Business

Issue #39 for jrmhp

6/23/2008 - 7/22/2008

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God Wants Me to Be Rich (Portfolio.com: Careers) Submitted at 7/16/2008 3:00:00 AM

W ho will save us? Who will lift us up from crushing credit-card debt and resetting mortgage payments and impending foreclosure, from increasing gas prices and decreasing health-insurance coverage? We are a nation stumbling through our worst financial crisis in a generation and our worst housing market in a lifetime. And so we come, seeking gentle salvation, inspiring prayers, steadying words, soothing notions, and calming thoughts that will allow us to become, in Joel Osteen’s words, “victors, not victims.” We are in Greensboro, North Carolina, making our way into the downtown arena through the hot, buggy air, to worship with the pastor who will save us, the man anointed, by one of his congregants, as “Reverend Feelgood.” Sixteen thousand will file in this evening, as have millions more to coliseums, concert venues, and baseball stadiums around the country—all, in a way, his churches. ( View a slideshow that tallies the budgets of some of the biggest churches.) We are a diverse, representative swath of troubled America: families struggling under debt, husbands and wives seeking reconciliation, young couples on first dates, children dragged by pious grandparents who promise them popcorn and BibleMan action figures. It is religion as escapism, criticized throughout the Bible Belt as “Christianity lite” or “prosperity gospel.” But this murmuring crowd, slouching toward a kinder, gentler salvation, is a more telling indicator of the state of our union than consumer durables purchased or capital goods ordered. Unemployment they know; they don’t need to wait for the Bureau of Labor Statistics to publish a monthly number. O, but come to Joel, lift your hands to Jesus, banish your negative thoughts, and you can find in these dark times a beacon. If, in this country, there is great hurting, then Osteen is here to soothe that suffering. He does not wish that pain on any of us, and the sight or thought of it will bring forth from him great torrents of tears—his eyes clamped shut, his fingers pressed into narrow eye sockets, his lips pulled back over pink gums as he grimaces. The crying has become a visual touchstone of an Osteen sermon, the born-again equivalent of James Brown’s pre-encore collapse from “exhaustion.” Joel feels our pain and has made himself wealthy (reportedly earning $13 million for his last book advance alone) and his church prosperous ($75 million and counting in annual revenue) by urging us to let go of it, to turn it over to God, to accept God’s favor so that we may be as prosperous as Joel. There was always a strain of American Puritanism that pointed to Scripture as justification for asserting that wealth is somehow godly. But ever since evangelical Christianity separated from the mainline faiths in the early 20th -century, some preachers have gone further and linked their focus on personal piety to financial success. The big-tent revivals of the 1930s promised the dust-bowl destitute the possibility of finding Jesus and their next meal just by listening to a fire-and-brimstone message. By the late 1970s and early 1980s, televangelists like Jim Bakker and Jimmy Swaggart made prosperity gospel big business, capitalizing on that era’s economic uncertainties to win over a new generation of acolytes, before those ministries were brought down by scandal. Osteen is one of a new breed of televangelists—Joyce Meyer, T.D. Jakes, and Creflo Dollar are also rising stars—who are preaching a less sanctimonious, more inclusive message. His church is in that part of the economy that thrives in troubled times, that can count on full pews when wallets are empty and an ever more receptive audience if we do go into a full-on recession. Osteen hasn’t necessarily tailored his message for the downturn. Instead, he has continued his feel-good preaching, his exhortations to focus on the positive and banish negative thoughts, his reminders that God wants you to have a good job, a beautiful home, and decent cash flow. His vast ministry has become, in effect, shelter from the storm. “God wants you to have a big life,” Osteen reminds his flock. “That is his blessing. God has a big dream for your life.” We live in a time of miraculous congregations. Osteen’s Lakewood Church, in Houston, is the largest in the United States, with 45,000 regular weekly attendees and 7 million more tuning in. His television show is the most-watched inspirational program in America and is seen in 100 countries around the world. He has sold 7 million copies of his two books, Your Best Life Now and Become a Better You. Podcasts of his sermons are downloaded 4.5 million times a month. He preaches to more than 15,000 people at a time in the basketball arena turned sanctuary that is Lakewood Church. His pulpit stands near the spot where Hakeem Olajuwon helped the Houston Rockets win two consecutive N.B.A. titles. But the Rockets, who have since moved across town, never put as many people in the seats as Osteen does. Osteen will tell you that his success is a result of God’s favor, that his message is God’s message, and that all that he has achieved is a blessing from God. Clearly, he is more than just an inspiring pastor; he is also a master marketer and—pardon me for saying this, Joel—a damn good chief executive. He presides over an empire that takes in tens of millions of dollars a year and has been growing at a boom-time pace. (Though Osteen gives a significant portion of his book and CD earnings to the church, his take is still ample enough to allow him and his family to live in 5,000 square feet of leopard-skinned luxury in one of Houston’s tonier neighborhoods.) Rough economic times, Osteen believes, make the business of saving souls that much richer. “I would think that our message would have increased relevancy in a time of economic uncertainty. I think people want to know that God is taking care of you. As it gets darker, I think the brighter message shines.” Joel’s father, john osteen, was a pastor who dissociated himself from the Southern Baptist Church to start his own congregation, Lakewood, in an abandoned feedstore in 1959. It was John who started the family march toward a more gentle Jesus, focusing on the goodness and love of God and downplaying the Old Testament anger and wrath. One of John’s prevailing themes, and the underpinning for much of Lakewood’s current message, can be found in one of his sermons: “It’s God’s will for you to live in prosperity instead of poverty. It’s God’s will for you to pay your bills and not be in debt. It’s God’s will for you to live in health and not in sickness all the days of your life.” Joel is the second youngest of six siblings, and the one considered least likely to take the pulpit. To say that he was a quiet child would be an understatement. The diminutive boy—he would grow six inches after he graduated from high school—was easy to underestimate. As his lifelong friend Johnny McGowan says, “On the basketball court, guys would take a look at Joel and say, ‘I’ll guard him,’ and then Joel would go right by them.” After a year at Oral Roberts University, Osteen dropped out to return to Houston, in part to care for his mother, Dodie, who was then recovering from cancer (a miracle regularly cited at Lakewood Church). He then married his wife, Victoria, and took a formal position at Lakewood, helping out with the television show and the design of the platform, as the stage around the pulpit is known, and eventually becoming the producer of Lakewood’s Sunday service. “Victoria would kid me because I would spend four hours adjusting a light,” Osteen says. “I learned you can’t separate the message from the presentation of that message.” It was perfect training for a 21st--century televangelist. Osteen developed a keen understanding of the television market—time slots, lead-ins, cost per rating point—and to this day can tell you the top stations in most of his major markets. So passionate was he about the medium that he invested $2

million of Lakewood’s money for a stake in a television station, KTBU, in 1998, and an additional $6 million for the remainder in 2005. The independently operated station would turn out to be a wise purchase, returning $32 million when Lakewood sold it in 2006. Even as he was making his father’s church more successful than ever throughout the mid-1990s, Osteen quietly grew frustrated with his father’s reluctance to expand as aggressively as Joel would have liked. “My dad didn’t have it in him. He just wouldn’t feel comfortable with that.” (In fact, Lakewood’s rapid expansion has put it $45 million in debt, thanks to a $75 million bank loan that is still far from being paid off.) Nevertheless, though three of his siblings were actively involved in the ministry, Osteen never considered taking the pulpit. “He was so uncomfortable onstage,” recalls Phil Cooke, a producer and consultant at Lakewood. “He was very uncomfortable in public. He always loved being behind the scenes.” One Sunday, Osteen agreed to deliver the sermon. He doesn’t know why and to this day asserts it was a kind of divine intervention, “a strong feeling of God” that compelled him to say yes to his father after saying no so many times. The story is often told of how Osteen gave his first sermon on January 17, 1999, as his father, who was suffering from kidney failure, lay in a hospital bed listening to it over the telephone. John Osteen passed away less than a week later. Joel Osteen’s ascension to the pulpit was fraught with uncertainty. He was so nervous about taking over the ministry that he canceled the time slots he had purchased for his father, assuming that no one would want to watch the telecast anymore. Victoria vetoed that. “You call them back right now,” she told him. He did and stayed on the air. At first, Osteen explains, he just wanted to maintain Lakewood’s 5,000-person congregation. It soon became clear, however, that not only was the congregation not shrinking, but the television audience was actually growing. Osteen was proving himself a natural, more personable than his father, easy on the eyes, with a kinder, softer voice. While Osteen’s message wins over the moderate masses, he has become anathema to more-traditional Southern Baptists. His appearance on Larry King Live in 2005, during which he waffled as to whether heaven was barred to Jews, Muslims, and atheists, was posted on YouTube as proof that Osteen doesn’t embrace the Gospel. And while Osteen is steadfastly Christian, he defers to God on the more contentious issues, recusing himself from condemning gays, for instance, or women who have had abortions. Spending time with Osteen and his team, one can sense their discomfort when issues that could anger more--doctrinaire Christians are raised. Don Iloff, his brother-in-law and chief of communications, almost winces when I ask Osteen his views on intelligent design versus evolution. “I believe that God created it all,” Osteen says as he stakes out his usual middle ground. “I don’t know if it’s six literal days or 6 million years.” Osteen’s message of prosperity doesn’t always go over well either. Fellow megapastor Rick Warren has called the idea that God wants everybody to be rich “baloney.” And some conservative Christian ministers have been quick to dismiss Osteen as a lightweight or, worse, a heretic. Osteen adamantly believes that “God wants to give you your own house,” explaining, “He’s not having financial difficulties. He owns it all.” Much of the criticism of Lakewood, no doubt, stems from resentment at Osteen’s ministering to the largest and most financially successful church in America. He certainly makes an easy target, with the talk-show-host grin, the gelled hair, the bleached teeth, and the jocular manner. But there is no denying that his message, and his marketing of that message, is getting out to the world while so many other pastors are preaching to empty pews. Osteen dismisses the notion that he has watered down the Scriptures to win over worshippers. “It’s who we are,” he says. “The accessibility of my message doesn’t bother me a bit. Look, we deal with people who are fighting cancer, fighting to save their marriages, dealing with the death of loved ones. I don’t think they need to be beaten down. And I think the success of the message in the marketplace is because we are optimistic, encouraging.” Phil Cooke, a longtime colleague and the author of Branding Faith, says, “Oprah has a brand, Nike has a brand, and Joel Osteen has a brand. Joel has made his brand the inspiration brand.” In person, the 45-year-old Osteen is certainly both optimistic and encouraging. As he sits in the family suite after Sunday services, taking a break before heading up to the editing bay, he has the calm, gentle gravity of a man who never raises his voice and never has to. Everyone leans in to hear Osteen. With his too-small eyes, a sharp nose, and thin lips with parenthetical dimples on each side, his long, drawn face is like a happy, joyous, and free version of Munch’s Scream. In his preacher’s slacks, yellow tie, and blue striped shirt, he has a disconcerting habit of seeming to run out of words before finishing his sentences; the effect is that you’re always left hanging, waiting for another word that might or might not come. “Have you read Good to Great?” Victoria asks me at one point, referring to the phenomenally selling business book. “Joel is a level-5 leader. He knows there is more than one way to get to a point, and he lets his people get to the point their way. He’s a true level-5—great delegator, great empowerer, great big-picture thinker.” Osteen’s boldest brainstorm was leasing the Compaq Center from the city of Houston in 2002 and investing $98 million to renovate it. For Osteen, who had always put a premium on the look and feel of the church, renovating and refitting a basketball arena as a sanctuary was both a great opportunity and a daunting challenge. The scale of the renovation—a five-floor office annex, two 30-foot waterfalls, and a children’s facility capable of hosting 5,000 kids while their parents are in the main sanctuary—was a logistical challenge better suited to Halliburton than a house of God. Osteen’s brother-in-law Kevin Comes, the chief operating officer and a former construction executive, was the point man on the project, but like almost all of Lakewood’s top executives, he deferred to Osteen: “Joel made the decision to do it right the first time. We gutted the place and started over.” Osteen was consulted on almost every major decision, responding with his usual quiet nod when he was presented with, for example, the new lighting scheme or platform design. The resulting church is a modern technological marvel and perhaps the most family-friendly worship venue in the world. Kidslife, the $25 million children’s facility, was designed by a group of former Disney staffers and provides care and religious services for the children of parents attending Lakewood. It has the look and feel of a giant version of a McDonald’s play area, only with neon lettering that refers to a verse in Philippians on the walls. Such a sterling facility is the logical extension of the Osteen brand. Last year, Lakewood generated $76 million in revenue, which amounts to just over $1,600 for every member of its congregation. Its take includes $44 million donated directly by congregants, who are asked to give 10 percent of their gross income; $10 million in product sales and sermon tapes; and $13 million brought in through direct-mail solicitations, up from about $6 million two years ago. The church’s greatest expense is the TV airtime it buys: $22 million last year to broadcast the show in more than 100 markets, a 10 percent annual increase in spending that is easy to justify. “Cutting back on airtime would be like saying we won’t be sending any trucks to deliver our product,” Comes says. An additional $13 million goes to administrative costs and salaries, and $9 million a year is spent on facilities and maintenance. Osteen hasn’t drawn a salary from the church since 2005. He bought his own home, for $331,500 in 1994, and pays to have his kids homeschooled.

The considerable income from his books and related products (there were 19 spinoff calendars, daybooks, and inspirational pamphlets from his first book) goes to Osteen, who gives much of that—-people inside Lakewood say more than 50 percent of his income—to Lakewood ministries and other charities. That still leaves Osteen with plenty of “God’s favor.” The operation—the TV time, the basketball arena, the worship events staged across the country—should all simply be considered as, Comes points out, the delivery system for getting the product, Joel’s message, out to the marketplace. The goal of Lakewood’s 350 employees is to facilitate and spread that message. The return is measured in souls saved and lives changed. “We’re always looking for ways to get our message out there more efficiently; in that way, we’re no different from any other big brand, a Coke or a Starbucks,” Iloff says. But it takes revenue to win souls, and within the organization are constant discussions about how to most efficiently package the message. Osteen’s podcasts, which are free, consistently rank in the top 10 on iTunes, and Comes wonders aloud about how to monetize that. The team is not shy about dreaming big—and commercially. “We sit and try to imagine what our program would look like with a Coca-Cola logo on the front. We’re just looking into it,” Comes says. Still, when it comes down to “message versus revenue,” Comes says, “message always wins.” At Lakewood, message and revenue tend to work in blessed harmony. Duncan Dodds, Lakewood’s executive director, took the podium recently in Greensboro to make a few announcements before Osteen, the choir, the entertainers, and the rest of the Lakewood team began their Night of Hope. “We have great worship at Lakewood,” Dodds told the crowd of 16,000 still settling into their seats, “and that worship is for sale on CDs out on the concourse level.” One hears certain words repeated constantly by the Lakewood team. Meals, services, meetings, and even smoothly flowing traffic over on I-45 are described as awesome. The goal of every operation, sermon, television production, and even expenditure is excellence. And the ultimate purpose of all staffers is to spread the message. That message, functionally, serves as Lakewood’s core product. Sure, it is repackaged into books, CDs, DVDs, Bible covers, scented candles, cross necklaces, JESUS FREAK T-shirts, and coffee mugs, but those are all just ways to deliver the message. The Osteens, like so many American families during the recent real estate boom, spent the better part of the past decade buying, renovating, and selling homes, and became so proficient in the process that Osteen and his wife were able to skip hiring a contractor for their last renovation and go directly to the subcontractors to complete their mansion. Coming off the boom, during which the average American dwelling doubled in size, the Osteens’ digs are more modest than one might guess. The house is decorated in a rococo style that Victoria has called “French” and Osteen calls “fancy.” Their son, Jonathan, 13, and daughter, Alexandra, 9, are homeschooled, in part because their parents’ schedule requires that their weekend be shifted to Monday and Tuesday. During breaks in their lessons, they can play in the elaborate treehouse or the fenced-in rabbit pen behind the house. As the actual weekend nears, Osteen rises at 5:30 a.m. to work on his sermons, which he delivers twice weekly. Osteen labors over them, speaking the words aloud as he types them into his computer. He considers the writing, shaping, and memorizing of his sermons to be the single most important part of his job. The message supports the whole enterprise, and he frequently turns to God to guide him when the burden of Lakewood, his success, or the scale of the church and business threatens to overwhelm him. “It’s just in me, God’s favor, faith, and hope.” He believes, resolutely, in the value of the product he is crafting in his office on those quiet mornings. “Very rarely will you find a company that produces a widget where everyone is mentally and spiritually into producing a better widget,” Osteen says. “There’s a purpose behind what we’re doing. We believe in our widget. We’re doing more than giving people a good time or a better toothbrush, because it’s hard to put in your heart and soul and sacrifice so much to make a better toothbrush.” Being backstage at a Joel Osteen worship event is remarkably similar to being at an N.B.A. game or a rock concert. Beefy security guards tell you where you can and can’t go. Crew members chow down on a buffet laid out by a local caterer and bark into walkie-talkies between bites. At some point, black Town Cars head down the long, curving driveway into the belly of the arena and drop off the pastors and performers, who retreat into private suites. The night is a celebration of music, state-of-the-art visual effects, and, of course, Christ. Lakewood spends a great deal of money attracting top gospel and Christian talent, and music minister Cindy Cruse-Ratcliff leads a team of Grammy Award winners, including gospel singer Israel Houghton. It’s a thumping occasion, with people dancing in the aisles and even the security guards singing along to “Come Just as You Are” and “We Have Overcome.” Osteen’s entire family is in the act. His mother, wife, and children often play parts in the service. But it’s Osteen himself we have come to see. He wins the crowd over with wholesome jokes and inspires with his sweet-voiced message. The sermon today is based on the notion of “hitting the DELETE button when you have those negative thoughts.” He urges us to banish that voice telling us, “I’ll never get that great job. I’ll never meet that special someone. I’ll never get married.” Hit the delete button, he urges, and reprogram your mind. “Just one inferior thought can keep you off balance and away from your God-given destiny.” The crowd is eager, multiracial, and well-intentioned. We want to hear good words, have uplifting thoughts, be inspired by a positive message. Who doesn’t? We are here to escape our worries, or even better, to overcome them with hope. These are uncertain times, and we all feel the pangs of doubt. Can we pay our mortgage? Will we keep our job? When will we finally achieve the plus-size life we have been visualizing? Listening to Osteen, it all sounds so easy. Delete those negative thoughts. Focus on the positive. We are victors, not victims. The highlight of every service is when Osteen asks those who are willing to turn their lives over to Jesus to stand up in the vast arena and make their commitment right then and there. It is an inspiring moment, filled with raised Bibles and palms outstretched to heaven; Osteen and some of the congregation are in tears. If we have been suffering, if we have been in pain, if we have dealt with financial insecurity, then this standing up, this raising of hands to heaven, this simple vow of faith, Osteen assures us, will start us on the road to wellness and prosperity. For a moment, as the choir sings, “When the battle is over / and the fighting is done / we’ll lay down our armor / the victories all won,” and the orange, red, and purple stage lights are flashing, and a halolike luminescence surrounds Osteen as he promises to free us from our fears, to lift us above our doubts, to lead us to prosperity and joy, I think about my own worries, my debts, my career, my woes. How tempting it would be to just stand and turn my will and life over to Jesus if, in exchange, I will be led down a righteous path of prosperity, taken in hand by Jesus, and Joel, and delivered to my gilded acre of the American dream. Yes, yes, why shouldn’t I stand? Because who am I not to want to be saved? Who doesn’t need a little bit of Joel in their life, tonight, every night, forever, leading us from this dark place to our promised land? Together, hands joined, shoulder to shoulder, we will march forward into our glorious future. Delete the negative thoughts, Joel preaches. Yes, yes, delete them. Related Links The Big Easy Sell When Will Penmanship Become an Anachronism? Huge TV Audience Expected in China For Yao-Yi Showdown

2

Enemy of the State (Portfolio.com: Executives) Submitted at 7/16/2008 3:00:00 AM

J ust before midnight, at the plush Moscow Hyatt, several blocks from Red Square, a loud knocking jolted the American lawyer awake. Robert Amsterdam heard gruff voices, hard fists striking his door as if attempting to break it down, and then a man shouting in English. “Moscow police. Open up!” He stood, barefoot, dizzy from the vodka he’d consumed with dinner. His first thought was, They’ve come for me. And then he thought, I’m going to fucking die. If he disappeared that night, he wanted people to know. So he started making phone calls—a Moscow attorney friend, another colleague from his office. And then, about four minutes after the knocking began, he stepped into a hotel-issue white robe, opened the door, and went outside. There were six men in the hallway—muscular, clean-shaven, and wearing poorly fitted suits—a gang of extras from The Godfather. Bulges at their waists made Amsterdam think that the men were packing guns. Badges were flashed. But Amsterdam was convinced that the badges were fake and that the men were actually enforcers sent by the Kremlin. “You will come with us, Mr. Amsterdam,” the oldest member of the group declared. “It is time to go.” It was September 22, 2005. Earlier that day, Amsterdam’s legal team had entered a final appeal for his client Mikhail Khodorkovsky, the Russian billionaire who had chosen Amsterdam to defend him in one of the world’s most complex (and dangerous) corruption cases. Before his life was upended, Khodorkovsky ran Yukos, Russia’s largest and highest-profile private oil company. President Vladimir Putin had sent clear warnings to the so-called oligarchs—Russia’s ultrawealthy business tycoons—to avoid politics, but Khodorkovsky had defied him and paid for it. Even before he was formally charged, Yukos’ offices were raided, and shareholders were detained by police. After an 11-month trial, at which he was showcased in a metal cage, he was convicted of looting public assets and evading hundreds of millions of dollars in taxes. When Amsterdam stood in the courtroom on that autumn day, his stated goal was to have the verdict reversed and expose the Kremlin as a kind of selectively vengeful god. The appeal was rejected, though Khodorkovsky’s sentence was reduced by one year. The men now standing outside Amsterdam’s hotel room seemed intent on stomping out any lingering questions. “We’ve come to take you,” the thug continued. Amsterdam then did something that probably saved him: He lied. He claimed a contingent of journalists were coming to meet him in the lobby downstairs; he said the State Department was on its way. The men whispered. One made a phone call. More threats came, but Amsterdam didn’t move. Soon the Russian lawyer friend he’d called arrived and started snapping pictures. The men’s strategy changed. They would not take him away, they said. Instead the men confiscated Amsterdam’s passport and revoked his visa, issuing him a “departure pass.” “Tomorrow you will be on a plane by 5 p.m.,” the leader declared. “If you’re not on a plane by 5 p.m., we will arrest you.” The message was not obscure: Forget Russia. Forget Mikhail Khodorkovsky. Your work here, Mr. Amsterdam, is done. Being around Robert Amsterdam is like living in a spy movie: You sense that you are being watched but can’t exactly prove it. When I first contact him about the case, he responds that it’s better not to talk details on the phone. At his home and office in London, he assumes that his phones are monitored, his emails are read, and that the Federal Security Service agency, or F.S.B.—the intelligence outfit that replaced the K.G.B.—keeps tabs on him. Most people I talk to view the claims as credible, though in time I get the sense that Amsterdam enjoys the looming risk. “Sometimes I check myself and say, ‘Well, fuck, you know they have better things to do than deal with me.’ But then I look at who the hell is out there talking about what the Kremlin is doing, and no one is really pushing it,” he tells me one morning over espresso at a café in London. “There isn’t much doubt that they’re watching me closely. I know this. It’s the nature of these people.” Since he moved to Britain, Amsterdam has become the leader of a fullthroated campaign to free Khodorkovsky, Russia’s most famous and richest prisoner. At home, Khodorkovsky is perceived as a ghost of mobsters past as well as a sort of martyr for a better, more Westernized future. Few doubt that he did some shady, unethical things in the 1990s, a period of bareknuckled business replete with insider deals and bribery. But he also helped advance the oil industry. In the end, his mistake seemed to be not only that he made truckloads of money in a time and place in which most didn’t, but that he didn’t know when to keep his head down and stay quiet. After shipping the oligarch off to a Siberian work camp, the Kremlin spent the past couple of years devouring his company. Yukos, once Russia’s leading oil concern, declared bankruptcy, then was sold off to state-owned companies in rigged auctions. Yet the Kremlin was still not sated. In February, months before he would have qualified for parole, Khodorkovsky and his partner, Platon Lebedev, were hit with a new charge: embezzling $20 billion in company money. Although the Kremlin likely perceives this event as the last chapter in the story of the oligarch and the oil company, Amsterdam disagrees. In Russia, the case addresses issues of private wealth, the relationship of business and politics and, most significantly, the notion of energy nationalism. What happened to Yukos is seen as an object lesson in how Putin’s overreaching government is reclaiming privately held natural resources in a steroidal effort to increase the state’s economic power both at home and abroad. As Amsterdam and others see it, the Kremlin has gone corporate. Amsterdam directs the case with an array of Russian lawyers, some of whom were associated with Yukos; one is a fugitive from Russian justice. There are clandestine meetings, ghost offices, and secret messages. As an American citizen and Canadian attorney, Amsterdam is forbidden from litigating the new trial, expected to begin in Russia this fall, but nevertheless he is considered one of the battle’s central strategists. He rallied a veteran group of Russian lawyers, shaped the line of attack, and became the fight’s public face. Amsterdam regards the case as the most important in his career; Khodor-kovsky consumes him. In part, Amsterdam has become a Soviet-style propagandist. He speaks about the case at international conferences, runs a popular blog, and writes op-eds for international newspapers. One afternoon when I’m with him, a man calls from Mali with an idea for Khodorkovsky’s defense. Amsterdam shifts from English to French and says thanks but no thanks. “I get that all the time,” he says. “It’s strange, I know.” Amsterdam is a squarely built 52-year-old with dark curly hair. The first day we meet, he’s wearing a blue pinstriped suit with a slightly open white shirt, silver cuff links, and a bright red tie hanging loose around his neck, which seems to be his fashion—dapper but slightly disheveled, like he’s just sprinted the length of a football field. As he goes through the case and the team’s strategies, he speaks 100 miles a minute, frequently employing the word fucking to convey how deeply disturbing the situation is. In conversation, he is didactic, prefacing many statements with “Look...” and often citing one of the half-dozen or more political science and history books he’s currently reading. He is evidently not a self-doubter, which helps in dealing with a country that recently passed legislation sanctioning the assassination of state enemies. Amsterdam seems to behave as if he has a death wish. “Sometimes I wake up and have to check myself,” he says. “Is this a bad dream?” He was born in White Plains, New York, to Jewish immigrants; his father died when he was six months old. His mother later married a man who sold women’s hats, and the family lived in the Bronx. Amsterdam grew up with an instinctive sense of outrage and a preternatural political awareness. During the Vietnam War, he took long weekend drives with his stepfather, and they talked about how many soldiers were really dying in the war, compared with what the government reported. When his stepfather got a new job, in Ottawa, the family moved there—

“one cold hell for a New York Jew,” as Amsterdam describes it. He worked at his school newspaper, where he wrote a story in favor of activist Abbie Hoffman; the piece got him suspended. He dropped out but ended up at Carleton University, in Ottawa, where he studied Marx. He then went to Queen’s University Law School. When Amsterdam wasn’t studying, he traveled. He was drawn to places in transition: He went to Eastern Europe, the Caribbean, and the Soviet Union. In 1975, after being caught in a coup in Ghana, he fled to Lagos, Nigeria, where he stumbled upon a pile of dead bodies on a beach. Before his law school graduation, classmates presented him with a joke postcard: “Wish you were here.” In 1980, he and a friend, Dean Peroff, set up a legal practice specializing in business disputes in emerging markets. It was risky work, populated by dubious characters. In Nigeria, where Amsterdam represented a Canadian telecom company, 30 government-backed men with AK-47 assault rifles tried to break up a shareholders meeting at which Amsterdam was making a presentation. “I’ve lost track of the number of times my life has been threatened,” he says. Amsterdam uses the media as much as the courtroom to expose his opponents, stirring up public outrage over the most salacious—and sometimes dangerous—facts of the case, which in turn pressures his targets to rethink or settle. The work requires him to spend weeks abroad. Amsterdam first heard from Khodor-kovsky in 2003, not long after the Kremlin began its march on him. The two met at the Washington office of a mutual friend. “He wasn’t what I expected,” Amsterdam says. “He spoke in a whisper and looked more like a nuclear scientist than a business guru.” Khodorkovsky explained that he needed a lawyer. He knew Amsterdam’s history of trying politically tinged cases and asked him what he thought. Amsterdam pitched hard; he felt as if he’d been preparing for this his entire life. “This is going to get extra ugly,” he told Khodorkovsky, looking him right in the eye. “But I have an advantage over other lawyers. I’ll take your fate personally and be there no matter how bad it gets. The people who you think are your best friends now will quit on you. I won’t quit.” Days later, Amsterdam was in Moscow. Khodorkovsky was born in 1963. His parents were factory workers, and the family lived in a two-room apartment in Moscow. After high school, he attended the Mendeleev Institute of Chemical Technology, where he rose to a senior post in the Communist Youth League and began to see party connections as useful. In the late 1980s, just as perestroika’s market reforms took off, he established a collective that sold desktop computers and currency. He then opened Bank Menatep, one of the country’s first private banks. Before he turned 30, he was a millionaire. The fast and loose financial climate gnawed at his mother. “I said to Misha, ‘All businessmen in Russia will end up in prison or dead. I’ve seen it happen before. This is in our history,’” Marina Khodorkovsky tells me one afternoon at her modest yellow house outside Moscow. “But Misha said, ‘No. It will be different this time. We will be like the West.’” She pauses. “I never wanted him to be a businessman.” During the 1990s, Russia was a mess. The economy was tanking, there was a costly war in Chechnya, and gangsters had infiltrated many of the nation’s businesses. Russian President Boris Yeltsin, in an effort to save his skin, called in a dozen or so up-and-coming capitalists, including Khodorkovsky. In a transaction known as loans for shares, the tiny group of influential men essentially bankrolled the president’s reelection battle in return for their pick of Russia’s oil fields, telecommunications firms, banks, and gold mines. Khodorkovsky wanted oil—particularly Yukos. At the time, the company wasn’t in great shape, nor was the country’s oil industry, which had become a rusting hulk saddled with corruption and inefficiency. Equipment was outdated, managers siphoned off profits or paid protection money to Mob bosses, and employees spent more time swilling vodka than working. The 1995 Yukos auction was a classic example of Yeltsin-style privatization. Western companies were forbidden to participate, and a Russian company—a rival of Khodorkovsky’s—was mysteriously disqualified despite offering more money. In the final agreement, Khodorkovsky, whose own Bank Menatep arranged the auction, won a 78 percent stake in Yukos for $350 million. Included in the deal was the company’s $3 billion of debt. Two years later—after the company wrested control from Soviet-era oil bosses, centralized power, and mandated that anyone caught drinking on the clock be fired—Yukos shares began trading on the Moscow stock market, and the company had a market capitalization of $9 billion. -Yukos was seen as a rising force. The money brought Khodorkovsky and his fellow titans exceptional power, with huge influence in the Kremlin, especially after Yeltsin’s manufactured electoral victory. Like other industry kings, Khodorkovsky traveled with bodyguards in armed luxury cars. He married, had four kids—his oldest recently graduated from college and works in advertising in New York—and helped build a gated community in the Moscow suburbs for himself and his partners. Khodorkovsky could occasionally come off as ruthless. He funneled profits and shifted ownership rights to offshore accounts, moved forcefully against corporate raiders, and exploited minority investors. His climb continued through the 1997 financial collapse and the oil-price surge that followed. All was good until Vladimir Putin, the former K.G.B. agent, came to power on New Year’s Eve 1999. The story of KhodoRkovsky’s fall begins in July 2000, seven months after Putin succeeded Yeltsin. That month, the new president summoned the oligarchs to the Kremlin, where, in a quiet room, Putin declared an end to gangster capitalism. The 1990s were history, he announced. It was time for reform. He issued a warning: Keep clear of politics, and you won’t be questioned about the murky methods by which you became so rich. But cross me and you will be buried. Out of this, three types of oligarch emerged: those who remained neutral in relation to Putin—for instance Vagit Alekperov, who owned a controlling stake in Lukoil; those who became Putin’s allies, such as Roman Abramo-vich, who had investments in oil and steel; and those who decided to fight. Khodorkovsky fell into the last camp. For a time, he appeared to be safe. He transformed Yukos into a Westernstyle powerhouse and hired American oil executives to modernize his books. In 2001, he organized the Open Russia Foundation, a nonprofit that spent millions of dollars advocating investments in democracy, economic transparency, and human rights. Bruce Misamore, the American chief financial officer of Yukos at the time, tells me that the oligarch was on a mission. “I don’t know if you would call it a revelation, but he changed,” Misamore says. “He brought in McKinsey, Schlumberger, Halliburton, and decided to become a model.” Yukos was hailed as a story of Russian triumph; it was suddenly the largest and most efficiently run company in the country. By 2003, as oil prices climbed and markets steadied, Yukos was pumping 1.7 million barrels of oil a day—about 2 percent of the world’s supply. Profits took off, and the firm became the country’s leading private taxpayer, representing around 7 percent of the country’s G.D.P. By then, Khodorkovsky was the richest man in Russia, worth an estimated $8 billion. A year later, his fortune would grow to $15 billion. He began talking about replacing the state-owned gas pipeline to China with his own, and there were serious discussions about selling 40 percent of the company to Exxon Mobil or Chevron. But the Kremlin was pushing in the other direction, encouraging the expansion of the Russian business empire abroad. Khodorkovsky then made the mistake of dipping into politics. Clifford Kupchan, a director at the Eurasia Group, a New York consulting firm specializing in geopolitical analysis, recalls the oligarch, on a trip to his oil fields, sitting on the floor of his jet and speaking out against Kremlin corruption. Khodor-kovsky met with then-National Security Adviser Condoleezza Rice and Vice President Dick Cheney. But the misstep that proved disastrous was his spending millions of dollars in support of the antiPutin opposition. The president warned him to back off, but Khodorkovsky kept going. And just as the president had promised, the Kremlin attacked, in what would become the defining moment in the government’s crackdown on the oligarchs. In July 2003, Platon Lebedev, Kho-dorkovsky’s billionaire partner, was

arrested on charges of theft. Months of interrogation followed. Then, on October 25, masked forces armed with machine guns seized Khodorkovsky’s jet on a Siberian airstrip and arrested him on charges of theft and fraud. He was loaded onto a government plane, flown back to Moscow, and thrown in jail, where he would stay, his bail denied. By the time Khodorkovsky’s trial began, in the summer of 2004, Amsterdam had settled in Moscow for the long haul. He moved into a plush room at the Hyatt, though it was not a comfortable stay. Emails arrived already read, and men followed him in cars and on foot. The Russians on the case had it worse: There were 120 raids on company offices and private houses, documents were confiscated, judges quit, defense lawyers were intimidated, and one female lawyer was locked up. “The Kremlin came at us from 100 directions,” Amsterdam says. Because Russian laws prevent foreigners from practicing in the country’s courtrooms, Amsterdam couldn’t litigate in defense of his client. So he passed coded messages through the Russian lawyers to Khodorkovsky, who stood throughout the trial in a metal cage, gazing much of the time at his distraught wife. Prosecutors argued that Khodorkovsky had used illegal tax shelters to avoid paying billions of dollars the company owed. The Yukos tax bill, spanning the years from 2000 to 2003 and combined with penalties, would eventually climb from $3.4 billion to $42 billion. On top of this, Khodorkovsky was accused of evading $700 million in personal taxes. The defense, meanwhile, argued that the Kremlin had reinterpreted commonly used tax shelters and selectively applied new laws to Yukos for political purposes. Yukos was not only the biggest taxpayer in the country, but government inspectors had already audited the company for the years in question. Plus, the government’s numbers didn’t always add up: At one point, prosecutors claimed Yukos owed $8 in taxes for every dollar in revenue. On breaks, Amsterdam gravitated to the television cameras, where he attacked the prosecutors. This is a “show trial,” he said more than once, invoking Stalin. Putin denied that he had embarked on a politically motivated housecleaning, and it’s possible that ordinary Russians wouldn’t have minded if he had. The years after Communism had created a population suspicious of business giants. Khodorkovsky “is seen as typifying the Yeltsin era, where a group was allowed to steal the patrimony,” Kupchan says. “It was seen as Russia’s time of troubles, when things went wrong for the country because it was weak. Russia was taken advantage of and stomped on.” After the 11-month trial, Khodor-kovsky was found guilty of six charges, including fraud and tax evasion. He was sentenced to eight years in Penal Colony No. 10, six time zones east of Moscow. Dozens of other Yukos employees would also face imprisonment, while many more would flee Russia. Less than a year later, after an appeal was rejected, Amsterdam was kicked out of the country. Yukos was promptly forced into bankruptcy, and the company’s core division, which accounted for 11 percent of the country’s oil, was auctioned off. Nothing about the sale was transparent—a -throwback to the 1990s. The winning bidder was a mysterious Russian -company, Baikal Financial Group, which had $300 to its name and a storefront address. Three days after the sale, Baikal was bought by Rosneft, the state-owned oil company run by Igor Sechin, a former K.G.B. agent and deputy chief of Putin’s administration. Amsterdam was on fire about the deal and still is. “There’s a tremendous willingness to give a margin of appreciation to the Russians. ‘Well, their system is different,’” he says. “I kept screaming, ‘They haven’t nationalized. They’ve fucking stolen all of it.’” And the Kremlin kept going. In the spring of 2007, in another rigged auction, the remainder of Yukos was sold to Gazprom and Rosneft. By the winter, bankruptcy proceedings had ended and the country’s largest private oil company had ceased to exist. What happened to Khodorkovsky’s company has become the template for Russia’s future. In a 2006 report, the Organization for Economic Cooperation and Development cited “the legal and political onslaught against Yukos” as the most alarming sign of Russia’s “shift towards greater state control.” Anders Aslund, a former economic adviser to Yeltsin and now a senior fellow at the Peterson Institute for International Economics, was more blunt: “The Kremlin learned from the Yukos affair that they could steal companies. But they wouldn’t do it as crudely as they did with Yukos. Instead of the owners being arrested and thrown in jail, they might just force them out of the country and pay them 60 percent of the value of their company. It was Putin turning the tables on the oligarchs.” By 2006, the Kremlin had seized, in whole or in part, more than 20 other private companies, most of them gas and oil concerns. Among the prominent takebacks was the Sakhalin II oil and gas development. After being charged with environmental infractions, Royal Dutch Shell and other investors were forced to sell a controlling stake to Gazprom. Most recently, the owner of Russneft, a midsize oil company, was driven out of the country. Now all that remains is Khodor-kov-sky’s final trial. Prosecutors allege that he and his partner, using money transfers through Yukos and its subsidiaries, embezzled more than $20 billion in revenue. Amsterdam and his colleagues argue that the charges are again politically motivated, though other people are convinced that the stakes this time around are much deadlier. B ack in London, Amsterdam invites me to join him one morning at the Landmark hotel for a speech at the Alternative Investment Summit, where the talk is about the money to be made in Russia. When I mention that he’s an odd choice for the event, Amsterdam’s assistant laughs and says she snuck him into the lineup like a Trojan horse. Standing in front of the seated crowd, Amsterdam’s face tightens. He grasps the lectern, and soon the words blast out like a gale-force wind. He sounds like a preacher. He says he loves Russia as a country, but that it has a regime that does not abide by the rule of law. “Yukos is a verb now—‘to steal,’” he declares with vigor. “In Russia, as a business, you risk being Yukosed.” When the speech is over, the conference leader takes over the lectern and looks out at the crowd. “I’ve never seen an audience so stunned into silence,” he says, eyebrows arched. Amsterdam has been running around all day on a few hours’ sleep, with little to go on but coffee, but he claims he’s not tired. “That was great,” he says. It has been Amsterdam’s combative posture, as much as the substance of his political attacks, that has raised the emotional temperature of the Yukos case. Earlier in the fall, he’d flown to Australia, where he stirred up controversy about the country’s decision to sell uranium to Putin. Before he arrived, it was a non-issue, expected to pass without much debate. But after Amsterdam’s week of talk-show appearances and his keynote speech at a summit about human rights and corruption in Russia, the uranium sale ended up stalled in the Australian Parliament. Amsterdam keeps turning up the heat. A day before Putin traveled to Italy, Amsterdam was also there staging media events, talking to politicians, and raising simple questions: Why is Putin holding political prisoners? Doesn’t the rule of law matter anymore? He did the same in Spain and Germany, where he’s been stirring things up for the past few years, especially about former German Chancellor Gerhard Schröder’s close relationship with Putin. Schröder was one of the only Western heads of state to come out in support of the Yukos takeover, and he now has a job at Gazprom. Recently, Amsterdam met with advisers to current German Chancellor Angela Merkel. It is more than probable that those conversations had an impact on her. In March, she visited Putin and told reporters that she would “welcome” Khodorkovsky’s pardon. Amsterdam and I talk about the new Russian trial. Preparing for it has been a challenge, to say the least. Many of -Yukos’ hard drives and documents are missing. Four years ago, the man who oversaw Khodorkovsky’s money died in a mysterious helicopter explosion. Another Russian lawyer is in custody and has had to fight to receive AIDS medication. Others escaped Russia and are scattered around the world; Leonid Nevzlin, a Khodorkovsky colleague who now lives in Israel, is currently being tried for murder in absentia. When I ask Aslund about the ENEMY page 9

3

Cold Case (Portfolio.com: Careers) Submitted at 7/16/2008 3:00:00 AM

O n what would be the final weekend of his life, Tom Carvel drove to his country home in upstate New York, deeply depressed. He’d built a namesake national chain of 850 ice cream shops, developing some of the fast-food and franchising concepts that changed how America eats. His sandpaper-voiced pitches in commercials—“Thinny-Thin for your fatty-fat friends,” he said in one spot—had made Carvel a household name. He golfed with Bob Hope and did a guest turn on Late Night With David Letterman. He had recently sold his chain for $80 million, but he held on to a 100-room motel, 40 properties leased to Carvel franchisees, and a golf course in Dutchess County, New York. At 84, Carvel still was going to work every day. But there were deepening problems inside his empire. Carvel confided to an associate that he no longer trusted Mildred Arcadipane, his corporate secretary of 38 years, or Robert Davis, his longtime lawyer and close financial adviser. Carvel had come to believe that they were scheming behind his back, maybe stealing from him. After agonizing for months, he arrived at his country home on Saturday determined to march into his office on Monday and fire his lawyer and relieve his secretary—a mercurial woman, according to many who knew her—of her considerable power. But Carvel never got the chance. He was found dead in his bed that Sunday morning in 1990, the victim, it appeared, of a heart attack. Instead of being dismissed and demoted, Davis and Arcadipane returned to work and began to take command of Carvel’s business and personal finances. The Carvel estate, officially valued at $67 million, spurred what one lawyer calls a “feeding frenzy”; nearly 18 years later, a bitter fight rages on. In most estate battles, family members square off against one another. But the principal fault lines in this case have put Davis, Arcadipane, and the multimillion-dollar charity that Carvel -left behind on one side, and Carvel’s widow, Agnes, and his niece Pamela Carvel on the other. The Carvels had no children, and Agnes “was frozen out of everything,” Pamela contends. “She was denied millions that Tom wanted her to receive.” In 2007, after years of digging by private investigators in Pamela’s employ, the case took a bizarre turn. Pamela filed a lawsuit in U.S. District Court in Fort Lauderdale, Florida, alleging that Carvel’s death resulted in “fraudsters…controlling all Carvel funds to the exclusion of the Carvels.” She asked that her uncle’s body be exhumed for an autopsy to determine if he was murdered as part of the alleged scheme. The petition concludes with a question: “Will the truth finally be known?” And with that, one of the most contested estate fights in New York history also became a murder mystery. Pamela says she has circumstantial evidence against several former Carvel employees, but a great deal of her ire over the years has been aimed at Davis and Arcadipane, who not only continued to work for the company but also battled Agnes for years over the Carvel fortune from their seats on the Thomas and Agnes Carvel Foundation board—seats they gained through a document whose validity has been called into question. Both eventually were forced to resign from the board for misappropriating foundation money. Their families and lawyers scoff at any notion that they would ever have harmed Tom Carvel, but even if they had, neither will face justice. They are dead. By any measure, the Carvel case is a legal colossus. More than 40 lawyers have had a hand in it. Legal fees and commissions have already drained more than $28 million from the Carvel fortune, according to Leonard Ross, one of Agnes’ former lawyers. Save for Carvel’s widow, it is hard to find a guileless participant. Pamela casts herself as the selfless protector of her uncle’s millions and her aunt’s interests. To her opponents, she’s just a desperate relative out for a big financial score. In one of the many lawsuits involving estate funds, a state judge in Florida ruled that there was “strong evidence of fraud” in the way she once tried to collect more than $10 million from the estate. Still, Fred Welsh, a former New Jersey police detective hired by Pamela, tells me that he has uncovered enough circumstantial evidence—including the possibility that Carvel’s death certificate was forged—to warrant a homicide investigation. The battle has played out in three U.S. district courts; state courts in New York, Delaware, and Florida; and in London. It enjoys a certain notoriety in the suburbs north of New York City, where Tom and Agnes Carvel lived in the gentle hills of Ardsley. Four trials have been held in Westchester County, New York; a fifth is ongoing. Four of Carvel’s executors have died. When I phoned the Westchester County Courthouse to ask about examining case files, a clerk told me, -“I am making the sign of the cross now.-” I spent most of a day plowing through five large boxes bursting with pleadings and rulings before a court official said apologetically, “We’ve found more.” Pamela claims that her uncle once told her that he was worth $250 million, which would mean that tens of millions of dollars in assets have vanished. One thing is certain: Events have not turned out as Carvel wished. His plan to provide for his widow and funnel millions to small charities in the towns that supported Carvel stores backfired, in part because of the unwieldy, complex nature of the estate that he himself approved after consultation with Davis, his lawyer. “He was always fearful that somebody was after his money,” says Ginny King, a longtime friend. And in the end, he was right. Born in Greece in 1906, Tom -Carvel immigrated to New York with his parents and six siblings in 1910. As a young man, he test-drove Studebakers, played drums in the Borscht Belt, and fixed cars. After being diagnosed incorrectly with tuberculosis, he set out for the fresh air of Westchester, and with $15 borrowed from his future wife, he began selling ice cream from a beat-up vending truck. One hot weekend in 1934, he suffered a flat in the village of Hartsdale. Flagging down motorists to buy his melting ice cream, Carvel re-alized he could do more business from a fixed location. So he remained for the summer, eventually saving enough to make a down payment on a nearby building. It became the first Carvel shop. With some tinkering, Carvel discovered how to instantly freeze ingredients to produce a creamy ribbon of ice cream at the flick of a switch. It was the first soft-ice-cream machine of its kind. One store grew to many, and by 1950, 21 stores were operating under the Carvel name. With that, Carvel joined a group of franchising pioneers, including A&W, White Castle, and Howard Johnson’s, that were creating roadside chains that served up what would become known as fast food. Still, the ice cream business was a warmweather enterprise, and Carvel needed to generate store traffic throughout the year. Again, the ice cream gods intervened. Pieces of crumbled cookies accidentally fell into a vat of soft ice cream placed in a freezer, and when the hardened batch was discovered, it led to another innovation: the Carvel ice cream cake. Carvel’s climb might have been even more astounding had he not rejected an invitation from a milkshake-machine salesman named Ray Kroc to join him in a fledgling California hamburger business named McDonald’s. “Tom claimed it was his biggest error,” says Thomas Kornacki, a Carvel vice president in the 1990s who worked for the company for 23 years. Tom Carvel had a special knack for promotion—and self-promotion. He sponsored Little Miss Half-Pint contests for young girls and made franchisees attend an 18-day course he called the Carvel College of Ice Cream Knowledge. His raspy, ad-libbed appearances in the company’s commercials were ridiculed, but they were memorable and sales soared. The idea of the C.E.O. as pitchman would catch on and influence other company heads, like Frank Perdue and Lee Iacocca. In his ads, Carvel seemed benign, but in real life, he was no Mister Softee. He battled franchisees all the way to the U.S. Supreme Court, winning the groundbreaking right to require them to buy all ingredients and supplies from him, even the napkins. Despite his wealth, Carvel lived simply. He wore polyester suits and hectored subordinates who didn’t drive modest American cars like he did. Visitors to the Carvels’ Ardsley home were amazed to find couches protected by plastic slipcovers. His office was an oversize motel room with furnishings that would have gone begging at a lawn sale. Yet T.C., as friends called him, could be generous; each Christmas, he gave gifts of $10,000 (tax free) to dozens of nieces and nephews. By the late 1980s, however, Carvel’s fortune had become a burden. By then, he was in his eighties. Without children, he wondered what would happen to all he had accumulated. After wavering for months, he reluctantly

sold his ice cream operations in 1989 to Investcorp, a Bahrain-based company that owned Tiffany & Co. and Gucci. “He didn’t trust anybody in his family or in his executive group to grow the brand,” Kornacki says. “The company was his legacy, and he didn’t want it to die.” Carvel put his personal affairs in order too. One cold Saturday night in February 1988, Tom and Agnes excused themselves from a dinner party to sign identical wills naming the Thomas and Agnes Carvel Foundation as the beneficiary of their fortune after their deaths. Carvel was quite clear about how he intended to bestow his estate. If he died first, Agnes was to receive all the income his estate generated, plus quarterly payouts from a trust fund. The Thomas and Agnes Carvel Foundation was to receive all that was left—once Agnes died. Overseeing this estate would be seven executors, Arcadipane and Davisamong them. That number is unusual, but Carvel was convinced that the seven would serve to check and balance one another, safeguarding his money. One of the people who helped fashion the plan was Davis, his lawyer. Whether Carvel was steered into this plan by unscrupulous advisers or driven to it by his own fears about the fate of his fortune is an open question. But he had not been dead for more than a few months before one thing became clear: The elaborate plan, rather than creating checks and balances, set up factions that came to feud over and feast on Carvel’s fortune. It was turning into an estate disaster of monumental proportions. The wild card in Tom Carvel’s life seems to have been Mildred Arcadipane. A slight woman, she began working for Carvel in the early 1950s, fresh out of secretarial school. Her job was her life; in the 38 years that she was employed by the Carvel corporation, co-workers recall her taking off just two days—to attend her father’s funeral. She never married, choosing instead to care for her elderly mother at home. By the 1980s, evidence in the many court cases shows, she had become a force inside the company. The accounting and payroll departments had begun to report to her. She “knew the nuts and bolts of the company,” and with her “hot temper” and “iron fist,” she knew how to get things done, Kornacki recalls. She could also be despotic. Some employees complained that underlings who crossed Arcadipane might find themselves without a job or that their health insurance had lapsed. She had her way with Tom Carvel too. Arcadipane often cursed and shouted at the boss and locked him out of his own office dozens of times, a longtime driver for Carvel testified. On three -occasions, Carvel sent him to New York City to buy jewelry as a peace offering. “When she lost her temper,” the driver said in the deposition, “it would require almost a straitjacket.” Asked why he kept Arcadipane on, Carvel once said cryptically that she had him “over a barrel,” according to another affidavit. Employees whispered that Carvel and Arcadipane, far from being just close business associates, might once have had an affair. Pamela Carvel was close to Tom too. She grew up in Queens, New York, the eldest daughter of Tom’s brother Bruce. Tom and Agnes treated her like the child they never had. As a teenager, she spent her summers living with them and serving ice cream at their Hartsdale shop. Tom took care of her college tuition bills and hired her to make inspections of Carvel stores. When her uncle died, Pamela, who was working and studying abroad, “got a call to come home,” she says. “My aunt told me she needed help.” Tom had made Pamela one of the seven executors of his estate. She returned to New York in December 1990, she says, to find an avalanche of suspicious transactions involving the Carvels’ finances. Bank accounts were being closed and opened, apparently without Agnes’ knowledge, and large sums of money were being transferred between Carvel accounts, her lawyers told me. In the middle of these matters, Pamela says, were Davis and Arcadipane. Davis wasn’t a Carvel lifer, but he had a long history with Tom Carvel. While working for a Manhattan law firm, Davis had taken Carvel on as a client in 1969 to advise him on how to take his company public that year. Davis later helped negotiate the 1989 sale to Investcorp. Hints of trouble surfaced before Carvel was even buried. As Agnes attended her husband’s wake, Davis entered the Carvel home without her permission to search for Tom’s will, bringing a locksmith to crack open the couple’s safe, court documents show. Shortly thereafter, Arcadipane began shredding -records at the office, defying orders from other Carvel executors that she stop. The shredder was silenced only after Pamela burst in and cut the electric cord herself. Through it all, Carvel’s will could not -be found. It had been given to Arcadipane for safekeeping, but she claimed it was lost. Its disappearance delayed Carvel’s executors from officially assuming control of his estate, leaving Davis and Arcadipane in command for months. Agnes, during this period, seemed overwhelmed. Davis was pressuring her to loan the business $500,000, saying there were cash-flow problems. Agnes demurred, on the advice of Pamela, who considered the request improper. But -Davis persisted. He sent another of Tom’s employees to Florida to talk to Agnes while Pamela was in New York, and this envoy convinced the widow to supply the funds. Meanwhile, Thomas Reddy, -a lawyer and a family friend, got Agnes to sign papers creating a trust account for her money. Three trustees would manage the funds and have the authority -to make distributions to her. Known as the Florida trust, it was touted as a safeguard for Agnes’ assets—but for the widow, it would become a nightmare. Unusual things were also happening at the Thomas and Agnes Carvel Foundation. Davis emerged as the foundation’s first paid president, at a salary of more than $100,000 a year, and board members—including Arcadipane—began drawing stipends, records show. The payments were troubling to Agnes because she and Tom believed that any work for the charity should be done for free. Agnes also became bewildered by the foundation’s abrupt shift in direction. Although it bore their names, it was focused more on making six- and seven-figure grants to big, established institutions than on making small grants to the grassroots groups Tom and Agnes favored. Worse for Agnes, a serious flaw emerged in the estate plan. With the Thomas and Agnes Carvel Foundation now under the sway of Davis and Arcadipane, it took an aggressively adversarial position, questioning Agnes’ spending and even challenging her right to continue Tom’s practice of giving gifts of $10,000 at Christmas, according to Agnes’ lawyers. (The foundation denies this allegation.) The charity had a reason to be aggressive: Every dollar that Agnes spent or gave away of her husband’s fortune would mean less money to the foundation when she died. Agnes and Pamela were rapidly coming to the conclusion that the two people Tom suspected of cheating him before his death had become their enemies too. As Pamela and Agnes plotted to regain control of the foundation, they got some help. The New York State attorney general’s office opened an investigation in 1991. Its findings were shocking: The inquiry discovered that the charity paid $55,000 in tuition for Arcadipane’s nephew and two others and tried to camouflage the spending as grants. The attorney general also questioned Davis’ and Arcadipane’s roles in the foundation’s sale of Carvel stock, which reaped a quick $5 million profit for some company employees, including $300,000 for Arcadipane. In August 1993, the attorney general filed a civil lawsuit seeking the ouster of Davis and Arcadipane from the foundation and the repayment of nearly $1 million, plus money paid to cover their legal fees. Far from being chastened, Davis helped prepare a memo to foundation members warning that his and Arcadipane’s removal would provide the family “with an opportunity to assume control of the foundation.” The memo found its way to the Carvels. To Pamela and Agnes, it was a smoking gun. “The foundation took an attitude that the Carvel family should not have any say in the operation of the Carvel Foundation,” Agnes’ former lawyer Ross says. “Davis was behind that.” Agnes fired off a letter to the foundation. “I am appalled that Mr. Davis views this foundation as his own private charity, where the Carvel family is to be treated as the enemy,” she wrote. Pamela sent a scalding note to Arcadipane: “Obviously, you feel no responsibility nor the slightest twinge of gratitude” to the man and the company that had “made a secretary into a millionaire!” The battle was on. Agnes and Pamela went to court to oust Davis and Arcadipane as foundation directors and executors of Tom’s estate. The foundation countersued, accusing Agnes and Pamela of meddling in its affairs.

The fighting turned so nasty that Davis and Arcadipane asked Judge Albert Emanuelli of the Westchester County Surrogate’s Court, in White Plains, New York, to investigate Agnes’ mental competency. To Agnes’ lawyers, it was an effort to silence the widow for good. Davis and Arcadipane said they just wanted to make sure that Pamela was not controlling Agnes. In an affidavit, Arcadipane said she looked on Tom and Agnes “in many ways as parents” and believed that “they reciprocated the depth of feeling.” She continued, “Sadly, since Mr. Carvel’s death, his niece Pamela has sought to alter Mrs. Carvel’s feelings toward me and view of me and to rewrite history.... She has undertaken to level accusations at me...that are scandalous and shameful.” Pamela Carvel is 59 and single. She cuts a bohemian figure, tying her bottle-blond hair into a braid that falls to her waist. The estate fight is a fulltime occupation for her. By her own accounting, she has plowed through millions of dollars and fallen into debt to help her Aunt Agnes and stop what she calls the plundering of Tom’s estate. Pamela can be strident and difficult; she has had at least four law firms represent her. She now accuses some of those lawyers of betrayal. Still, a few of them speak of her with a weary admiration. “Pamela Carvel is a very tough lady who was fiercely dedicated to her aunt and to the memory of her uncle,” says John Lang, one of Agnes’ former lawyers. “My sense is that she was completely sincere in what she was doing.” Pamela’s critics ardently disagree. Betty Godley, Agnes’ niece, filed an affidavit in Surrogate’s Court accusing Pamela of manipulating Agnes for “her own insatiable greed.” Godley tells me, “I think there were great expectations on Pamela’s part of money coming her way.” Never close, Pamela and Godley have not talked in more than 10 years. Their split demarcates a family fracture in the Carvel case. “From day one, there was a paranoia to Pamela that was incredible,” Godley says. “Everybody and anybody was an enemy.” Since 1991, Godley has received more than $400,000 in commissions as an executor of Tom’s estate and one of the three people overseeing Agnes’ Florida trust. Still, she talks of her participation as a burden that she wishes would end. “I have five kids, a family, everything she doesn’t have,” Godley says of Pamela. “This has been Pamela’s life for 17 years.” The seeds of Pamela and Godley’s split were planted six months after Tom’s death, with the creation of the Florida trust that was supposed to be a vehicle to safeguard Agnes’ money. Godley was the only family member among the trustees. Pamela has always seen Godley’s appointment as a ruse. “That was the only way to make it look legitimate, by having a family member on it,” she says. But after the trust was created, Agnes “no longer had any money in her own name,” she adds. Indeed, in the spring of 1994, things turned bleak for Agnes when, at roughly the same time, the two trusts that doled out her funds—the Florida trust and the trust set up by Tom, which contained $26 million and was overseen by Davis, Arcadipane, and two other trustees—both stopped making payments to her, according to a lawyer for Agnes. Both trusts used the same rationale—that others were manipulating Agnes, who therefore couldn’t be trusted with her own money. Ross, her former lawyer, saw a more sinister motive: “Mrs. Carvel was being squeezed, I think, to stop all the litigation.” Agnes and Pamela were furious at Godley for withholding the money. The breach became permanent in 1995, when Pamela arranged to have $2 million moved from a Carvel corporation account whose ownership was in dispute into a Swiss bank account registered in Agnes’ name. Pamela said the money had been owed to Agnes and that she had dutifully notified the required parties. But Godley went to court to challenge the transfer, and Judge Emanuelli of the Surrogate’s Court ordered that the money be placed in escrow. Godley and her aunt would never talk again. By the middle of 1995, the Carvel widow, now 86, was in turmoil, bewildered by the endless swirl of litigation. She was upset at her financial predicament and fearful that Judge Emanuelli, whom she had come to view as hostile, would declare her incompetent, stripping her of whatever control she still had over her life. So she sought refuge in London, moving there with Pamela to live out her days, she hoped, in peace. Sally Boynton, a Westchester County lawyer appointed by the court to be Agnes’ legal guardian, took Agnes and Pamela’s side after flying to London to judge Agnes’ competency for herself. The widow, Boynton would later tell the court, had become the victim of the “unscrupulous dealings of untrustworthy people” and had moved to London “to gain control over her assets to prevent ‘the thieves from stealing from her.’” Boynton also wrote that Agnes expressed “unequivocally” her trust in Pamela to handle her affairs. Godley saw it quite differently. She charged that Pamela had become a Svengali, “hiding” Agnes in London in an attempt to thwart an inquiry into Agnes’ competency. “I feel a heinous crime has been done to my aunt,” Godley wrote in an affidavit filed in the Surrogate’s Court. Judge Emanuelli forced Boynton to resign her guardianship, and he replaced her with Marc Oxman, a lawyer who at that time was the executive director of the Westchester County Democratic Party. Oxman was far more skeptical of Agnes’ competency and Pamela’s motives. In his report, Oxman wrote that Agnes had been “manipulated and controlled by those individuals who did not have her best interests at heart.” As the battle raged, Agnes died in London in August 1998, at the age of 89. Yet even in death, she could find no peace. Her body remained in cold storage for about a month while both sides fought over whether to allow an autopsy to determine if she had suffered from dementia. Pamela, who opposed the examination, prevailed and quickly cremated her aunt’s remains. Rather than hasten a resolution of the case, Agnes’ death complicated matters, for now there were two estates to fight over: Tom’s and Agnes’. Arcadipane and Davis had resigned from the Carvel Foundation in 1996, in a deal with the New York attorney general’s office to settle allegations of wrongdoing. Arcadipane died in 2002, at age 74, of a heart ailment. Davis died sometime later. But that didn’t end the foundation’s fight with Agnes’ representatives. Indeed, the charity has continued to be a fierce and formidable opponent of Agnes’ attorneys and Pamela in their fight over Tom Carvel’s millions. The foundation has approximately $36 million in assets, according to its most recent published tax records, from 2005.But today, the charity is connected to the Carvel family in name only. No family member sits on its board. Its directors have paid themselves more than $1.3 million in salaries since Tom Carvel’s death, including about $43,000 annually to the foundation’s president, William Griffin, the multimillionaire chairman of the Hudson Valley Bank, based in Yonkers, New York. Moreover, the charity has spent many millions battling for the Carvel fortune. In 1998, it was instrumental in torpedoing a proposed settlement that would have ended all litigation and given Agnes $8 million—a fraction of her husband’s estate. The foundation didn’t respond to a request for comment on this; indeed, officials declined to be interviewed. The charity issued a statement that said, in part, that “Thomas and Agnes Carvel established the foundation and left the bulk of their estates to it to provide charitable grants to needy children, and the foundation is focusing its energies on fulfilling that mission...rather than responding yet again to Ms. Carvel’s baseless allegations.” And still the litigation continues. The latest chapter, playing itself out in the Surrogate’s Court stems from a rare, albeit posthumous, victory for Agnes Carvel. In June 2003, five years after she died, a Surrogate’s Court judge ruled that she had been denied $7 million in income generated by Tom’s estate during her lifetime. The current trial is about what to do with this money and $3 million in other assets. The foundation is claiming all of it as the final beneficiary named in Tom’s and Agnes’ 1988 wills. [Tom’s will surfaced several months after his death.] Agnes’ lawyers argue that because she was wrongly denied the funds while she lived, her new London executor should decide how the money should be spent. Pamela also made a play for the funds. After obtaining a $15 million judgment in a London court against her aunt’s estate for money Pamela says she spent in caring for Agnes and providing for her legal representation, she then tried in three separate American courts to collect the money from COLD page 12

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Gold-Medal Schmoozer (Portfolio.com: Business Travel) Submitted at 7/16/2008 3:00:00 AM

B ack in 2001, Sead Dizdar-evic’s name was inseparable from the Olympic movement—but it wasn’t exactly the association he sought. The smoothtalking hospitality pitchman had first burst upon the Olympic scene in 1983 by finagling the right to sell, through a modest travel agency he owned in Staten Island, New York, package tours to thousands of Americans wanting to attend the Winter Games in his native Sarajevo, Yugo-slavia. But some two decades of Olympic wheeling and dealing later, he was almost laid low when he was swept up in a cash-for-favors scandal involving Salt Lake City’s bid to host the 2002 Winter Games. A number of International Olympic Committee members were forced to resign when it was discovered that they had accepted bribes in return for voting to award the Games to Salt Lake. Two prominent Salt Lake bid officials were indicted for fraud in the scandal, and one city official intimated, in a memo that ended up in federal court, that Dizdarevic had pretty much put the idea that the Games could be bought into local Olympic officials’ heads. Dizdarevic escaped federal prosecution himself only by agreeing to testify that he’d assisted in the payoff scheme. He admitted that he’d given $131,000 to the Salt Lake officials—which they used as bribes—hoping his favors would win him the Games’ contract to broker travel, lodging, and tickets. Though a judge ultimately threw out the fraud case, Dizdarevic says his brush with the law scared him straight. Well, straight is a relative term, but there is no doubt that the tawdry Salt Lake episode, rather than ruining Dizdarevic’s Olympic money machine, rejuvenated and reformed it. Now make the great leap forward to Beijing. Dizdarevic, pluckier than ever at 57, is sipping sugary espresso in the 26thfloor executive lounge of the Sofitel Wanda hotel, the French chain’s luxury flagship in Asia. His Olympic hospitality firm, Jet Set Sports, of Far Hills, New Jersey, owns the rights to 175 rooms in the Sofitel, plus the $20,000-anight presidential suite, for this month’s Games. That’s nearly half of the five-star hotel, for 18 days, paid in full. And the Sofitel is but one property in Jet Set’s vast portfolio of high-end Beijing hotels, making Dizdarevic the must-see man for corporations heading to the Olympics. Still, on a recent swing through Beijing to nail down final arrangements, Dizdarevic is feeling fleeced. A Sofitel manager is asking $65 a head for buffet breakfasts during the Games, twice the hotel’s normal rate. The hotelier is also demanding that Dizdarevic pay extra for the grand ballroom, where Jet Set plans to wine and dine hundreds of clients for BHP Billiton, the Australian mining colossus. Annoyed, Dizdarevic counters with what he calls the Jet Set model: a package price for food, drink, and facilities for 7,800 meals, including a “guaranteed” 40 percent profit margin for Sofitel. “You should capitalize on the Olympics, but that doesn’t mean you have a license to steal,” he scolds the nattily dressed Frenchman. “Remember, I have other options, even for breakfast.” “For everything,” the young manager demurs, in heavily accented English, “you have options.” Dizdarevic leaves without a deal, trailed by his son Alan, 25, who runs Jet Set’s China office. “They’ll learn,” Sead (pronounced Sid) says, driving off into the smog-filled city, as I tag along for the ride. It’s a lesson everyone who wants a piece of the action at the Olympics figures out: It’s Sead Dizdarevic’s world; the rest of us are just guests. Since Sarajevo, Dizdarevic has perfected the art of what he delicately calls the “advanced royalty”—paying off Olympic pooh-bahs for the ultimate service monopoly on the ultimate destination event. For years, “it was almost like an under-the-rug deal,” Dizdarevic acknowledges. He was the supreme promoter, schmoozing, boozing, and cajoling Olympic organizers and teams from around the globe—including the U.S. Olympic Committee—to secure the best tickets and accommodations, which he bundled at hefty markups for corporations and ultra-affluent clients. This system, energized by Dizdarevic’s 1,000-watt salesmanship, a world-class Rolodex, and an impeccable record for service, pumped millions of dollars of profits into his pockets—and into the Olympic coffers of several cash-starved countries. This made Dizdarevic the Games’ indispensable, if unofficial, fixer. The Salt Lake scandal ended this improvised, quasi-legal system, and Dizdarevic no longer carries around bricks of cash and unsigned traveler’s checks, which—according to Ante Jedrejcic, Dizdarevic’s former brother-inlaw, who worked for him before they fell out in the mid-1990s—he once used to acquire the suitcases of tickets earmarked for, say, the Polish or Bulgarian Olympic team. (Dizdarevic dismisses his former relative as an “exaggerator.”) Nor does he still pad his payroll with the wives, girlfriends, and daughters of the powerful men he needed to grease his exclusive access to the Olympics. Now he pays millions of dollars in formal sponsorship fees to the Olympic gods, just as Nike, Hilton, and other corporations do. In exchange, he gets all the top-tier tickets and hotels he needs, plus a catchy title: official hospitality operator of the Olympic Games. But if you think this legally acquired title has quieted controversy around Dizdarevic, you’re wrong. Competitors gripe that he’s a concierge gone wild—that Jet Set’s monopoly cuts them out and that it may even violate U.S. antitrust laws. Dizdarevic seems oblivious to such bad-mouthing—or perhaps, with the Games imminent, he’s too busy to pay much attention. After marching out of the Sofitel, he spends more hours haggling over breakfasts for AT&T and Medtronic at Beijing’s Novotel Peace hotel and over lunch menus for HSBC, Herbalife, and Lehman Brothers (among dozens of others) at the Commune by the Great Wall Kempinski hotel. His mind is a sponge for details—rooms, wines, snacks, buses, tickets, distances, even wallpaper. He meets his match in a Kempinski sales director named Adelina Ye, who drags him clause by clause through their food-and-beverage contract, quibbling over such unusual demands as Jet Set’s requirement that the hotel chef order all raw materials 45 days before the Games. “Believe me, we’ve learned the hard way. There are always scarcities,” Dizdarevic tells her. Later, he dispatches an aide to find out if Ye will come to work for him. In traffic between meetings, Dizdarevic works a BlackBerry and answers a Chinese cell phone from the backseat of a black Audi. “Sergei, how are you?” he says ingratiatingly. The caller is Sergei Plastinin, the Russian dairy, fruit juice, and fashion tycoon, who’s inquiring about a luxury suite in the main Olympic stadium. “It’s $650,000,” Dizdarevic tells him without flinching, “plus my brokerage fee,” capped at 20 percent by Olympic rules. Actually, Jet Set’s corporate packages sold out months ago, but Dizdarevic, like the scalper he professes not to be, always holds certain “assets” in reserve. In Beijing, he’s husbanding most of the city’s five-star presidential suites, a dozen in all. “You sit on them, wait for people to come to you,” he tells me. “Usually the richest people come very late. They think they can get anything.” One such request pops up hours later, in the lobby of Dizdarevic’s Beijing hotel. Over tea, Lynn Robbroeckx of ArcelorMittal says she desperately needs eight tickets to the opening ceremonies for her boss, Lakshmi Mittal, the steel magnate ranked fourth on Forbes’ list of billionaires. “We’ve been so busy running our steel business, we forgot to take care of this,” Robbroeckx says. The same thing happened in Athens, Dizdarevic reminds

her. The Mittals showed up at the 2004 Games in their yacht without a place to dock. Dizdarevic had to scurry to find them an official Olympic car—to drive in the official Olympic lanes—and a berth for their yacht near the cruise ships that Jet Set had chartered for its guests. Beijing is more complicated. Though the Mittals want to attend just the first four days of the Games, Dizdarevic recommends that ArcelorMittal lock in packages for the entire period to ensure premium access. Jet Set can meet their plane at the airport, he says, but the private jet will have to land under Jet Set’s auspices because, during the Games, Beijing is only accepting the private planes of Olympic officials, heads of state, and official sponsors like Jet Set. For the opening ceremonies, the Mittals will be dropped off at Jet Set’s hospitality suite on the main Olympic Green; hostesses will escort them to their seats in the stadium, based on Olympic protocol. Afterward, they’ll file back to the Jet Set lounge. “It’s mass confusion, so we’ll need to calm everybody down with a drink,” Dizdarevic says. Robbroeckx looks relieved, especially when she hears that Jet Set will have plenty of vegetarian food on hand for the Mittals. Dizdarevic requests that the family, who lives in London, register for the trip through the Yale School of Management, which is co-sponsoring a leadership conference at the Games with Jet Set. That should avoid any territorial conflicts, because Dizdarevic doesn’t hold Olympic rights to solicit business in Britain. “And tell your boss,” Dizdarevic says, “if he wants to do any entertaining in London”—at the 2012 Games—“he needs to tell me two years in advance.” The Beijing games dwarf anything Dizdarevic has done before. Jet Set has sold more than 70,000 packages for Beijing, compared with 20,000 trips for the Turin Winter Games in 2006, its previous high. Dizdarevic has plunked down roughly $130 million on this year’s Summer Games, including more than $30 million in sponsorship fees, mostly paid to Beijing’s Olympic organizing committee; $37 million for hotels and meals; $20 million for management systems and local staff (including a yearlong course to teach local hires Olympic etiquette and how to deftly handle foreign visitors); and $15 million for tickets. He expects revenue of nearly $200 million. Beijing could have been even bigger. “I simply stopped selling,” he says. “With so much new business, I didn’t want to jeopardize delivery.” Jet Set’s rivals say that his control of the market is unfair and is possibly an illegal monopoly. “Jet Set uses tickets as their choke point for everything they do,” says the president of a sports--management firm, who claims his company has lost several major clients in recent years because of Dizdarevic’s hold on tickets. “A service monopoly isn’t like a Coke or a Visa sponsorship,” says this person, who insists on anonymity because he fears retribution from Dizdarevic and the U.S. Olympic Committee. “You can always walk across the street and use your Amex card or drink a Pepsi. Not with this deal.” Even the U.S. Olympic team’s own corporate sponsors must go to Jet Set for tickets—leverage that Dizdarevic uses to sell them full hospitality packages, according to an executive who runs the Olympic program for one corporate sponsor. To illustrate the point, a Jet Set competitor recounts a conference call earlier this year: It was organized by a Canadian corporation for several firms vying to manage its guest program at the 2010 Winter Games in Vancouver. During the Q&A, whose participants included SportsMark Management Group of Larkspur, California, and Iluka of London, Dizdarevic blurted out, “Where will you get gold-medal-hockey tickets?” The answer is, of course, obvious. Dizdarevic has the lion’s share. After a long, knowing pause, the would-be sponsor chuckled and said, “Oh, Sead, you ask such good questions.” Technically, each national Olympic committee controls ticket distribution in its own country. But in recent years, the U.S.O.C. and the Olympic committees of Canada, Australia, and several European countries have anointed Jet Set as their exclusive hospitality and ticket provider. Elbowed aside, other firms say they’ve explored challenging Jet Set’s monopoly in U.S. courts but are afraid of saddling the Olympic hierarchy with costly antitrust litigation. “The time to strike would have been in 2003” after Dizdarevic signed his initial deal with the U.S.O.C., one rival says. “Now he’s too big. There just aren’t a lot of people with the stomach for a fight.” Those who do defy Dizdarevic find a tough adversary. Beijing’s most popular luxury hotel, the Grand Hyatt, just two blocks from Tiananmen Square, negotiated for months with Jet Set back in 2005 over a block of roughly 100 rooms and suites, says Christopher Koehler, the hotel’s general manager. After six months of talks, Dizdarevic walked away. But Koehler says he has no regrets. “They’re sharks,” Koehler says. “They came in very early and tried to scare us that we wouldn’t fill the hotel for all 18 days.” During the negotiations, Dizdarevic invited Koehler to attend the Turin Games as his guest, but the New Jersey native declined. “I didn’t think it was appropriate to be in his pocket,” Koeh-ler says. The manager says his hotel will earn more from the Games than what Jet Set had offered. “Why hand over product to somebody else who’s just going to profit from your work?” Koehler asks. Dizdarevic, for his part, says the Grand Hyatt is slashing prices to fill rooms during the Games, just as he predicted it would. He says Jet Set recently turned down single rooms going for 50 percent less than what the hotel was asking in 2005. “‘You’re three years too late,’ I told them,” Dizdarevic says. (Koehler counters that he’s comfortable that the Grand Hyatt will earn a healthy profit from the Games.) It’s perhaps no paradox that some of Dizdarevic’s corporate clients praise him with the same intensity as his detractors criticize him. “Sead really understands the Olympics. He’s also a great negotiator,” says Deirdre Latour, who runs the Olympic--guest program for General Electric, a worldwide Olympic sponsor. This summer, G.E.’s corporate and business units are sending 2,000 guests to Beijing with Jet Set. “How do you structure a day for customers that includes Olympic events, tourist sites, meals, transportation, drop-offs, signage in multiple languages? Sead gets it done,” Latour says. Raised in a secular Muslim family north of Sarajevo, Dizdarevic left the air force academy at age 20 and moved to West Germany to play club soccer. In 1972, he went on a shopping junket to New York and stayed. “I thought, What a great country. No one asks my religion,” he says. Following a stint as an airline mechanic in Newark, New Jersey, he opened a travel agency for Yugoslav immigrants on Staten Island. The business mushroomed, drawing Yugoslavs of every ethnic stripe. “Bosnians were considered neutral. We worked with everyone,” Dizdarevic says. It was that very agency through which Dizdarevic—aided by a check he delivered to the right people in what was then Yugoslavia—won the right to become the travel and ticket agent for the Sarajevo Games, which launched his Olympic career. He married a Croatian-American Catholic. They have two sons and a daughter. Prosperity and the stress that comes with it have brought him a shock of white hair and crow’s-feet that nearly engulf his eyes when he laughs, which is often. Though diminutive, Dizdarevic still moves with athletic grace, which he puts to good use during the occasional ski trips that the demands of his Olympic--concierge life still allow. His real love, though, is hunting:

He’s a little guy with big guns and the trophies to prove he knows how to shoot them. At Jet Set’s headquarters, in an old mansion in Somerset County, New Jersey, a pair of giant elephant tusks frame one end of the main hall; a seven-foot-tall mounted Canadian polar bear stands guard at the other. But Dizdarevic is proudest of the stuffed African lion and leopard that adorn his home. Beijing is his richest prey ever. It took three years of coddling and cajoling to reach a sponsorship deal with China’s Olympic leaders. “We had to educate them,” he says. “At first, the Chinese said, ‘Okay, the price is $500 a room, plus tickets.’ We said, ‘You need to talk thousands of room nights, multiple hotels, 100 percent occupancy, sponsorship rights, staff costs. What if you sell only 60 percent? How do you factor all that in?’ We explained to them, ‘The first and last waves of guests, for the opening and closing ceremonies, you can mark up 100 percent. But you can’t mark up the middle wave.’ They thought you could just book the Olympics like a hotel.” Dizdarevic worried that Chinese competitors would undercut Jet Set by selling Olympic packages overseas. So he paid the Beijing organizers to become the official hospitality operator for China’s domestic market too. The sponsorship deal had to be approved by China’s politburo, Dizdarevic says. His key Chinese associate is a functionary named Li Qibin. Li is general manager of China’s largest travel company, government--owned C.I.T.S. Beijing, which procured most of Jet Set’s hotels, restaurants, vehicles, and local workers. To an Italian lunch with Dizdarevic in Beijing, Li brings his Englishspeaking assistant; Lu Jun, the head of the C.I.T.S. department devoted to English-speaking clients; Lu’s English-speaking assistant; and Lu’s assistant’s assistant. None of them speaks English very well. Li, the boss, speaks French. Dizdarevic broaches a sensitive subject. “As you know, Jet Set’s guests are special,” he begins. More than 11,000 of them will tour the Great Wall, Forbidden City, and Temple of Heaven during the Games, and they don’t like waiting in lines, Dizdarevic explains. “Can we have special entrances for Olympic-family V.I.P.’s?” he asks. “We’ll try our best,” responds Lu. Unsatisfied, Dizdarevic homes in on the young manager, who will oversee 16 C.I.T.S. supervisors assigned to Jet Set for the Games. “Is it possible for you to spend a week with us training in the U.S.?” Dizdarevic asks Lu. The invitation, translated into Chinese, whirs around the table. “Really? Not joking?” Lu erupts. “Okay, if my boss says it’s okay.” Across the table, the C.I.T.S. chief, himself one of seven Chinese officials whom Dizdarevic hosted at the Turin Games in 2006, nods his approval. Li says he became a big supporter of Jet Set while visiting Dizdarevic’s V.I.P. operation as his guest in Turin. Several foreign travel companies came through Beijing seeking Olympic tie-ins, Li says, but Jet Set was the only one to offer yearlong training in English and “how to treat the V.I.P.’s.” Li waves away the question of whether V.I.P.-ism clashes with Communism, noting that the Chinese government stands solidly behind the country’s economic rise. “I never imagined that Chinese could afford washing machines and Walkmans. But now many Chinese have them. I have 300 employees in my agency, and more than 100 have cars. The government is giving bonheur for the majority.” Li’s firm interviewed 3,000 university students to select 800 for training at Jet Set Academy as guides and protocol officers. The students are paid to spend three hours a week in the classroom learning about Western culture and etiquette and Olympic history, with one overarching goal decreed by Dizdarevic: “To get them to think outside the box,” says Elizabeth Ganschow, the veteran China hand who runs Jet Set Academy. During one evening class, a trainee asks if Westerners have any special needs that “Orientals” don’t. “They want downtime, to be left alone,” answers Jay Liu, a program manager at Jet Set. Another young woman asks what to say if asked about sensitive topics like Taiwan. First, Liu tells her, take the guest aside and speak privately. “My answer would be, ‘I think Taiwan’s part of China, like a younger brother. How can part of the family leave the family?’” Liu says. “Don’t be too detailed. Keep it ambiguous.” Before wrapping up in Beijing, Dizdarevic stops by the Sofitel to see if the manager has come to his senses. This time, the Jet Set boss tells the Frenchman that his groups will eat breakfast in the main dining room—a nightmare scenario for a hotel planning to run at 100 percent occupancy. “What if there are no seats?” the manager asks. “People will get up earlier the next time,” Dizdarevic says. A few days later, back in New Jersey, Dizdarevic gets word that the Sofitel has slashed its quote in half for breakfast and is throwing in use of the ballroom for free. “If I wanted to play a game with him, I could squeeze him to death,” Dizdarevic says. “I charge a lot of money too, but I have never charged anyone three or four times my cost.” The Highs and Lows of Attending the Olympics Two ways to go: Jet Set’s corporate packages versus tourist class Deluxe Corporate Hospitality Program 18 days for up to 30 people. 15 rooms or suites at the five-star Sofitel Wanda hotel, Ritz Carlton, or JW Marriott. V.I.P. tickets of your choice for each occupant of each room (two events per day); could include tickets for the opening or closing ceremonies, hockey finals, basketball finals, or other premium events. For every 15 rooms, one deluxe bus or limousine for transportation to and from the events. Reserved dining at premium restaurants, including those at Commune by the Great Wall Kempinski hotel Guided tours of the Great Wall, Forbidden City, and Temple of Heaven. Daily breakfast in hotel ballroom. $2 million to $3 million Provider: Jet Set Sports, Far Hills, New Jersey A Typical Package for the "Civilian" Traveler Five days’ accommodations at the Tianlun Songhe Hotel. Tickets to two Level-1 events and two Level-2 events, like boxing or rowing (surcharges may apply) Round-trip transportation to and from events. Guided group tour of Beijing’s tourist attractions with English-speaking guides. Access to the trip provider’s Olympic Green hospitality area with Englishspeaking guides and concierges Optional upgrades to Level-1 tickets. Daily breakfast. $6,250 per person Provider: Roadtrips Inc., Winnipeg, Manitoba, Canada Note: Prices are for double occupancy and do not include airfare.—Jessica Liebman Related Links Are the Olympics Worth It? Strong Interest in Summer Olympics Spurs Vibrant Ad Sales China's Big Drain

Secondary Sources: No Recession, Food Inflation, ECB (WSJ.com: Real Time Economics) Submitted at 7/22/2008 10:01:00 AM

A roundup of economic news from around the Web.• Defying the Gloom: John Berry of Bloomberg says that the U.S. economy has defied the gloom in the second quarter. “Even with all the things going wrong — including the official bear market on Wall Street — growth probably checked in at about a 2.5 percent annual rate in the second quarter. That’s about as fast as many economists think it could grow on a sustained basis without generating more inflation… In spite of the hand-wringers, the U.S. economy isn’t mired in a recession — and that’s not just a technical matter of definitions. It’s a matter of how many jobs are likely to be lost as the country works its way out of the mess created by the bursting of the housing bubble, the resulting

financial-market turmoil and soaring energy prices.” • Defending Short Selling: Stefan Tangermann, writing for the voxeu blog, looks at the reasons for food-price inflation. “New research shows that India, China, and speculators are not the culprits in the food price explosion. Biofuels were a significant element in the 2005-2007 food price surge as they accounted for 60% of the growth in global consumption of cereals and vegetable oils. There cannot be any doubt that biofuels were a significant element in the rise of food prices. Since new research also shows that biofuel support policies are disappointingly ineffective on environmental grounds, governments should reconsider them.” • ECB Suggestions: On his Maverecon blog, William Buiter says the ECB should vote on rate decisions and publish its minutes. “The ECB has never had a formal vote on interest rates. I know this out of the mouths of horses

who between them have attended every single one of the ECB Governing Council’s rate-setting meetings since the first one in January 1999. Instead of voting on the interest rate, the ECB’s Governing Council ‘reach a consensus’ without ever taking a vote. The mystical process through which this consensus is achieved can only be guessed at. Not voting on interest rates is an essential part of the ECB’s framework for non-accountability. Since they don’t vote, they cannot of course publish either the aggregate vote or the individual votes. Since there is a consensus, there is no need for individual Governing Council members to justify the decision. A collective statement suffices, like the pre-cooked (that is, written before the rate-setting meeting) Introductory statement preceding the Q&A, given by the ECB president immediately following the rate setting meeting.” Compiled by Phil Izzo

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In for a Landing (Portfolio.com: Business Travel) Submitted at 7/16/2008 3:00:00 AM

W hen Herb Kelleher started Southwest Airlines in 1967, he was a pariah, a chain-smoking, Wild Turkey-swilling lawyer-entrepreneur who tried to undercut his established competitors. The airline was in legal limbo for four years because of disputes over flight routes before its first plane was allowed to take off. Four decades later, Kelleher’s upstart airline is now the country’s largest in terms of market capitalization and has posted a profit for 35 straight years. It’s the only major U.S. carrier making money right now, even as smaller airlines fold at a rate of about one a month and legacy carriers, stuck with record-setting fuel prices, stagger toward bankruptcy. This spring, at age 77, Kelleher retired as Southwest’s chairman and scaled back his responsibilities to an advisory role, a position he’ll hold for five years. It’s a good time for him to ease up. The airline business is going through a difficult period, and Southwest was recently hit with a $10.2 million fine because it had flown planes after their required inspection dates. But Kelleher leaves Southwest in excellent shape compared with its peers. With a $10 billion market cap and ample cash reserves, it’s poised to solidify its -position as the low-fare airline. Condé Nast Portfolio reporter Matthew Malone met Kelleher at Southwest’s Dallas headquarters, where the executive, a longtime three-pack -a-day smoker, elbowed up to a silver ashtray the size of a turkey platter. Kelleher has never cared much about appearances, and he’s certainly not changing now. During the 90-minute interview, he smoked four Merits, kissed a Southwest intern on the cheek, and jokingly picked his nose. He also talked about the foolishness of mergers, the state of the Federal Aviation Administration, and why February is the worst damn month of the year. Between the lackluster economy and soaring fuel prices, some say that things are downright apocalyptic for airlines these days. Is the business model simply one that doesn’t work anymore? It’s very difficult to make it work when oil is at $130, $135 a barrel. Southwest has been protected from many of the difficulties of this time: Our fuel hedges saved us $727 million last year alone. But our revenues are down as a consequence of higher fuel costs, and I think our principal advantage at Southwest and in this milieu is the fact that we’re so strong financially. We have the lowest cost in the industry per available seat mile, the strongest balance sheet, the most equity of any carrier, so we’ve always been fit for whatever exigency confronted us. We’ve always been very conservative and made sure that we’re ready for the bad times, because they always come. The last major round of restructurings, after 9/11, allowed the legacy carriers to cut into Southwest’s cost advantage. More restructurings and bankruptcies are on the way. Will that make the company more vulnerable? No. As a matter of fact, I think our competitive advantage is widening. The other carriers are increasing fares and adding fees so quickly that I think that we’re regaining our low-cost-fare advantage. There’s another factor: I refer to Chapter 11 as the washateria—you go to the washateria, and you wash out all your sins and get a fresh start. Once you’ve been through it, your opportunities are narrowly constricted with respect to restructuring, because you’ve already terminated your benefit pension plans, you’ve got a reduced lease rate on your airplanes, you’ve gotten better financial terms from your lenders, and it’s very hard to come up with substantial savings the next time around. If you had a crystal ball, what would it reveal about where the -industry will be a year from now?

I’d love to give 10-year projections. The shorter ones are harder. It depends on where fuel prices are, but I think you’ll see fewer airlines. That process has already started, with the airlines that have ceased operations. Consolidation is something that a number of carriers think is a way to salvation. I’m not sure it is, as far as fuel prices are concerned, which is the primary issue. The Delta-Northwest merger is well on its way. They have to jump the regulatory hurdles, and then, of course, you have to work like crazy to make sure it actually works out the way you had planned. Which carriers are the most vul-nerable to going under? I never get into that. I don’t want to be a party to a run on the bank. One of your last official duties as chairman was to testify before Congress about the fine that Southwest had to pay over safety inspections. Some planes were flown after their official F.A.A. inspection dates. What’s your take on that incident? We reported ourselves to the F.A.A.—that we inadvertently and unintentionally missed these inspections, and the principal inspector said, You’ve got 10 days to do it. There may have been a technical issue, but there was never a safety issue. And there were never any planes that placed passengers at risk. I don’t mean to demean it, but in a sense it was a question of filing the wrong form, so to speak. Boeing said flying the planes was okay, and a former lead investigator for the National Transportation Safety Board said it was okay. There was no threat. Would you do anything differently? The appropriate route would have been to go and get an alternative means of compliance from the F.A.A., and I’m quite sure that they would have granted it. That’s what I regret, that we didn’t do that. That whole issue became political pretty quickly, and in the middle of it, you scrapped plans to outsource some of Southwest’s maintenance to an operation in El Salvador. Why the change? It was a question of timing. We didn’t say that we would never do it. We just said we’re not going do it now, because we don’t need to add a layer of complications with respect to a new maintainer. Outsourcing is a word that covers a multitude of different concepts, and you have to realize a lot of the talk about it is really a product of union activity, where they’d like to keep the work in the United States. From a safety standpoint, it’s perfectly safe. Now that you’re stepping down, how much interaction will you have with the company? Really, what I am here is C.E.O. Gary Kelly’s servant. He is a superb chief executive officer, and I would anticipate that he would ask me from time to time to get involved in some special projects. The dustup with the F.A.A. is an illustration. I really serve at his beck and call. Is there some innovation that you think could help save this industry? Something on the horizon that you look at with great interest? Well, no. I don’t think there’s any silver bullet. I think the carriers in the present circumstances are doing exactly what they need to do in order to survive. For the first time in my memory, they’re very busy reducing capacity, which of course will provide fewer seats. That saves fuel, and you’re able to raise fares, I think, fairly substantially. Fewer and fewer people will be flying, and in a sense that’s a sad thing for me. A lot of the American public will be deprived of the opportunity to fly. But I think the carriers have to do it. They don’t have any alternative. How much will fares go up during the next 12 months? The latest figures I saw, through April or May 2008, was that average fares had gone up 4.8 percent already this year. And with reductions in capacity, I wouldn’t be surprised if average fares went up by another 5 or 6 percent this year. I’m not talking about Southwest, by the way, just the legacy carriers.

The F.A.A. has been under a lot of pressure lately. What’s your view of the agency? The F.A.A. has a splendid record. There’s no question about that. Commercial airline travel has never been safer, and it’s grown steadily safer over the past four or five years, so the end result has been superb, absolutely superb. I think reform of the air-traffic-control system is the major issue facing the F.A.A. as a whole. It’s an antiquated system, and a lot of the difficulties that we were talking about earlier for the airlines would go away if you had a modernized system that was more efficient. I’m hopeful that we’ll make steady progress toward the adoption of next-gen, as they call it—an air-traffic-control system that will be G.P.S.-oriented. What has prevented that from hap-pening so far? You’re stepping on a sore toe right now, because I became an apostle of that in 1993, and here we are 15 years later and we haven’t made a lot of progress. Backpackers are using G.P.S. to find out where they are in the woods. Truckers are using G.P.S. to find out which routes they should take to their destinations. Buses are using it. Private aircraft are using it. Let me see, who are the only ones who don’t have G.P.S.? Commercial airlines. Isn’t that astounding? You have to be a visionary and say, “We don’t need this today, but we’re going to need it very badly 10 or 15 years from now.” Airlines need it, but the government has to take the steps to set it up. If you stop to think about it, we’re really a little slice of salami in a governmental sandwich. The F.A.A. tells us what we can do with the airplane, right? You can’t push back from the gate, can’t taxi, can’t take off without the F.A.A. telling you. Our passengers on the ground are processed by the Transportation -Security Administration. And guess who owns the airports. Governmental bodies. That’s why we have so little control over our destiny. Don’t misunderstand me—all of those things are needed. But it would be interesting if you said that all department stores are now going to have X-ray machines. You’re going to have to take your shoes off, your coat off, before you get into Macy’s. That might cut back on their patronage just a little bit. Is there a particular day or incident from Southwest’s history that you remember most fondly? For sheer drama, I would have to say that after litigating for four years in 31 different courts and administrative agencies, the arrival of our first airplane was a pretty dramatic event. I burst into tears when I kissed it on the nose and then went around and stuck my head in the engine, at which point a mechanic grabbed me and said that if the thrust reverser went off, it would decapitate me. I said, “You know? I really don’t give a damn.” What’s the worst investment you ever made? Gee, there are so many, it’s hard to pick out one. Enron, I guess. I must say, I didn’t pick Enron. It was a money manager. So choose one: the cigarettes or the Wild Turkey. Ha! It would be the cigarettes, and I’ll tell you why: I stop drinking Wild Turkey for a month every year in February, but I could never stop smoking for a month. I’m an addict. I acknowledge it. Why February? I was afraid you were gonna ask that. It’s the shortest month. [Laughter] About 20 years ago, a doctor told me, “As much as you drink on a regular basis, I think it’d be great for your liver if you took a month off.” So I said okay—February. I hate leap years! Despise them. Related Links The Safe (but Scary) Skies Flying Solo Flying on Empty

Shelly Palmer: Ben Silverman's Comments on Margins vs. Ratings Signal the End of Broadcast Television By [email protected] (Business on HuffingtonPost.com) Submitted at 7/22/2008 7:00:07 AM

In case you haven't noticed, the business of broadcast television is in trouble. Ratings have been trending down year over year for more than 30 years and there's no end in sight. Most pundits blame this audience fragmentation on outside forces like the proliferation of cable channels, DVDs, video gaming, DVR's and most recently online video, personal video and wireless offerings. People who should know better constantly parrot misinterpreted data about the deleterious effect of TiVo (the noun describing the entire genus of DVR's) on commercial advertising and how the 30 second spot is dead. Others like to call the medium a vapid wasteland of unwatchable programs. All of the professional explanations for the decline of broadcast television ratings seem to agree that the problem comes from outside forces and an unavoidable changing landscape. I disagree. Yes, the business is not what it once was, and yes, there is a bit of empirical data to support the idea that enhanced consumer control over media consumption has had a significant impact on viewing habits since the introduction of the "included with purchase" electronic remote control in the mid-80's. But, none of this has had even a slight impact when compared to the business culture and business rules that have evolved over the same 30 year time period. According to the New York Post, Ben Silverman, co-head of programming for the NBC Television Network said the following: "We're managing for margin and not for ratings." There is nothing technology can do to help or hurt this strategy. It is truly the end of broadcast television. If you want to see TV ratings improve, the business improve and the ROI improve, try investing in programming, not margins. It will be a refreshing twist for the 21st century. And, it is really the only thing that will turn the business around. The recipe for profitable broadcast television is pretty simple: Develop large audiences that you can accurately measure and sell them to advertisers who need to reach them. The shows that do this even have a name: "hits." If, on the other-hand, you want to sunset an organization and squeeze every last dime out of it before it gives up the ghost, manage for margins. By the way, Ben Silverman is a personal friend of mine and I both respect and admire him. His success is laudable and he is a great guy. In fact, what I love about Ben is that he actually had the guts to come out and say something that no one else in his position would ever have the guts to say. This is not an NBC problem; it's an industry problem. Ben just held up the mirror. The title of the Post's article was,"Silverman Channeling Jack

Welch." Not only is this is not a compliment for a television programming executive, it portends a dismal and disturbing future. Winston Churchill once said, "The farther you look back, the further you can see into the future." So, let's look back a few years to the "golden age" of radio. Back then, disc jockeys ruled. They became the stations' program directors because they had their fingers on the pulse of the audience. As the business evolved, very successful program directors were promoted to station management. It was easy to spot a station with a GM who came from programming. Talent was treated with respect, content was king and audiences came first. As the business of radio matured, professional business people started to look closely at the cash cow and you could see the focus of management turn to sales. Radio became extremely competitive from a commercial point of view (it was always creatively competitive). The new superstars of the business were the sales guys and you saw a shift in senior management to sales-oriented executives. It was easy to spot a radio station that was run by a former GSM, it was all about sales and promotion. These execs knew where the money came from and managed the stations differently than their programming predecessors. But the industry kept growing because sales and programming had always been in a surrealistic paso doble that, when properly managed, produced excellent financial results. Ultimately, sales-oriented station management caught the attention of pure money people from the outside world. If a well programmed station was a cash cow, a fully sold out, well run station was a cash machine and pure money people like that kind of ROI. What happened next was inevitable, but unfortunate. Management evolved once again. This time, accountants, bankers, lawyers and professional P&L managers from outside the radio business took over. They looked for efficiencies, consolidated divisions, rolled up station groups and turned the entire enterprise into a mass of M&A deals. The term "exit strategy" was the new goal and everything else was secondary. Ben Franklin, who, among other things, is the great, great grandfather of mass media in America, once said, "Those who are unwilling to study history are doomed to repeat its mistakes." If you look at the radio business today, it is hard to find a station that has made any meaningful investment in programming in the recent memory of man or beast. The business is about consolidated sticks, pre-canned, pre-formatted programming, sales of aggregated, de minimis audiences and margin. The industry is not about growth, it's about holding on to what's left. The television industry has always followed the fortunes of the radio business. A quick rule of thumb is that changes in the video business are usually about 10 years behind similar changes in the audio business. I think this arm-chair research and the associated aphorism is supported with

enough historical evidence to be taken seriously. "There's nothing to watch on Saturday night." says the viewer. "There's no audience on Saturday night, so there's no reason to invest in it..." says the margin-oriented television programming executive. This is a vortex of logical rhetoric. It is almost impossible to break free and stop the cycle. What can be done? The answer is very clear. Super Bowl XLII (February 3, 2008) was the most-watched sporting event on record and the second most-watched TV program in history. Nielsen says an average of 97.5 million viewers watched the Giants-Pats contest. (The most-watched program is still the M*A*S*H finale, which drew 106 million viewers in 1983.) The big game also broke a record for total viewership, with 148.3 million viewers (persons age 2+ watching all or part of the game). The previous record stood at 144.4 million for Super Bowl XXXVIII in 2004. What this tells us is that if you put on a compelling piece of content, there actually is a television audience to watch it. Is it unfair to use an annual emergent sporting event as an example? Perhaps. The job of television is to inform, enlighten and entertain. So, I will simply point to the last episode of M*A*S*H as the appropriate benchmark. You will immediately argue that every show is not M*A*S*H and that most entertainment shows will never find an audience of that size. I agree. Most shows will not ever attain that kind of rating. But I can also assure you that M*A*S*H, Friends, Seinfeld, etc. were not programmed for margin. They were programmed for ratings to the exclusion of every other benchmark. Remember, people don't have Internet rooms in their houses, they don't have video game rooms in their houses, most don't even have reading rooms -- but most households in America do have TV rooms. And, in most of the 112.8 million television households, there is a TV in more than one room. TV technology is everywhere; it's the programming that's nowhere! Shelly Palmer is the host of MediaBytes a daily news show featuring news you can use about technology, media & entertainment, Managing Director of Advanced Media Ventures Group LLC and the author of Television Disrupted: The Transition from Network to Networked TV (2006, Focal Press). Shelly is also President of the National Academy of Television Arts & Sciences, NY (the organization that bestows the coveted Emmy® Awards). He is the Vice-Chairman of the National Academy of Media Arts & Sciences an organization dedicated to education and leadership in the areas of technology, media and entertainment. Palmer also oversees the Advanced Media Technology Emmy® Awards which honors outstanding achievements in the science and technology of advanced media. You can read Shelly's blog here. Shelly can be reached at [email protected]

Wachovia-Golden West: Another Deal From Hell? (WSJ.com: Deal Journal - WSJ.com) Submitted at 7/22/2008 9:54:00 AM

While Goldman Sachs Group banker Ken Wilson– call him “Kenny” only if you are President George W. Bush–takes up his new job as an adviser to Hank Paulson, former Paulson adviser and fellow Goldman alum Robert Steel has his hands full at Wachovia. The North Carolina bank today posted a net loss of $8.66 billion–compared with net income of $2.34 billion last year–and took $6.1 billion of write-downs. It also slashed its dividend to just five cents a share from 37 cents. Associated Press A lot of this pain can be traced back to Wachovia’s errant 2006 acquisition of mortgage lender Golden West Financial. The entire market value of Golden West–which Wachovia bought for $25.5 billion–has nearly disappeared. Even on the day the deal was announced in May 2006, investors hated it so much that they slammed $1 billion out of Wachovia’s market value. At the time, Wachovia had a market cap of $90.2 billion and predicted that with Golden West its combined market cap would be $117 billion; today Wachovia’s market cap is hovering around $25.87 billion, or

just a little more than Wachovia paid to acquire Golden West. Wachovia this year procured a capital infusion of around $8 billion because of that pain. Wachovia’s net slid last year to $6.3 billion from $7.7 billion in 2006, mainly because of bad loans made by Golden West. Former Wachovia CEO G. Kennedy Thompson(left) lost his job last month in large part because of the fallout. And Wachovia’s stock price today–cover your eyes–was a piddling $12.24 at the open, or just about a quarter of the 52-week high of $53.10 in September. Considering all these signs, it may be time to enshrine Wachovia’s acquisition of Golden West Financial as a Deal From Hell. Taking on the mantle of “Deal From Hell” isn’t a casual affair; it is a difficult-to-achieve level of shame inspired by Robert Bruner, dean of the Darden School of Business at the University of Virginia, and his book, “Deals From Hell: M&A Lessons That Rise Above the Ashes.” Bruner’s requirements for consideration included destruction of market value; financial instability; impaired strategic position; organizational weakness; damaged reputation; or violation of ethical norms and laws. Another Deal From Hell, for instance, is Sprint’s disastrous merger with Nextel. Wachovia/Golden West now seems to qualify, if only because of the

“destruction of market value” criterion. It seems a harsh housewarming for Steel, now Wachovia’s cleanup man. But Steel at least didn’t have to engage in the usual new-CEO ritual of castigating the work of his predecessors. Instead, Wachovia Chairman Lanty Smith wore the hair shirt in today’s earnings announcement. Smith called Wachovia’s results “disappointing and unacceptable.” Investors would be hard-pressed to argue. He went on to explain, “While to some degree [these results] reflect industry headwinds and weaker macroeconomic conditions, they also reflect performance for which we at Wachovia accept responsibility.” Contrast Lanty’s take-one-for-the-team mentality with John Thain’s testy rebuttal to a question on last week’s Merrill Lynch earnings call. Thain sharply corrected one analyst who asked about the CDOs packaged by “you guys” at Merrill with this: “First of all, I take exception to the ‘you guys’ comment. I did not create any of these CDOs.” Related Links: Medlin + Duke + Ole ‘Wachovia Way’ = Robert Steel Dear CEO: Capital Infusions May Not Save Your Job. Sorry. Wachovia and Golden West: A Good Idea at the Time

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Giants Make Shockey a Saint (WSJ.com: The Daily Fix) Submitted at 7/22/2008 11:34:00 AM

Jeremy Shockey is headed for the Big Easy. The New York Giants traded their 28-year-old star tight end, who’d grown disenchanted with Big Blue because he wanted to be a bigger part of the team’s passing game, to the New Orleans Saints for second- and fifth-round picks in 2009. Mr. Shockey will bring his considerable talents to the Saints’ offense (where he’ll rejoin coach Sean Payton, the Giants’ offensive coordinator his rookie season) and no lack of enthusiasm to the Superdome, but he’s also been hampered by injuries and self-inflicted distractions: He missed the Giants’ drive to a Super Bowl upset and expressed his annoyance by passing up the pomp and circumstance that followed. Jeremy Shockey will next celebrate in black and gold. (Associated Press Photo) Mr. Shockey’s resume contains large portions of accomplishments and missteps alike, leaving New York columnists wrestling with whether or not the Giants are better without him. “Giants fans will miss Shockey every time the defending Super Bowl champs come out lifeless and flat and a fire is needed inside the stadium, from some wild-eyed madman quivering with emotion,” Steve Serby writes in the New York Post. “They will miss him every time some unsuspecting defensive back needs Rambo-ing. Shockey may have marched to the beat of a different drummer, may have been high maintenance, may have dropped too many balls, may have been injury-plagued, but I keep coming back to what Shaun O’Hara said not too long ago when he was asked about the Shockey trade rumors: that he’d rather play with him than against him.” In the New York Daily News, Gary Myers sounds less convinced: “It just won’t be the same without Jeremy Shockey around to throw a fit after Eli Manning bounced one at his feet or sailed one over his head or didn’t feed his ego by throwing him the ball 10 times a game. Repeating as Super Bowl champions is nearly impossible, but the Giants’ chances dramatically improved Monday when they dumped Shockey, an All-Pro distraction, on the Saints. … Shockey was more style than substance, a big talker given to saying the wrong thing.” An even-handed portrait comes from Newsday’s Neil Best: “New York wanted to love Jeremy Shockey from the start, and often did. He was Mickey Mantle 2.0, a brawny, reckless, untamed Okie who immediately announced himself by brawling with Brandon Short in the training camp dining room after a disagreement over some low-level rookie hazing. Soon, he was bowling over various hapless members of the Houston Texans in his first appearance as a rookie, the 2002 Hall of Fame Game, causing TV types to scramble for old tapes of Mark Bavaro.” But Mr. Best notes that Mr. Shockey capped his rookie season by dropping a pass in the end zone in the playoffs against the San Francisco 49ers, a game the Giants would lose and that Giant fans are still scarred by. “That was Shockey,” he writes. “Inspire the team and its fans with talent and tenacity, let them down with immature behavior and a maddening inability to complete a basic job requirement: securing a forward pass. … Unlike Mickey Mantle, Joe Namath, Walt Frazier, Lawrence Taylor, most of the 1986 Mets and other charismatic men about Big Town, Shockey in the end was exposed for what he was: an intriguing, engaging, ultimately superfluous figure when it came to winning a championship.” (Extra credit: Newsday’s list of Shockey ups and downs.) So what’s the reaction in New Orleans? The Times-Picayune’s Peter Finney doesn’t like the deal, a position that has less to do with Mr. Shockey

than with worries about the Saints’ defense. New Orleans, he says, is “looking at a defense that gave up 14 rushes of 20 yards or more, that gave up 54 receptions of 20 yards or more. Compounding these problems are offseason knee surgeries suffered by cornerback Mike McKenzie and incoming linebacker Jonathan Vilma, a prize free agent. My feeling is the Saints, even though they’ll be bringing in five defensive free agents and used their first three draft picks for defense, cannot get enough help across the board, up front, at linebacker, in the secondary.” *** Atlanta Hawks restricted free agent Josh Childress would like to go to another team via a sign-and-trade deal, but he has no particular leverage to make that happen. Or does he? Mr. Childress is reportedly weighing a three-year, $20 million deal with

Olympiakos, which could be a canny way to get the Hawks to see things his way (a FIBA contract would give them no matching rights) or a sign that the European leagues are more of a challenge to the NBA than fans have thought. On Yahoo Sports, Adrian Wojnarowski analyzes the potential repercussions; in the San Francisco Chronicle, Gwen Knapp calls his strategy“great leverage, and quintessentially American. Until now, Childress basically was a financial hostage of the Hawks. We tend not to discuss sports business that way, because it would be a real downer to call drafts and salary caps what they really are — restraint of trade and price-fixing. Besides, it’s hard to get indignant on behalf of someone like Childress, whose price was fixed at $3.6 million last season. But as a restricted free agent, he had virtually nowhere to go this summer, whether for more money or refuge from a club that, despite its shocking playoff performance against the Celtics, is not the ideal location for Childress. Most teams lack enough room under the salary cap to bid for him, and the loopholes in the system have constricted to the point that only Atlanta realistically can be expected to give Childress an improved contract.” So what’s Mr. Childress up to? “He is either playing an elaborate game of chicken with the Hawks, who made him the No. 6 draft pick in 2004, or eagerly learning how to say ‘pick and roll’ in Greek,” Ms. Knapp writes. “It doesn’t really matter which, because Childress’ threat has enough credibility to serve as a warning shot throughout the NBA.” *** For the uninitiated, the peloton is one of cycling’s mysteries — but in the New York Times, cyclist and author Michael Barry offers a gripping explanation of how it works, and what cyclists endure in a race like the Tour de France. “The peloton flows with the roads, and we, the cyclists, blindly hope that the flow is not broken,” he writes. “A wall of wheels and bodies means we can never see too far in front, so we trust that the peloton flows around any obstacle in the road like fish in a current. When in the group, we follow the wheels, looking a few yards ahead, watching other riders to gauge our braking, accelerations and how we maneuver our bikes. Over time, cycling in a peloton becomes instinctual, and our bicycles become extensions of our bodies. When that flow is broken, reaction time is limited and we often crash.” *** Legendary sportswriter Jerome Holtzman died Saturday at 81. Mr. Holtzman was an orphan who became a copy boy at the Chicago Daily Times at 17, wrote a column for the Sporting News for 30 years, and (for better or worse) invented the save. “He was a gruff man but a gentleman, a newspaper bulldog but an old softie, a U.S. Marine to his core but a kind, considerate, cultured soul who always looked to me as if he should have been on his way to meet Damon Runyon, Grantland Rice and Ring Lardner for lunch,” recalls Mike Downey in the Chicago Tribune, adding: “Spencer Tracy, Fredric March, take your pick. A tight, white, starched collar. A set of suspenders, thumbs inserted, poised to snap. A cigar as large as a clarinet. Chicago’s kind of guy. And certainly baseball’s kind, back in the day and for all time. A student of the game and a teacher as well.” – Tip of the Fix cap to reader Don Hartline. Found a good column from the world of sports? Don’t keep it to yourself — write to us at [email protected] and we’ll consider your find for inclusion in the Daily Fix.

What Was Ken Lewis Thinking?

Panic Room

(Portfolio.com: Careers)

(Portfolio.com: Careers)

Submitted at 7/16/2008 3:00:00 AM

W all Street’s debate over Bank of America’s purchase of Countrywide Financial is not whether it’s a good or bad deal—but whether it will be C.E.O. Ken Lewis’ last deal. “If this doesn’t work, at some point shareholders are going to demand Lewis’ head,” says Josh Rosner, managing director of Graham Fischer & Co., a New York research consultancy that specializes in mortgage finance. But in keeping with the market axiom that any viewpoint unanimously held is wrong by definition, writing off Lewis so fast may be a mistake. In fact, there’s a decent—and obviously contrarian—case to be made that the Countrywide deal plays to Lewis’ strengths, if he can survive long enough to show them off. First, Lewis is an old hand at big deals. Bank of America is the product of more than 3,000 mergers, and Lewis has worked on many of them, including the epic 1998 union of NationsBank (known as North Carolina National Bank when he started there in 1969) and Bank of America, California’s largest bank. It’s telling that most analysts were initially skeptical of the two Lewis megadeals that clinched Bank of America’s place as the country’s first (and still only) truly national consumer bank: the $48 billion acquisition of FleetBoston Financial in 2003 and the $34 billion purchase of credit-card specialist MBNA in 2005. In both cases, B of A was roundly criticized for overpaying. In the end, Lewis and his team squeezed so much value out of FleetBoston and MBNA in integrating them with B of A’s existing operations that investor opinion on the deals swung strongly to the positive. Lewis also showed unusual resolve in sitting on his checkbook even as rivals were paying top dollar to buy mortgage lenders by the dozens in the 1990s. He was deeply ambivalent about the mortgage market, telling colleagues that he “loved the product and hated the business.” Although he acknowledged that the home loan was a “cornerstone of the customer relationship,” he considered mortgage lending unnecessarily risky. Not only did housing markets go from boom to bust all too often, but the structure of the industry was too risky because banks outsourced much of their lending to brokers or others. As soon as Lewis moved up to C.E.O., he began restructuring Bank of America’s mortgage-lending operation with the dual aim of reducing risk and forging a closer, more lucrative relationship with his customers. Within a year, the bank had stopped making subprime loans and buying mortgages from other lenders. It also found ways to attract better-quality buyers: It trained about 10,000 personal bankers in its branches to sell home loans directly to consumers, along with checking accounts, credit cards, and certificates of deposit. This might not sound like much, but other banks relied on referrals from homebuilders and real estate brokers, which meant that they had less control over customer quality. Lewis’ conservatism was tested during the housing boom that lasted from 2003 to 2006. Countrywide and other lenders fed the frenzy by amending conventional standards of creditworthiness to accept almost anybody willing to fill out a loan application (ability to repay optional). As lending volume exploded, the issue of whether B of A should jump back into the subprime game sparked fierce internal debate. Customers by the millions were going elsewhere for mortgages and taking their banking relationships with them. “You don’t want to be in a position where you have to say no to customers,” says a B of A executive who found himself on the other side of the issue from his C.E.O. Lewis’ intransigence became prescience when the credit-market convulsions of mid-2007 brought the subprime house of cards tumbling down on its architects, including Angelo Mozilo, Countrywide’s 69-year-old co-founder and C.E.O. While mortgage originations across the industry for the year dropped 15 percent, Bank of America’s volume jumped 21 percent, to $93 billion. More important, the $275 billion worth of mortgages the bank

held on its books remained solidly profitable even as soaring rates of default and foreclosure pushed many subprime specialists into bankruptcy. For 2007, B of A’s net mortgage charge-offs totaled $57 million, a mere 0.02 percent of its portfolio. For Lewis to acquire the company that underwrote so much of the subprime sludge now polluting the global financial system isn’t quite the betrayal of principle it might seem. Until the late-career meltdown of Mozilo’s credit judgment, Countrywide was an enterprising, well-managed company that for three decades had subsisted on exactly the sort of conventional home loans to which Lewis limited B of A. Countrywide hasn’t made a material subprime loan in nearly a year, and Mozilo is a selfcorrecting problem—for Lewis, anyway. The lavishly paid, superannuated poster boy of subprime excess will retire as soon as the sale closes, leaving a horrendous legal mess—including his Friends of Angelo V.I.P. program—that could take B of A a few years and a whole lot of money to clean up. What investors fear above all is that B of A’s $3 billion purchase price will turn out to be the mergers-and-acquisitions equivalent of a modest down payment on a grand old mansion that’s now so riddled with termites and toxic mold that the bank will have to spend an additional $10 billion to $30 billion to bring it up to code. The money pit consists mainly of the mortgages that Countrywide carried on its books as an investment at the end of the first quarter. As of March 31, 4.16 percent of those mortgages were in default or foreclosure, compared with 1.65 percent six months before and just 0.66 percent at the end of 2006. This makes for a trend line that big investors might well try to fashion into a noose for Lewis if housing markets like California and Florida fail to stabilize soon. In closing on its purchase of Countrywide, B of A must mark to market its $95 billion mortgage portfolio to something approaching a real price—a process that analysts expect to be ugly. “A year and a half from now, Ken Lewis is going to sit down and tell somebody over drinks, ‘I wish I had walked away from Countrywide,’” says Paul Miller, an analyst at FBR Capital Markets, who predicts a $28 billion markdown, give or take a few billion. People inside B of A, though, insist that Lewis is holding firm. In addition to being what is still the busiest mortgage lender in the country—Bank of America is fifth—Countrywide also remains the country’s largest mortgage servicer, handling the billing and other administrative tasks for nearly $1.5 trillion in loans. Servicing is a business of scale and data-processing precision in which Countrywide’s growth has long set the pace and Bank of America has lagged. Shifting B of A’s $530 billion portfolio onto Countrywide’s servicing platform could result in significant operating economies and better profit margins. Like all gamblers, Lewis needs to be lucky as well as good. Bank of America’s C.E.O. excels at the tricky, painstaking work of postmerger integration but exerts no control whatsoever over the great X factor on which his job security apparently now hangs: housing-market fundamentals. He has told analysts that all is going according to plan. “All I can say is nothing has happened that is out of the boundaries of what we contemplated when we did the deal,” he said during a recent Deutsche Bank conference call. On the call, Allen Puwalski of Paulson & Co. pressed Lewis, saying that housing prices could well decline much more than the consensus forecast of 25 percent. “If that’s the case,” Lewis retorted, “we’ll be worried about Countrywide, but we’ll be worried about a lot of other things too—and not just at Bank of America.” Related Links Angelo's Many 'Friends' Mortgage Brokers, RIP Angelo's Fannie Pack

Rendell: I'm Not Being Vetted Because Obama "Has Good Sense" (The Huffington Post | Full News Feed) Submitted at 7/22/2008 10:00:14 AM

Pennsylvania Gov. Ed Rendell (D) says that he has not been contacted by the Barack Obama campaign to undergo the vice presidential vetting process

because the Obama camp "has good sense." Asked if he is being vetted Tuesday morning on MSNBC, Rendell simply answered, "no I'm not being vetted." "I haven't been contacted by anybody, showing the Obama campaign has good sense."

Submitted at 7/20/2008 7:00:00 PM

Job Title: Investor Relations Officer Employers: Public companies Openings: Search firms and National Investor Relations Institute website Salary Cap:$350,000 Number of Jobs: About 6,500 P ossibly the only people more stressed out last week than investors who owned shares in banking companies were the people in charge of calming them down. As vice president of investor relations for Huntington Bancshares, a $56 billion regional bank holding company based in Columbus, Ohio, Jay Gould certainly didn't sleep much. "Everybody is running through their fire drills rights now," said Gould on Tuesday. "The stock of some companies is down 50, 60, 70, 80 percent. We're fighting rumors in the marketplace. We're fighting fear." Last week, Gould, who has 25 years of experience in I.R., was also fighting numerous deadlines as his company prepared to issue secondquarter earnings on Thursday in the midst of an industry-wide panic. The collapse of IndyMac Bancorp on July 11 sent bank shares into a tailspin, with the 12-stock Standard & Poor's 500 Regional Bank index sinking more than 15 percent in the first two days of the week. It was just the latest and most dramatic blow to an industry that has been battered all year. Huntington's share price has fallen from $21 last fall, to under $6 in the days leading up to the earnings announcement. "I worked through the weekend," Gould said. "I haven't pulled an allnighter yet, but tonight may be one. There's been a flurry of phone calls from investors, probably more than I have time to handle during earnings week." Like most veteran I.R. officers, Gould has seen his share of challenges before. After graduating from California State University–Northridge with a B.S. and M.S. in finance, Gould began his career in the thrift industry doing financial and corporate planning in 1965. Eventually, he found his niche as the head of investor relations at Security Pacific before moving on to KeyCorp and then Bank One, now a part of J.P. Morgan Chase. Before Gould joined Huntington in 2002, shareholders had been so dissatisfied with the bank's performance—the stock was the worstperforming bank in the S&P 500 in 2001—that hundreds mobbed the company's annual meeting to complain. A new C.E.O. and Gould were brought in, and the company's stock rose more than 30 percent in the subsequent year. In times of crisis, Gould's job entails far more than just calming investors. Gould is also the eyes and ears of management, charged with compiling the most accurate picture of what the marketplace is thinking, and advising them on what to do about it. Nowadays, he says, it's especially important to stay vigilant. "You have to keep your feet in the pool all the time," he says. "I'm spending an exorbitant amount of time reading press headlines, Bloomberg business headlines, and reading blogs now like I never read before." In June, when negative chatter about the company reached a high, sending the stock down from $9 to just over $5 in a two-week period, Gould took the unusual step of recommending his company issue a preemptive press release to calm investors. In the release, the bank acknowledged the stock price decline but reassured investors that their outlook remained consistent and that they were pleased with their performance. That release helped halt the stock's slide, bumping it up a full dollar. "You don't want to set a precedent," Gould says of issuing the release. "But sometimes you just got to say 'Hey, there's a lot of noise out there' [since] you don't want it to get out of control." With Thursday's earnings announcement, Gould was able to placate investors with the most potent balm of decent results, as Huntington reported a 26 percent increase in second-quarter earnings, although it did lower its forecast for the rest of the year. The stock increased 40 percent to $7.68 per share, and Gould was able to breathe a lot easier.Related Links J.P. Morgan Hits It Out of the Park J.P. Morgan Ekes Out a Gain Big Banks, Bad News

7

What Was Ken Lewis Thinking?

Angelo's Fannie Pack

(Portfolio.com: Executives)

(Portfolio.com: Executives)

Submitted at 7/16/2008 3:00:00 AM

W all Street’s debate over Bank of America’s purchase of Countrywide Financial is not whether it’s a good or bad deal—but whether it will be C.E.O. Ken Lewis’ last deal. “If this doesn’t work, at some point shareholders are going to demand Lewis’ head,” says Josh Rosner, managing director of Graham Fischer & Co., a New York research consultancy that specializes in mortgage finance. But in keeping with the market axiom that any viewpoint unanimously held is wrong by definition, writing off Lewis so fast may be a mistake. In fact, there’s a decent—and obviously contrarian—case to be made that the Countrywide deal plays to Lewis’ strengths, if he can survive long enough to show them off. First, Lewis is an old hand at big deals. Bank of America is the product of more than 3,000 mergers, and Lewis has worked on many of them, including the epic 1998 union of NationsBank (known as North Carolina National Bank when he started there in 1969) and Bank of America, California’s largest bank. It’s telling that most analysts were initially skeptical of the two Lewis megadeals that clinched Bank of America’s place as the country’s first (and still only) truly national consumer bank: the $48 billion acquisition of FleetBoston Financial in 2003 and the $34 billion purchase of credit-card specialist MBNA in 2005. In both cases, B of A was roundly criticized for overpaying. In the end, Lewis and his team squeezed so much value out of FleetBoston and MBNA in integrating them with B of A’s existing operations that investor opinion on the deals swung strongly to the positive. Lewis also showed unusual resolve in sitting on his checkbook even as rivals were paying top dollar to buy mortgage lenders by the dozens in the 1990s. He was deeply ambivalent about the mortgage market, telling colleagues that he “loved the product and hated the business.” Although he acknowledged that the home loan was a “cornerstone of the customer relationship,” he considered mortgage lending unnecessarily risky. Not only did housing markets go from boom to bust all too often, but the structure of the industry was too risky because banks outsourced much of their lending to brokers or others. As soon as Lewis moved up to C.E.O., he began restructuring Bank of America’s mortgage-lending operation with the dual aim of reducing risk and forging a closer, more lucrative relationship with his customers. Within a year, the bank had stopped making subprime loans and buying mortgages from other lenders. It also found ways to attract better-quality buyers: It trained about 10,000 personal bankers in its branches to sell home loans directly to consumers, along with checking accounts, credit cards, and certificates of deposit. This might not sound like much, but other banks relied on referrals from homebuilders and real estate brokers, which meant that they had less control over customer quality. Lewis’ conservatism was tested during the housing boom that lasted from 2003 to 2006. Countrywide and other lenders fed the frenzy by amending conventional standards of creditworthiness to accept almost anybody willing to fill out a loan application (ability to repay optional). As lending volume exploded, the issue of whether B of A should jump back into the subprime game sparked fierce internal debate. Customers by the millions were going elsewhere for mortgages and taking their banking relationships with them. “You don’t want to be in a position where you have to say no to customers,” says a B of A executive who found himself on the other side of the issue from his C.E.O. Lewis’ intransigence became prescience when the credit-market convulsions of mid-2007 brought the subprime house of cards tumbling down on its architects, including Angelo Mozilo, Countrywide’s 69-year-old co-founder and C.E.O. While mortgage originations across the industry for the year dropped 15 percent, Bank of America’s volume jumped 21 percent, to $93 billion. More important, the $275 billion worth of mortgages the bank

held on its books remained solidly profitable even as soaring rates of default and foreclosure pushed many subprime specialists into bankruptcy. For 2007, B of A’s net mortgage charge-offs totaled $57 million, a mere 0.02 percent of its portfolio. For Lewis to acquire the company that underwrote so much of the subprime sludge now polluting the global financial system isn’t quite the betrayal of principle it might seem. Until the late-career meltdown of Mozilo’s credit judgment, Countrywide was an enterprising, well-managed company that for three decades had subsisted on exactly the sort of conventional home loans to which Lewis limited B of A. Countrywide hasn’t made a material subprime loan in nearly a year, and Mozilo is a selfcorrecting problem—for Lewis, anyway. The lavishly paid, superannuated poster boy of subprime excess will retire as soon as the sale closes, leaving a horrendous legal mess—including his Friends of Angelo V.I.P. program—that could take B of A a few years and a whole lot of money to clean up. What investors fear above all is that B of A’s $3 billion purchase price will turn out to be the mergers-and-acquisitions equivalent of a modest down payment on a grand old mansion that’s now so riddled with termites and toxic mold that the bank will have to spend an additional $10 billion to $30 billion to bring it up to code. The money pit consists mainly of the mortgages that Countrywide carried on its books as an investment at the end of the first quarter. As of March 31, 4.16 percent of those mortgages were in default or foreclosure, compared with 1.65 percent six months before and just 0.66 percent at the end of 2006. This makes for a trend line that big investors might well try to fashion into a noose for Lewis if housing markets like California and Florida fail to stabilize soon. In closing on its purchase of Countrywide, B of A must mark to market its $95 billion mortgage portfolio to something approaching a real price—a process that analysts expect to be ugly. “A year and a half from now, Ken Lewis is going to sit down and tell somebody over drinks, ‘I wish I had walked away from Countrywide,’” says Paul Miller, an analyst at FBR Capital Markets, who predicts a $28 billion markdown, give or take a few billion. People inside B of A, though, insist that Lewis is holding firm. In addition to being what is still the busiest mortgage lender in the country—Bank of America is fifth—Countrywide also remains the country’s largest mortgage servicer, handling the billing and other administrative tasks for nearly $1.5 trillion in loans. Servicing is a business of scale and data-processing precision in which Countrywide’s growth has long set the pace and Bank of America has lagged. Shifting B of A’s $530 billion portfolio onto Countrywide’s servicing platform could result in significant operating economies and better profit margins. Like all gamblers, Lewis needs to be lucky as well as good. Bank of America’s C.E.O. excels at the tricky, painstaking work of postmerger integration but exerts no control whatsoever over the great X factor on which his job security apparently now hangs: housing-market fundamentals. He has told analysts that all is going according to plan. “All I can say is nothing has happened that is out of the boundaries of what we contemplated when we did the deal,” he said during a recent Deutsche Bank conference call. On the call, Allen Puwalski of Paulson & Co. pressed Lewis, saying that housing prices could well decline much more than the consensus forecast of 25 percent. “If that’s the case,” Lewis retorted, “we’ll be worried about Countrywide, but we’ll be worried about a lot of other things too—and not just at Bank of America.” Related Links Angelo's Many 'Friends' Mortgage Brokers, RIP Angelo's Fannie Pack

Danny Schechter: Homeowners "March" Against Foreclosure By [email protected] (Business on HuffingtonPost.com) Submitted at 7/22/2008 9:34:54 AM

NACA's 5 Day DC Event Offers Help, And A Way Forward WASHINGTON JULY 20: Forty-five years ago this summer I spent a day Marching on Washington. Everyone remembers it as just four words of the many uttered by Dr. Martin Luther King: "I have a dream." After that march for justice (and jobs), the organizers led by Bayard Rustin returned to the Statler Hilton Hotel, now the Capital Hilton, which was the event's headquarters. Dr. King was there, and Malcolm X even dropped by for a press conference of his own to warn that non-violence was unlikely to lead to change. It was August 28, l963, a day which is still memorialized in the hotel's lobby. I was a civil rights worker then, and a small fry organizer of that historic mobilization. That night, I crashed in a hotel room rented for SNCC, the Student Non-violent Coordinating Committee. Within five years, violence would claim the lives of both Malcolm and Martin, and today, Dr. King's children are, sadly, suing each other in part over how best to monetize his legacy. Today, I am back in that very same hotel, although the name Hilton is better known now for the antics of Baron Hilton's granddaughter Paris. Over this past weekend, the hotel, just a few blocks from the White House, was once again playing host to a human rights battle, this time the fight against foreclosures. America's largest and most militant homeownership organization, NACA, The Neighborhood Assistance Corporation hired out the grand hotel for five days, and brought 460 staffers from 38 offices to Washington for a five day event to demonstrate that their approach to stopping foreclosures is superior to everything that is being done elsewhere or proposed in Congress. They reference "the dream" too, 45 years ago activists wanted to claim it. Today they fight to save it. NACA believes that making mortgages affordable is the only way to stabilize at-risk homeowners. They call on banks to restructure mortgages, lower interest rates and replace adjustable mortgages and ARMS with low fixed rates for the long term. To make its point, and serve the community, NACA publicized an offer of free counseling and advice for homeowners that included creating modified and restructured loan proposals and aggressively persuading lenders to accept them. A solicitation was made in radio ads and through direct mail. People with mortgage problems were advised to make appointments on the NACA.com website and bring their mortgage documents with them. The event was a big and audacious gamble by NACA's feisty CEO Bruce Marks. Something amazing happened. Some homeowners started arriving at 6:30 AM. Soon lines stretched around the block. It was a march of the We Don't Want To Be Homeless, "wearing their troubles on their faces," as one NACA staffer later observed. A million families face foreclosure this year and many are trying to do something before their lives go on the auction block. The statistics are hard to wrap your head around; a parade of real people can't be ignored. By day's end, thousands of homeowners had trekked through the NACA process which included an orientation, the scanning of their documents into the organization's proprietary mortgage software and then one on one counseling in a ballroom which had been transformed into a vast arena of small tables, each with a HUD certified counselor and a computer. The counselors help the homeowners assess the affordability of their mortgages and the prospects of their losing their homes. They then draft sustainable budgets and a plan.

With personal financial data in place, backed by bank statements, mortgage paper and pay stubs, they proposed affordable "solutions" to mortgage servicers and banks. These call for cutting interest rates and restructuring the mortgages at fixed rate for 30 years. NACA negotiators emailed the proposals to the finance companies and then advocated for their new members. Soon, emails started coming back from lenders with letters accepting some of the proposals. I spoke to some ectstatic homeowners who were leaving after a frustrating day of waiting for new deal that would allow them to save money and their homes. Officials from some banks and agencies dropped by and marveled over this well organized, business like and passionate first of a kind event. It clearly showed the enormity of the foreclosure crisis and the anger among so many homeowners who feel victimized by the subprime ponzi scheme. It also showed that there is a solution within reach if lenders are willing to compromise. NACA may take it on the road. These people--old and young, some with children, others in wheel chairs. came from as far away as Ohio, North Carolina and Florida. They were dignified and quiet, perhaps also frightened. Many told me they have had trouble sleeping because of worries about whether they could keep their families together. The event did rate some press attention, but, as is often the case, drug related murders they night before were, predictably, of more interest to most local TV outlets. The CBS Evening News and Fox News showed up. (Afterwards, the Fox cameraman told me he was coming back with his own mortgage documents.) A Washington Post columnist had praised the event the day before it happened, writing, "The Neighborhood Assistance Corporation of America is doing something that should have been done a long time ago. Homeowners won't have to wait weeks for a callback from their loan servicers. They won't have to fret and fuss -- and in some cases cuss -- to get a mortgage servicing company to listen to their pleas to save their homes from foreclosure." But when the event unfolded, exceeding organizer's expectations, the Post did not bother to send a reporter. The newspaper is right next door to the hotel. Only z few of the media outlets contacted bothered to show up. Early next week, NACA will encourage its homeowners to descend on Congress to "encourage" their Senators and Representatives to press bankers to restructure constituent's loans. While congress debates bailouts, NACA saves homes. Early next week, NACA will encourage its homeowners to descend on Congress to "encourage" their Senators and They may be more successful with bankers who know that getting some payment is better than none, than with posturing members of Congress who seem paralyzed when it comes to helping people in need. Last week, Bill Moyers featured journalist William Greider who discussed, as Graig Gingold reports, "the abject failure of the politicians in DC to do what was called for to protect the public from the predatory lenders." He cites as evidence a headline from the Washington Post: "Figures in Both Campaigns Have Deep Ties to Mortgage Giants" The battle lines are being joined, NACA, a modern day David is taking on the mortgage Goliath---and, so far, making progress Hopefully the bloggers, gathered in their own convention in Austin Texas, and other activists, will take notice and realize there is more to politics than electoral contests. News Dissector Danny Schechter made the film In Debt We Trust and has just finished a new book investigating the crisis, Plunder to be published by Cosimo. Comments to [email protected]

Submitted at 7/17/2008 8:00:00 AM

At least five current or former executives at beleaguered Fannie Mae and Freddie Mac are linked to a controversial Countrywide Financial "V.I.P." program that provided mortgages on favorable terms to policymakers and business partners. The executives include Countrywide's former Washington lobbyist, who recommended key officials for V.I.P. treatment, as well as four beneficiaries of preferential loans, among them a former Congressional staffer specializing in housing issues. An article in this month's Condé Nast Portfolio discloses how Countrywide gave cut-rate mortgages to congressmen, journalists and other V.I.P.'s in an effort to curry favor. Countrywide's former Washington lobbyist, Jimmie Williams, who often referred high-profile prospects for special treatment to the lender, currently works as state director for Freddie Mac. Countrywide's V.I.P. Club An exclusive look at the Countrywide Financial loan scandal. Clinton C. Jones III, who as a senior counsel of the House Financial Services Housing and Community Opportunity Subcommittee in 2002 was referred for V.I.P. treatment to Countrywide by Williams, is now a vice president at Fannie Mae. They exemplify the close ties between Countrywide and governmentsponsored mortgage buyers Fannie Mae and Freddie Mac. That relationship, which worked to the firms' mutual benefit during the real estate boom, has drawn increasing criticism recently as all three narrowly staved off collapse. Bank of America bought Countrywide at a bargain price, while the federal government has pledged to extend credit to or buy stock in Fannie Mae and Freddie Mac if needed. Fannie Mae and Freddie Mac buy mortgages from Countrywide and other lenders and resell them to investors in the secondary market. Depending on the year, Fannie Mae purchased 10 percent to 30 percent of its loans from Countrywide, which became the nation's biggest mortgage lender. "If Fannie and Freddie catch a cold, I catch the fucking flu," Countrywide co-founder Angelo Mozilo is quoted as saying in Chain of Blame, a new book by Paul Muolo. Now the risky loans that sent Countrywide's share price plummeting and prompted its sale have infected Fannie Mae and Freddie Mac. Home buyers pay discount points to reduce their interest rates; one point equals 1 percent of the loan. Through V.I.P. mortgages, Countrywide cultivated executives at Fannie and Freddie, members of Congress and their staffs, and government officials. Countrywide's former Washington lobbyist, Williams, acting as an intermediary, would send emails flagging the importance of potential V.I.P. clients to Countrywide. A person familiar with Williams' thinking said that he recommended a hodgepodge of prospective customers for loans, from a security guard to elected officials and Congressional staff. He initially directed them to local Countrywide branches, but began hearing complaints that some branches were slow or overwhelmed. To ensure quality service, he referred more of them to the V.I.P. program, based in Countrywide’s Rosemead, California, call center. In November 2002, Williams urged Doug Perry, a call-center manager, to give "specialized handling" to a loan application from Jones, then senior counsel of the House Financial Services Housing and Community Opportunity Subcommittee. "Jones is also an adviser to ranking Republican members of Congress responsible for legislation of interest to the financialservices industry and of importance to Countrywide," Williams added. Perry then emailed Robert Feinberg, a Countrywide loan officer who dealt with V.I.P. borrowers: "Can you please handle this? 0.5 off. No garbage fees." Once Feinberg completed the paperwork on Jones, the lawyer borrowed $101,800 in February 2003. Countrywide waived five-eighths of a point, or about $625. Senate rules bar members and staff from knowingly accepting gifts of more than $100; gifts include loans on terms not available to the general public. Jones acknowledges being told that he was in the V.I.P. program. But he says his interest rate was average or slightly higher and that he's shocked to learn of his discount. "I thought I was just getting great service," he says. "I didn't know there was a shaving of points." Former Fannie Mae vice president Robert Sanborn refinanced several times through the V.I.P. program. In 2004, for instance, Countrywide waived three-quarters of a point, or about $2,600, on Sanborn's $345,000 refinance of his Provincetown, Massachusetts, vacation home, according to a company document. Sanborn, who worked on risk management and loan servicing in the Dallas office, left Fannie Mae in 2007 and is now a real estate broker. He said he learned about the V.I.P. program through Countrywide contacts, and saw nothing wrong with using it. "My understanding is that it was simply a centralized service for people in the mortgage industry to accelerate the process," he says. He said that Countrywide gave him "the best competitive rates" and "maybe they waived a fee here or there." But, he said, he did not receive any "deep discounts." "I would not call three-quarters of a point a deep discount," Sanborn added. "Loan brokers all over the place have the authority to waive discount points. It's not unusual." Sanborn said he knows Mozilo, but that Countrywide's co-founder didn't refer him to the V.I.P. program. Mozilo did personally arrange a refinancing for another former Fannie Mae executive: Franklin Raines, its chief executive from 1999 to 2004. On June 9, 2003, the same day Raines applied for a nearly $1 million loan, a Countrywide receptionist took a message from Raines' assistant: "Per Angelo, Frank needs to refi." A Countrywide manager then instructed Feinberg by email to take one discount point, or nearly $10,000, off the loan and not to charge "junk" fees. Former Fannie Mae chief executive James Johnson, a close friend of Mozilo, also was given special treatment. As has been previously reported, Johnson received more than $7 million in V.I.P. loans. Related Links Angelo's Many 'Friends' The Myth of the Walk Aways The Fed Turns Up the Tap

10 Ways To Change The World (The Huffington Post | Full News Feed) Submitted at 7/22/2008 9:48:01 AM

Like ripples circling outward in a pond, individual acts of kindness, taken together, can have world-changing effects. We asked Beliefnet users to describe the most profound act of kindness they ever experienced, witnessed --or did for another person. We've gathered some of the most moving ones to inspire us all to do a little something more. Helping a Homeless Person The one act of kindness that always touches my heart (whether I do it or I see it) is when someone helps out the homeless. I'm not talking about giving money to them either. I'm talking about picking them up and taking them to a shelter, giving them food instead of money on the train...or even talking to someone homeless. What most people don't understand about the homeless is that they have their pride. A lot of them don't want help. But all of them want to be heard. They want to feel like a human being and sometimes just talking to a homeless person makes a world of difference. I have been witness to a man that would talk to a homeless man for a year...just small talk...but that was enough for the homeless person to be inspired to get up and get himself together.

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Runway Money (Portfolio.com: Business Travel) Submitted at 7/13/2008 7:00:00 PM

W henever staffers at Detroit Metropolitan Wayne County Airport discuss ways to increase income, one person suggests putting Viagra advertisements on the up escalators and ads for sleep aid Ambien on the down. While most airports are owned by state or local governments, according to the Airports Council International–North America, they still operate like businesses and are required by the federal government to be as selfsustaining as possible. Traditionally, airports have generated most of their money from airlines—in the form of landing fees and fees for the use of terminal facilities—and from non-aeronautical sources such as parking lots, concessions, and advertising. But while the costs to run an airport have risen significantly over the years, airlines, pinched by high fuel prices, have balked at paying increased fees. In the scramble for dollars, some airports, especially smaller and midsize ones more vulnerable to losing airlines because of higher fees, have turned to selling everything from branded products to natural-gas drilling rights. Some of those efforts are yielding substantial returns, others just a few dollars. According to the Federal Aviation Administration, in fiscal year 2005, U.S. airports had total operating revenues of $13.1 billion. Non-airline revenue represented $6.1 billion, or about 47 percent, of that. By 2007, that figure had inched up: The $6.5 billion airports earned from non-airline sources represented about 48 percent of overall airport revenues of $13.6 billion. Due to open in spring 2009, Missouri's Branson Airport may be the most entrepreneurial of them all. The 922-acre facility expects to serve between 275,000 and 500,000 passengers a year and will be the first privately financed and operated commercial service airport in the country. The airport will hawk naming rights and sign exclusive agreements with rental-car and ground-transportation companies, says executive director Jeff Bourk. Branson will run its own on-site telephone system, a wastewater treatment facility, and, probably, the bar. "We'll even create a company to reunite passengers with their lost luggage," Bourk says. These new models may end up benefiting passengers, says Kent Vanden Oever, associate director of the Alexandria, Virginia, consulting firm AirProjects. "The more airports are able to get revenue from non-airline sources, the less they have to press airlines for money," he says. That helps airports keep airlines from looking for other places to land. "And, theoretically at least, every dollar the airlines save lets them keep fares at a reasonable level," he says. Here's what airports around the country are doing to generate cash. Selling Souvenirs Once Iowa's Sioux Gateway Airport stopped being embarrassed by its airport identifier code (SUX), it began profiting from it. In 2007, T-shirts, caps, mugs, luggage tags, and bumper stickers branded with the airport's "Fly SUX" logo generated more than $3,500 for the tiny airport. Internet and in-airport sales of SUX memorabilia should bring in twice that in 2008. Taking a Gamble During 2007, the Reno-Tahoe International Airport earned $3.7 million from 245 slot machines that have been scattered throughout the facility since 1980. And last year, the 1,300 slot machines that have been a fixture at

McCarran International Airport in Las Vegas since roughly 1985 yielded more than $40.9 million for the Clark County Department of Aviation. McCarran's spokesman, Chris Jones, says that represents about 12 percent of the department's $332.7 million overall revenue for the year. Making Hay At the 10,000-acre George Bush Intercontinental Airport and the 2,500acre Ellington Field in Houston, airport officials are banking on the land. "As they say, everything is bigger in Texas, and here in Houston we have lots of open land at our airports," says Rick Vacar, director of the Houston Airport System. A few years ago, Vacar authorized the planting of Bermuda hay and the higher-protein Tifton 85 hay on airport land. In 2006, 800 acres of airport hay was sold locally through a broker, bringing in $30,000. More was planted in 2007, but none was cut because the contractor backed out of the job. This year airport employees will step in, harvesting more than 2,000 acres of hay and an estimated $500,000. So far, the profits are being plowed back into the program, but airport officials hope the investment will pay off in the future. Digging for Dough In Denver and Dallas/Fort Worth, the airports reap profits not only from what's on the ground, but what's beneath it. The 34,000-acre Denver International Airport leases land for commercial real-estate projects and to farmers who plant soybeans, sunflowers, and wheat. The airport also reaps $4 million to $6 million a year from more than 50 oil and natural-gas wells that have been on airport property since it opened in 1995. (Many predate the airport itself.) While the airport's overall budget is more than $500 million, "every little bit helps," says airport spokesman Chuck Cannon. The 18,000-acre Dallas/Fort Worth International Airport earns about 65 percent of its revenue from non-airline sources, including two golf courses and the upscale Grand Hyatt D.F.W. in International Terminal D. The airport also sits on a giant natural-gas deposit, the Barnett Shale. In 2006, D.F.W. sold drilling rights to an energy company for a $186 million "signing bonus" and 25 percent royalties. Today, 40 wells bring in about $3 million a month in royalties. A total of up to 300 gas wells on airport property are planned over the next 15 to 20 years. D.F.W.'s C.E.O., Jeff Fegan, says the income is a form of "rent control" for airlines and a boon to passengers—the airport used $40 million from the initial drilling bonus to renovate its original four terminals. Naming a Solution Detroit Metro Airport never installed the Viagra ads, but it is taking a lesson from the sports world. In 2007, airport officials put naming rights for the new north terminal, set to open this fall, up for sale. GSA-McConnell, the marketing partnership created to sell those rights, won't disclose the asking price, but right now there seem to be about 10 interested parties. Next up, advertising on your luggage? Related Links Tips for a Sky-High Spring Air Heads Cartel Members, Beware

Déjà Vu Skies (Portfolio.com: Business Travel) Submitted at 6/23/2008 9:00:00 PM

T hirty years of plopping myself down in seat 2B has made me older, balder, and fatter, but I have gained a lot of perspective too. So take it from this weary, wizened road warrior: Despite all the announced service cutbacks, commercial air travel is merely changing. The sky isn't falling and "the system" itself isn't collapsing. This period of oil-fired chaos actually looks a lot like the travel landscape after Iraq invaded Kuwait in 1990. Then as now, airlines weren't ready for the oil shock and they panicked, shedding routes, grounding aircraft, and slashing in-flight service. Then as now, business-travel demand pancaked, companies kept their people chained to their desks, and travel and entertainment expenditures plummeted. I don't know exactly what's going to happen next. But past is prologue in the air-travel world, and I'm willing to make a few educated guesses about what we'll soon see. Subsidized Air Travel The nation's top travel destinations, Las Vegas and Orlando, depend on a high volume of relatively low-priced flights to keep the tourists and conventioneers coming. But both cities take a hit whenever the airlines cut back. This time around, US Airways is slicing its Vegas hub in half, and Delta Air Lines is dropping service to Orlando from more than a dozen cities. The solution? Casino resorts and tourist attractions may subsidize airlines to keep flying passengers into town. Or they'll help fund startups whose sole mission is to fly into Las Vegas or Orlando. In the late 1990s, for instance, several Las Vegas casinos helped launch National Airlines. It flew for a few years, until the other carriers beefed up their Sin City service. And Disney has frequently toyed with the idea of launching its own airline or going into a branded partnership with an existing carrier. Don't be shocked if you see Air Disney shuttling fliers into Orlando in the years to come. New Airlines With Old Names The established airlines are shedding planes by the dozen, and some of the aircraft may be serviceable for fledgling carriers with lower costs. Surprising as it may seem, startup funding may be available too. "There's always a hotshot with a business plan and an investment banker who thinks he's smarter than the room," explains one investor I know who's made some money funding airline startups over the years. One quick way to get attention for a new airline with no track record: Use a familiar name. Over the years, there have been three airlines named Braniff, three named National, and two called Midway. I've lost track of the number of times the Pan Am and Eastern names have been revived. Even blip-on-the-radar airlines sometimes have valuable brand names. Silverjet, which folded in May after just 16 months in the air, is attracting potential rescuers. Vanity Flights Decades ago, Kimberly-Clark executives were infuriated by the lack of flights to its hometown of Appleton, Wisconsin. It eventually launched its own air service, derisively called Air Kleenex, but it morphed into the

highly regarded Midwest Airlines. (Kimberly-Clark has moved to Dallas; Midwest is now based in Milwaukee.) Companies all over the country are griping about lousy service in markets where their travelers need to go, so there's always a chance one of them will step up. And watch the U.S. skies for the ultimate vanity airline: Kingfisher, named after the well-known Indian lager. Vijay Mallya, the bombastic boss of India's United Breweries, plans to bring Kingfisher's lavish in-flight service and crimson-colored aircraft to the San Francisco-Bangalore route later this year. The Return of Charter Airlines Charter airlines have largely disappeared in the United States in the 30 years since deregulation, but they continue to be a potent force in many other developed nations. If oil prices stay in the triple digits, charters will make a comeback here too. That's because charter flights are perfect vehicles for vacation fliers. They run only when they are needed and are usually sold as part of a package that includes lodging and car rentals. Spared of the need to advertise and market heavily and fly on profitless days when traffic is light, charter operators can make money on routes where traditional scheduled carriers struggle. Rallying Regionals The bigger-is-better mentality of the nation's post-deregulation legacy carriers flies in the face of economic realities: There are very few economics of scale in the airline business. The legacy airlines have grown in the last 30 years by absorbing or merging with smaller, regional competitors. They often promptly begin to gush cash on the same routes where the regionals were neatly profitable. So logic—the words logic and airlines rarely appear in the same sentence—dictates that city-specific and regional airlines make a comeback. As the legacy carriers contract, they'll vacate markets that could be profitable for smaller, more focused startup airlines. After all, old-timers still pine for Air Atlanta and New York Air, airlines that reflected the needs and sensibilities of their hometowns. Californians still carry the torch for the state's beloved AirCal and Pacific Southwest, both of which disappeared in mergers. And everyone misses Piedmont Airlines, a stylish midsize carrier that flew profitably until it was gobbled up by the company now known as US Airways. One final thought: Some business travelers, especially those whose frequent flying is on relatively short routes, will never return to the sky. They'll outfit their cars with some of the comforts of home and office, grit their teeth at the price of gasoline, and drive wherever they need to go. It'll take longer, of course, but they'll travel on their own schedule and will feel virtuous for having abandoned the indignities of airlines, airports, and security-checkpoint shakedowns. The Fine Print… J.D. Power has released its 2008 airline ratings. Not surprisingly, JetBlue Airways fared best. Tied for worst: Northwest Airlines and United Airlines. Related Links Join the ClubBut Which Club? The Skies Open Overseas Why US Airline Service is So Bad

Don't Take a Flier on Airlines (Portfolio.com: Business Travel) Submitted at 7/21/2008 9:00:00 PM

E ven as the nation's network carriers began reporting billions in secondquarter losses last week, a furious rally drove share prices up by 45 to 60 percent. The market shrugged off the $1.4 billion loss reported by the parent of American Airlines, the nation's largest carrier, and ran its stock up 59 percent. The nation's second-largest airline, United, will report losses in the $3 billion range this week, yet its shares climbed 58 percent. Why the irrational aeronautic exuberance? Last week's unprecedented decline in the price of oil, which plummeted more than $16 and closed around $130 a barrel. With fuel now accounting for about 40 percent of the airlines' costs, sharply lower oil prices surely looked like good news to the markets. But irrational exuberance is nothing if not irrational. The biggest airlines—American, United, Delta, Northwest, Continental and US Airways—can't make money at $130 a barrel. They can't make money at $100 a barrel, either. Nor can their smaller competitors. Even the doubledigit cuts in passenger capacity and triple-digit aircraft retirements planned for the fall probably won't restore profitability unless oil drops to about $80. (That's what oil sold for late last summer, the last time the big carriers were consistently profitable.) And since both business- and leisure-travel demand is falling, the price hikes and fee increases announced with metronomic regularity this spring and summer are likely to be offset by fall and winter fare sales. "Don't you dare rain on my parade," an airline executive snapped at me Friday evening. "I want one weekend this summer when I can fantasize about not being in bankruptcy next year." I hope he enjoyed his weekend, because that brutal reality—every U.S. carrier except Southwest Airlines faces bankruptcy and possibly even liquidation—cannot be ignored. None are sufficiently hedged against tripledigit oil prices. None can ground planes or lay off staff fast enough to keep their corporate heads above the rising tide of red ink. And there's no playbook to consult. Think I'm being irrationally pessimistic? Tell it to Fitch Ratings, which says there could be "multiple bankruptcies and liquidation" among the major airlines next year. "The industry's current structure is unsustainable in the current fuel environment," Fitch said last week. And if you don't like analysts analyzing, listen to Virgin Group's Richard Branson, whose own worldwide airline empire is shaky. He predicts "spectacular casualties" among the big carriers in the next 12 months. Perhaps most frightening is that no one can agree on which of the carriers are most at risk. Last Friday, for example, J.P. Morgan Chase doublejumped United shares to "overweight" from "underweight," primarily because the lead analyst thought the airline would announce a big new borrowing scheme this week along with its second-quarter loss. But just hours later, Moody's cut United's debt rating two steps to "Caa1," seven notches below investment grade. What's the chaos mean in the long term for business travelers? To be honest, I don't know. Even 30 years of plopping myself down in seat 2B isn't particularly preparatory or enlightening. And the longer oil prices remain in triple digits, the less the lessons of the 1990 to 1995 period seem revelatory. But I can offer several watch-your-back tips for the next several months on the road. Confirm Your Flights If you've booked travel for any time after Labor Day, make sure your flights are still on the schedule. Airlines have dropped routes without notice all summer, but the big tranche of cancellations begins on September 2. Overnight, most carriers will shrink their schedules 5 to 15 percent . Even if your airline will still fly on your route, it may have cut frequencies, so check that it has "protected" you on another flight and remembered to match up your onward connections. Avoid Smaller Airports The airlines are weeding out service to smaller airports, partially because they bring the least traffic into their hubs and also because the routes are flown with inefficient regional jets. If possible, book flights from the closest hub instead. Expect Less Help As they scramble to cut costs, airlines are thinning their already depleted ranks of front-line airport employees. That'll mean longer waits to check in, check bags, and load passengers and luggage onto planes. Carriers are also chopping mechanic jobs, so there will be more delays and cancellations for mechanical reasons. And wherever they had staffed flights above the federally mandated minimums, they are reducing the number of flight attendants. That means even less in-flight service. Have a Plan B—and a Plan C Although wags now openly speculate on the survival odds of one carrier or another—Midwest, Frontier (already operating in Chapter 11), US Airways, Sun Country and Spirit seem to be popular picks in death pools—I wouldn't assume any carrier will fold. Or survive. Know your options for every flight you book. And carry your Plan B and Plan C with you in case your carrier folds while you're on the way to the airport. Seriously. Drain Your Mileage Programs Finally, stop "banking" frequent-flier miles. If you've got enough miles to claim an award, use them now. The value of miles is depreciating even faster thanks to the route cutbacks and new fees imposed when you redeem an award. Besides, if your airline collapses, there's no guarantee that another carrier will step in and honor unused miles. The Fine Print… Midwest Airlines, the Milwaukee-based boutique carrier, is the latest to slash its operations. It announced on Sunday that it would contract its overall capacity by upward of 40 percent. By September, it will have grounded about a third of its aircraft and cut a dozen cities off its route map. Related Links Why Airline Mergers Don't Fly Flying on Empty Deals Taxi for Takeoff

Four at Four: How About Those Banks? (WSJ.com: MarketBeat) Submitted at 7/21/2008 4:27:00 AM

• Bank stocks are by no means doing well for 2008. But the recent rebound in the shares of financial-services names has eliminated all of the losses sustained by broad financial-services sector indexes, thanks today to the bounce in Bank of America Inc., which led a number of the large banking stocks higher on the session. The Financial Sector Select SPDRs exchangetraded fund didn’t mark major gains on the day, but its increase was enough to put it at a close of 20.44, the highest closing price for that index since June 26, before falling 15% in the first two weeks of July. Furthermore, the price action in bellwether Goldman Sachs Group Inc. suggests that investors are again seeing the financials as a place to go and not run from— for however long that lasts. Analysts at Asbury Research say the trading in Goldman of late suggested more bearishness, but the shares turned last week. “Failed bearish patterns are pretty rare, but when they occur it indicates that the market has, for whatever reason, aggressively changed its mind on future price direction,” they write. Goldman shares ended the day down 1.1%. • There has been plenty of talk about “ greener” energy sources, but over

the weekend there was action, as Texas regulators moved ahead on a $4.93 billion wind-power transmission project which one official said would put the state ahead of Germany in terms of wind transmission. The lines are slated to carry electricity from the western parts of the state to the largest cities, such as Dallas, Houston, and San Antonio. Wind-related shares were stronger in trading today, incluing Zoltek Cos., which gained 3.7%, American Superconductor, which rose 5.9%, and Otter Tail Corp., which rose 2%. The lines will handle about 18,500 megawatts of power. “This amount exceeds the installed wind capacity of the entire United States at year-end 2007,” write analysts at Raymond James. “It is also larger than the wind capacity of Australia, Canada, China, France, Italy, Japan, and the U.K. – combined.” • Last week’s ascent for airline stocks is unlikely to end in a crash landing any time soon. After a big slide in oil last week, airlines jumped across the board, with several carriers posting double-digit gains for the week. And though oil reversed course Monday, airlines traded relatively flat and are expected to remain in a relative holding pattern for the time being, as much of the downward momentum has been built into these stocks already. “We’re in a temporary recovery. You had a good-enough rally for me to think they won’t just sell off and instead consolidate for a while and then

maybe rally,” said Phil Roth, chief technical strategist for Miller Tabak. To be sure, downside momentum remains strong with traders arguing that the last week’s momentum served only to provide a “good trade.” – Geoffrey Rogow • Some have expressed concern about industrial stocks, expecting that the high cost of commodities will eventually hurt the margins of these names, reducing capital spending. But a number of stocks continue to hang in there, including shares of Timken, which rose 22% Monday after the company raised its second-quarter and full-year earnings outlook, saying that global demand is more than offsetting weakness in North American automotive markets. The company makes engineered bearings ( c’mon, it’s all ball bearings now) and alloy steel products, and said its forecast for 2008 rose to $2.95 to $3.10 a share from the company’s earlier estimate of $2.75 to $2.95. “It appears that global bearings companies continue to enjoy healthy demand from industrial customers and strong pricing, which helps offset material cost escalations,” wrote analysts at Merrill Lynch, who cautioned that its exposure to auto markets suggests the company may still see slowing of growth in the future.

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Why High WiFi? (Portfolio.com: Business Travel) Submitted at 7/14/2008 9:00:00 PM

A decade ago we were complaining about the cost of calls from hotel-room phones. Why, we wondered, did cheap hotels give us free calls, but fancy, five-star joints ding us even for toll-free numbers? Who made more sense: The general manager who insisted that telephone calls were an integral part of the nightly rate, or the one who claimed he wouldn't think of charging a guest for a service he or she didn't use, so anyone who used a hotel's telephone system had to pay inflated, à la carte prices? Mobile phones mooted that debate, and no business traveler even thinks about using a guest-room telephone today. But the deep, philosophical disagreements are back—over the price hotels may or may not charge to access high-speed internet and WiFi service. Business travelers expect select-service properties (that's politically correct, 21st-century lodging jargon for "cheap hotels") to offer free wired and/or wireless internet access. And free access is standard at places like Courtyard by Marriott, Hampton Inn, and Four Points by Sheraton. "You can't compete in the [select-service] segment if you don't include free internet as part of the room rate," says Tony Isaac, president of LodgeWorks, which operates hotels under the Hilton Garden Inn and Hyatt Summerfield Suites brands and owns a group of suite properties called Hotel Sierra. "Guests demand it. They need it to work. They use it for entertainment. They don't care about 24-hour room service or bellhops. What they expect is the ability to get on the Net free from anywhere in the hotel." When you climb the lodging-price ladder, however, internet access becomes an add-on service. Hilton may give it away at its Garden Inn and Hampton Inn brands, but internet is à la carte at its upmarket Hilton and luxury Conrad and Waldorf-Astoria properties. Ditto for Marriott, which charges for internet at its eponymous full-service hotels and its ritzy RitzCarltons, but offers it free at its Courtyard and Fairfield brands. Other big lodging groups—Starwood, InterContinental, Hyatt—follow the same formula: Free at the lower-priced brands appealing to road warriors, fee at fancier properties likely to draw more leisure travelers. "I don't apologize for charging $15 a night for internet," says the general manager of a luxury resort property who nevertheless demanded anonymity. "Only a fraction of my guests use the internet when they're staying with me. Those that want it pay. Those that don't aren't paying for it as part of their room rate." The problem with pay-as-you-go internet is that hoteliers look at Web access as a profit center. Just as they jacked up the price of guest-room phone calls, they are running up the price of internet access. Although nightly rates tend to range from $7 to $15 at U.S. hotels, "I've paid as much as $50 a night for access overseas," says Andy Abramson, globe-trotting

founder of Comunicano, a public relations and marketing firm based in Del Mar, California. Abramson, who has turned his obsession with travel-technology tools into the Working Anywhere blog, says he's okay with paid hotel internet, even if it is overpriced. "If it's free and it doesn't work, how can you complain?" he reasons. "But if I'm paying, I'll scream bloody murder if I can't get on the Net and work." I'm not as sanguine about WiFi fees. I expect free internet access at the select-service hotels because I know that is part of their value proposition. I accept that more traditional hotels consider it a pay-to-play option because they offer different perks (more lavish decor, room service, concierges) as part of their room rates. But it's ludicrous to pay more for a night of hotelroom internet than I shell out for a month's worth of access at home. It makes me angry—and less likely to stay in that hotel again. "We've warned our franchisees about overpricing," the executive of a major full-service chain told me last week. "But they live and die with the bottom line, and they're worried about the rising cost of providing internet service. Guests are really gobbling up the bandwidth now that they're downloading movies, playing games, and doing video conferences." Isaac of LodgeWorks is concerned too. "We used to have one T1 line for a hotel of 120 to 150 rooms, and we knew guests were getting good, speedy access. But in our hotels in high-tech areas like Santa Clara [in California's Silicon Valley] or Fishkill [in New York's Hudson Valley, where many guests are I.B.M. employees], we need two or even three T1 lines now." A T1 line, which data transfers at 1.5 megabits a second, costs a hotel $500 to $700 a month to rent. T1 providers also impose a monthly service charge of about $2 a room. "And the price is only going up as guests demand more bandwidth and faster access speeds," Isaac predicts. So what's the bottom line? If you think free internet is your right, stay at the hotels that offer it. If you insist on staying at the fancier joints, consider high internet fees part of the high cost of living the high life on the road. Like the decades-long battle over the cost of a hotel-room phone call, I think this argument is going to be around a while. The Fine Print… One way to mitigate the high cost of on-the-road internet access is with Boingo, a network of WiFi hotspots. Among the company's 100.000 participating locations are more than 19,000 hotels and 850 airports. Boingo charges $21.95 a month for unlimited access in North America or $39 a month for global coverage. T-Mobile's hotspot network is also available in monthly gulps, but prices are higher than Boingo. Related Links A Good Place to Lay Your Head Eat Sheet: Tea The High Cost of a Low Dollar

Karls Kitchen (Portfolio.com: Executives) Submitted at 7/17/2008 9:00:00 PM

T itans of industry may deal in billions of dollars, thousands of employees, and dozens of class-action lawsuits, but that doesn't mean their issues are that different from those of the common man. While my wife and I were doing a gut renovation of my loft apartment in downtown Manhattan, I took note of several familiar business issues we encountered and kept track of our own attempts to wrestle with some of the same problems that continue to vex America's C.E.O.'s—namely: procurement, accounting, dealing with regulators, and hiring the right people. 1. Supply-Chain Management We opted to go with an ultraefficient, just-in-time delivery system for our fixtures, appliances, and kitchen-countertop stone, recalling that Japanese carmakers ran Detroit off the road with this approach in the '80s and '90s. But we encountered unforeseen implementation issues, as it turned out that nothing was delivered on time—ever. In particular, our Italian bathtub maker did not seem to understand the brilliance of our just-in-time plan, or even wish to communicate with us at all once we placed our order and paid our deposit. After waiting a month, we ended up buying a completely different bathtub from a different supplier, which also has not yet arrived. Phil Knight faced a similar supply-chain mishap in 2001 based on a flawed new "planning system," forcing Nike to take a $100 million revenue hit that year. The full budget impact of our own planning system has yet to be calculated. 2. Accounting We elected to do the accounting for our project with an unconventional "zero-entry bookkeeping" system (no annoying spreadsheets). The more quantitatively inclined among you might scoff at our simplistic method, but what it lacks in transparency is more than made up for in ease of implementation. However, flaws in the system became apparent when checks to suppliers started bouncing, indicating that the zero-entry method had failed to alert us to the fact that our capital reserve had reached zero. The resulting run-up in credit-card debt has created some valuation complications, such as, how do you price a project when the cost of capital has reached 24.5 percent a month? While few of America's C.E.O.'s have been bold enough to implement the zero-entry method, quite a few, notably Enron's Jeff Skilling and C.U.C.'s Walter Forbes, have tried the related fake-entry bookkeeping system, with results similar to our own. 3. Regulatory Issues My wife and I felt that the various regulatory issues regarding our project would best be dealt with by pretending they did not exist or claiming to not

be aware of them—a "don't ask, don't ask policy," you might call it. Readers may again be tempted to scoff at our decision, but when you are running a ruthlessly efficient, just-in-time supply chain and accounting for it all with a sloppy mental ledger, you really can't afford to get bogged down in legalese. The executives at Exxon who allowed a relapsed alcoholic to pilot a 200,000 -ton oil tanker through the Prince William Sound in 1989 probably know what we're talking about. However, since our loft is situated in a cooperative apartment building and our fellow shareholders had deeply held beliefs (stated in building by-laws) about what should be allowed in their building, we were very quickly forced into compliance with a host of regulations regarding such things as electrical load, Jacuzzi power, interior soundproofing, and grout-density specifications. The resulting delays have been both costly and catalyzing of certain process inefficiencies. Who knows? Had we been more complianceminded, perhaps we would have hot water in our unit by now. 4. Management On this crucial issue, my wife and I elected to manage on a consensus basis, allowing important decisions to be delayed or forgotten about and then hastily resolved by my wife at the job site at the last minute. This system consistently resulted in late, ill-informed, and badly thought-through orders that tended to backfire, bringing on later, even worse choices (the consensus approach seems to have worked much better for Google's Eric Schmidt, Sergey Brin, and Larry Page). More specifically, there was a complete breakdown in horizontal, vertical, lateral, peripheral, and even collateral communication between all parties on the management team, leaving the downstream managers like the architect, the contractor, and various subcontractors to make decisions on their own. These field-level orders often resulted in costly order changes that our zeroentry system did not account for and that the management team discovered when we found out a creditor who hadn't been paid on time was threatening to take out a lien on our property. 5. Staffing Our human-resources strategy was to approach the best in their fields, and when they turned out to be prohibitively expensive, hire anyone willing to do the job at our price point. The resulting head-count issues caused considerable delay in the project. Middle management itself was often unavailable and seemed completely uninterested in manpower issues—that is, when we were actually able to reach them on the phone. Staffing continues to be an area for improvement, and we intend to bring this up with our contractor when and if we ever see him again. Related Links Detroit Shoots Itself in the Foot on Fuel Efficiency Detroit: Automakers Back to Business. But What Business? Showing New Colors

new trial, he is straightforward: He says it’s about revenge. “Putin is a very nasty man, and he wants to make sure that Mikhail is as broken as possible. You can see it with the murders abroad—Alexander Litvinenko, for instance. The message is, We go after the people we dislike, and we destroy them.” Amsterdam communicates with the imprisoned oligarch via encrypted messages passed along by Russian attorneys. Tactics are discussed, as is progress. New hearings are being pursued in Europe, particularly at the European Court of Human Rights in Strasbourg, France. Khodorkovsky scored a victory in Switzerland, where a court refused to help Russian prosecutors reclaim Yukos’ assets. Many believe Khodorkovsky could personally possess about a billion dollars in assets, though there is no way to prove it. (Amsterdam insists he has no idea how much money Khodorkovsky has.) There are about a dozen other people working with Amsterdam on the new fight. Some have fled Russia; one is wanted by Interpol. Britain has thus far refused extradition requests for former Yukos employees. For the most part, the Russians live quietly, allowing Amsterdam to be the target. Among the most important is Anton Drel, who has been one of Khodorkovsky’s Russian lawyers since 2000 and now works alongside Amsterdam. When I visit Drel one afternoon, the receptionist at his office building claims she has never heard of him. “I think you have the wrong address,” she says. Only when I give her a phone number does she learn of his presence on the second floor. Drel is a boyish 40-year-old with gelled hair and stylish glasses. Through a translator, he says the case has been tough on him and his family. His office in Russia was raided three times. Like everyone else involved in the case, he says Khodorkovsky is not easy to defend. “He’s not a saint,” he says. “But he didn’t do anything that others weren’t doing. Everything he did was within the accordance of the laws. If laws weren’t perfect, then it’s not his fault.” amsterdam is considering an appearance at the trial, regardless of the fact that almost everyone says it’s a dangerous idea. If he goes, people tell me, there is a good chance he will not come back. One of his friends put it this way: “The Kremlin probably won’t kill him, but they’ll throw him in jail on trumped-up charges—plant drugs on him, stick a gypsy girl in his hotel room and accuse him of rape.” The trial could be the last opportunity for Amsterdam and company to attack the Kremlin on its own turf. It was moved from Moscow to Siberia to reduce press coverage, but the ploy could backfire, some say. If this saga becomes as all-encompassing as the first, it will serve to remind international investors that in Russia, property is provisional, the law is unpredictable, and the state is a mad -dictator—which is, of course, what Amsterdam wants. “The system wants Mikhail Khodorkovsky to fade,” Kupchan tells me. “If it becomes another show trial, it will reawaken all sorts of investor fears, both domestically and internationally, and that’s not in anyone’s interest.” A conviction, which is probable, will send Khodorkovsky and his partner away to prison for another 10 to 15 years, if not more. Many I spoke to are betting that he won’t ever make it out, because they expect him to be sent to a more remote work camp. Amsterdam’s team is hoping a favorable ruling from the European Court could place unbearable pressure on Putin’s handpicked successor, President Dmitri Medvedev, thus forcing him to rethink things. In other words, Khodorkovsky’s saga is likely to continue for some time. This is especially true given the way things are going for Russia. The Kremlin remains strong, with much public support. Economic growth is up almost 8 percent, and there is a broadening middle class that is content with the transition away from the dreary bandit days. The country is now the world’s largest exporter of natural gas and second-largest oil exporter after Saudi Arabia. Russia is on a roll. Even with inflation creeping up, as long as the petrodollars keep pouring in, the Kremlin will continue to have wealth to spread around and few, in the short term, are likely to wonder about the fairness of Khodor-kovsky’s being locked away in Siberia. On one of the last occasions that I meet with Amsterdam, I mention all of this and ask if he ever thinks of giving up. “I don’t see it as an option,” he says. He gave the oligarch his word, and he’s invested unbelievable amounts of time helping his Russian colleagues, who will not be able to reclaim their lives until the matter is resolved. “This case is more than just a lawsuit,” he goes on. “If Yukos is allowed to fade into history without justice being done, it will significantly retard Russia’s ability to become a rule-of-law state.” He pauses, then adds, “Fact of the matter is, Khodorkovsky was the beginning—and the most important piece of this thieving virus that has taken over Russia. And the only way to stop the -virus is to go to the root, and Yukos is the root.” In this way, the story is bigger than just one man and one oil company. “It is not only about Yukos and Mikhail Khodorkovsky,” Amsterdam says. “It’s now about saving Russia.” Related Links Putin's Power Grab Putin Reacts to 'Time' POY Pick Boris Yeltsin, Capitalist

Daily Show Asks Elderly Jewish Voters About Obama (VIDEO) (The Huffington Post | Full News Feed) Submitted at 7/22/2008 9:48:04 AM

Daily Show correspondent Wyatt Cenac travels to South Florida to find out if Barack Obama can win the elderly Jewish vote. [WATCH]

Thomas Stern: A Kick in the Career: Amazing True Stories of Death by Overtime By [email protected] (Business on HuffingtonPost.com) Submitted at 7/22/2008 9:15:19 AM

Some guy in Japan just bought the farm by working too hard. You heard right. He was 45, the lead engineer for a Toyota hybrid car division. While he was helping us reduce our dependence on oil, the poor guy ran out of gas. And he didn't even live as long as some of our aging rock stars. You know the economy's in bad shape when an auto worker doesn't last as long as Keith Richards. Prior to his death this dedicated worker had been averaging over 80 hours of overtime per month. Which I guess should now be referred to as " six feet undertime." The amazing thing is that his dying from too much work was not just an opinion, but an official ruling handed down by the Japanese Labor Bureau Aichi. And recently, they've ruled similarly in other cases. Apparently, working insanely punishing hours to the point of kicking the bucket is becoming quite popular in Japan. I wonder if guys in Tokyo are placing bets over a beer. First guy: "I'll be dead by the weekend." Second guy: "Oh, yeah? I'll bet you two hundred yen I won't see tomorrow." First guy: "Hey, that's not fair! You've got the graveyard shift!" The worst part is, if you die first and win the bet, how do you collect? The problem has become so widespread that the Japanese even have a word, "karoshi," which means "death from overwork." Not to be confused with "karaoke," which means "death by plunging a cocktail umbrella into your carotid artery after listening to your best friend sing 'My Way' off-key for nine straight hours." If this story, which happens to be from the Far East, does not resonate with you here in the West, then either you need to start working harder or maybe you're already dead. News flash: we work too hard in this country, too. We

have long been in denial about our capacity for pounding the keyboards of our Blackberries until the letters and numbers are worn off. We know it's time to get a new one when our text messages asking a friend to meet us at Starbucks are so unintelligible they look like a hieroglyphic missive sent from Cairo to Rome by carrier snake. And corporations are already aggravated enough shelling out for maternity leave and on-site day care, imagine how furious they'll be when they have to start paying death benefits to the families of deceased workaholics. I don't think an angry widow will be happy with the "My Husband Bought It At His Job And All I Got Was This Lousy T-Shirt" consolation prize. All the more reason to kill the very concept of death from overwork in its tracks before it can make it into Western society. Corporations can start including the virtues of death in their mission statement. Our goal is to combine superlative customer service with extraordinarily high product quality and at least nine employee deaths per quarter. We stand behind our company motto: "Here Today -- With A 2.8 Percent Chance of Not Making It Till Tomorrow." Shareholder meetings will provide another opportunity to get people used to new corporate language: "Ladies and gentlemen, in order to help launch our new product line on time and under-budget, over 300 people died horrible, stress-related deaths. 299 of them did so willingly; and that's just the kind of commitment we make here at Bed, Bath & The Great Beyond. Oh, and please go out the back way: the families of the people who croaked are in the lobby, menacing our receptionist with crudely-made street weaponry." Soon, just to survive, employees will create the illusion of overworking. They'll stack their desks with paperwork, stay after hours and wear the same

clothing for days, stinking up the office with their apparent dedication through lack of personal hygiene, all in the hopes of being recognized simply for their willingness to die on the job. People will pretend to have very urgent phone conversations in hushed tones when their bosses walk by, to give the impression that the company is their number one priority. "Sweetheart, I know our wedding is in fifteen minutes, and I appreciate that you've invited over 700 people and that your parents, who are paying for all this, have flown in from the Ukraine and have endured being held for over seven hours at the airport and cavity-searched by Homeland Security, but I promised our office manager I 'd go to Office Depot and pick up some toner and a 36 by 40 inch polyurethane mat for his swivel chair, so it doesn't encounter carpet resistance when he pushes it under his desk." We can blame the corporations all we want, and certainly they need to take responsibility for how they wrap the bottom line around our necks. But so many of us overwork to avoid personal lives that we have allowed to become unmanageable. I'm fairly confident that work will never kill me, because I make sure to spend a lot of time around a wife who's always there for me, and two kids who love me no matter what. So you see, I know I won't get caught up in a horrible cycle of work obsession to the point of risking my life. And why? Because my entire family has been trained on, and are more than capable of using, my high-tech, state-of-the-art portable defibrillator. I'm ready for the day when my family is gathered around me at the breakfast table and my wife is rubbing two stainless steel paddles together screaming, " CLEAR!" and I'm thinking, " As soon as I'm done with this heart attack, I've got to get back to work." Norman Rockwell would be proud.

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Facebook Creeps Me Out (Portfolio.com: Executives) Submitted at 7/16/2008 3:00:00 AM

Bill Gates doesn’t get a lot of credit these days for being a visionary. But when it comes to his relationship with Facebook, he may still be a step ahead of the rest of us. The Sun, a British tabloid, reported this year that Gates had quit his half-hour-a-day Facebook habit, partly because he was getting more than 8,000 “friend” requests daily but also because he was finding “weird fan sites about him.”(View a slideshow of several "weird fan sites.") A Microsoft representative confirms that the boss has gone cold turkey but wouldn’t disclose whether Gates knew of a Facebook group called “Would you have sex with Bill Gates for half of his money?” Actually, it’s a wonder that Gates was on Facebook in the first place (Microsoft’s $240 million investment in it notwithstanding). Bill Gates obviously doesn’t need to schmooze on Facebook. And neither do you, despite the pressure you’ve doubtless felt to join it ( because, y’know, everyone is on Facebook). Perhaps you’re like Ben Rosen, who co-founded venture-capital fund Sevin Rosen, which has bankrolled such companies as Electronic Arts and Compaq (which he once led as C.E.O.). Rosen is hardly averse to sharing personal information online; he says his blog, BenRosen.com, has become a small social network of sorts. But he has yet to use his Facebook account. “I’m trying to figure out the utility for me,” he says. Or perhaps, like Gates, you just find Facebook a little…creepy. Businesspeople often claim to use Facebook for vague “market research” purposes or to satisfy idle curiosity. But the social norms of social networking are still in flux, making privacy a real issue, says internetmarketing writer David Weinberger. “Younger people violate older people’s idea of proper behavior when it comes to privacy,” he says. “It’s kind of eerie how much information is available about you on a social network,” says Michael Fertik, C.E.O. of online-privacy service -Reputation-Defender, “and how many conclusions, tentative or otherwise, can be made so handily, fairly or unfairly, based on that information.” Fertik estimates that all 55 of his employees use Facebook, and although he doesn’t, he’s unsettled by the all-consuming, constant-update M.O. it encourages. “I’ve seen a lot of quiet, passive-aggressive resentments and rumors that come from people just knowing that much about your business,” he says. “If you’re updating people, like, ‘I’m at a barbecue at my

colleague’s house,’ someone you work with might ask, ‘Why am I not at that barbecue?’’’ The ease with which Facebook can be used to broadcast your whereabouts adds a particularly disturbing dimension for executives who would surround themselves with security in real life but are lulled into complacency by Facebook’s tidy veneer. Last year, the British military sent a directive to its army units to avoid revealing their service connections online—“Be particularly careful if you are on Facebook, MySpace, or Friends Reunited”—fearing that, yes, Al Qaeda could use them to track prey. Your business competitors might not be terrorists per se, but Facebook can be useful for anyone trying to poach your M.V.P.’s. Even social-networking evangelists are legitimately nervous about Facebook, given its fiasco last fall with Beacon, an advertising engine that automatically announced users’ activities on other sites—revealing their purchases, for example—without the users’ necessarily realizing that their every click was being chronicled. Facebook apologized, but that sort of unwitting dissemination of potentially sensitive information has strengthened the market for Connect-Beam, a consultancy that sets up secure social networks for the corporate intranets of Fortune 500 companies. “-Companies like Honeywell,” says Puneet Gupta, ConnectBeam’s C.E.O., “could not take a chance to put their information on someone else’s cloud”—meaning on the servers of a social-networking site the company doesn’t control. But Facebook’s ick factor in the executive suite might have as much to do with its shiny, happy world of “friendship” as with security. “There’s almost an inverse relationship between seriousness and how much you participate in social networking,” says -ReputationDefender’s Fertik, laughing. That basically nails it: Facebook is simply unserious—particularly given how it prompts hard-driving business executives to regress into adolescent vernacular. “Poking” people, requesting “friends,” writing on someone’s “wall”: It’s cute when you’re in high school or college. But in a corporate environment, it sounds disingenuous and downright silly. Ultimately, Facebook candy-coats the true nature of business relationships. And it will rot your teeth.Related Links Facebook Page? Or Exhibit A in Court? MySpace and Friends Need to Make Money. And Fast. Meebo and Facebook Chat

Facebook Creeps Me Out (Portfolio.com: Careers) Submitted at 7/16/2008 3:00:00 AM

Bill Gates doesn’t get a lot of credit these days for being a visionary. But when it comes to his relationship with Facebook, he may still be a step ahead of the rest of us. The Sun, a British tabloid, reported this year that Gates had quit his half-hour-a-day Facebook habit, partly because he was getting more than 8,000 “friend” requests daily but also because he was finding “weird fan sites about him.”(View a slideshow of several "weird fan sites.") A Microsoft representative confirms that the boss has gone cold turkey but wouldn’t disclose whether Gates knew of a Facebook group called “Would you have sex with Bill Gates for half of his money?” Actually, it’s a wonder that Gates was on Facebook in the first place (Microsoft’s $240 million investment in it notwithstanding). Bill Gates obviously doesn’t need to schmooze on Facebook. And neither do you, despite the pressure you’ve doubtless felt to join it ( because, y’know, everyone is on Facebook). Perhaps you’re like Ben Rosen, who co-founded venture-capital fund Sevin Rosen, which has bankrolled such companies as Electronic Arts and Compaq (which he once led as C.E.O.). Rosen is hardly averse to sharing personal information online; he says his blog, BenRosen.com, has become a small social network of sorts. But he has yet to use his Facebook account. “I’m trying to figure out the utility for me,” he says. Or perhaps, like Gates, you just find Facebook a little…creepy. Businesspeople often claim to use Facebook for vague “market research” purposes or to satisfy idle curiosity. But the social norms of social networking are still in flux, making privacy a real issue, says internetmarketing writer David Weinberger. “Younger people violate older people’s idea of proper behavior when it comes to privacy,” he says. “It’s kind of eerie how much information is available about you on a social network,” says Michael Fertik, C.E.O. of online-privacy service -Reputation-Defender, “and how many conclusions, tentative or otherwise, can be made so handily, fairly or unfairly, based on that information.” Fertik estimates that all 55 of his employees use Facebook, and although he doesn’t, he’s unsettled by the all-consuming, constant-update M.O. it encourages. “I’ve seen a lot of quiet, passive-aggressive resentments and rumors that come from people just knowing that much about your business,” he says. “If you’re updating people, like, ‘I’m at a barbecue at my

colleague’s house,’ someone you work with might ask, ‘Why am I not at that barbecue?’’’ The ease with which Facebook can be used to broadcast your whereabouts adds a particularly disturbing dimension for executives who would surround themselves with security in real life but are lulled into complacency by Facebook’s tidy veneer. Last year, the British military sent a directive to its army units to avoid revealing their service connections online—“Be particularly careful if you are on Facebook, MySpace, or Friends Reunited”—fearing that, yes, Al Qaeda could use them to track prey. Your business competitors might not be terrorists per se, but Facebook can be useful for anyone trying to poach your M.V.P.’s. Even social-networking evangelists are legitimately nervous about Facebook, given its fiasco last fall with Beacon, an advertising engine that automatically announced users’ activities on other sites—revealing their purchases, for example—without the users’ necessarily realizing that their every click was being chronicled. Facebook apologized, but that sort of unwitting dissemination of potentially sensitive information has strengthened the market for Connect-Beam, a consultancy that sets up secure social networks for the corporate intranets of Fortune 500 companies. “-Companies like Honeywell,” says Puneet Gupta, ConnectBeam’s C.E.O., “could not take a chance to put their information on someone else’s cloud”—meaning on the servers of a social-networking site the company doesn’t control. But Facebook’s ick factor in the executive suite might have as much to do with its shiny, happy world of “friendship” as with security. “There’s almost an inverse relationship between seriousness and how much you participate in social networking,” says -ReputationDefender’s Fertik, laughing. That basically nails it: Facebook is simply unserious—particularly given how it prompts hard-driving business executives to regress into adolescent vernacular. “Poking” people, requesting “friends,” writing on someone’s “wall”: It’s cute when you’re in high school or college. But in a corporate environment, it sounds disingenuous and downright silly. Ultimately, Facebook candy-coats the true nature of business relationships. And it will rot your teeth.Related Links Facebook Page? Or Exhibit A in Court? MySpace and Friends Need to Make Money. And Fast. Meebo and Facebook Chat

Aspen City Guide (Portfolio.com: Business Travel) Submitted at 6/25/2008 9:00:00 PM

I t's no longer Aspen's best-kept secret. Visitors have discovered what locals have always known—though the town's average temperature is 75 degrees, summertime is really hot. More than 50 years of cultural events, from the nine-week Aspen Music Festival to Dance Aspen, have encouraged C.E.O.'s such as Michael Eisner and Les Wexner to build homes here. But perhaps no warm-weather happening is as much of a draw as the 4-year-old Aspen Ideas Festival, an offshoot of the Aspen Institute, which has been a gathering place for world leaders since 1949. This year the weeklong meeting of the minds takes place from June 30 to July 6. More than 250 speakers are expected, including Supreme Court justices, actors, generals, scientists, and leading journalists. Tickets sell out a year in advance. But the size of the town (one square mile) means it's easy to run into speakers in the grocery store, a local shop, or a favorite restaurant. Here's where to: Park the Plane: Aspen's Sardy Field is small, but it rates as one of the busiest airfields in the state. The "Aspen Air Force"—corporations such as General Mills, PepsiAmericas, Whirlpool, Johnson & Johnson, and Hilton Hotels—all use the private-aviation section of the airport, along with Bill Clinton, Rupert Murdoch, and many more. Commercial planes also fly into Aspen, but direct flights from cities other than Denver are few. Rest Your Head: Ideas Festival speakers generally stay at the Aspen Meadows Resort, a Herbert Bayer-designed, Bauhaus-style hotel located on the Institute campus. If you can't get one of its 98 suites, try the Little Nell, Aspen's only five-star hotel; it has regular shuttles to the Institute, less than a mile away. The St. Regis is another hotel at which to see and be seen, particularly for those who can pay. If you can't, try the 35-room Annabelle Inn (formerly the Christmas Inn) right on Main Street, completely remodeled in 2005. Dine Alfresco: Dining outside in summer is a good way to increase your visibility. Forget about privacy on favorite patios such as the one at Cache Cache, a hugely popular French bistro. Just next door, Campo de Fiori draws a beautiful crowd who pick at fish and authentic pastas. Or try Bill Clinton's favorite sushi spot, Matsuhisa, where he's often found holding court with

owner Michael Goldberg and former Secretary of State Madeleine Albright. Find a Meeting of the Minds: The place to find festival speakers is (appropriately) at Plato's bar and restaurant, right on the Institute campus. Not only does it have the best views of the Roaring Fork Valley, but you're bound to run into Mort Zuckerman or Institute head Walter Isaacson entertaining anyone from Colin Powell (a regular) to Katie Couric to Justice Stephen Breyer. Party: The Crown family, which owns the Aspen Skiing Company among many other things, throws an annual Fourth of July party that is absolutely the place to be. At the top of Aspen Mountain, you'll find former United Airlines C.E.O. Gerald Greenwald and journalist and Harvard professor David Gergen mixing with local waiters and a wide variety of socialite types. If you can't snag an invite, try Belly Up (also owned by Michael Goldberg), a nightclub that during the Ideas Festival hosts seminars instead of rock bands. On a given night it might be Arlen Specter, Andrea Mitchell, or Thomas Friedman. Go Local: Aspen's Fourth of July parade is quirky, funny, and sometimes out of control. Consider the year there was a golden retriever march and someone threw a bucket of balls into the fray. Each year, Leonard Lauder, president of Estée Lauder, and his family show up dressed in red, white, and blue. For outdoor recreation, hop a bike. The year Lance Armstrong came to the festival, he led a group of attendees on a ride up Independence Pass. Former Harvard president Larry Summers likes to sit on the lawn outside the music tent for a Sunday afternoon concert during the Aspen Music Festival. Buy Cashmere and Cowboy Boots: Prada, Dior, Gucci—they all have Aspen outposts. Cashmere and frocks are found at the tiny boutiques of Nuages and Distractions, patronized by celebs such as Goldie Hawn. Everyone shows up at sports store Performance Ski, even in summer, when owner Lee Keating brings out sexy bikinis and surf lines. Queen Noor recently picked up a pair of cowboy boots at western shop Kemo Sabe. For the real bling, join Paula Zahn in picking up a pearl necklace by local jeweler Susan Walker at Cindy Griem Fine Jewels. Related Links Government-Sponsored Trust Funds Is No News Really Good News? Deficit, Schmeficit

Icahn On Yahoo's Board Makes Microsoft Deal More Likely (VIDEO) By [email protected] (Business on HuffingtonPost.com) Submitted at 7/22/2008 5:39:42 AM

Now that Yahoo has given in and supplied "shareholder activist" Carl

Icahn with three seats on the Yahoo board of directors, Citi analyst Mark Mahaney thinks that Microsoft may have a better chance at completing a deal to buy part of -- or all of -- Yahoo. WATCH:

Bruce Kluger: Laughter and the '08 Campaign (The Huffington Post Full Blog Feed) Submitted at 7/22/2008 10:11:31 AM

In discussing the 2008 election last week, Jon Stewart cracked jokes about orphans, Viagra and prehistoric monsters. God, I love politics. As someone who moonlights as a satirist, I'm often intrigued by the evermerging traffic on the election news highway, as the campaign bus brigade bumps along just barely ahead of the tailgating funny cars. This year especially, the laughter is welcome, from The Daily Show's smart and smirky antics to Stephen Colbert's spoofy "truthiness." And Saturday Night Live continues its 33-year legacy of tossing a whoopee cushion beneath anyone--from pol to pundit--who dares to sit in the political hot-seat. While it's tempting to dismiss the comic relief as an inconsequential sideshow targeted at casual viewers looking for an easy laugh, new data reveal that political satire has become increasingly relevant to the 2008 vote, and that its audience is a pretty savvy group. A year-long study by the Project for Excellence in Journalism reports that 16% of Americans regularly watch Comedy Central's late-night follies, and that The Daily Show in particular "not only assumes, but even requires" viewers to be hip to the headlines. "We concluded that the show is much funnier if you know the news," project director Tom Rosenstiel told me. "They're playing to the cognoscenti, and the jokes are designed to make you think more about the stories." To be sure, satire is as old as politics itself, and today's voters are expected to toggle easily between reading a sober op-ed about a campaign and watching a faux-news analyst squirt seltzer down the candidates' pants. Yet the new study suggests a growing conscientiousness among younger Americans, a demographic too often dismissed as uninformed and apathetic. And a lot of these voters, notes Rosensteil, are angry about the news media. "Many young people are dissatisfied with the way news is delivered," he says, "so journalists are often as much a target of the satire as the stories themselves. When the youth see flaws in the traditional media, they tune in to The Daily Show. One complements the other." And who can blame viewers for wanting a little cavorting with their reporting? After all, what sounds more fun: combing through a dense and distressing story about, say, Fox News' efforts to foment distrust of Barack Obama, or watching The Daily Show's "Baracknophobia" segment, a biting rehash of the bash-fest, pitch-perfectly subtitled "An Irrational Fear of Hope?" Satire on the Internet has also played a significant role in attracting younger voters to the electoral process. Thanks to the exploding wave of clever mash-ups and parodies on sites like YouTube and The Onion News Network, web-hoppers have grown accustomed to campaign news laced with joy-buzzer high jinks. In fact, embroidering headlines with punch lines may be driving potential voters to pick up their morning papers, if only to watch Stewart and company tear it to shreds that night. Poorly executed satire, however, is another story. Last week's New Yorker cover depicting Barack and Michelle Obama as terrorists was intended as wry commentary, but landed with a thud as racist and unfunny. Ditto John McCain's joke about "killing Iranians" with cigarettes, which led (real) satirist Andy Borowitz to whip off a column titled, "McCain Issues Top Ten Funniest Ways to Kill Iranians." Message to McCain: Leave the gags to the pros. Still, as we move toward the conventions, I hope the laughs keep coming, as the nation's comedy contingent continues to enlighten, even as it entertains. Then again, we're talking fish in a barrel here. As Will Rogers once noted, "There's no trick to being a humorist when you have the whole government working for you." *** This essay ran in USA Today on July 22, 2008. Bruce Kluger is the co-author, with David Slavin, of the new satricial biography, Young Dick Cheney: Great American.

Let's Not Make a Deal (Portfolio.com: Executives) Submitted at 7/16/2008 3:00:00 AM

Biopic After Brown’s death in 2006, Imagine Entertainment (which produced A Beautiful Mind) hoped to make a biopic directed by Spike Lee. Drafts of the script were circulated, but the project is on hold until the family settles its conflicts. Museum Graceland, James Brown style? The singer’s children had considered turning his 62-acre estate in Beech Island, South -Carolina, into a museum. So far, the property, assessed at less than $1 million, sits unoccupied and has leaking pipes. Slot Machines This summer, casinogoers can play the Godfather of Soul video slot machine. The deal with Global Gaming Group could bring in about $500,000 a year for the estate. Reality TV Think American Idol with soul music. In -January, investors proposed projects worth six figures or more, including a reality-TV show, Who Will Be the Next Godfather of Soul? But the trustees of the estate never responded to the pitch. Golf Course Terry Cox, an Atlanta businessman, offered to buy the singer’s property— intellectual and physical—for up to $100 million. His plans with Brown’s grandson Forlando included ideas for a satellite-radio show, a restaurant, and a golf course. Related Links Summertime Slump Breaking News: Hillary Hearts 'American Idol' Jordin Sparks of 'American Idol' Fame to Sing Anthem at Super Bowl

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What's Project Runway Worth? (Portfolio.com: Careers) Submitted at 7/16/2008 3:00:00 AM

Hollywood insiders have been waiting for Harvey Weinstein’s bubble to burst ever since he and his brother, Bob, split from Disney in 2005. Despite $1 billion in equity from Goldman Sachs, the Weinsteins have yet to produce a huge hit—except Project Runway, the cult cable-TV show hosted by supermodel Heidi Klum, which features competitions among aspiring fashion designers. This spring, the Weinstein Co. surprised the industry by pulling the show off Bravo and striking a $150 million, five-year licensing deal to air Runway on Lifetime. But if the Weinsteins really want to hit the jackpot, maybe they should consider selling the show. They wouldn’t talk, but we spoke to entertainment bankers-—including Dave Davis of Arpeggio Partners—and production executives to estimate what the Weinsteins might earn by selling. 1. Existing Episodes The first step in valuing a TV franchise is determining the revenue from home-video sales, second runs, and the syndication of already aired episodes. Project Runway earns an estimated $10 million in DVD sales and about $700,000 in second runs per season. It has yet to be syndicated, but our industry sources believe that it could make about $350,000 a season in syndication fees. The show completes its fifth season this summer, and its first three seasons are already out on DVD. A new owner would probably collect fees from five seasons of syndication and two of second runs and DVD sales. Estimated Value: $22.5 million 2. Future Episodes The next step is estimating the value of all future episodes, including licensing fees, promotional partnerships, home-video sales, and rerun and syndication fees. Under its new deal with Lifetime, the Weinstein Co. reportedly will earn $800,000 an episode (for a total of 140 future episodes). -Promotional partnerships have always played a prominent role on the show:

On one episode, contestants were required to modernize various -fashion icons—like Marilyn Monroe—for Tresemmé’s print ads; on another, they were -ordered -to design outfits using only materials found in the Hershey’s store in Times Square. By the end of season five, the -Weinsteins were charging major partners like Tresemmé, L’Oréal, and Macy’s as much as $1 million a season to participate. A partnership with Elle recently fell apart after the brothers demanded that the magazine pay $75,000 an episode. The company is now in talks with - Marie Claire. Estimated Value: $209 million 3. Brand Value The final step is assessing a premium (if one is -warranted) for brand value. Project Runway played a key role in making Bravo a reality-TV powerhouse, but the show’s impending move will serve as a real test of its brand appeal. Not only is it leaving an up-and-coming network for an ailing one, but the show’s producers are also staying at Bravo. And compared with similar programs, Runway hasn’t fared as well in ratings and international spinoffs: America’s Next Top Model has more than 30 international versions; Runway has six. “ Project Runway is not terribly differentiated relative to other talent competitions,” says Andy Bateman, C.E.O. of branding consultancy Interbrand. Some investors would put scant value on Runway’s brand, but more entrepreneurial types might be willing to pay a premium of as much as 5 percent. Estimated Value: Up to $12 million The Bottom Line: The Weinsteins haven't said they're selling, but maybe they ought to think about it. Total Estimated Value of Project Runway: As much as $243.5 million NOTE: Future cash flows have been adjusted to reflect present value. Related Links Legal Fight Erupts Over 'Project Runway' Move Vogue Snubs, Covets Project Runway Summertime Slump

Wachovia Loses $8.9B, 6,350 Jobs By [email protected] (Business on HuffingtonPost.com) Submitted at 7/22/2008 6:09:20 AM

CHARLOTTE, N.C. — Wachovia Corp. reported a surprisingly large second-quarter loss Tuesday, deflating Wall Street's hopes that the nation's big banks are weathering the credit crisis well. The nation's fourth-largest bank by assets said it lost $8.86 billion, is slashing its dividend and eliminating 10,750 positions after losses tied to mortgages soared. Even excluding one-time items, the results substantially missed Wall Street estimates. "These bottom-line results are disappointing and unacceptable," Chairman Lanty Smith said in a statement. "While to some degree they reflect industry headwinds and weaker macroeconomic conditions, they also reflect performance for which we at Wachovia accept responsibility." Wachovia said it lost the equivalent of $4.20 per share in the April-June period. In the same timeframe last year, the bank earned $2.34 billion, or $1.22 per share. Excluding $6.1 billion in write-downs to the value of its intangible assets and merger-related and restructuring charges of $128 million, Wachovia lost $2.67 billion, or $1.27 per share. Second quarter results include the bank's October acquisition of A.G. Edwards Inc. Analysts on average expected a loss of 78 cents per share on revenue of almost $8.4 billion. Earlier this month, Wachovia had projected a $2.6 billion to $2.8 billion quarterly loss, equal to $1.23 to $1.33 per share, excluding goodwill items. The Charlotte-based bank cut its quarterly dividend to 5 cents per share from 37.5 cents, which will conserve approximately $700 million of capital per quarter. In April, Wachovia slashed its dividend 41 percent. As part of a plan to cut 2009 expenses by $1.5 billion, the bank said it would lay off 6,350 workers and eliminate 4,400 open positions and contractors.

During the quarter, the Wachovia boosted its provision for loan losses to $5.57 billion from $179 million a year ago, and added $4.2 billion to its reserves for bad loans. Wachovia has been suffering from its 2006 acquisition of Golden West Financial Corp. The bank paid roughly $25 billion for the California mortgage lender known for exotic loans. The so-called "Pick-a-Payment" loans, which Wachovia inherited from Golden West, have proved a headache for the bank and a lightning rod for shareholders, defaulting at higher rates than other mortgages. Wachovia recently discontinued offering the "Pick-A-Payment" loan option, which allows customers to pay a less-than-full interest payment on all new home loans. The bank also had hired The Goldman Sachs Group Inc. to conduct an analysis of its loan portfolio and advise it on strategic alternatives. Late Monday, Wachovia announced plans to leave the wholesale mortgage lending business. And beginning Friday, the company will no longer offer mortgages through brokers, joining other lenders making similar moves to exit the troubled sector. Big banks, such as Bank of America Corp. and National City Corp., have stopped making loans through brokers entirely, relying instead on their loan officers. National City said it was forced to do so by a continuing downturn in loan demand, while Bank of America said it saw better "long-term opportunity" in working through its own loan officers. Wachovia spokesman Don Vecchiarello said in a statement that the company "recognized some opportunities to re-position our business" given the current market conditions. Earlier this month, Wachovia named former Treasury Undersecretary and Goldman Sachs executive Robert Steel as chief executive, replacing the ousted Ken Thompson. Within a week of being on the job, the bank's shares tumbled to a new 17-year low.

Submitted at 7/16/2008 3:00:00 AM

W hen the housing market was booming, nobody benefited more than Bob Toll, C.E.O. of Toll Brothers and creator of the McMansion. Sales of Toll Brothers’ trademark homes topped $6 billion at the peak of the market, making the company the largest luxury-home builder in the country. Now, with the homebuilding industry suffering, Toll acknowledges that we’re in uncharted territory. Here, he shares strategies for navigating it. You’ve been quoted as saying that the housing business is in a depression. Do you still think that? Yes, things are real tough. It’s tough to sell. It’s easy to buy, but nobody wants to. The lack of confidence in the market is greater than it was in 1981, greater than it was in 1990. And 1974 was perhaps as bad, but it was for a shorter period of time. How will we know when a turnaround is coming? Every week, we track new-home sales in the 300-plus communities we sell from. We have been pretty much sticking with the same number in traffic and deposits. If we continue with that, we might be willing to say we’ve reached the bottom now. The demand is there. When we do everything we can—run a special, work the phones—we can sometimes make it happen. But that’s not terribly meaningful. If you stay at the bottom, it doesn’t feel good. It’s hard to make a guy feel good if he’s stuck in the mud up to his neck, even though it’s not getting any worse. Would you buy a house right now if you were in the market? Actually, new-home prices are moving up. If you’re waiting for another 10 percent drop in new-home prices, you may have missed your chance. The problem is that people are having a hard time selling their old homes in order to move into other ones. It isn’t that there are no buyers. It’s that

(WSJ.com: Real Time Economics) Submitted at 7/22/2008 8:51:00 AM

Philadelphia Fed President Charles Plosser expressed concerns about inflation in a speech prepared for delivery before the Philadelphia Business Journal Book of Lists Power Breakfast . Plosser, who is currently a voting member of the interest-rate-setting Federal Open Market Committee, has dissented from two rate cuts this year, but agreed with the majority last month the keep rates unchanged. His speech today indicated that he may not be willing to stand pat for much longer, saying rate may have to rise “sooner rather than later.” Plosser Keeping policy too accommodative for too long worsens our inflation problem. Inflation is already too high and inconsistent with our goal of — and responsibility to ensure — price stability. We will need to reverse course — the exact timing depends on how the economy evolves, but I anticipate the reversal will need to be started sooner rather than later. And I believe it will likely need to begin before either the labor market or the financial markets have completely turned around. … In recent months I have heard some analysts suggest that the current economic situation is not like the 1970s because unions are less prevalent and there is no evidence as yet of a wage-price spiral. Thus, a weak economy, with rising unemployment and declining payroll employment, will presumably prevent workers from demanding higher wages. But, again, that story has things backwards. It is not demands for higher wages that kick off the spiral, but the loss of confidence that the central bank will keep inflation controlled, which, in turn, leads to a rise in inflation expectations. The wageprice spiral is not the cause of the inflation, but the result. This means that if monetary policymakers wait until they see the evidence of a wage-price spiral, they will be too late — the public will have lost confidence in the Fed’s ability to keep inflation under control, and this will make the job of bringing inflation down much more costly and difficult. Moreover, we could end up with a period of both low economic growth and high inflation. … In sum, this year and next will be quite challenging. The economy will grow this year but at a slow pace, and the unemployment rate is likely to get worse before it gets better. At the same time, inflation will be uncomfortably high for a while. I am more optimistic about the outlook for 2009 and I expect we will see economic growth return to near its longer-term trend. But to prevent recent inflation from continuing to plague the economy and to avoid a rise in inflation expectations, I believe the current very accommodative stance of monetary policy will need to be reversed, and depending on how economic conditions evolve, I anticipate that this reversal will likely need to begin sooner rather than later. As policymakers, we must remember that the path of inflation over some intermediate term is not independent of our policy decisions. While monetary policy cannot control relative price movements, sustained inflation is not something that is imposed on us. As policymakers we have a choice. If we remain overly accommodative in the face of these large relative price shocks to energy and other commodities, we will ensure that they will translate into more broad-based inflation that — once ingrained in expectations — will be very difficult to undo. I believe we must and will take the appropriate steps to ensure that does not happen.

Payouts in Peril (WSJ.com: MarketBeat) Submitted at 7/22/2008 10:35:00 AM

The Mansion Family (Portfolio.com: Executives)

Fedspeak Highlights: Plosser Sees Rates Rising ‘Sooner’

people are reluctant to drop their prices by more than 10 percent to find a buyer. So the market is frozen. What about real estate as an investment? Is this a good time to hunt for bargains? Real estate has been a pretty great investment over the past 200 years. If you look at things from farther away than 10 feet, buying a home has created most of the wealth for families in the U.S. But this is like advising people on whether they should jump into the stock market. When the market is down, people are reluctant to do it. Over a longer period of time, the market can usually be counted on to go back up 10 percent. But people get scared. And they’re scared right now. Which real estate markets will turn around first? Everybody thinks Phoenix is down-and-out and will be for a long time to come. I don’t think so. Florida is also counted out. But that will also turn around faster than people expect. And the laggards? Las Vegas. It’s been over-the-top. What about Barack Obama impresses you? We need some excitement to get things moving again. Obama is an exciting candidate. If he can excite people enough that they would again view the cup as half full as opposed to half empty, then you would have some restoration of confidence in the homebuilding industry. Stocks, real estate, gas prices—got a question for Condé Nast Portfolio’s overqualified advisers? Email [email protected]. Related Links After the Bust Housing Grousing Housing Head Fake

Bank Reduces Dividend — Go Back 4 Squares and Pay $20 (Parker Bros) How desparate are major banking institutions to preserve capital? Let’s put it this way: 19 financial-services firms in the S&P 500 have reduced their dividends in 2008, and the total dollar value of those dividend reductions exceeds the additional dividends from the 165 companies that have boosted dividends in 2008. Wachovia Corp. and Regions Financial Corp. became the latest in the financial-services sector to slash their dividends in an effort to horde as much cash as possible. Shares of both firms are down sharply on the session, with Wachovia losing 4.9% and Regions off by 14%. All told, the 19 companies that have cut dividends in 2008 in this sector have lopped off $14.4 billion in dividend income from the S&P 500, according to Howard Silverblatt, index analyst at Standard & Poor’s. The 165 companies that have boosted dividends are adding in $13.4 billion. “ There’s no precedent for this,” says Mr. Silverblatt. Overall, there have been 23 dividend cuts in 2008, which includes cuts made by Altria Group in its reorganization. By contrast, just 12 companies cut dividends since 2002, and a number of those were financial-services issues who reduced their payout at the end of 2007, when the credit crunch first erupted. “ This has been the worst quarter of the last 18 years,” says Mr. Silverblatt, who also notes that small-cap and mid-cap stocks are expected to show more reductions in dividends. “A lot of issues have been a little late on declaring their dividend, which is not a positive sign.” Regions dropped its quarterly dividend to 10 cents a share from 38 cents a share, while Wachovia lowered its rate to five cents from 37.5 cents. Mr. Silverblatt notes that Bank of America Inc. has made a habit of late of declaring its annual dividend on the fourth Wednesday in July (a few days after second-quarter earnings are released), so tomorrow might be a day to watch for that news. The bank has increased its dividend 30 years in a row, and is the second-largest dividend payer behind General Electric Co.

Christina Bellantoni: Some Germans think Obama's already the POTUS (The Huffington Post Full Blog Feed) Submitted at 7/22/2008 10:19:56 AM

BERLIN — Check out that poster. That's how Sen. Barack Obama's campaign is advertising his big speech Thursday night here in Berlin. The few residents I've chatted with since I touched down this morning were well aware of the event, which has been the buzz around the city for days and is getting a lot of play in the papers and on television. A hotel staffer where I'm staying told me she was "very excited" that "President Obama" would be speaking just down the street, and mentioned her parents' emotions of love for the United States when JFK spoke there in the 1960s. My African seatmate on the hop across the pond said he likes Obama because he is "something new, something fresh." Obama is in Jordan now, and CNN International is reporting this afternoon's tractor rampage was just outside the spot in Jerusalem where the senator plans to be this evening. No word yet from the campaign if this security scare will change today's agenda. The Boston Globe's Sasha Issenberg curtain-raises the Obama trip from

Jerusalem today, suggesting his visit to Israel may bring him the most "skeptical welcome" of his overseas tour. Lynn Sweet is having some fun photo blogging the trip. On a personal note, it turns out when you're surfing the Web internationally, your bookmarks all default to that country. I thought it was cute at first until I tried to do a Google search and all my results came back in German. If you're a tech wiz and can tell me how to fix this setting, please help! Finally, I have a story in today's Plugged In Politics section about the veepstakes using the argument that running mates don't matter: There will be breathless speculation, short lists and long lists as Democrats and Republicans in the veepstakes are vetted and weighed in the next two months. Yet the choice for the No. 2 slot rarely matters. Pundits will analyze demographics and states that might just swing for one candidate with the right choice. Sen. Hillary Rodham Clinton can help Sen. Barack Obama win over women, they will muse. Florida Gov. Charlie Crist will make sure the crucial Sunshine State remains in the Republican column for Sen. John McCain, they will ponder. For all the fuss over who the presumptive nominees will select next

month, recent history suggests a vice presidential choice won't impact the results of race for the White House. "This is not an open vote; this is a decision of one person," former Vice President Dan Quayle told The Washington Times in an interview. Vice President [Richard] Cheney is fond of joking that President Bush chose him to deliver Wyoming's whopping three electoral votes. Sen. John Kerry was applauded for choosing an optimistic Southern boy who could deliver states that usually go to the Republicans. The reasons abound for why it didn't happen - John Edwards didn't even win his home state of North Carolina - but the fact remains that his presence on the ticket factored little when voters headed to the polls. Read the full story here. Christina Bellantoni, national political reporter, The Washington Times B o o k m a r k m y b l o g a t http://www.washingtontimes.com/weblogs/bellantoni Find my latest stories here and visit my YouTube page.

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XM-Sirius: Regulatory Approval Is for the Weak (WSJ.com: Deal Journal - WSJ.com) Submitted at 7/22/2008 10:47:00 AM

The American pragmatist philosopher William James advised readers who fervently wanted a quality to act as if they already had that quality. “Belief creates the actual fact,” he said. XM Satellite Radio Holdings and Sirius Satellite Radio may have taken that classic advice to heart. The two companies Monday started preparing a bond offering to finance their merger– a deal that, as you may remember, is hung up in probably the most torturous regulatory approval process of all time. No matter. XM tapped J.P. Morgan Chase, Morgan Stanley and UBS to sell $400 million of bonds to refinance outstanding debt related to the deal. Associated Press XM plans to use the proceeds from the offering to finance some of its outstanding debt, which has “change of control” puts that allow investors to cash in when the company merges. XM and Sirius agreed in February 2007 to merge. The offering can be unwound if the deal isn’t consummated. Still, the move is a bold indication of confidence on XM’s part that the merger will go through. But, back at the Federal Communications Commission ranch, there is a significant amount of regulatory flailing. The Deal’s Ron Orol reported that the two swing voters on the five-person commission–Republican Commissioner Deborah Taylor Tate and Democratic Commissioner Jonathan Adelstein–are putting up a fight and demanding fines for XM and Sirius. (You can read Deal Journal’s take on where the Commissioners stand in last month’s post, XM-Sirius and Five Angry Men.) According to Orol, both Tate and Adelstein allege that XM and Sirius have committed numerous infractions of FCC rules and must be fined before their deal can be approved. Here are the three major violations XM and Sirius have committed, according to Orol: 1. Tate and Adelstein maintain that the wireless devices XM-Sirius use to transmit audio signals from satellite radio devices to car radios are noncompliant with FCC limits. These devices have been interfering with terrestrial radio, he said. 2. They worry about hundreds of XM-Sirius antennas they say either aren’t in FCC approved locations or are emitting signals that are too strong and violate agency rules. 3. They complain that Sirius CEO Mel Karmazin promised to build an

(The Huffington Post Full Blog Feed) Submitted at 7/22/2008 10:06:08 AM

interoperable radio the agency ordered when the commission created the Satellite Digital Audio Radio System. It hasn’t reached the market. Connoisseurs of broadcast mergers will recognize a lot of these concerns align with the same concerns that the National Association of Broadcasters has about the deal. (So much so that wags have dubbed the NAB as the National Association of Satellite Radio Killers.) Of course, as Sun Tzu would say, the enemy fights hardest when it is cornered. The fact that the commissioners are pushing for fines may be an actual indication of faith that the merger will go through. Otherwise, it is difficult to see why they would bother. Related links: XM and Sirius Get Downgraded. Yippee! XM-Sirius and Five Angry Men XM-Sirius: Still No End in Sight

COLD continued from page 3 Agnes’ U.S. assets. But she did so without informing the Carvel Foundation—conduct that caused a Florida judge to suggest that Pamela may have committed fraud. In June 2007, a judge in London removed Pamela as the executor of Agnes’ British estate and concluded, “Her every act has been calculated to promote her own personal interests and prejudice those of the foundation.” Meanwhile, the case, which is expected to drag on at least through the end of this year, continues to devour the Carvel fortune. And what of Pamela’s most provocative theory, that the ice cream king, rather than succumbing to heart disease, was murdered? Arcadipane’s brother, Charles, now 78, says suggestions that his sister might have killed Carvel are ridiculous: “My sister could not hurt a fly.” Davis’ last lawyer, Katharine Conroy, says the murder allegations “should be taken in the context they are made and weighed against the person who is making them.” Boynton, Agnes’ former guardian, says “nothing would surprise me in this case” given “the sense of entitlement and greed some of these people had toward the Carvel money.” Indeed, questions persist. Welsh, the former New Jersey detective Pamela hired to investigate the case, says he uncovered circumstantial evidence that suggests someone might have fatally tampered with Carvel’s heart medicine. Old friends of the Carvels who were staying at the Carvel home the weekend Tom Carvel died told Welsh of an odd development: They got a call from a Carvel employee within hours of Tom’s death telling them to remove all prescription drugs from his medicine cabinet. The request befuddled them,

but they complied. Welsh also says he was suspicious of how quickly Carvel’s body was whisked away to a New York City funeral home. In the Carvel case’s vast paper trail, one item stands out. Pamela’s investigators say they tape-recorded Tom’s longtime physician, Robert Athans, saying that he does not remember signing Tom’s death certificate even though it bears his signature. The doctor declined to comment for this story. If the death certificate was forged, who did it, and why? Was it to prevent an autopsy? A federal judge in Fort Lauderdale ruled in May 2007 that Tom’s exhumation is a matter for New York courts to decide. Pamela says she hopes to file an exhumation request in New York soon. And if the request is denied, or if an autopsy proves nothing, will that be the end of it? In one of my last conversations with Pamela, she talked of the exhumation request as if it were her final card to play, but later she recanted. “In Florida and in Delaware...I am still going to go after the bastards,” she says, cataloging a list of possible lawsuits and legal actions. “I have nothing left now. So what do I have to lose?” Related Links The Irrational Allure of Free Stuff Food Inflation Datapoint of the Day Chief Executive Vintners

Secondary Sources: Test Taking, Pay and GSEs (WSJ.com: Real Time Economics) Submitted at 7/21/2008 11:18:00 AM

A roundup of economic news from around the Web. Test Taking, Wealth and Gender: On VoxEU, Evren Örs, Frédéric Palomino and Eloïc Peyrache look at the gender gap among high-income earners, and use entrance exam data to suggest that part of the explanation may lie in the way people react to competitive pressure. Their study looked at about 5,750 students who took entrance exams over three years for admission to the HEC School of Management in Paris, a top business school and a ticket to a high-paying job. On average, men perform slightly better than women in both the written and oral exams despite evidence the female candidates were stronger, based on earlier tests and classwork. Also, male performance had greater variance (more at high and low end), while female candidates’ performance was more concentrated around the median. The authors write that the results suggest “competitive pressure generated by relative performance evaluations has a different impact on men than on women. This provides an alternative (albeit, by no means exclusive) explanation for under-representation of women in top management positions, if one takes the perspective that these positions are the rewards of performances in a series of competitive tournaments during one’s professional career, as opposed to pass/fail type of evaluation processes. … Finally, if the structure of the selection process indeed impacts performance differently across genders, then the under-representation of women may start as early as the professional schools that select students based on competitive

Zachary Karabell: The Arabs are coming, the Arabs are coming

exams.” Sideways Pay: Bloomberg’s Vivien Lou Chen looks at income growth. “The current U.S. economic expansion is the first in 60 years that may end before many Americans have recovered from the last slowdown. Annual family incomes adjusted for inflation have grown just 0.8% since the end of 2001. … ‘The world has seen, over the past 20 years, an increase in the supply of labor,’ said Robert Solow, a winner of the Nobel Prize in economics who’s now at the Massachusetts Institute of Technology. ‘When you have a big increase like that, the wages of the person in the middle are likely to be held down.’ ” Enron Analogy: James Surowiecki looks at the status of Fannie Mae and Freddie Mac in the New Yorker. “The G.S.E.s are curious, because there’s no obvious reason for them to exist in the form they do: instead of creating private companies to do all these jobs, the government could just do them itself. In fact, that’s how Fannie Mae got started, back in 1938: originally, it was a government agency endowed with the authority to buy mortgages, in the hope that this would expand the supply of credit to homeowners. It wasn’t until 1968 that Fannie was privatized. … The main reason for the change was surprisingly mundane: accounting. At the time, Lyndon Johnson was concerned about the effect of the Vietnam War on the federal budget. Making Fannie Mae private moved its liabilities off the government’s books, even if, as the recent crisis made clear, the U.S. was still responsible for those debts. It was a bit like what Enron did thirty years later, when it used ’special-purpose entities’ to move liabilities off its balance sheet.”

This just in: General Electric and the government of Abu Dhabi announced an $8 billion joint venture for commercial finance in the Middle East. Through Abu Dhabi's investment arm Mubadala, the emirate will contribute $4 billion and GE the other $4 billion, growing to $40 billion in the coming years, with the aim of supporting various energy and infrastructure projects in the region, including an aggressive plan to sponsor green, clean and sustainable water and energy plants. As part of that, the fund will support several projects in Abu Dhabi's Masdar City, a utopian project to build a carbon-neutral city in the desert. With Obama in the Arab heartland this week (first Iraq, then Jordan) the headlines have focused on foreign policy defined as national security - the future politics of Iraq, troop withdrawals, Palestinian-Israeli peace (or lack thereof). Little has been said in public about the economics of the region, or the position of the United States vis a vis economic development. It would be deeply surprising (and a bit disturbing) if those questions were not discussed in private between Obama and his interlocutors, but while the domestic economy in the United States is a source of constant public debate and a major campaign issue, the economics of the Middle East are at best an afterthought. But while Iraq, Israel-Palestine, Iran and nuclear weapons are critical security issues of the present, the emerging economic clout of the region is a critical security issue of the future. The influx of money into the Gulf region in particular as a result of sharply higher prices for oil has resulted in a vast wealth transfer from the United States and Europe to the Middle East. The emirates alone already have sovereign wealth funds that control trillions of dollars, and that figure is growing daily. What's more, there is a new determination on the part of the custodians of that wealth to invest it in the region, rather than buying up pleasure palaces on the Costa del Sol as they did in the 1970s during the last oil boom. That investment, both in the region and globally, is reshaping the global economic system. We are used to viewing the Arab world (which just to be clear does not include Iran) as a source of political and religious crisis, but the challenge ahead is to recognize the economic implications. Businesses like GE have already seized on the Gulf as a new area for growth, as have rather desperate Wall Street institutions that have been setting up shop in Dubai and turning that emirate into a next center of global finance. Any incoming US administration will have to consider the implications of the wealth transfer, of the fact that the United States is increasingly turning to the Gulf not just for oil but for capital and for much-needed help financing our debts - and of course, to buy the Chrysler Building. This may be the worst thing in the world, or the best, but whatever one thinks of it morally, it simply is. Ignoring it, decrying it, hoping it will go away, those aren't viable options. Yes, the Arabs are coming, and they are loaded, with dollars.

Tech Giants Give Mixed Signals (WSJ.com: Business Technology) Submitted at 7/17/2008 6:33:00 AM

Three tech giants – IBM, Microsoft and Google — reported earnings today. The lessons: 1) It’s a good time to sell technology overseas and 2) We’ve yet to figure out this whole Internet thing. Like a good martini, news for tech stocks was mixed IBM reported that revenue jumped 13% from the year-ago quarter to $26.8 billion and that net income rose 22% from the same period to $2.8 billion. Both numbers beat expectations and the stock was up about 1.5% after hours. Most of the growth came from IBM’s consulting and software sales – and most of it came overseas. Revenues in the Americas grew just 8%. Microsoft reported revenue of $15.8 billion, an 18% increase from one year ago, and net income of $4.3 billion, up 42% from a year-ago quarter that included one-time charges. The company narrowly missed analysts’ income projections and issued lower-than-expected earnings guidance, sending share prices down 6% in after-hours trading. Dissecting the numbers, Microsoft was helped by strong demand for PCs overseas. Revenue for the division responsible for the Windows operating system grew 15% from the year-ago quarter, a nice rebound from last quarter, when slow operating-system sales triggered questions about the success of Vista, the most recent version of Windows. Given all the bashing Vista gets, it’s nice to see that Microsoft increased the amount it spent on sales and marketing for the operating system by 22% from last year. One area that stood out from Microsoft’s earnings report is the online services business, which is a financial black hole. The group responsible for online advertising and other Internet-based services boosted its revenue 24% to $838 million from the year-ago quarter, but still managed to lose $488 million, more than twice as much as last year. Which takes us to Google. The search giant’s income, while up 35% from the year-ago quarter was significantly lower than analysts expected – this, despite revenue of $5.37 billion, up 39% from last year. The most alarming trend is that the rate of growth for paid clicks, Google’s chief revenue source, is slowing year-to-year. Paid clicks were down on a quarter-toquarter basis. Most businesses would kill to have results like Google’s. But in this weird Web 2.0 world we live in, 35% income growth sent the company’s shares were down 8% after hours. We realize we’re just adding our voice to the chorus here, but given Microsoft’s struggles turn a profit from search and Google’s announcing results that make it look like a real company and not the U.S. Mint, maybe it’s time we stopped thinking about search as Internet equivalent of an ATM. -Ben Worthen

Airlines' Fallout Effect (Portfolio.com: Business Travel) Submitted at 6/24/2008 10:30:00 AM

When an airline sneezes, does the entire travel business catch a cold? Maybe. Experts say that as airlines raise fares and cut routes, they'll squeeze other businesses who depend on a constant flow of passengers to keep the money rolling in. Tourism is one industry that's bound to be impacted. Fewer flights and higher prices will cause some travelers to forgo the big summer trip and do something closer to home (though if gas prices don't come down they might just sit home in their air conditioning). The chairman of the Caribbean Tourism Association says the airlines' moves are putting thousands of regional jobs and billions of dollars of investment at risk. Caribbean markets are especially susceptible to the cuts, he says, because struggling American Airlines handles a majority of traffic into the region. American recently announced that it's cutting its daily flights

Presented By: (Portfolio.com: Executives) Submitted at 7/16/2008 3:00:00 AM

at its San Juan hub from 93 to 51 and will no longer serve Santo Domingo, Antigua, St Maarten, Aruba, or Samana from San Juan. And that in turn messes things up for the cruise lines. Ten ships use San Juan as their home port, and if getting to the island becomes too much of a hassle, vacationers may blow off the cruise altogether. Vegas might also take a huge hit. Wachovia Bank thinks the airlines will reduce service into Vegas by 12 percent, resulting in 2.4 million fewer visits each year. This in a year when over 11,000 new hotel rooms will open on the strip. There are a whole slew of other industries that depend on the airlines to keep the money flowing. Airports are watching the amount of money they collect in landing fees shrink. Rental car companies, nervous about fewer travelers flowing through airports, are opening new location in the burbs. Hotels located around airports are concerned that as passengers trade in flights for road trips, they'll choose to stay at properties further out of town. Web-based travel agencies like Orbitz are anticipating that as number of

airlines shrinks through mergers, passengers will feel less need to comparison shop online. Long suffering airline employees are facing another round of pink slips, but they're not the only ones. Employees at the companies contracted by the airlines are also likely to get the axe. And with what's left of airlines' domestic food service gone or likely to go, the kitchens that provide in-flight catering are likely to make cuts as well. Of course, not everyone loses. Airport shops and restaurants may see fewer passengers wandering the concourse, but the ones who are there might be more likely to pay $19 for a plate of Buffalo Wings and $4 for a bottle of water before boarding their bare-bones flight. Related Links Steer Clear Tips for a Sky-High Spring More Cuts "Inevitable," BA Chief Says

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Bernanke Reasserts Dominance Over Wall Street (WSJ.com: Real Time Economics) Submitted at 7/22/2008 12:21:00 PM

Federal Reserve Chairman Ben Bernanke has reasserted his dominance as by far the most market-moving Fed official, a study released Tuesday showed, after having ceded some of the spotlight to regional Fed presidents in his first year as chairman. Bernanke According to Macroeconomic Advisers, Bernanke’s speeches in 2007 and 2008 accounted for over 0.60 percentage point of movements in the twoyear Treasury yield, which is sensitive to monetary-policy expectations. That’s five times the market effect of the second-most influential official over the last 18 months, Fed Vice Chairman Donald Kohn. “It may be that the markets looked increasingly to the “heavyweights” on the FOMC to deliver the policy message, discounting the comments from other FOMC members,” Macroeconomic Advisers’ Laurence Meyer, who is a former Fed governor, and Brian Sack, a former Fed economist, wrote. Their analysis excluded Bernanke’s twice-yearly monetary-policy testimonies, “which would have made the imbalance even greater,” they said. In Bernanke’s first year as Fed chairman in 2006, his speeches had only twice the market effect of the second-most market-moving official that year, St. Louis Fed President William Poole. That year regional Fed presidents including Poole, Richmond Fed President Jeffrey Lacker and Kansas City

Fed President Thomas Hoenig, had a bigger market impact than the Washington-based Board of Governors, excluding Bernanke. In contrast, in 2007 and 2008 three board members — Bernanke, Kohn and Fed governor Frederic Mishkin– held three of the top five spots on Meyer and Sack’s list. Unlike 2006 when Bernanke was the most dovish FOMC official — meaning his speeches led to the biggest decline in the two-year Treasury yield — in the past 18 months he has been the most hawkish. But Meyer and Sack noted that most of Bernanke’s hawkishness came from a speech on the evening of June 9 that led to a 0.19 percentage rise in the two-year yield the next day. In that speech, Bernanke said the Fed “will strongly resist an erosion in longer-term expectations, as an unanchoring of those expectations would be destabilizing for growth as well as for inflation.” Excluding that one speech, Bernanke “was dovish on balance,” they wrote. Meanwhile, FOMC policy statements have risen in market importance at the expense of meeting minutes that are released with a three-week lag. “Market participants put a premium on the timeliness of information given the fluidity of the economic circumstances over this period,” Meyer and Sack wrote. “This may have shifted some of the focus away from the minutes and onto the statements themselves,” they said.–Brian Blackstone

A Network for the 21st Century (WSJ.com: Business Technology) Submitted at 7/18/2008 2:27:00 AM

Two years ago, when France Telecom decided to form a unit to co-produce movies in Europe, industry insiders were left in a quandary as to why one of France’s largest telecommunication providers would make such a move. A phone company getting into film? The move was part of an ambitious plan to differentiate the communications company from the phalanx of competitors that had arisen in France. And while some may consider France Telecom’s increased activity in media, distributing music, movies, games and television as a tough bet, Didier Lombard, France Telecom’s chief executive and chairman, believes it’s the only way for the company to survive. To further push his strategy and quash any misunderstanding of his ideas about the changes underway in telecom, Lombard has authored a new book . He made an appearance Thursday at Café De La Presse in San Francisco to autograph the book for well wishers and chat with the Biz Tech Blog. The book, entitled The Second Life of Networks, is an attempt to chart the evolution of the telecommunications industry and its acceleration over the last five years, due mostly to the explosion of the Internet. In describing the new dynamics at play and its effects on telecommunication companies, Lombard partially examines the impact of the usual Web 2.0 companies – the one whose name starts with an F, the

other beginning with an M and of course the Big G company. He urges politicians, consumers and, yes, journalists to not look at the phenomenal growth and popularity of such companies as a fad or even a bubble. Instead, see them as the initial rain droplets of a great downpour. “I did not write this book to make a profit or to be regarded as a writer,” Lombard tells us. “It’s a tool to show what’s happened in the past, what’s happening now and the impact these events may have on the future.” He says no longer will consumers just consume media and communication. It’s now an exchange where consumers now have much more of a say in what it is they’re interacting with and watching, making demands on those who provide those services. As a result of the changes, Mr. Lombard says a company of France Telecom’s size, with its 200,000 employees, needs a clear directive on how it tackles the brave new world. So he also considers the book a guide for how the French telecommunications company will negotiate the new terrain. “I’m probably the only telecommunications chief executive to lay out his strategies in a book for the public to see,” says Lombard. All proceeds from The Second Life of Networks will be donated to the non-profit Orange Foundation. Bobby White and Lee Gomes France Telecom Ad Uploaded by thomevincent

A Few Banks Rediscover Making Money the Old-Fashioned Way (WSJ.com: MarketBeat) Submitted at 7/21/2008 2:14:00 AM

Geoffrey Rogow of Dow Jones Newswires has this report on net interest margin. The simple practice of lending money at a higher rate than it costs to borrow is helping some banks move past the credit crisis, while others continue to struggle under a mountain of complex securities. The Federal Reserve’s steady lowering of the federal-funds target has been blamed for bloating the credit market with excess liquidity and driving inflation. But as lending standards tightened and asset-backed deals dried up, banks’ net interest margins (the difference between its cost to borrow and cost of lending) increased, allowing them to make a better profit through traditional lending. For the banks with strong-enough balance sheets to withstand the downturn in credit and the economy, an increase in margin rates drives earnings growth. “People say the whole business is on its deathbed, and it’s not true — banks can rebuild themselves by earning more on what they’re lending, which the early evidence is showing,” said Bill Stone, senior vice president for PNC Wealth Management. While the government’s decision to curb short-selling in 19 securities has been widely credited as giving a lift to financials in the last few sessions,

there was little stock movement on Tuesday last week when the move was first disclosed. Traders have instead keyed in on earnings reports that highlighted net interest margin as a key driver of growth. BB&T Corp. posted better-than-expected earnings Thursday and its shares rose 13% on the day. For the quarter, net interest margin was 3.65%. Wells Fargo& Co. posted a 23 basis point gain from the first quarter and its shares rose 33%. And Monday morning, Bank of America Inc.’s net interest yield climbed while the company also reported higher income from service charges, both showing that though it may be providing fewer loans, it is gaining more money from the loans it is able to underwrite. However, central bankers could easily shift gears and once again begin raising rates and dampen net interest margin growth. Moreover, gains in net interest margin can’t save every financial firm. Financial-services firms and broker-dealers continue to post massive write-downs on their debt portfolios and regional banks, lenders and thrifts, which are most likely to be able to take advantage of stronger net margins, are often speculated to be the next area to fall under pressure of the yearlong credit squeeze. “There are certainly haves and have-nots. Some of these banks have cancer. You may be giving them eyeglasses to fix their sight, but they still have cancer,” said Mark Sunshine, president of West Palm Beach, Fla.based commercial lender First Capital.

Is the World Finally Ready for Online Stock Trading? (WSJ.com: Business Technology) Submitted at 7/22/2008 12:01:00 PM

During the dot-com bubble, businesses raced to develop Web sites that could be accessed via mobile phones, the idea being that life without the ability to trade stocks from the back of a taxi wasn’t worth living. We all know how that turned out. But despite the earlier failures, Web software for cellphones is now a hot topic. Or you could just use your BlackBerry E*Trade is one of the businesses hoping that the mobile Web is about to take off in a big way. The online bank and brokerage firm this month launched software that allows people who use Research In Motion’s BlackBerry device to—you guessed it—trade stocks from their phones. E*Trade won’t disclose how many people use the service but did say that both the number of visitors and the number of trades has doubled from 12 months ago, when E*Trade had more primitive mobile-trading software, according to Greg Framke, the company’s chief information officer. Framke says the software that E*Trade developed for the BlackBerry made sense because the stereotypical BlackBerry owner—a young, affluent, always-connected professional— is the online bank’s target demographic. Framke believes that despite the hype back in 2000, people weren’t ready

then to visit Web sites—let alone trade stocks—from mobile phones. At the time, people were just getting comfortable buying things from Web sites accessed through their personal computers. The mobile Web was slow, expensive and ugly in comparison. Now, phones have bigger screens and sometimes come with service contracts that include unlimited Internet access. The cost of developing the software is also substantially cheaper and less complicated than it was back in 2000, making it a lower-risk bet for businesses. “Two or three years ago, this wouldn’t have worked,” says Framke. There’s ample evidence that the mobile Web is gaining traction: In the U.S., 16% of cellphone owners routinely access the Internet from phones, according to Nielsen, while 57% use some kind of nonvoice service, such as sending text messages. The ability to access the Internet is a key selling point for many new phones. For example, Apple recently launched an online store dedicated to distributing software for its iPhone and bases its ad campaign for the phone around the idea that people want Internet access wherever they are. Businesses are paying attention: Forrester Research reports that the number of inquiries it received from businesses and service providers wanting to talk about the mobile Web jumped 40% last year. -Ben Worthen

Economy’s Dip May Take Longer to Overcome in Europe (WSJ.com: Real Time Economics) Submitted at 7/22/2008 10:28:00 AM

European Central Bank officials are increasingly suggesting it may take longer than expected for the euro-zone to limp out of a weak second quarter. “It could be that recovery takes more time,” said ECB executive board member Lorenzo Bini Smaghi in Italy’s La Stampa newspaper, when asked about the outlook for the fourth quarter, stressing that the ECB has always said there were downside risks to its growth forecasts. ECB Governing Council member Klaus Liebscher, meanwhile, said the ECB expects weaker euro-zone growth of around 1.7%-1.8% this year, slightly below projections of around 1.8% it issued in June. Those projections assumed an oil price of $113 per barrel this year and $117.7 next year. On Tuesday, the going price for brent spot was above $131. “The problem is 2009, when growth weakens (further),” said Mr. Liebscher, who also heads Austria’s central bank, in an interview with Austria’s Salzburger Nachrichten newspaper. “Downward risks are predominant.” The ECB’s June forecasts called for growth around 1.5% next year. ECB president Jean-Claude Trichet also downgraded his growth assessment slightly last week, saying in an interview with four European newspapers that the euro-zone economy would “trough” in the second and third quarters before staging a progressive recovery. Mr. Trichet had previously maintained that the “trough” would come in the second quarter. “These comments continue to suggest that the next set of ECB staff projections will feature further downward revisions,” Nick Matthews at Barclays Capital said. Barclays expects the revisions, due September 4, to come in at 1.6% for this year, and 1.3% for 2009. Such forecasts would still be more optmistic than those of many private-sector economists, who believe the euro-zone could be heading for a hard landing and perhaps a recession. But ECB policymakers Tuesday also stressed persistent inflation pressures. With euro-zone inflation at 4% in June, more than double the bank’s preferred range, the ECB raised its key rate by 25 basis points to 4.25% earlier this month. Mr. Bini Smaghi said that the July increase has already produced a “visible benefit” on inflation expectations. But he also said that with inflation at more than double the bank’s preferred range, the ECB’s key 4.25% rate “can’t plausibly be called restrictive,” suggesting policy makers remain focused on keeping high commodity and food prices from pushing up domestic prices including wages.–Monica Houston-Waesch

Thrift Oversight Chief Wants More Loss Provisions, Fewer TV Stakeouts (WSJ.com: Real Time Economics) Submitted at 7/21/2008 12:13:00 PM

U.S. thrifts may have set aside a record amount to cover expected losses from loans during the first three months of 2008, but the industry’s regulator is urging them to do more. John Reich (Photo: OTS) “All institutions must be proactive in provisioning for loan losses and building sufficient loan loss reserves,” Office of Thrift Supervision Director John Reich said in a speech at a banking industry conference in Orlando, Fla. Reich also used his speech to decry the media coverage — particularly on TV — and market rumors that he said have “stoked public fears” about the health of the banking system. “Seemingly oblivious to the fact that they could drive otherwise healthy banks to fail and push troubled institutions away from potential solutions toward ruin, TV reporters staked out banks on these rogue lists, interviewed customers and stoked public fears. In a time when consumer confidence is already flagging and the general public is skittish and understandably concerned about what their financial futures will hold, this behavior goes beyond irresponsible,” Reich said. “It’s reprehensible.” The OTS recently had to shutter IndyMac Bancorp Inc., which had $32 billion in assets. Reich kept up the refrain from federal banking regulators that banks must do more to deal with problem assets, particularly mortgage loans. He urged banks to increase loan-servicing staff numbers, set specific standards for modifying a loan or selling a house at a discount, and appropriately account for troubled loans. The nation’s thrifts, which have traditionally focused on mortgage lending, reported a first-quarter loss of $617 million, compared with net income of $3.61 billion in the first quarter of 2007. The OTS said that thrifts set aside an industry-record $7.6 billion in loan loss provisions during the first quarter of 2008, up from $3.5 billion and $5.5 billion, res pectively, in the third and fourth quarters of 2007. Reich also specifically urged the Securities and Exchange Commission to “aggressively pursue” any rumors that are being spread with the intention of manipulating a stock price.– Michael R. Crittenden

Paulson’s Sunday Talk (WSJ.com: Real Time Economics) Submitted at 7/20/2008 12:03:00 PM

U.S. Treasury Secretary Henry Paulson said Sunday it will take months for the economy to recover from high energy prices, declining property values and financial market woes. Paulson Appearing on CBS’s “Face the Nation,” Paulson said: “We’re going through a challenging time with our economy. We’re going to be in a period of slow growth for a while…I think it’s going to be months that we’re working our way through this period.” Paulson also said he is optimistic Congress will pass an administration proposal concerning Fannie Mae and Freddie Mac that would allow the government to rescue the two federally-chartered mortgage giants. He said he is “very optimistic we’re going get what we need from Congress. Congress understands how important these institutions are.”

No Tomorrow for SAP’s Oracle-Baiting Subsidiary (WSJ.com: Business Technology) Submitted at 7/21/2008 5:57:00 AM

SAP will close down a subsidiary that provided technical support to businesses that used software sold by rival Oracle. But don’t write off the third-party-support business model just yet. TomorrowNow customers will have to get their tech support somewhere else When Oracle bought management-software maker PeopleSoft in 2005, rival SAP had a bright idea: It bought TomorrowNow, a company run by former PeopleSoft execs. At the time, some PeopleSoft customers were up in arms about the prospect that Oracle might force them to move over to Oracle software. TomorrowNow promised to help businesses run PeopleSoft

and other older software in perpetuity – for less than Oracle or SAP charged for support services. Cynics also saw it as a vehicle through which SAP could steal customers from its rival. At its peak, TomorrowNow had several hundred customers, most of whom would have otherwise bought support services from Oracle. Then two things happened: Instead of forcing people to install its software, Oracle decided to keep selling PeopleSoft, weakening TomorrowNow’s raison d’etre. And in March, 2007, Oracle sued TomorrowNow, alleging that it repeatedly stole Oracle’s intellectual property. A trial is set for February 2010. SAP, which had been shopping TomorrowNow around, on Monday said it will shut down the subsidiary in October. SAP will use the time that’s left to help TomorrowNow’s 225 customers find support from Oracle or a different third party. An SAP spokesman tells the Business Technology Blog that the

software maker had hoped to sell TomorrowNow, but that it would have been a “complex transaction.” He said closing TomorrowNow won’t have a material impact on SAP. An Oracle spokeswoman declined to comment. This isn’t the end of third-party support. While TomorrowNow was the best known practitioner, there are other companies that offer the service, including Rimini Street, which was started by one of TomorrowNow’s cofounders. Support from these companies can cost half as much as support from the software maker, Ray Wang, an analyst at Forrester Research, tells us. And so these companies will be around as long as there are businesses looking to save money. -Ben Worthen

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Kitchen Confidential (Portfolio.com: Careers) Submitted at 7/16/2008 3:00:00 AM

Was Martha as tough to work for as people say? Martha is a force of nature. The first time I went to meet her in prison, I’d seen our designers’ plans for a new bedding line. I said, “God, they were really beautiful, Martha.” She said, “Did you want them? If you don’t want them, they’re not good enough.” So, yeah, she can be a real taskmaster. But there’s a pursuit of excellence that’s hard to deny. What was it like visiting her in prison? I went to see her every other week. I wasn’t allowed to ask what I should do, but I could inform her of what we were doing. We’d spend four or five hours together. We played a lot of Scrabble. You’ve been rumored to be in line for a number of jobs, including Time Inc. C.E.O. What’s it going to be? Honestly, I don’t know. I want to spend some time traveling, reading, thinking, and listening. Why are you leaving? I said to Martha when I came to the company that I would put a great management team in place. At a certain point, you need to step aside so they can do what they came to do.

In your prior job as head of programming at ABC, you helped launch Desperate Housewives. Which housewife are you? Felicity Huffman. The idea of carrying a significant job and raising kids, and the chaos that ensues, certainly rang a bell. What was your worst day at Martha Stewart? The day we met with Eddie Lampert to see if there was a new contract to be done with Kmart and realizing we were so far apart, it was hopeless. We knew the value of our brand to them, and I think he felt we had no other options and could hardball us. Best day? The day Martha came back to the company. And the day we could say we were profitable again. That was a fun earnings call. Is there one Martha Stewart product you can’t live with-out? The lemon zester. It’s just a miracle. Related Links Martha Stewart: Banned in Britain When Public Companies are Still Private Fiefs More Influence than Anxiety at the 'Time 100'

A Closer Look at Troubled Job Picture for Teens (WSJ.com: Real Time Economics) Submitted at 7/21/2008 3:57:00 AM

Teens can have a tough time finding work, but this summer’s weak job market means more time pounding the hot pavement, particularly for younger job-seekers. Almost one in four 16- and 17-year-olds can’t find work, and the Northeastern University Center for Labor Market Studies says this summer’s teen employment rate could reach a post-war low. That could mean tougher times later: “Less work experience today leads to less work experience tomorrow and lower earnings down the road,” a study by the center says. The overall teenager unemployment rate declined to 18.1% in June from 18.7% in May. The unemployment rate for older teens fell to 15.6% from 17.5%, but the rate for younger teens rose to 23.3% from 21.2%. That difference is more than twice the 60-year average of 3.3 percentage points. Overall, the U.S. unemployment rate held at 5.5% in June, after rising sharply in May. Howard Rosen, an economist with the Peterson Institute for International Economics, said while teenage labor data are volatile, the figures could

indicate a problem in the teenage job market. He said higher minimum wage requirements may be leading employers to favor older workers or that the U.S. is in a recession. “We’ve seen in the past that the teenage unemployment rate has followed the national rate, and now we have a divergence,” he said. “That’s big.” Renee Ward, founder of the teen job search Web site Teens4hire.org, said some companies have set higher age requirements for jobs. “They feel that, by that time, people have a better understanding of customer service,” she said. The lackluster economy is helping to shrink the job market, including positions at retailers that hire many teenagers. The retail industry has lost 194,000 jobs since March 2007. At the same time, labor laws may make it harder for younger teens to find work. The Fair Labor Standards Act requires teens under 18 work “non-hazardous” jobs. Some say that could prohibit them from jobs that require the use of box cutters to open shipments at retail stores and lawn-products with chemicals qualify as hazardous.– Christina M. Wright

A Cloud Over the U.S. Solar Push (WSJ.com: Business Technology) Submitted at 7/17/2008 1:28:00 AM

Won’t it be great when America wises up and starts generating a big percentage of its electricity from the sun? Well, one of Silicon Valley’s major players in the field sees a snag. A solar cell Applied Materials, a maker of machines used to manufacture chips and flat -panel displays, is starting to get some traction in selling its tools for clean energy applications. The company has now outfitted a dozen factories for making solar panels. But Michael Splinter, Applied’s chief executive, is quick to point out that not one of those factories has been in the United States. Two well-known U.S. panel makers, First Solar and SunPower, chose to set up major factories in Asia. If the trend were to continue unabated, he argues, the dollars the country now sends to foreign oil countries would simply shift to foreign panel makers. And America would lose a chance to create manufacturing jobs. “This is the biggest miss in a long time,” Splinter says. This not a case where lower wages abroad are the primary factor. But other countries–Germany is the best-known example–offer a range of incentives that subsidize installation of solar panels and aid companies that make them. Even some Indian panel makers have set up their first factories in Germany, says Mark Pinto, an Applied senior vice president and chief technology officer. By contrast, the U.S. research and development tax credit expired at the end of December, and a renewable energy tax credit that could help spur solar panel installations is bogged down in Congress. There are reasons to think the situation should improve. Solar-panel factories should become profitable, even without incentives, Splinter says. And the panels, being fairly large, are not that convenient to ship great distances. After all, notes Joe Pon, an Applied corporate affairs spokesman, making the solar panels is much like making sheets of glass. “Glass factories are all over the world, they are not all in Taiwan,” he says. -Don Clark

Bank Analyst Sued by Bank (WSJ.com: MarketBeat) Submitted at 7/21/2008 2:44:00 AM

Life of the Party (Portfolio.com: Careers) Submitted at 7/16/2008 3:00:00 AM

T rue, he was buried with a cell phone in his hand. But despite that modern touch, Warren Cowan’s death, at 87, signaled the end of an era. If celebrity is a commodity in Hollywood, then Cowan was one of its pioneer traders. ( View slideshow.) Rogers & Cowan, the company that he and Henry Rogers started in 1950, remains one of the powerhouse imagemaking outfits in town. (It was bought in 1987 by Shandwick, which is now a subsidiary of the Interpublic Group of companies.) Cowan’s life spanned the rise of the celebrity publicist. Every powerful flack in town started out at his firm: Pat Kingsley was his secretary; Alan Nierob and Paul Bloch—who were among the pallbearers at his funeral—fetched his coffee. The consummate Hollywood P.R. man, who in recent years had announced other passings (most recently Joey Bishop’s) to the world, received his sendoff at a standing-room-only service in May at Mount Sinai

Memorial Park in Los Angeles. Eva Marie Saint read a statement from longtime client Paul Newman, who praised Cowan for bringing an “uncommon dignity” to his work. Among the mourners, more than one person remarked, were the ghosts of those whose press Cowan had finessed, among them Lucille Ball, Gary Cooper, Judy Garland, Cary Grant, and Frank Sinatra. Cowan invented the modern Oscar campaign in 1944 by leaking a story about Mildred Pierce’s “promising” Academy Award chances when the film was just three weeks into shooting. “If we don’t have anything to publicize, let’s create it,” he once famously said. Cowan founded his last firm, Warren Cowan & Associates, in 1994. He learned he had melanoma only three weeks before he died, and the tireless P.R. man spent part of his final day with his staff gathered around him: He wanted to make sure everything was ready for an event honoring Wayne Newton.Related Links Idle Chatter: Actors' Strike, 'Arrested Development,' more Peeking Under the Table Hollywood Ending: Guilty

Buggy Software is Your Fault, Too (WSJ.com: Business Technology) Submitted at 7/21/2008 6:00:00 AM

Hackers’ preferred method of breaking into businesses these days is exploiting flaws in Web browsers, word-processing documents and other software. The reason these applications are vulnerable to attack: No one wants the responsibility for making sure this software is secure. To write better code The man pointing the finger at, well, everybody is Howard Schmidt, a security consultant who used to be the top-ranking cyber-security official in George W. Bush’s Whitehouse. Schmidt spoke to the Business Technology Blog while waiting in line to get the software on his iPhone upgraded although he called us on his BlackBerry. The problem, according to Schmidt, is that the people who oversee software development focus on finishing projects on time and under budget. It’s not that security is incompatible with coding cheaply and fast, but it does make development a little more complicated, because programmers

can’t take many of the shortcuts they’re used to. Schmidt says that writing software with security in mind from the outset is the tech equivalent of building a house without flammable materials. But it’s one thing for a business to insist that software developed internally is done so with security in mind. It’s another to make sure that the software it purchases is vulnerability-free. That’s where businesses - and individuals have really dropped the ball. “A lot of people think that it’s someone else’s job,” Schmidt tells us. The result is that no one ever checks most software for flaws. Making sure that software is secure from the ground up will become increasingly important as people store more information and install more software on mobile devices like the iPhone Schmidt was waiting to upgrade. Schmidt offers this reminder: Just because a piece of software was distributed through Apple’s App Store, don’t assume that it is vulnerability free. -Ben Worthen

“Wi-Fi Squatting” a Crime – By the Victim (WSJ.com: Business Technology) Submitted at 7/18/2008 5:13:00 AM

It’s a federal offense in the U.S. to use someone else’s unsecured wireless network for illicit purposes. It’s a crime in Germany, too – committed by the network owner. Is this a way to send an enemy to jail? We’ve always thought that so-called Wi-Fi squatting was largely a victimless crime. We’ve done it, and, based on the comments our previous posts on the topic received, so have most of this blog’s readers. The FBI has told us that it isn’t a federal offense to squat, as long as the squatter doesn’t use the connection to do anything illegal. Wi-Fi squatting is against the law in some states, however: A few unlucky folks have been arrested for checking email or surfing the Web while parked in a car outside a coffee shop or library. But a court in Germany ruled that the owner of an unsecured Wi-Fi

network that a squatter used to illegally download rap songs is responsible for the crime – even though he proved that he wasn’t the one who stole the files, TechDirt reports. (Here’s the news story in the original German and Google’s translation.) Most of this blog’s readers compared Wi-Fi squatting to listening to music blasting through an open window or getting sprayed by the mist from a sprinkler that’s spilling onto that sidewalk. A few thought that it should be a crime, arguing leaving an unlocked bicycle on the sidewalk doesn’t give a passerby the right to take it. No one suggested that the person committing the crime was the network owner. Nonetheless, the German court said that network owners are responsible for securing their networks — and can be held liable if they don’t (Although TechDirt points out that a different German court ruled just before this one that another network owner wasn’t responsible for the behavior of squatters in a similar case.) -Ben Worthen

Some companies, when confronted with negative share activity and analyst commentary, rail against short-sellers and the like. Others go ahead and sue analysts, which is what BankAtlantic did today against Richard Bove. Richard Bove of Ladenburg Thalmann. One week ago today Mr. Bove, of Ladenburg Thalmann, released a wideranging report titled “Who Is Next,” which assessed the possibility of further troubles for financial institutions based on various metrics, including nonperforming assets to total outstanding loans, and non-performing assets to capital. BankAtlantic sued Mr. Bove for this analysis, asking for damages related to defamation and negligence. “ The problem is that, while Bove’s report purports to consider which banks might fail, he failed to examine the health of the banks and thrifts in his report,” they write. “Instead, he only examined holding company data which, in at least our case, is meaningless information. This is simply shocking.” Mr. Bove noted in a later commentary that BankAtlantic had disputed his figures, noting that the holding company had purchased $100 million in nonperforming assets from the bank. He didn’t give in entirely, saying investors could “either choose the numbers for the holding company as published, or use the number provided for the underlying bank.” The bank still isn’t thrilled, saying in a release that the method — comparing non-performing loans at the bank with the total capital of the holding company — is misleading. “The problem we face is that the indisputable facts are now buried in the sensational headlines Bove and Ladenburg have falsely created— and, for whatever reason, have refused to retract,” they wrote. An assistant at Mr. Bove’s office said he was unable to comment, on the advice of counsel. A Ladenburg spokesman said that “ we’ll defend ourselves against this meritless lawsuit.”

Jeremy Haft: Olympic Security and the Media (The Huffington Post Full Blog Feed) Submitted at 7/22/2008 10:04:50 AM

Two city buses exploded Monday morning in southwest China during the rush hour. The authorities think they can tamp down on such violent protest during the Olympics, but they've got another thing coming. Even with a staggering 100,000 police officers deployed on the streets to keep order for the Games (that's twice the size of NYC's police force, twice the size of the Italian standing army!) -- they won't be able to prevent every single act of civil disobedience and violence. Nor will they be able to choreograph the media coverage of these events. Much to NBC's chagrin, the Chinese authorities are curtailing the hours when press can film in Tiananmen Square, and they'll try to censor the dominant television narrative. But they won't be able to prohibit 24/7 coverage via the Internet of protests as they happen on the ground. As the authorities learned from the Sichuan earthquake, sometimes the public's need for information can supersede the government's ability to control it. Information cascades across digital networks like water flowing over a dyke. Sticking fingers in that dyke can't stop the flow. Hopefully, the inevitable bad pres coverage will lead to greater openness and more press freedom, not less. Regardless, the authorities are in for a rude awakening.

Bearish Schering Options Explode on Drug Study (WSJ.com: MarketBeat) Submitted at 7/21/2008 1:32:00 AM

Shares of Schering-Plough Corp. and Merck& Co. were both down after the companies postponed their earnings releases until after today’s close as they await the impending update on a study of whether their Vytorin cholesterol drug reduces heart-attack risk. The press conference discussing the findings is taking place currently in London, led by Terje Pedersen of the Ulleval University Hospital in Oslo, who was spearheading the Simvastatin and Ezetimibe in Aortic Stenosis (SEAS) study.

They’ve found that the drugs Zetia and simvastatin, the two components of Vytorin, did not cut the risk for heart attacks and reduce the need for aorticvalve replacement any more than a placebo (the primary goal of the study). However, the combination did produce a statistically significant reduction in certain secondary events such as non-fatal myocardial infarction or coronary artery bypass surgery (a secondary goal). A study done earlier this year that said Vytorin was no better than simvastatin alone in slowing the clogging of arteries. Shares of ScheringPlough were hit the hardest during trading, but as the release came out, shares recoverd a bit. Lately they were down 3.5% while Merck lost 1%. In addition, options activity has exploded, with more than 25,000 put

options at the $17.50 strike traded in Schering, exceeding existing open interest of less than 10,000 contracts. Call-buying in the $20 strike, where about 20,000 contracts have changed hands, exceeds the existing open interest of 13,400 contracts. Overall volume is more than seven times the usual daily volume. Sveinn Palsson, Credit Suisse U.S. derivatives strategist, notes that the activity in the options market suggests investors are taking a more bearish view. Prices of the puts are increasing, while prices of the call options are increasing. “ It means that the demand for protection is higher than for the upside,” he says. The view “is definitely tilted toward the downside.”

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Police Arrest, Try to Hire Computer Hacker (WSJ.com: Business Technology) Submitted at 7/18/2008 6:00:00 AM

The FBI hailed the arrest of an alleged computer hacker known as “AKILL” as progress against “one of the most serious cyber security threats” facing the civilized world. But a judge this week dismissed the charges and now authorities are preparing to offer the hacker a job. Really good hackers have more cards to play In a press release last November, the FBI claimed that the hacker, 18-year old Owen Thor Walker of New Zealand, was “ the ringleader of an elite international…group,” which illegally took control of more that a million computers and used them to steal more than $20 million. Even though Walker only made $40,000 personally, his arrest was hailed as a sign that different governments could work together to stop online crime. We wrote about the arrest at the time in a post titled “ Cyber-Crime Crackdown Won’t Stop Cyber Crime.” But even we aren’t cynical enough to guess that this would happen: Despite the fact that Walker confessed, a judge in New Zealand let him off the hook. She said that a conviction might hurt Walker’s career potential, according to the BBC. In fact, if press accounts are to be believed, both the defense and the prosecution spent most of the trial fawning over Walker’s computer-programming skills. Not only was he likely to get a job offer from the police, headhunters from several other tech companies were outside the courthouse, the Telegraph reports. Granted, most hackers won’t get the Walker treatment. But this looks like a case where crime may not pay well, but getting caught will. -Ben Worthen

Despite Earnings, Stocks Display Resilience (WSJ.com: MarketBeat) Submitted at 7/22/2008 11:32:00 AM

Certainly, there are plenty of bearish factors for motivated sellers to hang onto, but the market is displaying unexpected resilience as the morning wanes. Underpinning the rally, of course, is another decline in oil prices, but outside of the usual beneficiaries of such news (the transports), the bounce is curious. Technology shares are reasonably firm despite a poor outlook from Apple Inc. and disappointing results from Texas Instruments Corp., and financials are outperforming the market, disregarding the losses from Wachovia Corp. and a number of regional banks. “I think everybody is interested — I don’t want to say excited — about finding a bottom in the financials, but I don’t think we’re at that point,” says Stephen Carl, head trader at Williams Capital. “If some are alluding to it, I think they’re forcing it.” Analysts suggest that the rally reflects a desire by investors to find points of resistance in the near-future. They’re seeking clarity on how far such a rally can run after stocks declined dramatically through the first two weeks of July. “ The market is showing that it believes that the low was real, and so this is a test if you want to call it that,” says Marc Pado, U.S. market strategist at Cantor Fitzgerald. He adds that the market has a “ways to go” before finding true resistance levels, which he puts at about 11800 on the Dow industrials. “If we get up there, people are going to get cautious again.”

Technology Is Boring. And That’s Good. (WSJ.com: MarketBeat) Submitted at 7/21/2008 12:15:00 PM

One of the larger technology bellwethers reports earnings after the close — Apple Inc. Others have already released their news, including Google Inc., Microsoft Corp., and International Business Machines. And strategists at Merrill Lynch have noticed so far that if there’s any one sector that can be considered boring and predictable in today’s market, it’s technology. Technology, according to Brian Belski, U.S. sector strategist at Merrill, is “exhibiting the lowest standard deviation of earnings growth over the past five years of any sector within the S&P 500.” Basically, that means that this sector has experienced less volatility in its earnings from quarter-to-quarter and year-to-year, unlike the financials, which now have all the dependability of Lotto tickets. He notes that between the end of 2007 and July 17, the overall growth rate for the S&P 500 declined by 18 percentage points — but expectations for tech fell by just 9 percentage points.

Happy Endings...For Her?! One Woman Gives It A Whirl (The Huffington Post | Full News Feed) Submitted at 7/22/2008 9:50:00 AM

Luckily, any "rules" restricting female sexuality are dying as fast as Sex and the City repeats can slay them, and it was only a matter of time before women embraced the notion that "quick releases" aren't just for men. And with competition among spas getting ever more intense, customers are starting to demand more than just Enya and free herbal tea with their Shiatsu, according to massage therapists. "It's such a well-known thing for guys, and women are finally getting more comfortable asking for it," said Anna, a self-described "massage healer" who has worked at several upscale spas and performed happy endings on female customers. (Names have been changed to protect the less-than-innocent.) "Women are finally getting comfortable with the idea that it's ok to feel erotic in what's already a really erotic setting."

Secretary Paulson's New Gig: Fannie And Freddie PR Man By [email protected] (Business on HuffingtonPost.com) Submitted at 7/22/2008 6:20:30 AM

Bank examiners from the Federal Reserve and the Comptroller of the Currency are inspecting the books of the nation's two largest mortgage finance companies, Fannie Mae and Freddie Mac, as the Bush administration prods Congress to approve a plan that would enable it to inject billions of dollars into the companies. Treasury Secretary Henry M. Paulson Jr., in a meeting on Monday with reporters and editors of The New York Times, said the Fed and the comptroller's office began combing the books of the two companies after their declining stock prices caused widespread anxiety in the market. The two companies guarantee or own almost half of the home mortgages in the United States. The Bush administration is hoping they can be the engine that pulls the housing market out of its yearlong slide. Read the full story here -ORRead more about Secretary Paulson and the lending crisis: ::Vince Farrell: Fannie and Freddie in Layman's Terms :: No More Bailouts Expected

This Time, Earnings Don’t Help (WSJ.com: MarketBeat) Submitted at 7/22/2008 9:07:00 AM

So much for boosting stocks on earnings news that isn’t as bad as expected. A number of earnings reports out following Monday’s close and today’s open are indeed, bad as expected — or worse — and it looks set to take a toll on the market. Shares of Apple Inc. were down 9.8%, as this once-Teflon stock continues to struggle after hitting an all-time high at the end of 2007. Peter Oppenheimer, Apple’s chief financial officer, said he expects the company’s gross profit margin to decline in the coming quarter. Other technology names that reported earnings overnight are struggling, such as Texas Instruments Inc., down 13% in premarket action after the chipmaker said net income fell due to sluggish sales of wireless-handset chips. Sandisk Corp. dropped 19% after it had its ratings cut by Citigroup analysts. The financials were not providing solace. Wachovia shares fell 6.7% and American Express Co. was off by 10% after both reported disappointing earnings.

Ford To Drastically Shift Production Away From SUVs By [email protected] (Business on HuffingtonPost.com) Submitted at 7/21/2008 9:00:49 PM

The Ford Motor Company, which devoted itself for nearly 20 years to putting millions of Americans into big pickup trucks and sport-utility vehicles, is about to drastically alter its focus to building more small cars. The struggling automaker, reacting to what it sees as a rapid and permanent shift in consumer tastes brought on by high gas prices, plans to unveil its new direction on Thursday, when it will report quarterly earnings. Among the changes, Ford is expected to announce that it will convert three of its North American assembly plants from trucks to cars, according to people familiar with the plans. And as part of the huge bet it is placing on the future direction of the troubled American auto industry, Ford will realign factories to manufacture more fuel-efficient engines and produce six of its next European car models for the United States market.

Transistors on paper become a reality (Engadget) Submitted at 7/22/2008 9:51:00 AM

Filed under: Misc. Gadgets Check it, nerds. A team over at the Universidade Nova de Lisboa has reportedly figured out a way to use paper (yes, paper) as an interstrate component of a Field Effect Transistor (FET). In testing, the group "fabricated the devices on both sides of the paper sheet," thus causing the paper to act as the "electric insulator and as the substrate" simultaneously. Remarkably, results showed that performance actually rivaled that of best-in-class oxide thin film transistors, giving revived hope for the realm of disposable devices like paper displays, labels, intelligent packaging, tracking tags, etc. The findings are scheduled to be published this September, after which we're sure any firms interested in taking this stuff commercial will be putting their best foot forward. [Via Scientific Blogging] Read| Permalink| Email this| Comments

NEC's ad system pumps out spots based on gender, age (Engadget) Submitted at 7/22/2008 10:19:00 AM

Filed under: Wireless For better or worse, targeted advertising isn't going anywhere. Seemingly, it's not getting any more discrete, either. NEC's Digital Signage Solution combines a camera, a large display and a FeliCa contactless IC card reader / writer in order to dole out advertisements that cater to certain demographics. The system includes the innate ability to determine "gender, generation and other attributes" of a person in order to serve up advertisements that will cause him / her to spend some dough. From there, the individual can scan their phone in order to access related content on their mobile internet browser. That's all and fine and dandy we suppose, but how on Earth do you convince busy citizens to stop by and have a look at an otherwise uninteresting flat-panel? [Image courtesy of NEC] Read| Permalink| Email this| Comments

Kohlberg Kravis IPO: If It Happens, It'll Be A More Diversified Firm By [email protected] (Business on HuffingtonPost.com) Submitted at 7/22/2008 5:50:24 AM

Kohlberg Kravis Roberts on Monday said it had hired William Sonneborn to further develop its asset management business, in a move that The Financial Times speculated may be an effort to diversify ahead of a possible initial public offering. The Financial Times noted that the fees that assets under management generate could be more attractive to public investors, as they tend to be more predictable that business of buying and selling companies. Whatever the reason, K.K.R.'s public offering appears to be on hold for the time being. Go to the blog here -ORWatch Lewis Black's "rant" against K.K.R. from earlier this year