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Bankers and Traders in Vast Insider Trading Probe
Federal authorities, capping a three-year investigation, are preparing insider-trading charges that could ensnare consultants, investment bankers, hedge-fund and mutual-fund traders, and analysts across the nation, according to people familiar with the matter.
The criminal and civil probes, which authorities say could eclipse the impact on the financial industry of any previous such investigation, are examining whether multiple insider-trading rings reaped illegal profits totaling tens of millions of dollars, the people say. Some charges could be brought before year-end, they say.
The investigations, if they bear fruit, have the potential to expose a culture of pervasive insider trading in U.S. financial markets, including new ways non-public information is passed to traders through experts tied to specific industries or companies, federal authorities say.
One focus of the criminal investigation is examining whether nonpublic information was passed along by independent analysts and consultants who work for companies that provide “expert network” services to hedge funds and mutual funds. These companies set up meetings and calls with current and former managers from hundreds of companies for traders seeking an investing edge.
On the Inside
The New Age of Insider Information on Wall Street.
More from the series:
- THE MOLE: Wired on Wall Street: Trader Betrays a Friend
Jan. 16, 2010 - SWAP TALK: Trader’s ‘Nice Little Kiss’ Tests Reach of Regulators
Mar. 31, 2010 - THE PITS: Wild Trading in Metals Puts Fund Manager in Cross Hairs
Aug. 20, 2010 - DEBT CLASH: Bankruptcy Court Is Latest Battleground for Traders
Sept. 7, 2010 - CAPITOL GAINS: Congress Staffers Gain From Trading in Stocks
Oct. 11, 2010
Among the expert networks whose consultants are being examined, the people say, is Primary Global Research LLC, a Mountain View, Calif., firm that connects experts with investors seeking information in the technology, health-care and other industries.
“I have no comment on that,” said Phani Kumar Saripella, Primary Global’s chief operating officer.
Primary’s chief executive and chief operating officers previously worked at Intel Corp., according to its website.
In another aspect of the probes, prosecutors and regulators are examining whether Goldman Sachs Group Inc. bankers leaked information about transactions, including health-care mergers, in ways that benefited certain investors, the people say. Goldman declined to comment.
Independent analysts and research boutiques also are being examined. John Kinnucan, a principal at Broadband Research LLC in Portland, Ore., sent an email on Oct. 26 to roughly 20 hedge-fund and mutual-fund clients telling of a visit by the Federal Bureau of Investigation.
“Today two fresh faced eager beavers from the FBI showed up unannounced (obviously) on my doorstep thoroughly convinced that my clients have been trading on copious inside information,” the email said. “(They obviously have been recording my cell phone conversations for quite some time, with what motivation I have no idea.) We obviously beg to differ, so have therefore declined the young gentleman’s gracious offer to wear a wire and therefore ensnare you in their devious web.”
The email, which Mr. Kinnucan confirms writing, was addressed to traders at, among others: hedge-fund firms SAC Capital Advisors LP and Citadel Asset Management, and mutual-fund firms Janus Capital Group, Wellington Management Co. and MFS Investment Management.
SAC, Wellington and MFS declined to comment; Janus and Citadel didn’t immediately comment. It isn’t known whether clients are under investigation for their business with Mr. Kinnucan.
The investigations have been conducted by federal prosecutors in New York, the FBI and the Securities and Exchange Commission. Representatives of the Manhattan U.S. Attorney’s office, the FBI and the SEC declined to comment.
Another aspect of the probe is an examination of whether traders at a number of hedge funds and trading firms, including First New York Securities LLC, improperly gained nonpublic information about pending health-care, technology and other merger deals, according to the people familiar with the matter.
Some traders at First New York, a 250-person trading firm, profited by anticipating health-care and other mergers unveiled in 2009, people familiar with the firm say.
A First New York spokesman said: “We are one of more than three dozen firms that have been asked by regulators to provide general information in a widespread inquiry; we have cooperated fully.” He added: “We stand behind our traders and our systems and policies in place that ensure full regulatory compliance.”
Key parts of the probes are at a late stage. A federal grand jury in New York has heard evidence, say people familiar with the matter. But as with all investigations that aren’t completed, it is unclear what specific charges, if any, might be brought.
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The action is an outgrowth of a focus on insider trading by Preet Bharara, the Manhattan U.S. Attorney. In an October speech, Mr. Bharara said the area is a “top criminal priority” for his office, adding: “Illegal insider trading is rampant and may even be on the rise.” Mr. Bharara declined to comment.
Expert-network firms hire current or former company employees, as well as doctors and other specialists, to be consultants to funds making investment decisions. More than a third of institutional investment-management firms use expert networks, according to a late 2009 survey by Integrity Research Associates in New York.
The consultants typically earn several hundred dollars an hour for their services, which can include meetings or phone calls with traders to discuss developments in their company or industry. The expert-network companies say internal policies bar their consultants from disclosing confidential information.
Generally, inside traders profit by buying stocks of acquisition targets before deals are announced and selling after the targets’ shares rise in value.
The SEC has been investigating potential leaks on takeover deals going back to at least 2007 amid an explosion of deals leading up to the financial crisis. The SEC sent subpoenas last autumn to more than 30 hedge funds and other investors.
“Today two fresh faced eager beavers from the FBI showed up unannounced (obviously) on my doorstep thoroughly convinced that my clients have been trading on copious inside information…. We obviously beg to differ, so have therefore declined the young gentleman’s gracious offer to wear a wire and therefore ensnare you in their devious web.” John Kinnucan, of Broadband Research, in an Oct. 26 email to clients
Some subpoenas were related to trading in Schering-Plough Corp. stock before its takeover by Merck & Co. in 2009, say people familiar with the matter. Schering-Plough stock rose 8% the trading day before the deal plan was announced and 14% the day of the announcement.
Merck said it “has a long-standing practice of fully cooperating with any regulatory inquiries and has explicit policies prohibiting the sharing of confidential information about the company and its potential partners.”
Transactions being focused on include MedImmune Inc.’s takeover by AstraZeneca PLC in 2007, the people say. MedImmune shares jumped 18% on April 23, 2007, the day the deal was announced. A spokesman for AstraZeneca and its MedImmune unit declined to comment.
Investigators are also examining the role of Goldman bankers in trading in shares of Advanced Medical Optics Inc., which was taken over by Abbott Laboratories in 2009, according to the people familiar with the matter. Advanced Medical Optics’s shares jumped 143% on Jan. 12, 2009, the day the deal was announced. Goldman advised MedImmune and Advanced Medical Optics on the deals.
A spokesman for AstraZeneca and its MedImmune unit declined to comment.
In subpoenas, the SEC has sought information about communications—related to Schering-Plough and other deals—with Ziff Brothers, Jana Partners LLC, TPG-Axon Capital Management, Prudential Financial Inc.’s Jennison Associates asset-management unit, UBS AG’s UBS Financial Services Inc. unit, and Deutsche Bank AG, according to subpoenas and the people familiar with the matter.
Representatives of Ziff Brothers, Jana, TPG-Axon, Jennison, UBS and Deutsche Bank declined to comment.
Among hedge-fund managers whose trading in takeovers is a focus of the criminal probe is Todd Deutsch, a top Wall Street trader who left Galleon Group in 2008 to go out on his own, the people close to the situation say. A spokesman for Mr. Deutsch, who has specialized in health-care and technology stocks, declined to comment.
Prosecutors also are investigating whether some hedge-fund traders received inside information about Advanced Micro Devices Inc., which figured prominently in the government’s insider-trading case last year against Galleon Group hedge fund founder Raj Rajaratnam and 22 other defendants.
Fourteen defendants have pleaded guilty in the Galleon case; Mr. Rajaratnam has pleaded not guilty and is expected to go to trial in early 2011.
Among those whose AMD transactions have been scrutinized is hedge-fund manager Richard Grodin. Mr. Grodin, who received a subpoena last autumn, didn’t return calls. An AMD spokesman declined to comment.
Write to Susan Pulliam at susan.pulliam@wsj.com, Michael Rothfeld at michael.rothfeld@wsj.com, Jenny Strasburg at jenny.strasburg@wsj.com and Gregory Zuckerman at gregory.zuckerman@wsj.com
POOR, HELPLESS BERNANKE
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| By Judith A. Klinghoffer (bio) |
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The battle over the Fed QE2 (quantitative easing) is raging. Sarah Palin is not the only one who asked Ben Bernanke to cease and desist his latest bout of money printing.
Ben Bernanke embarked on QE2 to devalue the dollar to help American exports, to long term interest rates to help the housing market and to increase inflation to buoy the stock market, make Americans feel richer and spend more. Alas, the global economy refuse to cooperate. Bond vigilantes are gunning for Ireland, the Euro teeters and the dollar rises. Stocks retreat on Asian inflation, Euro debt fears. And long term interest rates are rising instead of declining. Poor Bernanke, the American economy is tied to the global economy and the world economy refuses to march to the beat of his drum. May I just add that it is absurd not to include food and fuel in the inflation rate. It does not feel like zero inflation to me. Not when I have to pay 90 cents for a bagel.
For more, see my HNN blog Deja Vu
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| Posted by Judith A. Klinghoffer on November 16th, 2010 Permanent link: POOR, HELPLESS BERNANKE
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This Financial Catastrophe Can Destroy Your Future Fast – How to Avoid it
Various fruits, vegetables, nuts, and grains; some basic ingredients of a vegan diet.
We could be facing the worst economic times in recorded American history — worse than the Great Depression. Many of the signs are already all around you. All you have to do is look…
Price increases have already begun hitting America’s supermarkets and restaurants. Foods such as milk, beef, coffee, cocoa and sugar have all experienced sharp increases in cost in recent months. Meanwhile, food makers and retailers are planning to make their customers take on more of the higher costs for ingredients.
Kraft Foods, Sara Lee, and General Mills have all said they’ll raise prices on certain items. Cereal maker Kellogg recently hinted the same, while grocery chains Safeway and Kroger plan to pass supplier increases along to consumers.
According to the Wall Street Journal:
“Costs are being driven by growing demand for meat in China, India and other emerging markets. That’s driven up grain prices, which in turn boost the cost of chicken, steak, bread and pasta. Grain prices also have been nudged higher by drought in Russia, planting problems around the world and speculative trading.”
Sources:
Ireland Goes Bust, Irish Bank Run
Economics / Credit Crisis 2010 Nov 12, 2010 – 02:35 AM
By: Mike_Whitney
There was a bank run in Ireland on Wednesday. LCH Clearnet, a London based clearinghouse, surprised the markets by announcing it would increase margin requirements on Irish debt by 15 percent. That’s all it took to send investors fleeing for the exits. Yields on Irish bonds spiked sharply as banks tried to close positions or raise the capital needed to meet the new requirements. The Irish 10-year bond soared to 8.9 percent by day’s end, more than 6 percentage points higher than “risk free” German sovereign debt. The ECB will have to intervene. Ireland is on its way to default.
This is what a 21st century bank run looks like. Terms suddenly change in the repo market, where banks get their funding, and the whole system begins to teeter. It’s a structural problem in the so-called shadow banking system for which there’s no remedy. Conventional banks exchange bonds with shadow banks for short-term loans agreeing to repurchase (repo) them at a later date. But when investors get nervous about the solvency of the bank, the collateral gets a haircut which makes it more expensive to fund operations. That sends bond yields skyrocketing increasing the liklihood of default. In this case, the debt-overhang from a burst development bubble is bearing down on the Irish government threatening to bankrupt the country. Ireland is in dire straights. Here’s an excerpt from an article in this week’s Irish Times which sums it up:
“Until September, Ireland had the legal option of terminating the bank guarantee on the grounds that three of the guaranteed banks had withheld material information about their solvency, in direct breach of the 1971 Central Bank Act. The way would then have been open to pass legislation along the lines of the UK’s Bank Resolution Regime, to turn the roughly €75 billion of outstanding bank debt into shares in those banks, and so end the banking crisis at a stroke.
With the €55 billion repaid, the possibility of resolving the bank crisis by sharing costs with the bondholders is now water under the bridge. Instead of the unpleasant showdown with the European Central Bank that a bank resolution would have entailed, everyone is a winner. Or everyone who matters, at least.” (“If you thought the bank bailout was bad, wait until the mortgage defaults hit home”, Morgan Kelley, Irish Times)
So, the Irish government could have let the bankers and bondholders suffer the losses, but decided to bail them out and pass the debts along to the taxpayers instead. Sound familiar? Only, in this case, the obligations exceed the country’s ability to pay. Austerity measures alone will not fix the problem. Eventually, the debt will have to be restructured and the losses written down. Here’s another clip from Kelly’s article:
“As a taxpayer, what does a bailout bill of €70 billion mean? It means that every cent of income tax that you pay for the next two to three years will go to repay Anglo’s (bank) losses, every cent for the following two years will go on AIB, and every cent for the next year and a half on the others. In other words, the Irish State is insolvent: its liabilities far exceed any realistic means of repaying them….
Two things have delayed Ireland’s funeral. First, in anticipation of being booted out of bond markets, the Government built up a large pile of cash a few months ago, so that it can keep going until the New Year before it runs out of money. Although insolvent, Ireland is still liquid, for now.
Secondly, not wanting another Greek-style mess, the ECB has intervened to fund the Irish banks. Not only have Irish banks had to repay their maturing bonds, but they have been hemorrhaging funds in the inter-bank market, and the ECB has quietly stepped in with emergency funding to keep them going until it can make up its mind what to do.”
Ireland has enough cash to get through the middle of next year, but then what? The bad news has rekindled fears of contagion among the PIIGS. Greece is a basketcase and Portugal’s bond yields have spiked in recent weeks. Portugal’s 10-year bond hit 7.33% by Wednesday’s close. The euro plunged to $1.37 even though the Fed is trying to weaken the dollar by pumping another $600 billion into the financial system. Troubles on the periphery are escalating quickly dragging the 16-nation union into another crisis. This is from the Wall Street Journal:
“For a decade, Ireland was the EU’s superstar. A skilled work force, high productivity and low corporate taxes drew foreign investment. The Irish, once the poor of Europe, became richer than everyone but the Luxemburgers. Fatefully, they put their newfound wealth in property.
As the European Central Bank held interest rates low, Ireland saw easy credit for construction loans and mortgages. Developers turned docklands into office towers and sheep pastures into subdivisions. In 2006, builders put up 93,419 homes, three times the rate a decade earlier….
The party ended in 2008, when the property bubble popped and the global economy tipped into recession…by September, Irish banks were struggling to borrow quick cash for daily expenses. The government thought they faced a classic liquidity squeeze. Ireland—whose hands-off regulator had assigned just three examiners to two major banks—didn’t recognize the deeper problem: Banks had made too many bad loans, whose defaults would leave the lenders insolvent.” (“Ireland’s Fate Tied to Doomed Banks”, Charles Forelle and David Enrich, Wall Street Journal)
The Irish government hurriedly put together a new agency, the National Asset Management Agency (NAMA), to buy to toxic bank loans at steep discounts., but the banks books were in much worse condition than anyone realized, more than €70 billion in bad loans altogether. By absorbing the debts, the government is condemning its people to a decade of grinding poverty and a deficit that’s 32% of GDP, a record for any country in the EU.
On Thursday, at the G-20 conference in Seoul, European Commission President José Manuel Barroso, said that he was following developments in Ireland closely and that he would be ready to act if necessary. The EU has set up a €440bn bail-out fund (The European Financial Stability Fund) that can be activated in the event of an emergency, although critics say that the fund is more aspirational than a reality. The crisis in Ireland will test whether the countries that made commitments to the fund will keep-up their end of the bargain or not. If they refuse, the EU project will begin to splinter and break apart.
Ireland will surely need a bailout, although not just yet. For a while the ECB can maintain the illusion of solvency by funneling liquidity to banks via its emergency facilities. That way, bondholders in Germany and France get their pound of flesh before the ship begins to take on water. All the risk-takers and speculators will be “made whole” again before the full-force before the debts are shifted onto Irish workers. Here’s how Kelly sums it up:
“Ireland faced a painful choice between imposing a resolution on banks that were too big to save or becoming insolvent, and, for whatever reason, chose the latter. Sovereign nations get to make policy choices, and we are no longer a sovereign nation in any meaningful sense of that term.”
By Mike Whitney
Email: fergiewhitney@msn.com
Mike is a well respected freelance writer living in Washington state, interested in politics and economics from a libertarian perspective.
© 2010 Copyright Mike Whitney – All Rights Reserved Disclaimer: The above is a matter of opinion provided for general information purposes only and is not intended as investment advice. Information and analysis above are derived from sources and utilising methods believed to be reliable, but we cannot accept responsibility for any losses you may incur as a result of this analysis. Individuals should consult with their personal financial advisors.
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© 2005-2010 http://www.MarketOracle.co.uk – The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.
Brazil, The Brightest Shining Economic Star in the Western Hemisphere, Elects A Marxist
The Chief of Staff of the Presidency of Brazil, Dilma Rousseff.
Original Content at http://www.opednews.com/articles/Brazil-The-Brightest-Shin-by-Rob-Kall-101101-157.html
November 1, 2010
By Rob Kall
Dilma Rousseff, a former marxist guerilla also characterized as a communist and socialist, has won the run-off election for the presidency of Brazil, with a huge 12 point margin.
Rousseff was the hand-picked successor of Mr. da Silva and her election means more of the same for the world’s eighth biggest economy and fifth biggest country in terms of land and population.
The difference between the two leaders will come not in policy but in management style, says David Fleischer, the author of Brazil Focus, a weekly journal of politics. While da Silva, known widely as “Lula,” chose to delegate, Rousseff will be more hands on, says Mr. Fleischer.
Progressives in the US have much to learn from the progressive successes in Brazil.
Author’s Bio:
Rob Kall is executive editor, publisher and site architect of OpEdNews.com, Host of the Rob Kall Bottom Up Radio Show (WNJC 1360 AM), President of Futurehealth, Inc, inventor . He is also published regularly on the Huffingtonpost.com
With his experience as architect and founder of a technorati top 200 blog, he is also a new media / social media consultant and trainer for corporations, non-profits, entrepreneurs and authors.
Rob is a frequent Speaker on the bottom up revolution, politics, The art, science and power of story, heroes and the hero’s journey, Positive Psychology, Stress, Biofeedback and a wide range of subjects. He is a campaign consultant specializing in tapping the power of stories for issue positioning, stump speeches and debates, and optimizing tapping the power of new media. He recently retired as organizer of several conferences, including StoryCon, the Summit Meeting on the Art, Science and Application of Story and The Winter Brain Meeting on neurofeedback, biofeedback, Optimal Functioning and Positive Psychology. See more of his articles here and, older ones, here.
To learn more about me and OpEdNews.com, check out this article.
And there are Rob’s quotes, here.
To Watch me on youtube, having a lively conversation with John Conyers, Chair of the House Judiciary committee, click here Now, wouldn’t you like to see me on the political news shows, representing progressives. If so, tell your favorite shows to bring me on and refer them to this youtube video
My radio show, The Rob Kall Bottom Up Radio Show, runs 9-10 PM EST Wednesday evenings, on AM 1360, WNJC and is archived at www.opednews.com/podcasts Or listen to it streaming, live at www.wnjc1360.com
Rob also host a health/mind/body/heart/spirit radio show– the Rob Kall Futurehealth radio show. Check out podcasts from it at futurehealth.org/podcasts
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A few declarations.
-While I’m registered as a Democrat, I consider myself to be a dynamic critic of the Democratic party, just as, well, not quite as much, but almost as much as I am a critic of republicans.
-My articles express my personal opinion, not the opinion of this website.
Recent press coverage in the Wall Street Journal: Party’s Left Pushes for a Seat at the Table
Globalism Comes Home to Roost
America’s Jobs Losses are Permanent
Now that a few Democrats and the remnants of the AFL-CIO are waking up to the destructive impact of jobs offshoring on the US economy and millions of American lives, globalism’s advocates have resurrected Dartmouth economist Matthew Slaughter’s discredited finding of several years ago that jobs offshoring by US corporations increases employment and wages in the US.
At the time I exposed Slaughter’s mistakes, but economists dependent on corporate largess understood that it was more profitable to drink Slaughter’s kool-aid than to tell the truth. Recently the US Chamber of Commerce rolled out Slaughter’s false argument as a weapon against House Democrats Sandy Levin and Tim Ryan, and the Wall Street Journal had Bill Clinton’s Defense Secretary, William S. Cohen, regurgitate Slaughter’s claim on its op-ed page on October 12.
I sent a letter to the Wall Street Journal, but the editors were not interested in what a former associate editor and columnist for the paper and President Reagan’s Assistant Secretary of the Treasury for Economic Policy had to say. The facade of lies has to be maintained at all costs. There can be no questioning that globalism is good for us.
Cohen told the Journal’s readers that “the fact is that for every job outsourced to Bangalore, nearly two jobs are created in Buffalo and other American cities.” I bet Buffalo “and other American cities” would like to know where these jobs are. Maybe Slaughter, Cohen, and the Chamber of Commerce can tell them.
Last May I was in St. Louis and was struck by block after block of deserted and boarded up homes, deserted factories and office buildings, even vacant downtown storefronts.
Detroit is trying to shrink itself by 40 square miles. On October 25, 60 Minutes had a program on unemployment in Silicon Valley, where formerly high-earning professionals have been out of work for two years and today cannot even find part-time $9 an hour jobs at Target.
The claim that jobs offshoring by US corporations increases domestic employment in the US is one of the greatest hoaxes ever perpetrated. As I demonstrated in my syndicated column at the time and again in my book, How The Economy Was Lost (2010), Slaughter reached his erroneous conclusion by counting the growth in multinational jobs in the U.S. without adjusting the data to reflect the acquisition of existing firms by multinationals and for existing firms turning themselves into multinationals by establishing foreign operations for the first time. There was no new multinational employment in the U.S. Existing employment simply moved into the multinational category from a change in the status of firms to multinational.
If Slaughter (or Cohen) had consulted the Bureau of Labor Statistics nonfarm payroll jobs data, he would have been unable to locate the 5.5 million jobs that were allegedly created. In my columns I have reported for about a decade the details of new jobs creation in the U.S. as revealed by the BLS data, as has Washington economist Charles McMillion. Over the last decade, the net new jobs created in the U.S. have nothing to do with multinational corporations. The jobs consist of waitresses and bartenders, health care and social services (largely ambulatory health care), retail clerks, and while the bubble lasted, construction.
These are not the high-tech, high-paying jobs that the “New Economy” promised, and they are not jobs that can be associated with global corporations. Moreover, these domestic service jobs are themselves scarce.
But facts have nothing to do with it. Did Slaughter, Cohen, the Chamber, and the Wall Street Journal ever wonder how it was possible to have simultaneously millions of new good-paying middle class jobs and virtually the worst income inequality in the developed world with all income gains accruing to the mega-rich?
In mid-October Treasury Secretary and Goldman Sachs puppet Tim Geithner gave a speech in California in the backyard, or former backyard, of 60 Minutes’ Silicon Valley dispossessed upper middle class interviewees in which Geithner said that the solution is to “educate more engineers.”
We already have more engineers than we have jobs for them. In a recent poll a Philadelphia marketing and research firm, Twentysomething, found that 85% of recent college graduates planned to move back home with parents. Even if members of the “boomeranger generation” find jobs, the jobs don’t pay enough to support an independent existence.
The financial media is useless. Reporters repeat the lie that the unemployment rate is 9.6%. This is a specially concocted unemployment rate that does not count most of the unemployed. The government’s own more inclusive rate stands at 17%. Statistician John Williams, who counts unemployment the way it is supposed to be counted, finds the unemployment rate to be 22%.
The financial press turns bad news into good news. Recently a monthly gain of 64,000 new private sector jobs was hyped, jobs that were more than offset by the loss in government jobs. Moreover, it takes around 150,000 new jobs each month to keep pace with labor force growth. In other words, 100,000 new jobs each month would be a 50,000 jobs deficit.
The idiocy of the financial press is demonstrated by the following two headlines which appeared on October 19 on the same Bloomberg page:
“Dollar Index Appreciates as Geithner Supports Currency Strength”
“Geithner Weak Dollar Seen as U.S. Recovery Route”
To keep eyes off of the loss of jobs to offshoring, policymakers and their minions in the financial press blame US unemployment on alleged currency manipulation by China and on the financial crisis. The financial crisis itself is blamed by Republicans on low income Americans who took out mortgages that they could not afford.
In other words, the problem is China and the greedy American poor who tried to live above their means. With this being the American mindset, you can see why nothing can be done to save the economy.
No government will admit its mistakes, especially when it can blame foreigners. China is being made the scapegoat for American failure. An entire industry has grown up that points its finger at China and away from 20 years of corporate offshoring of US jobs and 9 years of expensive and pointless US wars.
“Currency manipulation” is the charge. However, the purpose of the Chinese peg to the US dollar is not currency manipulation. When the Chinese government decided to take its broken communist economy into a market economy, the government understood that it needed foreign confidence in its currency. It achieved that by pegging its currency to the dollar, signaling that China’s money was as sound as the US dollar. At that time, China, of course, could not credibly give its currency a higher dollar value.
As time has passed, the irresponsible and foolish policies of the US have eroded the dollar’s value, and as the Chinese currency is pegged to the dollar, its value has moved down with the dollar. The Chinese have not manipulated the peg in order to make their currency less valuable.
To the contrary, when I was in China in 2006, the exchange rate was a little more than 8 yuan to the dollar. Today it is 6.6 yuan to the dollar–a 17.5% revaluation of the yuan.
The US government blames the US trade deficit with China on an undervalued Chinese currency. However, the Chinese currency has risen 17.5% against the dollar since 2006, but the US trade deficit with China has not declined.
The major cause of the US trade deficit with China is “globalism” or the practice, enforced by Wall Street and Wal-Mart, of US corporations offshoring their production for US markets to China in order to improve the bottom line by lowering labor costs. Most of the tariffs that the congressional idiots want to put on “Chinese” imports would, therefore, fall on the offshored production of US corporations. When these American brand goods, such as Apple computers, are brought to US markets, they enter the US as imports. Thus, the tariffs will be applied to US corporate offshored output as well as to the exports of Chinese companies to the US.
The correct conclusion is that the US trade deficit with China is the result of “globalism” or jobs offshoring, not Chinese currency manipulation.
An important point always overlooked is that the US is dependent on China for many manufactured products including high technology products that are no longerproduced in the US. Revaluation of the Chinese currency would raise the dollar price of these products in the US. The greater the revaluation, the greater the price rise. The impact on already declining US living standards would be dramatic.
When US policymakers argue that the solution to America’s problems is a stronger Chinese currency, they are yet again putting the burden of adjustment on the out-of-work, indebted, and foreclosed American population.
Paul Craig Roberts was an editor of the Wall Street Journal and an Assistant Secretary of the U.S. Treasury. His latest book, HOW THE ECONOMY WAS LOST, has just been published by CounterPunch/AK Press. He can be reached at: PaulCraigRoberts@yahoo.com
CounterPunch Print Edition Exclusive!
CLASS WAR IN THE U.K. AND FRANCE
Susan Watkins, editor of New Left Review, reports on Britain’s Tri-partisan Electoral Monolith and how the Slash-and-Burn Tory Coalition is picking up from where New Labour left off. Larry Portis reports from France on the mass protests and the shrivelling of Sarkozy. Peter Lee gives us an rivetting piece on the awful tragedy of China’s Yellow River.
I’m Adele Stan, Investigative Reporter on the Right Wing, and I have a message for you:
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Adele M. StanFacebook ‘accidentally’ outing its gay users to advertisers
Facebook logo
By Niall Firth
Last updated at 6:32 PM on 22nd October 2010
Facebook might be inadvertently outing its gay users to advertisers, according to a new study.
Researchers have discovered that different targeted advertising is being sent to users’ accounts if they have described themselves as gay or straight.
The discovery could mean that people who wish to keep their sexuality private may be sharing it with advertisers without their knowledge.
The loophole is yet another example of a Facebook privacy breach after it emerged that millions of pieces of personal information were being shared without users’ consent after using popular apps.
Tyler Clementi, a university student killed himself after classmates allegedly used a hidden camera to film a sex session before airing it on the internet. The newly-discovered loophole means that people who want to keep their sexuality secret could be outed
A team from Microsoft and Germany’s Max Planck Institute created six fake profiles: two straight men, two straight women, a gay man and a lesbian. They wanted to see if Facebook targeted ads based on sexuality, and so the profiles were left otherwise completely the same.
The team then monitored what ads each virtual user was sent over a period of a week.
They found that the ads displayed on the gay man’s profile differed substantially from those on the straight one. Many of these adverts were not obviously adverts for services that only gay men would require, and half of them did not mention the word ‘gay’ in the text.
The researchers say that this means people who click on the adverts from their Facebook profile will not know that they were targeted for that ad because of the sexual orientation and so by clicking through on the ad are effectively ‘outing’ themselves.
This means that the advertising firms now know if they are gay even if this aspect of their profile has been hidden from public view.
The researchers write in the paper: ‘The danger with such ads, unlike the gay bar ad where the target demographic is blatantly obvious, is that the user reading the ad text would have no idea that by clicking it he would reveal to the advertiser both his sexual-preference and a unique identifier (cookie, IP address, or email address if he signs up on the advertiser’s site).’
The loophole means that any advertisers who collect data such as Facebook IDs could match a person’s sexual preference with their unique ID and their name.
A Facebook spokesman said: ‘Our advertising guidelines prohibit advertisers from using user data collected from running an ad on Facebook, including information derived from targeting criteria.
‘For example, we explicitly prohibit them from associating that targeting detail with the data collected from the user in forms they fill out, applications they make, or other interactions on their site. We also require that targeting of ads based on a user attribute be directly relevant to the offer in the advertisement.
‘We take the privacy of our users very seriously and take immediate action when violations of these policies come to our attention. We don’t provide any personally identifiable information to advertisers and we recommend that people always exercise caution when filling out forms about themselves online.
‘We have no evidence that the advertisers mentioned in this study sought to collect information about people using Facebook, but we encourage people to report any advertisements that they suspect may be doing so.’
Last week it emerged that vast amounts of data – including the names of individual members and their online ‘friends’ – were passed to internet advertising firms, with tens of millions of people thought to have been affected.
The leaks were possible even when members had deliberately set their privacy options to the maximum secrecy levels.
The practice violates Facebook’s own rules on data protection and will raise questions about the company’s ability to keep information about its members’ activities secure.
Security experts warned that the details could be used – when combined with other publicly available information – to build up a detailed picture of an individual’s interests, friendship circle and lifestyle.
Around 25 different advertising and data firms were receiving the information, an investigation by the Wall Street Journal found.
It was passed to them by firms whose ‘apps’ – games and other features – operate on Facebook and not by the social networking site itself.
Using the data allows advertisers to better target individuals with promotion for specific product.
America’s Third World Economy
Paul Craig Roberts
The Great Transformation
For a number of years I reported on the monthly nonfarm payroll jobs data. The data did not support the praises economists were singing to the “New Economy.” The “New Economy” consisted, allegedly, of financial services, innovation, and high-tech services.
This economy was taking the place of the old “dirty fingernail” economy of industry and manufacturing. Education would retrain the workforce, and we would move on to a higher level of prosperity.
Time after time I reported that there was no sign of the “New Economy” jobs, but that the old economy jobs were disappearing. The only net new jobs were in lowly paid domestic services such as waitresses and bartenders, retail clerks, health care and social assistance (mainly ambulatory health care services), and, before the bubble burst, construction.
The facts, issued monthly by the US Bureau of Labor Statistics, had no impact on the ”New Economy” propaganda. Economists continued to wax eloquently about how globalism was a boon for our future.
The millions of unemployed today are blamed on the popped real estate bubble and the subprime derivative financial crisis. However, the US economy has been losing jobs for a decade. As manufacturing, information technology, software engineering, research, development, and tradable professional services have been moved offshore, the American middle class has shriveled. The ladders of upward mobility that made American an “opportunity society” have been dismantled.
The wage and salary cost savings obtained by giving Americans’ jobs to Chinese and Indians have enriched corporate CEOs, shareholders, and Wall Street at the expense of the middle class and America’s consumer economy.
The loss of middle class jobs and incomes was covered up for years by the expansion of consumer debt to substitute for the lack of income growth. Americans refinanced their homes and spent the equity, and they maxed out their credit cards.
Consumer debt expansion has run its course, and there is no possibility of continuing to drive the economy with additions to consumer debt.
Economists and policymakers continue to ignore the fact that all employment in tradable goods and services can be moved offshore (or filled by foreigners brought in on H-1b and L-1 visas). The only replacement jobs are in nontradable domestic services, that is, those jobs that require “hands-on” activity, such as ambulatory health services, barbers, cleaning services, waitresses and bartenders–jobs that describe the labor force of a third world country. Even many of these jobs are now filed with foreigners brought in on R-1 type visas from Russia, Ukraine, Thailand, Romania, and elsewhere.
The loss of American jobs and the compression of consumer income by low wages has removed consumer demand as the driving force of the economy. This is the reason expansionary monetary and fiscal policies are having no effect.
The latest jobs report issued today shows that America’s transformation into a third world economy continues. The economy lost 95,000 jobs in September, mainly due to cuts in local education and federal employment. Part of the loss of 159,000 government jobs was offset by 64,000 new private sector jobs.
Where are the new jobs? They are in nontradable lowly paid domestic services: 32,000 were in health care and social services, and 33,900 were in food services and drinking places.
There you have it. That is America’s “New Economy.”
Paul Craig Roberts was an editor of the Wall Street Journal and an Assistant Secretary of the U.S. Treasury. His latest book, HOW THE ECONOMY WAS LOST, has just been published by CounterPunch/AK Press. He can be reached at: PaulCraigRoberts@yahoo.com
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