Monthly Archives: November 2013

Microsoft, Yahoo Upgrades Shows Snowden Won, Obama Failed

According to Bloomberg,

Former U.S. National Security Agency contractor Edward Snowden succeeded where President Barack Obama couldn’t — getting Microsoft Corp., Google Inc. and Yahoo! Inc. to upgrade computer security against hackers.

The companies are adopting harder-to-crack code to protect their networks and data, after years of largely rebuffing calls from the White House and privacy advocates to improve security. The new measures come after documents from Snowden revealed how U.S. spy programs gain access to the companies’ customer data — sometimes with their knowledge, sometimes without — and that’s threatening profits at home and abroad.

“These companies actively fought against numerous mechanisms that would have mandated far more secure data,” Sascha Meinrath, director of the Open Technology Institute at the New America Foundation in Washington, said in a phone interview. “Now they are paying the literal price.”

While Google, Yahoo, Microsoft and Facebook Inc. provide data to the government under court orders, they are trying to prevent the NSA from gaining unauthorized access to information flowing between computer servers by using encryption. That scrambles data using a mathematical formula that can be decoded only with a special digital key.

The NSA has tapped fiber-optic cables abroad to siphon data from Google and Yahoo, circumvented or cracked encryption, and covertly introduced weaknesses and back doors into coding, according to reports in the Washington Post, the New York Times and the U.K.’s Guardian newspaper based on Snowden documents. He is now in Russia under temporary asylum.

‘Government Snooping’

Microsoft is the latest company considering measures to ensure the protection of customer data and strengthen security “against snooping by governments,” according to Brad Smith, general counsel for the Redmond, Washington-based company.

Microsoft’s networks and services were allegedly hacked by the NSA, the Washington Post reported Nov. 26. Documents disclosed by Snowden suggest, without proving, that the NSA targeted Microsoft’s Hotmail and Windows Live Messenger services under a program called MUSCULAR, the newspaper said.

“These allegations are very disturbing,” Smith said in an e-mailed statement. “If they are true these actions amount to hacking and seizure of private data and in our view are a breach of the protection guaranteed by the Fourth Amendment to the Constitution.”

Smith didn’t provide details about what the company is considering doing.

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EU’s Highest-Paid Bankers in U.K. as Bonus Awards Exceed Cap

According to Bloomberg,

Top U.K. investment bankers were paid an average of 1.95 million euros ($2.65 million) in 2012, as bonuses continued to exceed caps set to take effect next year, according to the European Union banking regulator.

The highest-paid bankers in the U.K. had an average bonus-to-salary ratio of 370 percent, according to the European Banking Authority survey of EU finance workers who earn more than 1 million euros a year. In France, the ratio was 495 percent.

The EU brokered a deal in February to outlaw banker bonuses that are more than twice fixed pay, a move lawmakers said would prevent excessive payouts and curb irresponsible risk-taking. The U.K. government challenged the caps at the EU’s highest court in September, saying they were illegal.

“Self-regulation does not work and the report illustrates why the European Parliament took the unprecedented step of inserting a hard bonus cap in the absence of action by the industry,” Arlene McCarthy, a U.K. lawmaker in the European Parliament’s Socialist group, and lead legislator on a previous round of EU bonus rules, said in an e-mail.

Britain was home to 2,188 investment bankers earning more than 1 million euros in 2012, the highest amount in the EU, while Spain had 37, the London-based EBA, set up in 2011 to harmonize banking rules in the EU, said in the survey. France and Germany had 117 and 100.

Capping Bonuses

Workers Pass Clocks in the Canary Wharf Business District (Bloomberg)

Workers Pass Clocks in the Canary Wharf Business District (Bloomberg)

The EBA said in May that any banker paid more than 500,000 euros should be covered by the new rules capping bonuses. The watchdog also targeted the best-paid 0.3 percent of staff in a bank, and some bankers with bonuses higher than 75,000 euros.

The boost to fixed pay means “less alignment between performance and pay,” Syed Kamall, a U.K. Conservative party lawmaker who represents London in the European Parliament, said in an interview.

Senior retail bankers in Spain were better paid than their investment banking colleagues, and were the highest-earning in Europe in 2012, making an average of 2.2 million euros a year, according to the report. That’s compared to 1.7 million euros for investment bankers there.

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Do-Nothing Congress Dithers on Budget as Deadline Nears

According to Bloomberg,

Congress’s latest attempt at crafting a budget plan is on track to end up the same way as others have in the past decade: with little or no agreement.

Negotiators have little chance of breaking this string of futility, even after a 16-day government shutdown in October that cost the U.S. economy $24 billion. If they do, it’ll only be to curb automatic spending cuts, including $19 billion that hits the Pentagon starting in January.

Now budget experts, labor unions and business groups are saying enough’s enough, and questioning why lawmakers can’t live within their means the way ordinary Americans do and instead lurch from one budget standoff to the next.

“It’s a stupid way to run a country,” said Maya MacGuineas, head of the Campaign to Fix the Debt, a non-partisan advocacy group whose members include business leaders and former lawmakers. “Change comes from two possible things: a crisis or leadership.”

One of the co-chairmen of the campaign is Michael Bloomberg, founder and majority owner of Bloomberg News parent Bloomberg LP and the New York City mayor.

Unlike with previous budget panels, including the failed 2011 supercommittee, there are no immediate consequences if the budget conference misses its Dec. 13 deadline — the U.S. won’t default on its debt and the federal government won’t shut down for lack of funding.

The committee’s lack of progress is frustrating outside groups, especially business executives, who say congressional lawmakers’ habit of governing by crisis and temporary spending bills is hurting the economy and costing jobs.

‘Chilling Effect’

“The uncertainty has a chilling effect on job creators, households and anybody who’s trying to see around a corner,” said MacGuineas, who is also president of the Committee for a Responsible Federal Budget, a fiscal advocacy group.

Congress in 2009 last passed a budget resolution, the equivalent of a household budget that sets spending parameters for the federal government.

In 2010, disagreement over how to handle the scheduled expiration of tax cuts enacted under former President George W. Bush prevented agreement on a budget resolution and Republicans won the House majority, creating a divided Congress.

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Tesla Woos Car-Guy Lawmakers With Counter Dealer’s Cash

According to Bloomberg,

Tesla Motors Inc. was in trouble in North Carolina. Prohibited from opening showrooms there, it was on the way to being unable to sell cars at all when the state Senate voted unanimously to block online auto sales.

Then Tesla turned out a lobbying weapon that, in the home state of stock-car racing’s hall of fame, spoke louder than money. It parked a Model S at the capitol and invited lawmakers and Republican Governor Pat McCrory to take it for a spin.

“When you accelerate it, it was the same sort of feeling I got when I test-drove a Mustang Boss back when I was probably 23 years old,” House Speaker Thomas Tillis, 53, a Republican running for U.S. Senate, told the Raleigh News & Observer.

So ended the anti-Tesla legislation. Tillis’s chamber never voted on it.

Chief Executive Officer Elon Musk’s strategy of selling his $70,000-and-up electric car directly to customers through the Internet or company galleries has in at least seven states pitted him against franchised dealers who view Tesla’s marketing and sales models as threats to their existence.

Tesla delivered about 5,500 Model S in the third quarter, more than twice as many as it did in all of last year. It said Nov. 6 it plans to deliver “slightly under 6,000” this quarter with Musk saying demand exceeds supply. Its sales depend on access to customers, which it reaches through showrooms modeled on those of tech companies.

Washington Threat

A Tesla Motors Inc. Model S Automobile (Bloomberg)

A Tesla Motors Inc. Model S Automobile (Bloomberg)

The fight with dealers isn’t the company’s sole challenge. Tesla also faces a threat in Washington, where its Model S is under U.S. investigation following three battery fires, and three workers were injured Nov. 13 at its only assembly plant in an industrial accident.

At both the state and federal level, the Palo Alto, California-based company is running a risk Microsoft faced in the 1990s, when it found itself in the midst of a government antitrust action without an experienced advocacy team to shepherd it through the system and build allies for the future.

Musk is putting his star power against one of the best connected and most experienced U.S. lobbies, which has outspent Tesla by multitudes in state capitols and often has some of their own serving as legislators.

Dealers spent $86.8 million on state election races across the U.S. between 2003, when Musk created Tesla, and last year, according to the National Institute on Money in State Politics, a nonprofit in Helena, Montana. They’ve also pumped $53.7 million into federal campaigns, the Center for Responsive Politics found.

Tesla’s investment in state and federal politics was less than $500,000, those same sources show.

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London Gold Fix Calls: Draw Scrutiny Amid Heavy Trading

According to Bloomberg,

Every business day in London, five banks meet to set the price of gold in a ritual that dates back to 1919. Now, dealers and economists say knowledge gleaned on those calls could give some traders an unfair advantage when buying and selling the precious metal.

The U.K. Financial Conduct Authority is scrutinizing how prices are set in the $20 trillion gold market, according to a person with knowledge of the review who asked not to be identified because the matter isn’t public. The London fix, the benchmark rate used by mining companies, jewelers and central banks to buy, sell and value the metal, is published twice daily after a telephone call involving Barclays Plc (BARC), Deutsche Bank AG (DBK), Bank of Nova Scotia, HSBC Holdings Plc (HSBA) and Societe Generale SA. (GLE)

The process, during which gold is bought and sold, can take from a few minutes to more than an hour. The participants also can trade the metal and its derivatives on the spot market and exchanges during the calls. Just after the fixing begins, trading erupts in gold derivatives, according to research published in September. Four traders interviewed by Bloomberg News said that’s because dealers and their clients are using information from the talks to bet on the outcome.

“Traders involved in this price-determining process have knowledge which, even for a short time, is superior to other people’s knowledge,” said Thorsten Polleit, chief economist at Frankfurt-based precious-metals broker Degussa Goldhandel GmbH and a former economist at Barclays. “That is the great flaw of the London gold-fixing.”

Gold Capital

Barclays and HSBC Holdings Headquarters in London (Bloomberg)

Barclays and HSBC Holdings Headquarters in London (Bloomberg)

The U.K. capital is the biggest center for gold trading in the world, according to the London Bullion Market Association, which said more than $33 billion changed hands there each day in 2012, exceeding the $29 billion of futures traded on Comex, the New York commodities exchange, data compiled by Bloomberg show. Financial instruments including cash-settled swaps and options are priced off the London fix, according to the LBMA website.

In private meetings this year, the U.S. Commodity Futures Trading Commission, which regulates derivatives, discussed reviewing how gold prices are set, according to a person with knowledge of the talks. The FCA review is preliminary and not a formal investigation, another person said. The people wouldn’t say what’s being looked at or if regulators suspect wrongdoing.

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Health Law’s Birth-Control Rule Gets Supreme Court Review

According to Bloomberg,

The U.S. Supreme Court will take up a challenge to part of President Barack Obama’s health-care law by companies claiming a religious exemption to the requirement that they provide birth-control coverage for employees.

The justices said today they will hear two cases involving family-run businesses whose owners say they view some forms of contraception as immoral.

Prayer at the U.S. Supreme Court (Bloomberg)

Prayer at the U.S. Supreme Court (Bloomberg)

The dispute threatens to carve a hole in the 2010 health-care law already beset by problems on multiple fronts as its major provisions take effect. The clash will be the court’s first look at Obama’s biggest legislative accomplishment, the Patient Protection and Affordable Care Act, since a majority upheld the core of the law in 2012. The court will rule by July.

Both sides urged the justices to resolve the religious-exemption question, which the administration said was of “exceptional importance.” The issue has divided lower courts and sparked dozens of lawsuits by for-profit companies.

“Few issues are more important than the extent to which the government must recognize and accommodate the religious exercise of those it regulates,” argued one of the companies, Hobby Lobby Stores Inc., a craft-store chain whose owners say they run the company in accordance with the Bible.

The second case involves Conestoga Wood Specialties Corp., a woodworking business owned by a Mennonite family.

The court will consider whether companies can assert the same religious-freedom rights as people. A variation of that question drove an ideological wedge through the court three years ago in the Citizens United case, which centered on corporate speech. The court cleared the way for corporations and unions to spend unlimited sums on political campaigns.

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Hedge Funds See Repeat of Yen Slide That Paid Soros, Currencies

According to Bloomberg,

Hedge funds are betting on another run of yen weakness, a trade that made money earlier this year for billionaire George Soros, putting them in opposition to economists who see Japan’s currency little changed into 2014.

Futures traders pushed net shorts, or wagers the yen will fall versus the dollar, to the highest since July 2007, according to the Commodity Futures Trading Commission. That contrasts with the median estimate of more than 50 analysts surveyed by Bloomberg, which puts the currency at 102 per dollar at the end of the first quarter of 2014, from 101.47 today.

Japan has resorted to an unprecedented $70 billion of monthly bond purchases since April to depreciate its currency, boost growth and combat deflation. The yen has plunged 15 percent this year, on pace for the biggest drop since 1979.

“Everybody likes dollar-yen higher,” Brad Bechtel, the managing director at Faros Trading LLC in Stamford, Connecticut, said in a Nov. 22 interview. “And everyone has it on.”

The yen fell to as low as 101.92 per dollar yesterday, the weakest level since May, when it slid to a 4 1/2-year low of 103.74. While it gained for the first time in four days today, its decline this year makes it the worst performer after South Africa’s rand among 16 major currencies tracked by Bloomberg.

Soros Profits

Japanese Yen and U.S. Dollar (Bloomberg)

Japanese Yen and U.S. Dollar (Bloomberg)

Soros, 83, made almost $1 billion from November 2012 to February 2013 on bets the yen would tumble, according to a person close to the billionaire’s family office. Michael Vachon, a spokesman for Soros Fund Management LLC, declined to comment.

Soros’s former chief strategist, Stan Druckenmiller, who made $10 billion with Soros in 1992 from a wager that the Bank of England would be forced to devalue the pound, has also been selling the yen. Druckenmiller, the founder of Duquesne Capital Management LLC, said in a Bloomberg interview in September that his firm is “short some yen,” while being “long some Japanese” stocks.

Fortress Macro Fund, which is run by Michael Novogratz and Adam Levinson, made money trading the yen last year when the currency fell 13 percent. Fortress Macro Funds oversee $3.8 billion. Spokesman Gordon Runte couldn’t be reached for comment.

Signs that the Federal Reserve may reduce its $85 billion a month of bond purchases, which pump money into the economy and debase the dollar, are also driving the yen’s plunge versus the U.S. currency. Minutes of the U.S. central bank’s Oct. 29-30 policy meeting showed that Fed officials expected to reduce their stimulus program “in coming months” as the economy improves.

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