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Goldman Sachs bans US clients from investing in Facebook

Source: The Telegraph
Monday 17 January 2011
Goldman Sachs has banned US investors from buying shares in Facebook as it prepares to sell a stake in the social network website, blaming the level of media attention the deal had generated. 
6:59PM GMT 
In a brief statement on Monday, the US investment bank said its decision had been taken in light of the "intense media coverage". However, the sale, which is valued at up to $1.5bn (£945m), would see the shares still being offered to clients outside of the US.
"Goldman Sachs concluded that the level of media attention might not be consistent with the proper completion of a US private placement under US law," the bank said in a statement. "The decision not to proceed in the US was based on the sole judgement of Goldman Sachs and was not required or requested by any other party. We regret the consequences of this decision, but Goldman Sachs believes this is the most prudent path to take."
Many potential investors were already expecting to receive far fewer Facebook shares than they wanted because of the level of demand.
The bank began informing clients of its decision on Sunday evening, according to the Wall Street Journal, which said customers of the bank in Asia had been told first about the decision, followed by Europe and the US.
Earlier this month Goldman Sachs and Facebook announced the bank had bought a $450m stake in the business and had set up a special purpose vehicle to allow its clients to buy a further $1.5bn of the company's shares.
The deal got the attention of the US Securities and Exchange Commission, which said it would be examining the amount of disclosure required from private companies in light of the investment.
Goldman's decision to bar US customer orders in Facebook comes less than a week after the bank released a 67-page "Business Standards" report, which opened with the words "our clients' interests always come first".
The bank's reputation took a battering last year in the wake of the scandal surrounding its sale of complex credit products to clients that ended up losing several hundreds million dollars.
Under its 14 new "business principles" the bank pledged to do more to ensure that its clients were "at the heart of the firm's decision-making, thinking and committee governance, both formally and informally".
As part of these moves, Goldman Sachs said it had formed a new business standards committee to oversee proper decisions were made regarding the treatment of its clients, as well making sure that it was clearer with its customers in future over what the bank's specific responsibilities were in any deal.

Avoiding a housing bubble: The canadian example

Source: Business Week
Canada Tightens Mortgage Rules to Curb Household Debt
January 17, 2011, 9:45 AM EST
By Theophilos Argitis

(Adds Flaherty comments in second and third paragraph, analyst comment in ninth paragraph.)

Jan. 17 (Bloomberg) -- Canadian Finance Minister Jim Flaherty announced steps to tighten record household borrowing amid concern rising debt levels could threaten the economic recovery.

Canada will shorten the maximum amortization period for government-insured mortgages to 30 years from 35 years, and lower the maximum amount homeowners can borrow against the value of their homes to 85 percent from 90 percent. Flaherty said the changes, which will take effect March 18, are primarily preventative and will have a “modest” impact on the housing market.

“This government understands the importance of not taking on more than you can afford and the dangers of ongoing debt,” Flaherty, 61, told reporters today in Ottawa. “A stable and sustainable housing market keeps our economy strong.”

The government will also withdraw its insurance on home- equity lines of credit starting on April 18, Flaherty said in a statement.

Policy makers, including Flaherty and Bank of Canada Governor Mark Carney, have been urging households in recent months to be wary of taking on too much debt after data showed the indebtedness of Canadians surpassed U.S. levels for the first time in 12 years.

“The actions announced today by Minister Flaherty are prudent, measured, responsible and timely,” Frank Techar, president of personal and commercial banking at Bank of Montreal, said today in a statement.

Rate Increases

Household debt was a record 148 percent of disposable income in the third quarter last year according to Statistics Canada data, exceeding the U.S. level of 147 percent.

Regulatory steps to stem borrowing may allow Carney to slow the pace of interest-rate increases this year. Carney has kept his key interest rate at 1 percent since September, and said in a Dec. 13 speech that further moves would be “carefully considered” as he gauges the strength of the global recovery. The Bank of Canada’s next rate announcement is tomorrow at 9 a.m. New York time.

“There had been some talk of the Bank of Canada raising rates earlier in order to slow the growth rate of household debt, but we think that today’s announcement will help to quash that idea,” David Tulk, senior rates and foreign exchange strategist at TD Securities in Toronto, said in a note to investors.

Extra Volatility

The changes may prompt some households to bring forward purchase of homes before the measures come into effect, adding an “an extra amount” of volatility to a slowing housing market, according to Tulk, while the move to withdraw backing for home equity credit lines could contribute to slowing growth in consumer credit.

Canada has relied on regulatory steps to rein in mortgage borrowing, primarily through changes for government-backed mortgages. In February, Flaherty tightened rules that forced buyers to meet standards for five-year, fixed-rate mortgages even if they opt for variable rates.

It’s the second time Flaherty has shortened amortization rules, reducing the limit in 2008 to 35 years, from 40 years. Canadians are required to insure their mortgages if they make a down payment of less than 20 percent of the value of the home.

--With assistance from Sean B. Pasternak in Toronto. Editors: Paul Badertscher, David Scanlan

ICBC's new strategy in Europe

Source: Wall Street Journal
ICBC to Double Europe Presence
By DINNY MCMAHON

BEIJING—Industrial & Commercial Bank of China Ltd. plans to open five branches in Europe over the next two weeks, more than doubling the European presence of China's biggest lender in its latest move to establish a global footprint.

ICBC will open branches in Paris, Brussels, Amsterdam and Milan this week, and Madrid the week after, a spokesman for the bank said in response to questions from The Wall Street Journal.

The bank already has a presence in London, Moscow, Luxembourg and Frankfurt. The spokesman said the new branches will offer retail and commercial-banking services.

In the wake of the global financial crisis, Chinese firms have rapidly expanded internationally, presenting a huge opportunity for the country's banks to grow their overseas operations. But China's banks so far have been slow to follow their traditional clients abroad, constrained by inexperience in international markets, restrictions imposed by overseas regulators, and a conservative domestic regulatory regime wary of the banks moving too fast.

Still, the banks' expansion is starting to pick up pace, with ICBC entering Vietnam, Malaysia, Thailand and Canada last year.

ICBC has been more active than other Chinese banks in expanding abroad, focusing for the most part on building a presence in Asia. In recent years, it has taken over small retail banks in Indonesia and Thailand, rebranding both with ICBC's name. That has given it a network of fewer than 20 branches in each country, adding to the small network it set up on its own in about 10 other countries across Asia and the Middle East. In addition, it took over Bank of East Asia Ltd.'s collection of about six branches in Canada last year.

As a result, ICBC had almost 200 branches in 28 countries and regions, including Hong Kong and Macau, at the end of last year that generated profit of about $1 billion, according to a statement from the bank at the time. ICBC had more than 16,000 outlets in mainland China at the end of June.

In Europe, however, ICBC has lagged behind smaller Chinese rival Bank of China Ltd., which has traditionally been regarded as the most international of China's banks. Bank of China has branches in 11 cities around Europe, including Moscow. Both are far behind major global banks: Citigroup Inc., for example, has thousands of bank branches outside of the U.S. under its own brand and those of local subsidiaries.

China's banks haven't always found it easy to move into new markets, coming up against reluctance from local regulators to let them in. ICBC was only cleared to open a branch in New York in 2008, after the issue had become a sore point for Beijing. U.S. regulators had been reluctant to allow Chinese institutions to open branches in the U.S. because of concerns over whether Chinese regulators were equipped to properly supervise their banks and enforce anti-money-laundering standards.


—Kersten Zhang and Victoria Ruan contributed to this article.

Swiss find signs of illegal US surveillance

Sun Jan 16, 8:37 am ET

GENEVA (AFP) – Bern has found signs that the US embassy in Geneva has been conducting illegal surveillance on Swiss territory, the justice ministry told AFP Sunday, confirming local press reports.

The Swiss government had in 2007 rejected requests made by the US missions in Bern and Geneva to protect their buildings through a surveillance programme "due to a lack of legal basis and bilateral accords on this domain," the ministry said in a statement.

However, it emerged late last year that US embassies in Norway and Denmark had been conducting similar programmes.

Following the disclosures in Scandinavia, "Swiss authorities have found, during last autumn, indications showing that such a programme is ongoing at the US mission in Geneva."

Swiss authorities have sought the immediate suspension of the programme and are "now proceeding with an in-depth examination of the situation in Geneva," added the ministry.

Since news broke in Scandinavia of the programme, Washington has acknowledged conducting surveillance through its embassies, but has insisted it is aimed solely at protecting its missions against attack and is carried out within the laws of the host countries.

Economic outlook for 2011: bear or bull ?

Source: Wall Street Journal
Productivity May Slow in 2011
By CHRISTOPHER EMSDEN

Global economic productivity rallied strongly last year thanks to a notable economic recovery, but it is likely to flag in 2011 in advanced economies as employment catches up, the Conference Board said late Sunday.

Euro-zone labor productivity may even outpace the U.S.'s this year, although that is likely to prove a temporary blip, Bart van Ark, the U.S.-based think tank's chief economist, said in an interview.

Job losses in the U.S. have been more severe and an employment recovery will drag productivity growth down a bit, while European labor programs mean fewer jobs were lost but there is also "less scope" to allocate resources to more productive sectors, he said.

Labor productivity growth in the U.S. jumped about 2.8% last year but should slow to around 1.1% in 2011, according to the Conference Board's estimates. Euro-zone labor productivity should slow to 1.3% this year from 1.7% last year.

The think tank expects U.S. gross domestic product to expand 2.5% this year and 2.9% in 2010, compared with 1.6% and 1.7%, respectively, for the euro area.

The number of hours worked didn't grow in the U.S. last year but should grow 1% in 2011, while increasing only 0.4% in the euro area after a 0.1% increase last year, according to the Conference Board's estimates.

Productivity and employment growth can be an either/or outcome in the wake of a severe recession, Mr. van Ark said.

Even if productivity growth is usually seen as disinflationary—a concern for policy makers worried about deflation—"it could be welcome as an offset to the risk of commodity price inflation," he said.

At any rate, "the underlying productivity growth trend in the United States remains stronger than it is in Europe," he said.

However, the Conference Board expects labor productivity in Germany, the world's No. 1 exporter and hence a benchmark nation for competitiveness, to grow by 1.9% in 2011. Italy, Spain, Portugal and Greece are expected to perform below the euro-zone average.

"Southern Europe is squeezed in and it's hard to fight costs and innovate simultaneously," Mr. van Ark said.

Labor productivity should continue to grow strongly in major emerging economies, accelerating to 5.8% in India this year while slowing only modestly in China to 8.4% from 8.7% in 2010, the Conference Board estimates.

But China may be near the point where it experiences the gradual decline in productivity growth rates that has been playing out in advanced economies, Mr. van Ark said. Otherwise, he noted, China would have to post a "continuous acceleration" of GDP growth, which is unlikely given the double-digit average pace of the past five years.

"Productivity growth in China will have to be generated within firms," he said, noting that much of past labor productivity growth has reflected the exit of unproductive companies and their replacement by more dynamic ones.

A shift in China's focus to domestic markets would also likely mean more labor is used in the services sector, where labor productivity is typically harder to obtain than in export-based manufacturing, Mr. van Ark said.

World labor productivity growth—measured in terms of output per worker—has increased well beyond 2% annually every year since 2000, thanks largely to big emerging economies.

But the global crisis of 2008 and 2009 has "slightly flattened" that trend, raising questions about future longer-term trends, the Conference Board said.

Innovation ultimately boosts economic welfare but entails what Joseph Schumpeter called "creative destruction," including of jobs. TFP, or total factor productivity, is a key long-term metric, capturing technological and managerial efficiencies that the Conference Board believes have accounted for about a quarter of total global output growth in recent years.

The Conference Board doesn't forecast future TFP, but said TFP fell in the U.S. by 0.2% in 2009 and 0.7% in 2008. Comparative declines for Western Europe were 3.4% and 1.3%, respectively.

Downsizing and layoff - Who is taking over your job ?

Source: Business Week
January 14, 2011, 11:11PM EST
The Robot in the Next Cubicle
The new wave of robots for sale is aimed squarely at the office market
By Eric Spitznagel
Between the global economic downturn and stubborn unemployment, the last few years have not been kind to the workforce. Now a new menace looms. At just five feet tall and 86 pounds, the HRP-4 may be the office grunt of tomorrow. The humanoid robot, developed by Tokyo-based Kawada Industries and Japan's National Institute of Advanced Industrial Sciences and Technology, is programmed to deliver mail, pour coffee, and recognize its co-workers' faces. On Jan. 28, Kawada will begin selling it to research institutions and universities around the world for about $350,000. While that price may seem steep, consider that the HRP-4 doesn't goof around on Facebook, spend hours tweaking its fantasy football roster, or require a lunch break. Noriyuki Kanehira, the robotic systems manager at Kawada, believes the HRP-4 could easily take on a "secretarial role...in the near future." Sooner or later, he says, "humanoid robots can move [into] the office field."

Robotic workers aren't completely new. General Motors (GM) employed one on an assembly line in 1961, and—according to World Robotics, an annual report produced by the Frankfurt-based International Federation of Robotics—there are currently 8.6 million robots in use around the world. Many of them have been doing jobs that humans can't do in places humans can't go, such as plugging oil leaks in the Gulf of Mexico. As a result of breakthroughs in technology, however, a new breed of machines may soon be filing papers and pushing the mail cart. In a 2007 issue of Scientific American, Bill Gates predicted that the future would bring a "robot in every home." In the foreseeable future, though, it may be a robot in every cubicle—or at least every third cubicle.

Industrial and technological companies across the globe are already hard at work trying to make this a reality. The QB, a "remote presence robot" created by Anybots, based in Mountain View, Calif., is basically a videoconferencing system on wheels. The QB, which looks a little like Wall-E, is controlled remotely through a Web browser and keyboard, allowing managers to virtually visit satellite branches from the comfort of their offices. The $15,000 QB was unveiled in May, and according to Anybots' founder, Trevor Blackwell, sales are in the hundreds. "Everyone already has videoconferencing," says Blackwell. "Yet planes are still full of people traveling for business. We're trying to find a way to solve that problem."

For around the same price, Smart Robots, based in Dalton, Mass., offers a more ambitious office robot called the SR4. Models range from an $7,495 SR4 Professional to the $18,950 SR4 Office, which resembles R2-D2 with a clear glass top. Joe Bosworth, Smart Robots' chief executive officer, says the SR4 is just as smart as C-3PO's little buddy. "I would describe it as a gofer," he says. "A point-to-point robot should be able to go from any desk to any desk within a multistory office. It should be able to take mail down to the mailroom and then travel across the street to pick up a latte." Bosworth, who has been involved with Smart Robots since 2002, anticipates criticism from those claiming the SR4 is just a fancy way of replacing human employees. "Are there humanoids—sorry, humans—who do these kinds of things in larger offices? Absolutely," Bosworth concedes. "Is this intended to displace them entirely? Not really. But does it in fact save some labor in certain circumstances? Yes."

For businesses with deeper pockets, there's the PR2, a "personal robot" developed by Willow Garage, a robotics research group in Menlo Park, Calif., founded by Scott Hassan, one of the original architects of the Google (GOOG) search engine. PR2 officially hit the market last September for $400,000, and Samsung became one of its first customers. Unlike more affordable office robots, the five-foot-tall, two-armed, rolling PR2 can do remedial problem solving, open doors without instruction, and plug itself into a wall socket when its battery is running low. And as seen in Garage's video demonstrations, it can fetch a beer from the fridge and play a mean game of pool. Soon enough, people won't even need real friends.

When it comes to trepidation about robots entering the workplace, Tim Smith, a spokesperson for Willow Garage, takes a historical approach. "People always seem to fear new technology," he says. "I suspect Ben Franklin got a lot of grief when he started the post office and suddenly the government knew where everybody lived." Like them or not, Willow Garage is betting that once robots enter the workforce, companies won't ignore the technology. "When you add a mobile-manipulation robot like the PR2, things get really exciting," says Joshua Smith, an associate professor of science and engineering at the University of Washington in Seattle. "A robot makes it possible for software to move objects around and change the physical state of the building." Notes Willow Garage's Smith: "If the U.S. wants a hand in this market, now isn't the time for restrictions on robots based on silly, ungrounded fears."

Hyoun Park, an analyst at the Boston-based technology research firm Aberdeen Group, agrees that there's nothing to fear from robots but fear itself. "The current state of robotics is less suited to replacing employees in a downturn," he claims, "and more suited to the clichĂ© of doing more with less." Not everyone believes the coming nuts-and-bolts workforce is completely benign. Entrepreneur Marshall Brain—that's his real name—says robots will become widely available by 2030 and could eventually take nearly half of all jobs in the U.S. "We've been very busy creating the second intelligent species," he says.

Brain, who sold his website HowStuffWorks to the Discovery Channel for $250 million in 2007, suggests that robots are a threat to employees at all levels on the corporate totem pole. Even higher-level thinking—the very quality that many managers say separates them from their staff and from artificial intelligence—can be broken down into easily replicated formulas. "Management is one area where a dispassionate robot that's able to disperse tasks and evaluate employee performance in a perfectly rational way might do a better job than a human," he says.

The office robot is closing in on upper management-level skills with surprising speed. At Georgia Tech, research engineer Alan Wagner has been collaborating with professor Ronald Arkin on cracking the code of robot intelligence. According to Wagner, their research aims "to build robots that can not only interact with humans but are also capable of representing, reasoning, and developing relationships with others." They developed an algorithm that, they claim, allows robots, just like CEOs, "to look at a situation and determine whether [it] requires deception, providing false information, to benefit itself." Basically, they taught robots how to lie.

This potential for duplicity may be even more alarming to human employees who might one day lose their jobs to a gang of Wall-E doppelgängers. Yet Smart Robots' Bosworth insists that the rise of ever-more sophisticated robots offers a sliver of hope to minions everywhere. "Technology makes jobs, it doesn't do away with jobs," he says. Bosworth points to the invention of the television, which created a new industry in television repair. He predicts that there's a fortune to be made in preventive robot maintenance. This isn't the best news for those with bigger career ambitions than being grease monkeys for robots. Though in a market where robots may be taking all the good jobs, work is work, right?

John Maynard Keynes and Friedrich Hayek more than ever indispensable to modern economics

Source: Business Week
January 13, 2011, 5:00PM EST
Economics' Newest Thinking Comes from the Old Masters
John Maynard Keynes and Friedrich Hayek, who battled over the Depression, are getting a fresh look as the Long Slump lingers on
By Peter Coy
Economists, John Maynard Keynes wrote in 1931, should be more like dentists—"to get themselves thought of as humble, competent people." It's a goal more urgent than ever today, since economists, especially those who purport to understand the workings of the macroeconomy, have been kicked in the teeth during the past few years. Their intricate mathematical models largely failed to predict the 2008 financial crisis. Some economists have been assailed for having financial ties to the big banks that did so much to precipitate the crisis. And now they are divided about how to get out of the slump and worried that U.S. employment won't return to normal for years.

No wonder the annual meeting of the American Economic Assn. (AEA), held on Jan. 6-9 in Denver, was a scene of much soul-searching and little mirth. Keynes didn't speak to this point, but we can stipulate that dentists have more fun. The American Dental Assn.'s annual meeting is in Las Vegas; the AEA's top entertainer in Denver was "stand-up economist" Yoram Bauman, who teaches at the University of Washington and favors wisecracks about marginal utility.

As macroeconomists grope for new ideas to reinvigorate the profession, they're looking past the one-liners and harking back to the old masters. In Denver, Stanford University economist Robert E. Hall, concluding his one-year term as president of the AEA, introduced an economic model that leans heavily on Keynes' Depression-era insights about the ineffectiveness of central banks when interest rates hit zero. (The federal funds rate target has been stuck at 0 percent to 0.25 percent for two years.) Meanwhile, the liberal billionaire investor George Soros hosted a talk last year on the economic theories of Keynes' archrival, Friedrich Hayek (1899-1992), a hero of the Tea Party movement. The profession is in such tumult that some thinkers are being to drawn to their ideological opposites.

The ferment calls to mind Thomas Kuhn's 1962 book The Structure of Scientific Revolutions, which posits that when one scientific paradigm breaks down and another hasn't yet taken its place, all hell breaks loose. In Denver, it was clear that the decades-long project to weave different strands of macroeconomic thought into a "neoclassical synthesis" had run into an intellectual cul-de-sac. But it was far from clear what new approach might emerge to replace it.

Economists can't even agree on whether they disagree. Hall, who also chairs the committee that dates the beginnings and ends of recessions, insists that disputes within the profession are a media concoction. "Modern macro doesn't have schools [of thought] anymore," he said at another session. "Only the press thinks it's interesting to talk about schools." Yet doors away, other economists were enthusiastically poking holes in the so-called consensus from the perspective of Minskyites, Austrians, Institutionalists, and on and on. John Quiggin of Australia's University of Queensland argued that the economic ideas most discredited by the crisis were those of the "sensible center of the profession"—such as Federal Reserve Chairman Ben Bernanke's mistaken assertion before becoming chairman that the U.S. economy had achieved an enduring "Great Moderation."

Bottom line: No consensus. But no dentist-like humility, either. "If you ask 1,000 economists what's wrong with economics," says Scott Sumner of Bentley University in Massachusetts, "they'll all tell you the same thing—which is that other economists don't believe what they believe." Benjamin M. Friedman, a Harvard University economist, said that many economists seem to be returning to theories that have been discredited. Says Friedman: "A large amount of the old complacency has crept back."

The renewed investigations into the thinking of Keynes and Hayek may seem to signal that the profession hasn't advanced much in the past five decades. Yet it is heartening in a way, since it shows that at least some of today's economists are willing to reassess their theories in light of new data. Stanford's Hall, for instance, is a senior fellow of the free-market Hoover Institution, which is hardly a hotbed of belief in Keynes' bedrock notion of expanding government to solve economic problems. Still, Hall thinks Keynes was right that more government spending on infrastructure would boost economic growth. His objection is tactical, not theoretical. For whatever reason, Hall says, "government is incapable of executing a rapid and large increase in purchases."

Equally surprising is that Soros, the bane of the Tea Party, has taken an interest in Hayek, the author of the libertarian manifesto The Road to Serfdom. Last year the Institute for New Economic Thinking, which Soros launched in 2009 with a 10-year, $50 million pledge, invited one of the world's leading Hayek scholars, Bruce Caldwell of Duke University, to speak at its inaugural conference at King's College, Cambridge. (Caldwell is the editor of the new, definitive edition of The Road to Serfdom.)

Soros clearly doesn't share Hayek's politics, though both opposed communism. Still, in a video on the INET website, Soros praises Hayek for understanding that economics, unlike the hard sciences, cannot make strong predictions because its subjects (people) are so elusive. "Somehow, in the last 25 or more years, this has been forgotten, and I think it's time to remember it," Soros says.

The wisdom that's been lost since Hayek and Keynes engaged in friendly battle is that uncertainty is both unavoidable and potent. Errors in forecasting that lead to mismatches of savings and investment are crucial to both men's theories of booms and busts, albeit in different ways. The modern macro "synthesis"—now under repair—tended to give uncertainty only a bit part. Economist L. Randall Wray of the University of Missouri at Kansas City argues that "most of mainstream macroeconomics is dead. It's a zombie. They don't know they're dead yet, but they're dead."

To be fair, Wray's is an extreme view. There are a lot of smart economists who understand the field's problems and are working to fix them. Harvard's Friedman, despite his criticisms, says that in the past two years more economists have incorporated "credit-market frictions" into their models—in other words, they have finally acknowledged that not all consumers and businesses can borrow at reasonable rates at all times. Numerous sessions at the Denver conference were devoted to understanding the instability of the financial system. Harald Uhlig, chairman of the University of Chicago's economics department, who attended one of Soros' INET conferences, says groundbreaking work on financial failures and their consequences is being done by the likes of Xavier Gabaix of New York University's Stern School of Business, Roger E.A. Farmer of the University of California at Los Angeles, and Nobuhiro Kiyotaki of Princeton University.

The gloomiest forecast about economics is that the profession's progress will occur only funeral by funeral, as people entrenched in outdated thinking pass from the scene. But it doesn't have to be that way. For one thing, it's not just young people who are looking at things afresh—Hall, the outgoing AEA president, is 67. The newfound interest in the likes of Keynes and Hayek makes sense, too—their ideas were shaped by the Great Depression, which is the last time things were worse than they are now (for the U.S., anyway). That's why the newest thinking in economics is decades old.

Coy is Bloomberg Businessweek's Economics editor.