business sharks

2012-03-11T10:09:00.001-07:00

US soldier kills Afghan civilians in Kandahar

A US soldier in Afghanistan has shot dead 15 civilians and wounded others after entering their homes in Kandahar province, Afghan and Nato sources say.

He reportedly left his base early in the morning to attack village homes. Nine children are among the dead.

The White House voiced "deep concern" and Nato-led forces in Afghanistan promised a rapid inquiry.

Afghan President Hamid Karzai has condemned the attack and demanded an explanation from Washington.

BBC correspondents say there could be a furious backlash when news of the attack reaches the wider public.

In Kandahar's Panjwai district, local people have gathered near the base to protest about Sunday's killings, and the US embassy is advising against travel to the area.

Anti-US sentiment is already high in Afghanistan after US soldiers burnt copies of the Koran last month.

US officials have apologised repeatedly for the incident at a Nato base in Kabul but they failed to quell a series of protests and attacks that killed at least 30 people and six US troops.

'Shot and burnt'

The unnamed soldier, thought to be a staff sergeant, is reported to have walked off his base at around 03:00 local time (22:30 GMT Saturday), then made his way to the nearby villages of Alkozai and Najeeban.

A local resident, Abdul Baqi, told the Associated Press news agency the soldier had apparently opened fire in three different houses.

"When it was happening in the middle of the night, we were inside our houses," he said. "I heard gunshots and then silence and then gunshots again."
In one house in Najeeban, the gunman reportedly killed 11 people, setting fire to their bodies before he left.
A relative of the 11 victims, Haji Samad, told Reuters news agency chemicals had been poured over the bodies and set alight.
"I saw that all 11 of my relatives were killed, including my children and grandchildren," he added, weeping.
An unnamed woman witness in Najeeban told BBC News she had heard gunfire at about 02:00. A barking dog was shot dead by the gunman, she said.
She added that the Taliban had not been seen in the area for five months.
At least three of the child victims were killed by a single shot to the head, the BBC's Quentin Sommerville reports from Kabul.

Afghan men gathered in the area of the villages where the attacks took place

Photographs from the scene showed bodies, some of them clearly young children, placed in a vehicle under blankets.

Some reports suggested that more than one soldier was involved in the attack, and a statement by the Taliban accused Afghan security forces of playing a role.

A delegation from the provincial governor's office has arrived in the village to determine exactly what happened, a spokesman said.

The soldier - who reportedly suffered a breakdown before the attacks - is said to have handed himself over to the US military authorities after carrying out the killings.

'Intentional murders'

In a statement, Mr Karzai described the deaths in Kandahar as "intentional murders".

"When Afghan people are killed deliberately by US forces this action is murder and terror and an unforgivable action," he said.

President Karzai has been consulting officials in Kandahar by telephone.

Caitlin Hayden, a spokeswoman for the White House National Security Council, said US President Barack Obama had been briefed on the incident. She added: "We are deeply concerned by the initial reports of this incident, and are monitoring the situation closely."

Gen John R Allen, commander of the Nato-led International Security Assistance Force (Isaf), said US officials in Afghanistan would work with their Afghan counterparts to investigate what had happened.

"I pledge to all the noble people of Afghanistan my commitment to a rapid and thorough investigation," he said in a statement.

"This deeply appalling incident in no way represents the values of Isaf and coalition troops or the abiding respect we feel for the Afghan people."

This is the first time Afghan civilians have been targeted by foreign soldiers in this way, our Kabul correspondent says.

However, a US soldier was convicted last year on three counts of premeditated murder after leading a rogue "kill team" in Afghanistan.

Kandahar is the Taliban's spiritual heartland and is considered strategically important because of its international airport, its agricultural and industrial output and its position as one of the country's main trading hubs.

The province has seen heavy fighting between Nato and Taliban forces over the last five years.

Mr Karzai said earlier he still expected to sign a strategic partnership with the US in the next couple of months.

He said discussions would continue on the precise role the US would play in Afghanistan after Nato handed over security responsibility to Kabul at the end of 2014.

On Friday, Kabul and Washington reached a deal to transfer US-run prisons in the country to Afghan control.

bbc.co

2012-03-11T09:49:00.006-07:00

Egypt clears virginity test medic


The legal action brought by Samira Ibrahim has put a stop to virginity tests on female protesters

A military court in Egypt has acquitted an army doctor accused of carrying out forced "virginity tests" on women protesters, state media reports.

Ahmed Adel was cleared because the judge found contradictions in witness statements, Mena news agency said.

The case was brought by one of the women, Samira Ibrahim, who said the "tests" took place after they had been detained during protests last year.

Demonstrators gathered outside the court to protest against the ruling.

The practice drew an outcry after Ms Ibrahim and other women spoke out about their treatment following their arrest during a protest in Tahrir Square in March 2011 - weeks after the fall of President Hosni Mubarak.

They said they were forced by the Egyptian army, while in detention, to submit to a five-minute-long so-called virginity test by a male doctor.

The army initially denied such tests had taken place, but a senior general, speaking anonymously, later admitted that they had happened.

Ms Ibrahim launched a legal challenge to prevent such tests happening again, and Cairo's administrative court eventually ruled that the tests were illegal.

But she said, before the trial of Ahmed Adel, that witnesses she hoped would speak in her defence had changed their story at the last minute, our correspondent reports from Cairo.

According to Mena, the judge said he made the ruling "from what has been proven in documents and based on my conscience," adding that he had "not been subjected to any pressures".

bbc.co

US Airways Coach Fliers Fare Worst in Hassle Rankings

2011-12-17T19:51:00.000-08:00

Dec. 16 (Bloomberg) -- Coach passengers on AMR Corp.’s American Airlines and US Airways Group Inc. jets have the greatest risk of hassles such as late or canceled flights, packed planes and higher fees.

Those two carriers and United Airlines, a predecessor of United Continental Holdings Inc., fared the worst in a Bloomberg Rankings analysis of operating performance and service charges. Southwest Airlines Co., which doesn’t have fees to check bags, and Frontier Airlines posted the highest scores.

The analysis covered expenses such as luggage charges and rebooking fees as well as operating data like scrubbed flights and the percentage of filled seats. Cancellations are up in 2011 after East Coast storms and a new U.S. rule to end long tarmac waiting times, and a cut in flights means fewer empty seats.

“Airlines are really beginning to fill airplanes like they never have before, and Americans don’t deal well with a lack of personal space,” said Charles Leocha, director of Consumer Travel Alliance, a Washington-based nonprofit group. “That and the complexity of fees have led to the degrading of the flying experience.”

The list evaluated the largest 10 U.S. carriers, as identified by passenger traffic on domestic flights. Regional airlines such as American’s American Eagle and Delta Air Lines Inc.’s Comair were excluded.

Lowest Scores

Southwest is the biggest discount airline and ranked second on the list for U.S. traffic, while Indianapolis-based Republic Airways Holdings Inc.’s Frontier was the smallest in the group. On a scale of one to 100, with 100 the best score, Dallas-based Southwest and Frontier logged 73.2 and 61.6 points.

The lowest scores were 31.2 for American, whose parent AMR is now in bankruptcy; 32.5 for US Airways; and 33.6 for United. All three have hubs subject to winter tie-ups, with American and United flying from Chicago and New York and US Airways from Philadelphia.

The cancellation rate for the 10 carriers Bloomberg ranked was 1.56 percent for the year ended in September, compared with 1.13 percent for the same period in 2006.

United was evaluated separately from Continental Airlines Inc., its 2010 merger partner in forming United Continental, because the airlines didn’t win U.S. approval to fly as one carrier until Nov. 30. Also assessed separately were Southwest and its May 2011 acquisition, AirTran Holdings Inc.

Many travelers are exempt from the fees covered in the Bloomberg rankings, because airlines often waive the costs for passengers with elite frequent-flier status, first- and business-class tickets, or certain co-branded credit cards.

Few Bag Fees

On American, only 25 percent of domestic passengers pay a checked-bag fee, said Tim Smith, a spokesman for the Fort Worth, Texas-based airline.

American’s performance also has improved in recent years, with “more than half” of its disruptions due to circumstances outside its control such as weather or air-traffic delays, Smith said.

US Airways’ on-time performance rose 21 percent from 2007 to 2010, while baggage handling improved by 70 percent and customer satisfaction jumped 51 percent, Michelle Mohr, a spokeswoman for the Tempe, Arizona-based carrier, said in an e- mail. The figures were based on the airline’s own data.

A pilot work slowdown that hurt results earlier this year has been corrected, placing US Airways’ operational performance on par or ahead of peers most months this year, she said.

Seat cutbacks since 2008 have in effect erased a decade of growth, according to Airlines for America, a Washington-based trade group. That has dragged industry capacity relative to U.S. Gross Domestic Product to the lowest level since 1979, according to data compiled by the trade group. American and Delta are among the airlines expecting more cuts in 2012.

--Editors: Ed Dufner, James Langford

To contact the reporters on this story: Alex McIntyre in New York at amcintyre10@bloomberg.net. Mary Jane Credeur in Atlanta at mcredeur@bloomberg.net.

By Alex McIntyre and Mary Jane Credeur

businessweek

Obama signs key bill to...

2011-12-17T19:13:00.000-08:00

18 December 2011 Last updated at 00:24 GMT


The unusual Saturday vote caps off a year of bitter partisan budget battles on Capitol Hill

US President Barack Obama has signed into law a spending bill, averting an impending shutdown of federal government services.

The bill, worth nearly $1tn (£645bn), was earlier passed by the Senate and had already been backed by the House of Representatives.

Government agencies including those for defence and labour faced shutdown this weekend without the legislation.

It follows Senate approval of a two-month extension to a payroll tax break.

That bill also forces President Obama to make a decision on a controversial oil pipeline early next year.

It is expected to go before the Republican-dominated House for a vote on Monday.

Passage of these two pieces of legislation would end a year of bitter partisan budget battles on Capitol Hill.

The spending bill funds a wide range of government agencies for the rest of the fiscal year - until September 2012.

The vote to continue the payroll tax break for about 160 million American workers also means millions of unemployed Americans will continue to receive emergency welfare benefits.

The bill stops the 4.2% tax rate from jumping to 6.2% for those workers on 1 January.

Economists have warned that a failure to keep the tax cut would hurt a fragile US economic recovery.

But in exchange, President Obama must make a decision in February on the proposed Keystone XL pipeline from Canada's oil sands to refineries in Texas.

Mr Obama had threatened to veto the project and wanted to delay a decision on it past the 2012 election.

In remarks after the Senate vote, Mr Obama said he expected Congress to extend the payroll tax break for the rest of 2012 when it reconvened in January.

Allowing it to lapse would be "inexcusable", he said.

bbc.co

Cairo after bloody weekend

2011-11-21T07:21:00.001-08:00

Clashes have again erupted in the Egyptian capital as security forces continue their efforts to clear Cairo's Tahrir Square of protesters.

At least 33 people are reported to have died since the violence began on Saturday with hundreds more injured.

Protesters fear the interim military government is trying to retain its grip on power.

Culture Minister Emad Abu Ghazi has resigned in protest at the government's handling of the demonstrators.

On Monday, 25 Egyptian political parties also called for the ministers of information and the interior to be sacked over the violence.

The Supreme Council of the Armed Forces, led by Field Marshal Mohamed Tantawi, is charged with overseeing the country's transition to democracy after three decades of autocratic rule under ousted President Hosni Mubarak.

Calls for Field Marshal Tantawi's resignation could be heard during the weekend's protests.

It is the longest continuous protest since President Mubarak stepped down in February and casts a shadow over elections due to start next week.

Large crowds were again seen streaming into Tahrir Square on Monday - defying the military's attempts to keep them away from the place that was the symbolic heart of demonstrations against Mr Mubarak.

TV footage showed tear gas being fired into the protesters, while fire bombs and chunks of concrete were reportedly being lobbed back at the police.

The BBC's Lyse Doucet in Cairo tweeted that medical students joined the protest on Monday with a banner calling for power to be handed over by April 2012.

As daylight faded, even more people were filling Tahrir Square, she added.

The clashes followed fierce fighting on Sunday. Violence also took place in other cities over the weekend, including Alexandria, Suez and Aswan.

Morgue officials said on Monday that the death toll was now at least 33. Some 1,750 people were also injured.

Fresh demands

Amr Moussa, former secretary-general of the Arab League and now a presidential candidate in Egypt, told the BBC World Service that the use of force against the protesters could not be justified.

"The way the police deals with the protesters... we're all against this kind of violence and this treatment of the people," he said.

He said the military council needed to end the uncertainty surrounding parliamentary and presidential elections.

Earlier, Culture Minister Emad Abu Ghazi resigned in protest at the government's handling of events in Tahrir Square, Egypt's official Mena news agency said.

“Start Quote

The military promised they would hand over power within six months. Ten months have gone by and they still haven't done it. We feel deceived”

Protester

The BBC's Yolande Knell in Cairo says the demands of the protesters have changed over the course of the weekend. Crowds initially urged the military to set a date for the handover of power, but now they want the military leaders to resign immediately.

"The military promised that they would hand over power within six months," one protester said. "Now 10 months have gone by and they still haven't done it. We feel deceived."

In recent weeks, protesters - mostly Islamists and young activists - have been demonstrating against a draft constitution they say would allow the military to retain too much power after a civilian government is elected.

Earlier this month the military council produced a draft document setting out principles for a new constitution, under which the military and its budget could be exempted from civilian oversight.

A proposal by the military to delay the presidential election until late 2012 or early 2013 has further angered the opposition.

Protesters want the presidential vote to take place after parliamentary elections, which begin on 28 November and will be staggered over the next three months.

A statement from the cabinet on Sunday said the elections would go ahead as planned, and praised the "restraint" of interior ministry forces against protesters.

The military council, in a statement read out on state television, said it "regretted" what was happening, AFP news agency reports.

bbc

Euro = Gold?

2011-11-21T07:03:00.001-08:00

The gold standard forced austerity and helped cause the Depression. Today's problem is the hard-money elites of the euro zone

Like the gold standard of a century ago, the euro has promoted free trade and investment across borders. The 12-year-old unified currency also shares the gold standard’s greatest flaw: the lack of an escape hatch. If a country runs chronic deficits, it can’t regain competitiveness through the market’s depreciation of its currency. Under the gold standard, exchange rates were fixed, which is to say the escape hatch of depreciation was locked. Under the euro, exchange rates no longer even exist. The escape hatch has been locked, welded shut, and sat on by the leaders of the Continent’s most powerful economies.

What does a country do when it can’t depreciate its currency to lower its prices? Now, as in the 1930s, the only alternative is an internal devaluation, which means cutting wages and other costs, including government benefits. That’s a painful process that creates enormous social stress. In the 1920s and ’30s the impoverishment of the working class led to the rise of Hitler and Mussolini. Even if fascism is averted, punitive austerity can lead to a downward spiral as trade and financing dry up, deflation sets in, debts loom larger, and one country after another gets sucked downward.

Once the euro symbolized common purpose and uplift. But to quote the Depression-era lyricist Lorenz Hart, “When love congeals/It soon reveals/The faint aroma of performing seals.” The seals of 2011 are the hard-money types in Germany, Finland, and other points north who insist that the Greeks, the Italians—and maybe soon the French—must be held to account for their financial transgressions. These calls for fiscal responsibility, and the anger behind them, make emotional sense. But today’s austerity tough guys sound alarmingly like Andrew Mellon, President Herbert Hoover’s Treasury Secretary, who, according to Hoover’s memoirs, said the only way to get the U.S. economy back on track in the 1930s was to “liquidate labor, liquidate stocks, liquidate the farmers, liquidate real estate … purge the rottenness out of the system.”

Purging the rottenness nearly killed the patient. In an increasingly relevant 2000 essay called “The Gold Standard and the Great Depression” in Contemporary European History, American economists Barry Eichengreen and Peter Temin wrote that elites were befuddled by a gold standard mentality that “sharply restricted the range of actions they were willing to contemplate.” They added: “The result of this cultural condition was to transform a run-of-the-mill economic contraction into a Great Depression that changed the course of history.”

A gold standard doesn’t have to be deflationary. From the 1870s until World War I, the gold standard more or less worked under the auspices of the Bank of England: Countries that imported more than they exported were forced to make up the difference by shipping gold to their trading partners. Because gold was the ultimate storehouse of value, countries feared losing too much of it. To stanch the outflow of gold, central banks would raise interest rates to push down domestic spending and prices. Meanwhile, the countries that imported gold would see domestic prices rise, which would make them more receptive to cheaper imports and shrink their surpluses. There was discipline and a natural balance.

World War I spoiled the equilibrium. War spending caused inflation, forcing countries to suspend convertibility of their currencies into gold. After the war most countries struggled back onto the gold standard (though not Germany, which suffered hyperinflation). Returning to the old exchange rates required reversing the wartime inflation—namely, imposing punishing deflation. Democracies weren’t as good at imposing austerity as autocracies had been. The rise of labor unions and the introduction of minimum-wage laws made it harder for employers to cut pay, so they cut workers instead.

Creditor countries such as the U.S. didn’t play fair in the 1930s. They bought tons of gold to take it off the market so it wouldn’t affect their money supply or interest rates. By hoarding, they left too little gold for the debtor countries and worsened their deflation.

Eventually all countries were forced off gold by financial crises and popular upheavals. Britain abandoned gold in 1931 and fared best economically. Die-hard France, which stuck with gold until 1936, did worst. Even with prices plunging, the elites fretted about the threat of inflation. Ralph Hawtrey, a British Treasury official, likened that to crying “‘Fire, fire’ in Noah’s flood.”

Policymakers have not fully absorbed the lessons of the Depression. Monetary and fiscal policy are better but “not enough better,” Eichengreen says. There’s an understanding that big banks can’t be allowed to fail, but “one might say, Aren’t the biggest banks too big to save, especially in Europe?”

The most unfortunate difference between then and now is that the euro, unlike the gold standard, is a raccoon trap: Its designers deliberately left out an exit procedure. That means you can get in, but you can’t get out without leaving a part of yourself behind. Eichengreen points out that Britain was growing again by the end of 1932, just over a year after abandoning gold under duress. Today a country—say, Greece—that quit the euro would take far longer to right itself. That’s because unlike Britain, to get relief Greece would have to default on its euro-denominated debts and damage its credit rating. “The Greek government,” Eichengreen says, “will be hard-pressed to find funds to recapitalize the banking system. Greek companies won’t be able to get credit lines. The new Greek government is going to have to print money hand over fist. At some point they would be able to push down the drachma and become more competitive. But the balance is different now.”

That’s why Eichengreen thinks leaving the euro zone should be a last resort. The better option, he says, is to make the euro work the way the gold standard worked in its best years. Surplus countries should equally share the cost of adjustment with deficit countries. He favors transforming the underfunded European Financial Stability Facility from an emergency fund into a bank. He would have the facility borrow from the European Central Bank so it can make unlimited loans to countries such as Greece and Italy—on the condition, of course, that the countries demonstrate they’re on a path to fixing their competitiveness problems. Those countries don’t have a chance to fix things without the breathing room afforded by official lending, Eichengreen says.

Europe’s fatal mistake was to push ahead with monetary union without having achieved fiscal union. Limits on national budget deficits were flouted with impunity. Now creditor nations are dragging their heels on aid and stimulus because they don’t want profligate debtors to play them for fools. In an echo of the gold-hoarding mentality of the Depression, Germans have reacted angrily to the suggestion that the International Monetary Fund might tap Germany’s gold reserves to bolster the EFSF. The mood is angry and confused. German Chancellor Angela Merkel was correct on Nov. 14 in Leipzig when she described the debt crisis as “maybe Europe’s most difficult hours since World War II.”

The answer, as Merkel told her Christian Democratic Union colleagues, is “more Europe and not less Europe.” If Germany can get the “more Europe” it wants—i.e., tough, enforceable budget rules—it might countenance more help for weaker nations, even if for now Merkel is still rejecting open-ended ECB lending or jointly issued euro bonds.

There are signs that creditor nations understand their responsibilities. In October, European Union finance ministers agreed on a “six pack” of economic-governance rules that in theory should penalize countries with excessive surpluses, not just those with excessive deficits. Merkel said on Nov. 16 that “we are prepared to give up a little bit of national sovereignty” to preserve the euro. Something needs to happen fast. As the debt crisis has come to a head, economists surveyed by Bloomberg have sharply lowered their forecasts for European growth in 2012. Output may well be shrinking in the current quarter. The risk is that the worsening woes will make the key players less flexible. In the 1930s, Eichengreen and Temin wrote, “The masochistic strand of the gold-standard mentality grew stronger as the crisis built.” Now would be an excellent time to replace masochism with common sense.

By Peter Coy

Illustration by 731; Photographs: Getty; Alamy

businessweek

2011-11-17T08:26:00.001-08:00

Mr Amano says there is information Iran has carried out activities relevant to the development of a bomb

Iran. agency IAEA.UN. Mr Amano says...

The UN nuclear agency says it wants to send a high-level mission to Iran to address new fears that it may be seeking to build nuclear weapons.

The head of the UN nuclear agency, the IAEA, has proposed sending a high-level mission to Iran, to address new fears about a possible military dimension to the country's nuclear programme.

IAEA Director-General Yukiya Amano said there was credible information Iran had carried out activities relevant to the development of a bomb.

He said there might be undeclared nuclear material and activities.

Tehran says its programme is for peaceful purposes.

The International Atomic Energy Agency's governing board has been debating the latest report on Iran released last week in the Austrian capital, Vienna, where it is based.

"Our technical experts have spent years painstakingly and objectively analysing a huge quantity of information from a wide variety of independent sources, including from a number of member states, from the agency's own efforts and from information provided by Iran itself. The agency finds the information to be, overall, credible," Mr Amano said in a statement.

"It is consistent in terms of technical content, individuals and organisations involved, and timeframes. The information indicates that Iran has carried out activities relevant to the development of a nuclear explosive device."

He hoped a date for the visit would be agreed soon, he added.

The United States and its allies want to see stronger sanctions imposed on Iran, but Russia believes the report contains no new evidence - and could hurt the chances for diplomacy, says the BBC's Bethany Bell in Vienna.

China says sanctions cannot resolve the issue.

'Accident'

On Wednesday, Iranian General Hassan Firouzabadi said that - contrary to speculation - the US and Israel were not behind a weekend munitions base blast that killed 17 Revolutionary Guards, including a key ballistics missile expert.

"This recent incident and blast has no link to Israel or America, but the outcome of the research, in which the incident happened as a consequence, could be a strong smack to the mouth of Israel and its occupying regime," Gen Firouzabadi was quoted as saying by the student news agency Isna.

Iranian officials had previously said the accident happened while munitions were being moved at the base, without linking it directly to weapons research.

Brigadier General Hassan Moqaddam, who was considered a key figure in Iran's missile programme, was the most senior casualty in the incident.

bbc

2011-11-17T08:17:00.001-08:00

JPMorgan Joins Goldman Keeping Italy Derivatives Risk in Dark

(For more on Europe’s debt crisis, see EXT4 <GO>.)

By Christine Harper and Michael J. Moore

Nov. 16 (Bloomberg) -- JPMorgan Chase & Co. and Goldman Sachs Group Inc., among the world’s biggest traders of credit derivatives, disclosed to shareholders that they have sold protection on more than $5 trillion of debt globally.

Just don’t ask them how much of that was issued by Greece, Italy, Ireland, Portugal and Spain, known as the GIIPS.

As concerns mount that those countries may not be creditworthy, investors are being kept in the dark about how much risk U.S. banks face from a default. Firms including Goldman Sachs and JPMorgan don’t provide a full picture of potential losses and gains in such a scenario, giving only net numbers or excluding some derivatives altogether.

“If you don’t have to, generally people don’t see the advantage to doing it,” said Richard Lindsey, a former director of market regulation at the U.S. Securities and Exchange Commission who worked at Bear Stearns Cos. from 1999 through 2006. “On the other hand, if there were a run on Goldman Sachs tomorrow because the rumor was that they had exposure to Greece, you’d see them produce those numbers.”

A case in point: Jefferies Group Inc., the New York-based securities firm, disclosed every long and short position it held on European debt earlier this month after its shares plunged more than 20 percent. Jefferies also said it wasn’t relying on credit-default swaps, contracts that promise to pay the buyer if the underlying debt defaults, as a hedge on European holdings.

‘Funded’ Exposure

By contrast, Goldman Sachs discloses only what it calls “funded” exposure to GIIPS debt -- $4.16 billion before hedges and $2.46 billion after, as of Sept. 30. Those amounts exclude commitments or contingent payments, such as credit-default swaps, said Lucas van Praag, a spokesman for the bank.

Goldman Sachs includes CDS in its market-risk calculations, of which value-at-risk is one measure, and it hedges the swaps and holds collateral against the hedges, primarily cash and U.S. Treasuries, van Praag said. The firm doesn’t break out its estimate of the market risk related to the five countries.

JPMorgan said in its third-quarter SEC filing that more than 98 percent of the credit-default swaps the New York-based bank has written on GIIPS debt is balanced by CDS contracts purchased on the same bonds. The bank said its net exposure was no more than $1.5 billion, with a portion coming from debt and equity securities. The company didn’t disclose gross numbers or how much of the $1.5 billion came from swaps, leaving investors wondering whether the notional value of CDS sold could be as high as $150 billion or as low as zero.

Counterparty Clarity

“Their position is you don’t need to know the risks, which is why they’re giving you net numbers,” said Nomi Prins, a managing director at New York-based Goldman Sachs until she left in 2002 to become a writer. “Net is only as good as the counterparties on each side of the net -- that’s why it’s misleading in a fluid, dynamic market.”

Investors should want to know how much defaulted debt the banks could be forced to repay because of credit derivatives and how much they’d be in line to receive from other counterparties, Prins said. In addition, they should seek to find out who those counterparties are, she said.

JPMorgan sought to allay concerns that its counterparties are unreliable by saying in the filing that it buys protection only from firms outside the five countries that are “either investment-grade or well-supported by collateral arrangements.” The bank doesn’t identify the counterparties.

Citigroup, Morgan Stanley

Bank of America, Citigroup Inc. and Morgan Stanley also don’t list gross amounts of CDS on GIIPS debt in their filings. All three banks provide figures within their disclosures that they say include a net of their credit-default swaps bought and sold on the five countries.

Citigroup’s net funded exposure as of Sept. 30 was $7.2 billion, and its unfunded commitments were $9.2 billion, the New York-based bank said in a filing and a presentation. Bank of America, based in Charlotte, North Carolina, said total net exposure was $14.6 billion for the five countries, while New York-based Morgan Stanley listed $2.1 billion.

Jon Diat, a Citigroup spokesman, declined to comment, as did Bank of America’s Jerry Dubrowski, JPMorgan’s Howard Opinsky and Morgan Stanley’s Mark Lake.

Banks exchange collateral, usually cash or liquid securities such as U.S. government debt, with trading partners as the value of their credit-default swaps fluctuates and their perception of one another’s ability to repay changes.

Bungee Cords

If the value of Italian bonds drops, as it did last week, a U.S. firm that sold a credit-default swap on that debt to a French bank would have to provide more collateral. The same U.S. company might be collecting collateral from a British bank because it bought a swap from that firm.

As long as all three banks can make good on their promises, the trade doesn’t have much risk. It could all unravel if the British firm runs into trouble because it’s waiting for a payment from an Italian company that defaults. The collapse of Lehman Brothers Holdings Inc. in 2008 demonstrated some of the ripple effects that one failure can have in the market.

“We learned from Lehman that all of these firms are tied together with bungee cords -- you can’t just lift one out without it affecting everyone else in the group,” said Brad Hintz, an analyst at Sanford C. Bernstein & Co. in New York who previously worked at Lehman Brothers and Morgan Stanley. More disclosure “may push the stock prices down when it becomes clear how big the bungee cords are. But it certainly would be a welcome addition for an analyst.”

FASB Rule

The Financial Accounting Standards Board in 2008 started requiring companies to disclose the worldwide gross notional credit protection they’ve written and bought. As of Sept. 30, JPMorgan said it had sold $3.13 trillion of credit-derivative protection and purchased $3.07 trillion, up from $2.75 trillion sold and $2.72 trillion bought at the end of 2010, filings show. Goldman Sachs disclosed it had written $2.07 trillion and bought $2.20 trillion, about the same amount it reported at year-end.

At the end of the second quarter, those two firms accounted for 43 percent of the $24 trillion of credit derivatives sold and bought by the 25 largest banks in the U.S., according to the Office of the Comptroller of the Currency. The top five account for 97 percent of the total, the data show.

Guarantees provided by U.S. lenders on government, bank and corporate debt in Greece, Italy, Ireland, Portugal and Spain rose by $80.7 billion to $518 billion in the first half of 2011, according to the Bank for International Settlements.

‘Ultra-Transparency’

Neither FASB nor the SEC requires banks to disclose how many of those derivatives are written by country or region. That’s something Richard Fisher, president of the Federal Reserve Bank of Dallas, would like to see changed.

“We should have ultra-transparency on those institutions,” Fisher said of the biggest financial firms in a Nov. 14 interview at Bloomberg headquarters in New York. “They should report both their gross and their net CDS exposure, and they should do it country-by-country. After all, they need to inform their shareholders.”

Banks are reluctant to provide the figures in part because doing so would reveal too much information about their positions and operations, said Jon Fisher, a portfolio manager at Fifth Third Asset Management in Minneapolis, which manages more than $16 billion. The sheer size of the numbers may also be a deterrent, investors said.

‘Biggest Fear’

“I think the biggest fear is the numbers are so large that even though they offset, it would maybe shock people,” said Ralph Cole, a senior vice president in research at Ferguson Wellman Inc. in Portland, Oregon, which manages $2.8 billion including JPMorgan stock. “Maybe they don’t think that disclosure will be treated fairly or understood well.”

Still, “they need to give us a good reason why we shouldn’t see that,” he said. “More disclosure is better, and you can see that in their valuations right now.”

Bank of America, Citigroup, Goldman Sachs and Morgan Stanley have each fallen more than 40 percent this year, while JPMorgan has dropped 23 percent. Each of the lenders trades at least 24 percent below book value, indicating investors are questioning the assets on the firms’ balance sheets.

Lloyd C. Blankfein, 57, Goldman Sachs’s chairman and chief executive officer, said in an interview with the Financial Crisis Inquiry Commission staff last year that the amount of the firm’s derivatives trades shouldn’t be a cause for alarm.

‘Longs and Shorts’

“We either have netting agreements, or they foot, or they cancel each other out, or they’re longs and shorts on the same instrument,” he said, answering a question about how the firm manages so many contracts in a crisis. “The only way you can run a business like that is to have these systems work so they can aggregate stuff, so you can run the business on a macro basis, and also so you can get the details quickly if you need them. And that’s all systems and technology.”

Lindsey, the former SEC official who’s now president of New York-based Callcott Group LLC, which consults on markets and market operations, said few firms have systems that can portray their real-time exposure to trading partners.

“That’s very difficult for any firm to have a good handle on all of that -- you know large positions and you know what certain positions are, but to be able to say I’ve adequately aggregated all of my long exposure and all of my short exposure to a specific counterparty may be very difficult,” Lindsey said. “I don’t know of a firm where it’s not pulled together by a phone call, where somebody says, ‘OK, we need to know our exposure to X,’ and a lot of people stop their day jobs and try to find an answer.”

‘Needlessly Cause Reaction’

Lindsey said banks may be wary of disclosures that could confuse investors. Figures such as gross notional exposure -- the total amount of debt insured by credit derivatives -- give investors an exaggerated sense of the risk and could “needlessly cause reaction,” he said.

Other methods, such as stress-testing, scenario analysis or so-called value-at-risk estimates, rely on models that may underestimate risk because historical data on sovereign defaults show them to be unlikely.

“If you’re looking at your exposure to a defaulting sovereign, there’s a relatively low frequency rate,” Lindsey said. “So it really depends on what they’ve done internally to back up their ideas of what their assessment of the probability of default is.”

--With assistance from Donal Griffin, Dawn Kopecki, Yalman Onaran and Hugh Son in New York. Editors: Robert Friedman, Peter Eichenbaum

To contact the reporters on this story: Christine Harper in New York at charper@bloomberg.net; Michael J. Moore in New York at mmoore55@bloomberg.net

businessweek

2011-11-17T08:01:00.001-08:00

Illustration by Andre Da Loba

Labor Pains (Italy's)

With productivity flat and GDP growth near 1  percent, Italy must make hiring and firing easier

If you want to know which of Italy’s many problems is the most daunting, look no further than the first sentence of its constitution, written in 1947, which describes the country as “a democratic republic, founded on labor.” That foundation has begun to crumble. Italy’s economy can no longer afford the generous benefits it showered on its workers in the 1960s, when the country grew 5 percent to 6 percent a year. Measures put in place years ago to protect workers aren’t just slowing down the economy now, they’re perversely hurting the very workers they’re meant to protect.

How serious is the labor issue? Start with the country’s 2,700 pages of opaque and capricious labor laws. The laws are so unclear that many dismissals of workers end up in the country’s dysfunctional court system, where if a judge decides a worker was let go unfairly, he will likely rule that the employer has to reinstate him with back pay for the time he was gone. “When an investor asks about severance costs, all the other countries can provide an answer,” says Pietro Ichino, an Italian senator and professor of labor law at the University of Milan. “Italy can’t.” Duccio Astaldi, president of Condotte, one of Italy’s largest construction companies, says the difficulty of firing often prevents him from hiring when times are good. “It’s easier for me to get rid of my wife than to fire an employee,” he says.

Italian work contracts are negotiated nationally. Union leaders and employer federations set pay scales, benefits packages, and employment conditions for entire classes of workers—metal mechanics, textile laborers, construction workers, journalists, even maids and nannies. Workers—especially public employees—are guaranteed the same wage wherever they live. Never mind that living in Milan is 10 percent more expensive than Naples, according to Italy’s National Institute for Statistics. Negotiating labor contracts at the national level also removes nearly all incentives to compromise. A union based in a single factory or company may want to make sure its employer remains profitable. National negotiators have different motives: a craving for the media exposure that stormy wage talks generate, a goal of imposing their left-wing ideology on talks, or a plan to use their success in high-level negotiations as a steppingstone into the lucrative political establishment. “It’s in our DNA that negotiations mean conflict,” says Giorgi Elefante, an analyst at PricewaterhouseCoopers in Milan.

The result is crippling. The World Economic Forum ranks Italy 123rd out of 142 countries in the efficiency of its labor market. Employers are robbed of their ability to innovate, from experimenting with hours of operations to introducing new forms of wage structures. Meanwhile, national strikes roll around like federal holidays—one every month or so and almost always on a Monday or Friday to guarantee participants a three-day weekend. On average, Italian workers spend almost six times as many hours on strike as their German counterparts, according to the European Industrial Relations Observatory. In the past decade productivity has remained flat, even as its neighbors to the north have continued to work more efficiently.

Italy’s tangled legislation and contentious industrial relations are responsible for many absurdities. Some banks, including No. 1 bank Intesa Sanpaolo, have offered workers who take early retirement an opportunity to nominate a family member to replace them.

Companies and workers often try to get around these laws. Italian companies are famously tiny—some 95 percent of the country’s businesses employ fewer than 10 workers. One reason they stay so small is that at that size they are exempt from the more arduous provisions of national union contracts.

Another way for a worker or small entrepreneur to avoid becoming entangled in red tape is to opt out of the formal economy altogether. Anywhere from 15 percent to 27 percent of economic activity is underground, according to the Organization for Economic Cooperation and Development and the International Monetary Fund. In this world, receipts are unheard of, taxes unpaid, and union rules don’t apply. Meanwhile, big multinationals can invest in friendlier environments. The country attracts less foreign direct investment as a percentage of gross domestic product than any other country in Europe except for Greece, according to the U.N. Conference on Trade and Development.

Employers have battled for years with the unions for greater flexibility. The result is a three-tiered labor force, a setup Italians dub “apartheid.” Of 27 million workers, 15 million—most 40-plus—enjoy stable jobs with guaranteed privileges. An additional 8 million, mostly younger, form a growing army of freelancers and employees on continuously rolled-over short-term contracts. They receive none of the benefits that would in theory be granted under the generous labor laws. The remainder, 4 million or so, toil in the unprotected underground economy, according to Italy’s National Institute for Statistics.
Those in the top tier cling to their jobs knowing that if they quit they’re unlikely to find another. Unlike in the U.S., where constant churn means jobs are continuously being opened and filled, in Italy the labor market has seized up. Workers can’t move where they’re most productive. Potential entrepreneurs don’t dare drop out of their regular jobs to launch startups, for fear they would not land another good position should they fail. And woe to those who clash with their boss; the flip side of protection from being fired is that it’s very hard to change employers.
As long as Europe and the U.S. held a technological edge over the developing world, Italian companies could afford some inefficiencies. Globalization now means a worker in Warsaw or Shenzhen is just as likely to be sitting at a modern workstation as his counterpart in Detroit or Torino. If Italy wants its workers to be paid more than those in emerging markets, it can’t afford a frozen labor market. “Normally, countries change to grow, to get better,” says Giovanni Fiori, a professor of business administration at Rome’s LUISS University. “We have to change not to die.”
Newly appointed Prime Minister Mario Monti must reform a country where free-market ideas don’t have a political base. Labor laws are, along with pensions, the third rail of Italian politics—literally deadly. Pietro Ichino, the senator who has spoken out strongly for labor reform, has lived under police protection ever since two professors of industrial relations were assassinated by left-wing terrorists because they advised the government on how to cut through the tangled labor laws.
There is one way to build public support for change. Italy supports a class of workers who, though universally despised, are the most pampered in the country. Most of the year they enjoy a roughly two-day workweek, for which they receive an aftertax salary of $90,000 per annum, plus a $5,500 living allowance and a similar sum for expenses. They get free plane and train tickets, meals subsidized by taxpayers, free seats at premier soccer games, and a generous pension that kicks in after just five years of service. They’re the country’s politicians. Any reform of Italy’s workforce will have to start with them.
The bottom line: With productivity flat and GDP growth near 1 percent, Italy must make hiring and firing its 15 million most protected workers easier.

businessweek

2011-11-17T07:47:00.001-08:00

How Inequality Hurts the Economy

The gap between the rich and the rest makes for short recoveries

The public discussion about the widening gap between rich and poor hasn’t been this loud since the Great Depression. Warren Buffett has condemned the disparity, Occupy Wall Street has inveighed against it, President Barack Obama cites it to justify higher taxes on the wealthy. Much of the debate, though, has focused on inequality’s moral dimension. Somehow it just doesn’t seem right that so many Americans struggle while a handful prospers. What many are missing is the actual impact rising inequality is having on the U.S. economy. Hint: It isn’t good.
Since 1980 about 5 percent of annual national income has shifted from the middle class to the nation’s richest households. That means the wealthiest 5,934 households last year enjoyed an additional $650 billion beyond what they would have had if the economic pie had been divided as it was in 1980, according to Census Bureau data.
The typical U.S. household, meanwhile, has yet to regain the ground it lost during the recession. The median income of $49,445 at the end of 2010 remains a shade below the level reached in 1997, adjusted for inflation. “Income inequality in this country is just getting worse and worse and worse,” says James Chanos, president and founder of money managers Kynikos Associates. “And that is not a recipe for stable growth.”
In the 1960s economists such as the late Arthur M. Okun, who was chairman of the White House Council of Economic Advisers, believed that societies could emphasize equality or growth, not both. Today, when the quality of the workforce plays a larger role in determining who prospers, many economists—including Federal Reserve Chairman Ben S. Bernanke—now believe that equality and growth are linked. As Branko Milanovic, a World Bank economist, wrote in September: “Widespread education has become the secret to growth. And broadly accessible education is difficult to achieve unless a society has a relatively even income distribution.”
Thus the growing chasm in the U.S. between the haves and the have-nots has serious consequences. Societies that manage a narrower gap between rich and poor enjoy longer economic expansions, according to research published this year by the International Monetary Fund. Income trends in the U.S. mean that future U.S. expansions could last just one-third as long as in the late 1960s, before the income divide began widening, says economist Jonathan D. Ostry of the IMF. The average postwar economic boom lasted 4.8 years, according to the National Bureau of Economic Research. The current expansion, which is just 27 months old, may peter out within a few months. Goldman Sachs (GS) said on Oct. 3 that the U.S. would be “on the edge of recession” by early 2012.
Expansions fizzle sooner in less equal societies because they are more vulnerable to both financial crises and political instability. When such countries are hit by external shocks, they often stumble into gridlock rather than agree to tough policies needed to keep growth alive. Raghuram G. Rajan, the IMF’s former chief economist, says political systems in economically divided countries become polarized and immobilized by the sort of zero-sum politics now gripping Washington. “It makes the politics more difficult, and that makes it more difficult to grow,” says Rajan, now a finance professor at the University of Chicago’s Booth School of Business. “There is no consensus on any of the solutions that are proposed.”
As rich and poor drift apart, the constituency that favors redistributive tax and spending policies grows. “The guys who are falling behind don’t see much hope of getting ahead and therefore are more focused on redistribution,” says Rajan. Ultimately, unbridled inequality threatens social stability as rich and poor nurse their mirror-image resentments.
Inequality is not just a problem for the have-nots. Barry Ritholtz, chief executive officer of the investment research firm Fusion IQ, says millions of potential investors may conclude, as they did after the Great Depression, that the market is a rigged game for insiders. Such seismic shifts in popular sentiment can have lasting effects. The Dow Jones industrial average didn’t regain its September 1929 peak of 355.95 until 1954. “You’re going to lose a generation of investors,” says Ritholtz. “And that’s how you end up with a 25-year bear market. That’s the risk if people start to think there is no economic justice.”
During the 1920s and the most recent decade the rich enjoyed large income gains, while politicians encouraged the poor and middle class to use credit to make up for flat-lining wage income, according to Rajan’s 2010 book, Fault Lines. Household debt nearly doubled in both periods, setting the stage for the Great Depression and the latest financial crisis, says a December 2010 paper by economists Michael Kumhof and Romain Rancière of the IMF. That increasing debt burden exposed the economy to widespread defaults when the financial shocks of 1929 and 2008 hit. “If nothing is done about income inequality, there may be recurring crises,” says Kumhof. “Leverage has not significantly improved. In terms of the danger of another crisis, we’re right back where we started.”
The bottom line: With $650 billion in income shifted to the top 5,934 households, the result could be shorter recoveries and gun-shy investors.

businessweek

Doubles down...

2011-05-06T10:00:00.000-07:00

Two weeks after the earthquake, a Toyota in Sendai. Sales in Japan fell by nearly 70% Kim Kyung-Hoon/Reuters

While economic forces dictate more overseas plants, Toyota has recommitted to domestic production—for economic, political, and institutional reasons

By Drake Bennett
The village of Ohira is in Miyagi prefecture, 20 miles northwest of Sendai Bay, the stretch of Japan's coastline closest to the epicenter of the massive Mar.
11 earthquake. In recent years the area has become Toyota (TM) country, and car and car-supply plants dot the region. But in a year that has been hard on Toyota and cruel to Japan, Ohira has done O.K. In the Sendai Shiogama port, the tsunami crushed cars as if they were soda cans, scattered street lamps like lawn clippings, and left huge fishing trawlers beached on the docks among the blown-open shells of warehouses. Ohira itself, however, lies inland. Compared with the devastation along the coast, the damage the village suffered was mild: cracked walls, torqued pavement, a few utility poles listing to one side or the other.
Ohira, in short, was lucky, and not for the first time. The village has managed to escape much of the nation's economic stagnation, too. Unlike many Japanese towns, Ohira has good jobs to keep its young people from fleeing to Tokyo and Osaka. The population of 5,500 swells by more than 2,000 during the workday as commuters stream in. Oki Electric Industry, which makes servers and ATMs, has a factory in Ohira, as does zipper maker YKK. Corporate taxes account for 80 percent of the village's revenue.
It's Toyota that looms the largest, though. The automaker's Central Motor unit opened a plant here in January where 900 workers make Yaris compact cars. In the neighboring town of Taiwa, a wholly owned subsidiary called Toyota Tohoku makes brakes and suspensions. Taiwa is also home to a factory where Primearth EV Energy, a joint venture between Toyota and Panasonic, makes hybrid-car batteries. This island of job growth was only momentarily unsettled by the earthquake: Central Motors is in the process of transferring 400 more workers here from a plant near Tokyo, and the plant will soon add Corollas to its product line. Toyota Tohoku is going ahead with plans to build an engine factory next to its existing facility to meet the growing demand from the area's Toyota car plants.
To an extent, Ohira and Miyagi's dependence on Toyota reflects the nation's. The world's biggest carmaker is also Japan's largest company by sales and its biggest taxpayer. But what sets Toyota apart from other Japanese manufacturing giants, as much as its size and clout and cultural prominence, is its insistence on making things in Japan. Nissan, the next-largest Japanese auto manufacturer, makes just 30 percent of its cars in Japan. Honda, the third of the Big Three, makes only a quarter. By contrast, for Toyota the share was 60 percent in 2010, and half those vehicles were shipped abroad.
The Mar. 11 earthquake underlined one risk of concentrating so much production in a tectonically cursed nation. Even though Toyota's actual plants suffered little damage from the quake and tsunami, the power shortages and disruptions along Japanese supply chains hurt Toyota more than its Japanese competitors. Toyota's global output dropped 30 percent in March, while Honda's fell only 19 percent, and Nissan's actually increased, as its overseas plants were able to temporarily offset the drop at home.
By itself, an unprecedented natural calamity might not be an argument for Toyota to radically change its global strategy. But the company is also facing a pair of longer-term challenges: a shrinking domestic market and a stubbornly high yen that makes its cars more expensive outside Japan. Industry analysts say Toyota needs to speed up the process of moving overseas to stay competitive at a time when the chaos brought about by the earthquake and tsunami all but ensure it will lose its status as the world's No. 1 carmaker, for now in any case.
"For Toyota, economically it makes 100 percent sense to move their production in Japan overseas," says Koji Endo, an auto analyst at Advanced Research Japan. But that "obviously would pose at least a huge short-term impact in particular communities and a spillover impact on other industries as well," he adds. "It's probably not that big a problem for Honda or Nissan, but it's going to be a big problem for Toyota."
And yet in the wake of the disaster, Toyota has announced its intention to maintain its footprint in Japan. "[Chief Executive Officer] Akio Toyoda came here and told me personally that Toyota is not going anywhere," says Yuki Takahashi, the Miyagi official in charge of auto business development, in an interview in his office in the prefectural capital, Sendai. This vehemence is even more striking since the company revealed plans last year to cut a fifth of domestic production by 2015 and move more manufacturing to emerging markets.
Reflexively digging in now might seem a stubborn, even reckless stance for a company of Toyota's size and global reach. It might also just be PR. But the conflicting signals that Toyota has sent can be read as an illustration of how much its leadership is torn over moving more business overseas and the company's awareness of the stakes involved. Toyota, it turns out, has good reasons for keeping its center of gravity in Japan—some of them economic, some political, some institutional. The company's size brings added scrutiny to its decisions and pressure not to do anything that would cost Japan jobs. And being a truly Japanese car company is important for Toyota in ways that it is not for its rivals—it is woven through the company's famed corporate culture and the image it has assiduously cultivated among Japanese drivers and citizens. Taken together, these factors tie Toyota to its home country, even as economic forces pull it away. Understanding them helps explains how—and why—Toyota remains exceptional, and may only seem to be acting against its own best business interests by breaking with the competition and publicly recommitting to domestic manufacturing.

Toyota Motor was founded in 1936 by a young Japanese mechanical engineer named Kiichiri Toyoda at the behest of his father, the entrepreneur and inventor Sakichi Toyoda. The seed money was one million yen that the elder Toyoda had earned licensing his design for an automatic loom to an English textile company. More than the money, Sakichi Toyoda's legacy was a fervent faith in the abilities of Japanese engineers like himself. In his book Staying Power, Michael Cusumano, a professor at the Massachusetts Institute of Technology Sloan School of Management, contrasts Toyota with Nissan, which was founded around the same time. Both companies drew heavily on American and English car designs, but while Nissan simply copied those plans wholesale and imported engineers to direct operations, Toyota reverse engineered the foreign models with the help of Japanese university professors and auto experts. The company carefully adapted the designs and production methods to the Japanese market—a smaller one than the U.S. that lacked, at the time, the industrial capacity to make many key parts in bulk.
Cusumano argues that this focus on "ingenuity and self-reliance" remains a central part of Toyota's culture. It is a key to the legendary efficiency of the company's production and the until recently industry-leading reliability of its cars. The determination to reinvent rather than simply copy automotive expertise was the first step in a long and relentless effort to improve on vehicles and the processes of making them, even when both were already considered state-of-the-art. The goal was to produce cars in Japan that were, in Kiichiro's words, both "cheaper and better than foreign imports."
While its production methods are celebrated and copied throughout the industry, sales and marketing prowess had as much to do with Toyota's rise, especially in Japan. The company did everything possible to make its cars ubiquitous and familiar. Early on, it focused on recruiting as many of General Motors' (GM) Japanese dealers as it could, to provide a national network of dealerships. And in the 1950s, Toyota started buying up driving schools. "As more Japanese became affluent and took up driving, their first exposure was often to a Toyota car," Cusumano writes. "Many of these people became lifelong Toyota customers." Toyota passed Nissan in 1951 as Japan's largest carmaker. Today it commands half the Japanese market.
That hegemony drove Toyota's Japanese competitors to look to overseas markets, and then to start making cars overseas, both to bring down transport costs and to curry favor with the governments of those countries. Toyota, on the other hand, was more conservative about making the jump. Honda started manufacturing Elsinore motorcycles in the U.S. in 1979; in 1983, Nissan opened a plant in Smyrna, Tenn. Toyota brought production to the U.S. a year later but hedged its bets. The first American plant was a joint venture called Nummi (for New United Motor Manufacturing Inc.) in Fremont, Calif., where Toyota managers taught GM workers how to make cars "the Toyota way." For GM it was a way to learn about the legendary Toyota Production System—with its tenets of "kaizen," or continuous improvement; just-in-time inventory; and "jidoka," the idea that any worker is encouraged to stop the production line if he spots a problem. For Toyota, Nummi was a pilot project to find out whether that production system could in fact be adapted to American autoworkers and their unions.
Since then, even as Toyota has built multiple plants in the U.S. and other overseas markets, the company has kept the majority of its high-end production—the Prius and most of the Lexus line—at home. Cultural chauvinism could be part of this decision. Toyota's North American plants, after all, have exemplary records, and tend to lead regional quality surveys. In those same surveys, however, the plants judged to be the best in the world are still Japanese. The J.D. Power and Associates (MHP) initial quality survey, which identifies the factories producing the cars with the fewest defects and malfunctions, has chosen Toyota plants in Japan for its "platinum" award for best on the planet in 10 out of the last 15 years.
"There's no question that if you want to see the best Toyota production system in the world, you go to Japan. That's still the case," says Jeff Liker, a professor of industrial and operations engineering at the University of Michigan and the author of several books on Toyota. "If you want to see them making parts in true just-in-time, delivering every two hours with almost no inventory in the system, and the quality almost perfect, you'll see that in Japan. It's just a little bit of a different level." What it takes 1.2 workers to do in an American plant, he estimates, one worker does in Japan.
"They've kaizen-ed and kaizen-ed and kaizen-ed the jobs. There's so little waste, it's just remarkable," he says. "If you think about a really good drummer playing a solo, that's what these workers look like."
Toyota's Japanese plants also benefit from a dense, tight-knit network of domestic parts suppliers. Rather than shop around for the cheapest acceptable option as American carmakers have traditionally done, the carmaker collaborates closely with prospective suppliers to bring their quality up to the level it demands, and continues to work with them to improve quality and pare cost. And while the carmaker does pit its suppliers against each other in this quest, it rarely drops one altogether. The Toyota Tohoku plant in Taiwa, according to its managing director, Kozo Sakurai, worked with a small die-cast manufacturer in nearby Iwaki for three years before it began accepting their parts.
The result, in Liker's description, can seem more like a family—if a slightly autocratic one—than a web of commercial relationships. Smaller Japanese automakers also have their supply networks, or keiretsu, but because of its size, Toyota can offer exclusivity and demand greater loyalty. The strength of the bonds is such that, when Toyota's sole supplier of a crucial brake valve burned to the ground in 1997, the company was able to assemble a team of representatives from other suppliers in a war room with the blueprints for the part and, working feverishly, cobble together an alternate production line. The carmaker's plants were back up and running again in a mere five days, even though the process involved designing and producing new manufacturing equipment. Only afterward was there any talk of payment. It was, The Wall Street Journal wrote a few months later, "the corporate equivalent of an Amish barn-raising."
This unquestioned sense of mutual obligation is what gives Toyota faith that it can recover quickly from this latest disaster, and it is what the company may lose in moving overseas too aggressively. The decision to move more production to Miyagi—where wages are lower than in the Tokyo and Nagoya areas—can be seen through this lens. The shift allows the company to cut costs but still draw on a Japanese labor pool and network of parts suppliers who share the cultural assumptions that undergird the company philosophy.
Toyota has done its utmost to recreate a keiretsu network in the overseas markets where it now produces cars. And though it has succeeded in exporting the structures and many of the norms it cultivated in Japan, there have been shortfalls. Recent quality problems can be traced, at least in one instance, to a supplier: Because of rusting in frames provided by Ohio-based Dana Holding Corp., Toyota instituted a buyback program for its 1995-2000 Tacoma pickups in 2008, and defective Dana driveshafts led to a Tacoma recall last year. (The higher-profile recalls related to faulty floor mats and sticking accelerators, Toyota spokesman Paul Nolasco points out, were design problems, not production problems, and therefore unconnected to where the cars in question were manufactured.)
"Part of the reason that they have had so much difficulty with quality is precisely because they've grown very rapidly and spread all over the world," argues Wallace Hopp, a professor at the University of Michigan's Ross School of Business. "Their production base isn't as tight-knit as it once was." The recalls, he suggests, and the recent slippage of Toyota cars in quality rankings are likely to make the company more reluctant to move further production overseas. "When you hear Toyota say 'We're committed to Japan,' it's not just because they're altruistic and loyal Japanese citizens," says Hopp. "They're committed to Japan because they created a colossus there, and they want to take as much advantage as they can going forward."

Arrayed against this advantage are two forces: the high yen and the low Japanese birthrate. Right now the exchange rate is 80 yen to the dollar—two years ago it was 100 yen to the dollar, four years ago it was 120. Toyota estimates that every additional yen of appreciation against the dollar cuts 30 billion yen from the company's earnings.
Demographic trends look even less tractable. With one of the world's lowest birthrates as well as one of its lowest immigration rates, Japan's population is shrinking. That is not good news for large companies that hire Japanese workers or make money selling to the domestic mass market. And as the Japanese market shrinks, it makes less and less sense to keep making cars at home only to ship them overseas to where people are actually buying them.
"Five years from now, will a greater fraction of Toyota's manufacturing happen outside Japan than today? The clear answer is yes," says Sunil Chopra, a supply chain expert who teaches at Northwestern's Kellogg School of Management. That means, some analysts argue, not only building more plants overseas but shuttering them at home. "I think it makes sense for everybody, including Toyota, to close some capacity in Japan," says Endo of Advanced Research Japan.
None of these arguments have much traction with the company itself. While Toyota is pushing to build more cars outside Japan, it insists the new capacity will be to meet new overseas demand, not replace Japanese production. "[M]aking more overseas has not meant making less in Japan," Toyota spokesman Paul Nolasco wrote in an e-mail, declining to make an executive available to discuss the matter. "[N]ot only does Toyota not have plans to move production away from Japan, there are no collective worries of which I am aware that Toyota might possibly do so," he wrote.
Even if leaving Japan didn't run counter to so much of Toyota's history and culture, the company's size brings its own political pressure. Toyota directly employs over 70,000 people in Japan, and several times that if one counts subsidiary plants and dealerships and the parts suppliers it keeps in business. After Renault bought Nissan, the new CEO, Carlos Ghosn, closed five Nissan plants. "It didn't have so much of an impact on the Japanese market," says Endo. "If Toyota decides to close two or three, it would be a huge impact on the Japanese market and on the economy as a whole."
Toyota in Japan today is in a similar position to GM in the U.S. in the 1960s, when it, too, controlled half its home market. Companies that big and that iconic become more than just companies. They're expected to serve political and social and symbolic purposes as well. They become bigger targets. GM made some poor decisions, and its problems are not those of Toyota, but the company's decline, Cusumano argues, was partly preordained by its dominance. "The unions always targeted GM because it was the biggest kid on the block, and its agreements were much less favorable than the ones at Ford Motor (F) or even Chrysler. It would be under pressure from government regulators to maintain employment and contracts. Over time it hurt [GM's] ability to be competitive. Over time it wore them down," he says.
"The big question for Toyota," says Cusumano, "is how much of these social responsibilities can they realistically take on and still remain a pillar of the economy."

With Yuki Hagiwara and Makiko Kitamura. Bennett is a staff writer for Bloomberg Businessweek.

businessweek

Commodity prices remain volatile after sharp fall

2011-05-06T09:51:00.000-07:00

Commodity prices have seen large swings, falling sharply at first before fully recovering.

Brent crude oil initially fell 5.8% to $105.15 a barrel, adding to an 8.6% drop on Thursday, before recovering to above $110 by mid-afternoon.

The rebound in the price of major raw materials was given a boost by strong US jobs data, which also pushed European stock markets up by nearly 1%.

The volatility comes a day after one of the biggest market sell-offs in years.

The sell-off affected most types of commodity.

Industrial metals saw further sharp swings on Friday. Copper futures fell a further 1.75%, following a 6% slide a day earlier, before recovering.

Meanwhile, the price of US sweet, light crude oil fell a further 5.5% on Friday morning to $94.63 a barrel, but then recovered to above $99.

Shares resilient

Prices of precious metals - such as gold and silver - held steady during the morning, despite having previously followed other commodities sharply lower during Thursday's market rout.

However, silver prices suffered another wobble, briefly down 5%. The price of silver has fallen more than 30% since it hit an all-time high last week.

Stock markets also proved resilient. After falling slightly at the start of trade, European stock markets recovered and pushed higher, rising further when figures showed that more jobs than expected had been created in the US in April.
Thursday's commodity price rout was prompted by disappointing data on US benefit claims and German industrial orders.
The dollar also remained stable against other currencies on Friday, in contrast with Thursday, when a sharp rise in the greenback contributed towards the fall in commodity prices, which are measured in dollars.

Brent Crude Oil Futures $/barrel

Last Updated at 06 May 2011, 16:15 GMT *Chart shows local time

price change %

111.21 +0.41 +0.37

'Scary' correction

Analysts warn the volatility in the markets could remain.

"When you have this kind of damage, it will take several weeks, or maybe several months... for confidence to be rebuilt," said Dennis Gartman, author of a markets guide.
"It's not the end of the commodities cycle, not even close. You still have to call this a correction. It's a sizable one and scared the heck out of everybody."
However, other analysts suggest that it could mark the beginning of a more sustained fall.
Emma Pinnock, energy analyst at Inenco, sees the oil price dropping back below $100 a barrel within days if not sooner, as markets realign supply and demand.
"Ultimately the price increases that we saw of almost 12% since the beginning of 2011, due to instability in the Middle East, the Japanese earthquake and the nuclear crisis, were not sustainable," she said.
"The poor economic data released from the US and Europe has confirmed fears that the recent high commodity prices could affect global demand."

bbc.co

Shell profits rise on oil prices

2011-04-28T04:37:00.000-07:00

Royal Dutch Shell has announced a 41% increase in first quarter profits on the back of higher world oil prices.

The Anglo-Dutch company said profits for the first three months of the year were $6.9bn (£4.1bn) compared with $4.9bn a year ago.

"We are making good progress against our targets, to deliver a more competitive performance," said chief executive Peter Voser.

On Wednesday, rival BP reported first quarter profits of $5.5bn.

BP's profits were down slightly from the same period last year. Production in the quarter was down 11% after BP sold assets to help pay for the cost of cleaning up last year's oil spill in the Gulf of Mexico.

Production target

As well as higher oil prices, Shell said asset sales and cost saving measures had also contributed to its profitability in the first quarter.

In March, the firm set out a new $100bn investment programme to meet demand for oil and gas.

It has set a production target of 3.7 million barrels of gas and oil per day by 2014.

Shell is one of the world's major suppliers of liquefied natural gas (LNG).

The firm said it had started commercial production at its Qatargas 4 LNG facility.

As a consequence of the earthquake and tsunami in Japan, demand for LNG is expected to increase as nuclear power there is scaled back.

President Trump?

2011-04-28T04:14:00.000-07:00

Donald Trump may or may not run for the White House, but he has already reached his preferred destination: the center of attention...."I'm Very Serious"

Photograph by Michele Asselin

By Sheelah Kolhatkar
More than anything else, Donald Trump wants you to know that he is rich.
"Look, the news is that I'm much richer than everyone thinks," Trump says, possibly for the 11th time in one afternoon. "I'm worth more than $7 billion, with hundreds of millions in cash. That's after paying off mortgages, after buying airplanes … "
Trump thrives on an audience and a foil, and today, inside his Trump World Tower offices in New York City, he has both. He's sitting behind his desk, stacked with magazines and newspaper clippings about himself, discussing his proto-Presidential campaign whose sudden momentum seems to have surprised even him. His longtime chief financial officer, Allen Weisselberg, hovers nearby with a bunch of papers: a list of assets as of June 30, 2010, and a blue-bound report by the accounting firm WeiserMazars. "Each line's a different asset," Trump murmurs, running his finger down one of the pages, which lists categories such as residential properties, commercial properties, clubs, real estate licensing deals, and the Miss Universe Pageant, plus around $245 million in cash and equivalents. Then the papers are whisked away. "Most people think I'm worth two billion. They don't know." He adds, "You know, I don't even have mortgages." It turns out that he has at least one: Documents on file with the city of New York indicate there is a $160 million mortgage on 40 Wall Street, which Trump borrowed $10 million to buy in 1996.
Trump has spent years trying to bulldoze the world into believing that he is worth a great deal more than independent analyses have confirmed. He wants the doubters and the haters and the petty critics and the other real estate people to know that not only could he do a better job than President Obama—that, if he were in charge, he would kick China's and Saudi Arabia's butts and have jobs flowing back into the U.S. within months—but that he's been goddamn successful at business.
Throughout his career's wild ups and downs, the value of Trump's holdings has been estimated anywhere from negative $295 million in 1990 (according to data released that year by the New Jersey Casino Control Commission), to $150 million to $250 million (Timothy L. O'Brien in The New York Times in 2005), to $2.7 billion (the latest Forbes ranking). Trump is so obsessed with the public perception of his wealth that he sued O'Brien for defamation in 2006, charging him with damaging his reputation and costing him business opportunities by low-balling his net worth. (He requested $5 billion in damages; the suit was later dismissed.)
Several observers—from veteran pollster Frank Luntz to House Majority Leader Eric Cantor (R-Va.) and longtime Trump friend Larry King—believe he will never actually run for office because, per King, "It's just not Donald," or because it would require that he make public his tax returns. Trump insists that isn't a factor: "I wouldn't mind doing it because I have a great company," he says, "very little leverage, lots of cash and tremendous assets." He's toyed with the notion before, having contemplated a run as a Reform Party candidate in 1999 before pulling out a few weeks after the GOP Iowa Caucus. The final test will be if he formally files with the Federal Election Commission.
"You can call up the banks," Trump continues, tapping his finger on the page. "This is cash. This isn't bulls--t, this isn't, like, ribbons. This is cash."
A woman pops her head into the room. "Senator D'Amato … " she says.
Trump grabs the phone. "Senator Alfooonse! How're you?
"Another poll just came out! I'm doin' well, huh?" Trump oozes into the handset. "Absolutely. Go ahead. You know I know what I'm doing. Hey, did you see the poll? Go ahead … Let me tell ya, Al, I'm having fun. Have you seen the polls, Al? I'm No. 1. In the worst poll I'm No. 2 …
"I have a lot of cash … " he says. "Hey Al, they came in with a building last week, a building I wanted for two years, and I said, 'Who gives a f--k?' … Right? Who cares? No, I see what you're talking about. What did Koch say? No, he's come a long way. I like the guy. Even though he sort of f--ked me.
"I'm going to the Washington correspondents' dinner. That's going to be bedlam. You'll love that one … I love you. Thanks, Senator!"
Trump hangs up the phone. "He said, 'I've never seen anything like this in my life,' " he says. " 'Everybody thinks you're gonna win.' "

Here are a few things we know about Donald Trump: He likes to brag; he's an excellent salesman and a master brander, having put his name on condos, golf clubs, watches, chocolate, ties, and dozens of other products available for purchase at Macy's and elsewhere; he exaggerates as a strategic tool and a birthright. He has learned over time that if he says something often enough and is willing to ignore evidence to the contrary, eventually people will stop bothering to challenge him on matters ranging from his net worth to unsubstantiated claims about President Obama's citizenship—and, that if they do, he can brush them aside and bluff onward, making him the perfect avatar of the truthiness age.
For the past few weeks, he has been impossible to avoid, which is the way he likes it, for just as a shark needs to move, Donald Trump needs attention. And nothing—not splashing his name on buildings, dumping older wives for younger ones, writing books, starring in a hit TV show, The Apprentice, and decades of general ostentation, bluster, and outrageousness—has whipped up the kind of frenzy that his sudden coming-out as a birther and potential Republican Presidential candidate has. "Right now, if I wanted to make three calls, I could do all three networks live within twenty minutes," Trump says. "I mean, it's CRAZY what's going on."
What might have started out as a stunt to gin up ratings as his show grinds through its 11th season has led to a drumbeat of press suggesting that Trump might be semi-serious. As several polls came out putting Trump even or ahead of Mitt Romney, a familiar sense of intoxication washed over the popularizer of the phrase "You're Fired!" Suddenly, people were calling Trump, soliciting his thoughts on world peace and the global economy: What do you think about Libya, Mr. Trump? What are you going to do, Mr. Trump? "I'm very serious," Trump says repeatedly of his pre-campaign. The season finale of The Apprentice is on May 22; he promises a decision shortly thereafter.
So far, Trump has spoken to at least five Republican strategists in his search for political advice, including Tony Fabrizio and John McLaughlin. (Fabrizio, who recently worked with former Minnesota governor Tim Pawlenty and Florida governor Rick Scott, ultimately declined to work with Trump; McLaughlin has counseled many members of Congress as well as former Presidential candidates Steve Forbes and Fred Thompson.) Trump has also laid plans for appearances in key states such as New Hampshire and Nevada, which he planned to visit on Apr. 27 and 28, South Carolina on May 19, and Iowa in June. "He's a known commodity. You've got to think beyond the man to the larger brand," says Kellyanne Conway, a Republican pollster with whom Trump has also had talks. "He just seems to be able to say things and do things that no one else can." But, she adds, "My vote is, don't beat Obama on where he was born, beat him on where he's taken this country."...more

businessweek

Nokia market share falls but Microsoft deal confirmed

2011-04-21T08:39:00.000-07:00

Mobile phone maker Nokia has posted better-than-expected profits for the first three months of 2011, down 1% to 344m euros (£304m).

Investors have been awaiting news of how Nokia will boost its presence in the smartphone market

But its market share fell 4% to 29% as cheaper rivals and the popularity of competitors' smartphones ate into Nokia's dominance.
Nokia also said that it had struck a long-awaited deal to develop smartphone technology with Microsoft.
Investors welcomed the news, sending Nokia shares up almost 3%.
Stephen Elop, chief executive, said: "In the first quarter, we shifted from defining our strategy to executing our strategy. On this front, I am pleased to report that we signed our definitive agreement with Microsoft and already our product design and engineering work is well underway."
The Finnish company's slow response to the smartphone threat from Apple's iPhone and the Blackberry handsets has been one of investors' key concerns.
On Wednesday Apple unveiled a 95% rise in first-quarter profits, and said it had sold a record 18.65 million iPhones during the quarter.
Consultants Strategy Analytics said that Apple had now overtaken Nokia as the world's largest handset seller in revenue terms.

Nokia v Apple (Q1)

Nokia Apple

Handset sales                                    108.5m                      18.6m
Average wholesale price    $87    $638
Handset revenues            $9.4bn                       $11.9bn
Source: Strategy Analytics

Despite shifting more than 108.5 million handsets in the last quarter - almost six times that sold by Apple - Strategy says that the US's firms revenues from its more expensive phones far outstripped its Finnish rival's.
'Under control'
Under the Microsoft deal, Nokia will start using the US company's software on its smartphones instead of its own Symbian platform.
Nokia said the deal will enable it to cut annual costs by around 1bn euros.
Nokia's group sales rose by 9% to 10.40bn euros, while smartphone sales were up 6% at 7bn euros.
The company's key phone unit reported an operating profit margin of 9.8% for the January-March period, well ahead of analysts forecast of 8.6%.
However, Nokia said that for the full year, margins would fall to within a 6%-9% range.

"Finalisation of the agreement with Microsoft means Nokia can now focus on execution, but margin guidance underlines that difficult times lie ahead as it transitions the portfolio," said analyst Geoff Blaber from CCS Insight.
Despite the drop in Nokia's market share - the first time in a decade it has fallen below 30% - Sami Sarkamies, analyst at Nordea, said: "The first quarter was very strong, much better than expected.
"It seems the situation is under control, there were no dramatic changes," he added.

.bbc.co

When Hedge Fund Owners Invest in Sports Teams

2011-04-21T08:22:00.000-07:00

By Katherine Burton

it may be "a function of ego"—and it tends to send investment performance sliding

John W. Henry, founder of futures trader John W. Henry & Co., became the principal owner of the Boston Red Sox in 2002. Two years later the team won its first World Series in 86 years. Three years after that it chalked up a second championship. While the Sox were winning, the firm's assets were dwindling, falling to $319 million as of Apr. 15 from a peak of $3.4 billion in 2005.
James Pallotta, a Boston-based hedge fund manager who at his peak oversaw more than $11 billion, bought part of the Boston Celtics in December 2002. Six years later the basketball team won the National Basketball Assn. championship. In June 2009, following two years of losses, he closed his Raptor Global hedge funds.
The trend hasn't gone unnoticed by hedge fund investors. "Owning a team can be a function of ego, it is very high-profile, and it could prove to be a distraction," says Brad R. Balter, head of Boston-based Balter Capital Management, which farms out money to hedge funds. "As an investor, I have to consider that." Words to bear in mind for Steven A. Cohen, the billionaire hedge fund manager who is bidding for a minority stake in the New York Mets.
Of course, there are plenty of reasons hedge fund managers lose money, and most have to do with unexpected events like, say, a global financial crisis. The average hedge fund tumbled almost 20 percent in 2008, mostly in the last quarter of the year, following the bankruptcy of Lehman Brothers.
Investors such as Balter are watchful for signs fund managers have become less attentive to their day jobs. "We don't begrudge managers getting rich, but we want to invest with people who are motivated and are concentrating full-time on managing money," says Brett H. Barth, a partner at New York-based BBR Partners, which invests in hedge funds.
Cohen, 54, oversees $12 billion at his SAC Capital Advisors in Stamford, Conn. A Mets fan since his childhood in Great Neck, N.Y., Cohen is competing against at least two other groups, including one formed by hedge fund manager Anthony Scaramucci, for a stake of 25 percent to 49 percent of the team, which hasn't won a World Series since 1986. The Mets' owners, the Wilpon family, are fighting a $1 billion lawsuit filed by the trustee trying to recover money for victims of the Ponzi scheme created by Bernard Madoff.
Cohen, who declined to comment, has been enjoying his status as a billionaire for years. His art collection boasts works by Van Gogh, Picasso, and Warhol, and his Connecticut mansion has a two-hole golf course and a basketball court. So far his lifestyle hasn't hurt his returns, which have averaged about 30 percent a year over almost two decades, one of the best records in the industry.
For a billionaire fund manager, buying a stake in a sports team might be about "fulfilling a childhood fantasy, showing the world you've made it, or buying out of boredom," says Brad Klontz, a financial psychologist and associate research professor in personal financial planning at Kansas State University in Manhattan, Kan.
In October, Henry, 61, added Liverpool FC, the English soccer club, to a sports portfolio that also once included the Florida Marlins baseball team. Henry's funds buy and sell based on computer models that haven't changed dramatically since Henry designed them in the 1970s. That means Henry doesn't need to spend his days glued to trading screens, says Kenneth Webster, the firm's president. Webster says returns have picked up since 2007, after two years of underperformance.
Pallotta, 53, has also added to his sports holdings, joining a group that bought AS Roma, an Italian soccer club, last week. Pallotta, who started Raptor Global in October 1993, had returned about 19 percent on average annually until 2007. That year his funds tumbled 8.5 percent, followed by a 20 percent drop in 2008. He's now running a new stock fund, Raptor Evolution. "Every investment helps me in what we are doing—our network is our business," says Pallotta, who adds that his investments in the teams are passive. His minority stake in the Celtics involves going to two board meetings a year—after market hours. "It's not a lack of focus," he says. "It's absolutely the opposite."
For Philip Falcone, 48, head of New York-based Harbinger Capital Partners, his interest in owning a team predates his hedge fund career. He played professional hockey in Malmö, Sweden, for a year, until a leg injury sent him to Wall Street. He became a billionaire after making a profitable bet on the collapse of the subprime loan market in 2007 and started spending his money immediately.
By February 2008, Falcone had bought Penthouse publisher Bob Guccione's 27-room townhouse on Manhattan's Upper East Side for $49 million. He became a noncontrolling partner of the National Hockey League's Minnesota Wild in April of that year. His fund assets peaked two months later at $26 billion. He now manages about $7 billion. Falcone also declined to comment.
Not all managers have seen their performance suffer after investing in sports. David Tepper, 53, who runs the $16 billion Appaloosa Management in Short Hills, N.J., bought a 5 percent stake in the Pittsburgh Steelers in September 2009. That year his main fund climbed 130 percent. His fund returned about 30 percent last year and is up 10 percent so far this year—meaning the Steelers haven't kept him from scoring.

businessweek

Air France Black Box Search Harnesses Hollywood for Crash Clues

2011-04-21T08:17:00.000-07:00

By Andrea Rothman and Matthew Campbell

April 21 (Bloomberg) -- Investigators seeking to explain why Air France flight 447 plunged into the night ocean two years ago will rely on gear pioneered by telecommunications and oil companies as well as a Hollywood director to unlock the mystery.

The wreckage of the Airbus SAS A330 jet was discovered this month 3,900 meters (12,800 feet) deep in the Atlantic Ocean off the coast of Brazil after multiple searches. Few aircraft salvage missions have probed the same depth, where the sea is perfectly black, temperatures approach freezing and water pressure is equal to the weight of a car on a postage stamp.

Diving deeper than the Titanic’s final resting place, a robot tethered to a surface ship will sift through the aircraft debris in search of the two flight recorders bolted inside the tail of the fuselage. Their data promises the best chance yet to explain the crash, the deadliest in Air France’s history. Complicating the mission is the presence of numerous bodies, some still strapped into their seats and preserved by the cold water and lack of oxygen or light.

“At that depth, it is pitch black, and the difficulty is knowing where you are while keeping track of things,” said Dave Gallo, director of special projects at the Woods Hole Oceanographic Research Institute in Falmouth, Massachusetts, whose robots helped locate and map the wreckage. “It’s a question of operational skill.”

No Survivors

The Airbus disappeared en route to Paris from Rio De Janeiro on June 1, 2009, leaving no survivors among the 228 aboard. While some fragments and bodies were recovered from the surface of the sea, most of the jet remained missing until this month. The data recorders are built to withstand submersion and extreme impact, though until retrieved there is no certainty the data they stored will be readable.

The expedition will gather at the port in Dakar in Senegal tomorrow, before traversing the Atlantic on the Ile de Sein vessel to the location of the aircraft, about 435 nautical miles off the coast of Brazil.

French phone-equipment maker Alcatel-Lucent SA is providing the 140-meter ship, which normally lays deep-sea cables. Aboard will be 70 people, including members of the French BEA air accident authority, investigators from the U.K. and Brazil, experts from Airbus and Air France, as well as one psychologist. Family members of the victims were not permitted aboard.

Robot Submarines

Underwater engineering company Phoenix International Holdings Inc. is sending one of its two “Remora” robotic submarines, or ROVs, equipped with high-resolution cameras and two manipulator arms. The basket on the ROV can recover as much as 200 kilograms (440 pounds) of debris in a single mission.

“There are about six to eight ROVs in the world capable of descending as deep” as the Remora, said Tim Janaitis, business development manager at Phoenix, who spoke from Largo, Maryland. Typically, the robot’s missions include work on deep-sea oil drilling, and a recent descent took the vehicle to the Titanic wreck in the northern Atlantic, Janaitis said.

The search for the remains of the doomed ocean liner in the mid 1980s, and the 1997 blockbuster movie directed by James Cameron helped advance deep-sea technology, spawning high- resolution cameras and robots that can scour through wrecks.

Nazi Battleship

Following the success of the Titanic movie, which won 11 Academy Awards and cost about $200 million to make, Cameron embarked on an underwater expedition to Nazi battleship Bismarck, which sank in the Atlantic in 1941.

“Stuff like that is enough at times to help keep research going,” said Robert Jensen, chief executive officer of Kenyon International Emergency Services, a Houston-based company that helps airlines handle disasters. “Look at what they spent on the Cameron movies. He went down on several submersibles to look at ships, to recreate as realistically as possible what happened.”

The Remora robot can work as far down as 6,000 meters. To ensure steady operation, a team of nine Phoenix experts will operate the 900-kilogram sub from the ship using large video monitors to track its progress. Every movement of the vessel at the surface is translated to the Remora’s umbilical cable with a delay, said Brennan Phillips, manager of ROV operations at the University of Rhode Island in the U.S.

Delayed Reaction

“If the ship moves, it takes half an hour for the vehicle to feel it,” he said. “You need an extremely stable ship.”

Of the almost 100,000 photos taken of the wreck and surrounding area, BEA publicized several black-and-white images of the landing gear, an engine, a wing and parts of the fuselage. While the black boxes have not been spotted, the robot has located the part of the tail that normally houses the recorders. Investigators withheld images of bodies and made them available only to researchers involved in the mission. For some, the sight was too much to bear.

“There were many bodies, and our people initially said they would not like to participate in any such recovery operation,” said Peter Herzig, director of the Leibnitz Institute of Marine Sciences in Kiel, northern Germany, whose Remus 6000 robot sub was one of three that located the wreck.

Team members later changed their minds, though in the end, Herzig’s group wasn’t asked to participate, he said.

Recovering Victims

Should the recorders be found, they will be pried from the wreck, lifted aboard the Ile de Sein and immediately placed under seal, before being transported by a French Navy vessel to a French port. From there, they will be sent by air to the BEA under the responsibility of a judicial police officer.

Recovering the victims is a more complex and contentious task. Only 51 bodies, including the pilot, were recovered from the ocean surface in the weeks after the crash.

Nelson Marinho, who leads a group of victims’ relatives, said not all families want to see corpses brought up, though they recognize the obligation to present forensic evidence for a criminal probe. A French prosecutor is pursuing allegations of manslaughter against both Airbus and Air France, and autopsies may help answer questions such as whether passengers were still alive when the plane sank. BEA said all decisions concerning human remains will be made by France’s Justice Department.

‘Worst Feeling’

“The worst feeling, for us, is the risk of even more damage to these corpses,” Marinho said. “French officials want to transport them to France, but we want to bring them directly to Brazil.” Among the victims were 58 passengers from Brazil, 61 from France, 26 from Germany, and other nationalities including travelers from China and South Korea.

Past aircraft salvage missions have managed to recover the bodies of victims. The U.S. National Transportation Safety Board brought up all the bodies from TWA flight 800, which crashed off Long Island in 1996, and EgyptAir 990, which went down 60 miles from Nantucket in 1999, former director Jim Hall said.

“I think as human beings, it’s the humane practice, and it would be a disservice to family members by the airline and regulators not to recover them,” he said.

The greatest technical challenge will remain operating at an extreme depth. Only one past air crash has forced salvage teams to dive deeper. The wreckage and black boxes of a South African Airways Boeing 747 that disappeared near Mauritius in 1987 were located 14 months later under 14,000 feet of water.

“It’s only relatively recent that we even have the technology to consider these kind of recoveries,” said Paul Hayes, director of safety at London-based aviation consultant Ascend Worldwide Ltd. “And it sounds simplistic, but I think we tend to forget how vast the oceans are.”

businessweek

Car industry. Japan. Nissan

2011-04-10T06:32:00.000-07:00

Japan parts shortage hits Nissan

Nissan extends Easter closure in UK due to parts delays.

Carmaker Nissan is to suspend production in the UK for three days due to parts shortages caused by the Japan earthquake.

The stoppage at its Sunderland plant is in addition to the planned Easter closure at the end of the month.
On Wednesday, Honda said that it would halve production at its Swindon plant from next week.
The car and the electronics industries are expected to be most affected by last month's disaster in Japan.
Temporary stoppage Nissan said it would try to minimise the impact on production and on its 5,000 staff at the plant, by substituting non-production days that had already been planned for later in the year.
"Demand for all Sunderland-produced models remains high, and once the normal delivery of components has been re-established, the plant will work to recover any lost volume as quickly as possible," said the manufacturer.
In its latest earthquake update, Nissan said it was able to resume normal operations at all of its Japanese plants except for the Iwaki Engine Plant, which will only restart in mid-April.
However, the previous interruption of production still leaves the company short of some inventories, which is affecting car assembly.

bbc.co

Pay no Taxes. How?

2011-04-10T06:20:00.000-07:00

Eleven shelters, dodges, and rolls—all perfectly legal—used by America's wealthiest people

By Jesse Drucker
For the well-off, this could be the best tax day since the early 1930s: Top tax rates on ordinary income, dividends, estates, and gifts will remain at or near historically low levels for at least the next two years. That's thanks in part to legislation passed in December 2010 by the 111th Congress and signed by President Barack Obama.
"This is clearly far and away the most generous tax situation that's existed," says Gregory D. Singer, a national managing director of the wealth management group at AllianceBernstein (AB) in New York. "It's a once-in-a-lifetime opportunity."

For the 400 U.S. taxpayers with the highest adjusted gross income, the effective federal income tax rate—what they actually pay—fell from almost 30 percent in 1995 to just under 17 percent in 2007, according to the IRS. And for the approximately 1.4 million people who make up the top 1 percent of taxpayers, the effective federal income tax rate dropped from 29 percent to 23 percent in 2008. It may seem too fantastic to be true, but the top 400 end up paying a lower rate than the next 1,399,600 or so.
That's not just good luck. It's often the result of hard work, as suggested by some of the strategies in the following pages. Much of the top 400's income is from dividends and capital gains, generated by everything from appreciated real estate—yes, there is some left—to stocks and the sale of family businesses. As Warren Buffett likes to point out, since most of his income is from dividends, his tax rate is less than that of the people who clean his office.
The true effective rate for multimillionaires is actually far lower than that indicated by official government statistics. That's because those figures fail to include the additional income that's generated by many sophisticated tax-avoidance strategies. Several of those techniques involve some variation of complicated borrowings that never get repaid, netting the beneficiaries hundreds of millions in tax-free cash. From 2003 to 2008, for example, Los Angeles Dodgers owner and real estate developer Frank H. McCourt Jr. paid no federal or state regular income taxes, as stated in court records dug up by the Los Angeles Times. Developers such as McCourt, according to a declaration in his divorce proceeding, "typically fund their lifestyle through lines of credit and loan proceeds secured by their assets while paying little or no personal income taxes." A spokesman for McCourt said he availed himself of a tax code provision at the time that permitted purchasers of sports franchises to defer income taxes.
For those who can afford a shrewd accountant or attorney, our era is rife with opportunity to avoid, or at least defer, tax bills, according to tax specialists and public records. It's limited only by the boundaries of taste, creativity, and the ability to understand some very complex shelters.

Jennifer Daniel

businessweek

Smoke rises from the centre of Abidjan

2011-04-02T07:09:00.000-07:00

Ivory Coast: Rival forces battle for control of Abidjan

Heavy fighting is taking place in Ivory Coast's main city, Abidjan, for a third day as rival forces battle for power.

Fighters loyal to internationally-recognised president Alassane Ouattara battled for control of the presidential palace and barracks still loyal to incumbent Laurent Gbagbo.
Mr Gbagbo's whereabouts are unknown.
In the country's west, at least 800 people are reported to have been killed earlier this week in Duekoue as a result of inter-communal violence.
The battle for Abidjan remains fierce, with heavy fighting reported on Saturday around the Agban military base in the centre of the city.
But the situation inside the city is unclear, with some reports that soldiers defending the base were fighting amongst themselves.
State television station RTI, appears to be back under the control of Gbagbo supporters after being briefly seized by their rivals.
One soldier, accompanied by a dozen members of Mr Gbagbo's Defence and Security Forces (FDS), read a statement on the channel calling for the mobilisation of troops to protect state institutions.
"The FDS, wishing to reaffirm their determination, to ensure their sovereign duty to protect people, property and institutions of the Republic of Ivory Coast" calls for "all the staff of the armed forces" to join five units located in Abidjan.

Residents of Abidjan say they are too afraid to leave their homes as the fighting continues. Many report running out of food, with all shops closed and widespread looting.

The BBC's Valerie Bony in Abidjan says: "In all districts of Abidjan there is sporadic gunfire. There is a lot of looting going in the city, for example on Boulevard Valery Giscard d'Estaing, where shops and houses have been looted by youths who are taking advantage of the situation."
She also says young, pro-Gbagbo supporters in several districts of Abdidjan have been armed by pro-Gbagbo supporters, according to witnesses.
Mr Ouattara was internationally recognised as president after winning a run-off vote in November, but Mr Gbagbo also claimed victory and refused to leave office.
Duekoue 'massacre'

Tens of thousands of women, men and children have fled fighting in Duekoue since Monday

Staff of the International Committee of the Red Cross (ICRC), who visited the western city of Duekoue, said the scale and brutality of the killings were shocking.
The city was captured by fighters supporting Mr Ouattara this week and has seen fierce fighting.
Aid agencies have warned repeatedly that civilians were being subjected to major violence.
The ICRC said delegates and volunteers from the Ivorian Red Cross had visited the city on Thursday and Friday to gather evidence of the killings, which are believed to have taken place on Tuesday.
Tens of thousands of women, men and children had fled fighting in Duekoue since Monday, they said.
It is not clear whether Mr Ouattara's forces were involved in the killings.
The United Nations human rights office says it has received reports of major human rights violations committed by both sides in the conflict.
West Africa's second biggest economy has been brought to its knees by the conflict, which has sent global cocoa prices spiralling upwards. Ivory Coast is the world's largest cocoa producer.

Are you in the Ivory Coast? Have you been caught up in events? Send us your comments using the form below:

Nigeria Delays Parliamentary Vote, Electoral Commission Says

2011-04-02T06:54:00.000-07:00

By Elisha Bala-Gbogbo and Dulue Mbachu

(Updates with comment by election monitor in fifth paragraph.)

April 2 (Bloomberg) -- Nigeria, Africa’s top oil producer, delayed legislative elections scheduled to start today until April 4 due to the late arrival of voting materials, the head of the electoral commission said.

“There’s insufficient time for voting materials to reach all the polling centers,” Attahiru Jega, head of the Independent National Electoral Commission, told reporters today in Abuja, the capital. Because the ballot stations that had opened were still accrediting voters, “the stoppage hasn’t affected voting.”

At stake in the national legislative vote in Africa’s top oil producer are 109 senate seats and 360 seats in the House of Representatives. The main opposition parties, Action Congress of Nigeria and the Congress for Progressive Change, aim to cut the majority the People’s Democratic Party won in both houses four years ago by saying it failed to reduce poverty, corruption and violence.

“In the circumstances it was best to postpone,” Clement Nwankwo, executive director of the Abuja-based Policy and Legal Advocacy Centre, which is monitoring the electoral process, said in a phone interview today from Abuja. “It would’ve been more grievous if the elections had gone on because it would’ve been inconclusive.”

More than 50 people have died in election-related violence since July, according to Amnesty International, while sectarian clashes in the north have claimed the lives of at least 200 since Dec. 24. In a March 3 attack, at least 10 people died when explosives were hurled at a rally of President Goodluck Jonathan’s PDP in the town of Suleja.

Oil Exporter

Nigeria is the fifth-largest source of U.S. oil imports. Hague-based Royal Dutch Shell Plc, Irving, Texas-based Exxon Mobil Corp., Chevron Corp. of San Ramon, California, Total SA of France and Italy’s Eni SpA run joint ventures with the state- owned Nigerian National Petroleum Corp. that pump more than 90 percent of the West African nation’s oil.

Since Nigeria’s return to civilian government in 1999 after 15 years of military rule, the PDP has presided over the spending of more than $300 billion in oil export revenue. During that time income disparities have widened, with 54 percent of the population living on less than a dollar a day, about 22 million citizens, illiterate, and maternal mortality of 800 per 100,000 live births, a rate among the highest in the world, according to the United Nations Development Programme.

The vote is a prelude to the presidential contest next weekthat pits Jonathan against 18 rivals, including former military ruler Muhammadu Buhari and the ex-head of the anti- graft agency, Nuhu Ribadu, who is the candidate of the Action Congress of Nigeria. A week after that, voters choose the governors and legislatures of Nigeria’s 36 states.

Violence

The concern about sectarian and election-related violence has sparked domestic demand for foreign currency, central bank Governor Lamido Sanusi said in a March 15 interview in Abuja. That has weakened the naira, which reached an 18-month low against the dollar on March 17.

“People want to see a smooth transition, a free and fair election before they bring back the money,” he said.

While an armed insurgency in the Niger River delta that cut more than 28 percent of the nation’s oil output from 2006 to 2009 remains relatively quiet, parts of the north have been hit by a mounting campaign of violence by Islamic militants inspired by Afghanistan’s Taliban movement.

Elections in 2003 and 2007 were marred by violence, voter intimidation and the stuffing of ballot boxes.

Jonathan pledged a more transparent vote this year and won plaudits by appointing Jega, a respected academic, to head the electoral commission.

businessweek

Google Library Case Loss May Spur Demands for Antitrust Probe & Is Obama Too Cozy With Google?

2011-03-25T17:55:00.000-07:00

By Jeff Bliss
March 25 (Bloomberg) -- A judge’s rejection of Google Inc.’s bid to create the world’s biggest digital library will reinforce demands by company detractors for a federal antitrust investigation into its business practices, legal analysts said.

Google’s opponents will cite the ruling to support claims the company is seeking to control the Internet search market, Herbert Hovenkamp, a professor at the University of Iowa College of Law in Iowa City, said in an interview. The decision “will strengthen the hand of those who want to do an antitrust investigation.”

U.S. Circuit Judge Denny Chin on March 22 struck down a $125 million settlement between Google and publishers and authors to create a digital library, saying the deal would be unfair to authors. The Mountain View, California-based company, owner of the world’s most popular search engine, also has been accused of reducing competition in the search industry.

Attorneys general in Ohio and Wisconsin are weighing investigations, and Herb Kohl, chairman of a Senate Judiciary antitrust subcommittee, is planning to examine the company’s conduct.

Microsoft Corp. and other Google rivals are members of FairSearch.org, a group that opposes the company’s planned acquisition of Cambridge, Massachusetts-based ITA Software Inc., which provides online data for airline ticket prices.

EU Investigation

Microsoft’s Ciao from Bing, French legal search engine Ejustice.fr and Foundem, a U.K. price-comparison website, have filed complaints with the European Union. The EU is investigating whether Google is unfairly ranking its services higher than rivals in search results.

Google has defended its business strategy and accused Redmond, Washington-based Microsoft of a campaign to undermine the Internet search company.

Jonathan Jacobson, an antitrust lawyer working for Google, said that Chin’s ruling would hurt computer users.

“It is going to deprive consumers of the huge benefits that the settlement would have generated,” Jacobson, a New York-based lawyer at Wilson Sonsini Goodrich & Rosati, said on Bloomberg Television. “If Microsoft is out there trying to degrade the quality of Google search, do consumers benefit from that?” he said. “No, they don’t.”

Jacobson declined to comment on how Google will proceed legally.

Google’s focus should be on regulators, not rivals, said Charles “Rick” Rule, a Washington-based attorney who represents Microsoft, in a statement.

“Google’s antitrust problems are with the federal courts, the U.S. Department of Justice, state attorneys general, and the European Commission, all of whom have raised concerns about Google’s monopolistic conduct,” said Rule, head of the antitrust group at Cadwalader, Wickersham & Taft LLP.

Rare Searches

In reaching its now-voided settlement with publishers and authors, Google disguised its real purpose for scanning rare and out-of-print books, said Gary Reback, co-founder of the Open Book Alliance. The group includes libraries, authors and publishers as well as Microsoft, Amazon.com Inc. and Yahoo! Inc.

Google’s intent was to create an unfair advantage by scanning books without getting copyright permission, said Reback, an antitrust attorney for Menlo Park, California-based Carr & Ferrell LLP whose clients include Foundem. The scans then could be used to tweak the mathematical formulas that enable rapid retrieval of information about rare books, he said.

“Google puts itself in a position to answer those rare queries in a way no other competitor could,” Reback said.

Hovenkamp said that doesn’t necessarily suggest anticompetitive behavior. Google is “putting together a product so attractive for customers that customers want to go with it,” he said.

‘Not a Court Case’

The books decision also focus on issues, such as copyright and class-action law, that don’t apply to a broader anticompetitive argument, said Adam Kovacevich, a Google spokesman, in an interview.

The ruling likely won’t be a foundation for a broader case against Google, said James Grimmelmann, an associate professor of New York Law School and a critic of the Google books deal.

“This will be useful to Google’s detractors in building a case in the court of public opinion but not a court case,” he said. Legal analysts noted that the judge’s discussion of antitrust consumed only three pages of a 46-page opinion.

“It was a very minor point,” said Scott Gant, a partner at Boies, Schiller & Flexner in Washington who filed the first major objection to the Google Books deal. “This isn’t a kind of sea change” in federal court views of Google.

Still, the decision did show “Google can be defeated,” he said.

March 25 (Bloomberg) -- Gary Reback, an attorney at Carrell & Ferrell LLP, talks about antitrust issues facing Google Inc. (Source: Bloomberg)

businessweek

100 C

2011-03-20T14:33:00.000-07:00

Kitazawa: Surface temperatures below 100C

Japan's defense minister says the surface temperatures of all 6 reactors at the Fukushima Daiichi nuclear power plant are lower than 100 degrees Celsius.

In a news conference on Sunday, Toshimi Kitazawa quoted an expert from the Nuclear and Industrial Safety Agency as saying the data are very valuable because temperatures below 100 degrees confirm the existence of water in spent fuel rod storage pools.

Kitazawa said Self-Defense Forces officials measured the temperatures from a helicopter using an infrared device on Sunday for a second consecutive day.
He said the surface temperature of the Number One reactor was 58 degrees Celsius, that of Number 2 stood at 35 degrees, Number 3 at 62 degrees, Number 4 at 42 degrees, Number 5 at 24 degrees, and Number 6 at 25 degrees.

nhk.or.jp

Apple, Google May Profit on a Tax Holiday

2011-03-19T22:07:00.000-07:00

Those companies and others say they'll bring home billions in earnings—but only if they get a big tax break

By Peter Coy and Jesse Drucker
Google (GOOG) Ireland is not a branch office of the U.S.-based search giant. It's a separate corporation, and the IRS can't touch a dime that Google Ireland earns from its core business until it sends profits back home to the mother ship. The term of art for bringing the money back is repatriation—the same as for a soldier captured abroad.
U.S. multinationals have more than $1 trillion in profits stashed in overseas subsidiaries. Some of the companies with the most money squirreled away say they're prepared to bring a big chunk of it home. All they want in return is a temporary tax break that wouldn't cost the U.S. Treasury anything, since it's money that would otherwise be kept abroad and not taxed at all. The tax break would actually raise billions of dollars from applying the reduced tax rate to the money that's been repatriated.
What's not to like? John T. Chambers, Cisco's (CSCO) chief executive officer, told securities analysts in February that "you're now seeing political leaders at all levels understand" the case for a tax holiday on repatriated foreign profits. "I think this one has well over a 60 percent probability of being resolved in a positive way," he said. Although a lobbying campaign is just getting under way, Representative Brian P. Bilbray (R-Calif.) has already introduced a bill that would let companies bring home money tax-free if they used it for research and development or facilities expansion.
Aside from Cisco, the growing coalition for repatriation relief includes Adobe (ADBE), Apple, CA Technologies (CA), Duke Energy (DUK), Google, Microsoft (MSFT), Oracle (ORCL), Pfizer (PFE), and Qualcomm (QCOM)—powerhouses all. The group is seeking fundamental changes in tax law, but if it can't get them right away, it still wants the tax holiday. Its opening position is that there should be no conditions on how the money is used. Chambers argued in a Wall Street Journal op-ed last October that a repatriation might create as many as 2 million jobs.
It's a seductive argument—reap billions in tax revenue from money that's currently untaxed and generate economic growth to boot. On closer inspection, though, the coalition's argument has some logical loopholes. A nearly identical holiday passed by Congress in 2004 and taken mostly in 2005 did little to boost jobs or investment, according to several independent economic studies. Some economists say a holiday today might be even less effective because cash isn't a constraint in 2011—it's bountiful, thanks to the Federal Reserve's loose-money policy. U.S. nonfinancial corporations have $1.9 trillion in liquid assets, the Fed says. No more than half of that—probably significantly less—is offshore. (An unknown portion of the $1 trillion-plus in foreign-held profits isn't cash. It's tied up in foreign factories, offices, and the like and can't easily be repatriated.)
"The problem is lack of demand or lack of investment opportunities" in the U.S., says Dhammika Dharmapala, an economist and law professor at the University of Illinois. Plus, granting another holiday so soon might induce companies to stash even more money abroad, convinced that if they wait long enough another holiday will arrive, says Thomas J. Brennan, a professor at Northwestern University School of Law.
More --->

businessweek

Japan quake: Economy 'to rebound' after short-term pain

2011-03-14T08:10:00.000-07:00

Insurance cost estimates range between $14.6bn and $34.6bn with the total rebuild bill far higher

Friday's earthquake and tsunami have left parts of Japan's economy "frozen", but analysts forecast that it will bounce back later this year.

Some of the country's leading producers, including the world's biggest carmaker, Toyota, have closed all of their plants in the country.
Analysts at Nomura expect that loss of production to dent the economy during this quarter and the next.
But they suggested growth would return in the third quarter.
"This disaster has in effect temporarily frozen the world's third largest economy," said Richard Soultanian of NUS Consulting, which specialises in the energy supply industry.
The Japanese economy, the third largest in the world, shrank at the end of last year and had been expected to return to growth in the second quarter of 2011.
"We now expect the Japanese economy to take longer than we expected to exit its current soft patch owing to the earthquake and tsunami," said Nomura analysts Takahide Kiuchi and Okazaki Kohei.

Stephanomics: The economic aftershocks

Sharon O'Halloran, a professor of political economy at Columbia University, said: "The question is: does this finally push them out of the deflationary spiral and allow them to get their economy back on track, or does it push them deeper down?"

The country's global car giants are expected to be the amongst the worst affected.
Nomura suggested that annual operating profits at Toyota, Honda and Nissan would be dented by between 3% and 8% this year.

'Extreme damage'

The electronics industry was also expected to be badly hit, with a report by Goldman Sachs saying there would be "extreme damage" across the electronics industry supply chain in the near term.
Sony suspended production at eight plants in the affected region and said it was not sure when production would restart.

Toshiba, whose products include semiconductors and nuclear reactors, also said it did not know when it would be able to re-open its chip factory in northern Japan.

But further down the line, economists said the disaster could boost economic growth.
The rebuilding effort will mean a huge boom in construction spending.
Shares in many Japanese building companies have already gained sharply in anticipation of the work that will be heading their way, partly funded by insurance companies.

Clues

Analysts are looking back to the Kobe earthquake of 1995 for clues as to how the Japanese economy will react to the latest earthquake and tsunami.

Reconstruction following the Kobe quake cost $100bn (£62bn), of which $3bn was paid for by insurance.
The areas hit by the 1995 disaster were more industrialised, accounting for 12% of GDP according to Merrill Lynch Bank of America estimates.
By contrast, the region hit by the latest destruction accounts for just over 7%. But the area's nuclear facilities are an extra headache and estimates of insurance payouts for this disaster range between $14.6bn and $34.6bn.
Insurers and analysts stressed that it was still too early to accurately assess the damage caused by the quake, the most powerful to hit Japan.
"We can't say what the impact will be. The situation on the ground is changing," said Rolf Tanner, a spokesman for Swiss Re.
"It will take some time before we can come forward with an estimate of the losses on the ground."
Toshihiko Matsuno, senior strategist at SMBC Friend Securities, said: "When we look back at the Kobe earthquake, it took about a week to get an overall picture of the magnitude of the damage."

business sharks

US soldier kills Afghan civilians in Kandahar

A US soldier in Afghanistan has shot dead 15 civilians and wounded others after entering their homes in Kandahar province, Afghan and Nato sources say.

He reportedly left his base early in the morning to attack village homes. Nine children are among the dead.

Egypt clears virginity test medic

A military court in Egypt has acquitted an army doctor accused of carrying out forced "virginity tests" on women protesters, state media reports.

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The head of the UN nuclear agency, the IAEA, has proposed sending a high-level mission to Iran, to address new fears about a possible military dimension to the country's nuclear programme.

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Carmaker Nissan is to suspend production in the UK for three days due to parts shortages caused by the Japan earthquake.

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100 C

Apple, Google May Profit on a Tax Holiday

Those companies and others say they'll bring home billions in earnings—but only if they get a big tax break

Japan quake: Economy 'to rebound' after short-term pain

With productivity flat and GDP growth near 1  percent, Italy must make hiring and firing easier