subject: Re: PK's last column From: Pancho Villa To: Yann Date Posted: Fri, Jan 28, 2005 at 06:35:01 (EST) Email Address: nma@hotmail.com Message: Absolutely dear Yann: « Comment voulez-vous que le travailleur français qui travaille avec sa femme et qui ensemble gagnent environ 15000 francs, et qui voit sur le pallier à côté de son H.L.M., entassés, une famille avec un père de famille, trois ou quatre épouses, et une vingtaine de gosses, qui gagnent 50000 francs par mois de prestations sociales sans naturellement travailler ! Si vous ajoutez à celà le bruit et l'odeur, eh bien, le travailleur français sur le pallier il devient fou ! Et ce n'est pas être raciste que de dire cela.» (Jacques Chirac, Meeting électoral, 1990)

Subject: Re: PK's last column From: Jennifer To: Pancho Villa Date Posted: Fri, Jan 28, 2005 at 11:10:36 (EST) Email Address: Not Provided Message: Please translate just a bit for us :)

Subject: Re: PK's last column From: Yann To: Pancho Villa Date Posted: Fri, Jan 28, 2005 at 08:12:17 (EST) Email Address: Not Provided Message: The polemic is launched. Let's go!

Subject: America overwhelms world's savings From: johnny5 To: All Date Posted: Thurs, Jan 27, 2005 at 22:15:04 (EST) Email Address: johnny5@yahoo.com Message: Benson's Economic & Market Trends Will Central Banks Ever Say No To America? Richard Benson January 27, 2005 Americans suffering from an immediate gratification fix should really monitor their decisions when they are restless. When feeling restless, they may decide to sell their house and buy a bigger, more expensive one. Then, they could easily take some cash out - or simply a draw-down on their home equity loan - and go shopping until they drop! Foreign goods fly off the shelves at patriotic stores like Wal-Mart, sending more dollars to China for goods we have imported. These dollars get stuffed into government securities - in the United States and elsewhere - where they wait to get spent. How much of this is actually going on? But wait, there's more! The United States government is running federal deficits of over $400 billion a year, and we're not alone. As reported by the Financial Times, JP Morgan Chase estimates that global government bond supply will be $2,320 billion, up two-thirds from 2001! This insatiable need to borrow by governments and American households totally overwhelms the world's savings. So, where is all the money we are borrowing coming from? Thank the accommodative central banks. (See table below): It works something like this: Central banks create new money by buying something. The central banks almost always buy their own government debt, or debt of another country, theoretically printing money out of thin air (for a central bank to have a 'reserve' it must buy the debt of some other country). Foreign central banks own $280 billion worth of securities issued by United States' government agencies - go Fannie Mae! The Federal Reserve, as an example, holds United States' government and agency debt in custody for foreign central banks. We are looking at a mutual back scratching of world central banks printing up new money, the likes of which the world has never seen before! Will it ever end? As long as commercial banks continue to offer home equity lines of credit, issue credit cards to anyone regardless of age or credit worthiness, and finance companies that are cash-flow-negative with more high-yield debt, this party will continue. Borrowing by the government and consumers creates new money and spending which 'makes the world go 'round.' Over the last decade, every world central bank has remained accommodative to America's willingness to borrow and spend without limit. Indeed, while the war in Iraq has already cost $300 billion, its all been paid for by foreign central banks printing up fresh cash and handing the new money to the United States Treasury in return for those quaint treasury bills and bonds. Meanwhile, over-spending in the United States has created a $650 billion trade deficit that threatens the very existence of the dollar as the world reserve currency. The Federal Reserve realizes that if they raise interest rates to stabilize the dollar - by making its yield more attractive on dollar investments, as well as lowering the trade deficit - serious pain will be inflicted. Rising interest rates will crunch real estate sales as fewer consumers will be able to afford to pay current outrageous prices for housing, and service mortgages with higher monthly payments. Moreover, the burden of servicing consumer and home equity loans - whose costs are tied to rising short-term interest rates - will squeeze the American household even further. More money for debt service means less to spend on domestic and foreign goods. If and when the Federal Reserve starts the 'big squeeze' to save the dollar, the trade deficit will come down. However, if the dollar rallies, American companies will become less competitive just when the consumer is feeling strapped financially and spending less. In addition, our trading partners will not be happy that the free ride on America is over. When 40 percent of S&P corporate profits are related to financing, higher interest rates do not bode well for corporate profits. Moreover, rising interest rates would inevitably impact the price of stocks, bonds and housing. Perhaps investors should start paying closer attention to the statements and actions of the Federal Reserve governors. The question is, will central banks stay super easy or will they start acting like adults at the end of a wild party? January 26, 2005 Richard Benson http://www.321gold.com/editorials/benson/benson012705.html www.321gold.com/editorials/benson/benson012705.html

Subject: Re: America overwhelms world's savings From: jimsum To: johnny5 Date Posted: Thurs, Jan 27, 2005 at 23:05:23 (EST) Email Address: jim.summers@rogers.com Message: I love the line 'our trading partners will not be happy that the free ride on America is over'. Some free ride. Foreigners buy raw materials, build goods, then ship them to America; in exchange, they get a bond that won't mature for years, pays peanuts, and is denominated in depreciating U.S. dollars. Free ride is better used to describe the American consumer, who simply signs a Visa receipt and takes the item home.

Subject: P&G Buys Gillette From: Emma To: All Date Posted: Thurs, Jan 27, 2005 at 21:06:31 (EST) Email Address: Not Provided Message: Procter & Gamble to Buy Gillette for $55 Billion in Stock By ANDREW ROSS SORKIN - New Yotk Times The deal between Procter & Gamble and Gillette would create the world's largest consumer products business.

Subject: National Index Returns From: Terri To: All Date Posted: Thurs, Jan 27, 2005 at 20:57:10 (EST) Email Address: Not Provided Message: http://www.msci.com/equity/index2.html National Index Returns 12/31/04 - 1/27/05 Australia 0.7 Canada -4.0 Denmark -4.5 France -2.2 Germany -4.7 Hong Kong -4.9 Ireland -0.5 Japan -2.5 Norway -2.5 Sweden -4.3 Switzerland -2.8 UK -0.7

Subject: Sector Stock Indexes From: Terri To: All Date Posted: Thurs, Jan 27, 2005 at 19:54:01 (EST) Email Address: Not Provided Message: http://flagship2.vanguard.com/VGApp/hnw/FundsVIPERByType Sector Indexes 12/31/04 - 1/27/05 Energy 3.3 Financials -3.9 Health Care -2.6 Info Tech -6.6 Materials -4.2 Telecoms -5.8 Utilities 0.3

Subject: Vanguard Returns From: Terri To: All Date Posted: Thurs, Jan 27, 2005 at 19:16:03 (EST) Email Address: Not Provided Message: http://flagship3.vanguard.com/VGApp/hnw/FundsByName Vanguard Returns 12/31/04 to 1/27/04 S&P Index is -3.0 Large Cap Growth Index is -3.5 Large Cap Value Index is -2.6 Mid Cap Index is -3.6 Small Cap Index is -4.7 Small Cap Value Index is -4.9 Europe Index is -2.2 Pacific Index is -1.9 Energy is 2.2 Health Care is -2.6 REIT Index is -8.7 High Yield Corporate Bond Fund is -0.4 Long Term Corporate Bond Fund is 1.7

Subject: Luskin on new Fox show From: Kosh To: All Date Posted: Thurs, Jan 27, 2005 at 19:06:04 (EST) Email Address: jdog@hotmail.com Message: http://jameswolcott.com/archives/2005/01/exciting_update.php James Wolcott jameswolcott.com/archives/2005/01/exciting_update.php

Subject: America and China From: Terri To: All Date Posted: Thurs, Jan 27, 2005 at 18:59:08 (EST) Email Address: Not Provided Message: Grumble, grumble. The currency problem is real for China and us, though more so for us I feel, for China's dollar reserves are a claim against American assets and I do not expect we will choose to inflate our way free of the claim. What we must do is lessen the federal deficit that is contributing so much to the trade deficit, but that would take a Robert Rubin at Treasury and there is no chance. So, we grumble at China and China grumbles back and all stays about the same for the while. Hmmm.

Subject: Burden Growing on Pension Group From: Emma To: All Date Posted: Thurs, Jan 27, 2005 at 11:31:44 (EST) Email Address: Not Provided Message: December 16, 2004 Burden Growing on Pension Group By HAL R. VARIAN - New York Times LAST week, I.B.M. announced that it was closing its traditional defined-benefit pension plan to new employees and instead would offer new workers a 401(k) plan. This is just the most recent of many such announcements by major companies. In the mid-1980's, 40 percent of workers were covered by defined-benefit plans. But those plans have become less popular in recent years, and now only 20 percent of workers are covered by such plans. As the name implies, a defined-benefit plan bases its pension payment on a formula involving years of service, final salary and other considerations. The employer effectively promises workers that it will pay them some predetermined amount when they retire. But pension plans and companies sometimes become insolvent. Who back ups these promises? The Pension Benefit Guaranty Corporation was set up by the federal government 30 years ago to provide insurance for traditional pension plans. If an employer cannot pay the promised benefits, the pension agency steps in to cover the difference. In exchange for this insurance, the companies that offer traditional pension plans have to pay a fee to the agency. Zvi Bodie, a professor of economics and finance at Boston University, discusses some of the problems the agency faces in an article entitled 'Straight Talk about Government Pension Insurance,' which will appear in the next issue of The Milken Institute Review. The agency's biggest problem is that it faces significant potential liabilities. In 2000, it showed a net balance of assets over liabilities of $10 billion. By 2004, its financial position had deteriorated to a $23.5 billion deficit. If we add in other companies covered by the agency that face significant bankruptcy risk, the deficit could reach $96 billion. The problem, according to Mr. Bodie, is a mismatch between the assets and liabilities of the pension plans that the agency guarantees. In a defined-benefit plan, companies promise to pay a fixed amount of money to workers when they retire. A company could be sure of having enough money available by investing in secure assets like high-grade corporate bonds. But bonds pay relatively low rates of interest, meaning that companies would have to set aside a substantial amount of money to meet their pension obligations. They find it much more attractive to invest in assets like stocks that have a higher expected rate of return. But high expected returns go hand-in-hand with high risk, increasing the chance of a shortfall. In 2003, General Motors' net pension expense was $2.6 billion. Their financial statements assumed a 9 percent rate of return on investments, which were primarily in stocks and other risky assets. If these funds were invested in bonds yielding about 6.75 percent, G.M. would have had to put away $4.2 billion that year, making its pension plan much more expensive. So what is wrong with assuming a 9 percent rate of return? That is a reasonable figure for the average return on the stock market - but it is only an average. Given the historical fluctuations in the stock market, there is a reasonable chance that a stock market investment may not actually pay off enough to cover the liabilities. That is where the pension guaranty agency comes in. Even if the stock market drops, the workers' pensions will be covered. This means that G.M. has every incentive to invest in stocks rather than bonds: it is heads they win, tails the pension agency loses. As Mr. Bodie explains, there is a fundamental fallacy in pension accounting, which assumes that the ups and downs of the stock market will cancel out over time. This is not necessarily true. Consider a 40-year-old worker who hopes to receive a lump-sum payment of $1,000 when she retires in 20 years. If the interest rate on 20-year bonds is 5 percent, then the company will have to set aside about $377 now, which is the present value of the $1,000 obligation at a 5 percent interest rate. But instead of those dull bonds, the company could invest the $377 in a stock market index fund, which yields about 10 percent a year on average. After 20 years, the odds are that the company will have more than enough money to pay the $1,000, leaving itself a tidy profit, or so it seems. The trouble with this logic is that even though the market will probably do better than bonds on average, there is still a significant risk of a shortfall, even in the long run. To see this, consider how much the company would have to pay now to guarantee that it could cover its $1,000 obligation. The company would need to buy some sort of portfolio insurance that would pay off if the stock market investment fell below $1,000. To provide such insurance, the company could buy a put option, a contract that gives it the right, but not the obligation, to sell the pension stock portfolio for $1,000 in 20 years. If the value of the stock portfolio ends up above that amount, there is no problem. If it falls below $1,000, the pension plan would exercise the option to make good on its promise. How much would such an option cost today? Using standard techniques for option valuation, the price is about $125. Thus, the total cost to guarantee the $1,000 future payment turns out to be $377 plus $125, or $502. So it is not so inexpensive to invest the pension in stocks after all. Either the employee runs some risk of not being paid the entire amount, or someone - the company or the Pension Benefit Guaranty Corporation - has to provide the put option. The problem is that the pension agency has a difficult time charging the actuarially fair price for the insurance it offers. Companies that are close to bankruptcy cannot pay, and healthy companies find it more attractive to opt out of the program entirely and offer 401(k) plans instead. So the financial position of the pension agency continues to deteriorate. Sooner or later, Congress will probably have to step in to fix it. The sooner it can put the program on a sound financial footing, the less it will cost the taxpayers in the long run. Hal R. Varian is a professor of business, economics and information management at the University of California, Berkeley.

Subject: Re: Burden Growing on Pension Group From: jimsum To: Emma Date Posted: Thurs, Jan 27, 2005 at 22:21:44 (EST) Email Address: jim.summers@rogers.com Message: The reasoning in this article is a bit off. Yes it costs money to insure the stock returns; but $377 is the present value at 5%, the present value at 10% is only $149. So after adding $125 for the option to this figure, the cost of a guaranteed $1000 or more after 20 years is only $274. Of course the shortcoming of using this approach on a large scale is finding someone you think will be able to pay you billions or trillions of dollars in 20 years.

Subject: Re: Burden Growing on Pension Group From: Emma To: jimsum Date Posted: Fri, Jan 28, 2005 at 11:44:41 (EST) Email Address: Not Provided Message: Jim Summers Nice and useful comment, as always.

Subject: Pension Accounting From: Emma To: Emma Date Posted: Thurs, Jan 27, 2005 at 12:09:35 (EST) Email Address: Not Provided Message: http://www.sims.berkeley.edu/~hal/people/hal/NYTimes/2004-12-16.html As [Zvi] Bodie explains, there is a fundamental fallacy in pension accounting, which assumes that the ups and downs of the stock market will cancel out over time. This is not necessarily true. Consider a 40-year-old worker who hopes to receive a lump-sum payment of $1,000 when she retires in 20 years. If the interest rate on 20-year bonds is 5 percent, then the company will have to set aside about $377 now, which is the present value of the $1,000 obligation at a 5 percent interest rate. But instead of those dull bonds, the company could invest the $377 in a stock market index fund, which yields about 10 percent a year on average. After 20 years, the odds are that the company will have more than enough money to pay the $1,000, leaving itself a tidy profit, or so it seems. The trouble with this logic is that even though the market will probably do better than bonds on average, there is still a significant risk of a shortfall, even in the long run. To see this, consider how much the company would have to pay now to guarantee that it could cover its $1,000 obligation. The company would need to buy some sort of portfolio insurance that would pay off if the stock market investment fell below $1,000. To provide such insurance, the company could buy a put option, a contract that gives it the right, but not the obligation, to sell the pension stock portfolio for $1,000 in 20 years. If the value of the stock portfolio ends up above that amount, there is no problem. If it falls below $1,000, the pension plan would exercise the option to make good on its promise. How much would such an option cost today? Using standard techniques for option valuation, the price is about $125. Thus, the total cost to guarantee the $1,000 future payment turns out to be $377 plus $125, or $502. So it is not so inexpensive to invest the pension in stocks after all. Either the employee runs some risk of not being paid the entire amount, or someone - the company or the Pension Benefit Guaranty Corporation - has to provide the put option.

Subject: Costs for Stock Investing From: Terri To: Emma Date Posted: Thurs, Jan 27, 2005 at 17:24:51 (EST) Email Address: Not Provided Message: Then the cost of investing a portion of payroll taxes in stocks is first: the amount that is diverted from current retirees at the current interest rate. Second: the investment cost, which will be low in the case of a total stock market index fund administered by Social Security. Third: the insurance cost, or the cost of the put option to secure at least the return of Treasury bonds. There will be large costs even if the Social Security system were to invest in a stock index for us. The costs involved for setting up and administering private accounts would be far higher, and properly insuring returns would have to be done by the Social Security system, as in Sweden, or the cost of such insurance would be beyond many many workers.

Subject: China and Japan and Trade From: Emma To: All Date Posted: Thurs, Jan 27, 2005 at 10:44:39 (EST) Email Address: Not Provided Message: http://www.nytimes.com/2005/01/27/business/worldbusiness/27pension.html?oref=login&pagewanted=all&position= A Growing China Becomes Japan's Top Trade Partner By TODD ZAUN TOKYO - China surpassed the United States as Japan's top trading partner for the first time last year, highlighting the growing economic ties between Japan and its rapidly expanding neighbor. China, including Hong Kong, accounted for 20.1 percent of Japan's total foreign trade last year, compared with an 18.6 percent share for the United States, according to figures released Wednesday by Japan's Ministry of Finance. By value, Japan's trade with China and Hong Kong, including exports and imports, rose to a record high 22.20 trillion yen ($215 billion) in 2004, outstripping the 20.48 trillion yen in trade with its longtime top partner, the United States. The increase in Japan's trade with China has been driven in part by China's surging growth, but even more, economists say, by the expanding use of China as a production base for Japanese cars, computers and electronic gadgets that are then shipped around the world. While the trade figures show Japan's economic well-being is increasingly linked to China, that has not diminished the importance of the United States, economists say. 'China has become a major production base for foreign companies including Japanese,' said Peter Morgan, economist at HSBC Securities in Tokyo. 'But if one looks at the final destination of the products, the U.S. is clearly more important still.' Mr. Morgan calculated that about 60 percent of Japanese exports to China are tied to products bound elsewhere. For years, companies like Matsushita Electric Industrial have been shipping computer chips and other core components to factories in China where they are slotted into televisions, DVD players and cellphones to be sold in other markets. And now Japanese companies are using factories in China for even more sophisticated production. By 2007, the Honda Motor Company, for example, plans to nearly double its exports of motorcycles from China to about 300,000, from 170,000 last year. And later this year, the company plans to start exporting a hatchback called Jazz from China to showrooms in Europe. 'The shift in production from Japan to China has been conducted in stages. It started with the low-end stuff, then moved into machinery and obviously autos are the next stage,' said Ryo Hino, an economist in Tokyo for J. P. Morgan. 'Japan is doing the rational thing by attaching itself to a high-growth developing economy.' To be sure, the United States is still the largest single foreign market for Japanese goods - Japan's overall trade with China was higher than with the United States only because Japan imports much more from China than from the United States. That also means that Japan has a much larger trade surplus with the United States, at 6.96 trillion yen ($67.56 billion) last year, than with China, at 1.46 trillion yen. Still, China is where the action is for Japan in terms of export growth. Japan's exports to China, including Hong Kong, increased 21 percent last year, to 11.83 trillion yen, while Japan's exports to the United States rose just 2.3 percent, to 13.72 trillion yen. Over all, China accounted for a quarter of Japan's export growth last year, making it very important to a country whose two-year-old recovery has been built largely on exports. The crucial question for Japan now is how long China's appetite for imports will last. China reported earlier this week that its economy expanded at a fevered 9.5 percent in the fourth quarter, even as inflation seemed to be abating. Despite that growth, Japan's exports to China seem to have cooled somewhat. Growth of Japan's exports to China slowed to 9 percent in December, compared with a year earlier, from 22 percent in November. In December, Japan's overall trade surplus expanded at a modest pace of 1.8 percent from a year earlier, to 1.14 trillion yen ($11.06 billion), on an increase in shipments of autos and steel, while imports grew 10.9 percent, mainly because of rising oil prices.

Subject: Sinking Dollar Dominates Davos Debate From: Emma To: All Date Posted: Thurs, Jan 27, 2005 at 10:43:42 (EST) Email Address: Not Provided Message: http://www.nytimes.com/2005/01/27/business/worldbusiness/27econ.html Sinking Dollar Dominates Davos Debate By MARK LANDLER DAVOS, Switzerland - Two things were as clear as the Alpine air on the opening day of the World Economic Forum on Wednesday: The relentlessly sinking dollar is Topic A, and anyone hoping for an answer to when it will stop dropping is likely to come away disappointed. Economists, politicians and business executives voiced deep unease about the imbalances in the global financial system, which are reflected in the dollar's steep fall against the euro and other currencies. But most expressed skepticism that the Bush administration would reduce the trade and budget deficits, which have fed those imbalances. The White House has said that it does not view these issues as a major problem because foreigners still view the American economy as an attractive investment. Some at the forum said they doubted that China, which is financing much of the American debt, would bow to pressure to allow its currency to rise against the dollar this year. 'The U.S. current-account deficit is a problem for the whole world,' said Jacob A. Frenkel, a former governor of the Bank of Israel. But, he said, 'I don't see the budget deficit being taken seriously.' The Bush administration, which dispatched Vice President Dick Cheney and Secretary of State Colin L. Powell to past Davos meetings to defend the Iraq war and other foreign policy actions, has not sent a similarly prominent economic policy maker to this gathering. That absence has lent the proceedings an imbalanced tone. 'In fairness, it's a transition period in Washington,' said Representative Barney Frank, Democrat of Massachusetts, who supplied the American voice on a panel about American leadership. He added, however, 'The administration doesn't really have anyone they trust enough to send here.' Mr. Frank, the ranking Democrat on the House Financial Services Committee, said that he worried that the United States was not paying enough attention to the risks of its growing indebtedness. The repercussions of a weak dollar, he said, had barely registered with the White House. Other critics were blunter. 'There's nobody home on economic policy in America right now,' said Stephen S. Roach, the chief economist at Morgan Stanley. The twin burdens of household and public debt in the United States, he said, are unsustainable. Describing American consumers as 'an accident waiting to happen,' he asked, 'When does the music stop?' With the dollar already trading at $1.30 to the euro - near the level of economic unacceptability for Europe - Mr. Roach said the United States could not rely on currency markets to right the imbalance between it and the Asian countries that finance American deficits by buying Treasury bills. The answer, he said, lies with the Federal Reserve, which he said would have to raise rates aggressively to curb the spending binge. Whether it could do that without triggering a recession is an open question. Few here held out hope for international coordination of the kind that stabilized the dollar in the 1980's. 'The Bush administration doesn't listen to people,' said Laura D. Tyson, who served as an economic adviser to President Bill Clinton. 'There's no hope of changing U.S. fiscal policy.' Professor Tyson, who is dean of the London Business School, said European leaders needed to stop worrying about the actions of other countries and set about streamlining their own economies. She pointed to recent wage negotiations in Germany, in which the unions agreed to longer hours and more flexible work rules, as a hopeful sign of change. Certainly, Europe cannot rely on Asia to take the pressure off the euro. While people here said they were guardedly optimistic that China would eventually allow its currency, the yuan, to rise against the dollar, few were willing to hazard a guess as to when - or to what extent. 'That will need a political commitment and a political will, and I don't see that happening this year,' said Takatoshi Ito, a specialist in international economics at the University of Tokyo. Some economists warned that the expanding trade deficit and weak dollar could cast a shadow over negotiations to liberalize world trade, which have been dragging for various reasons in the last year. China's record trade surplus with the United States could fuel protectionist forces in the United States, said C. Fred Bergsten, the director of the Institute for International Economics in Washington. He said he could foresee moves to impose import barriers on Chinese wood and shrimp. 'This is a poisonous environment for trade policy and for domestic politics in the United States.' In the last couple of years, with the White House's march to war in Iraq, Davos itself has been a rather poisonous environment for Americans. Those tensions have ebbed this year.

Subject: Chile's Private Penion Plan Shortfall From: Emma To: All Date Posted: Thurs, Jan 27, 2005 at 10:24:28 (EST) Email Address: Not Provided Message: http://www.nytimes.com/2005/01/27/business/worldbusiness/27pension.html?oref=login&pagewanted=all&position= Chile's Retirees Find Shortfall in Private Plan By LARRY ROHTER SANTIAGO, Chile - Nearly 25 years ago, Chile embarked on a sweeping experiment that has since been emulated, in one way or another, in a score of other countries. Rather than finance pensions through a system to which workers, employers and the government all contributed, millions of people began to pay 10 percent of their salaries to private investment accounts that they controlled. Under the Chilean program - which President Bush has cited as a model for his plans to overhaul Social Security - the promise was that such investments, by helping to spur economic growth and generating higher returns, would deliver monthly pension benefits larger than what the traditional system could offer. But now that the first generation of workers to depend on the new system is beginning to retire, Chileans are finding that it is falling far short of what was originally advertised under the authoritarian government of Gen. Augusto Pinochet. For all the program's success in economic terms, the government continues to direct billions of dollars to a safety net for those whose contributions were not large enough to ensure even a minimum pension approaching $140 a month. Many others - because they earned much of their income in the underground economy, are self-employed, or work only seasonally - remain outside the system altogether. Combined, those groups constitute roughly half the Chilean labor force. Only half of workers are captured by the system. Even many middle-class workers who contributed regularly are finding that their private accounts - burdened with hidden fees that may have soaked up as much as a third of their original investment - are failing to deliver as much in benefits as they would have received if they had stayed in the old system. Dagoberto Sáez, for example, is a 66-year-old laboratory technician here who plans, because of a recent heart attack, to retire in March. He earns just under $950 a month; his pension fund has told him that his nearly 24 years of contributions will finance a 20-year annuity paying only $315 a month. 'Colleagues and friends with the same pay grade who stayed in the old system, people who work right alongside me,' he said, 'are retiring with pensions of almost $700 a month - good until they die. I have a salary that allows me to live with dignity, and all of a sudden I am going to be plunged into poverty, all because I made the mistake of believing the promises they made to us back in 1981.' With many Chileans finding themselves in a situation much like that of Mr. Sáez, people are still looking to the government, not private pension funds, to ensure a secure retirement. 'It is evident the system requires reform,' the minister of labor and social security, Ricardo Scolari, said in an interview here. Chile's current approach based on private pension funds has 'important strengths,' he said, but 'it is absolutely impossible to think that a system of this nature is going to resolve the income needs of Chileans when they reach old age.' In formulating proposals in the United States for individual accounts, advocates of partial privatization of Social Security have sought to overcome some of the problems in Chile. They have suggested, for example, setting low limits on the fees that fund managers will be allowed to charge and continuing to provide a major part of retirement income through the traditional system of guaranteed payments. The program in Chile differs from the voluntary model that President Bush is considering. Participation here has been not voluntary for people entering the labor force since 1981. On the other hand, Chile was careful before it started its private system to accumulate several years of budget surpluses, in contrast to the recent large deficits in the United States. The Chilean example also makes clear that introducing private accounts does not solve a lot of the problems faced in the United States, Europe and Japan, where pay-as-you-go systems remain the principal means of government retirement support. Over all, Chile has spent more than $66 billion on benefits since privatization was introduced. Despite initial projections that the system would be self-sustaining by now, spending on pensions makes up more than a quarter of the national budget, nearly as much as the spending on education and health combined. Faced with the likelihood of the gap remaining as it is or, as Mr. Scolari said, 'perhaps even widening,' the Chilean government is contemplating a new round of pension changes. Suggestions that have been floated include many also under consideration in the United States and Europe, like reducing benefits or setting a higher retirement age. The problems have emerged despite what all here agree is the main strength of the privatized system: an average 10 percent annual return on investments. Those results have been achieved by the pension funds largely through the purchase of stocks and corporate and government bonds - investments that helped fuel an economic expansion giving Chile the highest growth rate in Latin America over the last 20 years. 'The great success of the system is its high profit rate, more than double what was initially projected,' said Guillermo Arthur Errázuriz, executive director of the Association of Pension Fund Administrators. 'In total, workers have set aside nearly $61 billion, which is invested in the sectors of the economy that show the most potential.' Among the admirers of the privatized system here is Mr. Bush, who on a visit in November called Chile 'a great example' for other countries. On other occasions, he has suggested that the United States could 'take some lessons from Chile, particularly when it comes to how to run our pension plans.' The main architect of the Chilean system is José Piñera, who was labor and social security minister from 1978 to 1980 during the Pinochet dictatorship. Mr. Piñera is now chairman of the International Center for Pension Reform, co-chairman of the Cato Institute's Project on Social Security Choice, and he has been a board member of several Chilean corporations. Mr. Piñera declined repeated requests to be interviewed for this article. In an article on the Op-Ed page of The New York Times last month, though, he extolled the Chilean system as one based on ownership, choice and responsibility and one that is widely popular because it gives workers a stake in the economy. Among other achievements emphasized here by advocates of the privatized funds are the creation of a modern capital market, cheaper credit for companies that formerly could turn only to banks when they wanted to expand, and a brake on deficit spending by the government. Critics respond that the privatized system has been less successful in ensuring a dignified retirement for the elderly. 'What we have is a system that is good for Chile but bad for most Chileans,' said a government official who specializes in pension issues and who spoke on condition of anonymity, fearing retaliation from corporate interests. 'If people really had freedom of choice, 90 percent of them would opt to go back to the old system.' Among the complaints most often heard here is that contributors are forced to pay exorbitant commissions to the pension funds. Exactly how much goes to such fees is a subject of debate, but a recent World Bank study calculated that a quarter to a third of all contributions paid by a person retiring in 2000 would have gone to pay such charges. But most Chileans are unaware of how much they are paying to the funds because the lengthy quarterly financial balance sheet they receive 'is not comprehensible,' according to Guillermo Larraín, director of the Superintendency of Pension Funds, a government agency. 'It needs to be replaced by a simple and transparent financial statement,' he said, so workers can determine which fund charges the lowest fees. In recent years, the number of pension funds has been winnowed to 6 from a high of 22 in the early 1990's. They have enjoyed record earnings, so much so that foreign banks and insurance companies are investing in the industry. While the pension fund association puts the average annual return on assets just under 30 percent, government figures show profits of 50 percent in 2000, with some independent studies suggesting the funds did that well over the five-year period ended in 2003. Proponents of the system justify the high returns as an appropriate reward for the risk they undertake. But a recent World Bank report, 'Keeping the Promise of Social Security in Latin America,' minimized that, noting that through the 1990's, only three large companies accounted for half of all shares traded on the Santiago stock exchange and that pension funds tend to follow a herd instinct and invest in the safest choices on the market. Government officials like Mr. Larraín and Mr. Scolari acknowledge that 'commissions are high and need to come down.' They say that 'more competition is needed' to foster lower fees. But existing regulations frustrate the creation of new funds - something that seems just fine to pension funds that have become a powerful political and economic force. 'The dynamic of the market,' Mr. Larraín said, 'is one of consolidation and concentration.' Some other problems of the Chilean system stem from factors that do not apply with the same force in the United States and other advanced economies. Nearly half of Chilean workers, for example, are employed off the books in the so-called informal sector, while many others are hired as independent contractors, who are not required to contribute to a pension account and do not do so regularly because they cannot afford it. By the government's own calculations, only about half the work force contributes to a pension fund. 'We are aware there is a big hole and that we need to take corrective measures,' Mr. Larraín said. Because many of the claims initially made on behalf of the privatized system proved exaggerated or inaccurate, the transition period has turned out to be longer and more expensive than anticipated. The annual cost to the government, still the guarantor of last resort, has remained steady at 5 to 6 percent of the nation's economic output. (By comparison, in 2003, Social Security outlays in the United States totaled 4.2 percent of the gross domestic product.) Chile spends about $2 billion a year to pay retirees from its armed forces, according to Mr. Scolari. The military imposed privatization on the rest of the country, but was careful to preserve its own advantages and exclude fellow soldiers from the system. Despite calls that the military be forced to give up its exemption, no civilian government has been prepared to pursue that. Proponents of the privatized system argue that those costs will diminish in coming years, as those still receiving benefits from the old system gradually die off. But critics disagree, pointing to the large numbers of younger Chileans in the work force who either do not participate or whose contributions will fall short of the amount required for a minimum pension. For those remaining in the government's original pay-as-you-go system, the maximum retirement benefit is now about $1,250 a month. The National Center for Alternative Development Studies, a research institute here, calculates that to get that same amount from a private pension fund, workers would have to contribute more than $250,000 over their careers, a target that has been reached by fewer than 500 of the private system's 7 million past and present contributors. This leaves many Chileans in a situation that has led to the coining of a phrase: 'pension damage.' There is now even an Association of People With Pension Damage, 157,000 members and growing, that consists of Chileans, mostly former government employees, who find that their pensions, based on contributions to the private system, are significantly less than if they had remained in the old system. 'They come to us in desperation,' said Yasmir Fariña, the group's president, 'because those who stayed in the government system are often retiring with monthly pensions twice as large as everyone else's.'

Subject: No US representative at Davos From: Pete Weis To: All Date Posted: Wed, Jan 26, 2005 at 21:38:05 (EST) Email Address: Not Provided Message: US administration ignoring serious economic issues. Doesn't appear to be anyone in the pilot house. Associated Press Economist: China Loses Faith in Dollar 01.26.2005, 03:25 PM China has lost faith in the stability of the U.S. dollar and its first priority is to broaden the exchange rate for its currency from the dollar to a more flexible basket of currencies, a top Chinese economist said Wednesday at the World Economic Forum. At a standing-room only session focusing on the world's fastest-growing economy, Fan Gang, director of the National Economic Research Institute at the China Reform Foundation, said the issue for China isn't whether to devalue the yuan but 'to limit it from the U.S. dollar.' But he stressed that the Chinese government is under no pressure to revalue its currency. China's exchange rate policies restrict the value of the yuan to a narrow band around 8.28 yuan, pegged to US$1. Critics argue that the yuan is undervalued, making China's exports cheaper overseas and giving its manufacturers an unfair advantage. Beijing has been under pressure from its trading partners, especially the United States, to relax controls on its currency. 'The U.S. dollar is no longer - in our opinion is no longer - (seen) as a stable currency, and is devaluating all the time, and that's putting troubles all the time,' Fan said, speaking in English. 'So the real issue is how to change the regime from a U.S. dollar pegging ... to a more manageable ... reference ... say Euros, yen, dollars - those kind of more diversified systems,' he said. 'If you do this, in the beginning you have some kind of initial shock,' Fan said. 'You have to deal with some devaluation pressures.' The dollar hit a new low in December against the euro and has been falling against other major currencies on concerns about the ever-growing U.S. trade and budget deficits. Fan said last year China lost a good opportunity to do revalue its currency, in July and October. 'High pressure, we don't do it. When the pressure's gone, we forgot,' Fan said, to laughter from the audience. 'But this time, I think Chinese authorities will not forget it. Now people understand the U.S. dollar will not stop devaluating.' Asked how speculation about revaluation could be curbed, he noted that China imposed a 3 percent tariff on Chinese exports. Some Chinese experts say that perhaps inflation can be reduced this year, 'but I'm not that optimistic,' Fan said, noting that fuel prices keep rising. 'So maybe China (will) have 4-5 percent inflation in 2005,' he said. Fan, whose nonprofit institute specializes in analyzing the Chinese economy, stressed that the country's development is a long-term process that will take decades, maybe a century. Since China's economic modernization began over a decade ago, 120 million rural laborers have moved into cities, but another 200 or 300 million people need to move into the cities from the countryside to spur development, he said. 'The income disparity is huge, and income disparity will stay with us for a long time, as long as those 200 to 300 million rural laborers stay in the countryside,' Fan said. Nonetheless, William Parrett, chief executive of Deloitte Touche Tohmatsu, told the panel that Chinese companies are making significant progress in becoming global giants, led by state-owned companies. 'It's probably at least 10 years before the objective of the government of 50 of the largest 500 companies in the world being Chinese' is achieved, he said.

Subject: China's Currency Policy From: Emma To: Pete Weis Date Posted: Thurs, Jan 27, 2005 at 06:09:38 (EST) Email Address: Not Provided Message: When I am puzzled about a stance by China, I turn back to Jonathan Spence and other historians. The guess is Fan Gang's comments have little importance. There is no reason to believe China's leadership feels a near term change in currency policy is necessary. There may be a need for a hint now and again that there may in time be a change, but little more. The Chinese leadership will not be pressured, and they do not intimate a change in economic policy in such a manner or in Switzerland. Mr. Fan is not part of leadership. The performance of the Chinese economy is excellent, and there has to be a reluctance for more than minor policy adjustments.

Subject: Re: China's Currency Policy From: Pete Weis To: Emma Date Posted: Thurs, Jan 27, 2005 at 10:21:52 (EST) Email Address: Not Provided Message: Emma. You are right - the Chinese are very slow to change policy direction. My present broker is Chinese and says this also. I suppose it depends on how fast the dollar falls and if there is a point at which a panic might ensue. There is no way this can carry on indefinitely - but the American consumer may not simply die, but merely fade away. I view it as a serious risk. There is a point at which the US consumer simply is not important enough in world markets to get 'most favored currency status'.

Subject: Inherently Unstable From: Emma To: Pete Weis Date Posted: Thurs, Jan 27, 2005 at 11:34:20 (EST) Email Address: Not Provided Message: The suppport of the dollar in light of our low rate of household saving and growing government and trade deficits is inherently unstable. I agree completely.

Subject: Re: China's Currency Policy From: Emma To: Emma Date Posted: Thurs, Jan 27, 2005 at 06:15:45 (EST) Email Address: Not Provided Message: Pete, thanks for finding the post though I would anticipate no near change in China's currency policy. This seems a public ploy. We will learn of a currency policy change only after it has happened. Why there is no Administration representative at Davos is a puzzle. We may not care much about the meeting?

Subject: Investment Banker and Client From: Emma To: All Date Posted: Wed, Jan 26, 2005 at 18:20:27 (EST) Email Address: Not Provided Message: http://www.nytimes.com/2005/01/26/business/26place.html?pagewanted=all&position= Investment Banker and Client: A Bond Deepens By LANDON THOMAS Jr. The ballroom at the Grand Hyatt in Manhattan was overflowing with eager investors on Friday as James B. Lee Jr., a top executive of J. P. Morgan Chase, stepped to the podium. Mr. Lee was making a pitch for his newest client, Edward S. Lampert, the hedge fund investor who had resurrected the fortunes of Kmart and masterminded its $11 billion merger with Sears, Roebuck. 'Eddie is, in my view, one of the most important new figures in American business today,' said Mr. Lee, whose slicked-back hair and flashing cuff links harked back to his brasher days as a 1980's deal maker. 'And he is as old school in relationships as I am. If you want to have a relationship with these guys, get into this deal.' With a shy smile, Mr. Lampert started into a detailed description of his plan to turn two down-at-the-heels retailers into a new entity able to compete with the likes of Wal-Mart and Target. And with a nod to the 40 percent position that his fund, ESL Investments, will have in the new company, Mr. Lampert made it clear to the bankers in the room that it was his money, even more than theirs, that would be at stake. 'If this were to fail, ' he said coolly, 'we would lose our money before you lose a penny.' But on such a buoyant day, no one was prepared to contemplate that kind of outcome. Investors have already committed $5.65 billion to Mr. Lee's $4 billion syndicate deal, which is intended to provide Mr. Lampert the funds to run his new company as well as make acquisitions. The merger is expected to close in March. While a boon for both men, the deal also illuminates where the new power lies on Wall Street. Large banks like J. P. Morgan Chase have traditionally lent to Fortune 500 companies and leveraged buyout firms. Now, investors like Mr. Lampert, with their billions of fast-moving dollars and their emergence as deal makers, are becoming the most favored clients. At the same time, the growing bond between Mr. Lampert, 42, and Mr. Lee, 52, who communicate with each other at least once a day, suggests that even as banks grow larger and more impersonal, it is the power of personal relationships that remains the essential lubricant for deal making on Wall Street. 'I want that 20-year incredible partnership,' Mr. Lee said after the presentation. A pioneer of the syndicated loan market, Mr. Lee was an early backer of Stephen A. Schwarzman of the Blackstone Group, Theodore J. Forstmann of Forstmann Little and David Geffen, one of the founders of DreamWorks SKG. It was Mr. Geffen, a friend of both Mr. Lee and Mr. Lampert, who brought the two men together a few months ago. 'Banking at this level is all about picking people, ' Mr. Lee said, 'and I've made some good bets.' In many ways, the old model of the banker-client relationship has changed. Deals are no longer cut by likeminded men over drinks at their club, or during a round of golf. As banks have consolidated and commissions have shrunk, the competition for business has become all the more fierce, putting a strain on the bond that once linked a banker to his client. 'People have become very transaction-oriented as opposed to relationship-oriented,' Mr. Lambert said in an interview. The changing attitudes of Wall Street are familiar to Mr. Lampert, who walked away from a promising career as an arbitrage trader at Goldman, Sachs to start his own hedge fund in 1988 with a million-dollar stake. Since then, he has generated returns of 30 percent a year by investing in underperforming companies, taking a seat on the board and turning the firm's fortunes around. According to investors in his fund, Mr. Lampert's original position is now worth close to $3 billion, and the size of the fund is well over $10 billion. (Mr. Lampert declined to comment on any aspect of his wealth or the fund's size.) Along the way, Mr. Lampert has attracted a roster of celebrity clients, including Michael S. Dell, founder and chairman of Dell Inc., and Mr. Geffen, who happily agreed to his stringent conditions - a minimum investment of $20 million and a five-year fund lockup. Soft-spoken and slightly hesitant in demeanor, Mr. Lampert comes across more as an actuary than a multibillionaire hedge fund investor. And while his offices are situated on an avenue in Greenwich, Conn., they are unassuming as well as anonymous. ESL's name is not listed in the building reception area downstairs or on its front door, precautions taken after Mr. Lampert was briefly kidnapped two years ago. (He travels with a security guard). But there is nothing retiring about his main ambition for Sears Holding, the combined company, where he will be chairman. He wants to improve its image, profitability and cash flow as well as use it as a vehicle to buy other undervalued companies, as his mentor Warren E. Buffett has done with Berkshire Hathaway. 'Good businesses generate cash,' he said. 'The question is how does management invest the cash. We can open new stores, invest in new ones, buy other retailers or even other companies. We have a confidence in allocating capital and investing in businesses that is a value to the shareholders of the company.' His prescriptions for success at Sears, as they were at Kmart, seem simple enough: cut back on inefficient spending, reposition brands, redo vendor relationships and be ruthless in the use of capital. His instinct to hoard cash has led to a regulatory filing from the new Sears, saying that it expects to stop paying dividends for the first time since 1911. Though a product of Wall Street, Mr. Lampert disdains many of its conventions, especially those that he feels encourage a preoccupation with stock prices rather than company performance. He also bristles at the term hedge fund - he prefers investment partnership - contending that his fund borrows and trades very little, distinguishing it from its peers. Among his pet peeves: the quarterly earnings calls that companies hold with analysts, which he sees as a distraction; Wall Street analysts' reliance on statistics like same-store sales, or sales at stores open at least a year, to measure retail performance; and the liberal awarding of stock options to executives (at Sears, he plans to limit the allocations of options to senior executives). 'We don't want people to focus on the stock,' Mr. Lampert said. 'We will pay our team on the basis of the company's performance. As Warren Buffett said, companies get the shareholders they deserve.' Since the deal with Kmart was announced in November, Kmart's stock, which had soared from $15 to a high of $119 under his stewardship, has declined to $88.27 as a number of investors expressed doubts that the new company would survive. Some analysts question whether cost-cutting and other streamlining moves will be enough, saying the company needs to find a strong identity that will help it increase sales. Kmart remains one of the Nasdaq stocks most actively sold short, reflecting a view among some investors that its price has further to fall. 'People are saying if you compete against Wal-Mart, you will die,' Mr. Lampert said. 'We think that on the basis of the combined company's $55 billion in sales, we could generate a lot of cash.' It is that cash and Mr. Lampert's plans that are causing commercial and investment bankers on Wall Street to pay close attention, and he has received appeals from every major house for his business. But in the end it was J. P. Morgan and Mr. Lee that won out, and Mr. Lampert and the management teams at Kmart and Sears assigned the bank the lead role in the syndicate, with co-leads going to Citigroup and Bank of America. The rest of the syndicate included a who's who of prominent Wall Street banks, including Merrill Lynch, Morgan Stanley, Goldman Sachs and Lehman Brothers, which advised Kmart on the Sears merger. 'There are moments of truth,' Mr. Lampert said. 'Some people step up, others disappear. Jimmy is a guy that understands relationships.' The relationship between Mr. Lee and Mr. Lampert began with a timely phone call from Mr. Geffen, the Hollywood mogul. Mr. Geffen has invested in Mr. Lampert's funds since 1991, when he was one of Mr. Lampert's early investors, giving him $200 million. Mr. Geffen says that if he had left that amount with Mr. Lampert, it would be worth more than $5 billion. The two men are close friends - Mr. Lampert refers to him a partner, as he does all his investors - and he spent much of this month at Mr. Geffen's home in Beverly Hills. Mr. Lee and Mr. Geffen have been friends since 1994, when Mr. Lee, then at Chemical, a predecessor bank of J. P. Morgan Chase, underwrote a $1 billion loan for DreamWorks. That led to a coveted co-lead role for Morgan in the company's public offering last year. 'I'm all about my relationships,' Mr. Geffen said. 'I told Jimmy that Eddie was a genius, and I told Eddie that you might want to borrow some money from Jimmy.'

Subject: Paul and Brad and Joshua From: Terri To: All Date Posted: Wed, Jan 26, 2005 at 16:02:57 (EST) Email Address: Not Provided Message: http://www.j-bradford-delong.net/movable_type/2005-3_archives/000229.html#comments Just How Stupid Is the Wall Street Journal's Editorial Page? By Brad DeLong Paul Krugman drops Josh Micah Marshall a note: Talking Points Memo: by Joshua Micah Marshall: January 23, 2005 - January 29, 2005 Archives: A note from TPM reader Paul Krugman ... Today's WSJ lead editorial is a classic. It's titled 'All you need to know', and shows the CBO projection of declining deficits and stable debt. What they either don't know or believe readers don't know is that this is the *baseline* projection, which assumes that the sunset clauses in the tax cuts actually go into effect, with the whole thing expiring at the end of 2010 (which is halfway through fiscal 2011, in their chart.) It also assumes that nothing is done to reform the alternative minimum tax, which amounts to a stealth tax increase. So what they've proved is that the tax cuts are affordable as long as they go away ... I say that man deserves a Special Edition Privatize This! TPM T-Shirt! Do they not know that the CBO baseline projection assumes the expiration of the Bush tax cuts? Do they have so much contempt for their readers that they bet their readers won't notice? If they had any credibility, this would be a way to burn it to the ground.

Subject: The world´s (in-) dispensable nation From: Pancho Villa alias Sam To: All Date Posted: Wed, Jan 26, 2005 at 14:17:20 (EST) Email Address: nma@hotmail.com Message: FT Tuesday January 25 2005 Michael Lind How America became the world’s dispensable nation In a second inaugural address tinged with evangelical zeal, George W. Bush declared: “Today, America speaks anew to the peoples of the world.” The peoples of the world, however, do not seem to be listening. A new world order is indeed emerging – but its architecture is being drafted in Asia and Europe, at meetings to which Americans have not been invited. Consider Asean Plus Three (APT), which unites the member countries of the Association of Southeast Asian Nations with China, Japan and South Korea. This group could become the world’s largest bloc, dwarfing the European Union and North American Free Trade Association. The deepening ties of the APT member states are a big diplomatic defeat for the US, which hoped to use the Asia-Pacific Economic Co-operation forum to limit the growth of Asian economic regionalism at American expense. In the same way, recent moves by South American countries to bolster an economic community represent a clear rejection of US aims to dominate a western-hemisphere free-trade zone. Consider, as well, the EU’s rapid progress towards military independence. American protests failed to prevent the EU establishing its own military agency, independent of the NATO alliance (and thus of Washington). Europe is building up its own rapid reaction force. And despite US resistance, the EU is developing Galileo, its own satellite network, which will break the monopoly of the US global positioning satellite system. The participation of China in Europe’s Galileo project has alarmed the US military. But China shares an interest with other aspiring space powers in preventing American control of space for military and commercial uses. Even while collaborating with Europe on Galileo, China is partnering Brazil to launch satellites. And in an unprecedented move, China recently agreed to host Russian forces to joint Russo-Chinese military exercises. The US is being sidelined even in the area that Mr. Bush identified in last week’s address as America’s mission: the promotion of democracy and human rights. The EU has devoted for more resources to consolidating democracy in post-communist Europe than has the US. By contrast, under Mr. Bush the US hypocritically uses the promotion of democracy as the rationale for campaigns against states it opposes for strategic reasons. Washington denounces tyranny in Iran but tolerates it in Pakistan. In Iraq, the goal of democratization was invoked only after the invasion, which was justified earlier by claims that Saddam Hussein had weapons of mass destruction and was collaborating with al-qaeda. Nor is American democracy a shining example to mankind. The present one-party rule in the US has been produced in part by the artificial redrawing of political districts to favor Republicans. The role of money in American politics continues to grow. America’s judges – many of whom will be appointed by Mr. Bush – increasingly behave as artisan political activists in black robes. America’s antiquated winner-take-all electoral system has been abandoned by many other democracies for more inclusive versions of proportional representation. In other areas of global moral and institutional reform, the US today is a follower rather than a leader. Human rights ? Europe has banned the death penalty and torture. The US is a leading practitioner of execution. Under Mr. Bush, the US has constructed an international military gulag in which the torture of suspects has frequently occurred. The international rule of law ? For generations, promoting international law in collaboration with other nations was a US goal. But the neoconservatives who dominate Washington today mock the very idea of international law. The next US attorney general will be the WH counsel who scorned the Geneva Conventions as obsolete. A decade ago, American triumphalists mocked those who argued that the world was becoming multipolar rather than unipolar. Where was the evidence of balancing against the US? They asked. Today the evidence of foreign co-operation to reduce American primacy is everywhere – from the increasing importance of regional trade blocs that exclude the US to international space projects and military exercises in which the US is conspicuous by its absence. It is true the US remains the only country capable of projecting military power throughout the world. But unipolarity in the military sphere, narrowly defined, is not preventing the rapid development of multipolarity in the geopolitical and economic arenas – far from it. And the other great powers, with the exceptions of the UK, are content to let the US waste blood and treasure on its doomed attempt at hegemony in the Middle East. That the rest of the world is building institutions and alliances that shut out the US should come as no surprise. The view that American leaders can be trusted to use a monopoly of military and economic power for the good of humanity has never been widely shared outside the US. The trend toward multipolarity has probably been accelerated by the truculent unilateralism of the Bush administration, whose motto seems to be that of the Hollywood mogul Samuel Goldwyn: “Include me out.” In recent memory, nothing could be done without the US. But today, most of any long-term importance in global diplomacy and trade occurs without American participation. In 1998 Madeleine Albright, then US secretary of state, said of the US: “We are the indispensable nation.” By backfiring, the unilateralism of Mr. Bush has proved her wrong. The US, it turns out, is a dispensable nation. Europe, China, Russia, Latin America and other nations are quietly taking measures whose effect, if not sole purpose, will be to cut America down to size. Ironically, the US, having won the cold war is adopting the strategy that led Soviet union to lose it: hoping that raw military power will be sufficient to intimidate other great powers alienated buy its belligerence. To compound the irony, these other great powers are drafting the blueprints for new international institutions and alliances. That is what the US did during and after the second WW. But that was a different America (!), led by wise and constructive statesmen such as Dean Acheson, the secretary of state who wrote of being “present at creation”. The bullying approach of the Bush administration has ensured that the US will not be invited to take part in designing the international architecture of Europe and Asia in the 21st century. This time, the US is absent of creation. The writer is senior fellow at the New America Foundation in Washington DC.

Subject: A European Perspective on China From: Setanta To: All Date Posted: Wed, Jan 26, 2005 at 13:28:18 (EST) Email Address: Not Provided Message: The great march of China 24/01/2005 By the end of next year, 2 per cent of our population will be Chinese. This may be an extraordinary statistic, but in fact it should not surprise us. Walk into any Spar, Centra, Texaco or dry cleaner's and you will see them - young, hard-working Chinese students. Few Irish restaurants, bars or coffee shops would function without them. Griffith College in Dublin has over 1,000 Chinese students enrolled this year. A significant section of the English language school industry - which used to depend on Spanish students – now lives off the new Chinese. Make no mistake about it: our economy and our prosperity depend in part on these Chinese twenty-somethings - without them, many Irish firms would go to the wall. Not only will these Chinese immigrants influence our future, but China itself will shape our century. Most of us have become used to the idea that China is a major player in the global economy. Twenty years ago, the country barely rated a mention; ten years ago it was beginning to show up on economists' radar screens. Over the last three years, since it joined the World Trade Organisation, China has become the most dramatic - and arguably the most important – show on the global stage. The big question is what is next for China. Will its march to economic ascendancy be smooth, successful and orderly, or will it be problematic, volatile and dangerous? In the short term, most investors, politicians and commentators are focusing on trade opportunities, the Chinese currency and the impact on the US dollar of China's enormous trade surplus with America. But in the longer term, the big issues concern the impact China will have on our societies and how we in the West will respond. Let's look at the short-term issues first. The key here is the currency.For the last ten years, the exchange rate of the Chinese renminbi (or yuan) to the US dollar has been fixed in a very narrow range, around 8.28CNYto $1. This tight exchange rate regime means that the Chinese central bank - the People's Bank of China - is required to defend that rate. So, despite the growing trade surplus with the US, the Chinese currency has remained absolutely stable. This state of affairs is intolerable, both for the Americans and for us Europeans. The Americans need the Chinese to revalue because China's trade surplus with the US is rapidly swelling. If a weaker dollar generally is a necessary condition for the US current account deficit to shrink, then the dollar must weaken against the renminbi as well. The Europeans endorse that argument wholeheartedly because, so far, we have been obliged to carry the main burden of the dollar's decline. The Chinese have had a free ride: their currency is pegged to the dollar, so they maintain their competitive position vis-a-vis the US, while the fall in the dollar's value against the European currencies has meant that the renminbi, too, has been devalued against these currencies - thereby improving China's competitive position vis-a-vis the euro. So virtually the entire world wants China to revalue - and the pressure has grown in recent months. The Chinese government and central bank, however, are not keen on revaluing - least of all under pressure from foreigners, especially the US. They have a long-term strategy for gradually opening up their financial system, which will require them to sort out their very wobbly banking system and slowly remove the exchange controls, so that the renminbi eventually becomes a freely-convertible currency, traded openly on global markets. But that is a goal to be reached ten or more years down the road, as far as the Chinese authorities are concerned. This long-term and gradualist approach is now under serious threat - and with it, the entire Chinese financial system. The supreme irony of this situation is that the people mounting this threat are not Western governments, or shady speculators operating through offshore shelters on exotic Caribbean islands, but rather the Chinese people. The situation today on the streets of Shanghai is that tourists seeking to sell dollars for yuan are unwelcome. “Haven't you got a currency other than American dollars?” is the question the dealers are asking - because they and the entire market are awash with greenbacks. The source of this flood of dollar selling is Chinese firms and wealthy individuals (of whom there are now plenty),who are convinced that a revaluation is inevitable and are intent on divesting themselves of the dollars they have hoarded, legally or illegally, over the years. They are being joined in this effort by their family and friends throughout Greater China, and, indeed, throughout the ethnic Chinese émigré communities stretching across Asia and North America (and even into Europe). All these people see the yuan as a one-way bet and are selling their dollars. The only buyer in sight is the People's Bank of China, which is required to buy ever-larger quantities of dollars to preserve the exchange rate. In short, what seems to be happening in the narrow confines of China's foreign exchange market, is a showdown between the People's Bank of China and the people of China. Experience garnered around the world strongly suggests that, in contests of this kind, the market wins and the authorities lose. Therefore it would seem that the next big story in the history of China will be the first defeat ever of the Communist Party at the hands of the people of China - in the guise of a very capitalist revaluation of the currency.But what of the big picture? What impact will China have on you over the next few decades? China's impact is best seen in the consumer durable shops all around the country. China is having a remarkable effect on the price of manufactured goods worldwide. Because the cost of production is so low in China, and so much western investment in China is aimed at making stuff there and reselling it in the West, China is setting the floor for prices in everything from mobiles to computers, staplers to office desks. The question has to be asked: how can any western country compete with 50-cent-an-hour factory workers? And what happens? Manufacturing jobs will migrate to China, just as agricultural jobs did to the US in the 19th century. However, the main difference between now and then is emigration. Poor Europeans will not emigrate to China as millions of poor Irish did to the US in the 19th century. In fact, the emigration of Chinese students the other way is likely to continue. So poor Europeans will suffer in two ways from the emergence of China. First they will be actively competing with new Chinese immigrants in the services sector at home in bars, cafes and restaurants. If they are in European manufacturing, their wages will be gradually reduced as investment moves to China. History suggests that the West's reaction to the new China might be initial euphoria and fascination, followed by economic insecurity and ultimately closed doors to trade. The beginning of the Age of America coincided with the so-called ‘gilded age of free trade' from 1860-1914. This was followed by a great age of protectionism from 1918-1948. Who'd like to bet against history repeating itself in the 21st century?

Subject: Re: A European Perspective on China From: Ari To: Setanta Date Posted: Wed, Jan 26, 2005 at 14:12:09 (EST) Email Address: Not Provided Message: http://www.sbpost.ie/post/pages/p/wholestory.aspx-qqqt=DAVID MACWILLAMS-qqqs=commentandanalysis-qqqsectionid=3-qqqc=5.2.0.0-qqqn=1-qqqx=1.asp The Great March of China By DAVID MACWILLAMS - Post.IE

Subject: Re: A European Perspective on China From: Setanta To: Ari Date Posted: Thurs, Jan 27, 2005 at 07:37:53 (EST) Email Address: Not Provided Message: i pulled it from www.davidmcwilliams.ie. Apologies, should have included the source. he was the anchor on newstalk 106fm breakfast show which was excellent. however, having one of the country's best economic/business/political commentators wasn't enough for the ratings so now they have a former soccerplayer (and a bad one at that) who is a controversial republican sympathiser and radical leftie (who also stumbles over complex financial terms like 'euro dollar exchange rate'). strewth...they banished david to the wilderness for a guy who keeps bringing up his glorious season at millwall (some unrated side) into coversations. are you a sunday business post fan?

Subject: Re: A European Perspective on China From: Ari To: Setanta Date Posted: Thurs, Jan 27, 2005 at 12:19:57 (EST) Email Address: Not Provided Message: I have looked to the Sunday Business Post ever since you referred to it. Always interesting and often useful. Thanks.

Subject: Understanding China? From: Emma To: All Date Posted: Wed, Jan 26, 2005 at 12:38:21 (EST) Email Address: Not Provided Message: http://www.nytimes.com/2005/01/26/opinion/26spence.html?ex=1107752400&en=235668be986000ee&ei=5070 Martyr Complex By JONATHAN SPENCE New Haven — WHY has the Chinese government been so intent on showing that the former Communist Party chief Zhao Ziyang was a man of no significance, a man whose life should not be celebrated and whose death should pass unsung? The answer that comes most readily to the historian's mind is that Mr. Zhao played a role that has often made Chinese governments deeply uneasy: that of a bold and visionary reformer who insistently calls for change and openness in a tightly controlled political environment. Saluted for a time as one of the leaders of the country, Mr. Zhao sought to use his power and visibility to grant a hearing to the voices of those excluded from the inner circles where decisions were normally made. And when he persisted in this course in the face of opposition from senior leaders in his party, he had to be discarded. Many others have played similar roles in China's long history, from as early as the seventh century B.C. Ancient texts suggest a tendency for historians to personalize the idea of reform, to let one or a few individuals give a human face to inchoate and broad-based pleas for change and innovation. Often, those seeking reforms were punished by their own colleagues, so that the concept of reform led to the construction in China of an elaborate and emotionally powerful martyrology. China's recent history is studded with such cases that also serve as markers for major political shifts. Near the end of the Qing dynasty, China's last in the long imperial cycle that had endured for over two millenniums, there was a dramatic example. The year was 1898, and the country was smarting from its recent defeat by Japan, and the loss of Taiwan as one of the spoils of war. China's political structure seemed frozen in time, unable to adjust to a new world's market and military forces. Persuaded of the need for change, the emperor himself tried to open up the system by inviting a group of independent-minded scholars to the court, where they swiftly introduced plans to develop the economy and tax system, transform education, foster industry, increase the productivity of agriculture, develop the press, and begin discussion of constitutional government and the possibilities of popular participation in decision-making. Before the year was out, the conservative opponents rallied, the emperor was placed under a form of palace arrest, and six of the most outspoken reformers were arrested and summarily executed. Those who had fled in time made it to Japan and a life of exile. The reform movement of 1898 became associated with the names of these six martyrs, though indeed they had spoken for a much larger constituency. In the years after the dynasty's fall in 1912, other individuals made parallel gestures or mounted similar challenges to central establishments, knowing how high the risks might be. One of the new breed of politicians who had risen to prominence in China's first republican elections, held in late 1912, used his newfound influence to challenge the centralizing and militaristic tendencies of China's interim president; he was gunned down in the Shanghai railway station en route to taking up a leadership position in the new Parliament. When Chiang Kai-shek was consolidating his power over the Nationalist Party in the 1920's, one of his closest lieutenants sought to increase the participation of leftists and to shift the government onto a more populist course. He too was shot dead on his way to a meeting. In 1946, just after the end of World War II, the popular poet Wen Yiduo cried out in anger against what he saw as government coercion against the liberals who were trying to open up the Nationalist Party - a goal that President Harry Truman's personal emissary to China, Gen. George Marshall, also sought to promote. Wen was shot and killed, just after giving a passionate speech daring the government to take action against him. The list could be expanded with many figures in the People's Republic: those who thought they could use the government's Hundred Flowers campaign of 1956-57 to bring a new humanity and a new openness to Communist Party rule; those who sought after the Great Leap Forward of 1958-60 and the famine that followed to bring back private plots and jump-start the rural economy; or those like the army marshal and minister of defense Peng Dehuai, who privately challenged Mao Zedong to open up the shutters that had darkened the economy since the Great Leap, and to listen to the voices of those who were suffering. In 1976, after his speech of homage to the deceased Prime Minister Zhou Enlai, when the people of Beijing demonstrated in thousands on Tiananmen Square, it was Deng Xiaoping who seemed to be demanding change; for that bravado, he was purged from the party for a second time. In 1987, it was Hu Yaobang, the party chief who was one of Deng's new protégés, who fell from grace because he was considered too soft on the fledgling democracy movement. Hu was replaced by Zhao Ziyang, who fell in his turn as he tried to persuade the government to respond more favorably to some of the ideas for greater political participation being framed so vociferously by the demonstrating citizens and students of Tiananmen Square. As the guns were being brought in, Zhao Ziyang wept, and for that the world remembers him. In contrast to many earlier reformers, Mr. Zhao was allowed to live out the 15 years of life that remained to him in house arrest in Beijing. But the main issues he had raised about political openness were not addressed. Instead, it was the market-energizing plans, which he had formulated in earlier years in Guangdong and Sichuan provinces, that were enshrined as basic policies for China's boom economy of the late 20th century. It did seem like petty spite for China's government to refuse Mr. Zhao a formal funeral and to deny him the credit that was his due. But, if the past is any guide, there will be a kind of corrective justice, as China's leaders seem already to be realizing by modifying their tough stance on the exact funeral arrangements. Indeed, the last thing that China's leaders probably want is for Mr. Zhao to join the long list of reforming martyrs who have made their mark before him. Jonathan Spence, a professor of modern Chinese history at Yale, is the author, most recently, of 'Treason by the Book.'

Subject: Betting on Drug Prices From: Emma To: All Date Posted: Wed, Jan 26, 2005 at 11:26:52 (EST) Email Address: Not Provided Message: http://www.nytimes.com/2005/01/26/business/26rahr.html?pagewanted=all&position= Making a Fortune by Wagering That Drug Prices Tend to Rise By STEPHANIE SAUL Stewart Rahr's new $45 million East Hampton estate, the most expensive house ever purchased in New York State, is just across the pond from Steven Spielberg's. Mr. Rahr plays golf with Donald Trump and practices putting on an indoor green in the basement of his warehouse in Queens. He and his wife, Carol, last drew attention in 2003 when they bought four works of art, including a Renoir and a Picasso, in one sitting at Sotheby's. But as he becomes increasingly visible as one of New York's wealthiest men, Mr. Rahr, a 58-year-old law school dropout, is girding himself for the elimination of the system that helped generate his fortune. His success offers a rare glimpse into a lucrative but little-known corner of the pharmaceutical industry - the once-mundane business of delivering drugs from manufacturers to pharmacies. Over the last 20 years, the packing and shipping of drugs evolved into a game of arbitrage, called speculative buying, with distributors like Mr. Rahr wagering on drug price increases. This common industry practice seems more fitting to a casino than a distribution warehouse. And in the 1990's and the early years of this decade, with prices far outstripping inflation, it was a sure bet. Knowing that drug manufacturers typically increased prices at the same time, often in January, drug middlemen like Mr. Rahr, the sole owner of Kinray, which is based in Queens, made millions by overstocking their warehouses before manufacturers announced price increases. By acquiring extra inventory at the lower price, distributors made quick profits once they sold the drugs at higher prices a short time later to retail pharmacies. Prescription drug prices are a combustible political issue, and manufacturers feel intense pressure to restrain them. With their historically large profits threatened, and with regulators questioning aspects of the speculative buying system, the manufacturers have taken steps to shut it by limiting distributors to just one month's worth of inventory. Drug manufacturers have also begun using special software to help detect speculative buying. Mr. Rahr would not disclose exactly how much he made through speculative buying. Goldman Sachs estimated that the distribution industry, which is dominated by three large public companies, made 60 percent of its profit, or $980 million, from speculative buying in 2001, when the practice was at its peak. More recently, Goldman Sachs estimated speculative buying's contribution at 40 percent of profits. Mr. Rahr, who honed the practice with the help of a computer program, said that his profit from the practice never reached 40 percent. Mr. Rahr also said that his and other distributors' fees accounted for a tiny portion of the cost of drugs to consumers, with manufacturers taking the major share of profits. 'We're talking an infinitesimal impact on the consumer, based on the total cost of the health care industry,' Mr. Rahr said. 'Whether there is spec buying or not is not the greatest factor in the high cost of pharmaceuticals.' In some ways, the practice helped drug manufacturers, who relied on speculative buying in lieu of paying distributors to get drugs to pharmacies. In effect, it was a form of hidden compensation that never showed up as a cost to manufacturers. But speculative buying fostered many problems, industry analysts and economists said. Some say it played a role in drug cost inflation by adding an incentive for manufacturers to raise prices repeatedly. It also sometimes gave drug makers false signals that products were in demand, prompting them to turn out excess product. By encouraging distributor stockpiling, the system also led to shortages in some regions of the country, a situation known as a 'stock out' and one that the industry does not like to discuss. Last year, Bristol-Myers Squibb paid $150 million to settle allegations, without admitting or denying guilt, that it misled investors by aggressively encouraging wholesalers to flood their warehouses, thus artificially inflating its sales. The case, brought by the Securities and Exchange Commission, was the beginning of the end of speculative buying, as other manufacturers worried that they, too, might run afoul of securities laws. 'It was a dysfunctional model,' said Ken Abramowitz, an analyst and managing general partner at NGN Capital, a health care venture capital company in New York. Exactly how much retail drug prices have been affected by speculative buying is an open question. Adam J. Fein, a Philadelphia business economist, says that the end of speculative buying can reduce the rate of drug price inflation by one or two percentage points a year. Based on the 5.3 percent increase in retail drug prices in 2003, as calculated by IMS Health, a pharmaceutical-market research company, consumers could save $2.2 billion to $4.4 billion annually. Others agree that speculative buying created inflationary pressures, but are more concerned that ending the practice will drive up retail prices if distributors, who operate on slim profit margins, are forced to pass any costs to retail pharmacies. 'They'll have to make up their margins somewhere that they aren't getting from the manufacturer,' said Steven W. Schondelmeyer, a University of Minnesota professor who studies the economics of the pharmaceutical industry. 'They'll raise the prices to the pharmacies. The pharmacies have very thin margins to begin with, and all they can do is pass it on to consumers.' Experts agree, however, that consumers will benefit in at least one way. Speculative buying helped foster a secondary pharmaceutical market, with some distributors reselling extra drugs they did not need to other distributors. 'It invited the risk of the type of counterfeit and adulterated market that we saw with some of the biotech drugs and Lipitor,' said Christopher McFadden, an analyst with Goldman Sachs. The shift away from speculative buying has put pharmaceutical distribution at a critical point, according to Mr. Fein, whose company, Pembroke Consulting, advises both manufacturers and distributors. 'Of course it's affected our business,' said Mr. Rahr, who said he had no plans to raise prices to compensate for the loss of profit from speculative buying. Instead, he said that his company was working harder to control costs and expand its territory. 'Volume, volume, volume,' he said. The transformation has also affected bottom lines at the three large public pharmaceutical distribution companies - AmerisourceBergen, Cardinal Health and McKesson. Today, they deliver 90 percent of the $220 billion in drugs sold in the United States. As distributors try to recoup, they have become engaged in what Mr. Fein said were tough negotiations with manufacturers, asking that they pay fees for distributing drugs to pharmacies. 'The question is, How much more value or how much more fees is the manufacturing community going to be willing to pay?' Mr. McFadden said. 'It's kind of whatever you can negotiate.' In one of the first of these 'fee for service' deals, Eli Lilly recently announced it had struck an agreement with Cardinal Health, but neither side disclosed terms. Last week, Eisai, a Japanese pharmaceutical company, announced that it had broken off negotiations with Cardinal Health and warned patients of potential disruptions in the supply of drugs to treat Alzheimer's, epilepsy and gastrointestinal problems. Three days later, the companies announced that they had reached a deal, after all. Pfizer, the giant pharmaceutical manufacturer, said last week that it would not negotiate fee agreements with distributors. 'Someone like Pfizer says, 'the fact that you lost money is not my problem,' ' said Mr. Abramowitz, the health care analyst. As his profit margin narrows - Mr. Rahr describes it as 'razor thin' - Mr. Rahr is expressing confidence that Kinray will prosper even without speculative buying, based on its efficiency, low costs and the fact that he has no debt. His company has established a national telemarketing office that makes cold calls to pharmacies across the country. Mr. Rahr, whose company employs about 1,000 people, is expanding his business in home health equipment like walkers and bedpans, as well as generic drugs, both areas with higher profit margins than brand-name drugs, where he makes less than 2 cents on the dollar. 'We do all this work for pennies,' Mr. Rahr said. 'But like my father said, 'pennies do add up to dollars.' ' Last year, the pennies added up to $3.1 billion in sales. Mr. Rahr's business, he said, is dependent on a large computer-operated picking system that fills orders from among 34,000 items in the company's 400,000-foot warehouse. The items, he said, include anything a drugstore would sell. 'I'd be out of business without this technology,' he said. Despite his wealth, Mr. Rahr still exudes Queens from every pore. He is gregarious and down to earth, perpetually tanned, and seems both proud of his success and slightly apologetic about it, emphasizing that he still wears a $19.95 watch and drives himself to work in a 10-year-old Jeep Cherokee. He loves to tell stories about how a headwaiter or a security guard stopped him because he was wearing his usual attire, a baseball cap and jeans. 'My wife's used to it,' he said. 'I identify with the underdog.' He specializes in sales to 3,000 independent drugstores in seven Northeastern states. Mr. Rahr says he controls 75 percent of that market. Among the druggists, Kinray is known for its easy-to-use Web site. It has been 36 years since Mr. Rahr dropped out of New York Law School and persuaded his father, Joseph Rahr, not to sell the family's retail pharmacy in Brooklyn, which also supplied a few other drugstores. Mr. Rahr recently described the rejection he felt at first, when he tried to expand the wholesale business. 'I used to call the pharmacies and I would call and say, 'Kinray,' and they'd say, 'Nothing for you today.' And after about three or four in a row, I would get, 'Here's three aspirin for you and two Colgate toothpaste and one Mennen Speed Stick, if I were lucky,' ' Mr. Rahr recalled. 'And the sound of them hanging up on me, the 'nothing for you today,' just started to make me feel like I had to do something to get to become the primary jobber in these stores.' In 1973, Mr. Rahr and his wife, now a partner in a Manhattan jewelry design firm, Beach to Ballroom, bought their first home on one acre in suburban Dix Hills, N.Y. The Hamptons estate is considerably more grand, and Mr. Rahr sees it as his crowning achievement. It sits on 25 acres. The main house is 18,000 square feet, with 8 bedrooms and 14 baths, a private 2,000-foot beach with its own dock and boathouse, a waterside heated pool with waterfall and whirlpool, a tennis court and viewing pavilion, and a greenhouse. Mr. Rahr said that buying the property was an emotional experience for him. 'Here we were, 32 years later, walking on a much larger estate and feeling blessed that we were able to be in this position,' he said. Mr. Rahr says he has never borrowed a penny, so in a few days, when the deal closes on the oceanfront mansion, called Burnt Point, he will pay cash.

Subject: Japanese Return to U.S. Real Estate From: Emma To: All Date Posted: Wed, Jan 26, 2005 at 11:10:48 (EST) Email Address: Not Provided Message: http://www.nytimes.com/2005/01/26/business/26prop.html?pagewanted=all&position= Echoes of the 80's: Japanese Return to U.S. Market By TERRY PRISTIN Japanese investment in United States real estate soared in the 1980's, as companies and financial institutions poured nearly $300 billion into high-profile properties like Rockefeller Center in New York and the Pebble Beach Golf Club in California. But the value of many of these assets plunged by as much as 50 percent in the early 90's, and for more than a decade, the Japanese have been sellers rather than buyers. After a 15-year hiatus, however, Japanese capital is re-entering the United States market, but much more quietly and cautiously this time. 'They have begun to test the waters again,' said Bill Collins, who runs the capital markets group at Cassidy & Pinkard, a real estate services firm in Washington. For the first time in years, for example, Mitsui Fudosan, Japan's largest real estate company and the owner since 1986 of 1251 Avenue of the Americas, the former Exxon Building, is searching for other buildings to buy in the two most competitive markets in the United States, said Michael W. McMahon, a senior vice president. 'We're targeting Midtown Manhattan and Washington, D.C.,' he said. A survey released this month by the Association of Foreign Investors in Real Estate, a trade group, found that most of its members expect the Japanese to lag only Germans and Australians as the most active foreign buyers of United States property. 'We have seen more activity from Japan in the past six months than we have in the past six years,' said James A. Fetgatter, the trade group's chief executive. 'I have Nikkei Shimbun coming in to talk to me today,' he said, referring to the Japanese newspaper. 'I've never met anyone from Nikkei Shimbun before.' So far, much of this Japanese money has been used to buy shares in publicly traded companies, rather than individual buildings. In October 2003, it became legal in Japan to sell portfolios of shares in real estate investment trusts, allowing special funds to be marketed specifically to Japanese investors. Some of these funds buy shares only in REIT's based in the United States, which largely own property in this country, while other funds own a portfolio of REIT shares from various countries, including the United States. Since these funds were first sold, investment in them has steadily increased, reaching $4.6 billion last month. Although this sum is just a fraction of the total $300 billion invested in United States REIT's, real estate specialists say it is significant nonetheless. 'It's not a huge number, but it's an encouraging number,' said Michael R. Grupe, a senior vice president of the National Association of Real Estate Investment Trusts, a trade group. 'It's been a fairly even growth path.' Takayuki Kiura, the managing director of a new Tokyo office that Heitman, a Chicago-based company that manages capital on behalf of pension funds and other investors, opened just this month, estimates that two-thirds of the $4.6 billion is invested in United States REIT's, with the rest in REIT's in other countries. A treaty that went into effect on July 1 gives Japanese investors in United States REIT's the same tax status as American investors, enhancing the appeal of these funds, said Tony Edwards, the general counsel of the REIT trade group. Heitman is just one of several American companies that have teamed with Japanese financial institutions to create REIT funds that are marketed to investors in Japan. Heitman manages about $270 million worth of assets for three funds with Nomura Asset Management and a fourth with Sumitomo Trust Bank. AEW Capital Management, a Boston company whose clients are mainly institutions, has a similar relationship with Nissay. And LaSalle Investment Management, part of the real estate services company Jones Lang LaSalle, manages a global REIT fund for Nikko that is aimed at Japanese investors. The American companies say they are focusing on Japan because it has an aging population with a long tradition of accumulating savings and a need for current income that cannot be met by low-yielding government bonds. REIT's, which pool money from investors to buy property, are required to return 90 percent of their taxable income to their investors, which means that they usually offer higher yields than most other types of securities. The Japanese have their own real estate investment trusts, but the industry is still relatively new, with only about 15 so-called J-REIT's in existence. The average dividend is about 3.5 to 4 percent, compared with an average of 6 percent for American companies. 'Besides that,' Jeroen Beimer, an analyst for Global Property Research, a company in Amsterdam that provides data for financial institutions, wrote in an e-mail message, 'J-REIT's primarily invest in Tokyo offices and to a lesser extent retail, so the spread of the portfolio in sector and geographical terms is limited. Another reason is that the underlying Japanese real estate market has faced tough times in the past 10 years, with declining prices and rising vacancy rates. The confidence in the market is therefore not that high.' Mark A. Grinis, a partner in Ernst & Young's real estate practice who recently moved back to New York after spending seven years in Tokyo, said that given their experiences of the past decade, Japanese investors would logically find more transparent and liquid investments in real estate attractive. 'You have a menu of options today that you didn't have in the late 1980's,' he said. The new focus on Japan is part of a growing globalization of the REIT industry. Mr. Grupe of the REIT trade group said that publicly traded real estate companies can be found in about 20 countries. 'They come in all different forms,' he said. 'Many of these countries tend to use the moniker 'REIT' to refer to that particular sector, but not all.' This trend is providing investors with a way to further diversify their real estate portfolios, said Michael J. Acton, the director of research for AEW Capital Management. 'Every city has its own cycles,' he said. Although the downturn in the United States real estate cycle in the early 1990's caused painful losses for many Japanese investors and banks, the Japanese continue to have significant holdings in this country. Mitsubishi Estate, for example, lost control of Rockefeller Center itself, but the company, through its wholly owned Rockefeller Group, still owns 7.7 million square feet of space there, including the Time & Life Building at 1271 Avenue of the Americas. Early last year, the Association of Foreign Investors in Real Estate reported that Japan was the leading source of foreign investment in American real estate, with a 26 percent share, the latest figure available. But Mr. Fetgatter cautioned that 'any statistics about foreign investment are always sketchy' since the countries do their own reporting. Sumitomo Life Realty (N.Y.) Inc., a subsidiary of the large Japanese insurance company (and a separate company from Sumitomo Trust), has a relatively new business strategy for geographically diversifying its United States portfolio in the hope of lowering its risk, said Norio Morimoto, the company president. Sumitomo Life Realty formed a partnership with Hines, the Houston-based real estate company, to invest in prime office buildings. The Japanese company subsequently sold four buildings to the fund: 499 Park Avenue, 425 Lexington Avenue and 600 Lexington Avenue in Midtown Manhattan and 1200 19th Street in Washington. About one-quarter of the investors in the Hines-Sumisei U.S. Core Office Fund, which now owns four more buildings in Houston and San Francisco, are Japanese, said Charles N. Hazen, the president. But other Japanese real estate companies are once again seeking to compete for buildings directly. Mr. Collins said that starting about six months ago, a 'handful of seasoned real estate companies' began looking for buildings priced around $100 million. Woody Heller, who heads the capital transactions group at Studley, the brokerage firm, said: 'We haven't seen any high-profile purchase, but we're all beginning to have conversations with them. Whether they will be competitive is unclear in my mind.' Mr. McMahon, the Mitsui Fudosan America executive, said his company was not looking for trophy buildings but rather for those that have potential for improvement. He acknowledged that bidding for properties in Washington and Midtown Manhattan, is challenging. 'We don't know at this point whether we're going to be successful,' he said. In the last decade, Japanese investors have become more sophisticated about market cycles, Mr. Morimoto said. 'We learned a lot from the experience,' he said. 'The best strategy is to diversify the location and timing of the investment, and by doing that we could have diversified our risk.'

Subject: Growth Up and Inflation Down in China From: Emma To: All Date Posted: Wed, Jan 26, 2005 at 10:30:37 (EST) Email Address: Not Provided Message: http://www.nytimes.com/2005/01/26/business/worldbusiness/26yuan.html Growth Up and Inflation Down in China By KEITH BRADSHER and CHRIS BUCKLEY HONG KONG - Economic growth in China accelerated to 9.5 percent in the fourth quarter, computed from the year-earlier period, while inflation slowed, the National Bureau of Statistics said Tuesday. Chinese officials promised to maintain controls on speculators, but took no new measures to temper economic growth. But just nine months after the Chinese economy seemed on the verge of an upward spiral of higher wages and prices, Beijing appears to have kept growth at a brisk pace while bringing inflation under control. Still, private-sector and academic economists are deeply divided over whether inflation can remain low, as Chinese leaders have eased some of the controls they imposed last spring. Growth had declined to 9.1 percent in the third quarter, compared with the year-earlier period, and had been expected to fall further in the fourth. The growth rate for all of 2004 was also 9.5 percent, despite the government's stated goal of lowering growth from the 9.3 percent pace of 2003 to try to calm inflation. Li Deshui, the commissioner of the National Bureau of Statistics, said Tuesday at a news conference in Beijing that policy makers would be cautious in controlling those areas of the economy that produced some of the most feverish growth a year ago. 'We must continue to strengthen and improve macroadjustment, and we can't relax, especially in managing land and credit - we need to closely guard those two gates,' he said. 'In particular, we must guard against a rebound in fixed-asset investment.' China brought down the year-over-year inflation rate from 5.3 percent in August to 2.4 percent last month. Mr. Li attributed the slowdown to a bumper grain harvest, as grain production grew 9 percent last year. But economists and business executives said the slowdown also reflected a combination of Herculean investments to relieve transportation and electricity bottlenecks, sometimes draconian administrative controls and a handful of market-based measures. Last winter, ships had to wait up to a month to discharge iron ore and other bulk cargos at overcrowded Chinese ports, power failures were widespread because of inadequate generating capacity and food prices leaped as demand grew faster than farmers could increase production. But shipping industry leaders, power company executives and manufacturers alike said over the last two weeks that the port delays, power disruptions and food price increases had diminished, though they had not disappeared. Companies have also learned to work around problems like blackouts. 'Our ships call on China and it's a pretty quick turnaround, particularly for our tankers - they realize they cannot afford bottlenecks,' said Sanjay Mehta, the managing director and chief executive of Essar Shipping in Mumbai, India. Many factories now run on evenings and weekends so they are no longer affected by weekday blackouts, said Harley Seyedin, the chief executive of the First Washington Group, which is based in Guangzhou, China, and owns a power plant in nearby Dongguan. Power regulators warn of disruptions days in advance, permitting factories to plan accordingly. Liang Hong, a Goldman Sachs economist here, said the government had expanded the capacity of many ports 30 percent to 60 percent within months, a task that would take years in practically any other country. China also achieved a 14 percent increase in electrical output last year, nearly twice the increase that utility analysts had thought possible. 'This is still a centrally planned regime - when it puts its money behind something, it gets done,' Ms. Liang said. The administrative controls imposed last spring included strictly enforcing land use regulations, denying loans from government banks to projects without government approval and even arresting and jailing executives and bank loan officers who proceed with projects without authorization. But the arrests in particular appear to have slowed - or at least are no longer trumpeted by the government-controlled media as a way to discourage speculation. A six-month freeze on converting land to industrial or commercial use expired in early November. Market-based initiatives have been confined mostly to bond sales; a single small increase last autumn in regulated lending rates; and three small increases a year ago in the reserves that banks must keep on deposit with the central bank. The growth figures released Tuesday were so strong that J. P. Morgan raised its forecast for China's growth this year to 8.5 percent from a previous 8.2 percent. Some economists remain convinced that the recent slowdown in inflation is only temporary. Tao Dong, a Credit Suisse First Boston economist here, predicted that inflation would double by this summer to 5 percent or 6 percent, given the loosening of administrative controls. Chinese economic policy makers will have to hit the brakes again when one of three things happens, he said: inflation rebounds; inflationary bottlenecks reappear; or bank depositors pull more of their savings out of banks and lend it privately, rather than continue accepting bank deposit rates that are well below the inflation rate. He Jun, an economist with Anbound, an investment consulting firm in Beijing, said strong growth throughout last year despite government controls showed the resilience of the economy and suggested that inflation could prove hard to control. 'Last year, the government was very forceful about implementing macrocontrols on the economy, but still the economy grew so fast - China's economic administrators have reason for concern about that,' Mr. He said. Chinese companies, Mr. He warned, may not be passing on their rising costs to consumers, instead borrowing huge sums, which could lead to an even greater burden of nonperforming loans at state-owned banks. Other experts are more optimistic. Wang Xiaolu, the deputy director of the National Economic Research Institute in Beijing, said China had succeeded in bringing down the global price of many commodities by taming domestic demand somewhat.

Subject: China's card From: Pete Weis To: All Date Posted: Wed, Jan 26, 2005 at 10:19:59 (EST) Email Address: Not Provided Message: ROBERT KUTTNER Oh yes, it can happen here By Robert Kuttner | January 26, 2005 ''How did you go bankrupt?' ''Two Ways. Gradually, and then suddenly.' Ernest Hemingway, The Sun Also Rises COUNTRIES GO broke gradually, by borrowing so much money that creditors lose confidence in their ability to pay the debt back. Then, they go broke suddenly as creditors stop lending. This has happened to more than a dozen Third World nations, who had the additional misfortune of having to borrow in dollars. As their own currency lost the confidence of world markets, they lost value against the dollar. This only increased their real debt burden. The optimists say, ''It can't happen here.' First, we're the people who print dollars. So if the dollar is losing value, it just means the money that we owe the rest of the world is getting cheaper. Lucky us. Second, we enjoy a codependency with our creditors. For instance, China, which keeps lending us money to finance our deficits, may be accumulating dollar credits that are losing their real worth. But China needs us to keep absorbing their products, so China will go right on lending. And third, the United States remains the anchor of the world economy. So even though other nations may not like America's immense trade and budget deficits, nobody is going to risk pushing the world into depression by crashing the dollar. That, as I say, is the optimistic view. Well, dream on. Yesterday, the bipartisan Congressional Budget Office, possibly the last intellectually honest government agency in George Bush's Washington, reported that our fiscal situation is even worse than expected. According to the CBO's latest ''Budget and Economic Outlook,' the projected deficit for 2005 will be about $400 billion. The CBO declares, politely but unmistakably, that it doesn't buy the Bush administration's budgetary gimmickry of trying to keep anticipated military outlays out of the official budget. ''The absence of further appropriations for activities in Iraq and Afghanistan,' CBO states, ''masks a further deterioration in budget projections over the [next] ten years.' Specifically, the deficit for the next decade is $504 billion worse than anticipated in CBO's previous estimate last September. The agency goes on to warn that other challenges not currently itemized in official administration projections, such as Medicare, Medicaid, and Social Security, will only increase future deficits. And, of course, if the Bush administration succeeds either in making permanent his major tax reductions (most of which sunset after 10 years), or in adding $2 trillion of borrowing to privatize Social Security, the fiscal situation would go from merely disastrous to catastrophic. But back to our story, ''It Can't Happen Here.' America's deteriorating fiscal situation, unfortunately, is not lost either on world money markets or on the Federal Reserve. Although no world leader would willfully plunge the world into depression, that's not how markets work. Markets are purely self-interested. Lately, markets, with good reason, have been betting against the dollar. As the US trade deficit approaches a staggering 7 percent, it's not clear how much longer foreign investors will keep investing in dollars and dollar-securities, such as corporate stocks and government bonds. As for the Chinese, Clyde Prestowitz of the Economic Strategy Institute, formerly a senior trade negotiator in the Reagan administration, offers the following scenario: In a future crisis involving the tense China-Taiwan relationship, the Chinese ambassador suggests to Secretary of State Condoleezza Rice that maybe the United States would like to move its warships 500 miles away from Taiwan. Rice demurs. The next day, the Bank of China sells a few --just a very few to get our attention -- US Treasury securities. Money markets reel. Would the Chinese play such a risky game? They have their own interests, geopolitical as well as economic. They are certainly not an American pawn, less so with every passing year. Miscalculations have happened in world economic relations before, and with calamitous results. The Federal Reserve, meanwhile, is increasingly worried about inflation, largely of the imported variety due to the weak dollar. The Fed is steadily raising interest rates. With every quarter-point hike, consumers pay more for mortgage and credit card loans, investors in stocks become more wary, and the air goes out of the economy. Alan Greenspan kept rates very low long enough to get George W. Bush reelected. Now he is reverting to type. The Bush administration is putting itself, and America's economic future, in grave jeopardy. The only good news is that all this bad news makes Social Security privatization, or permanent tax cuts for the wealthy, less than an even bet.

Subject: What to do About Bond Funds? From: Jennifer To: All Date Posted: Wed, Jan 26, 2005 at 07:14:58 (EST) Email Address: Not Provided Message: Bond funds certainly are pricey. Then how are investors to fare in this bond market? Do we simply buy short term bond funds and settle for low returns to protect principle? I moved from Vanguard long term bond funds finally to intermediate. This bull market in bonds has given us a fabulous 5 years. We averaged a shade below 10% a year, while the S&P has a negative return these 5 years. Now what?

Subject: The New York Times From: Jennifer To: All Date Posted: Wed, Jan 26, 2005 at 06:08:50 (EST) Email Address: Not Provided Message: Note: The New York Times has just made email of articles much harder. What are they thinking; are they thinking? Every family member subscribes to the New York Times, why make sharing articles by email more difficult? We can no longer send open articles. Good grief.

Subject: We Need Social Security From: Jennifer To: All Date Posted: Wed, Jan 26, 2005 at 06:02:38 (EST) Email Address: Not Provided Message: We have been taught sadly wrong economic and civic lessons for quite a while. Imagine questioning whether we have a responsibility for the well being of our parents who have worked so and given so much to us. So we find absurd and false reasons to question wherther we can afford Social Security. Oh well.

Subject: Worry About Interest Rates From: Terri To: All Date Posted: Wed, Jan 26, 2005 at 05:38:48 (EST) Email Address: Not Provided Message: Politics aside, by which lights the bond market will never wake, this is a most dangerous bond market. The Vanguard Long Term Bond Index has a duration of 10 years. A 1 percentage point change in long term rates will result in a 10% change in price of fund. So, a 1 point rise in long term rates will cost an investor 2 years of earnings. Intermediate Term Bond Index has a 5 year duration. Short Term Bond Index a 2 year duration. Commodity prices are in a 2 year increase, and oil bounces from 45 to 50 dollars a barrel. Food and energy prices may not be part of the core price indexes, but they are contributing to a modest rise in inflation along with the weaker dollar. Asset prices are high. The federal deficit is simply not going to decline meaningfully. Remember, the Alternative Minimum Tax must be set aside again this year to avoid increasing harm to middle class households. So, the deficit and low household saving rate will continue balance of trade pressure and we become ever more dependant on imports of capital. Interest rates? There will be a time when long term rates finally begin to rise meaningfully. Who can say when, but we should indeed be cautious as investors and rather worried.

Subject: social security From: byron To: All Date Posted: Tues, Jan 25, 2005 at 22:48:14 (EST) Email Address: bconstl@juno.com Message: More than 20 years ago i was fed the same garbage that the Bush admin is spreading about SS going broke and i would never see a penny of it. Well i am 65 years old now, retired, been on SS since age 62. People don't believe the scare tactics that this Admin is spreading. SS is in good shape.

Subject: Re: social security From: mike To: byron Date Posted: Thurs, Jan 27, 2005 at 00:29:50 (EST) Email Address: dodgerfan123321@yahoo.com Message: Yea it's fine for you and your age group. People didn't start living as long until recently. Just wait to you baby boomers suck the ss dry and leave nothing for us but a total mess. What ever happened to planning ahead??

Subject: Re: social security From: byron To: mike Date Posted: Thurs, Jan 27, 2005 at 23:10:30 (EST) Email Address: Not Provided Message: Mike i paid into ss for 35yrs. I don't know how long you have paying into it, but you turn will come and you will be able to draw from it if Bush keeps his hands off of it.

Subject: Social Security is Fine From: Terri To: byron Date Posted: Wed, Jan 26, 2005 at 05:37:19 (EST) Email Address: Not Provided Message: Social Security is in fine shape for at least 40 more years, and with reasonable economic growth in fine shape for 70 years. The question is whether we care about a society in which Social Security has helped million and millions of retirees live a contented life after contributing so much to America.

Subject: Claims Against American Assets From: Terri To: All Date Posted: Tues, Jan 25, 2005 at 21:47:39 (EST) Email Address: Not Provided Message: What should be especially worrying is the combination of federal deficits and low household saving levels means that we must import ever more capital to fund our consumption. Thus, claims against earnings from American assets are piling up abroad. Earnings that we will need in future will be claimed by international investors.

Subject: Financial Company Expansion From: Terri To: All Date Posted: Tues, Jan 25, 2005 at 21:38:29 (EST) Email Address: Not Provided Message: http://www.barra.com/Research/SectorWeights.aspx Financial companies have gone from 6% of the S&P to almost 23%, from December 1977 to December 2004. This data however does not give us a sense of the importance of credit divisions of S&P companies such a GE. GE credit is easily the company's largest division. Still, I do not find a problem with such financial company growth.

Subject: Results for Canada's pension plan From: jimsum To: All Date Posted: Tues, Jan 25, 2005 at 14:53:41 (EST) Email Address: jim.summers@rogers.com Message: The Canadian equivalent of Social Security, the Canada Pension Plan (CPP) has been investing in the stock market since 2000. Approximately 50% of the $75 billion surplus in the CPP is invested in stocks, the rest in government bonds. (http://www.cppib.ca/invest/results/index.html) Here are the returns: returns year overall stock bond 2000 3.2 40.1 - 2001 7.0 (9.4) 9.9 2002 5.7 3.4 5.0 2003 (1.5) (20.9) 8.4 2004 17.6 31.8 8.7 2005* 0.9 0.8 0.8 * first half of 2005 Unfortunately, the CPP was only 5% invested in stock in 2000, missing out on a nice 40% return that year. On the other hand, it was only invested 14% in stock in 2001, missing out on a nasty -9.4% return that year. At any rate, you don't need private accounts to invest government pension surpluses; the government can do the same as private citizens or companies and pick an advisor or two to invest the surplus. In fact, maybe you Americans should consider investing your private SS accounts in the CPP; especially since the exchange rate changes of the last two years have increased the U.S. dollar value of the CPP surplus by 25% :-)

Subject: Canada's pension plan From: Terri To: jimsum Date Posted: Tues, Jan 25, 2005 at 16:06:54 (EST) Email Address: Not Provided Message: I think the initial year should by 1999, and so on.... December 31, 1998 to December 31, 1999 begins the investing with a 40.1% return in Canadian dollars. 1999 40.1 2000 ( 9.4) 2001 3.4 2002 (20.9) 2003 31.8 2004 13.8

Subject: Re: Canada's pension plan From: jimsum To: Terri Date Posted: Wed, Jan 26, 2005 at 10:03:55 (EST) Email Address: jim.summers@rogers.com Message: Sorry, I didn't notice that the years are 'Fiscal Years Ended March 31'. So each year contains 2/3 of the previous year, and 2005 started in April 2004. Government agencies are worse than car companies; at least car model years don't start until the fall :-)

Subject: Re: Canada's pension plan From: Terri To: jimsum Date Posted: Wed, Jan 26, 2005 at 14:14:07 (EST) Email Address: Not Provided Message: So, that is the secret :)

Subject: Paying a Price for Poor Food From: Emma To: All Date Posted: Tues, Jan 25, 2005 at 14:11:50 (EST) Email Address: Not Provided Message: http://www.nytimes.com/2005/01/25/nyregion/25wide.html?pagewanted=all&position= Paying a Price for Doughnuts, Burgers and Pizza By DAVID GONZALEZ Hunger - or insanity - could lead someone to eat his way around the intersection of East 149th Street and Southern Boulevard in the South Bronx. From the bakery filled with sugary cakes, past the Latin restaurant selling curled slabs of fried pork skin, past the Dunkin' Donuts and on to Popeyes Chicken and Biscuits. Just in case, a pizzeria and a White Castle beckon from nearby blocks, too. Towering over this strip is a giant mural for what by default is the only light thing around: Coors Light. It is no accident that one of the best views of this gastronomic gantlet is from the steps of the very place where it has led more than a few unfortunates: the Ortiz Funeral Home. 'I stopped trying to find anything because there's nothing healthy to eat around here,' lamented a woman who would give her name only as Miss David and who works at Public School 25. 'I was once buying coffee at the Dunkin' Donuts, and I saw a chubby young guy ordering a bacon something for breakfast. Two of them. That scared me.' The devastating results of poor diet, no exercise and lots of stress are increasingly scaring health advocates in poor communities across the city. Diabetes is now the city's fourth leading cause of death. In neighborhoods where homicide or AIDS were the leading killers among young men and women a decade ago, heart disease and obesity are claiming ever more lives. No wonder recent federal dietary guidelines recommend decreasing calories and increasing exercise. 'It is a truly bizarre situation where food itself makes you sick,' said Chris Norwood, the executive director of Health People, a community health education group whose office is just off East 149th Street. 'Throughout history, getting enough food to stay well was usually the challenge. Then again, most of this stuff is not food.' Although Ms. Norwood first came to the area in the 1980's to work with people who had H.I.V. and AIDS, she soon found herself vexed by how asthma, diabetes and heart disease were wreaking havoc on residents. She now thinks psychological stress is as much to blame as poor diet or smoking. 'A third of the men around here are in jail or on parole, and 50 percent of the rest don't have jobs,' she said. 'Women are raising children alone. We have a collapse of normal social support in the communal body, so that people become depressed in a way that they no longer understand that good health is possible.' But while, in the case of AIDS, a sense of crisis led to funding for prevention and community education, Ms. Norwood says that not enough resources have been devoted to fighting obesity, diabetes or smoking. Dr. Hal Strelnick, a professor of family and social medicine at the Albert Einstein College of Medicine, says he has seen more and more young people suffering from a combination of chronic conditions. In some cases, weight, cholesterol or blood pressure do not even have to be above critical levels to put people at risk for serious illness: if all three measures are borderline, the result, known as metabolic syndrome, can be just as dangerous. Most alarming, Dr. Strelnick said, is that more teenagers are developing Type 2 diabetes, a condition that affects the obese. While proper diet would help, local food stores usually stock what is cheap and popular, not what is best. Even more maddening, the most immediate health effect of the nearby Hunts Point Produce Market on residents is a bad one. 'There is a higher rate of asthma because of the volume of truck traffic to the market,' Dr. Strelnick said. 'Everybody else's food comes through Hunts Point. The great irony is there is all this wonderful food down the road. But none of it ends up on the local shelves.' This is not hyperbole. Although Patricia Jackson lives in Mott Haven, she shops for vegetables in Manhattan. As a diabetic, she watches her diet, she says, even if she recently splurged with some cake. 'We had this tenant association party, and there is this lady, Miss Sarah, who is from Macon, Ga.,' Ms. Jackson said. 'This lady can cook! She made pineapple cake. I didn't care. I wanted a piece. Oh, my God - the next day my sugar was so high.' Unlike many of her neighbors, Ms. Jackson was more cautious in the following days. She is a peer educator at Health People, enlisting others to watch what and how they eat. She learned all this the hard way, after doctors at one hospital gave her pills to treat her blood sugar but told her nothing about diet. 'I ate everything because I thought I was O.K. since I was taking the pills,' she said. 'Then I had a mini-stroke.' A group of peer educators - whose average blood sugar levels dropped by almost a third after training, according to one study - ventures out into the neighborhood several times a week to do quick health screenings. In one session at Hostos Community College, almost 40 percent of about 350 students screened were at risk for diabetes. The same results could be obtained pretty much anywhere in the neighborhood, the peer educators said. Ms. Jackson and her colleagues set up a table last week in the lobby of a job-training center near the Hub. Health People has an office there, though it can't be seen from the street because the gates are always down to shut out secondhand smoke from the sidewalk smokers. The screeners find the going hit or miss here in the early morning, since clients only have a few minutes break until lunch. Most rushed past the table, some clutching cookies or doughnuts, to smoke a cigarette. By lunchtime, however, several dozen people had stopped for a quick evaluation. Half of them were at risk for developing diabetes; many already had the disease in their families. Others suspected it might be only a matter of time. 'My boyfriend is overweight,' Mildred Diaz said. 'He's 415 pounds, and he eats all this fried food. He has a breathing problem. He has sleep apnea, so he has to sleep with a machine. He's only 26 years old.' Laurellie Franco, a solidly built woman with a teardrop tattooed beneath her left eye, signed up for a course on diabetes. She has a brother who already has the disease. 'He's 40, and he's got it bad, you know what I'm saying?' she said. 'I want to know if I might have it.' She clutched a small paper bag. 'That's a bagel with sausage and egg,' Ms. Franco said, sheepishly. 'These guys should have caught me before I went to the store.'

Subject: Opening the Consumer Market in China From: Emma To: All Date Posted: Tues, Jan 25, 2005 at 11:03:31 (EST) Email Address: Not Provided Message: http://www.nytimes.com/2005/01/25/business/worldbusiness/25shoes.html Let the Competition Begin By CHRIS BUCKLEY BEIJING - China is better known for making most of the world's sports shoes rather than wearing them, but the world's biggest athletic shoe brands are in a race here to change that. Adidas-Salomon announced Monday that it would be a major sponsor of the Olympic Games in Beijing in 2008. Chinese athletes will wear the Adidas brand shoes and sportswear throughout the Games. The announcement was part of Adidas's ambitious hopes for China. The company, based in Germany, intends to increase its stores in China to 4,000 by 2008 from 1,300 now, and to expand its China revenues to more than 1 billion euros ($1.3 billion) by the end of the decade. 'We foresee by 2008 China could be the No. 3, or with some push, No. 2 market in the world,' Christophe Bezu, the Adidas senior vice president for the Asia Pacific region, said at a news conference here. 'China clearly is the driver.' Annual revenue from China currently stood at well over $130 million, he said. Rival sportswear brands like Reebok and Nike and other multinational corporations also have their eyes on China's increasingly affluent and image-conscious young consumers. They have recruited sports stars like Yao Ming, the Shanghai-born center of the Houston Rockets, and Liu Xiang, China's gold-medalist hurdler, as icons of a confident sports-loving nation. Nike's sales in China rose two-thirds in 2003 to $300 million. Chinese consumers now spend about $5 billion a year on sports merchandise and events, a sliver of the $200 billion or more spent in the United States every year, said Terry Rhoads, a former Nike marketing executive who is now general manager of Zou Marketing, a Shanghai company that advises on sports management and promotion. 'Perhaps there's more hype than opportunities,' Mr. Rhoads said, 'but there's no doubt there's pent-up demand for sports in China.' Chinese city governments have also spied that opportunity, and many have spent heavily on new sports centers. Apart from Beijing's preparations for the 2008 Olympics, Shanghai has spent heavily on Formula One racetracks and tennis courts for international meets. But more than income and budgets stand in the way of turning China into a major sports market, experts say. As in many other areas of the economy, multinational companies hoping to profit from China's growth must contend with bureaucracies that want to profit from their involvement, but show only flickering awareness of customers and market competition. 'Sports in China are still greatly controlled by the government,' Mr. Rhoads said in an interview. 'The toughest thing the government is grappling with is that sports are entertainment.' But sports executives said that making China's sports administration more responsive to fans and consumers might be a long and troublesome process. Adidas sponsors China's soccer league, which has almost collapsed amid internal disputes between club managers and game officials, as well as charges of match fixing. 'It's the shenanigans around the sports that cause fans to lose interest,' Mr. Rhoads said. The government's reach into sports clubs means that little attention is given to making sports stadiums comfortable and convenient, and spicing up matches with midmatch entertainment, Mr. Rhoads said. China's premier soccer league regularly draws a few thousand spectators to games in stadiums that can seat tens of thousands, and last year China's national basketball league attracted only $1 million for television broadcast rights to its games. Multinational companies are instead tending to promote themselves through international events in Beijing or Shanghai, like games between American basketball teams and the Shanghai tennis open, Mr. Rhoads said. Chinese sports experts also said Chinese participation in sports is more restricted than in the United States or Europe. Multinational investors are hoping to encourage a youth culture devoted to sports by sponsoring high school basketball contests and university soccer leagues. Yu Jie, the acting director of the Fudan University FUON Sports Marketing Center in Shanghai, said that during a two-year stay in the United States she was struck by the relatively widespread participation of high school students in team sports, whereas Chinese students are so busy studying for a series of rigorous exams they have little time for sports. 'Here in China kids have lots of exam pressures, so they don't have the same opportunities to participate in team sports,' Professor Yu said in a phone interview. 'Kids like to play, but there are limits on their opportunities.'

Subject: Venezuela Tensions and Oil From: Emma To: All Date Posted: Tues, Jan 25, 2005 at 11:00:38 (EST) Email Address: Not Provided Message: http://www.nytimes.com/2005/01/25/business/worldbusiness/25oil.html?pagewanted=all&position= Venezuela Tensions Worry Oil Executives By SIMON ROMERO and BRIAN ELLSWORTH HOUSTON - Venezuela may be increasing tension in energy markets with decisions that are confounding international oil companies, but the government there says it is merely seeking more income and new markets for its oil. Peter J. Hill, chief executive of Harvest Natural Resources of Houston, which gets all its oil from Venezuela, has one view of the policies unfolding there. Harvest's stock lost a quarter of its value last week after the Venezuelan national oil company unexpectedly told it to suspend exploration. ConocoPhillips's plan to develop a new oil field in Venezuela was suspended about two weeks ago, and Rafael Ramírez, the Venezuelan energy minister, said last week that the government would review its 33 operating agreements with oil companies from the 1990's to see if they still made sense for Venezuela. Those delays come as officials, over the last month, have held talks with government-run oil companies from China, Russia and Iran. 'I'm a businessman and I don't like to get involved in politics,' Mr. Hill, whose company has operated in Venezuela for more than a decade, said in an interview. 'But there's been a demonstrable change in the way things are done in Venezuela.' The view from Venezuela is different. The government of President Hugo Chávez has said it will negotiate its disputes with Harvest and Conoco to reach agreement on production and spending. But analysts say that at a time of high crude oil prices worldwide and a shift in attention toward China, the Venezuelans are also trying to exert greater control over their resources and expand their range of buyers - as well as get more lucrative deals. Access to some of the most coveted oil reserves in the Western Hemisphere is at stake, with Venezuela exporting about 1.2 million barrels of oil a day to the United States, or nearly 15 percent of American imports. But the overtures to the Chinese, Russians and Iranians have added to worries among private oil companies that Venezuelan policies toward them are becoming increasingly unpredictable. Concern is also rising over the possibility that Venezuela may eventually divert shipments from the United States, which now receives more than half of Venezuela's total production. The Venezuelans say they still consider the United States their principal market, adding that only new production would be moved to China. All this concern has been acutely felt in Houston in recent days. Shares in Harvest, which produces about 30,000 barrels of oil a day in Venezuela, have plunged almost 30 percent since it said that Petróleos de Venezuela, the government-controlled oil company, had told it to effectively cut its production by one-third. 'I'm not able to read the mind of the Venezuelan government,' said Mr. Hill, who added on Monday that officials from the Venezuelan energy ministry signaled they were open to negotiations on Harvest's activities in the country. He said he did not know why the government oil company 'would want to restrict investment and production.' 'The interface for communication with the government is becoming much cloudier to read,' he added. Investors are focusing on the Venezuelan operations of ConocoPhillips, one of the largest international energy companies operating there, after its $480 million plan to develop an oil field off the eastern coast was put on hold this month amid feuding with Petróleos de Venezuela over the project's terms. Conoco gets about 7 percent of its worldwide production from Venezuela. [Dow Jones quoted Mr. Ramírez as saying Monday that the government was close to an agreement with Conoco.] Paul Sankey, a Deutsche Bank analyst, wrote in a note to investors last week that 'we are extremely concerned about what seems to be an escalating situation in Venezuela.' He recommended reducing holdings of ConocoPhillips shares. Mr. Sankey said American companies in Venezuela, including ConocoPhillips, Harvest and ChevronTexaco were the 'main potential losers from the unpredictable situation.' Shares of ConocoPhillips, based in Houston, fell more than 3 percent late last week amid greater scrutiny of its differences with Petróleos de Venezuela, and rebounded 1.3 percent on Monday. A spokeswoman declined to comment on its relations with the Venezuelan company. Higher oil prices, which increased the flow of hard currency to Venezuela's treasury, seem to have emboldened the dealings of the leftist Mr. Chávez with foreign energy companies as the rise in oil revenue offset the effects of declining production. Output fell to an estimated 2.7 million barrels a day from nearly 3.5 million barrels a day in the late 1990's, after strife in the state oil company resulted in a purge of employees, many of them virulently anti-Chávez, restricting its ability to grow. Venezuela's output is about 400,000 barrels a day short of its OPEC production quota of 3.11 million barrels a day, according to the International Energy Agency. But even as Venezuelan oil production has declined over all, foreign companies have provided more of the output, accounting for roughly 1.2 million barrels a day - a result of the opening of the Venezuelan energy industry to greater foreign investment by governments in the 1990's. With oil prices and demand high, Mr. Chávez appears to be seizing the moment to get more favorable contracts from the oil companies and greater control of his resources. 'I tend to believe that these disputes have to do with the government wanting a bigger share of the pie,' said Roger Tissot, director for markets and countries at PFC Energy, a consulting group in Washington. He added that 'in the past, they have been notoriously clumsy in asking for it.' In October, for instance, the Venezuelan government abruptly raised royalties to 16.6 percent from 1 percent for energy companies producing heavy-grade crude oil in the Orinoco belt. The measure, which ended a virtual tax holiday, affected companies like ChevronTexaco and Total of France. Mr. Tissot noted that the energy companies learned of the tax increase on a Sunday television broadcast by Mr. Chávez. The president and his officials also want to widen the customer base for Venezuelan oil. That is where China, which is seeking to secure long-term sources of oil, comes in. In December, Venezuela said it would allow the China National Petroleum Corporation, one of that country's largest energy companies, to expand exploration. It is more expensive to ship oil to China than to the United States, but Venezuela is trying to reduce those costs by negotiating with Panama to send its oil by pipeline across the isthmus. (Only small tankers are now able to pass through the Panama Canal.) An agreement between Venezuela and Panama would reverse the flow of a Panamanian pipeline, Petroterminales de Panamá, to the Pacific from the Atlantic coast with a capacity of 800,000 barrels a day. Chinese refineries would still have to be refitted since most cannot process the heavy crude oil exported by Venezuela, an adjustment that could take several years. But the difficulty that some energy companies are experiencing in Venezuela has added to already tense relations with the United States. Venezuelan officials scoffed at remarks in Senate testimony last week by Condoleezza Rice, President Bush's nominee for secretary of state, describing Mr. Chávez as 'a democratically elected leader who governs in an illiberal way.' Ultimately, industry executives say, what matters most is not necessarily a shift in exports to China. The American supplies could potentially be replaced by imports from countries in West Africa, the Middle East or Central Asia. But there is growing concern that oil production in Venezuela, which has the largest reserves in Latin America, could decline further if exploration ventures with international companies were suspended. That, in turn, could restrict global energy supplies and push prices even higher, producing an even larger windfall for Mr. Chávez's government. 'This type of strategy is fine as long as oil remains high,' said Antonio Szabo, a former executive at Petróleos de Venezuela, who now runs an energy and software consulting company in Houston. 'But if prices retreat, they'll have grave difficulty in fulfilling the promises that are now being made.'

Subject: Tensions As Dollar Slides? From: Emma To: All Date Posted: Tues, Jan 25, 2005 at 10:58:33 (EST) Email Address: Not Provided Message: http://www.nytimes.com/2005/01/25/business/25dollar.html?pagewanted=all&position= U.S. Faces More Tensions Abroad as Dollar Slides By DAVID E. SANGER WASHINGTON - After a first term in which terrorism and war dominated President Bush's foreign policy agenda, his allies in Europe and Asia suspect that his next confrontation with the world could take on a very different cast: a potential currency crisis, in which a steep plunge in the value of the dollar touches off economic waves around the world. Already, the tensions over the dollar are becoming a recurring source of friction, a conflict that does not reverberate as loudly as the differences over Iraq but may be as deeply felt. At a meeting in Paris on Monday, the finance ministers of Germany and France complained that Europe had unjustly borne the brunt of the dollar's decline, and called for coordinated action to stop it. 'Europe has until now paid too big a share in this readjustment,' Hervé Gaymard, the French finance minister, said. His German counterpart, Hans Eichel, said the United States needed to reduce its deficits, adding 'each one has to play its role.' Two months ago, similar sentiments came from China's prime minister, Wen Jiabao, whose nation is at the center of a struggle with Washington over currency policy. He complained about the fall of the dollar, asking, 'Shouldn't the relevant authorities be doing something about this?' In an interview just before President Bush's inauguration, Treasury Secretary John W. Snow played down the tensions. 'We understand that deficits matter,' he said, insisting that the tight budget Mr. Bush is expected to send to Congress next month should give foreigners and the financial markets the solace they seek. But should the dollar continue to fall - if, for example, global investors determined that Mr. Bush did not have the will to hold spending down - it would not only add to tensions, analysts said. It might also force up interest rates at home to keep foreigners interested in financing America's need to borrow more than $600 billion a year to cover its gap in the current account. The current account is the broadest measure of the trade and financial flows into and out of the country. To be sure, the dollar's fall may never reach crisis levels, and in the last few weeks, after a more or less steady fall of almost 35 percent against the euro and 24 percent against the Japanese yen over the last three years, the dollar has stabilized a bit. Many experts argue that a further decline, if relatively modest and gradual, is entirely manageable. Administration officials, along with a number of like-minded economists, contend that the nation's record trade and current account deficits are not particularly worrisome, a reflection more of strong foreign interest in investing in the American economy than any sign of global weakness. But across Asia and Europe, a wide range of officials and analysts worry that Mr. Bush's economic team may not be up to the challenge of grappling with the issue. They contend that Washington has retreated from efforts to marshal the biggest economies of the world into a mutual effort at more robust and balanced growth. Many European politicians and exporters cannot shake the suspicion that the Bush administration, despite its statements supporting a strong currency, has been perfectly happy to watch from the sidelines while the dollar heads down. At a moment of surging American trade deficits that have reached a record share of economic output, a falling dollar makes American exports more competitive and puts imports from Europe at a particular disadvantage. 'It's hard to tell an entrepreneur to wait two years for a policy to change when he says, 'I've got to deliver my goods tomorrow,' ' said Anton Boerner, the president of BGA, the Berlin-based association of wholesalers and exporters. Mr. Snow, for his part, paints a vastly different picture of the international economic landscape. He described the current situation as one of America's remaining the economic envy of the world, where yawning deficits are being addressed and where there is little risk that foreigners will rethink the wisdom of lending the United States hundreds of billions of dollars a year to finance the trade gap and to cover the vast borrowing needs of the federal government. Mr. Snow suggested some in Europe are seeking a convenient scapegoat, particularly after the tensions over Iraq, to blame for the Continent's own inability to generate stronger growth. 'The current deficit levels are too large,' Mr. Snow said, describing himself as a deficit hawk who sees a chance to cut spending because the American economy is growing again. 'They have to come down, and they will come down.' But deficits aside, he argued, 'overwhelmingly the United States is looked at as the model for success.' After years of stagnation in money flowing into the government, 'revenues look good,' and the turning point will come in a couple of weeks, he said, when Mr. Bush sends a budget to Congress in which 'you will see a number of programs that not only don't grow at the rate of inflation, but that decline.' While the budget is a domestic document, assessments of whether it will realistically grapple with the underlying problems and whether Mr. Bush has the political will to push tough measures through Congress may determine whether investors around the world stick with the American economy or head for the exits. 'At a Critical Juncture' No one knows for sure if the doubts that have already contributed to the dollar's decline will intensify. Some worry that the markets may conclude that Mr. Bush will put the financing of the Iraq war, military transformation and the costs of revamping Social Security ahead of deficit reduction. Others fret about the risk that a large, highly leveraged hedge fund or a big bank could be caught betting the wrong way in the markets, touching off a sudden currency sell-off that could have implications for the rest of Mr. Bush's term. 'We're at a critical juncture,' said C. Fred Bergsten, director of the Institute for International Economics, and a persistent critic of how Mr. Bush's team has handled its global economic role. 'The imbalances get worse and worse,' he said, rivaling Japan's in the mid-1990's. 'The projection is that they keep rising,' he added, noting that the current account deficit is running over 6 percent of the country's gross domestic product. 'And it is a trajectory that is bound to crack: people will stop buying dollars, and domestic politics will make the soaring trade deficit with China just unsustainable.' For all those fears, foreign investors are still buying American. While much of that lending last year came from central banks abroad, private investors have shown renewed confidence lately. In November, the last month for which there are reliable numbers, foreigners made net purchases of $81 billion, enough to easily pay for the amount by which American imports exceeded exports. 'Our growth rates are still higher, over the long term, than Europe's and Japan's,' said Daniel J. Ikenson, a trade policy analyst at the Cato Institute. Given that, for foreign investors, 'there is no reason to think they will sell.' But the argument around the world is as much about leadership as about the long-term strength of the economy. Unlike the debate over war in Iraq, in this case the complaint is not about American unilateralism, but American retreat. To America's allies, the era in which the world's largest economy also seeks to be the world's economic leader has simply halted. Under both James A. Baker III, a Republican, and Robert E. Rubin, a Democrat, the Treasury Department was viewed as one of Washington's most powerful institutions. It flexed its muscles to trim the market's extremes and stem crises, from an excessively strong dollar in the 1980's to the currency collapses of the 1990's that stretched from Latin America to Asia to Russia. There has not been an economic crisis of significant magnitude since Mr. Bush came to office. John B. Taylor, the Treasury under secretary for international affairs, said that was partly a result of preventive maintenance. 'My first days on the job we had a crisis in Turkey and one coming in Argentina and Brazil,' he said. 'Both were contained.' Today the Treasury is regarded as a vastly diminished institution, with comparatively little influence in the White House. Mr. Bush is seen, rightly or wrongly, as far less comfortable dealing with global economic management than he is sitting in the Situation Room, buried in the details of the Iraqi insurgency or Iran's nuclear threat. As a result, the weakening dollar, to the minds of many from Hong Kong to Berlin, is a metaphor for a presidency so distracted by national security issues that American economic influence has ebbed. China Stands Its Ground Washington's lack of success so far in pressuring China to finally allow its currency to float, or at least appreciate significantly to reflect its vastly stronger economy, is cited as the most striking evidence of Washington's diminished economic influence. Beijing has used other issues, chiefly the Bush administration's dependence on China to help prevent North Korea's development of nuclear weapons from touching off a wider conflagration, to keep currency demands on the back burner. That has contributed to a Chinese export surge that has soared to levels almost no one predicted when the United States, Europe and China reached agreement on the accord that brought Beijing into the World Trade Organization at the end of the Clinton administration. The Chinese, like the Japanese in their heyday, have begun to question American economic policy. American officials say that the Chinese could solve a lot of problems by not linking their currency to the dollar, a step toward solving a trade surplus that looks set to hit a record of nearly $200 billion for 2004. It is a subject of enormous political sensitivity in Beijing, because of its effect on the breakneck pace of China's economic growth. But Mr. Taylor, the Treasury official, notes that teams of officials have visited China to offer advice about how to manage a floating currency and the Chinese last year hired the Chicago Mercantile Exchange to help it develop a market in currency futures. 'You don't do that,' Mr. Snow said, 'if you are planning to keep the currency pegged to the dollar.' Seeking U.S. Leadership China is only one piece of the global economic puzzle. The lack of interest by Mr. Bush and Mr. Snow to put together a global accord on currency, akin to the Plaza Accord that Mr. Baker organized in 1985, is viewed as evidence that Washington is content with a downward drift of the dollar. And there is no one to replace the American role. 'It will be a world of chaos without a center,' said Hideo Kumano, a senior economist at the Dai-Ichi Life Research Institute in Tokyo. Japan itself, after a decade of downward spiral that only now seems to be ending, has lost all pretense of assuming the mantle of leadership. Bush administration officials have a deep skepticism bordering on an outright ideological objection to intervening in the markets. Certainly China, while growing in leaps and bounds, has neither the capacity nor the interest. 'China has a big population and big economic growth, but it is not a mature economic system yet,' Mr. Kumano noted. 'I cannot imagine it replacing Europe or Japan in terms of influence in the world economy. In such a condition, everyone must cope with a world economy where you cannot rely on America.' For all the worries abroad, the Bush administration sees few signs of stress. 'You don't have any major economy now in recession, and volatility is low,' Mr. Taylor said. 'Even inflation is contained in the emerging markets.' But the lesson of the 1990's is that currency crises, like the terror strikes of more recent years, are nearly impossible to predict. 'Financing of the U.S. current account deficit has gone more smoothly than many economists were predicting just a few years ago,' wrote Roger M. Kubarych, a former chief economist at the New York Stock Exchange who is now a scholar at the Council on Foreign Relations, a nonpartisan research group. 'But that does not mean that market stability can be taken for granted forever.'

Subject: 'After Greenspan' From: Pete Weis To: All Date Posted: Tues, Jan 25, 2005 at 10:27:55 (EST) Email Address: Not Provided Message: Interesting Paul Krugman piece in the NYT's about the candidates to replace Greenspan. This selection has huge implications.

Subject: Re: 'After Greenspan' From: Jennifer To: Pete Weis Date Posted: Tues, Jan 25, 2005 at 21:33:40 (EST) Email Address: Not Provided Message: The selction will be above all an Administration loyalist.

Subject: Social Sec.: another viewpoint... From: Yann To: All Date Posted: Tues, Jan 25, 2005 at 07:21:40 (EST) Email Address: Not Provided Message: http://www.townhall.com/columnists/thomassowell/printts20050120.shtml

Subject: Virtues of personal accounts for SS From: Yann To: All Date Posted: Tues, Jan 25, 2005 at 02:57:17 (EST) Email Address: Not Provided Message: http://www.bepress.com/cgi/viewcontent.cgi?article=1061&context=ev

Subject: Barro's last column From: Yann To: All Date Posted: Tues, Jan 25, 2005 at 02:53:52 (EST) Email Address: Not Provided Message: http://post.economics.harvard.edu/faculty/barro/bw/bw05_01_24.pdf

Subject: 'For Richer' From: Robert To: All Date Posted: Mon, Jan 24, 2005 at 17:07:54 (EST) Email Address: skip10001@gmail.com Message: Just finished reading 'For Richer' as reprinted in 'Best Business Stories/2004'. Nice job! You spent time covering the paradox where the average American is against the 'death tax' even though it only affects a small fraction of the population, but I think you may want to talk about taxes in general. Our current administration somehow manages to make people think they're richer than they are! People whose house values have doubled in the past 12 years--even though that's about 5% return--think they're Donald Trump! And trinkets thrown to average Americans like $300 tax rebates are gobbled up. (The government could have saved millions in administration costs simply by putting a line that said -300 in next year's tax return, but Joe Sixpack wouldn't feel like he was getting anything back.) The real crime right now is the AMT. People who don't pay AMT have no right to complain about taxes! Salaried folks making 200K or so basically can't deduct ANYTHING, nor are they elibable for IRAs, Roth's etc, while the superrich pay no taxes. Robert www.robert.to/

Subject: Financial Company Growth From: Terri To: All Date Posted: Mon, Jan 24, 2005 at 16:09:39 (EST) Email Address: Not Provided Message: http://www.barra.com/Research/SectorWeights.aspx Financials companies have gone from 6% of the S&P to almost 23%, from December 1977 to December 2004. This data however does not give us a sense of the importance of credit divisions of S&P companies such a GE. GE credit is easily the company's largest division. Still, I do not find a problem with such financial company growth.

Subject: Saving and Taxes From: Terri To: Terri Date Posted: Mon, Jan 24, 2005 at 16:57:50 (EST) Email Address: Not Provided Message: There is a significant distortion of investing returns in a 15% tax and capital gains and stock dividends, while interest income is taxed at our income tax rate. Lowering the tax rate on interest income to 15% could be an important saving incentive. Of course, I know, we have an awful government budget deficit and I am mentioning a tax cut. But, the are problem with our tax system. There will have to be an end to the Alternative Minimum Tax as well, for otherwise it will do ample harm to middle income households in years to come. We need a sensible tax structure to increase revenue but to do so with fairness and a lack of distortion in asset allocation. Oh well :)

Subject: Credit bubble? From: Pete Weis To: All Date Posted: Mon, Jan 24, 2005 at 15:10:57 (EST) Email Address: Not Provided Message: From the London Times: January 24, 2005 Economic agenda Why the credit bubble may yet burst By Patrick Hosking HAVE YOU ever wondered why banks suddenly dominate the corporate landscape? Five of Britain’s ten biggest companies are banks, compared with none 20 years ago. Ever wondered why Britain has more credit cards than people? Sixty million and rising fast. Or why credit is free for anyone with a job and a home? Nimble borrowers can juggle interest-free debt from one credit card lender with a special offer to the next. Or why you can barely enter a shop without being offered a store credit card. Or why private equity houses are taking over so many listed companies? The banks have thrown away the rulebook on leveraged buyouts, rubber-stamping loan multiples that they would not have countenanced five years ago. Or why Ford and General Motors each make more money from loans than from carmaking? Or why banks seem to be reckless in their lending rules. Bradford & Bingley last week started offering mortgages of up to 130 per cent of the home on which they are secured. The answer just might be that we — Britain and the United States — are in the midst of the mother and father of all credit bubbles. People, businesses and governments have been showered with credit to a degree never seen before. And, according to a new study, Crunch Time for Credit?, the relentless expansion of debt since the Second World War has put on a breakneck new spurt in the past few years. The extraordinary availability and cheapness of credit has created an illusion of prosperity, puffing up the prices of property and shares, the study argues. Higher asset prices have, in turn, justified further credit creation. The study’s author, Edward Chancellor, a former Lazard banker, says: “An Englishman’s home is no longer just his castle. It is also a leveraged hedge fund, a pension fund, a cash machine and a source of limitless credit creation.” Lenders have waxed fat in this environment, as will be illustrated again this week as Britain’s high street banks start their reporting season. They will in aggregate report record profits of about £33 billion. In America the phenomenon is even more acute, with the financial sector now accounting for a vast chunk of total US corporate profits. However, such breakneck credit growth cannot go on for ever, and when the bubble deflates, Chancellor says, asset prices will tumble and the true state of the two economies will be laid bare. At worst, this either means a deep and lengthy recession or a prolonged bout of inflation that erodes the debts we can no longer afford. Or possibly both — stagflation. Whatever, it will all end in tears, argues Chancellor, who is something of an expert on financial apocolypses. He wrote Devil Take The Hindmost, an analysis of investment bubbles from the great tulip mania of 17th century Amsterdam onwards. Warnings about the dangers of credit bubbles are nothing new. The Victorian economist Walter Bagehot gave warning about excess debt and the speculative temptations caused by low interest rates. “John Bull can stand many things, but he cannot stand 2 per cent,” he said. In the 1950s The Wall Street Journal described the accumulation of debt as “a menace to the economy”. In the 1980s Henry Kaufman, of Salomon Brothers, the Doctor Gloom of his day, called for the re-regulation of the credit markets, to clamp down on the mushrooming of credit. The doom-mongers of the past have had their moments, but have usually been wrong. The world has, on the whole, been able to borrow ever greater dollops of cash without serious injury. However, as the hedge fund manager Crispin Odey, who commissioned Chancellor’s report, remarks: “The fact that the doomsayers have been proven wrong so often in the past doesn’t mean they are wrong now.” A clutch of factors have led to the extraordinary surge in credit in the Anglo-Saxon world. People are richer, can afford interest payments and have the necessary collateral in their houses. The taboo over personal debt has all but vanished. Jennifer Aniston tells us that it’s fine to spend on our Barclaycards. Robert de Niro puffs the benefits of borrowing on American Express. Deferred gratification is no longer seen as a virtue. Credit controls restricting how much banks could lend and to whom have been dismantled. Economic stability and a less violent business cycle have persuaded bankers to ease their lending rules. Financial innovation has created new products that cushion creditors from defaults. Institutional investors have displayed a strong appetite for such loans — suitably parcelled up and securitised. Above all, confidence has boosted supply of, and demand for, debt. Rising incomes and plentiful jobs have persuaded borrowers that they can afford it. Very low rates of default and bad loans have persuaded the banks that it’s good business. Perversely, it is precisely this confidence that is part of the problem. Stability, Chancellor argues, breeds instability. The benign outlook encourages borrowers to borrow more and creditors to indulge them. We all have “risk thermostats”. When risks are apparently reduced by the authorities, we adjust our behaviour accordingly. For example, safety features incorporated into modern cars encourage us to drive faster. The soothing words from Alan Greenspan, Chairman of the Federal Reserve, not to mention his radical loosening of US monetary policy in the face of the dot-com bust, have encouraged borrowers and lenders alike. So have the repeated boasts about economic stability by Gordon Brown. On both sides of the Atlantic credit is on tap for all but the most dispossessed. According to the chairman of one US mortgage bank, “you’d have to be an insolvent arsonist not to get a loan right now”. Meanwhile, bankers and their regulators are deluding themselves if they believe that credit scoring, Value At Risk models and the rest of the paraphernalia of modern risk assessment will shield them from defaults. Chancellor is in the minority. Most economists say the recent growth in credit is sustainable. That we are wealthy enough, stable enough and smart enough to shoulder and service bigger debts than ever before. It may well be that the warming credit tap can be switched off or at least partly stemmed without leaving the West in a nasty cold bath. In Britain, we may soon know because there are strong signs that credit demand is slowing. However, there is no doubt that our forebears would see something very weird and unbalanced about a world in which banks are so dominant and credit is so plentiful.

Subject: Re: Credit bubble? From: Terri To: Pete Weis Date Posted: Mon, Jan 24, 2005 at 16:05:03 (EST) Email Address: Not Provided Message: Look to Barra.com for sector weights. Financial corporations are 22% of the S&P, though what about General electric and General Motors and Ford credit divisions. Interesting. Still, the credit fretting has been going on since credit card spending began.

Subject: Pricing Long Term Bonds From: Terri To: All Date Posted: Mon, Jan 24, 2005 at 09:54:59 (EST) Email Address: Not Provided Message: Friends send along articles telling investors that the end of the bond world is here, and the articles sure make sense, but the Treasury 10 year note has a yield of 4.13%. If there has ever been a Federal Reserve tightening sequence that has left long term bonds so strengthened 7 months after the beginning of the tightening, I sure have not found it. Astonishing.

Subject: Burying Social Security With Debt From: Emma To: All Date Posted: Mon, Jan 24, 2005 at 08:39:08 (EST) Email Address: Not Provided Message: January 24, 2005 A Bridge to Sell - New York Times One of the main talking points in the administration's drive to privatize Social Security is that retirees have nothing to fear. 'If you're a senior receiving your Social Security check, nothing is going to change,' President Bush said recently. Mr. Bush seems to presume that older Americans are indifferent to the future retirement security of their children and grandchildren. But even taken on its face, the argument does not hold up. The president promises that under a private retirement scheme, anyone age 55 or older would continue to receive full Social Security benefits. What he repeatedly fails to mention is that privatization would require some $2 trillion in new borrowing over the next 10 years and an additional $4.5 trillion in the decade thereafter. That's on top of the trillions that need to be found to cover the costs of Medicare and Medicaid and - if the president gets his way - to make this decade's tax cuts permanent. It's foolhardy to assume that the government could continue to meet all of its obligations, including the payment of Social Security benefits, under such a mountain of debt....

Subject: Buying American Debt From: Terri To: All Date Posted: Mon, Jan 24, 2005 at 07:47:06 (EST) Email Address: Not Provided Message: Central banks and private institutions try to mask much about the currency transactions they make, so we need to look at both the value of the dollar and interest rates to gain a sense of transactions. Japan and China and Brazil appear to be especially active in buying American debt. But, the Euro is weakening against the dollar and there may well be European buying of dollars. Also, Korea and India and Singapore and Taiwan are likely buying American debt. There must be considerable demand for American mortgage debt from abroad.

Subject: From The Financial Times From: Pete Weis To: All Date Posted: Sun, Jan 23, 2005 at 23:26:18 (EST) Email Address: Not Provided Message: Central banks shift reserves away from US By Chris Giles Published: January 24 2005 00:03 | Last updated: January 24 2005 00:03 Central banks are shifting reserves away from the US and towards the eurozone in a move that looks set to deepen the Bush administration's difficulties in financing its ballooning current account deficit. In actions likely to undermine the dollar's value on currency markets, 70 per cent of central bank reserve managers said they had increased their exposure to the euro over the past two years. The majority thought eurozone money and debt markets were as attractive a destination for investment as the US. The findings emerge from a survey of central bank reserve managers published today and conducted between September and December of last year. About 65 central banks, controlling assets worth $1,700bn, took part and the results showed a marked change in attitude over the past two years. Any rebalancing of central bank reserve portfolios has serious implications for the global financial system as the US has become increasingly dependent on official flows of funds to finance its current account deficit, estimated at $650bn in 2004. At the end of 2003, central banks held 70 per cent of their official reserves in dollar- denominated assets and central bank purchases of US securities had financed more than 80 per cent of the the US current account deficit in 2003. Any reluctance to increase exposure to dollar assets further could cause the greenback to plunge on currency markets. 'The US cannot take support for the dollar for granted,' said Nick Carver, one of the authors of the study conducted by Central Banking Publications, a company that specialises in reporting on central banks. 'Central banks' enthusiasm for the dollar seem to be cooling off.' In a further worrying sign for the greenback, 47 per cent of reserve managers surveyed said they expected the growth of official reserves to slow to less than 20 per cent over the next four years. Between the end of 2000 and mid-2004, official reserves had increased by 66 per cent. Slower reserve accumulation growth implies the supply of official finance is likely to become more limited but few expect the demand from the US for finance to slow. The consensus among economists is that the US current account deficit will increase to $694bn in 2005. More than 90 per cent of central bank reserve managers said that the income from reserve management was 'important' or 'very important'. In the two years since a similar survey was conducted, reserve managers had begun to seek higher returns for the money under management. For these managers, dollar assets have become less attractive because the fall in the dollar since 2002 has reduced the yield they received and, in some cases, has led to negative real returns. Alan Greenspan, the chairman of the Federal Reserve, warned in November that there was a limit to the willingness of foreign governments to finance the US current account deficit. The survey was conducted on the guarantee of anonymity for the banks involved. The 65 central banks that participated control 45 per cent of global official reserves. Individually, they had up to $250bn under management.

Subject: Demand for Bonds and Interest Rates From: Terri To: Pete Weis Date Posted: Mon, Jan 24, 2005 at 07:20:59 (EST) Email Address: Not Provided Message: Interesting article, but on the whole having no validity. Long term interest rates alone tell us that demand for American debt from international sources has been and remains markedly strong. A confidential central bank survey is just a tool used by central banks to pressure America to control the deficit, but there is no evidence of a move from the dollar. There has to be a reconciling of the problem and I would guess the dollar will continue to lose value, though the dollar has gained value this month. But, the central bank game here can not be taken seriously since demand for American debt from long term bonds to mortgage debt continues to be strong month after month.

Subject: When Stock is No Answer From: Terri To: All Date Posted: Sun, Jan 23, 2005 at 08:06:06 (EST) Email Address: Not Provided Message: Imagine then a turn in the stock market as the turn from 2000 through 2002. Private and public pensions are to be increasingly effected and now possibly Social Security as well. When stock is the only answer to pensions, stock is no answer.

Subject: Changing Our Pension Plans From: Jennifer To: All Date Posted: Sun, Jan 23, 2005 at 07:38:37 (EST) Email Address: Not Provided Message: The problem is that corporate pensions have been steadily switching from defined benefit to defined contribution plans, state and local pensions are switching. The superb California state pension programs are even threatened. About 1 in 8 of America's state employees and teachers are included in the state pension system. Now Social Security is under attack, as though we do not have ever more private and public pension fund choices even when we might prefer otherwise. So, what is the point in discussing investing of a portion of the Social Security trust fund in a stock index? What is needed is to make sure that Social Security is preserved against those who have wished to finish it these 60 years.

Subject: California's Pension System In Crisis? From: Emma To: All Date Posted: Sun, Jan 23, 2005 at 06:25:20 (EST) Email Address: Not Provided Message: January 23, 2005 Schwarzenegger Aims at State Pension System By JOHN M. BRODER - New York Times LOS ANGELES - Gov. Arnold Schwarzenegger, echoing language used by those who claim Social Security is headed for a crisis, contends that California can no longer afford a generous traditional pension plan for state employees and teachers and should force all new workers into a 401(k)-style plan of private accounts. California's $300 billion pension system for its public employees is the largest state system in the nation and as early as this summer, Californians will be asked to vote on the proposed changes. The change that Mr. Schwarzenegger has endorsed is supported by a number of Republican state lawmakers and is driven by the same ideology behind the effort to transform Social Security. The outcome of the vote in California, pension experts and political analysts say, will not only have an impact on the state pension system, but will also provide an important marker of public opinion on proposed changes to Social Security. Mr. Schwarzenegger, in his State of the State address earlier this month, described California's pension system as 'another government program out of control,' careering toward fiscal ruin. He cited the state's obligation to inject $2.6 billion into the system this year to keep it actuarially sound, compared with $160 million four years ago. The impetus for Mr. Schwarzenegger's plan comes from some of the same antitax advocates, free-market enthusiasts and Wall Street interests pushing President Bush's Social Security initiative. Grover Norquist, the president of Americans for Tax Reform, a Washington lobbying and research group, has endorsed the plan. The Howard Jarvis Taxpayers Association, in California, is sponsoring a similar measure. The Jarvis group plans to put its proposal on a statewide ballot if the State Legislature does not act on the governor's plan. Although Social Security and the California pension plans have important differences and different long-term challenges, the proposed solution - private accounts managed by individual workers with a predetermined contribution by employers - is basically the same. 'They certainly are kissing sisters,' said Stephen Moore, the former director of the conservative Club for Growth who is now the president of a political action committee, the Free Enterprise Fund, which is dedicated to remaking Social Security. 'These are proposals that aim toward giving people real ownership and a real stake in how the economy and the stock market perform.' Mr. Moore, who has advised Mr. Schwarzenegger on economic policy and participated in an independent audit of state finances last year, said that California tends to lead the nation on social policy. If California moves from a traditional defined-benefit pension plan to a 401(k)-style defined contribution plan, the nation is likely to follow, he said.

Subject: California's Pension System In Crisis? - 2 From: Emma To: Emma Date Posted: Sun, Jan 23, 2005 at 06:26:08 (EST) Email Address: Not Provided Message: The proposal would affect the California Public Employees Retirement System, known as Calpers, which handles the accounts of 1.4 million state and municipal workers and retirees. It has $178 billion in assets and is one of the largest pools of investment capital in the world. The proposal would also cover the California State Teachers' Retirement System, with 750,000 members and $116 billion in assets. Although Mr. Schwarzenegger described the plans as a looming train wreck, even advocates of privatization in his own administration say the system is currently sound. The plans, taken together, are nearly 90 percent funded, a level that most experts consider quite healthy. 'We're not warning of imminent collapse,' said Tom Campbell, an economist and former member of Congress who is the state's new budget director. 'There is a potential danger for the state to have a defined benefit system, and to the extent we can move away from it, as many private employers in America have done, we should do that.' The danger, as Mr. Campbell and others describe it, is found in the vagaries of the stock market and the tendency of the State Legislature to award generous new retirement benefits in flush times. Unlike Social Security benefits, which can be changed by act of Congress, benefits granted to recipients of public pensions, at least in California, are virtually untouchable. Opponents of the plan, who include almost all Democrats in the Legislature, state employee unions and the trustees of the pension plans themselves, say that the plans have been well managed and provide a critical source of income security to workers who sacrifice pay in their working years to toil in the public sector. The state contribution to the system this year is large because of a downturn in the market, not because of extravagant benefits paid to retirees, they said. The state has benefited in the past from a strong stock market and in some years has had to make no payments into the funds. 'Calpers investments have generated $173 billion over the last 20 years,' said Patricia K. Macht, a spokeswoman for the fund. 'Why would anyone want to throw away the chance to add another $173 billion over the next 20 years? People see this as an opportunity to use a temporary downturn to drive a stake into the heart of a well-funded system.' Some opponents of privatization also detect a subtler agenda among those pushing private accounts - to silence the voice of workers and their pension fund managers, who oversee some of the largest institutional investment accounts in the nation. Calpers has been a leader in an effort to bring greater accountability to corporate boardrooms. It pulled its money out of tobacco companies in the 1990's, voted its shares against Michael Eisner, chairman of The Walt Disney Company and leaned on the Philippines to do more to protect worker health and safety. Critics say the role of pension funds is to safeguard their members' money, not make social policy. 'There is an overriding issue of what happens when you have these superlarge retirement systems straying from bottom line of the benefit of members and straying into corporate governance, even social engineering,' said Jon Coupal, president of the Howard Jarvis Taxpayers Association. 'A motivation for us, as you move to a system of individual accounts, is that over time you will depoliticize the retirement system in the state of California.' Supporters of Calpers and other traditional public pension plans intend to vigorously contest an overhaul and say they expect a costly battle if the plan makes the ballot. Richard C. Ferlauto, director of pension investment policy for the American Federation of State, County and Municipal Employees, said that Mr. Schwarzenegger and others were manufacturing a crisis to justify sweeping changes to the retirement systems that millions of workers rely on and to throttle the influence the workers wield through their pension plan investments. 'The debate around private accounts will be fought in California before the outcome of the Social Security debate is determined,' Mr. Ferlauto said. 'The attempt in California is the stalking horse for whether private accounts can be sold to the American public.

Subject: Deficits and the Fed's Patience From: Emma To: All Date Posted: Sun, Jan 23, 2005 at 06:19:47 (EST) Email Address: Not Provided Message: January 23, 2005 Deficits May Be Wearing Thin at the Fed By EDMUND L. ANDREWS - New York Times WASHINGTON THEY are only low-level rumblings, oblique signals of discontent that are stripped of any direct political threat. But as President Bush embarked on his second term last week, it was hard to escape the sense that his longtime honeymoon with the Federal Reserve may be ending. The Fed and its chairman, Alan Greenspan, have arguably been Mr. Bush's most important economic supporters. Mr. Greenspan gave his blessing to the Bush tax cuts of 2001 and, less enthusiastically, to those of 2003. Despite Mr. Greenspan's reputation as a staunch opponent of fiscal deficits, he tiptoed around criticism of the soaring federal debt that Mr. Bush ran up in his first term and will almost certainly continue to run up in his second. Perhaps most important, the Greenspan Fed cut interest rates and showered the nation with cheap money to soften the recession of 2001 and to keep consumers spending through nearly three years of rising unemployment. But something new is afoot, and it is not just that the Fed is raising rates back to more normal levels. So far, a measured pace of rate increases has merely reflected the Fed's increased confidence that economic growth is on a steady course. The new element is a rising concern at the Fed about the nation's imbalances: the federal deficit, which hit $413 billion in 2004; a low and declining national savings rate; evidence of speculative behavior among investors and consumers; and the country's enormous trade and financial deficit with the rest of the world. In November, Mr. Greenspan noted that foreign claims on United States assets - essentially the nation's net indebtedness to the rest of the world - were now equal to one-quarter of the nation's gross domestic product. The trade deficit this year is almost certain to exceed $600 billion - nearly 6 percent of the nation's economy, and still climbing. 'This situation suggests that international investors will eventually adjust their accumulation of dollar assets or, alternatively, seek higher dollar returns to offset concentration risk,' Mr. Greenspan said. That, he continued, would make the cost of foreign debt 'increasingly less tenable.' To most economists, such comments are simply a statement of time-honored truth: a borrower who runs up huge debts will become a bigger risk to lenders and gradually have to pay higher rates. But Mr. Greenspan's comments also carried a warning: rising budget and trade deficits come at the price of higher interest rates.

Subject: Deficits and the Fed's Patience - 2 From: Emma To: Emma Date Posted: Sun, Jan 23, 2005 at 06:20:24 (EST) Email Address: Not Provided Message: The Fed fired off another warning in the published minutes from its policy meeting on Dec. 14, saying, 'a number of participants voiced concerns about domestic and global financial imbalances.' Some members of the Federal Open Market Committee, which sets policy, were said to believe that the odds of 'significant deficit reduction over the next few years were remote.' More surprising, the minutes said that some policy makers worried that the prolonged strategy of low rates might be fostering 'excessive risk-taking' in financial markets and in the market for houses and condominiums. That sounded like a veiled reference to concern about a 'housing bubble,' an idea that Mr. Greenspan has repeatedly shot down. A third veiled warning came on Jan. 13 from Timothy F. Geithner, president of the Federal Reserve Bank of New York. In a speech to financial executives about risk management, Mr. Geithner suggested that investors had become too complacent about risks posed by global imbalances - particularly those in the United States. Declaring that the current account deficit had reached an 'unprecedented scale,' even as investors continue to demand very low risk premiums, Mr. Geithner warned that they had little buffer for unexpected shocks. 'The present fiscal trajectory entails an uncomfortable scale of borrowing and little insurance against possible adverse outcomes in an uncertain world,' he said. In private sessions, Mr. Greenspan may well be warning Mr. Bush in blunter terms. The Fed chairman meets regularly with Vice President Dick Cheney and periodically with Mr. Bush. There is a rumor in Washington - thus far unconfirmed - that Mr. Greenspan warned the White House in mid-December that it would have to take more credible steps than it has so far to meet its goal of cutting the deficit in half by 2009. If true, the unspoken but inescapable threat would be clear: if the Fed wasn't satisfied, Mr. Greenspan could signal his lack of confidence in Mr. Bush's fiscal plan. Investors would be shaken and Mr. Bush's credibility would be damaged. What is certain is that the White House has started to signal tough cuts - trimming as much as $30 billion over six years at the Pentagon - and Mr. Bush has adjusted his rhetoric about the deficit. Where administration officials routinely called the deficits 'unwelcome but manageable,' Mr. Bush and other top officials now describe deficit reduction as the cornerstone of their strategy for shoring up the foreign exchange value of the dollar. Complicating the chemistry between the White House and the Fed this year is Mr. Greenspan's anticipated retirement in January 2006. White House officials are trying to expand their list of potential successors. One early favorite - John B. Taylor, under secretary of the Treasury - is no longer in contention, according to people close to the White House. White House officials are also cool about Martin Feldstein, the esteemed Harvard professor and director of the National Bureau of Economic Research. Mr. Feldstein has been a passionate supporter of tax cuts and partly privatizing Social Security - Mr. Bush's top economic priorities. But some officials are still angry that Mr. Feldstein, chairman of the Council of Economic Advisers under President Ronald Reagan, criticized deficits run up by his boss. MR. FELDSTEIN is not out of the running, but White House officials are looking at others. One would be R. Glenn Hubbard, an architect of Mr. Bush's tax cuts and now dean of the Columbia Business School. A third possibility is Ben Bernanke, a Fed governor and a respected economist. While at the Fed, Mr. Bernanke, not a Bush insider, has impressed White House officials and is likely to be named chairman of Mr. Bush's Council of Economic Advisers. Though Mr. Bernanke would be a long shot to become Fed chairman, a successful tour at the White House could help his chances. No matter who succeeds Mr. Greenspan, Mr. Bush will have to tread warily at the Fed. It is noteworthy that Republican Fed officials have tended to be more hawkish of late about raising rates sooner rather than later. The most dovish voice has been that of a Democrat - Janet Yellen, president of the Federal Reserve Bank of San Francisco. If tea leaves from the Fed indicate anything, it is that Mr. Bush could get tough treatment from officials tied to his own party.

Subject: Re: Deficits and the Fed's Patience - 2 From: Pete Weis To: Emma Date Posted: Sun, Jan 23, 2005 at 11:56:11 (EST) Email Address: Not Provided Message: It's amazing to see the quick about-face positions of Greenspan. Not long ago he was pushing Adjustable Rate Mortgages and lauding the fact that consumers could cash out the equity in their homes. Now he's suggesting we may have a problem with a too leveraged housing market. This also seems to be a glimpse of the gap between what is provided for public consumption and what is really going on behind the scenes. Bernanke wants that fed chairmanship (not many economists wouldn't) and I always believed he was being promoted by many conservatives and Republican insiders for that job. He's a big follower and admirer of Milton Friedman's money supply theories. What will this mean for the future of the dollar?

Subject: Re: Deficits and the Fed's Patience - 2 From: Terri To: Pete Weis Date Posted: Sun, Jan 23, 2005 at 13:46:59 (EST) Email Address: Not Provided Message: Hard to know how to read this.

Subject: Re: Deficits and the Fed's Patience - 2 From: jimsum To: Terri Date Posted: Tues, Jan 25, 2005 at 15:21:11 (EST) Email Address: jim.summers@rogers.com Message: Well, I read it partly as a joke. The budget deficit was about $521 billion in 2004 (http://www.whitehouse.gov/omb/budget/fy2005/tables.html), and Bush is talking about cutting the Pentagon budget by $5 billion a year! The deficit is currently more than 22% of the overall budget, so spending has to go down by a lot more than $30 billion over 6 years to bring that total down. By the way, I didn't realize there was such a big tax increase this year. Revenues are projected to increase by $238 billion this year (and spending to increase by $81 billion - I wonder if that includes Iraq :-). What new taxes have been introduced (or tax breaks ended) that will increase tax revenues by 13%?

Subject: Social Security is Sound - 3 From: Emma To: All Date Posted: Sun, Jan 23, 2005 at 01:03:10 (EST) Email Address: Not Provided Message: After all, we have our regular retirement accounts. We can hold as much in stock as we wish in these accounts. Social Security is our Treasury bond account, and completely secure. A perfect balance to stocks and real estate.

Subject: Social Security is Sound - 2 From: Emma To: All Date Posted: Sun, Jan 23, 2005 at 00:38:02 (EST) Email Address: Not Provided Message: The problem with thinking about having the Social Security administration invest funds in a stock index is that this can be a way of undermining the program by cutting benefits or borrowing massive sums when there is already far too large a federal deficit. The greatest danger in using the stock market is weakening what is a wonderful sound program.

Subject: Social Security is Sound From: Emma To: All Date Posted: Sun, Jan 23, 2005 at 00:30:04 (EST) Email Address: Not Provided Message: There is no Social Security crisis. Social Security is fine under conservative assumptions till somewhere between 2042 and 2052. With growth at historical levels, there will be no problem through this century. The program has been a wonderful help for retired women and men from the day it began to the present. Still, there are lobbying groups that aim to undermine Social Security. Given the harsh opposition to the program there should be no change at all, for change is likely to weaken not further strengthen this already sound program.

Subject: Demand for Bonds and Interest Rates From: Terri To: All Date Posted: Sat, Jan 22, 2005 at 19:04:40 (EST) Email Address: Not Provided Message: The Social Security trust fund continually buys treasury bonds. This demand for bonds like the demand that is coming from abroad is an important aide in keeping interest rates low. Considerable amounts of mortgage debt, for instance, are being bought by Japan and China and this provides us assistance in home buying and re-financing. Suppose Social Security demand for bonds decline as the trust fund is partly invested in a total market stock index. What of interest rates? These are questions that must be carefully addressed, and I am only thinking of whether the administration can invest in stock, not about private accounts which privide much more complexity and cost.

Subject: Privatizing Medicaid From: Emma To: All Date Posted: Sat, Jan 22, 2005 at 16:16:47 (EST) Email Address: Not Provided Message: http://www.nytimes.com/2005/01/23/national/23medicaid.html?pagewanted=all&position= Florida Offers a Bold Stroke to Fight Medicaid Cost By RICK LYMAN TALLAHASSEE, Fla. - America's governors, struggling for a grip on mounting Medicaid costs, are restricting access, squeezing providers and chipping away at services. But perhaps no one is proposing changes as far-reaching and fundamental as Gov. Jeb Bush of Florida. Mr. Bush is proposing that the state's 2.1 million Medicaid recipients be allotted money to buy their own health care coverage from managed care organizations and other private medical networks. If enacted, the program would make Florida the first state to allow private companies, not the state, to decide the scope and extent of services to the elderly, the disabled and the poor, half of them children. Mr. Bush is just one of many governors trying to scale back Medicaid costs. In California, Gov. Arnold Schwarzenegger said that some Medicaid recipients might be shifted to managed care programs and that others could see their copayments increase. Gov. Phil Bredesen of Tennessee said this month that he would save the once-vaunted TennCare program, a more expansive alternative to Medicaid, but only at the cost of eliminating some 323,000 people from the program. And in New York on Tuesday, Gov. George E. Pataki urged about $1.1 billon in state Medicaid cuts. Calling his proposal 'empowered care,' Governor Bush said when he announced it here on Jan. 11 that it would offer more choice and flexibility to users. Critics, watching closely to see whether he picks up political support and starts a trend, said the plan would mark the first time a state put a cap on state spending beyond which all services for Medicaid users could cease. William T. Pound, executive director of the National Conference of State Legislatures, said that controlling Medicaid costs was one of the biggest issues facing the states, both because the program is consuming such a large share of state budgets and because President Bush is expected to look for savings when he announces the federal budget next month. 'I think the federal government is clearly trying to limit its costs in this, and that presents a terrific problem for state governments,' Mr. Pound said. The National Governors Association, in a letter to the White House last month, said it would welcome some revamping of the program but would oppose efforts 'to simply shift federal costs to states.' Unlike Medicare, the federal health program for the nation's elderly, the cost of services for the nation's 50 million recipients of Medicaid is split between the federal government and the states, with states given great leeway in how they structure and pay for their programs. But as Medicaid costs rose 63 percent in the past five years, to more than $300 billion a year, and as the number of recipients grew by a third since 2001, governors saw the program gobble up more and more of their state budgets. In Tennessee, for example, the TennCare program has grown to a third of the state budget. The average is 22 percent. Most governors can produce a chart showing that if costs keep rising at the current rate Medicaid will eventually consume the entire budget. On the plus side, rising revenues in many states have made the problem somewhat less troublesome than it was a year ago, when revenues were lagging. Governors in several states, including Arizona and Idaho, said they were confident that their states would whittle away at Medicaid costs this year without harsh cuts. Some states are even bucking the trend. Maine and Illinois are considering proposals to expand the number of people eligible for Medicaid. Last year, 21 states enacted controls that either reduced or restricted Medicaid. This year, at least 14 states say they will do the same. Florida, with the most radical plan so far, would not be the only state to incorporate managed care into its Medicaid program. Most states do. The difference is that other states impose strict conditions about who will be covered and for which services. Under Governor Bush's plan, the private companies would make those important decisions without government interference. 'It's very radical,' said Joan Alker, senior researcher for the Health Policy Institute at Georgetown University. 'It seems clear that the intent is really based on the notion that the H.M.O.'s and private insurers will have substantial flexibility to make a profit at the expense of the Medicaid beneficiary, who essentially assumes the risk of not getting the services they need. That's unprecedented in Medicaid, really.' Governor Bush says his plan, which must be approved by the Legislature and federal regulators, would deal with 'unsustainable' health costs while putting individuals in charge of their own care. 'Our proposals put the focus back on the patient by encouraging strong patient-doctor relationships and allowing competition in the market to drive access and quality of care,' the governor said in putting forward his proposal here last week. Under his plan, those eligible for Medicaid would qualify for a set amount of money each month - an amount that would rise and fall depending on their particular needs, as in the case of a patient with H.I.V., who would have a higher premium than a healthy child. The money would be used to pay premiums for a person's choice of managed-care, insurance programs, provider-service networks or community-based systems. The private programs, then, would be able to set up their own competing programs, some offering fuller coverage and others restricting services but offering a lower premium. The idea is that competition between the companies would hold down costs. In addition, the state would offer incentives, in the form of more money for services, to those who live healthier lives, as well as flexible spending accounts with tax advantages to encourage people to save for medical needs. But where government officials in other states draw up intricate codes for specific levels of service, the government in Florida would be involved in only three areas: monitoring the companies involved in the plan to make sure they are capable of delivering the services, counseling Medicaid recipients on which of the competing plans might be most suitable for them and setting the spending level for the program. Florida health officials describe the plan as a necessary to control costs and philosophically in tune with the nation, shifting medical decisions from the government to patients and their health care providers. 'Florida can't afford to wait any longer for real Medicaid reform legislation,' said Alan Levine, secretary of the Agency for Health Care Administration, which administers Medicaid in Florida. 'This proposal is the starting point for a Medicaid program that Florida can live with well into the future.' Even the most ardent advocates for the poor acknowledge that Medicaid is unsustainable at the current rate of growth. But they argue that Florida is trying to limit spending without tackling the broader problem of rising health care costs. 'I don't fault the governor or the president,' said State Senator Walter G. Campbell Jr., the deputy minority leader. 'Let's face it,' Mr. Campbell, a Democrat, said, 'when you're approaching a situation where your Medicaid budget is going to surpass your education budget, something's got to be done.' Mr. Bush, like other governors, has tried before to control Medicaid growth, but nothing of this scope. Because Republicans also control the Florida Legislature, it is considered likely that some aspects of the governor's proposal will eventually pass. But it is uncertain how much of the plan will become law and whether a bill can be introduced as early as this spring's legislative session. The far-reaching nature of the proposal is similar to ideas Republicans in Congress have put forward for Medicare and has led some critics to wonder whether Governor Bush is providing a preview of the kind of health care system President Bush would like to see nationwide. 'This is all part of the scheme of privatizing all of government,' said Karen Woodall, a longtime Florida lobbyist for social services. Some details of the Florida plan are still vague, including at what point spending would be capped and whether any services would be guaranteed. 'It's not clear at all what benefit protections would be offered to people,' said Victoria Wachino, director of health policy for the Center for Budget and Policy Priorities, a research institute that advocates more spending on antipoverty programs. 'It does not seem to make full sense to us as yet. Clearly, though, it's really a radical restructuring of the way benefits flow to Medicaid beneficiaries.'

Subject: Privatizing Everything From: Jennifer To: Emma Date Posted: Sat, Jan 22, 2005 at 16:40:23 (EST) Email Address: Not Provided Message: Good grief. Privatize absolutely everything. Privatize away away away. Keep your dogs and cats safe, not to mention the kids :))

Subject: Social Security Interview From: Jennifer To: All Date Posted: Sat, Jan 22, 2005 at 16:05:21 (EST) Email Address: Not Provided Message: http://www.pbs.org/wsw/tvprogram/ Social Security KAREN GIBBS: There is a debate raging about the solvency of social security. It is the biggest government entitlement program, but also the most universal, most popular and most enduring. President Bush has put reform of the system at the top of his second term agenda, warning: 'the system is broken and promises are being made that Social Security cannot keep'… his fix? Allow social security dollars to be invested in the stock market. And supporters have wasted no time launching a public relations campaign. Critics such as New York Times columnist and Princeton economist Paul Krugman charge the president has created a fake crises and a fake solution. Dick Armey, former House Majority Leader and now chairman of Freedom Works is leading a grassroots movement to completely reform Social Security. He joins us from Dallas. GIBBS: Paul, are we in a crisis? PAUL KRUGMAN: No. Probably there's a little bit of a long-run shortfall in Social Security. But you know, when you look at that ad and it says there used to be 16 workers, blah, blah, blah, right now there are three workers for every retiree, and Social Security is running a big surplus. Now 40 years from now, there will be two workers for every retiree. That's not that big an adjustment. And Social Security is running a big surplus now, which means that it's accumulating a trust fund, which is legally binding. It's money that should be repaid. And most estimates say that it's a fairly small shortfall, tiny, way down on the list of our problems, and quite a few economists think the system, if the economy grows as fast over the next half century as it did over the past half century, no problem at all. The system is good forever. GIBBS: Dick Armey, how does it look from your perspective? DICK ARMEY: I think it's been headed for financial disaster at its inception. I frankly have been advocating this change for 40 years privately and for 20 years publicly. The fact of the matter is what the President's suggesting we do is allow people to voluntarily take some of their money that is now savings forced into Social Security, that promises most young people very little if any return, and then put it in private accounts. That, by the way, is pretty much exactly the bill that was initially passed by the Senate in 1936. And if the Senate had had its way, we'd have had the more correct system all these years and we wouldn't be facing this insolvency. And let me also say the day that we do not have current payroll tax receipts that cover current Social Security outlays is the day this government's got a big problem, and that day is coming very soon because the trust fund is a fiction and anybody that doesn't know that today has simply not been paying attention. GIBBS: Well, when you talk about the trust fund being fiction, isn't it full of IOUs from the United States government? ARMEY: That's right. This is one pocket of the government saying to the other pocket of the government, 'I'm empty, but I owe you this money. And if I get the money to pay you back, I'll have to take it out of your pocket in the first place.' It is really bizarre, and if violates, by the way, just about every principle of responsible solvency and investment that under federal law we imposed on every private investment in America. And it's amazing how this government can set such a bad example in doing what it by law forbids everybody else to do. GIBBS: Paul, what do you think about these government IOUs being worthless? KRUGMAN: Let me say that on all of these things it's really important to back up and say, you know, whatever you want to say about the future of Social Security -- and I think this crisis stuff is nonsense -- you know, the proposed solution is not we're going to allow people to invest money. It is that the U.S. government is going to borrow lots of money, because you're going to be taking payroll taxes that are being used to pay benefits and you're going to divert them into these private accounts, and we're going to borrow the money. And so this supposed solution is like your financial advisor saying to you, 'Well, here's how you prepare for your retirement. Don't save. Just borrow a lot of money, put the money in the stock market. You'll be fine.' This is crazy. This is absurd. There is this moment that this imaginary crisis in 2018 when Social Security is no longer taking in more payroll taxes than it pays out in benefits, I can think of a lot of reasons why we might have a fiscal crisis in 2018 or before. Social Security is not on the list. Right now we've got a huge budget deficit. Right now. Not hypothetically some decades in the future, but right now, because President Bush broke with all historical precedent by cutting taxes while waging a war. We have Medicare expenses which are going to grow by about 2.5 percent of GDP, more than Social Security will ever grow, even when 40 years from now, by 2020, with more than half of that rise because of that horrible Medicare bill that President Bush ran through Congress in 2003. So to say that we have a problem in Social Security, no, we do have a huge budget problem, which is created by policies that have nothing to do with Social Security. The Social Security system has been run quite responsibly. Last thing to say, let me just say, when Dick says he's been wanting to get rid of this for 40 years, that's the point. Republicans have always wanted to get rid of this thing. GIBBS: Dick, your response. ARMEY: Well, let me just say first of all the reason I've wanted to get rid of it was I'm an economist who believes in freedom. And what the President's saying is what a novel idea. Let's let people voluntarily to choose what they would do voluntarily instead of being another generation of people that are compelled by law to participate in a program that they have no confidence in, they don't like, and don't appreciate. And the fact of the matter is all we're saying is even if you say the liquidity problems are there whether you do the right thing or stay with the old wrong thing, how about, Paul, the idea that we should let people be free to choose for themselves how they will define their own retirement security in the future? Don't your children deserve that opportunity more than what the last three generations of Americans have had it because of this compulsory forced savings plan of the federal government? KRUGMAN: Let's just be clear. I mean Social Security is mostly a program that's run as a pay-as-you-go basis. Primarily most of the money that's collected is a tax that's used to pay benefits. It's retirement security. It's never intended to be the sole source of people's retirement savings, but it's something you can fall back on. It's social insurance. And again, all of these proposals are not saying let's let people invest their own money. They are saying let's let the federal government borrow money, and we're going to hope, it's all got to come from additional borrowing. This is completely an unfounded idea. And none of the programs, none of the proposals work even in the very long run, unless stocks are for sure, absolutely a better investment than bonds, which is this funny thing, because somebody's selling us the stocks and somebody's buying those government bonds. So I wonder how a former economics professor can believe what you have to to make this program work. You have to believe that you are smarter than the market, that you know that stocks are a great investment, but the market does not. ARMEY: Let me just say, Paul, I, like you, base all of my confidence about my financial security in my retirement years on my 401(k). And don't tell me that you're any different. You tell me where you put your money. Have you put it in stocks, bonds, in the private capital markets? Or are you willing to be dependent upon Social Security? The fact of the matter is right now the more privileged people have the privilege of the compound earnings of the private capital markets and the less privileged people are forced to put their money into the lowest paying retirement program in the history of the world. Why not let everybody be free to choose just as you're free to choose? And just as I know you're feeling quite confident about your security by virtue of the earnings you've had in the private capital markets throughout all your working life. GIBBS: Paul, let me ask you that. KRUGMAN: No, but this is the point. Social Security is not investing people's money badly. It's a program in which people pay taxes and get social insurance. It's not getting a lousy rate of return. There's no free lunch here. I don't know what happened. It's amazing to me that conservatives who believe in the free market now say that it's this enormous free lunch so we can somehow solve this problem they perceive by borrowing money and throwing it into the stock market because there's a money making machine out there that for some reason the private market is not exploiting. And the point is, yeah, I've done really well, and I don't think I'm going to need Social Security. But you know if I should screw up -- I'm getting a little bit old, I'm running out of time to make big mistakes -- but if I should screw up, I'd feel better knowing that there is a program that insures that you do not have lots of poverty among the elderly in the United States. Social Security is much more than just a way to invest your money. It is a bedrock of the reason why we don't have a lot of misery. And this is not hypothetical. Britain went for a privatization plan back 20 years ago under Margaret Thatcher thinking that they were going to solve the retirement issue forever. And now a big report by the UK Pensions Commission back in October saying we've got a problem here. Lots of people are going to find themselves in deep poverty when they retire because they're not making enough on those private investments. But look, the stock market did great in the past. Mutual funds are supposed to, you know, required to do this disclaimer, past returns are no guarantee of future performance. People have caught on to the fact that stocks were a good thing in the past and the price/earnings ratio is double what it was 50 years ago. So in the future stocks are not going to be that great of an investment. GIBBS: Dick, what about that? If stocks are so great, how come Social Security itself doesn't invest in the stock market and share the wealth among the beneficiaries? ARMEY: Well, because federal law requires Social Security to be put into United States Government securities. The argument at the inception of the program back in '36 was this is the safest thing you can do with the people's retirement security. Later on when you had the unified budget from President Johnson, it became clear, particularly to the Democrats, oh yeah, we can milk this for our other additional spending programs. I think it's a pretty frankly grievous trick to take a 25-, 30-year-old youngster that's working his heart out to take care of this family, force him to put the first 15 percent of all the money he earns into this program under the pretense that he's paying for Grandma's retirement, and then instead be spending the money on such foolish things as AmeriCare or AmeriCorps or the National Endowment for the Arts or any of the other sort of silly, what should I say, indulgings of the federal government's budget. The fact is these youngsters have serious things to do with their life. They don't need to have their savings forced into a program that is subsidizing frivolous government spending programs. GIBBS: Dick, House Ways and Means Committee Chairman Bill Thomas predicts that partisan warfare over Social Security is going to render his proposal pretty much a dead horse. How do you respond to that? ARMEY: I think Bill's wrong about that. I think the whole public mood on this subject is so markedly different than what it has been over the years that we're going to be amazed at the amount of grassroots uprising there is in America that says the President's right, now get it done. KRUGMAN: Let me say what's astonishing to me is the cowardice of the Bush Administration's approach because they're proposing this thing, they're saying we're going to secure the future, but actually we're not going to impose any pain on anyone. It's all going to be borrowed money and we're going to try and rewrite the budget rules so the borrowing doesn't even show in the budget deficit, but we're going to propose something which is going to cut the guaranteed benefits, but you know, none of that's really going to happen for several decades. So we're going to actually leave it to some other future government to actually impose the pain. So this is a fake. This is all propose, you know, claiming to be courageous, claiming to do good stuff, but in fact what we're going to do is we're going to borrow lots of money for an initiative and pretend that it's going to do something in the long run in ways that are totally nonbinding on whoever is running the United States in 2050. ARMEY: Let me just say it is so inappropriate to talk about the cowardice of the President. Democrats have been beating Republicans over the head to the tune of the third rail since 1964 in Barry Goldwater's election. Any Republican that has the courage to say let's have a serious adult discussion about a very important public policy issue that touches three or four generations is a president that has to be applauded. And, Paul, you ought to appreciate the fact that you now have a Republican president that dares to stand in the face of 40 years of effective mean-spirited Democrat demagoguery on this subject that should have been addressed when Goldwater tried to do it in '64. KRUGMAN: I'll just say that the mean-spiritedness and the demagoguery to me seems to be along the other side. Here we have a program that's doing just fine, you know, the problems are a tiny fraction of those associated with the tax cuts, a tiny fraction of those associated with Medicare, Medicaid, and here we are trying to trash the program with scare rhetoric. And it's again, remember that when the Congressional Budget Office scored what appears to be the most likely proposal -- you know, we don't actually have a proposal, that's very weird -- but what we think is going to be the Bush Administration's plan, it says that it will increase the deficit every year from now until 2050. So the good stuff that's supposed to happen is going to happen after the current generation of politicians is long gone. ARMEY: Well, why don't you join me then in calling for responsible cuts in the rest of the federal budget? If you really believe retirement security for the generations is important, will you join me in cutting out the National Endowment for the Arts, cutting out AmeriCorpsor any number of other programs that have no visible benefit to the American people and are nothing but budgetary indulgences for privileged people in the country? KRUGMAN: You know that those are pocket change. You know that all that is pocket change. ARMEY: No… KRUGMAN: Will you join me in calling for a repeal of tax cuts that were based upon budget forecasts that have turned out to be totally wrong? ARMEY: No, I will not. KRUGMAN: Well, there we are, there we are. No sacrifice. ARMEY: The problem is, there again, let me just say the real level of taxation, as Milton Friedman has pointed out oftentimes, is the level of spending. The fact of the matter is our problem is this government is too big, spends too much of our money, and spends it all too often too frivolously, and most of the people who want to save Social Security as they've known it for the past 40 years will not join in making any of the necessary budget cuts that would even make it possible to do the wrong thing you want to do on Social Security. GIBBS: Gentlemen, we've barely scratched the surface, and I know we could talk about this for hours. We'd love to have you back, but we're out of time. Dick Armey, Paul Krugman, thank you.

Subject: Re: Social Security Interview From: Bill To: Jennifer Date Posted: Sat, Jan 22, 2005 at 16:29:40 (EST) Email Address: EgerJB@cs.com Message: Krugman is a hypocrite, as well as a liar. He has a retirement account with TIAA-CREFF who has been stock investing since 1952. SS is a giant ponzi scheme that WILL fail.

Subject: Re: Social Security Interview From: jimsum To: Bill Date Posted: Tues, Jan 25, 2005 at 14:26:12 (EST) Email Address: jim.summers@rogers.com Message: If it is hypocritical for someone to comment on SS when they are unlikely to collect it; then it is hypocritical for someone who is unlikely to collect welfare benefits to comment on the financing of the system. I don't understand how SS will fail. As far as I can tell, failure of SS is defined as paying more in benefits than collecting in taxes. By that measure, the current Bush administration budget is a collosal failure, since expenditures are about 33% higher than taxes.

Subject: New Medicare Rules on Drugs From: Emma To: All Date Posted: Sat, Jan 22, 2005 at 15:47:22 (EST) Email Address: Not Provided Message: http://www.nytimes.com/2005/01/22/politics/22drugs.html New Medicare Rules on Drugs Balance Access Against Costs By ROBERT PEAR WASHINGTON - The Bush administration on Friday unveiled rules for the new Medicare drug benefit that guarantee patients access to a wide variety of medicines while giving insurance companies potent tools to control costs. Issuance of the rules is one of the most significant events between Dec. 8, 2003, when President Bush signed the Medicare law, and Jan. 1 next year, when the drug benefit becomes available. The rules, which were made final after a long, contentious public comment period, will govern all who might be involved in the new program: health insurers, employers, drug manufacturers, pharmacies, benefit managers and up to 41 million elderly and disabled people covered by Medicare. On many issues, the rules strike a balance between competing interests. On the one hand, the rules say that every prescription drug plan must provide 'adequate coverage of the types of drugs most commonly needed' by Medicare beneficiaries. These include drugs to treat high blood pressure, heart disease, cancer, osteoporosis and Alzheimer's disease. On the other hand, the rules say that a plan can establish a list of preferred drugs and can refuse to pay for other medicines. In general, the list, known as a formulary, must have at least two drugs for treating each condition or illness. The rules do not dictate which specific drugs must be covered - for example, by specifying Paxil or Zoloft among the antidepressants, or Lipitor or Crestor among the cholesterol drugs. But Medicare officials said they could require insurers to cover 'specific drugs' or types of drugs, to be identified in the future. The rules also embody other important policy decisions that will determine exactly how the new program works and whether it succeeds. Consumers, insurers, drug companies and politicians have been sparring over almost every detail of the rules. The final rules address many concerns that people expressed about a preliminary version, issued in late July. One concern centered on the fact that Medicare will replace Medicaid as the source of drug coverage for many of the elderly poor. About 6.3 million low-income people are enrolled in both insurance programs. Medicaid, which is financed jointly by the federal government and the states, now pays for their drugs, but will not do so after Jan. 1, 2006. State officials and advocates for low-income people had expressed alarm that many of these beneficiaries would lose coverage for months, while they moved from Medicaid to a Medicare drug plan. Dr. Mark B. McClellan, administrator of the federal Centers for Medicare and Medicaid Services, said Friday that people eligible for the two programs would 'have no gap in coverage' because they would be automatically enrolled in Medicare drug plans this fall. The law, the biggest expansion of Medicare since its creation in 1965, depends on private health plans to deliver the new benefit. Insurers, eager to control costs, wanted to limit the number of drugs they must cover. Doctors, drug companies and advocates for beneficiaries wanted to maximize the number. The government offered a compromise. It allows the use of formularies and says insurers must cover only one drug in a therapeutic category or class if only two drugs are available and one is clearly superior. But if a doctor certifies that a particular drug is medically necessary for a patient, the drug plan must cover it, regardless of whether it is on the list of preferred medicines. Under the rules, the insurer 'must grant an exception whenever it determines that the drug is medically necessary,' and the insurer is supposed to accept the judgment of the prescribing physician on the question of medical necessity. Dr. McClellan said the rules offered 'comprehensive assistance for low-income beneficiaries,' nearly 11 million of the 41 million elderly and disabled people on Medicare. Many employers have cut retiree health benefits in the last 15 years. The law offers subsidies to employers to encourage them to continue providing drug benefits to retirees. Dr. McClellan predicted that 9.8 million retirees would receive drug coverage from employer-sponsored health plans that qualify for the federal subsidies. This number, he said, is more than one million above the highest previous estimates. The rules explain how a beneficiary can appeal the denial of coverage for a particular drug, and they set standards to ensure convenient access to drugstores. Patients denied coverage can appeal through a complex, five-stage process. They can ask for a redetermination by their drug plan, a reconsideration by an outside organization, a hearing before an administrative law judge and a review by the Medicare Appeals Council, a unit of the Department of Health and Human Services. A beneficiary who is still dissatisfied can file suit in a federal district court. Each prescription drug plan can establish a network of pharmacies that agree to sell drugs to Medicare patients at discounted prices. An insurer must have a large enough network so that 90 percent of the Medicare beneficiaries in urban areas live within two miles of a participating drugstore, and 90 percent of those in suburban areas are within five miles of a store. Beneficiaries who sign up with a drug plan are generally locked in for a year. Insurers can end coverage for a particular drug, or increase the co-payment, if they give 60 days' notice to patients and the government. The United States Chamber of Commerce, the Blue Cross and Blue Shield Association and America's Health Insurance Plans, a trade group for insurers, praised the new rules. Howard G. Phanstiel, chairman of PacifiCare Health Systems, a large insurer based in Cypress, Calif., said the rules showed that the government would be 'a good business partner.' But consumer advocates, like Families USA and the Medicare Rights Center, said they were somewhat disappointed. Judith A. Stein, director of the Center for Medicare Advocacy, a nonprofit group that counsels beneficiaries, said the rules allowed immense complexity and variation in benefits. Drug discount cards, offered as a temporary source of assistance, were too complex for many elderly people, she said, and the new drug benefit may be even more confusing. Many states, like New York, New Jersey and Pennsylvania, have programs that assist state residents with their drug costs. The new rules say states cannot select one Medicare drug plan and enroll all their beneficiaries in that plan. Instead, states must work with all available drug plans. Senator Jon Corzine, Democrat of New Jersey, said this requirement would disrupt a state program that had worked well for three decades.

Subject: Stocks' Payoff Myth From: Jennifer To: All Date Posted: Sat, Jan 22, 2005 at 15:01:44 (EST) Email Address: Not Provided Message: http://www.msnbc.msn.com/id/6839146/site/newsweek/ January 18, 2005 Stocks' Payoff Myth If you can stay in the stock market for the long term, your investments will pay off. But that long term can be very, very long. By Allan Sloan Friday was a historic day—and I'll bet you didn't even notice. No, I'm not talking about it having been the 91st anniversary of Henry Ford's introduction of the assembly line for the Model T. Or the 221st anniversary of Congress's ratification of the Treaty of Paris, which ended the Revolutionary War. I'm talking about something more recent and mundane: the fifth anniversary of the Dow Jones industrial average's all-time high, set on Jan. 14, 2000. Back in the day, the stock market bubble was still with us, and the Dow closed at 11,722.98. Twelve thousand, and points north, seemed within easy reach. Alas, the Dow promptly headed south, and has never come close to what it was. At Friday's close, the Dow was still 10 percent below its all-time high. And that understates the damage investors have suffered since stocks peaked five years ago. The Standard & Poor's 500-stock index and the Wilshire 5000, both far better measures of the market than the 30-stock Dow, are down 22 and 19 percent from their highs of March 2000. And the Nasdaq market? Yeckummm. It's down 59 percent from its peak, which means it has to way more than double just to get back to where it was five years ago. I'm dragging out all these numbers because there's a lesson here, one that some people have forgotten because stocks have done well the past two years. It's this: Even though stocks have produced double-digit profits on average every year, the market can go down and stay down for extended periods. So on average, you do great. But in the real world, you can lose your shirt if you need to cash in your chips during a bad market patch and don't have the staying power to hold on for better days. This all matters, big time, given the trial balloons the Bushies are launching to substitute private investment accounts for about half of Social Security's current benefit formula. (My math: The change they're floating to tie benefits to inflation rather than wages would cut benefits for next-generation workers by 46 percent, compared with the current formula.) On the charts, your private investment account looks great: Stocks have produced an average of 10.4 percent a year for investors since 1926, according to Ibbotson Associates. That makes stocks sound like sure-fire investments. But there's no guarantee that you'll actually make that kind of money, unless you have staying power measured in decades. If you got in at the Dow's 1929 peak, you had to wait until 1954 to break even. In 1964, you had to await 1972. Now, it's 2000 to who-knows-when. You make good money on average, but life isn't always average. A six-foot man can drown in a lake that averages six inches deep if he steps in the wrong place. I'm not any sort of guru, but simple arithmetic makes it unlikely that stocks over the next decade or two will repeat what they've averaged for the 79 years covered by Ibbotson. Here's why. A large part of stocks' long-term returns to investors has come from cash dividends, which are far lower now, relative to stock prices, than they were. Some 4.25 percentage points of stocks' 10.43 percent total return came from cash dividends, according to Ibbotson, and 5.93 percentage points came from share-price increases. (The rest came from reinvesting the cash dividends in additional shares.) Today, the S&P 500 dividend yield is well under 2 percent. Allow 6 percent a year for share-price increases—that's generous, given the current high level of stock prices—and you end up with a return of around 8 percent. That's more than two percentage points below the long-term historical return—and about two points below the assumptions underlying the administration's Social Security private-account projections. It's one thing to come in with a less-than-projected return on your 401(k) account or your regular stock portfolio. That's not basic-needs money—or at least it shouldn't be. But if you're counting on stocks to supplement your sharply reduced Social Security benefit to pay for basic needs, you're toast if stocks come in low. Ditto for bonds, which have excellent long-term returns—almost 6 percent in interest income and price appreciation since the end of 1925—but whose returns for the next few decades are likely to be lower, for technical reasons having to do with current interest-rate levels. One last piece of historical trivia. In addition to signaling the peak of the Dow, Friday also marked the 51st anniversary of the short-lived marriage of Marilyn Monroe and Joe DiMaggio. Like the bull market, it was fun to watch while it lasted. But as history teaches us, nothing goes on forever.

Subject: Re: Stocks' Payoff Myth From: Bill To: Jennifer Date Posted: Sat, Jan 22, 2005 at 16:33:47 (EST) Email Address: EgerJB@cs.com Message: Well-known Princeton economics professor Burt Malkiel is providing meaningful, data-driven support of market-investing in personal savings accounts as part of Social Security reform. His is a significant endorsement of the Bush plan at a time when critics are popping up all over the political map. According to Malkiel, from 1926 to the present, yearly stock market returns have averaged about 10 percent pre-inflation and 7 percent after-inflation. The absolute worst return for a 25-year investor who started in 1929 was 6 percent; for a 35-year investor it was 8 percent. Malkiel wrote in the Wall Street Journal this week that ?Long-term investors can invest in the stock market with considerable confidence that they can earn a rate of return far above the 1% to 2% return afforded by the Social Security system.? This is an important defense of personal accounts. Malkiel is the former chairman of the president?s Council of Economic Advisors. He is also the former chair of the Princeton economics department. Yes, believe it or not, there?s an Ivy Leaguer in favor of Bush?s reform plan. As such, Malkiel brings enormous credibility to the issue. The Princeton professor also recommends periodic contributions to Social Security in the form of ?dollar cost averaging.? Long-term investors who started in the market in 1929 and acted this way got returns averaging 7 to 10 percent yearly as the minimal low end of their historical performance. Malkiel recommends asset diversification among stocks, bonds, and real estate, along with ?rebalancing? over time. In other words, younger workers should have more stocks than bonds in their personal accounts and older workers more bonds than stocks. Setting up stream-of-income annuities for the retirement years avoids the pitfalls of taking everything out of the market at a bad time (like 1929 or 2000-01). Malkiel?s defense of personal accounts comes in response to disingenuous anti-stock market ads from the AARP. The ads say, ?If we wanted to gamble, we?d play the slots.? In other words, the AARP believes that investing in stocks and bonds is a crap shoot. Their new slogan is ?Social Insecurity.? This campaign is flat-out hypocritical. The AARP advertises no fewer than 38 different stock and bond mutual-fund investments to their members. You can buy anything on their website from big-cap Dow stocks to emerging-market funds. If you want to ?gamble,? you can even buy Argentina ? through the good offices of the AARP. Of course, the AARP gets a nice fat commission on any of these fund sales. Yet, when steering their membership away from the Bush Social Security reforms, they never cite the long-run positive stock returns discussed in the work of Burt Malkiel, University of Pennsylvania professor Jeremy Siegel, or many other experts. The disingenuousness of the AARP is shameful. What?s good for their members should be good for the rest of us. After all, stock- and bond-market investing is not some new radical idea. For decades, state pension funds have successfully invested in markets for unionized policemen, firemen, and teachers. Ditto for the federal Thrift Savings Plan on behalf of the executive and legislative branches in Washington. Liberal academic critics of market investing ? such as Paul Krugman ? never tell us that their own retirements are taken care of by market investors like TIAA-CREF. Founded in New York City in 1918, TIAA-CREF provides retirement plans for professors of colleges and universities. They began common-stock investing in 1952. The Bush administration had better start communicating all of these facts. Last week?s Gallup poll showed that while 71 percent of Americans believe the Social Security system is either in crisis or has a major problem, folks also think ? by a huge 55 to 40 percent margin ? that investing some of their Social Security taxes in stocks or bonds is a bad idea. With nearly half of the public already invested in stocks, the Gallup finding has to be bad news for the Bushies. It may very well be that the White House and the Treasury are spending too much time worrying out loud about benefit cuts and the so-called transition costs of Social Security, and not nearly enough time talking up the superiority of market-driven benefits for future retirees. They?ve also been too quiet about the benefits of Social Security ?ownership? for the spouse, child, or other family heir of a deceased breadwinner.

Subject: Future Stock Returns From: Emma To: Jennifer Date Posted: Sat, Jan 22, 2005 at 15:18:20 (EST) Email Address: Not Provided Message: http://flagship2.vanguard.com/VGApp/hnw/FundsByName Given price earning ratios that are far higher than the historical norm, dividends that are much lower and not made up be stock buy-backs, and earnings that are remarkably high relative to wages, I can not imagine how the coming years will match the 12.4% yearly average for the Vanguard S&P since 1976.

Subject: Social Security Notes: Paul Krugman From: Terri To: All Date Posted: Sat, Jan 22, 2005 at 14:16:59 (EST) Email Address: Not Provided Message: http://www.j-bradford-delong.net/movable_type/2005-3_archives/000203.html#comments Couldn't resist a comment here. First, a 5 percent return on stocks totally undermines the math of private accounts. The typical exercise assumes 3 percent real interest rate, 7 percent return on stocks, with half of the private accounts in stocks. Since the money for the accounts is also borrowed at 3 percent, that leaves 2 points for margin, part of which goes to fees. Reduce the return on stocks to 5 percent, and you have a 1 point margin - about the level of fees in Britain and Chile. So you're left with a plan that yields zero excess return but increases risk. Second, I can't believe that privatizers still think they can score points by comparing the implicit rate of return on SS - which is decreased by legacy costs and the costs of providing disability insurance - with the rate of return on unencumbered investments. Guys, the relevant comparison is the opportunity cost of the funds borrowed to create the private accounts; anyone who says different is either uninformed or deliberately dishonest. For those puzzled about my example, the CBO study of Plan 2 assumes that half of private accounts are in bonds, half in stocks. So a 2 percent equity premium means that private accounts yield only 1 percent more than the bonds issued to pay for their creation. That's a sum that can easily be eaten up by fees. The reason the borrowing cost, not some calculation of internal rates of return, is relevant: privatization doesn't do any good unless it increases the size of the pie. Privatizers tell us not to worry about the borrowing, because it will be matched by benefit cuts of equal present value. But that leaves workers worse off unless their earnings on private accounts, again in present value terms, are bigger than the benefit cuts. If the return on accounts is no higher than the borrowing cost, all that happens is an increase in risk.

Subject: Re: Social Security Notes: Paul Krugman From: Emma To: Terri Date Posted: Sat, Jan 22, 2005 at 14:39:17 (EST) Email Address: Not Provided Message: There is no reason to explain why productivity growth should suddenly slow markedly, for I much doubt that it will. Unless you can tell me that variations of Moore's law are no longer workable, then I am content to assume productivity and economic growth will be conservatively high enough for there to be no Social Security problem. There is most certainly no crisis, and as for the trust fund it is as real as all Treasury bond obligations are real and will surely be honored. There must be no Social Security benefit cuts, for none are needed. Now and again, however, I think of the possibilities of Social Security investing part of the trust fund in a total market stock index with non-voting shares.

Subject: A New China for the Young From: Emma To: All Date Posted: Sat, Jan 22, 2005 at 11:07:53 (EST) Email Address: Not Provided Message: http://www.nytimes.com/2005/01/22/international/asia/22zhao.html?pagewanted=all&position= For Beijing Students Now, Protests Aren't Even a Memory By JIM YARDLEY BEIJING - For Yu Yang, a mop-haired biology major, the small notice posted this week on Beijing University's Web site about the death of a former Communist Party leader seemed like an irrelevant historical footnote. Growing up, Mr. Yu, now 21, barely knew about Zhao Ziyang, except that he had 'played a prominent role in 1989.' And Mr. Yu acknowledged Thursday that he barely knew about 1989. He knew students had protested at Tiananmen Square; he had heard that Chinese soldiers fired into the crowds to end the demonstrations. But Mr. Yu, an aspiring scientist, described that as hearsay. 'Rumors say so,' he said of a bloody crackdown witnessed by a worldwide television audience outside China, 'but I need a lot of evidence to believe it.' If the Chinese government can help it, he may never see that evidence. For years, the Communist Party has awaited Mr. Zhao's death with trepidation, fearing protests or riots. Purged for sympathizing with the students, then placed under house arrest in Beijing for almost 16 years, Mr. Zhao became a martyr to a generation of Chinese for whom Tiananmen remains an indelible scar. But for many younger Chinese, who did not witness those events, he is a virtual nonentity, banished from history books and the state-controlled news media. At Beijing University, a focal point of political dissent in 1989, his death scarcely seemed to register with the generation of students who were children when the massacre happened. Some, like Mr. Yu, were simply ill informed, knowing about it only in vague, often inaccurate, terms. Others, frightened, knew they should change the subject. Asked if any event in the news had seemed significant this week, one student standing in the doorway of his room replied, 'You mean the Australian Open?' When his visitor gave him a quizzical look, the student smiled almost imperceptibly. 'Oh, you mean Zhao,' he said. The government's deep concern about the lingering anger over Tiananmen - and the potential that it could still be the match that lights new protests - explains the official response since Mr. Zhao died Monday. Dissidents were quickly placed under surveillance or, in some cases, under house arrest. The Chinese media were banned from covering his death, other than a small mention in state-controlled newspapers. At elite universities in Beijing, security was increased, and faculty members were initially told to monitor their students to protect against demonstrations. Jiao Guobiao, an outspoken journalism teacher at Beijing University, said political speech was already tightly monitored long before Mr. Zhao's death, a fact that influenced the muted response by students. 'It's not that they don't care,' Mr. Jiao said. 'It's that they don't dare care. Any student who shows a concern for politics will be discriminated against. They will be sidelined, so they learn over time not to express opinions about political subjects like this.' Mr. Jiao himself is a telling example. Last year, he wrote a scathing indictment of the government's propaganda department. Since then, he has remained on the faculty but not been allowed to teach. Meanwhile, a popular chat room run by Beijing University students was closed last year after the postings became increasingly political and often critical of the government. Roger Jie, 21, a junior, laughed when asked if politics played a major role in campus life. 'Very nonpolitical,' he said. 'Neutralized, in fact, pretty neutral. Students are used to not talking about it.' Mr. Jie, who grew up in Guangzhou, said Tiananmen was rarely discussed at his high school. Instead, he learned about it from a program on an uncensored Hong Kong television station. 'The pictures were really brutal,' he recalled. Now, he said, the passage of time and economic progress in China have made Tiananmen seem less relevant to his life. 'It was long ago, and there hasn't been much news about Zhao for 10 years or longer,' he said. Asked if he now felt free in China, Mr. Jie paused for a moment. 'To a degree, it is free enough for me,' he said, even as he insisted on using his English-language name. Xu Youyu, a liberal political theorist at the Chinese Academy of Social Sciences, said the government blackout of information about Tiananmen meant that many younger people were ignorant about what happened in 1989. 'For this generation, it is not so important,' he said. 'They know very little or nothing about it.' In interviews with about a dozen students at a men's undergraduate dorm, several were not aware that Mr. Zhao had been general secretary of the Communist Party or that he had been under house arrest since being purged in 1989. Other students offered a softer gloss on the government's role in the crackdown. 'Many people left safely,' explained a 21-year-old student from Anhui Province who asked not to be identified. Did the soldiers fire on the students? 'It's really not clear,' the student continued. 'I heard the soldiers fired back when they were attacked.' His friend chimed in. 'I don't care too much about politics,' he said. What does he care about? 'Soccer,' he answered. In another room, four students - none willing to be identified - played video games. One student, who is majoring in Chinese history, said college students had access to information on the Internet that was not available to most Chinese and were aware of the problems here. But he thought that too much freedom of speech, too fast, was not a good thing. 'We need to phase in freedom of speech step by step,' he said. 'Not overnight.' His friend added. 'Overnight is like a revolution. Step by step is evolution. We oppose revolution.' On a different floor, a student who gave only his surname, Lei, watched music videos on his computer with a female friend. Mr. Lei, 22, said Mr. Zhao's death had had little impact on campus. He said he knew that historical events described on state television were often twisted or false. 'We listen, and it's all good things,' he said. He switched off the music video on his computer and punched up something else from his hard drive: a bootleg documentary on the Tiananmen protests. He said the Internet was the primary source of information on the protests for students. But if he was interested in the truth about Tiananmen, Mr. Lei said he questioned the broad idea of Western democracy for China. 'This country has too many people,' he said, echoing a line often repeated by government officials. 'It's hard to manage, and it may not be a great idea to practice Western democracy. It may cause chaos.' Mr. Lei's friend, visiting from another university, stood quietly nearby. Asked about Mr. Zhao and 1989, she blushed. 'I don't know who he is,' she said. 'I've never heard of him.' Nor had she ever heard of the Tiananmen protests.

Subject: People and Cars and Safety From: Emma To: All Date Posted: Sat, Jan 22, 2005 at 11:05:01 (EST) Email Address: Not Provided Message: http://www.nytimes.com/2005/01/22/international/europe/22monderman.html?pagewanted=all&position= A Path to Road Safety With No Signposts By SARAH LYALL DRACHTEN, The Netherlands 'I WANT to take you on a walk,' said Hans Monderman, abruptly stopping his car and striding - hatless, and nearly hairless - into the freezing rain. Like a naturalist conducting a tour of the jungle, he led the way to a busy intersection in the center of town, where several odd things immediately became clear. Not only was it virtually naked, stripped of all lights, signs and road markings, but there was no division between road and sidewalk. It was, basically, a bare brick square. But in spite of the apparently anarchical layout, the traffic, a steady stream of trucks, cars, buses, motorcycles, bicycles and pedestrians, moved along fluidly and easily, as if directed by an invisible conductor. When Mr. Monderman, a traffic engineer and the intersection's proud designer, deliberately failed to check for oncoming traffic before crossing the street, the drivers slowed for him. No one honked or shouted rude words out of the window. 'Who has the right of way?' he asked rhetorically. 'I don't care. People here have to find their own way, negotiate for themselves, use their own brains.' Used by some 20,000 drivers a day, the intersection is part of a road-design revolution pioneered by the 59-year-old Mr. Monderman. His work in Friesland, the district in northern Holland that takes in Drachten, is increasingly seen as the way of the future in Europe. His philosophy is simple, if counterintuitive. To make communities safer and more appealing, Mr. Monderman argues, you should first remove the traditional paraphernalia of their roads - the traffic lights and speed signs; the signs exhorting drivers to stop, slow down and merge; the center lines separating lanes from one another; even the speed bumps, speed-limit signs, bicycle lanes and pedestrian crossings. In his view, it is only when the road is made more dangerous, when drivers stop looking at signs and start looking at other people, that driving becomes safer. 'All those signs are saying to cars, 'This is your space, and we have organized your behavior so that as long as you behave this way, nothing can happen to you,' ' Mr. Monderman said. 'That is the wrong story.' The Drachten intersection is an example of the concept of 'shared space,' a street where cars and pedestrians are equal, and the design tells the driver what to do. 'It's a moving away from regulated, legislated traffic toward space which, by the way it's designed and configured, makes it clear what sort of behavior is anticipated,' said Ben Hamilton-Baillie, a British specialist in urban design and movement and a proponent of many of the same concepts. Highways, where the car is naturally king, are part of the 'traffic world' and another matter altogether. In Mr. Monderman's view, shared-space schemes thrive only in conjunction with well-organized, well-regulated highway systems. Variations on the shared-space theme are being tried in Spain, Denmark, Austria, Sweden and Britain, among other places. The European Union has appointed a committee of experts, including Mr. Monderman, for a Europe-wide study. MR. MONDERMAN is a man on a mission. On a daylong automotive tour of Friesland, he pointed out places he had improved, including a town where he ripped out the sidewalks, signs and crossings and put in brick paving on the central shopping street. An elderly woman crossed slowly in front of him. 'This is social space, so when Grandma is coming, you stop, because that's what normal, courteous human beings do,' he said. Planners and curious journalists are increasingly making pilgrimages to meet Mr. Monderman, considered one of the field's great innovators, although until a few years ago he was virtually unknown outside Holland. Mr. Hamilton-Baillie, whose writings have helped bring Mr. Monderman's work to wider attention, remembers with fondness his own first visit. Mr. Monderman drove him to a small country road with cows in every direction. Their presence was unnecessarily reinforced by a large, standard-issue European traffic sign with a picture of a cow on it. 'He said: 'What do you expect to find here? Wallabies?' ' Mr. Hamilton-Baillie recalled. ' 'They're treating you like you're a complete idiot, and if people treat you like a complete idiot, you'll act like one.' 'Here was someone who had rethought a lot of issues from complete scratch. Essentially, what it means is a transfer of power and responsibility from the state to the individual and the community.' Dressed in a beige jacket and patterned shirt, with scruffy facial hair and a stocky build, Mr. Monderman has the appearance of a football hooligan but the temperament of an engineer, which indeed he trained to be. His father was the headmaster of the primary school in their small village; Hans liked to fiddle with machines. 'I was always the guy who repaired the TV sets in our village,' he said. He was working as a civil engineer building highways in the 1970's when the Dutch government, alarmed at a sharp increase in traffic accidents, set up a network of traffic-safety offices. Mr. Monderman was appointed Friesland's traffic safety officer. In residential communities, Mr. Monderman began narrowing the roads and putting in design features like trees and flowers, red brick paving stones and even fountains to discourage people from speeding, following the principle now known as psychological traffic calming, where behavior follows design. He made his first nervous foray into shared space in a small village whose residents were upset at its being used as a daily thoroughfare for 6,000 speeding cars. When he took away the signs, lights and sidewalks, people drove more carefully. Within two weeks, speeds on the road had dropped by more than half. In fact, he said, there has never been a fatal accident on any of his roads. Several early studies bear out his contention that shared spaces are safer. In England, the district of Wiltshire found that removing the center line from a stretch of road reduced drivers' speed without any increase in accidents. WHILE something of a libertarian, Mr. Monderman concedes that road design can do only so much. It does not change the behavior, for instance, of the 15 percent of drivers who will behave badly no matter what the rules are. Nor are shared-space designs appropriate everywhere, like major urban centers, but only in neighborhoods that meet particular criteria. Recently a group of well-to-do parents asked him to widen the two-lane road leading to their children's school, saying it was too small to accommodate what he derisively calls 'their huge cars.' He refused, saying the fault was not with the road, but with the cars. 'They can't wait for each other to pass?' he asked. 'I wouldn't interfere with the right of people to buy the car they want, but nor should the government have to solve the problems they make with their choices.' Mr. Monderman's obsessions can cause friction at home. His wife hates talking about road design. But work is his passion and his focus for as many as 70 hours a week, despite quixotic promises to curtail his projects and stay home on Fridays. The current plan, instigated by Mrs. Monderman, is for him to retire in a few years. But it is unclear what a man who begins crawling the walls after three days at the beach ('If you want to go to a place without any cultural aspect, go to the Grand Canaries,' he grumbled) will do with all that free time. 'The most important thing is being master of my own time, and then doing things that we both enjoy,' he said. 'What are they? I don't know.'

Subject: Yuan Step At a Time From: Emma To: All Date Posted: Sat, Jan 22, 2005 at 09:31:52 (EST) Email Address: Not Provided Message: http://www.economist.com/PrinterFriendly.cfm?Story_ID=3576444 January 20, 2005 Yuan step at a time The Economist The case for a big revaluation of the Chinese currency is weaker than commonly claimed MANY policymakers and economists argue that the Chinese yuan, pegged for a decade at 8.28 to the dollar, is grossly undervalued, and that a revaluation is essential to reduce America's huge current-account deficit. The issue is likely to be high on the agenda at the next G7 meeting of finance ministers and central bankers on February 4th and 5th, to which China has been invited. Figures last week, showing a further widening of America's trade deficit and a big increase in China's surplus, have surely increased the pressure on China. However, in a new paper, “To Be a Rock and Not to Roll”, Stephen King, the chief economist of HSBC bank, exposes several myths behind the conventional arguments for a revaluation of the yuan. The first is that China's large and growing trade surplus with America proves that the yuan is undervalued. China's surplus with America is offset by a deficit with other Asian countries (see left-hand chart), from which it imports capital equipment and components. As a result, China's overall trade surplus was a modest $32 billion last year, smaller than in the late 1990s and peanuts compared with America's trade deficit of over $600 billion. Nor does the extraordinarily rapid growth in Chinese exports prove that its currency is too cheap: imports have also been rising rapidly. But what about the huge increase in China's foreign-exchange reserves, which jumped by almost $100 billion in the fourth quarter of last year? To prevent the yuan rising against the dollar, the People's Bank of China is being forced to buy vast amounts of American Treasury securities. Surely, that proves that the yuan is being held below its market rate? Not necessarily. Much of the increase in reserves reflects inflows of short-term capital, from investors taking advantage of higher interest rates in China or speculating on a revaluation. In the long term, if China scrapped its controls on capital outflows, the yuan might well fall as Chinese households diversified into foreign assets. It is true that because of its peg to the dollar, the yuan's real trade-weighted exchange rate (adjusted for inflation differences with other countries) has fallen by 13% since 2001. But on a longer view the Chinese currency looks less cheap. Between 1994 and 2001, it gained 30%, dragged up by a rising dollar (see right-hand chart). Those who accuse the Chinese of pursuing a cheap-yuan policy conveniently forget that during the East Asian crisis China let pass the chance to devalue its currency in line with most of its neighbours. Perhaps the biggest myth of all, says Mr King, is that the yuan's value is the only stumbling block to reducing America's current-account deficit. China accounts for less than 10% of America's total trade so a 10% revaluation of the yuan—as much as might be reasonably expected—would reduce the dollar's trade-weighted value by only 1%. If it were matched by a 10% rise in all other Asian currencies, then the dollar's trade-weighted index would fall by 3.7%. But even that is small compared with the dollar's decline of 16% since early 2002, let alone with what would be needed to cut America's current-account deficit to a sustainable level. Assuming no other policy changes, HSBC estimates that the dollar needs to fall by a further 30% to reduce the deficit to 2-3% of GDP. Another reason why any plausible revaluation of the yuan would do little to reduce America's trade deficit is that China's exports have a high import content, which limits the impact of exchange-rate movements on export prices. For example, the Chinese value-added (in parts and labour) in a mobile phone exported to America might be only 15% of its price. So a 10% revaluation would raise its price in dollars by only 1.5%. A lot of hot air In addition to claims that “China is stealing our jobs”, another popular argument for revaluing the yuan is that the Chinese economy is overheating, because a fixed exchange rate forces the country's authorities to run an overly lax monetary policy. Rising foreign-exchange reserves boost the money supply, causing higher inflation and excessive bank lending. A rise in the exchange rate, it is argued, would give the central bank proper monetary control. The snag is that a small revaluation is likely to increase expectations of another future appreciation, attracting yet more speculative capital and swelling foreign reserves further. To discourage speculation would require a much larger revaluation than the Chinese are likely to accept. Some economists argue that as China gets richer it needs to allow its real exchange rate to rise, in order to reap the full gains of its economic success. A stronger exchange rate would boost consumers' purchasing power, by allowing them to buy more foreign goods. At present, growth is too dependent on exports, while consumption is weak. However, an increase in the real exchange rate need not require a rise in the nominal rate. Instead it could come about through higher inflation than in countries abroad—as occurred in Japan in the 1950s and 1960s. Mr King concludes that the biggest problem for China's current exchange-rate policy is not the yuan itself but the performance of the dollar. A fixed exchange rate is supposed to provide stability. So if the dollar continues to fall, China may wish to switch to a more reliable store of value and unit of account. One alternative is a currency basket reflecting the pattern of its trade. China already trades more with the European Union and Japan than with America. The real blame for America's current-account deficit lies with its lack of saving, not the Chinese yuan. Last year, Li Ruogu, the deputy governor of the People's Bank of China, warned the United States not to blame other countries for its economic difficulties. He said that foreign pressure would not force China to move faster to free its exchange rate. It would indeed be ironic if a change in China's exchange-rate policy came not as a result of American pressure, but from China's own disillusion with the dollar as an international reserve currency.

Subject: Our Balance of Payments From: Terri To: Emma Date Posted: Sat, Jan 22, 2005 at 09:39:47 (EST) Email Address: Not Provided Message: With a fierce federal deficit and little household saving, and international institutions and businesses willing to lend to America, I do not see how we can hope for a much more favorable trade balance. The problem is not China, rather the problem is a foolish fiscal policy that reversed the gains made through the 1990s in a remarkably short time.

Subject: Investing Not Speculating From: Emma To: All Date Posted: Sat, Jan 22, 2005 at 08:34:32 (EST) Email Address: Not Provided Message: Let me try another example using John Bogel: Earnings growth has long averaged 7%. S&P dividends after costs are 1.5%. So, if price earning ratios hold we can expect a return of 8.5% on the S&P Index over time. The 10 year Treasury bond yield is 4.15% at present. Using this example, we can expect a premium above 4 percentage points from stocks if the p/e holds. Now if we have to borrow to buy stocks, we must pay interest. Then a 4.15% borrowing cost still leaves a margin for stocks if they return 8.5%. Even if the p/e ratio declines and stocks were to return 5%, they would seem to be a useful long term investment. Please correct me or John Bogle if this example is wrong.

Subject: Investing Example From: Emma To: Emma Date Posted: Sat, Jan 22, 2005 at 10:34:14 (EST) Email Address: Not Provided Message: Earnings growth, in nominal terms, for the last 28 years has been about 7%. Dividends, after costs, have been about 3.4%. The price earning ratio for the S&P has risen from about 10 to 20. This would account for the 12.4% yearly return for the Vanguard S&P Index since inception in 1976.

Subject: Social Security Note: Paul Krugman From: Terri To: All Date Posted: Fri, Jan 21, 2005 at 19:08:26 (EST) Email Address: Not Provided Message: http://www.j-bradford-delong.net/movable_type/2005-3_archives/000203.html#comments Couldn't resist a comment here. First, a 5 percent return on stocks totally undermines the math of private accounts. The typical exercise assumes 3 percent real interest rate, 7 percent return on stocks, with half of the private accounts in stocks. Since the money for the accounts is also borrowed at 3 percent, that leaves 2 points for margin, part of which goes to fees. Reduce the return on stocks to 5 percent, and you have a 1 point margin - about the level of fees in Britain and Chile. So you're left with a plan that yields zero excess return but increases risk. Second, I can't believe that privatizers still think they can score points by comparing the implicit rate of return on SS - which is decreased by legacy costs and the costs of providing disability insurance - with the rate of return on unencumbered investments. Guys, the relevant comparison is the opportunity cost of the funds borrowed to create the private accounts; anyone who says different is either uninformed or deliberately dishonest.

Subject: Please Explain the Example From: Jennifer To: Terri Date Posted: Sat, Jan 22, 2005 at 06:29:20 (EST) Email Address: Not Provided Message: 'First, a 5 percent return on stocks totally undermines the math of private accounts. The typical exercise assumes 3 percent real interest rate, 7 percent return on stocks, with half of the private accounts in stocks. Since the money for the accounts is also borrowed at 3 percent, that leaves 2 points for margin, part of which goes to fees. Reduce the return on stocks to 5 percent, and you have a 1 point margin - about the level of fees in Britain and Chile. So you're left with a plan that yields zero excess return but increases risk.' Sorry, I do not understand the example. Please help me understand whether this is correct. Does a 5% return on stocks with a 3 point borrowing cost and a 1 point management fee lead to zero excess return over bonds? I find a 1% excess return of stocks over bonds.

Subject: Puzzling From: Terri To: Jennifer Date Posted: Sat, Jan 22, 2005 at 07:19:30 (EST) Email Address: Not Provided Message: When I look to the example I too am puzzled. Why is there not a 1 percentage point excess return of stocks over bonds after costs given a 5% stock return and a 3% interest rate? A 1 percentage point excess return will add up nicely over time if this example might hold. I expect the costs to be even higher because private account holders will seldom keep permanent index fund stock accounts. But, this example puzzles.

Subject: Puzzling From: David E.. To: Terri Date Posted: Sat, Jan 22, 2005 at 14:25:18 (EST) Email Address: Not Provided Message: Not quite sure what the confusion is about. Paraphrasing Paul Krugman - A portfolio of 1/2 stocks and 1/2 bonds with a stock return of 5% and a bond return of 3% will yield 4% return. (5 3)/2=4). 4% portfolio return less 3% borrowing cost = 1% net return. But now we have to cover expenses. Chile and England have expense ratios of 1%. So if we have a 1 % ratio, there is nothing for the investor. 1% might sound high to us, but it sounded reasonable to legislators in Chile and England, I don't know what Republicans who are funded by Wall Street will think is reasonable. I do know that the prescription drug bill ended up with subsidies to HMO's that can't match Social Securities low medical cost of treatment. And with a guarantee to the drug companies that Medicare wouldn't negotiate prices en masse. A portfolio of 1/2 stocks and 1/2 bonds with a stock return of 7% and a bond return of 3% will yield 5% return. (7 3)/2 =5). 5% portfolio return less 3% borrowing cost = 2% return. But now we have to cover expenses. 2% - 1% in expenses is 1%. $1 invested at 1% at the beginning will be worth $1.50 at the end of a 40 year career. $2 invested at 2% will be worth $2.20 at the end of a 40 year career. Money compounds very slowly at low interest rates. It is very hard to make money when you have to borrow to invest. The biggest part of the yield goes to the lender.

Subject: Re: Puzzling From: Jennifer To: David E.. Date Posted: Sat, Jan 22, 2005 at 16:20:40 (EST) Email Address: Not Provided Message: Nice response David. I did not pay attention to the return with 50% of the portfolio in stocks, assuming 100% instead.

Subject: From: David E.. To: Terri Date Posted: Sat, Jan 22, 2005 at 14:24:00 (EST) Email Address: Not Provided Message: Not quite sure what the confusion is about. Paraphrasing Paul Krugman - A portfolio of 1/2 stocks and 1/2 bonds with a stock return of 5% and a bond return of 3% will yield 4% return. (5 3)/2=4). 4% portfolio return less 3% borrowing cost = 1% net return. But now we have to cover expenses. Chile and England have expense ratios of 1%. So if we have a 1 % ratio, there is nothing for the investor. 1% might sound high to us, but it sounded reasonable to legislators in Chile and England, I don't know what Republicans who are funded by Wall Street will think is reasonable. I do know that the prescription drug bill ended up with subsidies to HMO's that can't match Social Securities low medical cost of treatment. And with a guarantee to the drug companies that Medicare wouldn't negotiate prices en masse. A portfolio of 1/2 stocks and 1/2 bonds with a stock return of 7% and a bond return of 3% will yield 5% return. (7 3)/2 =5). 5% portfolio return less 3% borrowing cost = 2% return. But now we have to cover expenses. 2% - 1% in expenses is 1%. $1 invested at 1% at the beginning will be worth $1.50 at the end of a 40 year career. $2 invested at 2% will be worth $2.20 at the end of a 40 year career. Money compounds very slowly at low interest rates. It is very hard to make money when you have to borrow to invest. The biggest part of the yield goes to the lender.

Subject: The Yuan-Dollar Peg From: Emma To: All Date Posted: Fri, Jan 21, 2005 at 19:01:55 (EST) Email Address: Not Provided Message: Conditions change, but friends in China tell me there have been a number of leadership interviews that make it clear the Yuan-dollar peg is not going to be soon changed. The articles may simply be meant to shut down what speculation there is, by I seriously doubt the Chinese leadership will soon accede to pressure.

Subject: Siberian Pipeline From: Emma To: All Date Posted: Fri, Jan 21, 2005 at 17:35:32 (EST) Email Address: Not Provided Message: http://www.nytimes.com/2005/01/21/business/worldbusiness/21pipeline.html?oref=login&adxnnl=1&adxnnlx=1106341202-M6ut1wQV6Hczb8WoV5Y7EA&pagewanted=all&position= Disputes at Every Turn of Siberia Pipeline By JAMES BROOKE PEREVOZNAYA, Russia - Stretching from Lake Baikal to the Sea of Japan, the first trans-Siberian oil pipeline is to run 2,565 miles - more than three times the length of the Trans-Alaska Pipeline. With a price tag of $15.5 billion, it looms as modern Russia's biggest infrastructure investment, President Vladimir V. Putin's answer to the Trans-Siberian Railway of the czars. Because China and Japan both rely on the Middle East for about 85 percent of their oil imports, both economic giants competed fiercely over what could be the world's longest and most expensive oil pipeline. Trumping China with a more generous financing offer, Japan, the world's second-largest oil importer, hopes that the four-foot diameter pipe will bind it to Russia, the world's second-largest oil exporter. It may be a decade before the pipeline is completed. But the line would increase by about a third Russia's capacity to export oil by pipeline and would be a major Russian shift toward the Pacific, where oil could be sold to any country, including the United States. But the project still faces major hurdles. There are no guarantees there will be enough oil to fill the pipe, although Russia has as much as 67 billion barrels of untapped oil reserves along the pipeline route. When the oil reaches the Sea of Japan, there are no public commitments binding Russia to sell it to Japan, whose ports are only a day's sail away. And Russia's last-minute switch of the Pacific terminal site from an existing oil port to this pristine bay is already putting Japanese banks in the middle of a growing global environmental protest movement. Contrary to the traditionally opaque nature of many major Russian investments, the pipeline is expected to come under rigorous international scrutiny. The Kremlin has vowed not to contribute government funds for the pipeline construction. Instead, Transneft, the government pipeline monopoly, has been told to go find its own financing, preferably on international markets. Foreign banks, especially the Japan Bank for International Cooperation, will increasingly face questions over the pipeline's future profitability and over Moscow's little-publicized decision in December to switch the pipeline terminus from Vostochny, Russia's main industrial port in the Pacific, to Perevoznaya, a tranquil bay. In the summer, the bay's sandy beaches and warm waters are frequented by ferry loads of beachgoers from Vladivostok, 10 miles to the east. In the winter, this frozen semiwilderness is home to some of the last 30 to 40 Amur leopards in the world. The Amur is one of 50 endangered species found only in this corner of Pacific Russia. To get to the terminal and planned oil refinery, dozens of tankers would steam daily past Russia's only maritime nature reserve, a collection of 11 islands prized for 3,000 species, a rare wealth of biodiversity that comes from a meeting of boreal and subtropical water currents. Navigating a five-mile-wide channel littered with more small islands, the tankers would then enter a maritime cul-de-sac with such shallow waters and fragile ecology that environmentalists have started calling Perevoznaya Bay 'Siberia's Prince William Sound,' evoking memories of the 1989 oil spill in Alaska by the oil tanker Exxon Valdez. 'We are already seeing the start of an environmental campaign on this issue, which is really going to grow in coming months,' said David Gordon, executive director of Pacific Watch, an environmental group based in California. 'The pipeline will be a test case of whether or not Russia can meet the top-level environmental standards that the public expects from oil and gas projects around the world.' This winter, American and European environmentalists are organizing a campaign to persuade Moscow to build the pipeline terminal in Vostochny, a modern industrial port and railhead built 30 years ago next to Nakhodka. Adding urgency, May 1 is the new deadline for Transneft to devise a pipeline construction timetable and for the ministries of transport and defense to establish oil tanker shipping routes to Perevoznaya Bay. Last fall, Russian environmentalists began collecting signatures on petitions and writing letters of protest to President Putin and to Transneft, which plans to get the oil here by building the pipeline through one nature preserve and along the southern border of a second preserve. 'If the pipeline is to be built in this area, a tremendous part of the tiny leopard and tiger habitat will be cut off,' Dimitri G. Pikunov, a Russian biologist, said one recent afternoon as he drove through Barsovy Wildlife Refuge, which would be bisected by the pipeline. Noting that the Siberian tiger has other strongholds in the maritime region, he added: 'If a port is built near this reserve, no animals will stay. And this area represents the leopard's last stand.' Anatoly Lebedev, a Vladivostok environmentalist leading the opposition campaign, said: 'It is obviously a crazy idea to kill all the recreational industry in the district, which offers generally cheap and accessible recreation on the sea coast for millions of Far Easterners and Siberians.' Anton Semenov, another environmentalist in Vladivostok, said he was worried that the bay's 'strong currents would carry oil from any spills far and wide.' The oil terminal project also presents a test between Japan's energy anxieties and its environmental concerns. Representatives of Japan's development bank have participated closely in negotiating possible financing for the project. Conceivably, this Japanese bank could finance up to 80 percent of the project, which would make it the largest loan in the bank's history. From an original price tag of $6 billion, costs have ballooned over the last two years, inflated by rising steel prices and the technical challenge of building across soils affected by differing conditions of permafrost. Although Japanese studies say there will be enough oil found near the pipeline route to fill the pipeline, skeptics say the line could be a 21st-century Trans-Siberian Railway - a wonderful exercise in nation building that has never made a profit. Initially, the pipeline was to be far shorter, going to Skovorodino, a Siberian town 37 miles north of the Chinese border, and then angling south into northern China. A later version, had the pipeline forking at Skovorodino, with one third of the oil going to China, and two thirds going to Vostochny, and the open market. But Japan overpowered China in the bidding, although, to appease China, Russia has promised to increase its annual oil shipments to China by rail to 300,000 barrels a day next year. China is the world's fastest-rising major oil consumer. By 2020, China's oil imports are to be double the 2004 level. By 2030, China may have more cars than the United States. But China would not match Japan's financing power, and Russia feared falling captive to one buyer. Moving aggressively, Japan offered $7 billion in soft loans for construction of the line and billions more to help Japanese oil companies find and develop oil in Eastern Siberia. Tokyo lobbied heavily to get the entire pipeline to the Sea of Japan - 1.6 million barrels a day. Although oil supply guarantees have not been worked out, Japan, with its seaports only 275 miles to the southeast of Vladivostok, is expected to be the primary buyer. But much of the oil is expected to go on the open market, available for shipment to South Korea, China or even the United States. 'The Nakhodka route is undoubtedly a win-win not just for Russia, Japan, South Korea, and China, but also the United States,' Helen Teplitskaia, president of the American-Russian Chamber of Commerce and Industry, wrote in an e-mail message. 'New sources of oil, and should the idea of a parallel pipeline materialize, gas as well, will diversify the energy supply and ease dependence on the volatile Mideastern sources.' With Transneft keeping quiet about its decision to make Perevoznaya the terminus, many outsiders still believe that the planned route follows the Trans-Siberian Railroad to Nakhodka-Vostochny. But Japanese and American environmentalists are preparing to campaign to pressure the Japan Bank for International Cooperation to condition its loans on a Nakhodka terminus. 'Although we understand the pipeline construction is of great importance to the energy security of Japan, Friends of the Earth Japan believes that J.B.I.C. is not right if they start spending public money without looking at the environmental concerns, such as the possible threat to the survival of Amur leopards,' Eiichiro Y. Noguchi, Russia program director for Friends of the Earth Japan, said in Tokyo. With a major environmental battle looming, the Japanese development bank is stepping cautiously. 'If J.B.I.C. considers the possibility of financing this project, we have to review, not only in terms of the financial aspect, but of the environmental point of view,' Yoshimi Tamura, spokeswoman for the Japanese development bank, said in Tokyo. [American and European participation in pipeline construction contracts may be welcome, Victor Khristenko, the industry and energy minister of Russia, hinted last Friday at a news conference in Moscow. Speaking as Japan's visiting foreign minister, Nobutaka Machimura, listened, the Russian said, 'Russia counts on getting loans that won't be linked to the purchase of Japanese equipment or technology.'] In interviews in 2004, Sergei Darkin, governor of the Pacific Maritime region, was a determined backer of building the oil pipeline terminal and refinery in Perevoznaya. Mr. Darkin's local opponents, including Mayor Viktor S. Gnezdilov of Nakhodka, have accused Mr. Darkin of having financial interests in the Perevoznaya area. The governor has denied the accusation. It is unclear why Mr. Darkin has been able to persuade the Moscow-based pipeline company to shift the terminal to an area that he prefers. President Putin, who now has power to virtually hire and fire regional governors at will, is known to have chilly relations with Mr. Darkin. If Russian and international outcry becomes too strong, he could veto the plan to bring oil tankers into Perevoznaya Bay, part of the larger Peter the Great Bay, amid fears of threats to three nature reserves, the region's main beach resorts, and new fish farms for scallops and sea cucumbers. Two years ago, local environmentalists succeeded in halting a plan to open a coal mine in the middle of the Barsovy Refuge, the core habitat of the endangered leopards. 'People are not trying to eliminate the pipeline - they realize it would be the lifeline of the economy,' said Dale G. Miquelle, an American biologist here for the Wildlife Conservation Society of New York. 'Nobody is saying, 'Don't do it.' They are just saying, 'Do it in the most sensible way.' '

Subject: Social Security Investing From: Jennifer To: All Date Posted: Fri, Jan 21, 2005 at 16:22:19 (EST) Email Address: Not Provided Message: There may be a fine argument for having Social Security invest a portion of payroll tax revenue in a total stock market index with non-voting shares. The cost of administering an index account would be minimal, though there might be a rise in long term interest rates as Social Security bought fewer Treasury bonds. Private accounts however would likely be accompanied by high costs for management and advice, market timing, less money invested in stocks than hoped for, and difficulty gauging a movement from stocks to bonds as retirement age was neared. Also, also, also, there are the transition costs to consider for private accounts.

Subject: National Index Returns From: Terri To: All Date Posted: Fri, Jan 21, 2005 at 15:45:01 (EST) Email Address: Not Provided Message: http://www.msci.com/equity/index2.html National Index Returns 12/31/04 - 1/20/05 Australia -3.0 Canada -4.9 Denmark -5.2 France -4.1 Germany -5.4 Hong Kong -5.3 Ireland -0.4 Japan -2.9 Norway -4.0 Sweden -4.9 Switzerland -4.1 UK -2.6

Subject: Sector Returns From: Terri To: Terri Date Posted: Fri, Jan 21, 2005 at 17:39:23 (EST) Email Address: Not Provided Message: http://www.msci.com/us/indexperf/index.html Sector Indexes 12/31/04 - 1/20/05 Energy -0.2 Materials -4.0 Health Care -2.2 Financials -3.3 Info Tech -6.5 Telecoms -5.1 Utilities -1.2

Subject: What Bush means by 'freedom' From: Jim Margolis To: All Date Posted: Fri, Jan 21, 2005 at 15:23:37 (EST) Email Address: jzmarg@aol.com Message: I am frustrated at the Dems. inability to compete with Repub. message. The following is from today's SF Chronicle. George Lakeoff deconstructs how they do it. Bush puts his own spin on 'freedom' Left's mainstay word recast in economic terms, analyst says - Joe Garofoli, Chronicle Staff Writer Friday, January 21, 2005 While progressives were turning their backs during George W. Bush's inaugural address Thursday, the president laid claim to one of their metaphorical mainstays: the meaning of 'freedom,' a word he mentioned 26 times in his 21-minute speech. In Bush's parlance, 'freedom' has been recast largely as 'economic freedom,' a political shift that could damage liberals already searching for a cohesive message, analysts said. 'What he's done is take over the old progressive language of 'freedom' and redefined it without explicitly saying it -- only with code words -- in terms of a conservative worldview,' said UC Berkeley linguistics Professor George Lakoff. 'Those people who've got that worldview will understand the code words.' In Lakoff's decoding of Thursday's address, 'freedom' meant 'unfettered economic markets.' Same goes for phrases such as 'ownership society' and 'the governing of the self.' They're conservative shorthand for believing that the government should not be regulating business.'Conservatives have been masterful at this, but they've been working on it for 35 years, while progressives have just been standing by,' Lakoff said. Outflanked liberals have tapped Lakoff for his skill at deconstructing how conservatives use language to dominate the political landscape. Democratic congressional leaders distributed copies of his most recent book, 'Don't Think of an Elephant,' to their membership. The conservative notion of 'freedom' isn't the one held by the progressives who are trying to pick Lakoff's brain. 'For progressives, yes, there is economic freedom,' he said. 'But freedom for them extends to other aspects of life.' When Bush is talking 'freedom,' Lakoff said, he isn't talking about 'freedom to marry.' Or 'freedom of a woman to control her own body and reproduction.' Or freedom to 'unfurl a banner protesting the president.' Bill Whalen, a research fellow at Stanford's Hoover Institution, agreed that Bush's speech had transferred the concept of freedom 'from the foreign policy world to the domestic policy world.' When Bush said, 'By making every citizen an agent of his or her own destiny, we will give our fellow Americans greater freedom from want and fear, ' Whalen said, he was espousing the conservative ideal of the self-made person who doesn't need a government handout. 'He's essentially using it to say the days of New Deal policies (of government assistance) are over,' said Whalen, who worked on George H.W. Bush's unsuccessful 1992 presidential campaign. Even when Bush used 'freedom' in political terms Thursday ('The best hope for peace in our world is the expansion of freedom in all the world'), Lakoff interpreted it as the desire for individuals to benefit from free markets -- not just personal liberties -- across the globe. 'Yes, (he means) freedom to pursue democracy,' Lakoff said. 'But what constitutes democracy? He's saying, 'This is freedom to pursue money.' ' Claiming the language of the other party isn't new, and it's often done by successful politicians of all stripes, Whalen said. Former President Bill Clinton used 'personal responsibility' to talk about welfare reform, a longtime Republican ideal, Whalen said. And, he said, John F. Kennedy's 1961 inaugural speech borrowed hawkish phrases such as 'pay any price, bear any burden' that would sound more familiar coming from a conservative. Bush used the word 'freedom' Thursday six more times than Martin Luther King did in his seminal 'I Have a Dream' speech in 1963. Recapturing the metaphorical war will be difficult for progressives in Bush's second term, Lakoff said. Their first battle is expected to be over the president's plans for partial privatization of Social Security, and winning won't be as simple as tweaking their sound bites. Democrats must come up with a set of values to explain why they feel that, say, Americans shouldn't be able to invest their Social Security funds in the stock market, Lakoff said. And the rhetorical battle will probably come back to the concept of 'freedom.' 'When Republicans talk about Social Security, they talk about freedom,' Lakoff said. ' 'You can invest your money better than the government can.' 'The Democrats respond by giving all the facts and figures,' he said. 'None of them say, 'This is an issue about whether we're going to have a guaranteed annuity for everyone in our family, the American family, or whether you're on your own, buddy.' 'Rather, they argue the details,' Lakoff said. 'As soon as progressives argue the details, conservatives come back and argue their own details, and nobody knows the difference. And as soon as you get into the technical details, the liberals lose. Because the other guys are arguing values.' E-mail Joe Garofoli at jgarofoli@sfchronicle.com. Page A - 15 URL: http://sfgate.com/cgi-bin/article.cgi?file=/c/a/2005/01/21/MNG1HAU69V1.DTL

Subject: Freedom From: Ari To: Jim Margolis Date Posted: Sat, Jan 22, 2005 at 19:24:02 (EST) Email Address: Not Provided Message: http://www.nytimes.com/2005/01/22/opinion/22patterson.1.html?ex=1107405852&ei=1&en=56e73a6fca43b15e The Speech Misheard Round the World By ORLANDO PATTERSON Cambridge, Mass. — SINCE 9/11, President Bush and his advisers have engaged in a series of arguments concerning the relation between freedom, tyranny and terrorism. The president's inaugural paean to freedom was the culmination of these arguments. The stratagem began immediately after 9/11 with the president's claims that the terrorist attacks were a deliberate assault on America's freedom. The next stage of the argument came after no weapons of mass destruction were found in Iraq, thus eliminating the reason for the war, and it took the form of a bogus syllogism: all terrorists are tyrants who hate freedom. Saddam Hussein is a tyrant who hates freedom. Therefore Saddam Hussein is a terrorist whose downfall was a victory in the war against terrorism. When this bogus syllogism began to lose public appeal, it was shored up with another flawed argument that was repeated during the campaign: tyranny breeds terrorism. Freedom is opposed to tyranny. Therefore the promotion of freedom is the best means of fighting terrorism. Promoting freedom, of course, is a noble and highly desirable pursuit. If America were to make the global diffusion of freedom a central pillar of its foreign policy, it would be cause for joy. The way the present administration has gone about this task, however, is likely to have the opposite effect. Moreover, what the president means by freedom may get lost in translation to the rest of the world. The administration's notion of freedom has been especially convenient, and its promotion of it especially cynical. In the first place, there is no evidence to support, and no good reason to believe, that Al Qaeda's attack on America was primarily motivated by a hatred of freedom. Osama bin Laden is clearly no lover of freedom, but this is an irrelevance. The attack on America was motivated by religious and cultural fanaticism. Second, while it may be implicitly true that all terrorists are tyrants, it does not follow that all tyrants are terrorists. The United States, of all nations, should know this. Over the past century it has supported a succession of tyrannical states with murderous records of oppression against their own people, none of which were terrorist states - Argentina and Brazil under military rule, Augusto Pinochet's Chile, South Africa under apartheid, to list but a few. Today, one of America's closest allies in the fight against tyranny is tyrannical Pakistan, and one of its biggest trading partners is the authoritarian Communist regime of China. Third, while the goal of promoting democracy is laudable, there is no evidence that free states are less likely to breed terrorists. Sadly, the very freedoms guaranteed under the rule of law are likely to shelter terrorists, especially within states making the transition from authoritarian to democratic rule. Transitional democratic states, like Russia today, are more violent than the authoritarian ones they replaced. And even advanced democratic regimes have been known to breed terrorists, the best example being the United States itself. For more than half a century a terrorist organization, the Ku Klux Klan, flourished in this country. According to the F.B.I., three of every four terrorist acts in the United States from 1980 to 2000 were committed by Americans. The president speaks eloquently and no doubt sincerely of freedom both abroad and at home. But it is plain for the world to see that there is a discrepancy between his words and his actions. He claims that freedom must be chosen and defended by citizens, yet his administration is in the process of imposing democracy at the point of a gun in Iraq. At home, he seeks to 'make our society more prosperous and just and equal,' yet during his first term there has been a great redistribution of income from working people to the wealthy as well as declining real income and job security for many Americans. Furthermore, he has presided over the erosion of civil liberties stemming from the Patriot Act. Is this pure hypocrisy - or is there another explanation for the discrepancy, and for Mr. Bush's perplexing sincerity? There is no gainsaying an element of hypocrisy here. But it is perhaps no greater than usual in speeches of this nature. The problem is that what the president means by freedom, and what the world hears when he says it, are not the same. In the 20th century two versions of freedom emerged in America. The modern liberal version emphasizes civil liberties, political participation and social justice. It is the version formally extolled by the federal government, debated by philosophers and taught in schools; it still informs the American judicial system. And it is the version most treasured by foreigners who struggle for freedom in their own countries. But most ordinary Americans view freedom in quite different terms. In their minds, freedom has been radically privatized. Its most striking feature is what is left out: politics, civic participation and the celebration of traditional rights, for instance. Freedom is largely a personal matter having to do with relations with others and success in the world. Freedom, in this conception, means doing what one wants and getting one's way. It is measured in terms of one's independence and autonomy, on the one hand, and one's influence and power, on the other. It is experienced most powerfully in mobility - both socioeconomic and geographic. In many ways this is the triumph of the classic 19th-century version of freedom, the version that philosophers and historians preached but society never quite achieved. This 19th-century freedom must now coexist with the more modern version of freedom. It does so by acknowledging the latter but not necessarily including it. It is not that Americans have rejected the formal model of freedom - ask any American if he believes in democracy and a free press and he will genuinely endorse both. Rather it is that such abstract notions of freedom are far removed from their notion of what freedom means and how it is experienced. The genius of President Bush is that he has acquired an exquisite grasp of this development in American political culture, and he can play both versions of freedom to his advantage. Because he so easily empathizes with the ordinary American's privatized view of freedom, the president was relatively immune from criticism that he disregarded more traditional measures of freedom like civil liberties. In the privatized conception of freedom that he and his followers share, the abuses of the Patriot Act play little or no part. (There are times, of course, when the president must voice support for the modern liberal version of freedom. The inaugural is such a day, 'prescribed by law and marked by ceremony,' as he ruefully noted.) Yet while these inconsistencies may not bother the president's followers or harm his standing in America, they matter to the rest of the world. Few foreigners are even aware of America's hybrid conception of freedom, much less accepting of it. In most of the rest of the world, the president's inaugural address was heard merely as hypocrisy. Orlando Patterson, a professor of sociology at Harvard, is the author of 'Freedom in the Making of Western Culture' and a forthcoming book on the meaning of freedom in the United States.

Subject: Re: What Bush means by 'freedom' From: Bill To: Jim Margolis Date Posted: Sat, Jan 22, 2005 at 16:45:39 (EST) Email Address: EgerJB@cs.com Message: Bush has spent more on social programs than LBJ. He introduced the largest entitlement increase (Perscription Drug benefit) in medicare ever. Why do you think conservatives are so upset with him? Don't worry.

Subject: Bonds and Stocks From: Terri To: All Date Posted: Fri, Jan 21, 2005 at 14:45:00 (EST) Email Address: Not Provided Message: Interestingly enough the 10 year Treasury note is at 4.15%. Long bonds just do not want to sell off. The run of bonds these 5 years is astonishing. The Vanguard Long Term Bond Index is up 10.5% yearly, while the S&P is down 2.4%. I can find no larger 5 year difference in favor of bonds.

Subject: Vanguard Returns From: Terri To: All Date Posted: Fri, Jan 21, 2005 at 13:04:14 (EST) Email Address: Not Provided Message: http://flagship3.vanguard.com/VGApp/hnw/FundsByName Vanguard Returns 12/31/04 to 1/20/04 S&P Index is -3.0 Large Cap Growth Index is -3.4 Large Cap Value Index is -2.5 Mid Cap Index is -3.6 Small Cap Index is -5.2 Small Cap Value Index is -5.1 Europe Index is -3.7 Pacific Index is -3.0 Energy is -1.1 Health Care is -2.7 REIT Index is -5.3 High Yield Corporate Bond Fund is -0.4 Long Term Corporate Bond Fund is 1.9

Subject: Buy Yield, Show No Fear From: Emma To: All Date Posted: Fri, Jan 21, 2005 at 11:57:46 (EST) Email Address: Not Provided Message: http://www.nytimes.com/2005/01/21/business/21norris.html Best of All Possible Worlds? Bond Buyers Crave Yield but Show No Fear By FLOYD NORRIS IN the world bond market, all is sweetness and light. Companies with bad credit do not have to pay very much to borrow, and they have no trouble meeting their obligations. So lenders also do well. Moody's Investors Service came out with its annual default study this week, finding that just 0.7 percent of companies with rated bonds defaulted last year. That was less than half the rate of 2003 and a fifth of the rate back in the recession year of 2001. The absence of default reflects the fact that corporate profits are generally in good shape. In 2004, for the first time since 1997, Moody's raised more corporate ratings than it lowered. Companies that need cash have little trouble finding lenders even if their credit is, as the people pitching mortgages on television say, less than perfect. Consider Warner Music, which Edgar Bronfman Jr. and some financial types bought in a leveraged buyout from Time Warner last March. They put up a little more than $1 billion in equity and borrowed the rest of the $2.6 billion price. Just before the end of the year, the company borrowed $700 million by issuing junk bonds, and used most of the money to repay investors. With that money and an earlier dividend, investors now have taken out nearly every dollar they invested. And they still own a highly leveraged company with talk of an initial offering this year. Warner Music has done a good job of cutting expenses, and it may be that Time Warner sold out too cheaply. But this would not be possible without a friendly bond market. The junior debt issued last month is rated Caa2 by Moody's, which is nearly as low as you can go. A few years ago, it would have been difficult to find buyers for such paper. But in 2004 almost 16 percent of new corporate bonds were rated Caa or lower, the highest proportion ever. 'They are really bad credits,' said Michael Lewitt, the president of Harsh Capital Management, a bond manager. 'But people feel they have to get yield somewhere.' Typically most bonds rated that low when they are issued default within a few years. Consider the class of 1998, the last year large quantities of such bonds were sold. More than 40 percent of the bonds defaulted within three years, and by now 74 percent of them have done so. Those buying low-rated bonds get relatively little extra yield now, because interest rate spreads over high-quality bonds are small. Spreads have been tight before, but not when the overall level of interest rates was as low as it is now. The result is cheap money, which has helped to finance both leveraged buyouts and payments to equity holders. In such cases, the buyers of the junior bonds assume the risks of stockholders, but get limited returns. In the Warner Music deal, the lowest-rated bonds pay no cash interest until they mature in 2014. Owners of the bonds will have nothing to fall back on if things do go wrong. 'Never before,' said James Grant, the editor of Grant's Interest Rate Observer, 'have junk-bond investors been paid so little for risking so much.' What could end this lovely state of affairs, in which lenders provide cheap money but suffer virtually no losses from bad credits? In 1998, the party was abruptly ended by the Asian financial crisis and the Russian default. No such crisis appears on the horizon now, but forecasting crises is not easy. And low-rated bonds make up 20 percent of outstanding speculative bonds, more than twice the 1998 level. 'This percentage of really risky debt is unprecedented,' said David T. Hamilton, the director of corporate bond default research for Moody's. He worries that defaults in coming years could alarm investors and hurt owners of better-quality junk bonds. But that has yet to occur. Investors crave yield and do not fear risk. Life is good for companies with bad credit.

Subject: Social Security is Secure From: Jennifer To: All Date Posted: Fri, Jan 21, 2005 at 10:43:56 (EST) Email Address: Not Provided Message: http://quote.bloomberg.com/apps/news?pid=10000039&sid=aJ9dbBFwsZ1k# Bush Makes False Claims About Social Security: John M. Berry Jan. 21 (Bloomberg) -- President George W. Bush's assertions that Social Security faces a crisis and is ``flat bust, bankrupt'' are patently false. Bush and other administration officials are greatly exaggerating potential problems facing the program to push through changes that would undermine the most successful social insurance program in the nation's history. The system is so far from crisis or bankruptcy that the truly prudent course at this point most certainly would be to make no changes in Social Security at all. Wait and see if even under conservative assumptions the date at which the system's trust fund would be exhausted keeps receding. In 1994, Social Security trustees put that date at 2030 using their intermediate projection, the middle one of three. By 2004, 10 years later, the date had been pushed out 12 years, to 2042. And even after that, 75 percent of promised benefits could still be paid. That's neither a looming crisis nor bankruptcy. Bush has no intention of being prudent. Instead, he obviously wants to undermine confidence in the program to create a political climate in which Congress will approve diverting a portion of the payroll tax that funds Social Security to individual accounts for workers with the money invested in equities and corporate and government bonds. By assuming unrealistically high returns on equities, the private accounts are being sold as a way to make up for the alleged inability of Social Security to pay promised benefits in the future. Wehner Memo Unfortunately for Bush, earlier this month a memo written by Peter Wehner, his director of strategic initiatives, appeared in the newsletter Congress Daily and has since been widely quoted. ``You may know that there is a small number of conservatives who prefer to push only for investment accounts and make no effort to adjust benefits -- therefore making no effort to address (the) fundamental problem'' in Social Security, Wehner said. ``In my judgment, that's a bad idea.'' In other words, private accounts would not fix the allegedly ``bankrupt'' system. Since no one working for Bush is about to suggest taxes be raised, the only alternative would be to reduce benefits. All the Washington chatter is about freezing the real value of benefits at their present average level of about $1,200 a month. Currently, benefits are indexed annually for both inflation and real wages. Ducking `Duty' ``If we duck our duty, it can have serious short-term consequences,'' Wehner said. ``If we borrow one to two trillion dollars to cover transition costs for personal savings accounts and make no change to wage indexing, we will have borrowed trillions and will still confront more than $10 trillion in unfunded liabilities. This could easily cause an economic chain- reaction: the markets go south, interest rates go up, and the economy stalls out.'' So far there is no word from the White House about whether Bush will follow Wehner's advice. That is, whether he will seek not just to borrow that ``one to two trillion dollars'' to finance creation of private accounts but also propose a major cut in long- term benefits through indexing benefits henceforth only for inflation. And a major cut it would be. Benefits Increase The first Social Security recipient got a monthly benefit of $22.54 in 1940. Indexed just for inflation, that benefit would have increased to about $304 for a worker retiring this year. Instead, as a result of specific legislated benefit increases prior to the late 1970s and of indexing for inflation and real wage increases since then, a single worker retiring this year will receive $955, according to projections by the Social Security Administration. Obviously, the real value of today's benefits is far higher than in 1940. On the other hand, those benefits replace roughly the same share of workers' earnings at retirement as they did many years ago. In other words, benefits have increased over the years reflecting the enormous gains in the nation's standard of living. In a speech on Dec. 18 before the Council on Foreign Relations in Washington, N. Gregory Mankiw, chairman of Bush's Council of Economic Advisers, addressed this point. Mankiw on Benefits ``A person with average wages retiring at age 65 this year gets an annual benefit of about $14,000, but a similar person retiring in 2050 is scheduled to get over $20,000 in today's dollars. In other words, even after adjusting for inflation, today's 20-year-old worker is promised benefits that are 40 percent higher than what his or her grandparent receives today,'' Mankiw said. Well, among other things, that would be a significantly smaller increase in real benefits than has occurred over the past 45 years. And if the real value of benefits were frozen over an extended period of time, public support for Social Security undoubtedly would be undermined. Some advocates of privatization of Social Security readily acknowledge that is their goal, and some of them have criticized Bush for not being bold enough in moving in that direction. Interestingly, Mankiw made no mention of private accounts in his speech. In closing, though, the CEA chairman derided everyone who questions the administration's claims about its finances. ``As the nation debates alternative proposals, you should be careful to avoid the sophistry of those opposed to reform,'' he cautioned. ``In particular, be wary of those who argue that there is no Social Security problem or that only small changes are needed to address it. The truth is that Social Security faces fundamental financing challenges.'' `Ostrich Caucus' ``Just ask the Social Security Trustees, the Congressional Budget Office, or any other group of nonpartisan analysts. Reasonable people can debate what kinds of reforms are best, but don't let the Ostrich Caucus convince you to put your head in the sand,'' he said. Well, the Ostrich Caucus includes some very knowledgeable economists such as Federal Reserve Governor Edward M. Gramlich, who headed a Social Security advisory commission a decade ago and believes that relatively small changes are needed. Or one could read last year's Social Security trustees report which, as usual, provided three alternative projections -- projections, mind you, not forecasts -- of the system's financial future. One of them showed it fully solvent for 75 years. And the report cautioned that ``significant uncertainty'' surrounds all of the projections, including the intermediate one on which the administration bases most of it allegations about long-run insolvency. `Grossest Malpractice' A moderately different set of assumptions used in the so- called low-cost projections show Social Security able to pay full benefits for the next 75 years. Compare the low-cost assumptions listed first below with the intermediate assumptions: -- Unemployment: 5.5 percent vs. 5.8 percent. -- Productivity Growth: 1.9 percent vs. 1.6 percent. -- Increase in Real Wages: 1.6 percent vs. 1.1 percent. -- Fertility Rate: 2.2 children per woman vs. 1.95. -- Rate of Decline in Mortality: 0.33 percent vs. 0.71 percent. -- Immigration: 1.3 million vs. 900,000. Why should someone be condemned to the Ostrich Caucus for believing that some of the low-cost assumptions are more likely to be closer to the mark than those of the intermediate set? What Bush, Mankiw and others are touting as certain disaster is not certain at all. Lest anyone question that view, Mankiw continued in his speech, ``Some will argue that these problems are far in the future and that there is no need to address them today. Imagine if a financial planner offered the same counsel to his 30-year-old client: `Don't worry, Joe, retirement is 35 years away, you don't need to save anything.' That planner would be guilty of the grossest malpractice.'' Actually, in making such an absurd comparison, Mankiw himself is guilty of the grossest malpractice. Of course, he has plenty of company in the White House.

Subject: Re: Social Security is Secure From: Bill To: Jennifer Date Posted: Sat, Jan 22, 2005 at 16:40:53 (EST) Email Address: EgerJB@cs.com Message: Social Insecurity? Thomas Sowell January 20, 2005 The latest liberal spin on Social Security is that there is no problem. Of course, there is no problem with any obligation if you are willing to welsh when it comes time to pay it. Politically, the bottom line of this approach is that President Bush's plan is 'not a magic bullet,' in the words of Businessweek magazine. When people start talking about how this or that policy 'is no panacea' or 'not a magic bullet,' then you know their argument is not serious. Why don't we all stipulate, once and for all, that no policy on any subject, anywhere or anytime, is a panacea or a magic bullet. Then we can start talking sense like adults. If we are serious, we can compare one alternative to another, instead of comparing one alternative to perfection. What is different with the private retirement accounts that the President is proposing, compared to the Social Security system as it exists now? The biggest difference seems to get the least attention: With private accounts, money is invested in the economy, creating additional wealth, from which pensions can be paid. With Social Security, the money is spent as soon as it gets to Washington. Is it better to invest for the future or to keep spending the Social Security taxes now and leave it to someone in the future to figure out what to do when today's young workers retire and there is not enough money to pay them what they were promised? Many people are unaware that the money that is taken out of their paychecks for Social Security is not -- repeat, not -- being put aside to pay for their retirement. That money is paying for people who are retired right now, and anything that is left over is being spent by politicians in Washington for anything from farm subsidies to Congressional junkets. There is a legal and accounting fiction called the 'Social Security Trust Fund.' All that this means is that the Social Security system gets government bonds in exchange for the Social Security tax money that is being spent today instead of being saved. But you cannot spend and save the same money, no matter what accounting gimmicks you use. Government bonds are not an investment that adds to the country's wealth. They are a claim on future