Paranormal Experience

Michigan Judge Rules Against Bankruptcy Push

2013-07-22T11:34:00.000-04:00

A judge in Ingham County, home to Michigan’s capital, Lansing, ruled that Mr. Snyder’s action had violated the state Constitution because it could cut the pension benefits of retired public employees. The judge, Rosemarie Aquilina, said pensions were protected under state law, and issued an order that the bankruptcy filing be withdrawn.

Her ruling was immediately challenged by Michigan’s attorney general, who appealed to the state’s Court of Appeals on the grounds that the Chapter 9 bankruptcy filing stayed all legal proceedings related to Detroit’s debt obligations.

While the ruling may be overturned, it underscored the mounting tension in the city and the legal battles ahead as bondholders, retirees and other creditors attempt to recover money owed them by the city.

Mr. Snyder and Detroit’s emergency manager, Kevyn D. Orr, estimate the city’s debt and other long-term obligations at $18 billion.

After weeks of mostly unsuccessful negotiations with creditors to settle debts, Mr. Orr recommended a bankruptcy filing to Mr. Snyder this week. The city then filed for Chapter 9 on Thursday, minutes before Judge Aquilina was to hold a hearing on the employee pension funds’ constitutional challenge to a potential bankruptcy proceeding.

The president of one public employees’ union hailed the judge’s decision on Friday. “There is too much at stake to play political games with the hard-earned retirement security of Detroit’s public workers,” said Lee Saunders, head of the American Federation of State, County and Municipal Employees union.

But at a joint news conference on Friday, Mr. Snyder and Mr. Orr were resolute on the need for a bankruptcy filing.

Mr. Snyder, a Republican who has pushed a pro-business agenda in the state, said Detroit had no other options to deal with its debts and improve city services ranked among the nation’s worst.

“This is the time to say enough is enough in terms of the downward decline of the city of Detroit,” he said.

Now that the city has filed, Mr. Snyder and Mr. Orr said they wanted to reassure Detroit’s 700,000 residents that police, fire and other essential services will continue to function.

Mr. Orr, who was appointed by the governor, predicted that residents might start to see improvements soon, saying that the bankruptcy filing offers “breathing room” and will allow Detroit to use its limited resources to put more police cars and ambulances into service.

Depending on the outcome of the appeal of Judge Aquilina’s order, the initial bankruptcy hearings could begin as soon as next week.

On Friday, Judge Steven W. Rhodes was picked to oversee the case. Mr. Rhodes is a hometown selection, having served for 28 years as a bankruptcy judge in the Eastern District of Michigan.

The initial stages of the case will consist of Mr. Orr and possibly state officials showing that there was no available remedy for Detroit’s troubles other than bankruptcy.

“We didn’t make this decision in haste,” Mr. Orr said. “This is a decision that has been winding its way through the city for the better part of six decades.”

Employee unions and creditors may argue otherwise — either by challenging the size of Detroit’s debt, or Mr. Orr’s assertions that he bargained in good faith to reach out-of-court settlements with bondholders, retirees and others.

Some labor unions had accused Mr. Orr of using bankruptcy as a threat during negotiating sessions.

Mr. Orr said that despite marathon talks with creditors, there was little or no movement toward settlements.

“We are finally at a point where we simply can’t kick this can down the road any further,” he said.

There is no blueprint for Detroit’s recovery at this point. In the short term, Mr. Orr said that a deal with two secured creditors, Bank of America and UBS, to accept 75 cents on the dollar for $340 million in liabilities would free up casino revenues that could be used for city services.

The arrangement would provide the city with about $11 million a month in casino receipts. That cash is critical to keep the city safe and functional during a drawn-out bankruptcy process.

Mr. Orr said he expected Detroit to emerge from bankruptcy before his term as emergency manager ends in 14 months.

For Mr. Snyder, placing the state’s largest city in bankruptcy is a calculated risk that its decline could be reversed under court supervision.

He said that he did not anticipate any direct state or federal money would be needed in the effort, but that government grants to help remove abandoned buildings and improve Detroit’s infrastructure would be essential to the city’s comeback.

Media Decoder: Weinstein Company Loses Appeal to Use Movie Title ‘The Butler’

2013-07-22T10:26:00.000-04:00

Eliot Spitzer promises to spend plenty on the race for New York City comptroller without revealing where it comes from.

Mark Kozelek shares a song about his mom, who cleaned his ears, dropped him off at rehab and helped him buy a Les Paul.

Preoccupations: Unpaid Interns: Silent No More

2013-07-22T08:56:00.000-04:00

Last month, a federal judge in New York ruled that unpaid interns on the movie “Black Swan” should have received at least the minimum wage. The judge also allowed a class-action suit to go forward against the Fox Entertainment Group, the parent company of the film’s production division.

Gutsy and improbable when it was first filed two years ago, the “Black Swan” case was a pioneering direct challenge to the internship system. Now more than 15 other lawsuits have followed in its wake, according to an online database maintained by ProPublica, the investigative journalism Web site.

The companies being sued operate in a wide range of intern-heavy industries. Global brands, famous television and fashion personalities, multinational subsidiaries flush with profits — these are some of the employers that have refused to pay young workers at least $7.25 an hour. How have they done this for so long?

The federal law is clear: if internships at profit-making companies are to be unpaid, they must foster an educational environment. (The rules are different for nonprofit and governmental agencies.)

Good internships are out there — ones that pay, ones that train and ones that lead to real jobs at the end. But many others fall far short — and more people are taking action. “I think enough people have finally seen what a trap this has become,” said Eric Glatt, one of the victorious interns in the “Black Swan” case.

In addition to filing lawsuits, interns are organizing beyond the courtroom, using some of the same strategies as fast-food workers, freelancers and various groups of part-time, temporary or guest workers.

For example, two students at New York University recently created a petition demanding that the university stop advertising unpaid internships on campus; more than a thousand people signed in a matter of days.

With the Obama administration now pushing to increase the minimum wage, some activists are focusing on what they see as government hypocrisy. Washington is a hub for overworked, unpaid interns, the White House and Congress included. What good is a minimum-wage increase when so many people work and make no wages at all?

“There are lots of people who care about this issue; there’s a lot of anger about this issue. We want to build a movement,” said Mikey Franklin, co-founder of the new Fair Pay Campaign, who plans to hire professional organizers to galvanize interns in hubs like New York and Los Angeles. He hopes for support from organized labor, whose leaders, he said, are waking up to the issue’s mobilizing potential.

And Intern Labor Rights, a New York-based group formed out of the Occupy Wall Street movement, is forming a coalition with like-minded groups in Canada, Britain, France, Switzerland, the Netherlands and Austria. In all of those countries, campaigns to make internships fairer are also under way.

What interns are demanding is hardly a mystery: respect for their work. In short, it’s time to start envisioning and putting into practice a healthy, effective internship culture. For better or worse, pay is the fundamental currency of respect in every modern economy. Unless it’s a bona fide training or volunteer position, an internship should be paid, open to all and transparently advertised — and should never result in the displacement of other employees.

TRAINING, mentoring, experience and opportunity are particularly vital for interns, which is precisely why many of them are willing to work longer, harder and for lower wages, running errands and doing other menial tasks. Interns know that they’re starting at the bottom, but they need employers to meet them halfway.

Those who can’t afford to work without pay are eager for the chance to break into the intern-heavy fields that are now all but closed to them. The demand for meaningful career options — coupled with a willingness to work hard for them — has never been stronger.

And yet, for too many people, internships have become slightly shameful, with overtones of menial work, immaturity, parental dependence and being stuck.

As long as the current system remains stubbornly in place, expect the intern revolt to continue.

Ross Perlin is the author of “Intern Nation: How to Earn Nothing and Learn Little in the Brave New Economy.”

DealBook: S.E.C. Charges Are Latest Test for Steven Cohen

2013-07-22T08:29:00.000-04:00

Steve Marcus/ReutersSteven A. Cohen, the owner of SAC Capital Advisors, is accused of failing to supervise former employees who face criminal charges.

10:18 p.m. | Updated

After a long-running investigation into insider trading at the hedge fund SAC Capital Advisors, an inquiry that has produced several guilty pleas and a record $616 million civil penalty, the government on Friday brought a case for the first time against the fund’s billionaire owner, Steven A. Cohen.

In a civil action, the Securities and Exchange Commission accused Mr. Cohen of failing to supervise former employees who face criminal charges. The case, filed as an administrative proceeding at the agency rather than a lawsuit in federal court, contends that he ignored “red flags” that should have led him to investigate suspicious trading activity at SAC and take steps to prevent illegal conduct. If the S.E.C. prevails in its action against Mr. Cohen, there are a range of possible penalties, including assessing additional fines, barring Mr. Cohen from managing money for clients, or banning him from the financial services industry for life.

Although the case stops short of accusing Mr. Cohen of fraud or insider trading, it represents the first government action brought directly against him after an inquiry that has persisted for nearly a decade.

And while the government has taken its first direct shot at Mr. Cohen, it is unlikely to be the last. Federal prosecutors and the F.B.I. are continuing to build a criminal case against SAC, according to people briefed on the matter, who spoke on the condition of anonymity. The authorities expect to announce charges as soon as this summer, the people said, noting that prosecutors might indict other traders at SAC or the fund itself, a move that would effectively destroy the company.

Though a legal deadline to file some insider trading charges is approaching, authorities are planning to navigate around that requirement by filing a broader criminal conspiracy case against SAC, these people said. As long as one of the trades cited in the case took place in the last five years, then the government has leeway to include older trades to highlight a continuing scheme.

Mr. Cohen is not out of the woods, either. In May, federal authorities issued subpoenas to Mr. Cohen and five of his senior executives to testify before a grand jury. Mr. Cohen declined to testify, exercising his constitutional right against self-incrimination, the people briefed on the matter said.

Even if a criminal case never materializes, the S.E.C.’s action on Friday is a blow to Mr. Cohen, who has built SAC, which is based in Stamford, Conn., into one of the world’s largest and most powerful hedge funds, with about 1,000 employees and $15 billion in assets at the start of the year. It has a nearly unparalleled investment record, delivering nearly 30 percent annual returns, on average, over two decades. SAC’s investors, however, have already withdrawn billions of dollars from the fund this year as the government’s investigation has intensified.

Keith Bedford/ReutersMathew Martoma, a former employee of SAC Capitol Advisors, has denied charges of insider trading and is set to go to trial Nov. 4.

Mr. Cohen, 57, thought he put his legal troubles behind him in March when SAC agreed to pay a $616 million civil penalty to the S.E.C. The case resolved insider trading actions connected to the suspected misconduct of two former employees, Mathew Martoma and Michael S. Steinberg, though they did not directly implicate Mr. Cohen.

The S.E.C. filed its latest case, which accused Mr. Cohen of failing to supervise the two employees, a day before the five-year legal deadline to bring a case related to trades that Mr. Martoma made in July 2008.

“Hedge fund managers are responsible for exercising appropriate supervision over their employees to ensure that their firms comply with the securities laws,” Andrew J. Ceresney, co-director of enforcement at the S.E.C., said in a statement.

On Friday, Jonathan Gasthalter, an SAC spokesman, said the S.E.C.’s action had no merit. “Steve Cohen acted appropriately at all times and will fight this charge vigorously,” he said. “The S.E.C. ignores SAC’s exceptional supervisory structure, its extensive compliance policies and procedures, and Steve Cohen’s strong support for SAC’s compliance program.”

The firm’s compliance policies and procedures have come under fire as many former employees have found themselves under government scrutiny. Including Mr. Martoma and Mr. Steinberg, nine former SAC employees have been tied to insider trading while at the firm; four have pleaded guilty to criminal charges. Mr. Cohen has not been accused of any criminal wrongdoing.

Mr. Martoma, 39, and Mr. Steinberg, 40, have each pleaded not guilty to criminal insider trading charges and face separate trials in November. Lawyers for each declined to comment on the S.E.C. action against Mr. Cohen. Representatives for the United States attorney’s office for the Southern District of New York and the F.B.I. also declined to comment.

Despite the substantial investor withdrawals, Mr. Cohen has vowed to continue managing funds for outside clients, to whom he charges some of the highest fees in the hedge fund industry. Yet Mr. Cohen could return investors’ money and still run a sizable business that managed his own personal fortune. His wealth accounts for more than half of the fund’s $15 billion in assets.

The S.E.C.’s case against Mr. Cohen intensified this spring, people briefed on the case said, soon after the agency struck the settlement with the fund. The agency sent him a so-called Wells notice in late May, the people said, warning that the agency’s investigators would soon recommend charges.

Mr. Cohen’s lawyers pushed back in recent weeks, outlining a potential defense to the charges. But the agency decided to proceed, one person said, holding a special meeting with the agency’s five commissioners to consider the charges. The meeting was separate from the agency’s typical weekly gathering to discuss enforcement cases, a measure that allowed the agency to keep a tight lid on the case.

The case is not a slam-dunk. The S.E.C. must show not only that Mr. Martoma and Mr. Steinberg violated the law and that they operated under Mr. Cohen’s supervision, but also that Mr. Cohen failed to “reasonably” supervise them.

It could benefit the agency that the case will appear on its home turf. Instead of a being heard by a judge in federal court, the proceeding will take place before an S.E.C. administrative law judge, who will determine what penalties, if any, should be assessed against Mr. Cohen. The S.E.C. says that the illicit trading earned SAC profits and avoided losses totaling more than $275 million.

Friday’s filing provides additional details about two sets of trades made by SAC in 2008. The first involved Mr. Cohen’s collaboration with Mr. Martoma in accumulating large positions in the pharmaceutical companies Elan and Wyeth, which at the time were jointly developing an Alzheimer’s drug. In November, federal prosecutors charged Mr. Martoma with obtaining secret information from a doctor overseeing the drug’s clinical trials. That doctor, Sidney Gilman, has agreed to testify against Mr. Martoma.

Inside SAC, a number of other drug stock analysts at the fund objected to the large positions, but Mr. Cohen told them that he was following Mr. Martoma’s advice because he was “closer to it than you,” according to the court filing. The S.E.C. said that in a later instant message, Mr. Cohen said that it seemed as if Mr. Martoma “has a lot of good relationships in this area.”

Mr. Cohen also knew of a second doctor who might possibly have had secret information about the clinical trials, the S.E.C. said. Rather than express concern about the fund possessing potentially confidential information, Mr. Cohen encouraged Mr. Martoma to talk further with the doctor, according to the court filing.

On July 21, 2008, after building sizable holdings in Elan and Wyeth, SAC began aggressively selling shares in the two companies. The day before, on a Sunday, Mr. Martoma had a 20-minute phone call with Mr. Cohen. It is unclear what was said during that conversation, but Mr. Cohen, in a deposition that he gave to the S.E.C. last year, said that Mr. Martoma told him he had lost conviction in the positions.

The second trade at issue in the case involves shares of Dell. The S.E.C. also faults Mr. Cohen for not ferreting out what they suspect was illegal trading in shares of Dell in August 2008 by Mr. Steinberg and another former SAC employee, Jon Horvath, who pleaded guilty to criminal charges last year.

Friday’s court filing cites an e-mail about Dell that an SAC trader forwarded to Mr. Cohen, who was working at his summer home in the Hamptons. The e-mail was from Mr. Horvath, who worked under Mr. Steinberg, saying that he had a “2nd hand read from someone at the company” and went on to provide detailed information about Dell’s financial performance.

“Please keep this to yourself as obviously not well known,” Mr. Horvath wrote.

The S.E.C. says that based on this e-mail, Mr. Cohen should have taken prompt action to determine whether the fund was engaged in insider trading. Instead, according to the agency, Mr. Cohen quickly sold his small Dell position just before the company announced earnings.

Three hours after the earnings release, Mr. Cohen e-mailed Mr. Steinberg: “Nice job on Dell.”

The Boss: From Apple to Nest Labs, Always a Designer

2013-07-22T07:32:00.000-04:00

During summers, we would return to Detroit, where my grandfather, a high school teacher and later a school superintendent, would teach my brother and me how to fix things around the house and build projects, like a soapbox racer, in his workshop.

Computers have fascinated me for as long as I can remember. In grade school, I took a summer programming class, using a mainframe computer with punch cards. My grandfather helped me buy an Apple II; he didn’t know anything about computers but recognized that, for me, it was an important tool — just like his hammers and drills. In high school, a friend and I started a small company, Quality Computers. We worked from his parents’ basement, reselling Apple II hardware and writing software.

In 1987, I entered the University of Michigan, in Ann Arbor, to study computer engineering. But my classes didn’t satisfy my interest in computers, so I founded an educational software company and another company to design computer processors for the Apple IIgs model.

After I graduated in 1991, I moved to Silicon Valley to pursue my dream job: working with General Magic, whose founders created the first Apple Macintosh. I knocked on their door until they hired me later that year. I spent four years there, developing hardware and software to create personal hand-held communications devices, including Sony’s MagicLink. In 1995, I pitched a hand-held product to the C.E.O. of Philips, the Dutch electronics giant. He hired me to build its mobile computing group to develop the Velo and Nino personal digital assistants.

Music has always been one of my passions. Philips wanted to expand in the United States, and the company named me vice president for business development to manage its digital music strategy and investments. Being a corporate guy wasn’t enough for me, so I left to start Fuse Systems, a consumer electronics company. But it foundered when the Internet bubble burst in 2001. That same year, Apple Computer hired me as a consultant in designing what would become the iPod digital music player. Computers plus music plus Apple — it was another dream gig.

Eight weeks later, I approached Steve Jobs with the initial iPod concept and was put in charge of building and leading the development team. One iPod led to another, eventually becoming 18 generations of iPods — and then three generations of the iPhone.

My wife also worked at Apple. Eventually I wanted to spend more time with our two children, and I also wanted a break. So in 2008, I stepped away as senior vice president of Apple’s iPod division and became a strategic adviser to Mr. Jobs. He was an incredible influence on how I think about bringing products to market.

After leaving Apple, we decided to build a “green” home in Lake Tahoe, Calif. While researching heating and cooling systems, I realized that the thermostat was ripe for innovation. I founded Nest Labs to build the self-programming Nest Learning Thermostat. When owners are away, sensors adjust the temperature to save energy. The thermostat has been selling in the United States and Canada for 20 months, but because the device is Wi-Fi connected, we know that it is being used in more than 80 countries.

We designed the thermostat for do-it-yourself installation, and we even include a custom screwdriver in each box. I think my grandfather would have liked that.

Corner Office: Joyce Brown of F.I.T., on Using Your ‘Third Ear’

2013-07-22T06:55:00.000-04:00

Q. What was your plan for your career when you were younger?

A. I always knew I wanted to go into psychology. I’m a psychologist by training, which I think is a tremendous help in everything I do.

Q. How so?

A. Among the more important things I learned in pursuing the degree in psychology was an appreciation of an organization’s interrelationships. I think you have to follow process even if you’re not being a bureaucrat. I don’t want to be bound by the process, but I think respecting the process is important — respecting what everybody’s role is — then figuring out how to make everybody work together.

One thing that emerged from the training, and what I do day to day, is to understand who’s responsible for what and to make sure I don’t then ask someone else to do that person’s job. It’s very easy to slip and do that. You can involve others, of course. They may have a suggestion that’s easy enough to incorporate, and then everybody owns a little piece of it. But you have to be clear about who’s responsible. Otherwise, people will cross wires, and that will create a ripple effect that’s totally unnecessary.

Q. Other ways that you draw on your training in psychology?

A. I am convinced that I have a third ear. I listen, and I really pay attention and try very hard to understand the nuances. I tell people that I will listen to what they say, and will try to incorporate what I can from their suggestions if I think they fit the objective we’re trying to achieve. If we’re not going to do what they’re suggesting, I’ll tell them why. I think people deserve that. I will tell you why, and then we will proceed. I think it works, because people feel that they were listened to, and were given the respect of an answer about why I might disagree. You gain a lot by being respectful of people’s ideas.

Q. Talk about some other leadership lessons you’ve learned over the years.

A. It’s important not to choose alliances too early. There are always issues and camps that develop in any organization. You may think you understand them, but you don’t.

I don’t really think there are people who wake up every morning wanting to tear things down in an organization. But there are people with strongly held beliefs who are driven by various things — maybe their own need to be in the limelight, or maybe some deep philosophical belief.

Q. What have you learned from other leaders you’ve observed?

A. I had people who were very helpful to me, who saw something they thought was worth developing, and they created opportunities for me. Their ability to analyze and to be thorough and to think about the impact of one decision versus another was interesting and helpful to watch.

I also saw a lot of things I knew I didn’t want to do. Some people were emotional, histrionic, intolerant and wanted to humiliate people. I also saw people who didn’t pay attention to detail, which I think will sink you every time. My staff calls me Dr. Detail — lovingly, I’m sure. That doesn’t mean I micromanage, but I need to know the details. Things can come around and bite when you don’t pay attention to the real substance.

I’ve also seen people who didn’t respect process. They reached down into the ranks and had other people doing things that marginalized the people they needed to rely on to really get the job done and move the organization forward.

Q. How do you hire? What qualities do you look for? What questions do you ask?

A. I’m really interested in who you are and if you fit in with the culture, with the team — how committed you are to the objectives and goals we’ve set, the vision we have. I like to know how they got here, so I always ask what they thought they were going to do when they were younger, when they went to college.

Why did you choose your major? What did you think you were going to do? What was your vision for your career? How did you get where you are? What were the various things that happened along the way, because invariably it wasn’t a straight line. Then I like to know a little bit about where people grew up. Are they living in the same place they grew up, or did they leave their hometown to come to New York? Are they adventurous? Are they a risk-taker? What’s their passion about? What’s driving them?

Q. What are you listening for?

A. I’m listening for passion. I’m listening for a commitment to being the best, to being successful, and a commitment to something larger than themselves, not just their personal success. That kind of drive really does blossom into one’s work ethic and attitude and approach.

Q. Anything you have a particularly low tolerance for?

A. It’s kind of subtle, but I don’t like when people tear other people down because they’re not owning what might have been their mistake. If you don’t take any risks, you certainly won’t make any mistakes, but you’re not going to get that far, either. So it’s O.K. to make a mistake. You just need to own your mistake. That’s a bad sign for me if somebody doesn’t.

The other thing I don’t like is people who waste other people’s time. They’ll have meetings with no point — everybody has to come together just because you can call them all together. Then, at the end of the day, everybody’s just wasted an hour and a half, and there’s no point to the agenda. Maybe they’re just trying to show they’re in charge of something that they really don’t fully understand. So they might ask 25 questions, or even 10, when they didn’t need to ask any. Ultimately when people can’t answer all their questions, it does sort of make them seem much more smart and more important.

But it doesn’t really work when what you’re trying to do is build a well-oiled machine. All they had to say was: “How can I help you? Let’s figure this out.” They need to be committed to something beyond themselves.

DealBook: Detroit Gap Reveals Industry Dispute on Pension Math

2013-07-22T05:26:00.000-04:00

Bill Pugliano/Getty ImagesMany in Detroit were alarmed recently when, seemingly out of nowhere, a $3.5 billion hole appeared in the city’s pension system.

Until mid-June, there was one ray of hope in Detroit’s gathering storm: For all the city’s problems, its pension fund was in pretty good shape. If the city went under, its thousands of retired clerks, police officers, bus drivers and other workers would still be safe.

Then came bad news. Seemingly out of nowhere, a $3.5 billion hole appeared in Detroit’s pension system, courtesy of calculations by a firm hired by the city’s emergency manager.

Retirees were shaken. Pension trustees said it must be a trick. The holders of some of Detroit’s bonds realized in shock that if the city filed for bankruptcy — as it finally did on Thursday — their claims would have even more competition for whatever small pot of money is available.

But Detroit’s pension revelation is nothing new to many people who run pension plans for a living, the math-and-statistics whizzes known as actuaries. For several years, little noticed in the rest of the world, their staid profession has been fighting over how to calculate the value, in today’s dollars, of pensions that will be paid in the future.

It may sound arcane, but the stakes for the country run into the trillions of dollars. Depending on which side ultimately wins the argument, every state, city, county and school district may find out that, like Detroit, it has promised more to its retirees than it ever intended or disclosed. That does not mean all those places will declare bankruptcy, but many have more than likely promised their workers more than they can reasonably expect to deliver.

The problem has nothing to do with the usual padding and pay-to-play scandals that can plague pension funds. Rather, it is the possibility that a fundamental error has for decades been ingrained into actuarial standards of practice so that certain calculations are always done incorrectly. Over time, this mistake, if that is what it is, has worked its way into generally accepted accounting principles, been overlooked by outside auditors and even affected state and municipal credit ratings, although the ratings firms have lately been trying to correct for it.

Since the 1990s, the error has been making pensions look cheaper than they truly are, so if a city really has gone beyond its means, no one can see it.

“When the taxpayers find out, they’re going to be absolutely furious,” said Jeremy Gold, an actuary and economist who for years has called on his profession to correct what he calls “the biases embedded in present actuarial principles.” In 2000, well before the current flurry of pension-related municipal bankruptcies, he wrote his doctoral dissertation on how and why conventional pension calculations run afoul of modern economic principles.

Mr. Gold made his prediction about taxpayer fury in an interview a number of years ago in which he also explained why he had chosen his topic. He said he hoped to help put a stop to the errors he saw his colleagues making before pension problems that were already starting to brew then boiled over and a furious public heaped blame, scorn and legal liability on the profession.

When a lender calculates the value of a mortgage, or a trader sets the price of a bond, each looks at the payments scheduled in the future and translates them into today’s dollars, using a commonplace calculation called discounting. By extension, it might seem that an actuary calculating a city’s pension obligations would look at the scheduled future payments to retirees and discount them to today’s dollars.

But that is not what happens. To calculate a city’s pension liabilities, an actuary instead projects all the contributions the city will probably have to make to the pension fund over time. Many assumptions go into this projection, including an assumption that returns on the investments made by the pension fund will cover most of the plan’s costs. The greater the average annual investment returns, the less the city will presumably have to contribute. Pension plan trustees set the rate of return, usually between 7 percent and 8 percent.

In addition, actuaries “smooth” the numbers, to keep big swings in the financial markets from making the pension contributions gyrate year to year. These methods, actuarial watchdogs say, build a strong bias into the numbers. Not only can they make unsustainable pension plans look fine, they say, but they distort the all-important instructions actuaries give their clients every year on how much money to set aside to pay all benefits in the future.

If the critics are right about that, it means even the cities that diligently follow their actuaries’ instructions, contributing the required amounts each year, are falling behind, and they don’t even know it.

These critics advocate discounting pension liabilities based on a low-risk rate of return, akin to one for a very safe bond.

In the years since his doctoral research, Mr. Gold and like-minded actuaries and economists have been presenting their ideas in professional forums and in scholarly papers crammed with equations and letters of the Greek alphabet. They have won converts, but so far no changes in the actuarial standards. Their theoretical arguments tend to fly over the head of the typical taxpayer.

Year after year there has been consistent resistance from the trustees of public pensions, the actuarial firms that advise them and the unions that represent public workers. The unions suspect hidden agendas, like cutting their benefits. The actuaries say they comply fully with all actuarial standards of practice and pronouncements of the Governmental Accounting Standards Board. When state and local governments go looking for a new pension actuary, they sometimes post ads saying that candidates who favor new ways of calculating liabilities need not apply.

A few years ago, with the debate still raging and cities staggering through the recession, one top professional body, the Society of Actuaries, gathered expert opinion and realized that public pension plans had come to pose the single largest reputational risk to the profession. A Public Plans Reputational Risk Task Force was convened. It held some meetings, but last year, the matter was shifted to a new body, something called the Blue Ribbon Panel, which was composed not of actuaries but public policy figures from a number of disciplines. Panelists include Richard Ravitch, a former lieutenant governor of New York; Bradley Belt, a former executive director of the Pension Benefit Guaranty Corporation; and Robert North, the actuary who shepherds New York City’s five big public pension plans.

This project has drawn fire from a large number of public pension officials. They recently wrote the Society of Actuaries a joint letter, urging it to reconstitute the Blue Ribbon Panel by adding more people “who can provide insight” into the many benefits of the current method, and expressed great concern about switching to a new one that could cause confusion and volatility. Of possible interest to the bondholders and taxpayers of Detroit, they also said that as fiduciaries they were required to “put the interest of all plan participants and beneficiaries above their own interests or those of any third parties.”

Much of the theoretical argument for retaining current methods is based on the belief that states and cities, unlike companies, cannot go out of business. That means public pension systems have an infinite investment horizon and can pull out of down markets if given enough time.

As Detroit has shown, that time can run out.

Monica Davey contributed reporting.

News: 1945 Crop Circles, Lost City Found, Ghost Hunters Shot

2013-07-22T04:17:00.000-04:00

Paranormal news and views for June 18, 2013:

Historian: 1945 photo proves crop circles are no hoaxAtlantis-like lost city unearthed in CambodiaThe weird and wonderful world of retro-death-telegraphyIn search of Bigfoot, bearwolves, and sea serpentsGhost hunters beware! You might get shot!7 fascinating near-death experiencesActress experiences paranormal stuffIn Pennsylvania, methods for finding BigfootPet owners turn to psychics for insights into canine cognitionVillage in Malaysia in panic over Bigfoot printsPhysical mediumship: Table tippingYowie sighted at Bexhill, EnglandMysterious subatomic particle may represent exotic new form of matter

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Technophoria: Dissent Over a Device to Help Find Melanoma

2013-07-22T03:41:00.000-04:00

Ms. Oppel is a medical assistant in Manhattan in the office of Dr. Doris Day, one of the first dermatologists to buy the machine. Developed by Mela Sciences of Irvington, N.Y., the system uses pattern-recognition algorithms to help a dermatologist who has picked out a suspicious pigmented spot to decide whether to perform a biopsy. The device may find an audience among sun-seekers worried about developing an aggressive skin cancer: the National Cancer Institute estimates that about 9,500 Americans this year will die of melanoma of the skin.

Yet the device is polarizing the field of skin-cancer detection.

For decades, dermatologists have used their eyes, along with a magnifier called a dermatoscope, to try to distinguish abnormal but benign lesions from potential melanoma in order to avoid unneeded biopsies. Some dermatologists argue that these low-tech tools are still the most useful and worry that their colleagues are falling for expensive, cool-looking gadgets that may simply offer extraneous, and perhaps incorrect, data.

“This technology should still be considered to be in the developmental stage,” said Dr. Roberta Lucas, an instructor of clinical dermatology at the Northwestern University Feinberg School of Medicine in Chicago. “We are better off when the system supports doctors who are thorough and unhurried; who examine and listen carefully and who empower patients to practice good surveillance and sun protection.”

In fact, some members of an expert medical panel asked to review MelaFind a few years ago for the Food and Drug Administration warned that the device had the potential to give doctors and patients a false sense of security. While MelaFind can analyze small pigmented spots identified by dermatologists as having signs of melanoma, it is not designed to evaluate other problems: large melanomas, colorless melanomas or two other types of skin cancer — basal and squamous cell carcinoma.

Dr. Amy E. Newburger, a dermatologist in Scarsdale, N.Y., who was a member of that F.D.A. panel, told me that she was concerned that a doctor could inadvertently use MelaFind on a non-melanoma skin cancer, receive a score indicating that the spot was not irregular, and erroneously decide not to biopsy it. She voted against recommending the device for F.D.A. approval.

Some biostatisticians are also critical of MelaFind, saying the device can recognize a high percentage of melanomas correctly because it also falsely scores as positive so many non-melanomas — potentially prompting doctors to perform unnecessary biopsies.

To help me visualize that issue, Jason Connor, a biostatistician at Berry Consultants, a biostatistics consulting firm, compared the accuracy of MelaFind in distinguishing non-melanomas to a hypothetical pregnancy test which, used on 100 nonpregnant women, would mistakenly conclude that 90 of them were pregnant.

“My concern with MelaFind is that it just says everything is positive,” Mr. Connor said. A member of the F.D.A. panel, he abstained on a vote about whether the device’s intended uses outweighed the risks.

“I don’t think this helps an aggressive doctor,” Mr. Connor told me, “and unaggressive doctors could do just as well if they were more diligent without the device.”

To develop MelaFind’s current algorithm, researchers trained the system on digital images of more than 10,000 pigmented lesions, programming it to recognize irregularities like asymmetry, color variability and cellular disorganization characteristic of melanomas. Company executives said Mela Sciences deliberately calibrated the machine to catch as many melanomas as possible, understanding that such a high setting could lead doctors to biopsy normal tissue.

“It will err on the side of caution,” said Claudia Beqaj, director of commercialization at Mela Sciences. “We wanted to set the system to have such a high sensitivity that we didn’t miss any melanomas.”

(In a company-financed study submitted to the F.D.A., the device missed two out of 127 evaluable melanomas. One F.D.A. reviewer concluded: “There is inadequate data to determine any true value added for MelaFind for use by a dermatologist or other provider.”)

Ms. Beqaj emphasized that MelaFind was intended as a supplementary test that provided extra information about a mole, not as a substitute for a dermatologist’s own expertise.

“If they blindly followed MelaFind, they would be biopsying more," Ms. Beqaj said. “The doctor has to make their own clinical judgment.”

Dr. Day finds the system quite informative. Last week, she gave me a demonstration in her office on the Upper East Side of Manhattan.

Dr. Day picked out what she called an “ugly duckling” mole on the left arm of Ms. Oppel, who had kindly agreed to play the role of patient. Another medical assistant removed a hand-held scanner from the MelaFind console and pressed it against the mole.

The Chatter for Sunday, July 21

2013-07-22T02:17:00.000-04:00

Eliot Spitzer promises to spend plenty on the race for New York City comptroller without revealing where it comes from.

Mark Kozelek shares a song about his mom, who cleaned his ears, dropped him off at rehab and helped him buy a Les Paul.

F.C.C. Backs Plan to Update a Fund That Helps Connect Schools to the Internet

2013-07-22T00:47:00.000-04:00

WASHINGTON — The Federal Communications Commission voted on Friday to overhaul and possibly expand its E-Rate program, a $2.3 billion effort to provide schools and libraries with up-to-date telecommunications service and equipment, including high-speed Internet connections.

A proposal approved by the commission, which will be made available for public comment before a final version is completed, calls for funds to be moved away from outdated uses like paying for paging service and long-distance phone calls and into areas that will accelerate digital literacy, like Wi-Fi connections within a school or library.

The proposal also calls for measures that would drive down the cost of services, like adoption of purchasing consortiums, and the streamlining of administrative requirements — among them, shifting much of the required paperwork for applicants to electronic filings. “One of the biggest obstacles to seizing the opportunities of digital learning in America is inadequate bandwidth at our schools and libraries,” Mignon L. Clyburn, the F.C.C. chairwoman, said before voting. “Simply put, they need faster high-capacity connections and they need them now.”

Just last month in a visit to a North Carolina middle school, President Obama set a goal of connecting 99 percent of school students to the Internet through high-speed broadband and high-speed wireless within five years.

“To get there, we have to build connected classrooms that support modern teaching — investments we know our international competitors are already making,” Mr. Obama said on Friday.

The E-Rate fund has financed Internet connections to more than 95 percent of American public school classrooms, while only 14 percent were connected when E-Rate was established in 1997.

In 2010, however, an F.C.C. study found that more than half of the schools and libraries reported that their Internet connections were too slow to meet their needs. For the coming school year, libraries and schools requested more than $4.9 billion to pay for connections and equipment, more than twice the size of the fund.

“We fail our students if we expect digital-age learning to take place at near dial-up speeds,” said Jessica Rosenworcel, an F.C.C. commissioner. “Contrast this with efforts under way in some of our world neighbors. They are pouring resources into these subjects, into schools and connectivity.”

The E-Rate program has been faulted for inadequately allocating money in the fund, which is provided through a tax on consumers’ phone bills, a monthly charge between 50 cents and $1.

Commissioner Ajit Pai, the lone Republican on the five-member commission (where two seats are vacant), criticized allocations of the fund, saying an average of only $1.8 billion had been spent in each of the last 10 years, leaving more than $5 billion unused in the E-Rate account.

Mr. Pai also complained that the program placed greater emphasis on the wrong services.

“E-Rate today prioritizes long-distance telephone calls and getting phone service to a school’s bus garage over wiring up a classroom,” Mr. Pai said in a speech this week at the American Enterprise Institute. “How can it be that E-Rate in the last few years committed about $600 million, more than one-quarter of its annual budget, to support voice telephone services while at the same time denying eight out of 10 applicants’ funding for connecting classrooms?”

At a Senate Commerce Committee hearing this week, both Republicans and Democrats spoke favorably of the fund, although some quoted Mr. Pai’s observations in a warning of reckless spending.

Frayed Prospects, Despite a Degree

2013-07-21T23:46:00.000-04:00

But the end result was disheartening: Mr. Wells was told, he said, that company policy required him to have at least two years of experience in the field before he could be hired.

If Mr. Wells were a newly minted college graduate, he would not have had that problem. Ernst & Young recruits heavily on college campuses for entry-level positions, no experience required.

But Mr. Wells graduated in 2011, during one of the worst job markets in history, and his work record since then — like countless numbers of his peers — doesn’t measure up to what employers like Ernst & Young demand for “experienced” applicants.

Even as the jobs picture slowly improves, the disadvantage of bad timing follows those who graduated during the worst years. Applicants like Mr. Wells have neither the bright-eyed and bushy-tailed appeal of the class of 2013, nor the benefit of relevant work experience that might give them an edge.

“I’m competing against people that are graduating now,” said Mr. Wells, 27, who worked in construction and other jobs before starting college in 2007. “It’s easier to grab them up, because they’re fresh.”

His problems stem from the fact that companies typically divide their hiring into two pools: entry-level jobs, which are overwhelmingly filled by campus recruits, and experienced workers. Some allow recent graduates to stay in the first category for a year or two after getting their diploma. But recruiters say those applicants may find themselves at a disadvantage, especially if they have not been bolstering their résumés with classes, internships or volunteer work.

“If you’re a 2011 or a 2012 grad, the competition just got fierce — even more fierce — with the let-out of the 2013 class,” said Alexa Hamill, the United States campus recruiting leader for PricewaterhouseCoopers. “It’s like you’re in overtime, and they brought in the fresh team.”

The impact of this is difficult to measure because government statistics do not allow for a comparison of the fate of this year’s graduates with their immediate predecessors, instead lumping all college graduates under 25 into one group. And certainly college graduates as a whole are doing vastly better than those with only a high school degree (young college graduates have an unemployment rate of just over 8 percent, while the unemployment rate for high school graduates within the same age group is close to 20 percent).

But everything that is known about the job market points to the fact that Mr. Wells and his cohort are feeling the pinch. Many of the country’s largest companies make most of their entry level hires on campus, meaning there are no slots for the hapless person who had the misfortune of graduating in 2011. And historically, those who graduate during a recession earn far less than their peers who do not, and it can take a decade or more for them to catch up. Many have been forced to settle for lower-wage, lower-skill jobs, which has in turn helped increase joblessness among the high school graduates who previously held those jobs.

In 2000, about 60 percent of employed college graduates were working in jobs that required a degree, said Andrew Sum, director of the Center for Labor Market Studies at Northeastern University. Now fewer than half are.

Campus recruiters at a variety of institutions said that those who graduated in 2013 have had a relatively easy time finding jobs, in part because the prolonged economic downturn has made them more focused on preparing themselves for the workplace. Alumni who graduated in the previous few years continue to trickle in, asking for help.

“The class of 2009 just got royally screwed, because their first four years in the labor market were this horrible thing,” said Heidi Shierholz, a labor specialist at the Economic Policy Institute, a left-leaning research organization in Washington. “This year’s first four years won’t be that bad.”

G-20 Ministers Aim for More Job Growth

2013-07-21T22:28:00.000-04:00

“Growth and creating jobs remains our priority,” the statement from the finance ministers and central bank governors of the Group of 20 countries said.

It added that the governments in the organization, which collectively represent about 90 percent of the world’s economic activity, “are fully committed to taking decisive actions to return to a robust, job-rich growth path.”

Previous communiqués issued after such meetings had also indicated policy support among some member governments to focus on balancing budgets, not just spending to get out of recession. In this light, Saturday’s statement suggested the weight of policy consensus in large governments was shifting toward continued stimulus.

While not openly critical of austerity measures like the across-the-board automatic federal budget cuts in the United States, the statement suggested most governments see recovery as too weak to risk reducing spending on unemployment benefits, job training, education and other public sector outlays.

Not even Germany objected to the new wording, said a senior Treasury Department official who attended the two days of meetings in Moscow.

“The debate between growth and austerity seems to have come to an end,” the official said.

The benefits of the American pro-growth fiscal policies tapered only after the automatic cuts known as sequestration kicked in earlier this year. The efforts of the G-20 to coordinate economic policy are intended to help the world recover from the recession that began in 2007.

The officials also discussed strategies for ending central bank monetary stimulus, like the bond-buying program known as quantitative easing in the United States, without causing turmoil on financial markets.

Anton Siluanov, the finance minister of Russia, which is hosting the meeting, spoke in a final news conference about the tremor that American monetary policy is sending through emerging markets like Russia.

A suggestion last month by Ben S. Bernanke, the chairman of the Federal Reserve, that the United States economy may recover sufficiently this year to wind down the bond-buying program caused a sell-off in emerging market bonds.

With United States Treasury rates rising in response to Mr. Bernanke’s comment, investors no longer saw the benefit of taking the extra risk of putting money in government bonds issued by wobbly emerging markets like Russia.

“We had an experience where just a comment that quantitative easing could end wound up seriously affecting developing economies,” Mr. Siluanov told journalists.

The joint statement sets the stage for a G-20 summit meeting in St. Petersburg in September. It suggested that leaders including President Obama would similarly play down concerns about deficits in light of continued weakness in the global economy during an uneven recovery: demand remains weak in China and Europe while growth in the United States is anemic.

The officials discussed efforts to stimulate demand in China. Beijing has removed a floor on interest rates banks can charge, which could lower rates and encourage business activity and spending.

Toyota Will Pay $1.6 Billion Over Faulty Accelerator Suit

2013-07-21T21:10:00.000-04:00

Owners who sold their vehicles at a loss through trade-ins and resale will receive from $125 to $10,000, depending on the level of depreciation. The settlement represents the end of the economic battle between Toyota and customers after several years of allegations of mechanical and electronic defects, though it does not cover individual personal-injury and wrongful death lawsuits that are still pending.

“This agreement allows us to resolve a legacy legal issue in a way that provides significant value to our customers and demonstrates that they can depend on Toyota to stand behind our vehicles,” said Celeste Migliore, National Business and Field Communications manager for Toyota Motor Sales, U.S.A., Inc. The automaker will take a one-time $1.1 billion charge to its earnings cover the settlement costs.

James V. Selna, United States District Court judge of the Central District of California, who presided over the suit since 2010 after widespread reports of complaints and accidents related to unintended acceleration, granted final approval after the terms were proposed in December.

The settlement is “extraordinary because every single dollar in the cash fund will go to claimants,” Judge Selna said in a statement. A decision posted to the court’s Web site calls the settlement “fair, adequate and reasonable.”

Toyota is required as part of the agreement to install safety upgrades in about 3.2 million of its vehicles. The automaker is to establish two funds of $250 million to compensate owners not eligible for safety upgrades and those who sold their cars between Sept. 1, 2009, and Dec. 31, 2010, at a loss.

The settlement also requires Toyota to pay $30 million for automotive safety research on driver behavior and unintended acceleration. It would also provide a customer support program for more than 16 million current Toyota owners, who will be eligible for free repairs on certain parts for up to 10 years.

The sudden acceleration problems marred Toyota’s reputation for quality. The automaker eventually recalled more than 11 million vehicles in connection with problems including floor mats that caused the accelerator to get stuck.

Steve Berman, who represented the plaintiffs in the class-action suit, called the settlement “a significant financial recovery.”

“This is a great settlement for consumers,” he said in a statement. “It includes both safety fixes to make Toyota vehicles safer as well as monetary relief for owners who saw a reduction in their vehicle’s value.”

Letters: Incentives for Homeowners (and Protection for Renters)

2013-07-21T20:31:00.000-04:00

Incentives for Homeowners (And Protections for Renters)

To the Editor:

In “Owning a Home Isn’t Always a Virtue” (Economic View, July 14), Robert J. Shiller looked to Switzerland’s relatively low homeownership rate to make the case that the United States should rethink policies that promote owning a home — and should strengthen laws related to renting.

There is a better, closer-to-home example of a place with relatively favorable landlord-tenant rules: New York City. Many of its rental units are covered by rent controls, and many tenants have strong protections against rent gouging and eviction. By contrast, renters in many other cities are at the mercy of landlords who may wish to take advantage of a strengthening market to force them out through a large rent increase or a refusal to renew a lease.

Professor Shiller lauds the flexibility that renting provides families, allowing them to relocate easily for better jobs. But for tenants facing a rent increase or worse in many American communities, good commutes to work can be lost, advantageous child care or schooling options can be disrupted, or a social support network can be upended — all at a landlord’s whim.

I agree with Professor Shiller that we need to review our landlord-tenant law to help families plan their futures.

RAY BRESCIA

Albany, July 15

The writer is an associate professor of law at Albany Law School.

•

To the Editor:

Professor Shiller asks: “In today’s world, is it wise for the government to subsidize homeownership?” Two prominent Americans of vastly different political views apparently have an answer for him.

The first said: “A nation of homeowners, of people who own a real share in their own land, is unconquerable.”

The second said that “an ownership society” is being created in our country, “where more Americans than ever will be able to open up their door where they live and say, ‘Welcome to my house, welcome to my piece of property.’ ”

Who are these two Americans? The first was Franklin D. Roosevelt, and the second was George W. Bush.

RICHARD S. COLMAN

Orinda, Calif., July 15

Letters for Sunday Business may be sent to sunbiz@nytimes.com.

News: Ancient Tunnels, Ghost Responds, Humanoid Update

2013-07-21T19:53:00.000-04:00

Paranormal news and views for June 15, 2013:

Ancient underground network discovered from Scotland to TurkeyMichael Jackson's ghost is paranormal witnessUFO with S-shaped fin photographed over Netherlands castleVideo: Ghost responds to man's requestMan claims he spotted Florida's elusive Skunk ApeGeneticist gives update on the "Atacama humanoid"Lights, camera, action in haunted homeNever mind the NSA: Uri Geller psychic spy storyThe day Portmeirion staff discovered a ghostShould psychics be allowed to help police?

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The Demon's Breath

2013-07-21T18:48:00.000-04:00

It's my birthday today, so I thought it fitting to tell the story of my most significant experience with the unexplained. It began on a warm summer night... then I began to hear breathing from the corner... Read more.

News: Prison Ghost Picture, UFO Collision, Wedding a Ghost

2013-07-21T17:44:00.000-04:00

Paranormal news and views for June 11, 2013:

Images of ghostly "spirits" from historical witch's prisonChinese aircraft collides with "unknown object"1900 report: Girl weds a ghostWoman claims her Long Island house is hauntedThree deaths:?Haunted hotel or toxic deathtrap?Ohio man calls police after alien encounterErasing the fear of paranormalParanormal activity at Gloucester Folk MuseumMysterious glitter stumps Indiana officialsMystery boom heard in West Seattle neighborhoods

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Economic View: Wealth Taxes: A Future Battleground

2013-07-21T17:03:00.000-04:00

The mathematical reality is that wealth is becoming more important, relative to income. In a new paper, “Capital Is Back: Wealth-Income Ratios in Rich Countries 1700-2010,” Professors Thomas Piketty and Gabriel Zucman of the Paris School of Economics have performed the heroic task of measuring wealth for eight leading economies: the United States, Canada, Britain, France, Italy, Germany, Japan and Australia.

Their estimates reveal some striking trends. For instance, wealth accumulation in these eight countries has risen relative to yearly production. Wealth-to-income ratios in these nations climbed from a range of 200 to 300 percent in 1970 to a range of 400 to 600 percent in 2010. Behind the changing ratios is some bad news, namely that slow productivity growth and slow population growth have depressed income growth, but also some good news — that relative peace and capital gains have preserved wealth.

Focusing on the wealth of economies lets us reframe our recent debates about government debt in useful ways. A look at the ratio of debt to gross national product, for example, can be scary, but the ratio of debt to wealth is far less forbidding. If, say, a nation’s debt-to-G.D.P. ratio is 100 percent — often considered a dangerous level — and national wealth is 10 times yearly national income, the debt-to-wealth ratio is thus 10 percent, which is comparable to owing $100,000 on a $1 million home. Not so scary.

Using the wealth numbers provided by Professors Piketty and Zucman, we can understand how Japan, despite a debt-to-G.D.P. ratio of more than 200 percent, can maintain low interest rates; Japan has a wealth-to-income ratio of about 600 percent. In essence, creditors think the Japanese political system will be able to drum up enough support for the requisite taxes, pulled out of national wealth if necessary, when the time comes.

But don’t relax too quickly, because fiscal problems remain very real for many countries. While virtually every government could pay off its debts by taxing wealth, such taxes are often politically unacceptable. In other words, fiscal problems are best regarded as problems of dysfunctional governance. In the recent elections in Italy, the incumbent government lost voter support partly because it addressed the nation’s revenue problems by levying a wealth tax on real estate; the policy remains contentious and may yet be repealed or limited.

And here is a related issue: If there is enough national wealth to pay off debts, it may be harder to arrange bailouts from outside.

In the European Union, countries like Germany may regard the union’s more troubled nations as shirking their fiscal duties, and that makes cooperation harder to achieve. Italy, for instance, is in a fiscal crisis, but it also has an especially high wealth-to-income ratio, at 650 percent, indicating that it could pay off its debt if more of that wealth were taxed. Germany, by contrast, has a much lower wealth-to-income ratio: 400 percent. And though the professors caution that the German data, in particular, may be incomplete, the figures do lend support or at least plausibility to the recent argument that Germany shouldn’t be viewed as the rich uncle of Europe.

Some forms of wealth taxation take hidden forms, such as financial repression. This occurs when a nation’s citizens are required to hold deposits in banks under unfavorable terms — meaning at low interest rates. The banks, in turn, may be required to buy government debt to help finance a budget deficit. For better or worse, this is likely part of a longer-run resolution of fiscal problems in the periphery of the euro zone.

In the United States, wealth taxes are currently limited to a few levies, such as property taxes and inheritance taxes. Capital gains taxes that aren’t indexed to inflation also serve as an implicit wealth tax, because they dig into the body of a person’s capital. Most likely those rates will rise. Like the bank robber Willie Sutton, revenue-hungry governments go “where the money is.”

The coming battles over wealth taxation may prove especially bitter and polarizing. Most wealth has already been subjected to income and other taxes, perhaps multiple times. It doesn’t seem fair to the holders of that wealth to suddenly pay additional taxes on assets that they thought were in the clear, and such taxes would signal that previous policy has failed.

Higher wealth in a nation means that there is more to take, and growing inequality means there are more problems that its government might seek to remedy. At the same time, however, this new economic configuration will mean greater political influence for the holders of that wealth, and that will make higher wealth taxes harder to achieve.

Historically, economists — including me — have generally favored taxes on consumption, on the grounds that they would do the least damage to long-term savings, investment and economic growth. Yet in some eyes, rising wealth will become a tempting target for short-term political gain. And note that while most Republicans currently oppose consumption taxes, they may dislike the relevant alternative, namely wealth taxes, even more.

Get ready to choose a side.

Tyler Cowen is a professor of economics at George Mason University.

Fair Game: Trying to Pierce a Wall Street Fog

2013-07-21T16:10:00.000-04:00

Not much has come out on the case since then, leading some participants in the market to wonder whether this is yet another matter the Justice Department has let slide. A Justice Department spokesman said its investigation was continuing.

Thankfully, though, we may yet learn what actually went on behind the scenes in this trillion-dollar market. Investigators for European regulators are hot on the trail and a handful of pension funds have recently filed two suits against the big banks dominating the swaps arena. These investors contend that they overpaid when they bought and sold the instruments — to the tune of billions each year — because of the banks’ control of the market.

On July 1, the antitrust division of the European Commission announced that its investigators had come to a “preliminary conclusion” that the banks and two entities controlled by them had infringed European antitrust rules. These entities colluded, the commission said, “to prevent exchanges from entering the credit derivatives business between 2006 and 2009.”

Credit default swaps were at the center of the financial crisis. These instruments allow holders of bonds or other debt to hedge their risks in those positions. But the swaps also let speculators bet on a debt issuer’s default. The swaps almost felled the American International Group, the insurance giant, and were embedded in some of the stinkiest mortgage securities ever wrought.

But the market for these swaps has been conducted in the shadows. Trades were made over-the-counter — between private parties and not on an exchange. This meant that participants’ positions were not disclosed to regulators.

Wall Street likes the fog of over-the-counter markets because the profits generated by executing customers’ trades in them are far greater than in more transparent arenas. Think of the way you might shop for a mortgage: if mortgage rates were not publicly available, it would be hard to know whether the rate one banker offered was competitive. Customers that dealt with only one banker on their credit default swaps almost certainly did not get the best prices.

The 13 banks under the microscope on credit default swaps include Bank of America Merrill Lynch, Goldman Sachs, JPMorgan Chase, Morgan Stanley and UBS. Two associated entities controlled by the big banks are also being scrutinized — the International Swaps and Derivatives Association, a lobbying organization, and Markit, a data service provider.

A spokeswoman for the European Commission declined to comment beyond the July 1 announcement of its preliminary conclusions. Now the banks can make their arguments to the commission. If the officials are not persuaded and find enough evidence of antitrust infringements by any of the entities, the commission said, it can impose a fine of up to 10 percent of a bank’s revenue.

The commission began its investigation in April 2011, two years after the Justice Department’s. The European inquiry focused on activities from 2006 to 2009 when two exchanges, the Deutsche Börse and the Chicago Mercantile Exchange, were trying to enter the credit derivatives business.

Both exchanges sought licenses and data from I.S.D.A. and Markit to begin trading futures contracts based on credit default swaps, the commission said. But it said that the banks that control both entities refused to provide licenses for exchange trading, and that several banks tried to shut out the exchanges by choosing another clearing house for trades, ICE Clear Europe, which they owned.

These activities may have delayed the development of exchange trading in these derivatives, the commission said. Investors’ costs are much higher in over-the-counter markets where spreads are wide between the prices they must pay to buy and sell. Trading on an exchange narrows those spreads. According to a 2012 study by Deloitte, for example, spreads between bids and offers on dividend swaps declined by 75 percent after they began trading on the Eurex exchange in 2008.

“There was no question the banks did not want the C.M.E. to make the market more liquid and transparent,” said one person briefed on the banks’ internal discussions who asked for anonymity because he was not authorized to speak publicly. “This was their cash cow, and they didn’t want to give it up.”

None of the banks would comment on either Europe’s investigation or on the recent lawsuits. Steven Kennedy, a spokesman for I.S.D.A., said it was cooperating with the commission. “I.S.D.A. is confident that it has acted properly at all times and has not infringed E.U. competition rules,” he added. He also said the allegations in the lawsuits were meritless.

A spokesman for the Markit Group did not return a phone call seeking comment.

The banks have pushed to keep the market for credit default swaps in the dark. Three years ago, the Dodd-Frank legislation aimed to bring more competition by pushing trading onto exchanges and swap execution facilities. Wall Street tried to beat back regulators’ efforts to write tough rules after the legislation’s lead. They won some and they lost some. For instance, dealers now have to report swap transactions to regulators.

There was a reason for the banks’ pushback: money. The Deloitte study cited a 2010 analysis by Citigroup showing that the big banks’ trading in over-the-counter derivatives generated revenue of $55 billion, or 37 percent of the total at these institutions. Such profits will fall as more swaps trade on swap execution facilities under the new rules.

THE pension fund of the Sheet Metal Workers Local 33 of Cleveland is among the investors who filed the lawsuits against the banks, I.S.D.A. and Markit.

“The antitrust laws are the Magna Carta of free enterprise,” said Christopher M. Burke, a lawyer at Scott & Scott in San Diego who represents the pension fund. “When you have markets that are not competitive, opaque and where market players don’t have access to the same information, the markets are not functioning in a competitive fashion. Those that have the information can take advantage of that fact and extract anticompetitive leverage over those that lack the information.”

Mr. Burke pointed out that a private lawsuit, like the pension fund’s, is one way to shed light on anticompetitive behavior. Another is government action. European antitrust laws, unlike those in the United States, allow authorities to pursue remedies for past behavior. That’s a powerful tool for pulling back the curtain on investor-unfriendly practices.

The Haunted Box - A Follow-Up

2013-07-21T15:08:00.000-04:00

Follow-up information from Gabriella about "The Haunted Box":

My nan on my dad's side is Romanian, so I've told her everything that has been happening. She's the classic "the devil is everywhere" woman. She used to live in Romania until a few years ago and always has some weird cure for something or the other. I went to her house today, and just over a cup of tea explained that I feel something is in the flat. Adam feels it too and that it's ruined my dreams of living somewhere and enjoying it just on our own. My nan was quiet for the whole time of me talking to her and then closed her eyes for a while and then said, "I feel as this entity is bound to the hair...." Read the rest of Gabriella's follow-up.

DealBook: Under New Chief, a Feistier S.E.C. Emerges

2013-07-21T14:45:00.000-04:00

Chip Somodevilla/Getty ImagesMary Jo White, chairwoman of the Securities and Exchange Commission.

First the Securities and Exchange Commission rejected a settlement with a high-flying hedge fund manager, Philip A. Falcone. Then it charged another billionaire trader, Steven A. Cohen. By late Friday afternoon, it had accused one of the nation’s largest cities, Miami, of securities fraud.

It was a busy 24 hours for the S.E.C., the federal regulator once blamed for missing the warning signs of the financial crisis and the vast Ponzi scheme orchestrated by Bernard L. Madoff.

The flurry of moves appeared to signal that the agency was striking a harder line with Wall Street under its new chairwoman, Mary Jo White. While it is still early in her tenure, and the agency faces lingering criticism for its close ties to Wall Street, Ms. White has taken several steps to crack down on financial fraud.

“They’re now demonstrating an aggressiveness that is highly unusual,” said Thomas A. Sporkin, who spent nearly 20 years in the S.E.C’s enforcement unit until last year, when he moved to the law firm Buckley Sandler. “It’s rare to see a day like today.”

When Ms. White was nominated in January, some politicians and consumer groups expressed concerns about her connections to Wall Street. A former federal prosecutor turned defense lawyer, Ms. White has repeatedly spun through the revolving door connecting government and private practice. During her confirmation, several questioned whether Ms. White, who spent the last decade representing big banks like JPMorgan Chase and UBS, could have conflicts of interest.

Her recent actions have started to assuage some concerns. Already, Ms. White has moved to address a central criticism of the agency: that it allows defendants to neither “admit nor deny” wrongdoing when reaching settlements. The leaders of the S.E.C. enforcement unit detailed the policy shift in a memo last month, saying there might be cases that “justify requiring the defendant’s admission of allegations in our complaint or other acknowledgment of the alleged misconduct as part of any settlement.”

“It’s welcome news for the American people desperate for a tougher S.E.C.,” said Dennis M. Kelleher, who runs Better Markets, an advocacy group critical of Wall Street. He said, however, that the agency still had a high bar to prove it could be a tough enforcer. “Two hedge fund cases are good, but not good enough,” he said.

Steve Marcus/ReutersThe S.E.C. rejected a settlement in its civil lawsuit against Philip A. Falcone, chief executive of Harbinger Capital Partners.

A preliminary settlement with Mr. Falcone had been collapsing for weeks, people close to the S.E.C. said, as Ms. White and the agency’s other commissioners questioned whether it was too lax. On Thursday, the agency’s commissioners rejected the settlement, a rare move that happens only once or twice a year.

Moments later, the S.E.C. notified Mr. Falcone and his hedge fund, Harbinger Capital Partners, that the agency had rejected “the previously disclosed agreement in principle,” according to a public filing his company made on Friday. The charges stemmed from accusations that Mr. Falcone had manipulated the market, used hedge fund assets to pay his own taxes and secretly favored select customers at the expense of others.

The S.E.C.’s rejection of the settlement — a move that will prompt the agency to either negotiate a tougher penalty or take Mr. Falcone to trial — suggested that its preliminary deal did not match the gravity of the crime. The deal, announced in May by Mr. Falcone, came with an $18 million penalty from the S.E.C., a rounding error to a hedge fund billionaire. Mr. Falcone was set to personally pay $4 million of the penalty, according to people briefed on the matter, while the fund’s management company would have paid the rest.

While the deal also included at least a two-year ban from raising new capital, that punishment came with a number of caveats. And in a moral victory for Mr. Falcone, the deal also omitted a common provision barring defendants from committing future violations with fraudulent intent, raising concerns that the S.E.C.’s results fell short of its ambitions.

For a time, the S.E.C. was questioning whether to sanction Mr. Cohen. The agency spent nearly a decade investigating his hedge fund, SAC Capital Advisors, and even brought charges against several employees. But Mr. Cohen was not accused of wrongdoing. That changed on Friday, when the S.E.C. accused him of “failing to supervise” employees.

The action, filed as an administrative proceeding at the agency rather than as a lawsuit in federal court, delivers a serious blow to Mr. Cohen. The agency is seeking to bar him from overseeing outside investor funds, a death knell to a hedge fund manager.

It is unusual for the S.E.C. to pursue a case against someone of Mr. Cohen’s stature without formally accusing him of insider trading or fraud. The charge of failing to properly supervise is similar to what other regulators have done in a lawsuit against Jon S. Corzine, who led MF Global during the brokerage firm’s collapse two years ago.

In its charging document on Friday, the S.E.C. says Mr. Cohen failed to halt two of his portfolio managers from trading on confidential information. The two SAC employees, who both face criminal charges, were swept up in a broad federal investigation into insider trading.

One of the portfolio managers, Mathew Martoma, is accused of improperly acting on data about a clinical drug trial in 2008. The other, Michael S. Steinberg, is accused of trading on confidential information about Dell’s financial performance that same year.

Both men have denied the charges and face separate trials that begin in November. An SAC spokesman said that the S.E.C.’s action had no merit. “Steve Cohen acted appropriately at all times and will fight this charge vigorously,” the spokesman said.

The case against Miami came just hours after the action against Mr. Cohen was announced. The S.E.C. accused the city of giving misleading information about its finances to investors in 2009 in an effort to make its municipal bonds more attractive.

The agency also said the city broke a cease-and-desist order it signed in 2003 after facing similar charges. George Canellos, co-director of the S.E.C.’s enforcement unit, said in a statement that the city’s conduct was “all the more appalling and unacceptable” because of the earlier problems.

A lawyer for Miami, Ivan Harris, said the city would fight the charges in court.

Washington Push for Higher Minimum Wage for Workers Has Walmart Balking

2013-07-21T13:31:00.000-04:00

Mayor Vincent C. Gray, who worked hard to lure Walmart, finds himself caught in the middle, and many residents sound less than grateful to lawmakers.

“Those big people in government, they don’t understand my situation,” said Fred Reaves, 45, who is unemployed and said he would gladly take a job at the current city minimum, $8.25.

“Eight-something, it’ll motivate you to start going to work,” Mr. Reaves said as he stood around the Skyland Town Center, a patch of barren asphalt and shuttered stores where Walmart planned to build. “You can start paying some bills. It will help you to come off public assistance.”

On July 10, the City Council passed a “living wage” measure that would require Walmart to pay at least $12.50 an hour, saying it was fighting to protect struggling residents in what has become a high-cost city.

Supporters of the measure say that Walmart, whose revenues in 2012 were $469 billion, can well afford to pay workers more.

“Their net income was $17 billion,” said Vincent Orange, a city councilman who voted for the ordinance. “You don’t want to share a little bit with the citizens? Come on.”

A decade ago, the city gave tax breaks to lure retailers, Mr. Orange said, but now it is booming and can negotiate from strength.

The day before the City Council passed the measure, a Walmart official warned in an op-ed article in The Washington Post that if required to pay $12.50 an hour, the company would cancel three planned stores and consider withdrawing from three projects already under construction.

The next move is up to Mayor Gray, who is weighing a veto.

Officially the mayor has taken no position, but he is widely seen as opposed to the measure. The Council has delayed formally sending it to his desk for action. The measure, called the Large Retailer Accountability Act, would require stores of at least 75,000 square feet that are owned by companies with $1 billion or more in annual revenue to pay the higher minimum wage. Because existing stores and those with unions are exempt, it is seen as squarely aimed at Walmart.

As Walmart, the world’s largest retailer, has sought inroads in major cities, it has faced resistance from local merchants, who fear being undercut, and from officials who say minimum-wage jobs mire workers in poverty.

Democrats on the House of Representatives work force committee produced a report this spring contending that the government subsidizes Walmart because employees earn so little that they qualify for Medicaid, food stamps and housing assistance.

Pedro Ribeiro, a spokesman for Mayor Gray, argued the opposite: minimum-wage jobs help the chronically unemployed take a first step into the work force.

“Yes, Walmart jobs are not great,” Mr. Ribeiro said. “But for some people, it will be their first employment and they’re not qualified to do anything else. We need that entry-level benchmark in the District.”

Washington is experiencing an economic revival, with population growth on a par with Sun Belt cities. But the benefits are not spread evenly. East of the Anacostia River in Ward 7, where two of the Walmart stores, including the Skyland site, are planned, unemployment is 13.9 percent. In nearby Ward 8, it is 20 percent.

Victor L. Hoskins, the deputy mayor for development, said Walmart’s threat to cancel projects if the measure took effect was no bluff. He calculated that 4,000 retail and construction jobs were at stake from three of the projects.

“The question is not $8.25 versus $12.50,” Mr. Hoskins said. “The question is $8.25 versus zero. It’s called no jobs.”

Opposite the Skyland site, on Good Hope Road, Carl Williams, 49, a barber at the Like That salon, whose dozen barbers were bustling on Thursday afternoon, had mixed feelings. He thought $12.50 was a fair starting wage. But he said he would not hesitate to encourage his two daughters to take a job at Walmart for $8.25.

“One who is 21 needs a job real bad,” he said. “She had a baby real young and didn’t finish high school.”

At a nearby Shoe City, the assistant manager acknowledged that Walmart might undercut her prices. But the giant retailer would also increase foot traffic in the neighborhood, which could benefit Shoe City, the manager, Shasherri Hindman, said.

Ms. Hindman, 25, said she started at minimum wage five years ago and worked her way up. “What’s wrong with $8.25?” she said. “I’m totally on Walmart’s side.”

Willie Ford, 39, a carpenter, scoffed at the notion that Walmart could not afford to pay $12.50. “Come on, they’re going to make beaucoup money from this area,” he said. At the same time, he acknowledged that many people in the neighborhood would gladly take a job at $8.25. “Like a newborn baby, you’ve got to crawl before you walk,” he said.

Reader Report: More Unexplained Breathing

2013-07-21T12:34:00.000-04:00

"I, too, had the 'breathing' experience," reports Brenda in response to my Breathing Demon story. "I rented an old house, around 100 years old, but I just fell in love with it. One night, after I got off the phone with my boyfriend, the breathing started. Inhale...exhale --just as you described. Only it was really loud, and sounded like it was coming from everywhere around me. I never could pinpoint the source. I ended up cowering on the bathroom floor until it stopped. It seemed to go on forever, but in actuality, was probably only a few minutes.

"A few months later on, it did it again. This time it didn't last quite as long as the first time. It was a really strange and scary event. Only one more thing happened that I couldn't explain. One morning, just as it was beginning to get daylight, I heard someone digging with a shovel right outside my living room window. I opened the door to ask my landlord what he was doing digging so early in the morning. The sound immediately stopped, and there was no one out there. Some things you just can't explain, right?"

Right, Brenda. Here's more mysterious breathing:

News: Irish Ghost, Dead Yowie, Invisibility Cloak

2013-07-21T11:49:00.000-04:00

Paranormal news and views for June 8, 2013:

Ireland's most famous ghost: The White Lady of KinsalePicture of?a dead Yowie?Case notes for The Haxby EntityPilots of three passenger planes see two UFOsElk abducted in front of 14 witnessesInvisibility "time cloak" developedShould psychics be allowed to help police?Man kills daughter; he believed demon possessed herPodcasts: Black-eyed kids; Alien Abductions; Haunted objects

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