Economic Calendar

Saturday, December 24, 2011

AT&T’s $1.93 Billion Qualcomm Airwaves Purchase Wins Regulatory Approval

By Eric Engleman and Chris Strohm - Dec 24, 2011 12:59 AM GMT+0700

AT&T Inc. (T), the largest U.S. phone company, won approval from federal regulators for its $1.93 billion purchase of Qualcomm Inc. (QCOM) airwaves three days after dropping its plan to buy T-Mobile USA Inc.

The sale of frequencies covering 300 million people was cleared yesterday, the Federal Communications Commission said in an order published on its website. AT&T can’t use the airwaves in a way that interferes with other wireless carriers, the agency said.

Given the conditions imposed, the proposed deal “would not result in competitive harm that would outweigh the public- interest benefits of this transaction,” the FCC said in the order. The agency said the deal would support “our goal of expanding mobile broadband deployment throughout the country.”

FCC Chairman Julius Genachowski recommended on Nov. 22 that fellow commissioners approve the airwaves sale. On the same day, he moved to oppose AT&T’s proposed merger with smaller wireless competitor T-Mobile. AT&T abandoned on Dec. 19 the T-Mobile purchase designed to increase its airwaves holdings.

AT&T, based in Dallas, and Qualcomm, based in San Diego, viewed the deal as a win.

“This spectrum will help AT&T continue to deliver a world- class mobile broadband experience to our customers,” Bob Quinn, AT&T’s senior vice president for federal regulatory affairs, said in a statement late yesterday.

Video, Games

AT&T plans to use the new spectrum to help increase speed of mobile devices as users demand more bandwidth, especially for video and games.

Qualcomm said in a statement today that it plans to work with AT&T to develop chips for new mobile devices that can make use of the additional spectrum, and then market that technology globally.

“This is a positive outcome for Qualcomm and our stakeholders,” Paul Jacobs, chairman and chief executive officer of Qualcomm, said.

The FCC said in its order approving the sale that AT&T customers will experience faster and better service.

“The record suggests that customers are likely to experience these benefits as faster and more consistent download time, a more seamless video or gaming experience, and better resolution, particularly during periods of peak use,” the FCC stated.

Competitive Disadvantage

The FCC’s decision disappointed the Rural Cellular Association because it doesn’t allow smaller wireless carriers access to the spectrum, placing them at a competitive disadvantage, Steven Berry, president of the association, said in an interview today.

The Washington-based group represents small and regional carriers, including U.S. Cellular Corp. and Atlantic Tele- Network Inc.

“When the FCC had an opportunity to ensure that we had a competitive ecosystem going forward … they missed the boat,” Berry said. “Every day that our smaller carriers can’t get into the marketplace in the 4G world, is another day they risk going out of business.”

Rural phone companies asked the FCC to use the Qualcomm deal to ensure their customers can use AT&T airwaves.

Customers’ data connections may not work when they travel away from home when their phones can’t operate on airwaves assigned to dominant wireless carriers AT&T and Verizon Wireless, Berry said.

‘Critical’ Purchase

AT&T agreed in December 2010 to the purchase of the frequencies, which Qualcomm acquired for a mobile-television service it later closed. The Justice Department ended its review of the Qualcomm sale in February, the chipmaker said in a Nov. 23 filing.

Buying the spectrum “is critical” to help AT&T meet burgeoning demand for wireless Internet service as consumers increasingly adopt tablet computers and smartphones, AT&T and Qualcomm said in a March 21 FCC filing. The airwaves purchase won’t harm competition, the companies said in the filing.

AT&T “doesn’t need this spectrum to improve its own offerings,” said Matt Wood, policy director of Florence, Massachusetts-based Free Press, a nonprofit group dedicated to promoting media diversity. “AT&T can and should upgrade its own networks to provide better service to customers.”

The sales agreement with AT&T was set to expire Jan. 13, with either party able to extend it for 90 days, Qualcomm said in a Nov. 2 filing.

To contact the reporters on this story: Eric Engleman in Washington at; Chris Strohm in Washington at

To contact the editor responsible for this story: Steve Walsh at


Former Galleon Manager Swartz to Start Technology Hedge Fund for Fortress

By Sabrina Willmer - Dec 24, 2011 12:54 AM GMT+0700

Peter Swartz, a former Galleon Group LLC portfolio manager, is starting a new technology hedge fund for Fortress Investment Group LLC.

Swartz will be chief investment officer of the Fortress TMT Fund, which will make bets on technology, media and telecommunications stocks, according to a December investor presentation, a copy of which was obtained by Bloomberg News. Former Galleon colleagues Michael Levine and Murali Abburi will join him on the fund as equity analysts.

The new fund will invest as much as 50 percent of its assets in U.S. companies, with the rest allocated to Europe, China, Taiwan, Korea and Japan, according to the presentation, which didn’t include a fundraising target. The fund expects to take about 25 long and short positions, wagering on both rising and falling prices.

Gordon Runte, a spokesman for New York-based Fortress, declined to comment. The publicly traded firm has $43.6 billion in assets under management, including hedge funds, private equity and other investments.

Swartz has been a senior portfolio manager for the Fortress Asia Macro Fund since March. He was hired in 2010 as a managing director and equity analyst covering technology, media and telecom for the Fortress Macro Fund. The Fortress Asia Macro lost a net 1.2 percent since March, according to the presentation.

Levine and Abburi, who will be managing directors of the fund, were hired by Fortress in March 2010, according to the presentation.

CEO Takes Leave

Fortress Chief Executive Officer Daniel Mudd this week took a leave of absence following a lawsuit by the U.S. Securities and Exchange Commission over his role as the former head of Fannie Mae. He was replaced on an interim basis by Randal A. Nardone, the company’s co-founder.

Galleon was the target of a nine-year investigation by U.S. officials, culminating in the May conviction of co-founder Raj Rajaratnam on insider-trading charges. Rajaratnam, 54, this month began serving an 11-year sentence at a federal prison in Massachusetts.

To contact the reporter on this story: Sabrina Willmer in New York at

To contact the editor responsible for this story: Christian Baumgaertel at


France Telecom to Sell Orange Switzerland Unit to Apax for $2.1 Billion

By Matthew Campbell and Aaron Kirchfeld - Dec 24, 2011 7:39 AM GMT+0700

France Telecom SA (FTE) agreed to sell its Swiss mobile-phone unit to Apax Partners LLP for 1.6 billion euros ($2.1 billion).

The deal is subject to approval by Swiss authorities and will be submitted to France Telecom’s board the week of Jan. 9, according to a statement. Apax, the London-based buyout firm, beat out bids from EQT Partners AB, Providence Equity Partners Inc. and French telecommunications billionaire Xavier Niel, two people with knowledge of the situation said yesterday.

France Telecom is shedding assets in Europe, where multiple phone companies are vying for a shrinking pool of new customers, to embrace faster-growing markets in Africa and the Middle East. The Paris-based mobile operator, France’s largest, is also in talks to sell its Orange Austria unit to Hong Kong-based Hutchison Whampoa Ltd. (13), people familiar with the situation said in October, and is planning to exit Portugal.

“It makes sense to exit the difficult Swiss market and may give them more flexibility on the cash-flow side,” said Giovanni Montalti, a London-based analyst at Credit Agricole Cheuvreux, who rates the stock “underperform.”

Perella Weinberg Partners LP and Lazard Ltd. (LAZ) are advising France Telecom on the Swiss sale. Officials at EQT and Providence couldn’t be reached for comment yesterday by telephone.

Apax’s History

Apax, run by Martin Halusa, has participated in more than 20 deals this year, including last month’s purchase of U.S. wound-treatment company Kinetic Concepts Inc., its largest in 2011, according to Bloomberg data. The firm has amassed about half the 9 billion euros it’s seeking for its latest fund, three people with knowledge of the plans said this month.

The decision by France Telecom to pursue a sale of the Swiss unit to Apax follows last year’s bid to merge the business with rival Sunrise, a deal rejected by regulators. Sunrise’s owner, CVC Capital Partners, was earlier excluded from the sale process for Orange Suisse, although the firm discussed assisting Providence with arranging financing in the hopes of attempting another merger, according to people with knowledge of the talks.

A combination of Orange Switzerland with Sunrise would leave the country of about 8 million residents with two mobile operators: the merged entity and Swisscom AG, the former Swiss phone monopoly. By comparison, the U.K., Germany and Italy all have four full-service mobile-network providers.

Orange Suisse

Orange Switzerland, founded in 1999, had revenue last year of 1.3 billion Swiss francs ($1.39 billion). The company, which employs about 1,200, had a customer base of 1.6 million at the end of September, according to the statement.

The value of the deal is 6.5 times Orange Switzerland’s estimated 2011 earnings before interest, taxes, depreciation and amortization, France Telecom said in the statement. That compares with a median Ebitda multiple of 5.6 paid for Western European telecommunications assets in the last 3 years, according to Bloomberg data.

France Telecom rose 0.8 percent to 11.97 euros in Paris trading yesterday. The shares have sunk 23 percent this year, valuing the company at about 32 billion euros.

The French phone company, led by Chief Executive Officer Stephane Richard, said Oct. 27 that third-quarter profit fell 6.2 percent as a revenue decline at home overshadowed growth in Spain and some African countries. The company said then that full-year operating cash flow will be “slightly” more than 9 billion euros, compared with a previous forecast of that amount.

Almost half the mobile operator’s 45.5 billion euros in sales last year came from France. In October, France Telecom agreed to acquire Congolese mobile operator Congo-China Telecom, entering its third new country in about a year.

To contact the reporters on this story: Matthew Campbell in Paris at; Aaron Kirchfeld in Frankfurt at

To contact the editor responsible for this story: Jacqueline Simmons at


SandRidge May Sell 500,000 More Acres Worth $1.83 Billion

By Jim Polson - Dec 24, 2011 4:31 AM GMT+0700

SandRidge Energy Inc. (SD), which said yesterday it would sell a stake in a Kansas and Oklahoma oil and natural-gas prospect to Repsol YPF SA (REP), is seeking to divest another 500,000 acres that may be worth $1.83 billion.

Holdings in the Mississippian deposit may be put in a royalty trust or sold to a joint-venture partner, Tom Ward, chairman and chief executive officer of the Oklahoma City-based company, said during a conference call today.

The company has gotten about $1.83 billion from selling 500,000 net acres in the Mississippian, Ward said. That includes 364,000 net acres that Madrid-based Repsol agreed to buy for $250 million in cash and another $750 million in drilling costs.

The Mississippian prospect covers 17 million acres in Kansas and Oklahoma. SandRidge has 195 horizontal wells in the area, 92 percent of the industry’s total, according to a company presentation. It estimates wells that use the sideways-boring technique will yield 300,000 barrels to 500,000 barrels of oil and gas.

SandRidge spent about $350 million for drilling rights on 2 million acres in the area during the last two years. It now holds 1.5 million acres in the formation and is done buying leases in the area, Ward said.

“We’d feel most comfortable with owning closer to 1 million acres,” he said. The company will double production, triple earnings before taxes, depreciation and amortization and reduce debt in three years by selling assets, he said.

Ram, Chesapeake

Earlier this year, SandRidge raised $338.7 million selling stakes in a royalty trust and sold Mississippian acreage stakes to an affiliate of Seoul-based Atinum Partners Co. for $250 million in cash and $250 million in drilling costs.

SandRidge rose 4.4 percent to $8.57 at the close in New York, after gaining 23 percent yesterday when the Repsol agreement was announced.

Ram Energy Resources Inc., another holder of Mississippian leases, rose 23 percent to $2.47, the highest price in more than three years. It has more than doubled in two days after announcing a $550 million cash injection from an investor group led by former Petrohawk Energy Corp. CEO Floyd C. Wilson.

Chesapeake Energy Corp. (CHK), which said Nov. 4 it’s seeking a joint-venture partner for its 1.4 million Mississippian acres, may benefit from rising interest in the area, Michael Hall, a Denver-based analyst for Robert W. Baird & Co., wrote in a note to clients today.

To contact the reporter on this story: Jim Polson in New York at

To contact the editor responsible for this story: Tina Davis at


GM Record Earnings No Balm for Obama Nursing Taxpayer Loss on Shares: Cars

By David Welch - Dec 24, 2011 4:11 AM GMT+0700

General Motors Co. (GM), saved by the Obama administration with a $50 billion bailout, is making more money than it has in its history, adding jobs and gaining market share. It’s still a headache for Barack Obama.

GM closed today at $20.50 a share, less than half the $53 price that the U.S. Treasury Department needs to break even. The shares fell on Dec. 19 to their lowest price since the Detroit- based automaker’s initial public offering in November 2010. The stock needs to rally almost 50 percent to reach $30 a share, the minimum price the Treasury Department would consider for a secondary offering, said three people familiar with the matter.

That puts Obama in a quandary. When Republicans nominate a candidate in August, the government will probably either still own a substantial portion of GM or will have sold the stock at a loss that could be more than $10 billion. Obama’s opponents can criticize him either way, said Dan Ikenson, an economist at the Cato Institute, a Washington think tank.

“The administration is in a Catch-22,” he said. “They want to hold on and get the best price, but the longer they hold onto it, they come open to the scorn that the administration still has a horse in the race and could make policy that is favorable to GM.”

Investors are holding back on buying GM while they expect that the U.S. will be selling hundreds of millions of shares that may push down the price, said Adam Jonas, a New York-based analyst at Morgan Stanley. After the government sells, the shares should rally, he said.

Pension Costs

In Europe, GM’s operations will lose money in 2011, the company said last month, after assurances earlier in the year that it would break even. Now GM management is talking about possible restructuring plans for its Ruesselsheim, Germany-based Opel unit. That makes investors nervous, said Peter Nesvold, a New York-based analyst at Jefferies and Co.

With economic struggles in Europe, GM’s exposure to its car market makes investors even more concerned, he said. Ford Motor Co. (F), also exposed to European risk, has fallen 35 percent this year through yesterday, while GM dropped 44 percent.

GM’s pension plan is underfunded. The plan was $22.2 billion short at the end of 2010. Analysts will get an update when fourth quarter earnings are announced in the next two months. Investors probably will remain wary until then, Nesvold said in a phone interview.

Next year will also be a transition year for new models. GM is preparing to introduce new pickups in 2013. That means GM will temporarily lower production of its profitable Chevrolet Silverado and GMC Sierra pickups while retooling factories for the new models. That will lower profits, Nesvold said.

Loaded Lots

While GM built up its inventory of trucks in anticipation of that switch, a Bloomberg Industries analysis says U.S. automakers may increase cash discounts to clear out vehicle stockpiles and maintain market share as Toyota Motor Corp. (7203) and Honda Motor Co. run plants overtime to make up for production lost this year to natural disasters in Japan and Thailand.

GM’s profitability this year, as measured by earnings before interest and taxes relative to revenue, lags behind Ford, Volkswagen AG (VOW) and Hyundai Motor Co. (005380), according to an analysis by Morgan Stanley Investment Banking.

Chief Executive Officer Dan Akerson is trying to hold down costs to improve those EBIT margins, including by turning down heat in offices. The automaker hired Hackett Group to identify back-office savings at headquarters and throughout North America, including salaried job cuts, two people familiar with the matter said this week.

Stock Outlook

Nesvold expects GM shares to reach $24 within 12 months. The average of 13 analysts’ estimates issued in the last two months, including Nesvold’s, is $32.04. Selling at that price would add up to a $10.5 billion loss for the government.

The Treasury Department wants a minimum of $30 a share for its 32 percent stake and would prefer to sell above the IPO price of $33 a share, according to the three people, who asked not to be identified revealing private plans. If the analysts are right, GM shares won’t reach the IPO price before the election.

Steve Rattner, who led Obama’s automotive task force that oversaw the restructuring of GM, said in an interview that Republicans will try to use the auto bailout against Obama and the Democrats. The president will have to make a case that the bailout saved the economy from a deeper recession, Rattner said.

Election ‘Centerpiece’

“The auto industry will be a centerpiece in this election in terms of what Obama did and what the Republicans say they would have done,” Rattner said. “Obama will have to say that if he hadn’t done it, things would be worse. Whether the American public will believe that, we’ll find out.”

This year, Obama and some of his staff members made stops in Michigan and Ohio to tout saving GM, Chrysler Group LLC and many of the parts makers that rely on Detroit’s car companies. In May, Ron Bloom, who at the time was Obama’s special assistant for manufacturing policy, gave a speech at a Chrysler plant outside Detroit and cited an independent study that said the bailout saved 1 million jobs.

The Treasury Department has said that losses on the auto rescue are probably inevitable.

“We’re going to lose money in the auto industry on net, but we did this for the jobs we were going to save, not to maximize return,” Treasury Secretary Timothy F. Geithner said at a Detroit Economic Club event on April 28. “We’re not a private investor. Our job was to protect the country.”

Bush First

GM has hired or called back 13,000 workers since August 2009 and plans to add 6,300 more workers over the next four years. The George W. Bush administration provided GM with cash, starting with $4 billion on Dec. 31, 2008, that kept the automaker solvent until the Obama administration could manage the 2009 bankruptcy.

“My view with regards to the bailout was that, whether it was by President Bush or by President Obama, it was the wrong way to go,” Republican candidate Mitt Romney said at a Nov. 9 debate in Rochester, Michigan. Romney has said U.S. bankruptcy laws work fine without White House involvement.

With GM solidly in the black and poised to take the global sales crown back from Toyota, the public is less focused on the automaker or its government ownership, said Douglas Holtz-Eakin, president of the American Action Forum, a conservative think tank in Washington. Republicans will still try to rekindle the issue, he said in a phone interview.

“By and large the public has moved on, but that doesn’t mean the Republicans won’t try to make it an issue,” Holtz- Eakin said. “The Republicans are actively taking surveys and doing focus groups to see how they can attack the Democrats. It’s easy to remind the public about the bailout.”

Saving Jobs

The Obama campaign, meanwhile, is planning to put Republicans on the defensive for not supporting the industry.

“While the Republican candidates would have let the American auto industry be liquidated by uniformly opposing the rescue loan, the president made the tough decision to extend the loan in order to save 1.4 million jobs and require a restructuring plan that has led American automakers to produce the cars of the future,” said Ben LaBolt, a spokesman for the campaign.

Selling GM’s 500 million shares at today’s price would mean a loss of about $17 billion. That would create a political fallout that neither GM nor Treasury wants, said Morgan Stanley’s Jonas.

“It would be difficult to stand that big of a taxpayer loss,” Jonas said in a phone interview. “If Treasury were to sell at these prices, it would be a political issue and would tarnish GM’s commercial image. If we were the financial adviser to Treasury, we’d say, ‘Don’t sell.’”

To contact the reporter on this story: David Welch in Southfield, Michigan at

To contact the editor responsible for this story: Jamie Butters at


Paulson’s Gold Fund Falls 10.5% in 2011

By Katherine Burton - Dec 24, 2011 3:18 AM GMT+0700

John Paulson, the billionaire money manager mired in the worst slump of his career, lost 10.5 percent in his Gold Fund this year even as the metal heads for its 11th straight annual gain, according to people familiar with the fund’s performance.

The fund, which invests in mining stocks and other gold- related securities, remains the best performer in Paulson’s $28 billion fund family this year. His Paulson Advantage Fund, which seeks to profit from corporate events such as takeovers and bankruptcies, has fallen about 35 percent. The performance numbers for the two funds are from Dec. 28, 2010, through Dec. 20, 2011, and may not reflect returns for all shareholders, said the people, who asked not to be identified because the information is private.

Armel Leslie, a spokesman for Paulson, declined to comment on the firm’s returns.

Paulson & Co., based in New York, has lost money this year on investments including Citigroup Inc., Bank of America Corp. and Sino-Forest Corp., the Chinese forestry company accused by short-seller Carson Block of overstating timberland holdings. Paulson, 56, cut the so-called net exposure in his main hedge funds to 30 percent last month and reduced bullish bets across all his funds.

Net exposure is calculated by subtracting the percentage of a hedge fund’s short positions, or bets on falling securities, from its longs, or wagers on rising stocks and bonds.

Gold BUGS Index

Gold has climbed 13 percent this year, holding onto gains after peaking at $1,891 an ounce on Aug. 22. The 17-company NYSE Arca Gold BUGS Index fell 11 percent as investors fled equities amid the turmoil caused by the European sovereign-debt crisis.

Paulson was the largest holder of American depositary receipts in AngloGold Ashanti Ltd., the third-biggest gold producer. Paulson also owned shares or ADRs of Gold Fields Ltd., NovaGold Resources Inc., Randgold Resources Ltd., Agnico-Eagle Mines Ltd., Iamgold Corp., Barrick Gold Corp. and International Tower Hill Mines Ltd.

To contact the reporter on this story: Katherine Burton in New York at

To contact the editor responsible for this story: Christian Baumgaertel at


Boehner Joins Reagan, JFK in Political Crow-Eating

By Julie Bykowicz - Dec 24, 2011 3:38 AM GMT+0700

U.S. House Speaker John Boehner’s acceptance of a two-month payroll tax-cut extension after he spent several days disparaging the plan is the daily special on a long menu of political crow.

Similar dishes: President Barack Obama’s debt-ceiling deal with Republicans that didn’t include the new revenue he had earlier demanded, President George H.W. Bush’s tax increase after his campaign directive to “read my lips” and California Governor Ronald Reagan cracking out of self-imposed concrete to raise taxes.

“We know that politicians make public commitments, and we know that our system demands compromise,” Sarah Binder, a political science professor at George Washington University and a senior fellow at the Brookings Institution in Washington, said in an interview today. “We shouldn’t be surprised that they find themselves having to backtrack.”

Such cave-ins typically play out over months or years -- not in just a few days, as happened with Boehner’s response to the short-term payroll tax cut passed by the Senate Dec. 17.

In fact, Boehner, an Ohio Republican, began yesterday by defending his days-long rejection of the Senate’s bipartisan deal, saying at a press conference “the best policy is a one- year extension.” He ended the day by announcing he was accepting the Senate plan, preventing a Jan. 1 increase in the tax from 4.2 to 6.2 percent for 160 million U.S. workers.

Bush, Reagan

The technical nature of the payroll tax debate -- a yearlong extension rather than a two-month one -- means it probably won’t stick in public memory the way a more clear-cut flip-flop does, Binder said.

“Read my lips: No new taxes,” Bush said while accepting the Republican presidential nomination in 1988. He raised taxes in 1990 as part of a deficit-reduction plan. The “read my lips” comment has become an emblem of a statement that led to political crow-eating, Binder said.

Reagan also notched a number of memorably colorful collapses.

Before taking the governor’s office in cash-strapped California in 1967, he insisted his “feet are set in concrete” on the issue of raising taxes. In 1971, as the Republican signed a tax increase, he said at a press conference, “The sound you hear is the concrete cracking around my feet.”

U.S. House Democrats dished up another serving of crow when Reagan was president and pushed for cuts to Social Security benefits.

‘Famous Backing Down’

Then-Speaker Tip O’Neill and fellow Democrats “just blasted the White House,” Julian E. Zelizer, a professor of history and public affairs at Princeton University in New Jersey, said in an interview today. “The administration backed away from it and never talked about it again. It was a famous backing down of a very popular president.”

About-faces cross party lines.

Lyndon B. Johnson set the stage for a flop as he was nominated as the Democratic candidate for president Aug. 26, 1964: “We are not about to send American boys nine or ten thousand miles away from home to do what Asian boys ought to be doing for themselves.”

The Vietnam war continued throughout his presidency.

Obama, a Democrat seeking re-election next year, consistently said in July he wouldn’t agree to a deal to raise the U.S. debt ceiling unless it included new revenue as well as spending cuts sought by Republicans. He then hunkered down with the Republicans and hashed out a plan without tax increases, drawing complaints from his party.

‘There Was Caving’

“There was caving this time,” Representative Eliot Engel, a New York Democrat, said as Obama signed the deal Aug. 2.

The president also backed off on imposing stricter smog limits in September, agreeing with Republicans and industry leaders that the costliest regulation should be scrapped.

“High-profile defeats are part how it works -- half of Washington usually is losing,” Zelizer said. “It’s not so much about having to reverse yourself, it’s how you handle it. Either you want the public not to be paying a lot of attention, or you want to claim this is the outcome you wanted all along.”

President George W. Bush was a “master” at adopting a loss as a win, Zelizer and Binder said. He was opposed to creating the Department of Homeland Security after the Sept. 11 terrorist attacks -- until it became clear Congress would pass it.

That was an example of “where he says, ‘Yep, that was my idea,’” Binder said. “That’s a great way to put these potential debacles behind you.”

Offsetting Blow-Back

Admitting failure after a high-profile political mistake can help offset blow-back, Zelizer said. Neither Boehner nor Obama has characterized their about-faces as such.

President John F. Kennedy’s popularity rose after he acknowledged policy errors in the failed Bay of Pigs invasion in Cuba.

“We intend to accept full responsibility for our errors,” Kennedy said in a televised press conference April 21, 1961.

An example of being prepared to accept one’s political mistakes came from the man who would become the 34th president. General Dwight Eisenhower on June 5, 1944, drafted a statement for possible release if the following day’s allied invasion of Europe became a failure.

The landings “have failed to gain a satisfactory foothold and I have withdrawn the troops,” Eisenhower wrote in the note later found by an aide. “My decision to attack at this time and place was based on the best information available. The troops, the air and the Navy did all that bravery and devotion to duty could do. If any blame or fault attaches to the attempt it is mine alone.”

To contact the reporter on this story: Julie Bykowicz in Washington at

To contact the editor responsible for this story: Mark Silva at


Stocks Rise, Erasing S&P 500’s Decline for 2011

By Whitney Kisling and Jeff Sutherland - Dec 24, 2011 4:20 AM GMT+0700

Dec. 23 (Bloomberg) -- U.S. consumer spending rose less than forecast in November as wages declined for the first time in three months. Purchases rose 0.1 percent, Commerce Department figures showed today in Washington. Incomes also grew 0.1 percent, the weakest in three months. Meanwhile, orders for U.S. durable goods rose 3.8 percent in November after no change in the prior month. Michael McKee and Lisa Murphy report on Bloomberg Television's "In the Loop." (Source: Bloomberg)

Dec. 23 (Bloomberg) -- Bloomberg's Cali Carlin reports on the performance of the U.S. equity market today. U.S. stocks rose, pushing the Standard & Poor’s 500 Index to a 0.6 percent yearly rally, as expansion in U.S. industrial purchases and stronger new-home sales offset weaker-than-forecast consumer spending. Michael McKee also speaks. (Source: Bloomberg)

U.S. stocks rose, erasing the 2011 decline for the Standard & Poor’s 500 Index, amid further signs of strength in the world’s largest economy. Treasuries declined while commodities advanced.

The S&P 500 added 0.9 percent to 1,265.33 at 4 p.m. New York time. The Dow Jones Industrial Average jumped 1 percent to 12,294, the highest level since July 27. The MSCI All-Country World Index advanced 0.8 percent, rising for a fourth straight day. Copper rallied 1.6 percent and crude oil briefly topped $100 a barrel. Yields on 30-year Treasuries climbed eight basis points and increased the most in a week since October.

Orders for U.S. durable goods jumped in November by the most in four months, data showed today, helping to offset weaker-than-forecast consumer spending. Sales of new U.S. homes rose in November to a seven-month high. The U.S. Congress passed a two-month payroll tax cut extension a day after House Republicans surrendered on whether to endorse the measure days before its scheduled Dec. 31 expiration.

“The market’s holding up,” Paul Zemsky, the New York- based head of asset allocation for ING Investment Management, said in a telephone interview. His firm oversees $550 billion. “It’s important to take it all with the totality of the week, we had fantastic data on housing and jobs earlier this week, so overall, this data is weak, but the jobless claims trumps it because it’s more forward-looking.”

Erasing 2011 Drop

A four-day rally (SPX) in the S&P 500 erased the index’s decline for the year, giving it a 0.6 percent gain for 2011. The gauge jumped 3.7 percent this week after data on employment, consumer confidence, housing starts and leading economic indicators added to expectations that the U.S. economy can weather Europe’s debt crisis.

Wall Street strategists forecast the S&P 500 will end the year at 1,278, or 1 percent higher than today’s close. With four trading days left in 2011, the benchmark index for U.S. equities would need to climb about 0.2 percent each day to reach their projection. On average, the S&P 500 gains 1 percent in the last four days of the year, according to data dating back to 1928 compiled by Bloomberg.

All 10 industries in the S&P 500 advanced at least 0.6 percent today, led by consumer-discretionary stocks, technology and raw materials companies. Verizon Communications Inc. (VZ) advanced 1.8 percent. Walt Disney Co. (DIS) and Bank of America Corp. (BAC) rose at least 2 percent, pacing gains among the largest companies. U.S. markets will be closed Dec. 26 for the Christmas holiday.

Durable Goods

U.S. stocks rose as orders for goods meant to last at least three months rose 3.8 percent in November, as an increase in demand for aircraft outweighed declines in spending on computers and equipment. A separate report showed purchases of single- family properties increased 1.6 percent to a 315,000 annual pace, adding to evidence of stability in the housing market. Consumer spending rose less than forecast in November as wages declined for the first time in three months.

Equities maintained gains after Congress extended a two- percentage-point payroll tax cut, following a month of wrangling among lawmakers. The measure will continue expanded unemployment benefits and head off a reduction in Medicare payments to doctors through February. Lawmakers plan to negotiate on a longer-term extension in the new year.

“That removes probably the biggest domestic threat to the economy in 2012,” David Kelly, who helps oversee $394 billion as chief market strategist for JPMorgan Funds in New York, said in a telephone interview. “As the year ends, some of the extremes in uncertainty are diminishing, and that should allow the market to go up.”

European Stocks

The Stoxx Europe 600 Index rose 0.9 percent, taking its weekly advance to 3.5 percent. Wavin (WAVIN) NV jumped 22 percent as Mexichem SAB, a Latin American chemical maker, raised its takeover bid for the Dutch manufacturer to 10 euros a share. The London and Dublin markets closed early today. The Tokyo exchange was shut for the Emperor’s Birthday holiday.

Yields on 30-year Treasury bonds climbed to 3.06 percent today. Ten-year yields increased eight basis points to 2.03 percent, and touched the highest level in more than a week.

The S&P GSCI index of 24 commodities advanced 0.1 percent, the fifth consecutive gain. Crude oil climbed 0.2 percent to $99.68, capping its biggest weekly gain in two months. Futures rallied 6.6 percent over the past five days.

Copper rose to the highest level in more than a week, to $3.4695 a pound, as improved economic data in the U.S. spurred optimism that demand for industrial metals will grow. Gold fell for a third straight day, dropping 0.3 percent, on speculation that a stronger dollar will curb demand for the metal as an alternative asset.

The U.S. Dollar Index rose 0.1 percent as a slower-than- expected expansion of France’s gross national product fueled concern that the European economy is stalling. The euro weakened against most of its major peers. The currency lost 0.1 percent to $1.3042.

To contact the reporters on this story: Whitney Kisling in New York at; Jeff Sutherland in New York at

To contact the editor responsible for this story: Chris Nagi at


Obama Returns $70,000 in Corzine Donations

By Hans Nichols - Dec 24, 2011 5:17 AM GMT+0700

President Barack Obama’s re-election campaign has returned campaign contributions from Jon S. Corzine, former chairman and chief executive officer of MF Global Holdings Ltd., according to a Democratic official.

Obama for America and the Democratic National Committee refunded the money from the former New Jersey governor out of an abundance of caution, said the official, who requested anonymity. Republicans have criticized the president for keeping contributions from the head of a firm that collapsed and filed for bankruptcy.

Corzine, 64, and his wife, Sharon Elghanayan, each contributed $30,800 to the Democratic National Committee and $5,000 to Obama’s campaign, the maximum amounts that individuals are allowed to give, said the official. Corzine, who testified before a congressional panel about MF Global’s bankruptcy and $1.2 billion in missing customer funds, has been one of Obama’s top fundraisers this election cycle. In April, Corzine hosted a fundraiser for Obama at his Manhattan home.

Corzine was one of 41 donors who bundled more than $500,000 this year for Obama’s re-election effort, according to documents released by the campaign Oct. 14. So-called bundlers arrange for contributions from other people and funnel the money to campaigns.

Bundled Contributions

Obama’s campaign doesn’t plan to return those bundled donations and will evaluate other contributions from MF Global employees on a case-by-case basis, according to the Democratic official.

Over the past 20 years, Corzine, along with his first and second wives, directly contributed $917,000 to Democratic committees and candidates, according to the Center for Responsive Politics in Washington, which tracks political giving.

“While he returned the money after enormous political pressure, this still doesn’t change the fact that Corzine was the architect of the failed stimulus project,” said Sean Spicer, a spokesman for the Republican National Committee. “If this was anything more than a political PR stunt, he would give back the full $500,000 that Corzine bundled from Wall Street.”

Steven Goldberg, a spokesman for Corzine, didn’t have an immediate comment.

To contact the reporter on this story: Hans Nichols in Washington at

To contact the editor responsible for this story: Mark Silva at


Fracking Opens Fissures Among States as Drillers Face Many Rules

By Jim Efstathiou Jr. and Mark Niquette - Dec 23, 2011 12:00 PM GMT+0700

Pennsylvania regulators ordered Chesapeake Energy Corp. (CHK) to install pressure gauges costing as little as $600 on 114 of its wells after natural gas contaminated drinking water last year.

Officials rejected a call from environmental groups to order safety devices for all similar natural-gas wells, a requirement in neighboring Ohio.

A boom in gas production using hydraulic fracturing, or fracking, has led to a patchwork of local drilling standards. Now, several states are revising or formulating rules, and the U.S. Environmental Protection Agency is studying the effects of fracking on drinking water and weighing nationwide regulations.

“What you’re seeing now is the federal government trying to get into the game of regulating hydraulic fracturing for the very first time,” Ken von Schaumburg, a Washington-based attorney and former EPA deputy general counsel in George W. Bush’s administration, said in an interview.

States are moving more aggressively as gas extracted from shale has expanded to a third of total U.S. production, up from 2 percent in 2001.

West Virginia Governor Earl Ray Tomblin backed a bill approved by the state legislature on Dec. 14 that he said “provides clear rules to the natural gas industry.” Colorado regulators on Dec. 13 approved requiring drillers to disclose every chemical used in fracking.

Extracting gas from shale will support 870,000 U.S. jobs and add $118 billion in economic growth in the next four years, according to a Dec. 6 report from IHS Global Insight, a forecaster based in Englewood, Colorado.

Rules Vary

Rules on using gas-pressure gauges vary, as do regulations on the types of cement used for the wells, how close to drinking-water sources companies can drill and how they dispose of the waste after injecting millions of gallons of water and chemicals underground to free the gas.

“Part of it is a matter of commitment,” Scott Anderson, senior policy adviser for the Environmental Defense Fund in Austin, Texas, said in an interview. “Some states are more diligent than others about systematically reviewing all their rules and updating them.”

The disparities led Anderson to join gas producers such as Southwestern Energy Co. (SWN) and groups including the Natural Resources Defense Council and the Sierra Club to develop voluntary state drilling standards.

The collaboration will help the industry “gain the public trust and acceptance,” Mark Boling, executive vice president for Houston-based Southwestern Energy, said in an interview.

Fracking Since 1949

Fracking has been used in states such as Texas and Oklahoma since 1949. Its use has expanded with the adoption of horizontal wells that branch off to tap into more gas.

Producers now are targeting the Marcellus Shale, a formation from New York to Tennessee that may contain enough gas to supply the U.S. for two decades, according to Terry Engelder, a professor of geosciences at Pennsylvania State University in State College.

Pennsylvania was first among northeastern states to embrace the boom. Since 2008, the state issued permits for 8,461 wells and 4,100 have been drilled, according to the website of the state Department of Environmental Protection.

Drilling in Pennsylvania has drawn complaints about drinking-water contamination and drilling wastewater disposal.

Former New York Governor David Paterson put a moratorium on drilling while regulators draft rules planned for completion next year. Ohio is expected to issue rules on well construction early next year, according to Heidi Hetzel-Evans, a department spokeswoman.

’Learned From Pennsylvania’

“What We Learned From Pennsylvania” is the headline on a New York Department of Environmental Conservation website that sets out ways the state plans to avoid its neighbor’s mistakes.

Republican Governor John Kasich said Ohio has “learned from Pennsylvania” about mistakes that led to contamination.

“Pennsylvania has just had trouble keeping up with the rate of expansion,” Hannah Wiseman, assistant professor of law at the University of Tulsa College of Law, said in an interview. “New York has chosen to be more precautionary.”

States have regulated the oil and gas industry for decades and differences are appropriate, said Aubrey K. McClendon, chairman and chief executive officer of Oklahoma City-based Chesapeake Energy, the most active U.S. oil-and-gas driller.

Geological Differences

“Are they inconsistent from state to state? Sure,” McClendon told reporters at an energy conference that Kasich convened in Columbus, Ohio, in September. “But they’re inconsistent in a good way, in the sense that they reflect the differences in local geology that we find from state to state.”

Lobbying also plays a role, said Amy Mall, a senior policy analyst for the Natural Resources Defense Council in Washington. Oil and gas companies constitute “arguably the most politically powerful industry on Earth,” Mall said.

In the past decade, natural-gas companies contributed $20.5 million to current members of Congress and spent $726 million on lobbying at the federal level, according to a Nov. 10 report by Washington-based Common Cause.

In Pennsylvania, the industry gave $2.85 million to candidates from 2001 to March 2010, and spent $4.2 million on lobbying since 2007, according to a May 11, 2010, report from Common Cause Pennsylvania.

State regulations also differ on requiring “baseline testing” before drilling to document whether water quality changes, said Wiseman, who is writing a study to be published in February comparing drilling regulations in 16 states.

New York Tests

New York has proposed testing within 1,000 feet of a well pad, compared with Ohio’s requirement of testing within 300 feet and in urban areas only, the report found. In Pennsylvania, drillers are considered liable if water contamination occurs within 1,000 feet and six months of drilling, which encourages voluntary testing, Wiseman said.

Production in the Marcellus Shale is complicated by layers of gas released while drilling through the ground toward the formation, which runs about 5,000 feet (1,524 meters) deep, according to Fred Baldassare, a former inspector with the Pennsylvania Department of Environmental Protection. In many cases, drillers opt not to produce the shallow, or stray gas, he said.

Pressure gauges, which let operators see if stray gas has seeped into a well, are a “fundamental” safety component, according to Baldassare, who owns Echelon Applied Geoscience Consulting, a Murrysville, Pennsylvania, company that works with homeowners and drillers. Stray gas can escape poorly built wells and enter drinking-water sources, he said.

Gas Complaints

When Bradford County residents complained last year of gas in their water, state regulators determined that Chesapeake wells had failed. Chesapeake agreed to pay a $900,000 fine and to install gauges in the 114 wells in the affected area, according to a settlement.

State differences in standards don’t justify a federal role in fracking rules, according to the University of Tulsa’s Wiseman.

“We do need to ensure that states are justifying these differences and perhaps reconsidering them if it appears that one state has come up with something better,” Wiseman said.

To contact the reporters on this story: Jim Efstathiou Jr. in New York at; Mark Niquette in Columbus at

To contact the editor responsible for this story: Larry Liebert at


Italy May Have to Kick Its Cash Habit as Monti Cracks Down on Tax Evaders

By Alessandra Migliaccio and Sonia Sirletti - Dec 23, 2011 7:52 PM GMT+0700

Dec. 23 (Bloomberg) -- Niall Ferguson, a history professor at Harvard University and a Bloomberg Television contributing editor, talks about his New Year's resolution suggestions for European leaders including Germany's Angela Merkel and Italy's Mario Monti, as well as U.S. President Barack Obama. Ferguson speaks with Sara Eisen on Bloomberg Television's "InsideTrack." (Source: Bloomberg)

The reform pits the government against some Italians who prefer to pay for everything from wedding receptions to home renovations with cash, allowing merchants to underreport or not declare the revenue, and gaining a discount in exchange. Photographer: Alessia Pierdomenico/Bloomberg

Floriana d’Andrea, a Naples musician, carries rolls of euro notes when she buys instruments and audio gear, a practice she’ll have to change as Italy sets new limits on cash payments in a bid to curb tax evasion.

“I bought some expensive sound equipment and the shop owner jacked up the price when I asked for a receipt,” said d’Andrea, 41, who paid 1,600 euros ($2,093) in cash in the transaction. She has a credit card, but rarely uses it, she said..

Prime Minister Mario Monti, in office just over a month, wants landlords, plumbers, electricians and small businesses to stop conducting large transactions in cash, which critics say helps them evade taxes. The government on Dec. 4 reduced the maximum allowed cash payment to 1,000 euros from 2,500 euros.

“If they force us to use credit cards, prices will go up,” said d’Andrea, noting that many retailers offer discounts to customers who pay in cash and don’t demand a receipt, in effect splitting with them the savings from evading the country’s 21 percent sales tax. She may curtail future purchases if she’s unable to use cash, d’Andrea said.

Italy loses more than 120 billion euros in unpaid taxes every year, according to the Equitalia tax collection agency. The country spends another 10 billion euros annually on security and labor for processing cash transactions, according to banking association ABI.

Debt Crisis

Monti is focusing on curtailing evasion as one way to reduce Italy’s 1.9 trillion-euro debt, which is bigger than Spain, Greece, Ireland and Portugal’s combined. Investor concern that Italy remains at risk of being overwhelmed by the region’s debt crisis pushed the country’s borrowing costs to euro-era records last month.

Italian consumer confidence fell in December to the lowest in 16 years as the crisis forced austerity measures and intensified households’ concerns about a probable recession. The sentiment index declined to 91.6, the lowest since January 1996, from a revised 96.1 in November, national statistics office Istat said in Rome today.

“Tracking cash payments won’t automatically ensure lower evasion, which often involves transactions smaller than 1,000 euros,” said Luca Mezzomo, head of economic research at Intesa Sanpaolo SpA in Milan. The new measures “could, however, be a good instrument for the tax authorities to identify people who spend more than they’ve officially earned.”

Wedding Receptions, Renovations

The reform pits the government against some Italians who prefer to pay for everything from wedding receptions to home renovations with cash, allowing merchants to underreport or not declare the revenue, and gaining a discount in exchange. Many small companies pay salaries in cash, allowing employees to report less income, the Finance Ministry said last year.

“Businesses make us accomplices, because nobody wants to pay extra on a large transaction,” said Adele Costantini, a professor of medicine in the southern region of Abruzzo, who had to argue to get a receipt from a house painter. “I want them to pay the tax, not unload it on me.”

Italians are the euro region’s least-indebted consumers and among its biggest savers, according to data from the European Union’s statistics office, Eurostat. Their frugality may be at least partly linked to a distrust of paying with anything other than cash. Italian credit-card holders use their cards on average only 26 times per year, or five times less than in the U.K., according to the Bank of Italy.

‘Culture of Cash’

“The culture of cash is strongly ingrained in Italians, even those that don’t evade,” Deputy Finance Minister Vittorio Grilli said at a Dec. 5 press conference in Rome. The government initially wanted to set a 300-euro or 500-euro cash limit but decided against it, Grilli said, reasoning that citizens needed time to adapt to new rules.

Italian banks, which charge businesses up to 2 percent for credit-card transactions, could end up being the main beneficiaries of the new rules, according to Rome-based consumer group Adusbef. “Unless banks cut fees on credit cards and current accounts, they’ll just make more money from the new law,” said Mauro Novelli, the general secretary of the organization, which represents banking and insurance customers.

Consumer advocates say the new law also discriminates against older Italians, many of whom don’t use credit cards. As many as 7.5 million Italians have never had a bank account, according to Adusbef. “The law cannot force old people to use plastic or open bank accounts,” Novelli said.

Bank Fees

The government is negotiating with the banks to get them to cut fees on credit cards and lower costs for bank accounts to encourage the move away from cash, Grilli said Dec. 5.

Banks are willing to consider zero-cost current accounts for low-income retirees and discuss credit-card costs “in light of the government’s new measures,” Giuseppe Mussari, head of Rome-based ABI, said Dec. 11. However, lenders won’t “give away” services that carry a cost for them, he said.

Italy’s tradition of saving won’t be at risk from the new measures, said Nicola Borri, an economics professor at Rome’s LUISS University. “Italians mainly use debit or credit cards with stringent limits,” he said. “Financial instruments that allow you to pile up debt are very limited in this country.”

Politicians have seized on the cash issue as a way to build support among a public reluctant to change. “There’s a real danger of crossing over into a fiscal police state,” former Prime Minister Silvio Berlusconi said at a political convention on Nov. 27 in Verona, about two weeks after the debt crisis toppled his government.

“What we need is a revolution in Italians’ thinking and that takes time,” Monti told reporters on Dec. 5. “This is meant to be a first step.”

To contact the reporters on this story: Sonia Sirletti in Milan at; Alessandra Migliaccio in Rome at

To contact the editor responsible for this story: Frank Connelly at


Fed’s Once-Secret Data Compiled by Bloomberg Released to Public

By Phil Kuntz and Bob Ivry - Dec 23, 2011 12:01 PM GMT+0700

Bloomberg News today released spreadsheets showing daily borrowing totals for 407 banks and companies that tapped Federal Reserve emergency programs during the 2007 to 2009 financial crisis. It’s the first time such data have been publicly available in this form.

To download a zip file of the spreadsheets, go to For an explanation of the files, see the one labeled “1a Fed Data Roadmap.”

The day-by-day, bank-by-bank numbers, culled from about 50,000 transactions the U.S. central bank made through seven facilities, formed the basis of a series of Bloomberg News articles this year about the largest financial bailout in history.

“Scholars can now examine the data and continue the analysis of the Fed’s crisis management,” said Allan H. Meltzer, a professor of political economy at Carnegie Mellon University in Pittsburgh and the author of three books on the history of the U.S. central bank.

The data reflect lending from the Asset-Backed Commercial Paper Money Market Mutual Fund Liquidity Facility, the Commercial Paper Funding Facility, the Primary Dealer Credit Facility, the Term Auction Facility, the Term Securities Lending Facility, the discount window and single-tranche open market operations, or ST OMO.

Bloomberg News obtained information about the discount window and ST OMO through the Freedom of Information Act. While the Fed initially rejected a request for discount-window information, Bloomberg LP, the parent company of Bloomberg News, filed a federal lawsuit to force disclosure and won in the lower courts. In March, the U.S. Supreme Court decided not to intervene in the case, and the Fed released more than 29,000 pages of transaction data.

Additional Data

The Fed later supplied additional data to fill in gaps in its initial response. Bloomberg News is updating an interactive graphic it first published in August to add the new information.

Congress required the Fed to post data to its website in December 2010 on six broad-based programs, its assistance to Bear Stearns Cos. and American International Group Inc. (AIG) and more general information on its mortgage-backed securities purchases and so-called foreign-currency liquidity swaps. Those data were presented in spreadsheets that made it difficult to gauge how much individual banks were borrowing from the various programs on any given day.

Some reported totals from media outlets and government studies varied widely. In connection with today’s release, here’s a by-the-numbers explanation of the variations:

$1.2 trillion -- The Fed’s actual lending to banks and financial companies at its single-day peak, Dec. 5, 2008, through the seven programs Bloomberg News studied in depth.

Emergency measures that targeted specific companies -- Bear Stearns, AIG, Citigroup Inc. and Bank of America Corp. -- were excluded from Bloomberg’s analysis because they were previously disclosed. Loans to these companies from the other seven programs were included.

Bloomberg excluded foreign-currency liquidity swaps because names of commercial banks that borrowed under the program haven’t been disclosed to the public.

$1.5 trillion -- The Fed’s own number to represent its peak lending. This amount included the foreign-currency liquidity swaps, according to the Fed website. Under the swap lines, the Fed lends dollars to foreign central banks, which in turn lend the money to local banks. Only the names of central banks involved in the transactions have been made public.

The Fed’s tally of peak lending differed from Bloomberg’s in other ways, too. It included the Term Asset-Backed Securities Loan Facility, or TALF, which Bloomberg excluded. That program’s borrowers were investors rather than banks. Also, the Fed didn’t include ST OMO. Bloomberg did, based on a March 7, 2008, news release in which Fed officials said they would use the program “to address heightened liquidity pressures in term funding markets.”

$7.77 trillion -- The amount the Fed pledged to rescue the financial industry, according to Bloomberg research that examined announced, implied or actual upper limits on lending and guarantees. This number, which represents potential commitments, not money out the door, was first published in March 2009, when it peaked.

“One of the keys to understanding why we’ve avoided another Great Depression, so far, is to see how bold the Fed was in 2008 and 2009,” said Niall Ferguson, a Harvard University history professor. “That boldness consisted of a range of contingency commitments that backstopped the banking system. Just because they weren’t used doesn’t mean they weren’t important.”

After Bloomberg included the $7.77 trillion figure in a Nov. 28, 2011, story, some media outlets mischaracterized it as the Fed’s actual lending. The Fed, in a Dec. 6 memo accompanying a letter Fed Chairman Ben S. Bernanke wrote to lawmakers, called those mischaracterizations “wildly inaccurate.”

$6.8 trillion -- The potential amount the Fed might have lent if “all eligible program applicants request assistance at once to the maximum permitted under the program guidelines,” according to a July 21, 2009, report by the Treasury Department’s Special Inspector General for the Troubled Asset Relief Program, or TARP.

In that report, the officials monitoring the Treasury Department’s $700 billion bailout fund attempted to determine the Fed’s “total potential support” related to the financial crisis.

Most of the difference between the TARP watchdog’s tally and Bloomberg’s involves one program, TALF. The inspector general attributed its $900 billion capacity to the Treasury, which was guaranteeing some of its lending. Bloomberg grouped TALF with the Fed, which created the program.

$16 trillion -- The “total transaction amounts” for Fed lending included in a July 21, 2011, study by the Government Accountability Office, a non-partisan investigative agency that reports to Congress. The Fed’s Dec. 6 memo said it was inaccurate to describe that amount as the total of its lending and guarantees, as some websites did.

The method the GAO used to produce that total differed from Bloomberg’s approach. Bloomberg built spreadsheets to show each borrower’s daily amounts outstanding, and then found the day on which those amounts peaked. The GAO tallied all cumulative loans to arrive at $16 trillion. Its report noted that the total didn’t reflect how loans’ terms varied under different Fed programs.

If a bank borrowed $1 billion overnight for 100 nights, Bloomberg’s analysis would show that the bank had a $1 billion balance at the Fed for 100 days; the GAO method that produced the $16 trillion total would sum up those transactions to $100 billion, even though the bank never owed more than 1 percent of that total.

$1.14 trillion -- A different total for Fed lending that the GAO included in the same July 21, 2011, report. The calculation is similar to, not the same as, Bloomberg’s method of arriving at its peak lending figure. The GAO accounted for differences in loan terms by multiplying each loan amount by the number of days the loan was outstanding and then dividing by the number of days in a year. Bloomberg’s figure represents peak lending on a single day.

$13 billion -- An estimate of the income that 190 banks could have made from investing the Fed loans they took. To arrive at the figure, Bloomberg found the banks’ tax-adjusted net interest margin -- that is, the difference between what they earn on loans and investments and what they pay in borrowing expenses. Such data was available for 190 of the 407 borrowers. That information is included in today’s release.

In those cases, Bloomberg multiplied each bank’s net interest margin by its average Fed debt during reporting periods in which they took emergency loans. In that calculation, Bloomberg excluded loans from the Asset-Backed Commercial Paper Money Market Mutual Fund Liquidity Facility because that cash was passed along to money-market funds.

Penalty Rates

In its memo, the Fed said it was incorrect to write, as Bloomberg did, that banks “reaped an estimated $13 billion of income by taking advantage of the Fed’s below-market rates.”

“Most of the Federal Reserve’s lending facilities were priced at a penalty over normal market rates so that borrowers had economic incentives to exit the facilities as market conditions normalized, and the rates that the Federal Reserve charged on its lending programs did not provide a subsidy to borrowers,” the Fed said.

An October 2008 report by Daniel Thornton, a vice president at the Federal Reserve Bank of St. Louis, said the primary credit rate, which is paid by most borrowers from the Fed’s discount window, had been “consistently lower” than the certificate of deposit and Eurodollar rates since March 2008.

‘Generally Low’

Rates that banks paid at the Term Auction Facility, a lending program created in December 2007 to augment the discount window, “have generally been low relative to rates that depository institutions would have had to pay otherwise,” Thornton said in the report.

David Skidmore, a Fed spokesman, declined to comment on whether Fed programs provided a subsidy relative to actual market rates during the crisis.

Bloomberg’s income-estimate method isn’t perfect. It assumes that the banks used their Fed loans in the same way they did their other capital, for example. Still, in the absence of precise data, the approach provides an indication of banks’ income from their Fed loans.

“The net interest margin is an effective way of getting at the benefits that these large banks received from the Fed,” said Gerald A. Hanweck, a former Fed economist who’s now a finance professor at George Mason University in Fairfax, Virginia.

To contact the reporters on this story: Phil Kuntz in New York at; Bob Ivry in New York at

To contact the editor responsible for this story: Gary Putka at